Which Way
Does the Oil Flow?
By Professor Nazeer
Ahmed
CA
What does Pakistan have in
common with Georgia? Or for that matter what does
Uzbekistan share with Turkey?
If you answered that they all have large Muslim
populations, you are only partially correct. These
countries as well as Chechnya, Kazakhstan, Afghanistan,
Turkmenistan and Iran are all potential transit
territories for the transportation of oil and
gas. Although religion is used and abused in the
great game of politics, it is energy, not religion
that is the primary driver of geopolitics in Central
Asia and the Middle East.
At no time in history was geography as much a
predictor of history as it is in modern times.
As the global powers scramble to stake out positions
in the emerging world order, and energy resources
become one of the principal factors in these positions,
the importance of a country in geopolitics is
as much a function of its energy resources as
it is of its location, and whether it lies on
a transit route from the point of energy production
to the point of consumption.
Following the implosion of the Soviet Union, the
world has seen a brief spell of a single superpower
dominating the globe. But the globe is turning
and the center of gravity of world power is slowly
but inexorably shifting towards Asia. This movement
is creating new opportunities and new risks in
the geopolitics of our times.
Let us take a brief survey of how we arrived at
this juncture in history. Japan emerged from the
ashes of the Second World War, and with a single
minded focus on quality built up the most efficient
industrial infrastructure in the world. In the
1970s, as the United States was exhausting itself
in Vietnam, Japan rose to dominate world export
markets. Ship building, steel, heavy machinery,
automobiles, one by one became synonymous with
Japan. This happened even as manufacturing in
the United States took a heavy beating under the
double hammer of capital flight and tightening
regulations. The dollar took a beating and for
a while it looked like the rising sun of the Japanese
emblem would be the emblem of the world economy.
That was not to be. The Achilles heel of Japanese
industry was its dependence on Middle Eastern
oil, controlled by oil giants based in Amsterdam,
London and New York. During the Reagan era, the
screw was tightened through trade negotiations
and the control of oil. Japan slowed and was contained.
The Japanese economy remained a distant second
to the mega-economy of the United States. It has
been duck-paddling for the last fifteen years
just to stay where it is.
Enter China. After Mao Tse-Tung, a series of reforms
led to the entry of China into world markets.
With an industrious population of over a billion,
willing to work for a fraction of the wages in
the more industrialized countries, and incentives
from the top, China was soon able to dominate
traditional industries such as garments, shoes
and light hardware. As the world markets opened
up under the WTO, Chinese goods elbowed out those
from other countries. Whether one bought a pair
of scissors in Singapore or a garment in Jeddah,
it had the stamp “made in China”.
China did not stop at garments and light industry.
Taking its lessons from the Japanese, it focused
on quality and inexorably extended its industrial
expertise to hardware, machinery and heavy industry.
Unlike the countries of Southeast Asia who had
kept their currencies afloat in the open market
and lost their limbs to international predators,
China kept a tight lid on its currency as well
as government subsidies under wraps. The result
has been an unprecedented growth, compounded of
eight percent plus per annum. Today, measured
in terms of purchasing power, the Chinese economy
is twice the size of that of Japan, and is almost
eighty percent the size of the US economy.
The Chinese dragon is up and running. But even
a dragon needs fuel to run. Although China has
vast coal reserves which it uses at full throttle
and it has its own oil reserves, its increasing
energy requirements have taken it to far away
corners of the earth, to Africa, Central Asia,
even Latin America. These are the same areas that
the giant American, British and Dutch oil companies
operate in. The competition is on.
Enter India, and the equation gets much more complex.
The strength of India lies in its educational
infrastructure. Starting with the Nehru era, India
has consistently and unswervingly invested in
education. Backing up the world class IITs (Indian
Institute of Technology) and IIMs (Indian Institute
of Management) is a vast network of universities
and colleges producing well over half a million
technical personnel each year. Although the quality
is low in many of the new schools, those at the
top are among the best in the world.
Using this enormous pool of trained manpower,
India has excelled in Information Technology and
knowledge-based industries. When the Indian government
relaxed its regulations over a decade ago, the
Indian economy has expanded well in excess of
seven percent, compounded annually. India-based
corporations have grown at rates that would attract
the attention of the most conservative Wall Street
investor. Measured in terms of its purchasing
power, the Indian economy today is the fourth
largest in the world at 2.3 trillion US dollars.
It trails only the economies of the United States,
China and Japan. It is a nation on the move.
The accommodation of China and India in the world
order of the future presents a challenge to planners
in the United States. The overriding strategic
goal of the American foreign policy remains the
prevention of the rise of any power, or a group
of powers, that can challenge the preeminence
of the United States on the world political stage.
This is where the energy calculus comes in. Leaving
aside the oil reserves of Venezuela and Nigeria,
there are two vast reservoirs of energy, one in
the Persian Gulf and the other around the Caspian
Sea. The great game is to control this oil and
the direction of its flow. To understand the geopolitics
of the Middle East and Central Asia, one needs
to draw on a map possible transit routes by land
and by sea originating from the Persian Gulf and
the Caspian Sea to China, India and the Mediterranean
Sea.
The United States and the United Kingdom would
want the Caspian Sea oil to flow through Georgia
and Turkey to the Mediterranean, so that it becomes
“Western oil”. Russia would like the
oil to flow through Chechnya; hence its pressure
on Georgia and its bloody war in Chechnya. If
oil has to move from Turkish ports to India and
China, it must then move through the Suez Canal
and these emerging giants will have to pay a premium.
China, on the other hand would like this oil to
move through Central Asia to Sinkiang. Another
possible route is through Iran and Pakistan to
Gwadar in Baluchistan from where it can be shipped
to China.
Similarly, Siberian oil can be piped to Northern
China through Manchuria. The Japanese would like
the pipelines to terminate at Vladivostok instead,
so that it becomes “Japanese oil”.
Although Russia remains an awesome nuclear power,
it is no longer a principal player in world economy.
Its geopolitical importance is primarily that
of a supplier of raw material. The Russian economy
is sliding and is already less than half the size
of the Indian economy.
Iran in particular is in the eye of the storm.
It sits astride both the Persian Gulf and the
Caspian Sea. The energy resources from either
of these areas can be shipped through Iran. A
potential Iran-Pakistan-India pipeline would be
a benefit to all three countries. Some have even
suggested extending this pipeline all the way
to China, making it the Iran-Pakistan-India-Myanmar-China
pipeline. Such a pipeline would have an enormous
influence on the strategic relationships between
these countries; indeed it may change the strategic
balance in the global economy.
But this is precisely against the interests of
the giant oil companies. Containment of China,
and lowering the bar on India, requires control
of energy resources and their transit. It follows
logically that those countries that are potential
transit routes for either the Gulf or the Caspian
Sea oil will come under enormous pressure from
the major powers. Included in this category are
Azerbaijan, Georgia, Chechnya, Turkey, Afghanistan,
Pakistan, Uzbekistan, Kazakhstan, and particularly
Iran. The response of the potential transit countries,
and their ability to withstand external pressures,
will determine to a large extent the world order
of the twenty first century.
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