[Mb-civic] The Axis of Oil (early cracks in American empire)

[ean at sbcglobal.net]

http://www.inthesetimes.com/site/main/article/1909/

The Axis of Oil

By Jehangir Pocha

China and India are locked in an increasingly aggressive wrangle with the
United States over the world’s most critical economic commodity: oil. 
More
than any other issue, this tussle will shape the economic, environmental
and geopolitical future of these three countries, and the world.

Ensuring a steady flow of cheap oil has always been one of the central
goals of U.S. foreign and economic policy, and Washington’s preeminent
position in the world is based in large measure on its ability to do this.
But China and India are increasingly competing with the United States to
secure oil exploration rights in Africa, Southeast Asia, Central Asia and
Latin America.

India has invested more than $3 billion in global exploration ventures and
has said it will continue to spend $1 billion a year on acquisitions.
China, which has already invested about $15 billion in foreign oil fields,
is expected to spend 10 times more over the next decade.

The motive, says Zheng Hongfei, an energy researcher at the Beijing
Institute of Technology, is that “there is just not enough oil in the
world” to cover China’s and India’s growing energy needs.

By 2010 India will have 36 times more cars than it did in 1990. China will
have 90 times more, and by 2030 it will have more cars than the United
States, according to the Energy Research Institute of Beijing.

More than 4.5 million new vehicles are expected to hit Chinese roads
this year alone, a far cry from the time when families saved for months to
buy a Flying Pigeon bicycle. The country is now the world’s largest oil
importer after the United States, guzzling about 6.5 million barrels of
oil a day; this figure will double by 2020, says Stephen Roach, chief
economist at Morgan Stanley.

India, the world’s second-fastest growing economy after China, now
consumes about 2.2 million barrels a day—about the same as South
Korea—and this is expected to rise to 5.3 million barrels a day by 2025,
according to the U.S. Energy Information Administration.

With global oil production barely 1 million barrels over the global
consumption rate of 81 million barrels a day, the surge in demand from
China and India could eventually lead global demand to outstrip supply,
causing fuel prices to shoot up beyond their recent highs of around $56 a
barrel, says Roach.

The impact of this on the global economy, particularly in developing
countries that import most of their fuel, would be severe. The
International Energy Agency says that for every $1 increase in oil
price, the global economy loses $25 billion.

Anxiety over this is already throwing the nervous oil market into
further disequilibrium. In September, Michael Rothman, a senior energy
analyst at Merrill Lynch, said rising oil prices were not so much a result
of the Iraq war or political instability in Venezuela and Sudan, but of
extensive “hoarding” by China.

According to Rothman’s analysis, China and India are roiling oil markets
by creating oil reserves, which are designed to provide the minimum cache
the country needs to ride out a crisis, along the lines of the United
States’ Strategic Petroleum Reserve (SPR).

With both countries flush with foreign exchange reserves that are
threatening to infect their economies with inflation, creating an oil
stock seems a sensible solution. But critics say Beijing’s and New Delhi’s
timing is unfortunate, coming just as the global economy seemed to be
recovering and the United States was questioning the value of its own
reserve.

At 175 million barrels and 25 million barrels respectively, China’s and
India’s estimated oil reserves are just a small fraction of the 700
million barrels held by the United States in its SPR.

China and India, which are both nuclear states, are also taking
advantage of the United States’ strained ties with Iran, Vietnam and
Myanmar by extending these countries military and political support in
exchange for energy supplies. And a Washington preoccupied with Iraq, 
the
war on terror and nuclear crises in Iran and North Korea has been unable
to checkmate either country as successfully as it did earlier.

For example, U.S. nervousness over China’s intentions in Latin America 
had
led it to use its leverage with Panama to impede China’s access to the
all-important canal connecting the Pacific and Atlantic. But in December,
Beijing signed a landmark deal with Venezuela and its neighbor Colombia,
under whose terms a pipeline would be constructed linking Venezuelan oil
fields to ports along Colombia’s Pacific coastline. This will allow
Venezuelan oil to bypass the Panama Canal and create a new and direct
route to China.

There are also signs that China is warming to the idea of a
Russia–China–India axis, which, in cooperation with Iran, would turn the
oil-rich Central Asian region into their domain. This proposal would put
in place extensive military agreements and pipeline networks. Originally
put forward by Russia’s Asia-centric ex-Prime Minister Yevgeny 
Primakov,
the proposal seems to be gaining ground with all four nations. China and
India have already signed multibillion-dollar gas and energy deals with
Russia, which is the largest arms supplier to both countries, and with
ex-Soviet Central Asian republics such as Kazakhstan.

What worries Western powers most are China’s and India’s growing ties 
with
Iran, a country Washington is trying to isolate. Both Beijing and New
Delhi have recently signed 25-year gas and oil deals with Iran that are
collectively valued at between $150 and $200 billion, and both countries
are also deepening their military cooperation with Tehran. Iran and India
conducted their first-ever joint naval exercises last September, and India
has agreed to modernize Iran’s aging Russian-built Kilo-class submarines
and MiG fighters.

Both China and India have also tried to thwart Western attempts to
curtail Iran’s nuclear program, which has largely been built with
Russian assistance. In a departure from China’s traditional neutrality on
international issues that do not involve its own interests, Chinese
Foreign Minister Li Zhaoxing flew to Tehran last November when the 
United
States threatened to haul Iran before the U.N. Security Council and
announced that China would oppose any such effort. And in January, the
State Department imposed penalties against some of China’s largest 
weapons
manufacturers for their support of Iran’s ballistic missile program.

The potential volatility from such aggressive oil politics could bring
China and India into conflict with Western, Japanese and other regional
interests, says Robert Karniol, the Asia-Pacific editor of Jane’s Defence
Weekly.

“Even if China’s oil consumption doubles by 2020, it will still only be
half that of the U.S.,’” says Zheng, the energy researcher at Beijing
Institute of Technology.

Yet the sheer size of the Asian juggernauts and the prospect that they
might indiscriminately swallow global resources scare economic planners.

State-owned Indian and Chinese oil companies are investing heavily in
local energy fields, such as the 200,000-square-mile Ordos Basin that
stretches across the provinces of Shaanxi, Shanxi, Gansu, Ningxia and
Inner Mongolia in northwestern China, and is reported to have oil reserves
of up to 60 billion barrels.

To defray the substantial costs of exploration, both China and India are
privatizing state-owned oil companies, and using the billions raised to
restructure and modernize their operations. Other public sector oil units
are also undergoing massive recapitalization and restructuring, including
the retrenchment of thousands of workers.

Sharon Hurst, a Beijing-based executive with ConocoPhillips, the largest
refiner in the United States, says, “Western investment is helping Chinese
oil companies morph into world-class players.”

Significantly, both nations are also opening up their domestic oil
industries—previously considered strategic and therefore off limits to
foreign and private investors. Companies such as ExxonMobil, which owns 
a
19 percent stake in China’s giant Sinopec company, are being wooed not
just for their capital but also for their refining and marketing
capabilities. For example, ExxonMobil is helping Sinopec establish more
than 500 gas stations across the country and build at least two refineries
in southern China.

Optimists—mostly people from the corporate world such as Warren
Buffet—say such common opportunity will lead to greater cooperation
rather than competition between the West and China and India. But
pessimists—mostly people from the security establishment—fear that
China and India, two energy-hungry giants seeking access to limited
world resources, will inevitably clash with the West.

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