Indian Defence Review

The Rules of the Game:The current century began in an intensely violent manner and there are no signs of a let up. Two and a half deadly wars are being fought in our neighbourhood and threaten to spread further and may even affect India in the years ahead.

These are the results of great power politics, ambitions and economic needs. It is therefore interesting to go through some of the statements by Western strategists and political analysts from time to time.

There is a common thread running through them – that seeks total dominance over the rest of the world.

The Playing Field

In today’s terminology, he who controls the energy belt in West Asia and the Caspian region controls the world. The Persian Gulf and the Caspian Sea region — Eurasia – remains the most vital region today for powers seeking dominance or economic growth or both.

It is necessary to recapitulate a few facts to capture the importance of the region. The US imports about 30% of its requirements from the region, 40% of the world’s energy requirements pass through the Persian Gulf, and in the years to come India will need to import 90% of its requirements.

Under the previous order of world affairs, private multinational oil companies controlled a large percentage of the resources of energy and their development.

The current trend is towards ownership of assets by national oil companies.

Oil is no longer just traded on the spot market in New York or London, but countries like China and India with their rapidly growing economies are now buying assets in the country of origin in long term bilateral or trilateral arrangements.

Iran is now selling 70% of its oil and gas in euros; it has also sold oil to China in yuan. It has constructed a brand new oil bourse on the Kish island in the Persian Gulf and is expected to trade in Euros. Europeans are buying Iranian gas and there are possibilities of a three-way agreement between the Iranians, Gazprom of Russia and the Austrians.

This is also done to replace the old system of production sharing arrangements where the investing company had the upper hand in acquiring the profits.

Main Players and their Assets

Wars in Afghanistan and Iraq were not prompted by terrorist attacks in New York and Washington, nor waged to spread democracy in West Asia or enhance security at home. Instead, they were conceived and planned in secret long before September 11, 2001 and were undertaken to control petroleum reserves.

Today there are five major oil giants:

Even though they control only 9% of the fields, companies like Exxonmobil had a turnover of 450 billion dollars in 2006.

Many have a size that is more than the GDP of 180 of the 195 members of the UN.

OPEC

Of the 12 OPEC countries 10 have leading State oil Companies. Nine of them are Muslim majority countries i.e. Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Qatar, Saudi Arabia and UAE.

Other NOCs

China National Petroleum Corporation, ONGC Petrobras and Statoil Norway control 16% of the reserves. Fastest growing are the Chinese companies like Sinopec and CNOOC operated in six countries in 1999 and today in 40.

Since the beginning of oil age, the world has consumed 950 bbl of oil, 30 % of this in the last ten years.

Petroleum consumption was 10 mbd in 1950, 50 in 1970, 76 in 2000, and will be 120 in 2025.

The Main Narrative

Oil and gas in the vast Eurasian region are mostly to be found in areas inhabited by Muslims and ruled either by monarchical or dictatorial regimes, sometimes obscurantist as well. In addition, they are politically unstable and even violent, which could easily mean interrupted and uncertain supplies. In most of these countries, including the new countries after the break up of the Soviet Union, there is American troop presence, in varying degrees. In addition US forces are in Afghanistan and Pakistan, especially in areas facing Iran. The only hold out so far is Iran but the noose is tightening and the campaign is getting more vociferous.

Planning for Iraq began in 2001. While the world may look at the mayhem and the tragedies in Iraq, in reality this has been a victory for the major oil companies.

But there have been challenges to US control and supremacy in the region. These have emanated from a resurgent Russia and a rising China, principally. It is a reaction also to what the Americans have tried to do in the Russia’s and China’s neighbourhood.

Iraq was never about WMDs, Al Qaeda or democracy. It was about oil, the best of its kind in the world, and because Saddam had tried to kill Papa Bush. Iran had spoiled the US game of containing the Soviet Union by going radically Islamic, held Americans hostage for 444 days and both Iran and Iraq had toyed with the idea of keeping their reserves in Euros. The switch to the Euro would have been devastating for the US economy and many experts compare this to a nuclear attack. There are indications that Iran has gone ahead and shifted a part of its petro-holdings into Euros. Afghanistan was a cold war outcome fought by the superpowers with their proxies and surrogates in the 80s.

Wars in Afghanistan and Iraq were not prompted by terrorist attacks in New York and Washington, nor waged to spread democracy in West Asia or enhance security at home. Instead, they were conceived and planned in secret long before September 11, 2001 and were undertaken to control petroleum reserves. US State Department official Christina Rocca told the Taliban in August 2001, during the infructuous pipeline negotiations, to “accept our offer of a carpet of gold or we bury you under a carpet of bombs.” And so it came to pass.

Also read: Threat perception of India

Planning for Iraq began in 2001. While the world may look at the mayhem and the tragedies in Iraq, in reality this has been a victory for the major oil companies. The new Iraqi law that has been introduced gives the major MNCs ‘unprecedented sweet heart deals’ that allow them to have production sharing agreements. These deals will permit some semblance of Iraqi ownership of assets but the oil companies will rake in at least 75 per cent of the profits indefinitely or until such time as they feel that they have made good their infrastructure costs and investment.

Iran had also transferred a majority of its reserves into Euros in 2002 and contemplated a Euro-based oil bourse by March 2006. Some European analysts describe the effect of this changeover as worse than a nuclear attack on the US.

Successive American Presidents have enunciated doctrines for guaranteed supplies of abundant and cheap oil from the Gulf. President Carter declared in 1980 that access to Persian Gulf oil was a vital national interest and that the US would be prepared to use military force to protect its interests. Carter’s rapid deployment joint task force grew to become the powerful Centcom, with an area of responsibility that coincided with the energy-rich West and Central Asian and Caspian Sea regions.

The Republican Right began planning for the future in the post-Cold War phase. In 1992, the neo con policy paper, Defence Planning Guidance, talked of permanent military superiority and world dominance. It also talked of the need to prevent emergence of a new rival. It was important to remain the predominant outside power in West Asia and Southwest Asia to preserve US and Western access to the region’s oil.

In September 2000, the project for the New American Century, the Washington based think tank, recommended massive power projection capability globally. Translated, this meant stepped-up pressure on ‘rogue’ states like Iraq and Iran, and taking “actions regarding the capture of new and existing oil and gas fields”.

In May 2001, President George W. Bush’s New Energy Policy recommended that ties with oil-rich countries should be bolstered and US presence expanded. The 2001 Quadrennial Defence Review spoke of the need for the US to retain ability to send forces to critical points around the globe. It identified overseas oil-producing regions as critical points. Preemptive intervention became the Bush Doctrine—clear indication that private oil interests and US strategic interests now coincided.

The dollars supremacy and its status as the worlds reserve currency were under threat.

Even as conflict and instability in the oil-producing regions remain a real problem for the foreseeable future, two other crises loom. There is the phenomenon of peak oil. Experts differ about when the supplies will dwindle but all agree that this decline is inevitable and it will become increasingly difficult to extract more oil. The bigger countries—the US, Russia and China—have responded to scarcity by securitising the energy supply dimension and strengthening military alliances in the Gulf.

The other worry for the US was the rise of the Euro. The EU bought over half of the total crude oil produced in West Asia in 2004, which could legitimately insist on paying in Euros. The dollar’s supremacy and its status as the world’s reserve currency were under threat. Oil was denominated in dollars and the strength of the US dollar had propelled the US economy to new heights and military supremacy. In effect, the US, with its more than $ 6 trillion debt in a $ 9 trillion economy, was not really paying for any oil.

Also read: What the Armed Forces expect from DRDO?

Iran had also transferred a majority of its reserves into Euros in 2002 and contemplated a Euro-based oil bourse by March 2006. Some European analysts describe the effect of this changeover as worse than a nuclear attack on the US. Iran had qualified to be a member of the axis of evil. Despite all the calls to battle, the US has limited choices. A full-scale invasion seems to be out; aerial attacks would be the other option. Clandestine covert operations through the Baloch areas of Pakistan and partly through Afghanistan are now a reality. Somehow, Iran has to be disciplined—and soon.

Political interests apart from economic interests are an important factor for the US. Supplies from the Caspian region must not go through either Russia to Europe or through Iran to the Persian Gulf, which is the cheapest and the fastest route. The Americans want the oil to flow from Kazakhstan and Azerbaijan through the turbulent Caucasus and end up at Ceyhan on the Mediterranean coast of Turkey, both expensive and long. The gas from Turkmenistan should flow through Afghanistan to Pakistan, similarly expensive and long and charted through politically volatile territories of Afghanistan and Balochistan.

Continued…: The Great Game: 21st Century Version-II