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Energy geopolitics and Iran–Pakistan–India gas pipeline

Energy geopolitics and Iran–Pakistan–India gas pipeline

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Energy Policy 35 (2007) 3280–3301
Energy geopolitics and Iran–Pakistan–India gas pipeline
Shiv Kumar Verma
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Political Geography Division, Center for International Politics, Organization and Disarmament, School of International Studies, Jawaharlal Nehru University,New Delhi 110067, India
Received 5 January 2006; accepted 17 November 2006Available online 17 January 2007
Abstract
With the growing energy demands in India and its neighboring countries, Iran–Pakistan–India (IPI) gas pipeline assumes specialsignificance. Energy-deficient countries such as India, China, and Pakistan are vying to acquire gas fields in different parts of the world.This has led to two conspicuous developments: first, they are competing against each other and secondly, a situation is emerging wherethey might have to confront the US and the western countries in the near future in their attempt to control energy bases. The proposedIPI pipeline is an attempt to acquire such base. However, Pakistan is playing its own game to maximize its leverages. Pakistan, whichrefuses to establish even normal trading ties with India, craves to earn hundreds of millions of dollars in transit fees and other annualroyalties from a gas pipeline which runs from Iran’s South Pars fields to Barmer in western India. Pakistan promises to subsidize its gasimports from Iran and thus also become a major forex earner. It is willing to give pipeline related ‘international guarantees’notwithstanding its record of covert actions in breach of international law (such as the export of terrorism) and its reluctance toreciprocally provide India what World Trade Organization (WTO) rules obligate it to do—Most Favored Nation (MFN) status. India islooking at the possibility of using some set of norms for securing gas supply through pipeline as the European Union has already initiateda discussion on the issue. The key point that is relevant to India’s plan to build a pipeline to source gas from Iran relates to nationaltreatment for pipeline. Under the principle of national treatment which also figures in relation to foreign direct investment (FDI), thecountry through which a pipeline transits should provide some level of security to the transiting pipeline as it would have provided to itsdomestic pipelines. This paper will endeavor to analyze, first, the significance of this pipeline for India and then the geopolitics involvedin it.
r
2006 Elsevier Ltd. All rights reserved.
Keywords:
Geopolitics; WTO; Pipeline
1. Introduction
Iran’s proven oil reserves at the end of 2003 wereestimated to be 130,700 million barrels, representing 11.4%of world reserves and some 18.0% of those in the MiddleEast. With proven reserves of 26,690,000 million cubicmeters at the end of 2003, Iran is the world’s second richestcountry in natural gas resources after Russia, with some15% of the global and 37% of the Middle East region total,which is a major discover for Iran (Fisher, 2005). TheSouth Pars offshore fields, which is an extension of Qatar’sNorth Field, are officially the largest natural gas reserves inthe world. In the 21st century, the most important factorsthat will decisively determine the fate of Iran gas pipelineare United States and China in the Persian Gulf. Bothare the largest consumers of oil and gas in the world.So a new Iran–Pakistan–India–China–Russia scenariobegins to emerge, which links global oil and gas securityto geopolitics. The question is: can these two issues bereconciled? This paper will endeavor to analyze theimportance of Iran as a gas supplier to east, especially,India and China. It will argue that such dependence on avolatile region like Iran and the perception of scarcerenergy resources in the South Asian region have thepotential to lead to conflict in both regions unless theseissues are dealt with geo-economics rather than geo-strategic calculations. However, the recent understandingbetween the United States and India seems to cancel thewhole pipeline project as long as present Iranian regime
ARTICLE IN PRESS
www.elsevier.com/locate/enpol0301-4215/$-see front matter
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2006 Elsevier Ltd. All rights reserved.doi:10.1016/j.enpol.2006.11.014
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Tel.: +9101126104671; fax: +9101126169962.
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remains in power. The broad geopolitical conditions thatwould favor or block the Iran–Pakistan–India (IPI) pipe-line project and Iran’s situation as well as the role of theUnited States in Asia and the state of relations betweenIndia and Pakistan are also pertinent issues that are goingto be influential in fructifying the proposed pipeline. Themoot question relates to Pakistan’s subsidizing thepurchases of Iranian gas and how would it finance thiscommercial juggernaut. Pakistan would not have aninterest in the stable flow of gas in transit unless it is tofinance some of its own purchases from the fees. There iscompetition for gas from the Gulf, and from Iran. This isnot only a matter of political and military strategies, but asmuch as question of commercial and financial incentives.China seems to have understood that, as exemplified withthe deal with Iran. The question is, to what extent Indiawould be able and willing to offer a competing deal. So far,due to Indian foreign policy changes, Iran seems to havesuspended the emerging deal with India. In the midst of such dynamics it is to be seen as to what extent Indiaprefers a close relationship with the United States at theexpense of gas trade with Iran.
2. Energy security
What exactly is energy security? Security generallymeans providing safety at additional cost. It thus connotesto paying extra to guard against possible threats (Aiyar,2005b). Although in the developed world the usualdefinition of energy security is simply the availability of sufficient supplies at affordable prices, different countriesinterpret what the concept means for them differently.Energy-exporting countries focus on maintaining the‘‘security of demand’’ for their exports, which after allgenerate the over-whelming share of their governmentrevenues. For Russia, the aim is to reassert state controlover ‘‘strategic resources’’ and gain primacy over the mainpipelines and market channels through which it ships itshydrocarbons to international markets. The concern fordeveloping countries is how changes in energy prices affecttheir balance of payments. For China and India, energysecurity now lies in their ability to rapidly adjust to theirnew dependence on global markets, which represents amajor shift away from their former commitments to self-sufficiency. For Japan, it means offsetting its stark scarcityof domestic resources through diversification, trade, andinvestment. In Europe, the major debate centers on how tomanage dependence on imported natural gas and in mostcountries, aside from France and Finland, whether to buildnew nuclear power plants and perhaps to return to (clean)coal. And the US must face the uncomfortable fact that itsgoal of ‘‘energy independence’a phrase that has become amantra since it was first articulated by Richard Nixon 4weeks after the 1973 embargo was put in place isincreasingly at odds with reality. Experience has shownthat to maintain energy security countries must abide byseveral principles. The first and most familiar is whatChurchill urged more than 90 years ago: diversification of supply. Multiplying one’s supply sources reduces theimpact of a disruption in supply from one source byproviding alternatives, serving the interests of bothconsumers and producers, for whom stable markets are aprime concern. But diversification is not enough. A secondprinciple is resilience, a ‘‘security margin’’ in the energysupply system that provides a buffer against shocks andfacilities recovery after disruptions. Resilience can comefrom many factors, including sufficient spare capacity,strategic reserves, backup supplies of equipment, adequatestorage capacity along the supply chain, and the stock-piling of critical parts for electric power production anddistribution, as well as carefully conceived plans forresponding to disruptions that may affect large regions.Hence the third principle: recognizing the reality of integration. There is only one oil market, a complex andworldwide system that moves and consumes about 86million barrels of oil every day. For all consumers, securityresides in the stability of this market. Secession is not anoption. The fourth principle is the importance of informa-tion. High-quality information underpins well-functioningmarkets. On an international level, the IEA has led the wayin improving the flow of information about world marketsand energy prospects. That work is being complemented bythe new International Energy Forum, which will seek tointegrate information from producers and consumers.Information is no less crucial in a crisis, when consumerpanics can be instigated by a mixture of actual disruptions,rumors, and fear. Reality can be obscured by accusations,acrimony, outrage, and a fevered hunt for conspiracies,transforming a difficult situation into something muchworse. In such situations, governments and private sectorshould collaborate to counter panics with high-quality,timely information. The US government can promoteflexibility and market adjustments by expediting itscommunication with companies and permitting the ex-change of information among them, with appropriateantitrust safeguards, when necessary (Yergin, 2006).However, the prime objective of any energy policy is toensure that the total energy demand is matched by totalenergy supply. Unfortunately, this objective can sometimesto difficult to achieve. This situation does not occur veryoften, but when it does, it is either a result of extremedemand circumstances or unforeseen operational difficul-ties or, in some cases, inadequate planning. It is, however,not sufficient that total demand and total supply bebalanced, since an adequate energy policy should alsoaim to provide the required energy ‘mix’. This involvesanalyzing the energy supply situation from both sides. Onthe one hand, existing and potential sources have to beexamined with a view to deciding how future supplies canbe guaranteed. This approach must then be reconciled withthe opposite approach of trying to identify the future needsof the various energy-consuming sectors. Both approachesinvolve a certain degree of risk, since an attempt is beingmade to predict the future in a world in which very few
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nations are complete masters of their own destinies. Thecriteria on which any energy policy is based are basicallythe same today as they have always been in the past. Apartfrom meeting the total demand with the correct mix of energy sources, a satisfactory policy should not involve toogreat a capital investment, should not result in large-scaleunemployment and should not based on obsolete technol-ogy (or on science fiction). In addition, it should be flexible,so that national changes in energy usage and internationalchanges in circumstances can be accommodated. In short,the overall policy should make economic and social sense,and should leave the door open for the emergence of newtechnologies and new energy options (Addinall andEllington, 1982).
3. Energy security for India
For India, a country with negligible and rapidlydepletable oil resources, it would mean safeguarding andsustaining its developmental and global power aspirations.A secure but costly form of importing energy would beliquefied natural gas (LNG), delivered by ship. The seas areinternational waters. The Indian navy and navies of richcountries will try to ensure open seas. Even Turkmen gascould be piped down to the Iran coast and liquefied.However, pipelines are less secure. A deep-water pipeline ininternational waters, though, is relatively secure andrelatively costly. A cheaper pipeline in shallow waters willpass through the Exclusive Economic Zone (EEZ) of counties and so security will require credible nationalguarantees. Such guarantees can be abrogated in times of hostilities. Even onshore pipelines are not entirely secure:militants and other such irredentist elements operatingwithin national boundaries can blow them up. This hasalready happened in Assam and Baluchistan and mighthappen in tremendously volatile Afghanistan too. Onshorepipelines through Pakistan may be the cheapest form of transporting gas from Iran and Turkmenistan. But lowcost is not security as conventionally understood. Thoughimportant, it cannot be called energy security. The gaspipelines will reduce the cost of delivered gas comparedwith transported LNG, but at an increased risk of disruption. Albeit there are modest risks, the potentialdiplomatic gains are huge, and so this is a worthwhilediplomatic gamble. But worthwhile gambles are notsecurity (Challency, 2005). We need to increase theefficiency of thermal power stations, but every 1% increaserequires an additional 5 million tons of coal. Most Indiancoal is of low quality. This approach alone will necessitateenormous quantities of coal needed to feed existing andfuture power plants and to gasify coal to substitute oil andnatural gas.However, to expand the concept of energy security intwo critical dimensions: the two recognition of theglobalization of the energy security system, which can beachieved especially by engaging China and India, and theacknowledgment of the fact that the entire energy supplychain needs to be protected. China’s thirst for energy hasbecome a decisive plot element in suspense novels andfirms. Even in the real world there is no shortage of suspicion: some in the US see a Chinese grand strategy topreempt the US and the West when it comes to new oil andgas supplies, and some strategies in Beijing fear that the USmay someday try to interdict China’s foreign energysupplies. But the actual situation is less dramatic. Despiteall the attention being paid to China’s effort to secureinternational petroleum reserves, for example, the entireamount that China currently produces per day outside of its own borders is equivalent to just 10% of the dailyproduction of one of the supermajor oil companies. If therewere a serious controversy between the US and Chinainvolving oil and gas. It would likely arise not because of acompetition for the resources themselves, but ratherbecause they had become part of larger foreign policyissues (such as a clash over a specific regime or over how torespond to Iran’s nuclear program). Indeed, from theviewpoint of consumers in North America, Europe, andJapan. Chinese and Indian investment in the developmentof new energy supplies around the world is not a threat.But something to be desired, because it means there will bemore energy available for everyone in the years ahead asIndia’s and China’s demand grows. It would be wiser andindeed it is urgent to engage these two giants in the globalnetwork of trade and investment rather than see them tilttowards a mercantilist, state-to-state approach. EngagingIndia and China will require understanding what energysecurity means for them. Both countries are rapidly movingfrom self-sufficiency to integration into the world economy,which means they will grow increasingly dependent onglobal markets even as they are under tremendous pressureto deliver economic growth for their huge populations,which cope with energy shortage and blackouts on a dailybasis. Thus, the primary concern for both China and Indiais to ensure that they have sufficient energy to supporteconomic growth and prevent debilitating energy shortfallsthat could trigger social and political turbulence. ForIndia, where the balance of payments crisis of 1990 is till onpolicymakers’ minds, international production is also away to hedge against high oil prices. And so India andChina, and other key countries such as Brazil, should bebrought into coordination with the existing IEA energysecurity system to assure them that their interests will beprotected in the event of turbulence and to ensure that thesystem works more effectively (Yergin, 2006).
4. Energy geopolitics
What is energy geopolitics? Geopolitics as an approachto the study of international relations stresses theimportance of locational factors in influencing relationsamong nations. Thus, geopolitics emphasizes geographicfactors as important determinants of government policyand major determinants of the relative power position of states. The importance of various geographic factor
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