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Energy Policy 35 (2007) 3280–3301


www.elsevier.com/locate/enpol

Energy geopolitics and Iran–Pakistan–India gas pipeline


Shiv Kumar Verma
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 2006
Available online 17 January 2007

Abstract

With the growing energy demands in India and its neighboring countries, Iran–Pakistan–India (IPI) gas pipeline assumes special
significance. 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 where
they might have to confront the US and the western countries in the near future in their attempt to control energy bases. The proposed
IPI pipeline is an attempt to acquire such base. However, Pakistan is playing its own game to maximize its leverages. Pakistan, which
refuses to establish even normal trading ties with India, craves to earn hundreds of millions of dollars in transit fees and other annual
royalties from a gas pipeline which runs from Iran’s South Pars fields to Barmer in western India. Pakistan promises to subsidize its gas
imports 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 to
reciprocally provide India what World Trade Organization (WTO) rules obligate it to do—Most Favored Nation (MFN) status. India is
looking at the possibility of using some set of norms for securing gas supply through pipeline as the European Union has already initiated
a 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 national
treatment for pipeline. Under the principle of national treatment which also figures in relation to foreign direct investment (FDI), the
country through which a pipeline transits should provide some level of security to the transiting pipeline as it would have provided to its
domestic pipelines. This paper will endeavor to analyze, first, the significance of this pipeline for India and then the geopolitics involved
in it.
r 2006 Elsevier Ltd. All rights reserved.

Keywords: Geopolitics; WTO; Pipeline

1. Introduction that will decisively determine the fate of Iran gas pipeline
are United States and China in the Persian Gulf. Both
Iran’s proven oil reserves at the end of 2003 were are the largest consumers of oil and gas in the world.
estimated to be 130,700 million barrels, representing 11.4% So a new Iran–Pakistan–India–China–Russia scenario
of world reserves and some 18.0% of those in the Middle begins to emerge, which links global oil and gas security
East. With proven reserves of 26,690,000 million cubic to geopolitics. The question is: can these two issues be
meters at the end of 2003, Iran is the world’s second richest reconciled? This paper will endeavor to analyze the
country in natural gas resources after Russia, with some importance of Iran as a gas supplier to east, especially,
15% of the global and 37% of the Middle East region total, India and China. It will argue that such dependence on a
which is a major discover for Iran (Fisher, 2005). The volatile region like Iran and the perception of scarcer
South Pars offshore fields, which is an extension of Qatar’s energy resources in the South Asian region have the
North Field, are officially the largest natural gas reserves in potential to lead to conflict in both regions unless these
the world. In the 21st century, the most important factors issues are dealt with geo-economics rather than geo-
strategic calculations. However, the recent understanding
Tel.: +91 011 26104671; fax: +91 011 26169962. between the United States and India seems to cancel the
E-mail address: vermajnu@gmail.com. whole pipeline project as long as present Iranian regime

0301-4215/$ - see front matter r 2006 Elsevier Ltd. All rights reserved.
doi:10.1016/j.enpol.2006.11.014
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remains in power. The broad geopolitical conditions that Churchill urged more than 90 years ago: diversification of
would favor or block the Iran–Pakistan–India (IPI) pipe- supply. Multiplying one’s supply sources reduces the
line project and Iran’s situation as well as the role of the impact of a disruption in supply from one source by
United States in Asia and the state of relations between providing alternatives, serving the interests of both
India and Pakistan are also pertinent issues that are going consumers and producers, for whom stable markets are a
to be influential in fructifying the proposed pipeline. The prime concern. But diversification is not enough. A second
moot question relates to Pakistan’s subsidizing the principle is resilience, a ‘‘security margin’’ in the energy
purchases of Iranian gas and how would it finance this supply system that provides a buffer against shocks and
commercial juggernaut. Pakistan would not have an facilities recovery after disruptions. Resilience can come
interest in the stable flow of gas in transit unless it is to from many factors, including sufficient spare capacity,
finance some of its own purchases from the fees. There is strategic reserves, backup supplies of equipment, adequate
competition for gas from the Gulf, and from Iran. This is storage capacity along the supply chain, and the stock-
not only a matter of political and military strategies, but as piling of critical parts for electric power production and
much as question of commercial and financial incentives. distribution, as well as carefully conceived plans for
China seems to have understood that, as exemplified with responding to disruptions that may affect large regions.
the deal with Iran. The question is, to what extent India Hence the third principle: recognizing the reality of
would be able and willing to offer a competing deal. So far, integration. There is only one oil market, a complex and
due to Indian foreign policy changes, Iran seems to have worldwide system that moves and consumes about 86
suspended the emerging deal with India. In the midst of million barrels of oil every day. For all consumers, security
such dynamics it is to be seen as to what extent India resides in the stability of this market. Secession is not an
prefers a close relationship with the United States at the option. The fourth principle is the importance of informa-
expense of gas trade with Iran. tion. High-quality information underpins well-functioning
markets. On an international level, the IEA has led the way
2. Energy security in improving the flow of information about world markets
and energy prospects. That work is being complemented by
What exactly is energy security? Security generally the new International Energy Forum, which will seek to
means providing safety at additional cost. It thus connotes integrate information from producers and consumers.
to paying extra to guard against possible threats (Aiyar, Information is no less crucial in a crisis, when consumer
2005b). Although in the developed world the usual panics can be instigated by a mixture of actual disruptions,
definition of energy security is simply the availability of rumors, and fear. Reality can be obscured by accusations,
sufficient supplies at affordable prices, different countries acrimony, outrage, and a fevered hunt for conspiracies,
interpret what the concept means for them differently. transforming a difficult situation into something much
Energy-exporting countries focus on maintaining the worse. In such situations, governments and private sector
‘‘security of demand’’ for their exports, which after all should collaborate to counter panics with high-quality,
generate the over-whelming share of their government timely information. The US government can promote
revenues. For Russia, the aim is to reassert state control flexibility and market adjustments by expediting its
over ‘‘strategic resources’’ and gain primacy over the main communication with companies and permitting the ex-
pipelines and market channels through which it ships its change of information among them, with appropriate
hydrocarbons to international markets. The concern for antitrust safeguards, when necessary (Yergin, 2006).
developing countries is how changes in energy prices affect However, the prime objective of any energy policy is to
their balance of payments. For China and India, energy ensure that the total energy demand is matched by total
security now lies in their ability to rapidly adjust to their energy supply. Unfortunately, this objective can sometimes
new dependence on global markets, which represents a to difficult to achieve. This situation does not occur very
major shift away from their former commitments to self- often, but when it does, it is either a result of extreme
sufficiency. For Japan, it means offsetting its stark scarcity demand circumstances or unforeseen operational difficul-
of domestic resources through diversification, trade, and ties or, in some cases, inadequate planning. It is, however,
investment. In Europe, the major debate centers on how to not sufficient that total demand and total supply be
manage dependence on imported natural gas and in most balanced, since an adequate energy policy should also
countries, aside from France and Finland, whether to build aim to provide the required energy ‘mix’. This involves
new nuclear power plants and perhaps to return to (clean) analyzing the energy supply situation from both sides. On
coal. And the US must face the uncomfortable fact that its the one hand, existing and potential sources have to be
goal of ‘‘energy independence’’ a phrase that has become a examined with a view to deciding how future supplies can
mantra since it was first articulated by Richard Nixon 4 be guaranteed. This approach must then be reconciled with
weeks after the 1973 embargo was put in place is the opposite approach of trying to identify the future needs
increasingly at odds with reality. Experience has shown of the various energy-consuming sectors. Both approaches
that to maintain energy security countries must abide by involve a certain degree of risk, since an attempt is being
several principles. The first and most familiar is what made to predict the future in a world in which very few
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nations are complete masters of their own destinies. The chain needs to be protected. China’s thirst for energy has
criteria on which any energy policy is based are basically become a decisive plot element in suspense novels and
the same today as they have always been in the past. Apart firms. Even in the real world there is no shortage of
from meeting the total demand with the correct mix of suspicion: some in the US see a Chinese grand strategy to
energy sources, a satisfactory policy should not involve too preempt the US and the West when it comes to new oil and
great a capital investment, should not result in large-scale gas supplies, and some strategies in Beijing fear that the US
unemployment and should not based on obsolete technol- may someday try to interdict China’s foreign energy
ogy (or on science fiction). In addition, it should be flexible, supplies. But the actual situation is less dramatic. Despite
so that national changes in energy usage and international all the attention being paid to China’s effort to secure
changes in circumstances can be accommodated. In short, international petroleum reserves, for example, the entire
the overall policy should make economic and social sense, amount that China currently produces per day outside of
and should leave the door open for the emergence of new its own borders is equivalent to just 10% of the daily
technologies and new energy options (Addinall and production of one of the supermajor oil companies. If there
Ellington, 1982). were a serious controversy between the US and China
involving oil and gas. It would likely arise not because of a
3. Energy security for India competition for the resources themselves, but rather
because they had become part of larger foreign policy
For India, a country with negligible and rapidly issues (such as a clash over a specific regime or over how to
depletable oil resources, it would mean safeguarding and respond to Iran’s nuclear program). Indeed, from the
sustaining its developmental and global power aspirations. viewpoint of consumers in North America, Europe, and
A secure but costly form of importing energy would be Japan. Chinese and Indian investment in the development
liquefied natural gas (LNG), delivered by ship. The seas are of new energy supplies around the world is not a threat.
international waters. The Indian navy and navies of rich But something to be desired, because it means there will be
countries will try to ensure open seas. Even Turkmen gas more energy available for everyone in the years ahead as
could be piped down to the Iran coast and liquefied. India’s and China’s demand grows. It would be wiser and
However, pipelines are less secure. A deep-water pipeline in indeed it is urgent to engage these two giants in the global
international waters, though, is relatively secure and network of trade and investment rather than see them tilt
relatively costly. A cheaper pipeline in shallow waters will towards a mercantilist, state-to-state approach. Engaging
pass through the Exclusive Economic Zone (EEZ) of India and China will require understanding what energy
counties and so security will require credible national security means for them. Both countries are rapidly moving
guarantees. Such guarantees can be abrogated in times of from self-sufficiency to integration into the world economy,
hostilities. Even onshore pipelines are not entirely secure: which means they will grow increasingly dependent on
militants and other such irredentist elements operating global markets even as they are under tremendous pressure
within national boundaries can blow them up. This has to deliver economic growth for their huge populations,
already happened in Assam and Baluchistan and might which cope with energy shortage and blackouts on a daily
happen in tremendously volatile Afghanistan too. Onshore basis. Thus, the primary concern for both China and India
pipelines through Pakistan may be the cheapest form of is to ensure that they have sufficient energy to support
transporting gas from Iran and Turkmenistan. But low economic growth and prevent debilitating energy shortfalls
cost is not security as conventionally understood. Though that could trigger social and political turbulence. For
important, it cannot be called energy security. The gas India, where the balance of payments crisis of 1990 is till on
pipelines will reduce the cost of delivered gas compared policymakers’ minds, international production is also a
with transported LNG, but at an increased risk of way to hedge against high oil prices. And so India and
disruption. Albeit there are modest risks, the potential China, and other key countries such as Brazil, should be
diplomatic gains are huge, and so this is a worthwhile brought into coordination with the existing IEA energy
diplomatic gamble. But worthwhile gambles are not security system to assure them that their interests will be
security (Challency, 2005). We need to increase the protected in the event of turbulence and to ensure that the
efficiency of thermal power stations, but every 1% increase system works more effectively (Yergin, 2006).
requires an additional 5 million tons of coal. Most Indian
coal is of low quality. This approach alone will necessitate 4. Energy geopolitics
enormous quantities of coal needed to feed existing and
future power plants and to gasify coal to substitute oil and What is energy geopolitics? Geopolitics as an approach
natural gas. to the study of international relations stresses the
However, to expand the concept of energy security in importance of locational factors in influencing relations
two critical dimensions: the two recognition of the among nations. Thus, geopolitics emphasizes geographic
globalization of the energy security system, which can be factors as important determinants of government policy
achieved especially by engaging China and India, and the and major determinants of the relative power position of
acknowledgment of the fact that the entire energy supply states. The importance of various geographic factor
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changes with developments in many areas, including the for all three countries, has the potential radically to
passage of time advances in technology, the need for access transform the energy scene in South Asia (Airy, 2005).
to raw materials, and changes in national and international The option included Iranian companies to own and operate
political goals and judgments as to legitimate means of the pipeline and deliver gas to India at India–Pakistan
pursuing international objectives. The issue of access to border or a consortium of Iranian, Indian, and Pakistan
energy resources involves three interests, which each energy and international companies to own and operate the
deficient state shares with all others: pipeline. Under the third option, it proposed that India
and Pakistan buy gas in Iran and transport through a
1. A state’s supply of imported energy must be adequate in pipeline owned by global companies, see Table 1.
volume. The latest positions in Indo-Pak ties clearly put
2. Interruptions or occasional shortfalls in supply can have economic factors on the front burner. [The IPI pipeline is
serious economic and political implications for indus- likely to cost $7.4 billion mainly due to increase in steel
trialized states. It is, of course this vulnerability to prices. India estimates that the project cost may go to as
disruptions of supply that gives resource-rich states a high as $8.16 billion if there is a 10% escalation in raw
lever to use against states dependent on imported material costs over the next 5 years when the project is
energy. slated for construction. The capex may come down to $6.67
3. Imported energy must also be available at reasonable billion if there is a 10% decrease in raw material cost.]
prices. Clearly, price should bear some relationship to (Aiyar, 2005a). The real attraction is the US$5 billion
the cost of alternative forms of energy. Price should also potential in trade through the proposed Iran–India gas
reflect a capacity to pay. These three factors of adequate pipeline traversing Pakistan. This pipeline is expected to
volume, continuous supply and reasonable price con- save India US$300 million a year in energy transport costs,
stitute an interrelated triad of energy interests. Failure while Pakistan would get an estimated US$700 million in
to obtain any one of the three could have disastrous annual transit fees. However, the stake of Pakistan is very
consequences for the economic well-being, political high, if the proposed project passes through Pakistan, as
stability, and national security of the consuming country this project would have enormous implication for Pakistani
(Conant and Gold, 2000). economy. Pakistan’s perennial foreign exchange crisis
forced it to concede that it is in its financial interest to
5. IPI gas pipeline project get itself involved in the Indo-Iran gas pipeline project. The
pipeline would accrue to Pakistan an income of $14 billion
However, in the new millennium, once again geography in 30 years, including $8 billion in transit fee, $1 billion in
has become a major determinant of strategy, and strategy taxes, and $5 billion in savings (S. Pandian, 2005).
plays a major role in politics. Politics is generally thought Although the transit fee would not wholly redress
of as an art of obtaining desired outcome. However, Pakistan’s acute foreign debt crisis, it would partly alleviate
Strategy is a plan for effectively implementing these goals this problem. Finally, Pakistan, like India, suffers from a
(Ward, 1992). Annual gas supplies of 5 million tons have growing oil-pool deficit. Pakistan’s power generation is
been tied up for 25 years under a US$18 billion contract heavily dependent on fuel oil, and it is a net oil importer
signed. But the change in leadership in Iran again brings with an oil import bill of over US$1 billion/annum. The
some changes for this plan. Currently new leaders favor gas country aims to slash its imports from the Gulf by one-
exports with priority to neighboring countries, including third in order to save at least US$1 billion a year in its
India and China. And another major change is that Iran annual energy import bill. To reduce the fiscal strain on the
expects a higher gas price than what has been negotiated so Pakistan’s economy, the government has opted for a policy
far. The Indian officials are worried that the Iranian stance option of substituting fuel oil with natural gas for power
could harden further when negotiations on piped gas starts generation, a move expected to save an estimated
sometimes 2007 after India and Pakistan have decided on US$600–700 million/annum. It is estimated that at current
their participation in the pipeline by the end of 2006. This levels of power generation, over 800 mfc/day of additional
pipeline is not something that you can agree today and gas is required to replace fuel oil in all its thermal power
build tomorrow. Iran pipeline, which is a win–win project plants (S.G. Pandian, 2005). In this regard, Pakistan has

Table 1
Proposed Iran–Pakistan–India gas pipeline characteristics

Project Consortium Length (km) Cost ($bn) Route Maximum Peak pressure Compressor Pipeline
capacity (BCF) (p.s.i) spacing (miles) diameter (in)

IPI gas pipeline Undecided 2700 7.4 Undecided 3.2 1200 120 56

Source: Rahul Tongia & V.S. Arunachalam. Natural gas imports by South Asia: pipelines or pipedream? TransAsia pipeline system (TAPS): a shared
natural gas pipeline for India and Pakistan from West and Central Asia. Economic and Political Weekly (1999) XXXIV (18). S. Pandian (2005, p. 662).
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concluded that it would be in its interest to provide inland transit fees above $700 million annually becomes a point in
transit for the Indo-Iran pipeline project. Such a project, perspective.
apart from offering an attractive fee for the pipeline to pass However, the IPI gas pipeline project is significantly
through its territory, would also offer Pakistan the gas at about the perceived value of secure energy supplies versus
subsidized rate as local gas comes at the rate of $3.4/million stable prices and the willingness to eventually pay a
British thermal unit (mbtu) against imported gas at $5, security vis-a-vis India’s energy concern in the long run.
the difference being is $1.6 mbtu. This difference would India, would rather prefer to import gas from Iran. India’s
be met through transit fee. Moreover, if gas import interest in the proposed Indo-Iran gas pipeline project is
plans cannot be implemented and gas supplies remain based on the presumption that the project’s long-term
limited to LNG imports in the next 5 years, the new prospects are higher than what it would achieve by other
thermal plants will be based on furnace oil with the options. It would also be in India’s interests to buy gas
provision that these could be switched over to gas at a resources from one source, which is nearer and never-
later stage. This will, however, put additional foreign ending, rather than from several sources. Iran claims to
exchange burden on the import of fuel. The policy has have 16%% of the world’s gas reserves, enough to last for
also clearly defined the order of priority for all sectors 500 years at the present rate of exploitation. It is suggested
for additional gas supplies. The policy has been prepared that Iran’s massive natural gas reserves can supply India’s
on the basis of an integrated analysis of Wapda and KESC gas demands for up to 200 years. For India, the economic
systems scheduled development of hydel, coal, and nuclear feasibility is not the only criterion but also the safe and
energy projects and expected low water availability during continuous supply of gas. In this regard, it is obvious that
dry period. This situation will remain intact even after
materialization of 500 mmcfd (million cubic feet per day)
LNG import by 2010 and hence additional supplies Table 2
would be diverted to other priority sectors. Moreover, Comparative position of various sources for power generation in Pakistan
CNG stations, captive power and general industrial sector Sources Pakistan: Cost of power generation
will start running short of gas from fiscal year 2015. (Pakistan rupees/kW h)
Pakistan was meeting 18% of its oil needs from local
production and the country had to import the remaining Hydropower 0.02–0.08 paise
Nuclear power 9 paise
82% requirements for which it had to pay international Thermal power 70 paise
prices. The Pakistan government has incurred losses
amounting to Rs. 66 billion by capping the prices over http://www.khwarzimic.org/ghaziinto.html, /www.pakistaneconomist.com/
the past year and would meet 50% of the expected Rs. 4 database2/cover/c96-31.aspS.
billion losses even after the new increases. However,
Pakistan government has increased oil prices 114 times in
its six years. On the basis of comparative prices local cost Table 3
of gas comes to $3.4/mBtu against $5 for imported gas. Comparative position of various sources for power generation in India
Gasification of coal will make the cost $5.5/unit, while the
Sources India: Cost of power
cost of the high sulfur fuel oil comes to about $7.5/unit; generation (Indian rupees/
fuel oil will cost $8.1/unit, Naptha $ 1.4, and high-speed kW h)
diesel $12.6/unit. See Tables 2 and 3.
However, Pakistan would have an added interest in the Naptha 4.5–5.0
Coal-fired stations & (2006) 0.70–110 paise
stable flow of gas in transit to finance some of its own LNG 3.5–4.0
purchases from the fees. Because Pakistan needs more gas Imported coal (2005)* 1.85
than India (gas supplies to Islamabad through the IPI Diesel/fuel oil 3.5–4.0
pipeline from the originally envisaged 2.1–2.8 billion cubic Domestic coal 3.0–3.5
feet per day (bcfd)). About 700 mmcfd of additional gas Domestic gas & (2006) 105–200 paise
Reliance Wind power, 2006 @ 1.8–2.5
means a lot for Pakistan’s growing energy needs. Then the Hydropower $ 1–2
question arises about where India would fit in the project Nuclear power @ 1.77
having a total capacity of 3.2 bcfd of gas when Pakistan Solar power# (2006) 3.0–3.5
alone would be supplied 2.8 bcfd and another 400 mmcfd New build coal-based plant* 2.90
would be utilized by Iran in its eastern provinces, see Table Biomass# 3.15
LNG from Dahej* (2006) 1.60
4. The head of Iranian delegation reportedly said that the Thermal power# 1.86
three sides would discuss the possibility of a second
pipeline to meet energy, thus acknowledging the viability Sources: #Ashoke Parthasarthi. ‘‘Renewable energy resources: situation
of a pipeline. However, Pakistan-specific bilateral gas and prospects’’. World Affairs, Spring, 2006; vol. 10, no. 1, p. 128. @ The
Times of India, New Delhi, 17 April 2006. *The Economic Times, New
pipeline with 33% higher supplies to Pakistan, clearly Delhi, 16 November 2005.
indicates that India could not become part of it due to S.G. Pandian (2005, p. 310). $ Mishra and Goswami, 2006; Jayaswal and
capacity constraints. Therefore, Pakistan demand for more Banerjee, 2006.
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Table 4 India and Pakistan through the pipeline, while New Delhi
Pakistan and India natural gas demand and supply gap projections (bcfd) is willing to pay not more than $4.2/mBtu for its share
2000 2005 2010 2015
(Mishra and Goswami, 2006). Furthermore, Pakistan’s
weak financial position makes it difficult to secure
Pakistan 0.5 0.6 0.8 1.0 financing for ambitious pipeline projects. The oil and gas
India 0.0 1.2 3.1 4.2 pipeline projects in which Pakistan is interested would not
Total 0.5 1.8 3.9 5.2
materialize unless the desired destination of the pipeline
Source: /http://www.issi.org.pk/islamabad_papers_html/no_21/islama- would be India and world’s second largest market for
bad_paper.htmS (accessed on 26 May 2005). natural gas. Therefore, Pakistan’ s willingness to eventually
pay a security at the cost of causing overwhelming
advantages to India is doubtful. On the strategic side, it
India’s concern for the safety and security of the pipeline is in India’s interests to ensure economic instability in
projects takes precedence over the economic viability and Pakistan. For Iran and Pakistan, the gas pipeline project
technical complexity. The most important aspect of the has socio-politico-economic and geo-strategic components.
pipeline project is the medium of the transfer, which needs The Pakistan economic gains of Iran gas pipeline project
to be cost effective and secure. According to a Broken Hill would be a continuous transit income and the option to
Proprietary (BHP) study, the supplying of gas via pipeline procure gas at a subsidized rate (S. Pandian, 2005). Thus
could save India an estimated US$10 billion over 10 years. the crux of the matter is that there are major politico-
It is also suggested that the piped Iranian gas constituted strategic factors relating to all the involved players,
the most affordable long-term energy supply to India. By including the US, which weigh against the on ground
facilitating the trans-Pakistan gas pipeline project, Pakistan implementation of the project. It is to be seen when such
did not want to act as an instrument in fostering a long- hitherto dominating irritants get nullified by a cooperative,
term relationship between India and Iran, which would win–win and predominantly economic approach on the
obviously challenge and reduce Pakistan’s stake in the part of these states, especially, India and Pakistan.
region. The benefit of the gas pipeline project with India However, the gas pipeline could bind the two countries
are long-term as Iran, with huge natural gas reserves, is in economic linkages that would be quite hard for either
capable of addressing India’s growing energy crisis. side to snap for political reasons (Krepon and Haider,
Pakistan expressed its eagerness to participate in the 2005). As regards Indo-Pak relations, the traditional
pipeline project because of its own self-seeking interests. pattern of hostility has not only continued, but has also
Iran sought to bring in Pakistan as a partner in the pipeline considerably escalated. The Indo-Pak rivalry has revolved
project to ensure an economically feasible overland transit around three long-standing issues: Kashmir, communal
route. India has sought to repel and play down the role of tension, and the military. Many observers of this process
Pakistan as an equal partner in the project for the fear of its are worried that overt nuclear rivalry will not produce a
energy supply being disrupted in case of a military conflict stable deterrence configuration between India and Pakistan
with Pakistan (S. Pandian, 2005). Also the domestic social (Buzan, 2002). In sum, the grand vision of friendship
and political atmosphere in Pakistan seems to be in through economic integration is a gamble. But it is not a
perennial disarray, too volatile to dispel concerns against very dangerous gamble and may succeed. New Indo-Pak
its economic stability and instill confidence in the long-term wars are possible, but extremely unlikely. Three wars over
commercial viability of any pipeline passing through its Kashmir have proved that war achieves nothing. And
territory. However, the problem associated with oil and gas nuclear bombs are powerful deterrents (Kargil war may be
security and the Gulf, after all, are of a complexity that seen as a mere border incident). Since war risk is small, it
demands comprehensive solutions. Internationalizing al may be worth taking a small risk on the pipeline for an
least the energy issues could begin to disengaged the US optimistic but possible peace gain. But it is not an energy
from the current slippery slope on which it is increasingly security. If Iran pipeline is extended further to China it is
perceived as a regional combatant aggressively pursuing beneficial to India from security point of view, because
unilateral national and security interests to the detriment of Pakistan cannot cut off supply to India without cutting it
regional stability. Asian leaders are becoming increasingly off to China. Whether China wants such a long pipeline
worried about their economies growing dependence on through so many country remains to be seen (Aiyar,
Gulf oil and gas and are likely to be receptive to any 2005a). But China shows little interest in this project
multinational initiative that would make supplies from the because China feels that this project is full of challenges,
region more secure or provide a framework for developing such as US opposition. In addition, to China and India are
alternatives energy substitutes. However, the fate of the rivals not only in Iran’s energy sector but also in global
Iran pipeline is still hanging fire. Apart from US opposition level. However, if India is to emerge as the world’s largest
to the project, there are also differences on the pricing of economy by the middle of this century as envisaged
the gas. The two countries (India and Iran) have also not by Goldman Sachs, it has to solve two interrelated
been able to decide on a price for the pipeline gas. Tehran is challenge: stem its growing energy deficit, and contain
seeking at least $7.2/mBtu price for gas it wants to sell to active and emergent security threats. In fact, energy needs
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are beginning to dictate military planning for its long-term However, the proposed Iran–India has a chequered
energy strategy. For the first time, India has begun to history, dating back to 1989. The idea of an overland
integrate its energy policy with foreign policy by con- pipeline route tellingly did not originate in India. Rather,
sciously promoting oil diplomacy geared towards seizing Pakistan floated the idea, with the backing of Australia’s
energy-related opportunities overseas. What is not happen- BHP Billiton Ltd. Such has been BHP’s financial interest in
ing is the blending if India’s energy policy with defense this project that it did a technical feasibility study of the
policy. At best the two are parallel policies with little overland option free of charge, and its representatives to
convergence and perspective sharing between ministries. this day continue to peddle the project. A committee of
However, in a unipolar world with one superpower and a secretaries appointed by the then PM Narasimha Rao had
number of regional big powers, values and national recommended the underwater pipeline option. However,
interests of India may not coincide with the US. Whenever when India sought Pakistan’s permission to carry out a
India’s policy has been on a collision with them, it has pipeline survey through its EEZ, Pakistan cleverly dictated
reaped the consequences. This is what has happened in the that the survey covers three options: deep-sea through its
past in India’s relations with the West and China EEZ, shallow water, and overland. That is how the idea of
(Mukherjee, 2005). Then there is the real Pakistan, which an overland pipeline was born. Later, Pakistan has
refuses to establish even normal trading ties with India extracted one more Indian concession to treat the overland
but craves to earn hundreds of millions of dollars in transit pipeline as a standalone project, unrelated to its refusal to
fees and other annual royalties from a gas pipeline gas open up and transit to India (Sharma and Subramanian,
from Iran’s South Pars fields to Barmer. However, 2005).
Pakistan promises to give pipeline related ‘international However, in the past 1 year, India has lost four times to
guarantees’ notwithstanding its record of covert actions China in global energy bids: Angola, Iran, Sudan, and
in breach of international law (such as the export of Kazakhstan (Mitra, 2005). Despite talk of India and China
terrorism) and its reluctance to reciprocally provide India stacking up forces to set up some kind of a buyers and
what World Trade Organization (WTO) rules obligate it to consumers cartel, competition rather than rivalry better
do—Most Favored Nation (MFN) status (Ramachandran, describes the relationship between the two countries in the
2005). global energy sector. There is merit in the Indian argument
But Indian government is likely to seek improvements in that joint bids in third countries will bring down the price.
WTO rules related to Iran pipeline project, which involve But it is not about money. It is geopolitics. That is why for
freedom of transit. Pipelines should be explicitly covered the Central Asian states and Iran in the Gulf, China is an
under Article V of General Agreement on Tariff and Trade important neighbor, an economic power and veto-wielding
(GATT), which deals with freedom of transit. This could member of UN (United Nation) Security Council. Besides,
make sure that Pakistan does not disrupt flow of Iranian given China’s long-term strategic thinking Beijing has
gas to India. This long-term Indian government’s efforts to quietly been building stakes in these countries. Despite the
source oil and gas from the Central Asian region would traditional friendship between Iran and India, the Oil And
also get a boost as such projects would involve flow of Natural Gas Commission (ONGC), lost out on an oil
goods through several countries secured by WTO norms. block in Iran to China and came back with a marginal 20%
India’s attempt to spruce up its energy security by stake in Yadavaran oil fields with China walking away with
acquiring equity in overseas oil fields would also gain from 60%. China has promised to veto sanctions against Iran in
WTO security shield, once norms laid down under Article the ongoing nuclear crisis, besides selling technology for
V of GATT are strengthened. The WTO rule on freedom their missiles (Lodhi, 2006).
of transit was originally introduced for ensuring trade However, the South Asian power equation cannot be
channels of land-locked countries. Now India is looking at realistically appreciated without taking China into account.
the possibility of using some set of norms for securing gas Beijing sees itself as an emerging economic, political, and
supply through pipeline as the European Union (EU) has military superpower, with real and expanding interests in
already initiated a discussion on the issue. The key point South and Southeast Asia (Routledge, 2005). As such,
that is relevant to India’s plan to build a pipeline to source China challenges India’s preeminence, and their relation-
gas from Iran relates to national treatment for pipeline. ship has settled into a protracted rivalry. In the absence of
Under the principle of national treatment which also a strategic buffer, competing territorial claims have long
figures in relation to foreign direct investment (FDI), the brought China into India’s security planning. Since the
country through which a pipeline transits should provide mid-1960s, China has lent its political weight and
some level of security to the transiting pipeline as it would transferred arms to Pakistan in a vain attempt to create a
have provided to its domestic pipelines. In other words, the counterweight to Indian hegemony. But Indian policy-
transiting country should directly or indirectly stand makers in the 1990s insisted that Chinese aims directed at
guarantee for the security of the transiting pipeline. In securing port facilities and economic dependencies, and
the case of the proposed Iran gas pipeline, Pakistan would generally, in seeking to project its influence over the Indian
have to guarantee security of the pipeline under the Ocean, indicated a broader design. As further evidence,
improved rules proposed by India. they cited arms transfer to Bangladesh, Sri Lanka, and
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Myanmar. Above all, India believes that power balance in has bearing of course, on relative military and political
South Asia is affected by the fact that China is a nuclear standing. Along with social achievements, the various
power. Indian leaders express concern that China will use measures of national well-being are interrelated and deeply
its quantitative and qualitative superiority in nuclear interdependent. Prime Minister Manmohan Singh high-
weapons to intimidate the subcontinent and control the lighted the importance the uncertainties in Iran casting a
region’s future. Indian policymakers choose to believe that shadow on finances for a possible IPI gas pipeline during
over the long-term China will inevitably develop highly an interview with The Washington Post. He said that Iran
aggressive tendencies, pushing ahead vigorously with the remains very important to India. Apart from the pipeline
development of tactical, strategic, and theater nuclear project, India has signed an LNG deal with Iran and
weapons. But a good case can be made that China’s Indian companies such as the Tata and Essar are keen on
challenge to India is wrongly perceived. India is far more investing in that country. Though the development of the
threatened by being left behind economically than by Chah Bahar port in Iran and the road linkages to
military and political pressure. It is economic competition Afghanistan are major examples of Indian–Iran coopera-
with China in regional and global markets that will tion, New Delhi is aware that it needs to push ahead with
determine the winners and losers in the 21st century. In the project and ensure its speedy implementation. How-
turn, China will have to acknowledge India’s desire to be ever, Indian foreign policy in favor of implementing Indo-
viewed as the pre-eminent regional power in South Asia to Iran gas pipeline project, before that clear negotiate the
a greater degree than it has to date. Curiously, although price of gas according to India with present Iranian
India is usually described as the world’s largest democracy government.
and China the largest authoritarian, communist regime, However, Indian policy towards Iran will be litmus test
these ideological and institutional differences seem to of the Manmohan Singh Government’s sincerity in
matter very little in determining how they shape their pursuing an independent foreign policy (Baruah, 2005).
policies towards one another (Weinbaum, 2000). Washington will not be happy if India pursues strategic
However, Pakistan and India need peace and stability if energy cooperation with it. However, political reasons
they are to acquire security in the broadest sense. As a always play a role. The United States has repeatedly
result of their policies, however, both countries have accused Iran of producing weapons of mass destruction,
allowed social conditions to be created that undermine supporting international terrorism, and sabotaging the
their futures. The danger is embedded in poor educational, peace process in the Near East. In order to limit the cleric
health and other social welfare programs that fail to regime’s means for funding such activities, Washington’s
provide the human resources needed to compete globally intervention was not only directed against the Iranian
and also extract a high daily price in human costs. The late government. Two years earlier, the US Congress had
Mahbub ul-Haq underscored these issues when he for- imposed economic sanctions, making it illegal for Amer-
mulated his Human Development Index, a measure of life ican companies to do business with Iran. The sanctions
expectancy, education and welfare that has been published explicitly forbade oil swaps. A controversial amendment,
annually since 1990: both Pakistan and India rank near the the so-called D’ Amato Act (ILSA), also threatened
bottom of the index. In fact, Pakistan is often placed in the European companies investing in Iran with heavy fines.
category of sub-Saharan African countries because of its Therefore, Iran is a danger to the United States because
Human Development Investment (HDI) and its statistics they seem to be the only people in this region not to put
on social sector spending. For Pakistan and India, it comes with American domination. The sanctions against them
down to investment priorities. If their economies are to hurt them less than they hurt the American economy itself.
bear the brunt of further increases in defense spending in a The outcome of the domestic power struggle in Iran will be
nuclear era, their social and development sectors are bound important for the new great game. Should the reformists
to suffer. Pakistan has little choice. Defense and debt behind President Khatami prevail, Iran could free itself
repayments already consume roughly 70% of the federal from its international isolation and open itself more to the
budget. In per capita terms, the country spends US$ 21 on West, to the benefit of Iran’s traditional ties with Europe.
arms against India’s US$10. Pakistan also spends 125% Whether this would reduce the rivalry with the United
more on defense than on health and education combined, States in the region remains doubtful. Both countries are
while India spends as unacceptably high 65% more. As a currently too incompatible in their strategic and economic
proportion of its Gross National Product (GNP), Pakistan interests (Kleveman, 2003).
spends more than twice as much does as India does on However, the US opposes the gas-pipeline deal; first, in
defense. While decision-makers in both countries acknowl- its perception it would help ease Iran’s economic difficulties
edge that either can adequately care for its citizens, the because of the handsome revenues it would generate. As it
greatest scarifies always seem to be borne by the poorest is, the US is concerned about the bonanza that oil-rich
(Weinbaum, 2000). countries including Iran are reaping due to skyrocketing
However, the most meaningful competition among the global oil prices. Secondly, the pipeline would set a
region’s states is over access to markets and foreign dangerous precedent for other countries to follow. Iran is
investment. The outcome of this economic competition suitably placed as the natural transit corridor for the
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transport of Caspian Sea oil and gas. The US has, from the plant into weapons grade radioactive material,
therefore, gone overboard to draw transit routes for thereby accelerating its efforts to develop its own nuclear
Caspian oil that bypass Iranian territory. The prime weapons. The Russian assistance to Iran has now become
example of this approach has been the construction of the biggest stumbling block in the current US–Russian
the Baku-Ceyhan oil pipeline. In this case, the US made an rapprochement (Kleveman, 2003).
extraordinary effort to route the pipeline towards the However, US delegation to the UN Conference on
Turkish port of Ceyhan, so that Iranian territory was Disarmament in Geneva has tabled a draft Fissile
avoided. In this politically driven deal, the companies Materials Cut-off Treaty (FMCT). It has also moved for
involved had to spend millions in extra costs to construct nomination of an ad hoc committee from among 65
the pipeline through unfriendly terrain and conflict proven members of the conference to start the negotiating process.
zones. Thirdly, and most important, the pipeline would In the joint statement of July 18, 2005 India had promised
help anchor friendly ties among Iran, Pakistan, and India. to collaborate with the US in finalizing the FMCT. Those
This would greatly undermine US strategic leverage with opposing the nuclear deal point out that if the treaty comes
India and Pakistan against Iran in the future. Therefore, into force India would have to stop production of fissile
determined to keep Iran as isolated as possible, the US materials and that would cap the Indian arsenal at a level
even prior to Mr. Ahmadinejad’s emergence had tried to much lower than what is considered a credible minimum
persuade the Europeans and Iran’s Arab neighbors to deterrent. The US document is a very curious one. It has no
restrict economic and political links with it. The Europeans provisions for verification as in the chemical weapons
have largely disregarded Americans exhortations, and convention. The verification would be left to individual
Iran’s relationship with them has grown over the years. members and it will be up to them to bring violations to the
European companies have pumped in billions of dollars notice of the UN Security Council. The US assumptions
in Iran–Libya Sanctions Act adopted by the US, which may presumably be that this treaty relates only to the eight
bars investments of more than US$40 million into nuclear weapon states and, therefore, such verification by
Iran’s hydrocarbon sector. Defying US pressure, Japan, challenge should be adequate. The US has the most
Washington’s trusted ally, has also decided to put US$2 extensive national technical verification capability and,
billion into developing Iran’s giant Azadegan oil field, therefore, it will operate as the global policeman. In the
which has estimated deposits of 26 billion barrels. In case of plutonium the matter is relatively simple. Only
October 2002, Iran urged Caspian oil producers to ignore reactor-grade plutonium will be produced under the
US sanctions and to pipe their oil through Iran. The proposed draft. But in case of enriched uranium the draft
Golden Gate from the Caspian Sea to the Persian Gulf is allows up to 20% enrichment. The same centrifuges
now open and companies in the Caspian Sea can be sure continuing the process can produce 90% enriched weap-
their resources will be delivered in international markets ons-grade material, which is the bone of contention in Iran.
(Bhadrakumar, 2005). Tehran argues that it intends to produce 5% enriched
Sanctions against Iran have thus far discouraged US oil uranium for use in light water reactors. European nations
corporations from accepting the Iranian pipeline offer. The and US feel Iran is likely to cheat and produce weapons-
Persian route would be, as even US oil executives concede grade material. How will this issue be solved without onsite
privately, shorter, cheaper, and safer than any of the other verification? For India, this is awake-up call. It would
planned pipelines through Russia, the south Caucasus, or appear that for the last eight years, those in charge of our
Afghanistan. And while European companies active in Iran nuclear security have allowed things to drift without
also face heavy fines in the United States, very few of them building up a credible minimum deterrent. Knowing that
feel similarly bound by the US sanctions. The French the FMCT is likely to come up, steps should have been
Prime Minister said that no one accepts that the United taken to produce weapons-grade fissile materials as fast as
States can now impose their laws on the rest of the world. possible. The most appropriate strategy would have been
European companies have taken advantage of the absence to produce weapons-grade plutonium and stockpile it
of US competition on the Iranian oil market. In its efforts (Subrahmanyam, 2006). A top US national security analyst
to keep the US out of the Caspian region, Iran has found said that India can develop up to 2000 nuclear bombs with
an unexpected ally in Russia. United States activities in this the reactor capacity in the eight military reactors even after
region have led both countries to temporarily set aside their the CIRUS reactor is decommission. Dr. Ashley J. Tellis, a
centuries old enmity. Now that they no longer share a senior associate with the Carnegie Endowment for Inter-
common border after the fall of the Soviet Union, their national Peace, was making the point that the Indo-US
relations have grown almost cordial. Despite sharp civilian nuclear deal will not effect India’s capability of
criticism from the US, Moscow encourages Russian producing a large arsenal. However, the US has already
companies to sell arms to Iran, and to assist the country made it clear to India that the deal will become invalid if
in building its first civilian nuclear power plant at Bushehr. India were to test a nuclear weapon. However, nuclear
The US$800 million project, to be completed by 2004, has weapons are political weapons and not weapons of
been a major concern for US officials and non-prolifera- ‘‘fighting’’. Their sole purpose is to deter the use and
tion experts who fear that Iran could covert nuclear waste threat of use of nuclear weapons. A nation’s nuclear force
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structure depends on its nuclear doctrine and deterrence come closer as Pakistan’s utility in the ‘‘war on terrorism’’
philosophy. However, after holding 35 joint military declines and containing fundamentalism in Pakistan itself
exercises and scores of bilateral visits and meeting over becomes a US foreign policy priority. The US also hopes
the last 5 years, the defense ministry (MoD) has suddenly that India will join its Proliferation Security Initiatives and
asked the armed forces to go slow in their interactions with missile defense program, further cementing their bilateral
the US. The basic motive behind the directive is to ensure ties. In fact, the two countries have signed the ‘‘Next Steps
that other countries, including allies like Russia and in Strategic Partnership’’ (NSSP) agreement that paved the
France, do not feel neglected. ‘‘It would send wrong way for Indo-US cooperation in area of civilian nuclear
signals if our armed forces primarily focussed only on the activities, civilian space programs, and high-technology
US to the neglect of all others’’. However, Russia has trade as well as a dialogue on missile defense with each
drawn up plans to build to 100 nuclear reactors over the other. The US nuclear agreement, India has been
next 25 years in an effort to reduce dependence on recognized as a responsible nuclear weapon state. The
hydrocarbons and consolidate its position as the world’s Pentagon has been designating India as a ‘‘friendly’’
energy superpower. Russia has the world’s largest energy foreign country for the last few years along with nations
reserves, accounting for 13% of proven oil finds; 34% of like Austria, Brazil, Bulgaria, Finland, South Africa, and
natural gas; and a quarter of all coal. It is biggest natural Kuwait. This is despite the fact that India refused to oblige
gas exporter and the second largest supplier of crude. the US request for troops to Iraq (Pant, 2006). As far Indo-
Nuclear power today accounts for 16% of the country’s Iran gas pipeline issue is India is not cancel this project
electricity generation, and the Kremlin has set a target to despite that Indo-US nuclear deal. India has bristled at the
raise its share to one-quarter by 2030.The massive build-up Iran rider in the bill because it actually makes things much
is expected to help Russia win a bigger share of the global more difficult within this country, entangling nuclear
nuclear energy market. Today Russia controls 25% of the cooperation with the US with India’s policy to Muslim
world market of enriched uranium and nearly 50% of the and the Islamic world. This has sparked some of the
construction of nuclear reactors. Russia is currently bitterest opposition to the nuclear deal, inviting charges
building nine nuclear reactors; three inside the country that India was outsourcing its foreign policy to Washing-
and six in Ukraine, China, India, and Iran. Russia’s plan ton. On the ‘fiss-cap’ provisions, India has declared that it
for global expansion will get a major boost from a planned will not unilaterally cap its fissile materials production,
agreement with the US on nuclear energy cooperation. The while Pakistan and China retain theirs. However, India’s
decision to sign such a pact, the first in the history of the point of views the Indo-US nuclear deal and Indo-Iran gas
two countries, was reached by Presidents Vladimir Putin pipeline project both issues are important for rapid
and George W. Bush during their meeting in St. Petersburg economy growth. Therefore, in the current situation it is
on the sidelines of the G-8 summit. While the US is keen to too difficult to predict India prefers a close relationship
get access to more advanced Russian technologies, such as with the US at the expense of gas trade with Iran.
fast neutron reactors. Russia is looking to earn billions of However, the geopolitics of pipeline from Iran to India
dollars in atomic power station construction, as well as fuel has become a major foreign policy issue for the United
supply and reprocessing. Once restrictions on any coopera- States in the last few years and today also (Noreng, 2002).
tion in the nuclear sphere with the US have been lifted. Countries like Iran, Pakistan, India, China, and Russia are
India may stand to benefit from Russia’s nuclear industry competing to gain a piece of the great pie. However, United
expansion, which will enhance Russian technology export States favors Turkey for political reasons as against Iran
capabilities and bring down the costs. Russia is currently due to will of its business community. At stake for Iran is
building two nuclear reactors at Koodankulam, Tamil strategic and not just economic, gains or losses. No wonder
Nadu, and is eager to participate in a big way in India’s US is not letting the business executives and states in the
plans to generate 20,000 MW of nuclear electricity by 2020 Caspian region including Iran play the pipeline game
(Srinivasan, 2005; Vladimir, 2006). However, US only among themselves. The winners of the pipeline game will
support India’s civilian nuclear program, and not any reap strategic benefits while losers will become margin-
nuclear weapons capability enhancement. The US and alized for some time to come. Favored by Iran and oil
India Nuclear Cooperation Promotion Act of 2006—to be companies, the southern routes make better economic and
renamed the Hyde Amendment after the lawmaker who commercial sense. They are cheaper to build, pass relatively
engineered it. The Act will permit armed a certifiably safer territories and pose no serious environmental hazard.
nuclear-armed India to buy reactors and fuel from the Significant pipeline and port infrastructures also exist
international market for the first time in more than 30 (Amirahmadi, 2000).
years (subject to final approval and international consent),
despite not having signed the Nuclear-Proliferation Treaty, 6. India and Pakistan
which is the gateway to such commerce. It will, in effect,
mark the end of India’s nuclear isolation and possibly The political environment in South Asia is marked by an
arrange the global strategic architecture. It can also be ambience of hope and anticipation. We are witnessing the
argued that in the long run, India and the US are bound to most intensive diplomatic engagement between Pakistan
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and India since the military stand off of 2001–2002. From pipelines crisscrossing the Asian heartland and connecting
the depths of confrontation and crises, Pakistan and India areas of supply with areas of demand in a manner
have been able to take a series of confidence-building unmediated by outside influence. 4. The involvement of
measures (CBMs) to establish a modicum of stability to Pakistan in this project is not a problem. But an
their relations. Five features mark the new environment. opportunity for India because involving Pakistan in a
First, there is a strong popular sentiment for peace in both trilateral or even multilateral energy grid is an excellent
countries and new stakeholders for peace have emerged. way of raising the level of economic interactions between
Second, there is a manifest sense in both countries that the two neighbors who have traditionally been at logger-
there is no military solution to the Jammu and Kashmir heads with each other (Varadarajan, 2006). 5. For Iran, the
dispute or other problems. Third, there is recognition at Indo-Iran pipeline project offers not only a long-term
both popular and official levels that neither country can potential markets for its natural gas resources, but it also
achieve its full economic potential or achieve prosperity for confers upon Iran a strategic value. 6. Moreover, the levels
its people, while engaged in confrontation. Fourth, the two of competition have intensified in the global gas industry
countries realize that they need to carefully manage their after years of mergers in energy sector against a back-
relations in a nuclearized environment. Fifth, globalization ground of emerging markets. In this regard, the stakes to
is unleashing new dynamics and creating imperatives for export natural gas to emerging markets, such as India and
cooperation, reshaping Pakistani and Indian political China, are high. Like others, Iran’s natural gas industry is
perceptions. The strategic relationship between Pakistan also facing serious challenges on its export front from
and India remains undefined and unstable. Pakistan has Russia, Qatar, and Turkmenistan. Faced with stiff
proposed a strategic restraint regime to define and stabilize competition from other pipeline gas projects, the countries
this strategic relationship, both in the nuclear and in the region are hurrying up to negotiate the long-term gas
conventional fields, based on the concept of minimum pipeline projects (S. Pandian, 2005). 7. India will also be
deterrence. The future of the dialogue and stability in keen to resolve the issue of the tri-nation gas pipeline.
South Asia depends on whether the two countries can Despite considerable US displeasure and pressure tactics,
address and overcome their divergences, especially on India has been committed to the idea of strengthening
Kashmir and the nuclear–military balance, and build on energy cooperation with Iran. Until such time as the
the areas of convergence-trade, regional economic coop- pipeline becomes a financially feasible proposition, India is
eration, and North–South issues. The Indo-US nuclear prepared to increase the quantity of gas imports from Iran
deal has raised serious questions for regional stability. (Kumaraswamy, 2006). Significantly, gas export is a two-
Under the agreement, a large number of facilities and way trade and India is not the only beneficiary. A broad
reactor including breeder reactors will be maintained picture of India’s energy diplomacy vis-à-vis countries like
outside safeguards, which will encourage India to continue Qatar, Saudi Arabia, and Russia might indicate that Iran
and even accelerate its weapons program without any would also be a loser if the gas deal falls through.
constraint or inhibition. This threatens to erode minimum A detailed outlook of the extent of Indian investment
nuclear deterrence and strategic stability as proposed by plans in other parts of the world might convince Iran. And
Pakistan. It could also trigger a new arms race in our though important, it is not India’s only option. While it is
region. A package approach for India and Pakistan, rather legitimate for Iran to demand a higher $7.2/mbtu price for
than the discriminatory one being pursued, would help to gas it wants to sell to India and Pakistan, India is, however,
avert a nuclear arms in the region, promote restraint and willing to pay no more than $4.2/mbtu for gas delivered at
preserve strategic stability while also ensuring that the its border. Iran will not sell its gas at the proposed price.
legitimate needs of both countries for civilian power According to Tehran, if the Indian side is not ready to buy
generation are met. A stable nuclear strategic relationship its gas at its real price, it has no obligation to sell it at the
is essential for normal relations between India and price lower than the real one. But India will not favor to be
Pakistan. A balance in conventional weapons is also an dictated to. Not by US and not by Iran. 8. The importance
essential component of sustainable stability (Lodhi, 2006). of nuclear power, which has become an economic
As far as the IPI gas pipeline project is concerned, the commodity because of the high price of oil and fear of
Indian government is committed to favor this project in the further rise. In such a context the US has offered its
current situation in the aftermath of the Indo-US nuclear cooperation to India in the civilian nuclear field after eight
deal and the prevailing nuclear scenario in Iran. The nuclear reactors have been excluded from the civilian
impetus is India’s long-term energy demand. The Indo-Iran sphere. The US has also agreed to offer nuclear fuel for
pipeline project has such broad geopolitical ramifications power production to India. But Pakistan will not be offered
that it would be prefer or favor this project. 1. It would be a such a facility by the US in view of its proliferation record,
financially viable alternative. 2. India and Pakistan will said the US Secretary of State Condoleezza Rice while in
experience the necessary burden of mutual dependency for Pakistan. The US Secretary for Energy Samuel Boodman
the first time in decades. Iran will get to develop a stable who led the delegation to Pakistan immediately after
and secure export market for its natural gas. 3. The IPI President Bush’s visit, said: India’s needs are different, its
pipeline might become the catalyst for a wider network of problems are different and its programs are different. And
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he advised Pakistan to get gas not from Iran, but from to call a stable and enduring unipolarity. To achieve this it
Qatar at a cost of $8 billion for the pipeline. 9. Energy must achieve dominance over the strategically vital region
security has become a question of national strategy. It is an of West Asia. This in turn means it has to reverse the
issue of great importance, and so once again today. But the greatest political–strategic defeat it suffered in this region.
subject now needs to be rethought, for what has been the The aim of the US since the fall of the Shah in 1979
paradigm of energy security for the past three decades is then, has been constant. Its problem has been how to go
too limited and must be expanded to include many new about undermining the Iranian regime and making it
factors. Moreover, it must be recognized that energy subordinate through regime change, if necessary. For a
security does not stand by itself but is lodged in the larger long time now the US has selectively opposed certain
relations among nations and how they interact with one governments developing nuclear weapons. But September
another. But it is also fueled by the threat of terrorism, 11, 2001 (9/11) added a new dimension. It created an
instability in some exporting nations, a nationalist back- urgent determination on the part of Washington that from
lash, fears of a scramble for supplies, geopolitical rivalries, now on it was not just a question of not letting certain
and countries fundamental need for energy to power their countries get the bomb but that even there capacity to
economic growth (Yergin, 2006). However, India, wary of make the bomb must be denied. Since this capacity is
the physical security of the on-land pipeline, sought a inseparable from the inherently dual-use nature of nuclear
guarantee from Iran that, if Pakistan stooped the gas civilian energy production this had to mean US interven-
supply in case of an armed conflict, Iran will supply an tion to prevent complete control of the entire nuclear fuel
equal amount of LNG to India at the same price. In return, cycle by some countries, above all Iran. But naturally
Tehran has agreed both to supply an equal amount of enough, not of countries like Germany, Japan, etc. who are
LNG to India at the same price in times of supply non-nuclear signatories to the NPT but which have
disruption, as well as to stop delivery of gas to Pakistan if complete control over their respective nuclear fuel cycles
Islamabad disrupts gas supplies to India. Iran also and can, if they put their minds to it, make nuclear
proposed setting up an international consortium of bank- weapons much more quickly than Iran. Expert estimates
ers and energy companies that would buy the gas from Iran suggest that it would take Iran several years, possibly a
and sell it to India. To ensure uninterrupted energy supply, decade, to make the bomb after it takes such a decision,
it also suggested a tripartite agreement between India, Iran, whereas Japan can make a bomb in a few months. The US
and Pakistan with the inclusion of global financial put pressure on the Indian government to support it in the
institutions such as the World Bank and Asian Develop- IAEA. The key for the US was to get Russia and China on
ment Bank as guarantors. Furthermore, it was suggested board. Now this Indian government can simply and
that Islamabad’ s expectations of substantial transit fees happily hide behind this turn of events and tell itself and
was a reasonable enough guarantee against sabotage by everybody else that it is in its interest to support the US.
Pakistan (S.G. Pandian, 2005). Because the big two of Russia and China are going in this
direction or at least not obstructing the US plans vis-à-vis
7. The Iran issue Iran. In effect, the relative inconsequentiality of India
makes its easier for the government to behave more
However, the Indian analysts have begun exaggerating supinely before the US and to claim at the same time that it
the areas where Indian and US strategic interests converge. is not doing so under US pressure. The US is getting what
Nothing could be further from the truth. From West Asia it wants from governments. It knows that in order for it to
to East Asia, the US has emerged as the principal threat to establish its global dominance it must make sure there is no
strategic stability. Its policies of regime change, pre- serious opposition to it from significant powers. And to
emptive war and sanctions against states that refuse to ensure this, must tie them up in arrangements including
accept its diktat, combined with permissiveness towards formal and informal alliance structures that can sustain its
Israel, is degrading the security environment in Asia in a overall hegemony (Vanaik, 2006).
way that will adversely affect India’s interests. Even as it However, presently situation of Iran becomes a sus-
looks forward to the implementation of its nuclear deal pected or a de facto nuclear weapons state, it is feared that
with the US, India must be mindful of the collateral its neighbor such as Iraq, Saudi Arabia, Egypt, Syria, and
damage its relationship with US could cause for itself and Turkey, may consider their nuclear options. There is the
the region (Varadarajan, 2006). However, the US, within ongoing security concern of Israel, and even the possibility
which the games that have been played over Iran by all of future hostilities with the United States. All these make
corners, presently needs to be situated. The US is playing the nuclear option a tempting quick fix for present and
for huge stakes. In comparison, the Indian government is future security dilemmas. Egypt, despite its close security
playing for very small stakes but pretending that these are relationship with the United States, may well consider
much bigger stakes in order to justify its foreign policy nuclear alternatives on the basis that it no longer carries the
stand in support of the US. The US since the end of the prestige in Arab politics that it once did. And a nuclear
Cold War has been seeking to establish a permanent global Iran would be yet another insult to Egyptian prestige. In
dominance, an informal global empire, or what some prefer addition, to provide leverage in future negotiations the
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strategic calculus of Syria may also point towards nuclear price is right, neither will not hesitate to ‘‘abstain’’ from
attainment. With an ambiguous future in Iraq and with any crucial vote in the Security Council. Iran cannot ignore
Israel to the south, Syria occupies a position that is a harsh reality: like the US, both China and Russia are
extraordinarily isolated, vulnerable. Such a position may opposed to Iran going nuclear. India might also use the
provide powerful incentives to develop nuclear weapons. If recent meetings with other leaders from the Middle East,
Iran develops nuclear weapons capability, the balance may especially King Abdullah of Saudi Arabia and Kuwait’s
tip dramatically in favor of Iran. However, if the US and Emir al-Sabah, to get the point across to the Iranian
the EU fail to convince Iran to forego the nuclear weapons visitor. Their concerns and apprehensions over the
option, Turks (especially from the younger generations) perceived Iranian hegemony are real and could not be
may not remain loyal to the norms of the non-proliferation wished away by political rhetoric (Reuters, 2005). In 1991,
regime. The US faces essentially three options to stop Iran Saddam Hussein underestimated the opinion of the
from going further down the road to become a de facto international community over Kuwait and Iraq paid the
nuclear weapons state. The first possibility is to stage price. Hopefully, Ahmadinejad will look for a better
‘‘regime change’’ and brings in an administration that example than Saddam to emulate. Third and most
might renounce nuclear weapons. The second is to carry importantly, Iran has only one address in India: Govern-
out a ‘‘military strike’’ (limited in scope and purpose) ment of India. While the country can benefit from India’s
against carefully selected nuclear installations to set the democratic polity to influence the official Indian policy has
nuclear program back several years. The third is to, to stick to certain norms. At the height of the domestic
‘‘engage’’ Iran diplomatically and apply a ‘‘carrot and controversy over the IAEA vote, an impression was created
stick’’ policy to convince the ‘mullahs’ that it is not in their that Iran was trying to influence the policy by be-friendly
best interest to pursue a complete nuclear fuel cycle. Each certain quarters that were critical of the Congress govern-
of these options involves difficulties when considered in ment. In the early 1990s, Iran sought to play up the Shia
light of Iran’s realities. On the issue of normalizing factor and there were suggestions of tacit Iranian involve-
relations between Iran and Israel. Iranian senior analysts ment in the Kashmir upsurge. Now, it is playing footsie
argue the ‘‘the formal recognition of the state of Israel by with the Left, which has emerged as a bitter critic of the
Iran may also be possible if essentially a ‘grand bargain’. government over Iran’s nuclear puzzle.
Dr. Saideh Loitfian, from Tehran University, has clear
suggestions for the ‘‘very big’’ gains: Iran could enter into 8. Iran and India joint ventures
negotiations for shutting down its nuclear power industry,
with the following conditions. All sanctions against Iran Indian companies have been promised participation in
should be removed, particularly sanctions restricting Iranian gas fields. The Iranians have also opened up their
investment in its oil and gas sectors. Iran should be petrochemical sector for Indian investment. Indian firms
admitted to the WTO. Iran should become a beneficiary of have already signed an agreement that would allow them to
foreign technical aid to find substitute sources of electric participate in the Yadavaran and Jufeir oil fields, besides
power; and Iran should be given positive security accessing the offshore Farsi block for exploration. In-
guarantees to ensure its national security in the absence cidentally, India and China along with Iran will be partners
of its nuclear deterrence capability. Eventually Iran should in the Yadavaran effort, a move that might acquire greater
be included in a regional system in the Persian Gulf political meaning if similar ventures are pursued in the
(Kibaroglu, 2006). future. Iran and India have been deliberating over transit
However, India’s point views three issues dominate and that would enable speedy transfer of Indian goods to
undermine the bilateral agenda. First and foremost, India Europe and Central Asia. Both sides have recently begun
is apprehensive of Iranian nuclear ambitions. Agreed, the official level discussions on a land corridor that could allow
manner in which India expressed its concerns vis-à-vis this Indian goods to transit through Pakistan, Iran, and
issue may be questionable and India could have handled its Azerbaijan on to Europe. In case discussions succeed,
vote at the IAEA more tactfully. But given the A.Q. Khan containers can be sent from Punjab by road or rail to
connection, India would have opposed Iran even without Pakistan. From there, they can be transhipped by rail into
the US angle. Furthermore, as far as the nuclear issue is Iran, once it completes construction of the 540-km rail link
concerned, India is on the same side as China and Russia: a between Zahedan on the Pakistan border and Kerman.
nuclear Iran is a threat to its long-term strategic interests. Efforts are also under way to build a small portion of
Any peaceful and diplomatic resolution will require Iran’s railway track to connect Iran with Azerbaijan. Some
ability and willingness to swiftly, unequivocally, and experts envisage that Indian goods would reach Europe in
decisively convince the international community, especially a record 13 days if this route were opened up. India and
the IAEA, of its peaceful intentions. India does not see any Iran have also been discussing ways to transit Indian goods
military solution to the conflict, it also does not share via the port of Chah Bahar. There is a proposal that India
Iranian penchant for dragging its feet. The perceived construct a rail link from Chah Bahar to Bam. Once this is
sympathy of China and Russia towards Iran is nothing done, Indian goods can be sent from Chah Bahar to the
more than a leverage to secure better deals from US. If the Central Asian republics as well as Russia along an existing
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rail network, which connects Iran with the former Soviet should Israel absorb before its legitimate right to self-
Union. defense is recognized in world opinion. What is the other
Simultaneously, India and Iran are jointly working on option for Israel as long as Lebanon is being completely
extending the Iranian road network into Afghanistan. occupied by terror and is subjugated by it. Israel has no
Indian construction activity is centered in Afghanistan quarrel with Lebanon and no claim territorial or otherwise,
between Zaranj and Dearam. The Iranians have been but seeks only to ascertain that the Lebanese border does
working on refurbishing a road system via Zahedan and not become a base for terror attacks against Israeli civilian.
Zabol, which is located at the Iran–Afghanistan–Pakistan Any success of terrorists in pursuit of their goals, especially
border junctions. Once completed, the Iranian road by means of mass killing of the enemy’s civilians is received
network would be connected to the garland road system with cheers by their fans and supporters. Any set back to
in Afghanistan and enable traffic to move towards the these forces by means of resolute military operations
Central Asian republics and Russia. Both countries have a against them immediately ignites widespread rage in the
joint stake in the development of Chah Bahar port. With neighborhood. Hatred and blood, of their enemies or their
Jebel Ali in Dubai fast becoming overcrowded, Chah own, inspires them and ignites their imagination. Needless
Bahar is ideally located as a future-shipping hub for to say cheerful crowds greet that Hazbollah’s successful
facilitating east–west trade. Once endowed with sufficient killing and kidnapping, by and large, across our region.
warehousing facilities, Chah Bahar can be used fully for This is not so much out of the desire to see the emergence
promoting trade with land-locked Central Asia. Besides, of a truly independent state of Lebanon or an independent
Chah Bahar is also geo-strategically significant as it stands state of Palestinian state, but out of a desire to see the
at the gates of the Gulf of Oman and the Arabian Sea, disappearance of Israel (Danieli, 2006). Even more
overlooking vital shipping lanes emerging from the Persian disturbing is the fact that no genuine attempt has been
Gulf. As ties between Iran and India deepen, both sides made to enforce an immediate ceasefire, despite most
have been looking at new areas. Indian steel giant Tata governments in Rome asking about for it. Continued Israel
Steel plans a joint venture with an Iranian company to bombing of Lebanon would further complicate matters,
make steel in the Persian Gulf Special Economic Zone and endanger the world both in terms of ideologically
(PGSEZ) in Bandar Abbas. Tata Steel and an Iranian strengthening Pan-Islamist terror and aggravating the
company are also planning another three-billion-tonne global energy crisis. India, given that it’s a key emerging
export oriented unit at Bandar Abbas. The company will economy with rising energy needs, must certainly intervene
also participate in establishing a gas based iron pellet plant in its own interest. But Israel foreign ministry official
at Gol-e-Gohar in Kerman province, using locally mined Gideon Meir said: ‘‘we cannot accept a ceasefire with
iron ore (Aneja, 2005). Hezbollah because this terrorist organization would exploit
it to gather civilians to use them as a human shield in the
9. Persian Gulf politics combat zone’’.

Oil defined the geopolitics of the Persian Gulf earlier and 10. Indian energy scenario
it continues to do so in the 21st century (Akiner, 2004). In
other words, a perspective driven by oil and gas has India has currently got electricity generation capacity of
superseded the spatial recognition of the Caspian states as 127,000 MW but faces a peak energy deficit of about 47%.
post-Soviet political and economic appendages. We now This is 3% of the world capacity. The average plant load
see these countries through a new prism, based on a geo- factor is 60%. That means only about 70,000 MW of
economic and geo-strategic model, characterized by the electricity is generated. Transmission and distribution
importance of oil, gas, and pipelines. Foreign powers are losses range between 18% and 62% in various states. This
politically active in the region, using Persian Gulf govern- makes an average of 40% which means about 43,000 MW
ments and groups for their own purposes. Various Persian of power only is available at consumption point. About
Gulf interests invite and use foreign powers for their own 20% inefficiency in the utilization of electricity leaves only
protections and strength. Oil and gas is the common about 34,500 MW of power actual consumption out of an
ingredient in the multiple relationships between foreign installed capacity of 115,544 MW. This is a crying need for
powers and Gulf interest and an essential factor in the increasing the efficiency level, which is very much possible
pattern of regional conflicts, but not the only one. The at minimal cost. (Narayan, 2005) Therefore, the demand
combination of regional dispute and foreign intrigue has from the power sector will increase to 400,000 MW from
caused an extraordinary level of tension in the region, with existing 120,000 MW, assuming an energy growth rate of
recurrent open conflicts as well as a multitude of latent 5%/annum. India also depends on oil to the extent of 114
national, ethnic, and territorial discords. Indeed, since the million tons every year, 75% of which imported and used
end of the Cold War, the Persian Gulf has been the world’s almost entirely in the transport sector. India has 17% of
most conflict-ridden and militarized region Noreng, 2002. the world’s population but just 0.8% of the world’s known
Once again Israel–Lebanon war will be on the rise. How oil and natural gas resources. It ranks sixth in the world in
much more terror from the hands of Hezbollah and Hamas terms of energy demand. Its economy is poised to grow
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7–8% in the next two decades and in its wake there will be Expectations are that high prices of crude will not go
a substantial increase in demand for fuel and electricity. away. The average oil prices paid by India rose from
India is known to have five lakh tons of thorium, US$28 in 2003–2004 to around US$51/barrel in April–June
roughly one-third of the world reserves. It is the only 2005. The total oil bill is in excess of Rs. 150,000 crore.
country that is committed to using thorium as a nuclear This is a huge tax being paid by the nation to oil producers,
fuel. While the country has significant reserves of coal, and its effect is evident. Current account balance deterio-
it is comparatively poor in oil and gas. Due to stagnating rated from a surplus of US$10.5 billion in 2003–2004 to a
crude production, India imports approximately 70% deficit is likely to cross US$14 billion this year. The rupee is
of its oil, much of it from West Asia. World Energy under pressure and will continue to be so as interest
Outlook published by the International Energy Agency sensitive capital flows go easily when US interest rates rise.
projects India’s dependence on oil imports to grow to (Narayan, 2005) The government too is considering
91.6% by the year 2020. India is well endowed with increasing the price of oil and natural gas in the inter-
renewable sources of energy. Latest estimates give the national market. Therefore, it is saving the oil marketing
potential for wind power at 45,000 MW (wind farms companies (OMCs) which are suffering from low cash
have sprung up in many Indian states with significant revenue because its price system is controlled by oil
private investment; wind capacity, 3595 MW and more ministry. The government of India again reintroduced the
than nuclear power capacity 3310 MW). There is no administered price mechanism (APM) which it had
reason why wind capacity cannot be doubled in the next dismantled in favor of market linked prices. The OMCs
2–3 years. Solar energy has a number of decentralized are facing cash losses of up to Rs. 40,000 crore by the end
applications, and should be further encouraged) small of the financial year, without raising retail prices. (The
hydropower at 15,000 MW, biomass power at 19,500 MW, combined loss of IOC, HPCL, and BPCL in July was Rs.
and waste-to-energy at 4200 MW, making a total of 1516 crore. IOC, alone lost Rs. 467 crore on petrol, Rs.
83,000 MW. Though a full-fledged Ministry for Non- 2730 crore on kerosene, and Rs. 1180 crore on LPG during
conventional Energy has been in existence for more than April–September. This comes at a time when global crude
a decade now, only 4885 MW, a mere 6% of the potential, oil prices crossed the US$70 barrel mark. IOC is losing Rs.
has been tapped so far. Similar is the case, with the 52 crore everyday on account of selling petrol, diesel, LPG,
exploitation of the renewable potential into electric power, and kerosene below the cost price). A return to the earlier
our energy future could be secure and dependence on fossil oil pool system seems to be one of the most politically
fuels could be significantly reduced. Anandalingam, 2005; feasible options. The government has not allowed OMCs
Rajappa, 2005) (Fig. 1). to increase retail prices because of opposition from the Left
Therefore, nuclear power looks like becoming critical to parties, on which the Congress is dependent for survival.
India’s economy and long-term energy security. First, Analysts say prospects of convincing the Left are remote
India’s rise as an economic power means that its energy with elections in mind. More than Rs. 7400 crore were lost
needs will rise massively. The BRIC report of Goldman on sales of petrol, diesel, kerosene, and LPG in 2005–2006
Sachs projects India’s GDP to rise by 40 times between as they were forced to hold down prices of petroleum
2000 and 2050. If energy consumption rises at just half products such as petrol, diesel, liquid petroleum gas (LPG),
this rate, it means India will need 20 times more energy and kerosene despite a surge in global crude oil prices. The
in 2050. It will be difficult or impossible to meet these government has also tried to help marketing companies by
needs through conventional fuels. Secondly, the price of getting state-owned producers like ONGC and Oil India
fossil fuels has shot up, with oil more than doubling to Ltd. sell indigenous crude at heavy discounts of up US$16
US$80/barrel and gas more than tripling to US$7/mBtu in a barrel. Oil companies say this is another from of return to
the US. Oil prices are notoriously volatile and could fall government control. This is already hitting the producers.
sharply in a few years. But they will surely rise again later. For example, ONGC, a highly profitable Fortune 500
The emergence of China, India, and other Asian countries company, lost Rs. 2873 crore in last quarter due to such
as major consumers means that global supplies of fossil
fuels will increasingly come under pressure. By contrast,
nuclear energy is unconstrained by fuel worries: a small 60
amount of uranium generates many megawatts, and 50
plutonium can be extracted from the spent fuel to yield 40
%

fresh fuel in mixed-oxide reactors. Nuclear power plants 30 56


20
are extremely capital intensive, costing twice as much as 25 5
10 1 10 3
thermal plants of comparable output. They need an 0 Natural Hydro Renew
additional 10–15% for de-commissioning when they Gas
Oil Coal
power
Nuclear
able
become too old to operate. But they have the big advantage Series2 1 10 56 25 3 5
Series1
of very low running costs. By contrast, running costs can
be half the total costs in a thermal plant, and keep rising Fig. 1. Energy structure in power generation—2005 (%). Source: Business
with fuel prices. Standard, New Delhi, 1 September 2005, Dua, 2005a, b.
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discounts on crude oil sales. In late July, the Reserve Bank industry has been in the doldrums since 1976 and is looking
of India had estimated that the global crude oil prices had to China and India as major sources of new demand.
risen some 70% year on year while domestic prices 20% in Although the Indian nuclear establishment would be more
the same period. Retail prices were last raised marginally in comfortable sourcing reactors from Russia or France, it is
June 2005. The Central government ran up a fiscal deficit highly unlikely that the lifting of the embargo on civil
of 4.1% of GDP in 2004–2005. It has projected a fiscal nuclear cooperation with India at the urging and initiative
deficit of Rs. 151,144 crore, or 4.3% of GDP, for the of the US will not result in some contracts going to
current fiscal year 2005–2006 (Narayan, 2005). American companies. At the very least, as noted above, the
US would certainly be looking forward to leveraging the
11. The superpower dynamics nuclear agreement to secure a greater share of the growing
Indian arms market. The offer of civil nuclear cooperation
The United States has shown itself to be a reluctant comes with a collateral price tag in some other area is by
superpower in the post-Cold War world, seeking on the itself not sufficient grounds to reject or oppose such a
one hand to continue to enjoy the privileges of that status. historic deal, which offers the Indian nuclear industry a
In the post-Cold War world, the assertion of global chance to end more than 30 years of isolation. But they do
leadership remains a central feature of America’s larger suggest the policy areas where utmost caution is required.
national identity. And in a number of ways the US can still If the unreasonable expectations of the US on the strategic
lay claim to being the world’s only superpower. Indeed, no front, the energy security front, and the trade front are met
other power can match US global military reach, which fully or even partially, many of the gains stemming from
spans all geo-economic regions and encompasses the the resumption of civil nuclear cooperation will be lost. The
critical oil-producing region of the Persian Gulf (Schwen- US, Bush’s remarks in Islamabad that US did not have any
ninger, 1999). Therefore, The US is the biggest consumer of problem with the Iran pipeline but only with Iran’s nuclear
oil in the world accounting for 25% of current world ambition is not a shift in line as some have suggested, but a
consumption, and only 7.7% of world production. A clever reformulation of the same objection. Oil, and
steadily declining crude oil production in the US coupled particularly natural gas, will continue to be an important
with steadily rising costs of funding and developing new part of the Indian energy mix in the short-medium term
fields have combined to create a major oil deficit in the and nuclear power can be seen as a substitute only in the
country’s oil balance forcing it to become increasingly long term. Up until the middle of this century, then, finding
dependent on oil imports and this dependence is set to and securing new sources of hydrocarbons will have to be a
increase. In 2000 the US imported 56% of its needs or key aspect of India’s quest for energy security (Varadar-
11.07 million barrels a day, almost half of which come for ajan, 2006). US describing India as a ‘‘natural partner’’.
the Persian Gulf. By the year 2010, the US could be The partnership between our free nations has the power to
importing 79% of its oil needs, two-thirds of which come transform the world. As a global power, India has a
from the Persian Gulf. The United States control over the historic duty to support democracy around the world.
oil and gas reserves remains an important foreign policy India’s leadership is needed in a world that is hungry for
objective (Salameh, 2003). freedom. As a standalone deal, the Indo-US nuclear
The rise of India and China is exerting tremendous agreement in the form in which it currently stands has
pressure on the international hydrocarbon market as far as much to commend it. US desire to build a strong
the US and Western oil majors are concerned. This is not partnership with India centered around civil nuclear and
so much owing to the current levels of demand. Indeed, it is conventional military cooperation with India. The growing
a fallacy that demand growth in these two countries is an economic and strategic importance of India in a world that
important, let alone pivotal, cause of the recent upward is in transition from one order to another. For the US,
trend in international oil prices as to the hedging strategies which intends to weather this transition and the rise of
China and India have embarked upon. These strategies are China with its hegemonic power intact if not augmented-
aimed at securing a major upstream presence through nuclear cooperation with India forms the bedrock of a
equity oil acquisition as well as the establishment of new wider set of strategic interactions aimed at harnessing
transportation infrastructure such as transcontinental and Indian strategic capabilities. Indeed, strategic factors have
transregional pipelines. India, in particular, is seriously over-determined the US approach to the Indian nuclear
examining the prospects of a strategic natural gas pipeline question to such an extent that India’s nuclear weapons
form Iran via Pakistan. If completed, such a project are today considered an asset for the US rather than a
would fill a gap in the emerging Asian energy architec- strategic challenge. The changes in US force deployment
ture. And open the possibility for the generalized outflow and basing patterns around the world and Asia, as well as
of Central Asian and Caspian oil and gas southwards the foreseeable increase in offensive missions the US
towards the Persian Gulf and thence to Asia, rather than Armed Forces are likely to undertake on the Asian
exclusively westwards via US-promoted pipelines such as a landmass, building a strong military relationship with
backdrop, providing India a viable nuclear energy option India is absolutely vital. The idea is that the US could
makes eminent sense. The US nuclear reactor construction eventually draw upon Indian capabilities to outsource
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activities at the lower end of the military food chain, 12. China as a factor in energy politics
such as peacekeeping, maritime patrolling, and disaster
relief, thereby freeing its own forces for the ‘‘high end’’ task China’s fifth national census of 1 November 2000
of waging (pre-emptive) war. The US has a strategy to revealed that the population had grown to a total
ensure that they remain the foremost power in military, 1,242,612,226. This figure represents more than one-fifth
economic, technological, and cultural terms, in a group of of the world’s population (22% of the world population).
six major powers. The six powers are US, China, EU, And 64% of the Chinese population live in rural areas
Japan, Russia, and India. In order to implement this compared to 88% in 1952 (Fisher, 2005). Therefore, China
strategy they have to enlist India as a partner as they have is regarded as an important player in global strategy.
already done the other four powers. China is far from Through skillful diplomacy and by virtue of its size and
being an adversary of the US. It has an over $200 billion weight in international affairs, as symbolized by its
annual trade deficit with US, has invested $250 billion in position as one of the five permanent members of the
US bonds and banks, and is a partner with US in a number UN Security Council, China has shown that it cannot be
of international economic and technological arrangements ignored. Owing to its rapid rate of economic growth, China
(Subrahmanyam, 2006). has come to be regarded as the next rising world power.
However, the thrust of US strategy towards China is China’s spectacular economic growth has led to a growing
engagement, not containment. China is as capitalist as the dependence on oil imports which in 2000 amounted to an
US, so it is rather unlike the US relationship with the estimated 30% of its needs with imports from the Persian
Soviet Union during the Cold War years. Similarly, Russia Gulf accounting for 31% of the total and this trend is set to
partners the US in running a space station, has a Founding continue into the future. By 2005 China will need to import
Act with NATO with a Russian general as a liaison officer 60% of its needs, rising by 2010 to 76% of its needs. By
in NATO headquarters, shares membership with the US in then China would have overtaken Japan to become the
Organisation of Security and Co-operation in Europe, and world’s second largest oil importer after the United States.
has been coopted into the G-8 group of leading economies. The rapid growth in crude oil imports has significantly
The US is military allied to EU and Japan. This is the altered China’s position in the world oil market. China
balance of power in the 21st century with the US a now accounts for 6% of global oil consumption compared
hegemon. The US is interested in ensuring energy security to 3.5% in 1988, whilst its share of world production only
for the whole world to ensure continued economic growth amounts to 3.9%. China’s economic development and its
of all major powers, which is turn, would help its economy. aspirations to diplomatic superpower status depend heavily
Therefore, the US pushes nuclear and clean coal energy to on its Persian Gulf oil. However, China’s potential
high-energy consumers. That led to sale of a large number exposure to economic dependence and to the political
of nuclear reactors to China and an agreement that turbulence of the Persian Gulf touches a very raw nerve in
Australia would sell uranium to Chinese reactors. Both its strategic thinking (Salameh, 2003).
these pacts were contracted on terms more severe than However, in particular, China’s thirst for oil forces
those accepted by India. China has accepted these terms Beijing to aggressively pursue international sources of
because it is keen to ensure its energy security. Since a fast- supply, driving up international oil prices. High oil prices
growing India is important in the US scheme of things, US not only directly affect the Chinese economy but also
is exceptionalizing India from the NPT and making increase international tension. However, in 1993, China
available clean coal technology. These are steps to ensure was self-sufficient in oil. Since then, its GDP has almost
that the 21st century belongs to the US. US modify tripled and its demand for oil has more than double.
their strategy from time to time suit their interests. In Today, China imports 3 million barrels of oil per day,
the 1950s, instead of facing the Soviet Union militarily, which accounts for almost half of its total consumption.
they adopted the strategy of containment, which finally China’s share of the world oil market is about 8%, but its
contributed to breakdown of the USSR. In 1971, US share of total growth in demand. World oil demand has
reversed its hostility towards China and succeeded in grown by 7 million barrels per day since 2000; of this
weaning that country away from communism and its growth, 2 million barrels each day have gone to China.
Soviet alliance. Now, it focuses on the last frontier making India’s oil consumption is currently less than 40% of
India a partner and tapping into its economic and techno- China’s, but because India has now embarked on what the
logical potential. China and Russia are largely partners of economist Vijay Kelkar calls the ‘‘growth turnpike’’, its
US rivals at times but not adversaries. Russia will preside demand for oil will accelerate (Yergin, 2006).
over G-8 and China will be firmly tied to western reactors, However, economic interdependence serves as the single
Australian uranium, US clean coal technology, and further most powerful deterrent against an embargo or blockade
expansion of trade with US and Japan, and more financial by China’s neighbors. China must now view energy
linkages to US. While China will exploit resources from security in terms of economic threats and market solutions
developing countries in terms of oil and mineral products, rather than military threats and diplomatic responses.
it will not lift its little finger to fight on their behalf China relies heavily on the Middle East for its supplies,
(Varadarajan, 2006). but it has diversified its sources, and the potential for
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a politically motivated embargo by a Middle Eastern diplomatic initiatives, and outright threats. Any possible
exporting country remains low. Beijing has pursued a sanctions from the west could possibly, by disturbing Iran’s
balanced foreign policy vis-à-vis the Arab–Israeli conflict, political and economic situation, raise oil prices beyond
reducing the risk of Arab oil exporters joining hands in an levels the West expects. A nuclear Iran would be in a much
embargo against China. By opening talks with the Gulf stronger position to assert its geographic leverage over the
Cooperation Council member countries towards establish- Strait of Hormuz, the main passageway for 15–16 million
ing a free trade area, Beijing has also moved from a pure per day of oil, roughly two-thirds of total world oil trade
focus on oil supplies to enlarging the scope of economic and 20% of total world daily demand. Oil and petroleum
exchange with key oil-exporting countries. This deepening products from Iraq, Iran, Kuwait, Saudi Arabia, Qatar,
of economic ties implies that Middle Eastern countries will and the United Arab Emirates transit the Strait of
have to consider the impact on their own economies of Hormuz. Large quantities of LNG are also exported from
punitive actions against Beijing in the area of oil supply. In Qatar through the Strait. Qatar plans to export over 9
short, growing interdependence between China and the million tons of LNG a year and Iran is also building LNG-
Middle East serves as useful insurance against an embargo. export capacity. Since 1992, Iran has occupies island near
More recently, China has become more active in Middle the strait of Hormuz, restricting outside access, building an
Eastern affairs. Securing energy supply is a primary airstrip and deploying SA-6 surface-to-air missiles, 155 mm
objective. China and the US seem to be on a political artillery and Seersucker anti-ship missiles there (Potter and
collision course over China’s pursuit of oil supplies from Sick, 2000).
Iran. In 2004 Sinopec, which accounts for over 80% of However, Sino-American conflicts as inevitable conse-
Chinese oil imports and is the single largest refiner in quences of China’s emergence as a major international
China, bid for development rights for 16 Iranian oil fields actor. A broad range of Chinese policies ranging from its
despite attempts by the US to persuade it to withdraw. This defense build-up to its opposition to the US-led invasion of
ongoing situation underscores the seriousness of Sino- Iraq can be constructed as preliminary efforts to challenge
American differences. In 2005, the Bush administration US pre-eminent status. As the uproar over the aborted
responded to the perceived Chinese challenge to American 2005 attempt by the state owned Chinese National
efforts to contain Iran by supporting India’s pursuit of Offshore Oil Company (CNOOC) to acquire American
nuclear energy while maintaining sanctions Chinese acqui- oil firm UNOCAL indicates, there are many in the US,
sition of the same nuclear technology. Such policies may particularly on the political right, who remain deeply
produce unintended consequences by giving weight to suspicious of China. At the same time, however, Sino-US
voices in China that see politically motivated diplomacy as ties most notably in trade and investment have both
the ultimate instrument for securing China’s oil supplies. broadened in scope and increased in importance. It would
As a consumer country, China does not really have much be a mistake for the US in a fit of paranoia to miss
of a choice in its sources of supply. With Chinese oil diplomatic opportunities created by China’s increasing
companies on a learning curve as they interact with involvement in oil markets and the Persian Gulf. Ten years
international oil majors in the Middle East, Central Asia ago, China was energy self-sufficient. Today it is the
and Africa, contention between Beijing and the United world’s third largest oil importer, importing roughly 3
States (and its allies) over China’s pursuit of energy million barrels per day of crude oil and another 500,000
supplies can be expected to last for some times (Zha, barrels per day of refined product. Moreover, China’s oil
2006). The shortage of surplus capacity means that US imports are projected to rise to 10 million barrels per day
policies towards the Persian Gulf are likely to have more by 2020. As its oil imports began to grow in the late 1990s,
immediate and obvious consequences for major oil- China has become more active in the Gulf. Chinese foreign
consuming countries. This is both a danger and an policy analysts have concern about the better importance
opportunity for US policymakers (Saikal, 2005). How US of forging a better strategy towards the countries of the
manages its role in the Persian Gulf will impact not only Persian Gulf. One key concern is that the West’s strong
relations with the countries of the region, but also with position in the Gulf could threaten China’s access to oil
Europe, China, Japan, and India. Fears of a rivalry supplies. To reduce the threat, China has diversified both
between the US and China over Middle East oil are its oil and gas investment holdings to countries such as
probably misplaced, as neither US nor China may be able Sudan, Venezuela, Indonesia, and Nigeria. It has also
to attain secure oil supplies from the Gulf in the coming engaged major Gulf oil producers in a variety of ways,
years. But such competition could become a self-sufficient including government-to-government arrangements, coop-
prophecy, if both countries fail to cooperate to try to eration with local partners, and participation in interna-
ensure regional stability. A situation of competing, tional consortia. For the most part, China’s oil supply
bilateral oil deal could quickly become one where both pursuits have been undertaken in a business context that
the US and China get unexpectedly cut off by a major should not be particularly upsetting to US, with China’s
disruption based on internal difficulties and aggravated by state oil companies bidding for acreage, farm-ins or
the rivalry. Iran has used its influence to boost world oil acquisitions in the customary commercial fashion. China’s
prices levels through a combination of public statements, commercial oil and gas investments help increase the pool
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of capital investment in energy resources, and that helps all While international pipeline activity has shown relatively
consuming countries. However, China has also secured slow growth over 2003–2005, proposed additions in
some very attractive oil acreage in countries with which the 2006–2008 could result in a record number of new pipeline
US has had troubled relations, hindering US efforts to miles. Much of the interest in completing languishing
isolate these nations. In the case of the oil-rich govern- planned projects will be rekindled by higher oil and gas
ments of Venezuela and Sudan, China’s support has been prices, increased demand in developing nations, and the
bothersome to US in Sudan’s case because it hindered US outlook for LNG’s role in the US, Europe and other
efforts on the Darfur crisis. But China’s expanding developing gas markets. Supporting this is the recently
involvement in Iran’s oil and gas sector is the most released BP 2005 Statistical Review of World Energy
worrisome to US policymakers. China’s activities are (Tubb, 2005). The Review indicates much of the recent
giving countries like Iran and others the impression that demand for oil and gas was fueled by Asia, especially
they can fruitfully play China and US off each other and India and China, where Chinese consumption rose by
attain backing from China to counter too much inter- 900,000 bpd, almost all of which was accounted for by
ference by US in their internal affairs. Indeed, Chinese imports. On natural gas, the review notes that international
involvement with Iran has already undermined US efforts trade rose 9% in 2004. Pipeline shipments rose by more
to get Iran to give up its nuclear weapons program. than 10%. Russia accounted for the largest increment, but
China’s recent military build up, though sizeable, is far growth was widely distributed across the world. Shipments
from sufficient to guarantee East Asian sea-lanes, much of LNG rose by 5.4% last year, slightly below 2003. A
less defend the free flow of oil from the Gulf. Thus, for the strong energy consumption not only in China, but all
foreseeable future, China will forced to rely on US Navy developing nations, is reported in Exxonmobil’s 2004
operations to protect China’s access to oil and gas from Corporate Citizenship Report. As the data show, by
Gulf, greatly constraining its geo-strategic options. Not 2030, energy demand will grow by 50%. Close to 80% of
least, China’s emergence as a major and growing oil the energy demand increase will occur in developing
importers has raised the potential cost of policies that nations. Europe is also an emerging gas market. Indigen-
serves to destabilize the Gulf. Chinese policy in the region ous supply cannot keeps up with demand and future gas
has yet to catch up with this reality. Like the US, China supplies will be piped in from much greater distances. It is
now has a vital interest in abroad range of issues such as suggested that India’s economic interest in the Indo-Iran
ensuring security of the Strait of Hormuz, averting a pipeline project be in conflict with Pakistan’s geo-strategic
dangerous regional arms race, and helping bring some interests. As India view that Pakistan’s geo-strategic
modicum of stability to Iraq shared by all major oil interests are aimed at disrupting Indian economic interests,
consuming countries. This raises the question of whether the Indo-Iran pipeline project could hardly be conducive to
the US could benefit more from co-opting China than by sustain confidence between India and Pakistan. In this
challenging it (Joe and Amy, 2006). regard, it is unlikely that India would entertain Pakistan’s
role in Indo-Iran pipeline project. Only upon mutual co-
13. Conclusion existence with India, Pakistan could benefit from its geo-
strategic location.
It is suggested that uninterrupted supply of oil remains India’s expanding economies, growing population, rising
one of the most important priorities for India’s energy standard of living, and limited indigenous energy sources
security (Lax, 1983). The second concern is the increase of pose a serious challenge to its long-term energy security.
uncertainty in the fundamentals of the energy markets: Our goal should be to ensure reliable, affordable, and
increase in volatility, impact on our economy as well as on environmentally sound energy supplies on a long-term
energy demand of the oil prices increase, succession of basis. A difficult but achievable goal we would need is not
potential surplus in gas demand or offer. Our strategies only political will and the best efforts of industry leaders
have to be adapted to this new reality (Clark, 2005). As and experts but also a conducive environment to tackle this
economies improve, more energy is needed and more serious problem in a serious way. India can hardly build
sources must be developed to supply the demand. If energy security by sourcing its main gas imports through a
demand cannot be met with conventional crude sources, pipeline involving two renegade states. Iran already facing
then unconventional become important (Bromley, 2005). energy sector related sanctions under ILSA, a US law with
The prospects of continued high oil prices present a two- extraterritorial application to third country firms, could
edged factor. The higher prices will no doubt eventually become a target of US military action. Pakistan continues
impact world economies but the good side of the coin is to do with impunity against India what Iran cannot even
that the continued higher prices make it possible to develop think of doing against the US. The Iranian oil minister has
new sources of hydrocarbons. It is said that the Indo-Iran admitted that the pipeline carries no cost advantage as
gas pipeline project is more likely to draw India, Iran, and compared to LNG supply by ship. In any case, India is
Pakistan closer into an energy partnership and break the investing in a major way in the LNG option, as symbolized
current political barrier against commercial engagement by the new onshore import terminals stretching from
between them. Gujarat to Kerala and the contracts with Iran and Oman.
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S.K. Verma / Energy Policy 35 (2007) 3280–3301 3299

But other than Iran, Gulf countries has limited reserves of beneficial energy security. For instance, given the growing
natural gas, which is not sufficient for India’s long-term gas Chinese presence in Myanmar and the proximity of the
supply. It is suggested that successful Indo-Iran trans- natural gas fields of Myanmar to India, energy security will
Pakistan gas pipeline project would require an explicit be better served by having China as a friend rather than a
government support from all participating countries. The rival (Banerjee, 2005a,b). There are sufficient complemen-
fate of the Iran pipeline is still hanging fire. Apart from tary technical expertise in China and India in oil explo-
US’s opposition to the project, there are also differences on ration (China has the edge) and distribution via pipeline
the pricing of the gas. Meanwhile, the US has said it was (India has the edge) that cooperation may be more bene-
‘absolutely opposed’ to a natural gas pipeline project ficial than relying on others. In addition, India should
linking Iran with Pakistan and India. make China a partner in IPI gas pipeline project, which
However, the existing structure of having a dozen of boost the security and its stable project for the insecurity in
companies has to undergo a change as this cannot fetch big the side of Pakistan. But China show’s little interest in
oil and gas asset for India. In addition, the ministry is also Indo-Iran pipeline project.
of the view that one ministry should handle all policies But in the wake of US pressure to abandon the US$7.4
relating to energy resources, whether it is coal, oil or gas. billion IPI gas pipeline owing to Iran’s determination to
The Synergy in Energy Committee has not understood the enrich Uranium. Pakistan will seek US cooperation for the
root cause of the problem that exists today in the oil sector. installation of three to four nuclear power plants, each with
We cannot continue to rob one oil PSUs to subsidies other. 1000 MW capacities. To overcome any energy crisis that
Also, continuous fiddling with the duty structure cannot be the country will probably face 2008 onwards. So Pakistan
done time and again. These are temporary arrangements has already made plans to increase its nuclear capacity to
but in the long term, if we want our dependence on generate 8500 MW of nuclear power. If the UN imposes
imported crude oil to reduce in the near future, we have to sanctions on Iran, the proposed IPI project may not
think big and restructure the oil and gas PSUs into two or materialize but India is favor in this project despite this
maximum three entities. Economically speaking gas supply US-Indo nuclear deal, and Pakistan will have to start work
and transport prices are more correlated to political on the remaining two proposed gas pipeline projects, the
relationships than to fundamental supply-demand or gas Qatar–Pakistan and Turkmenistan–Afghanistan–Pakistan
transport basis calculations. pipeline. IPI project is in the interest of both countries, but
In fact, India should look to a country like France to if US pressure on Pakistan increases, it has plans to seek
help with the nuclear power program because France has US cooperation for the installation of the latest nuclear
found a way to build the safest and the cheapest nuclear plants in Pakistan, which will ensure constant country its
plants, and in a very short time as well. The only way in energy supply. Threats to energy security must be
which the US–India cooperation can help India in the challenged and resolved on a multilateral basis, with all
nuclear power arena is by US moderating its stance on the stakeholders present. The interdependent nature of our
supply of nuclear fuel to India. India’s future energy energy infrastructure requires a multilateral approach. We
security cannot rely on nuclear power alone. Recently are all depending on it. It is suggested that India and
Indo-India nuclear pact support India’s civilian nuclear Pakistan are both confronted with the problem of an
program and not any nuclear weapons capability enhance- increasing shortage of natural gas. As they have the
ment. Another important avenue to ensure security in advantage of bordering the Persian Gulf and Central Asia,
India is the search for new sources of petroleum fuels. two of the world’s major natural gas-rich regions, this
Here, it seems that India is facing a formidable competitor geographical proximity can provide the basis for mutually
in China. SINOPEC acquired an oil exploration block in beneficial economic cooperation between India and Paki-
Angola from Shell Oil after beating the bid from ONGC stan in energy trade. An Indo-Iran pipeline project
Videsh, China Petroleum Corp., and ONGC Videsh Ltd. agreement supported by India and protected by Pakistan
just recently competed to buy PetroKazakhstan which against any disruptions of flow would bring political as well
owns a number of oil wells in that Central Asian republic. as economic benefits. Thus, the trans-Pakistan pipeline
Companies from both countries are on global hunt for project could be a key CBM in resolving irritants in their
petroleum resources. In fact, this competition seems to be political relations, forging and intensifying a new relation-
full swing in Central Asia. Since 2000, the China National ship between India and Pakistan.
Petroleum Corporation has invested US$45 billion in the It is suggested that the problem associated with oil and
search for new sources of energy while ONGC has invested gas security and the Gulf, after all, are of a complexity that
around US$3.5 billion. demands comprehensive solutions. Internationalizing al
The new US–India pact will only intensify the competi- least the energy issues could begin to disengaged the US
tion for energy sources between India and China because from the current slippery slope on which it is increasingly
the US clearly thinks of India as its geopolitical ally in perceived as a regional combatant aggressively pursuing
containing China’s future global reach. However, it may be unilateral national and security interests to the detriment of
in India’s interest to also consider ways and means of regional stability. Asian leaders are becoming increasingly
cooperating with China in the search for mutually worried about their economies growing dependence on
ARTICLE IN PRESS
3300 S.K. Verma / Energy Policy 35 (2007) 3280–3301

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