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Energy Policy 35 (2007) 3280–3301

Energy geopolitics and Iran–Pakistan–India gas pipeline
Shiv Kumar VermaÃ
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 Iran’s proven oil reserves at the end of 2003 were estimated to be 130,700 million barrels, representing 11.4% of world reserves and some 18.0% of those in the Middle East. With proven reserves of 26,690,000 million cubic meters at the end of 2003, Iran is the world’s second richest country in natural gas resources after Russia, with some 15% of the global and 37% of the Middle East region total, which is a major discover for Iran (Fisher, 2005). The South Pars offshore fields, which is an extension of Qatar’s North Field, are officially the largest natural gas reserves in the world. In the 21st century, the most important factors
ÃTel.: +91 011 26104671; fax: +91 011 26169962.

E-mail address: 0301-4215/$ - see front matter r 2006 Elsevier Ltd. All rights reserved. doi:10.1016/j.enpol.2006.11.014

that will decisively determine the fate of Iran gas pipeline are United States and China in the Persian Gulf. Both are the largest consumers of oil and gas in the world. So a new Iran–Pakistan–India–China–Russia scenario begins to emerge, which links global oil and gas security to geopolitics. The question is: can these two issues be reconciled? This paper will endeavor to analyze the importance of Iran as a gas supplier to east, especially, India and China. It will argue that such dependence on a volatile region like Iran and the perception of scarcer energy resources in the South Asian region have the potential to lead to conflict in both regions unless these issues are dealt with geo-economics rather than geostrategic calculations. However, the recent understanding between the United States and India seems to cancel the whole pipeline project as long as present Iranian regime

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remains in power. The broad geopolitical conditions that would favor or block the Iran–Pakistan–India (IPI) pipeline project and Iran’s situation as well as the role of the United States in Asia and the state of relations between India and Pakistan are also pertinent issues that are going to be influential in fructifying the proposed pipeline. The moot question relates to Pakistan’s subsidizing the purchases of Iranian gas and how would it finance this commercial juggernaut. Pakistan would not have an interest in the stable flow of gas in transit unless it is to finance some of its own purchases from the fees. There is competition for gas from the Gulf, and from Iran. This is not only a matter of political and military strategies, but as much as question of commercial and financial incentives. China seems to have understood that, as exemplified with the deal with Iran. The question is, to what extent India would be able and willing to offer a competing deal. So far, due to Indian foreign policy changes, Iran seems to have suspended the emerging deal with India. In the midst of such dynamics it is to be seen as to what extent India prefers a close relationship with the United States at the expense of gas trade with Iran. 2. Energy security What exactly is energy security? Security generally means providing safety at additional cost. It thus connotes to paying extra to guard against possible threats (Aiyar, 2005b). Although in the developed world the usual definition of energy security is simply the availability of sufficient supplies at affordable prices, different countries interpret what the concept means for them differently. Energy-exporting countries focus on maintaining the ‘‘security of demand’’ for their exports, which after all generate the over-whelming share of their government revenues. For Russia, the aim is to reassert state control over ‘‘strategic resources’’ and gain primacy over the main pipelines and market channels through which it ships its hydrocarbons to international markets. The concern for developing countries is how changes in energy prices affect their balance of payments. For China and India, energy security now lies in their ability to rapidly adjust to their new dependence on global markets, which represents a major shift away from their former commitments to selfsufficiency. For Japan, it means offsetting its stark scarcity of domestic resources through diversification, trade, and investment. In Europe, the major debate centers on how to manage dependence on imported natural gas and in most countries, aside from France and Finland, whether to build new nuclear power plants and perhaps to return to (clean) coal. And the US must face the uncomfortable fact that its goal of ‘‘energy independence’’ a phrase that has become a mantra since it was first articulated by Richard Nixon 4 weeks after the 1973 embargo was put in place is increasingly at odds with reality. Experience has shown that to maintain energy security countries must abide by several principles. The first and most familiar is what

Churchill urged more than 90 years ago: diversification of supply. Multiplying one’s supply sources reduces the impact of a disruption in supply from one source by providing alternatives, serving the interests of both consumers and producers, for whom stable markets are a prime concern. But diversification is not enough. A second principle is resilience, a ‘‘security margin’’ in the energy supply system that provides a buffer against shocks and facilities recovery after disruptions. Resilience can come from many factors, including sufficient spare capacity, strategic reserves, backup supplies of equipment, adequate storage capacity along the supply chain, and the stockpiling of critical parts for electric power production and distribution, as well as carefully conceived plans for responding to disruptions that may affect large regions. Hence the third principle: recognizing the reality of integration. There is only one oil market, a complex and worldwide system that moves and consumes about 86 million barrels of oil every day. For all consumers, security resides in the stability of this market. Secession is not an option. The fourth principle is the importance of information. High-quality information underpins well-functioning markets. On an international level, the IEA has led the way in improving the flow of information about world markets and energy prospects. That work is being complemented by the new International Energy Forum, which will seek to integrate information from producers and consumers. Information is no less crucial in a crisis, when consumer panics can be instigated by a mixture of actual disruptions, rumors, and fear. Reality can be obscured by accusations, acrimony, outrage, and a fevered hunt for conspiracies, transforming a difficult situation into something much worse. In such situations, governments and private sector should collaborate to counter panics with high-quality, timely information. The US government can promote flexibility and market adjustments by expediting its communication with companies and permitting the exchange of information among them, with appropriate antitrust safeguards, when necessary (Yergin, 2006). However, the prime objective of any energy policy is to ensure that the total energy demand is matched by total energy supply. Unfortunately, this objective can sometimes to difficult to achieve. This situation does not occur very often, but when it does, it is either a result of extreme demand circumstances or unforeseen operational difficulties or, in some cases, inadequate planning. It is, however, not sufficient that total demand and total supply be balanced, since an adequate energy policy should also aim to provide the required energy ‘mix’. This involves analyzing the energy supply situation from both sides. On the one hand, existing and potential sources have to be examined with a view to deciding how future supplies can be guaranteed. This approach must then be reconciled with the opposite approach of trying to identify the future needs of the various energy-consuming sectors. Both approaches involve a certain degree of risk, since an attempt is being 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 criteria on which any energy policy is based are basically the same today as they have always been in the past. Apart from meeting the total demand with the correct mix of energy sources, a satisfactory policy should not involve too great a capital investment, should not result in large-scale unemployment and should not based on obsolete technology (or on science fiction). In addition, it should be flexible, so that national changes in energy usage and international changes in circumstances can be accommodated. In short, the overall policy should make economic and social sense, and should leave the door open for the emergence of new technologies and new energy options (Addinall and Ellington, 1982). 3. Energy security for India For India, a country with negligible and rapidly depletable oil resources, it would mean safeguarding and sustaining its developmental and global power aspirations. A secure but costly form of importing energy would be liquefied natural gas (LNG), delivered by ship. The seas are international waters. The Indian navy and navies of rich countries will try to ensure open seas. Even Turkmen gas could be piped down to the Iran coast and liquefied. However, pipelines are less secure. A deep-water pipeline in international waters, though, is relatively secure and relatively costly. A cheaper pipeline in shallow waters will pass through the Exclusive Economic Zone (EEZ) of counties and so security will require credible national guarantees. Such guarantees can be abrogated in times of hostilities. Even onshore pipelines are not entirely secure: militants and other such irredentist elements operating within national boundaries can blow them up. This has already happened in Assam and Baluchistan and might happen in tremendously volatile Afghanistan too. Onshore pipelines through Pakistan may be the cheapest form of transporting gas from Iran and Turkmenistan. But low cost is not security as conventionally understood. Though important, it cannot be called energy security. The gas pipelines will reduce the cost of delivered gas compared with transported LNG, but at an increased risk of disruption. Albeit there are modest risks, the potential diplomatic gains are huge, and so this is a worthwhile diplomatic gamble. But worthwhile gambles are not security (Challency, 2005). We need to increase the efficiency of thermal power stations, but every 1% increase requires an additional 5 million tons of coal. Most Indian coal is of low quality. This approach alone will necessitate enormous quantities of coal needed to feed existing and future power plants and to gasify coal to substitute oil and natural gas. However, to expand the concept of energy security in two critical dimensions: the two recognition of the globalization of the energy security system, which can be achieved especially by engaging China and India, and the acknowledgment of the fact that the entire energy supply

chain needs to be protected. China’s thirst for energy has become a decisive plot element in suspense novels and firms. Even in the real world there is no shortage of suspicion: some in the US see a Chinese grand strategy to preempt the US and the West when it comes to new oil and gas supplies, and some strategies in Beijing fear that the US may someday try to interdict China’s foreign energy supplies. But the actual situation is less dramatic. Despite all the attention being paid to China’s effort to secure international petroleum reserves, for example, the entire amount that China currently produces per day outside of its own borders is equivalent to just 10% of the daily production of one of the supermajor oil companies. If there were a serious controversy between the US and China involving oil and gas. It would likely arise not because of a competition for the resources themselves, but rather because they had become part of larger foreign policy issues (such as a clash over a specific regime or over how to respond to Iran’s nuclear program). Indeed, from the viewpoint of consumers in North America, Europe, and Japan. Chinese and Indian investment in the development of new energy supplies around the world is not a threat. But something to be desired, because it means there will be more energy available for everyone in the years ahead as India’s and China’s demand grows. It would be wiser and indeed it is urgent to engage these two giants in the global network of trade and investment rather than see them tilt towards a mercantilist, state-to-state approach. Engaging India and China will require understanding what energy security means for them. Both countries are rapidly moving from self-sufficiency to integration into the world economy, which means they will grow increasingly dependent on global markets even as they are under tremendous pressure to deliver economic growth for their huge populations, which cope with energy shortage and blackouts on a daily basis. Thus, the primary concern for both China and India is to ensure that they have sufficient energy to support economic growth and prevent debilitating energy shortfalls that could trigger social and political turbulence. For India, where the balance of payments crisis of 1990 is till on policymakers’ minds, international production is also a way to hedge against high oil prices. And so India and China, and other key countries such as Brazil, should be brought into coordination with the existing IEA energy security system to assure them that their interests will be protected in the event of turbulence and to ensure that the system works more effectively (Yergin, 2006). 4. Energy geopolitics What is energy geopolitics? Geopolitics as an approach to the study of international relations stresses the importance of locational factors in influencing relations among nations. Thus, geopolitics emphasizes geographic factors as important determinants of government policy and major determinants of the relative power position of states. The importance of various geographic factor

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changes with developments in many areas, including the passage of time advances in technology, the need for access to raw materials, and changes in national and international political goals and judgments as to legitimate means of pursuing international objectives. The issue of access to energy resources involves three interests, which each energy deficient state shares with all others: 1. A state’s supply of imported energy must be adequate in volume. 2. Interruptions or occasional shortfalls in supply can have serious economic and political implications for industrialized states. It is, of course this vulnerability to disruptions of supply that gives resource-rich states a lever to use against states dependent on imported energy. 3. Imported energy must also be available at reasonable prices. Clearly, price should bear some relationship to the cost of alternative forms of energy. Price should also reflect a capacity to pay. These three factors of adequate volume, continuous supply and reasonable price constitute an interrelated triad of energy interests. Failure to obtain any one of the three could have disastrous consequences for the economic well-being, political stability, and national security of the consuming country (Conant and Gold, 2000). 5. IPI gas pipeline project However, in the new millennium, once again geography has become a major determinant of strategy, and strategy plays a major role in politics. Politics is generally thought of as an art of obtaining desired outcome. However, Strategy is a plan for effectively implementing these goals (Ward, 1992). Annual gas supplies of 5 million tons have been tied up for 25 years under a US$18 billion contract signed. But the change in leadership in Iran again brings some changes for this plan. Currently new leaders favor gas exports with priority to neighboring countries, including India and China. And another major change is that Iran expects a higher gas price than what has been negotiated so far. The Indian officials are worried that the Iranian stance could harden further when negotiations on piped gas starts sometimes 2007 after India and Pakistan have decided on their participation in the pipeline by the end of 2006. This pipeline is not something that you can agree today and build tomorrow. Iran pipeline, which is a win–win project

for all three countries, has the potential radically to transform the energy scene in South Asia (Airy, 2005). The option included Iranian companies to own and operate the pipeline and deliver gas to India at India–Pakistan border or a consortium of Iranian, Indian, and Pakistan and international companies to own and operate the pipeline. Under the third option, it proposed that India and Pakistan buy gas in Iran and transport through a pipeline owned by global companies, see Table 1. The latest positions in Indo-Pak ties clearly put economic factors on the front burner. [The IPI pipeline is likely to cost $7.4 billion mainly due to increase in steel prices. India estimates that the project cost may go to as high as $8.16 billion if there is a 10% escalation in raw material costs over the next 5 years when the project is slated for construction. The capex may come down to $6.67 billion if there is a 10% decrease in raw material cost.] (Aiyar, 2005a). The real attraction is the US$5 billion potential in trade through the proposed Iran–India gas pipeline traversing Pakistan. This pipeline is expected to save India US$300 million a year in energy transport costs, while Pakistan would get an estimated US$700 million in annual transit fees. However, the stake of Pakistan is very high, if the proposed project passes through Pakistan, as this project would have enormous implication for Pakistani economy. Pakistan’s perennial foreign exchange crisis forced it to concede that it is in its financial interest to get itself involved in the Indo-Iran gas pipeline project. The pipeline would accrue to Pakistan an income of $14 billion in 30 years, including $8 billion in transit fee, $1 billion in taxes, and $5 billion in savings (S. Pandian, 2005). Although the transit fee would not wholly redress Pakistan’s acute foreign debt crisis, it would partly alleviate this problem. Finally, Pakistan, like India, suffers from a growing oil-pool deficit. Pakistan’s power generation is heavily dependent on fuel oil, and it is a net oil importer with an oil import bill of over US$1 billion/annum. The country aims to slash its imports from the Gulf by onethird in order to save at least US$1 billion a year in its annual energy import bill. To reduce the fiscal strain on the Pakistan’s economy, the government has opted for a policy option of substituting fuel oil with natural gas for power generation, a move expected to save an estimated US$600–700 million/annum. It is estimated that at current levels of power generation, over 800 mfc/day of additional gas is required to replace fuel oil in all its thermal power 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 capacity (BCF) 3.2 Peak pressure (p.s.i) 1200 Compressor spacing (miles) 120 Pipeline diameter (in) 56

IPI gas pipeline Undecided




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 for the Indo-Iran pipeline project. Such a project, apart from offering an attractive fee for the pipeline to pass through its territory, would also offer Pakistan the gas at subsidized rate as local gas comes at the rate of $3.4/million British thermal unit (mbtu) against imported gas at $5, the difference being is $1.6 mbtu. This difference would be met through transit fee. Moreover, if gas import plans cannot be implemented and gas supplies remain limited to LNG imports in the next 5 years, the new thermal plants will be based on furnace oil with the provision that these could be switched over to gas at a later stage. This will, however, put additional foreign exchange burden on the import of fuel. The policy has also clearly defined the order of priority for all sectors for additional gas supplies. The policy has been prepared on the basis of an integrated analysis of Wapda and KESC systems scheduled development of hydel, coal, and nuclear energy projects and expected low water availability during 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 would be diverted to other priority sectors. Moreover, CNG stations, captive power and general industrial sector will start running short of gas from fiscal year 2015. Pakistan was meeting 18% of its oil needs from local production and the country had to import the remaining 82% requirements for which it had to pay international prices. The Pakistan government has incurred losses amounting to Rs. 66 billion by capping the prices over the past year and would meet 50% of the expected Rs. 4 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 of gas comes to $3.4/mBtu against $5 for imported gas. Gasification of coal will make the cost $5.5/unit, while the cost of the high sulfur fuel oil comes to about $7.5/unit; fuel oil will cost $8.1/unit, Naptha $ 1.4, and high-speed diesel $12.6/unit. See Tables 2 and 3. However, Pakistan would have an added interest in the stable flow of gas in transit to finance some of its own purchases from the fees. Because Pakistan needs more gas than India (gas supplies to Islamabad through the IPI pipeline from the originally envisaged 2.1–2.8 billion cubic feet per day (bcfd)). About 700 mmcfd of additional gas means a lot for Pakistan’s growing energy needs. Then the question arises about where India would fit in the project having a total capacity of 3.2 bcfd of gas when Pakistan alone would be supplied 2.8 bcfd and another 400 mmcfd would be utilized by Iran in its eastern provinces, see Table 4. The head of Iranian delegation reportedly said that the three sides would discuss the possibility of a second pipeline to meet energy, thus acknowledging the viability of a pipeline. However, Pakistan-specific bilateral gas pipeline with 33% higher supplies to Pakistan, clearly indicates that India could not become part of it due to capacity constraints. Therefore, Pakistan demand for more

transit fees above $700 million annually becomes a point in perspective. However, the IPI gas pipeline project is significantly about the perceived value of secure energy supplies versus stable prices and the willingness to eventually pay a security vis-a-vis India’s energy concern in the long run. India, would rather prefer to import gas from Iran. India’s interest in the proposed Indo-Iran gas pipeline project is based on the presumption that the project’s long-term prospects are higher than what it would achieve by other options. It would also be in India’s interests to buy gas resources from one source, which is nearer and neverending, rather than from several sources. Iran claims to have 16%% of the world’s gas reserves, enough to last for 500 years at the present rate of exploitation. It is suggested that Iran’s massive natural gas reserves can supply India’s gas demands for up to 200 years. For India, the economic feasibility is not the only criterion but also the safe and continuous supply of gas. In this regard, it is obvious that

Table 2 Comparative position of various sources for power generation in Pakistan Sources Pakistan: Cost of power generation (Pakistan rupees/kW h) 0.02–0.08 paise 9 paise 70 paise

Hydropower Nuclear power Thermal power, / database2/cover/c96-31.aspS.

Table 3 Comparative position of various sources for power generation in India Sources India: Cost of power generation (Indian rupees/ kW h) 4.5–5.0 0.70–110 paise 3.5–4.0 1.85 3.5–4.0 3.0–3.5 105–200 paise 1.8–2.5 1–2 1.77 3.0–3.5 2.90 3.15 1.60 1.86

Naptha Coal-fired stations & (2006) LNG Imported coal (2005)* Diesel/fuel oil Domestic coal Domestic gas & (2006) Reliance Wind power, 2006 @ Hydropower $ Nuclear power @ Solar power# (2006) New build coal-based plant* Biomass# LNG from Dahej* (2006) Thermal power#

Sources: #Ashoke Parthasarthi. ‘‘Renewable energy resources: situation 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 Delhi, 16 November 2005. S.G. Pandian (2005, p. 310). $ Mishra and Goswami, 2006; Jayaswal and Banerjee, 2006.

S.K. Verma / Energy Policy 35 (2007) 3280–3301 Table 4 Pakistan and India natural gas demand and supply gap projections (bcfd) 2000 Pakistan India Total 0.5 0.0 0.5 2005 0.6 1.2 1.8 2010 0.8 3.1 3.9 2015 1.0 4.2 5.2 3285

Source: / (accessed on 26 May 2005).

India’s concern for the safety and security of the pipeline projects takes precedence over the economic viability and technical complexity. The most important aspect of the pipeline project is the medium of the transfer, which needs to be cost effective and secure. According to a Broken Hill Proprietary (BHP) study, the supplying of gas via pipeline could save India an estimated US$10 billion over 10 years. It is also suggested that the piped Iranian gas constituted the most affordable long-term energy supply to India. By facilitating the trans-Pakistan gas pipeline project, Pakistan did not want to act as an instrument in fostering a longterm relationship between India and Iran, which would obviously challenge and reduce Pakistan’s stake in the region. The benefit of the gas pipeline project with India are long-term as Iran, with huge natural gas reserves, is capable of addressing India’s growing energy crisis. Pakistan expressed its eagerness to participate in the pipeline project because of its own self-seeking interests. Iran sought to bring in Pakistan as a partner in the pipeline project to ensure an economically feasible overland transit route. India has sought to repel and play down the role of Pakistan as an equal partner in the project for the fear of its energy supply being disrupted in case of a military conflict with Pakistan (S. Pandian, 2005). Also the domestic social and political atmosphere in Pakistan seems to be in perennial disarray, too volatile to dispel concerns against its economic stability and instill confidence in the long-term commercial viability of any pipeline passing through its territory. However, the problem associated with oil and gas security and the Gulf, after all, are of a complexity that demands comprehensive solutions. Internationalizing al least the energy issues could begin to disengaged the US from the current slippery slope on which it is increasingly perceived as a regional combatant aggressively pursuing unilateral national and security interests to the detriment of regional stability. Asian leaders are becoming increasingly worried about their economies growing dependence on Gulf oil and gas and are likely to be receptive to any multinational initiative that would make supplies from the region more secure or provide a framework for developing alternatives energy substitutes. However, the fate of the Iran pipeline is still hanging fire. Apart from US opposition to the project, there are also differences on the pricing of the gas. The two countries (India and Iran) have also not been able to decide on a price for the pipeline gas. Tehran is seeking at least $7.2/mBtu price for gas it wants to sell to

India and Pakistan through the pipeline, while New Delhi is willing to pay not more than $4.2/mBtu for its share (Mishra and Goswami, 2006). Furthermore, Pakistan’s weak financial position makes it difficult to secure financing for ambitious pipeline projects. The oil and gas pipeline projects in which Pakistan is interested would not materialize unless the desired destination of the pipeline would be India and world’s second largest market for 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 is in India’s interests to ensure economic instability in Pakistan. For Iran and Pakistan, the gas pipeline project has socio-politico-economic and geo-strategic components. The Pakistan economic gains of Iran gas pipeline project would be a continuous transit income and the option to procure gas at a subsidized rate (S. Pandian, 2005). Thus the crux of the matter is that there are major politicostrategic factors relating to all the involved players, including the US, which weigh against the on ground implementation of the project. It is to be seen when such hitherto dominating irritants get nullified by a cooperative, win–win and predominantly economic approach on the part of these states, especially, India and Pakistan. However, the gas pipeline could bind the two countries in economic linkages that would be quite hard for either side to snap for political reasons (Krepon and Haider, 2005). As regards Indo-Pak relations, the traditional pattern of hostility has not only continued, but has also considerably escalated. The Indo-Pak rivalry has revolved around three long-standing issues: Kashmir, communal tension, and the military. Many observers of this process are worried that overt nuclear rivalry will not produce a stable deterrence configuration between India and Pakistan (Buzan, 2002). In sum, the grand vision of friendship through economic integration is a gamble. But it is not a very dangerous gamble and may succeed. New Indo-Pak wars are possible, but extremely unlikely. Three wars over Kashmir have proved that war achieves nothing. And nuclear bombs are powerful deterrents (Kargil war may be seen as a mere border incident). Since war risk is small, it may be worth taking a small risk on the pipeline for an optimistic but possible peace gain. But it is not an energy security. If Iran pipeline is extended further to China it is beneficial to India from security point of view, because Pakistan cannot cut off supply to India without cutting it off to China. Whether China wants such a long pipeline through so many country remains to be seen (Aiyar, 2005a). But China shows little interest in this project because China feels that this project is full of challenges, such as US opposition. In addition, to China and India are rivals not only in Iran’s energy sector but also in global level. However, if India is to emerge as the world’s largest economy by the middle of this century as envisaged by Goldman Sachs, it has to solve two interrelated challenge: stem its growing energy deficit, and contain active and emergent security threats. In fact, energy needs

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are beginning to dictate military planning for its long-term energy strategy. For the first time, India has begun to integrate its energy policy with foreign policy by consciously promoting oil diplomacy geared towards seizing energy-related opportunities overseas. What is not happening is the blending if India’s energy policy with defense policy. At best the two are parallel policies with little convergence and perspective sharing between ministries. However, in a unipolar world with one superpower and a number of regional big powers, values and national interests of India may not coincide with the US. Whenever India’s policy has been on a collision with them, it has reaped the consequences. This is what has happened in the past in India’s relations with the West and China (Mukherjee, 2005). Then there is the real Pakistan, which refuses to establish even normal trading ties with India but craves to earn hundreds of millions of dollars in transit fees and other annual royalties from a gas pipeline gas from Iran’s South Pars fields to Barmer. However, Pakistan promises 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 (Ramachandran, 2005). But Indian government is likely to seek improvements in WTO rules related to Iran pipeline project, which involve freedom of transit. Pipelines should be explicitly covered under Article V of General Agreement on Tariff and Trade (GATT), which deals with freedom of transit. This could make sure that Pakistan does not disrupt flow of Iranian gas to India. This long-term Indian government’s efforts to source oil and gas from the Central Asian region would also get a boost as such projects would involve flow of goods through several countries secured by WTO norms. India’s attempt to spruce up its energy security by acquiring equity in overseas oil fields would also gain from WTO security shield, once norms laid down under Article V of GATT are strengthened. The WTO rule on freedom of transit was originally introduced for ensuring trade channels of land-locked countries. Now India is looking at the possibility of using some set of norms for securing gas supply through pipeline as the European Union (EU) 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. In other words, the transiting country should directly or indirectly stand guarantee for the security of the transiting pipeline. In the case of the proposed Iran gas pipeline, Pakistan would have to guarantee security of the pipeline under the improved rules proposed by India.

However, the proposed Iran–India has a chequered history, dating back to 1989. The idea of an overland pipeline route tellingly did not originate in India. Rather, Pakistan floated the idea, with the backing of Australia’s BHP Billiton Ltd. Such has been BHP’s financial interest in this project that it did a technical feasibility study of the overland option free of charge, and its representatives to this day continue to peddle the project. A committee of secretaries appointed by the then PM Narasimha Rao had recommended the underwater pipeline option. However, when India sought Pakistan’s permission to carry out a pipeline survey through its EEZ, Pakistan cleverly dictated that the survey covers three options: deep-sea through its EEZ, shallow water, and overland. That is how the idea of an overland pipeline was born. Later, Pakistan has extracted one more Indian concession to treat the overland pipeline as a standalone project, unrelated to its refusal to open up and transit to India (Sharma and Subramanian, 2005). However, in the past 1 year, India has lost four times to China in global energy bids: Angola, Iran, Sudan, and Kazakhstan (Mitra, 2005). Despite talk of India and China stacking up forces to set up some kind of a buyers and consumers cartel, competition rather than rivalry better describes the relationship between the two countries in the global energy sector. There is merit in the Indian argument that joint bids in third countries will bring down the price. But it is not about money. It is geopolitics. That is why for the Central Asian states and Iran in the Gulf, China is an important neighbor, an economic power and veto-wielding member of UN (United Nation) Security Council. Besides, given China’s long-term strategic thinking Beijing has quietly been building stakes in these countries. Despite the traditional friendship between Iran and India, the Oil And Natural Gas Commission (ONGC), lost out on an oil block in Iran to China and came back with a marginal 20% stake in Yadavaran oil fields with China walking away with 60%. China has promised to veto sanctions against Iran in the ongoing nuclear crisis, besides selling technology for their missiles (Lodhi, 2006). However, the South Asian power equation cannot be realistically appreciated without taking China into account. Beijing sees itself as an emerging economic, political, and military superpower, with real and expanding interests in South and Southeast Asia (Routledge, 2005). As such, China challenges India’s preeminence, and their relationship has settled into a protracted rivalry. In the absence of a strategic buffer, competing territorial claims have long brought China into India’s security planning. Since the mid-1960s, China has lent its political weight and transferred arms to Pakistan in a vain attempt to create a counterweight to Indian hegemony. But Indian policymakers in the 1990s insisted that Chinese aims directed at securing port facilities and economic dependencies, and generally, in seeking to project its influence over the Indian Ocean, indicated a broader design. As further evidence, they cited arms transfer to Bangladesh, Sri Lanka, and

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Myanmar. Above all, India believes that power balance in South Asia is affected by the fact that China is a nuclear power. Indian leaders express concern that China will use its quantitative and qualitative superiority in nuclear weapons to intimidate the subcontinent and control the region’s future. Indian policymakers choose to believe that over the long-term China will inevitably develop highly aggressive tendencies, pushing ahead vigorously with the development of tactical, strategic, and theater nuclear weapons. But a good case can be made that China’s challenge to India is wrongly perceived. India is far more threatened by being left behind economically than by military and political pressure. It is economic competition with China in regional and global markets that will determine the winners and losers in the 21st century. In turn, China will have to acknowledge India’s desire to be viewed as the pre-eminent regional power in South Asia to a greater degree than it has to date. Curiously, although India is usually described as the world’s largest democracy and China the largest authoritarian, communist regime, these ideological and institutional differences seem to matter very little in determining how they shape their policies towards one another (Weinbaum, 2000). However, Pakistan and India need peace and stability if they are to acquire security in the broadest sense. As a result of their policies, however, both countries have allowed social conditions to be created that undermine their futures. The danger is embedded in poor educational, health and other social welfare programs that fail to provide the human resources needed to compete globally and also extract a high daily price in human costs. The late Mahbub ul-Haq underscored these issues when he formulated his Human Development Index, a measure of life expectancy, education and welfare that has been published annually since 1990: both Pakistan and India rank near the bottom of the index. In fact, Pakistan is often placed in the category of sub-Saharan African countries because of its Human Development Investment (HDI) and its statistics on social sector spending. For Pakistan and India, it comes down to investment priorities. If their economies are to bear the brunt of further increases in defense spending in a nuclear era, their social and development sectors are bound to suffer. Pakistan has little choice. Defense and debt repayments already consume roughly 70% of the federal budget. In per capita terms, the country spends US$ 21 on arms against India’s US$10. Pakistan also spends 125% more on defense than on health and education combined, while India spends as unacceptably high 65% more. As a proportion of its Gross National Product (GNP), Pakistan spends more than twice as much does as India does on defense. While decision-makers in both countries acknowledge that either can adequately care for its citizens, the greatest scarifies always seem to be borne by the poorest (Weinbaum, 2000). However, the most meaningful competition among the region’s states is over access to markets and foreign investment. The outcome of this economic competition

has bearing of course, on relative military and political standing. Along with social achievements, the various measures of national well-being are interrelated and deeply interdependent. Prime Minister Manmohan Singh highlighted the importance the uncertainties in Iran casting a shadow on finances for a possible IPI gas pipeline during an interview with The Washington Post. He said that Iran remains very important to India. Apart from the pipeline project, India has signed an LNG deal with Iran and Indian companies such as the Tata and Essar are keen on investing in that country. Though the development of the Chah Bahar port in Iran and the road linkages to Afghanistan are major examples of Indian–Iran cooperation, New Delhi is aware that it needs to push ahead with the project and ensure its speedy implementation. However, Indian foreign policy in favor of implementing IndoIran gas pipeline project, before that clear negotiate the price of gas according to India with present Iranian government. However, Indian policy towards Iran will be litmus test of the Manmohan Singh Government’s sincerity in pursuing an independent foreign policy (Baruah, 2005). Washington will not be happy if India pursues strategic energy cooperation with it. However, political reasons always play a role. The United States has repeatedly accused Iran of producing weapons of mass destruction, supporting international terrorism, and sabotaging the peace process in the Near East. In order to limit the cleric regime’s means for funding such activities, Washington’s intervention was not only directed against the Iranian government. Two years earlier, the US Congress had imposed economic sanctions, making it illegal for American companies to do business with Iran. The sanctions explicitly forbade oil swaps. A controversial amendment, the so-called D’ Amato Act (ILSA), also threatened European companies investing in Iran with heavy fines. Therefore, Iran is a danger to the United States because they seem to be the only people in this region not to put with American domination. The sanctions against them hurt them less than they hurt the American economy itself. The outcome of the domestic power struggle in Iran will be important for the new great game. Should the reformists behind President Khatami prevail, Iran could free itself from its international isolation and open itself more to the West, to the benefit of Iran’s traditional ties with Europe. Whether this would reduce the rivalry with the United States in the region remains doubtful. Both countries are currently too incompatible in their strategic and economic interests (Kleveman, 2003). However, the US opposes the gas-pipeline deal; first, in its perception it would help ease Iran’s economic difficulties because of the handsome revenues it would generate. As it is, the US is concerned about the bonanza that oil-rich countries including Iran are reaping due to skyrocketing global oil prices. Secondly, the pipeline would set a dangerous precedent for other countries to follow. Iran is suitably placed as the natural transit corridor for the

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transport of Caspian Sea oil and gas. The US has, therefore, gone overboard to draw transit routes for Caspian oil that bypass Iranian territory. The prime example of this approach has been the construction of the Baku-Ceyhan oil pipeline. In this case, the US made an extraordinary effort to route the pipeline towards the Turkish port of Ceyhan, so that Iranian territory was avoided. In this politically driven deal, the companies involved had to spend millions in extra costs to construct the pipeline through unfriendly terrain and conflict proven zones. Thirdly, and most important, the pipeline would help anchor friendly ties among Iran, Pakistan, and India. This would greatly undermine US strategic leverage with India and Pakistan against Iran in the future. Therefore, determined to keep Iran as isolated as possible, the US even prior to Mr. Ahmadinejad’s emergence had tried to persuade the Europeans and Iran’s Arab neighbors to restrict economic and political links with it. The Europeans have largely disregarded Americans exhortations, and Iran’s relationship with them has grown over the years. European companies have pumped in billions of dollars in Iran–Libya Sanctions Act adopted by the US, which bars investments of more than US$40 million into Iran’s hydrocarbon sector. Defying US pressure, Japan, Washington’s trusted ally, has also decided to put US$2 billion into developing Iran’s giant Azadegan oil field, which has estimated deposits of 26 billion barrels. In October 2002, Iran urged Caspian oil producers to ignore US sanctions and to pipe their oil through Iran. The Golden Gate from the Caspian Sea to the Persian Gulf is now open and companies in the Caspian Sea can be sure their resources will be delivered in international markets (Bhadrakumar, 2005). Sanctions against Iran have thus far discouraged US oil corporations from accepting the Iranian pipeline offer. The Persian route would be, as even US oil executives concede privately, shorter, cheaper, and safer than any of the other planned pipelines through Russia, the south Caucasus, or Afghanistan. And while European companies active in Iran also face heavy fines in the United States, very few of them feel similarly bound by the US sanctions. The French Prime Minister said that no one accepts that the United States can now impose their laws on the rest of the world. European companies have taken advantage of the absence of US competition on the Iranian oil market. In its efforts to keep the US out of the Caspian region, Iran has found an unexpected ally in Russia. United States activities in this region have led both countries to temporarily set aside their centuries old enmity. Now that they no longer share a common border after the fall of the Soviet Union, their relations have grown almost cordial. Despite sharp criticism from the US, Moscow encourages Russian companies to sell arms to Iran, and to assist the country in building its first civilian nuclear power plant at Bushehr. The US$800 million project, to be completed by 2004, has been a major concern for US officials and non-proliferation experts who fear that Iran could covert nuclear waste

from the plant into weapons grade radioactive material, thereby accelerating its efforts to develop its own nuclear weapons. The Russian assistance to Iran has now become the biggest stumbling block in the current US–Russian rapprochement (Kleveman, 2003). However, US delegation to the UN Conference on Disarmament in Geneva has tabled a draft Fissile Materials Cut-off Treaty (FMCT). It has also moved for nomination of an ad hoc committee from among 65 members of the conference to start the negotiating process. In the joint statement of July 18, 2005 India had promised to collaborate with the US in finalizing the FMCT. Those opposing the nuclear deal point out that if the treaty comes into force India would have to stop production of fissile materials and that would cap the Indian arsenal at a level much lower than what is considered a credible minimum deterrent. The US document is a very curious one. It has no provisions for verification as in the chemical weapons convention. The verification would be left to individual members and it will be up to them to bring violations to the notice of the UN Security Council. The US assumptions may presumably be that this treaty relates only to the eight nuclear weapon states and, therefore, such verification by challenge should be adequate. The US has the most extensive national technical verification capability and, therefore, it will operate as the global policeman. In the case of plutonium the matter is relatively simple. Only reactor-grade plutonium will be produced under the proposed draft. But in case of enriched uranium the draft allows up to 20% enrichment. The same centrifuges continuing the process can produce 90% enriched weapons-grade material, which is the bone of contention in Iran. Tehran argues that it intends to produce 5% enriched uranium for use in light water reactors. European nations and US feel Iran is likely to cheat and produce weaponsgrade material. How will this issue be solved without onsite verification? For India, this is awake-up call. It would appear that for the last eight years, those in charge of our nuclear security have allowed things to drift without building up a credible minimum deterrent. Knowing that the FMCT is likely to come up, steps should have been taken to produce weapons-grade fissile materials as fast as possible. The most appropriate strategy would have been to produce weapons-grade plutonium and stockpile it (Subrahmanyam, 2006). A top US national security analyst said that India can develop up to 2000 nuclear bombs with the reactor capacity in the eight military reactors even after the CIRUS reactor is decommission. Dr. Ashley J. Tellis, a senior associate with the Carnegie Endowment for International Peace, was making the point that the Indo-US civilian nuclear deal will not effect India’s capability of producing a large arsenal. However, the US has already made it clear to India that the deal will become invalid if India were to test a nuclear weapon. However, nuclear weapons are political weapons and not weapons of ‘‘fighting’’. Their sole purpose is to deter the use and threat of use of nuclear weapons. A nation’s nuclear force

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structure depends on its nuclear doctrine and deterrence philosophy. However, after holding 35 joint military exercises and scores of bilateral visits and meeting over the last 5 years, the defense ministry (MoD) has suddenly asked the armed forces to go slow in their interactions with the US. The basic motive behind the directive is to ensure that other countries, including allies like Russia and France, do not feel neglected. ‘‘It would send wrong signals if our armed forces primarily focussed only on the US to the neglect of all others’’. However, Russia has drawn up plans to build to 100 nuclear reactors over the next 25 years in an effort to reduce dependence on hydrocarbons and consolidate its position as the world’s energy superpower. Russia has the world’s largest energy reserves, accounting for 13% of proven oil finds; 34% of natural gas; and a quarter of all coal. It is biggest natural gas exporter and the second largest supplier of crude. Nuclear power today accounts for 16% of the country’s electricity generation, and the Kremlin has set a target to raise its share to one-quarter by 2030.The massive build-up is expected to help Russia win a bigger share of the global nuclear energy market. Today Russia controls 25% of the world market of enriched uranium and nearly 50% of the construction of nuclear reactors. Russia is currently building nine nuclear reactors; three inside the country and six in Ukraine, China, India, and Iran. Russia’s plan for global expansion will get a major boost from a planned agreement with the US on nuclear energy cooperation. The decision to sign such a pact, the first in the history of the two countries, was reached by Presidents Vladimir Putin and George W. Bush during their meeting in St. Petersburg on the sidelines of the G-8 summit. While the US is keen to get access to more advanced Russian technologies, such as fast neutron reactors. Russia is looking to earn billions of dollars in atomic power station construction, as well as fuel supply and reprocessing. Once restrictions on any cooperation in the nuclear sphere with the US have been lifted. India may stand to benefit from Russia’s nuclear industry expansion, which will enhance Russian technology export capabilities and bring down the costs. Russia is currently building two nuclear reactors at Koodankulam, Tamil Nadu, and is eager to participate in a big way in India’s plans to generate 20,000 MW of nuclear electricity by 2020 (Srinivasan, 2005; Vladimir, 2006). However, US only support India’s civilian nuclear program, and not any nuclear weapons capability enhancement. The US and India Nuclear Cooperation Promotion Act of 2006—to be renamed the Hyde Amendment after the lawmaker who engineered it. The Act will permit armed a certifiably nuclear-armed India to buy reactors and fuel from the international market for the first time in more than 30 years (subject to final approval and international consent), despite not having signed the Nuclear-Proliferation Treaty, which is the gateway to such commerce. It will, in effect, mark the end of India’s nuclear isolation and possibly arrange the global strategic architecture. It can also be argued that in the long run, India and the US are bound to

come closer as Pakistan’s utility in the ‘‘war on terrorism’’ declines and containing fundamentalism in Pakistan itself becomes a US foreign policy priority. The US also hopes that India will join its Proliferation Security Initiatives and missile defense program, further cementing their bilateral ties. In fact, the two countries have signed the ‘‘Next Steps in Strategic Partnership’’ (NSSP) agreement that paved the way for Indo-US cooperation in area of civilian nuclear activities, civilian space programs, and high-technology trade as well as a dialogue on missile defense with each other. The US nuclear agreement, India has been recognized as a responsible nuclear weapon state. The Pentagon has been designating India as a ‘‘friendly’’ foreign country for the last few years along with nations like Austria, Brazil, Bulgaria, Finland, South Africa, and Kuwait. This is despite the fact that India refused to oblige the US request for troops to Iraq (Pant, 2006). As far IndoIran gas pipeline issue is India is not cancel this project despite that Indo-US nuclear deal. India has bristled at the Iran rider in the bill because it actually makes things much more difficult within this country, entangling nuclear cooperation with the US with India’s policy to Muslim and the Islamic world. This has sparked some of the bitterest opposition to the nuclear deal, inviting charges that India was outsourcing its foreign policy to Washington. On the ‘fiss-cap’ provisions, India has declared that it will not unilaterally cap its fissile materials production, while Pakistan and China retain theirs. However, India’s point of views the Indo-US nuclear deal and Indo-Iran gas pipeline project both issues are important for rapid economy growth. Therefore, in the current situation it is too difficult to predict India prefers a close relationship with the US at the expense of gas trade with Iran. However, the geopolitics of pipeline from Iran to India has become a major foreign policy issue for the United States in the last few years and today also (Noreng, 2002). Countries like Iran, Pakistan, India, China, and Russia are competing to gain a piece of the great pie. However, United States favors Turkey for political reasons as against Iran due to will of its business community. At stake for Iran is strategic and not just economic, gains or losses. No wonder US is not letting the business executives and states in the Caspian region including Iran play the pipeline game among themselves. The winners of the pipeline game will reap strategic benefits while losers will become marginalized for some time to come. Favored by Iran and oil companies, the southern routes make better economic and commercial sense. They are cheaper to build, pass relatively safer territories and pose no serious environmental hazard. Significant pipeline and port infrastructures also exist (Amirahmadi, 2000). 6. India and Pakistan The political environment in South Asia is marked by an ambience of hope and anticipation. We are witnessing the most intensive diplomatic engagement between Pakistan

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and India since the military stand off of 2001–2002. From the depths of confrontation and crises, Pakistan and India have been able to take a series of confidence-building measures (CBMs) to establish a modicum of stability to their relations. Five features mark the new environment. First, there is a strong popular sentiment for peace in both countries and new stakeholders for peace have emerged. Second, there is a manifest sense in both countries that there is no military solution to the Jammu and Kashmir dispute or other problems. Third, there is recognition at both popular and official levels that neither country can achieve its full economic potential or achieve prosperity for its people, while engaged in confrontation. Fourth, the two countries realize that they need to carefully manage their relations in a nuclearized environment. Fifth, globalization is unleashing new dynamics and creating imperatives for cooperation, reshaping Pakistani and Indian political perceptions. The strategic relationship between Pakistan and India remains undefined and unstable. Pakistan has proposed a strategic restraint regime to define and stabilize this strategic relationship, both in the nuclear and conventional fields, based on the concept of minimum deterrence. The future of the dialogue and stability in South Asia depends on whether the two countries can address and overcome their divergences, especially on Kashmir and the nuclear–military balance, and build on the areas of convergence-trade, regional economic cooperation, and North–South issues. The Indo-US nuclear deal has raised serious questions for regional stability. Under the agreement, a large number of facilities and reactor including breeder reactors will be maintained outside safeguards, which will encourage India to continue and even accelerate its weapons program without any constraint or inhibition. This threatens to erode minimum nuclear deterrence and strategic stability as proposed by Pakistan. It could also trigger a new arms race in our region. A package approach for India and Pakistan, rather than the discriminatory one being pursued, would help to avert a nuclear arms in the region, promote restraint and preserve strategic stability while also ensuring that the legitimate needs of both countries for civilian power generation are met. A stable nuclear strategic relationship is essential for normal relations between India and Pakistan. A balance in conventional weapons is also an essential component of sustainable stability (Lodhi, 2006). As far as the IPI gas pipeline project is concerned, the Indian government is committed to favor this project in the current situation in the aftermath of the Indo-US nuclear deal and the prevailing nuclear scenario in Iran. The impetus is India’s long-term energy demand. The Indo-Iran pipeline project has such broad geopolitical ramifications that it would be prefer or favor this project. 1. It would be a financially viable alternative. 2. India and Pakistan will experience the necessary burden of mutual dependency for the first time in decades. Iran will get to develop a stable and secure export market for its natural gas. 3. The IPI pipeline might become the catalyst for a wider network of

pipelines crisscrossing the Asian heartland and connecting areas of supply with areas of demand in a manner unmediated by outside influence. 4. The involvement of Pakistan in this project is not a problem. But an opportunity for India because involving Pakistan in a trilateral or even multilateral energy grid is an excellent way of raising the level of economic interactions between the two neighbors who have traditionally been at loggerheads with each other (Varadarajan, 2006). 5. For Iran, the Indo-Iran pipeline project offers not only a long-term potential markets for its natural gas resources, but it also confers upon Iran a strategic value. 6. Moreover, the levels of competition have intensified in the global gas industry after years of mergers in energy sector against a background of emerging markets. In this regard, the stakes to export natural gas to emerging markets, such as India and China, are high. Like others, Iran’s natural gas industry is also facing serious challenges on its export front from Russia, Qatar, and Turkmenistan. Faced with stiff competition from other pipeline gas projects, the countries in the region are hurrying up to negotiate the long-term gas pipeline projects (S. Pandian, 2005). 7. India will also be keen to resolve the issue of the tri-nation gas pipeline. Despite considerable US displeasure and pressure tactics, India has been committed to the idea of strengthening energy cooperation with Iran. Until such time as the pipeline becomes a financially feasible proposition, India is prepared to increase the quantity of gas imports from Iran (Kumaraswamy, 2006). Significantly, gas export is a twoway trade and India is not the only beneficiary. A broad ` picture of India’s energy diplomacy vis-a-vis countries like Qatar, Saudi Arabia, and Russia might indicate that Iran would also be a loser if the gas deal falls through. A detailed outlook of the extent of Indian investment plans in other parts of the world might convince Iran. And though important, it is not India’s only option. While it is legitimate for Iran to demand a higher $7.2/mbtu price for gas it wants to sell to India and Pakistan, India is, however, willing to pay no more than $4.2/mbtu for gas delivered at its border. Iran will not sell its gas at the proposed price. According to Tehran, if the Indian side is not ready to buy its gas at its real price, it has no obligation to sell it at the price lower than the real one. But India will not favor to be dictated to. Not by US and not by Iran. 8. The importance of nuclear power, which has become an economic commodity because of the high price of oil and fear of further rise. In such a context the US has offered its cooperation to India in the civilian nuclear field after eight nuclear reactors have been excluded from the civilian sphere. The US has also agreed to offer nuclear fuel for power production to India. But Pakistan will not be offered such a facility by the US in view of its proliferation record, said the US Secretary of State Condoleezza Rice while in Pakistan. The US Secretary for Energy Samuel Boodman who led the delegation to Pakistan immediately after President Bush’s visit, said: India’s needs are different, its problems are different and its programs are different. And

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he advised Pakistan to get gas not from Iran, but from Qatar at a cost of $8 billion for the pipeline. 9. Energy security has become a question of national strategy. It is an issue of great importance, and so once again today. But the subject now needs to be rethought, for what has been the paradigm of energy security for the past three decades is too limited and must be expanded to include many new factors. Moreover, it must be recognized that energy security does not stand by itself but is lodged in the larger relations among nations and how they interact with one another. But it is also fueled by the threat of terrorism, instability in some exporting nations, a nationalist backlash, fears of a scramble for supplies, geopolitical rivalries, and countries fundamental need for energy to power their economic growth (Yergin, 2006). However, India, wary of the physical security of the on-land pipeline, sought a guarantee from Iran that, if Pakistan stooped the gas supply in case of an armed conflict, Iran will supply an equal amount of LNG to India at the same price. In return, Tehran has agreed both to supply an equal amount of LNG to India at the same price in times of supply disruption, as well as to stop delivery of gas to Pakistan if Islamabad disrupts gas supplies to India. Iran also proposed setting up an international consortium of bankers and energy companies that would buy the gas from Iran and sell it to India. To ensure uninterrupted energy supply, it also suggested a tripartite agreement between India, Iran, and Pakistan with the inclusion of global financial institutions such as the World Bank and Asian Development Bank as guarantors. Furthermore, it was suggested that Islamabad’ s expectations of substantial transit fees was a reasonable enough guarantee against sabotage by Pakistan (S.G. Pandian, 2005). 7. The Iran issue However, the Indian analysts have begun exaggerating the areas where Indian and US strategic interests converge. Nothing could be further from the truth. From West Asia to East Asia, the US has emerged as the principal threat to strategic stability. Its policies of regime change, preemptive war and sanctions against states that refuse to accept its diktat, combined with permissiveness towards Israel, is degrading the security environment in Asia in a way that will adversely affect India’s interests. Even as it looks forward to the implementation of its nuclear deal with the US, India must be mindful of the collateral damage its relationship with US could cause for itself and the region (Varadarajan, 2006). However, the US, within which the games that have been played over Iran by all corners, presently needs to be situated. The US is playing for huge stakes. In comparison, the Indian government is playing for very small stakes but pretending that these are much bigger stakes in order to justify its foreign policy stand in support of the US. The US since the end of the Cold War has been seeking to establish a permanent global dominance, an informal global empire, or what some prefer

to call a stable and enduring unipolarity. To achieve this it must achieve dominance over the strategically vital region of West Asia. This in turn means it has to reverse the greatest political–strategic defeat it suffered in this region. The aim of the US since the fall of the Shah in 1979 then, has been constant. Its problem has been how to go about undermining the Iranian regime and making it subordinate through regime change, if necessary. For a long time now the US has selectively opposed certain governments developing nuclear weapons. But September 11, 2001 (9/11) added a new dimension. It created an urgent determination on the part of Washington that from now on it was not just a question of not letting certain countries get the bomb but that even there capacity to make the bomb must be denied. Since this capacity is inseparable from the inherently dual-use nature of nuclear civilian energy production this had to mean US intervention to prevent complete control of the entire nuclear fuel cycle by some countries, above all Iran. But naturally enough, not of countries like Germany, Japan, etc. who are non-nuclear signatories to the NPT but which have complete control over their respective nuclear fuel cycles and can, if they put their minds to it, make nuclear weapons much more quickly than Iran. Expert estimates suggest that it would take Iran several years, possibly a decade, to make the bomb after it takes such a decision, whereas Japan can make a bomb in a few months. The US put pressure on the Indian government to support it in the IAEA. The key for the US was to get Russia and China on board. Now this Indian government can simply and happily hide behind this turn of events and tell itself and everybody else that it is in its interest to support the US. Because the big two of Russia and China are going in this ` direction or at least not obstructing the US plans vis-a-vis Iran. In effect, the relative inconsequentiality of India makes its easier for the government to behave more supinely before the US and to claim at the same time that it is not doing so under US pressure. The US is getting what it wants from governments. It knows that in order for it to establish its global dominance it must make sure there is no serious opposition to it from significant powers. And to ensure this, must tie them up in arrangements including formal and informal alliance structures that can sustain its overall hegemony (Vanaik, 2006). However, presently situation of Iran becomes a suspected or a de facto nuclear weapons state, it is feared that its neighbor such as Iraq, Saudi Arabia, Egypt, Syria, and Turkey, may consider their nuclear options. There is the ongoing security concern of Israel, and even the possibility of future hostilities with the United States. All these make the nuclear option a tempting quick fix for present and future security dilemmas. Egypt, despite its close security relationship with the United States, may well consider nuclear alternatives on the basis that it no longer carries the prestige in Arab politics that it once did. And a nuclear Iran would be yet another insult to Egyptian prestige. In addition, to provide leverage in future negotiations the

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strategic calculus of Syria may also point towards nuclear attainment. With an ambiguous future in Iraq and with Israel to the south, Syria occupies a position that is extraordinarily isolated, vulnerable. Such a position may provide powerful incentives to develop nuclear weapons. If Iran develops nuclear weapons capability, the balance may tip dramatically in favor of Iran. However, if the US and the EU fail to convince Iran to forego the nuclear weapons option, Turks (especially from the younger generations) may not remain loyal to the norms of the non-proliferation regime. The US faces essentially three options to stop Iran from going further down the road to become a de facto nuclear weapons state. The first possibility is to stage ‘‘regime change’’ and brings in an administration that might renounce nuclear weapons. The second is to carry out a ‘‘military strike’’ (limited in scope and purpose) against carefully selected nuclear installations to set the nuclear program back several years. The third is to, ‘‘engage’’ Iran diplomatically and apply a ‘‘carrot and stick’’ policy to convince the ‘mullahs’ that it is not in their best interest to pursue a complete nuclear fuel cycle. Each of these options involves difficulties when considered in light of Iran’s realities. On the issue of normalizing relations between Iran and Israel. Iranian senior analysts argue the ‘‘the formal recognition of the state of Israel by Iran may also be possible if essentially a ‘grand bargain’. Dr. Saideh Loitfian, from Tehran University, has clear suggestions for the ‘‘very big’’ gains: Iran could enter into negotiations for shutting down its nuclear power industry, with the following conditions. All sanctions against Iran should be removed, particularly sanctions restricting investment in its oil and gas sectors. Iran should be admitted to the WTO. Iran should become a beneficiary of foreign technical aid to find substitute sources of electric power; and Iran should be given positive security guarantees to ensure its national security in the absence of its nuclear deterrence capability. Eventually Iran should be included in a regional system in the Persian Gulf (Kibaroglu, 2006). However, India’s point views three issues dominate and undermine the bilateral agenda. First and foremost, India is apprehensive of Iranian nuclear ambitions. Agreed, the ` manner in which India expressed its concerns vis-a-vis this issue may be questionable and India could have handled its vote at the IAEA more tactfully. But given the A.Q. Khan connection, India would have opposed Iran even without the US angle. Furthermore, as far as the nuclear issue is concerned, India is on the same side as China and Russia: a nuclear Iran is a threat to its long-term strategic interests. Any peaceful and diplomatic resolution will require Iran’s ability and willingness to swiftly, unequivocally, and decisively convince the international community, especially the IAEA, of its peaceful intentions. India does not see any military solution to the conflict, it also does not share Iranian penchant for dragging its feet. The perceived sympathy of China and Russia towards Iran is nothing more than a leverage to secure better deals from US. If the

price is right, neither will not hesitate to ‘‘abstain’’ from any crucial vote in the Security Council. Iran cannot ignore a harsh reality: like the US, both China and Russia are opposed to Iran going nuclear. India might also use the recent meetings with other leaders from the Middle East, especially King Abdullah of Saudi Arabia and Kuwait’s Emir al-Sabah, to get the point across to the Iranian visitor. Their concerns and apprehensions over the perceived Iranian hegemony are real and could not be wished away by political rhetoric (Reuters, 2005). In 1991, Saddam Hussein underestimated the opinion of the international community over Kuwait and Iraq paid the price. Hopefully, Ahmadinejad will look for a better example than Saddam to emulate. Third and most importantly, Iran has only one address in India: Government of India. While the country can benefit from India’s democratic polity to influence the official Indian policy has to stick to certain norms. At the height of the domestic controversy over the IAEA vote, an impression was created that Iran was trying to influence the policy by be-friendly certain quarters that were critical of the Congress government. In the early 1990s, Iran sought to play up the Shia factor and there were suggestions of tacit Iranian involvement in the Kashmir upsurge. Now, it is playing footsie with the Left, which has emerged as a bitter critic of the government over Iran’s nuclear puzzle. 8. Iran and India joint ventures Indian companies have been promised participation in Iranian gas fields. The Iranians have also opened up their petrochemical sector for Indian investment. Indian firms have already signed an agreement that would allow them to participate in the Yadavaran and Jufeir oil fields, besides accessing the offshore Farsi block for exploration. Incidentally, India and China along with Iran will be partners in the Yadavaran effort, a move that might acquire greater political meaning if similar ventures are pursued in the future. Iran and India have been deliberating over transit that would enable speedy transfer of Indian goods to Europe and Central Asia. Both sides have recently begun official level discussions on a land corridor that could allow Indian goods to transit through Pakistan, Iran, and Azerbaijan on to Europe. In case discussions succeed, containers can be sent from Punjab by road or rail to Pakistan. From there, they can be transhipped by rail into Iran, once it completes construction of the 540-km rail link between Zahedan on the Pakistan border and Kerman. Efforts are also under way to build a small portion of railway track to connect Iran with Azerbaijan. Some experts envisage that Indian goods would reach Europe in a record 13 days if this route were opened up. India and Iran have also been discussing ways to transit Indian goods via the port of Chah Bahar. There is a proposal that India construct a rail link from Chah Bahar to Bam. Once this is done, Indian goods can be sent from Chah Bahar to the Central Asian republics as well as Russia along an existing

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rail network, which connects Iran with the former Soviet Union. Simultaneously, India and Iran are jointly working on extending the Iranian road network into Afghanistan. Indian construction activity is centered in Afghanistan between Zaranj and Dearam. The Iranians have been working on refurbishing a road system via Zahedan and Zabol, which is located at the Iran–Afghanistan–Pakistan border junctions. Once completed, the Iranian road network would be connected to the garland road system in Afghanistan and enable traffic to move towards the Central Asian republics and Russia. Both countries have a joint stake in the development of Chah Bahar port. With Jebel Ali in Dubai fast becoming overcrowded, Chah Bahar is ideally located as a future-shipping hub for facilitating east–west trade. Once endowed with sufficient warehousing facilities, Chah Bahar can be used fully for promoting trade with land-locked Central Asia. Besides, Chah Bahar is also geo-strategically significant as it stands at the gates of the Gulf of Oman and the Arabian Sea, overlooking vital shipping lanes emerging from the Persian Gulf. As ties between Iran and India deepen, both sides have been looking at new areas. Indian steel giant Tata Steel plans a joint venture with an Iranian company to make steel in the Persian Gulf Special Economic Zone (PGSEZ) in Bandar Abbas. Tata Steel and an Iranian company are also planning another three-billion-tonne export oriented unit at Bandar Abbas. The company will also participate in establishing a gas based iron pellet plant at Gol-e-Gohar in Kerman province, using locally mined iron ore (Aneja, 2005). 9. Persian Gulf politics Oil defined the geopolitics of the Persian Gulf earlier and it continues to do so in the 21st century (Akiner, 2004). In other words, a perspective driven by oil and gas has superseded the spatial recognition of the Caspian states as post-Soviet political and economic appendages. We now see these countries through a new prism, based on a geoeconomic and geo-strategic model, characterized by the importance of oil, gas, and pipelines. Foreign powers are politically active in the region, using Persian Gulf governments and groups for their own purposes. Various Persian Gulf interests invite and use foreign powers for their own protections and strength. Oil and gas is the common ingredient in the multiple relationships between foreign powers and Gulf interest and an essential factor in the pattern of regional conflicts, but not the only one. The combination of regional dispute and foreign intrigue has caused an extraordinary level of tension in the region, with recurrent open conflicts as well as a multitude of latent national, ethnic, and territorial discords. Indeed, since the end of the Cold War, the Persian Gulf has been the world’s most conflict-ridden and militarized region Noreng, 2002. Once again Israel–Lebanon war will be on the rise. How much more terror from the hands of Hezbollah and Hamas

should Israel absorb before its legitimate right to selfdefense is recognized in world opinion. What is the other option for Israel as long as Lebanon is being completely occupied by terror and is subjugated by it. Israel has no quarrel with Lebanon and no claim territorial or otherwise, but seeks only to ascertain that the Lebanese border does not become a base for terror attacks against Israeli civilian. Any success of terrorists in pursuit of their goals, especially by means of mass killing of the enemy’s civilians is received with cheers by their fans and supporters. Any set back to these forces by means of resolute military operations against them immediately ignites widespread rage in the neighborhood. Hatred and blood, of their enemies or their own, inspires them and ignites their imagination. Needless to say cheerful crowds greet that Hazbollah’s successful killing and kidnapping, by and large, across our region. This is not so much out of the desire to see the emergence of a truly independent state of Lebanon or an independent state of Palestinian state, but out of a desire to see the disappearance of Israel (Danieli, 2006). Even more disturbing is the fact that no genuine attempt has been made to enforce an immediate ceasefire, despite most governments in Rome asking about for it. Continued Israel bombing of Lebanon would further complicate matters, and endanger the world both in terms of ideologically strengthening Pan-Islamist terror and aggravating the global energy crisis. India, given that it’s a key emerging economy with rising energy needs, must certainly intervene in its own interest. But Israel foreign ministry official Gideon Meir said: ‘‘we cannot accept a ceasefire with Hezbollah because this terrorist organization would exploit it to gather civilians to use them as a human shield in the combat zone’’. 10. Indian energy scenario India has currently got electricity generation capacity of 127,000 MW but faces a peak energy deficit of about 47%. This is 3% of the world capacity. The average plant load factor is 60%. That means only about 70,000 MW of electricity is generated. Transmission and distribution losses range between 18% and 62% in various states. This makes an average of 40% which means about 43,000 MW of power only is available at consumption point. About 20% inefficiency in the utilization of electricity leaves only about 34,500 MW of power actual consumption out of an installed capacity of 115,544 MW. This is a crying need for increasing the efficiency level, which is very much possible at minimal cost. (Narayan, 2005) Therefore, the demand from the power sector will increase to 400,000 MW from existing 120,000 MW, assuming an energy growth rate of 5%/annum. India also depends on oil to the extent of 114 million tons every year, 75% of which imported and used almost entirely in the transport sector. India has 17% of the world’s population but just 0.8% of the world’s known oil and natural gas resources. It ranks sixth in the world in 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 a substantial increase in demand for fuel and electricity. India is known to have five lakh tons of thorium, roughly one-third of the world reserves. It is the only country that is committed to using thorium as a nuclear fuel. While the country has significant reserves of coal, it is comparatively poor in oil and gas. Due to stagnating crude production, India imports approximately 70% of its oil, much of it from West Asia. World Energy Outlook published by the International Energy Agency projects India’s dependence on oil imports to grow to 91.6% by the year 2020. India is well endowed with renewable sources of energy. Latest estimates give the potential for wind power at 45,000 MW (wind farms have sprung up in many Indian states with significant private investment; wind capacity, 3595 MW and more than nuclear power capacity 3310 MW). There is no reason why wind capacity cannot be doubled in the next 2–3 years. Solar energy has a number of decentralized applications, and should be further encouraged) small hydropower at 15,000 MW, biomass power at 19,500 MW, and waste-to-energy at 4200 MW, making a total of 83,000 MW. Though a full-fledged Ministry for Nonconventional Energy has been in existence for more than a decade now, only 4885 MW, a mere 6% of the potential, has been tapped so far. Similar is the case, with the exploitation of the renewable potential into electric power, our energy future could be secure and dependence on fossil fuels could be significantly reduced. Anandalingam, 2005; Rajappa, 2005) (Fig. 1). Therefore, nuclear power looks like becoming critical to India’s economy and long-term energy security. First, India’s rise as an economic power means that its energy needs will rise massively. The BRIC report of Goldman Sachs projects India’s GDP to rise by 40 times between 2000 and 2050. If energy consumption rises at just half this rate, it means India will need 20 times more energy in 2050. It will be difficult or impossible to meet these needs through conventional fuels. Secondly, the price of fossil fuels has shot up, with oil more than doubling to US$80/barrel and gas more than tripling to US$7/mBtu in the US. Oil prices are notoriously volatile and could fall sharply in a few years. But they will surely rise again later. The emergence of China, India, and other Asian countries 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 amount of uranium generates many megawatts, and plutonium can be extracted from the spent fuel to yield fresh fuel in mixed-oxide reactors. Nuclear power plants are extremely capital intensive, costing twice as much as thermal plants of comparable output. They need an additional 10–15% for de-commissioning when they become too old to operate. But they have the big advantage of very low running costs. By contrast, running costs can be half the total costs in a thermal plant, and keep rising with fuel prices.

Expectations are that high prices of crude will not go away. The average oil prices paid by India rose from US$28 in 2003–2004 to around US$51/barrel in April–June 2005. The total oil bill is in excess of Rs. 150,000 crore. This is a huge tax being paid by the nation to oil producers, and its effect is evident. Current account balance deteriorated from a surplus of US$10.5 billion in 2003–2004 to a deficit is likely to cross US$14 billion this year. The rupee is under pressure and will continue to be so as interest sensitive capital flows go easily when US interest rates rise. (Narayan, 2005) The government too is considering increasing the price of oil and natural gas in the international market. Therefore, it is saving the oil marketing companies (OMCs) which are suffering from low cash revenue because its price system is controlled by oil ministry. The government of India again reintroduced the administered price mechanism (APM) which it had dismantled in favor of market linked prices. The OMCs are facing cash losses of up to Rs. 40,000 crore by the end of the financial year, without raising retail prices. (The combined loss of IOC, HPCL, and BPCL in July was Rs. 1516 crore. IOC, alone lost Rs. 467 crore on petrol, Rs. 2730 crore on kerosene, and Rs. 1180 crore on LPG during April–September. This comes at a time when global crude oil prices crossed the US$70 barrel mark. IOC is losing Rs. 52 crore everyday on account of selling petrol, diesel, LPG, and kerosene below the cost price). A return to the earlier oil pool system seems to be one of the most politically feasible options. The government has not allowed OMCs to increase retail prices because of opposition from the Left parties, on which the Congress is dependent for survival. Analysts say prospects of convincing the Left are remote with elections in mind. More than Rs. 7400 crore were lost on sales of petrol, diesel, kerosene, and LPG in 2005–2006 as they were forced to hold down prices of petroleum products such as petrol, diesel, liquid petroleum gas (LPG), and kerosene despite a surge in global crude oil prices. The government has also tried to help marketing companies by getting state-owned producers like ONGC and Oil India Ltd. sell indigenous crude at heavy discounts of up US$16 a barrel. Oil companies say this is another from of return to government control. This is already hitting the producers. For example, ONGC, a highly profitable Fortune 500 company, lost Rs. 2873 crore in last quarter due to such

60 50 40 30 20 10 0


56 1
Natural Gas 1

Oil 10 Coal 56

Hydro power 25

Nuclear 3

Renew able 5

Series2 Series1

Fig. 1. Energy structure in power generation—2005 (%). Source: Business Standard, New Delhi, 1 September 2005, Dua, 2005a, b.

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discounts on crude oil sales. In late July, the Reserve Bank of India had estimated that the global crude oil prices had risen some 70% year on year while domestic prices 20% in the same period. Retail prices were last raised marginally in June 2005. The Central government ran up a fiscal deficit of 4.1% of GDP in 2004–2005. It has projected a fiscal deficit of Rs. 151,144 crore, or 4.3% of GDP, for the current fiscal year 2005–2006 (Narayan, 2005). 11. The superpower dynamics The United States has shown itself to be a reluctant superpower in the post-Cold War world, seeking on the one hand to continue to enjoy the privileges of that status. In the post-Cold War world, the assertion of global leadership remains a central feature of America’s larger national identity. And in a number of ways the US can still lay claim to being the world’s only superpower. Indeed, no other power can match US global military reach, which spans all geo-economic regions and encompasses the critical oil-producing region of the Persian Gulf (Schwenninger, 1999). Therefore, The US is the biggest consumer of oil in the world accounting for 25% of current world consumption, and only 7.7% of world production. A steadily declining crude oil production in the US coupled with steadily rising costs of funding and developing new fields have combined to create a major oil deficit in the country’s oil balance forcing it to become increasingly dependent on oil imports and this dependence is set to increase. In 2000 the US imported 56% of its needs or 11.07 million barrels a day, almost half of which come for the Persian Gulf. By the year 2010, the US could be importing 79% of its oil needs, two-thirds of which come from the Persian Gulf. The United States control over the oil and gas reserves remains an important foreign policy objective (Salameh, 2003). The rise of India and China is exerting tremendous pressure on the international hydrocarbon market as far as the US and Western oil majors are concerned. This is not so much owing to the current levels of demand. Indeed, it is a fallacy that demand growth in these two countries is an important, let alone pivotal, cause of the recent upward trend in international oil prices as to the hedging strategies China and India have embarked upon. These strategies are aimed at securing a major upstream presence through equity oil acquisition as well as the establishment of new transportation infrastructure such as transcontinental and transregional pipelines. India, in particular, is seriously examining the prospects of a strategic natural gas pipeline form Iran via Pakistan. If completed, such a project would fill a gap in the emerging Asian energy architecture. And open the possibility for the generalized outflow of Central Asian and Caspian oil and gas southwards towards the Persian Gulf and thence to Asia, rather than exclusively westwards via US-promoted pipelines such as a backdrop, providing India a viable nuclear energy option makes eminent sense. The US nuclear reactor construction

industry has been in the doldrums since 1976 and is looking to China and India as major sources of new demand. Although the Indian nuclear establishment would be more comfortable sourcing reactors from Russia or France, it is highly unlikely that the lifting of the embargo on civil nuclear cooperation with India at the urging and initiative of the US will not result in some contracts going to American companies. At the very least, as noted above, the US would certainly be looking forward to leveraging the nuclear agreement to secure a greater share of the growing Indian arms market. The offer of civil nuclear cooperation comes with a collateral price tag in some other area is by itself not sufficient grounds to reject or oppose such a historic deal, which offers the Indian nuclear industry a chance to end more than 30 years of isolation. But they do suggest the policy areas where utmost caution is required. If the unreasonable expectations of the US on the strategic front, the energy security front, and the trade front are met fully or even partially, many of the gains stemming from the resumption of civil nuclear cooperation will be lost. The US, Bush’s remarks in Islamabad that US did not have any problem with the Iran pipeline but only with Iran’s nuclear ambition is not a shift in line as some have suggested, but a clever reformulation of the same objection. Oil, and particularly natural gas, will continue to be an important part of the Indian energy mix in the short-medium term and nuclear power can be seen as a substitute only in the long term. Up until the middle of this century, then, finding and securing new sources of hydrocarbons will have to be a key aspect of India’s quest for energy security (Varadarajan, 2006). US describing India as a ‘‘natural partner’’. The partnership between our free nations has the power to transform the world. As a global power, India has a historic duty to support democracy around the world. India’s leadership is needed in a world that is hungry for freedom. As a standalone deal, the Indo-US nuclear agreement in the form in which it currently stands has much to commend it. US desire to build a strong partnership with India centered around civil nuclear and conventional military cooperation with India. The growing economic and strategic importance of India in a world that is in transition from one order to another. For the US, which intends to weather this transition and the rise of China with its hegemonic power intact if not augmentednuclear cooperation with India forms the bedrock of a wider set of strategic interactions aimed at harnessing Indian strategic capabilities. Indeed, strategic factors have over-determined the US approach to the Indian nuclear question to such an extent that India’s nuclear weapons are today considered an asset for the US rather than a strategic challenge. The changes in US force deployment and basing patterns around the world and Asia, as well as the foreseeable increase in offensive missions the US Armed Forces are likely to undertake on the Asian landmass, building a strong military relationship with India is absolutely vital. The idea is that the US could eventually draw upon Indian capabilities to outsource

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activities at the lower end of the military food chain, such as peacekeeping, maritime patrolling, and disaster relief, thereby freeing its own forces for the ‘‘high end’’ task of waging (pre-emptive) war. The US has a strategy to ensure that they remain the foremost power in military, economic, technological, and cultural terms, in a group of six major powers. The six powers are US, China, EU, Japan, Russia, and India. In order to implement this strategy they have to enlist India as a partner as they have already done the other four powers. China is far from being an adversary of the US. It has an over $200 billion annual trade deficit with US, has invested $250 billion in US bonds and banks, and is a partner with US in a number of international economic and technological arrangements (Subrahmanyam, 2006). However, the thrust of US strategy towards China is engagement, not containment. China is as capitalist as the US, so it is rather unlike the US relationship with the Soviet Union during the Cold War years. Similarly, Russia partners the US in running a space station, has a Founding Act with NATO with a Russian general as a liaison officer in NATO headquarters, shares membership with the US in Organisation of Security and Co-operation in Europe, and has been coopted into the G-8 group of leading economies. The US is military allied to EU and Japan. This is the balance of power in the 21st century with the US a hegemon. The US is interested in ensuring energy security for the whole world to ensure continued economic growth of all major powers, which is turn, would help its economy. Therefore, the US pushes nuclear and clean coal energy to high-energy consumers. That led to sale of a large number of nuclear reactors to China and an agreement that Australia would sell uranium to Chinese reactors. Both these pacts were contracted on terms more severe than those accepted by India. China has accepted these terms because it is keen to ensure its energy security. Since a fastgrowing India is important in the US scheme of things, US is exceptionalizing India from the NPT and making available clean coal technology. These are steps to ensure that the 21st century belongs to the US. US modify their strategy from time to time suit their interests. In the 1950s, instead of facing the Soviet Union militarily, they adopted the strategy of containment, which finally contributed to breakdown of the USSR. In 1971, US reversed its hostility towards China and succeeded in weaning that country away from communism and its Soviet alliance. Now, it focuses on the last frontier making India a partner and tapping into its economic and technological potential. China and Russia are largely partners of US rivals at times but not adversaries. Russia will preside over G-8 and China will be firmly tied to western reactors, Australian uranium, US clean coal technology, and further expansion of trade with US and Japan, and more financial linkages to US. While China will exploit resources from developing countries in terms of oil and mineral products, it will not lift its little finger to fight on their behalf (Varadarajan, 2006).

12. China as a factor in energy politics China’s fifth national census of 1 November 2000 revealed that the population had grown to a total 1,242,612,226. This figure represents more than one-fifth of the world’s population (22% of the world population). And 64% of the Chinese population live in rural areas compared to 88% in 1952 (Fisher, 2005). Therefore, China is regarded as an important player in global strategy. Through skillful diplomacy and by virtue of its size and weight in international affairs, as symbolized by its position as one of the five permanent members of the UN Security Council, China has shown that it cannot be ignored. Owing to its rapid rate of economic growth, China has come to be regarded as the next rising world power. China’s spectacular economic growth has led to a growing dependence on oil imports which in 2000 amounted to an estimated 30% of its needs with imports from the Persian Gulf accounting for 31% of the total and this trend is set to continue into the future. By 2005 China will need to import 60% of its needs, rising by 2010 to 76% of its needs. By then China would have overtaken Japan to become the world’s second largest oil importer after the United States. The rapid growth in crude oil imports has significantly altered China’s position in the world oil market. China now accounts for 6% of global oil consumption compared to 3.5% in 1988, whilst its share of world production only amounts to 3.9%. China’s economic development and its aspirations to diplomatic superpower status depend heavily on its Persian Gulf oil. However, China’s potential exposure to economic dependence and to the political turbulence of the Persian Gulf touches a very raw nerve in its strategic thinking (Salameh, 2003). However, in particular, China’s thirst for oil forces Beijing to aggressively pursue international sources of supply, driving up international oil prices. High oil prices not only directly affect the Chinese economy but also increase international tension. However, in 1993, China was self-sufficient in oil. Since then, its GDP has almost tripled and its demand for oil has more than double. Today, China imports 3 million barrels of oil per day, which accounts for almost half of its total consumption. China’s share of the world oil market is about 8%, but its share of total growth in demand. World oil demand has grown by 7 million barrels per day since 2000; of this growth, 2 million barrels each day have gone to China. India’s oil consumption is currently less than 40% of China’s, but because India has now embarked on what the economist Vijay Kelkar calls the ‘‘growth turnpike’’, its demand for oil will accelerate (Yergin, 2006). However, economic interdependence serves as the single most powerful deterrent against an embargo or blockade by China’s neighbors. China must now view energy security in terms of economic threats and market solutions rather than military threats and diplomatic responses. China relies heavily on the Middle East for its supplies, but it has diversified its sources, and the potential for

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a politically motivated embargo by a Middle Eastern exporting country remains low. Beijing has pursued a ` balanced foreign policy vis-a-vis the Arab–Israeli conflict, reducing the risk of Arab oil exporters joining hands in an embargo against China. By opening talks with the Gulf Cooperation Council member countries towards establishing a free trade area, Beijing has also moved from a pure focus on oil supplies to enlarging the scope of economic exchange with key oil-exporting countries. This deepening of economic ties implies that Middle Eastern countries will have to consider the impact on their own economies of punitive actions against Beijing in the area of oil supply. In short, growing interdependence between China and the Middle East serves as useful insurance against an embargo. More recently, China has become more active in Middle Eastern affairs. Securing energy supply is a primary objective. China and the US seem to be on a political collision course over China’s pursuit of oil supplies from Iran. In 2004 Sinopec, which accounts for over 80% of Chinese oil imports and is the single largest refiner in China, bid for development rights for 16 Iranian oil fields despite attempts by the US to persuade it to withdraw. This ongoing situation underscores the seriousness of SinoAmerican differences. In 2005, the Bush administration responded to the perceived Chinese challenge to American efforts to contain Iran by supporting India’s pursuit of nuclear energy while maintaining sanctions Chinese acquisition of the same nuclear technology. Such policies may produce unintended consequences by giving weight to voices in China that see politically motivated diplomacy as the ultimate instrument for securing China’s oil supplies. As a consumer country, China does not really have much of a choice in its sources of supply. With Chinese oil companies on a learning curve as they interact with international oil majors in the Middle East, Central Asia and Africa, contention between Beijing and the United States (and its allies) over China’s pursuit of energy supplies can be expected to last for some times (Zha, 2006). The shortage of surplus capacity means that US policies towards the Persian Gulf are likely to have more immediate and obvious consequences for major oilconsuming countries. This is both a danger and an opportunity for US policymakers (Saikal, 2005). How US manages its role in the Persian Gulf will impact not only relations with the countries of the region, but also with Europe, China, Japan, and India. Fears of a rivalry between the US and China over Middle East oil are probably misplaced, as neither US nor China may be able to attain secure oil supplies from the Gulf in the coming years. But such competition could become a self-sufficient prophecy, if both countries fail to cooperate to try to ensure regional stability. A situation of competing, bilateral oil deal could quickly become one where both the US and China get unexpectedly cut off by a major disruption based on internal difficulties and aggravated by the rivalry. Iran has used its influence to boost world oil prices levels through a combination of public statements,

diplomatic initiatives, and outright threats. Any possible sanctions from the west could possibly, by disturbing Iran’s political and economic situation, raise oil prices beyond levels the West expects. A nuclear Iran would be in a much stronger position to assert its geographic leverage over the Strait of Hormuz, the main passageway for 15–16 million per day of oil, roughly two-thirds of total world oil trade and 20% of total world daily demand. Oil and petroleum products from Iraq, Iran, Kuwait, Saudi Arabia, Qatar, and the United Arab Emirates transit the Strait of Hormuz. Large quantities of LNG are also exported from Qatar through the Strait. Qatar plans to export over 9 million tons of LNG a year and Iran is also building LNGexport capacity. Since 1992, Iran has occupies island near the strait of Hormuz, restricting outside access, building an airstrip and deploying SA-6 surface-to-air missiles, 155 mm artillery and Seersucker anti-ship missiles there (Potter and Sick, 2000). However, Sino-American conflicts as inevitable consequences of China’s emergence as a major international actor. A broad range of Chinese policies ranging from its defense build-up to its opposition to the US-led invasion of Iraq can be constructed as preliminary efforts to challenge US pre-eminent status. As the uproar over the aborted 2005 attempt by the state owned Chinese National Offshore Oil Company (CNOOC) to acquire American oil firm UNOCAL indicates, there are many in the US, particularly on the political right, who remain deeply suspicious of China. At the same time, however, Sino-US ties most notably in trade and investment have both broadened in scope and increased in importance. It would be a mistake for the US in a fit of paranoia to miss diplomatic opportunities created by China’s increasing involvement in oil markets and the Persian Gulf. Ten years ago, China was energy self-sufficient. Today it is the world’s third largest oil importer, importing roughly 3 million barrels per day of crude oil and another 500,000 barrels per day of refined product. Moreover, China’s oil imports are projected to rise to 10 million barrels per day by 2020. As its oil imports began to grow in the late 1990s, China has become more active in the Gulf. Chinese foreign policy analysts have concern about the better importance of forging a better strategy towards the countries of the Persian Gulf. One key concern is that the West’s strong position in the Gulf could threaten China’s access to oil supplies. To reduce the threat, China has diversified both its oil and gas investment holdings to countries such as Sudan, Venezuela, Indonesia, and Nigeria. It has also engaged major Gulf oil producers in a variety of ways, including government-to-government arrangements, cooperation with local partners, and participation in international consortia. For the most part, China’s oil supply pursuits have been undertaken in a business context that should not be particularly upsetting to US, with China’s state oil companies bidding for acreage, farm-ins or acquisitions in the customary commercial fashion. China’s commercial oil and gas investments help increase the pool

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of capital investment in energy resources, and that helps all consuming countries. However, China has also secured some very attractive oil acreage in countries with which the US has had troubled relations, hindering US efforts to isolate these nations. In the case of the oil-rich governments of Venezuela and Sudan, China’s support has been bothersome to US in Sudan’s case because it hindered US efforts on the Darfur crisis. But China’s expanding involvement in Iran’s oil and gas sector is the most worrisome to US policymakers. China’s activities are giving countries like Iran and others the impression that they can fruitfully play China and US off each other and attain backing from China to counter too much interference by US in their internal affairs. Indeed, Chinese involvement with Iran has already undermined US efforts to get Iran to give up its nuclear weapons program. China’s recent military build up, though sizeable, is far from sufficient to guarantee East Asian sea-lanes, much less defend the free flow of oil from the Gulf. Thus, for the foreseeable future, China will forced to rely on US Navy operations to protect China’s access to oil and gas from Gulf, greatly constraining its geo-strategic options. Not least, China’s emergence as a major and growing oil importers has raised the potential cost of policies that serves to destabilize the Gulf. Chinese policy in the region has yet to catch up with this reality. Like the US, China now has a vital interest in abroad range of issues such as ensuring security of the Strait of Hormuz, averting a dangerous regional arms race, and helping bring some modicum of stability to Iraq shared by all major oil consuming countries. This raises the question of whether the US could benefit more from co-opting China than by challenging it (Joe and Amy, 2006). 13. Conclusion It is suggested that uninterrupted supply of oil remains one of the most important priorities for India’s energy security (Lax, 1983). The second concern is the increase of uncertainty in the fundamentals of the energy markets: increase in volatility, impact on our economy as well as on energy demand of the oil prices increase, succession of potential surplus in gas demand or offer. Our strategies have to be adapted to this new reality (Clark, 2005). As economies improve, more energy is needed and more sources must be developed to supply the demand. If demand cannot be met with conventional crude sources, then unconventional become important (Bromley, 2005). The prospects of continued high oil prices present a twoedged factor. The higher prices will no doubt eventually impact world economies but the good side of the coin is that the continued higher prices make it possible to develop new sources of hydrocarbons. It is said that the Indo-Iran gas pipeline project is more likely to draw India, Iran, and Pakistan closer into an energy partnership and break the current political barrier against commercial engagement between them.

While international pipeline activity has shown relatively slow growth over 2003–2005, proposed additions in 2006–2008 could result in a record number of new pipeline miles. Much of the interest in completing languishing planned projects will be rekindled by higher oil and gas prices, increased demand in developing nations, and the outlook for LNG’s role in the US, Europe and other developing gas markets. Supporting this is the recently released BP 2005 Statistical Review of World Energy (Tubb, 2005). The Review indicates much of the recent demand for oil and gas was fueled by Asia, especially India and China, where Chinese consumption rose by 900,000 bpd, almost all of which was accounted for by imports. On natural gas, the review notes that international trade rose 9% in 2004. Pipeline shipments rose by more than 10%. Russia accounted for the largest increment, but growth was widely distributed across the world. Shipments of LNG rose by 5.4% last year, slightly below 2003. A strong energy consumption not only in China, but all developing nations, is reported in Exxonmobil’s 2004 Corporate Citizenship Report. As the data show, by 2030, energy demand will grow by 50%. Close to 80% of the energy demand increase will occur in developing nations. Europe is also an emerging gas market. Indigenous supply cannot keeps up with demand and future gas supplies will be piped in from much greater distances. It is suggested that India’s economic interest in the Indo-Iran pipeline project be in conflict with Pakistan’s geo-strategic interests. As India view that Pakistan’s geo-strategic interests are aimed at disrupting Indian economic interests, the Indo-Iran pipeline project could hardly be conducive to sustain confidence between India and Pakistan. In this regard, it is unlikely that India would entertain Pakistan’s role in Indo-Iran pipeline project. Only upon mutual coexistence with India, Pakistan could benefit from its geostrategic location. India’s expanding economies, growing population, rising standard of living, and limited indigenous energy sources pose a serious challenge to its long-term energy security. Our goal should be to ensure reliable, affordable, and environmentally sound energy supplies on a long-term basis. A difficult but achievable goal we would need is not only political will and the best efforts of industry leaders and experts but also a conducive environment to tackle this serious problem in a serious way. India can hardly build energy security by sourcing its main gas imports through a pipeline involving two renegade states. Iran already facing energy sector related sanctions under ILSA, a US law with extraterritorial application to third country firms, could become a target of US military action. Pakistan continues to do with impunity against India what Iran cannot even think of doing against the US. The Iranian oil minister has admitted that the pipeline carries no cost advantage as compared to LNG supply by ship. In any case, India is investing in a major way in the LNG option, as symbolized by the new onshore import terminals stretching from Gujarat to Kerala and the contracts with Iran and Oman.

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But other than Iran, Gulf countries has limited reserves of natural gas, which is not sufficient for India’s long-term gas supply. It is suggested that successful Indo-Iran transPakistan gas pipeline project would require an explicit government support from all participating countries. The fate of the Iran pipeline is still hanging fire. Apart from US’s opposition to the project, there are also differences on the pricing of the gas. Meanwhile, the US has said it was ‘absolutely opposed’ to a natural gas pipeline project linking Iran with Pakistan and India. However, the existing structure of having a dozen of companies has to undergo a change as this cannot fetch big oil and gas asset for India. In addition, the ministry is also of the view that one ministry should handle all policies relating to energy resources, whether it is coal, oil or gas. The Synergy in Energy Committee has not understood the root cause of the problem that exists today in the oil sector. We cannot continue to rob one oil PSUs to subsidies other. Also, continuous fiddling with the duty structure cannot be done time and again. These are temporary arrangements but in the long term, if we want our dependence on imported crude oil to reduce in the near future, we have to think big and restructure the oil and gas PSUs into two or maximum three entities. Economically speaking gas supply and transport prices are more correlated to political relationships than to fundamental supply-demand or gas transport basis calculations. In fact, India should look to a country like France to help with the nuclear power program because France has found a way to build the safest and the cheapest nuclear plants, and in a very short time as well. The only way in which the US–India cooperation can help India in the nuclear power arena is by US moderating its stance on the supply of nuclear fuel to India. India’s future energy security cannot rely on nuclear power alone. Recently Indo-India nuclear pact support India’s civilian nuclear program and not any nuclear weapons capability enhancement. Another important avenue to ensure security in India is the search for new sources of petroleum fuels. Here, it seems that India is facing a formidable competitor in China. SINOPEC acquired an oil exploration block in Angola from Shell Oil after beating the bid from ONGC Videsh, China Petroleum Corp., and ONGC Videsh Ltd. just recently competed to buy PetroKazakhstan which owns a number of oil wells in that Central Asian republic. Companies from both countries are on global hunt for petroleum resources. In fact, this competition seems to be full swing in Central Asia. Since 2000, the China National Petroleum Corporation has invested US$45 billion in the search for new sources of energy while ONGC has invested around US$3.5 billion. The new US–India pact will only intensify the competition for energy sources between India and China because the US clearly thinks of India as its geopolitical ally in containing China’s future global reach. However, it may be in India’s interest to also consider ways and means of cooperating with China in the search for mutually

beneficial energy security. For instance, given the growing Chinese presence in Myanmar and the proximity of the natural gas fields of Myanmar to India, energy security will be better served by having China as a friend rather than a rival (Banerjee, 2005a,b). There are sufficient complementary technical expertise in China and India in oil exploration (China has the edge) and distribution via pipeline (India has the edge) that cooperation may be more beneficial than relying on others. In addition, India should make China a partner in IPI gas pipeline project, which boost the security and its stable project for the insecurity in the side of Pakistan. But China show’s little interest in Indo-Iran pipeline project. But in the wake of US pressure to abandon the US$7.4 billion IPI gas pipeline owing to Iran’s determination to enrich Uranium. Pakistan will seek US cooperation for the installation of three to four nuclear power plants, each with 1000 MW capacities. To overcome any energy crisis that the country will probably face 2008 onwards. So Pakistan has already made plans to increase its nuclear capacity to generate 8500 MW of nuclear power. If the UN imposes sanctions on Iran, the proposed IPI project may not materialize but India is favor in this project despite this US-Indo nuclear deal, and Pakistan will have to start work on the remaining two proposed gas pipeline projects, the Qatar–Pakistan and Turkmenistan–Afghanistan–Pakistan pipeline. IPI project is in the interest of both countries, but if US pressure on Pakistan increases, it has plans to seek US cooperation for the installation of the latest nuclear plants in Pakistan, which will ensure constant country its energy supply. Threats to energy security must be challenged and resolved on a multilateral basis, with all stakeholders present. The interdependent nature of our energy infrastructure requires a multilateral approach. We are all depending on it. It is suggested that India and Pakistan are both confronted with the problem of an increasing shortage of natural gas. As they have the advantage of bordering the Persian Gulf and Central Asia, two of the world’s major natural gas-rich regions, this geographical proximity can provide the basis for mutually beneficial economic cooperation between India and Pakistan in energy trade. An Indo-Iran pipeline project agreement supported by India and protected by Pakistan against any disruptions of flow would bring political as well as economic benefits. Thus, the trans-Pakistan pipeline project could be a key CBM in resolving irritants in their political relations, forging and intensifying a new relationship between India and Pakistan. It is suggested that the problem associated with oil and gas security and the Gulf, after all, are of a complexity that demands comprehensive solutions. Internationalizing al least the energy issues could begin to disengaged the US from the current slippery slope on which it is increasingly perceived as a regional combatant aggressively pursuing unilateral national and security interests to the detriment of regional stability. Asian leaders are becoming increasingly worried about their economies growing dependence on

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Gulf oil and gas and are likely to be receptive to any multinational initiative that would make supplies from the region more secure or provide a framework for developing alternatives energy substitutes. The IPI pipeline can prove to be crucial to the growing energy needs of India and Pakistan. However, India’s economic interests in the gas pipeline project are not in congruence with the political–economic and strategic objectives of Iran and Pakistan. So long as there are divergent interests among the participating countries in the gas pipeline project. However, this is mired at the moment, in deep security and political quagmire. The prospective, economic advantages are being sacrificed to the calls of strategic considerations. The opportunity cost is simply immense for both the countries. Unfortunately, there are no indications that IPI pipeline will take off sometime soon, due to Iran nuclear issue. Acknowledgments My sincere thanks to the anonymous referee for his/her highly valuable comments and suggestions. Sir/madam I try my efforts but if you need more clarification, I will do again. With warm regards. References
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