Asia's Big Plans

Siddharth Varadarajan, posting on his blog, Reality, one bite at a time, has an excellent article there, Looking beyond the nuclear deal (also from the new energy newsletter, Energy Security Insights) in which he discusses a future pan-Asian pipeline grid. It is a bold and grand plan, to be sure, and Varadarajan describes the future needs of the growing Asian demand for hydrocarbon energy.

We already know that India has been party to a pipeline deal with Pakistan and Iran, at least before the US started selling arms and nuclear technology to India, excluding Pakistan from the nuclear toy store, something Islamabad is now none too happy about. The US also hopes to scuttle the pipeline by exerting pressure on India through this nuclear technology sale. And while nuclear power is a solution to long term energy demand, in the short term, hydrocarbons, i.e. natural gas, are needed and arms are not going meet India's energy needs, now or ever. The one thing that the US assuredly cannot supply India with is conventional energy, which is why the nuclear technology push came from Washington. It is the only real energy source the US can offer and, in doing so, have any hope of scuttling the pipeline deal with Iran. At this point, though, that appears to be unrealistic; India has been unwilling to renege on the agreement so far.

Beyond the currently realisable Iran-Pakistan-India pipeline, such a project might catalyse an Asian energy grid:

At the meeting in New Delhi in November 2005 of principal north and central Asian energy producing and consuming countries, India unveiled an ambitious 22.4-billion-dollar pan-Asian gas grid and oil-security pipeline system. The grid has four principal elements.

The first would extend the existing Baku–Tbilisi–Ceyhan pipeline system – originally conceived by the US as a means of shipping central Asian hydrocarbons westwards – down to the Red Sea via Syria, Jordan, and Saudi Arabia, allowing Caspian crudes to be exported easily to the Indian Ocean littoral. Second is the famous Iran–Pakistan–India pipeline, with the possibility of two additional sourcing spurs, one from the Caspian–Turkmenistan region to Iran, the other from Turkmenistan via Afghanistan. The third element would be a pipeline system connecting eastern India to Myanmar and south-western China with one connection running from Sittwe on the Burmese Bay of Bengal coast to Mizoram, Manipur, and Assam into China, eventually connecting up to the West–East China gas pipeline near Shaanxi, the other from Yangon to Kunming. The fourth element would involve the laying of pipelines that would connect the Sakhalin deposits in Russia to Japan, China, and South Korea.

That's a big plan. There are also further ideas towards non-dollar-denominated petroleum bourses, such as Iran has already announced, and as Varadarajan quietly suggests, Asia would do well to divest themselves of dollar-based investments:

Linked to an Asian oil market is the billion euro question of non-dollar denominated energy trade. Asian countries collectively hold more than two trillion dollars worth of foreign reserves, the overwhelming share of which is in dollar-denominated instruments. Prudential norms suggest that diversification of the Asian Insights reserve portfolio is overdue.

As we have all seen in the last five years and what Varadarajan's subtle suggestion is here, is that the Bush administration has been so lacking in prudential norms that it is now incumbent upon the emerging markets in Asia to seize control of things before they get too far out of hand and the dollar becomes far too unstable.

But there is a curious feature of Varadarajan's article that I find to be a serious hole. Nowhere in this discussion is there any mention or concern over how US interests will view this farsighted, far reaching goal of a pan-Asian pipeline grid and it potential to cooperatively interconnect the large populations and economies of South East and Central Asia, with Iran one of the sources of the desperately needed energy. Historically, for such a project to take place without the purview of the United States would be unprecedented. And that is, now more than ever, especially true. Such a venture is a severe threat to the PNAC prescription for American "benevolent global hegemony." But PNAC plans notwithstanding, US interests certainly do not want to see a functional non-dollar petroleum bourse; that would only further threaten the dollar. And they certainly won't want to see such a vast network of energy trading without getting in on that pie. I just can see no way any of this would happen without the US interfering, meddling in some way. But US success in meddling with these affairs, especially given the growing strengths of China and India, seems less and less likely with each passing day.

Which is what may also help explain the India nuclear deal, a deal notably asymmetric in its treatment of two partners in the Iran pipeline agreement. There are, of course, conveniently obvious reasons for this, even though the US tacitly approved Pakistan's nuclear weapons development. But the deal is causing friction and some small measure of acrimony already. Unless this is resolved soon, it will only escalate. If the US also continues to vilify Iran in the eyes of the world and even manages to carry out their threat to attack that country's nuclear facilities, it would be hard to imagine that the Iran-Pakistan-India pipeline would ever get off the ground. And Varadarajan should not believe that any of this is beyond the scope of the Bush administration. Indeed, it already appears to be underway.