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Opinion

There is a global conference for climate Ultimately it all boils down to energy. I
change going on in New Delhi as I write was trolling the net when I came across
this. From recent news reports it looks this superb article at downtoearth.org.in
like everything is going according to which is an in depth but very readable
plan. The EU has taken a belligerent study on oil.
stand and the US, the world’s largest
polluter, refuses to agree to anything that It is very easy to become cynical about
the rest of the world agrees to. the US, especially without understanding
the motives behind global policy on a
For the uninformed, the US is number of issues. I hope this special
responsible for a quarter of all issue on oil helps.
greenhouse gasses emitted. One of their
representatives was quoted in As always I look forward to hearing
mainstream media as saying, they cannot from you.
agree to anything that would affect their
economy. Narendra Nag

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Lead Story

From the barrel of oil

Geopolitics is not only about war and peace. It is about controlling the world resources,
particularly ’black gold’. Several international conflicts in recent times have been sparked
by the need to control oil fields. The world’s dependence on oil is complete. Yet
insecurity about energy supply is greater than ever before. With war clouds hovering over
Iraq and the conference on climate change coming up in Delhi, Down To Earth digs into
the role of oil in global politics

The US President George W Bush is raring to launch an attack on Iraq. While it is not
known for certain whether Iraq has weapons of mass destruction, it certainly does have
the world’s second largest reserves of petroleum after Saudi Arabia. Thanks to UN
sanctions, it produces a mere fraction of its potential. The US, on the other hand, is the
world’s largest consumer and importer of oil. One thing is known: the desire to control
Iraq’s oil lubricates the US war machinery. As the Washington Post reports, US oil
companies are ready - drills and all - to enter the Iraqi oilfields after Saddam Hussein’s
removal. Oil companies from the other four permanent member countries in the UN
Security Council (the UK, France, Russia and China) also have interests in Iraqi oil
fields.

The US oil tactics are clear: countries that participate in the effort against Hussein will
get a fair share in the post-Hussein Iraqi oil party. "It’s pretty straightforward. France and
Russia have oil companies and interests in Iraq," said R James Woolsey, former director
of the Central Intelligence Agency, who is all for attacking Iraq. "They should be told
that if they are of assistance in moving Iraq towards a decent government, we’ll do the
best we can to ensure that the new government and American companies work closely
with them."

Elements favoured to constitute a ’decent government’ in Iraq include the Iraqi National
Congress (INC), a forum of opposition groups backed by the US. Western media quoted
an INC leader, Ahmed Chalabi, as saying that he favoured the creation of a US-led
consortium to develop Iraqi oilfields: "American companies will have a big shot at Iraqi
oil." Several countries, including India, Italy, Vietnam and Algeria, already have
agreements with Iraq to extract oil. But these are frozen due to UN sanctions. In a post-
Hussein Iraq, these agreements are likely to be scrapped in favour of US companies.

All this speculation has led to a rapid rise in oil prices -hovering close to US $30 to the
barrel, US $5 of which is being labelled ’war premium’. There are fears that it might
climb beyond US $50 and trigger off a recession as had happened after the 1991 Gulf
War. Just before a meeting of ministers of Organisation of Petroleum Exporting
Countries (OPEC, a cartel that keeps oil prices unnaturally high by controlling production
through quotas) in Osaka, Japan, in the third week of September 2002, the most

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influential member of OPEC, Saudi Arabia, a US ally, had said that it would increase
supplies of oil to compensate any shortfall resulting from US military action against Iraq.
But, at the Osaka meet, OPEC ministers decided to keep oil production levels unchanged
till the end of the year as they were afraid of releasing extra oil into a weakening global
economy. Major oil producers are unhappy with the prospect of the opening up of Iraq’s
oilfields. They fear the glut of oil might drive down the prices. The Iraq imbroglio is also
about the US need to control the Saudi oil regime with competing reserves, according to
The Economist.

But why is oil so important to international politics?

Petroleum fuels the engines of the global economy. So there is never enough of it. Oil
politics dictates international relations

The post-war boom had

brought gas-guzzling
vehicles, expanding
highways and mushrooming
suburbs in the industrialised
countries, especially the US.
This boom was fuelled by oil
- the industrialised economies
depended almost entirely on
intensive use of fossil fuels.
The world learned about its
dependence on oil in 1973.

The Yom Kippur War broke

out in October 1973 between
Arab countries and Israel.
The Arab nations embargoed
oil export to Western nations
that supported Israel and cut
down production. OPEC,
formed in 1960, was a big
enough supplier to control
prices by this time.

The result was chaos in all

the industrialised countries.

The cost of a barrel of crude oil rose from US $3 in 1972 to US $12 by 1974. This ’oil
shock’ forced the West to chalk out an aggressive plan to free itself of the clutches of
OPEC. Securing supplies of oil, increasing domestic production and importing from
varied sources were the essential elements of this strategy. A new term gained currency:

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energy security. About 30 years down the line, the industrialised countries are yet to
break out of the clutches of OPEC - their economies have kept growing on the strength of
imported oil (see table: The top players).

Take the example of the US, the world’s largest consumer of energy and the biggest
importer of oil. When the US began trying to diversify its oil sourcing and increase
domestic production in 1973, it imported about 35 per cent of the petroleum it consumed.
Today, it imports more than 50 per cent. As energy demand surged by 17 per cent during
the 1990s, domestic oil production rose 2 per cent only.

And oil accounts for 40 per cent of the total energy use in the US at present.

Canada, Mexico and Venezuela each supply the US about as much petroleum as Saudi
Arabia, the world’s biggest oil producer. Yet Saudi Arabia remains its biggest supplier of
crude oil. In 1977, OPEC (Organisation of Petroleum Exporting Countries) accounted for
one third of the total US oil consumption. In the mid-1980s, the figure fell to below 13
per cent. And then it started climbing again. At present, OPEC accounts for half the US
oil imports - roughly one-fourth of total consumption - and about half of that comes from
the Persian Gulf (see graph: Energy depots). The US doesn’t see itself breaking free of
dependence on oil imports anytime soon. In fact, some experts say that the percentage of
US oil imports (as well as those of other oil importing countries) from the OPEC cartel,
and specifically from the Persian Gulf, is only going to increase (see graph: Oil stuck).

9/11

The terrorist attacks on the US on September 11, 2001, have revealed the cost the country
has to pay for its oil dependence on the Gulf. Its oil ties with Saudi Arabia became a bit
of an embarrassment when it was found that 15 of the 19 hijackers in the attacks were
Saudi citizens. About 600 families who had their relatives killed in the September 11
attack have filed a US $100 trillion lawsuit against, among others, Saudi officials for
helping the terrorist network behind the attack. The US government’s continued support
for the autocratic Saud family of Saudi Arabia causes considerable discomfiture to a
country that plays the global cop and claims to defend democracy across the world.

Proposing the largest energy budget in US history, Spencer Abraham, US energy

secretary, told a committee of the House of Representatives on March 6, 2002: "Over the
last 12 months we have seen energy supply shortages; natural gas and gasoline price
spikes in the Midwest and California; and terrorist attacks within our borders... [The
budget request] of $21.9 billion addresses the new security challenges we face as a nation
after the events of September 11, as well as increased concern regarding our dependence
on foreign oil, and the security of our critical energy infrastructure."

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Oil that glitters

This dependence is not unique to the US.

Take the example of Japan, the second
largest consumer of oil in the world - it
consumed more oil in 2001 than Russia and
Germany put together. Oil meets 52 per cent
of Japan’s total energy needs and the country
has virtually no oil reserves of its own.
About 75-80 per cent of this oil comes from
OPEC, particularly from countries in the
Persian Gulf - United Arab Emirates, Saudi
Arabia, Kuwait, Qatar and Iran. "Japan has
worked - with relatively little success - to
diversify its oil import sources away from
the Middle East," notes the US department
of energy.

Japan has used its commitments to cut down carbon emissions under the 1997 Kyoto
Protocol to rapidly increase its nuclear power production - nuclear provides about two-
thirds of its electricity. The nuclear industry is witnessing something of a revival across
the world.

Another method the Japanese have tried is to build inroads for its oil companies overseas.
In 1967, the government established the state-run Japan National Oil Company (JNOC)
to promote overseas oil exploration to secure oil supplies. It amassed several bad loans in
trying to invest extensively and guarantee loans of Japanese exploration firms. But in
February 2000, the company lost drilling rights in Saudi Arabia, losing a supply of
280,000 billion barrels per day. This was after Japan refused to invest in development
projects in the kingdom. Another concession to a Japanese exploration company expires
in January 2003, and its renewal has been dogged by controversy. Japan’s Arabian Oil
Company has been trying to make up for the loss in Saudi Arabia by courting Iran. But
Iran is a political anathema to the US, Japan’s close ally. In its effort to diversify, Japan
has created an exploration stake in the Caspian Sea region, just as the US interest in the
Caspian has increased greatly in recent times.

Coming back to the US, it has developed a recent interest in several regions - from Russia
to the Caspian region to a love affair with Central African nations. Africa supplies 15 per
cent of the total US oil imports. This is bound to increase as a result of rapid growth of
production from new fields and the construction of a pipeline from the landlocked Chad
to ports in the Atlantic Ocean. There are two clear advantages in courting Africa. First,
most African reserves are close to the coastline or offshore, making exports to the US
easier. Second, several African oil producing countries aren’t members of OPEC. Gabon
walked out of OPEC in 1995. Nigeria is a member, but has been unhappy about the

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production quotas. There are reports that it has been producing over and above its quota
through recently developed oilfields. "It is a measure of President Bush’s interest in the
geopolitics of oil that he found time at the United Nations last month to meet several
leaders from west Africa," the Financial Times of London observes.

Attending the oil interests are stories of how systems are manipulated to benefit
industrialised countries and their rich oil companies. Some US non-governmental
organisations have alleged that federal government officials are compromising on
environmental reviews of international infrastructure development funded by US-backed
public development banks. One example is the US $3.7 billion oil pipeline to be built by
a consortium of oil companies led by Exxon-Mobil from Chad to ports in Cameroon.
Officials of the US Agency for International Development said that both the countries
had failed to perform an adequate assessment of the environmental impact of the pipeline.
Yet the US representative at the World Bank backed a loan of US $ 140 million for the
pipeline.

A recent study by the Institute for Policy Studies in Washington, DC, shows that many
energy corporations facing US government investigations - for accounting irregularities,
energy market manipulation, fraud, bribery, human rights abuses or other malpractices -
have coaxed out billions of dollars as finance from the World Bank over the past decade.
These include Halliburton, the second largest beneficiary of World Bank energy
financing. Dick Cheney, US vice president, was the CEO of the company before his
election. Other names include the bankrupt energy giant Enron and Harken, which had
George W Bush on its board before he became governor of Texas. Big oil and morality
do not go together.

The Top Players

Producers, exporters and importers of oil
Producers Mt* % of Exporters Mt Importers Mt
world
total Saudi Arabia 319 USA
494
Saudi Arabia 427 12.0 Norway 136 Japan
214
USA 354 10.0 Russia 135 Korea
121
Russia 322 9.1 Iran 107 Germany
104
Iran 186 5.2 Venezuela 107 Italy
88
Venezuela 172 4.8 Iraq 101 France
82
Mexico 171 4.8 UK 92 The
59
China 163 4.6 Nigeria 89 Netherlands
59
Norway 158 4.4 UAE 86 Spain
45
Iraq 127 3.6 Mexico 82 India
45
UK 127 3.6 Rest of the UK
620
Rest of the World Rest of the
1,348 37.9 615
World World
World 3,555 100.0 World 1,874 World 1,926

*million tonnes; Source: 2001, Key World Energy Statistics from the International
Energy Agency

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Energised by oil

Energy policy has always been of vital importance in the US. That’s why oil and gas
executives have taken over the reigns of the government today

"Not since the rise of the railroads more than a century ago has a single industry [energy]
placed so many foot soldiers at the top of a new administration."
- Newsweek, May 14, 2001

George W Bush took over as president of the US on January 20, 2001. Within two weeks,
he established the National Energy Policy Development Group under Vice President
Dick Cheney. Hence the informal name Cheney energy task force. Both Bush and
Cheney have worked for oil companies in the past and their eagerness in getting cracking
on an energy policy was hardly surprising. About 80 per cent of the oil and gas industry’s
political contributions in the US was to the Republican party.

Cheney submitted the task force’s report to the president in the form of the National
Energy Policy on May 16, 2001. Among the highlights of the report was the opening of
drilling for oil in the Alaska National Wildlife Reserve (ANWR) and a push for
expansion of nuclear power. Bush’s plan to permit oil and gas drilling within the ANWR
has drawn a lot of flak from environmentalist groups

At the heart of the matter lies the ’1002 Area’ - this coastal plain is the last 5 per cent of
the entire north slope of Alaska that is not already available to oil and gas exploration.
The Sierra Club, an environmental group, stresses that the area is the last great wilderness
in North America and is home to grizzlies, rare musk oxen, polar bears, 130 species of
birds and dozens of other wildlife species.

It is the birthing and nursery grounds for a herd of 130,000 Porcupine Caribou, one of the
hemisphere’s largest caribou herds. Moreover, the Union of Concerned Scientists of USA
says drilling in the refuge would provide a very short-term solution for a long-term
problem. The National Energy Policy is a clear effort in the plan to increase energy
supply by all means possible. Democrat Senator Harry Reid said the GOP (the
Republican Party’s nickname) now stood for ’gas, oil and plutonium’. The energy bill was
submitted to Congress. The Republican-dominated House of Representatives passed the
’dirty’ energy bill on August 2, 2001 - it was something of a rubber stamp. Then the
energy bill went to the Democrat-led Senate. On April 25, 2002, the Senate passed an
energy bill that was very different from what the House had passed - it does not permit
drilling in Alaska (see box: No synergy).

The real controversy, however, has to do with the working of energy task force - there are
numerous allegations that it was under undue influence of energy companies, and very
unwilling to share the details of its working. Investigations and legal action have been
initiated to bring this to light.

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The probe begins

The General Accounting Office (GAO), the investigative arm of the US Congress, had
begun a probe into the functioning of the Cheney task force in April 2001 following
complaints from two members of the House of Representatives. Cheney refused to
disclose the details of the meetings his task force had with corporate representatives.
There were raised eyebrows about Cheney trying to cover his links with the energy giants
like Enron (see box: Enron and all that). On February 22, 2002, GAO filed a case in the
US District Court in Washington, DC, to obtain certain records in connection with the
task force.

Meanwhile, the Sierra Club also approached the courts in February 2002 to force
disclosure of the task force’s meetings with industry representatives. "When the Bush
Administration wrote its energy policy, big oil and energy companies were given the red-
carpet treatment, but the public was shut out of the process," said Carl Pope, Executive
Director of the Sierra Club. "Americans deserve to know what happened behind those
closed doors, and the law requires it." The suit was clubbed with another case filed by
Judicial Watch, a public interest group that investigates and prosecutes government
corruption.

"We are concerned that energy policy is being made in secret by individuals and interests
with a financial and political stake in particular policies. If the vice president wants to
involve the oil industry or environmentalists in his energy task force’s deliberations, so be
it, but the law requires that the American people be kept informed about these
deliberations," stated Larry Klayman, chairperson of the group. The first hearing was
held on May 23, 2002. The judge delivered a severe blow to the administration - he
rejected Cheney’s request to dismiss the lawsuit. He ordered Judicial Watch and co-
pleaders to propose a ’discovery plan’ for the task force.

The Natural Resources Defense Council, a prominent public interest group in the US,
said the Bush-Cheney energy plan is the "culmination of a process that hinged on cosy
business connections, secret deals and industry campaign contributions". The council
stresses that there are too many points of convergence: "Both Bush and Cheney worked
in the energy industry. They appointed pro-industry people to their transition teams and
to key administration posts overseeing federal energy and environmental policies. They
received generous campaign contributions from energy companies, which enjoyed easy
access to the Cheney energy task force. The result? An energy plan that promotes
industry-favoured measures" (see box: Cream team). "At best, the energy industry has
undue influence on major governmental decisions that will affect all Americans. At
worst, the energy industry, which is enjoying record profits, has hijacked our government
and now has the power to seriously weaken environmental safeguards, threaten public
health, and gouge consumers." Cheney admitted meeting Enron CEO Kenneth Lay on at
least six occasions at the time when the White House was drafting its national energy
policy. He refused to give further details. US oil interests have always governed its
energy policies. It is just that Bush is a little more shameless and brazen about it as
compared to previous regimes.

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The Caspian affair

The landlocked Caspian Sea is a cauldron of geopolitics. Its essential ingredients: oil and
natural gas The Caspian region has possibly the third largest oil and natural gas reserves
in the world (after the Persian Gulf and western Siberia), estimated to be up to 15 per cent
of the total reserves of the world. Hardly any of this potential has been tapped as yet, and
it is expected that there are much bigger reserves that haven’t been assessed as yet.

The Caspian region’s introduction to the geopolitics of oil began with the collapse of the
Soviet Union in 1991. Several smaller nation-states emerged in Central Asia
(Turkmenistan, Uzbekistan, Kazakhstan, Tajikistan and Kirgizstan) and the Caucasus
(Georgia, Armenia and Azerbaijan). A handful of former communist party strongmen
rule the Caspian countries and runs them like fiefs.

Some of the biggest oil companies of the world court these oligarchs; and the
corporations’ mutual interests are conflicting, competitive and overlapping in turns,
leading to bitter rivalry alternated with mutualism. In July 2000, there were reports that
the US justice department was investigating whether James Giffen, a New York banker
and official adviser to Kazakh president Nursultan Nazarbayev, illegally funnelled US
$35 million from three oil companies to Swiss accounts of high-ranking Kazakhstan
officials, including Nazarbayev.

"I cannot think of a time when we have had a region emerge as suddenly to become as
strategically significant as the Caspian," US Vice President Dick Cheney, then the CEO
of the oil company Halliburton Corp, told a meeting of oil executives in 1998. In the
same year, Bill Richardson, the then US energy secretary, laid out the US interest in the
Caspian region: "This is about America’s energy security. It’s also about preventing
strategic inroads by those who don’t share our values. We’re trying to move these newly
independent countries toward the West. We would like to see them reliant on Western
commercial and political interests rather than going another way. We’ve made a
substantial political investment in the Caspian, and it’s very important to us that both the
pipeline map and the politics come out right."

It is this politics of drawing maps that kept the Caspian region from becoming a major oil
and gas exporting area. In Russia, the region has a former superpower to its north. To the
east lies China, an emerging superpower. To the east and south lie such politically
volatile, strife-torn areas as Chechnya, the Kurd-dominated parts of Turkey, Iran and
Afghanistan. Add to this the fact that the most powerful country in the world is directly
involved through its business interests or through the presence of troops in the fallout of
the war on terrorism. Religious and ethnic unrest has complicated matters further; the
region is the mingling point of Christian Europe and Islamic Asia, of the several ethnic
peoples of Central Asia.

During the US military campaign in Afghanistan in response to the September 2001

terror attacks, several analysts had pointed out that an important reason behind the US
action was securing its oil/gas interests (see box: The Afghanistan files). "Afghanistan’s

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significance from an energy standpoint stems from its geographical position as a potential
transit route for oil and natural gas exports from Central Asia to the Arabian Sea," says
the US department of energy’s country analysis brief on Afghanistan.

Pakistan-based journalist and author Ahmed Rashid, who has covered Central Asia for
more than 20 years, compared the oil geopolitics to the ’Great Game’ (a term coined by
Rudyard Kipling) between Russia and Britain for the control of Central Asia in the 19th
century. In a 1997 article, Rashid called it the ’New Great Game’, a term that has gained
currency. While the 19th century game was between two players and the prize was India
and the warm-water ports of the Arabian Sea, the new game has many teams, with
players constantly changing sides, aligning, de-aligning, and then realigning.

Is it a sea? Is it a lake?

When it comes to regional matters, perhaps the biggest mess has to do with the ownership
of the Caspian Sea, the bed of which is rich with oil and gas. Before 1991, the Soviet-
Iranian treaties of 1921 and 1940 regulated the ownership of the sea. But neither side
established seabed boundaries or negotiated exploration. No new legal framework or
treaty was worked out after the break-up of the Soviet Union, meaning the earlier treaties
still govern development rights to the seabed.
The five nations along the shores of the Caspian - Russia, Azerbaijan, Iran, Turkmenistan
and Kazakhstan - are locked in a bitter dispute over this. It came to a head on July 23,
2001. An Iranian gunboat chased two Azerbaijani oil exploration ships from a disputed
oil field in the southern Caspian. This was the most serious flare-up in an uneasy peace.
BP oil of the UK suspended all exploration and development activity under its contract
with Azerbaijan in the Alov oil field to which Iran has a claim. Russia and the US
condemned Iran. Turkey responded in late August 2001 with a show of force by sending
fighter jets to Azerbaijan, its ethnic ally. Since then, exploration and development in the
southern Caspian has come to a standstill.

It is a different story in the northern Caspian. In August 2002, when Russia held the
largest military exercises since the collapse of the Soviet Union in the Caspian Sea, it
invited representatives from the four other littoral states as observers. Russia and
Kazakhstan have signed a bilateral deal on sharing of disputed oil fields. In the second
week of July, the Kazakh energy minister Vladimir Shkolnik was reported to have said
that tenders would be invited before the end of the year for some 120 offshore sites.
Russia has an understanding with Azerbaijan as well. Iran says such agreements are
illegal before a five-way settlement is reached. But all this bickering seems inane in light
of the fact that the very status of the Caspian ’Sea’ is disputed.

Is it a body of water under the Law of the Sea Convention, which does not cover inland
lakes? If so, the full maritime boundaries of the five countries would be based upon an
equidistant division of the sea and undersea resources into national sectors. Under this,
states would have exclusive rights only to resources lying within 45 nautical miles of
their shore. If it were agreed, on the other hand, that the Caspian is not a ’sea’, then
international maritime laws would not apply. Then its resources have to be developed

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jointly. Iran is agreeable to dividing the Caspian into national sectors, but on the
condition that each country gets 20 per cent of the seabed and surface of the sea.
However, if the Law of the Sea were to be applied, Iran would get only about 12-13 per
cent. Kazakhstan and Azerbaijan want this as they have big offshore oil/gas fields not far
from their shores. They oppose Iran’s proposal of dividing the Caspian into five equal
sectors. They are in a hurry to strike a deal to be able to exploit their fields. Iran has little
oil or gas off its Caspian shore, and is playing a waiting game to maximise its share.
Russia and Turkmenistan keep shifting sides depending on which plan - or which
variation of the two plans - is more profitable to them. But let us assume that the legal
dispute over the Caspian is sorted out. How will the oil and gas be marketed?

Pipeline politics

Anybody who invests billions in extraction of petroleum and natural gas would want the
shortest, cheapest route to the most lucrative market. Unlike most major oil exporters of
the world, most Caspian nations are land-locked. Pipelines are preferable to overland and
marine tankers, especially for gas, provided the volumes of supply and demand justify the
investment. The Caspian region doesn’t have the economy or the market for its oil and
gas production capacity. It doesn’t have the investment and technology required to
explore and transport oil/gas over long distances. To make the oil/gas reach a market, the
pipelines or tankers need to cross international boundaries. This is where pipeline politics
extends from economics to geopolitics (see map: Pipeline dreams).

The existing pipelines go north to Russia, already the owner of the largest gas reserves of
the world as well as unpaid bills for gas imported from Caspian nations in the past. The
rapidly growing economy and burgeoning population of China in the east is separated
from the Caspian region by a vast desert pockmarked with ethnic unrest. A pipeline going
west to European markets via the Black Sea or the Mediterranean is likely to be too
costly and areas such as Chechnya and the Kurdish dominated parts of Turkey don’t
inspire too much confidence. Yet work has already begun on a 1,755-km pipeline from
Azerbaijani capital Baku to the Turkish port of Ceyhan in the Mediterranean, via
Georgia. This is the only pipeline that fits well with US foreign policy. Georgia has used
US fears of Iran to settle for the western route because it gains transit fees from the
pipeline passing through is territory.

After years of hesitation and mistrust, there were signs that the US and Russia might
work together on the Baku-Ceyhan pipeline. Russia announced on June 11, 2002, that it
would build a pipeline connection to the Baku-Ceyhan oil route. This would give Russia
access to a warm-water port in the Mediterranean for exports. In May, Russian and
Georgian officials had announced a joint venture to build a line connecting the Black Sea
port of Novorossiisk to the Baku-Ceyhan pipeline. The eastern pipeline route to China
was a matter of speculation till news arrived that China had begun work on the ’east-west’
gas pipeline. This large project, often compared to the Great Wall and the Three Gorges
dam in terms of size, would stretch across a 4,250 km from the recently discovered gas
fields in the western deserts of Xinjiang (close to China’s border with Pakistan) to

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Shanghai in the east. This is relevant to the Caspian nations as they could build a
connection to this pipeline and export gas to as far as Japan.

But the most economical access to the sea (and the international market) for Caspian oil
and gas is through Iran, a political anathema for the West. Such a route would greatly
increase Iran’s wealth and influence in the region, something the US finds unacceptable
(see box: Behind the veil). The second most viable route is through Afghanistan to
Pakistan and possibly to India. On May 30, 2002, Turkmen, Afghani and Pakistani
leaders signed a long-negotiated agreement in Islamabad over the pipeline via
Afghanistan. But according to sources in Pakistan, oil companies haven’t shown any
interest in the deal due to the situation in Afghanistan. With Indo-Pakistani relations at a
low ebb, there is no possibility of a pipeline coming to India through Pakistan. This
deters oil companies as the Pakistani market isn’t big enough. The real attraction for the
companies is the energy starved Indian market.

High and dry

India’s energy supplies depend entirely on the vagaries of the market India’s prominence
in the energy market is that it is the world’s sixth largest energy consumer - and yet
woefully short of energy sources. It has large coal reserves but the worrisome part is
petroleum, which accounts for about 30 per cent of the total energy. India produces only
30 per cent of the 110 million tonnes of petroleum products it consumes. Its share of 0.4
per cent of the world’s petroleum reserves is best described as ’traces’. Reserves of natural
gas, too, are nothing much to talk about.

The 1991 Gulf War showed that energy security in India is a contradiction in terms. Here
are some sobering facts.

• Net imports of crude oil and petroleum products more than doubled between 1990 and
1999.

• About 45 per cent of the petroleum consumed in India is imported from the politically
volatile Middle East. This is only going to increase.

• If oil prices rise by US $1, India's annual oil bill can increase by US $600 million.

• The International Monetary Fund estimates that every rise of US $5 in the cost of crude
oil lowers India's Gross Domestic Product by 0.5 per cent, raises inflation by 1.5 per cent,
and leads to an outflow of Rs 18,000 crore.

India has plenty in its neighbourhood, be it the gas fields in Bangladesh, Myanmar, the
Persian Gulf and the Caspian Sea, or the immense hydroelectric potential of Nepal. Yet
the country doesn't seem to be getting any - a reflection on India's diplomatic failures in
its backyard.

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Sub continental drift

There are two proposals for gas pipelines to India. Unocal of USA, which discovered
significant amounts of gas in the Bibiyana field of northwest Bangladesh in 1998, wants
to build a 1,363-km pipeline to export 500 million cubic feet (14 million cubic metres) of
gas every day for the next 20 years. But the Bangladeshi government has been unable to
decide if it wants to allow export of gas to India - the issue is too sensitive politically.
Whichever party is in opposition starts whipping up fears of a deal that compromises
Bangladesh’s interests as Unocal would get the money and India would get the gas (see
map: Only on paper) India has now started negotiating with Myanmar for its oil and gas
reserves in the hope that Bangladesh will cave in to business demands.

The pipeline from Iran to India via Pakistan has been discussed and debated for over 10
years. But it is getting nowhere due to deteriorating Indo-Pak relations. Pakistan is quite
keen on the project - it would earn Pakistan over US $500 million annually as transit fees
- but India is not willing. An undersea pipeline fetching gas from Iran or Qatar has gotten
nowhere. Another project to fetch gas from Oman has been shelved after eight years of
study and expenses of Rs 330 crore. An undersea pipeline is anywhere between two to
ten times as expensive as an overland one.
Power games: hydro and nuclear
India is also woefully short of electricity. The prospect of importing electricity from
Nepal by building dams has gotten nowhere. There is a lot of talk of expansion of India’s
nuclear power. A lot of international nuclear power companies have shown interest in
India. But any talk of foreign support or investment in nuclear power in India disregards
the fact that India is not a signatory to the Non-Proliferation Treaty (NPT), and is not
likely to be any time soon, says G Parthasarthy, former High Commissioner to Pakistan.

India is also working on the fast breeder technology.

In 1997 it began operating the Indira Gandhi Centre for Atomic Research in Kalpakkam.
This is primarily due to its precarious position on nuclear fuel: India has vast resources of
thorium but limited uranium. "Kalpakkam to my mind is a failure. Fast-breeder
technology is dangerous and I don’t want my family to live anywhere close to a fast
breeder reactor. Thorium is an overrated fuel given the state of technology," says Sunil
Dasgupta, journalist and researcher on energy security issues, based at the Brookings
Institution in Washington, DC.

"Fast-breeder reactors are expensive, largely due to important safety concerns," says M V
Ramana, research associate at the programme on science and global security at Princeton
University, USA. "Mere availability of an energy resource cannot determine a country’s
energy strategy. If that were to be the case, then clearly we could derive the required
power from solar photovoltaic cells, for example." All said and done, India isn’t really
trying to free itself from dependence on oil imports.

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Beyond oil

Energy security will not come with more drilling. The faster we realise this, the better

"One of the ironies at the turn of the century is that, in an age when the pace of
technological change is almost overwhelming, the world will remain dependent, out to
the year 2020 at least, essentially on the same sources of energy - oil, natural gas, coal -
that prevailed in the twentieth century."
- The Geopolitics of Energy into the 21st Century, Centre for Strategic and International
Studies, February 15, 2001

At some stage the world will have to turn away from oil. Either there would be none of it
left or it would become forbiddingly expensive. And then? Or let’s assume that there will
be plenty of oil for all times to come. There has to be a limit to the amount of carbon
emissions the Earth’s atmosphere can take without reacting to abuse. What after we hit
that point?

Most governments are not bothered; that much is clear. They are interested only in
securing maximum supplies of fossil fuels, in controlling oil reserves and garnering
political support from these sops. In September 2000, the price of a barrel of oil touched a
10-year high of US $35. Large parts of Europe were immobilised, leading to street
blockades and protesters demanding total exemption from fuel taxes that account for
more than half the price of petrol in Europe. France was the first to succumb - it cut taxes
to the tune of US $400 million. Italy and Belgium also conceded a little. But the British
prime minister Tony Blair put his foot down, arguing that high oil prices were good for
combating global warming. Other European governments also decided to not cut fuel
taxes, citing political and environmental reasons.
Taxpayers’ money is used in many parts of the world to subsidise the price of fossil fuels,
keeping them artificially low. This ignores the non-renewable nature of the fuels, or the
cost of their adverse effects on health and environment. More disturbing is the fact that
this makes renewable energy options uncompetitive - undermining any possibility of a
transition to cleaner energy options like solar and wind power or fuel cells. The prices of
these technologies have come down in recent times and they need critical support at this
stage. The way to do that is to cut subsidies and levy taxes on fossil fuels. Fuel taxes were
adopted in Europe after the oil shock of 1973, when they were seen as necessary to
improve efficiency. Well, the imperative for the same is greater today: cutting carbon
emissions to mitigate global warming and air pollution.

While the European trend on fuel and carbon taxation is by no means perfect - European
governments apart from the UK are yet find a way to hold industry accountable through
energy taxation - it is much better than what the US has to offer: an attack on Iraq and an
unwillingness to compromise on the American way of life. Expansion of nuclear power is
definitely not worth the ’high-level’ waste it would generate. Nuclear energy is not clean
till a way is found to deal with nuclear waste. The Kyoto Protocol cannot be used to
promote nuclear energy.

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In India, nuclear energy is making a comeback despite a long history of failed promises.
The country’s government-run nuclear energy sector’s performance is best summarised in
a statement of Homi Bhabha, the founder of India’s nuclear power programme: "No
power is costlier than no power." The effort to get foreign capital into the nuclear energy
sector is very unrealistic at the moment due to India’s stance on the NPT. Moreover,
insurance cover for nuclear plants is too expensive a proposition in the Indian energy
market. As for the government’s investment in fast breeder technology, even its
proponents acknowledge that it is not likely to bear any fruits for the next two decades. It
is a long-term investment, they say. It is surprising how the government is so keen on
investing in a technology with disputable credentials, but is unwilling to pursue
renewable technologies with the same level of commitment. To ensure security of oil
supply at reasonable prices, India is getting into such awe-inspiring areas as Sudan and
Myanmar. In determining its energy policy, India is actually following the US example.

When politicians believe that the voting patterns are determined by the price at which
petrol - or should we say gasoline - is sold for gas-guzzling sports-utility vehicles, one
cannot talk of terms like efficiency in energy use and demand side management. Two
days before the US secretary of state Colin Powell was to address the UN summit on
sustainable development in August in Johannesburg, negotiators from the US and OPEC
blocked proposals by the European Union and Brazil that would have required the world
to obtain a set percentage of its energy from renewable sources by 2010.

The nexus of governments and oil cartels is too strong for those making feeble noises
about renewable energy. As exporters and importers of oil consolidate their polluting
business, the environmental ground seems more slippery than ever before. The world’s oil
reserves are unequally distributed. But the Earth’s atmosphere is shared by everybody.

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