US Outflanked in Eurasia Energy Politics

F. William Engdahl, June 3, 2006

The United States' global energy-control strategy, it's now clear to most, was the actual reason for the highly costly regime change in Iraq, euphemistically dubbed "democracy" by Washington. But while it is preoccupied with implanting democracy in the Middle East, the United States is quietly being outflanked in the rush to secure and control major energy sources of the Persian Gulf, the Central Asian Caspian Basin, Africa and beyond.

The quest for energy control has informed Washington's support for high-risk "color revolutions" in Georgia, Ukraine, Uzbekistan, Belarus and Kyrgyzstan in recent months. It lies behind US activity in West Africa, as well as in Sudan, source of 7% of China's oil imports. It lies behind US policy vis-a-vis President Hugo Chavez' Venezuela and President Evo Morales' Bolivia.

In recent months, however, this strategy of global energy dominance has shown signs of producing just the opposite: a kind of "coalition of the unwilling", states that increasingly see no other prospect, despite traditional animosities, but to cooperate to oppose what they see as a US push to control the future security of their energy.

If the trend of recent events continues, it won't be US-style democracy that is spreading, but rather Russian and Chinese influence over major oil and gas supplies.

Some in Washington are beginning to realize that important figures might have been too clumsy in recent public statements about both China and Russia, two nations whose cooperation in some form is essential to the success of the global US energy project.

Ripping into China and Russia
Contrary to advice from older China hands, including former secretary of state Henry Kissinger, architect of president Richard Nixon's 1972 opening to China, the White House denied visiting Chinese President Hu Jintao the honor of a full state dinner when he visited in April, serving instead a short "state lunch". Hu was publicly humiliated by a well-known Falungong heckler at the White House press conference.

A few weeks later, Vice President Dick Cheney slapped Russian President Vladimir Putin with the most open attack on Russia's internal human-rights policy as well as its energy policy in a speech in the Baltic state of Lithuania. There, Cheney declared of Russia, "The government has unfairly and improperly restricted the rights of her people." He accused Russia of energy "intimidation and blackmail". Some days later, Secretary of State Condoleezza Rice reiterated that Russia should be "pressed" on democratic reforms. Rice also slapped China in the face in March during a trip to Southeast Asia, calling China a "negative force" in Asia.

Curiously, Washington has repeatedly accused China of "not playing by the rules", in terms of its oil politics, declaring that China is guilty of "seeking to control energy at the source", as though that had not been US energy policy for the past century.

The significance of taking aim simultaneously at both Russia and China, the two Eurasian giants, the one the largest investor in US Treasury bonds, the other the world's second-most-developed military nuclear power, reflects the realization in Washington that all may not be as seamless in the quest for global domination as originally promised by various strategists in and around the administration of President George W Bush.

Next Thursday, member nations of the Shanghai Cooperation Organization (SCO), led by China and Russia, will reportedly invite Iran, currently an observer, into full membership. Even if full membership is postponed, as has been mooted, the fact remains that Russia and China both want to seal closer cooperation with Iran in Eurasian energy cooperation.

The SCO was founded in June 2001 by China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan. Its stated goal was to facilitate "cooperation in political affairs, economy and trade, scientific-technical, cultural, and educational spheres as well as in energy, transportation, tourism, and environment protection fields". Recently, however, the SCO is beginning to look like an energy-financial bloc in Central Asia consciously being developed to serve as a counter-pole to US hegemony.

Russia's energy geopolitics
In recent months SCO members have taken several potentially strategic steps to distance themselves from energy and monetary dependence on the US. In his recent State of the Union speech, President Putin announced that Russia is planning to make the ruble convertible into other major currencies and to use it in its oil and gas transactions.

A convertible ruble is to be introduced, according to latest Russian statements, on July 1, six months earlier than originally planned. Russia also has stated it plans to shift a share of its now considerable dollar reserves away from the US currency and that it will use 40 billion US dollars to purchase gold reserves.

Russia's state-owned natural-gas transport company, Transneft, has consolidated its pipeline control to become the sole exporter of Russian natural gas. Russia has by far the world's largest natural-gas reserves and Iran the second-largest. With Iran inside, the SCO would control the vast majority of the world's natural -gas reserves, as well as a significant portion of its oil reserves, not to mention the Strait of Hormuz, the narrow corridor for a majority of Persian Gulf oil-tanker shipment to Japan and the West.

Late last month Russia and Algeria, the two largest gas suppliers to Europe, agreed to increase energy cooperation. Algeria has given Russian companies exclusive access to Algerian oil and gas fields, and Gazprom and Sonatrach will cooperate in delivery to France. Putin has canceled Algeria's US$4.7 billion debt to Russia and, for its part, Algeria will buy $7.5 billion worth of Russian advanced jet fighters, air defense systems and other weapons.

On May 26 Russian Defense Minister Sergei Ivanov also announced that his country would definitely supply Iran with sophisticated Tor-M1 anti-aircraft missiles, reportedly as a prelude to supplying even more sophisticated weapons.

Then, in one of the more fascinating examples of geopolitical chutzpah, the Kremlin-controlled Gazprom gas monopoly entered quiet negotiations with Israeli Prime Minister Ehud Olmert through his billionaire friend, Benny Steinmetz, to secure Russian natural -gas supplies to Israel via an undersea pipeline from Turkey to Israel.

According to the Israeli paper Yediot Ahronot, Olmert's office has said it will support the Gazprom proposal. In several years Israel faces a shortage of gas from Tethys Sea drilling and soon from Egypt. Tethys Sea gas is projected to run dry in a few years. British Gas is in talks to supply gas from Gaza but Israel disputes BG's right to drill.

But even with Egypt and Gaza, gas shortages are expected by 2010 unless Israel is able to find new sources. Enter Gazprom and Putin. The gas would be diverted from the under-used Russia -Turkey Bluestream Pipeline, which Russia built to increase its influence over Turkey two years ago. Putin clearly seeks to gain a lever inside Israel over the one-sided US influence on Israeli policy.

China energy geopolitics also in high gear
For its part, Beijing is also moving to "secure energy at the sources". China's booming economy, with 10% growth, requires massive natural resources. China became a net importer of oil in 1993. By 2045, China will depend on imported oil for 45% of its energy needs.

On May 26, crude oil began to flow into China through a newly completed pipeline from Atasu, Kazakhstan, to the Alataw Pass in China's far-western region of Xinjiang, a 1,000-kilometer route announced only last year. It marked the first time oil is being pumped directly into China. Kazakhstan is also a member of the SCO, but had been regarded by Washington since the collapse of the Soviet Union as in its sphere of influence, with ChevronTexaco, Rice's former oil company, the major oil developer.

By 2011 the pipeline with extend some 3,000km to Dushanzi, where the Chinese are building their largest oil refinery, due to completed by 2008. China financed the entire $700 million pipeline and will buy the oil. Last year the China National Petroleum Corp bought PetroKazakhstan for $4.2 billion and will use it to develop oilfields in Kazakhstan.

China is also in negotiations with Russia for a pipeline to deliver Siberian oil to northeastern China, a project that could be completed by 2008, and a natural-gas pipeline from Russia to Heilongjiang province in China's northeast. China just passed Japan to rank as world's second-largest oil importer behind the United States.

Beijing and Moscow are also integrating their electricity grids. Late last month the China State Grid Corp announced plans to increase imports of Russian electricity fivefold by 2010.

In its relentless quest to secure future oil supplies "at the source", China has also moved into traditional US, British and French oil domains in Africa. In addition to being the major developer of Sudan's oil pipeline, which ships some 7% of total China oil imports , Beijing has been more than active in West Africa, the source of vast fields of highly prized low-sulfur oil.

Since the creation of the China-Africa Forum in 2000, China has scrapped tariffs on 190 imported goods from 28 of the least developed African countries, and canceled $1.2 billion in debt.

Indicative of the way China is doing an end-run around the Western-controlled International Monetary Fund among African states, China's Export-Import Bank recently gave a $2 billion soft loan to Angola. In return, the Luanda government gave China a stake in oil exploration in shallow waters off the coast. The loan is to be used for infrastructure projects. In contrast, US interest in war-torn Angola has rarely gone beyond the well-fortified oil enclave of Cabinda, which ExxonMobil along with Shell Oil have dominated until recently. That is apparently about to change with the growing Chinese interest.

Chinese infrastructure projects under way in Angola include railways, roads, a fiber-optic network, schools, hospitals, offices and 5,000 units of housing developments. A new airport with direct flights from Luanda to Beijing is also planned.

Indirectly, through its support of the Sudanese government, China is also a contender in a high-stakes game of potential regime change in neighboring, oil-rich Chad. This year, World Bank president Paul Wolfowitz was forced to back down from plans to cut off World Bank aid because of the threat of an oil-export cutoff by Chad. ExxonMobil is currently the major oil company active in Chad. But Sudan backs Chadian rebels, who were only prevented from toppling the notoriously corrupt and unpopular regime of President Idriss Deby by the 1,500 French soldiers propping up the regime. Washington has joined with Paris in backing Deby.

Sudan has involved Chinese, rather than Western, corporations in exploiting its oilfields, largely as a result of misconceived US sanctions imposed in 1997, which blocked US oil companies from doing business in Sudan. A new Sudan-backed regime in Chad would jeopardize the Chad-Cameroon pipeline and Western oil firms. One can imagine China just might be willing to step into such a vacuum and help Chad develop its oil, especially if the lion's share went to China.

Immediately after his humiliating diplomatic visit to Washington in April, President Hu went on to Nigeria, Africa's largest oil producer and long regarded by Washington as in its "oil sphere of interest". In Nigeria, Hu signed a deal whereby the African country will give China four oil-drilling licenses in exchange for a commitment to invest $4 billion in infrastructure.

China will buy a controlling stake in Nigeria's 110,000-barrel-per -day Kaduna oil refinery and build railway and power stations, as well as take a 45% stake in developing Nigeria's OML-130 offshore oil and gas field, referred to by the chairman of China National Overseas Oil Corp as "an oil and gas field of huge interest ... located in one of the world's largest oil and gas basins".

Almost all of Nigeria's current oil production is controlled by Western multinationals. But the situation there will also soon change in China's favor. Similar soft infrastructure loans or energy investment offers are being made to Gabon, Ivory Coast, Liberia and Equatorial Guinea. The curious charge against China of "not playing by the rules" and "trying to secure energy at the source" begins to assume real dimension when these and Russia's recent energy moves are taken as a totality.

Whither Washington?
It's little wonder that some Washington hawks are getting alarmed. Suddenly, the world of potential "enemies" is no longer restricted to the Islam-centered "war on terror". Leading neo-conservative ideologue Robert Kagan wrote a prominent opinion article recently in the Washington Post. Kagan is privy to pretty high-level thinking in Washington, presumably. His wife, Victoria Nuland, worked as Vice President Richard Cheney's deputy national security adviser until being named US ambassador to the North Atlantic Treaty Organization.

Kagan declared, in reference to Russia and China, "Until now the liberal West's strategy has been to try to integrate these two powers into the international liberal order, to tame them and make them safe for liberalism. If, instead, China and Russia are going to be sturdy pillars of autocracy over the coming decades, enduring and perhaps even prospering, then they cannot be expected to embrace the West's vision of humanity's inexorable evolution toward democracy and the end of autocratic rule."

Kagan charged that China and Russia have emerged as the protectors of "an informal league of dictators" that, according to Kagan, currently includes the leaders of Belarus, Uzbekistan, Myanmar, Zimbabwe, Sudan, Venezuela, Iran and Angola, among others around the world, who, like the leaders of Russia and China themselves, resist any efforts by the West to interfere in their domestic affairs, either through sanctions or other means. "The question is what the United States and Europe decide to do in response," wrote Kagan.

The mainstream US foreign-policy organization, the New York-based Council on Foreign Relations, has also recently weighed in on the question of Chinese energy pursuits. In a recent report, the CFR accuses the Bush administration of lacking any comprehensive long-term strategy for Africa. It criticizes US focus on humanitarian issues such as in Darfur southern Sudan, demanding instead that the US "act on its rising national interests on the continent". Those interests? The CFR lists oil and gas as No 1; growing competition with China (closely related to No 1) as No 2.



Century of War03
F W Engdahl
Geopolitics / Eurasia
China Gauntlet
Putin`s Gas
Pricing the Risk
Iran Oil Bourse
Color Revolutions
Russian Giant
Oil in Africa
Peak Oil & Russia
Since Kennan