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Oil’s well if you play the game
The US is becoming energy independent, which might lead to a certain level of disengagement from the Middle East. This has immense energy, political and security implications for India. Are we ready for new equations?
The demise of oil and gas is greatly exaggerated. As more and more sources of oil and gas are unearthed, and new technologies are coaxing oil out of obscure sources like tar sands, the world can relax where oil supplies are concerned. What should we be concerned about? Well, the less important worry is the immediate future of renewable energy is bleak.
The game changer is that the US, long dependent on oil from the Middle East, with a foreign policy to match, and the chief guarantor of security in this volatile region, is marching towards energy self-reliance - and that will change the world.
Official US projections say the country's oil imports will drop 20 per cent by 2025. Citigroup, in a much-talked about report earlier this year described America as the "new Middle East. " Ed Morse, one of the world's best known energy analysts described the US as "a growing hydrocarbon net exporting center, with the lowest natural gas feedstock costs in the world, supporting thriving exports of energy-intensive goods from petrochemicals to steel. " Between better energy efficiency standards and an abundance of "tight oil", the US' 'status update' is a nightmare waiting to happen - for many in the Middle East.
According to the Citi report, "five incremental sources of liquids growth could make North America the largest source of new supply in the next decade: Oil sands production in Canada, deepwater in the US and Mexico, oil from shale and tight sands, natural gas liquids [NGLs] associated with the production of natural gas, and biofuels. Putting these together, North America as a whole could add over 11 million barrels a day (mbd) of liquids from over 15 million barrels a day in 2010 to almost 27 mbd by 2020-22. " Keeping up the breathless analysis, a study by Harvard University's Belfer Center, said the US could cough up 11. 6 mbd of crude and NGL by 2020 making it the second largest oil producer in the world after Saudi Arabia.
It may free the US from a terrible stranglehold by Middle Eastern (mostly) Arab oil producers. "The past image of the United States as helplessly dependent on imported oil and gas from politically unstable and unfriendly regions of the world no longer holds, " former CIA Director John Deutsch was quoted telling an energy conference recently.
An energy independent America is a scenario that will have huge geopolitical implications - from the politics of the Middle East and the future of Israel, Iran and Saudi Arabia, to Indian Ocean piracy and the South China Sea. Looking out from New Delhi, the world could look and feel very different.
The US has already begun a strategic "pivot" to east/southeast Asia focusing attention on China. "That's a good thing from our point of view, " say top Indian strategy leaders. If China is emerging as India's topmost strategic challenge, India would be happier with a more robust US presence in this region. On the other side, with a more disengaged US, India reckons it can make its own equations with Middle Eastern countries and in the Persian Gulf, on more India-friendly terms.
But things may not be as easy. India, as one of the world's largest energy importers, could become politically vulnerable to the same toxic regimes the US is freeing itself from. Saudi Arabia has now crawled up as India's top energy supplier. With sanctions against Iran, Iraq is up at number two. Kuwait, Qatar, Iran and UAE: all of them are part of India's everygrowing energy import basket, and none of them inspire confidence in terms of stability, not after 2011's Arab Spring, which promises to keep things volatile here for some time to come.
Saudi Arabia is moving closer to India. Certainly, recent events might show that it is straining away from the ideological embrace it was in with Pakistan. But India still has huge issues with Saudi Arabia exporting radical Wahabbi Islam through its charity and religious networks, which actively contribute to militancy and intolerance. Being beholden to Riyadh for energy, how much will India be able to influence Saudi behaviour?
Second, with a cooling off by the US, some analysts predict greater sectarian conflict in the Middle East. We can already see that in Syria, which is now a thinly disguised battleground for sectarian wars, India will have to wade into the intricate and difficult politics of this region if it has to negotiate its own interests (resources, investments, remittances and influence) in this volatile region.
Pakistan has a greater ability to make mischief here, considering its strong linkages in the region. Besides, the fragile balance we see today could be shattered if Iran gets itself a nuclear weapons capability. That could bring Pakistan closer to the Saudis again (at what cost to India?) not to speak of the fact that polarisation would likely become sharper.
Ordinarily, India could negotiate these choppy waters well. But with weak central governments and bellicose regional and religious politics such big factors within India, it's easy to imagine India falling prey to the kind of influences that prompted New Delhi to turn against neighbour and close ally Sri Lanka at the Human Rights Council recently. One only has to see India's flailing policy on Syria to realise New Delhi is far from making mature choices here.
Third, the US, one should remember, is not in the Middle East merely to get oil. It plays an important role as a net provider of security, a balancer between different, opposing forces, and protects Israel, all with its formidable naval power. If it thins out in future (for a combination of reasons, many economical), can India pick up the mantle of being a provider of security?
India is building up its naval capability faster than most people realise - it is building almost 45 ships even as we speak. India has provided security for energy shipments through the Straits of Malacca in the past. It will have to move west into the Straits of Hormuz and further, all the way to the Gulf of Aden in the role of security provider not only for its own energy shipments but others like Japan and Korea. If China-Japan ties deteriorate, that could have its own impact on India's role.
First, though, India will need to be the master of the Indian Ocean. The Indian Ocean must become India's Ocean. National security adviser Shiv Shankar Menon has set up a trilateral with Maldives and Sri Lanka to monitor the Indian Ocean. By tying up with countries like Japan, Tanzania, Ethiopia, Mauritius, Seychelles and Oman, India can achieve collaborative security in the Indian Ocean, being primus inter pares, rather than a big brother with vassals.
But there is something else. If US companies find energy to be cheaply available at home, they might not be that interested in plowing through unstable regimes and countries in Africa. That would leave Africa, central Asia and parts of Latin America open to different kinds of influences. India would have to sharpen its game in these areas of the world if it is to triumph over the Chinese juggernaut;and no, Bollywood 'soft power' cannot help too much here.
On the energy side, India should take a hard look at its energy mix. It would make a lot more sense to give greater weightage to gas;it's cleaner, safer and a viable alternative to oil. Qatar is currently virtually the sole supplier. India is looking at alternatives, and finding them. Indian companies like Videocon have hit gas gold off the coast in Mozambique, brightening prospects for offshore gas from the eastern rim of the Indian Ocean. This can be replicated off Tanzania and, hold your breath, Somalia. Myanmar is a possibility, as is Australia where India has stakes in the Gorgon project. On the western front, Israel, with its newly found embarrassment of gas riches could become a supplier. Having already offered to sell to India and got an affirmative, Israel recently sent its energy minister to talk supplies and pipelines with the Indians. When the US can overcome its FTA problems, India is keen to make the US a major supplier of energy. Canada is emerging as an attractive proposition for the entire energy mix - gas, oil, nuclear.
Even in oil supplies, India is spreading itself out. Iraq is now India's second largest supplier. Oil purchases from Kuwait climbed 54 per cent in the last year. With US sanctions against Iran, India is, for the first time, picking up oil from Azerbaijan. In September, ONGC bought US energy firm Hess Corp's stake in the Azeri, Chirag and Guneshli (AGC) group of oilfields in Azerbaijan for $1 billion. This also gives ONGC a foothold in the crucial Baku-Ceyhan pipeline.
India has been shortlisted to prospect for oil in northern Afghanistan (the Afghan-Tajik basin), though that may be a while coming. India has got a toehold in oil projects in Sudan, and that's something to hold on to for the long term.
Finally, let no Fukushima get in the way of nuclear energy. Manmohan Singh has been positive and tigerish in only one respect - nuclear energy. And he's right. Nuclear energy will play a greater role in providing for clean and reliable energy. In the continuing protests at Kudankulam, the government can be faulted for bad PR, but for once both executive and judiciary are on the same page regarding the importance of this source of energy.
Germany, which, in a fit of emotion, shut down its nuclear power plants, is beginning to repent at leisure. Japan, with the Fukushima disaster fresh in citizens' minds, shut down its plants too, but recent calculations say the Japanese would have to spend over $637 billion to make the nuclear-to-oil switch. As China-Japan tensions intensify, and energy shipments become vulnerable, nuclear may well return as a steady bet.
India shot itself in the foot with a clumsy law that's making it difficult for the nuclear industry to grow. That will be fixed, because the PM is personally interested. India needs to push hard to get into the four existing global non-proliferation regimes. Kazakhstan, Namibia, Canada will be great suppliers of uranium, as will Australia. A nuclear backup is an essential cushion if energy needs to travel long distances and over choppy waters.
Within India, without getting into the coal and gas complications, India needs to encourage shale oil and shale gas extraction, and improve natural gas extraction. The US energy revolution has been the work of huge numbers of independent private companies, that's the way India might have to go, because state entities are not up to it.
Did we forget China in all of this? China is the world's presumptive superpower. It is ramping up military capabilities faster than any other country in history. With its deep pockets, China can become a bigger player in the Middle East at a shot. It's already helping out the Syrian regime, opposing Western attempts at dislodging Assad, while India is all over the place. With a permission to explore 10, 000 sq km of Indian Ocean for minerals, China can legitimately position military capabilities here. China has made deep inroads into Africa, Latin America and central Asia. It is building infrastructure in these countries at an astonishing pace. It is hoovering up resources from every imaginable corner of the earth. Its strategic challenger is clearly the US. And China does not like India. Need we say more?
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