#83 Japan’s Prodigious Quest for Energy Independence

Dependant on foreign sources for 96% (87% when including nuclear power) of its primary energy needs and practically 100% of its oil and gas supply, Japan is in a unique position. Rising demand for energy resources and increasing volatility in their supply are contributing greatly to Japan’s concerns. Only natural, then, that Japan should seek to secure its own energy interests. But how realistic is this in today’s world?

A major target of Japan’s May 2006 New National Energy Strategy (NES) is to have the ratio of oil developed by Japanese upstream firms ("Hinomaru oil") increase to 40% of Japan’s oil imports by 2030, up from around 15% in 2005. Japanese oil companies are scrambling to meet this seemingly unobtainable target, coquetting potential partners in Africa, Russia, Central Asia and the Gulf. Just how difficult attaining this objective is can be seen in the failure of the Japanese-owned Arabian Oil Company to renew concessions in the Neutral Zone (also known as “Divided Zone”) between Kuwait and Saudi Arabia in 2000 and 2003. The Azadegan oil field in Iran, where Japanese oil company Inpex’s 75% stake was slashed to 10% by the Iranians in October 2006 and eventually frozen, is another case in point. Meanwhile, voices calling for a boycott of Sudanese oil are getting louder and Japan’s projects on the island of Sakhalin have been undergoing some serious turbulence. The news is not all bleak, however. One major success was scored in October 2005 when Japanese oil firms beat their international competitors in bidding for exploration and development rights in six Libyan oilfields; this was the first oil-exploration concession ever given to Japanese firms in Libya.

Another goal of the NES is to lessen Japan’s dependency on Middle Eastern oil. Here too some progress is being booked, with 84.3% of oil imports originating from the Middle East in November 2007, compared to 90.3% in September 2006. However, the figure has been edging back up in the past few months to 86.7% in February 2008.

One way in which Japan is seeking to realize the goals of the NES is by increasing government involvement in the acquisition of energy resources. To offset the advantages enjoyed by state-sponsored Chinese oil firms, the Japanese government is now seeking to increase subsidies (raising the upper limit of its funding to 75% from the previous 50%) to Japanese oil firms such as JOGMEC – which is slowly becoming a carbon copy of the old Japan National Oil Company. Additional assistance is to come in the form of more favorable loans and investment guarantees. In other words, there is little to be left of the free market policies and non interference from the government that former Prime Minister Junichiro Koizumi’s liberalization policies set out to engraft.

Despite being the world’s second largest net importer of oil, the third largest consumer of oil, and the largest importer of Liquefied Natural Gas (LNG), Japan’s demand will continue to decline relative to that of emerging markets such as India and China. With the relative decline of Japanese demand come decreases in Japan’s purchasing power, further undermining its position in the international energy market.

This leaves Japan with two options, namely seeking alternative sources of energy and improving energy efficiency. It is in both of these areas that Japan has booked its most impressive results. Energy conservation and environmental protection have improved significantly, leaving Japan with one of the lowest energy intensity levels among the advanced OECD economies. Similarly, Japan has been able to move considerably in the direction of nuclear and LNG derived power, reducing its dependency on oil. The price, of course, has been increasing dependency on gas.

#75 Japan Forced to Rethink Its Energy Policy

The red hot Indian and particularly Chinese economies are unquestionably having a major impact on the world. While discussions often rage about whether or not this is a good thing (e.g. with environmentalists pointing out the devastating effect this is having on the environment and business leaders arguing it provides for opportunities not seen in decades), there are a myriad of micro areas where the effect of their growth is clear for all to see. One such interesting area is in Japan's energy policy.

For centuries Japan has been the largest economy in Asia, as well as the dominant political player (this has more to do with their financial muscle than with actual influence exerted). Subsequently, the country experienced a hunger for natural energy resources such as gas and oil that far surpassed that of any of its neighbors. With the rapid growth of India and China, this is beginning to change. While, according to the CIA World Factbook, Japan is still the world's second largest (after the USA) importer of oil with 5.43 million barrels of oil per day, China follows closely with 3.18 million and India with 2.01 million. More interestingly, China already consumes more oil than Japan, with China's consumption standing at 6.53 million barrels per day, Japan's at 5.6 million and India's at 2.5 million (the USA is still the world's largest consumer of oil). This means an increasingly larger portion of China's oil has to come from abroad, which directly and adversely affects Japan's supply. Given the fact that Japan's demand for oil has remained and, according to projections, will continue to remain steady for the coming years, the country is justifiably worried that it is no longer as interesting a market as the rapidly growing Chinese and Indian ones are for petroleum exporting countries.

Japan imports a whopping 90% of its oil from the Middle East (Saudi Arabia is Japan's largest oil supplier, shipping 458 million barrels, or 30% of Japan’s total import; UAE second with 387 million, or 25.4%; Iran third with 176 million, or 11.5%; and Qatar fourth with 156 million, or 10.2%). Japan - the world's largest importer of liquefied natural gas (LNG) - is similarly dependent on one geographical location for its gas imports (three quarters of Japan's imports come from Australasia: Indonesia, Malaysia, Brunei Darussalam and Australia. Qatar is Japan's fourth largest supplier after Indonesia, Malaysia and Australia).

In the meanwhile, China and India have been scavenging the world - particularly Africa - for new areas from which to secure their oil supply. China has been so successful in Africa that it has even managed to create a very balanced oil importing picture (in 2006, the Middle East accounted for 45% of China's crude oil imports, Africa for 32%, the EU and the Americas for 18.3% and Asia Pacific for 4%, according to the Chinese General Administration of Customs). All the while the oil prices have been skyrocketing, allowing for countries like Russia and Venezuela to play their oil cards and flex their muscles.

Given all these worrisome facts, the Japanese government decided it was time to prioritize the securing of the country's energy supply. In May 2006, the Japanese Ministry of Economy, Trade and Industry (METI) published a revealing document entitled "The New Energy Strategy." In it (and in later documents and high level speeches even more so), we find some key shifts away from their old policy. As Jan-Hein Chrisstoffels, a Japan specialist at the Netherlands Institute of International Relations Clingendael, points out, the formerly abundant references to liberalization, globalization and the free market are nowhere to be found. The new pillars are: Strengthening of bilateral relations with oil and gas producing countries; Increasing imports from oil and gas projects that are led by Japanese firms abroad; Decreasing the use of oil in the transport sector; Using more nuclear energy; And cooperation with China in the field of energy.

Another major shift in policy is the increased role that the Japanese government seeks to play. Japan feels Chinese oil firms have an unfair advantage given a government that pumps money into seemingly economically unprofitable extraction projects simply in order to secure supply. Therefore, the Japanese government has now set out to increase subsidies to Japanese oil firms and provide more favorable loans and investment guarantees. In other words, there is to be little left of the free market policies and non interference from the government that took the overtone until now. Much like China - which woos potential oil suppliers by promising preferential loans, the building of large infrastructure projects and a policy of non-interference in internal affairs - Japan has embarked upon a quest of securing her energy supply through tit-for-tat policies. One success story can already be found in former Prime Minister Junichiro Koizumi's visit to Kazakhstan in August 2006, followed by Economy, Trade and Industry Minister Amari Akira's visit this year. They ensured that Kazakhstan's (which has the world's second-largest uranium reserves after Australia) current supplies of only 1% of Japan's uranium imports will jump to 30-40% in the near future, in exchange for Japanese expertise in uranium enrichment.

It appears India and especially China are having a major impact on the policies of other nations such as Japan, which in this case can be considered as a blow to proponents of the free market. It is even likely to extend beyond the oil and gas sectors, as this year China - the world's largest consumer of coal - for the first time became a net importer thereof. The country imported 4.7 million metric tons of coal in January, a rise of 81.1% from a year ago, according to figures from the customs bureau. Although Japan is not at all a major consumer of coal, it might very well affect other formerly free market adhering countries.

#65 Political Tectonics: The Slow Drift

The recent souring of EU-Russia relations and U.S.-Russia relations is a greater cause for concern for the post Cold War status quo than most people realize. Gone are the Yeltsin years of warm rapprochement between nuclear super powers Russia and America. The realities of multipolarity are beginning to dawn on the recently predictable Pangaea world of diplomacy. The post 911 world has shaken the "stable" world order on its foundations. What we are in fact witnessing is the start of a slow drift to a truly multipolar world. A world of divided power and divided interests.

This divided world comes at a rather bad time in world history. Humanity needs to make a series of concerted, fundamental global changes in an array of areas ranging from energy security to climate change and poverty. Instead of focusing on these critical issues that are beneficial to the well being of all mankind, we are increasingly distracted by the deplorable and volatile political situation in Iraq and the Palestinian territories.

The gradual but steady shift in Latin American political attitudes vis a vis the United States should also not be underestimated. In the case of Venezuela, Chavez is not only talking the talk, but clearly walking it as well. The recent moves to nationalize the oil industry and pull out of multilateral institutions such as the World Bank is a vivid example of how the combination of self interest and anti-Americanism is shaping a new diplomatic paradigm in world politics. The trend of resource nationalization is a trend that should be followed with absolute caution, be it in Russia, Myanmar, Bolivia, or Venezuela.

In fact, we are only at the beginning of a long energy squeeze that is bound to exacerbate, in great part due to the current climate of global political fragmentation. The up and coming leadership change in the White House comes at a critical moment in time: can a new President repair the years of void respect for American political leadership and lack of Democratic enlightenment?

In any case the new presidency faces a number of tough challenges. A new administration and President in the United States is going to face a much harsher international diplomatic climate for reaching consensus. Unilateralism is surely a no go area now, something which even current President George Bush Jr. has understood given the precarious international political climate that has arisen in large part due to this unilateralism. The imminent talks with Iran are a good example of this. They are by no means a stroke of enlightened political leadership, but rather a measure of acute desperation.

#63 The Energy Champion

Every time we hear about Russia in the news in reference to oil and gas, it seems to be about Russian muscle flexing. In the past few years alone, Russia has used her vast energy reserves as a weapon in times of disagreement against not only the European Union, but also Georgia, Ukraine, her ally Belarus and, most recently, Estonia. But credit must be given where credit is due: Moscow is in a league of its own when it comes to securing her energy interests.

The proof? Just today (May 12, 2007) Russia announced an agreement with Kazakhstan and Turkmenistan to build a new natural gas pipeline north from the Caspian Sea, carrying gas from Turkmenistan through Kazakhstan to Russia. This is a major smack in the face of the EU, which had hoped to lessen their dependence on Russian gas by finding an alternative supplier in the form of Turkmenistan. This was to be done by creating a new pipeline under the Caspian Sea that would go through Turkey to Europe, thereby bypassing Russia. The gas routes as they stand today can be seen in the picture above (source: the Economist).

Even if the idea proposed by the EU were to take hold, some analysts doubt whether it would make a significant difference. ICG energy analyst Charles Esser pointed out that the EU could count on at most 20bn cubic metres of gas per year from a Caspian pipeline, which amounts to no more than 4% of EU consumption in 2004. Nevertheless, given the fact that the exact amount of gas present in Turkmenistan is unclear, a significantly high number could lead to the expansion of current plans and seriously reduce EU dependency on Russian gas in the long term. In any case, the deal announced today is a clear victory for Russia, as it effectively means that Turkmen and Kazakh gas will only be exported to Europe via Russia, putting the Europeans at the mercy of Russian caprice more than ever before.

China will no doubt see this deal as a loss as well, since they too were vying for direct control of Turkmen gas in their global quest to secure their energy needs in the most far-flung of places. In April 2005, deceased Turkmen President Saparmurat Niyazov had blessed the construction of a pipeline to China that would send 30 billion cubic meters of gas to China starting in 2009. Whether this deal will now go through is uncertain, though it seems unlikely that the Russian-Turkmen agreement will affect it. It does, however, give Gazprom and Russia a powerful bargaining tool in any future discussion, negotiation or conflict with China.

Say what you will of the Russian mafia-like monopolizing tactics, but effective they most certainly are.

#61 A Beleaguered Ethiopia

Ethiopia has had a busy year so far and it's starting to shape up to be a rough one. After invading Somalia back in July 2006 in order to crush the Islamic insurgency, the Ethiopian troops swiftly proceeded to defeat the enemy and reach Mogadishu by the end of December. Victory was clear and it was time to leave and let the African Union (AU) or the United Nations send the necessary peace keepers. But this did not happen. Instead, the AU did not make good on its pledge to send 8,000 troops (only 1,200 have been deployed), leaving the much reviled Ethiopians to face an increasingly resurgent enemy that can bank on local support when it comes to opposing what many Somalis see as invading Ethiopian forces.

While contending with the troubles in Somalia, tension with another neighbor is starting to flare up. Ethiopia has consistently accused the Eritrean government of supporting and sponsoring various terrorist groups and elements such as Al-Qaeda backed Al-Shabat, operating in Somalia. Ethiopian Prime Minister Meles Zenawi said recently that one of the main goals was to defeat Eritrean-backed groups in order to "make it difficult for Eritrea to take the option it has taken thusfar - destabilizing through sending elements to Ethiopia and the horn." He said putting Eritrea's accomplices "out of the game" will leave Eritrea with one option: aggressing Ethiopia on its border - a step deemed unlikely, given the result of the 2000 border war with Ethiopia and the likely backlash from the international community (perhaps most importantly from China).

Eritrea, on it's part, released eight Ethiopian citizens who were kidnapped in the northern Afar region in March. Five Europeans had also been kidnapped, but were released 12 days after their capture. Despite this gesture of apparent goodwill, it appears most east African states support Ethiopia and the transitional government of Somalia, while Eritrea openly supports the Islamists. This, in part, has led to Eritrea leaving the Intergovernmental Authority for Development (IGAD), signaling increased instability in the region. Eritrea released a document explaining their decision to suspend their membership of IGAD, accusing Ethiopia and the U.S. of intentionally causing havoc in the Horn of Africa in order to restore U.S. dominance in the region.

Besides the escalating conflict in Somalia that is starting to entrap the Ethiopians and has caused a massive refugee problem, Ethiopia was rudely awakened by a massive shooting rampage in Abole, a small town about 120km (75 miles) from the regional capital, Jijiga, in the Somali (not to be confused with the country, Somalia) region. Gunmen from the Ogaden National Liberation Front (ONLF) killed at least 74 people in an attack on an exploratory drilling site run by a subsidiary of the Chinese government-owned giant oil company, Sinopec. Sixty-five of the dead were Ethiopians and nine were Chinese oil workers. Seven Chinese were also taken captive. Ethiopia has launched a rescue operation to try and secure the release of the Chinese, accusing Eritrea of backing the ONLF in the process. The safety of Chinese interests in Ethiopia is crucial for the African nation, since China is Ethiopia's largest trading partner, with trade worth $450 million in 2006.

China is sure to learn lessons from this attack as well, as the killing of 9 Chinese and the abduction of 7 others comes on the backdrop of 16 Chinese oil workers being kidnapped in Nigeria and a Chinese engineer being killed and another injured in Kenya this year alone. This poses a major dilemma for China, that swears on her policy of non-interference. Until the recent murders and kidnappings of Chinese civilians, this policy has worked very much in China's favor, allowing it to gain access to resources in far flung regions where unsavory types run the show. But once the Chinese themselves become targets, the feasibility of such a policy is brought into question. Perhaps the recent stunning discovery of 2.2 billion barrels of oil in Bohai Bay (northeastern China) will temporarily quench China's thirst for foreign oil and gas, though this is highly unlikely.

#59 Divisive Ethanol

Ethanol has become the new "it" thing in terms of energy fashion. Whether you are a proponent of expanding ethanol production for energy use, believe it would be a disaster to do so, or if you could not care less about the topic, one thing is for sure: you have something to say about it. The scope of discussion on the topic extends far beyond merely energy, encompassing a wide array of sectors such as food, agriculture, energy, trade and the environment. No matter in what context ethanol is debated, it has become a particularly divisive topic.

The environmental field is one such area. High profile politicians, scientists and lobby groups such as the Renewable Fuels Association - the largest Washington ethanol lobby group - are touting it as a 'green' alternative to the heavy pollutant, gasoline. Others, such as Stanford University civil and environmental engineering professor Mark Jacobson, loudly dispute this claim. Jacobson conducted a study analyzing the environmental effects of switching to ethanol and concluded "It's not green in terms of air pollution...If you want to use ethanol, fine, but don't do it based on health grounds. It's no better than gasoline, apparently slightly worse." Green or not, ethanol has set the stage for a tough debate worthy of competing with the ever contentious notion of Global Warming.

At the top of the world's political echelons, ethanol has garnered a prominent and cosy space for itself as well. Venezuelan President Hugo Chavez, following the words of Cuban President Fidel Castro, has issued a stark warning against the use of ethanol as a main source of energy, warning there is a lack of arable land and arguing it will lead to food prices skyrocketing, subsequently causing mass starvation among the world's poor. Bush, on the other hand, has hailed ethanol as a fitting alternative to the American addiction to foreign oil, sealing a bilateral deal with the world's largest ethanol producer, Brazil. The fact that these two leaders disagree on something is far from surprising, of course. What is noteworthy, however, is the effect that ethanol is having on Chavez's relationship with Brazilian President Luiz Inacio Lula da Silva (Lula), who Chavez considers to be a close ally.

At a Venezuelan hosted energy summit involving eight Latin American nations, Lula responded to Chavez's comments regarding massive production of ethanol in an unprecedentedly stark manner, saying “The truth is that biofuel is a way out for the poor countries of the world...Obviously there is no possibility of competition between food production and biofuel production...No one is going to stop planting rice to plant biofuels. The problem of food in the world now is not lack of production of food. It's a lack of income for people to buy food.” Chavez was seemingly taken aback by these statements, softening his position afterwards by insisting that his real objection is to the U.S. corn-based variety of the biofuel – not Brazilian ethanol produced with sugar cane. Nevertheless, ethanol has managed to become the first topic to create public disagreement between the two leaders.

Let's just hope that either the proponents of ethanol as a substitute or additive for oil are correct, or that other, cheaper, cleaner and less divisive methods will be found in the meanwhile. Divisive ethanol must not become a distraction for the real reasons - which are a plenty - that we are seeking alternatives to oil.

#37 Turkmenbashi Lives On

With the death of Turkmen "President-for-life," Saparmurat Niyazov, last December, hope emerged that maybe Turkmenistan would be able to finally get a taste of Democracy. The election as new President last Sunday of heir-apparent, Gurbanguly Berdymukhamedov - who won with the surreal number of 89.23% of the votes in a matter of only four hours of voting, with a 95% turnout according to the Central Election Commission - has put a quick damper on such hopes. On a more positive note (for Turkmenistan, that is), the continuation of Niyazov's legacy will mean that Turkmenistan will likely become neither a Russian nor a European proxy state.　

There was talk that the death of Niyazov provides a golden opportunity for the European Union to lessen its dependency on Russian gas, while also allowing for Russia to regain some of its lost Cold War influence in the hermit state. With Turkmenistan being home to the fifth-largest natural gas reserves in the world (proven reserves of 3 Trillion Cubic Meters) and substantial oil reserves as well (Turkmenistan has proven oil reserves of 546m barrels, estimated reserves of more than 2 bn barrels, and large areas that are yet to be explored), the Central Asian nation is of extreme interest particularly to the EU. It could serve as the perfect partner in the realization of an energy corridor from Central Asia to Europe.　

There are, however, doubts about Turkmenistan's oil and gas reserves, or at least the potential to make use it. Former vice Prime Minister and head of the Central Bank of Turkmenistan, Khudaiberdy Orazov, noted that "Everyone had to make do with information from Niyazov about Turkmenistan's gas reserves, which were said to be 22 trillion or even 44 trillion cubic meters. But in reality the only gas field in Turkmenistan was opened under the USSR and has been being exploited ever since...It is completely possible that Turkmenistan has a lot of gas. But first it has to be found, a gas field has to be opened, and extraction has to begin. And no one has done that for 15 years, and in the meantime the Geology Ministry has been disbanded and many specialists have left for Russia or let the profession lapse."

If we are to assume that the country is capable of becoming a major player in the world's energy market, recent signs provide no clue as to who will benefit most. Turkmenistan is scheduled to continue providing Gazprom with 50 billion cubic meters of gas a year at below-market prices through the old Soviet-era pipeline and, starting from 2009, the Chinese are to receive 30 billion cubic meters of a gas a year. On the political front, the current festivities in the Turkmen capital, Ashgabat, don't provide any hints either, as they are attended by leaders and senior diplomats from a wide range of countries, including European officials, Russian Prime Minister Mikhail Fradkov, US Assistant Secretary of State Richard Boucher, a vice-chairman of China's parliament, Turkish Prime Minister Tayyip Erdogan, the leaders of Ukraine and Georgia, and even Iranian President Mahmoud Ahmadinejad.

Turkmenbashi lives on for now, meaning little change within the country and no foreseeable near term impact on the energy and geopolitical chess boards. However, in the hopeful words of an unnamed Western Diplomat in Ashgabat who defended the policy of engagement, "You can take an obese person and tell them that they need to lose weight. Until you see the pounds coming off there's so proof they've absorbed the message...but a crash diet is bad, because you're looking for sustainable change." In other words, the West is choosing to grant Berdymukhamedov and co. the benefit of the doubt for now, allowing for time to implement the necessary changes. Or if you look at it another way, they are hoping to befriend the new leader so as not to alienate the gas-rich nation and increase their own chances of striking some juicy deals.

See also Post #5 Turkmenistan up for Grabs

#20 Axis of the Deranged

I have never been a big fan of the term "evil" used to describe certain elements in global politics, for it seems so asinine. It's like hearing a child cry "he stole my pencil, he's evil"! At first thought, substituting "evil" with "deranged" might seem equally juvenile, but given the original meaning of the word deranged (to throw into disorder; disarrange), it is rather fitting. If you think about it, throwing into disorder is exactly what Chavez and Ahmadinejad are doing (while the sanity of some of their statements can be put to question as well). The two are without doubt intelligent people, but there have been enough wacky events involving the two characters to allow for the term deranged to be used.

The latest on the two is that Chavez has just won another 6 years in office, while Ahmadinejad and co. continue to laugh in the face of the world. How long Ahmadinejad will be around for depends on the Mullahs (or on an Iranian revolution or international conflict for that matter), but how long Chavez will be in power might come to depend on a new proposal that seeks to allow indefinite reelection of the president of the republic. Chavez has repeatedly stressed that in order for the revolution to succeed, there must be continuity of government and policy, meaning the step of allowing indefinite reelection could be just a prelude to Dictatorship. Since winning the first election back in 1998, Chavez has increasingly dominated all branches of government and his allies now control congress, state offices and the judiciary.

Chavez has also spooked the international investor community by calling for the constitution to be changed to allow the government to take control of the natural gas industry from foreign companies. He has already pledged to increase state control over four key oil production projects in the Orinoco Belt, which are currently operated by firms such as U.S. Exxon Mobil and Chevron, Total of France, and British Petroleum. Besides these four heavy crude upgrading projects, plans were also announced for the state to take control of the country's largest telecommunications company, and its electricity and natural gas sectors.

On a global level, Chavez has become 'best buddies' with a man who calls for a UN member state to be "wiped off the map" and flat out denies the occurrence of one of human's worst tragedies; the Holocaust. Both men are deeply religious, though only recently has Chavez been increasingly alluding to Jesus Christ, whom he called "the greatest socialist of all." Indeed, the two have much in common and were both graciously offered the platform at last years UN General Assembly, where they were welcomed with rapturous applause by an audience that apparently appreciates the use of the word "devil" as a form of name calling.

Ahmadinejad is currently in Caracas, which is his second visit to Venezuela in less than four months. The two have pledged to strengthen their anti-US alliance and have promised to invest in countries "whose governments are making efforts to liberate themselves from the imperialist yoke." The funds will come from a joint USD 2 billion fund intended to finance investments in Venezuela and Iran, but the two leaders announced Saturday (January 13) that the money would also be used for aiding friendly countries (which means countries hostile to the US). During Ahmadinejad's visit to Caracas last September, the two already agreed to establish a joint petrochemical and steel company and a shared firm for the exploration of petroleum. There have also been heavy rumours that Iran had secured Venezuela's uranium for Tehran's nuclear program, but this has been denied by both sides.

After Venezuela, Ahmadinejad will visit newly elected leftist governments in Nicaragua (Daniel Ortega) and Ecuador (Rafael Correa). While in Ecuador, he will also meet with Bolivian President Evo Morales. All three countries fall under the category "friendly" and are likely to be courted by Chavez and Ahmadinejad into joining an anti-US alliance, while being the most likely recipients of Iranian/Venezuelan aid. Other prominent figures that have been conniving with either Chavez or Ahmadinejad include unsavory types such as Libyan President Moammar Gaddafi and Belarussian President Alexander Lukashenko.

The Axis of the Deranged currently consists of two members, but these happen to be very big talkers with the potential to strike hard. They say dogs that bark don't bite. This may be true, but these dogs don't have to bite, as they (especially Ahmadinejad) are masters at finding others to do the biting for them (notably Hezbollah, and more recently it seems Hamas is willing to take orders from Tehran as well). Ignore these puppet masters at your own peril, for they really will throw the world into disorder.

#11 A New Security Paradigm?

The previous bipolar contestation between East and West was based upon which economic doctrine should prevail. Today’s primal security concern is that of energy resources. In Europe, the recent squabble between Russia and Belarus is threatening to disturb the ease with which Western Europe is able to turn up the thermostat in the (so far) mild winter.

The big change is that Russia seems more interested in earning top dollars for its resources, rather than subsidizing its neighbors and allies. Russia is no longer interested in “giving” its gas resources away cheaply when there are well paying, gas hungry customers around the corner. This could be good news for Europe, as this signals the intent of Gazprom to be more of a business partner rather than a political instrument: although in reality it is clearly both.

According to spokesman Sergei Kupriyanov, Gazprom is not Santa Claus. Isolated and dictatorial Belarus was accustomed to buying gas at a nearly 70% discount relative to market prices (around 46$ per 1000 cubic meters). Gazprom wants around 200$ per 1000 cubic meters. In the newly announced deal, Belarus will now pay around 100$ per 1000 cubic meters, which, looking at current prices, can still be considered a sweet deal.

If the re-pricing had been more aggressive, it would have created more pressure on Belarusian president Alexander Lukashenko by effectively ending a multibillion subsidy. Although the re-pricing is a welcome step in the right direction, it is merely Russia flexing its muscles. However, in the long term these are good signals to shareholders who are not keen on Gazprom being used as a political subsidy agent.

Looking at Western Europe, their dependence on foreign hydrocarbon sources remains a critical issue because, as the Economist put it, “a new hegemony, based on pipelines rather than tanks, is advancing”. As Europe's thirst for Russian resources increases, their independence decreases; and this time there is no “Iron Curtain” to hide behind.

#5 Turkmenistan up for Grabs

Although generating surprisingly few headlines, the death of Turkmenistan's authoritarian president Saparmurat Niyazov is a very big deal. Granted, Commandante Fidel's loss (we believe he is still alive of course, but clearly not in a condition to rule the way we are used to of him) is a more high profile case, but Turkmenistan has much more to offer the world in economic terms.

Turkmenistan is home to the fifth-largest natural gas reserves in the world (proven reserves of 3 TCM) and holds substantial oil reserves as well (Turkmenistan has proven oil reserves of 546m barrels, estimated reserves of more than 2 bn barrels, and large areas that are yet to be explored). Niyazov ruled Turkmenistan with an iron fist for 21 years, commanding more than only the post of President of the nation. This has meant that there is now a serious possibility of chaos in the nation as, according to Turkmen law, the president is succeeded by the head of the People's Assembly - a post that was held by Mr Niyazov himself!

A serious possibility is that Russia's long arm will reach deeper into Turkmen affairs, given Russian Foreign Minister Sergei Lavrov's swift response that "We hope a new leadership will act to benefit co-operation with Russia and to benefit the region as a whole." Perhaps all the days, cities, airport and meteorite that were named after Niyazov will now be renamed in the honour of soon to be departing Comrade Putin. The many statues might even suddenly find themselves with blond hair and blue eyes.

But on a more serious note, if Russia does gain more influence in Turkmenistan, this does not bode well for Europe's energy addiction. If, on the other hand, Europe steps in quickly to ensure a swift transition in the country, it might have found itself the perfect alternative to the fix provided by the mafia pushers in Russia. A big plus; Turkmenistan does not need Russia, thanks to her own rich energy resources, and can thus become a loyal ally if Europe plays its cards right...and quick.

See also post #37 Turkmenbashi Lives On

#3 Africa - China's Training Ground

If the term "failed state" is used to define those states where government is unable to perform its basic duties, then Africa could be considered a "failed continent." Indeed, in the 2006 'Failed States Index' published by the US think-tank, The Fund for Peace, and by US magazine, Foreign Policy, 4 out of the top 5 failed states are located in Africa: 1. Sudan, 2. Democratic Republic of Congo, 3. Ivory Coast, 4. Iraq, 5. Zimbabwe.

Africa, however, is blessed with an impressive endowment of mineral wealth, which has not gone by unnoticed by the risk-loving Chinese. China is eager to snatch its share of Africa's near-global monopolies of platinum (89%) and diamonds (60%) and her significant proportion of the world's cobalt (53%), Zirconium (37%), and gold (28%) reserves (Jonah, 2005). Africa further boasts very sizeable reserves of coal, uranium, copper, nickel, natural gas, and most importantly, oil. While Africa currently accounts for 7% of the global total estimated proved oil reserves (EIA, 1999), the region has the potential to supply 25% of the U.S.'s oil imports by 2015 and already accounts for 30% of China’s imports of oil, according to Forbes. In fact, Angola has recently become China’s largest oil supplier, surpassing Saudi Arabia.

While Africa’s natural wealth is not a new phenomenon, China’s significant investments in the continent is. To highlight the stunning growth of trade between China and Africa, in 1999 the value of trade between the two was $2 billion, which grew to $29.6 billion in 2004 and is expected to reach $50 billion by the end of 2006 (IMF). In some countries, China has set up a near-monopoly in trade, importing 81% of Sudan’s global oil exports and 72.5% of Congo’s global exports in metals, while simultaneously accounting for 14.2% of Sudan’s total global imports and 9.1% of Ghana and Tanzania’s total imports (Kaplinsky, 2006).

The phenomenon of China’s trade in Africa presents the continent with a renewed opportunity to climb out of its current misery and forever shed the stigma of failure. What it also presents, however, is a perfect stage on which China can learn the ways of a global superpower. China is able to build her clout relatively quietly, while the old guard focuses their attention elsewhere. Not only is the Middle Kingdom securing crucial resources to sustain her incredible growth, she is also ‘playing the field’ politically. A similar pattern is emerging in Latin America; where China is slowly becoming a pain for the US, as Latin American countries that are fed up with the Americans for whatever reason now see China as the perfect alternative. Chavez’s open flirting with China is a good example of this. Given Chinese support to such rogue regimes as the Sudanese government and Mugabe in Zimbabwe, increased global Chinese influence is sure to rile the US further.

It is therefore imperative that the US takes note of China’s dealings in Africa, as it is sure to be merely the testing ground for further expansion. The US and the EU should engage with China in Africa, rather than compete directly, as it is impossible to beat the conditions given to African nations by the Chinese (China follows a policy of non-interference in other countries’ internal affairs and thus pays no mind to issues like corruption). China has already provided crucial infrastructure and real estate in exchange for trade deals and has provided loans and given debt relief to countries such as Angola, which was refused loans by the West unless it met certain governance requirements. Such conditions cannot be provided by the USA, EU or Japan, as it would mean a major loss of credibility, giving China a clear advantage. Only by engaging China in Africa can the US continue to exert influence and retain her credibility in the continent. The ultimate question is how to go about doing this. The US has little leverage in regard to China, seeing as the Chinese are supplying most of the credit to the US. The EU remains the largest investor in Africa, while the US is second and China third, suggesting that Europe should play a key role in engaging China.

One way to do this is by asking China to join the African Partnership Forum (a grouping of key African governments, Western development donors and African and international organizations), as suggested by Leni Wild and David Mepham of the IPPR. China should also be involved in other Western forums concerning Africa, while Europe and the US should ask to join existing Chinese forums discussing various issues with their African partners. The EU/China Co-operation Program should also put the issue on her agenda. It should be made clear to China that her image will be seriously tarnished unless corporate governance is incorporated into her dealings in the African continent. The African Union’s commitment to good governance should help in this respect.

In sum, China’s rising influence in Africa is a topic that consists of many branches (many more than have been touched upon above) and should prove to be of great significance in a global context. Other postings on the Weekend Economist will be sure to cover the issue from different angles.

References

EIA (1999) A snapshot of Oil and Gas in Africa Official Energy Statistics from the US Government, Energy Information Administration

Forbes (2006) http://www.forbes.com/business/energy/2006/10/06/energy-african-oil-biz-energy_cx_jc_1009beijing_energy06.html

IMF Direction of Trade Statistics

Jonah (2005) Presentation by Sam Jonah, former President of AngloGold Ashanti, University of South Africa, unpublished.

Kaplinsky R (2006) Winners and losers: China’s trade threats and opportunities for Africa, The New Sinosphere.