Saturday, February 26, 2005
The battle for resources
In the final installment of the series, Victor Mallet addresses an issue that was brought up in a previous ZS post as well -- the search for oil, as both countries look to secure their energy sources to keep the engines of economic growth humming well into the future.
With world energy supplies already tight, the question is not whether the rising demand from India and China will bring them into commercial competition with each other and with other big importers such as the US and Japan: that is already happening. The question is whether it will lead to diplomatic tension and ultimately increase the risk of military conflict in the Asia-Pacific region. For the moment, the competition for resources is fierce but not hostile. The main evidence of concern is that Beijing, nervous about the possible use of US and Indian naval power to control oil supplies from the Middle East in the event of conflict, is rapidly strengthening its own navy.
There is no doubt that India and China, which together account for more than a third of the world's population, must greatly increase their imports of oil and gas if their economies are to continue growing at annual rates of 6-10 per cent. China was once an oil exporter but is now the world's biggest oil consumer after the US and is increasingly dependent on imports: already, a third of its oil is imported. India, although its economy and its energy needs are smaller than China's, is even more dependent on imports than its dynamic neighbour. Mani Shankar Aiyar, petroleum minister, reckons India's import dependency will increase from 70 per cent of consumption this year to 85 per cent in 15 years.
He dismisses the idea that the tussle may become a new version of the "Great Game" for influence between rival 19th century imperial powers, saying he plans to visit Beijing later this year for consultations. One of his aims is to avoid damaging competition between Indian and Chinese oil companies for the overseas energy assets coveted by both countries. "India and China don't have to go through fratricide in order to arrive at the conclusion that it is better to co-operate on energy security," he says. "Of course there will be competition where the market dictates."
The need for governments to co-operate on long-term infrastructure projects thus points at least to the possibility of improved relations between previously hostile states. "People are getting pragmatic," says one Asia-based strategist at a big international oil company. he energy squeeze is not so good for human rights or environmental protection, in central Asia or countries such as Burma. Governments in oil importing countries typically care more about energy security than the politics of the exporter. Democratic India has forged close relations with Burma's military junta and all but abandoned support for the pro-democracy opposition led by Aung San Suu Kyi. Like China, India is prepared to sacrifice other goals in the search for energy security.
One consequence of competitive bidding is to push up the price of assets, which is likely to hurt an Indian company more than a typically bigger one from China. Observers also say Indian companies' aggressive bids in exploration auctions reflect a readiness to accept a lower rate of return than western companies in order to secure a strategic asset. Some observers are sceptical, however, arguing that, while it is in the Indian companies' interests to seek co-operation, the cash-rich Chinese can afford not to.
All the more reason for Mani Shankar Aiyar to move quickly on merging the Indian oil majors into a single large entity that can compete effectively with the cash reserves of Petro China, CNPC, CNOOC etc.
With world energy supplies already tight, the question is not whether the rising demand from India and China will bring them into commercial competition with each other and with other big importers such as the US and Japan: that is already happening. The question is whether it will lead to diplomatic tension and ultimately increase the risk of military conflict in the Asia-Pacific region. For the moment, the competition for resources is fierce but not hostile. The main evidence of concern is that Beijing, nervous about the possible use of US and Indian naval power to control oil supplies from the Middle East in the event of conflict, is rapidly strengthening its own navy.
There is no doubt that India and China, which together account for more than a third of the world's population, must greatly increase their imports of oil and gas if their economies are to continue growing at annual rates of 6-10 per cent. China was once an oil exporter but is now the world's biggest oil consumer after the US and is increasingly dependent on imports: already, a third of its oil is imported. India, although its economy and its energy needs are smaller than China's, is even more dependent on imports than its dynamic neighbour. Mani Shankar Aiyar, petroleum minister, reckons India's import dependency will increase from 70 per cent of consumption this year to 85 per cent in 15 years.
He dismisses the idea that the tussle may become a new version of the "Great Game" for influence between rival 19th century imperial powers, saying he plans to visit Beijing later this year for consultations. One of his aims is to avoid damaging competition between Indian and Chinese oil companies for the overseas energy assets coveted by both countries. "India and China don't have to go through fratricide in order to arrive at the conclusion that it is better to co-operate on energy security," he says. "Of course there will be competition where the market dictates."
The need for governments to co-operate on long-term infrastructure projects thus points at least to the possibility of improved relations between previously hostile states. "People are getting pragmatic," says one Asia-based strategist at a big international oil company. he energy squeeze is not so good for human rights or environmental protection, in central Asia or countries such as Burma. Governments in oil importing countries typically care more about energy security than the politics of the exporter. Democratic India has forged close relations with Burma's military junta and all but abandoned support for the pro-democracy opposition led by Aung San Suu Kyi. Like China, India is prepared to sacrifice other goals in the search for energy security.
One consequence of competitive bidding is to push up the price of assets, which is likely to hurt an Indian company more than a typically bigger one from China. Observers also say Indian companies' aggressive bids in exploration auctions reflect a readiness to accept a lower rate of return than western companies in order to secure a strategic asset. Some observers are sceptical, however, arguing that, while it is in the Indian companies' interests to seek co-operation, the cash-rich Chinese can afford not to.
All the more reason for Mani Shankar Aiyar to move quickly on merging the Indian oil majors into a single large entity that can compete effectively with the cash reserves of Petro China, CNPC, CNOOC etc.
