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Saturday, February 12, 2005

A STRATEGIC PARTNERSHIP AND A WORLD PARIAH: CHINA, INDIA, AND IRAN DEAL FOR ENERGY

China and India agreed on Friday to bid jointly on oil and gas assets across the globe instead of battling each other for the much needed resources. While the agreement was thin on details, it continues a recent trend in energy cooperation between Central Asia’s great powers. Last October China's ambassador to India proposed cooperation between the two countries in the energy sector and earlier this month India hosted oil ministers from the Middle East, China, Japan, and South Korea in a bid to spur energy cooperation in the region. Interestingly, Iran also has emerged as a key player in Central Asia’s energy future.

Friday’s agreement will likely pair China National Petroleum Corporation (CNPC), and India’s ONGC Videsh Limited (OVL). India’s incentive for cooperation is clear: they recently lost out to China in bids for oil assets in Angola and Sudan. For its part, China seeks simply to keep the price of the prized assets down as it struggles to feed its fast growing economy with the energy it needs. In 2003 China superseded Japan as the world’s second largest oil consumer, with a demand of over 2 million bbl/d. By 2025 China is expected to need between 7 and 9 million bbl/d to keep its economy going.

India too is a large and growing consumer of petroleum products. It currently uses 2.2 million bbl/d with a a net oil demand of over 1.4 million bbl/d. Total demand is expected to surpass to 2.8 million bbl/d by 2010. However, India has also made natural gas a key part of its national energy strategy, using nearly 0.9 Tcf in 2002. Indian demand for natural gas is projected to reach 1.6 Tcf in 2015.

The Sino-Indian rapprochement stands against a recent history of cross-purposes and strained relations. China and India continue to dispute the exact placement of their common border, and India resents China’s military backing of Pakistan. However, as rising powers, both in need of vast quantities of resources, they also share a strategic outlook. They share the rare distinction of not being directly dependent on Washington for the security or economic well-being.

It is not surprising then that relations with Iran begin to take on an increased importance for both nations. While many countries eschew energy relations with energy rich pariah state, both China and India are keener to consider Iranian oil and natural gas in their energy security strategies. Iran holds 10% of the world’s oil reserves and has the second largest reserve of natural gas. The latter makes them particularly attractive to India as it diversifies its energy use. India just concluded a $40 billion deal which projects not only a ramp up in Indian natural gas imports from Iran to 2025, but also includes in increase in India’s stake to 20% of Iran's largest onshore oil field, Yadavaran. China and Iran signed a $100 billion dollar energy deal last march, which is expected to grow to almost $200 billion in the near future. That deal includes China’s 50% stake and in the Yadavaran field.

Undoubtedly this strategic cooperation between one of the United States’ chief antagonists and two rising powers is a source of concern. That’s not to say Washington is without strategic influence. India remains ever concerned to protect its U.N. standing –and maybe even get a permanent seat on the Security Council-- while also remaining attentive to U.S. relations with its chief rival, Pakistan. China too desires good relations with the West as it likely enters a time of increased economic turbulence. However, both countries need energy as much as anything and Sino-Indian-Iran cooperation will remain an attractive option.

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