ll
Resource mercantilism and the
militarization of resource
nranagement
Rising Asia and the future of
American primaçy in the Persian Gulf
Flynt Leverettl
the "militarization" of resource management describes the
growing inclination of energy producers and consumers to base decisions about
their behavior in global energy markets on political and strategic calculations as
well as on commercial and economic considerations. As this volume attests, the
ongoing militarization of resource management is generating profound challenges for American interests around the world, challenges that will shape the
US foreign and defense policy agenda for at least the next quarter century.
Some of the most significant policy problems associated with the militarization of resource management are posed by the deepening engagement of the
world's two most important rising powers, China and India, with the world's
most important energy-producing region, the Persian Gulf. Although the United
States has long enjoyed effective hegemonic status in the Middle East, China
and India are intensifying their economic, diplomatic, and strategic ties to
energy-producing states there, driven by their exploding demand for imported
In a broad
sense,
hydrocarbons.2 More particularly, these states seem to be pursuing energy security through what can be described as "resource mercantilism" - that is, the use
of economic and foreign policy instruments by national governments to help
their state-owned national energy companies (NECs) secure access to overseas
hydrocarbon resources on more privileged bases than simple supply contracts
based on market prices.s
Considerable attention has been focused on the presumptively destabilizing
impact of China and India's global "hunt" for hydrocarbon resources on global
energy markets and international relations.a In the Persian Gulf, the coincidence
of closer Chinese and Indian ties to energy-producing states in "west Asia" with
an ongoing decline in America's strategic standing in the region prompts concerns, in some quarters, about the risks of arms races and even military conflict
over access to Middle Eastern oil and gas supplies in the future.s In particular,
some analysts see the potential for China to project military power into the
Persian Gult either directly or indirectly, in ways that will chatlenge US interests.ó Others see the potentiat for Sino-lndian conflict over access to the Gulfs
212
F. Leverett
hydrocarbon resources. Such scenarios are frequently used to bolster the case for
US-lndian strategic cooperation to contain China's rising influence.T
This chapter argues that concerns about China and India's energy-driven
engagement in the Persian Gulf fueling either the destabilization of global
energy markets or the militarization of resource management in the Middle East
are overdrawn. Additionally, this chapter argues that, if such concerns become
the basis for policy-making, the results are likely to be counterproductive to US
interests. As will be discussed, there are significant limits on how far Chinese
and Indian NECs can go to "lock up" access to Middle Eastern oil and gas
reserves. Moreover, the prospect of military confrontation between the United
States and either China or India over access to Persian Gulf energy resources
seems remote. In all probability, Beijing and New Delhi will each seek to
balance the other's efforts to expand its naval capabilities in the Indian Ocean,
aggravating what Mikkal Herberg has aptly described as the "potential future
problem of military maritime competition to control the Sea Lanes of Communication in Southeast Asia."8 Nevertheless, for the foreseeable future, the United
States will maintain unique capabilities to exercise military power in the Gulf.
This is true with regard to deploying naval forces and maintaining maritime
supremacy in the Gulf.e It is also true with regard to the projection of ground
forces into the region. US logistical capabilities to lift sizeable infantry and
armored forces into the Persian Gulf by air and sea will remain unequalled for
the foreseeable future.
There is certainly a risk that the United States could find itself in a competition for geopolitical influence with rising Asian powers - especially China - in
the most shategically critical area of the world.ro To some degree, such a
competition may already have started. But this risk is largely self-generated. If
Washington pursues policies aimed at stabilizing and managing shifting geopolitical balances in the Gulf, the United States should be able to maintain its strategic primacy in the region, with China and India effectively legitimating that
primacy. If Washington supplements that articulation of a new grand strategy for
the Middle East with efforts to bring China and lndia into the International
Energy Agency (lEA) and encourage the further internationalization of Chinese
and Indian NECs, the United States can help Beijing and New Delhi transition to
more market-oriented approaches to energy security. If, on the other hand, the
United States continues to pursue policies that are perceived to be regionally
destabilizing, its strategic standing will continue to decline. Under these circumstances, China and Middle Eastern energy producers may ultimately forge a de
facto strategic alliancc and look collaboratively for non-military means to
contain American influence in the Gulf.
This chapter develops these arguments in six sections. The first section looks
at resource mercantilism as a particular manifestation of the militarization of
resource management, conditioned by continuing structural shifts in global
energy markets. The second section then looks more closely at resource mercantilism as practiced by China and India in the Persian Gulf as a "top down," strategic response to perceived challenges to their energy security. The third section
I
Resource mercantilisn and
mílitarizatíon
213
takes a different approach, focusing on the interaction of Chinese and Indian
NECs with their governments to prosent resource mercantilism as a fundamentatly "bottom up" phenomenon driven by the corporate agendas and interests of
individual NECs. Against this backdrop, the fourth section assesses the economic and political limits of resource mercantilism as an energy-security strategy, while itt. nmt section draws implications for US policy. Finally, the sixth
sãótion draws out the likely consequences of poorly conceived US policy.
ffi[
I'jllli
riil
iiï
ill,
iË
I
Conditions for militarization
Resource mercantilism, particularly as practiced by China and India, needs to be
undentood in the wider context of the geopolitics and geoeconomics of energy,
which are being reshaped by continuing structural shifts in global energy
markets, on both the demand side and the supply side. These shifts have encouraged the militarization of resource management in various ways, including the
emergence of resource mercantilism.
On the demand side, the world has witnessed sustained and robust growth in
the demand for crude oil, refined products, and natural gas since the beginning
of the millennium. More specifically, a consequential portion of the increase in
aggregate demand for oil and natural gas during the past five years or so has
bããn ðonditioned by the emergence of new major demand centers in Asia, especially China and India. During 20014,35 percent of the increase in oil demand
worldwide was generated by China alone. During 2002-5, that figure increased
to 40 percent. Inãeed, the "explosion" of demand for crude oil and refined products in Asia has been one of the most important contributors (along with continued demand growth in the United States) to the dramatic rise in energy prices
since late 2003.rr
The International Energy Agency and the US Department of Energy's Energy
Information Administration, among other sources, project that oil demand in
Asia will continue growing robustly over the next 20 to 25 years. However
much cyclical dynamics or idiosyncratic (and, thus, at least theoretically changeable) nátional policies may have contributed to the recent expansion in Asian
.nrigy demand-, this expansion is fundamentally grounded in the developmental
trajeõiories of the most important emerging Asian economies, China and India tralectories that are not lik¿ly to change radically in the foreseeable future.12
bn the supply side, there has been a lag in the growth of installed productive
capacity in uþstream oil and gas sectors to accommodate rising demand. Histori'
caily, there has always been a cyclical quality to upstream energy investments;
to sôme degree, the present lag is the predictable outcome of "underinvestment"
in productive capacity since the mid 1980s.r3 But, in the cunent environment,
the potential to expand productive capacity is conditioned by the ever increasing
conðentration of the world's hydrocarbon reserves under the control of national
governments and NECs in the Middle East and former Soviet Union. Combined
iith continuing demand growth, this trend means that, among other things, the
import dependãnce of major energy-consuming states and regions will continue
.a
itl
11
Í:
j
11
i,
.í
':
214
F. Leverett
growing during the next two decades.r4 This trend also means that, in the future,
state actors, not international energy companies (lECs) and private investors,
will largely determine the pace at which hydrocarbon reserves are developed and
the direction in which they are marketed.
As these trends play out and play off one anotherr5, they are prompting strategic and political responses by producer and consumer states atike. On the
sulply side of global energy markets, many observers have commented on the
rise of "resource nationalism" in energy-producing states, as national governments seek to derive greater economic and political power from the monetization of their countries' hydrocarbon reserves.ró On the demand side, resource
mercantitism is, in many respects, an analogous strategic response by rising consumer states to structural shifts in global energy markets. At the heart of
contemporary resource mercantilism is the increasing relianoe of energyimporting states, especially in Asia, on their own NECs to acquire equity stakes
in oil .nl g.r reserves abroad, with national govemments extending various
kinds of support to their NECs' efforts to conclude such deals.rT
The outstanding exemplars of resurgent resource mercantilism in Asia are, of
course, China and India. In broad terms, these two countries - rhetorically collectivized under the neologism, "Chindia" - work within similar parameters in
trying to define their externat energy strategies.rs Both perceive increasingly
aðute vulnerabilities to their energy security stemming from their growing
reliance on imported hydrocarbons to fill critical portions of their energy mix.
Both have state-owned energy companies originally established to develop
significant indigenous resewes of crude oil and natural gas - that have become
increasingly active overseas.re Both have sought to integrate their NECs' overseas acquisition efforts into national strategies for energy security. And, for both
countries, the Persian Gulf is an inescapable focus of their extemal energy
-
policies.
In both the Chinese and the Indian cases, resource mercantilism needs to be
understood on two levels. On one level, external energy strategies grounded in
the logic of resource mercantilism are shaped by high-level calculations in
Beijing and New Delhi about national interests and strategic vulnerabilities.
From this perspective, the overseas acquisition efforts of Chinese and Indian
NECs are structured primarily through "top down" guidance and support from
national governments. But, on another level, Chinese and lndian external energy
strategies are shaped by the corporate agendas and interests of individual
Chinese and Indian NECs. From this perspective, the overseas acquisition
efforts of Chinese and Indian NECs are driven primarily from the "bottom up"
that is, by the NECs themselves
Neither perspective captures "the whole truth' about resource mercantilism
as pursued by China and India; both must be taken into account in any analysis
-
of China and lndia's external energy strategies.
Resource mercøntilism and
militarizatíon
215
Resource mercantilism and energy security
At the strategic level, the attempts by Chinese and Indian NECs to secure access
to oil and natural-gas reserves abroad are part of wider national efforts to deal
with perceived wlnerabilities created by increasing dependence on imported
hydrocarbons. With regard to crude oil, China and India already have strategic'
ally meaningful levels of import-dependence.2o Rising demand for transportation
fuels makes it highly likely that demand for crude oil and refined products in
China and India will continue to grow significantly in coming years; in turn, this
prospect means that, like other major consumer countries, China and India will
becomè even more dependent on foreign sources of oil through the next decade
and beyond.2r China and India only recently started to import natural gas.
Looking forward, though, rising demand for electricity in both countries means
that China and India will almost certainly develop significant importdependence for natural gas in coming years.22
As China and India's import-dependence for crude oil has grown over the
past decade, Persian Gulf producers have assumed a central role in supplying
both countries' energy needs. As China and India increase their imports of crude
oil and natural gas in coming years, the Persian Gulf will ûgure even more
prominently in both countries' external energy strategies. Currently, almost half
of China's oil imports are sourced from the Middle East, largely through supply
contracts of varying durations. More than two-thirds of India's oil imports today
come from the Gulf, also through supply contracts supplemented by spot purchases. Although poticy-makers and strategic planners in Beijing and New Delhi
alike stress the importance of diversifying the sources and transport routes for
hydrocarbon imports, for a variety of reasons the Middle East will coritinue to
hold a leading position in supplying Chinese and Indian energy markets through
the next decade and beyond. There is little reason to anticipate that China or
India will be able to reduce the percentage of their oil imports sourced from the
Persian Gulf in the next 10-20 years; indeed, the percentage of Chinese and
Indian oil imports sourced from the Gulf is more likely to grow during this
period.
For policy-makers and strategic planners in Beijing and New Delhi, this
growing reliance on imported hydrocarbons - and, especially, hydrocarbons
from the Persian Gulf - is at the heart of the energy-security challenge facing
their countries. ln this context, tho attractiveness of resource mercantilism to
Chinese and Indian elites, as a strategy for managing this challenge, flows naturally from their acceptance of certain propositions about the workings of international enefgy markets, and optimal ways to achieve energy security propositions that are, in many ways, at odds with liberâl economic orthodoxy.
From the resource-mercantilist perspective held by many elites in Beijing and
New Delhi, the energy-security challenge facing China and India has at least
two dimensions. First, Chinese and Indian elites are concerned about "volume
risk" - that is, the adequacy of oil and gas supplies available on international
rharkets. Volume risk is an inescapable feature of energy markets because of
216
,
F. Leverett
their inherent physicality and complexity. During the past 30 years or so, trading
in various types of crude oil and refined products has become much more intejrated on a global basis. This effectively reduced volume risk by making ¡t moft
difficult for exporters to use oil as a "weapon" merely by cutting off supplies to
parttcular customers.
But, as market conditions have tightened all along the supply chain for crude
oil in recent years, the prospective impact of potential suppiy disruptions as a
result of natural disaster, accident; terrorism, political instability within oilproducing states, or interstate conflict - has grown. Moreover, despite significant
movement toward the creation of a single, integrated market for crude oil and
refined products, there remains a profound degree of "regionalization" in oilsupply relationships. Thus, today, two-thirds of the Middle East's oil exports are
delivered to Asia, and the most important "growth" markets for future production from the Persian Gulf also lie to the East.
This means that rising Asian economies will be looking to access ever larger
supplies of oil, particularly from the Middle East, at the same time that est;blished customers, such as Japan and Korea, are looking to expand their own
access to those supplies.23 In reality the global oil market has already been
divided up to a great extent through investments in field development anã ffansport, the historical predominance of Western energy companies, and the relative
stability of supply flows in that market., These conditions have created, and continue to reinforce, perceptions in Beijing and New Delhi that, in developing
overseas upstream positions and ensuring secure supply flows from abroad,
China and India are doing no more than playing "catch up" with the advanced
industrial countries of the West.2a
The regionalization of energy-supply relationships is even more pronounced
for natural gas.25 As natural-gas usage expands in coming yeatr, analysts,
policy-makers, and strategic planners in Beijing and New Delhi anticipate-that
there is likely to be intensifying competition - Ínvolving China and India along
with established energy consuming states in Asia, Europe, and North America
for access to pipeline and liquefied natural-gas (LNG) exports, particularly from
the Persian Gulf.
In light of these considerations, a significant number of Chinese and Indian
elites are skeptical of the view propounded by most Western analysts that oil
and gas will always be available, albeit at varying prices, on international
markets.2ó From their perspective, energy security is simply too important to be
trusted to the uncertainties of energy markets. In addition to their concerns about
volume risk, many Chinese and Indian elites are also wonied about heightened
"price risk" - that is, volatility in the prices of crude oil, refined produõts, and
natural gas. Given their skepticism about the workings of international energy
markets, some Chinese and Indian elites are more interested in insulating thãir
societies from the effects of price-volatility than in allowing their economies to
respond efficiently to price signals.
Elite skepticism in Beijing and New Delhi about the functioning of international energy markets has been bolstered by the rise of resource nãtionalism,
I
Resource mercantilism and
mílítarízatíon
217
as discussed above. In this regard, many Chinese and Indian elites believe that,
if national governments in energy-producing states across the Middle East, the
former Soviet Union, Latin America, and Africa increasingly treat hydrocarbon
reseryes as strategic assets, and not simply as economic commodities, China and
lndia have no choice but to take a simitar perspective as energy consumers. In
the Chinese case, the suspicion of international energy markets is further reinforced by a sense that the United States will not always let these markets work
in a disinterested fashion where Chinese interests are in play."
Given their view of the energy-security challenge confronting their countries,
many policy-makers and strategic planners in Beijing and New Delhi recommend the acquisition of equity positions in overseas oil and gas assets by
Chinese and Indian NECs so that, if their countries were in a situation in which
they had adequate financial resources, but were unable to buy oil or gas on international markets because of constrained supply, the NECs' foreign equity production could be sent home. Similarly, Chinese and Indian advocates of "equity
oil" maintain that hydrocarbons produced abroad by Chinese and Indian NECs
are insulated from fluctuations in market prices and could provide home-country
consumeß with cheaper energy supplies than those available on the international
market.
Working from these premises, the Chinese and Indian governments have
adopted external energy strategies grounded, to a considerable degree, in the
logic of resource mercantilism. In broad terms, China has taken the lead in
developing a resource-mercantilist approach to energy security, with India
effectively following China's example. These strategies seek, ínter alia, to
utilize Chinese and Indian NECs to improve - indeed, to maximize - China and
India's access to overseas hydrocarbon resources, including in the Persian Gulf.
Within the Gulf, the region's major energy producers are the highest priority
"targets" for Chinese and Indian "energy diplomacy." These targets include the
"OPEC Five" - Saudi Arabia, Iran, Iraq, Kuwait, and Abu Dhabi in the United
Arab Emirates - for oil, and Iran and Qatar for natural gas.28
These strategies also seek to diversiS the sources and transportation routes
for China and India's foreign energy Supplies.2e For many Chinese elites in
particular, diversification of transportation routes is especially important, given
that 80 percent of China's oil imports including all of its imports from the
Persian Gulf - currently must pass through the Straits of Malacca, where they
are vulnerable to piracy, terrorism, and interdiction by US naval forces.3o Within
the Persian Gulf lran is uniquely important for Chinese and Indian efforts to
diversify transportation routes for oil and gas supplies, as it is the only major
energy-producing state in the region whose geographic position would pennit
transport of oil and gas exports to Asian markets via pipeline as wetl as via sea
-
routes.3l
China's external energy strategy is codified in the so-called "going out" (zou
chu qu) policy. This policy was elaborated in 2002-3 as the .urt nt, "fourthgeneration" leadership cadre was consolidating its accession to power; in substance, though, it reflected positions that had guided official practice under
218
F. Leverett
China's "third-generation" leadership of President and party chief Jiang Zemin
and Premier Zhu Rongji. In keeping with the basic precepts of resource mercantilism, this policy explicitly encourages Chinese NECs to create more secure
energy supplies for China by purchasing equity shares in producing oil and gas
assets overseas, the exploration and production of new fields abroad, and the
construction of refineries and pipelines. Under the rubric of "going out", China's
three major NECs - the China National Petroleum Corporation (CNPC)' China
National Petrochemical Corporation (Sinopec), and China National Offshore Oil
Corporation (CNOOC) - have emerged as prototypes for a new kind of actor on
the global energy scene: the "INOC", or "international/national oil company", as
one Chinese energy executive describes
it.32
Broadly speaking, India has followed the Chinese approach to crafting an
external energy strategy rooted in the logic of resource mercantilism. The Indian
govemment first began to articulate elements of its resource mercantilist extemat
energy strategy during the tenure of Prime Minister Atal Bihari Vajpayee's most
recent BJP-led coalition (1999-2004). Although the focus of the Vajpayee
govemment's energy policy-making was the reform of India's domestic energy
iectors, its principal policy document on energy issues included some discussion
of state-supported overseas acquisitions by Indian NECs.33 During the tenure of
the cunent Prime Minister, Manmohan Singh, New Delhi has deliberately emulated the Chinese approach to empowering NECs as part of its external energy
strategy.3a Singh's first Minister of Petroleum and Natural Gas, Mani Shankar
Aiyar, publicly articulated an ambitious agenda for overseas acquisitions and
projects by Indian NECs; although lower profile, Aiyar's successor' Murli
beoru, is also publicly committed to encouraging foreign "equity oil" deals by
Indian NECs.
From a strategic perspective, external energy strategies grounded in the logic
of resource mercantilism, like those of China and India, unfold in three stages.
First, the Chinese and Indian govemments seek to build a wide range of diplomatic links to key energy-producing regions, including the Persian Gul{, to pave
the way for Chinese and Indian NECs to develop positions in these regions.
In the Persian Gult Chinese leaders have concluded a number of such agreements with local regimes. These include the elaboration of a "strategic energy
partnership" with Saudi Arabia (starting in 1999 and continuing through the reciprocal visits of Saudi King Abdallah to China and Chinese Premier Hu Jintao to
Saudi Arabia in 2006), multiple trade and investment agreements with Saudi
Arabia and smaller Gulf Arab states over the last several years, an energy'cooperation agreement with Kuwait, and a variety of ççonomic and technological
cooperatiòn agreements with the Islamic Republic of lran.3s Additionally, China
has instituted a regular series of dialogues with the Gulf Cooperation Council
(CCC) and is cunently negotiating a free trade agreement with the GCC.36 More
iecentiy, Beijing cancolled lraq's Saddam-era official debt to China.3? In 2005,
China supplemented its diplomatic engagement with energy-producing states in
the Persian Gulf and with the GCC by opening a regular dialogue with OPEC.
In connection with its external energy strategy, India has launched its own
Resource mercantilism and
milítarizøtíon 219
"energy diplomacy" directed at hydrocarbon exporters in the Persian Gulf.
Although an extensíve Indian expatriate presence in the Gulf has long provided
a basis for positive ties, Indian governments have, in recent years, sought to
forge an expanding array ofconnections to the region to facilitate greater access
by Indian NECs to oil and gas supplies.3s In January 2006, during Saudi King
Abdallah's visit to India, the Saudi monarch and Prime Minister Singh signed
the so-called "Delhi Declaration." This document structures the development of
Saudi-lndian relations in a number of strategic issue areas; with regard to
energy, the Delhi Declaration commits the two countries to developing a "strategic energy partnership", including long-term contracts for the supply of Saudi
oil to India and joint ventures in upstream and downstream projects.3e
Indian governments have been pursuing closer ties to the Islamic Republic of
lran since the end of the Cold War. Since the beginning of the new millennium,
however, energy interests have compelled the Vajpayee and Singh governments
to take lndo-lranian relations to a new level.ao Since 2006, finalization of a
nuclear cooperation agÍeement between the United States and India has induced
some rhetorical caution on the Singh govemment's part regarding Indo-lranian
energy ties; nevertheless, Indian ofñcials and NECs continue to pursue energyrelated agreements (as well as oil and gas deals) in lran.ar Since 2002, the Vajpayee and Singh govemments have worked steadily to develop bilateral
relations between India and Qatar. The most recent step in the process was the
conclusion of a bilateral defense agreement in 2007, under which India will
provide military+o-military assistance to Qatar.a2 Currently, India is negotiating
its own free-trade agreement with the GCC.
To some extent, Chinese and Indian efforts to formalize closer ties to energypro{ucing states in the Gulf are intended to help Chinese and Indian NECs conclude larger and longer-term supply contracts. But, in keeping with the logic of
resource mercantilism, these diplomatic efforts are also meant to help Chinese
and Indian NECs secure "equity oil" and gas deals in the upstream and develop
strategic assets in the downstream (i.e., refineries and LNG trains). Thus, in the
second stage of their countries' external energy strategies, Chinese and Indian
NECs take advantage of the openings created for them by their governments'
diplomatic engagement in energy-producing regions around the world to
develop upstream and downstream positions.
In the Persian Gulf, Chinese NECs have concluded a number of investment
agreements and are continuing to pursue additional deals. In Saudi Arabia,
Sinopec won one of the three initial concessions for developing non-associated
gas in the Kingdom in March 2004. Sinopec has also entered into two joint ventures with Saudi Aramco to develop new refining capacity in China (one of
which also includes ExxonMobil as a partner). In June 2007, CNPC won a contract to build a pipeline carrying oil from Saudi fields to Fujairah in the United
Arab Emirates.a3 In Kuwait, CNPC \ryon a contract in the late 1990s to build two
oil-gathering centers for the Kuwait Petroleum Company (KPC). More recently,
Sinopec has concluded a preliminary agreement with KPC to develop a joint
venture refinery project in China.aa
iliii
llll
.l .ll
'l,lr
ii¡
¡r!
lll
I
220 F. Leverett
ln lran, Sinopec
signed a memorandum of understanding (MOU) with the
National lranian Oil Company (NIOC) in 2004, prospectively valued at $70
billion to $100 billion, to develop and buy LNG from the South Pars field and to
participate in developing the Yadavaran oil field. Since then, China's two other
major NECs, CNOOC and CNPC, have signed MOUs to undertake significant
LNG and upstream oil and gas projects in lran.as And, in December 2007,
Sinopec concluded an initial investment contract from its MOU with the NIOC,
covering the initial phase of developing the Yadavaran field. Sino-lranian
energy cooperation agreements also envision the construction of a pipeline to
lranian oil production to the Kazakhstan-China pipeline.a6
"o*æt
In June 2007 - shortly after Beijing announced the cancellation of lraq's official debt to China - CNPC received a commitment from the Iraqi government to
revive the company's agreement with the Saddam Hussein regime to explore
and develop the al-Ahdab oil field.a7 Chinese NECs have also signed production
contracts (including service contracts as well as equity participation) in Oman
and Yemen.as
Like their Chinese counterparts, Indian NECs are seeking to take advantage
of the diplomatic openings created by their government to develop commercial
positions in the Persian Gulf. The most prominent Indian NECs with regard to
àurrrtut acquisitions and operations are: the Oil Naturat Gas Corporation
(ONGC) and its international subsidiary, ONGC Videsh Limited (OVL); the
Indian Oil Corporation (IOC); Oil India Limited (OIL); Bharat Petroleum Corporation Limited (BPCL); Hindustan Petroleum Corporation Limited (HPCL);
ând the Gas Authority of India Limited (GAIL).4e
In the Gulf, Indian NECs have made their greatest progress in developing
commercial positions in lran. [n2002, OVL and OIL acquired rights to explore
and develop the offshore Farsi oil block. 1n2004, OVL signed a memorandum
of agreement taking a roughly 20 percent stake in the development of lran's
Yadãvaran oil field (alongside the primary foreign stakeholder, Sinopec). In
2005, IOC signed a memorandum of agreement with Petropars, a subsidiary of
the National lranian Oil Company (NIOC), to develop part of the South Pars gas
field and an associated LNG train; that same year, CAIL concluded a similar
memorandum of agreement with the NIOC. Perhaps most significantly, Indian
officials are continuing to negotiate with lranian and Pakistani counterparts to
finalize a framework agreement for a pipeline that would fiansport lranian
natural gas to Pakistan and lndia. Such an agreement would almost certainly
NECs.50
open
- up new commercial opportunities for Indian
Besides lran, Indian NECs are also developing positions in Qatar and lraq. In
2004, Petronet, a consortium of Indian NECs - including OVL, IOC, and GAIL
- with Gaz de France as a strategic partner, concluded the first contract to begin
importing LNG to India from Qatar.sr (The contract was concluded with RasGas
II, a joint venture between Qatar Petroleum and ExxonMobil.) In 2005, OVL
*on â 100 percent stake in the exploration and development of Qatar's Najwet
Najim offshore oil block. ln the afÌermath of the decision to revive CNPC's
Saãdam-era agreement to explore and develop the al-Ahdab oil field, Iraqí
Resource mercantilísm and
mllitarization
221
energy officials said that a Saddam-era agreement with OVL to explore and
develop a block in western lraq will also be amended and restored. The Iraqi Oil
Ministry has also invited IOC to consider building new refineries in lraq.s2
Finally, in the third stage of Chinese and Indian external energy strategies,
Beijing and New Delhi continue providing various types of support to their
NEbs-as the companies follow up on the openings created for them by China
and India's energy diplomacy. As Chinese NECs pursue and implement
"equity" oil and gas deals in energy-producing regions around the world, the
Chinese govefnment provides them with both financial and political support.
Financially, the Chinese government provides direct support to the NECs
through the provision of loans, at below-market rates and sometimes even
without interest, by state-owned "policy banks" to underwrite the companies'
overseas acquisitions. The government also provides indirect support to Chinese
NECs by eitending a variety of incentives for energy-producing states to offer
investment opportunities to the companies; these incentives include the provi'
sion of foreþ aid and the construction of basic infrastructure by Chinese
firms.s3 With ôonsiderable variation across specific cases' Beijing has employed
all of these measures to support Chinese NECs' acquisition efforts in the Persian
Gulf.sa
Politically, the Chinese govenrment supports its NECs with high-level meetings between Chinese leaders and their counterparts in energy-producing states,
thó involvement of China's leaders in negotiations over specific projects, and the
use of China's membership in various intemational organizations to cover the
interests of important energy exporters.ss Beijing has employed all of these tools
in supporting acquisitions by Chinese NECs in the Persian Gulf in addition to
the financial tools just discussed.
In the context of the Gult the most salient example of Chinese policy-makers
using their country's political influence to buttress its external energy strategy is
Beijing's handling of the lranian nuqlear issue. All of China's energy agreements with Iran run against long-standing US policy, which seeks, in effect, to
keep the Islamic Republic's oil and gas reserves in the ground. On the nuclear
issuì, China is working to balance its interests in continued good relations with
the United States and acting as a "responsible stakeholder" on non-protiferation
with its interests in developing closer energy ties to lran, and in defending what
policy-makers see as important principles in Chinese foreign policy, including
ihe pêaceful resolution ofdisputes and non-interference in the internal affairs of
other states.56
In the Indian case, the government requires its NECs to finance their overseas
acquisitions on international capital markets, for the most part. The Indian
gou.**.nt, however, is stepping up its political support for the efforts of Indian
ÑECr to develop positions abroad, particularly through high-level meetings
between Indian ieaders and their counterparts in energy-producing states and
other manifestations of "energy diplomacy."
222
F. Leverett
Resource mercantilism and corporate interests
Looking at China and India's external energy strategies as "top down" initiatives, Chinese and Indian NECs seem to be more or less interchangeable instruments through which unitary state apparatuses in Beijing and New Delhi pursue
well-elaborated programs for securing privileged access to hydrocarbon
resources in targeted countries, including in the Persian Gulf. But there is
another level on which China and India's external energy strategies need to be
understood. This level focuses on the corporate agendas and interests of individual NECs.
Chinese and Indian extemal energy strategies are not solely the reflection of
national efforts to assuage strategic vulnerabilities stemming from these countries' growing reliance on imported hydrocarbons. These strategies are also the
evolving products of bargaining and competitive maneuvering between various
elements of the bureaucratic apparatuses in Beijing and New Delhi, on the one
hand, and Chinese and Indian NECs, on the other. And, in this process, the autonomy of Chinese and Indian NECs vis-à-vis their respective national governments is growing. This trend is especially pronounced in the Chinese case, but it
is observable in the lndian case as well.
The increasing autonomy of Chinese and Indian NECs is a function of their
origins and evolution as corporate enterprises in a policy envirönment characterizedby continuing economic liberalization. In the Chinese case, all three of the
major NECs were created out of ministerial structures in the 1980s as part of the
initial reform program championed by Deng Xiaoping and China's "secondgeneration" leadership.s? Under China's "third-generation" leadership, all three
NECs became ever more market-oriented and profit-driven in their strategic orientation and opefational practices as a result of additional restructuring.
Between 1997 and 1999, CNPC and Sinopec were restructured as vertically
integrated energy companies operating across the whole supply chain for oil and
gas - upstream, midstream, and downstream. Both companies retained some of
their original strengths and weaknesses after the restructuring, with CNPC still
more established as an upstream player and Sinopec more established in the
downstream and each still maintaining regional strongholds in different parts of
China.58 At the same time, though, vertical integration helped them become
more efficient and expanded their political resources vis-ri-vis the state. Between
1999 and 2001, all three of the major Chinese NECs were transformed into
holding companies that transfened most of their assets to operational subrilhile the
sidiaries that were then publicly listed on various stock exchanges.
Chinese government remains the majority shareholder in all three NECs, the fact
that the companies are listed on international stock exchanges thnough these subsidiaries reinforces their market orientation and focus on profitability.se
In the Indian case, the major NECs were created out of previously established
state agencies in the early days of Indian economic reform in the 1990s. Thus,
India's Oil and Natural Gas Commission, established originally to oversee the
development of the country's upstream oil resources, was converted into ONGC
Resource mercantílísm and
nílìtarìzation
223
and later partially privatized through the public offering of a minority of
its equity.@ Similarly, IOC originally established as a state-owned enterprise
in l99l
-
(SOE) focused on downstream âctivities - was corporatized and partially privatized in the late 1990s.ór
The autonomy of Indian NECs has been reinforced by other policy initiatives.
Most importantly, since 1997, the Indian government has granted its most profitable SOEs - in India, state-owned enterprises are formally described as central
considerable operational autonomy and a
public-sector enterprises (CPSEs)
So far, nine SOEs/CPSEs - collecfinancial
autonomy.
of
more limited degree
tively described as navaratnøs ("nine jewels") - have been treated this way.62
The major Indian NECs including ONGC, IOC, and GAIL are all in this
special category.
From a "bottom up" perspective, the increasing autonomy of Chinese and
Indian NECs has had a critical impact on the formulation and implementation of
China and India's external energy strategies, in at least three important ways.
First, the corporate agendas and interests of Chinese and Indian NECs were at
least as important as the strategic preferences of policy-makers in Beijing and
New Delhi in launching these strategies. In the Chinese case, it was NECs
specifically CNPC - and not the state that initially pushed for overseas investment opportunities in the early 1990s. Initially, the Chinese leadership did not
support overseas investments by Chinese NECs, but, as China's oil imports
increased over the course the 1990s and CNPC began to earn money from its
initial investments abroad, the Chinese government became more supportive of
its NECs' overseas activities.
As in the Chinese case, the interest of Indian NECs in investing abroad preceded but eventually overlapped with the strategic interests of national-level
policy-makers. According to Indian energy executives and researchers, both
ONGC and IOC were prompted to undertake their initial oveßeas investments
because economic reform and restructuring in the 1990s had made them more
profitable, and corporate leaders did not want to lose their higher profits to a
revenue-hungry government.63
Second, the relative autonomy of NECs, in both China and India, means that
there is no comprehensive national strategy, let alone a specific plan, for acquiring oil and gas assets abroad. On a project-specific basis, the foreign investments
of Chinese and Indian NECs are driven primarily by the companies themselves,
even in countries where the Chinese and/or Indian governments have concluded
"strategic energy partnerships" or other similar agreements. For both Chinese
and Indian NECs, the primary motives to invest overseas are to acquire new
reserves, generate profits, and become more internationally competitive.
Third, in both China and India, the NECs are applying market- and profitoriented criteria in making investment decisions. Particularly in the Chinese
case, the leading NECs are developing ever greater independence in this regard.
rWhile pteferential financing through state agencies may give the NECs a lower
"capital hurdle" than that of IECs, Chinese NECs nonetheless seem to consider
anticipated return on capital carefully in making investment decisions.n Indeed,
-
-
-
-
224
F. Leverett
there are a growing number of instances in which Chinese NECs have refused,
on business grounds, to pursue overseas (and domestic) initiatives that were
favored by the national government. In this context, it is interesting to note that
there is a growing public debate in both China and India about the relationship
between NECs' foreign acquisitions and energy security. In China, several NEC
executives have said publicly that they fundamentally disagree with the notion
that the acquisition of oil and gas assets abroad can enhance China's energy
security.ó5
In India, as noted, the government requires its NECs to finance their overseas
acquisitions on international capital markets, for the most part. Just last year, the
State Planning Commission recommended that NECs undertake overseas investments only in accordance with sound commercial criteria.ó6 A recent study of
rWood Mackenzie consuloverseas investments by NECs by two analysts at the
tancy found that ONGC is making its investment decisions according to criteria
comparable to those applied by private energy companies.6?
In the Persian Gult the agendas and interests of individual NECs and the
increasing autonomy of NECs vis-à-vis their governments have significantly
affected "on-the-ground" outcomes with regard to Chinese and Indian energy
investments. The pattern of Chinese and.lndian investments in energy projects in
Iran illustrates this with particular clarity. Vfith regard to the behavior of individual Chinese NECs, it is noteworthy that Sinopec - the Chinese company with
the most developed downstream capabilities and a strong interest in using overseas acquisitions to compensate for its weakness relative to CNPC in the naturalgas sector was the first Chinese company to conclude a memofandum of
agfeement for an LNG project in lran. Both CNPC and CNOOC were subsequently motivated to sign their memoranda of agreement with Tehran for LNG
projects to avoid being left out of potential opportunities in lran. More significantly, with regard to the NECs' interaction with Beijing, all three companies
have sought to develop positions in lran even after initial enthusiasm for their
efforts in some parts of the Chinese government has cooled as the Iranian
-
nuclear issue has heated
up.68
Nevertheless, it is also noteworthy that the three Chinese NECs have been
slow to conclude actual investment contracts for their planned projects in lran,
particularly for LNG. rWhile it is tempting to conclude that the companies are
responding to directives from Beijing, their behavior is actually shaped far more
by the agendas and interests of the NECs themselves. Like Royal Dutch Shell'
Total, and other European IECs that are negotiating contracts for planned LNG
projects in lran, all three Chinese NECs perceived a significant measure of political risk posed by the possibility of US military action against the Islamic
Republic over Tehran's nuclear activities. Furthermore, like their European
counterparts, the major Chinese NECs are all concerned about the impact of
rising costs for LNG projects on the profitability of their prospective investments in lran. The companies are unlikely to proceed to conclude contracts and
make sizeable investments in the projects until these concerns are resolved.
A similar dynamic is reflected in the Chinese NECs' handling of potential
Resource mercantilísm and
militarization
225
oil deals in lran. Apart from supply contracts, only one of the upstream
oil p.¡r.t, in lran to which Chinese NECs have committed themselves has
that con'
moved-to an actual investment contract, much less implementation of
2007
Decembet
tract; the one investment contract concluded so far is Sinopec's
phase of developing the
æt .r.n, with the NIOC regarding the initial
yãdavaran field. Even that deai - coming in the immediate aftermath of the
public release of the December 2007 US National Intelligence Estimate on
the
iran's nuclear program - primarily reflects Sinopec's interest in protecting
of
position it stakåd out in its 2004 MOU. Again, concern about the profitability
foreign
to
offered
terms
uprtr.u* oil projects under the notoriously difficult
to be the prininvestors under the Islamic Republic's "buy-back" system seems
cipal constraint to more fulsome investment by Chinese NECs' As a Beijingof
the
based analyst for a leading Western oil and gas consultancy says' "At
919
just
they
oil
wanted
they
If
the day, Cirinese rotpuniã. are out to-make money.
upstream
wouldhave signed more'buy backs'."6e
lndian NECs have also been slow to move beyond MOUs to actual contracts
and
on upstream oil and gas and LNG projects in lran. In this regard, Indian
IOC
used
has
Petronet
that
Iranian consultants .ñd tn.tgy executives suggest
better prices for
and CAIL's commitments to i.NC projects in lran to leverage
reluctfuture LNG supplies from Qatar. They also suggest that Indian NECs are
Chinese
ant to conclude LNG contracts in lran for the same reasons as their
in
rouni.tpunsJo Similarly, despite the Indian government's strong interest
security
(as
as
long
movinjahead with the iran-Päkistan-lndia "peace pipeline"
will
continue to be
and
are
NECs
Indian
issues-can be adequately addressed),
price for
reluctant to make contiactual commitments to the project until the
Iranian gas supplies is set on terms they consider commercially sound.
Limits of resource mercantilism
Of course, resggrce mercantilism is not a new phenomenon, "invented" by
the past decade'
Chinese and Indian policy-makers and energy executives during
exterBoth France in the igOOõ and 70s and Japan in the 1970s and 80s crafted
crude-oil
access
to
nal energy strategies based on state-supported NECs working
ábroad. Ultimately, these poiicies' excessive costs and lack of results
Paris and Tokyo to move toward less statist and more market-oriented
,.r.*r,
forced
approaches.
and Indian extemal energy strategies are viewed as "bottom up"
and
initiatives, driven largely by the corporàte agendas and interests of Chinese
mercantilism,
resource
Indian NECs, it ¡s stiking how scriãus are the limits on
markets, ot
as either a potential threaf to the stability of intemational energy
?f-a
While
strategies'
energy-security
Indian
and
for
Chinese
basis
iãng+erm
had a very
incieased demand from China and other rising Asian economies has
and Indianr
Chinese
direct effect on global oil prices, there is little evidence that
..equity" oil and gas deals, in the Persian Gulf as wetl as other energy-producing
part
,rgionr, are keeping or wilt keep an economically or strategically significant
tf Chinese
226
F. Leverett
of the world's hydrocarbon reserves "locked up" and unavailable to international
markets. Currently, oil produced from Chinese and Indian overseas equity assets
worldwide represents less than I percent of the oil produced and traded globally.
If the most optimistic projections of Chinese and Indian acquisitions abroad
prove correct, overseas equity oil production by Chinese and lndian NECs might
represent as much as 2 percent of total worldwide production in 2020 - hardly a
major "blow" to the stability of the global oil market.
Just as Chinese and Indian "equity" oil and gas deals will not fundamentally
alter the structure of international energy markets by themselves, there is little
evidence that they will significantly ameliorate the energy-security challenges
posed by China and India's growing reliance on imported hydrocarbons. Today,
the amount of oil produced by Chinese NECs from equity assets outside China
equals roughly I I percent of the country's domestic oil production, and constitutes approximately 15 percent of its total oil imports and 8 percent of its overall
oil consumption. The amount of oil produced by Indian NECs from equity assets
outside India represents an even smaller portion of India's oil demand. Given
projections of growth in demand for oil and natural gas in China and India, and
the intensity of intemational competitíon for upstream positions around the
world, it is difficult to imagine that, in the next one to three decades, Chinese
and Indian NECs, will be able to fill a dramatically higher portion of their countries' demand for imported hydrocarbons from oveßeas "equity" oil and gas
projects.Tr As the limits of resource mercantilism as an energy-security strategy
become ever more apparent in coming years, it seems highly likely that the
pursuit of state-backed "equity" oil and gas deals by Chinese and Indian NECs
will increasingly be justified as industrial policy rather than as extemal energy
policy.72
Beyond the issue of how much "equity" oil and gas Chinese and Indian NECs
will produce in coming years, the direct contribution of that production to China
and India's energy security is subject to serious question. In most of their overseas equity projects, Chinese and Indian NECs are minority stakeholders, not
majority stakeholders and/or operators. Thus they do not really "control" most
of the foreign assets in which they have invested. Moreover, much of the
"equity" oil produced from these foreign assets is not likely to be physically
transferred to China and India. Rather, it will be sold on local markéts to reduce
transportation costs and generate higher profits for the producing companies.
This is particularly the case for the Chinese NECs. Chinese energy executives
and officials say that less than l0 percent of the oil produced outside China by
the three major Chinese NECs is physically transported to China. The rest is
sotd on local markets.T3 Clearly, Chinese NECs are prioritizing higher returns on
the sale of their production over satisfying statist perceptions of China's energysecurity requirements. It would seem that Indian NECs transfer a higher percentage of their "equity" oil production to India than Chinese NECs send back to
China. Nonetheless, Indian NECs currently sell a significant share of their overseas production on international markets and are likely to increase that share in
the future.
Resource mercantilísm and
militørizatíon
227
With regard to the Persian Culf, very little of China or India's equity oil is
currently produced there. In the future, there are likely to be truly severe constraints on how far Chinese and Indian NECs will be able to go in developing
equity positions there. 'When the prospective cumulative impact of these constraintsare considered, it seems likely that China and India will increase their
access to oil and gas supplies in the Persian Gulf primarily through supply contracts, rather than the expansion of equity positions by their NECs.?a
Although their capabilities are steadily improving, Chinese and Indian NECs
cannot yet offer the same range of technical expertise and experience as more
experienced and sophisticated IECs, which puts them at a competitive disadvantage as potential operators for technically challenging projects. In three of the
..OPEC Five" countries, Chinese and Indian NECs face the same barriers to
foreign involvement in upstream oil and gas projects as US and European IECs.
These barriers include an outright ban on foreign participation in upstream oil
projects in Saudi Arabia and Kuwait, and the poor security and political environ-
ment in lraq. In Qatar, Chinese and Indian NECs will be challenged to access
more LNG in the face of an indefinite moratorium on new gas projects there. In
Iran, the unattractiveness of the "buy back" system will almost certainly continue to restrain the growth of foreign investment in upstream energy projects,
including investment by Chinese and Indian NECs, even with the recent decline
in the perceived risk of US-lranian military confrontation. Barring a significant
shift in the lranian approach to foreign energy investments, the expansion of the
positions of Chinese and Indian NECs in the Islamic Republic is likely to
proceed slowly.
Implications for US policy
The US response to Chinese and Indian engagement in the Persian Gulf should
be guided, first of all, by an appreciation of the political and economic limits of
resource mercantilism. US policy should also be guided by unexaggerated
assessments of the ability and inclination of rising Asian powers to challenge US
hegemony in the Persian Gulf directly, at least in the near-to-medium term. As
two Harvard researchers note with regard to China, Beijing "recognizes that it is
not about to replace the United States in this region, rather it is focusing on
shifts at the margin."?5 The same could be said about India's strategic ambitions
in the region.
On this basis, the US policy response to China and India's energy-driven
engagement in the Persian Gulf needs to contain two þrincipal elements. The
first is the formulation and implementation of a ne\ry American "grand strategy"
toward the Middle East, to restore the legitimacy of US hegemony in the region.
The second is the renovation of the cunent global energy "architecture" to meet
the requirements of a new
era.
,
228
F. Leverett
Grand strateg¡t in the Middle East
As previously noted, China and India's intensifying engagement with energyproducing states in the Persian Gulf is taking place against a backdrop of an
r ongoing decline in America's strategic standing in the region. Perceptions of a
decline in America's strategic standing in the Gulf may create some opportunistic openings for China and India to increase their influence in the region, and for
Chinese and Indian NECs to pursue investment opportunities there. Nevertheless, America's cunent difficulties in the Middle East also create profound
dilemmas for Chinese and Indian policy-makers (and for decision-makers in the
Gulf. On the whole, China and India have a better chance to meet their energysecurity goals and other important strategic objectives if the United States is
acting as an effective hegemon in the Persian Gulf. They suffer no less than
other energy consumers if US policies in the region prove to be destabilizing, or
are widely perceived as introducing additional risks that the market must
somehow discount - as is presently the case with respect to the possibility of US
military action against Iran to slow the Islamic Republic's nuclear development.
Since the end of the Cold War and the prosecution of the first Gulf War in
1990-1, America's exercise of hegemony in the region has played out in an
international environment characterized by deepening processes of globalization. China and India's energy-driven engagement in the Gulf reflects the intensifying participation of both Asian and Middle Eastern players in these
processes. As Daniel Yergin points out, the explosion of energy demand in
China and India is a globalization "success story," as investment inflows, export
expansion, and sustained economic growth lift hundreds of millions of Chinese
and Indians out of poverty and these populations consume ever greater amounts
of energy.76
In the Middle East as well, Saudi Arabia, smaller energy-producing states in
the GCC and other regional states (like Egypt) are making their own belated, but
now increasingly apparent turn toward globalization. In the 1990s, analysts of
the Middle East regularly lamented the region's slow embrace of economic liberalization. However, by the end of the decade, regionat leaderships were
launching serious economic reform initiatives. The intersection of those initiatives with the liquidity "boom" generated by high energy prices in recent years
has turned the Middle East - especially the Gulf - into one of the world's most
economically dynamÍc regions, making it a global economic player in ways not
seen before.??
Globalization has bcen closely associated with America's economic and military primacy, both globally and in key regions. Globalization has also been
linked to America's leading role in shaping a global energy "architecture",
meaning an interconnected set of market nofrns and practices, together with
formal and informal institutions, which are collectively intended to promote
various aspects of global energy security.Ts This architecture has several constituent elements that were initially put in place by the United States and other
major consumer states to counter the dramatic display of market power by the
Resource mercantilism and
mílítarízatíon 229
these
Organization of Petroleum-Exporting Countries (OPEC) in the 1970s' All
the
leader:
elelments remain bound up with America's role as international
United States played a key role in establishing the lnternational Energy Agency
(lEA) in the 197õs, in response to the 19734 oil'price "shock"; it encouraged
ihe liberalization and internationalization of upstream investment, reflected in
major "plays" by IECs in the l9?0s, 1980s, and 1990s, in places such as the
provided
Nortfr Sla, the Ñorth Slope, and the deepwater Gulf of Mexico; and it
for
market
critical support to the creätion of a single, integrated, and truly global
trading cruäe oil and refined products, with prices based on sp_ot transactions and
the dollar serving as the.unànry in which crude oil is priced.?e
US leadership in shaping thã global energy architecture has been reinforced
oil
by America's commitmónt io provide physical security for the world's major
fläws, particularly from the Pèrsian Gulf. Since the promulgation of the Carter
pubDoctrine in 1980 and the "Reagan corollary" in 1981, the united states has
licly committed itself to use force to defend the security of Persian Gulf oil
,"ró*r, and the free flow of oil exports from the region as vital American interests. Spurred by these commitments, the United States has built up operational
in
capabiiities ovãr the past quarter-century that have turned the Persian Gulf
military terms, into an "American lake."
The rise of China and India as players on the Persian Gulf energy scene is
taking place during a period in which American primacy in the region is coming
undei mounting strain. Much of this strain has been generated not by outside
affairs,
actors, howevei but by US policy choices - on lraq, Iran, AraÞlsraeli
expectations
intemational
and other issues - that have àisappointed regional and
of America's leadership in the iJgion during a period of continuing globalization. In a strategic ,.nrr, globalizãtion is fundamentally about the diffusion of
world, there
economic power across naiional boundaries. Thus, in a globalizing
will inevitably be shifts in geopolitical balances, both globally and regionally'
these
The responsiúitity of the hegemon, in such an environment, is to manage
shiftinj geopolitical balancés and mediate important conflicts so that increasingty ãoõpeätive frameworks can develop, both within key regions and across
regions.
"Unfortgnately,
for much of the post-Cold tWar period, US policy toward the
Middle East - under the Clinton administration.as well as under the current
Bush administration - has run increasingly in diiections that are incompatible
prompting
with these expectations.so Regional dismay with America's choices is
Middle Eastern energy producers to explore various versions of an "Eastern
option" in their foreign þolicies, creating openings for China, India, and other
eitemal players to expand their influence in the Culf'
proFor eiample, Sauài Arabia is using its status as the world's largest oil
to
China,
ducer, oil exporter, and holder of oil reserves to cultivate closer ties
a
India, and odher important energy importers in Asia; the Kingdom is forging
genuínely strategic relationship-with China, in particular, partly as a "hedge"r
partnerãgaihst precipitous deterioration in the Kingdom's traditional strategic
.ñip *itlrr tne united States.sr The Islamic Republic of lran, for its part, has long
230
F. Leverett
sought to reduce US influence and presence in the Gulf as a high foreign-policy
priority. Today, Iranian diplomats describe lran's expanding relations with
rising and established economic powers in Asia as providing it with alternatives
to the United States and Europe for investment and trade partners. They also
note that these relations give Tehran cover against US pressure over lran's
nuclear activities, involvement in post-Saddam lraq, and other points of
US-lranian contention.s2
These developments are exacerbated by a relative decline in America's economic influence in the Middle East, as other international actors - including the
European Union, as well as rising Asian powers
increase their trade and
investment ties to the region.83 Current and prospective investments by Chinese
and Indian NECs in the Persian Culf are part of this broader trend.
In this context, an important part of the US policy response to China and
India's energy-driven engagement in the Persian Gulf is the formutation and
implementation of a new "grand strategy" toward the Middle East. This grand
strategy should combine pursuit of a multilateral regional settlement on lraq,
carrots-and-sticks engagement with lran and Syria, and definition of a substantive political horizon for resolving the various tracks of the Arab-lsraeli
conflict.sa A new strategy for the Middle East should also include a return to the
"over-the-horizon" military posture that served US interests in the region so well
in the 1980s and early 1990s, but from which American administrations have
moved away since the end of the first Gulf War. Such an approach would revivify and re-legitimate American primacy in the region, and would win broad
international support - including that of China and India.
-
Renovøting the globol energy orchiteclure
Beyond getting its Middle East policy "right", the US response to expanded
Chinese and Indian engagement in the Persian Gulf also needs to include a new
effort to renovate the global energy architecture for a new era. Defining this
agenda in full is beyond the scope of this chapter. However, it is relevant here to
consider the integration of China and India into the IEA, the principal international regime for important energy-consuming states. While the IEA is
working to build closer working relations with both China and India, full inclusion of these countries in the organization would require, effectively, the IEA's
reinvention.
Western officials frequently point to China and India's deficiencies as poten.
tial members of the IEA (i.e., their non-membership in the OECD and their laçk
of strategic petroleum reserves specified by IEA guidelines for member states).
But, it is just as important to recognize that Western powers would have to
accept significant changes in the IEA regime for Chinese and Indian membership to become plausible. In particular, under current IEA rules, new members
are allocated weighted voting power in the organization based on their oil consumption in 1974. This is hardly an attractive prospect for either China or lndia,
and even if accepted would introduce a substantial degree of unreality into IEA
Resource mercantilism and
militarízation
231
proceedings. To date, thore has been little serious discussion among IEA
members about the necessity of reforming the organization's decision-making
structure to accommodate China and India's eventual inclusion.
ln this context, the United States should also strongly support the internationalization of Chinese and Indian NECs as a way to encourage China and
India to take more market-oriented approaohes to ensuring their energy security.
Current US policy is, at best, ambiguous on this issue. The NECs are, in many
respects, already America's best allies to promote more market-based policies in
both China and India. Their further internationalization (including through joint
venture projects with US and other IECs) will make them even stronger advocates of more liberal approaches.
The consequences of incorrigibility
If the United
States takes these steps, it can maintain its strategic primacy in the
well as its dominant role in the global energy architecture. If,
however, the United States persists in a more unilateral approach to the most
strategically critical region of the world - in a manner that is dysfunctional for
the interests of other important regional and international players - and eschews
effective leadership in reforming the global energy architecture to accommodate
rising powers like China and India, the long-term consequences for America's
regional position in the Middle East and its international standing generally are
Persian Gulf, as
potentially serious.
Under these conditions, Middle Eastern energy producers and rising Asian
energy consumefs, especially China, may ultimately forge a de facto strategic
alliance and look collaboratively for non-military means to contain American
influence in the Gulf. Such as scenario is consistent with the conditions for and
modalities of "soft balancing" against US power, as described by Robert Pape
and others.85
The dramatic rise in energy prices in recent years has prompted an enormous
transfer of resources from established consumer states to energy producers and
to manufacturers who serve markets in energy-producing states.86 (Thus, along-
side China, which is expanding its manufactured exports to energy-producing
states in the Persian Gult Germany has built up a significant current account
surplus in recent years, and Japan has maintained its surplus.) At this point, what
energy-producing states in the Middle East do with their current account surpluses is at least as important to the financing of global economic imbalances as
ih. runugtment of China's current account surplus. China and a number of
Middle Eastern energy-producing ststes with significant current account surpluses seem to be in the early stages of diversifying their foreign exchange
reserves away from dollar-denominated assets.
Given these realities, at least two options for strategic cooperation between
China and Middle Eastern energy producers to contain US influence in ther
persian Gulf present themselves.s? First, China and Middle Eastem states could
ultimately move to use their continued willingness to finance America's
232
F. Leverett
levels as a soufce ofstrategic
burgeoning ourrent account deficit and overall debt
with
i*ã*gr oîer US foreign policy.ss Second, China and Middle Eastern states
actions to effect a shift in
substantial influence iri oþEc'courd coordinate their
be
ih, ,u*.nry regime for international oil trading so that oil would no longer
pi6[.oi.íy in-dollars, but rather against a basket of cunencies' Such a move
and, by extension, on
would put significant pressup on tht value of the dollar
the US economy.
to America's interEither of these two options would constitute a major blow
is likely to play out.in
national standing. Fortunately, neither of these scenarios
from its strategic misthe near term; the United States still has time to fecover
if these strategic mistakes in the Persian Gulf and other critical arenas. But,
America's global
for
takes are perpetuated, the long-term consequences
leadership are likely to be profound.
Notes
I
of Hillary -Yunn Lererett and
The author gratefully acknowledges the contributions
treated in this chapter. He
issues
the
of
pierre Noël to his;;alt;i; ãnd uñdrrrtunding
pupã,
in the University of
partìcipants
also thanks John Mearsheimer, Robert
$g.
woikshop;
Poliiy
Security
Chicago's nrogrom-ã; Internaiional
R1i,::LT':.1Î^n:
Dialogue' "ulobal
Gbbaî public-policy lnstitute's Transatlantic Energy Security
and Fatih Birol and staff
Energy Cone-an ã'un¿-tttt Rise of China and tnãía";
Division, oil
members of the International Energy ngengyls -Ecortomic ll?lytit
comments
for
Dialogue
y
M"rk; óilision, and õfncã of õlobal Energy
ináurt
2
versions of arguments presented here'
on earlíer"n¿
Geoffrey
orõtrinãse and tidian engagement in the Persian Gulf, see
discuss¡on
For
..East Moves ùest,' The Nationít ínrcrrtt, summer _2006; Masataka osumi,
Kemp,
..lndia and Chinaü en;-tgy btr*egies in Middle Eastem Oil-Producin8 Natiolt¡'l'
to itre tnstl¡iute of-Energy E991on-ri-cs, l"p.ln' 25 Au^gust-2006'
New silk Road,"
il;-Ji;t¡r".ir"¡.ärjø.J_o.tø4 rtn l.yíí; Afshin Molayi,'ÎheBoer,
and Gregory
Presentation
p^tiii"ll¡l
lO,Q; and bominic Barton, Kito -de
and the Gulf," in a special issue
Wilson,,.Ttre Neiv Silk"it".û ópportunities for Asia
of McKinsey g*lüìly, lrUtiuty ZOOZ, htç://www.mckinseYquarterlyrom/Ecoilk-Road-Opportunities-for-A
nomic-Studi eVprjuct¡'uity-Performancyitrejew-S
ttashíngton
sia-and-the-Gull I 8 I 4-abstract'
ñercantilism" was first coined by Flynt Leverett.in^"The
-3 The phrase..r"roìr"à
to the US Senate
Arópãffis of Oil and America's Intemational Standing," testimony httpllgeostrate2007,
Jãnuary
gnätgy
l0
.n¿ Ñut*ut Resources,
Committee on
pdf'
ltãp..õt¡f*epdfs/-IinergvJestimoÍy-Leverett'
Review Commission claimed in
secu¡b
an¿
4 For exampte, tneÜéìi,iñá e.ono*ic
its 2006 annual report to the US Congress that
oil and natural gas assets
China's strategy of securing ownership and control of
of the
iúUrtunii.lty àffect US tntrgy security -. reducing the ability
abroad
supply
petroleum
"oum
ametiorate teäporary ând limited
;i;b;i p.trotzum-muittíto
and elsewhere'
States
United
ãisruptions in the
More broadly, the Commission argued that
with the economic or
china's energy policies, taken as a whole, arenot consistent
søúeholder; they distort markets and destaJrop"f¡trc.i tËfräuioï oi o responsible
consumption. grows' its
bitize votatii;';äì;;;. Át C¡lnu't enerE needs and
problematic'
faiture to oUrã*ãifttse international normõbecomes increasingly
Resource mercantilism and
milítarizatíon 233
See US-China Economic and Security Review Commission, Report to Congless,
7-8, http://www.uscc.gov/annual-report/2006/annual-
November 2006,
5
6
pp.
report-full-06.pdf.
In this regard, Henry Kissinger has gone so far as to argue that competition over
access to hydrocarbon resources will be the most likely cause for international conflict in coming years; see Caroline Daniel, "Kissinger Vfams of Energy Conflict,"
Fínancial Times,2 June 2005.
For example, Ian Lesser claims that
In Asia, growing reliance on Middle Eastern ... energy sources may encourage
importers to augment political and commercial ties with deeper security relationships and increased direct investment in regional energy projects. This could go
well beyond existing arms transfer relationships. With China set to import ever
larger quantities of oil from the Gulf, it is not inconceivable that some form of
Chinese naval presence in the region will be commonplace in 2010.
See Lesser, "Energy and Middle Eastern Security: New Dimensions and Sfiategic
Implications," in Nora Bensahel and Daniel Byman, e'ds,, The Future Secarity
Envìronment in the Middle East: Conflìct, Stabilíty, and Political Change, Santa
Monica, CA: RAND,20M. On the risk of Sino-American military confrontation in
the Middle East, see also Toshi Yoshihara and Richard Sokolsky, "The United States
and China in the Persian Gulf: Challenges and Opportunities," The Fletcher Forum of
lltorld Afaírs 2611, Winter-Spring 2002; and, more sensationally, Jed Babbin and
Edward Timperlake, Showdown: ll/hy China llants llar with the United Sfafes, New
York: Regnery,2006. Alongside the risk of Sino-American military confrontation,
Richard Russell argues that China's energy-driven engagement in the Middle East
will prompt Beijing to continue transfening weapons of mass destruction capabilities
and expertise to regional states, with potentially destabilizing consequences for the
regional security environment and US interests; see Russell, "China's WMD Foot in
the Greater Middle East's Door," Middle East Revìew of International Alþìrs 913,
September 2005, http://meria.idc.ac.il/journaV2005/issue3/jv9no3a6.html. Kenneth
Pollack claims that Chinese engag€ment with energy-producing states in the region
"can be very detrimental to the US, particularly if the Chinese were to adopt the role
that the Soviets did during the Cold War, supporting whichever state opposed the
United States"; see Adla Mæsoud, "Oil May Fuel Sino-US Conflict," al'Jazeerø,29
June 2006, http://globalpolicy.igc.org/security/nafresloill2006/0629massoud.htm.
7
in Richard Ellings and Aaron FriedPurpose, Seattte, WA: National
Power
and
2001-02:
Asia
berg, eds., Strategíc
Bureau for Asian Research, 2002; Stephen Blank, "India and the Gulf after Saddam,"
See for example Ashley Tellis, "South Asia,"
Strategìc Insíghts, April 2004,
http://www.ccc.nps.navy.miVsil2004/
apr/blankApr04.asp; Enders Wimbush, "The Shape of New Asia," Asían lílall Street
Journal,20 September 20M; C. Raja Mohan and Parag Khanna, "Getting India
Right," Policy Revíew, February/March 2006, http://www.hoover.org/publications/
policyreview/2913806.htm1; C. Raja Mohan, "lndia and the Balance of Power,"
85/4, July-August 2006; Ashton Carter, "America's New Strategic
Foreígn
Partner," ibid.; and Ashley Tellis,'What Should rWe Expect from India as a Shategic
Partner," in Henry Sokolski, ed,, Gauging US-lndian Strategíc Cooperation, Carlisle,
PA: United States Army War College Strategic Studies Institute, March 2007,
In addition, see
http://www.strategicstudiesinstitute.army.mil/pdffilesþub755:pdf.
ffiirs
Robert Blackwill (then-US ambassador
to lndia), "The United States, India,
and
Asian Security," Presentation to the Institute for Defense Analyses Fifth Asian Security Conference, 27 January 2003, httptlwww.mtholyoke,eddacadlintrel/busb/blpkwill2.htm. For analyses of Sino-lndian relations that question whether India can
ultimately be induced to ally ìvith the United States to contain China, see Peter
Brookes, "Meeting 2lsÞCentury Security Challenges in Asia," Testimony to the
234
F. Leverett
United States House of Representatives Committee on Armed Services,2T September
Lora
iOOS, trttp:llwww.heritage.org/Research/AsiaandthePacific/upload/85825-l.pdf;
States,"
United
the
lñdia's-Geostrategic Maps with China and
Saalman,',,Redrawing
j"poi-lor*,
2I Seitember
2005, httpl/wwwjapanfocls.orglproducts/detailsl2065:
Cfri.t¡g Bajpaee, "lndia Recovers Lost Ground in the Intemational Energy Gaqe"l
8
-
Power and Interest News Report, l6 March 2005, http://www.pinr'com/report¡hp?
\Mest.''
ac=view-report&report-id=2i9&language-id=l; and Kemp, "East Moves
Bconomic
and
Security
Asia:
throughout
Mikkal Herbrrg, "Th, E trgence oiChina
on
Committee
Senate
States
the
United
to
Co|r.drn.r, îot the US,"-Testimony
7
June 20q5r http://www.senate.gov/-foreign/hearings/
an insightfut discussion of the enerqy:rgl1t_el dime¡sions
For
ZõOSÃrgOSO607p.html.
see Stein Tønnesson and Âshild Kolås, Energt
interactionl
of Sino-Indian strategic
Peace, Report tothe-Norwegian Ministry^of
and
Oil,
India,
Chína,
Asia:
Secwity in
Peace Research Institute, April 2006'
Internationat
Oslo:
Affairs,
Foreigá
http:/www.prio.no/page/Publication-detailsll9429l47777.html; see also Anindita
óftãtte¡"* dnd Uoirit-Sinha, Powei ReatignmSnß. in A2i9:. Chína, India, and the
Ilnited States - Report of a US-lndia Pot¡"y Dialogue, University of Pennsylvania
pp.
Center for the Advänced Study of India, and The Observer Research Foundation,
foreign Relations,
,
Decembei
14-17
mentso/o20rePort.Pdf.
9
2006,
http://casi.ssc.upenn.edu/researclVPowero/o20Realign-
Dennis Blaii and'Kenneth Lieberthâl note that China and lndia (along with-Japan and
nurri.) ..are the only other countries with the economic potential to build large blue20
water áavies in the same league with the United States', but they are still at least
operafrom developin! ttre fleet strength, naval-supply networks, and
yru*
íønut rt¡tir" needed to mount sustained operations far from their home ports; see
Blair and Lieberthal, "smooth Sailing: The World's Shipping Lanes Are. Safe,"
blue-w¿ter
fü"ig, Alfaírs 86/3, May-June 2007..Beijing.is wgrki¡re.to expand.its
of
pearls"
network
of
a
of
"string
naval"capä[ilities ovór time, including the ireation
Neverthetess,
to
China.
Gulf
Persian
the
from
Uasing fäcilities along the iea-lanes
China's naval moderãization appears to be focused primarily on -the promotion of
judges that Beijing's
Chinese interests vis-à-vis faiwaï. In this regard, Bemard Cole
..concem for the security of its overseas ãnerry supplies does not dominate its
.*.y
for
national security policy piocess, and the mo¡t imþran1a¡pects.of energy securiry
ModernBeijing are económi" äriO potitical, not military"; see Cole, "Chinese Naval
izat-ion-and Energy Securiþ," paper presented to the National Defense University's
Institute for Nãí¡onal Sóóurity Siudies Pacific Symposium, 20 June 2006,
http,iñ**."du.edu/inss/sy.posía/pacific2006/colepaper.pdf. For discussion of
its implications for ihe military balance in the Persian
China,s naval developretrt
in
"åd
õ"ii,'tt. nichard Sokolsky and Eugene Rumer, "The Role-of Outside Powers,"
Se-cyrity
Reshaping
Gulf:
Persian
the
and
Sntes
nictrard Sokolsky, ed, The Llnited
itiot"g lo, the-Post-Containment Erø, Washington,.DC: National Defense UniverMaking
rity pîrJr, 20ß; bavid Shambaugh,' 'Chinais Mil¡tary Modernization:
rvVills, eds., Strotegic
Michael
and
Tellis
Ashley
in
Progress,"
ItóaOy aná Surprising
-Modernization
of Uncertainq', Seattlgt. WA:
in an Era
Asia 200546: Mítiíary
Anthony Cordesman and Martin Kleiber,
2006;
Rosearch,
of
Asian
Bureau
National
Chinese Military Modernization, Force Development .and Strategig-Capabilities,
ùashington, DC: Center for Strategic and International Studies, 2007; and Ronald
ô'Rourñ., .lçhina Naval Modemization: lmplications for US Naval Capabilities^nactgrounC and issues for Congress," Congressional Re_search Service Report for
ðongir5, 29 May 200?, htp:llwww.fas.org/sgp/crslrow/Rl33^l53.pdf. lndia.is.better
posiiioned than ôhina,'botir geographicaily and in tgttnl. of naval capabilities, to
along sea-laneiofiommunication running lhrgugh the Indian Otu..tn'
program. Nevertheand the Indian navy-has embarked on an ambitious modemization
aircraft,
reconnaissance
support,
logistical
in
iãg, ur John Cill ïotes, "deficiencies
ilojr.t ñ*rr
Resource mercantílism and
militarization
235
navy's efforts to achieve a true
and command/control will ... contiriue to hamper the
Pakistan: A Shift in the Mili'
and
;.iut;;;-ttt Gill, "india
btuo water power
tary Calculüs?," in Tãllis and Wills, Slraregrc
! ..
ñüi";
Atjo'.
inO rleflw Badgr, "YTuqt:F China-US E!||ry
il.uttutt
Ëiynt
point
ttt
this
On
l0
'December 2005'
ð"t"pã¡ü"" in the'ù¡¿¿tt
East," Íl/ashiigron Quartery ?9!1,
The risk of a Sino-American
htrp:/ ryww.twq.coøOã*iniãtl¿o.tiOOt"¡nter-ievereñ.pdf.
is also hig¡lighted in
regions
,n.tgy'pïodu.ing
.ol"óriitlon foï influence in key
ofus.Oil-Depend'
Council on fotelgtr'Reiáiiins,Ñational'Sàeurity Consequences
Foreign Relations'
on
Council
Vork:
New
58,
ency,lndepen¿rnt i.ti'îåi..'ntpott
.Joh¡
2006, frttpy¡www.c-fi.";il;l"it/publióations/attachmentVgnergyTFR'pdf;
*Fueling
schwarrz,
Kevin
and
Nelson,
!!gPrlgon':
Keefer Douglas,
the Middle East,"
Flame: r¡ow clrinål;Ë;;rgy or*.iror Affect lts Relationships.in
Commission' 14
Review
prir.n6O o ifrr Úfthina Economic and Security
ñ;úõ
'il.
"lli
'll
[,
I
I
I
p.prt
"I
I
September ZOOO, frttp:liwww.-ùscc.gov/researchp-apery2Ob6/China-ME-FlNAl'pdf;
:;Ári* in der Nahe/tviittlere osten: Wirtschaftliche und
and Hanns cungrei'Ïiiipert
Na!e2
Energie Interesseni' inîu¡rL Asseburg, ed, Regionale ('teu)o/nuryg-.ím
Wissenschaft
Stiftung
Berlin:
Àktãrrr,
und Mittleren Osten und díe Rotle erteíner
und Politik, March 2007.
to March 1999' when the
The recent tr"n¿ tã*áiå higher oil prices can be dated
O;;""ñion of
pri.f.ur--Bxportiñg Countries (OPEC) successfully increased
sqt^.:1 productioì for the first time since 1985'
market prices by limiting member
u]g:tl f* 1
tóöö;ã i.pi.tUo 2000, oil prices rougìlv triple{ -pub^licly
stated
low base - as a,rJtãiopÉc's actions. in septemter.2o00,.opgc
a
$22-28-per-banel
within
oil
price for'crude
Between March
*otf.î Èrrp itr;Uãtf..t"
'tut¡n"lv
statre until November 2003, whe'n rising demand
oil p.i... ,rrnãii.á"t
then, world oil prices have
from Asia u.g.n älrin"-p¡.tt tfu.oily upward. Since
that it would
band.
more than triPled again.
outlook and Uncertainties'
See Ken Koyami,'eioputtves on AsÍan oìl Demand:
12
-
- iãtyot lnstiiute oi enerþ Economics,february 2007'
-Washington
13 See Daniet v.rgin,;ii;ti;ih; il¡ órttre olthge,"
P-ost,3l July 2005'
German and Euro'
Impos.ed 91t
14 See Friedemann úr;,iíir, nntrgt Secarity: Demands
the tïorld Enerst Market'
p"iö-'iv1
pean Foreign
'srrl¡n' Stift"ung Wisienichaft9i"14'g.þ'fs"rati91^!i
2007.'
und Politik, January
NoëI,.,îhe New Axis of oil," National Interest,
Levere.i-;;ã-púil
Flynt
15 see
in international gas
summer 2006. Foi a áìs"ussion of somewhat analogous,trends
in the New Gas
Stn¡cture
Soligo,
"lt!u$9,
markers, see em-y i.ff;-;;ã Ñald
and
Natural-Gas
eds.,
Victor,
ln-óavid
Economy: Is Caiei¡zaúon Possible?,"
a
com'
Press, 2006' For
Ciopotiíi"s, fror- ifiO,Cambridge; Cambridge University
see Mueller' Energt
gas
markets,
and
oil
in
ñ¿t
J"i.tuioitt
;;"íi"" ;.fvrir'oi
SecuritY,
l6
govgrnt.ngnl's assertion of ownerResource nationalism is often defined as a national -tenitorial
boundaries, usually in
ship rights over oil and ggs reserves within their
investment' and work
foreign
foi encouraging
ways that.on,r.diä
libäù;*¡itts
nationalism is epitomized by
against the interesa; of feCi. ThiJspecies of reso-urce
to re'establish a dominant
the efforts of presiAãnt äu¿i*¡t Pütin's administration
nationaliza'
of state ätr"ioviiRussia's hydrocarbon resources, and by-the
by President Hugo
tion of foreign inuurt*tntt in Veneiuela's Orinoco region
aspect' there is. a
economic
essentialty
this
Chávez's a¿minititaiion.-nut, Utyond
;;;; dt tt potiticat dimension io contemporary -resource nationalism - namely'
measure
the
gourrnr.ng t.tL*g to derive.stratägic inffuence.from the control over
The
NECs'
their
ftyOtçarbon ræerves exercised by
production rn¿ rrïliint
national
"i
of unilateral supply
political species åii*oùtî. natíonalism can take the blunt form
Ahmedinejad have threat'
cut-offs, as Uotfr ôhiuet anO lranian President Mahmoud
to use oil as a political weapon; on
ened, notwithranãitfi ópgc't commiment not
i
236
F. Laryrett
this point, see Mueller, Energt Security,The political species of resource nationalism
their
can ãlro take a more subtlJ form, with resource-owning governments using
strathe
on
control over the monetization of reserves as a source of strategic leveragej
GeopoliLeverett,
"The
tø. ãtn"nrions of contemporary resource nationalism, see
tici of Oil and America's Intemational Standing."
17 On Asian NECs and their roles in national govemments' extemal energy strategies,
John Mitchetl and Glada Lahn, "oil for Asia," briefing paper, Energy, Eny19nment and Development Programme, London: Royal Institute of_lnternational Affairs,
tvtarch 2007,http:llwww.isñ.ethz.clr/pubs/ph/details.cfrn?_v2l=lll300&lng=el&,¡,lic¡
53=lll300ótord6l=alphaNavi&id=3b644i Keun-Woon Paik, Valerie Marcel, Glada
L.nn, ¡ohn Mitchell, änd Erkin Adylov, Trends in Asian NOC Investment Abroad,
worting background paper, Energy, Environment and Development Programme,
lonáoñ noyailnstituie'of international Affairs, March 2007,http:llwww.chatham'
ñooæ.otg.or¡files/?076-r0307anoc.pdf; Hiroyu\i Ishida, Flrrg Strategies ín Cling
inà tn¿¡ã and Møior Cõunffies' Views,Tokyo: Institute-of-ÐtJgy Economics,.Y.:..h
r*
ittprtt"neten.ieej.or iplenldata/pdfl3il8.pdq and- Mikkal Herberg, "Asia's
National Oil Companiõs: Internationd nxpañsion and Competitive Implications,"
April 2007,
Presentation to tire Institute of Energy Economics, Japan,
inOi,
5
lg-
http://eneken. ieej.orj p/en/data/pdf/3 89.pdf.
On China's externaiänergy strãtegy see Mikkal Herberg, "Asia's Energy Insecurity,
Cttinu, and India: tmplicãiions foi-the US," Testimony to the United States Senate
26 July 2005,
Committee
on foróign
F;úüty
2006, http://www.epagov/oust/fedlaws/publ-109458-pdf; Kenneth
http://www,prio.no/filos/file
David
47 777
-O6¡4Z0-enerryiecurity-in-asia-final.pdf?PHPsEsslD=b8a3+ac;
Atfairs.84l.5,
gilianñãi,
Forgígn
Energy,"
for
Hunt
CloUal
"Chiriat
Z*.il""O
S.pi.äUrOctober ZOOS; Unitø States Depa.tryent of Energy, Energt Polìcy Act
20'0J, Section 1387: National Security Review of Interyaþngl^lnergl Requirements'
Relations,
L¡eUertlial and Mikkal iTerberg,'thìna's Search for Energy Security: Implications.
US policy," NBR Anatysls l7ll, April 2006, http://www.nbr.org/publicationV
istue.aìp*flpá3a9dcaa-b9å 54601-ac32-93f702696db5: Aaron Friedberg."'Going
Out': Cïina's Pursuit of Natural Resources and Implications for the PRC's Grand
inuægy," NBR Analysis 1713, September 2006, http:/ vwtv.nbr.orglpublicatio¡s/
issùe.íJjxffO492;incaDowns, China,The Brookings lnstitution, Foreign Policy
SioOir., Bn.rgy Security Series, December 2006, http:/ vww.brookings.edu/reports/
20064ichinu.-*p*; andbaniel H. Rosen and Trevor Houser, China Energt: A Guide
DC: Peterson lnstitute for lnternational Economics,
øi
øiinL-iirp,lexàd,'Washington,.
y.ri ZOOIihtþ://www.iieiom/publicationsþpers/rosen050?.pdf. On India's external energy strategy, see Herberg, "Asia's E-nirgy lnsecurity"; Vibhuti Hate, "lndia's
È"rtgy óitrtnri;'South Asia lionitor 98, Washington, DC: Center for Strategic and
lnterñátional Studies, 7 September 2006, http:www.heritage.grglRgsearct¡/AsiTanvi Madan, India,The Brookings In¡1i1t|aan6ttrepacinc/upload/bg-200d.pdf;
'policy-Studiås, and
Security Series, November 2006,
Energy
;ñ; Foreign
fg
--
htþ://www.brookings.edtr/reports/2006/ I I india.aspx.
ö;the inærnationaÏ activitiès of Chinese NECs, see United States Department of
ñ;rgy, Energt Poticy Act 2005, Section 1387; Eurasia Gloup,.China's Overseas
O¡t oid Got Production, Report to the US-China Economic and
inu"íí^tntt
Sr.*¡ty Review Commission, t6 October 2006, http://www.uscc.gov/researchpapr"lZó'OO¡oil_gas.pdf; Peter Parry, Eric Spie_gll, E{111d_Tse, John McCreery, and
:'The Roariñg Dragoñ: Únocal Bid Just a Minor Bump in the
hd¡un del Mãstro,
nou¿," Washington, DC: Booz Ãllen Hamilton, 2006, http://www.boozallen'com/
media/file/l53aa3.pdf;Xin Ma and Philip Andrews-Spee9, lhlOverseas Activities of
Cnioà,t National öit'Co^pories: Ratioiale and Outlook, Peijing: C-hina Institute of
BackInternational Studies, 2006; Xiaojie Xu, "Chinese NOCs' Overseas Strategies:
Forum.on
"The
Energy
Institute
the
Baker
in
h,emaiks"
g¡ñ¡; ó;Àparison, and
il
Resource mercantilísn and
milìtarìzatíon 237
t;
Changing Role of National Oil Companies in lnternational Energy I'Íarkets," March
ZOOZ, trttpylwww.rice.eddenergy/publications/docsNOCs/Papers/ChineseNOCs-Xu.
pdf; and Rosen and Houser, China Energt On the international activities of Indian
ÑECs, see Madan, India; and United Staæs Energy Information Administration,
Country Anølysis Brief: India, January 2007.
20 Since China fiecame á net oil importer in 1992, the portion of its oil supplies corning
from abroad has risen steadily. China currently uses roughly 6.6 million banels per
day (mmM) of orude oil; almost half of this figure - just over 3mmbd - is provided
by imports. India's dependence on foreign oil is of longer standing and deeper than^
ihina;s. India currentiy uses at least 2.5mmbd of crude oil; more than two'thirds of
this figure - roughly l.? million mmM - are provided by imports.
2t Worklng from estimates of China's oil demand by the Intemational Energy 4e9ncy
(lEA), tle Un¡ted States Energy Information Administration (EIA), and the lnstitute
òf Energy Economics, Japan, and from estimates of China's domestic oil production
by the iãme agencies as well as by Chinese NECs, one cal project that Chjna's
irirport dependence for oil will reach óÞ80 percent of its total consumption in 2020.
Evän moie dramatically, both the IEA and the Indian government estimate that
India's import-dependence for crude oil could exceed 90 percent by 2020; see International Energa Agency, lllorld Energt Outlook 2004, Pans: International Energy
Agency, 2004,-http:/ tww.iea.org/textbase/nppdf/freel2004lweo200a.qdf; and Integ'^
Policy, Report of the Expert Committee, New Delhi: Government of
,ited Er"rgt-Planning
Commission, August 2006, http:/ lplanningcommission.nic.it/
tndia State
reports/genrep/rep-intengy. pdf.
22 In contrast todomestic oil production, for which the best that the Chinese and lndian
energy industries might do is to delay the moment at which production ltarts jo
decline, and ameliorite the steepness of that decline, both China and India have the
potential to increase domestic gas production in coming years. Nevertheless, by 2020,
both countries will, in all likelihood, have to import well over half of the natural gas
they consume. In this regard, analyses by the IEA, EIA, and Chinese NECs project
thai, by 2020, China may have to import as much as 70 percent of the natural gas it
consumes. The IEA projects that, by 2}2ù,lndiawill become at least as dependent on
imports for its natural-gas supplies as China.
23 Today,88 percent of Japan's oil imports and 8l percent of Korea's are sourced from
ttre tvti¿Cle East signlficantly higher figures than the percentage of Chinese and
Indian oil imports sourced from the region.
24 Onthis point in the Chinese case, see Friedemann Müller, "China's Energy Policies -^
Geopoliiical Repercussions," in Gudrun Wacker, ed, China's Rise: The ReUrn of
Geopotitics?. Berlin: Stiftung Wissenschaft und Politik, February 200ó, htþ://www.swp-berlin.org/de/common/get-document.php?id= I 66625 Foi further dßcussion of the regionalization of oil and gas supply relationships, see
-
Mäller, Energt Security.
26 Chinese and tndian etiies are by no means alone in their concem about volume risk in
global energy markets. A survey conducted in 2005-6 under the auspices of the
World Economic Forum's Energy Industry Partnership Program indicates that uncertainties about se¡urity of supply from the Middle East in the near term, and adequate
growth in supply globally in the longer term, are the leading concerns of chief execu'
i=íve
ofñcers
bî
iniernationat energy companies; see "Energy Community Survey" in
World Economic Forum, Energt Vision Updale, Spring 200ó, p.6.
27
See Leverett and Bader, "Managing China-US Energy Competition."
28 The .OPEC Five" control the world's five largest national holdings of proven
r€serves ofconventional crude oil. Iran and Qatar hold the second- and third-largest
reserves of natural gas in the world, respectively (after Russia)'
29 Of course, these eiternal energy strategies are parts of broader energy policies that
also include measures aimed at managing demand and increasing the energy
I
238
F. Leverett
efficiency of tho Chinese and Indian economies. It is beyond the scope of thi¡ chapter
to consider these other dimensions of Chinese and Indian energy policies. However,
in both the Chinese and the Indian cases, policy'makers have generally put more
effort into poticies aimed at increasing the availability of energy supplies rather than
poticies aimed at reducing demand and increasing efficiency.
30 See Downs, China,p,14.
3l
See Müller, Energt SecuritY,
32 Personal communication with the author'
33 This document, Hydrocarbon Visìon 2025, was released
in February 2000. For dis-
cussion, see Translating Indìa's Hydrocarbon Vision into Reality, Strategy Repo{,
tndia Oil and Gas Industry, New Delhi: Emst and Young India, 2004, pp. 3l-32'
Jrans latin g-lndia' s-Hydrocarbon-
ùtratggy-lsgPu¡
34
uaD¡¡19/
¡Ju¡ws¡ w¡¡-sf¡ srvÞr-¡wrv¡ v'rÞ¡'
s-Hydrocarbon-Strategy-Report.pdf.
ndia' ù-¡
I ll¡arùla¡l¡llË'-¡tluro
tn anãddreis to a global energy conference in New Delhi in January 2005' Singh
acknowledged, "l fi;d China ahead of us in planning for the future in the ñeld of
energy secúrity." Given this state of affairs, Singh argued, 'We.can no longer be
comþiacent and must learn to think strategically, to think ahead, a1$ to act swiftly and
deciåively... . We need to strengthen our oil companies in launching them as global
firms." Sie Keith Bradsher, "lndia Finds ltself Trailing in Fight for Global Energy
Deals," Internationol Herald Tribune, l? January 2005, http://www.ihtcom/art¡cley'iOOS/Ol/l6lbusiness/rupee.php; and "lndia Must Catch Up with China on
Energy, Singh Says," Bloomberg 16 January 2005.
_
35 On ðtr¡na'J relations with Saudi Arabia, see Leverett and Bader, "Managing
China-US Energy Competition"; John Calabrese, "Saudi Arabia and China Extend
Ties beyond Oilj' Jømèstown Foundatíon China Brief 5/20,27 September 2005'
http//www j amestown.orglpublications-detai ls.php?yolumejd=408&issue-id=3474
Aart¡cle-¡O=2370272; palid m¿elman,'îhe Sino'Saudi Connection," Forbes, 17
npril 2006, http://members.forbes.com/globaU2006/0417/0l8.html; and Javid Hassan,
..Saudi-Sino Rèlations Poised for Further Expansion," Arab News,6 December 2006,
lt&y=2Nl.
http://www.arabnews.com/?page=15&section=O&article=89621&d=17&nrRelaForge
Closer
Arabia
Saudi
see
in
2006,
"China,
vlsis
Hu
and
Ori tt¡e AMallah
tionship," china Daily, 24 January 2006, http://uryw.9hinadaiþ.neveqitry
doc/20bb:41/24lconæni_515060.htm; "China, Saudi Arabia Extend Energy Ties,"
January 2006, http://www.atimes.com/atimes/MiddleAsia Times,
East/[IB23Ak03.html; Jianjun îun, "The Strategic Considerations of the Sino-Saudi
25
Oil Deal," Jamestown Foundation China Brie.f 614, 15 February 2006,
h6p/
vwwjamestown.orglpublications-details.php?volume-id=415&issue-id=3621
r'Energy, Defense Deals tnked as China President Visits
Aart¡cte-¡¿=2370779; and
Saudi,"/gerce France Presse, Apnl22,2006. On China's relations with lran, see
Leverett ãnd Bader, "Managing China-US Energy Competition"; Sharif
Shtll
.,Warming Sino-lranian Relaiions: Will China Trade Nuclear Technology for Oil?,"
Jamesøvln Foundation Chìna Brief 614, 23 July 2005, http://wwwjamestown.org/
publications-details.php?volume-id=415&issue-id=3621&article-id=2370779;
bario Cristiini,'Chína and lran Strengthen Their Bilateral Relationship," Power and
October 2006, htp://www.pinr.com/reportp¡p?ac=
Interest News Report,
6
view-report&reportjd=566&language-id=l; and John Garyçr, China and lran:
AncieniPartneis in a Post-lmperial World, Seattle: University of'Wæhington Press,
2007.
36 On China's expanding ties to GCC, see Julian Madsen, "China's Policy in the Gulf
Region: From ÑegleCt to Necessityi ,P9wer and Interest News Re¡9$_27 October
20õ6,
http//www.pinr.com/report.php?ac=view-report&report-id:575&langu,age-
id=t. the dCC ¡ncludes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United
Arab Emirates.
37 On Beijing's forgiveness of lraqi debt
as part
of an effort to re-establish and expand
l
I
Resource mercantilísm and
mílítarization 239
Chinesælraqi energy ties from the Saddam era' see ChrisÛopher Bodeen, "China
nlrees to Röduce íiaqi Debt by 'Large Margin','l^ls¡ocjatellress, 2l June 2007,
trfr /www.uofaweb.uålberta.calchinainstituteTnav03.cfin?nav03=6 17 97 &nav02=57 5
98i?.nav0l=57272; Samuel Ciszuk, "lraq Woos Chinese Oil investments Amid
Increasing lraqi Frustration with Lack of Piogressi' Globa! Insíght Daily /ryaly1tlt!!
iunr iOO7, httþ://www.uofaweb.ualbert¡.ca/chinainstitute/nav03.cfm?nav03=61792&
nav02=57598&nav0l=5?272; and Shai Oster, "lraq Tums to China for Help in
Reviving Oil Industry," llall Slreet Journal, 20 June 2007 '
38 Derek Sãnds, "AnaryJis: tndia and Middle East Cozy oyet-qryr_gJ," UPI Asia O/iye,
iZ Uay ZOtí1, http://www.upiasiaonline.comÆconomics/2007/05121/analysis-indiaand_míddle_east-ðory-over-enerryl'1607/. Indian officials have referred to the
peräan Gulf as part óI lndia's "eîtended neighborhood" for-most of the post'Cold
War feriod. Foriepresenative statements see M. H. Ansari (then-Indian'ambassador
to S.ud¡ Arabia), 'isecurity in the Persian Gutf: Evolution of a Concept,"- StryteSi2
Anãlysts 2216, {óptember i999, http://www.ciaonet.org/olj/sa/sa-99anm0l.html; and
Satyánaiayanþattanayah "Oit as a þactor in Indo-Gulf Relations," Stategic Analysis
pasg2.html'
ZS ß, lwõ 200 t, h$p:7/www.ciaonet.org/olj/sa/sajune0 I
Signiñcance of the Delhi
Strategic
39 $;'SuUft.tt Kâpiú, "lndia-Saud¡ nrab¡ã: The
March 200ó' htþ://www'
Group,14
Analysis
Declaration," paper 1734, South Asia
saag.orglo/oSCpaperslSo/o5Cpaperl734.html.
with
¿O in fOOfi primè tvtin¡ster Vajþayee traveted to lran to sign the Tehran Declaration
lranian þresident tvtohamniåd-Khatami; this document committed both countries to
ggve.nlthe development of closer economic and energy ties. In 2003, the Vajpayee
lral with the conclusion
oi a framewort agreorent for lndo-lranian energy relations during a visit to New
ment took another step in building lndia's partnership wifh
Delhi by President Khatami.
4l See pram¡t Mita and Vibhuti Hate, "tndia-lran Relations:
Changing the Tone,'CS/.S
South Asìa Monítor,8 March 2006, hap://www.csis.org/media/csis/pubs/sqf].n0fi
cf. K. Alan Kronstadt and Kenneth Katzman, "lndia-lran Relations and US Inter-
2 Algust 2006'
;;if C;gressional Research Service Report þ¡ _Congregs,
Vakit,
"lran: Ba-lqctrttpøfpc.stãte.gov/documents/organization/l0Zgl.pAfl; $nt1^
290.6,
Autuml
2914,
Washingøn
West,"
afainst
Quarterly
int É.rt
Fair'
Christine
C.
a$
htip://www.tw{.com/06autumn/docs/06autumn-vatil.pdf.;
-
i.lndi" and lran New Delhi's Balancing Actl' llashington Quarterly 30/3, Summer
2007, http://www.twq.com/07summer/index.cfin?id=2ó5.
42 ilndia,QiAr to Sign befence Agreemenl" Press Trust of India,-24 June2007.
¿3
- ,iwo'cÑpc Unitíto Jointly griild Crude oil Pipeline in UAE," Dow Jones Chinese
Fínøi,ncial
llire, 4
June 20-0?, http://www.uofaweb.ualberta.calchinainstitute/nav03.
cfi n?navO3=61434&nav02=57598&nav0l=572'12.
44
S;
'sinopec-rcPc $5 Bitlion Refinery Gets Early Go-Ahead," Reuters,
Jt
July
ZWO, httpi//www.uofaweb.uatberta,calchinainstitute/navO3.cfm?navO3=48642&'nav02
=43875&nav0l=43092.
45 For details see "China's Energy Investment Plans in lÍan," Reuters, 2l December
ZOOO, http://www.uofaweb.uil-berta.calchinainstitute/navO3.cfm?navO3=54769&nav
46
02= 4387 3 &nav0 I =43 092.
See Vakil, "lran: Balancing East against West."
¿i See Osteç ..lraq Turns tJçhina
for Help in Reviving Oil tndustry"; and "lraq to
Revive CNPC Deal," Upstream,25 June 2007.
4g
-
uddition, Chinese ÑgCr hâue signed production contracts in several Middle
Eurtr* countries outside the Persian Gulf, iircluding Algeria, Libya, Morocco, Syria,
i;
and Tunisia. See atso Lee and Shalmon, "searching for
Oil.''
,
49 For further discussion see Madan,lndia,
jô S.r Ámy Yee and Najmeh Bozorgmehr, "lran Close to tndia-Pakistan Gas Deal,"
Fínancial Times, 29
J¡¡ne
2007,
240 F. Leverett
5l petronet was created with Indian
govemment encouragement in 1997 as a joint
venture to handle the import and marketing of LNG within India'
52 In addition to the positiòns developed.by Indian NECs in the Persian Gult Reliance
India;s largest privatê energy company has developed positions. in
Industries
Oman and Yemen and established an overseas subsidiary based in Dubai. Indian
-
-
NECs have signed production agreements in Middle Eastem countries outside the
Persian Gult including Egypt, Libya, and Syria.
53 See peter Evans and È¡câ Downs, "Untangling China's Quest for Oil through StateBacked Financial Deals," Brookings Institution Policy Brief, May 2006,
http://www.brookings. edu/papers/2006/05ch ina-evans. aspx.
54 For example,
Sanam Vakil notes that
it was the Chinese that hetped the lranians build the Tehran metro system, and
a
second transportation project is already underway. Additionally, the Chinese are
building lranian highwayi and airport runways, even as Ch-ina's own infrastructure deietopment moves at breakneck speed. Furthermote, China's Cherry Automobile Company burst onto the lranian scene in 2003 and now manufactures
30,000 annually. Today there are more than 100 different projects percolating on
the lranian{hinese stove.
Vakil, "lran: Batancing East against West."
55 In this conte*t, it should also be noted that Beijing's current efforts to expand diploSee
matic and economic ties to the Persian Gulf take place against a historical backdrop
of China's provision of arms and sensitive technologies_to ståtes in the region. See
Daniel Byman, China's Arms Sales: Motívations and Implicallors, Santa Monica,
ReÑD, z.oo0; and shirly Kan, "china and Proliferation of weapons of Mass
Destn¡ction and Missiles: Policy Issues," Congressional Research Service Report for
òongr.g, updated 22 October 2007, http://www.fas.org/sgp/crs/nuke/Rl3l555.pdf.
In rãcent-yeärs it has been difficult to discern a consistent pattern of Chinese arms
sales to cóuntries with which China has substantial energy interests. Overall, arms
exports are probably less effective than the financial and political tools Beijing has.{
itr'Oisposat'to faciíiøte closer ties to energy-producing states in the Persian Gutf,
because Chinese $reapons systems are generally not considered state-oÊthe'art by
potential buyers in the region
56 bee Leverett and Badeç "Managing ChinpUS Energy Competition"; Vakil, "lran:
Balancing East against West"; ãnd Dengli Shen, "!ran's ^N_uclear Ambitions Test
ôhinu'r íVisdom,; Wrashington Quarterly 2912, Spring 2006, http://www.twq.com/
ct
06spring/docs/06spring-shen.pdf.
tqAOs, the management and production functions of the min-
52
- Ovór thã course oittrã
istries of petroleum; coâ1, nuclear poier, and electric Po]v-er were transfened to
newly established state energy firms, including the three NECs. Thus, CNOOC lvas
ørmó¿ in 1982 out of the ilinistry of Petrolèum Industry to focus on developing
China's offshore oil and gas resources, Sinopec in 1983 out of the Ministry otÇlemical Industry to focus on-downsream sectofs, and CNPC ín 1988 out of the Ministry
of petroleuä Industry to focus on onshore exploration and production of oil and gas
resources.
58 For additionat historical background and comparative discussion on the three NECs,
see Steven Lewis, "Chinese ÑOCs and World Energy Markets: CNPC, Sinopec and
CÑOOC,' in the'Baker Institute Energy Forum on "The Chalgi.ne Role of National
Oit Corþanies in International Energy Markets," March 2007,httpzllwww.rice.edt¡/
energy/püUications/docsNOCs/Papers/CNOoC-Lewis.pdf; and Rosen and Houser,
China Energ.
59 For fr¡rtherîiscussion of how "marketization" and openness to foreign investment
reinforce hends toward the "corporatization" of Chinese NECs, see Lewis, "Chinese
NOCs and World EnergY Markets."
Resource mercantíl¡sn and
mílitarization
241
60 See Sumit Ganguly, "The ONGC: Charting a New Course?" in the Baker Institute
Enerry Forumónïhe Changing Role of Ñational Oil Companies in International
Eneró Markets, March 2007, ñry:llwww.rice.edr¡/energy/publications/docsNOCs/
Papers/ONGC-Ganguly. Pdf
6l In addition, ONCC-anäiOC swapped l0 percent
2000.
62 Originally, I I SOEs were designated, but two of
of their equity with each other in
these companies were subsequently
privatized.
63 Personal communications with the author.
64 This point is amplified in Rosen and Houser, China Energt.
65 See grica Oowns, "The China Energy Security Debate," China Quarterly. 177,2004'
pp..2l*41; Chrisiian Constantin, "Õhina's Conception of Energy Sgcyrity:. Sources
äå¿ tnternât¡onal Impacs," working paper 43, University of British Columbia Centre
of lnternational Relations, March ZOõS, trttpy¡www.iir.ubc.calsite-template/workingpapers/Consøntin-WP43.pdf; and Edward Cunningham,. "China's Energy Go19ri,ãü.r, perception and Räality,' MIT Center for lnternational Studies Audit of the
66
67
Conventional tfVisdom, March 2007.
See Integrated Energ PolicY,
See Nonian Valentiñe and
Íom Ellacott, "Asian NOCs," Oil &
Gas Investor, August
2006.
68 See Xu Yihe, "Beijing lrked by lran Agreements," I)pstream,-S January,2007. _.
úg eoot ¿ in Emma óraiam-Hari¡son, "S-iim Mideast Pickings Seen for Chinese Firms,"
È*116 News, 27 November 2006, http://www.uofaweb.ualberta.calchinainstitute/
?0
7l
navO3.cfr n?navO3 =43 8 83 &nav 02:4309 6 &nav 0 I =427 92.
Personal communications with the author.
tn this regard, an analyst with the ìilood Mackenzie consultancy.says flatly, "China
will neveibe able to satisff its oil demand through foreigr acquisitions"; quoted-in
.,Enerry Bringi Beijing and Tehran Closer Together." This point is also
Stakelbeck,
made in Lee and Shalmon, "searching for Oil."
72 Theauthor is grateful to Pierre Noël for this point.
73 personat comñunications with the author; see also Rosen and Houser, China EnergL
Z¿ W¡tfr regard to China, this point is also made in Lee and Shalmon, "searching for
oil."
75 rbid.
76 Daniel Yergin, "Energy's Chatlenges," Forbes,23 April 2097 ' 77 On the Saüdi.econoñy, see SAIúBA Financial Group, The Saudi Economy:. 2006
Þàr¡or^once, 2007 Fõiecast, Riyadh, February 2007, http:www.samba.com/investment/economywarch/pdf/sau¿L2'o0z-Forecast-en.pdf; 1yd ..idem, The sludi
ø"iioiyt iOOl Þerþrmance,
2005 Forecast, Ri.ya{h, February
20_05r
ñttp:l¡*it".samba.com/ínvestmenVeconomywatclt/pdf/Saudi,-lconomy-Feb-2005-E
On the Gulf Arab economies collectively, see Brad Bourland, "The Middle
"g.pOf.
goom:
How Big and How Long Will lt Last?," presentation to the Annual ConBãst
ference of the ArafBankers Association of North America, New York, 25 April
|OOO,
hnp://www.arabbankers.org/download/123321-V12'1360-887&2lClicko/o
Z0húeo/o20to%20download%20Mr.o/ol}Bourland'sTo20presentation.pdf. See also
rcito O. Boer and John Turner, "Beyond Oil: Reappraising the Gulf States"; Jaap
Kalkman, Laurent Nordin, and Ahmód Yahia, "Moving Energy-lntensive..lndushies
to the ódf'; and
Hanó-Martin Stockmeier and Ozgur Tanrikulu, "Capluring
Opportunities in the Gulfls Financial Sector," all in a special issue of McKinsq
fiort rty, February 2007, http:llwww.mckinseyquarterly.com/Energy-ResourcesMaterials.
78 I
79
defihave bonowed the concept of global energy architecture from Saad Rahim; the
nition is my own.
pëtrolière
See pieneÑoë1, Les Etats-Unis et Ia Sécuritë Pétoliere mondial: Politique
242
F, Leverett
amëricaine et production d'un bìen collectd global, Paris: Le Centre Français sur les
Éøts-Unis, July 2004, http://www.ifri.org/files/CFE/PN-Us-securitePetroliere.pdf.
80 See Flynt Leverett, "Btack is the New Green," 'lhe National,lnterest, JanuaryFebruary 2008.
8l
The idea of a Saudi "hedging" strategy is elaborated in Flynt Leverett, "Reengaging
Riyadh," in idem, ed., The Road Ahead: Middle Eøst Polícy in the Bush Administration's Second Term, Washington, DC: The Brookings lnstitution Press,2005; see atso
Chas Freeman, "The Arabs Take a Chinese Wife: Sino-Arab Relations in the Decade
to Come," remarks to the World Affairs Council of Northern California, Asilomar, 7
May 2006, http://www. mepc.org/whats/SinoArabRelations. asp; and'National Security Issues and the Saudi-US Relationship: A Conversation with Jean-François
Seznec," Saudi-US Inþrmatìon Service, 12 March 2007, http://www.saudi-usrelations.org/articles/2007/interviews/070312-seatec-interview.html.
82 See Vakil, "lran: Balancing East against West." Russia also occupies an important
place in lranian versions of the "Eastern option." See M. K. Bhadrakumar, "US
June 2006,
Times,
Options Open,"
'Allies' Keep
.
lran
Asia
6
http://www.atimes.com/atimes/Middle-EaslHF06Ak02.html; and Flynt Leverett,
"The Race for lran," New York Tímes, 20 June 2006, http://www.nytimes.com/
20061 06120/ opinion/20leverett.html?-F t &oreFslogin.
83 See LeveretÇ "Black ls the New Green.
84
85
"lllusion and Reality," Amerìcan Prospect, September 2006.
of soft balancing in "The World Pushes Back," Boston
Globe,23 March 2003. He elaborated his thesis in "Soft Balancing against the United
See Leverett,
Pape introduced the concept
States," Internatíonal Security 30/1, Summer 2005. See also Stephen Walt, "Keeping
the World 'Off Balance': Self-Restraint and US Foreign Policy," in G. John lkenberry, ed., America Unrivaled: The Future of the Balance of Power,lthaca, NY:
Comell University Press, 2002; the contribution by Josef Joffe in "Exchanges &
Retums: Is the World Pushing Back?," Bosîon Globe,2 April 2003; Josef Joffe, "
'Gulliver Unbound': Can America Rule the World?," Twentieth Annual John
Boynton Lecture, Centre for Independent Studies, Sydney, 5 August 2003,
http://www.aicgs.org/documents/csi.pdf; T. V. Paul, "Soft Balancing in the Age of
US Primacy," International Security 30/1, Summer 2005; and Stephen Walt, Tamíng
American Power: The Global Response to US Primacy, New York Norton,2006.
86 The author is grateful to Øystein Noreng for this point.
87 For further discussion, see Leverett, "Black Is the New Green."
88 Yuan-Kang Wang China's Grand Strategt and US Primacy: Is China Balancing
American Power?, Washington, DC: Brookings lnstitution, July 2006,
http://www.brookings.edu/paperV2006/07china-wang.aspx.