Central Asia’s Energy Game Intensifies

Central Asia's energy game is intensifying. China has grabbed the spotlight with a high-profile push into Kazakhstan's energy market. Meanwhile, India, another country with a growing appetite for oil and gas, is working diligently to make energy inroads in the region.

US and Russian companies remain the major players in the contest to develop and export energy resources in Central Asia and the Caspian Basin. However, Chinese and Indian entities have become increasingly competitive in recent years.

Evidence of Beijing's rising influence came August 22, when the country's largest state-owned oil company, China National Petroleum Corp. (CNPC), announced that it was acquiring PetroKazakhstan, a Canadian firm that is one of Kazakhstan's major energy producers, for $4.2 billion. Pending shareholder approval, the deal would establish a solid Chinese presence in Kazakhstan, which sits on China's western border. In winning a spirited battle for PetroKazakhstan, CNPC reportedly edged out an Indian offer, led by the state-controlled energy company ONGC.

With its energy requirements skyrocketing, India's attention is now focused on tapping Iran's and Turkmenistan's reserves. According to some estimates, India's daily oil imports will rise more than three-fold by 2020, from the current level of 1.4 million barrels per day. Indian Prime Minister Manmohan Singh is on record as saying; "energy security is second only in our scheme of things to food security."

In early August, Indian and Iranian officials met to discuss a framework agreement on a gas pipeline that would enable Tehran to export energy via Pakistan. Officials hope to complete work on the framework agreement by the end of the year with the aim of having the envisioned 1,750-mile pipeline built by 2010. Indian Foreign Minister Natwar Singh is scheduled to make a three-day visit to Iran, starting September 2. The so-called Iran-Pakistan-India (IPI) pipeline is expected to top the agenda during a planned meeting between Singh and Iranian President Mahmoud Ahmadinejad.

In pursuing an Iranian pipeline, India playing catch-up to China, as Tehran already serves as Beijing's second largest supplier of oil. The strong energy ties have, in turn, fostered closer strategic relations, with Beijing supplying military assistance and nuclear expertise to Tehran. China has also emerged as a diplomatic supporter of Iran.

In addition to the IPI option, Indian officials are interested in the trans-Afghan pipeline (TAP) project, which would ship natural gas in Turkmenistan via Afghanistan to markets in Pakistan and India. The project has long been hampered by questions concerning pipeline security and the extent of Turkmenistan's reserves. According to Turkmen media sources, the country's president, Saparmurat Niyazov, discussed TAP's prospects with visiting US Gen. John Abizaid, who visited Ashgabat in late August.

During an August 28 visit to Afghanistan, Prime Minister Singh said that both pipeline projects needed to be realized in order for New Delhi to achieve the energy security that it seeks. "It is not a question of preferring one [pipeline] over the other," Singh said during a joint news conference with Afghan President Hamid Karzai. "We need both pipelines. ... India's needs for commercial energy are increasing at an explosive rate."

India's improving relations with Pakistan could help both pipeline projects get off the drawing board. Still, the initiatives still face substantial economic and political obstacles. At this stage, chances for the realization of the IPI route appear better than TAP.

Iran and India have become major energy and even strategic partners, in spite of India's strong and growing ties to Israel and the United States. US officials have been strong advocates of pursuing the TAP option, but some political analysts believe that Washington would acquiesce in its opposition to the IPI pipeline, given India's evident determination to proceed with the project. India's Energy Minister, Mani Shankar Aiyar, has reportedly shrugged off American pressure designed to get New Delhi to abandon plans to obtain natural gas from Iran.

Hamid Ansari, a member of the Policy Advisory Group to Foreign Minister Singh recently characterized India's energy dealings with Iran as "a complex game – part chess, part poker." India's energy needs provide New Delhi with little room for maneuver. "We have done our sums with regard to Iran," Ansari said. "It isn't an area where we will be pushed to resolve our position."

Pakistan, like India and China, finds itself struggling to meet rising energy demand. "We are short of energy. We want gas immediately," Pakistani President Pervez Musharraf said recently. "Our industry is suffering; investment coming to Pakistan is suffering, so Pakistan's interest is to get gas fast." Pakistani leaders have suggested building a pipeline that links Iran and Turkmenistan, and transports energy from those two countries via Afghanistan to Pakistan and India.

The IPI deal could be worth an estimated $4.16 billion. If current plans hold, India would start importing via the pipeline roughly 60 million standard cubic meters per day (MMSCMD) of gas from Iran by 2010. The level of imports could jump to 90-100 MMSCMD by 2015. Pakistan, in addition to obtaining transit fees, would tap between 30-60 MMSCMD.

Shankar, the Indian energy minister, is clearly taken with the idea of duplicating the Baku-Tbilisi-Ceyhan pipeline (BTC) that runs from Azerbaijan through Georgia to Turkey, and aims to build an export route connecting India and the Caspian Basin. He also is looking at buying some crude oil from other sources. One of these is the BTC pipeline and another is the Eilat-Ashkelon pipeline in Israel, the oil from which can be shipped from the Red Sea to India via the Indian Ocean. He is also exploring natural gas deals from Qatar and evidently wishes to conclude a contract with Azerbaijan for up to 5-6 million tons of oil annually beginning early in 2006.

India's energy relations with Iran extend far beyond the ISI pipeline. In June, the two countries signed a 25-year deal, potentially worth up to $22 billion, under which India would obtain 5 million tons a year of liquefied natural gas (LNG) from Iran. In connection with this deal, Iran granted development rights to India in two Iranian oil fields, potentially generating 60,000 barrels pre day in production. In another deal, Iran awarded India development rights to a block in the North Pars gas field. Both countries have also pledged to explore joint investment projects in petrochemicals.

These deals help shed light on the complexities of the so called new great game in Central and South Asia. They also underscore the difficulties the United States will face if it seeks to tighten sanctions on Iran in response to Tehran's continued work on a nuclear program. Today, nations that have historically been prime targets of external influence including China, India and Iran – are energetic and motivated actors in their own rights with a highly sophisticated ability to steer their own course in accordance with their own perceptions of national interest.