StrategyUnit

Introduction: Chinese and Indian Energy Cooperation

India and China kicked off their “Year of Friendship” to a rather good start. Only a few days ago (Jan 9), China and India’s respective state-owned oil companies agreed on a joint venture on the purchase and development on oil assets in Syria. And now China and India agreed on sharing bid information on bidding on foreign hydrocarbon fuel (to avoid driving prices unnecesarrily) and to encourage joint ventures.

The document that China and India signed, the two most populous states, outlined “cooperation in upstream exploration and production, refining and marketing of petroleum products and petrochemicals, oil and gas pipelines, research and development, and promotion of environmentally friendly fuels.” (source) The document also included agreements on coopertion on the production of biofuels.

In a visit to China, the Indian Petroleum and Natural Gas Minister Mani Shankar Aiyar stated:

“We look on China not as a strategic competitor but a strategic partner,” said Aiyar in an exclusive interview in Beijing. “It is clear to me that any imitation of the ‘Great Game’ between India and China is a danger to peace. We cannot endanger each other’s security in our quest for energy security.”

Aiyar also brought up the idea of joint pipeline connecting India and China, but this is something India has brought-up in the past as well without substantial response from China.

Motives and Benefits?

On the surface, this partnership is quite puzzling. This movement towards cooperation would benefit India far more than China:

• India is more dependent on imported oil (China’s 30-40% to India’s 70%)
• Indian oil companies have been repeatedly outbided by China, so why the need for China to cooperate?
• China’s “Go-Out” oil strategy has been thus far successful with its connections in Central Asia, South American and from Sudan to Iran. So why would China cut a deal now?
• China and India have gone through minor wars in the past and unresolved border disputes. How will these issues loom over China and India’s ability to cooperate?

However, China and India have cooperated in some major instances, such as China’s support of India for permanent membership in the Security Council and in the Russian-Chinese led Shanghai Cooperation Organization (SCO), India sits as an observer and a potential future member.

But in a larger context, Chinese would be foolish to stand-by as US and India continue to forge a closer tie, esp. with word last year about the Bush Administration wishing to “help India become a major world power in the 21st century”, which has mainly manifested itself in the US willingness to help India’s civilian nuclear energy program despite the nuclear testing in 1998.

Broad energy cooperation from China (successful so far in its “Go Out” strategy) would prove very significant for an equally energy hungry India. Indeed, one could say that using energy cooperation would present a more enticing carrot than what the US can offer India: military equipment and nuclear energy technology.

Additionally, engaging and building relationships with neighboring partners would fit into China’s strategy of “Raising Peacefully”. China is continuing to build regional institutions to project its power, such as through the Shanghai Cooperation Organization (SCO) and the recent Easts Asia Summit.

Some would perhaps point out that any partnership would never work between India and China, as they are economic rivals. This is true in the area of energy resources, but when it comes to their economies, the two are very different. China is concentrating on manufacturing where as India moving ahead to high-tech software area and providing advances services, such in the financial industry.

Conclusion

With the exception of Japan (which even signed a $3 billion deal for Iranian oil), things are looking rather lonely for the U.S. in Asia. US must more vigorously appraoch India as natural partners, in its shared Anglo-heritage and as the world’s largest democracy. India can help share the burden as one of the pillars of security in the Middle East and Central Asia. And China too should be approach and incorporated under a new security framework in East Asia, with the United States and Japan.

The U.S. needs to lead in incorporating China, India and other emerging New Core powers into international organizations, as prescribed by Thomas Barnett. Else, these New Core states will look to seize the initiative and form their own alliances and institutions that will increasingly sideline the United States. We can help lead the future or sit back and watch as others make it for us.

PS: Why the lack of any coverage in this on New York Times, Washington Post etc? I am writing this on 1/13/2005 12:36AM, Pacific Time. Only the Financial Timeshas something major so far.