The New Great Game: Why the Bush administration has embraced India

Daniel Twining

The Weekly StandardDecember 20, 2006

Three recent events illuminate the contours and fault lines of Asia's emerging strategic landscape, amid the lengthening shadows cast by China's growing power.
First, the United States and India consolidated a wide-ranging military, economic, and diplomatic partnership on December 9, when Congress passed legislation enabling U.S.-Indian civilian nuclear cooperation. Then, at a summit in Tokyo on December 15, the leaders of India and Japan declared their ambition for a strategic and economic entente between Asia's leading democracies. This stands in sharp contrast to the intensifying rivalry between India and China: Tensions over territory and Tibet simmered at a summit on November 21, where Indian prime minister Manmohan Singh's assertion that "there is enough [geopolitical] space for the two countries to develop together" sounded more like hope than conviction.
As its relationships with the United States, Japan, and China show, India has reemerged as a geopolitical swing state after decades of marginalization as a consequence of the Cold War, its own crippling underdevelopment, and regional conflict in South Asia. Although its status as a heavyweight in the globalized world of the 21st century is new, India's identity as a great power is not: It was for centuries one of the world's largest economies and, under British rule, a preeminent power in Asia. Today, a rising India flush with self-confidence from its growing prosperity is determined not to be left behind by China's economic and military ascent. "The [Indian] elephant," says an admiring Japanese official, "is about to gallop."
The United States has an enormous stake in the success of a rich, confident, democratic India that shares American ambitions to manage Chinese power, protect Indian Ocean sea lanes, safeguard an open international economy, stabilize a volatile region encompassing the heartland of jihadist extremism in Pakistan and Afghanistan, and prove to all those enamored of the Chinese model of authoritarian development that democracy is the firmest foundation for the achievement of humankind's most basic aspirations.
India is the world's biggest democracy, a nuclear power with the world's largest volunteer armed forces, and the world's second-fastest-growing major economy. Few countries will be more important to American security interests and American prosperity in the coming decades, as five centuries of Western management of the international system give way to a new economic and security order centered in the rimlands of the Indian and Pacific oceans.
India has been a factor in the global balance of power since at least 1510, when the establishment of a Portuguese trading colony at Goa broke a seven-century monopoly on the Indian Ocean spice trade by Muslim empires, unlocking the wealth of the East to European maritime states, which used it to build global empires. Possession of India propelled Britain to the peak of world power in the 19th century. "[T]he master of India," argued Britain's Lord Curzon, "must, under modern conditions, be the greatest power in the Asiatic Continent, and therefore . . . in the world."
During World War II, an Indian army under British command halted the Japanese army's relentless march across Asia, inflicting on Imperial Japan its first military defeat. India's location as an Indian Ocean and Himalayan power, its massive production of armaments, and its armed forces--which fought in Europe, North Africa, and Southeast Asia--contributed decisively to the Allied victory over the Axis powers.
Lord Curzon celebrated India's importance in The Place of India in the Empire (1909):
The central position of India, its magnificent resources, its teeming multitude of men, its great trading harbors, its reserve of military strength, supplying an army always in a high state of efficiency and capable of being hurled at a moment's notice upon any point either of Asia or Africa--all these are assets of precious value. On the West, India must exercise a predominant influence over the destinies of Persia and Afghanistan; on the north, it can veto any rival in Tibet; on the north-east . . . it can exert great pressure upon China, and it is one of the guardians of the autonomous existence of Siam.Possession of India gave the British Empire its global reach. Britain lost its status as a world power when it lost India.
Independent India's first prime minister, Jawaharlal Nehru, shared Curzon's expansive vision, declaring India "the pivot round which the defense problems of the Middle East, the Indian Ocean, and Southeast Asia revolve." Wary Chinese strategists perceive a continuity of strategic design from Curzon to the Congress party today, accusing Nehru at that time of harboring ambitions for a "greater Indian empire," and more recently criticizing India's aspirations for "global military power."
"China and India," writes the Carnegie Endowment's Ashley Tellis, "appeared destined for competition almost from the moment of their creation as modern states."
The taproots of modern Sino-Indian conflict, argues historian John Garver, are found in the overlapping claims of traditional Indian and Chinese spheres of influence in Asia, and in "conflicting nationalist narratives that lead patriots of the two sides to look to the same arenas in attempting to realize their nations' modern greatness." These conflicts create acute security dilemmas as India and China compete for influence across Central, South, and Southeast Asia, where strategic gains by one power magnify the vulnerabilities of the other.
Indian officials perceive a Chinese design to box India into its subregion, curbing India's ability to project power beyond its borders. China's 1950 invasion of Tibet, traditionally the buffer between China and British India, established the trend. Beijing maintains pressure on New Delhi by politely declining to resolve their 2,500-mile border dispute, a legacy of the 1962 Sino-Indian war. China has deployed nuclear weapons along its disputed border with India in Tibet. "The potential political and psychological impact" of nuclear-armed missiles "literally a few miles from India's border . . . cannot be underestimated," argues political scientist Amitabh Mattoo. China has refused to extend its nuclear "no first use" doctrine to include India.
China's military assistance to Pakistan, including the extensive transfer of nuclear and missile components, inflates the power of a state with which India has fought three wars, enabling Pakistan to challenge Indian primacy in South Asia. Since the 1990s, China has pursued a consistent policy of encircling India by supplying military assistance and training to its neighbors. The top three recipients of Chinese arms exports are Pakistan, Burma, and Bangladesh; China has also established military supply and exchange relationships with Nepal and Sri Lanka. China seeks to create "a string of anti-Indian influence around India" that is "designed to marginalize India in the long term," according to one Indian strategist. Prime Minister Singh laments "the desire of extraregional powers to keep us engaged in low-intensity conflicts and local problems, to weigh us down in a low-level equilibrium."
China is also expending money and manpower to construct strategic road and rail links in India's backyard. A high-altitude rail line linking Qinghai in China with Lhasa in Tibet, which began transporting Chinese military personnel in early December, reportedly features a planned southern spur leading to the disputed Sino-Indian border, enabling the rapid movement of Chinese military forces in the event of conflict. Beijing and Islamabad are conducting surveys for a rail line across the Karakoram mountains linking western China to northern Pakistan, which would tie up with Chinese-funded roads and railways leading to Pakistani ports on the Arabian Sea. China is reported to be considering construction of a rail link to Nepal, traditionally a buffer state under India's influence.
China has reportedly constructed 39 transport routes from its interior to its contested border with India--which Indian planners perceive as more of a military threat than a commercial opportunity, since much of the border is closed to trade. China's program of road and rail works along its border with the Indian state of Arunachal Pradesh, which Beijing claims as Chinese territory, has led New Delhi to accelerate "strategically important" road construction in the region. China is also funding extensive road and rail projects in Burma, traditionally the land corridor for both commerce and armies between East and South Asia.
Around India, China is constructing deep-water port facilities capable of berthing warships at Gwadar in Pakistan, on the Arabian Sea; at Rangoon, Kyaukpyu, and other harbors in Burma; at Chittagong in Bangladesh; and at Sihanoukville in Cambodia. Chinese engineers are dredging Burma's Irrawaddy River, which will give China a usable waterway connecting Yunnan province to the Bay of Bengal. China operates naval and radar facilities on Burma's Coco Islands, just 30 miles from Indian territory and strategically situated near the Straits of Malacca, through which pass half of all world oil shipments and one-third of all ship-borne cargo. India recently used its influence with the government of the Maldives to veto a Chinese request for naval access rights just off India's south coast.
The Pentagon has highlighted Beijing's design to construct a "string of pearls" of naval facilities stretching from Southeast Asia to the Persian Gulf--a project that will help China protect seaborne trade and, potentially, contain the Indian Navy's projection of power in what it considers its home seas. China's construction of transport infrastructure and port facilities that encircle India, says analyst Vikram Sood, is "designed to put India in pincers."
Amidst the drama of Washington's opening to Beijing in 1971, Henry Kissinger told President Nixon that no country in the world, with the possible exception of Great Britain, shared a greater convergence of strategic interests with America than Mao's China. Modern India's democratic identity, and a striking congruence of interests between Washington and New Delhi after the Cold War, give India the stronger claim to be America's "natural ally" in Asia.
As Prime Minister Singh has said, "If there is an 'idea of India' that the world should remember us by and regard us for, it is the idea of an inclusive and open society, a multicultural, multiethnic, multilingual society. All countries of the world will evolve in this direction as we move forward into the 21st century. Liberal democracy is the natural order of social and political organization in today's world. All alternate systems, authoritarian and majoritarian in varying degrees, are an aberration."
Former ambassador to India Robert Blackwill argues convincingly that New Delhi may more closely share America's core foreign policy goals and perception of threat than any of our traditional allies. More people have been killed by terrorists in India over the past 15 years than in any other country. This makes India a natural partner to America in the campaign against terror, centered in the Pakistan-Afghanistan nexus in India's backyard. Facing an acute missile threat from China and Pakistan, India embraced President Bush's missile defense plans when, in 2001, the president dismayed many traditional allies by withdrawing from the Anti-Ballistic Missile Treaty. India was among the first countries to offer America the use of its military facilities after the attacks of September 11, 2001.
India is encircled by failed and potentially failing states--including Afghanistan, Pakistan, Nepal, Burma, Bangladesh, and Sri Lanka. New Delhi shares Washington's interest in helping these countries develop durable democratic institutions. "India would like the whole of South Asia to emerge as a community of flourishing democracies," said Indian foreign secretary Shyam Saran in 2005.
America is India's largest trading partner. Continued annual economic growth of 8-9 percent depends on partnership with the world's largest economic power in trade, investment, technology, and market access. India's dependence on imported energy--and its intense competition with China for control of oil and gas supplies, from Ecuador to Angola--gives it an abiding interest in energy cooperation with America and Japan, including protecting the sea lanes linking the Persian Gulf to Asian waters.
India is committed to balancing Chinese power in Asia. "India has never waited for American permission to balance China," says Indian strategist Raja Mohan. "I tell the Americans: You balanced China from 1949 to 1971, but then allied with Beijing from 1971 to 1989. India has been balancing China since the day the Chinese invaded Tibet in 1950. We have always balanced China--and that's what we'll continue to do." India, Mohan insists, "will never play second fiddle to the Chinese."
The challenge posed to India's security and its identity as a democratic Asian power by the rise of authoritarian China is fueling the new warmth in India's relations with Washington and Tokyo.
"[T]here is a major realignment of forces taking place in Asia," explained India's foreign secretary in 2005. "There is the emergence of China as a global economic powerhouse. There will be increased capabilities that China will be able to bring to bear in this region and even beyond. India also is going to be a major player in Asia. . . . I think India and the United States can contribute to a much better balance in the Asian region."
India, according to Indian Express editor in chief Shekhar Gupta, faces a strategic choice between building economic and military power in partnership with America and playing underdog to China in a global anti-American axis. "Is it a good or bad thing for India that the Cold War is over and that, in a resultant unipolar world, it has a mutually beneficial relationship with the only superpower?" he asks. The alternative is for India "to be to tomorrow's China what Cuba was to yesterday's Soviet Union. . . . [G]o seek a referendum from the people of India on that."
Although Chinese military strategists worry less about India than about America and Japan, the prospect of an enduring Indo-U.S. military partnership attracts Beijing's full attention. Indian strategist Brahma Chellaney recounts, "On my visits to China, I have found as an Indian that the only time the Chinese sit up and listen is when the U.S.-India relationship comes up. India and the United States ganging up militarily is China's worst nightmare."
So, too, could be an emerging strategic entente between India and Japan. Japanese prime minister Shinzo Abe has said, "It is of crucial importance to Japan's national interest that we further strengthen our ties with India," which he calls "the most important bilateral relationship in the world."
Since assuming office in September, Abe has enthusiastically backed the concept of a quadrilateral security partnership among Japan, India, Australia, and the United States. Abe says the values of "freedom, democracy, human rights, and the rule of law" are central to Japan's identity as an Asian great power. "I believe Japan should play a role in trying to spread such values, for example in the Asian region," he recently told the Washington Post's Fred Hiatt. This makes democratic India a natural strategic partner.
Indian officials are enthusiastic about what Abe calls the development of a "new Asian order" based on strategic cooperation among Asian democracies. As Japan's ambassador in New Delhi, Yasukuni Enoki, recently put it, an Indo-Japanese strategic partnership could become "the driving force behind an emerging Asia," creating what Prime Minister Singh calls "an arc of advantage and prosperity" that will "enhance peace and stability in the Asian region and beyond."
Japan is expected to join India and the United States next year in high-profile naval exercises in the South China Sea. The two countries are pursuing a comprehensive economic partnership that includes Japanese provision of advanced technology to India to accelerate its rise. "India is the key counterweight to China in Asia, along with Vietnam," says one senior Japanese official. According to India's Mohan, "You'll see the India-Japan relationship change more over the next few years than any of our other key relationships. India-Japan is the next big game."
Such cooperation between a rising India and a more muscular Japan raises the prospect of what Chellaney, in his Asian Juggernaut: The Rise of China, India, and Japan, calls the emergence of an Asian "constellation of democracies" dedicated to preserving what the State Department's Nicholas Burns calls "a stable balance of power in all of the Asia-Pacific region--one that favors peace through the presence of strong democratic nations enjoying friendly relations with the United States."
To foster an Asian balance that safeguards its liberal principles, India will need to wield the appeal of its democratic values as a strategic asset. India played a key role in brokering Nepal's recent agreement to hold democratic elections, but it continues to appease Burma's military junta in ways that alienate its natural allies, the Burmese people. They voted overwhelmingly for the democratic, pro-Indian opposition in the country's last free elections.
"India's regional grand strategy must be based on our belief that what is good for us is also good for our neighbors; in other words, pluralistic political systems, the rule of law, the rights of the individual," argues Hindustan Times columnist Manoj Joshi. From Rawalpindi to Rangoon, Indian leaders will find that democrats make better neighbors than military dictators.
India's quest for strategic autonomy and its identity as a great civilization mean that it will never be the kind of subordinate ally the United States cultivated during the Cold War. The closest historical model for America's ambition to accelerate India's rise to world power may be France's decision to invest in Russia's economic and military modernization in the late 19th century. France's goal was to build Russia up as an equal partner to help manage the rise of German power in Europe--just as the United States today hopes to construct friendly centers of power in Asia to limit China's ultimate ambitions.
"We're fully willing and ready to assist in th[e] growth of India's global power, . . . which we see as largely positive," says Secretary of State Condoleezza Rice. Turning the caricature of ally-bashing unilateralism on its head, in India, the Bush administration is working concertedly, writes journalist Edward Luce, "to play midwife to the birth of a new great power."
Now the enactment in Washington of legislation enabling Indo-American civilian nuclear cooperation is a compelling riposte to leaders on the left and right of Indian politics who remain skeptical of Secretary Rice's commitment that America will be "a reliable partner for India as it makes its move as a global power." Senator Richard Lugar calls the agreement "the most important strategic diplomatic initiative undertaken by President Bush." India's "normalization" as a nuclear power through agreements with the United States, the Nuclear Suppliers Group, and the International Atomic Energy Agency will encourage it to remain a responsible nuclear state committed to upholding a global nuclear order from which it had previously been excluded.
Civilian nuclear cooperation with Washington gives India even greater incentives to maintain India's "impeccable" (Prime Minister Singh) and "excellent" (Secretary Rice) nonproliferation record. It should also encourage Indian cooperation containing Iran's nuclear weapons program: In February, India voted with the United States to refer Iran to the United Nations Security Council for possible sanctions.
The notion of a Sino-American partnership to contain India's rise as a nuclear power, as suggested by President Clinton's joint condemnation of India's nuclear tests with Chinese president Jiang Zemin in Beijing in 1998--and more recently by American critics of the U.S.-India nuclear deal--rankles Indian elites. They are confused by the determination of U.S. critics to hold India to a far higher proliferation standard than China has displayed in its transfer of nuclear technology to Pakistan. They are surprised that some American experts believe excluding India from the legitimate nuclear order is more faithful to the cause of nonproliferation than enmeshing India in the rules of the nuclear club. And they are baffled that the West would want to entrench a balance of terror between democratic India and authoritarian China that permanently favors the latter.
Economic dynamism is fueling India's geopolitical ambitions. This new vigor is somewhat mystifying when judged against the bureaucratic incompetence of the Indian state. Despite scandalous underinvestment in education, sanitation, health, and infrastructure, India's economy is growing at an annual rate of 8-9 percent and is forecast to surpass China as the world's fastest-growing major economy next year. India remains burdened by acute poverty, yet possesses an expanding middle class already larger than the entire population of the United States. It suffers from stifling and corrupt government, yet boasts world-beating companies with global reach. Its dizzying politics--which currently pit a profoundly reformist prime minister against old-fashioned Marxists and caste-based populists within his own governing coalition--do not lend themselves to the kind of strategic economic liberalization China's leaders have managed since 1978.
"To race China, first let's get our feet off the brakes," implores the former editor of the reformist Indian Express, Arun Shourie. If and when this happens, Indian power, prosperity, and culture could change the world.
India's rapidly expanding middle class is expected to constitute 60 percent of its billion-plus population by 2020. India is expected to surpass Japan in the 2020s as the world's third-largest economy at market exchange rates, and to surpass China around 2032 as the world's most populous country. India's relative youthfulness should produce a "demographic dividend": While its 400 million-strong labor force today is only half that of China, by 2025 those figures will reverse as China's population rapidly ages.
India's economic growth may be more sustainable than China's. Domestic consumption accounts for nearly two-thirds of India's GDP but only 42 percent of China's, making India's growth "better balanced" than that of China's export-dependent economy, according to Morgan Stanley's Stephen Roach. India's combination of private-sector dynamism and state incompetence means that "India is rising despite the state," in the words of economist Gurcharan Das. It is "an organic success from below" rather than one directed by government planners, and is therefore "more likely to endure."
Conventional wisdom that Indian democracy constrains economic growth, and is inferior to the ruthless efficiency of China's authoritarian development model, is wrong. India's curse--like China's until quite recently--has been an overweening state that squeezes out private investment and creates massive opportunities for corruption. "India's problem isn't too much democracy, it's too much socialism," says Prannoy Roy, the founder of India's NDTV.
This is rapidly changing as economic reform transforms India's economic landscape, fueling a vast domestic consumer market and providing a launching pad for Indian companies like Infosys, recently listed on the NASDAQ-100. More fundamentally, its democratic political foundation gives India a long-term comparative advantage by rendering less likely the kind of revolutionary unrest that has regularly knocked China's growth off course throughout that country's long history.
Infused with the missionary spirit and the ideology of the Open Door, Americans have long held a fascination with the prospect of changing China in our own image. Yet authoritarian China's rise and growing nationalism raise questions about when and whether China will embrace political liberalism.
India may be a better template against which to judge the appeal of democratic values on Asian soil--and a surer partner in managing security challenges, from Chinese power to global terrorism, whose threat lies in their lack of democratic control. A durable Indo-American partnership of values promises higher dividends than a century of failed attempts to forge an enduring Sino-American alliance in Asia.
The United States is strangely popular in India. Polling regularly shows Indians to be among the most pro-American people anywhere--sometimes registering warmer sentiments towards the United States than Americans themselves do. But this is not so strange: India and America are the world's biggest and oldest democracies. Both are multiethnic, continental empires with strong cultural-religious identities. Each inherited the rule of law from Britain. Indian and American foreign policies appear equally animated by a self-regarding exceptionalism and a habit of moralizing in international affairs.
Both India and America are revisionist powers intent on peacefully recasting the contemporary international order and ensuring themselves a prominent place in it. America's rise to world power in the 19th and 20th centuries is, in some respects, a model for India's own ambitions. As Indian analyst Pratap Bhanu Mehta told the New York Times, Indians have "great admiration for U.S. power" and want their country to "replicate" it, not oppose it. How many of America's European allies share such sentiments?
The CIA has labeled India the key "swing state" in international politics. It predicts that India will emerge by 2015 as the fourth most important power in the international system. Goldman Sachs predicts that, by 2040, the largest economies on earth will be China, the United States, India, and Japan. A strategic partnership of values among the last three, naturally encompassing the European Union, may defy predictions of a coming "Chinese century"--and set a standard of democratic cooperation and prosperity China itself might ultimately embrace on its own path to greatness.
Daniel Twining, a former adviser to Senator John McCain, is a fellow of the German Marshall Fund of the United States, based in Oxford and New Delhi, and the Fulbright/Oxford Scholar at the University of Oxford.

China’s economic rise destabilises world capitalism
Part two
By John Chan20 February 2007

The following is the second part of a report delivered by World Socialist Web Site correspondent John Chan to a membership meeting of the Socialist Equality Party (Australia) from January 25 to January 27, 2007. Part one was posted on February 19.
SEP national secretary Nick Beams’s report was posted in three parts—Part one on February 12, Part two on February 13 and Part three on February 14. James Cogan’s report on Iraq was posted on February 15. Peter Symonds’s report on Iran was posted in two parts—Part one on February 16 and Part two on February 17.
The danger of imperialist war is compounded by the deepening economic crisis of world capitalism. After three decades of globalised production, the advanced capitalist countries, the US in particular, have discovered that the economic crisis that they sought to avoid by diverting manufacturing to cheap labour countries has returned home on a much larger scale.
China’s foreign currency reserves surpassed the $1 trillion mark last year, while the US trade deficit with China reached a new record of $230 billion. The American and Chinese ruling elites have no progressive means for resolving these massive economic imbalances. Beijing needs to keep foreign capital flowing in and exports expanding, in order to create 24 million jobs a year to maintain social stability. The US economy requires the supply of $2 billion a day from the rest of the world, especially from Asian central banks, to finance its massive trade deficits.
If this process continues indefinitely, the financial system must collapse at some point with incalculable consequences for the world economy. The solution offered by the Democrats in the US Congress to “correct” these imbalances is to promote protectionist legislation against China, which will only heighten political tensions and threaten financial stability.
A new book China Shakes the World: The Rise of A Hungry Nation by James Kynge, a veteran China correspondent for the British-based Financial Times, provides some insights into the global impact of China’s enormous economic contradictions. His study found that China resembles, to some extent, the US in the late nineteenth century, in terms of its infrastructure development.
In the 1990s, after discovering that the US interstate highway system had saved American companies $1 trillion over the past four decades, Beijing bureaucratic planners copied the US system across China. When this plan is finished by 2030, China will have 830,000 kilometres of expressways—a little longer than the existing the US system. China is also building railways that duplicate much of the American railroad boom at the turn of twentieth century, including a rail line to Tibet—the “roof of the world”. The scale of China’s electricity power construction is also unprecedented. Every year since 2004, China has been building enough power plants to supply a major European country such as Italy or Spain.
On the other hand, Kynge pointed out, the wages of Chinese workers are far worse when compared to English workers during the Industrial Revolution or an American worker in nineteenth century. Some 200 years ago, a British Weavers Minimum Wage Bill proposed to pay eight shillings a week. After adjusting for time and converting into Chinese currency, Kynge estimated this was double the average wage of a semi-skilled rural migrant worker in China today. A Chicago worker in a lumber yard in the 1850s would have earned between one and half to three times more than a modern Chinese worker doing a similar job today.
The marriage between modern infrastructure and the country’s vast pool of cheap labour is the key to China becoming the new manufacturing centre for global capital. But China is no longer just a cheap labour platform. It is also rapidly developing as a more sophisticated industrial power. According to the Organisation of Economic Cooperation and Development (OECD), mainly due to growing international investment, China last year surpassed Japan to become the world’s second largest spender on research and development. China has also overtaken Germany as the fifth most prolific nation in filing patents for new processes and technologies.
Although its overall capacity for technological innovation still lags far behind industrially developed countries, these figures demonstrate that China is rapidly catching up. Coupled with rampant violations by Chinese companies of intellectual property rights—ranging from DVDs to cars—China’s economy is growing not just at the expense of jobs in South East Asia and Latin America, but increasingly replacing skilled labour in the advanced capitalist countries.
China now exports not only shoes and clothes, but also car components and machine tools that still form the manufacturing basis of Western economies. It is not coincidental that after China’s entry into the WTO in 2001, there has been a continuing drop in wages and a loss of jobs in both advanced and developing countries. In the US, some three million manufacturing workers have lost their jobs. In Europe, China’s impact on small and medium-sized firms, which employ the bulk of workforce, contributed to the continent’s 9 percent unemployment rate.
The process of China moving up the technological ladder, Kynge’s study found, is driven by the necessities of the market. Boeing, the US aircraft manufacturer, for example, initially had to send some production to China and other low-wage countries to maximise the returns to its shareholders. “But in doing so,” Kynge wrote, “it threatened to put out of business many of its small, long-term suppliers [in the US]... The process was self-reinforcing. The more Boeing outsourced, the quicker the machine tool companies that supplied it went bust, providing opportunities for Chinese competitors to buy the technology they needed, better to supply companies like Boeing. Boeing makes money, but ultimately at the expense of the industries and jobs that sustain Middle America.”
Chinese and Indian cheap labour is having an impact on more than just semi-skilled factory jobs or basic call centre services. IT companies now can outsource even the most skilled professional jobs to any geographical location. According to McKinsey Global Institute, some 9.6 million jobs in the US service sector could theoretically be outsourced overseas. If that happened, it would double the US unemployment rate from around 5 percent to more than 11 percent.
Every year, China produces more university graduates than the US and 60 percent of them cannot find a job. National language no longer offers protection to US workers from global competition. There is already a large pool of English-speaking, educated Indian workers. In China, an estimated 200 million people are learning English. The mere existence of these vast reserve armies of labour has created a huge downward pressure on wages and conditions, even for middle-class professionals in Western countries. In the final analysis, the integration of a new labour force of more than two billion low-cost workers in the global capitalist economy is a major factor behind the eruption of social unrest in France and other countries in 2006.
Kynge wrote in his book that the existing European welfare states are incompatible with competition from China. “Intellectually, many in Europe may find it distasteful that the EU runs a subsidy under which cows get more than $2 a day—more than the average daily income of 700 million Chinese...
“China was able in the five years from the onset of the Asian financial crisis in 1997 to lay off more than 25 million workers from its inefficient and heavily subsidised state-owned enterprises. The fruits of that stern therapy are now evident in the competitive shock that is hitting Europe and America. But China is not a democracy... When workers rioted, protested, petitioned or dissented, it answered with well-honed authoritarian tactics. The result has been that state-financed social welfare has in the space of less than a decade ceased to be a millstone for the corporate sector. The housing, schooling, healthcare and pension obligations that over 300,000 state companies used to meet on behalf of their workers have now been eliminated, reduced or privatised. China today is a great deal less socialist than any country in Europe; the 120 million or so migrant workers, for instance, receive no welfare at all.”
The social costs of this anarchic “market reform” in China is huge. More than 110,000 Chinese workers were killed in industrial accidents last year. Most of the country’s rivers and lakes have been severely contaminated by toxic chemicals. Most major Chinese cities are facing water shortages. The lack of public funding in education has produced huge hardships for students and their families. According to official figures late last year, the cost of university education in China has increased 25-fold since 1989, while average real urban incomes have increased only 2.3-fold in the past 18 years. While China’s counterfeiting businesses has created a profitable, multi-billion underground economy, its fake goods, including drugs and foods, have damaged the health of tens of millions of people.
The “rise of China” does not signal a new golden age for capitalism. Long before China becomes a mature capitalist power, it will confront violent struggles with other powers for raw materials and geopolitical influence. The US and Japan have already expressed their open hostility toward a more assertive China. Last year Indian Prime Minister Manmohan Singh told Chinese President Hu Jintao that Asia was big enough for the two countries. In fact, the economic dynamism of the two rivals is placing them on a collision course for regional dominance.
China’s socially destructive industrialisation is not based on a historic upward expansion of world capitalism, but is the product of its decay. China’s economic growth will deepen class tensions around the world by intensifying the downward global pressure on wages and working conditions. Within China, harsh social conditions and political repression must inevitably generate a social explosion among the country’s hundreds of millions of workers and rural poor.
The world capitalist system has already produced the objective conditions for revolutionary upheavals across the globe. Our next step is to reach out to the most advanced layers of young people, workers and professionals to equip them with an international socialist perspective. This will be the most decisive factor in the struggles against war, militarism and social inequality.

US “coerced” India over Iran
Former Bush appointee boasts
By Kranti Kumara20 February 2007

In a public speech Stephen G. Rademaker, a former US Assistant Secretary of State for Nonproliferation and International Security, boasted in New Delhi last week that the United States “coerced” India into voting against Iran at recent International Atomic Energy Agency (IAEA) meetings and warned that Washington may soon present India with an even starker choice.
Rademaker delivered an address to the Institute for Defence Studies and Analyses, a “think-tank” funded by the Indian Ministry of Defence, February 15 on “Iran, North Korea and the future of the NPT (Nuclear Non-Proliferation Treaty)”.
The former Bush administration official claimed that the July 2005 Indo-US nuclear accord had resulted in a big change in India’s attitude towards what he termed “non-proliferation.” Translated into plain English this means that the US has made the nuclear agreement contingent upon India siding with the US in its attempt to bully Iran over its nuclear program and fully intends to use the accord to exact further concessions from India.
Commenting on the Indian votes at IAEA meetings in September 2005 and February 2006, Rademaker declared, “The best illustration of this is the two votes India cast against Iran at the IAEA. I am the first person to admit that the votes were coerced.”
Rademeker’s provocative comments were initially reported only in the Hindu of February 16. A day later, the Times of India also carried the story.
As of the beginning of this week, there had been no response to Redemaker’s comments either from officials of the Indian government or from the leaders of the opposition parties, including the Stalinist Communist Party of India (Marxist), which, even while providing India’s Congress Party-led United Progressive Alliance government with the parliamentary votes needed to remain in office, has sharply criticized India’s two votes against Iran and warned that Washington is seeking to use the Indo-US nuclear accord to harness India to its predatory and bellicose geo-political designs.
The current US ambassador to India, David Mulford, has, for his part, hastened to distance the US government from Redemaker. Said Mulford, “It has always been the US position that India will make decisions on the Iran issue based on its own national interests. We respect the government of India’s decisions on this matter. Redemaker is not a US official and the statements attributed to him are inaccurate.”
Such denials coming from an official who has himself become notorious for his repeated provocative interventions in Indian affairs carry little, if any, weight. In January 2006, Mulford publicly warned that the Indo-US nuclear accord would “die” if India failed to support the US position against Iran at the upcoming IAEA meeting.
Earlier this month, as India’s External Affairs Minister Pranab Mukerjee was departing for a two-day trip to Tehran, Mulford told the press that he was watching the visit with “interest.” The ambassador added that he wanted to ascertain if any Indo-Iranian agreements would result in India violating the 1996 Iran and Libya Sanctions Act—US legislation that threatens any foreign firm that invests more than $40 million in the development of Iran’s petroleum resources with financial penalties.
The Bush administration has repeatedly publicly urged India to forego plans to build a pipeline to import Iranian natural gas via Pakistan. New Delhi, however, sees this project as both economically and politically rewarding, since it would underpin the current attempt to conclude a comprehensive peace settlement with Pakistan. The pipeline deal was high on Mukherjee’s agenda for his Tehran visit. Earlier this month Indian Prime Minster Manmohan Singh, who at the time of the nuclear accord with the US had initially dismissed the pipeline deal as a far-off venture, enthusiastically touted its benefits.
The rival ambitions underlying the Indo-US nuclear accord
Under the Indo-US nuclear accord, Washington has pledged to help forge a unique status for India within the world nuclear regulatory regime, making it eligible to receive civilian nuclear fuel and technology from the 45-member Nuclear Suppliers Group even though it is not a signatory to the NPT.
Such “special status” is highly coveted by the Indian elite for several reasons: because it exemplifies the US’s readiness to forge a strategic partnership with India and, in the words of US Secretary of State Condoleezza Rice, “help” India to become a “world-power”; because India is hoping to reduce its dependence on energy imports by developing nuclear power; and because access to civilian nuclear fuel and technology exports will enable India to concentrate the resources of its own nuclear program on building its nuclear-weapon arsenal.
While the Indian elite looks at the nuclear accord as propelling it into the realm of a world-power, the Bush administration and US geo-political establishment by contrast see it as cementing a strategic partnership in which India will play the role of satrap—that is, India will be expected to accommodate to and serve US imperialist ambitions in the Middle East and Asia.
“In the end,” continued Redemaker, “India did not vote the wrong way.” India’s votes against Iran had “paved the way for the Congressional vote on the civilian nuclear proposal last year”—a reference to legislation adopted by the US Congress last December that amends the 1952 US Energy Act so as to facilitate the Bush administration plan to grant India “special status” within the world nuclear regulatory framework.
But, and this was no doubt the key point of Redemaker’s “non-official” speech, the Bush administration is far from finished with its efforts to “coerce” India into doing its bidding against Iran: “More is going to be required [of India] because the problems of Iran and North Korea have not been solved.”
Redemaker then repeated the Bush Administration’s charge that Iran is developing nuclear weapons, without presenting a shred of proof.
He asserted that the “international community” will have to implement additional measures to persuade Iran to change course, while observing that Russia, whose president just visited India so as to revitalize the longstanding Indo-Russian military and geo-political alliance, is not fully siding with the US against Tehran.
“Whether there will be more UN sanctions or more measures taken outside the UN context, we’ll have to see,” Redemaker said.
India’s UPA government and the Indian elite find themselves on a strategic tightrope.
They have pursued closer relations with China, Russia and Iran, even while accepting “favours” from the US, which has made no secret of the fact that it expects India to support its efforts to politically and economically isolate Iran and to serve as a strategic counterweight to a rising China.
India’s elite has gambled that it can navigate through the shifting and increasingly turbulent seas of world politics, but now finds itself facing the imminent prospect of having to make a choice with tremendous long-term implications for India’s role in world affairs and its access to the energy reserves needed to fuel India’s economic growth.
New Delhi’s suggestions that it could act as a mediator between Tehran and Washington have been met by the Bush administration with a contemptuous silence. Instead, as indicated by Mulford’s recent remarks, the US is stepping up its efforts to scuttle the Iranian pipe line project.
Tehran, meanwhile, has sweetened its offer to India. It is guaranteeing the sale to India of natural gas at half the current international price. The attraction of the project for India is compounded by Russian President Putin’s recent announcement that the state-owned Gazprom energy monopoly is ready to take a leading role in financing and building the India-Pakistan-Iran pipeline.
“[If] the U.N. Security Council acts against Iran,” Redemaker told his New Delhi audience last week, “this would make things easier for countries like India. But if things go in the direction of increasing economic pressure by a coalition of countries like the US, Europe and Japan, India will have to make a choice.
“It is India’s prerogative to decide, but should it [not join], it would be a big mistake and a lost opportunity.”
Redemaker claimed that for India to pullout of the Iran-Pakistan-India gas pipeline project “would send a strong message to Iran, while not hurting India’s economic interests.”
Ominously he continued: “[What] happens if there is an incident in Kashmir?” implying that the US would not hesitate to utilize the Indo-Pakistani geo-political rivalry to bully India to fall into line.
These threats were combined with flattery. Redemaker urged India’s elite to stop thinking of themselves as leaders of a “third-world-country” and instead align themselves with the “first-world,” i.e. the traditional imperialist powers, the US, the EU countries and Japan.
The stark choices facing the Indian elite with respect to its relations with US will undoubtedly cause great turmoil and much soul-searching within the Indian ruling elite.
For the international working class, Washington’s campaign to intimidate India in preparation for further aggression against Iran must be seen as testament to the recklessness and desperation of a US elite intent on averting the erosion of its economic power through wars and threats of wars and as underlining, therefore, the urgency of reviving the antiwar movement on a socialist and internationalist perspective.

China’s economic rise destabilises world capitalism
Part one
By John Chan19 February 2007

The following is the first part of a report delivered by World Socialist Web Site correspondent John Chan to a membership meeting of the Socialist Equality Party (Australia) from January 25 to January 27, 2007. Part two will be posted on February 20.
SEP national secretary Nick Beams’s report was posted in three parts—Part one on February 12, Part two on February 13 and Part three on February 14. James Cogan’s report on Iraq was posted on February 15. Peter Symonds’s report on Iran was posted in two parts—Part one on February 16 and Part two on February 17.
Political events in the past year have confirmed the analysis we made at the meeting of the International Editorial Board of the World Socialist Web Site in January 2006. Instead of moving into a new era of ascendancy, the world capitalist system has entered a period of war and revolution.
The debacles in Iraq and Afghanistan have demonstrated that brute force cannot reverse the historic decline of US imperialism. At the same time, the capitalist nation-state system is organically incapable of peacefully resolving the problem of who is going to be the dominant power, either regionally or internationally.
Following the end of the Cold War in 1991, no major power, including emerging ones such as China, India and Russia, is capable of establishing a new equilibrium of world capitalism. On the contrary, their emergence, along with the more aggressive military posture of imperialist powers such as Germany and Japan, is a profoundly destabilising factor. Far from accepting a so-called “multi-polar world,” American imperialism is trying to use its residual military might to maintain its hegemonic position as the sole superpower.
The prospect of US militarism driving mankind into a global conflagration is not remote. As the Bush administration intensifies its military escalation in Iraq, it is also threatening a wider regional war against Iran and Syria. To the south, the US has already started a new adventure in the Horn of Africa by backing the Ethiopian army’s invasion of Somalia. In each of these regions, the reckless actions of the US are cutting across the essential material interests of other major powers.
Prior to the US invasion of Iraq, there was a decade of UN sanctions against the regime of Saddam Hussein. The economic impact of a US war against Iran would be significantly different. Earlier this month, as the US was pressuring the Chinese state-owned oil company CNOOC to scrap its $16 billion investment in Iran’s North Pars gas field, another Chinese oil firm CNPC announced a $3.6 billion investment in Iran’s South Pars gas field. In response to Washington’s warnings, Beijing declared that the US should not interfere with normal commercial cooperation.
For China, these deals with Tehran are not only commercial but also strategic. A US military strike on Iran, which could involve nuclear weapons, will seriously undercut the huge energy supplies and other economic interests that the European powers, Japan, China, Russia and India have in that country. The conflict in Somalia also has the potential to threaten China’s newly developed presence in Africa, especially Sudan, which houses some of China’s largest overseas oil projects.
It is worth recalling what happened the last time the US imposed an oil embargo on one of its principal rivals, in 1941. It forced Japan to attack Pearl Harbour and turned the war in Europe into a global conflict. The Second World War ended with nuclear strikes on Japan. A new world war in the twentieth-first century would, in all likelihood, start with nuclear weapons.
American working people overwhelmingly rejected the Iraq war at the November congressional elections. But the US ruling class will not voluntarily retreat from the Middle East. If the US withdrew from Iraq, it would trigger a scramble by its European and Asian rivals for control of the region. China, like the US and European powers, is already engaged in the Middle East.
In December, for instance, Beijing hosted a Middle Eastern “peace” seminar attended by high-level Israeli and Palestinian officials. The largely symbolic meeting was used to proclaim China’s ambition to play a bigger role in the region’s affairs. The joint Israeli-Palestinian statement declared: “We ask China to take practical steps to increase its influence in the region, such as joining the Middle East quartet of the United States, the European Union, Russia and the United Nations, in order to make its interests in stability and peace in the world bear upon the future of our region.” Last year Beijing sent 1,000 troops to Lebanon as part of the international peace-keeping mission—the largest Chinese overseas military contingent since the 1980s.
The US aims to undermine the economic and strategic position of its competitors by dominating the huge reserves of oil and gas in the Middle East and Central Asia. But increasingly the US is facing complex challenges to its plans to control the world’s energy resources, especially in the Eurasian heartland.
In a speech prior to the NATO summit in Latvia two months ago, Richard Lugar, the former chairman of the US Senate Foreign Relations Committee, bluntly explained: “In the coming decades, the most likely source of armed conflict in the European theatre and the surrounding regions will be energy scarcity and manipulation.”
Lugar pointed to the underlying concerns. “We all hope that the economics of supply and pricing surrounding energy transactions will be rational and transparent. We hope that nations with abundant oil and natural gas will reliably supply these resources in normal market transactions to those who need them. We hope that pipelines, sea-lanes, and other means of transmission will be safe. We hope that energy cartels will not be formed to limit available supplies and manipulate markets. We hope that energy rich nations will not exclude or confiscate productive foreign energy investments in the name of nationalism...
“Unfortunately,” Lugar continued, “our experiences provide little reason to be confident that market rationality will be the governing force behind energy policy and transactions. The majority of oil and natural gas supplies and reserves in the world are not controlled by efficient, privately owned companies. Geology and politics have created oil and natural gas superpowers that nearly monopolise the world’s oil supply.”
Lugar suggested that NATO should invoke its Article 5 if the energy supply of any of its member states was cutoff, as such an action should be regarded as an armed attack against NATO. He specifically warned of the prospect of Russia attempting to form a natural gas cartel including Algeria, Libya, Qatar, Iran and the Central Asian republics to enhance Moscow’s ability to use energy as a strategic weapon. Lugar also named newly industrialising states such as India and China as competitors for global energy supplies with the economically developed powers.
Although the NATO meeting did not accept Lugar’s advice, Russia’s move on January 8 to shut down one of its major pipelines carrying oil from Siberia to the refineries in Europe via Belarus, demonstrates the potentially explosive character of conflicts over energy. Germany relies on Russia for one-third of its oil imports, mostly through this pipeline, which also provides 96 percent of Poland’s oil imports. Europe as a whole depends on Russia for more than 30 percent of its oil. Last winter Russia threatened to cut off gas supplies to the Ukraine. It was a shock not just to Kiev, but other European capitals. This strategy allows Russia to divide the European Union and counter political pressures on Moscow.
Central Asian challenge
The US ambition to control the huge energy resources of the Middle East and Central Asia would allow Washington to do to its rivals what Moscow is already doing. The US strategy is, however, under challenge, particularly with the American military bogged down in Iraq. China and Russia are forming their own bloc to undermine US influence in Central Asia.
The Shanghai Cooperation Organisation (SCO), which includes Russia, China and the Central Asian republics, brings together Moscow’s vast reserves of oil and gas and Beijing’s rapidly growing economic clout. Neither China nor Russia wants an open confrontation with the US over Central Asia, but both countries have a shared interest in preventing American dominance in a region that is economically and strategically important.
In the 1990s, Moscow did not take a great deal of interest in the SCO, which it regarded as more of a Chinese initiative. But Russian President Vladimir Putin, facing the pressure of pro-Western “colour revolutions” on Russia’s borders, has discovered shared interests with China. Both countries want the US military out of Central Asia, while Russia is a supplier for China’s huge appetite for oil and gas. In turn, China, which is seeking to rapidly modernise its military, has been the main source of income for Russia’s decaying defence industries.
In 2005, as the US debacle in Iraq became transparent, China and Russia started to work closely to counter the US position in Central Asia. After Washington criticised Uzbekistan’s President Islam Karimov over his brutal suppression of anti-government protestors in Andijan, Beijing gave Karimov the red carpet treatment. As a result, the Uzbek president opened two dozen oilfields to Chinese companies and eventually shut down the US air base in Uzbekistan.
The SCO cuts directly across US plans for energy transport routes in the Middle East, the Caspian and Central Asia. Putin’s strategy is to use Russia’s state energy monopolies and its political influence in Central Asia and the Caspian region to establish a network of pipelines not only directed to Moscow’s traditional Western clients, but also to the dynamic economies of the Far East. Putin plans that a third of Russian oil and gas exports will go to the Far East by 2020, with China and Japan the biggest beneficiaries.
With Moscow building oil and gas pipelines to the Far East, and Beijing making huge investments in oilfields and pipelines across Central Asia, the prospect of an SCO regional “energy club,” which would act as a counterweight to US influence, has attracted India, Pakistan and Iran as observers.
Beijing and Moscow have also increased military cooperation. After their first large-scale joint military exercise in 2005, the two countries are planning another later this year, to include SCO member states and other former Soviet republics. Although Russia and China are still far from forming a formal military alliance, their close ties pose a potential challenge to US dominance and will provoke a reaction from Washington.
With Russian assistance, China is acquiring advanced military technology. It surprised the US on January 11 by launching a missile to destroy one of its own satellites. Beijing used the test to demonstrate to Washington that China has the capacity to destroy satellites, on which the US military is heavily dependent for navigation, intelligence and weapons guidance.
Despite Chinese President Hu Jintao’s slogan of the country’s “peaceful rise”, Beijing’s economic dynamism has an objective logic of its own. In order to secure the raw materials and energy supplies needed for the country’s booming industry, China is busy building its presence in Africa, Latin America and the Middle East. It was estimated that last year nearly half the world’s heads of state visited Beijing, while top Chinese leaders visited two-thirds of the members of the United Nations.
With more than $1 trillion in foreign currency reserves, China is very much behind the “Hugo Chavez” phenomenon not just in Latin America, but Africa, Asia and the Pacific. Unlike the US and other Western governments that posture about promoting democracy, Beijing sticks to a policy of “non-interference” in the internal affairs of other nations. It has offered billions of dollars in loans and aid to various countries, as long as they agree to protect China’s economic and strategic interests.
As a result, China has become a new, alternative source of funds for many developing countries. In October, Beijing hosted a summit for the government heads of the 10 South East Asian nations. In November, China invited the leaders of 48 African nations to a lavish gathering, signalling Beijing’s entry into the new scramble for Africa. These leaders came to China not only for money, but also political support.
China is promoting itself as a new role model for developing countries, in which dictatorship rather than “democracy” is viewed as a crucial component of economic success. This is particularly favoured by various corrupt Third World regimes, which are under pressure from the Western powers, for their own reasons, to carry out limited political reforms.
Beijing’s support for, including in some cases the provision of arms, Sudan, Zimbabwe, Myanmar and Venezuela—i.e., to regimes to which Washington is openly hostile—has provoked opposition from the Bush administration. Over a year ago, former US deputy secretary of state, Robert Zoellick, commented: “China’s involvement with troublesome states indicates at best a blindness to consequences and at worst something more ominous.” He warned that if Beijing wanted to “push the US out, they will get a counter-reaction” from Washington.
This “counter-reaction” is already evident in the US push for the strategic encirclement of China. Last year, Bush signed an accord with India on nuclear cooperation and encouraged New Delhi to act as a counterweight to Beijing. Washington has also backed Australia’s escalating intervention in the South Pacific to topple regimes that were inclining towards China and other rivals.
In addition, the Bush administration has actively encouraged Japan to play a more aggressive role in North East Asia, against North Korea and China. The crisis over North Korea’s missile and nuclear tests has been provoked by the Bush administration’s bellicose policy to precipitate a “regime change” in Pyongyang. The long-term consequence of this standoff could well be the re-armament of Japan, including with nuclear weapons.

Why Iran's oil bourse can't break the buck

By F William Engdahl

A number of writings have recently appeared with the thesis that the announced plans of the Iranian government to institute a Tehran oil bourse, perhaps as early as this month, is the real hidden reason behind the evident march to war on Iran by the Anglo-American powers. The thesis is simply wrong for many reasons, not least that war on Iran has been in planning since the 1990s as an integral part of the United States' Greater Middle East strategy. More significant, the oil-bourse argument is a red herring that diverts attention from the real geopolitical grounds behind the march toward war that have been detailed on this website, including in my piece, A high-risk game of nuclear chicken, which appeared in Asia Times Online on January 31. In 1996, Richard Perle and Douglas Feith, two neo-conservatives later to play an important role in formulation of Bush administration's Pentagon policy in the Middle East, authored a paper for then newly elected Israeli prime minister Benjamin Netanyahu. That advisory paper, "A Clean Break: A New Strategy for Securing the Realm", called on Netanyahu to make a "clean break from the peace process". Perle and Feith also called on Netanyahu to strengthen Israel's defenses against Syria and Iraq, and to go after Iran as the prop of Syria. More than a year before President George W Bush declared his "shock and awe" operation against Iraq, he made his now-infamous January 2002 State of the Union address to Congress in which he labeled Iran, along with Iraq and North Korea, as a member of the "axis of evil" trio. This was well before anyone in Tehran was even considering establishing an oil bourse to trade oil in various currencies. The argument by those who believe the Tehran oil bourse would be the casus belli, the trigger pushing Washington down the road to potential thermonuclear annihilation of Iran, seems to rest on the claim that by openly trading oil to other nations or buyers in euros, Tehran would set into motion a chain of events in which nation after nation, buyer after buyer, would line up to buy oil no longer in US dollars but in euros. That, in turn, goes the argument, would lead to a panic selling of dollars on world foreign-exchange markets and a collapse of the role of the dollar as reserve currency, one of the "pillars of Empire". Basta! There goes the American Century down the tubes with the onset of the Tehran oil bourse. Some background considerationsThat argument fails to convince for a number of reasons. First, in the case of at least one of the oil-bourse theorists, the argument is based on a misunderstanding of the process I described in my book, A Century of War, regarding the creation in 1974 of "petrodollar recycling", a process with which then-US secretary of state Henry Kissinger was deeply involved, in the wake of the 400% oil-price hike orchestrated by the Organization of Petroleum Exporting Countries (OPEC). The US dollar then did not become a "petrodollar", although Kissinger spoke about the process of "recycling petrodollars". What he was referring to was the initiation of a new phase of US global hegemony in which the petrodollar export earnings of OPEC oil lands would be recycled into the hands of the major New York and London banks and re-lent in the form of US dollar loans to oil-deficit countries such as Brazil and Argentina, creating what soon came to be known as the Latin American debt crisis. The dollar at that time had been a fiat currency since August 1971 when president Richard Nixon first abrogated the Bretton Woods Treaty and refused to redeem US dollars held by foreign central banks for gold bullion. The dollar floated against other major currencies, falling more or less until it was revived by the 1973-74 oil-price shock. What the oil shock achieved for the sagging dollar was a sudden injection of global demand from nations confronted with 400% higher oil-import bills. At that time, by postwar convention and convenience, as the dollar was the only reserve currency held around the world other than gold, oil was priced by all OPEC members in dollars as a practical exigency. With the 400% price rise, nations such as France, Germany and Japan suddenly found reason to try to buy their oil directly in their own currencies - French francs, Deutschmarks or Japanese yen - to lessen the pressure on their rapidly declining reserves of trade dollars. The US Treasury and the Pentagon made certain that did not happen, partly with some secret diplomacy by Kissinger, bullying threats, and a whopping-big US military agreement with the key OPEC producer, Saudi Arabia. At that time it helped that the shah of Iran was seen in Washington to be a vassal of Kissinger. The point was not that the US dollar became a "petro" currency. The point was that the reserve status of the dollar, now a paper currency, was bolstered by the 400% increase in world demand for dollars to buy oil. But that was only a part of the dollar story. In 1979, after the accession to power of the ayatollah Ruhollah Khomeini in Iran, oil prices shot through the roof for the second time in six years. Yet, paradoxically, later that year the dollar began a precipitous free-fall, not a rise. It was no "petrodollar". Foreign dollar-holders began dumping their dollars as a protest against the foreign policies of the administration of US president Jimmy Carter. It was to deal with that dollar crisis that Carter was forced to bring in Paul Volcker to head the Federal Reserve in 1979. In October 1979 Volcker gave the dollar another turbocharge by allowing interest rates in the US to rise some 300% in weeks, to well over 20%. That in turn forced global interest rates through the roof, triggered a global recession, mass unemployment and misery. It also "saved" the dollar as sole reserve currency. The dollar was not a "petrodollar". It was the currency of issue of the greatest superpower, a superpower determined to do what it needed to keep it that way. The F-16 dollar backingSince 1979 the US power establishment, from Wall Street to Washington, has maintained the status of the dollar as unchallenged global reserve currency. That role, however, is not a purely economic one. Reserve-currency status is an adjunct of global power, of the US determination to dominate other nations and the global economic process. The United States didn't get reserve-currency status by a democratic vote of world central banks, nor did the British Empire in the 19th century. They fought wars for it. For that reason, the status of the dollar as reserve currency depends on the status of the United States as the world's unchallenged military superpower. In a sense, since August 1971 the dollar is no longer backed by gold. Instead, it is backed by F-16s and Abrams battle tanks, operating in some 130 US bases around the world, defending liberty and the dollar. A euro challenge?For the euro to begin to challenge the reserve role of the US dollar, a virtual revolution in policy would have to take place in Euroland. First the European Central Bank (ECB), the institutionalized, undemocratic institution created by the Maastricht Treaty to maintain the power of creditor banks in collecting their debts, would have to surrender power to elected legislators. It would then have to turn on the printing presses and print euros like there was no tomorrow. That is because the size of the publicly traded Euroland government-bond market is still tiny in comparison with the huge US Treasury market. As Michael Hudson explains in his brilliant and too-little-studied work Super Imperialism, the perverse genius of the US global dollar hegemony was the realization, in the months after August 1971, that US power under a fiat dollar system was directly tied to the creation of dollar debt. The US debt and the trade deficit were not the "problem", they realized. They were the "solution". The US could print endless quantities of dollars to pay for foreign imports of Toyotas, Hondas, BMWs or other goods in a system in which the trading partners of the United States, holding paper dollars for their exports, feared a dollar collapse enough to continue to support the dollar by buying US Treasury bonds and bills. In fact in the 30 years since abandoning gold exchange for paper dollars, the US dollars in reserve have risen by a whopping 2,500%, and the amount grows at double-digit rates today. This system continued into the 1980s and 1990s unchallenged. US policy was one of crisis management coupled with skillful and coordinated projection of US military power. Japan in the 1980s, fearful of antagonizing its US nuclear-umbrella provider, bought endless volumes of US Treasury debt even though it lost a king's ransom in the process. It was a political, not an investment, decision. The only potential challenge to the reserve role of the dollar came in the late 1990s with the European Union decision to create a single currency, the euro, to be administered by single central bank, the ECB. Europe appeared to be emerging as a unified, independent policy voice of what French President Jacques Chirac then called a multipolar world. Those multipolar illusions vanished with the unpublicized decision of the ECB and national central banks not to pool their gold reserves as backing for the new euro. That decision not to use gold as backing came amid a heated controversy over Nazi gold and alleged wartime abuses by Germany, Switzerland, France and other European countries. Since the shocks of September 11, 2001, and the ensuing declaration of a US "global war on terror", including a unilateral decision to ignore the United Nations and the community of nations and go to war against a defenseless Iraq, few countries have even dared to challenge dollar hegemony. The combined defense spending of all nations of the EU today pales by comparison with the total of current US budgeted and unbudgeted military spending. US defense outlays will reach an official, staggering level of US$663 billion in the 2007 fiscal year. The combined annual EU spending amounts to a mere $75 billion, and is tending to decline, in part because of ECB Maastricht deficit pressures on its governments. So today, at least for the present, there are no signs of Japanese, EU or other dollar holders engaging in dollar-asset liquidation. Even China, unhappy as it is with Washington's bully politics, seems reluctant to rouse the American dragon to fury. The origins of the oil bourseThe idea of creating a new trading platform in Iran to trade oil and to create a new crude-oil benchmark apparently originated with the former director of the London International Petroleum Exchange, Chris Cook. In a January 21 article in Asia Times Online (What the Iran 'nuclear issue' is really about), Cook explained the background. Describing a letter he had written in 2001 to the governor of the Iranian Central Bank, Dr Mohsen Nourbakhsh, Cook explained what he advised then:
In this letter I pointed out that the structure of global oil markets massively favors intermediary traders and particularly investment banks, and that both consumers and producers such as Iran are adversely affected by this. I recommended that Iran consider as a matter of urgency the creation of a Middle Eastern energy exchange, and particularly a new Persian Gulf benchmark oil price. It is therefore with wry amusement that I have seen a myth being widely propagated on the Internet that the genesis of this "Iran bourse" project is a wish to subvert the US dollar by denominating oil pricing in euros. As anyone familiar with the Organization of Petroleum Exporting Countries will know, the denomination of oil sales in currencies other than the dollar is not a new subject, and as anyone familiar with economics will tell you, the denomination of oil sales is merely a transactional issue: what matters is in what assets (or, in the case of the United States, liabilities ) these proceeds are then invested.
A full challenge to the domination of the US dollar as the world central-bank reserve currency entails a de facto declaration of war on the "full-spectrum dominance" of the United States today. The mighty members of the European Central Bank Council well know this. The heads of state of every EU country know this. The Chinese leadership as well as the Japanese and Indians know this. So does Russian President Vladimir Putin. Until some combination of those Eurasian powers congeal in a cohesive challenge to the unbridled domination of the United States as sole superpower, there will be no euro or yen or even Chinese yuan challenging the role of the dollar. The issue is of enormous importance, as it is vital to understand the true dynamics bringing the world to the brink of possible nuclear catastrophe today. As a small ending note, a good friend in Oslo recently forwarded me an article from the Norwegian press. At the end of December, Sven Arild Andersen, director of the Oslo bourse, announced he was fed up with depending on the London oil bourse trading oil in dollars. Norway, a major oil producer, selling most of its oil into euro countries in the EU, he said, should set up its own oil bourse and trade its oil in euros. Will Norway - a member of the North Atlantic Treaty Organization - become the next target for the wrath of the Pentagon?

http://www.atimes.com/atimes/Middle_East/HC10Ak01.html

What if Daniel Yergin is wrong?

Daniel Yergin is the oil optimist that peak oil believers love to hate. He is president of Cambridge Energy Research Associates (CERA), perhaps the most well-respected energy consulting firm in the world. He is the Pulitzer Prize-winning author of the best-selling history of oil, The Prize, which was also made into a PBS series. And, he is friendly, upbeat, calmly reassuring, and above all, quotable. Yergin's smiling face stands in stark contrast to the dour visages of the peak oil crowd as they warn of an imminent peak and subsequent collapse in oil production, an event that will shake our civilization to its very foundations.Not so fast, Yergin says. We have plenty of oil--enough to meet the needs of growing Asian giants such China and India and the rest of us as well for the next 30 to 40 years. After that oil supplies will reach an "undulating plateau." (The word "peak" seems so downbeat and distasteful that he refuses to utter it.) But, Daniel Yergin knows no more than anyone else about the future, especially the future 30 to 40 years hence. (In the past, much shorter time periods have proven problematic for Yergin and his firm. CERA predicted in 2001 that natural gas supplies in North America would be plentiful for the foreseeable future. That turned out to be woefully off the mark. In itself, it doesn't mean he's wrong about oil--only that he and his firm can make mistakes like the rest of us.)To repeat: Neither Yergin nor anyone else knows anything for certain about oil supplies 30 to 40 years hence. Yergin is merely assigning a high probability to a peak then. But, implicit in his forecast is this: Since oil is a finite resource which is being continuously depleted and since no one--not even Daniel Yergin--knows exactly how much new oil will be found over the next three to four decades, it follows that the probability of an oil peak grows with each passing year. It is this reality and not the cheerful certainty which Yergin exudes that ought to command our attention.The obvious question then is this: What if Daniel Yergin is wrong? What if the very low probability he assigns to a nearby peak doesn't stay neatly tucked beneath the tail of the bell curve of probabilities? What if peak oil--however disrespectful and unmannerly it may be--is about to arrive (or has already snuck in the back door and is waiting in the broom closet to surprise us)?In Daniel Yergin's world, the marketplace will take care of all necessary adjustments. But, no reporter to date has bothered to press him on how this would work if a peak were to occur, say, next year. If he were pressed on this point, I am certain he would say that a peak will not occur next year or the year after that or the one after that. Naturally, he could produce evidence for this belief; but, ultimately he could not by definition prove it--just as none of us can prove anything about the future.But, implicit in Yergin's insistence on a distant peak is that the marketplace would deal very badly with a nearby one. And, here we should note that Yergin is the author of another famous book called Commanding Heights, a paean to free market ideology. To admit the possibility of a nearby peak would be to admit that the free market has already failed to detect and fix a critically important problem, one that could challenge the very continuity of modern civilization. It would be like saying one's god had failed, the god in this case being the "marketplace." There would be "demand destruction" on a major scale, the kind that destroys a lot of people. There would be no ready oil substitutes and no ready infrastructure if we had them. There would be parlous consequences economically, socially, politically, and probably militarily. There would be serious questions about whether we could produce enough food and whether we could distribute it even if we did.Let us stop and think for a moment about what would happen if, on the other hand, we began to implement on an emergency basis the recommendations of the dour peak oil crowd. If such a speeded up program succeeded, people everywhere would end up with the following: 1) Splendid public transport including excellent intercity rail; 2) a great increase in the amount of energy produced by nonpolluting, renewable energy sources; 3) increasing amounts of locally grown, organic food--some of it grown in one's own garden; 4) the quick and widespread dissemination of green technology everywhere; and 5) greater participation in the governance of our local communities as they become more sustainable and self-sufficient. Such a response would coincidentally help us make great strides in addressing global warming since global warming results from our use of carbon-based fuels.But, what if, after all of this, it turned out that the dour peak oil crowd was wrong? The worst that would happen is that we would have prepared ourselves for a peak that would then pass almost unnoticed in the distant future. We would have transformed society from one that is unsustainable into one that is sustainable. The only real criticism that Yergin could make is that this transformation took place earlier than it absolutely had to. Or he might be one of those who would think that such a world--one no longer run by giant multinational corporations and huge centralized bureaucracies--isn't worth living in.Peak oil pessimists are not very much worried about being wrong on the exact date of a peak. They are trying to provide guidance for policymakers and the public. To that end they regularly update their projections, seemingly without embarrassment, when new information arrives. What worries the pessimists much more than being wrong is that the world will arrive at peak oil unprepared. Can Daniel Yergin say the same?
posted by Kurt Cobb

http://resourceinsights.blogspot.com/2006/03/what-if-daniel-yergin-is-wrong.html

SPIEGEL ONLINE - August 18, 2006, 04:48 PM URL: http://www.spiegel.de/international/spiegel/0,1518,429968,00.html
THE COMING CONFLICT
Natural Resources are Fuelling a New Cold War

By Erich Follath
Oil and gas supplies are becoming scarcer and more expensive. The hunt for the world's remaining resources is creating new alliances and the danger of fresh conflicts. China is moving aggressively to satiate its growing appetite for energy, potentially setting up a confrontation with the United States over the dwindling resources of the Middle East and Africa.

DPA
A burning oilfield in Iraq in 2003Obioku, a village in Nigeria, West Africa. At first glance, this is the end of the world -- and at second glance, even more so. Muggy heat. A miserable set of wooden shacks; ragged children; a muddy hole from which women fetch water. The women use the few fish their husbands have caught to make a thin soup. The biting smell of sulphur lingers in the air. It seems absurd that anyone should fight over this piece of the earth.
But in recent months, hundreds have been killed here in the Niger delta. Rebels fight government troops and even demand the secession of the region from Lagos; they present ultimatums requesting billions from Shell, the Anglo-Dutch petroleum giant. Columns of smoke darken the sky where pipelines have been blown up. It's all about the petroleum that lies under the ground here in vast quantities -- petroleum of an especially light, sweetish, consumer-friendly variety.
The rebels claim they are concerned about the well-being of the residents of Obioku. It's a claim that is shared by Shell and the government. Shell CEOs say that 3 percent of their annual budget goes into local development funds. For their part, Nigerian politicians shrug their shoulders and insist that they are fighting fiercely against every kind of exploitation. Diepreye Alamieyeseigah, the governor of the state of Bayelsa, was arrested on suspicion of money laundering in September. He's now on trial, and said to have diverted hundreds of millions of dollars into his own pockets.
INTERACTIVE MAP
Underground treasures and earthly conflicts: Spiegel's multimedia guide to the planet's hotly contested energy reserves.
But as long as the oil fields burn, as long as Shell and Italian oil company Agip employees are held hostage and as long as oil platforms are attacked with speedboats, exporting black gold from the country in sub-Saharan Africa that has the largest petroleum reserves will remain an uphill battle. Indeed, the volatility of oil regions like Nigeria are one of the key reasons that oil prices have risen so dramatically worldwide.
The Caucasian highlands, 70 kilometers (44 miles) southwest of the city of Vladikavkas in the Russian Republic of North Ossetia. Pipelines lie on the frozen ground in strangely twisted shapes, like modeling clay handled by an angry giant. Saboteurs destroyed the two gas pipelines that run through an almost deserted territory and towards Georgia at the end of January. The people in Georgia, whose energy supply is meager anyhow, suffered the cold for more than a week, cut off from their most important energy source. No lights were turned on in the capital at night; desperate people burned their own furniture to stay warm. Moscow blamed Muslim rebels for the attacks. But Georgian President Mikhail Saakashvili complained that saboteurs controlled by the Kremlin had planted the bombs, and he and accused his Russian colleague of "blackmail." Saakashvili believes Vladimir Putin wanted to teach West-leaning Georgia a lesson by demonstrating how dependent Georgia is on Russian energy.
So Russia is being pilloried once again, a short time after the Kremlin forced the Ukraine to strike a deal by turning off its gas supply. That raises questions about the energy security of the European Union, which is dependent on Russia for natural gas: Hungary gets 85 percent of its natural gas from Russia; Germany gets a still substantial 40 percent. This dependency is yet another reason why energy prices are climbing to record levels.
Fatah, a giant petroleum refinery two hours northwest of Baghdad by car. After almost 20 major attacks in the past year, Iraq's largest oil production facility was closed for the entire month of December. Then, only three days after the re-opening of the complex in Beiji in January, insurgents attacked a convoy of 60 oil trucks and engaged security forces in a firefight that lasted hours. Meanwhile, the number of attacks on oil installations and pipelines across the country continues to rise.
"We repair the pipelines and they blow them up again, and then the game starts over," says former Iraqi oil minister Ibrahim Bahr al-Ulum. The violence isn't just directed at objects: In January, rebels murdered Ali al-Sudani, the Iraq Oil Ministry's general director. The two German engineers who were kidnapped in Iraq earlier this year (and have since been released) were also working at Baiji.
It was Washington's aim to finance the reconstruction of post-war Iraq from the oil industry's profits. In fact, the Oil Ministry was one of the few buildings in Baghdad US troops guarded from looters after the April 2003 invasion. And the US has spent millions to train an "Oil Protection Force." Unfortunately, however, Iraq's energy industry just isn't getting off the ground. And though its oil reserves are the fourth-largest in the world (after Saudi Arabia and Canada, and almost equal to Iran), Iraq's oil exports barely reach three-quarters of the pre-war level. That's yet another important reason for the nervous state of the markets.

Graphic: Worldwide energy consumptionAnd then there's that uncanny and unpredictable regime in Tehran: Many already consider Iraq's powerful neighbor state the great winner in the crusade for the "democratization of the Middle East" begun by US President George W. Bush and British Prime Minister Tony Blair. Iran's radical government wields great influence over the Shiite ruling elite in southern Iraq, many of whom received their training in the Iranian city of Qom. Southern Iraq is also home to vast petroleum and natural gas fields.
Never mind the crisis surrounding Tehran's nuclear program -- China and India are aggressively courting Iran as a supplier of natural resources. Beijing closed a gigantic deal worth $70 billion with the Islamic Republic in Fall 2004; Delhi has negotiators in Tehran discussing a strategic pipeline. No state on earth besides Russia has natural gas reserves as large as those of Iran, and Tehran is also the fourth-largest oil exporter in the world. "The West needs us more than we need the West," says Iranian President Mahmoud Ahmadinejad.
The man who wants to "wipe Israel off the map" is threatening to curb Iran's energy exports to the US and Europe. If the UN Security Council were to impose sanctions on Iran because of the country's patent efforts to develop a nuclear weapon, Ahamdinejad might cut off the supply altogether. What else should someone expect from an irrational politician, whose view of the world is obviously informed by an Islamist vision of the apocalypse?
Some good news and bad news
But the natural resource that greases the wheels of the global economy is running out. All oil-producing states are working close to capacity and slacks or stoppages on the part of one of the major producers can't be compensated by the others. Former White House energy advisor Matthew Simmons evokes a genuinely horrific scenario: He calculates that the price of a petroleum barrel may rise to as high as "$200 to $250" in the coming years -- a far cry from today's $73 and July's nominal record of $78.40. Such an extreme price increase would unhinge the entire world economy and spell ruin even for large corporations.
Should the world be trembling in fear? Should everyone be afraid that gas and heating will soon no longer be affordable? Concern over such issues is certainly spreading in Germany, a country whose energy security is good compared to many others. Should we shiver with fear of anticipated bloodshed over resource allocation? The superpower China is hunting these resources especially aggressively. Should we fear the war that comes from the cold?
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The good news is that it's improbable, despite all the dangers and bottlenecks, that fossil fuels will become the much cited unaffordable "black gold" overnight, or that they will even no longer be available in sufficient quantities. Besides, human inventiveness has always been able to discover or invent new energy sources.
The bad news is that the age of cheap oil and natural gas is definitely over. At the very latest, the next generation will be bitterly punished for our reckless overconsumption of fossil fuels. Renewable energies and energy efficiency together won't be enough to cover the shortfall, either. In the long-term, even if renewable resources like solar power, wind power and biomass -- which are urgently needed -- are added into the energy mix with oil, natural gas, coal and nuclear energy, they will still only be able to cover one-quarter of the energy needs of industrialized nations. That's the best-case scenario.
Ideological trench fights over secure fuels aside, most reputable scientists agree that the historical "peak" of oil production will be reached in five to 10 years, despite improvements in drilling technology and the expansion of production to include oil shales and oil sands, which are difficult to process. From that point on, oil production will head downhill -- despite increasing worldwide demand.
Earth's population consumed 83 million barrels of oil per day last year. According to calculations by the International Energy Agency (IEA), the Paris-based club of oil-importing states, the number will have climbed to above 90 million by 2010, and it will have reached about 115 million in 2030. The more fiercely fossil fuels blaze in ovens, burn in our engines and power generators, the faster a country can develop. US energy analyst Daniel Yergin has written that "petroleum remains the motive force of industrial society."
Now, at a time when the oil age is irrevocably racing towards its conclusion, more and more people are trying to become a part of it. They are led by emerging nations like China and India -- two countries that know their growth engine will inevitably start to stutter without a constant supply of resources. Petroleum is their elixir for survival.
But there are great unknown variables in every calculation about the future. One of the great fears that troubles CIA experts is the potential for future terrorist attacks in Saudia Arabia, the most vulnerable place in the international energy trade. Even without such a horror scenario, US energy expert Michael T. Klare expects a "new landscape of global conflict" to emerge, a map shaped by the shortage of resources.
That brings back painful memories of 1973, when the Arab states, aided by the Organization of Petroleum Exporting Countries (OPEC), curbed energy shipments and caused the price of oil to rise fivefold in a brief period of time. At the time, the reason was Washington's unconditional support of Israel's policy of occupation. Costs skyrocketed for political reasons a second time during Ayatollah Khomeini's Iranian revolution in 1979 and the Iran-Iraq war. Even then, Helmut Schmidt, the German chancellor of the time, feared that wars over resources would one day be possible.

AP
The US military's Camp Doha base in Kuwait.The global resource grab
All major states have now realized that petroleum and natural gas are of existential strategic significance. They are the driving force behind the coming conflicts. That's why the world's powerful stake the claims wherever vital reserves of resources can be found -- by force of arms or through aggressive diplomacy.
Even Western politicians, who normally like to present themselves as the defenders of human rights and pioneers of democratic liberties, aren't too fussy about who they do business with. Petroleum and natural gas discoveries draw attention to new international hot spots such as West Africa, Sudan, Venezuela or the region surrounding the Caspian Sea. They also bring unusual, previously unknown political stars onto the stage of world politics -- not all of them angelic, to put it mildly.
Take Azerbaijan's corrupt 44-year-old ruler Ilam Aliyev, for example. Under his rule, demonstrations are brutally put down. But there's not much that can be done without the strong man from Baku. The country he rules is the one where the world's most expensive oil and natural gas pipeline -- the construction costs were $3.6 billion dollars -- starts. The pipeline leads from Azerbaijan through Georgia to the Turkish port of Ceyhan. It was inaugurated with plenty of pomp and circumstance and in the presence of the US energy secretary in May 2005. For political reasons, the great pipeline is one of Washington's pet projects -- it knocks the much-hated Iran and Russia out of the game.
Like the autocrat Aliyev, the bizarre 65- year- old dictator Saparmurad Niyazov -- who rules Turkmenistan, another country rich in resources -- is wooed by Americans, Europeans, Chinese and Russians. The man, who calls himself "Turkmenbashi" ("Father of all Turkmen"), is cultivating a bizarre cult of personality -- one that could even make North Korea's notoriously self-obsessed Kim Jong Il envious. He's ordered the erection of golden monuments bearing his likeness all over the country. His writings are taught in school and his people are even quizzed on those writing when they take a driving test.

DPA
Rebels in Niger concerned about oil, their "lifeblood."In the summer of 2005, the tyrant, who has opposition members tortured, organized a stately reception for John Abizaid, a delegate of the US government. Corporations didn't want to be outdone and created a favorable mood by presenting gifts. For example, Daimler Chrysler presented Niyazov with an expensively printed German translation of his political bible "Rushnama" ("Book of the Soul"). Turkmenbashi, who administers 90 percent of the revenue from natural gas exports in a fund that only he can access, gave thanks by handing out lucrative contracts.
Even mercenaries are getting in on the international oil business. In March 2004, a strange set of troops set out to stage a putsch in the West African mini state of Equatorial Guinea -- a state rich in natural resources. The troop had been recruited from former South African elite soldiers from the days of apartheid, Armenian warriors and a few Britons. One of them was Mark Thatcher, the son of the former British prime minister. The conspiracy failed. Corrupt president Teodoro Obiang Nguema remained in power -- and he is still shamelessly helping himself to the funds in the state budget, which is fat with oil money. The Los Angeles Times estimates that he has deposited some $500 million in foreign bank accounts.
Beijing's insatiable appetite
INTERACTIVE MAP
Underground treasures and earthly conflicts: Spiegel's multimedia guide to the planet's hotly contested energy reserves.
Even in states as small as Equatorial Guinea, two powerful opponents are mustering each other suspiciously, doing everything they can to score political points and ensure that their businesses continue to prosper: the US, a current superpower, and the prospective superpower China. India, the other great player, is seldom far behind in this chess match. India has impressive high-tech success to show and it is on its way to leadership in at least one respect: By 2035, there will be more Indians than Chinese; and taken together, the populations of the two countries will be almost four times as high as that of Europe.
Beijing is currently fighting for resources more aggressively than anyone else -- and with even less scruples than the West. The ruling Chinese communists deal with right-wing African dictators, fundamentalist mullahs in the Middle East and obscure left-wing populists in Latin America, without any ideological reservations. The People's Republic was long an oil-exporting nation; during the 1950s, it was even the largest oil exporter in Asia. Scientists had discovered enormous reserves of black gold in the northeast of the country. "Learn from Daqing in industry," was the party slogan at the time. The Maoist model worker "Iron Wang" was its selfless protagonist, prepared to make any sacrifice.
The Middle Kingdom was still self-sufficient in terms of its energy needs until the early 1990s. But the reforms of Deng Xiaoping, which allowed for more and more private enterprise and eventually dovetailed into a kind of Manchester capitalism, caused economic development to explode. An ever greater number of cars, air conditioners and factory facilities turned the Chinese dragon into an insatiable creature that scoops up oil, natural gas and coal like an addict -- and the need for a fix continues to grow.
Both the producers behind the economic miracle and the consumers badly need the drug. In 2004, the People's Republic alone was responsible for a full 36 percent of the global rise in petroleum consumption. In 2002, China overtook Japan as the world's second-greatest oil consumer, topped only by the US. According to some estimates, the number of Chinese cars, motorcycles and mopeds will increase fivefold in the next 15 years -- and energy consumption will increase accordingly.

DPA
Russian President Vladimir Putin and Chinese President Hu Jintao: A petroleum pipeline for China?On a global scale, however, the Chinese are comparably moderate in their fuel consumption. If the average Chinese person lived as excessively as a US citizen, he would consume thirteen times as much. The People's Republic would require more than 90 million barrels of petroleum every 24 hours -- more than is produced worldwide in a day at present.
China has no alternative. The Communist Party believes the only chance it has of holding the country together -- and remaining in power -- is by achieving an annual economic growth rate of at least 8 percent. The country had 10.1 percent growth in 2004 and 2005 brought a lower, yet still astounding, 9.9 percent. Through economic growth programs, the party leadership is hoping to contain the threat of protests and demonstrations by Chinese who have been disenfranchised by a lack of jobs. Beijing wants to alleviate the growing rift between the rich and the poor and create at least a rudimentary form of social security for pensioners and ill people.
But production is declining by between three and five percent a year on the oil fields near Daqing. The figures that had been cited by party functionaries were falsidied and, in the days of Mao, no investments were made in new extraction facilities -- the state bet on the muscle power of its workers and not new technology. Today, Beijing is extracting the country's coal reserves at record speed and risking ever worse pollution as well as dangerous accidents.
Now Beijing is betting on giant hydroelectric power plants to help meet its energy needs. It is investing in alternative energy sources and will soon play a leading role in this area, along with Germany. In addition, China is building nuclear plants so quickly that by 2050 it will probably be the world leader when it comes to nuclear energy, too. Yet despite these developments, Beijing's leadership sees no other option but to go on an aggressive worldwide shopping spree for energy.
When it comes to the hunt for oil and natural gas, the Communist party leaders have no qualms about locking antlers with Japan and the US. For months now, Beijing has been preventing the imposition of harsh United Nations sanctions against Sudan, even though the regime in Khartoum is inciting militias in the Darfur region to systematically murder thousands of people. The simplest explanation for Beijing's behavior is that the Chinese are exploiting the oil reserves in the southern part of Africa's geographically largest country, with the consent of the fundamentalist Muslim regime. Beijing has even stationed its own security forces there. Five percent of the oil imported by China already comes from Sudan.
A Beijing-Tehran hook-up
Iran -- ruled by a president who aggravates the entire world -- provides even more -- over 13 percent. Under the recently closed deal, which is valid for 30 years, China's dependence on the mullah state will likely increase even further. And vice versa: The state-owned Beijing corporation Sinopec plans to invest in the opening up of the giant Iranian natural gas field Yadavaran.
The Communist Party bosses don't want Iran to build nuclear weapons, but what they want even less is for their partner to be significantly weakened economically. That's why only hopeless optimists can hope that China -- one of the five permanent members of the UN Security Councile -- will snub its business partner and endorse the isolation of Iran through sanctions that the West is pushing for. If such a resolution should be passed, a Chinese veto is highly likely.

DPA
China will require tremendous quantities of natural resources in order to keep growth on track.Washington and Beijing seem to be on a collision course -- two giant oil tankers approaching each other at full speed, without either one of them being willing to make even minimal changes to his direction, or even to his speed.
The White House is outraged because Beijing continues to help the aggressive Iranian President Ahamdinejad develop his missile production facilities. The Chinese leadership speaks of an entirely legal business transaction between two independent states and is highly upset that the US government imposed sanctions on five state-owned Chinese corporations in December for doing business with Iran. One of the corporations that the US punished is Catic, one of China's largest weapons producers.
The Chinese leadership surrounding President Hu Jintao and Prime Minister Wen Jiabao is accusing the US administration of hypocrisy, and even of arbitrarily limiting the free trade whose praises the US is always singing. Last year, a planned takeover of the US oil company Unocal by China's CNOOC failed even though CNOOC's bid of $18.5 billion was the highest. Washington prevented the takeover, citing "national strategic interests."
Beijing is now trying to hit the Americans where it hurts -- mainly in the US's trade with the White House's traditional allies. China has signed long-term contracts on the shipment of natural gas and iron ore with Canberra and has surpassed the US to become Australia's second-largest export market. Asia's expansionist enthusiasts have bought themselves into energy projects in Canada as well, spending billions.
Almost 40 percent of Chinese direct investment is funnelld to Latin America -- and a lot of it goes to Africa too. President Hu and Prime Minister Wen have visited dozens of African states in recent years, closing business deals with many of them and trumping Washington in the process. According to Mikkal Herberg, a US specialist on economic development, a confrontation between the US and China over energy is inevitable.
In pursuing their relentless strategy of expansion, the self-confident Chinese are taking on Japan too. Maritime gas reserves that both countries stake a claim to are central to the conflict. The Chinese Communist Party's mouthpiece, the People's Daily newspaper, published a chauvinistic editorial that described the tensions between the two countries as a mere "prelude" to "more dire" conflicts. And Japan's government has revised its security strategy -- on the basis of the assumption that "conflicts over resources can develop into wars."
Tokyo is pinning its hopes on nuclear energy produced inside the country as well as on the huge energy reserves "outside its front door" -- in vast Siberia. But as much as the Russians need a powerful ally to help them access the enormous amounts of natural resources there, the Japanese aren't necessarily Putin's first choice.
The leader of the Kremlin hesitated for a long time before finally awarding Toyko a contract for the construction of a 3,800 kilometer (2,361 mile) pipeline from Angarsk on the southern edge of Lake Baikal to the port of Nakhodka -- a port from which petroleum could easily be shipped to the Japanese coast. The Chinese had proposed an alternative project from Siberia to the Chinese city of Daqing, a center of the Chinese oil industry. A Chinese "branch connection" will now likely be added to the Japanese pipeline. But when he visited Beijing last March, Putin refused to offer the Chinese an exact date for the realization of the project and merely agreed to two enormous natural gas shipments -- a commitment that gave rise to the fear, in Western Europe, that there could be a shortage of natural gas supplies for Germany and France.
As radical as Beijing's rhetoric towards Tokyo may be, and as hard-nosed as the Chinese act in their dealings with Washington -- when they're dealing with India, they become more gentle. On the official level, there is much talk of "common interests." Behind the scenes, however, Beijng is asserting its energy interests against those of Delhi as toughly as against anyone else.
Last summer, the China National Petroleum Corporation acquired the PetroKazakhstan corporation, based in Calgary. The total volume of the business transaction was more than $4 billion. An Indian consortium also made a bid for the corporation, which has access to resources in central Asia. Delhi also lost out on a deal signed early this year: the Beijing-based CNOOC bought $2.3 billion worth of shares in a private Nigerian oil company.
INTERACTIVE MAP
Underground treasures and earthly conflicts: Spiegel's multimedia guide to the planet's hotly contested energy reserves.
The state-owned Indian company Oil & Natural Gas had already won the bid in the West African state, but the government in Delhi prevented the deal from being closed. The property rights within the Nigerian company were too non-transparent for the Indian cabinet. The story is not without irony: India's democratically elected government, which is supported by the Indian Communist Party, is skeptical, whereas China's Communist Party leadership, which has never undergone popular ratification and probably will never do so, proceeds regardless whether it is with dubious business partners.
In the short term the authoritarian state, with its system of state capitalism, is leading two to zero. State capitalism allows Beijing to advance its ambitions of economic expansion -- a guideline issued by the Ministry of Trade lists almost 70 countries and regions for China's economic actors to play a privileged economic role in. Naturally, companies that invest and take over other, local companies in accordance with this guideline receive generous aid from China's state banks. In the long term, however, India's democratic approach may well turn out to have advantages that China's market-oriented Leninism lacks: It provides legal security for investors and, perhaps more importantly, an opportunity for the Indian people to express themselves through elections on all levels -- an important corrective for negative developments.
The revolutionary nature of India's new way of orienting itself on the world stage is expressed in the country's relationship to the US, which is improving at a dramatic pace. Washington even wants to supply India with the most up-to-date nuclear technology that can be used for civilian purposes. Visiting Delhi in early March, US President George W. Bush agreed to provide India with nuclear fuel -- despite the fact that India is not a member of the Nuclear Non-Proliferation Treaty. All Indian Prime Minister Manmohan Singh had to commit to in return was placing 14 of his country's 22 nuclear reactors under international supervision. Following Bush's visit, a visibly pleased Indian government spokesman announced that India had succeeded in maintaining its weapons programs while simultaneously improving its energy security.
Nuclear power notwithstanding, India's population -- which is a billion citizens strong -- remains dependent on oil, and that dependence will continue to grow. Already, India must cover 70 percent of the country's oil consumption and 50 percent of its natural gas consumption through imports. With an economic growth of 7.5 percent in 2005, India is booming, despite its often extravagant bureaucracy. The economic expansion is taking place mainly in the software sector, but also in biotechnology and the especially energy-intensive manufacture consumer goods industry -- from refrigerators to air conditioners.
India's most important oil supplier is Saudi Arabia. India also entertains an intensive resource trade with Iran. And deal was closed with Myanmar for the construction of a pipeline. All three of the states that India is doing business with have extremely undemocratic governments. But the Singh administration seems willing to set aside old grievances with other states when it comes to resources. Serious talks about a natural gas pipeline through Pakistan are ongoing. Delhi's oil minister, Mani Shankar Aiyer, is even dreaming of an Asia-wide network of pipelines. In pursuing this project, he is striving for cooperation with India's great rival China.
Speaking in Beijing, the Indian politician warned against endangering India's and China's "mutual security" through the run on natural resources. He referred to a proposal prepared by both countries for a natural gas field in Syria, as "exemplary." The relationship between the two giants looks a lot like a love fest: In January, Aiyer and his Chinese counterpart signed an agreement on cooperation in the energy sector. The purpose of the agreement is to prevent a ruthless bidding war over petroleum resources.
Within a few hours, the Indians had learned how difficult it can be to cooperate trustingly with China on energy issues. The ink on the agreement had barely dried when it transpired that Beijing had secretly secured for itself the exclusive rights to lucrative natural gas reserves in Myanmar -- notwithstanding the fact that two Indian companies are formal co-proprietors of those reserves. In the eyes of the dragon, the elephant is a junior partner.
America sobers up
Will the US intervene directly in the competition between the aspirant superpowers China and India? Will Washington help Japan gain access to new energy sources? Will it take serious action to curb Russia's attempts to use oil and natural as instruments for exerting political pressure?
Everyone is looking in the US's direction -- and seeing a nation that is beginning to sober up after decades of wasteful energy consumption. It would have been inconceivable just a short time ago, but for several months now, the Bush government has been advising its citizens to conserve heating oil. The oil corporation Chevron has published an ad campaign reminding customers that "black gold" is only available in finite quantities, and that saving energy is therefor important. Consumers are changing too; they're developing an interest in small cars, scared by oil and gasoline prices, which have increased by about 90 percent since early 2004 (which still makes them only about half as high as prices in Germany and much of Europe).
When Bush first came into office in 2001, his administration didn't need to explain the importance of oil to anyone. Before becoming a politician, the president himself had made a career for himself in the management of the Texas oil company Harken -- thanks to connections made by his father, a man well-versed in the energy business with close ties to Saudi Arabia. Vice President Richard Cheney was once in charge of another Texas oil company, Halliburton. National Security Advisor Condoleeza Rice, who became Secretary of State following Bush's re-election in 2004, once sat on the board of directors of the multinational oil corporation Chevron. Professionals like these know that most oil fields in Texas will never again yield as much oil as they once did, just as they know that the US's total oil production has sunk to the levels of the 1940s.
Invading Iraq
A strategy paper commissioned by the Bush administration and issued in May 2001 paints a sombre picture of the global energy situation, warning of the prospects for serious US energy deficits and energy dependence. The conclusion drawn is that questions related to "American energy supply security" should be given a high "priority" in US foreign policy. Soon after the paper was issued, Cheney formulated the same message in more precise terms: He warned that Saddam Hussein was striving for hegemony in the Gulf region and might succeed in bringing a substantial part of the world's energy reserves under his control. The terrorist attacks of 9/11 and the almost 3,000 victims who died in New York's World Trade Center and in the Pentagon then dramatically revealed the US's vulnerability.
Shortly before the US invasion of Iraq, Lawrence Lindsey, one of Bush's leading economic advisors, said that "the key issue is oil" and that "a regime change in Iraq would facilitate an increase in world oil." By and large, however, US politicians avoided making the obvious connection between a pre-emptive strike and resources.
Other motives may have played a role as well: the fear of Saddam Hussein's weapons of mass destruction (a fear either imagined or rhetorically induced), or the desire to create a counterbalance to other authoritarian governments in the region -- a kind of beachhead of democracy in the Middle East. But most of all, the US had what former CIA strategist Kenneth Pollack has called a "vital interest" in guaranteeing its energy supply and avoiding "possible blackmail" from hostile countries in the Persian Gulf. According to Pollack, only an idiot would fail to understand why Bush and company are in Iraq: "It's the oil, stupid!"
The US went on to suffer bitter setbacks in Iraq. And now the country is facing a possible confrontation with Iran, one in which its options don't look particularly promising. Add to that a possible long-term confrontation with China and the picture that emerges is far from pretty, at least from the White House's perspective. Despite Republican majorities in both the Senate and the Congress, Bush hasn't even been able to push through plans for oil extraction in the Arctic National Wildlife Refuge in Alaska.
Then, of course, there's that new troublemaker in the neighborhood, just four hours from Texas by plane, in South America, the US's backyard. He's making a name for himself as George W. Bush's opponent, and the control he wields over substantial amounts of oil permits him to subject the US president to more than the occasional pinprick. Forbes magazine recently described Hugo Chavez, the 51-year-old president of Venezuela as "Oil's New Mr. Big."
Chavez provokes whenever and whereever he can. Speaking at the Caracas counter-summit he organized to coincide with the World Economic Forum Davos, at the end of January, Chavez pulled no punches, calling George W. Bush "the greatest terrorist on earth" and the Bush administration "the most perverse, murderous and immoral government in history." He's even threatening to boycott the US by cutting off Venezuela's oil shipments to that country.

AP
Venezuelan President Hugo Chavez: George W. Bush is the "greatest terrorist on earth."That's one reality. The other can be studied in Punto Fijo off the Caribbean coast. Punto Fijo is Venezuela's main oil port, where large vessels are filled up with the precious substance after it has been extracted from nearby Lake Maracaibo. Half a dozen oil tankers glisten in the bluish-green water, devouring 36,000 barrels every hour -- each complete cargo load is worth $50 million. The most frequent destinations of these ships are Port Everglades, Baltimore and Boston. And when they have arrived and been cleared of their cargo, they immediately head back -- every minute counts for big business.
The US is the main importer of Venezuelan oil; business is going smoothly; and the volume of business transactions is increasing. But the mutual dependence of Venezuela and the US is increasing too. Left-wing populist Chavez is dependent on billions in revenues from Venezuela's petroleum company PDVSA, which was nationalized in 1976, prior to Chavez coming to power. More than half of Venezuela's natural resources go to its large northern neighbor, and Chavez's Venezuela is one of the US's main oil suppliers, along with Canada, Mexico and Saudi Arabia.
Chavez uses the petrodollars from his dealings with the abhorred "Gringoland" to finance his army as well as the social welfare programs he has introduced for the neediest of his compatriots. The teacher's son sees himself as a latter-day Simon Bolivar, as a liberator from colonialism. And in his view, the US of today has taken the place of the Spaniards of the 19th century. Chavez has taken it upon himself to unify the entire continent. In many parts of Latin America he has, in fact, succeeded his friend and advisor, Cuban revolutionary hero Fidel Castro, as the "hero of the street."
A new wind is blowing through Latin America -- it's coming from the left and lashing at the US president's face. The pro-American governments of Brazil, Argentina and Uruguay were already toppled two or three years ago. An Indio and a champion of common people, Evo Morales, won the elections in Bolivia last December -- his election campaign was largely financed by Chavez. Venezuela's President was immediately visited by his new ally following the latter's his electoral triumph. Chavez promised Morales oil supplies at generously low prices -- in the manner of a feudal lord, without any parliamentary debates, even of the purely formal variety.
Large parts of the Latin American population are displaying a marked willingness to orient themselves in a new way. Latin Americans may have freed themselves from their brutal dictators during the 1980s and 1990s, but the increase in personal liberties and the democratic form of government didn't improve their material circumstances. On the contrary, the "structural adjustment" prescribed by Washington led to high unemployment and a growing split between the rich and the poor -- fertile ground for change.
Chavez even interrupted an OPEC meeting to receive an Iranian delegation. And he told a specially arrived economic delegation from Beijing: "We have produced and exported petroleum for more than a century. But that century was dominated by the USA: Today we're free -- and we're happy to make our petroleum available to the great Chinese nation." Chavez has paid his respects to African potentates too.

Lutz Klevermann
Oil field in AzerbaijanThe enemy to the south has started to worry US politicians. The Senate Committee for Foreign Affairs has commissioned an urgent Emergency Plan to deal with the possibility that no more petroleum arrives from Venezuela. The USA have built up sufficient reserves to deal with such a scenario. But they would still be hard hit if their main supplier were to leave them in the lurch. There are barely any reserves on the global petroleum market that the USA could fall back on. If Venezuela cut off its oil supplies to the USA, oil prices would rise by at least 15 percent and cause considerable unrest, Washington's unofficial parliamentary report predicted in mid-June.
The rise and fall of nations will involve considerable power shifts during the coming years. The USA aren't likely to be the winners of the coming conflicts over natural resources. While many factors remain uncertain, some general trends can be discerned:
Despite the far-sightedness of its energy strategy -- and the ruthlessness with which it implements that strategy -- China is having serious difficulties securing the resources it needs. For this reason alone, it is far from certain that the much-quoted "Chinese century" will really happen. The same is true of China's aspiring rival India -- and of Japan, which has to import 80 percent of its resources.
Given the diminishing oil supply in the North Sea, the European Union will have to think seriously about its energy security during the coming decades -- and may still end up being one of the global winners. The EU's coordinated political approach provides it with all the possibilities it needs in order to overcome its present dependence on Russia. It could reduce Russia's status to one of a number of suppliers, albeit a big one. Europe's proximity to oil fields in North Africa (Liberia, Nigeria) and around the Persian Gulf serve as an advantage for the EU.
Given the wealth of its energy resources, Russia will likely be among the global winners of the future -- provided it masters its domesitc problems, including rampant corruption and social inequality.
Brazil has everything it needs for a future free of energy-related concerns. The South American country maintains giant sugar cane plantations and extracts large quantities of ethanol from the harvest. It also disposes of sufficient fossil fuel resources to make imports unnecessary. A few thousand kilometers farther north, Sweden is experimenting with biofuel won from wheat and wood in order to achieve energy autonomy -- and be able to function economically without petroleum by 2020.
"Good governance" -- fair distribution of wealth by proper government -- will play an important role in the rise of the smaller states. Libya, a country that disposes of large amounts of natural resources, and one whose favor everyone is currently striving for, has the possibility of assuming a more prominent political and economic position on the world stage. That is, if General Moammar Gadhafi chooses to really do something for his 6 million citizens. States such as Kazakhstan in central Asia or Angola in West Africa dispose of enormous natural gas and petroleum reserves; their political leaders could provide the populations of these two countries -- some 15 million people in each -- with a high standard of living. That's even more true of the emirate Qatar. The tiny state in the Middle East -- which has a population of 860,000 -- disposes not only of plenty of petroleum, but also of the third-largest natural gas reserves in the world.
Yet for most people living in countries with an abundance of natural resources, the underground treasures have not been much of a blessing in the past. The standard of living has declined for most of the population in corrupt states such as Nigeria, Algeria and Gabun, for example. Experts speak of a "resource curse."
A scenario for the future
The world in January 2012: More than a decade has passed since the 9/11 attacks on the World Trade Center and the Pentagon. The US had to exit Baghdad a long time ago. Iraq is being governed by a Shiite dictator following an Iraq war that the US lost in embarrassment. Iran has become a nuclear power. And the royal family has just been toppled in Saudia Arabia -- the fanatics who organized the putsch are calling the fundamentalist state "Islamajah."
INTERACTIVE MAP
Underground treasures and earthly conflicts: Spiegel's multimedia guide to the planet's hotly contested energy reserves.
Kuwait and the Gulf emirates still take a sympathetic stance towards the West, and at least some of the petroleum continues to be shipped. But the terrorist advocates of global jihad are already working to devastate the embassies and cultural centers of the US and the EU -- from Doha in Qatar to Manama in Bahrein -- with acts of violence.
Then intelligence experts in London and Washington discover that the People's Republic of China is constructing a secret missile facility in the desert of the former Saudi kingdom. Beijing is obviously out to secure access to the oil fields and refineries for itself. The hawks in Washington have been waiting for just this type of escalation. They plan to use the ultimate weapon in order to decide the struggle for the world's most important resource reserves. It's 2012 and the world is heading for nuclear war.
It's a frighteningly good plot that unfolds in the new thriller "The Scorpion's Gate." What makes the book politically explosive, however, is its author: Richard Clarke worked as an advisor for the White House and the Pentagon for more than three decades. During the hours following the 9/11 attacks, Clarke was in charge of President Bush's crisis management team. In March 2003, the anti-terrorism expert resigned and became one of the harshest critics of the current US president and of the ideology of pre-emptive strikes proffered by Cheney and Rumsfeld.
Clark has said that the Middle East scenario in his novel fairly accurately reflects scenarios of future developments that have been played out in the CIA. He adds that the part about the dangerous and determined warmongers in Washington is his personal prediction, but a realistic one. Clarke says the scenario doesn't have to come true, but it very well could.
A terrorist attack carried out in eastern Saudi Arabia in February shows how closely fact and fiction already resemble each other. Terrorists attempted to attack the world's largest oil processing facility near Abkaik, only a few kilometers away from Ras Tanura. Two cars filled with explosives tried to break through the security perimeter. The guards opened fire on the cars, which caught fire. The terrorists were killed. Al-Qaeda claimed responsibility for the attack -- and promised further attacks on "the world's gas station."