emreiseri

Monday, June 25, 2007


Peak Oil and the Inflation Lie
US government, Wall Street hide energy shortage and crisis with deceptive indicator
By Larry Chin
Global Research, May 19, 2007
In the past few days, news headlines have trumpeted and repeated what is a non sequitur, and a physical and logical impossibility:
Overall Inflation Eases, Gas Prices Up (Associated Press)
Despite Gas Prices, Inflation Eases (Boston Globe)
These nonsensensical statements have already become the basis for economic, political and financial decision-making across the country, as well as internationally.
It is a lie. Here is why.
Rising energy costs are inflation. You cannot have one without the other. Energy, and energy-related material, is the lifeblood of modern industrial life. When the cost of energy (including oil, natural gas, electricity, and the products made with petroleum, such as plastic) goes up, the cost of everything goes up. This is inflation. When energy is depleted, while the use and demand for energy continues to increase, the price of energy skyrockets. Inflation, again.
It is a fact that the world is in the early stages of Peak Oil and Gas---permanent shortage, and permanent depletion. The world oil peak occurred in November 2005, according to renowned scientists, geologists and industry experts.
It is therefore a fact, with permanent shortage with high, rising and insatiable world energy demand, that rising inflation is not only a problem now, but also a permanent condition.
Why are the authorities hiding this?
Core inflation hides the truth about energy crisis
Simply defined, inflation is the increase in the average level of prices. However, there many different methods by which inflation is measured, and selectively reported by US government (primarily, the Bureau of Labor Statistics), the Federal Reserve Bank, Wall Street analysts, economists, the corporate media, and the rest of the US government.
There are, however, many different definitions of inflation. In recent years, the Bureau of Labor Statistics and the Fed have selectively emphasized one version, core inflation. Core inflation is the statistic that excludes costs of energy and food.
Given the fact that 1) daily existence in modern life demands various forms of hydrocarbon energy, 2) a vast array of basic material is derived from hydrocarbons (such as plastic), and 3) food and food production depend on hydrocarbons (fertilizers, irrigation and pesticides, energy needed to run machinery, etc.), the exclusion of food and energy costs in the measure of inflation is, therefore, a lie.
The selective use of core inflation is a cover-up that is routinely assisted by corporate media that, knowingly and unwittingly, promotes the illusion of a “growing economy with inflation under control, or non-existent”.
Meanwhile, what is the truth? Consider these:
Inflation looms as oil prices soar
Oil and gas project costs reach new highs
Gas costs $1,000 more annually than in 2001
The price of every form of energy (oil, gas, electricity) is going through the roof, as are other costs of everyday survival: health care, housing, and education.
In The Peak Oil crisis: alarms are sounding (May 17, 2007), Tom Whipple of the Falls Church News-Press writes:
“Across the world, alarm bells are starting to clang. Above every gas station, a large sign is proclaiming that prices are on an unstoppable climb towards un-affordability. In Paris, the International Energy Agency has announced that the demand for oil is likely to exceed the supply later this year, unless, of course, OPEC steps up production. In the Middle East, OPEC spokesmen reiterate time after time that all is well, there is plenty of oil, and there is no need to increase production…. The Chinese just announced that their April oil imports were 23 percent higher than last April’s. Iraq, Saudi Arabia, Venezuela---everywhere you look---there are unmistakable warnings of troubles to come.”
Ordinary people are being defrauded and lied to. It does not take a degree in economics or finance to see this. Even people who do not pay attention to the news intuitively know and feel the increasingly crippling effects of real inflation every day, at the gas pump and everywhere else. They are watching their money disappear. The crisis is palpable.
Will the real inflation please stand up?
If core inflation is a deceptive statistic, where, then, does one find a more realistic measure? That is found in what is known to economists as headline inflation. Headline inflation includes the cost of energy and food.
A few contrarian observers have pointed out that headline inflation tells much more of the truth.
Charles Bean, chief economist of the Bank of England said in August 2006 that the US Federal Reserve is wrong to focus on core measures of inflation that exclude energy prices. According to Bean, “it should focus on headline inflation, which is much higher. Including energy and food costs, US consumer price inflation is running at an annual rate of 4.1 percent, against 2.7 percent for core inflation”. He also pointed out correctly that energy prices were rising for the same reason the price of many manufactured goods are falling: the rise of China and other emerging market economies. Bean’s controversial statement came at the Fed’s annual Jackson Hole, Wyoming symposium. (Since Bean’s statement, energy prices have risen, which suggests that inflation is even higher than Bean’s 4.1 percent estimate).
In a piece titled “Inflation reporting errors continued”, Barry Ritholtz concludes that the Bureau of Labor Statistics has been “consistently under-reporting inflation over the past 8 years.” Worse, the amount of the discrepancy has widened dramatically, with “the gap between core and headline is now greater than it was in the early 1980s, and---hard as it may be to imagine---we are only slightly off the spread of the terrible 1970s.” The BLS and the Federal Reserve, according to Ritholtz, have deviated from reality, even though others around the world see the disconnect… “The basket of goods and services that is measured is so massaged and hedonically adjusted”, that it no longer reflects reality.
In Ritholtz’ view:
“The US consumer is confronted with rapidly rising costs for food, energy, health care, housing, education expenses. Indeed, even as both the everyday survival expenses (shelter, food, energy) and the larger family expenses (doctors, college, etc.) have exploded, there has been little correlation to what economists and the BLS have informed them. Despite the contradiction, there is little inflation in the official stats. It is as if economists are asking consumers, ‘Who are you gonna believe, us, or your lying eyes?’”
“If we are to judge inflation on a broader scale, we would undoubtedly come to the conclusion that, like the rest of the world, the US has an inflation problem.”
Ritholtz also notes that the highly respected Bill Gross of PIMCO (the largest manager of bonds in the United States) sees the same thing. Gross states: “A bigger threat to asset markets…comes not from slower economic growth in the short-term, but inflationary pressures towards the end of our secular timeframe. Since 1967, average differences in headline vs. core inflation have essentially been zero, despite distinct periods of cyclical variation. Now however, with globalization so dominant and Chinese/Asian appetites for oil, soybeans and iron ore amongst other commodities so voracious, it’s hard to envision an extended period of lower headline US increases.”
Here is a similar discussion:
Except for inflation, there's no inflation
In “Lies About Inflation”, Jack Douglas argues that the official measures of inflation, the Consumer Prices Index (CPI) does not include housing prices, which have soared in a Housing Bubble of recent years, and that education, retirement costs, medical and health care costs are grossly undercounted.
What are the US government and Wall Street working so hard to hide, and why are they hiding it? According to Douglas:
“The CPI does include the soaring costs of energy and food, so the Fed and the Big Media have cut them out by referring to the ‘Core CPI Inflation,’ which is a totally ad hoc number they get by cutting out energy and food costs. But have you ever met an American, or any human being, who could live without food or energy? The Fed pretends it is cutting out the heart and core of inflation by cutting out food and energy because these are ‘variable.’ But, of course, all prices are variable and this variability is the very reason one wants to keep measuring them: if they were not variable, it would be absurd to measure them more than one time.
“First, they do not want consumers to know that the American economy is in a desperate situation. If people knew the truth, they would save, not spend, and would insist the government stop running up immense debts to pay-off its rich Party members and fight unwinnable wars.
“If people saved, the Fed believes in Keynesian Ideology the economy would shrink, so they lie to get people to borrow and spend to pump-up the economy. The government and Fed poured out vast oceans of paper dollars over the past six years in a desperate Keynesian attempt to revive investment, income, consumption and growth to kick-start the economy after the Crash of the Nasdaq Bubble (created by earlier Fed floods of dollars to ‘pump-up the economy’) six years ago erased over 8 trillion dollars.
… “Second, they hide inflation to keep down the inflation-adjustment wage and retirement benefits to tens of millions of Americans at the lower end of the income scale, which saves big corporations and the government tens of billions of dollars a year.
“The Fed and the rest of the government failed to kick-start a real investment boom and growth. They produced an immense burden of debt, inflation, bubbles, and distortions of the whole global economy. Now all of that is unwinding faster and faster: we are spinning down faster and faster in a vortex of contraction that will most likely produce a ‘free fall’---a Great Crash.”
[Note: I do not endorse all of the political views of this web site. However, Douglas’ view is on target. -LC]
An honest, accurate picture of post-Peak Oil economic reality, and the resulting public outcry, would cause a systemic crash, stock market collapses, and the end of “consumer confidence”. Without consumer spending and debt, the fragile economy would lose one of last remaining legs it is teetering on. There would be no more “pump” in “pump and dump”, and the Wall Street casino would close.
Off the cliff, into the dark
Governments, corporations and policy makers all over the world have been aware of Peak Oil and Gas for a long time, and have engaged in desperate actions to prepare for its many effects, including inflation. On February 28, 2007, the US General Accounting Office (GAO) published a report to Congress entitled Crude Oil: Uncertainty about Future Oil Supply Makes it Important to Develop a Peak and Decline in Oil Production. The authorities simply do not want the public to be privy to their machinations.
The global architects who manage a teetering global system that profits from criminality and mass murder---who have lied about 9/11, and lied in order to wage illegal wars of conquest all over the world---would not hesitate for one second to lie about inflation. In the words of Mike Ruppert, author of Crossing the Rubicon, there are too many “psychological and moral limitations that no political leaders and few human beings can see beyond” to count.
The lying will not end. Far important is the need to develop the ability identify the lies, and deal with the reality that they are being told to ignore.
As Tom Whipple warns, there are immediate problems:
“…Right now, on top of every American’s agenda should be the question of whether we are going to get through the summer without shortages and gas lines---opinions are mixed.
“Earlier this week, Matthew Simmons of Twilight in the Desert fame, suggested that prospects for an uninterrupted summer of driving may be worse than government spokesmen have been letting on.
“Where does all this leave us? The short answer is, in an increasingly grim situation. When respected analysts say our gasoline situation is beyond the tipping point and that at least some of us are likely to be sitting in gas lines before Labor Day, we should heed the warning. Looking at the broader, worldwide picture, the situation is equally grim. When the normally staid International Energy Agency starts issuing a stream of dire warnings about shortages or much higher prices before the year is out, we should start thinking about a markedly different future.”
This future includes rising, and eventually permanent, inflation.


Is the Anglo-American empire losing the "Great Energy Game"?
China's oil interests in Central Asia
By Larry Chin
Global Research, January 8, 2007
Online Journal
In a second successful bid to tap Kazakhstan’s oil, China’s state owned CITIC Group has won approval from the Kazakhstani government to buy the Karazhambas oil field (owned by Nations Energy of Canada) located near Aqtua on the Caspian Sea.
China slakes oil thirst: Kazakhstan to sell field for nearly $2 billion (San Francisco Chronicle)
The first success came in 2005, when Kazakhstan’s president, Nursultan Nazarbayev, approved of the sale of Petrokazakhstan to China National Petroleum (CNOOC) in 2005.
As revealed in the San Francisco Chronicle report, both China-Kazakhstan deals have come at a steep price (that China is willing to pay), and over intense and continuous opposition from Washington and western oil consortiums. China has agreed to build and finance the proposed 2,000-mile pipeline from Kazakhstan to eastern Chinese border.
While China and Russia continue to "win" in Central Asia, the West continues to lose political and economic clout everywhere.
The George W. Bush administration’s destructive "war on terrorism," begun with 9/11, has failed to accomplish its central purpose, which was to occupy Central Asia and the Middle East, control the energy flows and strategic corridors across both regions, while blocking competitive cooperative agreements and energy-related ventures by Russia and China.
The increasing Chinese stake in Kazakhstan, and the successful Russian influence over Central Asian energy flows, is a particularly bitter defeat for a Bush administration now staring back at years of disastrous and blood-soaked failure.
Access to Kazakh riches was a priority in the 1990s, exemplified by the deals (legitimate as well as illegitimate) hatched with the Nazarbayev regime, which included bribery by the likes of BP Amoco, ExxonMobil and Dick Cheney (who was both the CEO of Halliburton, and a sitting member of the Kazakh state oil advisory board).
"The Elephant in the Living Room" (From The Wilderness, Mike Ruppert)
"Cheney's Energy Policy Task Force, and ExxonMobil" (Peter Dale Scott)
"Will ExxonMobil be indicted for payments in Kazakhstan?" (Peter Dale Scott)
"Big oil, the United States, and corruption in Kazakhstan" (Larry Chin)
The lure of the energy riches of Kazakhstan, and Central Asian pipelines, were the focus of many years of corruption and set-up leading up to 9/11, and a central goal of 9/11 itself. Beyond small victories such as the Baku-Ceyhan pipeline project out of Azerbajian, the Bush administration has little to show for their unprecedented destruction and tens of thousands of dead.
The war has done nothing but create chaos and innumerable no-win scenarios, and spawn even more intense anti-Western opposition. Seen through the eyes of the West’s own elites, it has been very bad for business. China and Russia have been among the main beneficiaries of the Bush disaster, almost by default.
China knows, as does the Anglo-American axis, that energy is the key to its own national security, and China’s power elite is willing to resort to dramatic measures for every drop of oil and every watt of electricity. This includes paying a high price for Central Asian/Caspian riches that have turned out, so far, to be a disappointing non-bonanza, devoting massive resources to building a Kazakhstan-China pipeline that was considered unfeasible, when proposed years ago, and the unprecedented damming of the Three Gorges region (one of the largest construction projects in history).
The Chinese economic juggernaut continues to roll. For years, Western elites and corporations have been content to ride along with globalization’s greatest (and perhaps final) feeding frenzy, while simultaneously supporting Washington’s Cold War containment policies against China, and the long-term infiltration of China’s economy (through the World Trade Organization). The US-China relationship is bound to become increasingly antagonistic, as the energy supply warfare intensifies, and US political losses mount.
The new Congress in Washington, led by the neoliberal Democrats, will attempt to restore America’s image with calls for multinational cooperation (collusion) and diplomacy (the UN and NATO), and retrieve the clout perceived to have been gained by 9/11 (a window in which the rest of the world, in shock, would willingly accept Western hegemony), but "squandered" with Bush-Cheney’s brutal conquest of Iraq.
But the self-destruction of the American empire is irreparable. Peak Oil and Gas has arrived in earnest, with no rational contingency plan from the top Washington, Wall Street elites, or major oil producers, and continuing denials of the problem from America’s corporate media (as well as China’s).
Worse, the Bush-Cheney administration is set to escalate the violence. The administration is fortifying its inner circle by promoting John Negroponte and Zalmay Khalilzad (and bringing in stalwarts such as Ted Olson) to even higher positions, "lawyering up" to fight investigations of its activities, treating the new Congress, and the world, with even more militant contempt, and preparing new military attacks for its final two years.
Where does the Empire go next, to get what it must have?
The Middle East is increasingly inhospitable to Western interests, a literal hell that gets worse with every passing day. Oil is not flowing out of a gutted Iraq. Afghanistan, also spinning out of US control, has not helped the US energy supply problem (however, Afghanistan’s heroin industry, which has blossomed under US occupation -- the resulting heroin flooding the US -- has been a boon to the world narco-economy and Wall Street). Saudi Arabia, still the final prize, suffers from its own supply questions, simmering unrest, and problems regarding Saudi connections to the Bush regime. Securing more Latin American energy has proved to be a difficult, particularly as savvy political players, such as Hugo Chavez, successfully identify and block new attempts at incursion. Iran is still being set up for an attack.
Resource warfare is intensifying across Africa (Somalia, Nigeria, Sudan, Darfur, etc.), evidenced by increasing US military-intelligence operations, the escalation of unrest, war and covert operations, and "al-Qaeda" presence (the telltale sign of active US covert operations).
In every target area, the Anglo-American empire enjoys no unfair advantage or overarching clout over its geopolitical rivals, and even under the rosiest of scenarios, will find it impossible to control conditions on the ground.
Quagmire by quagmire, the American Empire is quickly running out of options, even bad ones.

Friday, June 22, 2007

The West, Russia and China in Central Asia: What Kind of Game is Being Played in the Region?
Igor TORBAKOV
This article was originally published in Journal of Central Asian and Caucasian Studies in No: 2 Volume: 1 pp:78-91
Over the last decade, international commentary on Central Asia often turned to the imagery of the Great Game. In its classic 19th century version, the Game was primarily a rivalry between the two major colonial powers – the British and Russian empires -- for control over Central Eurasia.[1] The present-day interpretations of the Great Game tend to expand the number of players -- bringing in such regional heavyweights as China, as well as the key outside power, the United States -- but retain the Game’s main characteristic feature – namely, the big powers jockeying for position in Central Asia.[2] The latest conceptualization sees the Game as being largely driven by the desire of Russia and China to squeeze the United States out of Central Asia and establish their exclusive control over the strategically located and energy-rich region.[3]


What is the Essence of the Great Game?

According to most analysts, a key element of the Great Game is outside powers’ security presence in the region -- whether military bases or joint war games with host countries or arms deliveries or control of energy transit routes.
Geopolitically, security presence allows an outside power to exercise more control over a host country’s policies and make sure the outside power’s national interests are observed and promoted in the host country.
Economically, security presence allows an outside power to ensure that Central Asia’s energy riches are exported in the direction the outside power wants; an outside power usually seeks to make sure such deliveries are safe and that other outsiders cannot easily reroute the region’s energy flows.
In military-strategic terms, security presence allows an outside power to project force from a host country to other countries in the region, including the outside power’s rivals.


Are We Witnessing the Latest Variety of the Great Game?

The present-day outside powers do indeed seek to expand their security presence in Central Asia. A more critical glance would reveal, however, that the Great Game concept appears to ignore a number of important points.

First, following the collapse of the Soviet Union, Central Asian states have become independent actors capable of making their own decisions.[4]
Second, the relations between the Central Asian states and the outside powers are not the hierarchical ones in the tradition of a great power – client relationship. The nature of these relations, rather, likely depends more on how the regional countries perceive their political, economic and security interests. Sometimes the regional countries’ interests might indeed include pitting great powers against one another, thereby creating an image of a great game.
Third, more recently, the diverging trajectories of Central Asian states have made the situation even more precarious and confused.
Fourth, the geopolitical “game” played by the outside powers does not have an unequivocally confrontational character. To be sure, the competition between the big powers does exist but at the same time there is an understanding that cooperation is a must to prevent further destabilization of the already dangerously volatile region.[5]


So What’s the Current Situation on the Ground?

Currently, Moscow and Beijing’s positions in Central Asia seem to be strong, and will likely grow stronger in the near future.[6] By contrast, the West (the U.S. and the EU) appears to be in strategic retreat at the moment.[7] To understand why it is so, one has to focus on the interests of the Central Asian ruling regimes and analyze how, in light of these interests, the regional leaders perceive the policies of the key outside powers.
Currently, Central Asia’s leaders have three primary concerns: they seek to perpetuate their rule over their countries while blocking attempts by political opposition to topple their regimes; they intend to continue combating radical Islamist activity; they want to further economic development in such a way that will not undermine their control over their own economies.
The West, particularly the United States, is actively calling for political change in the region, and Washington is more concerned with having Central Asian governments’ help in its struggle against militant Islamists than in providing security assistance for the regional regimes at home. The West also wants the local economies to be liberalized, which would require domestic elites to sacrifice control over regional economic processes. Russia, on the other hand, is doing the opposite, and has therefore won regional governments’ appreciation.[8]
While the West is pushing for democratic reforms in the autocratically ruled region, Moscow hasn’t demonstrated any inclination to interfere in Central Asia’s domestic politics by demanding improvements in human rights or the implementation of political competition. This difference alone makes the choice between the two potential sponsors an obvious one for Central Asia’s authoritarian governments. (Russian strategists claim that American policy aimed at spreading democracy in Central Asia failed like it did in the entire region of the Greater Middle East because Washington was slow to understand that democratization which comes before modernization in the poor underdeveloped countries cannot be sustained.)[9]
In terms of security, the United States has shown no interest in helping regional governments defend themselves from the challenges posed by domestic opposition forces. And the U.S. response to the uprising in Andijan in May 2005 was a primary factor in pushing the region more toward Moscow, as Washington’s reaction made it clear to Central Asia’s regimes that they would not be able to count on the United States for security assistance during potential emergencies.[10] Furthermore, governments across the region, whether rightly or wrongly, believe the United States is supporting anti-government movements that these regimes see as coalitions between Islamist and pro-Western forces.
While the West reacted to the events in Andijan by criticizing the Uzbek government’s ruthless response, Moscow was supportive of the regime, and made it clear that it would help Central Asian governments to fight the Islamist opposition.[11] This was formalized in the July 2005 summit of the Shanghai Cooperation Organization (SCO), and the Kremlin also has made this commitment through the Collective Security Treaty Organization.[12]
Furthermore, Moscow has taken concrete steps by participating in the joint counterterrorism exercises in both Kazakhstan and Uzbekistan and by increasing military cooperation.[13] The contrast between Washington and Moscow’s positions was plain to the regional governments. (For Russia, this cooperation serves national security interests as much as it does political interests in reducing U.S. influence in the region. Moscow seeks to prevent the security breakdown in Central Asia: any significant political upheaval in the region, the Kremlin strategists argue, would make Russia’s southern frontier vulnerable to an assault of militant Islamists moving north from Afghanistan. Russia and Kazakhstan share a very long border, and Central Asian security is therefore of vital interest to Russia.)
But the most significant difference has recently been in terms of economic cooperation. Economic aid from the West in general and the United States in particular is now viewed rather skeptically by governments in the region. Central Asian officials complain that Western aid never lives up to the expectations, as the bulk of it tends to be reserved for the numerous, and quite expensive, Western consultants. Furthermore, the aid is vulnerable to wide-spread corruption, which prevents it from reaching its destination. On top of this, the monies often come with significant strings attached. The latter sometime include demands for political and economic reform that the local leadership perceives as being potentially detrimental as it risks to undermine regional governments. Also, economic benefits from the presence of U.S. military bases turned out to be less than anticipated -- as it happens, the local expectations were grossly exaggerated. Other benefits, such as employment of the local population at the Western military facilities, were not crucial to the host countries’ economies. On the other hand, trade with Russia and China remains a vital element of economic development for all the Central Asian states.
Moscow, relying on a vast resource base built due to the windfall energy revenues, is currently seeking to strengthen economic ties between Russia and Central Asia. As one commentary contends, Russia’s new expansion in Central Asia is propped not so much by its military might, which remains rather inadequate as by its economic dynamism, driven by the powerful energy sector.[14]
With Russia’s major gas reserves steadily depleting and the development of the untapped fields in the Arctic being extremely costly, Gazprom, Russia’s state-run energy monopoly, is increasingly turning its gaze to Central Asia’s gas riches. Russia has already signed a massive gas pact with Turkmenistan: under the terms of the 2003 accord, Moscow got what seemed to be the exclusive right to export all natural gas produced in Turkmenistan for the period of 25 years. But the mercurial nature of the Turkmen president, Saparmurat Niyazov, makes him an extremely inconvenient and unpredictable partner, which forces Moscow to look for a back up plan.
Thus, in January 2006, Gazprom signed two agreements with Uzbekistan pledging $1.5 billion in Russian investments in the Uzbek energy sector. The most important accord is a 25-year production sharing agreement on the development of the Ustyurt gas fields. Most Russian energy analysts applauded the deal. Any investments Gazprom makes in the region, they argue, increase the company’s influence and make the local authorities more loyal. In addition, with the Ustyurt gas reserves in its possession, Gazprom will be able to at least partially protect its interests and keep its gas balance should the Turkmen gas production drop. The deal is also attractive for Tashkent, the analysts say: Uzbekistan simply lacks funds both for the exploration and development of its energy reserves and, more importantly, for the expansion of the throughput capacity of the Central Asia – Center pipeline’s Uzbek section to secure the export of fuel.[15]
But even before inking a gas accord with Uzbekistan, Russia managed to sign another energy agreement that has potentially huge economic and political implications. In the end of 2005, Gazprom reached a five-year transit deal with Kazakhstan’s state natural gas transit company KazMunaiGas to transit 55 billion cubic meters of Turkmen and Uzbek natural gas a year, giving Gazprom monopoly control over all three Central Asian states’ natural gas exports.[16] As some analysts note, this agreement represents the virtual completion of Russia’s successful efforts to forge something like a gas cartel of producers. Playing a leading role within this grouping, Russia would not only dominate the export of Central Asian gas but would also obtain control over the economies of both the gas-producing and gas-consuming states in the post-Soviet Eurasia.[17]
The forming of the Russia-led gas cartel will likely have significant repercussions for other major consumers – like, for example, the European Union. According to one perceptive commentary, “All natural gas produced in the former Soviet Union comes from Gazprom, Kazakhstan, Uzbekistan or Turkmenistan, with any natural gas originating in a country ending in ‘stan’ having to transit through Kazakhstan and Russia on its way to any market. The KazMunaiGas deal means that Gazprom -- and by extension, the Kremlin -- now owns all of that gas. Any state wanting to use Central Asian gas in order to get energy independence from Russia is now out of luck.”[18]
This situation doesn’t bode well for the countries such as Ukraine and the Baltic States: it would appear that these nations are now deprived of any viable alternatives to Russian-owned natural gas. The January 2006 standoff between Russia and Ukraine over the gas pricing which resulted in a brief cutoff of supplies that affected even a number of the EU countries served as a powerful wake-up call for any nation that is dependent on Moscow for its energy needs.
In military-strategic terms, the situation in the Central Asian region has also changed quite dramatically over the past year. In 2002-2004, Moscow’s attempts to counterbalance the U.S. military presence were doomed to failure, as the new Russian air base in Kant, Kyrgyzstan was vastly inferior to U.S. and NATO’s facilities set up in the region in the wake of the September 11, 2001 terrorist attacks against the U.S. But 2005 has seen an impressive reassertion of Russian military influence in Central Asia.[19]
The most significant development was Uzbekistan’s geopolitical shift. The U.S.-Uzbek “strategic partnership” forged in March 2002 was seen by many security experts in both countries as an effective geostrategic leverage helping balance Russia and China in the region. The Karimov government, however, strongly resisted attempts to use the “alliance” for promoting liberal reforms and human rights. Having suppressed the Ferghana Valley riots, which he asserted was an attack of the “external radical Islamist forces,” Karimov promptly revived the “strategic partnership” with Moscow and received a red-carpet welcome in Beijing. As a direct result of Tashkent’s falling out with Washington, the U.S. airbase at Karshi-Khanabad has been withdrawn.[20] The growing security ties between Russia and Uzbekistan have ultimately culminated in the military pact between the two countries which was signed in November 2005.[21] Additionally, a number of military exercises comprising Russian and Central Asian contingents were conducted in the fall of 2005, and the first joint Russian-Chinese maneuvers added a new dimension to this cooperation.[22]


Dilemmas of Russian Policy

In spite of the apparent success in restoring its great power stature, Russia’s seemingly dominant position in Central Asia is far from guaranteed. In fact, Moscow will hardly succeed in maintaining its leadership role unless it sorts out a number of contradictory aspects of its policy towards the Central Asian states.
First, Russian strategy in Central Asia appears to be resting on a shaky foundation. It seeks to preserve the status quo and help perpetuate the regimes that have sworn geopolitical allegiance to Moscow. But what does the status quo actually mean? Its essence, some experts contend, is the “ossification of post-Soviet ruling elites” and the decay of the political systems they shaped for their convenience. The perpetuation of the unreformed local regimes is exactly the root cause of the brewing political crisis in the region.[23] Russia, too, runs the risk of being too closely allied with the regional rulers. For example, having pledged to support Karimov, the Kremlin will inevitably find itself between the rock and the hard place when his regime eventually crumbles and social turmoil ensues. Then Russia will face a painful dilemma: to come to Karimov’s rescue would mean to be drawn into a possibly violent internal conflict; to ignore the request for help would mean to badly let one’s ally down. Having signed an alliance pact with Karimov, one commentary argues, “Russia automatically made a possible civil war in Uzbekistan its internal problem.”[24] Besides, Moscow’s readiness to embrace any local autocrat may well prove to be a bad miscalculation – simply because such an alliance is unlikely to last too long. As one observer points out, “Russia remains primarily a fallback option.”[25] The long-term preferences of Central Asian elites would ultimately be pulling them toward the West.[26]
Second, despite the fact that Moscow and Beijing have managed, so far, to find a degree of accommodation, the competition between the two powers in Central Asia is all but inevitable. Russia will likely have to struggle pretty hard to maintain its strategic standing on par with China. As most historians would contend, China is not emerging -- it is re-emerging to reclaim its traditionally exceptional place in the region. China was a presence in Central Asia “ever since the Silk Road first connected the Middle Kingdom to the Roman Empire.”[27]
While some Moscow strategists talk of a Chinese alliance against the West, “China has been taking advantage of that misperception and preparing for a world in which Russia no longer matters.”[28] China has been building rail lines and petroleum pipelines into Central Asia and acquiring Central Asian energy firms. According to various estimates, China National Petroleum has invested almost $10 billion in Kazakhstan since 1997. In October 2005, Beijing scored a major geopolitical coup when China completed a $4.18 billion takeover of PetroKazakhstan Inc. This move was followed by the opening of the new Kazakh-China oil pipeline on December 15.[29]
China quietly sponsors an unofficial policy of encouraging migration of its citizens to Central Asia as well as to the resource-rich but sparsely populated Russian Siberia. Russia, on whose vast expanses between the Ural Mountains and the Far East live less than 30 million people, cannot fail to feel a tremendous demographic pressure from across the border with China. And in Kazakhstan, there are reportedly around 100,000 Chinese who have settled there recently.[30]
China is purchasing components of Russian military technology as part of a broad-based modernization program. According to one Western commentary, “China is fully engaged in the old three-player game and views Washington as its major concern, with Russia being simply a tool of foreign policy.”[31] Some Russian analysts share this view and are quite pessimistic about the long-term prospects of Sino-Russian “cooperation.” Even if Moscow does manage to increase its influence in Central Asia in the short-term, Beijing will likely be the biggest geopolitical winner in the long run, they say. Russia, being China’s junior partner, will inevitably be forced to gradually cede both its dominant position in the region and access to Central Asia’s enormous energy resources to its much more powerful ally. Thus, what now appears to look like a return of the Soviet Union’s “soft underbelly” to Mother Russia’s fold is rather a slow but steady process of transformation of Central Asian region into Beijing’s expanded zone of influence.[32]
Third, Russia will ultimately need to decide whether it genuinely wants to push the United States from Central Asia, or whether it can live with the U.S. presence in the region. Pragmatically defined Russian interests, some analysts suggest, are not necessarily incompatible with U.S. interests in Central Asia.[33] True, Moscow wouldn’t like to see the strengthening of U.S. positions in the region where it traditionally dominates, they argue; but it should also be clear, they add, that Russia isn’t prepared and in fact doesn’t want to bear the full responsibility for securing political stability and economic development in Central Asia. Thus, the argument goes, in reality the Kremlin is interested both in preserving a “certain level” of American presence in Russia’s strategically sensitive “southern underbelly” and in maintaining some sort of partnership with the U.S. One policy paper published in the recent issue of the journal Rossiya v globalnoi politike even argues that in the majority of the Central Asian states Moscow should try to either share the responsibility for the regional stability with the outside “third force” – be it China, the U.S., or the EU – or shun this burden altogether. There are Russian experts who even suggest offering to the U.S. a status of observer in the Shanghai Cooperation Organization. Any attempt by the SCO “to squeeze Washington out of Central Asia” would be counter-productive, they contend. If this happens, “an extremely dangerous geopolitical vacuum will emerge in the region.”[34]
Finally, Russia as well as other outside powers will have to pursue their interests in the region whose countries diverge widely in their geopolitical orientation. According to some observers, the most significant development of the last year is the parting of ways among Central Asian states themselves. But although the individual trajectories of the regional countries do differ markedly, all Central Asian states appear to have opted for the tactics of sophisticated foreign-policy maneuvering. According to one recent commentary, a policy whereby a regional state would be geopolitically tethered to a single outside power is receding to the past. Thus, it starts slowly dawning on the great powers that they cannot achieve their goals pursuing a “single Central Asian” policy in the region; instead, they need to elaborate a set of policies targeting individual Central Asian states.[35]
Here’s a brief overview of what some Central Asian policymakers and analysts call a “pragmatic strategy” pursued by the regional countries. At first blush, Turkmenistan continues sticking to its precarious neutrality status, remaining in a kind of self-isolation. But Turkmen President Saparmurat Niyazov’s recent overtures toward China including the signing of the long-term gas accord with Beijing indicate that Ashgabat seeks to break Russia’s monopoly on the exports of Turkmenistan’s natural gas.[36] While reiterating that Moscow is their main strategic partner, Kyrgyzstan and Tajikistan continue to maintain a close relationship with the United States. Kazakhstan, politically the most stable and economically the most powerful nation of the region, seeks to preserve the multi-vector character of its foreign policy and economic development. Despite persistent pressure from Moscow, Kazakh leadership leaves open the possibility of exporting oil through the newly opened Baku-Tbilisi-Ceyhan pipeline. Some energy analysts don’t exclude the future competition between Moscow and Astana. Putin wants to turn Russia into an energy superpower, they say. But Kazakhstan also possesses huge amounts of oil and gas that will likely compete on the world markets with the Russian hydrocarbons.[37] For the time being, only Uzbekistan appears to have cast its lot with Russia and China. But this trend is unlikely to last too long. Besides, Karimov, the Uzbek strongman, will likely not miss the opportunity to play Moscow off against Beijing to create more favorable geopolitical conditions for his regime.


CONCLUSION

The great powers do indeed compete in Central Asia and go out of their way to expand and strengthen their security presence there. The above analysis would suggest, however, that the 19th century Great Game model is an inadequate epistemological tool for understanding the 21st century tangled interactions in the region. The current pattern of relations between various international actors is much more complex than a traditional geopolitical tug-of-war between the old colonial empires.
Over the past year, Russia, claiming that its paramount strategic goal is regional stability, has achieved much success in consolidating its influence across Central Asia. This success, however, appears to be temporary as is the current period of stability. Russia’s policies aimed at preserving the status quo (read the stability of the powers that be) fail to address Central Asia’s socio-political problems – above all, the pervasive corruption and the over-concentration of power in the hands of the ruling elites -- that cause broad public discontent and may eventually lead to a major political upheaval.
While Moscow’s strategic clout has grown recently, the capacity of the West (the U.S. and the EU) to influence political developments in the region has significantly diminished. However, the overall situation in Central Asia remains highly volatile and the present-day geopolitical landscape is far from being permanent.
[1] See, for example, Daniel Kimmage, “Central Asia: Is Regional Turbulence Return of the Great Game?”, RFE/RL, 19 July 2005. Idem, “2005 in Review: The Geopolitical Game in Central Asia,” RFE/RL, 29 December 2005.
[2] Frederick Kempe, “Central Asia Emerges As Strategic Battleground,” Wall Street Journal, 16 May 2006. Nicholas Schmidle, “In Central Asia, New Players, Same Game,” Washington Post, 19 January 2006. Nikolai Sokov, “The Not-So-Great Game in Central Asia,” PONARS Policy Memo No. 403, December 2005. Stanley A. Weiss, “Don't Play This Great Game”, International Herald Tribune, 9 December 2005. Igor Torbakov, “Central Asia: Replaying the Great Game,” Eurasia Daily Monitor, 13 October 2005.
[3] Ann Scott Tyson, “Russia and China Bullying Central Asia, U.S. Says,” Washington Post, 15 July 2005. F. William Engdahl, “Central Asia, Washington, and Beijing Energy Geopolitics,” GlobalResearch.ca, 19 December 2005.
[4] Dosym Satpayev, “Effekt prisutstviya,” Nezavisimaya gazeta, 27 March 2006.
[5] Alexei Malashenko, “Tsentralnaya Aziya: nikto ne khotel pobezhdat,” Nezavisimaya gazeta, 16 January 2006.
[6] Alan Cullison, “Russia Reclaims Its Backyard,” Wall Street Journal, 2 September 2005.
[7] Jeremy Page, “Three Powers In Replay of Great Game,” Times, 12 July 2005. “U.S. Under Pressure in Central Asia,” Jane’s Intelligence Digest, 4 November 2005.
[8] America’s overall strategy in Central Asia is discussed in: Svante E. Cornell, “The United States and Central Asia: In the Steppes to Stay?” Cambridge Review of International Affairs, Vol: 17, No: 2, July 2004. The Russian critique of U.S. policies in the region see in: Andrei Grozin, “The ‘New’ U.S. Strategy in Central Asia,” RIA Novosti, 4 April 2006.
[9] Joel Brinkley, “Russia Battles U.S. Democracy Efforts,” International Herald Tribune, 5 December 2005.
[10] Sonni Efron, “Uzbekistan Tests U.S. Policy Goals,” Los Angeles Times, 13 June 2005. Stephen Schwartz & William Kristol, “Our Uzbek Problem,” Weekly Standard, 6 June 2005.
[11] Mikhail Margelov, “Uzbekistanu pora menyat geopolitiku,” Parlamentskaya gazeta, 18 May 2005.
[12] Viktoria Panfilova, “Fantom ekspansii ne ostanovil Moskvu,” Nezavisimaya gazeta, 6 July 2005. Yevgenii Verlin, “Vostok-Zapad: Vpolzaniye v Aziyu,” Vedomosti, 13 July 2005.
[13] “Russia’s Institutional Offensive In Central Asian Security,” Jane’s Intelligence Review, 1 May 2006.
[14] Pavel K. Baev, “Russia’s Counterrevolutionary Offensive In Central Asia,” PONARS Policy Memo No. 399, December 2005.
[15] Yelena Mazneva, “Gazprom stavit na Uzbekistan,” Vedomosti, 26 January 2006.
[16] Nataliya Grib & Oleg Gavrish, “Vse gazy v gosti budut k nam,” Kommersant, 14 November 2005.
[17] Stephen Blank, “Russia Realizes Its Cartel,” Central Asia—Caucasus Analyst, 30 November 2005.
[18] “The Far-Reaching Changes in Russia,” Stratfor, 14 November 2005.
[19] Richard Giragosian, “The Strategic Central Asian Arena,” China and Eurasia Forum Quarterly, Vol: 4, No: 1 2006.
[20] Alex Rodriguez, “U.S. Shuts Down Uzbek Air Base,” Chicago Tribune, 23 November 2005.
[21] Igor Torbakov, “Russia’s Warming toward Uzbekistan May Damage Relations with the West,” Eurasia Daily Monitor, 16 November 2005. Igor Torbakov, “Uzbekistan Emerges as Russia’s New ‘Strategic Bridgehead’ in Central Asia,” EurasiaNet, 14 December 2005.
[22] Antoine Blua, “Russia/China: Military Exercises Underscore Growing Ties,” RFE/RL, 5 August 2005.
[23] The critical analysis of the downsides of Russia’s Central Asia policy, see in: Dmitry Furman, “Podderzhka obrechennykh,” Izvestiya, 15 June 2005.
[24] Mikhail Zygar, “Rezhimnye subyekty,” Kommersant, 14 November 2005.
[25] Nikolai Sokov, “The Not-So-Great Game in Central Asia,” PONARS Policy Memo, No: 403, December 2005.
[26] Remarkably, the recent report by Russia’s influential Council for Foreign and Defense Policy criticized Russia’s approach to Central Asia for “lacking strategic vision and reacting to events and work on a case to case basis.” The report warns that political destabilization is currently the main threat in Central Asia with authoritarian and ineffective rule seen as a cause. “Despite apparent external stability,many ruling regimes in Central Asia could quite easily be shaken or even toppled,” it says. “Russia should carefully but persistently persuade the Central Asian regimes of the need for political modernization,” the report suggests. See Interfax, 3 March 2006.
[27] Georgi Derluguian, “Shifting Forces along the Silk Road,” Moscow Times, 5 August 2005.
[28] “The Far-Reaching Changes in Russia,” Stratfor, 14 November 2005.
[29] See Stephen Blank, “China Makes Policy Shift, Aiming to Widen Access to Central Asian Energy,” EurasiaNet, 13 March 2006.
[30] On China’s expansion see: Alexei Malashenko, “Tsentralnaya Aziya: nikto ne khotel pobezhdat,” Nezavisimaya gazeta, 16 January 2006. Idem, “Kitai, kotoryi myagko stelet,” Moskovskie novosti, 21 April 2006.
[31] “The Far-Reaching Changes in Russia,” Stratfor, 14 November 2005.
[32] Andrei Tsukanov, “Kitai otkroet Kremlyu svoe istinnoe litso,” Prognosis.ru, 7 June 2005.
[33] Sergei Karaganov, “O Rossii, SShA i Tsentralnoi Azii,” Rossiiskaya gazeta, 20 October 2005.
[34] Sergei Karaganov, “Tsentralnaya Aziya: Vozvrashchenie Rossii,” Rossiiskaya gazeta, 9 December 2005.
[35] Dosym Satpayev, “Effekt prisutstviya,” Nezavisimaya gazeta, 27 March 2006.
[36] Alexei Grivach, “Kladovaya Turkmenbashi,” Vremya novostei, 4 April 2006. Stephen Blank, “Turkmenbashi in Beijing: A Pipeline Dream,” EurasiaNet, 10 April 2006.
[37] Alexander Rahr, “V budushchem konkurentsiya mezhdu Rossiei i Kazakhstanom vpolne veroyatna,” Gazeta, 6 December 2005.
Copyright © 2005 Journal of Turkish Weekly http://www.turkishweekly.net/articles.php?id=204

Wednesday, June 20, 2007

Kazakhstan-One of the Important Player In Energy Game On Eurasian Area
Rovshan Ibrahimov
Tuesday , 05 June 2007
This commentary is from USAK's Energy Review Newsletter http://www.turkishweekly.net/energyTo subscribe email to energyreview@turkishweekly.net
Kazakhstan gained its independence in 1991 after collapsing of the Soviet Union and immediately began to seek ways to implement the use of their own oil sources. It is estimated that the country has resources between 30 and 40 billion tons of oil.

With geopolitical position in Central Asia, Kazakhstan has borders with countries such as Russia and China and is one of the largest countries in the Eurasian space. The main oil fields in Kazakhstan like Tengiz oil field which is located on the northeast shores of the Caspian Sea, then the Karachaganak oil field located inland near to Russian border, another Kashagan is one of the largest field with projected reserves of somewhere between 7 and 13 billion Barrels, and the Kurmangazy field, located in northern Kazakhstan. As it seen the major oil fields are located in the western part of the country near the border with Russia. Although there is some small oil fields near the Chinese border, their industrial exploration has not yet to begin
.
Neighborhood with Russia and China play the key role in the development of national energy policy. For example, Kazakhstan is interested in cooperation with Russia firstly because this country is the main transit route for oil exports to the European markets. Indeed, during the Soviet period the only oil pipeline from which export of oil from Kazakhstan was possible has been linked to the Russian city of Samara, where through internal oil pipeline infrastructure came to the Black Sea port of Novorossiysk.

Subsequently in 2001 with the aim to exp[ort of oil from Kazakhstan Caspian Pipeline Consortium was built which is also passing through Russia. The length of this pipeline is about 1510 km, and connects the Tengiz oil field with the port of Novorossiysk. It also plans to export oil extracted from fields Kashagan and Karachaganak to date through this pipeline. Nowadays about 700,000 barrels of oil a day transported from this line.

Russia also interested to transport Kazakh oil through own territory, which in turn may conduct its own energy policy in the European countries. The emergence of alternative ways to export Kazakh oil to the West poses a threat to Russia policy. Examples for such possibility can be shown Azerbaijan, which is after the construction of the main pipelines for oil and gas exports, began follow more independent policy and has prevented Russian policy of pressure on Georgia, starting export its own gas to the country.

Regarding China, this country with a rapidly growing economy desperately needs to import oil and gas. Lacking its own energy resources, the country is largely dependent on external supply mostly from the Middle East. Given the political climate in the region, China needs to diversify imports for its hydrocarbon industry. One of such source for China is Kazakhstan. Export of energy to China is also in interest of Kazakhstan. Deliveries in the country will enable the country to diversify its exports, transported across Russian territory.

The export from Kazakhstan to China started construction of an oil pipeline from Atyrau to Alashankou, in the Xinjiang Uygur Autonomous Region of China and in 3000 km in length. This pipeline is built by the China National Petroleum Corporation and Kazakhstanian oil company KazMunayGas. Overall, it possible to transport from this pipe about 20 million tons of oil per year.

By the end of 2005, construction of the pipeline was finished. The event enabled Kazakhstan to a certain foreign policy related to energy projects. Kazakhstan is planning to increase its oil production by 2015 to 150 million tons a year, formally announced his desire to join the newly delivered BTC pipeline in operation.

Pre knowing reaction to the statement Kazakhstan, in the short term, dividends received and on the willingness of Russia to control the entire oil exports of Kazakhstan. And in this case, at a meeting of the Presidents of Russia, Kazakhstan and Turkmenistan may seem that Russia has made its own. Indeed, the President of Kazakhstan Nursultan Nazarbayev during the meeting with President Putin said that Kazakhstan wishes to continue to export up to 80% of total exports to 52 million tons west through Russia. However, we should not forget that oil production in Kazakhstan will grow including exports to the western direction. It is therefore expected that Kazakhstan will not abandon the Azerbaijani export oil to the West. In short term Kazakhstan has certain desired results on privatization of Orenburg refinery located in Russia, and working on Kazakh oil. There has been another discussion about Kazakhstan's participation in pipeline construction Burgas-Aleksandropoulos.

In addition, Kazakhstan has suffered some loss of Russian monopoly transport Kazakh oil. Planned by Kazakhstan privatization of Lithuanian refinery was failed because of refuse to allow Russia to export 12 million tons of oil a year through its territory which planned to be processed in Lithuania. Another possible problem in the same reason for Kazakhstan is ambition of Russia to increase tariffs for the transportation of Caspian oil through the pipeline Caspian Pipeline Consortium.

It should be noted that one of assessed participants of consortium is the Russian pipeline monopoly Transneft. The share of this company is 24%. Pipeline Caspian Consortium is the only private pipeline crossing the territory of Russia. Given that Russia is pursuing a policy of monopoly in the energy sector, it also intends to increase its influence in the consortium.

Kazakhstan is not satisfied with the role of only exporter of energy in the Eurasian space. The country intends to play an active role in shaping energy policy. And if in the short run this country lacks sufficient tools to realize its objectives in the medium term it would make to have these mechanisms in place. And the first step in this direction would be a way of diversifying of export of oil.

Rovshan Ibrahimov, rovsen@azerimail.net
Editor of USAK Energy Review