Saudis becoming the game spoiler

While oil prices experience volatility due to Greece crisis inching towards its exit from euro zone and P5+1 negotiations keep on extending Saudi Arabia takes a somersault.

It is becoming evident that Saudis are getting more desperate to retain their market share and trying to strike new deals with India and Russia. For India, the Saudis are offering to ship crude using their own tankers to Indian refineries, which would cut the costs significantly for India.

The strategy is aimed at selling crude oil to India at a discount, one of the major buyers of Iranian oil. It may be said that using Saudi ships to transport crude to India would allow the country to save up to 30 cents per barrel. Saudi strategy is aimed at securing it market share at a time Asian buyers are looking for better deals in a global glut.

Another negotiation is going on between two oil giants Saudi Arabia and Russia. This is important also because Russia has now officially surpassed Saudi Arabia to become China’s top crude supplier in a battle to enhance its market share.  But it’s not oil that the Saudi’s are dealing with Russia—for obvious reasons.

Saudi Arabia has signed a deal to invest up to US$10 billion in oil rival Russia, in the fields of agriculture, medicine, logistics, retail and real estate. It is evident that while the Saudis are busy trying to secure oil market share, the Russians are trying to make up for hits they’ve taken from Western sanctions.

This has produced a fair amount of dramatic talk about Saudi Arabia and Russia joining forces in a new alliance. Overly dramatic or not, the U.S. sentiments are turning against long-time friend Saudi Arabia. Washington is certainly annoyed with changing mindset of Saudis that may pave way for the withdrawal of sanctions from Iran to teach a lesson to the ally of recent past.

Any deal with Iran would mean more geopolitical change than the faltering Saudi Arabia—which is fighting a war in Yemen that is leaking across its borders. The competition on the oil scene, though not immediate, would eventually hit Saudi Arabia hard, as the Kingdom is already scrambling to secure market share. The consequences would be immense and Iranian deal, more than anything, will define future relations. There are many who would like to see this final noose tighten around Saudi Arabia.  

Experts have repeatedly expressed fears that Greek crisis could infect oil markets. WTI fell by 8 percent on July 6, falling to around US$53 per barrel. Brent lost nearly 5 percent, dropping to under US$58 per barrel. Oil is now trading at its lowest level in months, erasing several weeks of stability as well as optimism that the market had begun the arduous process of adjustment.

The Greek crisis has entered a new and much more dangerous phase, raising the possibility that the country could get booted from the currency union. JP Morgan Chase stated that it thinks odds are more likely than not that Greece leaves the euro. With Europe in turmoil, oil prices may not recover in the short-term.

But it isn’t just Greece. In another geopolitical development, the Iranian negotiations are at the finish line. The outcome is still in doubt, as the deadline has once again been pushed back, but all sides seem extremely close to striking a deal. After weeks and months of uncertainty, the progress over the past week seems to have finally convinced the oil markets that a return of Iranian oil is close to becoming a reality.

The extent to which Iran can bring oil fields online and ramp up exports is a matter of much debate. But realistically speaking Iran could send up to a million barrels oil per day to the global marketplace after concluding the agreement. Reportedly Iran has stored over 40 million barrel crude oil in ships that ready to sail any minute.

Why Richard Olson talks about ending proxy war in South Asia only?

One is completely amused to read the statement of Richard Olson, US Ambassador in Pakistan, “Era of proxy wars should end in South Asia”. It raises a question, why is he talking about South Asia only while the super power continues to fuel proxy wars in Middles East and North Africa (MENA). The hottest spots are Iraq, Syria, Yemen, Libya, Sudan and even Nigeria.

One just can’t forget that the most recent and longest proxy war is being fought in Afghanistan for nearly four decades. The pretext at that time was averting USSR attack on Afghanistan, which was termed an attempt to reach ‘warm waters’. The attack on Afghanistan in the aftermath of 9/11 was aimed at catching OBL, hibernating in a country ruled by Taliban, who fought proxy war against USSR.

One may say that this statement is the outcome of paradigm shift in the US foreign policy. It seems the way is being paved for emerge of new regional powers in South Asia and MENA to fill the gap likely to emerge from an exit of the super power from the oil rich region.

The new power contenders are China, India, Iran and to some extent Pakistan. Pakistan is likely to get stronger under the umbrella of China Pakistan Economic Corridor (CPEC). Iran and India enjoy their own latent powers due to economic cooperation going on for a long time despite economic sanctions imposed on Iran for more than three decades.

Efforts to bring Iran out of shamble and increasing oil export from Iraq and Libya seems a proxy war against Saudi Arabia by denting its petrodollar income and also keeping Iranian oil proceeds low. The US is the biggest beneficiary of nearly 60 percent decline in crude oil prices due to shale oil boom in the US. It is no longer dependent on Saudi Arabia for its oil requirements.

Many may wonder why the US is giving China a leeway in South Asia but countering its policy in South China Sea. It seems Malacca Strait has become more important for the US as compared to Arabian Peninsula or Strait of Hormaz. Somali pirates have been tamed and proxy war in Yemen is enough to block Suez Canal as and when required.

It may also be said that the US is allowing China to conduct its international trade through Gwadar port to lessen its dependence on Russia for its energy requirements. Supporting China is ‘selecting a lesser evil’ to contain growing Russian phantom and rest of the talk is only eyewash.

  

What can derail P5+1 negotiation with Iran?

Experts say that P5+1 negotiation with Iran are the outcome of paradigm shift in the US foreign policy. The US seems to have lost interest in the Middle East and wants to focus more on South China Sea emerging saga. However, it still wants to protect the interest of its old allies in the Middle East, who feel deprived after the US attained the status of largest crude oil producing country.

With the July 9th, the real deadline for the nuclear negotiations between Iran and the P5+1 approaching fast, the critics of the Lausanne Nuclear Framework Agreement in Washington and Tehran has stepped up their criticism. The foreign ministers of world powers are likely to clinch an accord they hope will end a 13-year standoff.

The time has come P5+1 group should take a sensitive and historical decision and choose between an agreement or imposition of new sanctions on Iran. It is encouraging that both the sides want to put an end to an unnecessary and lingering crisis that should have been resolved a long time ago. The positive point is that in spite of all the remaining differences in these last hours, the negotiators have never been so close to a long lasting solution. However, reaching a consensus does not look definite as yet.
The Iranian foreign minister has rightly said that reaching an agreement requires courage to compromise, self-assertiveness to be flexible, maturity to take logical decisions, wisdom to abandon illusions and audacity to break old habits. He claims that logic is winning over illusion because super powers have finally understood that pressure and threat just can’t yield long lasting solutions, but increase tensions and enmities.
Many may tend to agree that imposition of the cruelest economic sanctions against Iran has not helped the opponents of its nuclear program in achieving their objective that is the reason they chose to negotiate. Iran has repeatedly expressed its readiness for reaching a good and balanced agreement and open new prospects to fight emerging challenges, the worst being extremism a common threat against the entire world.

It is necessary to understand that some of the concerns expressed by Iranians are but natural. They say the deal limiting R&D is an act of imposing sanctioning. Iranian apprehensions are being interpreted by the West as its pulling back from the commitments under the framework of agreement.

The biggest thorn is Iranian strongly believe that the US, keeping in view its history of animosity with Iran, cannot be trusted to abide by its commitments.  Their doubts are entrenched in the belief that the IAEA is untrustworthy because of being an American tool.

Those watching the negotiations closely say that allowing the foreign inspectors to get any time to any sensitive Iranian site violates Iran’s sovereignty and makes its national security secrets vulnerable. They also oppose allowing Iranian scientists to be interrogated given the track record of several Iranian scientists having been assassinated by Israeli intelligence.

Iranian critics also believe that Lausanne agreement prevents Iran from meeting its practical domestic energy needs on time. The current contract Iran has with Russia to provide fuel for its nuclear power plant in Bushehr will expire in 2021. After the expiry of this contract Iran will not be able to operate this power plant as being stipulated in the Lausanne agreement.

Implications of the US becoming the largest energy producer

The United States that surpassed Saudi Arabia in oil production has now beaten Russia in oil and gas production, thanks to the fields falling in the category of shale.

According to a report released by BP on Wednesday, U.S. oil production rose to a record last year, gaining 1.6 million barrels a day. Gas output also climbed, putting the United States ahead of Russia as a producer of the hydrocarbons combined.

The data confirming emergence of the U.S. as the top driller also endorses a trend that has helped the largest economy of the world reduce imports, caused a slump in global energy prices and shifted the foreign policy priorities of the country.

The world is witnessing a changing of the guard of global energy suppliers and the implications of the shale revolution in the U.S. are profound, this was stated Spencer Dale, Chief Economist of BP.

The other major shift BP report shows is that energy demand in China is growing at the slowest pace since the Asian financial crisis of the late 1990s as the economy slows and the country tries to reduce its reliance on heavy industry.

The boom in oil and gas production in the U.S. has started to change the domestic economy profoundly. Cheap fuel has seen manufacturing return to the U.S. as the country produced about 90 percent of the energy it consumed last year.

Last year, energy imports by the U.S. equaled one percent of GDP, of the country. In 2007, prior to the commencement of the financial crisis, energy imports by the U.S. accounted for about half of the current account deficit of 5 percent of GDP.

Shale drillers from Exxon-Mobil to Chesapeake Energy have spent about US$120 billion last year in the U.S., more than double the amount five years earlier. The surge in output and a slowdown in global demand have pushed crude oil prices down about 40 percent in the recent past.

The lower prices will force some producers to shut in “frothy activity” at some shale fields in the U.S. but most output can work even at current prices. The number of rigs drilling in shale fields are down by half from an October 2014 peak and may stabilize by the end of the summer, says BP Report.

The shale revolution hasn’t run out of steam in the U.S. as the country increased oil output last year, helping it to overtake Saudi Arabia as a crude producer. This was the first time a country has raised production by at least one million barrels a day for three consecutive years.

Among other producers outside the Organization of Petroleum Exporting Countries (OPEC), Canada and Brazil also reported record production last year, prompting OPEC’s policy shift of ditching price support for defending market share.

On the demand side, countries outside the Organization of Economic Cooperation and Development (OECD) accounted for all of the net growth in global consumption of 0.8 million barrels a day, or 0.8 percent, last year. Chinese consumption growth, though slower, still jumped 390,000 barrels a day, the biggest increase in the world.

Tail Piece: Having achieved self sufficiency in energy products is likely to shift the U.S. focus away from Middle East and MENA to South China Sea. This may not be a good omen for the region as some other countries may try to declare themselves regional super powers, the mostly likely being Iran and India.

 

Why CPEC has become a nightmare for Modi?

The world in general and Pakistanis in particular fail to understand the vehement opposition of China Pakistan Economic Corridor (CPEC) by Indian Prime Minister Narendra Modi. The level of insanity is also evident from the dictating tone in which he is addressing the Chinese government. Therefore, there is need to understand his level of anxiety.

Indian External Affairs Minister, Sushma Swaraj has said that India strongly opposes US$46 billion CPEC project. Addressing a press conference she said that during his visit to China, Indian Prime Minister Modi had raised "very strongly" the issue of the CPEC to Beijing and told them that it was "unacceptable" for India.

Modi’s prime objection is that CPEC will pass through Pakistan occupied Kashmir, which is not the real issue. He knows it very well that if CPEC becomes fully operative, importance of Chabahar port, which India is building in Iran will diminish drastically. It is known to all that Pakistan offers the shortest and the most cost efficient route to Central Asia passing through Afghanistan.

Ever since Pakistan started construction of Gwadar port and particularly after its management was transferred to China, India has been spreading disinformation that China is building a naval base under the disguise of a civil commercial port.

The fact is that CPEC is a development megaproject aimed at connecting Gwadar Port in southwestern Pakistan to China’s northwestern autonomous region of Xinjiang, via a network of highways, railways and pipelines to transport oil and gas as well as other goods. The economic corridor is considered the focal point of China Pakistan relations and will run about 3,000 km from Gwadar to Kashgar. The 3,000 kilometer corridor is an extension of China’s proposed 21st century Silk Road initiative.

The project will also open trade routes for Western China and provide China direct access to the resource-rich Middle East region, bypassing longer logistical routes currently through the Strait of Malacca. According to The Guardian, "The Chinese are not just offering to build much-needed infrastructure but also make Pakistan a key partner in its grand economic and strategic ambitions."

CPEC is a paradigm shift toward greater economic cooperation between Pakistan and China, which have long had close security ties amid common disputes with neighboring India. The corridor would give China access to the Indian Ocean and lead to investments that would help ease power shortages that are hindering economic growth in Pakistan.

India wants to sabotage CPEC at any cost, even to the extent of taking advantage of various insurgent groups operating in Pakistan, the most notorious being those having bases in Southern Punjab and Baluchistan. It is often alleged that RAW and Mousad are involved in proving funds, arms and training to certain group, the most notorious being Jundullah.

Modi knows well that if China bound goods are passing through Pakistan, special care will be taken by both the governments to ensure safety and security of the goods. In such a scenario agents funded by Israel and India may find it difficult to continue supporting insurgent groups in Baluchistan.

It is also necessary to remind the incumbent government that it has not been able to tell the public the route, which provides opportunities to those having vested interest to spread disinformation. At present at least maps of four different routes are in circulation, which provide ample opportunities to the groups having vested interest to initiate unnecessary debate and arouse anti Pakistan sentiments.   

 

 

Indian Foreign Policy Post 2014

A person aged 62, born and lived in Pakistan, having witnessed India and Pakistan involved in a mad race to accumulate the most lethal arms and attaining status of atomic powers at the expense of extreme poverty, having fought three wars, transformation of East Pakistan into Bangladesh and Kargil debacle is forced to draw a few conclusions:-

1) There is a growing perception, particularly in Pakistan that India is not a secular country. Over the years its policies have been driven by 'hawks‘ who have not accepted 1947 partition and are not willing to resolve Kashmir issue on the premise "We will not accept another division of Hindustan on the basis of religion",

2) India has been accumulating arms from its friends (changing with the passage of time) with the sole purpose of creation of its hegemony in the region,

3) The US and former USSR supplies arm to India during the cold war era to enable it to fight China,

4) Even today India enjoys full support of the US, which prompted it to desert Iran-Pakistan-India pipeline in exchange for nuclear technology,

5) India continues to be one of the biggest buyers of Iranian oil and the US has not imposed any sanctions on it,

6) And on top of all the US is patronizing India in actively participating in the construction of Chabahar port in Iran and road and rail network to link it to Central Asian countries via Afghanistan.

Discussion about the contours of Indian foreign policy under Narendra Modi is too premature but one point is very clear that it is focused on creating Indian hegemony in the region that now comprises of South Asia, Middle East and South Africa (MENA). India is fully supported in this endeavor by the US having the eye on oil rich Arabian Peninsula, Iran, Central Asia and Afghanistan. The US has replaced USSR (now symbolized by Russia) as the best friend of India, particularly after the recent imposition of economic sanction on Russia. India joined Chabahar port and allied infrastructure project on the encouragement of the US to construct an alternative route that could undermine importance of Pakistan.

Lately two ports, namely Gawadar and Chabahar, have emerged on Makran coast that are located at a distance of about 70 kilometers. One is located in Baluchistan province of Pakistan and other is situated in Sistan-Baluchistan province of Iran. Both the ports have been constructed with the stated objective of finding efficient and cost effective routes to energy-rich Central Asian countries passing through Afghanistan. The point to be explored is that both the ports have been constructed by two rivals, China and India, one an accepted world super power and the other a self-proclaimed regional super power. On almost every forum India tries to prove that Chinese involvement in Gwadar is a threat for its (Indian) existence. It also pleads that Indian Ocean should remain 'arms free‘.

However, navies of almost all the major powers are present in the area to protect their maritime trade. It may not be wrong to say that in the name of protecting their maritime trade certain countries have deployed their submarines and aircraft carriers in the Indian Ocean, which could become a ground for proxy war. India has been over reacting about Chinese assistance extended in the construction of Gwadar port in Baluchistan province of Pakistan. It has been creating the hype that Chinese presence in Gwadar is not only a serious threat for India but would also give China extra leverage in the region. India also accuses that China has acquired management control of Gwadar to use the facility as its naval base. This mantra is aimed at seeking support of United States and Russia, who consider China a major threat to their hegemony in the region.My words can be ignored on the premise of being a Pakistani but Indians and rest of the world must read a few lines from an article published in the journal of Foreign Affairs published in 2013 and titled ―India‘s Feeble Foreign Policy.

It says Indian policies are focused on resisting its own rise, as if political drift had turned the country into its own worst enemy. It also says that India — home to more than a sixth of the human race — punches far below its weight, internationally, it is a rule-taker, not a rule-maker. I have also read somewhere, Since the Berlin Wall fell 25 years ago; the world has witnessed the most profound technological, economic and geopolitical change in the most compressed time frame in the history. Unfortunately for India, despite its impressive economic growth overall, much of its last 25 year has been characterized by political weakness and drift.

In another article it has been written that the result of the prolonged leadership crisis has been a sharp erosion in India‘s regional and extra-regional clout. The gap in power and stature between China and India has widened significantly. After all, this was the quarter-century in which China took off. More troubling has been India‘s shrinking space in its own strategic backyard. Even tiny Maldives had the gall to kick India in the chin and get away with it. It kicked out its Indian airport operator from the capital Male and publicly dressed down the Indian Ambassador without fear of consequences. In Nepal, India found itself competing with China. And in Sri Lanka, India became content to play second fiddle to China.

Domestic Indian media is trying to create a perception that Modi faces major regional challenges due to failing states around India. The media demands that this tyranny of geography demands India to evolve more dynamic and innovative approaches to diplomacy and national defense. It is also being said that the political rise of Modi — known for his decisiveness — could be a potential game changer as he is focusing on revitalizing the country‘s economic and military might. Modi is being praised for wining over the US support by shaking off US visa-denial humiliation heaped on him over nine years. It is also boasted that the US conducts more military exercises with India than with any other country. And in recent years, the US has quietly overtaken Russia as the largest arms supplier to India. Whatever Indian media try to portray, Modi‘s actions talks louder that include his moves to engineer stronger partnerships with Japan and Israel (countries critical to Indian interests but which also courted him even as the US targeted him) to his mortars-for-bullet response to Pakistani ceasefire violations.

Modi has earned lots of praises for his act at the opening of the South Asian Association for Regional Cooperation (SAARC) Summit coinciding with the anniversary of the Mumbai terror attacks. He extended a cold shoulder to his Pakistani counterpart, Nawaz Sharif, who had taken all the time to attend Modi‘s oath taking ceremony, despite opposition by many Pakistanis. As a staunch believer that India is no longer a secular country, being ruled by hawks, I read these lines with exception. Modi faces major regional challenges, exemplified by the arc of failing, revanchist or scofflaw states around India. This tyranny of geography demands that India evolve more dynamic and innovative approaches to diplomacy and national defense. India must actively involve itself regionally to retrieve the lost ground in its backyard.

SAARC is likely to remain a stunted organization because India being the largest country in terms of population and both economic military might is often alleged for intervening into the affairs of feebler neighbors. According to the stated objectives of Modi‘s foreign policy, he wants to develop stronger bilateral linkages with other neighbors by focusing on ―Look East policy. Indian policy makers believe that there is little choice as west is troubled. They believe that the entire belt to Indian west from Pakistan to Syria suffers from instability and extremism. Modi‘s supporters say that his foreign policy is aimed at promoting India as a more competitive, confident and secure country aimed at gaining its rightful place in the world. However, his critics have a contrary view as they believe that India can sustain itself only on the foundation of a strong domestic policy. His war mania and indulgence in arms race can eat up the benefits of those responding to his invitation to make India an ‗economic might‘.

To conclude, please allow me to say that Indian foreign policy is greatly influenced by the US foreign policy. A closer look at the ongoing crises in various countries clearly indicate that first the US facilitates creation of rebel groups, supply them funds and arms to fight with the regime and then unilaterally take action against the same rebel groups. A person with average wit fails to understand the motive but the reality is that these crises are created to keep the US arsenal factories operating at full capacity. It may sound too big an allegation but India is following the same policy of supporting rebel groups in the neighboring countries to further them, the sole objective is to prove that it is a regional as well as world super power and others should remain subservient to its grand plan.

Article was originally published in www.fprc.in Journal No.21