BACKGROUND: Manmohan Singh told the Financial Times that “energy security is second only in our scheme of things to food security.” Thus India’s dependence upon secure oil and gas supplies represents a vital national interest, as manifested in its energy firms’ quest for equity holdings in Russian, Angolan, Sudanese, Venezuelan, and, most of all, Iranian energy fields, or for major deals with states like Iran. Accordingly, in November 2004, India’s state-run oil corporation announced a $3 billion deal with Iran’s Petropars. At the December 3-4, 2004, summit with Russia, India announced a $3 Billion Indian investment in the Sakhalin-3 oil field and the joint Russian-Kazakh Kurmangazy oil field in the Caspian. India’s Energy Minister, Mani Shankar Aiyar has stated that, “what I am talking about is the strategic alliance with Russia in energy security, which is becoming for India at least as important as our national security.” Indeed, India’s quest for energy is a driving factor in its foreign policy to such a degree that it agreed to have the national oil and gas company ONGC enter what was a transparent dummy bid for the remnants of Yukos in Russia. Presumably this favor will lead to enhanced access to Russian energy and heightened cooperation with Russian energy firms. Similarly India still shows interest in participating in a gas pipeline from Turkmenistan through Afghanistan and Pakistan, even though it is reluctant to allow Pakistan to have a hand on its gas or oil supply. While such statements and policies highlight India’s capabilities and ambitions, they also clearly underscore its economic vulnerabilities and the inherent dilemmas of the economic dimension of its ties with the United States. India must balance its dependence upon Iranian and Russian energy with its need for U.S. support. While India’s close ties with Iran have not inhibited the development of a flourishing commercial and military relationship with Israel, those ties could cause trouble with the United States even if Indian officials like Hamid Ansari, a member of the Policy Advisory Group to Foreign Minister S. Natwar Singh stated that, “What is going on with regard to Iran is a complex game – part chess, part poker. But we have done our sums with regard to Iran. It isn’t an area where we will be pushed to resolve our position.” India’s need for energy is driving its foreign policy in many respects, and its officials have begun to consider various pipeline schemes for Iranian and Turkmen gas even to include Pakistan. India is negotiating with Iran to obtain equity access to blocks of Iranian oil and gas and to build a series of oil and gas pipelines. These potential projects include gas pipelines from Iran to Afghanistan, Pakistan, and then India, and a second one from Turkmenistan through Afghanistan, Pakistan and then to India. This last pipeline, the so called TAP line denoting the three states besides India, represents an attempt to revive a proposal that was discussed in the mid-1990s only to fall apart after the advent of the Taliban. While security issues involving Pakistan are obviously a deterrent, so are the complex economic issues that must be resolved, the strategic payoffs could be immense. Apart from relieving pressure upon Indian energy supplies, such pipelines could help Afghanistan recover economically, reduce tensions between Pakistan and India, and give Turkmenistan valuable outlets for its gas that are not dependent upon Russia.

IMPLICATIONS: Completion of these oil and gas deals with Iran would also enhance the already positive ties between new Delhi and Tehran and create a stronger community of interest between those two governments. But beyond India’s ties with Iran, Turkmenistan, and its growing energy investments in Russia proper, India is also active in Kazakhstan. It has formally bid for immediate participation in the Tengiz and Kashagan oil fields and the Kurmangazy and Darkhan exploration blocks. India is also interested in nine other exploration blocks in and around the Caspian sea. Aiyar also offered the services of India’s Gail ltd, a gas infrastructure firm, as a project consortium partner in Kazakhstan’s three pipelines with China. Gail is also eager to invest in gas processing and petrochemical plants in association with other Indian public sector companies in the Kazakh towns of Atyrau and Aktau and to improve oil recovery in older fields in Kazakhstan. In order to promote this comprehensive plan of Indian participation in all aspects of Kazakhstan’s oil and gas projects, a Joint Working Group was established. India’s new drive for secure sources of energy in Central Asia and around the globe is based not only on its own needs but also on fears that China might be cornering the remaining markets that are not already captured. This India cannot allow if it is to be able to compete with China. India and China look to Central Asia for reasons of internal security against Islamic extremism, energy access, economic opportunities, and defense against foreign threats. They also see it as a place where they can expand what they believe is their growing power in world affairs. Both states believe that the future is theirs, that they already are or should be regarded as great powers and that the future or ideal state of world politics is one of multipolarity or polycentrism where they are each one of those centers or poles. Furthermore both states are now energy importers. Their increasingly visible competition in the global energy markets also betrays their common ambivalence about relying on market mechanisms even as they find themselves obliged to do so. On the one hand, both states appear to be moving from an approach that emphasized security of supply to one that spreads supply risks through greater reliance on market mechanisms and diversification. They also are moving towards greater reliance on liquid natural gas, two factors that will stimulate investment in capital intensive projects in Central Asia and elsewhere, greater interest in preventing interruptions of seaborne energy trade, and in the restructuring of their formerly state owned oil and gas companies. Accordingly, both states now tend to focus on exploiting short-term advantages to lock in, if possible, overall lower cost delivery over the long-term. However, on the other hand, both states remain suspicious of the market mechanism’s effectiveness and viability with regard to securing reliable access to raw materials.

CONCLUSIONS: Stability in the energy market assumes a stable Middle East, a highly questionable assumption. If problems in the Middle East, in the bilateral Sino-Indian relationship, or with the United States preclude the Middle Eastern option, Indo-Chinese rivalry over Central Asia will grow. Thus it is still unclear whether or not this shared approach that seeks to balance mechanisms with maximization of indigenous capabilities will promote greater amity or greater rivalry among them generally and in Central Asia in particular. To a significant degree, the outcome of their current policies in Central Asia depends on factors beyond either of these states’ control. In other words, the Indo-Chinese competition for energy sources that we now see taking shape will interact profoundly with local developments in Central Asia and no less profoundly shape the future politics and economics of both Central Asia, and Asia more generally.

AUTHOR’S BIO: Dr. Stephen Blank, Professor, Strategic Studies Institute, U.S. Army War College, Carlisle Barracks, PA. The views expressed here do not represent those of the US Army, Defense Department, or the U.S. Government.