Advantage China in the new great game of the century

Before I begin this, I would like to ask a question to my readers, what was the biggest factor behind the victory of the British in both the World Wars? The answer is simple but it might astonish you. The answer is: the British controlled the Suez Canal throughout the two world wars.

Let me tell my readers, the biggest driving factor in winning any war is a steady flow of energy supplies. The phrase “steady flow of energy supplies” means that you need a reliable source from where you get your energy i.e. oil and gas and a stable and secure infrastructure for channeling those resources into your wartime economy as well as your military machines that desperately need those, throughout the war.

This was the case in both the two world wars. The British through their effective control of the Suez Canal controlled those crucial energy supply routes which fed their large navies and strong military machines in both those two wars. In those days Suez Canal used to be the biggest supply route for transporting vital energy resources to Britain.
Apart from that, Britain was in control of vital energy extracting sources at that time. The biggest British company as the time (as well as the largest British taxpayer) was Anglo-Iranian Oil Company (which would later be known as British Petroleum or BP). The company through its absolute monopoly in the Iranian oil industry controlled some of the biggest oil fields in the world at the time. The British government was one of the biggest stakeholders in the company at the time. In short with her control of Iranian oil as well as the Suez Canal, the British secured a constant a steady source of energy for her military machines throughout the two world wars, which proved to be the key regarding British victory in both those two World Wars.

If we have a look at our time, we see patterns of a new great game emerging out in our world. The original great game was played between the Russian Czars and British governor-generals in India for strategic control of the sub-continent and central Asia. The new great game is being played for the control of the extremely vital and quickly dwindling natural resources in the World. For the benefit of my readers let us assume that the two main contenders in this great game are China and India.

Before I go into detail let me share with my readers some facts:

Rank Country
1 Saudi Arabia
2 Canada
3 Iran
4 Iraq
5 Kuwait
6 Venezuela
7 United Arab Emirates
8 Russia
9 Libya
10 Nigeria


Table1: Top 10 countries in the World with biggest proven Oil Reserves
(Source: CIA-fact book 2009)

Rank Country
1 Russia
2 Iran
3 Qatar
4 Turkmenistan
5 Saudi Arabia
6 United States
7 United Arab Emirates
8 Nigeria
9 Venezuela
10 Algeria

Table2: Top 10 countries in the World with biggest proven Natural Gas Reserves
(Source: CIA-fact book 2009)

These two above tables would help my readers to understand the potential energy resources in the World, the new competitors in the new great game are playing for.

Now let us have a look at what the Indians and the Chinese have been doing lately in this great game. Let me start with China.

1. Bypassing the sea lanes: China just overtook the USA as the biggest energy consumer in the World. China has been growing at a rate of 10% for most of the last two decades and it wants to continue on that path. Since most of China’s energy trade goes through two major international shipping lanes i.e. the Strait of Malacca and the Strait of Hormuz and both these two shipping lanes are heavily influenced and controlled by American navy ships. China is yet to have the same naval power to overwhelm American navies in these two areas. Now in a situation of war, China risks of losing control of its most important energy supplies in adversarial naval attacks on Chinese ships going through these two above mentioned shipping lanes. So the Chinese have come up with another idea. They want to bypass these naval shipping lines altogether. The Chinese are going about creating overland pipelines which will bring oil and natural gas to China from central Asian countries like Turkmenistan, Kazakhstan etc. China is also collaborating with the Russian federation to bring natural gas from Russia to China, through overland oil pipelines. So when all these oil pipelines go operational the Chinese have got the proverbial Plan-B in place if the adversary closes the sea-lanes in the time of a conflict.

2. Diversifying the sources: China does business with all types of regimes whom the rest of the world might not consider too highly. Chinese are talking about purchasing oil from countries as far as Venezuela in Latin America as well as countries like Sudan, Nigeria and Angola in Africa. Angola is China’s biggest supplier of oil in Africa. The Islamic Republic of Iran and the Myanmar’s military junta whom the rest of the world considers as “rouge states” are only too happy to sell their oil and gas to China. In fact, Iran is the second largest energy supplier for China. When Americans and the Europeans put heavy economic sanctions on Iran, they put their own energy companies out of business from that resource-rich country. That is the gap, Chinese are too eager to fill in. A crucial example of this is the investments in Iran’s South Pars gas field. This Iranian natural gas field is believed to be the largest of its kind in the World. In May, 2010 Iran invited companies from all over the world to invest in this venture for its development. Western companies walked out of the bidding process fearing American sanctions. This enabled the Chinese national Oil Corporation to purchase the exclusive rights along with some other companies to develop this field. This was another feather in Chinese cap. In short , any regime, irrespective of political inclination (whether it is a tyranny , democracy , autocracy or a military dictatorship) in the world which has got oil and gas in its country , can count on the Chinese to come to its capital with big , fat checkbooks. All this ensures much diversified sources of energy for China.

3. Building in the alliances: The Chinese are building infrastructure in important, strategic places which would help them to transport oil and gas to their country. China is looking at building ties with countries which may not have too much oil or gas but they are situated in very key geographical locations of the globe. A case in point is the port of Gwadar, built at Pakistan by the joint effort of Pakistan and China. This port is strategically situated right at the head of the Strait of Hormuz. A naval presence at this port would help the Chinese to monitor any strategic adversarial activities in the Strait of Hormuz. Apart from the strategic significance there are plans to connect this port with the Karakoram highway in northern Pakistan which would help to link the port to China itself. This could allow crucial energy supplies from Iran coming to Gwadar and then going to China through this route. Chinese are also building similar infrastructure in places like Hambantota in Sri Lanka and Chittagong in Bangladesh which would help them to keep track of the situations in the Strait of Malacca. Apart from that China is also talking about strategic alliances with key countries like Turkey. This week, very influential foreign minister of Turkey, Ahmet Dovutoglu was in China, discussing among other things the creation of a joint strategic group involving China, Turkey, Iran and Pakistan to face common strategic adversaries in the coming years.

4. Wooing the Chinese: One interesting case to note here is that since China is the biggest consumer of oil and gas in the World, now all producers of oil and gas are competing for this biggest market. They are coming up with all sorts of ideas to woo the Chinese. This is like all the rich boys in the town trying to woo the most beautiful girl in the town. A case in point is Saudi Arabia. Saudi Arabia which happens to be world’s largest producer of oil is in competition with Iran for the leadership of the Muslim world. Recently, the Saudis offered the Chinese to same amount of oil as Iran (China’s second largest oil supplier) in much lesser price. (source: http://milfuegos.blogspot.com/2010/10/pepe-escobar-pipelineistans-new-silk.html )Chinese can only enjoy the situation as it goes. The Americans who were the biggest energy consumers of the world, until now, could have enjoyed the same wooing but for their refusal to do business with important energy producing countries like Iran, Iraq and Venezuela.

To summarize all of these efforts, the Chinese have got diverse energy sources as well as infrastructure put in place to mitigate any emergency including a confrontation with any potential adversary. They are building strategic alliances and the largest oil producers in the World are eager to enter into the lucrative Chinese market.

Now let us have a look at what we have been doing on the “energy security” front. Before I go on to details, let us share some numbers here. India’s imports in the April-August quarter of 2010 grew by 33% to result in a trade deficit of $56 billion dollars. (My readers please note that the Chinese trade surplus grew by about 29% during the same period) This high import bill was a result of a 31.7% growth in the oil imports. Now when our prime minister talks about growing like 10% each year, we need more energy supply and since an overwhelming portion (about 1/3-rd) of our total energy consumption is from oil and gas (despite those loud slogans of clean nuclear energy and “Go green”) imports (70% of our total oil consumption is imported primarily from the gulf region), we can safely assume that this will continue to grow. This means that while we talk about growing at over 10%, our trade deficits are already growing at more than 10% each year.

Now let us look at what policies we have been following to check these facts.

1. Low Diversification: Our top 5 oil importers are all from the Western Asia region with Saudi Arabia being the biggest of them all. Our natural gas consumption is minimal compared to our oil imports. In the past few years, we have tried to venture into countries like Sudan, Myanmar, Turkmenistan and Iran but our efforts have always been defeated by the Chinese with their higher bidding capabilities. At this moment there is no visible effort by the Indian government or the Indian companies to venture into important oil producing countries like Iran, Venezuela and Russia for the same.


2. Death of IPI, birth of IPC: My readers will be familiar of the oil and gas pipeline called “IPI” (Iran-Pakistan-India) which was supposed to bring the natural gas from Iran to Pakistan into India. This project was also hailed as “peace pipeline” by the media. But thanks to our commitments towards our American friends, we shelved that project. Now this year, the Iranians and Pakistanis declared that they will go ahead with their part on the pipeline irrespective of Indian participation. Now China is only waiting on the wings to join in the process. So very soon we might see IPI being converted into IPC (Iran-Pakistan-China) pipeline. This would not only bring much needed gas from Iran to China via Pakistan but this would be the beginning of a strategic axis which may be of great geo-political and geo-strategic significance in future.


3. Strategic alignment: Since the signing of the ground-breaking Indo-US civilian, nuclear deal there has been a lot of talk circulating in the Indian media about India aligning itself with the USA against China. Aligning ourselves with the US means not only antagonizing China but antagonizing some of the key energy producers in the World like Iran and Venezuela. Let us face this fact; historically we always had a strong relationship with Iran in terms of energy supplies.(Last year Iran supplied 16% of our total imported oil) Iran has got a lot of oil and gas but it lacks the technical capabilities in infrastructure and refining capacities due to American economic sanctions. Indian companies like say Reliance who are world beaters in terms of oil and gas refinery technology, could have had in Iran, an extremely lucrative market. But thanks to our commitment towards our American friends we have given up that market. Very recently it was announced that Indian companies are curtailing their investments in that country.

4. Greater growth, greater deficits: As I have already mentioned that since we are growing rapidly, our demand for energy will also grow rapidly. Since we derive an overwhelming percentage of our oil and gas through imports, one has to safely assume that we will incur greater import bills thereby incurring greater trade deficits. If things continue to go like they have been in the past few years, our higher percentages of growth will bring along higher percentages of deficits also. In the long term that could only mean we have to borrow from outsiders (probably China since they will have the most amount of money in future) to balance our budgets. That does not augur well for our dream of being a future superpower.

In the final analysis, one has to admit that at this time in this great game it is “Advantage China” due to the better planning, strategising and execution by the Chinese leaders. We might dream about being the future superpower but if current trends continue we may become the future “borrowing behemoth”.

P.S.: There is one piece of good news in all this for Indian companies particularly the Software companies. With China investing in heavily in these oil and gas pipelines, I believe there will be great need in future for automated software-driven solutions for running those pipeline systems effectively and efficiently. But will our famed software companies wake up to this great opportunity?