No 1, 2005
Current Concerns
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Current Concerns - The monthly journal for independent thought, ethical standards and moral responsibility - English Edition of Zeit-Fragen
No 1, 2005
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Running into a ‘BRIC wall’ with Eurasia?

by F. William Engdahl

In response to the bold moves by the Bush Administration to move its NATO and direct US military presence into the vital energy choke points of Eurasia, the major Eurasian powers are taking definite steps aimed at self-survival in energy, even military defense.

We can see a South-South pattern of major trade and economic deals. At the heart of it are Beijing and Moscow, New Delhi, Brasilia, and Teheran most recently. In 2002 four countries signed a trade and cooperation agreement, calling it BRIC-- Brazil-Russia-India-China.

Ironically, their self-defense measures are likely to put the countries of Eurasia (leaving France, Germany and the EU aside) on a collision course with Washington. Their efforts present the kind of geopolitical challenge which Bush declared Verboten in his September 2002 Bush National Security paper, the so-called Bush Doctrine.

China-Russian military steps

On December 27, Beijing and Moscow announced their first ever joint military exercises, in China. The timing was a message to Washington regarding the intervention in Ukraine. Russia is responding to pressure on its Western borders by turning to alliances to the East. This could have major strategic implications.

China is playing it deftly at present, with no provocative rhetoric aimed at Washington. Putin sees it as a step to his long-sought triangle Moscow-Beijing-New Delhi. China, still under the US-imposed 1989 Tiananmen Square arms embargo, is Moscow’s largest arms buyer. For China, a Russian alliance has a strategic dimension of greater access to Russian energy. A major question is to what extent Berlin and even Paris, now shift away from or decide to develop closer energy and strategic cooperation with Russia.

China moving to secure strategic raw materials

Ultimately, in the context of the looming Peak Oil, or global oil depletion, Russia and China and the EU, possibly aided by Iran, will inevitably seek strategic energy security in face of a now-obvious US bid to control all major oil choke points. Russia and the Caspian states, with Iran, comprise the only obvious energy alternative for China, India and the EU. All the cat-and-mouse political games between Paris and Washington and Berlin and Moscow to Beijing, revolve around this harsh reality. It defines what some have called a ‘new Cold War,’ a cold war over energy.

Last September, China announced it would buy Noranda, Canada’s biggest mining company, for $5.5 billion. Strategic priority for China is, of course, energy security. Last year China passed Japan to become world number two oil importer after USA.

China has been courting Putin to get a major share of the troubled Yukos oil empire. This week Putin suggested a minority in Yukos will be sold to China and to India.

China in September threatened a UN veto to block US sanctions on Sudan over the Darfur crisis. China National Petroleum Company built the Sudan oil pipeline, from the region around Darfur, to a Red Sea port where it is shipped to China. The Greater Nile Oil Project, 40% owned by China, produces 330,000 barrels a day. China has invested $3 billion in Sudan oil since 1999. China lost huge oil contracts in Iraq after the US took Baghdad in March 2003. It is clear why Beijing sees a geopolitical pattern to US intervention against dictators or human rights abusers. Some 7% of China’s energy comes from Sudan.

In December China bid for a major stake in Canada’s huge oil tar sands in Alberta Province. Canada PM Paul Martin has been invited to Beijing end of this month. Alberta tar oil reserves are huge, but energy intensive to extract oil from, and hence costly. The fact China makes a bid now for such difficult reserves indicates the urgency of their global search for secure energy. A pipeline would go to Canada’s West Coast to a new terminal to ship to China.

In November China President Hu Jintao made a trip to Brazil, Argentina and other South American states where he signed deals potentially worth $100 billion. These were designed as door-openers to participations in oil and gas projects there. After Hugo Chavez was in Beijing in December, China companies will invest $350 million in Venezuelan oilfields, and agreed to import 120,000 barrels of crude a month. Argentina and China deals could total $20 billion in rails and oil and gas.

Brazil signed 11 bilateral deals with China for $10 billion in energy and transportation. This move into the direct backyard of Washington is new for China, and it has raised eyebrows in Washington which long considered Brazil as its own ‘sphere of interest.’

These deals come on the heels of the $100 billion China-Iran natural gas deal signed last fall. The deal could total $200 billion over 25 years. China will import 10 million tons of Iran LNG a year. The deal involves construction of 87 new LNG tankers in the next 5 years. Iran has the second largest gas reserves in the world. The Beijing deal flouts the US Iran Sanctions Act. Iran clearly hopes the major deal will lead to more bold moves by EU investors to flout the sanctions.

Before 2003, China’s main oil came from the Middle East. Since Iraq’s fall, China has re-evaluated, and begun a feverish pace of oil diversification. Now Sudan and Angola provide a major share, with West Africa supplying 19% of imports. The recent trip of Bush in July 2003 to West Africa caused alarm in Beijing, especially when Sudan was also made a ‘human rights’ target of Washington at the same time, and when Washington attempted again to oust Venezuela’s Hugo Chavez in August 2004 via referendum. Beijing sees this as a global “oil cold war” in every respect.

China has also been eager to sign a deal with Putin for a pipeline to bring oil from Russia to China. Japan successfully outbid China to win a China bypass route to Russia’s Far East port Nakhodka. On January 1 Putin signed a deal from east Siberia to the Pacific Ocean to serve Japan oil imports, but still open is if Russia will build a branch line to China. Clearly Russia is keen to keep maximum flexibility and not become over-dependent on China. Despite this, the closer cooperation between the two is clear.

At the end of December, Russian Energy Minister Viktor Khristenko announced that China’s CNPC would be allowed to buy up to a 20% stake in the Yukos subsidiary Yuganskneftegaz which Rosneft acquired in December.

Brazil, Russia, India oil deals

At year-end, Russia signed a deal with Brazil. Gazprom will build an LNG plant in Brazil. Petrobras will jointly explore for oil and gas in Brazil with two Russian companies. Another $3 billion deal includes Russia building an oil refinery in Brazil.

Early in 2004 India invited Brazil President Lula to New Delhi where they spoke of a South-South ‘new trade geometry.’ Preferential tariffs were agreed between India and Mercosur. Brazil will export biofuel to India and sugar as well as oil.

India also this month signed a $40 billion joint deal with Russia and Iran for long-term energy. It includes a 25-year import of Iran natural gas to India and development of Iran oilfields. India will get a 20% stake in Iran’s largest oilfield, Yadavaran and Jufeir that yields 300,000 barrels a day. China’s CNPC is the main operator of Yadavaran. Now India has 20%, Iran 30% and China 50% of that giant field. Iran is clearly seeking powerful allies against US pressures.

India is also bidding to buy part of Russian oil giant, Yukos. Last October in Delhi China’s ambassador proposed joint energy cooperation of the two former Cold War rivals, India and China, something not anticipated in Washington. India’s Petroleum Minister M.S. Aiyar was in Moscow in October talking about a ‘strategic alliance’. This month India, under Aiyar also hosted the first roundtable of Asian energy ministers, including from the Persian Gulf and China. He proposed a common regional petroleum market, and an Asian benchmark crude, a potential blow to the US British oil giants and their control via NYMEX and Brent. Iran proposed an Asian Bank for Energy Finance to fund the projects.

On 10 November 2004 the India Daily reported, “Russian President Putin is taking a lead role in the most powerful coalition of regional and superpowers in the world. The coalition consists of India, China, Russia and Brazil. This will change the superpower supremacy of America…” The coalition includes the Shanghai Cooperation Organization (SCO) of China, Russia, Tajikistan, Kazakhstan, Kyrgyzstan and Uzbekistan. Iran is now in the process of unofficially becoming a member of SCO via the mammoth energy deals. Brazil got an IAEA approval to develop its uranium enrichment last November just after the visit to Brazil from Putin. Is Russia to help as it is with Iran’s nuclear enrichment?

Now, in this context of the BRIC, India and China just agreed to closer defense cooperation as India’s Army chief was in Beijing late last year, the first time in a decade. China PM Wen Jiabao goes to Delhi this year. This came amid announcement last month that China and Russia will hold joint military manoeuvres in China.

Bush to try to woo Germany, France?

Little wonder that the Bush Administration is exercising classic Balance of Power diplomacy to counter these moves. Bush will visit Germany next month to meet Schroeder, and Bush has personally invited Chirac to the White House later this year. He clearly hopes to woo them away from the Russia-China axis. German industry and business community is divided on Russia. They do not want to anger the US, yet they realize the German economy is increasingly forced to turn to Russia for critical oil and gas. When Schroeder met Putin in Oslo last September, Schroeder asked Putin to allow Ruhrgas (E.ON) to increase her 6% stake in Gazprom to 20%. Two weeks earlier, according to German press, Schroeder was in London for secret talks to see if BP would join in a pipeline to the Baltic to bring Siberian gas to Germany without going via Ukraine.

The pattern of strategic energy deals signals that a major confrontation is building between the major countries of Eurasia and Washington, precisely what Brzezinski predicted in 1997 in his book, The Grand Chessboard. •

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Article published on 07-01-2005

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