The Fire Down Below
by Narendra Taneja
Outlook, New Delhi, India, Oct. 23, 2001
World Press Review, January 2002
The U.S.-led global war on terrorism has set the stage for
some volatile years ahead in the notoriously unstable Central
Asian region. Perhaps as never before, the highly sensitive politics
of oil in the region are set to play a pivotal role in the unfolding
Energy diplomats predict that the growing U.S. presence in
the region will trigger another Cold War between the West, Russia,
and China over territorial rights to the area's huge oil and gas
resources. India may side with Moscow and Beijing in the New Great
Game for control of the black gold.
However, the likely immediate future scenario is that only
industry supermajors such as ExxonMobil of the United States,
BP Oil of the United Kingdom, and TotalFinaElf of France will
have the financial muscle to operate in the Asian crescent of
countries. Smaller players may find themselves squeezed out.
India's upstream monolith Oil and Natural Gas Corporation
(ONGC) will also have a chance, provided the ministry of external
affairs stays solid y behind it. "Only the biggies should
think of Central Asia as a destination. We don't even glance at
the _ region," says Bruce McCarthy, president of U.K.-based
Cairn Energy, _ the most successful foreign oil and gas exploration
and production (E&P) company in India.
The New Great Game started in the early 1990s following the
collapse of the Soviet Union and the emergence of hydrocarbon-rich
republics like Azerbaijan, Kazakhstan, Turkmenistan, and Uzbekistan.
While these new republics were no comparison to West Asia in terms
of reserves, the region was attractive to E&P players, as
it represented one of the world's few remaining provinces still
waiting to be fully exploited.
Experts initially estimated oil reserves in the Caspian Sea
region and Central Asia at 150 billion barrels, but the figure
was highly inflated. There is now growing unanimity that the reserves
would be around 65-80 billion barrels, while proven oil reserves
are between 20 and 33 billion barrels.
The escalating military buildup in and around Afghanistan
has alarmed Moscow and Beijing-their public posture and support
notwithstanding amid fears that the United States may be looking
to establish a permanent presence to target the oil and gas. Such
a move would also be ruthlessly resisted by Islamic fundamentalists
who claim that all oil and gas reserves across the Asian crescent
are "a gift of Allah to the faithful."
"Territorial disputes such as those between Iran, Turkmenistan,
and Azerbaijan in the Caspian Sea area now have the potential
to acquire Cold War dimensions," says a Central Asia analyst.
"The various Caspian disputes that first erupted in 1994
will now see a different kind of polarization, in terms of support
from outside governments and oil supermajors."
Industry experts in Baku, Azerbaijan, for example, cite the
dilemma that BP faces. The British supermajor has found itself
at the center of a dispute between Iran and Azerbaijan involving
the Araz-Sharg-Alov oil structure that it won in 1998 along with
ExxonMobil, Statoil of Norway, and Azerbaijan's state-owned oil
Teheran claims the BP structure falls within its territory;Azerbaijan
does not agree. BP could be caught in the middle while it tries
to build relations with Iran, where it is eager to have a bigger
E&P presence. "Soon the U.S. will be playing a major
role in all such disputes. That will be the beginning of a new
order in the region, and both Russia and China will oppose it
to the extent possible," says a Western oil consultant based
"China has a lot at stake in Central Asia in terms of
energy resources. It also wants to demolish the rising Islamic
fundamentalism across the region, because it's experiencing the
same menace in its western provinces. Whatever the situation,
Beijing will not take kind y to any U.S. efforts to build up its
power base in the region and thus influence the oil and gas landscape,"
says Dubai-based oil consultant Akram Khan.
Says Atul Chandra, managing director of ONGCVidesh, international
arm of ONGC: "Central Asians are very proud people, and it
would be a mistake to underestimate their abilities to manage
their own energy affairs."
"Kazakhstan, Tajikistan, and Uzbekistan have their own
concerns about Islamic terrorism. By allowing the U.S. temporary
military bases, they hope to gain in terms of strategic ties with
Washington," says an Alma Aty-based Indian oilman. "The
heads of all the Central Asian countries want the Osama bin Laden
movement for a Pan-Asian Islamic federation crushed as soon as
possible. "The former Soviet republics also believe that
this would boost the confidence of international oil companies
and investment banks in supporting new projects.
Organizations such as Al Qaeda and the Islamic Movement of
Uzbekistan hope to capture power in the region encompassing the
whole of Central Asia and Muslim-majority provinces in western
China, Pakistan, and Kashmir. Meanwhile, the emerging global coalition
against terrorism, together with Russia, China, and India, are
intent on defeating this grand design. But much will depend on
how the United States and other concerned countries can join hands
in combating Islamic fundamentalism even while remaining c at
loggerheads with each other over control of Central Asia's hydrocarbon
Meanwhile, most of the new oil and gas projects planned in
Turkmenistan, Azerbaijan, and Kazakhstan are on hold. "There
is a kind of stillness in the air around the industry," says
a Kazakhstan oilman. "The Sept. 11 attacks have ruined us,"
laments a senior official at the Pakistani petroleum ministry
in Islamabad. "Most foreign oil and gas ventures in the country
have come to a standstill because all the expatriates have left.
All our efforts to bring foreign investment and technology into
the E&P sector have suffered a terrible setback."
Premier Oil of the U.K., Anglo-Dutch Shell, OMV of Austria,
and all other foreign E&P players have put their operations
in Pakistan practically on hold, evacuating expatriate staff and
blocking all inward investment remittances. Last week, Islamabad
sent out an SOS to the expatriates urging them to return. Even
the "fellow Muslims" of the Malaysian state company
Petronas have pulled out along with the "friend y Chinese"
seismic firm, BGR "Top executives of several international
oil companies, who were scheduled to visit in the next three months,
have canceled their trips," the Pakistani official says.
Iran and Turkmenistan have also suffered an almost fatal blow
to their campaign to build gas pipelines to India; one of the
world's largest gas markets. "We may now have to put the
Iran-Pakistan-lndia pipeline project in deep freeze. The geopolitical
realities in the region have changed dramatically since Black
Tuesday and we will readjust our policy accordingly' says a senior
Ministry of External Affairs official in New Delhi. "The
presence of a large number of Islamic militant outfits in Pakistan
could pose a serious threat to a pipeline destined for India."
Similarly, the Indians have lost interest in the much-publicized
Central Asia Gas Pipeline Project-first mooted by Bridas of Argentina
in the mid-1990s and later adopted by Unocal of the United States-from
the Dauletabad field in Turkmenistan to India via Afghanistan.
New Delhi says it is now working on an "energy highway"
network that would be an economical way to export oil and gas
from Russia, Turkmenistan, Uzbekistan, and Kazakhstan to India
via the western provinces of China. "We basically want to
avoid any country that has problems in living with the sheer size
of India or a country that does not like India doing well,"
says an Indian diplomat based in Baku. "The idea is to avoid
Afghanistan and Pakistan." The proposed network would have
pipelines that would in part run along a railroad in western China
before entering Ladakh or Himachal Pradesh and down to New Delhi.
India hopes that the network will be a catalyst to new economic
"Thank God we did not invest anything in the earlier
pipeline plans," says a director of Gas Authority of India
Limited (GAIL). Except for a few million dollars spent by Bridas,
Unocal, Delta Oil of Saudi Arabia, and Pakistan's Crescent group,
most other parties avoided putting in their cash.
In the mid-1990s, Turkmenistan was abuzz as some of the biggest
names in the oil business descended on the capital Ashgabad, with
proposals to export some of the republic's estimated 159 trillion
cubic feet of gas reserves. While Unocal hyped its Central Asia
Gas Pipeline, ExxonMobil, and Mitsubishi joined forces to propose
a high-tech US$22 billion pipeline that would transport gas to
China and on to Japan. Royal Dutch/Shell and Gaz de France
got together for pipelines headed westward. Enron suggested a
pipeline from Kazakhstan and Uzbekistan to New Delhi via Kashmir.
But most of these plans have been either stalled or scrapped,
victim to geopolitical realities.
As for India's new "energy highway" idea, there
are reports that Russia, Turkmenistan, Kazakhstan, and China have
already expressed interest. Indeed, the interest has become keener
since Sept. 11."1 think we have neglected Central Asia for
too long. We now have serious plans to reach out to partners in
the region," says ONGC chairman Subir Raha. The Great Game
was fought in the l9th century over India, the jewel in the British
Raj's crown. In the new Great Game also, it is clear, India will
be involved, but this time as a participant.