A good review of Chinese developments

Grin, officially I am hiding out for a couple of weeks on vacation, so my input is not going to be that profound, but I did read the Asian Times article that Reed posted, and I think it is worth taking the time to look at it in a little detail. It deals with the Chinese installation of pipelines and their connection out to the Caspian Sea.

I was particularly struck by the paragraphs

This has major strategic implications for the future of the Washington-backed BTC oil pipeline. That pipeline was built by the Caspian Oil Consortium headed by British Petroleum, and was backed by both Clinton and George W Bush, despite the fact that it was the most costly and least viable oil route out of the Caspian.

Former US national security advisor Zbigniew Brzezinski had been the chief Washington lobbyist advocating the BTC route to circumvent Russia. Its construction was undertaken on the assumption that it would carry not only Baku oil, but also a major share of Kazakh oil from Tengiz and offshore Kashagan oil fields. Oops!

. Following recent Chinese activity a lot of that oil will be heading East not West. The production through the pipeline had been delayed, but this is obviously reason for even greater concern, something we have written about before.

And, apropos the views of experts, I am up in Maine, where we were told it was going to be an extra-cold winter, only to find that it is the other way around.  So now they tell me, just after I bought that heavy duty parka.

If you live in or visit anywhere where a winter storm could catch you by surprise, it's good to have that heavy winter parka stashed in the trunk of your car along with the rest of your winter survival gear (winter boots & gloves, flashlight, jumper cables, tow rope, candles, etc.)---a common practice for anyone living in the Great White North.

It's a good investment regardless what the weatherman predicts.

Hope you have a great vacation!!!  

This Asian Times article is excellent, not least because it underscores the futility of attempted US control of Caspian Sea oil. This is not a major geopolitical shift because the US had only tenuous political control in the region anyway. Greater cooperation between Kazakhstan, Russia, China and Iran is a natural development. The US will continue to focus its efforts in West African (Gulf of Guinea) deepwater oil where the competition is less stiff. Estimated URR there is about 24 Gb. The US "encirclement" plan had little chance of success in the Caspian Sea area. The Sultan of the Steppes, Nursultan Nazarbayev, is not only selling to the highest bidder--he is also making a RealPolitiks assessment of who he needs to do business with. With the US half a world away and the insatiable oil demand of China right in his back yard, the policy choices were obvious. Really, all you have to do is look at the map.

Now, I find the Iran/China connection most interesting because this is a case where China is really thumbing their nose at the US.
A second phase in the Iran-China strategic energy cooperation will involve constructing a pipeline in Iran to take oil some 386 kilometers to the Caspian Sea, there to link up with the planned pipeline from China into Kazakhstan.

On signing the deal, Iran's Petroleum Minister announced that Tehran would like to see China replace Japan as Iran's largest oil importer. As well, Iran has what are estimated to be the world's second largest reserves of natural gas after Russia. Iran is a place of enormous strategic importance to China, to Japan, to Russia, to the European Union, and for all these reasons, to Washington as well.
The US had adamantly opposed all deals that had connected Iran to Kazakhstan via new pipelines. So, the US had been shut out on all counts. So, to all those Neoconservatives in Washington and at the World Bank, welcome to the Brave New World of oil supply & demand.
You people are CRAZY if you think you can understand what is going on in geopolitics by reading articles that are nothing more than propaganda from either side of the issue...


Lay off the drugs, see a psychoanalyst, read some relevant sources like The New Great Game: Blood and Oil In Central Asia by Lutz Kleveman and get back to us in a few years when you've regained your senses.

I'm serious.
Oh good. Then I will know as much as you Dave, thanks...
Actually, I apologize for my impetuous remarks directed toward you. I was annoyed because I put forth a serious analysis of these latest developments based on my own research in studying the geopolitical issues and you simply told me (and HO, others) that we were CRAZY. In fact, our knowledge is incomplete--no one knows everything. If you've got something constructive to say, then say it.
Dave and Heading Out: good posts as always (often the best of the regular posters on this website).

The U.S. played its "Caspian Chess" with the simple-minded objective of "pipelines through anywhere but Iran and Russia."  Now that we are analyzing the end-game, it's interesting to review some of the forced moves along the way.

1.    Brought the Taliban to power in Afghanistan.  The U.S. let its allies Pakistan and Saudi Arabia help the Taliban consolidate power in the late 1990's because it needed a unified Afghan government for the Afghan-Pakistani pipeline scheme.  (The U.S. support for the Taliban, in part because of Unocal's lobbying, is explained in Ahmed Rashid's Taliban and to a lesser extent in the movie Fahrenheit 911.)

2.    Weakened the reformist Khatami government in Iran.  In 1997 the Iranians offered an innovative way of bringing Caspian oil to the market.  The idea was to swap up to 500 kB/d of Kazakh & Azeri oil (sent to Tabriz, Reyy and Isfahan refineries) for an equivalent amount from Iranian oil from the Persian Gulf.  This would have required minimal pipeline construction, since most of the Caspian crude transport would be via barges across the sea.  American companies active in Azerbaijan and Kazakhstan were enthused because it offered a way around the trade sanctions (swaping via Iran would be a way of getting Iranian crude while paying the recently independent Soviet republics).  But the U.S. government did not allow American companies (who were major partners in all the major Caspian consortia) to participate in the scheme.  The conservative Islamic Republicans still refer to America's undermining of this initiative as an example of the U.S. hostility to Iran.

3.    Brought Russia and Iran closer together.  Iran and Russia clearly did not see eye to eye after the independence of the Muslim republics of the Soviet Union.  All that changed after the two old powers realized they shared the same interest in stopping U.S. meddling in a region of the world which was historically part of the Iranian (Persian) or Russian empires.  The consequences of a stronger Iran-Russia alliance are still being shaped.

4.    May have been a reason for invasion of Iraq.   Returning to the Chess analogy, the U.S. assets in the Caspian region (e.g. Azerbaijan) were isolated pawns.  There was no way for the U.S., as a naval power, to defend these in case of an attack.  Also, the Caspian Sea policy was authored by the Clinton administration.  Cheney, as a self-proclaimed military strategist and an oil-man, knew that the real prize was not Azerbaijan but Iraq and Iran.

Well, heck, Fire, I thought we were fighting the war on terrorism. [wink]

So if Cheney has screwed up, and gets neither Iraq nor Iran, where does that leave the U.S. in the grand chess game?

Hoping oil shale works?

And I really do not understand the people that minimize the openning of IOR. Imagine, a good part of the Caspian Oil and most of Iran's beeing traded in a currency other than the US$!

And after that the Moscow Oil Exchange wil open. How can that leave everything as before!?!?

There's something here I don't understand. If Iran's oil fields are in the desert South, how can they connect it to the Caspian with just 386 Km of pipeline? Is there a chart of this pipeline anywhere?
The large oil fields in Iran's Khuzestan province are pipelined to the major refineries in the north near the Caspian coast (Tabriz and Reyy), and also to the large oil shipping terminals of the Persian gulf.  So relatively little additional pipeline is required to complete an Azeri or even a Kazakh route to the Persian gulf via Iran.

The 386 km the Asia Times article talks about is to to tap these northern Iranian refineries (which are connected to the southern producing fields) to the Kazakhstan-China pipeline, thus enabling Iran to sell to China via pipeline instead of via sea.  

The website Rigzone.com has maps of the Iranian/Caspian pipeline system (and many other regions as well).  But they are difficult to read since they are meant to be ordered.

I completely agree with the potential impact of the opening of the Tehran (Euro-based) oil exchange in March '06 on the U.S. dollar. Yet another consequence of the way we chose to play the Caspian pipeline game.

(I wonder what history books will write about the Baku-Tiblisi-Ceyhan pipeline, and whether it was worth all this.)

The way things are shaping up, it looks like the US is getting a very expensive lesson ($300+ billion, with the meter still spinning) that its defacto 'energy policy' of militarily dominating the Middle East and Central Asia isn't going to work as planned.

What appears to be happening is that the major powers are choosing up sides in what could easily become a hot war (real hot if it goes nuclear) over who controls which oil and gas reserves. I fear there will never be international cooperation in solving the world's energy problem, only increasingly dangerous competition.  We will spend  several orders of magnitude more in trying to militarily intimidate each other than we will on developing alternative sources of energy.  No better than a pack of dogs fighting over the last bone.

Man, I'm getting depressed!

The US is indeed getting its head handed to it (as my mother used to say) in that part of the world.  It's amazing (at least to some people) how quickly towering arrogance, blinding greed, and intentional myopia can turn into a stupendous mess.

I've been pointing out for some time that Iraq was a target not just because of their own oil, but because those 12 or 14 permanent bases the US is building there are ever so conveniently close to the Caspian Sea.

I wouldn't extrapolate too much from current circumstances, though.  The political pendulum is just starting its return swing in the US, so hopefully there will be a major opportunity after 1/20/2009 to reverse course on some or all of these insane foreign policy debacles.

That's the hope that lets me sleep at night.  Most nights, that is...

This appeared on Wednesday in The Independent, with a link on Drudge. Strangely, the Drudge link was removed rather quickly. I have heard from a reliable source close to the events in Iraq that the analysis here is spot on:

"Iraq is disintegrating. The first results from the parliamentary election last week show the country is dividing between Shia, Sunni and Kurdish regions.

Religious fundamentalists now have the upper hand. The secular and nationalist candidate backed by the US and Britain was humiliatingly defeated.

The Shia religious coalition has won a total victory in Baghdad and the south of Iraq. The Sunni Arab parties who openly or covertly support armed resistance to the US are likely to win large majorities in Sunni provinces. The Kurds have already achieved quasi-independence and their voting reflected that.

The election marks the final shipwreck of American and British hopes of establishing a pro-Western secular democracy in a united Iraq.

Islamic fundamentalist movements are ever more powerful in both the Sunni and Shia communities. Ghassan Attiyah, an Iraqi commentator, said: "In two and a half years Bush has succeeded in creating two new Talibans in Iraq."

There's more.

The Chinese moves have been with money, while the US has used military force (the money thing not being our strong suit right now).  So far, it would appear that the military approach has not worked, but that does not mean we won't try it again.  The one-track wonders running this country right now don't seem to have any other tune to play, and I wonder what target would be most attractive to them?  I can't imagine any other than Iran, they are the key to so much of this.  Syria is small potatos, I see that as another issue not really oil related.  The US has surely worked to set the stage for an Iranian misadventure - but will we be that stupid?  And if we don't, what will be our next move, as we have pissed off just about everyone?  

Can you imagine if there were trouble with SA?  It's got to be clear to all that this would truly be the "end of the world as we know it".

Yes, I DO believe we will be that stupid. As you said, it's the only tune we know how to play, though we haven't been playing it very well lately.  

Could Iran be the 21st Century version of Sarajevo 1914? Stay tuned.

In light of recent developments I don't see how anyone can still view oil as just another market commodity like corn or soybeans. Many forces other than classical market forces are at play here.  Oil is the life-blood of nations, and as such, nations will fight to the death to get what they believe to be their 'fair share'. And we believe that our fair share is roughly 25% of the world's oil production.  Unfortunately, others think differently.

Though one can talk intelligently about post-peak scenarios and population die-offs, etc., to me it seems that the biggest threat facing our species is an out-of-control global war over oil. In my view, all other threats pale in comparison.

Resource wars are energy intensive and expensive. In a world of declining more expensive fossil fuels the costs of military pursuits will sky rocket. Also they will compete with increasing demands for domestic infrastructure transitions as the energy crisis unfolds. Geopolitical strategy going forward will therefore be influenced by energy costs along with all of the rest of societal activities. Diplomacy and cooperation is far less energy intensive and may receive greater importance, not because the US would become more enlightened in their geopolitics but simply for the reason that they have no choice.

All those US soldiers trained in urban warfare over their in Iraq will someday have an important domestic role to play as social unrest unfolds domestically as a result of dislocations that result from the economic upheaval of increased energy costs.