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East Asian energy dilemma over Iran
By Yong Kwon
Jan 24, 2012
A few months before the outbreak of the Suez Crisis in 1956, Japanese economist Wakimura Yoshitaro pointed to the transport of Middle Eastern oil as a potential flashpoint for global conflict. His assessment appears obvious in retrospect, but his policy recommendation to deal with this serious threat to economic and political stability still remains relevant.
Throughout the 1950s and 1960s, Wakimura and several other prominent economists argued that reliance on oil increased the risk of Japan being dragged into an unwanted war. Therefore, to ensure Japanese neutrality, the best policy for Tokyo would be to develop an independent and reliable source of energy. [1] At the time, people looked to nuclear energy.
More than half a century and a meltdown later, when confidence in nuclear power is at an all-time low and alternative sources of energy are still unready to be applied on an industrial scale, Washington's expansion of the diplomatic and economic offensive against Iran comes as an unpleasant reminder to East Asian nations of the cost of maintaining ties with the United States.
Furthermore, US President Barack Obama's imposition of US foreign policy interests in the Middle East will undoubtedly lead Seoul and Tokyo's attention to develop deeper political ties with Beijing, something Washington has been working to prevent since its strategic refocusing to the Asia-Pacific.
The Middle East has always been a contentious issue in Washington's relationship with Seoul and Tokyo. In particular, economically coercing Tehran is difficult for the two countries because a significant share of their petroleum imports come from Iran. This supply constitutes a vital lifeline to two economies deeply invested in shipping, transport, and heavy industry. The recent urging by the US to reduce or ban oil imports from Iran was met with negotiations from both governments to find alternative means of punishing the Islamic Republic while protecting their vital supply.
Since December of last year, the Japanese government has prohibited domestic businesses from working with Iranian banks and frozen the assets of several Iranian organizations. However, Japanese banks have been allowed to continue doing business with Iran's central bank, which settles the accounts for the oil trade.
South Korea has followed suit by forbidding new investments in Iranian oil and blacklisting Iranian firms, but not taking measures to reduce the supply of the much-valued energy source. Obviously the two governments do not intend to rupture their relationship with the United States. Both states recognize the vital role that Washington plays in regional security and commerce. Nonetheless, the sanctions on Iran remain a divisive policy because it forces both countries to choose between maintaining economic stability and establishing grounds for greater cooperation in security.
Some Israeli security experts have joined US officials in forwarding the view to Seoul that it would be in South Korea's best interest to join the tough sanctions as this would invariably put pressure on North Korea as well. [2] They added that Seoul should not worry about oil imports from Iran because other Gulf nations will increase their supply to supplement South Korea's needs.
While it is true that the ties between Iran and North Korea create greater impetus for South Korea to seek means to prevent Iranians from developing nuclear capabilities, the ongoing measures introduced by the United States have only brought on larger security problems while weapons technology transfers and sharing arrangements are likely continuing undeterred between Pyongyang and Tehran. [3]
Meanwhile, Seoul is seeking alternative sources of crude oil to satisfy its needs in case it has no other choice but to abide by US foreign policy in the Middle East. Likewise, Tokyo has yet to provide an official answer on reducing the import of oil from Iran and probably will not do so until it can secure alternative suppliers.
There appears to be confusion within the fledgling Yoshihiko Noda administration on how to approach the matter. When US Secretary of the Treasury Tim Geithner visited Japan earlier in January, Finance Minister Jun Azumi suggested that Japan will reduce its oil procurement from Iran.
However, Noda, who assumed office in September, has reversed the statement, clarifying that his government has not concluded on whether to follow Washington or not. Meanwhile, certain members of the Diet (parliament) in the opposition Liberal Democratic Party such as Taro Kono have supported Japan having a separate foreign policy from the United States when it comes to Iran. [4]
For the two countries, fears that the escalating crisis along the Straits of Hormuz will raise oil prices to backbreaking levels, regardless of their participation in the sanctions, remains prevalent as they attempt unsuccessfully to remain uninvolved as possible.
Enter China. On his state visit to Qatar, Chinese Premier Wen Jiabao clearly noted Beijing's opposition to both Washington's sanctions and Iran's threat to close the Straits of Hormuz. China has proposed discussing the matter of Iran's nuclear developments at the United Nations with the five permanent members of the Security Council. This solution would be to the best interest of South Korea and Japan as well.
China's passive and pragmatic opposition to US policy on Iran reveals how Washington's aggressive policies in one part of the world could hurt its influence in East Asia. South Korea and Japan are already inextricably more closely tied to the Chinese economy than to the American one.
Even with the US-Korea Free Trade Agreement and the Trans-Pacific Partnership that is under development with Japan, it is hard to foresee the United States taking over China as the principal mover of the region's economic development. Therefore, when East Asian states are forced to undertake high risk issues that are practically non-essential to them, such as Iran's nuclear program, it only highlights the slowly diminishing importance of the United States.
By all means, Washington is still a critical player in the Asia-Pacific, both economically and militarily; however, it increasingly appears out-of-touch with the real concerns of its allies and lacking a long-term game plan for the region.
Obama should revisit the issue that Wakimura Yoshitaro saw as the key problem with the Middle Eastern oil supply. The late economist recognized that the only way stable commerce could continue in the region is if Western states negotiated with, rather than dictate to, oil producing nations, appreciating their aspirations and excising fears. These are not merely the words of a bygone economist, this is diplomacy 101.
Notes
1. Laura Hein. Reasonable Men, Powerful Words. Washington D.C: Woodrow Wilson Center Press, 2004.
2. Kirsty Taylor. Israeli experts urge Korea to sanction Iranian oil imports. Korea Herald, January 19, 2012.
3. Joshua Pollack. Ballistic Trajectory: The Evolution of North Korea's Ballistic Missile Market. The Nonproliferation Review, July 2011, Vol. 18 No. 2.
4. Event, Reviving Japan: Can It Win the Asian Century? Washington, DC: American Enterprise Institute, January 4, 2012.
Yong Kwon is a Washington-based analyst of international affairs.
http://www.atimes.com/atimes/Japan/NA24Dh01.html
Iranian oil poses Asian dilemma
By Sreeram Chaulia
Jan 25, 2012
The European Union's announcement of a ban on importing Iranian oil has unleashed an economic war that is bound to draw in Asia's booming economies in spite of their reluctance to take sides and enter into the muddle.
The six-day sojourn through oil and gas-rich Arab countries in the past week by China's Prime Minister Wen Jiabao was clearly organized in this context of rising tensions over fresh Western sanctions against Iran and its consequences for energy security in Asia.
On Monday, EU foreign ministers decided to close off Iran's second-biggest market for crude oil, responsible for a fifth of oil exports over Iran's nuclear program, suspected in some quarters - and denied by Iran - of being designed to create nuclear weapons.
The EU and the United States are pushing major importers of Iranian oil such as China, Japan, South Korea, India and Turkey to join the economic embargo. Although China has rebuffed Western entreaties to reduce oil imports from Iran, the choice of Saudi Arabia, the United Arab Emirates and Qatar as the only destinations in Wen's Middle East itinerary told a tale of precautionary diplomacy.
These three Arab states are pro-Western, Sunni Arab suppliers of oil and gas to Asia's growth engines, and they are assaying the roles of Western accomplices in the economic war by presenting themselves as substitutes to energy products that Iran has been providing.
While China publicly plays down talk of forsaking Iranian oil and replacing it with Arab alternatives, Wen repeatedly raised the prospect of drastically increasing energy imports from the anti-Iranian Arab regimes he just visited.
Chinese communiques during Wen's Middle East tour cited "complicated regional trends" and shaky energy horizons due to "geopolitical factors", codes for the growing chorus in the West to compel Iran on its suspected nuclear weapons development.
Counter-threats from Tehran to shut down the Strait of Hormuz, through which much of Asia's oil imports flow, and the ever-present danger that Israel might unilaterally attack Iran, have creased brows in Beijing as they coincide with China's slowing economic growth.
Yet, China is confident that its size and economic leverage over the US are such that ignoring Washington on embargoing Iranian oil would not incur real damage.
When one Chinese oil firm, Zuhai Zhenrong, was recently placed on the financial sanctions list for trading with Iran, Beijing reacted furiously and conveyed "strong dissatisfaction and adamant opposition". There is no automatic trigger for closing American financial markets to all foreign companies that trade in Iranian oil, and this discretionary element in the sanctions architecture gives China and other Asian powers scope to wiggle out of the proposed embargo.
Moreover, none of the Asian states are certain that the embargo on Iran will be long-lasting, given that anti-Iranian Arab petro-kingdoms cannot fill in the supply gap beyond more than one month. Barring a sudden fall of the Iranian regime, the embargo's success through universal participation would only mean a huge spike in the price of crude oil and a big setback to the industrial machines of Asia.
Economic recessions have frequently followed "oil shocks" and the embargo on Iran could usher one more cycle of downturns.
Despite their strategic closeness to the US, countries like India, Japan, South Korea and Turkey are equally wary of costly economic fallout from sanctions and war in the Persian Gulf. New Delhi has decided not to heed the West on abandoning Iranian oil imports, and it is proceeding to negotiate alternative payment processing mechanisms to continue trading with Tehran.
But since India is not in a position to prevent a violent conflagration involving Israel and Iran, it is being reported that India's Petroleum Ministry has instructed its public sector oil refining companies to "reduce their dependence on crude imports from that country [Iran]".
As with other Asian importers of Iranian oil who are on tenterhooks because of the cold war between Iran and the West, India will eventually have to diversify away from (though not totally renounce) a politically unstable oil exporter like Iran and the supply chain originating from the Middle East as a whole.
With international sea freight rates declining steadily, India can think of entering into long-term contracts to raise oil imports from geographically more distant but predictable countries such as Venezuela, Brazil and Angola. Currently, India depends on the volatile Middle East for 70% of its oil and gas imports, an unhealthy addiction laden with grave international political risks.
While seeking to gradually free itself from Iranian and other Arab energy producers, India and other Asian powers must also factor in the larger structural implications - for the Middle East as a region - of deserting Iran at a time when the US and the EU are aiming at Tehran's jugular.
If the Iranian regime falls to a mix of economic woes and US-Israeli sanctions or war, it could leave the Middle East bereft of any counterbalancing force to the West. Democracy in Iran through popular internal mass mobilization is more preferable as the new regime that emerges is unlikely to be a stooge of the West.
It is in the interests of Asian powers to avert a Middle East entirely under the Western thumb simply because India and its continental peers profess a desire for a multipolar world where there is no single global hegemon. It makes tactical sense to slowly retrench from Iranian oil, but it would be a strategic disaster for Asian powers to become reliant on Western approval to access Middle Eastern energy, which will remain important in Asia's energy mix for at least some more years.
This geopolitical balance-of-power imperative is often lost in Indian strategic thought, which is prone to calculating more narrowly about the benefits and losses from a supply disruption in oil or inflation of barrel rates for crude.
China and Russia have the grand strategy of resisting Western hegemony in the Middle East, and they try through various developments, such as the imbroglio over democracy in Syria, to deny the onset of West-friendly regimes in that region.
Indian lenses are less global and New Delhi does not see itself as a counter-balancer to maintain multi-polarity on a global scale. There is also an implicit consensus in India that its only balance-of-power concern lies vis-a-vis China and that being seen openly as entering into a troika with Russia and China on issues in the Middle East would hurt India's chances to assert its claim to be even-steven with China.
But the current standoff over embargoing Iran, which supplies 11% of India's oil needs, is so vital to New Delhi's national interests that it begs for more proactive diplomacy on the question of hegemony in the Middle East.
Unlike China, which has a first-mover advantage, India is also realizing the value of Africa and Latin America as stable sources of energy and trade rather late.
The economic war via Iran's oil embargo should be a wakeup call to redouble Indian diplomacy and foreign investment in these two hitherto neglected continents, while not passively turning one's back on the still pivotal Middle East.
Playing it safe and seeking more assured oil supplies is an evolutionary process for Asian powers. The interregnum period, until they tether their economies firmly to Africa and Latin America, will require joint positioning for maintaining a power balance in the Middle East.
Sreeram Chaulia is Professor and Vice Dean of the Jindal School of International Affairs in Sonipat, India, and the first B Raman Fellow for Geopolitical Analysis at the strategic affairs think-tank, The Takshashila Institution. He is author of the recently released International Organizations and Civilian Protection: Power, Ideas and Humanitarian Aid in Conflict Zones.
http://www.atimes.com/atimes/Middle_East/NA25Ak01.html
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