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The article utilizes the strategic partnership concept as an analytical framework and finds traditional realist concepts and hedging inadequate for this particular case. The study illuminates Russian geopolitical considerations and acceptance of vulnerability, which combined make long-term Russian energy policies more China dependent. Officially, Russia seeks diversification among Asian energy buyers, but its focus has increasingly been on China. China is eager to increase energy relations with Russian companies, but Beijing also ensures that it does not become too dependent on one supplier.

To Olav S. Bruusgaard, Christopher W. Skip to Main Content. Search in: This Journal Anywhere. Advanced search. Submit an article Journal homepage. Pages Received 04 Aug Many energy companies have however stubbornly resisted attempts to open up the market. The factors determining the security of supply and availability of energy differ markedly. The price differentials for the various energy sources are often high for both private and industrial consumers with competition obviously being distorted as a result. There are also more and more cases of specific energy actions or proposals dependent on the pursuit of other policy objectives.

Examples of this include environmental policy the fight against pollution and the greenhouse effect , support for crisis-ridden sectors such as coal or farming and tax regulations Efforts are being made by the Commission to foster intra-EU gas and electricity trade.

Norway and Algeria. Even so, these will be some requirement for new sources, but the financial resources needed to bring in such distant gas and oil to consumer areas are gigantic in comparison with the present financial capacities of the various partners. This shortcoming could be one of the major limitations on the EU economies unless coordinated solutions are sought and found for mobilizing capital and creating more flexible credit terms. Such co-operation, based on a fairer sharing out of risks and earnings, would provide continuity of interest throughout oil and gas industries, from production site to consumer areas, and would help to ensure a better guarantee of secure markets for producers and secure supplies for consumers.

The European Commission White paper and the Brussels European Council December , the work of the Christophersen Group in the first half of and the decisions of the Corfu European Council June have successfully enabled the revival of projects concerning energy network. Moreover, the consumption of oil and gas in the NIS, too, already large, will continue to increase.

Does Russia still have an "energy weapon"?

Therefore, in the longer-term, Europe will have a vested interest in seeing the full exploitation of the large NIS reserves. The transport of gas over long distances will be profitable only if it is effected in large volumes and at a continuous rate. The cost of transportation from the Siberian fields to Western Europe approx.

This is about the same as the price currently being paid by Western Europe. There are proposals for a new EU energy policy up to the year 12 , which, if favorably received by the member states, could lead to the inclusion of energy policy measures within the Treaty on European Union when it will be revised in Energy policy was deliberately omitted from the Maastricht Treaty with member states jealous of their national control deciding that it was an area best loft to individual countries.

And, on this score, the European Energy Charter Treaty though it is no longer a "European" affair in its geographic coverage deserves a special mention. It was first proposed in by the Dutch Government and is known as the Lubbers Plan with the aim of ensuring that the energy resources indigenous to the West, which will not last forever, be supplemented by those of Eastern Europe and the NIS. The fundamental purpose of the Charter is defined as opening up the energy resources of the former Soviet Union and Eastern Europe, encouraging investment and free trade, and ensuring reciprocal access to markets, as well as supporting transition towards democracy and market economy.

The Treaty negotiated under the European Energy Charter is destined to become a cornerstone of the future Western energy policy. Just as the creation of the European Coal and Steel Community alter the Second World War become the symbol and the instrument of the ideal of no more war particularly between France and Germany , the creation now of an energy union for the whole of Europe but also for Such important non-European partners as the US, Japan, Canada and Australia is likely to make an important contribution towards preventing new walls from dividing the old continent in the future.

A union of this kind could also serve another general political aim - that of preventing Europe from becoming too heavily dependent on other parts of the world for its energy. More importantly, the Energy Treaty may also serve as a useful framework within which the controversial pipeline projects could be brought to a satisfactory conclusion. Since the signing of the Charter, the participating countries negotiated the Charter's Basic Agreement now "Charter Treaty" with a view to providing the legal basis for energy industries' operations and investment in all signatory countries.

The energy sector was chosen for such an ambitious project because this sector offered the best prospects fur speedy and tangible economic returns for both sides. There are, however, still some fundamental technical difficulties to be resolved. Also, the nature of the negotiations in progress dues not make things any easier and, above all, the large number of participants slows things clown. The involvement of the non-European OF-CD countries all too often transforms the discussions into a negotiation solely between the Western countries Last but not least, the economic and political instability of the former Soviet Union makes certain negotiators exceedingly cautious.

The EU scaled clown its initial ambitions because the main beneficiaries of the Treaty, the former Soviet republics, were not in a position to open up its market completely to the exploration of, and drilling for, oil and natural gas. The new compromise envisages that the provisions on pre-investment protection will not be included in the phase I Treaty Signatories will negotiate during a three-year period beginning January the conditions under which the principle of national treatment to the pre-investment phase will apply and which exceptions to the principle are to be allowed.

As a result of these negotiations, the number of exceptions included in their legislation and considered to be necessary at the time, if any, should be reduced to a minimum Russia decided to sign the Treaty alter last-minute consultations about trade in nuclear materials and repatriation of investments from Russia.

The US raised a number of objections to the Treaty, which centered on how far the US federal government can go in committing individual States to treaties which it bas signed. The US wanted the Treaty text to specify chat the federal government would 'recommend' the Treaty to individual States but not 'oblige' them to apply it.

However, it became clear during the Treaty negotiations that all the other participating countries with federal structures - notably Russia, Canada, Australia and Switzerland - would demand the same privilege. According to Energy Charter Conference Chairman Charles Rutten, there would then be no guarantees that the Treaty would be applied, leaving foreign investors with no certainty whatsoever The Treaty, signed by forty-six nations in Lisbon on 18 December and expected to be ratified by the end of , will likely bring about the following spin-off advantages for the West :.

Although there is some risk attached to reliance on NIS energy in the event of high West-NIS tension or of internal disorder or collapse, supplies would be cut off , this danger should not be overstated; the NIS have up to now been a reliable supplier of energy to the West, and are likely to continue to be so if only because they need the hard currency for an al]-out economic reconstruction. All the evidences demonstrate that real progress towards efficiencies in the NIS and Eastern Europe could quite significantly reduce world greenhouse gas emissions in the medium term.

This would work in three ways. More energy would be produced thanks to the introduction of Western technology, Energy efficiency measures would lead to a reduction in domestic energy demand, releasing more for export. In the long term the West could come to depend critically on the NIS's enormous supplies. The following benefits might be identified from the NIS point of view:. The energy sector will play a crucial role in the economic restructuring of three countries and the Energy Charter Treaty will provide the framework for energy co-operation. The expansion of hard currency outlets for NIS energy production, combined with more active involvement of Western companies and technology in exploration and exploitation, should increase the pressure for a more sensible price structure, greater independence for operators and better incentives for productivity and efficiency.

And a restructuring of the energy sector, which of course plays a rote in most NIS economies, is bound to increase the pressure for a more general economic restructuring along the same lines. The Kazakh President, Mr. Nazarbayev, during his official visit to London, made this point quite clear when he said : " I do not think that in today's world weapons can do anything to protect a country. Our main security guarantee against Russia will be a powerful Western business presence in Kazakhstan. Since , when mmt of oil produced, three bas been a downward trend in oil production To date, gas demand bas not registered the rapid drop that bas been experienced by other fuels, primarily because gas supply bas not had the same difficulties as oil.

Old style subsidies to economy in general and to energy industry in particular were reduced or eliminated in all the republics. Even as production has dropped steadily, exports have grown. In the first 11 months of , shipments outside the former Soviet territory totalled Natural gas production is estimated to total Geologists expect more fields to be discovered and think that they will have to revise reserves estimates upwards as the results from ongoing or planned exploration programs start coming in. Of the former Soviet republics, only two others besides Russia - namely, Kazakhstan and Turkmenistan -produce enough crude oil to supply their own refineries and only three Kazakhstan, Turkmenistan and Azerbaijan produce more crude oil than their internal consumption of refined products.

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But even Kazakhstan, the second largest oil producer among the republics, relied heavily upon Russia for its own oil supply. Most of the crude run through its refineries was brought in from Russia Western Siberia , while most of its crude production was shipped out of the republic to be refined in Russia, Azerbaijan and Uzbekistan. Furthermore, its own refinery output is not large enough to supply the republic's own requirements for refined products, necessitating large imports of refined products from the surrounding republics, mainly Russia.

Turkmenistan has 25 producing fields, with must of the country's current gas output located in three regions : the Kopet Dag though along the border with Iran; onshore and offshore along the Caspian Sea; and along the Amu Darya River. Having an estimated 2.

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Kazakhstan's oil reserves are estimated at 16 billion barrels. The crude oil distribution system in the former USSR was highly integrated and centrally directed as in other sectors. For example, there exist no transfer facilities, such as measuring devices or tank farms, at the border crossings.

One result of this is that data on inter-republic oil flows are quite limited and unreliable Domestic consumption is expected to follow a similar pattern, allowing exports from the NIS to remain at approximately their current level of 2. The fact that Russian exports to destinations outside the republics and other former East Bloc nations rose more sharply than expected in exacerbated a glutted oil market and contributed to the drop in the world oil prices.

NIS natural gas consumption is also expected to continue expanding and gas exports to Western and Eastern Europe are forecast to grow over the period to Given the expected rise in gas demand in Western Europe, the NIS are likely to be more important as gas producers to Europe than as oil producers. In fart, gas exports may become as important as oil exports for the NIS in terms of foreign currency earnings.

Production in non-Russian republics, primarily Kazakhstan and Azerbaijan, is likely to rise faster than Russian output between and , reaching 1. It might be useful to highlight the basic features of the current energy situation in the Eurasian economies, borrowing from various IEA assessments:. The moves towards political independence from Russia by the Eurasian republics have had to be paid for at a high economic price.

New trade and payment barriers have deprived the region of the full benefit of comparative trade advantages of each republic. Under these circumstances, the integrated system of oil and gas pipelines, as well as the electric power system, suffered disruptions and higher operational and capital costs.


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In awareness of these dangers, energy officials from Russia and the other republics tried to maintain as much co-operation as possible. All the former Soviet republics, with the exception of Turkmenistan, Latvia and Estonia, have applied for membership. In March top officials from the 12 republics formed a new "Inter-Governmental Council for Oil and Gas" in the Siberian town of Surgut with the aim of improving cooperation in oil and gas production, transport, pricing and investment.

The Surgut conference, although it failed to resolve all contentious issues, at least appeared to recognize the high degree of interdependence that exists between the republics. However, critical questions on prices and transit rights still remain to be resolved. Increasingly, economic relations among the former Soviet republics continue to be dominated by issues surrounding the supply of fuels and electricity particularly given the trend towards liberalized energy prises internally, as well as the prospect that energy imports will be settled in convertible currency.

Economic interdependence among the republics, particularly in the energy sector, proved to be a key element in the desire of many republics for some type of cohesion in the post-Soviet period, reflected in the formation of the CIS.

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The possible break-up of the CIS structure will disrupt entire energy system, including the flow of crude oil and gas over the territory of the former Soviet Union. Taking advantage of its relatively strong position, Russia wants to retain its final say over all CIS energy issues, holding in its hand a Sword of Damocles over the heads of other republics - an attitude, which give rise to fears of the possible revival of Russian imperialism in the region. The dispute between Russia and the Ukraine is particularly illustrative in this respect. Kazakhstan bas recently been subjected to strong political and economic pressure from Russia, which has demanded an equity share in Kazakhstan's giant Karachaganak natural gas field and is also laid to be seeking a stake in the rich Tenghiz oilfield The latest attempt by Russia to prevent Western companies from investing in Azerbaijan oil industry was detailed in an 28 April letter from its Foreign Ministry in which it demanded the right to reject Caspian Sea oil projects that its former Soviet neighbors are negotiating.

It appears that the Eurasian states are coming to a point, where the avoidance of such a mutually harmful confrontation in the field of energy may not be easy. Both rides recognize that the oil sector is the most urgent area for foreign co-operation and investment. However, in the absence of a sound legal basis for such undertakings, foreign involvement did not go beyond relatively small pilot projects and feasibility studies.

Joint ventures in oil production produced 5 mort in and were expected to rise to 10 mort in The World Bank reports, in a new study 27 , a "radical shift in the pattern of external financing flows to developing countries in the early s, from debt to equity financing and from bank to non-bank sources. Commercial bank loans have been replaced by bond and equity portfolio flows and greater foreign direct investment".

Meanwhile, the major oil companies will continue to be largely self-financing. Despite self-financing and the shift away from debt financing, the view that financing is the new bottleneck in energy projects has many followers. In short, the world is resource rich, but capital short. Oil producers will therefore increasingly have to seek non-traditional sources of finance.

Many oil and gas projects are competing with one another for a limited international money pool. In the final analysis, money will no doubt flow to the most profitable and safe energy investments. Since the over-intensive development policies pursued by the central government created severe environmental problems in all the Eurasian republics and unbearable strains were placed on the fragile ecological balance of the region, which led to various forms of dysfunction, environment-related investment financing is also becoming important.

The Iranian Foreign Minister, Mr. Ali Akbar Velayati, visited Central Asia's major capitals several times, trying to finalize agreements for exporting oil, gas and other commodities through Iranian ports. Iran's Finance Minister, Mr. Iran, exploiting its geography advantages, drags its feet in allowing Turkish trucks to cross its territory on their way to Central Asia, and gives mixed signals on whether it will ever agree to accommodate an Azerbaijan-Turkey pipeline 29 - even if the Western basically the US objection will be overcome to a cross-Iran route. Iran is being portrayed as a country-weight to Ankara's growing influence in the region, while Ankara feels it necessary to underline that it is not in competition for regional primacy with any country.

However, there are recent assertions that, in the face of an increasingly hostile Russia, starting to flex its still considerable muscles in Central Asia and the Caucasus, Turkey and Iran may be burying their differences and a convergence of strategic interests is emerging.

A there-day official visit by the Iranian Vice-President, Mr. Hasan Hahihi, in December , resulted in a series of agreements 30 : agreement was reached in principle on a tripartite meeting between Iran, Turkmenistan and Turkey about transporting natural gas to Europe via Turkey; the extension of the Trans-European Motorway network as far as Iran; the lifting of obstructions facing Turkish trucks carrying goods to Central Asia via Iran; and building a railway service between Lake Van and Iran and Central Asia.

Early it held a summit conference of the Caspian Sea leaders, which led to the announcement of a Caspian trade grouping, incorporating all the riparian states. Aware of the importance of energy in the region, Iran moved fast to conclude energy deals with most of the former Soviet states early in , including separate initial agreements with the Ukraine and Turkmenistan to build pipelines in order to export Iranian and Turkmen gas to Europe.

As part of its overall strategy, Iran also agreed in April to supply four to five million tones of crude oil and 25 bcm of gas each year to the Ukraine. Azerbaijan, too, wants to buy three to four bcm of gas a year from Iran to offset ruts from Turkmenistan. Observers indicate that if Iran succeeds in its bid to act as a doorway to the republics, it stands to gain significant revenues from goods passing through its territory.

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Iran agreed to fund energy projects in the Azerbaijani enclave of Nakhichevan as part of this agreement with Baku. Iran is also to fund an oil pipeline construction project there 32 , build a refinery with an annual capacity of Iranian strategists are well cognizant of the fact that whoever provides a transit route will have greater influence over the course of events in that region. Iran is reportedly campaigning for the establishment of an international organization of producers and exporters of natural gas along lines of the OPEC.

The creation of an alliance led by Iran of oil producing countries from the Caspian Sea region is also under consideration. The Japanese National Oil Corporation announced that it would launch a feasibility study for the commercial production of oil and natural gas in the Central Asian republics. Japan is also considering how to cope with the problem of transporting natural gas and oil from Central Asia to Japan. One plan would be to export oil and natural gas to other former Soviet republics or European countries and then swap them for oil and gas produced closer to Japan, as in Southeast Asia.

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Japan's first attempts to explore its interest in the region dates bock to May , when the then Foreign Minister, Mr. Michio Watanabe, visited the region. On a follow-up mission, a high-level Finance Ministry delegation toured the region in October Business groups followed suit. Japan's current strategy towards Eurasia dues not seem clearly defined. It is loosely coordinated, with different ministries pursuing separate agendas, though the Foreign Ministry seems to be in the lead.

But Tokyo nonetheless took a series of steps that set the stage for becoming the dominant aid donor to the region. It will now be possible for Tokyo to register its assistance flows to the region as official development aid. Reports indicate that Japan is about to complete its drive to open embassies in all of these republics In articulating a future energy policy, MITI posits that natural gas should be established as the basic of Japanese energy source with a view to cutting its dependency on oil and reducing the emission of harmful gases. The Japanese Prime Minister, Mr. Hosokawa, made a proposal during the APEC Seattle meeting in November to the effect that APEC should devise an Action Plan to address the general "tripartite" relationship between the three Es, namely: economic growth, environment and energy security.

According to press reports, there are some preliminary thoughts on transporting Central Asian oil and gas, via China, to Japan. The "Silk Route" energy project chat involves Japan, China and Eurasia is a mixture of energy politics and economics. At the present time, Japan is measuring the maximum benefit the country can secure, by either : i helping Russian Far East oil and gas development; or ii by supporting Turkmenistan gas development along with China's Tarim Basin oil and gas development.

In effect, the Silk Route projects lifeline will ultimately depend on Japanese financing. White the decision will be a market-oriented one, political consideration will be fully reflected as well. A casual reader of Japanese affairs may be forgiven for thinking that it is not only on account of sources of energy that Tokyo is taking a keen interest in the Eurasian world -- strategic concerns to counterbalance two countries, namely Russia and China, through active engagement in the region, as well as cultural affinities all bear a considerable impact upon the current Japanese approach vis-a-vis this part of the globe.

Development of the country's energy resources will therefore be an urgent and essential task if the momentum for such an economic drive is to be maintained. Much has been written in early s about China's emergence as a potential oil power. Comparisons have ranged from those that pictured China as another Middle East with a Middle East-like impact on future global oil markets, to more modest images of an oil-producing country that can meet its rapidly expanding domestic needs through the s and still have some oil for export to its neighbors, particularly Japan.

Yet, to fulfil even the latter prediction, China will have to surmount a series of substantial political, financial and technical obstacles China is today under increasing pressure to make significant new oil discoveries if it is to avoid, in such a high growth period, becoming a net crude oil importer in the nidx, or perhaps even before. Its proven reserves at the end of stood at 3. However, estimates of proven and potential reserves vary, but mort China experts believe the country has a maximum of 5.

In , China's oil production reached an estimated mmt. Customs figures show that China exported So the opportunity should be taken with oil prices currently at their five-year low to import a large quantity of crude and develop its petrochemical industry. In the longer term beyond the year , the future of China's oil industries lies in the north-west regions adjacent to the borders of the Eurasian republics. Recent exploration for oil in the Tarim Basin in the far western Muslim-populated Xinjiang-Uygur Autonomous region yielded significant finds.

One of them, the Tazhong, in which oil was found in , is the largest in China, covering an area of 12 mn acres. Recognizing the fart that foreign investment and technology will be necessary in order to achieve their economic aims and to make China self supporting in oil, the Chinese government adopted a more open policy and international bidding was already opened for the there massive prospects in the west, mainly the Junggar, Turpan and Tarim basins.

The first round of bidding attracted 68 foreign firms from 17 countries. These regions together produced 8. Chinese geologists estimated that the geological reserves of the Basin could be as much as 74 bn barrels of oil and 7. The agreements mark a period of closeness between the two giants as they cooperate on a range of topics and seek to counter U.

In , the two sides settled their lingering border disputes , held joint military exercises, and enjoyed rapidly increasing bilateral trade. Moscow and Beijing have signed a "strategic partnership" agreement and are increasingly coordinating their foreign policies. The relationship has its tensions, too. China is frustrated at the slow pace of oil and gas deals, especially on a few much-desired pipeline projects. Russia wants Beijing to buy more of its manufactured goods to prevent Moscow from becoming only a source of raw materials for China.

Russia, a major energy supplier, is finding an ideal market for its products in neighboring China, whose booming economy has an almost insatiable appetite for energy. While in Beijing, Putin and the roughly Russian officials and industrialists in his entourage signed dozens of agreements on issues primarily involving energy, but also including manufacturing, aviation, telecommunications, and nuclear power.

China has invested heavily in oil and gas resources in Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan. China bought a major Kazakh oil company last year, and China and Kazakhstan have a multiyear pipeline project underway. It is the second part of a three-phase pipeline that will connect Caspian Sea oil fields to China. Russia is looking to capitalize by ratcheting up its own investments in the region. Carpenter agrees. To some extent, yes. In what Neff calls "a backlash against U. Moscow and Beijing are seen as buffering Pyongyang from various forms of U.

They see the U. The proposed oil pipeline has at least two potential routes: from Anagarsk to the Chinese pipeline network at Daqing, or from both west and east Siberia to the Pacific coast port of Nakhodka. Both China and Japan are pushing for their preferred route. Experts say the concern is not unreasonable. Carpenter and Neff both believe China will end up the winner of the pipeline competition.

Experts say the decades-old dispute over the four southern Kuril Islands, among other issues, has stymied Russo-Japanese cooperation.