CONTEXT OF POLICY

As several major powers are involved in the region, the policies of China, and the U.S., not only have to take these actors and their interests into account, but indeed its policies are often directed more at these than the states of the Caspian region themselves. Policies are never shaped in a vacuum, and it thus important to see them as part of their larger context. To quote Eugene Rumer: “The one remarkable and unique feature of Central Asia is that it is the strategic backyard of every major Eurasian power”.¹⁶⁶ This subchapter will present China’s relationship with these important external actors in the region.

The relationship between Russia, then still the Soviet Union, and China in the mid-1980s has been referred to as militarized and antagonistic.¹⁶⁷ However, in the last two decades, they have created a more strategic relationship. In 1994 they established a “constructive

partnership”, which two years later was upgraded to a “strategic partnership”. In 2001 they also signed a treaty of friendship and cooperation.¹⁶⁸ One of the main reasons for this newfound love between two traditional competitors is their shared interest in reducing the

164 David Lague. “Coming to Terms with China’s Ascent”, YaleGlobal Online, November 8, 2005

165 Philip Andrews-Speed, Xuanli Liao and Roland Dannreuther. 2002. The Strategic Implications of China’s Energy Needs

166 Eugene Rumer. “The U.S. Interests and Role in Central Asia after K2”, The Washington Quarterly, Summer 2006 Edition

167 Philip Andrews-Speed, Xuanli Liao and Roland Dannreuther: “The Strategic Implications of China’s Energy Needs”, The International Institute for Strategic Studies, 2002.

168 ibid

global dominance and influence of the U.S. Both Russia and China feel threatened by the policies of the U.S., specifically its penetration into Central Asia, which both countries perceive as their “backyard”. This is also the reason why they have put pressure on the

countries of the SCO to remove U.S. troops that were deployed in the region for operations in Afghanistan, as we have seen. In the summer of 2006, at the annual meeting of the SCO, its member states agreed to hold annual military exercises, supposedly to improve the

organization’s ability to fight what China has dubbed “the three evils”: terrorism, extremism, and separatism.¹⁶⁹ As suggested by the nickname “NATO of the East”, there are some who fear that the SCO could develop into a full-blown military alliance.¹⁷⁰ The joint military exercises between Russia and China held in 2005 were the first large-scale military exercises between the two since 1958.¹⁷¹

Beyond this wide-ranging cooperation within the SCO, however, Russia is also a major new source of oil for China, and whenever China has promoted their ambitions of energy linkages with Central Asia and the Caspian Region, this has always been counterbalanced with

assurances of strong commitments to developing energy ties with Russia as well. The “China Threat” school, which focuses on the potential threats of a strong and developed China, has pointed to how energy linkages are binding together the Sino-Russian relationship.¹⁷²

Iran is another important state that influences policies in the Caspian region. For China, Iran is primarily an important source of its oil imports. China has no restrictions on cooperating with one of the countries deemed to be part of “the axis of evil” by the U.S. The most visible sign of this relationship is perhaps China’s long refusal in the Security Council to agree to strong measures to prevent Iran from going nuclear.¹⁷³ China has even provided Iran with “systems and technologies that contribute to further development of its cruise and ballistic missile capability, as well as to its nuclear, chemical and biological weapons programs.”¹⁷⁴ This contravenes the U.S.-Iran non-proliferation act of 2000, which specifically states that

169 Bruce Pannier. ”China/Kazakhstan: Forces Hold First-Ever Joint Terrorism Exercises”, Radio Free Europe/Radio Liberty, August 24, 2006

170 M. K. Bhadrakumar. ”The Great Game on a razor’s edge”, World Security Network, January 3, 2007

171 Jephraim P. Gundzik. 2005. “The ties that bind China, Russia and Iran”, Asia Times Online, June 4, 2005

172 ibid

173 China and Russia did, however, agree to some sanctions in December 2006

174 Gill Bates. 1998. “Chinese Arms Exports to Iran”, Middle East Review of International Affairs, Vol. 2, No. 2

“sanctions will be imposed on countries whose companies provide assistance to Iran in its efforts to acquire weapons of mass destruction and missile delivery systems.”¹⁷⁵

The Nekka pipeline mentioned in this chapter would be extremely damaging to U.S. interests in the region, as it would eventually provide China with a direct pipeline to Iranian oil through Kazakhstan. Preventing closer relations between Iran and the major Eurasian powers is

therefore also vital to U.S. strategy in the Caspian region and Central Asia. The recent signing of a long-term $128 billion contract, which includes deliveries of oil and Chinese involvement in the development of the major Yadavaran oilfield, seems to indicate this relationship will continue for some time. As long as Iran is such a central part of China’s strategy to ensure its energy security, it is unlikely that China will support the U.S. containment policy on Iran with much enthusiasm.

The relationship between China and India was for a long time determined by unresolved border issues and both countries’ quest for regional hegemony.¹⁷⁶ But relations between the two Asian powers have improved in the new millennium and have been fuelled by the recognition by both states’ governments of the mutual benefits of a strategic partnership. In June 2003 China and India signed a Declaration of Cooperation as well as nine protocols of bilateral cooperation.¹⁷⁷ The cooperation between China and India is slowly evolving from the economic sector into the political arena, which can also be seen as a way of balancing against the U.S.¹⁷⁸ Indian foreign minister George Fernandes has even proclaimed that: “We are both in the same boat”.¹⁷⁹ India and China have both experienced an incredible economic growth, and through this they face many of the same challenges.

Trade between the two countries has grown immensely the last few years and has helped to build confidence between the states, but still there is aggressive rivalry when it comes to energy resources. India has, as mentioned, also seen an incredible economic growth and needs energy to fuel its expanding economy and military machinery. “The two are battling each other in the search for oil from Sudan to Siberia (…)”.¹⁸⁰ When China secured the take-over

175 Ibid.

176 “Tensions Underlie India-China Trade Ties”, Oxford Analytica, November 15, 2006

177 Gillian Hui Lynn Goh. 2006 “China and India: Towards Greater Cooperation and Exchange”, China: An International Journal, Volume 4, Issue 2

178 Ibid.

179 “The Tiger in Front”, The Economist, March 3, 2005

180 ibid

deal for PetroKazakstan it, as mentioned, surpassed a bid from the Indian state-owned Oil and Natural Gas Corporation (ONGC), which has also been the case in other areas where both countries have had energy interests. There are signs though that China and India are looking to cooperate more also in the energy sector. While there is currently no agreement on

specifics, “a formal MoU is expected to be signed in the second fortnight of December when [Indian oil minister] Deora visits Beijing for a brainstorming session of the Big-5 oil

importers - the US, China, Japan, Korea and India.”¹⁸¹

In this chapter we have presented the energy security needs of China, and ways in which the country seeks to ensure energy security. In order to better understand the context of Chinese policymaking, we have given a brief overview of China’s position in the world and its

political and economic situation. The organization of the Chinese state-owned oil industry has also been touched upon. China has only recently been forced to look outside its own borders to supply its growing economy and increasingly demanding population. We have seen that one of the main strategies of the Chinese government is diversification of supply, and that China seeks to get its oil from various parts of the world. One of China’s main areas of focus in this respect is the Caspian region, especially Kazakhstan. However, China’s interest in the region goes beyond oil, as it also considers Central Asia to be its strategic backyard. In its quest for oil China has pursued different policies. It has sought to gain direct control of energy sources through equity stakes and the construction of pipelines, sometimes even paying well above market price for such stakes,¹⁸² and also used non-market means to achieve its goals, both in the Caspian region and elsewhere. This has included foreign aid and direct investment in projects, as well as getting involved in countries otherwise barred from access to the market through international sanctions. They have also been involved in wide-ranging cooperation through the SCO, of which it has been the most enthusiastic proponent. Recently, the SCO has also been moving gradually into the domain of energy.

This chapter has also sought to contextualize the space in which Chinese policies are shaped, and presented the other main external actors that impact on their policy choices in the Caspian region. The next chapter will focus on the U.S. and its energy security needs and policies, and the context in which their policies are shaped as well. Even though China and the U.S. are both great powers and both have a vast and growing need to secure resources, we will see that

181 Sanjay Dutta. 2006. “India, China to bid for oil fields jointly”, The Times of India, November 28, 2006

182 Charles Recknagel. “China seeks to Build Regional Influence at Summit”, YaleGlobal Online, July 7, 2005

there are some fundamental differences in the choices available and the strategies pursued by these two major powers in the Caspian region.