Page 1 of 2 Betting and bluffing in the new Great Game
By Pepe Escobar
Future historians may well agree that the 21st century Silk Road first opened
for business on December 14, 2009. That was the day a crucial stretch of
pipeline officially went into operation, linking the fabulously energy-rich
state of Turkmenistan (via Kazakhstan and Uzbekistan) to Xinjiang province in
China's far west. Hyperbole did not deter the spectacularly named Gurbanguly
Berdymukhamedov, Turkmenistan's president, from bragging: "This project has not
only commercial or economic value. It is also political. China, through its
wise and farsighted policy, has become one of the key guarantors of global
The bottom line is that, by 2013, Shanghai, Guangzhou and Hong Kong will be
cruising to ever more dizzying economic heights courtesy of natural gas
supplied by the 1,833-kilometer Central
Asian pipeline, then projected to be operating at full capacity. And to think
that, in a few more years, China's big cities will undoubtedly also be getting
a taste of Iraq's fabulous, barely tapped oil reserves: conservatively
estimated at 115 billion barrels, but possibly closer to 143 billion barrels –
which would put it ahead of Iran. When the George W Bush administration's
armchair generals launched their "war on terror", this was not exactly what
they had in mind.
China's economy is thirsty, and so it's drinking deeply and planning more
deeply yet. It craves Iraq's oil and Turkmenistan's natural gas, as well as oil
from Kazakhstan. Yet instead of spending more than a trillion dollars on an
illegal war in Iraq or setting up military bases all over the greater Middle
East and Central Asia, China used its state oil companies to get some of the
energy it needed simply by bidding for it in a perfectly legal Iraqi oil
Meanwhile, in the new Great Game in Eurasia, China had the good sense not to
send a soldier anywhere or get bogged down in an infinite quagmire in
Afghanistan. Instead, the Chinese simply made a direct commercial deal with
Turkmenistan and, profiting from that country's disagreements with Moscow,
built itself a pipeline that will provide much of the natural gas it needs.
No wonder the Barack Obama administration's Eurasian energy czar, Richard
Morningstar, was forced to admit at a congressional hearing that the US simply
cannot compete with China when it comes to Central Asia's energy wealth. If
only he had delivered the same message to the Pentagon.
That Iranian equation
In Beijing, they take the matter of diversifying oil supplies very, very
seriously. When oil reached US$150 a barrel in 2008 - before the US-unleashed
global financial meltdown hit - Chinese state media had taken to calling
foreign Big Oil "international petroleum crocodiles", with the implication that
the West's hidden agenda was ultimately to stop China's relentless development
dead in its tracks.
More than a quarter of what's left of the world's proven oil reserves are in
the Arab world. China could easily gobble it all up. Few may know that China
itself is actually the world's fifth-largest oil producer, at 3.7 million
barrels per day (bpd), just below Iran and slightly above Mexico. In 1980,
China consumed only 3% of the world's oil. Now, its take is around 10%, making
it the planet's second largest consumer.
It has already surpassed Japan in that category, even if it's still way behind
the US, which eats up 27% of global oil each year. According to the
International Energy Agency, China will account for over 40% of the increase in
global oil demand until 2030. And that's assuming China will grow at "only" a
6% annual rate which, based on present growth, seems unlikely.
Saudi Arabia controls 13% of world oil production. At the moment, it is the
only swing producer - one, that is, that can move the amount of oil being
pumped up or down at will - capable of substantially increasing output. It's no
accident, then, that, pumping 10.9 million barrels per day (bpd), it has become
one of Beijing's major oil suppliers.
The top three, according to China's Ministry of Commerce, are Saudi Arabia,
Iran and Angola. By 2013-2014, if all goes well, the Chinese expect to add Iraq
to that list in a big way, but first that troubled country's oil production
needs to start cranking up. In the meantime, it's the Iranian part of the
Eurasian energy equation that's really nerve-racking for China's leaders.
Chinese companies have invested a staggering $120 billion in Iran's energy
sector over the past five years. Already, Iran is China's number two oil
supplier, accounting for up to 14% of its imports, and the Chinese energy giant
Sinopec has committed an additional $6.5 billion to building oil refineries
Due to harsh United Nations-imposed American sanctions and years of economic
mismanagement, however, the country lacks the high-tech know-how to provide for
itself, and its industrial structure is in a shambles. The head of the National
Iranian Oil Company, Ahmad Ghalebani, has publicly admitted that machinery and
parts used in Iran's oil production still have to be imported from China.
Sanctions can be a killer, slowing investment, increasing the cost of trade by
over 20%, and severely constricting Tehran's ability to borrow in global
markets. Nonetheless, trade between China and Iran grew by 35% in 2009 to $27
billion. So while the West has been slamming Iran with sanctions, embargoes,
and blockades, Iran has been slowly evolving as a crucial trade corridor for
China - as well as Russia and energy-poor India.
Unlike the West, they are all investing like crazy there because it's easy to
get concessions from the government; it's easy and relatively cheap to build
infrastructure; and being on the inside when it comes to Iranian energy
reserves is a necessity for any country that wants to be a crucial player in
Pipelineistan, that contested chessboard of crucial energy pipelines over which
much of the new great game in Eurasia takes place. Undoubtedly, the leaders of
all three countries are offering thanks to whatever gods they care to worship
that Washington continues to make it so easy (and lucrative) for them.
Few in the US may know that last year Saudi Arabia - now (re)arming to the
teeth, courtesy of Washington, and little short of paranoid about the Iranian
nuclear program - offered to supply the Chinese with the same amount of oil the
country currently imports from Iran at a much cheaper price. But Beijing, for
whom Iran is a key, long-term strategic ally, scotched the deal.
As if Iran's structural problems weren't enough, the country has done little to
diversify its economy beyond oil and natural-gas exports in the past 30 years:
inflation's running at more than 20%; unemployment at more than 20%; and young,
well-educated people are fleeing abroad, a major brain drain for that embattled
land. And don't think that's the end of its litany of problems.
It would like to be a full member of the Shanghai Cooperation Organization
(SCO) - the multi-layered economic/military cooperation union that is a sort of
Asian response to the North Atlantic Treaty Organization - but is only an
official SCO observer because the group does not admit any country under UN
Tehran, in other words, would like some great-power protection against the
possibility of an attack from the US or Israel. As much as Iran may be on the
verge of becoming a far more influential player in the Central Asian energy
game thanks to Russian and Chinese investment, it's extremely unlikely that
either of those countries would actually risk war against the US to "save" the
The great escape
From Beijing's point of view, the title of the movie version of the intractable
US v Iran conflict and a simmering US v China strategic competition in
Pipelineistan could be: "Escape from Hormuz and Malacca."
The Strait of Hormuz is the definition of a potential strategic bottleneck. It
is, after all, the only entryway to the Persian Gulf and through it now flow
roughly 20% of China's oil imports. At its narrowest, it is only 36 kilometers
wide, with Iran to the north and Oman to the south. China's leaders fret about
the constant presence of US aircraft-carrier battle groups on station and
With Singapore to the north and Indonesia to the south, the Strait of Malacca
is another potential bottleneck if ever there was one - and through it flow as
much as 80% of China's oil imports. At its narrowest, it is only 54 kilometers
wide and like the Strait of Hormuz, its security is also of the made-in-USA
variety. In a future face-off with Washington, both straits could quickly be
closed or controlled by the US Navy.