Why not just put the IPI pipeline to rest?

It’s a bad idea to interlock India’s energy supplies with Pakistan. Period.

It was a stupid idea right from the start. Of course, it looks a lot more stupid now. Swaminathan Aiyar points out why the IPI gas pipeline project should now be officially declared dead. But you don’t have to read Mr Aiyar’s article at all if you had been reading The Acorn during the halcyon days of the ‘peace process’ when it was unfashionable to point out that ideas such as “creating mutual dependencies” with Pakistan are masochistic and that the risk premium will junk the business case in any case.

After explaining why involving Pakistan in a gas purchase deal with Iran is such a bad idea, Mr Aiyar inexplicably proposes a shallow undersea pipeline with a different architecture. It might be better than the overland pipeline but it still carries the risk of a Pakistan hurting itself to hurt India.

It makes far more sense to invest in LNG. This calls for investing in the technology, processing and domestic distribution infrastructure required to handle the imports. This calls for developing a maritime strategy that ensures that India’s LNG supply routes are secure, around the world. And it calls for foreign policy that ensures that LNG becomes the predominant way to ship the world’s natural gas, and the global market becomes competitive.

Of course all this is tall order. But let’s face it—its better than letting Pakistan hold us by the…you know what.

Should America squeeze its own companies to squeeze Iran?

Even if it can be done, forcing foreign oil firms to not sell gasoline to Iran will hurt the US economy

Writing in the Wall Street Journal, Orde F Kittrie argues that the incoming Obama administration must exploit Iran’s “economic Achilles’ heel”—the fact that it has to import refined gasoline—to persuade it to negotiate over its nuclear programme. Since Iran imports gasoline from five firms “four of them European: the Swiss firm Vitol; the Swiss/Dutch firm Trafigura; the French firm Total; British Petroleum; and one Indian company, Reliance Industries”, he calls upon the Obama administration to insist that the Swiss, Dutch, French, British and Indian governments stop gasoline sales to Iran from their countries’ companies. (linkthanks Harsh Gupta)

In addition, he suggests that the US could act on its own:

Consider India’s Reliance Industries which, according to International Oil Daily, “reemerged as a major supplier of gasoline to Iran” in July after taking a break for several months. It “delivered three cargoes of gasoline totaling around 100,000 tons to Iran’s Mideast Gulf port of Bandar Abbas from its giant Jamnagar refinery in India’s western province of Gujarat.” Reliance reportedly “entered into a new arrangement with National Iranian Oil Co. (NIOC) under which it will supply around . . . three 35,000-ton cargoes a month, from its giant Jamnagar refinery.” One hundred thousand tons represents some 10% of Iran’s total monthly gasoline needs.

The Jamnagar refinery is heavily supported by U.S. taxpayer dollars. In May 2007, the U.S. Export-Import Bank, a government agency that assists in financing the export of U.S. goods and services, announced a $500 million loan guarantee to help finance expansion of the Jamnagar refinery. On Aug. 28, 2008, Ex-Im announced a new $400 million long-term loan guarantee for Reliance, including additional financing of work at the Jamnagar refinery. [WSJ]

It is unclear if Mr Kittrie is proposing that the US government purchase all that gasoline from Reliance at a premium over market prices, so as to deny the Iranians that gasoline. As for financing arrangements by the US Export-Import bank, what Mr Kittrie does not realise or forgets to mention, is that they exist because Reliance is purchasing goods and services from US suppliers. Withholding loan guarantees will be counterproductive to US commercial interests—for European and Japanese suppliers will be too keen to replace their American competitors, and their respective Ex-Im banks will supply the requisite loan guarantees. In any case, Reliance is unlikely to have too much of a difficulty in securing such guarantees, even in today’s financial markets.

Whatever the merits of the proposal to squeeze Iran through a policy of gasoline denial, Mr Kittrie’s proposal will hurt the US economy. Now, why would Mr Obama want to do that…when the US economy is already in the doldrums?

My essay in The Friday Times: Nuclear power for a nuclear power

Civilian motivations, geopolitical implications

The debate over the India-US nuclear deal in the Indian parliament was interesting, controversial and had its dramatic moments. And though it was lost on the members of parliament, there was deep irony too. For the parliament was debating the virtues of a deal that could add to India’s power generation capacity when a large number of Indian citizens could not watch the debate live on television because of power-cuts and load-shedding.

Indeed, even without full electrification, supply has fallen short of demand by around 8 percent. In fact, during peak periods, the shortage has grown from 12.2 percent in 2002-03 to about 16.6 percent in 2007-08. More than power generation targets for 2030 (some 950GW, compared to 145 GW today) the today’s ever more frequent power cuts bring home the reality that India could do with more power, whether thermal, solar or nuclear. Indeed, it is this realisation that underpins the strategic rationale for the India-US nuclear deal. It does have geopolitical implications—those are inescapable in a deal of this nature—but if India was merely interested in increasing its nuclear arsenal it need not have gone in for this deal at all.

The nuclear deal represents a conscious decision by India to move to a different balance in the trade-off between its nuclear weapons capability and the needs of its growing economy. Some hardline strategists have argued that nothing must be allowed to come in the way of India’s development of more nuclear weapons. Now, nuclear weapons will remain rather powerful guarantors of survival and security well into the conceivable future. But mere ownership of nuclear weapons without broad, comprehensive national power is counterproductive.
Continue reading “My essay in The Friday Times: Nuclear power for a nuclear power”

Mira Kamdar’s confused diatribe

The fastest growing democracy is indeed transforming America and the world.

Mira Kamdar is right about one thing: not “all opponents of the deal (or even those who dare question some of its provisions)” should be smeared as “nonproliferation ayatollahs” and “enemies of India”. Some are merely confused. Like Ms Kamdar herself, for instance.

In her diatribe in the Washington Post she is not even indulging in the flawed guns vs butter argument. Hers is a flawed butter vs butter argument, for “The US-India deal will divert billions of dollars away from India’s real development needs in sustainable agriculture, education, health care, housing, sanitation and roads.” Such a tall claim would have required some logical arguments using facts to connect claim to conclusion. She doesn’t offer any. But just look at some overall numbers and you’ll realise how ridiculous Ms Kamdar is. According to her own figures, the deal will result in US$100 billion of business for US companies over 20 years. That is, on an average, US$5 billion a year. India’s annual GDP is around US$1000 billion. Even if we ignore economic growth, the deal is worth a 0.5% of GDP per year. Even if all of that came from public funds, that still leaves a lot for agriculture, education, health, housing, sanitation and roads. When you consider that the Indian economy is expected to grow between 6-8% per annum and that India could well permit private investment in the power sector, it turns out that it’s not a big deal after all.

Now, money doesn’t mean much to Ms Kamdar. She sees it as a bad thing that the deal will enrich “deep-pocketed” US and Indian corporations. But then at the next moment, money goes from being a bad thing to an invisible thing. For she says “India gets unfettered access to nuclear fuel and technology, and it doesn’t have to do anything in return.” The US$100 billion over 20 years suddenly disappeared. So do “the tens of thousands of jobs”.

She also contends that the deal “will distract India from developing clean energy sources”, for even “under the rosiest of projections, (nuclear contributes) a mere 8 percent of India’s total energy needs—and won’t even do that until 2030.” Now, nuclear energy is clean energy, and it is available now. And it is too presumptive of Ms Kamdar to suggest that other sources will be ignored, not least when India ranks fourth in the world in wind power generation.

Ms Kamdar is even more confused about geopolitics. The deal “risks triggering a new arms race in Asia…a miffed and unstable Pakistan will seek nuclear parity with India, and China will fume at a transparent US ploy to balance Beijing’s rise by building up India as a counterweight next door.” No facts again, but here is one. Pakistan’s arsenal of warheads is estimated to be larger than India’s. It has an opaque deal with China which allows it to continue developing its arsenal. To seek nuclear parity then, Pakistan might have to give up some of its warheads. And why, what’s wrong with China fuming at being balanced? Perhaps Ms Kamdar truly believes narratives of China’s “peaceful rise”. Those who don’t—and India certainly shouldn’t—would do well to buy insurance.

Ms Kamdar’s piece is addressed to the US Congress. She is asking it to give up a lucrative commercial opportunity that could rekindle the United States’ moribund nuclear power industry. She is asking the US not to even attempt to balance the rise of China’s geopolitical power. And she is implicitly asking the US Congress to continue backing a flawed non-proliferation regime that didn’t prevent, apprehend nor punish acts of proliferation when they occurred. Well, that’s for the US Congress to chew on.

The rest of us still have to get back into our chairs, having fallen off after reading that the deal was responsible for corrupting Indian politics.

General Electric

After the “clean waiver” in Vienna

According the the Nuclear Suppliers Group, its guidelines “are implemented by each NSG participant in accordance with its national laws and practices. Decisions on export applications are taken at the national level in accordance with national export licensing requirements. This is the prerogative and right of all States for all export decisions in any field of commercial activity and is also in line with the text of Article III.2 of the NPT…” To understand what this will mean in practice, just read this report from Bloomberg.

The waiver means that companies including France’s Areva SA, Russia’s Rosatom Corp. and Japan’s Toshiba Corp. will be able to export nuclear equipment to India. General Electric Co. and other U.S. companies will have to wait until Congress ratifies a 2006 trade pact backed by President George W. Bush and Indian Prime Minister Manmohan Singh.

General Electric, the world’s biggest maker of energy- generation equipment, said Aug. 25 that it may lose contracts in India to French, Russian and Japanese rivals if Congress doesn’t ratify a U.S.-India nuclear deal soon after the agreement wins approval from the Suppliers Group.

Rice said the U.S. has talked to India about the potential competitive disadvantage.

“I think they recognize and appreciate American leadership on this issue,” she said. “Because of that I think we’ll have ways to talk them about not disadvantaging American companies.”

Still, she said “the best thing would be to get it through Congress.” [Bloomberg]

It is understood that there is a tacit agreement that the first commercial deals will involve US companies…as long as the US Congress does not prevent it. The non-proliferation ayatollahs are up against the General Electrics on this one.

As for the Indian government, the real job begins once the party is over. Negotiating the nuclear deal with the United States, IAEA and the NSG was the easy part. The hard part involves liberalising the power industry. See energy security begins at home; Mr Advani sees the light and the uranium at home.

Related Link: The problems with India’s power industry regulations. The NSG saga covered at Idaho Samizdat.

Six small states, one big one, and the nuclear cartel

It is easy to take a moral position when there is little cost to it

Before China publicly signaled its opposition to clearing the decks for India at the Nuclear Suppliers Group, six small states were instrumental in throwing a spanner in the works. They opposed the first draft of the proposal to unconditionally lift the ban in export of nuclear material to India. Now emboldened by China’s ‘unofficial’ position, they may yet block the revised draft.

But why are these small states, minor players on the international scene, behaving in this manner? Are they being merely being racist or are they acting as the world’s “conscience keepers” ? Or as Paul Nelson, a professor emeritus at Texas A&M University argues, their domestic perspectives on nuclear power and nuclear weapons may be preventing them from understanding India’s compulsions. [via Idaho Samizdata, which has a good post on this topic]

Whatever it might be, it only reflects that they have calculated that it is inexpensive for them to take the position they did. In fact, they have little to lose, in the short-term, from taking an anti-India position. They are geographically distant and, except for Norwegian peace diplomacy in Sri Lanka, are removed from the geopolitics of India and its neighbourhood. More importantly, India’s trade with these states is miniscule. The Commerce Ministry’s latest trade figures (as of February 2008) explain why these countries could afford to be more concerned about nuclear non-proliferation. Clearly they don’t really have much of a share of emerging India.

Country Exports (%) Imports (%)
Ireland 0.2 0.1
Austria 0.12 0.24
New Zealand 0.09 0.14
Netherlands 3.18 0.84
Norway 0.17 0.67
Switzerland 0.37 4.13

Now, the Netherlands and Switzerland played a role in permitting A Q Khan and the Pakistani nuclear underground to operate for so long and cause so much damage to non-proliferation, the cause they now ostensibly espouse.

But John 8:7 does not apply in international relations. What really makes the Dutch and Swiss stand inexplicable is that there is reasonable inward foreign investment coming into India from these countries, as well as some trade. They are also likely to be beneficiaries from an opening of India’s nuclear power sector to foreign investment. Perhaps their position is designed to extract a quid pro quo at a later date, or indeed motivated by a quid pro quo with other parties.

In any event, by overplaying their hand, the six small states are risking pushing the NSG into irrelevance. The dynamics of cartels being what they are, the interests of the United States, Russia and France being what they are, and the NSG being what it is (a cartel and not a treaty), the question for India is one of timing and convenience.

This episode serves to highlight the need for India to develop deep economic linkages with countries that are a source of fuel supplies and technology. At the same time it is important to ensure that countries do not find taking anti-India positions costless or inexpensive.

Russia vs Georgia, outside the Olympics

And the dubious wisdom of provoking a stronger, aggressive adversary

A military misadventure under the cover of the Olympics did happen. But in South Ossetia (where?), a Russian majority region in Georgia.

Georgia, more than any other former Soviet republic has been the site of a geopolitical tussle between Russia and the West. In the military space, the Georgian armed forces have, on the one hand, have drawn into a close relationship with the United States. Russian troops, on the other hand, have used their presence in South Ossetia (where they are peacekeepers in the conflict between the South Ossetian rebel militia and the Georgian armed forces) to harass Georgia.

Now, Georgians would rightly have a lot to complain about this unhappy state of affairs. But considering he has at most 30,000 troops and political support from the West, what could have caused Mikhail Saakashvili, the Georgian president, to provoke a war with Russia? The Georgians might have calculated that they would take Tskhinvali, the South Ossetian capital, cut off the tunnel and the sole road link that connects to Russia, under cover of the Olympics before the Russians had a chance to react. There being no airstrips in the region, the Russians would be hard pressed to deploy troops and equipment quickly, buying the Georgians time to secure a favourable diplomatic settlement.

At this time, it looks like the Georgians miscalculated. Georgian troops failed to take Tskhinvali and the Russians escalated sharply in response. President Saakashvili called for the US to intervene—but other than support at the UN, the United States isn’t going to enter into a military conflict against Russia. In any case, assuming that taking Tskhinvali and shutting off the road would end the matter was foolhardy—for Russia might well have decided (and could yet decide) to open a new front wherever it chose to.

However this conflict might end, two things are clear. First, Russia has made its Vladimir Putin’s “this far and no further” warning to NATO’s expansion more credible. If the United States and the European Union do not try to challenge this position, it is possible that Eurasian balance-of-power will move towards a new stability. This need not imply a new “cold war” as some suggest. Second, political risk attached to oil and gas pipelines that bypass Russian control will remain high or increase even further.

As for South Ossetia, the West can hardly raise any issues of principle should Russia go to the extent of annexing it entirely. Prime Minister Putin has only to cite the recent example of the US and EU position on Kosovo. For surely, if the Kosovars had a case to break away from Serbia, South Ossetians should hardly be blamed for breaking away from Georgia? Shoe, other foot, and all that.

Related Links: A number of good posts on this issue in the blogosphere. Starting from Nikolas Gvosdev who has several posts covering the issue. Robert Farley has two detailed ones (via the Duck of Minerva, where Daniel Nexon offers his take). Richard Gowan contemplates international options at Global Dashboard.

Concerning Australia’s uranium sales

The Rudd government would do well to climb out of an unnecessary hole it has dug for Australia

Greg Sheridan has a very insightful piece on the India-US nuclear deal and the stakes for Australia (linkthanks V Anantha Nageswaran). He gets it right when he argues that Australia can’t hope to enjoy a close relationship with India if it maintains a discriminatory policy on uranium sales.

Then the deal must be approved by the Nuclear Suppliers Group. Here’s where Australia comes in. With something like 40 per cent of the world’s known uranium reserves, Australia is a key member of the NSG. So far, the Rudd Government has not said whether it will support the US-India deal at the NSG or oppose it.

It has however hinted that it would support the deal at the NSG, a hint Foreign Minister Stephen Smith repeated yesterday. Certainly Australia could kiss goodbye forever the idea of any decent relationship with India if it opposes the deal at the NSG.

Accepting the deal at the NSG would not commit Australia to supplying uranium to India. However, that will be the next big question…

Opposition foreign affairs spokesman Andrew Robb has effectively homed in on the contradiction between the Rudd Government selling uranium to China – which has a terrible, though not recent, record of nuclear proliferation – while refusing to sell uranium to India, which has never passed on nuclear technology to anyone.

..the Rudd Government will face a deep contradiction between supporting the US-India deal in the NSG, then saying it will not sell uranium to India. It will face an even bigger contradiction between its concern with greenhouse gas emissions and taking action, by refusing uranium to India, that impedes the development of clean energy. [The Australian]

Confused about India’s energy policy?

How many expert do you need to craft one definition?

The Planning Commission says: “The broad vision behind the energy policy is to reliably meet the demand for energy services of all sectors including the lifeline energy needs of vulnerable households in all parts of the country with safe and convenient energy at the least cost in technically efficient, economically viable and sustainable manner considering different fuels and forms of energy, both conventional and non-conventional as well as new and emerging energy sources and to ensure this supply at all times with a prescribed confidence level considering the shocks and disruptions that can be reasonably expected. In other words the goal of the energy policy is to provide energy security to all”. [Draft Report of the Expert Committee on Integrated Energy Policy, Planning Commission, Government of India, December 2005, p16(PDF)]

How’s that for an inclusive policy vision?

China to take the Iran pipeline if India doesn’t

By all means

It looks like a negotiation tactic. Pakistani sources have let it be known that China is interested in the Iran gas pipeline if India drops out. India continues to remain cool towards the Iran-Pakistan-India (IPI) pipeline even after Pakistan offered to lower transit fees. And Turkey’s new proposal to route Central Asian gas to India can further change supply equations if it works out. So introducing the China bogey is an entirely predictable on Pakistan’s part.

What if it’s not a bluff and China really interested in the project? Well, good luck to the Chinese, then. The risks associated with the project—from Iran’s overselling of available reserves to the political and security risks along its passage through Balochistan—don’t change. Baloch tribals are unlikely to be less enthusiastic in taking potshots at the pipeline because it terminates in China. They haven’t been too friendly towards Chinese nationals working in Gwadar. Indeed, the security risks would be higher—because it would have to traverse Gilgit, where the Shia majority population is up-in-arms against the Pakistani government. (Gilgit is technically Indian territory, by way of Maharaja Hari Singh’s accession to India in 1947. Add that to the political risk).

External powers could relatively easily threaten China’s energy supplies with plenty of plausible deniability. Why would China want that?

What about the implications for India? India needs to worry about the pipeline going to China if the IPI were the only way to transport Iranian gas to India. But it isn’t. There’s LNG, for instance. As The Acorn has long argued, investing in domestic LNG infrastructure is the best way to ensure India’s energy security. It allows India to buy gas from Iran, and from elsewhere.