Iraq and the Pathologies of Primacy
The Flawed Logic That Produced the War Is Alive and Well
ALL REVVED UP AND NO WAY TO GO
For nearly 15 years, since oil shock began to recede, energy has had remarkably low priority in global policy councils. The time has come for a reevaluation, and nowhere is one more urgent than in the Pacific. Major changes in East Asian energy patterns are creating both danger and opportunities for troubled trans-Pacific relations chronically oriented toward the past.
Asia's emerging energy problems cut subtly across the conventional boundary between economics and security. They have been further masked by the temporary collapse of demand in many markets, such as eastern Europe, since 1990. But they are no less perilous for their obscurity.
The coming decade--if buoyant economic growth continues in Asia, as seems likely--holds the potential for severe strains between Asian powers as regional oil markets tighten while contenders for supplies grow more diverse and competitive. China, Japan, the Koreas, and most Association of Southeast Asian Nations (ASEAN) members will be vigorously bidding for imports in energy markets that until recently were much simpler and more relaxed.ffi Changing supply routes for northeast Asian importers may spark geopolitical rivalries along the vulnerable sea-lanes that link Asia with the Middle East. Countries have already come to blows over their conflicting claims to offshore areas that may be rich in oil and gas.
Virtually all foreseeable futures pose unsettling dilemmas for Asia. Greater use of plentiful coal invites strip-mining, acid rain, and other environmental complications. Rapidly expanding nuclear power production raises safety concerns as well as the specter of nuclear proliferation. Continued reliance on oil means a tightening embrace of necessity between East Asia and the Middle East that, over the next generation, could fundamentally challenge the prevailing Western-dominated global order.
CHINA'S THIRST FOR OIL
At the root of Asia's energy security problem is China--a rising, frustrated, revisionist power in which ideological communism is yielding to nationalism--and its new status as an oil importer. A decade ago the People's Republic shipped nearly a quarter of its production abroad. But since the early 1990s China's trade balance in energy has sharply deteriorated, propelled by double-digit economic growth and the transition to a consumer economy. In November 1993 the country became a net importer of oil for the first time in more than a quarter-century, and the deficit has since soared to about 600,000 barrels a day.
The dependence on imports will likely deepen, in spite of sporadic efforts by Beijing to curb it. China's per capita energy consumption is still only 40 percent of the world average, and per capita oil consumption little more than one-sixth. Korea uses 10 times as much oil per capita, Japan 20 times, and the United States 30.
Over the coming decade three powerful engines will propel rising Chinese demand for oil: an automotive revolution, growing industrial production generally and energy-intensive manufacturing in particular, and expanding air travel. In 1994 China produced only 350,000 autos, many of them for state enterprises. But the aspiration among the Chinese middle class--expected to exceed 200 million people within a generation--to own a car is clear and is supported by government plans for a "people's car." Given that the country has a population of 1.2 billion, a long-range projection of 300 million cars on the road is not unreasonable. The production of petrochemicals, which, like cars for China's masses, requires large quantities of oil, has been designated one of the country's four "pillar [industries] for early 21st-century development," along with auto manufacturing. Annual increases in the demand for petrochemicals climb well into the double digits, with plastics and fertilizers leading the way. Air travel has risen 20 percent a year in China since 1978 but still accounts for only 6 percent of total transport--very low for so sprawling a country. During the next two decades the demand for aviation fuel should grow at least double the rate of overall energy consumption.
Logistics compound the country's energy problem. The most explosive increases in demand are in the southeastern coastal provinces, notably Fujian and Guangdong, yet the southeast produces virtually no oil and relies heavily on imports. Northeastern oil fields like Daqing and Shengli are on the decline, but China appears to have huge reserves in the 220,000-square-mile Tarim Basin of western Xinjiang province, close to the Russian border; some experts suggest that Tarim could top Saudi Arabia's proven reserves of nearly 250 billion barrels. Yet prospecting in Tarim's desolate desert is torturous, and the oil, located in deep, small, hard-to-find pockets, is devilishly difficult to extract. Enormous investment in pipelines, roads, and telecommunications would also be necessary if this remote field were to be exploited. As it stands, Xinjiang accounts for less than seven percent of China's oil production. According to the International Energy Agency, this may not change until well beyond 2010, unless major foreign assistance is forthcoming.
The prospects for offshore oil in internationally recognized Chinese waters also appear quite limited. Multinational corporations have already invested more than $3 billion, with discouraging results, in the East and South China Seas as well as the Bo Hai Gulf. Potential significant reserves in offshore areas that China claims but other countries dispute have more obvious drawbacks.
In short, at a time when the government needs economic growth to pacify the people as never before, China faces spiraling oil demand and limited short-term supply within its established frontiers. Thus it is likely to become a major and vigorous bidder in regional and global oil markets. Recent estimates from the Asia-Pacific Economic Cooperation (APEC) organization suggest that China's net external requirements will rise from some 600,000 barrels per day to over one million by 2000 and nearly three million by 2010. That huge total--nearly half Saudi Arabia's current production--would represent almost 20 percent of Asia's oil imports. By 2015, less than two decades hence, Shell China Petroleum Development estimates, Chinese imports of more than seven million barrels per day will approach the current imports of the United States.
COMPETING WITH THE NEIGHBORS
China will be emerging as a major oil importer in a rapidly growing northeast Asian region whose other nations will be that much more precariously dependent on international supplies. Preeminent among the rival importers will be Japan, whose $4 trillion economy lacks any significant source of domestic oil whatsoever and imports more than 80 percent of the energy it consumes. Even with the gains from conservation campaigns in the 1970s and 1980s, Japan has a $50 billion annual bill for fuel imports and scant hope for substantial further reductions.
South Korea's economy, with its large steel, shipbuilding, and petrochemical sectors, together with a growing middle class ever more addicted to driving, is even more energy-intensive than Japan's. Yet it has still less domestic energy at hand. South Korea's annual energy import bill is triple Japan's as a fraction of GNP and includes an oil demand component rising 20 percent a year. A smaller and less influential nation than the economic giant across the Sea of Japan, South Korea has more difficulty competing for oil in times of shortage, as was patent during the two oil shocks of the 1970s and the Persian Gulf crisis of 1990-91. Its fears about energy security seem likely to deepen over the next two decades as the prospective reunification of the peninsula swells local demand and Chinese competition intensifies.
Taiwan, too, has major energy vulnerabilities compounded, as in Korea and as formerly in Japan, by a tense geostrategic context. Unlike Korea, Taiwan lacks substantial coal reserves and must import large amounts of that fuel along with oil. The bill is more than twice what it was in the mid-1980s, and more than 40 times higher than in 1975. APEC forecasts that the burden will double again in the next 15 years.
ASEAN has been a net energy exporter to the rest of Asia, buttressed by the venerable Indonesian oil fields that were the primary target of imperial Japan's December 1941 Southeast Asian offensive. But today, throughout the region and especially in Indonesia, subsidized domestic energy prices and inadequate incentives for exploration and production are accelerating the trend toward oil importer status. Despite expanding production in Vietnam, ASEAN should become a net importer just after the turn of the century.
Asia's oil market thus seems poised to undergo dramatic, destabilizing shifts. New importers will enter the fray, particularly China and ASEAN members. By 2010, predicted a report last June from APEC's Advisory Committee for Energy, they will transform a market dominated by Japan (77 percent of Asia's oil imports in 1992) into one delicately balanced among Japan (37 percent), China (19 percent), Korea (18 percent), the ASEAN countries (17 percent), and Taiwan and Hong Kong (9 percent).
A dynamic Asia will become increasingly dependent on the volatile Middle East--including Iran and possibly Iraq--where the oil is abundant. By 2000, the East-West Center estimates, 87 percent of the oil East Asian nations import will flow from the Middle East, up from 70 percent today; by 2010 dependence on Middle Eastern oil could reach 95 percent. The heart of the dependence could increasingly be China's relations with Iraq and Iran--two countries accounting for nearly 20 percent of proven global oil reserves--which in the past have involved significant arms transfers. A growing fleet of laden supertankers will plow across the Arabian Sea and Indian Ocean in coming decades, headed for Singapore, Hong Kong, Shanghai, Pusan, and Yokohama. In the next 15 years, East Asian oil imports from the Middle East could easily triple to more than 15 percent of global consumption. Russian reserves, which include an estimated 20 percent of the oil and 39 percent of the gas on earth, could forestall this development, as could the discovery of large-scale offshore fields in the East or South China Seas, but the prospects for both are clouded by political uncertainty and infrastructure problems. So unless other forces intervene to arrest the trend, the Middle East and Asia, the two major economic and geopolitical centers of the non-Western world, are likely to grow closer. The global implications are unsettling.
The new energy realities contribute to China's aspirations to develop a blue-water navy capable of force projection in the South and East China Seas, the Indian Ocean, and beyond. They also give it incentives to reassert offshore territorial claims on its continental shelf. Beijing's 1992 Territorial Sea Law and a series of military actions reflect its willingness to advance these claims. Whatever energy reserves lie beneath the South China Sea, the strategic importance of the area and the value of any oil and gas adjacent to the booming southeastern coast are undeniable.
China's published military budget has risen 75 percent since 1988, after adjusting for inflation. And the totals it lists are significantly lower than actual spending since they include neither weapons procurement nor the share of profits from military-run enterprises that are plowed back into defense. Energy-vulnerable neighbors worry about a Chinese giant ever more voracious for oil and now better armed and increasingly nationalist.
The flash point for these tensions is the South China Sea. Through the sea pass the maritime routes that supply 70 percent of Japan's and the Koreas' oil imports and growing portions of other Asian nations' energy needs. The area may also contain substantial oil and, especially, gas reserves, although political uncertainties and a tendency for deposits to be small, deep, and expensive to explore make judgment difficult; recent Chinese estimates have suggested reserves 20 percent larger than Kuwait's, although many Western experts remain skeptical.
China claims four-fifths of the area, based on an association going back to the voyages of Admiral Zheng He in the fourteenth century, but five other claimants--Vietnam, the Philippines, Brunei, Malaysia, and Taiwan--dispute Chinese sovereignty in several potentially oil-rich sectors. Violence has flared on several occasions. In 1988 nearly 150 people were killed in a confrontation between Chinese and Vietnamese forces in the Spratly Islands. As recently as January 1995, Chinese troops removed Filipino fishermen from Mischief Reef in the Spratlys, less than 150 miles from major Philippine oil reserves off Palawan Island, and two months later Taiwanese artillery fired on a Vietnamese supply ship not far away.
Tokyo was especially sensitive about the Mischief Reef incident, both because of what it signaled regarding Chinese intentions in an area of strategic importance to Japan and because of the specific encroachment on Philippine claims, which touches important Japanese business interests engaged on the Philippines' Palawan Shelf. Japan has even more reason to be concerned about recent developments in the East China Sea, directly adjacent to its home islands and possibly even richer in hydrocarbons than areas farther south. Last summer China began geological explorations near the Senkaku Islands (Diauyutai to the Chinese), over which the two countries staged a tense confrontation in 1974. Last December a Chinese oil-drilling ship was spotted anchored in Japanese-claimed waters 200 nautical miles north-northeast of the Senkakus, prompting Japanese diplomatic protests to Beijing. There were indications that the dispute could seriously escalate, with the commencement of actual drilling and China and Japan's mutual establishment of exclusive economic zones.
South Korea, which imports virtually all its oil through the South and East China Seas, has expanded its naval forces since the early 1990s and begun a significant technical modernization program in the military. Indeed, its defense budget has risen more rapidly since 1990 in local currency terms than that of any other country in northeast Asia, with the bulk of new spending arguably directed more at emerging regional naval and air contingencies than the decades-old struggle with North Korea. A naval arms race among China, Japan, and possibly South Korea sparked by the changing oil equation is the greatest long-term security danger the region faces.
The most substantial and modern naval force in the region, apart from the U.S. force stationed there, clearly belongs to the Japanese. It includes some 100 maritime aircraft, among them a fleet of pc-3 submarine surveillance aircraft second in size only to the U.S. one, together with more than 60 principal surface combatants and 18 submarines. To better cover the country's sprawling naval defense perimeter and huge array of maritime concerns, Japan recently began launching a series of at least three destroyers equipped with U.S. Aegis radar surveillance and tracking systems, at a billion dollars each. Tokyo is also planning to acquire tanker aircraft to extend the range of its maritime air coverage and has for several years considered obtaining "defensive" aircraft carriers. Acquisition of a full-scale blue-water navy would be enormously expensive--probably over $30 billion or $40 billion for even modestly credible capabilities--and time-consuming for Japan. Tactical considerations would dictate the acquisition of full aircraft-carrier battle groups and significant naval air power. Spurred by energy realities, China's growing capabilities, and Japanese anxiety that the U.S. presence in Asian and Indian Ocean waters could significantly recede, Tokyo is approaching a moment of decision on its deployments in the early 21st century.
THE NUCLEAR ALTERNATIVE
The increasing energy vulnerability of Asian nations, especially those in the northeast, makes nuclear power highly attractive. Japan generates nearly a third of its electricity from nuclear power, South Korea around 40 percent, compared to less than 20 percent in the United States. Northeast Asia, with its myriad geopolitical uncertainties, has by far the most ambitious nuclear programs in the world, at a time when Europe and America still recoil before the twin specters of Chernobyl and Three Mile Island.
For nations chronically short of energy like Korea, Taiwan, China, and Japan, nuclear reactors yield it in large quantities at a low marginal cost without bulky imports, if only users can find a way of coping with high start-up costs, waste products, and safety concerns. With the fast-breeder reactor, nuclear power becomes a self-renewing source of energy that can liberate longtime energy importers from their nemesis. For countries concerned about acid rain, global warming, and other forms of pollution, nuclear power plants, unlike coal-fired ones, emit no greenhouse gases. For many in East Asia, given proper safety measures, nuclear power even appears to be an environmentally friendly substitute for oil and coal.
The region currently represents roughly 14 percent of global nuclear capacity. But U.S. Department of Energy forecasts suggest that Asia could account for 48 percent of new nuclear capacity worldwide between 1992 and 2010, the bulk of the growth coming in Japan and Korea, with China and Taiwan not far behind. At least $160 billion in capital spending is scheduled for the next decade alone. The United States, by contrast, is expected to retrench; the Energy Department expects America to have close to 10 percent less nuclear capacity in 2010 than it does now.
In meeting their increasingly pressing energy needs, Asians may raise a swarm of problems. The favored long-term approach of many local energy producers, especially in northeast Asia, is the so-called complete nuclear fuel-cycle program, which in generating electrical power also produces large quantities of plutonium, the raw material for most nuclear weapons. Japan already has an active program of this sort, and China and South Korea are contemplating similar efforts. Such programs, if not carefully supervised, clearly raise risks of proliferation and terrorism.
North Korea's energy deficiencies and nuclear ambitions are well known. Pyongyang's October 1994 nuclear agreement with the United States to freeze and then gradually transform its nuclear program may, if implemented, ultimately defuse the danger of the North developing a large-scale military nuclear capacity. But even under the agreement, ambiguities will remain well into the next decade, and North Korea will have a political and perhaps economic interest in perpetuating them. Reunification of the peninsula, if it came, would sharply boost energy demand, especially in the north, as well as Korean desires to pursue a plutonium-generating complete nuclear fuel-cycle program. It would also bring together nuclear programs in the north and south that are in many ways complementary, possibly hastening the development of a sophisticated military nuclear capacity as well as a civilian one.
Taiwan is not likely to go nuclear overtly, as Deng Xiaoping and others on the Chinese mainland have cited that as a casus belli. Yet Taiwan could well move quietly closer to the nuclear threshold by reviving its military program of nuclear research. Like North Korea, Taiwan has a perverse reason to encourage limited uncertainty about its nuclear intentions, and fuel-cycle programs, under the guise of energy security, provide a credible way to do this.
Deepening nuclear uncertainties across northeast Asia could have especially troubling implications for Japan. That shadow superpower could easily go nuclear in a matter of months if the technology alone were at issue. If regional nuclear frictions worsen and the U.S. commitment to Japan's security is vague, such a fateful move, although unlikely, is not inconceivable during the prospectively turbulent first decade of the coming century.
The United States and Japan are ideally suited to take the lead in developing an integrated package of economic and security measures to defuse mounting tensions in Asia and build confidence in a stable energy future. Indeed, a far-sighted energy plan would be an important contribution to the summit meeting between President Bill Clinton and Japan's new prime minister, Ryutaro Hashimoto, scheduled for later this spring in Tokyo. A comprehensive response would address four imperatives: securing the passage of the inexorably rising flow of oil through the Strait of Malacca; encouraging the stable development of oil reserves in Asia, including China; preventing proliferation and operational safety and spent-fuel storage problems associated with nuclear power; and promoting cost-effective, environmentally acceptable alternative energy sources as well as energy conservation.
Recent steps by the Clinton administration, including declarations in mid-1995 of U.S. willingness to escort commercial shipping in an emergency, have made progress on reaffirming freedom of navigation in the strategic energy sea-lanes from the Persian Gulf to East Asia. The U.S. declarations focused on the South China Sea, but seaways west of the Strait of Malacca are also important. America's intention to maintain sufficient capability in the area to render commitments to free navigation credible must also be reaffirmed continually. While neither U.S. intent nor capability is currently in question, many Asians fear the picture may begin to change after the year 2000, as China's blue-water navy becomes operational and as presumed isolationist sentiment begins to tear at American resolve.
Ensuring the security of the southern seaways and of the pivotal states that dominate them--particularly Indonesia and India--should loom larger and larger on the long-term U.S.-Japanese agenda, while Japan's active involvement with Korean contingencies is relegated to a lesser place. Such a change of emphasis would unquestionably be supported throughout northeast Asia. Many Southeast Asians, by contrast, would welcome further Japanese involvement in their region, in which Japan already has more than $70 billion in direct investment. There will be many possibilities for joint U.S.-Japanese projects in the southeast, especially in energy efficiency and infrastructure.
Keeping China and Indonesia from becoming large-scale energy importers likewise deserves priority and could be furthered by cooperative initiatives, provided the economic interests of all parties are considered. The hand extended to Indonesia should involve official development aid for improved domestic energy efficiency and coordinated U.S.-Japanese backing for improved Indonesian foreign investment incentives in the energy sector as well as for rationalization of domestic energy-pricing policies. In China, parallel efforts are an even more complex and significant proposition.
Energy cooperation among the United States, Japan, and China could be enormously important over the coming decade, both in moderating China's oil imports and in breaking the dangerous new dynamic of escalating suspicion among the three economic giants of the Pacific. The United States and Japan bring highly complementary tools to the task: American technology and entrepreneurship joined to Japanese capital and the organizational skills of the keiretsu. Both countries, together with internationalist groups in China, have a clear interest in moderating and stabilizing China's entry into the global political economy, and joint projects could help achieve that.
International assistance, including help from Washington and Tokyo, could foster the development of the oil sector in China. It could improve the efficiency of slowly declining fields like Daqing and Shengli through secondary recovery techniques not widely available in China at present. Such assistance could also enable the development of major onshore fields, such as the Tarim Basin in Xinjiang, that could not otherwise be easily exploited. The United States, Japan, and possibly other nations such as South Korea could collaborate in providing large-scale energy infrastructure like long-distance pipelines and electric power plants. Finally, the United States and Japan could pool their energy conservation expertise and apply it to China, whose energy consumption per unit of GDP stands at 4 times the world average, 5 times U.S. levels, and 12 times that of Japan.
Joint energy projects in China would need to be commercially viable for all parties, but government--the Japanese government especially--should help make them feasible, in part by offering development aid and export insurance to American as well as Japanese participants. There are encouraging precedents. Since 1991 U.S. and Japanese export credit agencies have jointly supported half a dozen major energy projects in Asia, particularly build-operate-and-transfer power plants, which have helped address Asia's chronic electricity shortages. Such projects, which typically pair U.S. heavy electrical equipment makers and Japanese general trading companies, have led to more than $2 billion in U.S. exports and more than $3 billion in Japanese exports over the past four years.
Policy and diplomacy must take account of the definite possibility that Asia's energy rivalries could become dangerously politicized, especially in an oil crisis. Unlike Europe, Asia has no mechanism for allocating energy in an emergency. The United States and Japan should cooperate with other Asian nations in establishing one. The two could also work to create a multilateral resource development regime for the South China Sea similar, perhaps, to accords that Indonesia, Malaysia, and Thailand have already achieved with one another. Such a scheme could significantly reduce the political risks of offshore exploration and development in the region and so spur multinational investment. To be successful, it would have to include China as well as Japan and the United States; to encourage Chinese participation, the regime could be cast as part of a broader initiative toward China like those described above.
Nuclear proliferation, operational safety, and storage constitute a third pressing complex of issues with which a far-sighted Asian energy security policy must grapple. The heart of the problem is not so much North Korea--which, given its chronic economic weakness, can hardly survive much longer in its present bellicose, autarkic form--as it is the future of nuclear reprocessing programs regionwide. Such programs generate large amounts of plutonium and highly toxic waste, and when pursued in politically fluid environments such as a reunited Korea or a decentralized Greater China, they could present major security and safety risks.
Establishment of a multilateral nuclear oversight agency--Asia Atom--would be one good way to defuse the dangers. Like Euratom in western Europe, Asia Atom would register, monitor, and allocate supplies of plutonium throughout the region, guarding against proliferation or diversion to terrorists. It could also coordinate research on fast-breeder reactors and administer long-term programs to cope with the byproducts of the region's rapidly expanding nuclear facilities. Any such body should include the United States, Canada, and Australia along with key Asian nations.
The final, and in some ways most important, imperative for Asian energy security--and environmental security as well--is promoting alternative forms of energy. Biomass and solar technologies that turn plant material and agricultural waste or sunlight into power may have applications in parts of the region. Hydroelectric power and environmentally friendly uses of coal, including liquefaction and clean-coal technology, will be significant in China with its trillion-ton coal reserves, which currently provide three-quarters of the country's energy. China is expected to account for two-thirds of the global increase in coal use over the next 15 years, making it the prime target for clean-coal technology assistance from the United States and Japan.
From an environmental standpoint, the most attractive alternative fuel is natural gas. It is plentiful in Asia, with major deposits identified in Siberia, off Sakhalin Island, near Natuna Island off Indonesia, and elsewhere in the South China Sea. Natural gas burns cleanly and generates almost no pollution. It is broadly adaptable to both consumer and industrial needs, including cooking, heating, and even mass transportation, as well as the production of fertilizer, cement, and steel. Malaysia and Indonesia, among other countries, are already employing compressed natural gas in their urban transportation systems, while South Korea plans to spend close to $10 billion between now and 2000 to develop both compressed natural gas technology and electric cars. The two could meaningfully reduce Asian oil consumption, especially in China, and deserve strong support.
While natural gas has great advantages in crowded, polluted, energy-deficient Asia, large political and economic obstacles stand in its way. Gas is difficult to transport, requiring expensive liquefaction, pipelines, or both. That both its production and transport are highly capital-intensive introduces a major political risk factor for would-be suppliers, deterring investment. And gas prices are tied to market prices for oil, which fluctuate in response to unpredictable political and economic variables.
Public support for natural gas can help neutralize the risk. For two decades Japan's Ministry of International Trade and Industry has vigorously promoted the use of natural gas at home; something similar is needed now across Asia. While it is mainly up to Japan to provide development assistance, the United States can help by encouraging American corporate participation in liquefied natural gas megaprojects in Asia, as the Clinton administration did in the $40 billion 1994 agreement between Exxon and the Indonesian company Pertamina to develop the Natuna offshore field. Support for American gas exports to Asia is also important, from both a domestic and a Pacific perspective.
The Caspian Sea area of formerly Soviet Central Asia could be an important alternative source of oil and, especially, gas for China, Japan, and Korea, reducing their dependence on and increasing their leverage with the Middle East and Russia. Transporting the Caspian's resources eastward would entail building the longest natural gas export pipeline in the world at a cost of well over $10 billion. Yet such a pipeline could well benefit the United States, diplomatically and economically, as well as the major East Asian nations. It offers another chance to transform the geostrategic danger of Asia's energy shortage into opportunity.
Asia's energy realities cannot be reduced to a purely economic calculus. They have presently subtle but ultimately dangerous implications that should make them a priority in the Pacific policy dialogue now under way. It is profoundly in America's interest to assure, through activism, that energy becomes a bridge for cooperation between the United States, Japan, and the potentially volatile continent of Asia, rather than a catalyst for distrust and uncertainty.