Militarization of Resource Nranagement Rising Asia and the Future of American Primaçy in the Persian Gulf

ll Resource mercantilism and the militarization of resource nranagement Rising Asia and the future of American primaçy in the Persian Gulf

Flynt Leverettl

In a broad sense, the "militarization" of resource management describes the growing inclination of energy producers and consumers to base decisions about their behavior in global energy markets on political and strategic calculations as well as on commercial and economic considerations. As this volume attests, the ongoing militarization of resource management is generating profound challenges for American interests around the world, challenges that will shape the US foreign and defense policy agenda for at least the next quarter century. Some of the most significant policy problems associated with the militarization of resource management are posed by the deepening engagement of the world's two most important rising powers, China and India, with the world's most important energy-producing region, the Persian Gulf. Although the United States has long enjoyed effective hegemonic status in the Middle East, China and India are intensifying their economic, diplomatic, and strategic ties to energy-producing states there, driven by their exploding demand for imported hydrocarbons.2 More particularly, these states seem to be pursuing energy security through what can be described as "resource mercantilism" - that is, the use of economic and foreign policy instruments by national governments to help their state-owned national energy companies (NECs) secure access to overseas hydrocarbon resources on more privileged bases than simple supply contracts based on market prices.s Considerable attention has been focused on the presumptively destabilizing impact of China and India's global "hunt" for hydrocarbon resources on global energy markets and international relations.a In the Persian Gulf, the coincidence of closer Chinese and Indian ties to energy-producing states in "west Asia" with an ongoing decline in America's strategic standing in the region prompts concerns, in some quarters, about the risks of arms races and even military conflict over access to Middle Eastern oil and gas supplies in the future.s In particular, some analysts see the potential for China to project military power into the Persian Gult either directly or indirectly, in ways that will chatlenge US interests.ó Others see the potentiat for Sino-lndian conflict over access to the Gulfs 212 F. Leverett

hydrocarbon resources. Such scenarios are frequently used to bolster the case for US-lndian strategic cooperation to contain China's rising influence.T I This chapter argues that concerns about China and India's energy-driven engagement in the Persian Gulf fueling either the destabilization of global energy markets or the militarization of resource management in the Middle East are overdrawn. Additionally, this chapter argues that, if such concerns become the basis for policy-making, the results are likely to be counterproductive to US interests. As will be discussed, there are significant limits on how far Chinese and Indian NECs can go to "lock up" access to Middle Eastern oil and gas reserves. Moreover, the prospect of military confrontation between the United States and either China or India over access to Persian Gulf energy resources seems remote. In all probability, Beijing and New Delhi will each seek to balance the other's efforts to expand its naval capabilities in the Indian Ocean, aggravating what Mikkal Herberg has aptly described as the "potential future problem of military maritime competition to control the Sea Lanes of Communi- cation in Southeast Asia."8 Nevertheless, for the foreseeable future, the United States will maintain unique capabilities to exercise military power in the Gulf. This is true with regard to deploying naval forces and maintaining maritime supremacy in the Gulf.e It is also true with regard to the projection of ground forces into the region. US logistical capabilities to lift sizeable infantry and armored forces into the Persian Gulf by air and sea will remain unequalled for the foreseeable future. There is certainly a risk that the United States could find itself in a competition for geopolitical influence with rising Asian powers - especially China - in the most shategically critical area of the world.ro To some degree, such a competition may already have started. But this risk is largely self-generated. If Washington pursues policies aimed at stabilizing and managing shifting geopolitical balances in the Gulf, the United States should be able to maintain its strategic primacy in the region, with China and India effectively legitimating that primacy. If Washington supplements that articulation of a new grand strategy for the Middle East with efforts to bring China and lndia into the International Energy Agency (lEA) and encourage the further internationalization of Chinese and Indian NECs, the United States can help Beijing and New Delhi transition to more market-oriented approaches to energy security. If, on the other hand, the United States continues to pursue policies that are perceived to be regionally destabilizing, its strategic standing will continue to decline. Under these circum- stances, China and Middle Eastern energy producers may ultimately forge a de facto strategic alliancc and look collaboratively for non-military means to contain American influence in the Gulf. This chapter develops these arguments in six sections. The first section looks at resource mercantilism as a particular manifestation of the militarization of resource management, conditioned by continuing structural shifts in global energy markets. The second section then looks more closely at resource mercantilism as practiced by China and India in the Persian Gulf as a "top down," strategic response to perceived challenges to their energy security. The third section ffi[ Resource mercantilisn and mílitarizatíon 213 I'jllli takes a different approach, focusing on the interaction of Chinese and Indian NECs with their governments to prosent resource mercantilism as a fundament- atly "bottom up" phenomenon driven by the corporate agendas and interests of riil the eco- individual NECs. Against this backdrop, the fourth section assesses iiï nomic and political limits of resource mercantilism as an energy-security strategy, while itt. nmt section draws implications for US policy. Finally, the sixth ill, sãótion draws out the likely consequences of poorly conceived US policy. iË I for militarization Conditions .a itl Resource mercantilism, particularly as practiced by China and India, needs to be 11 Í: undentood in the wider context of the geopolitics and geoeconomics of energy, j which are being reshaped by continuing structural shifts in global energy 11 .íi, markets, on both the demand side and the supply side. These shifts have encour- ': aged the militarization of resource management in various ways, including the emergence of resource mercantilism. On the demand side, the world has witnessed sustained and robust growth in the demand for crude oil, refined products, and natural gas since the beginning of the millennium. More specifically, a consequential portion of the increase in aggregate demand for oil and natural gas during the past five years or so has bããn ðonditioned by the emergence of new major demand centers in Asia, especially China and India. During 20014,35 percent of the increase in oil demand worldwide was generated by China alone. During 2002-5, that figure increased to 40 percent. Inãeed, the "explosion" of demand for crude oil and refined products in Asia has been one of the most important contributors (along with continued demand growth in the United States) to the dramatic rise in energy prices since late 2003.rr The International Energy Agency and the US Department of Energy's Energy Information Administration, among other sources, project that oil demand in Asia will continue growing robustly over the next 20 to 25 years. However much cyclical dynamics or idiosyncratic (and, thus, at least theoretically change- able) nátional policies may have contributed to the recent expansion in Asian .nrigy demand-, this expansion is fundamentally grounded in the developmental trajeõiories of the most important emerging Asian economies, China and India - tralectories that are not lik¿ly to change radically in the foreseeable future.12 bn the supply side, there has been a lag in the growth of installed productive capacity in uþstream oil and gas sectors to accommodate rising demand. Histori' caily, there has always been a cyclical quality to upstream energy investments; to sôme degree, the present lag is the predictable outcome of "underinvestment" in productive capacity since the mid 1980s.r3 But, in the cunent environment, the potential to expand productive capacity is conditioned by the ever increasing conðentration of the world's hydrocarbon reserves under the control of national governments and NECs in the Middle East and former Soviet Union. Combined iith continuing demand growth, this trend means that, among other things, the import dependãnce of major energy-consuming states and regions will continue 214 F. Leverett growing during the next two decades.r4 This trend also means that, in the future, state actors, not international energy companies (lECs) and private investors, will largely determine the pace at which hydrocarbon reserves are developed and the direction in which they are marketed. As these trends play out and play off one anotherr5, they are prompting strategic and political responses by producer and consumer states atike. On the sulply side of global energy markets, many observers have commented on the rise of "resource nationalism" in energy-producing states, as national governments seek to derive greater economic and political power from the monetization of their countries' hydrocarbon reserves.ró On the demand side, resource mercantitism is, in many respects, an analogous strategic response by rising consumer states to structural shifts in global energy markets. At the heart of contemporary resource mercantilism is the increasing relianoe of energy- importing states, especially in Asia, on their own NECs to acquire equity stakes in oil .nl g.r reserves abroad, with national govemments extending various kinds of support to their NECs' efforts to conclude such deals.rT The outstanding exemplars of resurgent resource mercantilism in Asia are, of course, China and India. In broad terms, these two countries - rhetorically col- lectivized under the neologism, "Chindia" - work within similar parameters in trying to define their externat energy strategies.rs Both perceive increasingly aðute vulnerabilities to their energy security stemming from their growing reliance on imported hydrocarbons to fill critical portions of their energy mix. Both have state-owned energy companies - originally established to develop significant indigenous resewes of crude oil and natural gas - that have become increasingly active overseas.re Both have sought to integrate their NECs' overseas acquisition efforts into national strategies for energy security. And, for both countries, the Persian Gulf is an inescapable focus of their extemal energy policies. In both the Chinese and the Indian cases, resource mercantilism needs to be understood on two levels. On one level, external energy strategies grounded in the logic of resource mercantilism are shaped by high-level calculations in Beijing and New Delhi about national interests and strategic vulnerabilities. From this perspective, the overseas acquisition efforts of Chinese and Indian NECs are structured primarily through "top down" guidance and support from national governments. But, on another level, Chinese and lndian external energy strategies are shaped by the corporate agendas and interests of individual Chinese and Indian NECs. From this perspective, the overseas acquisition efforts of Chinese and Indian NECs are driven primarily from the "bottom up" - that is, by the NECs themselves Neither perspective captures "the whole truth' about resource mercantilism as pursued by China and India; both must be taken into account in any analysis of China and lndia's external energy strategies. Resource mercøntilism and militarizatíon 215 Resource mercantilism and energy security

At the strategic level, the attempts by Chinese and Indian NECs to secure access to oil and natural-gas reserves abroad are part of wider national efforts to deal with perceived wlnerabilities created by increasing dependence on imported hydrocarbons. With regard to crude oil, China and India already have strategic' ally meaningful levels of import-dependence.2o Rising demand for transportation fuels makes it highly likely that demand for crude oil and refined products in China and India will continue to grow significantly in coming years; in turn, this prospect means that, like other major consumer countries, China and India will becomè even more dependent on foreign sources of oil through the next decade and beyond.2r China and India only recently started to import natural gas. Looking forward, though, rising demand for electricity in both countries means that China and India will almost certainly develop significant import- dependence for natural gas in coming years.22 As China and India's import-dependence for crude oil has grown over the past decade, Persian Gulf producers have assumed a central role in supplying both countries' energy needs. As China and India increase their imports of crude oil and natural gas in coming years, the Persian Gulf will ûgure even more prominently in both countries' external energy strategies. Currently, almost half of China's oil imports are sourced from the Middle East, largely through supply contracts of varying durations. More than two-thirds of India's oil imports today come from the Gulf, also through supply contracts supplemented by spot pur- chases. Although poticy-makers and strategic planners in Beijing and New Delhi alike stress the importance of diversifying the sources and transport routes for hydrocarbon imports, for a variety of reasons the Middle East will coritinue to hold a leading position in supplying Chinese and Indian energy markets through the next decade and beyond. There is little reason to anticipate that China or India will be able to reduce the percentage of their oil imports sourced from the Persian Gulf in the next 10-20 years; indeed, the percentage of Chinese and Indian oil imports sourced from the Gulf is more likely to grow during this period. For policy-makers and strategic planners in Beijing and New Delhi, this growing reliance on imported hydrocarbons - and, especially, hydrocarbons from the Persian Gulf - is at the heart of the energy-security challenge facing their countries. ln this context, tho attractiveness of resource mercantilism to Chinese and Indian elites, as a strategy for managing this challenge, flows natu- rally from their acceptance of certain propositions about the workings of international enefgy markets, and optimal ways to achieve energy security - propositions that are, in many ways, at odds with liberâl economic orthodoxy. From the resource-mercantilist perspective held by many elites in Beijing and New Delhi, the energy-security challenge facing China and India has at least two dimensions. First, Chinese and Indian elites are concerned about "volume risk" - that is, the adequacy of oil and gas supplies available on international rharkets. Volume risk is an inescapable feature of energy markets because of 216 F. Leverett

their inherent physicality and complexity. During the past 30 years or so, trading in various types of crude oil and refined products has become much more intej- rated on a global basis. This effectively reduced volume risk by making ¡t moft , difficult for exporters to use oil as a "weapon" merely by cutting off supplies to parttcular customers. But, as market conditions have tightened all along the supply chain for crude oil in recent years, the prospective impact of potential suppiy disruptions - as a result of natural disaster, accident; terrorism, political instability within oil- producing states, or interstate conflict - has grown. Moreover, despite significant movement toward the creation of a single, integrated market for crude oil and refined products, there remains a profound degree of "regionalization" in oil- supply relationships. Thus, today, two-thirds of the Middle East's oil exports are delivered to Asia, and the most important "growth" markets for future production from the Persian Gulf also lie to the East. This means that rising Asian economies will be looking to access ever larger supplies of oil, particularly from the Middle East, at the same time that est;b- lished customers, such as Japan and Korea, are looking to expand their own access to those supplies.23 In reality the global oil market has already been divided up to a great extent through investments in field development anã ffans- port, the historical predominance of Western energy companies, and the relative stability of supply flows in that market., These conditions have created, and continue to reinforce, perceptions in Beijing and New Delhi that, in developing overseas upstream positions and ensuring secure supply flows from abroad, China and India are doing no more than playing "catch up" with the advanced industrial countries of the West.2a The regionalization of energy-supply relationships is even more pronounced for natural gas.25 As natural-gas usage expands in coming yeatr, analysts, policy-makers, and strategic planners in Beijing and New Delhi anticipate-that there is likely to be intensifying competition - Ínvolving China and India along with established energy consuming states in Asia, Europe, and North America I for access to pipeline and liquefied natural-gas (LNG) exports, particularly from the Persian Gulf. In light of these considerations, a significant number of Chinese and Indian elites are skeptical of the view propounded by most Western analysts that oil and gas will always be available, albeit at varying prices, on international markets.2ó From their perspective, energy security is simply too important to be trusted to the uncertainties of energy markets. In addition to their concerns about volume risk, many Chinese and Indian elites are also wonied about heightened "price risk" - that is, volatility in the prices of crude oil, refined produõts, and natural gas. Given their skepticism about the workings of international energy markets, some Chinese and Indian elites are more interested in insulating thãir societies from the effects of price-volatility than in allowing their economies to respond efficiently to price signals. Elite skepticism in Beijing and New Delhi about the functioning of international energy markets has been bolstered by the rise of resource nãtionalism, Resource mercantilism and mílítarízatíon 217

as discussed above. In this regard, many Chinese and Indian elites believe that, if national governments in energy-producing states across the Middle East, the former Soviet Union, Latin America, and Africa increasingly treat hydrocarbon reseryes as strategic assets, and not simply as economic commodities, China and lndia have no choice but to take a simitar perspective as energy consumers. In the Chinese case, the suspicion of international energy markets is further reinforced by a sense that the United States will not always let these markets work in a disinterested fashion where Chinese interests are in play." Given their view of the energy-security challenge confronting their countries, many policy-makers and strategic planners in Beijing and New Delhi recom- mend the acquisition of equity positions in overseas oil and gas assets by Chinese and Indian NECs so that, if their countries were in a situation in which they had adequate financial resources, but were unable to buy oil or gas on international markets because of constrained supply, the NECs' foreign equity production could be sent home. Similarly, Chinese and Indian advocates of "equity oil" maintain that hydrocarbons produced abroad by Chinese and Indian NECs are insulated from fluctuations in market prices and could provide home-country consumeß with cheaper energy supplies than those available on the international market. Working from these premises, the Chinese and Indian governments have adopted external energy strategies grounded, to a considerable degree, in the logic of resource mercantilism. In broad terms, China has taken the lead in developing a resource-mercantilist approach to energy security, with India effectively following China's example. These strategies seek, ínter alia, to utilize Chinese and Indian NECs to improve - indeed, to maximize - China and India's access to overseas hydrocarbon resources, including in the Persian Gulf. Within the Gulf, the region's major energy producers are the highest priority "targets" for Chinese and Indian "energy diplomacy." These targets include the "OPEC Five" - Saudi Arabia, Iran, Iraq, Kuwait, and Abu Dhabi in the United Arab Emirates - for oil, and Iran and Qatar for natural gas.28 These strategies also seek to diversiS the sources and transportation routes for China and India's foreign energy Supplies.2e For many Chinese elites in particular, diversification of transportation routes is especially important, given that 80 percent of China's oil imports - including all of its imports from the Persian Gulf - currently must pass through the Straits of Malacca, where they are vulnerable to piracy, terrorism, and interdiction by US naval forces.3o Within the Persian Gulf lran is uniquely important for Chinese and Indian efforts to diversify transportation routes for oil and gas supplies, as it is the only major energy-producing state in the region whose geographic position would pennit transport of oil and gas exports to Asian markets via pipeline as wetl as via sea routes.3l China's external energy strategy is codified in the so-called "going out" (zou chu qu) policy. This policy was elaborated in 2002-3 as the .urt nt, "fourth- generation" leadership cadre was consolidating its accession to power; in sub- stance, though, it reflected positions that had guided official practice under 218 F. Leverett China's "third-generation" leadership of President and party chief Jiang Zemin and Premier Zhu Rongji. In keeping with the basic precepts of resource mercantilism, this policy explicitly encourages Chinese NECs to create more secure energy supplies for China by purchasing equity shares in producing oil and gas assets overseas, the exploration and production of new fields abroad, and the construction of refineries and pipelines. Under the rubric of "going out", China's three major NECs - the China National Petroleum Corporation (CNPC)' China National Petrochemical Corporation (Sinopec), and China National Offshore Oil Corporation (CNOOC) - have emerged as prototypes for a new kind of actor on the global energy scene: the "INOC", or "international/national oil company", as one Chinese energy executive describes it.32 Broadly speaking, India has followed the Chinese approach to crafting an external energy strategy rooted in the logic of resource mercantilism. The Indian govemment first began to articulate elements of its resource mercantilist extemat energy strategy during the tenure of Prime Minister Atal Bihari Vajpayee's most recent BJP-led coalition (1999-2004). Although the focus of the Vajpayee govemment's energy policy-making was the reform of India's domestic energy iectors, its principal policy document on energy issues included some discussion of state-supported overseas acquisitions by Indian NECs.33 During the tenure of the cunent Prime Minister, Manmohan Singh, New Delhi has deliberately emu- lated the Chinese approach to empowering NECs as part of its external energy strategy.3a Singh's first Minister of Petroleum and Natural Gas, Mani Shankar Aiyar, publicly articulated an ambitious agenda for overseas acquisitions and projects by Indian NECs; although lower profile, Aiyar's successor' Murli beoru, is also publicly committed to encouraging foreign "equity oil" deals by Indian NECs. From a strategic perspective, external energy strategies grounded in the logic of resource mercantilism, like those of China and India, unfold in three stages. First, the Chinese and Indian govemments seek to build a wide range of diplomatic links to key energy-producing regions, including the Persian Gul{, to pave the way for Chinese and Indian NECs to develop positions in these regions. In the Persian Gult Chinese leaders have concluded a number of such agreements with local regimes. These include the elaboration of a "strategic energy partnership" with Saudi Arabia (starting in 1999 and continuing through the rec- iprocal visits of Saudi King Abdallah to China and Chinese Premier Hu Jintao to Saudi Arabia in 2006), multiple trade and investment agreements with Saudi Arabia and smaller Gulf Arab states over the last several years, an energy'cooperation agreement with Kuwait, and a variety of ççonomic and technological cooperatiòn agreements with the Islamic Republic of lran.3s Additionally, China has instituted a regular series of dialogues with the Gulf Cooperation Council (CCC) and is cunently negotiating a free trade agreement with the GCC.36 More iecentiy, Beijing cancolled lraq's Saddam-era official debt to China.3? In 2005, China supplemented its diplomatic engagement with energy-producing states in the Persian Gulf and with the GCC by opening a regular dialogue with OPEC. In connection with its external energy strategy, India has launched its own Resource mercantilism and milítarizøtíon 219 "energy diplomacy" directed at hydrocarbon exporters in the Persian Gulf. Although an extensíve Indian expatriate presence in the Gulf has long provided years, to iliii a basis for positive ties, Indian governments have, in recent sought llll forge an expanding array ofconnections to the region to facilitate greater access .l .ll 'l,lr by Indian NECs to oil and gas supplies.3s In January 2006, during Saudi King Singh signed ii¡ Abdallah's visit to India, the Saudi monarch and Prime Minister ¡r- ! Declaration." This document structures the development of lll the so-called "Delhi I Saudi-lndian relations in a number of strategic issue areas; with regard to energy, the Delhi Declaration commits the two countries to developing a "strategic energy partnership", including long-term contracts for the supply of Saudi oil to India and joint ventures in upstream and downstream projects.3e Indian governments have been pursuing closer ties to the Islamic Republic of lran since the end of the Cold War. Since the beginning of the new millennium, however, energy interests have compelled the Vajpayee and Singh governments to take lndo-lranian relations to a new level.ao Since 2006, finalization of a nuclear cooperation agÍeement between the United States and India has induced some rhetorical caution on the Singh govemment's part regarding Indo-lranian energy ties; nevertheless, Indian ofñcials and NECs continue to pursue energy- related agreements (as well as oil and gas deals) in lran.ar Since 2002, the Vaj- payee and Singh govemments have worked steadily to develop bilateral relations between India and Qatar. The most recent step in the process was the conclusion of a bilateral defense agreement in 2007, under which India will provide military+o-military assistance to Qatar.a2 Currently, India is negotiating its own free-trade agreement with the GCC. To some extent, Chinese and Indian efforts to formalize closer ties to energy- pro{ucing states in the Gulf are intended to help Chinese and Indian NECs conclude larger and longer-term supply contracts. But, in keeping with the logic of resource mercantilism, these diplomatic efforts are also meant to help Chinese and Indian NECs secure "equity oil" and gas deals in the upstream and develop strategic assets in the downstream (i.e., refineries and LNG trains). Thus, in the second stage of their countries' external energy strategies, Chinese and Indian NECs take advantage of the openings created for them by their governments' diplomatic engagement in energy-producing regions around the world to develop upstream and downstream positions. In the Persian Gulf, Chinese NECs have concluded a number of investment agreements and are continuing to pursue additional deals. In Saudi Arabia, Sinopec won one of the three initial concessions for developing non-associated gas in the Kingdom in March 2004. Sinopec has also entered into two joint ventures with Saudi Aramco to develop new refining capacity in China (one of which also includes ExxonMobil as a partner). In June 2007, CNPC won a contract to build a pipeline carrying oil from Saudi fields to Fujairah in the United Arab Emirates.a3 In Kuwait, CNPC \ryon a contract in the late 1990s to build two oil-gathering centers for the Kuwait Petroleum Company (KPC). More recently, Sinopec has concluded a preliminary agreement with KPC to develop a joint venture refinery project in China.aa 220 F. Leverett ln lran, Sinopec signed a memorandum of understanding (MOU) with the National lranian Oil Company (NIOC) in 2004, prospectively valued at $70 billion to $100 billion, to develop and buy LNG from the South Pars field and to participate in developing the Yadavaran oil field. Since then, China's two other major NECs, CNOOC and CNPC, have signed MOUs to undertake significant LNG and upstream oil and gas projects in lran.as And, in December 2007, Sinopec concluded an initial investment contract from its MOU with the NIOC, covering the initial phase of developing the Yadavaran field. Sino-lranian energy cooperation agreements also envision the construction of a pipeline to lranian oil production to the Kazakhstan-China pipeline.a6 "o*æt In June 2007 - shortly after Beijing announced the cancellation of lraq's official debt to China - CNPC received a commitment from the Iraqi government to revive the company's agreement with the Saddam Hussein regime to explore and develop the al-Ahdab oil field.a7 Chinese NECs have also signed production contracts (including service contracts as well as equity participation) in Oman and Yemen.as Like their Chinese counterparts, Indian NECs are seeking to take advantage of the diplomatic openings created by their government to develop commercial positions in the Persian Gulf. The most prominent Indian NECs with regard to àurrrtut acquisitions and operations are: the Oil Naturat Gas Corporation (ONGC) and its international subsidiary, ONGC Videsh Limited (OVL); the Indian Oil Corporation (IOC); Oil India Limited (OIL); Bharat Petroleum Cor- poration Limited (BPCL); Hindustan Petroleum Corporation Limited (HPCL); ând the Gas Authority of India Limited (GAIL).4e In the Gulf, Indian NECs have made their greatest progress in developing commercial positions in lran. [n2002, OVL and OIL acquired rights to explore and develop the offshore Farsi oil block. 1n2004, OVL signed a memorandum of agreement taking a roughly 20 percent stake in the development of lran's Yadãvaran oil field (alongside the primary foreign stakeholder, Sinopec). In 2005, IOC signed a memorandum of agreement with Petropars, a subsidiary of the National lranian Oil Company (NIOC), to develop part of the South Pars gas field and an associated LNG train; that same year, CAIL concluded a similar memorandum of agreement with the NIOC. Perhaps most significantly, Indian officials are continuing to negotiate with lranian and Pakistani counterparts to finalize a framework agreement for a pipeline that would fiansport lranian natural gas to Pakistan and lndia. Such an agreement would almost certainly open- up new commercial opportunities for Indian NECs.50 Besides lran, Indian NECs are also developing positions in Qatar and lraq. In 2004, Petronet, a consortium of Indian NECs - including OVL, IOC, and GAIL - with Gaz de France as a strategic partner, concluded the first contract to begin importing LNG to India from Qatar.sr (The contract was concluded with RasGas II, a joint venture between Qatar Petroleum and ExxonMobil.) In 2005, OVL *on â 100 percent stake in the exploration and development of Qatar's Najwet Najim offshore oil block. ln the afÌermath of the decision to revive CNPC's Saãdam-era agreement to explore and develop the al-Ahdab oil field, Iraqí Resource mercantilísm and mllitarization 221 energy officials said that a Saddam-era agreement with OVL to explore and develop a block in western lraq will also be amended and restored. The Iraqi Oil Ministry has also invited IOC to consider building new refineries in lraq.s2 Finally, in the third stage of Chinese and Indian external energy strategies, Beijing and New Delhi continue providing various types of support to their NEbs-as the companies follow up on the openings created for them by China and India's energy diplomacy. As Chinese NECs pursue and implement "equity" oil and gas deals in energy-producing regions around the world, the Chinese govefnment provides them with both financial and political support. Financially, the Chinese government provides direct support to the NECs through the provision of loans, at below-market rates and sometimes even without interest, by state-owned "policy banks" to underwrite the companies' overseas acquisitions. The government also provides indirect support to Chinese NECs by eitending a variety of incentives for energy-producing states to offer investment opportunities to the companies; these incentives include the provi' sion of foreþ aid and the construction of basic infrastructure by Chinese firms.s3 With ôonsiderable variation across specific cases' Beijing has employed all of these measures to support Chinese NECs' acquisition efforts in the Persian Gulf.sa Politically, the Chinese govenrment supports its NECs with high-level meetings between Chinese leaders and their counterparts in energy-producing states, thó involvement of China's leaders in negotiations over specific projects, and the use of China's membership in various intemational organizations to cover the interests of important energy exporters.ss Beijing has employed all of these tools in supporting acquisitions by Chinese NECs in the Persian Gulf in addition to the financial tools just discussed. In the context of the Gult the most salient example of Chinese policy-makers using their country's political influence to buttress its external energy strategy is Beijing's handling of the lranian nuqlear issue. All of China's energy agreements with Iran run against long-standing US policy, which seeks, in effect, to keep the Islamic Republic's oil and gas reserves in the ground. On the nuclear issuì, China is working to balance its interests in continued good relations with the United States and acting as a "responsible stakeholder" on non-protiferation with its interests in developing closer energy ties to lran, and in defending what policy-makers see as important principles in Chinese foreign policy, including ihe pêaceful resolution ofdisputes and non-interference in the internal affairs of other states.56 In the Indian case, the government requires its NECs to finance their overseas acquisitions on international capital markets, for the most part. The Indian gou.**.nt, however, is stepping up its political support for the efforts of Indian ÑECr to develop positions abroad, particularly through high-level meetings between Indian ieaders and their counterparts in energy-producing states and other manifestations of "energy diplomacy." 222 F. Leverett Resource mercantilism and corporate interests Looking at China and India's external energy strategies as "top down" initiatives, Chinese and Indian NECs seem to be more or less interchangeable instruments through which unitary state apparatuses in Beijing and New Delhi pursue well-elaborated programs for securing privileged access to hydrocarbon resources in targeted countries, including in the Persian Gulf. But there is another level on which China and India's external energy strategies need to be understood. This level focuses on the corporate agendas and interests of individual NECs. Chinese and Indian extemal energy strategies are not solely the reflection of national efforts to assuage strategic vulnerabilities stemming from these countries' growing reliance on imported hydrocarbons. These strategies are also the evolving products of bargaining and competitive maneuvering between various elements of the bureaucratic apparatuses in Beijing and New Delhi, on the one hand, and Chinese and Indian NECs, on the other. And, in this process, the autonomy of Chinese and Indian NECs vis-à-vis their respective national governments is growing. This trend is especially pronounced in the Chinese case, but it is observable in the lndian case as well. The increasing autonomy of Chinese and Indian NECs is a function of their origins and evolution as corporate enterprises in a policy envirönment character- izedby continuing economic liberalization. In the Chinese case, all three of the major NECs were created out of ministerial structures in the 1980s as part of the initial reform program championed by Deng Xiaoping and China's "second- generation" leadership.s? Under China's "third-generation" leadership, all three NECs became ever more market-oriented and profit-driven in their strategic orientation and opefational practices as a result of additional restructuring. Between 1997 and 1999, CNPC and Sinopec were restructured as vertically integrated energy companies operating across the whole supply chain for oil and gas - upstream, midstream, and downstream. Both companies retained some of their original strengths and weaknesses after the restructuring, with CNPC still more established as an upstream player and Sinopec more established in the downstream and each still maintaining regional strongholds in different parts of China.58 At the same time, though, vertical integration helped them become more efficient and expanded their political resources vis-ri-vis the state. Between 1999 and 2001, all three of the major Chinese NECs were transformed into holding companies that transfened most of their assets to operational sub- rilhile sidiaries that were then publicly listed on various stock exchanges. the Chinese government remains the majority shareholder in all three NECs, the fact that the companies are listed on international stock exchanges thnough these sub- sidiaries reinforces their market orientation and focus on profitability.se In the Indian case, the major NECs were created out of previously established state agencies in the early days of Indian economic reform in the 1990s. Thus, India's Oil and Natural Gas Commission, established originally to oversee the development of the country's upstream oil resources, was converted into ONGC Resource mercantílísm and nílìtarìzation 223 in l99l and later partially privatized through the public offering of a minority of its equity.@ Similarly, IOC - originally established as a state-owned enterprise (SOE) focused on downstream âctivities - was corporatized and partially privatized in the late 1990s.ór The autonomy of Indian NECs has been reinforced by other policy initiatives. Most importantly, since 1997, the Indian government has granted its most profitable SOEs - in India, state-owned enterprises are formally described as central public-sector enterprises (CPSEs) - considerable operational autonomy and a more limited degree of financial autonomy. So far, nine SOEs/CPSEs - collectively described as navaratnøs ("nine jewels") - have been treated this way.62 The major Indian NECs - including ONGC, IOC, and GAIL - are all in this special category. From a "bottom up" perspective, the increasing autonomy of Chinese and Indian NECs has had a critical impact on the formulation and implementation of China and India's external energy strategies, in at least three important ways. First, the corporate agendas and interests of Chinese and Indian NECs were at least as important as the strategic preferences of policy-makers in Beijing and New Delhi in launching these strategies. In the Chinese case, it was NECs - specifically CNPC - and not the state that initially pushed for overseas investment opportunities in the early 1990s. Initially, the Chinese leadership did not support overseas investments by Chinese NECs, but, as China's oil imports increased over the course the 1990s and CNPC began to earn money from its initial investments abroad, the Chinese government became more supportive of its NECs' overseas activities. As in the Chinese case, the interest of Indian NECs in investing abroad pre- ceded but eventually overlapped with the strategic interests of national-level policy-makers. According to Indian energy executives and researchers, both ONGC and IOC were prompted to undertake their initial oveßeas investments because economic reform and restructuring in the 1990s had made them more profitable, and corporate leaders did not want to lose their higher profits to a revenue-hungry government.63 Second, the relative autonomy of NECs, in both China and India, means that there is no comprehensive national strategy, let alone a specific plan, for acquir- ing oil and gas assets abroad. On a project-specific basis, the foreign investments of Chinese and Indian NECs are driven primarily by the companies themselves, even in countries where the Chinese and/or Indian governments have concluded "strategic energy partnerships" or other similar agreements. For both Chinese and Indian NECs, the primary motives to invest overseas are to acquire new reserves, generate profits, and become more internationally competitive. Third, in both China and India, the NECs are applying market- and profit- oriented criteria in making investment decisions. Particularly in the Chinese case, the leading NECs are developing ever greater independence in this regard. rWhile pteferential financing through state agencies may give the NECs a lower "capital hurdle" than that of IECs, Chinese NECs nonetheless seem to consider anticipated return on capital carefully in making investment decisions.n Indeed, 224 F. Leverett there are a growing number of instances in which Chinese NECs have refused, on business grounds, to pursue overseas (and domestic) initiatives that were favored by the national government. In this context, it is interesting to note that there is a growing public debate in both China and India about the relationship between NECs' foreign acquisitions and energy security. In China, several NEC executives have said publicly that they fundamentally disagree with the notion that the acquisition of oil and gas assets abroad can enhance China's energy security.ó5 In India, as noted, the government requires its NECs to finance their overseas acquisitions on international capital markets, for the most part. Just last year, the State Planning Commission recommended that NECs undertake overseas investments only in accordance with sound commercial criteria.ó6 A recent study of rWood overseas investments by NECs by two analysts at the Mackenzie consultancy found that ONGC is making its investment decisions according to criteria comparable to those applied by private energy companies.6? In the Persian Gult the agendas and interests of individual NECs and the increasing autonomy of NECs vis-à-vis their governments have significantly affected "on-the-ground" outcomes with regard to Chinese and Indian energy investments. The pattern of Chinese and.lndian investments in energy projects in Iran illustrates this with particular clarity. Vfith regard to the behavior of individual Chinese NECs, it is noteworthy that Sinopec - the Chinese company with the most developed downstream capabilities and a strong interest in using overseas acquisitions to compensate for its weakness relative to CNPC in the natural- gas sector - was the first Chinese company to conclude a memofandum of agfeement for an LNG project in lran. Both CNPC and CNOOC were subsequently motivated to sign their memoranda of agreement with Tehran for LNG projects to avoid being left out of potential opportunities in lran. More significantly, with regard to the NECs' interaction with Beijing, all three companies have sought to develop positions in lran even after initial enthusiasm for their efforts in some parts of the Chinese government has cooled as the Iranian nuclear issue has heated up.68 Nevertheless, it is also noteworthy that the three Chinese NECs have been slow to conclude actual investment contracts for their planned projects in lran, particularly for LNG. rWhile it is tempting to conclude that the companies are responding to directives from Beijing, their behavior is actually shaped far more by the agendas and interests of the NECs themselves. Like Royal Dutch Shell' Total, and other European IECs that are negotiating contracts for planned LNG projects in lran, all three Chinese NECs perceived a significant measure of political risk posed by the possibility of US military action against the Islamic Republic over Tehran's nuclear activities. Furthermore, like their European counterparts, the major Chinese NECs are all concerned about the impact of rising costs for LNG projects on the profitability of their prospective investments in lran. The companies are unlikely to proceed to conclude contracts and make sizeable investments in the projects until these concerns are resolved. A similar dynamic is reflected in the Chinese NECs' handling of potential Resource mercantilísm and militarization 225 of the upstream upstream oil deals in lran. Apart from supply contracts, only one oil p.¡r.t, in lran to which Chinese NECs have committed themselves has that con' moved-to an actual investment contract, much less implementation of 2007 tract; the one investment contract concluded so far is Sinopec's Decembet developing the æt .r.n, with the NIOC regarding the initial phase of yãdavaran field. Even that deai - coming in the immediate aftermath of the public release of the December 2007 US National Intelligence Estimate on the iran's nuclear program - primarily reflects Sinopec's interest in protecting position it stakåd out in its 2004 MOU. Again, concern about the profitability of uprtr.u* oil projects under the notoriously difficult terms offered to foreign be the prin- investors under the Islamic Republic's "buy-back" system seems to cipal constraint to more fulsome investment by Chinese NECs' As a Beijing- the of based analyst for a leading Western oil and gas consultancy says' "At 919 just they the day, Cirinese rotpuniã. are out to-make money. If they wanted oil wouldhave signed more'buy backs'."6e lndian NECs have also been slow to move beyond MOUs to actual contracts Indian and on upstream oil and gas and LNG projects in lran. In this regard, IOC Iranian consultants .ñd tn.tgy executives suggest that Petronet has used prices for and CAIL's commitments to i.NC projects in lran to leverage better are reluct- future LNG supplies from Qatar. They also suggest that Indian NECs ant to conclude LNG contracts in lran for the same reasons as their Chinese in rouni.tpunsJo Similarly, despite the Indian government's strong interest movinjahead with the iran-Päkistan-lndia "peace pipeline" (as long as security to be issues-can be adequately addressed), Indian NECs are and will continue price for reluctant to make contiactual commitments to the project until the Iranian gas supplies is set on terms they consider commercially sound.

Limits of resource mercantilism by Of course, resggrce mercantilism is not a new phenomenon, "invented" the past decade' Chinese and Indian policy-makers and energy executives during exter- Both France in the igOOõ and 70s and Japan in the 1970s and 80s crafted crude-oil nal energy strategies based on state-supported NECs working to access ,.r.*r, ábroad. Ultimately, these poiicies' excessive costs and lack of results forced Paris and Tokyo to move toward less statist and more market-oriented approaches. up" tf Chinese and Indian extemal energy strategies are viewed as "bottom and initiatives, driven largely by the corporàte agendas and interests of Chinese Indian NECs, it ¡s stiking how scriãus are the limits on resource mercantilism, markets, ot as either a potential threaf to the stability of intemational energy ?f-a iãng+erm basis for Chinese and Indian energy-security strategies' While had a very incieased demand from China and other rising Asian economies has Indianr direct effect on global oil prices, there is little evidence that Chinese and ..equity" oil and gas deals, in the Persian Gulf as wetl as other energy-producing significant part ,rgionr, are keeping or wilt keep an economically or strategically 226 F. Leverett of the world's hydrocarbon reserves "locked up" and unavailable to international markets. Currently, oil produced from Chinese and Indian overseas equity assets worldwide represents less than I percent of the oil produced and traded globally. If the most optimistic projections of Chinese and Indian acquisitions abroad prove correct, overseas equity oil production by Chinese and lndian NECs might represent as much as 2 percent of total worldwide production in 2020 - hardly a major "blow" to the stability of the global oil market. Just as Chinese and Indian "equity" oil and gas deals will not fundamentally alter the structure of international energy markets by themselves, there is little evidence that they will significantly ameliorate the energy-security challenges posed by China and India's growing reliance on imported hydrocarbons. Today, the amount of oil produced by Chinese NECs from equity assets outside China equals roughly I I percent of the country's domestic oil production, and consti- tutes approximately 15 percent of its total oil imports and 8 percent of its overall oil consumption. The amount of oil produced by Indian NECs from equity assets outside India represents an even smaller portion of India's oil demand. Given projections of growth in demand for oil and natural gas in China and India, and the intensity of intemational competitíon for upstream positions around the world, it is difficult to imagine that, in the next one to three decades, Chinese and Indian NECs, will be able to fill a dramatically higher portion of their countries' demand for imported hydrocarbons from oveßeas "equity" oil and gas projects.Tr As the limits of resource mercantilism as an energy-security strategy become ever more apparent in coming years, it seems highly likely that the pursuit of state-backed "equity" oil and gas deals by Chinese and Indian NECs will increasingly be justified as industrial policy rather than as extemal energy policy.72 Beyond the issue of how much "equity" oil and gas Chinese and Indian NECs will produce in coming years, the direct contribution of that production to China and India's energy security is subject to serious question. In most of their overseas equity projects, Chinese and Indian NECs are minority stakeholders, not majority stakeholders and/or operators. Thus they do not really "control" most of the foreign assets in which they have invested. Moreover, much of the "equity" oil produced from these foreign assets is not likely to be physically transferred to China and India. Rather, it will be sold on local markéts to reduce transportation costs and generate higher profits for the producing companies. This is particularly the case for the Chinese NECs. Chinese energy executives and officials say that less than l0 percent of the oil produced outside China by the three major Chinese NECs is physically transported to China. The rest is sotd on local markets.T3 Clearly, Chinese NECs are prioritizing higher returns on the sale of their production over satisfying statist perceptions of China's energy- security requirements. It would seem that Indian NECs transfer a higher percentage of their "equity" oil production to India than Chinese NECs send back to China. Nonetheless, Indian NECs currently sell a significant share of their overseas production on international markets and are likely to increase that share in the future. Resource mercantilísm and militørizatíon 227

With regard to the Persian Culf, very little of China or India's equity oil is currently produced there. In the future, there are likely to be truly severe con- straints on how far Chinese and Indian NECs will be able to go in developing equity positions there. 'When the prospective cumulative impact of these con- straintsare considered, it seems likely that China and India will increase their access to oil and gas supplies in the Persian Gulf primarily through supply contracts, rather than the expansion of equity positions by their NECs.?a Although their capabilities are steadily improving, Chinese and Indian NECs cannot yet offer the same range of technical expertise and experience as more experienced and sophisticated IECs, which puts them at a competitive disadvan- tage as potential operators for technically challenging projects. In three of the ..OPEC Five" countries, Chinese and Indian NECs face the same barriers to foreign involvement in upstream oil and gas projects as US and European IECs. These barriers include an outright ban on foreign participation in upstream oil projects in Saudi Arabia and Kuwait, and the poor security and political environment in lraq. In Qatar, Chinese and Indian NECs will be challenged to access more LNG in the face of an indefinite moratorium on new gas projects there. In Iran, the unattractiveness of the "buy back" system will almost certainly continue to restrain the growth of foreign investment in upstream energy projects, including investment by Chinese and Indian NECs, even with the recent decline in the perceived risk of US-lranian military confrontation. Barring a significant shift in the lranian approach to foreign energy investments, the expansion of the positions of Chinese and Indian NECs in the Islamic Republic is likely to proceed slowly.

Implications for US policy The US response to Chinese and Indian engagement in the Persian Gulf should be guided, first of all, by an appreciation of the political and economic limits of resource mercantilism. US policy should also be guided by unexaggerated assessments of the ability and inclination of rising Asian powers to challenge US hegemony in the Persian Gulf directly, at least in the near-to-medium term. As two Harvard researchers note with regard to China, Beijing "recognizes that it is not about to replace the United States in this region, rather it is focusing on shifts at the margin."?5 The same could be said about India's strategic ambitions in the region. On this basis, the US policy response to China and India's energy-driven engagement in the Persian Gulf needs to contain two þrincipal elements. The first is the formulation and implementation of a ne\ry American "grand strategy" toward the Middle East, to restore the legitimacy of US hegemony in the region. The second is the renovation of the cunent global energy "architecture" to meet the requirements of a new era. , 228 F. Leverett Grand strateg¡t in the Middle East

As previously noted, China and India's intensifying engagement with energy- producing states in the Persian Gulf is taking place against a backdrop of an r ongoing decline in America's strategic standing in the region. Perceptions of a decline in America's strategic standing in the Gulf may create some opportunis- tic openings for China and India to increase their influence in the region, and for Chinese and Indian NECs to pursue investment opportunities there. Neverthe- less, America's cunent difficulties in the Middle East also create profound dilemmas for Chinese and Indian policy-makers (and for decision-makers in the Gulf. On the whole, China and India have a better chance to meet their energy- security goals and other important strategic objectives if the United States is acting as an effective hegemon in the Persian Gulf. They suffer no less than other energy consumers if US policies in the region prove to be destabilizing, or are widely perceived as introducing additional risks that the market must somehow discount - as is presently the case with respect to the possibility of US military action against Iran to slow the Islamic Republic's nuclear development. Since the end of the Cold War and the prosecution of the first Gulf War in 1990-1, America's exercise of hegemony in the region has played out in an international environment characterized by deepening processes of globalization. China and India's energy-driven engagement in the Gulf reflects the intensifying participation of both Asian and Middle Eastern players in these processes. As Daniel Yergin points out, the explosion of energy demand in China and India is a globalization "success story," as investment inflows, export expansion, and sustained economic growth lift hundreds of millions of Chinese and Indians out of poverty and these populations consume ever greater amounts of energy.76 In the Middle East as well, Saudi Arabia, smaller energy-producing states in the GCC and other regional states (like Egypt) are making their own belated, but now increasingly apparent turn toward globalization. In the 1990s, analysts of the Middle East regularly lamented the region's slow embrace of economic liberalization. However, by the end of the decade, regionat leaderships were launching serious economic reform initiatives. The intersection of those initiatives with the liquidity "boom" generated by high energy prices in recent years has turned the Middle East - especially the Gulf - into one of the world's most economically dynamÍc regions, making it a global economic player in ways not seen before.?? Globalization has bcen closely associated with America's economic and military primacy, both globally and in key regions. Globalization has also been linked to America's leading role in shaping a global energy "architecture", meaning an interconnected set of market nofrns and practices, together with formal and informal institutions, which are collectively intended to promote various aspects of global energy security.Ts This architecture has several con- stituent elements that were initially put in place by the United States and other major consumer states to counter the dramatic display of market power by the Resource mercantilism and mílítarízatíon 229

Organization of Petroleum-Exporting Countries (OPEC) in the 1970s' All these the elelments remain bound up with America's role as international leader: Agency United States played a key role in establishing the lnternational Energy (lEA) in the 197õs, in response to the 19734 oil'price "shock"; it encouraged ihe liberalization and internationalization of upstream investment, reflected in major "plays" by IECs in the l9?0s, 1980s, and 1990s, in places such as the provided Nortfr Sla, the Ñorth Slope, and the deepwater Gulf of Mexico; and it critical support to the creätion of a single, integrated, and truly global market for trading cruäe oil and refined products, with prices based on sp_ot transactions and the dollar serving as the.unànry in which crude oil is priced.?e US leadership in shaping thã global energy architecture has been reinforced by America's commitmónt io provide physical security for the world's major oil fläws, particularly from the Pèrsian Gulf. Since the promulgation of the Carter pub- Doctrine in 1980 and the "Reagan corollary" in 1981, the united states has licly committed itself to use force to defend the security of Persian Gulf oil inter- ,"ró*r, and the free flow of oil exports from the region as vital American ests. Spurred by these commitments, the United States has built up operational in capabiiities ovãr the past quarter-century that have turned the Persian Gulf military terms, into an "American lake." The rise of China and India as players on the Persian Gulf energy scene is taking place during a period in which American primacy in the region is coming undei mounting strain. Much of this strain has been generated not by outside affairs, actors, howevei but by US policy choices - on lraq, Iran, AraÞlsraeli and other issues - that have àisappointed regional and intemational expectations of America's leadership in the iJgion during a period of continuing globalization. In a strategic ,.nrr, globalizãtion is fundamentally about the diffusion of there economic power across naiional boundaries. Thus, in a globalizing world, will inevitably be shifts in geopolitical balances, both globally and regionally' The responsiúitity of the hegemon, in such an environment, is to manage these shiftinj geopolitical balancés and mediate important conflicts so that increas- ingty ãoõpeätive frameworks can develop, both within key regions and across regions. "Unfortgnately, for much of the post-Cold tWar period, US policy toward the Middle East - under the Clinton administration.as well as under the current Bush administration - has run increasingly in diiections that are incompatible prompting with these expectations.so Regional dismay with America's choices is Middle Eastern energy producers to explore various versions of an "Eastern and other option" in their foreign þolicies, creating openings for China, India, eitemal players to expand their influence in the Culf' pro- For eiample, Sauài Arabia is using its status as the world's largest oil ducer, oil exporter, and holder of oil reserves to cultivate closer ties to China, India, and odher important energy importers in Asia; the Kingdom is forging a genuínely strategic relationship-with China, in particular, partly as a "hedge"r partner- ãgaihst precipitous deterioration in the Kingdom's traditional strategic .ñip *itlrr tne united States.sr The Islamic Republic of lran, for its part, has long 230 F. Leverett sought to reduce US influence and presence in the Gulf as a high foreign-policy priority. Today, Iranian diplomats describe lran's expanding relations with rising and established economic powers in Asia as providing it with alternatives to the United States and Europe for investment and trade partners. They also note that these relations give Tehran cover against US pressure over lran's nuclear activities, involvement in post-Saddam lraq, and other points of US-lranian contention.s2 These developments are exacerbated by a relative decline in America's economic influence in the Middle East, as other international actors - including the European Union, as well as rising Asian powers - increase their trade and investment ties to the region.83 Current and prospective investments by Chinese and Indian NECs in the Persian Culf are part of this broader trend. In this context, an important part of the US policy response to China and India's energy-driven engagement in the Persian Gulf is the formutation and implementation of a new "grand strategy" toward the Middle East. This grand strategy should combine pursuit of a multilateral regional settlement on lraq, carrots-and-sticks engagement with lran and Syria, and definition of a substan- tive political horizon for resolving the various tracks of the Arab-lsraeli conflict.sa A new strategy for the Middle East should also include a return to the "over-the-horizon" military posture that served US interests in the region so well in the 1980s and early 1990s, but from which American administrations have moved away since the end of the first Gulf War. Such an approach would reviv- ify and re-legitimate American primacy in the region, and would win broad international support - including that of China and India.

Renovøting the globol energy orchiteclure

Beyond getting its Middle East policy "right", the US response to expanded Chinese and Indian engagement in the Persian Gulf also needs to include a new effort to renovate the global energy architecture for a new era. Defining this agenda in full is beyond the scope of this chapter. However, it is relevant here to consider the integration of China and India into the IEA, the principal international regime for important energy-consuming states. While the IEA is working to build closer working relations with both China and India, full inclusion of these countries in the organization would require, effectively, the IEA's reinvention. Western officials frequently point to China and India's deficiencies as poten. tial members of the IEA (i.e., their non-membership in the OECD and their laçk of strategic petroleum reserves specified by IEA guidelines for member states). But, it is just as important to recognize that Western powers would have to accept significant changes in the IEA regime for Chinese and Indian membership to become plausible. In particular, under current IEA rules, new members are allocated weighted voting power in the organization based on their oil consumption in 1974. This is hardly an attractive prospect for either China or lndia, and even if accepted would introduce a substantial degree of unreality into IEA Resource mercantilism and militarízation 231 proceedings. To date, thore has been little serious discussion among IEA members about the necessity of reforming the organization's decision-making structure to accommodate China and India's eventual inclusion. ln this context, the United States should also strongly support the internationalization of Chinese and Indian NECs as a way to encourage China and India to take more market-oriented approaohes to ensuring their energy security. Current US policy is, at best, ambiguous on this issue. The NECs are, in many respects, already America's best allies to promote more market-based policies in both China and India. Their further internationalization (including through joint venture projects with US and other IECs) will make them even stronger advocates of more liberal approaches.

The consequences of incorrigibility If the United States takes these steps, it can maintain its strategic primacy in the Persian Gulf, as well as its dominant role in the global energy architecture. If, however, the United States persists in a more unilateral approach to the most strategically critical region of the world - in a manner that is dysfunctional for the interests of other important regional and international players - and eschews effective leadership in reforming the global energy architecture to accommodate rising powers like China and India, the long-term consequences for America's regional position in the Middle East and its international standing generally are potentially serious. Under these conditions, Middle Eastern energy producers and rising Asian energy consumefs, especially China, may ultimately forge a de facto strategic alliance and look collaboratively for non-military means to contain American influence in the Gulf. Such as scenario is consistent with the conditions for and modalities of "soft balancing" against US power, as described by Robert Pape and others.85 The dramatic rise in energy prices in recent years has prompted an enormous transfer of resources from established consumer states to energy producers and to manufacturers who serve markets in energy-producing states.86 (Thus, alongside China, which is expanding its manufactured exports to energy-producing states in the Persian Gult Germany has built up a significant current account surplus in recent years, and Japan has maintained its surplus.) At this point, what energy-producing states in the Middle East do with their current account sur- pluses is at least as important to the financing of global economic imbalances as ih. runugtment of China's current account surplus. China and a number of Middle Eastern energy-producing ststes with significant current account sur- pluses seem to be in the early stages of diversifying their foreign exchange reserves away from dollar-denominated assets. Given these realities, at least two options for strategic cooperation between China and Middle Eastern energy producers to contain US influence in ther persian Gulf present themselves.s? First, China and Middle Eastem states could ultimately move to use their continued willingness to finance America's 232 F. Leverett levels as a soufce ofstrategic burgeoning ourrent account deficit and overall debt with i*ã*gr oîer US foreign policy.ss Second, China and Middle Eastern states actions to effect a shift in substantial influence iri oþEc'courd coordinate their be ih, ,u*.nry regime for international oil trading so that oil would no longer pi6[.oi.íy in-dollars, but rather against a basket of cunencies' Such a move by extension, on would put significant pressup on tht value of the dollar and, the US economy. to America's inter- Either of these two options would constitute a major blow is likely to play out.in national standing. Fortunately, neither of these scenarios from its strategic mis- the near term; the United States still has time to fecover these strategic mis- takes in the Persian Gulf and other critical arenas. But, if America's global takes are perpetuated, the long-term consequences for leadership are likely to be profound.

Notes Hillary Lererett and The author gratefully acknowledges the contributions of -Yunn I in this chapter. He pierre Noël to his;;alt;i; ãnd uñdrrrtunding of the issues treated pupã, partìcipants in the University of also thanks John Mearsheimer, Robert $g. Chicago's nrogrom-ã; Internaiional Security Poliiy woikshop; Dialogue'R1i,::LT':.1Î^n: "ulobal Gbbaî public-policy lnstitute's Transatlantic Energy Security and Fatih Birol and staff Energy Cone-an ã'un¿-tttt Rise of China and tnãía"; Division, oil members of the International Energy ngengyls -Ecortomic ll?lytit for comments ináurt y M"rk; óilision, and õfncã of õlobal Energy Dialogue on earlíer"n¿ versions of arguments presented here' in the Persian Gulf, see Geoffrey 2 For discuss¡on orõtrinãse and tidian engagement ..East Masataka osumi, Moves ùest,' The Nationít ínrcrrtt, summer _2006; Kemp, Natiolt¡'l' ..lndia and Chinaü en;-tgy btr*egies in Middle Eastem Oil-Producin8 25 Au^gust-2006' Presentation to itre tnstl¡iute of-Energy E991on-ri-cs, l"p.ln' il;-Ji;t¡r".ir"¡.ärjø.J_o.tø4 rtn Afshin Molayi,'Îhe New silk Road," l.yíí; Barton, Kito Boer, and Gregory ttashíngton p^tiii"ll¡l lO,Q; and bominic -de the Gulf," in a special issue Wilson,,.Ttre Neiv Silk"it".û ópportunities for Asia and of McKinsey g*lüìly, lrUtiuty ZOOZ, htç://www.mckinseYquarterlyrom/Eco- nomic-Studi eVprjuct¡'uity-Performancyitrejew-S ilk-Road-Opportunities-for-A sia-and-the-Gull I 8 I 4-abstract' Flynt Leverett.in^"The 3 The phrase..r"roìr"à ñercantilism" was first coined by - to the US Senate Arópãffis of Oil and America's Intemational Standing," testimony 2007, httpllgeostrate- Committee on gnätgy .n¿ Ñut*ut Resources, l0 Jãnuary pdf' ltãp..õt¡f*epdfs/-IinergvJestimoÍy-Leverett' Review Commission claimed in 4 For exampte, tneÜéìi,iñá e.ono*ic an¿ secu¡b its 2006 annual report to the US Congress that natural gas assets China's strategy of securing ownership and control of oil and reducing the ability of the abroad iúUrtunii.lty àffect US tntrgy security -. petroleum supply ;i;b;i p.trotzum-muittíto"oum ametiorate teäporary ând limited ãisruptions in the United States and elsewhere' More broadly, the Commission argued that with the economic or china's energy policies, taken as a whole, arenot consistent desta- tËfräuioï oi o responsible søúeholder; they distort markets and Jrop"f¡trc.i grows' its bitize votatii;';äì;;;. Át C¡lnu't enerE needs and consumption. problematic' faiture to oUrã*ãifttse international normõbecomes increasingly Resource mercantilism and milítarizatíon 233

See US-China Economic and Security Review Commission, Report to Congless, November 2006, pp. 7-8, http://www.uscc.gov/annual-report/2006/annual- report-full-06.pdf. 5 In this regard, Henry Kissinger has gone so far as to argue that competition over access to hydrocarbon resources will be the most likely cause for international conflict in coming years; see Caroline Daniel, "Kissinger Vfams of Energy Conflict," Fínancial Times,2 June 2005. 6 For example, Ian Lesser claims that In Asia, growing reliance on Middle Eastern ... energy sources may encourage importers to augment political and commercial ties with deeper security relationships and increased direct investment in regional energy projects. This could go well beyond existing arms transfer relationships. With China set to import ever larger quantities of oil from the Gulf, it is not inconceivable that some form of Chinese naval presence in the region will be commonplace in 2010. See Lesser, "Energy and Middle Eastern Security: New Dimensions and Sfiategic Implications," in Nora Bensahel and Daniel Byman, e'ds,, The Future Secarity Envìronment in the Middle East: Conflìct, Stabilíty, and Political Change, Santa Monica, CA: RAND,20M. On the risk of Sino-American military confrontation in the Middle East, see also Toshi Yoshihara and Richard Sokolsky, "The United States and China in the Persian Gulf: Challenges and Opportunities," The Fletcher Forum of lltorld Afaírs 2611, Winter-Spring 2002; and, more sensationally, Jed Babbin and Edward Timperlake, Showdown: ll/hy China llants llar with the United Sfafes, New York: Regnery,2006. Alongside the risk of Sino-American military confrontation, Richard Russell argues that China's energy-driven engagement in the Middle East will prompt Beijing to continue transfening weapons of mass destruction capabilities and expertise to regional states, with potentially destabilizing consequences for the regional security environment and US interests; see Russell, "China's WMD Foot in the Greater Middle East's Door," Middle East Revìew of International Alþìrs 913, September 2005, http://meria.idc.ac.il/journaV2005/issue3/jv9no3a6.html. Kenneth Pollack claims that Chinese engag€ment with energy-producing states in the region "can be very detrimental to the US, particularly if the Chinese were to adopt the role that the Soviets did during the Cold War, supporting whichever state opposed the United States"; see Adla Mæsoud, "Oil May Fuel Sino-US Conflict," al'Jazeerø,29 June 2006, http://globalpolicy.igc.org/security/nafresloill2006/0629massoud.htm. 7 See for example Ashley Tellis, "South Asia," in Richard Ellings and Aaron Fried- berg, eds., Strategíc Asia 2001-02: Power and Purpose, Seattte, WA: National Bureau for Asian Research, 2002; Stephen Blank, "India and the Gulf after Saddam," Strategìc Insíghts, April 2004, http://www.ccc.nps.navy.miVsil2004/ apr/blankApr04.asp; Enders Wimbush, "The Shape of New Asia," Asían lílall Street Journal,20 September 20M; C. Raja Mohan and Parag Khanna, "Getting India Right," Policy Revíew, February/March 2006, http://www.hoover.org/publications/ policyreview/2913806.htm1; C. Raja Mohan, "lndia and the Balance of Power," Foreígn ffiirs 85/4, July-August 2006; Ashton Carter, "America's New Strategic Partner," ibid.; and Ashley Tellis,'What Should rWe Expect from India as a Shategic Partner," in Henry Sokolski, ed,, Gauging US-lndian Strategíc Cooperation, Carlisle, PA: United States Army War College Strategic Studies Institute, March 2007, http://www.strategicstudiesinstitute.army.mil/pdffilesþub755:pdf. In addition, see Robert Blackwill (then-US ambassador to lndia), "The United States, India, and Asian Security," Presentation to the Institute for Defense Analyses Fifth Asian Secur- ity Conference, 27 January 2003, httptlwww.mtholyoke,eddacadlintrel/busb/blpk- will2.htm. For analyses of Sino-lndian relations that question whether India can ultimately be induced to ally ìvith the United States to contain China, see Peter Brookes, "Meeting 2lsÞCentury Security Challenges in Asia," Testimony to the 234 F. Leverett

United States House of Representatives Committee on Armed Services,2T September iOOS, trttp:llwww.heritage.org/Research/AsiaandthePacific/upload/85825-l.pdf; Lora Saalman,',,Redrawing lñdia's-Geostrategic Maps with China and the United States," j"poi-lor*, 2I Seitember 2005, httpl/wwwjapanfocls.orglproducts/detailsl2065: Cfri.t¡g Bajpaee, "lndia Recovers Lost Ground in the Intemational Energy Gaqe"l Power and Interest News Report, l6 March 2005, http://www.pinr'com/report¡hp? ac=view-report&report-id=2i9&language-id=l; and Kemp, "East Moves \Mest.'' 8- Mikkal Herbrrg, "Th, E trgence oiChina throughout Asia: Security and Bconomic Co|r.drn.r, îot the US,"-Testimony to the United States Senate Committee on foreign Relations, 7 June 20q5r http://www.senate.gov/-foreign/hearings/ ZõOSÃrgOSO607p.html. For an insightfut discussion of the enerqy:rgl1t_el dime¡sions of Sino-Indian strategic interactionl see Stein Tønnesson and Âshild Kolås, Energt Secwity in Asia: Chína, India, Oil, and Peace, Report tothe-Norwegian Ministry^of Foreigá Affairs, Oslo: Internationat Peace Research Institute, April 2006' http:/www.prio.no/page/Publication-detailsll9429l47777.html; see also Anindita óftãtte¡"* dnd Uoirit-Sinha, Powei ReatignmSnß. in A2i9:. Chína, India, and the Ilnited States Report of a US-lndia Pot¡"y Dialogue, University of Pennsylvania - pp. Center for the Advänced Study of India, and The Observer Research Foundation, 14-17 , Decembei 2006, http://casi.ssc.upenn.edu/researclVPowero/o20Realign- mentso/o20rePort.Pdf. 9 Dennis Blaii and'Kenneth Lieberthâl note that China and lndia (along with-Japan and nurri.) ..are the only other countries with the economic potential to build large blue- water áavies in the same league with the United States', but they are still at least 20 yru* .*.y from developin! ttre fleet strength, naval-supply networks, and opera- íønut rt¡tir" needed to mount sustained operations far from their home ports; see Blair and Lieberthal, "smooth Sailing: The World's Shipping Lanes Are. Safe," fü"ig, Alfaírs 86/3, May-June 2007..Beijing.is wgrki¡re.to expand.its blue-w¿ter naval"capä[ilities ovór time, including the ireation of a "string of pearls" network of Uasing fäcilities along the iea-lanes from the Persian Gulf to China. Neverthetess, on promotion of China's naval moderãization appears to be focused primarily -the judges Chinese interests vis-à-vis faiwaï. In this regard, Bemard Cole that Beijing's ..concem for the security of its overseas ãnerry supplies does not dominate its for national security policy piocess, and the mo¡t imþran1a¡pects.of energy securiry Beijing are económi" äriO potitical, not military"; see Cole, "Chinese Naval Modern- izat-ion-and Energy Securiþ," paper presented to the National Defense University's Institute for Nãí¡onal Sóóurity Siudies Pacific Symposium, 20 June 2006, http,iñ**."du.edu/inss/sy.posía/pacific2006/colepaper.pdf. For discussion of China,s naval developretrt its implications for ihe military balance in the Persian õ"ii,'tt. nichard Sokolsky"åd and Eugene Rumer, "The Role-of Outside Powers," in nictrard Sokolsky, ed, The Llnited Sntes and the Persian Gulf: Reshaping Se-cyrity itiot"g lo, the-Post-Containment Erø, Washington,.DC: National Defense Univer- pîrJr, 20ß; bavid Shambaugh,' 'Chinais Mil¡tary Modernization: Making rity rvVills, Progress," in Ashley Tellis and Michael eds., Strotegic ItóaOy aná Surprising -Modernization Asia 200546: Mítiíary in an Era of Uncertainq', Seattlgt. WA: National Bureau of Asian Rosearch, 2006; Anthony Cordesman and Martin Kleiber, Chinese Military Modernization, Force Development .and Strategig-Capabilities, ùashington, DC: Center for Strategic and International Studies, 2007; and Ronald ô'Rourñ., .lçhina Naval Modemization: lmplications for US Naval Capabilities^- nactgrounC and issues for Congress," Congressional Re_search Service Report for ðongir5, 29 May 200?, htp:llwww.fas.org/sgp/crslrow/Rl33^l53.pdf. lndia.is.better posiiioned than ôhina,'botir geographicaily and in tgttnl. of naval capabilities, to the Indian Otu..tn' along sea-laneiofiommunication running lhrgugh ilojr.t ñ*rr program. and the Indian navy-has embarked on an ambitious modemization Neverthe- iãg, ur John Cill ïotes, "deficiencies in logistical support, reconnaissance aircraft, Resource mercantílism and militarization 235 efforts to achieve a true and command/control will ... contiriue to hamper the navy's Pakistan: A Shift in the Mili' btuo water power ñüi"; ;.iut;;;-ttt Gill, "india and tary Calculüs?," in Tãllis and Wills, Slraregrc Atjo'. 'il. ! .. China-US E!||ry l0 On this point ttt Ëiynt il.uttutt inO Badgr, "YTuqt:F '- rleflw December 2005' ð"t"pã¡ü"" in the'ù¡¿¿tt East," Íl/ashiigron Quartery ?9!1, "lli risk of a Sino-American htrp:/ ryww.twq.coøOã*iniãtl¿o.tiOOt"¡nter-ievereñ.pdf. The regions is also hig¡lighted in .ol"óriitlon foï influence in key ,n.tgy'pïodu.ing 'll ofus.Oil-Depend' Council on fotelgtr'Reiáiiins,Ñational'Sàeurity Consequences on Foreign Relations' ency,lndepen¿rnt i.ti'îåi..'ntpott 58, New Vork: Council [, frttpy¡www.c-fi.";il;l"it/publióations/attachmentVgnergyTFR'pdf; .Joh¡ I 2006, *Fueling I Keefer Douglas, ñ;úõ Nelson, and Kevin schwarrz, !!g- Prlgon': the Middle East," I Flame: r¡ow clrinål;Ë;;rgy or*.iror Affect lts Relationships.in p.prt prir.n6O o ifrr Úfthina Economic and Security Review Commission' 14 September ZOOO, frttp:liwww.-ùscc.gov/researchp-apery2Ob6/China-ME-FlNAl'pdf; :;Ári* Wirtschaftliche und Hanns cungrei'Ïiiipert in der Nahe/tviittlere osten: and Na!e2 Energie Interesseni' inîu¡rL Asseburg, ed, Regionale ('teu)o/nuryg-.ím Stiftung Wissenschaft und Mittleren Osten und díe Rotle erteíner Àktãrrr, Berlin: und Politik, March 2007. prices can be dated to March 1999' when the i "I I The recent tr"n¿ tã*áiå higher oil O;;""ñion of pri.f.ur--Bxportiñg Countries (OPEC) successfully increased the first time since 1985' market prices by limiting member sqt^.:1 productioì for prices triple{ u]g:tl f* Between March tóöö;ã i.pi.tUo 2000, oil rougìlv - 1 pub^licly stated low base as a,rJtãiopÉc's actions. in septemter.2o00,.opgc - within a $22-28-per-banel that it would *otf.î Èrrp itr;Uãtf..t"'tut¡n"lv price for'crude oil 2003, whe'n rising demand band. oil p.i... ,rrnãii.á"t statre until November world oil prices have from Asia u.g.n älrin"-p¡.tt tfu.oily upward. Since then, more than triPled again. on AsÍan oìl Demand: outlook and Uncertainties' 12- See Ken Koyami,'eioputtves - 2007' iãtyot lnstiiute oi enerþ Economics,february -- Washington P-ost,3l July 2005' 13 See Daniet v.rgin,;ii;ti;ih; il¡ órttre olthge," Impos.ed German and Euro' Friedemann úr;,iíir, nntrgt Secarity: Demands 91t 14 See tïorld Enerst Market' pean Foreign p"iö-'iv1 9i"14'g.þ'fs"rati91^!i the 'srrl¡n' Stift"ung Wisienichaft und Politik, January 2007.' National Interest, 15 see Flynt Levere.i-;;ã-púil NoëI,.,îhe New Axis of oil," in international gas summer 2006. Foi a áìs"ussion of somewhat analogous,trends Stn¡cture in the New Gas markers, see em-y i.ff;-;;ã Ñald Soligo, "lt!u$9, Natural-Gas and Economy: Is Caiei¡zaúon Possible?," ln-óavid Victor, eds., 2006' For a com' Ciopotiíi"s, fror- ifiO,Cambridge; Cambridge University Press, ;;"íi"" ;.fvrir'oi J"i.tuioitt ñ¿t in oil and gas markets, see Mueller' Energt SecuritY, govgrnt.ngnl's assertion of owner- l6 Resource nationalism is often defined as a national -tenitorial boundaries, usually in ship rights over oil and ggs reserves within their foreign investment' and work ways that.on,r.diä libäù;*¡itts foi encouraging nationalism is epitomized by against the interesa; of feCi. ThiJspecies of reso-urce re'establish a dominant the efforts of presiAãnt äu¿i*¡t Pütin's administration to and by-the nationaliza' of state ätr"ioviiRussia's hydrocarbon resources, measure Hugo tion of foreign inuurt*tntt in Veneiuela's Orinoco region by President there is. a a¿minititaiion.-nut, Utyond this essentialty economic aspect' Chávez's namely' tt potiticat dimension io contemporary nationalism - ;;;; dt -resource the control over the national gourrnr.ng t.tL*g to derive.stratägic inffuence.from by their NECs' The production rn¿ rrïliint ftyOtçarbon ræerves exercised form of unilateral supply political species åii*oùtî. "inatíonalism can take the blunt Ahmedinejad have threat' cut-offs, as Uotfr ôhiuet anO lranian President Mahmoud use oil as a political weapon; on ened, notwithranãitfi ópgc't commiment not to 236 F. Laryrett

this point, see Mueller, Energt Security,The political species of resource nationalism their can ãlro take a more subtlJ form, with resource-owning governments using control over the monetization of reserves as a source of strategic leveragej on the stra- tø. ãtn"nrions of contemporary resource nationalism, see Leverett, "The Geopoli- tici of Oil and America's Intemational Standing." 17 On Asian NECs and their roles in national govemments' extemal energy strategies, r* John Mitchetl and Glada Lahn, "oil for Asia," briefing paper, Energy, Eny19n- ment and Development Programme, London: Royal Institute of_lnternational Affairs, tvtarch 2007,http:llwww.isñ.ethz.clr/pubs/ph/details.cfrn?_v2l=lll300&lng=el&,¡,lic¡ 53=lll300ótord6l=alphaNavi&id=3b644i Keun-Woon Paik, Valerie Marcel, Glada L.nn, ¡ohn Mitchell, änd Erkin Adylov, Trends in Asian NOC Investment Abroad, worting background paper, Energy, Environment and Development Programme, lonáoñ noyailnstituie'of international Affairs, March 2007,http:llwww.chatham' ñooæ.otg.or¡files/?076-r0307anoc.pdf; Hiroyu\i Ishida, Flrrg Strategies ín Cling inà tn¿¡ã and Møior Cõunffies' Views,Tokyo: Institute-of-ÐtJgy Economics,.Y.:..h inOi, ittprtt"neten.ieej.or iplenldata/pdfl3il8.pdq and- Mikkal Herberg, "Asia's National Oil Companiõs: Internationd nxpañsion and Competitive Implications," Presentation to tire Institute of Energy Economics, Japan, 5 April 2007, http://eneken. ieej.orj p/en/data/pdf/3 89.pdf. lg- On China's externaiänergy strãtegy see Mikkal Herberg, "Asia's Energy Insecurity, Cttinu, and India: tmplicãiions foi-the US," Testimony to the United States Senate Committee on foróign Relations, 26 July 2005, http://www,prio.no/filos/file David 47 777 Z*.il""O-O6¡4Z0-enerryiecurity-in-asia-final.pdf?PHPsEsslD=b8a3+ac; gilianñãi, "Chiriat CloUal Hunt for Energy," Forgígn Atfairs.84l.5, Act S.pi.äUrOctober ZOOS; Unitø States Depa.tryent of Energy, Energt Polìcy 20'0J, Section 1387: National Security Review of Interyaþngl^lnergl Requirements' F;úüty 2006, http://www.epagov/oust/fedlaws/publ-109458-pdf; Kenneth L¡eUertlial and Mikkal iTerberg,'thìna's Search for Energy Security: Implications. øi US policy," NBR Anatysls l7ll, April 2006, http://www.nbr.org/publicationV istue.aìp*flpá3a9dcaa-b9å 54601-ac32-93f702696db5: Aaron Friedberg."'Going Out': Cïina's Pursuit of Natural Resources and Implications for the PRC's Grand inuægy," NBR Analysis 1713, September 2006, http:/ vwtv.nbr.orglpublicatio¡s/ issùe.íJjxffO492;incaDowns, China,The Brookings lnstitution, Foreign Policy SioOir., Bn.rgy Security Series, December 2006, http:/ vww.brookings.edu/reports/ 20064ichinu.-*p*; andbaniel H. Rosen and Trevor Houser, China Energt: A Guide for lnternational Economics, øiinL-iirp,lexàd,'Washington,. DC: Peterson lnstitute y.ri ZOOIihtþ://www.iieiom/publicationsþpers/rosen050?.pdf. On India's external energy strategy, see Herberg, "Asia's E-nirgy lnsecurity"; Vibhuti Hate, "lndia's È"rtgy óitrtnri;'South Asia lionitor 98, Washington, DC: Center for Strategic and lnterñátional Studies, 7 September 2006, http:www.heritage.grglRgsearct¡/Asi- India,The Brookings In¡1i1t|- aan6ttrepacinc/upload/bg-200d.pdf;'policy-Studiås, and Tanvi Madan, ;ñ; Foreign Energy Security Series, November 2006, htþ://www.brookings.edtr/reports/2006/ I I india.aspx. Department of fg-- ö;the inærnationaÏ activitiès of Chinese NECs, see United States ñ;rgy, Energt Poticy Act 2005, Section 1387; Eurasia Gloup,.China's Overseas inu"íí^tntt il O¡t oid Got Production, Report to the US-China Economic and Sr.*¡ty Review Commission, t6 October 2006, http://www.uscc.gov/researchpa- pr"lZó'OO¡oil_gas.pdf; Peter Parry, Eric Spie_gll, E{111d_Tse, John McCreery, and :'The hd¡un del Mãstro, Roariñg Dragoñ: Únocal Bid Just a Minor Bump in the nou¿," Washington, DC: Booz Ãllen Hamilton, 2006, http://www.boozallen'com/ Activities of media/file/l53aa3.pdf;Xin Ma and Philip Andrews-Spee9, lhlOverseas Cnioà,t National öit'Co^pories: Ratioiale and Outlook, Peijing: C-hina Institute of International Studies, 2006; Xiaojie Xu, "Chinese NOCs' Overseas Strategies: Back- g¡ñ¡; ó;Àparison, and h,emaiks" in the Baker Institute Energy Forum.on "The Resource mercantilísn and milìtarìzatíon 237 t; Changing Role of National Oil Companies in lnternational Energy I'Íarkets," March ZOOZ, trttpylwww.rice.eddenergy/publications/docsNOCs/Papers/ChineseNOCs-Xu. I pdf; and Rosen and Houser, China Energt On the international activities of Indian ÑECs, see Madan, India; and United Staæs Energy Information Administration, Country Anølysis Brief: India, January 2007. 20 Since China fiecame á net oil importer in 1992, the portion of its oil supplies corning from abroad has risen steadily. China currently uses roughly 6.6 million banels per day (mmM) of orude oil; almost half of this figure - just over 3mmbd - is provided by imports. India's dependence on foreign oil is of longer standing and deeper than^ ihina;s. India currentiy uses at least 2.5mmbd of crude oil; more than two'thirds of this figure - roughly l.? million mmM - are provided by imports. 2t Worklng from estimates of China's oil demand by the Intemational Energy 4e9ncy (lEA), tle Un¡ted States Energy Information Administration (EIA), and the lnstitute òf Energy Economics, Japan, and from estimates of China's domestic oil production by the iãme agencies as well as by Chinese NECs, one cal project that Chjna's irirport dependence for oil will reach óÞ80 percent of its total consumption in 2020. Evän moie dramatically, both the IEA and the Indian government estimate that India's import-dependence for crude oil could exceed 90 percent by 2020; see Inter- national Energa Agency, lllorld Energt Outlook 2004, Pans: International Energy Agency, 2004,-http:/ tww.iea.org/textbase/nppdf/freel2004lweo200a.qdf; and Integ'^ Delhi: Government of ,ited Er"rgt-Planning Policy, Report of the Expert Committee, New tndia State Commission, August 2006, http:/ lplanningcommission.nic.it/ reports/genrep/rep-intengy. pdf. 22 In contrast todomestic oil production, for which the best that the Chinese and lndian energy industries might do is to delay the moment at which production ltarts jo decline, and ameliorite the steepness of that decline, both China and India have the potential to increase domestic gas production in coming years. Nevertheless, by 2020, both countries will, in all likelihood, have to import well over half of the natural gas they consume. In this regard, analyses by the IEA, EIA, and Chinese NECs project thai, by 2020, China may have to import as much as 70 percent of the natural gas it consumes. The IEA projects that, by 2}2ù,lndiawill become at least as dependent on imports for its natural-gas supplies as China. 23 Today,88 percent of Japan's oil imports and 8l percent of Korea's are sourced from ttre tvti¿Cle East - signlficantly higher figures than the percentage of Chinese and Indian oil imports sourced from the region. 24 Onthis point in the Chinese case, see Friedemann Müller, "China's Energy Policies -^ Geopoliiical Repercussions," in Gudrun Wacker, ed, China's Rise: The ReUrn of Geopotitics?. Berlin: Stiftung Wissenschaft und Politik, February 200ó, htþ://www.- swp-berlin.org/de/common/get-document.php?id= I 666- 25 Foi further dßcussion of the regionalization of oil and gas supply relationships, see Mäller, Energt Security. 26 Chinese and tndian etiies are by no means alone in their concem about volume risk in global energy markets. A survey conducted in 2005-6 under the auspices of the World Economic Forum's Energy Industry Partnership Program indicates that uncertainties about se¡urity of supply from the Middle East in the near term, and adequate growth in supply globally in the longer term, are the leading concerns of chief execu' i=íve ofñcers bî iniernationat energy companies; see "Energy Community Survey" in World Economic Forum, Energt Vision Updale, Spring 200ó, p.6. 27 See Leverett and Bader, "Managing China-US Energy Competition." 28 The .OPEC Five" control the world's five largest national holdings of proven r€serves ofconventional crude oil. Iran and Qatar hold the second- and third-largest reserves of natural gas in the world, respectively (after Russia)' 29 Of course, these eiternal energy strategies are parts of broader energy policies that also include measures aimed at managing demand and increasing the energy 238 F. Leverett l efficiency of tho Chinese and Indian economies. It is beyond the scope of thi¡ chapter to consider these other dimensions of Chinese and Indian energy policies. However, in both the Chinese and the Indian cases, policy'makers have generally put more effort into poticies aimed at increasing the availability of energy supplies rather than I poticies aimed at reducing demand and increasing efficiency. 30 See Downs, China,p,14. 3l See Müller, Energt SecuritY, 32 Personal communication with the author' 33 This document, Hydrocarbon Visìon 2025, was released in February 2000. For discussion, see Translating Indìa's Hydrocarbon Vision into Reality, Strategy Repo{, tndia Oil and Gas Industry, New Delhi: Emst and Young India, 2004, pp. 3l-32' Jrans latin g-lndia' s-Hydrocarbon- ùtratggy-lsgPu¡ uaD¡¡19/ I ll¡arùla¡l¡llË'-¡tlurondia' s-Hydrocarbon-Strategy-Report.pdf.ù-¡ ¡Ju¡ws¡ w¡¡-sf¡ srvÞr-¡wrv¡ v'rÞ¡' 34 tn anãddreis to a global energy conference in New Delhi in January 2005' Singh acknowledged, "l fi;d China ahead of us in planning for the future in the ñeld of energy secúrity." Given this state of affairs, Singh argued, 'We.can no longer be comþiacent and must learn to think strategically, to think ahead, a1$ to act swiftly and deciåively... . We need to strengthen our oil companies in launching them as global firms." Sie Keith Bradsher, "lndia Finds ltself Trailing in Fight for Global Energy Deals," Internationol Herald Tribune, l? January 2005, http://www.ihtcom/art- ¡cley'iOOS/Ol/l6lbusiness/rupee.php; and "lndia Must Catch Up with China on 16 January 2005. Energy, Singh Says," Bloomberg _ 35 On ðtr¡na'J relations with Saudi Arabia, see Leverett and Bader, "Managing China-US Energy Competition"; John Calabrese, "Saudi Arabia and China Extend Ties beyond Oilj' Jømèstown Foundatíon China Brief 5/20,27 September 2005' http//www j amestown.orglpublications-detai ls.php?yolumejd=408&issue-id=3474 Aart¡cle-¡O=2370272; palid m¿elman,'îhe Sino'Saudi Connection," Forbes, 17 npril 2006, http://members.forbes.com/globaU2006/0417/0l8.html; and Javid Hassan, ..Saudi-Sino Rèlations Poised for Further Expansion," Arab News,6 December 2006, http://www.arabnews.com/?page=15§ion=O&article=89621&d=17&nr- lt&y=2Nl. Ori tt¡e AMallah and Hu vlsis in 2006, see "China, Saudi Arabia Forge Closer Rela- tionship," china Daily, 24 January 2006, http://uryw.9hinadaiþ.neveqitry doc/20bb:41/24lconæni_515060.htm; "China, Saudi Arabia Extend Energy Ties," Asia Times, 25 January 2006, http://www.atimes.com/atimes/Middle- East/[IB23Ak03.html; Jianjun îun, "The Strategic Considerations of the Sino-Saudi Oil Deal," Jamestown Foundation China Brie.f 614, 15 February 2006, h6p/ vwwjamestown.orglpublications-details.php?volume-id=415&issue-id=3621 r'Energy, Aart¡cte-¡¿=2370779; and Defense Deals tnked as China President Visits Saudi,"/gerce France Presse, Apnl22,2006. On China's relations with lran, see Leverett ãnd Bader, "Managing China-US Energy Competition"; Sharif Shtll .,Warming Sino-lranian Relaiions: Will China Trade Nuclear Technology for Oil?," Jamesøvln Foundation Chìna Brief 614, 23 July 2005, http://wwwjamestown.org/ publications-details.php?volume-id=415&issue-id=3621&article-id=2370779; bario Cristiini,'Chína and lran Strengthen Their Bilateral Relationship," Power and Interest News Report, 6 October 2006, htp://www.pinr.com/reportp¡p?ac= view-report&reportjd=566&language-id=l; and John Garyçr, China and lran: AncieniPartneis in a Post-lmperial World, Seattle: University of'Wæhington Press, 2007. 36 On China's expanding ties to GCC, see Julian Madsen, "China's Policy in the Gulf Re¡9$_27 October Region: From ÑegleCt to Necessityi ,P9wer and Interest News 20õ6, http//www.pinr.com/report.php?ac=view-report&report-id:575&langu,age- id=t. the dCC ¡ncludes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. 37 On Beijing's forgiveness of lraqi debt as part of an effort to re-establish and expand Resource mercantilísm and mílítarization 239

Chinesælraqi energy ties from the Saddam era' see ChrisÛopher Bodeen, "China nlrees to Röduce íiaqi Debt by 'Large Margin','l^ls¡ocjatellress, 2l June 2007, trfr /www.uofaweb.uålberta.calchinainstituteTnav03.cfin?nav03=6 17 97 &nav02=57 5 98i?.nav0l=57272; Samuel Ciszuk, "lraq Woos Chinese Oil investments Amid Increasing lraqi Frustration with Lack of Piogressi' Globa! Insíght Daily /ryaly1tlt!! iunr iOO7, httþ://www.uofaweb.ualbert¡.ca/chinainstitute/nav03.cfm?nav03=61792& nav02=57598&nav0l=5?272; and Shai Oster, "lraq Tums to China for Help in Reviving Oil Industry," llall Slreet Journal, 20 June 2007 ' - 38 Derek Sãnds, "AnaryJis: tndia and Middle East Cozy oyet-qryr_gJ," UPI Asia O/iye, iZ Uay ZOtí1, http://www.upiasiaonline.comÆconomics/2007/05121/analysis-india- and_míddle_east-ðory-over-enerryl'1607/. Indian officials have referred to the peräan Gulf as part óI lndia's "eîtended neighborhood" for-most of the post'Cold (then-Indian'ambassador War feriod. Foriepresenative statements see M. H. Ansari to S.ud¡ Arabia), 'isecurity in the Persian Gutf: Evolution of a Concept,"- StryteSi2 Anãlysts 2216, {óptember i999, http://www.ciaonet.org/olj/sa/sa-99anm0l.html; and Satyánaiayanþattanayah "Oit as a þactor in Indo-Gulf Relations," Stategic Analysis I pasg2.html' ZS ß, lwõ 200 t, h$p:7/www.ciaonet.org/olj/sa/sajune0 39 $;'SuUft.tt Kâpiú, "lndia-Saud¡ nrab¡ã: The Strategic Signiñcance of the Delhi Declaration," paper 1734, South Asia Analysis Group,14 March 200ó' htþ://www' saag.orglo/oSCpaperslSo/o5Cpaperl734.html. ¿O in fOOfi primè tvtin¡ster Vajþayee traveted to lran to sign the Tehran Declaration with lranian þresident tvtohamniåd-Khatami; this document committed both countries to ggve.nl- the development of closer economic and energy ties. In 2003, the Vajpayee ment took another step in building lndia's partnership wifh lral with the conclusion oi a framewort agreorent for lndo-lranian energy relations during a visit to New Delhi by President Khatami. 4l See pram¡t Mita and Vibhuti Hate, "tndia-lran Relations: Changing the Tone,'CS/.S South Asìa Monítor,8 March 2006, hap://www.csis.org/media/csis/pubs/sqf].n0fi cf. K. Alan Kronstadt and Kenneth Katzman, "lndia-lran Relations and US Inter- Algust 2006' ;;if C;gressional Research Service Report þ¡ _Congregs, 2 trttpøfpc.stãte.gov/documents/organization/l0Zgl.pAfl; $nt1^ Vakit, "lran: Ba-lqc- int É.rt afainst West," Washingøn Quarterly 2914, Autuml 290.6, C. Christine Fair' htip://www.tw{.com/06autumn/docs/06autumn-vatil.pdf.; a$ - i.lndi" and lran New Delhi's Balancing Actl' llashington Quarterly 30/3, Summer 2007, http://www.twq.com/07summer/index.cfin?id=2ó5. 42 ilndia,QiAr to Sign befence Agreemenl" Press Trust of India,-24 June2007. ¿3- ,iwo'cÑpc Unitíto Jointly griild Crude oil Pipeline in UAE," Dow Jones Chinese Fínøi,ncial llire, 4 June 20-0?, http://www.uofaweb.ualberta.calchinainstitute/nav03. cfi n?navO3=61434&nav02=57598&nav0l=572'12. 44 S; 'sinopec-rcPc $5 Bitlion Refinery Gets Early Go-Ahead," Reuters, Jt July ZWO, httpi//www.uofaweb.uatberta,calchinainstitute/navO3.cfm?navO3=48642&'nav02 =43875&nav0l=43092. 45 For details see "China's Energy Investment Plans in lÍan," Reuters, 2l December ZOOO, http://www.uofaweb.uil-berta.calchinainstitute/navO3.cfm?navO3=54769&nav 02= 4387 3 &nav0 I =43 092. 46 See Vakil, "lran: Balancing East against West." ..lraq to ¿i See Osteç Turns tJçhina for Help in Reviving Oil tndustry"; and "lraq Revive CNPC Deal," Upstream,25 June 2007. 4g- i; uddition, Chinese ÑgCr hâue signed production contracts in several Middle Eurtr* countries outside the Persian Gulf, iircluding Algeria, Libya, Morocco, Syria, and Tunisia. See atso Lee and Shalmon, "searching for Oil.'' , 49 For further discussion see Madan,lndia, jô S.r Ámy Yee and Najmeh Bozorgmehr, "lran Close to tndia-Pakistan Gas Deal," Fínancial Times, 29 J¡¡ne 2007, 240 F. Leverett joint 5l petronet was created with Indian govemment encouragement in 1997 as a venture to handle the import and marketing of LNG within India' 52 In addition to the positiòns developed.by Indian NECs in the Persian Gult Reliance Industries - India;s largest privatê energy company - has developed positions. in Oman and Yemen and established an overseas subsidiary based in Dubai. Indian NECs have signed production agreements in Middle Eastem countries outside the Persian Gult including Egypt, Libya, and Syria. 53 See peter Evans and È¡câ Downs, "Untangling China's Quest for Oil through State- Backed Financial Deals," Brookings Institution Policy Brief, May 2006, http://www.brookings. edu/papers/2006/05ch ina-evans. aspx. 54 For example, Sanam Vakil notes that it was the Chinese that hetped the lranians build the Tehran metro system, and a second transportation project is already underway. Additionally, the Chinese are building lranian highwayi and airport runways, even as Ch-ina's own infrastructure deietopment moves at breakneck speed. Furthermote, China's Cherry Auto- mobile Company burst onto the lranian scene in 2003 and now manufactures 30,000 annually. Today there are more than 100 different projects percolating on the lranian{hinese stove.

See Vakil, "lran: Batancing East against West." 55 In this conte*t, it should also be noted that Beijing's current efforts to expand diplomatic and economic ties to the Persian Gulf take place against a historical backdrop of China's provision of arms and sensitive technologies_to ståtes in the region. See Daniel Byman, China's Arms Sales: Motívations and Implicallors, Santa Monica, ct ReÑD, z.oo0; and shirly Kan, "china and Proliferation of weapons of Mass Destn¡ction and Missiles: Policy Issues," Congressional Research Service Report for òongr.g, updated 22 October 2007, http://www.fas.org/sgp/crs/nuke/Rl3l555.pdf. In rãcent-yeärs it has been difficult to discern a consistent pattern of Chinese arms sales to cóuntries with which China has substantial energy interests. Overall, arms exports are probably less effective than the financial and political tools Beijing has.{ itr'Oisposat'to faciíiøte closer ties to energy-producing states in the Persian Gutf, because Chinese $reapons systems are generally not considered state-oÊthe'art by potential buyers in the region 56 bee Leverett and Badeç "Managing ChinpUS Energy Competition"; Vakil, "lran: against West"; ãnd Dengli Shen, "!ran's Ambitions Test Balancing East ^N_uclear ôhinu'r íVisdom,; Wrashington Quarterly 2912, Spring 2006, http://www.twq.com/ 06spring/docs/06spring-shen.pdf. 52- Ovór thã course oittrã tqAOs, the management and production functions of the min- istries of petroleum; coâ1, nuclear poier, and electric Po]v-er were transfened to newly established state energy firms, including the three NECs. Thus, CNOOC lvas ørmó¿ in 1982 out of the ilinistry of Petrolèum Industry to focus on developing China's offshore oil and gas resources, Sinopec in 1983 out of the Ministry otÇlem- ical Industry to focus on-downsream sectofs, and CNPC ín 1988 out of the Ministry of petroleuä Industry to focus on onshore exploration and production of oil and gas resources. 58 For additionat historical background and comparative discussion on the three NECs, see Steven Lewis, "Chinese ÑOCs and World Energy Markets: CNPC, Sinopec and CÑOOC,' in the'Baker Institute Energy Forum on "The Chalgi.ne Role of National Oit Corþanies in International Energy Markets," March 2007,httpzllwww.rice.edt¡/ energy/püUications/docsNOCs/Papers/CNOoC-Lewis.pdf; and Rosen and Houser, China Energ. 59 For fr¡rtherîiscussion of how "marketization" and openness to foreign investment reinforce hends toward the "corporatization" of Chinese NECs, see Lewis, "Chinese NOCs and World EnergY Markets." Resource mercantíl¡sn and mílitarization 241

60 See Sumit Ganguly, "The ONGC: Charting a New Course?" in the Baker Institute Enerry Forumónïhe Changing Role of Ñational Oil Companies in International Eneró Markets, March 2007, ñry:llwww.rice.edr¡/energy/publications/docsNOCs/ Papers/ONGC-Ganguly. Pdf 6l In addition, ONCC-anäiOC swapped l0 percent of their equity with each other in 2000. 62 Originally, I I SOEs were designated, but two of these companies were subsequently privatized. 63 Personal communications with the author. 64 This point is amplified in Rosen and Houser, China Energt. 65 See grica Oowns, "The China Energy Security Debate," China Quarterly. 177,2004' pp..2l*41; Chrisiian Constantin, "Õhina's Conception of Energy Sgcyrity:. Sources äå¿ tnternât¡onal Impacs," working paper 43, University of British Columbia Centre of lnternational Relations, March ZOõS, trttpy¡www.iir.ubc.calsite-template/working- papers/Consøntin-WP43.pdf; and Edward Cunningham,. "China's Energy Go19r- i,ãü.r, perception and Räality,' MIT Center for lnternational Studies Audit of the Conventional tfVisdom, March 2007. 66 See Integrated Energ PolicY, 67 See Nonian Valentiñe and Íom Ellacott, "Asian NOCs," Oil & Gas Investor, August 2006. 68 See Xu Yihe, "Beijing lrked by lran Agreements," I)pstream,-S January,2007. _. úg eoot ¿ in Emma óraiam-Hari¡son, "S-iim Mideast Pickings Seen for Chinese Firms," È*116 News, 27 November 2006, http://www.uofaweb.ualberta.calchinainstitute/ navO3.cfr n?navO3 =43 8 83 &nav 02:4309 6 &nav 0 I =427 92. ?0 Personal communications with the author. ìilood 7l tn this regard, an analyst with the Mackenzie consultancy.says flatly, "China will neveibe able to satisff its oil demand through foreigr acquisitions"; quoted-in .,Enerry Stakelbeck, Bringi Beijing and Tehran Closer Together." This point is also made in Lee and Shalmon, "searching for Oil." 72 Theauthor is grateful to Pierre Noël for this point. 73 personat comñunications with the author; see also Rosen and Houser, China EnergL Z¿ W¡tfr regard to China, this point is also made in Lee and Shalmon, "searching for oil." 75 rbid. 76 Daniel Yergin, "Energy's Chatlenges," Forbes,23 April 2097 ' - 77 On the Saüdi.econoñy, see SAIúBA Financial Group, The Saudi Economy:. 2006 Þàr¡or^once, 2007 Fõiecast, Riyadh, February 2007, http:www.samba.com/invest- The sludi ment/economywarch/pdf/sau¿L2'o0z-Forecast-en.pdf; 1yd ..idem, ø"iioiyt iOOl Þerþrmance, 2005 Forecast, Ri.ya{h, February 20_05r ñttp:l¡*it".samba.com/ínvestmenVeconomywatclt/pdf/Saudi,-lconomy-Feb-2005-E On the Gulf Arab economies collectively, see Brad Bourland, "The Middle "g.pOf.Bãst goom: How Big and How Long Will lt Last?," presentation to the Annual Con- ference of the ArafBankers Association of North America, New York, 25 April |OOO, hnp://www.arabbankers.org/download/123321-V12'1360-887&2lClicko/o Z0húeo/o20to%20download%20Mr.o/ol}Bourland'sTo20presentation.pdf. See also rcito O. Boer and John Turner, "Beyond Oil: Reappraising the Gulf States"; Jaap Kalkman, Laurent Nordin, and Ahmód Yahia, "Moving Energy-lntensive..lndushies to the ódf'; and Hanó-Martin Stockmeier and Ozgur Tanrikulu, "Capluring Opportunities in the Gulfls Financial Sector," all in a special issue of McKinsq fiort rty, February 2007, http:llwww.mckinseyquarterly.com/Energy-Resources- Materials. defi- 78 I have bonowed the concept of global energy architecture from Saad Rahim; the nition is my own. pëtrolière 79 See pieneÑoë1, Les Etats-Unis et Ia Sécuritë Pétoliere mondial: Politique 242 F, Leverett

amëricaine et production d'un bìen collectd global, Paris: Le Centre Français sur les Éøts-Unis, July 2004, http://www.ifri.org/files/CFE/PN-Us-securitePetroliere.pdf. 80 See Flynt Leverett, "Btack is the New Green," 'lhe National,lnterest, January- February 2008. 8l The idea of a Saudi "hedging" strategy is elaborated in Flynt Leverett, "Reengaging Riyadh," in idem, ed., The Road Ahead: Middle Eøst Polícy in the Bush Administra- tion's Second Term, Washington, DC: The Brookings lnstitution Press,2005; see atso Chas Freeman, "The Arabs Take a Chinese Wife: Sino-Arab Relations in the Decade to Come," remarks to the World Affairs Council of Northern California, Asilomar, 7 May 2006, http://www. mepc.org/whats/SinoArabRelations. asp; and'National Secur- ity Issues and the Saudi-US Relationship: A Conversation with Jean-François Seznec," Saudi-US Inþrmatìon Service, 12 March 2007, http://www.saudi-us-

relations.org/articles/2007/interviews/070312-seatec-interview.html. . 82 See Vakil, "lran: Balancing East against West." Russia also occupies an important place in lranian versions of the "Eastern option." See M. K. Bhadrakumar, "US 'Allies' Keep lran Options Open," Asia Times, 6 June 2006, http://www.atimes.com/atimes/Middle-EaslHF06Ak02.html; and Flynt Leverett, "The Race for lran," New York Tímes, 20 June 2006, http://www.nytimes.com/ 20061 06120/ opinion/20leverett.html?-F t &oreFslogin. 83 See LeveretÇ "Black ls the New Green. 84 See Leverett, "lllusion and Reality," Amerìcan Prospect, September 2006. 85 Pape introduced the concept of soft balancing in "The World Pushes Back," Boston Globe,23 March 2003. He elaborated his thesis in "Soft Balancing against the United States," Internatíonal Security 30/1, Summer 2005. See also Stephen Walt, "Keeping the World 'Off Balance': Self-Restraint and US Foreign Policy," in G. John lken- berry, ed., America Unrivaled: The Future of the Balance of Power,lthaca, NY: Comell University Press, 2002; the contribution by Josef Joffe in "Exchanges & Retums: Is the World Pushing Back?," Bosîon Globe,2 April 2003; Josef Joffe, " 'Gulliver Unbound': Can America Rule the World?," Twentieth Annual John Boynton Lecture, Centre for Independent Studies, Sydney, 5 August 2003, http://www.aicgs.org/documents/csi.pdf; T. V. Paul, "Soft Balancing in the Age of US Primacy," International Security 30/1, Summer 2005; and Stephen Walt, Tamíng American Power: The Global Response to US Primacy, New York Norton,2006. 86 The author is grateful to Øystein Noreng for this point. 87 For further discussion, see Leverett, "Black Is the New Green." 88 Yuan-Kang Wang China's Grand Strategt and US Primacy: Is China Balancing American Power?, Washington, DC: Brookings lnstitution, July 2006, http://www.brookings.edu/paperV2006/07china-wang.aspx.