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Walker's World: New Great Asian Oil Game

Kazakhstan, with over 10 billion barrels of proven oil reserves and over 60 trillion cubic feet of natural gas, is the prize of the Caspian energy basin.

Washington (UPI) Aug 18, 2005
The auction deadline for bids for the Canadian company PetroKazakhstan closed Monday, but at the same time a new Great Game began, as China and India opened a bidding war for one of the most valuable stakes in Central Asia's energy market.

With a market value of close to $3.5 billion and analysts talking a sale price close to $4 billion, PetroKazakhstan is a hot commercial property, claiming on the company website to be the "largest supplier of refined products in Kazakhstan."

It is also a company that now carries a high symbolic value for what it says about the future of Central Asian geopolitics, and the ability of President Nursultan Nazarbayev's regime to avoid the 'floral revolutions' that have recently overturned other post-Soviet governments in Georgia, Ukraine and Kyrgyzstan.

Kazakhstan, with over 10 billion barrels of proven oil reserves and over 60 trillion cubic feet of natural gas, is the prize of the Caspian energy basin.

Largest of the formerly Soviet republics of Central Asia and probably the most richly endowed in energy resources, Kazakhstan has been careful to maintain balanced relations with its powerful neighbors, Russia and China and India, and to cultivate its ties with the United States.

Although there is no U.S. air base in Kazakhstan, the country of 16 million people has deployed units of its KAZBAT battalion of peacekeepers to Iraq, and is a member of NATO's Partnership for Peace program, traditionally the ante-room for countries seeking to join the alliance.

At the same time, Kazakhstan is part of the Shanghai Cooperation Organization (SCO), a Central Asian regional grouping in which Russia and China are the political heavyweights.

The SCO has now called for the U.S. to set a deadline for the ending of its military deployments in the region, specifically the air bases established during the war against the Taliban in Afghanistan. The U.S. presence is increasingly controversial in the region, predominantly Islamic, and senior Kazakh government advisers have openly called for a U.S. withdrawal.

"I am categorically against the presence of the military bases in Central Asia because any military base is an occupation base," Bolat Sultanov, director of Kazakhstan's Institute for Strategic Studies, told a local press conference, as reported by Kazakh-Interfax.

"By the way, I cannot understand Central Asian countries' euphoria about the military bases. Everywhere there are military bases people are demanding that the bases be pulled out. Look at Europe, South Korea, and Japan," Sultanov added.

The U.S. air bases are in less than stable places. Uzbekistan's authoritarian regime has already asked the U.S. to close its airbase at Karshi-Khanabad within 6 months, partly from anger at American objections to the shooting of hundreds of protesters at Andijan in May.

The Uzbek riots followed the almost bloodless March coup in neighboring Kyrgyzstan, home to another U.S. air base at Ganci, near the Kyrgyz capital of Bishkek.

But while supporting that call for the U.S, to curtail its military presence, Kazakhstan last month irritated Russia and pleased the U.S. by announcing that it would sign up to the international agreement on the Baku-Tbilisi-Ceyhan pipeline, the first non-Russian export route for Caspian oil. That is how the Kazakh strategy of balance operates.

But maintaining this balance is not easy. The sale of PetroKazakhstan, even though it is a private company registered in Calgary, Canada, is forcing the Kazakh government to make an important strategic choice.

PetroKazakhstan faces some complex legal problems, including demands for hundreds of millions of dollars in back taxes, so in reality any sale will require official Kazakh approval.

By picking China, already well established in the country as a major investor with its own pipeline routes being developed for easy access, the Kazakhs would be shifting more and more of their eggs into the Chinese basket.

On the other hand, to approve the purchase by the Indian rival might maintain the balance, but would start to make Kazakhstan look uncomfortably like a pawn on the Asian chessboard as India and China, the two fast-growing giants of the continent, start vying to secure their future energy supplies.

So maybe the Kazakhs might decide to pursue that earlier expression of interest by Russia's Lukoil group, which did not enter a bid Monday.

India had tried and failed in the past to become a major player in Kazakh energy. It failed in a bid to buy a stake in the vast Kurmangaz field, and later efforts to join with Russia's Rosneft company and the Kazakh Kazmunaygaz group in a joint venture remain stalled. Further talks on developing the Satpayev and Makhambet prospects in western Kazakhstan drag on.

But the Indians were determined to show that they are serious. A delegation to the Kazakh capital of Astana led by Deputy Foreign Minister Rajiv Sikri began the two-day visit by announcing the firm intent of India's Oil and Natural Gas Corporation (ONG) to invest at least $1.5 billion in exploring for oil in Kazakhstan.

ONG's international arm, Videsh, set up a joint venture with the Mittal steel group, based in London but controlled by Lakshmi Mittal, which is already well established in Kazakhstan.

Mittal's deep pockets and his political connections in Kazakhstan gave the Indian bid instant credibility, but also raised the stakes for the Chinese. PetroChina, the biggest oil producer in China, does not want to face another public defeat after the state-owned China National Offshore Oil Co. (CNOOC) failed this month in its attempt to buy the Unocal oil group.

CNOOC offered to pay $18.5 billion for Unocal, $1 billion more than the bid from Chevron - but political objections in the U.S. persuaded CNOOC to withdraw its bid, citing "an unacceptable risk to our ability to secure this transaction."

The rejection of another Chinese energy bid, this time in its own back yard of Central Asia, would carry political implications for a country whose breakneck pace of growth requires stable and secure sources of oil and gas far into the future.

China's investments come with no political baggage. China was happy to welcome Uzbek President Islam Karimov in the wake of the shootings that suppressed the Andijan riots, and to announce a $600 million investment in Uzbek oil prospecting.

American interest in the region, by contrast, comes with President George W Bush's policy of promoting democracy throughout the region. India, although proud of its title as the world's largest democracy, has demonstrated no great urge to support democratic movements elsewhere in the region, particularly when its energy supplies are at stake.

The big question for India is whether it is prepared to pay the high entry fee to become a major player in Central Asian energy, which would require eventually investing in building pipelines.

The choices are grim and hugely expensive. The shorter route would go through some of the toughest mountains in the world, the Pamirs, the Hindu Kush and even the Himalayas and still face the longer-term political challenge of getting through Afghan and Pakistani territory to India.

The longer route would go through Iran, which would offend India's American friends, and still face transshipment by tanker or a further pipeline across Pakistan.

But neither India not China, Asia's two rising economic superpowers, can afford to be left out of the new great game for energy and for geopolitical influence in Central Asia, while the countries in the middle like Kazakhstan face prolonged and difficult balancing acts as they try to avoid being sucked too completely into one or another great power's spheres of influence.

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