A Win-Win in Central Asia

Every year, the diplomatic calendar for the Eurasian region is cleared in early June to make way for the Shanghai Cooperation Organization (SCO) summit. It is an annual meeting wherein a selected group of Eurasian countries comes together to deliberate on geopolitical, geo-economic and strategic ‘interests’ of the region.
Like most regional organizations, the fact that the SCO has no implementation capacity is perceived by some scholars to limit it to a talk shop. However as geostrategic analyst Brahma Chellaney puts it, the withdrawal of the U.S., via President Trump’s decision, from various multilateral arrangements put the rule-based world order at risk and created a gloomy situation. In such a scenario, the SCO can be qualified as a high-performing group just by being functional and having no withdrawals.

The SCO was established in 2001 by the Shanghai Five (China, Russia, Kazakhstan, Kyrgyzstan and Tajikistan) as a grouping intended to build trust in their border regions. At the Shanghai Five summit 2001 in China, Uzbekistan was added to the group and the Declaration of the SCO was signed, institutionalizing it furthermore. The first nominal expansion of the organisation took place in 2005 at the Astana summit in Kazakhstan, at which India, Pakistan, Iran and Mongolia were added as observer countries, and Sri Lanka, Belarus and Turkey became dialogue partners. But a major expansion happened in 2017 when India and Pakistan were admitted as full members of the organization. This expansion means that the SCO now accounts for half of the world’s population, about a quarter of the world’s GDP and 80 percent of the Eurasian landmass. These numbers should not be construed to mean that the SCO has a hugely important role in the geopolitics of Eurasia and the world. Though it has the potential, the current reality is quite different.

The SCO was primarily formed to jointly fight terrorism, separatism and extremism, which the region faces. Eventually, the scope of the organization, considering cooperative potential within the region, expanded to economic activities. The Ufa summit in Russia played a vital role in laying out the organization’s economic development strategy for the next ten years. Upon review of the scope of the SCO in the economic sphere, two major aspects pops up, which, if implemented with care and caution, could change the fate of the organisation: the planned SCO FTA (free-trade area) and the existent SCO Energy Club.

Leashed Potential

The SCO is sitting on a gold mine of energy reserves with 25 percent of global oil reserves, over 50 percent of global gas reserves, 35 percent of coal and over half of the world’s uranium with its member states. The world’s largest oil and gas pipelines are being built or already passing through the region. Pooling of resources through the SCO in the field of oil and gas could yield rich dividends for this region considering that the organization hosts both the largest producers and consumers of energy. But such a task is easier said than done.

Efforts have been made since 2004 to introduce the idea of an energy club to the SCO. In 2006, Russian President Vladimir Putin launched a debate on “energy dialogue, integration of our national energy concepts and creation of an energy club.” The debate resulted in the establishment of a unified energy market for oil and gas and the promotion of regional development through preferential energy agreements. In this context, Kazakhstan’s President Nursultan Nazarbayev agreed with President Putin at the 2007 Bushkek summit. “We consider it necessary to set up the SCO Energy Club, which will directly address problems in the sector,” he declared. “No one will resolve them for us.”

However, the plan didn’t materialise until 2013. This is considered by many to be a lost decade in which global oil prices were steadily increasing to reach an all-time high. The energy club and joint strategies could have been highly beneficial for the region during this decade. Unfortunately, the energy club was formed as the world turned towards global depression and crude oil prices dropped sharply.
Even after the signing of the draft document to form the energy club in 2013, the different approaches of respective countries made the process delayed. Some members wanted creation of the club to take precedence while others wanted emphasis on energy strategy. Another major issue was the functionality between producer and consumer countries, which limited the initiative to discussion. Concerns about zero sum games were clear due to the behaviour of the countries, which minimized the efficiency of the initiative.

Major political decisions and funds are needed if the SCO Energy Club is to work to its full potential. As Meena Singh Roy, a research fellow and coordinator at the West Asia Centre, IDSA, New Delhi, puts it, consensus is required on pricing, standardization of tariffs for transportation of energy resources, development of a unified common tax base, coordination among the suppliers and other issues.

India’s Place in the Puzzle
India is the third-largest energy consuming nation after the U.S. and China. One of the most important components of India’s import portfolio is energy, which arrives in several forms. Needless to say, energy in the form of petroleum products are in high demand domestically. Energy is a ticking-time bomb about to explode as the country enters its five-year election cycle.

India is highly dependent on the West Asian region for its imports of oil and energy. But considering the instability in this part of the world, India is in desperate need of diversification to reduce its reliance on the region. This is where the SCO, Russia and Central Asia could play a pivotal role. During the Cold War, India maintained close relations with the Soviet Union. After the fall of the Soviet Union, India-Russia relations remained tight. Similarly, India has shared cultural and trade relations with Central Asian countries in the past. In the post-Cold War period, India’s goodwill with these oil-rich countries was mostly due to the Soviet legacy. But India failed to capitalize on its good relations due to a lack of financial and economic leverage. After losing so much ground in the energy race, India attempted to catch up in 2012 with ‘Connect Central Asia’ policy initiatives. However, this policy failed to the attention it needed in the diplomatic circles of India.
In this context, India acquiring full membership in 2017 in the SCO is vitally important. The June 2018 SCO summit in China will be of key importance to India. Prime Minister Modi will attend the SCO summit with a backlog of domestic baggage such as rising fuel costs waiting for him at home. Although one summit meeting may not make much difference in the current scenario, even a seemingly innocuous move by Modi could go far in stabilizing the domestic ship. China has set up multiple energy pipelines and project through this region as part of President Xi’s signature project, the Belt and Road Initiative, which is backed by the SCO, while India’s TAPI (Turkmenistan-Afghanistan-Pakistan-India) gas pipeline is still languishing. One of the prime reasons for India to join the SCO was this cause. But the country’s major pipeline project has yet to see progress due to instability in Afghanistan and disagreements with Pakistan. Help with this issue is something India will look for at the 2018 SCO summit. Furthermore, the commissioning of the North-South transport corridor along with the Chabahar port of Iran will provide India better access to the energy markets of the SCO region.

Positive-sum game

In the current state of affairs, the formation of the SCO Energy Club, which happened in 2013 with a mission to discuss issues related to energy strategy and future cooperation, was a positive development. This indicates potential for growth in this sector. The future of the energy club will depend upon the approaches of both producers and consumers. Through game theory (positive sum situation) and neorealism, one can explain the convention of competitive states—in this case producers and consumers—over a shared interest. The future of the SCO Energy Club will depend upon development of a cooperative framework by these countries. Presently, the price of international crude oil is rising. Thus consumer countries like India, China, Mongolia, Tajikistan and Kyrgyzstan are worried. At the same time, producer countries like Russia, Kazakhstan, Uzbekistan and Iran are looking for an opportunity to make the most of rising oil prices after four tough years. In such a scenario, coordination of limited strategies in the energy sector, development of system of transport for the energy security, joint implementation units, coordination of investment plans and an informal setting for regular coordination through the SCO energy club will go a long way in resolving pressing issues the region faces.

The 2018 SCO summit will be hosted by China and presents an opportunity to vitalize the SCO energy club initiative. The structural compulsions are conducive and the only requirement, as in any regional/multilateral initiative, is the will of the member states. Some challenges remain like competition for controlling energy resources between Russia, China and India, diversification of energy projects going from Central Asian countries to Europe and possible sanctions on Iran, which could impact the progress of the organisation. But despite these obstacles, a full-functioning SCO energy club would go a long way in capitalizing on the untapped potential of the region. Various projects like TAPI, Iran-Pakistan-India (IPI) gas pipelines, Russia-China-India gas projects, initiatives linking Central Asia to Iran and India through Chabahar-Russia-China gas pipeline initiatives and many more that are stuck, could get a much needed push. The energy club could also rejuvenate other organs of the SCO and lead towards a greater SCO Free Trade Agreement, which is in the work for 2020, in a phased manner.

The SCO, an organization formed over a security mandate between many highly contrasting member countries, has still been confined to a talk shop on many occasions. With this energy club initiative, the organization could build win-win situations for its member states by facilitating planning, energy and working together with a strategic objective in mind. By virtue of remaining functional in a world in which global leaders lobby for votes by procrastinating, the SCO, along with other regional organizations like ASEAN and the African Union, is making many right moves. In the wide playing field of Central Asia, energy diplomacy conducted through the SCO, could prove an ace in the hole that alters the geopolitical situation globally.

In this context, the 2018 Qingdao summit of the SCO will be historic if member countries move past their differences to work on the energy club and creating win-win situations in the vast landscape of Central Asia.

The author was a Ph.D. Scholar at the Centre for International Politics, Organization and Disarmament (CIPOD) at Jawaharlal Nehru University in New Delhi. He currently works as a correspondent for Outlook Money in Mumbai.