energy geopolitics and iran–pakistan–india gas pipeline

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Energy Policy 35 (2007) 3280–3301

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Energy geopolitics and Iran–Pakistan–India gas pipeline

Shiv Kumar Verma�

Political Geography Division, Center for International Politics, Organization and Disarmament, School of International Studies, Jawaharlal Nehru University,

New Delhi 110067, India

Received 5 January 2006; accepted 17 November 2006

Available online 17 January 2007

Abstract

With the growing energy demands in India and its neighboring countries, Iran–Pakistan–India (IPI) gas pipeline assumes special

significance. Energy-deficient countries such as India, China, and Pakistan are vying to acquire gas fields in different parts of the world.

This has led to two conspicuous developments: first, they are competing against each other and secondly, a situation is emerging where

they might have to confront the US and the western countries in the near future in their attempt to control energy bases. The proposed

IPI pipeline is an attempt to acquire such base. However, Pakistan is playing its own game to maximize its leverages. Pakistan, which

refuses to establish even normal trading ties with India, craves to earn hundreds of millions of dollars in transit fees and other annual

royalties from a gas pipeline which runs from Iran’s South Pars fields to Barmer in western India. Pakistan promises to subsidize its gas

imports from Iran and thus also become a major forex earner. It is willing to give pipeline related ‘international guarantees’

notwithstanding its record of covert actions in breach of international law (such as the export of terrorism) and its reluctance to

reciprocally provide India what World Trade Organization (WTO) rules obligate it to do—Most Favored Nation (MFN) status. India is

looking at the possibility of using some set of norms for securing gas supply through pipeline as the European Union has already initiated

a discussion on the issue. The key point that is relevant to India’s plan to build a pipeline to source gas from Iran relates to national

treatment for pipeline. Under the principle of national treatment which also figures in relation to foreign direct investment (FDI), the

country through which a pipeline transits should provide some level of security to the transiting pipeline as it would have provided to its

domestic pipelines. This paper will endeavor to analyze, first, the significance of this pipeline for India and then the geopolitics involved

in it.

r 2006 Elsevier Ltd. All rights reserved.

Keywords: Geopolitics; WTO; Pipeline

1. Introduction

Iran’s proven oil reserves at the end of 2003 wereestimated to be 130,700 million barrels, representing 11.4%of world reserves and some 18.0% of those in the MiddleEast. With proven reserves of 26,690,000 million cubicmeters at the end of 2003, Iran is the world’s second richestcountry in natural gas resources after Russia, with some15% of the global and 37% of the Middle East region total,which is a major discover for Iran (Fisher, 2005). TheSouth Pars offshore fields, which is an extension of Qatar’sNorth Field, are officially the largest natural gas reserves inthe world. In the 21st century, the most important factors

e front matter r 2006 Elsevier Ltd. All rights reserved.

pol.2006.11.014

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that will decisively determine the fate of Iran gas pipelineare United States and China in the Persian Gulf. Bothare the largest consumers of oil and gas in the world.So a new Iran–Pakistan–India–China–Russia scenariobegins to emerge, which links global oil and gas securityto geopolitics. The question is: can these two issues bereconciled? This paper will endeavor to analyze theimportance of Iran as a gas supplier to east, especially,India and China. It will argue that such dependence on avolatile region like Iran and the perception of scarcerenergy resources in the South Asian region have thepotential to lead to conflict in both regions unless theseissues are dealt with geo-economics rather than geo-strategic calculations. However, the recent understandingbetween the United States and India seems to cancel thewhole pipeline project as long as present Iranian regime

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ARTICLE IN PRESSS.K. Verma / Energy Policy 35 (2007) 3280–3301 3281

remains in power. The broad geopolitical conditions thatwould favor or block the Iran–Pakistan–India (IPI) pipe-line project and Iran’s situation as well as the role of theUnited States in Asia and the state of relations betweenIndia and Pakistan are also pertinent issues that are goingto be influential in fructifying the proposed pipeline. Themoot question relates to Pakistan’s subsidizing thepurchases of Iranian gas and how would it finance thiscommercial juggernaut. Pakistan would not have aninterest in the stable flow of gas in transit unless it is tofinance some of its own purchases from the fees. There iscompetition for gas from the Gulf, and from Iran. This isnot only a matter of political and military strategies, but asmuch as question of commercial and financial incentives.China seems to have understood that, as exemplified withthe deal with Iran. The question is, to what extent Indiawould be able and willing to offer a competing deal. So far,due to Indian foreign policy changes, Iran seems to havesuspended the emerging deal with India. In the midst ofsuch dynamics it is to be seen as to what extent Indiaprefers a close relationship with the United States at theexpense of gas trade with Iran.

2. Energy security

What exactly is energy security? Security generallymeans providing safety at additional cost. It thus connotesto paying extra to guard against possible threats (Aiyar,2005b). Although in the developed world the usualdefinition of energy security is simply the availability ofsufficient supplies at affordable prices, different countriesinterpret what the concept means for them differently.Energy-exporting countries focus on maintaining the‘‘security of demand’’ for their exports, which after allgenerate the over-whelming share of their governmentrevenues. For Russia, the aim is to reassert state controlover ‘‘strategic resources’’ and gain primacy over the mainpipelines and market channels through which it ships itshydrocarbons to international markets. The concern fordeveloping countries is how changes in energy prices affecttheir balance of payments. For China and India, energysecurity now lies in their ability to rapidly adjust to theirnew dependence on global markets, which represents amajor shift away from their former commitments to self-sufficiency. For Japan, it means offsetting its stark scarcityof domestic resources through diversification, trade, andinvestment. In Europe, the major debate centers on how tomanage dependence on imported natural gas and in mostcountries, aside from France and Finland, whether to buildnew nuclear power plants and perhaps to return to (clean)coal. And the US must face the uncomfortable fact that itsgoal of ‘‘energy independence’’ a phrase that has become amantra since it was first articulated by Richard Nixon 4weeks after the 1973 embargo was put in place isincreasingly at odds with reality. Experience has shownthat to maintain energy security countries must abide byseveral principles. The first and most familiar is what

Churchill urged more than 90 years ago: diversification ofsupply. Multiplying one’s supply sources reduces theimpact of a disruption in supply from one source byproviding alternatives, serving the interests of bothconsumers and producers, for whom stable markets are aprime concern. But diversification is not enough. A secondprinciple is resilience, a ‘‘security margin’’ in the energysupply system that provides a buffer against shocks andfacilities recovery after disruptions. Resilience can comefrom many factors, including sufficient spare capacity,strategic reserves, backup supplies of equipment, adequatestorage capacity along the supply chain, and the stock-piling of critical parts for electric power production anddistribution, as well as carefully conceived plans forresponding to disruptions that may affect large regions.Hence the third principle: recognizing the reality ofintegration. There is only one oil market, a complex andworldwide system that moves and consumes about 86million barrels of oil every day. For all consumers, securityresides in the stability of this market. Secession is not anoption. The fourth principle is the importance of informa-tion. High-quality information underpins well-functioningmarkets. On an international level, the IEA has led the wayin improving the flow of information about world marketsand energy prospects. That work is being complemented bythe new International Energy Forum, which will seek tointegrate information from producers and consumers.Information is no less crucial in a crisis, when consumerpanics can be instigated by a mixture of actual disruptions,rumors, and fear. Reality can be obscured by accusations,acrimony, outrage, and a fevered hunt for conspiracies,transforming a difficult situation into something muchworse. In such situations, governments and private sectorshould collaborate to counter panics with high-quality,timely information. The US government can promoteflexibility and market adjustments by expediting itscommunication with companies and permitting the ex-change of information among them, with appropriateantitrust safeguards, when necessary (Yergin, 2006).However, the prime objective of any energy policy is to

ensure that the total energy demand is matched by totalenergy supply. Unfortunately, this objective can sometimesto difficult to achieve. This situation does not occur veryoften, but when it does, it is either a result of extremedemand circumstances or unforeseen operational difficul-ties or, in some cases, inadequate planning. It is, however,not sufficient that total demand and total supply bebalanced, since an adequate energy policy should alsoaim to provide the required energy ‘mix’. This involvesanalyzing the energy supply situation from both sides. Onthe one hand, existing and potential sources have to beexamined with a view to deciding how future supplies canbe guaranteed. This approach must then be reconciled withthe opposite approach of trying to identify the future needsof the various energy-consuming sectors. Both approachesinvolve a certain degree of risk, since an attempt is beingmade to predict the future in a world in which very few

ARTICLE IN PRESSS.K. Verma / Energy Policy 35 (2007) 3280–33013282

nations are complete masters of their own destinies. Thecriteria on which any energy policy is based are basicallythe same today as they have always been in the past. Apartfrom meeting the total demand with the correct mix ofenergy sources, a satisfactory policy should not involve toogreat a capital investment, should not result in large-scaleunemployment and should not based on obsolete technol-ogy (or on science fiction). In addition, it should be flexible,so that national changes in energy usage and internationalchanges in circumstances can be accommodated. In short,the overall policy should make economic and social sense,and should leave the door open for the emergence of newtechnologies and new energy options (Addinall andEllington, 1982).

3. Energy security for India

For India, a country with negligible and rapidlydepletable oil resources, it would mean safeguarding andsustaining its developmental and global power aspirations.A secure but costly form of importing energy would beliquefied natural gas (LNG), delivered by ship. The seas areinternational waters. The Indian navy and navies of richcountries will try to ensure open seas. Even Turkmen gascould be piped down to the Iran coast and liquefied.However, pipelines are less secure. A deep-water pipeline ininternational waters, though, is relatively secure andrelatively costly. A cheaper pipeline in shallow waters willpass through the Exclusive Economic Zone (EEZ) ofcounties and so security will require credible nationalguarantees. Such guarantees can be abrogated in times ofhostilities. Even onshore pipelines are not entirely secure:militants and other such irredentist elements operatingwithin national boundaries can blow them up. This hasalready happened in Assam and Baluchistan and mighthappen in tremendously volatile Afghanistan too. Onshorepipelines through Pakistan may be the cheapest form oftransporting gas from Iran and Turkmenistan. But lowcost is not security as conventionally understood. Thoughimportant, it cannot be called energy security. The gaspipelines will reduce the cost of delivered gas comparedwith transported LNG, but at an increased risk ofdisruption. Albeit there are modest risks, the potentialdiplomatic gains are huge, and so this is a worthwhilediplomatic gamble. But worthwhile gambles are notsecurity (Challency, 2005). We need to increase theefficiency of thermal power stations, but every 1% increaserequires an additional 5 million tons of coal. Most Indiancoal is of low quality. This approach alone will necessitateenormous quantities of coal needed to feed existing andfuture power plants and to gasify coal to substitute oil andnatural gas.

However, to expand the concept of energy security intwo critical dimensions: the two recognition of theglobalization of the energy security system, which can beachieved especially by engaging China and India, and theacknowledgment of the fact that the entire energy supply

chain needs to be protected. China’s thirst for energy hasbecome a decisive plot element in suspense novels andfirms. Even in the real world there is no shortage ofsuspicion: some in the US see a Chinese grand strategy topreempt the US and the West when it comes to new oil andgas supplies, and some strategies in Beijing fear that the USmay someday try to interdict China’s foreign energysupplies. But the actual situation is less dramatic. Despiteall the attention being paid to China’s effort to secureinternational petroleum reserves, for example, the entireamount that China currently produces per day outside ofits own borders is equivalent to just 10% of the dailyproduction of one of the supermajor oil companies. If therewere a serious controversy between the US and Chinainvolving oil and gas. It would likely arise not because of acompetition for the resources themselves, but ratherbecause they had become part of larger foreign policyissues (such as a clash over a specific regime or over how torespond to Iran’s nuclear program). Indeed, from theviewpoint of consumers in North America, Europe, andJapan. Chinese and Indian investment in the developmentof new energy supplies around the world is not a threat.But something to be desired, because it means there will bemore energy available for everyone in the years ahead asIndia’s and China’s demand grows. It would be wiser andindeed it is urgent to engage these two giants in the globalnetwork of trade and investment rather than see them tilttowards a mercantilist, state-to-state approach. EngagingIndia and China will require understanding what energysecurity means for them. Both countries are rapidly movingfrom self-sufficiency to integration into the world economy,which means they will grow increasingly dependent onglobal markets even as they are under tremendous pressureto deliver economic growth for their huge populations,which cope with energy shortage and blackouts on a dailybasis. Thus, the primary concern for both China and Indiais to ensure that they have sufficient energy to supporteconomic growth and prevent debilitating energy shortfallsthat could trigger social and political turbulence. ForIndia, where the balance of payments crisis of 1990 is till onpolicymakers’ minds, international production is also away to hedge against high oil prices. And so India andChina, and other key countries such as Brazil, should bebrought into coordination with the existing IEA energysecurity system to assure them that their interests will beprotected in the event of turbulence and to ensure that thesystem works more effectively (Yergin, 2006).

4. Energy geopolitics

What is energy geopolitics? Geopolitics as an approachto the study of international relations stresses theimportance of locational factors in influencing relationsamong nations. Thus, geopolitics emphasizes geographicfactors as important determinants of government policyand major determinants of the relative power position ofstates. The importance of various geographic factor


changes with developments in many areas, including thepassage of time advances in technology, the need for accessto raw materials, and changes in national and internationalpolitical goals and judgments as to legitimate means ofpursuing international objectives. The issue of access toenergy resources involves three interests, which each energydeficient state shares with all others:

1.

Tab

Pro

Pro

IPI

Sou

nat

A state’s supply of imported energy must be adequate involume.

2.
Interruptions or occasional shortfalls in supply can haveserious economic and political implications for indus-trialized states. It is, of course this vulnerability todisruptions of supply that gives resource-rich states alever to use against states dependent on importedenergy.
3.
Imported energy must also be available at reasonableprices. Clearly, price should bear some relationship tothe cost of alternative forms of energy. Price should alsoreflect a capacity to pay. These three factors of adequatevolume, continuous supply and reasonable price con-stitute an interrelated triad of energy interests. Failureto obtain any one of the three could have disastrousconsequences for the economic well-being, politicalstability, and national security of the consuming country(Conant and Gold, 2000).
5. IPI gas pipeline project

However, in the new millennium, once again geographyhas become a major determinant of strategy, and strategyplays a major role in politics. Politics is generally thoughtof as an art of obtaining desired outcome. However,Strategy is a plan for effectively implementing these goals(Ward, 1992). Annual gas supplies of 5 million tons havebeen tied up for 25 years under a US$18 billion contractsigned. But the change in leadership in Iran again bringssome changes for this plan. Currently new leaders favor gasexports with priority to neighboring countries, includingIndia and China. And another major change is that Iranexpects a higher gas price than what has been negotiated sofar. The Indian officials are worried that the Iranian stancecould harden further when negotiations on piped gas startssometimes 2007 after India and Pakistan have decided ontheir participation in the pipeline by the end of 2006. Thispipeline is not something that you can agree today andbuild tomorrow. Iran pipeline, which is a win–win project

le 1

posed Iran–Pakistan–India gas pipeline characteristics

ject Consortium Length (km) Cost ($bn) Route

gas pipeline Undecided 2700 7.4 Undecided

rce: Rahul Tongia & V.S. Arunachalam. Natural gas imports by South A

ural gas pipeline for India and Pakistan from West and Central Asia. Econ

for all three countries, has the potential radically totransform the energy scene in South Asia (Airy, 2005).The option included Iranian companies to own and operatethe pipeline and deliver gas to India at India–Pakistanborder or a consortium of Iranian, Indian, and Pakistanand international companies to own and operate thepipeline. Under the third option, it proposed that Indiaand Pakistan buy gas in Iran and transport through apipeline owned by global companies, see Table 1.The latest positions in Indo-Pak ties clearly put

economic factors on the front burner. [The IPI pipeline islikely to cost $7.4 billion mainly due to increase in steelprices. India estimates that the project cost may go to ashigh as $8.16 billion if there is a 10% escalation in rawmaterial costs over the next 5 years when the project isslated for construction. The capex may come down to $6.67billion if there is a 10% decrease in raw material cost.](Aiyar, 2005a). The real attraction is the US$5 billionpotential in trade through the proposed Iran–India gaspipeline traversing Pakistan. This pipeline is expected tosave India US$300 million a year in energy transport costs,while Pakistan would get an estimated US$700 million inannual transit fees. However, the stake of Pakistan is veryhigh, if the proposed project passes through Pakistan, asthis project would have enormous implication for Pakistanieconomy. Pakistan’s perennial foreign exchange crisisforced it to concede that it is in its financial interest toget itself involved in the Indo-Iran gas pipeline project. Thepipeline would accrue to Pakistan an income of $14 billionin 30 years, including $8 billion in transit fee, $1 billion intaxes, and $5 billion in savings (S. Pandian, 2005).Although the transit fee would not wholly redress

Pakistan’s acute foreign debt crisis, it would partly alleviatethis problem. Finally, Pakistan, like India, suffers from agrowing oil-pool deficit. Pakistan’s power generation isheavily dependent on fuel oil, and it is a net oil importerwith an oil import bill of over US$1 billion/annum. Thecountry aims to slash its imports from the Gulf by one-third in order to save at least US$1 billion a year in itsannual energy import bill. To reduce the fiscal strain on thePakistan’s economy, the government has opted for a policyoption of substituting fuel oil with natural gas for powergeneration, a move expected to save an estimatedUS$600–700 million/annum. It is estimated that at currentlevels of power generation, over 800mfc/day of additionalgas is required to replace fuel oil in all its thermal powerplants (S.G. Pandian, 2005). In this regard, Pakistan has

Maximum

capacity (BCF)

Peak pressure

(p.s.i)

Compressor

spacing (miles)

Pipeline

diameter (in)

3.2 1200 120 56

sia: pipelines or pipedream? TransAsia pipeline system (TAPS): a shared

omic and Political Weekly (1999) XXXIV (18). S. Pandian (2005, p. 662).

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Table 2

Comparative position of various sources for power generation in Pakistan

Sources Pakistan: Cost of power generation

(Pakistan rupees/kWh)

Hydropower 0.02–0.08 paise

Nuclear power 9 paise

Thermal power 70 paise

http://www.khwarzimic.org/ghaziinto.html, /www.pakistaneconomist.com/

database2/cover/c96-31.aspS.

Table 3

Comparative position of various sources for power generation in India

Sources India: Cost of power

generation (Indian rupees/

kWh)

Naptha 4.5–5.0

Coal-fired stations & (2006) 0.70–110 paise

LNG 3.5–4.0

Imported coal (2005)* 1.85

Diesel/fuel oil 3.5–4.0

Domestic coal 3.0–3.5

Domestic gas & (2006) 105–200 paise

Reliance Wind power, 2006 @ 1.8–2.5

Hydropower $ 1–2

Nuclear power @ 1.77

Solar power# (2006) 3.0–3.5

New build coal-based plant* 2.90

Biomass# 3.15

LNG from Dahej* (2006) 1.60

Thermal power# 1.86

Sources: #Ashoke Parthasarthi. ‘‘Renewable energy resources: situation

and prospects’’. World Affairs, Spring, 2006; vol. 10, no. 1, p. 128. @ The

Times of India, New Delhi, 17 April 2006. *The Economic Times, New

Delhi, 16 November 2005.

S.G. Pandian (2005, p. 310). $ Mishra and Goswami, 2006; Jayaswal and

Banerjee, 2006.

S.K. Verma / Energy Policy 35 (2007) 3280–33013284

concluded that it would be in its interest to provide inlandtransit for the Indo-Iran pipeline project. Such a project,apart from offering an attractive fee for the pipeline to passthrough its territory, would also offer Pakistan the gas atsubsidized rate as local gas comes at the rate of $3.4/millionBritish thermal unit (mbtu) against imported gas at $5,the difference being is $1.6mbtu. This difference wouldbe met through transit fee. Moreover, if gas importplans cannot be implemented and gas supplies remainlimited to LNG imports in the next 5 years, the newthermal plants will be based on furnace oil with theprovision that these could be switched over to gas at alater stage. This will, however, put additional foreignexchange burden on the import of fuel. The policy hasalso clearly defined the order of priority for all sectorsfor additional gas supplies. The policy has been preparedon the basis of an integrated analysis of Wapda and KESCsystems scheduled development of hydel, coal, and nuclearenergy projects and expected low water availability duringdry period. This situation will remain intact even aftermaterialization of 500mmcfd (million cubic feet per day)LNG import by 2010 and hence additional supplieswould be diverted to other priority sectors. Moreover,CNG stations, captive power and general industrial sectorwill start running short of gas from fiscal year 2015.Pakistan was meeting 18% of its oil needs from localproduction and the country had to import the remaining82% requirements for which it had to pay internationalprices. The Pakistan government has incurred lossesamounting to Rs. 66 billion by capping the prices overthe past year and would meet 50% of the expected Rs. 4billion losses even after the new increases. However,Pakistan government has increased oil prices 114 times inits six years. On the basis of comparative prices local costof gas comes to $3.4/mBtu against $5 for imported gas.Gasification of coal will make the cost $5.5/unit, while thecost of the high sulfur fuel oil comes to about $7.5/unit;fuel oil will cost $8.1/unit, Naptha $ 1.4, and high-speeddiesel $12.6/unit. See Tables 2 and 3.

However, Pakistan would have an added interest in thestable flow of gas in transit to finance some of its ownpurchases from the fees. Because Pakistan needs more gasthan India (gas supplies to Islamabad through the IPIpipeline from the originally envisaged 2.1–2.8 billion cubicfeet per day (bcfd)). About 700mmcfd of additional gasmeans a lot for Pakistan’s growing energy needs. Then thequestion arises about where India would fit in the projecthaving a total capacity of 3.2 bcfd of gas when Pakistanalone would be supplied 2.8 bcfd and another 400mmcfdwould be utilized by Iran in its eastern provinces, see Table4. The head of Iranian delegation reportedly said that thethree sides would discuss the possibility of a secondpipeline to meet energy, thus acknowledging the viabilityof a pipeline. However, Pakistan-specific bilateral gaspipeline with 33% higher supplies to Pakistan, clearlyindicates that India could not become part of it due tocapacity constraints. Therefore, Pakistan demand for more

transit fees above $700 million annually becomes a point inperspective.However, the IPI gas pipeline project is significantly

about the perceived value of secure energy supplies versusstable prices and the willingness to eventually pay asecurity vis-a-vis India’s energy concern in the long run.India, would rather prefer to import gas from Iran. India’sinterest in the proposed Indo-Iran gas pipeline project isbased on the presumption that the project’s long-termprospects are higher than what it would achieve by otheroptions. It would also be in India’s interests to buy gasresources from one source, which is nearer and never-ending, rather than from several sources. Iran claims tohave 16%% of the world’s gas reserves, enough to last for500 years at the present rate of exploitation. It is suggestedthat Iran’s massive natural gas reserves can supply India’sgas demands for up to 200 years. For India, the economicfeasibility is not the only criterion but also the safe andcontinuous supply of gas. In this regard, it is obvious that

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Table 4

Pakistan and India natural gas demand and supply gap projections (bcfd)

2000 2005 2010 2015

Pakistan 0.5 0.6 0.8 1.0

India 0.0 1.2 3.1 4.2

Total 0.5 1.8 3.9 5.2

Source: /http://www.issi.org.pk/islamabad_papers_html/no_21/islama-

bad_paper.htmS (accessed on 26 May 2005).

S.K. Verma / Energy Policy 35 (2007) 3280–3301 3285

India’s concern for the safety and security of the pipelineprojects takes precedence over the economic viability andtechnical complexity. The most important aspect of thepipeline project is the medium of the transfer, which needsto be cost effective and secure. According to a Broken HillProprietary (BHP) study, the supplying of gas via pipelinecould save India an estimated US$10 billion over 10 years.It is also suggested that the piped Iranian gas constitutedthe most affordable long-term energy supply to India. Byfacilitating the trans-Pakistan gas pipeline project, Pakistandid not want to act as an instrument in fostering a long-term relationship between India and Iran, which wouldobviously challenge and reduce Pakistan’s stake in theregion. The benefit of the gas pipeline project with Indiaare long-term as Iran, with huge natural gas reserves, iscapable of addressing India’s growing energy crisis.Pakistan expressed its eagerness to participate in thepipeline project because of its own self-seeking interests.Iran sought to bring in Pakistan as a partner in the pipelineproject to ensure an economically feasible overland transitroute. India has sought to repel and play down the role ofPakistan as an equal partner in the project for the fear of itsenergy supply being disrupted in case of a military conflictwith Pakistan (S. Pandian, 2005). Also the domestic socialand political atmosphere in Pakistan seems to be inperennial disarray, too volatile to dispel concerns againstits economic stability and instill confidence in the long-termcommercial viability of any pipeline passing through itsterritory. However, the problem associated with oil and gassecurity and the Gulf, after all, are of a complexity thatdemands comprehensive solutions. Internationalizing alleast the energy issues could begin to disengaged the USfrom the current slippery slope on which it is increasinglyperceived as a regional combatant aggressively pursuingunilateral national and security interests to the detriment ofregional stability. Asian leaders are becoming increasinglyworried about their economies growing dependence onGulf oil and gas and are likely to be receptive to anymultinational initiative that would make supplies from theregion more secure or provide a framework for developingalternatives energy substitutes. However, the fate of theIran pipeline is still hanging fire. Apart from US oppositionto the project, there are also differences on the pricing ofthe gas. The two countries (India and Iran) have also notbeen able to decide on a price for the pipeline gas. Tehran isseeking at least $7.2/mBtu price for gas it wants to sell to

India and Pakistan through the pipeline, while New Delhiis willing to pay not more than $4.2/mBtu for its share(Mishra and Goswami, 2006). Furthermore, Pakistan’sweak financial position makes it difficult to securefinancing for ambitious pipeline projects. The oil and gaspipeline projects in which Pakistan is interested would notmaterialize unless the desired destination of the pipelinewould be India and world’s second largest market fornatural gas. Therefore, Pakistan’ s willingness to eventuallypay a security at the cost of causing overwhelmingadvantages to India is doubtful. On the strategic side, itis in India’s interests to ensure economic instability inPakistan. For Iran and Pakistan, the gas pipeline projecthas socio-politico-economic and geo-strategic components.The Pakistan economic gains of Iran gas pipeline projectwould be a continuous transit income and the option toprocure gas at a subsidized rate (S. Pandian, 2005). Thusthe crux of the matter is that there are major politico-strategic factors relating to all the involved players,including the US, which weigh against the on groundimplementation of the project. It is to be seen when suchhitherto dominating irritants get nullified by a cooperative,win–win and predominantly economic approach on thepart of these states, especially, India and Pakistan.However, the gas pipeline could bind the two countries

in economic linkages that would be quite hard for eitherside to snap for political reasons (Krepon and Haider,2005). As regards Indo-Pak relations, the traditionalpattern of hostility has not only continued, but has alsoconsiderably escalated. The Indo-Pak rivalry has revolvedaround three long-standing issues: Kashmir, communaltension, and the military. Many observers of this processare worried that overt nuclear rivalry will not produce astable deterrence configuration between India and Pakistan(Buzan, 2002). In sum, the grand vision of friendshipthrough economic integration is a gamble. But it is not avery dangerous gamble and may succeed. New Indo-Pakwars are possible, but extremely unlikely. Three wars overKashmir have proved that war achieves nothing. Andnuclear bombs are powerful deterrents (Kargil war may beseen as a mere border incident). Since war risk is small, itmay be worth taking a small risk on the pipeline for anoptimistic but possible peace gain. But it is not an energysecurity. If Iran pipeline is extended further to China it isbeneficial to India from security point of view, becausePakistan cannot cut off supply to India without cutting itoff to China. Whether China wants such a long pipelinethrough so many country remains to be seen (Aiyar,2005a). But China shows little interest in this projectbecause China feels that this project is full of challenges,such as US opposition. In addition, to China and India arerivals not only in Iran’s energy sector but also in globallevel. However, if India is to emerge as the world’s largesteconomy by the middle of this century as envisagedby Goldman Sachs, it has to solve two interrelatedchallenge: stem its growing energy deficit, and containactive and emergent security threats. In fact, energy needs


are beginning to dictate military planning for its long-termenergy strategy. For the first time, India has begun tointegrate its energy policy with foreign policy by con-sciously promoting oil diplomacy geared towards seizingenergy-related opportunities overseas. What is not happen-ing is the blending if India’s energy policy with defensepolicy. At best the two are parallel policies with littleconvergence and perspective sharing between ministries.

However, in a unipolar world with one superpower and anumber of regional big powers, values and nationalinterests of India may not coincide with the US. WheneverIndia’s policy has been on a collision with them, it hasreaped the consequences. This is what has happened in thepast in India’s relations with the West and China(Mukherjee, 2005). Then there is the real Pakistan, whichrefuses to establish even normal trading ties with Indiabut craves to earn hundreds of millions of dollars in transitfees and other annual royalties from a gas pipeline gasfrom Iran’s South Pars fields to Barmer. However,Pakistan promises to give pipeline related ‘internationalguarantees’ notwithstanding its record of covert actionsin breach of international law (such as the export ofterrorism) and its reluctance to reciprocally provide Indiawhat World Trade Organization (WTO) rules obligate it todo—Most Favored Nation (MFN) status (Ramachandran,2005).

But Indian government is likely to seek improvements inWTO rules related to Iran pipeline project, which involvefreedom of transit. Pipelines should be explicitly coveredunder Article V of General Agreement on Tariff and Trade(GATT), which deals with freedom of transit. This couldmake sure that Pakistan does not disrupt flow of Iraniangas to India. This long-term Indian government’s efforts tosource oil and gas from the Central Asian region wouldalso get a boost as such projects would involve flow ofgoods through several countries secured by WTO norms.India’s attempt to spruce up its energy security byacquiring equity in overseas oil fields would also gain fromWTO security shield, once norms laid down under ArticleV of GATT are strengthened. The WTO rule on freedomof transit was originally introduced for ensuring tradechannels of land-locked countries. Now India is looking atthe possibility of using some set of norms for securing gassupply through pipeline as the European Union (EU) hasalready initiated a discussion on the issue. The key pointthat is relevant to India’s plan to build a pipeline to sourcegas from Iran relates to national treatment for pipeline.Under the principle of national treatment which alsofigures in relation to foreign direct investment (FDI), thecountry through which a pipeline transits should providesome level of security to the transiting pipeline as it wouldhave provided to its domestic pipelines. In other words, thetransiting country should directly or indirectly standguarantee for the security of the transiting pipeline. Inthe case of the proposed Iran gas pipeline, Pakistan wouldhave to guarantee security of the pipeline under theimproved rules proposed by India.

However, the proposed Iran–India has a chequeredhistory, dating back to 1989. The idea of an overlandpipeline route tellingly did not originate in India. Rather,Pakistan floated the idea, with the backing of Australia’sBHP Billiton Ltd. Such has been BHP’s financial interest inthis project that it did a technical feasibility study of theoverland option free of charge, and its representatives tothis day continue to peddle the project. A committee ofsecretaries appointed by the then PM Narasimha Rao hadrecommended the underwater pipeline option. However,when India sought Pakistan’s permission to carry out apipeline survey through its EEZ, Pakistan cleverly dictatedthat the survey covers three options: deep-sea through itsEEZ, shallow water, and overland. That is how the idea ofan overland pipeline was born. Later, Pakistan hasextracted one more Indian concession to treat the overlandpipeline as a standalone project, unrelated to its refusal toopen up and transit to India (Sharma and Subramanian,2005).However, in the past 1 year, India has lost four times to

China in global energy bids: Angola, Iran, Sudan, andKazakhstan (Mitra, 2005). Despite talk of India and Chinastacking up forces to set up some kind of a buyers andconsumers cartel, competition rather than rivalry betterdescribes the relationship between the two countries in theglobal energy sector. There is merit in the Indian argumentthat joint bids in third countries will bring down the price.But it is not about money. It is geopolitics. That is why forthe Central Asian states and Iran in the Gulf, China is animportant neighbor, an economic power and veto-wieldingmember of UN (United Nation) Security Council. Besides,given China’s long-term strategic thinking Beijing hasquietly been building stakes in these countries. Despite thetraditional friendship between Iran and India, the Oil AndNatural Gas Commission (ONGC), lost out on an oilblock in Iran to China and came back with a marginal 20%stake in Yadavaran oil fields with China walking away with60%. China has promised to veto sanctions against Iran inthe ongoing nuclear crisis, besides selling technology fortheir missiles (Lodhi, 2006).However, the South Asian power equation cannot be

realistically appreciated without taking China into account.Beijing sees itself as an emerging economic, political, andmilitary superpower, with real and expanding interests inSouth and Southeast Asia (Routledge, 2005). As such,China challenges India’s preeminence, and their relation-ship has settled into a protracted rivalry. In the absence ofa strategic buffer, competing territorial claims have longbrought China into India’s security planning. Since themid-1960s, China has lent its political weight andtransferred arms to Pakistan in a vain attempt to create acounterweight to Indian hegemony. But Indian policy-makers in the 1990s insisted that Chinese aims directed atsecuring port facilities and economic dependencies, andgenerally, in seeking to project its influence over the IndianOcean, indicated a broader design. As further evidence,they cited arms transfer to Bangladesh, Sri Lanka, and


Myanmar. Above all, India believes that power balance inSouth Asia is affected by the fact that China is a nuclearpower. Indian leaders express concern that China will useits quantitative and qualitative superiority in nuclearweapons to intimidate the subcontinent and control theregion’s future. Indian policymakers choose to believe thatover the long-term China will inevitably develop highlyaggressive tendencies, pushing ahead vigorously with thedevelopment of tactical, strategic, and theater nuclearweapons. But a good case can be made that China’schallenge to India is wrongly perceived. India is far morethreatened by being left behind economically than bymilitary and political pressure. It is economic competitionwith China in regional and global markets that willdetermine the winners and losers in the 21st century. Inturn, China will have to acknowledge India’s desire to beviewed as the pre-eminent regional power in South Asia toa greater degree than it has to date. Curiously, althoughIndia is usually described as the world’s largest democracyand China the largest authoritarian, communist regime,these ideological and institutional differences seem tomatter very little in determining how they shape theirpolicies towards one another (Weinbaum, 2000).

However, Pakistan and India need peace and stability ifthey are to acquire security in the broadest sense. As aresult of their policies, however, both countries haveallowed social conditions to be created that underminetheir futures. The danger is embedded in poor educational,health and other social welfare programs that fail toprovide the human resources needed to compete globallyand also extract a high daily price in human costs. The lateMahbub ul-Haq underscored these issues when he for-mulated his Human Development Index, a measure of lifeexpectancy, education and welfare that has been publishedannually since 1990: both Pakistan and India rank near thebottom of the index. In fact, Pakistan is often placed in thecategory of sub-Saharan African countries because of itsHuman Development Investment (HDI) and its statisticson social sector spending. For Pakistan and India, it comesdown to investment priorities. If their economies are tobear the brunt of further increases in defense spending in anuclear era, their social and development sectors are boundto suffer. Pakistan has little choice. Defense and debtrepayments already consume roughly 70% of the federalbudget. In per capita terms, the country spends US$ 21 onarms against India’s US$10. Pakistan also spends 125%more on defense than on health and education combined,while India spends as unacceptably high 65% more. As aproportion of its Gross National Product (GNP), Pakistanspends more than twice as much does as India does ondefense. While decision-makers in both countries acknowl-edge that either can adequately care for its citizens, thegreatest scarifies always seem to be borne by the poorest(Weinbaum, 2000).

However, the most meaningful competition among theregion’s states is over access to markets and foreigninvestment. The outcome of this economic competition

has bearing of course, on relative military and politicalstanding. Along with social achievements, the variousmeasures of national well-being are interrelated and deeplyinterdependent. Prime Minister Manmohan Singh high-lighted the importance the uncertainties in Iran casting ashadow on finances for a possible IPI gas pipeline duringan interview with The Washington Post. He said that Iranremains very important to India. Apart from the pipelineproject, India has signed an LNG deal with Iran andIndian companies such as the Tata and Essar are keen oninvesting in that country. Though the development of theChah Bahar port in Iran and the road linkages toAfghanistan are major examples of Indian–Iran coopera-tion, New Delhi is aware that it needs to push ahead withthe project and ensure its speedy implementation. How-ever, Indian foreign policy in favor of implementing Indo-Iran gas pipeline project, before that clear negotiate theprice of gas according to India with present Iraniangovernment.However, Indian policy towards Iran will be litmus test

of the Manmohan Singh Government’s sincerity inpursuing an independent foreign policy (Baruah, 2005).Washington will not be happy if India pursues strategicenergy cooperation with it. However, political reasonsalways play a role. The United States has repeatedlyaccused Iran of producing weapons of mass destruction,supporting international terrorism, and sabotaging thepeace process in the Near East. In order to limit the clericregime’s means for funding such activities, Washington’sintervention was not only directed against the Iraniangovernment. Two years earlier, the US Congress hadimposed economic sanctions, making it illegal for Amer-ican companies to do business with Iran. The sanctionsexplicitly forbade oil swaps. A controversial amendment,the so-called D’ Amato Act (ILSA), also threatenedEuropean companies investing in Iran with heavy fines.Therefore, Iran is a danger to the United States becausethey seem to be the only people in this region not to putwith American domination. The sanctions against themhurt them less than they hurt the American economy itself.The outcome of the domestic power struggle in Iran will beimportant for the new great game. Should the reformistsbehind President Khatami prevail, Iran could free itselffrom its international isolation and open itself more to theWest, to the benefit of Iran’s traditional ties with Europe.Whether this would reduce the rivalry with the UnitedStates in the region remains doubtful. Both countries arecurrently too incompatible in their strategic and economicinterests (Kleveman, 2003).However, the US opposes the gas-pipeline deal; first, in

its perception it would help ease Iran’s economic difficultiesbecause of the handsome revenues it would generate. As itis, the US is concerned about the bonanza that oil-richcountries including Iran are reaping due to skyrocketingglobal oil prices. Secondly, the pipeline would set adangerous precedent for other countries to follow. Iran issuitably placed as the natural transit corridor for the


transport of Caspian Sea oil and gas. The US has,therefore, gone overboard to draw transit routes forCaspian oil that bypass Iranian territory. The primeexample of this approach has been the construction ofthe Baku-Ceyhan oil pipeline. In this case, the US made anextraordinary effort to route the pipeline towards theTurkish port of Ceyhan, so that Iranian territory wasavoided. In this politically driven deal, the companiesinvolved had to spend millions in extra costs to constructthe pipeline through unfriendly terrain and conflict provenzones. Thirdly, and most important, the pipeline wouldhelp anchor friendly ties among Iran, Pakistan, and India.This would greatly undermine US strategic leverage withIndia and Pakistan against Iran in the future. Therefore,determined to keep Iran as isolated as possible, the USeven prior to Mr. Ahmadinejad’s emergence had tried topersuade the Europeans and Iran’s Arab neighbors torestrict economic and political links with it. The Europeanshave largely disregarded Americans exhortations, andIran’s relationship with them has grown over the years.European companies have pumped in billions of dollarsin Iran–Libya Sanctions Act adopted by the US, whichbars investments of more than US$40 million intoIran’s hydrocarbon sector. Defying US pressure, Japan,Washington’s trusted ally, has also decided to put US$2billion into developing Iran’s giant Azadegan oil field,which has estimated deposits of 26 billion barrels. InOctober 2002, Iran urged Caspian oil producers to ignoreUS sanctions and to pipe their oil through Iran. TheGolden Gate from the Caspian Sea to the Persian Gulf isnow open and companies in the Caspian Sea can be suretheir resources will be delivered in international markets(Bhadrakumar, 2005).

Sanctions against Iran have thus far discouraged US oilcorporations from accepting the Iranian pipeline offer. ThePersian route would be, as even US oil executives concedeprivately, shorter, cheaper, and safer than any of the otherplanned pipelines through Russia, the south Caucasus, orAfghanistan. And while European companies active in Iranalso face heavy fines in the United States, very few of themfeel similarly bound by the US sanctions. The FrenchPrime Minister said that no one accepts that the UnitedStates can now impose their laws on the rest of the world.European companies have taken advantage of the absenceof US competition on the Iranian oil market. In its effortsto keep the US out of the Caspian region, Iran has foundan unexpected ally in Russia. United States activities in thisregion have led both countries to temporarily set aside theircenturies old enmity. Now that they no longer share acommon border after the fall of the Soviet Union, theirrelations have grown almost cordial. Despite sharpcriticism from the US, Moscow encourages Russiancompanies to sell arms to Iran, and to assist the countryin building its first civilian nuclear power plant at Bushehr.The US$800 million project, to be completed by 2004, hasbeen a major concern for US officials and non-prolifera-tion experts who fear that Iran could covert nuclear waste

from the plant into weapons grade radioactive material,thereby accelerating its efforts to develop its own nuclearweapons. The Russian assistance to Iran has now becomethe biggest stumbling block in the current US–Russianrapprochement (Kleveman, 2003).However, US delegation to the UN Conference on

Disarmament in Geneva has tabled a draft FissileMaterials Cut-off Treaty (FMCT). It has also moved fornomination of an ad hoc committee from among 65members of the conference to start the negotiating process.In the joint statement of July 18, 2005 India had promisedto collaborate with the US in finalizing the FMCT. Thoseopposing the nuclear deal point out that if the treaty comesinto force India would have to stop production of fissilematerials and that would cap the Indian arsenal at a levelmuch lower than what is considered a credible minimumdeterrent. The US document is a very curious one. It has noprovisions for verification as in the chemical weaponsconvention. The verification would be left to individualmembers and it will be up to them to bring violations to thenotice of the UN Security Council. The US assumptionsmay presumably be that this treaty relates only to the eightnuclear weapon states and, therefore, such verification bychallenge should be adequate. The US has the mostextensive national technical verification capability and,therefore, it will operate as the global policeman. In thecase of plutonium the matter is relatively simple. Onlyreactor-grade plutonium will be produced under theproposed draft. But in case of enriched uranium the draftallows up to 20% enrichment. The same centrifugescontinuing the process can produce 90% enriched weap-ons-grade material, which is the bone of contention in Iran.Tehran argues that it intends to produce 5% enricheduranium for use in light water reactors. European nationsand US feel Iran is likely to cheat and produce weapons-grade material. How will this issue be solved without onsiteverification? For India, this is awake-up call. It wouldappear that for the last eight years, those in charge of ournuclear security have allowed things to drift withoutbuilding up a credible minimum deterrent. Knowing thatthe FMCT is likely to come up, steps should have beentaken to produce weapons-grade fissile materials as fast aspossible. The most appropriate strategy would have beento produce weapons-grade plutonium and stockpile it(Subrahmanyam, 2006). A top US national security analystsaid that India can develop up to 2000 nuclear bombs withthe reactor capacity in the eight military reactors even afterthe CIRUS reactor is decommission. Dr. Ashley J. Tellis, asenior associate with the Carnegie Endowment for Inter-national Peace, was making the point that the Indo-UScivilian nuclear deal will not effect India’s capability ofproducing a large arsenal. However, the US has alreadymade it clear to India that the deal will become invalid ifIndia were to test a nuclear weapon. However, nuclearweapons are political weapons and not weapons of‘‘fighting’’. Their sole purpose is to deter the use andthreat of use of nuclear weapons. A nation’s nuclear force


structure depends on its nuclear doctrine and deterrencephilosophy. However, after holding 35 joint militaryexercises and scores of bilateral visits and meeting overthe last 5 years, the defense ministry (MoD) has suddenlyasked the armed forces to go slow in their interactions withthe US. The basic motive behind the directive is to ensurethat other countries, including allies like Russia andFrance, do not feel neglected. ‘‘It would send wrongsignals if our armed forces primarily focussed only on theUS to the neglect of all others’’. However, Russia hasdrawn up plans to build to 100 nuclear reactors over thenext 25 years in an effort to reduce dependence onhydrocarbons and consolidate its position as the world’senergy superpower. Russia has the world’s largest energyreserves, accounting for 13% of proven oil finds; 34% ofnatural gas; and a quarter of all coal. It is biggest naturalgas exporter and the second largest supplier of crude.Nuclear power today accounts for 16% of the country’selectricity generation, and the Kremlin has set a target toraise its share to one-quarter by 2030.The massive build-upis expected to help Russia win a bigger share of the globalnuclear energy market. Today Russia controls 25% of theworld market of enriched uranium and nearly 50% of theconstruction of nuclear reactors. Russia is currentlybuilding nine nuclear reactors; three inside the countryand six in Ukraine, China, India, and Iran. Russia’s planfor global expansion will get a major boost from a plannedagreement with the US on nuclear energy cooperation. Thedecision to sign such a pact, the first in the history of thetwo countries, was reached by Presidents Vladimir Putinand George W. Bush during their meeting in St. Petersburgon the sidelines of the G-8 summit. While the US is keen toget access to more advanced Russian technologies, such asfast neutron reactors. Russia is looking to earn billions ofdollars in atomic power station construction, as well as fuelsupply and reprocessing. Once restrictions on any coopera-tion in the nuclear sphere with the US have been lifted.India may stand to benefit from Russia’s nuclear industryexpansion, which will enhance Russian technology exportcapabilities and bring down the costs. Russia is currentlybuilding two nuclear reactors at Koodankulam, TamilNadu, and is eager to participate in a big way in India’splans to generate 20,000MW of nuclear electricity by 2020(Srinivasan, 2005; Vladimir, 2006). However, US onlysupport India’s civilian nuclear program, and not anynuclear weapons capability enhancement. The US andIndia Nuclear Cooperation Promotion Act of 2006—to berenamed the Hyde Amendment after the lawmaker whoengineered it. The Act will permit armed a certifiablynuclear-armed India to buy reactors and fuel from theinternational market for the first time in more than 30years (subject to final approval and international consent),despite not having signed the Nuclear-Proliferation Treaty,which is the gateway to such commerce. It will, in effect,mark the end of India’s nuclear isolation and possiblyarrange the global strategic architecture. It can also beargued that in the long run, India and the US are bound to

come closer as Pakistan’s utility in the ‘‘war on terrorism’’declines and containing fundamentalism in Pakistan itselfbecomes a US foreign policy priority. The US also hopesthat India will join its Proliferation Security Initiatives andmissile defense program, further cementing their bilateralties. In fact, the two countries have signed the ‘‘Next Stepsin Strategic Partnership’’ (NSSP) agreement that paved theway for Indo-US cooperation in area of civilian nuclearactivities, civilian space programs, and high-technologytrade as well as a dialogue on missile defense with eachother. The US nuclear agreement, India has beenrecognized as a responsible nuclear weapon state. ThePentagon has been designating India as a ‘‘friendly’’foreign country for the last few years along with nationslike Austria, Brazil, Bulgaria, Finland, South Africa, andKuwait. This is despite the fact that India refused to obligethe US request for troops to Iraq (Pant, 2006). As far Indo-Iran gas pipeline issue is India is not cancel this projectdespite that Indo-US nuclear deal. India has bristled at theIran rider in the bill because it actually makes things muchmore difficult within this country, entangling nuclearcooperation with the US with India’s policy to Muslimand the Islamic world. This has sparked some of thebitterest opposition to the nuclear deal, inviting chargesthat India was outsourcing its foreign policy to Washing-ton. On the ‘fiss-cap’ provisions, India has declared that itwill not unilaterally cap its fissile materials production,while Pakistan and China retain theirs. However, India’spoint of views the Indo-US nuclear deal and Indo-Iran gaspipeline project both issues are important for rapideconomy growth. Therefore, in the current situation it istoo difficult to predict India prefers a close relationshipwith the US at the expense of gas trade with Iran.However, the geopolitics of pipeline from Iran to India

has become a major foreign policy issue for the UnitedStates in the last few years and today also (Noreng, 2002).Countries like Iran, Pakistan, India, China, and Russia arecompeting to gain a piece of the great pie. However, UnitedStates favors Turkey for political reasons as against Irandue to will of its business community. At stake for Iran isstrategic and not just economic, gains or losses. No wonderUS is not letting the business executives and states in theCaspian region including Iran play the pipeline gameamong themselves. The winners of the pipeline game willreap strategic benefits while losers will become margin-alized for some time to come. Favored by Iran and oilcompanies, the southern routes make better economic andcommercial sense. They are cheaper to build, pass relativelysafer territories and pose no serious environmental hazard.Significant pipeline and port infrastructures also exist(Amirahmadi, 2000).

6. India and Pakistan

The political environment in South Asia is marked by anambience of hope and anticipation. We are witnessing themost intensive diplomatic engagement between Pakistan


and India since the military stand off of 2001–2002. Fromthe depths of confrontation and crises, Pakistan and Indiahave been able to take a series of confidence-buildingmeasures (CBMs) to establish a modicum of stability totheir relations. Five features mark the new environment.First, there is a strong popular sentiment for peace in bothcountries and new stakeholders for peace have emerged.Second, there is a manifest sense in both countries thatthere is no military solution to the Jammu and Kashmirdispute or other problems. Third, there is recognition atboth popular and official levels that neither country canachieve its full economic potential or achieve prosperity forits people, while engaged in confrontation. Fourth, the twocountries realize that they need to carefully manage theirrelations in a nuclearized environment. Fifth, globalizationis unleashing new dynamics and creating imperatives forcooperation, reshaping Pakistani and Indian politicalperceptions. The strategic relationship between Pakistanand India remains undefined and unstable. Pakistan hasproposed a strategic restraint regime to define and stabilizethis strategic relationship, both in the nuclear andconventional fields, based on the concept of minimumdeterrence. The future of the dialogue and stability inSouth Asia depends on whether the two countries canaddress and overcome their divergences, especially onKashmir and the nuclear–military balance, and build onthe areas of convergence-trade, regional economic coop-eration, and North–South issues. The Indo-US nucleardeal has raised serious questions for regional stability.Under the agreement, a large number of facilities andreactor including breeder reactors will be maintainedoutside safeguards, which will encourage India to continueand even accelerate its weapons program without anyconstraint or inhibition. This threatens to erode minimumnuclear deterrence and strategic stability as proposed byPakistan. It could also trigger a new arms race in ourregion. A package approach for India and Pakistan, ratherthan the discriminatory one being pursued, would help toavert a nuclear arms in the region, promote restraint andpreserve strategic stability while also ensuring that thelegitimate needs of both countries for civilian powergeneration are met. A stable nuclear strategic relationshipis essential for normal relations between India andPakistan. A balance in conventional weapons is also anessential component of sustainable stability (Lodhi, 2006).As far as the IPI gas pipeline project is concerned, theIndian government is committed to favor this project in thecurrent situation in the aftermath of the Indo-US nucleardeal and the prevailing nuclear scenario in Iran. Theimpetus is India’s long-term energy demand. The Indo-Iranpipeline project has such broad geopolitical ramificationsthat it would be prefer or favor this project. 1. It would be afinancially viable alternative. 2. India and Pakistan willexperience the necessary burden of mutual dependency forthe first time in decades. Iran will get to develop a stableand secure export market for its natural gas. 3. The IPIpipeline might become the catalyst for a wider network of

pipelines crisscrossing the Asian heartland and connectingareas of supply with areas of demand in a mannerunmediated by outside influence. 4. The involvement ofPakistan in this project is not a problem. But anopportunity for India because involving Pakistan in atrilateral or even multilateral energy grid is an excellentway of raising the level of economic interactions betweenthe two neighbors who have traditionally been at logger-heads with each other (Varadarajan, 2006). 5. For Iran, theIndo-Iran pipeline project offers not only a long-termpotential markets for its natural gas resources, but it alsoconfers upon Iran a strategic value. 6. Moreover, the levelsof competition have intensified in the global gas industryafter years of mergers in energy sector against a back-ground of emerging markets. In this regard, the stakes toexport natural gas to emerging markets, such as India andChina, are high. Like others, Iran’s natural gas industry isalso facing serious challenges on its export front fromRussia, Qatar, and Turkmenistan. Faced with stiffcompetition from other pipeline gas projects, the countriesin the region are hurrying up to negotiate the long-term gaspipeline projects (S. Pandian, 2005). 7. India will also bekeen to resolve the issue of the tri-nation gas pipeline.Despite considerable US displeasure and pressure tactics,India has been committed to the idea of strengtheningenergy cooperation with Iran. Until such time as thepipeline becomes a financially feasible proposition, India isprepared to increase the quantity of gas imports from Iran(Kumaraswamy, 2006). Significantly, gas export is a two-way trade and India is not the only beneficiary. A broadpicture of India’s energy diplomacy vis-a-vis countries likeQatar, Saudi Arabia, and Russia might indicate that Iranwould also be a loser if the gas deal falls through.A detailed outlook of the extent of Indian investmentplans in other parts of the world might convince Iran. Andthough important, it is not India’s only option. While it islegitimate for Iran to demand a higher $7.2/mbtu price forgas it wants to sell to India and Pakistan, India is, however,willing to pay no more than $4.2/mbtu for gas delivered atits border. Iran will not sell its gas at the proposed price.According to Tehran, if the Indian side is not ready to buyits gas at its real price, it has no obligation to sell it at theprice lower than the real one. But India will not favor to bedictated to. Not by US and not by Iran. 8. The importanceof nuclear power, which has become an economiccommodity because of the high price of oil and fear offurther rise. In such a context the US has offered itscooperation to India in the civilian nuclear field after eightnuclear reactors have been excluded from the civiliansphere. The US has also agreed to offer nuclear fuel forpower production to India. But Pakistan will not be offeredsuch a facility by the US in view of its proliferation record,said the US Secretary of State Condoleezza Rice while inPakistan. The US Secretary for Energy Samuel Boodmanwho led the delegation to Pakistan immediately afterPresident Bush’s visit, said: India’s needs are different, itsproblems are different and its programs are different. And


he advised Pakistan to get gas not from Iran, but fromQatar at a cost of $8 billion for the pipeline. 9. Energysecurity has become a question of national strategy. It is anissue of great importance, and so once again today. But thesubject now needs to be rethought, for what has been theparadigm of energy security for the past three decades istoo limited and must be expanded to include many newfactors. Moreover, it must be recognized that energysecurity does not stand by itself but is lodged in the largerrelations among nations and how they interact with oneanother. But it is also fueled by the threat of terrorism,instability in some exporting nations, a nationalist back-lash, fears of a scramble for supplies, geopolitical rivalries,and countries fundamental need for energy to power theireconomic growth (Yergin, 2006). However, India, wary ofthe physical security of the on-land pipeline, sought aguarantee from Iran that, if Pakistan stooped the gassupply in case of an armed conflict, Iran will supply anequal amount of LNG to India at the same price. In return,Tehran has agreed both to supply an equal amount ofLNG to India at the same price in times of supplydisruption, as well as to stop delivery of gas to Pakistan ifIslamabad disrupts gas supplies to India. Iran alsoproposed setting up an international consortium of bank-ers and energy companies that would buy the gas from Iranand sell it to India. To ensure uninterrupted energy supply,it also suggested a tripartite agreement between India, Iran,and Pakistan with the inclusion of global financialinstitutions such as the World Bank and Asian Develop-ment Bank as guarantors. Furthermore, it was suggestedthat Islamabad’ s expectations of substantial transit feeswas a reasonable enough guarantee against sabotage byPakistan (S.G. Pandian, 2005).

7. The Iran issue

However, the Indian analysts have begun exaggeratingthe areas where Indian and US strategic interests converge.Nothing could be further from the truth. From West Asiato East Asia, the US has emerged as the principal threat tostrategic stability. Its policies of regime change, pre-emptive war and sanctions against states that refuse toaccept its diktat, combined with permissiveness towardsIsrael, is degrading the security environment in Asia in away that will adversely affect India’s interests. Even as itlooks forward to the implementation of its nuclear dealwith the US, India must be mindful of the collateraldamage its relationship with US could cause for itself andthe region (Varadarajan, 2006). However, the US, withinwhich the games that have been played over Iran by allcorners, presently needs to be situated. The US is playingfor huge stakes. In comparison, the Indian government isplaying for very small stakes but pretending that these aremuch bigger stakes in order to justify its foreign policystand in support of the US. The US since the end of theCold War has been seeking to establish a permanent globaldominance, an informal global empire, or what some prefer

to call a stable and enduring unipolarity. To achieve this itmust achieve dominance over the strategically vital regionof West Asia. This in turn means it has to reverse thegreatest political–strategic defeat it suffered in this region.The aim of the US since the fall of the Shah in 1979then, has been constant. Its problem has been how to goabout undermining the Iranian regime and making itsubordinate through regime change, if necessary. For along time now the US has selectively opposed certaingovernments developing nuclear weapons. But September11, 2001 (9/11) added a new dimension. It created anurgent determination on the part of Washington that fromnow on it was not just a question of not letting certaincountries get the bomb but that even there capacity tomake the bomb must be denied. Since this capacity isinseparable from the inherently dual-use nature of nuclearcivilian energy production this had to mean US interven-tion to prevent complete control of the entire nuclear fuelcycle by some countries, above all Iran. But naturallyenough, not of countries like Germany, Japan, etc. who arenon-nuclear signatories to the NPT but which havecomplete control over their respective nuclear fuel cyclesand can, if they put their minds to it, make nuclearweapons much more quickly than Iran. Expert estimatessuggest that it would take Iran several years, possibly adecade, to make the bomb after it takes such a decision,whereas Japan can make a bomb in a few months. The USput pressure on the Indian government to support it in theIAEA. The key for the US was to get Russia and China onboard. Now this Indian government can simply andhappily hide behind this turn of events and tell itself andeverybody else that it is in its interest to support the US.Because the big two of Russia and China are going in thisdirection or at least not obstructing the US plans vis-a-visIran. In effect, the relative inconsequentiality of Indiamakes its easier for the government to behave moresupinely before the US and to claim at the same time that itis not doing so under US pressure. The US is getting whatit wants from governments. It knows that in order for it toestablish its global dominance it must make sure there is noserious opposition to it from significant powers. And toensure this, must tie them up in arrangements includingformal and informal alliance structures that can sustain itsoverall hegemony (Vanaik, 2006).However, presently situation of Iran becomes a sus-

pected or a de facto nuclear weapons state, it is feared thatits neighbor such as Iraq, Saudi Arabia, Egypt, Syria, andTurkey, may consider their nuclear options. There is theongoing security concern of Israel, and even the possibilityof future hostilities with the United States. All these makethe nuclear option a tempting quick fix for present andfuture security dilemmas. Egypt, despite its close securityrelationship with the United States, may well considernuclear alternatives on the basis that it no longer carries theprestige in Arab politics that it once did. And a nuclearIran would be yet another insult to Egyptian prestige. Inaddition, to provide leverage in future negotiations the


strategic calculus of Syria may also point towards nuclearattainment. With an ambiguous future in Iraq and withIsrael to the south, Syria occupies a position that isextraordinarily isolated, vulnerable. Such a position mayprovide powerful incentives to develop nuclear weapons. IfIran develops nuclear weapons capability, the balance maytip dramatically in favor of Iran. However, if the US andthe EU fail to convince Iran to forego the nuclear weaponsoption, Turks (especially from the younger generations)may not remain loyal to the norms of the non-proliferationregime. The US faces essentially three options to stop Iranfrom going further down the road to become a de factonuclear weapons state. The first possibility is to stage‘‘regime change’’ and brings in an administration thatmight renounce nuclear weapons. The second is to carryout a ‘‘military strike’’ (limited in scope and purpose)against carefully selected nuclear installations to set thenuclear program back several years. The third is to,‘‘engage’’ Iran diplomatically and apply a ‘‘carrot andstick’’ policy to convince the ‘mullahs’ that it is not in theirbest interest to pursue a complete nuclear fuel cycle. Eachof these options involves difficulties when considered inlight of Iran’s realities. On the issue of normalizingrelations between Iran and Israel. Iranian senior analystsargue the ‘‘the formal recognition of the state of Israel byIran may also be possible if essentially a ‘grand bargain’.Dr. Saideh Loitfian, from Tehran University, has clearsuggestions for the ‘‘very big’’ gains: Iran could enter intonegotiations for shutting down its nuclear power industry,with the following conditions. All sanctions against Iranshould be removed, particularly sanctions restrictinginvestment in its oil and gas sectors. Iran should beadmitted to the WTO. Iran should become a beneficiary offoreign technical aid to find substitute sources of electricpower; and Iran should be given positive securityguarantees to ensure its national security in the absenceof its nuclear deterrence capability. Eventually Iran shouldbe included in a regional system in the Persian Gulf(Kibaroglu, 2006).

However, India’s point views three issues dominate andundermine the bilateral agenda. First and foremost, Indiais apprehensive of Iranian nuclear ambitions. Agreed, themanner in which India expressed its concerns vis-a-vis thisissue may be questionable and India could have handled itsvote at the IAEA more tactfully. But given the A.Q. Khanconnection, India would have opposed Iran even withoutthe US angle. Furthermore, as far as the nuclear issue isconcerned, India is on the same side as China and Russia: anuclear Iran is a threat to its long-term strategic interests.Any peaceful and diplomatic resolution will require Iran’sability and willingness to swiftly, unequivocally, anddecisively convince the international community, especiallythe IAEA, of its peaceful intentions. India does not see anymilitary solution to the conflict, it also does not shareIranian penchant for dragging its feet. The perceivedsympathy of China and Russia towards Iran is nothingmore than a leverage to secure better deals from US. If the

price is right, neither will not hesitate to ‘‘abstain’’ fromany crucial vote in the Security Council. Iran cannot ignorea harsh reality: like the US, both China and Russia areopposed to Iran going nuclear. India might also use therecent meetings with other leaders from the Middle East,especially King Abdullah of Saudi Arabia and Kuwait’sEmir al-Sabah, to get the point across to the Iranianvisitor. Their concerns and apprehensions over theperceived Iranian hegemony are real and could not bewished away by political rhetoric (Reuters, 2005). In 1991,Saddam Hussein underestimated the opinion of theinternational community over Kuwait and Iraq paid theprice. Hopefully, Ahmadinejad will look for a betterexample than Saddam to emulate. Third and mostimportantly, Iran has only one address in India: Govern-ment of India. While the country can benefit from India’sdemocratic polity to influence the official Indian policy hasto stick to certain norms. At the height of the domesticcontroversy over the IAEA vote, an impression was createdthat Iran was trying to influence the policy by be-friendlycertain quarters that were critical of the Congress govern-ment. In the early 1990s, Iran sought to play up the Shiafactor and there were suggestions of tacit Iranian involve-ment in the Kashmir upsurge. Now, it is playing footsiewith the Left, which has emerged as a bitter critic of thegovernment over Iran’s nuclear puzzle.

8. Iran and India joint ventures

Indian companies have been promised participation inIranian gas fields. The Iranians have also opened up theirpetrochemical sector for Indian investment. Indian firmshave already signed an agreement that would allow them toparticipate in the Yadavaran and Jufeir oil fields, besidesaccessing the offshore Farsi block for exploration. In-cidentally, India and China along with Iran will be partnersin the Yadavaran effort, a move that might acquire greaterpolitical meaning if similar ventures are pursued in thefuture. Iran and India have been deliberating over transitthat would enable speedy transfer of Indian goods toEurope and Central Asia. Both sides have recently begunofficial level discussions on a land corridor that could allowIndian goods to transit through Pakistan, Iran, andAzerbaijan on to Europe. In case discussions succeed,containers can be sent from Punjab by road or rail toPakistan. From there, they can be transhipped by rail intoIran, once it completes construction of the 540-km rail linkbetween Zahedan on the Pakistan border and Kerman.Efforts are also under way to build a small portion ofrailway track to connect Iran with Azerbaijan. Someexperts envisage that Indian goods would reach Europe ina record 13 days if this route were opened up. India andIran have also been discussing ways to transit Indian goodsvia the port of Chah Bahar. There is a proposal that Indiaconstruct a rail link from Chah Bahar to Bam. Once this isdone, Indian goods can be sent from Chah Bahar to theCentral Asian republics as well as Russia along an existing


rail network, which connects Iran with the former SovietUnion.

Simultaneously, India and Iran are jointly working onextending the Iranian road network into Afghanistan.Indian construction activity is centered in Afghanistanbetween Zaranj and Dearam. The Iranians have beenworking on refurbishing a road system via Zahedan andZabol, which is located at the Iran–Afghanistan–Pakistanborder junctions. Once completed, the Iranian roadnetwork would be connected to the garland road systemin Afghanistan and enable traffic to move towards theCentral Asian republics and Russia. Both countries have ajoint stake in the development of Chah Bahar port. WithJebel Ali in Dubai fast becoming overcrowded, ChahBahar is ideally located as a future-shipping hub forfacilitating east–west trade. Once endowed with sufficientwarehousing facilities, Chah Bahar can be used fully forpromoting trade with land-locked Central Asia. Besides,Chah Bahar is also geo-strategically significant as it standsat the gates of the Gulf of Oman and the Arabian Sea,overlooking vital shipping lanes emerging from the PersianGulf. As ties between Iran and India deepen, both sideshave been looking at new areas. Indian steel giant TataSteel plans a joint venture with an Iranian company tomake steel in the Persian Gulf Special Economic Zone(PGSEZ) in Bandar Abbas. Tata Steel and an Iraniancompany are also planning another three-billion-tonneexport oriented unit at Bandar Abbas. The company willalso participate in establishing a gas based iron pellet plantat Gol-e-Gohar in Kerman province, using locally minediron ore (Aneja, 2005).

9. Persian Gulf politics

Oil defined the geopolitics of the Persian Gulf earlier andit continues to do so in the 21st century (Akiner, 2004). Inother words, a perspective driven by oil and gas hassuperseded the spatial recognition of the Caspian states aspost-Soviet political and economic appendages. We nowsee these countries through a new prism, based on a geo-economic and geo-strategic model, characterized by theimportance of oil, gas, and pipelines. Foreign powers arepolitically active in the region, using Persian Gulf govern-ments and groups for their own purposes. Various PersianGulf interests invite and use foreign powers for their ownprotections and strength. Oil and gas is the commoningredient in the multiple relationships between foreignpowers and Gulf interest and an essential factor in thepattern of regional conflicts, but not the only one. Thecombination of regional dispute and foreign intrigue hascaused an extraordinary level of tension in the region, withrecurrent open conflicts as well as a multitude of latentnational, ethnic, and territorial discords. Indeed, since theend of the Cold War, the Persian Gulf has been the world’smost conflict-ridden and militarized region Noreng, 2002.Once again Israel–Lebanon war will be on the rise. Howmuch more terror from the hands of Hezbollah and Hamas

should Israel absorb before its legitimate right to self-defense is recognized in world opinion. What is the otheroption for Israel as long as Lebanon is being completelyoccupied by terror and is subjugated by it. Israel has noquarrel with Lebanon and no claim territorial or otherwise,but seeks only to ascertain that the Lebanese border doesnot become a base for terror attacks against Israeli civilian.Any success of terrorists in pursuit of their goals, especiallyby means of mass killing of the enemy’s civilians is receivedwith cheers by their fans and supporters. Any set back tothese forces by means of resolute military operationsagainst them immediately ignites widespread rage in theneighborhood. Hatred and blood, of their enemies or theirown, inspires them and ignites their imagination. Needlessto say cheerful crowds greet that Hazbollah’s successfulkilling and kidnapping, by and large, across our region.This is not so much out of the desire to see the emergenceof a truly independent state of Lebanon or an independentstate of Palestinian state, but out of a desire to see thedisappearance of Israel (Danieli, 2006). Even moredisturbing is the fact that no genuine attempt has beenmade to enforce an immediate ceasefire, despite mostgovernments in Rome asking about for it. Continued Israelbombing of Lebanon would further complicate matters,and endanger the world both in terms of ideologicallystrengthening Pan-Islamist terror and aggravating theglobal energy crisis. India, given that it’s a key emergingeconomy with rising energy needs, must certainly intervenein its own interest. But Israel foreign ministry officialGideon Meir said: ‘‘we cannot accept a ceasefire withHezbollah because this terrorist organization would exploitit to gather civilians to use them as a human shield in thecombat zone’’.

10. Indian energy scenario

India has currently got electricity generation capacity of127,000MW but faces a peak energy deficit of about 47%.This is 3% of the world capacity. The average plant loadfactor is 60%. That means only about 70,000MW ofelectricity is generated. Transmission and distributionlosses range between 18% and 62% in various states. Thismakes an average of 40% which means about 43,000MWof power only is available at consumption point. About20% inefficiency in the utilization of electricity leaves onlyabout 34,500MW of power actual consumption out of aninstalled capacity of 115,544MW. This is a crying need forincreasing the efficiency level, which is very much possibleat minimal cost. (Narayan, 2005) Therefore, the demandfrom the power sector will increase to 400,000MW fromexisting 120,000MW, assuming an energy growth rate of5%/annum. India also depends on oil to the extent of 114million tons every year, 75% of which imported and usedalmost entirely in the transport sector. India has 17% ofthe world’s population but just 0.8% of the world’s knownoil and natural gas resources. It ranks sixth in the world interms of energy demand. Its economy is poised to grow

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7–8% in the next two decades and in its wake there will bea substantial increase in demand for fuel and electricity.

India is known to have five lakh tons of thorium,roughly one-third of the world reserves. It is the onlycountry that is committed to using thorium as a nuclearfuel. While the country has significant reserves of coal,it is comparatively poor in oil and gas. Due to stagnatingcrude production, India imports approximately 70%of its oil, much of it from West Asia. World EnergyOutlook published by the International Energy Agencyprojects India’s dependence on oil imports to grow to91.6% by the year 2020. India is well endowed withrenewable sources of energy. Latest estimates give thepotential for wind power at 45,000MW (wind farmshave sprung up in many Indian states with significantprivate investment; wind capacity, 3595MW and morethan nuclear power capacity 3310MW). There is noreason why wind capacity cannot be doubled in the next2–3 years. Solar energy has a number of decentralizedapplications, and should be further encouraged) smallhydropower at 15,000MW, biomass power at 19,500MW,and waste-to-energy at 4200MW, making a total of83,000MW. Though a full-fledged Ministry for Non-conventional Energy has been in existence for more thana decade now, only 4885MW, a mere 6% of the potential,has been tapped so far. Similar is the case, with theexploitation of the renewable potential into electric power,our energy future could be secure and dependence on fossilfuels could be significantly reduced. Anandalingam, 2005;Rajappa, 2005) (Fig. 1).

Therefore, nuclear power looks like becoming critical toIndia’s economy and long-term energy security. First,India’s rise as an economic power means that its energyneeds will rise massively. The BRIC report of GoldmanSachs projects India’s GDP to rise by 40 times between2000 and 2050. If energy consumption rises at just halfthis rate, it means India will need 20 times more energyin 2050. It will be difficult or impossible to meet theseneeds through conventional fuels. Secondly, the price offossil fuels has shot up, with oil more than doubling toUS$80/barrel and gas more than tripling to US$7/mBtu inthe US. Oil prices are notoriously volatile and could fallsharply in a few years. But they will surely rise again later.The emergence of China, India, and other Asian countriesas major consumers means that global supplies of fossilfuels will increasingly come under pressure. By contrast,nuclear energy is unconstrained by fuel worries: a smallamount of uranium generates many megawatts, andplutonium can be extracted from the spent fuel to yieldfresh fuel in mixed-oxide reactors. Nuclear power plantsare extremely capital intensive, costing twice as much asthermal plants of comparable output. They need anadditional 10–15% for de-commissioning when theybecome too old to operate. But they have the big advantageof very low running costs. By contrast, running costs canbe half the total costs in a thermal plant, and keep risingwith fuel prices.

Expectations are that high prices of crude will not goaway. The average oil prices paid by India rose fromUS$28 in 2003–2004 to around US$51/barrel in April–June2005. The total oil bill is in excess of Rs. 150,000 crore.This is a huge tax being paid by the nation to oil producers,and its effect is evident. Current account balance deterio-rated from a surplus of US$10.5 billion in 2003–2004 to adeficit is likely to cross US$14 billion this year. The rupee isunder pressure and will continue to be so as interestsensitive capital flows go easily when US interest rates rise.(Narayan, 2005) The government too is consideringincreasing the price of oil and natural gas in the inter-national market. Therefore, it is saving the oil marketingcompanies (OMCs) which are suffering from low cashrevenue because its price system is controlled by oilministry. The government of India again reintroduced theadministered price mechanism (APM) which it haddismantled in favor of market linked prices. The OMCsare facing cash losses of up to Rs. 40,000 crore by the endof the financial year, without raising retail prices. (Thecombined loss of IOC, HPCL, and BPCL in July was Rs.1516 crore. IOC, alone lost Rs. 467 crore on petrol, Rs.2730 crore on kerosene, and Rs. 1180 crore on LPG duringApril–September. This comes at a time when global crudeoil prices crossed the US$70 barrel mark. IOC is losing Rs.52 crore everyday on account of selling petrol, diesel, LPG,and kerosene below the cost price). A return to the earlieroil pool system seems to be one of the most politicallyfeasible options. The government has not allowed OMCsto increase retail prices because of opposition from the Leftparties, on which the Congress is dependent for survival.Analysts say prospects of convincing the Left are remotewith elections in mind. More than Rs. 7400 crore were loston sales of petrol, diesel, kerosene, and LPG in 2005–2006as they were forced to hold down prices of petroleumproducts such as petrol, diesel, liquid petroleum gas (LPG),and kerosene despite a surge in global crude oil prices. Thegovernment has also tried to help marketing companies bygetting state-owned producers like ONGC and Oil IndiaLtd. sell indigenous crude at heavy discounts of up US$16a barrel. Oil companies say this is another from of return togovernment control. This is already hitting the producers.For example, ONGC, a highly profitable Fortune 500company, lost Rs. 2873 crore in last quarter due to such


discounts on crude oil sales. In late July, the Reserve Bankof India had estimated that the global crude oil prices hadrisen some 70% year on year while domestic prices 20% inthe same period. Retail prices were last raised marginally inJune 2005. The Central government ran up a fiscal deficitof 4.1% of GDP in 2004–2005. It has projected a fiscaldeficit of Rs. 151,144 crore, or 4.3% of GDP, for thecurrent fiscal year 2005–2006 (Narayan, 2005).

11. The superpower dynamics

The United States has shown itself to be a reluctantsuperpower in the post-Cold War world, seeking on theone hand to continue to enjoy the privileges of that status.In the post-Cold War world, the assertion of globalleadership remains a central feature of America’s largernational identity. And in a number of ways the US can stilllay claim to being the world’s only superpower. Indeed, noother power can match US global military reach, whichspans all geo-economic regions and encompasses thecritical oil-producing region of the Persian Gulf (Schwen-ninger, 1999). Therefore, The US is the biggest consumer ofoil in the world accounting for 25% of current worldconsumption, and only 7.7% of world production. Asteadily declining crude oil production in the US coupledwith steadily rising costs of funding and developing newfields have combined to create a major oil deficit in thecountry’s oil balance forcing it to become increasinglydependent on oil imports and this dependence is set toincrease. In 2000 the US imported 56% of its needs or11.07 million barrels a day, almost half of which come forthe Persian Gulf. By the year 2010, the US could beimporting 79% of its oil needs, two-thirds of which comefrom the Persian Gulf. The United States control over theoil and gas reserves remains an important foreign policyobjective (Salameh, 2003).

The rise of India and China is exerting tremendouspressure on the international hydrocarbon market as far asthe US and Western oil majors are concerned. This is notso much owing to the current levels of demand. Indeed, it isa fallacy that demand growth in these two countries is animportant, let alone pivotal, cause of the recent upwardtrend in international oil prices as to the hedging strategiesChina and India have embarked upon. These strategies areaimed at securing a major upstream presence throughequity oil acquisition as well as the establishment of newtransportation infrastructure such as transcontinental andtransregional pipelines. India, in particular, is seriouslyexamining the prospects of a strategic natural gas pipelineform Iran via Pakistan. If completed, such a projectwould fill a gap in the emerging Asian energy architec-ture. And open the possibility for the generalized outflowof Central Asian and Caspian oil and gas southwardstowards the Persian Gulf and thence to Asia, rather thanexclusively westwards via US-promoted pipelines such as abackdrop, providing India a viable nuclear energy optionmakes eminent sense. The US nuclear reactor construction

industry has been in the doldrums since 1976 and is lookingto China and India as major sources of new demand.Although the Indian nuclear establishment would be morecomfortable sourcing reactors from Russia or France, it ishighly unlikely that the lifting of the embargo on civilnuclear cooperation with India at the urging and initiativeof the US will not result in some contracts going toAmerican companies. At the very least, as noted above, theUS would certainly be looking forward to leveraging thenuclear agreement to secure a greater share of the growingIndian arms market. The offer of civil nuclear cooperationcomes with a collateral price tag in some other area is byitself not sufficient grounds to reject or oppose such ahistoric deal, which offers the Indian nuclear industry achance to end more than 30 years of isolation. But they dosuggest the policy areas where utmost caution is required.If the unreasonable expectations of the US on the strategicfront, the energy security front, and the trade front are metfully or even partially, many of the gains stemming fromthe resumption of civil nuclear cooperation will be lost. TheUS, Bush’s remarks in Islamabad that US did not have anyproblem with the Iran pipeline but only with Iran’s nuclearambition is not a shift in line as some have suggested, but aclever reformulation of the same objection. Oil, andparticularly natural gas, will continue to be an importantpart of the Indian energy mix in the short-medium termand nuclear power can be seen as a substitute only in thelong term. Up until the middle of this century, then, findingand securing new sources of hydrocarbons will have to be akey aspect of India’s quest for energy security (Varadar-ajan, 2006). US describing India as a ‘‘natural partner’’.The partnership between our free nations has the power totransform the world. As a global power, India has ahistoric duty to support democracy around the world.India’s leadership is needed in a world that is hungry forfreedom. As a standalone deal, the Indo-US nuclearagreement in the form in which it currently stands hasmuch to commend it. US desire to build a strongpartnership with India centered around civil nuclear andconventional military cooperation with India. The growingeconomic and strategic importance of India in a world thatis in transition from one order to another. For the US,which intends to weather this transition and the rise ofChina with its hegemonic power intact if not augmented-nuclear cooperation with India forms the bedrock of awider set of strategic interactions aimed at harnessingIndian strategic capabilities. Indeed, strategic factors haveover-determined the US approach to the Indian nuclearquestion to such an extent that India’s nuclear weaponsare today considered an asset for the US rather than astrategic challenge. The changes in US force deploymentand basing patterns around the world and Asia, as well asthe foreseeable increase in offensive missions the USArmed Forces are likely to undertake on the Asianlandmass, building a strong military relationship withIndia is absolutely vital. The idea is that the US couldeventually draw upon Indian capabilities to outsource


activities at the lower end of the military food chain,such as peacekeeping, maritime patrolling, and disasterrelief, thereby freeing its own forces for the ‘‘high end’’ taskof waging (pre-emptive) war. The US has a strategy toensure that they remain the foremost power in military,economic, technological, and cultural terms, in a group ofsix major powers. The six powers are US, China, EU,Japan, Russia, and India. In order to implement thisstrategy they have to enlist India as a partner as they havealready done the other four powers. China is far frombeing an adversary of the US. It has an over $200 billionannual trade deficit with US, has invested $250 billion inUS bonds and banks, and is a partner with US in a numberof international economic and technological arrangements(Subrahmanyam, 2006).

However, the thrust of US strategy towards China isengagement, not containment. China is as capitalist as theUS, so it is rather unlike the US relationship with theSoviet Union during the Cold War years. Similarly, Russiapartners the US in running a space station, has a FoundingAct with NATO with a Russian general as a liaison officerin NATO headquarters, shares membership with the US inOrganisation of Security and Co-operation in Europe, andhas been coopted into the G-8 group of leading economies.The US is military allied to EU and Japan. This is thebalance of power in the 21st century with the US ahegemon. The US is interested in ensuring energy securityfor the whole world to ensure continued economic growthof all major powers, which is turn, would help its economy.Therefore, the US pushes nuclear and clean coal energy tohigh-energy consumers. That led to sale of a large numberof nuclear reactors to China and an agreement thatAustralia would sell uranium to Chinese reactors. Boththese pacts were contracted on terms more severe thanthose accepted by India. China has accepted these termsbecause it is keen to ensure its energy security. Since a fast-growing India is important in the US scheme of things, USis exceptionalizing India from the NPT and makingavailable clean coal technology. These are steps to ensurethat the 21st century belongs to the US. US modifytheir strategy from time to time suit their interests. Inthe 1950s, instead of facing the Soviet Union militarily,they adopted the strategy of containment, which finallycontributed to breakdown of the USSR. In 1971, USreversed its hostility towards China and succeeded inweaning that country away from communism and itsSoviet alliance. Now, it focuses on the last frontier makingIndia a partner and tapping into its economic and techno-logical potential. China and Russia are largely partners ofUS rivals at times but not adversaries. Russia will presideover G-8 and China will be firmly tied to western reactors,Australian uranium, US clean coal technology, and furtherexpansion of trade with US and Japan, and more financiallinkages to US. While China will exploit resources fromdeveloping countries in terms of oil and mineral products,it will not lift its little finger to fight on their behalf(Varadarajan, 2006).

12. China as a factor in energy politics

China’s fifth national census of 1 November 2000revealed that the population had grown to a total1,242,612,226. This figure represents more than one-fifthof the world’s population (22% of the world population).And 64% of the Chinese population live in rural areascompared to 88% in 1952 (Fisher, 2005). Therefore, Chinais regarded as an important player in global strategy.Through skillful diplomacy and by virtue of its size andweight in international affairs, as symbolized by itsposition as one of the five permanent members of theUN Security Council, China has shown that it cannot beignored. Owing to its rapid rate of economic growth, Chinahas come to be regarded as the next rising world power.China’s spectacular economic growth has led to a growingdependence on oil imports which in 2000 amounted to anestimated 30% of its needs with imports from the PersianGulf accounting for 31% of the total and this trend is set tocontinue into the future. By 2005 China will need to import60% of its needs, rising by 2010 to 76% of its needs. Bythen China would have overtaken Japan to become theworld’s second largest oil importer after the United States.The rapid growth in crude oil imports has significantlyaltered China’s position in the world oil market. Chinanow accounts for 6% of global oil consumption comparedto 3.5% in 1988, whilst its share of world production onlyamounts to 3.9%. China’s economic development and itsaspirations to diplomatic superpower status depend heavilyon its Persian Gulf oil. However, China’s potentialexposure to economic dependence and to the politicalturbulence of the Persian Gulf touches a very raw nerve inits strategic thinking (Salameh, 2003).However, in particular, China’s thirst for oil forces

Beijing to aggressively pursue international sources ofsupply, driving up international oil prices. High oil pricesnot only directly affect the Chinese economy but alsoincrease international tension. However, in 1993, Chinawas self-sufficient in oil. Since then, its GDP has almosttripled and its demand for oil has more than double.Today, China imports 3 million barrels of oil per day,which accounts for almost half of its total consumption.China’s share of the world oil market is about 8%, but itsshare of total growth in demand. World oil demand hasgrown by 7 million barrels per day since 2000; of thisgrowth, 2 million barrels each day have gone to China.India’s oil consumption is currently less than 40% ofChina’s, but because India has now embarked on what theeconomist Vijay Kelkar calls the ‘‘growth turnpike’’, itsdemand for oil will accelerate (Yergin, 2006).However, economic interdependence serves as the single

most powerful deterrent against an embargo or blockadeby China’s neighbors. China must now view energysecurity in terms of economic threats and market solutionsrather than military threats and diplomatic responses.China relies heavily on the Middle East for its supplies,but it has diversified its sources, and the potential for


a politically motivated embargo by a Middle Easternexporting country remains low. Beijing has pursued abalanced foreign policy vis-a-vis the Arab–Israeli conflict,reducing the risk of Arab oil exporters joining hands in anembargo against China. By opening talks with the GulfCooperation Council member countries towards establish-ing a free trade area, Beijing has also moved from a purefocus on oil supplies to enlarging the scope of economicexchange with key oil-exporting countries. This deepeningof economic ties implies that Middle Eastern countries willhave to consider the impact on their own economies ofpunitive actions against Beijing in the area of oil supply. Inshort, growing interdependence between China and theMiddle East serves as useful insurance against an embargo.More recently, China has become more active in MiddleEastern affairs. Securing energy supply is a primaryobjective. China and the US seem to be on a politicalcollision course over China’s pursuit of oil supplies fromIran. In 2004 Sinopec, which accounts for over 80% ofChinese oil imports and is the single largest refiner inChina, bid for development rights for 16 Iranian oil fieldsdespite attempts by the US to persuade it to withdraw. Thisongoing situation underscores the seriousness of Sino-American differences. In 2005, the Bush administrationresponded to the perceived Chinese challenge to Americanefforts to contain Iran by supporting India’s pursuit ofnuclear energy while maintaining sanctions Chinese acqui-sition of the same nuclear technology. Such policies mayproduce unintended consequences by giving weight tovoices in China that see politically motivated diplomacy asthe ultimate instrument for securing China’s oil supplies.As a consumer country, China does not really have muchof a choice in its sources of supply. With Chinese oilcompanies on a learning curve as they interact withinternational oil majors in the Middle East, Central Asiaand Africa, contention between Beijing and the UnitedStates (and its allies) over China’s pursuit of energysupplies can be expected to last for some times (Zha,2006). The shortage of surplus capacity means that USpolicies towards the Persian Gulf are likely to have moreimmediate and obvious consequences for major oil-consuming countries. This is both a danger and anopportunity for US policymakers (Saikal, 2005). How USmanages its role in the Persian Gulf will impact not onlyrelations with the countries of the region, but also withEurope, China, Japan, and India. Fears of a rivalrybetween the US and China over Middle East oil areprobably misplaced, as neither US nor China may be ableto attain secure oil supplies from the Gulf in the comingyears. But such competition could become a self-sufficientprophecy, if both countries fail to cooperate to try toensure regional stability. A situation of competing,bilateral oil deal could quickly become one where boththe US and China get unexpectedly cut off by a majordisruption based on internal difficulties and aggravated bythe rivalry. Iran has used its influence to boost world oilprices levels through a combination of public statements,

diplomatic initiatives, and outright threats. Any possiblesanctions from the west could possibly, by disturbing Iran’spolitical and economic situation, raise oil prices beyondlevels the West expects. A nuclear Iran would be in a muchstronger position to assert its geographic leverage over theStrait of Hormuz, the main passageway for 15–16 millionper day of oil, roughly two-thirds of total world oil tradeand 20% of total world daily demand. Oil and petroleumproducts from Iraq, Iran, Kuwait, Saudi Arabia, Qatar,and the United Arab Emirates transit the Strait ofHormuz. Large quantities of LNG are also exported fromQatar through the Strait. Qatar plans to export over 9million tons of LNG a year and Iran is also building LNG-export capacity. Since 1992, Iran has occupies island nearthe strait of Hormuz, restricting outside access, building anairstrip and deploying SA-6 surface-to-air missiles, 155mmartillery and Seersucker anti-ship missiles there (Potter andSick, 2000).However, Sino-American conflicts as inevitable conse-

quences of China’s emergence as a major internationalactor. A broad range of Chinese policies ranging from itsdefense build-up to its opposition to the US-led invasion ofIraq can be constructed as preliminary efforts to challengeUS pre-eminent status. As the uproar over the aborted2005 attempt by the state owned Chinese NationalOffshore Oil Company (CNOOC) to acquire Americanoil firm UNOCAL indicates, there are many in the US,particularly on the political right, who remain deeplysuspicious of China. At the same time, however, Sino-USties most notably in trade and investment have bothbroadened in scope and increased in importance. It wouldbe a mistake for the US in a fit of paranoia to missdiplomatic opportunities created by China’s increasinginvolvement in oil markets and the Persian Gulf. Ten yearsago, China was energy self-sufficient. Today it is theworld’s third largest oil importer, importing roughly 3million barrels per day of crude oil and another 500,000barrels per day of refined product. Moreover, China’s oilimports are projected to rise to 10 million barrels per dayby 2020. As its oil imports began to grow in the late 1990s,China has become more active in the Gulf. Chinese foreignpolicy analysts have concern about the better importanceof forging a better strategy towards the countries of thePersian Gulf. One key concern is that the West’s strongposition in the Gulf could threaten China’s access to oilsupplies. To reduce the threat, China has diversified bothits oil and gas investment holdings to countries such asSudan, Venezuela, Indonesia, and Nigeria. It has alsoengaged major Gulf oil producers in a variety of ways,including government-to-government arrangements, coop-eration with local partners, and participation in interna-tional consortia. For the most part, China’s oil supplypursuits have been undertaken in a business context thatshould not be particularly upsetting to US, with China’sstate oil companies bidding for acreage, farm-ins oracquisitions in the customary commercial fashion. China’scommercial oil and gas investments help increase the pool


of capital investment in energy resources, and that helps allconsuming countries. However, China has also securedsome very attractive oil acreage in countries with which theUS has had troubled relations, hindering US efforts toisolate these nations. In the case of the oil-rich govern-ments of Venezuela and Sudan, China’s support has beenbothersome to US in Sudan’s case because it hindered USefforts on the Darfur crisis. But China’s expandinginvolvement in Iran’s oil and gas sector is the mostworrisome to US policymakers. China’s activities aregiving countries like Iran and others the impression thatthey can fruitfully play China and US off each other andattain backing from China to counter too much inter-ference by US in their internal affairs. Indeed, Chineseinvolvement with Iran has already undermined US effortsto get Iran to give up its nuclear weapons program.

China’s recent military build up, though sizeable, is farfrom sufficient to guarantee East Asian sea-lanes, muchless defend the free flow of oil from the Gulf. Thus, for theforeseeable future, China will forced to rely on US Navyoperations to protect China’s access to oil and gas fromGulf, greatly constraining its geo-strategic options. Notleast, China’s emergence as a major and growing oilimporters has raised the potential cost of policies thatserves to destabilize the Gulf. Chinese policy in the regionhas yet to catch up with this reality. Like the US, Chinanow has a vital interest in abroad range of issues such asensuring security of the Strait of Hormuz, averting adangerous regional arms race, and helping bring somemodicum of stability to Iraq shared by all major oilconsuming countries. This raises the question of whetherthe US could benefit more from co-opting China than bychallenging it (Joe and Amy, 2006).

13. Conclusion

It is suggested that uninterrupted supply of oil remainsone of the most important priorities for India’s energysecurity (Lax, 1983). The second concern is the increase ofuncertainty in the fundamentals of the energy markets:increase in volatility, impact on our economy as well as onenergy demand of the oil prices increase, succession ofpotential surplus in gas demand or offer. Our strategieshave to be adapted to this new reality (Clark, 2005). Aseconomies improve, more energy is needed and moresources must be developed to supply the demand. Ifdemand cannot be met with conventional crude sources,then unconventional become important (Bromley, 2005).The prospects of continued high oil prices present a two-edged factor. The higher prices will no doubt eventuallyimpact world economies but the good side of the coin isthat the continued higher prices make it possible to developnew sources of hydrocarbons. It is said that the Indo-Irangas pipeline project is more likely to draw India, Iran, andPakistan closer into an energy partnership and break thecurrent political barrier against commercial engagementbetween them.

While international pipeline activity has shown relativelyslow growth over 2003–2005, proposed additions in2006–2008 could result in a record number of new pipelinemiles. Much of the interest in completing languishingplanned projects will be rekindled by higher oil and gasprices, increased demand in developing nations, and theoutlook for LNG’s role in the US, Europe and otherdeveloping gas markets. Supporting this is the recentlyreleased BP 2005 Statistical Review of World Energy(Tubb, 2005). The Review indicates much of the recentdemand for oil and gas was fueled by Asia, especiallyIndia and China, where Chinese consumption rose by900,000 bpd, almost all of which was accounted for byimports. On natural gas, the review notes that internationaltrade rose 9% in 2004. Pipeline shipments rose by morethan 10%. Russia accounted for the largest increment, butgrowth was widely distributed across the world. Shipmentsof LNG rose by 5.4% last year, slightly below 2003. Astrong energy consumption not only in China, but alldeveloping nations, is reported in Exxonmobil’s 2004Corporate Citizenship Report. As the data show, by2030, energy demand will grow by 50%. Close to 80% ofthe energy demand increase will occur in developingnations. Europe is also an emerging gas market. Indigen-ous supply cannot keeps up with demand and future gassupplies will be piped in from much greater distances. It issuggested that India’s economic interest in the Indo-Iranpipeline project be in conflict with Pakistan’s geo-strategicinterests. As India view that Pakistan’s geo-strategicinterests are aimed at disrupting Indian economic interests,the Indo-Iran pipeline project could hardly be conducive tosustain confidence between India and Pakistan. In thisregard, it is unlikely that India would entertain Pakistan’srole in Indo-Iran pipeline project. Only upon mutual co-existence with India, Pakistan could benefit from its geo-strategic location.India’s expanding economies, growing population, rising

standard of living, and limited indigenous energy sourcespose a serious challenge to its long-term energy security.Our goal should be to ensure reliable, affordable, andenvironmentally sound energy supplies on a long-termbasis. A difficult but achievable goal we would need is notonly political will and the best efforts of industry leadersand experts but also a conducive environment to tackle thisserious problem in a serious way. India can hardly buildenergy security by sourcing its main gas imports through apipeline involving two renegade states. Iran already facingenergy sector related sanctions under ILSA, a US law withextraterritorial application to third country firms, couldbecome a target of US military action. Pakistan continuesto do with impunity against India what Iran cannot eventhink of doing against the US. The Iranian oil minister hasadmitted that the pipeline carries no cost advantage ascompared to LNG supply by ship. In any case, India isinvesting in a major way in the LNG option, as symbolizedby the new onshore import terminals stretching fromGujarat to Kerala and the contracts with Iran and Oman.


But other than Iran, Gulf countries has limited reserves ofnatural gas, which is not sufficient for India’s long-term gassupply. It is suggested that successful Indo-Iran trans-Pakistan gas pipeline project would require an explicitgovernment support from all participating countries. Thefate of the Iran pipeline is still hanging fire. Apart fromUS’s opposition to the project, there are also differences onthe pricing of the gas. Meanwhile, the US has said it was‘absolutely opposed’ to a natural gas pipeline projectlinking Iran with Pakistan and India.

However, the existing structure of having a dozen ofcompanies has to undergo a change as this cannot fetch bigoil and gas asset for India. In addition, the ministry is alsoof the view that one ministry should handle all policiesrelating to energy resources, whether it is coal, oil or gas.The Synergy in Energy Committee has not understood theroot cause of the problem that exists today in the oil sector.We cannot continue to rob one oil PSUs to subsidies other.Also, continuous fiddling with the duty structure cannot bedone time and again. These are temporary arrangementsbut in the long term, if we want our dependence onimported crude oil to reduce in the near future, we have tothink big and restructure the oil and gas PSUs into two ormaximum three entities. Economically speaking gas supplyand transport prices are more correlated to politicalrelationships than to fundamental supply-demand or gastransport basis calculations.

In fact, India should look to a country like France tohelp with the nuclear power program because France hasfound a way to build the safest and the cheapest nuclearplants, and in a very short time as well. The only way inwhich the US–India cooperation can help India in thenuclear power arena is by US moderating its stance on thesupply of nuclear fuel to India. India’s future energysecurity cannot rely on nuclear power alone. RecentlyIndo-India nuclear pact support India’s civilian nuclearprogram and not any nuclear weapons capability enhance-ment. Another important avenue to ensure security inIndia is the search for new sources of petroleum fuels.Here, it seems that India is facing a formidable competitorin China. SINOPEC acquired an oil exploration block inAngola from Shell Oil after beating the bid from ONGCVidesh, China Petroleum Corp., and ONGC Videsh Ltd.just recently competed to buy PetroKazakhstan whichowns a number of oil wells in that Central Asian republic.Companies from both countries are on global hunt forpetroleum resources. In fact, this competition seems to befull swing in Central Asia. Since 2000, the China NationalPetroleum Corporation has invested US$45 billion in thesearch for new sources of energy while ONGC has investedaround US$3.5 billion.

The new US–India pact will only intensify the competi-tion for energy sources between India and China becausethe US clearly thinks of India as its geopolitical ally incontaining China’s future global reach. However, it may bein India’s interest to also consider ways and means ofcooperating with China in the search for mutually

beneficial energy security. For instance, given the growingChinese presence in Myanmar and the proximity of thenatural gas fields of Myanmar to India, energy security willbe better served by having China as a friend rather than arival (Banerjee, 2005a,b). There are sufficient complemen-tary technical expertise in China and India in oil explo-ration (China has the edge) and distribution via pipeline(India has the edge) that cooperation may be more bene-ficial than relying on others. In addition, India shouldmake China a partner in IPI gas pipeline project, whichboost the security and its stable project for the insecurity inthe side of Pakistan. But China show’s little interest inIndo-Iran pipeline project.But in the wake of US pressure to abandon the US$7.4

billion IPI gas pipeline owing to Iran’s determination toenrich Uranium. Pakistan will seek US cooperation for theinstallation of three to four nuclear power plants, each with1000MW capacities. To overcome any energy crisis thatthe country will probably face 2008 onwards. So Pakistanhas already made plans to increase its nuclear capacity togenerate 8500MW of nuclear power. If the UN imposessanctions on Iran, the proposed IPI project may notmaterialize but India is favor in this project despite thisUS-Indo nuclear deal, and Pakistan will have to start workon the remaining two proposed gas pipeline projects, theQatar–Pakistan and Turkmenistan–Afghanistan–Pakistanpipeline. IPI project is in the interest of both countries, butif US pressure on Pakistan increases, it has plans to seekUS cooperation for the installation of the latest nuclearplants in Pakistan, which will ensure constant country itsenergy supply. Threats to energy security must bechallenged and resolved on a multilateral basis, with allstakeholders present. The interdependent nature of ourenergy infrastructure requires a multilateral approach. Weare all depending on it. It is suggested that India andPakistan are both confronted with the problem of anincreasing shortage of natural gas. As they have theadvantage of bordering the Persian Gulf and Central Asia,two of the world’s major natural gas-rich regions, thisgeographical proximity can provide the basis for mutuallybeneficial economic cooperation between India and Paki-stan in energy trade. An Indo-Iran pipeline projectagreement supported by India and protected by Pakistanagainst any disruptions of flow would bring political as wellas economic benefits. Thus, the trans-Pakistan pipelineproject could be a key CBM in resolving irritants in theirpolitical relations, forging and intensifying a new relation-ship between India and Pakistan.It is suggested that the problem associated with oil and

gas security and the Gulf, after all, are of a complexity thatdemands comprehensive solutions. Internationalizing alleast the energy issues could begin to disengaged the USfrom the current slippery slope on which it is increasinglyperceived as a regional combatant aggressively pursuingunilateral national and security interests to the detriment ofregional stability. Asian leaders are becoming increasinglyworried about their economies growing dependence on


Gulf oil and gas and are likely to be receptive to anymultinational initiative that would make supplies from theregion more secure or provide a framework for developingalternatives energy substitutes.

The IPI pipeline can prove to be crucial to the growingenergy needs of India and Pakistan. However, India’seconomic interests in the gas pipeline project are not incongruence with the political–economic and strategicobjectives of Iran and Pakistan. So long as there aredivergent interests among the participating countries in thegas pipeline project. However, this is mired at the moment,in deep security and political quagmire. The prospective,economic advantages are being sacrificed to the calls ofstrategic considerations. The opportunity cost is simplyimmense for both the countries. Unfortunately, there areno indications that IPI pipeline will take off sometimesoon, due to Iran nuclear issue.

Acknowledgments

My sincere thanks to the anonymous referee for his/herhighly valuable comments and suggestions. Sir/madam Itry my efforts but if you need more clarification, I will doagain. With warm regards.

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