Introduction From Energy, Trade and Finance - Sample

8/4/2019 Introduction From Energy, Trade and Finance - Sample

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1 INTRODUCTION

Energy may be one o the most contentious issues in the world and there are

many discourses, narratives, explanations and arguments about the use o energy,including its role in inter-regional exchanges between the Middle East andNorth-East Asia. Increasingly, trade and energy exchanges are spoken togetherand this appears to be the case in recent works by Kemp, Simpendorer andDavidson.1 Narratives and discourses that highlight the inter-connectednesso non-energy trade and energy exchanges as an interrelated item in the inter-regional exchange between the Middle East and North-East Asia appear to beavorable to maintaining this inter-regional exchange. Te bundling o energyand goods in trade and exchanges between the two regions acts as a orm o interdependence through a spaghetti eect whereby greater intermingling pro-motes greater interdependence, analogous to spaghetti criss-crossing each other.

Tere are a number o centriugal orces to mitigate the sustainability o energy trade inter-regionally between North-East Asia and the Middle East.Centriugal orces may include increasing energy needs o the Middle Eastdiminishing the potentialities o uture energy export trade, or example the ast-growing Gul states, their natural gas needs and their growing interdependencein orming regional energy systems. Regionalism is complicated and mitigatedby growing inter-regionalism.

But because the two regions themselves are not institutionally regional-ized and integrated politically as blocs, the inter-regionalism between the tworegions remain organic, ad hoc and loose. Because o the nature o Middle East/North-East Asia inter-regionalism as a platorm or open, export-driven, FDI-based interaction and exchange, it includes, requires and involves the active and

extensive participation o two other infuential entities, India and US which areindispensible to inter-regional trade. Te US acts as a hub or many transactionsthat occur in the region, given its global orientation and deep economic and

political engagements with both regions, India as well is an increasingly impor-tant conduit and node in this exchange. Between the two large democracies,both India and the US are co-sponsors o the United Nations Democracy Fundin 2005 and enjoy mutual solidarity.2



2 Energy, rade and Finance in Asia

Te US node remains important because other major energy consumers inNorth-East Asia (largest consumers due to their sizes) like Japan, US, India,China Energy (abbreviated as JUICE in this publication) consumers, thoughimportant, dominant and infuential, may nd it di cult to achieve regionalism

without its support (direct or indirect). Gilbert Rozman probably represent theleast positive interpretation o regionalism, arguing that dierential emphasisand progress in development has resulted in domestic sectors (not including theUS) within the JUICE grouping at times ocusing on niche and more parochialinterests rather than regional and globalized ones.3

Te US on the other hand has clear, important, capacity-building andentrenched interests in both regions, the Middle East and North-East Asia.Intra-regionally, the US also has solid and essential alliances with important andmajor regional stakeholders such as South Korea and Japan. For example, Chris-topher Dent argues that, in North-East Asia, a meeting point o our dominantentities (US, Japan, China and Russia) exists, the US has maintained a clearlymapped out interest in the region and remains an important balancer betweenNorth-East Asian entities in times o geopolitical rivalry and is strategically posi-tioned to tilt opinions on issues related to North-East Asian regionalism in onedirection or the other.4

Te US is also a highly adaptable entity which can accommodate dierentinterests and priorities that shape the region. Tis adaptability may also ol-low dierent administration as their own dierent distinctive styles, whether

Republicans or Democrats, shape the outcome o events in both the Middle Eastand North-East Asia. Very oen, regional entities are infuenced by the externalenvironment or inter-regionalism craed by the US in the interest o open, reeand vibrant trade and exchanges or the interests o the stakeholders. Its balanc-ing and tilting actor in nal decision-making processes and its agreement orsupport lent to processes taking place in both regions can make an initiative asuccess or reality rom the proposal stage.

Tis is not to argue that dominant regional entities like China and India orthe Gul states are unimportant, neither does it downplay smaller and medium-sized entities. Te regional entities have their own space and leeway or exerting their infuence and power, while limited regionally, are globally important. Teyexert their infuence economically, demographically, diplomatically refective

o their capabilities and resources among various other means. Such infuencemay not even be dened by state boundaries. As Vali Nasr succinctly noted, theglobal Islamic populace (a transnational entity) is equal to India and China’sdemographics with more than 1 billion and in 2008, the GDP o Iran, Pakistan,Saudi Arabia and urkey with 420 million people was US$3.3 trillion, equiva-lent to India, but India has triple the number o people.5



Introduction 3

Tere are other ways through which the middle power economics/states/entities are exerting their infuence. For example, Saudi Aramco, according toDavid Rothkop, is undergoing localization o manpower personnel.6 Such shismay not be globally tectonic in nature but can have global implications whichregional entities in the inter-regional energy trade as well as hyperpowers7 mayhave to accommodate. Te interdependence actor between these groups o eco-nomic entities, states and economies within the complex inter-regional fora andauna lubricate the system as it has done so in the past when empires collabo-rated with middle and small economies and powers to make trade and exchangesa reality.

Te role o the US is equally valuable as working partners or middle ormedium-sized powers/states/economies. In the inter-regional sphere o theMiddle East and North-East Asia, the US also plays the role, but this volumeargues that it is not an empire. It argues that the US is a benign entity that actsas a hub (de acto or in reality) or transmitting and intersecting priorities andneeds or entities within the Middle East as well as within North-East Asia. Itis the hub that many i not almost all spokes plug into within the two regions.

Te US value system and worldview have also infuenced the normativebehavior o the international systems, including its partners in both regionso the Middle East and North-East Asia. Tese values are democratic, market-driven and careully craed to maximize ree fow o goods and energy thatrespond dierentially to most major and minor entities within the inter-regional

trade between the Middle East and North-East Asia. Te values are not absorbedand taken wholesale by the stakeholder entities in both regions. Instead, they arelocalized, adapted, adjusted and assimilated selectively to t local and regionalconditions according to their national interests and domestic priorities.

US developmentalism values were also disseminated to the developing econ-omies in the post-war era. Tough they were not absorbed lock, stock and barrel,these important ideas o development and economic growth were adapted rstby various successul economies that embarked on market-driven systems andlater also adapted, hybridized, localized by ormer command/socialist econo-mies. Te basic oundations were based on American ideas o market-drivencapitalism and ree trade. Some examples o local, regional, ideological and reli-gious adaptations to these ideas and also resistance towards complete borrowing

can be ound in Howard J. Wiarda’s Non-Western Teories of Development that is potentially thought-provoking. 8

Te current global system rom a broad perspective is a combination o historical ideas and tradition o ar-reaching and permeable global trade basedon: stakeholders in the orm o dominant economic entities along with theirregional systemic components o small and medium sized economies/states(systemic); European contributions in the industrial age and their infuence on




contemporary eatures (historical); and localized/indigenously adapted Ameri-can values and ideas o trade, energy exchanges and technological development(knowledge-based adaptation).

Te conceptualization o history comes into play as trade had once been a past element in inter-regional trade between the Middle East and North-EastAsia but the historical Silk Road declined and the rise o maritime trade over-took it. Nevertheless, the increasing trade links, sometimes along the sametraditional Silk Road routes, appear to conjure imageries o a historical trading relationship. Even i this is so, the inter-regional trading relationship takes placeagainst a new backdrop with important and signicant participants such as theUS and its vast transnational global reach, transnational companies, state-ownedcompanies, sovereign unds, alternative energy advocates, and many other new

players.Conceptually, both North-East Asia and the Middle East are individually

and in and by themselves not coherent institutional blocs that resemble orrepresent advanced or even institutional stages o regionalism although someearly preliminary initiatives/mechanisms are in place to orm the oundation o a loose orm o regionalism and issue-specic cooperation (particularly in theeconomic aspect).

Consequently, North-East Asia-Middle East inter-regional trade andexchanges have been based on the trade between individual regional economies,typically represented by regional suppliers dealing with single large economies

or energy consumers in North-East Asia. Such arrangements give rise to somescholarly and practitioner arguments o ‘Asian premium’ or price dierentialsbased on competing interests between large energy consumers in North-EastAsia vying or the same oil or ossil uel products which they are dependent onrom the Middle East.

Discourses o the interrelatedness o trade and energy in Middle-East andNorth-East Asia trading relationship appear to be oregrounded more in the

present compared to past literature on contemporary inter-regional exchangebetween the two regions. Tis may be due to perceptions (and also reality, backedup by economic quantitative gures) o the increased wealth o both regions inthe Middle East and North-East Asia stimulating trade and consumption. Bothregions, through export-orientation (North-East Asia) and accumulation o oil

revenues (Middle East), have more resources to spend and consume.Among the entities involved in the inter-regional trade between the Mid-

dle East and North-East Asia, the economies and entities o JUICE consumersare highlighted in the study between North-East Asia and the Middle East.Te US and India are included due to their important impact and infuence onthe inter-regional trade between North-East Asia and the Middle East. Otherthan the US, almost all other economies and energy consumers in North-East



Introduction 5

Asia are busy with economic growth (including the large emerging economy o India) and/or other pressing priorities. Te US alone has the global reach, capac-ity, multiaceted engagement and interest in managing the system o energyexchange that straddles the two regions o North-East Asia and the Middle East.Te discussion o its role is indispensable in inter-regional trade and exchangesbetween the Middle East and North-East Asia.

In this equation between energy importers and producers in the inter-regional trade, demography appears to be an important actor in determining usage and also infuence on the energy trade. Demography may make a directimpact on consumption, when it is paired o with rising development and eco-nomic progress and prosperity. Demography may also provide large emerging economies with sizeable workorces to produce products that supply matureeconomies, generating trade surplus or these large emerging economies knownas BRICS (Brazil, Russia, India, China and the recently joined South Arica intothis league).

India’s rising demand is oen paired o with China to highlight the growing energy needs o emerging and developing economies. Competition and coop-eration between them oen have global impact. And their consumption addson to existing consumption ound in mature JUICE entities like the US and

Japan, oen without the same technological e ciency and sophistication likethem to use the energ y more e ciently. Increased consumption o course maybe predicated upon the unproblematic portrayal o the sustained and continued

rise o emerging large economies. It is also predicated upon the imageries o thedesires o tens o millions to get out o energy-scarcity situations with no accessto electricity and more individuals within the middle class to attain similar lie-styles akin to their counterparts in developed economies.

Tis assumption o linear development associated with energy scarcity andthe aspirations o the middle-class emergence in large emerging economies likeIndia and China however, may not be unproblematic, given the number o internal contradictions that both India and China ace and it may aect botheconomies in terms o energy consumption. It may also be dependent on the actthat both large emerging economies are unable, in the short and medium term,to reinvent themselves and ormulate new energy-saving technologies or alterna-tive energy development that may either reduce the amount o energy used or

pare down reliance on ossil uels.Even ossil uels ormerly (and contemporarily) perceived as polluting con-

tinue to appear in the discourse on energy alternatives in North-East Asia withcoal, or example, as seen in energy narratives and discourses as plentiul andaordable. But it is also seen as an output o back-breaking work that is riskyand dangerous.9 Focusing on the positives only, i the characterization or coalis aordability and abundance, then the discourse on gas energy is one o long-




term commitment and supply with the imagery o a cleaner orm o ossil uel oruture utilization and development.

Te discourse o scarcity is strong, entrenched and dominant in North-EastAsia. First applied to Japan in the modern era when it embarked on moderni-zation aer the 1868 Meiji Restoration and emerged as an energy consumer

whose dependence on ossil uels became intertwined with its industrialization process. Te discourse is then applied to post-market reorm China where astgrowth based on the pattern o accelerated state-led growth which eventuallysaw demand outstrip supply even though it has a signicant and sizeable domes-tic output in oil and a globally signicant share o coal. Te discourse drivesthe urgency o North-East Asian energy consumers to search globally or moreenergy resources and also led to anxiety o consumers and stakeholders to com-

pete or more energy resources. Energy scarcity both real and imagined drives oil prices and its speculation.

Lisa Margonelli argued that 2003 was the dening year when the rise o Indian and Chinese demand or energy made the jump in global demand or oil

prominent aer years o retrenchment (twenty years’ worth) in rening jobs.10 2003 was also memorable or other reasons. According to Margonelli, Chinaovertook Japan to become globally the number two biggest importer o oil. 11 Te discourses and narratives on the reasons behind the increased energy usagein North-East Asia vary, oen greatly. For example, Margonelli pointed out theimpact o rumors and speculation on energy prices, including Chinese produc-

tion o ceramic toilets and kilns that are energy-intensive ventures directly relatedto energy price hikes.12 Other explanations including that o John Homeister(ormer president o Shell) included attributing increased uel usage or examplein rst hal o 2008 to increased use o oil or the airline industry and the hosting o the Olympic games in China.13

Consumption pattern was also another possible reason or increased oiluse in China. Margonelli argued that diesel generators by Chinese consumersto manage blackouts resulted in nearly an additional million barrels o oil con-sumed on a daily basis in 2004 compared with 2003.14 Consumption is in actsomething desired and banked on by oil producers eager or more economicrevenues and so some oil producers have strategically oered oil supplies undermarket rates and better quality supplies (e.g. with lower sulphur), or example in

the case o Saudi supplies to China.15

Te Saudis enjoy the status o having the largest oil reserves, as the secondlargest producer o oil aer Russia and the largest exporter. In the popular dis-course and narrative in energy literature, Saudi Arabia is both statistically andcomparatively the largest supplier in the market with the Ghawar oil acilitythe biggest ever discovered oileld in energy history.16 According to Georey



Introduction 7

Heal, Saudi Arabia has proven oil reserves o 262.7 billion barrels and outputsapproximately 8 million barrels per day or yearly revenue o US$175 billion.17

While the narratives on oil suppliers are those o harnessing the uture per-ceived potential needs and imports o rising emerging economies, others are

producing discourses on mitigating increased oil and energy consumption.In the discourse on mitigating consumption, there appears to be a potentialdebate between incrementalism and radical energy innovation and/or supply.Incrementalism suggests the long-drawn eects o a paced but step-by-step con-servation o energy leading to an accumulative eect. It is a gradual process thatrequires patience to negotiate a challenging road to eventual energy saving.

Incrementalism may also suggest the possibility o looking at alternativesources o energy such that their slow development and technological intro-duction into daily lives through market needs may make an eventual dierenceas consumers transition rom ossil-uel liestyles to comparatively carbon-cleaner liestyles. Strong advocates o incremental conservation even argue thatit can displace ossil uels and signal the so-called obsolescence o oil energy,or example Paul Roberts has suggested that the manner in which governmentso developed economies like the US and Japan have invested substantially inenergy-saving technologies and automobiles may in turn signal lower demandor OPEC (Organization o Petroleum Exporting Countries) oil.18

Radical innovation advocates may not be able to have the same patience asincrementalists. Tey posit that radical changes may be possible through the

myriad o existing technological developments that can be urther developedto move away rom polluting (or what they perceived as) polluting sources o energy including, primarily, ossil uel-based options to cleaner and more car-bon-ree energy utilization. Regardless o incremental or radical innovationadherents, precedents in the late modern era appear to have a track record o lessthan positive success in completely replacing the need or oil energy and therecontinues to be reliance on ossil uels.

Paradigm shi and radical change as opposed to slow transition away romossil uels may be underlined by the urgency o ast-emerging energy consum-ers who may join an already overcrowded group o developed economies thatare major energy users. Tey may also be motivated by oil-peak theories or less

positive projections o the impact o energy on limiting growth and economic

development. It may also be motivated by narratives and discourses that linkenergy shortages and its negative eects on contemporary civilizations and lie-styles. Te discourse and narrative in this aspect is underlined by the real-lieexample o one and a hal billion individuals or 25 per cent o the global popu-lace without reach to electricity or ossil uels.19

Within the rubric o the narrative o the alternatives, scholarly argumentshave turned to alternative uel and also alternative energy sources as a means




or lessening reliance on the Middle East in terms o North-East Asian energyconsumers.

Te narrative o alternative sources o energy (either in terms o geographicallocations or energy-conserving technologies) in North-East Asia may histori-cally be traced back to Japan in the 1970s with the outbreak o the oil crisisthat necessitated Japan’s global outreach or energy, something emulated and/or evolved independently by later developers in North-East Asia, including China and South Korea, both o whom have embarked on accelerated processeso global energy searches. Beore the oil crisis, the only time Japan experiencedenergy and oil scarcity was during the immediate post-war period when Sonyounder Akio Morita observed that due to petroleum shortage, vehicles and

public transport had to rely on waste oil, charcoal and usable solid uels.20

Energy diversication policies and diplomacy in North-East Asia was also pioneered by Japan aer the oil crisis as it sought to reduce overreliance on asingle source, namely the Middle Eastern suppliers. Tis is a pattern that otherNorth-East Asian economies and India have ollowed aer their own phases o economic development. Japan or example, does not have any reliance on singlesources, no matter how large (e.g. Russian prolic gas reserves) but relies on a

variety o Middle Eastern and Asian suppliers.21

Te nearest alternative energy-rich region to North-East Asia is Russia andthis awareness is well understood by the Russians who visualized its role as a ‘ueltank’ or North-East Asia as early as the late 1990s by scholars such as Vladimir

I. Ivanov.22

According to Stephen King, Russia has globally the largest output o oil and natural gas combined, accounting or 12.4 per cent o world oil output(ranking aer Saudi Arabia) and 19.6 per cent or gas.23 Te earliest example o North-East Asian interest in importing Russian oil may have been in the autumno 1973 when Prime Minister anaka visited the Soviet Union and talked aboutthe yumen oil acilities in Siberia with their Russian counterparts.24 Aer Japan,later developers in Asia also ollowed suit with their own interest in Russianresources. Te discourse and narrative on Russia conceptualizes the resource-rich energy producer as the greatest hope or ossil uel energy-scarce North-EastAsia based on the argument o complementarity derived rom Russia’s increasing economic yield rom energy revenues. According to Paul Roberts, Russia relieson petroleum trade or 33 per cent o its total revenues and sees the incoming

revenue as an economic resource or developing north Russia.25

Oer o developmental aid and capacity-building help in exchange or energyappears to be a pattern ound among Asia’s large economies during their ast-growth phases. Japan energy diplomacy that was initiated in the 1970s basedenergy diplomacy on riendship, goodwill, inrastructure development andnancial aid and help. Tis template appears to be replicated in other North-EastAsian energy consumers, with adaptation to local conditions and capabilities.



Introduction 9

For example, China promised inrastructure construction in exchange or uel,one example according to Margonelli, China provided US$3 billion and a ren-ery acility or Nigeria.26

Te main thesis or theme o this volume is based on the idea o inter-regionalexchange between North-East Asia and the Middle East (including the Gul region). wo items, trade and energy, are specially highlighted as case studies.Energy (particularly oil and natural gas) is chosen given that it is an establishedcommodity in the exchanges between the two regions while trade is more his-torical but nevertheless important due to increasing economic contacts betweenthe two regions. rade and energy may be bundled into one single package asthe economies ound within the two regions may be interacting through com-

prehensive economic deals as part o a conscious eort to deemphasize energydue to eorts (in both North-East Asia and the Middle East) to diversiy awayrom it and to utilize trade as a leverage to move into a post-energy interactive

platorm. For the oreseeable uture, however, energy remains an importantcomponent and may not be eliminated rom the exchange totally.

Rising energy use and increased trade between the Middle East and North-East Asia may be considered as part o the perceived concept o ‘rising’ Asia.Given that the discourse and narrative o ‘rising Asia’ has built up to a certainextent both in popular perceptions and perceptions among specialists and is nowan industry by itsel, the narrative appears to assume that there is an unproblem-atic continuity in the growth o Asian economies, particularly among the large

emerging economies, such as India and China. Based on this unproblematic pro- jection o growth, there are projections o increased energy use.Te chapter on ‘Progress and Development’ discusses the popularly cited

ingredients or Asian economic growth, including that o science and technolog-ical development, education, demographic growth and rapid industrialization.But the same ingredients that have brought about ast growth have also stimu-lated the contradictions o development. Industrialization, and its consequents,increased urbanization and the spread o personal vehicles, are several popularlycited causes o challenges to the emerging economies’ environments. Tis is thecounterbalance to the perceptions o the so-called shi o gravity o the worldeconomy to the Asia-Pacic economies.

Demographic growth which has also created a large market or some emerg-

ing economies may also be responsible or competitive use o resources, diseasesin overcrowded cities, etc. Tese contradictions o development centres upon theability to eed populations o developing areas, keeping them employed, locating enough resources or them to utilize. Tese priorities appear to lead to severalmajor challenges, including depleting resources, diseases rom overcrowding andsocio-economic gap rom ast development.

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Introduction From Energy, Trade and Finance - Sample