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Same road, new trade. |
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| Globalist Perspective > Global Economy The New Silk Road | |
By George Magnus | Thursday, November 30, 2006 |
Asia and oil exporters, especially those in the Gulf, have a long history of commerce. The ancient and continental Silk Road was once a major conduit of goods, technology and even religion. As George Magnus — UBS's Senior Economic Advisor — argues, a new silk road has emerged through the trade of hydrocarbons, petrodollars and, like its ancient counterpart, consumer goods.
A multi-polar Asia and Middle East, incorporating China, Russia, India, Japan, Korea, Iran and Saudi Arabia, could hardly have remained passive as the significance and price of hydrocarbons increased
and as the economies of Asia continued to grow absolutely and in importance. 
Although the Silk Road remained active for another 300 years, political instability and upheavals in Asia and the Middle East consigned the Silk Road to disuse.
A new strategic tapestry is in the process of being formed, its threads being hydrocarbons, petrodollars, consumer products and technologies, military ties, labor migration — even religion.
The hydrocarbon part of this is self explanatory, and a shift in the Middle East to prioritise shipments towards Asia is evident in both crude oil and natural gas as Asian demand rises and as it switches steadily away from coal.
Flow of capital
The other economic linkages are rather newer and warrant attention, not least because Middle Eastern countries may now be much more sensitive to Asian business cycles. Further, Asia is becoming more sensitive to Middle Eastern energy developments.
For 30 years, East and South Asian investors have been significant investors in the Middle East, competing for management and investment contracts while capital has gone in the other direction.
Islamic finance
But these flows of expertise and capital have gathered considerable momentum in very recent years and, of course, the increase in interest in Islamic finance and banking has provided new links between not only the Middle East and South East Asia, but also with China, India and Pakistan.
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Indeed, the emphasis on infrastructure and project finance in the Gulf and in Asia is ideal for Islamic finance, especially bonds (sukuk), the outstandings of which have soared since 2002 when pioneered by Malaysia to reach over $40 billion currently.
It is still fair to point out that the institutional structures underpinning Asian and Middle Eastern ties are relatively weak or embryonic. Bilateral relationships are most common, but the wider institutional structures necessary for deeper and broader interactions are starting to change.
The OIC
The Organisation of Islamic Conferences, founded in 1969 and comprising 57 countries, is the only major body with complete coverage of the GCC states and certain Asian countries, including Pakistan, Bangladesh, Malaysia and India. Russia has observer status in this organisation.
However, the Shanghai Cooperation Organisation, founded in 2001 by Russia, China, Kazakhstan, Tajikistan and Uzbekistan to deal with disputes, terrorism and separatist threats now has a new raison d’etre.
Beyond OPEC
The function of the OIC is, essentially, to foster energy and economic cooperation and to deter or contain U.S. presence and influence in central Asia (which is seen as destabilising for a variety of reasons).
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As a group, it now represents about half the world’s population. Moreover, since June 2005, several structures have evolved to further the networks of economic and political interactions.
These networks include the Asia-Middle East Dialogue, the China-OPEC Energy Dialogue, the Asia Cooperation Dialogue, the China-Arab Cooperation Forum, the Indo-Gulf Summit, the Arab-Asian Financial Forum, the UAE-Asia Investment Forum and, at the end of this year, the India-Arab World CEO Summit.
A diplomatic briefing on Caspian energy took place in London
Leading experts in sphere of energy economics are known to be involved in participation of such an event. Its ultimate goal is to stimulate debates and studies on a wide range of power energy issues.
Among the invited main speakers were acknowledged analysts like Dr Jennifer Coolidge, counselor of the US State Department, Christof van Agt (International Energy Agency), John Roberts (Platts economic agency).
The key conclusion of the briefing is an ever-growing role of the Caspian region in providing global energy security. Thereat the growth of the region’s significance will further directly depend on the actions of the Caspian littoral states in guaranteeing efficient and secure routes of the Caspian oil and gas export to the world market, including Europe, development of alternate export routes, new oil and gas fields, ensuring safety of the existent oil and gas infrastructure.
Israel’s new plans on Caspian oil transit
Speaking at an international energy conference in Haifa, he said Israel plans to both consume and act as a transit country for the transportation of Caspian oil and gas.
“We are not looking only to buy energy resources. We are also offering our territory to be used for delivering Caspian oil to Asian markets, namely, China, India and Japan. As a result, this will lead to a reduction in transit fees,” Ben-Eliezer said. The minister added that he would like to see Israel as an energy giant.
It is indicative that Ben-Eliezer did not touch on Israel’s energy cooperation with Russia. He did not mention transportation of Russian gas to the Mediterranean Sea ports either.
The conference was attended by officials from a number of countries, including Georgian and Turkish energy ministers, German environment minister, Kazakh deputy prime minister and an official of Azeri state oil company SOCAR. Speakers described Azerbaijan as an oil-rich country playing an important role in regional energy security.
Russia to boost crude oil thru pipelines
Russia has agreed to boost supplies of its crude via Ukrainian oil pipelines next year in a move that may further strengthen its position as the dominant energy supplier to European markets.
The agreement, reached Thursday by the countries’ top energy officials in Moscow, may hamper Ukraine’s earlier commitments to start shipments of alternative Caspian Sea crude via the same pipelines to Europe.
Russia agreed to boost oil shipments via Brody-to-Odessa to about 9 million metric tons in 2007, up from about 3.7 million metric tons in 2006, the Energy and Fuel Ministry reported. Russia also pledged to boost its oil shipments to Europe via Druzhba, another major oil pipeline crossing Ukraine.
Diplomacy awakens on Nagorno-Karabakh conflict
International pressure and Armenia's growing isolation in the region may be the key reason why Armenia is opting for a fresh diplomatic drive on the Nagorno-Karabakh conflict, one of the most intricate disputes threatening stability in the southern Caucasus, home to considerable Caspian gas and oil resources. Hundreds of thousands of people were displaced during a 1988-1994 war between Azerbaijan and Armenia over Nagorno-Karabakh, an Armenian enclave within Azerbaijan.
Armenia, say diplomats familiar with the issue, is feeling increasingly isolated in the region as its rival Azerbaijan proceeds with regional energy and transportation projects with Turkey and Georgia.
Azerbaijan is sending part of its Caspian oil to Turkey's Mediterranean port of Ceyhan via neighboring Georgia with the Baku-Tbilisi-Ceyhan oil pipeline, which was officially launched in the summer of this year. A parallel pipeline to transport part of its natural gas to Turkey's eastern terminal of Erzurum is also drawing near for completion.
Turkey, Azerbaijan and Georgia are working on a regional integration project, as they proceed with plans to build a railway linking the three countries.
Armenia's position on Nagorno-Karabakh is costing the Yerevan administration dearly. Neighboring Turkey closed its border gates more than a decade ago and severed diplomatic ties to protest the occupation of Nagorno-Karabakh by Armenian troops, bringing huge trade losses for the landlocked country.
Ankara says normalization of ties depends on Armenia's withdrawal from the enclave and whether Armenia drops its support for Armenian diaspora efforts to win international recognition for allegations of an Armenian genocide at the hands of the late Ottoman Empire.
Armenia's economic hardships have grown further recently due to a Russian transportation blockade on Georgia, the main route for Armenia to reach the outside world.
Azerbaijan, on the other hand, sits on a significant part of the Caspian energy wealth and has been channeling money to boost its defense structure. Oil and gas money has brought a record high economic growth to Azerbaijan and Azerbaijani President Aliyev has pledged to equal his country's defense budget to the entire budget of Armenia.
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