Global demand for oil, particularly in Asia, has been growing since 1985. In that year, oil prices collapsed, and the Persian Gulf region suffered a substantial decline in real income. In peacetime, oil is indispensable to fuel expanding economies around the world. In wartime, oil is indispensable to fuel the military forces of the various combatants. In 1918, for example, Germany surrendered because its military machine was about to run out of oil.

In World War II, Germany saw its oil supplies cut off at Ploesti in Rumania. American bombers led the attack on refineries and storage tanks there. Adolph Hitler looked even further afield than Ploesti which provided only 58 percent of Germany's oil imports in 1940. Hitler saw Baku in Azerbaijan as the objective of his Panzer divisions. Baku and the other Caucasian oilfields were central to Hitler's concept of his war against Russia. This war was launched on June 22, 1941 and Germany's war ended far short of Baku and Grozny in what is now Chechnya. Nazi divisions were defeated just short of Stalingrad, about 200 miles from the Caspian Sea. A violent confrontation for access to oil in the Caspian Sea Basin could very possibly occur between Russia and China early in the 21St. Century.

In this remote part of the world, oil has been discovered in vast quantities not yet measurable. Some familiar with the find estimate the oil reserves at over 95 billion barrels in the Caspian Sea fields. In nearby Turkmenistan, gas reserves are estimated at well over 18 trillion cubic metres. And only recently, has Kazakhstan captured the interest of the international business community. In addition to oil, Kazakhstan is thought to have the largest reserves of gold in the world, together with copper and silver. The People's Republic of China has more than a casual interest in Kazakh oil; it must more that double its daily consumption of crude oil by the year 2000.

In October, 1996 Tashkent, the capital city of Uzbekistan, was recently the site of a meeting of the Organization for Security and Cooperation in Europe (OSCE). Human Rights Watch/Helsinki sent copies of its letter for publication on the Internet. The letter addressed to America's am ii bassador in Uzbekistan charged that OSCE's human rights staff was giving its tacit approval to strict government control of the media and fierce repression of free speech, not withstanding Article 67 of Uzbekistan's constitution. In part, it read: "the mass media shall be free...censorship is impermissible." Constituent countries once part of the Soviet Union, like Kazakhstan, Uzbekistan was once one of the constituent republics of the Soviet Union but now is independent within the Confederation of Independent States (CIS). Chechnya has been recognized by Russia as a state, but Grozny, its capital has been the site for two years of bloody guerilla warfare with independent status as the objective. In early 1996, General Alexandr Lebed signed an agreement with the rebel's leader, and Russian forces withdrew with Boris Yeltsin's approval In May, 1997 Yeltsin went even further. He helped reinforce Aslan Maskhadov by signing a peace treaty with this newly elected president of Chechnya. Yeltsin promised "never to use force or threaten to use it in relations between the Russian Federation and the Republic of Ichkeria." This is the new name for Chechnya. According to a map prepared in Moscow by the Russian Oil Industry in cooperation with Rosneftegaz, Chechnya and the nearby Krasnodar area has some fifteen oil fields and one refinery with a capacity of 22 to 28 million tons of oil per year. The same map shows that only a small percentage of Chechnya's oil is exported. The bulk of this oil is sold to Russia. By controlling the Chechen economy devastated by years of bloody fighting and widespread destruction, Russia will probably continue this arrangement. However, leaders in Chechnya have sharp policy differences with Russia. One of them is capital punishment for certain offenses under Islamic law. Boris Yeltsin publicly denounced one such filmed execution. He still sees Chechnya as a province of Russia, not the independent country it has been since 1991. Except for Belaurus, the other countries on the Soviet periphery -- Georgia and Ukraine -- have preserved their independent status but probably not without promises of economic support from Moscow. The western geography of Russia includes Ukraine, and Belarus in an arc turning north from the Black Sea. The rulers of Russia have cut off Turkmenistan's oil and gas via pipelines to Ukraine and on to Europe. Turkmenistan cut off Ukraine's supplies until it agreed to pay in hard currency, not the inflated ruble.

Any attempt to present the search for oil in a region of the world iii riven by the cultural wars and conquests during some two thousand years of history must omit some facts considered relevant by students of history. I refer, of course, to the Caspian Sea, a landlocked body of water surrounded by Russia, Turkey, Iran, Azerbaijan, Turkmenistan, and Kazakhstan. This latter country shares a common boundary with the People's Republic of China, and its national neighbors include Uzbekistan, Kyrgystan, Afghanistan, Pakistan, and Tajikistan. With the exception of Russia, Armenia, and China, the populations of all the other countries in this list are united by a common religion, Islam. While not now the lingua franca of these Moslem nations, Turkic or some variant will become the common language, probably by the next generation. According to Central Asian expert, Martha Brill Olcott, "Few people in the world have ever been forced to become independent nations. Yet that is precisely what happened to the five Central Asian republics Uzbekistan, Tajikistan, Kazakhstan, Turkmenistan, and Kyrgyzstan in 1991 when the Soviet Union dissolved," she said, " these people wanted civil liberties, but not necessarily freedom as citizens of new states. Each republic was named for a local nationality, but was based on the borders of a state that had, in fact, never existed. Therefore, all these groups have border claims on one another, and large populations in the other's territory on which to base such claims. " Stalin, for example, created Kazakhstan and Kyrgyzstan by dividing the Kyrgyz nation into two republics.

In November, 1996 the Chevron Corporation announced the consummation of an agreement allowing it and its consortium partners to export up to at least 700,000 barrels of oil per day from the Tengiz oil field in the Caspian Sea. The oil will be delivered by pipeline to the newly constructed Russian port of Novorossiysk on the Black Sea. Oil reserves in the entire Caspian Basin are estimated at ninety-five billion barrels. Natural gas in Turkmenistan is estimated at more than eighteen trillion cubic metres, enough to supply Russia with most of its industrial energy needs. Russia once had adequate supplies of both oil and gas. However, its pipelines and pumping stations have obsolesced and much of the Russian plant and equipment have deteriorated. Furthermore, some of its wells have been almost depleted over a period of ninety or one hundred years.

Besides Chevron, other companies with an interest in the consortium are Lukhoil, the huge Russian oil company, Mobil Oil, AGIP S.pA., a unit of ENI of Italy, British Gas, and Oryx Energy, based in Dallas, Texas. iv The agreement signed in Moscow on December 6, 1996 was of major importance to Chevron. Currently, it was shipping only 120,000 barrels day. Its ability to ship more was limited by the current pipeline in Russia which has run within a few miles of Grozny, the capital city of Chechnya. For the last two years, there has been heavy fighting in that country. It got its independence from Russia, now known as the Confederation of Independent States (CIS). The government of Turkey has expressed disappointment with the route chosen by the consortium. Turkish officials had prepared a position paper with reasons for getting Caspian Sea oil on the international market by shipping it through pipelines via Turkey to Ceyhan for delivery to European markets. Except for Kurdish nationalists in the southeastern area of Turkey, a pipeline from, for example, Baku to Ceyhan, might well work under conditions of relative political stability.

Central Asia

 

Seven time zones to the east of the Caspian Basin, Chevron announced a new crude oil discovery in the South China Sea in the Pearl River Mouth Basin. The China National Offshore Oil Corporation will own 51 percent of the oil discovered in this prolific Huizhou area, with AGIP and Texaco being the other consortium partners. This latest discovery in October, 1996 brought total production to 120,000 barrels a day during a period that began in 1983 with the formation of what is now known as the CACT Operators Group. Each of the three corporate partners own a 16 1/3 percent interest in the South China Sea oil field, while CNOOC owns a 51 percent interest.

On June 10, 1997 the official China Daily Business Week reported that China would have to import nearly one million barrels of oil a day by the year 2000, twice the normal level. With the domestic oil industry struggling to maintain production at about 3.1 million barrels a day, imports must increase sharply to keep up with China's rapidly expanding economy. China will continue as a net importer of oil well into the 21st Century, while its population continues to expand at an exponential rate. With this expansion, China needs far more oil than it will ever discover in either offshore or onshore oil drilling. Over the long term, Chinese economic growth will require the import of more oil. By 2010, China must quadruple its oil imports to at least 14.5 million barrels a year. Only two areas in the world produce oil on this magnitude, the Middle East and the Caspian Basin. Oil v from the Indonesian wells is barely enough to satisfy the requirements of Japan and the Malaysian Peninsula countries. On June 3, 1997 China announced a $4 billion deal under which Kazakhstan would deliver its oil to Sinkiang, a UighurHan Chinese province in the Northwest of China via pipeline. China National Oil Company also announced an agreement with Iraq to develop two major oilfields with about 340,000 barrels of oil per day. Some officials note that Russian intransigence over pipeline routes to Europe via Turkey caused Kazakhstan to negotiate with the China National Oil Company, a statewide company.

In 1994, China was considered to be the sixth largest oil producer, but the country consumes most of its own output. China refined 2.5 million barrels of oil per day in 1994, but is still 300,000 barrels short of its target for 2000. The present government in Beijing has other policies related to energy development. It is interested in American refinery technology and crude oil in the ground in countries like Kazakhstan and Russia. However, ever since the end of World War II, Russia has been a net exporter of oil; its own oil facilities have become hopelessly inefficient, and its nuclear power reactors are dangerously unsafe. With the collapse of the old Soviet Union in 1991, some of its national areas have spun off into independent states. Georgia is one of them, and other states like Kazakhstan, Turkmenistan, and Azerbaijan have become the key players in the search for oil and gas.

Republics on the periphery of the former Soviet Union -- now the Confederation of Independent States (CIS) -- are often at war over issues of power. Belarus, for example, recently had a referendum which left the status of President Alexandr Lukashenko in some doubt. He had announced the referendum to seek near absolute power of a country of about 10.5 million people still living in the shadow of the radioactive fallout after Chernobyl in 1986... Belarus its capital is Minsk lies between Latvia, Lithuania, Poland and Ukraine (World War II in Ukraine). In 1994, Belarus established its own currency, the ruble, but its value against the dollar is practically nil. The Ukraine has no serious internal disputes, but it does have a boundary dispute with Rumania going back to the MolotovRibbentrop Pact in 1939. Ukraine's population is estimated at 52 million, and its capital city is Kiev. Ukraine shares access to the sea with Georgia via the Black Sea. Chechnya shares a border with Georgia to the south and Dagestan to the east. The vi status of Chechnya was on hold in 1996 after an agreement was signed suspending hostilities between it and Russia for five years. However, Yeltsin finally signed a treaty with Chechnya in 1997. As already noted, China and Kazakhstan have a common border in western China where no substantial oil drilling is likely to take place without some assurance of results in commercial quantities of oil or gas. Chevron recently signed an agreement with China allowing it to explore for oil on land.

China has a badly split personality. As of 1992, the Chinese economy was growing at an annual growth rate of 12.8 percent. Despite the one child per family policy, its population is growing at a rapid clip. By 2010, the population is expected to increase by 25 percent. Expansion on such a scale is simply not sustainable because of environmental degradation. Arable land has nearly lost its capacity to grow crops sufficient to feed the growing population. About 25 percent of the entire population in rural China has less arable land than the Bangladeshis. Over the next fifteen years, this already disastrous condition of agriculture will become dramatically worse. As of 1990, about 77 percent of China's agricultural land was being irrigated, but this irrigation water has become increasingly polluted by industrial wastes. Anyone who has seen what an American forest looks like after clear cutting will recognize a grotesque scene. As river beds silt up from soil washed out by normal rainfall, the river beds rise above the normal surface and increase the danger of floods. Water and air pollution are increasing rapidly, as the population grows and has to feed itself. As the population expands, its rural component moves closer to the coastal population centers.

Internationally, China has been criticized for its repressive human rights violations. Western businessmen tend to ignore all this for the lure of low wages and high profits on exports. Faceless Chinese bureaucrats routinely describe criticism of China's dismal human rights record as interference in the internal affairs of the Peoples' Republic of China. However, Europe has worked with the European Convention on Human Rights since 1951, and the thought of complying with this convention didn't even slow down the race to the banks by American businesses anxious to make money in Europe.Turkey has the worst record of human rights violations of the convention. Furthermore, the Council of Europe just rejected Russia's application to become a member of the Council of Europe. The Council vii executive ruled that Russia could not satisfy the requirements of the European Convention on Human Rights.

The Peoples' Republic of China cannot survive without access to far more oil than it has in 1996. The Great Leap Forward and the Cultural Reform with its Red Guard excesses were both utter disasters. The terrible famine in the years between 1959 and 1962 caused the deaths of some 30 million peasants in the rural areas of China. Then, when Lin Biao was Minister of Defense beginning in 1959, he moved to politicize the army. Military professionalism must yield to strict ideological controls.

Deng Xiaoping himself was a victim of the Red Guard cadres in 1966. He was humiliated in public rallies and attacked in insulting posters. He retired in time to avoid the blame for the chaos of 1967 caused by the Red Guard units. By 1968, these units were at war with one another, and the government infrastructure all but collapsed. Mao Tsetung was close to presiding over social breakdown. Mao distrusted Lin, so he is thought to have had Lin removed. Actually, Lin was reported to have died in a plane crash in 1971. This was the year in which the PRC got Taiwan's seat at the United Nations, and Mao saw it might be time to cultivate the United States. So he was receptive to a visit in 1972 by President Nixon. Mao died in 1976, leaving a battle for the Party succession behind him. Miraculously, Deng was recalled from retirement because of his vast knowledge of the Party apparatus. Deng was very old then -- he died in February, 1996 -- but probably still powerful enough to suppress most dissent. The current Secretary General of the Party is Jiang Zemin who serves with Deng's blessing. He also used the army to quell the Shanghai demonstration occurring at the same time as the violence in Tiannanmen Square.

Even a short account of Chinese culture, which has been a success in terms of economic development, should be an incentive to avoid commercial diplomacy by, among other things, denying China its MFN status without conditions. At least three generations of Chinese have been the victims of human rights violations. In late 1996, the China Communists turned their attention to the United States and humiliated its government. General Chi Haotian, who carried out the order to crush the Tianenman Square student uprising in 1989 was sent to Washington as a guest of honor of the Clinton Administration. The Clinton Administration sees more trade viii with China, and corporate America has been Clinton's willing executioner of human rights. President Clinton has refused to see the Dalai Lama or once imprisoned political dissidents. The international business community has an obligation to know the culture and react to its excesses. Free enterprise does not lead to a free society. Even with the rapid expansion of China's economy, there is abundant evidence that the same factors that produce serious abuses of human rights are also detrimental to trade. Have American corporations forgotten the economic sanctions that finally helped end apartheid in South Africa? During 1995, for example, China exported $47.3 billion worth of goods to the United States, but imported only $11.5 billion. This deficit has been used principally to finance arms for use by the Peoples' Liberation Army (PLA) and other capital needs. Chinese enterprises are required to sell their foreign exchange earnings to Chinese banks.

The Chinese Century: A Photographic History of the Last Hundred Years published by Random House in December, 1996 has this to say: "China's foreign policy was assertive since 1989. The collapse of the Soviet Union -- perhaps reassuring in an odd kind of way to those in the [Beijing] leadership who warned of the perils of unplanned democratization without a visible economic base -- presented a completely new arena for maneuver among the newly independent republics in central Asia. China, as the new central power in that region, might gain access to water, fuel, and new markets for its own far west. At the same time, powerful Muslim forces in many of these republics raised disquieting prospects of possible unrest in Xinjiang, where the Uighur Muslims demonstrated energetically for a measure of increased religious autonomy and control in 1989. The Russians' deactivation of their main naval base at Vladivostok, when followed by the American abandonment of its own huge naval base at Subic Bay in the Philippines, made China -- in the absence of a significant Japanese fighting force -- the dominant naval power in the immense region extending from the South China Sea to Sakkalin. China took an aggressive stance against Taiwan, Vietnam, Malaysia, the Philippines, Brunei , and Indonesia over the disputed oil and natural gas deposit in the Spratly Islands, although the area was 500 miles from China's shores. China's warships patrolled the area, and set up boundary markers in strategic locations. Its expanding nuclear submarine program, its successful launching of intercontinental ballistic missiles, its projected purchase of an aircraft carrier, and its mastery of in-flight fueling techniques for its fighter bombers, all highlighted the risks to the other claimants should confrontation escalate." This overstates China's actual sea power. It has no carrier, and one will not be enough; there must be two carriers. China's air power has little range even with in-flight fueling. Its surface fleet of frigates is vulnerable to anti ship missiles, and its "smart" weapons have not been designed or produced within China.

In 1992, a rail link between Beijing and Alma Ata in Kazakhstan which more or less followed the Silk Route used by Marco Polo in the 13th century makes the use of Chines forces in Kazakhstan quite simple. These two countries share a common border, so conventional military forces may travel through Sinkiang to the border and perhaps beyond like the nomads of history. About six hundred years ago, the Mongols led by Genghis Khan almost penetrated Europe, and they traveled by horse.

On July 1, 1997 the British left Hong Kong, and the PRC moved in. Hong Kong has been widely seen as Beijing's economic engine; it is the city where most Taiwanese money has been invested, expanding China. Now Beijing wants to reclaim this island republic as its own. There is a problem with this. Taiwan wants its independence, and China does not yet have the military might to mount an amphibious landing, and its air force consists of obsolete Soviet jets. Furthermore, Beijing has said it will reclaim Taiwan peacefully. This claim exists at the same level of truth as its human rights policy. A possibility exists, however. Circumstances might be created by Beijing that could cause Taiwanese to rebel against their present leadership.

All contents © 1998 William M. Brinton