#15
Moscow Times
May 12, 2003
The Other Great Game
By Ian Bremmer and Bruce Clark
Ian Bremmer is president of Eurasia Group and Bruce Clark is on sabbatical from the Economist magazine. They contributed this comment to The Moscow Times.

High noon is drawing near in a contest over Eurasia's richest oil reserves. The outcome will affect world trade patterns and the global balance of power for much of the coming century. No, it is not of post-Hussein Iraq that we speak, but of Siberia. That region's huge and relatively untouched energy prizes have already started to sparkle more brightly because of the conflict in the Gulf. For Russia in general, and Siberia's oilmen in particular, the surge in crude prices and wild uncertainty over the future of the Middle East turned out to be a geopolitical and financial windfall.

That much may be self-evident, but something less obvious has recently emerged. Siberia's energy, and above all its pipeline routes, are likely to grow more significant over time, whatever the future of Iraqi reserves. In other words, Russia's Wild East is still going to matter, even if the clash with Baghdad has, from America's point of view, the best possible outcome: the full and swift re-entry of Iraq to world markets and a steep drop in oil prices.

That is partly because Russia's oil wells, at the current rate of extraction, will still be gushing long after many of the Middle Eastern ones have run dry. But there is a more immediate factor. One of the players in Siberia's great game, Japan, has made a strategic decision to diversify its energy sources, for reasons that go far beyond short-term financial calculations. Hence the prospect of a spectacular reconciliation between Russia and Japan, which previously had the worst relationship of any pair of nations in the G-8.

This began to unfold in January, when Prime Minister Junichiro Koizumi went to Moscow and made clear his intention to finance a $6 billion pipeline, from southern Siberia to the Russian Pacific port of Nakhodka, a stone's throw from Japan.

Clearly, such a pipeline will look much more viable if turmoil in the Middle East persists and crude prices remain high. But the line will remain attractive to Tokyo even if the opposite scenario unfolds. Japanese officials say they have made a long-term determination that they must reduce their energy dependence on the Middle East.

The pipeline idea carries political risks for both Koizumi and President Vladimir Putin. Russia and Japan can never be fully reconciled unless they can somehow bypass their dispute over the Kuril islands, a misty archipelago that the Soviet Union annexed at the end of World War II. There are plenty of people in both countries who would balk at a settlement.

But the two leaders are determined to finesse the future of the Kurils, probably because they have something else in common. In domestic policy, Koizumi and Putin are limited in their ability to carry out bold reforms because of vested interests. So both see that if there is one area where they might succeed as mold-breakers, it is in foreign affairs. That is one reason why Russian-Japanese rapprochement, and the Nakhodka pipeline, have a good chance of materializing. Another is that the Japanese government, unlike the U.S. government, has no ideological objection to paying for pipelines. So, why does this create a geopolitical contest?

The answer is that the Russian government has an alternative partner in the business of bringing Siberian oil to market -- China. With its soaring energy needs, China is at least as thirsty for Russian oil as Japan is, and the idea of a close Sino-Russian embrace has some powerful friends in Moscow.

Russia and China have already agreed in principle on a smaller, cheaper pipeline than the one Japan is suggesting. But from Russia's point of view, there are catches in the Chinese proposal.

For example, China wants to send tens of thousands of workers into Russia to build the pipeline. That sends shivers down the spines of the Russians, who already face a long-term strategic problem in Siberia. How can the 7 million (and falling) people who inhabit the Russian Far East keep control of the region, when the adjacent parts of China have a population of 300 million and rising?

Both suitors in this contest have strengths and weaknesses. Russia does not want to offend China, but it does not want to become hopelessly dependent on the Chinese either. On the other hand, if oil prices plunge, the modest China line will seem more realistic -- unless the Japanese remain determined to "buck the market" and pour money into the Nakhodka project, whatever happens.

What is the best outcome from the viewpoint of Western nations that are not immediately involved? Arguably, there is nothing intrinsically dangerous about a close economic partnership between Russia and China, unless Russian transfers of military technology become part of the deal, as they may. But Japan can retort that all its partners in the capitalist world have a stake in the success of the Nakhodka line, from which North and South America, as well as South Korea and other Asia-Pacific markets will be served.

On the other hand, it is probably not in Western interests to see China humiliated, starved of energy and angry with Russia. So the West, like Russia itself, may want to see this contest settled on terms that give some prizes to everybody.

For as long as it can, Russia will try to keep both its would-be partners guessing and agree in principle with both ideas. But the Japanese government, despite its strong commitment to the Siberian project, may not be able to keep its coffers open indefinitely. Koizumi has exposed himself politically by soft-pedaling Tokyo's claim to the Kurils, and the backlash from Japanese nationalists could be acute unless there is some positive response from Russia.

Putin has said he expects to make an announcement on the pipeline on Tuesday. If they can spare a moment from rebuilding Iraq, Western governments should use whatever influence they have to keep the Japanese proposal in play.

The Western world is now paying a terrible price for its energy dependence on a single region of the world, and pumping Russian oil to the Pacific will be a good way to ease that reliance -- long after the war in Iraq is a distant memory.