By Eric Vandenbroeck and co-workers

From the standpoint of thirty- five years of Sino-Iranian cooperation, the specific strategic content of that cooperation in specific periods is secondary. During the 1970s Sino-Iranian cooperation was directed primarily toward containing Soviet Indian- Iraqi "expansionism." During the 1980s its primary content focused on the conduct and international politics of the Iran-Iraq war. During the 1990s the substance of Sino-Iranian cooperation shifted to an oil for-capital-goods swap and countering u. s. "unipolarity" in an "unbalanced" post -Soviet world. Taking an even longer view, in ancient times Sino-Persian cooperation was directed against the Xiongnu. During the early medieval period it was directed against the Arabs. In the future it may well be directed against some other power. The specific opponent and content are transitory. It is the element of cooperation between China and Persia that endures and is fundamental. To say it another way, the Sino-Iranian relation is essentially about power and influence.The Sino-Iranian relation partners two proud peoples who see in the other an affirmation of their own self-identity. They respect the history of the other and are aware of the long chronicle of mutually beneficial contact and, sometimes, cooperation between the two nations. They see that historic cooperation as an important element of the world order prior to the European eruption and their consequent humiliation, and are determined to cooperate in putting the world once again to right. They share a large set of values about the unjust condition of the modern world. Each respects the power, strong national consciousness, and national accomplishments of the other and sees in it an influential partner well worth cultivating. The ways in which China and Iran cooperate will vary depending on mutual interests, but the impulse toward cooperation will remain constant.

In the event of a U.S.-PRC military confrontation that became protracted and in which the United States used its naval supremacy to blockade China 's coast, China 's ability to continue prosecution of the war would be influenced by its ability to import vital materials overland. In such a situation it would be extremely useful to have robust and redundant transport links via Pakistan and Iran and to have long-standing, cooperative ties "tested by adversity" with both of those countries.

Iran, along with Pakistan, plays an increasingly important role in providing western China access to the oceanic highway of the global economy. Economic and strategic factors converge here. The striking success of China 's post -1978 development drive was predicated on integrating eastern China into the global economy, and that, in turn, was predicated on the many fine ports on China 's east coast. Those ports offered access to the oceanic highways that carried China-manufactured goods to distant markets. Western China, locked deep in the interior of Eurasia , suffered a distinct disadvantage in this regard. Western, interior provinces, with strong support from Beijing, attempted to mitigate this disadvantage by opening transport links with their neighbors. Yunnan province in China 's southwest achieved considerable success in opening or improving road, riverine, and rail links with and through Myanmar to ports (including several that were China built) on the Bay of Bengal. Myanmar 's location in the southeastern foothills of the Tibetan plateau had for many centuries made it a natural transit route between southwestern China and the Bay of Bengal . Xinjiang was not so fortunate. Its traditional international trade routes were the long and tenuous lines of the various "silk roads" across Central Asia . Beijing attempted to strengthen Xinjiang's transport links with Central Asia.

In 1990 the Soviet Central Asia railway grid was finally linked to that of Xinjiang when a line was opened between Urumqi and Aqtoghay, Kazakhstan. Then in the late 1990s a rail line was pushed south along the western rim of the Tarim Basin, reaching Kashgar by 1999. As of 2005, construction of two trans- Kyrgyzstan highways running westward from Kashgar is under way, with the intention of eventually transforming one of those routes into a rail line The China-supported construction of the rail line from Mashhad to Tedzhen, Turkmenistan, opened in 1996, as noted earlier, was also part of this effort to link Xinjiang to Iranian ports. The map (drawing) below shows these various transport routes.

China 's adoption in 2000 of a program to accelerate development of its western regions made development of transportation lines to the southwest even more important. Pakistan was China 's major partner in this regard. In August 2001 Premier Zhu Rongji committed China to provide $198 million to support the first phase of construction of a new seaport at Gwadar in Pakistan 's Baluchistan.(" China Assisted Gwadar Port to Be Completed in Three Years," Karachi Business Recorder, September 16, 2002 ).

Zhu also promised unspecified support for two subsequent phases of the project. When complete, the new Gwadar port was to have a cargo throughput capacity equivalent to Karachi , thereby nearly doubling Pakistan 's maritime capacity and allowing cargoes to circumvent Karachi 's extremely crowded facilities. Also in 2001, China committed $250 million to assist Pakistan in modernizing its railway system.(Nadeem Malik, " China Pledges US$1 Bn Honeypot for Pakistan ," Asia Times, May 15,2001)

In March 2003 Beijing committed an additional $500 million to Pakistan 's railway modernization, including construction of new tracks. ("Finance Advisor Speaks on Jamali's China Visit," Nation, Islamabad, March 24, 2003).

China also agreed to provide financial support for construction of a new rail line northward from Gwadar and linking up at Dalbandin with the existing east-west rail line. China also agreed to finance construction of a highway east from Gwadar along the Makran coast. Simultaneously measures were taken to expedite the flow of truck traffic along the Karakoram Highway running from Kashgar to Rawalpindi in northern Pakistan.

While China 's major transportation investments in southwest Asia have been in Pakistan , Iran has played a role via several railway projects that dovetailed with China 's efforts in Pakistan . The first of these Iranian projects was construction of a rail line between Kerman in southeast Iran and Zahedan on the Iran- Pakistan border. Work on this line was under way in 2002.When complete, this rail line will link the Iranian and Pakistani rail systems for the first time. Work was also under way on a new rail line extending southwest from Mashhad directly across northeastern Iran to Bafq. This line was to be operational by early 2005. The completion of these new lines will mean that Chinese cargo moving via the Tedzhen-Mashhad link can proceed directly to seaports without having to take the long, circuitous, and crowded but previously required detour via Tehran . Once these new lines are open, Chinese cargo will also be able to move between Pakistan and Iran and via ports in either of those two countries. These new lines will add considerable redundancy to China 's southwest Asia transportation system. ("Finance Advisor Speaks on Jamali's China Visit," Nation (Islamabad ), March 24, 2003).

There  also have been  elements of conflict as well as cooperation in the Sino- Iranian relationship. Throughout the history of post-1971 Sino-Iranian relations there has typically existed an asymmetry in interest in a closer partnership to counter one or another superpower. During the pre-1979 era, it was China that was the more ardent suitor in the SinoIranian relationship, with Beijing pressing Tehran to playa greater role in what Beijing saw as the emerging global united front against Soviet social imperialist expansionism. The shah was reluctant to go down that path. His aim in cooperating with China was deterring and moderating Soviet behavior, not provoking the Soviet Union . China , however, felt a dire threat of encirclement or even direct attack by the Soviet Union, and urgently wanted a global anti-Soviet coalition that would lessen Soviet pressure on China . During the post-1979 period, the situation was reversed. Tehran became the more ardent suitor and Beijing the more hesitant party. Confronted with the deterioration of relations with the United States , the European countries, and its Arab neighbors, Iran needed friends. The end of the Iraq- Iran war freed Moscow from its alliance obligations to Iraq and opened the door to Soviet-Iranian cooperation, but the dissolution of the Soviet state greatly reduced the willingness and ability of Russia to support Iran against the West. In its search for international partners during the 1990S, Tehran propounded joint Iranian-Chinese confrontation of the United States and various sorts of anti-u. S. hegemony blocs to include China, Iran, India, Pakistan, Russia , and even Japan. Beijing was not interested. Tehran responded by criticizing China's close relations with the United States in 1979, during Reagan's 1984 visit, and again when Beijing capitulated to U. S. pressure over nuclear and missile cooperation in 1997. Beijing moved to mollify Iranian criticism but did not alter the course of its underlying U. S. policy.

Beijing has been wary of overly close association with the I R I. The potential financial costs of close association with Iran may have been one Chinese consideration here. A major element of antihegemony, Third World solidarity was to be, Tehran insisted, robust Chinese financial support for development projects in Iran. A key theme of China 's post-1978 foreign policy line was to avoid, with rare exceptions (one of which was the Tehran metro), such costly overseas projects that, Deng Xiaoping felt, had helped impoverish China under Mao Zedong's rule. Iran 's very size meant that as an ally its demand on Chinese resources could be quite heavy.

Political factors were probably more important in explaining the distance Beijing maintained in ties with the IRI. Overly close association with the IRI could hurt China 's international reputation. Deng Xiaoping strove quite effectively to shed China 's revolutionary image acquired during Mao's rule. Close association with revolutionary Iran ran counter to Deng's effort to normalize China 's reputation and diplomacy. After 1978 and with increasing clarity into the 1990s, China desired to be accepted as a responsible power qualified to be admitted by the international community into the ranks of the leading nations of the world. Achievement of this respectability was not facilitated by close association with Islamic revolutionary IRI or by implication in possible IRI nuclear weapons efforts. Close alignment with the IRI could also injure China 's ties both with the Arab countries and with Israel.

There were also numerous smaller frictions in the Sino-Iranian relationship. The propensity of some Iranian foundations, and perhaps even the IRI government, to foster radical Islamic thought in China's Muslim communities and in Central Asian countries contiguous to China generated conflict in the P RC- IRI relation. This conflict led not to estrangement but, paradoxically, to greater emphasis on "friendship." Beijing sought to demonstrate to Tehran that cooperation with China was valuable, but that such cooperation would be impossible ifIranian "interference" in the affairs of China 's Muslim communities continued. In effect, Beijing made cessation of Iranian subversion the price of Chinese friendship and cooperation. Conflict thus led to engagement and friendship, rather than to sanctions and hostility.

Tehran sometimes defaulted on payment of its bills to Beijing . Difficulties of doing business in Iran certainly tested the patience of Chinese businesspeople no less than German, South Korean, Canadian, or Norwegian. Arbitrary and unilateral Iranian changes in agreements sometimes led to Chinese protests. So to did Iranian "discrimination" against Chinese goods in favor of Western technology. Negotiations over business deals were often long and hard, with Iranian calls for Third World solidarity being met with Chinese insistence on mutual benefit.

The U.S. invasion of Iraq was not, on the face of it, an overtly "colonial" venture. Judging by the Bush administration's own objectives, the invasion of Iraq in fact was a colossal blunder, and although not geared towards imperialist objectives in the Middle East, it was indeed relying on military force. Yet the United States did not become the dominant power by military means. Victory in the Second World War was followed by the establishment of the United Nations and the Bretton Woods institutions and the Marshall Plan.

Nevertheless the behavior of the United States was not always exemplary-the CIA was busy hatching plots, planning assassinations, and arranging coups d'etat ; but most of these activities were clandestine, and when they were revealed, the CIA was reined in. The Vietnam War ended in defeat and broke the can-do spirit that had characterized America until then. The United States continued to fight proxy wars and to sustain authoritarian regimes. But these were aberrations.

The world order is based on the sovereignty of states. An anachronistic concept at the time, it first entered the vocabulary of modernity with the Treaty of Westphalia in 1648. After thirty years of religious wars, it was agreed that the ruler had the right to determine the religion of his subjects. Next the French Revolution overthrew King Louis XVI and the people seized sovereignty. Since then, the two instances of partial sovereignty, have gradually transformed into the democratic principle as recognized by the United Nations, following the end of WWII. There has never been a world order capable of preventing war, but the idea that there is no world order other than the use of force is a fallacy-a companion piece to the misinterpretation of the nature of power.

After the collapse of the Soviet empire, America under George W. Bush, used its dominant position to promote its national self-interest. The United States , as the dominant power, however could have chosen instead to concern itself with the well-being of humanity in addition to pursuing its self-interest. There has been a profound shift in American attitudes since the Marshall Plan was implemented. When the Soviet Union collapsed, the idea of a Marshall Plan for the former Soviet empire could not even be discussed. The emergence of a different attitude from the one that gave birth to the Marshall Plan can best be identified as ‘market fundamentalism’-a belief that the common interest is best served by people pursuing their self-interest.

Furthermore, facilitating the international movement of capital has made it difficult for individual countries to tax or regulate capital. Since capital is an essential factor of production, governments have to pay more attention to the requirements of international capital than to their own citizens. Thus the development of international institutions has not kept pace with the growth of global financial markets. Private capital movements far outweigh the facilities of the International Monetary Fund and the World Bank. Developing countries are vying to attract capital, yet the world's savings are being sucked up to finance over consumption in the United States, and now also Europe as ‘feel good’ countries today.

But not only has American power and influence suffered a serious setback by now, the world order is in disarray. One could even argue that in a world of sovereign states, the lack of a dominant power that has the common interests of humanity at heart leads to instability and conflict.

But today it is not enough to reestablish the status quo that prevailed prior to 9/11, and especially, no overhaul is possible without the participation, of the United States. Tough we do not necessarily advocate the solution presented in the just released “Terrorism, Human Rights, and the Case for World Government” by Louis P.Pojman, there is obviously a need for greater international cooperation based on enforceable internationally.  What we see as more important however is a change of attitude from the single-minded pursuit of national self-interest to showing some concern for the common interests of humanity.

But how can we foster democracy and deal with the likes of Saddam Hussein? How can we address nuclear proliferation and global warming? How can we deal with the resource curse? How can we keep the global economy on an even keel and reduce its iniquities?

Let’s start with the first; In his second inaugural address, President Bush made the promotion of democracy throughout the world the centerpiece of his program. Yet The Bush administration's policies where full of contradictions. President Bush argued against "nation building" in the television debate of the 2000 elections, and nation building was furthest from his mind when he ordered the invasion of Afghanistan. Yet advocating democratization in other countries, it failed democratic development in Afghanistan .

Or consider another case, Pakistan . President Pervez Musharraf is a very uncertain and unreliable ally: The top leadership of al Qaeda is hiding in Pakistan , and the resurgence of the Taliban is supported by elements within Pakistan . President Musharraf tells us that the choice is between him and the Islamic fundamentalists; with Pakistan in possession of nuclear weapons, that makes the choice obvious. But Musharraf is in alliance with the religious parties; that makes it difficult for him to exert pressure on them. Little effort has been made to reform the madrassahs, and the state spends less than two percent of its budget on education. Even so, the religious parties would probably get only a minority of the votes in free elections. The two moderate parties that alternated in power when the military allowed elections have deep roots in society in spite of all the efforts of the military dictatorship to destroy them. Musharraf dismisses them as corrupt; but the military are no better. Musharraf himself is not as popular as his supporters have us believe; that is why he refuses to carry out his promise to stand for elections; that is why he has to rely on the religious parties. This is a case where free elections could resolve what is presented as an intractable problem. The real problem is how to persuade the military to hold free elections. Egypt has some similarities with Pakistan , the major difference being that in free elections the Moslem Brotherhood would gain a majority.

Case Study 1:

Another issue is nuclear proliferation, for example the lack of international resolve to move quickly to stop proliferation activities, such as those of A.Q. Khan (a worse case from that of Iran ), also cripples the international non-proliferation regime. In these circumstances, the incentives tend to outweigh the constraints. The more countries acquire nuclear weapons, the greater the pressure on others to do likewise. Regional tensions and nuclear armament in South and East Asia make nuclear weapons appealing for neighbors. Nuclear modernization efforts by the world's two largest nuclear powers heighten the perceived importance of nuclear weapons for national security. The inducements may not be strong enough to push countries to actually violate the non-proliferation treaty, but they have every reason to line up at the starting line. That is where a number of countries are heading. In addition to North Korea and Iran , countries such as Argentina , Brazil , and Japan are now believed to have the capacity to use their peaceful nuclear technology to produce weapons grade material if they chose to do so. Estimates are that, outside the nine countries that have produced nuclear weapons, up to 40 countries could produce nuclear weapons if they were willing to devote the necessary resources. Only the ever thinning taboo against nuclear weapons possession remains between these nuclear-capable states and nuclear weapons.

Although the spread of nuclear weapons constitutes a threat to humanity, the arguments for non-proliferation are undermined by the fact that the nuclear weapon states have not fulfilled their obligations under the non-proliferation pact: they have made only very limited moves toward complete disarmament, as required by Article VI of the NPT. Thus the situation is much more dangerous than at any time in the Cold War, yet much less thought is given to the subject than during the Cold War. The best brains are not engaged. Insofar as there is public discussion, it is focused on weapons of mass destruction falling into the hands of terrorists. This is obfuscation. The very term "Weapons of Mass Destruction" is misleading, because it lumps together weapons with very different characteristics. The most potent threat, in my opinion, is the proliferation of nuclear weapons in the hands of states. That threat is not receiving the attention it deserves.

There is little hope for a solution while the United States is modernizing its strategic arsenal and continuing to have plans to use nuclear weapons. A solution could only exist if a new non-proliferation agreement was negotiated-a new non-proliferation treaty that would put all nuclear programs under international supervision. It would not deprive the United States and other states of their weapons, but it would place them under international monitoring to ensure immediate detection if a country decided to initiate the use of nuclear weapons. But since there are plentiful amounts of highly enriched uranium already in existence, it is possible for nations to acquire fissile materials without producing their own. The other necessary treaty component must therefore implement international control of the production and disposal of the fissile materials necessary to build nuclear weapons. Such an arrangement would run counter to the prevailing view that American sovereignty is sacrosanct but it could make the world, a safer place.

The United States is right to believe that Iran is hell-bent on acquiring nuclear weapons in fact  Iran has done nothing to discredit this notion. The world is heading toward a confrontation. Only the timing is uncertain. As I mentioned in the previous chapter, I believe it may be possible to reach an accommodation with Iran but it ought not to permit Iran to become a nuclear power. Iran has been the main beneficiary of the invasion of Iraq but if it overplays its hand it may lose all the benefits. If Iraq deteriorates into a regional Shia-Sunni confrontation, Iran is liable to be drawn into it. A commitment by the United States to withdraw its troops could serve both as a threat (because it would leave the United States free to bomb Iran 's nuclear installations) and as an inducement to cooperate in a political settlement (because it would consolidate the gains Iran has already made without risking them in a war.) Iran has suffered greatly during eight years of fighting with Saddam Hussein and another war may not appeal to at least some segments of the power structure. Giving up the nuclear program may not be much of a sacrifice especially if the international community were willing to enter into a new nonproliferation agreement that would put all existing nuclear weapons under an international regime and impose a freeze on all further development of nuclear capabilities. If most of the world were lined up behind such a treaty, Iran would find it difficult to resist, and if it did, preemptive action by the United States would encounter fewer adverse consequences than at present.

As for world economy, the financial authorities are reinforced in their belief that with proper supervision financial markets can take care of themselves. However the global economy has been sustained by a housing boom, that notably in the  United Kingdom and Australia , has subsided, with a soft landing. But there are reasons to believe that the slowdown in housing prices in the United States will see repercussions.

Combined factors there are likely to ensure that housing prices, once they subside, will not rise again soon. And if an initial soft landing turns into a hard one when the slowdown does not end. A slowdown in the United States could be transmitted to the rest of the world via a weaker dollar. This, as an illustration of the kind of dislocation that are bound to occur, because the global economy is prone to periodic dislocations and it will require international cooperation to keep them within bounds.

Even in the absence of a crisis there is something perverse in the current constellation: The savings of the world are sucked up to the center to finance over consumption by the richest and largest country, the United States . This cannot continue indefinitely, and when it stops the global economy will suffer from a deficiency of demand.

Furthermore a community of democracies that would exercise the responsibility to protect is an attractive idea in theory, but it has been disappointing in practice. The idea was launched in the waning days of the Clinton administration, in the summer of 2000, at a conference held in Warsaw . From the outset, the initiative suffered because it was a product of the foreign ministries and lacked support from the ministries of finance. As a result, the Warsaw Declaration has remained an empty gesture; it would not even have made it into the newspapers if France had not refused to sign it because it had been sponsored by the United States . And during its recent meeting, in Chile in April 2005, the community of democracies could not agree about endorsing the proposed Human Rights Council. Many developing democracies were suspicious that the United States would use the Human Rights Council to further its’ imperial goals’….

Finally in regards to the resource question, developing countries that are rich in natural resources tend to be just as poor as countries that are less well-endowed; what distinguishes them is that they usually have more repressive and corrupt governments and they are often wracked by armed conflicts. This has come to be known as the resource curse.

It started with a campaign launched in early 2002 called Publish What You Pay. It was supported by a number of international NGOs, including Global Witness, which is grounded in the environmental movement.  The aim of the campaign was to persuade oil and mining companies to disclose all the payments they make to individual countries. The amounts could then be added together to establish how much each country receives. This would allow the citizens of those countries to hold their governments accountable for where the money goes.

The line of reasoning that led to the campaign, however, did not survive closer examination. (That is why I call it a fertile fallacy). Companies listed on the major stock exchanges could not be legally compelled to publish country-by-country accounts. British Petroleum had to back down, but along with Shell, has announced that it will publish its payments in countries where the government allows it. Nigeria has waived the confidentiality clause and asked companies to report their payments individually. Other EITI adherents, including Azerbaijan , do not allow individual reporting, but ask all operating companies to pool their payment data for public reporting purposes. Azerbaijan , where British Petroleum is the lead operator, has established an oil fund on the Norwegian model and adopted EITI principles. Kazakhstan has also set up an oil fund and has signed on to EITI. Advances were especially made in Nigeria , when after the reelection in 2003, of President Olusegun Obasanjo he embarked on far-reaching fiscal, monetary, and banking reforms.

One obstacle to further progress on the resource curse is China , and, to a lesser extent, India . In its quest for energy and other raw material supplies, China is fast becoming the sponsor of rogue regimes. It is the main trading partner and protector of the military dictatorship in Myanmar . It feted President Islam Karimov of Uzbekistan immediately after the massacre at Andijan, and it conferred an honorary degree on President Robert Mugabe of Zimbabwe . It is the main buyer of Sudan 's oil, and it hindered the work of the United Nations in dealing with ethnic cleansing in Darfur . It extended a large credit to Angola when Angola failed to meet the conditions imposed by the International Monetary Fund.

See today's Case Study 2:

No single measure is sufficient to ease the crisis. Many different actions will have to be taken at the same time, in addition to carbon-free coal, nuclear energy, wind, biomass, and, of course, demand reduction. That is where the price mechanism can be useful: A carbon tax combined with carbon credits would provide the economic incentives to introduce the appropriate adjustments both on the demand side and on the supply side. The Kyoto Protocol set targets for carbon emissions and facilitated the trading of carbon credits. It was a step in the right direction, but it did not go far enough.

The global energy crisis is more complex than any other crisis. It is not a single crisis but a confluence of disparate developments that have reinforced each other and reached crisis point more or less at the same time. They endanger our civilization in various ways. Global warming and nuclear proliferation are only aspects of a more complex situation that threatens to deteriorate into global disintegration. Although the core of the crisis is the tight supply situation for oil, the developments that may bring about disintegration are mainly political.

See our earlier in-depth comment about what next with the tight supply situation for oil:

Financial markets often go to the brink and then recoil. Our political system is less well-equipped to avoid disaster however. We have experienced two world wars and wars have a tendency to become increasingly devastating. The threat of nuclear war should not be minimized. Our current civilization is fuelled by energy; the global energy crisis could create immense havoc.

The present  phase of the crisis is the outgrowth of misconceptions, including those related to 9/11. Although we cannot rid ourselves of misconceptions, we can correct them when we become aware of them. Perhaps the biggest mistake is for the United States to think that it is powerful enough to deal with these problems on its own. The competitive position of one state vis-a-vis the others is not what matters when the viability and sustainability of the world order is at stake. The prevailing view that the world order, like a market, will take care of itself if left alone, is plain wrong. Global warming, energy dependency, the resource curse, and the nuclear nonproliferation regime require international cooperation.

Although the global energy crisis demands international cooperation, we must be wary of going to the opposite extreme and disregarding the national interests of sovereign states. No matter what systemic changes are introduced, they need to take these interests into account. Consider China . Until 1993, it was self-sufficient in oil; now it imports almost half its consumption. Its share of the world oil market is only 8 percent, but it accounts for 30 percent of incremental demand. China has a genuine interest in harmonious development, although we are next also exploring the alternative viewpoint meaning if, the current situation is not properly handled the next WW might be between China and the US .

Today however, since China has a serious energy-dependence problem as well as serious pollution problems, it is a natural partner for developing alternative clean fuels, particularly from coal, which is plentiful in China . But China is not a natural partner in curing the resource curse. On the contrary, in its search for alternative energy sources it has become a customer of rogue states in Africa and Central Asia, a situation that is contrary to China 's interest in harmonious development; but its leadership sees no alternative, particularly after its bid for Unocal was rebuffed. It would behoove the United States government to allow China to acquire stakes in legitimate energy companies, but only if it cooperated in dealing with the resource curse.

Europe could lead the way in energy cooperation. It is heavily dependent on natural gas and Russia is its main supplier. The European Union imports 50 percent of its energy needs and imports are projected to rise to 70 percent by 2020. Russia is by far the biggest supplier of its imported oil (20 percent) and natural gas (40 percent). And as we have seen before (the indicated presentation/link above), many EU countries depend heavily on gas from Russia, which supplies 40 percent of Germany's total demand, 65-80 percent of Poland's, Hungary's, and the Czech Republic's demand, and almost 100 percent of the gas needs of Austria, Slovakia, and the Baltic states. This makes Europe particularly vulnerable because Russia has begun to use its control over gas supplies as a political weapon. The story is a complicated one and I can give only a brief outline here. When the Soviet system disintegrated, the energy sector was privatized in a chaotic fashion. Devious transactions were perpetrated, like the loan for shares scheme, and enormous fortunes were made. When Vladimir Putin became president, he used the power of the state to regain control of the energy industry. He put the president of Yukos, Mikhail Khodorkovsky, in jail and bankrupted the company. He put his own man, Alexey Miller, in charge of Gazprom and pushed out the previous management that had built a private fiefdom out of Gazprom's properties. But he did not dissolve the fiefdom but used it to assert control over the production and transportation of gas in the neighboring countries. This led to the formation of a network of shady companies that served the dual purpose of extending Russian influence and creating private wealth. Billions of dollars were siphoned off over the years. The most valuable asset was the gas of Turkmenistan which was resold by a company registered in Hungary at a multiple of the price at which it was bought. While the ownership of Eural Trans Gas was never disclosed, the decisions to give it contracts were made jointly by President Putin and the then-president of Ukraine, Leonid Kuchma. I believe that was one of the reasons why Putin exposed himself so publicly in backing Kuchma's nominee, Viktor Yanukovich, for president of Ukraine in 2004. After the Orange Revolution, the contract with Turkmenistan passed into the hands of Ros Ukr Energo, a company with shady ownership set up by Raiffeisenbank of Austria. At the beginning of 2006, Russia cut off the gas supply to Ukraine. Ukraine , in turn, tapped into the gas that was passing through Ukraine on its way to Europe. This forced Russia to restore supplies to Ukraine; but in the subsequent settlement, Russia gained the upper hand: It promised gas supplies at reduced prices through RosUkrEnergo for six months, but Ukraine committed itself to fixing the transit fees for five years. Mter six months, Russia will be able to exert political pressure on Ukraine by threatening to raise gas prices. Russia already exercises control over Belarus.

A more recent example, since a few days ago, the Russian environmental agency, Rosprirodnadzor, is suing Royal Dutch/Shell, alleging that the oil supermajor has violated environmental regulations and failed to submit timely reports…

The net result is that Europe is relying for a large portion of its energy supplies on a country that does not hesitate to use its monopoly power in arbitrary ways. Until now, European countries have been competing with each other to obtain supplies from Russia . This has put them at Russia 's mercy. Energy dependence is having a major influence on the attitude and policies of the European Union towards Russia and its neighbors. It will serve the national interests of the member states to develop a European energy policy. Acting together, they can improve the balance of power. In the short run, Russia is in the driver's seat; an interruption of gas supplies disrupts European economies immediately while an interruption of gas revenues would affect Russia only with a delay. In the long run, the situation is reversed. Russia needs a market for its gas and few alternatives exist as long as Europe sticks together. Europe could use its bargaining the opposite extreme and disregarding the national interests of sovereign states. No matter what systemic changes are introduced, they need to take these interests into account.

Consider China . Until 1993, it was self-sufficient in oil; now it imports almost half its consumption. Its share of the world oil market is only 8 percent, but it accounts for 30 percent of incremental demand. China has a genuine interest in harmonious development. It also has a serious energy-dependence problem as well as serious pollution problems. Therefore, it is a natural partner for developing alternative clean fuels, particularly from coal, which is plentiful in China. But China is not a natural partner in curing the resource curse. On the contrary, in its search for alternative energy sources it has become a customer of rogue states in Africa and Central Asia, a situation that is contrary to China 's interest in harmonious development; but its leadership sees no alternative, particularly after its bid for Unocal was rebuffed. It would behoove the United States government to allow China to acquire stakes in legitimate energy companies, but only if it cooperated in dealing with the resource curse.

Meanwhile, encouraged by the energy shortage and America 's weakness, Russia is assuming an increasingly assertive posture that goes well beyond energy policy. Russia has sold Iran (through Belarus ) S300 anti-aircraft missiles and has refused to rescind the sale in spite of strong U.S. pressure. The missiles will be installed by the fall of 2006 and after that time it will be more difficult for Israel to deliver a preemptive strike against the Iranian nuclear installations. Russia has also granted Hamas a $10 million-a month subsidy to replace the subsidy withdrawn by the European Union and is reported to be selling arms to Syria . (See Sergei Ivanov, " Russia Must be Strong," The TVall Street Journal, January 11, 2006; and Sergei Lavrov, " Russia in Global Affairs," Moscow News, March 10, 2006. " Russia Helps Israel Keep an Eye on Iran," The New York Times, April 25, 2006 - Associated Press).

Russia seems to be counting on the disunity and inertia of the West. Unfortunately, its calculation may prove to be correct. Both the United States and Europe are internally divided and far apart from each other; the European Union is held together by bureaucratic inertia. The business community is also inclined to seek individual deals with Russia rather than to demand certain standards of behavior. There is an urgent need for the West to pull together. International cooperation ought to extend beyond the immediate emergency. Global warming requires a global solution, but the attitude of the Bush administration stands in the way. On this issue, the American public is ahead of the administration, and it ought to impose its views on the government.

The most pressing task today therefore, is to agree upon a new non-proliferation treaty. The present treaty is breaking down. Iran is determined to develop its nuclear capabilities and if it is not stopped, nothing can stop a number of other countries from doing the same thing.

A missile attack on Iran in the current circumstances on the other hand, would be counter-productive. It would consolidate public support for the current regime and reinforce the determination of the regime to develop nuclear bombs. It would unite the Moslem and much of the developing world against the United States . It would render the position of the occupying forces in Iraq untenable and it would disrupt the world economy without stopping Iran from eventually having nuclear bombs. Both scenarios lead to disaster. The only way out is to agree upon a more equitable non-proliferation regime that would have near universal support. Iran would either agree to join such a regime or it could be forced to do so without incurring the disastrous consequences that a missile attack under the current circumstances would entail.

 

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