[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
THE DEVELOPMENT OF ENERGY RESOURCES IN CENTRAL ASIA
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HEARING
BEFORE THE
SUBCOMMITTEE ON EUROPE, EURASIA, AND EMERGING THREATS
OF THE
COMMITTEE ON FOREIGN AFFAIRS
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
MAY 21, 2014
__________
Serial No. 113-160
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Printed for the use of the Committee on Foreign Affairs
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COMMITTEE ON FOREIGN AFFAIRS
EDWARD R. ROYCE, California, Chairman
CHRISTOPHER H. SMITH, New Jersey ELIOT L. ENGEL, New York
ILEANA ROS-LEHTINEN, Florida ENI F.H. FALEOMAVAEGA, American
DANA ROHRABACHER, California Samoa
STEVE CHABOT, Ohio BRAD SHERMAN, California
JOE WILSON, South Carolina GREGORY W. MEEKS, New York
MICHAEL T. McCAUL, Texas ALBIO SIRES, New Jersey
TED POE, Texas GERALD E. CONNOLLY, Virginia
MATT SALMON, Arizona THEODORE E. DEUTCH, Florida
TOM MARINO, Pennsylvania BRIAN HIGGINS, New York
JEFF DUNCAN, South Carolina KAREN BASS, California
ADAM KINZINGER, Illinois WILLIAM KEATING, Massachusetts
MO BROOKS, Alabama DAVID CICILLINE, Rhode Island
TOM COTTON, Arkansas ALAN GRAYSON, Florida
PAUL COOK, California JUAN VARGAS, California
GEORGE HOLDING, North Carolina BRADLEY S. SCHNEIDER, Illinois
RANDY K. WEBER SR., Texas JOSEPH P. KENNEDY III, Massachusetts
SCOTT PERRY, Pennsylvania AMI BERA, California
STEVE STOCKMAN, Texas ALAN S. LOWENTHAL, California
RON DeSANTIS, Florida GRACE MENG, New York
DOUG COLLINS, Georgia LOIS FRANKEL, Florida
MARK MEADOWS, North Carolina TULSI GABBARD, Hawaii
TED S. YOHO, Florida JOAQUIN CASTRO, Texas
Amy Porter, Chief of Staff Thomas Sheehy, Staff Director
Jason Steinbaum, Democratic Staff Director
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Subcommittee on Europe, Eurasia, and Emerging Threats
DANA ROHRABACHER, California, Chairman
TED POE, Texas WILLIAM KEATING, Massachusetts
TOM MARINO, Pennsylvania GREGORY W. MEEKS, New York
JEFF DUNCAN, South Carolina ALBIO SIRES, New Jersey
PAUL COOK, California BRIAN HIGGINS, New York
GEORGE HOLDING, North Carolina ALAN S. LOWENTHAL, California
STEVE STOCKMAN, Texas
C O N T E N T S
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Page
WITNESSES
The Honorable Dennis C. Shea, chairman, U.S.-China Economic and
Security Review Commission..................................... 4
Mr. Charlie Santos, chairman, Uzbekistan Investment Group, Inc... 15
Mr. David Merkel (former director, Europe and Eurasia, National
Security Council).............................................. 22
Mr. Jeffrey Mankoff, deputy director and fellow, Russia and
Eurasia Program, Center for Strategic and International Studies 37
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
The Honorable Dennis C. Shea: Prepared statement................. 7
Mr. Charlie Santos: Prepared statement........................... 17
Mr. David Merkel: Prepared statement............................. 24
Mr. Jeffrey Mankoff: Prepared statement.......................... 40
APPENDIX
Hearing notice................................................... 54
Hearing minutes.................................................. 55
THE DEVELOPMENT OF ENERGY RESOURCES IN CENTRAL ASIA
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WEDNESDAY, MAY 21, 2014
House of Representatives,
Subcommittee on Europe, Eurasia, and Emerging Threats,
Committee on Foreign Affairs,
Washington, DC.
The subcommittee met, pursuant to notice, at 2 o'clock
p.m., in room 2200 Rayburn House Office Building, Hon. Dana
Rohrabacher (chairman of the subcommittee) presiding.
Mr. Rohrabacher. I call this subcommittee hearing to order.
The subject of today's hearing is the development of energy
resources in Central Asia. Without objection, all members will
have 5 legislative days to submit additional written questions
or extraneous material for the record.
Natural resources including gas and oil are the building
blocks of a nation's economic strength and we all depend on
these energy resources to power industry, heat homes, bring us
our food and other goods. Natural resources can, if put to good
use, elevate the human condition and reduce poverty. That is,
if it is put to good use.
The planet's scarce resources are distributed unevenly
around the globe, so history is filled with accounts of
nations, states, and businesses engaged in power plays and
maneuvers to secure and to move and to utilize and to sequester
natural resources. A contest of resources is playing out right
now in Central Asia.
And so this hearing asks the question, what does the future
hold for energy resources in Central Asia? To highlight the
importance of this topic, it was just announced today that
Russia and Communist China agreed on a natural gas deal worth
$400 billion. This is a significant development that takes more
gas off the market, and of course this gas otherwise might go
to supply Europe.
As many of my colleagues know, I have been warning about
the growing military and economic power of Communist China for
years. Today, China has grown to become one of the world's
largest energy consumers having just signed a gas deal with
Russia for $400 billion. Today, China has grown, as I say, to
become the world's largest energy consumer. This makes Central
Asia's oil and gas essential to the Chinese Communist Party and
their plans. The Communist Party rules their country with an
iron fist and it also threatens their neighbors.
The Communist regime is now actively engaged in expanding
its influence beyond its western borders and throughout Central
Asia. Their aim is to secure the access to energy resources
through long term contracts, investment loans, and building
pipelines back to China and perhaps bribes and other things
like that, that other under-the-table maneuvers.
Make no mistake, these deals favor the corrupt leaders of
the Communist Chinese party, it solidifies their grip, and will
not necessarily benefit the vast majority of the people of
Central Asia. During the last decade, trade between China and
the region has increased 30-fold and continues to climb. This
is happening as the spectacle of China's worldwide effort to
fence off critical natural resources from the West through
bribes and intimidations continues and is quite evident.
America's challenge is to find and to implement policies
which promote political progress, support the sovereignty of
five Central Asian countries, and allow their energy and other
natural resources to be exported in a strategically and
economically beneficial way. That is no easy task. This is made
more difficult by our withdrawal from Afghanistan.
While it is good that our troops are coming home, I worry
that the attention that Washington has paid to the region will
actually dissipate once our military is gone. And we have not
had a level of, actually, involvement that I think would be
healthy for our country and for the West to begin with, but
once our troops are gone from Afghanistan that attention paid
to by our Government and our country and our people may even go
beyond what we are facing today which is unacceptable at
today's level. And with that China's ruling clique will win its
quest for domination of that region of the world by default.
I look forward to hearing from our excellent panel of
witnesses on how the U.S. can be proactive in the region. I am
specifically interested in learning more about the possibility
of a trans-Caspian pipeline and the potential which holds to
increase Europe's energy security and at the same time further
global economic progress.
With that I turn to my ranking member, Mr. Keating, for his
opening statement.
Mr. Keating. Well, thank you, Mr. Chairman, for holding
this timely meeting. Today's hearing topic provides us with an
opportunity to examine the global impact of climate change and
expanding world population and accompanying social unrest.
In March 2013, for the first time Director of National
Intelligence, James Clapper, listed competition and scarcity
involving natural resources as a national security threat on a
par with global terrorism, cyber war, and nuclear
proliferation. A year after the statement was made, the Ukraine
crisis in particular has highlighted Europe's energy insecurity
and vulnerability tied to overdependence on Russian gas.
European leaders in March of this year concluded that
efforts to reduce Europe's dependency should be intensified,
and asked the European Commission to propose a comprehensive
plan to move toward energy independence by June. I look forward
to their findings and believe that Central Asia as well as the
Caspian can play an important role in Europe's future strategy,
but the threat of Russian aggression in the region remains with
us.
Central Asian states have long been pressured by Russia to
yield large portions of their energy wealth to Russia, in part
because Russia controls most existing export pipelines.
Further, Chinese interest in the region is growing as well.
Over the past decade, China has dramatically increased its
imports from the region. Today, China imports over half of its
gas from Turkmenistan. And last week, the Turkmen President
presided over the opening of a new processing plant that will
further increase the flow of Turkmen gas to China.
Yet even with seemingly competing interests between Russia
and China over resources in Central Asia, we have as the
chairman mentioned, received the news of $400 billion gas deal
that was signed between the two countries. Of course the devil
will be with the detail on that agreement, and reportedly, no
details have been finalized. I view this as an interesting time
and message from Moscow and Beijing to jointly send.
Unfortunately these are not the type of influences we would
like to see in such an energy-rich region, particularly since
many of the Central Asian countries themselves have inadequate
protections for foreign companies looking to invest. They often
lack a robust foundation built on the principle of a rule of
law.
I would like to hear from our witnesses today on how the
United States can engage with Central Asian governments to
improve governance and transparency in their energy sector both
bilaterally and through international organizations. However,
as we discuss these important issues, I hope that we continue
to assist our European partners toward discovering an energy
independent future. I believe that the TTIP agreement may
provide an opportunity for the EU and the U.S. to address some
of these concerns in a mutual manner. I look forward in this
regard to hearing from our witnesses, and with that Mr.
Chairman, I yield back.
Mr. Rohrabacher. Well, thank you very much. And we have
four witnesses today and I will be introducing all of them now.
I would ask each of you to limit your remarks to 5 minutes. You
can submit longer statements for the record, but I have to be
very ruthless in enforcing this rule because we are going to be
in and out of here. And if you take more than 5 minutes you are
actually taking time away from one of the other witnesses.
So our first witness today is the Honorable Dennis Shea,
the chairman of the U.S.-China Economic and Security Review
Commission. He previously served as counsel and deputy chief of
staff to Senate Majority Leader Bob Dole. Later he was
appointed as executive director of the President's Commission
on postal reform and as assistant secretary for policy
development at the Department of Housing and Urban Development.
He has earned multiple degrees from Harvard University
including his JD. Chairman Shea is currently serving his fourth
term as a member of that commission. I want to note that the
U.S.-China Commission produces an annual report that is a
fantastic source of information about what threat and
potentials we have with the Communist Chinese party.
And then we have the next witness, Mr. Charlie Santos. He
is an expert in Central Asian affairs, who I have known for
many years. From in the late '80s through the mid-'90s, he
worked in various capacities for the United Nations in Central
Asia and as well as in Afghanistan. After he left the United
Nations, Mr. Santos became the vice president of Centgas
consortium helping to negotiate pipeline routes for oil and gas
deals in the region.
Over the past 20 years he has held leadership roles in many
Central Asian energy ventures, and today as chairman of the
Uzbek Investment Group he has a great deal of on the ground
experience about the matters we are planning to discuss today.
Next, we have David Merkel. He is a senior fellow at the
Atlantic Council here in Washington and a visiting faculty
member at the Azerbaijan Diplomatic Academy in Baku. He
previously served as the deputy assistant secretary of state
for European and Eurasian Affairs, and as the director for the
European and Eurasian Affairs for the National Security
Council. Before that he was the deputy assistant secretary for
International Affairs at the Treasury Department and a senior
professional staff member for the Senate Foreign Relations
Committee.
Dr. Jeffrey Mankoff is with us as well, and he is the
deputy director of the Russian and Eurasia Program at the
Center for Strategic and International Studies. He is a
frequent commentator on international security matters and the
author of the book, ``Russian Foreign Policy: The Return of the
Great Power Politics.''
Before joining the CSIS, he worked as an advisor to the
State Department on U.S.-Russian relations. Dr. Mankoff teaches
courses on international relations both at Georgetown and
Columbia universities. He is a graduate of the University of
Oklahoma and holds a PhD from Yale.
Thank all of you for being with us today. We have a very
high quality panel to advise us, and you, Mr. Shea, you may
move forward with your testimony. And again, if we can keep it
at 5 minutes and put the rest in the record, maybe we can
everybody's testimony in before the first vote.
STATEMENT OF THE HONORABLE DENNIS C. SHEA, CHAIRMAN, U.S.-CHINA
ECONOMIC AND SECURITY REVIEW COMMISSION
Mr. Shea. Chairman Rohrabacher, Ranking Member Keating,
thank you for the opportunity to testify. Before I begin I
would like to note that this testimony reflects my personal
views and not necessarily the judgments of the entire China
Commission.
Over the last decade, China's engagement with its Central
Asian neighbors has grown significantly. In a region with a
long history of Russian control and influence, China is now the
most powerful economic actor and is poised eventually to
surpass the United States and Russia as Central Asia's
preeminent foreign power.
The Chinese Government is increasing its economic ties with
Central Asia particularly in the energy sector for two main
strategic reasons. First, Beijing is expanding its energy
relationship with Central Asian states as part of a long term
energy security strategy designed to diversify the types and
sources of energy in an effort to reduce the risk of disruption
of supply. Some Chinese policy makers believe this strategy
could mitigate China's so-called Malacca dilemma, or
vulnerability to other countries imposing a blockade on Chinese
trade at critical maritime chokepoints. However, Chinese growth
in oil demand is such that the share of seaborne imports will
increase even if all China's planned overland energy routes are
realized.
Second, Beijing seeks to promote the security and
development of its Xinjiang Autonomous Region. Beijing judges
increased economic ties between China's westernmost region and
Central Asia will raise the welfare of the ethnic Uyghurs
thereby helping to rein in ethnic unrest in Xinjiang.
China's energy inroads into Central Asia are manifest in
oil and natural gas imports transported via pipeline,
investment in Central Asian energy companies and projects, and
loans to Central Asian countries for energy products and
production. All of China's Central Asian hydrocarbon imports
are transported via two pipeline networks. The Kazakhstan-China
oil pipeline and the Central Asia-China pipeline.
Chinese banks and national oil companies have been heavily
involved in the financing, ownership, and operation of these
pipelines. For example, Kazakhstan, the region's largest
economy and top oil producer has been the primary recipient of
Chinese investment in Central Asian oil since 1997. Today,
China's largest national oil company is the majority owner of
two of Kazakhstan's major oil companies and is involved in
several oil exploration and production projects throughout the
country.
Chinese companies own so many projects in Kazakhstan that
experts estimate China controls between 25 and 50 percent of
the country's oil production. Turkmenistan accounts for more
than half of China's natural gas imports, and its future share
of imports will likely increase with plans to elevate imports
from 20 billion cubic meters per year in 2013 to 65 billion
cubic meters by 2016.
Since 2009, Chinese state-owned entities have extended at
least $32 billion in loans to finance oil and gas development,
production, and exports in Central Asia. During a high profile
tour of the region in late 2013, Chinese President Xi Jinping
reportedly signed agreements for an additional $8 billion in
loans that will likely also be used to finance energy projects.
Many Central Asian governments welcome China's increasing
economic engagement. Chinese investment, trade deals, and loans
have enabled economic growth and development. However, Chinese
economic engagement in Central Asia can be a double-edged
sword. The region's overreliance on energy exports to sustain
growth can slow the development of competitive industries and
democratic institutions. Additionally, at the local level
allegations of poor business behavior by Chinese companies have
led to protest and violence against Chinese workers and
businesses.
The rise of Chinese influence in Central Asia at the
expense of Russia coupled with the probable decline in overall
U.S. interests in the region after the planned withdrawal of
troops from Afghanistan will likely result in a major shift in
the balance of power between the major external actors in favor
of China. This shift presents both challenges and opportunities
for the United States.
China's energy ties with Central Asia can support U.S.
policy efforts to spur economic activity in the region,
encourage regional oil and natural gas production, and
potentially promote European energy security by weakening
Russia's near total control of regional gas supplies. However,
China's no-strings-attached approach to investment can foster
official corruption and may provide Chinese state-owned
enterprises with an unfair advantage over Western investors.
Furthermore, Beijing could leverage its position as the
region's most powerful economic actor to derail U.S. policy
backed initiatives including initiatives at the United Nations,
or certainly undermine U.S. efforts to promote good governance,
democracy, and human rights in Central Asia.
Thank you for the opportunity to testify.
[The prepared statement of Mr. Shea follows:]
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Mr. Rohrabacher. Exactly 5 minutes.
Mr. Shea. I timed it. I worked it. I worked it.
Mr. Rohrabacher. Oh, you added so much to your credibility.
Mr. Santos, you may proceed.
STATEMENT OF MR. CHARLIE SANTOS, CHAIRMAN, UZBEKISTAN
INVESTMENT GROUP, INC.
Mr. Santos. Thank you, Chairman Rohrabacher and Ranking
Member Keating. Former Soviet Central Asia is a bridge between
Europe and China, Russia and the Indian Subcontinent consisting
of Uzbekistan, Kazakhstan, Turkmenistan, Kyrgyzstan, and
Tajikistan. It is a region more developed than its neighbors to
the south. It straddles some very large energy reserves, most
importantly natural gas with more than 400 trillion cubic feet,
and significant volumes of oil. It also sits on vast mineral
resources.
With the collapse of the Soviet Union at the end of 1991,
our objective was to ensure the freedom of the newly
independent countries of Central Asia. We saw in their
significant energy resources the possibility of economic growth
and development, and through accessing multiple markets
economic independence.
We therefore pursued policies that focused on supporting
private sector approaches to the development of their energy
resources and the development of pipelines and transit
corridors, seeing a modern version of Central Asia's historical
experience as the heart of the Silk Road. Our interest in the
region weakened, bordering on disengagement, as energy prices
collapsed in the late '90s, the Taliban emerged in Afghanistan,
and countries of Central Asia were slow in adopting transparent
and investor-friendly policies and political reforms.
Our disengagement from Central Asia ended on September
11th, 2001, but our return was far more narrowly focused,
namely, Afghanistan, Pakistan and later Iraq, never returning
to the previous policy that saw the strategic importance of
Central Asia, except as a logistics base of operation in
Afghanistan. Afghanistan in a sense became the center of
Central Asia for us.
While we sacrificed more than 3,000 lives and spent more
than $1 trillion on a nation-building exercise in Afghanistan,
China sought to fill our policy vacuum, focusing on energy and
pipelines in Central Asia, taking a page literally out of our
policy playbook. So far they have constructed two pipelines, a
third to be finished this year, and a fourth expected in 2017.
Our allies in Europe, with even more at stake in pursuing
gas resources in countries like Uzbekistan and Turkmenistan,
followed the U.S. lead even when it meant losing the
possibility of greater energy supply diversification. This has
led to greater dependence on Russian gas.
With the withdrawal from Afghanistan and growing East-West
tensions, 2014 has demonstrated that our disengagement from
Central Asia has left the U.S. and its European allies doubly
exposed. The countries bordering on northern Afghanistan have
become frontline states not only in the battle against
extremism but also in aiding in the diversification of energy
supplies for Europe.
The economic potential of Central Asia would not only help
to stabilize Afghanistan through trade and possible transit of
Afghan energy but also would bring technical expertise embedded
in common historical and cultural understandings.
The countries of Central Asia also present an opportunity
to achieve the further diversification of energy, a
diversification of European energy supply from Turkmenistan,
Uzbekistan, Kazakhstan, and even Afghanistan. Strengthening
Central Asia by encouraging economic development and investment
in both energy and energy transit infrastructure and by
building a more significant security relationship is the most
cost effective strategy we have. Regional stability will emerge
from a strong moderate and independent Central Asia, yet we
seem to not have made this a priority.
Our future cooperation with the countries of Central Asia
should support and promote economic development, investment and
transparency as the best means of achieving stability. This is
just as important as strengthening cooperation on matters of
security. We clearly need a change in tone that is less
strident and ideological, and more practical and based on
common interests.
There are some key things I think we could do. One, renew
support for the construction of the trans-Caspian pipeline
which will link gas supplies from countries like Turkmenistan,
Uzbekistan and Afghanistan as well as Azerbaijan on the other
side of the Caspian Sea to Europe. Support economic capacity
building, particularly the private sector, in developing better
regulatory frameworks.
Support multilateral financial institutions and mechanisms
to ensure financing for economically viable private sector
projects. Support regional governments in their efforts to
build a more transparent and investor-friendly business
climate, which will, I believe, help unlock further investment.
Finally, there is no single way to solve Europe's energy
dependency or bring stability to the region, particularly
Afghanistan. But ignoring the importance of Central Asia,
particularly the key countries that border Afghanistan and
forgetting our initial insights about the region will surely
make matters worse. When we ignore building broader strategic
relationships, as we have during the past 12 years, we make our
country and our allies more vulnerable.
The confluence of the Afghan withdrawal and growing tension
in Europe this year is giving us a chance to refocus our
policies to help build a stronger and more independent Central
Asia. It is an opportunity we should not squander.
[The prepared statement of Mr. Santos follows:]
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Mr. Rohrabacher. Thank you very much, and only 2 seconds
over, actually. All right. Mr. Merkel?
STATEMENT OF MR. DAVID MERKEL (FORMER DIRECTOR, EUROPE AND
EURASIA, NATIONAL SECURITY COUNCIL)
Mr. Merkel. Thank you very much, Chairman Rohrabacher and
Ranking Member Keating. It is a real honor be here. I
appreciate the full testimony being submitted for the record,
and in the time we have here will make an assertion, a couple
of historical points and couple of recommendations.
The assertion is that Putin, while looking at the demise of
the Soviet Union as the greatest catastrophe in the century,
wants to at least be the gas station to Europe. And to be the
gas station to Europe, to meet the market share and even
increase the market share so it has leverage to draw a wedge
between Europe and the United States on international issues,
it needed to do a couple of things. It could have restructured
its domestic gas market some time ago, it could have invested
in some more difficult domestic fields, or it can have a
stranglehold on Central Asian gas and its transit there.
Now Europeans, too often, and I think that this is one of
the reasons behind Putin finally signing a deal that has been
in discussions for 10 years, is the Germans in particular look
at this issue, and we talk about diversifying global sources of
energy, they talk about securing their source. They don't want
their showers to go cold the way they did the two times that
Russia shut off gas to Ukraine.
But the reality is, is that the gas in Central Asia will be
developed. There is significant volumes there. And it is either
going to be developed by Russia increasing its leverage that it
has on Europe, or by China, or by and for the benefit of
Europe, reducing the leverage that Russia has and reducing the
power that China is going to have in Central Asia that was
discussed before.
In this regard, I think there is a couple of things to keep
in mind. We have a template for success in this, in the Baku-
Tbilisi-Ceyhan pipeline, a pipeline that was the result of
good, solid U.S. leadership behind President Bill Clinton and
George W. Bush, a lot of input from both Houses of Congress,
and of course the leadership in Azerbaijan.
There is a very solid example to follow. President Ilham
Aliyev has taken the steps, him being outside of NATO, outside
of the European Union, closer to Russia, he is still taking the
steps to say that his gas is for Europe and to join with
Barroso on the southern corridor.
So recommendations that I would put forward would be, one,
again with the trans-Caspian pipeline. If we are going to
decouple Central Asia from Russia or the growing influence in
China, we need to join it up with Europe through Azerbaijan.
Azerbaijan has been a very loyal partner to the United States
on a great number of issues, and this would be a great
opportunity to see the gas wealth on the east side of the
Caspian join up with the west side.
We need to have a higher level of engagement in the region.
No sitting President has visited the region. Through bilateral
and multilateral engagements, the Presidents of China and
Russia meet almost on a monthly basis. We shouldn't try and
compete with that, we don't need to. But if we had a meeting in
Baku with the President of Turkmenistan, Uzbekistan,
Kazakhstan, and President Aliyev, it would send a clear signal
that the United States is supportive not of bypassing Russia,
not of punishing anybody, but a very strong message for
competition.
Second, I think that it is important to recognize what
Putin is doing here. He is taking a look at countries in the
former Soviet Union and say, if you recognize that you are part
of the Russian sphere of influence there is no problem, if you
don't then we are going to create instability.
And when I was in government we did a lot following the
Georgia War that was kind of undone by Sarkozy's lack of
negotiating skills in the ceasefire agreement and the Russian
reset. But we need to look at what Putin may be thinking about
next after Crimea if he gets away with that as he thinks he
will, and we need to focus more on U.S. leadership behind
settling the Nagorno-Karabakh conflict in a peaceful manner
that benefits both Azerbaijan by getting territory back that
has been occupied, Armenia by getting out from under the
Russian umbrella of its security, and I think that Putin would
love to bloody the nose of Azerbaijan because it is the biggest
vehicle to see the Caspian energy reach Europe.
Second, I think that some of the issues were talked about
on the business side, OPEC should be reengaged to see whether
there is a possibility that OPEC can do more to promote energy
investment in Uzbekistan and Turkmenistan.
Congressman Keating, you mentioned governance, a very
important issue. But we need to remember that unlike central
Europe we don't have debt forgiveness, NATO membership, EU
membership for these countries. We have to recognize that we
always do ourselves good when we live up to our examples that
our country was founded on, but we need to be informed by our
own experience and recognize the neighborhood that they live in
and talk about more than simply NGOs and democracy. Thank you.
[The prepared statement of Mr. Merkel follows:]
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----------
Mr. Rohrabacher. And Mr. Mankoff?
STATEMENT OF MR. JEFFREY MANKOFF, DEPUTY DIRECTOR AND FELLOW,
RUSSIA AND EURASIA PROGRAM, CENTER FOR STRATEGIC AND
INTERNATIONAL STUDIES
Mr. Mankoff. Mr. Rohrabacher and Mr. Keating, thank you
very much for the opportunity to testify this afternoon.
While the United States has viewed the Caspian Sea Basin as
a potentially new source of oil and gas, it has long fallen
short of its apparent potential. In recent years though,
Central Asia has produced and exported increasing quantities of
both oil and gas though it is primarily China rather than
Europe that has emerged as the region's principal customer and
source of investment. While sales to China help the Central
Asian producers lessen their dependence on Russian markets,
they also limit prospects for transparency and political reform
and represent a potential obstacle to Western influence in the
region.
The United States has long recognized that pipelines to
global markets would allow the countries of Central Asia to
diversify their ties, create a new source of revenue for
economies struggling with the collapse of the Soviet Union. The
U.S. also believed that the presence of international energy
companies could help transform the region's economies by
introducing Western business practices, promoting transparency,
and creating a new generation of specialists.
In the 1990s the target market was Europe, while today the
United States is focused on markets in South Asia as part of
its New Silk Road initiative promoting the construction of the
so-called TAPI pipeline from Turkmenistan through Afghanistan
to markets in Pakistan and India. Both in the 1990s and today,
U.S. efforts have faced significant hurdles, perhaps most
importantly, questions about commercial viability.
While the U.S. and its allies succeeded with much effort in
bringing about the construction of the Baku-Tbilisi-Ceyhan
pipeline, efforts to link this corridor to the east side of the
Caspian have had limited success. Despite the recent agreement
to construct a southern gas corridor from Baku to European
markets, efforts to build a trans-Caspian pipeline have so far
made little progress.
The major beneficiary of the struggles that both the United
States and Russia have faced in this region has of course been
China. And the reasons for China's success are not hard to
grasp. It is a growing market with exponentially expanding
energy demand. Moreover, China state-owned energy companies do
not face the same financial constraints as Western firms. Flush
with cash, comparatively insulated from the need to make an
immediate return on their investments, they are less sensitive
to political and economic risk and more responsive to political
direction.
China's emergence into the Central Asian energy game
represents both an opportunity and challenge. While the West
has talked for two decades about new pipelines, China builds
them and is pouring significant amounts of money into Central
Asia in the process thereby reducing Russia's hold on the
region's economies.
These new Chinese pipelines, moreover, promote cooperation
and interdependency among the Central Asian states. Chinese
infrastructure, including but not limited to pipelines,
supports U.S. goals of promoting economic and political
diversification, integrating Central Asia into the global
economy and promoting regional cooperation.
At the same time though the influx of Chinese state-
directed investment does not come with the same demands for
transparency and rule of law that Western investors seek. This
in turn further entrenches Central Asia's corrupt, patrimonial
political systems.
For now, Chinese investment also gives the Central Asian
states an alternative to their dependence on Russia. In the
future though the danger exists that these states will end up
having traded dependence on Moscow for dependence on Beijing.
Under the circumstances, U.S. options are somewhat limited.
Above all, it remains important for the U.S. to emphasize its
interest in remaining engaged in Central Asia even after the
withdrawal from Afghanistan and in transitioning to a more
economically driven relationship with the Central Asian states.
To the extent that the United States is serious about
connecting Central Asian energy producers to global markets, it
has an interest in these Chinese infrastructure projects. And
while these projects need not be mutually exclusive of U.S.
supported projects such as TAPI, the reality is that Beijing is
offering the Central Asian states more concrete benefits and on
a shorter time frame.
Central Asia's connection to the global economy through new
pipelines, railways, roads and other infrastructure projects
will also generate new opportunities for the region and for
foreign companies looking to profit from Central Asia's
location at the nexus of new transcontinental trade and transit
links.
The U.S. can help this process by continuing its work with
the Central Asian governments to promote a more favorable
investment climate. The U.S. should also help the Central Asian
states progress toward membership in the World Trade
Organization which they view as a means of insulating
themselves against economic coercion by their larger neighbors
and a means of promoting their own economic transformations. At
the same time, the United States should encourage more openness
to non-energy investment which can help wean these countries
off their dependence on natural resources and provide greater
opportunities for non-Russian and non-Chinese companies.
The development of Central Asia's energy resources
highlights what is perhaps the central challenge facing United
States policy in the region. The U.S. if far away, has fewer
direct tools available than either Russia or China.
Nevertheless, the U.S. has an important role to play in
ensuring that the Central Asian states remain fully sovereign
and independent members of the international community.
It can best do this by remaining engaged including in
Afghanistan, supporting the integration of this region with
global markets through new transportation corridors regardless
of which direction they go, and by continuing its efforts to
make Central Asia a more attractive place to do business.
As the United States winds down its decade-plus of military
operations in Afghanistan, it needs to place its engagement
with the states of Central Asia on a new basis. Focusing on
creating a more favorable economic environment can help bring
more foreign investment to the region, which in the longer term
will be the major factor determining the extent to which the
United States and its allies believe that they have a stake in
Central Asia's development and prosperity. Thank you.
[The prepared statement of Mr. Mankoff follows:]
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Mr. Rohrabacher. I will have to admit that this panel has
been more accurate in the formulation of their time than just
about anyone I have ever witnessed, so it gives me hope for the
future.
But for right now I will yield to the ranking member so he
can proceed with his questions, just in case there are votes,
and then I will let Mr. Marino has joined us, after that, so
that I will then be the last to ask the questions. So go right
ahead.
Mr. Keating. Thank you, Mr. Chairman.
I was just curious on one issue. I didn't hear it directly
touched upon. But to what extent, if any, has Russia's energy
giant, Gazprom, locked up oil and natural gas supplies from
Central Asia, and to what extent can the major energy producers
in the region, Kazakhstan, Turkmenistan, Uzbekistan, move oil
and gas supplies to markets other than Russia? Anyone could
jump in if they would like.
Mr. Merkel. There is still, I mean with regard to who owns
the molecules and the transit routes, there is still
opportunities to bypass Russia. Really, Uzbekistan and
Turkmenistan, even though Turkmenistan is the largest importer
of gas to China, there is still a lot of recoverable reserves
in both places.
I would differ from my colleague here, where I think that
the heading south there is too many obstacles. The advantage of
transit revenues to Afghanistan is attractive, but I think that
we ought to re-engage on bringing it on through the Caspian to
link up with the southern corridor.
Mr. Santos. There are basically right now two ways to get
the gas out. One is through Russia and the other is to China.
Two pipelines are already built, the third one is being
finished this year. The other options are trans-Caspian as we
discussed, TAPI to the south.
I actually spent 3 years on TAPI negotiating the transit
agreements with the different Afghan groups in the late 1990s.
My feeling about TAPI, and I tend to agree with David, my
feeling about TAPI is it is much more complicated. The market
in Europe is bigger. The obstacles, I believe, are less
compared to what you have to do to get the pipeline through
Afghanistan and these Taliban areas, great drug production,
instability, and you are basically bringing it to Pakistan, and
then Pakistan, you need the market in India to really justify
the cost of that pipeline.
But do the Indians want the Pakistanis to control their
gas? I mean we are talking about this in another sense in terms
of Russia controlling, and I think India would have a harder
time with that and I think they have actually refocused in
terms of looking at energy sources in other areas. But those
are the ways. And so I think from a policy point of view it
seems to make most sense to look at the trans-Caspian and look
at trying to get the gas to Europe.
Mr. Keating. I think you touched on another question I had
with India, Pakistan and Afghanistan which presents a whole new
set of issues. But now the Russian opposition, getting to the
trans-Caspian pipeline, could impede its construction at least
in the short or medium term. This could force Turkmenistan to
look for alternate land routes to ship its gas to Europe.
One potential route may be through Iran's central gas
transportation trunklines into Turkey. Is Turkmenistan
interested, do you believe, in the European market in this
respect and what are the issues surrounding this type of
rerouting? Would the current Western sanctions in Iran, for
instance, prevent Turkmenistan from exploring this option? What
do you think in regard to the trans-Caspian pipeline in that
respect?
Mr. Mankoff. Yes. With regard to the trans-Caspian issue
and Russian pressure, this is certainly one of the major
concerns. Russia has used its leverage over all of the other
littoral states to essentially argue that no trans-Caspian
infrastructure can be built until the territorial disputes are
resolved. And of course that means Russia views itself as
having a veto over this issue.
At the same time because of Russian military and naval
capacity there is obviously an ability to physically prevent or
disrupt construction of projects that Russia does not support.
With regard to the Iranian route, there is of course interest
on the part of the Turkmen who do sell some gas to Iran
already. Obviously there would have to be a lot done in order
to reintegrate Iran into the international system in order to
make that a viable way to go. And that of course also depends
on what the Iranians do.
Mr. Keating. Anyone else want to answer?
Mr. Santos. All I would add to that is that any given
sanctions and given the political situation, I think an Iranian
option is a very remote one, and one that to me doesn't seem
like you would be able find the investors that would really
want to take that risk. I would say regarding the Russian
obstruction in the Caspian that is correct.
But the situation that we are now facing is Russia is now
creating alternative markets for itself. It is not just selling
to Europe but it is selling to China. So I would find it a very
interesting conversation for the Central Asian governments to
have with Russia and with the U.S. and Europe behind them
talking about free access, when they are wanting it for
themselves but they don't seem to allow other countries in
Central Asia to have it. I think that is a harder position to
stand behind.
Mr. Keating. Do any of you want to just comment briefly on
the announcement with the $400 billion plan? Just what your
thoughts are, speculations might be or----
Mr. Shea. I think the key thing there is the price. And I
think basically it is a sign of Russian weakness. They need to
diversify. They need the money. Their economy is basically
flatlined. The Chinese had the leverage. So for me I would look
at, it has been going on, they have been haggling about it for
10 years or so, and to me the key thing is price.
If the Russians got a good price, then I am inclined to
view it as more of a geo-strategic gift from the Chinese to the
Russians for some reason. But that is what I would look at is
price.
Mr. Keating. David, and what about the timing of this?
Mr. Santos. Well, your timing was perfect for the hearing.
Mr. Merkel. I think it is a wedge issue. There is a lot of
reasons why Europe will not go into sectoral sanctions, but
Germany has a big role in the EU and its economic and energy
relationship with Russia is significant. And Moscow wants
Europe and Germany to focus on maybe their Russian gas is not
all that secure. I think that is a canard. I think the
agreement is kind of like an NFL signing thing. There is always
like a massive amount of money, and then by the end of the
career the guy didn't make that much money.
Mr. Keating. Thank you. Should we ask Tom?
Mr. Rohrabacher. Mr. Marino?
Mr. Marino. Sure. Thank you, Chairman.
Mr. Shea, I would like to start with you please. Am I
correct in stating that if we are talking about development of
resources in Central Asia, the United States would be expected
to play a role in that whether it is through technology or just
outright economic support?
Mr. Shea. That is correct. One of the things that I think
is appealing to the Central Asian governments is the Chinese
no-strings-attached approach. When President Xi showed up in
September, one of the things he emphasized at his speech in
Kazakhstan was we respect your territorial sovereignty and your
internal affairs so we don't bug into that. We don't tell you
how to run your own show. And I think that is very attractive
to a lot of the Central Asian governments.
Mr. Marino. Mr. Santos, with the instability in Central
Asia and the economic woes concerning the EU, would it not be
beneficial for the U.S. to continue to developing its
infrastructure in the United States and shipping LNG overseas?
Mr. Santos. I don't think that there is any single
solution. So I think energy supply and energy shortages or
energy dependency in Europe can be solved by a number of
different avenues. It would be one.
Mr. Marino. Even with Russia doing what it has done, either
turning off or jack the price up, we have no idea what China is
going to do under those circumstances. Wouldn't it be more of a
stable atmosphere instead of the United States giving money,
technology, we have enough here in the United States? I live
right in the middle of Pennsylvania and Marcellus Shale, the
largest deposit in the country, enough to serve the United
States for 100 years or more and ship it overseas. So Mr.
Merkel, what----
Mr. Rohrabacher. I vote yes.
Mr. Marino. Mr. Merkel, not only would it generate jobs and
stimulate the economy here by leaps and bounds, but wouldn't
there be more political stability under that scenario?
Mr. Merkel. I think that exporting LNG in volume would be
the single best thing that we could do to remove the scarcity
of gas in Asia, really take a concrete step in the Asia pivot,
remove energy as a tool from Putin. Now gas doesn't travel as
well as oil does, but there is still a global market. And in
India, one of the reasons they are not looking at TAPI anymore
is they are looking to import LNG hopefully from the United
States.
Mr. Marino. Look, we can put a man on the moon and we can
transplant a heart, and we can figure out a way to transport
LNG from the U.S. overseas.
Mr. Merkel. I think there would be a lot of swaps with
Qatar. I think that is the way it would work out. It would go
to the U.K. and there would be swaps. We can definitely ship
it.
Mr. Marino. Mr. Mankoff, any opinion you would like to
state pursuant to my questions of why should the United States
take part in this investment as opposed to developing its own
resources and selling them? Both from an economic standpoint
and from a geopolitical standpoint.
Mr. Mankoff. Yes. I think the answer to Europe's energy
security woes is all of the above. And so the development of
U.S. shale gas resources is certainly something that can
contribute to that but I don't think it is a panacea and I
don't think it is going to happen all at once.
Mr. Marino. But what I see the panacea being is the United
States developing the oil deposits that it has, the coal
deposits that it has, and of course with the LNG in the safe
way we do. We do it the safest in the world. We do it the
cleanest in the world. I would think that the -stan countries,
Europe, would certainly like doing business with the United
States more so than it would the Middle East or Russia or China
for that matter. And with that I yield back.
Mr. Rohrabacher. Well, thank you very much, and the
chairman will now take his 5 minutes. And we are about 10
minutes into a vote and in 5 minutes we will be adjourning the
hearing and we will be going to vote.
Just my colleague's focus on LNG, just a thought. And if
indeed LNG production for the United States is utilized to
provide our European allies and others with the gas resources
that they need, to the degree that they are dependent on that
is also the degree to which Russia then plays a stronger role
in Central Asia.
So if indeed you have oil and gas coming from Central Asia,
it would tend to connect Central Asia with Europe, which is
perhaps something we would want to encourage. Not to say--but
let me just note, and first of all I would like the panel's
opinion on that. And second of all, let me just note from the
chair's opinion this is not aimed just at Russia by the way.
That the chair happens to believe as was noted when I said
I would vote for your proposal that any increase in the supply
of oil and gas anywhere in the world uplifts humankind. It
provides thus because it increases by its very nature the
wealth that exists in the human condition. And thus even if
they get their oil from LNG, from Pennsylvania which is a good
thing, or from Central Asia that too would be a good thing at
least from this congressman's opinion, and does the panel have
any comment on that? Yes, Mr. Santos?
Mr. Santos. I would agree. I think Central Asia, the
stability of Central Asia is about the stability of Afghanistan
to a large extent, and the fact is that the neighborhood is not
a great neighborhood. Iran on one side, Pakistan on another.
Why don't we want to be strengthening the countries that could
actually help us stabilize the country that we just spent $1
trillion on and sacrificed a number of American lives to free
and keep free from the Taliban?
So I think you have to see it in a broader strategic way. I
would agree with that. And that helping Central Asia helps us,
it doesn't hurt us.
Mr. Rohrabacher. And we are not talking about aid. Let me
note.
Mr. Santos. We are not talking about aid. These are actual
assets that can be developed. They don't require----
Mr. Rohrabacher. Yes, sir. Mr. Mankoff?
Mr. Mankoff. I think the stability of Central Asia is
really about Central Asia, and there is another reason for the
U.S. to be involved in the energy development in these
countries. By promoting investment and economic development,
that I think is the most secure path toward long term stability
and development.
And at the same time given the neighborhood where these
countries exist at the nexus of Russia, China, Afghanistan,
Pakistan, by being involved economically the U.S. can ensure
that it has a voice in these countries and it has influence
which can help it manage its relationships with those other
surrounding powers.
Mr. Shea. There is a term, familiarity breeds contempt. Ten
years ago the Southeast Asian countries were welcoming Chinese
investment. Now a lot of them are coming to the United States
and say come back. Burma, we want to have a strong relationship
with you.
So I could see the Central Asian countries, China is sort
of displacing Russia economically, but I could see a few years
down the road them saying, where is the United States? Because
the Chinese, typically these large state-owned companies
throughout the world bring a lot of negative things.
Mr. Rohrabacher. Go right ahead.
Mr. Merkel. Yes, it is not needed, investment is not
needed. Political leadership from the West is needed. This will
be done with private sector money. It is political leadership
that is needed. And just as the Baku-Tbilisi-Ceyhan pipeline
linked to Europe, Azerbaijan, we need to cross the Caspian so
to the benefit of Europe but also for greater prosperity and
stability in Central Asia.
Mr. Rohrabacher. I have been noted that we have 5 minutes
left for the members to go and vote. Let me just sum up today's
hearing and that is to say that number one, we appreciate the
panel. You have given us food for thought, and I think that
those of us who participated will have, we have some new
information and ammunition for making these decisions.
I personally think this last talk that we just had, because
I brought up the issue of course, was most significant in that
yes, let us be aware that China and Russia and how their
influence on Central Asia and what is good for them is
something we have to put into our equation. But as we create a
real global economy, Central Asia is playing a pivotal role.
That is the center of the universe.
And if we let the center of the universe be dominated by
Russia or, and by China, by not utilizing a commercial
interaction based on their natural gas and oil we are leaving
that center of the universe to be in a commercial relationship
with those powers rather than the western democracies and the
United States. So I prefer to, as I say, look at this not as an
attack on Russia and China, but setting up a global type of
system that will improve the life of everybody.
So thank you all very much. This hearing is adjourned.
[Whereupon, at 2:59 p.m., the subcommittee was adjourned.]
A P P E N D I X
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