EIRA Newsletter – Vol 4 Issue 10: A very special issue!

Energy, Markets, News, Reports — By on October 10, 2016 at 1:37 PM
George Hatziioannou, EIRA's editor

George Hatziioannou, EIRA’s editor

Following from the editor of EIRA George Hatziioannou on  EIRA latest Newsletter – Vol 4 Issue 10:

What will become of the EU defence project in the aftermath of the Brexit, at a time when its best-kept secret is that a mere 38 out of the 89 German fighter jets are able to fly? Are oil prices due to rebound and, if so, when? Why can’t Algeria, which is estimated to hold the third largest amount of shale gas resources in the world, use its energy bonanza for the benefit of its people? Will all attempts to settle the Libyan crisis prove fruitless after all? How will Africa react to the foreign energy ‘invasions’ which create instability and unrest?

We endeavour to answer these questions and to assess the risks they bring for future energy issues. Currently in its 4th year of circulation, EIRA continues to offer an independent and objective view of energy developments, which tend to suffocate under the disorienting interventions of professional state lobbyists.

For more information please visit eiranews.com.

eiraeditor@gmail.com

Viewers can read the entire issues referred above here-below; we look forward to your written comments:

Oil Prices Due To Rebound. The Question Is, When?

The doom and gloom sentiment besieging the oil-producing countries must have reached a level of desperation. The low price market environment is taking its toll. Since global prices more than halved from the recent peak in June 2014 (over US$100/bbl), balancing budgets became a tricky juggling gimmick for many economies dependent on oil export revenues.

On top of it, the downturn has put pressure on marginal oil producers forcing them to downsize investment, lay off personnel, and put rigs out of operation. Often they had to think in terms of avoiding bankruptcy and assuring survival.
Even Saudi Arabia, the beacon of cheap oil production with reportedly plenty of spare capacity to surge supply, surprisingly felt the heat as well, eventually consenting to revise its insistence to focus on volumes and market share rather than on prices.

This September, for the first time in eight years, the Saudi-led and frequently coerced Organisation of the Petroleum Exporting Countries (OPEC), routinely considered by many energy experts as either already defunct or
largely irrelevant, hammered out a tentative agreement to decrease crude oil production by around 700,000 bbl/ and to fit the cut into a 32.5 – 33.0 mbl/d range with current production level standing at 33.224 mbl/d.

OPEC officials reiterated on many occasions that it was an informal meeting with no mandate for decision-making. Yet, now the final shaky consensus would be sealed at the OPEC scheduled November session in Vienna. There
are plenty of signs that despite several exemptions, most of the OPEC club member states will sign up for the cut and freeze of production levels which are due to be calculated and fixed for each of them in a customised fashion. The ultimate prize is the upward trend in global oil pricing.

In fact, the exemption granted to Libya, Nigeria, and Iran do matter. The energy sector of the North African post-Qaddafi failed state is still in  shambles, even after the National Libyan Army (NLA) headed by General Khalifa Haftar has established control over sea terminals that process most of the oil export activities (see also “Libya at a Crossroad. Once Again”, Volume 4, Issue 10, October 2016). There are slim chances Libya would re-join premier league soon enough.

Nigeria is in no better shape having failed to keep at least at bay the militants of the radical Niger Delta grouping that attack oil and gas production facilities. The on-going war of terror has effectively halved Nigeria’s oil production that used to total some 2.2 mbl/d.

Iran had repeatedly vowed to abstain from any stringent limitations on its oil production before it has restored the pre-sanction levels of around 4 mbl/d. Reports claim the Iranians are in fact close to reaching this target. Probably, it accounts for the fact that Tehran has signed the OPEC’s sort of a memorandum of understanding.

All summed up, will the most likely freeze and cut by OPEC and non-OPEC oil producers put the prices back on an upward trend? Judging by the immediate reaction of the market that experienced a knee-jerk hike and soon after an almost instant downfall adjustment, the mere introduction of a production quota would not be enough.

Today, the oil market has become partly detached from the fundamentals and does not reflect only the supply/ demand equation. The US Federal Reserve playing with QE has had a more conspicuous effect on the amount of cheap money that ended up on the speculative oil futures market, and then abandoned it for investments into a stronger US dollar.

However, the still fundamentals remain the ‘decision-making’ factor. According to RBC Capital Markets, the oil ’glut’ will persist long enough with 2.2 mbl/d of new non-OPEC production hitting the global markets until the end of 2016, while 1.3 mbl/d will add up to the overall stock in 2017, plus another 1.6 mbl/d in 2018.

RBC Capital Markets is a premier investment bank that counsels clients in 100+ countries in the art of raising capital, accessing markets, mitigating risks, and acquiring or disposing of assets. It’s forecast seems to be worthy of trust, and, respectively, to be taken into account assessing the future of global oil industry and markets. Having noted this, it’s still a bit unconvincing that the US oil industry after suffering a 1.1 mbl/d crunch in the past 15 months with the number of operational rigs at an all time low, would rebound and witness an addition of 900,000 bl/d from 2017 to 2019.

Moreover, analyst Jeff Curr from Goldman Sachs Group claimed on September 14 that there would be no price rally anytime soon. The bearish predictions by RBC Capital Markets and Goldman Sachs Group are challenged by energy market watchers like David Yager who wrote for OilPrice an article titled “Why Oil Prices Will Rise More And Sooner Than Most Believe.” The expert backs his prophecy with the following arguments: a) lowest levels of oil discoveries since 1952; b) annual investment in new supplies down 42% in the past two years; c) a 9% average annual global reservoir depletion (estimates by International Energy Agency (IEA).
“Depletion of 9 percent per year is about 8.6 mbl/d. Add demand growth and you’re approaching 10 mbl/d. How do the crystal ball polishers of the world who see flat oil prices for the foreseeable future figure producers can replace this output when others report $US1 trillion in capital projects have been cancelled or
delayed over the rest of the decade?” questions David Yager.

The Yager’s bullish assumption is backed by Helima Croft, an economic historian, who after the Princeton University Ph.D. chose to go to Africa to provide analysis for the Central Intelligence Agency. Now, incidentally, she is global head of commodity strategy at RBC Capital Markets. First, Dr. Croft is sceptical of Nigeria’s untapped potential saying the country was expected to put on stream 4.0 mbl/d by 2010. It was an epic fail. Current production level is stuck at 1.5 mbl/d with hardly any chances of a sustainable surge. Nigeria is “a perennial underperformer”, claims Dr. Croft.

Likewise, there is nothing impressive to come out of Venezuela since the government, faced with a collapsing economy, is at pains finding money to buy light crude, which is “needed for blending with the heavy Venezuela variety to make it marketable”, notes Dr. Croft.

Quite a number of market observers opine that OPEC’s current spare capacity is close to zero.
With the still vague prospects of shale oil ‘boom 2.0’ in the United States or elsewhere it is hard to imagine how the global market will be balanced by 2040 when, according to HSBC estimates, the consumers, mostly in the emerging economies, would demand an assured supply of an extra 40.0 mbl/d.

It is all too probable that David Yager is on the right side of the oil history predicting, “Oil prices must and will go up. Okay, when?” His answer implies a precondition: the surge would occur “only when futures traders figure they will make more money going long than short. This hasn’t happened yet but the fundamentals ensure it will.”

Bears versus bulls tug-of-war has been going on in cycles, and nothing indicates that the disinterested commodities traders will subdue and make insignificant the gradual depletion of reserves and production capacities. The oil
market fundamentals were pushed into the corner but are readying for a spectacular comeback.

Oil: Out Of Africa

The African continent is not considered to be the main source of oil for the global market. However, it is playing a more significant role as provider of the still principal energy resource. It sets the stage for accelerated development as well as for wars and political destabilization.

Africa is home to only 7.6% of the world oil resources and it accounts for 9.3% of the world oil production.

From 2010 onward, one third of all new oil fields discoveries were made on this continent. The interest in African oil has solid grounds. Roughly 90% of oil production is earmarked for export. The quality is good, at competitive costs and prices. It makes the African oil resources quite attractive. But the destinations are limited to four main buyers: the EU, the US, China, and India.
African countries provide for China’s 30% of imported oil. The figure for US and India are around 20%. At the same time, oil revenues are vital for many exporting countries. For example, Nigeria relies on oil revenues for 70% of its
budget.

The situation in different oil producing African countries varies. The postcolonial status is gone just like the situation when former colonial power and its companies controlled most of local oil production, as France did it for decades.

This time is gone, and the fight for access to the hydrocarbon deposits has soared. In the Republic of Congo (former Zaïre), French companies were replaced by Italian companies that became the biggest local producers.

The most “systematic” approach is typical of China and its resource-oriented diplomacy and investment policies. Beijing is using credits, capital investment and construction of infrastructure in order to assure access to local resource base. Beijing plays some big national companies or buys significant stakes in local producers, as for example it did in Gabon. Here, in 2009, Chinese oil company Sinopec has bought the national champion ADDAX and signed in 2014 an agreement with the local government settling all the controversies. The situation on the ground is always evolving.

The most interesting episode is linked to the regime change in Libya, which was promoted mainly by France. Paris used its Air Force in combat operations against the Khadafy regime and logically set the stage for the physical
extermination of the dictator. In the aftermath of the regime change, the new rulers decided to grant the French Total oil company a share of 35% of oil production (up from the 2% the company owned previously).

Right now, Libyan oil industry is in ruins, but it is another story.

At a company level there is evidence that African Governments attempt to avoid overdependence on oil majors and try to “split” concessions’ rights. Often small foreign companies are chosen, as it was the case in Ghana. The national company cut the fields into many blocks and offered the development to different producers, as the British Tullow Oil, which is now working on the biggest field called Jubilee. Similar approach was pursued by Cameroon,
Ivory Coast, and Uganda.

The experience of Angola, with strong support from China, could be considered as successful. The former Portuguese colony is now the second biggest oil producer on the continent, after Nigeria, and is predicted by the International Energy Agency to become the number one.

Nigeria’s experience could be assessed as negative. Oil production didn’t produce any economic or social benefits to the population, and has instead generated corruption, insecurity and armed conflicts. The oil industry is in dire
state but it is not the direct result of the surge of jihadists from Boko Haram movement. However, social disorder is the main breeding ground for radical movements and is leading to a virtual split of the country between the Christians and the Muslims.

Falling oil prices also contributed to the instability on the continent, cutting revenues, depleting budgets, and creating drivers for social unrest.

Libya At A Crossroad. Once Again

All attempts to stabilize Libya and put together a diplomatically recognized and representative  government fall flat. The developments in the second half of September 2016 reveal how fragile the political situation remains.

On the ground there are, just as before, two main groups of protagonists. On the one side, there is the Government of National Accord (GNA) created by Western powers with the UN support, led by Fayez al-Sarraj. The GNA is not popular in the country being seen as ‘imposed’ from the ‘outside.’ The political agreement that gave birth to GNA was signed in December 2015, in Skhirat (Morocco).

That governmental body, after many troubling calamities, was finally installed in the capital city, Tripoli. However, it has no military force to back it up and has to rely mainly on the local coalition called Libya Down. It was forged by a mighty militia from Misurata and Islamists linked to Muslim Brotherhood that used to be in control of Tripoli. The previous Parliament, the General National Congress, was dominated by the Brotherhood. This legislature refused to give up power after an election in 2014 produced another Parliament, which was installed in Tobruk, in the East of the country.

The Tobruk Parliament (House of Representatives) was internationally recognized. The Skhirat agreement stipulates that the two elected body have to merge and form a unified Parliament, with the Tobruk one as the Lower
Chamber, and the Tripoli one as the Upper Chamber.

On the other side, the power is concentrated around the House of Representatives supported by the National Libyan Army (NLA) led by General Khalifa Haftar. The NLA embraces anti-Islamists, former Khadafy-linked tribes,
some Eastern clans, former military and Arab nationalists who see Islamists as a political threat and even as a Western ‘political tool’, to a certain extent.

From the outside, this coalition is supported by Egypt and the UAE. There are reports that France has secretly helped Gen. Haftar by officially recognizing the GNA as a legitimate Government. In July 2016, some French military servicemen, allegedly no belonging to secret services, were killed in action near Benghazi while helping the NLAGen. Haftar has placed Benghazi and most of Cyrenaica (East of Libya) under his control.

From 2013 onward, this important city was administered by Islamists from Ansar al-Charia.

On September 2016, Gen. Haftar managed to seize four major oil terminals and, basically, now he is in control of the Libyan oil exports. It remains the main source of revenue for the country, which produces only 0.25 million
barrels/day compared to 1.6 million barrels/day under Khadafy.

Gen. Haftar has ousted from the terminals the militia called Petroleum Defense Guards led by Ibrahim Jathran. A counterattack by GNA forces was inefficient and failed.

These events for the first time in several years have had an impact on oil prices, but rapidly the effect was zeroed. The military balance of power on the ground places Gen. Haftar and Tobruk Parliament in a better position, while the GNA and Tripoli militias are still not able to oust the remaining Islamic State fighters from the city of Sirte after two month of fierce fighting, even with the military support provided by the US, UK, France, and Italy.

All attempts to settle the new crisis are fruitless. The Parliament in Tripoli may now declare itself the only legal one and legitimate, but it has no possibilities to prove it. Negotiations aimed at finding a compromise failed, so far: the warring parties are too suspicious of each other, and the West has not come up with an acceptable solution to satisfy all the sides involved.

To put it simple, the choice in Libya is between the Islamists of different origin and the laic forces linked to the former regime with tribal militias as the swing factor since they are known to change alliances when the moment is opportune. It looks like an unwinnable combination, for the moment at least.

Twilight Zone Of Europe’s “Defence Schengen”

Defense turned out to be a hot topic in the EU ravaged by a set of headache problems: Brexit, flood of unwanted refugees, Eurozone indebtedness, etc. Strengthening and upgrading military cooperation seems to have been chosen because it was the sole possibility to showcase readiness to overcome the present stalemate in the European Union.

The project of setting up a European Defense Union has multiple dimensions. The recent meeting of the EU Defense Ministers, held in Bratislava, was focused on the political side. France and Germany elaborated a joint initiative to show that, despite of Brexit perspective, they are still able to put forward and promote the European political agenda.

The defense issue was chosen for many reasons.

First, with the prospect of UK leaving the EU, there would be no longer a dissident country, which had always voiced criticism of any European initiative on security matters. London acted on premise that it would harm NATO by creating competition within the transatlantic alliance. Now Paris and Berlin could revive that old idea.

Second, in the absence of the UK, France will be the only country in the EU with a strong military potential, nuclear weapons, and a permanent seat in the UN Security Council. In case of a European Defense Union, the French military would be at the core of this institution assisted by.
If it happens, President Hollande of France could present it to French voters as an achievement in view of the presidential elections next year (Hollande has an extremely poor record on economic and social portfolios). If Germany joins the initiative with its financial might the endeavor could end up with a positive end-result. To put it simple: French soldiers financed by German euros. This combination could be presented as a powerful pre-election
accomplishment in the absence of other achievements.

Third, Germany is champion of the concept. Chancellor Merkel of Germany is weakened by the refugee crisis and by Bruit” and has lost her unofficial position as the EU’s kingmaker. Today, any new political initiative in the context of EU credibility, especially if linked to security matters, would be welcomed in Germany for domestic reasons. Without France, Germany cannot deliver: it is not the best kept secret that only 38 out of 89 German fighter jets are able to fly…

Additionally, this initiative could bring about more tight cooperation of the military industries, and facilitate the purchase of weaponry. It opens new attractive vistas and opportunities for German arms manufacturers.

Fourth, Italy wants to join in as the “third party”.

The Italian Government is pushing forward the idea with the Foreign Minister Gentiloni proposing even a “Defense Schengen” for the core group of EU countries.

Rome is basically interested in joint European operations in the Mediterranean Sea to better control the illegal migrants’ flow from the MENA region. Italian politicians are complaining that, so far, all the supposed European military operations are financed from national budgets and not by the EU. In case of a possible European Defense, the financial burden could be better distributed between member states.

Apart of the political dimension of the European Defense Union there is also a practical one. What could be the ultimate goals of the new structure? What could be listed as its military targets? How should it be organized: as a kind of a European Army?

On the practical side, it’s basically impossible to envisage binding decisions, even without considering the most probable British campaign against the formation of a EU Army.

Member states perceive their individual security problems in a different way. Poland and the Baltic States are looking apprehensively at Russia’s new assertiveness and demand to rely on the US and NATO. They are not ready to leave it to any European Defense alliance and to pass national sovereignty on security matters to the EU institutions.

The Mediterranean countries might be interested in some additional capacities to control the sea
traffic and the immigration flow but who exactly would be the contributors to the joint naval forces?

Finally, attempts to create combined European military forces were futile so far. The FrancoGerman brigade, born back in 1989, has been a frustration: the unit was never deployed because of the German restrictions on participating in combat operations, so the brigade remains a somewhat decorative, symbolic entity.

The concept of a European Defense Union could be pushed forward for political, preelectoral purposes but would not materialize. At maximum, it might culminate in a joint military staff, located somewhere in Brussels, but with
limited decision making powers, and might bring about some financing to conduct operations aimed to control illegal migrants’ flow.

Algeria Attempts To Get Out Of A Limbo

The incomprehensible relative political stability in Algeria is largely attributed to the psychological trauma suffered by the people during the so-called Black Decade, the civil war that raged between 1991 and 2002 with Islamist
fundamentalists challenging the regime.

Today, the aging and basically unhealthy 79-yearold president Abdelaziz Bouteflika who heads the Nationa Liberation Front (FLN) is offering a semblance of ‘stability and continuity’ (the ultimate and most appealing of the FLN slogans) and thus capitalizes on the rejection of violence by 40 million people of the weary nation.

The vaccination of the Black Decade made Algerians immune to the call of the Arab Spring sirens, and set up a barrier for the Islamic State recruiters. While one of the most Westernized nations of North Africa, Tunisia, has contributed from 6,000 to 7000 militants to join and fight alongside Caliphate-brainwashed IS radicals and
similar extremist groupings in Syraq (Syria and Iraq), Algeria paid a token toll of only 200 recruits. The difference is striking, but justifiable. It would be appropriate to quote Jenny Gustafsson’s widely reprinted article titled “No
Daesh in Algeria: What’s their secret?” who manages to hit the nail on the head with proper analysis.

The first and foremost argument by Gustafsson is rooted in Algeria’s own legacy of internal conflict. “The experience of living with extremism remains fresh in the country’s collective memory and works as a form of
psychological deterrent,” the expert rightfully observes. To prove the point, there have been few recurrences if any among the former fighters who after being granted amnesty have reintegrated into their original communities, thus
starting their lives anew and probably repenting on their violent past.

No less weighty is the argument that Algerian regime does not economize on maintaining and building up its security forces that serve as the bulwark against the many threats coming from the porous borders (stretching along uninhabited deserts) with the ”unhinged” Mali and the failed state of Libya. The figures provided by Gustafsson are convincing: France with a population of 65 million (25 million more than Algeria) keeps 143,000-strong security forces while the North African country counts more than 200,000.

The counter-argument that the sheer size is no guarantee against failure is refuted by the track record of accomplishments. On 3 October, within the framework of the on-going antiterrorism operations Algerian security forces have found a cache containing six heavy machine guns, more than eight rifles, four pistols and 14 semi-automatic rifles. It has been reported that in the first five months of this year “73 terrorists” had been killed and 111 arrested.

The third a most powerful suggestion made by Jenny Gustafsson is focused on Dawa Salafiya, or “quiet Salafism”, a mild version of Islam that shies away from politics. In 2013, a national union of imams was set up for the purpose of serving as a “bulwark against imported religious ideas”, meaning the belligerent fundamentalism of the IS-type that proclaims life “by the sword”, annihilation of all the infidels, and the eventual triumph of the restored Caliphate with its capital nowhere else but in the Saudi holy city of Mecca. Once again, the bitter experience with the internal feud provoked and elevated to a bloodbath by Islamic radicals prevents Algerians from embracing the imported versions of fundamentalism.

How does the current “acceptable” status quo translate into SWOT perspective of Algeria as one of the main providers of hydrocarbon commodities? In fact, it is a mixture of remaining uncertainties over the looming transition period after the inevitable change of guard and apparent certainties about the dire state of the energy sector clutched in the grips of raving corruption, bureaucratic inefficiency, and regulation in the spirit of “resource nationalism”.

This is disgraceful for both the national economy and foreign investors alike. Since Algeria is one of the top three oil producers in Africa, ranks eighth for its natural gas resources (second in Africa after Nigeria), and is estimated to hold the third-largest amount of shale gas resources in the world, it is shame the energy bonanza does not provide for lavish revenues and high standard of living.

Algeria’s energy major, Sonatrach has originally planned to surge oil production from about 140
Mtoe in 2013 to 225 Mtoe in the time span of five years. The company intended to pour some US$80bn into the ambitious growth programme. Then came the global oil price meltdown, and now the company is forced to revise the investment volumes downward.

However, Sonatrach sounds optimistic about the future claiming it would still go on with exploration works on 125 new wells drilled every year. The company is also keen to expand its transmission network and rebalance its focus on less mature fields.

The oil sector of Algeria has been in decline for a decade. It sours forecasts. The decision by

Sonatrach in January 2016 to put on hold shale gas exploration in the experimental fields in Ain Salah added fuel to speculations that the trend would remain bearish. Local experts explained the delay: extracting shale gas of Ain Salah would make business sense only when crude oil prices on global markets reach US $80/bbl. Until then, it is a waste of money.

Moreover, to raise the needed US$80bn in investment requires attracting foreign capital. This is not a given. Algeria is viewed in the context of the turbulent developments in the whole MENA region. The current “political
rivalries, conflicting ideologies and opposing interests and ambitions that have conspired to keep the region divided, unstable and weak” (as experts define it) serve as a formidable deterrent for foreign investors.

In Algeria, to rub salt into the wounds, there is also the issue of production-sharing contracts, not very favourable
to ’outsiders’, customs delays, archaic banking systems, pervasive red tape (as Shakespeare would have termed it, “the insolence of office”) and widespread corruption. In fact, Algeria is considered to be among the world’s 10 most
corrupt nations.

Economy is not stagnating but losing steam. GDP growth totalled 3.7% in 2015 but is due to slow down to 1.9%. This is reflected in the unemployment level of more than 20% with young people, as usual, affected the most. On top of it, the present state of affairs in housing, healthcare, education is far from satisfactory. For the first time in the past 10 years, the government is weighting the benefits/dangers of pushing up fuel and electricity prices. It would hardly bode well with the populace but this is a tough necessity.

To meet the challenges of “lean years”, the government is proposing a grand vision called New Economic Growth Model. It is rooted in the natural desire to get rid of the overdependence on the production and exports of oil and gas (forms one-third of GDP and 95% of exports) and create new sectors of revenue generation.

These plans are bold and ambitious. The government pins hopes on attracting enough investment to accelerate the Programme for the Development of Renewable Energy, adopted in 2015. If everything goes well, it is predicted that
Algeria would generate 15% of electricity from renewable sources by 2025-2030. As a result, consumption of natural gas will naturally shrink. Premiums are already being granted for electricity produced from renewables.

According to a detailed model of energy transition, by 2030, the renewables will account for 27% of Algeria’s electricity consumption. It has been reported that the bulk will constitute of solar PV (13.6 GW), followed by wind power (5GW), solar CSP (2 GW), biomass (1 GW), CHP (0.4 GW) and geothermal (15 MW).

In theory, the switch to the renewables and efforts aimed at energy efficiency could free (save) some 300 bcm of gas, which would increase to the country’s export potential.

Moreover, Algeria might be blessed with a new hybrid energy model, combining photovoltaic, solar thermal energy and flared gas, as professed by Minister of Energy Noureddine Boutrafa. Eventually, Algeria might not only ensure a balanced and sustainable growth of its economy but also become the number one purveyor of solar energy-based power to Europe and Africa. Once again, this scenario is plausible provided foreign investors have trust and confidence in making their bets on Algeria’s bright future. To be fair, the government is trying hard to dispel the negative image. Recently, a new leadership of a state anti-corruption body, the Organe national de prevention et de lutte contre la corruption (ONPLC), has been appointed by presidential decree.

Yet, the history of this institution is remarkably deplorable. Set up in 2006, it waited for four years for presidency to appoint its seven members. Then, in 2015 their mandates expired, and another inexplicable pause happened that
lasted for months. This mistreatment led to belief that the authorities do not consider fighting corruption as either urgency or a priority Ultimately, the existing authoritarian and patronage-based political system is a mismatch
with the energy riches of the country and the aspiration of its people to live decent and comfortable lives. Braving all these odds, the ruling elites when not servicing their own interests are desperately trying to put the country
on the right track to sustainable growth and prosperity. This is a mammoth challenge.

Will TAPI Become Hostage Of Pakistan-India Hostilities

Recent intense bellicose rhetoric and sabrerattling between India and Pakistan has raised the stakes in the completion of the muchheralded Turkmenistan-Afghanistan-PakistanIndia (TAPI) natural gas pipeline project. An
unnamed official of the Indian government dismissed suspicions that the US$9-billion project could be either postponed or shelved indefinitely due to flaring animosity.

The current round of open and covert hostilities was provoked by a terrorist attack on an army camp at Uri on September 18 and another one at 46 Rashtriya Rifles camp in Baramulla on October 2. The attack in Uri located in India administered Kashmir was carried out by a radical grouping called Jaish-e-Mohammed (JeM) that is allegedly linked to Pakistani intelligencen services and reportedly responsible for a similar attack on a military base in the town of Pathankot in the Indian state of Punjab in January this year.

The response in India to the latest strike was as emotional as ever. A video placed on social media featured an Indian serviceman who calls out cities in Pakistan that would face total obliteration. Then he is joined by fellow soldier that chant a poem with provocative refrain:

“Pakistan, hear this loud and clear: If … war breaks out you will be obliterated. Kashmir will exist but Pakistan won’t.”

Indian media was full of angry voices calling to “cripple” Pakistan and “bring them down to their knees”, and actually calling for an all-out war: “Let guns now talk with Pakistan.”

BJP party prominent executive, Ram Madhav, posted on Facebook a dire warning: “For one tooth, the complete jaw. So-called days of strategic restraint are over” – thus upping the ante in the long-time rivalry and enmity.
The Pakistani officials wasted no time as well to declare readiness to get involved in another brawl with neighbours. Army Chief Raheel Sharif beefed up morale of his officers and rank-and-file soldiers by stating that Pakistan was “fully prepared to respond to the entire spectrum of direct and indirect threats” from India. He pledged that Pakistani army would defend “each and every inch” of the country “no matter what the cost.”

Both sides are used to trading accusations. Islamabad claims New Delhi is conducting a secret war by having forged an alliance with Taliban and aiding the separatists in Balochistan, the Baloch Liberation Front (BLF). Although
there was hardly any hard-core evidence that attacks carried out by Baloch militants were sponsored or assisted by India, Pakistan is convinced that India must have had a hand in the subversive activities of its sworn enemies,
because otherwise it would not fit the scheme.

As a matter of fact, as Indian journalist Shivam Vij revealed, there is no proof that the attack in Uri was related to terrorists sponsored by Pakistan’s intelligence services. Yet, the Indian government would not like to drop its accusatory tone. However, India should be given credit for avoiding call for an immediate retaliation. Law
Minister Ravi Shankar Prasad announced that New Delhi’s response “will be done with full diplomatic and strategic maturity.”

No doubt, “strategic maturity” is a factor to be taken into account but two neighbouring countries have a poor record of squabbling. They fought three wars over the disputed territory of Kashmir prior to 1998. In 1999 they were engaged in two-month hostilities until Pakistani troops retreated from the infiltrated terrain. The aftertaste of the recent outburst of animosity will last long enough. Noteworthy, speaking at Brussels Conference on Afghanistan
on October 5, 2016, Mobashar Jawad (M.J.) Akbar Indian Minister of State for External Affairs, accused Pakistan of hindering trade between India and Afghanistan. “We have offered a special facility at our border at Attari for Afghan products coming to India via Pakistan. Unfortunately, this access has been blocked for political reasons by Pakistan. Nations cannot become walls aborting a trade and culture that is as old as written history, and as powerful as the lore etched in common memory,” M.J. Akbar intoned.

Minister has also praised his Prime Minister Narendra Modi’s “neighbourhood first” policy and called Afghanistan “the wedge between East and West, the passage for seamless travel between India and Central Asia, West Asia and regions beyond.”

The divisive rhetoric cannot heal wounded pride, especially since the warring sides stubbornly reject the idea of bringing on board peacemakers from a third party. It goes against the global trend.

The institute of moderators can be imperfect but it fairs better than attempts to patch a dramatic schism by parties divided by past grievances and emotional animosity with a track record of deep suspicion, prejudiced attitude, fallen soldiers and maimed civilians.

Here is a recent argument in favour of third party peacemakers. In September, the government of Colombia and the leftist guerrilla group, the FARC, have ended a 50 years-old civil war that caused more than 220,000 deaths
leaving 8 million homeless. Cuba, Venezuela, Norway and Vatican jointly played a crucial role in sponsoring the four-year-long talks with the UN and now international observers are put in charge of overseeing peace and the pacification of the war-torn nation.

Could it a model for India and Pakistan? Unlikely. The permanent squabbling has already derailed a quite sensible project: construction of a pipeline connecting Iran, India and Pakistan n(IPI). The last meeting to address the issue was held back in 2008 with no progress recorded ever since.

And yet, surprisingly, TAPI might materialize against all odds. To remind of it proposed properties: Annual throughput capacity to total 33 bcma. Total length: 1,814 kilometres (214 km along the territory of Turkmenistan, 774 km across Afghanistan, and 826 km stretching across Pakistan to the border with India. According to
original plan, the pipeline might be put on stream in late 2019.

On September 30, Turkmenistan’s President Gurbanguly Berdimuhamedov examined the construction sites of the Turkmen section of TAPI and must have approved the official report that affirmed: pipeline’s construction is in line
with the schedule.

There is no shortage of financial sponsors. The Asian Development Bank (ADB), the European Bank for Reconstruction and Development (EBRD), the Islamic Development Bank (IDB), the Saudi Fund for Development (SFD) and the Japanese government expressed eagerness to commit investments to build TAPI pipeline.

The motives of these formidable lobbyists have the same roots as the reluctance of New Delhi and Islamabad to abandon the project. Experts’ forecasts point out that by 2030 the demand for natural gas in India and Pakistan will surge twofold. The Turkmen connection, at least for the moment, looks like the best option, provided, first
of all, the unproved reserves of this country are as huge as it is widely believed. And second, China, as the main purchaser of Turkmen gas, does not get jealous and stand in the way.

 

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