Let Us Give This Peace Pipe a Chance

As America’s energy anxieties ease, India may get a realistic chance to address its own
Energy
PIPE-DREAM NO LONGER While India looks to nuclear energy for electricity generation, gas is a far better bet

If India’s energy-security wonks are in a strategy huddle, it remains a state secret. They do, of course, have much to mull over. Last fortnight, an interesting bit of information on hydrocarbons got a stamp of conventional wisdom. A report by the International Energy Agency (IEA) declared that the US is set to surpass Saudi Arabia as the world’s largest oil producer by 2020.

That year, America is projected to pump out 11 million barrels of crude oil per day, a million or so more than the current No 1, some 1.5 million more than Russia, and more than twice what the IEA expects Iraq to spout. Right now, the US guzzles about 19 million barrels a day. If America keeps up its trend of gains in fuel-efficiency, it may even turn into a net oil exporter in about a decade and achieve energy self-sufficiency soon after. What has done it this wonder is the newfound technique of fracking, which can penetrate and whoosh oil and gas out of unyielding reserves. Such is its significance that Fatih Bitol, IEA’s chief economist, has been quoted as saying that “[The] foundations of the global energy system are shifting.”

An implication, as Barack Obama has crowed, is the foreseeable end of American dependence on Middle Eastern energy. In terms of direct imports, this is true. In terms of market dynamics, not quite. For one, extra US output will not make up for extra Asian consumption. Moreover, the global price of oil, set by worldwide demand and supply, will not lose its link with the Middle East. Arabia’s control of oilwells is far more centralised and cost of extraction only a fraction of America’s, which grants the region’s players some flexibility on how much to pump and what to charge for it, which spells market power. Middle East volatility could still result in flare-ups, and if the US Navy’s Fifth Fleet stays anchored in the Gulf, that may be a key reason.

Yet, the IEA’s report and Obama’s rhetoric both suggest that an energy-secure America may be ready to re-puzzle-out and reshape its broad Middle East policy in subtle ways. Its clamps on Iran’s energy exports make no market sense, and diplomacy rather than such a blunt axe may work better to address its apprehensions of a nuclear-armed Tehran. Sure, it is a complex scenario. But with some luck and a sharp rethink on all sides, India may yet gain access to low-cost gas from the South Pars field that Iran shares with Qatar. It is time to give this ‘pipeline of peace’ a chance.