There is a common feeling that the ongoing Ukraine political crisis could negatively impact European energy supplies, and therefore worsen the post-2008 European economic malaise.

This is somehow a false perception based on misinterpretations of recent trends in European energy markets, and is leading to miscalculations of existing and potential risks. Ukraine certainly plays a central role in transiting Russian natural gas to Europe. In 2013, 86.1 billion cubic meters (bcm) or 52 percent of Russian gas sold to Europe and Turkey went through Ukraine’s territory. Kiev is also an important client of Gazprom, purchasing significant volumes of Russian gas. In 2013, the country has bought 27.7 billion cubic meters (bcm) of gas. The issue of gas pricing and debt to Russia’s Gazprom has complicated bilateral energy relations between the two countries. This friction began years before the current political crisis. In 2009, there was a two-week long interruption of Russian gas supplies, preceded by another supply crisis in 2006. Tensions amidst the current political crisis and the inability of Ukraine’s national gas company Naftogaz to pay its bill could indeed potentially lead to a temporary full-scale interruption of gas supplies. But this is unlikely due to the complexity of economic links between Russia and Ukraine.

The likelihood of a European gas crisis from supply cuts is also low, and if it were to happen, it would be short-lived. Any cuts would not significantly impact Europe’s security of supply and economic growth. There are two myths to dispel regarding Europe’s economic vulnerability.

Myth 1: Europe is critically dependent on Russian gas.

ExxonMobil’s Outlook for Energy 2014 estimates that Europe’s gas imports from outside of the European Economic Area (EU plus Norway) will rise to 60 percent of Europe’s entire gas consumption. European countries will need to look for new pipeline and liquefied natural gas (LNG) supplies elsewhere in the world to satisfy its energy hunger.

LNG alone might be too expensive to cover the supply gap and the EU Member States will have to look for additional pipeline imports from the Caspian and Russia. On one hand, one might think that this trend will increase dependence on Gazprom’s supplies. Indeed, last year Gazprom managed to improve its position by cutting prices. The company set a new record by selling 162.7 bcm of gas to Europe and Turkey, thus raising its market share to 30 percent. This represented a 16 percent year-on-year increase in Gazprom’s sales outside the FSU. 

On the other hand, European buyers preferred Gazprom’s gas to non-Russian suppliers for price reasons only, not due to a lack of alternative supplies. Many buyers benefited from the price reduction and increased the share of Gazprom’s gas in their supply portfolios. The Gazprom price was 20-30 percent lower than the average LNG import price. LNG capacity built to contribute to EU’s energy security and to reduce dependence on Russian gas therefore stayed idle. Its utilization was also very low—well below 30 percent. In 2013, Europe had the lowest level of LNG imports since 2004—European countries imported only 46.5 bcm of liquefied gas, well below the record set in 2011 - 88 bcm of LNG imports. These dynamics prove the relativity of Europe’s dependence on Russian gas.

Myth 2: Ukraine transit is vital for Europe’s security of natural gas supplies.

While a significant portion of Russian gas supplies to Europe are still transported via Ukraine’s pipeline system, the importance of this transit route has significantly decreased in the past decade. This trend is likely to continue in the years to come as alternative pipelines have come on stream. 

The share of Russian gas supplies to Europe transiting via Ukraine already decreased from 95 percent in 2008 to 52 percent in 2013, mostly due to the construction of new direct pipelines such as the Blue Stream to Turkey, Nord Stream to Germany and Yamal–Europe to Poland and Germany. One of the routes, Nord Stream, is still half empty, mostly due to unresolved regulatory issues between Brussels and Moscow. The full utilization of direct pipelines might further reduce the share of Russian gas transiting via Ukraine to 35 percent of Gazprom’s sales in Europe and Turkey.

Furthermore, the construction of interconnectors in the European Union allowed connecting “energy islands,” such as the Czech Republic, which exclusively depended on Russian gas, to the alternative gas supplies. This process is one of the key priorities of EU’s energy policy, and is expected to be completed within the next three-to-five years, so buyers will have the ability to choose from a large variety of supplies. New interconnectors will also allow customers to access Gazprom’s gas from alternative pipelines, avoiding Ukraine’s territory.

Last but not least: European energy companies also have enough gas in underground storage to survive a total interruption of supplies via Ukraine’s territory for at least a month.

There is also a commonly held belief that energy supply issues will worsen Russia-Ukraine relations. In fact, economic interdependence is more likely to contribute to conflict reduction.

Myth 3: Russia-Ukraine economic relations will be hostage to political turmoil.

Economics might indeed become hostage to political tensions. However, while political links between Moscow and Kiev are virtually nonexistent, business contacts continue even though they are not always smooth. Nagtogaz’s CEO Andrey Kobolev is in regular contact with Gazprom’s CEO Alexei Miller. Both managers recently met in Moscow. 

Despite the non-payment issue, Ukraine keeps receiving Russian gas. For numerous reasons, including internal non-payment issues and a (relatively) high price level set by Gazprom, Naftogaz accumulated substantial debt to Gazprom. The price discount agreed in December 2013—$268.5 per 1000 cubic meters or roughly 70 percent of EU average price—was conditioned, on timely payments of Ukraine’s gas bills. The lack of progress in repayment of Ukraine’s debt (currently $2.2 billion) gave Gazprom a formal pretext to cancel the discount beginning April 1, 2014. Nagtogaz is struggling to pay its bills at the discounted price and is currently unable to pay Gazprom. 

This has not lead to a cut in gas. As requested by the Ukrainians, from April 1 through April 12, Naftogaz received 0.81 bcm of Gazprom’s gas. This shows that even serious tactical disagreements between the two companies did not impact the economic relationship. Indeed, long-term commercial interests are more important than temporary disagreements. 

Economic interdependence has the potential to help Russia and Ukraine overcome political disagreements. Ongoing industrial cooperation in aeronautics, machinery and civil nuclear areas are key examples. “Fixing” the economy, urgently necessary for both Russia and Ukraine, will help to “fix” politics and promote more stable and prosperous societies. 

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Read an abridged version of the article on The Moscow Times. 

Read an abridged version of the article on Natural Gas Europe. 

Read an abridged version of the article on EurActiv. 

Photo credit: World Bank Photo Collection/Flickr 

Defining the Caspian: Aspirations, Opportunities and Challenges

Eastern Promises Policy Dialogue – March 25, 2014

Summary
The Caspian is the largest inland body of water in the world, stretching from the shores of the Black Sea to the heart of Central Asia; it is a region rich in energy resources, with huge economic potential, and a meeting point between cultures and civilizations. Given the region’s geographic position between powerful states, for much of its history it has been at the heart of global confrontations.

Today there is still an on-going struggle. Russia remains very present, there is an increasingly powerful China, the EU is trying to make some inroads - Azerbaijan has made it possible for Caspian gas come to EU markets; Turkey is also trying to increase its role and of course there is Iran - isolated but ever present and if normalization takes place Iran’s role can become much more large in scale. Yet this region continues to face a number of significant challenges including economic under-development, security threats/frozen conflicts, corruption, inadequate governance and weak rule of law.

Full Report
Amanda Paul, EPC Policy Analyst, opened the dialogue by describing EPC and BSCSIF’s new project Defining the Caspian, which is designed to analyse and discuss geopolitical, energy and economic issues in the Caspian region and its neighbourhood

Alev Balgi, Executive Director of the Black Sea-Caspian International Fund, presented BSCSIF describing it as an international non-governmental non-profit organization, established in 2009 by the initiative of various representatives of influential non-governmental organizations from Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Republic of Moldova, Romania, Russia, Turkey and Ukraine.
Balgi expressed her satisfaction over the launch of the project Defining the Caspian, and stressed that it is important to launch actions that enhance democratic processes, economic development and dialogue among civilizations by using transportation territories, developing trade and creating a sustainable energy network.

Svante Cornell, Director of the Institute for Security and Development Policy, described the Caspian as Europe’s entry point to the heart of Eurasia and stated that without access through the Caucasus and the Caspian, there is no Western presence in Central Asia and Afghanistan. He outlined Western interests in the Caspian region, which he summarised as energy, military and trade-related interests.

On energy, he noted that Europe is well connected to Western Caspian oil and gas reserves through the Baku-Tbilisi-Ceyhan and the soon to be built, Trans-Anatolian pipeline, but not well linked to the much larger East Caspian oil and gas reserves of Kazakhstan and Turkmenistan respectively. Over the past years, Europe has not been particularly active in East Caspian and since the establishment of the East-West corridor – brought together by the US and of which the EU has been a major beneficiary – there has been remarkably less interest in connecting Europe to the East Caspian reserves. This has allowed China to move in and to build pipelines to bring Turkmen gas to China.

Cornell stated that the West should engage Turkmenistan more actively in order to bring Turkmen gas to Europe, especially since Turkmen official representatives expressed their interest in diversifying their exports. Nevertheless, according to him, “unless and until the Caspian reserves get connected to Europe through the Trans-Anatolian pipeline, Turkmen gas will not be brought to Europe. Europe needs to show Ashgabat that a connection is possible and can work. Turkmenistan will not make a move on its own.”

As for military and security interests, Cornell noted that the Caspian countries proved willing and able to cooperate with the West on counter-terrorism, and have been crucial in enabling the coalition efforts in Afghanistan over the past decade. He also stated that the land corridor across the South Caucasus is the only one that will allow the withdrawal of Western military forces from Afghanistan without relying on Russia or Pakistan. “This is just an example illustrating why it is so important for the West to have a presence in the heart of the Eurasian continent and why it would be foolish to abdicate
the possibility of cooperating with the countries of the Caspian region”, he said. 

On trade and transportation, Cornell mentioned the EU’s Transeca project - a land transport corridor connecting Europe, the Caucasus and Asia, which was never achieved - and described it as visionary. According to him, the market needs a land corridor connecting Europe to Asia, as a land connection is cheaper than air and faster than sea.

According to Cornell, the EU can exert leverage in the Caspian region in two ways: via energy diplomacy and via regional policy. Both instruments are very weak at the moment: since EU member states still hold a prerogative on their energy policy, which makes a concerted EU action in the energy field relatively difficult, and the EU has engaged only Western Caspian countries through the Eastern Partnership (EaP), but has not yet developed a policy for the countries of the Eastern Caspian. According to Cornell, when the future of Turkmenistan’s gas and Kazakhstan’s oil resources and their export will be determined, a higher level of political engagement with the countries of the region will be fundamental, if the West wishes energy commodities from the Caspian to go towards Europe.

Denis Daniilidis, EU Chargé d'Affaires in Turkmenistan, outlined Turkmenistan’s history since its independence and the country's energy policy. For many years, Turkmenistan had been relying on Russia as the main customer of its gas exports. This changed in 2009, when the explosion of the Davletbat-Dariyalyk pipeline halted Turkmen exports to Russia and trust broke down between partners after Ashgabat blamed Moscow for the incident. After that, Turkmenistan started investing in energy diversification, mainly by concluding several agreements with China, with whom Turkmenistan is now connected via three pipelines. It is estimated that by the end of 2020, Turkmenistan will export around 60 bcma of gas to China, making Ashgabat the biggest gas supplier to Chinese market via pipeline. “China is the ideal partner for Turkmenistan: both have a highly centralised decision making process, and human rights violations do not play a role in deciding with which partner is right for business,” he noted.

Daniilidis noted that despite being surrounded by countries rigged by ethnic conflicts and radical Islamism, Turkmenistan has managed to have good relations with all its neighbours. According to him, this great accomplishment was achieved by Ashgabat by unilaterally declaring the Permanent Neutrality State of Turkmenistan, which postulates that the country cannot be part of military alliances or engage in military cooperation.

Moscow’s influence in the country is extremely limited. According to Daniilidis, this is due to several reasons: Russia buys only a small percentage of Turkmen gas and does not have large investments in Turkmenistan and military cooperation between the two countries is very limited. In addition to this, not only is there no Turkmen diaspora in Russia, but also the Russian minority in Turkmenistan is decreasing. Despite events of 2009 President Berdimuhamedow is not antagonizing Russia, as Turkmenistan is also attempting to have a minimum participation in the CIS.

On the EU's influence in Turkmenistan, Daniilidis agreed with Cornell, acknowledging that it is extremely difficult for the EU to exert any leverage on Ashgabat, as the country is not anchored to any international institution or agreement. The EU has no Partnership and Cooperation Agreement (PCA) in place with Turkmenistan and in fact, Turkmenistan is also not a member of WTO, the Council of Europe or of any military alliance.

Daniilidis called for an upgrade in EU relations with Turkmenistan and stressed the need to establish an institutional dialogue with Ashgabat. “Not having a PCA with Turkmenistan to protest its bad human rights records is not a solution, instead it is part of the problem. Ratifying the PCA should be a priority in EU relations with Turkmenistan. At the moment, if we want any systemic change in Turkmenistan, we need to work through the UN and OSCE,” he said.

“The EU needs to have political meetings at a high level and a presence on the ground if it wants to upgrade its relations with Turkmenistan. If the pace with other countries is a thousand meters per second, with Turkmenistan it is 1 millimetre per second, but that millimetre is worth investing,” he concluded.

Danila Bochkarev, Fellow at the EastWest Institute, drew an energy map of the Caspian region. As the other speakers, he pointed out the division between East and West Caspian, with on the one side Azerbaijan having limited export routes, very focused towards the EU, and on the other side Iran, Turkmenistan and Iraq being in a more complex situation and more connected to China.

In particular, Bochkarev stressed the growing importance of China as an energy player in the region and mentioned domestic inflation in China, the Blue Sky Initiative of the Chinese government, as well as China's enormous market, financial resources, readiness to provide infrastructure, as elements making China an attractive business partner for East Caspian countries. “For Turkmenistan it is not important if it is the EU, China or Russia buying its gas, as long as they buy its gas and can pay higher prices.”

Comparing gas prices in the region, Bochkarev stated that Turkmen gas is very expensive if compared with Qatari, North Russian or Iranian gas because it is very expensive to extract and difficult to export to Europe at a profitable price. “I don’t think will we see Turkmen gas going to Europe, the question of Turkmenistan’s importance to Europe is overrated, Azerbaijan is more important to Europe than Turkmenistan,” he said.

According to him, Iranian gas offers more advantages than Turkmen, not only in terms of reserves and production costs, but also in terms of export options. In fact, Iran exports to Pakistan and Turkey and it has plans to export to Oman and the United Arab Emirates. “The EU’s scepticism on Iranian gas is surprising, as no one but Iran can be a Gazprom competitor. Whether Iran will try to be a Gazprom competitor or not is an open question, yet there is a need to engage Iran on global gas.”

Diba Nigar Göksel, Editor-in-chief of the Turkish Policy Quarterly, contributed to the discussion analysing Turkey’s role in the Caspian region. According to her, Turkey's recent aspirations in the region were too ambitious and unrealistic for the time-frame they were conceived for. Not only Turkish “zero problems with neighbours” aspirations in the Caspian area were set into action with ill-conceived undertakings–such as the Caucasus Stability and Cooperation Platform or the Turkish-Armenian normalization process–but also Turkey's efforts to redefine its relations with Russia and Iran by minimizing conflict and maximizing economic interdependence were unsuccessful.

According to Göksel, Turkey has realised that its effort to gain traction in the Caspian region together with Iran and Russia while reducing its alignment with the West was not going to yield the results that it hoped for. Ankara finally understood that its interests are not necessarily aligned with Russian and Iranian interests and that its grand ambitions of either leading the Muslim middle-east or being welcomed in the Shanghai Cooperation Organization were unfounded.

Turkey has therefore downgraded its ambitions in the region and started focusing on the East-West corridor and on integration between Azerbaijan, Georgia and Turkey in terms of energy and transportation corridor. Nevertheless, according to Göksel, Turkish foreign policy has not yet been re-articulated and various possibilities are open.

While some argue that Turkey will revert to a Western strategic assurance framework in light of its own vulnerabilities, Göksel believes that this is not likely to happen any time soon, given the Turkish government’s efforts to spread scepticism and animosity towards the West among Turkish society and the poor democratic track record of the Turkish government, which reduces its credibility in the eyes of the West.

Göksel stated that Ankara needs to reconceptualise its foreign policy but underlined the existence of a “clash between Turkish economic interests, geopolitical interests and domestic political interests” that will make redefining Turkish foreign policy harder.

As for challenges to Turkish influence in the region, Göksel identified the biggest obstacle to Turkish leverage in the Caspian in the Nagorno-Karabakh conflict and acknowledged the limited progress so far achieved. Russia’s influence in the region poses a challenge to the Turkish presence in the area as well, especially as Ankara is trying to compete with Russia while not upsetting it–as of this being the fact that Turkey has been very cautious to back the European choice of some countries and at the same time didn’t comment Russia's actions in Ukraine. Finally, Göksel noted that some issues belonging to the Turkish domestic situation undermined Turkish foreign policy on several occasions–such as the battle between Gülen movement and Erdoğan which had repercussions with Turkey’s relations with Azerbaijan and Kazakhstan.

Göksel concluded by stating that recent events in the Crimea might create the opportunity to address the Karabakh issue in more concrete terms and finally bring a solution to this decades-long conflict.

Dennis Sammut, Director of LINKS, stated that the EU has the ability to influence decisions in the countries of the Caspian region, as it can bring investments and it carries a model of relationship that is never built on exploitation, but rather on the basis of mutual benefits. Iran and Russia are still important players in the area–with whom the EU has very complicated relations–and out of the other three countries touched by the Caspian, the EU has most advanced relations with Azerbaijan. Despite not yet signing an Association Agreement, Baku has expressed a desire to upgrade its relations with the EU and Sammut believes that a stronger cooperation with Azerbaijan should be pursued and can yield positive results.

According to Sammut, a dialogue can be established also with Turkmenistan, as long as the EU increases its political engagement with Ashgabat. He warned against the danger of thinking that a relationship with Caspian countries can be built only on energy and economics. “Politics is central to cooperation: we have learnt this the hard way with Ukraine, where a small political problem destroyed an extremely technical agreement,” he said.

Sammut referred to the Nagorno-Karabakh conflict, stating that a solution has yet to be found not only because the parties involved do not have enough political will to find a solution, but also because the situation they find themselves in does not encourage them to take strong political decisions. “Solutions to crisis are to be found within a context: the EU, Russia and the US are part of the context. The situation in Ukraine has now raised many questions about context and it is only by adopting a long-term perspective that we will be able address conflicts successfully.”

Discussion
Questioned about the EU's role in the region, Daniilidis agreed that the European Union has lost more and more leverage in the Caspian area over the past ten years. He said that in order to change the current situation, the EU needs to have three things: high level political contacts with Turkmen officials; a framework able to bring all the Central Asian countries to the table with the EU; and EU experts on Central Asia, who are able to understand the specifics of this region. Daniilidis added that the EU should present itself as a mediator on water conflicts and border management, since it has already obtained good results on these issues and the countries of the region are particularly sensitive to these topics.

When asked to elaborate further on Iran's possible role as a Gazprom competitor, Bochkarev stated that Iran could be an advantageous source of oil and gas for Europe since “it borders with Turkey, so it is a country with a direct access to the Southern Corridor. Moreover it has access not only to large resources but also to very cheap gas, therefore it can acquire a conditional share by dumping the price, which is not always possible for other countries, like Azerbaijan or Iraq.”

Being asked what will be the solution of the Nagorno-Karabakh conflict, Cornell stated that every side involved knows that a successful settlement will need to involve a multiple stage process, culminating in a Balkan style-normalisation procedure and the involvement of peacekeepers coming from a third country that does not belong to the region.

On why Ukraine has not yet signed the DCFTA, Sammut stated that the new government will need some time to deal with the technical aspects of the agreement and that the choice of postponing a decision on it until after the elections is understandable.

When asked to elaborate further on the possibility of having Turkmen gas flowing to Europe, Daniilidis stated that since the law on hydrocarbons forbids onshore PSIs, any attempt to reach an agreement by linking progresses on the TCP to the concession of PSI onshore for US or EU companies is doomed to failure. “In order to make the TCP operational, large quantities are necessary - at least 20 or 30 bcma - and a long term contract should be drafted. Turkmenistan will not spoil its relations with Russia or Iran without concrete guarantees,” he said.

Asked whether Georgia could become an EU ambassador in the Caspian region, since it has signed the A.A., Göksel stated that the West should stand by the Europeanising voice of the neighbourhood but also the EU should be very clear on what it has to offer.

Cornell downplayed the future importance of Iran as a gas supplier for the West, since Iran is a net importer of gas and it is trying not to become a net importer of oil. According to him, the idea of Iranian gas flowing to Europe in large quantities is only an illusion, as oil and gas are heavily subsidised in Iran and the country is seeing a massive increase in domestic demand.

Photo Credit: Richard Petry

Modi's Stance on Foreign Policy Remains a Mystery

Little interest has been shown domestically about possible new orientations in foreign policy under a Modi-led NDA government. Modi's single-minded focus on the development agenda has dominated political and media discourse, barring, of course, the 2002 Gujarat riots. The slowdown of the economy, the negative investor sentiment, price rise, corruption, the perceived lack of leadership have been issues of public concern, not foreign policy. 

Economic focus
For our foreign partners who see India's economic rise as opening up enormous prospects for their own economies by way of trade and investment and who are disappointed by India's lacklustre economic performance under UPA II because of slowdown of reforms, indecision and delays in implementation, Modi's economic agenda is alluring. But they are equally interested in assessing the possible differences in foreign policy between a possible Modi-led government and the UPA governments.Modi has been a state leader, with no stint in Delhi, and hence a relatively unknown entity for foreign interlocutors except those who have travelled to Gujarat for business reasons. 

Moreover, because he has been politically boycotted by western countries until recently for human rights reasons, the opportunities to assess him through personal contact have been that much less available.China and Japan, who have received him in their countries, have been wiser in this regard. Modi has not been grilled on foreign policy issues either by the opposition or the media. He has made some stray remarks on foreign affairs, but they should be seen more as obiter dicta rather than a considered judgment. 

His view, for instance, that the Ministry of External Affairs should focus on "trade treaties" rather than strategic issues may fit in with his "development" focus, but would get revised when faced with the reality of India's challenges once in power at the Centre.

If his meaning was that our missions should give priority to commercial/economic work, that would be unexceptionable in the context of economic performance increasingly determining a country's international role and influence. 

The economic argument should not be exaggerated though, as our most severe external challenges are driven not by economics but politics, relating to our territorial integrity, the threats to us from terrorism and religious extremism, the nuclear dangers emanating from nuclear collaboration between China and Pakistan which the West tolerates despite its readiness to take military action to stop proliferation in Pakistan's neighbourhood, and China's attempts to politically and strategically box us in the sub-continent while simultaneously eroding our influence there by its deep incursions into our neighbourhood. 

If China and Pakistan have been hostile to us for decades it is not on account of economic issues. India's role in the Indian Ocean has a major strategic aspect that goes beyond ensuring the safety of the sea lanes of communication for trade flows. 

Status Quo
How much the foreign policy of former Prime Minister Vajpayee, who enjoys an iconic status within and even without the BJP, will guide that of an hypothetical Modi-led government is a pertinent question. If Vajpayee's decision to take a plunge on the nuclear question was an act of strategic defiance, he was also a man of dialogue who made major overtures to US, China and Pakistan.

With a strong nuclear card in his hand, his strategy of building a relationship with the US "as a natural ally" made sense, as did his outreach to China to explore the possibility of resolving the border issue on a political basis. 

His conciliatory approach towards Pakistan, however, seemed based less on a cold power calculus and more on inchoate hopes and sentimentalism.

Prime Minister Manmohan Singh built on Vajpayee's policy on all these fronts, pointing to the essential continuity of our foreign policy under governments of different political complexions. The 'Next Steps in the Strategic Partnership' under Vajpayee led to the nuclear deal under Manmohan Singh; the Special Representatives mechanism with China set up under Vajpayee has been the principal platform for political engagement with China on the vexed border issue under his successor; the obsession to have a dialogue with Pakistan under Vajpayee continued its confusing course after him. 

Is there a major course correction in foreign policy that a Modi-led NDA government would need to make? 

Tough stance
Not really, as our geo-political compulsions, our economic needs and our security calculus dictate our fundamental foreign policy choices, with limited wiggle room available. We need a stable relationship with all power centres. Despite the difficulties of dealing with the US, our economic and people-to-people links with it are of key importance. The US has treated Modi with gross political ineptitude, giving him, if he becomes Prime Minister, room to extract a price for engaging him, though it is clear that his relationship with Obama will be uncomfortable. 

China's Xi Jinping has already indicated his desire to visit India later this year. In visiting the Arunachal border with Tibet and vowing not to yield an inch of Indian territory, Modi has sent an important signal to Beijing. A visit to Tawang before Xi's visit would change our psychological equation with China by boosting national morale.

Towards Pakistan, one hopes, Modi will not be counseled to adopt a soft face in order to attenuate his anti-Muslim image, both at home and abroad. Pakistan will construe this as the "taming" of Modi without cost. Because uncertainties in Afghanistan and religious radicalisation sweeping Pakistan could aggravate India's terrorism problem, the new government should be in no hurry to resume the dialogue with Pakistan even if the bait of MFN is offered as a tactical move. 

Whether or not a Modi-led government changes the course of our foreign policy, because of the perception that he is strong and decisive leader will be a foreign policy force-multiplier in itself.

Photo Credit: Al Jazeera English

Afghanistan’s social and political development is at a critical juncture—as NATO troops withdraw this year and elections are to occur next month. In Afghanistan Reconnected: Linking Energy Supplies to Consumers in Asia, EWI Fellow Danila Bochkarev proposes that a trans-Afghan “energy bridge” could ease the transition by bringing new investment and trading opportunities to Afghanistan.

Investing in connecting the rapidly industrialized-South Asia with the resource-rich Central Asia will raise Afghanistan’s living standards across the board, Bochkarev argues. Local and regional businesses will grow and new revenues will be generated. The energy-bridge approach will reconnect Afghanistan with its neighbors and help Kabul promote joint undertakings, including interconnections with Central Asia’s electricity grids and power generation projects. 

“Examples demonstrate that the benefits of the cross-border cooperation may outweigh political disagreements and intra-state disputes, especially if there is sufficient political will and a readily available framework for cooperation,” Bochkarev explained. “In recent years, energy cooperation in various conflict environments helped secure vibrant trade relations and significantly reduced existing tensions. This was the case in the Barents Sea region, the South Caucasus and in relations between Turkey and Iraqi Kurdistan.”

Afghanistan Reconnected illustrates how this energy infrastructure would strengthen economic, political and social ties between Central Asia and South Asia and contribute to a more stable Afghanistan for years to come.

Click here for the full report: Afghanistan Reconnected 

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Read an opinion piece on the report, on The Hill's Congress Blog.  

The United States will need to push Shinzo Abe harder to discard his revisionist stance on history.

Traveling recently to China for the China-US Youth Dialogue it quickly became apparent that the country most Chinese scholars wanted to have a conversation about when it came to discussing security-related issues was not the United States but Japan. 

The topic of discussion was the disputed Senkaku-Diaoyu Islands. However, what worried my Chinese interlocutor more than Japan’s immediate naval action was Prime Minister Shinzo Abe’s blatant historical revisionism in regards to the country’s imperialism in the 1930s and 1940s. That, as my host explained, was subconsciously the greater fear for most Chinese policy makers: a neo-imperialist, confrontational Japan filled with racist ideology, immune to past mistakes, and once more possessed by the spirit of Dai-Nippon. “We trust the United States to act rationally in Asia, but not so with Japan; it’s aggressive behavior is the real danger to China!” one scholar from a prominent Chinese think tank excitedly told me during dinner in Changchun. 

While the Chinese fear of Japanese historical revisionism certainly has its hyperbolic elements, Japan’s alleged transformation into a “normal country” can certainly appear overwhelming to its neighbors. Under Prime Minister Shinzo Abe’s tutelage, Japan has increased the country’s defense budget by $ 11.7 billion over the next five years, passed a first-ever National Security Strategy that provocatively calls for the acquisition of beach-assault vehicles among other things, and created a new National Security Council to better coordinate policy with key allies. Abe and the Liberal Democractic Party (LDP) are also considering lifting a decade long defense export ban, and more importantly, are contemplating reinterpreting or simply circumventing Japan’s pacifist constitution – notably Article 9. All of this is done in the name of Abe’s so-called “pro-active pacifism”. 

Moreover, Abe is a strong supporter of the US-Japan alliance and is keen to lift Japan’s self-imposed ban on ‘collective self defense’. The United States is overall supportive of Abe’s agenda as U.S. Ambassador to Japan, Caroline Kennedy, states: “Japan will be a more effective alliance partner if its Self-Defense Forces are able to help defend American soldiers or sailors if they are attacked.”

Abe’s revisionist rhetoric, however, increasingly clashes with Washington’s agenda of deescalating tensions in East Asia. For the United States to criticize Japan on its unwillingness to come to terms with the great sufferings its empire inflicted in Asia is tantamount to blasphemy for most LDP ears.  The stock response by many conservative Japanese politicians and commentators is to admit some wrongdoing but otherwise engage in generalizations: “Seen from the outside, Japan appeared to be invading China with imperialist intentions. Seen from the inside, however, most political leaders felt that Japan was being dragged into the swamp of war as part of some inevitable process.” a popular column in the Asahi Shinbun once stated. 

This is nothing new when one looks at the US-Japan trade negotiations of the 1980s and early 1990s, where Japanese negotiators were often just willing to conceit the most general points without going into any particulars. 

Also, when any discussion arises on Japan’s past misconduct such as the notorious treatment of the Chinese population in Mainland China,Malaya and Singapore or the sensitive issue of comfort women, Japanese conservatives are quick to point out that in fact the greatest atrocity of the Second World War was the dropping of the atomic bomb. 

Why is the United States putting up with this? 

According to Japan scholars such as Karl van Wolferen  the problem is that the United States Embassy and State Department – the principal US government entity dealing with such delicate matters -   have long had a tendency to echo the Japanese interpretation of many bilateral problems. The American historian Ivan P. Hall supports this assertion:  “Unlike the flow of ideas between the US and Europe, the Japan-US discourse is determined largely by a small group of Japanese and American experts on each other’s countries (…) this narrow channel of scholars, journalists, and diplomats serves increasingly to skew the dialogue in Japan’s favor.” 

More importantly, the Japanese are calling the United States’ bluff: Washington will not commit to any course of action that could substantially undermine the US-Japan alliance - the most important security agreement in Asia for the United States. US Foreign Secretary John Kerry did express his disappointment about Shinzo Abe’s visit to the Yasakuni Shrine but simultaneously, during a foreign ministerial meeting, confirmed the need for increased cooperation between the United States and Japan vis-à-vis China. 

Nonetheless, should Japan’s nationalist vitriol increase and Abe re-visit the infamous Yasakuni Shrine, praise the East Asia Co-Prosperity Sphere, or again single out class A war criminals for praise, just to name a few of the available options, the trilateral relationship between the United States, Japan, and South Korea will suffer. 

According to Kim Tae-hyung, security expert at Soongsil University, in South Korea: “Even if there were no historical conflicts at all, Japan’s pursuit of a greater security role would aggravate security jitters among its neighbors. But Abe’s nationalist moves further complicate efforts for regional cooperation and pose hurdles to the U.S. policy toward Asia. Taking advantage of the chasm in Korea-Japan ties, China would strive to strengthen its ties with Korea and make it difficult for Washington to increase the triangular security cooperation with its core Asian allies of Korea and Japan.”

Both Japan and China have developed a victim’s complex when dealing with each other. They instinctively like to exploit both nations’ sufferings during the war in order to skew world opinion in their favor. However, Japan, since it is democracy and allied with a Western liberal democracy, has a greater obligation towards objectivity and truth than authoritarian communist China. In that sense the United States needs to find firmer words for Abe Shinzo’s reactionary rhetoric.

Franz-Stefan Gady is a Senior Fellow at the EastWest Institute.

Photo Credit: Bernardo Fuller

EWI's Professorial Fellow Greg Austin was the keynote speaker at the 2014 Canada-U.S. Cybersecurity Conference on February 28, 2014. Co-hosted by the Consulate General of Canada in New York and the Securities Industry and Financial Markets Association, the theme of this year's conference was Securing our Financial Infrastructure. Event discussions focused on the interconnected nature of governmental policy, economic competitiveness and cybersecurity. Austin also participated in a Cybersecurity Working Group. 

In his keynote speech–International Protection of Exchanges and Clearing Houses from Systemic Shock in Cyberspace–Austin stressed the need for the private sector and governments to work together in addressing threats to global financial infrastructure. He highlighted key issues and risks in cyber financial regulation.

Austin stated: "The [financial services] sector has been a consistent focus of attention at the EastWest Institute, from our earliest work on the reliability of underseas cables in 2009, to more recent work on priority international communications. Our interest in international protection of the financial services sector in cyberspace is directed at systemic threats, not enterprise-level threats. What threats are there in cyberspace that may cause a global economic shock and what can be done about them at the international level?"

In his remarks, Austin recommended a treaty to ensure absolute protection of designated exchanges and clearing houses in cyberspace, in the same way that states now commit to absolute protection of diplomats or embassies abroad. While admitting the idea may sound novel, Austin suggested that it is an innovation in keeping with today’s cyber Zeitgeist. More importantly, it offers an essential pathway to help secure a global economy wholly dependent on the functioning of information systems and networks that support currency, stock and derivatives trading, as well as clearing house operations. His proposal recognizes that data integrity is the new frontline of global economic security.

Read the full text of Austin's speech on EWI's Policy Innovation Unit blog.