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The China-Pakistan Economic Corridor and Energy Geopolitics in Asia

Michael Kugelman
The China-Pakistan Economic Corridor and Energy Geopolitics in Asia

The China-Pakistan Economic Corridor (CPEC) is a mammoth $62 billion transport corridor project. It entails the construction of roads, power projects, ports and other infrastructure across Pakistan. CPEC is part of China’s Belt and Road Initiative (BRI), an even more ambitious envisioned transport corridor that aims to facilitate China’s access to far-flung global markets in order to satiate the voracious demand of the growing Chinese economy.

CPEC has become a veritable flavor of the month. It generates constant press attention and government statements in both Islamabad and Beijing. In Washington and beyond, it’s a frequent subject of analysis and think tank seminars, with pundits posing weighty questions about the geopolitical implications of this immense project and the true motivations behind Beijing’s move to invest so intensely across Pakistan.

One key angle that’s missing in all this chatter, however, is the implications of CPEC for energy geopolitics in South Asia and beyond. This is the subject of an essay I recently published for a new study by the National Bureau of Asian Research on the energy security dimensions of BRI for Asia.

It’s a fair question, given that energy generation is a major objective of CPEC, and given that many of the high-priority, early-harvest CPEC projects—including more than a dozen nearing completion—are energy-focused.

Ultimately, how CPEC affects regional energy geopolitics will depend on how far the project can go. The extent of this progress will depend on several questions that at this early point can’t be answered conclusively. They include: Will Pakistan’s volatile security situation enable projects to be constructed? How quickly can necessary technology and labor be obtained and deployed? What is the quality of the baseline infrastructure needed for project development and construction?  And can CPEC projects be financially sustainable?

Nonetheless, at this early stage four general conclusions can be made.

First, the generation of more electricity and the harvesting of new indigenous energy resources (mainly coal and renewables) could eventually allow Pakistan to reduce its high dependence on imported oil and gas from the Middle East. This is no small matter, given that imported petroleum products account for a whopping 90 percent of Pakistan’s fuel consumption and imported crude oil and finished petroleum products satisfy 80 percent of domestic oil demand.

Second, Iran could be a big winner. Tehran has long wanted to build a natural gas pipeline with Islamabad, but financial constraints have prevented Pakistan from building its portion. China, however, has indicated a willingness to finance it under the CPEC rubric. Additionally, given CPEC’s emphasis on generating more energy in Pakistan, the project may enable Pakistan to reduce its imports of oil and gas from Saudi Arabia, Iran’s bitter regional rival. Oil and gas products constitute 90 percent of Pakistan’s total import bill from Saudi Arabia, which is Pakistan’s second largest overall source of imports, trailing only China. If the Saudis were to be deprived of such a large portion of energy sales, this could have troubling economic consequences for Riyadh—and particularly in this current era of low oil prices. This would all be a net benefit for Tehran.

Third, India—Pakistan’s bitter enemy—could suffer. One major CPEC objective is to develop and operationalize the Gwadar port in southern Pakistan, which overlooks the Arabian Sea. Attaining this goal would mean China—India’s main strategic competitor—would gain strong power-projection capacities into the Arabian Sea and onward into the Indian Ocean. For India, the stakes are high from an energy perspective, given that nearly 80 of its energy supplies cross the Indian Ocean.

Additionally, CPEC deepens the barriers to Indian access to the natural-gas riches of Central Asia. Because Pakistan denies transit rights to India, New Delhi cannot reach Afghanistan and by extension Central Asia directly by land. This lack of access is particularly problematic given India’s plans to more than double its natural gas use from 7 to 15 percent by 2022. Indian officials have even spoken of transforming the country, which is heavily dependent on coal and oil, into a gas-driven economy. To its credit, however, New Delhi is overseeing a robust regional energy security strategy that should help blunt the effect of losing out on Central Asian energy resources. In recent years, India has concluded energy deals with Bangladesh, Myanmar, Nepal, and Sri Lanka. New Delhi is also exploring a pipeline project with Moscow and gas deals with Indonesia.

Fourth, CPEC and the wider web of China-Pakistan-India energy geopolitics could get caught up in the intensifying rivalry between Saudi Arabia and Iran. Anti-Iran militants based in Pakistan’s Baluchistan province—the site of many envisioned CPEC projects, including Gwadar port—have carried out cross-border strikes into Iran (separatist insurgents seeking to overthrow the Pakistani state are also based in Baluchistan). Tehran has accused Pakistan and Saudi Arabia of providing support to these militants. Meanwhile, anti-Iran militants also are based in the Iranian province of Sistan and Baluchistan (across the border from Pakistan’s Baluchistan province)—the site of Chabahar port, which New Delhi is helping develop to enable it to finally reach Afghanistan and Central Asia, and the gas wealth that beckons, via land.

Saudi analysts have expressed fears that Chabahar will allow Iran to project power into the Persian Gulf and Indian Ocean. This may prompt Riyadh to provide assistance to anti-Iran insurgents in Sistan and Baluchistan to sabotage construction at Chabahar. Saudis have already expressed support for such insurgents. In 2016, Prince Turki al-Faisal, a former intelligence chief and ambassador to Washington, attended a rally in Paris held by a group advocating for the overthrow of the Iranian regime, and endorsed the group’s “legitimate struggle.”

When it comes to assessing the implications of CPEC, issues of energy geopolitics may not be as sexy as concerns about China’s growing influence and presence in South Asia and other matters of grand strategy. And yet considerations about energy geopolitics are no less important—particularly given the precarious state of energy security in a world where supplies are dwindling even as demand remains insatiable.

The views expressed are the author's alone, and do not represent the views of the U.S. Government or the Wilson Center.  Copyright 2018, Asia Program.  All rights reserved.
Image: Wikimedia, Alireza (CC BY-SA 4.0)

About the Author

Michael Kugelman

Michael Kugelman

Director, South Asia Institute
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Asia Program

The Asia Program promotes policy debate and intellectual discussions on U.S. interests in the Asia-Pacific as well as political, economic, security, and social issues relating to the world’s most populous and economically dynamic region.   Read more