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China’s $540 Million Energy Deal with Taliban in Afghanistan: What Does It Mean?

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The Taliban celebrated the signing of their first international deal since taking power in August 2021 with a televised event on January 5, 2023. The document signed is a contract for the exploitation of oil reserves in northern Afghanistan with a Chinese business. In accordance with the agreement, Xinjiang Central Asia Petroleum and Gas Co (CAPEIC) will contribute $150 million annually to Afghanistan, rising to $540 million for the 25-year contract in three years. The initiative is focused on a 4,500 square-kilometer region that spans three northern Afghan provinces: Sar-e Pol, Jowzjan, and Faryab. The latter two are Turkmenistan’s borders. After the US soldiers withdrew in August 2021 and the Taliban overthrew the U.S.-backed government, Afghanistan’s aid-dependent economy crumbled. The administration is attempting to stabilize the economy by luring in investments that will provide work for Afghans who are suffering from hardship. One of the few available economic choices is the development of mines and hydrocarbon resources where energy can play a significant role. Besides, in the regional domain, China can play an important role in terms of political and economic prospects. Hence the deal came across.

Previously, the state-owned China National Petroleum Corporation (CNPC) and the previous administration signed such an agreement back in December 2011. The Amu Darya basin was thought to contain up to 87 million barrels of crude oil at the time. Wahidullah Shahrani, the mining minister at the time, stated that “real work will begin in October 2012.” He mentioned negotiations with an undisclosed northern neighbor and the anticipation that Afghanistan may be producing 25,000 barrels per day by the end of 2013 when he stated in March 2013 that “the wells are ready for production.” As Kabul maintained talks with Uzbekistan on transit issues, construction had apparently been suspended and Chinese employees had left the country by August 2013. Hence the recent development holds a great deal of significance.

Dealing with the Taliban is an extension of a strategic conundrum China is experiencing with its energy security. China is the most populated country in the world, a powerhouse industrially, and it also consumes the most energy globally. The nation’s domestic resources are insufficient to meet the demands of its rapidly expanding domestic market. As a result, China is now a sizable net importer of oil and gas, which has been a driving force behind several of its recent alliances, including those with Russia, Ecuador, and the Gulf States of the Middle East. Although China has maintained excellent relations with these nations, Beijing’s energy imports have a strategic weakness since, with the exception of those from Russia, they must be transported by sea and via politically sensitive areas that the US is militarizing including the South China Sea. Since China has the BRI and other projects like this to create its own sphere of influence. But no strategic blueprint of China, including the BRI, would be complete without including Afghanistan. The Middle East, Central Asia, and Southern Asia are all connected via a little section of border that the Central Asian nation shares with China. This indicates that Kabul is essential to China’s own security and strategy as well as for the expansion of economic activities. Despite the fact that Afghanistan has always been intrinsically unpredictable and hence unsuitable in terms of the political landscape, the end of the US-led war against it and the Taliban takeover has provided China the ground to accelerate its sphere of influence in the region. But amidst the Ukraine war, the economy of the country got distorted in many ways and needs some sourcing. On the other hand, China with its vision to become an economic superpower, as mentioned earlier, needs Afghanistan on the right side of the line. Besides, the war also has disrupted its energy supply chain. Against the backdrop of all these, the investment has taken place. The write-up will highlight the major prospects of the deal and its outcomes.

Creating a Viable Economy for Afghanistan

At a contract-signing ceremony for the new field in Kabul, Mullah Abdul Ghani Baradar, the Taliban’s deputy prime minister for economic affairs, stated that his group aimed to create a viable economy for Afghanistan. It will channel newer windows of cooperation between the two.

Paving the ways to Create New Investment Opportunities

The worth of Afghanistan’s natural riches, which include rare-earth minerals now utilized in electric automobiles, was estimated by American specialists to be $1 trillion ten years ago. This potential wealth was never taken advantage of while the war raged. Besides, developing mining and oil ventures in Afghanistan is still the safest it’s been in years in comparison with the previous time. The development of this project provides a paradigm for China-Afghanistan collaboration in big projects in energy and other industries. Besides, Shahabuddin Dilawar, the Taliban’s minister for minerals and petroleum urged China to finish developing the massive Mes Aynak copper mine, which is one of the largest untapped copper resources in the world.

New Job Opportunities for the Afghans

Shahabuddin Dilawar, the Taliban’s minister for minerals and petroleum, claimed that the Amu Darya project would give Afghans 3,000 new jobs. He claimed that the Afghan side initially owns 20% of the project. In two to three years, he would make sure that the economy would flourish, and there would be people coming from overseas to work in Afghanistan. Mr. Dilawar stated that the field’s oil would be refined in Afghanistan, though it is unknown if China would be willing to set up a refinery there.

Attracting New Foreign Investments

Afghanistan has 1.75 trillion cubic feet of confirmed natural gas reserves and some oil in addition to its tremendous mineral wealth. The Chinese investment reflects the current state of improving political and economic nature of the nature. It will attract newer foreign investments in the related fields. Besides, China agrees to follow its long-standing policy of non-interference and to respect Afghanistan’s internal politics in exchange for this agreement. While providing the United States with a significant edge and different option. Other investors may get some insights from this.

Promoting Economic Growth and Stability in the Region

With this investment, in Afghanistan, China has had a significant role in a number of areas, including energy and minerals. The nation has recently made large expenditures in the infrastructure and development of Afghanistan’s natural resources, which has aided in promoting economic growth and stability in the area.

Growing Mineral Industry

China has also grown to be a significant role in Afghanistan’s mineral industry in addition to the energy industry. China has been involved in the exploration and mining of these resources. The nation is thought to have enormous quantities of minerals, including iron, copper, gold, and lithium. For instance, one of the biggest copper mines in the world, Mes Aynak in Afghanistan, has been developed in part by the China Metallurgical Group Corporation (MCC). It is anticipated that the development of this mine will provide thousands of jobs and significantly strengthen Afghanistan’s economy.

Another Milestone for the BRI

The overarching Belt and Road Initiative (BRI), a worldwide infrastructure development initiative aiming at tying together nations in Asia, Europe, and Africa through a network of roadways, trains, and ports, includes China’s involvement in Afghanistan’s energy and mineral industry. Afghanistan is viewed as a crucial participant in the BRI and as a means for China to expand its economic and political clout globally.

Energy Assurance for China

China has benefited from the expansion of Afghanistan’s oil and mineral industries in addition to the country itself. China is able to assure a consistent stream of energy and minerals for its own use by investing in Afghanistan’s natural resources, assisting in the country’s long-term economic progress. Additionally, China’s investments in Afghanistan’s infrastructure and resources have improved trade and transit connections between the two nations, further solidifying their economic ties.

Exploration of New Gas Fields

But, the estimated oil reserves at the Amu Darya site are not that much significant. However, there is hope that a massive gas field that is just across the border from Turkmenistan extends into Afghanistan; if this is the case, it could make Afghanistan’s economy as important as it is for Turkmenistan.

Facing the Odds: Real Challenges to be Addressed

The Chinese influence in the region will be confronted with strategic and diplomatic approaches by the Unites States of America and other regional actors. Besides, the country is surrounded by so many challenging terrains that it will be a massive task for China to channel out the resources to its destination. The local politics should also be taken into account since local war lords are heavily armed and can make huge obstacles in many areas. But in the end, this is a sign of new competition in the region in terms of economic prospects and the Taliban regime may find a new economic instrument to strengthen its grip in power.

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The Maneuvering Of Gas Commodities As Securitization Of Russia’s Geopolitical Position

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Authors: Luky Yusgiantoro and Tri Bagus Prabowo

In 2012, the Yakutia-Khabarovsk-Vladivostok gas pipeline project was redeveloped under The Power of Siberia (News Ykt, 2012). Putin legalized Gazprom (contractors: Gazprom Transgaz Tomsk). The idea named “Power of Siberia” represents the power of gas pipelines to shape and influence Russia’s geopolitical and geoeconomic situation. A new identity will be launched, conveying the Yakutia-Khabarovsk-Vladivostok gas pipeline and gaining international prominence. The Power of Siberia project is an integrated form of GTS (Gas Transmission System) that will bring the Irkutsk gas region in the fertile eastern part of Russia to the Far East and China. The pipeline location is located in the “Far East,” incredibly close to the border with China, and generally in the Asia-Pacific region. Initially, this gas pipeline was built to facilitate gas trade with China and reduce China’s dependence on coal (Pipeline Journal, 2022). What is the value of this project for both countries to become global concerns?

Furthermore, they have the ability or range to carry gas communications for approximately 4000 km. Due to its geographical proximity and shared economic interests, China is Russia’s most progressive partner in terms of a multifaceted regional and international strategy. Russia and China are known as close partners. The aftermath of Russia’s political alliance was to regain global power, status, and influence lost after the collapse of the Union of Soviet Socialist Republics in 1991, which was the driving force behind the end of the Cold War (Oualaalou, 2021 ). Russia has articulated a vision of rebuilding its global reputation using energy, military might, intelligence, and diplomacy. Russia wants to play a crucial role in the global multipolar system because the West rejects Russia’s vision for a new geopolitical order. They saw many important events related to Russia’s moves in the international order, including its response to the actions of the North Atlantic Treaty Organization (NATO) to try to dominate the nations of the world. The former Soviet Union (East), the failures in the Middle East, the annexation of Crimea, and one of Moscow’s recent invasions of Ukraine mark the military as a turning point in Russian geopolitical politics, especially during the Putin era. Russia has three strategic initiative points, including the ability to deploy and interconnect the means (intelligence, diplomacy, military, cyber, and energy) to gain influence and extend Russia’s global footprint. There is.

Moreover, the Fallacies and Western Ties strategy contradicts America First foreign policy tenets (unipolar) and impulsive decisions as a security threat. Russia wants to maintain its lack of regional interests in certain Baltic states (those still under Russian control) and the Balkans (Cooley, 2017). The Balkans (Albania, Bulgaria, Bosnia and Herzegovina, Croatia, Kosovo, Montenegro, North Macedonia, Romania, Slovenia, and Serbia) have been the cornerstones of great power rivalry for centuries. NATO (North Atlantic Treaty Organization) and the EU (European Union) used the momentum of Yugoslavia’s dissolution in the 1990s to integrate the Balkans as geopolitical hotspots on the Western Front (European Policy). War analysts say the ongoing Ukraine conflict is a way for Russia to raise its stakes in the Balkans and reassert its regional influence (McBride, 2022). 

In 2020, natural gas will still be the world’s third-largest primary energy requirement for the global community. Even though the COVID-19 pandemic began in 2019, demand for natural gas increased by 5.3% to 4 trillion cubic meters (TCM) in 2021 (BP, 2022). In 2021, Russia’s total natural gas production will be 701.7 billion cubic meters, the second largest globally, contributing to the strong demand in the global energy market. Russia is essential in the natural gas market (Sonnichsen, 2022). The climate crisis is the most obvious obstacle in the global gas market model. It originates from burning carbon with materials derived from fossil fuels such as oil, natural gas, and coal. However, natural gas is acceptable during the energy transition as it burns the least carbon dioxide (CO2) and pollutants of these three substances (EIA, 2022). It is easier than supplying a gas infrastructure that does not provide infrastructure. Operationally, it is optimal. Talks about climate protection, the climate crisis, and the energy transition are being shaped by Western countries as a way of highlighting Europe’s dependence on gas from Russia, which is geographically accessible and still has gas in other gas reserves. The decision to stop sourcing natural gas from Russia continues to cause European controversy. The pipeline network actively built between Russia and Europe is an essential aspect of why this relationship is used as a tool for Russia to apply pressure—on territorial Europe. Europe uses a climate scenario, and Russia uses a gas-dependent scenario. Efficiency and effectiveness will not be achieved if Europe suddenly has to look for other reserves or switch entirely to this energy mix. Then, with Russia’s eloquence in exploiting the situation and the status quo, natural gas pipelines were used as a form of Russian energy diplomacy to dominate its (European) neighbors. Recognizing that the Western natural gas market is no longer preconditioned, moving target consumers to the Asia-Pacific region is one of the most effective energy plans for Russia’s fossil fuel expansion.

Siberia’s first electricity will cost 770 billion rubles, and the investment in gas production will cost 430 billion rubles. The 1,400 mm natural gas pipeline capacity will increase to 61 billion cubic meters (2.2 trillion cubic feet) of natural gas annually. The pipeline lets the world see natural gas as one of the fossil fuels and does not pollute the air with the carbon and other substances of the climate crisis. , through the capital Beijing and down to Shanghai. According to state media, the intermediate phase will go online in December 2020, with the final southern section expected to start delivering gas in 2025 (Cheng, 2022). Through this agreement, Russia aims to extend its power beyond Mongolia into Siberia 2 in 2030 (IEA, 2022). Conditions for Europe to get 40% of natural gas from Russian pipelines. Germany, in particular, sources about half of its natural gas from Russia (Baldwin, 2022).  Despite international media reports of embargoes and sanctions, the crisis has hit Europe hard. Europe must adapt its economic policies to politically justified policies and coordinate them with each other. However, this is a geopolitical struggle, and we must ensure that the country retains its absolute superiority. Russia chooses to invest in and plan for natural gas markets in regions that require or depend on natural gas in the energy sector, i.e., Asia-Pacific via China. China, influencing the Belt and Road Initiative (BRI) plan, is reshaping the geoeconomic position of Russia’s Siberia 1 and Siberia 2 power markets (Lukin, 2021). “Geopolitics is all about leverage” is one of Thomas Friedman’s influential geopolitical maxims. If a country cannot expand its influence, it remains a loser. Nevertheless, Russia is far from this analogy, as mentioned earlier. Russia continues to secure its geopolitical position. It is the embodiment of growing confidence in the reliability of natural gas. Russia still wants to become a major player in natural gas.

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Remapping the EU’s Energy Partners to Ensure Energy Security and Diversification

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Energy security has been a buzz word in Brussels for a few decades but since Russia’s invasion of Ukraine, followed by sanctions, Russian gas cut-off and physical destruction of North Stream pipelines, forecasts on strained EU energy production due to drought, the stakes have gotten much higher. This was confirmed on March 10th by a joint statement by the US President Joe Biden and European Commission President Ursula von der Leyen, reiterating both parties’ determination to “build clean energy economies and industrial bases”, including clean hydrogen and continue to work together “to advance energy security and sustainability in Europe by diversifying sources, lowering energy consumption, and reducing Europe’s dependence on fossil fuels”.

Last week, the EU energy chief Kadri Simson encouraged all Member States and all companies to “stop buying Russian LNG, and not to sign any new gas contracts with Russia. The EU has pledged to quit Russian fossil fuels by 2027 and replaced around two-thirds of Russian gas last year.

In this context, the Southern Gas Corridor (SGC), delivering Azerbaijani gas through (Trans-Anatolian Pipeline) TANAP and Trans-Adriatic Pipeline (TAP) to the EU, plays a key role in current diversification efforts. The EU increased gas imports via pipelines from Azerbaijan from 8.1 bcm to 11.4 bcm last year. Only two years after its completion, the expansion of the Corridor seems to be likely as the EU and Azerbaijan stroke a deal in July 2021 to double the volume of gas delivery to 20 bcm by 2027 in addition to plans to tap into Azerbaijan’s renewables potential, such as offshore wind and green hydrogen. While encouraging Azerbaijan’s accession to the Global Methane Pledge, the deal aims at collecting natural gas that would otherwise be vented, flared, or released into the atmosphere.

With the opening of the interconnector Greece-Bulgaria (IGB), at least 11.6 bcm of gas is expected to be delivered from Azerbaijan to the EU this year. The IGB has been dubbed as a game-changer for the EU’s energy security, especially as it enabled supplies to Bulgaria and Romania. A Memorandum of Understanding on gas supplies between Azerbaijan and Hungary was also signed this year, which shows that more interconnectors will be needed in the EU if TANAP would be expanded from 16 to 32 bcm and TAP from 10 to 20 bcm.

Moreover, investments will be needed to increase gas production in existing and new gas fields (Shah Deniz, Azeri Chiraq Guneshli, Absheron, Shafaq-Asiman, Umid-Babek, etc.), especially considering growing energy demand in Azerbaijan and its neighbours. Since the Russia-Ukraine war, 10 European countries turned to Azerbaijan to increase existing supplies or to secure new supplies. To meet such growing demands, Azerbaijan is poised to increase cooperation with neighbouring states, such as Turkmenistan, which is home to 50 trillion cubic metres of gas reserves – the world’s 4th largest reserves.

Following the Azerbaijani-Turkmen decision to jointly develop the formerly disputed Dostluq gas field, a trilateral swap deal between Iran, Azerbaijan, and Turkmenistan, and the 2018 Convention on the status of the Caspian Sea by all the littoral states; Azerbaijan, Turkmenistan, and Turkey stated that they were looking “to form a coordinated and multi-option system for delivering energy resources to global markets” on December 14th last year.

These developments could be harbingers of a new Trans-Caspian Gas Pipeline (TCGP), a 180-mile under-sea pipeline that could be integrated into the SGC. Labelled as an EU Project of Common Interest, which could also be eligible for funding under the 2019 US European Energy Security and Diversification Act, this strategic under-sea pipeline project could bring an end to the EU’s energy crisis by securing a cheap source of natural gas, whose price is independent of LNG prices while counterbalancing Chinese, Russian and Iranian influence in Central Asia and beyond. On the other hand, Azerbaijan began the transit of oil from Kazakhstan this year in addition to Turkmenistan, which highlights the potential to use the Middle Corridor for hydrocarbons.

During the 9th Southern Gas Corridor Advisory Council Ministerial Meeting and 1st Green Energy Advisory Council Ministerial Meeting in Baku in February, EU Energy Commissioner Kadri Simson stated “Azerbaijan can potentially become the exporter of renewables and hydrogen to the EU”. At the end of last year Azerbaijan, Georgia, Romania, and Hungary agreed to establish a green corridor to supply the EU with around four gigawatts of electricity generated by windfarms in Azerbaijan with the support of the European Commission.

Over the last several months, Azerbaijan signed documents that will provide investments to create 22 gigawatts of renewable sources of energy, both onshore and offshore. In April 2021, the World Bank started funding the offshore wind development in Azerbaijan, which has a potential of 157 GW. In addition to the Caspian Sea, which ranks second in world for its wind energy potential, Azerbaijan has an estimated 27GW in wind and solar power onshore.The current construction of wind and solar plants in Alat (230 MW), Khizi and Absheron (240 MW) and Jabrayil (240 MW) as well as new investment plans, including in Nakhchivan Autonomous Republic, are expected to further boost renewables production in the Caspian state all by living up to its vast green potential. While the country, with a population of 10 million, accounts for only 0.15% of total global greenhouse gas emissions, it defines green growth as a key priority for 2030. The EU supports the implementation of Baku’s Paris Agreement commitments through the EU4Climate initiative.

The Russia-Ukraine war may create a window opportunity for the EU to engage in concrete actions rather than high-flying buzzwords, pushing the bloc to do more strategic and visionary planning regarding future projects linked to its energy security, such as TCGP, and finally diversify away from Russian energy sources for good. Azerbaijan has proved to be a stable partner in these challenging times, which manifested the vulnerability of certain EU states against Russian economic and political pressure due to Gazprom’s immense infiltration of their gas markets for the past several decades. Now it’s the time to play fair game by a new playbook and to remap the European energy partners while investing in a stable, predictable, affordable, and sustainable energy future for the EU.

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The Implications of the Russian-Ukrainian War on European Energy Security

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Oil and gas prices have skyrocketed since Russia invaded Ukraine in late February 2022, which has already had an impact on the global economy. 30% of global wheat is grown in Russia and Ukraine. Sunflower seed oil accounts for 71%; corn and barley account for 26%; and vegetable oil accounts for 11%. Agricultural fertilizers and raw materials such as sulphur are among Russia’s most important exports. Wheat prices have surged to a record high since the invasion of the Black Sea ports, which has stifled economic activity.

Economic forecasters often foresee higher worldwide inflation and weaker global GDP growth. The International Monetary Fund (IMF) anticipates inflation to rise to 5.7% in developed countries and 8.7% in emerging market and developing economies this year, respectively, representing increases of 1.8% and 2.8% above the predictions made in January. Down 0.8 percent from January, the global economy is forecast to grow at 3.6 percent. There has been a major shock to commodity markets, which will continue to keep prices at historically high levels through the end of 2024, according to the World Bank’s latest Commodity Markets Outlook research.

In 2022, the price of energy is expected to rise by 50% before falling again in the following two years. Price increases in agriculture and metals are predicted to begin in 2022, then fall. Commodity prices are expected to remain above their five-year average for the time being. Prices could rise and become more unpredictable in the event of a prolonged conflict or further sanctions against Russia.

By the end of this year, European leaders hope to reduce EU gas dependency by two-thirds. Initiatives like the IEA’s 10-point strategy are critical to ensuring global energy security. Energy efficiency, delaying the decommissioning of nuclear plants, and significantly expanding the use of renewable energy sources are all viable policy options. Supply and efficiency will rise, but so will the use of coal to replace natural gas and growing commodity prices for electric vehicle batteries and solar PV panels, which are counteracting these trends. The transition is hampered by the lack of energy security.

We don’t know how long the conflict will last, how far it will escalate, or whether or not new countermeasures can prevent Russian oil and gas from reaching the markets. The ease and means of gas replacement vary by industry. The most effective means of reducing the carbon footprint of European energy use is through increased production and increased use of renewable energy sources. In order to replace gas with coal, which is more expensive due to the conflict, they will not suffice. Coal is being phased out for the time being. Six percent of natural gas supply loss in 2024 will be due to coal. Several countries, with the exception of Germany, see a short-term benefit from delaying nuclear retirements and increasing the use of existing nuclear assets. Nuclear power generating accounts for one-third of the shortfall in natural gas.

Due to the war, the cost of bioenergy has not increased, and it is possible to grow bioenergy (primarily from sewage and waste) in the coming years. Bioenergy fills in the energy gap to the tune of 20%. Europe’s main energy independence program, a rapid expansion of renewable energy, has had little impact. Two years is needed to fill Russia’s 10% gas import shortfall. As time goes on, the impact grows more and larger. More than half of the world’s gas needs will be met by renewable energy sources like solar PV and wind power by 2030.

Battery costs will rise, postponing half of new car sales in Europe until 2028 as a result of rising material costs. Long-term decarbonization is hampered and oil decline is postponed as a result. EV subsidies may need to be increased in countries with high 2030 decarbonization goals. By contrast, in 2024, gas use is expected to be 9 percent lower than it was in pre-war time. The use of heat pumps will displace some of the gas currently used in construction by the year 2030, according to our estimates. Improved energy efficiency minimizes the amount of energy needed.

Europe will increase its gas production by 12 percent by 2030 as a result of recent industry responses to rising oil and gas prices and a commitment by the EU to distribute more gas. Global oil use will climb somewhat in the 2030s due to overinvestment that will lower oil and gas prices after 2025. The invasion in Ukraine will delay nuclear retirements, which are a global priority. Faster deployment of renewable energy sources, improved energy efficiency, and slower economic growth are critical over the medium term. Between 2022 and 2030, European emissions are reduced by 580 Mt, or 2.3%, as a result of the Ukraine conflict.

Food, gasoline, and gas costs have all increased as a result of Russia’s war in Ukraine. There is a need for a new agricultural and political economic strategy due to the ongoing conflict in Ukraine and severe supply chain disruptions. To avoid a humanitarian crisis, Kyiv halted food shipments in March. The harvest for this year will be lessened if there is war. In the east, farming infrastructure and equipment have been devastated by the conflict. Ukrainian wheat supplies could be cut by a fifth in 2022, according to the Food and Agriculture Organization of the United Nations. Due to the fact that the next crop will not be cultivated in war, future harvests are in danger. The world’s leading wheat producer, Russia, has had its supply cut back due to sanctions. A productivist development model centred on extractive industries has resulted in environmental deterioration and natural resource exhaustion.

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