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01/27/2006:

"India, China, and the Asian axis of oil"

In less than a year, India and China have managed to confound analysts around the world by turning their much-vaunted rivalry for the acquisition of oil and gas assets in third countries into a nascent partnership that could alter the basic dynamics of the global energy market.

At stake is not just the issue of joint acquisition, although the most important of the agreements signed in Beijing on January 12 during the visit of Petroleum and Natural Gas Minister Mani Shankar Aiyar envisages ONGC Videsh Ltd (OVL) and the China National Petroleum Corp. (CNPC) placing joint bids for promising projects elsewhere. Rather, the prospects for Sino-Indian cooperation across the length of the hydrocarbon chain could pave the way for the creation of an Asian energy market and architecture -- an Asian axis of oil – with major geopolitical consequences for the United States.

...Linked to an Asian oil market is the billion euro question of non-dollar denominated energy trade. Asian countries collectively hold more than two trillion dollars worth of foreign reserves, the overwhelming share of which is in dollar-denominated instruments. Prudential norms suggest the diversification of the Asian reserve portfolio is overdue. In China, the State Administration of Foreign Exchange (SAFE has signalled its intention to explore the more “efficient use” of the country’s forex reserves and in India, commentators like S. Venkitramanan have suggested the RBI start thinking along similar lines.

One way to sustain this shift would be to consider yen or euro-based trading in energy. The economic dynamism of Asia for the foreseeable future suggests what is needed is a strategic rather than tactical change in the composition of reserves. The huge and unsustainable deficits being run by the U.S. are undermining the “oil standard” that has been central to the hegemony of both the dollar and Washington for more than three decades. Relying on the dollar for energy trade will hurt Asia’s producers and consumers alike in the long run. An Asian oil market trading in European euros. Now surely that's a good recipe for a multipolar world.
zmag.org