The Big Picture 3

Oil flow is vital for the world economy. Any breakdown in the system causes severe imbalances in both world politics and economies. The Oil Boycott clearly showed this unwanted situation to the entire world. The 1973 oil crisis began in October 1973. The Organization of Arab Petroleum Exporting Countries (OAPEC) declared that they would no longer ship petroleum to nations that had supported Israel in its conflict with Syria and Egypt. This included the United States and its allies in Western Europe. Soon oil prices increased rapidly, and due to the dependence of the industrialized world on OPEC oil, the price increases were dramatically inflationary to the economies of the targeted countries, while at the same time suppressive of economic activity.

The targeted countries responded with a wide variety of new, and mostly permanent, initiatives to contain their further dependency.15 The United States closely witnessed the effect of oil on the world’s economies and how important it was for stability. In this regard, it started using the oil flow as a tool to maintain its hegemony. As mentioned in the previous post, China and Europe are posing as two serious rivals to the United States. Both are dissatisfied with the status quo and they are seeking better power and resource distributions. The rapid growth of these rivals is based on oil and gas consumption. The more they consume oil and gas, the more they grow economically. For the United Sates, the only way to foil the threat of these rivals and maintain the status quo is by controlling the source of their growing dynamics, which is the oil-rich Middle East and Central Asia. Since the Middle East is the richest area in the world in gas and oil, and the rival powers try to influence the Middle Eastern countries, the U.S’ military, economic, and political presence in the region is necessary in order to control the oil and gas resources.

9/11 gave legitimacy to the United States for its presence in the Middle East in order to fight so-called global terrorism. Soon after the attacks, the U.S presented a new set of proposals for a Greater Middle East Initiative (GMEI) to be adopted by the eight industrialized nations at their June summit in Sea Island, Georgia. The initiative is part of President Bush's "forward strategy of freedom," by which the expansion of political rights and political participation in the Muslim world is meant to combat the appeal of Islamist extremism.16 However, the GMEI was revised by U.S. Secretary of State Condoleezza Rice in June 2006 and the new term, New Middle East, was introduced to the world in a press conference in Tel Aviv. The new term replaces the older and more imposing term, the “Greater Middle East.” No matter what this project is named, it is all about securing the oil resources and taking full control of the region in order to control the rivals’ growth. The Afghanistan and Iraq wars both aim at this goal.

The United States had two goals in the war in Afghanistan. First, to try the efficiency of its new high-tech weapons; second, to contain another oil-rich country, Iran while enhancing the continuation of the ‘buffer zone series” it created as its allies. One can easily see the series of buffer zones created against the influence of the Shanghai Cooperation Organization members: China, Russia, Uzbekistan, Tajikistan Kyrgyzstan, and Kazakhstan. This series includes India, Pakistan, Afghanistan, Turkmenistan, Azerbaijan, Georgia, Turkey, Ukraine and Poland.

The ongoing politics gets its roots from the rivalry of the US and the rising threats of challenger powers. In March 2006, India and the US reached a nuclear deal that the US would give nuclear power assistance to India to step up its nuclear weapons’ productions. With this deal, the United States aims to contain China by using India as the counterbalance power in the region.

The debate over the installation of the “Missile Defensive Shield” in Poland also is an issue of arm wrestling among the rivals. The Bush administration pushes for such a project in Poland ostensibly to guard the European countries against Iran’s missiles. Russia, however, rejects the implementation of this project. It also “…formally notified NATO governments on Saturday that Russia will suspend its obligations under the Conventional Forces in Europe Treaty, a key cold war-era arms limitation agreement.” (Thom Shanker, NY Times, July15, 2007). The frequent colorful revolutions in Eastern Europe, in Ukraine for instance, were also part of the competition between the United States and the SCO for influence in those crucial regions.




References

1-http://usinfo.state.gov/usa/infousa/facts/democrac/57.htm

2- Liu , Henry C. US dollar hegemony has got to go . Asia Times, 2002. 11 Apr. 2002 .

3- For more information see: The Federal Reserve Board. Currency and Coin Services . The Federal Reserve Board, 14 Mar. 2006 .

4-Heakal, Reem. " What Is the Quantity Theory of Money?." January 7, 2005
.

5- Colin Elman, “Introduction: Appraising Balance of Power Theory,” in John A. Vasquezand Colin Elman (eds.), Realism and the Balancing of Power: A New Debate (Upper Saddle River, N. J.: Prentice Hall, 2003), 8— 9.

6- Paul, T. V. Balance of Power : Theory and Practice in the 21st Century.
Palo Alto, CA, USA: Stanford University Press, 2004. p iii.
http://site.ebrary.com/lib/utdallas/Doc?id=10070387&ppg=3T

7- Beehner, Lionel. "The Rise of the Shanghai Cooperation Organization." Council on Foreing Relations. http://www.cfr.org/publication/10883/.

8- Ramonet I (2004) China wakes up and alarms the world. Le Monde Diplomatique, English edn,15 August.

9- Lardy (2000) Fiscal sustainability: between a rock and a hard place. China Economic Quarterly 2:36–41.

10- Ibid.

11- Bhaskarian (2003) China as potential superpower: regional responses. Frankfurt Voice China special edn. Deutsche Bank Research, January 15. http://www.dbresearch.com/prod/dbr_internet_en-prod/prod0000000000050878.pdf.

12- Shih (2004) The conduct of U.S.-Taiwan Relations 2000–2004, The Brookings Institution,Center for Northeast Asian Policy Studies, Washington, DC.

13- Pocha (2005) The geopolitics of oil. New Perspectives Quarterly 22:50–55.

14- Mulvenon and Swaine (2001) Taiwan’s foreign and defence policies: Features anddeterminants, RAND National Defence Research Institute (MR-1383-SRF), Santa Monica CA.

15-See, e.g., Alan S. Blinder, Economic Policy and the Great Stagflation (New York: Academic Press, 1979); Otto Eckstein, The Great Recession (Amsterdam: North-Holland, 1979); Mark E. Rupert and David P. Rapkin, "The Erosion of U.S. Leadership Capabilities," in Paul M. Johnson and William R. Thompson, eds., Rhythms in Politics and Economics (New York: Praeger, 1985)

16-Wittes, Tamarra C. "The New Proposal for a Greater Middle East Initiative: An Evaluation." The Brooking Institution. www.brookings.edu/views/op-ed/fellows/wittes20040510.htm.

The Big Picture 2

Today globalization is cracked by various events; the first was the economic and political unification of the European countries under the European Union. In 1992 the European countries signed the Maastricht Treaty, which led to the creation of the European Union, as well as to the creation of a new and common currency, the euro. The Union is one of a kind; it is a supranational and intergovernmental organization of 25 independent member states. Currently the Union has a single market and single currency. The European countries are now endeavoring to expand their economic and political influence both in Asian and African countries. Today the euro has become an alternative currency; it enables investors and other free market players to choose it when they think the dollar is not stable or when the dollar fluctuates. For this reason, in the short term, the euro will be a serious rival of the American dollar.

In addition to the European Union’s first cleavage on globalization, the Shanghai Cooperation Organization poses another threat to United States hegemony. In 1996, China, Russia, Tajikistan, Kyrgyzstan and Kazakhstan founded an organization called the “Shanghai Five”. After the joining of Uzbekistan, in 2001, the organization changed its name to the “Shanghai Cooperation Organization” (SCO). At first, the goal of the organization was solving border disputes and demilitarizing the border between China and the former Soviet Union; however, today the members of the SCO have closer ties by their signing of several economic treaties, their following common policies, and even their proposing cultural unification projects. They also maintain common military exercises such as Rubezh 2006 and Peace Mission 2007. In Rubezh 2006, 2,500 troops from the armed forces of Russia, Kazakhstan, Kyrgyzstan and Tajikistan, came together in a military exercise on August, 24-29, 2006, in Kazakhstan’s port of Aqtau, on the basis of the “Collective Security Treaty”. The aim of the maneuver was to train the military forces to combat terrorism; however, it seemed a kind of military exercise aimed at providing a sufficient preparation against America's military threats against Iran. Thus this exercise would show preparedness for a frontal confrontation in a possible American war in the region, particularly in the oil-rich Caspian Sea region, which has a vital importance for oil pipelines and oil transportation.

Some experts cite a convergence of interests among members in recent years, including improved ties between China and Russia, and the perceived threat posed by U.S. forces in the region. The more time passes, the more SCO members become homogeneous as a bloc. Lieutenant General William E. Odom, a senior fellow at the Hudson Institute, says the SCO is being used by Russia and China as a vehicle to assert their influence in Central Asia and curb U.S. access to the region’s vast energy supplies.7 There is a hidden or invisible high tension between the U.S and SCO members at the moment and the conflicts will be revealed in a more obvious way sooner or later. For instance, on July, 2005, after SCO members agreed not to allow any other countries’ military presence in the members’ territories, Uzbekistan ousted the U.S. base which had been positioned there to maintain the War on Terror right after 9/11.

The SCO is rapidly growing economically and militarily, and is becoming a serious rival of the Unites States. The main two actors of SCO are Russia and China. Compared to the other SCO members, China is considered a rising threat for the United States. A demographic colossus, China, with its population of 1.3 billion, only embarked on economic reform after the death of Mao Zedong in 1976, and especially after 1978 when Deng Xiaoping came to power. China, though still a communist country has ceased to be frightening to outsiders; in the euphoria of globalization, hundreds of companies that relocated their production to China (having sacked millions of workers elsewhere in the world) saw it as a goldmine for the shrewd investor. The network of special economic zones along its sea coast has quickly turned China into a phenomenal exporter, and it now leads the world in exports of textiles and clothing, shoes, electronic products and games. Its products are invading the rest of the world; especially the United States.8

Exports of China for the year 2003 amounted to 325.6 billion dollars, which is 44.5% higher than the exports of 2002. Imports amounted to 295.3 billion dollars. 9 A huge trade imbalance has been created with the US and in 2003 the US trade deficit with Beijing was USD 130 bn. In 2004 the trade deficit was almost USD 125 bn to China’s advantage. Foreign investment grew rapidly and it amounted to 181,5 billion yuan and the growth rate over the same period of 2002 was 28.6%. Direct foreign investment amounted to 129,7 billion yuan. 10. If China continues to grow at this rate, by 2041 it will overtake the US and become the world’s number one economic power. This would have major geopolitical consequences. It would also mean that by 2030 its total energy consumption will equal that of the US and Japan today. And since it doesn’t have the oil to satisfy such energy demands, between now and 2020 it will be forced to double its nuclear capacity, building two nuclear power stations a year for the next 16 years. 10 This rapidly growing giant will be a threat not only to the United States but also to the Asian countries, as well as other Shanghai Cooperation Organization members.

Even though China claims that its growth is peaceful, the allocation of gas and oil will bring an unavoidable China-U.S conflict, which the Power Transition Theory presumes. China takes careful steps, grows rapidly and silently, and sets its agenda wisely.

Over and above, China’s strategic thinking11 on its role in Asia has been shaped by the following strategies :

1) The need to secure the country from what are likely to be the main threats for China in the region. The first is the United States, which is a hyper-power determined to maintain a strong position in Asia including the sensitive areas to US concerns, such as Taiwan.12 Second, a potentially re-armed Japan, and third, irredentist claims on China’s western territories, such as the Xinjiang region the population of which comprises mainly of Uighurs and other Central Asian Muslims.

2) The urge to ensure that its interests can be protected in disputed areas such as the Spratly Islands.

3) The need to guarantee sufficient access to supplies of energy and important raw materials.13

4) The imperative requirement to possess sufficient military power to deter Taiwan from declaring independence. China’s policy makers want to increase their military advantage over Taiwan progressively, so that their bargaining clout over Taiwan keeps rising.14


Today 68% of the whole world’s trade takes place in the Asia Pacific region. China and most of the other Asian countries use the American dollar as currency in their trade. If China continues to grow at its current rate, it will dominate the region economically as well as militarily. Given the fact that the dollar’s credibility is being questioned as a result of recent events such as the mortgage crisis, deficits in macroeconomic balances, and the cost of wars, any shift from the dollar to Chinese yuan will be a disaster for the US. Economic vulnerability will bring political instability, which will worsen its economy. As a result, Asian countries will shift their currencies from the dollar to the yuan, as European countries changed from the dollar to the euro. One might ask why a shift from the dollar to the yuan, but not to the euro. It is because of the euro’s high value of exchange. A very valued currency limits international trade in terms of purchase power. If this shift takes places, then, according to the Quantity of Money Theory, the U.S will have an enormous surplus dollar in the world trade circulation, which will have no equivalent of sold services and goods. Thus, the value of the dollar will decrease rapidly and the global economy will suffer a severe regression. World markets then will prefer to shift to stable currencies. As a result, a new power distribution will occur, as the Power Transition Theory presumes.

(To be continued...)