The need to cooperate on oil policy in East Asia

Makmur Keliat, Jakarta

Oil diplomacy can be defined as attempts carried out by nations to protect and secure their access to oil resources through dialog and negotiation. From the perspective of energy security, the idea of harmonizing oil diplomacy can be considered pivotal as it can be used as one of the foreign policy instruments for maintaining, monitoring and predicting oil supply including its price on the international market.

Oil diplomacy in East Asia merits special attention for a number of reasons. First, there have been projection, that in the aftermath of the Cold War, the conflicts over natural resources would become more imminent compared to ideological conflicts. In this regard, the scramble for territories with oil resources seems to have taken more serious attention due to the fact that efforts to develop alternative energies have so far achieved limited progress. For many countries, oil will remain the most conventional energy resource to sustain the process of industrialization in the near future.

Second, all countries in the East Asian region strongly believe that industrialization is vital to a high-growth economy. With a view to improving the living standards of their citizens, and also because of the pressure of population growth, all governments are bound to make policy measures directed at securing their oil supply. In addition, the price of oil greatly affects political legitimacy of some governments. And as a consequence, competition for oil resources will become greater and policymakers will continue to be haunted by the question of how to protect the supply of oil and how to provide the public with a reasonable price for petroleum products.

Third, a number of territorial disputes, either for islands or over ocean boundaries, have taken place in the East Asia region. In addition to the issue of territorial sovereignty, overlapping claims of islands and sea boundaries seems to have emanated from endeavors to exploit oil and gas potential. The conflict over the Spratly Islands in the South China Sea and the recent dispute in the Sulawesi Sea between Indonesia and Malaysia are cases in point. In this regard, it is worth mentioning that the economic potential of oil resources are determined by oil prices on the international market. Since the price of oil has continuously increased over the last several months, cost constraints on the exploitation seems to have become less relevant and the scramble for oil in deep-sea blocks has come to surface more fervently.

Fourth, East Asia cannot be isolated from the political dynamics that take place in other parts of the world. However, the latest developments in the last few years have shown that the Middle East, politically, will remain volatile and unpredictable in the years to come. Similarly, due to the question of nation- building and the ongoing state development process, the future prospects of Central Asia as the new frontier for oil discovery remains uncertain and problematic. It is quite possible that because of this political uncertainty a number of countries in East Asian region, particularly Japan and South Korea, have introduced policies of stockpiling oil. However, storing large quantities of oil with a view to minimizing the risk of political uncertainty in the future also stimulates stronger demands for oil, which creates other pressures.

Under these circumstances, it seems that a viable strategic option for East Asian countries in the future lies in political commitment to cooperating on oil diplomacy. In principle, such cooperation necessitates recognition by all countries in the region, either net importing or exporting countries, that they have a common interest. They are all dependent on each other and cooperation will benefit all concerned countries in the region.

For net oil importing countries, the purpose of such oil cooperation would be to lessen its reliance on external oil resources from outside the region. Similarly, for net oil exporting countries, such cooperation has strategic significance as well. It could be utilized as an entry point to deepen cooperation in the entire energy sector, including natural gas, solar power and geothermal power. It can also become instrumental in broadening cooperation in non-energy sectors. Therefore, East Asian countries need to be aware that the European Union has its origins in energy cooperation, through the establishment of coal and steel communities.

Disputes over sea boundaries and the ownership of islands with oil resources in East Asia will become a litmus test of East Asian's countries commitment to harmonizing their oil diplomacy.

Ideally speaking, efforts to cooperate on oil require a thorough institutional framework. Effective monitoring activities with a view to maintaining and predicting oil supply, including prices, can only be done if there are institutional norms through which oil policy of all countries in the region can be regulated harmoniously. Since oil is a strategic commodity covering political, business and security dimensions, the stakeholders of such an institutional framework need also to be a comprehensive group. It should not be limited to policymakers who deal with energy issues, but also involve those who come from the business community, mainly oil companies.

It has become a reality that data on oil potential is generally kept secret by oil companies because of business interests and also because of government regulation as a part of the deal for oil exploitation. Transparency about oil potential, therefore, will be very difficult to acquire if the role of oil companies is neglected. In addition to business community, there is a need also to engage policymakers who are in charge of security issues such as navy and police institutions. Unhindered sea lanes and eradication of sea piracy is of great importance to transporting oil from one country to another as well.

Last but not the least, it seems that India also needs to be engaged in such cooperation. India is the second largest oil importing country in Asia after China. Accordingly, its national energy policy has an important role in assisting East Asia's institutional capacity to predict oil supply in the future. Also, India geographically is situated in Southeast Asian region. The Nicobar and Andaman islands of India are located very close to the northern tip of Sumatra island. In so far as oil diplomacy is concerned, the idea of East Asian cooperation should not be limited merely to ASEAN+3.

The writer is the Executive Director of Center for East Asian Cooperation Studies (CEACoS), University of Indonesia.