The need to cooperate on oil policy in East Asia

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.