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SCO: More than a talking shop, just

The Shanghai Cooperation Organization is developing fast. But what it is becoming depends on which member you ask, writes NJ Watson

JUDGING by August's summit in Bishkek, Kyrgyzstan, and the scale of the war games held afterwards in the Urals, the Shanghai Cooperation Organization (SCO) has now developed military, as well as political and energy, dimensions.

The SCO has become much more than what was originally envisaged when it was founded in 1996 to help maintain relations between China and four former-Soviet republics – Russia, Kazakhstan, Tajikistan and Kyrgyzstan – which had occasionally fought border conflicts. The group has since grown in number, adding Uzbekistan as a full member and Iran, Pakistan, India and Mongolia as observers.

"Comparing the results of the annual summits shows a steady expansion of topics of political co-operation and discussion," says Marcel de Haas, an analyst at The Power and Interest News Report (PINR), a consultancy specialising in conflicts.

However, analysts say the SCO is unlikely to become a full-fledged political-military security organisation – at least for the foreseeable future. "The chances of the SCO becoming an effective multi-lateral organisation are slim," says Anna Walker, senior editor at the Economist Intelligence Unit. "It's a more important way for the countries to maintain bilateral relations with the other members. It gives them an opportunity to find out what the other is up to – they have just held military exercises, providing a good opportunity for China to see Russia's military capabilities and vice versa."

An energy club

Take the energy component. In July, the SCO formed an energy club to improve energy security by co-ordinating the strategies of the region's producers, consumers and transit countries. A month later, at Bishkek, Kazakhstan's President Nursultan Nazarbayev said the region's Soviet-era network of gas and oil pipelines could form the basis of an Asian energy market, adding that his government had drawn up a draft strategy for the SCO energy club. "This might become one of the main elements of an Asian energy strategy," he told the summit.

In recent years, there has been no shortage of co-operation among the Shanghai six: in 2005, China National Petroleum Corporation acquired PetroKazakhstan for $4.4bn; later that year a 1,000 km pipeline linking Kazakhstan and China began pumping oil; and in August, Kazakhstan signed an agreement to build a gas pipeline from Turkmenistan to China. This deal followed a similar agreement in May, in which Russia, Kazakhstan and Turkmenistan agreed to build a new gas line north through Kazakhstan to the Russian network.

Russian President Vladimir Putin said the line would deliver up to 20bn cubic metres a year (cm/y) of extra gas to Russia by 2012. A separate agreement called for the modernisation and expansion of the existing Central Asia-Centre pipeline to Russia – the only large gas-export route out of the region.

But behind these deals lie threats to the SCO's cohesiveness. Ariel Cohen, senior fellow for International Energy Security at Washington's Heritage Foundation, says the geography of the region defines its geopolitics. "China wants energy resources to flow east, Russia wants the energy resources to flow north and Iran wants the gas to flow south."

Furthermore, says Cohen, Russian efforts to perpetuate its control over energy flows will continue to undermine the SCO. "Can Beijing and Moscow resolve their differences – and there are real differences?" asks Cohen. Judging by recent events in Turkmenistan, this seems unlikely. Under the rule of its new president, Gurbanguly Berdymukhammedov, Turkmenistan, like Kazakhstan, appears to be playing China off against Russia.

Anything you can do ...

Although it signed the gas pipeline deal with Russia in May, it wants to charge higher tariffs for its exports, which Moscow mixes with its own gas to sell to lucrative Western markets. By signing a deal with China to build a 30bn cm/y pipeline and loudly proclaiming it as the beginning of an new era in co-operation, Turkmenistan is trying to pressure Moscow into paying more.

"Central Asian producers have been looking at ways to hedge against Russia as the monopsony consumer of their gas and hope to sell to China. In this sense, the Central Asians have taken a page out of the book of the Russians, who have long used the threat of selling gas to China in price negotiations with Europe," says Trevor Houser, an analyst at the New York-based China Strategic Advisory. "That creates problems for the Russians, who count on re-exporting Central Asian gas to Europe, and serves as a source of tension between them and the Chinese over the future of Central Asian gas."

Outside the oil and gas sphere, some SCO members see the possibility for greater regional co-operation in electricity. With, by some estimates, 300 terawatt hours a year of hydropower potential in absolute terms, Tajikistan is sitting on a potential solution to many of the region's power problems. The Asian Development Bank (ADB), among others, is helping fund construction of transmission lines to carry exports from both Kyrgyzstan and Tajikistan to markets in Afghanistan and Pakistan.

The ADB country representative in Tajikistan, Neeraj Jain, talks about eventually building a transmission network connecting Kazakhstan to Pakistan, and all the countries in between – except Uzbekistan. "Of course, because these countries are all having trouble with Uzbekistan," he says.

As well as Uzbekistan, analysts say it will also be hard to include China in a regional power grid. "The problem with importing electricity from Central Asia is that the parts of China in shortest supply are those furthest from the border. There will, in time, be a rise in Russian power imports, but that will take place along the eastern border, not on the Central Asian side," says Houser.

If China hopes the SCO will become more of an economic club, with energy at its heart, then Moscow wants the SCO to remain primarily a military one. "The primary function for the SCO will continue to be terrorism and security, primarily because that's where the most consensus lies between the members," says Houser.

August's war games, starting in China, but largely conducted in Russia, were by far the most advanced in the SCO's history – a total of 6,500 troops were involved. "Military co-ordination and synchronisation within the SCO, domestically and internationally, has reached higher levels," says PINR's de Haas. "The time has gone that Western security experts could depict the SCO as simply one of many insignificant organisations in the Asia-Pacific region."

Even so, analysts say it still lacks a considerable number of essential elements that Nato, as a mature security organisation, has: an integrated military structure with permanent headquarters, a rapid reaction force and continuous political deliberations.

Furthermore, while SCO member states and observers co-operate in many areas, in just as many others they have large differences, such as contradictory political and economic interests. "There's no love lost between Russia and China and, given the headaches Nato has in maintaining a trans-Atlantic alliance, trying to build something similar between Russian and China would be extremely challenging," says Houser.

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