Developing Alliances: Emerging Trade Routes in the Arabian Sea

The Belt and Road Initiative (BRI), China's Marshall Plan, displays China's transition from a regional to a global power, with the ports of Karachi and Gwadar serving its naval influence and control.¹ The response of other neighbors or stakeholders to the China-Pakistan Economic Corridor (CPEC), a crucial flank of the BRI, can be briefly stated. Iran is delighted with China's willingness under the CPEC umbrella to fund Islamabad's share of a long-overdue gas pipeline between Iran and Pakistan, implying that Pakistan would reduce its huge oil imports from Saudi Arabia. India, on the other hand, is not optimistic, as its chief strategic challenger, China, will be in much closer proximity. The United States takes a similar stance; China is also its main strategic competitor.²

THE ROUTES

The Afghan-Pakistan Transit Trade Agreement signed in 2010 permits Afghan entry into Pakistani seaports and Pakistani merchants' admission to Central Asian markets, granting this landlocked country the opportunity to increase its international trade and restraining smuggling in the long run.³ However, the two countries have often developed strained relations, resulting in closed borders — only to be reopened after the thawing of tensions. Such a state of affairs naturally takes its toll on trade and business.⁴

Moreover, strains exist over Pakistan's refusal to grant India access to its transit routes, including CPEC.⁵ India's status as big brother in the region stands threatened, making it seek alternative routes for its aspirations in Afghanistan and Central Asia. Chabahar Port in southeast Iran is the apparent solution, enabling India to bypass Pakistan and take advantage of a key trade route connecting Iran, India, Afghanistan and Central Asia, cutting transport costs and time by a third. Moreover, India is Iran's next largest oil importer after Beijing and was one of the few nations to continue trading with Iran during the boycott by Western countries over its controversial nuclear program. In an effort to solve banking issues affected by the sanctions, India permitted Iran to invest in rupees — permissible till now only for Bhutan and Nepal.⁶

However, all is not "Ready, Set, Go." Trump, after withdrawing from the Iran nuclear deal, has clearly stated that he will not spare any nation maintaining ties with Iran: secondary sanctions will be imposed on them.⁷ India, however, has retorted that it will abide by UN sanctions but not those singled out by any country. The backdrop for this response is the warming of India-U.S. ties, an effort to counter China's increasing influence.⁸ However, the U.S. threat of secondary sanctions will have ramifications for all stakeholders of the Chabahar project. Foreign firms await Washington's reaction before taking on infrastructure projects at the port. Moreover, Afghanistan's economy would certainly have benefitted from this transit route, allowing it to lay the base for a mining industry estimated at billions of dollars. The implication is that its shattered economy will continue to suffer, and America's longest war will remain threatened even though Trump himself has mentioned that U.S. companies should sign potential mining contracts with this landlocked country.⁹

AFGHANISTAN'S RESOURCES

According to Professor Michel Chossudovsky, a specialist on the riches of Afghanistan, the Global War on Terror (GWOT) was a pretext for revenue accumulation through an attack on Afghan resources. With its location at the crossroads of Central Asia, bordering Iran, China and the former USSR and having strategic access to pipeline routes and significant oil and gas supplies, Afghanistan will be the platform for a "resource war." A combined account by the Pentagon, U.S. Geological Survey (USGS) and U.S. Agency for International Development (USAID) claims that Afghanistan holds unused mineral resources amounting to one trillion dollars. Geological surveys carried out by the former Soviet Union serve to confirm that Afghanistan possesses the most significant copper reserves in all of Eurasia.¹⁰

In light of Afghanistan's potential in natural deposits of gold, cobalt, iron and copper, the country could indeed become a high-profile mining hub for modern industries. The New York Times suggests Afghanistan is possibly the Saudi Arabia of lithium, a chief raw material in the production of batteries for laptops and mobile devices and a prime component of electric cars. Pentagon representatives suggest Ghazni has lithium reserves as expansive as those of Bolivia (which, with Chile, has the largest reserves in the world).¹¹

Afghanistan's mining sector has remained largely inactive since the 1979 USSR invasion, partially due to insufficient railroad infrastructure and dormant mining regulations. Illegal mining activity has two downsides. First, the rightful recipient, the Afghan government, remains deprived of the profits. Second, they fall into criminal hands, posing a threat to the country's stability. The security situation in war-torn Afghanistan is also starkly intimidating. Moreover, the status of global mining is not conducive, as there has been a lull in the industry due to a gradual recovery from fallen rates. Key firms have cut employment and disposed of their resources. Companies are reluctant to strike deals; they are attracted to mineral-rich countries such as the United States, Canada and Australia. Even if Afghan problems were mitigated, the business climate does not favor this potentially wealthy country. However, China and India have shown an interest in Afghanistan, and some deals have been struck in copper and iron mining.¹² That said, the mining industry will not blossom in the immediate future, though it holds immense potential. Investors are ready to put money into this war-ravaged country, once it is safer to do so.¹³

Afghanistan's natural resources dwarf its tattered finances, which are based primarily on opium production and narcotics trafficking, as well as foreign aid. Worldwide sales from trade in Afghan opiates are in excess of $200 billion; the country produces "grade 4 heroin" and supplies 90 percent of the world market. Chossudovsky believes U.S. army posts in Afghanistan serve to protect this highly profitable trade, which also had the blessing of the CIA during the 1979 Soviet-Afghan war.¹⁴ However, despite the U.S. allocation of $8.7 billion to counter the narcotics industry in Afghanistan since 2002, statistics reveal that opium-poppy cultivation was at its highest in 2017.¹⁵ Under Taliban rule, prior to the GWOT, Afghanistan had already become the world's leading producer of opium, providing 80 percent of Europe's heroin supply, and yielding taxes amounting to some $20 million. However, the Taliban — at the behest of foreign powers — eradicated poppy cultivation, something unnoticed by the world community. This caused the price to spike: one kilogram of opium went from 3,000 to 4,000 Pakistani rupees in 2001. Taliban leader Mullah Omar had agreed to the eradication on the pretext of some sort of reward and international recognition (although the edict he issued stated opium was un-Islamic). No prize came his way; instead the United Nations demanded the extradition of Osama bin Laden and imposed sanctions when this was rejected.¹⁶ After the 2001 U.S. invasion, opium cultivation became concentrated in the south and southwest of Afghanistan, where the level of governance was compromised due to belligerency and weak security. It is, in fact, this drug money that has assisted the revival of the Taliban, who now behave more like a mafia, acting for fiscal gain rather than ideology.¹⁷

GWADAR VS. CHABAHAR

In view of what is at stake for Afghanistan and other stakeholders, it would be apt to draw a comparison between the competing ports of Gwadar and Chabahar, which are 72 kilometers apart. It is argued Gwadar outdoes Chabahar for the following reasons: first, China has extensive experience with the development of global infrastructure projects. With Prime Minister Narendar Modi's commitment of $500 million for the port of Chabahar, India, too, will have to display its capability in foreign-port development. Moreover, Chabahar's waters are somewhat distant for India, and, as a foreign power, India will be closely monitored by the Pakistan navy.¹⁸

Next, although India apparently has cordial ties with the Afghan government and has invested there, safe passage for its goods through Afghanistan is not guaranteed. The main rebel group, the Taliban, has little fondness for India due to its support of the anti-Taliban Northern Alliance. Also, in spite of Delhi's having better relations with Kabul than Islamabad has, Pakistan enjoys its fair share of penetration in this ethnically diverse neighboring state. Many of these ethnic groups have a significant presence in Afghanistan, allowing Islamabad to hold its own in this warring nation. Balochistan, too, is ridden with insurgency, but it is more low-key; some of its rebel movements have willingly submitted to the authorities.¹⁹

Further, the unpredictable sanctions imposed on Iran have spread uncertainty concerning the Iran-India Chabahar deal. To the advantage of the Gwadar stakeholders, this project is free from all such hiccups. Neither China nor Pakistan face investment curtailment, nor the latter any UN sanctions. Moreover, China can always come to the rescue in any untoward event with its UN veto power. China and Pakistan are not in a cutthroat relationship, unlike Iran and India. China, by far the mightier power, is catering to Pakistan's interests — alongside its own — of accessing the Middle East and the Persian Gulf. Iran and India are both competing for the Central Asian market. Tehran is particularly aggressive due to the global isolation it has suffered; Iran aims to prioritize those channels that will assist in reigniting its economy. There is speculation about a possible Iran-India plan to covertly obstruct the functioning of Gwadar port. If common sense prevails, this would be unlikely, as the fallout for Iran would involve trouble and instability on its eastern border.²⁰ In fact, Pakistan has already been invited by Iran to participate in the Chabahar project.²¹

As for Pakistan's stance towards this nearby foreign port, it is concerned about India's potentially hogging the Afghan and Central Asian market, forcing it to reduce the prices of its products. Further, India, if it penetrates the region, will hold a convenient platform for destabilizing Pakistan. However, Pakistan likely is not overly concerned about Chabahar, as it will take time for this port to be up and running.²² Even though India hopes for 2019,²³ India does not work with the speed China does; its bureaucracy is cumbersome — and therefore not a grave concern. It is noteworthy that, even though Trump has given a stern warning to the countries that interact with Iran, a direct U.S. objection to Iran-India ties has yet to come. On the other hand, then U.S. Secretary of State Tillerson stated that the United States would allow lawful India-Iran business relations, indicating approval of India's role in Chabahar. A possible explanation for this contradiction is that Washington endorses India as a regional power to counter China.²⁴

As for China's heavy investment in Pakistan, it certainly has its own share of concerns — security being the foremost. CPEC routes and power projects are vulnerable to attack, especially in Balochistan, due to the separatist movement, where grievances abound regarding the unfair exploitation of the province's natural reserves. CPEC merely reiterates the Baloch separatist narrative. However, it is not only terrorism or insurgency that poses a threat; criminals also take the opportunity to attack Chinese workers.²⁵ The kidnapping of Chinese massage-parlor workers in Pakistan's capital and the killing of Chinese engineers are examples.²⁶ In such scenarios, China prefers a strong relationship with the powerful Pakistani army, rather than the weak and unstable democratic regimes.²⁷ To ensure security for CPEC projects, Pakistan has offered an entire force of almost 20,000 soldiers, plus an additional protection squad for the Gwadar Port.²⁸

China, moreover, has remained concerned about the security situation in Afghanistan. It was the only country beside Pakistan to be in immediate and constant contact with the key Taliban leaders after the United States declared it would withdraw. It sensed that discord would seep through Afghanistan at the U.S. departure, scheduled for December 2014, and spread into Pakistan and Xinjiang.²⁹ China maintains that Islamabad needs to do more to clamp down on extremism, including the removal of Pakistan's safe havens of the East Turkestan Islamic Movement, a Muslim rebel faction from the Uighur community located in the Xinjiang area.³⁰ In regard to terrorist infiltration, Pakistan is working on making its eastern border impermeable. The plan involves creating a 1,500 km frontier — 7,000 man hours for the process from Chitral to South Waziristan. The initial 432 km fencing phase, the most crucial, is tentatively to be completed in 2019.³¹ The two-phase process will target the highly permeable zone of Bajaur, Mohmand and Khyber Agencies, as well as sealing the Balochistan-Afghan border. Forts and border posts will also be constructed in order to facilitate constant monitoring by the army and the Khyber-Pakhtunkhwa Frontier Corps.³²

Some have voiced concerns over how effective Chinese assistance will be in regards to military aid. China, wary of Islamic militancy in Pakistan, could well be in a position to dictate to the Pakistani army and government regarding extremism, especially as the investing country is also threatened by Islamist insurgency to its western border of Xinjiang.³³ However, despite not agreeing to sign a defense treaty or commit to any combined military cooperation with Pakistan, China has fully cooperated with Pakistan and its nuclear arsenal, ensuring the weapons of mass destruction are kept current in order to compete with both nations' rival, India.³⁴ Sino-Pak ties date back to Mao's reign and blossomed to their current status as the backdrop to Indian hostility and mutual gains. Thus, even though extremism is an important concern, it is not burdening the multiple advantages these two neighbors share, unlike the tottering Pak-U.S. ties.³⁵

In view of this flourishing bond — augmented by the development of CPEC — warnings have been aired as to whether China is edging in as the next East India Company (EIC). The repayment of extortionate loans for Chinese investment and China's terms and conditions for power tariffs are concerns a Pakistani lawmaker has raised. Is CPEC really a "game changer," or is there an underlying reality of which the public at large is oblivious? If we analyze the precursor to EIC's entry into the subcontinent, private merchants came for the purpose of trade; then, lured by the riches of the land, they gradually took control of the country by force. China and Pakistan, however, enjoyed friendly ties long before the emergence of CPEC, and China is already all powerful, sitting on the world's largest foreign exchange reserves: $3.20 trillion. China's investment in Pakistan is foremost a security threat for the investor itself; no other country has dared to devote the huge sum the Chinese are spending. Other key Pakistani issues that pose concern for Beijing are rampant corruption and the dismal status of the government bureaucracy. Apparently the need for CPEC with all of its future potential is greater for Pakistan than for China, unlike the British who coveted the wealth of the subcontinent.³⁶

On the other hand, not everything is failing in Pakistan. There are institutions that have demonstrated their seriousness; the top court of the country rejected an appeal from a Chinese firm to bid for the Dasu Hydro Project. However, what is worrying to people like the former governor of the State Bank of Pakistan is the actual breakdown of CPEC investment — for instance, how much of the amount is in loans, how much in equity and how much in kind. Transparency is apparently lacking, something the International Monetary Fund (IMF) has also cautioned about, so Pakistan needs to take preventive measures to fend off any disadvantageous economic outcome.³⁷

What is unfortunate for Pakistan is that its politicians resort to irresponsible economic policies that take their toll on the country's treasury. The outgoing government of Nawaz Sharif was no exception, displaying an unrealistic desire for speed and a lopsided focus on Punjab. Such moves threaten a scenario like that of Sri Lankan President Mahinda Rajapaksa, who overdid his demands by not having the required marketable rationale for Chinese investment in his own constituency, Hambantota. The successive Sri Lankan government was taken by surprise when the Chinese demanded a return of their money, having no desire for a vacant airport built by their investment; this forced Sri Lanka to resort to an IMF bailout. The case of CPEC is similar with its ambiguity about interest rates, akin to the loan of the Hambantota project. Pakistan is well-advised not to oversell the China card.³⁸

However, there are those who have no reservations about the outcome of CPEC and do not foresee dangers of another EIC. China and Pakistan have different economic policies from those the British followed during their colonial rule: mercantilism, implying "all for themselves and nothing for the public." They hogged the raw material of their colonies and then exported the end product back to them. China, too, has had its share of imperialistic rule and, while perceived as a communist nation, practices capitalism. Capitalism aims at a level of public economic benefit for the sake of stability; even though focusing on maximum return, it is not as selfish as mercantilism.³⁹

China also has an entirely different approach to that of the British, who imposed their rule through force; the Chinese, as is evident in Africa, seek influence through economic sway. China has heavily invested in Africa's infrastructure, especially transportation links, which the West has been reluctant to do — a situation similar to the CPEC scenario. Moreover, for those concerned that CPEC will only provide employment for Chinese nationals, Pakistan, in fact, may provide cheaper employment than China. This has been the case in certain instances in Africa. The estimate is that CPEC will allow for two million more jobs both directly and indirectly.⁴⁰ Further, Pakistan is not an investment hub; due to chronic power crises and terrorism threats, it suffers a severe image problem globally, keeping investors at a distance. In spite of this, China has taken the initiative; it is estimated CPEC's development will raise Pakistan's GDP from 4.7 percent to approximately 6 percent by 2019.⁴¹

Finally, in contrast to the Mughal era, Pakistan now has state bodies that regulate the country. Although they are by no means exemplary, the fact that they exist and are in some respects independent does contribute to decisions on the state's future and offers a means of checks and balances. An example is the National Electric Power Regulatory Authority's rejection of a rise in power rates by the Chinese. Similarly, a local court barred a Chinese company from being the regulatory body of the Sost Dry Port. Such decisions indicate that China will not have absolute control, as was displayed by the forceful EIC. All said and done, however, transparency coupled with honest governance is key to avoiding another EIC.⁴²

CONCLUSION

With all the above-mentioned investment and natural reserves, significant development is inevitable, steering the affected countries upward. However, what remains to be seen is how the stakeholders will benefit and to what extent. Some of the investment has led to startling outcomes. For instance, the world's emptiest international airport, located on the southern tip of Sri Lanka, has been purchased by India just to ensure it remains vacant. Such moves reflect the geopolitical rivalry of those apprehensive about China's BRI. The attempt of the former president of Sri Lanka to turn his dormant constituency into a shipping hub about a decade ago, by asking the Chinese to invest in the southern tip of his country, the small fishing town of Hambantota, led to Chinese development of an international airport, a new seaport and an international cricket stadium costing more than $1.5 billion. The potential of this investment, according to supporters, is that the new port, situated adjacent to the busiest sea routes in the northern Indian Ocean, offers an all-purpose Indian Ocean hub able to compete with Singapore. But security experts consider Hambantota to be a strategic location for a Chinese naval base, a follow-on to China's "String of Pearls" in the Indian Ocean. In the opinion of Indian critics, it is part of a plan by China to confine India to the Indian Ocean.⁴³

Apparently, those who say the port is not going to prove its worth are right. International shipping firms have displayed no eagerness to use Hambantota, since they have access to the full-service Colombo Port in close proximity. The Sri Lankan white elephant is only visited by a limited number of ships, thanks to the persistence of mortified Sri Lankan organizations. The Rajapaksa International Airport has only one weekly international flight. The airport staff, apparently, have little to do, and the hangars are rented out as warehouses for storing rice.⁴⁴

Sri Lanka has explicitly stated that the deep-water port — leased to China Merchants Port Holdings for 99 years at a cost of $1.12 billion — cannot be used for military purposes by the Chinese. Moreover, the Sri Lankan navy is responsible for the port's security. A Chinese spokesman has stated that China is involved in the project for the purpose of facilitating Colombo's aspiration to become a strategic hub in the Indian Ocean, which would be beneficial for the country's economy and the entire region.⁴⁵ In spite of Sri Lanka's assurance that Chinese naval penetration will not be permitted in its territorial jurisdiction, India is not convinced. New Delhi is concerned the Indian Ocean will become a Chinese naval hub with the takeover of the port at Hambantota.⁴⁶

The fact of the matter is, Hambantota does not provide the ideal scenario for a Chinese naval base, due to its proximity to India, exposing it to air bombardments by New Delhi in case of confrontation between the two powers. Yet the port would provide an ideal logistics outlet for a potential Chinese naval extension. This, in fact, is where the world's emptiest airport comes into play. India is offering to pay about $300 million to get Sri Lanka out from under its debts to China in return for a 40-year lease of the Hambantota airport. What New Delhi will actually do with its new purchase is still unclear. Perhaps there could be educational or social purposes, but there is no chance of its being a lucrative deal. That's the whole point of course; profits are not a consideration. Essentially, India is buying the facility to block a Chinese naval base, as air surveillance is a prerequisite for regulating such a site. Hence, India's purchase of the vacant airport will provide it the required infiltration it desires for monitoring Hambantota.⁴⁷ Manipulation over infrastructure and logistics merely indicates increased competition in the entire zone. As to which stakeholders will benefit and to what extent, only time will tell.

 

¹ Shivshankar Menon, "As China's Pakistan Ties Deepen, India Needs a Strategy to Mitigate the Fallout," The Wire, 2016.

² Michael Kugelman, "Asia's Energy Security and China's Belt and Road Initiative," National Bureau of Asian Research, no. 68 (2017): 27.

³ "Afghan Transit Trade Agreement," Express Tribune, 2010.

⁴ Arwin Rahi, "A Counterproductive Afghan-Pakistan Border Closure," The Diplomat, 2017.

⁵ "India Starts Trade Route to Afghanistan via Iran, Bypassing Pakistan," Pakistan Today, 2017.

⁶ "Why Developing the Chabahar Port in Iran Is Important for India: Ten Points," Times of India, 2018.

⁷ "Jerusalem Dateline," Christian Broadcasting Network, 2018, http://www1.cbn.com/video/jerusalem-dateline/2018/05/11/jerusalem-datel….

⁸ Iain Marlow and Debjit Chakraborty, "India Vows to Ignore Trump's Sanctions and Continue Iran Imports," Bloomberg^, 2018.

⁹ Jonathan Landay and Rupam Jain, "U.S. Sanctions on Iran Threaten Vital Afghanistan Trade Project," Reuters, 2018.

¹⁰ Michel Chossudovsky, "The War Is Worth Waging: Afghanistan's Vast Reserves of Minerals and Natural Gas," Global Research, 2010.

¹¹ Chossudovsky, "The War Is Worth."

¹² "Quarterly Report to the United States Congress," Special Inspector General for Afghanistan Reconstruction, 2018: 60, 7-10.

¹³ Chossudovsky, "The War Is Worth."

¹⁴ Ibid.

¹⁵ "Quarterly Report to the United States," 60, 7-10.

¹⁶ Luke Harding, "World's Opium Source Destroyed," The Guardian, 2001.

¹⁷ Gretchen Peters, "How Opium Profits the Taliban," United States Institute of Peace, Peaceworks, 62 (2009): 4-5.

¹⁸ Muhammad Daim Fazil, "Five Reasons Gwadar Port Trumps Chabahar," The Diplomat, 2016.

¹⁹ Ibid.

²⁰ Ibid.

²¹ Baqir Sajjad Syed, "Iran Invites Pakistan to Participate in Chahbahar Project," Dawn, 2018.

²² Waslat Hasrat-Nazimi, "Can India Challenge China with New Iranian Chabahar Port?," DW, 2017.

²³ "India hopes to open Iran's Chabahar port by 2019," Dawn, 2018

²⁴ Waslat Hasrat-Nazimi, "Can India Challenge China with New Iranian Chabahar Port?," DW, 2017.

²⁵ Kugelman, "Asia's Energy," 20-23.

²⁶ "China and Pakistan Geopolitical Friends," The Economist, 2015.

²⁷ Shams, "U.S. Aid Cut."

²⁸ Kugelman, "Asia's Energy," 20-23.

²⁹ Menon, "As China's Pakistan Ties."

³⁰ "China and Pakistan."

³¹ Naveed Siddiqui, "Army Commences Fencing Pak-Afghan Border in Trouble Zones," Dawn, 2017.

³² Ibid.

³³ Shams, "U.S. Aid Cut."

³⁴ Menon, "As China's Pakistan Ties."

³⁵ "China and Pakistan."

³⁶ Abdur Rehman Shah, "Is the China-Pakistan Economic Corridor a 21st Century East India Company?," The Diplomat, 2016.

³⁷ Shah, "Is the China-Pakistan."

³⁸ Ibid.

³⁹ Saad Ahmed Dogar, "Four Reasons Why CPEC Will Not Be Another East India Company," Express Tribune, 2017.

⁴⁰ Dogar, "Four Reasons Why CPEC."

⁴¹ Ibid.

⁴² Ibid.

⁴³ David Brewster, "Why India Is Buying the World's Emptiest Airport," The Interpreter, 2018.

⁴⁴ Ibid.

⁴⁵ Shihar Aneez and Ranga Sirilal, "China to Shift Naval Base to China-Controlled Hambantota Port," Reuters, 2018.

⁴⁶ Brewster, "Why India Is Buying."

⁴⁷ Ibid.