Patagonia’s Bold Activism Offers Lesson for ESG Movement
Few other companies have been so closely associated with environmental causes than Patagonia. When the company announced this month that it would donate all its profits – averaging more than $100 million a year – to the Earth, consumers around the world saw the move as confirmation of its principles and values. The outdoor apparel company has made environmental protection and activism core to its operating procedure and company principles since the beginning. While the decision is certainly historic, the details are a little more revealing. What’s clear is that corporate responsibility initiatives have been flipped on their head in the wake of this bold gesture.
Environmental protections have long been core to Patagonia’s brand. The company has revolutionized the clothing industry through the use of recycled fabrics and other environmentally-friendly manufacturing standards. Such standards come with a cost and that has led to prohibitively high price tags for many of Patagonia’s items, which include everything from fleece tops to surfing wetsuits (using special environmentally friendly natural rubber, of course). The cost for items is so high that many joke the company should be called “Patagucci.”
Bucking the trend of excessive consumerism, Patagonia recently started pushing customers to repair their existing Patagonia clothes instead of buying new ones. The repair and reuse campaign falls neatly into the company’s iconoclastic business approach. In an interview with Fast Company Magazine, Yvon Chouinard, the billionaire founder of the company said he was “an avowed socialist. I’m proud of it. That was a dirty word just a few years ago until Bernie Sanders brought it up.”
Selling $400 jackets to wealthy consumers while aspiring to socialist values is a fascinating position. What’s more interesting in terms of Patagonia’s branding is the company’s long-standing contracts with the US military. The company has a dedicated team, supporting the US Special Operations Command (USSOCOM) with delivering US-made technical cold weather and combat uniforms. It doesn’t stop there. The company, which has been vocal on a variety of political issues in the US, has a special tactical clothing division called Lost Arrow, which works closely with various US police departments. The company has gone to great lengths to conceal details of Lost Arrow and its revenue, according to investigations by GQ.
There is nothing wrong with selling equipment to militaries and police departments. In some ways, it demonstrates just how tough the products are. In Patagonia’s case, however, it reveals the genius of the company’s branding. The company has made billions selling clothes that make its customers feel empowered from a social and environmental standpoint. By now, many consumers are aware of the challenges of climate change and how social structures allow corporate greed to flourish. Patagonia enables the consumer with enough money to buy a garment that will last a lifetime and be easy on the Earth.
There is a story that Slovenian philosopher Slavoj Zizek likes to share about Starbucks. When you get to the cash register there are often expensive bottles of water that brand themselves in a socially conscious way. The company will build a well in an impoverished community when you buy a bottle of expensive water. The logic here, Zizek points out, is that the consumer is aware that the coffee she is about to drink has come to her by some form of exploitation. The coffee farmer in some other corner of the world is living in an impoverished community and worked hard so that she could have a cup of coffee. Instead of changing the system that allows this to happen, the bottled water company offers the consumer a way to feel better about their decisions by purchasing a product inside the system. Buy something and we will help that far away place.
Patagonia’s announcement that all profits will go to a specially created trust designed to invest in various environment and climate-related charities is another realization of this thinking. Many have heralded Chouinard for his principled stance in taking this decision for good reason. It’s a bold act but one that must be understood in the context of the vast fortune that he has already made and the untold tax benefits that this decision will rain down on his family.
There are lessons from Patagonia’s brand pivots for the corporate environmental, social, and governance (ESG) movement. Over the last decade, major international corporations have adopted various forms of ESG standards designed to calm investor and consumer concerns about the ethical behavior of companies. There are even ESG funds traded on stock markets worldwide. In recent years, vocal critics like Elon Musk have said that ESG standards are effectively meaningless in terms of the real-world behavior of companies. He might have a point but the larger issue is why ESG standards were created in the first place.
Patagonia’s bold decision and the struggles over ethical corporate governance are two sides of the same coin. There is a rot at the core of the global capitalist system that consumers and some investors are becoming obsessed with. That rot manifests in poor environmental projections to the growing inequality that defines many societies and deepens political divisions in countries like the US. On some level, we all know this is happening and we are complicit in the system.
Patagonia has found a way of positioning itself as a counterweight to that system while benefiting handsomely from it. ESG goals attempt largely to do the same thing but have missed the mark. Make no mistake, Patagonia’s divestment decision is a great one for environmental causes. One is left wondering, however, if the Earth is now Patagonia’s only shareholder, does she have any ethical concerns about clothing the US military and police departments?
Joseph Dana is the former senior editor of Exponential View, a weekly newsletter about technology and its impact on society. He was also the editor-in-chief of emerge85, a lab exploring change in emerging markets and its global impact. Twitter: @ibnezra.
An Entertaining Window into Turkey’s Gross Misspending
There are countless examples of the Justice and Development Party’s (AKP) dubious spending habits, from $50,000 handbags for Turkey’s first lady to purchasing political support ahead of elections. Yet there’s no greater proof of the government’s reckless ways than the capital’s failed amusement park: Ankapark.
Today, giant decaying dinosaurs tower over the $801 million ghost town in northern Ankara. When it opened, in March 2019, Ankapark, also known as Worldland Eurasia, was the biggest theme park in Europe. Spread over 3.2 million acres with more than 2,100 rides and a parking lot that could accommodate 6,800 vehicles, the venture was called a “symbol of pride for Turkey” by President Recep Tayyip Erdogan.
But just two days after its grand opening, one of the park’s rollercoasters failed, setting the tone for the weeks to come. As one visitor noted on Tripadvisor six months later, 20 percent of the rides were still not working and management didn’t seem to care. “Why have I paid a 75 lira entrance fee (about $13 at the time) for this?” the visitor wrote.
Then, in February 2020, due to an unpaid 2.5 million lira electricity bill, Ankapark’s power was turned off. It’s been off ever since.
While the park’s demise was swift, the project was doomed from the start. Many experts expressed concern about its location and exorbitant price tag. The Chamber of Architects of Turkey filed more than 300 legal complaints to stop the park from happening, and feasibility reports suggested that the finances would never add up.
“For it not to go bankrupt it would have required 18 million visitors yearly to pay a minimum 50 lira entrance fee,” said Tezcan Karakus Candan, Ankara chair for the architects’ chamber, in a 2021 documentary. That’s 2 million more visitors than Paris’ Disneyland, Europe’s most visited theme park. In 2019, roughly half a million foreign tourists visited Ankara; the domestic market would have had to draw millions more for Ankapark to survive.
And yet, then-mayor of Ankara, Melih Gokcek, who had been lobbying for Ankapark since the early 2000s – and had pushed legal changes to accommodate his dream – remained convinced that millions could be drawn to the park’s gates. Gokcek and AKP remained committed to the project until its very end.
Dismissing public opinion, especially on matters of money, has become an AKP hallmark. During the Erdogan era, countless initiatives have permanently damaged the environment and drained Turkish national funds. One of the crazier expenses at Ankapark was $1.8 million spent on plastic flowers and plastic trees. But that’s nothing compared to the president’s own profligate spending. Every day, the presidential palace doles out 10 million lira for food, cleaning, clothes, and other items. Even as Turkey’s economy has tanked, the palace’s bill has climbed steadily to nearly four billion lira annually.
Turkey isn’t alone with poorly planned parks. In 1998, construction stopped on China’s Wonderland, north of Beijing. Wonderland was designed to be Asia’s largest amusement park, but a dispute over property prices stalled the project. A brief attempt to restart construction in 2008 also failed, and today, the fairytale castles have been replaced by a luxury shopping mall.
But what sets Ankapark apart is its use as a political ploy to dominate headlines before the 2019 local elections, and to bolster the AKP’s image as the only party “working” for Turkey. When the park collapsed, the party acted as if it never existed.
Today, Ankapark is a literal, and political, wasteland. As is custom with AKP politicians, Gokcek blamed Ankara’s new mayor, Mansur Yavas, for the failure. Murat Kurum, the Turkish minister of environment and urban planning, went further, claiming that the disintegration of Ankapark was a classic example of the Republican People’s Party’s (CHP) malfeasance. In other words, Ankapark wasn’t the problem, CHP was.
These falsehoods were consistent with AKP’s deflective defense mechanisms and how the party’s leaders blame others while failing to take responsibility themselves.
During his decades-long campaign to promote Ankapark, Mayor Gokcek repeatedly insisted the venture was “the second biggest project financed by the state in the nation’s history.” If that is true, what was in it for AKP? Why were millions spent on a theme park when those funds could have been used on more pressing issues – such as building homes for Turkey’s poor or helping thousands of students receive access to education for free?
Even basic plumbing would have been a wiser use of the money. Ankara’s infrastructure problems, particularly water distribution, could be solved with $600 million. Instead, city taps run dry while $801 million worth of robots, dinosaurs, plastic flowers, and malfunctioning rides rot in the sun.
What does all of this say about the AKP in 2022? As with almost all pending and completed projects during the party’s rule, Ankapark has drawn criticism from those who believe it was a scheme fueled by corruption and a means to funnel public money into the pockets of AKP-affiliated businessmen and party acolytes.
The rotting carcass of Ankapark is emblematic of AKP’s economic legacy, one filled with short term decisions benefitting their own. As Turkey’s economic crisis deepens, it’s important to remember that the economic rut the country is in today is paved with poor decisions of the past.
Alexandra de Cramer is a journalist based in Istanbul. She reported on the Arab Spring from Beirut as a Middle East correspondent for Milliyet newspaper. Her work ranges from current affairs to culture, and has been featured in Monocle, Courier Magazine, Maison Francaise, and Istanbul Art News.
America’s Failed Quest for Energy Independence
The US pursuit of “energy independence,” let alone “energy dominance,” did not last long. Like presidents before him, Joe Biden finds himself in the position of first imploring OPEC states, then expressing anger at their decisions on oil production. But a new, more active American oil policy threatens changes.
The meeting in Vienna of the OPEC+ group of leading oil exporters on October 5 decided to cut its production target by 2 million barrels per day, which will amount to about 900,000 bpd of real reductions. This follows a 100,000 bpd cut from the previous month’s confab, which itself came after months of steady increases as consumption rebounded from the pandemic.
The group is worried about demand and the world economy, given high inflation, interest rate rises, and the economic slowdown in China. Oil prices had dropped sharply from almost $124 per barrel in June to $84 per barrel just ahead of the meeting.
But the US lobbied hard against cuts, wanting to contain prices and inflation ahead of the crucial midterm elections on November 8. It argued that the market remained tight and that the decision could have been put off for a month to allow for the impact of the European ban on Russian oil imports on December 5. The Biden administration’s pleas were unavailing.
The US “shale revolution,” which from 2010 unlocked billions of barrels of oil and trillions of cubic feet of gas hitherto inaccessible, led to heady predictions that the US no longer needed to pay attention to the Gulf. As a result, Washington believed it could draw down its military and diplomatic presence there in a “pivot to Asia.”
As it had since Richard Nixon’s Project Independence, the US saw energy security in terms of self-sufficiency. Energy experts warned repeatedly that the country remained connected to the world market. But after a decade of fruitless Middle East wars, presidents sought to run foreign policy on the cheap by outsourcing it to the energy business.
Barack Obama’s tenure was buoyed by sharply rising US oil and gas output. He eventually lifted the long-standing ban on exports of crude oil, containing global prices. This enabled stringent sanctions on Iran in pursuit of a nuclear deal, and covered for the loss of Libyan output during and after the 2011 overthrow of Muammar Qaddafi.
The Gulf producers’ struggle to compete with shale caused the oil price crash in late 2014 and OPEC price war, then the formation of the OPEC+ alliance with Russia and other important non-OPEC producers in late 2016. Saudi Arabia saw that OPEC could not fight both shale and Russia simultaneously.
Donald Trump was mainly able to coast through his presidency on moderate prices. He put pressure on Gulf states to raise production to support renewed sanctions on Iran, only to blindside them in November 2018 with waivers that pushed down prices. But, reversing course, when oil prices crashed early in the pandemic, he threw his weight behind a renewed production deal in calls with Vladimir Putin and Crown Prince Mohammed bin Salman, intended to rescue the domestic US industry.
The shale revolution now seems to have run its course as investors prefer cash to growth. American oil output will continue rising for some years, just not fast enough to meet global demand expansion or cause a price crash.
Oil companies blame an unfavorable investment environment on the Democrats, although nothing tangible Biden has done will have any significant impact on near-term production. Nevertheless, constrained by the environmentalist agenda of his party, Biden is unlikely to shift his rhetoric enough to encourage more activity from the Texas oil barons or their Wall Street backers.
The US remains a significant net oil exporter, as it has not been since the late 1940s. But it has lost the role of swing producer it held for the decade from 2010. High oil prices are good for the US economy on aggregate, and especially for investors. But they are bad for consumers, inflation, and for the majority of states that are not major producers – most of those Democrat-voting or electorally competitive.
So the US administration responded furiously to the cuts, and blamed Saudi Arabia. Washington pointed to dangers to the world economy, and to the boost to Russia, sustaining its war in Ukraine.
Riyadh, by contrast, defended its position and was eventually supported by the UAE, Bahrain, Oman and Iraq. It pointed to the concerns over oil demand and low levels of spare capacity. Its foreign ministry said the decision was unanimous (as OPEC decisions must be), “purely economic,” and aimed to limit price volatility. There is also some suspicion that Saudi Arabia now favors higher oil prices to fund its diversification, such as the $500 billion new city Neom, although local investment bank Al Rajhi believes it is budgeting for next year at about $76 per barrel.
The White House will fall back on old tools, and try out some new ones. It has used the Strategic Petroleum Reserve (SPR) far more actively than under any past president, as a price management mechanism. The lunatic concept of banning US oil exports again has circulated. A renewed Iran nuclear deal, which would restore Iranian oil exports, seems off the table for now.
Otherwise, its main leverage on OPEC+ and specifically Saudi Arabia lies outside the energy field, in denying arms sales and the provision of defense. If the US were ever “energy dominant,” it has to adapt to returning to energy submission. But the superpower has other foreign policy tools, and the Gulf oil producers need to beware how an angry Washington might use them.
Robin M. Mills is CEO of Qamar Energy, and author of “The Myth of the Oil Crisis.”
Scoring the Lebanon-Israel Maritime Deal
The headline-grabbing maritime boundary deal announced between Lebanon and Israel this week produced several winners and losers. Determining who is who is another matter.
Leaders in each country claimed victory after US President Joe Biden unveiled the agreement, while opposition groups on both sides accused their own governments of conceding national wealth. There are also questions about the deal itself and whether it will survive the political storms that are coming.
So, before finalizing the score, we must first identify what was, and remains, at stake.
The long-standing dispute was over a maritime border serving two key purposes: security, and delineation of the countries’ exclusive economic zones.
On the security side, Israel clearly came out on top. Israel will maintain control over a line that starts five kilometers from the coast and stretches into territory that Lebanon considers its own. Lebanon tried to push this line south, but Israel resisted, concerned that a shift would give the Lebanese direct access to Israel’s north.
The tally on economics is more mixed.
Until the early 2000s, when Israel and Egypt began discovering gas reserves in their territorial waters, there had been little economic activity in the eastern Mediterranean. Once gas was found, Lebanon began conducting seismic explorations of its own, which hinted that it, too, had gas reserves that were commercially viable. Exploration rights to the most promising Lebanese blocks – 4 and 9 – were awarded to the French oil giant Total in 2018.
Total drilled Block 4, off the coast of Beirut, in 2020, but came up dry. Total said it would not drill Block 9, whose southern border was disputed by Israel, without Israel’s consent – which in turn required having Hezbollah on board. Not long ago, Hezbollah’s buy-in for a deal with Israel would have been inconceivable. But the freefalling Lebanese economy forced the pro-Iran militia to bend.
Lebanon is a rentier state. Oligarchs use its resources to offer their partisans social services, including government jobs, healthcare, and pensions. With the state going bankrupt, millions of Lebanese find themselves without a social safety net. Some have started to rely on Hezbollah’s services, which are also stretched to breaking point.
For instance, the Great Prophet Hospital, Hezbollah’s main healthcare facility in Beirut, has been unable to cope with an ever-growing roster of patients. The hospital can barely keep the lights on, and medicine is in such short supply that those who live with chronic diseases, such as diabetes, have few options. Lebanon has already run out of affordable insulin.
As Lebanon falls apart, Hezbollah is being squeezed. Lebanon’s Shia, from whom the pro-Iran militia draws its support, are hurting, while the party – and its impoverished sponsor Iran – can do little to ease the suffering.
In the hopes of producing gas to help mitigate Lebanon’s economic disaster, Hezbollah sued for settlement of the maritime border issue to allow Total to dig up Block 9.
But before the party’s chief, Hassan Nasrallah, went on national television on the eve of the deal’s announcement to metaphorically drink the poison, he’d flown a couple of drones into Israeli airspace earlier in the summer, presumably targeting Israel’s Karish gas field. Nasrallah pretended that he had put Israel on notice: He would hit Karish if Israeli production began before a deal with Lebanon was reached. In other words, Hezbollah was threatening Israel with war to force a deal.
Everyone, especially Israel, knew Hezbollah couldn’t drag Lebanon to war in its current state. Yet Israeli officials likely believed they could extract some concessions from Lebanon, such as the demarcation of borders between them, both on land and at sea.
Hezbollah wanted a compromise, but not one that recognized Israel and demarcated borders in a way that would end all territorial disputes between the two sides. Hezbollah, after all, exists to fight Israel. Thus, terrestrial border demarcation was taken off the table.
In its place came a maritime boundary that stopped five kilometers short of shore, leaving most of Block 9’s Qana field in Lebanese hands.
If gas is discovered in Qana, Lebanon will receive 83 percent of its revenue, while Israel will get 17 percent. In previous scenarios offered by the United States, Israel was given 45 percent of the disputed area.
While assessing Qana’s reserves has to wait until later stages of exploration, the Israeli Ministry of Energy predicts that Qana holds just $3 billion worth of gas. With $68.9 billion in external debt, Qana’s potential won’t move the economic needle in Lebanon. Unless Qana proves to be a mega field, or unless other fields are suddenly discovered, Lebanon’s claim of economic victory in maritime talks over Israel will prove misplaced.
But, if Qana surprises with big reserves, or if other fields with sizable amounts of gas are discovered, Israel would have shot itself in the foot by taking the US-brokered deal.
Moreover, the temporary nature of the deal could allow Israel to ask for reconsideration, or it could crumble completely. The deal itself is not a treaty between two countries, but a US document and deposit of maps with the UN (the second such deposit since 2009). None of this went through a ratification process – at least not in Lebanon. In Israel, the cabinet voted but Knesset did not, and an Israeli cabinet vote could be reversed by a future cabinet vote.
Finally, if Israel’s opposition leader, Benjamin Netanyahu, who trashed the deal during its run-up, becomes prime minister again on November 1, Israel could withdraw before it’s clear how much gas reserves Qana holds, if any.
No matter how all of this plays out, this much is certain: declarations of victory, by either side, are premature.
Hussain Abdul-Hussain is a research fellow at the Foundation for Defense of Democracies (FDD), a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.
Iranian and Turkish Moves to Join Shanghai Cooperation Organization Raises Its Profile
Held in Samarkand, Uzbekistan, from September 15 to 16, the 2022 summit of the Shanghai Cooperation Organization (SCO) Heads of State Council demonstrated that the SCO was continuing to evolve into a viable international political congregation independent from the West.
Beginning in the early 1800s, international organizations (IOs) began to emerge as modest arbiters of European affairs. But during and after World War II, new IOs established themselves as far more prominent actors on a global scale. The United Nations (UN), the Arab League, the Organization of Petroleum Exporting Countries (OPEC), the Association of Southeast Asian Nations (ASEAN), and several other IOs were created to manage the affairs of their member states.
After the Soviet collapse, more IOs were created to manage the independence of new states, globalization, and regional cooperation. The Commonwealth of Independent States (CIS), created in 1991, attempted to coordinate military, economic, and political policies between post-Soviet states. The European Union (EU) and the African Union (AU), created in 1993 and 2002, respectively, bound member states more forcefully to common economic and political norms. Other IOs, like the Arctic Council (1996) and Asia Cooperation Dialogue (2002), aimed to foster broader regional cooperation.
Most new international organizations meshed neatly with the Western-led liberal world order. But in 2001, the formation of the Shanghai Cooperation Organization (SCO) was formally announced, and it established itself as an exclusionary outlier. Originally known as the Shanghai Five when it was created in 1996, it included China, Russia, Kazakhstan, Kyrgyzstan, and Tajikistan, with Uzbekistan later joining when it evolved into the SCO in 2001.
The SCO was created partly to help coordinate a new era of peaceful relations between Moscow and Beijing and to manage their coalescing interests in Central Asian states. In addition, combatting the “Three Evils” of extremism, separatism, and terrorism were major priorities for the organization, which included data and intelligence sharing and common military drills among its member states.
Over time, the SCO began to embrace greater political and economic integration. Support for autocratic rule and limiting criticism of human rights violations set it apart from other Western-aligned IOs, with the SCO also overseeing the growth of joint energy projects, the fostering of trade agreements, and the introduction of the SCO Interbank Consortium in 2005 “to organize a mechanism for financing and banking services in investment projects supported by the governments of the SCO member states.”
But the organization’s most pressing vocation was facilitating a multipolar world order. Investing in an independent forum for economic, political, and military affairs outside of Western influence became a key component of Russian and Chinese attempts to reduce Western power in global affairs.
Russia and China have also developed complementary mechanisms to the SCO, which have helped decentralize its mission. Following the blacklisting of several Russian banks from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) in 2014, for example, the Kremlin approved the creation of the System for Transfer of Financial Messages (SPFS) to replicate SWIFT and introduced the National Payment Card System (now known as Mir), while China created the Cross-Border Interbank Payment System (CIPS).
These initiatives even proved attractive to states that were more aligned with the Western-led global order. India and Pakistan began SCO accession talks in 2015 and officially joined the organization in 2017. Despite relatively positive relations with the West, India and Pakistan have both faced Western criticism over human rights and democratic backsliding in recent years. India’s introduction of platforms like RuPay in 2012 and Unified Payments Interface, which eroded the traditional dominance of Visa and Mastercard in the country, also complemented SCO’s attempts to reduce Western economic preeminence globally.
At the 2022 summit of the SCO Heads of State Council, Uzbek President Shavkat Mirziyoyev reiterated that the SCO was not an anti-U.S. or anti-NATO alliance. But the organization’s original motive to create a multipolar world was echoed in its Samarkand Declaration, the final declaration of this meeting, and continues to conflict with Washington’s attempts to maintain the U.S.-led world order. According to the declaration, the member states “confirm[ed] their commitment to [the] formation of a more representative, democratic, just and multipolar world order.”
This core stratagem continues to appeal to countries around the world. Alongside the leaders of its eight member states, the SCO invited the presidents of Belarus, Mongolia, and Iran as official observers to the recent summit. Having started its accession process in 2021, Iran signed a memorandum of understanding with the SCO to join the institution by April 2023.
The SCO would likely alleviate Iran’s sense of economic isolation stemming from Western sanctions, a sentiment shared by Iranian officials at the summit and something that was also noted back in 2007. Belarus has also found itself under increasing sanctions in recent years and enhanced its accession procedures to join the SCO in Samarkand.
The presidents of Azerbaijan, Turkmenistan, and Turkey were also invited to the SCO summit as special guests, with Turkish President Recep Tayyip Erdoğan announcing that his country would seek full membership to the SCO. In 2012, Erdoğan joked to Russian President Vladimir Putin about abandoning Turkey’s EU aspirations if Russia would allow them into the SCO. Turkey’s renewed attempt comes at a time when its ties with the rest of the Western world are increasingly strained and could instigate other NATO states, and potentially the EU states, to join the SCO as well.
The SCO has also established strong relations with other IOs. Representatives from ASEAN, the UN, the Russian-dominated CIS, the Collective Security Treaty Organization (CSTO), and the Eurasian Economic Union (EAEU) were invited to the 2022 summit. Notably absent were any representatives from the EU or NATO. Meanwhile, in 2005, the U.S. was rejected from gaining observer status, solidifying the SCO’s status as a bulwark against U.S. influence in Eurasia.
Like all major international organizations, the SCO faces systemic obstacles that hinder its effectiveness and long-term viability. At the recent summit in Uzbekistan, China’s Xi Jinping was welcomed to the country by his Uzbek counterpart, Shavkat Mirziyoyev. Putin, however, was greeted by Uzbek Prime Minister Abdulla Aripov, highlighting Russia’s strained relations with many of the former Soviet states and the growing strength of Beijing over Moscow. Unlike in the CSTO and the EAEU, Russia is not the dominant actor in the SCO, and will increasingly have to contend with China’s predominant authority.
Disputes also remain between SCO member states. India and Pakistan, for example, are afflicted with an ongoing struggle over Kashmir. China and India have their own territorial disputes and have engaged in minor violent skirmishes since India joined the SCO. Additionally, deadly clashes between Kyrgyzstan and Tajikistan erupted during the recent summit, while admitting Armenia and Azerbaijan, both of which are SCO dialogue partners, will only further increase the number of members currently locked in their own territorial disputes.
But the SCO has consistently portrayed itself as a vehicle to supervise these issues. The leaders of Kyrgyzstan and Tajikistan met for talks during the summit to assuage tensions. And since 2002, the Regional Anti-Terrorist Structure (RATS) has encouraged military coordination between member states, with the Indian and Pakistani militaries conducting RATS drills in 2021. More drills between them are planned for October, and while they are aimed primarily at countering unrest from Afghanistan, they are also part of SCO’s attempts to manage relations of member states.
China and Russia have also agreed to “synergize” the Belt and Road Initiative (BRI) and the EAEU to help mitigate possible tension between them, with both Xi and Putin meeting on the sidelines of the 2022 SCO summit and pledging to respect each other’s core interests.
The SCO member states clearly believe the organization can, and has greater potential to, effectively manage their concerns and regional affairs, and its appeal continues to grow. Besides the additional SCO dialogue partners (Cambodia, Nepal, and Sri Lanka), Qatar, Saudi Arabia, and Egypt were granted the status of SCO dialogue partners at the 2022 SCO summit. Myanmar, Bahrain, Kuwait, the United Arab Emirates (UAE), and the Maldives were also granted the status of dialogue partners.
Russian and Chinese influence will fall as more members join, which will also dilute consensus within the organization. But it remains a Beijing and Moscow-led initiative to manage world affairs and to demonstrate that the “international community” is not just the West. With almost half of the world’s population and a quarter of the global GDP, the SCO is increasingly becoming a representative of the Global South.
By pooling together other IOs into an umbrella forum, the SCO can further its goal of challenging the wider Western-dominated IO ecosystem and prevent Washington from setting the global agenda. This will require the constructive management of Russian and Chinese ambitions and the increasingly complex needs of more member states.
John P. Ruehl is an Australian-American journalist living in Washington, D.C. He is a contributing editor to Strategic Policy and a contributor to several other foreign affairs publications. He is currently finishing a book on Russia to be published in 2022.
What is Driving Russia-Iran Energy Cooperation?
As Europe prepares for a winter without Russian gas, the Kremlin is looking to move its natural gas sales farther to the east. Although China and India remain Moscow’s most important export destinations in Asia, Russia seems to have found a new buyer – the Islamic Republic of Iran.
Why would a country that holds some of the world’s largest proven reserves of oil and natural gas purchase energy from the Russian Federation?
Iran needs new gas pipelines to send its own energy products abroad, as the existing routes to Turkey and Iraq can supply only small volumes. In 2021, Iran’s total gas exports were 17 billion cubic meters. By comparison, Russia exported 241 billion cubic meters last year. Pipeline capacity was Iran’s primary bottleneck.
Another problem for Iran is the absence of liquefied natural gas (LNG) production. The Islamic Republic needs Russia to help it develop the country’s energy infrastructure.
A $40 billion memorandum of understanding, signed in July between Russian energy giant Gazprom and the National Iranian Oil Company, could close this gap. Shut out from accessing Western LNG technology after the imposition of sanctions by the United States in 2018, Iran lacks access to expertise needed to develop its energy industry, and Gazprom could deliver it.
Indeed, Russia’s international isolation amid its war in Ukraine has presented Iran with an opportunity. As part of the MoU, Moscow will assist in developing Iran’s Kish and North Pars gas fields, as well as six oil fields.
If Russia and Iran can agree on mechanisms to circumvent Western sanctions and coordinate on energy exports, the European Union would have to rely on oil supplies from Saudi Arabia and the United Arab Emirates, and LNG from the US and Qatar. Such an outcome could lead to higher energy prices globally, and additional gas shortages in Europe, especially after Moscow and Riyadh announced deep oil cuts at the recent meeting of OPEC+ alliance.
Moscow and Tehran could even attempt to create a “global gas cartel,” giving them significant leverage over the West, particularly European countries that remain heavily dependent on gas imports.
While Iran and Russia are cooperating now, Tehran has expressed interest in easing the energy shortfall in Europe that Russia’s war in Ukraine has caused. The problem is that Iran, like Russia, is under export restrictions, and without a reduction in Western sanctions – which seems unlikely – the Islamic Republic won’t be able to help Europe meet its gas needs this winter.
But even with a green light from Washington, Iran lacks the infrastructure to increase its exports, which is why it is seeking to establish strong energy ties with “friendly countries” that can help Tehran develop and modernize its oil and gas industries.
Some are skeptical of this approach. Morteza Behruzifar, an energy expert in Tehran, told the Iranian Labor News Agency that Moscow has “never invested a penny in the Islamic Republic’s energy sector,” and the recent MoU will go nowhere. Indeed, Russia currently lacks large-scale LNG technology of its own.
And yet, assuming the deal proceeds, Iran does stand to benefit. In mid-September, the Iranian Oil Ministry said that Iran will buy 9 million cubic meters of Russian gas per day, primarily for domestic consumption (and most likely to secure energy stability in Iran’s northwest). With the EU intent on cutting off Russian gas imports, Moscow clearly needs new markets, and Iran is in a good position to bargain.
An additional 6 million cubic meters of Russian supplies could be reexported to other countries. Analysts expect Tehran to purchase this gas at a low price, and then sell it to Turkey, Pakistan, and even Afghanistan, which would allow Iran to close a yawning budget gap. The arrangement would also benefit Gazprom, given that it would not bear the risk of non-payment because Tehran, rather than Kabul or Islamabad, would be the buyer.
To be sure, Iran will not replace Europe as the major market for Russian natural gas. Even if expected daily targets are met, Gazprom would only provide Iran with 5.5 billion cubic meters of natural gas per year, which is just 10 percent of what Russia previously supplied Europe via the Nord Stream pipeline. Now that Nord Stream and Nord Stream 2 are out of commission following recent explosions, Gazprom will likely seek to increase export volumes to Iran and elsewhere.
In other words, Russia, isolated from the West, has become more dependent on markets in the Middle East and Asia, and Iran could factor prominently in those calculations. Eventually, the Kremlin might even seek to establish control over Iran’s gas resources.
For now, most of these plans remain aspirational. Even the best-laid strategies will be affected by the outcome of the Ukraine war, especially if Russia suffers a stinging defeat. Iran is also in the throes of an unprecedented wave of anti-government opposition that is diverting attention from daily concerns to regime survival.
Therefore, Russia and Iran may have ambitious goals in the field of energy, but there are no guarantees that they will achieve them any time soon.
Nikola Mikovic is a political analyst in Serbia. His work focuses mostly on the foreign policies of Russia, Belarus, and Ukraine, with special attention on energy and “pipeline politics.”
The Case for Free-Flowing Electrons
The average human body contains some 7 octillion electrons (that’s 27 zeroes) that weigh, altogether, just 19 grams. These tiny particles should be able to cross borders more easily than the average passport-bearing person, but beyond Europe, international trade in electricity is minimal.
Yet energy insecurity and climate threats require that transnational currents – electrons – flow more readily than they do today. Could megaprojects in the Middle East help to make that happen?
Just a few years ago, the answer would have been a resounding “No.” Oil, gas, and coal scoot easily around the world on ships, trains, trucks, and pipelines. Electricity needs cables, and traditionally, the high losses of current in transmission lines has limited their use over long distances.
At higher voltages, less current is lost – a 1,000 kilovolt line loses less than a quarter of the power than a typical 400-500 kilovolt system, which is the backbone of national grids.
DC requires conversion at the delivery point to be usable, but it has other advantages: half the losses of AC, less cable required, and the ability to connect systems running on different frequencies. It also avoids propagating a fault from one network to another – an important advantage for international links.
But developing ultra-high voltage lines using direct current (DC), rather than the more familiar alternating current (AC), has proven challenging.
Since 2009, though, China has been at the forefront of developing ultra-high voltage, long-range lines, to bring electricity from its sunny, windy, and coaly interior to coastal cities. This and other gains have made previously unthinkable projects plausible.
The world’s longest existing subsea cable, the 720-kilometer North Sea Link, which joins the electricity systems of Norway and the United Kingdom, was completed in June 2021.
Other projects have morphed from bold ideas to the mainstay of regional energy planning. While Europe has struggled to balance its ambitious plans for net-zero carbon with energy affordability and availability, continental scale electricity grids are now seen as a way to balance out local fluctuations and daily and seasonal variations in wind and solar output.
The most notable of these is the £16 billion ($17.3 billion) Xlinks power project, a plan to produce 10.5 gigawatts of renewable energy in Morocco and feed it through a 3,800-kilometer, subsea high-voltage direct current link to the UK.
The plan would take advantage of Morocco’s steady sunshine and wind, and availability of open land, giving it much lower renewable generation costs than in Britain. Its southerly latitude would also help in supplying the UK with solar-generated electricity in winter. In total, Xlinks could reportedly supply up to 7.5 percent of the UK’s total electricity needs.
Other ambitious intercontinental links in the works include IceLink, which would connect geothermal and hydro-rich Iceland to Britain with up to 1,200 km of cable, and the 20 gigawatt, 4,200 km Australia-Asia PowerLink from Darwin to Singapore. Expensive and large-scale though they are, these projects all have serious investors backing them (even if the Australia-Asia project now appears to have taken a back seat to plans for hydrogen exports).
Two other proposed projects – the EuroAsia and EuroAfrica Interconnectors – are modest in comparison but more practical in the short-term. Part of an envisioned “energy highway,” these projects would join Israel and Egypt to Cyprus, Crete, and mainland Greece, with an intended start date of 2025.
With gas and renewable output booming in the Eastern Mediterranean, subsea cables are an alternative to subsea gas pipelines, which have struggled to gain political and economic traction. Cables would also have a longer shelf life, as Europe’s decarbonization plans mean a gas pipeline would have to be converted to carry hydrogen to continue operating into the 2040s.
Within the Middle East, more modest gains have been made toward a regional electricity market. The Gulf Cooperation Council Interconnection, which tied the six countries’ grids together in 2009, operates at a limited scale and doesn’t yet feature commercially based electricity trading. One problem is that Saudi Arabia’s grid is on 60 hertz frequency, unlike its neighbors, which are on 50 hertz, requiring converter stations.
Plans to join the GCC lines with Iraq have also been hung up by commercial debates and Baghdad’s political paralysis.
Better progress is being made on Saudi-Egypt and Saudi-Jordan connections, long discussed projects that now appear to be underway. With these and other interconnections complete, electricity could one day flow from Muscat all the way to Athens.
Still, enthusiasm for such initiatives should be tempered. Outside the EU’s single market, large-scale international electricity trading hasn’t taken off, primarily due to commercial barriers and concerns over supply security. Disruptions in gas and oil, which can be stored for months, are bad enough for countries; a sudden electricity shut-off would be disastrous.
Some of the proposed transmission lines would also cross contested maritime territories, like in the Eastern Mediterranean, where Israel, Lebanon, Cyprus, Greece, and Turkey all disagree on borders. The Desertec Industrial Initiative of 2009, which was conceived to bring renewable energy from North Africa to southern Europe, foundered on the realization that Morocco, Algeria, Tunisia, Libya, and Egypt had urgent energy needs of their own, not to mention internal political problems and exterior squabbles.
Even when electricity interconnectors do proceed, their economic potential should not be overstated. For instance, the EuroAfrica and EuroAsia lines would supply only 10 percent of peak demand in Greece, one of the EU’s smaller economies, while electricity sales might earn the projects about $1 billion annually, a drop in the bucket compared to Saudi Arabia’s oil exports, which bring in that amount daily at current prices.
Megaprojects make headlines and some of them may be worth pursuing in the long term. But the more painstaking work of local electricity interconnections, and building markets and commercial relations, is what should be progressed now. If the world is going to meet its green energy targets, both the Middle East and Europe must make it easier for electrons to slip across borders.
Robin M. Mills is CEO of Qamar Energy, and author of “The Myth of the Oil Crisis.”
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