Actual problems of strengthening the Shanghai Cooperation Organization

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Actual problems of strengthening the Shanghai Cooperation Organization 12.11.2018 14:37

On November 6, a presentation of the Collection of materials of the Second Sochi Eurasian Integration Forum “Prospects for the Development and Strengthening of the Shanghai Cooperation Organization” - “Actual Problems of the Development of the Shanghai Cooperation Organization”, published by the Institute of CIS Countries, and an eponymous seminar with the participation of Russian experts was held at the Institute of the CIS Countries.

The seminar was opened and moderated by the Deputy Director of the Institute of CIS Countries Vladimir Evseev. He presented the Collection of materials of the forum, spoke about the process and participants of its preparation for printing.

The head of the economics department of the Institute of CIS countries, doctor of economic sciences, Professor Aza Migranyan made a presentation on the “Features of the development of the SCO in the economic sphere”. In her speech, she noted that the SCO does not yet represent any real force that can change the configuration in “Greater Eurasia”, since, from an economic point of view; the interests of the states included in the Organization are too different. Since China plays the main role in the SCO, the main institutional processes in the Organization are formed by them, and are concentrated in the commercial and financial spheres, which are aimed at promoting its own interests in opening the markets of the SCO member states and creating profitable Beijing financial and commodity flows. At the same time, China’s rigid focus on diversifying energy supplies is evident, with the ever-expanding presence of Chinese state-owned oil and gas companies in this process, while Russia is looking to increase its role as an energy supplier.

At present, China extracts 40% of the required energy resources by itself, and the remaining 60% is successfully distributed by it between the Russian Federation, the United Arab Emirates, Qatar, Turkmenistan, Australia, the United States and Iran.

Turkmenistan since 2007, after the construction of a gas pipeline in the PRC, actually became dependent on Beijing. The profit from the contract is only 5%, as a result of which Ashgabad is forced to introduce gas fees for the local population. As a result, Turkmenistan in the energy market of the SCO is forced to agree to lower the price of its energy resources, which Beijing now determines. And Russia in its project to supply gas through the Power of Siberia pipeline has already been forced to reckon with low gas prices from Turkmenistan. In competition with its partners in the former USSR for the supply of energy to China, Russia faces the interests of not only Turkmenistan, but also Uzbekistan and Kazakhstan. And although the latter supplies energy carriers at average prices, there is a tendency to reduce them, as China displaces the European and US oil and gas companies from the Kazakhstan market.

India’s entry into the SCO gives Russia hope for the emergence of a new consumer who will “cheer up” the energy market. But in India at the present time only the supply of gas in the form of LNG is possible. In addition, the oil and gas infrastructure is poorly developed in the country, and even that is focused on supplies from the United Arab Emirates and Qatar. Therefore, Russia will be forced to take the path of China: first, to form an infrastructure for the subsequent supply of energy resources. In the foreign trade of the states of Central Asia, China, the states of Europe and Russia occupy about 30% each. Thus, Kazakhstan is tied to China by its fuel and energy complex. The issue of transferring about 50 companies from the PRC to Kazakhstan under the framework agreement is being resolved, but it is not yet clear what this will result in.

Tajikistan fell into complete subordination to China in the financial and trade sphere. This is due to several factors, such as:

- the practice of issuing China-related loans;

- a prerequisite for co-financing projects from the recipient state;

- the conclusion of concession agreements for a period from 49 to 99 years;

- the conclusion of contracts guaranteed by the governments of the recipient countries;

- low interest and ease of issuing loans.

However, China makes extensive use of the system of collateral investments: in case of impossibility of repaying the loan, the recipient country pays for raw materials or rights to deposits.

Uzbekistan, in turn, does not change the basic principles of its economic activity: in all projects on the raw material base, while maintaining control of the government, partners are attracted on a parity basis. Thus, China’s investments are balanced by Tashkent investments from South Korea or from Japan.

India’s factor in the SCO could become an equalizing balance, but at the moment, the parameters of Russian-Indian cooperation are only being worked out.

Thus, at the moment in the economic sphere, the activity of the SCO is more declarative in nature, not acting as a full-fledged institution in a multinational project.

A lecture at the Institute of Asian and African Countries of the Lomonosov Moscow State University was made by the candidate of philological sciences Boris Volkhonsky. In his opinion, now there are changes in the entire geopolitical situation around the world, but how the world will change is not yet clear.

Up to September 20, 2018, the United States took a very tough stance on India’s foreign economic and military policies, even including the threat of sanctions. However, after the signing of the agreement between Moscow and Delhi on deliveries of the S-400 air defense system, the United States passed back. In particular, they postponed the imposition of sanctions on Delhi on its purchases of Iranian oil for 6 months.

India has a separate policy on the Pacific space and on the continental space, including within the framework of the SCO. India’s undoubted priority in the SCO is the North-South International Transport Corridor, which Delhi regards as a competitor to China’s transport projects.

Natalia Zamaraeva, Senior Researcher of the Pakistan Sector of the Institute of Oriental Studies of the Russian Academy of Sciences, Candidate of Historical Sciences, spoke on the topic “Peculiarities of the Internal Political Situation in Pakistan”. According to her, in economic cooperation with Pakistan, Russia is in 3rd place, and the Central Asian states are consistently in 4-5th place.

Despite the fact that Islamabad reaffirmed its commitment to the policy of “common destiny” with China, the Pakistani army has strong positions for those who support the revision of certain articles of the Pakistan-China Economic Corridor Treaty (PCEC), based on national security reasons. In fact, Islamabad was facing a crisis of non-payment of interest on loans that China has allocated for the construction of the CPEC. With the consent of Beijing, Pakistan began to attract third-party investors to this project. The first of these was Saudi Arabia with the prospect of providing investments in the amount of about $6 billion. It is interested, first of all, in the construction of an oil refinery in Gwadar to process its own oil, as well as in the development of hydrocarbon deposits in Baluchistan (on the border with Afghanistan ), speaking a direct competitor to Iran.

As for the territorial issue of the border between Pakistan and Afghanistan, it is actually closed on May 31, 2018, since the territory of the tribes, under pressure from the military, came under the jurisdiction of the Constitution of Pakistan.

The report “Will Mongolia Become a SCO Member?” was presented by Elena Boykova, Senior Researcher of the Korea and Mongolia Department of the Institute of Oriental Studies of the Russian Academy of Sciences, Candidate of Historical Sciences. As she notes, Mongolia has been an observer in the SCO since 2004. After 3-4 years, Russia and China began to insist on its full membership in the Organization. However, in Mongolia itself there remain quite a few opponents on this issue. Their main arguments are that in this case the country may become dependent on either Russia or China; relations with the “third neighbor” - the USA, Germany, etc., as well as with the OSCE and NATO — will become more complicated. However, in the near future Mongolia may become a member of the SCO.

Senior Researcher of the Iranian Sector at the Institute of Oriental Studies of the Russian Academy of Sciences, Ph.D. in History Vladimir Sazhin made a presentation on “US sanctions and the place of Iran in the SCO”.

On August 7, 2018, the United States introduced the first package of sanctions, and on November 6, on the eve of the midterm elections to the United States Congress, the second. On the one hand, D. Trump hopes to win an additional number of votes for candidates from the Republican Party, and on the other, D. Trump hates B. Obama and all Democrats, whose main foreign policy achievement is the “nuclear deal” with Iran.

If the anti-Iran sanctions of 2012-2016 were developed by the EU and were supported by the United States, almost no one supported the current sanctions imposed by Washington. Moreover, the EU is seeking to mitigate or circumvent these sanctions.

Today, eight countries have been freed by Washington from the need to stop buying Iranian oil for at least 6 months. But this is not a concession, but taking into account the experience of the 1st wave of sanctions: oil refineries are built for a specific chemical composition of oil, and it is not so easy and sometimes impossible, to replace a supplier. To achieve a complete cessation of exports of Iranian D. Trump still cannot.

Now Iran produces about 3.7 million barrels of oil per day, and exports about 1.7 million barrels. A further decline in Iranian oil exports to 1 million barrels is expected.

Iran, which has extensive experience in economic development under conditions of sanctions pressure, has certain achievements in circumventing the sanctions regime. In particular, it may return to the practice of selling oil through a chain of intermediaries; the export of oil in tankers "under a foreign flag", as well as the use of new opportunities, which gives him the situation with the desire of Europe itself to avoid imposing tough sanctions. For example, in Europe there are about 23 million small and medium-sized businesses, and many of them are interested in trade with Iran. In Europe itself, they hope that Washington will not be able to track all their activities in the Iranian direction.

In 2013, the EU's trade with Iran, which was under sanctions, reached its minimum value of 7 billion euros. For comparison, in 2017 it was already 23 billion euros.

In turn, Russia may revive the oil-for-goods program, which was developed by Moscow and Tehran to mitigate the sanctions against Iran in 2012-2016.

Elena Dunaeva, Senior Researcher of the Iranian Sector of the Institute of Oriental Studies of the Russian Academy of Sciences presented the report “Peculiarities of the Internal Political Situation in the Islamic Republic of Iran”. In her opinion, the US demands for Iran are ultimatum and will not be met by Tehran. Moreover, the current situation drastically weakens the position of reformers in the Islamic Republic of Iran, while the conservative wing of the Iranian political spectrum, which had initially opposed concluding any treaties with the United States, would only strengthen.

At the same time, the slowdown in the country's economic development due to sanctions pressure, demographic problems and growing unemployment force Tehran to intensify work to improve the management of the economic bloc of ministries and departments.

The presentations of the speakers showed not only the problems that exist in the SCO and in individual member states of the Organization, but also possible ways to solve them. In addition, the speakers highly appreciated the holding and results of the Second Sochi International Forum, as well as the promptness of publishing the reports presented at it in the Source Book. They expressed hope for the continuation of the multilateral cooperation of experts from many countries in this sought-after format, and also approved the Final Document of the Second Sochi International Forum.

Deputy Head of the Caucasus Department

Institute of CIS countries

Sergey Sarkisyan