[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]





          THE DEVELOPMENT OF ENERGY RESOURCES IN CENTRAL ASIA

=======================================================================

                                HEARING

                               BEFORE THE

         SUBCOMMITTEE ON EUROPE, EURASIA, AND EMERGING THREATS

                                 OF THE

                      COMMITTEE ON FOREIGN AFFAIRS
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 21, 2014

                               __________

                           Serial No. 113-160

                               __________

        Printed for the use of the Committee on Foreign Affairs






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                      COMMITTEE ON FOREIGN AFFAIRS

                 EDWARD R. ROYCE, California, Chairman
CHRISTOPHER H. SMITH, New Jersey     ELIOT L. ENGEL, New York
ILEANA ROS-LEHTINEN, Florida         ENI F.H. FALEOMAVAEGA, American 
DANA ROHRABACHER, California             Samoa
STEVE CHABOT, Ohio                   BRAD SHERMAN, California
JOE WILSON, South Carolina           GREGORY W. MEEKS, New York
MICHAEL T. McCAUL, Texas             ALBIO SIRES, New Jersey
TED POE, Texas                       GERALD E. CONNOLLY, Virginia
MATT SALMON, Arizona                 THEODORE E. DEUTCH, Florida
TOM MARINO, Pennsylvania             BRIAN HIGGINS, New York
JEFF DUNCAN, South Carolina          KAREN BASS, California
ADAM KINZINGER, Illinois             WILLIAM KEATING, Massachusetts
MO BROOKS, Alabama                   DAVID CICILLINE, Rhode Island
TOM COTTON, Arkansas                 ALAN GRAYSON, Florida
PAUL COOK, California                JUAN VARGAS, California
GEORGE HOLDING, North Carolina       BRADLEY S. SCHNEIDER, Illinois
RANDY K. WEBER SR., Texas            JOSEPH P. KENNEDY III, Massachusetts
SCOTT PERRY, Pennsylvania            AMI BERA, California
STEVE STOCKMAN, Texas                ALAN S. LOWENTHAL, California
RON DeSANTIS, Florida                GRACE MENG, New York
DOUG COLLINS, Georgia                LOIS FRANKEL, Florida
MARK MEADOWS, North Carolina         TULSI GABBARD, Hawaii
TED S. YOHO, Florida                 JOAQUIN CASTRO, Texas

     Amy Porter, Chief of Staff      Thomas Sheehy, Staff Director
               Jason Steinbaum, Democratic Staff Director
                                 ------                                

         Subcommittee on Europe, Eurasia, and Emerging Threats

                 DANA ROHRABACHER, California, Chairman
TED POE, Texas                       WILLIAM KEATING, Massachusetts
TOM MARINO, Pennsylvania             GREGORY W. MEEKS, New York
JEFF DUNCAN, South Carolina          ALBIO SIRES, New Jersey
PAUL COOK, California                BRIAN HIGGINS, New York
GEORGE HOLDING, North Carolina       ALAN S. LOWENTHAL, California
STEVE STOCKMAN, Texas



















                            C O N T E N T S

                              ----------                              
                                                                   Page

                               WITNESSES

The Honorable Dennis C. Shea, chairman, U.S.-China Economic and 
  Security Review Commission.....................................     4
Mr. Charlie Santos, chairman, Uzbekistan Investment Group, Inc...    15
Mr. David Merkel (former director, Europe and Eurasia, National 
  Security Council)..............................................    22
Mr. Jeffrey Mankoff, deputy director and fellow, Russia and 
  Eurasia Program, Center for Strategic and International Studies    37

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

The Honorable Dennis C. Shea: Prepared statement.................     7
Mr. Charlie Santos: Prepared statement...........................    17
Mr. David Merkel: Prepared statement.............................    24
Mr. Jeffrey Mankoff: Prepared statement..........................    40

                                APPENDIX

Hearing notice...................................................    54
Hearing minutes..................................................    55

 
          THE DEVELOPMENT OF ENERGY RESOURCES IN CENTRAL ASIA

                              ----------                              


                        WEDNESDAY, MAY 21, 2014

                       House of Representatives,

         Subcommittee on Europe, Eurasia, and Emerging Threats,

                     Committee on Foreign Affairs,

                            Washington, DC.

    The subcommittee met, pursuant to notice, at 2 o'clock 
p.m., in room 2200 Rayburn House Office Building, Hon. Dana 
Rohrabacher (chairman of the subcommittee) presiding.
    Mr. Rohrabacher. I call this subcommittee hearing to order. 
The subject of today's hearing is the development of energy 
resources in Central Asia. Without objection, all members will 
have 5 legislative days to submit additional written questions 
or extraneous material for the record.
    Natural resources including gas and oil are the building 
blocks of a nation's economic strength and we all depend on 
these energy resources to power industry, heat homes, bring us 
our food and other goods. Natural resources can, if put to good 
use, elevate the human condition and reduce poverty. That is, 
if it is put to good use.
    The planet's scarce resources are distributed unevenly 
around the globe, so history is filled with accounts of 
nations, states, and businesses engaged in power plays and 
maneuvers to secure and to move and to utilize and to sequester 
natural resources. A contest of resources is playing out right 
now in Central Asia.
    And so this hearing asks the question, what does the future 
hold for energy resources in Central Asia? To highlight the 
importance of this topic, it was just announced today that 
Russia and Communist China agreed on a natural gas deal worth 
$400 billion. This is a significant development that takes more 
gas off the market, and of course this gas otherwise might go 
to supply Europe.
    As many of my colleagues know, I have been warning about 
the growing military and economic power of Communist China for 
years. Today, China has grown to become one of the world's 
largest energy consumers having just signed a gas deal with 
Russia for $400 billion. Today, China has grown, as I say, to 
become the world's largest energy consumer. This makes Central 
Asia's oil and gas essential to the Chinese Communist Party and 
their plans. The Communist Party rules their country with an 
iron fist and it also threatens their neighbors.
    The Communist regime is now actively engaged in expanding 
its influence beyond its western borders and throughout Central 
Asia. Their aim is to secure the access to energy resources 
through long term contracts, investment loans, and building 
pipelines back to China and perhaps bribes and other things 
like that, that other under-the-table maneuvers.
    Make no mistake, these deals favor the corrupt leaders of 
the Communist Chinese party, it solidifies their grip, and will 
not necessarily benefit the vast majority of the people of 
Central Asia. During the last decade, trade between China and 
the region has increased 30-fold and continues to climb. This 
is happening as the spectacle of China's worldwide effort to 
fence off critical natural resources from the West through 
bribes and intimidations continues and is quite evident.
    America's challenge is to find and to implement policies 
which promote political progress, support the sovereignty of 
five Central Asian countries, and allow their energy and other 
natural resources to be exported in a strategically and 
economically beneficial way. That is no easy task. This is made 
more difficult by our withdrawal from Afghanistan.
    While it is good that our troops are coming home, I worry 
that the attention that Washington has paid to the region will 
actually dissipate once our military is gone. And we have not 
had a level of, actually, involvement that I think would be 
healthy for our country and for the West to begin with, but 
once our troops are gone from Afghanistan that attention paid 
to by our Government and our country and our people may even go 
beyond what we are facing today which is unacceptable at 
today's level. And with that China's ruling clique will win its 
quest for domination of that region of the world by default.
    I look forward to hearing from our excellent panel of 
witnesses on how the U.S. can be proactive in the region. I am 
specifically interested in learning more about the possibility 
of a trans-Caspian pipeline and the potential which holds to 
increase Europe's energy security and at the same time further 
global economic progress.
    With that I turn to my ranking member, Mr. Keating, for his 
opening statement.
    Mr. Keating. Well, thank you, Mr. Chairman, for holding 
this timely meeting. Today's hearing topic provides us with an 
opportunity to examine the global impact of climate change and 
expanding world population and accompanying social unrest.
    In March 2013, for the first time Director of National 
Intelligence, James Clapper, listed competition and scarcity 
involving natural resources as a national security threat on a 
par with global terrorism, cyber war, and nuclear 
proliferation. A year after the statement was made, the Ukraine 
crisis in particular has highlighted Europe's energy insecurity 
and vulnerability tied to overdependence on Russian gas.
    European leaders in March of this year concluded that 
efforts to reduce Europe's dependency should be intensified, 
and asked the European Commission to propose a comprehensive 
plan to move toward energy independence by June. I look forward 
to their findings and believe that Central Asia as well as the 
Caspian can play an important role in Europe's future strategy, 
but the threat of Russian aggression in the region remains with 
us.
    Central Asian states have long been pressured by Russia to 
yield large portions of their energy wealth to Russia, in part 
because Russia controls most existing export pipelines. 
Further, Chinese interest in the region is growing as well. 
Over the past decade, China has dramatically increased its 
imports from the region. Today, China imports over half of its 
gas from Turkmenistan. And last week, the Turkmen President 
presided over the opening of a new processing plant that will 
further increase the flow of Turkmen gas to China.
    Yet even with seemingly competing interests between Russia 
and China over resources in Central Asia, we have as the 
chairman mentioned, received the news of $400 billion gas deal 
that was signed between the two countries. Of course the devil 
will be with the detail on that agreement, and reportedly, no 
details have been finalized. I view this as an interesting time 
and message from Moscow and Beijing to jointly send.
    Unfortunately these are not the type of influences we would 
like to see in such an energy-rich region, particularly since 
many of the Central Asian countries themselves have inadequate 
protections for foreign companies looking to invest. They often 
lack a robust foundation built on the principle of a rule of 
law.
    I would like to hear from our witnesses today on how the 
United States can engage with Central Asian governments to 
improve governance and transparency in their energy sector both 
bilaterally and through international organizations. However, 
as we discuss these important issues, I hope that we continue 
to assist our European partners toward discovering an energy 
independent future. I believe that the TTIP agreement may 
provide an opportunity for the EU and the U.S. to address some 
of these concerns in a mutual manner. I look forward in this 
regard to hearing from our witnesses, and with that Mr. 
Chairman, I yield back.
    Mr. Rohrabacher. Well, thank you very much. And we have 
four witnesses today and I will be introducing all of them now. 
I would ask each of you to limit your remarks to 5 minutes. You 
can submit longer statements for the record, but I have to be 
very ruthless in enforcing this rule because we are going to be 
in and out of here. And if you take more than 5 minutes you are 
actually taking time away from one of the other witnesses.
    So our first witness today is the Honorable Dennis Shea, 
the chairman of the U.S.-China Economic and Security Review 
Commission. He previously served as counsel and deputy chief of 
staff to Senate Majority Leader Bob Dole. Later he was 
appointed as executive director of the President's Commission 
on postal reform and as assistant secretary for policy 
development at the Department of Housing and Urban Development.
    He has earned multiple degrees from Harvard University 
including his JD. Chairman Shea is currently serving his fourth 
term as a member of that commission. I want to note that the 
U.S.-China Commission produces an annual report that is a 
fantastic source of information about what threat and 
potentials we have with the Communist Chinese party.
    And then we have the next witness, Mr. Charlie Santos. He 
is an expert in Central Asian affairs, who I have known for 
many years. From in the late '80s through the mid-'90s, he 
worked in various capacities for the United Nations in Central 
Asia and as well as in Afghanistan. After he left the United 
Nations, Mr. Santos became the vice president of Centgas 
consortium helping to negotiate pipeline routes for oil and gas 
deals in the region.
    Over the past 20 years he has held leadership roles in many 
Central Asian energy ventures, and today as chairman of the 
Uzbek Investment Group he has a great deal of on the ground 
experience about the matters we are planning to discuss today.
    Next, we have David Merkel. He is a senior fellow at the 
Atlantic Council here in Washington and a visiting faculty 
member at the Azerbaijan Diplomatic Academy in Baku. He 
previously served as the deputy assistant secretary of state 
for European and Eurasian Affairs, and as the director for the 
European and Eurasian Affairs for the National Security 
Council. Before that he was the deputy assistant secretary for 
International Affairs at the Treasury Department and a senior 
professional staff member for the Senate Foreign Relations 
Committee.
    Dr. Jeffrey Mankoff is with us as well, and he is the 
deputy director of the Russian and Eurasia Program at the 
Center for Strategic and International Studies. He is a 
frequent commentator on international security matters and the 
author of the book, ``Russian Foreign Policy: The Return of the 
Great Power Politics.''
    Before joining the CSIS, he worked as an advisor to the 
State Department on U.S.-Russian relations. Dr. Mankoff teaches 
courses on international relations both at Georgetown and 
Columbia universities. He is a graduate of the University of 
Oklahoma and holds a PhD from Yale.
    Thank all of you for being with us today. We have a very 
high quality panel to advise us, and you, Mr. Shea, you may 
move forward with your testimony. And again, if we can keep it 
at 5 minutes and put the rest in the record, maybe we can 
everybody's testimony in before the first vote.

STATEMENT OF THE HONORABLE DENNIS C. SHEA, CHAIRMAN, U.S.-CHINA 
            ECONOMIC AND SECURITY REVIEW COMMISSION

    Mr. Shea. Chairman Rohrabacher, Ranking Member Keating, 
thank you for the opportunity to testify. Before I begin I 
would like to note that this testimony reflects my personal 
views and not necessarily the judgments of the entire China 
Commission.
    Over the last decade, China's engagement with its Central 
Asian neighbors has grown significantly. In a region with a 
long history of Russian control and influence, China is now the 
most powerful economic actor and is poised eventually to 
surpass the United States and Russia as Central Asia's 
preeminent foreign power.
    The Chinese Government is increasing its economic ties with 
Central Asia particularly in the energy sector for two main 
strategic reasons. First, Beijing is expanding its energy 
relationship with Central Asian states as part of a long term 
energy security strategy designed to diversify the types and 
sources of energy in an effort to reduce the risk of disruption 
of supply. Some Chinese policy makers believe this strategy 
could mitigate China's so-called Malacca dilemma, or 
vulnerability to other countries imposing a blockade on Chinese 
trade at critical maritime chokepoints. However, Chinese growth 
in oil demand is such that the share of seaborne imports will 
increase even if all China's planned overland energy routes are 
realized.
    Second, Beijing seeks to promote the security and 
development of its Xinjiang Autonomous Region. Beijing judges 
increased economic ties between China's westernmost region and 
Central Asia will raise the welfare of the ethnic Uyghurs 
thereby helping to rein in ethnic unrest in Xinjiang.
    China's energy inroads into Central Asia are manifest in 
oil and natural gas imports transported via pipeline, 
investment in Central Asian energy companies and projects, and 
loans to Central Asian countries for energy products and 
production. All of China's Central Asian hydrocarbon imports 
are transported via two pipeline networks. The Kazakhstan-China 
oil pipeline and the Central Asia-China pipeline.
    Chinese banks and national oil companies have been heavily 
involved in the financing, ownership, and operation of these 
pipelines. For example, Kazakhstan, the region's largest 
economy and top oil producer has been the primary recipient of 
Chinese investment in Central Asian oil since 1997. Today, 
China's largest national oil company is the majority owner of 
two of Kazakhstan's major oil companies and is involved in 
several oil exploration and production projects throughout the 
country.
    Chinese companies own so many projects in Kazakhstan that 
experts estimate China controls between 25 and 50 percent of 
the country's oil production. Turkmenistan accounts for more 
than half of China's natural gas imports, and its future share 
of imports will likely increase with plans to elevate imports 
from 20 billion cubic meters per year in 2013 to 65 billion 
cubic meters by 2016.
    Since 2009, Chinese state-owned entities have extended at 
least $32 billion in loans to finance oil and gas development, 
production, and exports in Central Asia. During a high profile 
tour of the region in late 2013, Chinese President Xi Jinping 
reportedly signed agreements for an additional $8 billion in 
loans that will likely also be used to finance energy projects.
    Many Central Asian governments welcome China's increasing 
economic engagement. Chinese investment, trade deals, and loans 
have enabled economic growth and development. However, Chinese 
economic engagement in Central Asia can be a double-edged 
sword. The region's overreliance on energy exports to sustain 
growth can slow the development of competitive industries and 
democratic institutions. Additionally, at the local level 
allegations of poor business behavior by Chinese companies have 
led to protest and violence against Chinese workers and 
businesses.
    The rise of Chinese influence in Central Asia at the 
expense of Russia coupled with the probable decline in overall 
U.S. interests in the region after the planned withdrawal of 
troops from Afghanistan will likely result in a major shift in 
the balance of power between the major external actors in favor 
of China. This shift presents both challenges and opportunities 
for the United States.
    China's energy ties with Central Asia can support U.S. 
policy efforts to spur economic activity in the region, 
encourage regional oil and natural gas production, and 
potentially promote European energy security by weakening 
Russia's near total control of regional gas supplies. However, 
China's no-strings-attached approach to investment can foster 
official corruption and may provide Chinese state-owned 
enterprises with an unfair advantage over Western investors. 
Furthermore, Beijing could leverage its position as the 
region's most powerful economic actor to derail U.S. policy 
backed initiatives including initiatives at the United Nations, 
or certainly undermine U.S. efforts to promote good governance, 
democracy, and human rights in Central Asia.
    Thank you for the opportunity to testify.
    [The prepared statement of Mr. Shea follows:]



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                              ----------                              

    Mr. Rohrabacher. Exactly 5 minutes.
    Mr. Shea. I timed it. I worked it. I worked it.
    Mr. Rohrabacher. Oh, you added so much to your credibility.
    Mr. Santos, you may proceed.

     STATEMENT OF MR. CHARLIE SANTOS, CHAIRMAN, UZBEKISTAN 
                     INVESTMENT GROUP, INC.

    Mr. Santos. Thank you, Chairman Rohrabacher and Ranking 
Member Keating. Former Soviet Central Asia is a bridge between 
Europe and China, Russia and the Indian Subcontinent consisting 
of Uzbekistan, Kazakhstan, Turkmenistan, Kyrgyzstan, and 
Tajikistan. It is a region more developed than its neighbors to 
the south. It straddles some very large energy reserves, most 
importantly natural gas with more than 400 trillion cubic feet, 
and significant volumes of oil. It also sits on vast mineral 
resources.
    With the collapse of the Soviet Union at the end of 1991, 
our objective was to ensure the freedom of the newly 
independent countries of Central Asia. We saw in their 
significant energy resources the possibility of economic growth 
and development, and through accessing multiple markets 
economic independence.
    We therefore pursued policies that focused on supporting 
private sector approaches to the development of their energy 
resources and the development of pipelines and transit 
corridors, seeing a modern version of Central Asia's historical 
experience as the heart of the Silk Road. Our interest in the 
region weakened, bordering on disengagement, as energy prices 
collapsed in the late '90s, the Taliban emerged in Afghanistan, 
and countries of Central Asia were slow in adopting transparent 
and investor-friendly policies and political reforms.
    Our disengagement from Central Asia ended on September 
11th, 2001, but our return was far more narrowly focused, 
namely, Afghanistan, Pakistan and later Iraq, never returning 
to the previous policy that saw the strategic importance of 
Central Asia, except as a logistics base of operation in 
Afghanistan. Afghanistan in a sense became the center of 
Central Asia for us.
    While we sacrificed more than 3,000 lives and spent more 
than $1 trillion on a nation-building exercise in Afghanistan, 
China sought to fill our policy vacuum, focusing on energy and 
pipelines in Central Asia, taking a page literally out of our 
policy playbook. So far they have constructed two pipelines, a 
third to be finished this year, and a fourth expected in 2017.
    Our allies in Europe, with even more at stake in pursuing 
gas resources in countries like Uzbekistan and Turkmenistan, 
followed the U.S. lead even when it meant losing the 
possibility of greater energy supply diversification. This has 
led to greater dependence on Russian gas.
    With the withdrawal from Afghanistan and growing East-West 
tensions, 2014 has demonstrated that our disengagement from 
Central Asia has left the U.S. and its European allies doubly 
exposed. The countries bordering on northern Afghanistan have 
become frontline states not only in the battle against 
extremism but also in aiding in the diversification of energy 
supplies for Europe.
    The economic potential of Central Asia would not only help 
to stabilize Afghanistan through trade and possible transit of 
Afghan energy but also would bring technical expertise embedded 
in common historical and cultural understandings.
    The countries of Central Asia also present an opportunity 
to achieve the further diversification of energy, a 
diversification of European energy supply from Turkmenistan, 
Uzbekistan, Kazakhstan, and even Afghanistan. Strengthening 
Central Asia by encouraging economic development and investment 
in both energy and energy transit infrastructure and by 
building a more significant security relationship is the most 
cost effective strategy we have. Regional stability will emerge 
from a strong moderate and independent Central Asia, yet we 
seem to not have made this a priority.
    Our future cooperation with the countries of Central Asia 
should support and promote economic development, investment and 
transparency as the best means of achieving stability. This is 
just as important as strengthening cooperation on matters of 
security. We clearly need a change in tone that is less 
strident and ideological, and more practical and based on 
common interests.
    There are some key things I think we could do. One, renew 
support for the construction of the trans-Caspian pipeline 
which will link gas supplies from countries like Turkmenistan, 
Uzbekistan and Afghanistan as well as Azerbaijan on the other 
side of the Caspian Sea to Europe. Support economic capacity 
building, particularly the private sector, in developing better 
regulatory frameworks.
    Support multilateral financial institutions and mechanisms 
to ensure financing for economically viable private sector 
projects. Support regional governments in their efforts to 
build a more transparent and investor-friendly business 
climate, which will, I believe, help unlock further investment.
    Finally, there is no single way to solve Europe's energy 
dependency or bring stability to the region, particularly 
Afghanistan. But ignoring the importance of Central Asia, 
particularly the key countries that border Afghanistan and 
forgetting our initial insights about the region will surely 
make matters worse. When we ignore building broader strategic 
relationships, as we have during the past 12 years, we make our 
country and our allies more vulnerable.
    The confluence of the Afghan withdrawal and growing tension 
in Europe this year is giving us a chance to refocus our 
policies to help build a stronger and more independent Central 
Asia. It is an opportunity we should not squander.
    [The prepared statement of Mr. Santos follows:]



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                              ----------                              

    Mr. Rohrabacher. Thank you very much, and only 2 seconds 
over, actually. All right. Mr. Merkel?

  STATEMENT OF MR. DAVID MERKEL (FORMER DIRECTOR, EUROPE AND 
              EURASIA, NATIONAL SECURITY COUNCIL)

    Mr. Merkel. Thank you very much, Chairman Rohrabacher and 
Ranking Member Keating. It is a real honor be here. I 
appreciate the full testimony being submitted for the record, 
and in the time we have here will make an assertion, a couple 
of historical points and couple of recommendations.
    The assertion is that Putin, while looking at the demise of 
the Soviet Union as the greatest catastrophe in the century, 
wants to at least be the gas station to Europe. And to be the 
gas station to Europe, to meet the market share and even 
increase the market share so it has leverage to draw a wedge 
between Europe and the United States on international issues, 
it needed to do a couple of things. It could have restructured 
its domestic gas market some time ago, it could have invested 
in some more difficult domestic fields, or it can have a 
stranglehold on Central Asian gas and its transit there.
    Now Europeans, too often, and I think that this is one of 
the reasons behind Putin finally signing a deal that has been 
in discussions for 10 years, is the Germans in particular look 
at this issue, and we talk about diversifying global sources of 
energy, they talk about securing their source. They don't want 
their showers to go cold the way they did the two times that 
Russia shut off gas to Ukraine.
    But the reality is, is that the gas in Central Asia will be 
developed. There is significant volumes there. And it is either 
going to be developed by Russia increasing its leverage that it 
has on Europe, or by China, or by and for the benefit of 
Europe, reducing the leverage that Russia has and reducing the 
power that China is going to have in Central Asia that was 
discussed before.
    In this regard, I think there is a couple of things to keep 
in mind. We have a template for success in this, in the Baku-
Tbilisi-Ceyhan pipeline, a pipeline that was the result of 
good, solid U.S. leadership behind President Bill Clinton and 
George W. Bush, a lot of input from both Houses of Congress, 
and of course the leadership in Azerbaijan.
    There is a very solid example to follow. President Ilham 
Aliyev has taken the steps, him being outside of NATO, outside 
of the European Union, closer to Russia, he is still taking the 
steps to say that his gas is for Europe and to join with 
Barroso on the southern corridor.
    So recommendations that I would put forward would be, one, 
again with the trans-Caspian pipeline. If we are going to 
decouple Central Asia from Russia or the growing influence in 
China, we need to join it up with Europe through Azerbaijan. 
Azerbaijan has been a very loyal partner to the United States 
on a great number of issues, and this would be a great 
opportunity to see the gas wealth on the east side of the 
Caspian join up with the west side.
    We need to have a higher level of engagement in the region. 
No sitting President has visited the region. Through bilateral 
and multilateral engagements, the Presidents of China and 
Russia meet almost on a monthly basis. We shouldn't try and 
compete with that, we don't need to. But if we had a meeting in 
Baku with the President of Turkmenistan, Uzbekistan, 
Kazakhstan, and President Aliyev, it would send a clear signal 
that the United States is supportive not of bypassing Russia, 
not of punishing anybody, but a very strong message for 
competition.
    Second, I think that it is important to recognize what 
Putin is doing here. He is taking a look at countries in the 
former Soviet Union and say, if you recognize that you are part 
of the Russian sphere of influence there is no problem, if you 
don't then we are going to create instability.
    And when I was in government we did a lot following the 
Georgia War that was kind of undone by Sarkozy's lack of 
negotiating skills in the ceasefire agreement and the Russian 
reset. But we need to look at what Putin may be thinking about 
next after Crimea if he gets away with that as he thinks he 
will, and we need to focus more on U.S. leadership behind 
settling the Nagorno-Karabakh conflict in a peaceful manner 
that benefits both Azerbaijan by getting territory back that 
has been occupied, Armenia by getting out from under the 
Russian umbrella of its security, and I think that Putin would 
love to bloody the nose of Azerbaijan because it is the biggest 
vehicle to see the Caspian energy reach Europe.
    Second, I think that some of the issues were talked about 
on the business side, OPEC should be reengaged to see whether 
there is a possibility that OPEC can do more to promote energy 
investment in Uzbekistan and Turkmenistan.
    Congressman Keating, you mentioned governance, a very 
important issue. But we need to remember that unlike central 
Europe we don't have debt forgiveness, NATO membership, EU 
membership for these countries. We have to recognize that we 
always do ourselves good when we live up to our examples that 
our country was founded on, but we need to be informed by our 
own experience and recognize the neighborhood that they live in 
and talk about more than simply NGOs and democracy. Thank you.
    [The prepared statement of Mr. Merkel follows:]



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                              ----------                              

    Mr. Rohrabacher. And Mr. Mankoff?

 STATEMENT OF MR. JEFFREY MANKOFF, DEPUTY DIRECTOR AND FELLOW, 
     RUSSIA AND EURASIA PROGRAM, CENTER FOR STRATEGIC AND 
                     INTERNATIONAL STUDIES

    Mr. Mankoff. Mr. Rohrabacher and Mr. Keating, thank you 
very much for the opportunity to testify this afternoon.
    While the United States has viewed the Caspian Sea Basin as 
a potentially new source of oil and gas, it has long fallen 
short of its apparent potential. In recent years though, 
Central Asia has produced and exported increasing quantities of 
both oil and gas though it is primarily China rather than 
Europe that has emerged as the region's principal customer and 
source of investment. While sales to China help the Central 
Asian producers lessen their dependence on Russian markets, 
they also limit prospects for transparency and political reform 
and represent a potential obstacle to Western influence in the 
region.
    The United States has long recognized that pipelines to 
global markets would allow the countries of Central Asia to 
diversify their ties, create a new source of revenue for 
economies struggling with the collapse of the Soviet Union. The 
U.S. also believed that the presence of international energy 
companies could help transform the region's economies by 
introducing Western business practices, promoting transparency, 
and creating a new generation of specialists.
    In the 1990s the target market was Europe, while today the 
United States is focused on markets in South Asia as part of 
its New Silk Road initiative promoting the construction of the 
so-called TAPI pipeline from Turkmenistan through Afghanistan 
to markets in Pakistan and India. Both in the 1990s and today, 
U.S. efforts have faced significant hurdles, perhaps most 
importantly, questions about commercial viability.
    While the U.S. and its allies succeeded with much effort in 
bringing about the construction of the Baku-Tbilisi-Ceyhan 
pipeline, efforts to link this corridor to the east side of the 
Caspian have had limited success. Despite the recent agreement 
to construct a southern gas corridor from Baku to European 
markets, efforts to build a trans-Caspian pipeline have so far 
made little progress.
    The major beneficiary of the struggles that both the United 
States and Russia have faced in this region has of course been 
China. And the reasons for China's success are not hard to 
grasp. It is a growing market with exponentially expanding 
energy demand. Moreover, China state-owned energy companies do 
not face the same financial constraints as Western firms. Flush 
with cash, comparatively insulated from the need to make an 
immediate return on their investments, they are less sensitive 
to political and economic risk and more responsive to political 
direction.
    China's emergence into the Central Asian energy game 
represents both an opportunity and challenge. While the West 
has talked for two decades about new pipelines, China builds 
them and is pouring significant amounts of money into Central 
Asia in the process thereby reducing Russia's hold on the 
region's economies.
    These new Chinese pipelines, moreover, promote cooperation 
and interdependency among the Central Asian states. Chinese 
infrastructure, including but not limited to pipelines, 
supports U.S. goals of promoting economic and political 
diversification, integrating Central Asia into the global 
economy and promoting regional cooperation.
    At the same time though the influx of Chinese state-
directed investment does not come with the same demands for 
transparency and rule of law that Western investors seek. This 
in turn further entrenches Central Asia's corrupt, patrimonial 
political systems.
    For now, Chinese investment also gives the Central Asian 
states an alternative to their dependence on Russia. In the 
future though the danger exists that these states will end up 
having traded dependence on Moscow for dependence on Beijing. 
Under the circumstances, U.S. options are somewhat limited. 
Above all, it remains important for the U.S. to emphasize its 
interest in remaining engaged in Central Asia even after the 
withdrawal from Afghanistan and in transitioning to a more 
economically driven relationship with the Central Asian states.
    To the extent that the United States is serious about 
connecting Central Asian energy producers to global markets, it 
has an interest in these Chinese infrastructure projects. And 
while these projects need not be mutually exclusive of U.S. 
supported projects such as TAPI, the reality is that Beijing is 
offering the Central Asian states more concrete benefits and on 
a shorter time frame.
    Central Asia's connection to the global economy through new 
pipelines, railways, roads and other infrastructure projects 
will also generate new opportunities for the region and for 
foreign companies looking to profit from Central Asia's 
location at the nexus of new transcontinental trade and transit 
links.
    The U.S. can help this process by continuing its work with 
the Central Asian governments to promote a more favorable 
investment climate. The U.S. should also help the Central Asian 
states progress toward membership in the World Trade 
Organization which they view as a means of insulating 
themselves against economic coercion by their larger neighbors 
and a means of promoting their own economic transformations. At 
the same time, the United States should encourage more openness 
to non-energy investment which can help wean these countries 
off their dependence on natural resources and provide greater 
opportunities for non-Russian and non-Chinese companies.
    The development of Central Asia's energy resources 
highlights what is perhaps the central challenge facing United 
States policy in the region. The U.S. if far away, has fewer 
direct tools available than either Russia or China. 
Nevertheless, the U.S. has an important role to play in 
ensuring that the Central Asian states remain fully sovereign 
and independent members of the international community.
    It can best do this by remaining engaged including in 
Afghanistan, supporting the integration of this region with 
global markets through new transportation corridors regardless 
of which direction they go, and by continuing its efforts to 
make Central Asia a more attractive place to do business.
    As the United States winds down its decade-plus of military 
operations in Afghanistan, it needs to place its engagement 
with the states of Central Asia on a new basis. Focusing on 
creating a more favorable economic environment can help bring 
more foreign investment to the region, which in the longer term 
will be the major factor determining the extent to which the 
United States and its allies believe that they have a stake in 
Central Asia's development and prosperity. Thank you.
    [The prepared statement of Mr. Mankoff follows:]



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    Mr. Rohrabacher. I will have to admit that this panel has 
been more accurate in the formulation of their time than just 
about anyone I have ever witnessed, so it gives me hope for the 
future.
    But for right now I will yield to the ranking member so he 
can proceed with his questions, just in case there are votes, 
and then I will let Mr. Marino has joined us, after that, so 
that I will then be the last to ask the questions. So go right 
ahead.
    Mr. Keating. Thank you, Mr. Chairman.
    I was just curious on one issue. I didn't hear it directly 
touched upon. But to what extent, if any, has Russia's energy 
giant, Gazprom, locked up oil and natural gas supplies from 
Central Asia, and to what extent can the major energy producers 
in the region, Kazakhstan, Turkmenistan, Uzbekistan, move oil 
and gas supplies to markets other than Russia? Anyone could 
jump in if they would like.
    Mr. Merkel. There is still, I mean with regard to who owns 
the molecules and the transit routes, there is still 
opportunities to bypass Russia. Really, Uzbekistan and 
Turkmenistan, even though Turkmenistan is the largest importer 
of gas to China, there is still a lot of recoverable reserves 
in both places.
    I would differ from my colleague here, where I think that 
the heading south there is too many obstacles. The advantage of 
transit revenues to Afghanistan is attractive, but I think that 
we ought to re-engage on bringing it on through the Caspian to 
link up with the southern corridor.
    Mr. Santos. There are basically right now two ways to get 
the gas out. One is through Russia and the other is to China. 
Two pipelines are already built, the third one is being 
finished this year. The other options are trans-Caspian as we 
discussed, TAPI to the south.
    I actually spent 3 years on TAPI negotiating the transit 
agreements with the different Afghan groups in the late 1990s. 
My feeling about TAPI, and I tend to agree with David, my 
feeling about TAPI is it is much more complicated. The market 
in Europe is bigger. The obstacles, I believe, are less 
compared to what you have to do to get the pipeline through 
Afghanistan and these Taliban areas, great drug production, 
instability, and you are basically bringing it to Pakistan, and 
then Pakistan, you need the market in India to really justify 
the cost of that pipeline.
    But do the Indians want the Pakistanis to control their 
gas? I mean we are talking about this in another sense in terms 
of Russia controlling, and I think India would have a harder 
time with that and I think they have actually refocused in 
terms of looking at energy sources in other areas. But those 
are the ways. And so I think from a policy point of view it 
seems to make most sense to look at the trans-Caspian and look 
at trying to get the gas to Europe.
    Mr. Keating. I think you touched on another question I had 
with India, Pakistan and Afghanistan which presents a whole new 
set of issues. But now the Russian opposition, getting to the 
trans-Caspian pipeline, could impede its construction at least 
in the short or medium term. This could force Turkmenistan to 
look for alternate land routes to ship its gas to Europe.
    One potential route may be through Iran's central gas 
transportation trunklines into Turkey. Is Turkmenistan 
interested, do you believe, in the European market in this 
respect and what are the issues surrounding this type of 
rerouting? Would the current Western sanctions in Iran, for 
instance, prevent Turkmenistan from exploring this option? What 
do you think in regard to the trans-Caspian pipeline in that 
respect?
    Mr. Mankoff. Yes. With regard to the trans-Caspian issue 
and Russian pressure, this is certainly one of the major 
concerns. Russia has used its leverage over all of the other 
littoral states to essentially argue that no trans-Caspian 
infrastructure can be built until the territorial disputes are 
resolved. And of course that means Russia views itself as 
having a veto over this issue.
    At the same time because of Russian military and naval 
capacity there is obviously an ability to physically prevent or 
disrupt construction of projects that Russia does not support. 
With regard to the Iranian route, there is of course interest 
on the part of the Turkmen who do sell some gas to Iran 
already. Obviously there would have to be a lot done in order 
to reintegrate Iran into the international system in order to 
make that a viable way to go. And that of course also depends 
on what the Iranians do.
    Mr. Keating. Anyone else want to answer?
    Mr. Santos. All I would add to that is that any given 
sanctions and given the political situation, I think an Iranian 
option is a very remote one, and one that to me doesn't seem 
like you would be able find the investors that would really 
want to take that risk. I would say regarding the Russian 
obstruction in the Caspian that is correct.
    But the situation that we are now facing is Russia is now 
creating alternative markets for itself. It is not just selling 
to Europe but it is selling to China. So I would find it a very 
interesting conversation for the Central Asian governments to 
have with Russia and with the U.S. and Europe behind them 
talking about free access, when they are wanting it for 
themselves but they don't seem to allow other countries in 
Central Asia to have it. I think that is a harder position to 
stand behind.
    Mr. Keating. Do any of you want to just comment briefly on 
the announcement with the $400 billion plan? Just what your 
thoughts are, speculations might be or----
    Mr. Shea. I think the key thing there is the price. And I 
think basically it is a sign of Russian weakness. They need to 
diversify. They need the money. Their economy is basically 
flatlined. The Chinese had the leverage. So for me I would look 
at, it has been going on, they have been haggling about it for 
10 years or so, and to me the key thing is price.
    If the Russians got a good price, then I am inclined to 
view it as more of a geo-strategic gift from the Chinese to the 
Russians for some reason. But that is what I would look at is 
price.
    Mr. Keating. David, and what about the timing of this?
    Mr. Santos. Well, your timing was perfect for the hearing.
    Mr. Merkel. I think it is a wedge issue. There is a lot of 
reasons why Europe will not go into sectoral sanctions, but 
Germany has a big role in the EU and its economic and energy 
relationship with Russia is significant. And Moscow wants 
Europe and Germany to focus on maybe their Russian gas is not 
all that secure. I think that is a canard. I think the 
agreement is kind of like an NFL signing thing. There is always 
like a massive amount of money, and then by the end of the 
career the guy didn't make that much money.
    Mr. Keating. Thank you. Should we ask Tom?
    Mr. Rohrabacher. Mr. Marino?
    Mr. Marino. Sure. Thank you, Chairman.
    Mr. Shea, I would like to start with you please. Am I 
correct in stating that if we are talking about development of 
resources in Central Asia, the United States would be expected 
to play a role in that whether it is through technology or just 
outright economic support?
    Mr. Shea. That is correct. One of the things that I think 
is appealing to the Central Asian governments is the Chinese 
no-strings-attached approach. When President Xi showed up in 
September, one of the things he emphasized at his speech in 
Kazakhstan was we respect your territorial sovereignty and your 
internal affairs so we don't bug into that. We don't tell you 
how to run your own show. And I think that is very attractive 
to a lot of the Central Asian governments.
    Mr. Marino. Mr. Santos, with the instability in Central 
Asia and the economic woes concerning the EU, would it not be 
beneficial for the U.S. to continue to developing its 
infrastructure in the United States and shipping LNG overseas?
    Mr. Santos. I don't think that there is any single 
solution. So I think energy supply and energy shortages or 
energy dependency in Europe can be solved by a number of 
different avenues. It would be one.
    Mr. Marino. Even with Russia doing what it has done, either 
turning off or jack the price up, we have no idea what China is 
going to do under those circumstances. Wouldn't it be more of a 
stable atmosphere instead of the United States giving money, 
technology, we have enough here in the United States? I live 
right in the middle of Pennsylvania and Marcellus Shale, the 
largest deposit in the country, enough to serve the United 
States for 100 years or more and ship it overseas. So Mr. 
Merkel, what----
    Mr. Rohrabacher. I vote yes.
    Mr. Marino. Mr. Merkel, not only would it generate jobs and 
stimulate the economy here by leaps and bounds, but wouldn't 
there be more political stability under that scenario?
    Mr. Merkel. I think that exporting LNG in volume would be 
the single best thing that we could do to remove the scarcity 
of gas in Asia, really take a concrete step in the Asia pivot, 
remove energy as a tool from Putin. Now gas doesn't travel as 
well as oil does, but there is still a global market. And in 
India, one of the reasons they are not looking at TAPI anymore 
is they are looking to import LNG hopefully from the United 
States.
    Mr. Marino. Look, we can put a man on the moon and we can 
transplant a heart, and we can figure out a way to transport 
LNG from the U.S. overseas.
    Mr. Merkel. I think there would be a lot of swaps with 
Qatar. I think that is the way it would work out. It would go 
to the U.K. and there would be swaps. We can definitely ship 
it.
    Mr. Marino. Mr. Mankoff, any opinion you would like to 
state pursuant to my questions of why should the United States 
take part in this investment as opposed to developing its own 
resources and selling them? Both from an economic standpoint 
and from a geopolitical standpoint.
    Mr. Mankoff. Yes. I think the answer to Europe's energy 
security woes is all of the above. And so the development of 
U.S. shale gas resources is certainly something that can 
contribute to that but I don't think it is a panacea and I 
don't think it is going to happen all at once.
    Mr. Marino. But what I see the panacea being is the United 
States developing the oil deposits that it has, the coal 
deposits that it has, and of course with the LNG in the safe 
way we do. We do it the safest in the world. We do it the 
cleanest in the world. I would think that the -stan countries, 
Europe, would certainly like doing business with the United 
States more so than it would the Middle East or Russia or China 
for that matter. And with that I yield back.
    Mr. Rohrabacher. Well, thank you very much, and the 
chairman will now take his 5 minutes. And we are about 10 
minutes into a vote and in 5 minutes we will be adjourning the 
hearing and we will be going to vote.
    Just my colleague's focus on LNG, just a thought. And if 
indeed LNG production for the United States is utilized to 
provide our European allies and others with the gas resources 
that they need, to the degree that they are dependent on that 
is also the degree to which Russia then plays a stronger role 
in Central Asia.
    So if indeed you have oil and gas coming from Central Asia, 
it would tend to connect Central Asia with Europe, which is 
perhaps something we would want to encourage. Not to say--but 
let me just note, and first of all I would like the panel's 
opinion on that. And second of all, let me just note from the 
chair's opinion this is not aimed just at Russia by the way.
    That the chair happens to believe as was noted when I said 
I would vote for your proposal that any increase in the supply 
of oil and gas anywhere in the world uplifts humankind. It 
provides thus because it increases by its very nature the 
wealth that exists in the human condition. And thus even if 
they get their oil from LNG, from Pennsylvania which is a good 
thing, or from Central Asia that too would be a good thing at 
least from this congressman's opinion, and does the panel have 
any comment on that? Yes, Mr. Santos?
    Mr. Santos. I would agree. I think Central Asia, the 
stability of Central Asia is about the stability of Afghanistan 
to a large extent, and the fact is that the neighborhood is not 
a great neighborhood. Iran on one side, Pakistan on another. 
Why don't we want to be strengthening the countries that could 
actually help us stabilize the country that we just spent $1 
trillion on and sacrificed a number of American lives to free 
and keep free from the Taliban?
    So I think you have to see it in a broader strategic way. I 
would agree with that. And that helping Central Asia helps us, 
it doesn't hurt us.
    Mr. Rohrabacher. And we are not talking about aid. Let me 
note.
    Mr. Santos. We are not talking about aid. These are actual 
assets that can be developed. They don't require----
    Mr. Rohrabacher. Yes, sir. Mr. Mankoff?
    Mr. Mankoff. I think the stability of Central Asia is 
really about Central Asia, and there is another reason for the 
U.S. to be involved in the energy development in these 
countries. By promoting investment and economic development, 
that I think is the most secure path toward long term stability 
and development.
    And at the same time given the neighborhood where these 
countries exist at the nexus of Russia, China, Afghanistan, 
Pakistan, by being involved economically the U.S. can ensure 
that it has a voice in these countries and it has influence 
which can help it manage its relationships with those other 
surrounding powers.
    Mr. Shea. There is a term, familiarity breeds contempt. Ten 
years ago the Southeast Asian countries were welcoming Chinese 
investment. Now a lot of them are coming to the United States 
and say come back. Burma, we want to have a strong relationship 
with you.
    So I could see the Central Asian countries, China is sort 
of displacing Russia economically, but I could see a few years 
down the road them saying, where is the United States? Because 
the Chinese, typically these large state-owned companies 
throughout the world bring a lot of negative things.
    Mr. Rohrabacher. Go right ahead.
    Mr. Merkel. Yes, it is not needed, investment is not 
needed. Political leadership from the West is needed. This will 
be done with private sector money. It is political leadership 
that is needed. And just as the Baku-Tbilisi-Ceyhan pipeline 
linked to Europe, Azerbaijan, we need to cross the Caspian so 
to the benefit of Europe but also for greater prosperity and 
stability in Central Asia.
    Mr. Rohrabacher. I have been noted that we have 5 minutes 
left for the members to go and vote. Let me just sum up today's 
hearing and that is to say that number one, we appreciate the 
panel. You have given us food for thought, and I think that 
those of us who participated will have, we have some new 
information and ammunition for making these decisions.
    I personally think this last talk that we just had, because 
I brought up the issue of course, was most significant in that 
yes, let us be aware that China and Russia and how their 
influence on Central Asia and what is good for them is 
something we have to put into our equation. But as we create a 
real global economy, Central Asia is playing a pivotal role. 
That is the center of the universe.
    And if we let the center of the universe be dominated by 
Russia or, and by China, by not utilizing a commercial 
interaction based on their natural gas and oil we are leaving 
that center of the universe to be in a commercial relationship 
with those powers rather than the western democracies and the 
United States. So I prefer to, as I say, look at this not as an 
attack on Russia and China, but setting up a global type of 
system that will improve the life of everybody.
    So thank you all very much. This hearing is adjourned.
    [Whereupon, at 2:59 p.m., the subcommittee was adjourned.]
                                     

                                     

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