You are here

IDSA COMMENT

Energy and Turmoil in Myanmar

October 04, 2007

Thomas Friedman noted that "the price of oil and pace of freedom always move in opposite directions." This trend, which he cited in the case of Russia, Iran, and Venezuela, can be equally applied to Myanmar as well. Though pro-democratic forces have been active in Myanmar earlier as well, the public display of dissent in recent days is unprecedented and demonstrates the increasing disenchantment against almost two decades of military rule. Since the junta came to power, economic conditions have deteriorated and poverty has increased. At the same time, new finds of oil and natural gas reserves have been declared. With Myanmar becoming increasingly sought after by energy-hungry countries, there has been a huge spurt in investments in its oil and natural gas fields from Thailand, Russia, China, and India. These investments have, to a certain extent, helped the junta sustain itself. But the people have not yet benefited from this petroeconomy, and resources are being diverted for the conspicuous consumption of the military elite. While it is true that cities have witnessed impressive infrastructure development, the increased availability of resources has not translated into economic benefits for the common people. Further burdened by an increase in the prices of basic goods, people naturally took to the streets.

The energy angle to the ongoing turmoil in Myanmar becomes evident if we cast a glance at the developments in its domestic energy industry. Since Yangon enacted the Foreign Direct Investment law in late 1988 as part of its market-oriented economic policies, the energy sector has been the most sought after by foreign investors. By the first quarter of this year, total foreign direct investment in Myanmar amounted to US $14.4 billion, of which the largest chunk comprising 34 percent was in the oil and gas sector. Thailand was the biggest investor in 2005-06, with an investment of $6.03 billion in the hydropower sector and $4.4 million in the oil and gas sector. In the same year, India invested $30.575 million in the oil and gas sector. China, in addition to signing a multi-billion dollar agreement to transport natural gas by pipeline from Myanmar to Yunnan, invested $700,000 in the mining sector during 2005-06. Myanmar also received about $33 million as investment in its energy sector from Russia in 2006-07. Yet, the unemployment rate in the country continues to be above 10 per cent and about 25 per cent of the population lives below the poverty line.

With the worldwide energy search of import dependent Asian countries is becoming more aggressive, Myanmar has been gaining greater significance in their energy landscape. As Friedman pointed out, regimes in energy producing countries are in a better position to stand against international pressures on their domestic policies since higher fuel prices virtually ensure greater economic security. Energy-hungry countries seek to maintain bilateral relations with energy producing ones on an even keel even if the latter be repressive and thus strengthen their legitimacy.

The ruling regime in Myanmar realises the strategic importance it enjoys from the perspectives of two its prominent neighbours - China and India. China has made huge energy investments in Myanmar and plans to construct overland energy transport routes through that country to avoid the Malacca Straits choke point. This is a key factor behind Beijing's support for the military junta in Myanmar. India too looks to Myanmar to fulfil its energy needs. Recently, ONGC Videsh Limited (OVL) was awarded oil and gas blocks in Myanmar. The 100 per cent interest given to OVL in the AD-2, AD-3 and AD-9 exploration blocks in the Rakhine coast is based on a production sharing contract with the state-owned firm Myanmar Oil and Gas Enterprise. In addition, OVL and the Gas Authority of India Limited have a 20 per cent and 10 per cent stake, respectively, in Block A-1. Given such investments, it is but natural that India has adopted a cautious approach to the events in Myanmar.

Given the high price of oil, which now stands at $80 a barrel in the international market, the regime in Myanmar knows how much it is needed. This explains to an extent its disregard for international opinion on the issue of democracy. Despite the imposition of sanctions, the present democratic upheaval in Myanmar is unfortunately unlikely to be successful.