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88–020PDF 2014

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

(

Available via the World Wide Web: http://www.foreignaffairs.house.gov/ or

http://www.gpo.gov/fdsys/

(II)

COMMITTEE ON FOREIGN AFFAIRS 

EDWARD R. ROYCE, California, Chairman 

CHRISTOPHER H. SMITH, New Jersey 

ILEANA ROS-LEHTINEN, Florida 

DANA ROHRABACHER, California 

STEVE CHABOT, Ohio 

JOE WILSON, South Carolina 

MICHAEL T. MCCAUL, Texas 

TED POE, Texas 

MATT SALMON, Arizona 

TOM MARINO, Pennsylvania 

JEFF DUNCAN, South Carolina 

ADAM KINZINGER, Illinois 

MO BROOKS, Alabama 

TOM COTTON, Arkansas 

PAUL COOK, California 

GEORGE HOLDING, North Carolina 

RANDY K. WEBER SR., Texas 

SCOTT PERRY, Pennsylvania 

STEVE STOCKMAN, Texas 

RON DESANTIS, Florida 

DOUG COLLINS, Georgia 

MARK MEADOWS, North Carolina 

TED S. YOHO, Florida 

ELIOT L. ENGEL, New York 

ENI F.H. FALEOMAVAEGA, American 

Samoa 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

ALBIO SIRES, New Jersey 

GERALD E. CONNOLLY, Virginia 

THEODORE E. DEUTCH, Florida 

BRIAN HIGGINS, New York 

KAREN BASS, California 

WILLIAM KEATING, Massachusetts 

DAVID CICILLINE, Rhode Island 

ALAN GRAYSON, Florida 

JUAN VARGAS, California 

BRADLEY S. SCHNEIDER, Illinois 

JOSEPH P. KENNEDY III, Massachusetts 

AMI BERA, California 

ALAN S. LOWENTHAL, California 

GRACE MENG, New York 

LOIS FRANKEL, Florida 

TULSI GABBARD, Hawaii 

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 

TOM MARINO, Pennsylvania 

JEFF DUNCAN, South Carolina 

PAUL COOK, California 

GEORGE HOLDING, North Carolina 

STEVE STOCKMAN, Texas 

WILLIAM KEATING, Massachusetts 

GREGORY W. MEEKS, New York 

ALBIO SIRES, New Jersey 

BRIAN HIGGINS, New York 

ALAN S. LOWENTHAL, California 

(III)

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

(1)

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. 

2

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. 

3

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 

4

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. HowVerDate 0ct 09 2002 11:02 Jul 17, 2014 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 F:\WORK\_EEET\052114\88020 SHIRL
5

ever, 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 AsiaChina 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 

6

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 

16

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 

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most 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 NagornoKarabakh 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 socalled 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 infraVerDate 0ct 09 2002 11:02 Jul 17, 2014 Jkt 000000 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 F:\WORK\_EEET\052114\88020 SHIRL
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structure, 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 

39

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 

48

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 signVerDate 0ct 09 2002 11:02 Jul 17, 2014 Jkt 000000 PO 00000 Frm 00052 Fmt 6633 Sfmt 6633 F:\WORK\_EEET\052114\88020 SHIRL
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ing 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 nostrings-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 

50

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? 

51

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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