Countries that are already thoroughly diversified by type and source of energy naturally favor a competitive international marketplace for energy commodities. But governments with poorly diversified consumption patterns, like those in northeast Asia, are particularly vulnerable to supply disruptions.
A first step toward a common northeast Asian energy policy is to help each state recognize the common threats they face. Volatility in energy markets over the last several years has been considerable. Responding to these unanticipated market shifts has been costly. A coordinated policy to pool investment in projects that reduce this unpredictability--and the costs that go with it--would serve the interests of all consumers. Energy demand growth is for the moment outstripping growth in extraction capabilities. In this context, when consumer states coordinate policy, they improve efficiency, reduce costs and ease the tendency of consumers to bid against one another for scarce resources and drive up prices in the process. Finally, increasing the region's reserve capacity offers another useful common objective to bring together northeast Asia's energy consumers. The World Trade Organization (WTO) recently endorsed similar objectives in all these areas of consumer coordination. In its World Trade Report 2005, released on June 30, the WTO called on Asian countries to cooperate on energy exploration, development, transport and reserve storage to ensure that ongoing economic growth does not fall victim to high energy costs. In addition, cooperation on energy-conservation initiatives serves the interests of all the region's energy consumers. Raising the level of efficiency with which they use energy can both decrease demand and increase available supply. Coordination of policy can even be extended to projects involving the production of nuclear energy.
THE SECOND question raised by the need to coordinate energy policy across the region is how can the interests of consumers and producers be aligned? Producers profit from high prices and tight supply. Any policy that reduces demand or expands the region's reserve capacity undermines market power that producers now wield. In northeast Asia, how can Russia, the region's big energy producer, be encouraged into a multilateral energy-security framework with the big energy consumers, including the United States?
Russia will remain a major energy exporter, but the interests of energy-consuming sectors of the Russian economy influence its politics. Unlike most large energy exporters, particularly in the Middle East, Russia has a large industrial base that consumes a lot of energy and will continue to grow. As a result, Russia's interests will continue to diverge from those of Saudi Arabia, Iraq, Nigeria and Venezuela. Russia's energy-consuming sectors need to reduce competition with outsiders for Russian energy. If northeast Asia's energy consumers coordinate investment in Russia's extraction capacity and underdeveloped energy-transport infrastructure, Russian energy consumers will benefit, and Russia's suppliers will more efficiently extract and transport their products.
Commodity markets face cyclical pressures. For now, producers clearly have the upper hand. Thus, even with the above arguments in mind, Russia may, for the time being, resist attempts to fully coordinate its energy policy with those of three of its largest customers. The greatest opportunity to bring Russia into such a regional energy-security framework will therefore occur when a fall in global demand or an increase in supply reduces Russia's market power. Now may not be the perfect moment to realize a northeast Asian energy-security framework. But preparation for such an opportunity is necessary, because the current upward trend in oil prices will not last forever.
Diffusing the regional energy crisis, in turn, could help establish a collective interest in the resolution of such long-standing issues as territorial disputes between NERF members and could encourage potential antagonists to consider the interests of regional partners in their bilateral disagreements. In many cases, the potential for cooperation on some issues is held captive by the intractable nature of other diplomatic conflicts. The NERF would allow member states to set aside disputes that cannot be resolved in the near term and to concentrate on mutually profitable opportunities for cooperation.
One of the most important of these is addressing the growing economic integration among the countries of the region. In Asia, increased integration patterns have not followed the model of the European Union, institutionalizing trade and commercial agreements to secure non-zero-sum outcomes. The integration process has spontaneously developed from the region's dynamic trading environment. We now have a situation where economic ties are strong but the development of a viable security framework has lagged. Northeast Asia's four major economies all have substantial current account surpluses that contribute to rapidly expanding foreign-currency reserves, mostly in U.S. dollars. An economic downturn that weakened their dollar holdings in the local currency would adversely affect the entire region. As a result, all potential NERF participants share an interest in joint action to mitigate risks associated with economic imbalances.
A multilateral forum could help create a stable northeast Asian economic environment. It could coordinate mutually beneficial steps toward predictable and sustainable economic policies that address currency issues, conflicts over intellectual property rights, lender-of-last-resort activities, regulatory standardization and, possibly, trade liberalization. The private sector could play a substantial role in that regard by promoting closer transnational cooperation, more open borders and greater integration of the region's economies.
FINALLY, A note of realism: We recognize that the construction of a Northeast Asian Regional Forum does not presume that all that is needed for the resolution of highly complex political, economic, energy and security issues is a venue in which the region's vice-ministers can gather and talk. The NERF would be intended as a multilateral framework for the five member states to find areas in which cooperation on particular issues serves their collective interest. An inability to solve all the region's problems should not discourage collective action on issues that can be addressed.
Northeast Asia is now producing more political risk than any other part of the world. China's economic growth, military capacity and political influence will continue to fuel suspicion of its intentions in the region and bring China into conflict for resources with the United States, Japan and others. Japan will continue to assert its own interests in response to perceived Chinese encroachment. Conflict around North Korea's nuclear program will escalate. South Korea will work to establish a certain policy independence from Washington. Russia's energy infrastructure will fail to keep pace with demand for its resources. U.S.-Chinese tensions will rise. Energy demand will continue to outpace supply growth.
But if China, Japan, South Korea, Russia and the United States can collectively address a few of the problems the region now faces, their cooperative work can then extend to other areas. In the process, the Northeast Asian Regional Forum could provide these states, and all who are subject to their policy choices, an urgently needed multilateral framework that reinforces economic interdependence, mitigates risks associated with political mistrust and bolsters regional security. The benefits will be felt throughout Asia and beyond.
Ian Bremmer is president of Eurasia Group. Choi Sung-hong is a former foreign minister of the Republic of Korea. Yoriko Kawaguchi is a former foreign minister of Japan.Essay Types: Essay