Wednesday, 17 September 2014

Shanghai Cooperation Challenges the West

Published in Field Reports

By Oleg Salimov (09/17/2014 issue of the CACI Analyst)

Tajikistan’s capital Dushanbe hosted the Shanghai Cooperation Organization (SCO) summit for two days on September 11-12. The summit concluded Tajikistan’s position in the organization’s rotating chairmanship and handed the duty over to the Russian Federation. The summit was attended by six member states, China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, and Uzbekistan, and the five observers Afghanistan, India, Iran, Mongolia, and Pakistan. Turkmenistan’s President Gurbanguly Berdimuhammedov attended the summit as a distinguished guest. Economic cooperation and threats to regional security through political instability in Afghanistan, the Middle East, North Africa, and Ukraine were established as the summit’s agenda. The long awaited expansion of the organization by adding India, Pakistan, and possibly Iran as new members became one of the most important announcements of the summit, outlining the SCO’s projects for the upcoming year. 

The expansion plans were revealed on the eve of the summit by Russia’s Foreign Minister Sergey Lavrov in the Russian media outlet Rossiyskaya Gazeta. The article referred to Pakistan, India, and Iran as new prospective members of the SCO. Iran has previously applied twice for SCO membership but the outcomes of Iran joining it are highly ambiguous considering the country’s frictions with Israel and the U.S. over its nuclear program. Russia’s recently intensified conflict with Western countries draws it closer to Iran and raises Iran’s hopes for full membership in the SCO. The question remains, however, whether the SCO will be able to manage the regional rivalry between China, India, and Pakistan if the prospective members are in fact accepted.

Lavrov also stressed the potential of using national currencies in financial operations among SCO’s members. The statement is a continuation of Russia’s political initiatives aimed at relinquishing euros and dollars in its financial operations in the wake of the U.S. and EU economic sanctions imposed on Russia for its role in Ukrainian crisis. Earlier, Russia and China, the two major players of SCO, have declared their intention of national currencies turnover in the recently started natural gas delivery project. It is only logical for Russia to employ the SCO’s chairmanship and natural resources leverage to expand the organization through India, Pakistan, and Iran and to denounce euros and dollars when refocusing from Europe to Asia.

The SCO’s memorandum declared several particular steps towards the promotion of national currencies in SCO’s financial system and, as a result, the alienation of euros and dollars. These include increasing members’ financial and banking cooperation in regional trade and economy, and an intensification of efforts in establishing their own Development Fund and Bank of Development. However, it should be noted that the idea of establishing financial institutions within the SCO, such as a Development Fund, was first proposed in 2011 by Kazakhstan and widely supported by Russia as a response to the global financial crisis. At the same time, China offered its own project in the SCO’s Bank of Development. Both were viewed as security measures for the SCO’s members. Russia’s current growing confrontation of with the West amplifies the likelihood that the proposed SCO financial institutions will be implemented.

The SCO’s own financial institutions are also in agreement with Russia’s intent to develop regional automobile transportation infrastructure which will connect Asia with Russia’s Siberia region. The infrastructure linking Asia and Siberia can serve to accelerate regional trade in addition to the Trans-Siberian railroad. Vladimir Putin announced the intent during the previous SCO summit in Bishkek in September 2013, and Lavrov also highlighted the transportation projects as a major SCO interest in his article on SCO expansion. In the Bishkek summit, the SCO’s Interbanking association was seen as the major prospective investor of the project. In light of the latest proposals, if realized, the SCO’s Bank of Development might become a subsequent proprietor of the Asia-Siberia transportation project. 

The SCO summit in Dushanbe demonstrated a growing division between the developing and developed worlds in Eurasia. The signs of division can be seen in the summit’s official declaration, the statements of the officials, and the SCO’s narrowing scope of priorities. The SCO unifies a group of regimes that pursue various objectives through a common need for political and economic survival. For example, stated in the summit’s declaration, the determination to establish informational security and fend off informational-communication threats improve the survivability of authoritarian regimes like Tajikistan and Uzbekistan. For Russia and Iran, the SCO is an engine for forging political alliances and economic partnerships. The emerging Asian countries are attracted to the SCO by the opportunity of obtaining cheap energy resources. The cumulative efforts of these countries can create a serious counterbalance to the West. 

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