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September 28th, 2016

9/28/2016

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      Situated between great powers China and India, Myanmar remains a geopolitically strategic state highly dependent on its energy sector. Despite many successful political and economic reforms under former President Thein Sein, including the recent drafting of ceasefire agreements to ease domestic violence, newly elected National League for Democracy (NLD) President Htin Kyaw and State Counselor, Nobel Peace Laureate Aung San Suu Kyi, still face many challenges. These include an ongoing civil war, conflict between Rakhine Buddhists and Rohingya Muslims, political pressure from the once-dominant military, and constitutionally, an inability to control the military. As part of an initiative to form better ties with its neighbors and globally pursue cheaper, less secure resources, China is acquiring large holdings in Myanmar due to its interests in electric power as well as oil and gas supplies. While the United States has shown concern for human rights violations and a peaceful political transition in Myanmar, the extent to which the current administration's “pivot to Asia” will reach economic involvement in Myanmar will heavily determine who handles available and untapped energy resources.
 
     A major factor that has made Myanmar a risky zone for investment and overall hindered access to resources is the ongoing conflict stemming from ethnic tensions due to the state’s extremely diverse population, and the difficult shifts in power. Myanmar, formerly known as Burma, declared independence from Britain in 1948. The country began as a parliamentary democracy, but was shaken by ethnic strife from the beginning. Burmans made up roughly two-thirds of the population, while the remainder included more than one-hundred diverse ethnic groups, including the Shan, Karen, Rakhine and Mon. Representative democracy lasted until a military coup in 1962, and a ruling council of mainly military personnel maintained power for the next twenty-six years. A new constitution in 1974 adopted an isolationist attitude, in addition to a socialist economic program that nationalized major enterprises. Myanmar’s economic situation worsened rapidly, and a black-market economy emerged. In 1988, widespread corruption and food shortages led to mass protests, causing the army to crack down by opening fire on dissidents, killing at least three thousand and leaving thousands more displaced, prompting  the United States to impose sanctions. In 1990, the junta held elections, in which the NLD won 392 of 485 parliamentary seats. But the military government refused to acknowledge these results, and many NLD politicians were imprisoned or forced into exile. In 2007, the military government unexpectedly removed fuel subsidies, causing massive price hikes and widespread protests. 
 
     The regime’s status further worsened with its slow response to Cyclone Nargis and an initial blockade of international aid. In 2011, the military junta officially dissolved and formed a civilian parliament, appointing then-prime minister and former army general Thein Sein as president. Sein’s reforms restored hope in international engagement with Myanmar; however, political opposition from the NLD remained. Despite more economic reforms in mid-2012 and efforts to ease ethnic tensions, violence would not cease. In October 2015, the government signed a nationwide cease-fire with eight armed ethnic groups following two years of negotiations, but the deal fell short, as not all fifteen participating rebel groups would come to terms. Prolonged fighting has led to widespread displacement, and the army is accused of forced labor, rape, torture and the use of child soldiers. In early 2015, fighting erupted in the northeast between the military and minority militias. On the western coast, Muslim Rohingya in the Rakhine State have faced extensive persecution. A Human Rights Watch report from 2013 accused Myanmar authorities of carrying out a campaign of ethnic cleansing against the Rohingya, whose population is around one million (1). Conflict persists in all areas. The major non-Burman ethnic groups  with states of their own include the Arakanese, Chin, Kachin, Shan, Karenni, Karen, and Mon. Their ethnic states harbor various insurgent operations against Myanmar’s military, also known as the Tatmadaw. Meanwhile, the Tatmadaw have been carrying out a “Four Cuts” counterinsurgency strategy which attempts to deny insurgents access to food, funding, information and recruits (2).
 
     Economically, Myanmar has seen an advancement. Following a long period of isolation, international powers removed sanctions and reestablished diplomatic relations, allowing Myanmar’s economy to have grown at about 6.5 percent since 2011. Foreign direct investment into Myanmar also dramatically increased, from US$900 million in 2010 to over $8 billion by March 2015. These investments were most significant in the oil and gas sectors, with 35 percent of the country’s FDI going into energy, which is the largest share for a single sector (3). In 2014, mineral products made up almost half of Myanmar’s total exports, of which 38 percent was petroleum gas (4). Former President Thein Sein also vowed to reduce the government’s role in areas such as energy, forestry, health care, finance, and telecommunications. Myanmar’s parliament even passed a foreign investment law that allowed for overseas ownership of business ventures and provided tax breaks. Such factors have led to projections at McKinsey that Myanmar’s economy could grow from $45 billion in 2010 to $200 billion by 2030 (5). However, with the heavy presence of violence and ethnic tension, securing energy resources in Myanmar will remain difficult, and investment will still come at great risk. 
 
     Foreign energy companies have signed exploration contracts with the national oil company, Myanmar Oil and Gas Enterprise, but the military still controls natural resources. Additionally, Myanmar’s energy infrastructure remains poor due a history of underinvestment caused by sanctions and weak governance. Energy production does not benefit Myanmar’s people, as most production is exported to neighboring countries such as China, India and Thailand. Myanmar also has the lowest electrification rates in Asia, with only about a third of the population having access to electricity. Declining global oil prices and collapsing credit are now slowing oil and gas exploration projects. Though seen as a risk to foreign investors in the West, China has continued to invest deeply in its strategic neighbor. China is the top investor in Myanmar, with FDI totaling $14 billion, the majority going into the energy and mining industries. Yet, even China has run into volatile situations: In 2011, Myanmar suspended construction of the $3.6 billion Myitsone hydroelectric dam project meant to be built by state-owned China Power Investment Corporation in the Kachin state. Also, the China National Petroleum Corporation invested $1 billion in a pipeline in Myanmar’s Shwe field in the Bay of Bengal, but economic troubles forced the pipeline to operate at under half its capacity. Seen as a risk to all foreign investors, energy projects, especially along the Chinese border, are located in zones which see numerous ethnic clashes (6).
 
     Control over resources won’t be determined by the power in place in Myanmar, but by the success of multiple actors in creating a peace process with ethnic minorities. Due to its extreme reliance on its oil and gas sectors and China’s role as the dominant investor and trading partner, Myanmar will remain dependent on China, despite situations of risk. As long as conflict remains, China will continue to exert its influence, yet a more stable Myanmar can benefit all countries attempting to access its energy market, especially the West. 
(1) Xu, Beina, and Eleanor Albert. "Understanding Myanmar." CFR. Council on Foreign Relations, 25 Mar. 2016. Web.
 
(2) "Myanmar - Civil War." ConflictMap.org. N.p., 25 Sept. 2016. Web.
 
(3) Shimizu, Aiko. "Myanmar’s Energy Insecurities." East Asia Forum. East Asia Forum, 1 June 2016. Web.
 
(4) "Burma." The Observatory of Economic Complexity. MIT, 2014. Web.
 
(5) Xu, Beina, and Eleanor Albert. "Understanding Myanmar." CFR. Council on Foreign Relations, 25 Mar. 2016. Web.
 
(6) Shimizu, Aiko. "Myanmar’s Energy Insecurities." East Asia Forum. East Asia Forum, 1 June 2016. Web.

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Image: © Blagodeyatel | Dreamstime.com - Rural Petrol Station Myanmar Photo
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    Daniel Orlov

    Daniel Orlov currently attends the University of Southern California where he is majoring in International Relations with a minor in Geospatial Intelligence and Human Security. He is a midshipman in the United States Navy, en route to becoming a surface warfare officer. He started work in the field of foreign policy in Russia, where he interned for two full summers at the Center for Policy Studies in Russia (PIR Center). Then, in 2014 he interned at the Geneva Center for Security Policy for the start-up of the US Department of State-sponsored Global Community Engagement and Resilience Fund to counter terrorism. Over the summer of 2016 he attended Career Orientation Training in Naval Region Southwest for training exercises with the Marine Corps, surface ships, submarine, and aviation communities. Mr. Orlov enjoys research in the fields of risk analysis, conflict resolution, naval strategy, and trade.

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