updated 6/8/2008 9:45:38 AM ET 2008-06-08T13:45:38

This battered harbor town on Sri Lanka's southern tip, with its scrawny men selling even scrawnier fish, seems an unlikely focus for an emerging international competition over energy supply routes that fuel much of the global economy.

An impoverished place still recovering from the devastation of the 2004 Indian Ocean tsunami, Hambantota has a desolate air, a sense of nowhereness, punctuated by the realization that looking south over the expanse of ocean, the next landfall is Antarctica.

But just over the horizon runs one of the world's great trade arteries, the shipping lanes where thousands of vessels carry oil from the Middle East and raw materials to Asia, returning with television sets, toys and sneakers for European consumers.

These tankers provide 80 percent of China's oil and 65 percent of India's — fuel desperately needed for the two countries' rapidly growing economies. Japan, too, is almost totally dependent on energy supplies shipped through the Indian Ocean.

Any disruption — from terrorism, piracy, natural disaster or war — could have devastating effects on these countries and, in an increasingly interdependent world, send ripples across the globe. When an unidentified ship attacked a Japanese oil tanker traveling through the Indian Ocean from South Korea to Saudi Arabia in April, the news sent oil prices to record highs.

Emerging giants
For decades the world relied on the powerful U.S. Navy to protect this vital sea lane. But as India and China gain economic heft, they are moving to expand their control of the waterway, sparking a new — and potentially dangerous — rivalry between Asia's emerging giants.

China has given massive aid to Indian Ocean nations, signing friendship pacts, building ports in Pakistan and Bangladesh as well as Sri Lanka, and reportedly setting up a listening post on one of Myanmar's islands near the strategic Strait of Malacca.

Now, India is trying to parry China's moves. It beat out China for a port project in Myanmar. And, flush with cash from its expanding economy, India is beefing up its military, with the expansion seemingly aimed at China. Washington and, to a lesser extent, Tokyo are encouraging India's role as a counterweight to growing Chinese power.

INDIA OCEAN INTRIGUE
ESRI / AP
Map locates the major Indian Ocean oil trade routes and newly developed ports built by China.
Among China's latest moves is the billion dollar port its engineers are building in Sri Lanka, an island country just off India's southern coast.

The Chinese insist the Hambantota port is a purely commercial move, and by all appearances, it is. But some in India see ominous designs behind the project, while others in countries surrounding India like the idea. A 2004 Pentagon report called Beijing's effort to expand its presence in the region China's "string of pearls."

No one wants war, and relations between the two nations are now at their closest since a brief 1962 border war in which China quickly routed Indian forces. Last year, trade between India and China grew to $37 billion and their two armies conducted their first-ever joint military exercise.

Still, the Indians worry about China's growing influence.

"Each pearl in the string is a link in a chain of the Chinese maritime presence," India's navy chief, Adm. Sureesh Mehta, said in a speech in January, expressing concern that naval forces operating out of ports established by the Chinese could "take control over the world energy jugular."

"It is a pincer movement," said Rahul Bedi, a South Asia analyst with London-based Jane's Defense Weekly. "That, together with the slap India got in 1962, keeps them awake at night."

B. Raman, a hawkish, retired Indian intelligence official, expressed the fears of some Indians over the Chinese-built ports, saying he believes they'll be used as naval bases to control the area.

"We cannot take them at face value. We cannot assume their intentions are benign," said Raman.

But Zhao Gancheng, a South Asia expert at the Chinese government-backed Shanghai Institute for International Studies, says ports like Hambantota are strictly commercial ventures. And Sri Lanka says the new port will be a windfall for its impoverished southern region.

With Sri Lanka's proximity to the shipping lane already making it a hub for transshipping containers between Europe and Asia, the new port will boost the country's annual cargo handling capacity from 6 million containers to some 23 million, said Priyath Wickrama, deputy director of the Sri Lankan Ports Authority.

Wickrama said a new facility was needed since the main port in the capital Colombo has no room to expand and Trincomalee port in the Northeast is caught in the middle of Sri Lanka's civil war. Hambantota also will have factories onsite producing cement and fertilizer for export, he said.

Gearing military expansion towards China
Meanwhile, India is clearly gearing its military expansion toward China rather than its longtime foe, and India has set up listening stations in Mozambique and Madagascar, in part to monitor Chinese movements, Bedi noted. It also has an air base in Kazakhstan and a space monitoring post in Mongolia — both China's neighbors.

India has announced plans to have a fleet of aircraft carriers and nuclear submarines at sea in the next decade and recently tested nuclear-capable missiles that put China's major cities well in range. It is also reopening air force bases near the Chinese border.

Encouraging India's role as a counter to China, the U.S. has stepped up exercises with the Indian navy and last year sold it an American warship for the first time, the 17,000-ton amphibious transport dock USS Trenton. American defense contractors — shut out from the lucrative Indian market during the long Cold War — have been offering India's military everything from advanced fighter jets to anti-ship missiles.

"It is in our interest to develop this relationship," U.S. Defense Secretary Robert Gates said during a visit to New Delhi in February. "Just as it is in the Indians' interest."

Officially, China says it's not worried about India's military buildup or its closer ties with the U.S. However, foreign analysts believe China is deeply concerned by the possibility of a U.S.-Indian military alliance.

Ian Storey of the Institute of Southeast Asian Studies in Singapore said China sent strong diplomatic messages expressing opposition to a massive naval exercise India held last year with the U.S., Japan, Singapore and Australia. And Bedi, the Jane's analyst, added "those exercises rattled the Chinese."

Growing military budgets
India's 2007 defense budget was about $21.7 billion, up 7.8 percent from 2006. China said its 2008 military budget would jump 17.6 percent to some $59 billion, following a similar increase last year. The U.S. estimates China's actual defense spending may be much higher.

Like India, China is focusing heavily on its navy, building an increasingly sophisticated submarine fleet that could eventually be one of the world's largest.

While analysts believe China's military buildup is mostly focused on preventing U.S. intervention in any conflict with Taiwan, India is still likely to persist in efforts to catch up as China expands its influence in what is essentially India's backyard. Meanwhile, Sri Lankans — who have looked warily for centuries at vast India to the north — welcome the Chinese investment in their country.

"Our lives are going to change," said 62-year-old Jayasena Senanayake, who has seen business grow at his roadside food stall since construction began on the nearby port. "What China is doing for us is very good."

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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