Possibilities and Problems of Transporting Caspian Oil and Gas - by Julia Nanay

Published December 5th, 2000 - 02:00 GMT

As I sat down to put some thoughts to paper this morning about a region that now looks like it will remain in the political and oil limelight for a long time to come, I reflected on the evolution of my own interest and work in this area: Russia, Kazakhstan, Azerbaijan, Turkmenistan, and now Iran.  


The focus of the oil industry is shifting south. The focus of the US government is also fixated toward the south, but the US government still draws a line above Iran. However, this has begun to change.  


The last three months, since the Istanbul OSCE summit of November 1999, have seen intense political jockeying--a change of government in Russia coupled with an ongoing brutal war in Chechnya and a much awaited parliamentary election next week in Iran.  


Three areas were to be addressed in different types of agreements at the November 1999 OSCE summit: the Baku-Ceyhan oil pipeline, the TransCaspian Gas pipeline, and the Karabakh conflict between Armenia and Azerbaijan.  


Three weeks before the summit, at the end of October 1999, the leadership of Armenia was decimated in a shooting in that country’s Parliament. The resolution of the Karabakh conflict remains uncertain, although President Aliyev of Azerbaijan and President Kocharyan of Armenia have had numerous one on one meetings to try to arrive at a solution. 


President Kocharyan recently went to Israel--where the Karabakh issue is likely to have been on the agenda with his Israeli hosts, and next week, President Aliyev is due in Washington, where Karabakh will be high on the agenda as well.  


In the meantime, both presidents have also been to Moscow, where acting President Vladimir Putin has said he would mediate the Karabakh conflict.  


At the Istanbul summit, the signing of the framework agreements for the Baku-Ceyhan oil pipeline and the TransCaspian Gas Pipeline (TCGP) were almost overshadowed by a Western outcry over Chechnya.  


Since the OSCE summit, Russia has taken Grozny and pushed the Chechen field commanders into the mountains bordering Georgia, and has conducted bombing raids along the Georgian-Chechen border.  


Russia had also since announced its intention of instituting a visa regime for upwards of one million Azeris currently living in Russia. Such a visa regime would have meant that Azeris would have to return to Baku and apply for Russian visas, which would surely have been refused. On his recent Moscow visit, President Aliyev managed to diffuse this crisis, but what did he have to promise Mr. Putin in return?  


Russia’s stepped up military campaign in Chechnya in November coincided with the Iraqi 22 November withdrawal of 2.2 million barrels of oil a day from world markets, which helped drive up prices, creating a financial cushion for Moscow to fund its military campaign.  


Russia has become increasingly adamant about safeguarding what it considers to be its vital interests in this broader Caspian region that extends into the Middle East. Thus, the whole of the Caucasus is now increasingly unstable.  


At the same time, Iran too has been actively courting its northern neighbors in Central Asia and the Caucasus. In January, Iran reached an agreement with Turkey to delay the start-up of gas exports under a take-or-pay contract it has with Turkey until July 2001.  


At the same time, Iranian gas has been shipped to the Turkish border, where it is being flared. Iran wants to demonstrate to Turkey that it is ready to ship gas.  


Iran has also told the Azeris that it is prepared to buy outright 220,000 barrels per day of oil under a long-term contract and will pay $2 per barrel more than the oil would fetch at the Turkish port of Ceyhan. For both Russia and Iran, the Caspian is considered critical for economic and political reasons.  


Let me now address the issue of oil and gas pipelines in this region in the context of what the US administration’s Caspian Energy Czar, John Wolf, stated in his press conference in Istanbul at the time of the OSCE summit. 


Ambassador Wolf said that, “the most important principle underlying US Caspian energy policy is to prove that economic and political cooperation is a much better path for the region than political rivalry.  


It is creating a new web of relationships that will support the economic and political independence of these states.”  


Other goals he mentioned were to create and advance commercial opportunities for US companies and to improve the energy security of the US, Turkey, and other allies while securing the free flow of energy resources from the Caspian to regional markets.I laud these goals.  


In his press conference of December 8, 1999, President Clinton stated: “We got the Caspian pipeline agreements, which I believe 30 years from now you’ll look back on and say that was one of the most important things that happened this year."  


In the “National Security Strategy for a New Century,” document which the White House issued in December 1999, several paragraphs were devoted to the Caspian: “We are focusing particular attention on investment in the Caspian resources and their export from the Caucasus region to world markets…Resolution of regional conflicts such as Nagorno-Karabakh and Abkhazia is important for creating the stability necessary for development and transport of Caspian resources…We support these agreements because they will…help fulfill our commitment to the prosperity and independence of the Caspian states.  


The agreements will help the development of their societies into democratic, stable commonwealths…” President Clinton may prove to be right but let’s see where things stand now.  


The problems for the Baku-Tblisi-Ceyhan pipeline and the TCGP is that they seek to address US strategic and political goals, and to some extent, the commercial goals of the countries involved.  


However, for the most part, they ignore the commercial goals of many of the Western companies and the political goals of some of the countries involved.  


It is not unreasonable to argue that if the commercial goals of the Western investors and the political goals of the countries involved mirrored the “strategic goals” being advanced by the United States, these pipelines would have much broader support.  


Instead, you have an oil pipeline being promoted from Baku, which doesn’t have enough oil to fill it, and a gas pipeline being promoted from Turkmenistan, which crosses Azerbaijan--a country which looks to be a major gas producer in the future.  


While the United States argues to the countries of the Caspian region that Russia and Iran have to be avoided because they are “energy export competitors,” Azerbaijan and Turkmenistan have become fierce competitors for the same gas market.  


Turkey is being solicited by many more gas suppliers than it is likely to be able to absorb.  


In addition, the key reason for promoting East-West routes--which has to do with the isolation of Iran--is also being called into question. Instead of moving toward reducing tensions with Iran, at a time where a normalization of relations with that country is being called for by a growing chorus of voices inside the United States and among our allies, our Caspian policy only serves to heighten tensions.  


Moreover, Russia perceives that the United States is trying to derail the Blue Stream gas pipeline, which would transport gas under the Black Sea to Turkey, and, consequently, this has become the source of much resentment.  


In my view, both Iran and Russia will have to be accommodated in the Caspian “Great Game.” It is difficult to imagine how this region will move forward without a more inclusive policy.  


Oil swaps through Iran--even if on a limited basis and in limited volumes--are not only a good idea, but they may become an economic necessity. Even if the Baku-Tblisi-Ceyhan pipeline is built, it won’t come on-stream before 2004-2005.  

Originally was published on February 9, 2000 



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