Oil And Gas In The Caspian – The Never Ending Madness

oilandgasAt the height of the Caspian hydrocarbon frenzy in the early 1990s, industry analysts and oil company wildcatters alike thought there were reserves in the Caspian Sea that could rival those of the Middle East, or so it sounded. Such an oil-saturated land has indeed sparked armed conflict before. The Iraqi invasion of Kuwait was prompted by Saddam Hussein’s thirst for what he perceived as his country’s ancient right to the land and its oil, which were given to the royal house of Sabah by the Allies after World War II.

The U.S. and Azerbaijani governments gushed that there were 200 billion barrels of oil pooled under the Caspian basin (1 barrel = 42 U.S. gallons; 7.4 barrels = 1 ton). U.S. Deputy Secretary of State Strobe Talbott likes to throw that figure around a lot. If this were true, the region would be akin to a junior Saudi Arabia.

More skeptical estimates place the figure at a “mere” 75 billion barrels of crude, putting the Caspian Sea in the same league as Venezuela, whose very significant reserves make it the largest foreign supplier of oil to the United States.

Now comes the devastating news about a number of noncommercially viable wells being struck in the Caspian area.

The latest announcement was in March, when an international consortium comprising British Petroleum, Unocal (United States), Itochu (Japan), Delta (Saudi Arabia), and the State Oil Company of the Azerbaijan Republic (SOCAR) said it had not been able to find commercially viable amounts of oil in three out of five test wells. Because of this, it scaled back all operations. The consortium had planned to invest $2 billion in development projects.

In January, another consortium, led by the U.S.-based oil company Penns Energy, pulled out of Azerbaijan. The consortium, Caspian International Petroleum Company, said the reserves of oil and gas found did not make its $3 billion project worthwhile.

“With the oil price fall [earlier this year, since reversed], people are more cautious about spending money and are walking away from exploration projects,” Stephen O’Sullivan, a Moscow-based oil analyst with the international brokerage United Financial Group, told the Christian Science Monitor.

“Maybe expectations of a pot of gold in the Caspian were a little ahead of reality. Now realism is creeping in. It’s clear it’s not the bonanza it was thought to be.”

Bonanza or not, the region still has enough oil and recently discovered megafields of natural gas to ensure that no player in the game wants to be outpositioned. Indeed, all are poised to use the force of arms to get their way.

PIPELINE MANIA

Russian President Boris Yeltsin said in an interview last year, “Some seek to exclude Russia from the game and undermine its interests. The so-called pipeline war in the region is part of this game.”

Even with the disappointing test wells, there is still a huge amount of oil in the Caspian basin. Getting the crude to the refineries is an entirely different story than the sagas of exploration and drilling. There are four proposals dealing with oil transport:

The two early oil pipelines: the northern route to the Russian Black Sea port of Novorossiisk via the Chechen capital of Grozny, which has been operational for two years, and the western route to the Georgian Black Sea port of Supsa, which became fully operational in April.

The Caspian Pipeline Consortium (CPC) pipeline from Kazakhstan to Novorossiisk. Construction on the $2.2 billion project has already begun.

The Baku-Ceyhan Main Export Pipeline (MEP) for oil, a 1,082-mile affair that would stretch from the Azerbaijani capital of Baku to the Mediterranean port of Ceyhan in Turkey.

Among these four plans, one will be chosen as the major transportation route and will reap the bountiful windfall of profits that flow with the oil as it makes its way to hydrocarbon-addicted Western markets.

The U.S., Turkish, and Azerbaijani governments support the MEP route, but the Azerbaijani International Oil Consortium (AIOC), which includes British Petroleum/Amoco, is resisting the plan. It favors the Baku- Supsa route, because it is less expensive to develop and more secure than the other routes. The AIOC has the final word on transportation routes and is intentionally delaying any decision, which was expected this summer but is still nowhere near finalization.

The long delay by the AIOC prompted the U.S. government in September to begin complaining about the lack of a decision in an effort to spur movement. But the consortium is impervious to political strong-arming and has not indicated when it might pursue its plans.

The AIOC has already invested some $1.8 billion in the two early projects and is likely to protect its initial investments, especially in Baku-Supsa, rather than abandoning them just to satisfy Turkey, Azerbaijan, and the United States.

But Turkey, just to show it believes it has some leverage over the decision, has threatened to limit barge and tanker traffic moving via the Bosporus and Dardanelles Straits, showing a sudden “concern” for the truly fragile aquatic environment of those Turkish waters.

Russia, too, went on the offensive, pointing out that its plan of Baku- Grozny-Novorossiisk has an advantage because it is already transporting early Caspian oil.

Among the few consortiums left, though, the Baku-Grozny-Novorossiisk route is not considered a viable option. The 95-mile Grozny stretch of this pipeline lies within Chechnya (the breakaway region that fought a bloody war with Russia from 1994 to 1996). The area is now locked in new armed conflict with Russia. And it seethes with interclan warfare and is racked with paramilitary criminal brigades ravaging the region like Mongol raiders.

Conflict in the region escalated into heavy fighting in September, threatening stability in the northern Caucasus.

The Chechen problem is only one example of what is a complicated and convoluted international security nightmare, always threatening to force military intervention to protect billion-dollar infrastructure investments as well as ensuring an uninterrupted flow of the hydrocarbons to Western refineries.

PETROLEUM POLITICS

“The strategic value [of the Caspian] has been there from the beginning–it never was just about oil,” says Zbigniew Brzezinski, Jimmy Carter’s national security adviser, now a freelance consultant to the major consortiums.

The Clinton administration is continuing to bend all oil-transport pipeline proposals away from Russia, which would allow the former Soviet-occupied republics to lessen their dependence on their old masters and lean more westwardly, economically and philosophically.

“We believe that the east-west transit corridor [the MEP pipeline] is the way to go,” Richard Morningstar, President Clinton’s special adviser on Caspian issues, told reporters during a visit to Moscow last February. “We think that it is good for the region and … it is good for all countries in the world.” Veiled in that carefully considered wording is the Clinton administration policy of Russian containment.

Many in the West fear Russia’s shaky government and Communist-heavy parliament. Another factor is the continuing erosion of the Kremlin’s control over its outlying territories, as evidenced by the grumbling of territorial governors and talk of regional secessionism.

Besides economic chaos, there is another good reason to fear Russian control over oil transportation from the Caspian: Signs suggest that Moscow would use such power recklessly.

PROMOTING DEADLY CONFLICT

Russia continues promoting ethnic warring in its previously occupied republics of Georgia and Azerbaijan. To date, the conflict has left 1 million refugees and over 200,000 dead or wounded.

In the breakaway Georgian region of Abkhazia, so-called Russian peacekeepers did nothing last summer when separatist irregulars began a Kosovo-like action that drove tens of thousands of Georgians from their homes. The latter are now among 60,000 internally displaced persons (as opposed to refugees, who are driven out of their country) in that Caucasus country.

Russia also fomented the 1992–93 Azerbaijani-Armenian war over Nagorno-Karabakh, a territorial enclave of Armenian people in Azerbaijan. Tensions remain very high between Armenia and Azerbaijan.

In addition, Presidents Eduard Shevardnadze of Georgia and Aliyev of Azerbaijan both claim that recent assassination attempts against them were actively supported by the Federal Security Service, successor to the KGB.

“Russia’s desire to control Central Asia can be seen by a blind man,” says Tsalik Nayberg, chief representative in Turkmenistan for the U.S. oil company Unocal.

Apart from Russia’s historical and continuing military aggressiveness, there is a deep concern in Washington that, should any oil money flow into the Islamic fundamentalist countries of the region, the world will see a whole new escalation of religion-sparked terrorism.

In a National Journal article, Paul Starobin wrote,

“The United States aims to sink commercial roots, enlarge its political and military influence, and construct stable and prosperous democracies in a remote and unfamiliar region with a tradition of profound poverty, endless tribal and ethnic warring, and corrupt dictatorships. If you are looking for a flash point for a World War III, the Caspian isn’t a bad bet.”

While Shiite Muslim by faith, modern Azerbaijanis reflect their Soviet atheist upbringing and are not at all extremist. Besides, they are busy rebuilding their surprisingly cosmopolitan culture.

Unlike their Iranian neighbors to the south, Azerbaijanis have been able to resist the spread of Islamic fundamentalism, although there are troubling signs of violent Muslim sects (like the Wannabe) slowly organizing religious coup efforts in several Central Asian countries. Azerbaijan is pinning its hopes for sustained economic and political independence on the United States.

In an interview with the BBC, Azerbaijan foreign policy adviser Vafa Guluzade voiced this new U.S. orientation. He also proposed a military alliance with Turkey, hoping Ankara(r)XC28,4[macron]s rapidly growing influence in the region will help secure his country’s future as well as protecting the oil as it makes its way west.

In addition, there was some talk about having NATO provide troops to protect the pipelines, but Georgian President Shevardnadze has denied any such request has been or will be made. Instead, Georgia, Ukraine, Uzbekistan, Azerbaijan, and Moldova are forming a collective security force they call GUUAM to ensure pipeline security.

In any event, the likelihood of the need for either U.S. or NATO military involvement in the region to secure the peace grows with each dollar invested in drilling and export operations. There is just too much temptation for rebels to engage in economic terrorism by sabotaging the main Caspian oil pipeline. These rebels include the Kurds in northern Turkey, the Chechens and Ossetians of southern Russia (North Ossetia, next door to Chechnya, was the scene of a horrendous marketplace terrorist bombing in late March that killed over 50 people), or nationalist renegades in Armenia and Georgia.

To preclude terrorist disruption, the United States could be forced to send in troops, probably sooner rather than later.

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