-Caveat Lector- <A HREF="http://www.ctrl.org/"> </A> -Cui Bono?- >From http://www.stratfor.com/CIS/specialreports/special20.htm {{<Begin>}} The Geopolitics of Caspian Oil 26 January 2000 Summary The leaders of Azerbaijan, Georgia and Turkey met again in Ankara Jan. 21 to hash out the final details of the much-touted Baku-Ceyhan oil pipeline. Baku- Ceyhan is one of a dozen various proposals for exporting oil from the former Soviet Union. Despite having U.S. support, it is also one of the least likely to be built. Several pipeline options are on the table, all with strategic and political pros and cons. The existing network certainly cannot handle the projected supply of oil to come from the region. Thus, new pipelines must be put in place. Considering the instability of the region, the significant question becomes: Which pipelines are most likely to be built? [See map.] Analysis The Existing Network and Plans for Expansion The existing pipeline system for the Caspian Sea region has a limited capacity, consisting of a mere 500,000 barrels per day (bpd). The United States Department of Energy estimates that the region will be capable of producing 3,500,000 bpd by 2010 and 5,000,000 bpd by 2020, vastly more than the current pipelines can handle. To alleviate this problem, Russia is building the Tengiz-Novorossiysk line from Kazakstan to access Central Asian oil fields. Furthermore, most of the Caspian’s pipelines can be expanded. Baku-Supsa and Baku-Novorossiysk, each operating at 100,000 bpd, can increase their production up to six-fold. Simply expanding the existing pipelines, however, will be both costly and insufficient. Expansion of the Baku-Novorossiysk route will require large outlays for additional sections needed to bypass Chechnya. Due to the conflict in Chechnya, Russia has been forced to use costly rail-links to circumvent the Chechen section of the line. Also, none of these routes terminates near its primary market – Western Europe – instead ending on the Black Sea. A total capacity of more than two million bpd would create immense tanker traffic on the Black Sea and serve to clog the already congested Bosporus. Other pipeline plans are in the works to counter this challenge. The U.S. preference is for a one million bpd Baku-Ceyhan pipeline that terminates directly on the Mediterranean. But the Clinton administration has yet to place any financial resources behind the pipeline. Another U.S.-backed proposal – this one with assistance from the Export-Import Bank of the United States, the European Bank for Reconstruction and Development and the World Bank – would pump tanker oil from a coastal port in Bulgaria through Macedonia to Albania. This Burgas-Vlore pipeline, with a capacity of 750,000 bpd, would do much to alleviate the Bosporus traffic and directly supply Western Europe. Another option is one that avoids the Black Sea entirely by piping Caspian oil through Iran. Tehran has offered to pay for the construction of an underwater pipeline or to redirect Caspian Sea tankers to Neka, Iran, which has an oil terminal capable of handling 300,000 bpd without additional costs. Iran would then construct a second oil pipeline from the Neka terminal to the town of Rey, outside Tehran. Iran then envisions reconstructing two existing pipelines from Rey to refineries in the northern cities of Arak and Isfahan. Thus Caspian oil imports would flow into northern Iran for Iran’s own use – in which Iran is likely to refine the oil for export. But, in order to avoid U.S. sanctions, Iran will utilize its oil-swap program. Iran would export the same volume of its own Persian Gulf oil as it imported from Central Asia, but do so in the name of the Central Asian provider. The total cost for all of the Iranian projects is only $890 million, a huge savings from the other options. Iran estimates it could handle all of the export requirements for the entire Caspian basin – a whopping 3,500,000 bpd to 5,000,000 bpd. But not all of these proposals are feasible, due to a combination of economic, political and security reasons. The American Preference Baku-Ceyhan, likely paired with Baku-Supsa and Burgas-Vlore, will remain the United States’ first choice. Despite Baku-Ceyhan’s prohibitive expense and questionable security, it would achieve a number of political goals. First, it would reward Georgia for its pro-Western line and establish a perennial justification for a U.S. and Turkish interest in Georgian independence. Second, it would provide resource-poor Turkey with a steady energy supply and facilitate Turkey’s development as a petroleum-refining site. The clear disadvantages are inflated costs and the high risk of security problems in the Caucasus and Balkans – two highly unstable regions. The Baku-Supsa and Burgas-Vlore pipelines – while large – cannot possibly cope with the 3,500,000 bpd to 5,000,000 bpd the region is expected to produce. This leaves Washington with the option of placating Moscow and Tehran, both explicitly excluded from the initial Baku-Ceyhan plan, by using additional pipeline schemes. The United States would like to influence Caspian oil development, provide an opening to Iran, secure Turkey and Georgia, while not ruining relations with Russia. The United States’ problem is that no single pipeline plan can accomplish all three objectives. The Outcome As long as Russia participates in the international energy markets – as it did even in the Soviet era – it will continue to develop its own petroleum resources. If necessary, this will occur without Western assistance, as evidenced by Russia’s construction of the massive Tengiz- Novorossiysk with minimal Western funding. In addition, Russia will expand Baku- Novorossiysk and build the Chechen bypass. This will increase Russia’s capacity to export Azerbaijani and Central Asian oil from 400,000 bpd to 2,240,000 bpd. The majority of this capacity will be operational in 2001. The sheer volume of this will undercut any Central Asian attempts to construct additional lines. All of the oil delivered via Russian pipelines will reach ports on the Black Sea. The Bosporus simply cannot handle this magnitude of tanker traffic. Therefore, some sort of connection to the Mediterranean Sea will be required. The leading candidate for this is a Balkan pipeline – and a rather massive one at that. Burgas-Vlore fits the bill; if anything, its 750,000 bpd will not be enough. For economic reasons alone, some agreement among Iran, Azerbaijan and Turkmenistan is inevitable. Cash-starved Azerbaijan and Turkmenistan will only heed U.S. warnings for so long before accepting Iran’s offer to pay for Baku- Neka’s construction. Azerbaijan has recently warmed to the idea of an Iranian oil route. The United States can only avoid this is by signing a $3 billion check to largely underwrite Baku-Ceyhan; a move that Washington has shown little interest in executing. Geopolitical Repercussions of Global Energy Decisions The Iranian route is a more stable, less expensive route but has clear disadvantages for the United States. First and foremost such a route would effectively circumvent Turkey – a key U.S. ally in the region. Another obstacle is that U.S. investment in Iran is currently barred by sanctions. But the Iranian option need not work against U.S. interests. The United States can try to join an Azerbaijan-Iran deal, allowing for an opening of diplomatic ties to Tehran. Iranian Foreign Minister Kamal Kharrazi said Jan. 24 that Iran is “ready to negotiate” with the United States on the resumption of ties “on the basis of mutual interest and equality.” Tehran’s overtures to Washington could be in response to U.S. interest in developing the Iran-proposed oil route as an alternative to Baku-Ceyhan. Kharrazi’s statement followed a visit by the foreign minister of Switzerland, which represents U.S. interests in Iran. Unfortunately, this would increase the strategic importance of the Persian Gulf, a place and a responsibility from which the United States has tried to break free. The United States will reap a partial yield for its policies. Depending on how Washington acts on the inevitability of the Iranian option, warming American- Iranian relations could be a welcome result of the Caspian Sea energy struggle. Georgia will have modest income from transit fees, while Azerbaijan will have at least three separate export routes to fill its coffers. Turkmenistan will have gained a non-Russian export route. Bulgaria, Macedonia and Albania will also gain a measure of income from the Balkan pipeline. Turkey, however, will be livid with everyone. Turkey’s likely response to the United States will be a quiet seething demand for advanced military equipment at lower prices. After all, with U.S. backing, Turkey has firmly stood in the way of Russia’s economic plans. Turkey’s neighbor will remember that and it will take some delicate work to rebuild Russo-Turkish relations. Turkey will also forcefully appeal to the United States that sanctions on Baghdad be lifted enough so Iraq can again export oil through the Daurah-Baiji-Dortyol pipeline network, closed since the beginning of the American-led Gulf War. If reopened, this network would allow Turkey to again receive some sort of transit fees. Related Links: Map of Pipeline Routes http://www.stratfor.com/CIS/caspianoilroute.htm Additional Information on Proposed and Actual Pipelines http://www.stratfor.com/CIS/commentary/c0001260142.htm [Back to Home Page] [EMAIL PROTECTED] © 2000 WNI, Inc. 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