The Daily Star
April 27, 2001
The struggle for control of Caspian Basin oil has taken another Byzantine twist with what appears to be an alliance between Iran and Russia, to counter growing US encroachment into the strategic region as part of its effort to diversify its energy sources and reduce reliance on supplies from the Gulf. If Iran and Russia can block this drive, they could have significant leverage over Western economies which would remain dependent on Saudi Arabia and its partners.
Russia and Iran have twice postponed a meeting of the leaders of the five states surrounding the sea themselves plus Khazakhstan, Azerbaijan and Turkmenistan to determine how to divide the region s vast and disputed oil and gas wealth.
The summit was originally scheduled for March 8-9 in Ashkhabad, capital of Turkmenistan, but was put off until April 14-15 at the request of Iranian President Mohammad Khatami until after his landmark visit to Moscow in March. After talks with Russian President Vladimir Putin, it was officially announced that he and Khatami had disagreed on how the Caspian should be split up.
Then on April 12, Viktor Kalyhuzny, Russia s energy envoy to the region, said that Putin, who since coming to power in 2000 has launched an energetic campaign to restore Russian influence in Central Asia, had persuaded the other leader to put off the summit again until September.
This has led to suspicions that the Iranians and Russians have found it mutually beneficial to prolong their disagreement. During Khatami s Moscow visit the two leaders said they had failed to find common ground on how to divide the Caspian, but stressed that this was the preserve of the five littoral states only a clear admonition to the US to keep its hands off.
Their primary objective in such an alliance would be to scupper a US-led plan to build a pipeline from Baku in Azerbaijan through Georgia to Turkey s Ceyhan oil terminal on the Mediterranean and block Western encroachment.
Until the legal status of the Caspian, which according to some estimates could contain 40 billion barrels of oil (some put that as high as 200 million) and 18 trillion cubic meters of natural gas, has been determined large-scale production cannot start.
The Iranian-Russian move was apparently triggered by the March 1 signing by Khazakhstan, Turkey, Georgia, Azerbaijan and the US of a memorandum of understanding for the construction of the Baku-Ceyhan pipeline. Eight days later, Iran, which wants to pump Caspian oil through its territory to its Kharg Island terminal in the northern Gulf, signed a $226 million contract with Sweden s GVA Consultants for oil exploration in the Caspian.
The day before, Tehran and Armenia moved a step closer to finalizing an agreement for a natural gas pipeline that could form part of a major gas route from Iran to Armenia, Georgia and the Ukraine and eventually Western Europe.
Russia is vehemently opposed to the US-backed Baku-Ceyhan project, which the Clinton administration supported as part of strategy of luring the Central Asian republics and the Caucasus out of Russia s orbit and toward the West. Russia and Iran share deep concerns about US policy on Central Asia, NATO s eastward expansion and regional security, and their strategic relationship shows all the signs of becoming more cohesive.
Iran remains the subject of US arms and economic embargoes despite Khatami s efforts to reach a rapprochement with the Americans. For Russia, its relations with the US are at their lowest ebb since the Soviet collapse in 1991. There are sharp divisions over US plans to build a national missile defense system, which Moscow says undermines disarmament and arms control treaties. Moscow has nuclear energy and arms deals with Iran, which Washington virulently opposes. A spate of spy scandals resulting in tit-for-tat expulsions have further soured relations.
Central Asia is a region of immense strategic importance, since it borders Iran, China, Russia and Pakistan. It contains some of the world s largest deposits of oil, natural gas and uranium and the existing pipeline network runs north to Russia. Ten years after the collapse of the Soviet Union, it has also become a major narcotics smuggling hub and faces destabilization by forces linked to the drug trade and Islamic fundamentalism centered in Afghanistan.
For the US, three of the republics Khazakhstan, Kyrgyzstan and Uzbekistan lie at a key commercial and political crossroads between Europe, Asia and the Middle East. China, desperate for oil to fuel its ambitious economic plans, also has its eye on the Caspian, and Moscow is just as determined to prevent Beijing extending its influence into the region. The collapse of communism unleashed a competition for power and influence among the former Soviet republics in Central Asia, with the Americans seeking to reduce Moscow s influence and keep Iran out, at the same time encouraging Turkey and Israel to consolidate their links with the region for political/security reasons as well as commercial gain. Russia and Iran are waging their own campaigns, with China, Pakistan and even Saudi Arabia is vying for influence as well.
The US and Europe want to see NATO s eastward expansion carried over into the region as part of the new strategic doctrine. No one wants to see the emergence of a Central Asian confederation of militant states. The outcome of all these developments in the overwhelmingly Muslim oil-rich region could eventually affect the security and stability of the Middle East. Increasing and diversifying energy supplies is ostensibly a key goal of US strategy in the Caspian which could have significant impact on the Gulf even though it has been estimated that oil from the region will cost $5 per barrel to produce compared to $1.50 per barrel in Saudi Arabia.
NATO Secretary-General George Robertson of Britain visited the Central Asian republics in January and discussed their possible membership of the alliance s Partnership for Peace program. US and NATO forces parachuted into Khazakhstan in September 2000 for joint anti-terrorist maneuvers with Central Asian forces.
Last September s operation was followed by a visit to the region by General Tommy Franks, who heads the US Central Command. He pledged military aid to counter the growing threat of Islamic insurgencies in the region that stem to a large extent from the war in Afghanistan.
There have been suggestions that Putin, pursuing more aggressive policies than his predecessor, Boris Yeltsin, and driving hard to rebuild Moscow s influence abroad, could exploit the security concerns across Central Asia caused by that conflict to regain its lost influence in the region, which the Russians consider their backyard. Indeed as the fundamentalist threat increases, it is already doing that.
The decision by Khazakhstan potentially the largest oil producer in the Caspian Basin following the discovery in 2000 of the giant offshore Kashagan field to sign the March 1 memorandum on the proposed 1,740-kilometer Baku-Ceyhan pipeline was something of a backflip by the government.
Several weeks earlier, Prime Minister Kasymzhomart Tokayev had said that the government was looking at transporting oil south across Iran as the most promising option. The Americans apparently responded with a little arm-twisting.
President Bush contacted President Nursultan Nazarbeyev, urging his support, according to senior Azeri officials. On March 2, Elizabeth Jones, the US special envoy on Caspian affairs, announced after meeting Naz-arbeyev in Astana, the Khazakh capital,that he was fully behind the Baku-Ceyhan project and wanted the first oil from Khazakhstan s most promising field, Kashagan, to be pumped through Turkey when it comes on stream, supposedly in 2005. The memorandum is not binding on Khazakhstan, but clearly it could significantly boost that pipeline s prospects.
The major US oil companies involved in the Caspian adventure have long resisted the Baku-Ceyhan option as being too expensive, preferring instead a much shorter, and thus less expensive, pipeline running from Baku to Iran s Gulf outlets. That has the added benefit of not running through the Caucasus, which remain unstable because of Chechnya and potentially Georgia. However, the recent upswing in world prices and new oil finds in the Caspian have made the US-backed plan economically viable.
US officials say that Baku-Ceyhan is gradually gaining support, although that may result in a greater Russian effort to block it. If the Iranians join forces with Moscow, as they seem to be doing, that would produce a formidable opposition.
The key may well be Azerbaijan, which is at odds with Iran and which seems to be four square behind the US proposal (President Gaidar Aliyev signed oil deals with Exxon, Chevron, Mobil and Amoco at a White House ceremony in 1997). But Russia still exerts major influence over Georgia, the middle segment of the planned pipeline and may find it increasingly difficult to resist pressure from Moscow.
Much will depend on how the new Bush administration moves on the issue. Bush, Vice-President Dick Cheney and other key figures in the fledgling administration have strong connections with the US oil industry and, despite Bush s admonition to Khazakhstan s Nazarbayev to go for the Baku-Ceyhan option, Big Oil may find it advantageous to press for the lifting US of sanctions on US investment in Iran s oil industry and kill two birds with one stone move back into Iran and produce a cheaper export alternative to Baku-Ceyhan in one stroke.
Such a move could split the Iran-Russia alliance while still decoupling greater Central Asia from Moscow but it would also give Tehran the kind of control over oil supplies that Washington may not find acceptable.
Still, in early April, the Bush administration s energy task force, led by Cheney, presented a draft report that the US should re-evaluate economic sanctions on Iran, along with Libya and Iraq, because at a time when the country was seeking to ensure long-term energy supplies, US oil companies were being excluded from some of the most important and existing and prospective petroleum-producing countries in the world.
The US currently depends on foreign sources for more than half its oil imports.
Congress is geared to extending the Iran-Libya Sanctions Act when its first five-year term expires in August, but the administration may try to limit this to two years instead of five, giving it time to lobby for a change that favors Big Oil. But much may depend on the outcome of Iran s presidential elections in June.