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The Rush for Caspian Oil

Clinton started late, but the U.S. is gaining in the Great Game in central
Asia

Bruce W. Nelan
May 4, 1998

Washington put on quite a show last week for an improbable personage: 
Turkmenbashi, a plump, silver-haired strongman from an obscure country in 
central Asia who would normally rank far down the pomp-and-protocol chart.

But the title, which means "head of all Turkmen," belongs to one 
Saparmurat Niyazov, President of Turkmenistan, a parched former Soviet 
republic that happens to sit atop immense oil deposits and the fourth 
largest natural-gas reserves in the world. So last week Niyazov got the 
imperial treatment from the Clinton Administration and a host of U.S. 
businessmen eager to start exploiting those riches in earnest.

Niyazov was put up at Blair House, across the street from the White House,
an honor reserved for true VIPs. He got 45 minutes with Clinton in the Oval
Office and conferred with Cabinet officers and CIA Director George Tenet. 
More than two dozen oil and equipment companies kicked in to sponsor a 
dinner in Niyazov's honor at a downtown hotel, and 300 of America's top 
government decision makers, business executives and lobbyists thronged the
ballroom.

Niyazov is one of the new kingpins of the Caspian Sea and the treasure it 
covers. The California-size Caspian, center of the last great oil rush of 
this century, laps across a huge mine of liquid gold. Some 200 billion
bbl., or about 10% of the earth's potential oil reserves, are thought to
lie under and around the sea. At today's prices that could add up to $4 
trillion worth. The Caspian lies in a tough part of the world, studded 
with rugged mountains, Chechen guerrillas, dissident Kurds, crowded 
sea-lanes and unstable and corrupt governments in all directions. Laying 
hundreds of miles of pipe through such obstacles will carry a huge price 
tag and enormous risks.

The world's energy companies began scrambling for the prize as soon as the
Soviet Union broke up, in 1991, and the biggest oil firms from the U.S., 
Europe, Russia, Japan, China and South America have bought into the action,
forming consortiums and joint ventures with local companies to generate 
the huge start-up costs. Some of the wells are already pumping, and in a 
few years oil will be flooding out of the Caspian reserves. But how will 
the precious stuff travel to energy-hungry consumers? Who will have a hand
on the spigots as it flows to market?

The key to that decision probably lies in Baku, capital of Azerbaijan and 
headquarters of the biggest multinational oil consortium in the region. 
It's an old city but a new boomtown. The shoreline along the tree-shaded 
boardwalk is gray with oil, and the air is heavy with the dizzying stench 
of crude. The city sprouts new bars, cafes and nightclubs every week, and 
petro-barons fill the nights with the roar of their armored Mercedes-Benz.

So far this year, a 12-company consortium, led by British Petroleum and 
Amoco, has produced 160,000 tons of oil. This early production has 
traveled out through a 2-ft.-wide pipeline, heading north through 
Azerbaijan and west to the Russian port of Novorossisk on the Black Sea.

But soon, as production picks up, that line and a number of others already
laid will be too small to handle the job. The consortiums want a new 3.5-ft.
-wide line that will be able to carry up to 1 million bbl. a day in five 
years. At the bar of the Ragin' Cajun, a hot spot in Baku, a veteran of 
oil fields from Texas to Siberia explains, "The game's called pipeline 
poker. The Caspian is crazy. It's landlocked. We can drill all the oil 
you'd ever need. But can we get it out?"

It's a question that has ignited a tense struggle in the region and beyond.
The coastal states of Azerbaijan, Kazakhstan and Turkmenistan gained 
their independence when the Soviet empire collapsed. All three want to 
exploit the riches under their sea without interference from Russia and 
Iran, the two other states that rim the Caspian. As major oil and gas 
producers, Russia and Iran are not overjoyed at their neighbors' good 
fortune.

In their day, the Soviets never worked seriously at developing Caspian 
wells, largely because they did not want to create competition for their 
already flowing Siberian oil. Moscow still feels the same but hasn't 
figured out how to head off the flow of Caspian oil or to grab a large 
chunk of the profit. Russia does insert an environmental argument: the oil
industry could threaten the Caspian sturgeon and its oily treasure, caviar.
For its part, Iran says it will cooperate in Caspian development only if it
gets, say, a 20% share of the sea's resources. Both Russia and Iran prefer 
that pipelines carrying Caspian oil be built or expanded over their 
territory.

While American energy companies joined the Caspian rush early, the U.S. 
government was slow to get organized. Some of Washington's top power 
brokers and law firms went to work for Caspian governments or U.S. 
companies, selling, consulting, lobbying or opening doors. Among them were
former Defense Secretary Dick Cheney, former Treasury Secretary Lloyd 
Bentsen, and John Sununu, who was George Bush's chief of staff. Perhaps 
the most active Washington name is former National Security Adviser 
Zbigniew Brzezinski, now a consultant for Amoco. He has long been a mentor
to Secretary of State Madeleine Albright, and he has warned the White House
for years that the U.S. was making a strategic mistake in paying so little 
attention to the new central Asian nations.

Albright and her senior State Department colleagues sat down for a 
full-dress CIA briefing on the Caspian last August. The agency had set up 
a secret task force to monitor the region's politics and gauge its wealth.
Covert CIA officers, some well-trained petroleum engineers, had traveled 
through southern Russia, Azerbaijan, Kazakhstan and Turkmenistan to sniff 
out potential oil reserves. When the policymakers heard the agency's 
report, Albright concluded that working to mold the area's future was "one
of the most exciting things that we can do."

American officials frown when outsiders call the battle over the Caspian 
another "Great Game," the term Rudyard Kipling used for the 19th century 
struggle for influence and control between the British and Russian empires.
But another Great Game is what it is. Washington wants Caspian oil to 
flow through many pipelines so that no single country can bottle it up, 
and is adamantly against having a new pipeline pass through Iran. It is 
fine if some of the lines run through Russia, as they already do, but 
Russia should not be able to turn a valve and shut off all or most of the 
Caspian flow.

Specifically, the U.S. wants the big new carrier, the one the oilmen call 
the main export pipeline, to run westward from the Caspian to the Turkish 
port of Ceyhan, on the Mediterranean, because Turkey is a NATO ally. The 
U.S. does not entirely trust Russia, which resents the arrival of foreign 
influence in what were Soviet republics. To Washington, the Islamist 
regime in Iran looks even less friendly. "The last thing we need," says a 
White House aide, "is to rely on the Persian Gulf as the main access for 
more oil."

Officials in Tehran point out that a pipeline southward through Iran would
be the shortest way to go. "This is all ridiculous," says Hossein Kazempour
Ardebili, an adviser to the ministers of petroleum and foreign affairs in 
Tehran, as he draws a map of proposed routes through Russia and Turkey.
"We have our hands in the Caspian Sea and our feet in the Persian Gulf, the
simplest outlet for this energy."

The Iranians don't rely just on logic to press their case. They cite 
treaties with the Soviet Union dating back to 1921 and 1940 that declare 
the sea a common lake between the two countries. Tehran is willing to 
negotiate a new agreement but demands veto rights over any aspect it 
doesn't like. If Iran's interests are not taken into account, says 
Ardebili, it will deal with what it considers illegal activities in the 
Caspian by using "constructive--and possibly destructive" countermeasures.

By last fall the U.S. was pressing hard for the option it favors, a system
of oil-and- gas lines starting through Kazakhstan and Turkmenistan, running
under the Caspian Sea to Baku, then through Georgia and Turkey to the 
Mediterranean. This elaborate scheme is not an easy sell. The long 
pipeline would cost about $4 billion to build and add up to $4 to the cost
of each barrel of oil it carried. To many company executives, it seems 
easier to use the southern route through Iran or the northern route 
through Russia to the Black Sea.

"If I had my way," says a senior Western oil executive, "we'd sign with 
the Iranians. In this part of the world, they are by far the most 
trustworthy partners for a pipeline deal. Terrorism? Who's going to blow 
up their own pipeline?" But the U.S. option, the east-west line, gathered 
support from some regional leaders--Azerbaijani President Heydar Aliyev, 
for example--who thought it would be more secure.

A breakthrough for the U.S. came at "the great pipeline shootout" on April
1 in Almaty, capital of Kazakhstan. More than 200 executives and experts 
from the region's oil consortiums gathered to present and compare their 
pet plans. To everyone's surprise, Total, the French oil giant, put 
forward revised numbers for its preferred option, a north-south pipeline 
through Iran to the gulf. By these new estimates, the Iran link would cost
about $4 billion and would not be operational until 2004. This meant the 
line through Iran would cost as much and take as long to build as the 
east-west system through Turkey.

This is heartwarming news for the Clinton Administration. Despite the 
focus on strategic thinking, the final pipeline decision will depend 
heavily on costs. So U.S. officials were jubilant at Total's confession, 
and they got another boost last week. In a joint communique with Clinton, 
Niyazov affirmed that he was leaning toward an east-west gas-and-oil line 
under the Caspian as part of the larger system the U.S. is pushing. In 
October the huge consortium based in Baku is to decide which route it will
support, and the Clinton Administration believes its side in this Great 
Game now has the momentum.

--

Reported by
Scott Macleod /Tehran, Andrew Meier /Baku and Douglas Waller /Washington

Source:
Time Magazine, May 4, 1998 Vol. 151 No. 17
http://www.time.com/time/magazine/1998/dom/980504/world.the_rush_for_caspi6.html