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Pipeline wrangle continues.

The protracted and complex jostling for position and for contracts that has been occupying the minds of oilmen, politicians, diplomats and strategists in Central Asia and the Black Sea in recent years seems, on the face of it, to be fast approaching a denouement.

The Caspian region, known to be home to around 28 million barrels of oil and 243 trillion cubic feet of natural gas - and thought to be the source of a great deal more found itself propelled onto the centre stage of international politics by the collapse of the Soviet Union and the gaining of independence for the regions patchwork of states.

The Caspian basin, politically volatile yet energy rich, has seen a battle for influence between Russia, Iran, Turkey and the US ever since its governments began to switch their attentions away from supplying the old Soviet market and towards the lucrative West.

Three basic options emerged for the creation of energy corridors to transport oil and gas out of the region. The first, favoured by Russia, is for shipment north, either via Georgia to the port of Supsa, or directly to Novorossisk, now Moscow's principal port on the Black Sea.

From either of these, oil and gas would be loaded on to tankers which would then pass through the Turkish Straits - the Bosphorus and Dardanelles - to the Mediterranean and beyond.

The second, or southern, route, favoured by Teheran, takes the energy through Iran to the Gulf. This is a fairly short distance and again, could make use of pipelines and terminals already in existence, with Iran's existing refining capacity also to be taken into consideration.

The third route, and the one supported by Turkey and the US government, is the Western corridor. Under this arrangement, a pipeline would be constructed between the Azeri capital and Caspian oil hub of Baku and the Turkish Mediterranean port of Ceyhan.

The issue as to which route is to be taken - or indeed, whether all the routes can be considered - has kept the Turkish establishment on edge for many months now. At the end of October, a conference of regional presidents was held in Ankara at which the Azeri, Turkish, Georgian, Kazakh and Uzbek leaders signed a declaration in support of the Baku-Ceyhan route, with US Energy Secretary Bill Richardson witnessing.

Azeri President Haydar Aliyev insisted that a final decision on oil through Baku-Ceyhan "has been made", adding that, "We believe we will materialise the project."

On the face of it, something of a triumph for the Turkish case, yet no sooner had the ink dried on the paper than serious doubts began to emerge as to whether this document really signified a breakthrough or simply a further fobbing off of Turkey's grand designs. As observers pointed out afterwards, the document was merely a declaration of intent, not an agreement or treaty, and in any case, the real decision on the route was to a great extent out of the hands of the participating presidents.

The real power lay with the people prepared to put up real money to build the route - the investors of the Azerbaijan International Operating Company (AIOC). This conglomerate is composed of the UK's BP and Ramco, the US's Amoco, Unocal, Exxon and Penzoil, the Russian LUKoil, Norway's Statoil, Turkish Petroleum, ITOCHU of Japan and Delta Nimir Khazar of Saudi Arabia.

The conglomerate also looks upon the Central Asian issue in principally economic terms, a method of analysis that does few favours for the Turkish case. At $3.9 billion dollars, the 1,700km-long projected Baku-Ceyhan pipeline is by far the most expensive option.

With oil at only $13 a barrel, and likely to stay low for some time, it is perhaps not surprising that the then Turkish Prime Minister Mesut Yilmaz noted: "There are some hesitations on the part of the companies making up the consortium that will build this pipeline".

In addition, the quantity of reserves discovered around the Caspian has stayed some way behind expectations; the Baku-Supsa route, scheduled for completion at the end of last year, and the Baku-Novorossisk route which has been transporting early flow since the end of 1997 - are adequate for the expected capacity for many years to come.

If economic criteria alone were being used, the Baku-Ceyhan route would not even be on the agenda. However, there is also a hefty political dimension. The Central Asian region borders Russia, China, Iran, Pakistan, India and the Middle East; it is seen as strategically crucial to the US and Europe's security concerns for the next century, and as such, control over the oil contracts and projects there is a highly politicised issue.

Two US officials have been central in trying to persuade the AIOC of this: Energy Secretary Bill Richardson and the US Ambassador to Ankara, Richard Morningstar. The later recently stated that the energy multinationals should "see their commercial decisions in a wider political and economic context." What this means for Washington is basically keeping Russia and Iran out. In this quest, the Turkish route fulfils all the necessary criteria. Yet Ankara's position is still weak - even with US support. Turkey is, unlike Russia and Iran, a net energy consumer, giving it far less competitive influence.

While, in political and strategic terms, Azerbaijan sees Turkey as an important shield against Russia and notably as a supporter in its dispute with Armenia over Nagorno-Karabakh, the other Central Asian countries have far less at stake. Indeed, Turkmenistan President Saparmurat Niyazov did not sign the Ankara declaration, preferring to take a stroll in the presidential gardens while the ceremony was taking place.

Turkmenistan shares a lengthy border with Iran, and is now almost completely dependent on Teheran for its energy exports. In addition, the US has indefinitely delayed a decision on allowing Mobil to swap oil with Iran, making exports from Turkmenistan more difficult.

Richardson has offered to mediate in the Turkmen-Azeri dispute over the Kyapaz-Serdar Caspian oil field, but has not so far met with success. Turkmenistan for one is not therefore so interested in the US agenda of support for Baku-Ceyhan.

US support for Azerbaijan, despite recent controversy over alleged ballot stuffing in October's presidential elections, has added weight to the Turkish case - the US Congress recently exempted two US government-run organisations from its Section 907 ruling, which prohibits direct assistance to Baku.

The US Export-Import bank and Overseas Private Investment Corporation (OPIC) can now provide assistance to oil companies working in Azerbaijan. In addition, the environmental issue has been raised by both Washington and Ankara concerning the Turkish Straits. These narrow channels, sometimes no more than 700 metres across, see around 50,000 ships pass through per year, 4,000 of them carrying oil or petroleum-based cargoes.

This number might escalate dramatically if Caspian oil is transported by sea from Supsaand Novorossisk, and an accident in the Bosphorus, which passes through the heart of Istanbul - a city of 10 million people might be devastating.

But the supporters of the rival routes have not been idle. On the environmental issue, they point out that although some 800,000 barrels of oil pass down the straits to the Mediterranean every day, 400,000 travel back the other way from the Middle East. If Caspian oil can replace some of that, the net increase may not be significant. In addition, there are a number of other alternatives that bypass the Straits altogether.

Currently, the German company ILF is carrying out a feasibility study on a pipeline from the Bulgarian port of Burgas to the Greek port of Alexandroupolis in the northern Aegean, while Romania is arguing for the development of Constanza as a terminal that could link into the Danube river and other existing European pipelines.The Ukrainians too are pushing Odessa as a terminus. Azeri President Aliyev remarked recently that if the AIOC eventually decides to abandon the Baku-Ceyhan route, then he will start looking for another consortium that will back it.

Despite being music to Turkish ears, it seems as if the decision will not meet Turkeys hopes. Scheduled to be agreed in mid-November, the AIOC postponed its eventual decision once again, and most likely will agree a face-saver for Ankara and Washington.

Under this, Baku-Ceyhan will be agreed, but with the caveat that it will only be commenced when it becomes economically viable. Ankara will then be looking anxiously at world oil prices, perhaps for some time to come, before its dreams of becoming the region's principal energy corridor can be realised.
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Article Details
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Title Annotation:pipeline politics in the Caspian Sea region
Comment:Azerbaijan has three options for transporting its oil and gas to outside markets.
Author:Gorvett, Jon
Publication:The Middle East
Geographic Code:4EXRU
Date:Feb 1, 1999
Previous Article:The final push?
Next Article:Rising tensions weaken economy.

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