Export options for Caspian energy
By Alex Vatanka
July 3, 2002
The September 11 terrorist assault on the US has the potential to alter the existing
geopolitical landscape around the Caspian Basin, which in turn could have significant
implications for the region's future oil and gas export routes to world markets.
In this framework, developments on two fronts could prove groundbreaking. The first
would involve any sign of rapprochement between the US and Iran.
Iran opposed the Taliban movement from the outset and the presence of Bin Laden in
Afghanistan had been a source of irritation for the US since 1998. The two countries
secretly co-operated in supporting the anti-Taliban forces in Afghanistan and since
the fall of the Taliban, Iran has supported Kabul's pro-West government.
The second important development would be the end to the decades-long civil war in
Afghanistan and the emplacement of a central government following the military defeat
of the Taliban. Moreover, the coming about of either event would necessitate a rethink
of both Russian and Chinese strategies in their pursuit of the Caspian's hydrocarbon
In short, pressing strategic adjustments could influence the export options for Caspian
energy over the long term: the old North to Russia, South to Iran, West through Georgia
and Turkey, East to China, or Southeast to India.
Indeed, since the collapse of the Soviet Union, Russia and the US have operated in
the region on an increasingly competitive basis, on the assumption that Caspian development
is a zero-sum game. Both states are politically highly active in the region and are
building military alliances with local governments and engaging in exercises with
During the 1990s, as the US extended its arm into this former Soviet South, Russian
officials began gradually moving away from their hitherto belief that the bulk of
former Soviet Union's hydrocarbons were to be found in Siberia and ostensibly concluded
that regardless of the size of its energy reserves Russian participation in the Caspian
is crucial in the face of American hegemony.
Although Moscow is doing its outmost to keep Russia dominant in the region, it faces
a number of impediments, which weaken its position. Most importantly, Russia has
inadequate infrastructure capacity, including port outlets, which cannot guarantee
that it will be able to meet the future export capacity needs of the Caspian energy
producers despite the Caspian Pipeline Consortium (CPC) and additional Baltic pipelines
in place. Safety restrictions on traffic through the Turkish Straits pose additional
limits on the Russian option, although bypassing the Bosporus via a Balkan pipeline
could provide a solution to this particular problem.
In the US, the competitive outlook is intensified by a consideration of energy as
a national security issue. As the US is taking steps to diversify its energy supplies,
the recommendations of President Bush's national energy policy task force focus substantial
attention on all Caspian projects, including the Baku-Tbilisi-Ceyhan oil pipeline,
the Shah-Deniz-Turkey gas pipeline and energy developments both in Kazakhstan and
America's thus far resolute stance in minimising Russian and Iranian stakes in the
development of the Caspian energy network arise from a desire to secure the supply
of energy by reducing reliance on states that are either perceived to be hostile
or rivals of the US. Although the South route through Iran is widely regarded as
the most commercially viable of all options, antagonistic US-Iranian relations have
meant that both the Clinton and Bush administrations have forcefully pushed for the
main pipelines to go West through Georgia and Turkey.
However, the Baku-Tbilisi-Ceyhan project is still in its infancy and any signs of
upturn in relations between the US and Iran could be enough ammunition for the US
energy industry to undertake a lobbying offensive aimed at influencing both Congress
and the White House regarding the merits of the South route through Iran.
Already corporate anti-sanction coalitions such as USA*Engage, whose membership includes
ExxonMobil, Chevron and Conoco-all of which are heavily involved in exploration in
and around the Caspian-are pressuring the US government to refrain from imposing
unilateral sanctions against states like Iran. The prospect of returning to the Iranian
market would make good news for US energy companies and with a shift in attitude
among politicians in Washington the viability of the Baku-Tbilisi-Ceyhan project
would have to be strongly reconsidered.
However, political stability in Afghanistan could undermine the South route as it
is equally commercially attractive to the producers themselves to build a pipeline
from the Caspian through Afghanistan and Pakistan to either reach the Arabian Sea
or the huge Indian market. The Indian option is the most unlikely given relations
between Pakistan and India and Indian reluctance for its energy supply to transit
Pakistani territory. Short of a Pakistani-Indian understanding on this issue, the
Southeast option need substantial justification as Pakistan itself is not a significant
Past discussions between Central Asian states and the Taliban on the construction
of a pipeline through Afghanistan is indicative of the sense of desperation in Kazakhstan,
Turkmenistan and Uzbekistan to find an outlet to world energy markets. Moreover,
experience shows that political instability is not a deterrence for the energy industry
which is accustomed to operate in high-risk environments.
Indeed, the US company Unocal was as late as 1998 involved in the construction of
a US$2 billion gas pipeline in Taliban controlled-areas which was meant to supply
Turkmen gas to Pakistan. An urgency by Caspian states to play a role in global energy
markets combined with the presence of a host of energy companies willing to operate
in difficult conditions mean that even small adjustments in the geopolitical scene
of the region could prove crucial for envisaged pipeline routes.