Caspian
Giving all a piece of the pie
The political risks of various pipeline routes in the Caspian
basin
November 12, 1998
The Iranian
A lecture presented by Hooshang Amirahmadi at the Conference on Energy for Europe:
Perspectives and Problems of Crude Oil Exports from the Caspian Sea to
Europe Technische Universitat Braunschweig, Germany, October 19, 1998.
Geopolitics of pipelines from the Central Asia and Caucasus to markets
in Europe, Asia and elsewhere have become a major foreign policy issue
for the U.S. in the last few year. Countries like Iran, Turkey and Russia
are competing to gain a piece of the great pie. However, Washington favors
Turkey for political reasons and against the will of its business community.
At stake for Iran is strategic, not just economic, gains or loss. No wonder
the U.S. is not letting the business executives and the states in the Caspian
region play the pipeline game among themselves. The winners of the game
will reap strategic benefits while losers will become marginalized for
sometime to come. It is in this context that I assess the political risks
of various pipeline routes and suggest an alternative.
To assess the political risks associated with various pipeline routes
from Central Asia and the Caucasus to markets in Europe, Asia and other
world regions one must account for a multiple of often paradoxical factors
at national, regional and global levels. Yet the current positions held
by the major players involved often ignore this complexity in favor of
narrowly defined strategic and economic interests largely informed by shortsighted
political animosity, rivalry or alliances. To advocate for particular routes
on the basis of a policy that excludes some players and includes others
in the so-called great game that has ensued in the wake of the oil and
gas rush in the Caspian basin is haphazard at best. The current approach
is equally dangerous for it remains oblivious to internal political and
economic developments of the countries involved.
In what follows, I shall first provide a description of various routes
and their advocates and then give an outline of the major risk factors
involved including the extent they are ignored or accounted for in the
positions held by the regional players. I shall conclude by proposing
that decisions concerning oil and gas pipelines should recognize the need
for multiple routes as dictated by political, economic, technical and strategic
realities, and that a grand cooperative and win-win strategy is preferred
over the current alliance-making and win-lose games. Yet, the most important
preconditions for a sustainable transport of Caspian energy are national
political and economic developments. The proposed framework is based on
the assumption that the long-term prospect for every player is much richer
than what it can achieve by maximizing its short-term gains.
Pipeline Routes and Their Advocates
Currently, five pipeline routes are available, proposed or contemplated.
They include northern, southern, western, eastern, and southeastern routes.
As we shall see, some are extensions of existing pipelines while others
are altogether new and have to pass through untested and contested geographies.
Rough terrains, ethnic violence, bureaucratic infighting and individual
ambitions need to be accounted for along the way. They are also distinguished
in terms of their strategic significance, economic feasibility and technical
complexity. More importantly, these routes involve uneven political and
environmental risks, as explained in the subsequent sections of this lecture,
and are viewed within a framework of win-lose and alliance-making strategies.
Yet the real difficulty with pipeline politics is that it must find
a solution to often opposing business and strategic interests. For example,
while Iran provides the most economical routes, the U.S. opposes this alternative
in an attempt to curb Tehran's future regional influence. The fact is pipelines
offer more than economic benefits and trade possibilities; they would form
strategic cores of power along which communications, transportation and
other infrastructure corridors will develop. The nation or alliance that
controls such corridors would supposedly hold sway over the region. The
U.S. policy is set for an East-West axis, the so-called New Silk Road,
which excludes Iran and Russia. As this U.S. policy goes against economic
logic of the companies involved, it has become a stumbling block to pipeline
construction; meanwhile other countries have used the U.S.-Iran tension
to push for less than optimal routes through their territories with a view
to gain business and strategic advantages.
Northern routes
Advocated by the Russians, both Kazakhstan and Azerbaijan could join
existing Russian pipelines by building extensions or new pipelines that
would take their oil to Novorossisk on the Black Sea. The Caspian Pipeline
Consortium (CPC) is already busy developing the line. For the Kazakh oil,
the pipeline will be built as it encounters no rival or opposition at present.
For the Azeri oil, however, the routes will have to pass through the insecure
Chechnya territory or near it, a rather unpleasant possibility for prospective
investors. Chechnya's economy is in ruins with no real prospect for future
growth and is seeking political independence from Russia. These conditions
combined with elite rivalry and a growing drug trade calls for continued
political violence there. Besides, both Azeris and Kazakhs remain concerned
about Russia's continued dominance of their political life; for the Azeris,
the concern is elevated to fear by their Turkish, Israeli and American
allies. The real problem is this: Russia as the holder of world's largest
reserves of natural gas can hardly be excluded from the growing world gas
market, thus making the northern route a real option.
Western routes
Preferred by the U.S., Turkey, Azerbaijan and Georgia, these routes
are intent to bypass the Russian territories and Iran. The less expensive
alternative is to build an upgraded pipeline to the Georgian port of Supsa
on the Black Sea; from there oil will have to be taken by tankers through
the Bosporus to Europe. One immediate problem is the current political
instability in Georgia: the Abkhazia separatists would have to be suppressed
or co-opted first. Even then there is the problem with the rebellious
South Ossetia. According to one report, the people living in the vicinity
of the pipeline going to Supsa made some 800 holes in the line, forcing
Azerbaijan International Operating Company (AIOC) to build a whole new
line for its early oil. The other problem is environmental. Turkey claims,
rightly, that the Bosporus is already too congested and further tanker
traffic will endanger Istanbul's marine safety. Despite these problems,
this route seems to be on schedule for construction given a lack of better
or more politically acceptable alternative. The Bosporus problem could
be addressed in a number of ways including a bypass from Bulgaria to Greece
or pipeline from Baku to Ceyhan.
Turkey instead has pushed, with the U.S. and Israeli support, for another
pipeline direct from Baku to its Mediterranean port of Ceyhan. A Trans-Caspian
pipeline will then feed Kazakh oil and Turkmen gas to these routes. The
U.S. is currently lobbying the Kazakh and Turkmen governments to support
the pipeline. The US' attraction to the Ceyhan route and the Trans-Caspian
line emanates from its desire to build an East-West axis of influence and
commerce in the Eurasia region. But this alternative is too expensive and
passes through the Kurdish-dominated territories. The proposed Trans-Caspian
pipeline poses additional environmental hazards to the Caspian. No wonder
despite serious U.S. effort, the Ceyhan alternative is resisted by the
companies. Even the AIOC has argued against it. The companies had asked
for American subsidies at a substantive level. The U.S. originally resisted
but after it became clear that the line may not be built by the companies,
the U.S. offered to assist with $823,000 toward a projected cost of $2.8-$4.0
billion (NYT, October 22, 1998). Turkey, which originally did not come
up with the promised incentive package, was also forced to bow but its
offer remains as yet vague and unattractive. Financial difficulty aside,
companies also complain that "the instability of Turkey's government
has made it a difficult partner"(NYT, October 11, 1998).
Southern routes
Favored by Iran and oil companies, the southern routes make economic
and commercial sense. They are cheaper to build, pass relatively safer
territories, and pose no serious environmental hazard. Significant pipeline
and port infrastructure also exists. A gas pipeline extends from Turkmenistan
to Iran, which they hope to extend to Turkey via a new pipeline to be constructed
by Shell. Extensive oil pipelines south of Iran also exist as do port facilities
in the Persian Gulf from where both Europe and big Asian market could be
efficiently served. Most notably, the Southern routes also offer the swap
option, something no other routes have offered as yet. Oil companies and
governments worry that the southern option increases the world's reliance
on the Strait of Hormuz, a concern that can be addressed by linking the
pipelines to the port of Jask on the Oman Sea. Certain geologists have
also argued against the line because of possible seismic problems in Iran.
Yet, in the last several decades earthquakes have not posed problems for
the pipelines in Iran. The U.S. is opposed to the southern routes for
obvious political reasons and has made it a policy to prevent its realization.
Opposed to the routes is also Azerbaijan which remains wary of Iran's intentions,
a fear largely instigated by its allies, the U.S., Israel and Turkey.
Yet, the U.S. and others may find it hard to advocate Iran's exclusion
because it holds the world's second larger gas reserves and is the fourth
largest oil producer.
Eastern routes
China is increasingly energy-hungry and needs to seek new markets. The
Kazakh option is attractive because it is comparatively speaking the most
accessible. Thus, the Chinese signed a contract with Kazakhs in September
of 1977 to build a 2000-mile long and extremely expensive pipeline from
two fields in Kazakhstan that China has proposed to purchase. The deal,
commercially unattractive, can only go if China was to continue viewing
the Kazakh option as a new strategic necessity. All indications to date
point to China's commitment to the proposed pipeline. However, financing
the project can prove much harder than the Chinese had originally anticipated.
This is the only route that seems to have no rival or enemy despite the
fact that it can cause China's influence to rapidly grow in the Caspian
region.
Southeastern route
Favored by Pakistan and Afghanistan, UNOCAL, an American oil company,
with Saudi Arabia's Delta Oil, has been promoting a pipeline to transport
oil and gas from Turkmenistan and possibly Kazakhstan, through Afghanistan,
to Pakistan and eventually India. The line has also had the tacit approval
of the U.S. government until last summer when, following the bombing of
American embassies in Africa, Washington had to bomb Osama bin Laden's
terrorist camp inside Afghanistan. Taliban's identification with bin Laden
has also forced UNOCAL to withdraw its proposal for the time being. The
Afghan geography presents some difficulty and cost, though reasonable,
could make fund-raising a bit too difficult. Yet, the real obstacle is
a political one. As long as the Afghan civil war is not fully ended and
Iran-Afghanistan crisis continues, any attempt to build the line will prove
futile.
Major Political Risk Factors
Alternative pipeline routes are exposed and vulnerable to uneven political
risks and involve risk factors of national, regional, and global origins
and significance. It must be noted that these risk factors are interdependent
given that national and regional borders are increasingly at the mercy
of global forces. The risk factors are also dynamic due to the fact that
the region as a whole is in a state of transition to a new political-economic
future. Clearly, the transient character of the region makes any short-term
strategic alliances unstable as political changes will make loyalties shift
and national interests change. For example, Russia, whom Americans thought
would become a strategic partner of the U.S. in the wake of the Soviet
collapse, has already become a strategic rival to it. Another case in point
is Afghanistan. Iran thought encouraging Islamic movements there will help
its cause but the Taliban victory can jeopardize Iran's national interest.
Indeed, Taliban will not serve even the strategic interest of Pakistan
and Saudi Arabia, the group's main political patron and cash register,
respectively.
National-Level Risks
As The Economist (February 7, 1998, p. 6) noted: "Oil companies
take a more relaxed attitude to political risk than many other firms. They
are used to dealing with violent or unstable countries. Because oil is
simply pumped out of the ground and can be speedily exported, they can
tolerate economic mismanagement, civil disobedience and even isolated violence
in the host country more easily than other industries." Nevertheless,
political independence, stability and certainty concern them to a great
extent. Pipeline security will particularly depend on the political stability
in countries of origin and transverse. These include Azerbaijan, Turkmenistan
and Kazakhstan as countries of origin, and Russia, Iran, Afghanistan, Georgia,
Armenia, and Turkey as countries of possible transverse.
The fact that proposed pipelines would have to pass through two or more
countries makes the situation even more complicated. Additional political
sensitivity arises due to multi-ethnic and socially polarized character
of the countries involved. Another risk-contributing factor is the undemocratic
nature of the ruling elite in most of these states, in countries of origin
in particular. Political independence is not fully assured given the harsh
political-economic conditions in the countries of origin and due to Russia's
growing interventionism in its near abroad. The explosive population growth
is generating increasing and urgent needs for jobs and economic growth.
Meanwhile, the new generation is demanding more and has higher expectations
than its predecessor generation. They will hardly accept the continuation
of current political repression and backwardness for long. They will demand
democracy and development.
Equally unacceptable will be the current social inequalities in income
and wealth distribution and in geographic distribution of national expenditures
leading to extreme territorial imbalance. Such inequalities generate abject
poverty and leads to environmental degradation and unsustainable growth.
Just in the case of Persian Gulf states, oil economies in the Caspian region
tend to overestimate the role that oil revenue can play in sustainable
growth of their economies. Any undue over-reliance will result in unstable
economic policies and unwise spending. Finally, ethnic disparity and the
unresolved question of nationalities are additional sources of national
cleavage in the Caspian states. The desire of ethnic elite to gain from
pipelines economically and politically adds to the volatility of the political
situation.
Regional-Level Risks
The Caspian pipelines face a series of risks that originate from regional
and inter-state conflicts. Ethnic movements are quite prevalent in the
region. The Kurds in Turkey dominate the eastern mountains of the country
and are a major source of worry for Ankara who wishes to promote the Ceyhan
route. The current crisis between Turkey and Syria is an indication of
Ankara's deep concern with its Kurdish question. The Lezgins are struggling
for national unity and independence. At present, they are divided into
two parts in the Russian Federation and Azerbaijan. The Abkhazia separatist
movement has destabilized the government in Georgia and continues to remain
a source of national cleavage in that country. Chechnya and Dagestan continue
to remain potential violent spots in the Russian's Caspian frontier. The
Chechens are particularly adamant about their independence and possible
gains from future pipelines through their territories. Conflict among more
then a dozen other ethnic groups in the Caucasus can flare up if their
political and economic demands are not met.
The conflict between Armenia and Azerbaijan over Nagorno-Karabakh is
on hold and could lead to renewed fighting in the future. Presently, twenty
five percent of Azeri's territories is occupied by the Armenians and this
makes pipelines from Baku less than safe. In Afghanistan, while Taliban
seem to have secured its position as the dominant force, the end game remains
less than certain there given the crisis with Iran. Other regional or
international crisis can develop given the alliance-making policy that
some states follow. Meanwhile two other important source of tension remain:
dispute over the legal regime of the Caspian and a possible environmental
conflict that can follow from the unwise utilization of resources in the
Caspian by the oil producing states, Azerbaijan in particular. Iran and
Russia have little oil and gas resources around the sea; instead, they
depend on its clean environment for fishery and caviar. In addition, agriculture,
forestry and tourism are vital for the people in the Iran side of the sea.
Any degree of pollution can harm Iran's interests and become a cause for
political conflict.
Global-Level Risks
Another set of political risks that face a rational decision regarding
pipeline routes emanates from global games for strategic gains. The East-West
axis strategy followed by the U.S. propose to exclude Russia and Iran while
including Turkey along with states in the Caucasus and Central Asia. The
rivalry this strategy generates can prove unproductive for the independent
and democratic development of the very states the U.S. wishes to promote.
Both Iran and Russia are central to the coherence and wellbeing of the
larger region. Their cooperation can help while their antagonism is sure
to hurt. To view the Caspian solely as a linchpin of American global game
for strategic gains is unwarranted. The current power game and alliance-making
policy goes against the need for cooperation in building, utilizing and
safeguarding the pipelines.
As part of its global and regional games, the U.S. has tried to cripple
Iran economically and isolate it politically. The economic impact of the
containment policy has been simply devastating for the Iranian people who
continue to suffer from declining income and employment opportunities.
Politically too the U.S. policy has hurt Iran by making it enemies to its
otherwise natural allies. At present, three sets of regional alliances
are organized around and against Iran: Turkey-Azerbaijan-Israeli alliance
in the northwestern and western borders, Iraq-Mojahedin-UAE alliance in
the western and southwestern borders, and Pakistan-Taliban-Saudi Arabia
alliance in the southern and southeastern borders. These destructive attempts
notwithstanding, the U.S. has not been able and will not be able to bring
Iran to its knees as the country benefits from a rich history of national
dignity and regional role.
Aside from destructive rivalry between the states, the present policy
discourse in the Caspian region will increase the tendency toward anti-externalism,
reviving the largely outmoded anti-imperialist political culture so embedded
in the minds of the Caspian people. If current outside intervention leads
to failure of the states to develop their respective societies, alternative
social systems and ideologies will come to challenge the current drive
for establishing liberal political and economic systems. Extremism and
national fascism are candidates for such an eventuality. From this perspective,
pipeline routes need to be decided with a view to regional development
not as tools to serve strategic interests of particular states or groups
of states. The key to altering the present discourse is a change in U.S.
policy toward Tehran and a good starting point will be for the U.S. to
free Iranian assets in a symbolic gesture and to drop its opposition to
pipelines going through Iran.
Toward a Cooperative and Win-Win Strategy
The above analysis indicates, among other considerations, that the best
solution to the current stalemate may be found within a cooperative framework
that emphasizes four principles: a win-win strategy, a multiple-pipelines
approach, political reform and sustainable economic development. A win-win
strategy will de-politicize decisions with regard to pipeline routes, seeks
a balance of national interests, and includes existing and prospective
investors in determining the optimal routes. Meanwhile, the states with
high stakes in the region, namely the U.S., Russia, Iran and Turkey, must
realize that their current rivalry or hostility serves no one in the longer
term and that a more amicable solution to outstanding claims will serve
all parties involved. In this regard, a solution to the current standoff
between the U.S. and Iran is the most critical. Here as in the case of
other rivalries, visionary leadership is called for in which sensationalism
is subordinated to rationalism and long-term gains.
A multiple-pipelines approach is an optimal and logical solution to
the current stalemate. First, multiple-pipelines approach will reduce dependency
on a few countries and avoids concentration of world energy in a few hubs
such as Baku, the Strait of Hormuz in the Persian Gulf and Novorossisk
or Ceyhan and Supsa on the Black Sea. Second, the multiple-pipelines approach
has economic logic. For example, while, Iran offers a cheaper alternative
than Russia or Turkey for pipelines from both Central Asia and the Caucasus,
its comparative advantage lies in providing swap arrangements and easier
access to fields in Turkmenistan and Kazakhstan. Turkey and Russia could
have offered attractive routes for pipelines originating from points in
Azerbaijan but, cost aside, feasibility is seriously constraint by political
and environmental difficulties. Third, the political logic of multiple-pipelines
is equally attractive as it reduces sensitivity to political instability
in a given country or countries along a given route. The current largely
political logic applied to pipeline routes not only goes against the economic
logic but is counterproductive because of its superficial treatment of
regional politics. For example, while bilateral political and strategic
alliances are emphasized, internal political development is ignored.
Fourth, the technical feasibility of various routes also increases with
a multiple-pipelines approach. This is due to the varying geographic and
environmental difficulties that certain proposed routes pose. Within a
cooperative framework, pipeline routes can be modified to avoid country-fixed
solutions and possible inter-state environmental conflicts. Finally, the
multiple-pipelines approach lessens possible strategic losses while increasing
potential strategic gains. Pipelines are long-term commitments to a nation
and countries that lose will do so strategically. While there is no guarantee
that the winning side will remember the favor, the losing side will sure
develop a structural animosity toward countries it considers as the culprits.
Given the deep-rooted anti-imperialist political culture or nationalistic
tendencies in most of these nations, such a structural anti-externalism
can lead to social upheavals. Needless to say that in that case, the domestic
and international players in the pipeline and energy games of the Caspian
region will encounter a lose-lose situation.
Political reform is key to political stability in the Caspian region
and as such is the most important precondition for the safe operations
of the pipelines in the long run. The reform must be genuine and lead
to political participation, elite circulation and the role of law. It must
also end corruption, create discipline within the state and increase its
accountability. Current personality-based and exclusionary politics will
not last for long. The new generation expects freedom, participation and
development. The new global community is too transparent concerning what
has been achieved by developed nations and represents models for emulation
and potentials. The future leaders of the Caspian states will have difficulty
to justify underdevelopment and dictatorship in an increasingly democratizing
and developing world. As a basic requirement of political reform, the
states must prepare the ground for expansion of civil society institutions
and alternative discourses in all spheres of national life.
Political development is a precondition for sustainable economic development.
Yet, the states in the region cannot afford to postpone the latter until
the former has been achieved. Here lies the challenge facing the emerging
economies in the Caspian region: They must develop as they democratize.
The one and only possible alternative in this direction is a balanced development
strategy: one that allows for economic growth and diversification, provision
of basic needs, expansion of civil institutions and circulation of the
elite. As states promote political liberalism and free-market principles,
they must also devise visions for re-inventing the government, expanding
social networks and promoting political competition. In short, political
and economic pluralism along with a complementary social policy is the
key to state-building and national development in the region. Unless and
until these conditions are met, pipelines will continue to remain vulnerable
to domestic violence and inter-state conflicts.
In closing, I wish to invite attention to the consequences of Iraq's
invasion of Kuwait for the pipelines that used to take millions of barrels
of Iraqi oil to international markets. Those who promoted the pipelines
on the basis of economic, technical or strategic criteria never thought
that Saddam Hussein's dictatorship and undemocratic approach to the states
in the region would become a cause for their closure. Had the Iraqi people
and the states involved insisted in a balanced political-economic development
of the country, Iraq would have not lost billions in oil revenue investment,
and the pipelines would have been carrying more oil to the world energy
markets for the benefit of all involved (except for the Caspian states!).
As it is rightly said, democracies do not fight, internally or externally;
but dictatorships do! I am only hoping that this and similar other examples
will make current decision-makers think deeply about the multiple conditions
that needs to be satisfied for a sustainable Caspian energy transport.
Hooshang Amirahmadi is a Rutgers University professor and president
of the American-Iranian Council, Inc.
A lecture presented by Hooshang Amirahmadi at the Conference on Energy for Europe:
Perspectives and Problems of Crude Oil Exports from the Caspian Sea to
Europe Technische Universitat Braunschweig, Germany, October 19, 1998.
