At Your Local Gas Pump Soon: Caspian Sea Oil

A world-class oil field will open to Western consumers after a decision to pipe crude through Russia, Georgia, and maybe Turkey

FROM the Middle Ages, Persians, Arabs, and Turks sent caravans to fetch the oil that puddled the ground and torch-lit the night around the Caspian port of Baku, the world's first oil town.

Now the vast reserves under the Caspian Sea and its shores contain the promise of loosening the reliance of Americans and Europeans on the oil of the Middle East. But the bottleneck for tapping these oil deposits has been the pipelines to get the oil out.

Existing pipelines either run through Russia or through Iran. With Iran blackballed by an American trade embargo, that leaves all the spigots from the Caspian region in Russian hands.

But on Oct. 9, a consortium of oil companies, dominated by the government of Azerbaijan, decided to break that Russian monopoly by extending a second major pipeline to the Mediterranean that skirts Russia entirely.

Billions at stake

The decision has large financial and even geopolitical stakes. The route of the pipes will be followed by billions of dollars in transit royalties for the countries involved. But it also affects the balance of political power in the region. Russia has powerful leverage over countries such as Kazakstan because it controls the infrastructure for refining and transporting Kazak oil and gas.

Russia and Turkey, which have rivaled each other for centuries for influence around the Caspian, have been lobbying furiously for the pipeline to be routed through their territory. The United States has strongly backed a two-pipeline scenario.

The consortium decided on a two-pipeline solution. It will first use an existing pipeline through southern Russia for the early oil to come out of the Azeri fields in mid-1996. This is touted in Moscow as a diplomatic victory for the Russians.

But work will also begin on extending an existing pipe running from Baku, Azerbaijan, to the Georgian capital of Tbilisi. The extension will run to Georgia's Black Sea coast near Batumi and will also carry the smaller early production.

Both these routes then ship the oil across the Black Sea and through the Bosporus to the Mediterranean.

But the bigger stakes are for early next century, when full production reaches an estimated 700,000 barrels per day from the Azeri fields - and possibly some of the far greater output of Kazakstan's Tengiz fields under development by Chevron.

The consortium spokesman said Oct. 9 that it favored building this new, larger pipeline through Georgia to Batumi, then south across southeastern Turkey to the Mediterranean port of Ceyhan.

Turkey also considers the consortium's decision as a victory.

''The decision by the consortium is a major success for Turkey,'' said Emre Gonensay, the prime minister's chief adviser, who coordinated Turkey's efforts to achieve the deal.

''This breaks the Russian monopoly on the transportation of oil from the Caucasus and Central Asia. Moreover, this decision paves the way for the projected Baku-Ceyhan pipeline,'' Mr. Gonensay added. ''The acceptance of the Georgian option as a second route is a sign that the Baku-Ceyhan line will work. This will be the line of the future, carrying Azeri as well as Kazak oil from the Caspian Sea.''

The beleaguered government of Prime Minister Tansu Ciller, dubbing the new plan as the ''contract of the century,'' sees a myriad of benefits in the new deal:

r Turkey will get transit fees from the pipeline. This will create jobs - particularly during the construction of the pipeline - and reactivate the port of Ceyhan. Mrs. Ciller also says the economic benefits will allay some of the damage in southeast Turkey caused by the country's ongoing battle with separatist Kurds.

r Turkey hopes to emerge as a regional power in the Caucasus and Central Asia. Ankara entered the race for the oil routes with the longer-term objective of gaining economic as well as political power in the region.

Turkey believes that the new arrangement will not only increase Turkey's and the West's influence in the region, but also help Azerbaijan and Georgia to be less dependent on Russia.

r Turkey's primary objection to Russia shipping all the Caspian Sea oil through the Novorossiysk line was that the Turkish straits could not bear more tanker traffic. The Bosporus, a 19-mile-wide seaway that links the Black Sea to the Mediterranean and that stretches through Istanbul, is already congested with sea traffic. This is causing serious environmental as well as security hazards for the metropolis of 12 million people. The Turks say the double-route formula will considerably reduce this danger.

But the Russians are not ready to give up on winning the major pipeline. It is possible, if Tengiz oil also taps the system, that the consortium could build two major pipelines as well - using both the Russian and Georgia-Turkey routes.

''We still think our proposal is better - less expensive and able to work sooner,'' a senior staff member of the Russian Energy Ministry said Oct. 10. The staffer added that Russia is still prepared to negotiate its offers of lowering pipeline transit tariffs and guaranteeing the sale of the oil.

Turkey vs. Russia

The consortium had to calculate in politics at two levels. One level is the regional competition between the major countries involved. Turkish sources acknowledge that Russians would never have allowed a solution that cut Russia out altogether. Apart from financial reasons, it would make Turkey too powerful a rival in the Caucasus and Central Asia. But a Russia-only option leaves the West feeling vulnerable as well.

Another concern for the West was the political risk to the pipeline itself. Both routes run through politically volatile regions. The Russian route runs through the heart of rebellious Chechnya and accounts for part of what makes Chechnya important to the Russian government. The southern route runs through Georgia, with a politically precarious government.

One proposal, now abandoned, was to route the Georgian leg of the pipeline through Armenia and the disputed Nagorno-Karabach region between Armenia and Azerbaijan. The idea was to use the pipeline as a peace-building link between the Armenians and the Azeris, but it was deemed overly optimistic.

The later extension of the Georgian pipe through Turkey would also skirt Kurdistan, a region embattled between the Turkish government and Kurdish separatist guerrillas.

Environment drain

Turkey's environmental factor comes to play in its favor, though. A full production pipeline through Russia to the Black Sea would heavily increase tanker traffic through the narrow Bosporus, which Turkey already deems above capacity for environmental safety.

To avoid this, the Russians have proposed a second pipeline from Burgas, Bulgaria, at the western end of the Black Sea to the Aegean coast of eastern Greece.

There is no direct connection between which route the early oil takes and where the full-production pipeline is routed. Extending and renovating the early oil pipeline across Azerbaijan and Georgia will cost somewhere around $200 million. Building the full, main pipeline later will cost more than $1 billion. The early oil route could be an investment toward the main pipeline, but would probably not be a deciding factor in choosing a route, according to diplomats and industry observers.

Turkish officials admit they have a way to go to turn their longer-term vision into a reality. ''We have won the first round, but the battle will continue,'' says a senior government official.

''We must be prepared for all kinds of games by the Russians to regain control. But our stakes are strong too, and we are going to play them to the end,'' the official adds.

You've read  of  free articles. Subscribe to continue.
QR Code to At Your Local Gas Pump Soon: Caspian Sea Oil
Read this article in
QR Code to Subscription page
Start your subscription today