But, significantly, the people who want to see Caspian oil move are minor players. This is not an issue of oil into world markets.
If you look at the plans, the available production sites and so on, this is minor as far as the world oil market is concerned. What is critically important is something that Dr. Starr touched on at the beginning: Who controls that oil? Whoever controls it controls the fate of the countries of Central Asia. That is the geopolitical question, because of the new power balance.
The question can be reduced to the five W's: Where is the oil coming from? Where is it going or likely to go? Who is involved? What are the stakes? And finally, when might this happen? There are three sorts of sources of oil, with different geopolitical factors attached to them.
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First, on the Western side of the Caspian is Azeri oil, being produced for over years now. That oil can move really only westwards or southwestwards or northwestwards. Hence, Caspian oil is far more important, as far as one can tell from the geology, in terms of potential.
The Kazak fields are extremely large in theory, but the oil is of such miserable quality and so hard to produce that it is economically somewhere between real oil and the locked-in tar sands of northernmost Canada. Turkmen oil is of higher quality, but scattered. So those two oils must move east to China, south to Iran or, least attractive from the producer's point of view, westward to Russia. It is duck soup to build these pipelines; there is no technical obstacle whatsoever to moving the oil to the Black Sea, where there is an existing pipeline, apparently empty at the moment, that runs from the Iranian border up to Baku.
That line, if it is repairable - the Iranians themselves don't know at this point - could be reversed and that oil connected down to Iran in a matter of about three months. The Turkmen fields are scattered and, thus far, small. But, for Turkmenistan a little bit of oil is a lot of money. And a lot of money in a country like Turkmenistan means potential emancipation from Russian presence.
So again, we're talking about volumes that are very large in terms of revenue for the local countries. The exporters have four basic concerns; first and foremost, timing. They want to get the oil out. Some of the Kazak oil has been shut in for almost four years now. Turkmen oil is the earliest oil, and the easiest way of getting that oil out, again, is through Iran.
They know it; companies know it. As Julia just pointed out, countries emancipated from U. They want to get their oil out fast. Secondly, as Dr. Starr mentioned, a multiplicity of pipelines is diversification, and for them diversification is safe. These countries don't want to be dependent upon the Russian pipeline. One, the maintenance is terrible. Two, the Russians have exacted very large transit tariffs, way above the costs of moving the oil. Three, the Russians have a tendency to demand that anybody moving oil through the Russian pipeline system sell a certain fraction of that oil at low domestic prices, with limited possibility of cash payment, as an extra charge, in effect, of moving oil to Western markets that pay real money.
So diversification away from dependence upon the Russian pipeline is critically important to the exporters, who, as I mentioned earlier, have no real say in this. Thirdly, costs are critical. It is so expensive now to move oil through the Russian system, if you can get into it, that people will actually put oil on small tankers, move it across the Caspian into small ports in Iran, and truck it all the way to the South.
The "netback," the available revenue to the local government, is the difference between the world price and whomever the Russians may scalp, and what we spend for transportation costs. Finding cheaper routes, compared to the Russian routes, is vital for the exporter. Lastly, to pick up on something that Julia mentioned, they really want to move their oil to open water.
The Black Sea is a miserable place to start buying oil. Aside from any restrictions that the Turks might place upon transit to the Gulf through the Dardanelles, they may hold the trump card in all of this.
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Open water is the Gulf, and that means a route either gained through Iran or through Pakistan. That's their perspective, but they don't rent any congressmen, so they have no say. Where will the oil go? Well, westward is via Russia. There's an existing line there, and a consortium that's backed by the Clinton administration is pushing an expansion of that route. Eastward is to China, which sounds absolutely preposterous. But, there is a perverse logic to it: China otherwise would have to supply the Western part of the country by moving its own oil, or imported oil, all the way from the Pacific coast and Yellow Sea into the hinterland.
It's actually cheaper to bring it from Central Asia into the Xinjiang area. The third route involves going across the Caucasus. One is through Georgia, ending up in the Black Sea. It has the same problem as the Russian route. The second is through the Caucasus to Turkey, to Ceyhan, a major Mediterranean port with about 2. Ceyhan has tremendous spare capacity. And, finally, we're back to the open water via Iran. What makes Iran potentially so interesting to the Caspian exporters is its combination of geography and infrastructure see map. The Iranians, at the present time, have oil fields south of Turkmenistan.
And then there's a line that goes off to the northwest of Tabriz. In order to bring Caspian oil into the Iranian network, one refurbishes this line, builds about kilometers of new line, or one takes existing ports and brings feeders down. This kind of construction can be done in three to five months. It's easy; it's cheap; the infrastructure is all there.
If the Iranians were to cooperate, one would not take Turkmen oil to the pipeline in the south. That would be bloody expensive. Rather, one would bring the Turkmen oil, as they're doing now, into the Tehran refinery, and the Turkmen would get an equivalent amount, adjusted for quality, down at Kharg Island in the Gulf, where there is surplus capacity.
So Caspian oil would not be imported physically by Iran; it would be displaced. And there's a capacity for roughly 1. This is the compelling geopolitical attractiveness of Iran to the Caspian. The costs are all but negligible. And then the last tranche gets a little more expensive, roughly about a dollar a barrel. Even more important, this can be done fast, which explains why the Asian companies are already negotiating their deals with Iran.
The infrastructure exists. The pipelines are there. You simply need to add a few connecting links and reverse the pumps. It might take the DOE seven or eight years to do it, but competitive firms could do it quickly. The export facilities are already there and grossly underused at this point, with spare capacity. The trick is a market-based flow that puts Caspian oil into refineries in northern or central Iran.
Then the oil which the Iranians don't have to ship north is backed out, saving extra pumping costs. And then it's exported in the south. The Iranian link is compellingly fast and cheap. But what are the drawbacks? Implacable U. Here the United States, the Israelis and the Russians all agree. The Russians don't want any competing export outlet. But their fallback position is that if there must be access to Caspian oil, then it should go through the Russian pipelines, where they can control the tap.
Azeri-Iranian relations are a peculiar aspect of this. This is probably why the link to Iran from Azerbaijan has been delayed. The third question is whether the Iranians really want to help get Central Asian oil to market. I found in discussions with the Iranians that they're not sure they're going to do this, because it fosters competitors, and its wealthy neighbors to the north might not necessarily share their interests, particularly in Azerbaijan.
So it's far from clear that the Iranians want to play. In one case, I note that the Iranians hid behind the U. We end up back in Washington, where U.
Analysis of Post-Soviet Central Asia’s Oil & Gas Pipeline Issues
His rivals gave more. When one looks at this from abroad rather than from the op-eds in the U. Who is influencing U. Who is in the Lincoln Bedroom? Who is involved in these pipelines? Is Gore making deals with the Russians the way his father did? These are open questions. As far as U. Are they trying to set themselves up once again as middlemen, as they did in the s with the arms-for-hostages deals, bypassing the U.
This is what the Iranians think about. And a number of people purporting to represent the Americans have been in Tehran promising the Iranians that they can intercede with the Israeli lobby to facilitate this opening. It is a squalid geopolitical tale. DUNN: Very often politics gets in the way of rational economic and foreign policy. To take an example from this region, the Freedom Support Act of forbids the United States to provide direct aid to only one former Soviet republic.
And that one former Soviet republic is Azerbaijan, arguably the one that is economically most important right now. The reason for that has to do with the fact that Armenia and Azerbaijan fought a war in which the Armenian and Karabakh side essentially has won.
They are in occupation of 20 percent of Azeri territory. There has been a cease-fire since Notwithstanding all this, the United States is still barred from providing direct assistance to Azerbaijan's government, because of the power of the Armenian lobby in the West. When you look at many of these pipeline routes, you begin to see all kinds of political problems. The pipeline through Georgia is itself running through a relatively narrow corridor between Armenia and occupied Nagorno Karabakh on the one side, and the Russian-occupied Abkhazian region of Georgia on the other.
Those mini-wars have certainly had their impact on any future pipeline route and on the security of pipelines that may be built in the region. Similarly, the continuing Kurdish insurgency raises questions about the security of pipeline routes across eastern Turkey. Obviously, any route through Afghanistan is a problem so long as that country is locked in civil war.
This has created a curious situation in which the so-called "fundamentalists," the rather extreme conservative Pushtun Islamist "Taliban," find themselves supported by Russia and the Central Asian states, while their enemies find themselves in alliance with Islamic Iran and opposing the Taliban, who have, however, received considerable support from Pakistan, a country that obviously would like to see a stable pipeline route through Afghanistan into the subcontinent.
Almost every route involves some political problem, but almost everyone here agrees that the most economical and logical non-Russian route for Caspian oil is through Iran. Clearly, U. As has been pointed out by several of the speakers, Asian countries have been very proactive in this area. They are not constrained by the American reluctance to go through Iran.
It should also be mentioned that the Russian pipeline routes go through Chechnya. So there are stability questions in almost every single route, including the existing Russian lines. Q: Gas is another important ingredient in Central Asia. And it also impinges on U. Could you comment on that with respect to U. An equity interest of the United States in helping Turkey seems to have overridden an equity interest in depriving Iran. I think they actually did swap some oil in June, but there have been ongoing problems because of the quality of the crude and the nature of the refineries in Iran.
The Turkmen gas deal was first talked about back in , and it took this long to finally get that project going. The short pipeline will be completed next month that will begin shipping small amounts of gas into northern Iran from a field near the Caspian and the western part of Turkmenistan.
Larger exports from Turkmenistan to Turkey will have to go through new infrastructure. Some of it will have to be from another, much bigger field in the eastern part of that country, the same field that has been designated to ship gas through Afghanistan, for the Unocal project to Pakistan. That's where the really big field is located in Turkmenistan. The Turkmens have two options to get their resources to market.
They would have a third, but Russia has made it clear over the last month that they will not facilitate gas exports from any of these countries to Western Europe. Russia has the largest gas reserves in the world. Russia had other plans for gas from Central Asia. Either this gas would supply the CIS, which are basically non-paying markets, or Russia would use it to supplement its own needs instead of developing the very expensive fields in Western Siberia.
The Russians have decided that they have enough gas to feed these other markets, which will earn them money. The Central Asians can get stuck with whatever they have; the Russians don't care if they get it to market at all. For Turkmenistan the issue is dramatic, but what choices does it have? Iran or Afghanistan. And as much as the United States keeps hoping that the Afghan issues will be resolved - I think the Taliban were actually firing shells over the border at Uzbekistan the other day - the situation just gets worse.
There doesn't seem to be any possibility of an agreement now among all those proxy forces fighting wars in Afghanistan. Iran has to help Turkmenistan finance the line that was built into Northern Iran.
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So the Turkmens are not going to be making any money off of that for the next couple of years either. This country is in desperate straits. So when the president of Turkmenistan comes here in December on his official visit, the United States is going to be trying to convince him to avoid Iran at all costs, because it wasn't the U. This pipeline was already being built. It was decided under former Prime Minister Erbakan. He made sure that construction started during his tenure in power, and that there was no turning back.
These deals were decided regardless of U. Turkmenistan is also very close to Israel, as is Turkey. The defense alliance between Turkey and Israel has cemented the relationship with the United States. It was really to help those two countries; it had nothing to do with Iran. The situation has gotten very dramatic. They recognize that if they don't bring in companies that are ready to do projects and get their resources out more quickly than waiting for Afghanistan or Russia, then they're doomed. Their fallback position is to revert to Russian control.
If you look at leaders in these countries, President Aliyev in Azerbaijan is 75 years old. He is healthy, but anything could happen to him. Russia is hoping that something might be done to put in a more pro-Russian leader there. Russia is playing a waiting game. If the economies of these countries don't start recovering, the leaders also face growing domestic opposition. So it's really in our interest to help these countries develop.
But, the only way they can develop is to get their resources out. And everything seems to be stuck right now, other than maybe going through Iran. It costs between five and ten times as much per unit of energy to move gas any given distance, compared to oil. Gas has remarkably limited economic range, unless somebody is foolish enough to subsidize it, which the Russians do.
So gas from Central Asia is really a secondary consideration. The deal consists of three parts. The first is the line to which Julia alluded. It's a very small line that comes down through Turkmenistan to a power plant in Iran. That already is underway; there is nothing the United States can do about it. Secondly, the western part of it picks up somewhere near the border and brings Iranian gas into Eastern Turkey and ultimately into the Turkish national gas grid. Parts of that are also underway. There wasn't much we could do about that either. The third piece would connect the Turkmen line to any line that's going over to serve Turkey.
The Iranians don't want to build that because it would mean that the Turkmen gas would compete with their gas. So this intermediate step, to which we have essentially given our approval, is one that, as far as I can establish in Iran, the Iranians don't intend to build. Which brings us back to the question of, who's doing what to whom and why. This goes back to the Lincoln Bedroom. Q: In addressing the question of pipelines, there is the fundamental question of who owns the oil in the Caspian Sea.
Most recently, the Turkmens have lodged an objection with the Azeris over three of the most important fields, and unfortunately the Azeris have already granted exploitation rights to the AIOC for some fields the Turkmen claim. What is the feeling of the panel on the question of the legal regime of the Caspian Sea. In addition, what is U. They say that the Azeri field is fully in their waters, and the Chirag field is partially in their waters.
Then there is another field that is under challenge, the Kiapaz field, which the Russians gave to Azerbaijan and to two Russian companies and then revoked from them; now it's in Turkmen hands. From what I understand, the Azeris and the Turkmens are negotiating over these. These fields that are at issue create uncertainties.
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Russia basically doesn't want to settle the Caspian legal issue. For Turkmenistan and Azerbaijan this uncertainty is not a good thing. For Kazakhstan many of its reserves, such as the Tengiz field, are onshore. Turkmenistan's gas fields are onshore. Now they have a round of offshore bidding, but there is quite a bit of oil and gas onshore.
How or whether the legal status will be resolved is a big problem. Once work began seriously again a few years ago, it was discovered that the energy deposits in the Caspian were unequally divided, with a lot going to areas off the shores of Azerbaijan, Kazakhstan and Turkmenistan and with very little off the Russian and Iranian shores. You don't have to be a genius to imagine that, under such circumstances, those without the big assets would say, "Let's develop this all for one and one for all. Iran found that a very comfortable interpretation as well.
Meanwhile, Azerbaijan simply went ahead. Kazakhstan is doing the same. Turkmenistan plans to issue tenders, I believe, for 11 of the 30 fields off its coast. And the legal resolution of this is being worked out on the ground, outside the courts; as Gorbachev is wont to say, by life itself. The area is being divided up. The example of the dispute between Azerbaijan and Turkmenistan shows that the point on which both sides agree is that whoever owns it, it's one of them and not some third or fourth party.
It's got to be decided by the littoral states, and maybe Russia has to agree to come to the negotiating table. I don't think they will; it plays right into their hands to create ongoing uncertainty. The Russians just announced that they're going to hold a bidding round in the offshore Caspian near Kazakhstan, which Kazakhstan claims a part of.
It's only open to Russian companies. Q: Dr. Stauffer, what do you see as the interests of the Russian government and the oil companies at this point? In Gazprom Export supplied the country with 2. With a view to diversify the natural gas export routes Gazprom is implementing the project for construction of a gas pipeline running under the Black Sea to the countries of Southern and Central Europe - the South Stream project. Intergovernmental agreements were signed with Bulgaria, Serbia, Hungary, Greece, Slovenia, Croatia and Austria in order to implement the onshore gas pipeline section.
In July Russia and Bulgaria inked the Roadmap to perform the feasibility study for the Bulgarian section of the South Stream project. The rivalry among these states will largely determine the future development of the region and the individual states. Hooman Peimani. Historical Background. Societal Factors and the Rivals.
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