The politics of pipelines

Print edition : July 01, 2005

An August 11, 2003 picture showing workers laying a section of the BTC pipeline near the Sangachal terminal. - ANADOLU AJANSI/RIZA OZEL/AFP

The Baku-Tbilisi-Ceyhan pipeline is part of a grand U.S. strategy to isolate Russia and secure guaranteed supplies of oil and gas from the Caspian region.

THE ceremony in Azerbaijan on May 25 to inaugurate the Baku-Tbilisi-Ceyhan (BTC) oil pipeline formally was attended by the Presidents of Azerbaijan, Kazakhstan, Georgia and Turkey. The ceremony took place at the Sangachal oil terminal on the Caspian Sea, near the Azerbaijani capital of Baku.

The first phase of the 1,760-km-long United States-backed pipeline has now been completed. Once fully operational, it will take Caspian Sea oil directly from Baku to the Turkish port of Ceyhan on the Mediterranean coast. The pipeline will run through the Georgian capital, Tbilisi, bypassing the traditional Russian route.

Russia was initially very critical of the BTC pipeline project, calling it a blatant attempt to undercut its influence in the states that were part of the Soviet Union. Moscow's criticism in recent years has been muted but Russian officials have pointed out that the pumping of Caspian oil and gas through existing Russian pipelines would have been much cheaper for Western consumers, at least in the foreseeable future. Pumping Caspian oil through Iran would also have been a more logical and less expensive option.

However, from the time of the Bill Clinton presidency, American officials have made it clear that they view the BTC pipeline as part of a grand strategy to isolate Russia further in the region and, in the process, secure guaranteed supplies of oil and gas from the Caspian region. The argument being put forward in the West is that Caspian oil will diminish forever the influence of the Organisation of Petroleum Exporting Countries (OPEC). However, according to many oil experts, it was realpolitik and not market economics that created the BTC pipeline.

The objections of environmental groups were overruled despite evidence of widespread corrosion and cracking of pipelines. British Petroleum (BP), which leads the consortium that is constructing the BTC pipeline, had admitted in November 2003 that 23 per cent of the joints of the pipeline in the Georgian sector were faulty. Environmental groups have said that the pipeline poses a danger as large sections of it pass under water. The pipeline goes through the politically volatile Kurdish areas of eastern Turkey. The people there have not been consulted about the project. State authorities in Turkey and Azerbaijan have dealt with protesters harshly. The Azeri authorities in fact refused permission to protesters to gather when the opening ceremony of the pipeline was taking place. In Georgia, there were protests by minority Armenians as the pipeline traversed territory on which they formed the majority.

The project is governed by an Inter-Governmental Agreement (IGA) between Azerbaijan, Georgia and Turkey and by the individual Host Government Agreement (HGA) between each of the three governments and the BP-led consortium.

These agreements have largely exempted BP from the laws of the three countries. The agreements allow BP to claim compensation from the governments concerned, should any law, whether it be related to human rights or the environment, make the pipeline less profitable. Many groups operating in the region have described the agreements as "neo-colonialist" in nature. The sovereignty of the strip of land through which the pipeline runs in the three countries has been virtually abrogated by BP. Landowners are still fighting for adequate compensation in many areas that the pipeline snakes through.

The $3.2 billion project has the capacity to transport one million barrels of oil a day and is the first direct oil link between the landlocked Caspian region and the Mediterranean. The Caspian is said to have the third largest oil and gas reserves in the world. A gas pipeline, running parallel to the oil pipeline, will also be completed. It is claimed that once the two projects are completed, the three countries will generate revenues exceeding $150 billion from oil transportation alone. Most of the funds for laying the Baku-Ceyhan pipeline came from bank loans guaranteed by governments.

U.S. Vice-President Dick Cheney, said in 1998, when he was running the oil company Halliburton, that he could not "think of a time when we have had a region emerge suddenly to become as strategically significant as the Caspian".

A letter from U.S. President George W. Bush was read out at the inaugural ceremony, by U.S. Energy Secretary Samuel Bodman. In his message, Bush said his government had "consistently supported" the pipeline project. Azerbaijan President Ilham Aliyev said in his speech that the pipeline would help solve the economic and social problems of the region besides playing a role in "strengthening peace and security in the region". He evidently hopes that the huge American political and strategic stake in the pipeline will help his country reclaim the disputed territory of Nagorno-Karabakh, which is currently under the control of Armenia.

Azerbaijan's authoritarian government brooks no internal dissent. It had conducted recently what many international organisations and observers described as a deeply flawed election. The present President succeeded his father, Haidar Aliyev. Not surprisingly, the Bush administration is not keen on seeing democratic reforms in Azerbaijan or, for that matter, in neighbouring Kazakhstan, where American companies have big stakes in the hydrocarbon sector. The Bush administration's goal is to eliminate Russia from its traditional zone of influence and keep control of the oil and gas in the region. Another important aim is to prevent China from getting more access to Caspian oil.

Under a separate agreement, Kazakhstan will also be connected to the new pipeline, allowing the country to pump oil directly to Western markets for the first time. There are also plans to connect the oilfields in Turkmenistan to the pipeline.

Another big gainer from the pipeline will be Turkey, which has a 6.5 per cent share in the pipeline project. Oil and gas from Iran and Iraq are already flowing through Turkey to markets in the West. The traffic of oil tankers through the Bosporus Strait will be considerably reduced. Turkey hopes to emerge once again as a serious player in Central Asia and the Caucasus. Many countries in the region have a pan-Turkic identity.

Petroleum Minister Mani Shankar Aiyar said in the first week of June that India was considering a proposal from Israel for the supply of oil from the BTC pipeline. Israel has told the Indian government that a pipeline between Turkey and Israel will deliver oil to the Israeli port of Eilat, from where it could be shipped to India. All the proWestern states in the region seem keen to cash in on the black gold that promises to start flowing soon from Baku.

However, there are many people who are sceptical about the long-term prospects of the BTC pipeline. There are reports that the amount of oil and gas deposits in the Caspian region, especially in the area under Azerbaijan's sovereignty, is highly exaggerated. Some experts feel that they will run out in less than 20 years. Newly discovered offshore oil and gas fields in Azerbaijan have not been all that bountiful. According to Russian experts, if the pipeline is to be commercially viable, it will need huge supplies of Kazakh and Russian oil from the Caspian Sea.

RUSSIA had already geared up for the challenge from the Baku-Ceyhan pipeline by building the Caspian Consortium Pipeline, which was inaugurated in 2001; it connects the Kazakh oilfield of Tengiz to the Black Sea port of Novorossiysk. A recently constructed gas pipeline, called the Blue Stream pipeline, has brought energy across the Black Sea from Russia to Turkey.

For the BTC project to remain economically viable, oil prices will have to remain high. The new pipeline is also part of American attempts to bypass Iran in "the new great game". Despite the Bush administration's efforts, many Western oil companies, taking advantage of the absence of American oil companies, are investing in Iran's oil industry. Oil companies operating in the East Caspian believe that a transport route through Iran will be highly competitive, representing the lowest capital costs.

"The world runs on oil and gas and those who control it will wield commercial and geopolitical power. The United States simply cannot afford to allow Russia and Iran to dominate the energy resources of the Caspian," wrote Sheila N. Heslin, who was a senior member of President Bill Clinton's National Security Council in charge of Russian, Eurasian and Ukrainian affairs, in an article published in 1997. As the U.S. unfolds its blueprint for the region, other major countries will also be charting out their strategies for the new "great game" in Central Asia and the Caucasus.

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