THE ROOTS OF CASPIAN OIL: VAIN SEARCH OF A THIRD OPTION

And the prize is big. Experts believe the Caspian oil fields contain some 60 billion barrels of accessible crude oil. With time this amount is expected to double, maybe even triple. In terms of energy resources, the Caspian Sea matches the North Sea, and prospected deposits are similar to those discovered in the US or China. Anticipated investment influx in the next ten years is around $50 billion.

Russia and Turkey are among the principal contenders for control over the Caspian oil. The Russian way envisages oil transportation via the reverse Baku-Grozny 602 km pipeline, and thence via the 501 km Grozny-Tikhoretsk, as far as the port of Novorossiysk, from which point the oil would be delivered to the Black Sea terminal at Burgas, and then through ground pipelines to the Greek Mediterranean port of Alexandropolis. The Turkish plan provides for pumping oil from Baku to the Georgian port of Supsa, and thence shipped by tanker to the Turkish port of Samsun, whence oil will flow through pipelines to another Turkish Mediterranean city, Jeichan.

The problem with both projects is that (a) neither can do without triple terminal-tanker-terminal reloading of oil (a time-consuming and costintensive procedure), and (b) both imply oil routes in politically unstable areas. Thus, the Turkish-Georgian route has to bypass Kurd-controlled territories, which increases distance to the consumer. In addition, the principal infrastructure is still to be built, while the Russian route is practically operational. Even in war-devastated Grozny oil transportation facilities are practically undamaged (what a coincidence). Most experts, however, agree that the northern route will not be able to cope with the amount of late Caspian oil, due to its insufficient carrying capacity.

Neither option, favored as they are internationally, can objectively satisfy Ukraine, but searching for an alternative that could suit Kyiv better becomes increasingly illusive. It would seem logical, for example, after delivering Caspian oil to Supsa, direct tankers to the Southern terminal at Odesa, whence oil would be pumped to Europe. This would mean saving mileage and getting rid of an extra tanker-terminal unloading operation.

In such giant projects, nevertheless, a direct line does not always mean the shortest distance. Such a direct route would correspond to neither Turkish nor Russian interests, so it was effectively torpedoed, as was the Iran idea. If the Baku-Jeichan pipeline could run across Iranian territory, rather than as a curve via Georgia, its cost would be 10 times lower ($30 million vs. $300 million). But Washington (looming in the shadows behind Turkey) has repeatedly declared that it will not allow a single drop of Caspian oil into Iran, for this would give Tehran additional tangible levers of influence in the region. And thus when the Azerbaijan government suggested Iranian participation in the Azerbaijan International Operational Consortium, which taps the most productive Caspian oil fields, the White House warned no US firms would be allowed to participate (and they currently hold a 42.25% interest in the consortium).

More trouble awaited Baku from the other side. When the previous Azerbaijan President Abulfaz Elchibey tried to bar Russian companies access to Caspian oil Moscow responded immediately, doubling export duty on basic Azerbaijan exports (tobacco, vegetables, and wool). The conflict climaxed in a coup led by pro-Russian Colonel Suret Guseinov, bringing Geidar Aliyev to office in Baku, whereupon the Russia’s Lukoil got a 10% share of the AIOC pie, with the black gold line via Novorossiysk once again becoming the principal route.

Moscow applies similar forceful techniques (although not always easily exposed or proved) whenever its northern oil transportation route is threatened (e.g., periodic aggravations on the Abkhaz-Georgian or Azerbaijan-Karabakh arenas, several attempts on Eduard Shevardnadze in Tbilisi, or the coming to power of the Armenian hawks led by Robert Kocharian in Yerevan).

Ankara uses more subtle but nonetheless effective methods. Among other things, the Turkish administration is aware that Western companies will have to ship their early Caspian oil through the Bosporus and Dardanelles. Ankara will open the Bosporus gate for tankers, but only on good late oil transit terms, in which case Turkey will forget about its own rigid ecological requirements. In addition, Ankara will guarantee its Western partners a good market for all oil passing through Georgia to Jeichan, and will even purchase surplus stock if any. Finally, supported by Washington, Turkey has prepared oil transportation projects for deliveries from Kazakhstan and other Central Asian republics, along with the construction of a parallel Baku-Jeichan pipeline network, the latter meant to substantially increase the project returns.

In view of the above, Ukraine, if still determined to retain a degree of control over Caspian oil, must concentrate what resources are left not on the Southern oil terminal, but on implementing previous arrangements concerning the renovation by Ukrainian enterprises of oil and gas transport facilities in Azerbaijan and Georgia as well as on the joint Ukrainian-Turkish Jeichan-Samsun oil transportation project. Samsun will obviously become the most powerful collector to allocate energy resources supplied from the Caspian Sea. Kyiv is not likely to change the stand taken by international capital, one way or the other, but it could try to keep a sensitive finger on the pulse of this transportation route. Why not? Under an intergovernmental agreement, the Jeichan-Samsun pipeline is to be operated by a Ukrainian-Turkish joint venture, on parity terms. As for the Odesa terminal, even if not destined to become the main East-West energy supply valve, it still can serve as an oil collection point to supply Ukraine’s internal needs. The presence of Ukrainian companies at the roots and transportation lines of Caspian oil will be an adequate guarantee that this facility will not be left idle.