…CAUCASUS OPTION STILL LOOKS MOST FEASIBLE.

Export to the east, through China, is potential attractive. Gale Christoffersen told the Washington gathering that the needs of China — a net oil importer since 1996 — are projected to balloon in the future. Late in 1997 China embarked on a spurt of international acquisitions, buying into development projects from Iraq to Venezuela, and beating Amoco in bidding for the Aktyubinsk field in Kazakhstan. Kazakhstan President Nursultan Nazarbaev — disillusioned with dependence on Russia — is enthusiastic about partnership with China.

However, it is unclear whether China can raise financing for the necessary 4,000 kilometer pipeline. Also, the project was the brainchild of the former prime minister Li Peng. It may wither under the new more commercially-oriented Chinese premier, Zhu Rongji. Kent Calder, from the U.S. embassy in Tokyo, noted that Japan is not thrilled by the idea of depending on oil exported across China. He prefers to see Caspian oil go to ocean-going tankers. The Japanese are interested in Caspian development but still very wary about investing in such a politically unstable region. So far, they have only funded a series of modest $200-300 million projects.

That leaves the idea of building gas and oil pipelines across the Caucasus, and then down through Turkey, a plan strongly favored by Washington as the best way to diversify Caspian export routes and ensure that the oil comes to the world market. Azerbaijan, Georgia and Turkey are obviously enthusiastic. Armenia remains a potential stumbling block. The pipelines will run close to Armenian-held territory, and a flare-up of the war with Azerbaijan would scare away foreign investors. The United States seems ready to consider official financial backing for a Baku-Ceyhan pipeline (through the Ex-IM Bank and Overseas Private Investment Corporation). However, several participants in the conference perceived a gap between U.S. rhetorical commitment to the trans-Caucasus pipeline and the lack of concrete actions to bring it to fruition.

The major barrier to the trans-Caucasus route is Russian intransigence. Anger at seeing the region’s countries develop independently of Russia has led some elements in Moscow to exploit ethnic conflicts in the Caucasus to deter new pipelines through the region. The United States has been trying to persuade Russia that it wants it to be a partner in Caspian oil, and that development can benefit all sides. With LUKoil winning a share in the Azerbaijani consortium, Moscow has also shifted its position on the legal status of the Caspian sea, allowing sectoral division of the sea bed. This should clear the way to more offshore drilling, and perhaps a pipeline from Kazakhstan to Baku across the Caspian sea floor. The elevation of Sergei Kirienko to the post of Russian prime minister is seen as a positive development in this regard. He is given much of the credit for the shifts in Russia’s position on the Caspian during his tenure as deputy and then full fuel and energy minister over the past year.

Capitalism Luzhkov-Style…