COUNTRIES WEIGH STRATEGIES IN THE GREAT OIL GAME…

The strategies of different countries for the development of Caspian Sea oil and gas were subject to careful scrutiny by oil executives and government officials at a meeting organized by the National Bureau of Asian Research in Washington, DC on April 7.

It is clear that everyone wants the region’s vast energy resources to be brought to market. Seventy billion in foreign investment has been pledged to the region — half from the US — though to date only $4 billion has been spent. The region is hemmed in by political barriers to the north, south and west. To the north, lies Russia. While on strictly commercial terms it would be logical to run all the Caspian’s exports through Russia, this would not be wise in practice, since Russia has shown itself willing and able to exploit its monopoly control over exports of Turkmen gas or Kazakh oil to give those countries a very poor deal. Alternative routes are indicated.

Both short-run and long-run problems exist. For the short-term, there are a variety of ways to get the modest amounts of "early oil" over the next three years, using railways, barges and rehabilitated existing pipelines. Just last week, the first batch of "early oil" from Azerbaijan was shipped from the Russian port of Novorossiisk. By 2000, the new Caspian Pipeline Consortium line from Tengiz to Novorossiisk should be operational, with capacity of 560,000 barrels per day. For the long term, the question is where to build the new major export pipelines. This will take from five to ten years but will boost capacity to 3-4 million barrels per day.

The southern route, through Iran, would also be commercially feasible. Iran has unused capacity in its northern refineries, which could process up to 800,000 barrels per day while selling crude oil on Kazakhstan’s behalf into the Persian Gulf through a swap arrangement. The United States strongly objects on political grounds to the Iran option, though according to a presidential decree modest swap arrangements will not necessarily be subject to the sanctions envisioned under the 1996 Iran-Libya Sanctions Act.

It is not clear whether the United States will have sufficient political and economic leverage to deter the Europeans — or even China — from funding oil and gas pipelines across Iran. A recent feasibility study by the French company Total suggested that a pipeline from the Tengiz oil field in Kazakhstan through to the Persian Gulf could cost in excess of $4 billion — more than a pipeline from Baku to the Turkish Mediterranean port of Ceyhan.

…Caucasus Option Still Looks Most Feasible.