EAST CASPIAN OIL VOLUMES FACE DIVERSION INTO IRAN.

Kazakhstani Prime Minister Nurlan Balgimbaev reported yesterday the results of his just-completed visit to Iran, one made in preparation for President Nursultan Nazarbaev’s scheduled official visit. Balgimbaev’s talks with Iranian President Mohammad Khatami and other Tehran officials included plans to ship oil from Kazakhstan by barge to northern Iran and to resume Kazakh-Iranian “oil-swapping,” which Kazakhstan reluctantly discontinued in 1997 at Washington’s urging. That practice involves deliveries of Kazakhstani crude oil to refineries in northern Iran in return for equivalent amounts of Iranian oil shipped from Persian Gulf terminals on Kazakhstan’s behalf. The volumes involved are constrained by the modest absorption capacity of the northern Iranian market. However, Kazakhstan values even this limited outlet, larger ones being out of the country’s reach. Balgimbaev’s and official Tehran’s accounts of the visit singled out the oil transport plans as the most promising topic of discussion (IRNA, Itar-Tass, April 11 and 12).

In a parallel development in neighboring Turkmenistan, the U.S. company Mobil Oil and its British partner Monument Oil are pressing in favor of the Iranian transport route for crude oil from their Turkmen concessions, Nebitdag/Burun and Garash-Syzlyk. The issue was among those discussed yesterday in Ashgabat by President Saparmurat Niazov with Monument Oil’s chief executive and former Energy Minister of Britain, Tim Eggar. The Monument-Mobil partnership has canceled a planned Burun-Caspian Sea pipeline. That line could have fed Turkmen oil into the projected trans-Caspian-Azerbaijan-Georgia-Turkey pipeline, which is favored by those countries and the United States (International agencies, April 12).

Cumulatively, these developments damage the prospects of the projected export route to Turkey (Main Export Pipeline, MEP). That route needs to combine East Caspian with Azerbaijani (West Caspian) oil volumes to become commercially attractive. Diversion of East Caspian volumes to Iran would defeat that goal–one that official Washington promotes while some oil companies undercut. Increasingly, Kazakhstan and Turkmenistan are finding themselves caught in a vicious circle. As oil companies keep procrastinating on MEP, the cash-strapped Kazakh and Turkmen governments grow desperate for alternative routes, such as that via Iran. Kazakhstan, moreover, may end up in three years’ time exporting massive amounts of its oil via Russia through a pipeline now under construction to Novorossiisk, with a substantial head start on MEP. Such diversion of export volumes, however, can only contribute to the growing uncertainty surrounding MEP.

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