Publication: Eurasia Daily Monitor Volume: 5 Issue: 199

In the aftermath of the August Georgian-Russian confrontation, a new Caspian geopolitical reality is slowly emerging from the fog of war. The clash highlighted the vulnerability of Western-funded and built Caspian export pipelines, which, by transiting the Caucasus, avoided both Russian and Iranian territory. During the standoff, two days before the outbreak of hostilities, the 1,092-mile, $3.6 billion Baku-Tbilisi-Ceyhan pipeline, was crippled by a mysterious explosion. Azerbaijan, its major user, then saw its other Georgian export options stymied. The Baku-Suspa pipeline operator BP shut down the line as a precautionary measure, while Azeri railway oil exports to Poti’s Kulevi oil export terminal were halted after the Russians bombed a railway bridge at Kaspi, which also interfered with Kazakh railway exports.

In response, Azerbaijan was forced to use Russian pipeline monopoly Transneft’s Baku-Novorossiysk pipeline again. Prior to the conflict, Azerbaijan sent only 20,000 barrels per day (bpd) through the pipeline, but on August 6 Transneft doubled Azerbaijan’s quota to 40,000 bpd, or 166,000 tons a month (Nezavisimaya Gazeta, September 21). In an unexpected gesture that surprised many foreign analysts, Azerbaijan also delivered its first oil cargo of 100,000 tons to the National Iranian Oil Terminals Company’s Caspian Neka port facilities for an oil swap.

For Baku, the three week export interruption was costly. The U.S. Department of Energy estimated that Azerbaijan lost over $1 billion in export revenues, while subsequent BTC repairs added to the burned oil and firefighting expenses added another $20 million to Baku’s tab ( Now Iran is taking full advantage of Azeri and Kazakh nervousness to promote itself as an alternative transport corridor, and Tehran’s proposals are receiving a sympathetic hearing in both Baku and Ashgabat.

In actively courting Caspian business, Iran has been quietly upgrading its infrastructure for some time. Three months before the Russian-Georgian military conflict erupted, Aminollah Eskandari, the director of the Oil Refining Department of the National Iranian Oil Refining and Distribution Company (NIORDC), stated, “Countries in the region should not ignore Iran as an attractive option for access to international markets and as a reliable partner,” adding that Iran was not only increasing Neka’s handling capabilities but was intending to build a trans-Iranian pipeline linking Neka to Iran’s Arabian Sea port at Jask (Novosti, May 15, Analiticheskoe i Informatsionnoe Agentstvo Finenko i First proposed last year, the 970-mile-long Neka-Jask pipeline will have a projected capacity of one million bpd.

It increasingly looks as if Eskandari’s optimism was justified, as on September 10 State Oil Company of the Azerbaijani Republic (SOCAR) Vice-President for Investment and Marketing Elshad Nasirov said that by the end of September Azeri oil swaps via Neka would total 300,000 tons (Novosti, September 10, Analiticheskoe i Informatsionnoe Agentstvo Finenko i

Tehran is keenly aware of the increased opportunities that Georgia’s confrontation with Russia has opened up. At the October 10 opening in Tehran of Iran’s two day International Oil Refining Forum, Foreign Minister Manouchehr Mottaki stated, “Iran is ready to cooperate with foreign companies and states to ensure its oil supplies against the turmoil in the Caucasus. …Iran can transfer Caspian Sea oil to the Persian Gulf and free international waters via the shortest and best possible route.”

In the most striking example of Iran’s willingness to upgrade its infrastructure to attract increased Caspian business in light of the new opportunities, Mottaki broached a new project in direct competition with Western pipeline proposals, commenting that Iran supports constructing a large oil pipeline to transport Caspian countries’ oil through Iran to the Persian Gulf. He noted that such a Caspian Sea-Persian Gulf pipe would be both advantageous and safe, but the foreign minister tantalizingly offered no specifics about the proposed pipeline’s capacity, its route, cost, or the time needed for construction (Informatsionnoe Agentstvo, Trend Capital, October 11).

Nor is Azerbaijan the only post-Soviet Caspian country looking at Iran as a possible transit route. Until now, Kazakhstan, fearing to anger the United States, has made limited use of Neka, which last year received about 70,000 to 80,000 bpd. Now Astana is considering increasing its investment in its southern neighbor, as the two nations discuss swapping a number of oil assets. Addressing journalists at the 16th Kazakhstan International Oil & Gas Exhibition and Conference (KIOGE-2008), Deputy Minister of Energy and Resources of Kazakhstan Lyazzat Kiinov commented only last week, “We have made enquiries with Iran, and they responded that they would make us an offer for oil and gas assets in the country. They said they would like to receive a similar offer from us” (Interfax, October 8). It now is apparent that the West’s two shining hope on the Caspian will deepen their transport arrangements with the charter “axis of evil” member Iran, regardless of Washington’s views on the matter.

Further afield than the Caspian, there are indications that Washington’s threat to punish nations investing in Iran’s energy industry under the 1996 Iran-Libya Sanctions Act (ILSA) may increasingly be losing its power to deter foreign governments and multinationals. Speaking in Moscow, National Iranian Oil Company (NIOC) head Seifollah Jashnsaz said that just since March foreign firms and countries had pumped $30 billion in investment into Iran’s oil and gas sectors, adding that several European and Asian nations, including Italy and China, were among them (Islamic Republic News Agency [IRNA], October 16).

For years the administration has promoted the slogan “happiness is multiple pipelines.” Be careful what you wish for—in light of the military clash between Tbilisi and Moscow, Baku and Astana are indeed heeding Washington’s urgings, but not in the ways that the pundits on the Potomac apparently hoped.