Moscow and Djohar-gala have signed a long-awaited oil transport agreement, but formidable obstacles remain
By Igor Rotar
Russia’s first deputy premier Boris Nemtsov met in Baku on July 12 with Natik Aliev, head of Azerbaijan’s State Oil Company, and Khozh-Akhmed Yarikhanov, head of Chechnya-Ichkeria’s state oil company (YUNKO). The three signed a trilateral agreement on the transit of Caspian oil.
Two alternative routes for transporting Caspian Sea oil have dominated developments: one from Baku on the Caspian, across Chechen territory, to Russia’s Black Sea port at Novorossiisk (the "northern variant"), and the other from Baku, through Georgia, to Turkey’s Mediterranean port at Ceyhan (the "western variant"). The fact that the "northern variant" is now fixed in a special agreement is, at first glance, a major geopolitical success for Russia.
Following the end of the war in Chechnya, the main obstacle to beginning the transit of oil along the "northern variant" was the inability of Moscow and Djohar-gala to agree on conditions for the transit of Caspian oil through Chechen territory. Chechnya insisted on being recognized as an equal participant in the enterprise. This would mean that Chechnya could charge international transport rates, which are significantly higher than internal Russian rates. Moscow categorically refused, arguing that Chechnya, as part of Russia, could not claim to be an independent partner. Despairing of winning Moscow’s agreement, Djohar-gala sent a delegation to Baku to try to win the support of Azerbaijani president Haidar Aliev and the president of the Azerbaijani International Operating Company, Terry Adams. The mission was a failure: both Aliev and Adams said that the question was Russia’s internal affair.
Suddenly, in early July, the Kremlin gave in to Chechnya’s conditions. Moscow’s unexpected tractability was cleverly exploited by Baku. Aliev agreed to accept Chechnya as an equal participant only after the following points were included in the renewed friendship and cooperation treaty between Russia and Azerbaijan signed on July 4 in Moscow: each side bound itself "not to support separatist movements and to forbid and prevent the creation and activity on its territory of organizations and groups… directed against… the independence and territorial integrity of the other side." This amounted to a fundamental re-examination of Russia’s policy in the Caucasus: if, earlier, Russia was mainly oriented toward Armenia, whom it informally supported during the Armenian-Azerbaijani conflict, now, the Kremlin let it be known that it would support the separatists in Nagorno-Karabakh no longer.
Moscow’s change of heart is easily explained. Baku had warned Moscow that, if the agreement was not signed, Caspian oil would be shipped along a route which skirted Russian territory. According to the weekly Kommersant, an important factor was the sharp increase, on the eve of the transit of early Caspian oil, in the activity of U.S. oil companies, who were interested in the "western variant." It is also possible that Moscow wanted to get the agreement signed before the visits of the Azerbaijani and Georgian presidents to Washington, scheduled for late July and early August. In these circumstances, Moscow became willing to pay almost any price to get a transit agreement signed.
Moscow’s efforts may nonetheless prove to have been in vain. The recent negotiations were not an unambiguous success from Russia’s perspective. No sooner had Baku and Moscow signed the agreement than Turkmenistan’s Foreign Ministry demanded that it be annulled. In Ashgabat’s opinion, part of the oil fields which Baku and Moscow intend to develop are in Turkmenistan’s zone of the Caspian Sea.
On July 14, Turkish president Suleyman Demirel arrived in Georgia on an official visit. The results of his talks were not comforting for Moscow: the two sides declared that the Baku-Ceyhan pipeline was, from a technical point of view, both more convenient and more practicable than the "northern variant." Thus, Tbilisi and Ankara let Moscow know that most of the oil would, all the same, be skirting Russia.
Other Russian regions through which the Baku-Novorossiisk pipeline will pass have also expressed their covert dissatisfaction with the trilateral agreement. For example, the Dagestani sector of the pipeline is 270 kilometers long (the Chechen sector is about 150 kilometers long), but nobody has offered Makhachkala any money for the transit of Caspian oil. "If any part of the Russian Federation has any claim to dividends or payment for the transit of Caspian oil through its territory, then it is only fair that Dagestan should get adequate payment, taking into account its geopolitical position and complex economic situation," the head of Dagestan’s government, Abdurazak Mirzabekov, told Nezavisimaya gazeta on July 9. Ingushetia staked out a similar position. According to the republic’s president, Ruslan Aushev, Ingushetia should receive payment for the 18-kilometer sector of the pipeline that passes through its territory.
But neither the external factors listed above, nor potential friction between Moscow and the regions, are the main obstacles to implementation of the "northern variant."
Well before the end of the war in Chechnya, "oil business" had become one of the main means of subsistence for the Chechen population. The then head of YUNKO, Zia Bazhaev, did not try to conceal, in his conversation with Prism’s correspondent, that most of Chechnya’s "black gold" was simply being stolen. "The problem of the withdrawal of Russian troops and that of guarding of oil facilities are of comparable complexity," Bazhaev said.
Guarding Chechen oil has proven even more complicated than stopping the war. Despite the change of regime in Chechnya, oil is being stolen under the new government with the same intensity as before.
Homemade gasoline is sold everywhere in independent Chechnya-Ichkeria. It is amazingly simple to make: normal crude oil is distilled in a still somewhat like that used for making home-brewed alcohol (samogon), and refined. The quality of the resulting product is very low, but quite satisfactory, as long as the driver is not too finicky about his automobile.
There are underground oil companies operating in the republic, with their own employees, and all the necessary equipment. And there is a sophisticated division of labor: some specialize in extracting oil; others, in refining it; still others, in selling it. Usually, a criminal group will seize an oil well and its employees will pump the oil while an armed guard keeps watch. Little private oil refineries, located near virtually every city, are also kept under armed guard. Nor is the "privatization" of oil wells the only, or even the main, way to get rich; the simple method of drilling holes into the pipeline is even more common. To be persuaded of this, all one has to do is walk along the Chechen sector of the pipeline: little factories for the illegal extraction of oil, guarded by armed men, are everywhere.
At first, Chechnya-Ichkeria’s new government intended to set up an oil monopoly. Both President Zelimkhan Yandarbiev and Aslan Maskhadov, his successor, issued decrees on fighting the theft of petroleum products. But their efforts stopped there. "About 3,000 tons of oil are illegally extracted in Chechnya every day. The market price of our oil is approximately 80 dollars a ton. In other words, we are losing about $240,000 every day!" YUNKO president Khozh-Akhmed Yarikhanov told Prism just a few months before the trilateral agreement was signed.
The "oil business" has become almost the only source of income for most Chechen families. It is therefore understandable why Djohar-gala cannot eradicate this criminal activity: such an operation would deprive a large part of the republic’s population of their means of subsistence. In such circumstances, it would be unrealistic to expect to hang onto power.
In arguing for a trilateral agreement, Djohar-gala made the following points: the additional money would stabilize the extremely difficult economic situation in the republic. Accordingly, it would become easier for the Chechen authorities to reduce crime, including eradicating the illegal "oil business," and to guarantee that the pipeline would be reliably protected.
These arguments are questionable, however. Even without going into exact mathematical calculations, it is possible to say with confidence that the income from the transit of oil will not be enough to restore the republic’s economy and social infrastructure, destroyed by Russian troops. It is also unlikely that the Chechen leadership will succeed in organizing an effective guard, either for the pipeline itself or for the workers who will have to repair it: the frequent kidnappings that occur in Chechnya indicate that Djohar-gala does not have full control over the situation in the republic. It is worth noting that Russia, where the crime rate is significantly lower than in Chechnya, and whose financial capabilities are significantly greater, is still unable to prevent the penetration of Chechen fighters into Russian territory.
The probability of confrontation between the Chechen authorities and rogue field commanders remains high. Thus, in spite of Maskhadov’s decree, the so-called "Army of General Dudaev," led by Salman Raduev, still has not been disbanded. Moreover, as the newspaper Severny Kavkaz (No. 133, July 1997) reports, Raduev’s fighters not only move about openly, fully armed, within Chechnya itself; they also act freely on Dagestani territory.
The recent resignation of First Deputy Premier Shamil Basaev, one of the most influential field commanders during the war and Maskhadov’s main rival during the presidential election campaign, is also an alarming development. Add to this the fact that, soon after the signing of the trilateral agreement, the situation in North Ossetia’s Prigorodny district, where bloody confrontations took place in 1992 between Ossetians and Ingush, deteriorated. There have been numerous incidents of violence and even death among Ingush refugees trying to return their homes in Prigorodny. "Everything has come full circle and is reminiscent of the situation in 1992. If the Ossetian authorities don’t stop pandering to these bandits, and Vladikavkaz continues to obstruct the return of refugees, the situation in Ingushetia could get out of control!" Ingush president Ruslan Aushev told Prism.
Translated by Mark Eckert