Publication: Monitor Volume: 6 Issue: 177

During his current visit to the United States, President Haidar Aliev of Azerbaijan has taken the unprecedented step of publicly criticizing oil companies for stalling the Baku-Tbilisi-Ceyhan (Turkey) main export pipeline project (MEP). Aliev specifically named ExxonMobil and alluded to BP Amoco as the companies mainly responsible for the procrastination. BP Amoco–the British side of which is dominant–is the project operator of the Azerbaijan International Operating Company (AIOC), the sole foreign consortium actually producing commercial oil in Azerbaijan. In addition, BP Amoco and ExxonMobil each operate several exploration projects, all of which will require an export pipeline or pipelines, once production starts.

Aliev’s criticism is being echoed by officials in Baku. It responds to the thesis–which ExxonMobil’s top management voiced most recently–that the proven Caspian oil reserves do not as yet justify the investment which the Baku-Tbilisi-Ceyhan project requires. Azerbaijani officials, however, cite at least three counterarguments. First, any pessimistic assessment is clearly premature as long as the appraisal wells have not yet been drilled in the existing projects–other than that of AIOC–which are operated by the companies in question. Second, any main export pipeline terminating on the Black Sea–whether in Russia or Georgia–is of limited and questionable value because tankers loading there would have to pass through the Bosporus Strait. Tanker passage through that overcrowded strait is, however, physically difficult, environmentally dangerous, and politically unacceptable to Turkey (ANS, AzerHabar, Baku Sun, Dow Jones Newswires, September 15-20). Third, the skepticism evidenced lately by some oil company executives looks like part of a deliberate holding action, based on hopes that the United States government would, sooner or later, lift its objections to a MEP for Caspian oil via Iran to the Persian Gulf. The cost-effectiveness of that route is far from proven, however. And routing any sizeable share of the future oil through Iran could place Tehran’s hand on Azerbaijan’s oil spigot. Economically, Iran is a competitor country. Politically, Tehran has all along shown that it does not wish to see a prosperous Azerbaijan, for fear that it might become a pole of attraction for Iran’s own Azeri population. Given Iran’s close relations with Russia, moreover, Azerbaijan insists on routing the MEP westward through Turkey. Azerbaijan’s national interest in this case accords with the interests of global energy security, which requires limiting the share of world oil exports that are routed through the Persian Gulf.

AIOC, meanwhile, exports its early oil through the Baku-Supsa (Georgia) pipeline which it owns and operates. But that pipeline can accommodate only a fraction of the future oil output in Azerbaijan. Expanding it to any degree would be pointless, first, because it terminates on the Black Sea, and, second, because any additional volumes of oil pumped to Supsa would reduce the volumes available to be committed for export through Baku-Ceyhan. In the final analysis, procrastination on Baku-Ceyhan condemns Caspian oil producers–local countries and foreign companies alike–to existing in a vicious circle. Project development marks time because there is no MEP, and construction of the MEP does not start because the extractive projects do not yet produce enough oil.