Publication: Eurasia Daily Monitor Volume: 1 Issue: 100

In late September, two remarkable anniversaries passed nearly unnoticed in Moscow. On September 20, 1994, the first contract on developing Caspian oilfields was signed between the government of Azerbaijan and the consortium of ten international oil companies (AIOC). On September 29, 1999, Russian troops moved inside the administrative borders of Chechnya, starting the second war with the separatist republic. Both events have had a great impact on the security situation in the Caucasus, and their interplay will continue to determine its many features as well as Russia’s political trajectory.

A representative from the Russian government was present at the ceremony in Baku ten years ago, but not at the recent celebrations attended by the Georgian and Turkish presidents, among other guests of honor. Russian media generally ignored this event, with the noticeable exception of Izvestiya (September 29), which published several interviews with Azerbaijani officials and BP managers, but none representing a view from Moscow. The Russian leadership has discontinued its attempts to derail the contract called by the late President Heydar Aliev, perhaps too pompously, “The deal of the century,” but it has not taken even a moderately positive attitude toward it. Lukoil was a partner in the original deal (with a decent 10% of the package) but in 2001 it was told to withdraw and this company, unlike the independent-minded Yukos, does not question orders from the Kremlin.

During the deal’s first decade, oil projects in the Azeri sector of the Caspian Sea were bedeviled by all sorts of troubles, from disappointing drilling to endless quarrels about maritime borders. Current prospects look brighter with the fast-approaching inauguration of the high-capacity Baku-Tbilisi-Ceyhan (BTC) pipeline. Moscow has been measuring its steps in the competition (perceived very much in zero-sum terms) with utmost care, focusing on convincing Kazakhstan to channel its oil exports through the Tengiz-Novorossiisk pipeline.

To a large degree, the explanation for Russia’s cautious behavior could be found in the protracted disaster of the second Chechen War. The conflict restarted five years ago on a high wave of Russian patriotic mobilization that propelled Vladimir Putin to the summit of power. Before its first year was over, however, the war had dissolved in the familiar dead-end of smoldering guerilla warfare and then mutated into suicidal terrorism. Putin and his courtiers were not truly committed to achieving a victory in Chechnya, seeking more to instrumentalize the war to maintain a degree of internal mobilization and to claim for Russia a prominent place in the international counter-terrorist coalition. By the end of the fifth year of this campaign, however, the risks had escalated to a prohibitively high level. The horrible tragedy in Beslan, preceded by several deadly terrorist attacks, has revealed the ineptness of Russia’s enormous military-security machine and the debilitating inefficiency of Putin’s system of power (Izvestiya, September 24; Kommersant-Vlast, September 27).

Moscow has responded to this sharp challenge by launching a new diplomatic offensive (Nezavisimaya gazeta, September 24) and by exploiting the “war” rhetoric for justifying further concentration of political power in president’s hands (Komsomolskaya pravda, September 28). Neither approach has been even moderately successful: Putin’s painstaking explanations to the international media were spoiled by the September 27 open letter from 115 politicians and experts (GazetaRu, September 29) and public opinion has remained skeptical to the need to curtail “managed democracy” (Nezavisimaya gazeta, September 27). New intensive military operations in Chechnya have not resulted in the capture of separatist leader Aslan Maskhadov before the official installation of a new Chechen president hand-picked by the Kremlin (Izvestiya, September 29). The inadequacy of the regime’s responses to the deepening crisis has undermined the key notion of “political stability” and the straightforward centralization drive begins to threaten the sustainability of Putin’s political order (GazetaRu, September 29).

One direction where the political line has remained unaffected by the recent turmoil is oil policy. The direction for this line was given by the attack on Yukos in summer 2003, and the dismemberment of this giant continues in a sequence of incremental steps. The expansion of Gazprom in the oil market through the “friendly” takeover of Rosneft was followed by the carefully arranged sell of the state’s shares in Lukoil to ConocoPhillips for $2 billion. The central media has hailed this deal as a sure sign of restored confidence of big Western investors in the growing Russian market (StranaRu, September 30), but the recently released official estimates of capital flight on the level of $15 billion tell a somewhat different story (Ekspert, September 27). The illusion of efficient state control in the energy sector is maintained only by astonishingly high oil prices, but even the delegation of key presidential aides into the board of directors cannot bring the quality of Gazprom’s strategic planning to the level of the Soviet-era Gosplan.

The separation of the lucrative oil business from the unfolding disaster in Chechnya can continue for a time, but not indefinitely. The Chechen terrorists may well target next the Novorossiisk oil terminal, which would guarantee massive international attention to their attack. The Russian military, from their side, could find a target for a long-promised “preventive” strike somewhere along the BTC pipeline, perceiving the interruption of the oil flow as an extra bonus rather than as “collateral damage.” The major shortcoming of the much-celebrated deal on tapping the Caspian oil riches has been the failure to contribute to resolving Caucasian conflicts, and now the Chechen war threatens not only to spill across the region but also to prompt Russia to abandon its cautious pragmatism in favor of a pro-active power projection.