Summary Of A Symposium On The National Security Dimensions Of The Emerging Crisis In The Caspian Basin
The ANA Hotel
Washington, D.C.
13 March 1996
I. Strategic Overview — The International Politics of
Energy in the Caspian Sea Basin
The lead discussant for the first part of the morning’s
proceedings was Senator Jon Kyl (R-AZ), who sits on the Energy
and Natural Resources, the Judiciary and the Intelligence
Committees of the Senate. The following points were among those
raised during his presentation and the discussion that followed:
- The oil in the Caspian Basin has motivated people for a
century to attempt to control the area. This is certainly
true today. - The main geopolitical question in the region today is
whether a neo-imperialist Russia, aided and abetted by
Iran, will dominate the development and export of this
oil, or will Moscow prove to be an equal and fair player
in the region, working cooperatively with the other
states in the region — notably, Turkey, Georgia, Armenia
and Azerbaijan. - Unfortunately, Russia’s desire to dominate the region’s
oil resources is clear and manifests itself in the
Kremlin’s instigation of — or other involvement in — a
number of the conflicts occurring in the region now. For
example, one of the pipelines that would transport
Caspian oil passes through Chechnya, a
breakaway region of Russia that the Russian government is
desperately — and brutally — trying to keep from
escaping Moscow’s sphere of influence. - Another part of this pipeline passes through Azerbaijan,
an independent state suffering from ethnic conflict
between Azeris and Armenians fomented, many believe, by
Russia in an effort to retain control of that part of the
region. Unfortunately, the United States has tended to
support the Armenians — who are in turn supportive of
Russian goals in the region — rather than the secular
Muslim, Western-leaning government of Azerbaijan, which
has shown itself much more supportive of the United
States’ interests in the region. - Russia has also used heavy-handed tactics in Georgia
in order to have its way concerning pipeline routes. In
fact, Georgian President Eduard Shevardnadze believes
that the recent assassination attempt against him was
hatched in Russia and was a direct response to his
decision to support a pipeline route that would not pass
through Russian territory, and that does not therefore
enjoy Moscow’s support. - As part of its effort to dominate militarily the Caspian
Basin region, Russia has violated the Conventional Forces
in Europe Treaty by keeping troops, tanks and other
military equipment in the region in excess of levels
permitted by the treaty. - As these events indicate, the Kremlin clearly understands
the importance of its domination of the region’s oil
supply and has taken steps to maintain hegemony in the
area. Unfortunately, the United States has thus far
failed to appreciate the interrelationship between all of
these events which Russia, in many cases, may have been
directly responsible for fomenting. - The United States must continue to support
secular Muslim regimes — such as Turkey and Azerbaijan
— which can act as a check on Russia’s intentions in the
region. Also, the United States should
demonstrate that it is in Russia’s economic interests to
develop the region’s resources cooperatively, rather than
by attempting to dominate those resources and deny them
to the West. - Regrettably, the Clinton Administration has largely
neglected the Caspian Basin in favor of trouble spots
like Haiti and Bosnia. Both the executive and legislative
branches need to start paying more attention to the area. - Of particular concern is the difficulty experienced in
educating policy-makers about the fact that Azerbaijan
has proven far more supportive of America’s geopolitical
interests in the region than has its neighbor and
adversary, Armenia. This is due to a number of factors.
Not least is the disproportionate political power
exercised by Armenian-Americans and the absence of any
comparably influential ethnic constituency speaking out
in the United States on behalf of Azerbaijan. As a
result, many legislators have been supportive of the
Armenian point of view; the rest have largely been
unaware of the strategic significance and stakes for the
United States of maintaining a stable, secure and
friendly Azerbaijan.
II. Caspian Sea Oil — U.S. Economic Dimension
The lead discussant for this portion of the symposium was Dr.
T. Don Stacy, Chairman and President of Amoco Eurasia Petroleum
Company — the lead player in the Azerbaijani International
Operating Committee (AIOC). His presentation and the ensuing
discussion included the following main points:
- It is sometimes difficult for Western companies to make
commercial deals in this region because the
newly-independent governments have very little experience
with basic economic practices, such as borrowing money
from a bank. When the region was dominated by the
communist economic system, money was borrowed from the
central bank and was paid back in-kind with product, with
no expectation that the cash would actually be repaid. - The breakup of the Soviet Union created opportunities for
companies in the West, especially in Azerbaijan, for both
energy producers and energy contractors. - Much of the coverage of the Caspian region in the world
media today treats it as a subset of the larger issue of
the future of Russia. However, due in no small part to
its rich hydrocarbon resources, the Caspian region
deserves to receive careful international attention in
its own right. - The hydrocarbon resources from Azerbaijan, Kazakhstan and
Turkmenistan will most likely be transported from the
region elsewhere. Although Russia has few hydrocarbon
resources in the region, it will play a crucial role in
the transportation of the resources and in the
geopolitics of the Caspian Basin. Other nations likely to
experience the benefit of development and transportation
of the Caspian Sea’s resources include: Turkey, Georgia,
Armenia and Uzbekistan.
The Caspian Basin’s Hydrocarbon Resources
- The first oil well in the region was drilled near Baku in
1848, starting the first generation of the region’s oil
industry. This area actually provided 75% of the Soviet
Union’s oil production from the early 1920s until the
start of World War II. And nearly one hundred years ago,
the region provided about 50% of the world’s oil
production. - The oil in and around the Caspian Sea is referred to as
the fourth generation of Soviet oil, with the previous
generations being Baku, the Volga Urals and Western
Siberia. - The countries in the Caspian Sea region possess both oil
and natural gas in great abundance, but in order
effectively to exploit those resources, they need
technology, investment and proper business procedures.
The typical reaction from former Soviet countries when
told that the West is interested in helping them develop
their resources is “all we need is money. Please
give us your money, and then go home, because we don’t
really need you.” - In fact, these governments do need the West,
because at present they have no concept of what it takes
to run a business, remain profitable, be efficient and
compete in a free economy. They have an educated and
well-trained work force and they do possess much of the
technology necessary effectively to develop their
resources, but they lack fundamental expertise in modern
business practices. - The Caspian Sea has a total of about 70 billion
barrels of proven oil equivalent reserves (this includes
both oil and oil-equivalents of gas). For the
sake of comparison, the Middle East has about 800 billion
barrels and Russia has about 450 billion barrels. Most
other oil-producing regions of the world have been
heavily explored, whereas the Caspian Sea has not. In
fact, the Soviet Union actually exported oil from Siberia
into the Caspian region — due, in part, to the Soviets’
reluctance to operate off-shore in the deep waters of the
Caspian as opposed to the more accessible, on-shore
Siberian fields. As a result, all of the oil pipelines in
the region currently flow into the Caspian
Basin. One of the major challenges now facing companies
wishing to export Caspian oil is reversing existing
pipelines to allow oil to flow out of the
region. - The Caspian Sea is believed to rank third in the world in
terms of undiscovered hydrocarbon resources (including
both oil and gas) and second in terms of undiscovered
oil. Some estimates of the region’s resource potential
put the Caspian Sea in close competition with the Middle
East. The Caspian region could eventually replace Norway
as the fifth largest oil producer in the world.
Developing the Caspian Sea’s Hydrocarbon Resources
- The great economic potential for states in the region
arises from the prospect that the Caspian Sea will allow
them both to provide for their own domestic consumption
needs and to export the sizeable surplus. - Russian cooperation — that is, non-interference — is
absolutely crucial for the economic development of the
region, and for the importing of critical construction
materials that will be used to build pipelines. - Most oil production in the Caspian Sea has been done in
the very near-off-shore, in water that is no more than
about 15 meters deep. But the vast resource potential of
the Sea will require advanced deep off-shore technology,
similar to that used by American companies to drill in
the Gulf of Mexico. - U.S. companies are currently competing with British firms
to design and construct the off-shore drilling
facilities. The British expertise comes from their
experience in the North Sea, an extremely hostile
environment compared to the Caspian. The Caspian Sea is
more similar to the Gulf of Mexico, where U.S. firms have
experience. - The Azeri-Chirag and the Gunashli fields are currently
being developed. These fields may contain 3.5 to 4
billion barrels of oil resources. An eleven-company
consortium — with significant U.S. representation —
signed a contract with Azerbaijani President Heydar
Aliyev in September 1994 to develop these fields. To its
credit, the Clinton Administration actively encouraged
President Aliyev to sign on. And Mr. Aliyev has
preferentially tilted the playing field towards Western
companies, even going so far as to turn his back on
historical allies such as the Iranians who were very
anxious to be part of the deal. - Other promising fields in the Caspian Sea include the
Caspishelf region, an off-shore region bordering
Kazakhstan. There has been very little American
involvement in the production of this oil as of yet. - In addition to Azerbaijan, Kazakhstan shows great
potential as a developer and exporter of the Caspian’s
resources. In order to exploit the resources, however,
Kazakhstan desperately needs relevant technology and
money. The Kazakhs desire Western investment, but
investors have found that in addition to the high
taxation and excessive bureaucracy that is so common in
the region, they are also subjected to some critical
challenges dealing with transportation out of the area. - Kazakhstan has received the full benefits of the Freedom
Support Act, including cash loans, access to the Overseas
Private Investment Corporation, and all other programs
under the Act passed by the United States Congress. Azerbaijan
— even though it is allowing American companies to have
significantly more access to the region’s resources than
is Kazakhstan — has been systematically excluded from
any help under the Freedom Support Act, and has even been
excluded from receiving humanitarian aid. Such
restrictions are embodied in Section 907 of the Act.
[Subsequent to this Roundtable Discussion, legislation
was considered in the Congress which would have made
matters still worse. (1)
While this initiative was ultimately rejected in the
closing days of the 104th Congress, the unbalanced and
self-defeating effects of the original Section 907 are
still governing U.S. policy toward Azerbaijan.] - There are several challenges to doing business in the
Caspian region. One of them is the influence that Russia
and Iran are attempting to exert there. There
are also environmental concerns.
The Caspian Basin’s Logistical Challenge and Its
Strategic Implications
- Transportation is one of the most complex issues
to resolve. The existing oil pipeline system was
designed to move crude oil and refined products from
Russia to the Caspian region. Even if the existing
pipeline flows were reversed, there still would not be
enough pipeline capacity to transport the potential 3
million barrels of oil per day from the region. - The existing pipeline travels from Baku in Azerbaijan
through Grozny, the capital of Chechnya, to Tikhoretsk
and finally to the Black Sea port of Novorossisk, the
main Russian oil export point. All oil that would flow
through this pipeline to Novorossisk must transit through
the Bosporus Strait, an extremely
environmentally-sensitive area in Turkey. American oil
companies and Turkish citizens alike are worried about
the effects of an oil spill in the Straits and would
therefore prefer an alternative to the existing pipeline. - A second pipeline is being planned that will help
transport the so-called “early oil” — the oil
being exported from the region immediately while the
larger fields are being developed — from the Caspian,
which will total between 90,000 and 150,000 barrels per
day. This pipeline, dubbed the “western route,”
will travel from Azerbaijan through Georgia, to the
Georgian Black Sea port of Supsa. This pipeline has the
advantage of not traveling through the very unstable
areas such as Chechnya that the existing pipeline does. - Having two pipelines also improves the chances that the
early oil will still have a transit route even if one
pipeline is shut down due to political instability or
other factors. As long as both pipelines are in operation
to transport early oil, the oil from the second pipeline
would be used for Turkey’s domestic consumption needs,
thereby making it unnecessary for it to be transported
through the Bosporus. Both pipelines have been approved
by the Azerbaijan International Operating Company, and
Georgia has agreed to have the western route pass through
its territory. - The decision about where to build the main exporting
pipeline — which will carry the three million barrels of
oil that will eventually be exported from the Caspian —
has yet to be made. It will be a very difficult
decision to make politically. The extra capacity
provided by the second pipeline for early oil will allow
for more time for this decision to be made. - The most economical route for the main pipeline would be
for it to parallel existing pipelines in Turkey which
lead to its Mediterranean port of Ceyhan. Of course, the
route that the main pipeline will eventually take will
depend on both geopolitical as well as economic concerns. - There is currently a dispute over whether the
Caspian Sea is a sea or a lake. If it is a sea
— as Russia and Iran maintain — then its resources
belong to all of the littoral states. Each state would be
able to lay exclusive claim to only a narrow band near
its coastline. If it is a lake, as Azerbaijan and
Kazakhstan claim, then every part of the Caspian would be
assigned to a specific country, and that country would
own the rights to the mineral resources in its zone. Such
a division would leave Russia and Iran with a very small
share of the Sea’s resources. These two states submitted
in January of this year a joint letter to the United
Nations expressing their view that the Caspian Sea is a
sea, and therefore the states bordering it should reach a
collective agreement on the development of its resources.
Experts in international law agree that there is no
clear-cut solution to this dispute. - Azerbaijan’s President Aliyev has allowed the National
Iranian Oil Company to help develop the Shakh-Deniz oil
field. He has also allowed Lukoil, a Russian firm, to
help develop Azerbaijani oil fields in hopes of softening
the dispute about Russian and Iranian involvement in the
exploitation of the region’s resources. - To date, the investor-friendly governments of Azerbaijan
and Kazakhstan have ratified a total of six
production-sharing agreements. The first oil is expected
to flow in the second half of 1997. - The hydrocarbon resources of the Caspian Sea region
present a great opportunity for western investment, while
providing alternative sources of oil and helping to
enhance the development of sound and independent
economies in the region. - Some have accused American companies of bending to
Russian pressure in deciding to go with the
“two-pipeline” option for exporting the
Caspian’s early oil since one of those two pipelines is
supported by Russia. Industry responds by noting that the
Russian-favored pipeline is already built, so oil can
begin flowing through it relatively quickly and
relatively cheaply. Therefore, American industry did not
“bend” to any Russian pressure: Russia and
industry both agreed — albeit for different reasons —
that the existing pipeline through Chechnya and Russia
should be used to transport early oil.
III. Defining and Defending American Interests in the
Region
The lead discussant for the final portion of the day’s
proceedings was Hon. Richard Perle, former Assistant Secretary of
Defense for International Security Policy. Among the points
raised during this discussion were:
- The United States, as a great power, has interests
virtually everywhere in the world. It is a mistake to
discount those interests that may not be an immediate
matter of life and death. It is dangerous to ignore
interests until they become vital and to defend only
those interests that are vital. - It is generally recognized that the United States and its
allies — as modern industrial societies — have a broad
interest in the sources of energy upon which they depend.
It does not require much work, then, to develop the idea
that the United States has an interest in an area as rich
in energy resources as the Caspian Sea region. - The United States has an interest in discouraging and
retarding the re-emergence of a hegemonic center on the
Eurasian land-mass, which some elements in Russia
undoubtedly would like to see. Unfortunately, those
Russians who would favor the re-establishment of the old
Soviet sphere of influence — such as Foreign Minister
Yevgeny Primakov — are being brought back into positions
of influence in the Kremlin. - The United States has an interest in encouraging
modern and secular democracies in parts of the world
where it is by no means a foregone conclusion that
democracy is the form of government that will emerge
after so many years of communist rule. Countries
in the Caucasus region with large Muslim populations are
trying to decide whether to have a Western-style
government — or one structured more like Iran’s. If the
United States does not pay close attention to the
countries in the Caucasus region, it runs the risk of
driving those countries toward dangerous fundamentalism. - The United States has an interest in diminishing its
dependence, and that of its allies, on the sources of
energy in the Middle East that have been enjoyed — with
occasional interruptions — for decades. The likelihood
that the Middle East will become relatively stable in the
near future is not particularly high. And such dependence
creates opportunities for entities that wish to exploit
that dependency. - Based on these interests, some conclusions can be drawn.
For example, the United States should support
those countries that are both a source of energy and a
battleground between secular democracy and fanatical
fundamentalism. Turkey — which is squarely on
the side of democracy, secularism and free markets, is
one such country. An alliance between Turkey and the West
— led by the United States — can enhance the
effectiveness of Turkey as a model for development in the
region. - One of the ways that the United States could enhance its
standing with Muslims in Turkey and throughout the region
is by taking a more aggressive stance in assisting the
beleaguered Bosnian Muslims. Many in the Muslim world saw
the arms embargo against Bosnia as a desire not to assist
a predominantly-Muslim country like Bosnia. Another way
is to stop acquiescing to Russia’s war in Chechnya. - The United States should take a more balanced
view of the conflict between Armenia and Azerbaijan, and
it should end the legal discrimination whereby the
Azerbaijanis are denied American assistance. The
United States has taken sides in this conflict for
reasons that have nothing to do with the merits of either
side’s arguments. - It is understandable that Americans might have a soft
spot for the Armenian people. But it is possible to feel
friendly toward Armenia without at the same time
punishing everyone who has a dispute with the Armenian
leadership. American industry is quite lucky to be doing
so well in Azerbaijan, considering the unkind treatment
that the Azeri government has received at the hands of
American diplomacy. - Although the American people can be excused for having
little knowledge or interest in the complex Caspian
Basin, the people who are elected and paid by the
American people to look after American interests cannot.
The legislative and executive branches must take a more
active role in defining and defending American interests
in this region. - Although industry is correct in stating that the
decisions about where pipelines will be built should be
dictated primarily by economic concerns, it is nearly
impossible in this situation to separate economics from
politics. It is the responsibility of the United
States government to assist American companies by
ensuring that the geopolitical environment in the region
is one that will foster a stable climate for economic
success. Doing so will require sufficient American
military strength and leadership to deter anyone tempted
to affect adversely American interests in the region.
1. See the Casey Institute’s Perspective
entitled Meltdown in Armenia Demands Reassessment,
Redirection of U.S. Policy in the Caspian Basin (
href=”index.jsp?section=papers&code=96-C_94″>No. 96-C 94, 1 October 1996).
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