CASPIAN WATCH #2: THE GREAT GAME IS ON — WILL THE REPUBLICANS IN CONGRESS PLAY?

(Washington, D.C.): With eleventh-hour help from
President Clinton, the Azerbaijani International
Operating Company (AIOC) on 9 October formalized a
momentous decision. The AIOC — a 12-member consortium of
oil companies engaged in the development of Baku’s oil
and gas reserves — chose to proceed with a two-strand
pipeline strategy to bring Azeri hydrocarbons to market. Now
the hard part begins: Preventing Moscow from
effectively derailing the western strand slated to
transit Georgia and, ultimately, Turkey — a route that
is needed to reduce Russian control over the vast oil
reserves of the Caucasus and Central Asia.

Eyes on the Prize

The intense political jockeying now underway in
Moscow following President Yeltsin’s latest bout of heart
problems should not divert the West’s attention from the
immense strategic stakes playing out in the oil-rich
Caspian Sea region.⁽¹⁾
Taken together, the Caspian Sea reserves and huge Tenghiz
field in Kazakhstan comprise arguably the second largest
source of oil for the industrialized democracies in the
21st century. Accordingly, the construction and routing
of pipelines by which these deposits are tapped over the
next two years may determine whether and under what
circumstances these resources are made available to
the West.

Importantly, President Clinton recently recognized
the strategic implications of this issue. He
telephoned Azerbaijani President Haidar Aliyev just prior
to the 9 October AIOC decision to support a two-strand
pipeline strategy for the consortium’s “early
oil.” He also recently met with President Aliyev in
New York on the margins of the UN 50th anniversary
celebration.

In their face-to-face meeting, Mr. Clinton
reportedly: affirmed America’s commitment to an
independent and economically prosperous Azerbaijan;
expressed satisfaction with the AIOC’s determination to
proceed with a western pipeline route as well as a
Russian line; and encouraged Baku’s continued progress
toward structural economic and political reform. He
also ordered senior Administration officials to make
fact-finding visits to Azerbaijan in the near future.

Russia’s Machinations

Unfortunately, Mr. Clinton’s is not likely to be the
last word on the question. Indeed, Moscow — having
failed to prevent the two-strand decision in the first
instance — is now aggressively working to sabotage its
implementation.⁽²⁾
Russia is exhibiting considerable sophistication,
however, as it plays its hand in the current iteration of
“the Great Game,” the international test of
will, strategy and power that has been a hardy perennial
of successive Kremlin regimes.

Specifically, Moscow’s semi-official representative
in the AIOC consortium, LUKoil, appears to have adopted a
nominally “market-oriented” strategy to defeat
the non-Russian pipeline to Georgia. Since early oil from
Azerbaijan is only projected to involve about 80,000
barrels per day (b/d) — as a strictly logistical matter
— the full output could initially be accommodated by an
upgraded Russian pipeline across Chechnya to the Black
Sea port of Novorossisk. It will only be as production
begins to peak at some 700,000 b/d in mid-1997 that the
additional capacity inherent in the western strand,
planned to run through Georgia to the Turkish
Mediterranean port of Ceyhan, will be required.

With a view to undercutting the commercial
viability of the non-Russian pipeline, LUKoil is said to
be arranging swap transactions intended, in effect, to
“forward commit” the totality of the
Azerbaijani oil. Such swaps entail Russian purchases
of Baku’s product underwritten by equivalent Russian
sales through the Baltic states. By buying up future
oil, Moscow hopes to dissuade investors from sinking the
estimated $200 million required to lengthen and upgrade
the Georgian line and thus effectively eliminate any
alternative to Russian-controlled routes.

The Bigger Picture — Who Gets It?

If Russia succeeds in this gambit, credit will be
due, in no small measure, to the Kremlin’s adroitness in
distracting key Western policy-makers from its top
external policy priority — namely, maintaining effective
control over the energy resources of the Caucasus and
Central Asia. By vociferously objecting to American
initiatives concerning Bosnia and the eastward expansion
of NATO, Moscow has largely distracted much of official
Washington, including President Clinton, from its Caspian
game-plan and related actions. The latter include
Russia’s insistence on preserving much of its force
structure in the southern tier, notwithstanding its
obligations under the Conventional Forces in Europe (CFE)
agreement. Similarly, Moscow’s new-found enthusiasm for
entente with Teheran (including seemingly ever-expanding
nuclear reactor-supply arrangements) is rooted in a
strategic purpose: finding allies who share Russia’s
interest in contesting the legal status of Azerbaijani
(and other nations’) claims to the Caspian oil reserves.

Regrettably, among those American leaders who remain
inadequately focused on Moscow’s “Great Game”
strategy is the congressional leadership. In particular,
Senate Majority Leader and front-running Republican
presidential candidate Bob Dole is strongly identified
with Armenia, a nation effectively at war with Azerbaijan
and closely tied at the moment to Russia and Iran. The
Center for Security Policy understands, for example, that
Sen. Dole intends to try this week to block an initiative
offered by Rep. Charlie Wilson (D-TX) which would grant
access to U.S. humanitarian relief for as many as a
million Azerbaijani refugees of Armenian territorial
gains.

The Bottom Line

Clearly, American interest in secure access to
Caspian oil dictate that the legislative and executive
branches develop a common, sound position regarding this
vital strategic issue. Toward this end, congressional
hearings are urgently needed to illuminate U.S. national
interests in the region. Such hearings should also
evaluate, among other things, whether such interests are
well-served by the policies being espoused at the moment
respectively by President Clinton and Senator Dole. It
behooves the Republican Congress, in particular, to
reflect on a key question: Will it be viewed historically
as having helped revitalize a Soviet-style empire in the
Caucasus and Central Asia or as having secured a vital
resource base for the democracies of the 21st Century?

(1) For more on the stakes
involved in the AIOC decision, see the Center’s Decision
Brief entitled Caspian Watch: Russian
Power-Plays On ‘Early Oil’ Hallmark of Kremlin
Expansionism Past — And Future? ( href=”index.jsp?section=papers&code=95-D_71″>No. 95-D 71, 2 October 1995).

(2) This is hardly the first
instance in which the Kremlin has taken a heavy-handed
approach on strategic energy matters. Since the
contentious Siberian gas pipeline dispute in the early
1980’s — when Moscow sought to foster undue West
European dependency on Soviet natural gas — the Baltic
states, Ukraine, Kazakhstan, Georgia and Azerbaijan have
all experienced similar extortionary Russian tactics.