IASPS - News Behind the News

Gunships in the Caspian, Herding Oil North?
by Vladimir Socor

A few days from now, the oil-rich Caspian Sea will witness a big display of military power, the first of its kind and on this scale there. More than 60 Russian naval vessels, along with shore-based aviation and thousands of Russian troops, will stage exercises that include firing with live ammunition in non-Russian parts of the sea, and deploying more newly built warships for permanent service there. President Vladimir Putin ordered these exercises to be held and is now receiving reports on the final preparations, all in front of television cameras.

Why hold such demonstrations of force in a closed sea abuzz with other people's oil-drilling? A sea inaccessible to any outside navy, and where Russian forces were already dwarfing the sum total of everything else in sight? And why keep adding to this overkill capacity, when the other coastal countries, Azerbaijan, Kazakstan and Turkmenistan, have neither the wish nor the means for an arms buildup. Nor does Moscow see Iran as a threat; on the contrary, Moscow is busy selling Tehran weapons.

Mr. Putin's strategic goal is to divert via Russia the lion's share of Caspian oil and gas supplies to international markets. Russia's own sector of the Caspian is relatively poor in hydrocarbons. Meanwhile, Azerbaijan and Kazakstan are poised to become major exporters from their richly endowed, Western-developed oilfields. 

Moscow aims to amalgamate most of the Caspian oil supplies with those from Russia's interior into a single pool for export under Russian physical and political control. If it's successful, it would gain leverage over European consumer countries, and a renewed predominance over Caspian producer countries. 

A situation in which a major oil-exporting country -- Russia in this case -- muscles its way in as the transit country between other oil producers and oil-dependent economies is by definition an unsound situation. International energy economics would be distorted, and supply flows affected by Moscow's political agendas and pricing decisions.

Kazakstan, which holds the bulk of proven and probable Caspian oil reserves, is currently the focus of Mr. Putin's strategy. In June, Russia and Kazakstan signed agreements that ensure a Russian near-monopoly on the transit of oil from Kazakstan for years to come. One agreement guarantees that 15 million tons of oil will be pumped into the pipeline from Atyrau (Kazakstan) to Samara (central Russia, on the Volga) each year from 2003 on, for 15 years. Another agreement for 15 years will send 2.5 million tons of Kazakstani oil annually by tankers to Russia's Caspian coast. From there it will be pumped into the pipeline across the North Caucasus to Novorossiisk on Russia's Black Sea coast. That terminal also handles a sizable part of the oil exports from Russia's interior.

Novorossiisk is already slated to receive 28 million tons of Kazakstan's oil each year through the Tengiz-Novorossiisk pipeline. Mainly dedicated to the giant onshore field Tengiz, the pipeline was commissioned last year, and is due to operate at that capacity from 2005 on. Thus, in toto, approximately 45 million tons of Kazakstan 's export oil are already committed to Russian export routes. Such a commitment far exceeds Kazakstan 's current oil exports, which stood at some 28 million tons in 2001. In other words, Russia has preempted the transit of Kazakstani oil for years to come, and the increases in export volumes are to be routed through Russia.

The output and export projections are spectacular, with approximately 55 million tons of Kazakstani oil expected to be on stream annually from 2005 on, and some 120 million tons annually by 2015. To capture the export flow from Kazakstan, Moscow is planning far ahead of the Western consumer countries. First, it envisages tapping Western private investors for a massive increase in the Tengiz-Novorossiisk pipeline's capacity -- to as much as 50 million tons annually by 2015 -- and further expansion of the Novorossiisk terminal. That would turn Novorossiisk into one of the world's major choke points for oil transport, exacerbating an already unsound situation, but ensuring a windfall in transit revenues and more political leverage for Moscow.

Second, Russia plans to expand the capacity of its internal pipeline network, so it can pump Kazakstani oil via Samara to a terminal under construction at the Russian east end of the Baltic Sea. The Russian government expects to spend some of its own scarce funds, and wants Kazakstan to share, in one form or another, the cost of this project. Kazakstan has been talking to the Baltic state of Lithuania about using Lithuania's modern, large-capacity oil export terminals for some amounts of Kazakstani oil. But the idea hasn't made much headway because of Moscow's objections to the transit of Kazakstani oil to other-than-Russian terminals on the Baltic.

Third, Moscow recently established a precedent by excluding Western companies from the development of Caspian offshore oilfields that Russia itself had earlier unilaterally defined as "disputable." An agreement dividing the northern Caspian seabed, signed in May, finally recognized Kazakstan's jurisdiction over the highly promising Kurmangazy field, but it stipulates that it be developed "jointly" by Kazakstan and Russia on a parity basis. (Last week, Moscow assigned its 50% share in Kurmangazy to a Russian state company, in preference to privately owned companies.) The field's projected output is already slated to be pumped into the "northern route" to Novorossiisk.

The "northern route" strategy isn't going to work in Azerbaijan. There, the bulk of the anticipated oil output is already committed to the Baku-Tbilisi-Ceyhan (Turkey) pipeline project, which the United States and the region's Western-oriented countries favor, while Russia opposed it all along. Baku-Ceyhan is years behind schedule, but is now finally approaching the start of construction. Even so, though Moscow is losing that contest, the one it's winning in Kazakstan is far bigger. Meanwhile, the Russian government strenuously opposes westbound trans-Caspian pipelines that could bring Kazakstan's oil -- or, for that matter, Turkmenistan's gas -- to consumer countries without passing through Russia.

Kazakstan's super-giant offshore oilfield Kashagan, where Western companies are now completing exploration, may offer a last chance to significantly reduce consumer and producer dependence on Russian transit, and the first chance to bring major volumes of Kazakstani oil to the western Caspian shore, on the most direct and most economic route to markets. The choice of the pipeline route out of Kashagan can break or, on the contrary, cement a Russian monopoly on the transit of oil from Kazakstan. And such a monopoly would mean controlling the lion's share of Caspian oil flows.

Proposals to export Kazakstani oil via Iran and the Persian Gulf are out of serious consideration, not simply because of the American sanctions on Iran -- as some Europeans continue to grumble -- but, fundamentally, because the Gulf already handles an excessive share of world oil traffic, with risks to the overall security of supplies. Creating another choke point in Novorossiisk -- and, thus, a dangerous bottleneck in the Bosporus Strait when bringing the oil out of the Black Sea -- is almost as bad a solution.

In short, there is no substitute for a westbound, trans-Caspian oil pipeline from Kazakstan, one primarily dedicated to the Kashagan field, the richest discovered anywhere in the world these past 30 years. The blueprint for a westbound pipeline has been under discussion for several years: the line would run from Kazakstan's oil port of Aktau, across the Caspian seabed to Baku in Azerbaijan, and on to Turkey for shipment to points west. Russia and Iran are still acting in tandem to oppose the Aktau-Baku proposal. It is high time to ask Mr. Putin whether his stated willingness to cooperate with the West on energy security issues is real or just stated.

Mr. Socor is a senior fellow of the Jamestown Foundation in Washington. This article originally appeared in the Wall Street Journal Europe on August 2nd, 2002.