Recent travelers to the Caspian Sea nations of Azerbaijan, Kazakhstan, Georgia and Turkmenistan report burning interest in the spiraling tussle between Russia and Iran over control of the Caspian, the largest inland sea in the world and repository of some of its richest natural resources – even to the exclusion of the nuclear aspirations of their southern neighbor and Caspian partner, Iran.

In Tiblisi, Baku, Ashgabat and Astana, high officials, political military, intelligence and financial, told our sources that this started when Russian-Iranian relations went downhill at President Vladimir Putin’s visit Tehran on Oct. 16. A senior official in Baku said Putin and his Iranian hosts fell out less over Tehran’s disputed nuclear activities and much more over “Iran’s frustration at Moscow’s success in seizing control of 90 percent of the Caspian region’s oil and gas exports.”

The official said: “You will find Russia’s heavy hand on every source of revenue from oil and gas and on every tap controlling pipeline transport of oil and gas to Europe and China. Moscow’s expanding influence in Caspian republics has reached the point of jeopardizing Iran’s national interests.”

At the Caspian Summit in Tehran last month, Putin outmaneuvered the Iranian president by thwarting every attempt to carry a resolution regulating common exploration of the resources buried in the Caspian seabed. In the absence of this accord, the Caspian coastal nations are prevented from reaching the resources under their sections of the sea. In consequence, energy prices continue to rocket on the world market.

As seen by local sources in Caspian capitals, Moscow’s takeover was finally in the bag when the post-Soviet ruler of Turkmenistan, the eccentric Saparmurat Niyazov, died suddenly in Dec. 2006. This five million-strong Muslim nation sits on the world’s fourth or fifth largest reserves of natural gas, ranging from 2 to 20 trillion cubic meters. Most of it is situated under the vast Kara-Kum (Black Sands) desert. Current production is roughly 70 billion cubic meters annually. This should be tripled by 2030.

Claims are, that  elements close to Russian intelligence assassinated Niyazov, when he was on the point of breaking free of Russia’s grip and turning to the West. He wanted to import foreign experts to carry out offshore exploration in the Caspian Sea. One source in Ashghabat explained that the dead Turkmen ruler had grasped a fact only now dawning on Tehran that, in pulling the strings of his government’s energy and exporting policy, Moscow was solely motivated by its own regional and global interests.

It is a fact, that Moscow pays us $100 for a cubic meter of gas and flogs it to the Europeans for $280-300. “When the Russians discovered Niyazov secretly casting about for Western patrons, they cooked his goose,” one official said. It was therefore with astonishment that knowledgeable officials in the region learned that Niyazov’s successor, President Kurbanguly Berdymukhamedov (the Kremlin’s man), who took office in February, was being greeted in the West as more accessible and outwardly-oriented than his predecessor.

A Turkmen energy delegation was received in Washington and Houston. In mid-November, US secretary of energy Samuel Bodman and his European counterpart visited Ashgabat with a flock of energy executives.Interest in exploration deals with Turkmenistan, which was closed for years to Western firms, comes from Chevron, Conoco Phillips and Exxon Mobil, as well as European firms, some of whom are already heavily invested in Kazakhstan and Azerbaijan.

Today, the extensive network controlled by Russia virtually monopolizes the region’s gas exports. Most analysts agree that the geopolitical struggle over energy resources in this coveted region is acute. In terms of geographic proximity, Russia has the upper hand over the Americans – especially since Washington decided to give ground to Moscow in its back yard under the influence of the new thaw between President George W. Bush and Putin. Bush seeks new Pact with Putin for Crackdown on Iran).

Full development of the Caspian gas fields following major discoveries is estimated in terms of decades. But even before a major network is developed, the pipeline battle has already begun. One of the few places in the Caspian region where Moscow has given ground to US interests is Azerbaijan. There, the Kremlin acknowledges the prevalence of US influence and the strong ties President Ilham Aliyev has forged with Washington.

Even so, high-placed quarters in Baku warn that this may be no more than a tactical retreat and the Russians may suddenly leap into the fray. They are therefore keeping a watchful eye on how events develop around the new gas pipeline linking the gas networks of Turkey and Greece, which was inaugurated at Ipsala, Turkey on Nov. 17. Present at the ceremony were Aliyev, the prime ministers of Turkey and Greece, Tayyep Recep Erdogan and Costas Karamanlis, Georgia’s energy minister Nika Gilauri and the US secretary of energy Samuel Bodman.

This pipeline makes it possible to export Azerbaijani gas from the Caspian Sea’s Shahdeniz deposit to Greece, a European Union member. Its extension in 2010 will bring natural gas from Azerbaijan up to Greece and on to Italy. This project is vital because it brings gas to Europe by an alternative to the Russian route. Azeri officials are wondering if they will get away with this breach of the Russian monopoly over the export of Caspian gas.

For the moment, Moscow has let it happen, conscious that it can shut the pipeline down at will by activating Georgian opposition elements whose leader, the Georgian tycoon Badri Patarkatsishvili, is in the Kremlin’s pocket.

All the pipelines bypassing the Russian network from the Caspian to Europe must transit Georgia. Moscow is keeping the pro-Western government of Mikheil Saakashvili on the boil and therefore a potentially weak link in the alternative energy chain feeding Europe. Patarkatsishvili can be ordered to stage anti-government riots in Tiblisi and the Georgian section of the pipeline may be mysteriously sabotaged. European energy consumers would then have to resort to Moscow pipelines for their energy.

A foretaste of the Kremlin’s power to destabilize the Tbilisi government was provided when Saakashvili was forced to call snap elections following a brief state of emergency declared to subdue unrest in the capital fomented by the pro-Moscow opposition. The emergency was lifted on Nov. 16, marking the most serious political crisis the former Soviet republic has faced since its bloodless revolution four years ago. Saakashvili accused Moscow’s intelligence services of stirring the unrest.

At the same time, the Kremlin may have decided, for the time being, to keep its hands off the Azerbaijan pipeline to Europe in order to foster the new understanding unfolding between Putin and George W, Bush (mentioned by us on Nov.7 further down this website).

Bush for his part is backing away from vying with Moscow over military and economic footholds in the Caucasian, Caspian and Central Asian regions.

The Kremlin is also facing a challenge on another front, Moscow sources report that Tehran, which accuses Moscow of seizing control over 90 percent of the Caspian region’s oil and gas exports and robbing Iran of its share, is getting its own back. The Iranians have embarked on a project which too aims at breaking the Russian grip on energy exports to Europe, while also gaining a lever of their own on the continent.

They have therefore propositioned the European Union with an offer of large quantities of natural gas to be carried through the projected Nabucco pipeline, which is planned to run from Azerbaijan to Austria via Turkey. Construction by an Austrian-led consortium will start next year and be completed by 2011, with an investment of some five million euros.

Moscow is furious over the Iranian initiative. Because its implementation would reduce Europe’s dependence on Russia for its natural gas needs. Germany, in particular, relies on Russia for a third of its gas requirements and consumption will increase. Russia’s European clients have felt deeply insecure since Moscow cut off energy supplies to Ukraine and Belarus, and have been casting about for alternative energy sources and supply routes.

Of course power struggles are common in the world of politics so also between the right and left hand of Russian President Vladimir Putin: Igor Sechin and Vladislav Surkov. The two men have been Putin's confidants and enforcers for years. With Putin, they form the core of true power in Moscow.

For most of the past five years they have also, been circling each other via their power bases- state oil firm Rosneft for Sechin, state natural gas firm Gazprom for Surkov- and attempting to strengthen their respective firms, whether at each other's expense or not. Yukos has been the largest casualty of this battle.

Rosneft's rivalry with Gazprom has landed the company in a dangerous financial situation. The company has about $9 billion of debt, nearly all of which is due within the next few months. Rosneft accumulated the debt during the battle to steal away pieces of Yukos before Gazprom bought them, and is now in financial trouble. Government taxes on oil extraction are designed to shuffle the windfall from high prices to the government, so even seeing oil prices north of $90 is not granting Rosneft appreciable financial help. The pressure is so heavy that Rosneft is now considering selling most of the former Yukos assets, but the only firms with the financial wherewithal to bid for them are either Gazprom-friendly, or Gazprom itself.

Instead, Sechin wants to tap into Russia's $158 billion oil stabilization fund, the pool into which Russia's excess oil revenues are held for a rainy day, to take care of the debt. To Sechin this makes perfect sense: Rosneft is a state-owned company, and the stabilization fund exists because of surplus oil revenues.

But Deputy Prime Minister and Finance Minister Alexei Kudrin, who oversees the fund, does not agree with Sechin's logic. Kudrin is a technocrat that Putin trusts to balance the books. Though he is personally closer to those within the Gazprom clan, he has not allowed this to sway him on important financial decisions. He truly is a dispassionate accountant who believes in strict controls on government spending. That dispassion is directly responsible for the solid financial recovery of the Russian government after the bankruptcy of the 1990s.

Now Sechin is striking out at Kudrin by picking off his closest advisers. In an obvious move against Kudrin, Sechin had Vice Minister of Finance Sergei Storchak and his two associates arrested Oct. 16 on charges of trying to divert $43.4 million dollars from public funds.

Looking at these developments from another angle, the Moscow-Tehran energy duel can be seen running parallel to the ascending Washington-Tehran showdown over Iran’s banned nuclear activities. Given their common adversary, Washington and Moscow have good reason to cooperate on major global issues, provided that the Bush administration respects Russia’s interests in its immediate neighborhood.

To complicate the issue the central Asian Ceyhan pipeline most recently also carries  prized Kirkuk oil, which is estimated to hold more than 15 billion of Iraq's 115 billion barrels of proven oil reserves. Currently, the Kirkuk region lies outside of the KRG's established boundaries, but a constitutionally mandated referendum is supposed to take place by year's end to decide whether Kirkuk, along with the Diyala and Ninawa provinces, will become part of the Kurdistan region. Though the referendum deadline will be missed, Kirkuk will become the battleground for the Kurds and their surrounding adversaries.
As is known, Georgian President Mikhail Saakashvili and Azerbaijani President Ilham Aliyev opened a new oil terminal Nov. 21 in Georgia's Black Sea port of Kulevi. This Kulevi oil terminal a few days ago started to  supply the West with crude oil and refined products from Azerbaijan, which has received increasing attention as Europe looks to decrease its energy dependence on politically hot countries such as Russia, and as Azerbaijan seeks export options outside its typical use of Russian energy infrastructure.  Azerbaijan and Europe have built this energy relationship, with the Baku-Tbilisi-Ceyhan (BTC) oil pipeline.

Energy wealth has doubled Azerbaijan's gross domestic product, but the sudden wealth is very worrying to certain of Azerbaijan's neighbors because the majority of the money is going toward defense. Azerbaijan's defense budget has jumped from just a few hundred million a year to a billion this past year. The country is arming itself, and neighboring Armenia is closely watching. The two countries have been deadlocked over the Azerbaijani secessionist region of Nagorno-Karabakh -- a conflict that has flared into a war in the past. Azerbaijan's armament now has many wondering if Baku is planning another conflict against a neighbor that has been cut out of the region's recent energy wealth.

What is intriguing about the Baku-Tbilisi-Ceyhan (BTC) oil pipeline, showing indeed what we mean with future Central Asian conflicts, is that it carries oil interests that reaches all the way into Iraq. And from that end at least, some kind of battle might soon be under way; because Iraq's Shiite-dominated Oil Ministry is now accusing the KRG of blocking central government work on the Kirkuk oil field over the past three months. Though there are conflicting reports between the ministry and the government official in charge of the project, the ministry claims that the KRG sent Peshmerga armed forces to prevent the State Company for Oil Projects (an extension of the ministry) from upgrading the Khurmala Dome of the Kirkuk field.

The Kirkuk field encompasses three domes, Khurmala, Baba and Avana, with the Khurmala Dome at the northern tip. The entire field produces between a quarter-million and a half-million barrels per day (bpd), with the Khurmala project expected to add another 100,000 bpd. The two main domes, Baba and Avana, are in Kirkuk, territory that is currently under dispute. However, the Khurmala Dome falls in Arbil, which is technically within the KRG's borders. As a result, the central government has agreed to let the KRG take part in operating the Khurmala Dome portion of the field, though that agreement rests on a shaky foundation.The KRG thus is taking a calculated risk by pushing for more control over the Kirkuk oil field. And while the Kurds can make money selling oil domestically,  the big bucks lie in bringing northern Iraq's oil field up to production levels that can service the foreign market.



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