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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