COMMENTARY
 
Great Game for Exploiting Caspian Sea Oil
The Nation
March 30, 1997
The post-Cold War Great Game for exploiting the vast unexploited oil and natural gas resources of Central Asia is not confined to pipeline politics attracting increasing interest of strategists in Islamabad and the rulers of Kabul. Since the start of this decade, the most important strategic issue in the geopolitical triangle of the Eastern Mediterranean, the Caspian and Black Seas has also been oil in the Caspian and competition between the littoral states over its exploitation and transportation to markets in Europe.

With the unending factional warfare in Afghanistan continuing to be the main disappointment to the Great Game players on the West Asian side, the United States and other Western counties have in recent years developed extreme interest in the region’s Caspian-Black Sea Axis. An old geopolitical competition has been revived in the Caspian-Black Sea-Mediterranean triangle. But the Game is no longer simply among the regional players; there are now a host of players on the table.

The Caspian Sea is believed to hold somewhere in the range of 16 to 19 billion barrels of oil and 139-324 TCF of natural gas. Only oil reserves in the Persian Gulf are larger than this. Oil fields of Azerbaijan are estimated to have 3 to 4 billion barrels of recoverable oil reserves. The oil field in Kazakhstan is the largest discovery of crude oil in recent years with proven crude reserves of 6 billion barrels, and a possible additional recoverable reserve of 3 billion barrels (9 billion barrels in total). Actual resources in both regions could be even greater than these estimates, and even the most conservative estimates suggest the production of oil from the Caspian to be around 750,000 barrels a day early in the 21st century. As far as natural gas is concerned, Turkmenistan is already the world’s largest natural gas producer, producing 120 billion cubic meters per year. This is sufficient to meet fully one-half of Europe’s energy needs, which should reach approximately 240 billion cubic meters by 2005.

The principal player until recently was Russia, as the former hegemon of the Eurasian space and the Caspian, Black Sea, Mediterranean triangle. The competitors include Turkey, as a successor state to the Ottoman Empire; the United States, in the role formerly played by Great Britain in Eurasia before the First World War—representing a large number of US oil companies: most notably the Chevron Corporation in Kazakhstan, and Occidental, Unocal, and Mobil in Azerbaijan—Iran, as another major power in the region controlling the Caspian Sea and its resources prior to the collapse of the Soviet Union, and another former imperial rival to Russia; and, finally, a range of West European oil companies as part of various Caspian oil consortia, including British Petroleum and France’s Total.

There are four key elements in the Game: physical possession of the oil and gas reserves, with all the revenues that this implies; control of the overland routes for pipelines, which offers the possibility of levying transit fees, controlling of the flow of oil and obtaining a share in production; control of access to the sea, which has a benefit similar to the control of the pipelines; and, finally, financing for both the exploitation and transportation of the commodity, which brings a share in production and thus in revenue.

Kazakhstan and Azerbaijan have physical possession of the oil in offshore Caspian fields; while Kazakhstan and Turkmenistan are in physical possession of the gas reserves. As regards the overland pipeline routes, three already exist in the former Soviet Union territories. They run across the Caucasus mountain range, which forms the land bridge between the Caspian and the Black Sea and is the crossroad for transportation and communications between East and West, North and South. Since 1991, Azerbaijan, Armenia and Georgia have asserted their ndependence in the southern reaches of the mountain range, while in the northern branches, a host of violent ethno political conflicts, including Chechnya, have challenged Russia’s hold. As the Caspian is landlocked, the main route to the world’s major seaways is by tanker through the Black Sea and from there to the Mediterranean. On the Black Sea, the Russian ports of Novorossiisk and Taupse, and the Georgian ports of Batumi and Supsa are the main existing potential termini for the oil pipelines. Turkey dominates access to the Mediterranean and, therefore, all the sea routes from the Black Sea run through physical control of the Bosporus straits. Turkey has extended this control by imposing shipping restrictions in the straits, on environmental grounds, that will limit bulk exports of oil from Novorossiysk. Officials at the Turkish Foreign Ministry are of the view that, for its ethnic and geographical proximity to Caucasus and Central Asian region, Turkey stands the best chance of benefiting from the Caspian Sea oil. It is already part of the international consortia producing Kazakhstan and Azerbaijan oil. The Caucasus and Central Asian states would like that the routes through which their oil and gas were exported should be secure, and these exports should be made free of any Russian control.

The most prospective pipeline project for Turkey at the moment, and on which the World Bank has already completed its feasibility study, is the Baku-Ceyhan pipeline, starting from Azeri capital and ending at the country’s southern coast opening in the Bay of Iskenderun, just opposite to the Eastern Mediterranean island of Cyprus.

Besides the fact that some 200,000 ethnic Turks reside on the island, Cyprus’s strategic importance has increased tremendously for Turkey: for it is located very close to the area where all the pipelines that Turkey hopes to lay down to transport Caspian Sea Oil will find their outlet. Already a pipeline ends up in the southern port of Adana from Iraq. However, since the 1991 Gulf war, it has been lying dormant—costing Turkey some 2 billion dollars a year, which it used to earn as duty on Iraqi oil transportation prior to the war.

The final agreement on the Baku Ceyhan pipeline may be concluded later this year. This means that if the work on the pipeline starts in the beginning of next year, the pipeline will be operational by 2000, since its complementation period is one-and-a-half-year. Costing some 2 billion dollars, its financing will be done by an international consortium including Turkish Oil, US Oil Capital, Chevron and Mobil.

“It will not be just one pipeline. We intend to have other pipelines run parallel to it, bringing Kazakhstan oil and Turkmenistan gas,” said Faruk Logoglu, Acting Under-Secretary for Foreign Affairs at Ankara’s Foreign Ministry. He said Turkey would object to more oil tankers passing through the straits of Bosporus, since “we do not want that one day an oil tanker explodes and endangers the lives of 14 million people living in Istanbul, which represents a civilization.”

With financing from international consortium, the Baku Ceyhan pipeline is to be built from Azerbaijan to the Georgian Black Sea port of Supsa, from where the oil is planned to be exported to Europe through Bosporus. However, as Turkey is opposed to any more oil tankers traffic through Bosporus, problems in shipping this oil are likely to arise. Under international treaties, Turkey cannot block this traffic. However, Ankara can always cause delays. Turkey raises such concerns so that the oil should instead be transported via pipelines passing through Turkish territory.

The Great Game for the control of the Caspian oil is being played primarily by Russia against Turkey, as well as against Western oil companies backed by the United States, Kazakhstan and Azerbaijan. Russia seeks to retain its dominant position in the region, while Russia’s competitors are attempting to curb its monopoly to further their own political and economical interests. Russia has also found a partner in Iran for the purpose. Iran, for its part, has concluded deals with Turkmenistan and Azerbaijan for the export of their gas and oil respectively through its territory.

Turkey is playing for high stakes in the Caspian-Black Sea-Mediterranean triangle’s economic prosperity, through affirmation of its role as the cultural and political model for the Turkish world of Caucasus and Central Asia. Turkey’s strategy towards the region involves a mixture of diplomacy, investment and technical investment. The Turkish private sector alone has already 6 billion dollars worth of investments in Central Asia and Azerbaijan, while the Turkish government has provided credits of 1.5 billion dollars for expanded trade and the work of Turkish contractors in the region.

Turkey has made major credits available to Azerbaijan and Kazakhstan in view of their oil producing potential. A special Turkish Commission has been set up to identify and assist Turkish investors in joint projects and a joint ‘Azerturbank’ created to handle the financing. Turkey now has a 5 per cent share in the Azerbaijan Caspian oil consortium. In Kazakhstan, Turkey’s over all investment is estimated to be in the range of $2 billion mostly in the form of construction projects. In 1995, Ankara had also signed a protocol with Kazakhstan to build a pipeline to transport oil from Georgia to the port of Ceyhan. In Turkmenistan, Turkish investments are around 1.5 billion dollars, and in recent months the negotiations to transport Turkmenistan gas directly through Turkey to international markets have made considerable headway.

The Eastern Mediterranean is already the nexus of oil flows from the Middle East, and the exit point of existing major pipelines from Russia, Iraq, and the Red Sea, as well as a major market for oil and crude products. Turkey already has most of the strategic advantages in the Great Game: proximity to the Caucasus and Central Asia, control of the Bosporus straits, a long Black Sea and Mediterranean coastline, an extensive pipeline network, a major refining centre and a seaport at Ceyhan and, most importantly, the backing of the United States. Despite its political instability and economic crisis, Turkey has two additional factors that qualify it to prevail in the Great Game: a nationalistic population and a dynamic private sector.