Pipelines in the Caspian: Catalyst or Cure-all?

Reproduced by permission of the Georgetown Journal of International Affairs (Winter/Spring 2004), a publication of the Edmund A. Walsh School of Foreign Service at Georgetown University.

With questions over future prospects for Iraqi oil—the world’s second largest reserves after Saudi Arabia—at the forefront of attention, along with the widespread instability in the Middle East, the Caspian Basin and its oil and natural gas resources are back on the agenda. The Caspian, along with Russia, West Africa, and Canada where new discoveries in the tar sands have been made, are the great new potential sources of world energy. These regions are increasingly vital to addressing the need for new energy suppliers and bypassing OPEC members and Persian Gulf states. Although these regions pose significant difficulties in terms of production and export possibilities and would not necessarily be competitive with the Persian Gulf under a low oil price regime, current high crude oil prices combined with the fact that Iraq’s production potential will not be restored any time soon make them major commercial contenders.

In the Caspian Basin, the difficulty has never been the one of supply—the region contains 17 to 33 billion barrels of proven oil reserves and around 232 trillion cubic feet of natural gas. It has always been one of overcoming the fact that the Caspian is a landlocked sea and of transporting energy resources to world markets. With the collapse of the Soviet Union, the region’s limited energy pipeline infrastructure extended only across Russia. The new independent states of the Caucasus and Central Asia were locked into a single set of transportation options to the Black Sea and Europe. Oil and gas exports from Azerbaijan, Kazakhstan, and Turkmenistan required building new pipelines. The Caspian region therefore became a focal point in the 1990s, when the first international oil contracts were signed. Because of the sheer size of Caspian energy reserves, and the evident importance of export revenues for the future development of faltering regional economies, Caspian governments transformed pipelines from merely transportation projects into means to achieve political and social objectives. In public debates about Caspian pipelines at both regional and international levels, the commercial interests of companies investing in the actual energy production were sidelined and often seemed strangely secondary or marginal to other considerations.

The Baku-Tbilisi-Ceyhan pipeline project (BTC) provides the best example of this transformation. The goal of this project is to transport crude oil from Azerbaijan’s Caspian fields through Georgian territory to Turkey’s port on the Mediterranean. The Azeri and Georgian governments have seen BTC as their lifeline to Turkey and Europe rather than simply a pipeline. Politicians from both countries have tried to enhance their positions through their involvement in energy and pipeline negotiations. Regional elites have enriched themselves through related business deals. Local populations have viewed BTC as a potential panacea for all the ills that ail the region. And international NGOs have pushed governments and international investors to address a host of issues including government responsibility and accountability for energy revenues, democratization, human rights, and environmental protection as part of the pipeline project. Since the conclusion of the final host government agreements for the pipeline’s construction in 1999, many hopes and aspirations have been invested in BTC along with many millions of dollars from companies like British Petroleum (BP).