The Bush Administration and the Caspian Oil Pipeline

Article excerpt

AMONG the major issues where the Bush Administration will have to cope with the Clinton legacy, is the Caspian pipeline project. The State Department invested heavily in a grandiose strategy that has been to press the Caspian countries and international consortia operating in the region to export their oil and gas westward through pipelines that would terminate in Turkey. These costly projects, the Baku-Ceyhan oil pipeline and the Trans-Caspian gas pipeline from Turkmenistan, never made obvious economic sense.

Recent studies by two independent research groups in Washington, the CATO Institute and the Carnegie Endowment for International Peace, have criticized the economic justification for the Baku-Ceyhan pipeline, urging consideration of Russian and Iranian alternatives. That said, the Bush Administration is likely to take a different view of the projects.

Both President Bush and Vice President Cheney have direct links to American oil corporations, and would therefore be expected to promote their interests. Richard Cheney has been an outspoken advocate of ending economic sanctions against Iran. Now the Vice President can encourage American oilmen overseas who were convinced several years ago that transporting the oil via Iran would be more reasonable than building a proposed Azerbaijan-Georgia-Turkey pipeline at a cost of some $4 billion.

Of course there has been a long-standing American embargo against Iran. Cheney began challenging the logic of the Iranian embargo several years ago. As chief executive of Halliburton, a giant oil-services company, he believed that the Clinton strategy was wrong. His comments reflected a broad skepticism within the oil industry about the wisdom of that policy. Many analysts say now that projections of the Caspian oil potential rest on a number of questionable assumptions while the actual amount is much less. After digging of many dry holes by several oil companies in the Caspian, the region that had been pushed by Washington as an alternative to the Persian Gulf has been dismissed as a product of the State Department propaganda.

Instead of the politically bloated appraisal of 200 billion barrels of Caspian oil reserves (compared with Saudi Arabia's 250 billion) valued at 4 trillion dollars, exuberantly cultivated for years by the State Department to allure American investors into the region and justify its own strategy there, we are talking now about 15 billion to 30 billion barrels of proven reserves, most of which are confirmed under the Kazakhstan section of the sea.

Part of the problem is that what the U.S. government says tends to be taken much more seriously outside the United States than within. Oil industry analysts react with scepticism to claims made by U.S. officials concerning the Caspian Sea potential. Unfortunately, local leaders in the region take such claims at face value, concluding that the U.S. government knows something that they do not.

Similarly, when Washington tells them that the Baku-Ceyhan project is commercially viable, the governments conclude, wrongly, that the State Department knows more about oil export pipelines than oil companies.

Clinton promoted a role for Turkey through the pipeline that would carry Caspian oil from Baku in Azerbaijan to Turkey's Mediterranean part of Ceyhan via Georgia, thus bypassing Russia and Iran. He also backed the proposed gas route running across the Caspian seabed from Turkmenistan to Turkey via Azerbaijan.

The State Department has been a staunch advocate of both projects and had the leaders of Turkey, Georgia, Azerbaijan, Kazakhstan and Turkmenistan sign a package of legal framework agreements in Istanbul in 1999 under American auspices. The plan's objective was twofold: to reduce Russia's political influence in the Caucasus by pushing it out of the Caspian Sea, and further isolate Iran there.

There was a degree of logic to this. Both Russia and Iran are competitors in the oil and gas markets of Caspian Sea exporters -- Azerbaijan, Kazakhstan and Turkmenistan. …