Frontline Magazine
Volume 22 – Issue 13, Jun 04 – 17, 2005
India’s National Magazine

WORLD AFFAIRS

The politics of pipelines

JOHN CHERIAN

The Baku-Tbilisi-Ceyhan pipeline is part of a grand U.S. strategy to
isolate Russia and secure guaranteed supplies of oil and gas from the
Caspian region.

ANADOLU AJANSI/RIZA OZEL/AFP

An August 11, 2003 picture showing workers laying a section of the
BTC pipeline near the Sangachal terminal.

THE ceremony in Azerbaijan on May 25 to inaugurate the
Baku-Tbilisi-Ceyhan (BTC) oil pipeline formally was attended by the
Presidents of Azerbaijan, Kazakhstan, Georgia and Turkey. The
ceremony took place at the Sangachal oil terminal on the Caspian Sea,
near the Azerbaijani capital of Baku.

The first phase of the 1,760-km-long United States-backed pipeline
has now been completed. Once fully operational, it will take Caspian
Sea oil directly from Baku to the Turkish port of Ceyhan on the
Mediterranean coast. The pipeline will run through the Georgian
capital, Tbilisi, bypassing the traditional Russian route.

Russia was initially very critical of the BTC pipeline project,
calling it a blatant attempt to undercut its influence in the states
that were part of the Soviet Union. Moscow’s criticism in recent
years has been muted but Russian officials have pointed out that the
pumping of Caspian oil and gas through existing Russian pipelines
would have been much cheaper for Western consumers, at least in the
foreseeable future. Pumping Caspian oil through Iran would also have
been a more logical and less expensive option.

However, from the time of the Bill Clinton presidency, American
officials have made it clear that they view the BTC pipeline as part
of a grand strategy to isolate Russia further in the region and, in
the process, secure guaranteed supplies of oil and gas from the
Caspian region. The argument being put forward in the West is that
Caspian oil will diminish forever the influence of the Organisation
of Petroleum Exporting Countries (OPEC). However, according to many
oil experts, it was realpolitik and not market economics that created
the BTC pipeline.

The objections of environmental groups were overruled despite
evidence of widespread corrosion and cracking of pipelines. British
Petroleum (BP), which leads the consortium that is constructing the
BTC pipeline, had admitted in November 2003 that 23 per cent of the
joints of the pipeline in the Georgian sector were faulty.
Environmental groups have said that the pipeline poses a danger as
large sections of it pass under water. The pipeline goes through the
politically volatile Kurdish areas of eastern Turkey. The people
there have not been consulted about the project. State authorities in
Turkey and Azerbaijan have dealt with protesters harshly. The Azeri
authorities in fact refused permission to protesters to gather when
the opening ceremony of the pipeline was taking place. In Georgia,
there were protests by minority Armenians as the pipeline traversed
territory on which they formed the majority.

The project is governed by an Inter-Governmental Agreement (IGA)
between Azerbaijan, Georgia and Turkey and by the individual Host
Government Agreement (HGA) between each of the three governments and
the BP-led consortium.

These agreements have largely exempted BP from the laws of the three
countries. The agreements allow BP to claim compensation from the
governments concerned, should any law, whether it be related to human
rights or the environment, make the pipeline less profitable. Many
groups operating in the region have described the agreements as
“neo-colonialist” in nature. The sovereignty of the strip of land
through which the pipeline runs in the three countries has been
virtually abrogated by BP. Landowners are still fighting for adequate
compensation in many areas that the pipeline snakes through.

The $3.2 billion project has the capacity to transport one million
barrels of oil a day and is the first direct oil link between the
landlocked Caspian region and the Mediterranean. The Caspian is said
to have the third largest oil and gas reserves in the world. A gas
pipeline, running parallel to the oil pipeline, will also be
completed. It is claimed that once the two projects are completed,
the three countries will generate revenues exceeding $150 billion
from oil transportation alone. Most of the funds for laying the
Baku-Ceyhan pipeline came from bank loans guaranteed by governments.

U.S. Vice-President Dick Cheney, said in 1998, when he was running
the oil company Halliburton, that he could not “think of a time when
we have had a region emerge suddenly to become as strategically
significant as the Caspian”.

A letter from U.S. President George W. Bush was read out at the
inaugural ceremony, by U.S. Energy Secretary Samuel Bodman. In his
message, Bush said his government had “consistently supported” the
pipeline project. Azerbaijan President Ilham Aliyev said in his
speech that the pipeline would help solve the economic and social
problems of the region besides playing a role in “strengthening peace
and security in the region”. He evidently hopes that the huge
American political and strategic stake in the pipeline will help his
country reclaim the disputed territory of Nagorno-Karabakh, which is
currently under the control of Armenia.

Azerbaijan’s authoritarian government brooks no internal dissent. It
had conducted recently what many international organisations and
observers described as a deeply flawed election. The present
President succeeded his father, Haidar Aliyev. Not surprisingly, the
Bush administration is not keen on seeing democratic reforms in
Azerbaijan or, for that matter, in neighbouring Kazakhstan, where
American companies have big stakes in the hydrocarbon sector. The
Bush administration’s goal is to eliminate Russia from its
traditional zone of influence and keep control of the oil and gas in
the region. Another important aim is to prevent China from getting
more access to Caspian oil.

Under a separate agreement, Kazakhstan will also be connected to the
new pipeline, allowing the country to pump oil directly to Western
markets for the first time. There are also plans to connect the
oilfields in Turkmenistan to the pipeline.

Another big gainer from the pipeline will be Turkey, which has a 6.5
per cent share in the pipeline project. Oil and gas from Iran and
Iraq are already flowing through Turkey to markets in the West. The
traffic of oil tankers through the Bosporus Strait will be
considerably reduced. Turkey hopes to emerge once again as a serious
player in Central Asia and the Caucasus. Many countries in the region
have a pan-Turkic identity.

Petroleum Minister Mani Shankar Aiyar said in the first week of June
that India was considering a proposal from Israel for the supply of
oil from the BTC pipeline. Israel has told the Indian government that
a pipeline between Turkey and Israel will deliver oil to the Israeli
port of Eilat, from where it could be shipped to India. All the
proWestern states in the region seem keen to cash in on the black
gold that promises to start flowing soon from Baku.

However, there are many people who are sceptical about the long-term
prospects of the BTC pipeline. There are reports that the amount of
oil and gas deposits in the Caspian region, especially in the area
under Azerbaijan’s sovereignty, is highly exaggerated. Some experts
feel that they will run out in less than 20 years. Newly discovered
offshore oil and gas fields in Azerbaijan have not been all that
bountiful. According to Russian experts, if the pipeline is to be
commercially viable, it will need huge supplies of Kazakh and Russian
oil from the Caspian Sea.

RUSSIA had already geared up for the challenge from the Baku-Ceyhan
pipeline by building the Caspian Consortium Pipeline, which was
inaugurated in 2001; it connects the Kazakh oilfield of Tengiz to the
Black Sea port of Novorossiysk. A recently constructed gas pipeline,
called the Blue Stream pipeline, has brought energy across the Black
Sea from Russia to Turkey.

For the BTC project to remain economically viable, oil prices will
have to remain high. The new pipeline is also part of American
attempts to bypass Iran in “the new great game”. Despite the Bush
administration’s efforts, many Western oil companies, taking
advantage of the absence of American oil companies, are investing in
Iran’s oil industry. Oil companies operating in the East Caspian
believe that a transport route through Iran will be highly
competitive, representing the lowest capital costs.

“The world runs on oil and gas and those who control it will wield
commercial and geopolitical power. The United States simply cannot
afford to allow Russia and Iran to dominate the energy resources of
the Caspian,” wrote Sheila N. Heslin, who was a senior member of
President Bill Clinton’s National Security Council in charge of
Russian, Eurasian and Ukrainian affairs, in an article published in
1997. As the U.S. unfolds its blueprint for the region, other major
countries will also be charting out their strategies for the new
“great game” in Central Asia and the Caucasus.

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