Playing for high stakes in oil-rich Caspian region

Irish Times; May 27, 2006
Kieran Cooke

World View: Badri Balakhadze points to the freshly dug ground a few
metres from his farmhouse high up in the Caucasus mountains in the
Republic of Georgia.

“Pipelines under the soil are carrying millions of dollars worth of
oil and gas from the Caspian in the East to Europe in the West,” he
says. “The fuel threatens our villages and the pipelaying has
destroyed our lands. Yet we don’t get one cent – it’s as if we don’t
exist.”

More than a century ago Rudyard Kipling and others talked about the
“Great Game” in Central Asia – the spying and sparring between Tsarist
Russia and the British Empire for control of the region. Now a new
Great Game is being played out in the area – an increasingly tense
battle for resources, in particular vast energy reserves lying beneath
the Caspian Sea and below the inhospitable desert lands of surrounding
territories.

The oil pipeline close to Mr Balakhadze’s house is part of one of the
world’s biggest and most daring engineering projects, a 1,757km energy
link between the Caspian and the Mediterranean, snaking its way over
valleys and mountains from Baku, the capital of Azerbaijan, via
Georgia’s capital, Tbilisi, to the port of Ceyhan on Turkey’s southern
coast. Just to fill a pipeline of such length will take up to five
months. An adjacent gas pipeline links the Caspian with the Black Sea
coast.

The aim of western oil giants, led by BP and heavily backed by the
financial and political muscle of the US and British governments, is
to transport ever increasing amounts of precious Caspian energy
through the pipelines to hungry western markets, avoiding routes
through Iran to the south and Russia to the north.

However, as the search for the world’s dwindling supply of fossil
fuels intensifies, others are determined that the West will not have
it all its own way in the Caspian region.

China has mounted a diplomatic and economic onslaught in the area in
an effort to gain a large slice of energy resources for its booming
economy.

Iran, which controls the Caspian’s southern shore, watches
developments closely, sending out gunships and fighter jets when it
feels its rights are under threat.

“The scramble to exploit the Caspian’s energy reserves is a
high-stakes game in what is a very volatile region,” says a political
analyst based in Tbilisi.

“To some the Caspian is the new El Dorado but it could easily become a
conflict zone. All the ingredients for trouble are there, with old
ethnic quarrels unresolved and, since the collapse of the Soviet
Union, new arguments over territorial boundaries in the area.”

A resurgent Russia, flush with funds from its own enormous energy
resources, is keen to regain economic and political influence in a
region that it has long regarded as its own backyard.

Georgia, a former Soviet satellite which has turned firmly pro-West in
recent years and is a key transit territory for Caspian energy going
to the West, has been a particular target of pressure from Moscow.
Russia recently banned, on health grounds, all imports of Georgian
wine and mineral water in what Georgia’s president, Mikhail
Saakashvili, described as an act of “economic sabotage”.

Earlier this year, in the middle of the coldest winter on record, a
mysterious explosion severed the pipeline carrying Russian gas to
Georgia: most of the country’s four million people froze for a week.

The newly independent, post-Soviet states which share the Caspian’s
waters argue with each other over territorial rights. Corruption and
human-rights abuses are common features of the region.

Turkmenistan, on the Caspian’s eastern shore, is presided over by
Saparmurat Niyazov or, as he likes to be called, Turkmenbashi – the
father of all Turkmen – an eccentric megalomaniac with a penchant for
littering his country with gold statues of himself and who recently
decreed that the days of the week should be renamed after members of
his family.

Niyazov has effectively sealed Turkmenistan off from contact with the
rest of the world – except, that is, for carrying on lucrative energy
deals with foreign energy companies.

Azerbaijan, where BP and other oil companies have invested billions in
recent years, is growing rich.

But while Ferraris and Maseratis buzz round the streets of Baku, many
people live in caves on the city outskirts. Opposition politicians
were beaten up and imprisoned during elections in Azerbaijan last
year. The government has earmarked increasing amounts of its new oil
wealth to building up its armed forces for a possible clash with
Armenia, its old enemy and next-door neighbour.

This is the second energy rush to hit the Caspian. In the mid-19th
century the world’s first commercially exploited oilfields started
production near Baku.

By 1900, the region was producing more than 50 per cent of the globe’s
oil.

Business tycoons like the Rothschilds and the Swedish Nobel family
made staggering amounts of money out of Caspian oil, building lavish
mansions in an area of Baku still known as “Boom Town”. The rise of
communism brought the boom to an end in the early years of the 20th
century.

Badri Balakhadze and his fellow farmers in the mountains of Georgia
are dismissive about the talk of energy wealth. They are more worried
about the threat of landslides in the area and what would happen if an
earthquake struck – most of Georgia is in a highly active seismic
zone.

“The Georgian government gets money from BP for the pipelines, but not
us,” says Mr Balakhadze.

“We weren’t even given any jobs on the project – they were all given
to outsiders. Our village is dying but no one seems to care. What use
is the oil and gas to us?”