Ottawa Citizen, Canada
July 15, 2006 Saturday
Final Edition

A new Silk Road, or just a pipe dream?

Many believe the $4-billion BTC oil pipeline, meandering from
Azerbaijan to Turkey, may be the area’s salvation. Others, though,
suggest it is just another door leading to violence.

by Charles Enman, The Ottawa Citizen

It seemed like such a madcap scheme, the fodder for foolish spy movies
— building a 1,770-kilometre oil pipeline through land threatened
by earthquakes, political instability, geopolitical rivalries, and
even war. So, of the BTC pipeline that runs from Azerbaijan on the
Caspian Sea all the way to a Mediterranean seaport in Turkey, we may
say two things.

First, it did become fodder for a spy flick, the 1999 James Bond film,
The World Is Not Enough.

And second, it stepped magisterially from celluloid fantasy into
reality. After a three-year, $4-billion construction effort, the BTC
pipeline was opened officially only last Thursday.

Only the Druzhba pipeline from Russia to Europe is longer.

The pipeline takes its name from its route, beginning near Baku, the
capital of Azerbaijan, and running east and a bit north to Tbilisi,
the capital of Georgia, and finally meandering down to Ceyhan, on
Turkey’s Mediterranean coast.

It is an understatement to call this route something less than direct.

The shortest route to a seaport would be through Iran, but that
country, considered unreliable in many Western forums, was never
seriously considered.

To go directly west would take the pipeline through Armenia, which is
still technically at war with Azerbaijan on account of its occupation,
since the early 1990s, of Nagorno-Karabakh and several adjoining
regions of Azerbaijan. No go, in other words.

One could have chosen a northern route up to the Druzhba pipeline,
but that would leave transport of Caspian oil to Europe partly up to
the whims of Moscow, a possibility craved by none of the project’s
partners.

One of the driving forces behind the pipeline’s construction was the
late Haydar Aliyev, who led Azerbaijan from 1993 to 2003. He came into
office when Azerbaijan was still suffering the political and economic
tumult that followed the collapse of the Soviet Union late in 1991.

Azerbaijan has huge offshore oil reserves in the Caspian Sea, and Mr.

Aliyev was canny at luring international oil companies in to exploit
them.

In the BTC project, British Petroleum became the lead partner, with
30.1 per cent of the shares, followed by Azerbaijan’s oil group Socar,
which holds 25 per cent. Other partners include American company
Unocal (8.9 per cent), Norway’s Statoil (8.71 per cent), Turkey’s TPAO
(6.53 per cent), and other companies from Italy, France and Japan.

There were many hesitations before proceeding. Four billion dollars
is no small sum, after all. For years, many referred to the project as
"the pipeline to nowhere."

But oil prices in the neighbourhood of $70 per barrel have wonderful
levitating effects on the spirit, and one can be sure there were
smiles all around as Azerbaijani President Ilham Aliyev, Georgian
President Mikhail Saakashvili, Turkish President Ahmet Necdet Sezer and
Prime Minister Recep Erdogan, and officials from 30 other countries,
inaugurated the pipeline in Ceyhan on Thursday.

Mr. Erdogan pronounced the pipeline "the Silk Road of the 21st
century."

The pipeline has the capacity to deliver 50-million tonnes of crude oil
annually. That figure won’t be reached initially, but with Kazhakstan,
just east across the Caspian Sea from Azerbaijan, having recently
agreed to use the pipeline for some of its own exports, early fears
that the pipeline would be underused are losing traction.

A Wall Street Journal article by Thomas Goltz on Thursday even
mentioned rumours that both Russia and Iran are considering the
possibility of transporting some of their oil on the new pipeline.

For the world oil market, 50-million tonnes of oil represents only
one per cent of global consumption. Still, in the Caucasus, that
figure represents big apples.

Over the next two decades, Azerbaijan alone expects to realize
$150 billion of revenue from its oil shipments. For a country of
eight-million people with per-capita GDP of $4,800 U.S., that is
a huge inflow. The government is setting up an oil fund, much like
Alberta’s Heritage Fund, to ensure that much of the revenue is saved
for future use.

Azerbaijan may have a more immediate use for the money. It remains
officially at war with Armenia over the latter country’s 13-year
occupation of 15 per cent of Azerbaijan’s land. Some 800,000 refugees
still live in mostly wretched circumstances.

In a recent interview, Maj.-Gen Ramiz Najafov spoke of the ongoing
buildup of the Azerbaijani armed forces. Next year, he said, the
country’s military budget alone will be larger than the total budget
of the Armenian government, which controls a population less than 40
per cent as large as Azerbaijan’s.

"We have shown patience in our resolve for a resolution, but our
patience is not endless," Maj.-Gen. Najafov said.

The Azerbaijanis are encouraged in their resolve by the fact
that not one country has recognized a sovereign government in
Nagorno-Karabakh. But the world’s supportive platitudes do nothing
to change the facts on the ground.

In war, the advantage goes to the defender, and Armenia has had
13 years to entrench itself, allegedly with Russian military help,
on the land it conquered 13 years ago.

Azerbaijani oil revenues, in other words, may buy a fight, but not
a cakewalk.

Some have worried that the pipeline is vulnerable to sabotage. It runs
close to areas of secession in Russia and Turkey, and passes through
southern Georgia, which has many ethnic-Armenian residents, some of
whom fought for the independence of Nagorno-Karkabakh 13 years ago.

Against this dire possibility is the fact that the pipeline has been
buried along virtually all of its route, making things difficult
for saboteurs.

So, is the pipeline a "new Silk Road," or a doorway to new violence?

That, like so much else, depends on human choice.

What we know today is that Azerbaijan, Georgia and Turkey, with a
great deal of western corporate help, and money from the World Bank
and the European Bank for Reconstruction and Development, have pulled
off one of the great construction projects since the beginning of
this millennium.