Russia, Azerbaijan: No Row Over the Pipe

Focus News, Bulgaria
July 27, 2006

By Vasily Zubkov

To the surprise of some experts who had been predicting a chill in
Russian-Azerbaijani relations because of the commissioning of the
Baku-Tbilisi-Ceyhan pipeline, the two presidents sat next to each
other at one of the events of the recent informal CIS summit.

Meanwhile, the first Azeri oil has already reached the Heidar Aliyev
terminal in the Turkish port of Ceyhan, but over a year later than
it was originally planned.

The BTC pipeline is the biggest non-Russian infrastructure project
in the entire post-Soviet space all along the line – in investment
(four billion dollars), the number of participants, and the
potential geopolitical consequences. Russia’s attitude to it is not
unequivocal. It is happy for its CIS neighbor, but weary about the
political anti-Russian fuss around its commissioning.

During the construction of the BTC, there was talk in the West about
the Kremlin’s destructive propaganda, and its continued attempts to
avert the implementation of this ‘project of the century’. But in
reality, it was back in the early 1990s, when the future project was
only discussed in broad outline, that Moscow refused to take part in
it for routine, non-political reasons.

In those remote times Baku profited much less from its oil exports
than from a million-odd Azeris who were selling vegetables and fruit
in Moscow. The Azeri oil industry was stagnating and investment in
it required much optimism. Besides, the BTC project was not likely
to recoup because of low world oil prices. All figures rested on the
dubious estimates of the Caspian deposits. The risks were too high
also because the pipe was to pass through Turkish areas inhabited by
Kurds and Georgian regions with a predominantly Armenian population.

To sum up, Russia’s reasons for refusing to join in the BTC building
were clear and logical. Even BP, the BTC operator, might have not
undertaken it if it had not been for the powerful pressure from
the U.S.

Many of these apprehensions have now become reality. There is
not yet enough oil for the pipe to reach its rated capacity. The
Azeri-Chirag-Guneshli deposits, which were supposed to be the BGC
main supplier, produce no more than 20 million tons of oil per year.

This compares with Azerbaijan’s total output of 22 million tons
in 2005.

Russian-Azerbaijani bilateral economic ties are making steady
headway. Under the intergovernmental bilateral agreements, more than
two million tons of Caspian oil are pumped into the Baku-Novorossiysk
pipeline every year.

Transneft Vice President Sergey Grigoryev said that he was surprised
to learn that the Azeri exports via Novorossiysk had even grown in
the last few months, after the BTC was put into operation, though
they are still considerably less than the 5 million tons annually
reserved by Transneft.

When asked what will happen if all Azeri oil goes into the new
pipeline, Grigoryev said that such a small loss would be negligible
for his company. Last year it processed almost 454 million tons of oil,
and the share of Azeri oil was no more than 0.55%.

Baku is seeking partners exactly because it does not have enough
oil for the full operation of the first BTC extension. Not long ago
Turkish Prime Minister Recep Erdogan invited Russia to take part
in the BTC, but this proposal did not evoke much interest. The BTC
rate of $21 for a ton of oil circulations cannot compete with $15.6
at Baku-Novorossiysk.

Eager to boost its oil exports, Kazakhstan has decided to go for
the BTC and signed the agreement, which provides for the annual
transportation of 7.5 million tons. In perspective, this figure
may grow to 20 million tons, but not necessarily – Kazakhstan cannot
provide any guarantees. It is also increasing its oil exports to China,
and has much interest in oil supplies to Lithuania and Latvia.

But cooperation with Kazakhstan is not problem-free. Kazakh oil is
more sulfurous as compared with Azeri Light, one of the best crudes
in the world, and hence the price for a barrel is different. Baku is
racking the brains over how to avoid a drop in price and not lose a
strategic partner. But will Astana agree to compensate for lowering
the quality of Azeri brand?

U.S. President George W. Bush, who did not take part in the BTC
inauguration, called it the gates to the world oil market, and
suggested their protection by the ‘Caspian Guards’, for which
Washington intends to pay $150 million.

Under this project, the U.S. will send a ground force to the BTC
countries, and will monitor them from the air and space. Needless to
say, the Kremlin cannot be happy about such close wardship, and the
military presence of third countries in the post-Soviet space.

This amounts to the formation of a new pro-Western bloc on Russia’s
borders. Maybe, this is another reason why Moscow is indifferent
to the BTC as a pipeline for liquid hydrocarbons, and is so worried
about everything around it. Russia is afraid that the BTC may turn
into the Trojan horse on its frontiers.

However, Moscow and Baku are linked by mutually beneficial long-term
economic contacts; there is a huge Azeri diaspora in Russia; and
the Aliyevs – father and son alike – have traditionally pursued
a multi-vector foreign policy. These factors taken together will
hopefully make bilateral relations stable and predictable, and serve as
‘an airbag’ in case of collision.

The opinions expressed in this article are those of the author,
and may not necessarily coincide with those of the editorial board.