WPS AGENCY, RUSSIA
DEFENSE and SECURITY (Russia)
August 13, 2008 Wednesday

TIGHTENING THE KNOT OF OIL AND GAS

by Ksana Gavshina, Vladimir Mishin

RUSSIA COULD USE ECONOMIC LEVERAGE AGAINST GEORGIA; It would be
somewhat inaccurate to talk of Russia using energy as a weapon in this
situation – but neither can we say for certain, at this stage, that
Russia won’t cut off supplies. Gazprom hasn’t made any statements as
yet about its plans for transporting fuel across Georgian territory.

There are four major pipeline systems in Georgia: the
Baku-Tbilisi-Ceyhan oil pipeline, the Baku-Supsa oil pipeline, the
Baku-Tbilisi-Erzurum gas pipeline, and the North-South gas
pipeline. Russia controls only one of the four: the North-South
pipeline, used to transport Russian gas to Armenia. As of this year,
Georgia has minimized its consumption of Russian gas in favor of
cheaper fuel from Azerbaijan. The other three pipelines transport fuel
from Azerbaijan, Kazakhstan, and Turkmenistan. And it would be
somewhat inaccurate to talk of Russia using energy as a weapon in this
situation – but neither can we say for certain, at this stage, that
Russia won’t cut off supplies. Gazprom hasn’t made any statements as
yet about its plans for transporting fuel across Georgian
territory. When we approached Gazprom Export yesterday, we were unable
to obtain confirmation that the full volume of gas supplies is
reaching Armenia.

Experts disagree on the likely effectiveness of an embargo. Mikhail
Aleksandrov, head of the Caucasus Department at the CIS Countries
Institute, says that the sanctions Russia lifted in January 2007
should be re-imposed immediately.

This opinion is not shared by Leonid Grigoriev, president of the
Energy and Finance Institute. The Regnum news agency quotes Grigoriev
as saying: "Given the current situation, I see no possibility of
substantial economic sanctions. Georgia simply doesn’t have the kind
of economy that might be affected by sanctions."

Analysts are also noting Russia’s lack of success with imposing
economic sanctions on Georgia in 2006. Statistics indicate that
Russia’s economic boycott wasn’t as effective as expected. According
to the IMF, the Russian embargo had no substantial impact on the
Georgian economy: Georgia’s GDP growth rate was 8% in 2006. Russian
sanctions reduced that figure to 6-7% in 2007, also raising Georgia’s
balance of payments deficit by $250-300 million. But the negative
consequences of these processes were more than made up for by foreign
aid, according to analysts. A similar assessment of the
Russian-Georgian conflict’s results comes from Kakha Bendukidze,
former Georgian state minister for economic reforms: "Everyone knows
what Georgia lost from the Russian embargo: 1-1.5% of GDP growth, or
$150 million. That isn’t much."

This time, however, Georgia’s financial losses look like being far
more significant. There have already been reports from Tbilisi of
Russian efforts to disable Georgia’s energy arteries. Georgian Prime
Minister Lado Gurgenidze stated that Russian aircraft had struck at
the Baku-Tbilisi-Ceyhan (BTC) oil pipeline on August 9, and the
parallel Baku-Tbilisi-Erzurum pipeline – Georgia’s two energy
backbones. The Georgian government’s official statement says: "Out of
30 bombs dropped, 28 exploded – several exploded in direct proximity
to the oil pipeline, only five meters away." The statement goes on to
say: "This attack goes beyond bombing one of Georgia’s strategic
facilities – since this pipeline delivers oil to Turkey, Europe, and
the United States, these attacks pose a threat to the strategic
interests of those countries." Note that no independent sources have
confirmed this information as yet.

As well as the pipelines, Georgia’s oil ports – Poti, Batumi, Kulevi –
are being targeted by air-strikes. Due to fighting in those districts,
the State Oil Company of Azerbaijan (GNKAR) has suspended crude oil
and petroleum products exports via these terminals and evacuated its
personnel. GNKAR CEO Rovnag Abdullayev said that imports and exports
of oil via Georgian ports were suspended as of August 7, since tankers
couldn’t enter the ports due to bombing. Tanker-loading resumed at
Kulevi yesterday, but GNKAR spokespersons said that the final decision
on continuing or suspending the company’s operations in the region
will be made today: "The tanker-unloading situation at the Georgian
ports of Poti and Batumi remains unclear. This is a force majeure
situation. We expect the situation to be more comprehensible by
Monday, and we shall decide what measures to take for exports of Azeri
petroleum products and crude oil."

Source: Gazeta, August 11, 2008, p. 3