Major Research Study Deflates Exaggerated Claims Over Caspian Oil

WASHINGTON–"The Caspian Basin is not going to be the ‘ace in the hole’ for international energy security," according to a major new study analyzing the economic and geopolitical barriers to the development of energy resources in the Caucasus and Central Asia.

The 60-page report–published by the James A. Baker III Institute for Public Policy at Rice University–outlines the "geological and logistical difficulties in amassing large oil export volumes from Central Asia and the Caucasus region." The report identifies a number of misperceptions which have created overly-optimistic expectations of the region’s potential as a major energy supplier.

"The findings of this study stand in stark contrast to the exaggerated claims advanced by Azerbaijan and its allies in the Caspian oil lobby," said ANCA Executive Director Aram Hamparian.

"Policy-makers in the Administration and Congress need to question Azerbaijan’s faulty economic assumptions and to begin making decisions based on the actual scope of Caspian reserves and the significant obstacles to bringing these energy resources to market," he added.

The Houston-based think tank points out that only 15 to 31 billion barrels of proven oil reserves have been identified in Central Asia and the Caucasus–about 2.7 percent of total world proven oil reserves.

Optimistic estimates of the region’s potential–which range from between 60 billion and 140 billion barrels of oil–are still significantly less than the 269 billion barrels of already proven reserves discovered in Saudi Arabia.

If the most optimistic estimates prove true for the Caspian basin–they would be "geologically equivalent" in scale to the North Sea–with the major difference being that "the barriers to exploration and development in Central Asia and the Caucasus are far more numerous and burdensome."

Even under this favorable assessment of the region’s potential–"by the year 2010–Caspian oil production will likely reach little more than 3.5 million barrels a day and cover only 3 percent to 4 percent of anticipated global oil use. By contrast–Venezuelan oil is expected to account for as much as 7 percent to 8 percent while Middle East oil will dominate with a 25 percent to 35 percent share–depending on market conditions."

The report also addresses the misperception that Caspian Sea oil is the sole key to the diversification of Western energy sources–stressing that "The region is by no means the only major oil and gas province in play that can help diversify world oil supplies and reduce reliance on the volatile Persian Gulf. Substantial reserves remain to be exploited in Africa–South America–and offshore Asia. In particular–the payoff in terms of magnitude of incremental supply to global markets would be much higher if greater efforts were applied to unblock the significant resources lying in Mexico and Russian Siberia rather than similar efforts in Central Asia and the Caucasus."

On the question of security concerns–the study notes that "involvement in Central Asia and the Caucasus alone cannot significantly reduce the need for the US to police the Persian Gulf–but such involvement could prove costly in political–military–and economic terms." The report goes on to state that–"Beyond energy–Central Asia and the Caucasus’s location between Russia–China–Iran–and Turkey make it a magnet for foreign powers and a flash point for potential conflict between them. In addition to neighboring countries–the US–Europe–and Japan have all exhibited interest in the region’s economic potential. These factors raise the risk of a geopolitical competition in a region that already suffers from localized conflicts–economic distress–and environmental disasters. Such competition–if unchecked–could cause instability both there and in neighboring countries–notably Russia–and also complicate Washington’s relations with Moscow."

The Baker Institute also identifies difficulties within Central Asia and Azerbaijan created by domestic instability–problems of succession–and frustrated social expectations caused by "the intense concentration of privilege of the existing elites." The report goes on to note that a "growing disparity between the wealthiest and poorest elemen’s of the population–combined with blatant government corruption–will seriously limit the potential of increased oil and gas revenues to promote stability."

Also of significant concern to the authors of the report are the ongoing ethnic conflicts and the absence of clearly defined regional security arrangemen’s. They note–specifically–that "inequitable distribution of oil revenues among competing ethnic groups in the region could also fuel continued or even accelerated ethnic unrest–which could similarly negatively impact the steady flow of oil exports. To the extent that oil production and transport revenues are perceived as contributing to the relative deprivation of any particular ethnic group by another–oil facilities or personnel could be targeted by indigenous ethnic groups seeking to assert their claim through acts of terrorism."

Additional studies addressing unrealistic expectations for Caspian energy resources have been published recently by the Washington based Petroleum Finance Company–and the International Institute of Strategic Studies–based in the United Kingdom.

The full title of the Baker Institute study is: "Unlocking the Assets: Energy and the Future of Central Asia and the Caucasus–A political–Economic–and Cultural Analysis."

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