Pallone Urges Clinton to Resist Turkish Pressure on Baku Ceyhan Line

"No US public funds [should] be used to finance the construction of a pipeline the only purpose of which would appear to be an effort to bestow upon Turkey the power and prestige of controlling a larger share of the world’s energy resources."

–Rep. Frank Pallone (D-NJ)

WASHINGTON–Congressional Armenian Caucus Co-chairman Frank Pallone (D-NJ) has called upon the Clinton Administration to "distance itself" from the Turkish government’s campaign to pressure the US government to finance a Baku-Ceyhan oil pipeline "that a growing consensus in the industry suggests is not necessary–profitable or appropriate," reported the Armenian National Committee of America.

"We share Congressman Pallone’s view that the use of US tax dollars to finance a commercially unviable pipeline from Baku to Ceyhan would represent an irresponsible misuse of public funds," said Aram Hamparian–Executive Director of the ANCA.

"As the recent withdrawal of international oil firms from Azerbaijan has demonstrated–the Baku-Ceyhan pipeline scheme lacks market viability. Its financing by the US government would neither serve the interests of the American taxpayer nor the long-term geopolitical interests of the US," he added.

In his January 29 letter to President Clinton–Rep. Pallone argued that "while development of the region’s petroleum resources should be among American priorities in the region–my concern is that American taxpayers not be put in a position of subsidizing a project that shows increasing signs of not being economically feasible."

He noted that Caspian International Petroleum Company–led by US based Pennzoil–ended drilling in Azerbaijan in January due to poor test well results. North Absheron Operating Company–led by Amoco and BP–has also reported lackluster results. Azerbaijan’s largest foreign oil consortium–Azerbaijan International Operating Company–told Reuters Monday that it plans to "halve production costs and cut operating costs by up to 25 percent this year."

Rep. Pallone pointed out in his letter that despite the pipeline’s serious economic shortcomings–Turkey "has used very public pressure against oil companies that have withdrawn support for the pipeline to Ceyhan – while creating the representation that the force of US diplomacy is behind the Turkish threats." He noted that he was "forced to the conclusion that the construction of the pipeline is essentially a boondoggle that serves no purpose other than to placate the deman’s of Turkey." Rep. Pallone restated his concern over worsening human rights and corruption in Azerbaijan–urging the President to broaden his Caucasus policy by setting a "higher premium on such priorities as promoting democracy and human rights–and fostering economic integration that benefits all nations of the region."

The full text of Rep. Pallone’s letter follows.

Dear Mr. President:

I am writing to express my concern over the apparent determination of the Administration to continue to advocate the construction of an oil pipeline from Baku–Azerbaijan–to Ceyhan–Turkey–to deliver oil from the Caspian Sea basin to the Mediterranean Sea and western markets. While development of the region’s petroleum resources should be among American priorities in the region–my concern is that American taxpayers not be put in a position of subsidizing a project that shows increasing signs of not being economically feasible. I also wish to express my strong view that–while Caspian petroleum development is one priority for U S policy in the region–it should not be treated as the only priority or even the major priority. Rather–I would advocate a broader-based approach to the Caucasus region that places a higher premium on such priorities as promoting democracy and human rights–and fostering economic integration that benefits all the nations of the region.

Particularly in light of the reluctance that major oil companies have shown toward financing the Baku-Ceyhan pipeline–I respectfully submit that it is time to consider alternative approaches. American and other Western oil companies have indicated that the Baku-Ceyhan line would be too long and cost too much–especially as oil prices continue to drop. Furthermore–the Caspian International Petroleum Company (CIPCO)–led by the US firm Pennzoil–has announced that it will terminate its test drilling operations and dissolve the consortium after finding only half the volume of oil and gas deposits necessary to ensure profitable exploitation. The North Absheron Operating Company (NAOC) led by Amoco and British Petroleum has also reported disappointing test results thus far–and may also be close to a decision to shut down its operations. Given the reluctance of major oil companies to build this line in the absence of a government subsidy–through such agencies as the Trade and Development Agency–it is becoming increasingly apparent that the project lacks market viability.

Thus–Mr. President–I am forced to the conclusion that the construction of the pipeline is essentially a boondoggle that serves no purpose other than to placate the deman’s of Turkey. The oil companies have clearly expressed their support for shorter pipeline routes that would cost as little as half as much as Baku-Ceyhan. But the Turkish Government has used very public pressure against oil companies that have withdrawn support for the pipeline to Ceyhan–while creating the representation that the force of US diplomacy is behind the Turkish threats. I would respectfully urge that the US clearly distance itself from the pressure tactics being employed by Turkey to force the oil companies to build a pipeline that a growing consensus in the industry suggests is not necessary–profitable or appropriate. And I would even more strongly urge that no US public funds be used to finance the construction of a pipeline the only purpose of which would appear to be an effort to bestow upon Turkey the power and prestige of controlling a larger share of the world’s energy resources.

There are other problems with the current Baku-Ceyhan route. The problem of official corruption in Azerbaijan has reached endemic proportions–according to numerous–credible reports from diplomats–journalists–international non-governmental organizations and leaders of Azerbaijan’s own opposition movement. It would also appear that the chosen route–which goes to great length–literally–to avoid the territory of Armenia–is a further attempt to placate the political agenda of both Turkey and Azerbaijan. The increased mileage of bypassing Armenia also needlessly increases the price tag of the pipeline.

Mr. President–I appreciate the great leadership your Administration has shown in identifying the Caucasus region as an area of significant US interest. But I would respectfully encourage the Administration to move away from attaching the prestige of American support for a single pipeline route–particularly one that does not appear to be commercially viable or desirable for long-term American geopolitical interests.

Thank you for your attention to this matter.

Sincerely, Frank Pallone–Jr.

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