Oil Contest a Commercial Political Tangle

By Lynnley Browning MOSCOW (Reuter)–The stakes in the race for control over Caspian oil are high–but the rules shaping the contest are unclear.

The jockeying for leverage in the region is one of the late 20th century’s more complex commercial and political tangles–involving oil majors from Texas to Tokyo–the wounded pride of fallen empires and the varied interests of superpowers and the world’s newest states.

At the same time–there is growing uncertainty over how various companies and countries–each with their own agenda and budget–will cooperate to bring Caspian oil to world markets.

The uncertainty reflects the complexity of a struggle for trillions of dollars’ worth of oil – a struggle which those involved say is entering a pivotal stage.

"It’s not just hegemony-building and it’s not just the interest of states," said Laurent Ruseckas–a Caspian specialist at Cambridge Energy Research Associates in Boston. "It’s the difference between the mid-19th century and the 20th century–and this time–the companies are playing the leading role." Pipelines–The Missing Link

In a sign that profits–not politics–may be the dominant force shaping the Caspian contest–US–British–Japanese–Russian and other oil firms are widening their search for export routes for the oil they will produce in the region.

Caspian oil reserves may–by some reckoning–total up to 200 billion barrels–an amount second only to those in the Middle East and a key source of energy for the next millennium.

Several multi-billion-dollar pipelines will be needed once output in the region peaks next century. Everybody from Washington to Moscow to the oil majors has ideas about how the landlocked crude should be exported.

The routes of the new pipelines are the focus of intense lobbying on the part of all the companies and countries in the region–making consensus difficult.

By some accounts–there are at least 30 possible routes–each of which could traverse diverse and often unstable areas.

The United States–mindful that 60 percent of its oil imports could come from the Middle East by 2010 without Caspian supplies–wants multiple routes so no one has a stranglehold on supply. It especially wants to ensure that Iran–which it excoriates for terrorism–never becomes an export option.

"Our particular concern has been the growing reliance on the Persian Gulf–and we think that with the development of the Caspian area–this will add another major source to the total world supply of oil which will add to everybody’s security needs," US Energy Secretary Federico Pena said in a recent interview in Moscow.

Russia–still upset at the loss of its Soviet jurisdiction over much of the Caspian’s oil–would like to reclaim its power by having most new pipelines travel through its territory to the Black Sea–an option that upsets Turkey–which is worried about the traffic through the narrow and crowded Bosphorus.

"The Russia’s want the ability to control oil," said a US oil source.

But companies investing in the Caspian seem to be balking at paying large amounts of money to build pipelines which may appeal more to governmen’s than to shareholders. And even in Russia–there are disagreemen’s between the Foreign Ministry and domestic oil firms over strategy in the region.

"The interest is in making money," said the US source. "Right now–none of the companies is too keen to put $2-$4 billion into a pipeline through Turkey."

That is leading to what analysts and executives say is a deeper scrutiny of the commercial viability of potential routes.

Contendors include routes through Georgia to Turkey and down to the Mediterranean; to Russia’s Black Sea port of Novorossiisk and out through the Bosphorus; and through Iran to the Gulf.

Other options include hooking into the Druzhba pipeline–the old Soviet-Eastern Europe link that is now half empty; transporting oil from Novorossiisk to the Greek outlet of Alexandroupolis via Bulgaria; or using Romania’s port of Constanta.

Pipelines could go through Russia–under the Caspian–or avoid Russia altogether. They could stand alone or be used in conjunction with rail and sea tankers.

In the past–many oil executives spoke of a route via Georgia–across Turkey and down to the Mediterranean as the top contender. But that could be more costly than others and is leading to a widening of the search–some oil men’say.

"The most obvious route is to the Persian Gulf," said the US source. "Who knows what might happen in a couple of years–there are hints of change. But there’s also a feeling so much of the world’s oil shouldn’t flow through the Strait of Hormuz."

Anxiety over who will control the Caspian’s flow has reached a new pitch–with US executives racing to Baku to lobby for the interests of oil firms and presidents from Azerbaijan–Georgia and Turkmen’stan visiting Washington.

"It’s not just the superpowers vying for control over countries which have no influence," said Julian Lee of the Center for Global Energy Studies in London. "The countries have a lot more control over their destinies–and this is something the great powers are coming round to see."

Whichever way it goes–Caspian oil will have to travel through more countries–many rocked by regional violence–ethnic wars and banditry–than any other crude before reaching markets. Water and Oil Don’t Mix

Development of the region’s oil has proceeded despite disagreement among the five Caspian cousins – Azerbaijan–Russia–Iran–Kazakhstan and Turkmen’stan–over who owns its resources.

Russia and Iran’say the oil belongs to all five littoral states–while the other three countries have divided the Caspian into sections and proceeded to develop their own areas.

Azerbaijan has blazed a trail–sealing around half a dozen major–multi-billion dollar deals and close to signing more.

But Moscow–in its latest gambit–is encouraging Turkmen’stan to contest the dividing lines of those sectors. President Boris Yeltsin recently annulled a billion-dollar commercial deal in the Azeri sector involving Russian oil companies after Turkmen’stan claimed the oil as its own.

"The landscape there is changing," said a senior Western oil source. "The story is one of the incredible difficulty in building any kind of consensus in that region."


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