It is apparently beyond the limits of journalistic restraint to tell the story of Caspian oil as anything but a breathless spy thriller. So every few months for many years now, another writer has discovered that the age-old "Great Game" for control of the Caspian is entering a new and more dangerous phase. The tale always begins with the Russians and British battling over the region in the 19th century. It then warns that the diplomatic intrigue continues today, with new powers and new spies skirmishing over the always "fabulous" oil wealth of the Caspian. The tale is no less true for being so well worn, but now there is something truly new to say. It's too early to declare the game over, with new intimations of oil war and violence in the region all the time, and no one willing to openly concede defeat. But after years of inconclusive wrangling, the Great Game is starting to yield clear national and corporate winners.
The stakes are high. The Caspian Basin, at a conservative estimate, contains about 70 billion barrels of oil, one of the richest stores of petroleum outside the Middle East. At its simplest level, the Great Game is about who owns the oil reserves and who controls the pipelines that carry the oil to global markets. In recent months it's become increasingly clear which of the many dueling pipeline projects will actually be built. At the same time, new surveys have also clarified which nations and companies are truly oil-rich. Among companies, British Petroleum, ENI of Italy and (above all) ChevronTexaco of the United States appear to hold claim to the bulk of regional reserves, as well as crucial pipeline routes. Among countries, the clear winner is Kazakhstan, which is now believed to hold up to 75 percent of all Caspian reserves, much more than once thought. With 10 billion to 17 billion barrels of proven reserves, Kazakhstan is on the verge of becoming seriously oil-rich.
The United States can also celebrate a strategic victory: it is now close to achieving its goal of ending the old Russian monopoly on Caspian export pipelines. The strategy goes back to the last days of the Soviet Empire, when huge new oilfields were found sandwiched between its southern fringes and Iran. Western oil majors moved in to exploit these fields, no longer fearful of work in Russia's backyard. Meanwhile Washington started angling to make sure at least one new pipeline out of the Caspian would bypass Russia by going through Turkey. This route would not only help Caspian republics achieve real oil and economic independence from Russia, it would also bypass Iran and diminish this U.S. rival as a player in the region, too. More recently, the September 11 attacks raised the U.S. fear of dependence on Arab oil, and its interest in the Caspian. So it's good news to Washington that the emerging corporate winner, ChevronTexaco, is based in San Francisco, and that the pipeline battles are going America's way, too.
The centerpiece of U.S. policy has been to promote a pipeline that goes from the Caspian coast at Baku, Azerbaijan, through Georgia to the Turkish Mediterranean Port of Ceyhan. Despite lingering doubts about the safety of the war-torn route, financing and the size of the Azerbaijan oilfields, construction on the $3 billion project is set to begin in June. Oil is slated to flow by early 2005. "Everyone's much more determined to see this through after September 11th," says Mike Bilbo, a spokesman at British Petroleum, which is leading the Baku-Ceyhan project. "I think it made people realize the importance of diversifying energy sources."
Russia appears to have beaten a tactical retreat. Its own oilfields are booming, but there's no question its influence over neighbors is weakening. Under former president Boris Yeltsin, Russia tried hard to derail Western oil development in the Caspian by sponsoring mini-wars. His successor, Vladimir Putin, has chosen to give up that fight and accept Western influence as inevitable. Moscow will still make billions from the pipelines that cross its territory, and Russian companies hold lucrative minority stakes in many Caspian fields, often partnered with Americans.
So this is no longer a clear-cut front in a global cold-war battle. Washington and Moscow are not always on opposing sides, and Russia cannot easily control local officials in the region. Though ChevronTexaco now controls the biggest corporate holdings, or about 50 percent of the total, its stake in a new pipeline is in trouble, due to bureaucratic meddling. Built by the Caspian Pipeline Consortium, or CPC, the pipe extends from the Tengiz field in Kazakhstan to the Russian Black Sea Port of Novorossiysk. Opened in November, the pipeline has been closed repeatedly by local officials, disrupting the flow of ChevronTexaco oil. "[ChevronTexaco] are getting shaken down," says a Western analyst. "It's not political, it's just part of the corruption and inefficiency."
At the same time, Putin appears to be plotting a Russian comeback. He has been traveling around the Caspian, laying the groundwork for a regional supply cartel, a kind of "mini-OPEC" led from Moscow. So far, he has talked to the presidents of Kazakhstan, Uzbekistan, Turkmenistan and Azerbaijan. The Central Asians seem keener than the Azeris, who are apparently wary of helping to revive even a shadow of the Russian Empire. Yet the potential is there: the key to a cartel is production capacity. Under plans now in the works, the Caspian could be producing and exporting 7 million barrels a day by 2012, about equal to the current exports of OPEC giant Saudi Arabia. It's not inconceivable that Putin will one day convince Russia's former satellites that together they can move markets to their own advantage.
The shifting new alliances are engaged in a clash over what has recently been revealed as one of the world's richest oilfields, Kashagan in Kazakhstan. Operated by Italy's ENI, Kashagan is due to begin pumping in 2008. Russia wants Kashagan oil to go through its pipeline network to ports as far afield as the Baltic Sea. The United States would like to see it go by tanker to Baku and then through the Baku-Ceyhan pipeline. ENI and the Kazakh government are also exploring a short link to Iran's pipeline network and on to the Persian Gulf. "Kazakhstan is keeping its options open," says Kairgeldy Kabyldin, vice president of KazTransOil. "We have another six years to decide."
It's a perilous decision. U.S. law threatens heavy sanctions against companies doing business in Iran, including foreign companies. In the late 1990s, European oil companies like ENI and BP cut deals in Iran without reprisal from Washington, but that was then. In August the Bush administration extended the Iran sanctions for five years, and then came Bush's speech featuring Iran in the "Axis of Evil." "There's still a lot of wishful thinking in the industry that the U.S. is not serious about these sanctions," says Steve Mann, the U.S. State Department's senior Caspian diplomat. "The State of the Union address stated very clearly that we are."
Iran is looking like a major loser in the Caspian, angering Tehran in ways that nearly triggered a shooting war. Last July two Iranian jet fighters and a gunboat threatened the Geofizik 3, a BP exploration ship on its way to conduct seismic tests on a field claimed by both Iran and Azerbaijan. Within hours of the incident, recalls one Western diplomat, "all hell almost broke loose." Iranian jets began flying sorties close to Azerbaijan's capital and Tehran radio announced that "precautionary" troop movements were taking place near the Azeri border. A senior Iranian official ominously remarked that "Azerbaijan was once an Iranian province," causing Turkey to reply that it would not allow its political and ethnic ally Azerbaijan to become "the next Kuwait."
The saber rattling quickly died down. Iran simply does not have the military muscle to enforce its claims to the Caspian, which have been unsettled for decades. Tehran insists the Caspian is a lake, which under marine law would give it a claim to 20 percent of the underlying oilfields. Azerbaijan counters that the Caspian is a sea, which would enlarge is own claim while cutting Iran's to under 12 percent. "But ultimately it doesn't matter," says Guive Mirfendereski, author of "A Diplomatic History of the Caspian Sea," "if the Caspian is defined as a lake, a sea or a bathtub--it's all down to who's in the strongest negotiation position."
Luckily for the oil majors, none of the really big fields are in disputed territory. The sea's only serious naval power, Russia, has a vested interest in stability to protect its oil and still considerable gas holdings. Now the United States is stationing forces in the region for the first time, sending troops to Uzbekistan and military advisers to Georgia to fight the war on terror. But it's lost on no one in the Caspian that Georgia, in particular, is more central to oil routes than to the hunt for Osama bin Laden. Spy novelists, resharpen your pencils.