Turkey & Caspian oil

Doug Henwood dhenwood at panix.com
Tue Aug 17 08:36:44 PDT 1999

[Those of you who read Greg Nowell's piece on Caspian oil intrigues in LBO #90 might be interested in this bit from the friendly folks at Straftor...]



On August 16, U.S. Energy Secretary Bill Richardson arrived in Turkey to discuss, among other things, the future of the proposed Baku-Ceyhan pipeline. On August 11, the Azerbaijan International Operating Company (AIOC), a consortium led by BP-Amoco that is developing gas fields in Azerbaijan, announced it might delay a US$3.1 billion expansion of its Azeri operations if negotiations over the future of pipelines for exporting oil and gas from Azerbaijan are not decided in its favor. On August 1, Azerbaijan's State Oil Company (SOCAR) announced that its representatives had failed to come to a final agreement over the building of the Baku-Ceyhan pipeline because of Turkey's demands for a US$21 per-metric-ton transit fee. The oil companies and Azerbaijani government refuse to pay more than US$18 per ton.

The far more expensive Baku-Ceyhan plan has so far had strong support from the Azerbaijani, U.S., and Turkish governments. The AIOC favors the cheaper and shorter option of expanding the Baku-Supsa pipeline to a Georgian Black Sea port over the plan to build a pipeline to Ceyhan on the Mediterranean Sea in Turkey. For the oil companies, the question is one of the bottom line, while the governments involved, particularly the United States, are concerned with maintaining control over Central Asia's hydrocarbon wealth. Washington wants to route the region's oil and gas through friendly countries - Azerbaijan, Georgia, and Turkey - and away from Russia and Iran. The U.S. has supported the Ceyhan route because it is both the furthest of the proposed routes from Russian power in the region, and it integrates Turkey into the U.S.'s regional strategy.

Until recently, the U.S. has been content to wait, dickering with the AIOC and regional governments over pipeline routes and payment plans. However, the tensions aroused between the U.S. and Russia by the Kosovo conflict, and the intensifying conflict in the North Caucasus, have forced Washington to accelerate its plans in the region. The U.S. is now in a race to solidify its strategic arrangements with the governments in the Caspian region. Its major coup in February 1999 - having Turkmen gas piped across the Caspian instead of through Russia or Iran - is endangered by disagreements over the Azerbaijani pipeline strategy. Even more important, the economic health of Azerbaijan is immediately affected by any delays in completing the pipelines. Baku-Ceyhan may be Washington's first choice, but an expansion of Baku-Supsa is cheaper and, more importantly, faster to build.

Turkey is now seeing its pipeline dreams evaporate. Ankara understood the importance of the Caspian to the U.S., and also understood that the Baku-Ceyhan route would commit the U.S. to the security of eastern Turkey, in the interests of securing Caspian oil. In the meantime, Ankara would make a profit off the oil transport, doubling the benefit to Turkey. But Turkey got greedy on an already economically unfavorable project, and the ensuing negotiations were overwhelmed by the urgent need to lock down alliances.

At the same time, Turkey is losing its pipeline- and U.S. security commitment-dreams, and it is becoming increasingly isolated by the Syrian-Israeli peace negotiations [Barak Tries to Redefine the Peace Process in Washington <http://www.stratfor.com/SERVICES/GIU/071999.ASP>] and by signs that Israel is seeking cooperation with Turkey's arch-enemy, Greece [Israel Plays Both Sides in the Greek-Turkish Dispute <http://www.stratfor.com/SERVICES/GIU/080699.ASP>]. Washington would prefer not to sacrifice either Turkey or the Caspian Basin, but there is less risk of losing Turkey by abandoning Baku-Ceyhan than there is of losing the Caspian Basin by remaining deadlocked with no viable pipeline. Thus, Richardson is urging Turkey to reconsider its avarice and even pay into the project.

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