The Caspian Energy Game: Views from the United States and United Kingdom
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Document de travail 1 Summer 2003 The Caspian Energy Game: Views from the United States and United Kingdom Helen Bird Ifri is a research center and a forum for debate on the major international political and economic issues. Headed by Thierry de Montbrial since its founding in 1979, Ifri is a non-profit organization. The opinions expressed in this text are the responsability of the author alone. ©Ifri, 2003 - www.ifri.org Institut français des relations internationales 27 rue de la Procession - 75740 Paris Cedex 15 - France Tél. : 33 (0)1 40 61 60 00 - Fax: 33 (0)1 40 61 60 60 THE CASPIAN ENERGY GAME: VIEWS FROM THE UNITED STATES AND UNITED KINGDOM INTRODUCTION S The stability of the former Soviet The importance of the Caspian Sea region to Republics in the region. energy production is increasing and the forces influencing it are changing. The attention on this region focuses on its oil and natural gas INTERNATIONAL ACTORS reserves. A series of interviews with Western experts Russia and US-Russian Dynamics mainly from the United States and United Kingdom, including those in international Russia may not be the expansionist Soviet organizations, academia, policy institutions, juggernaut any more, but it remains a and government and industry officials powerful political influence, producer, and identified key trends and issues that are consumer of oil and gas. Russia has important to their future policies and the significant oil and gas resources, 48.6 billion significance of the Caspian oil and gas to the barrels of proven oil reserves and over 1700 131 world energy market. The overriding issues trillion cubic feet (Tcf) in proven natural gas are: reserves, as stated in the US Department of Energy's EIA Russia Country Analysis S The influence of Russia on regional Brief132. It has an existing network of security, stability, and the transportation transport—although not of the highest caliber of oil and gas products in the Caspian according to industry experts—and a locked- region. in base of customers and suppliers. The major Russian energy companies, Yukos and S The outcome of the test between the LUKoil, are experiencing dramatic United States and Iraq and the major improvements in management and effects it could have on commercial privatization. Equally important are the interests in the region and on who will be recent efforts to improve quality and the major actors. efficiency of production making Russia more of a competitor in the oil and gas industry. S Tensions caused by Iran’s refusal to settle This year witnessed increases in production-- the international demarcation of the enough to become an annoyance to OPEC. In Caspian Sea. the long-term, Russia can probably count on the European Union as a growing customer S Turkey's position as a player, the affect of particularly for gas. its new islamic-dominated government and its energy policies. Russia has inhibited investment from the West for some time. According to experts, S Europe’s need to import gas and to there has been little or no access to active oil diversify its supply. or gas fields or to development projects especially for US industry. Russia, however, S The construction of a pipeline to China. has allowed Western companies to work on undeveloped areas such as Sakhalin, where S The impact of September 11, 2001 and industry has been able to introduce better terrorism on the Caspian region issues. quality equipment from the start and to 132 See November 2002 Country Analysis Brief on 131 Expert and policy officials interviewed for this Russia at the US Department of Energy website, chapter are listed at the end of this chapter. www.eia.doe.gov/emeu/cabs/russia.html 118 provide needed improvements in other areas because of the improvements made in fire of the infrastructure as well. Because fighting capabilities resident in the Persian Sakhalin is close to its consumer market in Gulf region since 1991. Should there be no the Pacific region, the challenges of working war and the current sanctions continued, the with the monopoly-run transportation sector Caspian region would be a likely beneficiary. are diminished. Experts all agree that the Should the sanctions be discontinued and downsides to working in Sakhalin are the Saddam remain in power, the risks to many natural challenges such as the bad investors would be harder to evaluate. The weather, arctic conditions, earthquakes and risks would vary subject to his whim and the dangerous seas. Nonetheless industry tenuousness of his hold on power. There are remains enthusiastic not just about the far too many variations of this latter case to be prospects in the Pacific region but about its of any value here. future long-term presence in all of Russia with its new access to these significant petroleum reserves. Turkey: the Bridge out of the Caspian area Azerbaijan, Kazakhstan and Turkmenistan view Russia as a competitor. These former Geopolitically situated in a strategic position Soviet republics, moreover, see Russia's connecting Europe, the Caspian Sea area and ownership of the transportation infrastructure the Middle East, Turkey is seen by the United in the Caspian region, as a threat to their States as a potentially moderating influence access to the energy market. Due to the way on the volatile Middle East. Thus Turkey’s the Soviet political system and economic continued political stability is important infrastructure were developed, because of its potential role in attaining interdependence among these former Soviet regional stability with all the attendant Republics and Russia is still strong in implications for economic and energy issues. economic ties, language, history, education Turkey’s recent elections, however, have and geography. Russia’s chief advantage is in raised concerns in Europe about the its ability to control and ensure its access to implications for Turkey’s moderating role in external capital and markets. the region. Turkey’s own goals are to provide more The Iraqi Factor energy supply options to Europe, implement internal market reforms and become the The current crisis over Iraq could cause the regional transport center as well as a focus to shift—but only if the crisis produces significant customer for energy resources in political change and foreign industry is able to the region. Experts report that Turkey has gain greater access. Iraq's reserves are indicated that its goals are not motivated by significant enough that if political and commercial interests only, but are based on infrastructure challenges become minimal, long term political goals as well. US experts industry might shift some or all investment report that Turkey sees that improvements in from the Caspian to Iraq. Therefore, the near stability in the Caucasus and Caspian regions future of Iraq becomes a key ingredient in the would be advantageous to its economic goals calculus of change in the near term Western and to peace in the region. Turkey is aware investment in the Caspian region. In terms of that its relationship with the Caspian countries the market, if there is a war, price will almost is interdependent and becoming more so as certainly decrease barring any offsetting these countries develop—critical for regional actions by other OPEC producers. What if stability and economic growth. Saddam Hussein was to set the wells on fire as he did to Kuwait during the Gulf War? Turkey has been aggressive and active in Many believe that the adverse consequences gaining new national and foreign industrial of such actions would be greatly ameliorated partnerships. Since the discovery of Shakh 119 Deniz, Turkey and Azerbaijan have been demonstrate an interest in getting into the working more closely together on new means market. Experts suggest the lack of interest for the exploitation and transport of gas to stems from endemic fundamentalist Turkey and beyond. The Blue Stream pipeline influences on the government. Although these contract promises to deliver gas from Russia influences have decreased in recent years, for years to come. Politically, cooperation they still affect the economic 'levers' of the between a previously unlikely partner, government and energy economy and inhibit Greece, has been very good. Turkey is aware further development. The Iranian National Oil that the European Union needs to find a Company (NIOC) monopoly can be another means to satisfy its expected increase in impediment to foreign investment. demand for gas in future years and sees Turkey as a good transit route for energy As a Caspian country, Iran has posed major resources from the Caspian area, Russia and political obstacles to the resolution of an possibly from the large gas reserves of international agreement on demarcation of the Turkmenistan. Caspian Sea for the exploitation of petroleum reserves. Russia has successfully negotiated US experts are optimistic that Turkey’s with Kazakhstan and Azerbaijan; Iran stands potential for economic growth could make it firmly in opposition, and with an inflexible an important energy customer for the Caspian position. Iran's share of the Caspian border Sea producers should Turkey be persuaded to and the draft agreement would not give Iran move away from Russia as its energy partner. access to much of the "riches" of the Caspian. There are concerns, however, for the near To underscore its position, Iran has taken term, about Turkey’s estimates of its potential military steps to prevent development of energy demands, the impact of the recent fields in disputed areas. Iran refuses to earthquake on its economic boom and its consider another option. There is conflict ability to meet the obligations of its existing potential. Russia has moved military energy contracts, particularly those with equipment into the Caspian area where it is Russia, Azerbaijan and Iran.