Document de travail 1

Summer 2003 The Caspian Energy Game: Views from the and United Kingdom

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Institut français des relations internationales 27 rue de la Procession - 75740 Cedex 15 - 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 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 '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 , 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. Some experts working. Also, Russia, Kazakhstan and are counseling Turkey that it may find a Azerbaijan are conducting joint military solution to its obligation crisis by sharing its exercises. None of which has prevented contract obligations with European neighbors Russia, Kazakhstan and Azerbaijan from their or by “renegotiating” its contracts, but other own agreements on exploitation of Caspian industry experts note that Turkey would face resources. loss of credibility by renegotiating. Then there is the major problem of corruption. The In addition to the issue of oil and gas question now is will the new government be extraction is the issue of transportation of able to deliver on its promises for eliminating product from the region. In spite of some corruption? apparent improvements in the international climate, experts assert that Iran cannot guarantee security of a pipeline. Relations The Iranian Question between the United States and Iran were informally improving in the late 90's. Even Iran is both a major political player and the Cheney energy task force report suggested potential economic factor. Although Iran has that sanctions against Iran would be possibly inviting reserves, it also presents tremendous lifted, according to experts. However, political obstacles according to institutional, following the recent terrorist attacks and government and industry experts. Because of President Bush's State of the Union address the political obstacles, the economic characterizing Iran as a member of “the Axis investment climate is perceived as poor, but of Evil”, relations have deteriorated. as with the Iraqi case it could change According to experts, even previous to the depending on whether the current ruling circle speech, Iran was less than cooperative in retains power. As it stands, Iran does not turning over Al Qaeda members to the United

120 States and relations had been cooling between areas of the Caucasus and in Central Asia has the United States and Iran. been somewhat modified as a result of the war on terrorism. Russian attitude toward the Iran is also a competitor for Caspian gas, as a presence of US and other western countries in customer as well as a producer. Iran seeks other Central Asia countries has changed. For both to gain access to exploitable gas reserves example, Russia also has accepted US while importing product from Turkmenistan military presence in Central Asia that began into northeastern Iran. Because United States during the Afghanistan conflict. sanctions prevent US industry from working in Iran, there is a competition imbalance with The bilateral security cooperation between European industry, according to industry Caspian region states and the United States, experts. In terms of a pipeline through Iran, if such as with Azerbaijan, has definitely the Baku Tbilisi Ceyhan (BTC) pipeline is increased. The Azerbaijan government has built, experts assess there is not enough invited a US military base and permitted demand to make a new pipeline through Iran overflights and refueling. economically viable at this time. The development projects in Sakhalin demonstrate a success story for US industry September 11 and International cooperation with Russia. The volume of Cooperation Against Terrorism propaganda has decreased regarding Russian concern about US involvement in Caspian The events of September 11 and the "War on area pipelines that do not cross Russian Terrorism" have forced nations to consider territory. carefully policies and relationships that were taken for granted in the past—some of which The events of September 11 and the war on have a significant impact on the Caspian terrorism have focused international attention region energy picture. This has caused an on the Caspian in other positive ways, in internal examination of homeland security particular for US relations with these issues in the United States and elsewhere, countries. In a geopolitical sense, the including guarantees of necessary environment is more promising. Western commodities like energy supplies. These investment, however, has not yet changed for sources had been concentrated in countries the Caspian states. September 11 had an from which many of the terrorists came. One impact on world travel and consequently the result was the creation of alliances to fight demand for oil and gas decreased. The terrorism and its sponsors among countries regional economy suffered. Government that normally have very cool relations. experts noted that jet fuel was hit hard. It has been difficult for economists to predict the The “War on Terrorism” ushered in other recovery of the economy, not just in the major changes in US policy toward Russia—a United States and Europe but elsewhere, too. major player in the region--and vice versa. In energy and non-energy issues, Russia has One complication, however, is US or other become less resistant to increased relations western military presence in Georgia and between the United States and the Caspian President Putin’s declaration that the countries, although US industry still has some Chechnya separatists are terrorists. For energy difficulty with access. policy the problem is that almost all of the southern Caspian oil and gas now or soon will Experts point out that Russian is not a go through pipelines that transit either member of OPEC. Prior to September 11, Chechnya or Georgia, a future potential Russia began increasing production and problem for US-Russian relations. supply of oil and gas that caused concern for OPEC because it would thwart the OPEC Other US experts, however, note that Russia’s strategy to control price. After September 11, concern to maintain its influence in the other politicians, particularly those from the United

121 States, supported the Russian action because insecurity and meet energy demand for it gave them an alternate source of oil and gas. Europe. Hence governments of consumer countries now are taking diversity of resources of With European Union expansion to East energy more seriously. Moreover, Russia has Europe, moreover, experts see a possible become a US energy partner and this has an situation in which the inheritance of Russian impact on the Caspian region. Nonetheless, pipelines will tip the scale to the purchase of experts do not believe there is any reason to energy supplies from Russia. Should this believe that it is a permanent trend. Western happen experts also believe it would increase industry still considers work in and with the involvement of the EU in maintaining the Russian businesses risky. security and stability of the Caspian region.

POTENTIAL CLIENTS The China Question

There has been speculation that China would The European Union Client be a customer for the Caspian raw petroleum products. Indeed, a New York Times article There are several factors that could take published on December 2, 2002, states that precedent in European Union (EU) decisions Premier Putin plans to raise the question of an on investment in the Caspian. According to oil pipeline from Russia to China. Although experts one is the growing need to import China is concerned about the stability of its natural gas in the coming years. Experts have Western provinces that border the former suggested that the EU will need to import 35- Soviet Republics trade does take place among 45% of its natural gas in the next 15 years. the peoples of the Central Asian region and The second factor is the need to diversify China. For example, Kazakh oil currently is supply and the question of whether the EU shipped to China by rail. countries will be able to change from bilateral arrangements between single European There is a proposed Trans Kazakhstan countries and suppliers to negotiating as a unit pipeline to western China. According to for energy supplies. A third critical factor is Western experts China would make a the need to focus on transportation of energy favorable decision for a pipeline based supplies. Finally, will the EU be able to attain primarily on political considerations. Hence, the best price? it is conceivable that Caspian oil would be transported by pipeline to China in the future One concern is that should individual should the network of pipelines proposed for countries be unwilling to give up current Kazakhstan come to fruition. contractual arrangements, the suppliers could profit by using divide and conquer tactics. To The above notwithstanding, many experts move forward the EU will have to sort out believe that apart from the possibility that previous country commitments. Experts say it China would financially support a pipeline for is extremely important that the EU achieve a political reasons, there does not seem to be diversity of supply, meaning no reliance on a much likelihood of any major new pipeline to single source. This is critical to security the China from the Caspian region. energy supply it needs. Reliance on one source can lead to volatility in supply and price should something happen in the FLEDGLING DEMOCRACIES relationship with the supplier or other political factors intervene. Experts suggest a After a decade of independence the Caspian combination of Africa; Central Asian and area republics of the former Soviet Union are Russian suppliers could decrease the threat of still vulnerable developing states. They continue to be in very poor economic straits

122 with very high rates of poverty and with experts, moreover, expect an increase in trends continuing downward. Corruption is on European investment and engagement with the increase as is the practice of leveling Azerbaijan and other Caspian littoral states in arbitrary tariffs and licensing requirements on the future. foreign development. According to most experts, the biggest problems that businesses Georgia. Georgia’s strategic location means encounter with the Caspian states are the lack that should its political stability degenerate, of an established rule of law and the sanctity the ensuing problems will spread through of contracts. Contracts are highly dependent Central Asia. According to US government on the current aging leaders. No one is willing experts, the stability of Georgia is important to predict what will happen when these to the success of the east-west corridor. leaders die or are replaced. It remains a question of whether the nations will succeed Kazakhstan. Kazakhstan has begun to for there is still a significant interdependence disappoint investors recently. The between Russia and these former Soviet government is overspending and there is republics, an over optimism on prospects for concern that the fund it had established revenue from energy resources, and a lack of mostly from industry bonuses to provide economic diversity. some economic security is nearly gone. Corruption is on the rise and recently the Although all of the above is true for all government has arbitrarily increased the Caspian area nations, it is particularly true for number of licenses required of investors and Georgia, Azerbaijan and Turkmenistan. In industry. Moreover, the population is those countries, agreements and expecting large revenues from industry to be implementation of agreements are directly shared with them on a regular basis, which is linked to personalities. The threat of terrorism a concern for industry because of the potential is real with physical safety of facilities for a backlash should the Kazakh government difficult to assure. fail to dampen public perception and expectations. Most experts agree that Azerbaijan. With the help of outside Kazakhstan especially among the former investment and the US-Azerbaijan Chamber soviet Caspian states needs to diversify its of Commerce, Azerbaijan has been able to economy and moderate its optimism about focus on building economic, energy, how much can be made from their energy government and security infrastructures. The resources. Azeris have been aggressively pursuing energy and other contracts with European Another challenge for Kazakhstan is existing countries. They also have attracted outside and potential environmental damage. Its participation from Japan, the United States, environment laws are inconsistent. Industry Saudi Arabia, and Russia according to the is maintaining its own standards and is US-Azerbaijan Chamber of Commerce. These conducting environment assessments. Most of relationships have helped Azerbaijan to be the environmental damage is in the North more independent. Caspian region. The damage done during the Soviet period is presenting the biggest Although Azerbaijan has made an effort to cleanup challenge. According to US experts, diversify its economy, it is still vulnerable. It prevention of dumping pollutants is another faces the unresolved conflict with Armenia in big issue. All of these problems affect other Nagorno-Karabakh and remains preoccupied parts of the economy such as fishing as the with a large refugee problem. According to Caspian Sea becomes less habitable. experts Western interest has decreased somewhat as oil discoveries are less than anticipated, but experts still view Azerbaijan as a good investment and point to its reasonable tax structures as evidence. Some

123 Kashagan, Kazakhstan, Development The influence of Russia and Russian Issues. corporations is another factor affecting not just the future of the Kashagan field but of the The oilfield discoveries in the Caspian region future export of oil and gas from most of range in size. Currently industry is interested Kazakhstan. Experts note that Russia has in the medium to large size deposits and those attempted to monopolize oil and gas transport with high quality. The Kashagan field in from the region. Moreover, Russian state and Kazakhstan is one of the important finds. private corporations have been active in Future investment in the region, however, will purchasing ownership shares in the various oil depend on how well western industrial and gas exploitation efforts in Kazakhstan. enterprises are able to interact with the But it remains to be seen how much pressure Kazakhstan government and the amount of these Russian entities can or will exert in the development challenges. future on the amount of oil and gas that is allowed to be exported and the ownership Political working relationships with terms they can impose if they are successful Kazakhstan in the past were fairly good for in monopolizing the means of transportation Western investment. For example from the region. Kazakhstan adopted the equivalent of a European civil and tax code. Nothing, In the end success will come from efficient however, has been done to improve the court management, new technology, and system. There is an increasing lack of cooperation of the regional governments and transparency and new licensing requirements sanctity of contracts according to industry are not viewed favorably. Key to success here experts. will be the amount of political cooperation Market reforms and democratization will vice interference Western industry improve the situation as well. encounters. Western Industry is watching the development of the Tenghiz field now Turkmenistan. Turkmenistan gas is captive underway for insights into how well the to the Russian market, and there are no signs Kazakhstan government will work with of political change to come in the foreseeable Western investors. Should perceived future. Although the Government of development costs (including those from Turkmenistan has made many commitments political sources) exceed the level of to various governments and industry, economic viability, Western industry will be including the United States and Iran, these less inclined to remain involved in commitments are conflicting. Also, there is Kazakhstan. little confidence by industry or government experts that Turkmenistan would honor these Key technical challenges to the developers of commitments under its current regime. the Kashagan field lie ahead in extraction, processing and transportation. The oil lies deep below the Caspian and apparently has REMAINING ISSUES considerable toxic gases associated with it. Moreover it may be unusually difficult to transport the crude once extracted and Estimates of Oil and Gas Reserve processed. Transportation is a major challenge. A pipeline routed south across the Following the collapse of the Soviet Union Caspian Sea has problems because of the experts in oil and gas exploration and water column according to US Government development debated the extent of the oil and experts. An alternative means of gas fields of the Caspian region. Because little transportation is barging, but it is not as data was available estimates varied widely efficient. and, the US Department of Energy for example, based its early estimates on less than solid data. Although little was known about

124 the area, its potential was optimistically of posturing by Caspian Governments aimed compared with that of Saudi Arabia or at improving bargaining positions. Under the Kuwait. The potential alone produced circumstances, some estimates of future costs excitement in government and industry circles or potential reserves should be accepted with and speculation about the size of discoveries considerable caution. was wide spread.

By the end of the decade, Western Transportation: The Pipelines explorations and study of the region had produced better estimates, unraveling some of Transportation is an essential part to the the mysteries about the size of oil and gas development and security of energy resources. fields and where they were located. For It is especially critical for gas. Most experts example, there were fewer variances in the suggest that key factors for transportation are estimates of the size of the oil and gas fields. economic viability and diversity. Reliance on It was established that oil deposits are located one path of transportation reduces energy mainly in the Northern Caspian region, while security and raises the potential vulnerability gas deposits were discovered in the southern of consumer nations to price increases and Caspian regions. Azerbaijan’s important oil political whims of an individual country. and gas discoveries are Shah Deniz gas field, the Megastructure oil and gas field, and In the Caspian region some transportation Nakhchivan and Safari Mashal oil and gas routes already exist. The Soviet network, fields. Kazakhstan’s important finds are Transneft, was the only pipeline option for a Tenghiz and Kashagan. long time. According to most experts, the pipelines built by the former Soviet Union The sum of the 1990s decade of exploration however, lack quality control and raise and discovery indicates that the Caspian monopoly issues. Newer pipeline projects— region does have the potential to supply a the Caspian Pipeline Consortium (CPC) and significant portion of the global market for the Blue Stream that runs deep under the petroleum products, but not of the same Black Sea from Russia to Turkey—will magnitude as the Persian Gulf resources. US handle recently developed Caspian and Department of State officials discuss the Russian oil and gas. The new project, the proven oil reserves for the Caspian Region Baku-Tbilisi-Ceyhan (BTC) pipeline was minus those in Russia as 25 billion barrels designed to avoid the bottleneck of the compared with 262 barrels for Saudi Arabia, Bosphorus and the monopoly pressure of 17 billion barrels for the North Sea and 49 Russian governmental and corporate entities. billion barrels for Russia. Most experts agree It has not been constructed yet, but has the that the size of the Caspian fields is probably critical financial and political commitments equal to that of the North Sea or slightly necessary. larger. Diversity in means of transportation was Although there is not a consensus among emphasized by every group of experts: experts on the economic viability of making government, institutions, academia, and investments in the Caspian area, government industry. The importance of diversity of and industry officials believe that the size of transport cannot be stressed enough. Relying the proven and the potential reserves are only on one path reduces energy security, and worth investment. Among industry and renders the consumer countries vulnerable to government officials there also remains some price increase and political whims. optimism for further discoveries, although only for small and medium finds. Much will In the early to mid-90's, industry pressed for a depend on geological and environment issues, pipeline south through Iran arguing that it how the development proceeds and political would be shorter, transit fewer countries, and stability. There may be a significant amount access the world market at a lower cost.

125 However, experts were concerned, and remain Afghanistan to reach Pakistani Baluchistan, so, that Iran cannot guarantee security of a where after transiting Baluchistan the oil or pipeline. This option also lacked political gas could be transported by sea to world support especially from the United States due markets or transported by rail to the much mainly to the US sanctions against Iran. more heavily populated part of Pakistan to the Thus, the BTC project has moved forward. east. In practical, political or security terms, Also, with the quantity of supply to be however, a cross Afghan pipeline makes little delivered, it would be uneconomical to build economic sense for the near future. Tensions additional pipelines in the near term, experts have increased between India and Pakistan suggest. There is even fear from experts that and the Pakistani market is not looking as some local market competition from Russia promising as it once was. Experts agree that and Iran could cause the BTC to lose its an Afghan pipeline would not be on the table economic viability. In addition, should Iran for discussion by industry. and Russia lower their tariffs to a level that their prices are better than that of BTC, BTC As described above, gas pipelines have been could lose contracts, and bankruptcy would proposed for transport from the Azerbaijan become a real threat. In any event the BTC is fields and other areas in the South Caspian already moving forward. region. The most promising would, like the BTC line, transit Georgia to Turkey. There According to US Government and industry also have been discussions between Greece experts there is a significant gas reserve in and Turkey for transiting Turkey to Greece Turkmenistan. A proposed pipeline to cross and onward to Eastern and Central Europe. A the Caspian Sea has been abandoned for now. pipeline already exists between Iran and Turkmenistan does not currently support it. central Turkey. There is a reluctance, Without support from Turkmenistan, there is however, to proceed with new pipelines no reason and no possibility to move forward. before a potential customer base is Moreover, the market is not ready for it and established. The Turkish recession in the current political regime seems utterly particular weighs heavily against investors’ impossible to work with. There is no enthusiasm for new gas lines. confidence that there would be sanctity of contract with the current regime. Unless there In sum, experts indicate that the combination is a major change in leadership, it will of the existing pipelines through Georgia and probably be many years before industry will Russia along with the pipelines under be allowed to accesses these reserves. construction or recently completed, for Although Turkmenistan has significant gas example, the CPC and the BTC, seem to reserves, there are other nearby options, such come close to overcapacity for the current oil as Azerbaijan and Kazakhstan, that present production in the Caspian Basin. Gas less political obstacles. Meanwhile, Russia pipelines may be another matter but the and Iran are strengthening their economic and economic demand may not be sufficient to political control over Turkmenistan. There justify any new pipeline projects in the was much speculation an optimism during the region—especially in the case of Turkey. 1990's that was killed by the Turkmen political leadership, according to experts. The outlook remains grim not only because of political and economic isolation, but a potential decrease in education for the people.

In the early 1990s there was a plan for an Afghan pipeline. This was during the Taliban rule. The Taliban assured security for transit. The proposed pipeline would have traversed through the low-lying areas in western

126 CONCLUSION

These trends and issues of importance were identified as a result of conferring with experts mostly from the United States, United Kingdom, and international organizations, in academia, institutions, government and industry. There are a few key points that stood out in these conversations in determining the future significance of the Caspian oil and gas.

S No matter the political situation, commercial forces will determine industry investment. As long as the risk, cost of investment and development do not tip the balance of economic viability, industry would remain in the Caspian.

S Much is dependent on the success of democratization, security and stability in these countries.

1. The biggest potential lies in Kazakhstan, especially for oil. The Kashagan discovery is potentially significant by itself, but technically, politically and economically challenging.

2. If other more economically viable options present themselves on the world scene, industry would withdraw from the Caspian.

127 References www.csis.org www.riia.org Special thanks to the following people for www.pfcenergy.com sharing their expertise with me. The views in www.iea.org this paper are my own conclusions and therefore do not reflect those necessarily of Explanation of Study these people: This study is a result of interviews with Dr. Roy Allison, Programme Head, Russia certain experts from the United States, United and Eurasia Programme, The Royal Institute Kingdom and the International Energy of International Affairs (Chatham House) Agency. These experts are from government, Mark D. Boudreaux, Government and Public think tanks, and industry and are closely Affairs Manager, Caspian/Russia/Middle involved in policy-making, negotiations, and East, ExxonMobil Exploration business for the Caspian. During these Leonard L. Coburn, Director, Office of Newly meetings, discussions focused on what are the Independent States, Russia and Middle latest developments in the world of Caspian Eastern Affairs, US Department of Energy oil and gas and the candid unofficial views of Robert E. Ebel, Director, Energy and National these experts. In the United Kingdom, Security Program, Center for Strategic and interviews were held with Dr. Roy Allison, International Studies (CSIS) the Programme Head of the Russia and Toby T. Gati, Senior International Advisor, Eurasia Programme at the Royal Institute of Akin Gump Strauss Hauer & Feld International Affairs (Chatham House); John David Goldwyn, Goldwyn International Mitchell of the Sustainable Development Strategies, LLC Programme at the Royal Institute of James E. Hart, Senior Oil Market Advisor, International Affairs (Chatham House); and US Department of Energy Douglas McKay, Senior Energy Analyst for Amy Myers Jaffe, Consultant, James Baker Shell International Limited. In the United A. III Institute for Public Policy, Rice States, interviews took place in Washington, University D.C. and Houston, Texas. In Jan H. Kalicki, Counselor, International Washington, D.C., discussions were with US Strategy, ChevronTexaco Corporation Ambassador Steve Mann, Senior Advisor for Seymour Khalilov, Executive Director, Caspian Basin Energy Diplomacy at the US United States-Azerbaijan Chamber of Department of State; Leonard Coburn, Commerce Director of the Office of Newly Independent US Ambassador Steven R. Mann, Senior States, Russia and Middle Eastern Affairs at Advisor, Caspian Basin Energy Diplomacy the US Department of Energy; James Hart, Douglas McKay, Senior Energy Analyst, Senior Oil Market Advisor at the US Shell International Limited Department of Energy; Jan Kalicki, John Mitchell, The Royal Institute of Counselor for International Strategy at International Affairs (Chatham House) ChevronTexaco Corporation; Julia Nanay, Julia Nanay, Director, the Petroleum Finance Director for the Petroleum Finance Company; Company Toby Gati, Senior International Advisor for Martha Brill Olcott, Senior Associate, Akin Gump Strauss Hauer & Feld; Seymour Carnegie Endowment for Internatioal Peace Khalilov, Executive Director, United States- Christof Van Agt, Office of Non-Member Azerbaijan Chamber of Commerce; Martha Countries, Countries of the Caspian Sea and Brill Olcott, Senior Associate, Carnegie Central Asia, International Energy Agency Endowment for International Peace; and Robert Ebel, Director for the Energy and For more information: National Security Program, Center for Strategic and International Studies (CSIS). In www.eia.doe.gov Houston, interviews were with Amy Jaffe of www.rice.edu the James Baker A. III Institute for Public

128 Policy at Rice University and Mark D. Boudreaux, Government and Public Affairs Manager, Caspian/Russia/Middle East at ExxonMobil Exploration. At the International Energy Agency, an interview was held with Christof Van Agt from the Office of Countries of the Caspian Sea from Central Asia Non-Member Countries.

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