November 19, 1999

THE CASPIAN ACCORD

Caspian Lands Back a Pipeline Pushed by West

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By STEPHEN KINZER

STANBUL -- Four nations in the Caspian Sea region took a giant step on Thursday toward embracing one of President Clinton's cherished foreign policy projects, a pipeline that would assure Western control over the potentially vast oil and natural gas reserves.

At a ceremony in Istanbul, the presidents of Georgia, Azerbaijan, Kazakhstan and Turkey agreed to support building of a pipeline that would carry Caspian oil to ports in the West on a route that does not pass through Russia or Iran.

Construction of this pipeline, estimated at $2.4 billion, would give the United States and other Western countries access to an important new source of energy. But the main significance was that it would draw the new nations near the Caspian, which were part of the Soviet Union only a decade ago, away from Russia and give the United States greater influence in the region.

The accord was signed Thursday during a summit meeting of the Organization for Security and Cooperation in Europe, where much of the topic was the conflict in Chechnya. But the pipeline could turn out eventually to do more to weaken Russia's hold over the Caucasus and Central Asia.

"This is a major foreign policy victory," Secretary of Energy Bill Richardson said.

"It is a strategic agreement that advances America's national interest."

There was no official reaction by the Russian government. Thursday's accord does not guarantee that the pipeline to the West will be built. Any pipeline would have to be paid for by oil companies and their partners, led by BP Amoco p.l.c., the British-American energy company, and they have warned that they will make their decision based on commercial rather than political considerations. With today's agreement, oil company executives said they would now begin trying to arrange financing for the project.

Just how much oil lies beneath the Caspian and in the surrounding lands is subject to debate. Without doubt, oil experts say, the region has more oil than Alaska, probably at least as much as the North Sea, and possibly half as much as Saudi Arabia. Still, the uncertainty has made it difficult to arrange financing for pipelines in a politically volatile region.

For several years, the United States has been courting the leaders of Caspian nations, telling them that their future lies not with Russia or Iran but with the West. Thursday's accord suggests that they agree.

The 1,080-mile pipeline that the United States supports would begin in Azerbaijan's capital, Baku, cross Georgia and Turkey, and end at Turkey's Mediterranean port of Ceyhan. From there, Caspian oil would be pumped onto tankers and shipped to Western countries.

To ensure that there will be enough oil to fill the pipeline, American negotiators have been pressing Kazakhstan, which lies on the opposite side of the Caspian, to ship its oil and gas to Baku through an undersea link.

The chief United States envoy to the Caspian region, John S. Wolf, predicted that building of the pipeline could begin in 2001 and that oil would begin flowing through it "by the first quarter of 2004," a crucial date in the minds of some oil companies in the region. They believe that increased amounts of oil will be produced in the Caspian by then and that unless the pipeline is completed there will be insufficient means to transport it to market.

For now, much of the oil moves west by ship through the narrow Bosporus and by some existing pipelines.

Wolf said Turkey had guaranteed that building the Turkish segment of the pipeline, which is by far the longest, would cost the companies no more than $1.4 billion. If it costs more, Wolf said, Turkey will assume the liability.

Outside powers have been waging an intense political battle for control of Caspian energy resources and the political influence that those resources represent. All agree that the battle is not simply about oil and gas. Its outcome will shape the future of one of the world's most turbulent regions.

Russia has dominated the Caspian region for more than a century and considers it part of its natural sphere of influence.

Iran, which is also competing for a decisive role in the region, has deep historic and ethnic ties to Azerbaijan, where the Caspian energy boom is centered. It offers what is probably the cheapest alternative for a pipeline. Many oil executives prefer that route, but United States sanctions against Iran make it all but impossible to build, at least for the time being. Some executives noted, however, they may be able to wait for the possibility that the sanctions will be lifted.

Russia offered a third alternative route from Baku, but it passes through Chechnya and is considered unreliable.

Leaders in the region have often expressed their preference for the Baku-Ceyhan route, and have signed several agreements to build it. Thursday's accord, however, seemed more substantial than the others.

"This one is a real step forward," said a Western diplomat posted in Baku.

"The big difference is that now, the Turks really seem to have guaranteed the cost."

Michael Townshend, director of international affairs at BP Amoco, said today's agreement "actually cemented the terms so we could now go and take it to interested parties to see if they want to invest in it." Besides the American and European companies involved in this pipeline, he said, other energy companies working in the region would be approached, including Chevron, Texaco and Mobil, for financial backing.

Outsiders from Genghis Khan to Tamerlane to Hitler have waged war to control the region around the Caspian. The more recent attraction has been the huge energy potential both under the Caspian Sea and around it. Since the collapse of the Soviet Union, the region has appeared to float freely, its leaders anxious for ties to the West but fearing the consequences of breaking from their longtime masters in Moscow.

The accord signed Thursday was accompanied by an "intergovernmental declaration" of intent to build a second major pipeline. It would carry the enormous gas resources of Turkmenistan to gas-starved Turkey through a pipeline that would be laid under the Caspian to Baku. From there it would follow a route roughly parallel to the Baku-Ceyhan pipeline through Georgia, and then into some unspecified point in Turkey. If both this line and the oil line from Baku to Ceyhan are built, the West will have won control over the key resource of Central Asia and the Caucasus.

This control would not be without risk. All three of the energy-rich nations around the Caspian -- Azerbaijan, Kazakhstan and Turkmenistan -- are ruled by former Communist autocrats. All are crippled by spectacular corruption and a rapidly expanding gap between rich and poor. None has passed laws to ensure that some of their expected oil wealth will reach their poor and expectant masses.

"What was signed today is only a step forward if it can be converted into something real, and it's not at all clear that it can be converted fast enough to make difference in these states," Martha Brill Olcott, an American scholar who is a leading expert on the Caucasus and Central Asia, said in a telephone interview from Washington.

"It's a sign of activity, but you have to ask whether it will make these states more stable, or even whether these states will still exist in a few years as they do today." "This is an important first step," Ms. Olcott said.

"But Chechnya is just the beginning of what we're going to face in this region. Russia is not going to sit back quietly as, from its perspective, the United States tries to undermine its vital strategic interests there."