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Strategic rivalry in the caspian sea


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Strategic rivalry in the caspian sea

  1. 1. Strategic Rivalry in the Caspian Sea Dr. GawdatBahgat Director, Center for Middle Eastern Studies Department of political science Indiana University of Pennsylvania Indiana, PA 15705 Tel (724) 357-2290 Fax (724) 357-3810 E-mail: GBAHGAT@IUP.EDU Prepared for delivery at the 2006 Annual Meeting of the American Political Science Association, August 30th – September 3, 2006. Copyright by the American Political Science Association. Strategic Rivalry in the Caspian Sea Abstract Sine the early 1990s, the Caspian Sea region has been seen as a potential major oiland gas producer. Following the 9/11, 2001 terrorist attacks in the United States and the2003 war in Iraq, energy consumers have shown more interest in the Caspian region andCentral Asia to supplement energy supplies from the Middle East and to contain militantIslam. This essay examines the Caspian region’s energy outlook. Particular attention isgiven to the competing pipeline schemes. The study also analyzes the strategic rivalrybetween the United States, Russia, and China. It suggests that despite conflictinginterests, the strategies of these global powers should not be seen in zero-sum terms. There is room for cooperation, particularly in the areas of combating terrorism andrestricting drug trafficking. Political stability and economic prosperity in the CaspianSea/Central Asia would serve the interests of all concerned parties. 2 Strategic Rivalry in the Caspian Sea The Caspian Sea is the largest enclosed body of salt water in the world. It isbelieved to contain massive oil and natural gas deposits. For much of the twentiethcentury, the Basin was the exclusive domain of Iran and the former Soviet Union, withthe latter enjoying more dominance. With the collapse of the Soviet Union in 1991, “thegeopolitical situation in the region changed significantly.”1 Five littoral states –Azerbaijan, Iran, Kazakhstan, Russia, and Turkmenistan – currently share the CaspianSea. Shortly after independence, these three former Soviet republics, have realized thattheir economic and political survival depends on the full utilization of their hydrocarbonresources. The lack of consensus on how to divide the Sea, however, has constituted amajor hurdle.2 The five littoral states have yet to agree on how to divide the Caspian Sea. Iran insists on an equal share of each state (20 percent). Meanwhile, in 2003 Azerbaijan,Kazakhstan, and Russia agreed on dividing the northern part of the Sea between themusing a median line principle.3 This lack of consensus has slowed down the fullutilization of the region’s oil and natural gas resources. The Caspian Sea region’s strategic significance has substantially increased sincethe September eleventh, 2001 terrorist attacks on the United States. The region is one offew areas where international oil companies are invited to invest in both upstream anddownstream oil and gas sectors. In comparison, most Persian Gulf producers and, Russia,since the early 2000s, have been reluctant to allow foreign investment in their upstreamoperations. Following the terrorist attacks, the Caspian region has emerged as a potentialreplacement of the Middle East. Put differently, the United States and other major energyconsumers have sought to reduce their dependence on the Middle East by developing oiland natural gas deposits in the Caspian. Equally important, given geographical approximately to Afghanistan, Caspian,and other Central Asian states have become crucial players in the war on terror. In theearly 2000s, U.S. troops were deployed in Uzbekistan and Kyrgyzstan, while Kazakhstanallowed over-flights to attack terrorist bases in Afghanistan. In other words, the U.S.campaign against international terrorism has
  2. 2. expanded American military presence inRussia’s and China’s “backyard” to unprecedented proportions. Initially, both Moscowand Beijing accepted the U.S. military presence in their backyards as an inevitable part ofAmerica’s response to the 9/11 terrorist attacks. But, as Martha Brill Olcott argues,“neither country was willing to have its national interests overshadowed in the region.” These geo-economic and geo-strategic rivalries have been institutionalized tofurther protect the interests of regional and global powers. In the past two decades,several regional organizations were created, most notably, the Commonwealth ofIndependent States (CIS), Partnership for Peace (PfP), Shanghai CooperationOrganization (SCO), and the Organization for Democracy and Economic Development-GUAM. The CIS consists of all former Soviet republics, except the Baltic states, initiallyemerged as the most important institution to consolidate relations between Russia and thenewly-independent states. On the other side, Western powers, led by the United States,created the Euro-Atlantic Partnership Council and its related PfP program. Theseorganizations provide, “mechanisms through which NATO and the former Soviet bloccountries can pursue practical defense and security cooperation on a range of issues.” GUAM, a regional grouping of Georgia, Ukraine, Azerbaijan, and Moldova, was initiallycreated to resist Russian influence. The leaders of the four state-members have expressedtheir desire for increased cooperation with NATO and the European Union. The SCO comprises China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, andUzbekistan. The organization was formed in 1996 and was originally named theShanghai Five. With the addition of Uzbekistan in 2001, the name changed to SCO. Mongolia won observer status in 2004; Iran, Pakistan, and India became observers thefollowing year. The SCO deals with a variety of issues in Central Asia, particularly trade,counterterrorism, and drug trafficking. In the SCO summit July 2005, the heads of statescalled on the United States and its allies to set a timetable for their military withdrawalfrom the region. The combination of these energy and strategic interests has underscored theimportance of the Caspian Sea/Central Asia region since the early 1990s. The followingsection examines the region’s hydrocarbon potential and the different schemes to connectit to the global energy markets. This will be followed by an analysis of American,Russian, and Chinese strategies in the Caspian Sea. The study argues that despiteconflicting interests, the strategies of these global powers should not be seen in zero-sumterms. China, Russia, and the United States as well as regional powers share commoninterests in combating terrorism and restricting drug trafficking. Political stability andeconomic prosperity in the Caspian Sea/Central Asia would serve the interests of allconcerned parties. There is room for cooperation. The Caspian Sea Hydrocarbon Potential Estimates of the Caspian Sea region’s proven oil reserves vary widely by source.The United States Department of Energy estimates that the region holds between 17 to 44billion barrels. 7 The British Petroleum’s estimates are 47.1 billion barrels. 8 These figuresindicate that the Caspian’s oil resources are much less than those of the Middle East.Stated differently, the Caspian Sea will not replace the Middle East as the main reservoirof world oil. Still, production from the Caspian will add more oil to international marketsand contribute to global energy security. Kazakhstan has the Caspian Sea region’s largest recoverable crude oil reservesand its production accounts for approximately two-thirds of the region’s overall output. Itis important to point out that Kazakhstan claims the largest share of the Caspian Sea,which includes most of the Basin’s biggest known oil fields – Tengiz, Karachaganak,Kurmangazy, and Kashagan. These fields have been developed by international oilcompanies. Since independence in 1992, Kazakhstan has aggressively pursued foreigninvestment. For the last several years, the national oil company Kazmunaigaz (formerlyKazakhoil) has signed several schemes with foreign investors to develop the country’s oiland gas deposits. The Tengiz field was originally discovered in 1974 and two decades later,Chevron signed a joint venture with the government of Kazakhstan to develop it.
  3. 3. Karachaganak is being developed by a consortium led by Britain’s British Gas and Italy’s ENI and is considered one of the world’s largest gas-condensate fields. Kashagan is the largest oil field outside the Middle East and the fifth largest in the world.9 It was first identified by the Soviets in the early 1970s, but was not developed due to the complex geologic formations and environmental sensitivity. In recent years, the field has been developed by international consortium that includes Royal/Dutch Shell, ENI, ExxonMobil, and ConocoPhilips.10 Finally, Kurmangazy is located on the maritime border between Russia and Kazakhstan. In July 2005 the two sides signed a productionsharing agreement to develop the field, which is likely to take several years. 6 Most of the Azeri energy deposits are developed by the State Oil Company of the Azerbaijan Republic (SOCAR). The company was established in September 1992 with the merger of Azerbaijan’s two state oil companies – Azerineft and Azneftkimiya. Almost half of SOCAR’s oil production comes from the offshore field “shallow-water Gunashli.11 The field first came online in 1981, but technological constraints slowed down the full utilization of the reservoir’s resources. The influx of foreign investment since independence has revitalized the country’s energy sector through the development of large-scale new projects and the refurbishment of existing ones. Azerbaijan International Operating Company (AIOC) is the leading international consortium in charge of expanding the country’s oil production and export.12 Most of the future oil production is projected to come from the three-phase development of the offshore Azeri, Chirag, and deep water Gunashli (ACG) megastructure. However, the country’s future oil prosperity is highly uncertain. Several foreign investment projects have been unsuccessful due to disappointing drilling results.13 The other three littoral states – Iran, Russia, and Turkmenistan – have not made substantial progress in exploring and developing oil deposits in their shares of the Caspian Sea. With only a small amount has been proven as recoverable, Iran’s oil deposits in the region are largely unexplored and underdeveloped. In early 2004, Iran’s Oil Survey Company conducted a 3-D seismic survey of the southern Caspian.14 This has been followed by prolonged negotiations between the National Iranian Oil Company (NIOC) and Brazilian company Petrobras to finalize production sharing agreement. In 1995, the Russian oil company LUKoil began exploration of the Russian section of the Basin. Five large oil and condensate fields have been found including Khvalinskoye, Yuri Korchagin, Rakushechnoye, and Sarmatskoye. Some of these fields 7 are located on the borders between Russia and Kazakhstan and are being developed jointly by companies from the two nations. For a long time a dispute between Turkmenistan and Azerbaijan over the offshore Serdar oil and gas field, called Kyapaz by Azerbaijan, prevented the development of the field.15 In the mid-2000s, Malaysia’s Petronas began offshore oil production in the Turkmen sector of the Caspian Sea. The Caspian Sea region’s natural gas deposits are equally important to its oil reserves. The region holds 256.7 trillion cubic feet (7.27 trillion cubic meters), about 4.1 percent of world’s total.16 Despite these massive proven reserves, international companies and governments have focused more on oil, partially due to the greater capital expenditures necessary to start up natural gas production. Azerbaijan’s natural gas outlook has drastically changed in the mid-2000s. Since independence in 1992, Baku has been a net importer of natural gas. Most of the country’s gas production comes from Bakhar and Bakhar-2 gas fields. In 1996 a production-sharing agreement to develop Shah Deniz was singed. The field is one of the largest in the world and is being developed by an international consortium comprising BP, Statoil, SOCAR, LukAgip, NICO, TotalFinaElf, and TPAO. Almost all Kazakhstan’s natural gas is associated gas.17 Like Azerbaijan,
  4. 4. Kazakhstan was a net importer of gas for many years following independence in 1992. This situation has changed since 2005, when the country became a net natural gas exporter. This development reflects the government’s efforts to utilize its gas resources. The future of the country’s natural gas potential is promising. Turkmenistan’s natural gas production has been subject to intense fluctuations since independence in 1992. The country counts on its large natural gas reserves and 8 potential exports to be the focal point of its economic prosperity. However, due to the unpredictability of the country’s political leadership, international companies have been reluctant to invest in Turkmenistan. Furthermore, a large Turkmen natural gas production and export would compete with Russia’s. Accordingly, after difficult and extended negotiations (and few confrontations) Ashgabat agreed to sell almost all its gas exports to Russia. In July 2003, the Russian oil and gas companies LUKoil and Gazprom established a joint venture with Kazakhstan’s state oil company Kazmunaigaz to develop a hydrocarbon structure called Tsentralnaya. A similar scheme, Kurmangazy, is being developed since 2003. Pipeline Diplomacy The three newly-independent states – Azerbaijan, Kazakhstan, and Turkmenistan – are landlocked meaning that they do not have direct access to shipping lines on the high seas. For their oil and natural gas supplies to reach the targeted markets, they have to go through the territory of at least one transit country. Since the collapse of the Soviet Union in 1991, several pipeline schemes have been negotiated and some have been implemented. A number of characteristic of this “pipeline diplomacy” can be identified. First, given the historical context and the fact that for several decades these littoral states were part of the Soviet Union, on the eve of independence all pipelines from the Caspian Sea were connected to the Russian system. Following the independence, Russia has continued to dominate the export routes from the region. Building a pipeline system is an expensive adventure and requires strong financial and political commitments. Furthermore, despite 9 some occasional disagreements and some differences, Moscow still enjoys special cultural, economic, and political ties with these former Soviet republics. Second, this lack of adequate outlets to the region’s hydrocarbon resources has substantially slowed down the full utilization of these deposits and added more complications to the region’s energy outlook. Energy projects in the Middle East, West Africa, and Russia do not have to deal with such a hurdle. Third, a consensus is emerging that eventually multiple pipeline routes will be built. The Russian system is no more adequate to handle the growing oil and natural gas production from the region. Furthermore, these littoral states seek to achieve economic and political independence from Moscow. Thus, diversification of pipeline routes has become a fundamental means to reduce Russian influence and ensure their independence. Fourth, the decisions to construct a pipeline system are not based only on the financial merit of the project or a cost-effective analysis. Geo-political interests play a significant role in choosing these routes. A main drive in building some of these pipelines has been to weaken the Russian influence and deprive Iran of any political or financial benefits. Obviously, Iran represents a viable option to export the Caspian oil and gas, particularly to Asian markets. However, the strained relations between Washington and Tehran have substantially reduced the Iranian option’s attractiveness. Taking these characteristics into consideration, several pipelines routes have been constructed and/or negotiated. These pipelines aim to ship the Caspian Sea’s oil and natural gas to all directions – west to the Black and Mediterranean Seas, east to China, north to Russia, and south through Iran and potentially Afghanistan.
  5. 5. The Baku-Tbilisi-Ceyhan (BTC) pipeline is probably the most controversial and most publicized scheme. This 1,040-mile (1,800 kilometer) pipeline was built by an 10 international consortium led by BP. The construction was completed in May 2005. The pipeline aims to reduce Caspian producers’ dependence on Russian routes and to diversify Europe’s supplies away from the Middle East. Little wonder, in the inauguration ceremony President Bush sent a letter describing the completion of the project as a “monumental achievement that opens a new era in the Caspian Basin’s development.”18 President IlhamAliyev of Azerbaijan acknowledged Washington’s crucial role, “The realization of this project would not have been possible without constant political support from the United States.”19 The BTC gained an important monument in June 2006 when President NursultanNazarbayev of Kazakhstan agreed to export part of his country’s oil via the BTC. Kazakh oil will be shipped by tanker from the northern Caspian port of Aktau to Baku. The agreement envisions the eventual construction of subsea pipelines between Kazakhstan and Azerbaijan.20 A parallel natural gas pipeline known as the South Caucasus Pipeline (SCP) is being built by an international consortium comprising Britain’s BP, Norway’s Statoil, Azerbaijan’s Socar, Russian-Italian venture LukAgip, Iran’s NICO, France’s Total, and Turkey’s TPAO). The line ships natural gas from Shah Deniz field in Azerbaijan to the Turkish port Erzurum on the Mediterranean through Tbilisi. Although most of the gas will be exported to Turkey, some of it will be sent to Europe via a transit pipeline through Greece. The Caspian Pipeline Consortium (CPC) is another important scheme, shipping Kazakh oil to the Russian port Novorossiysk on the Black Sea. The governments of Russia, Kazakhstan, and Oman developed the CPC in conjunction with a consortium of international oil companies. The pipeline was officially opened in November 2001 and has since transported roughly one-third of Kazakhstan’s exports.21 11 For the last several years, Chinese oil consumption has skyrocketed. Domestic oil production failed to keep pace with the rising demand and in 1993 Beijing has become a net oil importer. In order to diversify their oil supplies and reduce their vulnerability to interruptions, Chinese officials have sought to import oil from many sources. Sharing long borders with China and holding massive hydrocarbon resources, Kazakhstan is seen as an attractive source that is likely to contribute to Beijing’s energy security.22 Meanwhile, Astana is interested in diversifying the destinations of its oil exports and reduce its dependence on Russia. Given these mutual interests, the two nations (China and Kazakhstan) have sought to increase oil supplies from the latter to the former. Most of these supplies are being shipped via a three-stage pipeline. The first stage was built in 2003 and the second stage was completed in December 2005. When all three stages are constructed, the pipeline will span nearly 1,930 miles from Atasu in northwestern Kazakhstan to alashankou in China’s northwestern Kinjiang region.23 One of the major oil export pipeline runs from Atyrau in Kazakhstan north to link with Russian distribution system. Before the completion of the CPC, Kazakhstan exported almost all of its oil through this system. Since the early 2000s the AtyrauSamara system lost some of its significance due to the completion of the CPC. Still, in June 2002, Kazakhstan and Russia signed a 15-year oil transit agreement under which Astana will continue exporting part of its oil via the Atyrau-Samara pipeline. Another northern route runs from Baku to the Russian port on the Black Sea Novorossiysk. The pipeline was constructed shortly after independence in the early 1990s. Since 2005 when the BTC became operational, increasing proportion of Azeri oil has been diverted from the Baku-Novorossiysk pipeline to the BTC. Some Azeri officials have hinted that SOCAR might completely stop using the Novorossiysk route.24 12
  6. 6. Finally, routes south (through Iran) and southwest (through Afghanistan) have been considered. A Trans-Afghan natural gas pipeline (known also as TurkmenistanAfghanistan-Pakistan pipeline) has been under consideration since the early 1990s.The project is supposed to carry natural gas from Turkmenistan to Pakistan and possibly India via Afghanistan. However, political instability in Kabul has hindered any progress. U.S. economic sanctions on Iran (in place since 1979) have blocked the construction of any pipelines from the Caspian Sea. In response, Tehran has pursued the so-called oil “swaps.” According to these arrangements, Caspian oil is delivered to population centers in northern Iran and in return an equivalent amount of Iranian oil is exported through Persian Gulf terminals. Accordingly, for the last several years, oil shipments from Kazakhstan and Turkmenistan have been sent to the Iranian port Neka, from where it is sent to refineries in Arak, Tabriz, and Tehran. Since the early 2000s, Iran has sought to expand the capacity of Neka and the refineries. In addition to oil swaps, in December 1997 a pipeline linking the Korpedzhe gas field in western Turkmenistan to the town of Kurt-Kui in northern Iran was opened. This pipeline was the first in Central Asia to bypass Russia. The Political Context Regional and international rivalries over the Caspian Sea’s hydrocarbon resources are further complicated by internal dynamics and conflicting strategic interests by global powers. Given their historical legacy as underdeveloped parts of the former Soviet Union, Azerbaijan, Kazakhstan, and Turkmenistan have long way to go to establish transparent political institutions and functioning market economies. The United States, Russia, and China seek to influence the domestic policies of the Caspian states in the way that would serve their respective strategic interests. 13 Several non-profit research institutions and government-reports have documented the lack of political reform in these three former Soviet republics. The New York-based Freedom House on a scale of one to seven (one represents the most free and seven the least free) and using two criteria (political rights and civil liberties) gives the following scores (Azerbaijan 6 & 5), Kazakhstan (6 & 5), and Turkmenistan (7 & 7). The three states are rated not free.25 In its annual Corruption Perceptions Index, the Berlin-based Transparency International (TI), Kazakhstan, Turkmenistan, and Azerbaijan rank 122, 133, and 140 respectively in a list of 145 states.26 In other words, according to TI, the three states are among the most corrupted in the world. Despite close energy and strategic cooperation between the United States and the Caspian Sea nations and exchange of visits by top officials, the United States Department of State’s annual report, Supporting Human Rights and Democracy, is very critical. The report states, “Azerbaijan’s human rights record remained poor. While there were some improvements in the period leading up to the November 6, 2005 parliamentary elections, the elections failed to meet a number of international standards.”27 Similarly, the report describes human rights record in Kazakhstan as poor. It says, “Although there were improvements in other human rights areas, democratic institutions remained weak and President NursultanNazarbayev, who was reelected to another seven-year term on December 4, 2005, dominated the political space. Since its independence from the Soviet Union, Kazakhstan has not held an election that met international standards.”28 Finally, the Department of State saves the harshest criticism to Turkmenistan, “The government of Turkmenistan continued to commit serious abuses, and its human rights record remained extremely poor. Turkmenistan is an authoritarian state dominated by president14 for-lifeSaparmuratNiyazov who retains monopoly on political and economic power, and controls the parliament and judicial system.”29 This strong criticism of the political regimes in the Caspian Sea region is further heightened by growing polarization between opposition groups and the ruling elites and
  7. 7. allegations of corruption and bribery. Tensions between the government and the opposition in Azerbaijan have increased since an October 2003 election, in which Ilham Aliyev replaced his father, HeydarAliyev, as president in a vote that was largely regarded as fraudulent. For several years allegations against Kazakh President Nazarbaev have been investigated in U.S. federal court.30 Finally, the Turkmen political system has concentrated all power in the hands of President Niyazov, who eliminates any and all prospective rivals and refuses to appoint a successor. Since the early 1990s, the United States, Russia, and China have pursued different strategies and employed a variety of means in dealing with these authoritarian regimes in the Caspian Sea in a way that would ensure their energy and strategic interests. The United States: The United States has several core objectives in the Caspian Sea region. First, the United States’ proven oil reserves have steadily declined since 1990, while its demand for both oil and gas has been on the rise. In 2005, Washington imported approximately 58 percent of its oil needs.31 In other words, the growing gap between the nation’s consumption and production of oil and gas is being increasingly filled by imported fuel. Within this context of deepening dependence on foreign energy supplies, developing the Caspian hydrocarbon resources is particularly important. It is likely that most Caspian supplies will go to Europe and Asia, not the United States. Still, adding more oil and gas to the global market will enhance energy security to all consumers. 15 Second, the war on terror in the aftermath of 9/11, 2001 attacks added more strategic value to the Caspian Sea/Central Asia region both to support military operations against the Taliban in Afghanistan and to fight militant Islam in the region. The key U.S. ally early in the “war on terror” was Uzbekistan. But the Uzbek government’s bloody crackdown on peaceful protesters in May 2005 and its subsequent plans to evict U.S. forces from the Karshi-Khanabad air base late in the year changed the equation. The U.S. has successfully negotiated the use of Manas Air Base in Kyrgyzstan, while media reports have suggested that Washington could consider redeploying its troops to Kazakhstan pending a deal with officials in Astana.32 Third, the United States is interested in strengthening the independence of these former Soviet republics, promoting democracy and market economies, and containing the Russian and Chinese influence in the region.33 Considering these economic and strategic interests, the United States has forged close relations with Azerbaijan and Kazakhstan despite their poor record on human rights and lack of political transparency. In April 2006, President Bush met with the President of Azerbaijan IlhamAliyev in the White House and a month later Vice President Richard Cheney visited Kazakhstan. These meetings reflected, among other things, close military cooperation between the two sides to improve Baku’s and Astana’s military capabilities. This cooperation blossomed after the U.S. Congress altered its prohibition on most U.S. government-to-government aid to Azerbaijan until it ends “blockades and other offensive use of force against Armenia.”34 This prohibition, enacted into law in 1992 as Section 907 of the Freedom Support Act, was modified in 2002 to allow for an annual presidential waiver to allow for a significant expansion of U.S. military and security assistance. 16 Two programs – the Caspian Guard and Cooperative Security Locations – reflect the growing American military role in the security of the Caspian Sea. The former is an initiative involving both Azerbaijan and Kazakhstan focusing on maritime and border security. It incorporates defensive mission areas, including the surveillance of Caspian airspace, borders, and shipping.35 The Cooperative Security Locations are tactical facilites with pre-positioned stock that provide contingency access but, unlike a traditional base, have little or no permanent U.S. military presence. These locations are designed to increase the mobility of U.S. military forces and, most importantly, facilitate counterproliferation
  8. 8. missions along Azerbaijan’s southern border with Iran and northern borders with Georgia and Daghestan.36 The close and growing cooperation between the United States and both Azerbaijan and Kazakhstan suggests two conclusions. First, given the Caspian Sea energy resources and American determination to contain militant Islam in the neighboring countries as well as maintaining a political and military presence in China’s, Iran’s, and Russia’s backyard, Washington will continue to have a strong interest in the region. Second, the co-called colored revolutions (Rose in Georgia in 2003, Orange in Ukraine in 2004-05, and Tulip in Kyrgyzstan in 2005) demonstrated U.S. support for change and opposition to authoritarian regimes.37 True, each case is unique and the United State policy was driven by strategic interests as well as by the desire to promote democracy. Still, these developments have underscored the Caspian states leaders’ suspicion of American intentions in the region. This suspicion explains, at least partly, their desire to maintain close relations with their powerful neighbor Russia. Russia: unlike the United States, whose involvement in the Caspian region is relatively a recent development, Russia has a long history of close relationship with the 17 region. The three littoral states were part of the former Soviet Union for more than seven decades. The close cultural, demographic, and economic ties have survived the political independence in 1992. Russia’s cultural influence still is dominant in the Caspian region. Many members in the political and economic elites speak Russian and send their children to get their education in Russian universities. Many ethnic Russians reside in the Caspian states, particularly in Kazakhstan where they constitute more than 30 percent of the population.38 Finally, more than a decade and a half after independence, the economies of the Caspian states still are heavily dependent on Russia, particularly the energy sectors. Russia’s strategy in the Caspian region aims at achieving two fundamental goals: First, securing Moscow’s dominant role in the exploration, development, and transportation of the Caspian hydrocarbon resources. Russia dominates Turkmenistan’s natural gas exports and plays a significant role in controlling the Kazakh oil exports. Russian government fought very hard to prevent the construction of the BTC. In addition, Russian companies have taken a leading role in developing oil and natural gas deposits in the Caspian in cooperation with the Azeri, Kazakh, and Turkmen governments. It is important to point out that Russia’s natural gas production has been flat for the last several years. In order to fulfill its export commitments, Russia plans to increase its gas imports from the Caspian Sea/Central Asia region, where it buys gas at very cheap price, and sell it to the European markets at much higher price.39 Moscow’s control of most pipelines routes strengthens its bargaining position and leaves the land-locked Caspian states with few options.40 Second, Russia is interested in maintaining its status as the dominant power in the region and resisting what some Russian officials perceive as American penetration of Russia’s backyard or the “near-abroad.” Indeed, many Russian officials consider U.S. 18 presence as a major source of instability.41 This perception underscores the fact that the top echelons of the Russian armed forces and security services are traditionally antiAmerican.42 They do not accept a weakening of Russian influence in the region. Furthermore, they consider NATO’s expansion and American growing military presence in the Caspian Sea/Central Asia as a direct threat to Russia’s national security. In October 2003, the Russian Defense Minister Sergei Ivanov identified the introduction of foreign troops onto the territories of states, which are adjacent to and friendly toward the Russian Federation as a primary threat to Russian security.43 This Russian suspicion of the growing U.S. military presence in the Caspian Sea region has prompted a major change in Moscow’s stand. Originally, Russia, along with Iran, called for the demilitarization of the Sea in order to spare the region from potential
  9. 9. military conflicts. Seeking to assert its own influence to counter the U.S. presence, the Russian government has pursued a twofold strategy since the early 2000s. First, in a series of high profile and well-publicized moves, Russia has expanded its naval presence in the Sea and called for a system of collective security that would include all the five littoral states that share the Basin. The large gap between Russian naval capabilities and those of the other four Caspian states, none of them showed any interest in participating in such a collective-security system. In other words, the leaders of Azerbaijan, Iran, Kazakhstan, and Turkmenistan did not want to become cheer-leaders in a system dominated by Russia. Second, Russia repeatedly called for a ban on any outside military presence in the Caspian Sea. Again, suspicious of Russia’s intentions, Astana and Baku have received U.S. military assistance. Iran also has expanded its naval presence in the Sea. 19 Russia’s efforts to assert its influence and to counter U.S. presence in the Caspian Sea region are shared by another giant power in the region – China. China: Chinese strategic thinking on the Caspian Sea/Central Asia region is very similar to the Russian. Beijing and Moscow share three broad strategic goals: expand their roles in developing the region’s hydrocarbon resources, contain extremist and separatist movements, and resist U.S. growing economic and strategic presence. Beijing’s ability to punish or reward regional players is less than that of Moscow or Washington. Nevertheless, China’s rising economic and military power suggests that its policies in the Caspian region, and elsewhere, are likely to become more assertive in the near future. Since the early 2000s China has consolidated its energy ties with the Caspian states. In April 2006, Turkmen President SaparmuratNiyazov paid a six-day visit to Beijing, where he signed off on a plan to export 30 billion cubic meters of gas annually by a new pipeline to China beginning in 2009.44 More important, China has substantially increased its involvement in the Kazakh oil sector. In 2005, China National Petroleum Company bought Kazakh oil producer Petrokazakhstan for four billion dollars. Furthermore, part of Kazakh oil is exported to China via the pipeline that connects the two nations. China’s interests in fighting the separatists in Xinjiang45 converge with those of other nations in the region battling the Islamic Movement of Uzbekistan (IMU), as well as those of Russia, fighting Chechen rebels since the early 1990s.46 The prospects of having a civil war with a separatist movement driven by religious zeal, similar to Chechnya are a major concern to the Chinese leadership. Finally, the heavy U.S. military ties in several countries surrounding China (Japan, and Taiwan), and growing military cooperation with India are of great concern to 20 the leadership in Beijing. American military presence in the Caspian Sea/Central Asia region has further complicated China’s strategic calculus. Obviously, Beijing has great national security interests in reducing U.S. military presence next to its borders. Conclusion The discussion of the Caspian Sea’s hydrocarbon potential, the competing pipeline schemes, and the strategic rivalry between the United States, Russia, and China suggests two conclusions. First, in the early 1990s there were some highly optimistic assessments of the Caspian’ oil and natural gas reserves. By the mid-2000s, a more realistic assessment has emerged based on the exploration results and deeper appreciation of the difficulties and costs of shipping energy supplies from the region to global markets. Despite this less optimistic assessment of the region potential and outputs, there are no indications that international oil companies are about to suspend their operations and leave. The volatile global energy markets means that every drop of oil is needed and additional sources of energy will improve the overall global energy security. Second, the rivalry between global powers over access to energy resources and
  10. 10. spheres of influence is not likely to wane any time soon. However, these global powers and their regional allies share common interests in fighting drug trafficking and terrorism. Their visions for the future of the region are not identical. Still, economic prosperity and political stability will promote these common interests and serve the people in the Caspian Sea/Central Asia region. 21 1 Barbara Janusz, The Caspian Sea: Legal Status and Regime Problems, London: Chatham House, August 2005, p.2. 2 For more details see GawdatBahgat, “Splitting Water: The Geopolitics of Water Resources in the Caspian Sea,” SAIS Review, Vol.22, No.2, Summer-Fall 2002, pp. 273-292. 3 According to the 2003 trilateral agreement, Kazakhstan controls 27 percent, Russia 19 percent, and Azerbaijan 18 percent. 4 Martha Brill Olcott, “The Great Powers in Central Asia,” Current History, Vol.104, No.684, October 2005, pp.331-335, p.331. 5 Richard Weitz, “Averting a New Great Game in Central Asia,” Washington Quarterly, Vol.29, No.3, Summer 2006, pp.155-167, p.163. 6 More information is available on the organization website at 7 Energy Information Administration, Country Analysis Briefs: Caspian Sea, September 2005, on line at<> accessed May 18, 2006. 8 British Petroleum, BP Review of World Energy, London, 2006, p.4. 9 Energy Information Administration, Country Analysis Briefs: Kazakhstan, July 2005, on line at <> accessed July 8, 2006. 10 Mark J. Kaiser and Allan G. Pulsipher, “High Costs, Uncertainty Challenge Operators in Promising Kazakhstan,” Oil and Gas Journal, Vol.104, No.25, July 3, 2006, pp.39-44. 11 Energy Information Administration, Country Analysis Briefs: Azerbaijan, June 2005, on line at <> accessed June 23, 2005. 12 The main partners in AIOC are BP, Unocal, SOCAR, Inpex, Statoil, ExxonMobil, TPAO, Devon Energy, Itochu, Delta/Hess. 13 For example, in the mid-2000s ExxonMobil and Lukoil failed to discover commercially viable hydrocarbon reserves at the Zafar-Mashal and Yalama blocks respectively. 14 Energy Information Administration, Country Analysis Briefs: Iran, January 2006, on line at <file://V:PRJNewCABsV6IranFull.html> accessed January 4, 2006. 15 Energy Information Administration, Country Analysis Briefs: Turkmenistan, July 2000, on line at <> accessed July 21, 2000. 16 British Petroleum, BP Statistical Review of World Energy, London, 2006, p.20. 17 Associated gas is produced with oil. 18 Aida Sultanova, “Azerbaijan Opens Part of Oil Pipeline to the Mediterranean,” Washington Post, May 26, 2005. 19 LadaYevgrashina, “Baku-Ceyhan Pipeline Opens to Caspian Oil,” Moscow Times, May 26, 2005. 20 Oil and Gas Journal, “Kazakhstan to Ship Oil through BTC Line,” Vol.104, No.24, June 26, 2006, p.10. 21 Energy Information Administration, Country Analysis Briefs: Kazakhstan, July 2005, on line at <> accessed July 8, 2006. 22 For a thorough analysis of China’s energy security see ZhaDaojiong, “China’s Energy Security: Domestic and International Issues,” Survival, Vol.48, No.1, Spring 2006, pp.179-190. 23 Oil and Gas Journal, “Kazakhstan-China Oil Line Section Filling,” Vol.104, No.1, January 2, 2006,
  11. 11. p.11. 24 Some Azeri officials claim that they are losing millions of dollars due to mixing their high quality crude with Russia’s Urals. The solution, they argue, is to stop exporting via the Russian port. 25 Freedom House, Freedom in the World 2006, on line at <> accessed July 13, 2006. 26 Transparency International, Corruption Perceptions Index 2004, on line at <> accessed April 4, 2005. 27 U.S. Department of State, Supporting Human Rights and Democracy, on line at <> accessed July 8, 2006. 28 Ibid. 29 Ibid. 30 James Giffen, a U.S. citizen and a former consultant to the Kazakh government, is accused of violating the Foreign Corrupt Practices Act by funneling more than $78 million from oil-concession fees to Kazakh president, his family, and other Kazakh officials. 31 Energy Information Administration, Country Analysis Briefs: United States, on line at <> accessed December 3, 2005. 32 GulnozaSaidazimova, “Central Asia: Could Regional Dynamics Spell Closer U.S.-Kazakh Ties?” Radio Free Europe, on line at <> accessed June 12, 2006. 33 For more details see S. Neil Macfarlane, “The United States and Regionalism in Central Asia,” International Affairs, Vol.80, No.3, May 2004, pp.447-461. 34 The waiver can be found on the Department of State’s website at <> accessed July 13, 2006. 35 Richard Giragosian, “Nagorno-Karabakh: Peace May Depend on Military Situation,” Radio Free Europe on line at <> accessed February 13, 2006. 36 Richard Giragosian, “Azerbaijan: Relations with U.S. Enter A New Phase,” Radio Free Europe, on line at <> accessed August 9, 2005. 37 Eugene Rumer, “The U.S. Interests and Role in Central Asia after K2,” Washington Quarterly, Vol.29, No.3, Summer 2006, pp.141-154, p.148. 38 Central Intelligence Agency, World Fact Book, on line at <> accessed July 14, 2006. 39 Isabel Gorst, “Struggle for Gas Intensifies,” Petroleum Economist, Vol.73, No.5, May 2006, p.12. 40 Catherine Belton, “Caspian Great Game Back on,” Moscow Times, May 5, 2006. 41 Richard Weitz, “Averting a New Great Game in Central Asia,” Washington Quarterly, Vol.29, No.3, Summer 2006, pp.155-167, p.158. 42 Boris Rumer, “The Poers in Central Asia,” Survival, Vol.44, No.3, Fall 2002, pp.57-68, p.66. 43 Ilan Berman, “The New Battleground: Central Asia and the Caucasus,” Washington Quarterly, Vol.28, No.1, Winter 2004/05, pp.59-69, p.64. 44 Catherine Belton, “Caspian Great Game Back on,” Moscow Times, May 5, 2006. 45 Kinjiang is strategically and economically important to China for several reasons: the region is rich in several mineral resources, particularly oil and is well connected to Central Asian states, Pakistan, and Afghanistan. 46 SubodhAtal, “The New Great Game,” National Interest, No.81, Fall 2005, pp.101-105, p.102.