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Russia Exerts Influence In Caspian Oil Deal

  • Kitty McKinsey



Prague, Feb. 15 (RFE/RL) - With Russia's own oil production plummeting disastrously, Moscow is extending its influence over the oil riches of its Caspian Sea neighbors with the approval of an oil contract by the Azerbaijani parliament.

The deal, signed with a consortium of international oil companies last November, was ratified yesterday by the parliament in Baku. Ninety deputies voted in favor of the contract, six voted against it and one abstained.

It is an impressive coup for Russia. The state-owned Russian oil giant LUKoil takes the biggest share in the $1.8 billion deal for development of the Karabakh oil field in Azeribaijan's territorial waters during the next 25 years. The field is located about 120 kilometers off shore from the capital, Baku, and is believed to hold 85 million metric tonnes of recoverable crude oil.

LUKoil has a 35 percent share in Karabakh, but its share increases to 52 percent when its participation in other companies in the consortium is taken into account. LUKoil president Vagit Alkperov was quoted last November as saying that he expects - for the first time in world exploration projects - that the Russian company will obtain the right to operate the project. This means, among other things, that payments relating to the project will be made through LUKoil.

Both inside Azerbaijan and in the West, the Karabakh deal is seen as appeasement of Russia, which was angered over its small share in a separate $8 billion Caspian sea project announced in September, 1994 and dubbed "the deal of the century."

This latest deal comes at a time when Russia has admitted that its oil production has fallen to six million barrels a day, from more than 11 million barrels a day in 1988.

Sergei Panchekhin, first secretary at the Russian Embassy in Washington, told a New York conference last week that Russia's oil situation looks "grim yet not catastrophic." But the IMF and World Bank estimate that an initial investment of at least $60 billion would be required - in addition to massive annual investments - for Russian oil production to return to 1988 levels by the year 2000.

Panchekhin made no secret of Russia's interests in the Black Sea and Caspian Sea region. Indeed, Moscow and Washington are locked in a rivalry over the mineral wealth of the Caspian Sea, which is believed to contain the world's largest undeveloped reserves of oil and natural gas outside the Persian Gulf. Some experts predict that the region could become the second-largest energy supplier to the West. If true, this would reduce the West's dependence on the Persian Gulf.

Elaine Holoboff, an expert on energy issues in the former Soviet Union at the Department of War Studies at King's College in London, has written a long paper in Jane's Intelligence Review about Russia's oil politics. She writes that all of the untapped wealth in the Caspian "stimulates talk of a new 'great game' in the region. Companies and governments that establish exploration rights and export routes now will gain influence for decades." She adds that "Russia understands this well and has begun manoeuvring to secure its place in the future oil bonanza."

As Russia seeks to exert control over exploitation of the Caspian Sea, Azerbaijan, whose huge share of Caspian hydrocarbons promises to make it another Kuwait, is being squeezed.

Russia opposes Azerbaijan's unilateral exploitation of Caspian resources. Russia maintains that the Caspian is not a sea to which international maritime law applies, but a lake whose exploitation must be decided on jointly by all the states in the region. This would give Russia the decisive voice, and a veto over other countries' projects.

When the Karabakh deal was signed last November, Azerbaijan's president, Haidarr Aliyev, who was once a Soviet communist party's politburo member, portrayed it as an economic windfall for his country. He said Azerbaijan would reap between 60 percent and 85 percent of the oil fields' profits.

But others disagree. During the debate in parliament on Tuesday, the chairman of the parliament, Rasul Kuliev, said Azerbaijan will not reap any financial benefits from the contract. The only benefit, he said, would be a limited transfer of technology.

Whatever the truth, Russia is clearly thrilled with the deal. At the signing ceremony last November, Russian Fuel and Energy Minister Yuri Shafranik said that "The signing of the agreement is a tremendous victory for the Russian oil industry and Russian diplomacy." Shafranik went on to declare: "Let us sign contracts like this every year." Then he and Aliyev, both smiling broadly, embraced and exchanged kisses on the cheek.
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