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Caspian: Politicians Warn Oil Producers Of Dangers Ahead

  • Michael Lelyveld



Boston, 24 November 1998 (RFE/RL) -- The controversy over Caspian Sea oil has moved from the question of benefits to the costs of development.

Two articles this month highlight the dangers both for countries that supply Caspian oil and those that provide export routes. Increasingly, the focus is on discord and dire predictions for the region, rather than the fabulous wealth that has been forecast in the four years since the oil rush began.

The first article in the current issue of Foreign Affairs points out the problems that the new oil-rich countries will face if they follow the example of OPEC nations in their cycle of boom and bust.

Former Iranian Finance Minister Jahangir Amuzegar notes that the Caspian nations already seem to be adopting the policies that have led many OPEC countries into ruin after squandering their gains.

Palaces for autocrats, five-star hotels and monumental public works projects have become the rule for the nouveau-riche republics, even before their oil revenues have been realized.

In the case of OPEC, the enormous income of the 1970s and 1980s may have been some excuse for believing that huge surpluses would last forever. But with production barely started in most Caspian countries, there is little reason for extravagance, other than false national pride.

Amuzegar notes that all of the OPEC states planned to diversify their economies, so that when the easy money ran out, they would not be totally oil-dependent. But few, if any, ever achieved their goal. High-spending habits and low oil prices left OPEC nations in debt, despite more than $3.5 trillion in earnings since 1974.

Most also remain authoritarian and corrupt countries, with little hope for the future without oil.

Amuzegar's warning is timely in light of an Iranian proposal to bring the Caspian countries into OPEC. Earlier this month, Deputy Oil Minister Ali Majedi said that it may be necessary to include the republics in OPEC so that oil production levels can be controlled.

No mistake could be greater for the Caspian nations. The reason is that OPEC has become a trap for its members rather than the mighty cartel of the past.

Since the oil shocks of the 1970s, OPEC has been unable to manipulate supply and demand. Whenever prices rise, many members take advantage by boosting production above their quotas. When prices fall, they also feel forced to overproduce to keep their revenues up.

It stands to reason that Iran would want to bring the new republics in as members. It is bounded on the west by an unpredictable Iraq. To the north, there is uncertainty about how much the Caspian will produce. As new members, the Caspian nations would be the weakest and most likely to feel pressure on quotas.

Caspian nations also have the added disadvantage of isolation. Unlike OPEC members, they are subject to the stranglehold of access. That problem seems to be proving just as difficult for Turkey, which is a natural gateway for Caspian exports.

A second article, in the November issue of Smithsonian magazine, details Turkey's concerns with adding the Caspian's oil traffic to the already-clogged Bosporus. In a series of interviews and graphic photographs, the magazine recounts the dangers to the environment and the citizens of Istanbul that the Turkish government has been stressing for years.

The narrow and treacherous waterway has been the scene of numerous accidents. Yet, Russia refuses even to require its vessels to take pilots on board, citing the 1936 Montreux Convention on freedom of transit.

The article leaves little doubt about the sincerity of Turkish maritime officials in pressing the safety issue. But Turkey's attempts to keep Caspian oil out of the Bosporus are complicated by its larger campaign to keep control of the oil by promoting a pipeline to its Mediterranean port of Ceyhan.

As long as the country stands to profit from pipeline transit fees, it is impossible to argue that its motives are not mixed in insisting on the Baku-Ceyhan route.

Turkey could put a stop to suspicions by supporting other outlets, such as those through Iran. It has recently shown its readiness to deal with Iran by saying it will buy gas from an Iranian pipeline if a trans-Caspian line from Turkmenistan is not built in time.

But Turkey's ambition for the overland route has grown so intense that it has now threatened a virtual boycott of British Petroleum and Amoco Corp., which have cast doubt on the commercial viability of the Baku-Ceyhan project.

Ankara's anger seems to be part of a foreign policy that has spun out of control. Over the past year, it has vented fury on Germany, Russia, Syria and, most recently, Italy.

While most of these rows have been related to the Kurdish conflict, the increasingly shrill tone over the Caspian issue raises new questions. Who will be more isolated by the outcome of the oil competition, and who will have the greater security problem? Will it be the supplier nations or the transit countries that continue to compete for profit and control? As in OPEC, oil seems destined to be a source of trouble as well as power for years to come.

In threatening BP and Amoco, Turkey has already lost sight of its own strategic interest. Amoco has been working to supply gas to Turkey both from Turkmenistan and Egypt. Ankara's need for gas to produce electricity is far more pressing than its quest for profits from Caspian oil. But of all the dangers surrounding the Caspian, the worst may be those that countries create for themselves.

(Lelyveld is national correspondent for the Journal of Commerce. He wrote this analysis for RFE/RL)

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