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Caspian Sea: Is The U.S. Losing Interest In Oil Resources?

  • Jean-Christophe Peuch

In 1994, Azerbaijan signed a $7 billion contract with a Western consortium to develop some of its vast Caspian oil reserves. Dubbed the "deal of the century," this much-publicized contract marked the kickoff of what was then expected to become a new "Great Game" pitting U.S., Russian, European, and many more national interests against one another. But nearly 10 years later, the issue is no longer headline news, and the United States is believed to be losing its interest in the Caspian. Is this really the case, or is the Caspian's value simply being calculated in more realistic terms?

Prague, 29 January 2003 (RFE/RL) -- A decade ago, the Caspian basin was beginning to receive considerable public attention. This was both because of its estimated oil-and-gas wealth -- at the time, the region was believed to hold the second-largest reserves in the world, after the Middle East -- and its strategic importance for the energy interests of the United States.

Lying between the arid Central Asian steppes and the snow-capped Caucasus Mountains, the inner Caspian Sea was then widely described as the future scene of a new "Great Game" reminiscent of the 19th-century geopolitical struggle that pitted the British Empire against tsarist Russia for control over Afghanistan and Inner Asia.

Attracted by the prospect of huge returns on investments, energy majors from all around the world started injecting hundreds of millions dollars into the area, mainly in Kazakhstan and Azerbaijan.

But returns have been disappointing. The actual oil and gas reserves of the newly independent Caspian states to emerge from the collapse of the Soviet Union have proved far less significant than was initially hoped.

There have been other problems as well. The chaotic investment climate that prevailed in some Caspian countries throughout the 1990s repelled many foreign investors, as did the failure of the littoral states to agree on the delineation of the Caspian seabed.

Last but not least, there are the consequences of the 11 September 2001 attacks on the United States. With the global fight against terrorism shifting the public's attention to other world regions, the Caspian "gold rush" has been relegated to back-page news.

Regional experts say there is more to the dwindling interest in the Caspian than meets the eye. Some argue in particular that the administration of U.S. President George W. Bush is looking to purposely dim the spotlight placed on the Caspian by the previous administration.

Leila Butt is an editor at the Economist Intelligence Unit, a London-based research institute affiliated with the "Economist" publication group. She told RFE/RL that one of the reasons for this perceived change lies in Washington's nascent energy cooperation with Russia. "The U.S. government is less interested in the Caspian because of improved ties with Russia. Russia has, of all the reserves of the former Soviet Union, I think probably 70 percent of them on its territory, which is why the U.S. has been much more interested in developing some sort of an energy partnership with Russia," Butt said.

Relations between Moscow and Washington were chilly as Bush entered office in 2001, but they have seen a marked improvement since then, spurred by the 11 September attacks, which proved a major boost to bilateral ties, as Russia was quick to offer its support.

Since the beginning of the U.S.-led military campaign in Afghanistan -- when Moscow reportedly provided Washington and its allies with crucial intelligence data on the ruling Taliban militia -- the White House has seen Russia as a key partner in the global fight against terrorism.

Ian Bremmer is the president of the New York-based Eurasia Group and a senior fellow at the U.S. World Policy Institute. On 10 January, he and Edward L. Morse, a former U.S. deputy assistant secretary of state for international energy policy, published a joint commentary in "The Moscow Times" daily and on eurasianet.org, an information website operated by the Central Eurasia Project of the Open Society Institute.

In their commentary, the authors argue that the recent focus on energy partnership with Russia is part of a broader shift in U.S. foreign policy, which they claim no longer considers the Caspian basin a top-priority issue. "The general point [of our argument] is that after 10 years of very strong focus on the Caspian and Caspian energy, the U.S. is focusing far more attention on Russia. The Caspian region as a whole was the flavor of the month effectively for a decade. And, in some part because of September 11, in some part because of internal issues within the Caspian, [this region] is becoming less important to the U.S.," Bremmer said.

Bremmer and Morse believe several factors are behind the change in U.S. government policy. One, they say, is the mounting political risk of Caspian investment, particularly in Kazakhstan, where a $3 billion project involving the giant Tengiz oil field has been at the center of a two-month legal dispute between local authorities and the U.S. operator, ChevronTexaco. On 25 January, the two sides announced that they had reached an agreement. But doubts remain about the future of foreign investment in that country.

A second factor raised by Bremmer and Morse is the recent launch of the Baku-Tbilisi-Ceyhan (BTC) oil-pipeline project. A U.S. project for many years, this multibillion-dollar pipeline is designed to pump crude oil produced by U.S. and other Western oil companies from Azerbaijan's capital through Georgia and on to Turkey's southern seacoast.

The BTC pipeline is due to become operational in 2005 and is expected to be coupled later with a natural-gas pipeline linking Baku and Tbilisi to Erzurum in Turkey's Eastern Anatolia region.

Although plans to connect the BTC to Central Asia's energy-transport network are still under consideration, analysts agree that Washington has achieved what they suspect was its main objective under former President Bill Clinton's administration: to reduce the Caspian region's reliance on Russia in terms of export capabilities and to sustain the U.S. policy of containment toward Iran.

Laurent Ruseckas is a director of Caspian research at Cambridge Energy Research Associates, a think tank headquartered near Boston. He told RFE/RL that with the arduous multilateral talks over the BTC successfully completed, it may seem that U.S. engagement in the region has substantially decreased. "The one thing the U.S. government has really done [in the region] is help push through the [BTC] project. That is kind of unique because it was politically complex -- [there were] three different countries [involved] -- and I think that project would not have happened if the [oil] companies had not decided that it made commercial sense in the end. But given that the [oil] companies came around to that view, it was helpful for the U.S. political pressure to be there. But now that that is done, there is not a lot for the U.S. to do," Ruseckas said.

Ruseckas argued that, for the most part, reports of U.S. efforts to support its alleged energy interests in the Caspian amounted to little more than "overheated rhetoric" and created the false impression that the region was a much bigger priority for the Clinton administration than it actually was.

But the analyst went on to say that it would be equally misleading to claim that the Caspian is no longer important to the United States. The truth, he believes, lies somewhere in between. As he put it, "The noise and perception [about the Caspian] have come back to normal."

"[The region] is just as important as it was in 1998, I would say. It is just that now, people have come to terms with [the idea] that it is not the next Middle East. But it is still [the] number-one [priority for U.S. oil companies]. First of all, it is not important solely because the U.S. government thinks it is important. Obviously, there are other concerns, other reasons. It is an important strategic area for other countries as well. It is important for oil companies, for foreign investment, for the world oil market," Ruseckas said.

Whatever Washington's energy interests in the Caspian area, analysts agree that the United States is going to remain a long-term presence in the Caspian-Caucasus region, if only out of security concerns.

Since the launch of the U.S.-led campaign in Afghanistan, the Pentagon has set up military bases in Kyrgyzstan and Uzbekistan, maintaining at least 2,000 soldiers in the two Central Asian republics.

Last year, the United States dispatched military instructors to Georgia to train local armed forces in antiterrorism tactics and to help set up four elite battalions that will eventually serve as the nucleus of a revamped army. The elite troops' duties are to include protection of the BTC pipeline.

Bremmer said the post-11 September environment has created a clear-cut division between the countries of the Caspian-Caucasus region.

One group includes Georgia, Kyrgyzstan, and Uzbekistan, which are now considered by Washington to be of strategic importance and which are also the area's "energy have-nots." The other group includes the oil-rich republics of Azerbaijan and Kazakhstan, which, from a U.S. perspective, are of limited importance in the war on terrorism.

This, Bremmer said, is likely to cause some frustration among regional elites. "I think that at the same time that the U.S. is shifting its [energy] interests away from the Caspian, there is a little bit more concern, a little bit more caution on the part of foreign direct investors, particularly from the United States, about engaging more deeply. I don't think you will necessarily see a mass exodus from the Caspian, but the hope that the 'Great Game' was going to be the source of riches for global energy exploitation [is fading away]. I think the Caspian is becoming much more realistically a place that is important at the margins, and [this] might be a disappointment for some," Bremmer said.

But Ruseckas disagrees. He admitted that the United States has scaled back support of energy projects in Azerbaijan and Kazakhstan but said that the two countries are now sufficiently sophisticated to survive without the United States as a crutch.

He also sees no cause and effect between Washington's policy adjustment and U.S. direct investment in the Caspian area. "How much money is going to be invested in the region and how much oil is going to come out of it has nothing to do with U.S. interests," he said, adding, "Business runs business, and government runs foreign policy."

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