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Azerbaijan: Report Says Baku Pipeline To Play Key Role In Future Geopolitics

London, 31 July 1998 (RFE/RL) - Japan says choices made by Azerbaijan on the route of pipelines to get its oil to world markets have "long-standing geopolitical implications."

The report on Azerbaijan's economic prospects is published this week by the Japanese think-tank, the Daiwa Institute of Research Europe. It focuses on the oil sector in the small Caucasus country which is said have proven oil reserves of 7 billion barrels. Azerbaijan is set to play a key role in helping to meet rising world energy demand in the 21st century.

But Azerbaijan, like its Central Asian neighbors, is landlocked, lacking an outlet to an open sea, so it will have to rely on oil export pipelines. All the major regional powers have an interest in the routes chosen by Azerbaijan: particularly Russia, Turkey and Iran. Other countries, notably Georgia and Ukraine, also are affected.

"Early oil" from Azerbaijan will be transported to the Black Sea through two pipelines with an annual capacity of 25 million tonnes. One is the northern route through Russia, crossing Chechnya, to the port of Novorossiysk on the Russian Black Sea. The other is the so-called western route which runs from Baku to the Georgian Black Sea port of Supsa.

The first export shipment of "early oil" took place in March from Novorossiysk. But exports through the western route have run into problems because the pipeline needs major repairs and construction work. Its completion has been postponed until the end of this year.

The pipeline to transport the expected big flows of oil --the main export pipeline-- is still undecided, with political and strategic concerns being crucial to the final solution. But there is a consensus that multiple pipelines are the best way to minimize dependence on one route, and possible disruptions induced by regional conflicts.

The option with most support is to build a $2.5 billion pipeline from Baku to the Turkish Mediterranean port of Ceyhan. This proposed 1,730 km pipeline is favored by Ankara, which would receive substantial transit fees.

The report says: "The countries which are endorsing this project have sought not to alienate Russia from this process."

The other pipeline routes --through Novorossiysk port or Supsa -- would require the use of the Bosphorus as a transit point. This is opposed by Turkey which points to the environmental risks of increasing oil tanker traffic through what already is one of the world's busiest sea lanes.

The shortest and probably most economic route is through Iran to the Persian Gulf. But this is opposed by Washington on political grounds. The report notes that the U.S., despite some overtures to the new government in Iran, continues oppose large scale investment in the country -- particularly in the transport sector.

A decision on pipeline routes by the Azerbaijan International Operating Company (AIOC), originally expected this summer, has been pushed back to October. The report says there are increasing rumors that there could be another postponement. The AIOC is a consortium of 11 international oil companies, led by British Petroleum, that was set up after Azerbaijan's independence.

Despite the fact that an agreement on building the Baku-Ceyhan pipeline has been concluded between Turkey, Azerbaijan and Georgia, the issue has not been entirely settled. Key issues such as transit fees and property rights have yet to be resolved.

Ukraine also has proposed deliveries to Odessa from Georgia's Supsa terminal. Part of that oil would be refined in Ukraine for its own consumption, and the rest piped to Central and Northern Europe. The report says: "This fits well with the Ukrainian policy of reducing dependence on Russian oil imports."

The report notes that Azerbaijan is, itself, an important route for the transport of oil from other countries in the region. Last year, Kazakhstan transported 2 million tonnes of oil to the West via Azerbaijan, using tankers and rail, and there are plans to double this figure.

The report says the debate over oil transports from Azerbaijan oil is "greatly increasing the country's profile and Baku is now the hub of intense commercial and diplomatic activity." It says Azerbaijan will be a "key factor in shaping regional development."