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Iran: Contact With Israel May Affect Caspian Oil Countries

Boston, 23 June 1999 (RFE/RL) -- Reports that Iran has been trying to establish contacts with Israel are likely to be followed closely in the Transcaucasus and Central Asia, as well as in the oil industry.

On Monday, an Iranian government spokesman quickly denied the reports by the Israeli newspaper Ha'aretz and the Financial Times. But it may be too late to stop speculation about the reports and strategic calculations in neighboring countries that have vital interests in the possibility of a change between Israel and Iran.

The newspapers reported that Iran has asked British diplomats to serve as intermediaries with Israel in an effort to ease tensions. The Financial Times pointed toward Iranian interests in arms control agreements and the resumption of oil trade. The British government has officially denied that it is playing a role.

The reports are especially curious in light of Iran's arrest of 13 Jewish citizens in Isfahan and Shiraz this month on charges of spying for Israel. But they also come at a time when the new government of Israeli Prime Minister Ehud Barak has taken office.

The recent visit of Iranian President Mohammad Khatami to Saudi Arabia and another this week by Foreign Minister Kamal Kharrazi to Jordan have both broken new ground. Change in the region may be in the wind.

The countries of the Caspian may now have to take particular care with their policies in case the reports turn out to be true. Many will remember that U.S. officials also strenuously denied a similar effort to mend ties with Iran before Secretary of State Madeleine Albright called for a "road map" to better relations in June 1998.

Caspian countries such as Azerbaijan have largely followed the U.S. and Israeli policies on Iran, although with varying degrees of enthusiasm. Azerbaijan has closely coordinated its pipeline policy with the United States to avoid Iranian territory, in keeping with Israeli security interests. Constant tensions between Azerbaijan and Iran have kept trade at a minimal level, although both countries have tried to ease the strains.

Turkmenistan has maintained its neutrality, but its position has been particularly tricky. Foreign business in the country has been dominated by Israel's Merhav Group, although Turkmenistan's only gas exports are to Iran. Merhav's president, Yosef Maiman, who also serves as a special ambassador to President Saparmurat Niyazov, has said in interviews that he would have no objection to dealing with Iranian interests, when and if Israeli policy allows it.

Kazakhstan, at a greater distance from the Iranian border, has not faced the same degree of conflict. But it, too, has enjoyed Israeli investment while resisting U.S. pressure to stop oil swaps with Iran.

While these contradictions have caused tensions for the Caspian countries, the oil industry may be faced with the most troublesome problem of potential change. Companies have remained under pressure to invest in east-west pipelines to export oil from the Caspian, although many have voiced preference for cheaper north-south pipelines through Iran.

Industry officials and financial institutions may now find a new reason to delay investments in the Baku-Ceyhan oil pipeline and the trans-Caspian pipeline for gas, reasoning that an eventual end to Israeli hostilities with Tehran could open up Iranian routes. As with the Caspian countries, the oil industry may have to respond to the reports on Israel and Iran, whether they prove to be true or not.

U.S. officials have said privately for over a year that an Iranian pipeline route would be possible, as long as it is not the first route from the Caspian. The administration of President Bill Clinton continues to be concerned that Iran could gain too much control over Caspian exports.

In the short run, the suggestions of overtures between the Iranians and the Israelis could slow any progress on pipeline decisions that are based on political alignments. The situation will be sensitive for Turkey, which has allied itself with Israel. Turkey is the destination for both the U.S.-backed oil and gas routes, as well as a separate gas pipeline from Iran.

But if improvements in relations materialize, there could still be at least two possible outcomes for the Caspian region. The first is that east-west routes may be abandoned in favor of Iranian alternatives. The second is that the way may finally be cleared for east-west lines, with an understanding that Iranian routes would follow. The second solution may be possible as part of an overall regional development plan.

Even in the event of an Iranian-Israeli detente, such developments would probably be many years away. But in the more immediate future, it may be possible that the purely political dimension of Caspian policy could be diminished, making the region's oil more of a prize and less of a game.