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Caucasus: Caspian's Trade Route Direction Uncertain

Boston, 15 October 1999 (RFE/RL) -- One year after the deadline for deciding on an export route from the Caspian Sea, the direction of the region's vital trade seems just as uncertain as it did in 1994.

Russia's war in Chechnya has drawn a new curtain of doubt over all pipeline plans in the Caucasus, including Moscow's own scheme for a bypass line to carry oil from Baku to Novorossiysk through Dagestan.

This week, Azerbaijan quickly rejected Russia's appeal to help pay for the line. It is perhaps no coincidence that Moscow almost immediately switched tactics and announced that it would extend its control over all of Chechnya instead of only occupying the north. If Russia does march on Grozny, it may try to restore its original pipeline route and secure it with troops.

The long-term viability of such a solution seems highly unlikely. But Russia's forces in the region could checkmate any competition, particularly from construction of the Baku-Ceyhan oil pipeline, on the other side of the mountains to the south.

Western oil companies have been negotiating on Baku-Ceyhan since the signing of Caspian offshore agreements by the Azerbaijan International Operating Company in September 1994. The contractual deadline for a decision in October 1998 is now a year old. According to reports from Azerbaijan, talks are in the "final phase."

But even the long-sought decision on construction will not reduce the risk of going ahead. In fact, it may increase the chance of instability or interference to prevent the plan from being carried out.

Elsewhere in the region, the outlook for pipeline routes is equally unsettled. Plans for the second major U.S.-backed project, the trans-Caspian gas pipeline to Turkey, also appear to be stalled.

Turkmenistan said this week that it plans to sign an inter-state framework agreement for the line next month in Ankara with Azerbaijan, Georgia and Turkey. The pact has been delayed since a missed deadline in July because of disputes with Azerbaijan over its own plan for gas sales to Turkey and its claims to the Kyapaz oilfield, which Turkmenistan calls Serdar.

The wrangles have created a virtual deadlock in development. For two years, U.S. officials argued that the trans-Caspian and Baku-Ceyhan lines could be paired along the same route through the Caucasus for efficiency. Now that neither has progressed, the fate of the entire route remains unclear.

Within the past week, Turkmenistan has confused the issue even further by sending a series of conflicting signals about the direction of its exports. In a sequence of pronouncements, President Saparmurat Niyazov lashed out at Turkey for agreeing to buy Russian gas through the planned Blue Stream pipeline across the Black Sea instead of supporting the trans-Caspian line from Turkmenistan.

Niyazov charged that Russia would simply buy Turkmen gas and sell it through Blue Stream at about three times the price. He also threatened to export gas through Russia and Iran if trans-Caspian construction did not start in six or seven months. He further announced plans to increase gas sales to Iran by 11 billion cubic meters a year, an amount that far exceeds current pipeline capacity.

In fact, Turkmenistan has no agreement for gas sales to Russia, either. Niyazov's frustration has been evident since last month when he fired some of the nation's top bankers for disclosing the country's debt figures to the International Monetary Fund.

The true picture of the region's energy trade is further clouded by Turkmenistan's plan to sell electricity to Turkey. The trade can only be accomplished through Iran. Because of the great transmission distance that must be covered, the deal is likely to become a swap of Turkmen power for that used in northern Iran, while Iran then uses its own excess generating capacity to supply Turkey with electricity.

Although Turkmenistan has charged that Russia could turn a big profit on its gas to supply Turkey, it has made no mention of the terms with Iran to play a similar role both for electricity and the Turkmen gas that could be used to produce it. The country would clearly be vulnerable to profiteering by one country or the other. The only question is which one.

Last week, Iran also complicated the situation by proposing to buy Azerbaijan's gas after 2005. Tehran said it would rebuild a gas line to Baku at its own cost. Although the first reaction from Azerbaijan has been negative, such a link could further upset the competition with Ashgabat.

Turkmenistan may be the last Caspian country in the long line of willing energy suppliers, but a solution to its problems may be critical to a regional export plan. War in the Caucasus and Russian designs have now made such a solution even more elusive. Without new strategies, the Caspian countries could still be arguing over export routes five years from now.