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Azerbaijan/Kazakhstan: U.S. Energy Plan Could Bring Benefits

The administration of U.S. President George W. Bush last week formulated a new energy policy to address the electricity shortages and the rising prices of petroleum products that have plagued Americans in recent months. RFE/RL correspondent Andrew Tully reports that the new plan also could mean economic benefits for foreign oil-producing countries -- not immediately, but in the long term.

Washington, 21 May 2001 (RFE/RL) -- Analysts say they do not expect that the energy plan announced last week by U.S. President George W. Bush will provide any immediate economic benefits to petroleum-producing countries in the Caucasus, Central Asia, and the Middle East. But, they say, there could be significant benefits in the long term.

The United States is experiencing a shortage of energy that already has led to periodic electricity blackouts in parts of California -- the country's most populous state -- and rising costs for oil and natural gas nationwide. And as summer approaches, there will be increased use of cars for vacation travel, as well as increased use of electricity to power air conditioners. The price of oil could rise further, and more blackouts are expected in California, elsewhere on the country's west coast, and even in the densely populated northeastern section of the country.

Shortly after he became president, Bush directed his vice president, Dick Cheney, to assemble a task force that would draw up recommendations to ease the energy shortage and ensure that U.S. consumers and industry have enough energy for their needs in the future.

On 17 May, Bush released Cheney's recommendations as part of a new U.S. energy policy. Overall, its aim is to balance environmental protection with increased production of oil, natural gas, and other sources of energy. Several recommendations focus on increasing the amount of oil from foreign producers.

According to the U.S. Department of Energy, oil is the country's chief source of energy. It estimates that in 2000, 39 percent of U.S. energy consumption was from oil, 23 percent was from natural gas, 22 percent was from coal, and 16 percent was from other sources such as nuclear and hydroelectric power.

Until the mid-1970s, the United States produced and imported oil with little trouble. But in 1974, Arab countries imposed an embargo on oil exports to states supporting Israel, with which several Arab states were still formally at war.

After that embargo ended, U.S. reliance on imported oil dropped for about a decade. Imports reached a low of 4.3 million barrels a day in 1985, or nearly 30 percent of U.S. petroleum consumption, according to the Energy Department. Since then, the amount of imported oil has risen gradually to an estimated 9.6 million barrels a day in 1999, or more than 50 percent of consumption.

The Bush-Cheney plan seeks to reduce reliance on imported oil by increasing domestic production. But it also would seek to encourage foreign producers to increase production, if only to lower the price of oil worldwide -- and in the United States.

As part of that program, the U.S. government would increase its support for the proposed Baku-Ceyhan oil pipeline. The conduit would run from Baku, Azerbaijan's capital on the oil-rich Caspian Sea, through Georgia's capital Tbilisi and then into Turkey, terminating at the Turkish Mediterranean port of Ceyhan. Much Caspian oil now is exported through a Russian pipeline. Washington also would encourage oil companies in Kazakhstan to export some of their petroleum through the Baku-Ceyhan pipeline. Much of this oil is now exported through Russia.

Roman Vassilenko, press secretary at Kazakhstan's Embassy in Washington, says his country has always supported the Baku-Ceyhan pipeline. In fact, he says, Astana believes the conduit should be called the "Aqtau-Baku-Tbilisi-Ceyhan system." This refers to Kazakhstan's port on the Caspian from which Kazakh oil would be taken by barge to Baku to begin its journey by pipeline to the Mediterranean Sea.

Ultimately, Vassilenko says, it will be up to the oil companies extracting Kazakhstan's oil to decide whether to use the Baku-Ceyhan pipeline or some other means of export.

Tahir Taghi-Zadeh, the first secretary and political officer at Azerbaijan's Embassy, says there is a "very real possibility" that his country -- and that foreign companies operating in his country -- can quickly increase oil production and enjoy a near-term economic benefit from the new U.S energy policy.

Taghi-Zadeh told our correspondent that Azerbaijan exports very little oil to the U.S. But he says increased exports to Europe could allow for increased exports of European oil -- from the North Sea, for instance -- to the U.S. This, he says, could greatly enhance Azerbaijan's economy.

"The oil revenues [will] help restructure the whole of the economy of Azerbaijan -- help bring new technology, new know-how (technical experience), and new trends to the whole of the economy."

But one energy analyst told RFE/RL that he doubts that Azerbaijan -- or the foreign companies operating there -- can increase production enough to achieve a short-term benefit. Robert Ebel is director of the energy program at the Center for Strategic and International Studies, an independent policy institute in Washington. He says:

"I don't see any short-term [positive] impact on Azerbaijan. You know, they don't have any spare producing capacity and there's not much they can do in the short term to crank up production."

Ebel says the same is true for Russia. He says Russian pipelines, oil wells and refining facilities already are operating at full capacity. This is because Moscow is determined to use petroleum wealth to keep Russia financially healthy as the country makes the transition from a managed economy to the free-market system.

One recommendation that some observers expected was not in Cheney's final draft: a review of the economic sanctions imposed on Iran after the Islamic revolution 20 years ago, when U.S.-Iranian relations reached their lowest point. Ebel says that for now, it would be politically impossible for the Bush administration to try to modify these sanctions to permit the import of Iranian oil.

But the analyst stresses that any increased oil production by Iran could indirectly lead to greater stocks of petroleum products in the U.S. because oil -- like cash -- is "fungible." In other words, it would indirectly -- but very effectively -- increase the supply of oil for U.S. consumers and industries. And, Ebel says, it would help lower the cost of oil worldwide.

"The oil from Iran sort of disappears into the world market, and -- you know, oil is fungible, that is, it just sort of all becomes one giant bucket of oil. So the Iranian oil would go someplace but not to the U.S. And that Iranian oil would replace another crude oil, which would be acceptable to the U.S."

Ebel also says he doubts the United States will increase its imports of Iraqi oil under the United Nations' oil-for-food program, part of the sanctions imposed after the 1991 Gulf War. The program requires Baghdad to allocate revenues from exported oil to food for its people -- not for government or military operations. The United States now imports about 600,000 barrels of Iraqi oil a day.

But there may be long-term benefits in store for non-U.S. oil producers. First, oil producers in general know that there will be a market for their output for years to come. More specifically, Azerbaijan, Georgia, Turkey, and Kazakhstan can probably count on the Baku-Ceyhan oil pipeline becoming a reality. This is the view of Fiona Hill, an analyst of economic issues in the Caucasus and Central Asia at the Brookings Institution, an independent Washington think tank.

Hill says there are two reasons why some observers have wondered whether Bush would be less supportive of the Baku-Ceyhan pipeline. First, because the project is so closely associated with the administration of his predecessor, Bill Clinton. And, second, because some aides to Bush believe that support for the pipeline seemed to put too much emphasis on oil in the region and less on other areas of economic development.

The Cheney plan, however, makes it clear that the Bush administration fully supports the pipeline.

"Now, obviously, again, this administration is likely to put some considerable emphasis on this [the pipeline]. But now perhaps from a different perspective -- from the point of view of U.S. domestic interest, because of the domestic energy crisis."

The Bush-Cheney policy was launched two days after the investors planning the Baku-Ceyhan pipeline announced that cost estimates for the conduit are viable. They did not say what those estimates are, but previous statements put it at about $2.7 billion. They also said the pipeline could be completed by the end of 2004. If the pipeline is finished by then, Hill says, both Azerbaijan and Kazakhstan could quickly realize enormous profits from their oil production.