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Caspian: Sea's Oil Reserves Estimate Revised Downward

A new estimate of Caspian Sea oil resources suggests that the region will see significant growth in production by 2010. But the numbers may also dampen some expectations and serve as a reminder that the area will not assume the strategic importance of the Middle East.

Boston, 10 April 2002 (RFE/RL) -- One of the largest oil companies in the Caspian Sea region recently sounded a note of reality with a new and more modest estimate of the area's oil reserves.

Speaking on 8 April in Almaty at the Eurasian Economic Summit, Gian Maria Gros-Pietro, chairman of Italy's Eni oil company, said the Caspian contains 7.8 billion barrels of oil, the Interfax news agency reported.

The good news for Kazakhstan is that it is believed to hold nearly 70 percent of the Caspian total, Gros-Pietro said. The bad news may be for political analysts, because the numbers are far smaller than those that many have used.

Since the first foreign oil deal in the Caspian was signed in September 1994, analysts have pumped up the region's importance as a strategic issue. Early estimates claimed that the Caspian could hold as much as 200 billion barrels, a figure that was soon trimmed to 115 billion or less.

Over the years, many officials who tried to create a "great game" with various Caspian pipeline strategies also played a numbers game, largely ignoring industry experts who argued that the Caspian would never affect the oil market as much as the Middle East.

Most analysts now agree that future flows of oil from the Caspian will make only a marginal difference to world prices, perhaps ranking in importance with Britain's and Norway's production from the North Sea.

Gros-Pietro seemed to endorse that view in estimating that in 2010, the Caspian region will produce 3.8 million barrels per day, or about 60 percent of North Sea output. While his comments may have been intended to stress the region's importance, they may have underscored the fact that it will not rival Saudi Arabia or Russia, which each produce about 7 million barrels per day.

Political strategists have never made a distinction between possible, probable, and recoverable oil reserves. In a recent report, the U.S. Department of Energy estimated that the Caspian may hold up to 233 billion barrels of possible reserves, which means those with a 50 percent probability. But the report said there may be only 17 billion to 33 billion barrels of proven reserves, meaning those with a 90 percent likelihood.

The Eni figures, which are less than half of the smaller estimates, may represent recoverable reserves, those that can actually be developed and brought to market. These are still large, but far more modest than the headlines in 1994 claimed.

The comparison may be useful at a time when Iraq has tried to put pressure on both politics and the market by announcing on 8 April that it would halt oil exports for 30 days to protest Israel's crackdown on Palestinians in occupied territories. The move, which may take 2 million barrels per day off the market, caused a brief spike in prices before assurances from Saudi Arabia drove the market back down again on 9 April.

Saudi newspapers quoted Oil Minister Ali al-Naimi as saying, "I believe there is no threat to the reliability of worldwide oil supplies, and the reliability of Saudi Arabian supplies in particular," Reuters reported. The comments were seen as a signal that Saudi Arabia would use its spare capacity to keep prices from killing economic recovery. Interfax quoted a Russian government official as calling the Iraqi move "a mistake," a remark that the ITAR-TASS news agency attributed to a spokesman for the Foreign Ministry.

Attention also focused on Iran, with daily exports of about 2.5 million barrels. On 5 April, Iranian Supreme Leader Ali Khamenei urged Islamic countries to suspend oil exports to countries that support Israel. Although Iraq invited Iran several days earlier to take such a step cooperatively, Tehran did not seem prepared for Baghdad's sudden decision. On 9 April, Iran's parliament speaker, Mehdi Karroubi, said a boycott would "prove effective only if other countries follow suit," the official news agency IRNA reported. The remarks suggested that Tehran believes that even a combined stoppage of over 4 million barrels per day would not be enough to drive events. In any case, the United States does not buy oil from Iran.

For the Caspian countries, the events may be a reminder that oil is no guarantee of security or sustainable development. The Caspian countries now export a total of about 1 million barrels per day, but they may be more reliant than ever on petroleum income, which rises or falls unpredictably.

As production grows, the Caspian nations have shown signs that they are following the path of the Middle East in depending on oil and failing to diversify their economies. The new numbers suggest that countries like Kazakhstan are poised for growth, but they also point to the importance of becoming more than sources of oil.