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Caspian: Presidents Launch Construction Of Oil Pipeline

Azerbaijan, Georgia, and Turkey are marking the start of the Baku-Tbilisi-Ceyhan oil-pipeline project today after years of planning and political controversy. But the westward oil route from the Caspian Sea has gained commercial support over the years and lost some of the causes of conflict that made it a major regional issue between Russia and the United States.

Boston, 18 September 2002 (RFE/RL) -- After eight years of debate, the presidents of Azerbaijan, Georgia, and Turkey are set to launch construction of a Caspian pipeline later today, beginning a project that may tie their countries together for decades to come.

At a ceremony near Baku, Presidents Heidar Aliev, Eduard Shevardnadze, and Ahmet Necdet Sezer will lay the foundation for the Baku-Tbilisi-Ceyhan oil pipeline, which has become known as BTC. The 1,760-kilometer link from the Caspian to the Mediterranean has been a regional goal since Azerbaijan signed its first offshore contract in September 1994. Energy Secretary Spencer Abraham will represent the United States, which has been a primary source of political support.

Aside from the ceremony, the event will mark an enormous commitment to the Caspian plan. In addition to the $2.9 billion cost for building the pipeline by 2005, a consortium led by Britain's BP oil company will pledge investments of $5.2 billion in the next stage of developing Azerbaijan's resources to fill the line with 1 million barrels of oil per day.

As the first major pipeline in a Western-backed transport corridor through the Caucasus, the BTC plan has already produced countless arguments and political calculations. But the benefits for the three countries on the route have remained largely unchanged.

Azerbaijan's Aliyev has promoted the pipeline as a path to independence, export access, economic growth, and ethnic connection with Turkey. Georgia has welcomed the development, with the revenues and strategic value of becoming a crossroads for Western markets. Turkey has also been eager to serve as a Caspian gateway, while avoiding an increase of oil traffic through the Bosporus.

Speaking yesterday at a meeting with Sezer in Baku, Aliyev said the pipeline would play a key role in the construction of a regional security system, Interfax reported. Actual trench work for the pipeline is expected to begin next March.

Although the countries continue to see the same benefits, many circumstances surrounding the pipeline have changed. For years, BTC was viewed as a political project because of the U.S. goal of avoiding Iran and assuring that Caspian exports would have an alternative to Russian routes. But politics seemed to fade as a prime motivator after 1999, when Britain's BP oil company decided to back BTC. Since then, business concerns have been driving the plan. Some analysts have also changed their minds about the project's potential over the years.

In an interview with RFE/RL, Fiona Hill, a fellow in foreign-policy studies at the Brookings Institution in Washington, said, "I was pretty skeptical about this at first." But she added, "Finally, it does seem that BP has decided it is commercially viable."

As the head of the nine-member BTC consortium, BP has given assurances to investors that Azerbaijan will have enough oil for the pipeline, even if it fails to attract Caspian exports from Kazakhstan. The second phase of Azerbaijan's offshore project is expected to yield 1.6 billion barrels of oil, a BP official said last week.

Years ago, the competition of routes through Russia and Iran dominated the debate over BTC. But Hill said there has been "no appreciable progress" in relations with Iran to cause rethinking of the BTC plan. Closer ties with Russia also seem to have made the project a less contentious issue.

Hill noted that Moscow has improved its relations with both Azerbaijan and Turkey, ending the friction over their national aspirations for BTC. Only the recent disputes with Georgia over alleged Chechen operations on its territory remain a source of concern. Although no Russian companies have joined the BTC consortium, statements from Moscow suggest that the project has been gradually accepted as fact. Russia's LUKoil has also said that it plans to ship oil through the line.

This week, the Reuters news agency quoted Russian Deputy Foreign Minister Viktor Kalyuzhnyi as saying, "Baku-Ceyhan is our direct competitor, but there is nothing to be afraid of." Kalyuzhnyi added that the outlet might even provide healthy competition for the Russian state pipeline company Transneft, saying, "I think it is even positive, because it can shake up Transneft's officials, who have become too used to be monopolists."

The comment is a far cry from statements in September 1994, when Moscow refused to recognize Azerbaijan's contract with the consortium of Western oil companies and called it illegal.

BTC no longer seems to be a hot topic of opposition in Russia. Hill said, "From the Russian point of view, I think it has kind of faded into the background." One reason may be President Vladimir Putin's decision to welcome a cooperative U.S. presence in the region since the terrorist attacks of 11 September 2001, making BTC a more minor matter between the two countries.

The political context for BTC may also have shifted with the growing cooperation between Russia and the United States on energy. During a speech in Washington last week, U.S. Senator Conrad Burns (Republican, Montana) promoted the idea of relying on both Russia and the Caspian for energy resources instead of the Middle East.

Burns said, "Russia and the Caspian states present the biggest opportunity in oil exploration and production for America," the London-based "Financial Times" reported. He added that the new trust between Putin and U.S. President George W. Bush "affords America a historic opportunity to share new technologies and modern management with our Russian ally."

The speech, reportedly written in consultation with the Bush administration, suggests that significant changes have taken place in the years since the BTC pipeline was first planned. It may still be too soon to conclude that Russia and the United States will extend their cooperation to the Caspian, but some of the causes of controversy over the pipeline seem to have eased.