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South Caucasus Emerges As 'Crossroads Of Energy-Exports'

Azerbaijan is the biggest energy exporter in the South Caucasus
Azerbaijan is the biggest energy exporter in the South Caucasus
If all the proposed energy-export projects envisioned for the South Caucasus were to be built, hundreds of billions of dollars of oil- and natural-gas revenues could be flowing through the region annually.

Once considered a "crossroads of civilization," the South Caucasus has emerged as a crossroads of energy-export routes -- spurring renewed competition in the region.

Nestled amid regions to the south and east that possess huge hydrocarbon wealth, and regions west and north that desire energy resources, Armenia, Azerbaijan, and Georgia find themselves in an enviable geographic location, making fierce competition for their favor inevitable.

For hundreds of years, Turkey, Iran (Persia), and Russia competed for influence in the region.

For the last 200 years, Russia has been the dominant power in the region (although it did face stiff resistance from Persia and Turkey for the first decades of the 1800s).

Russia's Dominant Role

Russia's brief war with Georgia in August served as a reminder that nearly 20 years after the fall of the Soviet Union, Moscow has retained its dominant regional role.

Russia's main energy interest in the Caucasus is Azerbaijan, where oil has been pumped ever since people found use for oil.

Azerbaijan is the only Caucasus country with any substantial hydrocarbon wealth. The country's proximity to Turkey allowed it to become the first of the former Soviet republics to construct alternative non-Russian pipelines bringing oil and gas through Turkey to Europe.

The first exports from the Baku-Tbilisi-Ceyhan (BTC) oil pipeline and Baku-Tbilisi-Erzurum (BTE) gas pipeline reached their destinations in 2006.

With the construction of these routes, Russia's hold over Azerbaijani oil and gas -- and monopoly on Caspian energy export routes-- was broken.

Federico Bordonaro, from the Italy-based energy analysis group, says that Russia was not happy about the new pipelines.

"We have to remember that Russia has always fiercely opposed the realization of the BTC because it reduces its leverage toward the West when it comes to the transportation of Caspian resources toward the West," Bordonaro says.

Since the construction of the BTC and BTE, Russian energy giants LUKoil and Gazprom have sought to maintain Moscow's monopoly of financially lucrative energy-exports to Europe, and have worked hard to ensure that no other non-Russian Caspian energy projects are realized.

This should come as no surprise, says Jenifer DeLay of the Edinburgh-based Newsbase group, which follows global energy developments.

"Gazprom needs Europe as much as Europe needs Gazprom -- more in fact. I believe that European gas sales account currently for about 60 percent of Gazprom's total revenues. Losing that would hurt the company very much," DeLay says.

Azerbaijan: Flush With Gas

Gazprom is on the verge of new deals with Azerbaijan that promise to bring Azerbaijani gas back into Russian pipelines.

Gazprom would also like to see some Azerbaijani gas put into its envisioned South Stream pipeline that would, if built, go across the Black Sea from Russia to Bulgaria and then split into two pipelines -- one through the Mediterranean to Italy the other through Serbia and Hungary to Austria.

This would at the same time limit the ability of Georgia, which Moscow has made clear it still wants to punish after the August military conflict, to collect revenues from the BTC and BTE pipelines.

Without Azerbaijani gas, other pipeline projects through the Caucasus would be delayed by years or probably scrapped altogether.

As for Turkey, Istanbul would prefer to see the European Union-backed Nabucco pipeline built, since it would transit Turkish territory and thus provide both a new source of gas for the country and a new source of revenue.

But Turkish participation in Nabucco also comes at a price. From Europe, the Turkish government seeks guarantees of eventual Turkish membership in the European Union.

From Azerbaijan, the Turkish government wants a DAF (Delivery At Frontier) agreement, meaning Azerbaijani gas becomes Turkish gas as soon as it enters Turkish territory (from which Turkey will sell it on to Europe).

Turkish Prime Minister Recep Tayyip Erdogan requested to be at a April 17 meeting between Azerbaijani President Ilham Aliyev and Russian President Dmitri Medvedev, but although he was reportedly given permission, he did not end up attending.

A Turkish delegation went instead, and found itself being lectured by President Aliyev over Ankara's recent moves toward normalizing relations with Armenia.

Azerbaijan also has an added price for its gas and oil -- support in its dispute with Armenia over the Nagorno-Karabakh enclave both countries claim.

EU Moves

The European Union, too, is trying to gain influence in the South Caucasus.

Having seen that BTC and BTE are aiding its efforts toward energy diversification, the EU representatives are debating various new energy-import projects. This in turn, is leading potential supplier and transit countries to line up to get in on what promise to be very lucrative deals.

But by diversification, Europe also means finding routes that do not go through Russia.

Russia's overwhelming military defeat of Georgia last year makes the role and security of current or future pipelines running through that country an issue that weighs heavily on the minds of many in the EU.

Giorgi Vashakmadze, the director of corporate strategy for the White Stream Pipeline project, says that European fears on the security issue are needless, and that "internally" there are no problems associated with the Georgian route.

The White Stream Pipeline aims to bring Caspian gas through Azerbaijan and Georgia and across the Black Sea to Ukraine and Romania, from where it will travel farther into Europe.

"The overwhelming majority of Georgians are aspiring to the Euro-Atlantic integration of Georgia and have a great appreciation of democratic values," Vashakmadze says.

"So based on this there is no internal risk, or threat for Georgia as a transit country, and this makes Georgia for routes via the Caucasus a very reliable and a key element for the East-West corridor."

If Russia can be seen as the current leader in the competition for influence in the South Caucasus, Iran can be considered an outsider for now.

However, the race is still on, with Tehran's relations with Azerbaijan having improved greatly since 2001, when Iranian ships chased BP research vessels from the waters near the two countries' disputed maritime border.

In recent years, Iranian energy officials have been arriving with increasing frequency to Baku, and Iran stands a good chance of being a future contributor to existing and planned pipelines through the Caucasus.

As the competition continues, only one thing is certain -- there is no formula for energy-export routes through the Caucasus that can satisfy all the interested parties inside and outside the region.

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