BACKGROUND: Given a two percent annual increase in world energy consumption projected by the U.S. Department of Energy, political volatility in the Middle East and an American desire to find additional, non-OPEC oil sources, alternative energy sources have become an important American foreign policy priority. Although official U.S. policy on the transportation of Caspian oil has supported the development of multiple pipelines, the U.S. has in effect focused on the creation of an East-West oil transportation corridor insulated from Russian interference, denying Iran lucrative transportation tariffs, and attempted to reduce energy flows and regional trade along the North-South, Iran-Russia axis. According to the U.S. Department of Energy, once the Baku-Tbilisi-Ceyhan pipeline is fully operational, the Azerbaijan-Georgia-Turkey corridor is set to become the major route for the transport of Caspian oil to Western markets. The U.S. focus on Caspian oil politics and pipelines promotes regional economic integration and development along the East-West axis, linking Central Asia to the South Caucasus and to Turkey. At the ceremony to lay the inaugural section of the Baku-Tbilisi-Ceyhan pipeline in Azerbaijan in 2002, Energy Secretary Spencer Abraham noted that it would contribute to regional and international energy security for the mutual benefit of countries involved. President Heydar Aliyev of Azerbaijan described the impact of U.S. policy on countries in the region by stating that “the project guarantees peace, security and stability in the region, and further unites three countries and three peoples.” By minimizing the role of Russia and Iran in Caspian energy development projects, the U.S. is creating a new geopolitical space running from Turkey through the South Caucasus to Central Asia, providing itself with direct access to Central Eurasia and scope for a possible long term presence there for energy resource development, security, a strategic counterbalance (if needed) to China and Russia and, most urgently, regional military bases for fighting international terrorism directed at the U.S..

IMPLICATIONS: Ahead of the inauguration of the Baku-Tbilisi-Ceyhan pipeline project in Azerbaijan, Russian Foreign Minister Igor Ivanov warned against efforts to exclude Russia from Caspian oil development and argued that Caspian oil supplies alone were not sufficient to make the Baku-Tbilisi-Ceyhan project economically viable. Because ca. 40% percent of Russia’s foreign currency revenues comes from oil and gas sales, the Russian foreign policy and energy establishments view Caspian oil and natural gas producing and transiting countries such as Kazakhstan, Turkmenistan, Azerbaijan and Georgia as major competitors for Russia’s Eurasian monopoly on energy exports to European markets. Russia has used its geographic dominance over landlocked Central Asian countries and its control of major ports and pipeline outlets in the Caspian and Black Sea regions to hinder the U.S.- and U.K.-led energy projects opposed by Moscow. Russia hinders the development of energy projects undesirable to its own national oil industry and political establishment by declining to participate in Caspian oil transportation projects initiated by Western companies, and instead pursues its strategic focus on upgrading and developing pipelines that lie exclusively on Russian territory, as well as promoting a North-South (Russia-Iran) corridor for exports of Caspian energy and goods instead of an East-West corridor. Russia exerts significant pressure on the energy-producing countries of the Caspian basin to use only Russian energy transport routes. Thus far, however, Russia has failed to prevent the U.S.-led development of the alternative, East-West energy transportation corridor. U.S. military and (mostly energy-related) commercial ties with most of the Central Asian and South Caucasian countries are gradually increasing. The inclusion of the countries of Central Asia and the South Caucasus in NATO’s Partnership for Peace and in the coalition against international terrorism, including military presence in Central Asia and the Train-and-Equip program in Georgia all reinforce Russian fears that the U.S. presence will substantially reduce Russia’s influence over this strategically important region. The Bush administration recognizes that the intense interest in the region by both the U.S. and Russia is reinforced by the Caspian geopolitical situation, which involves Russia’s struggle to restore its past dominance in the region, Iran’s and Turkey’s struggle for leverage, and the South Caucasian and Central Asian states’ struggle for independence, security and sustainable economic development. The U.S. will need to continue to work towards closer cooperation with Russia, Turkey and other regional states on developing Caspian oil export capacity, as well as on matters of regional stability and economic development.

CONCLUSION: Russia could benefit economically by choosing not to obstruct the development of alternative energy transport routes from the Caspian to the Mediterranean. The Russian government’s Energy Strategy 2000 calls for an increase in national oil production, but Russia does not have sufficient pipeline capacity in place to step up oil exports. Russia could itself use the Baku-Tbilisi-Ceyhan pipeline for oil exports, and consider developing a Novorossisk–Batumi–Ceyhan pipeline for Russian oil, as proposed by Georgia, that would avoid transit through the Bosporous straits and help clear up existing bottlenecks at the Russian Black Sea port of Novorossisk. Given the circumstances of increasing American interest in the South Caucasus and Central Asia, Russia’s diminishing military and economic power, and the limited trust placed in it by its neighbors, it is important that the U.S. and Europe cooperate with Russia to tackle regional problems, such as developing Caspian oil export capacity, as well as issues of regional stability and economic prosperity. Such cooperation would foster Russia’s political and economic revival and its long-term goal of closer integration with Europe and the Western world in general.

AUTHOR BIO: Vano Matchavariani has recently completed the mid-career Master of International Public Policy program at Johns Hopkins University’s School of Advanced International Studies (SAIS), concentrating on security, foreign policy, political transition and energy development in the Caucasus and Central Asia. He was formerly Counsellor in Georgia’s diplomatic mission to the United Nations in New York.