BACKGROUND: The start for this race was back in September 1994 when Azerbaijan signed a contract on the development three oil fields with a BP-led consortium of Western companies. With hindsight, the investors would probably agree that the term ‘the deal of the century’ was a bit of wishful thinking, but their immediate concern ten years back was transportation. The hugely expensive and geopolitically risky plan for a 1000-mile pipeline connecting Baku via Tbilisi to the Mediterranean port of Ceyhan (BTC) captured the imagination of politicians in Azerbaijan, Turkey and, crucially, the U.S. – but encountered determined resistance from Russia. It was only when it became clear that the Bush administration was no less committed to the BTC project than the Clinton democrats had been, that Moscow dropped all its formal objections. The construction costs exceeding USD 3 billion – a bill that appeared mind-boggling in the late 1990s but looks quite reasonable on the current level of oil prices – have been covered with the help of international banks, including the World Bank and the European Bank for Reconstruction and Development. The latest reports from the construction sites in Azerbaijan and Georgia give the figure that over 65% of the pipe is laid, and Turkey is lagging only slightly behind. Unless a disaster strikes, which is always a possibility in the conflict-rich Caucasus, the first super-tanker could go out of Ceyhan full of Azerbaijani oil in about a year from now. There could be more problems, however, with filling in the second tanker, since extensive drilling in the southern part of the Caspian Sea has confirmed that the reserves in Azerbaijan are likely less than expected. It is exactly on this vulnerability that Moscow focuses its game plan. IMPLICATIONS: Lifting its objections against the BTC, Russia still harbours serious reservations and would love to see the project derailed. Russian oil giant LUKOIL, which was a party to the original 1994 consortium, had to withdraw its interest in the BTC pipeline after receiving a hint from the Kremlin. In fact, Moscow’s answer to the ‘unfriendly project’ took shape already in summer 2001 when oil started to flow along the new pipeline from the Tengiz oilfield in Kazakhstan to the port of Novorossiisk. The second parallel pipe has been commissioned and could be ready by next summer, and a third line is been planned. The bottleneck for this stream of Caspian oil is the Bosporus, since Turkey has been raising concerns about the volume of tanker traffic. The restrictions on passage in night time created a three-weeks long queue last winter at the mouth of the straights. In order to stay ahead in the race of pipelines, Moscow urgently needs to clear the way for the oil, hence Putin’s stern reminder: ‘A solution to this question is now overdue, to put it bluntly’. The issue of a by-pass pipeline was for the first time elevated to the ‘presidential level’ a year ago during Putin’s visit to Bulgaria. It was, nevertheless, not found worth including in the Russian Energy Strategy, approved late last August, where many alternative options were spelled out in considerable detail. Now, however, Semyon Vainshtok, the president of state-owned company Transneft that owns all the Russian oil pipelines (with the notable exception of privately-owned Tengiz-Novorossiisk), expresses readiness to rush ahead with this project. Speaking at the third international pipeline forum in Moscow in early June, Vainshtok placed emphasis on the by-pass around Bosporus, skipping details due to ‘possible pressure from Turkey’. Indeed, Ankara has its own by-pass project going from Samsun on the Black Sea to the same Ceyhan, but its first priority is certainly BTC. Russia’s key proposal is a reasonably short and low-cost pipeline from Burgas in Bulgaria to the Greek port of Alexandroupolis. The second option is to pump the Caspian oil through the Ukrainian Odessa-Brody pipeline, completed a couple of years ago but still standing ‘dry’. There is also a third option, involving the delivery of Kazakh oil to the rapidly expanding terminal at Primorsk near St. Petersburg. Environmentalists in the Baltic countries have been outraged with these plans, since the possible damage to the Gulf of Finland if a single-hull Russian tanker hits a rock in these hard-to-navigate waters would be devastating. For Moscow, the oil comes first, so it dismisses these concerns off-hand. It has recently also explored the fourth option involving ‘swap’ deals with Iran, which in April completed the pipeline connecting the Caspian port of Neka with a refinery near Tehran. Potentially, up to 25 million tons of oil from Russia and Kazakhstan could be delivered to Neka annually, while Iran would ship the same amount out of its Gulf terminals. Finally, Moscow has shown inclination to insist that Azerbaijan exports some of its oil through Russian pipelines, as stipulated by old contracts. If all these options are realized, BTC would remain only half-full, so that Russian commentators would have the pleasure of comparing its cost-efficiency with the notorious Soviet BAM railroad.

CONCLUSIONS: The key country which holds the future of the BTC in its hands while having no immediate stake in its success is certainly Kazakhstan. Unlike other Central Asian states, it has cautiously stayed a safe distance away from the US-led war against terror, and so has retreated to the margins of the political radar screens in Washington. Putin, however, has been courting President Nazarbaev with all the professional charm he possesses. Moscow has been also playing Prime Minister Danial Akhmetov against Timur Kulibaev, president of state-owned oil company and Nazarbaev’s son-in-law. Nobody could blame Russia of abusing in any way its monopoly on transporting Kazakh oil and it is only natural that it seeks to preserve it. As a general rule, however, a monopoly – whether on political power or on a commercial commodity – is not a healthy practice. It is not too late to secure a part of the ‘big oil’ from the Northern Caspian for the BTC. One issue Nazarbaev has shown high sensitivity about is corruption allegations against his extended family. For Moscow this issue is non-existent, but the West has to find a way to clean its oil ‘act’ in Kazakhstan to an acceptable degree without offending the boss.

AUTHOR’S BIO: Dr. Pavel K. Baev is a Senior Researcher at the International Peace Research Institute, Oslo (PRIO).