We all know the prosperity which came to Texas after oil
was found there so many years ago. The five states
around the Caspian Sea want to bring their oil and gas
to lucrative Western markets, and watch the money pour
in. A good plan for countries in the throes of
post-Communist development, or simply wanting an
economic boost. A good plan, also, for Europe, looking
for new sources of supply once North Sea oil finally runs
"The reserves that we know about put the Caspian on a par
with the North Sea, or maybe two North Seas."
Julian Lee is a senior analyst with the Centre for Global
Energy Studies in London.
"There are a number of wells being drilled at the moment.
Many of those may turn up gas rather than oil, but there is
the potential for further big discoveries in the Caspian."
As Julian Lee points out, the key word is potential. The
oil known about is what was discovered before the
collapse of the Soviet Union. Now Russia shares the old
Soviet Caspian coastline with the newly independent
states of Azerbaijan, Kazakhstan and Turkmenistan.
Western energy companies have moved in. But despite
their best efforts and technology, no new oil reserves
have yet been proven. Iran, the fifth Caspian country, is
saddled with American sanctions. So the best hopes are
pinned on drilling in former Soviet areas, which have yet
to produce. No wonder the European Union talks about
wanting supplies from diverse areas, and doesn't want to
rely on current Caspian uncertainties. The EU's energy
spokesman is Gilles Gantlet.
"It seems there is very big potential. But there are some
discrepancies of the nature of these potentialities, because
what is already proved is only about five percent of what
could be expected. But some people say there is more than
what we think, or on the contrary."
But there's no big worry yet. Plenty of dry wells were
drilled in the North Sea. There have been comparatively
few drillings in the Caspian Sea so far, and the oil
companies all say they remain optimistic. The EU, says
Gilles Gantlet, is working with all the Caspian countries
on how to bring whatever reserves there are to market.
It won't however, be caught out, if the optimism proves
"It's also clear that, if you see the situation in the North Sea,
the Caspian Sea could become a replacement or substitution
of some stocks in the North Sea which are starting their
decrease. So there is an interest to retain these relations,
and to have further contacts, and to see what is possible to
do with these countries. But, of course, we have to be aware
that the possibilities are not as high as we can expect, There
are a lot of question marks which are still there, and the big
question of the whole process is how to maintain this
strategy of diversity and speaking with all actors, but at the
same time not to put all the eggs in the same basket."
Part of this caution, however, has nothing to do with
doubts over the reserves. The Caspian Sea is
landlocked. Pipelines need to be built to bring the oil to
market. One has just been completed, running from the
Caspian coast of Kasakhstan to the Russian Black Sea
port of Novorossiisk. From there, supertankers will take
the oil through the Bosphorus and to the Mediterranean
and the West. But there are two problems. The
Bosphorus through Istanbul is now so crowded Turkey
has been warning of a tanker accident just waiting to
happen. Turkey doesn't want increased tanker traffic.
And the Black Sea route, on its own, gives Russia a
strangehold over supply. Much of the known oil is on the
opposite side of the Caspian to Kazakhstan, off the
coast of Azerbaijan, with its capital, Baku, the region's
main oil port. Plans for a pipeline from Baku through
Georgia, and then on to the Turkish Mediterranean coast
at Ceyhan, have been on the drawing board for years,
dogged by financial and political uncertainties. Reserves
not proven; pipelines uncertain. What would get things
When George W. Bush took office, almost the first thing
he did was to send his Secretary of State, Colin Powell,
to broker peace in one of the most intractable conflicts
arising from the collapse of the Soviet Union. There are
new hopes of a settlement in the conflict over
Nagorno-Karabakh, an Armenian enclave inside
Azerbaijan. The conflict was one of the uncertainties
stopping progress on the Baku to Ceyhan pipeline.
Meanwhile, presidential envoys were despatched to the
Caspian region to push for speedier progress. It seems
to have worked. A consortium in Baku led by the energy
company, BP, has now announced the start of
engineering works for the Baku to Ceyhan pipeline.
Politics as well as energy needs may be behind this. His
current Caspian envoy is Ambassador Steven Mann:
"The administration, as a fundamental point, supports the
independence and the sovereignty of these new nations of the
former Soviet Union. When we talk about the Caspian
nations, an essential part of securing that independence and
sovereignty is helping them become prosperous, helping them
find export routes for the enormous energy resources that
they have in that region."
The Americans are pushing on an open door. Oil wealth
would transform relatively impoverished countries like
Kazakhstan and Turkmenistan. Baku, traditionally an oil
port, would be great again. Iran -- with no love for the
Americans -- would get a much-needed economic boost.
But America giving support to former Soviet countries in
Russia's own back yard needs -- well -- a certain tact.
"We want to be helpful. We want to facilitate the negotiations
in the Caspian region. It's not our place to take a leading role
on this. This is something for the nations themselves to sort
out. In the past to some of the countries we've offered
consultations from some of our attorneys, we've brought our
geographer over to the region to help with these issues, but I
stress we see ourselves in a secondary role at best."
Secondary role, perhaps. Except, of course, that
American involvement did seem to get the Baku to
Ceyhan pipeline scheme moving again. The impression
persists despite denials that the US and its ally,
Azerbaijan, may have struck some deal. This might help
explain why Iran suddenly brought out its gunboats and
ordered survey ships from Azerbaijan out of what it
considers Iranian waters -- something it has never done
despite previous similar incursions. Iran is anything but
a US ally, hobbled in its own oil developments by US
sanctions. Iran disputes Azerbaijan's claims over some
of the possible reserves, and the last thing it wants is
the Americans giving Azerbaijan a n advantage. With
exploration work in the area now suspended, Iran has
signalled it wants its concerns addressed before work can
resume. Whether or not this tougher stance is a result of
American involvement, it clearly IS a consequence of
negotiations having got bogged down over how to divide
the Caspian among the five countries on its coast. Iran
and Turkmenistan, particularly, have been objecting to a
formula the other states might accept because, they
say, they lose out to Azerbaijan. So these negotiations
have to be resolved, too, before Caspian supplies can
be considered safe. The analyst, Julian Lee, thinks that
may be a longer-term prospect:
"I've always believed that the division of the Caspian will be
a matter of horse-trading rather than the application of some
sort of international legal stricture. They will come up with a
solution which is economically acceptable to all, and they will
find the political words to make it work."
In the meanwhile, however, military tensions join the
problems to be tackled. If Iran uses its navy, why not
Turkmenistan, which also feels it's being deprived?
"The big worry is that if Turkmenistan launches the gunboats
on the Caspian, then Russia and Iran are forced to do the
same. And if Russia and Iran start putting military vessels
on the Caspian, then Azerbaijan may turn to the US, and the
last thing that anyone wants to see is US gunboats on the
But talk of such prospective militarisation is dismissed
by the US envoy, Ambassador Steven Mann.
"I think you really are going out on the limb of speculation
when you use the word militarisation. Now, every country
there certainly has its border security forces, every country
has its national armed forces. That's nothing exceptional."
The EU's not getting involved in such risks. While
Washington's alliance with Azerbaijan is clear, the EU
prefers less political engagement. Its spokesman, Gilles
"What Europe decided is not to privilege yet one pipeline, or
one single route for energy. Firstly, what we want is to leave
the private companies to take care of it, and to sere and to
decide what is their interests, because clearly they know
more than a lot of other actors what is best for them. At the
same time, we try to give as much support as we can not
only to our companies, but also to the countries, in order to
maintain this diversity, because in such a difficult region --
because we all know it's not the calmest we've got in the
world -- it's important not only to have a diversity of
suppliers, but also to have a diversity of routes, because it's
a question of supply security for all Europe, and other regions
close to us."
There's an up-beat mood in Baku at BP's offices. BP and
its seven partners recently announced they were to
spend one-hundred-and-fifty-million dollars on
feasibility studies. The BP chief executive, Sir John
Browne, has just given the pipeline public backing, and
says it could start delivering oil by the end of 2004. But
the pipeline is going to cost about three-billion dollars --
a lot of money with reserves not yet proven. Not
surprisingly, the local head of BP, David Woodward, says
detailed surveys must be done before the pipeline
proper is built:
"That's where we're moving to next -- twelve months of
detailed engineering, and at the end of that, the middle of
next year, we'll know whether the capital costs of the
pipeline, the number of investors who are interested in it, the
external financiers, are going to be prepared to put money
forward to allow us to construct the pipeline."
And David Woodward knows there's another reason to
move slowly. The pipeline must not itself become a
source of conflict.
"We'll be undertaking both an environmental and social
impact assessment of the pipeline route, consulting NGOs,
the public, governments and so on, working with communities
to assess what the impact of the pipeline construction and
operation could be, and taking steps to mitigate any of those
As with oil so with gas. Alongside the oil pipelines, a
huge gas pipeline network is being envisaged which
eventually could link directly with the existing networks
of continental Europe. But with so many issues to be
resolved, there's still a lot of work to be done before
Caspian reserves in any real quantity reach the West.
The EU, unlike the Americans, is letting things take their
"What is clear -- and this is what we said in the different
official papers we release in the last year -- is that we need
more diversity, and to have this diversity we've got to have
contacts with every partner. Clearly, Russia is part of our
main partners, and we have launched again deeper energy
dialogue between EU and Russia. But also we think about
Caspian Sea, we think about the Gulf producers, and also the
Mediterranean producers. It's important not to have a single
relation, but to have a multilateral relation."
The Caspian is a tale of potential opportunities and
potential risks, and actual slow progress. But successful
exploitation of the Caspian reserves could transform an
underdeveloped region into lands of wealth and plenty.
Perhaps that reasoning will win over everything else.