Oil, Gas and the Great Game Revived

Le Monde diplomatique:

Fuelling the flames

The May summit between the European Union and Russia ran aground on the issue of energy cooperation: the EU imports a quarter of its oil and gas from Russia and is concerned at Moscow’s growing political influence in the region. The agreement signed on 12 May by President Vladimir Putin and his Turkmen and Kazakh counterparts confirmed a turn in the tide: Moscow, despite a period on the sidelines when oil and gas pipelines were being carefully routed around its borders, is now back on the offensive.

The manoeuvring of the great powers around the hydrocarbon reserves in central Asia and the Caucasus is not solely due to their demand for fossil fuels. Since the collapse of the Soviet Union in 1991 its former republics no longer bow to Moscow, and their oil deposits are the major interest in the scramble for influence across Eurasia. For Russia and the West, the gas and oil pipelines are long leashes to draw the eight newly independent states (NIS) into their geostrategic backyards (1).

This is the new “Great Game”. First described in the 19th century (most famously in Rudyard Kipling’s proto-spy novel, Kim), the Great Game was a global battle for influence in central Asia. In the 19th century, at stake was the Indian subcontinent, the jewel in the British crown and much prized by imperial Russia (2). The century-long conflict ended in 1907 when Britain and Russia signed a convention on zones of influence, designating Afghanistan as a buffer state (3).

The agreement held until the USSR broke up. As Muratbek Imanaliyev, a former Kyrgyz (and Soviet) diplomat at the head of the Institute for Public Policy in Bishkek, Kyrgyzstan, said: “The policies and vision the global powers now project may be different, and the actors may have changed: but their ultimate goals are the same. They intend to colonise central Asia and neutralise each other’s influence. Their economies need gas and the oil but it’s political influence that interests them most.”

With the collapse of the USSR the NIS were quick to understand the importance of their oil – in cash terms, and for their relations with Russia. Since the end of the 1980s the US company Chevron has had its eyes on one of the richest oil fields in the world, the Tengiz field in west Kazakhstan, and by 1993 it had acquired a 50% stake. A year later, on the other side of the Caspian, president Heydar Aliev of Azerbaijan signed the contract of the century with foreign oil companies for investment in the offshore Guneshli-Chirag-Azeri fields.

Challenge from Russia

Russia was furious at seeing Caspian oil slip away. It decided to challenge Azerbaijan on the internationally disputed status of the Caspian. Russia had hoped relations would be easier with Aliev than with his predecessor, the nationalist and anti-Russian Abülfaz Elçibay. Azerbaijan’s first independent president, he was overturned in a putsch in June 1993, a few days before the signature of a number of important contracts with the Anglo-US oil companies. Aliev, a former KGB general and Politburo member, was familiar with the Soviet system and was able, through discreet dealings with Russian oil companies, to find common ground with Russia: Lukoil took a 10% share in the Guneshli consortium. For both East and West the rush had started.

In the 1990s the US justified incursions into the Caspian sea by inflating its estimates of the hydrocarbon deposits, reporting the equivalent of 243bn barrels of oil (only a little less than the reserves of Saudi Arabia). Today’s estimates are more circumspect, at some 50bn barrels, with 9.1 trillion cubic metres of natural gas, around 5% of known global resources. Steve Levine, journalist and follower of events since the 1990s, attributes the US manoeuvres to a determination to build the Baku-Tbilisi-Ceyhan pipeline (BTC), intended to stifle, or mitigate, Russian influence. He wondered whether the US realised how much it exaggerated (4).

Since 2002 the struggle has intensified. US forces are now on ex-USSR territory, pleading the war on terror in Afghanistan and 9/11. Russia, now weakened, has raised little objection, and the US has set up bases in Kyrgyzstan and Uzbekistan, promising to leave when all al-Qaida cells have been eradicated. Lutz Kleveman, ex-war correspondent, said: “President George Bush has used his massive military build-up in central Asia to seal the cold war victory against Russia, to contain Chinese influence and to tighten the noose around Iran” (5).

The US also played a decisive role, unappreciated by Russia, in the revolutions in Georgia (2003), Ukraine (2004) and Kyrgyzstan (2005) (6). There are autocrats in the region who, startled by the revolts, have now turned their backs on the US and look to Russia or China. The rules of the game have changed over the last few years: China has entered central Asia, and Europe, disconcerted by the gas war between Russia and Ukraine in 2006, has accelerated its plans to join the Caspian rush. Oil and security, influence and ideology all interact as the players place their bets.

Fewer eggs in the Russian basket

Russia was initially well placed, since in 1991 it controlled all the pipelines its former states needed to export their oil. Since then the Soviet apparatchiki have become presidents in office and know better than to keep all their eggs in the Russian basket. Half a dozen pipelines built since the Soviet collapse bypass its territory, mapping the decline of Russian influence.

Turkmenistan is a good example of Russia’s relations with its former satellites: the ex-Soviet republic sold 40bn of the 50bn cubic metres of the gas it produced in 2006 to Russia. It had no choice. Apart from a small pipeline connecting it to Iran since 1997, Turkmenistan’s only outlet is the CAC-4 pipeline leading to Russia, which did little more than shackle it to its former master. In April 2003 the Russian president Vladimir Putin was able to persuade his Turkmen counterpart, Saparmurat Niyazov, to sign a 25-year contract for 80bn cubic metres per year, for a derisory $44 per 1,000 cubic metres.

Turkmenistan regretted the move and ended deliveries. In the winter of 2005 Russia agreed to pay $65 per 1,000 cubic metres since it urgently needed cheap gas for its people. In September 2006 Gazprom signed a commitment with Turkmenistan to pay $100 per 1,000 cubic metres from 2007 to 2009. Gazprom’s new offer is easily explained. In April 2006, Niyazov signed a document with Hu Jintao committing Turkmenistan to supply China with 30bn cubic metres of gas a year for 30 years from 2009, as well as the construction of a 2,000km gas pipeline.

When the new Turkmen president, Gurbanguly Berdimuhammedow, returned from his first official visit to Moscow this April he invited Chevron to help develop the energy sector. Niyazov, who died last year, would never have dared invite a major oil company. Berdimuhammedow has entertained European advances on a Transcaspian corridor (see map). His invitations to the West may be aimed at extracting higher prices from Gazprom, for he charges Europe more than $250 per 1,000 cubic metres for his gas.

Putin had offered to renovate CAC-4 and construct another pipeline between the countries. According to the Russian journalist Arkady Dubnov, an expert on the Commonwealth of Independent States, Russia needs to convince Turkmenistan of all it has to offer, to prevent it approaching China and the West. Moscow’s affair with Turkmenistan illustrates its loss of influence over its former satellites. It is being driven by the economic pragmatism of Putin and his entourage. Recent events have shown that the strategy may be paying dividends.

On 12 May, during a visit to central Asia, Putin signed an agreement with his Turkmen and Kazakh counterparts on the renovation of CAC-4 and the construction of another pipeline to bring Turkmen gas to Russia. His visit to Turkmenbashi was a whirlwind affair, aiming to pull off an agreement before a parallel summit in Cracow, Poland, gave several of Russia’s neighbours the chance to launch a series of hostile pipelines. The Kazakh president had to cancel his trip to Cracow to receive Putin: the Kremlin still seems to have the influence to trump the other great powers in central Asia. This is bad news for both Beijing and Brussels, who are counting on supplies of the region’s gas.

Conflicts behind the scenes

Russian methods can often seem brutal. That is how Europe saw the 2006 gas crisis between Moscow and Kiev. Europe imports 25% of its gas from Russia and was disconcerted by the prospect of a break in supplies. For Jérôme Guillet, however, the author of a report on the gas wars, they “reflect behind-the-scene conflicts between powerful factions inside the Kremlin and in Ukraine, rather than an energy weapon” (7).

Russia is the world’s largest producer of gas, second largest of oil. Having redressed its finances it is now ready for strategic initiatives. Even before its Turkmenbashi coup it had signed an agreement with Bulgaria and Greece to construct the Burgas-Alexandroupolis pipeline (BAP), the first under Russian control on European soil. The BAP has direct competition, however, from the 1,760km-long BTC, along which oil has started to flow over the past few months. Gas is also pumping along the BTE (Baku-Tbilisi-Erzurum). These are arteries of western influence across the former USSR, and the first political consequences are being felt.

This year Georgia is less dependent on supplies of Russian gas, the only gas it could import a year ago. The spectacular price rises imposed by the Russians (from $55 to $230 in two years) have had less of an effect on the Georgian economy than Moscow expected. The supplies Georgia has secured through its royalties from the BTE (and also from Turkey which cedes Georgia its share of BTE gas) have enabled it to negotiate a more acceptable price.

The same price rises Russia tried to inflict on Azerbaijan (in the hope that they would be passed on to Georgia) only angered the Azeri president, Ilham Aliyev. As Steve Levine indicated, it proves that the BTC and BTE are the best things the US has achieved in international politics over the past 15 years. It has successfully contained Russia and is bolstering the independence of the Caucasian republics.

Other projects

The pipelines in central Asia serve other purposes: for the US and Europe they open doors through which they intend to diversify their lines of supply and entice the NIS into their political fold.

There are two such projects in prospect. The Kazakhstan Caspian Transportation System will transit oil from Kazakhstan’s Kashagan field, the most important oil discovery of the past 30 years. Production is expected to begin by the end of 2010. The shareholders of the western consortium (8) mean to send at least 1.2m barrels a day southwest across the Caspian. Given Russian and Iranian opposition, there will be no submarine pipeline: a fleet of tankers will ply between Kazakhstan and Azerbaijan, where an oil terminal will link the system to the BTC. With the help of new pump stations and flow technology BTC capacity is expected to rise from 1m to 1.8m barrels a day.

The other major strategic pipeline the US wants, it will probably not get – the famous TAPI, the Turkmenistan-Afghanistan-Pakistan-India gas line the US had hoped to build in the late 1990s, with the cooperation of the Taliban and the US multinational Unocal. According to Ajay Kumar Patnaik, professor at New Delhi’s Jawaharlal Nehru University and a specialist on Russia and central Asia, it poses too many security problems now that the Taliban are back. Most experts give little credence to figures being quoted on the Turkmen reserves.

Underlying US plans for the TAPI was its desire to isolate Iran and weaken Russia’s position in central Asia. The US remains intent on retrieving Afghanistan and securing its stability by providing the fuel Afghanistan needs to relaunch its economy and heat its people in winter. With this in mind the US State Department reorganised its South Asia Division in 2005, merging it with Central Asia. The new strategy is to encourage relations at all levels in Great Central Asia.

Energy procurement is a vital sector for these relations. It explains the many hydroelectric power projects in the region – in Tajikistan, for example, to fuel northern Afghanistan. But the overall strategy has failed to convince. India feels little affinity with central Asia and is reluctant over the TAPI. It is more interested in the Iran-Pakistan-India pipeline proposed by Tehran, although the US Iran and Libya Sanctions Act (under which Washington can punish companies investing in oil or gas in these countries) is holding it back.

Iran the main loser?

The Iranian specialist in international relations in central Asia, Mohammed Reza-Djalili, sees Iran as the main loser. It has no pipeline revenue – and investment, which it needs most, is currently impossible. Its installations date to the 1970s and it imports 40% of its petrol: it has not been able to explore its share of the Caspian, and its vast reserves of gas are underexploited.

It is paradoxical that the Great Game should exclude Tehran, when all the main producers in central Asia dream of a southern route. For Arnaud Breuillac, Total’s vice-president for central Europe and continental Asia, this route is the obvious economic and technical solution. Total’s policy is to diversify its export options: the southern route is logical given the proximity of the Caspian to the northern Iranian market.

In these circumstances, according to Reza-Djalili, the Shanghai Cooperation Organisation (SCO) (9) comes as “a real lifesaver” for Iran’s political aspirations in central Asia. From its seat on the SCO Iran can develop relations with Asia, and with China in particular. It also strengthens its hand in its conflict with the US.

According to the China and central Asia specialist Thierry Kellner, the Great Game interests China because it fears for its security, particularly in the Turkophone province of Xinjiang on the edge of central Asia: through collaboration with neighbours China means to control the influence of the other great powers across central Asia – and China also needs energy.

Beijing has tried to acquire holdings in central Asia over the past few years. In December 2005 it inaugurated the pipeline linking Atasu in Kazakhstan to the Chinese border town of Alashankou in Xinjiang. Beijing’s first petroleum contract in central Asia dates to 1997. The Chinese have a long-term perspective and have long since established a solid base in central Asia: it is now beginning to pay off.

The spending spree is not just about reconciling China’s 10% annual growth rates with its fossil fuel reserves. Kellner believes it is a geopolitical commitment: China is not a market player, even though the supply and demand for oil is a global dynamic. To secure its energy supplies Beijing is prepared to pay high prices for petroleum rights and for pipelines pumping directly to China. But what really counts, if prices are to be kept stable, is the balance of supply and demand in global terms. Beijing would be better advised to help maintain the balance, rather than insisting on strategies of direct supply.

By investing in central Asia the Chinese can influence regional affairs – for their own security, as they say. Beijing uses the SCO to create convergence across the member states on issues close to its heart, the struggle against terrorism, or collaboration on economic or energy-related questions. Moreover, the organisation is likely to form a strongly unified bloc should the region destabilise, or if rising US influence unsettles its national regimes. The SCO took a clear stand against the US when revolutions hit the NIS in 2003. In July 2005 all six of its members aligned with Uzbekistan when it insisted that the US vacate the Karshi-Khanabad airbase used to support its missions in Afghanistan. There are no more GIs on Uzbek soil.

The Great Game suits the republics in central Asia and the Caucasus, as each seeks to turn the jostling of the greater powers to its own advantage. They can now snub one, before welcoming another – but it’s only the right to choose a new master. As Imanaliyev has pointed out, by changing horses too often, their paths eventually diverge. As Kazakhstan opens up its economy, the Uzbeks close theirs: while Georgia plays the US card, Turkmenistan holds the US at bay. It is true that, despite their divergences, the NIS all enjoy more room for manoeuvre under the new Great Game. If the West’s democratic sensibilities offend them, they can always look to China or Russia, neither of whom are so fussy.

Not that the US or EU are that demanding. They regularly allow their strategic interests to override their discourse on human rights, seriously damaging the image of “western” values in the process (leaders in the region consider this discourse and image to be no more than instruments of western ideology). The central Asian leaders themselves, on the defensive since the 2003 upheavals, regularly deliver a parallel discourse on their own “oriental” approach to popular democracy.

Corruption is clearly rife in the new Great Game, and there seems little chance of the region’s peoples being allowed any form of local democratic control over their own national resources, oil and gas.

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Régis Genté is a freelance journalist based in Bishkek, Kyrgyzstan

(1) See Vicken Cheterian, “Jostling for oil in Transcaucasia” and “Central Asia: America’s rear base”, Le Monde diplomatique, English edition, October 1997 and February 2003 respectively.

(2) The founder of contemporary geopolitical theory, Halford Mackinder, saw the planet as centred on the Eurasian continent, his heartland. To rule the world, control over this geographical pivot was essential. He considered that Russia (which ruled the heartland thanks to its geographical position) held strategic advantage in this respect over Britain (a maritime power).

(3) See Peter Hopkirk’s The Great Game, On secret service in Central Asia (Oxford University Press, New York, 1991).

(4) Steve Levine’s The Oil and the Glory: The Pursuit of Empire and Fortune on the Caspian Sea will be published in October by Random House, New York.

(5) “Oil and the New Great Game”, The Nation, New York, 16 February 2004.

(6) See Vicken Cheterian, “Revolutionary aftershocks in the East “, Le Monde diplomatique, English edition, October 2005.

(7) Quoted from Jérôme Guillet, “Gazprom as a Predictable Partner. Another Reading of the Russian-Ukrainian and Russian-Belarusian Energy Crises” Russie.NEI.Visions, no 18, IFRI, March 2007. See also Christophe Alexandre Paillard, “Gazprom, the fastest Way to Energy Suicide”, Russie.NEI.Visions, no 17, IFRI, March 2007.

(8) The Agip KCO consortium shareholders are Eni 18.52%, ExxonMobil 18.52%, Shell 18.52%, Total 18.52%, ConocoPhillips 9.26%, KazMunaiGas (Kazakhstan’s national oil company) 8.33%, and INPEX 8.33%.

(9) The SCO was founded in 1996 as the Shanghai Group. The six member states are China, Kazakhstan, Kyrgyzstan, Uzbekistan, Russia, Tajikistan and the four observer states India, Iran, Mongolia, Pakistan. The SCO has refused to allow the US observer status.

by Régis Genté 

 Translated by Robert Corner

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ALL RIGHTS RESERVED © 1997-2007 Le Monde diplomatique

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