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US standing in Caspian drips away

By M K Bhadrakumar


On Sunday, en route to Astana, Kazakhstan, after a "very nice trip to India", US Secretary of State Condoleezza Rice told reporters accompanying her, "I just wish I could have stayed longer in India". New Delhi must be one of a handful of capitals where officials from the George W Bush administration receive an expectant welcome, and the doomsday warnings emitted from New York and Washington do not seem to matter.

But there was another reason for Rice's trepidation as her jet descended to Astana - US influence and prestige in Central Asia and the Caspian region has again plummeted. Rice realizes there is hardly any time left to retrieve lost ground, and the Bill Clinton administration's legacy in the Caspian and Central Asia has largely dissipated. Central to this has been the failure of the Bush administration to handle relations with Russia. The stocktaking has already begun.

Writing in The Washington Post on Wednesday, former secretaries of state Henry Kissinger and George Shultz rebuked the Bush administration for its "drift towards confrontation with Russia" and pointed out that "isolating Russia is not a sustainable long-range policy". They said much of Europe is "uneasy". Their target was Rice, a self-styled "Sovietologist", and her inexcusably vitriolic attack on the Kremlin in a speech at the Marshall Fund of Germany in Washington on September 18.

Confrontational diplomacy
Kissinger and Shutlz particularly cautioned the Bush administration against encouraging confrontational diplomacy towards Russia by its neighbors, which would be counter-productive. Most certainly, there is already a backlash in the region. Azerbaijan, which the Bush administration once regarded as close regional ally, snubbed Vice President Dick Cheney during his visit to the capital, Baku, last month. Washington pretended not to notice, and deputed to Baku last week yet another top official - Deputy Secretary of State John Negroponte - whom the State Department's website describes as Rice's "alter ego".

On arrival on October 2, Negroponte forthwith said he was carrying a "simple message" - that the US has "deep and abiding interests" in Azerbaijan and these are "important interests" which hold implications for regional and international security. He implied Washington that was not going to roll over and give way to Moscow in the southern Caucasus.

Against the backdrop of the conflict in the Caucasus in August, the Caspian Sea basin has become a focal point. This was inevitable. At the core lies Washington's determination to avoid Russian participation in the European energy-supply chain. To quote Ariel Cohen of US conservative think-tank the Heritage Foundation, "Since August, US diplomats have been busy trying to shore up Washington's geopolitical position all around the Caspian, including Baku, [Turkmenistan capital] Ashgabat and Astana."

Russia is gaining the upper hand in the region. Despite robust US diplomacy in Ashgabat - over 15 American delegations arrived there in the past year - Turkmenistan, which already exports around 50 billion cubic meters of its gas through Russia, has responded well to Moscow's overtures. It has decided to stick to the terms of an April 2003 deal whereby virtually all its exports are handled by Russia "up through 2025", and Turkmen gas exports to Russia are expected to rise to 60-70 billion cubic-meters by 2009, leaving hardly any surplus for Western companies. Ashgabat has also committed to the construction of a pipeline to Russia via Kazakhstan along the eastern coast of the Caspian Sea.

The clincher was Russia's offer to buy Turkmen gas at "European prices" - the same approach that Moscow adopted for securing control of Kazakh and Uzbek gas exports. Russia has since made a similar offer to Azerbaijan, which Baku is considering. Azerbaijan was the true success story of US oil diplomacy in the post-Soviet era. Clinton literally snatched it from Russia's orbit in the 1990s by pushing through the Baku-Tbilisi-Ceyhan [BTC] oil pipeline against seemingly impossible odds. Azerbaijan is now edging back toward Moscow.

It is negotiating with Russia an increase in the annual capacity of the Baku-Novorossiisk pipeline. Azerbaijan reducing its commitment to the US-supported Baku-Supsa and BTC pipelines, which have a massive capacity of 60 million tonnes annually and could easily handle Azeri oil exports, is a breakthrough for Russia.

Russia's resolute stance in the Caucasus has caught Baku's attention. Baku understands Russia's resurgence in the southern Caucasus, and President of Azerbaijan Ilham Aliyev dislikes the mercurial personality of Georgian President Mikheil Saakashvili. Azerbaijan might have lost $500 million in revenues due to the suspension of oil transportation via the Baku-Supsa and Baku-Tbilisi-Ceyhan pipelines in August due to the conflict, and Baku's new interest in the Russian pipeline stems from a desire to protect its relationship with Moscow.

The implications are quite serious for Washington. Any reduction in the Azeri exports via BTC could impact the viability of the pipeline, which has been a cornerstone of US oil diplomacy in the Caspian, pumping early 1 million barrels of oil per day from Azerbaijan to Turkey's Mediterranean coast, where most of the supply is then shipped to Europe. The BTC pipeline looks secure for now, but has come under the increased watch of Russia.

Again, question marks have appeared regarding the future of the Nabucco gas pipeline, which, if constructed, would bypass Russian territory and bring Caspian gas from Azerbaijan via Georgia and Turkey to the European market. What if Azerbaijan accepts the Russian offer to buy gas at "European prices"? Has the Caucasus conflict fatally hurt Nabucco's prospects?

Russia comes out on top
There is indeed a new ambivalence in the geopolitics of the region. All across Western Europe, Eurasia and China countries are assimilating what happened in the Caucasus in August and are assessing their stakes vis-a-vis a resurgent Russia. They seek accommodation with Russia. Moscow has come out very much on top.

The war in Georgia has somewhat clouded the relations between Russia and the European Union. The final declaration of the EU summit on September 1 underscored the need to reduce energy dependence on Russia. But the EU's options, too, are limited. Europe has pinned its hopes on Nabucco, but it can only be implemented with Russian participation. Claude Mandil, former head of the International Energy Agency, said recently in an interview with the Russian daily Kommersant, "There is much oil and gas in Central Asia, but still less than in Russia or Iran."

Mandil, who advises French President Nicolas Sarkozy on energy issues, was critical of the US pressure on Europe to isolate Russia, calling it "counter-productive". He said, "The EU alone should decide the issue of energy security. The US itself is highly dependent on oil imports from Venezuela, but no EU members tell Washington that it's time to attend to that problem".

China also recognizes the Russian consolidation in the Caspian-Central Asian region. A commentary in the People's Daily in early September took note that Russia's Central Asia diplomacy has been "crowned with great success". It noted that visits by Russian leaders to Central Asian capitals in August helped "consolidate and strengthen" Moscow's ties with the region and achieved "substantial outcomes" in energy cooperation.

The Chinese commentary concluded: "Against a global backdrop of Russia's growing contradictions with the West � the high-level shuttle diplomacy of Russian leaders will further enhance Russia's strategic position in Central Asia, beef up the control of oil and gas resources and help coordinate the positions of Russia and these Central Asia nations on the Transcaucasia issue". Beijing has obviously made a realistic assessment of its own options in Central Asia.

In fact, during Russian Prime Minister Vladimir Putin's visit to Tashkent on September 1-2, Uzbekistan and Russia agreed to build a new pipeline with a capacity of 26 to 30 billion cubic meters (bcm) annually to pump Uzbek and Turkmen gas to Europe. Such a pipeline will undermine the US efforts to develop a trans-Caspian energy route bypassing Russia. Again, Russia's LUKoil has announced plans to produce 12 bcm gas in Uzbekistan's Kandym and Gissar fields annually.

All in all, therefore, Rice's visit to Kazakhstan took place against a grim backdrop. Neither Azerbaijan nor Kazakhstan appears interested in US entreaties to re-route energy exports to bypass Russia. Both hope to maintain good relations with the US but that cannot be done by picking a quarrel with Russia. At a press conference with Rice in Astana on Sunday, Kazakh Foreign Minister Marat Tazhin stressed relations with Russia will remain a top priority. "Our relationship with Russia, I can formulate, is just excellent. We have very good political relations. Russia is our strategic partner� At the same time, I should underline that our relationship with the United States has a stable, strategic character."

Neither Tazhin nor Kazakh President Nurusultan Nazarbayev apparently made any commitments to Rice regarding US-sponsored pipelines. On the contrary, addressing the media jointly with Russian President Dmitry Medvedev following the Russian-Kazakh border region forum in Aktyubinsk, Kazakhstan, on September 22, Nazarbayev said Kazakhstan will be increasing its oil production by 12 million metric tons in 2009 and it proposes to pump the additional oil via Russia. "It is very important that Kazakh oil should pass through Russia", he said.

Kashagan puzzle
Nazarbayev hinted Astana would use the Russian-controlled Caspian Pipeline Consortium (CPC) to carry Kazakh crude from the Kashagan deposit in 2012-2013 to the Russian terminal on the Black Sea. Nurlan Balagimbayev, adviser to Nazarbayev, said on Thursday that Kazakhstan is interested in buying an additional 13.7% of stakes belonging to both BP and Oman in the CPC, in which Russia holds 24% besides Chevron, Shell and ExxonMobil.
Rice would have utilized her visit in Astana to check out Kashagan. Kazakhstan and a group of Western oil companies led by Italy's Eni are due to finalize details on Kashagan's future by October 25. A new operating company is expected to be formed and individual companies - Eni, Shell, ConocoPhillips, Japan's Inpex Holdings and Kazkhstan's KazMunaiGas - are likely to control different aspects of the operation such as production or shipping.

Kashagan is estimated to hold 7 billlion to 9 billion barrels of recoverable reserves and is undoubtedly the jewel in the crown of the Caspian Sea Basin. Several different routes are likely to be needed for delivering oil from Kashagan to customers, involving the construction of major new oil pipelines. Rice would have easily anticipated the keen rivalries that lie ahead in advance of the 2013 production start date of Kashagan. The battle for Kashagan is about to be joined.

The transportation route for the Kashagan will have a vital bearing on the long-term economic viability of the BTC pipeline. But Astana has shown no hurry so far in committing Kashagan oil to the BTC. Kazakhstan may well be playing for time and synchronizing with Russia's expected completion of the pipeline from East Siberia to the Pacific (ESPO) by 2012 for routing oil to the Asian markets.

Russian Energy Minister Sergei Shmatko said on Wednesday that Kazakhstan's state-owned oil pipeline operator KazTransOil is interested in transporting Kazakh oil through the ESPO. "Our Kazakh partners are looking at the project with great interest and enthusiasm. We are happy about that", he said at a function launching a section of the ESPO between Talakan and Taishet. The Taishet-Talakan section of the ESPO line was completed in September, while the remaining stretch to Skovorodino, near the Chinese border, is scheduled to be completed by end-2009.

Will Astana decide to ship its projected oil output - 150 million tons a year by 2015 - through ESPO? If that happens, China will be a huge beneficiary and the geopolitics of the Caspian will undergo a historic transformation.

Russian-Kazakh "oil alliance"
Rice put on an appearance, saying, "This is not some kind of contest for the affection of Kazakhstan between the countries of the region". But it is very obvious that Washington is nervous Kazakhstan is showing alarming signs of shifting towards Moscow. Astana supported the Russian action in the Caucasus and cut down its investment in Georgia. If Rice was hopeful of encouraging Kazakhstan to stand up to Russian "bullying", she was disappointed.

On the eve of Rice's arrival in Astana, Nazarbayev said, "I personally was a witness to the fact that Georgia attacked first. I was in Beijing on August 8 with Mr Putin, when we first heard the news. I think the coverage of those events was biased. Whoever you may blame for the conflict, the facts are bad enough."

Since assuming office in the Kremlin on May 7, Medvedev has visited Kazakhstan three times. During his last visit, he promised, "We [Russia and Kazakhstan] will keep building up the production and the export of hydrocarbon raw materials, build new pipelines when it is beneficial and necessary, and attract large-scale investment into the fuel and energy sector."

On Wednesday, while on a visit to Almaty, Kazakhstan's largest city, the influential head of the CIS (Commonwealth of Independent States) committee of the Russian parliament, Vadim Gustov, floated a new idea that the two countries needed to develop a common energy market. He said an "oil alliance" would be mutually advantageous.

"A common energy market of Russia and Kazakhstan would help develop energy cooperation, supply cheap energy resources to the domestic markets and increase energy supplies to third countries", Gustov said. According to him, Russia and Kazakhstan should develop and adopt a joint concept of the energy market, which could serve as basis for Euroasian Economic Community space.

Evidently, Washington is barely keeping pace with the Russian diplomacy. To make matters worse, the financial crisis at home has eroded US credibility. An entire ideology of economic development that US diplomats propagated in the region stands discredited.

There is huge political symbolism when Iceland expresses "disappointment" with the Western world and turns to Moscow for a 4 billion euro (US$5.5 billion) loan to salvage its economy from imminent bankruptcy. Such images make a lasting impression on the Central Asian steppes.

M K Bhadrakumar served as a career diplomat in the Indian Foreign Service for more than 29 years, with postings including ambassador to Uzbekistan (1995-98) and to Turkey (1998-2001)




LINK:
http://atimes.com/atimes/Central_Asia/JJ11Ag01.html


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Added: Oct-12-2008 
By: wrano
In:
Iran, Other
Tags: Caspian Basin, US, Kazakhstan, Russia, Oil, Natural Gas, Energy, Diplomacy
Location: Astana, Astana, Kazakhstan (load item map)
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