4-11-2007

Geoeconomy and Geopolitics of Oil

Note on
the strategic dimension of the Caspian Sea

 By: Reda Benkirane


 4-11-2007

Geoeconomy and Geopolitics of Oil

Note on the strategic dimension of the Caspian Sea

The Caspian Sea is the largest salt lake and inland body of water in the world.
Located between the east of the Caucasus Mountains and the west of the steppe
of Central Asia, this sea represents a surface of 372,000 sq km (larger than Italy,
Poland or the United Kingdom), is 1200 km long and has a width of 320 km. The
Caspian Sea is bordered by five countries: Russia (northwest, 142 million
inhabitants), Kazakhstan (northeast, 15 million inhabitants), Turkmenistan
(southeast, 5 million inhabitants), Iran (south, 71 million inhabitants),
Azerbaijan (southwest, 8.5 million inhabitants). Countries bordering the
Caspian Sea, with the exception of Iran, are all members of the Commonwealth
of Independent States (CIS) created just after the collapse of the Soviet Union
(December 1991).

The Caspian region emerged geopolitically after the end of Cold War and
started to raise international attention and competition from both major state
and non-state actors for the control of its huge energy sources. The Caspian Sea
is indeed located along the line of the largest series of existing oil and gas
reserves extending from the Caucasus to the Middle East. Furthermore, the
existence of additional oil fields in other Central Asian countries (Uzbekistan,
Tajikistan and Kyrgyzstan) tends to profile, in terms of potential wealth, these
newly independent states as the 'Emirates of the 21st century'. However from
the end of the communist era until the 'war on terror', populations of the
Central Asia region (in majority-Muslim countries ruled by pro-Western
political regimes) are far from having benefited of any economic prosperity.

If the Commonwealth of Independent States was thought as the political entity

from where the Russian Federation could exert its sphere of influence on the
former Soviet republics of the Caspian Sea, the United States on the other hand
sought to immediately counter this Russian domination by affirming that the
Caspian region was ranked among 'its national strategic interests'.

During the same immediate post-Cold War period, major Western oil
companies such as Chevron and British Petroleum started to invest in the
extraction but also in the transportation of energy resources. Pipeline
transportation of oil and gas to European and Asian markets was and remains

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until now the principal concern of the Caspian region. Different routes for oil
and gas have been envisaged during the last fifteen years to provide Caspian oil
and gas to the rest of the world. Energy of the Caspian region is particularly
attractive for Asian consuming countries of the size of India, China, Japan and
South Korea.

As the needs from the developed and the developing world are constantly
increasing, the main consuming countries are pursuing an energy policy that
favors expansion and diversification of both oil/gas sources and routes.
Regarding the energy supply, alternatives sources of oil and gas are actively
sought in order to make energy markets less sensitive to the ups and downs in
potential insecure regions such as the Middle East. Regarding the energy routes
of Central Asia, as long as the producing countries are dependent on the Russian
control of the existing pipelines, the perspective of an abundant and accessible
Caspian oil and gas remains a long term objective.

All through the decade that followed the dissolution of USSR, many threats and
obstacles slowed down energy development and transport in the Caspian region.
First of all, the uncertainty about the legal regime of the Caspian Sea (should the
sea be divided into five equal sectors or into national sectors?) raised a series of
problems about disputed waters and offshore rights. During the nineties, the
political and economic instability of the Russian Federation was so phenomenal
that it was almost leading the post-soviet state to a collapse. Furthermore the
war in Chechnya – one of its main causes was Russia's determination to
maintain its control on the pipelines transiting through South Caucasus – and
the civil war in Afghanistan (which followed the exit in 1992 of the Russian
military troops) were major obstacles to the edification of secured energy routes
towards Europe and East Asia.

Once that the Russian Federation became more stable, its oil production began
to play an international role (2001) and major international oil companies
started to invest in its industry (BP, 2003). Even if it cannot be considered as an
'oil Czar', Russia still holds 5% of the world’s oil supply. Furthermore the
country possesses today the world's largest proven gas reserves and is
considered as a gas 'Superpower'. Its grip on the energy pipelines grid remains a
powerful lever which assures its domination on the Central Asian countries.

To escape from the Russian monopoly on Caspian energy exports, the three
other Caspian littoral states born from the dissolution of the former Soviet
Union (Kazakhstan, Turkmenistan and Azerbaijan), are searching for
alternative routes to sell and transport their oil and gas resources. Kazakhstan,

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which exports 70% of its oil via Russian pipelines, is now engaged in a
partnership with China for the construction of oil and gas pipelines.
Turkmenistan's gas is confronted with the same problem to expand and
diversify its markets, and the country is cooperating with Kazakhstan, China,
Iran and Turkey for the construction of gas pipelines to its frontiers.
Azerbaijan, on its side, is in conflict with Armenia regarding the Nagorno-
Karabakh enclave and since summer 2006, its oil is exported through the Baku-
Ceyhan pipeline to the Eastern Mediterranean and European markets (Israel
also counts among its main partners and clients since it imports 20% of its oil
from Baku).

Iran is the country that has a unique geographical position since it is both a
Caspian and Middle Eastern littoral state, overlapping the two world's richest
oil and gas regions. Iran is the unique littoral state of the Caspian Sea that has
survived the collapse of the Soviet block. As a regional Middle East power and
most important Muslim Shiite nation, its sphere of influence includes Iraq, Syria
and Lebanon. Economically, Iran has the capacity to become an energy hub in
the Arabian-Persian Gulf where, in principle, Caspian oil and gas could be
transferred to the sea of Oman for delivery to Western and Eastern markets. In
the Caspian region, Iran and Russia have developed strong economic ties,
including a military cooperation and a civil nuclear programme. On the latter,
Iran asserts that its ambition it to develop nuclear power plants in order to meet
its long term energy needs whilst the United States is accusing, among others,
the Iranian government of developing atomic weapons. A pre-emptive strike on
Iran is under active consideration by the US administration and different
options are envisaged with the participation of Israeli air forces and possibly
other European countries (such as United Kingdom and France) that could act
on a unilateral basis. Even limited to air strike, a war against Iran would have
catastrophic consequences on International Relations (comforting once more the
civilizational clash theory) and, more particularly, on the geopolitics of the
Caspian region and the Middle East.

With the increasing oil price and global demand, securing access to energy
sources is becoming an urgent issue for great economic powers. Before
September 11 attacks and the invasion of Iraq, the US administration was
spending between $ 20 billion and $ 30 billion annually to safeguard its oil
interest in the Middle East. The United States, with only 5% of the world
population and 2% of proven oil reserves, consumes 26% of total world oil while
it produces only 11%. Energy security is a priority for the United States which
has developed in the nineties a military cooperation with the countries bordering
the Caspian Sea, mainly through NATO's practical bilateral cooperation

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programme 'Partnership for Peace' (1994). In the Caspian region, the United
States backed also the pipeline construction led by British Petroleum for oil
transport from the Caspian Sea to Turkey and Western markets (inaugurated in
July 2006).

The United States seeks to break the Russian domination on the Caspian energy
sources and also, after September 11 events, to consolidate its military presence
in the region in order to counter-balance the military weight of Russia and
China – while containing at the same time Iran's ideological influence in the
region. In this respect, one might ask whether the current US policy and existing
and /or planned military operations in the Middle East and Central Asia are
adequate actions to bring peace, stability and security.

So far the European Union has shown no particular military ambition in the
region, it seeks rather to play a moderator role regarding the multiple
geopolitical struggles that are taking place, while at the same time developing
commercial relations and diversifying its sources of energy. In this perspective,
although it has not been involved in many investments in oil/gas exploration and
transportation, the European Union has engaged a significant technical
cooperation. For example the EU’s 'Technical Assistance to the CIS States'
(TACIS, 1991) provided funds and expertise to enhance the transition process
and facilitate the access of post-communist economies to global markets.

Regarding Iran, the European Union considers that its involvement in the
Caspian energy development can be constructive, whereas the United States
exerts all its influence to bypass and exclude Iran from the energy chain supply.
In case of a preemptive military action against Iran, the European Union might
be divided regarding its implication in the operation.

China which is already the world’s second largest oil and gas consumer needs
more and more energy resources to fuel the two-digit growth of its economy.
The country imports two-thirds of its oil from the Middle-East (via the Malacca
Strait), maintaining close economic and military cooperation with Saudi Arabia
and Iran. Because of the increasing domination of the US in the Middle-East and
Central Asia, China strategic interest is to reduce its dependency from the
Arabian-Persian Gulf and to diversify its sources of energy by financing the
development of energy routes from the Caspian region. Consequently China
started to invest heavily on the building of onshore oil and gas import channels
transiting through Kazakhstan, Turkmenistan and Uzbekistan.

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Though Turkey has not a direct access to the Caspian Sea, it has historical and
cultural links with the whole Central Asia. After the collapse of communism,
Turkey had hoped that it could be a regional cultural power dominating the
Turkophone space extending from the Adriatic Sea to the Sinkiang. But the
panturkish dream has not yet come true. Nevertheless, Turkey plays an
important intermediary role as an energy hub especially since the opening of the
Ceyhan-Tblisi-Baku (BTC) oil pipeline – a US-backed project linking the
Caspian Sea to the Eastern Mediterranean Sea which has the advantage of
bypassing both Russia/Iran's existing and projected routes. In this context, the
United States is favorable to its Turkish ally's integration in the European
Community and it is worth mentioning that Turkey's ties with Israel have not
been jeopardized by the presence of Islamist leaders in the government.

Israel, on its side, has invested in Azerbaijan's oil industry and is objectively a
strategic partner of the US-Turkish Baku-Ceyhan route. Israel is well placed to
operate as an American proxy protector whose role is to secure the energy
infrastructure of the Eastern Mediterranean. The last war against Lebanon
(July-August 2006) can then be also understood as an attempt to impose a
strategic control on this energy corridor (a day before the start of the war on
Lebanon, the Israeli minister of National Infrastructures Binyamin Ben-Eliezer
accompanied with a delegation was in Ankara on the occasion of the
inauguration of the Baku-Ceyhan pipeline). More importantly, Israel has
announced a cooperation programme with Turkey for a global energy project
that would connect the two countries by underwater multipipelines for crude oil,
natural gas, fresh water and electricity lines. In the wider context of the Trans-
Israel Eilat-Ashkelon project that bypasses the whole Arab environment,
another Israeli complementary project is to build a pipeline from the
Mediterranean port of Ashkelon to the Red Sea port of Eilat so that the Caspian
oil could be sent to Asia. This re-export of the Caspian oil via the Red Sea which
is likely to benefit from an international economic backing, represents another
opportunity for the United States to weaken, via its Israeli subcontractor, Russia
and China's energy routes towards the East Asian countries.

If the political tensions and the military conflicts of the Middle East are a danger
for the energy supply, and if the Western attention on the Caspian Sea and
Central Asia is due to the quest of alternative sources and routes, it is not
guaranteed that this vast region will not mirror the Middle East instability. The
globalisation of the 'war on terrorism' has also reinforced the confrontation
between pro-Western regimes and radical Islamist groups. Now that the US
administration is working on the scenario of an air strike over Iran, the risk of
popular uprisings in Central Asia against authoritarian and corrupted regimes

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or the possibility of a democratic spring that would bring Islamists to the

forefront appear to the US strategists as somber perspectives.

Recent parliamentary elections in the Arab world (Palestine, January 2006,

Morocco, September 2007) and in Turkey (August 2007) have shown that legal
Islamist political parties are now becoming key players in the democratization
process of many countries. Even if the Turkish AKP experience is perceived as
'Euro compatible' and can still serve the US strategic interests in Central Asia
and the Middle-East (in particular regarding its cooperation with its Israeli
ally), the fact remains that Islamist movements are perceived as an uncontrolled
ideological threat and a potential danger for vital American interests. There are
objective reasons to anticipate the hostility of 'Islamist democrats' if we take
into consideration the consequences of the occupation of Iraq and the 'war on
terrorism' in Afghanistan (which allowed Russia, China and other Central Asian
states to fight under the same scheme their own radical Islamist movements).

With a world demand for oil and gas that could double by 2015, the Middle-East
- with its two thirds of known global oil reserves - and the Caspian region - with
almost half of known gas reserves - represent an enormous challenge of energy
security and control in this new century. It is today more than probable that the
crude oil could very soon reach $ 100 a barrel and some analysts predict that in
2015 its price would range between $ 200 and $ 300. The main powers US, EU,
Russia and China have so far been engaged in economic rivalry for the control
of energy sources and their supply chain, but with the combined increase of
price and demand, these powers might start considering building alliances (e.g.
EU with Russia? And China with Russia?) and working together to bring
regional stability and assure their own prosperity.

From the Caspian Sea to the Black Sea and from the Balkans to Central Asia, a
vast geographical zone is reshaped by the question of energy control, security
and supply in the 21st century. At the interface of Europe and Asia, at the
crossroad of interdependency networks of different kinds (cultural, political,
economic, energetic and military), strategies for securing supplies from the
Arabian-Persian Gulf and the Caspian region as well as their consequential
geopolitical struggles attest of a new multipolar world in formation. More than
ever, energy remains the catalyst of civilizations rise, decline and collapse.

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Further readings:
Caspian Sea, Country Analysis Briefs, Energy Information Administration, U.S. Department of
Energy, January 2007.
http://www.eia.doe.gov/emeu/cabs/Caspian/Full.html

The War on Lebanon and the Battle for Oil, by Michel Chossudovsky, Global Research, Canada,
July 26, 2006.
http://www.globalresearch.ca/index.php?context=viewArticle&code=CHO20060726&articleId=28
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Globalisation, Geopolitics and Energy Security in Central Asia and the Caspian Region, Mehdi
Parvizi Amineh, Clingendael Institute, The Hague, 19 June 2003.
http://www.clingendael.nl/ciep/events/20030619/20030619_amineh.pdf

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Appendixes

The littoral states of the Caspian Sea, basic figures

Gas Oil
Caspian Countries Area Total population Projected population Religions GDP
(sq km) millions (2007) millions (2050) per capita
proved proved
reserves reserves

trillion thousand
cubic million
metres barrels
(2006) (2006)
Russian
Russia 17,075,200 sq km 141.9 111.8 Orthodox 15- $12.200
47.65 79.5
20%, Muslim
10-15%,
other Christian
2%
(2006 est.)
Kazakhstan 2,717,300 sq km 14.8 13.1 Muslim 47%, $6.300 3.00 39.8
Russian
Orthodox 44%,
Protestant 2%,
other 7%
Turkmenistan 488,100 sq km 5.0 6.8 Muslim 89%, $5.800 2.86 0.5
Eastern
Orthodox 9%,
unknown 2%
Iran 1.648 million sq 71.2 101.9 Muslim 98% $8.700 28.13 137.5
km (Shi'a 89%,
Sunni 9%),
other (includes
Zoroastrian,
Jewish,
Christian, and
Baha'i) 2%
Azerbaijan 86,600 sq km 8.5 9.6 Muslim 93.4%, $3.400 1.35 7.0
Russian
Orthodox 2.5%,
Armenian
Orthodox 2.3%,
other 1.8%
Sources: State of the World Population 2007, United Nations Population Fund (UNFPA).
Statistical Review of World Energy, British Petroleum, June 2007.

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The Caspian region and the Middle East

after the US invasion of Iraq (2003)

Source: Eric Waddell, Center for Research on Globalization, Canada, 2003.

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Source: Energy Information Administration, U.S. Department of Energy.

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Caspian region oil pipelines

Source: Energy Information Administration, U.S. Department of Energy.

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Export routes for Caspian gas

Source: Platts cartography

Sino-Central Asian pipeline projects (2003-2011)

Source: Mehdi Parvizi Amineh, June 2005.

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