August 12, 2008

A Roadblock to Russian Oil and Gas

The Russian assault on Georgia has injected a specter of doubt into a U.S.-backed oil and natural gas route that had until now seemed safer than almost any other on which the West relies, analysts say.

Washington has spent more than a decade of diplomacy and arm-twisting to erect what it calls an East-West Energy Corridor connecting the countries of the Caspian Sea with NATO ally Turkey. The result has been a network of oil and natural gas pipelines, ports, and tankers that can feed a million barrels a day to the world market. Washington has sought to expand and link that network directly to Europe, where Russia is currently the dominant supplier.

But Russia's vigorous assault on Georgia -- a key stretch of the energy route -- has made the strategy seem less reliable, analysts say. Black Sea oil tankers that normally would be filling up with Baku crude, for example, were reported on Aug. 11 to be anchoring 15 miles offshore from the Georgian port of Batumi, where there was a rumor of a bombing by Russia.

Not So Safe Anymore "What was thought to be a safe transit route doesn't look as safe as a few weeks ago," says Edward Chow, an energy expert at Washington's Center for Strategic & International Studies. "And the anxiety is not likely to dissipate when the crisis ends."

In the mid-1990s, the Clinton Administration devised the energy corridor as a way to turn the Russian-dominated Caucasus and Central Asia into a financially independent, pro-Western region. This was long before there was recognition of a looming energy shortage, so the fact that the region would also deliver large volumes of oil and natural gas to market was regarded as icing on the cake.

Central to the policy was construction of the 1,000-mile Baku-Ceyhan oil pipeline connecting the capital of Azerbaijan with the Mediterranean Sea. Georgia is a crossover point for the Baku-Ceyhan oil pipeline, its companion natural gas line, and a smaller oil line called Baku-Supsa.

Baku-Ceyhan began working two years ago. A blast on the Turkish section of the line last week raised questions about its security. A Kurdish separatist group claimed responsibility for the blast, which may keep the line down another week until it is repaired.

Russia Defends Its Backyard From the outset, Russia was highly critical of U.S. efforts to reduce Russia's influence in what it regards as its own backyard. And the assault on Georgia appeared to be at least in part an attempt to draw an end to the time of a pro-Western slant in the Caucasus and Central Asia.

Does that also mean an end to the West's challenge to Russia's regional energy power?

The short answer may be no. All the current lines will continue to operate. Russia won't interfere with them directly, analysts say. Its larger economic-political strategy of cementing its dominance of Europe's energy supply depends on not spooking the Europeans, who could then be encouraged to back the construction of more non-Russian energy pipelines, and thus dilute Russian power.

But an expansion of Western influence -- proposed trans-Caspian oil and natural gas lines from Turkmenistan or Kazakhstan, and a proposed natural gas line from Turkmenistan to Europe called Nabucco -- may now be effectively dead. No Caspian President would gamble his survival by embracing such a project, analysts say.

"A new Iron Curtain is descending around the periphery of Russia. Any chance of a new non-Russian pipeline out of Central Asia and into Europe is pretty much dead," says Chris Ruppel, an energy analyst at Execution, a Greenwich [Conn.] brokerage. "Russia has demonstrated that its military is a force to reckon with, that it can defeat a Western-trained force, and that the West and NATO will not act to intervene."