August 12, 2008

How Oil Flows Through Troubled Region to EU

RUSSIA'S conflict with Georgia could punish the European Union where it is perhaps most vulnerable, in oil and gas supplies from beyond its eastern frontier.

The EU has been trying to wean itself away from energy dependence on Moscow, which supplies a quarter of its oil and half of its natural gas, by developing routes for Central Asian resources that bypass Russia.

A key to this strategy is a network of energy routes that run through Georgia, notably the Baku Tbilisi-Ceyhan oil pipeline that was almost hit by a Russian bombing raid yesterday.

No supply disruptions were reported and oil prices actually dipped. But the near-miss highlighted how the conflict, which includes the prospect of a major Russian power grab in Georgia, could wreak havoc with hopes of diversifying supply sources.

The United States and the EU have become increasingly alarmed at how a resurgent Russia is using its vast energy wealth as a tool for expanding its influence and getting its way on the world stage.

"The EU grand strategy is to develop Georgia as an alternative route for Caspian oil and gas by bypassing Russia," said Michael Klare, author of Rising Powers, Shrinking Planet, the New Geopolitics of Energy.

"But if Georgia is no longer a safe passageway, then all of these schemes for diminished dependency on Russia go up in smoke."

The Baku Tbilisi-Ceyhan line provides one million barrels of Caspian crude to international markets from suppliers independent not only of Russia but also OPEC. Lesser amounts flow through Baku- Supsa line.

The Baku-Tblisi Erzurum pipeline connects Azerbaijan to Turkey through Georgia, en route to European consumers. Annual shipments of more than 6.5 billion cubic meters will be nearly tripled once the pipeline is expanded in the coming years.

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