Kazakhstan has received much press recently as a result of the success of the comic film Borat. However, that movie got everything wrong in its depiction of Kazakhstan, with the exception of two things. The first is that the country is in a regional conflict with Uzbekistan. The second is the prevalence of prostitutes, which are everywhere in Kazakhstan. The country has become a target for immigrants practicing the profession, with women, girls, and even a few men flowing in from neighboring countries and farther abroad. Since the 1979 discovery of the Tengiz field, a massive oil source under the North Caspian Sea, and especially after the full-scale exploitation of that field and others during the post-Soviet era, Kazakhstan’s economy is booming and its citizens, in a frenzy of capitalism, are spending the influx of money liberally.
Elsewhere in Central Asia, Turkmenistan, a relatively small and isolated country, has been largely ignored by the American media but possesses what are believed to be the fourth-largest natural gas reserves in the world. Considering the current violence in the Middle East and rising energy costs, we should begin to pay the sort of serious attention we have paid to Borat to the production of Central Asian oil and gas.
The International Nature of Energy
Kazakhstan and Turkmenistan are landlocked nations. They do not have complete control over the utilization of their natural resources, as they are forced to ship their oil and gas via pipelines that run through other countries in order to reach the global market. Whoever controls the pipelines controls the energy they contain, which is vital to a country’s economy and even military strength, as modern militaries, with aircraft, armored vehicles, and gas-powered ships are reliant on oil. The struggle for control of these pipelines is now being waged, quietly but surely, between many countries including Russia, China, Iran, and the United States.
Central Asian oil and gas has historically flowed through Russian pipelines. Of course, maintaining this arrangement will also mean that Russia will receive sizable transit fees as well as have more oil and gas with which to secure greater leverage in international politics. China proposes to build a pipeline of about 3000 km from the Caspian oil fields across Kazakhstan and into China to feed its growing economy. Iran would pump the oil and gas south into its existing network, which would boost its efforts to obtain a regional leadership position in the Middle East. The US, attempting to maintain its position as the world’s sole superpower, but without direct geographic access to the region, would like the oil and gas to reach the open market without it falling under the control of Russia, China, or Iran. The remainder of this paper will examine the “grand strategy,” or overall foreign policy, of Russia, China, the US, and Iran as they relate to Central Asian energy. An historical analysis of these policies as well as a critical analysis of the pipelines and the strategies will also be provided.
Since much of the current geopolitical struggle over the region is colored by the past, it is necessary to provide some of its political history. All of the Central Asian republics, including Turkmenistan and Kazakhstan, were creations of the Soviet Union. What is now Kazakhstan was taken over by Russia in stages but by the early 19th century was entirely under the Czar’s control. Present-day Turkmenistan was fully absorbed by the latter part of the same century. Prior to this, both countries consisted of a series of small khanates and local rulers. Historically nomadic, industry and large-scale farming were introduced under the USSR, but self-sufficiency was not. All roads and railroads were built northward into Russia and it was almost impossible to travel between the provinces of East and West Kazakhstan without a stop in Moscow.
In part due to this dependence on Russia, the economies of the Central Asian states atrophied as borders were shut down after gaining independence in 1991. Gaining true independence proved to be an especially trying problem for Kazakhstan, which shares a massive land border with Russia and was, at the time, populated by a Russian majority; it was only recently that the Kazakhs became a majority in their own state. For a while there was even talk of Russia annexing northern Kazakhstan, although this aspiration was effectively squashed when Kazakh President Nursultan Nazerbayev moved the capital from Almaty in the south-west to the then tiny steppe town of Astana in the north. However, due to the still-close economic ties (Russia is its biggest trading partner) it has proven exceedingly difficult for Kazakhstan to distance itself too far from Russia.
As for the development of democracy in the region, that is something of a misnomer. The Great Turkmenbashi and President, Saparmurat Niyazov, ruled Turkmenistan from its gaining independence in 1991 until his death in December 2006. His personality cult was bizarre; Turkmenbashi erected a 12m gold-plated statue of himself that revolves so that it always faces the sun. Like Niyazov, Nazerbayev in Kazakhstan was the leader of his country at the fall of the USSR and retained control after independence. Nazerbayev is far from a democratic ruler, retaining full control of the press, the judges, the congress, and the entire political system. However, the relative freedom he allows his people, the fact that he has presided over the emergence of Kazakhstan as a regional economic powerhouse, and the success he has had in preventing ethnic strife between the Russian and Kazakh populations, make him a saint in comparison to other Central Asian rulers.
The Logistics of Caspian Oil
Despite the region’s isolation, it is surprising that so little regard is paid to Kazakh and Turkmen reserves, for they are truly astounding. Kazakhstan has estimated reserves of 79.6 billion barrels (bbl) of oil and 3 trillion m3 (trm) of natural gas; by comparison Saudi Arabia has 264.3 bbl of oil. Turkmenistan has comparatively little oil at 500 million barrels (mbl) but has estimated proven reserves of 2.9 trm of gas. Furthermore, since a full, public exploration of Turkmenistan’s Caspian seabed has not been conducted, we can assume that Turkmenistan’s actual gas reserves are almost certainly far greater; the Economist Intelligence Unit has estimated reserves at 10 trm, while the Turkmen government has claimed it is more than 13 trm, which would place the country in the top four countries for natural gas reserves.
A small pipeline network built by the Soviets has long carried Central Asian oil and gas towards Moscow. However, this network is nowhere near sufficient to carry the massive amount of reserves available. A number of pipelines have been built following the fall of the Soviet Union: the Caspian Pipeline Consortium Pipeline from the Tengiz oil fields to the Russian port of Novorossiysk on the Black Sea; the Korpezhe-Kurt Kui gas pipeline from the Turkmen fields to Iran; and the Kazakhstan-China pipeline from Atasu to Alataw in China.
There are two main problems with transport: geography and international relations. From a purely logistical standpoint there is no easy route for the Central Asian oil and gas to reach sea shipping lanes and major markets such as Europe. To head directly west demands either skirting the Caspian, greatly increasing the length of any pipeline, or building an underwater pipeline, which greatly increases the cost of a pipeline. To the east is the Pacific Ocean, but the 6400 miles of pipeline needed to reach it would be a deterrent to construction plans. Running southeast towards the Indian Ocean would mean traversing the mountains of war-torn Afghanistan.
Borders and the politics they represent pose an even more serious problem. Each country through which a pipeline passes can demand transit fees and can, theoretically, turn off the flow for any reason – from political to economic. For cross-border pipelines to be built, treaties and agreements must be signed and financial agreements struck, often with numerous nations competing. Signing such agreements is highly political, which is why, for example, Kazakhstan is afraid of sending its oil through Iran and thereby infuriating the US. Complicating the matter further, pipelines tend to be built by consortiums of governments and oil companies, and the desires of a nation’s government do not always mesh with those of private companies.
Another related issue is the controversy over rights to the Caspian and its seabed, much of which comes down to whether the Caspian should be classified as a lake or a sea under the United Nation’s Convention on the Law of the Sea (1982). As a lake, each littoral state would be entitled to an exclusive zone for a given number of miles from its shore, but the center of the Caspian would be a shared zone for all littoral states. However, if declared a sea, the entire Caspian would be divided up according to each state’s amount of coastline. Russia and Iran consider it a lake, while Azerbaijan, Turkmenistan, and Kazakhstan prefer a sea classification. Under the current convention, the Caspian could be judged to be logically as either.
This issue is further complicated by the 1921 Friendship Treaty between Persia (now Iran) and the USSR. The treaty divided the Caspian between those two states and declared that no changes to the arrangement this treaty established could be made without the agreement of all littoral states. While Russia and Iran consider this treaty valid, Azerbaijan, Kazakhstan, and Turkmenistan, not being signatories, do not feel bound to it.
Although the issue of ownership of the Caspian remains undecided, oil and gas exploration and drilling continue with abandon. Russian and Iranian claims stemming from the treaty are becoming weaker and weaker with each passing year, though the issue is far from settled. In July 2001, Iran deployed a warship and two fighter jets to stop an Azeri research vessel exploring a gas field near the center of the Caspian, but well within what Azerbaijan considers its territorial water. Even though Russia agrees with Iran on the issue of Caspian ownership, it has not taken such drastic measures. Also, despite the Friendship Treaty, Russia has proven willing to make bilateral deals with other states, such as when in 2005 it signed a production sharing agreement with Kazakhstan for that country’s Kurmangazy offshore oilfield, situated on the northern part of what is generally agreed to be Kazakhstan’s Caspian sector.
On October 27, 2005, China made its first major foray into the Central Asian oil industry when the state-owned Chinese National Petroleum Company (CNPC) purchased the Canadian-based PetroKazakhstan Inc., owner of the Kumkol field, a move that was applauded in China as a major victory over the privately-held Russian giant Lukoil. The sale mildly surprised some experts, as China paid well over market value and was forced to sell a third of its holdings in the Kazakh state oil company KazMunaiGaz back to the government as part of the deal. The surprise at this seemingly one-sided deal is mitigated by China’s ravenous thirst for oil, which is a result of an exploding Chinese economy combined with relatively small proven domestic reserves; China is already the second largest importer of oil and it is predicted that it will overtake the current leader in imports, the US, by 2030.
China has partly relied on Middle Eastern oil imports; the purchase in Central Asia gives China a source of oil that it at least partially controls, is located in a more politically stable region, and which can be imported directly overland from a friendly country. This would avert shortages due to war or possible Western-enforced embargos either in the Middle East or on China itself, which could occur over the issue of Taiwanese independence.
China has until now not shown much political interest in Central Asia; after Kangxi took over what is now the western Uigher province of Xinjiang at the end of the 17th century, the buying off of Uzbek warlords/khans during the 18th century was the last major Chinese activity there. However, the recent increase in Chinese aid to Central Asian countries, combined with the exuberance with which it celebrated its victory over Lukoil and thus, symbolically, Russia, indicates that China at least would like to have Central Asia nominally within its sphere of influence. Until Chinese internal government documents are declassified, it will be impossible to determine the extent of these possibly imperialistic desires, but they must be considered as at least a possible motivating factor for China by any country that also has interests in the region.
The purchase of PetroKazakhstan was only a small part of China’s overall plan to access Central Asian oil. In 1997 China and Kazakhstan signed a pact forming the Sino-Kazakh Oil Pipeline Co. Ltd., a joint venture between CNPC and KazMunaiGas which had, as its stated goal, a pipeline running from the Caspian Sea to Xinjiang. An initial $700 million, 962 km section of the pipeline, stretching from Atasu to Alataw, first started pumping oil in May 2005 from the Kumkol field of the Aktobe region, making it the first pipeline to pump crude directly into China. It has a 20 million ton/year capacity, which was 15% of China’s 2005 total crude imports, though it currently carries only half that. Once the crude reaches Alataw, it is transported via a Chinese pipeline network 246 km to a refinery at Dushanzi in Karamay; this refinery, when it becomes fully operational in 2008, will be the largest in China. When the final stage of the pipeline is completed in 2011, the Kazakhstan-China oil pipeline (KCP) will stretch about 3000 km across Kazakhstan to the Caspian fields. As with any pipeline, additional pumping stations could be added at a later date to increase capacity. The KCP was also designed to transport Russian crude, but Russia is balking at the related transit fees.
This KCP is advantageous for Kazakhstan as well as China. As opposed to every other existent or proposed pipeline route for Central Asian oil, the KCP provides a direct transport route. Transit fees do not need to be paid, and no country can hold Kazakhstan’s oil hostage by arbitrarily raising fees or closing the pipeline. Additionally, as can be seen with the PetroKazakhstan purchase, China has shown a willingness to overpay for natural resources and, short of a complete collapse of the Chinese economy, its demand for oil should not abate anytime in the near future, so Kazakhstan is guaranteed a purchaser. It is also unlikely that the fairly opaque Chinese government will care much about the corruption of its Kazakh partners, so long as the oil is delivered on time and at the agreed-upon price. As the pipeline is already mostly constructed and has only two developers, there is little chance that it will not be completed or that it will have difficulty in providing reliable transport.
However, there are also disadvantages. Even though the terrain is fairly flat, 3000 km is a long way to run a pipeline. The added cost of transit due to this length somewhat offsets the transit fees of shorter routes for Caspian oil. Additionally, the extreme cold of the Kazakh steppe during the winter months means that with the relatively low quality of the oil, which has high paraffin content (and thus lower viscosity), the oil in the pipelines may completely stop if the pumping stations temporarily stop, as happened in the winter of 2005-2006. Both the length and harsh weather increase the cost of maintenance and repairs for the pipeline. Also, the KCP is strictly for oil. China has comparatively much larger gas reserves than it does oil, and it already receives a steady supply of gas from the Russian fields. While there have been feasibility studies of a Kazakhstan-China gas pipeline, the estimated $4 billion price tag has so far proven prohibitive. Therefore, another route must be found for Kazakhstan’s gas.
Furthermore, the fact that the pipeline is solely owned by Kazakh and Chinese companies does not mean that Kazakhstan and China will have full control of the oil it will ship. By the time the pipeline is complete, the majority of the oil will come from the Caspian fields, and underwater oil exploration and drilling demands far more advanced technology than China or Kazakhstan currently possesses. This is especially true for the massive Kazahagan field, a high-pressure field with large quantities of poisonous hydrogen sulfide. Furthermore, the field is located in the shallow northern Caspian Sea which freezes in the winter. The Kashagan consortium, known as Agip KCO, is led by the Italian company ENI, who might be willing to succumb to western pressure and attempt to prevent oil it pumps from reaching the Chinese markets in the event of an embargo.
Additionally, the majority of the other Caspian fields, which would likely supply a minority of the oil to be shipped, are owned by TengizChevroil, a joint venture between the Kazakh government and Chevron, which might prefer to send its oil through American-sponsored routes or via the Caspian Pipeline Consortium (CPC), of which it is a shareholder.
Furthermore, Kazakhstan can only sell the oil that is pumped along the KCP to China. Ideas have previously been floated to construct a pipeline that would run across China to the Pacific Ocean,but the cost, as well as China’s understandable reluctance to move the oil to the open market, has squashed this plan. For the present, the fact that there is only a single buyer is not a major issue, but it is dangerous to be fully beholden to a foreign power for a large chunk of one’s national revenue. Kazakhstan has already shown reluctance in surrendering too much control over its oil resources to China, as was seen in its insistence on buying back one third of KazMunaiGas from China as part of the PetroKazakhstan deal.
In conclusion, since this pipeline is already mostly completed, and there are no third-party powers that could hinder its construction, nothing except construction delays should keep the pipeline from being finished by around 2011, although there is the possibility for some difficulties in signing agreements to purchase the Caspian oil. As China’s needs increase, the capacity of this pipeline may be increased as well, but it is too early to be able to reliably predict if and when this could occur. From a political standpoint, the KCP brings the two nations closer together and opens up the possibilities of further trade agreements. Unless an embargo is called, it is very doubtful that the pipeline will be denied oil. However, the fact that China might not be able to purchase the oil directly from Kazakhstan introduces the possibility for higher prices and removes some of the autonomy that is the major advantage of a direct pipeline. Kazakhstan could shut off the pumps if the relationship between the two governments sours, but it is unlikely that Kazakhstan would take the drastic step of shutting off such a large revenue stream.
The Russian Route
Petropolitics for the past half-century tended to be fairly straightforward. Countries like Venezuela and Saudi Arabia spent their massive oil revenues lavishly to further international objectives. For example, Venezuela has sponsored poverty initiatives in other Latin American countries, and Saudi Arabia heavily financed the Afghan mujahideen insurgents against the Soviets during the Soviet War, paying for a large number of the weapons that the CIA supplied. Over the past few years however, Russia has managed to extend petropolitics beyond the checkbook, and has started to wield power with the oil and gas itself, raising and lowering the rates as a means of political influence. When the newly reformed Ukraine moved closer to the EU and NATO in 2004, Russia responded with markedly higher gas prices. When Ukraine resisted another increase in 2005, Russia shut off the pipeline from January 1-4, 2006.
Russia provides 90% of Western Europe’s gas and the majority of its oil. Whereas gas and oil must currently flow through Eastern Europe to reach the West, Russia is in the process of constructing the Nord Stream, a gas pipeline that will extend from Vyborg (near St. Petersburg) under the Baltic Sea and into Greifswald, Germany. By bypassing Eastern Europe, Russia will be freed from transit fees, but more importantly, it will have full vertical control of its gas, from drilling to refinement to transport to sale. This is very important especially considering that Russia’s current economic growth is almost entirely the result of its oil and gas sector.
Russia considers Central Asia to be firmly in its sphere of influence, and would loathe losing any of its influence in the area and the benefits, especially the economic ones, which they accrue. Also, by combining the sizable Central Asian reserves with its own, Russia could become a petroleum power to rival the Middle East. Just as in the 20th century the USSR relied on its military for its superpower status, in the 21st century it will rely on its oil and gas.
Out of the four countries being discussed in this paper, only Russia has a completed, operational pipeline – the Caspian Pipeline Consortium (CPC), which started transporting oil in 2001. It runs from Kazakhstan’s Tengiz fields to the Russian Port of Novorossiysk and is the largest current export route of Caspian oil, carrying 34 million tons of oil/year. There is talk of almost doubling capacity to 67 million tons/year by adding 10 new pumping stations. An example of the complicated nature of the geopolitics of oil in the region, the CPC has varied shareholders: Russia holds 24%, Kazakhstan 19%, Chevron 15%, and Oman 7%. A variety of oil and gas companies make up the remainder. In addition to Kazakh oil, the CPC also exports for major Russian producers such as Lukoil, Rosneft, Surgutneftegaz, and TNK-BP.
The main advantage to the CPC is that it is already in existence. Due to the enormous cost of pipeline construction, short of some catastrophic shift in international relations, it is doubtful that the pipeline will ever be abandoned in the space of expected lifetime. Additionally, since the pipeline is already in place, and runs across relatively flat land, it will be relatively inexpensive and easy to increase the CPC’s capacity if desired. One additional point in the CPC’s favor from the Russian point of view is Kazakhstan’s dependence on Russia. The CPC is not the only Russian route for Kazakh oil, as a sizable amount flows through the old Soviet pipeline system. Oil pumped through the Atyrau-Samara pipeline links to Russia’s pipeline network, while the Kenyak-Orsk pipeline transports Kazakh crude to a Russian refinery in Orsk. Lastly, the CPC stands on fairly safe ground due to the international nature of the consortium. While the US is a natural rival to Russia over control of Central Asian oil and gas, the fact that American companies hold a sizable share (22.5% in total) strengthens the CPC’s position as an extension of America’s undisputable power on the world stage.
However, the varied partners of the CPC don’t always get along. Russia once threatened to withdraw the operating license after an incident in 2006, when Chevron, along with other Western shareholders, tried to raise transit fees by 9.1% to $29.88/ton. Russia countered by asking for an increase of 38.8%. To put additional weight behind its bargaining position, Russia also demanded back taxes from the CPC.
From a strictly logistical standpoint, the CPC might be limited by the narrowness of Turkey’s Bosporus Straits, from which the oil is carried from the pipeline to wider international markets. Traveling the straits has already been compared to “floating through people’s living rooms” due to the ease with which one can look through the windows of the homes that line both shores.Since only so many deep-draft supertankers can fit through the Bosporus within a given time frame, there are doubts as to whether the oil from an increased capacity CPC could be efficiently transported via this route. Russia’s “Blue Stream” pipeline, which will stretch from Russia to Turkey across the Black Sea and thus bypass the Bosporus, it is solely a gas pipeline, and there are no current plans for the construction of a sister oil Blue Stream that could transport oil from the CPC. Also, the high transit fees that Russia is demanding provide impetus for Kazakhstan to try and find alternate, cheaper routes for its oil.
The CPC also poses some political problems. Based on Russia’s previous dealings with the Ukraine, Kazakhstan may justifiably fear that Russia will someday decide to sharply raise transit fees, or, more drastically, shut down the CPC as a tool of diplomatic negotiations. The more the Kazakh government wishes to obtain independence from Moscow, the more it will try to inch away from the CPC so as not to play petroleum hardball.
The most effective strategy for Russia in its international diplomacy is to continue occasionally yielding on disputes over transit fees, while continuing to implicitly (or explicitly if necessary) threaten Kazakhstan by stressing that country’s dependence on it. Via this strategy, Russia should be able to guarantee that a large portion of the Caspian oil will continue to flow through its territory. However, as time goes on, Kazakhstan will likely manage to reduce its dependence on Russia, which has historically extended to all parts of its economy, including newspapers, television, food, transportation, etc. Now, the burgeoning Kazakh economy is starting to produce and procure these things for itself, or finding other sources for them. The government is also taking an active role by building new rail lines, modernizing old roads and building new ones in an effort to make it possible to easily travel from the east to the west without going through Russia, thus further aiding the development of an independent Kazakh industry and agriculture.
As this situation progresses, Russia may be forced to rely more on the carrot than the stick. If in the face of increased Kazakh self-reliance, Russia insists on demanding high transit fees, and especially if it shuts off the CPC for arguably political reasons, Kazakhstan may wish to more strenuously search for alternate routes to transport its oil. If Russia focuses more on transit fees, as opposed to the increased geopolitical clout that will come with the control of the oil in transit, then the prospects for increased capacity of the CPC will decrease dramatically.
Additionally, the CPC, like the KPC, is solely an oil pipeline. There is no major pipeline to export Caspian gas, and interestingly enough, Russia has shown no inclination to fill this need. Any Caspian gas pipeline would also likely need to connect to Turkmenistan to take advantage of that country’s massive gas reserves. However, the Turkmenbashi proved himself an unreliable negotiating partner, evidenced in the planning of the American-sponsored Trans-Caspian Pipeline (TCP). However, with the Turkmenbashi’s recent death, that may change. Russia’s involvement in the region’s natural gas markets would be a prudent move, since control of Caspian gas as well as its own would cement Russia’s position as the world’s preeminent gas supplier. During recent talks concerning a possible Russian-led gas OPEC, one of the experts’ criticisms of the idea was that Russia already has such massive reserves that forming such a cartel might be unnecessary. While this is debatable, by obtaining control over Caspian gas, Russia should be able to completely put itself in a position to effectively determine and manipulate the world’s natural gas market as it sees fit.
The Iranian Route
George W. Bush has described Iran, Iraq, and North Korea as the “Axis of Evil,” defined as “countries that sponsor terrorism and are searching to acquire weapons of mass destruction.”Currently, Iran is the most powerful of the three. Saddam Hussein was overthrown in Iraq, and although Kim Jong Il appears to be close to acquiring nuclear weapons, North Korea’s economy is in shatters. Comparatively, the Iranian economy, thanks to its oil and gas, is comparatively strong, making it more viable in international politics. President Mahmoud Ahmadinejad has also taken up a very muscular foreign policy in an attempt to make Iran a leader in the region.
Since oil and gas are important to Iran’s strength, it is imaginable that it will do everything in its power to gain control of as many Central Asian resources as possible. The added transit fees would aid Ahmadinejad’s current populist policies, which have gained him some domestic support, but have proved costly for the government. With a population of over 68 million,  oil money can become spread thin very quickly, and there are already fears that Iran is spending more than its budget allows. The additional revenue that pipeline(s) would bring would also allow Iran to better withstand Western embargos. Additionally since Iran would control a greater fraction of the world’s oil and gas, such an embargo would cause a far more serious shortage of oil and gas and greater price increases for the West, making it less likely.
The Korpezhe-Kurt Kui gas pipeline (KKK), completed in 1997, is currently the major export line for Turkmen gas. It traces the Caspian shore from the Turkmen fields to the northern city of Kurt Kui in Iran. From there, the gas is exported through the internal Iranian pipeline network. However, this is a fairly small pipeline, with a capacity of only 282 billion cubic feet (bcf) per year. Though some Turkmen gas is exported into Russia through the old Soviet pipeline system, the KKK gas is purchased at market rates in cash, while most of the gas to Russia is bartered. While the system is opaque, the overall compensation Turkmenistan receives from the Russians is likely far below market value.
Iran would like to add to the KKK by building a gas pipeline of a far greater capacity. Since all such plans are only in the very basic planning stages there are numerous possible variations, such as a pipeline that would terminate at an Iranian port on the Indian Ocean, or one that would go through Pakistan and into India. One further option would be the construction of a Turkmenistan-Iran-Turkey pipeline (TIT), which could be extended north to include Kazakh gas. The TIT would transport gas from the eastern shore of the Caspian across Iran and into southern Turkey, where it would join the extensive Turkish pipeline network. Iran is also encouraging the construction of a Kazakhstan-Turkmenistan-Iran oil pipeline (KTI), which would have a capacity of one mlb/day, and could be built in conjunction with a gas pipeline.
As there are numerous possibilities, it is somewhat more difficult to discuss advantages and disadvantages of the Iranian preferred route than it is for the Chinese or Russian routes. The advantages and disadvantages given below, unless stated otherwise, refer to the generality of any pipeline that passes through Iran. One major advantage to the Iranian routes is Iran’s willingness to provide low-cost transport. Iran’s economy is weaker than Russia’s, China’s, or America’s and its need for the income that will result from the pipelines being built through its territory is greater, so it is willing to offer favorable rates. Iran is also in a favorable geographical position, allowing for the shortest possible pipelines to major bodies of water, and by building in the south instead of north or west, harsher climates are avoided. The net result is lower construction and maintenance costs.
The Iranian routes are particularly advantageous for gas pipelines. Much of the Caspian oil is in the northeast Kazakh sector closer to Iran, the oil fields tend to be further south. Also, Turkmenistan has hitherto shown a willingness to work with Iran that it has not shown to other countries. Since Russia and China as of now do not plan for any gas pipelines, the only other option is the American-sponsored TCP, which is astronomically expensive and difficult as compared to the simple overland Iranian routes.
However, a major logistical problem is that any major pipeline needs to be constructed from scratch. The KKK is a small diameter pipeline, and its maximum capacity cannot be increased. Therefore, though the Iranian routes promise fairly short pipelines, they will still be expensive, and cobbling together various actors to agree to pay for such a pipeline would be difficult given the sizable American resistance. It is therefore doubtful that major countries would help build it, or even connect to it for fear of raising American ire. Also, America discourages its oil and gas companies from dealing with Iran, which would hinder the export of Kazakh oil and gas through Iran as Chevron has a share in many of the Caspian fields. Furthermore, if an embargo against Iran is put in place, Kazakhstan and Turkmenistan’s oil- and gas-based economies could collapse, creating a very dangerous situation for them.
Although Iran would like to play up the “Muslim Brotherhood” aspect between it and Central Asia as a means of currying favor, it is doubtful whether this will be a successful tactic. While Turkmenistan and Kazakhstan are Muslim countries, Islam came very late to the region, and was not exactly adopted wholeheartedly. Many traditionally Muslim edicts are not followed: Vodka and beer flow freely across the steppes; few speak Arabic or pray on Fridays, let alone five times a day every day; and pork is widely sold and eaten. Additionally, Iranians are ethnically Persian, while Kazakhs and Turkmen are closer to Mongolians and speak Turkic languages rather than Farsi. Iran is Shi’a, while Central Asia is Sunni. Despite some collaboration between Iran and Kazakhstan/Turkmenistan, there remain few viable historical or cultural links between them. It is notable as well that one of Kazakhstan’s closest friends and economic partners in the Middle East is Israel, a sworn enemy of Iran.
Of all the proposed pipelines discussed here, the Iranian plans are the least likely to come to fruition. As long as America’s animosity towards Iran remains, it will be far too risky for Turkmenistan or Kazakhstan to dedicate a major portion of their reserves to Iran. However, if Iran offers sufficiently enticing deals, it may be possible to get relatively small gas pipelines built, especially from Turkmenistan.
The American Routes
Since at least the oil crisis of the 1970s, cries for independence from Middle Eastern oil have been a constant political refrain in America. Following September 11th, these cries have become particularly strident. President Bush has alluded to “energy independence” in every one of his State of the Union addresses. During the sometimes vicious debates over energy in Congress, the issue is never whether or not the US should be independent of Middle East oil, but rather how it should be made independent. This is an even more pressing issue with the increasing animosity between the US and Iran, as well as with the difficulties in Iraq and the general distaste for the US in the greater Middle East. In his 2006 State of the Union address, President Bush set forth a goal to reduce oil imports from the Middle East by 75% by 2025.
Alternative energy and reduced consumption are two ways that America could reduce its dependence on foreign oil. However, most of the technology for alternative energy is either many years from being fully functional or too expensive without large subsidies (as with corn-based ethanol) and severe consumption reduction seems to be too bitter a medicine for Congress to swallow. Therefore, at least for the near future, the US will likely take the less environmentally friendly path and search for new sources of oil and gas. Places like the Canadian tar sands in Alberta provide one option, but due to extraction costs, this will likely not be economically viable until oil prices rise further. Some of America’s oil and gas comes from Russia and Venezuela, but considering the increasing tensions with the former and the open animosity with the latter, it makes sense for the US to look for oil from a new region with pro-American governments, and in this respect the Caspian region shows great potential.
There are two major routes that America is considering: the TAP and the TCP. The Turkmenistan-Afghanistan-Pakistan pipeline (TAP) would travel from the Caspian eastward through Turkmenistan and over the mountains into Afghanistan and on to Pakistan and an open-water port and/or refinery. The TAP could be extended into India to reach the open market there. Since Pakistan and India have rapidly growing economies and expanding manufacturing sectors, those countries should be eager to receive such a pipeline.
Costs for constructing the TAP are high due to Afghanistan’s mountains. A greater problem is the fact that Afghanistan is still in the throes of a civil war and the virulently anti-American Taliban is still active. It will be difficult to construct a pipeline in such an environment, and if constructed, the pipeline would incur extra maintenance costs in the fact that it will need to be guarded, such as certain African pipelines that travel through similarly unstable territory. If Pakistan and/or India are willing to dedicate resources to ensure security in Afghanistan, then the TAP/TAPI will become a far more viable option. However, for now, it has not proceeded farther than the planning stage. Neither an exact route, capacity, nor whether it should carry gas, oil, or both has been decided.
The Trans-Caspian Pipeline (TCP), could be a gas, oil, or combined pipeline. It would go from either Aktau, Kazakhstan or Turkmenbashi, Turkmenistan under the Caspian Sea to Baku, Azerbaijan. From there, any oil could link with the existing Baku-Tbilisi-Ceyhan pipeline (BTC) to ultimately access the Mediterranean, while the gas could be transported via the South Caucasus gas pipeline into eastern Turkey and possibly on to Europe from there via the proposed Nabucco pipeline. While the TCP is still in the planning stages, feasibility studies have shown that a gas pipeline would cost $5 billion and have a capacity of 30 bcf/year. An oil pipeline would cost $4 billion and carry 400,000 barrels/day, and thus deliver 40% of the BTC’s total export capacity.No feasibility studies have been done for a combined TCP pipeline.
The TCP has relatively few political complications. Burrowing under the Caspian conveniently avoids Iran and Russia, providing a direct route. Also, since the US’s main desire is for the oil to reach an open market (it cannot be piped directly to the US, so the US will be dependent on purchasing the oil and transporting it), Kazakhstan and Turkmenistan can feel relatively secure in that they will be able to ask market rate for their resources. However, the underwater TCP would be far more expensive to construct than the overland TAP.
For the TCP, a combined gas and oil pipeline would make the most economic sense. The economies of scale reduce the price of a combined pipeline more when it is underwater than when it is overland, as a large part of the costs of laying down an underwater pipeline comes from digging the trenches on the seafloor and the use of pipe-laying vessels.One main challenge will be in finding the needed large initial investment. Due to the costs, both Kazakh and Turkmen gas (and possibly oil) will likely need to flow through the pipeline(s) to provide enough product to make them profitable. However, in the past, Turkmenistan’s protectionist policies helped keep such a pipeline from being constructed. While BP and Shell were active in Turkmenistan in the ’90s, there is currently no major foreign oil company operating there; Shell finally shut its office there because it saw “no prospects for taking part in realistic oil-and-gas projects” due to government regulations. If Turkmenistan still remains opposed to the TCP, its chances of construction remain slim to none. However, the death of the Turkmenbashi and a change in government for Turkmenistan changes the outlook. The new Turkmen president, Gurbanguli Berdymukhamedov, has not explicitly addressed the TCP, but he has promised reforms, eschewing the Turkmenbashi’s personality cult and allowing the first Internet cafes to be constructed in the capital of Ashgabat. These hints at an increased willingness to be an active part of the global community bode well for the TCP. While it remains to be seen how much Turkmen-US relations might improve, Turkmenistan has much to be gained from increased economic ties. Its fields have not come close to being fully surveyed, and its deep-water fields demand technology that Turkmenistan does not possess – but the US does.
Issues surrounding ownership of the Caspian seafloor may also negatively impact construction of this pipeline. Lastly, due to the current relative lack of gas pipelines, more interest has been shown in a Trans-Caspian gas pipeline than an oil pipeline. However, if money for a combined pipeline cannot be gathered, the line may prove unprofitable.
American Foreign Policy and Caspian Oil
While America’s dependence on foreign oil is universally accepted as a serious problem, it is overly simplistic to group all foreign oil together as being endemic of the same problem. The US holds only 2% of the world’s oil reserves but consumes 25% of the world’s oil production, so as long as oil remains a primary fuel the US will never be able to rely on its own reserves. This should not necessarily be a frightening prospect, as it is not reliance on foreign oil in general that is troubling, but is rather dependence on oil which comes from countries with unstable and/or unfriendly regimes, particularly Venezuela and many Middle Eastern countries.
Many Central African nations have large reserves which American companies are eager to exploit, but the region is not exactly known as a bastion of political stability. By comparison, Kazakhstan’s government has been very stable, if undemocratic, since the fall of the USSR. Although the death of the Turkmenbashi has introduced some uncertainty to the political process in Turkmenistan, there is no large-scale opposition movement or threats of revolution as in Uzbekistan, Tajikistan, and Kyrgyzstan. Additionally, Kazakhstan has proven very friendly towards America, and neither it nor Turkmenistan has shown a tendency to rival American power as Venezuela and Iran have shown. Furthermore, as shown above, the pipelines to transport this oil and gas to a location where the US can easily purchase it are expensive, but entirely possible to build. Central Asian oil can provide a pivotal piece of the puzzle to solve America’s oil problem.
Simply stressing the construction of its preferred pipelines as a pivotal part of American foreign policy and putting its diplomatic might behind the plans will do much to encourage the pipelines’ eventual construction, but there are also more specific strategies that the US can adopt. Since the Kazakh and Turkmen governments control their respective oil and gas industries, for the US to get its desired pipelines built, it will have to negotiate with the governments of these countries, so maintaining good relations and avoiding conflicts by not calling for government reforms and/or improvement in human rights will be beneficial to the US. Additionally, it is possible that large-scale reforms would actually be detrimental to the American aims. The US needs to be assured that the government will hold up its end of any contract, and a new ruling party might not respect the old party’s deals.
Luckily for America, human rights violations in Kazakhstan are not particularly egregious. There is a decidedly undemocratic election process and lack of a free press, but torture is not a major issue and the people have a large degree of freedom to do as they please in their economic and personal lives. The fact that President Nazerbayev is wildly popular among the Kazakh people only further demeans the importance of such human rights violations.
The US’s treatment of Nazerbayev during his August 2006 state visit is indicative of the attitude that the American government has and should take. Nazerbayev was given a warm greeting, and President Bush thanked him for his help with Iraq and Afghanistan, and they jointly declared a “shared vision of stability, prosperity and democratic reform in Central Asia.” At the same time, a spokesman for the National Security Council claimed that Bush would be “encouraging Kazakhstan to accelerate progress on democratic reform” in order to save political face with those concerned about human rights.
Turkmenistan demands a slightly different approach. The Turkmenbashi ruled his country as a police state and was very hostile to the TCP, and the human rights violations were far more serious than in Kazakhstan and cannot be as easily ignored. The US must balance its role as a global leader in calling for reforms with its desires to build the TCP. Since US support would grant legitimacy to the Turkmen government, and assuming that the new government desires this, offering closer diplomatic ties, a large aid package, and perhaps an official visit to Washington, could be useful bargaining chips.
The US can also leverage American gas and oil companies to take up pro-US stances. While with all the other players in the fight for Central Asian oil and gas the government and the companies are one and the same, Chevron is a separate entity from the US government and is under no compulsion to follow American foreign policy. Therefore, the US should work hard to ensure that Chevron and the other, smaller American companies in the region support the TCP and/or the TAPI as opposed to making further deals with Russia, China, or Iran. This can be achieved in a variety of ways. The government could tie support for the TAPI and TCP to the generous subsidies that it gives the oil and gas industry, while threatening possible embargos, tax hikes, and other punitive measures if American companies stray too far towards the other countries’ pipeline plans. Additionally, the US could pledge diplomatic and if necessary military support for the safe construction of the pipelines. If Chevron was confident the TAPI would be secure, the company would likely be far more willing to invest in its construction.
Lastly, America needs to garner European support for its plans. The TCP would be favorable for Europe as well. The vast majority of all gas consumed in Europe comes from Russia. If the TCP were constructed, gas could be carried along the proposed Nabucco into the heart of Europe, thereby greatly reducing its dependence on Russian gas. The combined US and EU diplomatic and economic might would make the construction of the pipeline more likely.
It is difficult to say just how closely the US is currently pushing for these initiatives, as the government and press has been relatively mum on Central Asia. The US may not wish to advertise its strategy to foreign powers, but more seriously, there might be some major political ramifications if it openly pursued a policy of giving more subsidies to oil companies, willingly dealing with despotic foreign governments, or committing troupes to guard pipeline construction. Likewise, other countries, such as China, may not always be completely open or honest about their intentions, and it will be impossible to get the whole story of this fight over the placement of oil and gas pipelines until the battle is good and won and the various governments have released internal documents.
Conclusion: Perspectives for Caspian Oil on the World Stage
Nothing more than tentative predictions for the future of pipelines and the countries’ strategies can be made. However, despite the problems with providing reliable predictions, by looking at the advantages and disadvantages of the various Central Asian pipelines, one can at least make some decent educated guesses. We can assume, for instance, that all pipelines already operating will continue to transport oil and gas: the Iranian Korpezhe-Kurt Kui (gas), and the Russian Caspian Pipeline Consortium (oil). We can also assume that the pipelines already being constructed will continue and come online in the future: the China-Kazakhstan pipeline (oil).
We know that the export routes for the Central Asian gas face more difficulties than those for oil. Except for the small KKK and a few minor Soviet-era pipelines, there is no way to currently get the Turkmen and Kazakh gas to market. An Iranian route is unlikely, and gas pipelines through Russia face even more serious challenges than oil pipelines. As Russia has a much larger share of the world’s gas reserves than of oil reserves, it is more able to play politics with gas. Also, Russia would integrate the Central Asian gas into its existing pipeline network which is dedicated to shipping gas to Europe, as opposed to selling it on the open market, which might further increase the likelihood of political problems with the US. China does not have the same need for gas as it does for oil, and the costs of building a China-Kazakhstan gas pipeline would be prohibitive. If the US follows the strategies laid out in this paper, then the TCP will most likely be built, and it will carry the majority of Central Asian gas as well as some of its oil.
Looking at the struggle between Iran, Russia, China, and the US over their preferred pipeline routes for Central Asian oil and gas gives a good glimpse as to the world’s future geopolitical order. Despite the formidable difficulties in building pipelines, those four powers are converging upon the region with an eagerness that is almost desperate. In previous eras, a country’s military was the sole arbiter of her strength, but today her economy has become nearly as important, if not more so, and all industrial economies – and militaries – run on oil and gas. The US and China desire those resources to fuel their power plants, factories, automobiles, aircraft, and armored vehicles. Iran and Russia want the pipelines to go through their territory in order to claim transit fees and use the resources as political tools. For each country wresting control of the Central Asian oil and gas is necessarily a vital part of its grand strategy.
The author of this analysis, James Fishelson graduated from Yale University with degrees in Chemistry and International Affairs in 2007. He performed research for this thesis while studying abroad in Almaty and traveling in Kyrgyzstan.
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