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Geopolitical consequences of the demise of the Soviet Union

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Introduction

One important geopolitical consequence of the demise of the Soviet Union was the rise of intense political and commercial competition for control of the vast energy resources of the newly independent and vulnerable states of the Caucasus and Central Asia. The fact that the three countries which share the majority of the region's energy and resources, namely Kazakhstan, Azerbaijan and Turkmenistan, are landlocked makes them depend on their immediate neighbors for access to the World markets. Foreign policy concerns related to the regional balance of power, national security, and potential economic benefit have led four external powers to strive for export pipelines to be built across their territory: Russia, Iran, Turkey, and China. A fifth country, the United States has increased its own efforts to influence the pipeline derby. The alternatives to exporting oil and gas through the Russian pipeline system are exporting through war-torn Afghanistan, through Iran, or by building some of the world's longest pipelines to markets in China and Europe. The routing of new oil and gas pipelines from the Caspian basin will greatly influence the region's future geopolitical orientation. The United States supports the construction of a longer pipeline, which would begin at Baku, transit Georgia and much of Turkey before exiting at the Mediterranean Sea port of Ceyhan. The United States supports the construction of a longer pipeline, which would begin at Baku, transit Georgia and much of Turkey before exiting at the Mediterranean Sea port of Ceyhan. However, oil companies have been lukewarm towards the Baku-Ceyhan route because due to its enormous cost. Crossing roughly 1040 miles through mountainous territory, construction of this pipeline would cost $4 billion, exceeding by cost substantially any likely alternatives. The AIOC's successive refusals to commit to the Baku-Ceyhan route, ending in a final, indefinite postponement of any decision until today, created a disappointment for the US, Turkey, Georgia and Azerbaijan. If genuine American national interests are at stake, the US government needs to enhance its efforts throughout the region to support the Baku-Ceyhan pipeline route as well as to support American companies. ...read more.

Middle

The CPC received final approval from the Russian government in November 1998 to build the pipeline, allowing construction to begin. During its 35-40 year expected life, the pipeline could bring in about $33 billion in revenues for the Russian government, including $23 billion in taxes. Novorosiisk also has been chosen as the last stop for the northern route for early oil export route for AIOC oil. An existing pipeline runs from the capital of Baku to Novorosiisk, a Russian port on the Black Sea. This 60-cm-diameter pipeline, while recently rehabilitated, only retains the capacity for 180,000 barrels per day, runs through the war-torn Chechnya region, and is considered a medium-term option only. The pipeline will not be able to handle the expected volume once the three major oil fields in Azerbaijan come fully on-line, expected in the early part of the next decade. In fact, Moscow has urged construction of a larger pipeline that would run alongside the existing line. However, both Azerbaijan and the U.S. government oppose this proposal, because they fear that it would provide Moscow with undue leverage over Azerbaijan. Western Route: The United States supports the construction of a longer pipeline, which would begin at Baku, transit Georgia and much of Turkey before exiting at the Mediterranean Sea port of Ceyhan. In an effort to turn this into an alternative not only for Azerbaijan but for Central Asia as well, the US began in 1997 to push the idea of an oil pipeline that would pass under the Caspian Sea itself, winning the backing of both Kazakhstan and Turkmenistan. The US has supported trans-Caspian routes also as an alternative to pipelines passing through Iran. However, the cost of Baku-Ceyhan has been a major issue. Despite Turkey's assertions that Baku-Ceyhan would be economically viable, members of the Azerbaijani International Operating Company, a consortium consisting of twelve shareholders in which American companies have %43.8 share, have delayed choosing a route, especially at a time of low world oil prices. ...read more.

Conclusion

This neglect of oil companies carries important lessons in a world where multinational corporations often now influence geopolitical developments to an equal or greater extent than sovereign governments. While the support of the Azerbaijani government was crucial to construction of Baku-Ceyhan, that support was not sufficient by itself. The issue of the Caspian Sea pipelines remains a matter for the private sector. The oil companies are the primary customers of pipelines; consequently, the oil companies must pay the costs for new pipeline construction. Amoco, Mobil, and British Oil hold no concern for U.S. geopolitical interests or the Western orientation of Central Asian republics; their only priority lies in more profit. As a result, the combination of expensive construction/transit costs and low oil prices doomed the Baku-Ceyhan for the time being. If genuine American national interests are at stake, the US government needs to enhance its efforts throughout the region to support the Baku-Ceyhan pipeline route as well as to support American companies. Other governments, such as Japan recognized the commercial opportunities in the region and have supported strongly their companies with high-level engagement, extensive credit lines, and other incentives. While understandable from a perspective of political feasibility, Clinton administration's firm refusal to consider any direct US assistance to reduce the costs of the Baku-Ceyhan route strongly undermined its prospects for success until now. If the US government places so much strategic value in the construction of Baku-Ceyhan pipeline, it should offer greater incentives for the oil companies. Alternatively, it should persuade Turkey to provide significant reductions in transit fees and other concessions to reduce the overall costs of the Baku-Ceyhan pipeline. Finally, the US government should encourage greater communication and dialogue between AIOC representatives and Turkish, Georgian and Azerbaijani government officials. Turkish government officials are reluctant to engage in specific negotiations with AIOC representatives over cost issue. The US government should encourage Turkey to be more cooperative. The US government should also consider offering greater economic assistance in comparison with the commercial relief the Turkish government should offer. ...read more.

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