Politics Amidst Btc Euphoria

Saturday, September 26, 2009 Politics Amidst BTC Euphoria* (Excerpts from Dr.Makni's book, "The New Great Game: Oil and Gas Politics in Central Eurasia" published simultaneously in Feb 2008 from New York, London and Swansea. Please ignore footnotes numbering in the text) The completion of BTC (Baku-Tbilisi-Ceyhan pipeline) has generated success euphoria in the Western camp. Those opposed to this project, on the contrary have been moored psychologically. The composition of the CPC stakeholders indicates conglomerate of the eleven companies, including Russian, who pioneered this venture. Conversely, a close look at BTC shows that none of the Russian or Iranian companies co-joined. While Iran’s prospects of participation were obviously blocked by ILSA (Appendix-1), there was no bar on Russian companies who were eager to avail a profitable situation. This was one of the few projects where Russian Govt. and their companies maintained conflicting approach when the government to stay away from the project, stopped them. An eminent scholar Fredrick Starr39 has looked at BTC from a different angle after its completion, labeling it as one, which represents School of Modernity. He appears inclined to condone in some manner the Jacobean brutalities of French Revolution when in the backlash, Comte Henrie de St. Simon had made a visionary statement that henceforth engineers and not the politicians would change the world. As already said he also draws parallels between BTC and Suez Canal designed and built by French engineer Ferdinand de Lessups40. The Russian politicians observed no qualm in criticizing the project vehemently because it amounted to the curtailment of their natural rights in South Caucasus. The critics, some within Turkey, US and Europe, expressed serious reservations about the cost and ability of Caspian littorals to ‘through put’ required quantities of oil in BTC. Thus, it complicated the politics further. Environment concern and demographic upheavals were the tools available to the opponents who were well equipped with such statistics. They maintained and rightly that the project would uproot 300 villages in backward region of Anatolia in Turkey. Yet the desire to reach the free market through the BTC, sponsors’ and the investors’ steadfastness prevailed ultimately. However, projected completion is one marvel for the consortium, as ensuing ramifications once the BTC has become operational since December 2005 there are bound to arise some fledgling irritants on transmission, price and sharing revenues. The security fear would remain, though a separate protection force to patrol along BTC has been constituted. The recipients of oil revenues i.e. Azerbaijan, Georgia, Turkey, and the crop harvesters of oil, USA, Europe, can certainly muse at their achievement but those deprived and bitter critics of the yesteryear would find it hard to absorb the gripe. Russia, Armenia and Iran appear humbled to the proportionate grade because US politics through ILSA has worked which Iran had brushed aside, assuming it would not and the West had no choice but to adopt the South (best) or North (preferable) exit routes for the Caspian bonanza. Iran will certainly still wish and possibly act to make BTC ineffective. Russia enjoys hold on some quarters in insurgency prone Georgia as well as Armenia to whom Azerbaijan has lost 1/5th of territory of Nagorno–Karabakh. When greater number of petrodollars would reach Azerbaijan coffers, her priorities at least in one context are predictable and that is to build military muscle and retrieve the lost territory. In other words, the imbalance thus created may intensify the hostile politics. Russia has traditionally stood beside Armenia. In the domain of ‘politicking’ at least, Iran will obviously extend moral support to Armenia at the cost of added frenzy to Azerbaijan’s woes with sole intention to undermine the Western interest. Turkey being the point man of the Western camp shall gain added antagonism against Iran that is historically so easy to inflate. The pattern of politics suggests that convergence of views on the orientation of Caspian Region pipelines is almost

perfect as of necessity among Russia, Iran and Armenia thereby giving shape to their ‘nexus’. The completion of BTC guarantees the economic interests of the Caspian beneficiaries and their sovereignty. Nevertheless, there are certain thorny questions, which shall not find answer at this stage. Would Russia dab her intensity of coercing the Caspian-Caucasus Region into compliance? In spring 1996, her unilateral act of curtailing Kazak oil flow through CPC for delivery at Russian seaport of Novorossiysk sent chilling message through the Chevron spine, which now operated Tengiz oil field along with Kazak Oil Company. Reason cited by Russia that Kazak crude was damaging the pipeline being high on sulfur contents, could not hold the ground because same crude had been running through the Russian pipeline for many years when Russia operated the oil field41. Similarly, will Iran recognize the value of politically and economically stable governments of Azerbaijan, Turkmenistan and Kazakhstan once the latter two would opt to accept the Western Option in executing TCGP and TCOP projects respectively, remains a big question? The hope glimmers though but it is likely to fade away because taking reconciliatory approach and recognizing the ground realities are diametrically opposed to the ‘nexus’ pursued interests. If TCOP and TCGP were to become reality in certain frame of time after BTC, that would mean blow to Russian economy which at the moment monopolizes on Turkmenistan as well as Kazakhstan oil and gas market, though slipping fast from her grip. Thus, any attempt to downgrade BTC role would buy them US and Europe disapproval that may retaliate against the ‘nexus’, Russia being most vulnerable to the West’s economic counter moves. For these reasons, the opponents of BTC, TCOP and TCGP would perhaps have no choice but to see, on one hand, BTC as a necessary evil to tolerate as a compromise solution and on the other hand to vigorously interdict the efforts of extending Western Option to the east of the Caspian, connecting Kazak-Turkmenistan oil and gas to Baku through Caspian Sea. Incidentally, the pivots of politics, discussed earlier, are readily available to them. In the short term, Azeri–Turkmen bickering over Azeri ‘Kyapaz’ oil field that is claimed by Turkmenistan makes the TCGP prospects murky. Discovery of gas at Azeri ‘Shah Deniz’ field has improved Azerbaijan status from a net gas importer to a gas exporter42. This aspect will have dampening effect on their mutual discord. The West led by USA considers these geopolitical developments an opportunity to create situation in the Southern Caucasus conducive to the world peace through achieving economic and political stability out of erstwhile authoritarian states. The success in Georgia to an extent triggers such hopes, which stand to, consequently, neutralizing Russian coercive diplomacy in the region with no particular flare for democratization process. Turkey being an important ally and Azerbaijan now leaning to the West, NATO has, by implication, become an instrument of stability with its professed war on terrorism. The West, mainly USA and Turkey, perceives that their casting of shadow on the Caspian politics is nothing but a necessity for the region in particular and the world in general. This way the West not only augments security scenario in the region but also the security of hydrocarbon resources, which have become so vital assets for the world at the dawn of third millennium. General John J Sheehan’s comments cannot be brushed aside, that he made in September 1997 when he led a contingent of 82nd Airborne Division to conduct an airdrop in Kazakhstan. He said, “The message, I guess is, that there is no nation on earth that we can not get to43.” While the general may have been overestimating US capabilities as a traditional military self-glorification, yet the neighbors including Russia took solace in toned down comments that it was merely the US’s force projection exercise. The defense analysts are left with little doubt, what the ‘general’ meant. Broadening Spectrum of the Politics

Mostly scholars opine that China has expanded her role in the region that remained largely unnoticed so far. Jumping in the Central Eurasian arena has become her necessity because of burgeoning economy, which has been forecast to grow about 8 %. On the contrary, her indigenous oil and gas inventory is terribly short to support massive growth of its economy. As seen in the previous statistics tables for oil and gas, some figures set the record right. China has scanty oil reserves of 17.1 Gb that make her share barely as 1.4 % of the world total. Similarly, her oil production is by compulsion, modest but comparatively larger than her reserve ratio that is figured as 4.5 % or 3.5 million bbl per day of the world total. When her inventory of consumption is seen, it tells all. With meager indigenous reserves and production, her consumption has surged to 6.68 million bbl per day or 8.2 % of the world total, registering an increase of 15.8 % over 2003. Similarly, in natural gas her production is 40.8 Bcm or 1.5 % of the world total per year, registering an increase of 18.5 % over 2003. However, Chinese economy consumes 39 Bcm each year or 1.5 % of the world total, registering an increase by 19 % over 2003. The statistics prove that in order to allow her economy boom, China is left with no choice but to squeeze every ounce of oil and gas. Her rapidly expanding economy shall also consume inevitably the huge stocks of energy as well. While her gas production is keeping pace with her consumption, the yearly surge in 2004 over 2003 had been colossal i.e. 19 %. In other words, her proven gas reserves estimated to be of 2.23 tcm that make only 1.2 % of the world total proven gas reserves shall deplete fast because of ever-increasing consumption. Assuming that energy efficient measures enable China to steady her current rate of consumption, which at the moment appears a hypothesis though, her gas reserves shall last for only two years time. Her daily consumption of the petroleum products is second largest in the world; 5.5 million barrels per day, which is projected to reach 12.8 million barrels per day by 2025. The most significant deal China struck with Kazakhstan was the mutual agreement on KCP, which is scheduled to be completed by late 2005. She is also likely to become Azerbaijan partner in oil and gas. March 2005 visit to China by Ilham Aliyeav marked the priority, both the countries accord to each other. Obviously, Beijing is most interested in Azerbaijan oil. After signing some PSAs between the two Governments, SOCAR has permitted a Chinese oil company to work at Garachukhur oil field. China is thus, placed in a profitable situation. Having contiguous borders with three of the five Central Asian states, her energy stalking is naturally camouflaged by growth of massive bilateral trade. Chinese trade volumes have doubled with Kazakhstan, grew by 127 % with Uzbekistan while Kyrgyzstan has become third largest trading partner with Xingjian44. Thus, it affords her a platform from trade and ethnicity commonalities point of view that she may not be trampling the Central Eurasian sensibilities with which her relationship is expanding no less. Still the same advantage in part has become a Damocles sword for China, charting a course for her to tread it very meticulously. Otherwise, the conspiracy theorists, at an opportune moment may ignite the ethnic turmoil, which has brewed in Xingjian over the past centuries, shattering her dreams to exploit the riches of her Central Asian province. In this scenario, China would stand bracketed with Russia, Georgia, Azerbaijan, Iran and Armenia who sit on one kind of flash point or the other in Central Eurasia that would be gravely ominous for her economy. Her political rivals would gloat over the situation. EU has emerged yet another ingredient of the Central Eurasian politics. The Union’s perception of ‘wider Europe’ stands served when Georgia and Azerbaijan have been integrated through BTC. The perception to revive old ‘Silk Road’ by proposing TRACECA and INOGATE hinges on such dreams like BTC success that has laboriously emerged as reality from the ‘pipe-dream’ status. BTC is thus a vital ingredient of European energy security as well. When stake would be high, EU focus on Caspian politics would obviously be a foregone conclusion. India, of late, has emerged as extremely needy for hydrocarbon energy though by the scale of her indigenous resources, she ranks almost insignificant in oil and gas scenario. Her

economy has tremendous potentials to grow which grew 4 % in 2002, surged to 8.2 % in 2003 and is projected to grow by 6.2 % in 2005. Her dependence over oil for the total energy consumed is 30% with imports of 1.4 million barrels per day, which is likely to soar to 2.8 million barrels per day by 2010. Her natural gas consumption has registered rapid increase. From only 0.6 Tcf per year in 1995, her consumption is projected to increase to 1.2 Tcf by 2010 and 1.6 Tcf by 2015 annually. India has shown interest to import Caspian Region oil and gas for which it is a lucrative market45. TAP pipeline plan if executed ever, beside the one she is negotiating with Iran, is a possibility for her to join as a very economical alternative. However, her deep-rooted reservations about this option being faced with an adversary of the past prevent her to join the cause though Pakistan is inclined to offer all possible sureties for uninterrupted gas supplies. In Central Eurasian context, of late the giants have had clashing posturing. India and China were seen biding for the same oil company when China won the deal. It nevertheless marks the frenzy with which India is now poised to commit herself in the game. Jyoti Malhotra rightly remarked, “The Sino-Indian competition over control of Petro-Kazakhstan has been in the news recently, with India’s Oil and Natural Gas Corporation (ONGC), having lost out to China National Petroleum Corporation (CNPC) in a dramatic cloak-and-dagger maneuver a couple of weeks ago. Turns out that when the weekend ended (around the India’s Independence Day on August 15), India ONGC had been on top with $ 3.9 billion bid for company control. But when Monday morning dawned in Almaty, CNPC had come in from the cold with a $ 4.18 billion offer that Kazakhstan could not possibly refuse46.” India appears in aggressive stance to seek extra oil that could guarantee her economic growth for years to come. The politics of purchasing oil and gas giant companies may give a momentary relief to the winner but in the end, the emerging economies may find with certain amount of bad taste that strategic partnership would have been better option than the play of politics to unseat each other. Central Eurasian assets are naturally contiguous to China and at close quarter to India. It is thus possible that both would be vying to benefit from each other’s follies if not gains through wisdom. Nonetheless, they have found an interesting battlefield of politics, from NEFA (a sector on Indo-China border) to Central Eurasia, geographic variations not withstanding. China on her part has not made any concerted effort to veil her designs. Her bid of $20 billion to acquire Unocal was spurned only at the last moment when US nationalism or patriotism personified by Chevron interceded to prevent Unocal going in the Sino baggage. While all goes on, China’s ingress in adjoining Central Eurasia would remain a rocky passage. Chevron ambush to the Chinese bid cannot be taken in simple business chemistry. It only indicates how determined was USG to keep Chinese influence at the scale that it does not run counter to the US interests. Similarly, Russia’s allergy to the build up of foreign influence is no longer a secret. As regards China, despite that, Russia now has peaceful borders with her, she would carefully watch China’s moves lest China attempts in cashing her economic influence, backed by her nuclear force projection and ethnic infiltration. In the same context, Russia maintains series of ‘first principles’ with external and internal connotations. Externally Russia, “has sought to demonstrate to the world is that Central Asia has remained exclusively in the sphere of Russian interests and that it will not allow any rival power to emerge in the region. Internally these principles have sought to convince the newly independent states of Central Asia as well as the public in Russia that there is an external threat from other regional powers and that Russia is only capable of protecting them against absorption of these powers47.” Though not spelt out with same clarity and ferocity, by implication, Russia at least on her part still suffers from her ‘imperial’ stupor as regards Caucasus Region as well. Relating these perceptions to the rush for energy, hydrocarbon factors amply manifest that energy stampede shall occur and so shall the Caspian Region remain a favorite rendezvous to contest oil politics. The coverage so far has been restricted to the regional politics that cannot be

isolated from the transnational element of geo-strategy. In other words, extended debate becomes imperative in the backdrop of geo-strategic dimensions of the New Great Game and the actors’ role to support exclusive exterior maneuvers of their own under the garb of apparently benign, friendly and peaceful diplomacy. No surprise if it turns out to be malignant, ‘fiend-ly’ and ‘piece-full.’ *BrigGen(Retd) Dr. Muhammad Aslam Khan Niazi,PhD---Pakistan