"Russian and Euro-Asian Bulletin", Vol.9, No.2,March-April 2000
THE GEOPOLITICS OF CASPIAN OIL
Heather Field
Abstract
The development and exploitation of the oil and gas resources of the Caspian Sea area represents one of the major economic and political outcomes of the post-Cold War era. It involves a partnership between western oil companies and local governments such as that of Azerbaijan, but also involves interests and in many cases benefits for a wider range of players. The outcome so far suggests that Samuel Huntington's anticipated 'clash of civilisations' can be averted where economic benefits can be obtained from cooperation, but it could be considered to apply to the struggle between Russia and Chechnya. Avoidance of conflict requires an availability of benefits to all the major players, and Russia's conflict with Chechnya demonstrates that where the interests of major parties are put at risk, conflict may follow. Also, if local populations, as opposed to elites, do not benefit significantly from the oil and gas bounty there will be internal opposition to the governments involved, and the US and EU might find the moral and economic aims of their foreign policies coming into increasing conflict.
The Caspian and the 'Clash of Civilisations'
The extraction of Azerbaijani and other oil and gas from the Caspian sea area and its transport by pipeline to European markets ranks as one of the major economic and political consequences of the collapse of the Soviet Bloc and former Soviet Union, and one of great importance for the early 21st Century. It demonstrates the impact of the process of globalisation in the Caspian area of the former USSR. The area is being drawn more closely into world trading arrangements, assisted by investments from foreign multinationals, increasing the interest which western governments have in the area. These processes imply that any conflict in the area will have wider implications. The present situation contrasts strongly with that during the Cold War, when the area was firmly under the control of the Soviet Union with its central planning system and communist party arrangements focused ultimately on Moscow. The benefits of transporting Caspian Oil have been a motivating factor in the Russian reconquest of Chechnya.
This article considers how far the Caspian area, which is illustrated in Figure 1, could be said to be one to which Samuel Huntington's 'clash of civilisations'1 applies, and the extent to which the existence of mutual benefits from the exploitation of oil and gas reserves leads to cooperation instead of clashes. It is argued here that the exploitation of the Caspian oil resource demonstrates that such differences as originate from the 'clash of civilisations' can be overcome where the economic incentives are substantial enough to encourage cooperation rather than conflict. Where they are not, or where they are unable to be maintained as a result of inadequate cooperation or control, then conflict may result.
In the 'clash of civilisations' view the main influence on world affairs in the post-Cold-War era is the clash between nations and groups of nations, with western civilisation being one of these, and the others including the Islamic, Confucian, Japanese, Hindu, Orthodox and Latin American civilisations. The disputes between these civilisations are seen as dominating world politics, and the battle lines of the future are seen as following the fault lines between these cultures. Developments in the area around the Caspian since the collapse of the Soviet Union in 1991 have included three wars of the type indicated by Huntington. One of these was between Muslim Azerbaijan and Christian Armenia over the disputed territory of Nagorno-Karabakh, which is occupied mainly by Armenian Christians but has been part of Azerbaijan. Separatist desires resulted in Muslim Chechnya breaking away from Russia to form a separate state, but losing its independence after Russia felt that the situation could no longer be tolerated. Civil war in Georgia resulted in the establishment of a mainly Muslim Abkhazian ethnic and linguistic entity, but one, which has yet to secure wide international recognition.
The area also has some relevance with respect to conflicts between Islamic fundamentalist groups and those with 'western' and more secular attachments, given the victories of the Taleban fundamentalist militia in Afghanistan and an attack on a Chechnyan garrison by forces from the Wahhabbi fundamentalist Islamic Sunni Muslim movement. There was earlier discussion of Afghanistan as a prospective route for a pipeline to carry Caspian oil and gas to Pakistan. The pipeline from the Azerbaijani oil port of Baku to the Russian oil terminal at Novorossiisk runs through Chechnya. The problems created by this situation were a significant motivating factor behind the regaining of control over Chechnya, achieved with substantial Russian losses early in 2000.
This analysis identifies the economic and political issues involved in the exploitation and transport of Caspian oil, and the prospective impact on the supplying countries and on the European and global economies. These issues include the ownership of the reserves, the question of where pipelines should be constructed, the impact of Caspian supplies in lowering the price of oil, and the extent to which the oil bounty is to be spread widely or concentrated in the hands of small elites, as well as control of the section of the Baku-Novorossiisk pipeline which runs through Chechnya.
The main actors involved include Azerbaijan, a former republic of the Soviet Union, and the international oil companies. Oil represents 65 per cent of Azerbaijan's exports and it accounts for 80 per cent of foreign direct investment (FDI) there, compared with a quarter and two-thirds respectively in Kazakhstan. The international oil companies involved include Exxon, Unocal and Pennzoil from the US, Russian Lukoil, British and international BP-Amoco and Ramco, Statoil from Norway, Delta from Saudi Arabia, and Socar from Azerbaijan. Russia maintains a strong interest both for traditional geopolitical reasons but also because part of the oil is transported by Russian pipeline and loaded on tankers at Novorossiisk. The United States (US) has a major interest because its oil companies are investing heavily in production and pipelines in the area, and also because of its desire to prevent Iran obtaining benefits or influence from the exploitation of the area's oil and gas, and to assist Turkey. The European Union (EU) has an interest both because European oil multinationals are involved, but also because it is dependent to a level of some 50 per cent on imported oil and gas. This percentage is expected to increase to some 70 per cent for gas and 90 per cent for oil by 2010, according to Christos Papoutsis when EU commissioner for energy policy.2 Eastwards enlargement will increase the extent to which the EU is dependent on external sources of gas and oil, including the Caspian, enhancing its interest in promoting stability in the Caucasus.3 Other parties with an economic interest in Caspian oil include Georgia, through which the Baku-Supsa pipeline runs, the former government of Chechnya, and Turkey, which would like to see a pipeline constructed from Baku to Ceyhan on the Turkish coast. Kazakhstan and Turkmenistan have an interest in the area because they are also major oil and gas producers located on the Caspian. Iran has an interest as a country, which borders on the Caspian, as an oil producer and as a country with a strong political interest in developments in the area. Iran's Overseas Industries and Engineering Co. was awarded a 5 per cent stake in the Azerbaijan International Operating Company (AIOC) oil consortium three years ago but this was withdrawn after US objections.4
Arrangements under the Soviet system
The system of political and economic management, which applied in the former Soviet Union, has been generally characterized as a planned socialist system.5 Control of the oil industry, as with all other industries was in the hands of the central planners and government ministries. While individual republics and their leaderships had a degree of autonomy, regional activities were planned and coordinated through the republics, with local budgetary arrangements meaning little in the overall scheme of things.6
The situation now is that the republics become independent states running their own oil and gas industries. In Russia the process of privatisation has resulted in major interests in energy being built up by a group of leading bankers, recalling the earlier example of John D. Rockefeller and Standard Oil in the US.7 For example Yukos, the second largest oil producer in Russia, is headed by banker Mikhail Khodorovsky of Menatep bank. Its method of operation has included paying its workers three months in arrears, and taking legal action against one of Russia's top brokerages, Brunswick Warburg, for alleging it had abused its minority shareholders. The mayor of a Siberian town who got a Yukos subsidiary to pay its local taxes by taking its board of directors hostage for a day was shot dead a few weeks later. Menatep management has been considering making a large new share issue, in theory to compensate sacked or unpaid workers, but which could also be used to water down the value of shares pledged to western banks for Menatep's borrowings of US$236 million.
The policies applied in Soviet times resulted in the internal pricing of oil and gas at levels of around one-fifth of world market prices, and limited exports. These energy policies were consistent with the aim of a high-level of self-sufficiency and only limited foreign trade: while the USSR produced 13.5 per cent of world GDP it was only responsible for 1.7 per cent of world trade.8 As a consequence, reserves such as those under the Caspian were not developed. However, when the oil and gas is valued at world market prices it becomes a resource which is well worth developing, although this is less so at times of low world oil prices, such as have been experienced over the past few years.
The value of the oil and gas is substantial. Overall estimates are that the Caspian area's reserves amount to some 7 billion tonnes of oil and 5 trillion cubic metres of national gas, equivalent to 15 per cent of known world resources of oil and gas. These reserves should make the area one of the main world sources of oil and gas in the next decade.9 However, Caspian oil and gas will not take over from the Persian Gulf as the world's key supply source: the proven reserves of the Caspian amount to 28 billion barrels of oil and 243 trillion cubic feet of gas, compared with the Gulf's proven reserves of over 600 billion barrels of oil and 1 600 trillion cubic feet of natural gas.10
There has been considerable speculation as to potential reserves of oil and gas as opposed to those, which have been proven. Estimates of the total oil reserves of Azerbaijan, the main prospective Caspian oil producer, range from 40 billion barrels to 100 - 200 million barrels. Falling world oil prices have made the oil a less enticing prospect than previously, and there are still some questions about the extent of the reserves. One prospecting company, the Caspian International Petroleum Company, (CIPCO), announced that it had failed to find reserves of crude oil which it would be viable to recover at current market prices: it had found just 30 million barrels of recoverable crude reserves, half the amount considered to be needed to make recovery viable in commercial terms. The oil revenue which will accrue to Azerbaijan when the oil is being fully exploited is estimated by one source11 at some US$2 billion a year and by another at US$1 billion a year by 2002 rising to five to six times this by 2010.12 This oil bounty, if it is managed properly and not siphoned off by elites or used to back military ventures, should mean a change in favour of prosperity for a country whose GDP per head had fallen to 34 per cent of its 1989 level by 1995.
The estimated offshore Caspian reserves of Kazakhstan, the second most important prospective Caspian oil producer, are 10 billion tonnes of crude oil and 2 trillion cubic metres of gas. These estimated oil reserves are hence ten times larger than the onshore Tenghiz oil field in Kazakhstan, and greater than Russia's entire proven oil reserves of 6.7 billion tonnes. The exploitation of these oil and gas reserves should also mean a reversal of fortunes for Kazakhstan, where GDP per head had fallen to 45 per cent of its 1989 level by 1995. In 1997 GNP per head there was US$1 420, and although it was estimated to have risen to US$1 525 in 1998, delays in the payment of wages and pensions led to hunger strikes and marches.13 Difficult economic conditions have resulted in a decline in GDP in 1999, with the value of an average Kazakh monthly pension falling from US$34 to US$25. Kazakhstan has suspended the privatisation of national oil companies and limited future participation by foreigners in these to 30 to 40 per cent of large companies, due to disappointment at the lack of immediate benefits from privatisation and foreign investment.14
Turkmenistan also has substantial oil and gas reserves. Its GDP per head level fell to 63 per cent of that in 1989 by 1995, not as large a fall as that experienced in Azerbaijan or Kazakhstan but still substantial. The average wage in Turkmenistan in 1997 was less than the equivalent of US$30 per month. However, relatively favourable economic conditions have resulted in an estimated growth rate in GDP per head of 5 per cent in 1998 and 7 per cent in 1999.
The previous control that the USSR exerted over the area, has been replaced by a strong Russian interest in not being excluded from the benefits of Caspian oil and gas exploitation. The question of who owns the oil, and to what extent, was one which had the potential to delay its exploitation. The approach Russia had adopted to this issue in recent years, supported by Iran, was that the oil and gas of the Caspian is the shared property of the littoral states and should not be exploited unilaterally.15 An important consideration behind this position was that there is almost no oil on the Caspian coast near Iran, and the fields near the Russian coast are few in number and small.16 Azerbaijan and the other successor states to the USSR who effectively now own the oil took a different line, as might have been expected, and argued that the oil and gas belong to the states whose littoral they are situated in. Russia's position was that Caspian coastal states should only have a ten mile coastal fishing zone, with shared jurisdiction over the rest of the Caspian. Iran supported this view, and was unhappy that it has been excluded from most Azerbaijani oil consortia due to American pressure. Kazakhstan has been relatively tied to Russian pipelines to get its oil and gas exported, compared to the prospective situations of Azerbaijan and Turkmenistan, and was hence unwilling to oppose Russian views too strongly,17 at least until prospective oil sales and a possible pipeline to China are successful in reducing its reliance on export through Russia. Russia has now agreed that the sea bed and the mineral reserves beneath this should be divided into national sectors, with only the sea waters being managed jointly by all the five Caspian states.18 The situation has not been altogether resolved in terms of clear borders between the territorial waters of all parties, and one consequence of this was a disagreement between Iran and Azerbaijan earlier this year when Iran announced a Caspian exploration deal with Dutch and British firms which Azerbaijan claimed infringed on its territorial waters.19
Russia also has a major interest in Caspian oil and gas from the point of view of its situation as a major producer of oil and gas. In 1998 it exported a total of 137.1 million tonnes of crude oil, 8 per cent more than the 126.8 million tonnes it exported in 1997. In 1998 117.9 million tonnes of these exports went to countries which were not members of the Commonwealth of Independent States (CIS) grouping of successor states to the former USSR, an increase of 7 per cent on the 109.7 million tonnes exported there in 1997. The application of export tariffs of 5 per cent ad valorem was used in an attempt to raise revenue for the government from these exports, but after six weeks they were scrapped. The energy ministry uses the setting of oil export quotas which are only issued when the exporters prove they have supplied domestic customers as a means of preventing the domestic market from being under supplied due to attempts to get the benefit of the higher prices obtained for oil on world markets. The ministry was criticised by former Russian Deputy Prime Minister Vladimir Bulgak for not doing enough to calm crisis conditions, and for in effect acting as a subsidiary of major oil interests such as Menatep bank, LUKoil and Gazprom energy companies, and the UES utility.20, 21
The development of the Caspian oil and gas fields off Azerbaijan by the AIOC had already cost some US$500 million by early 1999, with another US$430 million being expected to bring it to completion.22 This does not include the cost of pipelines to transport the oil.
Pipelines
In order for the oil to be transported to markets, pipelines have to be constructed. The cost of a single pipeline is estimated to be S$1.2 to US$3.3 billion according to the route chosen, and it is probable that more than one will be constructed in order to ensure that the flow of oil cannot be easily restricted by political pressures or sabotage. The countries across which the pipelines run will benefit both from the transit fees for the oil, and from increased political influence as a result of being able to control its movement. All the possible routes for pipelines and transport of Caspian oil to take are associated with a degree of political and other problems. Oil has been transported for some time now through the pipeline which runs from Baku in Azerbaijan through Russia to the Russian oil terminal at Novorossiisk on the Black Sea: by March 1999 70 000 barrels of early oil were being transported by the AIOC through it. However, the pipeline has proven very unreliable and subject to shutdowns.23 Also, the mix of crude the oil firm receives from the pipeline is of lower value than the higher quality Azerbaijani crude that it pumps in. As a result of this, and other factors, the AIOC is shipping all its oil through the completed Baku-Supsa pipeline, for shipping from Georgia. The Azeri state oil company, SOCAR, has continued to ship oil through the northern pipeline. It has had major problems, such as the need for oil to be shipped by rail tanker cars through Dagestan even though Russian troops were trying to quash a rebellion there.24 The Chechnyan pipeline was closed at the time due to rebel activity having damaged it.
The inability of the Chechnyan government to show adequate control of the part of the pipeline which runs through Chechnya and to prevent rebel attacks and illegal tapping into it were among the motivating factors behind Russia's decision to fight to regain control of Chechnya. Agreement with the Chechnyan government for oil to be transported through it had in any case only been achieved after considerable bargaining between Russia and Chechnya. Pipeline operator Russian Transneft had offered Chechnya US$1.65 a tonne in transit fees, worth some US$10 million a year to Chechnya, but Chechnya had sought a higher fee or more compensation from Russia for the destruction inflicted during the Chechen war for independence in lieu of this.25 In February 1998 it had threatened to cease guarding the pipeline because agreements with the Russian government were not being implemented,26 and in the face of expanded rebel activity it had not been able to guarantee the continued secturity of the pipeline. The Russian government had commenced the construction of a bypass pipeline in Dagestan to allow oil to flow from Baku to Novorossiisk without having to cross Chechnya,27 but the present war is understood to have resulted in damage to the completed section of the bypass pipeline. Even if the bypass pipeline had been completed, there were fears that the Chechnyan government might not have tolerated the loss of revenues involved for itself, resulting in possible sabotage of the competing pipeline. The former Chechnyan government's energy adviser, Khozhakhmed Yarikhanov, had expressed strong opposition to the proposed bypass pipeline, and described any attempts by Moscow to bypass Chechnya in this way as 'doomed'.28
The shortest and cheapest pipeline route is from Baku in Azerbaijan through Georgia to the Georgian port of Supsa on the Black Sea, and the Baku-Supsa pipeline was completed early in 1999 to carry Caspian oil.29 Georgia itself is not free of conflict, being still in dispute with the breakaway territory of Abkhazia in the north and having political problems which have led to attempted assassinations of Georgian president Eduard Shevardnadze.30 Russia has some leverage over Georgia because it has troops based in Georgia who act as peacekeepers between Abkhazia and Georgia. The increased strategic importance of Georgia is also indicated by the US seeking to strengthen bilateral ties with it, for example by giving it a grant of US$500 000 in 1996 to facilitate participation in NATO's partnership for Peace (PFP) defence cooperation programme.
The route strongly favoured for a further pipeline is from Baku to the Turkish terminal on the Mediterranean at Ceyhan. This is supported by Azerbaijan, the US, and Turkey, and would meet a Turkish and environmental objective of reducing the amount of oil to be shipped through the Bosphorous and its narrow straits. However, the US government cannot force commercial firms to follow a particular line of action that they consider to be uneconomic. While Richard Morningstar, President Clinton's special adviser on Caspian basin energy diplomacy, has said that the pipeline to Ceyhan is viable, as the president of Conoco oil pointed out in response at the March 3 hearing of the U.S. Senate Foreign Relations Subcommittee on International Economic Policy, there is a big difference between viable and attractive.31 After Turkey gave an assurance that the pipeline will be built for US$2.4 billion, not US$3.7 billion as previously cited, Azerbaijani President Haydar Aliyev expressed hopes that the pipeline would be commenced in 1999.32 Construction of the pipeline is now due to start in 2001 with completion being achieved in 2007 or 2008.33 However, certain issues such as finance and security are still under dicussion. The 1999 earthquake in Turkey caused concerns over the potential risk to the pipeline from future tremors.
The AIOC and commercial firms involved would have preferred a route from Baku through Iran to Ceyhan because of the easier terrain. Such a possibility is out of the question because of the D'Amato legislation, which outlaws involvement by US and other companies with Iran on the grounds that Iran has been involved in state terrorism. This legislation was consistent with the interests of US oil companies when it meant keeping Iran out of the exploitation consortium. The pipeline to Ceyhan is expected to go through the area of northern Turkey where there is conflict between Turkish government forces and Kurdish separatists. It has been suggested that the leader of the rebel Kurdish Workers' Party (PKK), Abullah Ocalan, was allowed to be captured by the Turks in order to keep the Baku-Ceyhan pipeline prospect more secure by allowing Turkey to put down the PKK.34
Although the US gave its approval for the construction of a pipeline running from Turkmenistan to Turkey through Iran which opened in December 1997,35 it was argued by US Secretary of State Madeleine Albright that this move was only to help Turkmenistan to overcome its financial difficulties.36 Turkmenistan has agreed to conduct a US-funded feasibility study on the construction of a possible oil and gas pipeline under the Caspian Sea to Azerbaijan. The US strongly favours such a pipeline route as it would allow Turkmen gas and oil exports to be independent of both Russia and Iran.37 The US ban has not stopped European companies becoming involved with Iran. For example, British explorer Monument Oil and Gas Plc has a swap arrangement with Iran with respect to Turkmen crude oil, whereby it sends its Caspian crude production to Iran's Neka in exchange for an equivalent volume of oil from the Gulf.38
Although the Baku-Ceyhan pipeline was regarded as a 'done deal' by US energy secretary Bill Richardson already back in November 1998,39 questions remain. It was estimated that the pipeline would have to carry at least one million barrels of oil a day to be viable, while the AIOC's production will peak at a maximum of 800 000 barrrels a day in about eight years' time, and the consortium is unsure there will be enough oil from other sources to make up the difference. Also, if the 'Blue Stream' gas pipeline which Russian Gasprom and Italian ENI are planning to build under the Black Sea to Samsun, Turkey, and then Ankara, is completed first, this could result in the Baku-Ceyhan pipeline becoming uneconomic. The major merit of the Ceyhan pipeline from the point of view of the governments of the US, Turkey and Azerbaijan is that it would prevent both Russia and Iran from being able to affect or benefit from the exploitation of Azerbaijani oil.40 Shell and Enron had been in the running to lead the pipeline consortium, but while Shell has greater financial resources, Washington was able to provide Enron with more political backing than the Netherlands and the UK could provide for Shell.
While neighbouring Armenia could be used as a pipeline route from Azerbaijan to Turkey, this has not so far been considered an acceptable prospect by Azerbaijan because of continued hostility to Armenia over its occupation of the ethnic Armenian enclave of Nagorno-Karabakh in Azerbaijan. The conflict arose as a result of religious and ethnic conflict between the Christian Armenian population in Nagorno-Karabakh and the Muslim Azeri one of the surrounding territory of Azerbaijan, and provides an example of the 'clash of civilisations' ruling out at least some economic options.
Nato and the question of security
Agreement by Russia to reinforce the 102nd Russian military base in Armenia resulted in a statement from Azerbaijan that it could be forced to consider 'appropriate measures for reliable assurance of the country's security and protection of its independence and sovereignty'.41 This was taken by some observers in the region to imply the possibility of American military bases in the republic's Apsheron peninsula, an idea which had been voiced earlier by a state adviser to President Haydar Aliyev, Vasfa Guluzade, albeit that such a development seems highly improbable to a western observer. Aliyev had announced that Azerbaijan would not renew its participation in the CIS collective security treaty, and it had participated in Nato's Partnership for Peace (PFP) programme. Given that Azerbaijan had a Russian strategic military facility, in the form of the Gaballa missile early warning radar station, suggestions that Nato might become involved there lacked credibility. An editorial in the Athens-based New Europe attempted to link US hostility towards PKK leader Abdullah Ocalan and failure to act to assist his situation after being captured and put on trial by Turkey with Washington's desire to exclude Russia and Iran from being major players in the Caspian Basin, given that a pipeline through PKK-threatened territory to Ceyhan is necessary to do this. It claimed that the possibility of a NATO base in Azerbaijan was being quietly discussed in Baku, and that Nato was developing plans to guard pipelines and Azeri and Georgian oil installations.42 Iran appeared to take the threat of such developments seriously, as in a Friday prayers sermon in Teheran on 12 February 1999 former president Aikbar Hashemi Rafsanjani warned Azerbaijan against hosting US or Nato bases, cautioning that an increase in tension in the region could put oil exploitation at risk. He made Iran's sensitivities with regard to developments in the region clear by describing the Caspian Sea as 'our zone of peace, our backyard'.43 Haydar Alyev responded with a statement that Azerbaijan did not have immediate plans to host foreign bases.
Corruption, nepotism, and inadequate respect for human rights
The Caspian area provides something of a test for the compatibility of western desires to be seen as defending human rights, democracy, and probity, and yet not forego economic and financial opportunities and benefits. Obtaining the maximum possible benefit from the exploitation of Caspian oil and gas reserves for the local and global economies will depend to a large extent on how widely and equitably the benefits of this are spread among the populations of the countries involved. The indicators here are not favourable, as there have already been strong suggestions of corruption and nepotism in the producing countries. A survey undertaken by The Economist indicated high levels of institutionalised corruption in Azerbaijan, including at cabinet level, and reports of an oil company payment of US$500 million failing to reach the national budget in Kazakhstan.44 The combination in the area of low average income and wage levels with a concentration of wealth in high places resulting from the oil bonanza is likely to lead to strong public dissatisfaction. Although substantial amounts of money have been invested in oil production and transportation and exploration and the area, these do not appear to have had a significant impact on local incomes. For example, although FDI in the fossil fuel sector amounted to US$3.2 billion in Kazakhstan 1993-98, income per head there was only US$1 434 in 1997. In Azerbaijan and Turkmenistan it was US$509 and US$390 respectively.45
One commentator, Martha Brill, sees the extent to which they have economic reliance on the energy sector as compromising the economic health of the Caspian states. A rising average standard of living is being achieved yet the proportion of the population living in poverty is increasing, and it is estimated that one in three Azerbaijani males of working age is employed in Russia.46
Oil is described as having bred 'massive corruption' in Baku, with an earlier chief negotiator over oil exploitation being dropped by Azerbaijan only when details of a $400 million 'payment' request from the oil consortium concerned for ensuring the oil exploitation deal was signed were leaked to the press.47 There have also been reports of the employment of politicians' relatives in high places.48
In March 1998 Azeri president Aliyev sacked his foreign minister Hasan Hasanov because of his alleged involvement in the use of Turkish aid intended for the opening of diplomatic missions abroad for the construction of a hotel complex. The hotel was partly controlled by the Turkish Imperial Company which had allegedly been connected with drug trafficking.49 Links drawn in a Turkish government report between the hotel deal and the Azeri president's son Ilham Aliyev were later declared to be false. It appears that Ilham is being groomed to take over the position of president, with New Azerbaijan party officials saying the party supports him as a future leader of the country. However, one of the area's religious leaders, Shayk ul-Islam Hajji Allshukur Pashazade, the chairman of the Spiritual Board of Muslims in the Transcaucasus, states that the principle of appointment by election is widespread in Islam but the principle of inheritance does not exist in it. In his view the main factor determining whether Ilham would be able to succeed his father as president would have to be the will of the people and llham's ability to win an election.50
In the most recent presidential election in Azerbaijan President Alyev was claimed to have won 75 per cent of the vote, and his closest challenger Etimar Mahmedov 11 per cent. Mahmedov accused Alyev of cheating in the election, and the Organisation for Security and Co-operation in Europe (OSCE) and the Council of Europe said that the poll failed to meet international standards.51 The US has not been inactive in seeking the maintenance of some semblance of democracy in Azerbaijan. In May 1999 US Ambassador Stanley Escudero met with the chairman of the Azerbaijan parliament's International Relations Committee to ask whether the parliament would enact legislation by October on municipalities and municipal elections: the latter had been due two years previously. Following this the parliament passed legislation for the elections to be held. Azerbaijani opposition interests have also been seeking action in the electoral area. Exiled former parliamentary speaker Rusal Guliev has met with US Congressional leaders on the need for renewed efforts to ensure free and fair elections in Azerbaijan. However, the chairman of the opposition Musavat party argues that the situation is inadequately democratic and elections should be boycotted.52
That former prime minister Suret Huseinov has been sentenced to life in prison for allegedly plotting to assassinate president Aliyev also demonstrates the twists and turns of Azeri politics. It was Huseinov who led the tanks which drove former prime minister Abulfez Elcibey from Baku in 1993, allowing Aliyev to become president. He had earlier organised armed volunteers to fight in the 1988-94 war against Armenia and was one of the most influential and successful field commanders in the war, until he fell out with Elcibey in 1992 and returned to his native town of Ganja, later leading the march on Baku.53 The coup against Elcibey is said to have been engineered by Russia, which was concerned that its interests were ignored in the deals he was about to enter into with western oil companies.54
In the meantime the situation is one where every shop owner displays an official portrait of President Alyev, opposition politicians have been arrested and detained without charge for periods of time, and newspapers heavily fined for criticising the government.55,56 However, it remains to be seen whether human rights considerations would be allowed to interfere with the oil agreements worth an estimated US$8 billion signed by Aliyev and by US president Bill Clinton in 1997. Such considerations might discourage further discussion of defence cooperation involving the US in military education and training. Such an involvement was earlier limited by the Section 907 law imposed on Azerbaijan by the US for imposing a blockade on Armenia during the Azerbaijan-Armenia conflict over the disputed territory of Nagorno-Karabakh.57 It has been argued that American foreign policy reflects both economic and moral considerations.58 Azerbaijani actions such as the infringements on democracy and human rights mentioned above, and to shut down rebroadcasts of US-funded pro-democracy Radio Free Europe/Radio Liberty on its territory, result in a conflict between economic and moral considerations for external parties such as the US and the EU. The EU has an economic interest in the area through some of the AIOC companies and as a customer for the oil and gas extracted. After the Azerbaijan-Armenia conflict the EU gave Azerbaijan US$32.4 million in assistance to help it deal with the problem of refugees from Nagorno-Karabakh. The European Parliament had recommended that aid be given to assist Azerbaijan with its problems and to strengthen the EU's presence in the area in view of its strategic and economic importance. However, the promotion of democracy and human rights is also an important principle of the EU's common foreign and security policy.
The economic benefits to western Europe from Caspian oil should be significant, involving a substantial new supply of oil at a distance similar to that of the Persian Gulf, with pipelines being able to facilitate access to the supply. Most of the oil appears likely to be exported through the Mediterranean, hence improving the present energy cost situation of southern Europe and providing benefits for industry there through competitive lower-cost energy supplies. However, the net impact on western Europe and the global economic situation will depend upon the extent to which the revenues from oil and gas sales are widely distributed among the population of Azerbaijan and other Caspian states. A wide distribution of this wealth will allow the population to purchase consumer goods and services such as education and health care from western Europe and the global economy, fueling economic activity and growth there. If the benefits of the oil wealth should instead be concentrated in the hands of a small elite, then the lesson from the Middle Eastern oil boom is that they would be used mainly to acquire ownership of higher-value property and support the affluent lifestyles of the few. In this case they would have only a very limited positive impact on growth or welfare in either the producing countries or those purchasing the oil supplied, and the impact could easily become a negative one for the greater part of the population in both cases. The pipeline-carrying countries of Georgia, Russia and possibly Turkey will benefit from fees from oil and gas transport, which will assist their national budgets but not make them wealthy.
The benefit received by Azerbaijan and the other Caspian oil and gas producers will depend upon the price of oil and gas. World oil prices have been at low levels, falling from around US$20 per barrel in November 1997 to just over US$11 a barrel by March 1998,59 which disadvantages suppliers but encourages economic growth in the consuming countries. Prices of oil and gas may be expected to remain low in view of the investments being made in exploitation and transport of Russian resources, including those in Siberia and around the island of Sakhalin in the far east of Russia, and the gas pipeline being constructed under the Black Sea to Turkey.
External conflicts have proven a source of restriction on Caspian gas exports, in that plans to export gas from Turkmenistan to Pakistan via an Afghan pipeline have had to be dropped because of political instability in Afghanistan. The Taleban militia's control of most of Afghanistan has discouraged the building of the pipeline by western oil companies, consistent with Huntington's postulated 'clash of civilisations'.60 The clash between Russia and breakaway Chechnya has been more serious, becoming a 'fault line' and source of war. The parties involved do not neatly fit the divisions mentioned by Huntington, with Russia being Orthodox and with the Chechnyans being motivated by ethnic attachment and nationalism rather than religion.
There has also been competition and conflict between oil companies. The Argentine oil company Bridas applied to the International Court of Arbitration for assistance following a ban placed on its exports from the Keimir field by the Turkmen government, and the latter government's failure to pay it for some US$50 million worth of oil delivered to the national refiner. It alleged that US oil company Unocal had interfered with its business in Turkmenistan. Low oil prices have also resulted in some disagreements between Azerbaijan and Georgia on the one hand and Turkmenistan and Kazakhstan on the other, with the first two countries refusing to reduce the US$28 per ton transit fee they impose for transporting oil from the latter two, making their oil exports by this route uneconomic.61
Conclusions
Events so far in the Caspian area demonstrate that the 'clash of civilisations' expectation can to some extent be overcome where there are mutual economic benefits to be gained from cooperation and the exploitation of assets, in this case the oil and gas reserves of the Caspian sea area. However, they also demonstrate that economic motivations may not be enough for conflict to be avoided if these are uncertain or inadequate. Russia's retaking of Chechnya could be said to have economic as well as other motives, given the problems associated with the transport of Caspian oil through Chechnya. The Caspian demonstrates the conflicts which can arise between the economic and moral objectives of the foreign policies of the both the US and the EU, when faced with economic benefits linked to the tacit approval of situations which do not meet desired standards with respect to democracy and human rights.
Events indicate how fragile arrangements may become if a situation arises where there is a loss of economic benefits for one of the major parties involved. The exploitation of the oil and gas resources of the Caspian represents one of the bonuses arising in the post-Cold War era from the closer integration of at least some areas of the former Soviet Union into the global economy, and evidence that the economic benefits from this can serve to some extent to overcome the 'clash of civilisations'. It remains to be seen whether the populations of Azerbaijan and neighbouring producing countries are going to receive economic benefits adequate enough to sustain their approval of present political arrangements. If not, attempts to replace these governments might well be expressed in religious or 'clash of civilisations' terms. If policies of repression became necessary to contain local populations' dissatisfaction with the benefits flowing to local elites, then the US and EU might find the conflict between the economic and moral objectives of their foreign policies too great to sustain.
Notes and References
1 This postulated 'clash of civilisations' is outlined in Samuel Huntingdon's The Clash of Civilizations and the Remaking of World Order, Simon and Schuster, NY, 1996.
2 Eur-op News, 'Securing the EU Energy Supply: Trans-European Networks Show Progress', Eur-op News, 2/1997, p. 10.
3 Graham Avery and Fraser Cameron, The Enlargement of the European Union, UACES/Sheffield Academic Press, Sheffield, 1998.
4 Paul Sampson, 'Lubricating the Caspian', Transitions, 6(2), February 1999, pp. 25-29.
5 Robert C. Stuart and Paul A. Gregory, The Russian Economy, HarperCollins, New York, 1995, p. 11.
6 Stuart and Gregory, p. 99.
7 The Economist, 'Oily Charm', The Economist, 5th December 1998, p. 86.
8 Mathew Evangelista, 'Stalin's revenge; institutional barriers to internationalization of the Soviet Union', in Robert O. Keohane and Helen V. Milner (eds), Internationalization and Domestic Politics, Cambridge University Press, 1996.
9 Edige Magauin, 'Caspian Sea Problems Remain Unresolved', New Europe, 8 February 1998, p. 48.
10 Central Asia Survey, 'Oil Drums Calling', The Economist, 7 February 1998, pp. 5-7.
11 The European, 'The Great Game, Iran and Caspian Oil', The European, 7 August 1997, pp. 22-23.
12 Central Asia Survey, 'Ruinous Riches?, The Economist, 7 February 1998, pp. 12-14.
13 New Europe, 'Premier Sees Economic Growth in '98', New Europe, 22 February 1998, p. 38.
14 New Europe, 'Kazakhstan Stops Oil Company Sales, New Europe, 22 February 1998, p. 1.
15 The Economist, 'Caspian carve-up', The Economist, 7 March 1998, p. 74.
16 Jennifer DeLay, 'Caspian Standoff, New Europe, 29 June 1997, p. 47.
17 The Economist, 'The Combustible Caspian', The Economist, 11 January 1997, pp. 45-46.
18 The Economist, 'Caspian Carve-up', The Economist, 7 March 1998, p. 74.
19 Michael Lelyveld, 'Disputes Over Oil and Gas Hurt Ties Between Caucasus Republics', New Europe, 31 January 1999, p. 48.
20 New Europe, 'Russia Forecasts Further Decline in Oil Output Over the Next Few Years', New Europe, 1 March 1999, p. 18.
21 New Europe, 'PM Signs Resolution to Scrap Export Tariff on Natural Gas', New Europe, 1 March 1999, p. 18.
22 The European, 'The Great Game, Iran and Caspian Oil', The European, 7 August 1997, p. 22.
23 New Europe, 'Russian Line for Azeri Oil Closed for Seventh Time in May', New Europe, 31 May, p. 43.
24 New Europe, 'Dagestan Crisis Harms Russia's Caspian Oil Export Route Plans', New Europe, 23 August 1999, p. 44.
25 The Economist, 'Chechnya: Habeus Corpus, The Economist, 23 August 1997, p. 44.
26 New Europe, 'Chechens Threaten to Stop Guarding Pipeline', New Europe, 22 February 1998, p. 43.
27 New Europe, 'Nemtsov Says Work Underway on Dagestan Bypass Pipeline', New Europe, 1 March 1997, p. 43.
28 New Europe, 'Chechens Vow to Continue Oil Transport Talks', New Europe, 3 May 1998, p. 43.
29 New Europe, 'Baku-Supsa Caspian Oil Pipeline Completed', New Europe, 1 March 1999, p. 42.
30 New Europe, 'Failed Assassins Seized', New Europe, 22 February 1998, p. 36
31 Robert Lyle, 'U.S. Gov't Official, Representatives of American Business Firms Differ on Commercial Viability of Caspian Oil and Gas Pipelines', New Europe, 15 March 1999, p. 42.
32 New Europe, 'Alyev Hopes Construction of Baku-Ceyhan to Begin in 3 Months', New Europe, 31 May 1999, p. 43.
33 New Europe, 'Caspian Pipeline Nations Meet to Clear Hitches on Baku-Ceyhan', New Europe, 30 January 2000, p. 47.
34 William D. E. Mallinson, 'Old Habits Die Hard', New Europe, 22 February 1995, p. 5.
35 The Economist, 'Oil of Freedom', The Economist, 11 April 1998, p. 22.
36 The European, 'The Great Game, Iran and Caspian Oil', The European, 7 August 1997, pp. 22-23.
37 New Europe, 'Monument Finds Winter Solution to Turkmen Oil Swap With Iran, New Europe, 31 January 1999, p. 42.
38 New Europe, 'Turkmen President Visits US to Lay Foundation for Closer Ties in Future', New Europe, 3 May 1998, p. 35.
39 Paul Sampson, 'Lubricating the Caspian', Transitions 6(2), February 1999, pp. 25-29.
40 The Economist, 'Oil Out of Troubled Waters', The Economist, 28 November 1998, p. 58.
41 New Europe, 'Azerbaijan Reacts to Russian-Armenian Military Axis Build-up', New Europe, 1 March 1999, p. 37.
42 New Europe, 'Editorial: Ocalan, the US, and Caspian Oil', New Europe, 1 March 1999, p. 4.
43 New Europe, 'Iran Warns Azerbaijan Against Hosting U.S. Military Bases', New Europe, 22 February 1999, p. 37.
44 Central Asia Survey, 'Put Your House in Order', The Economist, 7 February 1998, pp. 14-15.
45 Michael L. Wyzan, 'Mixing Oil with Politics: Wealth Eludes Caspian Fossil Fuel Producers', Transitions 6(3), March 1999, pp. 58-59.
46 Martha Brill, 'Pipelines and Pipe Dreams: Energy Development and Caspian Society', Journal of International Affairs 53(1), Fall 1999, pp. 205-224.
47 Sampson, p. 28.
48 Central Asia Survey, 'Likely Lads', The Economist, 7 February 1998, pp.16-17.
49 New Europe, 'Foreign Minister Sacked Over His Illicit Real Estate Dealings', New Europe, 22 February 1998, p. 37.
50 New Europe, 'Azeri Dynasty Appears to be in the Making as Aliyev's Son is Touted as Heir to Power', New Europe, 22 February 1999, p. 37.
51 The Australian, 'Presidential Poll "Flawed"', The Australian, 14 October 1998, p. 16.
52 New Europe, 'US Concerned about Local Azeri Elections, New Europe, 31 May 1999, p. 37.
53 New Europe, 'Azeri Court Sentences Former Premier to Life Imprisonment', New Europe, 22 February 1999, p. 37.
54 Sampson, p. 29.
55 Sampson, pp. 26-27.
56 New Europe, 'One Azeri Newspaper Sued, Another Fined', New Europe, 31 January, p. 37.
57 New Europe, 'Caspian Sea Change', New Europe, 10 August 1997, p. 1.
58 Jennifer DeLay, 'Caspian Sea Change Seen in US-Azerbaijan Relations', New Europe, 10 August 1997, p. 3.
59 Jennifer DeLay, 'Russian Oil Industry Hit by World Market Slump', New Europe, 19 April 1998, p. 5.
60 The Economist, 'Those Not Very Nice People in Afghanistan', The Economist, 25 April 1998, p. 27.
61 Lelyveld.
