Global arc of stability
The way Russia and the Caspian can make the world stable

Akezhan KAZHEGELDIN

The September 11 tragic events and launching of the Afghan campaign, seen as the first stage in "the global war against terror", have changed the world dramatically. Protection of peaceful citizens from possible terror acts appears as just a tip of the huge pyramid of new problems. We are facing an acute and more global problem, the problem of ensuring the industrial world's economic safety.

Supply of the developed nations with energy, first of all, oil and gas, is a critical and vulnerable element in the world's economic relations. Great part of the developed fields are concentrated in the most insecure and fraught with conflicts Middle Eastern region, which makes the threat of oil blockade and energy crisis for the industrial countries, main oil and gas consumers, a perpetual nightmare. Unpredictable dictators are no less dangerous than terrorist groups. Should the interests of both in the region coincide, the rest of the world would find itself in an impasse.

Even if everything goes very well and the antiterrorist campaign will end quickly, the community of industrial countries will have to make sure that the threat of energy blackmail is ruled out in principle. In global energy system, it's necessary to use reserve and back-up methods in order to ensure safety. Caspian oil reserves can play here a major part.

For the past decade, politicians and journalists have been debating about the problem of the big Caspian oil perhaps more heatedly that the professionals. It has been almost made a stake in the new Great Game, in the U.S-Russian rivalry over the control of the region and its riches. This confrontation has become the legacy of the old "block" model of the world. Wayne Merry, a former U.S. State Department and Pentagon official, a senior associate at the American Foreign Policy Council in Washington, describes its sources: " ... Washington concentrated its efforts on one great strategic project to assure US primacy in the region. … The idea was to bypass existing pipelines in Russia, squeeze out Iran, bring energy supplies from the Caspian region to a transhipment point in a NATO country, and thereby assure the independent futures of the producing and transit countries."

Understandably, Moscow clearly saw the threat and resisted the U.S. plans. However, both sides played their parts by force of habit, without their usual passion. The reason is that the interests of Russia and the West (not only U.S.) in the region are actually not conflicting. Some regional readers tried to artificially keep alive the conflict between them as they hoped to secure foreign support for their authoritarian regimes.

Now that many old patterns were left behind in the 20^th century for good, the common interests of the industrial and democratic countries allow them to work out joint approaches to ensure their energy independence. Owing to this, Kazakhstan, Azerbaijan and Turkmenistan get a historical chance to become stable partners of both Russia and the West, and to be integrated into the world economy.

Naturally, this integration should entail bringing their political systems in line with the international democratic and market economy standards. "A glance at other post-colonial regions in Africa and Asia shows that the first generation of "Big Man" leaders often does as much harm to their countries as did the departing imperial powers, creating a painful legacy for future generations to sort out," concludes Wayne Merry. " American long-term interests in Central Asia are best served by seeking to engage tomorrow's leaders and assuring that, when the region's energy reserves do become important to the outside world, these leaders will look to the United States as a friend and not as yet another external exploiter."

Setting aside the controversial definition of the Central Asian countries as post-colonial ones, one should admit that the time when the region's energy reserves do become important to the outside world is nearing. Though geological exploration of the Caspian shelf is far from being completed, and many experts are not inclined to share the fancy expectations of the "dozens of new Kuwaits", it is clear that the region's oil and gas reserves are extremely huge. However, energy projects can't become global automatically only thanks to rich oilfields. Stable export routes are required to deliver oil and gas to the global markets. Even all the reserves of the Caspian states put together, it won't make the Caspian project global. It is necessary to choose and develop the routes to transport oil and gas to the global markets - to the consumers in Europe, U.S., and Asian countries.

Trivial logic suggests that there are four exits for the land-locked Caspian oil and gas to the world's oceans. To the west, via the Caucasus mountains to the Mediterranean. To the south, through Iran to the Persian Gulf. To the east - across China to the seas of Southeast Asia. And to the north, via Russia with a possibility of oil transportation to the Black and Baltic Seas, the Balkans and northeastern Europe.

The route via Iran is the shortest and appears to be most attractive, since the Persian Gulf possesses a developed infrastructure and supertanker navigation. However, the route goes through mountains and desert where there are neither construction facilities, infrastructure, and power for pumping stations, nor staff for the pipeline support.

Even if the region abounds in all this, this "dash to the south" would mean just aggravation of the situation to resolve which it makes sense to speed up the development of the huge Caspian oil reserves. It will make the world even more dependable on the Middle Eastern political situation. Even supposing the relations between Iran and the West would normalize over the course of time, the threat of a conflict between the neighboring countries remains very high in the region. The Persian Gulf, this OPEC's patrimony, would turn into an only oil gateway for non-OPEC countries. In case of a conflict between the OPEC and the industrial world, the oil producing states in the Caspian region won't be able to play an independent role.

The route from the Caspian Sea to the West - via Baku to the Turkish port of Ceyhan - emerged as a means to ensure energy security of Turkey, a NATO country that occupies a strategically important position in the Middle East for the block and US. Originally, the project was intended only to transport Azeri oil. Later, economic and energy reasons were replaced by the old-fashioned geopolitical considerations, and the route's task has become to bypass Russia and provide oil exporters with an independent exit to the sea. The Clinton Administration has decided to transport via the Ceyhan pipe the oil from Kazakhstan's and Turkmenistan'd sectors of the Caspian.

There are many arguments against this, among them the greatest remains instability in the Caucasus. Western and Russian experts insist that the unsettled Karabakh conflict between Armenia and Azerbaijan, and Kurdish guerilla actions in Turkey make the pipeline extremely vulnerable.

Environmental concerns are almost as serious. The Caspian Sea is a unique land-locked basin, a large lake. It plays a crucial role in forming the Central Asia's climate and its water supply. In addition, its products feed tens of millions of people in Russia, Kazakhstan, Azerbaijan, and Turkmenistan. The peoples of Central Asia have practically lost the Aral Sea. The world has turned unable to cope with the tragedy, all the international projects to save the sea have been forgotten. If something like that happens to the Caspian Sea, the decrease in precipitation in Central Asian mountains will badly affect its water resources. The region, a home to almost 50 million people, will find itself at the brink of war because of water. That's why laying a thousand-kilometer pipeline across the bottom of the Caspian Sea to transport highly sulphurous and containing other aggressive impurities oil is tantamount to planting an environmental mine of the Chernobyl scale.

From the ecological point of view, plans to ship Kazakh oil by tankers into Baku until the underwater pipe is completed are no more safe. Some Kazakh officials say that 3-5 mln tons of oil could be shipped from the port of Aktau (Kazakhstan) to the Azeri coast as early as next year. They claim that later the volume would increase up to 10 million tons annually. Taking into account that oil is to be shipped mainly by two-thousand-tonners, transportation of even the minimum volume will require 1,5 thousand hauls a year! Fortunately, both the intents and the calculations remain only on paper. Kazakhstan currently have no oil to fulfil even its obligations as a member of the Caspian Pipeline Consortium (CPC) pipeline, while its first stage has already been completed.

It should be mentioned that the problem of oil supply to Turkey remains a pressing one. It may be solved within the framework of the existing pipeline running from Baku into the port of Supsa in Georgia, the shortest route to the Turkish consumers.

Possibility to transport the big Caspian oil to the east, into China, discussed for several years, has been documented in the intergovernmental agreement signed by China and Kazakhstan. The China's growing market needs energy resources. The problem is that basic consumers are located along its coast. The project of a pipeline that stretches for 3,5-thousand kilometers across the mountain lands is impressive. However, the cost of such project is beyond any estimation. In any case, China has no ways ad means for such a grandiose construction and the agreement remains unfulfilled with the parties' tacit acquiescence.

The most politically and economically viable option is to transport the Caspian "big oil" up to the north, into Russia and further on into Eastern and Western Europe, to the consumers and transshipment ports. Economically, this option seems much more attractive, since the construction is to take place on the plain, in populated areas with a developed infrastructure. Russia's European part has enough qualified manpower and electricity for oil pumping. Russian plants produce pipes and other equipment. Stability in Russia and the neighboring countries guarantees safety of the route and its uninterrupted operation.

If chosen, the Russian option would mean turning the energy flow from south to north. It will allow to deeply integrate Russia and Central Asia into the united Europe and simultaneously to charge Europe and Russia with a common political mission of ensuring energy independence of the industrial countries. It will allow oil-producing countries of the Caspian region to play a major role on the global energy market. Russia, Kazakhstan, Azerbaijan, and - in the long term - Turkmenistan could join the North Sea oil producing countries, become a real alternative to the OPEC and get significant political benefits.

The unique political and geographic situation of Russia, Kazakhstan, of Azerbaijan and Turkmenistan makes it possible to evaluate their reserves from a consolidated point of view and consider their development as a single international investment project. The interests of Russian and Kazakh oil complexes do not contradict each other; they need to attract investors and develop jointly instead of competing one with the other. The same goes for Azerbaijan and Turkmenistan. It has happened so historically that an oil-and-gas-bearing province has been divided among four countries, once an organic whole. All the prerequisites are now in place for natural common interests have the upper hand over the ambitions and prejudices of the "pre-global" era. Then all today's disputes over the status of the Caspian or the oil transportation quotas via the Russian pipeline systems will be settled without effort.

Caspian countries can guarantee stable filling of the export pipe only if act jointly. In perspective, 100-150 million tons of Caspian oil joining Russian export stream annually will make the pipeline a powerful shaft of the Eurasian integration. Consequently, not just transnational companies signing single agreements, but transnational bodies (for instance, the European Union) capable to guarantee investments and provide political support should become partners of the oil-producing countries. Certainly, business pool should also include companies from the G8 countries: U.S., Canada and Japan.

Agreements on global projects in countries with transitional political systems should be reached a governmental level with agreements ratified by parliaments, which will allow the executive authorities to secure the projects in conditions of legal reforms. Violations of investors' rights that have taken place in the post-soviet states should remain in the past.

In view of this, arbitrary delay in launching the first stage of the Caspian Pipeline Consortium (CPC) is a bad signal for investors. This episode can provide arguments to those politicians, who speak against the active involvement of Russia into global projects. Foreign investors face similar problems with Kazakhstan's authorities. Just consistent harmonization of legislation and legal practice, defense of the rights and freedoms, guaranteed in market economies, on the governmental level could allow to avoid all that. This is only natural, as globalization of the economy is unthinkable without the political and legal support.

Main advantage of the northern export route for Caspian oil consists in the availability of a branchy pipeline network in Russia. It is much easier and cheaper to improve and develop the existing system than to construct a new one. I mean the pipelines owned by the Transneft company and the recently constructed CPC line from Western Kazakhstan to the Black Sea. The CPC alone can not provide exporters with access to the global market. For natural reasons, the Bosphorus and Dardanelles have a limited carrying capacity. The Black Sea ecosystem is vulnerable as this sea is warm and almost closed. Turkey has already announced its intention to limit the number of giant tankers passing through its straits. Instead of forcing Turkey to agree by means of political pressure, we should respect its fundamental interests and seek other solutions in addition to the CPC capacities.

One of the possible solutions is to turn part of the expected Caspian big oil to the Baltic. Russia is already been constructing new terminals on its coasts. Ports in the Baltic states have certain capacities as well. But the shallow Baltic Sea makes the use of high-capacity tankers undesirable. One can expect that ecological concerns of the neighboring countries will block turning the Baltic Sea into another Persian Gulf on the international level.

Experts also consider an option to transport oil to the Balkans with a Greek port as a transshipment point. The projects of extending there the oil pipelines from Russia have been debated for a long time already. The Balkan route could be regarded safe only conditionally as situation in the region is far from being politically stable, and is fraught with new ethnic conflicts.

From our point of view, a strategic choice in favor of the Western Europe is most perspective. The political weight and economic possibilities of Germany and other EU states (both current and future like Poland and Lithuania) will permit transit and oil-consuming countries to organize a strong international lobby to support the project not only economically but also politically. The project is of great economic potential, and it would enable Russia to position itself to its advantage but also to find its adequate and significant niche in the European economy. The renovated Caspian states will follow Russia and together with it will be able to build the economies into the economy of the united Europe.

The pipeline would enable Russia to solve several of its specific problems. For instance, to strengthen the special status of Kaliningrad region as a Russia's outpost in Western Europe. If the pipeline goes via Kaliningrad region, the region could not only solve some of its economic problems, but also get additional security guarantees in conditions of NATO's expansion to the East. A place of its own in the EU economy would be the best guarantee for the region.

In any case, with any combination of routes, Russia will still be the main player in the Caspian-European project. Moreover, Russia should initiate its realization. Technological and economical calculations will give optimal solutions. However, political will and vision are still primary considerations. History teaches us that it is they rather than mathematical and economic calculations called into existence such giant projects as the Suez and Panama Canals that formed the global markets of those days.

Looking into the future and forestalling the required political decisions, I would like to stress that the Russian route could give an incredibly promising opportunity of opening up global markets for Eurasian oil and gas. This opportunity includes building an oil-carrier port in Murmansk region on the Barents Sea. The non-freezing, deep-sea port would become the gate to the global market for Caspian, Siberian and, in perspective, for Timanoperchersk oil. The big northern oil will require exits to the markets. In Murmansk region, some former military ports can reportedly be used right now by tankers. From there, they will quickly and safely reach not only Western European ports, but also the US and Canada's eastern coast.

If gas-liquefying installations are built there, it would hard to imagine a more natural route for a pipeline which will transport gas from the Russian North Pole regions and the Arctic Ocean's shelf.

In addition to the oil pipeline, parallel gas pipeline should be built to provide Kazakh and Turkmen gas access to global market that will not compete with the existing Russian gas routes to Western Europe. Constructing gas and oil pipelines simultaneously will enable to significantly cut capital expenditures and make transportation for long distances economically viable. By the way, the length of this route can be compared to the gas export line running from Tyumen's north to Western Europe.

Today's situation on the gas market is so that the Central Asian countries will long sit on their riches waiting for investors hindered by the lack of access to global market. I am speaking not only about the Turkmen gas. The share of gas in the Caspian hydrocarbon reserves can be much higher than those suggested by most optimistic forecasts. On the one hand, Caspian gas should not turn into a plummet when industrial world needs it badly. On the other hand, Caspian gas won't be a rival for the Russian gas and a source of contradictions between Russia and neighbors in Central Asia.

Where the two huge pipelines run side by side, where a joint exploitation system exists, one will naturally expect to have a transcontinental highway and infohighway - a powerful communication line originating from Europe and going further to the south.

The prospects are both exciting and distant. However, they should be taken into account when solving today's problems. No doubt, the global economy does have enough investment resources for such a large-scale project. The U.S. Congress has given $40 bln for primary measures to safeguard national security. Much less investment is needed to ensure energy security of the industrial states. Especially as it is much more reasonable and profitable to invest in crises prevention than in recovering from them.

A pipeline bridge between the Caspian region and Western Europe, Central Asia and the World Ocean will help to solve the problem of Eurasian energy resources globalization. It could become a basis for the "arc of stability" in Europe. It not only shunts the so-called arc of tension running close to Russia from the Balkans via the Caucasus, Central Asia, Iran, and Afghanistan, but will also exclude the Caspian states - the critical link - from this chain. When involved in global economy, these countries could turn into strongholds of stability in Asia that today poses major threat to the world.

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