For now, the AIOC seems to have avoided a potential political minefield by declining to commit exclusively to either of the two routes in contention, one which passes through Russian territory, and another which transits Georgia. Moving forward simultaneously on both fronts allows the consortium to keep its options open-and postpones a choice that could indeed have the broad geopolitical significance that many had expected from the October 9 decision. 

THE COMMERCIAL AND POLITICAL BACKGROUND 

The AIOC was formed after a consortium of eleven companies signed a production-sharing agreement with the government of Azerbaijan In September 1994. Rather than deal immediately with the knotty question of how and where to build a large new pipeline system for the project’s ultimate level of production, estimated at 700,000 barrels per day (bd.), the consortium decided to focus initially on a less ambitious plan to export early volumes of up to 80,000 bd. With Iranian options effectively ruled out by U.S. government opposition, serious consideration was given to two routes. The northern option would require the reversal of an existing pipeline from Azerbaijan through Chechnya and into the heart of south Russia's pipeline network, terminating eventually at the Black  Sea  port  of Novorossiysk, while the western alternative would involve significant Investment to complete an unfinished pipeline in Azerbaijan and Georgia en route to a new Georgian port on the Black Sea. 

All politics aside, commercial factors did not seem to point unequivocally to the superiority of either option. The Russian route would require considerably less up-front investment-a clear advantage. However, it suffers from the fact that it will ultimately rely on access to one of the most crowded segments of the Russian pipeline system the line leading to the port at Novorossiysk or on the construction of a new pipeline along that same route. Another complicating factor for the AIOC was the relationship of the early oil decision to the eventual choice (scheduled for 1997) of an export route for the main volumes of Azerbaijan oil. If a much discussed Turkish pipeline route is eventually chosen, much of any infrastructure built for early oil export through Georgia could be used-rendering the added up-front expense of the western route less of an issue. 

But even as the AIOC struggled to focus on the bottom line throughout 1995, politics inevitably began to intervene from all sides. The focus of concern for both the consortium and the government of Azerbaijan was Russia. Russia's policy toward the project has been incoherent from the beginning. The Ministry of Fuel and Power and the Prime Minister's office have generally accepted the deal while supporting the efforts of the quasi-independent Russian company, Lukoil, to participate in it. Meanwhile, the Ministry of Foreign Affairs has taken a hard-line position on the post-Soviet status of the Caspian Sea, arguing that Azerbaijan has no legal right to develop the offshore fields in question. Yet despite those differences, all the relevant Russian actors agree on one thing: Azerbaijan's oil-or at least most of it-must flow through Russia. It is also clear that Russia has considerable leverage over the AIOC project, not only through the Caspian issue-on which it is supported by Iran-but also through its control of the Russian waterways that will likely be needed to bring large drilling equipment into the Sea. 

Leading the push in the opposite direction was Turkey. Although the AIOC avowed repeatedly that the early oil decision would not predetermine the eventual route for main oil in any way, the Turkish government concluded that the Georgian route was crucial to its hopes of winning the later pipeline. Lobbying for the Georgian route became a top priority for Tansu Ciller's government, which came forth Suddenly in late August with an ambitious plan to help finance and operate the proposed Georgian pipeline. 

Although it did not play as active or aggressive a role as Russia or Turkey, the United States government also watched the situation carefully and made its perspectives known. The stated American interest in supporting the independence of the new states of the Transcaucasus led to early diplomatic support for a western route as a gateway to an eventual Turkish pipeline.2 Later, as it became apparent that neither the AIOC nor Baku was eager to take the risk of lilting Russia altogether, the official U.S, position softened into support for a dual-pipeline solution, This adjustment also fit in with a broader trend in U.S. policy of avoiding conflict with Russia over "smaller" issues (the treaty on Conventional Forces in Europe is another example) while proceeding with policies that already have been shown to infuriate Russia on two "larger" issues-NATO expansion and Bosnia. 

THE DUAL-PIPELINE SOLUTION: ALL THINGS TO ALL PEOPLE 

Given these conflicting pressures, the AIOC's decision to proceed with both export options for early oil seems to have been a wise one. In their public statements, almost all of the relevant parties have expressed their satisfaction with the plan-including first and foremost, the government of Azerbaijan, with whom the decision was made jointly. Turkey, with Prime Minister Ciller in the middle of a battle for her political life, trumpeted the decision as a great geopolitical victory; the Russian energy establishment also proclaimed it as a very positive outcome, Media analyses of the announcement took widely varying positions on its significance, presenting it as either a Russian or a Turkish victory, depending on the sources being used. Some reports managed to portray the entire episode primarily as a triumph of American diplomacy. The only spoilsport has been the Russian Foreign Ministry, which issued a mildly peevish statement and reiterated its official non-recognition of Azerbaijan's right to develop the offshore oil fields in question. 

What does the decision mean in practice? Since the northern route is less costly and the specific Russian proposals regarding terms of transit are more advanced, it appears to be moving forward on a faster track. Discussions to finalize the northern early oil project began almost immediately after the October 9 announcement, with the Russian pipeline monopoly Transneft as the chief interlocutor. Assuming these negotiations and the subsequent technical work are not waylaid by some unforeseen circumstances (prolonged and escalating violence in Chechnya is the most obvious candidate), the first oil from the AIOC project will flow north, perhaps as early as late 1996. Meanwhile, the financial and commercial details of the western route will also be worked out to enable that project to proceed nearly simultaneously, with Turkey's role as the main question needing resolution. 
 
In terms of the real political and economic prize-the pipeline for main oil-anything could happen. Uncertainty and change remain the fundamental realities of the Caspian pipeline question and, more broadly, the Transcaucasus. Upcoming elections in Russia and Turkey-not   to   mention Azerbaijan, Georgia, and the U.S.-will alter the playing field dramatically before 1997. Another important factor will be the progress of other oil-development projects in the Caspian region, particularly Chevron's venture at the vast Tengiz field in Kazakstan. As they watch, wait, and move forward with their program for the production and export of early oil, Azerbaijan and its partners can only hope that the political obstacles inherent in building pipelines to the market begin to recede rather than multiply. 

References: 

1.  'The companies and their respective shares of the AIOC are as follows: British Petroleum, 17.1 percent; Amoco, 17.0 percent; Russia's Lukoil. 10.0 percent; Pennzoil, 9.8 percent; UNOCAL, 9.5 percent; Norway's Statoil, 8,6 percent; Turkish-Petroleum, 6.8 percent; Exxon, 5.0 percent: McDermott, 2.5 percent; the UK's Ramco, 2.1 percent; and the Saudi Delta-Nimir, 1.7 percent. Azerbaijan's state oil company, SOCAR, in addition to being the AIOC's partner for the production-sharing agreement, also holds a 10 percent share in the consortium. 

2    The U.S. has also expressed support for the concept of a peace pipeline through Armenia-something Baku has rejected-although this is not a possibility for early oil because Armenia is landlocked.