Bulent Aliriza is Director of Turkish Studies at the Center for Strategic and International Studies (Washington, D.C., USA
On January 31, 1995, US Ambassador to Turkey, Mark Grossman announced that the pipeline war now appears to be Turkey's victory. The pipeline issue has been a heated debate going on for some time taking different turns at different times. However, there is still a long way to go before finalizing the seemingly interminable process of finding a conclusive export route. All concerned parties whether it may be the oil companies or Azerbaijan and Kazakhstan have every incentive to wait until the last moment before committing themselves irrevocably to any particular option.
Since the onset of the oil-field development project, economic factors have suggested that Azeri and Kazakh oil should be directed to world markets through Turkey. The projected oil terminal at Ceyhan is ideally located for export to European markets at a cost estimated to be one half of that estimated for exports out of the Russian Black Sea port of Novorossisk. This was effectively recognized by the previous Azeri Government when it signed an agreement with Ankara in 1993 to export its oil through Ceyhan. It is interesting to note that the current Azeri Government has never disowned this agreement even though there was great speculation that it was thinking of exporting its oil either through Russia or Iran. The Kazakh Government, for its part, has also shown considerable interest in the Turkish route, although for understandable reasons it has not officially declared its preference because of its involvement in the tortuous negotiations within the Caspian Pipeline Consortium (CPC). Nevertheless, the Turkish Government is hopeful that the two Turkic states along with the oil companies involved will opt for the Turkish route. As Ankara and Washington both see it, this would not obviate the need for additional pipelines to carry the great volume of oil that is believed to be in the Caspian Sea region.
However, increasingly more assertive Russian role in what Moscow refers ominously to as its "Near Abroad" has until now effectively prevented the operation of the free market system in determining the most economic route. While insisting on Kazakh oil be transported from the Tenghiz oil-field through Novorossisk, Russia has simultaneously been choking that particular route by siding with the Oman Oil Company against Chevron in the bitter dispute within the CPC. Moreover, the Russians have also been using their residual clout to remind their former subjects in Azerbaijan as well as in Kazakhstan that their new post-Soviet relationship with the Western oil companies could not be conducted without reference to Russian interests. The granting of 10% of the Azerbaijan oil equity by SOCAR to Lukoil in November, 1993 was, after all, a vivid acknowledgement of that reality. However, that largesse was clearly insufficient to prevent Russian elements from playing a key role, as many Azeris suspect, in the internal upheaval in Azerbaijan after the conclusion of the oil accord in September, 1994.
The process was further stymied to some extent by the US Government's reluctance to express open support for the Turkish route for fear of offending Moscow. Admittedly there were also legitimate fears about the dangers posed by the ongoing Karabakh conflict to a pipeline going through the Caucasus to Turkey as well as the strife in Southeastern Turkey. As a result the process steadily ground to a halt and, in fact, there were no significant contacts between the interested oil companies and Ankara during 1994. However, with the hardening US position towards Iran-- particularly in the US Congress--and the war in Chechnya steadily undermining the claims of the two other main alternatives, just as the Azerbaijan Consortium began to focus on the question of transportation, the Turkish route has come to the fore with the blessing of Washington.
It was the Chechen war and the disturbing images of Russian brutality, confusion and incompetence that brought home to the Azerbaijan Consortium which is beginning to focus on the transportation issue the risks of relying on the Russian route. At this moment, it is difficult to predict when lasting stability will return to the Northern Caucasus through which a pipeline taking Azeri oil to Novorossisk to combine in an ideal Russian scenario with Kazakh oil. Significantly, despite Russian claims to the contrary and some clearly premature announcements, the recent decision of Chevron to cut back drastically its expenditure in Tenghiz makes Kazakh oil is not yet committed to the "Northern route".
In any case, even if the Russian alternative were to "win", the problem of transportation would be far from solved. Kazakh and Azeri oil would be effectively locked into the Black Sea, far from the likely consumers, with the Turkish Straits as the only immediately available access route to world markets. However, the Turkish Government has made it clear that it is unwilling to permit the heavy volume envisioned to go through the Straits, citing the unacceptable environmental risks to the megapolis of Istanbul which straddles the Straits. While the Russians have grumbled about the "unacceptability" of Turkish restrictions on tnaker traffic through the Straits, it is clear that Anakra is determined to stand its ground and may have finally managed to convince the oil companies of its seriousness.
More than ever before, it is now up to the US Administration which has endured great criticism for its abiding faith in President Yeltsin's commitment to reform, to use his credit with Moscow to ensure an unhindered process in the construction of a pipeline through Turkey hat would benefit US companies as well as the countries involved. Washington could stress for the Russians the advantages for Moscow in letting the process go ahead. After all, the Russians have 10% of the equity in the Azerbaijan Consortium and are likely to reap a substantial amount of revenue for minimal investment. Moreover, both Kazakhstan and Azerbaijan continue to be tied in many ways economically to Russia and a general improvement in the regional economic situation is likely to benefit Russia itself. However, in the event that these arguments do not work, it might be necessary to underline the likely costs for Russia itself if it were to impede the free functioning of the free market system in this particular test case. Western capital has chosen for perfectly understandable reasons to move into Kazakhstan and Azerbaijan. If, at a time when the Russian National Oil Company, Lukoil is selling its hares to western investors, Russia is seen to be preventing the Western companies involved from getting a return for their investment for political reasons, the long term bill for Russia is likely to be much higher than the costs of letting the transportation issue be decided on its economic merits.