U.S. Dives Into a Sea of Major Rewards--and Risks

TIMES STAFF WRITER

The lure of oil--as much as $4 trillion worth--is drawing the United States deep into distant and dangerous lands around the Caspian Sea.

Although few Americans know the region, the prospect of enormous energy deposits is likely to make the Caspian as familiar a part of the world for the next generation of Americans as the Persian Gulf is for today's. It has already pulled in a who's who of oil industry giants and let loose a multibillion-dollar wave of international investment.

And in a development laden with long-term significance, it has even spawned a nascent American military link to the region spanning southern nations of the old Soviet Union and Iran.

But as the United States moves to the forefront of the century's last great oil rush, two simple truths stand out about this former imperial outpost, which has churned with political discontent in the six years since the collapse of the Soviet Union:

* Rarely has the possibility of new, world-class oil strikes seemed greater.

"The Caspian Sea is the greatest unexplored and undeveloped oil province in the world," summed up British Petroleum's chief executive, John Browne. "We're just at the beginning of something there."

* And rarely has the potential for political headaches seemed stronger.

Since the collapse of Soviet rule, the Caspian Sea basin has experienced four wars, two attempted presidential assassinations, a coup and countless attempted coups.

"The Caspian is not an economic problem or a geological or an engineering problem," commented former Secretary of State James A. Baker III, who helped forge Washington's initial diplomatic relations with countries of the region during his tenure in office and whose Houston law firm is an active player in the Caspian oil rush. "It is a geopolitical problem of the first magnitude."

Added Sen. Sam Brownback (R-Kan.), a respected congressional voice on the region's fledgling oil states, "They're caught in a tough neighborhood."

Suddenly, so is the United States.

Last summer, 500 U.S. airborne troops led by a Marine general parachuted into central Kazakhstan as part of multinational military exercises that underscored heightened American interest in the region's stability. It is an interest that is welcomed by the Caspian nations.

A Delicate Political Balancing Act

In Azerbaijan, senior officials like to cast their country as the Caspian's version of small, oil-rich Kuwait in the Persian Gulf.

"When Iraq invaded Kuwait, remember what the United States did and why," said Azerbaijan's deputy economics minister, Oktay Ali Haqverdiyev. "The Americans went to war because the U.S. had oil interests there."

Most political analysts believe that, as long as global crude oil supplies remain abundant, any direct U.S. military involvement is unlikely. But they voice concern that the United States might be sending a false and potentially dangerous message, especially to the more remote countries in the region, such as Kazakhstan.

In the Caspian Sea basin, U.S. efforts to isolate Iran become more contorted as the Clinton administration works to limit Tehran's participation in an oil boom unfolding in the Muslim country's own backyard. Frequently, American attempts to contain Iran collide with the interests of the Caspian's fragile new states or Washington's regional allies, such as Turkey.

With Russia, the jostling against U.S. interests is only slightly less intense. The government in Moscow, which ruled much of the Caspian region for nearly 200 years, is especially sensitive to the arrival of major outside powers in a region Russia has come to see as its natural sphere of influence.

"The Caspian is their Caribbean," noted one Moscow-based American oil industry analyst, who declined to be identified by name. "It can be as delicate as Cuba is for us."

During the initial post-Soviet period, Russia worked actively to destabilize the fragile newly independent states as a way to force them back into its orbit. It backed separatists in Georgia and stoked tensions between Armenia and Azerbaijan, which already had a history of armed conflict.

But in the wake of such debacles as the failure to put down a rebellion in the separatist republic of Chechnya, Kremlin leaders appear to have had a change of heart, although there have been questions raised about possible Russian involvement in the attempted assassination of Georgian President Eduard A. Shevardnadze earlier this month. But at least for now, Moscow seems to be pursuing its interests more through the commercial strength of leading energy companies such as Lukoil and Transneft than through crude political power plays.

Besides Russia, at least six other nations once part of the Soviet Union--Kazakhstan, Turkmenistan, Uzbekistan, Azerbaijan, Armenia and Georgia--also have a stake in how the oil fields are developed. All make dicey partners for the foreign oil companies.

Azerbaijan alone, one of the region's biggest potential oil producers, has had four heads of state since 1991. It is still struggling for stability in the wake of 1992 battlefield defeats to Armenia that, even today, have left every seventh resident a refugee of war.

The U.S. strategy is to tie the fragile new nations of the region into a modern-day silk route linking Europe and Asia, free for all to use but for none to dominate, open for oil to flow out and goods to flow in, allowing the nations to develop and prosper free from outside interference.

That will not be easy. Some historians predict a replay of the 19th century struggle for imperial control of the region between Russia and Britain--a struggle of intrigue and military power that Rudyard Kipling referred to as the "Great Game."

But if there is a new Great Game underway, its currency is not military might or geopolitical bullying but oil, natural gas and the pipelines carrying them out of the world's biggest inland sea.

So far, petroleum geologists say they have discovered 17 billion barrels of crude oil in the Caspian, an amount that would already put it on a par with the North Sea. Most of it belongs to Kazakhstan and Azerbaijan.

But the potential is far greater: Senior Clinton administration officials believe that the Caspian could yield 178 billion barrels or more. This much oil (about 30 times that of Alaska's North Slope) would meet the entire needs of the U.S. for a generation or keep Californians in gasoline through the 23rd century.

In addition, the Caspian holds huge amounts of natural gas. According to U.S. government estimates, Turkmenistan alone sits on potential reserves of nearly 9 trillion cubic meters, the world's fourth-largest reserves and an amount more than double those of the United States.

"Without question, a world-class basin," declared Charles J. Pitman, chairman and president of Amoco's regional subsidiary, Amoco Eurasia Petroleum Co. "It may not equal, but someday it will certainly rival, Persian Gulf production."

It's not the first time Caspian oil has dazzled the world.

Dramatic finds in the 1870s near Baku, Azerbaijan's capital, generated one of the globe's biggest oil rushes--one that included the Rockefellers, Nobels, Rothschilds and agents of the Russian czars before it ended in the turmoil of the Bolshevik Revolution.

In Baku, a ruthless young Bolshevik later known to the world as Josef Stalin helped foment hatred of the day's oil barons and usher in the Communist dictatorship that eventually ended the boom by closing off the Caspian to the outside world.

Far-Off Conflict Hits Home in Congress

Today, industrial debris from that earlier oil boom and the flotsam from Soviet-era drilling are strewn across a vast, oil-stained wasteland that lines the edge of the Caspian south of Baku. Three-quarters of a century after the region's closure, the Caspian's reemergence has been as swift as it has been spectacular.

Former Defense Secretary Dick Cheney, now chairman of the energy services company Halliburton, noted that, only seven years ago, the Caspian basin was a military target.

"I can't think of a time when we've had a region emerge as suddenly to become as strategically significant as the Caspian," Cheney told a gathering of several hundred oil industry executives in Washington recently. "It's almost as if the opportunities have arisen overnight."

So have the challenges.

A frequently violent dispute between Armenia and Azerbaijan echoes in the U.S.Congress, where a vocal Armenian American community is lobbying to maintain a ban on most forms of U.S. assistance to Azerbaijan.

Oil company executives and State Department officials argue that the ban cuts directly against American national interests by denying Azerbaijan access to democracy-building aid programs and by undercutting U.S. efforts to mediate the dispute and promote stability in the region.

"It is a detriment to our policies in the area," Undersecretary of State Stuart E. Eizenstat told senators last October.

As important as the oil fields are, the United States and its commercial competitors are just as concerned about the thousands of miles of pipelines that will be needed to transport the Caspian's riches to world markets. The pipeline routes will alter the delicate political balance in an already unstable region by adding to the power of the nations that control them.

After the attempt on his life this month, Shevardnadze implied that Russian agents may have been involved as part of a larger plot to foment political turmoil in Georgia, thus making it less attractive as a possible pipeline route.

With the oil companies scheduled to decide the first pipeline out of the region by October, the U.S. strategy is to block any momentum for a proposed route through Iran to the Persian Gulf and to push for a longer, more expensive link through ally Turkey to the Mediterranean as the first of several multibillion-dollar lines.

A Tangle of Pipelines and Politics

Nearly every feasible pipeline route out of the Caspian must navigate political turmoil--whether it is north through Chechnya, west through Azerbaijan, Armenia and Kurdish areas of Turkey or east and then south through Afghanistan and Pakistan to the Arabian Sea. U.S. diplomatic efforts to keep Iran out of the Caspian oil boom appear to preclude the shortest, cheapest route to the open sea, south through Iran to the Persian Gulf. The least politically troubled, but economically questionable, route appears to run 2,000 miles to western China.

Pulled by the swift current of events, the United States has effectively assumed a direct vested interest in achieving stability in a region that has enjoyed that condition only rarely.

Few Americans realize the extent of U.S. involvement or understand its implications.

"We've got a relationship with these countries that involves cooperation on a whole range of issues," said Stephen Sestanovich, Secretary of State Madeleine Albright's special advisor for the nations carved from the Soviet Union.

U.S. involvement, he said, runs from joint military exercises to the teaching of English.

The United States has also become directly engaged in efforts to mediate remote regional conflicts, including the stubborn feud between Armenia and Azerbaijan over the disputed enclave of Nagorno-Karabakh, an Armenian-majority region of Azerbaijan. And it has taken over the personal security of at least two presidents, Heydar A. Aliyev of Azerbaijan, who emerged as leader after a coup, and Georgia's Shevardnadze, who has survived two assassination attempts.

A burst of high-level political contacts reflects Washington's new attention to the region.

The Clinton administration's foreign aid request for the region for next year is up nearly 50% to $900 million. U.S. private capital investment has risen sharply as major oil companies, including Chevron, Exxon, Unocal, Mobil, Pennzoil, Arco and Amoco, move in.

And a repeat of last summer's U.S. participation in multinational military exercises in the area is under consideration for this year.

For the nations of the region, the cumulative effect of these links is hard to overestimate.

Last summer's military exercises generated confidence among the region's nations, but it also raised expectations that might be hard to meet. While forces from Turkey, Georgia and even Russia also participated in the exercises, it was organized mainly with U.S. assistance.

It is the participation of 500 members of the U.S. Army's 82nd Airborne Division plus the commander of the U.S. Atlantic Command, Marine Gen. John Sheehan, that most Kazakh officials remember.

"It was historic," said Kazakhstan's deputy foreign minister, Erlan Idrissov. "It had and will continue to have an impact regionally and globally. Five years ago, no one here could even dream of such things as American soldiers dropping out of the sky into a remote area of Kazakhstan."

During his state visit to Washington last fall, Kazakhstan's president, Nursultan A. Nazarbayev, referred to his country's relations with the United States as a "strategic partnership," a formulation that in diplomatic parlance carries an implicit defense obligation.

At a recent meeting of four regional states, Azerbaijan proposed upgrading its relatively loose relations with the North Atlantic Treaty Organization to a permanent joint forum. Although the idea was rejected, it reflected the Azerbaijani leadership's desire for closer defense links with the West in general and the United States in particular.

"Our oil makes us natural partners," Vafe Guluzade, Aliyev's senior foreign policy advisor, noted in an interview.

Keeping the Level of Commitment Clear

Roy Allison, who tracks Caspian security arrangements at the Royal Institute of International Affairs in London, referred to last summer's exercises as part of "a quite spectacular increase in the [military] links between the United States and these republics."

"America has been engaging gradually over a long period; it's just high-profile events like last summer's airlift that catch attention," Allison said. "My impression is that more is happening under the surface than we know about, and the reason for this is clear. It's a very sensitive time as Russia begins to disengage, and no one wants to give Moscow the idea NATO is building a new flank."

Despite all this, Sestanovich insisted that U.S. involvement in the Caspian stops short of any talk of a defense umbrella.

"The issue has not come up in any conversation I've had," he said.

But some worry that the U.S. might be sending the region a message too easily misread.

"I fear that we're building expectations that can't be fulfilled," noted Martha Olcott, a senior associate at the Carnegie Endowment Fund for International Peace and author of a book on Central Asian security. "It's very hard to see the U.S. making this kind of political commitment."

A regional expert who declined to be identified by name or organization put it more bluntly: "I'm shocked at how much [the U.S.] is letting them believe."

But those who rule the Caspian basin states are hardly naive. They constitute one of the most skilled and canny group of leaders the region has ever produced. Azerbaijan's Aliyev is just one example.

A retooled Soviet hard-liner, Aliyev is a crafty survivor, a former KGB officer who was said to be among those considered as a possible successor to Leonid I. Brezhnev in the early 1980s.

Despite his background, he rode out the Soviet collapse and regained power four years ago as an elected leader, surviving two attempted coups, stabilizing the economy and putting together a set of international oil consortiums that look more like political coalitions than oil-drilling groups.

While American companies have the largest share in many of these consortiums, Aliyev has balanced this with participants from Western Europe, Russia, Iran, Turkey, Japan and Saudi Arabia.

"He's getting his oil and has developed a geopolitical strategy at the same time," noted Terry Adams, president of the biggest international oil consortium operating from Baku.

Azerbaijanis make no secret of the fact that Aliyev hopes to use the heavy U.S. involvement in offshore oil to leverage an equitable settlement of his country's dispute with Armenia and an end to the ban on U.S. economic aid.

But for him, as for others in the region, the real prize is the billions--possibly trillions--of dollars that the sale of oil will bring.

For most, the money can't come soon enough.

Kazakhstan, for example, is so broke that government workers outside the capital have gone for months at a stretch without pay. Signs of labor unrest surfaced in depressed areas of the industrial south last fall, and the situation there remains tense.

Meanwhile, Azerbaijan struggles to handle nearly 1 million refugees from its war with Armenia and counsels patience to an expectant population that has already begun to see the first signs of the nation's oil riches.

Some respected regional analysts believe that these fledgling states could simply be overwhelmed by problems within 18 months to three years if initial oil income is not wisely allocated, especially if any of the current leaders loses power.

Still, those close to the seats of power remain upbeat.

"The changes that have happened are irreversible," said Guluzade, Aliyev's foreign policy advisor. "We have good economic programs; we hope that all our neighbors, including Armenia, will be our partners, and we see Russia becoming more realistic and understanding day by day. I'm optimistic."

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About This Series

While the possibility of new, world-class oil strikes seems very promising in the Caspian Sea region, the potential for political headaches is rife.

* Today--As the United States moves to the forefront of the Caspian oil rush, the stakes--economic and political--are high.

* Tuesday--A portrait of the fiercely independent inhabitants in this volatile region, one that has been racked by ethnic strife.

* Wednesday--Oil companies face unprecedented challenges in resource-rich territory neglected during decades of Soviet rule.

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Sea of Hope

The Caspian Sea region of Central Asia, with enormous oil and natural gas deposits, is likely to become as valuable a provider of energy resources as the Persian Gulf.

Dramatic finds in the 1870s near Baku, Azerbaijan's capital, generated one of the globe's biggest oil rushes, one that included the Rockefellers, Nobels, Rothschilds and agents of the Russian czars before it ended in the turmoil of the Bolshevik Revolution.

Today, industrial debris and he flotsam from Soviet-era drilling are strewn across a vast wasteland that lines the edge of the Caspian south of Baku.

Despite violent upheaval in the region since the collapse of Soviet rule, the Caspian has reemerged, swiftly and spectacularly, to draw a multibillion-dollar wave of international investment.

Gas and oil are normally found in sedimentary basins, where organic material is trapped.

****

Heydar A. Aliyev, President of Azerbaijan

A retooled Soviet hard-liner and former KGB officer, Aliyev rode out the Soviet collapse and regained power four years ago, surviving two attempted coups, stabilizing the economy and putting together a set of international oil consortiums.

*

Nursultan A. Nazarbayev, President of Kazakhstan

Having published his vision of using future oil wealth to modernize industries, build schools and hospitals and lift the quality of life, Nazarbayev has made it his costly first priority to move the capital from Almaty to the grim Soviet-era industrial center, Akmola.

*

Saparmurad A. Niyazov, President of Turkmenistan

As head of a nation that sits on potential natural gas reserves of nearly 9 trillion cubic meters--fourth largest in the world and more than double those of the United States--Niyazov has been invited by President Clinton to visit Washington this year.

*

Eduard A. Shevardnadze, President of Georgia

Having survived two assassination attempts, including a bombing earlier this month, Shevardnadze is living proof of the instability of the Caspian Sea region. He has predicted that soon oil revenue will "let our long-suffering region flourish at last."

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How Caspian Compares

While there are about 17 billion barrels of proven reserves in the Caspian Sea region, the numbers that dazzle oil companies working there are the so-called potential reserves--estimates based on the probable presence of oil rather than actual finds. In the Caspian, the huge difference between the proven reserves and potential reserves--estimated at 178 billion barrels--reflects how little drilling has been done.

POTENTIAL RESERVES (in billions of barrels)

Caspian Region: 178

*

PROVEN RESERVES

Saudi Arabia: 259

Iraq: 112

United Arab Emirates: 98

Kuwait: 94

Iran: 93

Venezuela: 68

Mexico: 49

Former Soviet Union*: 40

Libya: 30

China: 24

U.S.: 22

Nigeria: 16

* Not including Caspian Sea states

Note: "Proven reserves" designates oil already found but not yet extracted.

Sources: American Petroleum Institute, U.S. government

For the Record Los Angeles Times Sunday March 8, 1998 Home Edition Part A Page 3 Metro Desk 2 inches; 49 words Type of Material: Correction Promoting democracy--In a Feb. 23 report about U.S. interests in the Caspian Sea region, The Times incorrectly characterized a U.S. law restricting aid to Azerbaijan. Section 907 of the 1992 Freedom Support Act was amended late last year and now does permit U.S. government assistance for projects in that country, including democracy-building.
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