New Breed of Roughnecks Battles Over Caspian Oil Fields


To the former Soviet republic of Turkmenistan, the deal with Unocal Corp. to develop its huge natural-gas reserves was about more than energy. It was about statecraft.

So for a stage, President Saparmurad A. Niyazov chose the United Nations during its 50th anniversary celebration in New York in 1995 to announce that Unocal had agreed to build a $2-billion, 1,000-mile pipeline from Turkmenistan’s gas fields through war-ravaged Afghanistan to Pakistan.

And to the United States, Turkmenistan’s deal with Unocal provided an opportunity to befriend another potential energy supplier. So former Secretary of State Henry A. Kissinger was brought to the U.N. to lay hands on the deal, and a clutch of senior Clinton administration officials also put in high-profile appearances.


But to Unocal, the deal was strictly business: a vital component of its new strategy of chasing opportunities wherever the trail leads.

It’s a rough-and-tumble world outside U.S. borders, and El Segundo-based Unocal has leaped enthusiastically into the scrum. Doing business where many other U.S. oil companies fear to tread, it has worked with some of the most questionable regimes in the world, most notably that of Myanmar (formerly Burma).

Unocal has learned that succeeding overseas demands as much political and diplomatic aplomb as technical oil expertise. In Afghanistan, for example, it has tried to win friends by providing social programs to the populace.

And it has built some highly unusual strategic alliances, some with companies that know less about how to drill an oil well than about how to win favor with foreign leaders.

The Turkmenistan contract stands as a conspicuous case in point. To help it land Niyazov’s signature on the pipeline deal, Unocal enlisted the support of Saudi Arabian and Russian partners who knew the territory.

In this back alley of the global economy, Unocal’s approach could be considered hard-eyed pragmatism. Its competitors follow a similar strategy: The Argentine company that Unocal shouldered aside in Turkmenistan had the head of the Saudi Arabian intelligence service working on its side.


But the company’s tactics have made some fierce enemies and prompted complaints that Unocal is playing dirty even by the standards of this rough region.

Indeed, even as Niyazov was preparing to sign on the dotted line with Unocal at the 1995 U.N. ceremony, Carlos Bulgheroni, the chairman of the Argentine firm, Bridas Corp., was holed up on the other side of Manhattan, earnestly trying to undo the deal.

When Bulgheroni failed to win Niyazov back to his side, Bridas sued Unocal and its Saudi partner, seeking $15 billion in damages.

With a November trial date looming, Bridas and Unocal are still exchanging ugly charges of bribery and corruption, of sub-rosa connections to Afghan rebel factions, of Turkmen officials bought and sold.

Caspian Oil Reserves Valued at $4 Trillion

Most of the court records of the Bridas lawsuit remain sealed. But dozens of interviews with sources close to the case and others familiar with the Turkmen pipeline project provide a window on the brutal race to dominate the world’s hottest oil and natural-gas field, the Caspian Sea basin, which is estimated to hold reserves worth $4 trillion at today’s prices.

These reserves are locked behind fire walls of ancient ethnic and religious hatreds, in nations whose governments are as corrupt as any in the world. Niyazov is so ruthlessly autocratic that only 17 of his citizens dared vote against him in the last election--and one of those was rewarded by being locked up in a mental hospital.

Five major ethnic groups dominate Turkmenistan, and, as one U.S. intelligence official noted, Niyazov seems to keep their leaders happy by allowing them to “come into government, enrich themselves and their families and then leave the government and go home.”

When Unocal joined the international scramble to get a piece of the Caspian’s action, it enlisted as partners two foreign companies that promised to help guide it through the treacherous political landscape of Central Asia. These were a small and mysterious Saudi company called Delta Oil Co. Ltd. and a Russian company called Itera International Energy Corp.

Bridas now charges that Unocal and its partners crossed legal lines to buy influence and gain access to Turkmenistan’s energy wealth. “Upon information and belief, Unocal or Delta used Itera to gain entry into and curry favor with the highest officials of Turkmenistan,” Bridas alleges in court documents.

Unocal President John Imle, who works out of the company’s other headquarters, in Kuala Lumpur, Malaysia, dismissed those charges as “rubbish.” Delta and Itera officials also denied the charges. “We cannot be connected to this battle between Unocal and Bridas in any way,” said Igor Makarov, the president of Itera.

Bridas had its own colorful partners in its operations in Turkmenistan. In his last pitch to Niyazov on behalf of his company, Bulgheroni told him that Bridas had the support of none other than Saudi Prince Turki al Faisal, according to sources close to the negotiations. Turki is the Saudi chief of intelligence and an influential figure with the fundamentalist Islamic leaders of Afghanistan, which the pipeline would have to cross.

Nevertheless, Bulgheroni still managed to trigger concerns about Unocal’s associates, and Niyazov asked Unocal officials penetrating questions about Delta’s identity and purpose.

The answers he received convinced Niyazov that Delta’s role in the project was far more political than commercial. So he demanded that Delta be removed as a signatory to the contract. Instead, Delta became merely a “witness,” a change that placed much more of the responsibility for the project’s completion on Unocal itself.

Unocal Partner Lacks Oil, Gas Background

Despite Delta Oil’s name, even Unocal officials acknowledge that the company had no experience in the oil and gas business when it joined Unocal.

Delta was recruited because of Saudi Arabia’s shared cultural background with the Muslims in Central Asia. Delta was promised an equity position in whatever deals Unocal won in the Caspian.

“Delta has no oil and gas background at all,” said one source familiar with Unocal. “It is not an oil company.

“And many people in Unocal have never entirely understood why Unocal joined forces with Delta,” the source said. “It was never explained except to say that we are in a Muslim area, and we need a high-level Saudi company that understands the culture, understands how to make things happen. But for me, that answer was not very convincing. The region is Muslim in name only; the Saudis can’t understand the former Soviet Union.”

Despite its Saudi ownership, Delta’s key player in Turkmenistan has been a controversial Turkish businessman, Osman Kaldirim. Delta officials acknowledge that he has been responsible for cultivating Delta’s--and Unocal’s--most important personal and political connections in the region.

Sources close to Unocal say Kaldirim displayed an uncanny ability to arrange meetings for Unocal executives with hard-to-reach government officials in the region. Once, he set up Unocal executives with the deputy chief of intelligence in Uzbekistan, a former Soviet republic bordering Turkmenistan. Unocal later opened an office in the country, according to a source familiar with Unocal’s operations.

A Delta vice president, Nabil al Khowaiter, angrily denied the allegations of influence-buying circulating against Delta and Kaldirim. He said Delta had been the target of ugly rumors because its rivals refuse to accept its success.

“A lot of people are mystified by the success of Delta, how this small company has been so successful in working with the big boys, and so some on the outside make up stories,” Khowaiter said. “If these allegations weren’t so dangerous to our reputation, I would say they are funny.”

Moscow Firm Has Ties to Natural-Gas Giant

Unocal’s other partner in the Turkmenistan deal, the Moscow-based Itera, became a key player in Turkmenistan by maintaining an intimate relationship with Gazprom, the giant Russian natural-gas monopoly.

Itera has acted in Gazprom’s slipstream, marketing and brokering natural-gas deals in several former Soviet republics. U.S. intelligence officials strongly suspect that Gazprom has close connections to Russian organized crime.

Itera President Igor Makarov said Itera was only a shareholder in the gas monopoly. But a European banker said Itera recently sought financing based on its close financial relationship with the company.

“Where there is a lack of transparency in gas markets, there is a potential for corrupt practices,” a U.S. official said. “And there is a lack of transparency in the gas markets in the former Soviet Union.”

Makarov denied allegations that Itera had ever engaged in influence-buying, bribery or any other criminal activities on behalf of Unocal in Turkmenistan, saying: “It is ridiculous. How can you bribe Niyazov when the whole country belongs to him? He can do anything in his country.”

Itera is now out of favor with Niyazov, and Makarov suggested that Turkmen government officials had fabricated allegations about the company.

While allegations have surfaced concerning Unocal’s ties to Delta and Itera, countercharges of corruption in Turkmenistan and Afghanistan have also been raised against Unocal’s rival Bridas.

Niyazov’s government has recently dropped broad hints that Bridas bribed the country’s former oil and gas minister, Nazar Suyunov, who fled to Moscow after Niyazov fired him in 1994.

Bridas also faces allegations that it tried to buy influence in Afghanistan almost as soon as it lost out to Unocal in Turkmenistan in an attempt to block Unocal’s pipeline farther down the route. In February 1996, Bridas announced that it was giving $1 million to the Afghan government of President Burhanuddin Rabbani, just as the Afghan government announced its support for a Bridas-backed pipeline project. Unfortunately for Bridas, the Rabbani regime soon fell to the radical Taliban militia.

Company officials stress that the $1 million represented a legitimate donation to the Afghan people to help buy fuel for the winter.

Bridas also has brought in its own Saudi partner, a small company called Ningharco Ltd., which the Wall Street Journal has described as a closely held corporation backed by Turki, the Saudi prince. A Bridas spokeswoman refused to identify the owners of Ningharco, which is based in the Channel Islands off France.

Meanwhile, Unocal, working through the CARE aid agency and an Afghan center at the University of Nebraska, has sponsored job training and educational projects in Afghanistan and has even paid for Taliban representatives to visit the United States. But it also is trying to develop training programs in areas of the country controlled by the Taliban’s opponents.

Tom Gouttierre, dean of the international studies program at the University of Nebraska at Omaha, is running the training programs in Afghanistan with Unocal’s sponsorship. He said that Unocal is paying to train plumbers, carpenters and welders in Kandahar, an area under Taliban control, while a second Unocal-funded program for women to learn to be teachers is underway in Bamiyan, a town under the control of the northern alliance.

Imle said in an interview that Unocal will not go ahead in Afghanistan unless the project can gain the support of international lending institutions such as the World Bank.

But analysts don’t expect any peace settlement in Afghanistan in the foreseeable future. And that leads many observers to wonder why Unocal and Bridas are fighting each other so viciously for the rights to a pipeline that may never be built.

“I’m amazed at the level of energy these two companies are pouring into Afghanistan,” marveled one U.S. official who has been watching from the sidelines.

Even Unocal executives now concede that the pipeline through Afghanistan may never be built.

So why do Unocal and Bridas keep fighting?

“Because,” said Marty Miller, chief of Unocal’s Central Asian operations, “it might get built.”