Dream of Oil Drives Diplomacy

It has become an article of faith that the former Soviet republics in the Caspian Basin, unknown to Americans until recently, are the Persian Gulf of the 21st century. Beginning with a nudge from the oil industry, followed by a push from a star-studded cast of consultants and experts, bureaucratic momentum has propelled the oil- and gas-rich region to center stage in the Clinton administration’s “dollar diplomacy” foreign policy. A State Department report last year estimated the basin to have 200 million barrels in oil reserves. Prominent experts contend that the possession of such resources makes Central Asia the new strategic center of the universe, altering the geopolitics of the Eurasian landmass.

From Pearl Harbor to the Persian Gulf War, oil has been at the heart of U.S. interests. If realized, the Caspian prize could indeed reshape the political geography of U.S. foreign policy. But wait. In recent months, oil companies exploring the new terrain, opened up in 1992 after the demise of the Soviet Union, have hit a series of dry holes. Oil executives now entertain more modest expectations about the region, viewing it as more likely another North Sea: significant, but only a tiny fraction of the Gulf’s reserves.

Yet, the administration continues to pursue grand plans that hinge on pressuring Western oil consortia to build a pipeline to get the oil from the landlocked Caspian states to world markets. As the deadline for a decision approached last week, top administration officials jetted around the region and offered Turkey nearly $1 million to plan the pipeline; Bill Clinton summoned the CEOs of major oil firms to the White House, pressing them to ante up. Last Thursday, on the 75th anniversary of the founding of modern Turkey, Energy Secretary Bill Richardson and the leaders of five Caspian Basin states declared their support for the construction of an 1,100-mile pipeline from Baku in oil-rich Azerbaijan to the Turkish Mediterranean port of Ceyhan. Ankara then warned Western oil firms that it would impose limits on tanker traffic through the already crowded Bosporus straits.

The oil companies have a rather different view of the pipeline’s merits, especially when oil prices are at historic lows. The U.S.-led consortia are refusing to commit firmly to a project that they say will cost some $6 billion, far above administration estimates, though Turkey has now offered tax holidays and other incentives. Instead, the oil companies are exploring shorter routes through Russia and Georgia. If larger amounts of oil and gas are found, they will revisit the Baku-Ceyhan pipeline.

But facts have not lessened the Caspian passion within the administration. The importance of the region to U.S. interests has been inflated, thereby risking wider American involvement in one of the world’s most unstable regions. The dream of oil has unwisely raised the hopes of the fledgling states of Kazakhstan, Azerbaijan, Uzbekistan, Turkmenistan; unnecessarily complicated relations with Russia; and reinforced anti-Iran policies that may soon be out of date. Truth be told, the Caspian Basin is no Persian Gulf.

It’s not difficult to see how the Caspian passion has gained momentum. The story’s mix of wildcatters, major oil companies and political jockeying bears a striking resemblance to the frantic scramble for concessions in Saudi Arabia nearly 100 years ago. In the case of the Caspian region, sudden access to one of the world’s last unexploited oil and gas fields made it imperative for the big oil companies to jump in. The region’s new states, impressed by the alacrity of Western oil firms to curry favor, shrewdly realized that these companies’ governments could act as a buffer between them and Moscow, not to mention Iran. To ensure success, Washington’s intellectual and political superstars were hired to articulate and promote the new interests.

To be fair, the administration’s objectives are reasonable: helping U.S. firms get their piece of the action; promoting the independence of beleaguered former Soviet republics; and, to a lesser degree, isolating Iran. But a bureaucracy in motion can be a dangerous thing. The administration leaped before it looked, and did not count on the oil companies shifting gears on the pipeline. Moreover, since the 1997 election of President Mohammed Khatemi, the prospects for a gradual rapprochement with Iran seem to have improved, rendering moot current U.S. Iranian policy. So why pursue long-term investments like pipelines based on very short-term political considerations?

Then there is the Russia question. Deepening American involvement in Central Asia may be pitting one set of U.S. policy goals against another. Russian companies have been given only minor roles in the oil consortia, and some Russian politicians, not least Prime Minister Yevgeny M. Primakov, still consider the “near abroad” their sphere of influence. With NATO expanding to their west and the U.S. promoting independence for Caspian Basin states to their south, Russians may be forgiven for wondering if U.S. policy is one of encirclement rather than its proclaimed goal of partnership. Such a perception risks sidetracking the important issues dividing Moscow and Washington: denuclearization, the “loose nukes” problem and Russia’s political transformation.

Yet another ill-considered aspect of the Caspian operation is that it heightens the danger of the United States getting drawn into Bosnia-type adventures in Central Asia. If, as seems likely, the oil-driven expectations of the new states are unrealized and their hope of growing out of impoverishment is dashed, the possibility of ethnic conflict on Russia’s border may grow. In such a case, the United States would lack the national-interest rationale, as well as the military capability, to intervene decisively.

All the hoopla about the Caspian Basin’s oil and gas potential, then, appears to be just that. (The best-kept secret in Washington is that the United States imports only 6% of its oil from the Middle East, so why is the Caspian oil so important?) Oil companies factor in political risk when making decisions. If there is money to be made in the region, they will not be shy about getting in on the action, because pipelines mean profits for them and jobs and transit fees for the host countries. Unfortunately, there is only one Persian Gulf. The Caspian Basin will only modestly help diversify world oil supplies.

The U.S. is right to help Turkey and the former Soviet republics realize the region’s oil potential. But the limits of U.S. influence in the Caspian Basin require a rethinking of Caspian-mania. In the hierarchy of U.S. interests, coming to terms with Russia on denuclearization and its political future far outweigh the Caspian. That is the real game.