Eurasia Insight:
CASPIAN BASIN: RUSSIA USES ITS GEORGIA POSITION TO ENHANCE ITS ENERGY LEVERAGE
8/25/08

The contest over Caspian Basin energy finds itself at a potentially decisive point. Russia’s incursion into Georgia has caused disruptions in the only export routes for oil and natural gas that are not under Moscow’s control. The Kremlin is now moving to parlay its gains in Georgia into a total monopoly over Caspian energy supplies.

The Russian-Georgian conflict caused production delays in Azerbaijan and caused stoppages in oil and gas pipelines that traverse Georgian territory. The flow of oil in the Baku-Tbilisi-Ceyhan (BTC) pipeline actually came to a halt prior to the outbreak of fighting in Georgia, due to a fire in Turkey. However, the conflict hampered efforts to restore operations. Although BTC representatives said August 25 that the route had resumed “normal” functions, they indicated that it would be another week or so before holding tanks at the Ceyhan terminal were filled, according to the Turkish daily Hurriyet.

Meanwhile, a natural gas line, known as Baku-Tbilisi-Erzurum experienced only a limited interruption, while another route, known as Baku-Supsa, remains suspended as a precautionary measure. In addition, rail shipments of Azerbaijani oil across Georgia have been halted because an explosion damaged a bridge in the Kaspi district. Azerbaijani officials say rail deliveries may resume in late September.

Although energy flows are slowly returning to normal, many oil analysts say that Russia’s blitz on Georgia, as well as the lingering presence of Russian troops in the country, has sown doubts about the reliability of energy corridors across Georgia. As a result, planned expansions of the Azerbaijan-Georgia-Turkey pipeline network, including a trans-Caspian Sea route (TCP), seem to have hit a wall.

Striving to take maximum advantage of the sudden turn of events in the Caucasus, Moscow is pressing the Caspian Basin’s three leading oil & gas producers -- Azerbaijan, Turkmenistan and Kazakhstan -- to up their export volumes via Russia. The Kremlin’s strategic position in Georgia gives Moscow added leverage in its new energy discussions with Baku, Ashgabat and Astana.

On August 21, reports circulated that Kazakhstan had already pledged to redirect oil exports away from BTC to a Russian-controlled route, due to security concerns. On August 25, however, Erzhan Ashikbayev, a Kazakhstani Foreign Ministry spokesman, vigorously denied that Astana had made any decision.

Russian officials also have been lobbying Turkmen President Gurbanguly Berdymukhamedov in an attempt to discourage him from committing to the planned TCP route. Since the start of 2008, a parade of US officials have visited Turkmenistan in an effort to entice Berdymukhamedov’s firm commitment to the project. Turkmenistan remains inscrutably non-committal about its export intentions.

Russia’s energy offensive is perhaps focused most of all on Azerbaijan. Baku is the key US energy partner at the moment, but Moscow has been working for several months to turn Baku. In June, Gazprom CEO Alexei Miller extended an offer to purchase large volumes of natural gas at “European” prices. [For background see the Eurasia Insight archive]. On August 14, a week after Georgia erupted in conflict, Russia’s trade representative in Azerbaijan, Yuri Shedrin, revealed that Gazprom officials are still pursuing a deal, according to the Azerbaijani news web site ABC.

Azerbaijan has given no indication that wants to accept the Russian purchase offer. Yet, there are signs that the Russian-Georgian spat has dented Azerbaijan’s faith in the export routes via Georgia. On August 25, the Azerbaijani state oil company, SOCAR, revealed that it would ship oil to Iran for export. The deal -- reportedly covering the export of 300,000 barrels over a two-month span -- was necessitated by lingering uncertainty about Georgia.

At a recent appearance in Washington, DC, Georgia’s parliamentary speaker, Davit Bakradze, said the United States and European Union had to take quick and determined action to counter Russia’s political offensive in Caspian Basin. A failure by the West to show resolve would force other states in the region to bow to Moscow’s wishes, the parliament speaker asserted.

“If Russia puts Georgia on its knees -- again, the key Western ally in this region -- how can others resist?” Bakradze warned. At its core, the crisis in the Caucasus revolves around the “dramatic increase of Russian influence in the entire post-Soviet space,” said Bakradze, speaking at an August 19 seminar at the Atlantic Council in Washington.

Reinforcing Georgia is necessary to prevent Russia from cornering Caspian Basin export routes, Bakradze insisted. “With Georgia under Russia, Azerbaijan has no alternative way of energy supply except [via] Russia, and it means that Azerbaijan is also controlled without a single shot.”

Although Bakradze said it was not his place to specify what measures Western governments should adopt, he suggested that any Western attempt to compromise with Russia would merely encourage the Kremlin to keep on acting aggressively. “So the question is, whether we all pay a price today, and prevent worse things from happening tomorrow, or we continue to appease Russia’s political leadership and pay a high price tomorrow.”

Editor’s Note: EurasiaNet contributor Richard Weitz in Washington provided reporting for this article.