A Caspian Alternative to OPEC

A Caspian Alternative to OPEC

By Brenda Shaffer

11/07/2001
The Wall Street Journal
A22
(Copyright (c) 2001, Dow Jones & Company, Inc.)

BAKU, Azerbaijan -- As the U.S. struggles to maintain its global coalition against terrorism, it finds itself
bending over backwards to not offend the Saudis. Although Saudi Arabia bears some responsibility for
the rise of Islamist radicalism, and is only offering lukewarm support for the anti-terror campaign, it
appears to be immune from criticism because of American dependence on its oil and gas. The U.S., it
is believed, can't afford to get tough with its main energy supplier. Or can it? One way to help diminish
dependence on Saudi Arabia is to focus on oil from the Caspian Sea.

Diversity of sources is one of the most important factors in energy security. Saudi Arabian officials and
Saudi-sponsored think tanks are constantly producing low estimates for the amount of Caspian oil and
dismissing its importance. The reason? Caspian oil makes Saudi Arabia and the OPEC cartel nervous.
Not because of the size of the Caspian volumes, which are roughly equivalent to those of the North Sea.
Rather, because the main oil producers in the Caspian region -- Azerbaijan and Kazakhstan -- are not
members of the Organization of Petroleum Exporting Countries and do not coordinate their policies with
the cartel.

Flows of large volumes of Caspian oil through non-OPEC countries would erode the power of OPEC,
as well as its ability to maintain high oil prices and to use oil as a mode of political blackmail. In order to
contribute to world energy security, the previous and current U.S. administrations have been pressed for
the construction of an oil pipeline on an east-west route -- known, by its coordinates, as
"Baku-Tbilisi-Ceyhan." This would bypass Iran and Russia, and ensure a major oil source far from
OPEC tentacles.

The U.S. administrations have demanded that this route prove its commercial viability beyond its
contribution to diversity of world energy sources. British Petroleum has now thrown its weight behind
the Baku-Tbilisi-Ceyhan plan, reflecting the project's commercial value, and it seems that significant
amounts of Caspian oil will flow from Azerbaijan to the Turkish Mediterranean port of Ceyhan in 2005.

The U.S. should deal with Azerbaijan and Kazakhstan because, although they are predominately
Muslim states, they maintain complete separation of religion and state. The overwhelming majority of
the populations of these states are secular and their foreign policies, especially in Azerbaijan, are
staunchly pro-American. While both countries need to make significant progress to strengthen
democracy and the rule of law, the human rights situation there is a liberal dream compared with Saudi
Arabia and the neighboring Gulf states, which do not even pay lip service to the popular will. Even
Russia has, in the last year, dropped its active opposition to the Baku-Tbilisi-Ceyhan pipeline and
appears to have accepted the project as inevitable.

So, Azerbaijan and Kazakhstan are pro-American states, awash with oil, non-coordinated with OPEC,
and begging to have their oil flow westward. Does this sound too good to be true? It is. One glitch is the
continuing Nagorno-Karabagh conflict.

On the eve of the Soviet breakup, a conflict emerged between neighboring Armenia and Azerbaijan over
the Nagorno-Karabagh region. This district was in the internationally recognized boundaries of
Azerbaijan, but had a majority Armenian population. In 1992, despite the defeat of Azerbaijan, Congress
-- at the urging of the Armenian-American community -- slapped sanctions on Baku, barring
government-to-government assistance in many fields of cooperation. Despite this punitive move, Baku
has cooperated with Washington throughout the decade on non-proliferation and anti-terror operations.

Congress has renewed the sanctions, despite the previous and present administrations' opposition,
which complicates Washington's ability to cooperate with Azerbaijan. Under the guise of mobilizing
support for the anti-terror campaign, and at the urging of Secretary of State Colin Powell, Congress
endorsed last week a temporary presidential waiver of the sanctions.

While this is a step in the right direction, voices in Azerbaijan are expressing disappointment that while
this interim waiver will allow the U.S. to use its bases and airspace, Azerbaijan is still among the group
of pariah states including Iran, Iraq and Cuba that have U.S. sanctions placed on them. Azerbaijan also
finds it ironic that it is the target of Iranian and Islamist extremist destabilization due to its pro-American
policies, even as Washington keeps its sanctions.

Caspian oil cannot replace the volumes from Saudi Arabia and the other Persian Gulf states. However,
its contribution to the world oil market can weaken OPEC's price and political manipulation. A dramatic
change of regime in Saudi Arabia could bring an interim slowdown in oil production and delivery, but
even radical states of any type like to sell their oil and gas. In the event of a temporary reduction of Gulf
oil flow, the Caspian contribution could soften the blow to the oil market. Diversification of oil sources
and energy forms should remain a constant policy, and quick development Caspian oil contributes to
that goal.
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Ms. Shaffer, research director of the Caspian Studies Program at Harvard University, is author of
"Borders and Brethren: Iran and the Challenge of Azerbaijani Identity" (MIT Press).