Putin's Caspian Policy

October 2000

Putin's Caspian Policy
Carol R. Saivetz

Carol Saivetz is an Associate at the Davis Center for Russian Studies at Harvard University, and Executive Director of the American Association for the Advancement of Slavic Studies (AAASS).

Since his election in March, Russia''s new president, Vladimir Putin, has put the Caspian Sea region with its vast energy resources high on Russia''s strategic agenda. On April 21, 2000 the Caspian was one of only two topics discussed by the Russian Security Council. At the same meeting Putin announced the creation of a special presidential representative for Caspian affairs. The new Russian foreign policy concept, published in early summer, specifically mentions the Caspian basin and, in July a joint company composed of LUKoil, Gazprom, and Yukos was created to develop Caspian Sea resources. This series of moves signals Putin''s determination to reassert Russian influence in the "near abroad," and to bring coherence to Moscow''s policy in the Caspian region. Three questions, therefore, need to be answered: 1. Why is Putin making the Caspian such a priority? 2. What exactly is Putin''s policy toward the Caspian? 3. How should the US respond?

Why the Caspian?
With the collapse of the Soviet Union in 1991 Russia lost influence and proprietorship over much of the Caspian Sea basin. Even worse, in the view of many high ranking Russian officials, Azerbaijan, Kazakhstan, and Turkmenistan sought to build their new found independence by exploiting— with Western investment— the energy resources in what they viewed as their sectors of the Caspian. Russia openly objected, claiming that the Caspian was an inland lake— meaning that any projects had to be agreed by all the littoral states. This legal ploy was clearly based on geopolitical rather than legal considerations.

But ownership of the resources is only half of the equation. Equally important is the routing of the oil and natural gas export pipelines. Officials from the Ministry of Foreign Affairs (MID) have been adamant that the oil from the Caspian be piped through Russia.1 In the most benign interpretation, this would allow Russia to garner transit fees; more malignant observations are that Russia is determined to control the exports of the former Soviet republics. Indeed, until recently, the only operative pipeline went through Chechnya to the Black Sea port of Novorossiisk. Beginning in November 1997, early oil has been exported via the pipeline to Novorossiisk, and, starting in April 1999, additional quantities have flowed to the Georgian port of Supsa.

In October 1999, the major oil companies agreed that Baku-Ceyhan would be the main export pipeline of Caspian oil. From the outset, the US has been pushing for a main export pipeline that would bypass both Russia and Iran, from Baku through Georgia to the Turkish Mediterranean port of Ceyhan. Nonetheless, Russian efforts to block Baku-Ceyhan continued: Russian envoys traveled to the Caspian in a major initiative to dissuade Azerbaijan, Kazakhstan, and Turkmenistan from signing the agreement. In November 1999, on the sidelines of the Istanbul OSCE summit, a formal agreement for Baku-Ceyhan was signed by the presidents of Turkey, Azerbaijan, Georgia, and Turkmenistan.

Although Caspian politics were not the reason for Vladimir Putin''s appointment as acting president in December 1999, his accession to power immediately followed what was seen as a political and economic defeat for Moscow and a victory for the US. Moreover, he brought to the job a marked determination to restore Russia''s great power status. That the US was the promoter of Baku-Ceyhan at a time when contacts between the new littoral states and NATO were intensifying contributed to Russia''s sense of loss. Perhaps most importantly, Russia''s failure to prevent Baku-Ceyhan came just after the NATO fiftieth anniversary celebration and the formal accession of Poland, the Czech Republic, and Hungary to the military alliance. It also followed NATO''s show of force in Kosovo. Statements by Russian Foreign Ministry officials make clear that this is the prism through which Caspian politics is viewed. At a meeting in May, Ambassador Andrei Urnov, head of the Foreign Ministry''s Caspian Working Group stated: "certain outside forces are trying to weaken Russia''s position in the Caspian basin by driving a wedge" between Moscow and the new littoral states.2 There could be no doubt that the US was the target of these remarks.

Putin''s policies
On April 21, 2000 the Russian Security Council discussed the Caspian. According to Russian media reports, Putin stated: "We must understand that the interest of our partners in other countries-Turkey, Great Britain, and the USA-toward the Caspian Sea is not accidental. This is because we are not active. We must not turn the Caspian Sea into yet another area of confrontation, no way. We just have to understand that nothing will fall into our lap out of the blue, like manna from heaven. This is a matter of competition and we must be competitive."3 The meeting also created a new post of special presidential representative for the Caspian. Viktor Kaluzhny, the former minister of energy, was appointed to the position and charged with enhancing Russia''s presence in the Caspian.

Since his appointment as Putin''s special representative, Kaluzhny has traveled to each of the littoral states. Kaluzhny claims that Moscow backs the sectoral division of the Caspian Sea bed, but not the surface waters. This somewhat confusing formulation means that Russia has in fact conceded the division of the Caspian into national sectors, but that Putin''s government is determined to block the several US proposals for trans-Caspian pipelines. One idea he has been promoting is a Center for Strategic Economic Planning for the Caspian, to facilitate joint exploitation of the sea''s energy resources. A second is a new proposal for joint development of disputed fields. Both proposals contain echoes of Moscow''s initial stance on the Caspian: agreement by all the littoral states to any deals. By the same token, the bid for joint exploitation of disputed regions would garner Moscow a role in an area in the northern Caspian that is claimed by both Russia and Kazakhstan.

This concerted Russian lobbying effort coincided with the publication of the new Russian foreign policy concept, which contains clear references to the Caspian.

Serious emphasis will be made on the development of economic cooperation, including the creation of a free trade zone and implementation of programs of joint rational use of natural resources. Specifically, Russia will work for the elaboration of such a status of the Caspian Sea as would enable the littoral states to launch mutually advantageous cooperation in using the region''s resources on a fair basis and taking into account the legitimate interests of each other.4

Equally important, the concept gives voice to the idea that the reassertion of Russian influence in the Caspian is both a commercial and diplomatic endeavor.

Viewing the Greater Mediterranean as a hub of such regions as the Middle East, the Black Sea region, the Caucasus, and the Caspian Sea basin, Russia intends to steer a purposeful course for turning it into a zone of peace, stability, and good neighborliness, something that will help advance Russian economic interests, including in the matter of the choice of routes for important energy flows.5

Earlier, Putin stated at that Security Council meeting in April: "The key issue in this sense is the balance of interests of the state and mineral resource companies. We must realize the efforts of the state alone will not be enough for implanting the Russian companies there."6 To that end and clearly encouraged by the Kremlin, the Russian oil companies, LUKoil and Yukos teamed up with the natural gas company Gazprom to form the Caspian Oil Company. In a press conference to announce the new company, LUKoil''s first vice president, Ravil Maganov, stated that the new company would "help Russia strengthen its stand in the region."7

Thus far these new initiatives have not been accepted by the other littoral states. All rejected the idea of the Economic Center and have been silent on the proposal for joint exploitation of disputed sites. By the same token, the other littoral states have been receptive to the fact of the diplomatic activity. They remain wary, however, of Russia''s other policy implements— such as the manipulation of the Nagorno-Karabagh conflict, charges against Azerbaijan and Georgia that they are harboring Chechen fighters, and the slow pace of negotiations over the final disposition of Russian bases and weaponry in Georgia. US Policy
Since it began promoting the Baku-Ceyhan pipeline, the US has been telling Russia that it is not trying to exclude Moscow from the Caspian region. Despite these US avowals, it is clear that officials in Moscow remain unconvinced.

• Thus the first order of business for the US is to clarify our objectives in the region and to articulate them clearly. If an open confrontation between Moscow and Washington is to be avoided, the US should be sensitive as to how its policies are viewed in the Kremlin. As noted above, the almost simultaneity of the Baku-Ceyhan agreement with NATO expansion and Kosovo only exacerbated the worst fears of Russian officials. And this was before Putin came to power determined to reassert Russia''s great power status.
• As a corollary, the US also needs to understand how its policies are viewed in the other regional capitals. It must assure that Baku, Tbilisi, and Ashgabat do not use ties with Washington in an anti-Russian manner. The best example of what should be avoided was when former Azerbaijani presidential advisor Vafa Guluzade invited NATO to establish bases in Azerbaijan.
• Finally, in this regard Washington must ensure that Moscow sees the Caspian Pipeline Consortium (CPC) as its stake in the Caspian game. This pipeline runs from the Kazakh Tengiz field through Russian territory to the Russian Black Sea port of Novorossiisk. The Russian government has a 24 percent stake in the pipeline and an additional 20 percent is held by LUKoil and Rosneft; moreover, the private oil company participants, most notably Chevron and Mobil are financing construction. The CPC is now scheduled to be completed in 2001.
• Washington must also recognize that the politics of oil and natural gas are different. The US focus has been on Baku-Ceyhan, which is an oil pipeline. At the same time, the US has been promoting the trans-Caspian gas pipeline so as to free Turkmenistan from Russia''s stranglehold. From Russia and Gazprom''s perspective, were Turkmenistan to secure alternative export routes, it would emerge as a significant rival to Gazprom. The discovery of vast gas reserves at Azerbaijan''s Shah Deniz field alters all the states'' calculations still further. All see Turkey as the major purchaser of their natural gas and a central transit point for sales to the growing European market. For Turkmenistan, access to the Turkish market was to be assured through the proposed trans-Caspian pipeline from Turkmen gas fields to Azerbaijan and then on to Turkey. For Gazprom, the 1997 Blue Stream agreement with Turkey to supply gas via a pipeline that would go under the Black Sea was its lock on the Turkish market. With the discoveries at Shah Deniz, Azerbaijan emerges as a formidable rival to both Gazprom and Turkmenistan: Azerbaijani gas will be cheaper to export because of the proximity to Turkey. Turkmenistan needs Azerbaijan''s cooperation on the trans-Caspian pipeline, but the two are wrangling over the percentage of throughput capacity dedicated to Azerbaijani gas. At the same time, Gazprom has concluded a deal with Turkmenistan and is currently in negotiations for more purchases. There has been speculation that these negotiations are spurred by Gazprom''s shortages in southern Russia and by its need for enough volume to make Blue Stream viable. From Turkmenistan''s perspective, it may well turn out that export via Russia is the least-worst scenario.8 These new rivalries complicate US policy and should be a reminder of the intricacies of the region.
• Finally, the community of interests between Moscow and Tehran is strengthened by their mutual exclusion from the Caspian by the Baku-Ceyhan pipeline. Until recently, both adopted similar stances on the status of the Caspian Sea. Over the past few months, there has been some attenuation of the relationship: Russia''s acceptance of the sectoral division of the Caspian has left Iran as the odd man out. Now Tehran is demanding that each of the littoral states receive a 20 percent share of Caspian resources— seemingly more than the other littoral states are willing to concede. Most recently, Tehran and Ashgabat refused to attend a meeting of the Caspian states that was to be hosted by Moscow. The meeting was ultimately canceled. Iranian inclusion in US pipeline proposals— within the framework of multiple pipelines— might create a situation in which Iran and Russia emerge as competitors for export routes, thus further attenuating ties between Tehran and Moscow. It would certainly facilitate greater flexibility for Turkmenistan, Kazakhstan, and Azerbaijan as they search for ways out of Moscow''s shadow.
  
  

ENDNOTES
1. Since 1994, there has been a tug-of-war over Caspian policy between the Ministry of Foreign Affairs and officials from the Ministry of Energy and Fuel. Even though LUKoil, with the backing of the Ministry of Energy and Fuel, was involved in several Caspian deals, the Foreign Ministry at first declared them all illegal. In 1998, the Ministry of Foreign Affairs was forced to concede the legitimacy of the several consortia, but continued to fight over the export routes.
2. Harry Dunphy, "Russia Wants Fair Oil Competition," Associated Press, May 17, 2000, 9:41 PM.
3. Russian Public TV, Moscow, April 21, 2000 from BBC Monitoring
4. The Foreign Policy Concept of the Russian Federation, approved by the President of the Russian Federation, V. Putin, June 28, 2000. From the Russian Foreign Ministry Website. www.mid.ru.
5. ibid.
6. Prime-Tass News Wire, April 21, 2000.
7. "Relations: Russian Trio Targets Caspian Riches," Energy Intelligence Group, July 27, 2000 from ISI Emerging Markets database.8. See the discussion in Jamestown Foundation Monitor, Vol VI, No. 35 (February 18, 2000).