Hostage to a Pipeline?

Third Quarter 2000

Russia, the Caucasus, and the Silk Road of the 21st Century

by Alice-Catherine Carls

Those who follow the news may be aware of the conflict in Chechnya in southern Russia. International competition for control of energy sources and their distribution in that region may be less well known. Alice-Catherine Carls illumines the treacherous terrain over which that competition is unfolding, a competition that significantly involves the United States and western oil companies. —Ed.

Through the centuries, the Caucasus—at the center of the glorious commercial route called the Silk Road—served as a natural link between Europe and Asia. More recently, the breakup of the Soviet Union made possible a revival of East-West connections, thus giving new life to both opportunities and problems. The Caucasus, with its oil-rich Caspian Sea region, became a magnet for three major partners: 1) the West, including the United States, 2) Russia, and 3) the Middle East, including Turkey and Iran. During the past ten years, as Europe redefined its borders, a "commercial Cold War" ignited over control of the Caucasus and Central Asia's energy and raw materials. This has compounded the region's political and economic instability and its complex alliance systems.

During much of the Cold War, Russia held a monopoly over the transportation of oil and natural gas from Asia to Western Europe and it tightly controlled North-South energy transfers. Beginning in 1992, cheaper and shorter routes were made possible by the readiness of cash-strapped southern Caucasus countries to negotiate directly with the West. Alternate transportation routes between Europe and China through Central Asia and Mongolia were devised, and the concept of the "Silk Road of the 21st century" was born. Located between the Black Sea and the Caspian Sea, the Caucasus has become the center of this new transportation network. Azerbaijani and Kazakh oil and natural gas move with Uzbek cotton and Chinese silk along the same road. The old, camel-traveled Silk Road is now being outfitted with railroads, airports, pipelines, and fiber-optic cables by means of international agreements and financing to the tune of billions of dollars.

The Race for Control

In May 1993, the European Union's assistance program launched TRACE-CA (Transport Corridor Europe-Caucasus- Asia), followed in 1996 by INOGATE (Interstate Oil and Gas Towards Europe), a consortium that includes the United States and concentrates on oil pipelines, rail lines, roads, air-traffic and ports terminals from Baku to the Ukraine through Georgia. The growth of this project was evident at the September 1998 Baku Conference which brought 33 countries and 12 international organizations together. The United States came firmly behind the project, which by then already involved 21 major U.S. oil companies. In the summer of 1999, the House of Representatives adopted a series of measures to broaden sup-port for economic reform, democracy, and regional integration in the Caucasus and Central Asia. Future plans include a fiber-optic cable from Frankfurt-am-Main in Germany to Shanghai in China. The trade of Central Asian countries has already increased by as much as 30 percent, showing the potential for energy and raw materials trade. Other initiatives are also unfolding. In September 1994, for example, a British Petroleum-led consortium signed an $8 billion agreement to develop Azerbaijani oil fields.

The challenge for Moscow is to try to preserve as much control as possible over the transportation of these resources. After all, if the West can build a southern Caucasus oil corridor through Azerbaijan, Armenia, and Georgia, Russia will lose transit fees amounting to billions of dollars that will be used by southern Caucasus countries to strengthen their independence. Faced with this danger, Moscow has responded by attempting to divide and conquer. After losing the key republics of Georgia, Armenia, and Azerbaijan in the early 1990s, Boris Yeltsin exploited three separatist movements in South Ossetia (Georgia), Abkhazia (Armenia), and Nagorno-Karabakh (Azerbaijan) in 1992, while repressing the three restless minorities of North Ossetia, Ingushetia, Chechnya, and Dagestan, located in the northern Caucasus within Russia's borders. Today, none of the southern Caucasus conflicts have been resolved, including the war in Chechnya, a situation that Moscow is exploiting in order to justify Russia's military presence there.

The new synergies created by TRACECA prompted intense and con-fusing regional diplomatic jockeying between 1996 and 1999. Of all the realignment schemes, the most promising to date seems to be GUAM/ GUUAM, otherwise known as the Union of the Three (Georgia, Azerbaijan, Ukraine). Formed in 1996, this pro-Western, non-Russian economic and political partnership has steadily expanded. Moldavia joined in October 1997, and Uzbekistan in April 1999, on the eve of NATO's 50th anniversary. While another pro-NATO alliance was being established between Turkey and Azerbaijan, potentially anti-NATO forces were also gathering strength. At the periphery, the Ukraine, Turkey, the European Union, and central Asian countries have also become involved in this widening circle of alliances.

Diplomacy and Positioning

Crucial developments in 1999 intensified diplomatic maneuvering. On 17 April 1999, an 825-km oil pipeline through Transcaucasia and Central Asia (more precisely from Baku to the West) was opened, and the Ukraine, Georgia and Bulgaria signed an agreement to ferry oil across the Caspian Sea, giving Baku direct access to the West and allowing Azerbaijan to bypass Iran. This means that the Russian-controlled Baku-Dagestan-Grozny- Ingushetia-North Ossetia-Novorossisk pipeline, which had become unreliable in recent years due to the civil war in Chechnya and Dagestan, will decline even further in importance. As soldiers from Georgia, Azerbaijan and the Ukraine were engaged in joint exercises within the GUAM agreements, construction began for a new pipeline from Baku to the Black Sea with one terminal in Poti and Soupsa in Georgia and another in Ilitchevsk in the Ukraine. Additional transportation plans include a railway-ferry connection between Poti, Odessa in the Ukraine, and Burgas in Bulgaria. With Georgia and Azerbaijan now being the two pivotal oil and pipeline states, the Southern Caucasus is slated to pull strongly towards the European Union and NATO.

Yeltsin's policy was mostly reactive. In April 1999, Moscow deployed S-300 missiles and MIG-29s in Armenia and signed an agreement with Iran for the exploitation of oil and natural gas. This was to be followed by increased air defense cooperation. However, a swift Azerbaijani initiative undermined this effort. Azerbaijani president Gaidar Aliev convened a trilateral meeting in Geneva in July and August, 1999 with Georgian president Eduard Shevardnadze and Armenian president Robert Kotcharian--the first positive contact with an Armenian leader since the start of the Nagorno-Karabakh conflict. In response to the prospect of losing Armenia, Russia decided to continue its efforts to destabilize Azerbaijan and Georgia by opposing a settlement in Nagorno-Karabakh and by refusing to take a stand on Abkhazia. Rumors also credit Moscow with trying to assassinate Shevardnadze who represents a Georgian threat to Russia equal to that of Lithuania in the early 1990s. (Attempts were made in 1998 to assassinate both Shevardnadze and Aliev.)

Shortly before the Chechen war resumed last August, a meeting in Baku oversaw the creation of AIOC, an international oil consortium dominated by the Anglo-American oil giant Amoco-BP, which gained access to Azerbaijan's oil. Further progress was made when an agreement was signed in Baku on November 18, to build a 1080-mile pipeline from Tbilissi through Azerbaijan, Georgia and Turkey to the Mediterranean Sea. These developments were undoubtedly factored into the Russian decision to renew the campaign against Chechnya, although the press mainly credited the wave of terrorist bombings in Moscow and other Russian cities in August 1999 with provoking the Russian attack. Meanwhile, Moscow played the "domino" card, arguing that if Chechnya and Dagestan fell, other Russian republics would follow. As in all wars, there have been other factors motivating the Russian reaction, including the need for a strong, swift Russian victory to help erase memory of Russia's disastrous role in peacekeeping operations in Kosovo last year, and the need to bolster the presidential campaign of Vladimir Putin. But in truth, the dominant cause of the war in Chechnya has been the reorganization of the Eurasian territory stretching from the Ukraine to Beijing, coupled with Russia's inability to effectively counter-act the emerging synergies south of her border.

No End in Sight

The dynamics and dilemmas of this decade-long development have created an action-reaction pattern that seems to repeat itself ad infinitum. One look at the events of the past few months con-firms this. In March and April, an agreement was readied between the United States, Georgia, Azerbaijan, and Armenia to resolve all technical aspects of the pipeline, including transit tariffs. This made possible the April ratification of agreements necessary to start the financing phase of the $3 billion pipeline. Russia counteracted by unveiling TRANSCAM on March 7, 2000. This plan envisions a new web of transportation from China, Japan, and the Russian Far East to the Black Sea, the Mediterranean Sea, and the Persian Gulf via the Russian Federation. The route would pass through the Caucasus, namely through North and South Ossetia, which would become extra-territorial, internationalized, free economic zones. The Russian project will take 10 years to complete and will cost $4 billion. Clearly, the Western pipeline project is further advanced, but the competition is close and the stakes become higher every day.

President Putin leveled Grozny in February and Georgian President Shevardnadze was reelected in April. The discovery in May of an important new oil field in the Caspian Sea off the coast of Kazakhstan by a Western oil consortium revives the prospect of intensive courting of Kazakhstan by Russia. The only way to prevent the many simmering ethnic "braziers" from reigniting will be cool diplomacy and decisive economic and political agreements. But these appear far off on the horizon--down the long Silk Road of the 21st Century.

[Dr. Carls is associate professor of history and chair of the Department of History and Philosophy at the University of Tennessee at Martin. She is a native of France and studied in Warsaw, Poland during the rise of Solidarity, prior to the collapse of the Iron Curtain.]