The Rush For Caspian Oil

By Bruce W. Nelan

Washington put on quite a show last week for an improbable personage: Turkmenbashi, a plump, silver-haired strongman from an obscure country in central Asia who would normally rank far down the pomp-and-protocol chart.

But the title, which means "head of all Turkmen," belongs to one Saparmurat Niyazov, President of Turkmenistan, a parched former Soviet republic that happens to sit atop immense oil deposits and the fourth largest natural-gas reserves in the world. So last week Niyazov got the imperial treatment from the Clinton Administration and a host of U.S. businessmen eager to start exploiting those riches in earnest.

Niyazov was put up at Blair House, across the street from the White House, an honor reserved for true VIPs. He got 45 minutes with Clinton in the Oval Office and conferred with Cabinet officers and CIA Director George Tenet. More than two dozen oil and equipment companies kicked in to sponsor a dinner in Niyazov's honor at a downtown hotel, and 300 of America's top government decision makers, business executives and lobbyists thronged the ballroom.

Niyazov is one of the new kingpins of the Caspian Sea and the treasure it covers. The California-size Caspian, center of the last great oil rush of this century, laps across a huge mine of liquid gold. Some 200 billion bbl., or about 10% of the earth's potential oil reserves, are thought to lie under and around the sea. At today's prices that could add up to $4 trillion worth. The Caspian lies in a tough part of the world, studded with rugged mountains, Chechen guerrillas, dissident Kurds, crowded sea-lanes and unstable and corrupt governments in all directions. Laying hundreds of miles of pipe through such obstacles will carry a huge price tag and enormous risks.

The world's energy companies began scrambling for the prize as soon as the Soviet Union broke up, in 1991, and the biggest oil firms from the U.S., Europe, Russia, Japan, China and South America have bought into the action, forming consortiums and joint ventures with local companies to generate the huge start-up costs. Some of the wells are already pumping, and in a few years oil will be flooding out of the Caspian reserves. But how will the precious stuff travel to energy-hungry consumers? Who will have a hand on the spigots as it flows to market?

The key to that decision probably lies in Baku, capital of Azerbaijan and headquarters of the biggest multinational oil consortium in the region. It's an old city but a new boomtown. The shoreline along the tree-shaded boardwalk is gray with oil, and the air is heavy with the dizzying stench of crude. The city sprouts new bars, cafes and nightclubs every week, and petro-barons fill the nights with the roar of their armored Mercedes-Benz.

So far this year, a 12-company consortium, led by British Petroleum and Amoco, has produced 160,000 tons of oil. This early production has traveled out through a 2-ft.-wide pipeline, heading north through Azerbaijan and west to the Russian port of Novorossisk on the Black Sea.

But soon, as production picks up, that line and a number of others already laid will be too small to handle the job. The consortiums want a new 3.5-ft.-wide line that will be able to carry up to 1 million bbl. a day in five years. At the bar of the Ragin' Cajun, a hot spot in Baku, a veteran of oil fields from Texas to Siberia explains, "The game's called pipeline poker. The Caspian is crazy. It's landlocked. We can drill all the oil you'd ever need. But can we get it out?"

It's a question that has ignited a tense struggle in the region and beyond. The coastal states of Azerbaijan, Kazakhstan and Turkmenistan gained their independence when the Soviet empire collapsed. All three want to exploit the riches under their sea without interference from Russia and Iran, the two other states that rim the Caspian. As major oil and gas producers, Russia and Iran are not overjoyed at their neighbors' good fortune.

In their day, the Soviets never worked seriously at developing Caspian wells, largely because they did not want to create competition for their already flowing Siberian oil. Moscow still feels the same but hasn't figured out how to head off the flow of Caspian oil or to grab a large chunk of the profit. Russia does insert an environmental argument: the oil industry could threaten the Caspian sturgeon and its oily treasure, caviar. For its part, Iran says it will cooperate in Caspian development only if it gets, say, a 20% share of the sea's resources. Both Russia and Iran prefer that pipelines carrying Caspian oil be built or expanded over their territory.

While American energy companies joined the Caspian rush early, the U.S. government was slow to get organized. Some of Washington's top power brokers and law firms went to work for Caspian governments or U.S. companies, selling, consulting, lobbying or opening doors. Among them were former Defense Secretary Dick Cheney, former Treasury Secretary Lloyd Bentsen, and John Sununu, who was George Bush's chief of staff. Perhaps the most active Washington name is former National Security Adviser Zbigniew Brzezinski, now a consultant for Amoco. He has long been a mentor to Secretary of State Madeleine Albright, and he has warned the White House for years that the U.S. was making a strategic mistake in paying so little attention to the new central Asian nations.

Albright and her senior State Department colleagues sat down for a full-dress CIA briefing on the Caspian last August. The agency had set up a secret task force to monitor the region's politics and gauge its wealth. Covert CIA officers, some well-trained petroleum engineers, had traveled through southern Russia, Azerbaijan, Kazakhstan and Turkmenistan to sniff out potential oil reserves. When the policymakers heard the agency's report, Albright concluded that working to mold the area's future was "one of the most exciting things that we can do."

American officials frown when outsiders call the battle over the Caspian another "Great Game," the term Rudyard Kipling used for the 19th century struggle for influence and control between the British and Russian empires. But another Great Game is what it is. Washington wants Caspian oil to flow through many pipelines so that no single country can bottle it up, and is adamantly against having a new pipeline pass through Iran. It is fine if some of the lines run through Russia, as they already do, but Russia should not be able to turn a valve and shut off all or most of the Caspian flow.

Specifically, the U.S. wants the big new carrier, the one the oilmen call the main export pipeline, to run westward from the Caspian to the Turkish port of Ceyhan, on the Mediterranean, because Turkey is a NATO ally. The U.S. does not entirely trust Russia, which resents the arrival of foreign influence in what were Soviet republics. To Washington, the Islamist regime in Iran looks even less friendly. "The last thing we need," says a White House aide, "is to rely on the Persian Gulf as the main access for more oil."

Officials in Tehran point out that a pipeline southward through Iran would be the shortest way to go. "This is all ridiculous," says Hossein Kazempour Ardebili, an adviser to the ministers of petroleum and foreign affairs in Tehran, as he draws a map of proposed routes through Russia and Turkey. "We have our hands in the Caspian Sea and our feet in the Persian Gulf, the simplest outlet for this energy."

The Iranians don't rely just on logic to press their case. They cite treaties with the Soviet Union dating back to 1921 and 1940 that declare the sea a common lake between the two countries. Tehran is willing to negotiate a new agreement but demands veto rights over any aspect it doesn't like. If Iran's interests are not taken into account, says Ardebili, it will deal with what it considers illegal activities in the Caspian by using "constructive--and possibly destructive" countermeasures.

By last fall the U.S. was pressing hard for the option it favors, a system of oil-and- gas lines starting through Kazakhstan and Turkmenistan, running under the Caspian Sea to Baku, then through Georgia and Turkey to the Mediterranean. This elaborate scheme is not an easy sell. The long pipeline would cost about $4 billion to build and add up to $4 to the cost of each barrel of oil it carried. To many company executives, it seems easier to use the southern route through Iran or the northern route through Russia to the Black Sea.

"If I had my way," says a senior Western oil executive, "we'd sign with the Iranians. In this part of the world, they are by far the most trustworthy partners for a pipeline deal. Terrorism? Who's going to blow up their own pipeline?" But the U.S. option, the east-west line, gathered support from some regional leaders--Azerbaijani President Heydar Aliyev, for example--who thought it would be more secure.

A breakthrough for the U.S. came at "the great pipeline shootout" on April 1 in Almaty, capital of Kazakhstan. More than 200 executives and experts from the region's oil consortiums gathered to present and compare their pet plans. To everyone's surprise, Total, the French oil giant, put forward revised numbers for its preferred option, a north-south pipeline through Iran to the gulf. By these new estimates, the Iran link would cost about $4 billion and would not be operational until 2004. This meant the line through Iran would cost as much and take as long to build as the east-west system through Turkey.

This is heartwarming news for the Clinton Administration. Despite the focus on strategic thinking, the final pipeline decision will depend heavily on costs. So U.S. officials were jubilant at Total's confession, and they got another boost last week. In a joint communique with Clinton, Niyazov affirmed that he was leaning toward an east-west gas-and-oil line under the Caspian as part of the larger system the U.S. is pushing. In October the huge consortium based in Baku is to decide which route it will support, and the Clinton Administration believes its side in this Great Game now has the momentum.

--Reported by Scott MacLeod/Tehran, Andrew Meier/Baku and Douglas Waller/Washington

With reporting by Scott MacLeod/Tehran, Andrew Meier/Baku and Douglas Waller/Washington