Caspian Energy At The Crossroads

Jan H. Kalicki

From Foreign Affairs, September/October 2001

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Summary:  The Caspian basin holds enormous oil and gas deposits that could play a critical role in the world's economic future. But getting them out of the ground and onto the market requires overcoming formidable political and geographic problems. For its own sake as well as the region's, Washington should do whatever is necessary to ensure the emergence of secure and independent routes for Caspian energy to reach the outside world.

Jan H. Kalicki is Public Policy Scholar at the Woodrow Wilson International Center for Scholars. Previously, he served as the Clinton administration's Ombudsman for Energy and Commercial Cooperation with the New Independent States, and Counselor to the U.S. Department of Commerce.

FUEL FOR THOUGHT

In response to recent oil and gas price hikes, recurring blackouts in California, and other symptoms of a U.S. energy "crisis," both the Bush administration and the Senate have made national energy security a top priority. Whereas the Bush team has advocated increased domestic energy production, the Senate -- now under Democratic control -- has emphasized conservation. Neither side, however, has given adequate attention to international energy policy, particularly U.S. policy toward the Caspian region.

The countries surrounding the Caspian Sea -- Russia to the north, Kazakhstan and Turkmenistan to the east, Iran to the south, and Azerbaijan to the west -- hold some of the largest oil and gas reserves in the world. And together with neighboring Armenia, Georgia, Turkey, Ukraine, and Uzbekistan, they represent important economic, political, and strategic interests for the United States. To advance those interests, Washington should strengthen its policy toward the Caspian by giving the highest level of support to the cooperative development of regional energy reserves and pipelines. In particular, it should encourage the construction of multiple pipelines to ensure diverse and reliable transportation of Caspian energy to regional and international markets.

Although the Organization of Petroleum Exporting Countries will continue to dominate the global energy market for decades to come, oil and gas development in the Caspian basin could help diversify, secure, and stabilize world energy supplies in the future, as resources from the North Sea have done in the past. The proven and possible energy reserves in or adjacent to the Caspian region -- including at least 115 billion barrels of oil -- are in fact many times greater than those of the North Sea and should increase significantly with continuing exploration.

Such plentiful resources could generate huge returns for U.S. companies and their shareholders. American firms have already acquired 75 percent of Kazakhstan's mammoth Tengiz oil field, which is now valued at more than $10 billion. Over time, as the capital generated from Caspian energy development spreads to other sectors, U.S. firms in other industries -- from infrastructure to telecommunications to transportation and other services -- could also benefit.

In addition to these energy-related and commercial interests, the United States has important political and strategic stakes in the Caspian region -- including a NATO ally in Turkey, a former adversary in Russia, a currently turbulent regime in Iran, and several fragile new states. Located at the crossroads of western Europe, eastern Asia, and the Middle East, the Caspian serves as a trafficking area for weapons of mass destruction, terrorists, and narcotics -- a role enhanced by the weakness of the region's governments. With few exceptions, the fledgling Caspian republics are plagued with pervasive corruption, political repression, and the virtual absence of the rule of law. Even if they can muster the political will to attempt reform themselves, the attempt will fail so long as they lack the resources to build strong economic and political institutions. And until they build close, substantive relations with the West, they ...

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