CIAO DATE: 02/02

Caspian Oil Fields Rise In Significance With Gulf Volatility

Brenda Shaffer

November 8, 2001

Belfer Center for Science and International Affairs (BCSIA)

 

Investor's Business Daily

By Reinhardt Krause

The rich oil fields of the Caspian Sea region on the southern fringes of the former Soviet Union took on even greater significance after Sept. 11. They have the potential to ease U.S. dependence on the volatile Persian Gulf, which supplies the bulk of the world's oil.

Brenda Shaffer, research director of the Harvard University Caspian studies program, discusses the Bush administration's Caspian oil policy choices in this interview.

IBD: How much of the world's untapped oil resources are in the Caspian region or former Soviet Union?

Shaffer: The main sources of oil in the former Soviet Union are Russia, Kazakstan and Azerbaijan, with more limited amounts in Turkmenistan. All four are Caspian states, but the majority of the Russian oil resources are not in the Caspian area.

The Caspian Sea reserves are about the same as those of the North Sea, about 16 billion to 35 billion barrels, which is about 5% of the world's oil reserves. Estimates of the Russian reserves also vary. Some claim that they are as high as 75 billion to 90 billion barrels.

IBD: How many years will it take for large amounts of oil from those places to hit the market?

Shaffer: According to one energy expert, Maury Devine, within the next five years the amount of oil coming from the Caspian region should reach 1,000,000 barrels a day. Kazakstani oil could be up to 500,000 per day.

IBD: Already operating is a pipeline 15% owned by ChevronTexaco. It runs from Kazakstan to the Black Sea port of Novorossisk. What other pipelines are on the drawing board?

Shaffer: The main export pipeline, or MEP, is intended to be operational in early 2005. It will run on an east-west corridor from Azerbaijan to the Turkish Mediterranean port of Ceyhan. BP is the main operating company.

IBD: What pipeline routes would be most helpful to the U.S. in an emergency?

Shaffer: Diversity of sources is a key to energy security. The Caspian's resources are located in countries possessing predominantly pro-Western orientations that are not currently members of OPEC.

The addition of Caspian oil could weaken the OPEC monopoly. It would provide greater leverage over the pricing policies of Saudi Arabia and other OPEC countries. That could ultimately contribute to lower world oil prices, and reduce the ability of Saudi Arabia and other countries to use oil pricing as a political tool. No oil can replace Persian Gulf oil, but there is no need to find a replacement. Even the most radical regimes will need and want to sell their oil and gas.

IBD: How much of a concern has the potential "Talibanization" of former Soviet Union states been to developers of energy sources in the Caspian/South Caucasus region?

Shaffer: Most Caspian oil and gas resources are in Azerbaijan, Turkmenistan and Kazakstan.

All three states have implemented complete separation of religion and state. They've clamped down on religious elements that attempt to destabilize the states.

The states of the Caspian region will pay a price in the future for their support of the U.S. at this critical hour, and surely Islamist groups will act against the pro-American regimes in Azerbaijan and Uzbekistan in the future.

Hopefully, the U.S. will be credible with its commitments to these states and will help them to thwart threats that will emanate from their pro-U.S. policies.

IBD: Is there any reason to think that Saudi Arabia's past support of the Taliban government was tied, in part, to hopes that Taliban-like countries would exert influence in energy development?

Shaffer: Saudi Arabia has attempted to discourage investment in Caspian Sea oil and gas, formally dismissing the importance of this source.

The main Caspian oil countries, Azerbaijan and Kazakstan, are not OPEC members.

IBD: What political mistakes should the U.S. avoid in the region?

Shaffer: In efforts to renew cooperation with Iran, Washington should be careful not to compromise the interests or independence of states like Azerbaijan and Uzbekistan.

IBD: What role might Turkey have in building pipeline routes that serve U.S. interests?

Shaffer: The U.S. supports the building of the Main Export Pipeline for export of Caspian oil on a East-West corridor that would end in the Turkish Mediterranean port of Ceyhan (Baku-Tbilisi-Ceyhan). Among the goals of this route is providing revenue for Turkey.