The Energy Game

Centered at a geo-poltical crossroads, Georgia controls the essential physical access to strategic commodities

To grasp the many dimensions of the August war between Russian and Georgia and its impact on the Caucasus in the long run, one could think of the energy market as a pair of glasses; without them, the world will still be there, but one wouldn’t be able to see it clearly enough to have any idea of what is really going on.  These energy glasses are not the whole story, but they show us important details essential to understanding the issues at stake.

The underlying geopolitics of the Caucasus crisis set off by Georgia’s attack on South-Ossetia on Aug. 7th and the disproportionate reaction by Russia are linked to a replay of a “great game,” old and new respectively. The old one was fought by Russia and Great Britain; it started in the early 19th century and centered on controlling the vast lands of Central Asia and the Trans Caucasus. The current strife knows many more actors, stretching from the US via the EU to China and is about physical access to strategic commodities, such as oil and natural gas.

Located between the oil- and gas-rich Caspian sea to the east and the important waterways of the Black Sea to the west, the newly independent states in the Caucasus were courted by investors since the early 1990s. Western oil companies, desperately looking for new reserves beyond the orbit of national oil-companies, arrived with high expectations for “big-oil.” Some 90% of today’s proven oil reserves are owned by national companies, be they inside the Organization of Petroleum Exporting Countries (OPEC), in Russia, or elsewhere. Only ten percent are controlled by the so-called international oil companies, like BP or Exxon.

The oil-rush into the Caspian that started with the demise of the Soviet-Union led, inter alia, to the tracing of a new pipeline, the BTC. This acronym stands for three cities: Baku in Azerbaijan, the oldest oil-town, the Georgian capital Tiflis, and the Turkish port of Ceyhan. The concept of that pipeline was to circumvent any transit through Russia to decrease Western dependence on Russian goodwill, both in supply and transport.

Interestingly enough, the political decision on the BTC pipeline was taken at the margins of the Istanbul summit of the Organization for Security and Cooperation in Europe (OSCE) in 1999. In return, Russia – then seriously weakened and threatened by implosion and bankruptcy – obtained a concession for its troops stationed in the enclaves of Abkhazia and South-Ossetia in Georgia.

The flow of oil through the BTC started in the summer of 2006, its political importance highlighted by the high-ranking US-officials attending the opening ceremony. The US had already brokered a strong alliance with the Georgian government in the 1990s in order to secure this transit operation. After 9/11, close military cooperation started.

In the wake of events of November 2003, the government of Edvard Shevardnadse was toppled and a new face of power surfaced, namely that of Michael Saakashvili. His accession was most probably assisted by various sponsors, both diplomatic and financial, and was not purely based on the volonté générale of the Georgian people.

As the old saying goes, the oil-business is simply too important to leave it to the oil-people. Brokering an energy-alliance with producers and transit-countries reflects the importance of long-term investments, which can survive regime-change.  Russia has been watching this evolution attentively as has Iran, which was once sovereign in the Caucasus.

The BTC pipeline leaves many questions unanswered, among them, say Tehran and Moscow, whether the Azeri oil and gas supplies be sufficient to justify it.

“One cannot prevent people from burying steel in the ground,” comment the Russians dryly. The BTC pipelines built by BP might just possibly remain empty.

The a fresh chill of cold war has been in the air for some time in the Caucasus. Analogies are useful, but they should not be pushed in extremis. The global world is more interconnected through financial flows and telecommunication than it was before 1989. However, with access to energy a dangerous aspect of the new tension between Russia and the West, the end of this cold war might be quite different.

 

Dr. Karin Kneissl is an attorney and Professor of International Relations at Webster University Vienna. The second revised edition of her book Energy Poker (in German) was released in Munich in late August.

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