Pipeliners

05-25-2005 Kommersant - Today, there will be a special ceremony in Baku for the opening of the Baku-Tbilisi- Jeikhan pipeline. This event should end a10-year-old political controversy around the oil pipeline. Besides, the launch of the pipeline might become a catalyst for new changes in Central Asia and Caucus that could possibly lead to new "color" revolutions.
The four-way holiday
Three years ago, a ceremony for the start of construction in Baku brought together three presidents -- Geidar Aliev of Azerbaijan, Eduard Shevarnadze of Georgia and Ahmet Necdet Sezer of Turkey. From this trio, only the Turkish president participates today in the opening. Also, there is one more participant joining the leaders – the president of Kazakhstan, Nursultan Nazarbaev. He arrived yesterday in Baku on an official visit to participate in today's ceremony. After the negotiations with Azerbaijani Prime Minister Artur Rasizade and President Ilkham Aliev, Nazarbaev made a historical statement: Kazakhstan will join the oil pipeline Baku-Tbilisi-Jeikhan.
Until now, Azerbaijan and Kazakhstan had an agreement about the yearly transit of 20 million tons of oil through this pipeline. However, the passing capacity of the Baku-Jekhan pipeline was estimated at 85 million tons. Considering that the oil production in Azerbaijan should start falling soon, Kazakhstan's link to the pipe was of utmost important. Nazarbaev announced yesterday that his country will be increasing oil production. By the year 2010, Astana expects to produce 100 million tons and by 2015 it hopes to reach 150 million ton. In the nearest future, Kazakh oil will be delivered to Azerbaijan by tankers although Nazarbaev's statement hints that the two leaders reached agreement to build the pipeline through the Caspian Sea connecting the two countries.
Right after Nazarbaev, Georgian President Mikhail Saakashvili arrived in Baku. He was in the most celebrating mood compared with the other presidents. He said that the launch of Baku-Tbilisi-Jeikhan and in next year another pipeline Baku-Tbilisi-Erzurum "will make the whole region, including Georgia, fully energy independent."
The pipeline will start to be used commercially by the end of this year. So far, it is slowly getting filled up with oil. Once the pipe becomes commercial, all Caspian states will start to feel the political consequences of the first major project after the dismantling of the USSR.
The end of fight
The Baku-Tbilisi-Jeikhan pipeline from the beginning had a political rather than economical meaning. In the 1990's, when world oil prices were at the bottom, the project was kept alive because of the ceaseless care of American administration and British government. The business people in that time were saying that the construction of pipeline is not profitable and might even end up in big loss.On a Side

What is Baku-Tbilisi-Jeikhan?

The total length of main export pipeline Baku-Tbilisi-Jeikhan is 1767 kilometers (km) (Azerbaijani part - 443 km, Georgian -248 km and Turkish 1076 km). The capacity of the pipeline is planned to be around 50 million tons of oil per year or about 1 million barrels per day. The pump tariff is $2.58 per barrel. Besides the Azerbaijani oil, the pipeline will carry Kazakh oil, which would be delivered to Azerbaijan by tankers.
The construction of Baku -Jeikhan started in April of 2003 and will be finished in third quarter of 2005 (at first it was planned to launch it in fourth quarter of 2004). The start of the export of Azerbaijani oil from Turkish port Jeikhan through the Mediterranean is planned for October 2005.
The total cost of the project is $2.95 billion, and with estimation of the credit interest --$3.6 billion. About 30 percent of the finance was provided by the European Bank of Reconstruction and Development and by the World Bank. To complete the project, the BTC Co. was established in 2002. The stakeholders are: British Petroleum (BP) – 30.1 percent of shares (the project operator), Azerbaijani GNKAR - 25 percent, American UNOCAL -8.9 percent, Norwegian Statoil – 8.71 percent, Turkish TPAO – 6.53 percent, Italian ENI -5 percent, French TotalFinaElf -5 percent, Japanese Itochu -3.4 percent, Japanese Inpex -2.5 percent, American ConocoPhillips -2.5 percent and American Hess – 2. 36 percent. The exploitation of the pipeline is intended for 40 years. The profitability is expected to be not less than 12.5 percent within the first 20 years.
From the very moment when Baku, London and Washington started to discuss a new distribution channel of Caspian oil, there were quite incredible events going on sometimes around the pipeline (see the remarks). It is not surprising, taking in consideration how many countries were preventing this project to come through. Moscow was lobbying for its own version of the pipeline route -- through Chechnya and Novorossiysk -- and was against the configuration where Caspian oil was going to the west passing by Russia. Tehran was also unhappy after its proposal to run the pipeline through Iranian territory was rejected. And, finally, oil-producing countries from the Persian Golf were dead set against the project. The appearance of the new, independent oil resource from these countries was a serious strike for them.
Each interested side was putting up a tough fight for or against the pipeline. For instance, OPEC countries were putting joint efforts to holding world oil prices on the level that would make construction of the pipeline unprofitable. While Russia was pushing its project through, Turkey in response was toughening conditions for Russian super-tankers to pass through Bosporus.
The constant rise of the oil prices after September 11, 2001, removed the biggest economical obstacle in the way of the Baku-Jeikhan pipeline. The project became profitable. However, the political stabilization in Georgia and Azerbaijan was the final condition for finishing construction. Turkey and USA made everything possible to reach this goal. Right before Geidar Aliev's death in 2003, Azerbaijan authorities decided to move the dying president to Ankara. Soon, there was a message from the Turkish capital that Geidar Aliev appointed his son Ilkhan to be the Prime Minister. Then Aliev was moved to the hospital in Cleveland, OH, where he spent time while the new presidential election was raging in Azerbaijan. And only after Ilkhan won the election, the news of elder Aliev's death was published. That helped to avoid any destabilizing events.
Several months later, Georgia went through the "Rose Revolution." New leadership was seriously intent on getting the pipeline opera table as soon as possible and even provided security along the length of whole pipeline.
The only thing that could prevent the project from being finished is re-ignition of old ethnic conflicts in Karabakh, Abkhazia and South Osetia. These conflicts could directly threaten the pipe that is laying nearby. However, by now, the West has invested large amounts into the project and will not allow any risks. From now on, all games in the region will be played by new rules and will be linked to the Baku-Jeikhan axis. And the whole policy of the West will be directed to the pipeline protection.
Oil in exchange for revolution
Several months ago, the head of the US armed forces in Europe General James Jones, speaking during a Congressional hearing, said out loud about the well-thought out initiative called Caspian Watch. The initiative proposed to form a network of several regiments containing Special Forces and police from the Caspian countries, which could quickly react to different threats including a terrorist attack on the pipeline.
The launch of the pipeline does not mean only the strong control of the American military outside the Georgian and Azerbaijani territories. In fairly close perspective Baku-Jeikhan is the road to Central Asia. The launch means also participation of the Caspian region countries in the world economy. The Western corporations drill the oil, and the pipe allows for speedy delivery of the oil to the world market. The oil would be running from East to West, but the spirit of "color revolutions" will be running in the opposite direction.
The huge charge of social tensions, accumulated in the countries with authoritarian regimes, can explode at any given moment. And a "velvet" change of regimes is probably the only alternative to this potential explosion. Kazakhstan already has expressed a desire to be linked to the pipeline. It means that Washington already has direct interest to the stable and predictable regime in Astana, which would not pose a threat to the oil production. However, Nazarbaev's administration cannot guarantee such stability -- all its efforts right now are directed toward preventing a repeat of the "orange scenario" in the presidential elections this year. And the attempts to provide "stability" at any cost might lead to a new Andijan-type massacre. It is doubtful that the West, which has already invested serious money in the pipeline, will fully rely on Astana. With the Baku-Jeikhan oil pipeline launch, the "color revolution" in Kazakhstan looks almost like a done deal in order to protect the oil supply.
Azerbaijan is also facing parliamentary elections this November. The West might not trust the current regime enough to let it be the key keeper of the major oil pipeline. This time the USA and Europe are insisting on honest, transparent elections, which will result in the appearance in parliament of powerful, and maybe even dominating, opposition. And after that, there would be unavoidable change or transformation of the regime.
Sooner or later, the same fate is expected in the rest of the Central Asian countries because after Baku-Jeikhan pipeline launch it will be directly in Western interest. The last on the list is the most infamous, but extremely important for world energy market, Turkmen regime.
However, the effect of the Baku-Jeikhan pipeline will be felt not only in post-Soviet space. When the West starts to receive Caspian oil, the United States will finally have an opportunity to deal with Iran. Until now Tehran is successfully scaring Washington with a collapse of world energy if the Iranian regime is threatened. The Iranian military warned that they would block the entrance to the Persian Golf by sinking several super-tankers. The Caspian oil would not cover all the losses if the events develop in this direction, but it will lessen the US dependence on Persian Golf oil.
But the situation in Iran shows that the USA might not have to use the Iraqi scenario to replace the regime. The coming presidential elections will expose how unpopular the current Tehran government is and how big the potential of the protesting population led by students. And only then it might appear that all previous "color revolutions" were nothing more than a rehearsal to the main - "oil revolution" in Iran.