No quarrel over the pipe: Russian and Azeri presidents

Tehran Times, Iran
July 30 2006

No quarrel over the pipe: Russian and Azeri presidents

MOSCOW (RIA Novosti) — To the surprise of some experts who had been
predicting a chill in Russian-Azerbaijani relations because of the
commissioning of the Baku-Tbilisi-Ceyhan pipeline, the two presidents
sat next to each other at one of the events of the recent informal
CIS summit.

Meanwhile, the first Azeri oil has already reached the Heidar Aliyev
terminal in the Turkish port of Ceyhan, but over a year later than it
was originally planned.

The BTC pipeline is the biggest non-Russian infrastructure project in
the entire post-Soviet space all along the line – in investment (four
billion dollars), the number of participants, and the potential
geopolitical consequences. Russia’s attitude to it is not
unequivocal. It is happy for its CIS neighbor, but weary about the
political anti-Russian fuss around its commissioning.

During the construction of the BTC, there was talk in the West about
the Kremlin’s destructive propaganda, and its continued attempts to
avert the implementation of this ‘project of the century’. But in
reality, it was back in the early 1990s, when the future project was
only discussed in broad outline, that Moscow refused to take part in
it for routine, non-political reasons. In those remote times Baku
profited much less from its oil exports than from a million-odd
Azeris who were selling vegetables and fruit in Moscow. The Azeri oil
industry was stagnating and investment in it required much optimism.
Besides, the BTC project was not likely to recoup because of low
world oil prices. All figures rested on the dubious estimates of the
Caspian deposits. The risks were too high also because the pipe was
to pass through Turkish areas inhabited by Kurds and Georgian regions
with a predominantly Armenian population. To sum up, Russia’s reasons
for refusing to join in the BTC building were clear and logical. Even
BP, the BTC operator, might have not undertaken it if it had not been
for the powerful pressure from the U.S.

Many of these apprehensions have now become reality. There is not yet
enough oil for the pipe to reach its rated capacity. The
Azeri-Chirag-Guneshli deposits, which were supposed to be the BGC
main supplier, produce no more than 20 million tons of oil per year.
This compares with Azerbaijan’s total output of 22 million tons in
2005.

Russian-Azerbaijani bilateral economic ties are making steady
headway. Under the intergovernmental bilateral agreements, more than
two million tons of Caspian oil are pumped into the Baku-Novorossiysk
pipeline every year.

Transneft Vice President Sergey Grigoryev said that he was surprised
to learn that the Azeri exports via Novorossiysk had even grown in
the last few months, after the BTC was put into operation, though
they are still considerably less than the 5 million tons annually
reserved by Transneft.

When asked what will happen if all Azeri oil goes into the new
pipeline, Grigoryev said that such a small loss would be negligible
for his company. Last year it processed almost 454 million tons of
oil, and the share of Azeri oil was no more than 0.55%.

Baku is seeking partners exactly because it does not have enough oil
for the full operation of the first BTC extension. Not long ago
Turkish Prime Minister Recep Erdogan invited Russia to take part in
the BTC, but this proposal did not evoke much interest. The BTC rate
of $21 for a ton of oil circulations cannot compete with $15.6 at
Baku-Novorossiysk.

Eager to boost its oil exports, Kazakhstan has decided to go for the
BTC and signed the agreement, which provides for the annual
transportation of 7.5 million tons. In perspective, this figure may
grow to 20 million tons, but not necessarily – Kazakhstan cannot
provide any guarantees. It is also increasing its oil exports to
China, and has much interest in oil supplies to Lithuania and Latvia.
But cooperation with Kazakhstan is not problem-free. Kazakh oil is
more sulfurous as compared with Azeri Light, one of the best crudes
in the world, and hence the price for a barrel is different. Baku is
racking the brains over how to avoid a drop in price and not lose a
strategic partner. But will Astana agree to compensate for lowering
the quality of Azeri brand?

U.S. President George W. Bush, who did not take part in the BTC
inauguration, called it the gates to the world oil market, and
suggested their protection by the ‘Caspian Guards’, for which
Washington intends to pay $150 million.

Under this project, the U.S. will send a ground force to the BTC
countries, and will monitor them from the air and space. Needless to
say, the Kremlin cannot be happy about such close wardship, and the
military presence of third countries in the post-Soviet space.

This amounts to the formation of a new pro-Western bloc on Russia’s
borders. Maybe, this is another reason why Moscow is indifferent to
the BTC as a pipeline for liquid hydrocarbons, and is so worried
about everything around it. Russia is afraid that the BTC may turn
into the Trojan horse on its frontiers.

However, Moscow and Baku are linked by mutually beneficial long-term
economic contacts; there is a huge Azeri Diaspora in Russia; and the
Aliyevs – father and son alike – have traditionally pursued a
multi-vector foreign policy. These factors taken together will
hopefully make bilateral relations stable and predictable, and serve
as ‘an airbag’ in case of collision.

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