PREVARICATION ON BAKU-CEYHAN DELAYS OFFSHORE OIL EXTRACTION

During his just-completed visit to the United States, President Haidar Aliev of Azerbaijan took the unprecedented step of publicly criticizing some oil companies for stalling the Baku-Tbilisi-Ceyhan (Turkey) main export pipeline project (MEP). Aliev specifically named ExxonMobil and alluded to BP Amoco as the companies mainly responsible for the procrastination. BP Amoco–the British side of which is dominant–is the project operator of the Azerbaijan International Operating Company (AIOC), the sole foreign consortium that actually produces commercial oil in Azerbaijan at present. In addition, BP Amoco and ExxonMobil each operate several exploration projects, all of which will require an export pipeline or pipelines, once production starts.

Aliev’s criticism is being echoed by officials in Baku. It responds to the thesis–voiced most recently by ExxonMobil’s top management–that the proven Caspian oil reserves do not as yet justify the investment required by the Baku-Tbilisi- Ceyhan project. Azerbaijani officials, however, cite at least three counterarguments. First, any pessimistic assessment is clearly premature so long as the appraisal wells have not yet been drilled in the projects–other than that of AIOC–which are operated by the companies in question. Second, any main export pipeline terminating on the Black Sea–whether in Russia or Georgia–is of limited and questionable value because tankers loading there would have to take that load through the Bosporus Strait. Tanker passage through that overcrowded strait is, however, physically difficult, environmentally dangerous, and politically unacceptable to Turkey.

Thirdly, the skepticism displayed by some oil company executives looks like part of a deliberate holding action, based on hopes that the United States government would, sooner or later, lift its objections to a main export pipeline via Iran to the Persian Gulf. The cost-effectiveness of that route is far from proven, however. And routing any sizable share of the future oil through Iran could place Tehran’s hand on the Caspian oil spigot. Economically, Iran is a competitor to the three oil and gas producing countries of Azerbaijan, Kazakhstan and Turkmenistan. Politically, Tehran does not wish to see a prosperous Azerbaijan, for fear that it might become a pole of attraction for Iran’s own Azeri population.

Beyond that, the close Tehran-Moscow relationship means that any direct Iranian leverage on those three countries could translate into indirect Russian leverage. Azerbaijan, with Washington’s support, insists on routing the MEP westward through Turkey. Azerbaijan’s national interest in this case accords with the interests of global energy security, which requires limiting the share of world oil exports that are routed through the Persian Gulf.