A DROP IN GAS PRESSURE

Russia and the USA have been manoeuvring for position and clashing all summer (with intermittent success) to gain control of the future routes to deliver energy resources from the Caspian basin to European markets. 

At the start of the year Astana and Ashgabat gave Moscow "iron guarantees" at the highest level that they would transport their energy resources to European markets exclusively through the Russian pipeline system. However, these guarantees turned out not to be so "ferrous" after all.

By August the USA had delivered a counter-strike and allocated grants for the design of projects to construct two pipelines: to transport Kazakh oil along the Baku - Tbilisi - Ceyhan pipeline and to transport Kazakh (and other countries') gas across the Caspian. In this way the Americans made it plain that they are interested in diversifying energy supply routes and getting rid of Europe's dependence on Russia's monopoly.

The problem is that Russia does not even try to hide the fact that it uses the West's, and especially Europe's, energy dependence to achieve its foreign policy goals. 

Russian Foreign Minister Sergey Lavrov recently published an article entitled "Containing Russia: Back to the Future?" He wrote about Russian foreign policy, relations between the Russian Federation and the USA, the stationing of US anti-missile systems in Eastern Europe and membership of NATO as "entry to the club" of democratic states. The Russian foreign minister also explained that Moscow sees its role in world energy supplies as a way to ensure foreign policy independence. "It is the freedom of action and freedom of speech that we have attained in foreign affairs and which, by the way, we use within the framework of international law, that are the main cause of criticism from those who are not pleased with Russia regaining strength," the minister said. "Russia is conducting a foreign policy that is a continuation of its domestic policy," Lavrov said. But it is the foreign policy that "is a continuation of domestic policy" that is frightening Russia's European neighbours and partners. 

By providing a grant for a feasibility study for the Transcaspian pipeline, Washington has not only shown its interest in the project, but has given a signal to investors that they can invest and that the USA is ready to minimize risk.

The idea of a Transcaspian gas pipeline first came up in the mid 1990s and the American government made its first project grant to Turkmenistan in 1998. However, at that time Russia put pressure on Turkmenistan and Azerbaijan and managed to sabotage Washington's plans. But many of Moscow's arguments against the plan are no longer relevant. Experience has shown that the ecological problems that worried Russia can be overcome in similar projects. Russia itself has built the Blue Stream pipeline on the Black Sea bed, at a far greater depth, is now building a pipeline on the North Sea bed and is planning the South Stream pipeline across the Black Sea to Bulgaria.

Russia and the USA are making it clear that the struggle between them for control over Central Asia's energy resources is reaching the decisive stage. International gas supply issues are, without any doubt, dominated by political motives and this intensifies the conflict.

Let's try to see what this is all about. Russia today has approximately 27 per cent of international natural gas reserves and Iran 15 per cent. These two states have so much clout in world gas supplies that this is bound to worry the main gas consumers. Put another way, three-quarters of the world's gas reserves are concentrated in the Middle East and former USSR. Since natural gas is at the forefront of world energy consumption, this figure disturbs public opinion in the West. However, Iran cannot at present get a foothold on the European market. Algeria is more of a competitor with Russia here. Algeria has 4,500 bn cubic metres of proven gas reserves, putting it in seventh place in the world behind Russia, Iran, Qatar, Saudi Arabia, the UAE and USA. Russian gas has 25 per cent of the European market and Algerian gas 10 per cent.

Some countries, such as Germany, are almost entirely dependent on Russian gas, which puts them in a vulnerable position. The report "Foreign policy in the service of the European Union's energy interests", drawn up by the office of the EU high representative for the common foreign and security policy, Javier Solana, notes in particular that the EU's energy strategy must aim to build new gas and oil pipelines that avoid Russian territory.

European experts propose concentrating the EU's joint efforts on a double objective: reinforcing partnership with Russia in the energy sphere and at the same time looking for other energy suppliers to the EU countries. The document calls for "geographical diversification of energy sources and transport routes". In this regard, gas and oil pipelines from the Caspian basin and Central Asia are seen as "vital" for the European Union. "All the EU's instruments should be applied to speeding up construction of these pipelines," the report says.

The European Union is first of all interested in the gas and oil of Azerbaijan, Kazakhstan, Turkmenistan and Algeria. The report's authors propose increasing Algeria's share of the EU internal market from its current 10 per cent to 20 per cent. At the same time Turkmenistan is one of the world leaders in natural gas reserves. According to estimates by local and independent international experts, Turkmenistan has 45.44 bn tonnes of oil equivalent hydrocarbons and 23,000 bn cubic metres of gas.

At first glance it may seem more advantageous to the Central Asian countries to transport their energy resources to the East, that is, China. First, the country is next door, and second the market is ready to absorb any volume of supplies. However, leading geopolitical players, Russia and the USA, are categorically against the transport of Central Asian energy resources to the East.

Neither Russia, nor the USA is interested in strengthening China at the expense of Central Asian energy. Moreover, while Russia is trying to increase Europe's energy dependence and dictate its terms to the EU by controlling export routes, the USA is aiming for diametrically opposed goals. By diversifying transport routes, that is by constructing Transcaspian pipelines that avoid Russia, Washington is trying to save Europe from energy blackmail by Moscow. Russia and the USA have the same final destination in mind, Europe, but by different routes.

Iran is trying to join the game and making serious attempts to enter the European market to sell their own and Central Asian energy resources, above all gas. Without particular success, so far. Russia managed to stop Tehran's first attempt to transport its own gas to Europe via Armenia. However, not all countries in the region are as much under Moscow's thumb as Armenia, which had to go against its own long-term interests. Ankara signed an agreement with Tehran on the supply of Iranian, and possibly in the future Central Asian, gas to Europe via Turkey, which prompted fierce protest from Washington. It has to be said that Iran's plans to supply Central Asian energy resources to European markets go against Azerbaijan's interests as well as Russia's. Russia as both an exporter and transit country for energy resources has no interest whatsoever in the emergence of a new, serious competitor on the European market. It is in Baku's interests that both Central Asian and Iranian energy resources should be transported to Europe via Azerbaijan.

It is certain that sooner or later Iran will manage to compete seriously against Russia in supplying gas to the European market. At the end of the day, this suits the interests of both the USA and the European Union. It is also clear that the West, above all the USA, will see Tehran as an ally in the great energy game against Russia only after the current regime in the Islamic Republic of Iran has changed. Moscow, therefore, understands perfectly well that any aggravation in the Iranian situation, albeit temporary, will spare Russia the appearance of a serious competitor in Europe.

The Central Asian countries are, therefore, simply forced to choose between Russian or American routes to supply their energy resources to European markets. Azerbaijan is the key link in the American route, which Azerbaijani President Ilham Aliyev has declared.

However, the leaders of the Central Asian countries are unlikely to choose in favour of one route or the other before relations between Russia and the USA are clearer. During talks with Ilham Aliyev in Astana Kazakhstan's president, Nursultan Nazarbayev, declared his country's readiness to transport energy resources via the American route, while he told the Shanghai Cooperation Organization's summit in Bishkek that only the "leftovers" from the Russian route would be sent this way.

And now for Azerbaijan's options. First, Baku is becoming the key link in the chain. Azerbaijan will be not just an exporter of energy resources but also a long-term transit country for the West. Second, strange as it may seem, the implementation of regional projects such as Baku - Tbilisi - Ceyhan, Baku - Tbilisi - Erzurum and Kars - Akhalkalaki - Baku without Armenia's involvement have had a negative effect on settlement of the Nagornyy Karabakkh conflict. Recently, even the most constructively minded of the Armenian political elite have begun to say openly that, unlike in the late 1990s when Levon Ter-Petrosyan announced his peace plan, Azerbaijan no longer "has anything" to give Armenia in exchange for liberating the occupied territories. But if the Transcaspian projects come off, then Armenia will have one more chance. 

Moreover, it is to Azerbaijan's advantage to be a transit country for energy resources going to Europe from all the Caspian basin countries - Iran, Kazakhstan and Turkmenistan - and, if possible, Russia. The diversification of transport routes is also to Baku's advantage so as not to be dependent on the whims of one country, such as Georgia, which has already shown its obstinacy more than once.