VALASEK: Much has been made of the decision about the main export pipeline, this is the question that you have already heard. Is it normal for the administration to get so closely involved in what is basically a business decision?

AMB. MORNINGSTAR: I don't think it is a question of what is normal or what's not normal. The point is that the United States has a significant interest from a national interest standpoint in being involved with this decision. We have some very important objectives in the region to enhance the sovereignty and independence of the new countries within the region, for the development of the region to help to mitigate conflicts, to ensure that there is energy security for the United States and our allies as well as energy independence within the region; that there is a free flow of resources from the region to the marketplace. And so when we have a significant national interest we should be involved even with respect to decisions that are in part commercial.

The other point to make is that there are political realities within the region, Turkey has a very legitimate interest in the protection of the Bosphurus, they feel therefore the pipeline, a main export pipeline whereby the Bosphurus would be the exit route, is just unacceptable from their standpoint, in that light we have to look at alternatives, and that is what we are doing. So that there is a meshing of political interests, of commercial interests, of economic interests and all of them have to be considered in a final decision.

VALASEK: Let me follow up on the national interest aspect, in addition to the independence of the Caucuses Republics or the Central Asian Republics themselves, what other strategic interests does the United States have in the region?

AMB. MORNINGSTAR: Well, the strategic interests are, I think as I just mentioned are, One: The sovereignty and independence point is a critically important point. There are six former, at least six former Soviet States within that region whose independence will be enhanced tremendously by the economic development resulting from the resources within that region and we have to work very hard to see that that occurs.

The energy independence point is also I think, very significant. The resources from the region should be able to go to the marketplace unfettered. The producers, in our view, should not be relying on competitive countries, such as Iran, to get the resources out. So energy is also a strategic interest.

The regional conflict issue also, very important, by the cooperation among the countries in the region, by the economic development of the region, we think that can have a very positive affect in ultimately settling some of the conflicts. By settling the conflict, I should add, countries around the region will be able to have, will be able to reap the fruits much more advantageously of the resources.

VALASEK: Is there any indication that the pipeline developments are helping with resolution of the local conflicts? There has been, the concept of peace pipelines has been much mentioned a few years ago, nevertheless is seems Nagorno-Karabakh, or Abhkazia conflicts the two most prominent ones are not much closer to resolution than they were in '96, '97. Is there any indication or how exactly should this work? What exactly is the link between the pipelines and conflict resolution?

AMB. MORNINGSTAR: To date there has been no direct relationship between the development, the economic development of the region and settlement of the conflicts. But you also have to understand that the companies have yet, countries have yet to reap the benefits of that development. I think we have to be patient, this isn't an overnight process, but I do believe with economic growth there will be incentive to settle some of these conflicts and to participate in the fruits of the development of the region, countries are going to have to put aside their differences and work together to grow.

VALASEK: President Aliyev of Azerbaijan suggested a few days ago that Russian arms transfers to Armenia, its military ties with both Armenia and Georgia, have probably more to do with the growing influence of NATO and the United States in the region rather than with Russia's attempts to control its fear of influence on what it perceives as its fear of influence, is this a source of concern to the U.S. administration that Russia may be choosing a confrontation strategy in the Caucasus.

AMB. MORNINGSTAR: I don't want to respond directly to President Aliyev's comment, I would like to say that is our intention to cooperate as much as possible with Russia in the region. At the summit between with President Clinton and President Yeltsin in late August, a joint statement was signed which supported the multiple pipeline approach, we, the statement also envisioned that Russian companies would participate in all of the pipelines. We think that there is the potential for a win win situation, whereby participating in all of the different pipelines, Russian companies can profit and also, why don't we cut this for a second, try to think of the next.

By participating in the pipelines Russian companies can profit, these pipelines can also be an outlet for Russian resources. There is no reason, for example, why Russian can't go through Baku-Ceyhan pipeline, or Russian gas can't feed into a trans-Caspian gas pipeline through Georgia. So there are a lot of opportunities if we think in terms of cooperation as opposed to competition.

VALASEK: In terms of construction, the pipelines and other related oil facilities, is there concern that there may be other, they may come under threat from local insurgencies such as the last weeks mutiny in Georgia that suspended construction on the Baku-Supsa pipeline?

AMB. MORNINGSTAR: That was a very short insurrection. Look, no pipeline route is going to be risk free. Pipelines have been built in some very difficult areas in the world, places like Colombia, Algeria, this route from Baku, through Georgia into Turkey, although there are certainly risks we think, we think ourselves is very doable. There are ways to protect investors, the Overseas Private Investment Corps., other international agencies provide political risk insurance, that can protect against political violence, or its appropriation, the countries themselves, I am sure will work very hard to protect the pipelines. Sure there is risk, but we think it is very manageable in this case.

VALASEK: Are there any plans to provide for the United States to provide military assistance to any of these countries?

AMB. MORNINGSTAR: There are no plans at this point to provide direct military assistance in connection with the pipelines, we think this can be handled locally, between the governments, the pipeline company as well as through political risk insurance to cover financially problems that might arise, hopefully though they won't.

VALASEK: How exactly would you provide that?

AMB. MORNINGSTAR: Well, basically what happens is that OPEC can provide insurance to an investor, which literally will protect the investment from violence, from damage caused by interference with the pipeline.

VALASEK: What role does NATO play in pipeline protection? I know that the NATO Pipeline Committee and it's infrastructure logistics division, is providing consultations and expertise to Azerbaijan on environmental security and hope, Azerbaijan also requested cooperation operational security.

AMB. MORNINGSTAR: I think it has been limited at this point, we will have to see how it develops. I am going to be in Brussels over the next few weeks and we will have discussions with NATO on these issues.

VALASEK: Let me ask you one more question about the other countries in the region. When you mention national security interests you were mostly talking about focusing on the Caucasus our Caspian basin states. What are the national security interests as it pertains to the Caspian basin in relation to Russia for instance, or Turkey. Much has been said about the United States wanting to link Turkey into the pipeline for reasons, for political or strategic reasons.

AMB. MORNINGSTAR: I think regional cooperation between Turkey and the Caucuses and the Caspian states is a factor in helping to ensure the sovereignty and independence of those states. Turkey is obviously a major country in the region, it has historical, cultural and economic relationships with these countries, which I think aught to be promoted, but let me make totally clear, our strategy is not to preclude Russia from this process, Russia is a Caspian state, Russia obviously has a major interest in the region, and it is going to be important that we have a cooperative relationship with them, that Russia benefit from the development from the resources within the region, and we certainly want to work with Russia to help ensure that that happens.

Can I make another point? A good example of that cooperation is the CPC pipeline that will go from Kazakstan in oil fields around the Caspian and out into the Black Sea. We hope that Russia will very shortly issue the final federal permits that will allow that construction to begin, that is another example of where Russia as well as the companies can benefit from the resources within the region.