#7
Asia Times
November 8, 2001
Bush, Putin have much to agree on
By Sergei Blagov

MOSCOW - Unprecedented bilateral cooperation in the war against terrorism could benefit the talks between United States President George W Bush and Russian President Vladimir Putin when they meet in Washington and at Bush's ranch in Crawford, Texas, from November 13-15.

The Kremlin may further tone down its objections against US plans for a national missile defense system, while the cozier relationship between the countries could lead to changes in the Central Asian oil game, including positive developments in Caspian energy projects. Notably, tense disputes over pipeline routes may become a thing of the past.

Until recently, Washington has ignored Russian warnings that American plans to build a shield against ballistic missile attack, National Missile Defense (NMD), could trigger a new arms race. Last May, Bush dismissed the 1972 Anti-Ballistic Missile (ABM) Treaty with Russia as a "Cold War relic".

Russia has opposed the US plans for NMD as it says that the system would undermine its own nuclear arsenal and would also amount to tearing up the ABM treaty, which it sees as the cornerstone of nuclear deterrence. However, the US hopes that an agreement on missile cuts will help persuade Russia to go along with scrapping the ABM to allow US testing of a missile defense system. The ABM treaty expressly forbids missile defense testing.

Last April, Russian Defense Minister Sergei Ivanov said that he was not optimistic about the prospects of US-Russian dialogue over the NMD. Ivanov said that if faced with the prospect of the United States' exit from the 1972 ABM treaty, Russia would initiate the creation of a "Euro NMD".

Moscow has tried to rally European support behind an alternative scheme, already submitted to the North Atlantic Treaty Organization (NATO), which stresses diplomatic efforts to defuse any crisis but could ultimately involve stationing missiles close to countries causing concern. Last February, Russia presented its alternative proposal for a mobile anti-missile defense system for Europe.

However, the Russian opposition to Washington's NMD plans somewhat softened following the September 11 terror attacks. There have been no more pledges to defeat an antimissile system or mentions of the Euro NMD. In fact, Russia and the US have grown closer. Russia has opened its airspace for humanitarian flights, shared intelligence with the US and increased aid to the anti-Taliban Northern Alliance.

On November 3, Putin and Ivanov met with US Defense Secretary Donald Rumsfeld to discuss what the Kremlin likes to call the "anti-terrorist operation" in Afghanistan. Putin said that he was impressed with the new level of cooperation between Moscow and Washington.

Moreover, on the eve of his US trip, Putin indicated in an American television interview that Russia could be ready for a compromise on US anti-missile shield plans. The compromise may be achieved "as a result of very intense negotiations", he told ABC. The Russian position on anti-missile defense issues "is quite flexible" and agreements could be reached "quite quickly", Putin said in the interview released by the Kremlin press service on Wednesday.

On the other hand, Putin once again ruled out Russian military action in Afghanistan as "unacceptable". To Russia, "sending troops to Afghanistan is like for the US to return troops to Vietnam", Putin said.

The Kremlin also has not stood in the way of the former Soviet republics that wish to cooperate in the US military operation against Afghanistan. Last weekend, Rumsfeld paid a lightning visit to Tajikistan, where he announced the creation of a special assessment team to look into possible cooperation with the former Soviet nation.

In the wake of Rumsfeld's talks in the capital Dushanbe, President Emomali Rakhmonov said that Tajikistan may allow the US to set up military bases. The US is interested in the Khudjant, Kurgan-Tube and Kulyab airfields, Rakhmonov was quoted as saying by Interfax.

Oil game

On the eve of his trip the the United States, Putin said in an American television interview that Russia did not expect any preferential treatment or any "payment" in exchange for the Russian support of the US military action against terrorism. "This is our common goal - to combat terrorism," Putin said in the interview.

Yet despite this official pronouncement, it might be argued that in recent weeks the once tense diplomatic intrigue and disputes over pipeline routes from the Caspian have somewhat subsided. As a result, Russia may get a bigger piece of the Caspian and Central Asian oil pie, at least in terms of transit fees.

The Caspian, the world's largest inland sea, is a focal point of the accelerating clash of interests - mainly because the 700 miles-long sea contains six separate hydrocarbon basins. Likewise, the littoral Caspian states have been viewed as important to world markets because of their large oil and gas reserves.

It has almost become an article of faith that the Caspian Basin is the Persian Gulf of the 21st Century. Proven oil reserves for the entire Caspian Sea region were estimated at 18-35 billion barrels, while the region's possible oil reserves could yield another 235 billion barrels of oil if proven. However, in recent years the myth of Caspian riches has faded as some oilfields proved not as lucrative as originally expected.

Furthermore, uncertainty over pipeline routes and the status of the Caspian has held back oil development in the resource-rich water body, although a US$8 billion international consortium led by a BP Amoco-Statoil alliance is already producing off the shores of Azerbaijan.

The Caspian energy stakes are high as production in the region is projected to increase several-fold, led by major international projects in Azerbaijan and Kazakhstan. In 1993, Chevron concluded a $20 billion, 50:50 joint venture deal with Kazakhstan to create the Tengizchevroil joint venture to develop the Tengiz oil field, estimated to contain recoverable oil reserves of 6-9 billion barrels.

The Azerbaijan International Oil Consortium signed a $8 billion, 30-year contract in 1994 to develop three Caspian Sea fields - Azeri, Chirag and Guneshli - with proven reserves estimated at 3-5 billion barrels.

The US, seeking to increase its influence in the region, has also been promoting routes west which avoid Russia. The main one to receive its backing is a pipeline costing around $3 billion from the capital of Azerbaijan, Baku, to the Turkish Mediterranean port of Ceyhan.

In 1998, support for the Baku-Ceyhan pipeline route was affirmed with the signing of the Ankara Declaration by the governments of Azerbaijan, Georgia, Kazakhstan, Turkey and Uzbekistan, with Turkmenistan abstaining. The Istanbul Declaration, signed by Azerbaijan, Georgia, Turkey, Turkmenistan and the US in 1999, reaffirmed the route.

The Baku-Ceyhan pipeline, running 1,000 miles, with BP Amoco as the largest private investor, is one of several planned for the region. Construction of the pipeline, designed to carry up to 1 million barrels of crude oil a day, is due to start in mid-2002.

BP has so far been one of the main proponents of the Baku-Ceyhan line, saying that it sees it as economically viable and beneficial to all companies and countries involved.

On the other hand, Russian officials have repeatedly claimed that the Baku-Ceyhan pipeline is not economically viable. Significant flows of crude are needed to justify the expensive pipeline, while Azerbaijan is unable to supply the required amount of oil, Russian energy experts argue. Instead, the Kremlin suggests that Caspian oil should be funneled through the Russian oil export pipelines leading to the Russian Black Sea port of Novorosiisk.

Notably, on October 15 of this year, the first crude was loaded into a new $2.5 billion pipeline to bring oil from Kazakhstan to Western markets via Russia. The line, operated by the Caspian Pipeline Consortium (CPC), is the first to be completed since the fall of the Soviet Union to ship oil to Western markets from the Caspian Sea. Initial capacity of the pipeline is expected to be 28.2 million tons a year. Its estimated final capacity is due to reach 67 million tons a year.

The CPC involves Russia and Kazakhstan, Gulf state Oman and the oil firms Chevron, LukArco, Rosneft-Shell Caspian Ventures and Kazakhstan Pipeline Ventures. ChevronTexaco Corp is the largest private shareholder in the CPC. United States officials say that this indicated their cooperation with Moscow since the project is the largest US investment in Russia as well as the largest foreign investment in Russia.

US Commerce Secretary Don Evans, visiting Moscow with a delegation of US businessmen in October, hailed the first loading. "The CPC sends an important message to the world that the United States, Russia and Central Asia are cooperating to build prosperity and stability in this part of the world," he said.

This statement might signify a policy re-think as the former Clinton administration backed the Baku-Ceyhan line to ensure that Russia did not have a monopoly on the Caspian's energy fields.

The US has often denied playing a repeat of the 19th century "great game" in the Caspian region and Central Asia. However, the Kremlin saw the Baku-Ceyhan pipeline as an anti-Russia move, although officially Moscow said that it only judged the project financially not feasible.

Russia has been accused of sowing instability among other former Soviet states in the region, notably Georgia, in order to undermine the Baku-Ceyhan project. In response, some Russian politicians have claimed that the separatist war in Chechnya is provoked by Russia's foes in order to subvert Russian oil export pipelines leading to the Black Sea port of Novorosiisk.

But now mutual accusations are seemingly coming to an end. Moreover, the end of rivalry over the Kazakhstan-Novorosiisk and Baku-Ceyhan pipeline projects - and their respective backers - could be a stabilizing factor for the Northern Caucasus and Caspian regions.

Yet even without involvement in the Central Asian and Caspian oil game, Russia struggles to capitalize on its own huge natural resources, although it is sitting on some of the world's richest natural wealth.

Russia has long prided itself with an impressive ranking in the oil and commodity ratings. With its 12 billion metric tons of proven oil deposits, Russia is the world's third biggest oil producer, at some 6 million barrels per day (bpd), and the fourth largest exporter at 2.5 million bpd. It is the world's biggest natural gas producer and exporter, producing some 550 billion cubic meters (bcm) a year and exporting over 200 bcm.

Exports of oil, gas, and the other key commodities form the backbone of Russia's hard currency earnings and account for some three-quarters of its export revenues. However, despite the recent long period of high oil and commodity prices, Russia still struggles to capitalize on its unparalleled natural wealth - due to poor management, inadequate legislation and an unfriendly investment environment.

It remains to be seen whether the post-war candy for Russia could take the form of support for private investment in order to better manage Russia's huge natural resources. Nonetheless, the end of disputes over pipeline routes may well have positive consequences for the country.

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