|Development of Caspian Sea oil and natural gas, along with the necessary export pipelines, has been slowed by regional conflicts, political instability, and a lack of regional cooperation. Many of the proposed export routes pass through areas where conflicts remain unresolved. Although new oil and natural gas export pipelines offer the hope of longer-term prosperity, the region’s numerous flashpoints and ongoing instability have caused energy companies and potential investors to think twice before investing in the construction of proposed pipelines.
Most of these conflicts are in the Trans-Caucasus part of the Caspian region, where conflicts in Nagorno-Karabakh, Georgia, and the Chechen republic of southern Russia have hindered the development of export routes westward from the Caspian Sea. On the east side of the Caspian, the unstable situation in Afghanistan, following over 23 years of war, has stifled the development of export routes to the southeast, and the continued threat of Islamic fundamentalism in Central Asia, especially in Uzbekistan, may prohibit any new export pipelines involving that country. The threat of war between Pakistan and Indiaserves as a further deterrent to Caspian export pipelines running southeast, either via Iran or Afghanistan.
In addition, the continuing unresolved legal status of the Caspian Sea has threatened to ignite conflict among several of the littoral states. Although Russia, Kazakhstan, and Azerbaijan have signed bilateral agreements demarcating their respective sectors of the Sea, no multilateral agreement has been concluded among the five littoral states, and the southern part of the Caspian, especially, has remained in dispute. Azerbaijan and Turkmenistan repeatedly have exchanged sharp words with regard to oil field claims in the Sea, and Iran’s military response to an Azeri exploration vessel in July 2001 heightened tensions about oil and natural gas production in the southern Caspian. Several trans-Caspian oil and natural gas export pipelines have been proposed, but none will be implemented until an agreement clarifying the Sea’s status can be reached among the five littoral states.
Armenia-Azerbaijan: Nagorno-Karabakh’s Unresolved Status
Since the May 1994 ceasefire, hundreds of people have been killed each year in sporadic violence and by mines that mark a no-man’s-land around the 1,600-square mile mountainous region. Azerbajian has maintained an economic blockade of Armenia since the conflict broke out, and relationships between Russia and Azerbaijan were strained when it became known that Russia had shipped over $1 billion of arms to Armenia from 1993 to 1995. Armenia and Russia signed an updated friendship treaty, as well as a deal to create a joint venture with Russia’s Gazprom to supply Armenia with natural gas, since Armenia’s fuel supplies have been constrained by the Azeri blockade.
Following the imposition of that blockade, the United States passed section 907 of the Freedom Support Act in October 1992, which restricts U.S. government assistance to Azerbaijan until it has taken “demonstrable steps to cease all blockades and other offensive uses of force against Armenia and Nagorno-Karabakh.” In October 1998, U.S. legislation was approved that permitted some exemptions (including the U.S. Export-Import Bank, the Overseas Private Investment Corporation (OPIC), and the Trade and Development Agency) from the bans contained in section 907. On January 25, 2002, U.S. President George W. Bush waived Section 907 in recognition of Azerbaijan’s support for the war on terrorism. However, the unresolved status of Nagorno-Karabakh has impeded economic development in both former Soviet republics.
In 1994, the Organization for Security and Cooperation in Europe (OSCE) formed the “Minsk Group”–made up of Russia, the United States, and France–in an effort to bring the sides closer together to forge a lasting peace. Since 1999, Azeri President Heydar Aliyev and Armenian President Robert Kocharian have met over 15 times, including an April 2001 meeting in Key West, Florida, that both sides agreed was very productive.
The contours of a possible deal are becoming clear: the Armenians would give Azerbaijan back six of the seven regions they captured, while Nagorno-Karabakh and the adjacent Lachin region that links it to Armenia would be granted self-governing status. Azerbaijan would be compensated with an internationally protected road linking it to its isolated exclave ofNakhchivan. However, with a possible peace settlement in the works, negotiations have reached a perilous stage, and several meetings have been postponed as both presidents seek to prepare their populations for a final deal.
Georgia: Abkhazia, Ossetia Separatism
Negotiations have included proposals to route future oil pipelines across the rebel region, on the premise that economic cooperation could help bring peace to the region. Nevertheless, pipeline construction on the western route was suspended briefly in October 1998 because of fighting between government forces and those led by Akaki Eliava, a supporter of the late Georgian President Gamsakhurdia. In addition, Georgian President Shevardnaze escaped assassination attempts in 1995 and 1998 that were reported to have been linked to disputes over construction of oil pipelines through Georgian territory.
A coup attempt in 1998 led the chairman of the National Independence Party to call for the North Atlantic Treaty Organization (NATO) or the United States to station a military contingent in Georgia to protect Caspian oil transport. In December 1998, representatives from the GUUAM Group (Georgia, Ukraine, Uzbekistan, Azerbaijan, Moldova) held talks about setting up a special peacekeeping force to protect the oil export pipelines. Proposals were made to work with NATO to set up this force within the framework of the Partnership for Peace Program, which was established by NATO to strengthen ties with former Eastern Bloc and former Soviet states. While fighting has subsided and negotiations have continued to ease the standoff, a lasting resolution has not been agreed upon yet.
As part of the U.S.-led war on terrorism, U.S. military advisors have been working with the Georgian military to counter threats emanating from the Pankisi Gorge. Also, in early May 2002, thieves in Georgia illegally tapped the Baku-Supsa pipeline, causing a small leak. After security was upgraded and the damage was repaired, exports via the pipeline resumed following a three-day suspension.
Russia: Chechnya Conflict
Although the deal allowed necessary repairs to begin on the existing oil pipeline, it did not settle the issues of regional security and pipeline tariffs. Russia’s Transneft pipeline transport company and Chechen government officials have clashed in the past over the issue of tariffs and war reparations from Russia. The renewal of war in Chechnya in 1999 prompted Transneft to construct a 300,000-bbl/d Chechnya bypass, which was completed in 2000, but the devastation wrought by the two wars, as well as the lack of a peace agreement, may make the pipeline a target for terrorist attacks.
Afghanistan: War-Scarred and Unstable
However, ongoing fighting between the Taliban and the Northern Alliance in Afghanistan during the late 1990s prevented the projects from going forward. Following the August 20, 1998, U.S. bombing raids on Afghan strongholds of suspected terrorist Osama bin Laden, Unocal announced that it was suspending work on the gas pipeline, and in December 1998, it withdrew from the Centgas consortium, citing the turmoil and high risk in the region. In April 1999, Pakistan, Turkmenistan and Afghanistan agreed to reactivate the Centgas project, and to ask the Centgas consortium, now led by Saudi Arabia’s Delta Oil, to proceed, but continuing fighting, as well as sanctions imposed by the United States and the United Nations, kept the project on hold.
Since the Taliban government’s ouster in December 2001, Afghanistan’s new government has received international recognition and assistance. Although an international police force is operating in the capital of Kabul, sporadic violence is still occurring throughout the country. In addition, after 23 years of warfare, Afghanistan’s infrastructure is severely devastated, and the country needs help to rebuild its economy and infrastructure in order to attract foreign investment to build a pipeline across its territory.
Uzbekistan: Question of Fundamentalism
As a result, the Uzbek government has been taking extra steps to curb the rise of fundamentalist movements, such as increasing security measures by tightening border regulations with Afghanistan, Tajikistan, and Kyrgyzstan. Uzbekistan is receiving support from the United States in anti-terrorist countermeasures after Uzbekistan lent its airspace and military bases for the campaign against the Taliban in Afghanistan in late 2001. According to Uzbek officials, Namangani and a number of his followers were killed by U.S.-led bombing of Afghanistan in 2001, and the IMU threat has receded substantially.
Pakistan-India: Increased Tensions
Southern Caspian Sea: Harsh Words and Provocative Actions
While Azerbaijan and Turkmenistan have traded harsh rhetoric over the demarcation of their sectors of the Sea, in the summer of 2001, Iran raised the stakes in the struggle over ownership rights of disputed Caspian waters. On July 23, 2001, after an Iranian fighter jet flew over an Azeri exploration vessel in the southern Caspian Sea, an Iranian warship followed by ordering the exploration vessel to retreat five miles north. Iran claimed that the boat, which had British Petroleum (BP) specialists on board, was exploring waters that Iran claims as its own. For its part, Azerbaijan argued that it had licensed the Araz-Alov-Sharg field three years earlier without complaint from Iran. BP has suspended work at the field pending a resolution of the dispute.