Baku-Ceyhan Pipeline: The biggest development in the Caspian Sea since the collapse of USSR

Sep 17, 2002 02:00 AM

by Bahman Aghai Diba, PhD

A ceremony will be held in Azerbaijan to mark the actual construction phase of the Baku-Tbilisi-Ceyhan pipeline. The pipeline will be the main route for export of the Caspian Sea oil to world markets. The representatives of concerned countries will take part in this occasion.
The decision to build the controversial pipeline was first made by Azerbaijan, Turkey, Kazakhstan and Georgia on 18 Nov. 1999. At that time, they singed a document called “Istanbul Declaration.” The United States President, Bill Clinton was then in Turkey for a formal visit, and he signed the Istanbul Declaration as a witness (Text of the Istanbul Declaration is attached to the present article). They agreed that Baku-Tbilisi-Ceyhan -- it is in fact read as Jeyhan because the letter “C” in Turkish stand for “j”-- would be the main export pipeline for oil produced in the Caspian Basin.
The pipeline had something for everyone. As far as Turkey was concerned it meant: A great role in export of oil from the Caspian region.

Transportation of the Caspian oil to the Turkish port of Ceyhan, therefore avoiding the pollution sensitive area on the other side of Bosphorus and Dardanelle. Expansion of Turkey’s political and economic ties with the concerned countries in the Caucasus and Central Asian countries, especially with Azerbaijan in pursuance of pan-Turkish ideas.
Transit rights and a good source of financial gain. A step to set aside Iran as a regional rival. In this rivalry, besides other ideas, Turkey plays the role of secular western style government as opposed to the radical Islamic formula of Iran.

As far as the Republic of Azerbaijan was concerned, it meant:
-- A great achievement in pipeline diplomacy of the Caspian Sea.
-- Financial gains out of export of Azeri oil to the western markets.
-- Establishment of Azerbaijan as a reliable source of energy for the western countries, and therefore helping Azerbaijan in its struggle to get more involved in international scene as a European country, and possible step to acceptance of Azerbaijan as a full member of the NATO.
-- Possible gains out of export of other Caspian Sea states.

As far as Kazakhstan was concerned, it meant:
-- A possible way for oil exports from this landlocked state.
-- Better relations with the western countries.
-- Less criticism of the undemocratic system in Kazakhstan.
-- A step towards its long declared policy of “Multiple pipelines” with its special interpretation.

Georgia was looking to:
-- Transit rights for export of oil from other countries.
-- Becoming more important for the regional peace, especially taking into consideration the role of Chechen rebels and the Russians plans for them.

As far as the USA was concerned, it meant:
-- A step towards export of oil from the Caspian resources to the Western markets in order to decrease the degree of dependence on the Persian Gulf oil.
-- A step in line with the policy of the US government for denying both Iran andRussian Federation from benefiting oil and gas pipelines of the Caspian region in order to block the expansion of their influence and also denying any financial gains for them (which gives these countries more foreign exchange to follow the policies and buy things that the US did not like them).
-- Reduction of the degree of dependence of Caspian countries on the existing network of Russian pipelines.
-- Helping the countries close to the US (Azerbaijan, Turkey and Georgia).

However, the Baku-Ceyhan pipeline had still many problems. Some of them were as follows:
A. The expenses of Baku-Ceyhan pipeline were very high. It was originally estimated to cost $ 3 to $ 4 bn.

B. Some sources claimed that Baku-Ceyhan pipeline was a political pipeline and it would crash eventually under the pressure from economics. Some people thought that the political barriers in relations between Iran and the USA might be removed by developments in Iran.
In that case the Americans might stop opposing the Iranianroute, which was the most economical way to export the Caspian oil and gas products. For the same reason, the Iranian officials in charge of Caspian affairs (including Firooz Dolatabadi, the Director General of Iranian ministry of foreign affairs in charge of the Caspian sea affairs) declared decisively after the conclusion of the Istanbul Declaration that the Baku-Ceyhan would never be built and it was going to stay on paper forever.

C. Some experts argued that there was not enough oil in the concerned areas to justify the Baku-Ceyhan pipeline.

D. The 1760 km pipeline was too long and crossed politically volatile areas such as Georgian territory which was an unstable territory.

E. The Baku-Ceyhan pipeline crossed too many countries in its way.
After several years of discussions and meeting in various political and technical levels the Baku-Ceyhan pipeline is going to be built. Michael Lelyveld, the researcher of Radio Free Europe has reported on 08-08-02: “at a ceremony in London, officials fromAzerbaijan, Georgia, and Turkey witnessed the founding of the BTC Pipeline Company, which will construct and own the 2.9 bn line.
The biggest interests belong to Britain’s BP oil company with 34.7 %, followed by the 25 % share of the Azerbaijan state-owned oil firm SOCAR. The moves leave little doubt that the project to pump 1 mm bpd of oil will now take as planned…
The construction of the pipeline still seems likely to be one of the major developments in the Caspian region since the Soviet break-up. But without the spark of controversy, the Western press has also apparently concluded that there is less to report.” On 18 Sept.2002, the construction of Baku-Ceyhan starts in a ceremony hosted by the Azerbaijan president. The pipeline is 996 millimetres in diameter, it will be 1760 km, and it will be ready sometime in 2005.

The reasons for building the pipeline are:
a) Position of US government in denying Iran and the Russian Federation the benefits of passing oil and gas routes from those countries is more strategic than was thought. It seems that even in case of a fundamental change in the regime of Iran or Russia, still US prefers the main pipelines do not pass through Iran or Russia.
b) Iran has already lost the chance for a fundamental change in its relations with the West. The pipelines have to be built and when they are in place, no body is going to change them.
c) The Western countries, especially the USA, following the 9/11 terrorist attacks in US, are more determined to find alternative oil resources for the oil from Arab countries that may be endangered because of special relations of the USA with Israel.
d) Kazakhstan has concluded a strategic oil and gas treaty with the USA. According to this treaty they have agreed to try connecting Kazakhstan’s oil to the Baku-Ceyhan route. This meant a great breakthrough in answering the question of available oil for exports through the Baku-Ceyhan pipeline and it had a considerable role in making Western oil companies interested in following the Baku-Ceyhan project.
Kazakhstan was originally one of the signatories of the Istanbul Declaration. During the negotiations for Istanbul Declaration, the Kazakh president had presented a separate statement in support of Baku-Ceyhan pipeline, which was then attached to the Istanbul Declaration.
However, following the Istanbul summit meeting, the Kazakh officials showed some doubts in going along with the planned pipeline. They even made it clear in several occasions that Kazakh interpretation of “Multiple Pipelines Idea” was different from the US interpretation.
The main difference was that Kazakhstan considered the Iranian route as a possible way that should be considered. It seems that several points changed the Kazakh position in this regard: The new expansion of Kazakhstan relations with the USA. In addition to previous ties, during the US operations in the region against the terrorism, which included the operation in Afghanistan, Kazakhstan proved to be a good ally. They offered facilities to the US authorities that even long time US allies were reluctant in offering them.
Conclusion of agreements between Kazakhstan and the Russian Federation, and also between Kazakhstan and Azerbaijan Republic regarding division of the Caspian Sea’s seabed according to the “Modified Median Line”. This gives the Kazakhstan the biggest share of the Caspian Sea’s seabed (about 28 %). Now, Kazakhstan is more focused on the issue of getting its oil to the world markets in any possible way.
No progress was achieved in the option of Iranian route. Kazakhstan does not repeat any more its previous special interpretation of the Multiple Pipelines Idea. Discovery of new oil and gas fields in Kazakhstan.
e) The Russian Federation has reduced the degree of its opposition to the Baku-Ceyhan pipeline. This is partly due to: The new policy of Russia in establishment of closer relations with Azerbaijan. Russians may even get themselves involved in building or investing of the pipeline (for example, through buying a small part of the SOCAR’s shares).
Persuasion of Azerbaijan Republic to finalize the agreement between Russian Federation and Azeri officials regarding the division of the Caspian Sea’s seabed according to Russian formula of “Modified Median Line”. Discovery of new oil fields in the Russian section of the Caspian Sea. New Russian cooperation with the Western countries, especially the USA in getting the Caspian oil and gas to the world markets.
f) Iran is so involved in the conflict of conservatives and reformist groups and also it is so entangled in discussions about the US attack to Iraq (some officials in Iran openly think that the US is going to attack Iran after, during or even before Iraq) that there is no place for Baku-Ceyhan or any active diplomacy in all issues related to the Caspian sea.

Istanbul Declaration (Dated: 18 November 1999)
In furtherance of the Ankara Declaration in realizing Baku-Tbilisi-Ceyhan as the Main Export Pipeline within the East-West energycorridor signed on 29 October 1998, the Turkish, Georgian and the Azerbaijani Working Groups have agreed on a package of Agreements to realize the Baku-Tbilisi-Ceyhan Main Export Pipeline.
This Project will transport oil produced in the Caspian Basin and Central Asia through the territories of the Azerbaijan Republic, Georgia and the Republic of Turkey. On 18 November 1999 Azerbaijan, Georgia and Turkey signed an Intergovernmental Agreement, and initialled Host Government Agreements. Furthermore, Turnkey and Government Guarantee Agreements with Turkey were also concluded.

With a view to achieving their desired objectives of transporting the oil resources of the region through environmentally safe, secure and commercially viable routes the Governments of Azerbaijan Republic, Georgia, the Republic of Kazakhstan and the Republic of Turkey have agreed:
-- To take all necessary steps to ensure the further development of the oil resources of the Caspian Basin and Central Asia and their timely transportation to world export markets by environmentally safe, secure and commercially viable pipelines, which will further contribute to the economic and political development of the countries and the region as a whole;
-- To promote Baku-Tbilisi-Ceyhan Main Export Pipeline compared to short term solutions;
-- To take all necessary measures within the bounds of their authority for the earliest ratification and adoption of the Intergovernmental Agreement in their respective countries; which will create the favourable conditions and ensure the rights of the investors in Baku-Tbilisi-Ceyhan Main Pipeline.
-- To undertake all necessary actions to realize the Project by the target date 2004.
-- To invite all producers in the Caspian Basin and Central Asia to make a long term commitment to transport specific volumes of oil through the Baku-Tbilisi-Ceyhan Main Export Pipeline and to work together to facilitate financing from private and international financial institutions.
-- To create at the earliest opportunity a working group to prepare the Project, complete necessary engineering, secure the commitments of oil volumes, and develop financing options.

They welcomed the Declaration by the Government of The Republic of Kazakhstan, reconfirming its desire, stated earlier, to ensure the transportation of significant amount of oil produced in Kazakhstan to the world markets via the Baku-Tbilisi-Ceyhan Main Pipeline, without prejudice to its existing commitments.
They also reiterated that the transportation of oil to the world markets through pipelines is indispensable to avoid the dangers and threats with regard to the environment, life, and property and navigation safety due to the potential increase of the tanker traffics, particularly in the Turkish Straits.

Dr Bahman Aghai Diba is a consultant on international law affairs for several US companies, and at the moment he is in Virginia. His new book: "The legal regime of the Caspian Sea, with special reference to Iran" is under publication.

Source: NetNative
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