World's Energy

June 2, 2009 –  (UPI) – WASHINGTON,  A century ago Baku was the world's first oil "boom town," with myriad foreign entrepreneurs producing more than half the world's output. A century later foreign interest in Azerbaijan remains intense, but Washington is increasingly concerned that the country may be drifting from its influence as Russia reasserts its presence not only in the Caspian, but over other former Soviet regions where Russian President Dmitry Medvedev claimed that Moscow has "privileged interests." Some have begun labeling his comments the "Medvedev Doctrine," in deference to Washington's historic claim of influence in the Americas, the "Monroe Doctrine." During an address on June 1 to the U.S. Chamber of Commerce in Baku, Richard Morningstar, special adviser to the U.S. secretary of state for Caspian Basin energy diplomacy, attending the "Caspian Oil and Gas" international exhibition and conference, called on the Azeri leadership to continue its policy of exporting its own energy resources and energy resources of other countries to the West. Morningstar told his audience that the United States supports construction of the ambitious $5.8 billion, 56-inch diameter, 2,050-mile Nabucco and Turkey-Greece-Italy pipeline projects even as he reiterated that Washington remains opposed to the possibility of Iran's participation in either project at the present time. Morningstar's remarks echoed a consistent theme of Washington's since the 1991 collapse of the Soviet Union and the subsequent development of the Caspian's hydrocarbon resources: that oil should move westwards along a Western-built and dominated energy corridor, bypassing both Russia and Iran. But for Baku, which lives in a volatile neighborhood, U.S. ambitions are but one element of a broader strategic export picture, which by necessity involves consideration of both Moscow's and Tehran's concerns. Furthermore, U.S. policies have done much to raise concerns in Baku that unquestioning adherence to U.S. unilateral dictats can in fact be inimical to Azeri interests. As if to emphasize the divergence of Washington's views from those of Baku, from May 21 to June 1 NATO staged its Cooperative Lancer 2009 exercise at Georgia's Vaziani military base. About 700 soldiers from 13 NATO countries participated in the exercise alongside Georgian troops. Moscow remains implacably opposed to Georgian membership in NATO, a policy strongly promoted by the previous administration at the April 2008 NATO summit in Bucharest. Azerbaijan, which along with Russia has been a member of NATO's Partnership for Peace program since 1994, has never sought entry into the alliance. While Georgia is key to Azerbaijan's prosperity, as the $3.6 billion, 1,092-mile, 1 million-barrel-per-day Baku-Tbilisi-Ceyhan pipeline remains the country's main export route, Baku is profoundly aware of Russia's continuing "privileged interests" in the Caucasus, and, unlike Georgia, adjusts its foreign policy to avoid provoking its giant northern neighbor. The Western-financed and operated BTC pipeline, opened in May 2006, carries high-quality Azeri crude from Azerbaijan's Caspian offshore Azeri-Chirag-Guneshli fields to Turkey's deepwater Mediterranean terminus at Ceyhan. For Azerbaijan, BTC's operation is conditional on decent relations with Russia, and Baku is well aware of Moscow's ongoing concerns over Georgia's persistent overtures to join NATO, which were a major factor in the five-day war between Georgia and Russia that erupted on Aug. 7, 2008. Even though Azerbaijan was not involved in the conflict, it nevertheless suffered from significant "collateral damage." Two days before hostilities broke out, BTC's flow in eastern Turkey was disrupted by an explosion of unknown origin on the segment at Yurtbasi village. BTC operator BP shut Valves 29 and 31 and waited for the oil contained in the 4-mile segment to burn out. BP subsequently declared force majeure, and the pipeline only resumed operations on Aug. 25. After the Georgian-Russian fighting began, BP attempted to diversify its export options by switching to the recently reopened 550-mile, 140,000-bpd Western Route Export Pipeline, better known as the Baku-Supsa line, which had originally opened in 1999 and was running at about 90,000 bpd. The fighting subsequently forced BP to announce that it was suspending WREP shipments. Completing the lock-in of Azeri westward oil exports, the fighting caused authorities to suspend seaborne shipments from Georgia's Batumi (200,000 bpd) and Poti (100,000 bpd) ports, both supplied by rail. In desperation, BP resumed sending Azeri crude northwards through Russia's Transneft's Baku-Novorossiysk pipeline. Azerbaijan's first export line when it was opened in 1997, Azerbaijan had downgraded its use of Baku-Novorossiysk to 20,000 bpd following the BTC becoming operational in May 2006. Even worse from Washington's viewpoint, during the conflict Azerbaijan also delivered its first oil cargo of 100,000 tons to the National Iranian Oil Terminals Co.'s Caspian Neka port facilities for an oil swap. When the dust finally settled, Azerbaijan had been blocked from shipping approximately 17 million barrels of crude, and the U.S. Department of Energy estimated that Azerbaijan's final cost for the lost shipments was more than $1 billion. In the aftermath of the conflict, two lessons were clearly brought home to Baku. First was that Moscow retained its options, including military force, in areas where it deemed it had "privileged interests." The second is that war is bad for business. If Morningstar's remarks and the recent NATO exercise are anything to go by, they are lessons that have yet to be learned in Washington, Brussels and the alliance.