How Oil Fuels Sino-U.S. Fires BusinessWeek, September 04, 2006 Erica S. Downs, China Energy Fellow, Foreign Policy Studies
The emergence of China over the past decade as a major importer of oil has catapulted energy toward the top of the list of issues -- up there with trade and Taiwan -- that are major sources of friction in Sino-American relations. China's rapidly rising demand for energy is stoking anxiety in Washington that there is not enough oil in the world to satisfy the appetites both of America's 300 million gas-guzzling citizens and of 1.3 billion Chinese. In turn, America's unease has raised concerns in Beijing that the U.S. might deny China access to the oil it needs for continued economic growth. Much has been made over this looming fight. Yet the real conflict brewing between the two powers isn't because of direct competition for physical barrels of crude, but rather because oil is inextricably linked to other foreign policy issues on which Beijing and Washington don't see eye to eye. Oil's increasing role in China's foreign policy reflects a surging demand. China is second only to the U.S. in world consumption, and it's No. 3 in imports, following the U.S. and Japan. Its demand has more than doubled in the past decade. China consumes 7 million barrels a day, one-third the U.S. level, and it imports 3.3 million bbl. a day, one-quarter the U.S. level. But the International Energy Agency projects Chinese demand in 2011 will be 9.1 million bbl. a day, with imports of 5.3 million bbl. China's growing domestic oil deficit has prompted it to follow in the footsteps of other major importers to ensure access to oil. China is diversifying its suppliers, encouraging its national oil companies to acquire assets abroad, and cultivating closer diplomatic relations with exporting nations. Although these are moves long employed by other countries, their adoption by China has sounded alarm bells in Washington. (Remember the furor over CNOOC's ill-fated bid for Unocal last year?) The two most prominent spots where China's search for oil collides with American interests are the Sudan (the largest source of foreign production for Chinese companies) and Iran (China's No. 3 supplier of crude imports). While Washington sees a major power using its permanent seat on the U.N. Security Council to frustrate efforts to halt genocide in Darfur and to slow international action to curb Iran's nuclear ambitions, Beijing sees international policies of limited efficacy that might jeopardize its oil supply. So far, China has weighed its oil interests against the interests of the international community on a case-by-case basis. In the case of Sudan, the scales have tipped in favor of oil. Beijing weakened the language of at least one Security Council resolution to punish the Sudanese government for the atrocities in Darfur, but recently agreed to the deployment of U.N. forces there if supported by the African Union. In the case of Iran, which requires balancing competing interests such as oil, regional stability, and the Sino-American relationship, Beijing has sided with the international community to date. China voted as a member of the board of governors of the International Atomic Energy Agency in February, under pressure from Washington, to report the Iran nuclear issue to the U.N. and supported the July 31 Security Council resolution threatening sanctions if Iran does not halt uranium enrichment. However, deeper energy ties to Iran (the No. 2 holder of global oil and gas reserves) might tempt Beijing to tip the scales in the other direction. Indeed, the risk for Washington is that China's growing dependence on imported oil will increasingly prompt Beijing to give higher priority to oil than to international issues such as the protection of human rights, nuclear nonproliferation, and good governance. So the challenge for America is to persuade Beijing to satisfy its oil demand in ways that do not support states whose behavior violates international norms. This is easier said than done. Oil plays an ever more prominent role in China's diplomacy. And Beijing's assessment of what constitutes bad behavior by other states and how it should be dealt with often differs from Washington's. The best bet for the U.S. is to encourage China to act like the responsible emerging power it claims to be. Time may be on Washington's side. As China's global influence continues to grow, the international community will expect China to back up its words with actions.
© Copyright 2006, The Brookings Institution

SPIEGEL ONLINE - March 26, 2007, 05:03 PM URL: http://www.spiegel.de/international/spiegel/0,1518,473952,00.html

AMERICA'S CONTROVERSIAL MISSILE SHIELD

Where Does Germany Stand?
German Chancellor Angela Merkel is calling for cooperation. But with whom? The more she talks, the hazier her position on the US anti-missile shield becomes. Her advisors, though, all agree that the project is bad for Europe.
DPA
Europe is divided over American plans to develop a missile shield and station kill vehicles in Europe. But where does Merkel stand?
Nobody can say that German Chancellor Angela Merkel is being unclear. In fact, she's made it perfectly clear that she's being obscure on purpose. Speaking last Wednesday at the 80th birthday of Germany's former foreign minister Hans-Dietrich Genscher, Angela Merkel staked out her position on how she operates politically. It is the same method Genscher, long-time master of the political hedge, liked to use.
In her congratulatory speech honoring the man who was Germany's top diplomat from 1974 to 1992, Merkel told of how she snuck into a press conference Genscher was holding in Moscow in 1990. As an inexperienced deputy government spokeswoman for the soon-to-disappear East Germany, Merkel was hoping to learn from the best how to be vague and cryptic.
Merkel's demonstratively verbose impression of Genscher elicited giggles from the audience: "In my view, the prevailing ambiguousness of his comments and the resulting contentment of the journalists had a particularly large impact on the development of my political education."
Just how well Merkel picked up the art of Genscherism has become particularly evident in recent weeks. Indeed, her steadfast refusal to be pinned down in the trans-Atlantic dispute over the proposed US missile defense shield in Europe is a performance that would do the old master proud.
Where does Merkel stand?
Merkel has been evasive and vague -- and is doing her very best to keep her options open. Being politically cryptic has become her second nature. Last week she said she was deeply convinced "that going it alone doesn't do anyone any good, instead we should always make sure we discuss issues together in good faith to avoid disagreements."
A fine sound bite perhaps, but whom exactly was the chancellor addressing? The Americans, who want to deploy their missile defense system in Poland and the Czech Republic without input from other NATO allies? Prague and Warsaw, for going along with Washington's controversial plans without consulting with the European Union? Or maybe her junior coalition partner, Social Democratic (SPD) leader Kurt Beck, who made his strong rejection of the missile program very clear in a newspaper on the same day?
Merkel would prefer a "solution within NATO," she's pushing for "open talks with Russia," and she thinks it all should "certainly be discussed." The only thing she hasn't said is whether she's actually for or against the American defense program. So where does the chancellor stand? Merkel refuses to say, leaving a whole raft of questions related to the missile dispute open.
Ever since Russian President Vladimir Putin claimed in February at Munich's annual security conference that Washington was "striving for world domination" and warned against "militarizing space," the US missile defense proposals have split Europe. But even Chancellor Merkel's closest political allies are unable to pin down her exact position on an issue central to German foreign policy.
How does Merkel define Germany's relations with the United States? How close should ties with Russia be? What should Berlin do when the interests of Moscow and Washington conflict? Should it stay neutral or should it take sides? And if yes, whose side? And what does it all mean for Germany's Eastern European neighbors?
Nebulous rhetoric
The questions are fundamental, but Merkel continues to play for time. As long as she doesn't make a choice, no one can say she made the wrong decision. She seems to be taking a page from her mentor, former chancellor Helmut Kohl, who liked to wait out contentious issues until problems had solved themselves or a broad consensus had developed. Just as she was once fascinated by Genscher's obfuscation skills, Merkel was also able to observe how Kohl's nebulous rhetoric often shielded him from any attempts to pin him down.
FROM THE MAGAZINE
But Merkel has by now certainly matched their virtuosity in vagueness. If a problem demands a straight answer she normally complicates the issue to such a degree that her position is utterly unclear. In 2002, Merkel's conservative Christian Democratic Union (CDU) was consumed with her stand on the US-led invasion of Iraq. But until this day, she has never said whether she believes with hindsight that the war was wrong.
In order to avoid definitive answers she's developed her own language over the years. In response to a question about increasing funding for the German armed forces Merkel-talk sounds like this: "We will have to make the Bundeswehr a focal point in the future, but we can't view the matter outside the context of a proper budget."
Typical Merkel statements can't be seriously disputed by anyone, such as sentences like: "We have the duty to see things in their entirety." Regarding the goals of the European Union, Merkel said it was about "adding a new rationale to the historical rationale." What she actually meant remained unclear.
It's much the same in the missile defense dispute. Merkel continues to push for NATO to discuss it. But what's to discuss? And with whom? And in what time frame? After all, the trans-Atlantic alliance has been talking about missile defense since a summit in Prague in 2002. There have been exhaustive reports prepared and surveys commissioned -- all without concrete results.
Experts want her to oppose the shield
And it remains unclear whether Germany is more interested in talking things through with NATO, or whether Berlin might actually be interested in taking part in a joint missile defense system. The chancellor can't even say which criteria would determine her final decision on the project. She prefers above all not to commit one way or the other -- though the key political, strategic and technological questions have been debated publicly for a long time now. The so-called experts -- even from her own party -- are advising her to oppose it.

Even policy wonks from the German Institute for International and Security Affairs, a Berlin think tank with close governmental ties, are critical of the defense project. Rogue states like Iran would still be able to threaten Europe in the event of a conflict "since such defense systems are never 100 percent dependable," argues SWP security expert Oliver Thränert. Europe, therefore, would not be freed from its "strategic dilemma," making a missile defense system "not first priority in light of the expected enormous costs."
Merkel's fellow Christian Democrat and former German defense minister Volker Rühe has called the debate over the missile defense shield "very damaging." The international community is currently sparring with Tehran over its nuclear program "as if Iran already has nuclear weapons. We want to work together to avoid just that."
Merkel's Social Democratic predecessor Gerhard Schröder also considers the missile defense program politically dangerous. The United States is pursuing a "counterproductive containment policy against Russia" that is "anything but in the European interest." The security experts within his chancellery staked out clear positions on the issue way back in May 2000.
In an internal paper -- "US Plans to Build a Limited National Missile Defense" -- the policymakers of the previous German administration were highly critical of the project: "The cohesion of NATO could be affected; moreover such a system even if technologically feasible would not cover the entire spectrum of threats presented by risk states." The security experts also argued "the German government position" should place priority on securing what had already been achieved via arms control measures -- including "alliance cohesion" -- before missile defense.
US President George W. Bush has consistently played down the extremely complicated technological hurdles that stand in the way of an effective missile shield. Since taking office in 2001, Bush has done all he can to resurrect the vision of his conservative presidential role model Ronald Reagan, who startled the world with his "Star Wars" SDI program in 1983.
An impenetrable shield, partially deployed in outer space, was meant to protect America from enemy missiles, rendering nuclear weapons useless, according to Reagan. The United States has since invested more than $110 billion in that dream. But the results have been less than stellar despite investing such huge sums. Washington still has a long way to go to develop what Reagan envisioned as being a multiple-layered defense that could destroy incoming missiles at any stage of flight.
The challenge is a daunting one. Shortly after an infrared early-warning satellite detects a missile launch, advanced radar systems are supposed to calculate its trajectory. Approximately four minutes later, when the projectile is easily recognizable from its propulsion and would make an easy target with its fuel tanks, the missile could be taken out by laser cannons mounted in aircraft or by speedy intercept rockets deployed in a region close to its launch zone. These two systems, known as the "boost phase defense," are meant to build the first line of protection.
But they remain wishful thinking. Researchers are feverishly working on aircraft deployed laser cannons and early interceptors, but both projects are still far from being realized.
Another problem is that at an altitude of approximately 200 kilometers the propulsion of missiles cuts out, hurtling them into outer space. The relatively tiny targets travel at 25,000 kilometers an hour, making them extremely difficult to track and even harder to hit. "Hit to kill vehicles," 70-kilogram projectiles, launched into space by precise, high-speed missiles are supposed to pulverize the targets at this stage. But attackers could easily make this more difficult by disguising warheads or hiding them in a swarm of similar-appearing decoys.
"This system is completely useless"
Located 150 kilometers south of Fairbanks, Alaska, Fort Greely is a crucial element of America's equally controversial and futuristic homeland defense. Fourteen state-of-the-art intercept missiles wait at the ready in their silos manned by the 49th Missile Defense Battalion of the Alaska National Guard. Two further interceptors are deployed at Vandenberg Air Force Base in California to protect America's West Coast. However, these missiles have yet to be tested under realistic conditions. "This system is completely useless," complains physicist Richard Garwin, who had advised the US government on security and defense matters for the past 50 years.
Even a group of independent experts from the Pentagon's Test and Evaluation department is not convinced of the defense system's effectiveness. The ability to shoot down an enemy missile, they say, is still extremely rudimentary. Considerable further testing under realistic conditions is absolutely necessary. Sen. Carl Levin, the influential chairman of US Senate Armed Services Committee, has already warned against investing billions more in the project. "I think it's a mistake to purchase all of the missiles before we know that they're going to work," he told reporters last November.
At the same time, Washington wants to deploy 10 specialized intercept missiles in Poland from 2011 onward, Lt. Gen Henry Obering, director of the US Missile Defense Agency, reiterated in Berlin two weeks ago. Combined with a high-powered radar station in the neighboring Czech Republic, the Pentagon is promising to protect the US East Coast -- and possibly even Europe.
But even America's most loyal allies are asking: protection from whom exactly? Aside from Russia and China, none of the more than 20 states that Washington lists as missile producers have projectiles that could pose a danger for Europe or the United States. And except for two countries -- North Korea and Iran -- all either cooperate with the world's only superpower or are even direct US allies. Moreover, Iran is several years from developing long-distance missiles tipped with nuclear warheads and North Korea is essentially the world's nuclear big mouth -- more hot air than real threat.
Hunting non-existent missiles
Pyongyang's Taepodong-2 ballistic missile is estimated to have a range of 4,300 kilometers. When North Korea tested a long-range missile last July, President Bush ordered Fort Greely in Alaska to be put on high alert -- while ignoring hotheaded calls to bomb the Korean launch pad. In the end, Kim Jong Il's missile splashed into the Pacific only 40 seconds after liftoff. Even the military is totally unsure when exactly the self-declared nuclear power will be able to fit reliable projectiles with nuclear warheads.
Iran up till now has only tested missiles with a range of up to 1,600 kilometers. Even the country's supposedly cutting-edge model Shahab-5, likely a derivative of a Taepodong type missile, will most probably not fly much farther than 3,000 kilometers. The radar stations in Eastern Europe would therefore not detect any Iranian projectiles hurtling towards America for some time to come.
Essentially, says retired US Lieutenant General Robert Gard, it is an effort to provide security against Iranian missiles that do not yet exist, using warheads that do not yet exist. Furthermore, he says, the Iranians are fully aware that the US would annihilate them were they to fire missiles at America.
It's no surprise then that this technologically ambitious yet practically questionable defense program is eyed suspiciously around the world. The fear of a new and immensely expensive arms race has kept many close US allies from taking part in Washington's project of the century. They also fear using weapons to solve problems that actually require political solutions and diplomacy. Outside of Europe, only Australia and Japan are making a noteworthy contribution.
More than anything, the steely warning from Russia's Putin at the Munich security conference in early February clearly raised the specter of a new East-West confrontation. US project director Obering was at pains in Berlin to point out that the few intercept missiles would not be directed at Russia and they would anyway be totally insufficient to guard against Mocow's or Beijing's nuclear arsenals, which both have thousands of warheads. But even a German government security advisor understands the reasoning behind Russia's worries.

Expensive arms race
Firstly, the radar station in the Czech Republic is irksome to Russia's military because it could survey large swathes of Russian territory with previously unknown precision. And secondly, the advisor said Russia's superior missile forces could in fact be threatened by the project, since Washington eventually wants to fit the intercept missiles with 30 to 40 "kill vehicles" weighing only one kilogram apiece.
Putin, of course, knows well that his country could not withstand an expensive arms race against the United States. Instead he is threatening to answer asymmetrically, that is, by building new land-based intermediate-range missiles. By forswearing the 1987 INF Treaty, which called for the elimination of US Pershing missiles and Soviet SS-20 missiles, Moscow would no longer be beholden to commitments applying to the two former Cold War rivals.
Ending this commitment would not only give Moscow a way to compensate for the short- and mid-range missiles being deployed pretty much all along the Russian border these days. It would also allow Russia -- once again -- to take Europe hostage.
But according to the Innsbruck-based political scientist Gerhard Mangott, that's something Washington "wouldn't really mind, since it would force the EU states back under the USA's protective nuclear shield and the USA would become the decisive military factor for Europe's defense in the coming decades."
Chancellor Merkel has never commented on these issues and she has yet to indicate whether she'll back the Americans in the end or not. Even her closest associates do not know what she's thinking.
"Very much for it"
Those who want to know need a good memory -- or perhaps a good archive. In a transcript of an interview from July 8, 2000 at 7:10 p.m. with the German news channel N-TV, Merkel, at the time leader of the conservative opposition, apparently hadn't yet perfected the art of obfuscation. She said it was important to take a position on the US plans for a missile defense system, explaining alertly that she backed "not shutting ourselves off from new defensive systems from the start." Of course, "working with Russia on a basis of trust" was also crucial, "but that doesn't have the highest priority for me."
Chatting further, Merkel said the center-left German government at the time was too preoccupied "with all the possible concerns" without developing its own position. "Compared to that the CDU is much more open about this matter." At that point the interviewer asked if she had a personal opinion about the planned US missile defense system. Merkel's answer: "I am very much for it, and not just for the sake of Alaska and the United States."
By Ralf Beste, Konstantin von Hammerstein, Siegesmund von Ilsemann, and Georg Mascolo

Don't Play Politics With Kazakhstan
By S. Frederick StarrThursday, September 28, 2006; A23
The president of Kazakhstan will be visiting the United States soon, and the critics are sharpening their pens. The trip by President Nursultan Nazarbayev will mark 15 years of independence for his country as well as a growing strategic partnership with the United States. But whereas the State Department sees Kazakhstan as a successful "corridor of reform," critics claim that it's just another corrupt petro-state and Nazarbayev himself a repressive, authoritarian ruler. The fact that Vice President Cheney recently visited the Kazakh capital of Astana only confirms their darkest suspicions: It's all about oil, and probably about Halliburton as well.
To be sure, Kazakhstan has oil and a lot of it. Russia and China have been buying as much of it as they can get, and Europe and the United States are eager to do the same. American firms, including Halliburton, have made big investments there, but so have the Chinese, Italians, British and Dutch. Shouldn't the United States be pursuing this prospect?
Those who say no point to widespread corruption in Kazakhstan. Critics refer particularly to the case of an American, James H. Giffen, who is on trial in New York for allegedly arranging bribes to senior Kazakh officials. The case is still pending, but under any circumstances the events in question occurred more than a decade ago. In the chaotic days following the Soviet collapse, corruption was endemic in nearly all of the new states. Since then Kazakhstan has made serious efforts to promote transparency. It has signed on with Britain's rigorous Extractive Industries Transparency Initiative. This year alone it has successfully prosecuted several dozen high- and mid-level officials for corrupt practices. In 2000 it set up a national fund that makes the management of oil revenue more transparent. And by 2008 its banking system will meet E.U. standards.
Under both Democrats and Republicans, the U.S. approach toward Kazakhstan has been to work with the government to reform its laws and courts. The American Bar Association, Freedom House, Counterpart Consortium and the U.S. Agency for International Development have made much headway in this regard. We should be exploring how to continue and expand this fruitful collaboration. Accusations from our side will only strengthen the hand of hard-core nationalists and others in Kazakhstan who defend the old practices.
The majority of Kazakh citizens are Muslims. Fundamentalists from the Persian Gulf states and elsewhere are eager to exploit the situation. A few years back members of a group with links to al-Qaeda penetrated the country. But so far Kazakhstan has shown remarkable success in addressing the social conditions that can feed extremism. The Asian Development Bank reports that the poverty rate has been cut by half in five years. A large middle class is rapidly forming, thanks in part to a revised tax code that favors small and mid-size businesses. The government now spends a respectable 4 percent of gross domestic product on modern, Western-style education and pays the full cost of sending its top 3,000 high school graduates for study in the United States, Europe, Japan and other developed countries. Graduates of this program are accustomed to modern freedoms and expect their country to embrace them.
Granting this, critics point to what they politely term Kazakhstan's "democratic deficit." They're right. The Organization for Security and Cooperation in Europe (OSCE) has drawn the same negative assessment of Kazakh elections that it has of all elections in the former Soviet Union except for the three Baltic countries: They fail to meet European standards. But the OSCE has acknowledged that recent revisions in Kazakhstan's electoral law represent "significant progress." It also concluded that the Central Election Commission managed the crucial run-up to the 2005 elections in a "generally transparent manner." For all the problems that remain, this argues for continuing a quiet process of engagement on electoral reform.
Kazakhstan merits our support for another reason. For a decade the United States has watched helplessly as India and Pakistan developed nuclear weapons, with Iran now on that path. The trajectory is chilling. Contrast this with Kazakhstan, which inherited a large nuclear arsenal from the Soviet Union and -- with U.S. support -- voluntarily got rid of it.
Moreover, Kazakhstan has managed to do what no other country has: maintain cordial and balanced strategic partnerships with China, Russia and the United States. Its links with Washington go far beyond the ceremonial; Kazakh troops stand with ours in Afghanistan. Its contingent in Iraq has destroyed more than 3 million land mines. And the Kazakhs are working closely with the United States on opening up Afghanistan to continental trade.
All this suggests that U.S. links with Kazakhstan are among this country's most promising relations in the Muslim world. Developed over 15 years under Democratic and Republican administrations, they are the fruit of hard work by U.S. agencies, businesses, educational institutions and scores of nongovernmental organizations. They are creating a successful model of economic and social development for majority-Muslim societies. What a contrast to what we see daily in the Arab world.
U.S. critics of Kazakhstan have every right to remind us that the country still falls short in many respects. But in the eyes of some Kazakhs, the United States may be a less than perfect partner as well. If either of these groups succeeds in damaging the basis of our partnership, further progress in Kazakh social policy and legal and electoral reform will be the first to suffer. And Kazakh oil will then flow mainly to China and other countries that pay their bills and ask no questions.

GREEMENT SIGNED ON TRANS-BALKAN OIL PIPELINE, RIVAL TO TRANS-CASPIAN PROJECT

Yesterday, March 15,

Russia, Bulgaria, and Greece signed an intergovernmental agreement to build the Trans-Balkan Oil Pipeline, Burgas-Alexandropolis. Russian President Vladimir Putin, in full command of the signing ceremonies, took it upon himself to define the project’s significance and the interests of other participants in the project. The pipeline, the first-ever to be controlled by the Russian state on European Union territory, would carry oil mainly from Russian Black Sea ports to the Aegean for shipment from there by tankers.The project’s main official rationale is to provide a second outlet from the Black Sea, circumventing the overcrowded Bosporus, for Russian oil and Russian-loaded Caspian oil en route to the open seas. With those flows a growing danger to safety in the Bosporus Strait, a pipeline bypass from Burgas to Alexandropolis is in essence a transport-safety-enhancing project, necessary in that strict sense. However, the Burgas-Alexandropolis project runs counter to the EU’s strategic interest of reducing dependence on Russia-delivered energy. If built, this pipeline will become, in effect, a prolongation of the Caspian Pipeline Consortium’s (CPC) line from Kazakhstan to Russia’s Black Sea port of Novorossiysk, in direct rivalry to trans-Caspian oil transport projects from Kazakhstan westward, such as the Baku-Tbilisi-Ceyhan (Turkey) pipeline. The Burgas-Alexandropolis line would also divert Caspian oil volumes necessary to the Odessa-Brody pipeline in Ukraine and its possible extension into Poland.Proceeding with Burgas-Alexandropolis and a commitment to its use by Western companies in Kazakhstan is a Russian precondition to the planned enlargement of the CPC pipeline from Kazakhstan. The U.S., European, and Kazakh oil companies face production delays and financial losses because Russia has blocked that pipeline’s capacity expansion in the last three years. To allow that expansion, Moscow wants those companies to export their oil from Kazakhstan through Russia, as opposed to exporting it across the Caspian and the South Caucasus to the open seas.The Burgas-Alexandropolis project can lend decisive impetus to enlarging the capacity of the CPC pipeline into Russia. That line’s existing capacity amounts to some 27 million tons annually. If enlarged significantly beyond that capacity -- let alone the colossal 67 million tons annually as planned -- the CPC line would suck up massive production volumes from ongoing and upcoming projects in Kazakhstan, including the supergiant Kashagan fields, to the detriment of trans-Caspian projects that answer Western strategic interests. Even in a short-to-medium term perspective, the Baku-Ceyhan system requires significant additional volumes of Kazakh oil. Inputs into that system from Kazakhstan will become critical within less than a decade. However, an expanded CPC pipeline would divert most of those volumes into Russian territory to Novorossiysk and from there via the Black Sea into the Russian state-controlled Burgas-Alexandropolis pipeline.Burgas-Alexandropolis developments also affect negatively the prospects for the EU-supported Odessa-Brody-Plock (Poland) project. That route is also an alternative to the Turkish Straits as an oil exit from the Black Sea. However, availability of the Burgas-Alexandropolis outlet can ensure long-term use of the Odessa-Brody pipeline by Russian companies north-south, instead of the originally intended south-north use for Caspian oil to Europe.According to Putin and other officials at yesterday’s signing ceremony in Athens, future users of the Burgas-Alexandropolis pipeline will have to negotiate with Russia’s state pipeline monopoly Transneft regarding the oil volumes and schedules for using this pipeline. This means that U.S. and West European companies will depend on the Russian state for accessing EU territory to transport oil extracted by Western companies for Western consumers.In his speech at the agreement’s signing, Putin predicted that Western companies in Kazakhstan and Azerbaijan, as well as those two countries themselves, would be using this pipeline. Chevron has publicly indicated its intention to do so, while the CPC consortium seems to be hedging its bets for now in its public comments.Transneft, GazpromNeft, and Rosneft hold a combined 51% stake in the Burgas-Alexandropolis project, with Transneft as project operator. The Greek and Bulgarian governments hold the remaining 49% initially, with the right to sell portions of their stakes to international or Russian oil companies that would use this transit pipeline. The Greek side in Burgas-Alexandropolis consists of three companies, one of them a Gazprom joint venture. The Bulgarian stakeholder, BulgarGaz, is known to be eyed by Gazprom for setting up a joint venture.The pipeline is intended to carry 35 million tons of oil annually in the first phase, with expansion to 50 million tons in the second phase. Financing has yet to be lined up on international credit markets; the Russian side will not finance this project, at least not directly. The intergovernmental agreement is subject to parliamentary ratification in the three countries.(Interfax, March 15; also see EDM, March 2)
--Vladimir Socor

The United States and Africa: eyes on the prize Paul Rogers 15 - 3 - 2007
Three concerns – oil, China and the war on terror – are pushing the United States toward greater involvement in Africa.


The new United States defence budget involves a substantial increase in spending and a redirection of many military programmes towards counterinsurgency and responding to asymmetric warfare (see "The costs of America's long war", 8 March 2007). It also entails a relatively little-noticed change in the orientation of the US military towards Africa, announced on 9 February 2007: the planned establishment of Africa Command (Africom).
At first sight this may appear a surprising move, given the comparatively less prominent place of Africa in the global war on terror compared with the middle east or south Asia. One way to explain the policy decision is to put it in the context of the establishment of another US military command almost a generation ago.
Paul Rogers is professor of peace studies at Bradford University, northern England. He has been writing a weekly column on global security on openDemocracy since 26 September 2001
The pre-history of Africom
In October 1973, action by Arab oil producers during the Yom Kippur/Ramadan war resulted in a massive and unexpected increase in oil prices. Prices almost doubled within a few days, and in the following months more than doubled again. By May 1974, a barrel of oil cost around 450% higher than eight months previously; the entire process inaugurated a period of economic stagnation and inflation in western states, and huge problems for the economies of developing-world countries.
These "third-world" states, urgently needing to survive the sudden downturn, borrowed heavily on international financial markets flush with petrodollars - a process that set the scene for the debt crises of the 1980s and 1990s. Military planners in the west, meanwhile, drew a salutary lesson from the oil crunch: western economies were far more dependent on middle-east oil than their elites had appreciated.
This worrying situation arose in the context of cold-war rivalries between Nato and the Warsaw Pact, characterised by fears that a Soviet Union self-sufficient in oil supplies might (in some future crisis) seek to interfere with western oil imports from the Persian Gulf. The Pentagon in the mid-1970s was awash with urgent scenario-planning documents assessing whether the United States and its allies had the capacity to intervene in the oil-rich states of the Gulf, in the event of a violent interruption of deliveries. These analyses tended to throw up an uncomfortable conclusion: that despite the impressive global-reach capabilities of the United States navy and marine corps, neither the US nor its allies had any serious capacity to move forces rapidly into the region.
By 1977 this had become a crucial if unpublicised issue for US strategists, and the then president Jimmy Carter issued a presidential directive ordering plans for some kind of integrated military force that could be available at very short notice. Its creation had to overcome delay caused by inter-service rivalry, and it was only at the end of the decade that the Joint Rapid Deployment Task Force (more commonly known as the Rapid Deployment Force / RDF) was established.
By the early 1980s - with Ronald Reagan in the White House, the cold war at its height, and after the shock of the Iranian revolution and the hostage crisis - the RDF was being organised into an entire unified military node: Central Command, or Centcom. It initially covered an arc of nineteen countries from Kenya through the Gulf region to Pakistan, and could call on hundreds of thousands of troops and marines, hundreds of planes and scores of warships (today the number of countries included in its remit is twenty-seven).
Centcom was a fully integrated command, along the lines of other overseas US military organisations such as Southern Command (which covers Latin America) and Pacific Command. Centcom was at the core of the war against Iraq in 1991, with its commander, General Norman Schwarzkopf, in overall charge of the military operation; more recently it has run the war in Afghanistan and the second Iraq war. Its origins, however, are rooted in the experience of the mid-1970s and relate particularly to oil security (see "Oil and the "war on terror": why is the United States in the Gulf?" 9 January 2002).
A triple threat
This is the context in which the United States is planning to establish a new unified military centre, this time covering the continent of Africa - which is currently "shared" between Centcom and the Pacific and European commands (Pacom and Eucom). When it becomes operational in September 2008 it will initially occupy headquarters alongside Eucom in Germany. Africom will share with Centcom a primary concern with resource security, but it will also keep a careful watch on two other current perceived threats: international terrorism and the rise of China.
Indeed, all three factors - resources (especially oil), the war on terror, and China's role in Africa - have already resulted in a steady increase in US military involvement in Africa (see Jim Lobe, "Africa to get its own U.S. Military Command", Inter Press Service, 1 February 2007). The US military has made major counterterrorism training commitments in a range of countries across north Africa and the southern Sahara, and is developing closer ties with oil-rich states such as Nigeria.
In the Horn of Africa, Centcom now has a substantial permanent base at Camp Lemonier in Djibouti, with around 1,800 troops based there for operations in the Horn and east Africa more broadly. In the extensive campaign against the Islamic Courts Union movement in Somalia in December 2006-January 2007, US units worked closely with the Ethiopian and Kenyan governments to remove the courts from the capital, Mogadishu, and conduct attacks on the movement's alleged al-Qaida associates. These involved air operations conducted from a base in Ethiopia, and special-force units moving into Somalia from across the Kenyan and Ethiopian borders.
Most of the US operations in north Africa, the Sahara and the Horn are directed against presumed paramilitary groups, but the longer-term issue remains oil, especially in relation to China. Moreover, this focus is arising at a time when China, too, has its concerns over oil supplies. As recently as 1993, China was still able to produce all the oil it needed from its own reserves, but the change in recent years has been dramatic. Declining domestic oil production coupled with rapid economic growth and increased energy needs has meant that in 2006, China had to import 47% of all the oil it used, an increased import dependence of over 4% on 2005. At current rates, China will need to find close to two-thirds of all its oil from overseas by 2015.
The Chinese, like some Americans, are increasingly worried - several huge and long-term oil deals with Iran notwithstanding - at their heavy reliance on Persian Gulf oil. They have moved to develop better links with other producers, most notably Venezuela, but one of their greatest commitments is to African producers. In 2006, nearly a third of all Chinese oil imports came from Africa. Beijing has forged a particularly strong relationship with Sudan, and this has become a major factor in China's reluctance to endorse any collective, international response to the Darfur crisis.

China's interests in Africa are by no means limited to oil. China already has access to many international markets for a range of industrial and consumer products, but its rapid industrial growth makes it very keen to develop and expand into new ones. It currently sees African countries both as sources of raw materials (oil among them) and as potential markets for its own products. The growing interconnection between the two regions is reflected too in major political gatherings and visits, such as the Forum on China-Africa Cooperation in Beijing in November 2006, and the eight-country tour of Africa by Hu Jintao in January-February 2007.
All this raises the prospect of more intensive economic and political competition between the United States and China, rather than the risk of open conflict. The establishment of Centcom, however, raises the expectation of a shift in the nature of the US's bonds with a number of African countries - towards a situation where policy towards Africa is mediated through military relationships fostered by the Pentagon, with all its financial resources rather than through the much more constrained state department and its operation of (for example) Usaid development programmes.
The accumulated result is likely to be that the US approach to Africa will increasingly be determined by considerations of US military and political security rather than the human-security needs of relatively poor countries. At best that could see a curtailing of some valuable programmes; at worst it could mean a progressive militarising of relationships between Africa and the global north.

China's oil strategy not conflicting with US interest


As oil price hiked recently, there has been an obvious increase of reports on oil strategy in the US media, some of which held that China's strategy on oil security ran contradictory to the US oil strategy. Fiona Hill, senior researcher with US Brookings Institute and expert in international energy accepted an interview by Tang Yong, People's Daily correspondent stationed in Washington, US.
(1) China has become the second largest oil consuming country in the world. (USA is the Number One). How do American scholars and the media view China's rapidly rising oil demand? How do they think of China's tremendous insufficient oil supply?
There has been some coverage in the US press of China's increasing demand for energy as well as its rising demand for a whole range of raw materials and commodities (steel, scrap metal, timber etc.) to keep pace with the rapid growth of its economy and the boom in its manufacturing industry and construction sector. Some of these articles have highlighted the current shortages in electricity production, as well as China's search for new oil and gas supplies in Russia, Kazakhstan and other regions. One of the central issues in these articles, as well as discussions in analytical and scholarly circles in the US, has been the concern that energy shortages will constrain China's economic growth, and also that soaring oil prices will negatively affect the Chinese economy.
There is a growing recognition in the United States that China's growth has been a major factor in reinvigorating the global economy, including the US economy. Chinese economic development is increasingly seen as a positive factor for the US - especially as there is a good deal of Chinese investment in US debt as well as increasing orders for US commodities from China. So, in short, there is some fear here that problems with energy supplies in China may lead to an economic slow-down that will in turn dampen the US and global economies.
(2) Does Americans fear that China's oil strategy shift may danger American national interest? What has the American government done to deal with this critical issue?
At this juncture China's oil strategy shift is not seen as a threat to American national interests - especially given the increasing consensus that Chinese economic growth should continue. However, there is great concern in the US about increased international dependency on Middle East oil and about the security of global oil supplies as a result of instability and the potential for terrorist attacks on production and export facilities in the Middle East - especially in Saudi Arabia. The major fear is that a major rupture in the supply chain from Saudi Arabia in particular would lead to prohibitive oil prices that would stifle the global economy, and also encourage increased competition and even conflict over oil and energy supplies in energy-poor regions like East Asia.
American policy is now focused on trying to minimize the potential for another catastrophic oil shock if there is a supply disruption in the Middle East. This has meant promoting increased supply to the global oil market from other sources outside the Middle East, like Russia, the Caspian Basin, West Africa etc.; as well as increasing the size of the US strategic oil reserve to protect the US domestic supply in the event of a crisis. In recent policy statements, the American government has also begun to emphasize more strongly the need to move away from oil dependency and toward other fuel sources, like LNG and renewables.
(3) Can you name a few major competitors in the world oil market? Has the competition among the major oil consuming countries entered into a critical stage?
The major oil consumers at this juncture are the United States, the European Union countries, China, India, Japan, and South Korea etc., with most of the future growth in demand anticipated to be in the developing economies of Asia - especially China and India.
The transportation sector is the main driver for oil demand - especially given the continued growth in car ownership, with only the tip of the iceberg of potential demand currently satisfied in China and India. Transportation is the largest consumer of oil in the US at 68% of current consumption. It accounts for 48% of world oil consumption and if automobile usage follows current trends, this is expected to increase to around 56% in the next two decades. Only a leap to new hybrid/fuel cell technologies in the developing economies, or government strictures on automobile ownership, will buck this trend.
We have not reached a critical stage in competition between major oil consuming countries. Although a major oil shock in the Middle East could change that, and this is something that the US and other primary consumers very much want to avoid.
(4) Some experts predict that once Mainland China declared a war with Taiwan, Americans would try to cut off China's oil supply chain. How do you think of this possibility?
Blockades and sanctions on strategic supplies have been a traditional tool of governments during conflicts, but they are also difficult to impose and very difficult to maintain even with broad international support. The US government very much wants to avoid any conflict between Mainland China and Taiwan - and especially a declaration of war, which would be ruinous for everyone. American policy is currently focused on this issue of trying to avert conflict.
(5) What role does the oil play in the relations between China and its neighbors? Do you think the oil may trigger disputes between China and its neighboring countries? The disputes that have been unfolding at the moment between China and its neighbors on South China Sea are in fact a fight for oil.
Clearly oil and energy security issues play a role in relations between China and its neighbors, in the current international environment, especially when China, Japan and other neighbors are all looking for supply options closer to home within the region to lessen dependency on imports from the Middle East. Each country in the Asia-Pacific region also wants to increase its own domestic reserves and production options. The disputes in the South China Sea are mirrored in other regions globally - including in Africa, and in the Caspian Basin, where there have been disputes among Azerbaijan, Turkmenistan, and Iran, for example, over ownership of sub-sea oil resources.
(6) According to Chinese oil strategy, China supports the Middle East, Africa, Central Asia and even Russia to build oil pipelines. Does this collide with American oil strategy?
This does not collide with American oil strategy at all. US energy security policy is focused on increasing global supply options and bringing more oil to world markets to ensure that there is enough supply for all major consumers to mitigate competition and avoid conflicts over oil resources.
(7) How do you predict a possible clash and even war between China and America in the field of oil?
At this stage I don't predict a clash between China and America, especially if current policies continue and the Chinese and US economies continue to draw together with increasing trade, investment and other interdependencies. Over the last 10 years, the US has also been able to move away from some of its former dependency on Saudi Arabia and the Persian Gulf and has achieved considerable geographic diversity in its oil supply options. The Persian Gulf now accounts for only about one quarter of US crude oil imports (54% of US oil is imported). And fully 60 countries have increased their oil production and now supply the United States with oil. Half of US crude oil imports come from the Americas. Although Saudi Arabia remains the largest single US supplier, it is very closely followed by America's neighbors - Mexico, Canada, and Venezuela (in that order). And Africa as a region now supplies more than 15% of US crude imports. Europe (Norway, UK etc.) supplies just under 7%.
Russia has been a focal point of American energy security discussions over the last two years, but the US still purchases very little crude oil from Russia - just over 1% of total imports. The bulk of Russian crude oil exports, well over 80%, go to Europe - including the EU member countries and the central and eastern European countries of the former Soviet bloc.
(8) Can you offer a solution for China to solve its overwhelming oil demand problem?
China, like the US, needs to increase the geographic diversity of its oil supply, and increased use of other alternative fuel sources like LNG and natural gas. The current focus on developing long-term projects for both oil and gas with Russia, Kazakhstan and other regional suppliers is very sensible. But China also needs policies to try to stem the growth in its oil demand - especially in the transportation sector where most of the growth can be expected. This could be done through the tighter regulation of the automobile industry (as in Europe), encouraging conservation, and aggressively promoting research in new hybrid/fuel cell technologies etc. In the static power and other industrial sectors, moving toward gas, clean-coal technologies (given China's huge coal reserves), and experimenting with renewable energy (not just hydro-power, but solar, wind and biomass etc.) would be a sensible approach.
Finally, China could take the initiative to put energy security in all its dimensions -including increasing geographic diversity of supply and increasing alternative fuel research and use - on the agenda of regional and international forums (APEC, ASEAN, SCO etc.) as well as making it a major item in its bilateral discussions with key oil-consuming countries like the US, India, and European states. All of these countries have a range of policies and research initiatives that could be productively shared and China may be able to encourage some joint initiatives with other leading countries to address this critical issue.
By People's Daily Online

'Energy Independence' January 23, 2007

With geopolitical turmoil, volatile prices, and continuing reminders of the international political power of oil, the concept of "energy independence" is compelling and deeply appealing. But what does "energy independence" mean for the United States, a $13 trillion economy that uses the equivalent of 50 million barrels of oil every day? In a Wall Street Journal Opinion Page essay, CERA Chairman Daniel Yergin argues that if independence is presented as self-sufficiency, it will likely fall flat. Dr. Yergin says that the concept of energy security—resilience, robustness, reduced vulnerability—combined with diversification of supplies, energy conservation, and technological innovation, illuminates a more constructive path. And since isolation from global energy markets is not realistic, it is also essential to recognize that international trade and understanding foster national and global energy security.
Complete Article
A cry is being heard across the nation, and loudly so in Washington. It is the call for "energy independence," and it will be at the center of the national energy debate over the next several months, providing the rationale for new policies and expansion of existing ones. Indeed, one might even anticipate a "declaration of energy independence" this July 4.
But what does "energy independence" mean for a $13 trillion economy that uses the equivalent of 50 million barrels of oil every day? Is it realistic and achievable? Or is it rhetorical overreach that will lead, as in the past, to disappointment and cynicism, the kind that drives the cycles of inconsistency in energy policy and leaves the United States no less vulnerable? The latter is more likely—at least without a realistic appraisal of the US position and the country's possibilities. But "energy independence" can provide a constructive framework for policy if it is properly thought through and the realities are recognized.
With geopolitical turmoil, volatile prices, and continuing reminders of the international political power of oil, the concept of energy independence is compelling and deeply appealing. In fact, it has been appealing for quite some time. The idea was introduced by former President Richard Nixon in November 1973, three weeks after the Arab oil embargo, when he introduced "Project Independence" and pledged that the United States would, within seven years, "meet our own energy needs without depending on any foreign energy source." It was a bold assertion but one that puzzled his own advisers. "I cut the reference to 'independence' three times from the drafts, but it kept being put back," recalled Richard Fairbanks, a drafter of the speech. "Finally, I called over, and was told that it came from the Old Man himself." Nixon knew that energy independence was something that Americans would crave after the 1973 oil shock: He deliberately modeled his Project Independence on John F. Kennedy's Apollo goal of getting a man on the moon within a decade.
Back then, the goal may have seemed only somewhat unlikely. After all, when Nixon began his political career after World War II, the country already had a long history of energy independence—and then some. For it had actually been the world's No. 1 oil exporter; indeed, out of seven billion barrels of oil used by the Allies in World War II, six billion were produced in the United States. By the late 1940s, the United States had become a net importer of oil, although the real surge in imports did not begin until the 1970s.
It proved much easier to get a man on the moon than to make a nation energy independent. In the three and a half decades since Nixon, the United States has gone from importing a third of its oil to importing 60 percent, and that share is set to continue rising. The country is on a similar path for natural gas (which is about 25 percent of our total energy usage). North American supply has flattened out. Yet large amounts of new natural gas–fired electric power generation have been added over the past decade, which means that demand will increase. Natural gas is also used in the making of ethanol, adding to the demand growth. This means growing imports of liquefied natural gas—LNG—rising from 3 percent of our current demand to more than 25 percent by 2020.
All of which suggests that thought needs to be given both to what energy independence means and what can be achieved. For, right now, the United States is moving at some speed in the opposite direction, toward greater integration into the global energy markets.
How dependent is the United States? If we look at total energy—including coal, nuclear, and a small, but growing, share from renewables—the country is over 70 percent self-sufficient. Oil—refined into liquid fuels for transportation—is where most of the current dependence comes from. The risks do not owe to direct imports from the Middle East, contrary to the widespread belief. Some 81 percent of oil imports do not come from that region. Thus, only 19 percent of imports—and 12 percent of total petroleum consumption—originate in the Middle East
Our largest source of oil imports is Canada. It's also the source of most of our current natural gas imports, via pipelines. One can hardly say that either Canada or energy imports from Canada constitute a major threat to national security. The energy trade is part of a normal trading relationship with the country with which we're conjoined economically and which just happens to be our biggest trading partner. Our second largest source is Mexico, with which we are also in a dense relationship. Mexico depends upon oil for about a third of total government revenues.
The picture becomes more complex when one turns to our third largest source of oil imports, Venezuela. The once much-discussed "hemispheric energy solidarity" loses much of its resonance when balanced against the "21st century socialism" of Venezuela's Hugo Chávez. After all, President Chávez is currently nationalizing the private sector, has on occasion threatened to embargo oil shipments to the United States, and is putting much effort into fashioning an anti-US alliance, the latest manifestation being the visit of Iranian President Mahmoud Ahmadinejad to Caracas. These are not the actions one normally associates with a good friend or a reliable trading partner.
Yet the source of imports is significant only up to a point. Energy security is a global issue. Although oil around the world varies greatly in terms of physical qualities and transportation costs, there is only one world oil market. So disruptions and loss of supply in one place radiate throughout the global market—and global politics—affecting consumers everywhere. Even if the United States did not import a drop of oil, it would still be vulnerable to turmoil involving oil outside its borders.
What are the prospects for "energy independence" in the way that Richard Nixon defined it 34 years ago—that is, 1930s-style "autarky" and total self-sufficiency? Based on where we are today, very small, at least for a couple of decades. In terms of vehicles, as pointed out in our new study on Gasoline and the American People, only about 8 percent of the auto fleet turns over every year. So the lead times are long for more efficient vehicles to enter the fleet. Ethanol, derived from corn, is on track to grow to about 10 percent of our total gasoline pool in a few years. This is certainly not inconsequential; it represents diversification and is equivalent to creating a new Indonesia-level oil-producing country in America's Midwest. But signs are already evident of an upper bound on corn-based ethanol, as the fuel-versus-food trade-off pushes up corn prices, setting off vocal protests from livestock growers and dairy farmers and, in due course, from those who buy breakfast cereals and soft drinks made with high fructose corn syrup.
What about technological advances that provide new answers? There is a "great bubbling" all along the innovation frontier of energy, ranging from conventional energy and efficiency to, especially, renewables, alternatives and "clean tech." Activity this wide-ranging has never been witnessed before. The impact could well be considerable, or even transformative. One would be very hard-pressed today, however, to say when and what form this impact will take.
In the end, if energy independence is presented as self-sufficiency, it will likely fall flat. And, as prices run through their cycles, disappointment will undermine the longer-term commitments that are required for a sound energy future. Today, quite simply, cutting ourselves off from global energy markets is not realistic.
But if the goal of energy independence is understood differently, to mean energy security—resilience, robustness, reduced vulnerability—then it is much more useful.
This kind of definition recognizes that trade, in itself, is not bad. At the same time, it emphasizes the central goal of diversification—encouraging investment and higher levels of research and development in both alternative and conventional energy sources. It means a new push for energy conservation, higher energy efficiency, lower energy intensity—a theme that German Chancellor Angela Merkel will make the centerpiece of her agenda as chairman of the G8 countries later this year. It certainly requires a consistent commitment to pushing the innovation frontier in ways that, eventually, lead to economically competitive alternatives and new technologies.
And it requires an understanding that this kind of energy independence—as measured in energy security—actually requires interdependence with other nations, both consumers and producers of energy. Indeed, how we manage our relations with other countries and other regions is a very essential ingredient for our own energy well-being.
Mr. Yergin, chairman of Cambridge Energy Research Associates, is writing a book on energy and geopolitics.
This article originally apeared in the January 23, 2007 edition of the Wall Street Journal.

Wall Street drools over prospect of capturing Iraq oil wealth
By Patrick Martin6 March 2007

The Iraqi cabinet’s adoption last week of a law creating the legal framework for turning over the country’s oil wealth to American corporations has touched off a chorus of salutes from the Bush administration, congressional Democrats and the corporate-controlled American media.
Perhaps the crassest expression of money-grubbing glee came in the Wall Street Journal, which published an article March 4 celebrating the unlocking of untold riches, including “dozens of untouched oil fields loaded with proven reserves and scores of exploration blocks that may prove a magnet to international oil companies.”
The draft law lists 51 oil fields, 27 in production and the balance with proven reserves, as well as 65 exploration blocks. The fallow fields and exploration blocks are located in every region of the country, while the working fields are concentrated in the northern region around Kirkuk and in the southern region near the border with Kuwait. Citing a cabinet document, the Journal reported that “Iraqi officials must first agree to the framework of contracts to be used when negotiating with foreign oil companies by March 15 if the country’s draft hydrocarbons law is to be submitted to parliament for its approval.”
The draft law calls for reviewing and renegotiating contracts with Russian, French and Chinese oil producers, signed under Saddam Hussein. These countries, which initially opposed the US invasion, are expected to be cut out of any lucrative oil deals in favor of American and British companies.
The government of Prime Minister Nouri al-Maliki endorsed the draft law February 26, after months of bitter conflicts among the representatives of rival bourgeois factions within Iraq—Kurdish, Sunni and Shiite—over the terms of the deal. Approval is likely in the Iraqi parliament, although not certain, as news of the agreement is sure to provoke widespread popular outrage over the sell-off of the country’s most valuable resource.
The cabinet conflict revolved around two related issues: Kurdish determination to hold onto Kirkuk, a city of mixed Arab, Kurdish and Turkomen population that is the center of the northern branch of Iraq’s oil industry; and the Sunni demand for revenue-sharing at the national rather than regional level, since the proven oil reserves are largely in the Shiite and Kurdish populated areas, with relatively little in the central and western provinces where most Sunnis live.
Neither issue was completely settled, but the formula agreed upon under heavy pressure from outgoing US Ambassador Zalmay Khalilzad, who reportedly dictated the final terms, provides rather more concessions to the Sunnis, largely at the expense of the Kurds.
In public, the Bush administration and congressional leaders of both parties have cited the working out of inter-ethnic compromises as the main purpose of the oil legislation. In reality, however, the Bush administration sought an agreement on whatever terms it could impose, so that the Iraqi oil industry could be placed on legal foundations suitable for opening it up to foreign (and largely American) capital.
The most important aspect of the bill is that it revives a semi-colonial form of oil contract called a “production-sharing agreement,” which would give foreign companies first claim on any oil they help Iraq’s nationalized industry extract from the country’s enormous reserves, estimated at 115 billion barrels.
Production-sharing agreements were devised by the multinational (mainly US, British, French and Dutch) oil companies in response to the efforts of the bourgeoisie in the OPEC nations—Iran, the Gulf sheikdoms, Libya and Venezuela—to establish national oil companies and negotiate more favorable terms.
Under a PSA, the multinationals could continue operating the oil industries in these countries while the oil resources were nominally taken under national ownership. The oil companies were guaranteed first right to oil revenues. This structure became largely discredited as providing only the semblance of national control over oil resources, and only 12 percent of worldwide production is currently conducted under PSAs—with none at all in the Middle East.
The new Iraqi law would allow regional authorities to enter into PSAs in which oil companies would be guaranteed up to 70 percent of the revenues, as well as an unrestricted right to take their profits out of Iraq, rather than reinvesting them in the industry.
According to the oil minister, Hussain al-Shahristani, as many as 65 of Iraq’s 80 known oilfields would be put up for bid to foreign oil producers. Any region that can produce at least 150,000 barrels of oil a day can create its own operating company—with the result that dozens of relatively small companies could be formed, easy prey for the giant multinational corporations to manipulate, bribe or buy outright.
The law would reestablish the state-run Iraq National Oil Company, shut down by Saddam Hussein in 1987 in favor of an oil ministry. This legal change is a step towards actual sale of the entire industry, which could take the form of selling an interest in the new INOC to one or several big foreign producers, or entering into joint ventures.
One of the most glaring failures of the Bush administration’s occupation of Iraq—from the standpoint of the American ruling elite—has been its inability to revive the oil industry. Under the impact of US and UN sanctions, Iraqi oil production had already fallen from 3.7 million barrels a day at its peak to 2.6 million barrels a day just before the US invasion. This figure has declined further to barely 2 million barrels a day, much of which is stolen and traded on the black market rather than exported.
The significance of the oil law was widely commented on in the American ruling elite. White House spokesman Tony Snow called it the “key linchpin” in Iraq’s rebuilding, and congressional Democrats and Republicans praised the agreement as a vital step forward.
Ambassador Khalilzad, in an op-ed column published March 3 in the Washington Post, declared the agreement “a significant achievement for Iraqis’ national reconciliation. It demonstrates that the leaders of Iraq’s principal communities can pull together to peacefully resolve difficult issues of national importance.”
Actually, the agreement signifies that no section of the Iraqi bourgeoisie—Sunni, Shiite or Kurdish—is capable of adopting an independent stand towards American imperialism. All are seeking to maneuver with Washington, and to a lesser extent the European imperialist powers, to secure their own share in the division of the spoils. Nothing will come of the oil deal for the Iraqi people, whose society continues its plunge into unchecked sectarian and ethnic strife.
Khalilzad declares that under the terms of the bill, “Iraq would adopt the best international practices for the development and management of its mineral wealth.” The meaning of these “best international practices,” of course, is that Iraq’s mineral wealth will be turned over to the multinational corporations. The maintenance of state ownership is purely nominal: as in other PSAs, the oil will be legally the property of the people of Iraq, but the vast bulk of the revenues and profits will go to ExxonMobil, ChevronTexaco, Shell and BP.
Journalist and author Dilip Hiro, writing in the Guardian January 9, noted the stage-managed character of the “Iraqi” decision to hand over control of the country’s oil resources to US oil companies. He wrote, “The early draft of the proposed law, prepared with the assistance of BearingPoint, an American consultancy company hired by the Bush administration, was sent to the Bush White House and major western petroleum corporations in July, and then to the International Monetary Fund two months later, while most Iraqi legislators remained uninformed.”
The Los Angeles Times noted, in reporting the Iraqi cabinet action, “The United States has long wanted to capitalize on Iraq’s oil, especially as a means of paying for the country’s reconstruction. Oil’s importance was reiterated in the Iraq Study Group report released in December. The agreement would open the door to international investment in Iraq’s oil industry—a bonanza for foreign companies . . .”
The New York Times editorialized cautiously on the draft agreement, focusing on the purported goal of “equitably sharing the nation’s oil revenues among all Iraqis,” while remaining silent on the crass plundering of Iraq’s resources that the new law would rubber-stamp. The Times left no doubt about its approval for that goal, declaring, “An oil law should be one of the benchmarks Washington insists on as a condition of continued support” for the Maliki government. Cabinet approval was a step forward, the Times said, “but it isn’t nearly enough.”
More than a month ago, the Washington Post reported on a meeting of 80 oil company executives and consultants in London on exploration prospects in the Kurdish region of Iraq, noting, “Outside Saudi Arabia, no country has proven oil reserves as big as Iraq’s. And the oil there is high quality, easy and cheap to produce, and bottled up in reservoirs that many major oil companies were familiar with three decades ago before wars and sanctions drove them out.”
One oil analyst, Fadel Gheit of Oppenheimer & Co., told the Post, “Exxon Mobil has more seismic data on Iraq than on Houston real estate. If Exxon had security on the ground, the following day it would have crews there. And money would be no object.” Gheit estimated that a restored Iraqi oil industry could triple current production to 6 million barrels a day, worth $131 billion a year at current prices.
While the US media and the politicians of both the Democratic and Republican parties publicly dismiss the claim that Bush invaded Iraq to seize its oil wealth, this political reality is increasingly understood by the American people. According to a UPI/Zogby International poll in January, 73.4 percent thought that Iraq’s oil resources were a “major factor” or a contributing factor in Bush’s decision to invade, while only 23.7 percent believed that oil was “not a factor” in the war.
The enactment of an Iraqi oil law will outrage millions of working people, in the United States and internationally, who oppose sacrificing the lives of thousands of Americans—and hundreds of thousands of Iraqis—to give American companies control of Iraq’s vast oil resources.

Opportunities for Trans-Atlantic Cooperation in the Caspian Region (2)
By Richard Morningstar
The foregoing analysis is intended to show that governments can play a constructive role in achieving important policy objectives even when commercial interests are involved. Many European companies are involved in the Caspian, including BP, Shell, Total-FinaElf, Statoil and others, but European governments and the EU have not yet seen it in their interests to actively work together with companies and governments to promote these companies' interests as well as important policy objectives.
What could be more important to Europe than to secure transit routes which would bring alternative energy resources to Europe? While the United States has pursued specific objectives in the Caspian region, Europe has taken a more generalized and diffused approach. This writer was particularly struck, for example, in the spring of 1999 at the dedication in Georgia of the Baku-Supsa early oil pipeline, that the EU and Georgia were simultaneously celebrating the establishment of a rail-ferry link across the Black Sea, as part of the EU's Traceca Program to create a transport corridor from Central Asia and the Caucasus to Europe. Certainly this link is useful and is to be applauded but at the same time no emphasis was being given to energy links. The related Inogate Program, which stands for interstate transport of gas and oil to Europe, has been markedly unsuccessful.
It is also striking that The European Security Strategy, adopted by the European Council in December 2003 and EU Neighborhood Policy, adopted in 2004 give short shrift to energy issues.
Although Caspian energy resources are described in the Neighborhood Policy, no specific program is put forward. Likewise, the Azerbaijan and Georgia Strategy Papers, which set out how these countries and the EU can achieve greater cooperation as part of the Neighborhood Policy, make no reference to energy until the very last section of the papers and then set out no concrete steps for cooperation. Very recently at an EU meeting in Kazakhstan with regional energy ministers that produced a roadmap toward energy and regulatory cooperation, no mention was made regarding the transit of Caspian gas to Europe.
The EU has appointed special envoys to the Caucasus and to Central Asia. But these envoys deal principally with political, security and development issues. Energy should become a priority part of their mission.
A better alternative would be for the EU to appoint a special envoy to the Caspian region on energy diplomacy, as the United States did in the late nineties. Such an action would make clear to leaders in the region and to companies that the EU intended to be a serious participant in the energy area.
Most important, Europe must develop a coordinated overall energy policy, of which Caspian development would be a part.
Too often, member states pursue individual policies without adequately taking into account geopolitical issues or the interests of other member states and bordering countries. Energy supply is a geopolitical issue but must be considered in the overall geopolitical context. It should not divide the European Union.
The best example of lack of coordination is Germany's pursuit of a gas pipeline from Russia to Germany under the Baltic Sea. Presently, 44% of Europe's gas imports come from Russia. This pipeline will significantly increase dependence on Russia. In addition, Germany apparently took little notice of the interests of Poland and Ukraine, through which Russian gas presently transits to Europe. This new pipeline may well allow Russia to put even greater political pressure on Ukraine than it did last year when it temporarily cut off gas supplies to Ukraine. Russia had to back off, because the interruption was having an adverse effect on Europe's gas supply, which might not have been the case if there had been a Baltic pipeline. Finally, pipelines cannot be looked at in a vacuum. New pipelines have to be closely studied to determine effects on other possible pipelines. A coordinated policy is essential for Europe to meet what could well become an energy crisis.
Some steps have been taken. The EU has recognized energy supply and security issues as a top priority.
In 2005, the EU and eight Balkan countries signed a treaty establishing the Southeast Europe Energy Community. The purpose of the Treaty is to increase electricity production and transport networks in the Balkans. This Treaty should be expanded to include Turkey, which at the time refused to sign the treaty, and countries in the Caspian region. It could become a vehicle to help develop and transport Caspian resources. In early March 2006, the European Commission presented a Green Paper, asking European governments to coordinate their policies on energy matters. José Manuel Barroso, President of the European Commission, urged the European governments to "use the size of our market and the range of our instruments to manage our energy dependency and to diversify our energy suppliers".
In January 2007, the Commission has also issued its strategic energy review following the publication of its Green Paper earlier this year, which gave scant attention to Caspian resources. In March 2007, European heads of state and governments will adopt an action plan for a common European energy policy. These are opportunities for the EU to declare as part of its overall strategy that the EU will fully engage in the Caspian, develop a coordinated strategic plan and work at high levels with government officials and companies to insure that Europe can reap the benefits of Caspian resources.
In doing so, Europe could build on previous commitments. After all, the EU supports the extension of the Odessa-Brody oil pipeline to Plock in Poland. This pipeline could ultimately bring Kazakh oil to Europe. Pipelines are presently in the planning stage to transport gas from Turkey into the heart of Europe, but greater coordinated efforts must be made to bring these projects to fruition and to determine from what countries and by what routes the gas will reach Turkey.
The United States and Europe: Opportunities for Cooperation in the Caspian Region
The United States and Europe have a major opportunity to cooperate in the Caspian region. Supplying Europe with Caspian energy resources and helping to relieve Europe of overdependence on Russia is in the interest of both the United States and Europe. The United States and Europe can cooperate in the following ways.
First, the United States and EU should begin a formal cabinet level energy dialogue to set out a common overall energy strategy, including a strategy regarding the Caspian region.
Second, high-level U.S. and European officials should work together with high-level officials of Caspian countries, other Black Sea countries and with companies to plan and implement transit projects. Europe must recognize that there will be major competition for Caspian resources. China has already become active in developing transit routes for Caspian resources.
Third, the United States and EU should recognize that Turkey is the bridge to the Caucasus and Central Asia. This region is of huge strategic importance, not just because of its resources, but also because of its critical geographical location which borders on Russia and China as well as major trouble spots such as Afghanistan and Iran. The U.S. and EU should encourage Turkey to re-emerge as a major participant in the Caucasus and Central Asia. In the last few years, Turkey's new leaders appear to have looked away from this region. Turkey because of its historical roots can and should play a productive role both economically and politically in helping these new countries move forward on the path towards market democracy. As part of this role, Turkey should strive to reach accommodations with Armenia and play a positive role in trying to resolve the Nagorno-Karabakh conflict. In addition, as Turkey looks towards European integration, it can play an important role in partnering with Europe and the United States in developing the region. Turkey must also play a major role as a transit country for natural gas to Europe, which would reduce Europe's over- dependence on Russian gas. In light of Turkey's decreased gas demand from earlier projections, the new gas pipeline from Azerbaijan should be extended into Europe. Turkey should step forward as a major player in the region and leverage that role into greater cooperation with Europe as Turkey undertakes its difficult accession negotiations with the European Union. Such cooperation could be a substantial confidence building measure as accession negotiations progress.
Fourth, the United States and Europe cannot and should not ignore Russia. Given the energy relationship and other relationships between Europe and Russia, Europe cannot afford to alienate Russia. At the same time it should not be forgotten that Russia will be dependent for the foreseeable future on the European market. U.S. and European policy toward Russia on energy issues should be coordinated, so that Russia cannot use energy to divide the United States and Europe. The relationship between the United States and Russia in the Caspian Region, but for a brief post 9/11 honeymoon period, has been tenuous at best. When this writer was first introduced to Russia's former Foreign Minister Igor Ivanov in 1999, Mr. Ivanov said in a somewhat jocular but biting way, "We know you, and we do not like what you are doing!" The United States has never sought to, nor could it, exclude Russia from the region. But it also cannot be American or European policy that all pipelines lead through Russia. No country should have an effective monopoly on Caspian resources and potentially limit the sovereignty of new states in the region. Europe should be particularly concerned about any such monopoly, given the dependence that it already has on Russian-sourced energy. The logical solution is for Russia to encourage its companies to partner with companies from other countries to develop alternative routes. Instead, for example, of resisting gas pipeline routes to Europe that do not originate in Russia, Russia should encourage its companies to participate in and reap the benefits of new ventures and new routes. It is also critical that Russia respect the independence of the new states in the region, not use energy as a lever as it has with Georgia, and that Russia cooperate with the United States and the EU to resolve ethnic conflicts in the region, such as those in Georgia and Nagorno-Karabakh.
Fifth, the U.S and EU should leverage the region's energy resources to promote regional economic cooperation and to resolve regional conflicts. How, for example, can there be real regional cooperation if Nagorno-Karabakh is not resolved and if Armenia cannot benefit from the development of the region. The U.S. and EU together with its Minsk Group partners and countries in the region should explore further what tangible benefits can accrue to both sides through resolution of the conflict and through incentives should continue to work with willing partners to push the parties towards a fair and comprehensive settlement.
Sixth, U.S. and EU policy goals cannot be limited to energy. We must help countries in the region make progress in the development of civil society. We must also recognize that economic development and security are essential to the development of civil society and democratic institutions. So far, the state of democratization in the respective countries remains worrisome and backlashes in the progress towards a more open society have been experienced on a regular basis. Europe's Neighborhood Policy is designed to condition increased cooperation with Europe on implementation of reforms and the development of civil society. United States, EU and EU member states all have programs in this area. They should be coordinated and leveraged to have maximum effect.
The development of natural resources need not be inconsistent with the development of civil society. Critics say that the BTC pipeline rewards Azerbaijan which has a questionable record on democracy, as most recently reflected in it's recent Presidential elections. There certainly, however, is no reason to believe that without BTC, Azerbaijan would have a better record on democracy. BTC has made possible increased engagement with Azerbaijan, which should have an incrementally positive effect in the human rights and democracy areas. However, this means positive involvement. The U.S and EU must work with Azerbaijan's leaders and leaders of other countries in the region to demonstrate that it is in their interest to improve their democracy record. We must also give assistance to the private sectors in these countries to help develop civil society. But it must also be remembered that it is difficult to work with the private sector without some cooperation from the Government.
Neither the U.S. nor EU can have a cookie-cutter approach to the development of civil society. Balancing the importance of strategic interests versus records on democracy and human rights is extremely difficult.
Each country should be treated individually. We should go the last mile in working with leaders that we believe we can influence in a positive direction, such as President Ilham Aliyev of Azerbaijan. But when leaders reach the point where it makes little sense to deal with them any longer, we should limit our ties with their governments, even when there may be competing strategic interests, while at the same time attempting to work with non-governmental sectors to develop civil society over the long term.
In summary, the successful completion of the Baku-Tbilisi-Ceyhan pipeline is an example of what can be accomplished when policy is consistent and has sound objectives. While an uncoordinated European energy strategy, ranging from Polish proposals for an Energy NATO (as a counterbalance to Russian's growing power) to Germany's close and nearly exclusive cooperation with Russia, fails to secure strategic objectives, transatlantic cooperation could help to facilitate energy supplies for decades to come.
The Caspian Region continues to be vital to the interests of the United States and Europe. Europe should make the Caspian region a top priority. Together we can benefit from the region's resources, while at the same time enhancing the stability of the region and working to develop vibrant civil societies.
Richard Morningstar is the former US Ambassador to the European Union and US Special Representative for the Caspian Region. He lectures at Stanford Law School and Harvard University's Kennedy School of Government.
http://www.spiegel.de/international/0,1518,469857-2,00.html

THE NEW GREAT GAME
Opportunities for Trans-Atlantic Cooperation in the Caspian Region
By Richard Morningstar
Natural resources in the Caspian region are vital to the European Union's future energy policy. Though the United States has been focusing on the region since the 1990s, European decision-makers have largely neglected its strategic importance.
In July 2006, the Baku-Tbilisi-Ceyhan (BTC) Pipeline, which runs from the Caspian port of Baku, through Azerbaijan and Georgia to the Mediterranean port of Ceyhan on the Turkish Coast, became operational. The successful completion of this oil pipeline and the opening in coming months of a gas pipeline mirroring the BTC route, to ship Azerbaijani gas to Turkey, and perhaps ultimately to Europe, make clear the critical importance of the Caspian region to the United States and Europe. Since the nineties, successive American Administrations have focused attention on this region. Policymakers understood the link between geopolitics, the development of energy resources and commercial interests.
The European Union and member states have taken a less focused view and have generally taken the position that decisions relating to energy are commercial in nature, and governments should not interfere with those decisions. The successful completion of BTC and Europe's over-dependence on Russian natural resources - which has made the supply of natural gas to Europe an issue of public concern for the first time since the Cold War - demonstrate that this position is ill-advised, that European Governments should take a high profile in promoting the development of Caspian natural resources and that Europe and the United States should work together in achieving this goal.
TRANSATLANTIC THINKERSThe transatlantic relationship is not over, as has sometimes been suggested in recent years -- but it has changed. There is still consensus in Europe and the US that the urgent global challenges confronting us today can only be met in a joint effort. The goal is to identify specific fields for strategic cooperation and formulate effective and coherent policy options toward them. Germany's Bertelsmann Stiftung aims to help in this process. The new series "Transatlantic Thinkers" provides a fresh perspective on these opportunities, touching upon topics such as energy security, climate change, civil liberties in an age of terror, trade and many others. The series is planned as part of the run- up to the annual "Brussels Forum" in April.
Whereas U.S. Caspian policy is intended to increase the world-wide supply of natural resources, not to direct specific Caspian resources to the United States, Caspian resources, particularly natural gas, should be even more important to Europe than to the United States. The huge natural gas resources that can be found in Kazakhstan, Uzbekistan, Turkmenistan and the Western Caspian are critical, because they can ultimately lessen Europe's over-dependence on Russian gas. As EU Energy Commissioner Andris Piebalgs recently pointed out in a Wall Street Journal interview, Kazakhstan by 2015 could be producing 20% more gas in a year than consumed by all of Germany. Also, the region is the only one apart from the Persian Gulf where oil production is likely to increase over the next decades.
The U.S. Role in the Caspian
The opening of the BTC pipeline was the successful culmination of a consistent, bipartisan United States policy relating to Caspian Basin energy resources that has spanned both the Clinton and Bush Administrations.
The objectives that served as the framework for U.S. policy during the Clinton Administration remain equally valid today in this critical post 9/11 world. It is worth exploring how this policy developed and the implications to be drawn from this experience for future European activity and transatlantic cooperation in the region.
One need only look at a map of the greater Caspian region, which stretches from Turkey to Kazakhstan, to realize its huge geopolitical and economic importance. The United States' strong interest in the Caspian dates to the break-up of the Soviet Union. Virtually overnight eight new independent states came into existence in an area rich with natural resources: Georgia, Armenia, Azerbaijan, Kazakhstan, Uzbekistan, Kyrgyzstan, Turkmenistan and Tajikistan. The principal component of U.S. policy was to help these new states develop as stable independent countries that would ultimately become market democracies in an uncertain part of the World. Now, several years later, democratization in most of these countries has been slow, but these countries to date have maintained their independence, which many predicted would be impossible.
In addition, the United States believed and still believes that the development of natural resources in the region should provide an alternative source of oil and gas at a time when South Asia and the Middle East are becoming increasingly unstable and demand is soaring from India and China. The U.S. has wanted to make sure that these resources be available for development by American companies as well as business interests from friendly countries; that Turkey, because of its own historical roots, become more involved in the region to help insure the independence of these new countries; and that multiple routes of access be developed for resources to be exported from the region. The U.S. position was and still is that Russia should not have a monopoly on pipelines transporting Caspian resources, and that no pipelines should go through Iran thereby subjecting these new resources to the whims of a dangerous government.
Before discussing the implementation of U.S. policy regarding pipelines since the mid- Nineties, we should look at what the existing and proposed pipelines in the region were following the break-up of the Soviet Union. In the Western Caspian, apart from the proposed BTC pipeline, there was already in existence a small and decrepit pipeline from Baku to Novorossiysk, Russia on the northern coast of the Black Sea. In addition, the so-called Baku-Supsa early pipeline, opened in the spring of 1999. This limited-capacity pipeline was designed to carry "early" oil from Western Caspian sites to Supsa, on Georgia's Black Sea Coast.
With regard to the Eastern Caspian, the Caspian Pipeline Consortium, consisting primarily of Chevron, other oil companies and Kazakh and Russian state companies, was well under way by the late nineties in developing a pipeline (CPC pipeline) from the oil fields of western Kazakhstan through Russia to Novorossiysk. The United States extended strong support to this project, which opened in 2001.
This is evidence that the U.S. never had an "anti-Russia" policy in the Caspian. But the U.S. has insisted that the sovereignty of new states in the region be respected and that those states have the ability to freely export their resources.
Finally, the United States had a strong interest in the development of a Trans-Caspian gas pipeline (TPC) from Turkmenistan, across the Caspian Sea to Baku, which would then run parallel to the BTC to Turkey. This pipeline would have transported natural gas into Turkey, easing its reliance on Russia and Iran for gas supplies at a time of rising demand for gas. In spite a lot of false starts, the TPC never got off the ground. President Saparmurad Niyazov, the mercurial late President of Turkmenistan, never was fully committed to the project. He was wary of recriminations and retaliation from Russia and Iran, which were Turkmenistan's principal gas customers. In retrospect, Azerbaijan never had much interest in a Trans-Caspian pipeline, since it had its own gas in the Western Caspian, and, indeed, a pipeline will soon open mirroring the BTC route, to ship Azeri gas into Turkey, and perhaps ultimately into Europe.
The BTC pipeline became the centerpiece of U.S. Caspian energy policy.
The United States, despite criticism from several quarters strongly supported construction of the BTC pipeline, because it clearly met U.S. policy objectives. The BTC pipeline was consistent with the policy of multiple pipelines. It avoided all major pipelines from the Caspian going through Russia and into the Black Sea. It also avoided a major pipeline going through Iran. In addition, Turkey strongly supported the BTC, because it would keep additional large tankers from exiting the Black Sea through the narrow straits of the Bosporus, would provide transit fees to Turkey and would help to develop Eastern Turkey.
United States Actions in the Region: Carrots and Sticks
The sticks
On the US side, there was less pressure to build a pipeline through Iran, but some companies would have clearly preferred this alternative. The U.S. position was that it was unclear that an Iranian route would be less expensive than the BTC pipeline, but that, in any event, a pipeline through Iran would be a violation of the Iran-Libya Sanctions Act (ILSA). U.S. officials argued that a pipeline through Iran would be foolhardy for both geopolitical and commercial reasons. Why would companies want to take the commercial risk of transporting oil through Iran? How could the U.S. grant a waiver under ILSA that would subject new sources of oil to the whims of an Iranian Government? Even though some in Europe still believe that pipelines through or from Iran are still viable, recent history makes it clear that U.S. policy regarding transit through Iran was absolutely correct. Western European countries, particularly Britain and France, voiced concerns about U.S. Caspian policy regarding the American role in encouraging a specific route, as well as its policy towards Iran. French and British officials in private meetings took the position, similar to several companies, that the U.S. should not let politics interfere with commercial decisions. A high-level official at Whitehall said to a group of American officials that "Tony Blair may be Prime Minister, but we are all "Thatcherites". The view that commercial and political issues are not related would appear to be rather naïve, if not cynical. How can commercial decisions be made without considering Turkey's views on transit through the Bosporus? How can commercial decisions be made with respect to building a pipeline through Iran without considering the "politics" whether domestically or in Iran? Recent events have made perfectly clear that constructing a pipeline through Iran would have been foolhardy and dangerous.
The carrots
Ultimately, BP, as the manager of AIOC, came to realize that BTC was the only alternative for the transit of oil from the Western Caspian.
However, the U.S. Government did more than beat the companies' with sticks to force them to accept BTC. The U.S. took many constructive steps to help make the project possible.
Perhaps, the biggest breakthrough came with respect to cost of construction. Turkey's cost estimates for construction of the pipeline were significantly less than AIOC's estimates. The U.S. took the position with Turkey that if it believed its numbers and wanted the pipeline to be constructed, it should give a formal guaranty that costs would not exceed a set amount. After much negotiation, Turkey agreed in principle to a cost guarantee and ultimately agreed to guarantee the cost of the Turkish portion of the pipeline. This made sense because the Azerbaijani and Georgian portions of the pipeline would have to be built even if the pipeline were to go to Supsa. The U.S. role in conceiving and obtaining the guarantee gave it considerable credibility with the companies. Turkey also attained significant credibility with the companies that it was serious about the pipeline.
In addition, U.S. government agencies, the Overseas Private Investment Corporation (OPIC) and Export-Import Bank provided financing and, in the case of OPIC, political risk insurance for the project. Funding in the form of loans was also made available by the World Bank and European Bank for Reconstruction and Development.
A third area where the United States played a constructive role was in working closely with the leadership and other officials of the three transit countries; Azerbaijan, Georgia and Turkey.
The U.S. helped at various points to further the negotiations of the intergovernmental agreement among the transit countries as well as the host government agreements between AIOC and each of the three transit countries. These agreements provided the political and legal foundation for the pipeline, without which financing would have been impossible and the pipeline would not have been commercially feasible.
There can be no question that BTC has been a success from the standpoint of United States energy policy. The Caspian basin provides a necessary alternative source of energy that can provide a significant percentage of increased world demand for oil over the next several years, and BTC provides an outlet for these resources that neither traverses Iran nor contributes to an over dependence on Russia for energy supply.
The foregoing analysis is intended to show that governments can play a constructive role in achieving important policy objectives even when commercial interests are involved. Many European companies are involved in the Caspian, including BP, Shell, Total-FinaElf, Statoil and others, but European governments and the EU have not yet seen it in their interests to actively work together with companies and governments to promote these companies' interests as well as important policy objectives.
What could be more important to Europe than to secure transit routes which would bring alternative energy resources to Europe? While the United States has pursued specific objectives in the Caspian region, Europe has taken a more generalized and diffused approach. This writer was particularly struck, for example, in the spring of 1999 at the dedication in Georgia of the Baku-Supsa early oil pipeline, that the EU and Georgia were simultaneously celebrating the establishment of a rail-ferry link across the Black Sea, as part of the EU's Traceca Program to create a transport corridor from Central Asia and the Caucasus to Europe. Certainly this link is useful and is to be applauded but at the same time no emphasis was being given to energy links. The related Inogate Program, which stands for interstate transport of gas and oil to Europe, has been markedly unsuccessful.
It is also striking that The European Security Strategy, adopted by the European Council in December 2003 and EU Neighborhood Policy, adopted in 2004 give short shrift to energy issues.
Although Caspian energy resources are described in the Neighborhood Policy, no specific program is put forward. Likewise, the Azerbaijan and Georgia Strategy Papers, which set out how these countries and the EU can achieve greater cooperation as part of the Neighborhood Policy, make no reference to energy until the very last section of the papers and then set out no concrete steps for cooperation. Very recently at an EU meeting in Kazakhstan with regional energy ministers that produced a roadmap toward energy and regulatory cooperation, no mention was made regarding the transit of Caspian gas to Europe.
The EU has appointed special envoys to the Caucasus and to Central Asia. But these envoys deal principally with political, security and development issues. Energy should become a priority part of their mission.
A better alternative would be for the EU to appoint a special envoy to the Caspian region on energy diplomacy, as the United States did in the late nineties. Such an action would make clear to leaders in the region and to companies that the EU intended to be a serious participant in the energy area.
Most important, Europe must develop a coordinated overall energy policy, of which Caspian development would be a part.
Too often, member states pursue individual policies without adequately taking into account geopolitical issues or the interests of other member states and bordering countries. Energy supply is a geopolitical issue but must be considered in the overall geopolitical context. It should not divide the European Union.
The best example of lack of coordination is Germany's pursuit of a gas pipeline from Russia to Germany under the Baltic Sea. Presently, 44% of Europe's gas imports come from Russia. This pipeline will significantly increase dependence on Russia. In addition, Germany apparently took little notice of the interests of Poland and Ukraine, through which Russian gas presently transits to Europe. This new pipeline may well allow Russia to put even greater political pressure on Ukraine than it did last year when it temporarily cut off gas supplies to Ukraine. Russia had to back off, because the interruption was having an adverse effect on Europe's gas supply, which might not have been the case if there had been a Baltic pipeline. Finally, pipelines cannot be looked at in a vacuum. New pipelines have to be closely studied to determine effects on other possible pipelines. A coordinated policy is essential for Europe to meet what could well become an energy crisis.
Some steps have been taken. The EU has recognized energy supply and security issues as a top priority.
In 2005, the EU and eight Balkan countries signed a treaty establishing the Southeast Europe Energy Community. The purpose of the Treaty is to increase electricity production and transport networks in the Balkans. This Treaty should be expanded to include Turkey, which at the time refused to sign the treaty, and countries in the Caspian region. It could become a vehicle to help develop and transport Caspian resources. In early March 2006, the European Commission presented a Green Paper, asking European governments to coordinate their policies on energy matters. José Manuel Barroso, President of the European Commission, urged the European governments to "use the size of our market and the range of our instruments to manage our energy dependency and to diversify our energy suppliers".
In January 2007, the Commission has also issued its strategic energy review following the publication of its Green Paper earlier this year, which gave scant attention to Caspian resources. In March 2007, European heads of state and governments will adopt an action plan for a common European energy policy. These are opportunities for the EU to declare as part of its overall strategy that the EU will fully engage in the Caspian, develop a coordinated strategic plan and work at high levels with government officials and companies to insure that Europe can reap the benefits of Caspian resources.
In doing so, Europe could build on previous commitments. After all, the EU supports the extension of the Odessa-Brody oil pipeline to Plock in Poland. This pipeline could ultimately bring Kazakh oil to Europe. Pipelines are presently in the planning stage to transport gas from Turkey into the heart of Europe, but greater coordinated efforts must be made to bring these projects to fruition and to determine from what countries and by what routes the gas will reach Turkey.
The United States and Europe: Opportunities for Cooperation in the Caspian Region
The United States and Europe have a major opportunity to cooperate in the Caspian region. Supplying Europe with Caspian energy resources and helping to relieve Europe of overdependence on Russia is in the interest of both the United States and Europe. The United States and Europe can cooperate in the following ways.
First, the United States and EU should begin a formal cabinet level energy dialogue to set out a common overall energy strategy, including a strategy regarding the Caspian region.
Second, high-level U.S. and European officials should work together with high-level officials of Caspian countries, other Black Sea countries and with companies to plan and implement transit projects. Europe must recognize that there will be major competition for Caspian resources. China has already become active in developing transit routes for Caspian resources.
Third, the United States and EU should recognize that Turkey is the bridge to the Caucasus and Central Asia. This region is of huge strategic importance, not just because of its resources, but also because of its critical geographical location which borders on Russia and China as well as major trouble spots such as Afghanistan and Iran. The U.S. and EU should encourage Turkey to re-emerge as a major participant in the Caucasus and Central Asia. In the last few years, Turkey's new leaders appear to have looked away from this region. Turkey because of its historical roots can and should play a productive role both economically and politically in helping these new countries move forward on the path towards market democracy. As part of this role, Turkey should strive to reach accommodations with Armenia and play a positive role in trying to resolve the Nagorno-Karabakh conflict. In addition, as Turkey looks towards European integration, it can play an important role in partnering with Europe and the United States in developing the region. Turkey must also play a major role as a transit country for natural gas to Europe, which would reduce Europe's over- dependence on Russian gas. In light of Turkey's decreased gas demand from earlier projections, the new gas pipeline from Azerbaijan should be extended into Europe. Turkey should step forward as a major player in the region and leverage that role into greater cooperation with Europe as Turkey undertakes its difficult accession negotiations with the European Union. Such cooperation could be a substantial confidence building measure as accession negotiations progress.
Fourth, the United States and Europe cannot and should not ignore Russia. Given the energy relationship and other relationships between Europe and Russia, Europe cannot afford to alienate Russia. At the same time it should not be forgotten that Russia will be dependent for the foreseeable future on the European market. U.S. and European policy toward Russia on energy issues should be coordinated, so that Russia cannot use energy to divide the United States and Europe. The relationship between the United States and Russia in the Caspian Region, but for a brief post 9/11 honeymoon period, has been tenuous at best. When this writer was first introduced to Russia's former Foreign Minister Igor Ivanov in 1999, Mr. Ivanov said in a somewhat jocular but biting way, "We know you, and we do not like what you are doing!" The United States has never sought to, nor could it, exclude Russia from the region. But it also cannot be American or European policy that all pipelines lead through Russia. No country should have an effective monopoly on Caspian resources and potentially limit the sovereignty of new states in the region. Europe should be particularly concerned about any such monopoly, given the dependence that it already has on Russian-sourced energy. The logical solution is for Russia to encourage its companies to partner with companies from other countries to develop alternative routes. Instead, for example, of resisting gas pipeline routes to Europe that do not originate in Russia, Russia should encourage its companies to participate in and reap the benefits of new ventures and new routes. It is also critical that Russia respect the independence of the new states in the region, not use energy as a lever as it has with Georgia, and that Russia cooperate with the United States and the EU to resolve ethnic conflicts in the region, such as those in Georgia and Nagorno-Karabakh.
Fifth, the U.S and EU should leverage the region's energy resources to promote regional economic cooperation and to resolve regional conflicts. How, for example, can there be real regional cooperation if Nagorno-Karabakh is not resolved and if Armenia cannot benefit from the development of the region. The U.S. and EU together with its Minsk Group partners and countries in the region should explore further what tangible benefits can accrue to both sides through resolution of the conflict and through incentives should continue to work with willing partners to push the parties towards a fair and comprehensive settlement.
Sixth, U.S. and EU policy goals cannot be limited to energy. We must help countries in the region make progress in the development of civil society. We must also recognize that economic development and security are essential to the development of civil society and democratic institutions. So far, the state of democratization in the respective countries remains worrisome and backlashes in the progress towards a more open society have been experienced on a regular basis. Europe's Neighborhood Policy is designed to condition increased cooperation with Europe on implementation of reforms and the development of civil society. United States, EU and EU member states all have programs in this area. They should be coordinated and leveraged to have maximum effect.
The development of natural resources need not be inconsistent with the development of civil society. Critics say that the BTC pipeline rewards Azerbaijan which has a questionable record on democracy, as most recently reflected in it's recent Presidential elections. There certainly, however, is no reason to believe that without BTC, Azerbaijan would have a better record on democracy. BTC has made possible increased engagement with Azerbaijan, which should have an incrementally positive effect in the human rights and democracy areas. However, this means positive involvement. The U.S and EU must work with Azerbaijan's leaders and leaders of other countries in the region to demonstrate that it is in their interest to improve their democracy record. We must also give assistance to the private sectors in these countries to help develop civil society. But it must also be remembered that it is difficult to work with the private sector without some cooperation from the Government.
Neither the U.S. nor EU can have a cookie-cutter approach to the development of civil society. Balancing the importance of strategic interests versus records on democracy and human rights is extremely difficult.
Each country should be treated individually. We should go the last mile in working with leaders that we believe we can influence in a positive direction, such as President Ilham Aliyev of Azerbaijan. But when leaders reach the point where it makes little sense to deal with them any longer, we should limit our ties with their governments, even when there may be competing strategic interests, while at the same time attempting to work with non-governmental sectors to develop civil society over the long term.
In summary, the successful completion of the Baku-Tbilisi-Ceyhan pipeline is an example of what can be accomplished when policy is consistent and has sound objectives. While an uncoordinated European energy strategy, ranging from Polish proposals for an Energy NATO (as a counterbalance to Russian's growing power) to Germany's close and nearly exclusive cooperation with Russia, fails to secure strategic objectives, transatlantic cooperation could help to facilitate energy supplies for decades to come.
The Caspian Region continues to be vital to the interests of the United States and Europe. Europe should make the Caspian region a top priority. Together we can benefit from the region's resources, while at the same time enhancing the stability of the region and working to develop vibrant civil societies.
Richard Morningstar is the former US Ambassador to the European Union and US Special Representative for the Caspian Region. He lectures at Stanford Law School and Harvard University's Kennedy School of Government.
http://www.spiegel.de/international/0,1518,druck-469857,00.html