Business & Economics:
HAILING THE PIPELINE TO SOMEWHERE
Thomas Goltz: 7/12/06
A EurasiaNet Commentary

For just about a decade after construction plans were unveiled, detractors continued to refer to the Baku-Tbilisi-Ceyhan export route mockingly as “the pipeline to nowhere.”

But on July 13, international oilmen, the governments that back them and a few odd-ball adventurers like myself will celebrate an extraordinary event: the official opening of the 1760 kilometer-long BTC pipeline connecting the Caspian basin’s hydrocarbon riches to the eastern Mediterranean. [For background see the Eurasia Insight archive].

First mooted in the early 1990s by Azerbaijan’s first post-Soviet government, BTC was initially viewed by many as a geopolitical fantasy. For most of the 1990s, the main the pipeline was hounded by concerns about its economic viability. Initial assessments of Azerbaijani reserves in its sector of the Caspian Sea proved to be highly inflated. In order to be viable, oil volumes needed to be brought from neighboring Caspian such as Kazakhstan and Turkmenistan but those states were declining to commit to the BTC for their own internal reasons. Then, crude oil prices fell in 1998-99, going from about $25 a barrel to something closer to the low teens. The price drop made the idea of sinking an estimated $2.5 billion into a new export pipeline from Azerbaijan seem like a bad joke. So did the future of the Azerbaijani oil industry itself. On- and off-shore explorations by foreign investors were coming up with dry holes, and doom and gloom was descending on the oil patch.

It was around then that my old pal Laurent Ruseckas, then a senior analyst for Daniel Yergin’s Cambridge Energy Resource Associates, embarked on a PhD dissertation that centered on the familiar notion that economics would always triumph over politics, and used the BTC as a case study. In the preamble to the dissertation proposal, which he recently shared with me and my students as an example of how a well-argued piece of research could be so wrong, Laurent wrote: ‘…a preliminary review of the evidence suggests that market forces are generally carrying the day on the pipeline question, and that this is having a significant effect on broader regional politics. The oil companies have been unwilling to make major investments to support the political goals of either their host government or their home governments. Meanwhile states have been unable or unwilling, in the case of the United States to override economic considerations by finding some way to subsidize preferred pipeline alternatives. Having linked their prestige in the Caucasus to a pipeline strategy that has proved commercially unworkable, both the United States and Turkey have seen their influence begin subtly to decline. This has contributed to a climate in which both Azerbaijan and Georgia are now taking preliminary steps to accommodate Russian interests while cautiously backing away from sole reliance on US support. Laurent wrote that in the year 2000; six years later, he was willing to own up to the error of his prediction with a chuckle, and concede that for once, politics had won out over economics. More specifically, he attributed his error of analysis to an uncontrollable human factor: the unflagging efforts of the late authoritarian president of Azerbaijan, Heidar Aliyev, whose relentless support for the “pipeline to nowhere” translated into twisting the arms of senior CEOs, banging his fist on tables and even using bizarre and unorthodox stratagems to promote BTC.

Arguably the most unorthodox move of all was back in August 2000, when Aliyev’s commissioned me and a cohort of twenty-odd adventurers to travel in Soviet-era side-car motorcycles down a speculative version of the pipeline route, and deliver the first “symbolic” barrel of Azerbaijani crude oil from Baku to Ceyhan. The so-called Oil Odyssey did just that, and some two years before the BTC pipeline was sanctioned and endorsed by BP President Sir John Browne. President Aliyev died in 2003, but not before breaking ground in Azerbaijan for the first section of the pipeline. During the construction phase, builders encountered numerous unexpected obstacles. “I like to think of it as the longest and biggest archeological trench in history,” chortled outgoing BTC President and CEO Mike Townshend the other day. “We had to modify our theoretical trench work 300 times before actual construction and an additional 100 times when we encountered items of interests such as tombs and temples while under way.”

Such diversions and other problems, ranging from the need to assuage environmental groups in Georgia, striking workers in Azerbaijan and construction delays and cost-overruns in Turkey helped push the eventual cost of the project from the initial $2.5 billion to something closer to $4 billion. [For background see the Eurasia Insight archive].

But with the price of oil nudging $70 a barrel, the initially risk-averse investors in BTC are not complaining too loudly these days. Their pipeline has been filled with some 10 million barrels of crude belonging to the Azerbaijan International Operating Company, which is led by BP. In addition to other producers in Azerbaijan who were initially shy of joining the consortium, Kazakhstan now wants in. [For background see the Eurasia Insight archive]. Most interesting of all are the rumors that both the Islamic Republic of Iran and Russia are toying with the idea of opening up initial negotiations to move their crude west via BTC.

Now, Azerbaijan is grappling with the question of what to do with the oil profits that BTC brings. [For background see the Eurasia Insight archive]. But for the time being, the ramifications of future oil-related wealth are on hold, as investors, citizens and former pipe-dreamers celebrate the fact that BTC has become a Pipeline to Somewhere.

I hope my zany motorcycle circus of six years ago played some little part in this process. But I also hope that the current leadership of Azerbaijan will use the occasion of its new-found wealth to win more than just fair-weather friends (especially among the former nay-sayers), and address some of the urgent social issues at play in the country on the shores of the Caspian.

Editor’s Note: Thomas Goltz is the author of a trilogy of books on the post-Soviet Caucasus: Azerbaijan, Chechnya and most recently, Georgia Diary (M.E. Sharpe, Armonk NY, July 2006) as well as a memoir of his days as an itinerate actor in Africa, Assassinating Shakespeare (Saqi Books, London, May 2006). He is currently a Visiting Scholar at the University of Montana, Missoula.