Analysis: Energy Geopolitics In The Caspian

Intense competition for unimpeded access to the world's natural resources is continuing and is likely to increase, according to the April 21 edition of "Jane's Foreign Report." The current unprecedented surge in fuel prices illustrates the growing need for a greater supply and consequently demonstrates the volatile nature of the energy market.

The Caspian Sea could meet some of that demand, because it has sizeable proven and possible oil and gas reserves ("proven reserves" are defined as oil and natural-gas deposits that are considered 90 percent probable, and "possible reserves" are defined as deposits that are considered 50 percent probable). The littoral states of the Caspian Sea -- Russia, Kazakhstan, Turkmenistan, Iran, and Azerbaijan -- collectively have an estimated 10 billion-32 billion barrels of proven and another 233 billion barrels of possible oil reserves. In comparison, Saudi Arabia has 261 trillion barrels of oil, while the United States, China, and India's proven oil reserves are respectively 22.677 trillion, 18.25 trillion, and 5.371 trillion barrels. The proven natural-gas reserve of the five Caspian countries is an estimated 170.4 trillion cubic feet (4.83 trillion cubic meters) while their possible reserve is 293 trillion cubic feet (8.30 trillion cubic meters).

Like the Persian Gulf, Nigeria, Venezuela, and other regions rich in energy resources, the Caspian Sea is becoming a battleground for states and business entities with competing interests. Eni, BP, ChevronTexaco, Caltex, LUKoil, and Royal Dutch Shell are the main companies actively developing Caspian Basin oil and gas as they continue building pipelines to transport those hydrocarbons to international markets. The United States, China, Russia, Iran, several European countries, and to a lesser extent Japan are interested in exploring and investing in Caspian resources as a supplement to Persian Gulf supplies.
The Persian Gulf countries normally maintain almost all of the world's excess oil production capacity.

The situation in the Persian Gulf has increased pressure on Caspian countries and oil companies to contribute to global oil supplies. The Persian Gulf contains 715 billion barrels of proven oil reserves, representing over half (57 percent) of the world's oil reserves, and 2,462 trillion cubic feet (69.72 trillion cubic meters) of natural gas reserves (45 percent of the world total), according to the Energy Information Administration's "International Energy Outlook 2003." At the end of 2003, Persian Gulf countries maintained about 22.9 million barrels per day of oil production capacity, or 32 percent of the world total. Perhaps even more significantly, the Persian Gulf countries normally maintain almost all of the world's excess oil production capacity. As of early September, excess world oil production capacity was only about 0.5-1 million barrels per day, all of which was located in Saudi Arabia.

Since the demise of the Soviet Union and emergence of independent states in Central Asia and the Caucasus, a major issue in the Caspian Basin has been the division of the energy resources that lie beneath the sea. Other sources of regional tension include the complex unsettled legal status of the sea; the existence of unresolved conflicts in Russia, Azerbaijan, and Armenia; terrorism; and increasing Islamic militancy. The landlocked position of Azerbaijan, Kazakhstan, and Turkmenistan causes further tension, as all three countries depend on their neighbors' good will in order to export their oil and natural gas to international markets.

In terms of reserves, production, and access to international markets, Russia and Iran are in better positions than their neighbors. The CIA "World Factbook 2004" put Russia's proven oil reserves at 51.22 billion barrels, its proven natural-gas reserves at 47.86 trillion cubic meters (1 January 2002), and its natural-gas exports at 205.4 billion cubic meters (2001 estimates). It puts Iran's proven oil reserves at 94.39 billion barrels (1 January 2002), its proven natural-gas reserves at 24.8 trillion cubic meters (1 January 2002), and its natural-gas exports at 110 million cubic meters (2001 estimate).

Regardless of how much oil is produced, there will still be enough customers. For example, China's rapid economic growth means the country's energy needs are increasing. China already uses a great deal of foreign energy, and in a decade or so it is expected to be totally dependent on the Persian Gulf and the Caspian Sea area for its energy needs. Russia and Kazakhstan are both already eyeing the expanding Chinese market. The United States, Europe, India, Japan, South Korea, and many other countries will also be seeking alternative supplies of oil. Guaranteed access to energy resources is becoming an important component of foreign policy for these states and is gaining even more prominence in light of the continuing insurgency in Iraq, as well as the expanding U.S. presence in the Caspian region at the expense of Iran, Russia, China, and India.

Caspian Sea Basin energy assets have the potential to significantly reduce consumers' reliance on Middle Eastern oil. Yet this raises the prospect of crises and conflicts that directly involve China, Iran, Russia, and the United States. The actual production of oil and gas is not the only potential source of competition between international actors; for the last decade there have been disputes over the best routes for pipelines that would transport oil and gas to markets. Iran promotes itself as the most economical route from Central Asia, while the United States promotes the export of Caspian oil via Georgia and Turkey.