EurasiaNet Eurasia Insight - Central Asia: Russia and United States Intensify Energy Competition

EURASIA INSIGHT

CENTRAL ASIA: RUSSIA AND UNITED STATES INTENSIFY ENERGY COMPETITION
9/05/08

A three-sided diplomatic scrum is intensifying in Central Asia, as US, Russian and Chinese officials are stepping up efforts to wring energy-export deals from regional leaders.

Russia’s incursion into Georgia has helped stoke the diplomatic competition by appearing to alter the geopolitical balance of power in the Caspian Basin. [For background see the Eurasia insight archive]. Russia is seen as the most aggressive diplomatic actor in the unfolding struggle, which started escalating rapidly with the end of the summer season. Vladimir Putin’s Kremlin, many experts believe, is now more determined than ever to use the strategic momentum gained in Georgia to try to reduce US political and economic influence in the region. Washington is determined to maintain its position in the Caspian Basin, while China is quietly, but persistently making economic inroads in Central Asia, with the main aim of securing the energy the country needs to keep its economy growing.

A major focal point of the scrum has been Uzbekistan, a country that has been close to Russia, but which has been seen as moving back toward the United States in recent months. [For background see the Eurasia Insight archive]. For now, Russia seems to have arrested Tashkent’s geopolitical drift. During a September 1-2 visit to Tashkent, Putin secured a verbal commitment from Uzbek President Islam Karimov on a variety of projects, most notably the construction of yet another natural gas pipeline, this one with a projected capacity of 26-30 billion cubic meters, and linking Uzbekistan and Turkmenistan to Russia.

With the diplomatic logjam suddenly broken between Russia and Uzbekistan, Karimov hastily rearranged his schedule so that he could attend the September 5 summit of the Collective Security Treaty Organization (CSTO) in Moscow. The Kremlin is widely expected to try to use the CSTO event to secure a collective statement of diplomatic support for its actions in Georgia, as well as its diplomatic recognition of Abkhazia and South Ossetia. [For background see the Eurasia Insight archive]. Moscow suffered a diplomatic embarrassment in late August at the Shanghai Cooperation Organization summit, when China appeared to block the adoption of a strong endorsement for Russia’s actions. China is not a member of the CSTO.

While Russia has concentrated its diplomatic attention on Uzbekistan, Washington is working furiously to remain a play for a large share of Turkmenistan’s gas reserves. The new US deputy assistant secretary of state for Central Asia, George A. Krol, completed a nearly five-day visit to Turkmenistan on September 5. The major objective of the visit was to keep open the possibility of constructing a trans-Caspian pipeline (TCP). The United States has long backed the construction of such a route, which would circumvent Russia and link into pipeline connecting Azerbaijan to Turkey, via Georgia. However, the viability of such a pipeline has been called into question by the Russian incursion into Georgia, which caused a major disruption in the westward energy flow from Azerbaijan. [For background see the Eurasia Insight archive].

After meeting with Turkmen leader Gurbanguly Berdymukhamedov, Krol voiced optimism that the TCP project remained an option for Ashgabat. Turkmen government-controlled media outlets affirmed that Berdymukhamedov remained open to the TCP idea. "The head of state and his guest specifically stressed the wide potential for cooperation in the energy sector, in which Turkmenistan, with its hydrocarbon resources of planetary scales, is implementing a diversification strategy," said a commentary posted on the official Turkmenistan web site.

In trying to woo Turkmenistan, the United States is also relying on surrogates, especially Turkey, a country with strong cultural and linguistic ties to Turkmenistan. Turkish Energy Minister Mehmet Guler met with Berdymukhamedov on September 2, after which the Turkmen leader again expressed his desire for the diversification of export routes.

In an attempt to preempt US diplomacy, Russia deployed First Deputy Prime Minister Viktor Zubkov to Ashgabat at the very end of August. In Ashgabat, Zubkov signed a deal under which Russia and Turkmenistan pledged to explore new areas of energy cooperation.

While the US-Russian jockeying in the Caspian Basin has attracted the most international attention, China also has worked hard to expand its influence in the region. In connection with the late-August Shanghai Cooperation Summit in Dushanbe, Tajikistan, Chinese President Hu Jintao held talks with Tajik and Turkmen leaders. Hu’s most significant achievement on his Central Asian tour was securing a commitment by Turkmenistan to export 40 bcm of gas annually. That is 10 bcm more per year than Ashgabat had previously agreed to.

While Russia currently appears to have gained the upper hand, recent experience shows that signed deals offer no guarantee that a pipeline will actually be built. In May 2007, for example, Russia got Turkmenistan and Kazakhstan to approve a pipeline deal that many experts believed at the time would permanently tilt the Caspian Basin energy game in Moscow’s favor. [For background see the Eurasia Insight archive]. Since then, however, the so-called Prikaspiisky project has remained on the drawing board. Officials in Moscow continue to hope that Prikaspiisky construction can begin later in 2008, but numerous technical obstacles remain to be worked out. [For background see the Eurasia Insight archive].

If both the Prikaspiisky and new Uzbek projects are completed, Russia will be able to almost double its capacity to import Central Asian energy. Russia is desperate to expand that capacity in order to maintain its stranglehold on Central Asian natural gas. The capacity of two existing pipelines from Turkmenistan and Uzbekistan -- the so-called Central Asia-Center-1 and Central Asia-Center-2 routes -- stands at about 54 bcm per year, according to Karimov.

Under a 25-year export agreement, Turkmenistan should export 70-80 bcm of gas to Russia starting this year. But the current pipeline capacity can only accommodate about 42-44 bcm of Turkmen gas per year. Uzbekistan exports another 12 bcm of gas via those pipelines.

It would seem that Russia’s vast surplus of cash, generated by energy exports to European Union countries, enabled the Kremlin to persuade Uzbekistan’s Karimov to stay loyal - for now. Earlier in 2008, Turkmenistan, Uzbekistan and Kazakhstan joined forces to convince Russia’s Gazprom to pay them a price for their natural gas close to "European prices." However, the actual price was never publicly disclosed. But in Tashkent in early September, Putin shed some light on the price formula.

"It is very important that our gas trade specialists managed to agree on the gas price formula," said Putin after negotiations with Karimov. "The price will be constantly changing depending on the formula components. ? It’s going to be a European price formula. It was a hard task involving a lot of factors -- how to access transit [fees], storage [costs], Gazprom’s margin. And I am glad to tell you that we have agreed on basically all issues."

Assessing Uzbek-Russian cooperation, Putin said that bilateral ties were "of a strategic nature, not only on paper, but also in reality, in life."

Despite Putin’s optimistic assessment, the Uzbek pipeline is by no means a done deal. While Karimov had warm words for Russia, calling Moscow an "ally," he did not commit Uzbekistan to anything on paper. In another sign that Tashkent remains intent on playing the field, the chief executive of the Russian state-controlled conglomerate Gazprom, Alexei Miller, was not allowed to sit in on the Putin-Karimov meeting, even though he has been present at such meetings in the past.

In addition, Russian companies continue to experience difficulty in Uzbekistan. For instance, Uzbekistan has failed to ratify the purchase of the Tashkent aircraft plant by Russia’s United Aircraft Corp., a deal Putin himself facilitated about six months ago. Meanwhile, the Russia energy concern Inter RAO UES has been barred from purchasing several electric stations it had long targeted.

Finally, even while Putin was still in Tashkent, Uzbek officials played host to visiting German Defense Minister Franz Josef Jung. And it appeared that Uzbek state media outlets went out of their way to play up the significance of the German official’s visit. The official UzA news agency, reporting on talks between Jung and Uzbek Defense Minister Ruslan Mirzayev, noted that "cooperation between Uzbekistan and Germany is developing intensively, including in the military sphere."

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