<<>><<>><>><<>><<>><<>><<>><<>><<>><<>><<>><<>><<>><<>><<>><<>><<><< #4. Energy and Pipelines: Ambassador Morningstar on U.S. Policy Toward the Caspian

Date: Fri, 06 Nov 1998
From: Elizabeth Reisch lreisch@ceip.org
Subject: Morningstar Remarks at Carnegie


On November 3 the Russian and Eurasian Program at the Carnegie Endowment
for International Peace [in Washington DC] hosted a discussion with
Ambassador Richard L. Morningstar, Special Advisor to the President
and Secretary of State for Caspian Energy Basin Diplomacy.  The following
is a summary of his remarks.

Ambassador Morningstar expressed optimism that the Azerbaijan
International Operating Company (AIOC) will support construction of a
pipeline from Baku to Ceyhan in Turkey as the main export pipeline for
Caspian oil.  The Baku-Ceyhan route, he said, is part of the
Administration=92s plan for multiple pipelines for Caspian energy
exports.  He called on the consortium to formalize its commitment to the
Baku-Ceyhan route at its forthcoming November 12 meeting and pledge its
readiness to negotiate with the countries in the region to reach
agreements on the commercial issues necessary to seal the deal.   The
AIOC is a consortium comprised of the State Oil Company of the
Azerbaijan Republic (SOCAR) and eleven international oil firms.

Morningstar identified four key objectives in U.S. policy toward the
Caspian energy basin.  First, to strengthen the sovereignty,
independence and prosperity of the newly independent states of the
region.  Second, to enhance commercial opportunities for the United
States and other companies.  Third, to bolster the energy security of
the U.S. and its allies, and to ensure the free flow of energy from the
Caspian region to the world market.  Fourth, to mitigate regional
conflicts by building economic linkages between the new states of the
region.  The U.S. government, as facilitator and broker of these
projects, will provide financial support through the activities of the
Trade and Development Agency (TDA), the Overseas Private Investment
Corporation (OPIC), and the U.S. Export-Import Bank.  It will not,
however, directly finance the pipelines, which Morningstar said would
constitute a subsidy of primarily private oil companies by U.S.
taxpayers.

Morningstar emphasized that the Baku-Ceyhan route would not be a
singular pipeline that supplanted existing pipelines.  Rather,
Baku-Ceyhan would be the main export pipeline in a network of multiple
pipelines, including: the Caspian Pipeline Consortium (CPC) pipeline
running through Russia to the north of the Caspian; the early oil
pipelines from Baku to Supsa to Novorossiysk; and a Trans-Caspian gas
pipeline stretching from Turkmenistan to Turkey.  The October 29 signing
of the Ankara Declaration by the presidents of Turkey, Azerbaijan,
Georgia, Kazakhstan, and Uzbekistan underscored the Caspian presidents
support for the Baku-Ceyhan pipeline, according to Morningstar.  The
Ankara Declaration, coupled with a statement of support for Baku-Ceyhan
by AIOC, would =93take the issue out of the public limelight=94 and enable
the companies and the countries to hammer out the commercial issues at
the negotiating table, he said.

While acknowledging that the need for adequate oil volumes to fill
pipelines is a very real and legitimate issue for oil companies,
Morningstar said that the current lack of such oil volumes need not be
a deal-breaker.  In the administrations view, the lack of sufficient
volumes today should not obstruct a credible commitment to Baku-Ceyhan.
Morningstar expressed confidence that the volumes will be there with
more exploration, noting that most industry estimates predict that oil
volumes will match or exceed those of the North Sea.

In response to several questions posed concerning the basis of U.S.
interests in the Caspian region, Morningstar refuted the notion that
business and commercial interests drive U.S. policy at the expense of
support for political and economic reform in the region.  He noted that
appropriations for the NIS under the Foreign Assistance Act in support
of such reform increased from $770 million in 1998 to $840 in 1999.  In
his view, U.S. involvement in the region can only advance democracy and
market reform, and the U.S. has an obligation to keep those causes at
the forefront of its relations with the states of the Caspian region.
Morningstar said that the United States =93is doing a good job at showing
the region that we are interested in more than oil.=94

Morningstar fielded questions concerning the ramifications of the
administration=92s Caspian policy on U.S.-Russian relations.  U.S. policy,
he said, seeks not to exclude Russia from the development of Caspian
energy resources. He pointed out that U.S. support of the CPC pipeline
-- which will run from northwestern Kazakhstan across southern Russia to
the Black Sea port of Novorossiysk -- reflects U.S. policy in support of
Russia as a partner in ensuring the free flow of energy to world
markets.  He added that the U.S. even envisions the eventual flow of
Russian oil through the Baku-Ceyhan pipeline and Russian natural gas
entering Turkey via the Caucasus.

The administration remains opposed to piping Caspian oil through Iran,
an option that some oil companies view as cheaper than the Baku-Ceyhan
route.  It would be foolhardy for these initial pipelines to go through
Iran, said Morningstar, arguing that Iran could become a choke point in
the export network and would compromise the sovereignty and energy
independence of the newly independent states.  American efforts to keep
Caspian oil pipelines out of Iran are motivated not only by political
considerations, according to Morningstar, but also by commercial and
economic concerns.

Turkey opposes the Baku-Supsa route because it would create more tanker
traffic through the Bosphorus Straits.  Turkeys concern about safety
and environmental issues in the Bosphorus has helped shaped the
administrations policy in favor of the Baku-Ceyhan route, according to
Morningstar.

Morningstar refuted the view that a Baku-Supsa route would be
politically and economically preferable to Georgia.  He noted that
Georgian President Shevardnadze unequivocally supports the Baku-Ceyhan
route over the Baku-Supsa option, due to his concern for regional
stability and his belief that the Baku-Ceyhan option will strengthen the
sovereignty and independence of the countries of the region.
-Summary by Liz Reisch