Strategic Rivalry in the Caspian SeaDr. Gawdat BahgatDirector, Center for Middle Eastern StudiesDepartment of political scienceIndiana University of PennsylvaniaIndiana, PA 15705Tel (724) 357-2290Fax (724) 357-3810E-mail: GBAHGAT@IUP.EDUPrepared for delivery at the 2006 Annual Meeting of the American Political ScienceAssociation, August 30th – September 3, 2006. Copyright by the American PoliticalScience Association.Strategic Rivalry in the Caspian SeaAbstractSine the early 1990s, the Caspian Sea region has been seen as a potential major oil and gas producer. Following the 9/11, 2001 terrorist attacks in the United States and the 2003 war in Iraq, energy consumers have shown more interest in the Caspian region and Central Asia to supplement energy supplies from the Middle East and to contain militant Islam. This essay examines the Caspian region’s energy outlook. Particular attention is given to the competing pipeline schemes. The study also analyzes the strategic rivalry between the United States, Russia, and China. It suggests that despite conflicting interests, the strategies of these global powers should not be seen in zero-sum terms.There is room for cooperation, particularly in the areas of combating terrorism and restricting drug trafficking. Political stability and economic prosperity in the Caspian Sea/Central Asia would serve the interests of all concerned parties.2Strategic Rivalry in the Caspian SeaThe Caspian Sea is the largest enclosed body of salt water in the world. It is believed to contain massive oil and natural gas deposits. For much of the twentieth century, the Basin was the exclusive domain of Iran and the former Soviet Union, with the latter enjoying more dominance. With the collapse of the Soviet Union in 1991, “the geopolitical situation in the region changed significantly.”1 Five littoral states – Azerbaijan, Iran, Kazakhstan, Russia, and Turkmenistan – currently share the Caspian Sea.Shortly after independence, these three former Soviet republics, have realized that their economic and political survival depends on the full utilization of their hydrocarbon resources. The lack of consensus on how to divide the Sea, however, has constituted a major hurdle.2 The five littoral states have yet to agree on how to divide the Caspian Sea.Iran insists on an equal share of each state (20 percent). Meanwhile, in 2003 Azerbaijan, Kazakhstan, and Russia agreed on dividing the northern part of the Sea between them using a median line principle.3 This lack of consensus has slowed down the full utilization of the region’s oil and natural gas resources.The Caspian Sea region’s strategic significance has substantially increased since the September eleventh, 2001 terrorist attacks on the United States. The region is one of few areas where international oil companies are invited to invest in both upstream and downstream oil and gas sectors. In comparison, most Persian Gulf producers and, Russia, since the early 2000s, have been reluctant to allow foreign investment in their upstream operations. Following the terrorist attacks, the Caspian region has emerged as a potential replacement of the Middle East. Put differently, the United States and other major energy consumers have sought to reduce their dependence on the Middle East by developing oil and natural gas deposits in the Caspian.Equally important, given geographical approximately to Afghanistan, Caspian, and other Central Asian states have become crucial players in the war on terror. In the early 2000s, U.S. troops were deployed in Uzbekistan and Kyrgyzstan, while Kazakhstan allowed over-flights to attack terrorist bases in Afghanistan. In other words, the U.S. campaign against international terrorism has

expanded American military presence in Russia’s and China’s “backyard” to unprecedented proportions. Initially, both Moscow and Beijing accepted the U.S. military presence in their backyards as an inevitable part of America’s response to the 9/11 terrorist attacks. But, as Martha Brill Olcott argues, “neither country was willing to have its national interests overshadowed in the region.”These geo-economic and geo-strategic rivalries have been institutionalized to further protect the interests of regional and global powers. In the past two decades, several regional organizations were created, most notably, the Commonwealth of Independent States (CIS), Partnership for Peace (PfP), Shanghai Cooperation Organization (SCO), and the Organization for Democracy and Economic Development - GUAM.The CIS consists of all former Soviet republics, except the Baltic states, initially emerged as the most important institution to consolidate relations between Russia and the newly-independent states. On the other side, Western powers, led by the United States, created the Euro-Atlantic Partnership Council and its related PfP program. These organizations provide, “mechanisms through which NATO and the former Soviet bloc countries can pursue practical defense and security cooperation on a range of issues.” GUAM, a regional grouping of Georgia, Ukraine, Azerbaijan, and Moldova, was initially created to resist Russian influence. The leaders of the four state-members have expressed their desire for increased cooperation with NATO and the European Union.The SCO comprises China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, and Uzbekistan. The organization was formed in 1996 and was originally named the Shanghai Five. With the addition of Uzbekistan in 2001, the name changed to SCO.Mongolia won observer status in 2004; Iran, Pakistan, and India became observers the following year. The SCO deals with a variety of issues in Central Asia, particularly trade, counterterrorism, and drug trafficking. In the SCO summit July 2005, the heads of states called on the United States and its allies to set a timetable for their military withdrawal from the region.The combination of these energy and strategic interests has underscored the importance of the Caspian Sea/Central Asia region since the early 1990s. The following section examines the region’s hydrocarbon potential and the different schemes to connect it to the global energy markets. This will be followed by an analysis of American, Russian, and Chinese strategies in the Caspian Sea. The study argues that despite conflicting interests, the strategies of these global powers should not be seen in zero-sum terms. China, Russia, and the United States as well as regional powers share common interests in combating terrorism and restricting drug trafficking. Political stability and economic prosperity in the Caspian Sea/Central Asia would serve the interests of all concerned parties. There is room for cooperation.The Caspian Sea Hydrocarbon PotentialEstimates of the Caspian Sea region’s proven oil reserves vary widely by source. The United States Department of Energy estimates that the region holds between 17 to 44 billion barrels.7 The British Petroleum’s estimates are 47.1 billion barrels.8 These figures indicate that the Caspian’s oil resources are much less than those of the Middle East. Stated differently, the Caspian Sea will not replace the Middle East as the main reservoir of world oil. Still, production from the Caspian will add more oil to international markets and contribute to global energy security. Kazakhstan has the Caspian Sea region’s largest recoverable crude oil reserves and its production accounts for approximately two-thirds of the region’s overall output. It is important to point out that Kazakhstan claims the largest share of the Caspian Sea, which includes most of the Basin’s biggest known oil fields – Tengiz, Karachaganak, Kurmangazy, and Kashagan. These fields have been developed by international oil companies. Since independence in 1992, Kazakhstan has aggressively pursued foreign investment. For the last several years, the national oil company Kazmunaigaz (formerly Kazakhoil) has signed several schemes with foreign investors to develop the country’s oil and gas deposits.The Tengiz field was originally discovered in 1974 and two decades later, Chevron signed a joint venture with the government of Kazakhstan to develop it.

Karachaganak is being developed by a consortium led by Britain’s British Gas and Italy’sENI and is considered one of the world’s largest gas-condensate fields. Kashagan is thelargest oil field outside the Middle East and the fifth largest in the world.9 It was firstidentified by the Soviets in the early 1970s, but was not developed due to the complexgeologic formations and environmental sensitivity. In recent years, the field has beendeveloped by international consortium that includes Royal/Dutch Shell, ENI,ExxonMobil, and ConocoPhilips.10 Finally, Kurmangazy is located on the maritimeborder between Russia and Kazakhstan. In July 2005 the two sides signed a productionsharingagreement to develop the field, which is likely to take several years.6Most of the Azeri energy deposits are developed by the State Oil Company of theAzerbaijan Republic (SOCAR). The company was established in September 1992 withthe merger of Azerbaijan’s two state oil companies – Azerineft and Azneftkimiya.Almost half of SOCAR’s oil production comes from the offshore field “shallow-waterGunashli.11 The field first came online in 1981, but technological constraints sloweddown the full utilization of the reservoir’s resources. The influx of foreign investmentsince independence has revitalized the country’s energy sector through the developmentof large-scale new projects and the refurbishment of existing ones. AzerbaijanInternational Operating Company (AIOC) is the leading international consortium incharge of expanding the country’s oil production and export.12Most of the future oil production is projected to come from the three-phasedevelopment of the offshore Azeri, Chirag, and deep water Gunashli (ACG) megastructure.However, the country’s future oil prosperity is highly uncertain. Several foreigninvestment projects have been unsuccessful due to disappointing drilling results.13The other three littoral states – Iran, Russia, and Turkmenistan – have not madesubstantial progress in exploring and developing oil deposits in their shares of theCaspian Sea. With only a small amount has been proven as recoverable, Iran’s oildeposits in the region are largely unexplored and underdeveloped. In early 2004, Iran’sOil Survey Company conducted a 3-D seismic survey of the southern Caspian.14 This hasbeen followed by prolonged negotiations between the National Iranian Oil Company(NIOC) and Brazilian company Petrobras to finalize production sharing agreement.In 1995, the Russian oil company LUKoil began exploration of the Russiansection of the Basin. Five large oil and condensate fields have been found includingKhvalinskoye, Yuri Korchagin, Rakushechnoye, and Sarmatskoye. Some of these fields7are located on the borders between Russia and Kazakhstan and are being developedjointly by companies from the two nations.For a long time a dispute between Turkmenistan and Azerbaijan over the offshoreSerdar oil and gas field, called Kyapaz by Azerbaijan, prevented the development of thefield.15 In the mid-2000s, Malaysia’s Petronas began offshore oil production in theTurkmen sector of the Caspian Sea.The Caspian Sea region’s natural gas deposits are equally important to its oilreserves. The region holds 256.7 trillion cubic feet (7.27 trillion cubic meters), about 4.1percent of world’s total.16 Despite these massive proven reserves, international companiesand governments have focused more on oil, partially due to the greater capitalexpenditures necessary to start up natural gas production.Azerbaijan’s natural gas outlook has drastically changed in the mid-2000s. Sinceindependence in 1992, Baku has been a net importer of natural gas. Most of the country’sgas production comes from Bakhar and Bakhar-2 gas fields. In 1996 a production-sharingagreement to develop Shah Deniz was singed. The field is one of the largest in the worldand is being developed by an international consortium comprising BP, Statoil, SOCAR,LukAgip, NICO, TotalFinaElf, and TPAO.Almost all Kazakhstan’s natural gas is associated gas.17 Like Azerbaijan,

Kazakhstan was a net importer of gas for many years following independence in 1992.This situation has changed since 2005, when the country became a net natural gasexporter. This development reflects the government’s efforts to utilize its gas resources.The future of the country’s natural gas potential is promising.Turkmenistan’s natural gas production has been subject to intense fluctuationssince independence in 1992. The country counts on its large natural gas reserves and8potential exports to be the focal point of its economic prosperity. However, due to theunpredictability of the country’s political leadership, international companies have beenreluctant to invest in Turkmenistan. Furthermore, a large Turkmen natural gas productionand export would compete with Russia’s. Accordingly, after difficult and extendednegotiations (and few confrontations) Ashgabat agreed to sell almost all its gas exports toRussia.In July 2003, the Russian oil and gas companies LUKoil and Gazprom establisheda joint venture with Kazakhstan’s state oil company Kazmunaigaz to develop ahydrocarbon structure called Tsentralnaya. A similar scheme, Kurmangazy, is beingdeveloped since 2003.Pipeline DiplomacyThe three newly-independent states – Azerbaijan, Kazakhstan, and Turkmenistan– are landlocked meaning that they do not have direct access to shipping lines on the highseas. For their oil and natural gas supplies to reach the targeted markets, they have to gothrough the territory of at least one transit country. Since the collapse of the Soviet Unionin 1991, several pipeline schemes have been negotiated and some have beenimplemented.A number of characteristic of this “pipeline diplomacy” can be identified. First,given the historical context and the fact that for several decades these littoral states werepart of the Soviet Union, on the eve of independence all pipelines from the Caspian Seawere connected to the Russian system. Following the independence, Russia has continuedto dominate the export routes from the region. Building a pipeline system is an expensiveadventure and requires strong financial and political commitments. Furthermore, despite9some occasional disagreements and some differences, Moscow still enjoys specialcultural, economic, and political ties with these former Soviet republics.Second, this lack of adequate outlets to the region’s hydrocarbon resources hassubstantially slowed down the full utilization of these deposits and added morecomplications to the region’s energy outlook. Energy projects in the Middle East, WestAfrica, and Russia do not have to deal with such a hurdle. Third, a consensus is emergingthat eventually multiple pipeline routes will be built. The Russian system is no moreadequate to handle the growing oil and natural gas production from the region.Furthermore, these littoral states seek to achieve economic and political independencefrom Moscow. Thus, diversification of pipeline routes has become a fundamental meansto reduce Russian influence and ensure their independence.Fourth, the decisions to construct a pipeline system are not based only on thefinancial merit of the project or a cost-effective analysis. Geo-political interests play asignificant role in choosing these routes. A main drive in building some of these pipelineshas been to weaken the Russian influence and deprive Iran of any political or financialbenefits. Obviously, Iran represents a viable option to export the Caspian oil and gas,particularly to Asian markets. However, the strained relations between Washington andTehran have substantially reduced the Iranian option’s attractiveness.Taking these characteristics into consideration, several pipelines routes have beenconstructed and/or negotiated. These pipelines aim to ship the Caspian Sea’s oil andnatural gas to all directions – west to the Black and Mediterranean Seas, east to China,north to Russia, and south through Iran and potentially Afghanistan.

The Baku-Tbilisi-Ceyhan (BTC) pipeline is probably the most controversial andmost publicized scheme. This 1,040-mile (1,800 kilometer) pipeline was built by an10international consortium led by BP. The construction was completed in May 2005. Thepipeline aims to reduce Caspian producers’ dependence on Russian routes and todiversify Europe’s supplies away from the Middle East. Little wonder, in theinauguration ceremony President Bush sent a letter describing the completion of theproject as a “monumental achievement that opens a new era in the Caspian Basin’sdevelopment.”18 President Ilham Aliyev of Azerbaijan acknowledged Washington’scrucial role, “The realization of this project would not have been possible withoutconstant political support from the United States.”19 The BTC gained an importantmonument in June 2006 when President Nursultan Nazarbayev of Kazakhstan agreed toexport part of his country’s oil via the BTC. Kazakh oil will be shipped by tanker fromthe northern Caspian port of Aktau to Baku. The agreement envisions the eventualconstruction of subsea pipelines between Kazakhstan and Azerbaijan.20A parallel natural gas pipeline known as the South Caucasus Pipeline (SCP) isbeing built by an international consortium comprising Britain’s BP, Norway’s Statoil,Azerbaijan’s Socar, Russian-Italian venture LukAgip, Iran’s NICO, France’s Total, andTurkey’s TPAO). The line ships natural gas from Shah Deniz field in Azerbaijan to theTurkish port Erzurum on the Mediterranean through Tbilisi. Although most of the gaswill be exported to Turkey, some of it will be sent to Europe via a transit pipeline throughGreece.The Caspian Pipeline Consortium (CPC) is another important scheme, shippingKazakh oil to the Russian port Novorossiysk on the Black Sea. The governments ofRussia, Kazakhstan, and Oman developed the CPC in conjunction with a consortium ofinternational oil companies. The pipeline was officially opened in November 2001 andhas since transported roughly one-third of Kazakhstan’s exports.2111For the last several years, Chinese oil consumption has skyrocketed. Domestic oilproduction failed to keep pace with the rising demand and in 1993 Beijing has become anet oil importer. In order to diversify their oil supplies and reduce their vulnerability tointerruptions, Chinese officials have sought to import oil from many sources. Sharinglong borders with China and holding massive hydrocarbon resources, Kazakhstan is seenas an attractive source that is likely to contribute to Beijing’s energy security.22Meanwhile, Astana is interested in diversifying the destinations of its oil exports andreduce its dependence on Russia. Given these mutual interests, the two nations (Chinaand Kazakhstan) have sought to increase oil supplies from the latter to the former. Mostof these supplies are being shipped via a three-stage pipeline. The first stage was built in2003 and the second stage was completed in December 2005. When all three stages areconstructed, the pipeline will span nearly 1,930 miles from Atasu in northwesternKazakhstan to alashankou in China’s northwestern Kinjiang region.23One of the major oil export pipeline runs from Atyrau in Kazakhstan north to linkwith Russian distribution system. Before the completion of the CPC, Kazakhstanexported almost all of its oil through this system. Since the early 2000s the Atyrau-Samara system lost some of its significance due to the completion of the CPC. Still, inJune 2002, Kazakhstan and Russia signed a 15-year oil transit agreement under whichAstana will continue exporting part of its oil via the Atyrau-Samara pipeline.Another northern route runs from Baku to the Russian port on the Black SeaNovorossiysk. The pipeline was constructed shortly after independence in the early1990s. Since 2005 when the BTC became operational, increasing proportion of Azeri oilhas been diverted from the Baku-Novorossiysk pipeline to the BTC. Some Azeri officialshave hinted that SOCAR might completely stop using the Novorossiysk route.2412

Finally, routes south (through Iran) and southwest (through Afghanistan) havebeen considered. A Trans-Afghan natural gas pipeline (known also as Turkmenistan-Afghanistan-Pakistan pipeline) has been under consideration since the early 1990s.Theproject is supposed to carry natural gas from Turkmenistan to Pakistan and possibly Indiavia Afghanistan. However, political instability in Kabul has hindered any progress.U.S. economic sanctions on Iran (in place since 1979) have blocked theconstruction of any pipelines from the Caspian Sea. In response, Tehran has pursued theso-called oil “swaps.” According to these arrangements, Caspian oil is delivered topopulation centers in northern Iran and in return an equivalent amount of Iranian oil isexported through Persian Gulf terminals. Accordingly, for the last several years, oilshipments from Kazakhstan and Turkmenistan have been sent to the Iranian port Neka,from where it is sent to refineries in Arak, Tabriz, and Tehran. Since the early 2000s, Iranhas sought to expand the capacity of Neka and the refineries.In addition to oil swaps, in December 1997 a pipeline linking the Korpedzhe gasfield in western Turkmenistan to the town of Kurt-Kui in northern Iran was opened. Thispipeline was the first in Central Asia to bypass Russia.The Political ContextRegional and international rivalries over the Caspian Sea’s hydrocarbon resourcesare further complicated by internal dynamics and conflicting strategic interests by globalpowers. Given their historical legacy as underdeveloped parts of the former Soviet Union,Azerbaijan, Kazakhstan, and Turkmenistan have long way to go to establish transparentpolitical institutions and functioning market economies. The United States, Russia, andChina seek to influence the domestic policies of the Caspian states in the way that wouldserve their respective strategic interests.13Several non-profit research institutions and government-reports have documentedthe lack of political reform in these three former Soviet republics. The New York-basedFreedom House on a scale of one to seven (one represents the most free and seven theleast free) and using two criteria (political rights and civil liberties) gives the followingscores (Azerbaijan 6 & 5), Kazakhstan (6 & 5), and Turkmenistan (7 & 7). The threestates are rated not free.25 In its annual Corruption Perceptions Index, the Berlin-basedTransparency International (TI), Kazakhstan, Turkmenistan, and Azerbaijan rank 122,133, and 140 respectively in a list of 145 states.26 In other words, according to TI, thethree states are among the most corrupted in the world.Despite close energy and strategic cooperation between the United States and theCaspian Sea nations and exchange of visits by top officials, the United States Departmentof State’s annual report, Supporting Human Rights and Democracy, is very critical. Thereport states, “Azerbaijan’s human rights record remained poor. While there were someimprovements in the period leading up to the November 6, 2005 parliamentary elections,the elections failed to meet a number of international standards.”27 Similarly, the reportdescribes human rights record in Kazakhstan as poor. It says, “Although there wereimprovements in other human rights areas, democratic institutions remained weak andPresident Nursultan Nazarbayev, who was reelected to another seven-year term onDecember 4, 2005, dominated the political space. Since its independence from the SovietUnion, Kazakhstan has not held an election that met international standards.”28 Finally,the Department of State saves the harshest criticism to Turkmenistan, “The governmentof Turkmenistan continued to commit serious abuses, and its human rights recordremained extremely poor. Turkmenistan is an authoritarian state dominated by president-14for-life Saparmurat Niyazov who retains monopoly on political and economic power, andcontrols the parliament and judicial system.”29This strong criticism of the political regimes in the Caspian Sea region is furtherheightened by growing polarization between opposition groups and the ruling elites and

allegations of corruption and bribery. Tensions between the government and theopposition in Azerbaijan have increased since an October 2003 election, in which IlhamAliyev replaced his father, Heydar Aliyev, as president in a vote that was largelyregarded as fraudulent. For several years allegations against Kazakh President Nazarbaevhave been investigated in U.S. federal court.30 Finally, the Turkmen political system hasconcentrated all power in the hands of President Niyazov, who eliminates any and allprospective rivals and refuses to appoint a successor.Since the early 1990s, the United States, Russia, and China have pursued differentstrategies and employed a variety of means in dealing with these authoritarian regimes inthe Caspian Sea in a way that would ensure their energy and strategic interests.The United States: The United States has several core objectives in the CaspianSea region. First, the United States’ proven oil reserves have steadily declined since1990, while its demand for both oil and gas has been on the rise. In 2005, Washingtonimported approximately 58 percent of its oil needs.31 In other words, the growing gapbetween the nation’s consumption and production of oil and gas is being increasinglyfilled by imported fuel. Within this context of deepening dependence on foreign energysupplies, developing the Caspian hydrocarbon resources is particularly important. It islikely that most Caspian supplies will go to Europe and Asia, not the United States. Still,adding more oil and gas to the global market will enhance energy security to allconsumers.15Second, the war on terror in the aftermath of 9/11, 2001 attacks added morestrategic value to the Caspian Sea/Central Asia region both to support military operationsagainst the Taliban in Afghanistan and to fight militant Islam in the region. The key U.S.ally early in the “war on terror” was Uzbekistan. But the Uzbek government’s bloodycrackdown on peaceful protesters in May 2005 and its subsequent plans to evict U.S.forces from the Karshi-Khanabad air base late in the year changed the equation. The U.S.has successfully negotiated the use of Manas Air Base in Kyrgyzstan, while mediareports have suggested that Washington could consider redeploying its troops toKazakhstan pending a deal with officials in Astana.32Third, the United States is interested in strengthening the independence of theseformer Soviet republics, promoting democracy and market economies, and containing theRussian and Chinese influence in the region.33Considering these economic and strategic interests, the United States has forgedclose relations with Azerbaijan and Kazakhstan despite their poor record on human rightsand lack of political transparency. In April 2006, President Bush met with the Presidentof Azerbaijan Ilham Aliyev in the White House and a month later Vice President RichardCheney visited Kazakhstan. These meetings reflected, among other things, close militarycooperation between the two sides to improve Baku’s and Astana’s military capabilities.This cooperation blossomed after the U.S. Congress altered its prohibition on most U.S.government-to-government aid to Azerbaijan until it ends “blockades and other offensiveuse of force against Armenia.”34 This prohibition, enacted into law in 1992 as Section 907of the Freedom Support Act, was modified in 2002 to allow for an annual presidentialwaiver to allow for a significant expansion of U.S. military and security assistance.16Two programs – the Caspian Guard and Cooperative Security Locations – reflectthe growing American military role in the security of the Caspian Sea. The former is aninitiative involving both Azerbaijan and Kazakhstan focusing on maritime and bordersecurity. It incorporates defensive mission areas, including the surveillance of Caspianairspace, borders, and shipping.35 The Cooperative Security Locations are tactical faciliteswith pre-positioned stock that provide contingency access but, unlike a traditional base,have little or no permanent U.S. military presence. These locations are designed toincrease the mobility of U.S. military forces and, most importantly, facilitate counterproliferation

missions along Azerbaijan’s southern border with Iran and northern borderswith Georgia and Daghestan.36The close and growing cooperation between the United States and bothAzerbaijan and Kazakhstan suggests two conclusions. First, given the Caspian Seaenergy resources and American determination to contain militant Islam in theneighboring countries as well as maintaining a political and military presence in China’s,Iran’s, and Russia’s backyard, Washington will continue to have a strong interest in theregion. Second, the co-called colored revolutions (Rose in Georgia in 2003, Orange inUkraine in 2004-05, and Tulip in Kyrgyzstan in 2005) demonstrated U.S. support forchange and opposition to authoritarian regimes.37 True, each case is unique and theUnited State policy was driven by strategic interests as well as by the desire to promotedemocracy. Still, these developments have underscored the Caspian states leaders’suspicion of American intentions in the region. This suspicion explains, at least partly,their desire to maintain close relations with their powerful neighbor Russia.Russia: unlike the United States, whose involvement in the Caspian region isrelatively a recent development, Russia has a long history of close relationship with the17region. The three littoral states were part of the former Soviet Union for more than sevendecades. The close cultural, demographic, and economic ties have survived the politicalindependence in 1992. Russia’s cultural influence still is dominant in the Caspian region.Many members in the political and economic elites speak Russian and send their childrento get their education in Russian universities. Many ethnic Russians reside in the Caspianstates, particularly in Kazakhstan where they constitute more than 30 percent of thepopulation.38 Finally, more than a decade and a half after independence, the economies ofthe Caspian states still are heavily dependent on Russia, particularly the energy sectors.Russia’s strategy in the Caspian region aims at achieving two fundamental goals:First, securing Moscow’s dominant role in the exploration, development, andtransportation of the Caspian hydrocarbon resources. Russia dominates Turkmenistan’snatural gas exports and plays a significant role in controlling the Kazakh oil exports.Russian government fought very hard to prevent the construction of the BTC. In addition,Russian companies have taken a leading role in developing oil and natural gas deposits inthe Caspian in cooperation with the Azeri, Kazakh, and Turkmen governments.It is important to point out that Russia’s natural gas production has been flat forthe last several years. In order to fulfill its export commitments, Russia plans to increaseits gas imports from the Caspian Sea/Central Asia region, where it buys gas at very cheapprice, and sell it to the European markets at much higher price.39 Moscow’s control ofmost pipelines routes strengthens its bargaining position and leaves the land-lockedCaspian states with few options.40Second, Russia is interested in maintaining its status as the dominant power in theregion and resisting what some Russian officials perceive as American penetration ofRussia’s backyard or the “near-abroad.” Indeed, many Russian officials consider U.S.18presence as a major source of instability.41 This perception underscores the fact that thetop echelons of the Russian armed forces and security services are traditionally anti-American.42 They do not accept a weakening of Russian influence in the region.Furthermore, they consider NATO’s expansion and American growing military presencein the Caspian Sea/Central Asia as a direct threat to Russia’s national security. In October2003, the Russian Defense Minister Sergei Ivanov identified the introduction of foreigntroops onto the territories of states, which are adjacent to and friendly toward the RussianFederation as a primary threat to Russian security.43This Russian suspicion of the growing U.S. military presence in the Caspian Searegion has prompted a major change in Moscow’s stand. Originally, Russia, along withIran, called for the demilitarization of the Sea in order to spare the region from potential

military conflicts. Seeking to assert its own influence to counter the U.S. presence, theRussian government has pursued a twofold strategy since the early 2000s. First, in aseries of high profile and well-publicized moves, Russia has expanded its naval presencein the Sea and called for a system of collective security that would include all the fivelittoral states that share the Basin. The large gap between Russian naval capabilities andthose of the other four Caspian states, none of them showed any interest in participatingin such a collective-security system. In other words, the leaders of Azerbaijan, Iran,Kazakhstan, and Turkmenistan did not want to become cheer-leaders in a systemdominated by Russia. Second, Russia repeatedly called for a ban on any outside militarypresence in the Caspian Sea. Again, suspicious of Russia’s intentions, Astana and Bakuhave received U.S. military assistance. Iran also has expanded its naval presence in theSea.19Russia’s efforts to assert its influence and to counter U.S. presence in the CaspianSea region are shared by another giant power in the region – China.China: Chinese strategic thinking on the Caspian Sea/Central Asia region is verysimilar to the Russian. Beijing and Moscow share three broad strategic goals: expandtheir roles in developing the region’s hydrocarbon resources, contain extremist andseparatist movements, and resist U.S. growing economic and strategic presence. Beijing’sability to punish or reward regional players is less than that of Moscow or Washington.Nevertheless, China’s rising economic and military power suggests that its policies in theCaspian region, and elsewhere, are likely to become more assertive in the near future.Since the early 2000s China has consolidated its energy ties with the Caspianstates. In April 2006, Turkmen President Saparmurat Niyazov paid a six-day visit toBeijing, where he signed off on a plan to export 30 billion cubic meters of gas annuallyby a new pipeline to China beginning in 2009.44 More important, China has substantiallyincreased its involvement in the Kazakh oil sector. In 2005, China National PetroleumCompany bought Kazakh oil producer Petrokazakhstan for four billion dollars.Furthermore, part of Kazakh oil is exported to China via the pipeline that connects thetwo nations.China’s interests in fighting the separatists in Xinjiang45 converge with those ofother nations in the region battling the Islamic Movement of Uzbekistan (IMU), as wellas those of Russia, fighting Chechen rebels since the early 1990s.46 The prospects ofhaving a civil war with a separatist movement driven by religious zeal, similar toChechnya are a major concern to the Chinese leadership.Finally, the heavy U.S. military ties in several countries surrounding China(Japan, and Taiwan), and growing military cooperation with India are of great concern to20the leadership in Beijing. American military presence in the Caspian Sea/Central Asiaregion has further complicated China’s strategic calculus. Obviously, Beijing has greatnational security interests in reducing U.S. military presence next to its borders.ConclusionThe discussion of the Caspian Sea’s hydrocarbon potential, the competingpipeline schemes, and the strategic rivalry between the United States, Russia, and Chinasuggests two conclusions. First, in the early 1990s there were some highly optimisticassessments of the Caspian’ oil and natural gas reserves. By the mid-2000s, a morerealistic assessment has emerged based on the exploration results and deeper appreciationof the difficulties and costs of shipping energy supplies from the region to globalmarkets. Despite this less optimistic assessment of the region potential and outputs, thereare no indications that international oil companies are about to suspend their operationsand leave. The volatile global energy markets means that every drop of oil is needed andadditional sources of energy will improve the overall global energy security.Second, the rivalry between global powers over access to energy resources and

spheres of influence is not likely to wane any time soon. However, these global powersand their regional allies share common interests in fighting drug trafficking and terrorism.Their visions for the future of the region are not identical. Still, economic prosperity andpolitical stability will promote these common interests and serve the people in theCaspian Sea/Central Asia region.211 Barbara Janusz, The Caspian Sea: Legal Status and Regime Problems, London: Chatham House,August 2005, p.2.2 For more details see Gawdat Bahgat, “Splitting Water: The Geopolitics of Water Resources in theCaspian Sea,” SAIS Review, Vol.22, No.2, Summer-Fall 2002, pp. 273-292.3 According to the 2003 trilateral agreement, Kazakhstan controls 27 percent, Russia 19 percent, andAzerbaijan 18 percent.4 Martha Brill Olcott, “The Great Powers in Central Asia,” Current History, Vol.104, No.684, October2005, pp.331-335, p.331.5 Richard Weitz, “Averting a New Great Game in Central Asia,” Washington Quarterly, Vol.29, No.3,Summer 2006, pp.155-167, p.163.6 More information is available on the organization website at www.sectsco.org.7 Energy Information Administration, Country Analysis Briefs: Caspian Sea, September 2005, on lineat <www.eia.doe.gov/cabs/Caspian/Full.html> accessed May 18, 2006.8 British Petroleum, BP Review of World Energy, London, 2006, p.4.9 Energy Information Administration, Country Analysis Briefs: Kazakhstan, July 2005, on line at<www.eia.doe.gov/emeu/cabs/kazak.html> accessed July 8, 2006.10 Mark J. Kaiser and Allan G. Pulsipher, “High Costs, Uncertainty Challenge Operators in PromisingKazakhstan,” Oil and Gas Journal, Vol.104, No.25, July 3, 2006, pp.39-44.11 Energy Information Administration, Country Analysis Briefs: Azerbaijan, June 2005, on line at<www.eia.doe.gov/emeu/cabs/azerbjan.html> accessed June 23, 2005.12 The main partners in AIOC are BP, Unocal, SOCAR, Inpex, Statoil, ExxonMobil, TPAO, DevonEnergy, Itochu, Delta/Hess.13 For example, in the mid-2000s ExxonMobil and Lukoil failed to discover commercially viablehydrocarbon reserves at the Zafar-Mashal and Yalama blocks respectively.14 Energy Information Administration, Country Analysis Briefs: Iran, January 2006, on line at<file://V:\PRJ\NewCABs\V6\Iran\Full.html> accessed January 4, 2006.15 Energy Information Administration, Country Analysis Briefs: Turkmenistan, July 2000, on line at<www.eia.doe.gov/cabs/turkmen.html> accessed July 21, 2000.16 British Petroleum, BP Statistical Review of World Energy, London, 2006, p.20.17 Associated gas is produced with oil.18 Aida Sultanova, “Azerbaijan Opens Part of Oil Pipeline to the Mediterranean,” Washington Post,May 26, 2005.19 Lada Yevgrashina, “Baku-Ceyhan Pipeline Opens to Caspian Oil,” Moscow Times, May 26, 2005.20 Oil and Gas Journal, “Kazakhstan to Ship Oil through BTC Line,” Vol.104, No.24, June 26, 2006,p.10.21 Energy Information Administration, Country Analysis Briefs: Kazakhstan, July 2005, on line at<www.eia.doe.gov/emeu/cabs/Kazak.html> accessed July 8, 2006.22 For a thorough analysis of China’s energy security see Zha Daojiong, “China’s Energy Security:Domestic and International Issues,” Survival, Vol.48, No.1, Spring 2006, pp.179-190.23 Oil and Gas Journal, “Kazakhstan-China Oil Line Section Filling,” Vol.104, No.1, January 2, 2006,

p.11.24 Some Azeri officials claim that they are losing millions of dollars due to mixing their high qualitycrude with Russia’s Urals. The solution, they argue, is to stop exporting via the Russian port.25 Freedom House, Freedom in the World 2006, on line at <www.freedomhouse.org> accessed July 13,2006.26 Transparency International, Corruption Perceptions Index 2004, on line at<www.transparency.org/pressreleases_archive/2004/2004.10.20.cpi.en.html> accessed April 4, 2005.27 U.S. Department of State, Supporting Human Rights and Democracy, on line at<www.state.gov/g/drl/rls/shrd/2005/63946.htm> accessed July 8, 2006.28 Ibid.29 Ibid.30 James Giffen, a U.S. citizen and a former consultant to the Kazakh government, is accused ofviolating the Foreign Corrupt Practices Act by funneling more than $78 million from oil-concessionfees to Kazakh president, his family, and other Kazakh officials.31 Energy Information Administration, Country Analysis Briefs: United States, on line at<www.eia.doe.gov/cabs/Usa/Background.html> accessed December 3, 2005.32 Gulnoza Saidazimova, “Central Asia: Could Regional Dynamics Spell Closer U.S.-Kazakh Ties?”Radio Free Europe, on line at <www.rferl.com> accessed June 12, 2006.33 For more details see S. Neil Macfarlane, “The United States and Regionalism in Central Asia,”International Affairs, Vol.80, No.3, May 2004, pp.447-461.34 The waiver can be found on the Department of State’s website at<www.state.gov/p/eur/rls/prsre/2003/27664.htm> accessed July 13, 2006.35 Richard Giragosian, “Nagorno-Karabakh: Peace May Depend on Military Situation,” Radio FreeEurope on line at <www.rferl.org> accessed February 13, 2006.36 Richard Giragosian, “Azerbaijan: Relations with U.S. Enter A New Phase,” Radio Free Europe, online at <www.rferl.org> accessed August 9, 2005.37 Eugene Rumer, “The U.S. Interests and Role in Central Asia after K2,” Washington Quarterly,Vol.29, No.3, Summer 2006, pp.141-154, p.148.38 Central Intelligence Agency, World Fact Book, on line at <www.cia.gov> accessed July 14, 2006.39 Isabel Gorst, “Struggle for Gas Intensifies,” Petroleum Economist, Vol.73, No.5, May 2006, p.12.40 Catherine Belton, “Caspian Great Game Back on,” Moscow Times, May 5, 2006.41 Richard Weitz, “Averting a New Great Game in Central Asia,” Washington Quarterly, Vol.29, No.3,Summer 2006, pp.155-167, p.158.42 Boris Rumer, “The Poers in Central Asia,” Survival, Vol.44, No.3, Fall 2002, pp.57-68, p.66.43 Ilan Berman, “The New Battleground: Central Asia and the Caucasus,” Washington Quarterly,Vol.28, No.1, Winter 2004/05, pp.59-69, p.64.44 Catherine Belton, “Caspian Great Game Back on,” Moscow Times, May 5, 2006.45 Kinjiang is strategically and economically important to China for several reasons: the region is rich inseveral mineral resources, particularly oil and is well connected to Central Asian states, Pakistan, andAfghanistan.46 Subodh Atal, “The New Great Game,” National Interest, No.81, Fall 2005, pp.101-105, p.102.