Gwynne Dyer: Oil interests clash over Caspian Sea

by Gwynne Dyer on November 17th, 2014 at 11:23 AM

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Russian politician Andrei Zhirinovsky is all mouth, so it would not normally have caused a stir when he suggested earlier this year that Russia should simply annex the parts of neighbouring Kazakhstan that have a large Russian population.

But the ultra-nationalist leader of the Liberal Democratic Party actually frightened the Kazakhs, because there is a bigger game going on.

Kazakh president Nursultan Nazarbayev, in power since before Kazakhstan got its independence from the former Soviet Union in 1991, was so alarmed that he openly expressed doubts about whether Kazakhstan should join Moscow’s “Eurasian Economic Union” (EEU) when it launches next January.

“Kazakhstan will not be part of organizations that pose a threat to our independence,” he said in August.

The EEU is the same organization that Ukrainians rebelled against joining last year when their pro-Moscow former president, Viktor Yanukovych, abandoned plans for closer ties with the European Union (EU). But Kazakhstan under Nazarbayev has always been on good terms with Russia, so Russia’s autarch, Vladimir Putin, immediately cracked the whip.

“Kazakhstan never had any statehood (historically),” Putin said. Nazarbayev merely “created” the country—with the clear implication that it was an artificial construct that might, if the wind changed, just be dismantled again.

With Russian troops in eastern Ukraine “on holiday” from the army (but taking their armoured vehicles and artillery with them), it was a veiled threat that Kazakhstan had to take seriously.

There has actually been a Kazakh state. Almost the entire area of the current country, and substantial parts of neighbouring countries, were ruled from the 15th to the 18th centuries by a powerful Kazakh khanate, the traditional form of state among the Islamic, Turkic-speaking peoples of Central Asia. The reason it never evolved into a modern state is that the whole area was conquered and colonized by the Russian empire.

Russia is still the only great power within easy reach of the Central Asian states, and it underlined its displeasure with Nazarbayev by holding military exercises near the Kazakh border in early September. But Putin was not just restoring discipline in a prospective member of the EEU, his pet project to rival the EU.

Putin’s strategic objective is to control oil and gas traffic across the landlocked Caspian Sea. The last thing Moscow needs is cut-price competition from Central Asian producers in its European markets.

Moscow at the top of the Caspian Sea and Iran at the bottom have their own pipelines to get oil out to the markets. Azerbaijan, on the western shore, has built pipelines through Georgia into Turkey, one of which reaches the Mediterranean, so Russia cannot control its exports. But Moscow still has a stranglehold on the big oil and gas producers on the eastern side of the sea, Kazakhstan and Turkmenistan.

Neither of those former Soviet republics can escape Moscow’s grip unless it can move its oil and gas in pipelines across the Caspian seabed to Azerbaijan and out to the Mediterranean from there. So Putin has been trying for years to get a Russian veto on any such pipelines. He’s nearly there.

If the International Law of the Sea applied, then each country’s Exclusive Economic Zone, with control over seabed developments, would extend 300 nautical miles from its coast. The Caspian is not that big, so all five EEZ’s would meet in the middle—and Kazakhstan and Turkmenistan’s zones would both touch Azerbaijan’s, so the question of trans-Caspian seabed pipelines would be beyond Moscow’s control.

But since the Caspian Sea is not part of the world ocean, the five countries around it can agree on any local rules they like. Russia is by far the greatest power on its shores, and the rules it likes would confine each country to a 15-nautical-mile sovereign zone and a 25-mile exclusive fishing zone.

Under this regime, the middle of the sea would remain a common area where any development would need the consent of all five countries. Hey presto! A Russian veto on any pipelines crossing the Caspian Sea, and continuing control over oil and gas exports from Central Asia to Europe.

Following a summit meeting of the five countries’ leaders in Astrakhan at the end of September, it’s practically a done deal, although the final treaty will not be signed until 2016. Late last month Richard Hoagland, U.S. assistant secretary of state for South and Central Asian affairs, visited Astana, the Kazakh capital, and said that the US firmly supported Kazakh independence and territorial integrity, but everybody knows who’s boss in the region.

Sidelining Kazakh and Turkmen competition in the European gas and oil markets will not help Moscow much, however, if Putin’s behaviour on Russia’s western borders continues to frighten the Europeans. They will be scrambling to cut their dependence on Russian gas and oil as fast as they can, and the fracking Americans, with their soaring production, will be more than happy to help.

Comments

8 Comments

I Chandler

Nov 17, 2014 at 3:09pm

DYER: "Azerbaijan, on the western shore, has built pipelines through Georgia into Turkey"
"Putin’s strategic objective is to control oil and gas traffic across the landlocked Caspian Sea"

Americacan objectives may also have more to do with Russia’s reserves than it does Syria’s. Read US Destroying Syria’s Oil Infrastructure Under Guise of Fighting ISIS:

"In 2009 The Guardian … Assad refused to sign a proposed agreement with Qatar that would run a pipeline from the latter's North field, contiguous with Iran's South Pars field, through Saudi Arabia, Jordan, Syria and on to Turkey, with a view to supply European markets - albeit crucially bypassing Russia. Assad's rationale was "to protect the interests of [his] Russian ally, which is Europe's top supplier of natural gas.
Instead, the following year, Assad pursued negotiations for an alternative $10 billion pipeline plan with Iran, across Iraq to Syria, that would also potentially allow Iran to supply gas to Europe from its South Pars field shared with Qatar. The Memorandum of Understanding (MoU) for the project was signed in July 2012 - just as Syria's civil war was spreading to Damascus and Aleppo - and earlier this year Iraq signed a framework agreement for construction of the gas pipelines. The Iran-Iraq-Syria pipeline plan was a "direct slap in the face" to Qatar's plans. "

"With mainstream media headlines like “US bombing ISIS pipelines” it’s easy to forget that the Pipelines and refineries the US is planning to bomb do not belong to ISIS, but to the Syrian people."

http://landdestroyer.blogspot.ca/2014/11/us-destroying-syrias-oil-infras...

Syria's Pipelineistan war:
"More than a year ago, a $10 billion Pipelineistan deal was clinched between Iran, Iraq and Syria for a natural gas pipeline to be built by 2016 from Iran's giant South Pars field, traversing Iraq and Syria, with a possible extension to Lebanon. Key export target market: Europe."

http://www.aljazeera.com/indepth/opinion/2012/08/201285133440424621.html

P.Peto

Nov 17, 2014 at 4:24pm

Another informative article by Gwynne ,for readers wishing a short video summary of Caspian Energy Geopolitics I suggest viewing:

https://www.youtube.com/watch?v=6njHg4TGBfc&list=UUwnKziETDbHJtx78nIkfYug

It's most unfortunate that Gwynne is still following the Western Media bias by framing Putin as a reckless adventuring revanchist which is frankly dissembling.

As for Russia's need to sell gas to Europe, the recent deals with China, according to my reading will leave a shortfall in future Russian gas deliveries to Europe unless Russia can bring new gas supplies into production by 2018. It would seem Europe's turning against Russia is going to cost them dearly when it comes to finding new gas suppliers. The most expensive supplier would be American LNG!

McRocket

Nov 18, 2014 at 12:42am

THe fracking Americans opil supply is not as strong as many think, imo.

Fracking wells cost much more to extract oil then conventional wells (not to mention the greater environmental damage). Plus, fracking oil wells usually deplete FAR faster then their conventional brothers.

The notion of America becoming oil independent is probably just a 'pipedream' anytime remotely soon.

http://www.oil-price.net/en/articles/shale-high-depletion-rates-in-bakke...

I Chandler

Nov 18, 2014 at 7:15am

DYER: "Moscow has a stranglehold on the big oil and gas producers on the eastern side of the Caspian sea, Kazakhstan and Turkmenistan."

Stranglehold? Expected to be completed in 2017, the Trans-Afghanistan Pipeline pipeline will transport Caspian Sea natural gas from Turkmenistan through Afghanistan to India. Michael Moore came to believe this motivated the invasions of Afghanistan. On 29 January 2013, US consul general Michael Dodman threatened Pakistan with economical sanctions if it does not abandon their Peace pipeline to India. The proposed pipeline has been termed as "death sentence" for Pakistan: http://en.wikipedia.org/wiki/Iran%E2%80%93Pakistan_gas_pipeline#Controve...

DYER: "Kazakh president Nazarbayev, was so alarmed"

Or maybe he got a message from the US secretary of state for South and Central Asian affairs: "The IS are coming! The IS are coming! - Or maybe he's learned the lessons-of-libya:
http://www.counterpunch.org/2014/11/12/the-lessons-of-libya/

Henry Kissinger once said To be an enemy of America can be dangerous, but to be a friend is fatal.
He also warned against Western attempts to demonize Putin:
http://www.aydinlikdaily.com/Detail/Response-To-Kissingers-Ukraine-Russi...

DYER: "Zhirinovsky is all mouth"

What will he say next? Obama get out of the Caspian...

John Anderson

Nov 18, 2014 at 1:43pm

Gwynn leads off with an error. It's Vladimir Zhirinovsky, not Andrei Zhirinovsky.

What else does Gwynn not get right about Russia? There's serious opinion out there JJ Mearsheimer - "Foreign Affairs") concluding Putin and Yanukovych knew about weasel words in the EU's AA offer to Ukraine tying the nation into joining NATO. Everybody knows that's a non-starter.

C'mon Gwynn. Your Rex Murphy-like Newfoundland-US bias is showing.

IH

Nov 20, 2014 at 2:30am

I wouldn't be too confident predicting the economics & geopolitics of oil and gas more than 5 years out.

First Putin & Russia have gotten away with extremely aggressive policies in the last two years and established a new status quo. Using the thinnest possible veneer of legitimacy or legality they invaded and annexed part of the Ukraine and are directly fighting a low level war in another part. The "Russian troops on vacation" army is the level of subtlety that they operate at an it's informative. It's like a "protection" racket taking some small step towards legitimacy by registering a security company to which checks can be sent.

The reactions to Russia's actions have been as thin and symbolic as Russia's symbolic attempts at legitimizing their actions. So, the new status quo is that Russia can invade or bully its neighbors into submission. If Putin is feeling confident enough to push the status quo further, he might try try testing the NATO alliance's strength in one of the less important Baltic states. Annexing a small border town with a Russian majority would get the message across.

Second, energy economics are very powerful. Europe may want to disconnect from Russia's pipelines but if the economics aren't right, they probably won't. The US' energy production has gone through the roof thanks to fracking. It's already pushed down prices and changed a lot of things (including Russia's revenue). But, we don't know how this will unfold yet. Maybe Russia will take more risks to secure its (now diminished) oil and gas reeves. I think it's likely that franking technology has only begun to play its role. The US may have started it, but Russia may have as much or more gas accessible by fracking than the US does. All the fundamental economics of energy could shift in 5 years as they have several times before.

IH

Nov 20, 2014 at 2:45am

@McRocket, Nonsense. Fracking is not more expensive

Each well has different cost per unit. Those above the market price stop producing. But, at some theoretically high price most oil/gas producing regions could increase their production two, three, or ten-fold. At the energy prices of the last 10 years, the US had already drilled most of the available oil and gas. Most remaining sources of oil and gas were only marginally profitable.

In an incredibly short period of time, fracking has basically doubled the number of viable (cost per production is lower than market rate) wells. The technology is still very young and could (globally) increase the number of viable wells at a fixed price by 10X. Since more production leads to lower prices, they won't really increase production 10X. But, 2X at half the price is possible. We already have about 1.25% at 80% of the price per unit.

Environmentally, it certainly is worrying. All drilling is, especially drilling using new technologies. There's the CO2 worry which is basically (cheap energy = more CO2). There is the local pollution, which is always a problem with new techniques. Deep sea drilling was much worse than land based drilling at first.

I understand your environmental concerns, but claiming that fracking is more expensive is ridiculous.