Preface................................................................................................................................... iv
CHAPTER ONE: Introduction............................................................................................. 1
The Petroleum Heartland.............................................................................................. 1
Supply Routes.............................................................................................................. 2
Kazakhstan – The Biggest New Oil Producer in the Caspian Basin............................... 4
Major actors in the Caspian Basin................................................................................. 5
CHAPTER TWO: The Literature Review........................................................................... 8
Literature Review....................................................................................................... 8
Literature on the Region............................................................................................. 9
Resource Based Economic Development Literature................................................... 12
Summary.................................................................................................................... 13
CHAPTER THREE: Research Design and Model to be used............................................. 14
Research Strategy......................................................................................................... 14
Assumptions on Actors in the Caspian Basin................................................................ 15
Game Theory Analysis................................................................................................. 16
Data.............................................................................................................................. 17
Broad Applicability of the model................................................................................. 19
Application of the BDM Model to the Caspian Energy Context.................................... 19
Stated Policy Preferences.............................................................................................. 19
Potential Influence........................................................................................................ 20
Salience........................................................................................................................ 22
Data Collection............................................................................................................. 23
Interviews and questionnaires....................................................................................... 23
Other Sources............................................................................................................... 24
CHAPTER FOUR................................................................................................................. 25
I. International Context of the New Era and the Caspian Region....................................... 26
A. The end of the Cold War and the “Sea-Change” in the Respective International Position of the Caspian 26
B. An Assessment of the Relative Global Significance of the Energy Resources of the Region 27
C. Are we witnessing a contemporary version of the old “great game” with new players and new rules? 31
II. Intra-Regional Context of the New Era - Roots Of Instability..................... 35
A. Economic Sources Of Instability............................................................................ 35
Corruption................................................................................................... 36
B. Ethnic Make-up of the Region and Related Problems............................................ 39
Geography and population............................................................................. 39
History; An ever-present problem in the region.............................................. 40
The Communist legacy and the problems around ethnicity & national identity--- 41
C.Ethnic Conflicts With Specific Effects on the Caspian Energy Resource Development 45
Russian-Chechen Conflict.............................................................................. 45
Nagorno-Karabakh dispute............................................................................. 46
Georgia and beyond....................................................................................... 49
D. Lack of Organized Civil Society and Democracy.................................................. 50
Problem of Succession................................................................................... 52
E. Political Islam & Terrorism Problems..................................................................... 54
F. Environmental Issues.............................................................................................. 56
Issues at Stake: Fisheries, Sturgeons, Caviar, Agriculture and Wildlife........... 57
The issue of the Turkish Straits....................................................................... 59
G. Issue of the Legal Status of the Caspian Sea.......................................................... 65
CHAPTER FIVE................................................................................................................... 72
I. Three Major Actors in Terms Of Providing Alternative Routes to Export Caspian Oil and Natural Gas
1. Russia.................................................................................................................... 73
Russian energy policy toward the Caspian Basin........................................................ 73
Weaknesses and some limitations of the Russian energy policy................................. 75
Political and military sources of Russian influence in the region................................ 79
a) Old establishment’s perception of the region.................................................... 79
b) Russia’s role in solving and prolonging the ethnic conflicts in the region......... 80
c) Russian military power and its implications for the region................................ 80
Some Unknowns for the Future.................................................................................. 84
a) Russia’s Capitalism Experience and Relations With the West........................... 84
b) The United States-Russia Commercial Energy Dialogue................................... 85
2. Iran........................................................................................................................ 89
3. Turkey................................................................................................................... 93
What are Turkey’s broader policy objectives regarding Caspian energy resources?.... 97
1) Meeting Turkey’s energy requirements, medium-to-long-term................... 97
2) Opportunity to become Europe’s gateway to an additional energy-resource-area.98
3) Establishing a “Turkish Rotterdam” in Ceyhan........................................... 99
A. Political Assets of Turkey in the Caspian Region................................................... 100
A Regional Power?......................................................................................... 100
B. Economic Assets.................................................................................................... 102
C. Social and Cultural Aspects of Relations................................................................ 103
II. Other Actors Effective in Energy Resource Development of the Region.............. 105
4. The United States.................................................................................................. 105
5. Oil and Gas Companies........................................................................................ 108
Which companies are involved?..................................................................... 108
6. Other Countries of the Caspian Basin; Azerbaijan, Kazakhstan & Turkmenistan-- 112
Risk factors in Azerbaijan, Kazakhstan and Turkmenistan............................. 116
Legal and Regulatory Environment................................................................. 118
Kazakhstan..................................................................................................... 119
Turkmenistan.................................................................................................. 121
Trans-Caspian plans................................................................................. 124
Azerbaijan...................................................................................................... 125
7. European Union and China; Are They Major or Secondary Actors?................ 128
European Union............................................................................................. 132
China.............................................................................................................. 137
CHAPTER SIX ................................................................................................................. 137
BAKU-TBILISI-CEYHAN (BTC) MAIN OIL PIPELINE PROJECT............................... 137
What brought this project to fruition?..................................................................... 138
Conflicting perceptions and interests on the way of the realization process.... 138
The 'early oil' controversy.............................................................................. 139
Breakthrough.................................................................................................. 142
The final stage................................................................................................ 145
Implications of the Project........................................................................................ 147
Geopolitical, economic and social benefits to the countries of the region....... 147
Increased interest (and investment) from the companies................................ 147
The Kazakh commitment................................................................................ 148
A boost for the Southern Caucasus (Baku-Tbilisi-Erzurum) gas pipeline........ 150
One step closer in realization of TCGP project with Turkmenistan and/or Kazakhstan.151
Environmental concerns are better addressed with BTC................................. 153
Impact on oil prices and OPEC production policies........................................ 153
Diversified energy supply security................................................................. 153
Ceyhan (and Turkey) emerges as world scale energy hub.............................. 154
Conclusion................................................................................................................. 155
CHAPTER SEVEN............................................................................................................... 157
RESULTS OF THE INTERVIEWS..................................................................................... 157
Demographic and some other characteristics of the respondents................................ 157
Interest toward the Caspian......................................................................................... 159
Do you agree or disagree?.......................................................................................... 159
“Great Game”, Major and Secondary Actors, New Rules of the Game....................... 161
Saliency of the actors................................................................................................. 163
Conflict or cooperation, zero-sum game or win-win solutions.................................... 165
Is there a particular solution or a project for the energy development of the region?.. 165
Approach to History................................................................................................... 166
Major problems of the region..................................................................................... 166
Viable options to export energy resources of the region to the market........................ 167
CHAPTER EIGHT............................................................................................................... 170
KASHAGAN and BEYOND................................................................................................. 170
Significance of Kashagan........................................................................................... 170
Implications of the Discovery..................................................................................... 171
Possible Routes to transport Kashagan Oil and Gas.................................................... 174
Application of the Bueno De Mesquita Predictive Model........................................... 179
Some concerns about the likely scenario.................................................................... 182
Some other problems that can hinder development efforts......................................... 184
Conclusion................................................................................................................. 185
CHAPTER NINE................................................................................................................ 186
CONCLUSIONS................................................................................................................... 187
I. On the Model and Analysis Used..................................................................................... 187
II. On the Issues............................................................................................................. 188
A. Geopolitical implications of the oil and gas development in the region.................. 189
B. Importance of political factors in oil and gas development.................................... 189
1) Energy projects are catalysts for regional cooperation and political stability-------- 189
2) Which one is more challenging, production or transportation of
hydrocarbon resources of the Caspian basin?............................................ 190
3) Security and stability in the region.............................................................. 190
4) Regime change and succession issues........................................................ 191
5) Political Islam............................................................................................. 191
C. United States-Russia Commercial energy dialogue and possible effects on the Caspian region 191
III. Observations and Conclusions on Some of the Key Actors and
Several Critical Issues Surrounding Them........................................................................... 193
1. Russia..................................................................................................................... 193
2. Iran......................................................................................................................... 194
3. Turkey and the future of BTC project.................................................................... 194
4. Multinational Companies........................................................................................ 195
5. Kazakhstan, Azerbaijan and Turkmenistan............................................................. 196
Oil and Gas Development............................................................................... 196
Transition to what?......................................................................................... 196
The extent of Western influence..................................................................... 197
Leadership problems...................................................................................... 197
APPENDICES
APPENDIX One: Questionnaire...................................................................................... 198
APPENDIX Two: Results Based on Whole Data Set & Excluding Turks........................... 202
REFERENCES 215
