The Caspian Oil Sweepstakes -- A Great Game Replayed

BAKU, AZERBAIJAN -- They call it "The Great Game" -- a reference to the rivalry between Imperial Russia and the British Empire over influence in Central Asia at the end of the last century.This time the stakes are just as high -- control over the vast deposits of "sweet" crude oil beneath the Caspian Sea -- but there are more players.* The United States (and the West) is taking a keen interest in the region as an alternative source of energy supply for the next century.* Russia has long regarded the Caspian as its strategic reserve and Moscow does not take kindly to the prospect of the once-Soviet states which actually sit on the oil drilling their way to real economic independence.* Iran is keenly interested both in becoming a player itself and in keeping the United States from dominating its back yard to the North.* Turkey desperately seeks a sphere of influence of its own after being effectively locked out of the European Union.* even China, the new giant Tiger to the East, has indicated interest.At the center of it all is Baku, and Baku is booming. There are new stores, new bars, new cars, new buildings in this, the once shabby run-down capital of Azerbaijan in the former Soviet Union.A London-based think-tank recently estimated there are 68 billion barrels of crude beneath the Caspian in 'proven' reserves. The latest US. government estimate puts reserves at over 100 billion barrels, worth approximately $2 trillion at current prices.Whatever the true value of Caspian oil, the rumor of riches has attracted an armada of entrepreneurs including international oil giants -- AMOCO, BP, Chevron, EXXON, Mobile and UNOCAL to name just a few -- as well as a host of subcontractors and fly-by-night artists interested in getting their own piece of the oily action.Azerbaijan is the linchpin of the entire effort. The various oil companies involved in a dozen international Production Sharing Agreements have pledged to invest over $25 billion in Azerbaijan by completion in 2004. More than $1.5 billion has already arrived, with $600 million in 1996 alone -- making Azerbaijan sixth in foreign investment in the post-Communist world, including Eastern Europe, the 1997 figures should be far higher.More to the point, every dollar of direct investment in the oil patch attracts another three dollars in peripheral investment and the sums continue to increase once the oil hits international markets. "There is no question that Azerbaijan is going to be the wealthiest country in the region in ten years," says Art McHaffie, Vice President of the Azerbaijan International Operating Company (AIOC), a 12-member group led by British Petroleum. AIOC has already pumped over $1 billion into this project . "I just hope that the leadership can address the subject of rising expectations before the real oil starts to flow."That is the paradox of the current sweepstakes. Oil won't really come on line until 2005 if everything proceeds according to plan. Nor is it possible to know the true cost of the pipeline.Even the routing of the "early oil," due to come out this month, is an open question. AIOC has repaired a line that goes through Russia -- but it also goes through Chechnya, which is still struggling with Moscow. Another possibility is to go through Georgia to a new terminal on the Black Sea.The most tantalizing of all options goes straight South over Iran to the Persian Gulf. That is not only the shortest route, but also the most secure -- petroleum is so cheap in Iran there is no temptation to drill into the line and make off with a ton or two, as is currently the practice in Chechnya (and was in Georgia). The problem is that US companies could not participate without violating the Iran-Libya Sanctions Act (ILSA).And there are questions about continued stability in Azerbaijan itself. Most worrisome is the ongoing stalemate with Armenia to the west over the disputed territory of Nagorno Karabakh, where ethnic Armenians have declared their independence from Azerbaijan.All this seems not to faze the foreign community in Baku -- now numbering at least 5,000 permanent residents. Most are English-speaking, but the mix has an international feel.Typical of these newcomers is Louette Ragusa, 38, who came here from Louisiana in 1994 to work as a restaurant manager, but soon broke off to set up her own business, a firm that helps people find space and staff.Like most of the young foreigners she is learning Azeri, not Russian. And she has reinforced her commitment to this place by adopting two teenage orphans."I -- that is, we -- are all here for the distance."

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