The Slick Business of Oil

Story of Power, Politics, Petroleum and Pipelines
Columnist Hamid Hussain explores the area of power politics and business.


“The oil-guild was a closed society, which gladly made difficulties for any stranger. Eastern and Western methods of cheating were combined into a shrewd system of commercial tactics. Nothing was prohibited; it was not necessary to fear anyone or anything” Description of oil business in late nineteenth century in Azerbaijan.

2002 is witnessing a dramatic change at global level. Several international players are pursuing their economic and geo-political interests in different areas of the world. Afghanistan and Central Asia have come into the limelight again after the landing of US forces in the region. Now, that military operations have cooled down, more attention is being paid to the energy resources of the area. It is critical for the understanding of the region to acknowledge the fact that oil and gas are ‘strategic commodities’, therefore, questions related to ‘their exploitation and export are inextricably linked with political and security issues’.2 How the leadership of the regional countries is going to cope up with the challenges will determine the future course. The energy issue has dramatically changed the behaviour of various players. The recent peace proposal by crown prince Abdullah should be seen in this context. It is not that Abdullah had a dream one night or a sudden rush of love for Palestinians and next morning he offered to recognize Israel in return for withdrawal from occupied territories. The increasing instability of the region is more threatening to the despotic rulers of Middle East than to Israel. If US can fulfill its energy requirements from another source and the Gulf becomes too chaotic and violent, then US can easily dump these sheikhs to face the wrath of their own people.

To understand the nature of cooperation and competition in Central Asia, the peculiar economic, security and political dilemmas of all players need a closer look and detailed analysis. Several regional and international countries are trying to get a foothold in an area which will be the source of large amounts of hydrocarbon energy reserves. At least for the time being, all players are interested in peace and stability in the region as they are going to get more dividends from peace than war. However, if any player feels that he is being cheated and denied the share of the pie, it is very easy to spoil the atmosphere, given the region’s complex religious, ethnic and national mix and presence of numerous fault lines.

Central Asia

In the geo-political context, most of the newly independent states in Central Asia have been part of larger political entities in their ancient and modern history. Their learning curve of how to conduct affairs in organizations and with other countries will depend on how the leadership sets the policies and pursues them in an organized and methodical way. ‘Diversification of their foreign economic relations as well as their larger security relations’ will be the essential ingredients of the policy which will ensure their ‘economic, political and strategic independence’. Three republics, Azerbaijan, Kazakhstan and Turkmenistan are energy rich, therefore, the centre of everybody’s attention.

Since mid-nineteenth century, oil fields of Azerbaijan have been providing the major share of world’s oil requirements. It was only after the availability of huge reservoirs of oil and gas in Saudi Arabia and Gulf that Central Asia receded in the background. Since early nineties, with the emergence of independent states in Central Asia and growing instability in Middle East that Central Asian energy reserves are attracting big energy corporations. In addition to energy reserves of Central Asian states, the Caspian Sea reserves are estimated to hold 100-200 billion barrels of oil worth between $2-4 trillion at current market price. Oil from Azerbaijan is exported out via two routes. The northern route, runs through Daghestan and Chechnya to the Black Sea port of Novorossysk. The western route ends in the Georgian port of Supsa. Another route ends in Georgian Black Sea port of Batumi. The first few years after independence were chaotic with political turmoil, intense rivalry among different factions and alignment with neighbouring countries. A former Communist Ayaz Mutalibov became President and was kicked out in a coup. A political dissident, Abulfaz Elchibey entered the Presidential palace. Elchibey gave way to another former Communist stalwart Haider Aliyev. He has since maintained power with an iron hand. Azerbaijan’s conflict with Armenia over the enclave of Nogorno-Karabakh has put a severe strain on the economy. The main contractor for Caspian Sea drilling is a consortium called Azerbaijan International Operating Company (AIOC), a conglomarate of several companies.

Kazakhstan is the second largest former Soviet Republic with a population of 16.2 million. Kazakh are 47% while Russians make up 36% of the population. With the largest oil and gas reserves of the area, it has the potential to become an economic powerhouse of the region. Kazakhstan made an agreement with Chevron in 1993 to develop the oil fields of Tengiz, in western Kazakhstan. Chevron investment when completed is estimated to be $20 billion. Kazakh government made another agreement with a consortium (It includes British Gas, Texaco and Agip) to develop the Karachaganak field in northern part of the country. In addition, an oil pipeline crossing Caspian, Azerbaijan, Georgia and ending in the Turkish port is also being considered.

Turkmenistan is truly a ‘Gas Republic’ with huge reservoirs of natural gas in addition to oil. It has a population of 4.5 million. Compared to other Central Asian states, it has avoided any controversy and tried to keep good relations with everybody. Several possible pipeline routes have been proposed to carry Turkmen oil and gas to other markets.

In 1991, with emergence of newly independent states, some of who speak Turkic language resulted in euphoria in Turkey. Grandiose ideas of a large Turkic world with Turkey as a leader were proposed but reality settled in soon. More realistic approach by Turkey allayed the fears of Turkish hegemony and cooperation between Turkey and Turkic states (Azerbaijan, Uzbekistan, Turkmenistan, Kazakhstan and Kyrghystan) resulted in increased confidence. In the last ten years, Turkey has increased interaction with Turkic republics at various levels. Increased telecommunication and air links has been established and diplomats, police and military cadets and religious officials from the region have received training in Turkey. Since 1992, Turkey has trained about 10,000 professionals from Central Asian region. About 2,300 cadets and officers from Central Asian states had graduated from Turkish war college. Turkey has advanced modest amount of bank credit to various states and Turkish companies are involved in medium sized construction projects. Turkey is trying to institutionalize the cooperation with various states by organizing Turkic Summits regularly. The major limiting factors for increased Turkish influence are political instability of Turkey itself with frequent changes of government and lack of economic strength. In addition, due to its location, Turkey has other pressing foreign policy commitments regarding Europe, Middle East, and North Atlantic Treaty Organization (NATO), in addition to the festering rebellion in Kurdish territory. Turkey imports 85 percent of its gas from Russia. It wants to diversify its sources and is looking for imports from Turkmenistan and Iran. The Turkish state pipeline company, Botas, is involved in pipeline projects, which will traverse through Turkey. ‘Turkey seeks continuous pipeline linking it, through Azerbaijan and the Caspian Sea, with Kazakhstan and Central Asia’. This will protect it from potential spoilers, namely Iran, Iraq and Russia. Turkey is hoping that if it does not get the opportunity of participating in the exploitation of energy resources, at least it gets its share in the transportation of oil and gas.

Since 1991, Iran has adopted a pragmatic approach towards Central Asian states in a way so that it doesn’t antagonize anybody. Though a small number of mosques and religious schools (madrassas) were funded by Iran in newly independent Central Asian states but it clearly stayed away from the firebrand revolutionary rhetoric. The main stress was on economic cooperation. Iran has worked on opening up several links with many states. New land, sea and air links have been established. New shipping routes have been started between Iran’s Caspian Sea ports and those of Turkmenistan and Kazakhstan. Free trade zones at Sarakhs (near border of Turkmenistan) and at the Caspian port of Anzali has been established. Iran expanded its air link, added new shipping routes between Iran’s Caspian seaports and Turkmenistan and Kazakhstan. A 300 km rail link between northern Iran and Turkmenistan has been established. Iran is very carefully evaluating its role in the region. Currently, barges bring a small amount of oil from Kazakhstan across Caspian Sea to the existing Iranian pipeline system. Iran would like to profit from the transit fees of any pipelines passing through its territory. The shortest and cheapest route of Caspian oil and gas is via Iran. US is blocking this due to its poor relations with Iran. In 1996, the efforts of Turkish Prime Minister Necmetin Erbakan to negotiate a pipeline project between Turkmenistan, Iran and Turkey were sabotaged by US. Similarly, US blocked Iranian participation in AIOC. Despite US antagonism, Iran has gained some foothold by carefully planning its moves. Iranian National oil Company is a commercial partner to Shak Deniz project in Azerbaijan, where no US companies are directly involved. A 200 km gas pipeline from Turkmenistan financed by Iran (cost $160 million) is also operating to supply gas to Iran (It runs from Korpedzhe in Turkmenistan to Kord-Kuy in Iran). So far, the clergy leadership of Iran has proved itself to be more pragmatic than their secular counterparts in other countries. By creating common economic interests, Iran has been able to overcome the negative attitude of many central Asian States despite unequivocal US hostility. One commentator sees a long term role of Iran in the area and states, ‘If Iran has so far failed to become a major player in the exploitation and export of Caspian energy resources, it has seceded in staking a role for itself, in spite of vocal US opposition. The international oil industry and the region’s oil and gas exporters agree that Iran’s long-term prospects remain promising’.

With such a huge amount of money involved, no one wants to be left out. Different groupings are in formation to claim a share in the booty. European Union is promoting a Central Europe-Central Asia communication system (It involves highway, railway, port and ferry projects). European union is funding a project for linking Central Asian states to Europe. Transport Corridor Europe and Caucasus Asia (TRACECA) is an ambitious venture, which requires stability of the region. In July 2002, the Black Sea Economic Cooperation Zone (BSECZ. Russia, Ukraine, Georgia, Armenia, Azerbaijan, Turkey, Romania, Bulgaria, Moldova, Greece and Albania are members) held a meeting in Istanbul and its business council also hosted an International Energy Conference. The member countries discussed oil and gas exploration and transportation in Caspian, Black and Mediterranean seas. Other regional arrangements including Economic Cooperation Organization (ECO), Central Asian Union (CAU) and Caspian Sea Organization (CSO) point towards the desire of cooperation between newly independent states. These nations have a long way to go as there are numerous serious long-standing disputes among the members, which need to be resolved for any meaningful cooperation.

Pipeline Bonanza

The three resource rich republics of Kazakhstan, Turkmenistan and Azerbaijan are land-locked. This means that not only exploration and production of oil and gas is important but the routes of transfer of these huge sources of energy are equally important. The countries through which the pipelines pass will be as important as those, which are producing oil and gas. ‘The question of pipelines is in reality about the political future of the Eurasian landmass and its periphery and hence cannot and will not be decided merely on its technical and economic basis’. Multiple routes will not only prevent the monopoly of one player but from safety stand point is the logical choice.

The current race for the pipeline routes is a complex one with many contenders. Five possible routes have been proposed:

Northern Route

Plan: Kazakhstan will expand its existing pipeline network and link it with Russian network. Azerbaijan will build a pipeline from Baku to Novorossysk. The main beneficiary, Russia, favours this route.

Yey: Russia.
Ney: Everybody else.
Western Route:

Plan: Azerbaijani oil is brought through a pipeline to Georgian Black Sea port of Supsa, and then shipped via Bosphorous to Europe. Turkey insists that the Strait can’t cope up with oil tankers and instead want a pipeline from Baku to Turkish port of Ceyhan on Mediterranean.


High cost, about $2.9 billion.

Limited and slow passage of tankers through narrow Bosphorous with potential of an ecological disaster.

The route runs through Turkey’s main headache, the Kurdish territory

Yey: Azerbaijan, Georgia and United States.

Not Sure: Turkey. While the pipeline will run through Turkey but other concerns have made Turks to scratch their head.

Southern Route:

Plan: Oil from Kazakhstan will go through Iran to Persian Gulf


Economically most viable option

Access to existing extensive Iranian pipeline system and good exit at Persian Gulf.


Jitteriness at Gulf security.

Yey: Iran (actually dancing on this prospect).
Ney: United States (actually foaming at even at the suggestion of even a profit of $1 for Iran).
Eastern Route:

Kazakhstani oil will be transported through a pipeline to China and the Pacific Ocean.


Capacity to export large amount to energy hungry Asia.

Strong relationship between China and Kazakhstan.


Costliest project due to its length (about 3,700 km).

Potential of large-scale migration of Chinese workers in Kazakhstan raising the temperature and potential of explosion of ethnic strife.

Pipeline will run through Xinjiang autonomous region, China’s major headache.

Southeastern Route:

Turkmenistani oil will be transported via a pipeline running through Afghanistan and Pakistan to the port of Gwadar. A gas pipeline from Turkmenistan will run through Afghanistan and Pakistan to Multan. The second phase will be a pipeline from Multan to New Delhi.


Geographically and economically makes sense.

Huge economic benefit for Pakistan and Afghanistan who desperately need it.

Energy hungry India will get a steady source.


Even the thought of Afghanistan makes everybody to sweat.

India and Pakistan ready for a duel any time of the day (There goes the second phase of gas pipeline).


Russia’s interest in Central Asia is multifactorial. Political, social (about nine million Russians still live in Central Asia), economic and security concerns of Russia warrant that it pays close attention to the changes in the region. When Soviet Union stabilized its control of Central Asia, the main attention was towards the pacification of the population. After Second World War, existing output continued from Baku (Azerbaijan) oilfields but they were seen as reserves by Soviets. The oil and gas deposits in Siberia and Tatarstan were exploited for domestic consumption and exports. All existing pipeline routes run through southern Russia to the Black Sea port of Novorossysk and central Russia to assure firm control.

After the break up of Soviet Union in 1991 and emergence of several independent states, Russia continued to make efforts to keep these states under its zone of influence.

In 1993, when Chevron started its operations in Tengiz oil fields in Kazakhstan, Russia feared loss of control of the energy sources with concomitant decline of its influence. Russia tried to assert itself by restricting Kazakh access to pipelines in favour of Russian oil and raised tariffs. It also blocked the transport of Azerbaijani oil to its oil terminal at Novorossysk despite contract with AIOC. In 1994, Russian gas monopoly, Gazprom stopped carrying Turkmen gas to Western Europe markets. In addition, it attempted to create hurdles in the proposed pipeline projects running from Azerbaijan through Armenia and Georgia to Turkey. The result of these efforts was much less profits for energy companies and curtailment of investment. The Russian efforts had mixed results. On positive side, Russia was accepted as a player in the area and was invited on the bandwagon. Russia’s natural gas monopoly, Gazprom (Gazprom owns all of Russia’s infrastructure and high pressure transmission lines and controls 95% of Russian gas production) and Turkmen-Russian government oil company, Turkeman-RosGaz were included in the consortium for construction of oil and gas pipelines from Turkmenistan. Russia was also given the membership of Caspian Pipeline Consortium, thus getting the share of a $2 billion pie. The Russian oil giant, Lukoil was given a share in AIOC (12.5%) and Tengiz project (10%) in Kazakhstan. The Atlantic Richfield Company became a shareholder of Russian oil giant, Lukoil. On negative side, it raised the suspicion about future intentions of Russia and companies started to search for alternative routes of pipelines to avoid Russia.

Kazakh and Azerbaijani oil goes through Russian pipeline routes. Caspian Pipeline Consortium (Kazakhstan, Russia, Oman, Exxon Mobil and Chevron Texaco are major shareholders) started the work on a $2.6 billion pipeline project running from Tengiz oilfields in Kazakhstan to the Russian Black Sea port of Novorossysk in 1999. In October 2001, first oil passed through this pipeline. Its initial capacity is 28.2 million tons a year but its final capacity will be 67 million tons. The Baku-Novorossysk pipeline ran through Chechnya. In view of troubles in Chechnya, Russia has replaced the Chechnya link with a pipeline through Daghestan. Russia has participated in the construction of a pipeline from the Bulgarian port of Burgas to Alexandroupolis, Greece to bypass Bosphorous and Turkey. The direct presence of US military in Central Asia and Afghanistan is making Russia jittery. While supporting US in the war on terrorism (as US is taking care of the menace of Islamist political extremism which is also a headache for Russia), Russia moved quickly to secure its economic and security interests in the region. In early December 2001, Gazprom announced that it had reached an agreement with Kazakhstan in joint exploration of oil resources. Few days later, Russia signed a long-term agreement of cooperation in energy sector with government of Turkmenistan. The major problem with Russia is that it does not have the advanced technical expertise and money to invest in the huge energy sector of Central Asia thus limiting its role. In addition, due to the recent experience of Russian dominance, many newly independent republics are worried about the future Russian designs and want to avoid heavy dependence on Russia in any field.


China’s role is the Central Asia is a bit complex. The major focus of Chinese attention is geared towards Pacific Ocean. The major foreign policy issues concern Hong Kong, Taiwan and trade with U.S and Europe. Central Asia is more seen a backyard, watching who is doing what in the backyard but paying more attention to the front. It will prefer no dramatic change in the area and go for a status quo until it is ready to play a bigger role in the area. All three possible scenarios of close alliance of border states with Russia, US and Muslim Middle East will be seen with suspicion by China. It has tried to improve relations with Central Asian neighbours by resolving border disputes and signing of agreements of troop reduction and modest economic investment. It has also opened many border crossings including rail links. The emergence of Shanghai Forum (China, Russia, Tajikistan, Kyrgystan, Kazakhstan and Uzbekistan) was mainly due to the concerns about extremism stemming out of extremist political Islamist movements. Along with these positive developments, the influx of Chinese in Central Asian states has caused some concern. About 300,000 Han Chinese have not only migrated to Kazakhstan, Kyrgystan and Uzbekistan but have purchased businesses, property and are marrying local women. This large-scale migration in such a short time is making these republics apprehensive about Chinese hegemony.

At present a small amount of Kazakh oil goes to China through rail. The major problem is how to transport Kazakh oil to China and beyond. China is involved in two possible energy routes for its own use and export to Japan and Korea. One, the world’s longest (3,700 miles) pipeline from Turkmen fields at Chardzou to the Pacific coast of China. A consortium consisting of China National Petroleum Company (CNPC), Esso China (Exxon) and Mitsubishi (Japan) is considering this proposal. An oil pipeline from western Kazakhstan to Xinjiang province is also being considered. The Chinese National Gas Company has acquired gas fields in western Kazakhstan. In 1998, China signed an agreement with Caspian Oil Pipeline Consortium and Kazakhstan national oil company, Kazakahoil. In November 2000, China National Offshore Oil Corporation (CNOOC. It is one of three major Chinese oil and gas companies) signed an agreement with Dutch/Shell Group for exploration and transport of oil and gas. In near future, China will be a major player in any cross-border energy project, which serves East Asia.

United States

One commentator has correctly summarized US policy in these words, ‘Strategic calculations of energy prices and accessibility through pipelines, the uniquely American sensitivity to oil and gas prices, and traditional security issues in Europe, the CIS and the Middle East drive US policy’. Contrary to popular belief, the domestic oil and gas production in US is quite large. US is the third largest oil producer in the world, behind only Saudi Arabia and Russia. In 2000, 2.1 billion barrels of oil and 19.6 trillion cubic feet of natural gas was produced in US. Several factors, including increasing consumption of energy and domestic environmental lobby’s intensive efforts to curtail oil and gas exploration in US and decreased reliance on nuclear energy contribute to growing dependence on imports. In the last twenty years, US is increasing the diversification of its energy imports. This diversification of supply is the most effective method to manage the risks associated with dependence on imports of oil.

Increasing chaos in Middle East has prompted US policy makers to look at other potential energy markets outside Middle East. There has been increasing interest in African resources. United States imports 15% of its oil from Western Africa (nearly as much as from Saudi Arabia). In the next five years, this figure will rise to 20% and by some estimates 25% by year 2015. In West Africa, Equatorial Guinea is the emerging ‘Kuwait of Africa’. Equatorial Guinea is headed by Brigadier General Teodoro Obiang Mbasogo who took power in a coup in 1979. In 2000, Exxon Mobil, Chevron, Triton (Triton was recently bought by oil giant Amerada Hess) and several other small oil companies had invested $5 billion in Equatorial Guinea.

After the breakup of Soviet Union and emergence of independent states in Central Asia in 1991, the importance and availability of huge energy reserves became evident to western oil giants. Several players started lobbying to get US government support in this venture. In September 1997, Roger Tamraz (Tamraz is a Lebanese American businessman who had long association with Central Intelligence Agency (CIA) and had helped slipping of US agents in attempts to rescue western hostages held in Lebanon) testified before Senate’s Governmental Affairs Committee that he gave $300,000 to Democratic Party to win US government support for Central Asian pipeline project. An Israeli Company, Mehrav Group hired the lobbying firm of Cassidy & Associates in Washington to push its trans-Caspian pipeline project in the official labyrinth. As far as US government is concerned, the ‘competition for leverage over energy and thus the destiny of Central Asia (and the South Caucasus) makes US energy policy a strategic policy in the full sense of the term’. In early 90s, official US response was lukewarm as the area was considered traditional influence zone of Russia. Later, however, US worked with several Central Asian Republics to increase cooperation in different areas. Civil war in Afghanistan prevented one of the pipeline routes. In December 1997, Unocal invited Taliban representatives to their corporate headquarters in Sugarland, Texas for discussion on pipeline project. These representatives later had meetings with Clinton administration officials in Washington. In January 1998, Unocal signed an agreement with Pakistan, Turkmenistan and Taliban to arrange funding for the pipeline project. The deal went sour very quickly and two months later, Unocal announced delay of the project citing continued civil war in Afghanistan. It was not until September 11, 2001, when US came to Afghanistan physically which dramatically changed the geo-political scene overnight.

It is quite natural that when somebody is going to invest in a project, it will think of security of its investment. Similarly, US military involvement in areas of these resources, depending on the situation will be expected. An air force officer, Lt. Colonel Karen Kwiatkowski attached to the Defence Secretary’s office stated at a seminar that United States needs to step up military training for African oil producers so that they can “secure their property, their investment and our investment”. A private firm called Military Professional Resources Inc. (MPRI) which is led by high-ranking Pentagon retirees and include General (r) Ed Soyster who is the former head of Defence Intelligence Agency. This company is embarking on a programme to train Guinean Coast Guards. Similarly, in Central Asia, US is in the process of acquiring bases for limited operations in case of an emergency. In long run, this strategy will be counterproductive. Open debate and representative governments in the region and relationships based on common interests are the essential elements of long term stability.

In the present Bush administration, a large number of key decision makers have links with energy sector. President Bush himself has served on the board of Harkin Energy. Vice President Dick Cheney was heading Halliburton (a large oil services and construction company which is being investigated by Securities and Exchange Commission for its accounting practices which may have shown inflated balance sheet) until 2000. Current National Security Advisor Condoleeza Rice was director at Chevron from 1991 to 2000. She was the company’s expert and contact person for Kazakhstan. Secretary of Commerce, Donald Evans is the former Chief Executive Officer (CEO) of Tom Brown Inc., a $1.2 billion oil company. Secretary of Army, Thomas White is the former Vice Chairman of Enron (He is a former Brigadier General who had worked for Enron for 11 years and was called for testimony by Senate Committee investigating the financial scandal of Enron. They have called on Federal Regulatory Commission and the Securities and Exchange Commission to investigate Mr. White’s role in the scandal). Bush’s special envoy to Afghanistan, Zalmay Khalilzad (He is an Afghan-American who had served as member of State Department’s Policy Planning Council during Reagan administration, assistant deputy under-secretary of defense for policy planning during Bush senior administration and now in charge of Persian Gulf and Central Asia at National Security Council) was an advisor for Unocal and in mid-1990s had conducted risk analysis for Unocal when he was working for Cambridge Energy Research Associates. Afghan Prime minister Hamid Karzai has served as an advisor to Unocal. Former National Security Advisor of Reagan, Robert McFarlane runs K Street oil consulting firm. In August 1996, Unocal and Delta Oil company of Saudi Arabia signed a memorandum of understanding with Gazprom of Russia and Turmenrusgaz of Turkmenistan to build a gas pipeline. UNOCAL has hired some powerful former government officials. Charles Larson, former commander-in-Chief of the US Navy’s Pacific Command and Donald Rice, former Secretary of Air Force during Bush Senior term sit on the board. Robert Oakley, former US ambassador to Pakistan has also worked for Unocal. Many top former US officials including James Baker (former Secretary of State), Brent Scrowcroft (former national security advisor) and John Sununu (former White House Chief of Staff) are also involved in energy sector.

The current US policy of combating terrorism only with a big stick and building up security ties with many Central Asian states at the cost of ignoring the dismal record of political reforms will be counterproductive in the long run. Economic policies in these countries cannot be successfully pursued without addressing the political and social issues. With over development of coercive arms of the state (police, military and para-military forces), small corrupt ruling elite may look strong superficially but will be unable to withstand any push from a determined opposition group (whether radical Islamists, Nationalists or Democrats) in long run. Even if they are able to hold on against the opposition, the ensuing violence and chaos will leave no room for any meaningful economic activity (remember Afghanistan).


‘We don’t need a brave president, because the people themselves are brave, even the women and children. What we need is a wise president, who keeps his head, gets things done and doesn’t talk too much’. A Chechen citizen’s advice to his leaders.

Pakistan comes into the picture as one of the possible outlets for Central Asian oil and gas. The proposed gas pipeline project entails construction of a 48-inch diameter pipeline originating from Daulatabad gas fields of southeastern Turkmenistan, passing through Herat-Kandahar area of Afghanistan and entering Pakistan near Quetta and terminating in Multan. The estimated cost of this project is $1.9 billion. An additional $600 million is for the second phase of extension of the pipeline, another 400 miles from Multan to New Delhi. The proposed oil pipeline will start from Chardzhou, Turkmenistan, run through Afghanistan (Herat-Kandahar line) and end in the Pakistani port city of Karachi. Another destination would be the newly constructed port at Gwadar. After the cessation of large-scale operations in Afghanistan, President Musharraf of Pakistan, Hamid Karzai of Afghanistan and Suparmurad of Turkmenistan signed an agreement for the construction of gas pipeline in May 2002.

Currently, utter confusion on the national scene is preventing any meaningful and informed debate about the course, which Pakistan should adopt in this situation. Experts of energy field and different sections of the society need to scratch their heads about the future course, so that country can pursue a pro-active policy and not waiting for hand-outs and crumbs. Fundamental questions, like is a oil and gas pipeline through Afghanistan and Pakistan is in Pakistan’s interest need to be frankly discussed. If the answer to this question is yes then the next step is how to achieve the maximum benefit? All these issues need be discussed in public at different forums to get public support regardless of the nature of the government of the day. Behind the door negotiations and pursuing policy matters in a clandestine way (regardless of how sincere they are) will not bear any meaningful results in long run as Pakistani public will be suspicious about the motives in view of presence of US forces in the region. Possible difficulties and roadblocks in future and how to tackle them need to be discussed at length. Peace in Afghanistan (while most Pakistanis would love to see the bloody nose of US in Afghanistan but is that in Pakistan’s interest), internal stability of Pakistan (recent upheaval in Bugti area may be a warning sign that if the house is not in order, some Pakistanis may decide to go alone to get the share of the pie thus increasing instability), addressing the grievances of ethnic minorities (Sindhis, Balochs and Muhajirs must be assured of the potential benefits which should be actually delivered) and human resource development (in view of the hostility against Westerners, many organizations will be reluctant to send experts in the field of oil and gas and pipelines to Pakistan, thus training of Pakistani personnel in various energy fields is crucial for success of any project) for potential projects are questions which Pakistanis need to discuss among themselves, no one else can do it for them. In case of Pakistan, a potential future scandal is the presence of Israeli energy business interests in Central Asia. For the last several years, Israeli companies have been involved in energy sector in Turkmenistan and Azerbaijan. Yousef Maiman, the president of Mehrav Group of Israel has been involved in development of energy resources of Turkmenistan. In Turkey, an Israeli Company, Magal Security Systems has signed an agreement for providing security for the 2,000 km long pipeline from the Caspian Sea to the Turkish port of Ceyhan. Every effort should be made to provide details of levels of cooperation with various countries. If in certain area, it is not possible to avoid interaction with Israeli business interests, the details should be provided to the public for debate. If the current opportunity is used as another way of enriching a corrupt cliche (remember 80s bonanza of Jihad Incorporated) and not for larger national interest, the troubles for Pakistan will be multiplied several folds and strain on civil society may reach a breaking point.

Pariahs in the Pathway of Pipelines

‘Today’s battle lines are more merciless and tangled than those drawn a century ago’.

For any meaningful economic activity, it is crucial that the regional countries work on conflict resolution. Several states are involved in prolonged conflicts with their neighbours and with minorities in their own territories. This not only damages their economies but also provides opportunity for hegemonic external powers to fish in the troubled waters. All regional countries are aware of the dangers but have not come up with a long-term strategy of how to deal with the problem effectively. In July 1998, Jiang Zemin, the presidents of Kazakhstan, Kyrghystan and Tajikistan, and Yevgenii Primakov, representing the Russian President, met in Almaty to discuss the strengthening of regional peace, stability and economic cooperation. The meeting was focused on ‘common efforts to fight separatism, religious fundamentalism, terrorism, illegal arms trafficking and the illegal drug trade’ as these issues were seen as ‘common threats to the region’s stability and security’.

After the Soviet withdrawal in 1989, the fratricidal civil war in Afghanistan frustrated everyone. The emergence of Taliban in 1996-97 was seen as a stabilizing factor. Initially, it was hoped that Taliban will ensure reasonable amount of peace for economic activity to start. In 1997, a US diplomat commented about Taliban that, “The Taliban will probably develop like the Saudis did. There will be Aramco, pipelines, an emir, no parliament, and lots of Sharia law. We can live with that”. However, Mullah Omar came under the spell of Saudi multi-millionaire turned warrior Osama bin Ladin and rest is history. After the rout of Taliban, an uneasy calm under American military machine prevails in Afghanistan but the country’s troubled past is not very encouraging for the future prospects. Knowing the tremendous economic benefits, various warlords who have influence in the area of pipeline corridor of Afghanistan will not give up without a fight. The political instability is the major hindrance factor in the resolution of differences between different groups. ‘Political reconstruction is the essential pre-requisite for the economic reconstruction of the country’. Afghans have to come to agree among themselves about future course and rebuilding of their shattered country. “Time will be the best judge if Afghans will continue on the path of polarization or first hand look at the utter destruction of their homeland will finally convince them the futility of civil war”.

Four conflicts in Caucasus and Central Asia (Nogorno-Karabakh, Chechnya, South Ossetia and Abkhazia) have resulted in deaths of thousands of people, created a large number of refugee population and have utterly destroyed the infrastructure. In addition, the seeds of hatred and vengeance have been sowed for the future generations. In all these cases, ‘secessionist have triumphed on the battlefield and control their respective territories’ but despite their military successes, they have failed to win international recognition. Armenia and Azerbaijan have locked horns on the Armenian enclave of Nogorno-Karabakh. In 1993, Armenian forces took control of the Armenian majority enclave of Nogorno-Karabakh. This resulted in loss of almost one-fifth of Azerbaijan territory and creation of hundreds of thousands of refugees. Who took the side of who depended on the economic and strategic interests involved. In November 1993, when an agreement was signed between Azerbaijan government and a consortium led by UK based British Petroleum, British minister, Douglas Hogg openly declared that UK government regarded Nogorno-Karabakh as an integral part of Azerbaijan and condemned the use of force to change its status. The hostilities between Armenia and Azerbaijan with inevitable involvement of Turkey has already killed an optimum pipeline route, the Baku-Armenia-Ceyhan route. This has not only prevented a chance of cooperation between these countries but has allowed Russian influence back in the game when Armenia asked for Russian troops to guard its borders with Turkey.

The breakaway republics of South Ossetia and Abkhazia have ruined the economy of Georgia. In late 1990, secessionist movement in South Ossetia decided to breakaway from Georgia thus starting a violent conflict. In July 1992, Abkhazia rebelled to secede from Georgia. Abkhazia is on the Black Sea coast. Theirs was an interesting case as ethnic Abkhaz numbered only percent of the population of what they consider their ancestral lands. The violence in 1992 resulted in mass exodus of ethnic Georgians from Abkhazia. Russia had some role in these secessionist movements to keep Georgia in its sphere of influence. When the civil war got out of hand and Georgian army was unable to control the situation, to avoid complete anarchy, Georgia had no choice but to ask for Russian assistance. In 1995, Georgia signed an agreement with Russia for stationing of Russian troops at four bases. The rebellious groups, civil war, coup and unrest among minorities have resulted in a very precarious situation in Georgia.

Rebellion in Chechnya, which started in late 1990, was a cause of grave concern for Russia for several reasons. “Chechnya’s major strategic importance lay in its oil resources, its considerable oil refining capacity, and the fact that it was an ‘oil pipeline corridor and junction’ between the Caspian Sea ports of Makhachkala (Dagestan) and Baku (Azerbaijan)”. The three oil fields produced 3.6 million tons of oil in 1992 and 2.6 million tons in 1993. One of the existing pipelines run through Chechnya from Baku (Azerbaijan) to Novorossysk. Grozny was the hub of a pipeline network that branched out to Kazakhstan, Siberia, Baku and the Black Sea port of Novosossysk. There are three oil refineries in Grozny. In addition, Russians were genuinely concerned that radical political Islamist ideology may also engulf not only Dagestan (which covers a large portion of Caspian Sea coastline) but also two Muslim republics in Volga region, namely Tatarastan and Bashkortostan. Other minorities may also follow the lead thus disintegrating the country. In fact, in January 1995, seven of the twenty two non-Russian ethnic regions petitioned Moscow to renegotiate the Russian relationship. The construction of Tengiz-Novorossysk pipeline was due to the fact that everybody wanted to bypass the troubled Grozny (capital of Chechnya). The 1994 Russian offensive resulted in a humiliating withdrawal of Russian troops. In 1999 Russians came back with a vengeance. They learned their lesson from the previous offensive. They used indiscriminate air and artillery bombardment of Chechnya resulting in heavy civilian casualties. The early alienation of population from poor socio-economic conditions after the collapse of Soviet Union soon resulted in a complex scenario. Chechen society is ‘organized on an interlocking religious, tribal, clan and family basis, with clans and families forever competing for supremacy’.48 A glimpse of this is evident from the fact that such curious figures as Dzhokhar Dudayev (a major General commanding a wing of Soviet nuclear bombers stationed in Estonia. He became the President of Chechnya), Yaragi Mamadayev (he headed the biggest state construction company in Chechnya and had alleged ties with mafias. He provided funds for Dudayev and was rewarded when he was nominated acting Prime Minister), Zelimkhan Yandarbiyev (a poet and junior official who became Vice President and later successor to Dudayev) Bislan Gantemirov (a former police sergeant, used car dealer and gangster. He became Mayor of Grozny and founder of ‘Islamic Path Party’) and Yusup Soslambekov (a businessman who had served time in jail for rape. He became the Chairman of the parliament of Muslim North Caucasian Autonomous Republics) became the leaders of Chechens. With the collapse of government monopolies and existence of an ‘outlaw’ mini state, Chechnya truly became the wild bandit town. Gangsters, smugglers of luxury items, drugs and weapons and crime syndicates and mafias operating in Moscow found a safe haven. Banking frauds of staggering proportions were committed by Chechen gangs (one of the largest one was estimated to be $700 million). During all the fighting, Russia kept sending oil for the refineries thus providing enough money for the Chechen leaders. Different warlords profited enormously. According to one estimate, in 1993 alone the profits from the sale of oil from Chechnya were between $800-900 million. Most of the money was not shown in the state budget. Chechen officials were simply putting their personal signatures to oil sales to individual clients and a large cut of each sale was presumably coming back to the signatory concerned. Not to be left out of this booty, half a dozen oil experts from Texas came to Grozny in the spring of 1992. An American embassy official, William Anderson III flew from Moscow to persuade them to go home. In autumn of 1992, Dudayev visited US and signed a $200 million deal with a Texan energy company EnForce. A certain degree of criminalization of freedom struggles is a universal phenomenon but in case of Chechnya, the whole struggle was hijacked by vested interests with severe repercussions for the Chechen society. The hyperbole and rhetoric of Chechen President Dudayev and later Aslan Maskhadov introducing Muslim legal code and indicating that he will declare an Islamic Republic, will establish Islamic Banks and will enforce Islamic clothing for females (All this was being said when he was pushed out of Grozny and not even a single country of the world including Muslim countries have even recognized Chechnya. This was done due to pressure from more radical political Islamist groups) was mind boggling even for Chechens themselves. Greed, glory, ethnic pride, nationalism and religious fervour got mixed up in the confused republic of Chechnya.

Xinjiang Uighur Autonomous Region of China is located strategically and borders Kazakhstan, Kyrghystan, Tajikistan, Afghanistan and Pakistan. The total population is 16.6 million and Muslims (It includes Uighurs, Kazakhs, Kyrgyz and Tajik) are in majority. Since early 80s, there has been discontent in the area which has ethnic, religious and economic base. The settlement of Han Chinese in the area and rise of pan-Turkic and pan-Islamic sentiments has resulted in violent clashes in the last two decades. Civil war in Afghanistan, emergence of independent Central Asian republics and increased travel and commerce with neighbours has revitalized old links with its attendant complications. Xinjiang not only has oil reserves but all future oil and gas pipeline routes pass through it. China is using the stick of increased settlement of Han Chinese and prompt punishment including execution of separatists. Chinese government has also tightened the control of religious activities by issuing decrees for administration of religious places and religious professional workers. This is accompanied with the carrot of increased economic development of the area, increased religious freedom and more interaction with neighbouring kins. The presence of large number of exiles from Xinjiang in Turkey (US ally and NATO member) makes China uncomfortable and even expression of genuine grievances of the people is seen as foreign instigated. China has been successful in securing the political support of key Muslim leaders of the region for its presence in Xinajiang. Leaders of Central Asian republics, Iran (President Hashmi Rafsanjani) and Pakistan (General Pervez Musharraf) have visited the region and showed support of China.

In all areas of conflicts, there are three choices: accept the status quo, try to resolve their differences by force, or negotiate. They should realize that ‘no peace, no war’ is a significant impediment to the normalization of life within their territories. Internal harmony by institution of representative governments, respect of rights of minorities, adhering to principles of non-interference and working for friendship and cooperation with neighbouring countries is a long road but the journey has to start some day and probably that day has arrived.


‘Large energy options depend on larger political issues’.

There is a large number of international players including governments, giant energy corporations and leaders of rebellions in this game of high stakes. It is vital for all big players to understand that no one can monopolize the transportation routes of oil and gas. ‘Compromise must replace competition in the pipeline interests, otherwise a more agitated Caucasus will bring poverty and bloodshed to everyone in the region, with no clear winner’.56 As far as smaller players are concerned, the plain fact should be recognized that the regional countries do not have the necessary capital to embark on multi-billion dollar infrastructure projects. For a sustainable economic development of Afghanistan and Pakistan, the most crucial element is avoidance of over dependence on foreign assistance and aid. Economic independence is a pre-requisite for a meaningful political independence. It will be naive to expect that donor countries will dish out large sums of money with no strings attached. Secondly, oil and gas corporations (it does not matter whether they are US, British, European, Turkish or Iranian) are business organizations, not charity organizations. If they are going to invest billions of dollars, they are going to expect a reasonable amount of profit. The line between exploration and exploitation has always been very thin and depends on who defines it. The sustainable long-term projects where in the initial construction phase (approximately 2-3 years) the money used for infrastructure and labour employed will help all countries. In long-term, the transit fees, construction of ‘downstream’ industries and maintenance of the pipelines and negotiating agreements to get oil and gas at discounted rate for domestic consumption will have significant economic dividends.

The narrow window of opportunity for regional countries to utilize Western capital to the best of their advantage should be used to the fullest as they do not have the necessary capital for the much needed energy infrastructure. If Middle East is stabilized by a negotiated settlement between Israelis and Palestinians (although the prospect of this is very dim) and Central Asia becomes chaotic, the US and European economic interest may dramatically reduce in this region. All regional countries of Central Asia need to formulate a rational and coherent strategy to work for good governance and a viable and sustainable economic environment. Failure in this crucial area may exacerbate the existing ethnic and religious fault lines and set a stage for prolonged civil wars. An informed debate about various options should be encouraged to reach a consensus about a given strategy in any country, which is beneficial for the general population. The current policy of most of these countries (almost all of them under authoritarian rulers) of taking into consideration only military and economic issues and totally ignoring the most vital element of representative government will be suicidal in long-term.

Life is too beautiful for one to kill oneself on account of a small jest with oil.

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