In the early 1990s, the Caspian oil exploration was like a high-ante, high-stakes game of poker with several rounds of draw and a large (but unknown) number of wild cards. A lot of the players frankly acted like cowboys shooting from the hip, and there was a lot of bluffing as well. It was, moreover, a "table stakes" game: if you couldn't meet the level of the bet when it came your turn to call, you had to clear out or find some kind of collateral, usually by signing an IOU to another player who would back you and split any winnings. This is why consortia were established: to pool resources and intelligence.
Just to complicate things a bit more, in this poker game there were at least two mutually incommensurable currencies being used: regular money and political power. The poker game was further complicated by the fact that it was being played within another game that had other rules. For the players were also seated at a large geopolitical chessboard. The chessboard was moreover multidimensional and had actually a large and indeterminate number of players. Some of them were pieces in the games of other players. Some of these played nested games with other smaller players, with still different pieces and different rules. Ethnic conflict on a potential right-of-way, and its effects on strategic pipeline planning, is an example of this.
Yet even the nesting was not neat and simple. For example, coalitions were permitted between players at different levels of nesting. In fact, inter-ethnic combat meant that there were ongoing negotiations among the main players with their proxies over the actual rules of the game. There was not even an established order for taking turns. The relations among the games themselves could change, because there were no established rules for how the players at different levels could form coalitions. Such coalitions would do no less than reshape the chessboards.
Nowadays, with a relative consolidation of the chessboards into patterns at least temporarily fixed, the Caspian oil game represents nothing so much as a stock market. The bluffing and high stakes and endemic risk-taking survive from the days of the poker game, but strategy as opposed to tactics has become the conditioning environment, as in the chess game. These are the characteristics of a contemporary securities market.
There are "market makers" in the various major and minor pipeline projects into which the previous fluidity, if not chaos, has jelled. Rumor and partial information still play an important role in influencing short-term events that can intervene to change long-term trends. Sometimes the credibility of the rumors and information depend upon ignorance of a broader perspective. Thus the pessimism about reserve in Azerbaijan's sector of the Caspian Sea has been overplayed in recent months. This sentiment is due for a rebound. About the only difference from a real stock market is that there are no penny stocks.
Like the stock market, the Caspian oil game is subject to unforeseen external shocks. The Asian economic crisis is one. Another is the U.S. Presidential elections in the year 2000. For example, it is clear that if George W. Bush, son of the former President and today governor of Texas, is nominated by the Republican Party and elected, then the international energy consortia will have a new friend in the White House and Azerbaijan will profit from the situation. Many of the advisors whom Bush has chosen for his campaign have in the past been either active advocates of close ties with Azerbaijan or have voted against maintaining Section 907 restrictions on U.S. assistance to the country. The mortality of the current leader of Azerbaijan is yet another unforeseeable.
The moral of this constellation of factors is the same as would be for a stock market. While remaining aware that long-term projections are only projections, it is necessary not to be distracted by events of the moment, and in evaluating information one must question the motives of the source of the information. Analysts should not ignore long shots but neither should they hype these. Fundamentals either do not change or change so slowly. Fixed ways of thinking persist, such that when fundamentals do change, ingrained habits of thinking can blind one to the changes before they are generally obvious.
The only reason there is any chance of success in the Caspian is that new organizational methods of management and work have been invented and implemented by the international energy consortia to deal with the management of information under complexity in cross- cultural decisional situations. However, this is not something that, once it is done, is over; it is a continuing and ever-challenging task.
Copyright © Robert M. Cutler unless otherwise noted.
See reprint info if you want to reproduce anything in any medium.
For individual, non-commerical use only.
This Web-based compilation: Copyright © Robert M. Cutler
First published in FSU Oil & Gas Monitor, No. 34 (1 June 1999): 2.