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The Importance of the Caspian and Central Asia as a Source of and Transit Route for Energy

Prepared remarks to the Wilton Park Conference The South Caucasus and Wider Black Sea Neighbourhood: Regional Developments and Euro-Atlantic Integration, Wiston House, West Sussex (U.K.), 23–26 November 2009.

China's emergence as an important player in the development and use of energy resources found in the Caspian Sea basin, alongside longer established interests emanating from Russia, Europe and the United States, is a reminder of the ever-changing dynamics of the region, too easily overlooked during periods of apparent stasis, such as during the late Soviet era. Yet the appearance of this new power in the region also confirms the essential stability of a core group of relationships about which others wax and wane, with a periodicity of possible future importance that China's presence can help us to identify. Regarding the perspective on the past and future of Caspian Sea basin energy geo-economics, two observations establish the basis on which to proceed.

The first is that bilateral Kazakhstan-Russia and Turkmenistan-Russia energy relations have such moment that we may justifiably speak of the Kazakhstan-Russia-Turkmenistan triangle as the foundational element for the evolution of Central Eurasian energy geo-economics, even though the relations between Kazakhstan and Turkmenistan are only beginning to manifest through cooperation over the gas pipeline to China.

The second is that in the apparent disorder of everyday life in the region over the last decade and a half, there is in fact detectible, if not a “logic” the at least patterns that recur and recombine in different and ever newer ways. In particular, it is possible to detect, in Caspian/Central Asia energy development and its connection with the South Caucasus, an evolutionary development through three phases over the past sixteen years.

These are the two points of departure: the fundamental fact of the Kazakhstan-Russia-Turkmenistan triangle and an evolutionary development through three phases. It is useful to note parenthetically that he notion of the triangular or triadic relation is essential, since network sociologists in the 1990s rigorously demonstrated that they have a dynamic that differs qualitatively from any aggregation or iteration of bilateral or dyadic relations.

Hydrocarbon energy resource development in Central Asia and in the South Caucasus began autonomously of one another, but they were not intimately bound together. By circumstances, rather than by natural law, they share the same chronology. The first phase in this schema covers the years 1993-1998; the second, 1999-2004; and the third, 2005-2010. There is a conceptual apparatus behind this schema, but in ordinary these phases may be designated respectively as “bubbling up,” “settling down,” and “running deep.”

By circumstance, and not by natural law, a different strategic player—a “fourth vertex”—is added as the principal motor of developments, during each of the three phases. The others do not disappear; rather, a former non-player achieves prominence and drives events. From 1993 to 1998, this was the United States; from 1999 to 2004, it was the EU or at least several of its member-states (and their “national champions” such as BP for the United Kingdom and Eni for Italy); and from 2005 to 2010, this has been China.

If for each phase we now have a quadrilateral, with the addition of the “fourth vertex,” then this may be regarded in fact as four triangles, each omitting one of the vertices; and the Kazakhstan-Russia-Turkmenistan triangle will be a constant in the analysis.

During the first phase, then, in addition to the basic Kazakhstan-Russia-Turkmenistan triangle, with the US as the fourth player, we have the following. The Kazakhstan-Russia-US triangle was immediately in evidence over the question of an export pipeline for Tengiz crude.

American offshore terminals in the Gulf of Mexico were the first intended targets of Kazakhstani oil shipments; and also during these years, the U.S. embassy in Almaty (which was then the capital) provided essential help to Russia and Kazakhstan for the restructuring of the Caspian Pipeline Consortium, enabling the CPC to be subsequently in fact built.

Western interest in Turkmenistan at this time was exclusively U.S. interest, concentrated on ameliorating Ukraine’s payments situation as an importer from Turkmenistan and also beginning to promote the first attempt to negotiate a Turkmenistan-Azerbaijan Trans-Caspian Gas Pipeline (TCGP), in which, in the 1990s, the U.S. companies GE Capital, Bechtel and PSG were the driving forces. The US-Kazakhstan-Turkmenistan triangle remained undeveloped.

From 1999 to 2004, the EU became the motive fourth vertex of the fundamental Central Asian energy triangle. This evolution manifested, as before, in three new triangles. The Russia-Turkmenistan-EU triangle was animated by new EU interest in gas from Ashgabad in the early part of the current decade, after the American project had failed; and the current initiative, led by the German company RWE for a Turkmenistan-Azerbaijan gas link descends from it.

Second was the EU-Russia-Kazakhstan triangle, which manifested in European and Russian interest through developing the Kashagan deposit and other North Caspian fields in Kazakhstan’s offshore that came into prominence at that time.

Also the EU-Turkmenistan-Kazakhstan triangle manifested also in the failed TCGP project and other designs still on the drawing-board, but of which the idea to pipe Kashagan’s associated gas to Azerbaijan, and the idea of the Kazakhstan-Caspian Transportation System (KCTS), also for Kashagan if not Tengiz oil, are inheritors.

Finally in the third phase, from 2005 to 2010, China comes into a prominence that it did not earlier enjoy, as the fourth vertex of yet another, newer quadrilateral. The triangles into which it is decomposable manifest as follows.

The China-Turkmenistan-Russia triangle is animated by contradiction between China and Russia over Turkmenistan’s natural gas, as in the competition between Russia’s unrealized project for a refurbished Caspian Coastal (“Prikaspii”) Pipeline on the one hand and, on the other hand, the Turkmenistan-China gas pipeline now under construction. The China-Kazakhstan-Russia triangle, also animated by China-Russia contradiction, manifested for example, but not only, in the China-Russia competition to buy out the Canadian firm Petrokazakhstan (previously Hurricane Hydrocarbons).

Petrokazakhstan which happened to own a piece of the pipeline that China needed to put together its Tengiz-Xinjiang oil pipeline, a westward extension of the pipeline from eastern Kazakhstan to China, agreed in the late 1990s and which entered into service after long negotiations over implementation. Finally, the China-Kazakhstan-Turkmenistan triangle is manifest in the gas pipeline, negotiated on the basis of a bilateral China-Kazakhstan project, that is now being built from Turkmenistan (through Uzbekistan then) through Kazakhstan to western China, where it will join up with the “West-East” Pipeline in China running to the coast, and which Beijing constructed earlier this decade, and for precisely this reason, at a financial loss.

So there it is: three periods of “epigenetic” development (i.e. each building out or “accreting” from what went before), starting from the basis of the Russia-Turkmenistan-Kazakhstan triangle, and then successively adding on the US, then the EU, then China, as “fourth vertices,” consecutively driving the evolution of the network as a whole.

The terms “bubbling up,” “settling down,” and “running deep” characterize these phases. They are ordinary-language expression of scientific terminology that is unimportant for the present purpose. To put flesh on this skeleton, however, “bubbling up” refers to how, after the Soviet state disestablished itself, new possibilities for new patterns of international relations began to percolate from events on the ground, relatively free from the hierarchical constraints that characterized the bipolar Cold War system.

In the realm of Eurasian energy development, this means that the years 1993-1998 were marked principally by manifold proposals for new resource explorations and development, and pipeline construction. The phrase “settling down,” referring to the period 1999-2004, identifies the fact that it was during these years that some of those projects acquired a life of their own and moved toward physical realization, while others died, or perhaps entered a state of suspended animation. The phase of “running deep” designates those years (2005-2010) when such projects as acquired life, were finally born and began to operate and thrive.

These three phases, to summarize, respectively are emergence, self-produced development, and coherence.

That is the first point driving the conclusion to this interpretation. The second point is that there is an increasing body of rigorous work that strongly suggests that international relations as a network will begin to undergo another systemic transformation, as radical as the results of systemic war or the end of the Cold War, beginning in about the early 2040s.

What is significant is that that insight is reached through a variety of different types of studies, independently conducted and using distinctively different methods for prediction and forecast. I leave the details substantiating this second point for another intervention in another venue.

Now as to the conclusion itself. The three phases outlined span 16 years. From now until the early 2040s is about 32 years, or twice 16. The scientific approach in which is embedded the succession of bubbling up, settling down, and running deep almost imposes the conclusion that these 16 years are together only the bubbling-up metaphase of the international system projected to undergo transformation starting in the early 2040s.

If this is so, then we are now at the start of a settling-down metaphase of the present international system, including international energy geo-economics, which reveals itself more and more clearly to be a principal, if not the principal, constitute realm of the world in which we live or at least that geographical part of the world to which this conference and session are dedicated.

It also follows that if this settling down metaphase that we are now entering also lasts more or less 16 years, then a third, running-deep metaphase will succeed it, likewise running about 16 years, bringing us up to the aforementioned period of the early 2040s, when there will appear a period of transformational turmoil equivalent in quality and extent to the end of the Cold War, but which cannot yet be described, as its nature will depend upon the system’s evolution, including energy geo-economics, in the interim.

This is the perspective in which the oncoming “settling-down metaphase” of Eurasian energy geo-economics must be seen. It is the perspective in which discussions in this space in the past and in the future situate themselves, over such issues as the Nabucco and South Stream gas pipelines, or White Stream, the broader significance of the “Trans-Anatolian” (Sansum-Ceyhan) oil pipeline, and other similar issues. Stay tuned.

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