Friday, August 29, 2008

West will need to look again at pipeline routes




When Dick Cheney, the US vice president, visits the Caucasus next week he will bring a message of support for Georgia in its struggle with Russia for control of its separatist enclaves of South Ossetia and Abkhazia.

But, during talks in both Georgia and Azerbaijan, he will express Washington's deep concern about the vulnerability of strategic oil export routes across the Caucasus to the west in the wake of the conflict between Georgia and Russia.

The east-west pipeline corridor from Azerbaijan across Georgia to Turkey serves the US's twin goals in the Caspian: to loosen Russia's stranglehold over oil exports from the region and to further isolate Iran by discouraging oil exporters from selecting Iranian export routes.

No pipelines were damaged during the brief war, although, coincidentally, an explosion in Turkey the day before hostilities broke out halted oil transport through the Baku-Tbilisi-Ceyhan pipeline to the Mediterranean, the main artery for Azerbaijan's exports to the west.

Kurdish separatists have claimed responsibility for the incident on the pipeline, which at the time was carrying 850,000 barrels a day of oil.

Georgia's main east-west railway line was disabled by an explosion on a bridge near the town of Gori last week, choking off oil deliveries to Georgian Black Sea ports.

Meanwhile, Russian forces occupied an oil port at Poti after bombing a nearby Georgian military base, preventing ships from docking.

Kazakhstan evacuated Batumi, a Georgian oil port it owns on the Black Sea.

BP, the operator of Azerbaijan's biggest oilfield, resumed exports through the BTC pipeline on Monday, but has not reopened a pipeline from Baku to Supsa on the Georgian Black Sea it closed last week.

BP has not confirmed Georgian claims that Russian warplanes attempted to blow up the pipeline to Supsa during the war.

Georgian Railways has repaired track damaged when a train carrying oil products hit a mine on Sunday near Gori, a Georgian town attacked by Russian aircraft and then occupied during the war.

But a railway bridge near Gori destroyed by an explosion last week is still down.

Russia has denied Georgian accusations that it was responsible for the attack on the bridge

Alexander Lomaia, the secretary of Georgia's national security council, welcomed the reopening of the BTC pipeline, saying "Russia had failed" in one of its main goals in the conflict - "to gain control of Caspian and central Asian oil export routes across the Caucasus".

But analysts said the dispute would prompt Caspian oil producers to shy away from Caucasus export routes in future.

Russia invited Azerbaijan to ship additional oil through a pipeline from Baku to the Russian Black Sea as soon as fighting in Georgia erupted.

Gazprom is pressing Azerbaijan to commit future gas production to Russian export routes rather than the planned Nabucco pipe-line across the Caucasus to Europe. Nabucco is at the core of the European Union's strategy to reduce its dependence on Russian gas.

Azerbaijan said this week it would temporarily export oil to Iran to help ease constraints in the Georgian oil transit system.

Russia, Turkmenistan and Kazakhstan already supply oil to Iran in exchange for supplies of Iranian oil on the Gulf.

US sanctions against Iran prevent American oil companies from exporting Caspian oil to Iran without first obtaining a waiver from Washington.

But Michael Carter, the chief executive of Visor Capital, a Kazakh investment bank, said: "If Georgia is perceived to be a de facto Russian export route, the west may have to reassess its relations with Iran."

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