Forum the us and the Caspian: Crossroads or Barricade Tuesday, October 26, 1999 Chair: Graham Allison

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Graham: Thank you. That is a very good question and a good reminder for Americans who may not be so conscious. Maybe Tim, do you want to say a word about that? And John?

Tim: There is a tremendous potential for gas. I talked specifically about oil, but Azerbaijan and Turkmenistan have great potential for gas. Turkmenistan has already established that potential with the discovery of Shah-Deniz. On the Azeri side of the Caspian we are now seeing large volumes there as well.

Regarding swapping gas or transporting gas through Iran, I may not have the favorite answer here, but it sounds very simple. It is the shortest, flattest route to build a pipeline. Unfortunately, Iran produces gas. And, somewhere along the line you would have to wonder when they would say, “why are we letting our competition transit our country?” So I would suspect that Iran would be happy for some transport up until it reaches a volume that becomes too competitive for their own fields. But, yes, there would be a certain amount, and only at the time would we know how much they would let be transported. But I believe Iran, as all countries, will act in their own economic interest, and will cap that amount of transport. I don’t know what that level would be, but it would not release all the gas from the Caspian.

Graham: So how about back here on the left.
My name is Malia. I am a student at the Kennedy School. I have a question for Mr. Azimov. Given Professor Deutch’s comments about the fact that the countries in the Caspian do not have a tradition of working together towards a common goal, I would like to know your view of Professor Carter’s formula for stability in the region. That is, sharing the oil between all the countries. Is that something your government might be amenable to? If not, what would make it amenable?

Minister Azimov: If you meant just littoral states, located around the Caspian, that is a different story, first of all. The Caspian Sea, whether it is to be considered as a border lake or a sea, must be established legally. Secondly, a demarcation is needed where national sectors are defined for each state, and each littoral state will develop their own national sector. And, as Professor Deutch said, each one of them has there own share.

As for other states which can benefit from the exploitation of oil resources in the Caspian, if there are shared interests, why not? Today Georgia benefits from exploitation of oil in the Azerbaijani national sector, because if not for Azerbaijani oil, if not for the pipeline which will transport Azerbaijani oil, and if not for the decision by Azerbaijan to have this pipeline go through Georgia, where would Georgian economics be today? So [Azerbaijani oil] is one of the key elements of economic development of Georgia. This is a clear example of such a beneficial cooperation of countries. If you look further, to Turkey, that is also a country that is getting closer to the region. Through the pipeline, they will have closer links, not only with Azerbaijan, which are already in place, but also with Georgia.

If we take Central Asia, Turkmenistan, the country which is the littoral one and which possesses huge resources of gas and by the way will cooperate with Azerbaijan in transportation of this gas, this is another link. But these are two different aspects of the problem.

Tim Cejka: May I add Mr. Minister, one of the things SOCAR (State Oil Company of the Azerbaijan Republic) has done is that it has invited companies of these other nations to participate in production-sharing agreements: TPAO, which is the national company of Turkey, actually participates in the exploration and production of reserves. Lukoil, a Russian company, participates in Azerbaijani territory. The Iranian company, INOC (Iranian National Oil Company) participates within the Azeri boundaries in the exploration and production of oil. So SOCAR has made it a proactive strategy to invite companies from these surrounding countries to participate in their waters.
Graham: Okay, back to this gentleman, please.
Thank you very much. First I would like to thank you for organizing this meeting. My name is Rufat Kerimov, I am an independent consultant on post-Soviet studies and vice president of Arch International Company. My question is to Mr. Carter. You said that the US goal is that all countries in this region will get a piece of this oil cake including Russia and Armenia. First I would like to point out that Russia already has a nice slice of this cake. But, my question is, Russia and Armenia are playing this game by pressuring neighboring countries with the military. Wouldn’t our invitation then to take a piece of this oil cake be seen as an encouragement to use this military pressure to get this piece of cake?

Ash: Thank you for the question. I think the question itself illustrates the point I was trying to make which is that there are a number of parties here and the minister made it clear that it is not just the ones that immediately abut the Caspian Sea, but there are many parties in this region who have blocking rights, or disruption rights. The Russians are, as you correctly pointed out, exercising their disruption right in Georgia now. When one of their motivations is that they don’t want a pipeline going through Georgia, thereby not going through Russia, thereby not under their control and not something they can get rents from, never mind whose oil it is. If it transits your country you are going to get something out of it. And that is true of everybody to the west, north and the south. Everybody wants a piece of this pie. Not just the oil, but the transit rights and the power that goes with sharing in the pie. And almost all of them in one way or another can ruin this party and make it impossible for this resource to be exploited in a way that will increase the prosperity, which is sorely needed, and the stability in this region.

So, you are wondering if it rewards this party or another party, to give them a piece of the pie. Well I would say if everybody weren’t rewarded in some measure, whoever feels that they are not rewarded adequately, will block.

John, I think, correctly pointed out the possibility of Iranian/Russian axis if Iran continues to be excluded from this party. And just look around, just about everybody in the region has the ability to make a mess out of this. So I don’t look at it as buying them off or giving them incentives for further bad behavior. I am afraid one is in a situation where unless some reasonable accommodation is made to almost all the parties, whoever is left out is going to cause trouble. Now maybe that is a bridge too far. Maybe that is a policy we will never have. It is hard to make ten interlocking pieces all work together. This may not happen. But that is the only way it is going to happen.

Graham: There is a gentleman up there in the balcony, please.
This is primarily for Mr. Azimov and Mr. Carter: You both talked of security in the Caucasus with the only forces being present being those of Azerbaijan, Armenia, Georgia and Turkey. Given the history of the Armenian genocide and an unrepentant Turkey, pogroms in Karabakh culminating in the Sumgait and Baku massacres as a result of peaceful Armenian protests regarding human rights. Why do you think you can ignore the self-determination of the predominately Armenian population of Nagorno-Karabakh in all of these. And, by ignoring that, don’t you provide an incentive and a doorway for Russia to intervene in the Caucasus?

Mr. Azimov: So many destructive factors have been mentioned right now that I am actually not in the position to get deeply inside the history of the process, whatever events took place which you call genocide, others do not recognize that as genocide. It is simply not the business of this panel.

But, as you mentioned the pogrom and events that took place, I would think that you should also remember that actually the first pogroms in this period of the 20th century in 1988 started in Armenia when 200,000 Azerbaijanis left the place. Several thousand have been killed there. Again, I will not spend my time here for these discussions.

As for your basic question, again, Azerbaijan, and I think Georgia also stand for changing the geometry of the region. And changing the framework of security that dominated in this region during the centuries, but didn’t bring anything good, or help them to develop their sovereignty.

You talked about Russia’s role. So far Russia’s role has not been positive. The Russian military in several cases is providing assistance to separatist movements and then even helping states to conduct aggression and occupation of territories. They were serving the purpose of goals of Russian policy that is the same policy of crisis management. So the whole question is not about Karabakh and its rightful self-determination, although I could of course address this issue. But again, the reference to rightful self-determination is irrelevant here, because even if the question is about this right, then again back to the norms of international law this right should be conducted in conformity with the territorial integrity principle. So the peaceful activities and demands of the Armenian population for self-determination were not so peaceful I think because Shusha has been occupied and today 50,000 Azerbaijanis who lived in Nagorno-Karabakh are living in tents outside of Nagorno-Karabakh. Thank you.

Mr. Azimov, the secession of Karabakh was done in accordance with the existing Soviet laws of the time.
Graham: Let me make a ruling from the chair. I think that this is actually a very interesting and useful debate to have. I would propose not to have it tonight, but to have it again on another occasion as part of this exercise. It seems to me the set of issues that arise over Nagorno-Karabakh and the conflicting claims in international law of territorial integrity on the one hand and right to self-determination on the other, as well as the historical story that has been referred to in both cases is interesting for the community. But, I think that tonight, given the time, I would propose that we don’t continue that debate.
I am a student at the Kennedy School. My question is for Minister Azimov. Sir, you spoke of the need to join forces in your region in order to encounter the danger from the north. What about the south? Could you please share with us your government’s view or policy regarding Iran?

Azimov: I very much agree with one of the previous speakers who said that Russia and Iran have all the time shared their positions with regard to the Caucasus region. Especially with regard to Azerbaijan. Essentially, the present Azerbaijan is a part of historical Azerbaijan and appeared as a part of it and was then separated as a result of Russian-Prussian wars in 1813-1828. Since that time, I think that relations have been quite delicate. But today Azerbaijan’s position is again: we would like to be good neighbors. With all those difficulties which we have and with all those concerns related to the direct assistance provided by Iran to Armenia, even of a military nature, as we know, with all those difficulties that we have because of the Azerbaijani population in Iran, again, we aim at developing political and economic cooperation; ties of good neighbors. We think that Iran will play a positive role in the region. We hope that the critical dialog that the EU has with Iran and those efforts of the Western community to develop the proper reform process in Iran will bring a result.

On the other hand, President Khatami‘s attempts are looking promising sometimes. I think that we can be optimistically tuned but not very optimistic.

My name is Ausman Boiner, I am a joint student between MIT Sloan and Kennedy, so my heart is on both sides of the river, I should say. When I looked at that map, I see one really major US ally there. It has been an ally for a long time, definitely since before my birth. Turkey. With respect to Turkey, I would like to ask two questions. One concerns the very short term, regarding the Istanbul meeting coming up before the end of the year, regarding the pipeline signature. Do you think the signature will go through? I know there were very positive developments in the last week with our president over in Azerbaijan. Secondly, with respect to American national security, what role can Turkey play in that region more actively on the military front?
Graham: Maybe we’ll ask Tim to say something about the first question and John on the second.
Tim: There is great desire to have the inter-governmental agreement signed by November 18th I believe in Istanbul when President Clinton visits. The second part of your question, does that make it a surety? No, that is a big milestone on a long road to actually getting the investors lined up and getting the pipeline built, but it is a rather large milestone. So it really comes down to the negotiators and one of them was going to be at the conference yesterday, Alex Karav, but he is busily negotiating as we speak. So, part of it is up to him and the Turkish side to come to terms before that political visit. I think there is optimism that the inter government agreement is going to be signed, but it is a start of a process, not the end of a process.

John: Well, the second question is very important. First of all, you are quite right. Turkey has been vital to US and Western interests for quite some time. If you said to me, what should they be doing now militarily for its security terms to assist in that long-standing process, I would really point to two quite different things. First would be, work to settle differences with Greece. That remains the single largest barrier to really integrating Turkey more fully in the EU and in keeping unity among the NATO alliance. So any steps which can lead to, and I think actually the response to the earthquakes has been a positive step in having these countries work better together. But working more closely with Greece to get rid of these historic animosities would be very important.

The second thing is that this happens to be a very particular and intense interest of mine, which is dealing with the problem in the south with both the Kurds and Iraq. There, there has been a multiple set of complicated issues. I know we don’t want to talk about this today. But, working together to resolve the issues with both the Kurds and to work together to do something about Iraq is extremely important. Turkey could do more on that.

I am Peter Aldrich: My company sponsors the $90 million Caucasus fund which by the way has an exemption from 907. Gratefully. My question has to do with my reading of the history of oil development over the last century. It seems as though the leakiest pipeline of all is that which is supposed to convey oil revenues to the domestic market in the host country – for investment and fueling the economy. I was wondering if either the Azerbaijan government or policymakers in Washington contemplate anything like the Alaska Permanent Fund for oil from the Caspian region? Something that would save the proceeds from this exhaustible resource for future generations and be invested handily in domestic markets where we might actually get some economic development going?
Minister Azimov:I would escape the direct answer to this question actually.
Graham: The observation relates to some research that has gone on around here, among other places, that suggests that while oil and natural resources appear to be a blessing in the national economic development story, the statistics don’t hold up very well. So, your proposition about the leaky pipeline is a very interesting one. And, not only in the Alaska case, but probably even more dramatically in the case of Norway. They have also had such a fund recognizing that the income is time-limited and that the needs of the society are over a very long period.

So, whether such a proposal for the region is in the works, I haven’t heard of one, but it seems to me like it might be a quite a good idea for some local exploration.

I noticed that we have come almost to the witching hour, but let me see if we can take this gentleman here, then I am going to have to wrap up, I apologize. Then, I’m sorry, this person who has been there quietly, but not vividly enough.

Thank you. My name is Keith Darden, I am a Ph.D. candidate at UC Berkeley visiting at Harvard for the year. I have a comment and a question. The comment is in response to something that Dr. Carter said regarding the fact that the Central Asian countries were snipped away from the Russian empire. I think it is important that we remember that these were effectively driven out of the Soviet Union kicking and screaming. We often make the assumption that Russia’s imperial ambitions are behind a lot of things that go on in the region, but I think that very often that is simply an assumption. I think that needs to be examined a bit further, particularly with events in Georgia. It is very important to remember that these countries are very unstable on their own, without Russian help. We often prematurely read in the Russian hand into these events.

The question is a version of Ambassador Courtney’s question. But, being the skilled diplomat that he is, I think he phrased it a bit too diplomatically. Most petroleum based economies have autocratic rent-seeking states. If we are going to imagine that oil is going to save this region somehow and help in the development of both the economy and democracy, how are we going to avoid say, the Iran or Iraq examples where presumably that was what the US government had in mind with support of the Shah or previous policy failures. To what extent have we learned from those past mistakes and are we applying those lessons say to our projects for development in this region?

Azimov: Well probably I replied to this question already partly when I gave an answer to Ambassador Courtney about the democracy and issues related to the development of oil…..end of tape
……Azerbaijani’s multinational with multiconfessional (people of many faiths) society and I think that those popular propositions about whatever threats of Islamic fundamentalism and penetration of Iranian influence in Azerbaijan and countries of Central Asia have simply become out of fashion somehow. It is not the case today because Azerbaijan has defended itself well against such an influence. But of course, the oil development should bring us to multilateral development of the society – multifaceted development of the society. Of course as I said previously, we should not concentrate our efforts on the oil, and oil revenues will not bring, on their own, the prosperity in the full understanding of this word, the development of society. Of course I share your view that there are concerns. But, these concerns are being overcome through certain measures taken by the government. Today I don’t think that we are somewhere threatened so seriously as one could read from your question.
Graham: This gentleman has been very patient and I apologize, gets the last question./

My name is Dan Zatinsky. I am the president of the US-Russia Chamber of Commerce of Boston. I would like to return to the pipeline question again. I know we have touched on it in different aspects, but it is obvious that this region cannot reap the benefits of economic prosperity unless the oil can be gotten out of the region. If we exclude Iran for right now as an option, then we have three options: through the Russian pipeline system, through Georgia which Turkey is not enthusiastic about because of the traffic through the Straits and, to build a new pipeline that would go through the Turkish port on the Mediterranean. From what I have read, there is political support from the US government for the pipeline through Turkey to the Mediterranean, but again, not first hand knowledge, reading about it, the oil companies do not consider it the most economical route. So there is an interlocking question of political and economic interests as to how this oil is transported to world markets. Can you comment on where the balance between these two aspects stands right now in terms where the various parties favor these routes?

Tim: Let me make a little background statement to it. There is a lot of discussion in the press about “a pipeline.” Let us go back to the statistics I put out. Let us imagine we are 10-20 years into the future and we are producing 3-6 million barrels per day. The largest sized pipeline in common use can carry about 1 million barrels per day. So there won’t be “a” pipeline. The solution for the Caspian deals in multiple pipelines. And it helps address your second part of the question, what is the economic as well as the political will that goes into this? If the pipeline from Baku to Ceyhan is not economical at one turn, and the northern route is not secure from another turn, as the oil was found, and by the way there is not enough oil to build three pipelines today, nor is there enough to build one today – but as that oil comes about, those countries will literally have to vie for those positions and the economics will work themselves out because there won’t be a… I don’t know of a three million barrel per day pipeline – so I believe there will be multiple routes. Each country will get a shot at it and those who are economically and politically inclined will probably benefit the most, and the first.

John: Well it is a very important question. The short answer is that there is going to be no pipeline soon. In the long run, I believe there will be six. I don’t know where I will be in the long run, but over the next 3-5 years, I don’t think there is going to be any pipeline soon.

The natural place is to take it out through the Black Sea – you run into the problems you’ve mentioned about going through the Straits. Getting the oil into Turkey otherwise has to go through Armenia, Georgia or even worse, Iran. I don’t believe there are going to be pipelines built there in the next half dozen years. In my mind, that is unfortunate both because of the need of the world oil markets but also because of the importance of getting that economic stream of revenue to these countries to allow them to do economic and social development. But, the short answer for me is no pipelines soon.

Swapping to Iran is another story. Swapping or sneaking.
Graham: I think you are overlooking the CPC and so since we have somebody here, Mr. Vaughan Fitzpatrick from Chevron, would you comment? Since they are actually digging a hole and putting pipe down, if I understand it….

Vaughan Fitzpatrick: Yeah. Just as sort of a clarification, there is a pipeline being built. In many ways, it symbolizes many of the things that Professor Carter was talking about: cooperation, it is not a chess game. You do not have to have losers. The pipeline stretches from the Tengiz oil field, which by the way is producing about 215,000 barrels per day right now. It goes to the Russian port of Novorossiisk. The pipe itself has been delivered along the pipeline route. It is being welded together in order to be put into the ground. The first ship with the Tengiz oil will leave Novorossiisk in June of 2001. The pipeline will cost somewhat under $2.5 billion. It is also an international effort. It has Russian partners, three different governments, 11 oil companies. So I just wanted to use that as an example of the fact that things can happen in the Caspian. We are moving forward with this project. We think that it will come to a very nice fruition very soon.

John: I want to make it clear that I am for these pipelines being built, and I welcome that pipeline being built as soon as possible. I just wonder whether it will happen.
Graham: I think this illustrates why the Caspian Studies Program is such a great opportunity for those of us here at Harvard. What we are hoping to do, and what I think this panel and this discussion with the audience has illustrated is bring together people from many different perspectives who have some insight into pieces of this problem to try to understand it and analyze it better. I think it is a good place to close this panel to notice that there is a lot of evidence of different sorts. There are lots of reasons why things may not happen in this region. Yet, I remain optimistic about it.

So let me say on behalf of our audience and on behalf of the folks here at the School, how pleased we are with the panel and how pleased we are to be initiating this Caspian Studies Program. Let me say in closing a special word of thanks to the US-Azerbaijan Chamber of Commerce which organized the consortium of companies which included Exxon, Chevron, Aker-maritime, CCC, ETPM and Mobile, and made this program over the next three years possible.

Thanks to the minister. Good luck in Baku.

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