Tuesday, August 19, 2008

Window on Eurasia: Georgian Energy Corridor is and will Remain ‘Unreliable,’ Russians Say

Paul Goble

Vienna, August 19 – The Georgian energy corridor is and will remain for a long time “unreliable,” a Russian financial analyst says, and that exert a small but upward pressure on the price of oil, something that is likely to lead both producers and consumers to look to Russian routes and may cause NATO to move even more quickly to establish bases in Georgia.
In a comment posted on the RosFinCom.ru website, energy analyst Andrei Kochetkov argues that Russia’s military intervention in Georgia means that no one can now or in the near future rely on either the rail or pipeline systems in Georgia to carry Caspian basin hydrocarbons to Europe and the West (www.rosfincom.ru/analytics/27338.html).
The blowing up of a section of the Baku-Tbilisi-Ceyhan pipeline for which the PKK has claimed responsibility, the destruction of a railway bridge in Georgia which Tbilisi blames Moscow, and British reports that portions of the BTC pipeline have been mined by Russian forces (kavkazcenter.com/russ/content/2008/08/19/60357.shtml) lead to that conclusion.
Indeed, Azerbaijan has already stopped shipping oil through Georgia by train, Kochetkov notes, adding that “the single reliable path for the transportation of Azerbaijani energy carriers has again become the Russian pipeline system from Baku to Novorossiisk and tanker transfers up the Volga River.”
The Georgian corridor had had the capacity of transporting approximately 1.5 million barrels of oil each day, approximately one percent of the world’s total production. Consequently, its failure to reach Western markets will have only a small impact on consumers but a major one on suppliers like Azerbaijan.
“The current state of demand for fuel in the world allows for surviving such an inconvenience” at least for the present, Kochetkov continues, but he adds ominously that in his opinion “there is a probability that the situation [in Georgia with regard to energy transit] will last for quite a long time.”
And to the extent that is true, he insists, the problems with the Georgian energy corridor “can become a long-term basis for the support” of higher prices for oil, something that will put pressure on various outside actors to try to modify the situation either by seeking alternate routes or by finding a way to protect the Georgian corridor from similar problems in the future.
“For Europe and the United States,” Kochetkov says, “it is important to secure alternative channels” for oil to flow from the Caspian basin. “Azerbaijan and Georgia are thus now subject to the close attention of Western democracies.” One possible consequence of all this, especially if the West does not choose a Russian route, could be the appearance of NATO bases in Georgia.
Indeed, the RosFinCom analyst argues, “the official explanation of the necessity of the presence of units under the NATO flag may become the defense of energy transport facilities” such as pipelines and railways, although of course the opening of bases there would have broader political implications as well.
Three aspects of Kochetkov’s argument are important. First, it is a clear indication that control over the flow of oil was a major part of Moscow’s calculations when it decided to intervene in Georgia, however unwilling Dmitry Medvedev and Vladimir Putin have been to acknowledge that reality.
Second, his article suggests that Moscow is now thinking about how to use the risk that oil prices may rise even a little because of the conflict in Russia to pressure the oil-thirsty and price-sensitive West to back away from a confrontation in the short term lest the cost of gas and oil begin to rise.
And third, whether intended or not, Kochetkov’s argument is also an implicit criticism of what Moscow has done, an indication that the most thoughtful analysts in the Russian capital understand that Moscow’s intervention in Georgia may have precisely the opposite effect that the Kremlin intended, not isolating Tbilisi but leading to the opening of NATO bases in Georgia.

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