Now Russia is advancing a proposal that soon could result in a similar cartel being formed of Caspian riparian states. Given the deteriorating state of U.S.-Russian relations and the current global financial turmoil, such a move will hardly be welcomed by countries with economies sinking into recession while they try to pay for their energy imports.
Russia's proposal for a Caspian Economic Cooperation Organization was floated on Oct. 3 by Russian Economic Development Minister Elvira Nabiullina at the first Intergovernmental Economic Conference of Caspian Littoral States, a two-day meeting held in the southern Russian city of Astrakhan on the Volga delta. Signifying the importance that the Kremlin attached to the conclave, Prime Minister Vladimir Putin was in attendance.
Other governments' representatives included Iranian Vice President Ali Saeedlou and Iran's special envoy for the Caspian Mehdi Safari, Turkmen Vice Prime Minister Hojamyrat Geldimyradov, Kazakh Deputy Prime Minister Umirzak Shukayev, Azerbaijani Deputy Prime Minister Yagub Eyyubov, Azerbaijani Finance Minister Samir Sharifov and Transport Minister Ziya Mammadov, along with representatives from the Azerbaijan Export and Investment Promotion Foundation.
As host, the Russian delegation was particularly high-profile. Besides Putin, Russian Deputy Prime Minister Viktor Zubkov was in Astrakhan, along with high-level Russian government officials, Duma members, federal ministry and department officials and representatives from Russian regions. Last but not least, representatives of international companies were also in attendance, although the regional press agencies modestly declined to name them.
Topics on the agenda included improving economic cooperation, developing oil, natural gas and transport infrastructure projects and environmental concerns. In his inaugural address, Putin said the forum was intended to give impetus to the development of effective partnership in the Caspian region.
Not surprisingly, Zubkov said of the CECO proposal, "Russia backs such an initiative. The establishment of the organization will promote consolidation of the Caspian five" before adding, in a phrase certain to strike terror in the hearts of Western economic capitals, it would be possible in the future to establish "a special organization for the financing of joint investment projects -- a joint bank." Given the enormity of its possible implications, press coverage of the conference was surprisingly light, but then the event was held behind closed doors.
The participants did not ignore the possibilities opened up by the Western banking crisis. Nabiullina told her audience that because of the global financial crisis, the world's international financial architecture will inevitably change as the roles of traditional financial investment institutions, financial organizations and separate currencies come under sharp scrutiny, adding that as a result, the creation of effective multilateral economic ties within the Caspian Sea region took on added importance.
In stark contrast to Western fiscal uncertainty, Russia's trade with its Caspian neighbors is booming. During the first six months of the year Russian-Azerbaijani bilateral trade soared 56.5 percent to $1.3 billion, Russian-Kazakh trade rose 28.4 percent to $11.6 billion, and Russian trade with Turkmenistan, excluding natural gas, surged 230 percent to $464 million. In 2007 Russian-Iranian trade reached $3.3 billion, up 53.7 percent from 2006.
What is undeniable is that, in the aftermath of its August military confrontation with Georgia, Russia used the conference as a not-so-subtle reminder to the former Soviet republics of Azerbaijan, Kazakhstan and Turkmenistan that its power as a regional leader was, if anything, made apparent by recent events. It is a mark of the changed geopolitical reality of the Caspian region that until recently it was highly improbable that states with interests as diverse as Iran, Russia, Azerbaijan, Kazakhstan and Turkmenistan, preoccupied as they were with issues of Caspian seabed division and selling as much oil as possible on the market to capitalize on record-high prices, eventually would hold joint economic development talks, discussions that pointedly did not include foreign governments.
What should focus policymakers' attention on this conference is that of the world's daily oil production and consumption of approximately 86 million barrels per day, the conference attendees produce a significant amount of it. According to the U.S. Energy Information Administration, Russia currently exports 9.67 million bpd, Iran 4.14 million bpd, Kazakhstan 1.14 million bpd and Azerbaijan 800,000 bpd -- a total of 15.75 million bpd, or 18 percent of the world's daily consumption. While Turkmen oil production is currently negligible, as its largely untapped natural gas reserves are estimated to be the world's fifth largest, Turkmenistan will soon become an increasingly important exporter of hydrocarbons, while Kazakh and Azeri oil output along with natural gas is also expected to rise steadily.
It is the bank proposal, however, that ought to be focusing the attention of the former Wall Street Masters of the Universe. The New York Mercantile Exchange and London's ICE Futures oil exchange today control global benchmark oil prices, which set most of the freely traded oil cargo transactions, which are priced in dollars. Earlier this year OPEC's leadership briefly floated the idea of changing its pricing to euros. If CECO and its attendant Caspian Bank become a reality, then the recent increasingly strident rhetoric of the Bush administration against CECO's two most prominent members, Russia and Iran, may yet come back to haunt it, if they press the new fiscal institution to utilize the euro instead of the greenback as its reserve currency.
Nervous Western financial centers and energy companies have a breather before any concrete action is taken on the establishment of a Caspian Bank, as final decisions were postponed until the next Caspian summit conference, scheduled to be held early next year in Baku, Azerbaijan. Before pontificating further, Beltway nascent Cold Warriors should ponder the words of Kazakh Deputy Prime Minister Shukayev in Astrakhan, "We should take into account the forecast according to which main financial trade flows will concentrate within the triangle Europe-Southeast Asia-China," and note what superpower is conspicuously absent.