Analysis: South Ossetia and the oil factor

In the voluminous coverage of the rising conflict between Russia and Georgia over South Ossetia and Abkhazia flows an ominous undercurrent largely overlooked by Western press coverage -- oil.

Two major pipelines supplying Azeri oil to Western markets traverse Georgia -- the Baku-Supsa and the Baku-Tbilisi-Ceyhan pipelines. A terrorist attack on Aug. 5 by the Kurdish separatist PKK in Turkey caused BTC's operator British Petroleum to declare force majeure and halt shipments. The $3.6 billion, 1,092-mile, 1 million-barrel-per-day BTC pipeline traverses 155 miles of Georgian territory, moving high-quality Azeri crude from its offshore Azeri-Chirag-Guneshli fields to Turkey's deepwater Mediterranean terminus at Ceyhan. BTC, which opened in May 2006, took a year to fill before beginning operations and represented Western energy interests' trump card in wresting Caspian production from Russian control. On Aug. 9 Georgian Minister of Economic Development Ekaterina Sharashidze claimed that Russian fighter aircraft had targeted BTC, but the claim was not independently verified.

In the aftermath of the BTC explosion, oil exports were diverted to the recently reopened 140,000-bpd Baku-Supsa line, which was running at about 90,000 bpd. The 550-mile Baku-Supsa pipeline, opened in 1999, provided Azerbaijan with its first export pipeline not under Russian control. Prior to the line's opening, Azerbaijan had been forced to use the Soviet-era Baku-Novorossiisk pipeline, controlled by Russian pipeline monopoly Transneft, which charged a transport tariff of $15 per ton; in contrast, Georgian authorities charged Azerbaijan $3 a ton. On Aug. 11, BP, operator of the pipeline, said that shipments were temporarily halted because it ran through the conflict zone.

The rising conflict also has shuttered Georgia's Batumi (200,000 bpd) and Poti (100,000 bpd) Black Sea ports, both supplied by rail. Poti was closed following Russian airstrikes reported on Aug. 8. Adding to the grim picture, the fighting also has closed in exports from Kulevi, Georgia's third Black Sea oil terminus, opened last year and capable of shipping 200,000 bpd.

The final result of the conflict is to leave the West bereft of BTC's 1 million bpd exports, which alone represent more than 1 percent of the world's daily consumption, along with the 590,000 additional bpd shipments from Georgia's three Black Sea ports and Supsa, shipped by tanker through the Turkish Straits.

The conflict's implications are hardly limited to Georgia. BTC and Baku-Supsa are run by a Western consortium, and in March it was announced that the United Arab Emirates' RAK Investment Authority was acquiring a 51-percent share of Poti Sea Port and a part of the port area. The Georgian government had great hopes for Poti, as on July 4, 2007, the Georgian Parliament passed a law on free economic zones, one of which was to be Poti, while in February Kazakh state energy firm KazMunaiGas bought Batumi's oil terminal.

The fighting also has impacted Azerbaijan. On Aug. 9 State Oil Co. of Azerbaijan Republic head Rovnag Abdullayev announced, "Since last night the import and export of oil through the Georgian ports of Kulevi and Batumi have been halted. This is due to armed actions in the area of the Georgia-Ossetia conflict."

The deepest mystery of the strife is what impelled Saakashvili to launch his military into South Ossetia on the evening of Aug. 7; perhaps he was hoping for a victory similar to one he won four years ago against a restive province in Georgia's south. In May 2004 Saakashvili won a showdown with Adjaria's strongman, Aslan Abashidze, who subsequently fled to Moscow. Having tamed Adjaria, perhaps Saakashvili felt that, with his NATO friends dangling potential membership in the alliance before him, the time was ripe to quell unrest in the country's other restive provinces. If so, he is now learning the value of his being feted at the NATO summit in Bucharest four short months ago. More importantly, Adjaria did not share a frontier with Russia.

For those with longer memories, on Nov. 2, 2007, nearly 50,000 demonstrators attended an anti-Saakashvili rally outside Georgia's Parliament, calling for both early elections and Saakashvili's resignation. Five days later Saakashvili declared a 15-day state of emergency; on Nov. 9 Georgia's Parliament, voting 149-0 of the 225 parliamentary members who were present, with opposition lawmakers boycotting the vote, endorsed Saakashvili's state of emergency decree. On Aug. 11 a crowd estimated by Georgian authorities at 50,000 crowded central Tbilisi in a show of support for Saakashvili. In a subsequent interview with the media, Saakashvili deftly stoked Western concerns, using the term "ethnic cleansing" and saying, "The Russians targeted the main oil pipeline."

The imbroglio is the direct result of the West's years-long covert support of "colored revolutions" in the post-Soviet space, its ill-advised rush to recognize Kosovo's independence and Washington's pressure at the Bucharest summit for Georgian NATO membership, all policies strongly opposed by Moscow. If Russia inveigles "plebiscites" in the two disputed regions as a condition for a cease-fire and voters subsequently opt for either independence or union with Russia, then the West has only itself to blame for the blowback, while the ultimate price of such political meddling for Western drivers most likely will be continued high prices at the gas pump.

There were two silver linings in the news on Monday: Russian President Dmitry Medvedev ordered a halt to military action, and Turkish Energy and Natural Resources Minister Hilmi Guler said the BTC fire had been extinguished. The events of the last six days in Turkey and Georgia should remind Western policymakers that rash policies ignoring Moscow's oft-expressed concerns in the post-Soviet space might provoke a reaction from the world's second-largest oil producer, which also coincidently provides about 40 percent of the European Union's natural gas imports.

To the delight of cold warriors consigned to the deep freeze in 1991, the Bear is back.