Since 1991 the United States and Russia have been involved in a conflict to exploit the Caspian's vast energy reserves. Now, however, Moscow seems to be gaining the upper hand by proposing an agenda with neighboring Kazakhstan that could see the issue of Caspian energy exports westward largely dominated by Russia for the next three to five decades.
A hint of the grandiosity of the proposed project came from Industry and Energy Minister Viktor Khristenko. Speaking Oct. 4 at the Forum of Border Regions of Russia and Kazakhstan in Novosibirsk, Khristenko spoke effusively of "very important projects set for 30-50 years," which would involve "tripartite or quadripartite agreements with the participation of Russia and Kazakhstan."
Kazakh President Nursultan Nazarbayev provided more details about Moscow's and Almaty's intention to build an energy transportation corridor initially linking Russia, Kazakhstan and Turkmenistan, but that would ultimately be extended westward to the Baltic and southward to the Persian Gulf. Nazarbayev said the corridor as envisaged would be "a large-scale, world-class high-tech system including a trunk motor road, a mainline rail link, an arterial communications line, electricity transmission lines and natural gas and oil pipelines."
The meeting builds upon outreach efforts by Kazakhstan and Russia to Turkmenistan since the death last December of Turkmen President Saparmurat Niyazov. Earlier this year at a meeting in Ashgabat, Russian President Vladimir Putin, Nazarbayev and new Turkmen President Gurbanguly Berdymukhammedov singed an agreement for a natural gas pipeline.
If the proposed project comes to fruition, there will be two sets of losers -- Eastern and Central European customers of Caspian energy and Western energy companies, largely locked out of the next phase of Caspian development. The project would also effective spell the end of Washington's policy of sanctions against Iran, in place since 1979, as Persian Gulf ports are the obvious transit point for Caspian energy exports to the rapidly rising markets of South and East Asia, particularly India and China.
Ukraine is already attempting to ameliorate the impact of Russia gaining further control of Central Asian energy assets by seeking to purchase oil and gas directly from Turkmenistan, Kazakhstan and Uzbekistan. Ukrainian Economy Minister Anatoliy Kinakh said, "Unfortunately, the current situation is such that Ukraine has lost direct gas relations with Turkmenistan, Kazakhstan and Uzbekistan. We have actually handed this business over to economic entities." Clearly implying that Russia was the unpredictable partner in energy transactions, Kinakh said: "Back in 2000-2002 we signed corresponding agreements with the Russian government, in which our mutual obligations were distinctly formulated: Ukraine guarantees uninterrupted transit of Russian gas to Europe, while Russia guarantees a balance of Ukraine's natural gas and access to Central Asian gas resources."
The Ukrainian economy is the bellwether for what the proposed energy corridor might mean. While during the 1990s the Russia Federation provided Ukraine and other former Soviet republics with subsidized energy, in 2005 Moscow decided to attempt to charge its former fellow republics and former satellite states market prices, which led on Jan. 1, 2006, to Gazprom cutting off supplies to Ukraine over underpaid bills as it attempted to increase prices from $50 to $230 per 1,000 cubic meters. The cutoff rippled through the Eastern European pipeline network, with Austria, France, Germany, Hungary, Italy, Poland and Slovakia all reporting drops of around 30 percent.
The Kremlin's hardball tactics raised alarm bells in Europe over its increasing dependence on Russian energy exports, especially after Russia applied similar tactics against Georgia and transit states Belarus and Ukraine. The European Union now gets around 20 percent of its gas from Russia, of which about 80 percent transits Ukraine. When the dust settled, Kiev agreed to pay Gazprom an average of $95 per 1,000 cubic meters. While the rate was still far below what Gazprom charged Western Europe, an average of $240, European politicians, particularly in Germany, which gets about 40 percent of its natural gas consumption from Russia, considered the implications of Moscow's moves. Italy is similarly dependent, as its gas imports from Russia are predicted to rise to 40 percent by 2010.
If the proposed energy corridor comes to pass, then it will indeed be, as Khristenko noted, a project "set for 30-50 years." Russia has the inside advantage of controlling all the Soviet-era westward Transneft pipelines and in the proposed scheme would be the point of contact for Europe, as Central Asian producers share no contiguous borders with their European customers. While the crystal ball is murky at best, one fact is indisputable -- the era of cheap Eurasian natural gas exports is over.
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