In Caspian oil game, fostering local stability is key

At the turn of the 20th century, J. D. Rockefeller made the Standard Oil fortune in the waters of the Caspian Sea, near the city of Baku. The fierce international competition for those riches was called the "Great Game."

A century later, following the collapse of the Soviet Union, this term has been revived to describe the renewed struggle among multinational corporations and global political powers to control the oil and gas fields of the Caspian region.

The stakes are higher today, with the discovery of new oil in Kazakhstan and natural gas in Turkmenistan. Yet the extraction of these resources may end up depending less on competitive tactics than on new strategies for political cooperation and local economic development.

Russia and the Western powers are growing increasingly competitive in the region, on the assumption that Caspian development is a zero-sum game. They are building military alliances with local governments, supplying military aid, and engaging in exercises with local troops. Around the Caspian, however, this approach contributes to local political instability, diminishes regional security, heightens the risk for investments in the region, and therefore reduces opportunities for extraction of Caspian resources.

Those who view the Caspian as a zero-sum game overlook the possibility that everyone might lose. This will happen if infrastructure becomes more difficult to establish, if extraction becomes more dangerous, if pipelines are further damaged, if operating costs increase, or if investments are otherwise jeopardized. All of this is likely to occur if there is further instability in the region. And there is likely to be further instability unless the economic development of the region goes hand in hand with the extraction of its resources.

The "Great Game" metaphor has become a misleading, possibly dangerous, anachronism: While it is appropriate to the keen sense of geopolitical competition in the region, it invites participants to forget that most parts of the region either are currently scenes of conflict or only a few steps away from ignition. Heightened international competition will certainly produce sparks, and further conflagrations will be costly for everyone. It is no longer possible to treat the locals as pawns, and therefore it is impossible to separate the extraction of energy resources from local economic development and political stability.

The combination of energy extraction with local economic development and political stability appears to be the strategy of the Russian government in the sleepy Caspian seaport of Mahachkala, in the Russian republic of Dagestan. Moscow appears determined to transform Mahachkala into a major oil and gas terminal. It has completed reconstruction of the petroleum pipeline from Baku to the Russian Black Sea port of Novorossiisk, bypassing Chechnya and going through Dagestani territory. The pipeline now includes an 11-mile link to Mahachkala's seaport, which has permitted officials in Russia's Transneft oil organization to urge Western oil executives to transfer Turkmen and Kazakh crude through Mahachkala's facilities.

There appears to be a set of motives for Moscow's interest in Mahachkala's increasing traffic in oil and gas. It is clear that Moscow wants to support the Dagestani economy, and thereby contribute to the republic's political stability. This is obviously part of Moscow's strategy, since budgetary transfers from Moscow to Mahachkala have increased sixfold in the past two years. Dagestan's political stability is particularly important to Moscow, because the latter has now recognized that the former is crucial to its strategy in the Caspian/Caucasus region. Dagestan's location on the Western shore of the Caspian has placed it historically at the point of north-south connection in the region. If Moscow is to maintain its presence in the area, then Dagestan must be a vital part of the Russian Federation.

If this is Moscow's strategy, then that strategy makes sense in terms of the challenges posed by the Caspian's petroleum reserves. Among hydrocarbon basins, the Caspian is uniquely landlocked. From the Caspian Sea to Western industrial centers, all routes for oil and gas transport run through the Caucasus. It will be more difficult for the West to get anything into or out of the Caspian Basin if there are political problems in the Caucasus, and there will be political problems in this impoverished and volatile region unless petroleum extraction results in local economic development. Moscow's investment in Dagestan seems to recognize that the development of the region depends on political stability, at least in key locations such as Mahachkala.

A former executive from a Western oil corporation with considerable Caspian experience recently remarked to me that oil companies are more attuned to the challenges of engineering than to those of economic development and political stability. The "Great Game" metaphor invites everyone to forget that in the Caspian, these challenges may prove to be inseparable. An alternative to the "Great Game" would emphasize the preservation of local stability that begins with greater attention to local cultures, local problems, and local politics, and culminates in international cooperation toward a broad-based economic development and stabilization of the region. When it comes to the extraction of Caspian resources, it's possible that no one will win the game unless everyone wins.

Robert Bruce Ware is president of Caspian Consulting.

(c) Copyright 2001. The Christian Science Monitor