by Ahmed Rashid
The USA also urged Kazakhstan to commit to building a similar under-the-sea Caspian oil pipeline, so that Kazakh oil could be pumped along the Baku–Ceyhan corridor. Kazakhstan's vast oil reserves were being exploited by two major Western oil consortiums in Tenghiz and Karachagnak, while China was developing a third oil-bearing region around Uzen.16 Kazakhstan already had one planned oil pipeline route from Tenghiz to the Russian port of Novorossiysk on the Black Sea, which was being developed by Chevron, but the Baku–Ceyhan route would offer an alternative that avoided Russia.
The Azerbaijan International Operating Company (AIOC), made up of nearly a dozen of the world's oil companies and which dominated Azerbaijan's oil development, was averse to the Baku–Ceyhan route because it was too expensive, too long and would cross Turkey's volatile Kurdish region.17 By 1998 it was clear that US plans to develop the Afghanistan route would be delayed and so the Baku–Ceyhan corridor became the main plank of Washington's policy towards the Caspian region.
The controversy over Baku–Ceyhan raged on for two years until late 1998 when international oil prices crashed because of the slump in demand due to the Asian economic crisis. Oil prices sunk to a record low of US$13 a barrel compared to US$25 in 1997, making it uneconomical to immediately exploit Central Asian oil, which was both expensive to produce and transport. The break-even price for Central Asian oil was around US$18 dollars a barrel.18 Even though the Baku-Ceyhan route was no longer viable commercially, Washington continued to pursue its construction as it became the main plank of US policy in Central Asia.
Turkey had backed the Afghan Mujaheddin in the 1980s, but its role remained limited. However, as it developed a Pan-Turkic foreign policy, Ankhara began to actively support the Turkic minorities in Afghanistan such as the Uzbeks. Ankhara provided financial support to General Dostum and twice gave him a home in exile. Turkey became vehemently opposed to the Taliban, which had created new tensions with its close ally Pakistan. Moreover, the Taliban threat had also pushed Turkey into a greater understanding with its regional rival Iran.
Turkey also played a role in turning around Israel's policy in Afghanistan. Turkey and Israel had developed close military and strategic ties after the 1993 Oslo Accords. The Israelis and more significantly some Jewish lobbies in the USA were not initially critical of the Taliban.19 In line with the US State Department, Israel saw the Taliban as an anti-Iranian force which could be used to undermine Iranian influence in Afghanistan and Central Asia. Moreover, the Unocal pipeline across Afghanistan would impede Iran from developing its own pipelines from Central Asia.
Israel's intelligence agency Mossad developed a dialogue with the Taliban through Taliban liason offices in the USA and with the oil companies. Pakistan's ISI supported this dialogue. Even though Pakistan did not recognize Israel, the ISI had developed links through the CIA with Mossad during the Afghan jihad. With initial support from Turkey, Israel also developed close diplomatic and economic links with Turkmenistan, Uzbekistan and Kazakhstan. Israeli companies invested in agriculture, the oil industry and communications.
But as US policy towards the Taliban shifted so did Israel's, as the Taliban gave refuge to Bin Laden and encouraged the drugs trade. Turkey convinced Israel that the Taliban were a security threat to the region and could export Islamic fundamentalism to Central Asia. As the Unocal project evaporated and Israel realized the aversion its Central Asian allies and Turkey had towards the Taliban, Mossad opened contacts with the anti-Taliban alliance. Israel now had an interest in seeing that the Taliban did not take control of the whole of Afghanistan, even though it remained suspicious of Ahmad Shah Masud's support from Iran. Both the Taliban and the Northern Alliance were to accuse each other of receiving Israeli support.
With oil prices crashing in 1999, Iran remained the wild card in the new Great Game. Iran sits on the second largest gas reserves in the world and has over 93 bb of proven oil reserves with current oil production at 3.6 million/bd. As pipeline projects waned due to low oil prices, Iran stepped in to urge the CARs to export their oil through a direct north– south pipeline to the Gulf via Iran. This could be built at a fraction of the cost of new pipelines across Turkey, because Iran already had an extensive pipeline network and only needed to add pipeline spurs to connect Iran with Azerbaijan. ‘The Iranian route for Central Asian oil is the safest, most economic and easiest. The total cost for Iran would be US$300,000. How does that compare with US$3 billion for a pipeline through Turkey?’ Ali Majedi, Iran's Deputy Minister of Oil said in Tehran.20 Moreover, Iran was also in competition with Turkmenistan to build a gas export pipeline to India and Pakistan – a much more attractive route because it would avoid Afghanistan.21
In the first phase of its programme, Iran proposed swapping its crude oil with Central Asian crude. Since 1998 crude from Kazakhstan and Turkmenistan has been transported across the Caspian Sea to Iran's Caspian port of Neka, where it is refined and consumed in Iran. In exchange Iran allowed companies to lift oil from Iranian ports on the Gulf. With pipeline projects indefinitely delayed, this appealed to the oil companies who, despite US pressure not to do so, began to negotiate further swaps with Iran. Two US companies, Chevron and Mobil who have oil concessions in Kazakhstan and Turkmenistan applied to the Clinton administration in May 1998 for a license to carry out swaps with Iran – a move that created a major policy headache for Washington and would become a test case for the future of US sanctions against Iran.22
Ultimately the security needed to build pipelines from Central Asia to South Asia rested on ending the Afghan civil war. ‘The CARs have two problems with Afghanistan. One is fear and the other is opportunity,’ the UN mediator for Afghanistan Lakhdar Brahimi told me. ‘Fear is the realization by these new and still fragile countries that the Afghan conflict cannot be contained for ever within its borders. Either it is resolved or it will spill over into the CARs. They want to avoid adventures of any kind from Kabul, be it Islamic fundamentalism, terrorism or drugs. The opportunity is that as landlocked countries who want to break their dependence on Russia, they are looking south for oil and gas pipelines and communication routes. They want a government in Kabul which is responsible and is a good neighbour. They want to open their borders not close them,’ Brahimi added.23
Despite declining oil prices and Russia's desperate economic plight, the battle of wills between the USA and Russia will dominate future pipeline competition. Russia remains adamant in keeping the USA out of its Central Asian backyard. ‘We cannot help seeing the uproar stirred up in some Western countries over the energy resources of the Caspian. Some seek to exclude Russia from the game and undermine its interests. The so-called pipeline war in the region is part of this game,’ said President Boris Yeltsin in 1998.24 By keeping the conflict in Afghanistan on the boil Russia keeps the region unstable and has the excuse to maintain a military presence in the CARs.
The USA now wants stability, for it is concerned about the repercussions of the continuing Afghan war on its own policies in Central Asia. ‘Throughout Central Asia, leaders are on edge about instability in Afghanistan and Tajikistan. They fear an expansion of Iranian influence and the rise of violent extremism in their countries,’ said Stephen Sestanovich, Special Adviser to the US State Department on the States of the former Soviet Union (FSU) in March 1999.25 Only an end to the Afghan civil war would give the CARs and oil companies the confidence to go ahead with pipeline projects to South Asia and that does not appear likely any time soon.
∼ 12 ∼
ROMANCING THE TALIBAN 1:
THE BATTLE
FOR PIPELINES 1994-96
Carlos Bulgheroni was the Taliban's first introduction to the outside world of high finance, oil politics and the new Great Game. An Argentinian and Chairman of Bridas, he visualized connecting his company's gas fields in Turkmenistan to Pakistan and India – thereby creating a swathe of infrastructure connections that could allow peace to break out in Afghanistan and even between India and Pakistan.
Like America
n and British oil magnates in the early part of the century, who saw the oil business as an extension of global politics and thereby demanded the right to influence foreign policy, Bulgheroni was a man possessed by an idea. Between 1995 and 1996 he left his business in South America and spent nine months in his executive jet flying from warlord to warlord in Afghanistan and to Islamabad, Ashkhabad, Moscow and Washington, to convince leaders that his pipeline was a realistic possibility. Those around him were equally driven, if not by the same dream, than by the workaholic Bulgheroni.
Bulgheroni is descended from a close-knit family of Italian immigrants to Argentina. Charming, erudite, a philosopher captain of industry, he could talk for hours about the collapse of Russia, the future of the oil industry or Islamic fundamentalism. His father Alejandro Angel had set up Bridas in 1948 as a small service company for Argentina's new oil industry. Carlos and his brother Alejandro Bulgheroni, who was Vice Chairman of Bridas, took the company international in 1978 and Bridas became the third largest independent oil and gas company in Latin America. But until Turkmenistan, Bridas had no experience of operating in Asia.
What had brought these Argentinians halfway across the world to ride around Afghanistan? After the collapse of the Soviet Union, Bridas had first ventured into Western Siberia, ‘But there were too many problems there with pipelines and taxes so we arrived in Turkmenistan when it opened up,’ Bulgheroni told me in the only interview he has given on Bridas's role in Afghanistan.1 In 1991, Bridas took a huge risk when it became the first Western company to bid for leases in Turkmenistan. At the time, Western oil companies called the decision crazy. Turkmenistan was distant, landlocked and had passed no legislation to protect foreign investors. ‘Other oil companies shied away from Turkmenistan because they thought it a gas place and had no idea where to market it,’ said Bulgheroni. ‘Our experience in discovering gas and transporting it through cross-border pipelines to multiple markets in Latin America convinced me that the same could be done in Turkenistan.’ President Niyazov was flattered by the attention Bulgheroni paid him, when no other Western oil executive even appeared at his door, and the two men struck up a warm friendship.
In January 1992, Bridas was awarded the Yashlar block in eastern Turkmenistan close to the Afghan border and north-east of the massive Daulatabad gas field discovered by the Soviets. A year later, in February 1993, Bridas was awarded the Keimir block in the west of the country near the Caspian Sea. As the first and only entrant to Turkmenistan, Bridas received favourable terms – a 50-50 split in profits in Yashlar and a 75-25 split in profits in Bridas's favour in Keimir. ‘We wanted to develop new oil and gas deposits because then Russia could not object to new finds as they would if we just developed old Soviet era fields,’ said Bulgerhoni.
Bridas invested some US$400 million in exploring its leases – a staggering sum in those early days for a small oil company, when not even the oil majors were involved in Central Asia. Bridas began to export oil from its Keimir field in 1994, with production rising to 16,800 b/d. Then in July 1995, in the hot, arid Karakum desert, Bridas struck gold – a massive new gas field at Yashlar with estimated reserves of 27 tcf, more than double Pakistan's total gas reserves. ‘Unlike oil, gas needs an immediate, accessible market, so we set about devising one,’ said Jose Louis Sureda, Bridas's gas transportation manager – a tough, stout engineer who was to criss-cross Afghanistan in the months ahead surveying possible routes.2
‘After discovering Yashlar we wanted part of the gas to go north through old Russian pipelines, but we wanted to find alternative markets and these were either China or South Asia,’ said Bulgheroni. ‘A pipeline through Afghanistan could become a peace-making business – difficult but possible,’ he added. In November 1994, just as the Taliban captured Kandahar, Bulgheroni persuaded Niyazov to set up a working group to study the feasibility of a gas pipeline through Afghanistan to Pakistan.
Four months later he had persuaded Pakistan's Prime Minister Benazir Bhutto to join forces with Niyazov. On 16 March 1995 Pakistan and Turkmenistan signed a memorandum allowing Bridas to prepare a pre-feasibility study of the proposed pipeline. ‘This pipeline will be Pakistan's gateway to Central Asia, it will open up huge possibilities,’ Bhutto's husband Asif Zardari told me. Zardari said the Taliban's control of the pipeline route made the pipeline viable. Behind the desk in his office, Zardari had a huge map of the route, which he proudly pointed to.3
By now, the Pakistani military and the ISI were backing the Taliban to open up a southern transportation route via Kandahar and Herat to Turkmenistan. At the same time, Pakistan was also negotiating with Qatar and Iran to obtain gas supplies through two separate pipelines, but in geo-strategic terms, with Islamabad's abiding interests in Afghanistan and Central Asia, the Bridas proposal offered the greatest opportunities.4
Bridas proposed building an 875-mile-long pipeline from its Yashlar field, crossing southern Afghanistan to Sui in Baluchistan province, where Pakistan's gas reserves and pipeline network originates. The pipeline could later be extended to the even bigger market of India via Multan. Bridas proposed an open-access pipeline so that other companies and countries could eventually feed their own gas into it. This was particularly appealing to the Afghan warlords as Afghanistan had gas fields in the north, which once supplied Uzbekistan but had been shut down. Bulgheroni arrived to woo the Afghan warlords. ‘I met with all the leaders, Ismael Khan in Herat, Burhanuddin Rabbani and Masud in Kabul, Dostum in Mazar and the Taliban in Kandahar. I was very well received everywhere because the Afghans understood they needed to rebuild the country and they needed foreign investment,’ said Bulgheroni.
By February 1996 Bulghreoni reported to Bhutto and Niyazov that ‘agreements have been reached and signed with the warlords which assure us a right of way’.5 That month, Bulgheroni signed a 30-year agreement with the Afghan government, then headed by President Burhanuddin Rabbani, for the construction and operation of a gas pipeline by Bridas and an international consortium which it would create. Bridas opened negotiations with other oil companies including Unocal, the 12th largest oil company in the USA which had considerable experience in Asia and had been involved in Pakistan since 1976. Turkmen officials had met with Unocal for the first time in Houston in April 1995, on an invitation from Bridas, and a Unocal delegation had visited Ashkhabad and Islamabad apparently to discuss joining Bridas to build the pipeline.
But Bridas was now facing major problems in Turkmenistan. Niyazov had been convinced by his advisers that Bridas was exploiting Turkmenistan and in September 1994 the government blocked oil exports from Keimir and demanded a renegotiation of its contract with Bridas. By January 1995 the issue appeared to be resolved when Bridas agreed to reduce its take by 10 per cent to 65 per cent. When Bridas discovered gas at Yashlar, Niyazov and his aides refused to join Bridas's celebrations and instead demanded to renegotiate both the Yashlar and Keimir contracts once again. Niyazov stopped Bridas from developing the Yashlar field and again stopped its oil exports from Keimir. This time Bridas said it would not budge from the original contracts which Turkmenistan was obliged to respect.
Niyazov was a communist-style dictator who had little understanding or interest in international law and contracts. But there were other reasons for Niyazov to turn the screws on Bridas at that precise moment. With Unocal expressing interest in building its own pipeline, using Turkmenistan's existing gas fields at Daulatabad, the profit of which would all accrue to Turkmenistan, Niyazov saw that Unocal could become the means to engage a major US company and the Clinton administration in Turkmenistan's development. Niyazov needed the Americans and began an intensive dialogue with US diplomats. The Americans needed to support him if they were to prevent him from becoming dependent on Iran. Niyazov visited the UN and summoned both Bridas and Unocal to New York. There, on 21 October 1995, in front of shocked Bridas executives, Niyazov signed an agreement with Unocal and its partner, the Saudi Arabia-owned Delta Oil Company, to build a gas pipeline through Afghanistan. ‘We wer
e shocked and when we spoke to Niyazov, he just turned around and said “Why don't you build a second pipeline,”’ said a Bridas executive.6
Looking on at the signing ceremony was Henry Kissinger, the former US Secretary of State and then a consultant for Unocal. As Kissinger pondered a route through Afghanistan he quipped that the deal looked like ‘the triumph of hope over experience’. However, Bridas was not about to give up, and the first battle of the new Great Game had begun. ‘We are just an oil company trying to develop a country's resources, but we got involved in somebody else “Great Game” where the big powers are battering each other,’ Mario Lopez Olaciregul, Bridas's Managing Director said later.7
Unocal proposed a gas pipeline from Daulatabad, with gas reserves of 25 tcf, to Multan in central Pakistan. Unocal set up the CentGas consortium holding a 70-per-cent stake, giving Delta 15 per cent, Russia's state owned gas company Gazprom 10 per cent and the state-owned company Turk-menrosgaz 5 per cent. Unocal signed a second, even more ambitious agreement with wide appeal across the region. Unocal's Central Asian Oil Pipeline Project (CAOPP) envisaged a 1,050-mile oil pipeline from Chardzhou in Turkmenistan to an oil terminal on Pakistan's coast, delivering one million b/d of oil for export. Existing Soviet-era oil pipelines from Surgut and Omsk in Russia's Siberian fields, to Chymkent in Kazakhstan and Bukhara in Uzbekistan could feed into CAOPP delivering oil from all of Central Asia to Karachi.