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THE CASPIAN DERBY
In the late 1980s and the beginning of the 1990s, as the Soviet Union started to come unhinged, the first Western oil men had begun to drift down toward the south, to the Caspian and into Central Asia, into what would after 1991 become the newly independent countries of Azerbaijan, Kazakhstan, and Turkmenistan.
Historically, the most important city on the Caspian coastline was Baku. A century earlier, Baku had been a hub of great commercial and entrepreneurial activity, with grand palaces, built by nineteenth-century oil tycoons, and one of the world’s great opera houses. But what these arriving oil men now found instead, amid the splintering of the Soviet Union, were the remnants of a once-vibrant industry and what seemed almost like a museum of the history of oil.
The interaction between these oil men and the newly emerging nations would help wrest these countries out of their isolated histories and connect them to the world economy. The results would redraw the map of world oil and bring into the global market an oil region that, by the second decade of the twenty-first century, would rival such established provinces as the North Sea, and would include the world’s third-largest producing oil field.
The development of the Caspian oil and natural gas resources was inextricably entangled with geopolitics and the ambitions of nations. It would also help define what the new world—the world after the Cold War—would look like and how it would operate.
At the center is the Caspian Sea itself, the world’s largest inland body of water, with 3,300 miles of coastline. Though not connected to any ocean, it is salty, and also subject to sudden, violent storms. Azerbaijan is on its western shore. To the west of Azerbaijan are Georgia and Armenia—the three together constituting the South Caucasus. On the northwest side of the Caspian, above Azerbaijan, are Russia and its turbulent North Caucasus region, including Chechnya. On the northeast side of the Caspian is Kazakhstan; and, on the southeast, Turkmenistan. On the southern shore is Iran, with ambitions to be a dominant regional power and with interests going back to the dynasties of the Persian shahs.
THE NEW GREAT GAME
The fierce vortex of competing interests in this region came to be known as the new “Great Game.” The term had originally been attributed to Arthur Conolly, a cavalry officer in the British army in India turned explorer and spy, whose unfortunate end in 1842—he was executed by the local ruler in the ancient Central Asian town of Bukhara—captured both the seriousness and futility of the game. But it was Rudyard Kipling who took up the phrase and made it famous in Kim, his novel about a British spy and adventurer, at the front line in the late nineteenth century in the contest with the Russian Empire.1
But this purported new round in the Great Game, at the end of the twentieth century, included not just Russia and Britain, the two main contenders from the first round in the nineteenth century, but many more—the United States, Turkey, Iran, and, later, China. And of course the newly independent countries themselves were players, intent on balancing among these various contending forces to establish and then preserve their independence.
Then there were the oil and gas companies, eager to add major new reserves and determined not to be left out. And hardly to be overlooked was the jostling of the wheelers-dealers, the operators, the finders, and the facilitators, all of them out for their cut. This is a grand tradition established in the first decades of the twentieth century by the greatest oil wheeler-dealer of them all, Calouste Gulbenkian, later immortalized as “Mr. Five Percent.”
CASPIAN SEA AND THE CAUCASUS: THE “NEWLY INDEPENDENT STATES”
The breakup of the Union reconnected a resource-rich region to world energy markets
Rather than the Great Game, others used the less dramatic shorthand of “pipeline politics” to convey the fact that the decisive clash was not that of weapons but of the routes by which oil and natural gas from the landlocked Caspian would get to the world’s markets. But to some, watching the collisions and the confusion among the players, hearing the cacophony of charges and countercharges and the bluster and banging of deal making, it was better described as the Caspian Derby. Whatever the name, the prize was the oil and natural gas—who would produce it, and who could succeed in getting it to market.
THE PLAYERS
The Soviet Union was gone. But Russian interests were not. The economies of Russia and the newly independent nations were highly integrated in everything from infrastructure to the movements of people. Russian military bases, as legatees of the Soviet military, were scattered throughout the region. What would be the nature of Russia’s relations with the newly independent states, many of which had been khanates in the centuries before their conquest by the Russian Empire but had never really existed as modern nation-states?
For the Russians, it was about power and position and restoring their country as a great power. They had hardly expected the Soviet Union to fall apart. Many Russians had come to regret this loss and regarded the dissolution of the Soviet Union as a nation (if not as a communist state) as a humiliation, as something that had been foisted upon them by malevolent forces from outside, specifically in the view of some, the United States. Immediately after the breakup, they began to describe these newly established countries as belonging to a newly conceived region, the “Near Abroad,” over which they wanted to reassert control. That very name also conveyed a special status with special prerogatives for Russia—and all the more so because of the large numbers of ethnic Russians who lived in what were now independent countries. While there might now be formal boundaries, Russia and these new nations were bound together by history, education, economic and military links, the Russian language, and ideology and common culture—and a multitude of marriages. In Moscow’s view, they belonged very much in Russia’s sphere of influence and under its tutelage. Russians saw Western influence in the Near Abroad as an attempt to further undermine Russia and retard the restoration of its Great Power status.2
And there was the specific matter of oil. From the Bolshevik Revolution onward, the Caspian’s petroleum resources had been developed by the Soviet oil industry with Soviet technology and Soviet investment. The Soviets had begun to bring on a very large, if also very difficult, new field in the Republic of Kazakhstan, and the Soviet oil generals had been talking, before the breakup, about renewed focus on the Caspian as a production area.
Some Russians also believed, or at least half believed, that the United States had deliberately orchestrated the collapse of the Soviet Union for the specific purpose of getting its hands on Caspian oil. Once, in the mid-1990s, the Russian energy minister was innocently asked what he thought of the development of Caspian oil. He pounded his fist down on his conference table.
“Eto nash neft,” he replied. “It’s our oil.”
For the United States and Britain, the consolidation of the newly independent nations was part of the unfinished business of the post–Cold War and what was required for a new, more peaceful world order. This was these nations’ opportunity to realize the Wilsonian dream of self-determination. An exclusive Russian sphere of influence would, in the American and British view, be dangerous and destabilizing. Moreover, there was the risk of Iran’s filling a vacuum, which, though not often stated, was very much on their minds.
The energy dimension also loomed large for Washington in the early 1990s. Saddam’s grab for Kuwait and the Gulf War, just concluded, had once again demonstrated the risks of the world’s overdependence on the Persian Gulf. If the Caspian could be reintegrated into the world energy industry, as it had been prior to World War I, if major new petroleum resources from the region could be brought to the world market, that would be a very large step in diversification of petroleum supplies, making a most significant contribution to global energy security. To be prevented was the flip side—these resources slipping back under exclusive Russian sway or, even worse, under Iranian influence.
Yet at the same time, building a new relationship with Russia was at the very top
of the priorities of the Clinton administration, and so there was little desire to have that relationship damaged by competition for Caspian oil and a modern Great Game. In a speech called “A Farewell to Flashman” (Flashman being a fictional swashbuckling British military man in the nineteenth-century Great Game), U.S. Deputy Secretary of State Strobe Talbott sketched out the goal of stable economic and political development in a critical crossroads of the world, and warned against the alternative—that “the region could become a breeding ground of terrorism, a hotbed of religious and political extremism, and a battleground for outright war.” He added, “It has been fashionable to proclaim . . . a replay of the ‘Great Game’ in the Caucasus and Central Asia . . . fueled and lubricated by oil.” But, he said, “Our goal is to actively discourage that atavistic outcome.” The Great Game, he added firmly, belonged “on the shelves of historical fiction.” Yet it would be very challenging to modulate the clash of interests and ambitions in this strategic terrain.3
For Turkey, locked out of the region for centuries, the breakup of the Soviet Union was a way to expand its influence and importance and commerce across the Black Sea into the Caucasus and onto the Caspian Sea and beyond—and also to connect with the Turkic peoples of Central Asia. And, for the Islamic Republic of Iran, here was the opportunity to expand its political and religious influence north into the other countries on the Caspian Sea and into Central Asia and to seek to proselytize among Islamic peoples whose access to Islamic religion had been tightly constrained during Soviet times.
Azerbaijan was of particular importance to Iran. Over 7.5 million ethnic Azeris lived there, now with the opportunity to interact with the outside world, while an estimated 16 million Iranians, a quarter of Iran’s total population, were also ethnically Azeri. Though generally tightly policed by Iran’s ruling theocracy, many Iranian Azeris had direct family relations in Azerbaijan. So for the regime in Tehran, an independent Azerbaijan, as an example of a more tolerant, secular and potentially prosperous society and one connected to the West, was something to be feared as a threat to its own internal control.
China’s interests developed more slowly, but they became progressively more significant as the rapid growth of its economy made energy an increasingly important issue. The Central Asian states were “next door,” and they could be connected by pipelines, providing critical diversification. China increasingly made its impact felt, but less through politics and more through investment.
The newly independent states were hardly mere pawns. Their leaders were determined to solidify their power. Although there were considerable differences among them, at home that meant what were essentially one-party states with power consolidated in the hands of the president. In foreign policy, the strategic objectives of these nations were very clear: maintain and consolidate their independence and establish themselves as nations. Whatever the differences in their views of the Kremlin, they did not want to find themselves reabsorbed one way or the other by the new Russian Federation. On the other hand, they were in no position to disengage from Russia or stoke its ire. They needed Russia. The connections were so many and so strong, and the geography so obvious. Moreover, they had to be concerned about their own ethnic populations in Moscow and the other Russian cities, whose remittances would become important components of their new national GNPs.
For many of the countries, oil and natural gas were potentially critical, an enormous source of revenues and the major driver of recovery and economic growth. The development of oil could bring in companies from many countries and generate not only cash but also political interest and support. As the Azeri national security adviser put it, “Oil is our strategy, it is our defense, it is our independence.”4
If oil was the physical resource they needed for their survival as nation-states, they also required another kind of resource—wily diplomacy. For the game, always, required extraordinary skill in balancing in a difficult terrain. Azerbaijan, a secular Islamic state, was squeezed between Iran and Russia. Kazakhstan, with a huge territory but relatively small population, had to find its balance between Russia and an increasingly self-confident and rapidly growing China.
Yet in all the discussions about oil and geopolitics and great games, one could not lose sight of the more practical matters: that oil development took place not only on the stage of world politics but on the playing fields of the petroleum industry—on the computer screens of engineers and spreadsheets of financial analysts, in the fabrication yards where the rigs were built, and on the drilling sites and offshore platforms—where the key considerations were geology and geography, engineering, costs, investment, logistics, and the mastery of technological complexity. And the risk for the companies was large—not just political risk, but the inherent risk in trying to develop new resources that might be world class but also posed great enormous engineering challenges.
The companies had to operate against extremes of expectations. For at one point, the Caspian was celebrated as a new El Dorado, a magical solution, another Persian Gulf, a region of huge riches in oil and gas resources eagerly waiting for the drill bit. At another time, it was a huge disappointment, a giant bust, one great dry hole beneath the wet seabed. So in terms of expectations, too, one had to stay sober and keep one’s balance.
“THE OIL KINGDOM”
In the late nineteenth century and early twentieth century, the Russian Empire, specifically the region around Baku on the Caspian Sea, had been one of the world’s major sources of oil. Indeed, at the very beginning of the twentieth century, it had overtaken western Pennsylvania to be the world’s number one source. Families with names like Nobel and Rothschild made fortunes there. Ludwig Nobel—brother of Alfred, the inventor of dynamite and endower of the Nobel Prizes—was known as the “Russian Rockefeller.” It was Ludwig Nobel who conceived and built the world’s first oil tanker, to transport petroleum on the stormy Caspian Sea. Shell Oil had been founded on the basis of oil from Baku, audaciously brought to world oil markets by an extraordinary entrepreneur and onetime shell merchant named Marcus Samuel. They shared the stage with prominent local oil tycoons of great influence.
The ascendancy of Baku would be undermined by political instability, beginning with the abortive revolution of 1905, what Vladimir Lenin dubbed the “great rehearsal.” In the years immediately after, the region continued to be shaken by revolutionary activity. Among those most active was a onetime Orthodox seminarian from neighboring Georgia, Iosif Dzhugashvili, better known to the world as Joseph Stalin. As Stalin later said, he honed his skills as “a journeyman for the revolution” working as an agitator and organizer in the oil fields. What he did not add were his additional activities as a sometime bank robber and extortionist. It was thus with good reason that Stalin, recognizing the wealth that was to be extorted, anointed Baku as the “the Oil Kingdom.”5
With the collapse of the Russian Empire at the outbreak of the Bolshevik Revolution during World War I, the region west of the Caspian Sea, including Baku, declared itself the independent Azerbaijan Democratic Republic. It established one of the first modern parliaments in the Islamic world. It was also the first Muslim country to grant women the right to vote (ahead of such countries as Britain and the United States). But Lenin declared that his new revolutionary state could not survive without Baku’s oil, and in 1920 the Bolsheviks conquered the republic, incorporating it into the new Soviet Union and nationalizing the oil fields.
That same year, however, Sir Henri Deterding, the head of Royal Dutch Shell, confidently declared, “The Bolsheviks will be cleared, not only out of the Caucasus, but out of the whole of Russia in about six months.” It soon became evident, however, that the Bolsheviks were not going anywhere soon, and that Western companies had no place in the new Soviet Union.
When, in June 1941, Hitler launched his invasion of the Soviet Union, Azerbaijan was one of his most important strategic objectives—he wanted to get his hands on an assured supply of oil to fuel his war machine. “Unless we get the
Baku oil, the war is lost,” he told one of his generals. His forces got very close to Baku, but not close enough, owing to fierce resistance by the Soviets and the natural barriers imposed by the high mountains of the Caucasus. The failure was costly for Nazi Germany, for its severe shortage of oil crippled its military machine and was one of the reasons for its ultimate defeat.6
By the 1970s and 1980s, the Caspian had become an oil backwater of the Soviet Union, thought to be depleted or technologically too difficult; its once prominent role had been assumed by other producing regions, most notably West Siberia. In the late 1980s and early 1990s, however, as Soviet power crumbled and Azerbaijan, Kazakhstan, and Turkmenistan were moving toward, and then into, independence, the region’s potential—buttressed by advances in technology—once again loomed very large.
HISTORY ON DISPLAY
Baku and its environs stood at the historic center of what had been the Russian and then Soviet oil industry, and that entire history was on display for the wideeyed Western oil men who were beginning to show up.
Some of it was at sea. A rickety network of wooden walkways and platforms, connected like a little city, extended out from the seafront in Baku. Farther offshore, 40 miles from the coastline, where the seabed became shallow again, was Oily Rocks, a great network of walkways and platforms, “a wooden and steel oil town on stilts, 15 miles long and a half mile wide,” with 125 miles of road and a number of multistory apartment buildings built on artificial rock islands. Once it had been regarded as one of the great achievements of Soviet engineering, a “legend in the open sea.” But now Oily Rocks was so dilapidated that parts of it were crumbling and falling into the sea, and some parts were considered so treacherous that they had been abandoned and closed off altogether .7
The Quest: Energy, Security, and the Remaking of the Modern World Page 6