Caucasus war may force review of trade

Russia Today, September 16, 2008, 22:54

The Georgia-Ossetia conflict and its commercial repercussions for the Caucasus were among the items on the agenda at a meeting between Dmitry Medvedev and his Azerbaijani counterpart Ilham Aliyev in Moscow. The two leaders were also expected to touch on Nabucco - the EU’s pipeline project aimed at pumping gas from Central Asia to Europe.
Both sides welcomed the booming business between the two countries. Medvedev said he expected trade to be worth $US 2 billion by the end of the year. Speaking after the talks, the he highlighted the need for deeper cooperation following the recent conflict.

“Sure, we need to co-ordinate our positions, taking into account the problems that emerged in the Caucasus region after the Georgian aggression. We need to discuss the development of the international situation,” Medvedev said, adding that “this would be a good thing to do considering our desire to stabilise the development of relationships and the situation in the Caucasus in general”.

Breakaway regions’ issue

Azerbaijan has been wary of taking sides on the South Ossetian crisis, but it is ready to be a mediator.

“The situation in the region is raising serious concerns. Azerbaijan, for its part, is ready to step in to ease the tensions. Any dispute should be resolved in a peaceful way, through a dialogue and only on a basis of mutual respect,” said Aliev.

Hardly anyone expected them to back the independence of South Ossetia and Abkhazia as the country has its own territorial dispute.

In the late 80s, a violent conflict erupted in Nagorno-Karabakh. The province with an Armenian ethnic majority is located on the border of Armenia and Azerbaijan. Although a ceasefire was declared in 1994, it is still a bone of contention between the two countries.

Commenting on the issue President Medvedev said: “We back direct negotiations on the Nagorno-Karabakh issue between the presidents of Azerbaijan and Armenia. Russia’s position stays the same: in the future we will contribute to the quest for a mutually beneficial solution of this complex problem.”

Good neighbours and good friends

Azerbaijan plays a key role in the Caucasus due its resources and its location. It has become an intersection not only of energy routes but also of geopolitical interests - mainly those of Russia and the U.S.

Washington’s priorities in the region are connected to oil and gas. For a long time the U.S. has been looking for ways to bypass Russia’s energy routes and Azerbaijan is a crucial part of the scheme.

One Western-sponsored pipeline is already pumping Caspian oil from Azerbaijan through Georgia to Turkey's Mediterranean coast and there are plans for more.

Political analyst Aleksey Vlasov says that before the American presidential election, Washington is trying to make Baku its main ally in the region. But President Ilham Aliev “is following the policy of multi-polarity”.

Two weeks ago, Aliev met Dick Cheney. The U.S. Vice President made his first stop in Baku on his campaign against Russia’s energy dominance in the region.

Cheney pushed for the Nabucco pipeline, which is backed by the EU and the U.S. It will bring gas from the Caspian region via Turkey to Austria and Western Europe.

However, Aliev was careful not to rock the boat since Russia is an old ally and neighbour and Nabucco is still a pipe-dream.
 
“We all live in this region and no one intends to move out. That’s why we need to look for certain ways of effective interaction, cooperation, and neighbourly relations. I’d like to repeat that if all relations between neighbours were like those between Russia and Azerbaijan, I assure you, there would be no misunderstandings - not to mention conflicts,” he said.

Piped up: talk of Nabucco

The pipeline, which, in theory, should be completed by 2013, will carry gas to the EU, avoiding Russia. The main source of gas would be the Shah Deniz field in Azerbaijan. However, the project is under threat after last month’s 5-day war in the Caucausus region and increasing political tensions in the area.

What is Nabucco?

Talk of building the Nabucco pipeline started in 2002 as a joint project between OMV (Austia) and BOTAŞ (Turkey) to import natural gas into Europe. It is a pipeline specifically designed to bypass Russia. Currently, the lion's share (40%) of the EU's natural gas is imported from Russia only, with 30% coming from Algeria and 25% from Norway. The figures differ from country to country: EU members like Slovakia or Lithuania obtain their entire gas imports and also almost 100 percent of their oil from Russia. Arguably, this allows the Kremlin to dominate the gas market in the region with its policies.

Originally, the Nabucco pipeline was charted to transport gas from sources in Iran, through Turkey and into Austria, via Bulgaria, Romania and Hungary. However, it had to be changed and adapted to fit the EU's growing apprehension of Iran, which has been condemned for its nuclear programme. The targeted gas stocks are located in Azerbaijan, Turkmenistan and Kazakhstan. After the completion of the project's first phase in 2013, the pipleline is expected to carry 8 billion cubic meters of gas per year into Europe. By 2014, it is expected to carry 31 billion cubic meters of gas per year. That is the same amount of natural gas that the whole of India uses in a year.

Azerbaijan's full support of the project is a key element in its success, as it is the main gas source.

Nabucco: a pipe dream?

The recent Caucasus crisis has prompted many analysts to question the plausibility of the Nabucco project. As it stands, it has already been changed and adapted to accommodate the EU's perceived threat fromIran, which has been condemned for its nuclear programme.

In the light of recent events, doubt has been cast over the possibility of Georgia being a reliable transit country. Although analysts do not go as far as to suggest that Russia would intentionally jeopardize the security of the pipeline, the political instability in the region is a cause for major concerns. "After the military conflict with Russia, Georgia cannot be marked on oil and gas maps as a safe transit route, and no amount of support from NATO can change this alteration," says Pavel K. Baev, research professor at the International Peace Research Institute in Oslo.  

Furthermore, during recent talks in Baku - the Azebaijani capital - US Vice President Dick Cheney had trouble convincing Aliyev of Nabucco's credibility. There have been reports of Aliyev's administration fearing complications in their relationship with Russia as a result of the project. To read RT's report on Cheney's meeting with Aliyev, follow the link. And although the Azeri minister of industry and energy - Natig Aliyev - has later made claims of Azerbaijan's full support of the project, detrimental tensions in the area remain obvious.

However, it is not only recent developments in the region which place the project under question. Some experts, like Steve Mufson of the Washington Post, argue that Nabucco has not been "a doable project" since the exclusion of Iran, because without it "there is not enough gas to justify the investment". The construction of the pipeline is expected to begin in 2010 and cost around €7.9 billion, spread out between companies from Austria, Hungary, Romania, Bulgaria, Turkey and Germany. In December 2003, the EU Commission awarded a grant of 50% of the estimated total costs.

The market feasability of Nabucco has also been undermined by the Russian South Stream gas pipeline project. This pipeline is designed to carry gas from the Caspian basin (Azerbaijan, Turkmenistan and Kazakhstan) into Italy, thus furthering Russia's domination of the EU natural gas market. The deliveries through the South Stream pipeline are expected to start in 2013, roughly at the same time as Nabucco.