“You know, these resources in the Caspian were discovered by Russians, and Russian companies will be the ones developing them.” Yuri Shafranik, Russian Minister of Energy to Bill White, U.S. Deputy Secretary of Energy. Mid 1990s.
I recently finished Steve LeVine’s The Oil and the Glory: The Pursuit of Empire and Fortune on the Caspian Sea, a solid and fascinating account of the efforts by Western energy companies to gain access to the abundant reserves of oil and gas in the former Soviet republics surrounding the Caspian Sea. This is a subject of particular interest to me, as I spent a majority of my time at LSE researching Caspian energy issues, and in particular, the Baku-Tbilisi-Ceyhan (BTC) pipeline.
One of the problems I encountered while writing my dissertation was that despite the region’s significance to geopolitics and energy, there is a lack of reliable source material. There are a few academic articles out there, but the topic is so contemporary that you end up relying heavily on newspaper articles and industry journals. Lutz Kleveman’s The New Great Game: Blood and Oil in Central Asia is a captivating account of his journeys through Central Asia, but the book sometimes has a tendency to veer into conspiracy theories. Fortunately, LeVine’s The Oil and The Glory fills the void, finally bringing a well-written account of Caspian energy politics into the mainstream.
In particular, LeVine provides a fascinating description of the early days of the Baku oil boom (1870s), where the oil was so plentiful and close to the surface that men could simply dig it out with shovels, wells spewed 3,500 wasted barrels an hour for days on end until they could be brought under control, and the Nobels (of the dynamite and Peace Prize family) and Rothschilds built large baroque mansions with the money they earned from their oil investments. The Nobels, in fact, built the region’s first pipeline to transport crude from their fields to their refineries. In an event that would repeat itself throughout the region some 100+ years later, the Nobels found the government authorities hostile to their plan, and it was only until they paid off key government officials that they were granted the necessary right-of-way to build their pipeline. Of course, the Nobels still had to contend with the soon to be unemployed drivers who transported barrels of oil on their horse carts, so they hired Cossacks to protect the project from sabotage attempts.
Early Baku wells
In the early 1990s, Baku experienced another oil boom as Western companies competed for influence among Azeri officials. In those days, oil company representatives from Houston and London, fresh off their corporate jets, slept in hotel rooms bugged by the local intelligence agency, witnessed a systematic breakdown of law and order in the city streets, and had guns pointed at them by their Soviet counterparts. The region was a true Wild West.
Massive pollution on the outskirts of Baku (taken during a July 2006 visit)
Another Caspian issue which LeVine recounts particularly well is the battle over pipeline routes to export the oil to world markets. All the pipelines built during the Soviet era were routed through Russia, so the flow of oil from Azeri and Kazakh fields was literally at the mercy of the Russians. They could turn off the flow at will regardless of contract terms, and, in several instances, did exactly that by denying Chevron the use of an agreed daily quota of 65,000 bpd for a pipeline transporting crude from the Tengiz field in Kazakhstan. As such, the U.S. Government was clearly worried that the Russians would continue to use their control of export routes to undermine the independence of the former Soviet republics and restrict their ability to ship oil to Western nations. The construction of a pipeline route that avoided Russian territory became the top priority of the Clinton Administration’s Caspian foreign policy. In fact, among certain policymakers in the White House, it became an obsession to undermine Russia’s so-called “iron umbilical cord” that controlled the fate of oil exports from the former Soviet states. The centerpiece of this “happiness is multiple pipelines” policy (indeed, this slogan was plastered on bumper stickers distributed throughout the region) would be a main export pipeline that began in Baku and ended in Ceyhan, thus bypassing Russia.
The problem, however, was that the Clinton Administration’s promotion of a Baku-Ceyhan route was met with skepticism by the Western oil companies, who considered it to be little more than a geopolitical pet project of the U.S. government. It was the companies, after all, and not the government, who would have to finance and build this $3.6 billion “political” pipeline. As LeVine details, a variety of events (i.e., Turkish opposition to increased traffic in the Bosporus Straits, BP’s merger with Arco requiring the approval of U.S. regulators, and assurances on construction costs and security from Azerbaijan, Georgia, and Turkey) eventually led to the construction of the 1,099 mile pipeline, which now ships some 750,000+ bpd of crude to world markets (expected to reach 1 million bpd by 2010).
Something I particularly enjoyed about The Oil and the Glory was LeVine’s tendency to throw in some of the more absurd, and therefore amusing, details surrounding the efforts of Western companies to develop the Caspian’s resources. Among my favorites:
• In order to land the Tengiz contract in the early 90s, Chevron had to convince Soviet officials that their offshore drilling operations would not cause any environmental damage (besides oil, the Caspian’s other moneymaker is caviar). Chevron flew the Soviet officials to an offshore rig in the Gulf of Mexico, handed them fishing poles, and invited them to catch the fish swarming below. Still, one of the Soviets was convinced that no oil production was actually taking place, and that the rig was just a “Hollywood prop” erected to deceive the delegation.
• Yet another official worried that deepwater drilling in the Caspian would somehow set off an earthquake, causing chaos in Kazakhstan.
• Azeri President Heydar Aliyev apparently had a crush on Hazel O’Leary, Clinton’s first Secretary of Energy
• John Browne, the former CEO of BP, refused to fly Aeroflot, was accompanied by staff members who set out china and silverware for him wherever he dined, and once ate a sheep’s eyeball – a Kazakh delicacy traditionally offered to the guest of honor. Apparently, some guys will do anything to land a contract.
• Kazakh President Nursultan Nazarbayev wanted to witness the perforation operation on a Kashagan well, but the drilling crew was worried about something going wrong, and, you know, killing the president. It was decided that they would have to fool Nazarbayev into thinking that they were performing the operation, so they acquired 6,000 gallons of diesel fuel and jury-rigged a tank with an on/off switch. When Nazarbayev arrived, they faked the operation and flipped the switch on the tank, which made it appear as if the well was flaring natural gas. Nazarbayev watched the “flare” for TWENTY MINUTES, and by then the crew was worried that the fuel would run out. Fortunately, Nazarbayev moved on to take part in the tradition of smearing his face with oil…which was actually acquired from Tengiz. Nazarbayev left the rig that day, satisfied that Kashagan was producing.
He’ll never know the difference…
After all that, how can you not find the Caspian intriguing?
This book is a quick and easy read, and LeVine has done an excellent job detailing the power politics and corporate struggles that have accompanied the pursuit of the Caspian’s natural resources. If you have any interest in energy issues, Russia, or the former Soviet Union, I cannot recommend The Oil and the Glory enough.