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BP Azerbaijan has said that it does not want to export oil produced in the Azerbaijani sector of the Caspian Sea via the Baku-Novorossiisk pipeline
This means that Russia, which is already losing its influence on the Caucasus, will suffer serious economic losses. Baku explains its decision in terms of economic expediency. BP Azerbaijan pays $4-5 per barrel if it exports Caspian oil by rail via Georgia, whereas the Baku-Novorossiisk route costs three times more. Economics is not the only thing that matters. The Baku-Tbilisi-Ceyhan pipeline, the main rival of the Russian route, will start operating this fall. This allegedly unprofitable and controversial project was launched in 1998 in Ankara when the presidents of Turkey, Uzbekistan, Azerbaijan, Kazakhstan and Georgia, plus then U.S. Energy Secretary William Richardson, signed a declaration committing themselves to facilitate the construction of the pipeline. However, the consortium's Western members were in no hurry to finance the project. In May 2001, David Woodward, the then Azerbaijani International Operating Company (AIOC) president, said he doubted whether most Caspian oil would be pumped along this route. To be cost-effective, the Baku-Tbilisi-Ceyhan oil pipeline would have had to pump 50 million metric tons of oil annually for the next 40 years. But the Caspian region apparently does not contain enough oil. The September 11, 2001 terrorist attacks in the United States and rocketing global oil prices increased U.S. and EU demand for oil sources alternative to the Middle East. The United States, Israel and Turkey, all greatly interested in this route, pressured hesitant and shortsighted businessmen. Political pressure and rising fuel and energy prices made the project more attractive, and much more profitable. It is hardly surprising that BP Azerbaijan President David Woodward called the Caspian region a new promising energy source independent of the Middle East and Russia. The Kremlin naturally wanted to pump Caspian oil via Russian territory. Russia's LUKoil even sold its 10% stake in the Azeri-Chirag-Gunashli deposit, which gave it priority rights to implement the Baku-Tbilisi-Ceyhan project. Moreover, LUKoil wanted to sell its stake in the Shah Deniz gas-condensate deposit and to leave the Caspian region. Besides, the Caspian Sea's uncertain legal status played into Russia's hands, questioning the legality of oil production in the "Azerbaijani sector" being disputed by Iran and Turkmenistan. However, the more powerful global players - the U.S. and the European Union -- won this game, taking advantage of Kazakhstan's desire to create alternative oil-export routes. The new pipeline would then be filled to capacity. President Nursultan Nazarbayev of Kazakhstan, who spoke at the pipeline opening ceremony, suggested that the Caspian port of Aktau in Kazakhstan be included in the pipeline's name, thereby hinting that Astana wanted to export its oil via the new pipeline. Kazakhstan will no longer have to pump its oil to Europe along the Russian route alone. In this way Russia lost a serious lever of pressure on its ally. Russia's regional influence will be impaired, because the West now considers Azerbaijan as the main Caspian-oil supplier along this strategic route. Georgia's importance as the transit territory will also grow. Moreover, permanent U.S. military bases may soon appear to guard Caspian deposits and the pipeline itself against possible terrorist attacks. Russia is facing another negative consequence of a new political-energy situation. As is known, the new Ukrainian leadership is trying to reduce its energy dependence on Russia and to enhance its own role as a transit territory for oil exports to Europe. Prime Minister Yulia Timoshenko wants to handle Central Asian and Caspian hydrocarbons via the Caucasus and the Black Sea to Ukraine and further to Europe. This idea is unlikely to materialize in the next few years, due to a lack of resources. However, later, as these resources will grow, part of them may be exported to Europe via railroad and Georgia's Black Sea ports and Ukraine. Thus the southern hydrocarbon-export route will serve as a full-fledged alternative to Russian pipelines and deprive Russia of money and additional leverage to influence its European partners and CIS neighbors. As for Baku-Novorossiisk pipe, it is likely to be transferred to the reverse regime within a year to boost the export potential of the new BTC pipeline. The other day, representatives of BP, one of the two major players in Russia's TNK-BP, said that they plan to export all Russian-produced oil along the new BTC pipeline, using the Novorossiisk-Baku pipe for the purpose. Anatoly Belyayev is the director of analysis at the Center for Current Politics
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