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First published by Journal of Central Asian and Caucasian Studies (JCACS), Vol: 2 No: 4, 2007, pp. 131-155. JCACS is an USAK publication. All rights reserved.
Emre ISERI[1]
The term ‘peak oil’ simply means that running out of cheap oil or easy oil. Since the early days of oil production, the oil companies have chosen oil reserves close to surface, which were less costly to reach. In other words, they have extracted ‘cheap oil’, which we still call oil. The world economic system has been shaped with the supposition that oil would be always available cheaply. However, industry estimates indicate that a global economic crisis will occur soon, related to dramatically rising oil prices. Moreover, it is estimated that continued price increases will become a structural problem. Without bothering the exact time of global peak oil, this paper assumes someday global peak oil will occur. Thus, it is argued that ‘global peak oil’ issue has served as an additional dimension to geo-strategic significance of world’s remaining untapped oil resources. In that regard, it is asserted that Kazakhstan, which has massive untapped oil reserves in Kashagan (the largest oil discovery in the past 27 years) and Tengiz (the oil field discovered comparable size to former in 1979), with its little domestic consumption and growing export capacity have become the focal point of strategic rivalries between the United States , Russia , and China. Along with transnational corporations, these major powers have been seeking alliances, concessions, and possible pipeline routes. Clearly, Kazakhstan’s land-locked positioning at the heart of Central Asia has stimulated these rivalries. In the light of these arguments, this paper aims to analysen the geo-strategic dimensions of Kazakhstan and its enormous oil fields on the eve of global peak oil.
1. Global Peak Oil
Michael Meacher, who served as a cabinet member in Blair’s government until his resignation just after the war, made a shocking charge against the US, “It seems that the war on terror is being used largely as a bogus cover for achieving wider US strategic geopolitical objectives.”[2] He also asserted that Project for the New American Century (PNAC) report entitled ‘Rebuilding America’s Defenses: Strategies, Forces, And Resources For A New Century’, which recommended the US to be prepared to take military action, and the Baker Institute Energy report of April 2001, which emphasised Iraq as a destabilising factor to the flow of Middle East oil to international markets, provided the blueprint for US policy. Hence, Meacher argues that “the allegations of weapons of mass destruction and Al Qaida links were just a smokescreen” [3] to go to war in Iraq. According to him, the real issue was that “the US and the UK are beginning to run out of secure hydrocarbon energy supplies.” [4] What he meant by running out of secure hydrocarbon energy supplies was hidden in a highly alarmed memo entitled ‘Submission to the Cabinet Office on Energy Policy’ submitted to Blair’s Cabinet Office just few days before September 11. The memo indicated that, “Global oil supply is currently at political risk…Large investments in Middle East production, if they occur, could raise output, but only to a limited extent. The main exception is Iraq…”[5] The memo also predicted “the global peak of all-a hydrocarbon (oil plus gas) is likely to be in about 10 years.”[6]
Before analysing the implications of coming global peak oil, it would be plausible to clarify what we mean by peak oil. American geologist M.King Hubbert at a meeting of the American Petroleum Institute in 1956 first introduced the term ‘peak oil’. It simply means running out of ‘cheap oil’ or `easy oil`. Since the early days of oil production, the oil companies have chosen the oil close to surface that were less costly to reach. In other words, they have extracted ‘cheap oil’, which we still call oil. The world economic system has been shaped with the supposition that oil would be always available cheaply. When all of ‘cheap oil’ will be exhausted, the remaining oil will be technically difficult to reach.
Since the invention of Large Independent Mobile Machines (LIMMs) such as cars, planes and tractors, they have incrementally begun to shape our lives in many ways. LIMMs enable us to do what we do, they make us have jobs, they make the water flow, they make supermarkets full of food. To put it simply, LIMMs have become the main elements of international economic activities. “For a society in which LIMMs play a central role no other energy resource is efficient as oil. It is compact and easy to use, in its natural state it is located in highly concentrated reservoirs, and it can be transformed into a usable energy product rapidly, cheaply and safely.”[7] Unfortunately, ‘cheap oil’, which has fuelled these LIMMs for such a long time, has begun to run out. “…Although we will not run out of oil tomorrow, we are nearing the end of what might be called the easy oil. Even in the best of circumstances, the oil that remains will be more costly to find and produce and less dependable that the oil we are using today.”[8]
The Hirsch Report, which was prepared for the US Department of Energy in February 2005, asserted that the likelihood of peak oil has been occurring and mitigation action should be taken soon. This report’s executive summary started with the following paragraph:
The peaking of world oil production presents the U.S. and the world with an unprecedented risk management problem. As peaking is approached, liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented. Viable mitigation options exist on both the supply and demand sides, but to have substantial impact, they must be initiated more than a decade in advance of peaking. [9]
The report concluded: the world oil peaking will happen, oil peaking could cost the US dearly, oil peaking presents a unique challenge, the problem is liquid fuels, mitigation efforts will require substantial time, both supply and demand will require attention, it is a matter of risk management; and government intervention will be urgently required. Due to production and resource figures from many countries are unreliable, it is nearly impossible to make an accurate prediction on the date of peak oil. Nevertheless, the authors of the report made a survey to have an idea about the date of global peak oil by asking both optimists and pessimists to make forecasts. Their survey reached the conclusion that global peak oil will occur anywhere from 2005 to 2037.
At that point, one should note several groups that deny the reality of global peak oil issue. An independent petroleum geologist, Jeffrey J. Brown, states that there are mainly three groups[10] deny the reality, whom he defines as the ‘Iron Triangle’ that consider the reality of Peak oil is a nightmare to come.
“The ‘Iron Triangle’ has a vested interest in denying the reality of Peak Oil, and they are, in effect, working together to encourage Americans to continue buying large vehicles, in order to continue driving large distances to and from large mortgages…The auto/housing/finance group wants to continue to selling and financing large autos and houses. The media group wants to continue selling advertising for large autos, houses and loans. The major oil companies are concerned that if they admit to the reality of Peak oil, they may face punitive taxation. The major oil exporters are afraid of military takeovers, if they admit to the reality of Peak Oil. The energy analysts are hired guns. This group provides the intellectual ammunition for the other two groups.”[11]
Thus, one should be sceptical about the president of the most respected energy-consulting firm Cambridge Energy Research Associates (CERA), Daniel Yergin’s oil optimism. He argues that “the major obstacle to the development of new supplies is not geology but what happens above ground: international affairs, politics, investment and technology.”[12] In other words, he asserts that we have plenty of oil enough to meet future demands. However, one should underline the fact that Yergin knows no more than anyone else about the future of non-renewable resource of oil, especially the future of its 30 years later.
Whether the global peak oil will arrive sooner or later, the important point is one-day global oil production will peak. The United Kingdom, Norway, China, Mexico, Venezuela, Indonesia, Russia, Syria, Libya, Nigeria, Qatar and many other oil-producing countries have peaked. Middle East and the Caspian Sea region are the only areas that have spare capacity with non-transparent reserve figures. Hence, these two regions will be the playgrounds of escalating geo-strategic rivalries between the US, China, Russia, Iran and the EU in the 21st century.
1.1. Implications of Coming Global Peak Oil
One of the main implications of global peak oil is high hydrocarbon prices. Apart from its effects on the proper functioning of international economy, high oil prices mean non-friendly regimes to the US such as Russia, Iran and Venezuela will become powerful actors and acquire wide manoeuvre space in world politics. Clearly, this potential development will have significant negative implications for US hegemony.
The US has immense interest in the supply of oil in reasonable prices not only to sustain its regional hegemony in the Western hemisphere, but also for the success of its grand strategy to prolong its sole superpower status. Oil is the principal raw material in global political economy. If there is no oil, there is no transportation, no trade, no consumption, even no food. In that context, reasonable oil prices are vital for US grand-strategy in the post-Cold-War-era. “Without access to fossil fuel beyond its legal borders, lives and vehicles would come to a standstill. Without having control over its price, US power and wealth would become hostages to decisions taken by foreigners.”[13]
To put it straight, high oil prices are contrary to the US interests mainly because record high prices are diminishing its chances of influencing hydrocarbon producers such as Russia and Iran. High hydrocarbon prices have accelerated these states’ earnings. “That income helps keep society calm and reformers at bay. ‘High oil prices help the people who are in power to stay in power,’ says Michael Mussa, a senior economist at the Washington-based Institute for International Economics.”[14], which is the second largest oil consumer, is ignoring the interests of the US. High oil prices have accelerated China’s search for hydrocarbon resources wherever it can find them. China has been negotiating for production investments with the regimes such as Nigeria, Sudan, and Iran where the US has been seeking to improve democracy and human rights. To put it simply, high oil prices have been weakening US political leverage over Eurasian great powers. “‘It’s a geopolitical nightmare’, says William Cohen, a former Republican senator from Marine and defense secretary under President Bill Clinton who is now chairman of the Cohen Group, a Washington-based consulting firm. Such nations as Iran, Russia and China ‘don’t see us as the colossus that can cause them any harm, either by our economy or by our prestige.’”[15] Since the US is not among the main consumer of these countries’ energy resources, it is not capable to put much influence on them. It should also be noted that not only hydrocarbon producing countries, but also China
Global peak oil will also have implications on the future of dollar’s principal reserve currency status.[16] Since petro-dollars[17] have been playing the vital role for the US and its prominent role in global politics, coming global peak oil would undermine global economic system based on petro-dollars. Darrell Whitman argues that the age of global peak oil would make the link between dollar and oil unsustainable. In his article “As Good as Gold: Oil and the Global Political Economy”, Whitman underlines “what constitutes the value of a currency… rests on what market participants believe it to be.”[18] Hence, what determines the value of paper currency is the value of the commodity linked to it. Under the Bretton Woods monetary system, the value of the dollar was fixed to gold. In other words, the value of dollar is determined by the value of gold. Since gold has an implied value and use overtime, dollar had an attributed value because of its link to the value of gold. The Nixon administration cut this link in 1971. Now on what determines the value of gold is not gold, but oil. “In the brave new world of the global carbon economy, the value of currency is once again measured by a valued commodity – oil…key player in determining the vitality of national economies and governments, and in the construction of the value of national currencies.”[19] Recently, there have been profound technological changes particularly in IT, whereby; time to access information is now an issve of few seconds. As the 1997-1998 Asia crises demonstrated, this increased speed in communication accelerates the potential for sudden and uncomfortable shifts in financial markets. Since global peak oil issue has been highly speculative political issue, this kind of a shift on the price of oil will make a significant change in the global financial markets.
“Classical economics says that ‘bad money drives out good’: or that in a contest between unsecured paper currency and a commodity-based currency, the more valued commodity-based currency will be hoarded and tend to disappear. In times of currency crises, market react to a declining currency value by exchanging it for something is presumed to offer a more secure value, which can be another currency or some money instrument, a commodity, or land. ”[20]
The rapid increase in the price of gold with the announcement to abolish the Bretton Woods gold standard monetary system has revealed that “speculators trading ‘bad’ US dollars for ‘good’ gold.” [21] are now locked in an unhealthy relationship which soaring US imports from China are paid for by soaring debts held by China. How long that process can go on before upward spiral tips into downward plunge, no one can say. But not forever.”[25] Clearly, coming global peak oil would accelerate these processes. Even though there is no formal link between the US and oil, “there is an informal one that has served to protect the value of the dollar and cushion oil prices increases for the USA – the pricing of oil in dollars that creates an artificial demand on them.”[22] As Ron Cooke argues rising oil prices is inflationary and will force the value of the dollar down.[23] Thus, “when the dollar loses a substantial portion of its value against other major trading currencies, as it did significantly in 2003-4, then energy suppliers that are holding dollars take a loss. It is natural for them to look for ways to buffer themselves against the consequences of American economic mismanagement.”[24] Hence, energy suppliers would like to sell their oil reserves in euro, which emerged as potential rival currency, instead of dollar. In that regard, one should note that there has been a growing tendency among OPEC countries such as Iran and Venezuela to denominate petroleum trade in euros. Moreover, “the United States and China
Therefore, the US should look for ways to avert or at least to delay the age of global peak oil. At the current conjuncture, what should be done is to ensure the production and the flow of remaining untapped oil reserves to the international oil market in an efficient manner. In that regard, US-led-Iraq war could be considered as a strategic move to politically control remaining untapped oil in Iraq before global peak oil arrives. The other region in the world that has spare oil reserves is the Caspian region in general, Kazakhstan in particular.
2. Geostrategic Rivalries over Kazakhstan and Its Oil Resources
“Today, it seems that the idea that the world may have hit ‘peak oil’ seems to be taking hold; and oil and gas experts around the world are growing alarmed not just at future scarcity, but also at who is in control of remaining ‘black gold’.”[26]’s rich untapped oil reserves have pulled a lot attention on the eve of global peak oil. In that context, Kazakhstan
With its geopolitical positioning at the heart of Central Asia, Kazakhstan is one of the largest countries in Eurasia. It is sharing borders with two potential Eurasian great powers Russia and China. Apart from its significant geopolitical location, Kazakhstan has massive untapped oil fields in Kashagan (the largest oil discovery in the past 27 years) and Tengiz (the oil field discovered comparable size to former in 1979), with its little domestic consumption and growing export capacity. “Its prospects for increasing oil production in the 2010-20 time frame are impressive, given the recognized potential offshore in the North Caspian. Production estimates for 2010 range upward of 1.6 mmbpd, and by 2002 Kazakhstan could be producing 3.6 mmbpd.”[27]
Kazakhstan views the development of its hydrocarbon resources as a cornerstone to its economic prosperity. However, Kazakhstan is land-locked. In other words, Kazakhstan cannot ship its oil resources. Therefore, it is required to transport its oil through pipelines, which would cross multiple international boundaries. Thus, “one thing that is now confusing to foreign oil company producers in Kazakhstan is the ultimate US strategy there with regard to exit routes. If the goal is to have multiple pipelines bypassing Russia and Iran, any policy that would encourage additional oil shipments from the Caspian across Russia, beyond what an expanded CPC can carry and existing Transneft option, works against the multi-pipeline strategy and further solidifies Kazakh-Russia dependence.”[28] considers Kazakhi oil resources as vital to its energy security and builds a pipeline that would be functional soon. As indicated below, China
“Therefore, the countries of Central Asian region represent a chess board, harkening back to Brzezinski’s imagery, where geopolitical games are conducted by great powers, mainly the United States, Russia, and China. And Kazakhstan is at the center of this game.”[29] Hence, Kazakhstan has become the focal point of strategic rivalries in 21st century.
2.1. The US
Spreading the scope of international markets has long become the most viable strategy for US policy-making elites. “An ‘open world’, the overriding imperative of commercial integration, confidence that technology endows the United States with a privileged position in that order, and the expectation that American military might will preserve order and enforce the rules.”[30] This is also simply the case for the openness of oil trade. “In oil, as more generally, the forward deployment of military power to guarantee the general openness of international markets to the mutual benefit of all leading capitalist states remains at the core of US hegemony. An attempt to break this pattern, carve out protected spaces for the US economy and firms against other ‘national’ or ‘regional’ economies would undercut American leadership.”[31]
As indicated above, American power flows from its dominance over a global economy that is based on oil. At the eve global peak oil, “the United States seems itself as having no choice but to defend the global energy infrastructure from any threat and by nearly any means available-economic, diplomatic, even military.”[32] For the continuation of the infrastructure, Kazakh oil development and its flow to international energy market, just like Iraqi oil, plays a viable role.
Since Kazakhstan has massive oil export capacity, it is not a surprise to acknowledge that George W. Bush created National Energy Policy Development Group (NEPD) commonly known as the Cheney Energy Task Force’s report on May 2001[33] oil development. US Senator Conrad Burns indicates “Kazakh oil can save the United States from energy crisis” and avert the US’s long dependence on Middle East oil.[34] and Iran’s influence in the region, but also shift Kazakhstan’s security orientation towards the US and would open the channels of cooperation in war on terror. He also argues that Caspian oil could be very important both for strengthening world energy stability and providing international security by noting the importance of the Baku-Ceyhan pipeline project for the export of Kazakh oil. Hence, Kazakhstan could become a major supplier of oil in the international energy market, whereby, alleviate the disastrous consequences of coming global peak oil to the US. One should also note that the US interests in Kazakhstan is not restricted with oil. Flow of land-locked Kazakh oil to international energy market though BTC would not only by-pass Russia recommends initiatives that would pave the way for Kazakh
One should also note the non-OPEC character of Caspian oil reserves in general, Kazakh oil in particular. It is a fringe benefit to the US’s interests to diversify the world’s supply of oil in order to underpin stability of internal oil market. “Non-OPEC supplies serve as a market baseload, consistently delivering the full level of production of which those resources are capable. Clearly, diversifying and increasing these non-OPEC sources provides a more secure core supplies for the United States and other consumers to rely upon.”[35] Thus, “the question is not OPEC versus non-OPEC. Rather, the issue to address is how to continue encouraging non-OPEC supply growth and diversity, preferably with the involvement of international oil companies (or IOCs, including US oil companies).”[36] Hence, non-OPEC Kazakh oil development and its secure flow to western markets would enhance stability of the international energy market.
In the early post-cold war period, Kazakhstan’s importance for the US was neither related to its central positioning as a newly independent country at the heart of Central Asia nor wide-rich hydrocarbon resources. “Instead Bush (senior) and his people cared about Kazakhstan because of nuclear weapons. It mattered as one of four republics hosting the Soviet Union’s strategic nuclear forces, not as a key state within an important region.” [37]
During the Clinton administration, US objectives have incrementally emerged as a coherent set of aims. In 1996, US policy-making elites determined their five objectives in the Central Asia.[38] oil development. First, the US committed itself to increasing energy security by which was meant American and European access to the region’s hydrocarbon resources. Second, the US sought to enlarge commercial opportunities for American origin oil companies. For instance, the Chevron Texaco Corporation has huge investment plans about three billion dollars to develop the Tengiz oil field. According to preliminary estimates, this initiative would nearly double the oil production in Western Kazakhstan. Thus, Washington did not approach Central Asia as a separate subject from the Caspian region. In that context, there are mainly two objectives of US-policy-making elites in Kazakh
Thus, one could be tempted to argue that the one and only reason behind US involvement is to acquire regional hydrocarbon resources. However, “Washington was not driven by a direct stake in obtaining Caspian oil and gas for itself, securing multiple pipeline routes, reducing dependency on Russia, promoting regional cooperation, and fostering economic development through energy exports became a centrepiece of policy.”[39] The rationale to promote stability through regional cooperation was directly related to establishing proper environment to develop regional energy resources in an efficient manner.[40] In a parallel manner, “the strongest arguments for integrating the countries of the region into global economic structures became the fillip this would give to Washington’s preferred pipeline arrangements.”[41]
In its search for a richer US-Kazakh agenda, the Clinton administration has narrowed its objectives. “Ensuring that the oil and gas of the Caspian region flowed west, may be east, but not south, constituted an important piece of this policy. Kazakhstan, as the key producer, now became vital to the Central Asian dimension of US Iranian policy.”[42] Therefore, oil and its flow to the international oil market constituted the other priority of the US in the region and became the fundamental element of US policy towards Kazakhstan.
“By the end of the first Clinton administration, the rush to exploit Caspian Sea oil and gas was shifting into high gear and, with it, the issue of finding adequate means of getting it to European markets. For the US administration the centerpiece of its pipeline strategy soon emerged as an East-West route linking Baku with the Turkish port of Ceyhan, which, as ever larger discoveries were made in the Kazakh portions of the Caspian, made Kazakhstan and Azerbaijan were in effect the two ends of a dumbbell-like US ‘energy security’ policy in the Caspian region. Kazakhstan, particularly after the huge discovery of oil in the Kashagan field at the end of the decade, came under increasing US pressure to turn the Baku-Ceyhan pipeline into the Aktau-Baku-Ceyhan pipeline.”[43]
This does not necessarily mean that other part of the Kazakh agenda, pushing for economic reform, has disappeared. The US has continued to encourage for economic reform that would pave the way for efficient oil production preferably by American oil companies. “While justified in broad terms, economic reform came to have particular significance as a means for improving the environment for foreign investment, particularly in energy sector.”[44] for democratic reform by considering democracy as a practical complement to economic reform. At that point, previous Deputy Secretary Strobe Talbott’s phrasing should be acknowledged: “Only if the citizenry and the growing private sectors in these states have a say in the policies of the government will reform have the necessary backing; and only if these countries develop the rule of law will they attract the foreign investment so desperately needed.”[45], it narrowed its focus in the region. To make the long story short, while the Clinton administration pursued a broader and more coherent agenda in Central Asia Meanwhile, the US encouraged Kazakhstan
In its early days, the new Bush administration continued the policies of the Clinton administration. In June 2001, the spokesman for new administration suggested little changes of Clinton’s policy in the region.[46] However, September 11 events have forced the new Bush administration to make a dramatic changed in American policy towards the Central Asia and its non-OPEC oil reserves. From an energy angle, “…after September 11, 2001, when the United States was confronted with terrorist attacks that included large groups of Saudi nationals, the urgency of finding secure energy alternatives to Saudi oil pointed US policymakers in the direction of Russia and also reinforced US resolve to access supplies from Azerbaijan and Kazakhstan.”[47] Now onwards, the Bush administration has begun to look for ways to reinvigorate their policies with “a commitment to a deeper, more sustained, and better-coordinated engagement” in the region.[48]
These developments have paved the way for the US to intensify its energy relations with Kazakhstan. In that context, the US and Kazakhstan signed EnergyPartnership on the 21st of December 2001.
The Energy Partnership Declaration illustrates U.S. commitment to work with the government of Kazakhstan to promote development of its energy sector in accordance with international standards of responsible economic, social, and environmental management. Kazakhstan has the potential within the next decade to become the second largest oil-exporting nation in the world. The new Kashagan oil field alone, for example, has oil reserves greater than those of the entire United States. The Energy Partnership Declaration reaffirms U.S. support for multiple export routes of oil, particularly along the proposed Baku-Tbilisi-Ceyhan pipeline linking Kazakhstan’s oil fields to the world markets via Turkey. It also strengthens cooperation on energy security and enhanced protection of production and transport facilities and promotes further cooperation on electrical power, nuclear energy, and environmental protection.[49]
On the 16th of June 2006, this Energy Partnership has given its fruits with the pipeline agreement between Kazakhistani President Nursultan Nazarbayev and his Azerbaijani counterpart Ilham Aliyev. According to agreement, Kazakh oil will be shipped through the BTC pipeline. Furthermore, it was announced that Kazakhstan will join the Baku-Tbilisi-Ceyhan (BTC) pipeline project in October. It was said that the eventual connection between Aktau in Kazakhstan and Baku in Azerbaijan would initially function as an independent link carrying 7.5 million tons of oil a year. The hook-up to the BTC will also involve the construction of a new storage and transport terminal in Kuryk, a port 76 kilometres outside Aktau. The entire project will be timed to coincide with the beginning of production at Kazakhstan’s Kashagan oil reserves, which is the richest oilfield, discovered worldwide in the last 30 years, holds proven commercial reserves of 5.3 billion tons of crude oil. It was also noted that production at Kashagan is expected to begin in 2008 and Kashagan will produce up to 56 million tons per year in 2015.
Clearly, instalment of Kazakhstan’s wide rich oil reserves to the BTC will accelerate its geo-strategic importance. This is perfectly in line with US ‘pipeline politics’ that serves to its grand objective to spread its hegemony to the Eurasian heartland in the 21st century. Therefore, geo-strategic dimensions of Caspian region energy resources for the US are “to project power into the Caspian/Central Asian arena in order to check Russian, Chinese and Islamist influences ( Iran in particular).”[50], South to Iran, West to South Caucasus and Turkey, East to China, or Southeast to India.”[51] oil and more importantly its flow to international oil market in efficient manner. In addition to the US; Russia and China will shape future strategic developments that will determine the choice among the export options for Kazakh In that regard, rivalry over regional energy resources and their export routes are only a part of a multi-dimensional strategic game to politically control the Eurasian landmass. “Although new strategic developments might determine the choice, but the export options for Caspian oil in 2020 remain the same: North to Russia
2.2. Russia
Russia has been playing an important role in the Caspian region. It has a significant influence in the region as the largest trading partner for each newly independent state, and the principal export route for regional energy resources. Thus, analysis on the Caspian energy and its development should take Russian policy dimension in to consideration.
“Russian policy toward the development of the energy resources of the Caspian Basin is a complex subject for analysis because it nests within several broader sets of policy concerns.”[52]’s relations with the US, which has been actively pursuing its interests in the reglon. Second, Russia’s relations with former Soviet states or so called its ‘near abroad’. Third, Russian policy toward its own domestic sector should be considered. Therefore, analysing the role of energy, in particular strategic asset oil, on Russian policy in the Caspian region makes it difficult task to find out a single model to explain Russian policy on Caspian energy resources. These policy concerns could be classified under three dimensions: First, Russia
“Oil is both an end in itself (for the wealth it generates) and a means to an end (aiding the projection of Russian power and influence). Energy interests have pulled Russian policy in different directions at different times, and often in different directions at the same time. No single model can capture these conflicting and confusing pressures and trends.”[53] does not pursue an integrated policy on the Caspian energy resources. Since there is no single authority to coordinate differing policy priorities of a variety of domestic political and economic agencies, “‘the rational model’ may have been of some use in examining the Soviet Union’s foreign policy, it would be completely misleading to look for an integrated conception of Russian national interests behind its foreign policy toward the Caspian since 1991.”[54] To put simply, Russia
Before analyzing Russian policy on the Caspian energy resources, one should take a closer look at her monopoly over existing pipeline routes. Russia had provided the only transportation link through Baku-Novorossiysk pipeline and most of the rail transportation from the region until the opening of an ‘early oil’ pipeline from Baku, Azerbaijan to Supsa, Georgia in April 1999. Currently, Russian route is the most viable option for Kazakhstan and Turkmenistan to export their oil reserves to the world markets. With the completion of the Chechen by-pass pipeline, Azerbaijan commenced to export its oil reserves through Russian territory in the second half of 2000. Moreover, completion of the Caspian Pipeline Consortium (CPC) pipeline has led to the flow of Kazakh oil exports from the Tengiz oilfield to the Russian Black Sea port of Novorossiysk. Russia has been developing its own oil fields and expanding its existing pipeline system in the Caspian region. State owned oil company Lukoil, gas company Gazprom, and pipeline network operator Transneft were the principal tools at the hands of Russian diplomats. In June 2002, conclusion of wide range of agreements with Kazakhstan marked a decisive victory for Russia over Kazak oil export channels. As indicated below, these set of agreements also opened the way for Kazakhstan to link its oil resources to the Burgas-Alexandroupolis pipeline. Meanwhile, Russians have been looking for ways to increase their Caspian oil exports. In that regard, Moscow has ambitious plans to increase the total capacity of its pipeline network around the Caspian.
To make it straight, Russia’s intention is to concentrate Russian and Caspian energy resources into a single pool for export under its monopoly, whereby, it has been endeavoring to gain political leverage over European importers and regain its predominance over newly independent Caspian states.
“Oil (and gas) is not considered as a possible source of revenues for the country’s ailing economy. It is a tool in the hands of diplomats eager to maintain Russia’s hegemony on its former marches.”[55], building a new economic infrastructure that would dissuade the Caucasus group from ever renewing these ties.”[56] In that regard, not only American physical presence but also US origin oil companies’ investments at the ‘back garden’ of Russia is perceived as a vital threat to Russian national security. This is simply the case for the US sponsored the Baku-Tbilisi-Ceyhan pipeline project. “The Russian government has always understood that this pipeline was part of the broader US strategy to cut all links with Moscow among the former Soviet states in the Caucasus
Moscow anticipates that sooner or later the US will project Turkey as a regional energy hub for the export of hydrocarbon resources of the Middle East and Central Asia to Europe. Therefore, the US has supported East-West energy corridor and pushed forward several pipeline projects by-passing Russia such as BTC, BTE, and Nabucco. Moscow perceives the US’s insistence on East-West energy corridor as a strategy to isolate Russia strategically from the EU. At the end of the day, Russia graphed its famous energy weapon and developed an energy strategy to break this process. Thus, Russia has been pushing ahead the trans-Balkan known as the Burgas-Alexandroupolis oil pipeline project. The pipeline will be 280-kilometer long and carry oil from the Bulgarian port of Burgas on the Black Sea to Greece’s Alexandroupolis on the Aegean. $1 billion cost project has significant geo-political implications that go beyond exporting Caspian region hydrocarbon resources to Europe. First, the Russian project will undermine the US attempt to dictate the primacy of the BTC as the main Caspian export pipeline to the Western markets. Second, Russia considers the Burgas-Alexandroupolis pipeline as an extension of already existed the Caspian Pipeline Consortium (CPC) that connects the oilfields in western Kazakhstan with the oil terminal at Novorossiisk. Thus, Kazakhstan will continue to be depended on Russia to export the bulk of its oil to the Western market, even if BTC will be linked to Astana. Finally, the Burgas-Alexandroupolis pipeline will lessen the amount of the Caspian oil required to export through the Odessa-Brody pipeline in Ukraine. Through the Odessa-Brody pipeline, Poland and Ukraine had been expecting to have direct access to the Caspian oil reserves; however, it looks like their hopes to bypass Russia will not actualise. Thus, Moscow has revealed to Washington that it will not let Ukraine to gravitate towards the US orbit.
According to M. K. Bhadrakumar, former Indian ambassador to Turkey, “a spectacular chapter in the Great Game seems to be nearing its epitaph.”[57]’s influence over Kazakhstan has been enhanced with the signing of the Burgas-Alexandroupolis pipeline project on March 15 contrary to Western media reports speculating on Russia’s declining influence on Kazakhstan. In that regard, Russia
Besides to its pipeline initiatives, Russia prefers to play zero-sum game through its NOCs to produce Caspian hydrocarbon resources. In that regard, the US’s initiatives to develop regional resources in a more efficient manner do not attract much attention of Russian diplomats that rely on ‘relative gains’ rather than ‘absolute gains’.[58] In order to flourish cooperation between them, the US should find a way to convince Moscow that Russian NOCs do not have the technological and financial resources to develop its hydrocarbon reserves, whereby, Russian will need Western Oil companies, preferably American origin ones, to produce its hydro-carbon reserves. Apart from regional hydrocarbon resource development, the US needs Russian help to foster peace and stability in Eurasia. It looks like a modus vivendi can only be reached only if Russia adopts free market principles and considers absolute gains rather than relative. However, there are no clear signals in that respect.
2.3. China
Since the mid-1990s, energy security has incrementally become an important concern for China as domestic energy supplies has failed to fulfil demand. China is the third largest coal producer and second largest consumer. Thus, this short fall “arises from a shortage of energy in the forms of required.”[59] Dramatic growth of the use of road transport has accelerated the demand for oil products. Therefore, domestic oil production has failed to keep pace with the demand, whereby; China became dependent on import oil in 1995. With this trend of growing oil demand, domestic production will soon reach its peak point. Apparently, energy supply security, oil in particular, has become an increasing concern for Chinese communist party. Despite there are several inter-related independent variables to calculate China’s future oil demands, “a consensus seems to exit that annual demand is likely to rise from a present level of around 230 million tonnes to 300 million tonnes by 2010 and at least 400 million tonnes by 2020, through unexpectedly low rates of economic growth would reduce demand to below these levels. Over this period China’s share of world oil consumption will probably rise from its current level of about 6% to as high as 8-10%.”[60]
Its rapidly increasing energy demands while domestic energy supplies are declining reveals that China is increasingly become dependent on energy imports. “Since the mid-1990s official and academic documents in China have proclaimed the virtues of China’s petroleum companies investing in overseas oil exploration and production in order to secure supplies of Chinese crude oil, which could then be redefined in China.”[61]
For our purposes, China’s objective to diversify the sources of imported oil plays a viable role. China has been looking for ways to build pipeline routes to export Caspian oil reserves eastwards while the US has been looking to export Caspian energy westwards. “As an emerging superpower with a rapidly expanding economy, China constitutes one of the potentially most important actors in Caspian affairs.”[62] to its central and eastern territories. Oil from landlocked close Caspian region has led China to rely on terrestrial supply routes such as pipelines. In that regard, China has been constructing a great crude oil pipeline from Kazakhstan
In the pre-September 11 period, plans for this pipeline had been shelved because of its low-feasibility. “The events of 11 September have prompted a re-evaluation by the Chinese government of the implications of their increasing dependence on the Middle East for supplies of oil. A pipeline from Kazakhstan may be attractive, through expensive, security measures.”[63]
Since the disintegration of the Soviet Union in 1991, China has become an important actor in the post-Soviet space and it has been expected to counter-weight Russian influence in Central Asia. China has been increasing its influence with rails and pipelines. “The ethnicization of several Central Asian peoples and their rise to prominence as the leading members of the new Central Asian states will mean that economic development and cross-border ties will be strongly influenced by ancient ethnic relations and geopolitical ties.”[64] Clearly, these would accelerate the construction costs of regional export pipelines to China. Nevertheless, China does not refrain from making commitments without taking US dominated international energy market into consideration.
“The reason why the Chinese government was emboldened to make this commitment reflected the primacy given to political and strategic concerns over economic considerations...The commitment was also made at the same time as a growing Western interest in exploring and developing the energy resources of the Caspian region. The Chinese leadership was concerned that it might lose out in this new ‘Great Game’, which sought to fill the strategic vacuum caused by Russia’s withdrawal from the region. The way in which the pipeline could consolidate Chinese influence in Central Asia more generally, while also providing for China’s energy security interests by diversifying supplies from the Gulf region, added to the attractiveness of a bold Chinese intervention.”[65]
Hence, China made generous commitments through its state owned CNPC actualise west-east energy corridor. This is particularly the case for the commitments made in Kazakhstan to develop two oil fields in Aktunbinsk and an oilfield in Uzen. “In economic terms, the construction of a 6,000 km oil pipeline makes little commercial sense when the alternative is to buy from international markets and have the oil delivered by ship to the coast.”[66] fields, Russian oil has also been pumped through the pipeline. According to several strategists, this is interpreted as closer China-Kazakhstan-Russia energy cooperation, which is “the nightmare scenario”[68] of Washington. However, this pipeline has significant political dimensions that overweight its commercial returns. As William Engdahl indicates “the pipeline will undercut the geopolitical significance of the Washington-backed Baku-Tbilisi-Ceyhan oil pipeline which opened amid big fanfare and support of Washington.”[67] Due to insufficient output from Kazakh
US-policy-making elites have also been concerned with China’s foreign acquisitions through its National Oil Companies (NOCs). For instance, Washington opposed to China National Offshore Oil Corporation’s (CNOOC) bid for Unocal. This opposition’s message to Beijing was clear. Washington has been hostile to the foreign acquisition of China’s NOCs.[69] Therefore, this instance has confirmed Beijing’s distrust to US dominated international market and justified its ‘go-out strategy’ to acquire oil fields or so called ‘equity oil’ [70] deals.
Beijing is acting according to the principle that energy security is too important to be left to the markets. China has thus decided to adopt the go-out strategy. Briefly, the main elements of the go-out strategy include a more active, energy-centric form of commercial diplomacy by Beijing’s leaders within the key energy exporting regions, combined with a widening campaign by China’s three major NOCs—CNPC, Sinopec, and CNOOC—to secure equity investments in oil and gas fields abroad (i.e., physical control over oil supplies) and a diversified slate of long-term crude and liquefied natural gas (LNG) supply contracts from a broad range of exporters to meet future needs.[71]
For our purposes, we will stress on China’s oil field acquisitions in Kazakhstan. China through CNPC owns 92% of CNPC-Aktobemunaigas , which holds the licence of two active oil fields in Kazakhstan – Zhanazhol and Kenkiyak. These oil fields have reserves of 900 million barrels and produced 116,000 bpd in 2005, and the company is expecting to increase production up to 133,000 bpd by 2009.[72]
It looks like China would like to play a long-term game in Kazakhstan and beyond 2010; China would like to establish Kazakh oil as its major oil supplier.[73] more broadly. In a similar manner, Beijing’s political cooperation with Astana will facilitate China to make lucrative equity oil deals in the future. Moreover, Chinese policy-making elites have realised that intensified relations with Kazakhstan would increase China’s geopolitical position not only in Kazakhstan, but also in Central Asia
CONCLUSION
Without bothering the exact date of global peak oil, this paper assumes that one day it will come and undermine oil based global economy that favours the US most. Thus, it is asserted that the US would use any means to ensure that the remaining untapped oil reserves will be produced and supplied to international energy market in an efficient manner. With its distrust to international energy market China with its equity oil deals will likely to be the main challenger of the US in its quest for untapped oil reserves. This competition has become more complicated over land-locked wide rich untapped oil resources of Kazakhstan with the inclusion of Russia at the heart of Central Asia. It seems that rivalry over non-OPEC Kazakh oil will be harsher on the eve of global peak oil.
While analysing geo-strategic dimensions of Kazakhstan, the author has elaborated its main argument in two parts with several sub-headings. In the first part, the author clarified what the global peak oil means, followed by its implications on the global economy that favours the US most. In the second part of the paper, the author underlined the significance of Kazakhstan and its wide rich untapped oil reserves at the eve of global peak oil. Moreover, geo-strategic rivalries among the US, Russia and China were analysed. It is concluded with the assertion that rivalries over Kazakhstan will incrementally increase on the eve of global peak oil. As last words, if the US dictated oil depended global energy infrastructure continues, it looks like the 21st century will be the play screen for a tragedy of great powers on the remaining untapped oil reserves.
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[1] He is a PhD candidate at Keele University, UK. E-mail: e.iseri@keele.ac.uk.
[2] Michael Meacher, “This War on Terrorism is Bogus”, Guardian, 06 September 2003.
[5]The Oil Depletion Analysis Center, “Submission to the Cabinet Office Energy Review”, (www.oildepletion.org/ODAC_to_PIU.pdf).
[7] Ian Rutledge, Addicted to Oil: America’s Relentless Drive for Energy Security, (London : I.B. Tauris, 2005), p. 3.
[8] Paul Roberts, The End of Oil: The decline of the Petroleum Economy and the Rise of a New Energy Order, (London: Bloomsbury Publishing, 2004), p. 47.
[9]Robert L. Hirsch (Project Leader ), Roger Bezdek, Robert Wendling, The Hirsch Report, February 2005);(http://www.projectcensored.org/newsflash/the_hirsch_report.pdf#search=%22Hirsch%20Re
port%20%22).
[10] 1) Most auto, housing and finance companies, 2) Most of the mainstream media, 3) Most major oil companies, major oil exporters and the energy analyst that work for the major oil companies and major oil exporters.
[11] Jeffrey J. Brown, “Daniel Yergin Day”, Energy Bulletin, 13 July 2006; (www.energybulletin.net/18111.html).
[12] Interview with Daniel Yergin, Spiegel Online, 18 July 2006;(http://www.spiegel.de/international/spie
gel/0,1518,427350,00.html).
[13] Henk Houwelling & Mehdi Parvizi Amineh, “The Geopolitics of Power Projection in US Foreign Policy: From Colonization to Globalization”, in Henk Houwelling & Mehdi Parvizi Amineh (Ed.), Central Eurasia in Global Politics: Conflict, Security and Development, (Leiden: Koninklijke Brill, 2004), p. 44.
[14] Brendan Murray, “Bush Leverage with Russia, Iran, China Falls as Oil Prices Rise”, Bloomberg, 01 May 2006; (http://www.bloomberg.com/apps/news?pid=10000087&sid=ar4D7HVGikXo&refer=top_
world_news#).
[16] It is a kind of currency that is held significant quantities by many nations and institutions as a part of their foreign exchange reserves. Moreover, the reserve currency is also tends to be the international pricing currency for products traded in global markets, such as oil and gold.
[17] Since 1975, when the US reached an agreement with OPEC’s most powerful member, Saudi Arabia, OPEC has been committed to sell its oil reserves exclusively in dollars. Since then, practically all oil has begun to be traded in American dollars or petro-dollars. See, Bulent Gokay, “Petrodollar Became the Essential Basis for the US Economic Hegemony in the 1970s”, Pravda, 16 May 2006; (http://english.pravda.ru/opinion/feedback/16-05-2006/80382-petrodollar-0).
[18] Darrell Whitman, “As Good as Gold: Oil and the Global Political Economy”, in Bulent Gokay (Ed.), The Politics of Oil, (London: Routledge, 2006), p. 23.
[23] Ronald R. Cooke, “Will Higher Oil Prices Fuel Inflation?”, Energy Bulletin, 14 April 2005;(http://www.energybulletin.net/5330.html).
[24] Leon Fuerth, “Energy, Homeland, and National Security”, in Jan H. Kalicki & David L. Goldwyn (Ed.), Energy and Security: Toward a New Foreign Policy Strategy, (Washington DC: Woodrow Wilson Center Press, 2005), p. 415.
[26] Bulent Gokay, “How Oil Fuels World Politics”, in Bulent Gokay (Ed.), The Politics of Oil, (London: Routledge, 2006), p. 9.
[27] Julia Nanay, “Russia and the Caspian Region”, in Jan H. Kalicki & David L. Goldwyn (Ed.), Energy and Security: Toward a New Foreign Policy Strategy, (Washington DC: Woodrow Wilson Center Press, 2005), p. 142.
[29]Doulatberk Khidirbekughli, “US Geostrategy in Central Asia: A Kazakh Perspective”, Comparative Strategy, Vol. 22, No. 2, 2003, p. 162.
[30]Andrew J. Bacevich, American Empire: The Realities & Consequences of US Diplomacy, (Cambridge MA:Harvard University Press, 2002), p. 6.
[31] Simon Bromley, “The United States and the Control of World Oil”, Government and Opposition, Vol. 40, No. 2, Spring 2005, p. 254.
[32] Paul Roberts, The End of Oil: The decline of the Petroleum Economy and the Rise of a New Energy Order, p. 15.
[33] National Energy Policy Report, May 2001; (http://www.whitehouse.gov/energy/2001/National-Energy-Policy.pdf).
[34] Doulatberk Khidirbekughli, “US Geostrategy in Central Asia: A Kazakh Perspective”, p. 162.
[35] Julia Nanay, “Russia and the Caspian Region”, p. 143.
[37]Robert Legvold, “US Policy Toward Kazakhstan”, in Robert Legvold (Ed.), Thinking Strategically: The Major Powers, Kazakhstan, and the Central Asian Nexus, (Cambridge, Massachusetts: The MIT Press, 2003), p. 82.
[38] “The United States sought first to promote the emergence of democratic political systems; second, to assist in developing market-based economies; third; to facilitate peace and cooperation within and among the countries of the region; fourth, to encourage their integration into the global economy and into key international institutions, including those designed to promote European security ; and fifth, to help ensure the interdependence, sovereignty, and security of each and all of them. From time to time, officials mentioned a sixth objective, which by 1999 had become a regular and prominent item on the list, namely, to encourage the Central Asian states in their struggle against terrorism, drug trafficking, and organized crime.” Ibid., p. 82.
[40] See, for instance, the argument in Stephen Sestanovich’s testimony before the International Relations Committee of the US Congress, April 30, 1998.
[41] Robert Legvold, “US Policy Toward Kazakhstan”, p. 84.
[45] Strobe Talbott, “A Farewell to Flashman: American Policy in the Caucasus and Central Asia”, (http://www.state.gov/www/regions/nis/970721talbott.html).
[46] See the testimony of Clifford G. Bond, 06 June 2001; (http://commdocs.house.gov/committees/intlrel
/hfa72975.000/hfa72975_0.HTM).
[47] Julia Nanay, “Russia and the Caspian Region”, p. 129.
[48] See, the testimony of Elizabeth A. Jones, US Senate, 107th Session, 13 December 2001.
[49] The Energy Partnership between the Republic of Kazakhstan and the United States of America 21 November 2001; (http://www.state.gov/r/pa/prs/ps/2001/6969.htm).
[50] R. Hrair Dekmejian & Hovann H. Simonian, Troubled Waters: The Geopolitics of Caspian Region, (London: I.B. Tauris & Co. Ltd, 2003), p. 138.
[51]Mamuka Tsereteli, “Caspian Oil in the Strategic Picture of 2020”, Central Asia & Caucasus Analyst, 04 July 2001; (http://www.cacianalyst.org/view_article.php?articleid=90).
[52] Peter Rutland, “Paradigms for Russian Policy in the Caspian Region”, in Robert Ebel & Rajan Menon (Ed.), Energy and Conflict in Central Asia and the Caucasus, (Lanham: Roman & Littlefield Publishers, 2000), p. 163.
[55] Hasene Karasac, “Actors of the New Great Game, Caspian Oil Politics”, Journal of Southern Europe and the Balkans, Vol. 4, No. 1, 2002, p. 19.
[56] Marschall Auerback, “Oil: The Diving Line of the New Cold War”, Energy Bulletin, 07 December 2004; (http://www.energybulletin.net/3550.html).
[57] M. K. Bhadrakumar, “The New Dividing Line in Europe”, Asian Times, 24 March 2007.
[58] For theoretical basis of ‘absolute gains’ and relative gains’, Robert Powell, “Absolute and Relative Gains in International Relations Theory”, American Political Science Review, Vol. 85, No. 4, December 1991, p. 1303-1330.
[59] Philip Andrews-Speed, Xuanli Liao, Roland Dannreuther, The Strategic Implications of China’s Energy Needs, Adelphi Papers 346, The International Institute for Strategic Studies (IISS), 2002, p. 11.
[62] R. Hrair Dekmejian & Hovann H. Simonian, Troubled Waters: The Geopolitics of Caspian Region, p. 115.
[64] Dru C. Gladney, “China’s Interests in Central Asia: Energy and Ethnic Security”, in Robert Ebel & Rajan Menon (Ed.), Energy and Conflict in Central Asia and the Caucasus, (Lanham: Roman & Littlefield Publishers, 2000), p. 215.
[65] Philip Andrews-Speed, Xuanli Liao, Roland Dannreuther, The Strategic Implications of China’s Energy Needs, p. 58-59.
[67] F. William Engdahl, “China Lays Down Gauntlet in Energy War”, Asian Times Online, 21 November 2005.
[69] Jeffrey A. Badel & Erica S. Downs, “Oil Hungry China Belongs at Big Table”, 08 September 2006, (http://www.brookings.edu/views/op-ed/bader/20060908.htm).
[70] Equity oil simply means a situation in which a company acquires an equity stake in an oil production field rather than purchasing oil from the international market. Since the company has equity stake in the oil production field, it is considered as a market risk free option.
[71] Kenneth Lieberthal & Mikkal Herberg, “China’s Search For Energy Security: Implications for US Policy”, NRB Analysis, Vol. 17, No. 1, April 2006, p. 13.
[72] Eurasia Group Research Paper prepared for US-China Economic and Security Review Commission, “China’s Overseas Investments in Oil and GasProduction”, Eurasia Group Research Paper, October 2006, p. 15; (http://www.uscc.gov/researchpapers/2006/oil_gas.pdf).
The role of Xinjiang Uyghur autonomous region in the economic security of China 
