Fuel for Manas Transit Center

Manas Transit Center can be a lonely base. Opened with Russian approval after the terrorist attacks of September 11, 2001 to help the United States in its war against al-Qaida in Afghanistan, it has become a bone of contention in the great power rivalry in Central Asia. It is only 40 miles from Manas to the nearest Russian base; at one point, the base commanders had monthly dinners together. More recently, however, the Kyrgyz ordered the base closed after the Kremlin offered it a sweetheart energy deal. But Moscow failed to deliver, and the US upped the base rent, and so Manas remains open - the only American outpost within the territory of the former Soviet Union.

Russia's opposition to an American presence in its sphere of influence, the "Near Abroad" as the Russians refer to it, is well known. Less well-known, however, is Russia's willingness to cooperate with the United States if the stakes are high enough. In September, EurasiaNet ran a story that the fuel supply contract for the transit center was expiring--and that the current supplier (Mina Corporation) was under congressional investigation. Washington wanted a competitive tender plan to find a new supplier.

The government of provisional president Roza Otunbayeva put forward an alternative plan, calling for the creation of a joint venture involving a Kyrgyz state-run entity and Gazprom, owned by the Russian government. Pentagon officials rejected the plan, arguing that "a Russian hand on the fuel spigot needlessly compromises the US mission and US forces." (Washington Backing Manas Tender Plan, Shuns Gazprom JV," www.eurasianet.org/node/62036)

More recently, EurasiaNet has reported that Gazprom has confirmed that the company could participate in the Kyrgyz state venture. A spokeswoman said one of the company's subsidiaries was "ready to consider proposals from the Kyrgyz Republic for aviation fuel supply at Manas airport." ("Kyrgyzstan: Gazprom Ready to Fill Manas Fuel-Supply Role," www.eurasianet.org/node/62224 ) This is a striking turnaround that could not have been offered without approval from the highest levels of the Russian government. Whether the reason is to gain control of the fuel supply (doubtful, since most of the fuel was already Russian-origin), or an attempt to curry favor with either the Krygyz or the American governments, the symbolic value of Russia actively supporting the American war on terrorism is tremendous--and should not be overlooked.

Washington appears to be reacting well to the latest development. They have developed a compromise plan that would allow the joint enterprise to provide 50% of the Manas fuel. The Defense Logistics Agency has amended the competitive bid solicitation so that 20 percent of the contract could go to a state-owned Kyrgyz enterprise in February, with that share rising to 50% by July. The amendment does not mention Gazprom by name, but is fashioned in such a way that would allow the joint enterprise to enter the process. Many observers believe that Mina Corporation will win the bidding, regardless; but Gazprom has another asset at its command: the new general manger of the Kyrgyz state owned Manas Refueling Complex is Marat Malataev, the deputy director of wholesale fuel sales for Gazprom Neft Asia in Kyrgyzstan ("Washington Hopes Kyrgyzstan Bites on Compromise Manas Fuel-Supply Offer," www.eurasianet.org/node/62134).

Dr. James J. Coyle is available to speak to your organization or at your event. Please contact him at jimcoyle@verizon.net.

Caspian Energy Going to Moscow and Tehran

Western powers are pushing Azerbaijan into the arms of Russia and Iran, according to an analysis published in April 2010. According to Murad Ismayilov, program manager for research and publications at the Azerbaijan Diplomatic Academy, Baku has changed its national security strategy based on a variety of disappointments in the West.

Specifically, Ismayilov notes that following independence in the 1990s, Baku's pipeline diplomacy was guided by a desire to retain its independence, restore its territorial integrity, and secure economic self sufficiency. Support for western-oriented energy pipelines such as the Baku to Supsa and Baku to Ceyhan oil pipelines, as well as the Baku-Tblisi-Erzerum gas pipeline, were designed to secure Western help in achieving these three objectives. From Baku's viewpoint, however, the West has failed on all three counts.

The United States' failure to protect its Georgian ally from Russian dismemberment demonstrated that Baku could not count on America to protect its independence. When the US and France voted against the UN Resolution demanding Armenian withdrawal from Azerbaijani territory it was occupying, and other European countries abstained, it demonstrated that the West would not help with territorial integrity. When the US and the EU refused to support a rail link with Turkey, it demonstrated the West would not assist with economic self sufficiency. The West's failure to help Baku meet any of its goals is compounded by the West's emphasis on the promotion of democracy and human rights--something that Baku interprets as interference in its internal affairs.

According to Ismayilov, Baku has now changed its energy policy. Instead of favoring a western orientation, Azerbaijan wants multiple distribution lines so that it is not dependent on anyone. That means selling its products to Moscow and to Tehran. Further, whereas energy policy in the past was based on the political considerations previously mentioned, the new energy policies are based on economic considerations. To read Ismayilov's complete article, see http://www.res.ethz.ch/analysis/cad/details.cfm?lng=en&id=115530.

What all this means is that a Russian higher price, or a shorter route to the market through Iran, will dictate the direction in which Azerbaijani fuel will flow. This is a tremendous loss for America's policy of the past two decades. Starting with Bill Clinton and continuing through both Democratic and Republic administrations, the United States has been committed to providing outlets for Caucasus energy products that neither strengthened Russia nor enriched Iran. The United States' support for the Baku to Ceyhan pipeline (which was not the best export route from an economic perspective) was based precisely on these two points. Whether Ismayilov is describing reality is beside the point. He is describing the perceptions of the Azerbaijani leadership, and the policy turns that leadership is making in the face of the West's ignoring of its needs.

Dr. James J. Coyle is available to speak to your organization or at your event. Please contact him at jimcoyle@verizon.net.

Iran Demands Increased Fees for Oil Swaps

Iranian Oil Minister Massoud Aghazadeh Mir-Kazemi has announced that Iran would continue oil swaps with the its Caspian neighbors if the transit fee is quintupled, according to IWPR author Ebrahim Gilani (pseudonym for an Iranian journalist and foreign policy analyst in London.) Mir-Kazemi said the oil swaps were costing Iran money since it had to reduce its own oil production by the amount it shipped for the Caspian states, to keep Iranian production under the targets established by the Organization of Petroleum Exports (OPEC.) Mir-Kazemi counted Iran as losing almost $70 a barrel (the cost of a barrel of oil on the open market) for the foregone oil production, rather than gaining $1 a barrel in transit fees. He indicated, however, that swaps could continue if the oil companies raised their fees to $5 per barrel. (Clouds on Iran's Caspian Horizon, IRN Issue 55, 30 September 2010)

In the oil swaps that Mir-Kazemi is discussing, Iran receives a certain amount of oil from the Caspian littoral states of Kazakhstan, Turkmenistan and Azerbaijan. In return, Iran ships the same quantity of oil from its southern ports on behalf of its neighbors. All three source countries have a limited ability to market their crude on the international market because they are no direct routes to the world's oceans. These countries are forced to rely on sending their product via third countries: Russia, China or Turkey via pipeline; or, Iran via oil swaps.

Mir-Kazemi's mathematics are flawed, in that Iran would need to produce the same amount of oil in any case. Caspian oil that Iran receives from its northern neighbors is used by Iran domestically, freeing the Iranian production for export. Under the new arrangement, Iran loses the transit fees and still has to produce the same amount of oil--only it has to sell the oil previously used in the oil swaps at domestic prices instead of international prices. The pricing dispute is both an inconvenience to Iran's neighbors, and a net revenue loss to the Islamic Republic.

Dr. James J. Coyle is available to speak to your organization or at your event. Please contact him at jimcoyle@verizon.net.

LUKOIL Considering Joining BTC Consortium

The Russian oil company LUKOIL may be interested in joining the consortium that runs the Baku to Ceyhan pipeline (BTC), according to the Russian language website 1news.az. The company, whose name is familiar to drivers in the eastern United States, would be taking advantage of excess capacity in the pipeline, according to RusEnergy consultant Mikhail Krutikhin. LUKOIL is reportedly in discussion on whether it should join the consortium and pay the member tariff, or pay the non-member tariff to use the pipeline. (Oil&Gas Eurasia, 06 October 2010).

The pipeline's current capacity is currently 1.2 million barrels per day, and the consortium is considering using chemical reagents to increase capacity in 2011 to 1.6 million barrels a day, according to SOCAR's Vagif Aliyev. The consortium is only pumping 900,000 barrels per day, however. (Oil&Gas Eurasia, 03 June 2010). This means there is an estimated excess capacity of 300,000-600,000 barrels per day that would be available for LUKOIL.

If LUKOIL joins the consortium it would be ironic, as one of the Clinton-era goals for the pipeline's tortuous route was to give Azerbaijan an export route independent of Russia (see map above.) LUKOIL's use of the pipeline would mean Russian oil flowing through Central Asian-controlled infrastructure, reversing the longstanding practice of Central Asian countries using Russian-controlled infrastructure to market its energy resources.

Dr. James J. Coyle is available to speak to your organization or at your event. Please contact him at jimcoyle@verizon.net.