James J. Coyle We still don't have a strategy

Published in the Orange County Register on September 12, 2014. To access the original article, click here.

In his Wednesday speech on the Islamic State, President Barack Obama explained to the American people why we should be engaged against the group, also known as ISIS.

Leaders have threatened America and its allies and some Americans are getting combat experience with ISIS that they could use against the U.S. when they return home, the president explained. Unfortunately, he did not deliver on the grand strategy he promised to “degrade and ultimately destroy” this threat.

He said he is launching a counterterrorist strategy. Yet, despite the president naming ISIS as a terrorist group, it is actually an insurgency rather than a terrorist group. ISIS does not engage solely in terrorist attacks to influence another party. Rather, it controls territory within two nation states and is running cities it has captured. For U.S. efforts to succeed, a counterinsurgency strategy is needed, not a counterterrorist one.

He is limiting American military involvement to air operations and the training of indigenous forces. Air operations alone cannot defeat a dedicated enemy, least of all one that uses unconventional warfare tactics.

In 1999, President Bill Clinton tried the same strategy in the Balkans. The Serbs only capitulated, however, after a hundred days when the president upped the ante and announced he might introduce ground forces after all.

Obama’s examples of American success in using air power to stop terrorism are Yemen and Somalia. He could not have picked worse examples. Both states lack a real central government, both suffer major internal insurgencies, both are considered failed states.

Neither the United States nor its allies can afford failed states in the heart of the Middle East.

In Iraq, the U.S. military team currently in Baghdad estimates that 30 to 50 percent of the Iraqi armed forces are unable to fight, or have ceased to exist.

The Iraqi military’s refusal to defend Mosul against the Islamic State speaks for itself.

In Syria, the president plans to rely on the Syrian opposition to defeat ISIS. The group is the only serious military force opposing the government of Bashar al-Assad, and the U.S. government is committed to the defeat of that regime. The president is silent on the contradictory nature of the policy he has outlined. There is also a question as to the effectiveness of the non-ISIS opposition.

The U.S. has a checkered history of building indigenous forces.

In the 1950s and 1960s at the School of the Americas, the U.S. Army trained its Latin counterparts in security operations.

The result was the overthrow of a number of democracies throughout South America by the American-trained officers.

In the 1980s the U.S. trained fighters to defeat Soviet forces in Afghanistan. The result was the creation of groups throughout Afghanistan and Pakistan who are aligned with the Taliban and al-Qaida. The U.S. has spent millions over the past decade training the Iraqi military – a military that cannot or will not fight ISIS.

The president makes much over his efforts to build a coalition, which will include Arab partners. He makes no mention of the largest regional power: non-Arab Iran.

As the U.S. learned in its Iraq war, the Persians have the ability to make or break governments and insurgencies in the area. Why is there no place at the table, then, for this regional heavy weight. As for the coalition he is building, what do they plan to do?

Insurgencies have been won and lost around the world. The deciding factor in who wins the military struggle is ultimately who wins the support of the inhabitants. This requires more than dropping bombs from the sky – it requires engaging in the creation of civil societies that can meet the needs of the people.

Half measures designed to be all things to all people are not a strategy for success, but for long-term failure.

James J. Coyle is the Director of Global Education at Chapman University, and the executive director of the Caspian Research Institute, an online think tank.

James J. Coyle: Iran's threats to American interests

Published in the Orange County Register on February 26, 2014. To access the original article, click here.

As Iran receives limited sanctions relief in return for a six-month moratorium on the enrichment of uranium to 20 percent, pundits are alive with speculation that this is the precursor to restoring relations with the Islamic Republic. Ali Khamenei remains the “supreme leader” and Iranian president Hassan Rouhani remains the regime insider who bragged of his prior expansion of the Iranian nuclear program without incurring international sanctions.

That means recent history is full of hurdles that need to be overcome.

Despite the nuclear accord, Iranian activities continue to threaten the United States and its allies. The U.S. Institute of Peace reports Iran has developed the Sejil-2 ballistic missile that can deliver a payload 1,500 miles and a top Iranian military commander bragged that Iran has developed drones with a range of 1,250 miles. These activities threaten U.S. allies such as Azerbaijan, Israel and Saudi Arabia. A 2012 Pentagon report estimated that Iranian missiles could reach U.S. shores by 2015.

Iranian-supplied weapons have already killed Americans, if WikiLeaks is to be believed. U.S. officials raised to Armenian President Serzh Sargsyan that his country sold rockets and machine guns to Iran in 2003, which then provided them to Iraqi Shiite militants to kill American soldiers in 2007. Sargsyan denied any transfer had occurred. However, a Western diplomat said the U.S. had multiple streams of intelligence connecting the Armenian arms shipment to Iran with the deaths of the U.S. soldiers.

Iran has also used ad hoc terrorist groups to further their interests. In Washington, D.C., a guard at an Iranian diplomatic mission assassinated an exile leader in 1980. Years later, in 2011, the FBI and DEA uncovered a plot to assassinate the Saudi Arabian ambassador to the U.S. and to bomb the Israeli embassy.

Azerbaijan, an ally that has supported the United States in both Iraq and Afghanistan, uncovered a number of Iranian plots. In 2007, the government convicted 15 people on charges of espionage in favor of Iran. In February 2012, Azerbaijani authorities arrested a second group who planned to kill two teachers at a Jewish school in the country's capital, Baku. In March, the security forces arrested 22 people hired by Iran to attack the U.S. and Israeli embassies, as well as Western companies. Authorities seized assault rifles, grenades, ammunition and explosives.

Iran has supported Armenia in its conflict against predominantly Muslim – but secular – Azerbaijan as a means of avoiding economic international sanctions. According to American scholar Michael Rubin, in 2012 Bank Mellat, a sanctioned Iranian bank, was operating in the Armenian capital of Yerevan and Iranian businesses dotted the city.

Iran continues to back the Lebanese terror group, Hezbollah, which threatens Israel's northern border and supports the bloody Syrian regime of Bashar al-Assad. Argentinean prosecutors claim that Hezbollah has operated outside of the Middle East, alleging involvement in the 1992 and 1994 bombings in Buenos Aires. Israeli authorities report a February 2012 arrest in Thailand of Iranian citizens who were planning to bomb Israeli citizens. While Rouhani and Iranian Foreign Minister Mohammad Javad Zarif have dropped former president Mahmoud Ahmadinejad's anti-Israeli rhetoric, there has been no lessening in Iran's opposition to the existence of Israel.

One is encouraged by the efforts to overcome the decades of mistrust. There are a number of issues that need to be resolved, however, before Iran can be welcomed back into the comity of nations.

James J. Coyle is the director of Global Education at Chapman University and is the chair of the Eurasian committee of the Pacific Council on International Policy.

Plans for an Armenian-Iranian Fuel Pipeline

Construction is scheduled to begin in 2012 of an oil pipeline between the Iranian city of Tabriz and the Armenian city of Eraskh, reports the Agence France Presse.  The oil pipeline follows the opening of a gas pipeline between the two countries.  Armenia has been looking for an alternative to Russian energy imports since 2008, when Russian supplies were interrupted during the Russian-Georgia conflict.

Armenian energy minister Armen Movsisian told a news conference in February that "The diversification of energy sources is a guarantee of our country's eenergy security.  The pipeline will provide the country with stable fuel imports."

The AFP article states the pipeline will be completed in 2013, and is scheduled to deliver 1.5 million liters a day of Iranian gasoline and diesel fuel.  Armenia will pay $100 million for its share of the construction costs.

While Iran may look upon these energy links to Armenia as symbolic of it having non-Muslim friends willing to ignore sanctions, the Armenian motives appear more basic.  Both Russia and Iran support Armenia in its conflict with neighboring Azerbaijan over the Nagorno-Karabakh region, so diversification of sources should not be considered as either favoring Iran or slighting Russia.  It appears, instead, exactly what it says it is:  an effort to make sure that it will have a fuel supply regardless of what happens with its neighbors.

Will Russia Attack in the Caspian?

With the future delivery route of Turkmenistan's supplies of natural gas at stake, some analysts are predicting that Russia is turning up the heat. Using language not heard since the Russia-Georgia conflict of 2008, a number of influential Russian spokesman are calling for force to prevent the construction of the Trans Caspian Pipeline (TCP).

The TCP has been in discussion for years. It would connect the eastern and western coasts of the Caspian Sea, thereby allowing Turkmen gas to feed the Nabucco pipeline.

The European Union has declared the TCP to be a matter of community interest. In September, the 27 members of the European Commission adopted a mandate to negotiate a legally-binding treaty among the EU, Azerbaijan and Turmenistan to build the pipeline. "Europe is now speaking with one voice," said EU Energy Commissioner Oettinger. "The trans-Caspian pipeline is a major project in the Southern Corridor to bring new sources of gas to Europe. We have the intention of achieving this as soon as possible," according to the Associated Press.

Russian reaction was immediate. Foreign Ministry spokesman Alexander Lukashevich said that only the five countries bordering on the Caspian had the right to settle isues regarding use of the inland body of water. He said any accidents on the proposed pipeline would impact all five littoral nations. "It is evident that laying down the trans-Caspian pipeline in a confined basin with high seismic activity and a tectonic seabed is exactly one of those questions," he said according to the same AP article. The ministry issued an official statement stating the European decision "ignores the current international, legal and geopolitical situation in the Caspian Basin," and warned that attempts to intervene would complicate the situation and negatively affect talks on the status of the Caspian Sea.

Azerbaijan, who would be the recipient of the gas piped through the TCP, decided to refrain from comment on the European initiative. Rovnag Abdullayev, president of the State Oil Company of the Azerbaijan Republic, said "The Trans-Caspian Gas Pipeline Project is not ours. This is a project designed by Turkmenistan and the European Union. Based on the European Energy Charter, we are an open transit country and infrastructure, which they (the EU and Turkmenistan) are going to build, is a matter for the two parties."

Lately, what should be considered a diplomatic tussle over whether the Caspian is a small inland sea or a large lake has the smell of gunpowder about it. The head of the Russian "Fund for National Energy Security," Konstantin Simonov, hints at war when he said, "Only the experience of the August war in Georgia is deterring Ashgabat today," according to EurasiaNet. According to noted commentator on the Caspian, Vladimir Socor, Siminov was quite explicit: "Ashgabat understands that the situation would be the same as it was in Georgia in August 2008. Back then they promised to protect Georgia, some kind of guarantees. And how did that end...Does Turkmenistan want the same thing to happen in the Caspian?" Simonov also said that "using force is the only possible response if diplomacy fails to stop the trans-Caspian project." EurasiaNet also quotes Siminov: "the reaction can be very hard up to some sort of military conflict in the Caspian Sea. Is Turkmenistan ready for this? I have great doubts in this regard."

Socor also quotes Mikhail Aleksandrov, department chief at the Russian government-sponsored "Institute on the CIS Countries." Aleksandrov also drew upon the Georgian analogy: "Russia would have to act in the manner of its operation to compel Georgia to peace...It may even be through air strikes, if they do not understand any other way." The vice-chairman of the Duma, Russian Gas Society president Valery Yazev, noted that Turkmenistan has no military protection in the Caspian, and that it risks a "Libyan scenario" by joining the trans-Caspian project.

Turkmenistan has condemned such bellicose talk from its northern neighbor. The foreign ministry released a statement that said, "A normal, civilized process of collaboration between sovereign and equal parties on the energy market is taking place...This, however, causes an inappropriate response from certain officials and mass media in Russia." Turkmen President Berdymukhamedov said European-directed pipelines are "among the most important goals of Turkemnstan's energy policy," that such pipelines would be actively developed, and that he supported the building of the TCP, in principle.

What is at stake? Petro-wealth. In November 2011 the firm of Gaffney, Cline and Associates released the results of the second phase of its audit of Turkmen gas reserves. Turkmen Vice Premier Baymyrat Hojamuhammedov released the results: the country owns 71.21 billion tons of natural gas, 50% more than previously expected. The firm stated that the South Yolotan gas field is the world's second-largest, with an estimated total of 26.2 trillion cubic meters. The estimates were immediately disputed by Gazprom deputy CEO Medvedev, who said there was no serious study or research report to back up the audit results.

There are two sides to the dispute: Russia and Iran claim that the Caspian is actually a very large lake (a body of water from which there is no egress). If they are correct, then all the states around the lake have equal rights to the use of the water. By contrast, Azerbaijan and Turkmenistan believe the water is an inland sea--in which case each state would control the waters off its coast. If the Russian/Iranian view is correct, then they have a veto over the construction of the TCP; if the Azerbaijani/Turkmen view is correct, then any two states can do what they want within their own territorial waters. The fifth littoral state, Kazakhstan, has stayed away from the conflict, but officials there say that Kazakhstan will not cooperate with the TCP until the Caspian legal status is resolved.

To strengthen their hand in the dispute, Iran and Russia agreed in September to set up a joint energy committee to expand cooperation between the two states, according to the Tehran Times. At the same time, they announced their opposition to the TCP due to environmental concerns, protection of marine resources and preventing pollution.

Such claims are considered ludicrous by people who have observed Russia's own practices. It has built its own pipelines in the Black Sea (Blue Stream) and the Baltic Sea (Nordstream) with little comment on the environment. In fact, all five littoral states have undertaken offshore exploration and development without seeking permission from the others, according to Robert M. Cutler.

Some legal experts believe that a pipeline can be constructed while the final status of the Caspian is still being negotiated. Jerome Pons, the Charge d'Affaires of the EU Delegation to Azerbaijan, told Today.Az that "The on-going negotiation on the legal status of the Caspian has not precluded the construction and operation of (other) oil and gas pipelines...In the Caspian Sea, the on-going negotiation between the littoral states over the last years on the legal status of the Caspian has in fact not precluded the construction and operation of oil and gas pipelines." Brigitte Bichler, senior project manager for Nabucco at the Austrian energy group OMV said the TCP was "legally feasible." This view was supported by US State Department advisor for Eurasian energy Daniel Stein, who said no country had "veto power" over a Turkmen-Azeri pipeline agreement, according to Reuters.

The country that may influence this dispute the most may be "none of the above." As China buys more gas from Turkmenistan, their influence over Turkmen pipeline planning will continue to grow. According to a Chinese diplomat, "Beijing does not want Turkmenistan to build a pipeline to the European Union, get a different gas price on the European market and then increase it for China...Beijing will do its best to make sure the Transcaspian pipeline project is not developed," according to Rianovosti.

China's Growing Energy Appetite and Strategy

Analysts who follow the energy "Great Game" being played between Russia and the Rest are turning their attention away from the European front, toward the growth of China. Asia Times' correspondent Pepe Escobar explains the dynamics of Chinese energy growth in the magazine The Nation. China is the world's fifth largest oil producer, at 3.7 million barrels per day, just below Iran and slightly above Mexico. China consumes 10% of the world's production, second only to the United States' 27% share and triple its consumption of 30 years ago. The International Energy Agency estimates that Chinese oil consumption will reach 11.3 million barrels a day by 2015.

China's top three oil suppliers are Saudi Arabia, Iran and Angola. China has invested $120 billion in Iran's energy sector over the past five years (so much for UN sanctions!), and purchases 14% of its imported oil from the Islamic Republic. The Chinese energy company Sinopec has agreed to invest an additional $6.5 billion to build oil refineries there. China is also the principle supplier of machinery and parts used in Iran's oil production.

Escobar reports that Saudi Arabia has tried to wean China away from its reliance on Iran, offering to supply the Chinese with the same amount of oil it buys from Iran--but at a discount. China's interest in a strategic relationship with Iran has trumped profit, however, and Beijing rejected the Saudi offer. Christina Lin, who follows Chinese military developments, reports that China views Iran as a means of counterbalancing U.S.-supported Arab monarchical states. This does not mean the Saudis are frozen out of the market, however; over half of Saudi oil exports are now to Asia, as opposed to 14% to the United States. Saudi Aramco owns refineries in both Qingdao and Fujian provinces, and is China's principal trading partner in the Middle East.

Most of this oil comes to China through two naval choke points: the Strait of Hormuz and the Strait of Malaccca. 20% of China's oil imports transits Hormuz, and a full 80% of its imports has to go through Malacca. To overcome this maritime vulnerability, the Chinese are trying to develop overland supply routes from Central Asia. As an example, the Kazakh oil fields lie close to the Chinese border and the Chinese company financed a pipeline to deliver its oil to the Middle Kingdom. The Chinese have become so close to the Kazakhs that there have been four heads-of-state summits in the past four years. President Hu Jintao has declared that the relations between the two countries are a "strategic partnership of long-term stability, good-neighborly friendship and win-win cooperation," according to Robert Cutler in the Asia Times.

Another source of petroleum was the strife-torn country of Libya. According to a report published in asahi.com, China has invested large sums of money in Libya. There had been 36,000 Chinese in the country before hostilities began, working on 75 joint venture projects with an additional 50 projects in the pipeline. Each year, China was importing 7.4 million tons of petroleum from Libya.

China has also begun receiving Russian oil via the Eastern Siberia-Pacific Ocean (ESPO) pipeline. China lent the Russian-state run company Rosneft $25 billion to build the line, and the plans are that it will bring 15 million tons of petroleum annually for the next 20 years. This is equivalent to 6% of China's 2010 petroleum consumption, according to asahi.com.

China's growing energy appetite, however, cannot be satiated by Russian and/or Central Asian pipelines. As much as they might fear the vulnerability, they will continue to be reliant on a maritime delivery route. To protect themselves, they are developing a "string of pearls," a series of Chinese naval bases stretching from the straits of Hormuz to the energy-hungry cities of China's east coast. According to Christina Lin, these pearls include upgraded military facilities on Hainan Island, an upgraded airstrip and oil drilling platforms in the contested islets of the South China Sea, a canal in Thailand, and intelligence-gathering facilities near the Strait of Malacca; ports in Burma, Bangladesh, and Sri Lanka; a naval base in Gwadar, Pakistan; and facilites in Port Sudan. The string of pearls gives the Chinese military an overseas presence for the first time in modern Chinese history.

Other Central Asian countries are jumping into the game: following the Kazakh example of getting the Chinese to finance oil projects, Turkmenistan has turned to China to finance natural gas projects. the Turkmen have the world's fourth largest gas reserves, and they sell their gas to China, Russia and Iran. Bloomberg Businessweek reports that Turkmenistan is doubling the amount of natural gas it had originally planned to sell China, and will be shipping 60 billion cubic meters per year by 2015. China is a welcome new market for Turkmenistan, who lost its previous main customer (Russia) after a pipeline explosion disrupted deliveries to that state.

Overall, China's natural gas consumption is expected to grow by 22.6% in 2011, according to a report released by the research arm of China National Petroleum Corporation (CNPC), as reported by the China Daily. Consumption will grow from 106 bcm in 2010, to 130 bcm in 2011,and to 230 bcm in 2015. Domestic output of the fuel will rise 58% in the same time period, reaching 150 bcm in 2015. The CNPC report verified that China imported 4.4 bcm from Central Asia in 2010, and has opened negotiations with Russia for an additional 70 bcm per year by 2015.

With such astronomical projections of increases in petroleum and natural gas consumption, China will be first in line for any production increases from anywhere throughout the world. The current relaxation in oil and gas prices will not be able to be sustained in the mid to long term in the face of Chinese energy demands.

Azerbaijan signs natural gas contract with Iran

Azerbaijan has again demonstrated to Europe and the United States that it has customers for its natural resources even if the Southern Energy Corridor is never built. On January 12, Iranian Minister of Oil Seyed Massoud Mir-Kazemi (left) led an energy delegation to Baku. He was received by President Ilham Aliyev who stressed the development of bilateral relations between the two countries, and the great history of ties in the energy sector (www.today.az/news/politics/79328.html).

The delegation included members of the National Iranian Gas Export Company (NIGEC), who signed a long term contract with the State Oil Company of the Azerbaijan Republic (SOCAR) in which SOCAR agreed to provide Tehran with natural gas for five years. Deliveries in 2011 will begin with a billion cubic meters, but the volume will increase in the future as SOCAR reconstructs the pipeline and improves compressor stations along the line. The signators hope the volumes will triple with these upgrades. (www.today.az/news/business/79321.html).

According to the Iranian oil minister, the agreement is a road map for future energy cooperation. He confirmed that the repairs envisioned in the contract are underway, and another contract was in the offing for the construction of gas storage facilities (www.today.az/news/business/79327.html).

The new contract with Iran was signed on the eve of a visit to Azerbaijan by European Commission President Jose Manuel Barroso. The EU chief has said that during the visit he will make the case for the realization of the Southern Gas Corridor, and the signing of a "Joint Declaration on the Establishment of the Southern Corridor" with President Aliyev is scheduled for January 13 (www.today.az/news/politics/79291.html). The signing of an agreement with Iran a day earlier is a shot across the Europeans' bow, reminding them that Europe needs Caspian energy more than Caspian countries need European markets.

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

Baku Summit Sends Message to the United States

With the Caspian region remaining a distant thought for Washington insiders, and the appointment of a US Ambassador to Azerbaijan a captive to ethnic politics in the United States, President Ilham Aliyev has delivered a message to the United States that his country has alternatives to its Western orientation. One can only hope that someone in our nation's capital is listening.

The day before the November 18 summit, Iranian President Mahmud Ahmadinejad arrived in Baku for a formal state visit. President Aliyev met with Ahmadinejad and discussed future cooperation. The positive results of this meeting for the two parties were almost immediate: Iran's Deputy Oil Minister Jawad Oji announced that experts were considering increasing gas imports from Azerbaijan to 2-5 million cubic meters per day. Oji said that a special committe had been established to look at the issue. The minister's concerns were not political, but technical: "we must be sure that Azerbaijan has completed the construction of necessary supply pipelines and has installed compressor stations of high pressure," he said (www.today.az/print/news/business/76954.html, 22 November 2010).

The following day, the two presidents were joined by the Presidents of Kazakhstan, Turkmenistan and Russia. Demitri Medvedyev's inclusion at the meeting was a second indicator that Azerbaijan's oil and gas was not always promised to the West. In a formal press conference, the heads of state concurred that progress had been made in establishing the legal status of the Caspian (is it a sea or a lake?) and the distribution of the minerals beneath it. At the commencement of the meeting, President Aliyev pointed out that the countries of Azerbaijan, Kazakhstan and Russia had already reached an agreement on the division of the Caspian. (www.today.az/print/news/politics/76810.html, 19 November 2010)

In a not-so-subtle warning to the United States, President Medvedyev warned outside powers not to involve themselves in Caspian affairs. "If at any moment we relax in our mutual cooperation, there is no doubt that other states will want to interfere with our concerns--states that lack a know-how of or a relationship with the Caspian but whose interest stems from economic interests and political goals," he said. The five presidents then signed a joint cooperation agreement on security issues. ("Pledges but no Breakthrough at Caspian Talks", The Moscow Times, 19 November 2010).

To maintain a semblance of balance, simultaneous with the summit the Azerbaijani Center for Strategic Studies and the TransCaspian Policy Platform cosponsored a roundtable to discuss the European direction of Caspian energy. The discussion included the Romanian Special Advisor, the head of the European Union's delegation to Azerbaijan, the Managing Editor of the Journal of Energy Security, current and former gas and oil executives. (www.today.az/print/news/business/76817.html, 19 November 2009) While such a gathering would appear impressive in ordinary times, its importance pales before the meeting of the heads of state. Caspian energy resources are slipping from the West's grasp, and no one seems to be watching.

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.

Chinese Demand for Central Asian Energy

In December 2009, the Central Asia-China (Turkmenistan to China) natural gas pipeline opened. This gave China the ability to import natural gas from Turkmenistan, Uzbekistan and Kazakstan. The new natural gas pipline connects with the Chinese West-East pipeline, meaning Turkmen gas can reach Pacific coastal cities such as Shanghai and Hong Kong. To give the reader an idea of scale, the CA-C cost $7.3 billion to construct, and is 1,833 km (1100 miles) long. The West-East pipeline is over 4,500 km (2,800 miles) long, making the combined network the longest in the world. The CA-C line was partially financed by the China Development Bank, who invest $6.7 billion to build the portion of the line that transversed Kazakhstan (Hurriyet Daily News, 28 December 2009). Predictions are that the CA-C will reach its full capacity of 40 billion cubic meters by 2012-2013 (Reuters, March 11, 2010). Turkmen President Gurbanguly Berdymukhammedov is requesting that China increase its $3 billion loan for the development of the South Yolotan gas field (oilprice.com, 24 August 2010), which would favor the gas flowing East to China rather than to Europe.

This is part of a longterm Chinese strategy to lock up energy sources around the globe. As the second largest energy consumer behind the United States, China needs to be certain it will have the energy to continue its breakneck economic growth. This has led to deals with Angola, Sudan, Iran, Venezuela, etc. It has also led to some strange bedfellows: earlier in 2009 China loaned Russian oil firms $25 billion in return for a 20 year supply of crude oil (Hurriyet Daily News, 21 December 2009). Russia is also building a $25 billion link across East Siberia to bring oil to China (The St. Petersburg Times, 24 August 2010). Russian Premier Vladmir Putin has officially launched the Russian section of the Eastern Siberia-Pacific Ocean pipeline. "The implementation of this project is a crucial task for Russia and our Chinese friends," he said. "It means stabilization of supplies and energy balance for China, and for us it creats entry to new challenging markets, in this particular case, to the growing market of China." Putin promised to deliver 30 million tons of oil to China, and (in case of expansion to the Asia-Pacific region) 50 million tons. Despite Putin's optimistic projections, only 15 million tons of crude have been delivered through the pipeline this year. (Oil & Gas Eurasia No. 7, July-August 2010).

Over 100 Chinese state-owned companies operate in Iran, and many of the contracts are in the oil and gas sector. According to Christina Lin of the Jamestown Foundation, In 2008 the China National Petroleum Corporation (CNPC) and the National Iranian Oil Corporation (NIOC) signed a $1.76 billion deal to develop the North Azadegan oil field, $8.2 billion deals in 2009 to develop the South Pars Gas field, a $3 billion deal to expand refineries, and a $4 billion deal to expand Iranian oil production. China is also selling gasoline to Iran, despite US sanctions against the country ("The Caspian Sea: China's Silk Road Strategy Converges with Damascus," www.jamestown.org , 19 August 2010 =).

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

ART: Azerbaijan-Russia-Turkey Energy Axis

Russian President Dmitry Medvedev made a state visit to Baku this week, and brought home with him signed contracts for the purchase of additional Azerbaijani natural gas. Russia can resell this gas to European customers.

Azerbaijan previously had been reluctant to sell its gas to Russia, and was an active participant in Washington's plans to develop an independent East West Energy Corridor. This strategy had been pursued by both Democratic and Republic administrations, with both Presidents Clinton and Bush as firm supporters of the concept. The American strategic vision had been to strengthen the sovereignty of the new nation states of the former Soviet Union by giving them multiple ways to ship their energy resources, while reducing European reliance on Gazprom as the monopoly supplier of natural gas.

While Washington claims to still be committed to this policy, strategic blunders and inattention to the region has led to the development of ART: the Azerbaijan-Russia-Turkey Natural Gas Axis. On October 14, 2009, Azerbaijan signed an agreement to sell Russia natural gas. This followed ten months in which President Obama did not appoint an Ambassador to Azerbaijan (after 18 months the position is still vacant), and corresponded with Washington's efforts to decouple the Turkish-Armenian border closing from the resolution of the Azerbaijan-Armenia conflict over Nagorno Karabagh.

Starting January 1, 2010, Azerbaijan began pumping 500 million cubic meters of gas annually to Russia. This quantity was later doubled to a billion cubic meters. The latest contract doubles the quantity again, to 2 billion cubic meters in 2011, with additional increases in 2012. As Russian natural gas supplies are depleted, Russia will use its access to Azerbaijani gas to continue its role as predominent supplier to Europe. Analysts estimate that by the year 2030, 80% of all natural gas imports into Europe will be via Gazprom.

Gazprom chief executive Alexi Miller was pleased with the new contract. "It's clear to everyone that the Russian direction is the most reliable and safe corridor to deliver Azerbaijani gas to the market," he said (Agence France-Presse, September 3, 2010). With the natural gas going North into the Russian pipeline system, it endangers the potential supply of natural gas for the Nabucco pipeline.

Turkey, a vital transit point for the Nabucco pipeline, is also becoming more dependent on Russia as its principle supplier of natural gas. Turkey was already reliant on Russia for 23 billion cubic meters of natural gas annually, but Gazprom has been able to demonstrate a much-needed surge potential. On August 24, 2010, terrorists exploded the Iran-Turkey natural gas pipeline. Turkey was forced to stop use of the pipeline while repairs were made. Over the next ten days, Gazprom made up the difference by more than doubling the amount of natural gas it shipped to Turkey via its Blue Stream pipeline. Gazprom usually sends 18 million cubic meters of gas per day, but during the ten days following the blast, it shipped 42 million cubic meters per day. (www.today.az/news/regions/73123.html, 07 September 2010.

Gazprom is seeking to expand its role in Turkey's domestic supply network. According to the Turkish newspaper Referans (3 September 2010) Gazprom has opened talks with two independent domestic supply companies, Calik and Aksa. With Calik, Gazprom hopes to build Turkey's first underground storage facility, under the Great Salt Lake south of Ankara. Aksa owns one-third of Turkey's domestic distribution network.

Iran would also like to be part of the energy axis. Currently, Iran imports one million cubic meters daily of natural gas from Azerbaijan, and pays for it by shipping the same quantity to the Azerbaijani-controlled Nakhchivan Autonomous Republic. According to a gas agreement between the two countries, however, Iran can increase its imports to 2.5 million cubic meters daily and eventually to 5 million cubic meter. According to Iranian ambassador to Azerbaijan, Mohammad Bagher Bahram, Iranian-Azerbaijani relations have entered into a new stage. The economic focus is to strengthen relations in the oil, gas and energy fields. "We want to buy 5 billion cubic meters of gas," he said. Specialists of the State Oil Company of Azerbaijan (SOCAR) have initiated a feasibility study for a new pipeline that might allow flows of up to 10 billion cubic meters (www.today.az/news/business/72975.html , 03 September 2010).

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

Thinking Shortage in a Time of Plenty

It is hard to remember that oil has only been used for energy production for about 150 years, and for half of that time the industry was plagued with fear that the oil would run out. Daniel Yergin, in his Pulitzer-prize winning book The Prize, documents how the Royal Navy recognized the advantages of oil-burning ships, but on the verge of World War I hesitated to convert from coal for fear of having no fuel for the new fleet. the shortages were soon replaced with an overabundance of energy, for a number of reasons:
1. New technologies allowed new oil fields to be discovered. From examining rocks and ponds for oil seepage, to the use of satellite imagery, the ability to discover oil continues to improve.
2. The invention of the cracking process allowed raw petroleum to be broken into various petroleum distillates, making each barrel of oil more exploitable.
3. Blind luck: many fields have been discovered by wildcatters in areas the "experts" claimed had little or no oil or natural gas.
4. New technologies have allowed old fields to be better exploited. The introduction of gas and water infusion techniques have resurrected many played out fields.
5. Energy experts recognized that natural gas was more than just a waste byproduct of the oil industry, but an energy source in itself.
6. The investment in oil and gas pipelines, international and national, allowed the efficient distribution of these products.
7. Improvements in LNG technologies is allowing the use of natural gas to spread from pipelines to a worldwide market.
Fears of shortages remain, however. As World War II approached, the Royal Navy recognized that there was plenty of oil world-wide, but that much would be in the hands of the Nazis. There could be a man-made shortage created not by nature, but by politics.
When the Soviet Union invaded Afghanistan in 1979, U.S. President Carter was alarmed that bombers from Afghanistan could reach the Straits of Hormuz. The Russians had the theoretical ability to close off the free world from its access to Persian Gulf oil. This was such a concern that the President issued the Carter doctrine, a statement that access to Persian Gulf oil was a VITAL interest of the United States.
In another publication, Yergin argues that the main protection of a country's energy supply is diversification (Yergin, "Energy Security and Markets" in Kalicki and Goldwyn, eds. Energy and Security, 2005).
In search of such diversification in the 1990s, oil companies from the United States signed the "Deal of the Century" with Azerbaijan, opening Caspian energy to the West for the first time since the 1920s. The Caspian energy fields, however, are landlocked. Getting the oil and gas from the Caspian to international markets was quite a feat in itself. Azerbaijan shipped "early oil" out via the old Soviet pipeline system and continues to use this system for some of its production. Most of the oil, however, is shipped via the Main Energy Pipeline that was built at the dawn of the 21st Century.
This Caspian energy was important because it became another, diversified source for energy. Where, then, could the Main Energy Pipeline run? The easiest routing would have been to send all the oil through the Soviet pipeline system, but that would have placed control over this source in the hands of America's Cold War former nemesis. In addition, the oil would have to be transported by boat through the Black Sea and the Turkish Straits in order to reach world markets. It would have meant a massive increase in tanker traffic through the heart of Istanbul, a metropolitan area of 10-20 million people (depending on who'se counting).
The shortest route to the open sea would be through the Islamic Republic of Iran. This would put control of the energy in the hands of the mullahs who have elevated anti-Americanism into an art form.
To make sure that Caspian energy could be delivered to the world market independently of the influences of Russia or Iran, the decision was to route the Main Energy Pipeline from Baku, through Georgia, and into Turkey, ending at the port of Ceyhan. The Main Energy Pipeline is better known as the BTC, or Baku to Ceyhan pipeline.

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