Petrodollars Behind the Chechen Tragedy

By Sergei Blagov
Source: IPS
Date: Dec 7 1999


As the Russian army tightens its grip around the Chechen capital of Grozny and Moscow becomes increasingly assertive, analysts stress that manoeuvring over huge oil-transit deals is the real issue of the Chechen war.

On Tuesday, Russian primer minister Vladimir Putin rejected politely, but in unequivocal terms, the western criticism for Russia's ultimatum Monday to Grozny's civilians - to leave the city before Dec 11, or die under artillery and air fire.

Human rights activists argue that thousands of elderly and ill civilians trapped in Grozny face death in the coming days. The Russian military dismiss the allegation, arguing that most of those left in the city are Muslim rebels, using civilians as a human shield.

It has been often said that disputes over oil transit are behind the tragedy in unruly Chechnya - seen as the biggest security threat in the region.

Russia has been keen to use its Baku-Novorossiisk export route for Azerbaijani "early" oil exports. But the pipe crosses over 153 kilometres of Chechen territory, which makes it unreliable as long as the country is lawless.

"Early" oil is the first crude to be exported from three Azerbaijani offshore fields being developed under a multi-billion-dollar project. Larger quantities are expected to flow early next century from the Caspian basin, considered to be one of the world's most important new sources of fossil fuels.

At first the Russians tried to negotiate with the rebellious Chechens' leaders. After a hard bargaining process, on September 9 1997 Russian and Chechen officials signed an agreement to allow the Azerbaijani oil travel through the separatist republic.

Under this agreement,Transneft, the Russian operator, agreed to pay a 43-cent fee per ton of oil, down from the 2.2 dollars initially demanded by the Chechens. Russia also agreed to take care of maintenance and security, but the flow was soon halted after armed gangs began stealing large amounts of oil.

Then the Russians decided to build an alternative pipeline in Dagestan - to bypass the Chechen section. But inroads by Chechen militants into Dagestan last August showed that this option was unsafe too.

It was then that the second Chechen war commenced.

In addition, presumed terrorist threat is feared to hold up the construction of a 1,600-kilometre link between the Tengiz oil field in Kazakhstan and a Black Sea port near Novorossiisk, known as the Caspian Pipeline Consortium (CPC).

The consortium - established back in 1992 by the governments of Russia, Kazakhstan and Oman - is Russia's main hope to become the main agent in moving Caspian oil, said Vladimir Stanev, Russia's deputy Fuel and Energy minister.

In December 1996, 50 percent of CPC's shares were sold to international oil corporations, effectively turning the consortium into the largest privately-financed oil infrastructure project in the former Soviet states.

The project, worth 2.5 billion dollars, is expected to be completed by June 30, 2001, CPC's director general Viktor Fedotov told IPS.

The 750-kilometre Russian section of the pipeline is expected to be finished by the end of December 2000 with the first tanker scheduled to leave in June next year.

The consortium plans to start pumping half-a-million barrels per day by October 2001. Shareholders have invested some 700 million dollars during 1999, and they plan to raise the figure up to 1.3 billion in 2000, Vagit Alekperov, head of Russia's LUKoil said.

Some 60 percent of the investment comes from the two largest private shareholders - LUKoil and Chevron, he said.

On December 2, prime minister Putin met with Fedotov, Alekperov and Chevron's president of international operations Richard Matzke, promising the government's support to the project.

Putin, nominated by ailing president Boris Yeltsin as his chosen successor, is also widely seen as the mastermind of the military campaign in Chechnya.

The CPC will be a great success, Matzke announced. ''My general attitude is of complete satisfaction with it. CPC will bring wealth to all participants,'' he told IPS.

"After meeting with Putin we are sure that we are going to honour our commitments," Alekperov commented. "We have a variety of exploration projects in the Caspian and our oil will also go through this CPC pipeline," he said.

LUKoil, which has drilled its first offshore well in the north Caspian Sea, holds a 12.5 percent stake in the consortium. The pipeline will transport oil from the Tengiz and possibly also from the Karachaganak oil fields, where LUKoil has 5 and 15 percent stakes respectively.

The CPC pipeline - expected to have an initial capacity of 28.2 million tons of oil a-year and a maximum of 67 million - is presumed to be the Russian response to the Baku-Ceyhan oil-pipeline project signed between Turkey and Azerbaijan at the OSCE summit in Istanbul last month, at a ceremony attended by US president Bill Clinton.

This new link - heavily supported by the US - would leave Russia virtually out of the business of transporting Azerbaijani oil from the Azeri, Chirag and Gyuneshli offshore fields.

The Russian government expects revenues of some 23.3 billion dollars from the project within the next 40 years, while Kazakhstan plans to earn 8.2 billion. However, now the planned revenues look far from certain as the trans-Georgia pipeline and a new terminal at Supsa on the Black Sea are ready for oil exports.

"We advocate a diversity of oil transit projects," Alekperov said. However, given the size of proven Caspian reserves - "the CPC and Georgian routes will definitely be enough to transit Caspian oil within the next 10-15 years," he said, implying that Ceyhan pipeline is not economically viable.

Some Russian analysts argue that Turkey and the US are supporting the Ceyhan project so as to elbow Russia off the Caspian. Furthermore, Ankara's quiet support to the Chechen militants has been said to be designed to sustain volatility in the northern Caucasus - which would make it impossible for the competing CPC project to proceed.

There have also been fears that in case of a Russian military success in Chechnya, Turkey could simply close the Bosporus and Dardanelles for Russian oil transit, using environmental concerns over possible spills as an excuse.

"I do not think Turkey could go that far to block - in clear violation of international treaties - oil shipments from the Black Sea in favour of its pipeline to the Mediterranean port of Ceyhan," Stanev, the Russian deputy minister said.

Whoever right - manoeuvring over crude transit and big oil dollars are likely to remain a factor in an ongoing Chechen tragedy.


© 2007 Chechen Republic Online