From the Caspian to the Mediterranean: The East-West Energy Corridor is Becoming a Reality

February 26, 2003
By Zeyno Baran

This week, Azerbaijan’s President Haydar Aliyev brought Azerbaijani, Georgian and Turkish officials with him to Washington to deliver a progress report on the two legs of the strategic “East-West Energy Corridor”—the Baku-Tbilisi-Ceyhan (BTC) oil pipeline and the Shah Deniz gas pipeline. In his opinion—a point of view shared by many in Washington—there are several reasons why these export routes are considered to be of strategic significance to the Western world. 

For starters, Azerbaijan is a non-OPEC, non-Middle Eastern source of oil that is incrementally important for global supply diversification. Right now, Azerbaijan is exporting oil via Russia and via Georgia.  Starting in 2005, once the $2.9 billion BTC pipeline crossing Azerbaijan, Georgia and Turkey is completed, Azerbaijan will export 1 million barrels a day more. Moreover, Azerbaijan believes that exporting oil via a NATO member—Turkey—brings additional political and security benefits.  

Initially, the United States supported these two projects because it believed that alternate export routes that did not run through Russia would help Azerbaijan and Georgia strengthen their independence.  Moreover, it hoped to use these projects as an engine to drive regional economic development. Given the political instability of the south Caucasus, its bad investment climate and high level corruption in Azerbaijan and Georgia, the successful implementation of these projects is crucial if additional, non-energy investment to come. Even though Azerbaijan is blessed with significant hydrocarbon deposits, the "resource curse" is a real danger, and Baku hopes to use its Oil Fund to spur other development projects.  Georgia, of course, has limited resources of its own, other than being a transit country for Caspian energy. 

Both pipelines are managed by a consortium of oil companies, led by British Petroleum (BP). In fact, BP’s investment in the Caspian, and recent acquisition of a major stake in Russia's Tyumen Oil Company (TNK), has turned Eurasia into one of their top priorities.  Thus, BP now has a stake in improving relations between Russia and the south Caucasus, especially the Moscow-Tbilisi relationship. 

At a February 25, 2003 presentation at The Nixon Center,  Gia Chanturia, president of the Georgian International Oil Corporation, maintained that the export routes to Turkey should not be viewed as anti-Russian.  In fact, he predicted that there will be increased cooperation between Georgia, Russia and Turkey concerning oil exports. Given Russia's own increase of its oil exports, and the importance of oil revenue for the Russian economy, existing Russian routes cannot handle all of the increased volume.  In addition, weather conditions at the Novorossiisk port have seriously limited export potential to European markets.  He has proposed the construction of an additional pipeline from Novorossiisk, via the Georgian port of Supsa, to link with the Turkish port of Ceyhan (the terminus of the Baku line).  This would enable Russia to increase its oil export potential without interruption either because of poor weather at Novorossiisk or because of problems in the dangerously narrow and already overcrowded Turkish straits.  It would also bring additional incentives to the table for both Russians and Georgians to improve relations.  

Yurdakul Yigitguden, Undersecretary at the Turkish Ministry of Energy—someone who has worked on these projects for over five years—also spoke at The Nixon Center about Turkey’s main interests in these projects. The BTC line will reduce greatly the amount of oil that has to cross the dangerously narrow Turkish straits, which is a key concern for Turkey, but not much appreciated elsewhere. In fact, many of the environmental NGOs opposing the BTC project barely note one of the reasons the oil consortium chose this expensive pipeline route was to avoid an environmental disaster, literally in the midst of Istanbul itself.  

With these oil and gas projects from Caspian, as well as Russia, and the Middle East, Turkey is also becoming an energy hub for the region. Turkey has cooperated closely with the United States in promoting these projects, in part to broaden its bilateral strategic partnership to include political and economic aspects as well. While helping the Caucasian and Central Asian countries strengthen their independence, Turkey has also worked closely with Russia, believing that the two goals are not mutually exclusive. In fact, the Blue Stream gas pipeline from Russia to Turkey has started to function this week.  

The Shah Deniz gas pipeline, which is expected to be sanctioned later in February, will help Azerbaijan, Georgia and Turkey diversify their gas resources. The initial phase of the project—including the construction of the pipeline—is estimated to cost about $3.2 billion. The gas project is especially importance for Georgia because Georgia is fully dependent on Russian gas, and at politically tense times, the supplies have not been reliable.  

For Turkey, Shah Deniz’s second phase—from Turkey to Europe—is strategically even more important. Turkey and Greece have been working on interconnecting their gas networks, and this week they finalized the intergovernmental agreement for gas transport that will start in 2006. Turkey hopes to re-export gas also to Austria, Hungary, Romania as well as Italy. Greece hopes to link up to Macedonia and Serbia as well. Given the European Union’s interest in its own gas supply diversification, Azerbaijan’s gas could be a good incremental source.  

For all three countries the big challenge is to use these projects to promote transparency and accountability. The hope is that these pipelines will help, and not hinder, with regional stability and security. The involvement of international financial institutions—such as the IFC and the EBRD—will also assure highest possible environmental, social and security standards.  

After many years, the east-west energy corridor is becoming a reality, and one that will benefit both the nations of the region and help to ensure the energy security of the Western world. 

Zeyno Baran is director of the International Energy and Security Program at The Nixon Center.