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Gold9472
10-30-2005, 10:42 AM
US hopes of oil supply stability still a pipe dream

http://business.scotsman.com/economy.cfm?id=2166892005

IAN MATHER
10/30/2005

IT IS being proclaimed as the 'Silk Road' of the 21st-century, opening up a flow of wealth from East to West almost unrivalled since the days of Marco Polo. The 1,000-mile, $3.6bn Trans-Caucasian oil pipeline between the landlocked Caspian Sea and the Mediterranean will deliver one million barrels a day to western markets, with the 'black gold' starting to flow along the final section to Turkey this week.

Western officials, including those in Britain, last week hailed the official opening of a key section of the world's second longest pipeline as a technological triumph for the BP-led consortium that built it.

Yet despite the lavish toasting in Georgian 'champagne' and the congratulatory speeches, there is a concern that the pipeline will prove to be another example of the extent to which the control of western oil supplies is inexorably slipping into untrustworthy hands.

Security is the responsibility of officials from Turkey, Azerbaijan and Georgia, who represent a region of enormous political instability. The pipe passes within seven miles of the disputed enclave of Nagorno Karabak, scene of ethnic wars between Azerbaijan and Armenia in the 1990s. In Georgia it crosses the Pankisi Gorge, home to Chechen rebels. In Turkey it runs through Kurdish territory.

In Azerbaijan, tension is high two weeks ahead of elections that could see a mass uprising similar to those that followed elections in Georgia, the Ukraine and Kyrgyzstan.

With North Sea oil production dwindling rapidly, after peaking in 1999, the problem for Britain in securing reliable alternative supplies is starting to become acute. Yet wherever they look, British officials see the same grim picture of oil supplies passing into the hands of rivals on the world stage.

The most significant development is the formation of a new triangle of China, India and Russia, fuelled by a backlash against what is seen as military and economic aggression by the Bush Administration.

The trans-Caucasus pipeline is the sort of project to which the three object. A large chunk of the cost was underwritten by Washington in pursuit of its aim of bypassing Russia's oil pipeline grid and breaking its armlock on Caspian supplies to the rest of the world.

But the implications of the new geo-strategic line-up are much wider. At a meeting in Vladivostok in June, Russia, China and India agreed to form an international oil cartel to resist US and western oil monopolies and stabilise prices. Russia offered an oil deal to India, which will result in Russian oil flowing to India through Iran in return for more Indian investment in Russia's oil fields.

Kaveh L Afrasiabi, author of Iran's Foreign Policy Since 9/11, says: "China, Russia and Iran share deep misgivings about the US and tend to see it as a rogue superpower. Increasingly, the image of the Islamic Republic of Iran as a sort of frontline state in a post-Cold War global lineup against US hegemony is becoming prevalent among Chinese and Russian foreign-policy thinkers."

The Vladivostok agreement closely follows the "deal of the century" between China and Iran for the export of 10 million tons of Iranian liquefied natural gas over 25 years.

The Iran-China deal could give impetus to a deal between Iran and India for a 1,600-mile "peace pipeline" between the two countries across Pakistan, for which a memorandum of understanding was signed in 1993.

For the US, the latest oil deals are an ominous sign. Britain, too, is in danger of being outflanked in the former Soviet republics of central Asia.

Recent figures show that the UK will soon become a net importer for the first time since the 1970s.