Baku-Ceyhan Update—Oil and Water Don’t Mix

By Andrew I. Killgore

Three years ago, to expel doubts, then-President Bill Clinton made a special trip to Istanbul to countersign an earnest document that Azerbaijan and Turkey build the Baku (Azerbaijan) and Ceyhan (Turkey) oil pipeline. Last year the two countries laid the symbolic first section of pipe, near Baku, with Secretary of Energy Spencer Abraham reading the laudatory words of President George W. Bush.

A snag has been hit, however, because the pipeline would threaten the Republic of Georgia’s highly prized mineral water in the Borjami Valley. Activists already have demonstrated outside the London offices of the European Bank of Reconstruction and Development, which was to put up the financing for the project. This means that loans from the Bank might not be available until the second half of this year.

Israel—and thus the United States—are sedulously pushing the pipeline to prove to Turkey that its alliance with Israel pays off in Washington. British Petroleum (BP), which heads the 11-member consortium to build the 1,100 mile, $3 billion Baku-Ceyhan, faces difficulties in finalizing terms for external financing due to the project’s high cost, technical challenges and security and environmental concerns.

The consortium’s smaller members, including Azerbaijan, which has a 25 percent stake in the pipeline, would be “forced to find substantial sums of cash that it doesn’t have,” according to the Feb. 6 Financial Times. That means the United States, or an international financial organization under American influence, will have to come up with the money.

Originally all the oil companies operating in the Caspian region, including BP, opposed Baku-Ceyhan. British Prime Minister Tony Blair—former Friend of Bill and current Friend of George—brought BP around to his “special relationship” with the United States. But just where the daily million barrels of oil will come from to make Baku-Ceyhan viable remains a mystery.

Given that Azerbaijan produces only “disappointingly small amounts,” the only source for the extra oil is Kashagan, Kazakhstan’s very large offshore (in the Caspian Sea) oil find. But Kashagan’s production will not come on line for six to 10 years. Moreover, Kazakhstan favors an oil pipeline that runs through Iran to the Persian Gulf.

Andrew I. Killgore is publisher of the Washington Report on Middle East Affairs.