BTC as “security guarantee” for Nagorno Karabakh: interview with Ivan Danilin

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Ivan Danilin – senior researcher of the Institute of World Economy and International Relations of the Russian Academy of Sciences

REGNUM: Mr. Danilin, during their last summit in Kiev the GUAM member-states proposed giving up the idea to operate the Odessa-Brody oil pipeline on a reversion basis and returning to the initial idea to supply Caspian oil via Ukraine to Europe. How realistic is this prospect given Azerbaijan’s position? What is the export potential of Azerbaijan?

Azerbaijan will hardly be able to join Odessa-Brody in the mid-term future because this project is technically and financially difficult. To get geo-politically and economically expedient, this pipeline should be prolonged to Plock, a Polish city having an oil refinery. Besides, it is still unclear who will pay for the more expensive Azeri oil: it will be more costly than the Russian oil because of transshipments in Supsa and Odessa. It is also unclear if Azerbaijan will find enough oil for Odessa-Brody (-Plock) – in fact, it can’t supply enough even for BTC and will hardly be able to till 2007, at earliest.

Today Azerbaijan is a significant but not very big fuel supplier in the world. According to various forecasts, after 2008 Azerbaijan will be able to supply some 35-40 mln tons a year via BTC. True, Azeri experts say that they have found some new capacities at Azeri-Chirag-Guneshli but they will be able to specify them only after prospecting. Speaking of the importance of the Azeri oil, we can just say that, even at its full capacity, BTC will ensure only 1.5% of the world oil supplies.

REGNUM: What does the launch of BTC mean for the world and the region? What are the chances of Kazakhstan’s joining the project?

Internationally, the BTC launch has rather small consequences. The key result of BTC is that the post-Soviet states have taken a psychologically important step outside the Russian oil transit monopoly in the post-Soviet area.

This is a good stimulus for the development of an alternative export system, and Kazakhstan will certainly try to join it. For Astana, BTC (especially when it is extended) will become not so much the “main window” into the world (something they in Russia were afraid of) as an additional though significant channel it can use to diversify its oil transit routes.

One can’t say that the launch of BTC will drastically change the situation in the South Caucasus or Central Asia.

For the region, BTC is of dual significance. On the one hand, it will strengthen the positions of Azerbaijan and, partly, of Georgia. Baku will get less dependent on Moscow. On the other hand, the situation is not as clear as it seems. First, if formerly Baku was heavily dependent on US support in the BTC project, now that the Azeri oil has got access to the world markets, this dependence will go into the past. It is also clear that BTC will not be able — as one might expect before — to make, say, Georgia independent from Russia in finance and, consequently, in energy and economy.

Meanwhile, BTC will obviously enhance stability in the region. One can’t but agree with some Armenian representatives who have been saying for two years already that BTC is “a security guarantee” for Armenia and – let’s add – Nagorno Karabakh. Its closeness to the Nagorno-Karabakh and Armenian borders reduces the possibility of a large-scale armed conflict in the region.

REGNUM: Since recently GUAM is called energy NATO. Do you agree with this term, if yes what can Russia counterpoise to this bloc in energy?

“Energy NATO” is not very correct term for the Organization for Democratic Development-GAUM (ODD-GUAM). Energy NATO is generally applied to the informal Poland-led union in Eastern and South-Eastern Europe (initiated during the January Summit in Davos).

In fact, given the mostly political demand for the Caspian oil in Ukraine, Moldova, Poland – GUAM may try to carry out the Odessa-Brody-Plock project or simply supply Azeri oil to Ukraine (with an oil refinery to be set up in Odessa). All this depends on whether the US and the EU will lend money for the completion and operation of the Odessa-Brody-Plock oil pipeline and on whether Ukraine, Moldova and Poland will be able to afford the expensive Caspian oil.

This scenario is hardly possible but may well be if the world oil prices continue to grow and if Russia continues toughening its energy policy. Much more realistic is the project of moderate supplies of Azeri oil to the Odessa oil refinery – but still not in the near future.

REGNUM: How topical is the Burgas-Alexandroupolis project and why is it being delayed?

The key problem of this project is, like in the case of Odessa-Brody, multiple (in the case of Burgas-Alexandroupolis — triple) oil transshipment. This makes the project more expensive and the Russian oil less competitive as compared with the Azeri oil from BTC.

Under new conditions Russia is staking on the northern route (the Baltic pipeline system), but is also considering alternatives – Italy is already drafting a Samsun-Ceyhan project for Russian oil. There are other scenarios too.

On the whole, the prospect of this project is still very vague and like in the case of Blue Flow, Russia may prefer (at least partly) to use the “Turkish transit” – as, in any case, Burgas-Alexandroupolis will not be able to “cover” the whole southern transit of the Russian oil. Meanwhile, the “Turkish scenario” is not desirable geo-politically as it will change nothing in the price scheme. As you may understand, the Russian authorities are wavering, but delay may cost them dear, especially as Turkey is obviously planning to further toughen its Bosporus and Dardanelles transit regime.