Georgian Conflict Obliges Export Route Reality Check

    /24-7PressRelease/ - CONCORD, MA, August 28, 2008 - The latest issue of Caspian Investor, published by WorldTrade Executive, Inc., focuses on the long-term strategic implications for international oil and gas interests as the result of military action in Georgia. Within days of military action commencing, all oil pipelines and seaport terminal export facilities closed in the country. The separatist regions of South Ossetia and Abkhazia remain resolved to leave Georgia guaranteeing ongoing domestic unrest. That means threats of pipeline and port closures will continue, substantially increasing the risk equation in moving hydrocarbons out of the Caspian basin. The vulnerability of the Baku-Tbilisi-Ceyhan (BTC), Baku-Supsa and Baku-Tbilisi-Erzurum pipelines, as well as the ports of Batumi, Poti and Kulevi, will certainly prompt a serious reappraisal of export security.

Strategic Implications
A number of observers now suggest that the events assure a reorientation of oil flow directions, or at least a more balanced risk exposure.

This is exactly what Washington does not want to hear. The ongoing "pipeline war," in which the US and the European Union pursue pipeline projects by-passing Russia while Moscow responds with new export projects of its own, has been briefly interrupted by hostilities of a more heated variety. Yet, the longer-term implications are more sobering for the West.

BTC had been the one major accomplishment of Washington and Brussels, a primary export venue from the rapidly developing Caspian basin beyond the touch of Moscow. Apparently, that is not the case any longer. The argument that Moscow's intent all along was to put pressure on the BTC through this military exercise has nothing substantive behind it. In the end, however, that makes little difference. The military rationale for the incursion is not the issue here. Events have accomplished Moscow's "energy full court press," as one observer put it to us.

Tbilisi now faces the real damage, some probably irreversible. Georgia's image as a secure energy route is shattered. Throughout BTC construction, considerable attention emerged over pipeline safety concerns in Turkey or Azerbaijan. There was hardly a mention of the Georgian segment in discussions on the subject. Over the past decade, Europe in deliberations over each new possible pipeline route has relied upon Georgia as a preferable connection to the Caspian. All of that assurance is now gone.

An immediate withdrawal of Russian tanks from Georgia does not make the South Ossetian and Abkhazian situations more secure. Oil and gas companies now must factor in a new level of uncertainty. From the standpoint of export flows, whether the threat comes from regional militias, separatists or national armies makes little difference. Georgia is now unstable and that increases the risk of transporting hydrocarbons across it.

The wider implications are only beginning to appear. As one commentator put it on August 12, "The biggest casualty of the showdown has been the West's naive belief that Georgia provides a secure alternative energy corridor that avoids either Russia or charter 'axis of evil' member Iran." Over the last decade, Western companies have pumped $5 billion into developing the Batumi, Poti and Kulevi Black Sea ports, along with the Baku-Supsa oil pipeline and the BTE. However, the real crown jewel of Western investment success has been the 1,760-kilometer, 1 million barrel a day BTC pipeline. All are now clear targets in a new security environment.

About Caspian Investor
Caspian Investor provides in-depth analysis of energy sector developments in the countries of Central Asia and the Caspian Sea region, and its subscribers include the major oil, service, and financial companies in the region. It is published by WorldTrade Executive, Inc, which also publishes Russian Petroleum Investor. The commentary in the issue was written by contributing editor Dr. Kent Moors, an internationally recognized expert in oil/natural gas policy and finance He has been an advisor to the US, Russian, Kazakh, and Iraqi governments, and is a featured television and radio commentator including ABC, BBC, Bloomberg TV, Fox News, CBS, and CNN.
His clients have included six of the world's top ten oil companies as well as leading oil and natural gas producers throughout Russia and the Caspian Basin. For more information on Caspian Investor, go to http://www.wtexec.com/casp.html.

Further information is also available by contacting Jay Stanley at WorldTrade Executive at 978-287-0301 or at 2250 Main St., Concord, MA 01742 or [email protected].

U.S. and international executives rely on WorldTrade Executive publications for expert analysis on the tax, regulatory, and financial developments driving their markets. For more information, please contact us at 978-287-0301

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