November 22, 2009

The Great Game, Round Three

http://www.securityaffairs.org/issues/2009/17/smith.php

Jeff M. Smith

When the eight states that now constitute Central Asia and the Caucasus freed themselves from the grip of the Soviet Union in 1991, it was perhaps inevitable that outside powers would rush to fill the vacuum. Of the eight at least three, the Caspian Basin states (Azerbaijan, Turkmenistan, and Kazakhstan) found themselves awash in natural resources. The remaining five (Georgia, Armenia, Uzbekistan, Kyrgyzstan and Tajikistan), though less endowed materially, are strategically situated along crucial energy, trade, and logistics corridors.

The combination of renewed interest and a reopened playing field in the heart of Eurasia resulted in the rise of a new “Great Game,” reminiscent of the great-power contest of the 19th century between the British and Russian empires over access to India glorified by Rudyard Kipling in his day. The new Great Game pits Western powers against Russia in the scramble for energy along the Caspian Basin, an oasis of oil and natural gas. Along the periphery, other actors (among them Iran, China and India) have also staked their claim in the unfolding tug-of-war over Caspian energy.

A decade-and-a-half on, this Great Game has matured, and undergone important changes. More important, however, as the energy struggle evolved a new front in the Game emerged out of the ashes of the September 11th terrorist attacks: one that pits the United States against Russia for influence and basing rights in Central Asia.




The enduring logic of energy competition

Though the geopolitics of energy in Eurasia are constantly changing, the energy landscape itself is relatively static. Russia, quite simply, is in an energy league of its own—both in terms of production and export of natural gas and oil. None of the former Soviet Republics exports even a third of Russia’s gas totals, or a fifth of its oil. Turkmenistan and, to a lesser degree, Uzbekistan do export significant quantities of natural gas, while Kazakhstan and Azerbaijan are both exporting several hundred million barrels of oil per year. But at current levels, none of the former Soviet Republics are a major force in the energy equation.

Beneath the production and export statistics, however, lies an exciting picture of the potential energy reserves of Azerbaijan and the pair of Stans—Kazakhstan and Turkmenistan—that straddle the Caspian Basin. The U.S. Department of Energy’s Energy Information Administration estimates that Turkmenistan and Kazakhstan each could contain over 250 trillion cubic feet (tcf) of natural gas, and more than 1,000 billion barrels (bbl) of oil in reserve, surpassing even Russia’s reserves. To provide context, consider that the entire world consumes only 100 tcf of natural gas and 31 bbl of oil a year.

However, the potential of these future energy giants is constrained. During Soviet times Moscow constructed an elaborate energy infrastructure throughout the Soviet space. In planning this network, Moscow ensured that all energy sourced at the Caspian and in Central Asia would pass through Russia proper before being exported westward or sold on the international markets. So even when the Soviet Republics gained independence in the early 1990s, they remained economically tethered to Moscow.




Before long, energy consumers wary of Russia’s hold on the export market (namely Europe) began envisioning methods to circumvent Moscow and find alternative routes to access Caspian energy. Transit countries were also interested in creating new pipeline routes—and collecting lucrative new transit fees—and it was one of these countries, Turkey, that put the first actionable proposal on the table in 1993. It was another five years before momentum would build, but in 1998 the presidents of Georgia, Turkey, Kazakhstan, Uzbekistan, and Azerbaijan committed to building the Baku-Tbilisi-Ceyhan (BTC) pipeline: a project that would bring Caspian oil to the Mediterranean via a pipeline through Georgia and Turkey. Construction on the nearly $4 billion, thousand-mile-long pipeline began in 2003 and the line became operational in 2006.

Moscow despised BTC from the start. It lambasted the project as economically infeasible, insisted Azerbaijan had no appreciable oil reserves to fill the pipeline, and deemed it a Western scheme to undermine Russia’s influence. But Russia was weak when BTC was envisioned and built and thus had little power to derail the project.

Not any more. As Moscow’s confidence on the world stage has been restored under President (now Prime Minister) Vladimir Putin, Russia has demonstrated it will wield its energy appendages to defend, secure, and promote its strategic interests—including undermining pipelines that threaten its monopoly. Russia’s aggressive new stance first became apparent in Eastern Europe, and specifically in pro-Western Ukraine. On January 1, 2006, after a pricing dispute in which Ukraine refused to meet a Russian demand for a five-fold increase in the price of natural gas, pressure to the pipelines which pass through Ukraine and on to Europe was cut. The dispute was settled only days later, but Moscow again used its gas valve diplomacy three years later to the day, on January 1, 2009. Both cutoffs, occurring in the dead of winter, provided a brief reminder of the criticality of energy security and the importance (and danger) of Russia’s dominance as a supplier. Because almost a half of the EU’s gas imports come from Russia, and 80 percent of those pass through Ukraine, Europe is inevitably affected when gas is cut to anyone in the pipeline chain.

Moscow feels most threatened by energy projects that could significantly weaken its influence over those dependent on it and is fighting to maintain its monopolies. And today, the project most threatening to Russia’s grip on regional energy is Nabucco. Conceived in 2002, Nabucco is a 2,000-mile pipeline designed to carry natural gas from Turkey to Austria, via Bulgaria, Romania and Hungary. After several eventful years of landmark deals and dramatic setbacks, the five countries involved and the European Commission reached formal agreement on July 13, 2009, to construct the pipeline, which is slated to carry a capacity of 31 billion cubic meters per year when completed in 2013.

Yet Nabucco, which counts the United States among its supporters, still faces several technical and political challenges, not least of which are Moscow’s direct and indirect efforts to derail the project. Chief among these, Moscow has been aggressively promoting the Nord Stream pipeline as an alternative. Designed to transport gas straight from Russia to northern Germany via the Baltic Sea, Nord Stream grants Russia multiple benefits: it cuts out Eastern European middlemen (like Ukraine); it deepens Western Europe’s dependence on Russian oil, abating the desire of countries there to seek alternatives like Nabucco; and creates powerful financial lobbies in critical West European states.

Russia has spared no expense to bring Nord Stream to fruition. Some were surprised by how aggressively Germany’s then-Chancellor Gerhard Schroeder, a close confidante of Mr. Putin, pushed to finalize a deal over Nord Stream before his term was complete—that is, until he was appointed chief of Nord Stream’s shareholders’ committee upon leaving office. Then there is the case of Finland which, together with Sweden, is withholding approval for Nord Stream over a series of environmental concerns. So Russia’s Gazprom monopoly, which heads up the project for the Kremlin, hired former Finnish premier Paavo Lipponen in August 2008 to serve as an “advisor” on Finland’s Environmental Impact Assessment and Gazprom’s permit application. By July 2009, Russia and Germany were reporting “progress” on Finland’s position and warning Sweden not to be the last holdout.




Furthermore, Moscow has proposed another new pipeline to Europe, South Stream, which would bring gas to Italy and Austria via the Black Sea and thus pose a direct challenge to Nabucco. On July 6, 2009, as Nabucco discussions neared completion, Russia offered Turkey, a vital Nabucco partner, a role in South Stream. A week earlier, it had dealt an even stiffer blow to Nabucco when Moscow inked a framework agreement with Azerbaijan to have the Caspian state supply Russia’s North Caucasus with gas from its Shah Deniz field—the same field expected to supply the bulk of gas to Nabucco. The amount of gas in question (500 million cubic meters per year) is relatively small, and the price Russia is offering to pay ($350 per thousand cubic meters) relatively high. But few analysts ascribe economic motivations to Moscow’s move.

Russia has good reason to target potential suppliers of gas to Nabucco: officially, there are none. Azerbaijan has expressed strong interest in supplying gas to Nabucco, but Baku has grown impatient with foot-dragging in Ankara and Brussels, and the deal with Russia was designed to signal as much. Turkmenistan and Kazakhstan are also prime contenders and both have signaled interest. However, both also have Moscow conducting aggressive campaigns to lock up energy supplies and leverage its considerable political and economic influence in their capitals.

Nabucco faces technical supply hurdles as well. To reach the pipeline’s source at Erzurum, Turkey, gas will either have to transit Iran from the Caspian, or via the still-conceptual Trans-Caspian and South Caucasus pipelines. If completed, the Trans-Caspian could carry gas under the Caspian Sea from Turkmenistan to Azerbaijan. From there the South Caucasus pipeline would transmit gas from Baku to Erzurum via Georgia. However, both pipelines lack financial, political, and energy commitments. And so Nabucco remains a pipeline without a supplier—a status quo Moscow will fight aggressively to maintain.

The new battle over basing

When the United States traced the 9/11 attacks back to a shadowy terrorist group operating out of Afghanistan, it prepared to confront an amorphous, non-state actor in one of the most desolate regions of the globe. In the process, however, it managed to open a Pandora’s box of great-power geopolitics in the heart of Eurasia.

In planning for the Afghan war, America understood it would need a complex logistics infrastructure to maintain and support a military operation in an unfamiliar territory thousands of miles away. Pakistan, an ally and Afghanistan’s eastern neighbor, was the logical choice. But Islamabad was neither willing nor capable of carrying the load itself. Afghanistan lacked access to water, and with international pariah Iran to its west, Washington turned north, to the five former Soviet Central Asian Republics.

The Central Asian states were in a unique position after a half-century of Soviet rule. None were democracies, though governance ranged from mostly-benevolent strongmen (in Kazakhstan) to North Korea-style megalomaniacs (in Turkmenistan). None were particularly well-developed, although massive energy reserves granted the Caspian Basin states, Kazakhstan and Turkmenistan, enormous economic potential: a stark contrast to the barren and desperately poor pair in the east, Kyrgyzstan and Tajikistan. However, the leaders of all five states shared two important things in common: they were committed secularists, and thus fiercely opposed to Islamist militancy on one hand, and they sought to hedge against their dependency on Russia by building relationships with Western powers on the other.

Russia, meanwhile, was experiencing an uncharacteristically warm relationship with its former nemesis, reinforced by the personal bond between Presidents Bush and Putin. So, amidst the tide of global sympathy for America after the attacks of 9/11, Russia acquiesced to Washington’s incursion into the former Soviet space—even providing critical assistance to the U.S. war effort early on. Moscow raised no objections when the United States was granted permission to use the Karshi-Kanabad (K2) airbase in Uzbekistan in October 2001 and earned access to the Manas airbase in Kyrgyzstan two months later. A “strategic partnership agreement” with Tashkent followed, and relations between the U.S., the Stans, and Russia appeared stable over the next few years, as did the war effort in Afghanistan.

However, in 2005 Washington’s new regional arrangement began to splinter apart and a new front in the Great Game was opened. NATO’s war effort in Afghanistan was flagging—the Taliban and al-Qaeda used the intervening years to regroup in Pakistan—and Washington’s ties to Moscow and Tashkent grew increasingly acrimonious (not least because the pair saw America’s hand in the democratic “velvet revolutions” that swept over Georgia, Ukraine, and Kyrgyzstan between 2003 and 2005). Against this backdrop an assault on government buildings in May 2005 by Islamist militants in Andijan, Uzbekistan was met with a brutal crackdown by the Uzbek government. The engagement was abrupt and bloody. Hundreds were killed. When the United States chastised Tashkent for disregarding human rights, Uzbek president Islam Karimov lashed out and Russia seized the strategic opportunity. On July 5th of that year, the Shanghai Cooperation Organization, a regional security bloc led by Russia and China, issued a statement calling on the U.S. to set a timeline for its withdrawal from Central Asia. Two weeks later, Karimov notified the U.S. that it had 180 days to evacuate the airbase at K2.

Fast forward to 2008 and the U.S.-Russian wing of the Great Game is in full swing. Efforts by the Bush Administration to construct a “third site” for its missile defense architecture in Eastern Europe, and to extend NATO membership to two former Soviet satellites, Georgia and Ukraine, had thrown Moscow into a fit of rage. Meanwhile Putin’s deepening authoritarianism at home, unconstructive stance on Iran’s nuclear program, and increasingly bellicose rhetoric toward Washington soured Russia’s image in the U.S. On August 8th, the first physical blow was landed when a Georgian offensive into its semi-autonomous region of South Ossetia sparked a ferocious response from Moscow, which had “peacekeeping” troops stationed in the pro-Russian enclave since the early 1990s. An overwhelming Russian offensive followed, forcing Tbilisi to sign a cease-fire just four days later. A strong NATO ally and alliance candidate whose military is supplied and trained by the United States, Georgia’s defeat was perceived as a blow to a U.S. proxy in the region.

At the same time, the U.S.-led coalition in Afghanistan was confronted with a logistical bottleneck after the loss of K2. The main supply route through the Khyber Pass in Pakistan was coming under constant Taliban attacks. Washington scrambled to find alternatives, and again actively courted the Stans. Then-CENTCOM Commander Adm. William Fallon visited Tashkent that January to test the waters for a rapprochement with Uzbekistan, and the effort paid dividends when the Uzbeks, who regularly blow hot and cold about Russia, agreed to allow their territory to be used as part of an overland supply route to Afghanistan. Months later, on April 3, 2008, Washington pulled off a coup when the Uzbek and Turkmen presidents attended the NATO summit in Bucharest and pledged their support for the mission in Afghanistan (this February, the pair formally offered “permission to allow the transit of non-military cargo to Afghanistan” through their territory). Finally, in November, Kazakhstan’s parliament approved a strategic cooperation agreement with the United States that, among other things, eased overflight restrictions on Coalition re-supply missions to Afghanistan.

Yet all the while Russia was positioning its own pieces on the regional chessboard. In June 2008, Moscow pledged to beef up the Russian presence at its airbase in Kant, Kyrgyzstan and began prodding Bishkek to open a second Russian airbase. Moscow also signed a military agreement with Tajikistan, which hosts the largest deployment of Russian troops outside Moscow’s borders. And in September, the Collective Security Treaty Organization (CSTO), another Moscow-led regional security grouping, announced it would establish an 11,000-strong Rapid Reaction Force to confront “challenges to the sovereignty” of its members.

But Moscow saved its best hand for early 2009. On an early February trip to Russia, Kyrgyz President Kurmanbek Bakiyev announced that he would be terminating Washington’s lease at Manas, the last U.S. airbase in the region and a longtime thorn in Moscow’s side. As a transit point for 15,000 people and 500 tons of cargo per month, Manas was indispensable to the Coalition’s war effort and Washington knew its closure would critically disrupt day-to-day operations.

As early as December 2005, President Bakiyev had been sporadically demanding hundredfold increases in rent payments for Manas. But Russia’s direct hand in America’s eviction was only subtly masked: the day of Bakiyev’s announcement, Moscow outlined an aid package to Kyrgyzstan including $1.7 billion for the construction of a hydroelectric plant, a $300 million loan at favorable interest rates, a debt write-down of $180 million, and a direct grant of $150 million—a package roughly double the size of Kyrgyzstan’s entire annual budget. In the months that followed, U.S. officials scrambled behind the scenes to advance talks on the Manas lease but each hopeful statement from Washington was met with an official rebuttal from Bishkek: the decision to close the base was final.

Until it wasn’t. On June 23rd, just two weeks after a personal letter from President Obama praised the Kyrgyz president’s assistance in Afghanistan (and a month before the base was slated to close), a new leasing agreement with the U.S. was announced. Rent for Manas—now dubbed a “transit route”—would be tripled, from just under $20 million to $60 million monthly, and the U.S. would finance upgrades to airport facilities as well as provide aid to combat drug trafficking and terrorism. The Manas deal was a major victory for Washington, and viewed by most analysts as an embarrassing blow to Russia, but Moscow was already busy attempting to parry the move. For, as the deal to keep the United States at Manas was unfolding, Russia was pressing its long-standing request to open and operate a second military base in Kyrgyzstan under the auspices of the CSTO. Moscow hopes to station the organization’s Rapid Reaction Force at a Soviet-era military facility located at Osh, which straddles the Ferghana Valley—an historic and strategic crossroads within striking distance of Tajikistan, Uzbekistan, China, and Afghanistan.

Whither the “reset”?

Today, both dimensions of the Great Game are in flux. New leaders in Washington and Moscow are sizing each other up to see how the next set of skirmishes will unfold. So far, Moscow has responded favorably to the Obama Administration’s multi-pronged efforts to “reset” U.S.-Russian relations. During President Obama’s visit to Moscow in July, the two sides struck a deal granting Washington important overflight access over Russian territory to support the war in Afghanistan. Yet Moscow’s gesture is a direct result of an opening it sees under President Obama to roll back two reviled U.S. policies: missile defense in Eastern Europe, and NATO membership for Ukraine and Georgia.

Russia wants, above all, to be viewed as the overlord of its backyard, and to strengthen its grip on the post-Soviet space. It wants a veto on American activities in the region and an end to U.S. democracy promotion efforts there.

What the United States wants is a far more interesting question, and one that has yet to be clearly defined. Foremost, the United States needs a logistical infrastructure to sustain the war in Afghanistan. Over the long term, however, the picture is less clear. Does Washington want a permanent military presence in Afghanistan and Central Asia, or is the current arrangement only temporary? Are democracy promotion and human rights primary goals of America’s regional policy, or will the emphasis be on regional stability and amity with Moscow?

And where does energy fit in this equation? America’s energy interests lie outside Eurasia; nearly all U.S. natural gas imports come via pipeline from Canada (3.5 trillion cubic feet) and Mexico (43 billion cubic feet) or from liquefied natural gas suppliers (350 billion cubic feet) outside the Caspian. The Caspian energy battle is really one for the future of Europe and its political orientation. Washington understands full well that a Europe beholden to Russia for light and heat is more inclined to follow Moscow’s lead when United States and Russian interests collide. That is why successive administrations have made energy diversification for Europe a top priority, generating friction with the Kremlin in the process. It remains to be seen whether President Obama will follow suit.

All of these factors, and others, are in play in the Great Game now being played out over the future of Central Asia and the Caspian basin. The stakes in this conflict are high indeed—nothing less than the future disposition of Europe, the viability of the war effort in Afghanistan, and the shape of U.S.-Russian relations for decades to come.