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John Daly

John Daly

Dr. John C.K. Daly is the chief analyst for Oilprice.com, Dr. Daly received his Ph.D. in 1986 from the School of Slavonic and East European…

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Georgia - Energy Bridge To Conflict

U.S. foreign and energy policies are inextricably linked, closer than Siamese twins. Since the 1991 collapse of the USSR, Washington’s foreign policy has been to advance NATO up to the borders of the Russian Federation while converting former Soviet Caucasian and Central Asian nations, along with Central and Eastern European countries into energy transit nations en route to the ultimate prize, the vast and largely untapped oil and natural gas riches of the three former Soviet republics ringing the Caspian – Azerbaijan, Kazakhstan and Turkmenistan.

It is an understatement to say that Moscow has viewed this policy with growing alarm, as it not only occupies the northern Caspian coast, but, rightly or wrongly, considers former Soviet regions an area where Russian President Dmitry Medvedev in a 5 November 2008 speech claimed that Moscow has "privileged interests." Some have begun labeling his comments the "Medvedev Doctrine," in deference to Washington's historic claim of influence in the Americas, the "Monroe Doctrine."

As President Obama attempts to grapple with the geostrategic legacy of the Bush administration, having made Afghanistan the focus of his military policy, he should begin a clear-eyed examination of the wisdom of further NATO expansion, particularly as regards Georgia, recently chastened by last month’s release of an independent EU-commissioned report on the causes of the August 2008 Russo-Georgian five-day war.

Laying blame for the outbreak of hostilities squarely on the shoulders of the administration of Georgian President Mikhel Sakaashvili the reported bluntly stated, "Operations started with a massive Georgian artillery attack. (Georgia) stated the operation was aimed at restoring the constitutional order in South Ossetia.” Lest the implications of the sentence be unclear, the report continued, "There is the question of whether the use of force by Georgia in South Ossetia ... was justifiable under international law. It was not (under existing stability accords with Moscow)."

Had the Bush administration’s relentless pressure on its NATO European allies succeeded, then last August’s conflict could have taken an ominous turn, as Article 5 of the NATO Charter states, “The Parties agree that an armed attack against one or more of them in Europe or North America shall be considered an attack against them all and consequently they agree that, if such an armed attack occurs, each of them, in exercise of the right of individual or collective self-defense recognized by Article 51 of the Charter of the United Nations, will assist the Party or Parties so attacked by taking forthwith, individually and in concert with the other Parties, such action as it deems necessary, including the use of armed force, to restore and maintain the security of the North Atlantic area.” (Emphasis added.) Despite the frantic bloviating of some U.S. politicians at the time (Arizona’s Senator and later Republican presidential candidate John McCain famously declared on 12 August, “We’re all Georgians now”). Cooler heads fortunately prevailed and the fighting stopped later the same day.

However, given the larger issues implicit in the U.S.-Russian geostrategic relationship, Washington should stop backing Georgia’s accession to the alliance. At the very least such action needlessly antagonizes Moscow and worse, by encouraging Georgian bellicosity, puts at risk Western exports of oil via the Baku-Suspa and Baku-Tbilisi-Ceyhan (BTC) pipelines. The military confrontation last year highlighted the two routes’ vulnerabilities, though the lessons of that conflict have apparently yet to percolate inside Beltwayistan.

BTC suffered a terrorist attack on August 5, two days before the outbreak of hostilities between Georgia and Russia, by the Kurdish separatist Partiya Karkeren Kurdistan (Kurdistan Workers’ Party). The $3.6 billion, 1,092-mile, one million barrel per day (bpd) pipeline transits high-quality Azeri crude from its Caspian offshore Azeri-Chirag-Guneshli fields to Turkey’s deepwater Mediterranean terminus at Ceyhan. The assault caused BTC’s operator BP (formerly British Petroleum) to declare force majeure and halt shipments as authorities waited for the affected section to burn itself out.

Seeking an alternative route following BTC’s closure BP switched to the recently reopened 550-mile 140,000- bpd Western Route Export Pipeline (WREP), better known as the Baku-Supsa line, which opened in 1999 and was running at about 90,000 bpd. On August 12 BP announced that it was suspending shipments through Baku-Supsa, as well as the South Caucasus Pipeline (SCP), which transports natural gas from Baku to Turkey via Tbilisi.

The conflict also halted maritime oil exports from the Georgian Black Sea ports of Poti (100,000 bpd) and Batumi (200,000 bpd), both supplied by rail, and Kulevi, Georgia’s third Black Sea oil terminus, which opened in 2007 and is capable of shipping 200,000 bpd, was shuttered as well.

Seeking to extract maximum political damage from the encounter, Georgian Security Council Secretary Aleksandr (Kakha) Lomaia stated that, "Russians bombed the BTC pipeline south of the city of Rustavi," but the charges were denied by the Russian military and subsequently proven to be false. More than 155 miles of the BTC transits Georgia, with the pipeline in places running as close as 34 miles from South Ossetia. For Tbilisi, the revenue losses from BTC’s closure were significant. In 2007 BTC fees generated $25.4 million in transit revenues and Saakashvili’s government estimated transit payments for 2008 at about $45 million.

The final result of all this was to remind Western oil companies that Azeri oil exports westwards flow via courtesy of Russia and if Western countries led by the U.S. continue to pursue what Moscow regards as hostile regional military policies, there are consequences. In the flurry of anti-Russian press at the time, few stopped to consider how Sakaashvilii’s indiscriminate shelling of his own disaffected citizens was supposed to win hearts and minds and convince them that their best interest lay in continuing to be under Georgian control.

Currently the U.S. needs Russia far more than Russia needs the U.S., if for no other reason than the Northern Distribution (NDN) northern resupply rail link for the increasingly beleaguered NATO ISAF forces in Afghanistan runs through Russia. Washington should dump Sakaashvilii’s xenophobic nationalism and postpone any consideration of Georgian accession to NATO until the nation gets a more moderate president less bellicose towards his northern neighbor. Otherwise, the West may find itself short of 1.6 million bpd of crude even as ISAF forces run short of everything from ammunition to razor blades. Sakaashvili lives in a tough neighborhood and that should remain his problem, not NATO’s, whatever senators from Arizona might say.

By. John C.K. Daly of OilPrice.com

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