This document discusses strategic rivalry over energy resources in the Caspian Sea region. It summarizes the hydrocarbon potential of littoral states like Azerbaijan, Kazakhstan, and Turkmenistan. Major points of contention have been how to divide control of the Caspian Sea and competing proposals for pipelines to bring oil and gas to market. The US, Russia, and China have strategic interests in the region and seek to influence pipeline projects, though their goals are not entirely mutually exclusive and there is potential for cooperation on issues like counterterrorism.

1. Strategic Rivalry in the Caspian Sea
Dr. GawdatBahgat
Director, Center for Middle Eastern Studies
Department of political science
Indiana University of Pennsylvania
Indiana, PA 15705
Tel (724) 357-2290
Fax (724) 357-3810
E-mail: GBAHGAT@IUP.EDU
Prepared for delivery at the 2006 Annual Meeting of the American Political Science
Association, August 30th – September 3, 2006. Copyright by the American Political
Science Association.
Strategic Rivalry in the Caspian Sea
Abstract
Sine the early 1990s, the Caspian Sea region has been seen as a potential major oiland gas
producer. Following the 9/11, 2001 terrorist attacks in the United States and the2003 war in Iraq,
energy consumers have shown more interest in the Caspian region andCentral Asia to supplement
energy supplies from the Middle East and to contain militantIslam. This essay examines the
Caspian region’s energy outlook. Particular attention isgiven to the competing pipeline schemes.
The study also analyzes the strategic rivalrybetween the United States, Russia, and China. It
suggests that despite conflictinginterests, the strategies of these global powers should not be seen
in zero-sum terms.
There is room for cooperation, particularly in the areas of combating terrorism andrestricting drug
trafficking. Political stability and economic prosperity in the CaspianSea/Central Asia would serve
the interests of all concerned parties.
2
Strategic Rivalry in the Caspian Sea
The Caspian Sea is the largest enclosed body of salt water in the world. It isbelieved to contain
massive oil and natural gas deposits. For much of the twentiethcentury, the Basin was the
exclusive domain of Iran and the former Soviet Union, withthe latter enjoying more dominance. With
the collapse of the Soviet Union in 1991, “thegeopolitical situation in the region changed
significantly.”1 Five littoral states –Azerbaijan, Iran, Kazakhstan, Russia, and Turkmenistan –
currently share the CaspianSea.
Shortly after independence, these three former Soviet republics, have realized thattheir economic
and political survival depends on the full utilization of their hydrocarbonresources. The lack of
consensus on how to divide the Sea, however, has constituted amajor hurdle.2 The five littoral
states have yet to agree on how to divide the Caspian Sea.
Iran insists on an equal share of each state (20 percent). Meanwhile, in 2003
Azerbaijan,Kazakhstan, and Russia agreed on dividing the northern part of the Sea between
themusing a median line principle.3 This lack of consensus has slowed down the fullutilization of
the region’s oil and natural gas resources.
The Caspian Sea region’s strategic significance has substantially increased sincethe September
eleventh, 2001 terrorist attacks on the United States. The region is one offew areas where
international oil companies are invited to invest in both upstream anddownstream oil and gas
sectors. In comparison, most Persian Gulf producers and, Russia,since the early 2000s, have been
reluctant to allow foreign investment in their upstreamoperations. Following the terrorist attacks, the
Caspian region has emerged as a potentialreplacement of the Middle East. Put differently, the
United States and other major energyconsumers have sought to reduce their dependence on the
Middle East by developing oiland natural gas deposits in the Caspian.
Equally important, given geographical approximately to Afghanistan, Caspian,and other Central
Asian states have become crucial players in the war on terror. In theearly 2000s, U.S. troops were
deployed in Uzbekistan and Kyrgyzstan, while Kazakhstanallowed over-flights to attack terrorist
bases in Afghanistan. In other words, the U.S.campaign against international terrorism has

2. expanded American military presence inRussia’s and China’s “backyard” to unprecedented
proportions. Initially, both Moscowand Beijing accepted the U.S. military presence in their
backyards as an inevitable part ofAmerica’s response to the 9/11 terrorist attacks. But, as Martha
Brill Olcott argues,“neither country was willing to have its national interests overshadowed in the
region.”
These geo-economic and geo-strategic rivalries have been institutionalized tofurther protect the
interests of regional and global powers. In the past two decades,several regional organizations
were created, most notably, the Commonwealth ofIndependent States (CIS), Partnership for Peace
(PfP), Shanghai CooperationOrganization (SCO), and the Organization for Democracy and
Economic Development-GUAM.
The CIS consists of all former Soviet republics, except the Baltic states, initiallyemerged as the
most important institution to consolidate relations between Russia and thenewly-independent
states. On the other side, Western powers, led by the United States,created the Euro-Atlantic
Partnership Council and its related PfP program. Theseorganizations provide, “mechanisms
through which NATO and the former Soviet bloccountries can pursue practical defense and security
cooperation on a range of issues.”
GUAM, a regional grouping of Georgia, Ukraine, Azerbaijan, and Moldova, was initiallycreated to
resist Russian influence. The leaders of the four state-members have expressedtheir desire for
increased cooperation with NATO and the European Union.
The SCO comprises China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, andUzbekistan. The
organization was formed in 1996 and was originally named theShanghai Five. With the addition of
Uzbekistan in 2001, the name changed to SCO.
Mongolia won observer status in 2004; Iran, Pakistan, and India became observers thefollowing
year. The SCO deals with a variety of issues in Central Asia, particularly trade,counterterrorism,
and drug trafficking. In the SCO summit July 2005, the heads of statescalled on the United States
and its allies to set a timetable for their military withdrawalfrom the region.
The combination of these energy and strategic interests has underscored theimportance of the
Caspian Sea/Central Asia region since the early 1990s. The followingsection examines the region’s
hydrocarbon potential and the different schemes to connectit to the global energy markets. This will
be followed by an analysis of American,Russian, and Chinese strategies in the Caspian Sea. The
study argues that despiteconflicting interests, the strategies of these global powers should not be
seen in zero-sumterms. China, Russia, and the United States as well as regional powers share
commoninterests in combating terrorism and restricting drug trafficking. Political stability
andeconomic prosperity in the Caspian Sea/Central Asia would serve the interests of allconcerned
parties. There is room for cooperation.
The Caspian Sea Hydrocarbon Potential
Estimates of the Caspian Sea region’s proven oil reserves vary widely by source.The United States
Department of Energy estimates that the region holds between 17 to 44billion barrels.
7 The British Petroleum’s estimates are 47.1 billion barrels.
8 These figuresindicate that the Caspian’s oil resources are much less than those of the Middle
East.Stated differently, the Caspian Sea will not replace the Middle East as the main reservoirof
world oil. Still, production from the Caspian will add more oil to international marketsand contribute
to global energy security.
Kazakhstan has the Caspian Sea region’s largest recoverable crude oil reservesand its production
accounts for approximately two-thirds of the region’s overall output. Itis important to point out that
Kazakhstan claims the largest share of the Caspian Sea,which includes most of the Basin’s biggest
known oil fields – Tengiz, Karachaganak,Kurmangazy, and Kashagan. These fields have been
developed by international oilcompanies. Since independence in 1992, Kazakhstan has
aggressively pursued foreigninvestment. For the last several years, the national oil company
Kazmunaigaz (formerlyKazakhoil) has signed several schemes with foreign investors to develop
the country’s oiland gas deposits.
The Tengiz field was originally discovered in 1974 and two decades later,Chevron signed a joint
venture with the government of Kazakhstan to develop it.

3. Karachaganak is being developed by a consortium led by Britain’s British Gas and Italy’s
ENI and is considered one of the world’s largest gas-condensate fields. Kashagan is the
largest oil field outside the Middle East and the fifth largest in the world.9 It was first
identified by the Soviets in the early 1970s, but was not developed due to the complex
geologic formations and environmental sensitivity. In recent years, the field has been
developed by international consortium that includes Royal/Dutch Shell, ENI,
ExxonMobil, and ConocoPhilips.10 Finally, Kurmangazy is located on the maritime
border between Russia and Kazakhstan. In July 2005 the two sides signed a productionsharing
agreement to develop the field, which is likely to take several years.
6
Most of the Azeri energy deposits are developed by the State Oil Company of the
Azerbaijan Republic (SOCAR). The company was established in September 1992 with
the merger of Azerbaijan’s two state oil companies – Azerineft and Azneftkimiya.
Almost half of SOCAR’s oil production comes from the offshore field “shallow-water
Gunashli.11 The field first came online in 1981, but technological constraints slowed
down the full utilization of the reservoir’s resources. The influx of foreign investment
since independence has revitalized the country’s energy sector through the development
of large-scale new projects and the refurbishment of existing ones. Azerbaijan
International Operating Company (AIOC) is the leading international consortium in
charge of expanding the country’s oil production and export.12
Most of the future oil production is projected to come from the three-phase
development of the offshore Azeri, Chirag, and deep water Gunashli (ACG) megastructure.
However, the country’s future oil prosperity is highly uncertain. Several foreign
investment projects have been unsuccessful due to disappointing drilling results.13
The other three littoral states – Iran, Russia, and Turkmenistan – have not made
substantial progress in exploring and developing oil deposits in their shares of the
Caspian Sea. With only a small amount has been proven as recoverable, Iran’s oil
deposits in the region are largely unexplored and underdeveloped. In early 2004, Iran’s
Oil Survey Company conducted a 3-D seismic survey of the southern Caspian.14 This has
been followed by prolonged negotiations between the National Iranian Oil Company
(NIOC) and Brazilian company Petrobras to finalize production sharing agreement.
In 1995, the Russian oil company LUKoil began exploration of the Russian
section of the Basin. Five large oil and condensate fields have been found including
Khvalinskoye, Yuri Korchagin, Rakushechnoye, and Sarmatskoye. Some of these fields
7
are located on the borders between Russia and Kazakhstan and are being developed
jointly by companies from the two nations.
For a long time a dispute between Turkmenistan and Azerbaijan over the offshore
Serdar oil and gas field, called Kyapaz by Azerbaijan, prevented the development of the
field.15 In the mid-2000s, Malaysia’s Petronas began offshore oil production in the
Turkmen sector of the Caspian Sea.
The Caspian Sea region’s natural gas deposits are equally important to its oil
reserves. The region holds 256.7 trillion cubic feet (7.27 trillion cubic meters), about 4.1
percent of world’s total.16 Despite these massive proven reserves, international companies
and governments have focused more on oil, partially due to the greater capital
expenditures necessary to start up natural gas production.
Azerbaijan’s natural gas outlook has drastically changed in the mid-2000s. Since
independence in 1992, Baku has been a net importer of natural gas. Most of the country’s
gas production comes from Bakhar and Bakhar-2 gas fields. In 1996 a production-sharing
agreement to develop Shah Deniz was singed. The field is one of the largest in the world
and is being developed by an international consortium comprising BP, Statoil, SOCAR,
LukAgip, NICO, TotalFinaElf, and TPAO.
Almost all Kazakhstan’s natural gas is associated gas.17 Like Azerbaijan,

4. Kazakhstan was a net importer of gas for many years following independence in 1992.
This situation has changed since 2005, when the country became a net natural gas
exporter. This development reflects the government’s efforts to utilize its gas resources.
The future of the country’s natural gas potential is promising.
Turkmenistan’s natural gas production has been subject to intense fluctuations
since independence in 1992. The country counts on its large natural gas reserves and
8
potential exports to be the focal point of its economic prosperity. However, due to the
unpredictability of the country’s political leadership, international companies have been
reluctant to invest in Turkmenistan. Furthermore, a large Turkmen natural gas production
and export would compete with Russia’s. Accordingly, after difficult and extended
negotiations (and few confrontations) Ashgabat agreed to sell almost all its gas exports to
Russia.
In July 2003, the Russian oil and gas companies LUKoil and Gazprom established
a joint venture with Kazakhstan’s state oil company Kazmunaigaz to develop a
hydrocarbon structure called Tsentralnaya. A similar scheme, Kurmangazy, is being
developed since 2003.
Pipeline Diplomacy
The three newly-independent states – Azerbaijan, Kazakhstan, and Turkmenistan
– are landlocked meaning that they do not have direct access to shipping lines on the high
seas. For their oil and natural gas supplies to reach the targeted markets, they have to go
through the territory of at least one transit country. Since the collapse of the Soviet Union
in 1991, several pipeline schemes have been negotiated and some have been
implemented.
A number of characteristic of this “pipeline diplomacy” can be identified. First,
given the historical context and the fact that for several decades these littoral states were
part of the Soviet Union, on the eve of independence all pipelines from the Caspian Sea
were connected to the Russian system. Following the independence, Russia has continued
to dominate the export routes from the region. Building a pipeline system is an expensive
adventure and requires strong financial and political commitments. Furthermore, despite
9
some occasional disagreements and some differences, Moscow still enjoys special
cultural, economic, and political ties with these former Soviet republics.
Second, this lack of adequate outlets to the region’s hydrocarbon resources has
substantially slowed down the full utilization of these deposits and added more
complications to the region’s energy outlook. Energy projects in the Middle East, West
Africa, and Russia do not have to deal with such a hurdle. Third, a consensus is emerging
that eventually multiple pipeline routes will be built. The Russian system is no more
adequate to handle the growing oil and natural gas production from the region.
Furthermore, these littoral states seek to achieve economic and political independence
from Moscow. Thus, diversification of pipeline routes has become a fundamental means
to reduce Russian influence and ensure their independence.
Fourth, the decisions to construct a pipeline system are not based only on the
financial merit of the project or a cost-effective analysis. Geo-political interests play a
significant role in choosing these routes. A main drive in building some of these pipelines
has been to weaken the Russian influence and deprive Iran of any political or financial
benefits. Obviously, Iran represents a viable option to export the Caspian oil and gas,
particularly to Asian markets. However, the strained relations between Washington and
Tehran have substantially reduced the Iranian option’s attractiveness.
Taking these characteristics into consideration, several pipelines routes have been
constructed and/or negotiated. These pipelines aim to ship the Caspian Sea’s oil and
natural gas to all directions – west to the Black and Mediterranean Seas, east to China,
north to Russia, and south through Iran and potentially Afghanistan.

5. The Baku-Tbilisi-Ceyhan (BTC) pipeline is probably the most controversial and
most publicized scheme. This 1,040-mile (1,800 kilometer) pipeline was built by an
10
international consortium led by BP. The construction was completed in May 2005. The
pipeline aims to reduce Caspian producers’ dependence on Russian routes and to
diversify Europe’s supplies away from the Middle East. Little wonder, in the
inauguration ceremony President Bush sent a letter describing the completion of the
project as a “monumental achievement that opens a new era in the Caspian Basin’s
development.”18 President IlhamAliyev of Azerbaijan acknowledged Washington’s
crucial role, “The realization of this project would not have been possible without
constant political support from the United States.”19 The BTC gained an important
monument in June 2006 when President NursultanNazarbayev of Kazakhstan agreed to
export part of his country’s oil via the BTC. Kazakh oil will be shipped by tanker from
the northern Caspian port of Aktau to Baku. The agreement envisions the eventual
construction of subsea pipelines between Kazakhstan and Azerbaijan.20
A parallel natural gas pipeline known as the South Caucasus Pipeline (SCP) is
being built by an international consortium comprising Britain’s BP, Norway’s Statoil,
Azerbaijan’s Socar, Russian-Italian venture LukAgip, Iran’s NICO, France’s Total, and
Turkey’s TPAO). The line ships natural gas from Shah Deniz field in Azerbaijan to the
Turkish port Erzurum on the Mediterranean through Tbilisi. Although most of the gas
will be exported to Turkey, some of it will be sent to Europe via a transit pipeline through
Greece.
The Caspian Pipeline Consortium (CPC) is another important scheme, shipping
Kazakh oil to the Russian port Novorossiysk on the Black Sea. The governments of
Russia, Kazakhstan, and Oman developed the CPC in conjunction with a consortium of
international oil companies. The pipeline was officially opened in November 2001 and
has since transported roughly one-third of Kazakhstan’s exports.21
11
For the last several years, Chinese oil consumption has skyrocketed. Domestic oil
production failed to keep pace with the rising demand and in 1993 Beijing has become a
net oil importer. In order to diversify their oil supplies and reduce their vulnerability to
interruptions, Chinese officials have sought to import oil from many sources. Sharing
long borders with China and holding massive hydrocarbon resources, Kazakhstan is seen
as an attractive source that is likely to contribute to Beijing’s energy security.22
Meanwhile, Astana is interested in diversifying the destinations of its oil exports and
reduce its dependence on Russia. Given these mutual interests, the two nations (China
and Kazakhstan) have sought to increase oil supplies from the latter to the former. Most
of these supplies are being shipped via a three-stage pipeline. The first stage was built in
2003 and the second stage was completed in December 2005. When all three stages are
constructed, the pipeline will span nearly 1,930 miles from Atasu in northwestern
Kazakhstan to alashankou in China’s northwestern Kinjiang region.23
One of the major oil export pipeline runs from Atyrau in Kazakhstan north to link
with Russian distribution system. Before the completion of the CPC, Kazakhstan
exported almost all of its oil through this system. Since the early 2000s the AtyrauSamara system lost some of its significance due to the completion of the CPC. Still, in
June 2002, Kazakhstan and Russia signed a 15-year oil transit agreement under which
Astana will continue exporting part of its oil via the Atyrau-Samara pipeline.
Another northern route runs from Baku to the Russian port on the Black Sea
Novorossiysk. The pipeline was constructed shortly after independence in the early
1990s. Since 2005 when the BTC became operational, increasing proportion of Azeri oil
has been diverted from the Baku-Novorossiysk pipeline to the BTC. Some Azeri officials
have hinted that SOCAR might completely stop using the Novorossiysk route.24
12

6. Finally, routes south (through Iran) and southwest (through Afghanistan) have
been considered. A Trans-Afghan natural gas pipeline (known also as TurkmenistanAfghanistan-Pakistan pipeline) has been under consideration since the early 1990s.The
project is supposed to carry natural gas from Turkmenistan to Pakistan and possibly India
via Afghanistan. However, political instability in Kabul has hindered any progress.
U.S. economic sanctions on Iran (in place since 1979) have blocked the
construction of any pipelines from the Caspian Sea. In response, Tehran has pursued the
so-called oil “swaps.” According to these arrangements, Caspian oil is delivered to
population centers in northern Iran and in return an equivalent amount of Iranian oil is
exported through Persian Gulf terminals. Accordingly, for the last several years, oil
shipments from Kazakhstan and Turkmenistan have been sent to the Iranian port Neka,
from where it is sent to refineries in Arak, Tabriz, and Tehran. Since the early 2000s, Iran
has sought to expand the capacity of Neka and the refineries.
In addition to oil swaps, in December 1997 a pipeline linking the Korpedzhe gas
field in western Turkmenistan to the town of Kurt-Kui in northern Iran was opened. This
pipeline was the first in Central Asia to bypass Russia.
The Political Context
Regional and international rivalries over the Caspian Sea’s hydrocarbon resources
are further complicated by internal dynamics and conflicting strategic interests by global
powers. Given their historical legacy as underdeveloped parts of the former Soviet Union,
Azerbaijan, Kazakhstan, and Turkmenistan have long way to go to establish transparent
political institutions and functioning market economies. The United States, Russia, and
China seek to influence the domestic policies of the Caspian states in the way that would
serve their respective strategic interests.
13
Several non-profit research institutions and government-reports have documented
the lack of political reform in these three former Soviet republics. The New York-based
Freedom House on a scale of one to seven (one represents the most free and seven the
least free) and using two criteria (political rights and civil liberties) gives the following
scores (Azerbaijan 6 & 5), Kazakhstan (6 & 5), and Turkmenistan (7 & 7). The three
states are rated not free.25 In its annual Corruption Perceptions Index, the Berlin-based
Transparency International (TI), Kazakhstan, Turkmenistan, and Azerbaijan rank 122,
133, and 140 respectively in a list of 145 states.26 In other words, according to TI, the
three states are among the most corrupted in the world.
Despite close energy and strategic cooperation between the United States and the
Caspian Sea nations and exchange of visits by top officials, the United States Department
of State’s annual report, Supporting Human Rights and Democracy, is very critical. The
report states, “Azerbaijan’s human rights record remained poor. While there were some
improvements in the period leading up to the November 6, 2005 parliamentary elections,
the elections failed to meet a number of international standards.”27 Similarly, the report
describes human rights record in Kazakhstan as poor. It says, “Although there were
improvements in other human rights areas, democratic institutions remained weak and
President NursultanNazarbayev, who was reelected to another seven-year term on
December 4, 2005, dominated the political space. Since its independence from the Soviet
Union, Kazakhstan has not held an election that met international standards.”28 Finally,
the Department of State saves the harshest criticism to Turkmenistan, “The government
of Turkmenistan continued to commit serious abuses, and its human rights record
remained extremely poor. Turkmenistan is an authoritarian state dominated by president14
for-lifeSaparmuratNiyazov who retains monopoly on political and economic power, and
controls the parliament and judicial system.”29
This strong criticism of the political regimes in the Caspian Sea region is further
heightened by growing polarization between opposition groups and the ruling elites and

7. allegations of corruption and bribery. Tensions between the government and the
opposition in Azerbaijan have increased since an October 2003 election, in which Ilham
Aliyev replaced his father, HeydarAliyev, as president in a vote that was largely
regarded as fraudulent. For several years allegations against Kazakh President Nazarbaev
have been investigated in U.S. federal court.30 Finally, the Turkmen political system has
concentrated all power in the hands of President Niyazov, who eliminates any and all
prospective rivals and refuses to appoint a successor.
Since the early 1990s, the United States, Russia, and China have pursued different
strategies and employed a variety of means in dealing with these authoritarian regimes in
the Caspian Sea in a way that would ensure their energy and strategic interests.
The United States: The United States has several core objectives in the Caspian
Sea region. First, the United States’ proven oil reserves have steadily declined since
1990, while its demand for both oil and gas has been on the rise. In 2005, Washington
imported approximately 58 percent of its oil needs.31 In other words, the growing gap
between the nation’s consumption and production of oil and gas is being increasingly
filled by imported fuel. Within this context of deepening dependence on foreign energy
supplies, developing the Caspian hydrocarbon resources is particularly important. It is
likely that most Caspian supplies will go to Europe and Asia, not the United States. Still,
adding more oil and gas to the global market will enhance energy security to all
consumers.
15
Second, the war on terror in the aftermath of 9/11, 2001 attacks added more
strategic value to the Caspian Sea/Central Asia region both to support military operations
against the Taliban in Afghanistan and to fight militant Islam in the region. The key U.S.
ally early in the “war on terror” was Uzbekistan. But the Uzbek government’s bloody
crackdown on peaceful protesters in May 2005 and its subsequent plans to evict U.S.
forces from the Karshi-Khanabad air base late in the year changed the equation. The U.S.
has successfully negotiated the use of Manas Air Base in Kyrgyzstan, while media
reports have suggested that Washington could consider redeploying its troops to
Kazakhstan pending a deal with officials in Astana.32
Third, the United States is interested in strengthening the independence of these
former Soviet republics, promoting democracy and market economies, and containing the
Russian and Chinese influence in the region.33
Considering these economic and strategic interests, the United States has forged
close relations with Azerbaijan and Kazakhstan despite their poor record on human rights
and lack of political transparency. In April 2006, President Bush met with the President
of Azerbaijan IlhamAliyev in the White House and a month later Vice President Richard
Cheney visited Kazakhstan. These meetings reflected, among other things, close military
cooperation between the two sides to improve Baku’s and Astana’s military capabilities.
This cooperation blossomed after the U.S. Congress altered its prohibition on most U.S.
government-to-government aid to Azerbaijan until it ends “blockades and other offensive
use of force against Armenia.”34 This prohibition, enacted into law in 1992 as Section 907
of the Freedom Support Act, was modified in 2002 to allow for an annual presidential
waiver to allow for a significant expansion of U.S. military and security assistance.
16
Two programs – the Caspian Guard and Cooperative Security Locations – reflect
the growing American military role in the security of the Caspian Sea. The former is an
initiative involving both Azerbaijan and Kazakhstan focusing on maritime and border
security. It incorporates defensive mission areas, including the surveillance of Caspian
airspace, borders, and shipping.35 The Cooperative Security Locations are tactical facilites
with pre-positioned stock that provide contingency access but, unlike a traditional base,
have little or no permanent U.S. military presence. These locations are designed to
increase the mobility of U.S. military forces and, most importantly, facilitate counterproliferation

8. missions along Azerbaijan’s southern border with Iran and northern borders
with Georgia and Daghestan.36
The close and growing cooperation between the United States and both
Azerbaijan and Kazakhstan suggests two conclusions. First, given the Caspian Sea
energy resources and American determination to contain militant Islam in the
neighboring countries as well as maintaining a political and military presence in China’s,
Iran’s, and Russia’s backyard, Washington will continue to have a strong interest in the
region. Second, the co-called colored revolutions (Rose in Georgia in 2003, Orange in
Ukraine in 2004-05, and Tulip in Kyrgyzstan in 2005) demonstrated U.S. support for
change and opposition to authoritarian regimes.37 True, each case is unique and the
United State policy was driven by strategic interests as well as by the desire to promote
democracy. Still, these developments have underscored the Caspian states leaders’
suspicion of American intentions in the region. This suspicion explains, at least partly,
their desire to maintain close relations with their powerful neighbor Russia.
Russia: unlike the United States, whose involvement in the Caspian region is
relatively a recent development, Russia has a long history of close relationship with the
17
region. The three littoral states were part of the former Soviet Union for more than seven
decades. The close cultural, demographic, and economic ties have survived the political
independence in 1992. Russia’s cultural influence still is dominant in the Caspian region.
Many members in the political and economic elites speak Russian and send their children
to get their education in Russian universities. Many ethnic Russians reside in the Caspian
states, particularly in Kazakhstan where they constitute more than 30 percent of the
population.38 Finally, more than a decade and a half after independence, the economies of
the Caspian states still are heavily dependent on Russia, particularly the energy sectors.
Russia’s strategy in the Caspian region aims at achieving two fundamental goals:
First, securing Moscow’s dominant role in the exploration, development, and
transportation of the Caspian hydrocarbon resources. Russia dominates Turkmenistan’s
natural gas exports and plays a significant role in controlling the Kazakh oil exports.
Russian government fought very hard to prevent the construction of the BTC. In addition,
Russian companies have taken a leading role in developing oil and natural gas deposits in
the Caspian in cooperation with the Azeri, Kazakh, and Turkmen governments.
It is important to point out that Russia’s natural gas production has been flat for
the last several years. In order to fulfill its export commitments, Russia plans to increase
its gas imports from the Caspian Sea/Central Asia region, where it buys gas at very cheap
price, and sell it to the European markets at much higher price.39 Moscow’s control of
most pipelines routes strengthens its bargaining position and leaves the land-locked
Caspian states with few options.40
Second, Russia is interested in maintaining its status as the dominant power in the
region and resisting what some Russian officials perceive as American penetration of
Russia’s backyard or the “near-abroad.” Indeed, many Russian officials consider U.S.
18
presence as a major source of instability.41 This perception underscores the fact that the
top echelons of the Russian armed forces and security services are traditionally antiAmerican.42 They do not accept a weakening of Russian influence in the region.
Furthermore, they consider NATO’s expansion and American growing military presence
in the Caspian Sea/Central Asia as a direct threat to Russia’s national security. In October
2003, the Russian Defense Minister Sergei Ivanov identified the introduction of foreign
troops onto the territories of states, which are adjacent to and friendly toward the Russian
Federation as a primary threat to Russian security.43
This Russian suspicion of the growing U.S. military presence in the Caspian Sea
region has prompted a major change in Moscow’s stand. Originally, Russia, along with
Iran, called for the demilitarization of the Sea in order to spare the region from potential

9. military conflicts. Seeking to assert its own influence to counter the U.S. presence, the
Russian government has pursued a twofold strategy since the early 2000s. First, in a
series of high profile and well-publicized moves, Russia has expanded its naval presence
in the Sea and called for a system of collective security that would include all the five
littoral states that share the Basin. The large gap between Russian naval capabilities and
those of the other four Caspian states, none of them showed any interest in participating
in such a collective-security system. In other words, the leaders of Azerbaijan, Iran,
Kazakhstan, and Turkmenistan did not want to become cheer-leaders in a system
dominated by Russia. Second, Russia repeatedly called for a ban on any outside military
presence in the Caspian Sea. Again, suspicious of Russia’s intentions, Astana and Baku
have received U.S. military assistance. Iran also has expanded its naval presence in the
Sea.
19
Russia’s efforts to assert its influence and to counter U.S. presence in the Caspian
Sea region are shared by another giant power in the region – China.
China: Chinese strategic thinking on the Caspian Sea/Central Asia region is very
similar to the Russian. Beijing and Moscow share three broad strategic goals: expand
their roles in developing the region’s hydrocarbon resources, contain extremist and
separatist movements, and resist U.S. growing economic and strategic presence. Beijing’s
ability to punish or reward regional players is less than that of Moscow or Washington.
Nevertheless, China’s rising economic and military power suggests that its policies in the
Caspian region, and elsewhere, are likely to become more assertive in the near future.
Since the early 2000s China has consolidated its energy ties with the Caspian
states. In April 2006, Turkmen President SaparmuratNiyazov paid a six-day visit to
Beijing, where he signed off on a plan to export 30 billion cubic meters of gas annually
by a new pipeline to China beginning in 2009.44 More important, China has substantially
increased its involvement in the Kazakh oil sector. In 2005, China National Petroleum
Company bought Kazakh oil producer Petrokazakhstan for four billion dollars.
Furthermore, part of Kazakh oil is exported to China via the pipeline that connects the
two nations.
China’s interests in fighting the separatists in Xinjiang45 converge with those of
other nations in the region battling the Islamic Movement of Uzbekistan (IMU), as well
as those of Russia, fighting Chechen rebels since the early 1990s.46 The prospects of
having a civil war with a separatist movement driven by religious zeal, similar to
Chechnya are a major concern to the Chinese leadership.
Finally, the heavy U.S. military ties in several countries surrounding China
(Japan, and Taiwan), and growing military cooperation with India are of great concern to
20
the leadership in Beijing. American military presence in the Caspian Sea/Central Asia
region has further complicated China’s strategic calculus. Obviously, Beijing has great
national security interests in reducing U.S. military presence next to its borders.
Conclusion
The discussion of the Caspian Sea’s hydrocarbon potential, the competing
pipeline schemes, and the strategic rivalry between the United States, Russia, and China
suggests two conclusions. First, in the early 1990s there were some highly optimistic
assessments of the Caspian’ oil and natural gas reserves. By the mid-2000s, a more
realistic assessment has emerged based on the exploration results and deeper appreciation
of the difficulties and costs of shipping energy supplies from the region to global
markets. Despite this less optimistic assessment of the region potential and outputs, there
are no indications that international oil companies are about to suspend their operations
and leave. The volatile global energy markets means that every drop of oil is needed and
additional sources of energy will improve the overall global energy security.
Second, the rivalry between global powers over access to energy resources and

10. spheres of influence is not likely to wane any time soon. However, these global powers
and their regional allies share common interests in fighting drug trafficking and terrorism.
Their visions for the future of the region are not identical. Still, economic prosperity and
political stability will promote these common interests and serve the people in the
Caspian Sea/Central Asia region.
21
1 Barbara Janusz, The Caspian Sea: Legal Status and Regime Problems, London: Chatham
House,
August 2005, p.2.
2 For more details see GawdatBahgat, “Splitting Water: The Geopolitics of Water Resources in the
Caspian Sea,” SAIS Review, Vol.22, No.2, Summer-Fall 2002, pp. 273-292.
3 According to the 2003 trilateral agreement, Kazakhstan controls 27 percent, Russia 19 percent,
and
Azerbaijan 18 percent.
4 Martha Brill Olcott, “The Great Powers in Central Asia,” Current History, Vol.104, No.684, October
2005, pp.331-335, p.331.
5 Richard Weitz, “Averting a New Great Game in Central Asia,” Washington Quarterly, Vol.29,
No.3,
Summer 2006, pp.155-167, p.163.
6 More information is available on the organization website at www.sectsco.org.
7 Energy Information Administration, Country Analysis Briefs: Caspian Sea, September 2005, on
line
at<www.eia.doe.gov/cabs/Caspian/Full.html> accessed May 18, 2006.
8 British Petroleum, BP Review of World Energy, London, 2006, p.4.
9 Energy Information Administration, Country Analysis Briefs: Kazakhstan, July 2005, on line at
<www.eia.doe.gov/emeu/cabs/kazak.html> accessed July 8, 2006.
10 Mark J. Kaiser and Allan G. Pulsipher, “High Costs, Uncertainty Challenge Operators in
Promising
Kazakhstan,” Oil and Gas Journal, Vol.104, No.25, July 3, 2006, pp.39-44.
11 Energy Information Administration, Country Analysis Briefs: Azerbaijan, June 2005, on line at
<www.eia.doe.gov/emeu/cabs/azerbjan.html> accessed June 23, 2005.
12 The main partners in AIOC are BP, Unocal, SOCAR, Inpex, Statoil, ExxonMobil, TPAO, Devon
Energy, Itochu, Delta/Hess.
13 For example, in the mid-2000s ExxonMobil and Lukoil failed to discover commercially viable
hydrocarbon reserves at the Zafar-Mashal and Yalama blocks respectively.
14 Energy Information Administration, Country Analysis Briefs: Iran, January 2006, on line at
<file://V:PRJNewCABsV6IranFull.html> accessed January 4, 2006.
15 Energy Information Administration, Country Analysis Briefs: Turkmenistan, July 2000, on line at
<www.eia.doe.gov/cabs/turkmen.html> accessed July 21, 2000.
16 British Petroleum, BP Statistical Review of World Energy, London, 2006, p.20.
17 Associated gas is produced with oil.
18 Aida Sultanova, “Azerbaijan Opens Part of Oil Pipeline to the Mediterranean,” Washington Post,
May 26, 2005.
19 LadaYevgrashina, “Baku-Ceyhan Pipeline Opens to Caspian Oil,” Moscow Times, May 26,
2005.
20 Oil and Gas Journal, “Kazakhstan to Ship Oil through BTC Line,” Vol.104, No.24, June 26, 2006,
p.10.
21 Energy Information Administration, Country Analysis Briefs: Kazakhstan, July 2005, on line at
<www.eia.doe.gov/emeu/cabs/Kazak.html> accessed July 8, 2006.
22 For a thorough analysis of China’s energy security see ZhaDaojiong, “China’s Energy Security:
Domestic and International Issues,” Survival, Vol.48, No.1, Spring 2006, pp.179-190.
23 Oil and Gas Journal, “Kazakhstan-China Oil Line Section Filling,” Vol.104, No.1, January 2,
2006,

11. p.11.
24 Some Azeri officials claim that they are losing millions of dollars due to mixing their high quality
crude with Russia’s Urals. The solution, they argue, is to stop exporting via the Russian port.
25 Freedom House, Freedom in the World 2006, on line at <www.freedomhouse.org> accessed
July 13,
2006.
26 Transparency International, Corruption Perceptions Index 2004, on line at
<www.transparency.org/pressreleases_archive/2004/2004.10.20.cpi.en.html> accessed April 4,
2005.
27 U.S. Department of State, Supporting Human Rights and Democracy, on line at
<www.state.gov/g/drl/rls/shrd/2005/63946.htm> accessed July 8, 2006.
28 Ibid.
29 Ibid.
30 James Giffen, a U.S. citizen and a former consultant to the Kazakh government, is accused of
violating the Foreign Corrupt Practices Act by funneling more than $78 million from oil-concession
fees to Kazakh president, his family, and other Kazakh officials.
31 Energy Information Administration, Country Analysis Briefs: United States, on line at
<www.eia.doe.gov/cabs/Usa/Background.html> accessed December 3, 2005.
32 GulnozaSaidazimova, “Central Asia: Could Regional Dynamics Spell Closer U.S.-Kazakh Ties?”
Radio Free Europe, on line at <www.rferl.com> accessed June 12, 2006.
33 For more details see S. Neil Macfarlane, “The United States and Regionalism in Central Asia,”
International Affairs, Vol.80, No.3, May 2004, pp.447-461.
34 The waiver can be found on the Department of State’s website at
<www.state.gov/p/eur/rls/prsre/2003/27664.htm> accessed July 13, 2006.
35 Richard Giragosian, “Nagorno-Karabakh: Peace May Depend on Military Situation,” Radio Free
Europe on line at <www.rferl.org> accessed February 13, 2006.
36 Richard Giragosian, “Azerbaijan: Relations with U.S. Enter A New Phase,” Radio Free Europe,
on
line at <www.rferl.org> accessed August 9, 2005.
37 Eugene Rumer, “The U.S. Interests and Role in Central Asia after K2,” Washington Quarterly,
Vol.29, No.3, Summer 2006, pp.141-154, p.148.
38 Central Intelligence Agency, World Fact Book, on line at <www.cia.gov> accessed July 14,
2006.
39 Isabel Gorst, “Struggle for Gas Intensifies,” Petroleum Economist, Vol.73, No.5, May 2006, p.12.
40 Catherine Belton, “Caspian Great Game Back on,” Moscow Times, May 5, 2006.
41 Richard Weitz, “Averting a New Great Game in Central Asia,” Washington Quarterly, Vol.29,
No.3,
Summer 2006, pp.155-167, p.158.
42 Boris Rumer, “The Poers in Central Asia,” Survival, Vol.44, No.3, Fall 2002, pp.57-68, p.66.
43 Ilan Berman, “The New Battleground: Central Asia and the Caucasus,” Washington Quarterly,
Vol.28, No.1, Winter 2004/05, pp.59-69, p.64.
44 Catherine Belton, “Caspian Great Game Back on,” Moscow Times, May 5, 2006.
45 Kinjiang is strategically and economically important to China for several reasons: the region is
rich in
several mineral resources, particularly oil and is well connected to Central Asian states, Pakistan,
and
Afghanistan.
46 SubodhAtal, “The New Great Game,” National Interest, No.81, Fall 2005, pp.101-105, p.102.