26 September 1997

CASPIAN BASIN SEEN NOT REPLACING MIDDLE EAST AS OIL
SOURCE

(Caspian oil topic of symposium) (1120)
By George S. Hishmeh
United States Information Agency Staff Writer


Washington -- The Caspian Basin, now in the eye of a storm over
pipeline routes and regional political rivalries, will not replace the
Middle East as a major oil reserve, a symposium examining this
oil-rich region was told here this week.

Julia Nanay, a director of the Washington-based Petroleum Finance
Company, noted that Saudi Arabia, Kuwait and Abu Dhabi have a total of
about 400 billion barrels of oil reserves. The Department of Energy's
latest figures estimate the potential of the Caspian Basin at 200
billion barrels. Neighboring Russia alone has 40 billion barrels.

But the importance of the Caspian Basin, according to Nanay, is for
the Asian countries since they are seeking to diversify their supply
sources, now primarily coming from the Middle East.

Moreover, Central Asia is the only region that has the potential to be
the next North Sea, discovered 25 years ago, which could, in Nanay's
words, form "a major new axis in worldwide energy supply."
Furthermore, it is the only region open to foreign investment, free of
U.S. or multilateral sanctions. Iraq and Iran are two other
prospective areas but these oil-rich states are ostracized by the
international community. Elsewhere in the oil countries of the Middle
East, there are restrictions, she added.

"(The Caspian Basin) could be critical to helping sustain orderly
global crude oil markets," she continued. "As world oil demand grows,
this could become an important source of oil supplies to temper any
rise in prices."

Other participants in the symposium, titled "Caspian Oil: Pipelines
and Politics" and sponsored by the Middle East Policy Council, were
Dr. Frederick Starr, head of the Central Asian Institute at Johns
Hopkins' School for Advanced International Studies, and Dr. Thomas
Stauffer, an oil consultant, who taught at Harvard and Georgetown
universities.

International focus on the Caspian region followed the breakup of the
Soviet Union and the emergence of a number of independent states on
the western and eastern side of the Caspian Sea. Besides Russia and
Iran, the two main power centers in the region, the other riparian
countries are Azerbaijan, Kazakstan and Turkmenistan. The other
oil-rich states in the region are Uzbekistan, Georgia, Armenia and
Chechnya, which is seeking independence from Russia.

A common feature of these landlocked states is that they do not have
an independent route to the world markets. Consequently, they are
being wooed by the international companies and foreign governments to
sign agreement for exploration, production and marketing of their oil
and gas through a multitude of projected pipelines reaching the high
seas.

Dr. Starr advised the international community to exercise
self-restraint and increase "consultation and cooperation" among all
the interested parties in the region which include the United States,
Russia, Germany, China, Japan, Korea and Malaysia in order to avoid
domination by one power.

He called for a broad strategy for the area that addresses the issues
in this region and thereafter focus on the problems of pipelines. He
noted that the need is clear "to strengthen the countries within the
region with regard to their economies, their transformation to market
economy and to becoming open democratic societies."

Otherwise, he warned, this situation is "rich with potential for
conflict" that could engulf the region and the world "if (it is) not
properly managed (and) destroy the Caspian Basin as an energy
producer."

A note struck at the conference, held September 25 in a Senate office
building, is the world's growing appetite for oil. The Energy
Information Agency (EIA) estimated world oil demand rising from 73.4
million barrels per day this year to 104.6 million barrels a day in
2015.

The United States consumes an estimated 18 million barrels a day (and
imports close to 10 million barrels a day) while China produces only 3
million barrels a day and imports 500,000 barrels a day, India about
1.6 million barrels a day.

Since the important market for oil is transport fuels, Nanay saw "an
exponential growth" in demand for gasoline, for example, in China and
India as a result of the anticipated economic growth in these two
Asian giants. In fact, she continued, "the net import requirements of
the Asia Pacific region will be skyrocketing" in the near future.

She pointed to "a creeping presence" of Asian companies in the Central
Asian states of Kazakstan, Azerbaijan and Turkmenistan. But, according
to her, the competing U.S. companies vying for the same area "were
left empty-handed as the Asians marched in with promises of sizable
investments, and more importantly, a solution to the exit route
dilemma."

The Asians promised they would work on driving exports through Iran
and China, she reported, "because these export routes would bring the
oil closer to where it's needed."

The Asian companies prefer the Iranian route because it is the most
economically and commercially viable, she maintained.

She noted that the Japanese are moving into Azerbaijan "in a big way;
and it may be huge pretty soon." The Chinese are also making overtures
to the Azeris.

In all these Central Asian countries, explained Nanay, the view is
that they have move their resources to the oil market or else their
economies will continue in a downward spiral. "In a sense there is
real desperation," she continued, "for Turkmenistan, exporting through
Iran is a matter of survival."

Nanay underlined the "real problem" for the oil industry which, she
pointed out, was the absence of a new world-class oil province since
the discovery 25 years ago of the North Sea. The Caspian Basin "is the
only area that has the potential to be the next North Sea and it is
the only region that is open to foreign investment, free of U.S. and
multilateral sanctions."

Dr. Stauffer argued that Iran offers the most economical route for
Caspian oil, which he thought would have a "minor" influence on world
oil markets. What makes Iran "extremely interesting," he explained, is
both "geography and infrastructure."

Iran can offer a "swap deal" where it can absorb Caspian oil in its
outlying northern part of the country in exchange for similar
quantities from its oil-rich southern region where it has adequate
refinery and port facilities for any Caspian oil importers.

But, he maintained, both Russia and the Israeli lobby in the United
States are against this alternative route. The Russians prefer Caspian
oil to transit their country for the obvious transit fees while the
Israeli lobby wants to act as middlemen for the Iranians with the
United States.


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