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Published Tuesday, April 4, 2000, in the San Jose Mercury News

Oil-rich Kazakhstan could ease U.S. pain

  • Untapped: Caspian region has largest reserves. By William Ratliff Special to the Mercury News 

  • ALMATY, Kazakhstan -- Gas prices have rocketed in the United States, particularly in California, and as tempers flare politicians look for ways to ease Americans' pain. The search for a major alternative source of oil is an obvious option and a primary reason Secretary of State Madeleine Albright will spend a week in the oil-rich Caspian Sea region beginning April 14. She will visit Kyrgyzstan, Uzbekistan and Kazakhstan.

    In 1998 the State Department estimated the Caspian region has reserves of oil and gas at 178 billion barrels or more, making it the largest untapped source of these fuels in the world. 

    A major portion of this wealth is in western Kazakhstan, and Kazakhstani President Nursultan Nazarbayev says his country will become one of the world's top five oil producers of the future. But as he told the Organization for Security and Co-operation in Europe in February, the energy potential of the region can only be realized if problems among regional states are resolved, ideally with help from the international community.

    Anchor for stability

    The Clinton administration sees Kazakhstan as a key to the future of this region. Albright plans to discuss combating regional terrorism. She will also discuss how the United States can support already well-advanced market but as yet incomplete democratic reforms that the United States hopes will make this the region's most independent country -- and an anchor for stability.

     Landlocked Kazakhstan is by far the most important country strategically in Central Asia. Four times the size of Texas but much more sparsely populated, it is breaking free from a grim Soviet past. During a half-century, Soviet leaders settled millions of Russians there to develop agriculture, heavy industry and what, on independence in 1991, was the fourth-largest nuclear arsenal in the world. 

    After independence, Kazakhstan launched a major reform program and became the first country to unilaterally eliminate nuclear weapons in exchange for security ``assurances'' from the United States and others.

     Still, many fear Kazakhstan may be particularly vulnerable to the increasingly assertive Russian nationalism evident in the war in Chechnya and the election of Vladimir Putin as Russian president.

     Of all the former Soviet republics in Central Asia, Kazakhstan remains the most closely tied to Russia. The two countries have deep historic links and share a 4,250-mile border. Though about 2.5 million Russians have returned ``home'' during the past decade, a third of Kazakhstan's ethnically diverse population, according to government figures, is still Russian by ancestry. And for practical reasons Russian remains the main language of government.

     Kazakhstanis are quietly looking for hedges against a resurgence of Russian influence. One demonstration of independence has been the construction of a rather bleak but efficient new capital in Astana, a northern city not far from the Russian border.

    Strategic geography

    Kazakhstan's strategic importance also comes from an almost 1,000-mile frontier with China on the east and the presence, on and near its southern flank, of often unstable Islamic states, some of which already hinder energy contacts with the West. 

    In a recent interview in Astana, Nazarbayev said that in Afghanistan and Tajikistan religious extremists ``cover their deeds with religious slogans.'' One of the main reasons for religion-tainted conflicts from Chechnya to Tajikistan, he continued, ``is to place obstacles in the way of oil transportation.''

     Such concerns have even made their way into popular culture. In the latest James Bond film, the fictional British spy protects Central Asian oil pipelines from terrorists. In real life, his less flamboyant counterparts are trying to do the same. CIA Director George Tenet came here at the end of March and FBI Director Louis Freeh will be here early this month to discuss international terrorism and regional security.

     But terrorism is not the central concern of those developing the region's huge oil and gas reserves. One major foreign oil industry source said that terrorism ``doesn't come up'' as an investment factor any more here than elsewhere in the world.

     The key question here is not finding oil but getting it delivered to world markets. In Kazakhstan almost all the oil is located in huge deposits, such as the Tengiz oil field, which lie in and near the Caspian Sea. Mobil, Chevron, Shell and Texaco are among the American companies already working here. Foreign experts have estimated that getting this oil into the market could cost up to $160 billion.

     When Kazakhstan was a Soviet republic, all oil went through Russia, and most still does today. But the Kazakhstan government and its foreign partners, encouraged by the United States, are looking for alternate routes that would not be subject to potential Russian closure. Nazarbayev emphasizes that Kazakhstan's ``strategy of petroleum exportation is based upon the necessity of diversifying transport routes.''

     Some potential projects, such as lines that would pass through Chechnya, Afghanistan and Pakistan, are not feasible because of security reasons. But in mid-2001 the Caspian Pipeline Consortium is set to open a pipeline carrying oil from the rich Tengiz fields near the Caspian to the Russian port of Novorossiysk on the Black Sea. Because the consortium is multinational, Doulat Kuanyshev, chairman of Kazakhstan's Agency on Investment, calls this pipeline his country's ``first ever access to the world market.''

    Break with Russia

    Real diversification, however, and thus greatly increased independence from Russia, will only come from projects in which Moscow has little or no role. In a study published last year at Princeton, Jofi Joseph said the United States has even sent ``blunt, if veiled, messages to Russia and Iran to keep their distance'' from the Central Asian oil bonanza. In short, for Americans the best pipelines run east and west.

     The most important pipeline under consideration today would be from the Caspian port of Baku through Azerbaijan and Georgia to Turkey's Mediterranean port of Ceyhan. Contrary to some commentary abroad, Nazarbayev insists that Kazakhstan is ``ready to take part in it as one of the basic suppliers of crude oil'' if this can be done securely and profitably. He laments, however, that this project has been ``excessively politicized.'' This route is a centerpiece in U.S.-Caspian policy because it includes NATO ally Turkey and excludes Iran.

     In American thinking, this route is usually juxtaposed to a pipeline that might go largely south through Iran, a country that is subject to wide-ranging U.S. sanctions, including a ban on investments in oil. Like others, Nazarbayev recognizes that this route would probably be the most economical but for now lacks the ``political prerequisites.'' 

    Domestically, the development of the oil industry is essential for the success of the reforms intended to make life better for the people and thus keep Kazakhstan a stable force in the region. 

    Most Kazakhstanis seem to support current reforms, but with an economy that is sluggish because of historical problems and recent financial crises abroad, some Kazakhstanis are nostalgic for the old society that was more equal if not more prosperous than the present one. As presidential press secretary Asylbek Bisenbayev said in an interview, it takes time to change popular psychology. Should the domestic reforms fail, the probable instability could invite foreign -- most likely Russian -- intervention.

     When Albright visits Kazakhstan, she will find strong interest in closer relations with the U.S. government and American businesses. But she will also find deep concern about one recent U.S. policy in particular. 

    Many of Kazakhstan's leaders worry that when NATO jettisoned its defensive posture last year and bombed sovereign Yugoslavia it set a dangerous precedent, one that Russia might cite later in dealing with its former Central Asian republics, including Kazakhstan. 

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