World In Brief

23 March




JERUSALEM: Israel's leading rabbis called on Pope John Paul II to make an explicit apology for Vatican silence during the Holocaust ahead of his first visit to the memorial to the six million Jews slain by the Nazis.


ISLAMABAD: Pakistan military ruler General Pervez Musharraf, who seized power in a coup in October, said he would hold local elections next year and general elections would follow.


MOSCOW: Moscow said it had launched a final push to wipe out Chechen rebels dug deep in the republic's rugged mountains, but the separatists warned they were poised to begin a major guerrilla campaign.


LISBON: EU leaders opened a special summit here aimed at harnessing 21st-century technology to fight old-fashioned poverty and unemployment, and bring the disadvantaged into the age.


TAIPEI: Lee Teng-hui is to stand down as the leader of Taiwan's Kuomintang (KMT), finally caving into demands that he take responsibility for the party's humiliation in weekend elections, said top officials.


UMUAHIA, Nigeria: At least 50 people died when a fuel pipeline exploded in southeast Nigeria earlier this week, residents told reporters, in the worst such incident since a blaze in 1998 killed more than 1,000 people.


SEOUL: North Korea zoned disputed waters west of South Korea and threatened military attacks �without warning� if US ships and planes cross into its territorial seas.


NEW DELHI: US Commerce Secretary William Daley hinted at the lifting of remaining sanctions against India as he urged New Delhi to accelerate and deepen economic reforms.


MANILA: Any military coup attempt against President Joseph Estrada would be a step �backwards�, a US official warned, in a boost to the Filipino leader beset by allegations of corruption and cronyism.

U.S. Loses Influence Over Caspian Basin Oil

March 23 (Stratfor)


On March 14 Iran announced it had obtained funding for the construction of a Caspian Sea export pipeline. If constructed as envisioned, almost all of the oil extracted from the region will run through either Iran or Russia, granting them great influence over the economies of the states of the Caspian region. The new Iranian line signals a near total defeat for a decade of U.S. oil diplomacy in the Caspian basin, a region with the world's third-largest oil reserves.


On March 14 Iran announced that a Chinese-Swiss consortium obtained funding from French banks for an oil pipeline project in northern Iran. This new pipeline will connect Iran's Caspian Sea port of Neka with Rey, a suburb of Tehran. The project will also refurbish petroleum refineries in Tabriz and Tehran. Once operational, this Neka-Rey pipeline will allow 370,000 barrels of oil per day (bpd) of Caspian oil to be shipped directly to Iran's refining network. Under its oil-swap program Iran can use the Azerbaijani, Kazak and Turkmen oil imported from the Neka-Rey pipeline for its own uses while exporting 370,000 bpd from its Persian Gulf oil fields on behalf of Azerbaijan, Kazakstan and Turkmenistan.

This new project marks a major challenge for U.S. foreign policy in the Caspian basin and Persian Gulf. First, Iran has managed to undermine U.S. sanctions by realizing a large-scale project. Second, the project involves not merely oil extraction and transport, but also refining, allowing a vital refurbishing of Iran's economic core. Third, Iran has maneuvered new players onto its side. French banks, possibly including government-affiliated Credit Lyonnais, are involved in funding the project. Two of the Chinese oil firms, China Petrochemical Corporation and China National Petroleum Corporation, have strong government connections. France and China's increased presence in the Caspian basin � as opposed to their investment in Iran's internal energy production � further erodes U.S. influence.

The Iranian project culminates a series of setbacks for the United States in the oil politics of the Caspian basin. Since the Soviet collapse, the United States � and other regional powers � have sought to shape the political alignments of the region by way of oil export routes. Iran and Russia both tried to dominate the export pipelines for themselves, while U.S. efforts focused on projects that would circumvent both Iran and Russia. The Caspian producer states � Azerbaijan and Kazakstan � sought to diversify their export options to increase their economic independence, with Azerbaijan leaning toward the U.S. government policy and Kazakstan toward the Russian one.

However, while the United States has focused its efforts on oil diplomacy, it has failed to provide funding for its chosen projects. The funding issue is key. The United States' pet project was a one million bpd export pipeline that cost $3 billion, running from Baku, Azerbaijan, to the Turkish Mediterranean port of Ceyhan. Yet unlike the relatively inexpensive Iranian Neka-Rey (370,000 bpd at $400 million) or Russian Tengiz-Novorossiysk (1.3 million bpd at $2.3 billion) options that connect to existing facilities, Baku-Ceyhan was unable to obtain funding.

The end result is that only one of the five major export lines � Baku-Supsa � was built to U.S. preferences, and Baku-Supsa followed an older and smaller pipeline. Russia and Iran dominate the rest of the lines � and therefore the oil supplies. These five lines combined have the capacity to handle all of the 3.1-3.6 million bpd that the U.S. Energy Information Agency (EIA) estimates the region will be able to produce by 2010. Any new lines would simply be economically infeasible.

There are even concerns, among governments and companies acting in this region, that these five lines may already be more than the region requires. The EIA's low-end estimate for Caspian reserves is only 16 billion barrels. The five main pipelines operating at maximum capacity can pump 1.3 billion barrels per year and would exhaust this amount in about 12 years. The governments in this region are hoping that the EIA's high-end estimate, 163 billion barrels, is closer to the mark � especially Iran and Turkmenistan who are just now beginning to explore their own sectors of the Caspian Sea.    

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