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Caspian Gridlock: Failures of Policy and the Press

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Belfer Center Programs or Projects: Strengthening Democratic Institutions Project

 

 

Caspian Gridlock:

Failures of Policy and the Press
by Michael Lelyveld

Michael Lelyveld is a correspondent for Radio Free Europe/Radio Liberty.

Summary
After a burst of front-page coverage, the issue of Caspian development has fallen out of the headlines in the American press. The initial stories stimulated exaggerated expectations about the region''s prospects, which were later punctured. It is in the nature of the newspaper business to demand daily results and a definable set of "bad guys." In the case of the Caspian, there are simply too many players and problems to fit the standard formulas. For example, there was little analysis of the implications for Caspian energy exports of possible shifts in US policy towards Iran. By the time that large quantities of natural gas were found in the Shakh Deniz field, the press had lost interest in the story and failed to appreciate the significance of the new discovery, which overnight turned Azerbaijan into a major gas producer and undermined the economic logic of the Baku-Ceyhan oil pipeline.

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The quality and quantity of press reporting on Caspian Sea issues has played a critical role in the public''s perceptions of the region and US government policy.
The views expressed are those of the author and are not intended to represent those of Radio Free Europe/Radio Liberty. Clearly, major US daily newspapers have reduced their commitments to covering the Caspian oil story in the past year. The declining interest may be at least partially responsible for the long-term inflexibility of US policy in the area and the apparent lack of a high-level review. There is also at least one major story on Caspian development that the press appears to have missed.

A Diminishing Story
While scholars are learning more about the problems of Caspian energy and access, it is fair to say that the American public is learning less and less.

The explosion of US public interest in the region reached a high point last year after newspapers including the Washington Post ran a series of front-page stories on the pipeline debate. Political interest was also piqued in March 1997 after the Wall Street Journal reported on the White House visits of the infamous entrepreneur, Roger Tamraz. See, for example, David B. Ottaway and Dan Morgan, "Former Top U.S. Aides Seek Caspian Gusher," Washington Post, 6 July 1997.
These reports placed some of the region''s issues in the public domain, but they made only a small start toward raising public awareness and understanding. Since that time, major US newspapers have largely abandoned their coverage of Caspian energy issues.It is possible to argue that the competitive coverage by major dailies came to a merciful end last October when the New York Times reported in two front-page stories that the plan for the Baku-Ceyhan pipeline "appears to be on the brink of failure." New York Times, 11 October 1998. The next day, it blamed the failure on the Monica Lewinsky scandal, arguing that "a stronger or more focused president might have made a persuasive case" for the route. New York Times, 12 October 1998. Neither of those analyses proved to be true. But the journalistic excess appears to have coincided with a reassessment of the Caspian''s potential. A report from Rice University gained prominence by concluding that the Caspian was likely to contain far less than the 200 billion barrels of oil that had been headlined in widely publicized claims. "Unlocking the Assets: Energy and the Future of Central Asia and the Caucasus: A Political Economic, and Cultural Analysis," April 1998, James A. Baker III Institute for Public Policy, Rice University. Many industry observers saw little news in that finding, noting that the press had never bothered to distinguish between the Caspian''s potential, proven, and recoverable reserves.
But within months, it seemed that much of the US public focus on the Caspian had been lost. Coverage of the Caspian oil issue by major US dailies was downgraded or eliminated altogether. The reporting team that produced the Washington Post stories was reassigned. The New York Times ceased to report on the Caspian pipeline issue following a full-page survey story that broke little new ground. "A New Big-Power Race Starts on a Sea of Crude," News of the Week in Review, 24 January 1999. Even the Financial Times, which broke the first story on the signing of Caspian offshore deals in 1994, reduced its coverage of the pipeline issue sharply in 1999. Although the story of the Caspian is far from over, the general-interest press has largely forgot it. Newspaper coverage of the pipeline competition has fallen victim to a combination of inflated expectations, delayed progress, and hype.
It is self-evident that the loss of press coverage is closely related to public interest in the Caspian. The link between media attention and the administration''s willingness to address policy questions is harder to prove. Suffice it to say that the administration has not altered its pipeline policy for the Caspian since it dropped from the headlines, despite rising criticism from corporations and the policy community. The attention of a focused and analytical press may be vital to progress, particularly on an issue where badly outmoded policies have collided with business interests, economic pressures, Russian domination, and war.Problems of Policy and Audience
Unfortunately, the very complexity of issues that has drawn scholars to the pipeline problem has driven journalists away. Newspapers struggle with strategic stories, particularly when they spill over their traditional dividing lines between politics, foreign policy, and business news. Relatively straightforward stories on economics or international trade are difficult enough to place in most newspapers. The geopolitical intricacies of the Caspian story make it doubly hard. It is notable that the Washington Post tried to overcome this problem by teaming a reporter from its business section with a reporter from its national desk. Both have since returned to their beats. Reporters are often bad at handling such stories, and editors are worse. The nature of the newspaper business is to demand daily results and a definable set of "bad guys." In the case of the Caspian, there may simply be too many players and problems to fit the standard formulas.
In defense of journalism, it can be argued that the Caspian story is not pegged to any specific group of readers that editors can easily identify. The oil industry has its own trade press, with which daily newspapers see no need to compete. Policy analysts are not a target audience that can boost circulation. Ethnic groups from the Caspian littoral countries exist in only small numbers in the United States. The combination of factors makes it difficult to defend a costly commitment to coverage, particularly if it does not generate advertising revenues, no matter how good the story may be. Expectations were also deflated after the Azerbaijan International Operating Company (AIOC) missed its October 1998 deadline for deciding on a main export pipeline route. Low oil prices did their part to dispel the notion of a Caspian oil boom. Other major stories demanded space and attention. How long could the Caspian coverage go on?But the sheer intricacy of the Caspian pipeline issue as a strategic problem seems to have been the story''s worst enemy. Perhaps as a result of the complexity, much of the surviving coverage of Caspian issues has been inadequate, misleading, or simply wrong. This has certainly been the case with the story of Azerbaijan''s giant offshore field known as Shakh Deniz.The case of Shakh Deniz
As early as December 1998, analysts viewed Shakh Deniz as a barometer of the Caspian''s future prospects. Concern had been rising as a result of reports that CIPCO, the Caspian International Petroleum Company, would become the first consortium that would fail to find commercial volumes of oil. The worries increased in March 1999, when the same fate befell the North Apsheron Operating Company, known as NAOC. Industry officials said the findings at Shakh Deniz could determine the commercial outlook for the Caspian. The question was, would it be oil or gas?The answer was critical not only to the commercial outlook for other consortia but also to the volumes that would be needed to fill a main export pipeline. For months, AIOC had been telling White House officials that its oil volumes alone would not be enough to justify Baku-Ceyhan. With that background, the interested press should have been hanging on every word about Shakh Deniz. But when the first reports came in, they were vague, poorly informed, and ultimately wrong.In May 1999, wire services reported great relief in the industry after BP Amoco officials announced the discovery of hydrocarbons at the deep-water field. "Oil industry relieved at Caspian find," Reuters, 27 May 1999. The news was greeted uncritically as a breakthrough, even though it was too early to tell whether the find was oil or gas. In June, the discovery of an estimated 700 billion cubic meters of gas was hailed by President Heydar Aliyev, although no mention was made of oil. "Early results at Azeri well may show big gas field," Reuters, 11 June 1999. It would be an entire month before wire reports began to suggest that the gas find might be a mixed blessing, after all. "Turkmenistan is the loser with Shakh-Deniz gas find," Reuters, 12 July 1999. This lapse was much the same as the belated realization after December 1994 that the invasion of Chechnya might have something to do with oil.In fact, Shakh Deniz has been a major element in the gridlock that has stalled pipeline plans. As Azerbaijan and Turkmenistan continued to feud over their Caspian border and the Kyapaz/Serdar oilfield, it was Shakh Deniz that gave Azerbaijan the claim to be a competitive gas exporter, making demands on the capacity of the trans-Caspian pipeline (TCP). As a result, progress on the TCP was complicated, if not stymied, along with the entire US strategic architecture for the Caspian. The implications of Shakh Deniz were clear and should have been quickly understood.For years, US official strategy on the Caspian was based on the premise that Azerbaijan would be almost exclusively an oil exporter and that Turkmenistan would be the major source of gas. In the pipeline policy that emerged, there was little flexibility that was designed to handle a mixing, or even reversal, of those roles. Shakh Deniz essentially threw a wild card into a game where the stakes had already grown too high. Despite the fierce existing competition among Turkmenistan, Russia, and Iran to supply gas to Turkey, Azerbaijan had now cut to the front of the line. It would certainly have been simpler if the TCP had been assured before Azerbaijani gas was found.In November 1999, several key agreements for the Baku-Ceyhan oil pipeline were expected to be signed at the summit meeting of the Organization for Security and Cooperation in Europe (OSCE). But the fate of the TCP remained unclear. Despite reports that a framework agreement for the TCP would also be reached, there was a great chance that the gridlock on actual construction would continue as long as Azerbaijan demanded pipeline capacity of as much as 25 billion cubic meters per year and laid claim to Kyapaz/Serdar.The possibility of even greater volumes of Caspian gas also posed a risk for Turkmenistan, the TCP and US policy. Some oil companies announced their intention to go after further gas discoveries in Azerbaijan''s sector. Some Azerbaijani oil experts predicted that discoveries in the country''s Caspian sector would turn out to be primarily gas rather than oil from now on. "Future gas finds likely in Azeri Caspian," Reuters, 10 September 1999. The possibility of a gas glut was becoming a threat, particularly to Turkmenistan. The country was not only the most distant of the prospective pipeline suppliers to Turkey but also the only one that had not negotiated a "take-or-pay" contract for its sales. In time, more gas from Azerbaijan could either squeeze out Turkmenistan or lower gas prices so substantially that Turkmenistan could become unable to compete.If there was ever a great game in the Caspian, this was certainly a new one. Despite statements to the contrary, it seemed clear that Azerbaijan''s demands for gas access to the TCP were closely linked to the demands over Kyapaz/Serdar US cartographers had reportedly concluded that the field was in the Turkmen sector, complicating the diplomatic quandary. Without settlement of the Caspian boundary, a TCP could be difficult if not impossible. Perhaps only in the Caspian could there be such a Gordian knot.Widespread skepticism over Turkey''s forecasts of soaring gas demand by 2010 added to the competitive problems for suppliers. Early plans to build pipelines from Turkey to Europe to offload excess gas also seemed to have been forgotten, further clouding the outlook for supply and demand assumptions. In early November, during the run up to the OSCE meeting, Turkish President Suleyman Demirel continued to assure Russia, Azerbaijan and Turkmenistan that supplies from all three countries were priorities.Despite the agreements to be signed in Istanbul, there were signs that the problems of gas and gridlock would be around in some form to haunt the region for years. There was little or no focus on the issue in the US general-interest press, however, depriving the public policy debate of a key forum. In the absence of press attention, US policy seemed more likely to stick with its established formulas for the Caspian, even if they produced unsatisfactory results.Iran Complications
A further irony of the situation was that Shakh Deniz was the same field in which Iran had a 10 percent interest, which was awarded as compensation after the United States insisted in 1995 that Iran be excluded from AIOC. One implication was that Iran would now benefit from Azerbaijan''s huge gas find and its superior position as a potential gas exporter to Turkey. US policy on the Caspian had made no provision for such an eventuality. In October 1999, Iran made overtures to Azerbaijan to serve either as a market for its gas or a transit country for pipelines to Turkey. The possible permutations as a result of such links became increasingly difficult to sort out. But US policy showed no sign moving toward a position that would allow all Caspian littoral states to share in the benefits of export solutions. Press analysis of this stance was almost totally absent.In fact, the US stand on pipeline exclusion had become increasingly hard to maintain as a consistent position since May 1998, when President Clinton waived sanctions against French, Russian, and Malaysian firms for their investment in Iran''s gas development. Despite the industry''s opposition to the sanctions, US oil companies also complained about the waiver on the grounds that it only lifted penalties against foreign investment in Iran. The difficulties of maintaining a consistent message on Iran were compounded on 17 June 1998, when Secretary of State Madeleine Albright delivered her landmark speech at the Asia Society in New York, calling for a "road map" to improved relations. Administration officials continued to argue that Iran should be barred from the pipeline competition because it might gain too much leverage over world oil supplies. Little or no analysis of this stand has appeared in the mainstream press. The position appears to be at least questionable in light of lower expectations for Caspian oil output and the fact that a main export pipeline would carry a maximum of 1 million barrels per day, or about 1.2 percent of projected world demand.

There has also been little or no attention to the US policy regarding Caspian oil swaps with Iran. The president''s executive order of 6 May 1995 that barred trade with Iran specifically created an exemption to allow licensing of oil swaps "in support of energy projects in Azerbaijan, Turkmenistan, and Kazakhstan." Licenses for swaps by US companies operating in Turkmenistan were subsequently denied, however. The reasons for creating the exemption and then refusing to invoke it have yet to be examined in any detail.Administration officials have argued that swaps with Iran could reduce the amount of available Caspian oil that would be needed to fill a main export pipeline from Baku to Ceyhan. In December 1998 at an industry conference in Washington, Ambassador Richard Morningstar, then the administration''s Caspian coordinator, was asked why temporary or short-term swap licenses could not be granted, considering that a main export pipeline would not come into existence for several years. Morningstar declined to delve into the reasoning behind the policy. "US firms slam Clinton''s reversal on Iran oil swaps," Journal of Commerce, 10 December 1998.
While there has been editorial support for changes in sanctions policies, news coverage of the pipeline and swap issues has been slight. As with other long-standing embargoes that have been enshrined in US policy, there have been few new developments to report. But the prospect of renewed US ties with Iran continues to hover over the selection process and financing decisions for Caspian pipeline routes. Any long-term investment in pipelines that avoid Iran must presume that no changes in US policy will take place. Little attention has been paid to the implications for the future of Iran policy from the agreements on Baku-Ceyhan.

 

For Academic Citation:

Lelyveld, Michael. "Caspian Gridlock: Failures of Policy and the Press."

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