Slow negotiations, contrary to assertions of a U.S. official visiting Ankara last week, represent the least of the problems facing a proposed oil pipeline from Baku, Azerbaijan, to Ceyhan, Turkey. Much higher on the project's list of troubles is aggressive meddling by the U.S. government.
In Ankara, Ambassador John Wolf, special advisor to U.S. President Bill Clinton on Caspian basin energy development, implied that the Azerbaijan International Operating Co. consortium wasn't negotiating fast enough on the Baku-Ceyhan pipeline. Never mind that the project is the most expensive of the main westbound alternatives. Never mind that AIOC doubts Caspian oil exports will need the pipeline before 2005.
Frustration
"I agree with (Turkish) President (Suleyman) Demirel's assessment that an economically sound and commercially viable deal is possible now," Wolf said after meeting with Demirel, who "expressed frustration" over the pace of the talks. "I think now the onus is on AIOC. The ball is squarely in their court, and it's time to stop using the process of negotiations to block a solid test of the commerciality of Ceyhan in the marketplace."
That's stern. In fact, it's arrogant.
Investors, not governments, decide what's commercial and what's not. Investors, not governments, will decide whether to place at risk the $4 billion that the Baku-Ceyhan project might require.
That's not to say that governments have no role. Turkey, especially, has much at stake in the project-and not just transit fees. The Mediterranean outlet for Caspian oil would take tanker pressure off the overcrowded Bosporus Strait. Indeed, that's an advantage that Baku-Ceyhan holds over expansion of existing pipelines or northward connection to the planned Caspian Pipeline Consortium system, all of which end at Black Sea terminals and tankers bound for the Bosporus.
But Baku-Ceyhan has other difficulties, among them inescapable proximity to Nagorno-Karabakh, the restive enclave of Azerbaijan held by Armenians with Russian support. Wealth made possible by the pipeline would represent a direct military threat to Armenians in Nagorno-Karabakh, who might then sabotage it the way Chechnya has disrupted operation of Russia's pipeline from Baku to Novorossiisk.
Still, the balance might eventually tilt in favor of the route to Ceyhan. Turkey addressed the project's cost disadvantage this year when it offered financial guarantees. The Bosporus factor is compelling. But it's too early in so complex a set of negotiations over so costly and risky a project for anyone to make grand declarations about project economics. This is especially so in view of AIOC's assertions about adequacy of Caspian production. And it's simply inappropriate for governments to be applying pressure to close a deal.
Turkey's impatience is understandable. For the U.S. to parlay it the way Wolf did, however, is dangerous.
The U.S. government favors-indeed, actively promotes-Baku-Ceyhan because it transits neither Russia nor Iran. The cheerleading will make the pipeline, if it is built, a permanent symbol of American antagonism-and a potential target for mischief. It thus does nothing for the project's investment allure or for the ability of the U.S. to influence events in a vital region.
Troubling bluster
Oil and gas companies should find Wolf's bluster especially troubling. He acted on behalf of a government pretending to know better than they do when and how to invest money. That raises more peril than close passage of an expensive pipeline to countries with reason to see its construction as an act of permanent contempt.
Under Clinton, the U.S. government intrudes too frequently in foreign commerce to pursue policy goals too often flawed. The Baku-Ceyhan pipeline should be built only if-and only when-investors decide it makes commercial sense. Because the U.S. has no proper say in that decision, it should quit saying anything at all.
