Tug of War

The South Caucasus has been described as the "last great theatre of the Cold War" with both Russia and America vying for the affections of the three former Soviet republics.

But here the goal is not ideological victory but control over the oil and gas pipelines between the Caspian Sea and the West. And, to complicate matters still further, the newly independent states are proving they have minds of their own.

Russia's Blue Stream ("Goluboy Potok") project -- a planned gas pipeline under the Black Sea between Russia and Turkey -- marks the latest attempt to the break the deadlock. The move is calculated to counterbalance the effects of a US-funded pipeline being built to transport Caspian oil through Georgia and into Turkey.

Already ratified by the Russian and Turkish parliaments, Blue Stream could supply Turkey with more than 16 billion cubic metres of Russian gas every year. By 2005, nearly 60 per cent of Turkey's gas would be imported from Russia.

The Russians make no secret of their ambitions. Rem Vyakhirev, chairman of Gazprom, comments, "Apart from the economic sense of the plan, it's vital for Russia to maintain geo-political influence in the region".

The United States, on the other hand, has turned its attention to Turkmenistan in a bid to offer Turkey an alternative to Russian gas. Here plans are afoot to transport Turkmen gas across the Caspian, through Azerbaijan and into Turkey. The cost of the pipeline has been estimated at $2.5 billion.

Azerbaijan, which will also use the facility to transport its own gas supplies, is set to begin construction of the pipeline from the Shakh-Deniz deposit by the end of this year.

But the project has run into troubled waters. Turkmenistan is unhappy with the role being played by Azerbaijan in the project and is currently reviewing the possibility of selling gas to Russia and Iran.

Alexander Iskandarian, director of the Centre for Caucasian Research in Moscow, says the situation - compounded with Azerbaijan's intention to export gas to Turkey independently - could eventually scupper the Trans-Caspian initiative.

The Trans-Caspian Gas Pipeline consortium is making last-ditch attempts to defuse the crisis. Vice president Kevin Graham said that, if the Turkmen leadership refused to accept the terms of the agreement, Ankara would reject the Shakh-Deniz proposal in favour of Blue Stream.

Meanwhile, Russia continues to pursue an aggressive foreign policy in the South Caucasus. Earlier this year, for example, at the insistence of the World Bank, Armenia excluded the Russian company Itera from an international tender to privatise the power supply network. Russia duly responded by cutting off its gas supplies to Armenia.

As a result, the Armenian government decided to privatise the network in two stages - precluding the possibility of any one company monopolising the distribution network. The leadership in Yerevan was no doubt prompted by the bitter struggle then taking place between Itera and its American rival, AES Silk Road.

According to David Petrosian, an analyst at the Noyan Tapan news agency, a subsequent law passed by the Armenian government which imposes tight controls on potential investors should "cool down" Silk Road's interests in the region.

In Georgia at least, Itera has already emerged victorious over the American consortium. Georgia's debt to Itera is nearing $80 million and, earlier this year, Silk Road refused an invitation to take part in the privatisation of Tbilgaz -- a move which most analysts interpret as a recognition of Itera's preeminence in the region.

At the same time, RAUES, the Russian electric power conglomerate, has stepped up its activities in the South Caucasus. RAUES has announced plans to invest around $800,000 in AO Pontoell, a consortium founded by energy companies from Russia, Georgia, Armenia and Azerbaijan.

Ultimately, the West has little hope of breaking Russia's influence over the Caucasus region. Mkrtich Zardarian, senior expert at the Armenian Centre for National and Strategic Research, points out that US plans for the export of oil and gas without the participation of Russia and Iran are not only non-productive - they are also almost impossible to realise.

Susanna Petrosian is a correspondent for the Noyan Tapan news agency in Yerevan