UCLA

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UCLA CEESSecurity Issues and ImpactsThe
Caspian Region and the New Canon of Security
Alexandre Babak HedjaziInstitute of
Environmental Studies -University of GenevaJune
1st 2007
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We are not in the same Geopolitical realm as in
the 1970s

• Post-Cold War Security Environment
• The end of the cold war and the equilibrium that
  a US-USSR rivalry has been superseded by a much
  more fluid yet volatile global order.
• The end of US-USSR sponsorship in international
  relations, coupled with the rise of independent
  regional and international actors implied a new
  epoch in which security issues became
  multifaceted and involved many actors in addition
  to nation-statesbut in face of growing
  insecurities, states are still expected to
  address many rising insecurities.
• Economic world order
• Economies and markets across the globe had never
  had the level of integration they have today.
• As Yergin phrases it there is only one oil
  market, a complex and worldwide system that moves
  and consumes about 86 million barrels of oil
  everyday. For all consumers, energy security
  resides in the stability of this market

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The Security Debate

• Where as the traditional state centric
  approach to security views the state as the main
  referent object of security and the physical
  violence from outside the main source of threat,
  the human centric approach to security stresses
  that human being are the referent objects and
  threats are increasingly nonmilitary and can
  arise from within the states.
• Development and humanitarian approach to
  security acknowledge new threats, hunger,
  diseases and disruptions in patterns of daily
  life as critical elements of todays world.
• UNDP in the Human Development Report (1994)
  categorizes these threats under seven headings
• food security,
• environmental security,
• personal security,
• community security,
• political security,
• economic security

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The Energy Security Trap

• From the Arab oil Embargo in 1970s to Russias
  disruption of gas delivery to Ukraine during the
  winter of 2006, energy insecurities have become
  one of the central elements of the global
  economy.
• It has become central to many official national
  and international agendas and even a subject of
  concern to end users.
• There is little consensus on its definition,
  scope and adequate policies for its provision

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The new economic environment is one of.
Interdependence of economies and markets
Energy Security illustrates the best these
interdependencies
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Is energy security a matter of interdependence
or scarcity?

• For many Americans, energy security means
  producing energy at home and relying less on
  foreign oil. (Sebastian Mallaby, Washington
  Post)
• Real energy security requires setting aside the
  pipedream of energy independence and embracing
  energy interdependence. (Daniel Yergin, Foreign
  Affairs)
• The scale of global trade of energy grows
  substantially as world market become more
  integrated

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Economic and political elements of Global Energy
Equation

• 1- What are the risks that demand and supply
  induced scarcity impose on global hydrocarbons
  market?
• 2- How does the geopolitics of energy interact
  with these fundamentals of the market?
• 3- To what extend do emerging regimes of
  governance of energy mitigate new sets of
  economic and geopolitical risks that state and
  non-state actors are increasingly required to
  confront?

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1- What are the fundamentals of demand and
supply induced scarcity of hydrocarbons?

• With the prospect of global trade growing in the
  years to come, risks of global conflict or
  economic dislocation aside, world markets will
  become even more interdependent than they are
  today.
• Increasing Global trade of Hydrocarbons
• As the global consumption of hydrocarbons rises,
  per capita availability of oil and gas from fixed
  stocks begins to decrease.
• Increasing interdependence of producer and
  consumer countries
• Interdependence under conditions of geographic
  and political mismatch.

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Increasing Global trade of Oil

• Most projections indicate that fast growing
  developing economies (Asia china included) will
  begin to consume more than the developed world.
• According to International Energy Agency a
  significant increase in international trade of
  oil and gas will meet a widening gap between
  consumption and indigenous output in many parts
  of the world. The projected net imports and
  exports of each major region from 28 mb/d in
  1997 is to reach over 60 mb/d in 2020

Projected Net Oil Imports and Exports (mb/d)
Soruce International Energy Agency, energy
outlook 2003
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Increasing (inter)dependence

• Regions that depend on imports to meet a
  significant part of their oil needs will become
  even more dependent on imports over the
  projection period.
• Oil dependence in Europe rises from 53 to 79
  over the projection period. In OECD Pacific, it
  goes from an already very high 89 to over 92.
• China, which became a net importer of oil
  products only in 1993, is projected to import
  more than three-quarters of it needs, over 8mb/d
  by 2020. All other regions remain net importers.
• Meanwhile, the Middle East, already the biggest
  exporting region, will see exports rise from
  17mb/d in 1997 to over 41mb/d by 2020.

Oil import Dependence (per cent)
Soruce International Energy Agency, energy
outlook 2003
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Energy Security and the question of Scarcity

• Energy security and the conditions of its
  provision is at the junction of
• 1- demand and supply scarcity.
• 2- structural scarcity.

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Demand induced scarcity

• Demand-induced scarcity is in conjunction with
  three types of factors
• The first factor is the population growth in
  consuming countries.
• The second factor consist in rising per capita
  income in high-income countries, which are the
  major consumers and importers, and in late
  industrializing economies, particularly in South
  and East Asia.
• Finally ,the third factor regards the history of
  technological change which since the 1850s has
  rendered access to fossil energy more, not less,
  important for the production of wealth and power.

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Supply induced Scarcity

• Supply induced Scarcity is caused by the
  dwindling of the hydrocarbon stock and the
  capacity of producer countries to develop their
  hydrocarbon resources.
• In reality, demand and supply-induced scarcity
  interact. Extraction cost, refinery and retail
  plus profit marks-ups determine oil and gas offer
  price.
• Increasing international trade of oil and gas,
  under conditions of growing dependence on OPEC
  production added to the geographic mismatch
  between location of consumption and production
  suggest that consumer countries seek to develop
  non OPEC sources of energy and diversifying the
  geographic source of imports away from an
  increasingly volatile Middle East. This brings
  us to structural scarcity

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2- How does the geopolitics of energy interact
with these fundamentals of the market?

• Supply-induced scarcity, or its anticipation,
  provoke power projection by military capable and
  import-dependent nations (US, E.U., Russia,
  China) aiming at getting control over the stock
  by either internally engineered regime change or
  by conquest of territory.
• Structural scarcity is induced by deliberate
  action of a major power, by non state actor such
  as major oil companies, or by producer cartels
  such as OPEC.
• Thus, a major power that manages to get control
  over conditions of access by third parties to the
  stock has the option to induce scarcity for
  selected outsiders.

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The Geopolitical paradigm of Energy Security

• Due to hydrocarbons strategic significance,
  limited volume and highly territorial nature,
  securing energy entails that one who controls
  access to oil and gas reserves and the transit
  routes could exercise global influence by
  excluding or limiting their availability to
  potential competitors.
• Energy security is thus not exclusive to the
  security of energy supply. It also encloses
  diversion of trade, when traders of one group are
  ousted from the network to be replaced by the
  traders from another group. In this case the
  collusion of some states against one producer or
  a group of producer countries creates new
  barriers for third parties to project their
  power.

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Caspian Sea Poster Child of Geographic mismatch
between Energy Security and the Security of a
region

• Caspian littoral states have often been heralded
  as holding together one of the worlds largest
  oil and gas reserves. According to the
  Statistical Review of World Energy (British
  Petroleum 2002), the total proven oil reserves is
  15.5 billion bbl and the total proven gas
  reserves are 196 tcf.
• The combined Caspian output will never rival
  that of Saudi Arabia or Russia which produce
  respectively 8.8 million and 7.1 mbd. So why all
  the Caspian Hype?
• If the Caspian oil reserves are not so extensive,
  why is it so essential to the diversification
  rationale of the west?

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Energy Security and the question of Global power

• The heartland of the heartland
• The Silk Road Act, the US created an
  extension of the countrys defense perimeter into
  the heartland of energy supply. This is the issue
  at the center of Caspian pipeline geopolitics.
  The growing economic rivalry between the US, the
  EU, Russia, China, Turkey and Iran for influence
  on the Caucasus and Central Asia is prompting
  analysts to turn to century-old notions of
  control of the Eurasian heartland, as they
  develop responses to new geopolitical
  developments.
• Caspian source of power
• In a world were putative great powers such as
  Europe, China, and India will be totally
  dependent on the Persian Gulf and the Caspian Sea
  oil to sustain economic growth, access to oil
  -not only as source of fuel but also as source
  of power-- become the key to the control of the
  global new economic and political order. In other
  terms, whoever controls the Persian Gulf and the
  Caspian Sea, controls the worlds economy and
  therefore has the ultimate lever over other
  competing powers

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Energy economics vs. control over territory

• As the post Soviet Caspian region was not
  divided into stable and agreed upon zones of
  influence, extra regional states and non-state
  actors projected their power and influence into
  the region.
• In the Caspian Sea region, pipeline diplomacy, as
  stated earlier, required the US governments
  involvement as the driving force of its main
  component, the Baku-Ceyhan-Tbilissi pipeline
  (BTC) as well as the much heralded Trans-Caspian
  Gas Pipeline (TCGP). The project was endorsed by
  the US as it evaded Iran and Russia and aspired
  to move Azerbaijan and consecutively Turkmenistan
  and Kazakhstan away from the Russian and Iranian
  sphere.

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• Energy Security and Regional Security

• The result of these competitions is an axial
  regionalism of the Caspian OilEast-West
  pipelines sponsored by the United States and
  endorsed by Azerbaijan (TCGP, BTC, Aktau-Baku)
  and North South pipelines (Turkmenistan, Armenia,
  Irans virtual pipeline Caspian/Persian Gulf,
  Baku-Novorossiysk-CPC).
• The double East-West and NorthSouth axis
  cooperation with old and new global powers
  (Russia and the US) provides flexibility to
  regional countries.
• The positive impact of these axial regionalisms
  on the development of the Caspian Sea region seem
  limited and their scope highly questionable.

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The Security Dilemma?

• 1)The Baku-Tbilisi-Ceyhan (BTC) Test.
• The world class 3 billion BTC pipeline project
  has been strongly supported for economic and
  geopolitical reasons by its three host countries
  namely Azerbaijan, Georgia and Turkey.
• Inter-Governmental Agreement (IGA)
• Host Government Agreements (HGAs)
• Javakheti region /Borjomi region
• 2) The Caspian Environment Test.
• -The fluctuation in the Caspians water level
• -The increasing offshore and onshore pollution
  on some of the worlds most sensitive marine
  ecosystems (More than 3,000 tons of sulfites,
  3,150,000 tons of chlorides, and 25,000 tons of
  phenols. Furthermore, some 200,000 tons of tar
  entered the Caspian Sea annually. In three rivers
  of Daghestan, considered major spawning grounds
  for the sturgeon, quantities of heavy metals
  found exceeded the maximum permissible values for
  fisheries by 60 to 100 times (Kardavani 1996).
• - Direct dumping of household and agricultural
  waste into the Caspian and its adjoining rivers
  is commonplace.

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What to expect..

• Environmental Caspian Sea Initiative (ECSI). ECSI
  seemed a major step forward and attracted
  Azerbaijan, Iran, Kazakhstan, Russia and
  Turkmenistan around the same goals. to strengthen
  the national institutional, legal and regulatory
  frameworks within UN Capacity 21 agenda.
• Convention for the Protection of the Marine
  Environment of the Caspian Sea known as the
  Tehran Convention. . A treaty to protect the
  marine environment of the Caspian Sea commits the
  five governments to prevent and reduce pollution,
  to restore the environment, and to use the sea's
  resources in a sustainable and reasonable manner

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Conclusion remarks

• Regional environmental agendas have suffered
  from political and economic rivalries in the
  region which misrepresented shared concerns and
  ended up portraying some countries priorities
  and/or those of energy actors rather than
  depicting a comprehensive lay of the land of the
  Caspian environmental degradation
• For example, in 1995, a report on the Caspians
  environmental challenges made no mention of the
  critical issue of sea-level rise and focused on
  oil related pollution (The World Bank 1998). The
  politicization of the Caspian environmental
  question led in another instance to the rather
  absurd situation where in a conference on the
  Caspian environment in March 1999 in Vienna,
  sponsored by NATO, did not permit Irans
  participation.

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Conclusion remarks

• Prospects of improvement of Caspian Seas
  environment is muddied by the uncertainty
  intrinsic to a regionalism intimately tied to
  energy security and aspiration of control over
  resources and their transit routes by many
  regional and extra-regional contenders.
• At risk are onshore and offshore flora and fauna
  of one of ecologically richest regions in the
  world as well as the livelihood of millions
  depending on the Caspian Seas economic resources
  such as fisheries as well as fertile agricultural
  land.
• Whether we consider project based regional
  initiatives (BTC) or those dealing with shared
  challenges such as the Caspians environmental
  crisis, the adoption of common grounds needed for
  the Caspian Sea regionalism to mitigate new
  risks, is impeded by distinct legislation,
  economic and political priorities and differences
  in national representations of the regional
  space. In both cases the kind of regionalism at
  play, as in the past, has the potential to
  distort socio-economic and environmental
  realities. Caspian regionalism will be guided by
  states short term domestic and international
  interests rather than long-term development
  strategies based on system of common values.