An ill-advised military incursion into South Ossetia by Georgia’s President Mikheil Saakashvili set off a massive Russian response which threatens to cut Georgia in half. The geopolitical implications are substantial. Europe and the U.S. have condemned the magnitude of the Russian response but are powerless to affect the outcome.
Seeing Russia's heavy-handed response, other former Soviet Union (FSU) states are now encouraged to reverse their west-leaning policies and re-align themselves with Russia. The Baltic states have already joined NATO so their borders and governments are relatively secure, but countries like the Ukraine are not.
But why so much concerned about a country like Georgia when we are thinking about energy issues? Georgia lies at a critical location on the “road from the Caspian” to the west and world energy markets, one which Europe is very dependent upon for crude oil today and natural gas in the future.
The Baku-Tsibili-Ceyhan (BTC) pipeline carries nearly one million barrels of crude oil per day from the Caspian Sea and its littoral to the Mediterranean port of Ceyhan where tankers distribute it to the European refiners. In this region the BTC pipeline is unusual in that it does not cross Russian borders. All but one other oil pipeline in the region cross Russian borders with many terminating at a Russian port or feeding into the Russian crude oil system. If Russia controls even one segment of the BTC pipeline, she effectively controls it all. Russian policies in the region have been dedicated to delaying or stopping the development of any non-Russian controlled pipeline or seaport that delivers crude to the world market.
The region also has extensive natural gas resources. Recently, Caspian Sea countries have been promoting the development of the Nabucco pipeline, a 31 BCM/year trans-Black Sea pipeline from Turkey to Bulgaria, to deliver natural gas to eastern and southern Europe. This gas would compete with Russian gas delivered through the Ukraine and North African gas delivered through a Gazprom-owned, trans-Mediterranean pipeline. Needless to say, Russia and Gazprom oppose Nabucco and are promoting their alternative, the South Stream pipeline.
Europe has been in a scramble to secure alternative energy suppliers for the last two years. Once Russia showed its willingness to cut gas supplies to Europe in order to extract higher prices from the Ukraine, Europe has been at risk for gas supplies. Price competition in the Atlantic Basin for crude and LNG supplies is an actuality and probably will not go away in the future.
Any curtailment of existing free access to the large oil resources of the Caspian Sea region is one more step in implementing a tight grip on Europe’s energy supplies.
On target