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Energy a casualty of Georgia conflict

September 2, 2008 - What lessons can be learned from the Georgian war? It wasn't fought over energy, although energy issues have long featured in the strategic thinking of the principal protagonists, Georgian President Mikhail Saakashvili and Russian Prime Minister Vladimir Putin.

But it does have profound consequences for global energy security.

The triangle of Eurasian energy relations - Europe, Russia and Central Asia - has never been more severely stressed than now.

Various strategic conclusions can be drawn from the August conflict in Georgia, each with implications for regional - indeed global - energy security.

One is that the Georgian war demonstrated that Russia is quite prepared to use force in pursuit of its interests.

And while Western states or alliances, notably NATO, are prepared to do likewise - remember Kosovo - Russia's relative ability to take military action in a cluster of energy-important countries around its borders is, at present, much greater than anyone else's.

This has implications for two of Russia's biggest neighbors, Ukraine and Kazakhstan, should the underlying ethnicity of their large Russian populations ever become a point of contention for Moscow, Kiev or Astana.

Moscow's widespread issuance of Russian passports to inhabitants of Georgia's breakaway region of South Ossetia (a practice also prevalent in Abkhazia) enabled Moscow to state that Russian forces were intervening to protect Russian citizens.

While Russia's direct energy relations with Georgia are of strictly limited importance, its energy relations with Ukraine and Kazakhstan are far more important.

Some 17 years after the collapse of the Soviet Union, identity issues may still be capable of playing an important role in post-Soviet intergovernmental relationships.

If these are not handled skillfully there is a risk of deteriorating relations between Kazakhstan as an energy producer, Russia as both an energy producer and transit state, and Ukraine, as a transit state.

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Energy Economist

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A second conclusion is that a government like Mikhail Saakashvili's in Georgia, that is prepared to use force to resolve a supposedly frozen conflict, can create more problems for its supposed allies in Europe and North America than it does for Russia.

This has implications in terms of potential international security guarantees for Georgia, should they be deemed necessary to ensure energy transit through the South Caucasus (see map of the Georgian energy corridor).

It also has implications for neighboring Azerbaijan, which has poured some $2 billion into rebuilding its armed forces in the last year in an effort to pose a credible military challenge to Armenian forces controlling the disputed territory of Nagorny-Karabagh.

Put simply, Saakashvili's assault on South Ossetia proved that no-one can ever assume a military campaign will go as smoothly as planned, or that its consequences can be predicted.

As for Azerbaijan, with the Baku-Tbilisi-Ceyhan (BTC) oil pipeline and the Baku-Tbilisi-Erzurum gas connection passing within 15 kilometers of the Armenian frontline, the dangers should be self-evident.

But perhaps the most obvious conclusion is that while energy was not the cause of the Georgian war, it is most certainly a casualty.

The triangle of Eurasian energy relations - Europe, Russia and Central Asia (or quadrilateral, if Turkey is not considered part of Europe) - has never been more severely stressed than now.

While existing energy transit through the South Caucasus will be more or less maintained, prospects for a major expansion of this into an artery for European gas supplies are now very much in question.

Limited withdrawal

As Energy Economist went to press, Russian forces had completed what Russian leaders describe as their withdrawal from Georgia proper.

However, Russian checkpoints still command key highways inside Georgia which Russia regards as part of a legitimate security zone outside the boundaries of the disputed territories of South Ossetia and Abkhazia.

Russian troops still control access to the Georgian port city of Poti, south of Abkhazia.

There is no clarity concerning the future of these positions, which potentially constitute major obstacles for the free flow of goods and services across Georgia, which, in turn, is vital for the well being of the Georgian, Azerbaijani and Kazakh economies.

On August 22, the NATO special representative for the Caucasus and Central Asia, Robert Simmons, said in Tbilisi "NATO will do as much as possible to ensure the withdrawal of the Russian troops."

At this stage, what this means is unclear. It could range from full scale military pressure to secure the removal of Russian checkpoints deep inside Georgia.

Or it could mean no more than diplomatic calls for Russia to observe French and US understandings of what was agreed in the ceasefire accord which officially ended the fighting.

At the very least, the presence of Russian troops will ensure continued tension, to the detriment of long-term development of energy transit in the region.

By contrast, existing transit is much less of a problem. The destruction of a train carrying oil and products on August 24, possibly due to unexploded ordnance, shows that rail traffic remains vulnerable.

For the commercial companies concerned this is very serious, but in terms of the global energy balance, the most important factor is that the biggest oil pipeline across the country, BTC, appears to have returned to normal operation, as has the Baku-Tbilisi-Erzurum gas pipeline system.

The BTC pipeline, which had been carrying 850,000 b/d of crude before an explosion in Turkey a few days before the outbreak of the Georgian conflict, resumed operations August 25, with cargoes lifting from Ceyhan August 26.

Gas deliveries through the South Caucasus line from Baku to Turkey were resumed on August 15.

However, the 150,000 b/d capacity Baku-Supsa line, closed on August 12 and remained shut as of August 26.

BP cites "operational reasons" for the continued closure.

At the same time, the question of more than 100,000 b/d of railway traffic from Azerbaijan to Georgia's Black Sea terminals for onward delivery to European and Mediterranean markets remains in doubt.

Paradoxically, the post-ceasefire train blast proved that the railway system as a whole had come through the war reasonably intact, contrary to some earlier reports.

Next page: The Georgian energy corridor

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