The Foreign Service Journal, April 2003

ple, Azerbaijani President Heydar Aliev painted so rosy a picture of his country’s energy potential at the 2001 World Economic Forum in Davos, Switzerland, that his Armenian counterpart, Robert Kocharian, retorted: “Is there any water in the Caspian, or is it only oil?” Even the State Department got into the act, using the promise of huge Caspian oil reserves to lure American investors into the region and thereby help the republics secure real independence from Russia. For example, the Senate Foreign Relations Subcommittee on Inter- national Economic Policy, Export and Trade Promotion, heard testimony from two State Department officials, Stephen Sestanovich and Marc Grossman, at a July 1998 hearing, to the effect that Caspian oil reserves contain at least 200 billion barrels (compared with Saudi Arabia’s 260 billion), valued at $4 trillion. The hype machine was still in full swing as late as last year, though the numbers were beginning to come down by then. For example, a story in the April 8, 2002, edi- tion of Newsweek breathlessly claimed that, “The Caspian Basin, at a conservative estimate, contains about 70 billion barrels of oil.” But speaking at the Eurasian Economic Summit in Almaty, Kazakhstan, on the very same day that story came out, the head of a major oil company painted a very dif- ferent picture. Gian Maria Gros-Pietro, chairman of Italy’s ENI oil company (the only Western company to have discovered a new oil field in the Caspian in the past decade, the Kashagan field in Kazakhstan), asserted that the Caspian Basin contains just 7.8 billion barrels of oil — about a tenth of what Newsweek and other analysts were maintaining. Indeed, we now realize what the local oilmen always knew: the Caspian Basin’s energy reserves have been seriously depleted by decades of Soviet exploitation. The U.S. Energy Information Administration now calculates that the Caspian Basin’s oil holdings total somewhere between 18 billion and 34 billion barrels, 75 percent of which lie under Kazakhstan’s portion of the sea. In other words, far from being a rival to America’s current oil sources (see sidebar), the region’s potential is roughly the equivalent of Alaska’s Prudhoe Bay field. Practical Difficulties Current oil production in Azerbaijan, Kazakhstan and Turkmenistan combined totals less than a million barrels per day, of which about two-thirds is used domestically. Even under a best-case scenario, such as Daniel Yergin and Thane Gustafson detailed in their August 1997 New York Times piece, “Evolution of an Oil Rush,” the coun- tries’ combined annual production could only reach three million barrels a day by 2010, of which about two million would be available for export — representing about 3 percent of global oil production. By comparison, the OPEC countries already account for over 40 percent of current oil production, a share that is expected to rise to 52 percent by 2010. To be sure, even that relatively modest estimate still represents an attractive target, particularly in a region with few other assets. But one of the differences that set the landlocked Caspian apart from other important mar- ginal suppliers is the difficulty of getting the oil and gas production to world markets. The energy transportation systems of the region were designed and built to serve F O C U S 44 F O R E I G N S E R V I C E J O U R N A L / A P R I L 2 0 0 3 Alec Rasizade is a senior associate at the Historical Research Center in Washington. He holds a doctorate in modern history from Moscow State University and is the author of Turkey in the System of NATO (USSR Academy of Sciences, 1990) and The United States and Turkey from the Truman Doctrine to the Atlantic Alliance (Baku: Academia Publishers, 1986). He has also written numerous scholarly essays and articles for such periodicals as Orbis, Central Asian Survey, Contemporary Review, Internationale Spectator, Internationale Politik und Gesellschaft, and The Journal of Third World Studies. THE WORLD'S LARGEST CRUDE OIL PRODUCERS IN 2001 Country Reserves Production (billions of barrels) (millions of barrels per day) Saudi Arabia 262 8.8 Iraq 112 2.4 United Arab Emirates 98 2.4 Kuwait 96 2.1 Iran 90 3.7 Venezuela 78 3.4 Russia 49 7.1 U.S. 30 7.7 Libya 29 1.4 Mexico 27 3.6 (Source: The Economist , 14 September 2002)