News August 13, 2008, 7:21PM EST

Georgia: A Blow to U.S. Energy

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Georgian soldiers after a Russian bombardment David Mdzinarishvili Georgia/Reuters

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Map by Laurel Daunis-Allen/BW

Besides, the Russians may not need to shut down the Baku-Ceyhan line to win the advantage in the energy wars. "There's no doubt that what's happening has increased the investment risk within the region," says Nick Butler, a former senior executive at BP who directs the Cambridge Centre for Energy Studies at the University of Cambridge's Judge Business School. Already, on Aug. 12, BP shut down a secondary oil pipeline that ends at Georgia's Black Sea port of Supsa, saying there could be a risk of attack on the line.

Russia's Pipeline Plans

Both Chevron and ExxonMobil (XOM) had also planned to ship hundreds of thousands of additional barrels a day along the route traversing Georgia. Now that may be subject to change. "Do you want to put more eggs in the South Caucasus basket?" asks Edward C. Chow, a former Chevron executive and now a senior fellow at the Center for Strategic & International Studies in Washington."And if you do, are there certain accommodations that need to be made with the Russians to protect them?"

What about the White House's plans for a pipeline to ship natural gas to Europe? The proposed pipeline's success depends on Turkmenistan, which has the fourth-largest natural gas reserves on the planet, an estimated 3 trillion cubic meters. The Turkmen are cautious: Under former President Saparmurat Niyazov, they refused to defy the Russians and support the construction of the Baku-Ceyhan pipeline. "[Niyazov] thought about it and probably decided he didn't want to wake up dead," says former U.S. diplomat Wolf.

The assault on Georgia may make the Turkmen even more wary of the new pipeline. Instead, they may end up cutting a deal with the Russians, who are vigorously pursuing new gas pipelines of their own in a bid to dominate energy in the region. "A new Iron Curtain," says analyst Ruppel, "is descending around the periphery of Russia."





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The Gipper Saw It Coming

In the mid-1980s, European leaders, led by Germany, moved to boost energy imports from Russia as a way to curb the Continent's dependence on oil from the strife-prone Mideast. Yet as Marshall I. Goldman, an old Russia hand and author of the book Petrostate: Putin, Power and the New Russia, tells it, plans to build a pipeline linking Russian gas fields to countries in Western Europe met with stiff resistance from one Ronald Reagan. Remember the Berlin blockade, warned Reagan, who grasped early on the geopolitical risks that the pipeline would create. To drive home his point, Reagan banned General Electric (GE) from exporting its leading-edge compressors and pumps for use in the project. He also lobbied then British Prime Minister Margaret Thatcher to institute a similar ban on British companies. But in a rare disagreement between the two, Thatcher refused.

LeVine is a correspondent in BusinessWeek's Washington bureau.

With Jack Ewing in Frankfurt

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