In Depth September 11, 2008, 5:00PM EST

Kazakh Oil: A War of Nerves

(page 3 of 3)

Astana: Oil dollars have made the capital a glittering gem among the republics James Hill/Contact

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Ray Vella

Kazakh President Nazarbayev is wary of antagonizing Moscow Shamil Zhumatov (KAZAKHSTAN) Reuters

Insurance for all oil operations, for instance, could rise. And Russia will become a tougher negotiator when it comes to the pipelines. There will be "some reevaluation of what Russia might do, what it is really able to do, what sort of political will it has," says Pavel K. Baev, a senior researcher at the International Peace Research Institute in Oslo. Adds Simpson, the British lawyer: "If you are sitting in Azerbaijan or Turkmenistan, you are more likely to accommodate Putin when he comes knocking."

What might Russia want? In June, Gazprom offered to buy every last cubic foot of the Azerbaijan government's natural gas production. Azerbaijan President Ilham Aliyev has so far resisted, mindful of the West's wish that he sell to Europe and lessen its dependence on Russian gas. Yet if he wants to expand the energy corridor through his country and Georgia, Aliyev might have to yield.

The Kazakhs remain optimistic, especially Timur Kulibayev. The Caspian equivalent of a prince, the 42-year-old son-in-law of the President is the nation's leading oilman. Kulibayev thinks the transit network through the Caucasus will be protected because so many countries use it, thus offering safety in numbers. "We haven't suffered any problems, and we don't expect any," he tells journalists in his Astana office.

Kulibayev also notes that next year China will finish a 400,000-barrel-a-day pipeline from Kazakhstan into its province of Xinjiang. If blockages to shipment through Russia and the Caucasus persist, China may be the only option for Kazakhstan's increased production. It would be ironic if after 15 years of struggle neither Russia nor the U.S. were to be the victor over Central Asia's oil and natural gas, and instead the spoils ended up going East.









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Jockeying for Influence in the Caspian

Blogging on The New Republic's Web site, Martha Brill Olcott, a noted Central Asia specialist, says that Kazakhstan may be rethinking its priorities in the wake of the Georgia war. The country has been weighing rival pipeline proposals. A Western-backed project, which would run through the Georgia and Azeri areas, now looks less appealing than the Russian offer. Also, if the Mikheil Saakashvili regime were replaced by a pro-Russian government, Kazakhstan would want to work closely with the new powers to protect its Georgian investments.

To read Olcott's blog post, go to http://bx.businessweek.com/oil-and-gas.

With Jason Bush in Moscow, Mark Scott in London, and Dexter Roberts in Beijing.

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