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Thursday, November 18, 1999 Published at 20:39 GMT


World: Europe

Analysis: Economic uncertainty over pipeline

Leaders have signed the agreement - but will the pipeline be built?

By regional analyst Pam O'Toole

The United States and Turkey have spent years lobbying for the Baku-Ceyhan pipeline, linking oil fields in the Caspian Sea with the Mediterranean.

If it is built, it would provide Turkey with lucrative transit fees and aid the United States in its bid to prevent Iran from becoming a major export route for Caspian oil.

Now an agreement to build the pipeline has been signed at the Organization for Security and Co-operation in Europe summit in Istanbul.

Click here to see a map of the pipeline route

But disappointing oil finds in the Caspian mean that international oil companies who would be expected to foot the bill for the new route maintain that it is not yet economically viable.

"Somebody has to find enough oil to make sure that this pipeline will run at capacity, " says Julian Lee, senior oil analyst at the Centre for Global Energy Studies in London.

"Until that oil is found I don't think the pipeline will be built," he says.

For the time being, Baku-Ceyhan will continue to exist on paper only, with international oil companies preferring to ship their Caspian exports out via an existing pipeline through Georgia.

Conflict of interests

There is some uncertainty, too, over a second agreement on a proposed gas pipeline to carry Turkmen gas across the Caspian to Turkey.

In this case, while the economics of the deal appear relatively sound, but the project could be dogged by political differences.

The line will pass through Azerbaijan, which has significant gas reserves of its own, and it may well want to have access to the pipeline so that it can sell its own gas, rather than being a trans-shipment route for Turkmenistan's exports.

Russian concerns

After years of political manoeuvring, Russia has continued to try to ensure that Caspian oil is exported via its territory.

At the last minute, it proposed a bypass pipeline which would ensure that any Caspian oil exported through Russia would not have to travel through the troubled territory of Chechnya.

Russia has been accusing the US recently of attempting to exclude Russian influence from the Caspian.

It has also been accusing the US of attempting to block Russia's plans to build a gas pipeline beneath the Black Sea to serve Turkey.

Azerbaijan has successfully argued that the Russian proposal for a bypass pipeline has come too late.

However, analysts point out that even if it had been made several years ago, Baku would still have been keen to prevent Moscow having a monopoly on Azeri oil export routes.

At least Moscow may take some comfort from the fact that it appears unlikely that the Baku-Ceyhan pipeline will be built for some time to come.



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