Azerbaijan is playing its ace: oil Former Soviet nation bargains for security and independence

November 16, 1997|By Kathy Lally | Kathy Lally,SUN FOREIGN STAFF

BAKU, Azerbaijan -- The scent of oil hangs heavy over Baku, enticing politicians and business people from far-off America to a city rich with intrigue, adventure and fortunes to be made.

This former Soviet republic of 7 million people lies on the western shore of the Caspian Sea, guardian of oil deposits so great that they could exceed those of oil-rich Kuwait.

The oil is priceless, its ultimate value going far beyond dollar and profit calculations. Controlling it portends enormous political power -- particularly for the United States.

Azerbaijan is using the oil, jealously guarded for 70 years by the Soviet Union, to bargain for its security and to protect its independence, setting off tectonic shifts in the geopolitical landscape.

Grandiose phrases accompany the resulting scramble: The Contract of the Century, a futuristic version of the fabulous Silk Road, the Great Game replayed -- summoning the 19th-century clash here between the British and Russian empires.

Hypocrisy nearly always accompanies the intersection of politics and profit.

All of this makes the battle for the Caspian great international theater, and world players were bearing carefully prepared scripts last week when they poured into Baku to flat-ter President Geidar A. Aliyev and position themselves for more deals.

All gamely obliged when Aliyev flew them 110 miles out to sea, turned a valve and ordered them to smear their faces with oil to celebrate the first production under the $30 billion, American-dominated contract signed in September 1994.

"This day will be remembered as a great turning point in the region," said Federico F. Pena, the U.S. energy secretary, "and a remarkable moment in modern history."

Pena was one of 23 government officials and oil executives who, after the early morning visit to the Caspian Sea oil platform, were lined up on the stage of Baku's Soviet-era Respublika Palace for five hours of congratulatory speeches.

Aliyev, 74, stood and spoke for an hour. The others followed. They all had a captive audience, for all the doors to the auditorium had been locked and no one could leave.

Pena told reporters the next day, after a meeting with American businessmen in Baku, "The Caspian region has extensive reserves in both oil and gas, and the importance to the United States in regard to our national security can't be overestimated."

The U.S. goal here is to diversify the world's oil supplies, he said. Total oil dependence on a single region, such as the Middle East, makes the United States economically and politically vulnerable to volatile politics a world away.

Profit motive

And for American businesses, there is money to be made.

U.S. oil companies lined up quickly to negotiate for the rights to drill the deep-sea oil, which was too expensive and technologically out of reach for the Soviet Union in its declining days.

American companies have a 40 percent stake in the Azerbaijan International Operating Co., a consortium of 11 oil companies from eight countries that is producing the first oil here.

Amoco holds 17 percent, Unocal 10 percent, Exxon 8 percent and Pennzoil 4.8 percent. British Petroleum is another big shareholder, with 17 percent. Azerbaijan controls 10 percent, through SOCAR, the State Oil Company of Azerbaijan.

The other shares are held by companies from Russia, Norway, Japan, Turkey and Saudi Arabia, each slice handed out by Aliyev with careful calculation.

The AIOC has a contract for three oil fields with 4 billion barrels of oil estimated to be worth more than $100 billion in sales over the 30-year life of the contract.

More oil than Kuwait?

Much more lies ahead, with some oil people saying the Caspian reserves could be as great as 180 billion barrels, nearly twice as much as Kuwait's. Only Friday, the Azerbaijan parliament ratified its ninth oil contract, this one with Exxon.

And companies that have not yet gotten a piece are fighting hard for a share of contracts yet to come.

"It's a success," said Luke Keller, vice president of Amoco Caspian Sea Petroleum. "Now every company in the world wants to be here."

Aliyev, once head of the KGB in Azerbaijan and a former member of the Soviet Politburo, has provided the stability for business to operate. He runs a country where the press can print many things, but no criticism of the president.

His people praise his skill at getting good deals for the nation's oil and protecting Azerbaijan's independence, but when asked what they think about the numerous portraits and quotations of the "Great Leader" that look down from office walls and billboards, their voices fall to a whisper.

"I'm not sure it's safe to talk about that here," one young man said nervously, against the clatter of dishes and voices in a crowded restaurant.

But most people are ready to trade limits to freedom for security.

"President Aliyev has improved our lives," said Natalya Preobrazhenskaya, a 75-year-old ethnic Russian pensioner. "He has brought order to all areas of life."

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