The Region of the Future: The Caspian SeaGerman Interests and European Politics in the Trans-Caucasian and Central Asian RepublicsPolicy Paper of the SPD Bundestag Fraction
Authored by Gernot Erler MdB
Table of ContentsThe Region of the Future: The Caspian Sea German Interests and European Politics in the Trans-Caucasian and Central Asian Republics
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Central Asia and the Caspian Region: The Political Challenge After the Dissolution of the Soviet UnionWhen the Soviet Union dissolved in 1991, it left standing fifteen independent states. The Central Asian Republics of Kazakhstan, Kyrgyzstan, Tadzhikistan, Turkmenistan and Uzbekistan, as well as the Trans-Caucasian Republics of Armenia, Azerbaijan, and Georgia began their independent political existence. These nations all belong to the "Commonwealth of Independent States" (CIS), with the Russian Federation as their most powerful partner. The political developments since 1991 have shown that these eight member countries of CIS (the remaining members are the Ukraine, Belarus, and Moldova) create a geopolitical unity which is characterised by constantly shifting loyalties among one another. The discovery of rich raw material mineral deposits, mainly in Azerbaijan, Kazakhstan and Turkmenistan, has strengthened the sense of unity in the Caspian Region. The potential wealth of the region has awoken world-wide interest. The interest today picks up where it left off at the turn of the century, when the world had turned its attentions to Central Asia. Geopolitical experts such as the German Karl Haushofer and Halford Mackinder from Britain used their "Turkestan" and "Heartland" theories to expound on the idea that political control of this bridge between Europe and Asia provides the key to world domination. Today, when the Central Asian region is again a main topic of geostrategical discussion, the memory of these theories is revived. The central question is whether the new oil and gas discoveries could lead to a "second Gulf Region", which several powerful countries would like to have an interest in. Characteristic of the Caspian Region, there is a large spectrum of grey area between the potential of, and the proven presence of, reserves of raw minerals. The presence of approximately three billion tons of oil is confirmed. This represents roughly two percent of the world's reserves, approximately as much as is produced from the North Sea. The forecasts are for a presence of up to twenty-eight billion tons (in comparison: Saudi Arabia alone has an assured presence of thirty-five billion tons of crude oil). Of this, up to ten billion tons (seven percent of the world reserves) are thought to be accessible. With natural gas, the difference between discovered and suspected reserves is narrower. Six billion cubic meters of gas (six percent of world reserves) are certain, while there is a suspected total presence of eighteen billion cubic meters. These figures do not justify talk of a "second Gulf Region". The world-wide interest in accessibility to or control over these reserves is nevertheless understandable. With a steady rate of production, the North Sea oils will suffice for Norway for fourteen years, while Great Britain's reserves will last closer to ten years. Thereafter, the Western dependence on oil from the Middle East will be renewed. Using current rates, in 2010 ten percent of Europe's total demand for natural gas will remain unmet. In 2020 that rate is expected to reach thirty percent. In addition, an increase in the demand for energy is expected for South and Southeast Asia. Because of these expected developments, any chance for diversification of energy suppliers is seen as attractive. The differing interests in the Caspian Region therefore intersect. The situation becomes even more complicated due to the fact that a natural accessway to the open sea, and thus to the customer, is lacking. The mineral resources first become valuable to the producing countries, the oil companies, and the end user when the appropriate transport systems (pipelines) are installed. Every decision made over the management or building of the pipeline network helps one involved party, but hinders another. The political challenge is that this above-described clash of interests
takes place in a region in which, after the dissolving of the Soviet Union,
there is still no political stability. The eight Trans-Caucasian and Central
Asian countries, still searching for their identity, are still struggling
with their independence, are to a great extent still at the beginning of
a transition towards democracy and a market economy, and they see themselves
as standing in the middle of a precarious and menacing vacuum of political
security, set off by the numerous and highly variable influence from abroad.
The prospects appear to be completely open. The Central Asian-Caspian Region
could minimise the problems and conflicts, and even become a model region
for preventative international balance-of-interests. This could be achieved
through a co-operative effort by responsible parties which takes into consideration
both the politics of the region and the international community, and through
the co-operative use of the available wealth. There could also be the creation
of a second Gulf Region; not in the sense of the Gulf Regions' energy reserves,
but in the reproduction of strains and conflict of interests that in the
Gulf has already many times resulted in bloody war.
II. German and European Interests in the Caspian RegionThe Federal Republic of Germany, and the member countries of the European Union pursue both political and economic goals and interests in the Caspian Region. Desire for political stability in the whole post-Soviet realm as the groundwork for the transformation process towards democracy and a market economy is strong. The European view is that a stable and conflict free development of the Caspian Region will only be successful when a balance is struck not only between the eight countries of the Caspian Region, but also between the Caspian Region and other affected regional as well as great world powers. These affected countries include Russia, China, and the USA, as well as Turkey and Iran and, due to the laying of pipelines, Afghanistan, Pakistan and the nations on the rim of the Black Sea. A monopolistic model for the accessibility to the oil and gas and its transport to the customer markets would damage the worthwhile desire for a balance of interests, as would the exclusion from participation and/or damage to the interests of any one or more of the above-mentioned countries. European market interests demand political stability as a prerequisite. Taking their cue from their own prospective energy demand, the Europeans plan for direct participation in the large Caspian oil and gas syndicates. Trans-national European oil companies such as Agip, British Gas, BP, Royal Dutch Shell, Statoil and Total take part in the upstream activities and the pipeline projects. They do not, however, come close to approaching the interests of the large American companies, which in the most important syndicates in Kazakhstan and Azerbaijan have between a forty and fifty percent share hold. In the Federal Republic of Germany, which is not represented among the 100 most important oil companies, there are smaller investments, out of which the ten percent share held by DEMINEX of Essen in the Fifth Azerbaijani Syndicate in Lenkoran-Deniz is the most important. Apart from that, German businesses are oriented heavily towards infrastructure contracts, especially in road creation, the building of transportation systems and communal infrastructure, telecommunication, radio and television, and the production and distribution of electricity, to name but a few. Until now, German foreign trade with the eight Trans-Caucasian and Central Asian republics has been modest. Imports in 1996 stood at a worth of 473 million Deutschmarks, with exports worth 1,681 million DM. The amount of German direct investment has up until now been marginal. However, indications of a high level of increase are present. The total worth of trade with the region in 1998 will surpass 2.5 billion DM, and alone with Kazakhstan the volume of import/export climbed from 546 million DM in 1996 to 1.1 billion DM in 1997. German industry judges the possibilities for the future as positive. German industry points to a generally positive image of Germany, which leads back to the wave of industrialisation in the beginning of the 19th century, to which names such as Siemens and Rothschild, among others, made unforgettable contributions. A financially successful strategy by German investors was the decision not to restrict business to oil and gas. This creates the opportunity to expand and diversify their interests in the Caspian Region. Finally, German businesses do not bind any of their business projects with the geopolitical and geostrategical interests of Germany, which is also registered as a plus by the countries of the Caspian Region. Political stability, advancement in the transformation of state and
society, contributions to Europe's secure supply of energy, fair terms
for investment and development of trade relations -- this list of goals
is shared by all European countries. As far as a common European policy
for the Central Asian-Caspian Region is concerned, though, although there
are optimal conditions present, there is hardly even a hazy outline of
any such policy at this time.
III. Obstacles and RisksCertain conditions in the eight countries of the region are impeding a faster rate of development in economic relations. For example, German investors have gathered that the trans-national corporations of the mineral oil branch often use their investments for the creation of favourable conditions for other bidders coming from their own home countries. The business done with raw energy materials paves the way for further contracts in infrastructure. German policy must in this case make great efforts to demand fair trade conditions, and a balancing out of the present competitive distortions. Many businesses fail due to financial problems. Even the countries with large oil and gas deposits do not have much purchasing power at their disposal, due to the fact that these resources will generate an increase in revenue sometime in the future. The reliance on private risk capital or guaranteed loans causes further problems. The German Hermesbürgschaften, for example, is tied to government guaranteed loans, for which the partner countries involved continually refuse to guarantee. Lines of credit, which are modest anyway, are yet to be taken advantage of. The Bank for Reconstruction's credit program for small and medium sized operators in the region won't take effect until the medium term. As an alternative, to barter goods requires that western markets are opened up to as yet unknown products. This is a next to impossible task for many of the European trade partners. Business activity in the Caspian Region is also confronted with problems that lay in the backlog of the transformation process. There are complaints about a lack of clearly defined rights, and administrative hurdles that are hard to overcome. In addition, responsibilities and competencies are in a state of constant change, there is inadequate compliance to contracts, payment adherence is weak, and there is widespread corruption. It is essential in bilateral contacts that the government representatives of the partner countries strive constantly to minimise these obstacles to productive co-operation. In the countries of the Caspian Region, business has yet to emancipate itself from political influence. There are strong ties and close personal relationships between the leaders of government and the leaders of private and public companies; some that even create intertwining, clan-like structures. Important business decisions as a rule require the direct personal approval of the ruling President. As long as these patrimonial structures reign, one must take them into consideration. Without the establishment of contacts to political personalities, there will be no advancement in economic relations. The political stability and the development of economic relations depend to an even larger extent on the continual solving of the many regional problems which constantly threaten to become virulent again. The conflict between Azerbaijan and Armenia over Nagorno-Karabach could flame up at any time. The government in Baku will not put up with the occupation of twenty percent of the Azeri territory or with the social burdens of 800,000 refugees forever. Without a clarification of the situation in Abkhazia and South-Ossetia, Georgia will not settle down. The scars from the bloody war in Chechnya have yet to heal, and problems with ethnic minorities are a destabilising factor in almost every society in the region, when they do not take an overall dimension, as in Kazakhstan, where Kazakhstani Russians make up thirty-one percent of the total population, and there are over 260,000 ethnic Germans. The latent ethnic conflicts and minority conflicts create an atmosphere where every state, along with his or her political and other interests, is vulnerable. It is therefore his or her task to ensure the goodwill of and balance with his or her neighbours. A few characteristic examples illustrate the region-wide situation:
The more power brought into the Caspian Region from foreign elements to
pursue their own interests, which in turn conflict with other interests
and other competitors, the faster the political risks grow. The following
shows an outline, though not an all-encompassing, overview:
The implications of the participating powers and the witches brew of diverging political and economic interests remind one of the general conditions that created the "Great Game" of the early part of this century, which is why this comparison is often made. The parallels are however limited in that today, the great trans-national oil and gas corporations constitute a new global player in the game. The new players often pursue completely different goals from their governments. Thus the Russian oil multi-conglomerates do not in any way support Moscow's tactic of using the disagreement over the status of the Caspian Sea as a tool to inflame insecurity and to stall explorations. Likewise, the eight large US oil companies who have billions of dollars worth in contracts in the region, criticise and fight against Washington's Containment policy regarding Russia, and especially Iran, which stands in the way of a practical solution to the pipeline question. The signs of growing tension, and of the attempt to use existing conflicts
for egotistical political goals are not lacking in the Caspian Region.
Much depends on whether the European states can make up their minds to
develop a single strategic policy towards the region.
IV. The Future of the Caspian Region; A Political Strategy
The Caspian Region will not develop into an area of peace, prosperity and
political stability all on its own. The engagement of western countries
and western multinational corporations in the region lends itself to a
degree of responsibility. A common European strategy for the Trans-Caucasian
and Central Asian countries does not at this time exist, but it is needed.
The following points outline what this common European political strategy
should comprise.
1. Transformation to Democracy and a Market Economy as a Prerequisite for PeaceThe doctrine of American President Woodrow Wilson, states that democracies do not go to war with one another, and settle differences of interest non-militarily, has to this point remained intact. This fact alone justifies every measure of support for the democratic transformation of the eight Caspian Region countries. There are, moreover, several regional-specific arguments. In the countries which have a new wealth at their disposal, we witness today a completely one-sided appropriation of this wealth to families, clans or oligarchies. Use of the resources to expand the prosperity of the masses does not occur. On the contrary, the difference between conspicuous luxury on the one side, and extreme poverty on the other, is growing. The instruments of oppression, which are necessary for the perpetuation of these proportions, continuously produce human rights abuses. If the distribution of wealth remains in its current form, the protests of those groups discriminated against will be unstoppable. The above-mentioned conditions could be used from the outside as an instrument by the competing interests and bring about a crisis situation of destabilisation and tensions throughout the entire region. Those oligarchies who cash in profits from raw material excavation are, as a rule, not eco-conscious. The horizontal insolidarity in the form of an elite appropriation of wealth finds its counterpart in a vertical lack of solidarity against future generations. A successful transformation will first be necessary before a majority of people is going to demand ecologically protective uses of the valuable natural commodities. In contrast, a continuation of the ruthless exploitation of natural resources will damage not just the environment, but will multiply the security risks for the entire region. The ecological balance of the Caspian Sea is on the edge. The countries bordering the Caspian Sea face huge problems alone due to a raising of the water level by a possible fourteen centimetres a year through the year 2010 or 2020, not to mention the presence of rusting old drill structures, a plenitude of off shore extraction, and a sea floor pipeline project. Yet more people make their livelihoods through fishing and caviar production than from oil excavations which so far also provides a higher economic revenue. The region could not cope with a new ecological disaster. It still has no answer to the drying up and poisoning of the Aral Sea due to the cotton mono-culture of its two most important tributaries, the Amur-Darja and the Syr-Darja, nor for how the effects of nuclear contamination in the area Semipalatinsk, a former nuclear testing ground of the Soviet Union, should be brought under control. Given these circumstances, and the knowledge that authoritarian regimes will continue to push the politics of exploitation that during the Soviet era brought about these horrific environmental catastrophes, the political goal of the transformation to democracy can justifiably be called a matter of survival. Therefore, it cannot be European policy to turn a blind eye to human
rights abuses, or to an apparent refusal by a regional regime to democratise,
simply in order to gain the advantageous business of the oil, gas, and
natural resources sectors. Such presently comfortable and profitable agreements
will prove in the future extremely costly, when the price is the abetting
through silence of those regional rulers who would delay or even refuse
to institute reforms.
2. Regional Co-operation vs. "Strategic Alliances"The reasons that lend themselves to the organisation of regional co-operation with the goal of a common Trans-Caucasian-Central Asian market are straightforward economic; foreign investors, especially those who want to construct production plants in the region, run up against the hindrances of a too-small, splintered, market. A common market of the whole region would encompass a population of seventy million, and thus constitute a highly attractive order of magnitude. Another argument for regional co-operation is the fact that the entirety of the region is land-locked and has no access to the open seas. The achieving of prosperity through raw materials will remain a dream so long as there are no transport routes. The three paramount preconditions are decision-making, construction and safe-guarding. The above described mutual applicability and dependence practically force an amicable solution to the pipeline problem that takes all sides into consideration. The voices of the large oil companies concerning the pipeline questions are loud and clear; they stand for a co-operative solution and emphatically reject (for whatever reason) political tutelage. Regarding mutual dependence, further region-specific co-operation is absolutely necessary, mainly due to the fact that the mineral rich, lower elevated republics of Azerbaijan, Kazakhstan, Turkmenistan and Uzbekistan have little water at their disposal. The higher elevated countries of Kyrgyzstan and Tadzhikistan have plenty of water, but little of other riches. There would be no need for a battle for life sustaining water if a regional distribution and coherence system could bring about a balanced redistribution of unequally distributed goods and resources. Unfortunately, political developments are moving in an antagonistic,
fatal direction. Under the influence of powers from outside the region,
there are two camps emerging. These opposing groups, the line of division
for which runs straight through the middle of the Caspian Sea, refer to
themselves "strategic alliances". The one group aligns Azerbaijan and Georgia
with foreign powers Turkey and the United States. The other includes Iran,
Armenia, the Russian Federation, and (with reservations) Turkmenistan.
The antagonism between these "Alliances" reminds one of the ill-fated geopolitical
developments of the last century, which ended in a high death toll for
Europe. A common European policy must attempt to retard the repetition
of another such development. Europe supports and encourages regional co-operation
in the Baltic (customs union), in East-Central Europe (CEFTA), and in the
Balkans, because such co-operative undertakings bring the possibility of
conflict resolution and preparedness for integration that would be needed
for an expansion of the EU. Similar concepts that the EU supports in Eastern
and South-eastern Europe, the EU should also support in the Caspian Region,
and take early steps against this dangerous "block building".
3. Integration into European Decision-Making Processes; OSCE and the Energy ChartaAll eight countries of the Caspian Region belong to the CIS, but after the dissolving of the Soviet Union they are faced with a security policy vacuum. There are no great expectations held by the Caspian Region that either the Russian Federation (which, with the exception of Azerbaijan has garrisons throughout the entire region) or the CIS will fill this vacuum. Thus their gaze falls upon the OSCE, which through its missions in Tadzhikistan, Georgia, Chechnya, and Nagorno-Karabach (Minsk Conference) has acquired an amount of trust. This lone competent and active security organisation in Central Asia has the advantage that on the one hand it does not encompass a one-sided representation of major powers' interests, but on the other hand, does not leave Russia out of the equation. A strengthening of the OSCE's role in the region cannot be held as provocative by Russia, because Russia itself long ago called for a revaluation of OSZE. Lately, the countries of the Caspian Region have heightened their expectations vis-a-vis the OSCE. This was emphasised by the visit of its presiding chairman Geremek to five Central Asian republics in April, 1998. Until then, the OSCE operated from a modest regional office (Central Asia Liaison Office) in Tashkent. Several of the countries visited are contending for additional liaison offices, out of which Bishkek (Kyrgyzstan) has the best chance. While the activities of the Office for Democratic Institutions and Human Rights (ODIHR) have been met with little enthusiasm, the Presidents and governments of Central Asia nevertheless desire a stronger consideration of security interests and a more active role in the OSCE for the solving of economic and ecological problems. The Federal Republic of Germany and the European countries should grab onto the opportunity offered by this enquiry, and give the OSCE the competence to take over these additional responsibilities in the Caspian Region. The democratisation and human rights goals must not be shoved into the background. The OSCE orientation towards human rights includes important principles and messages that need to be adopted in the Trans-Caucasian and Central Asian republics. The OSCE can contribute to the relaxing of tensions through its dialogue-oriented crisis prevention instruments, and as a non partisan advocate constructively fill the political and security vacuum without the setting of geopolitical goals. The Central Asian communities need international help to cope with the environmental catastrophes, and every bit of regional economic co-operation deserves support. It goes without saying that the OSCE should implement these undertakings that are the expressed wishes of the region. To that purpose, the OSCE, which in comparison to other international institutions enjoys an impressive record of achievements and effort, still requires additional tools. A great chance for the Caspian Region is held in the Energy Charta Treaty
(ECT), which came into effect on April 16, 1998, and is ratified by thirty-two
nations, including all eight republics of the region. The ECT creates dependable
and equal conditions for investments in exploration, upstream projects
and pipeline network projects. It includes instruments to guarantee the
fulfilment of contracts, secures the free flow of oil and gas, and offers
an effective arbitration procedure for disagreements. It can act as a bulwark
against the threatening politicisation of the exploitation and promotion
of raw materials, and the transit of energy sources in the region. In addition
it can prepare the way for an economical and rational decision about the
variants in question. The global investors have an interest that their
engagements are set within the framework of international law, and not
in a tangle of competing special interest groups. The Energy Charter Treaty,
which now receives world-wide support could do much good in this area.
Europe should make great efforts to strongly anchor their own energy security
and all their oil and gas companies to this legal groundwork. To such efforts
Europe must add both a lobbying of the United States to join the ECT, and
of Iran and the Russian Federation to ratify the treaty.
V. The Prospects for the Caspian RegionThe Caspian Region will definitely play an important role in producing energy raw materials for the world. What remains unclear is, in precise numbers, how large a role. A comparison with the Gulf Region is easy enough to make, and parallels are constantly drawn between the two. The Gulf Region has been many times over the venue for wars that resulted in heavy losses. The Gulf is characterised by opposing ethnic and religious groups, and by an overwhelming domination by undemocratic and authoritarian regimes. The elitist acquisition of profits from energy raw materials (oil and gas) has not resulted in any popular rise in the standard of living, nor has it created stability and prosperity for the region. The strategic significance of the Gulf Region for the maintenance of the western energy supply forces a constant and costly stabilisation-input from abroad. The United States alone during peace time invests annually more than thirty billion USD for the military security of the Middle East. In the Caspian Region we find all the elements and conditions for a reproduction into a "Second Gulf Region", in the sense of all of the above-described "Chronic Crisis Syndromes". Without special effort, without a farsighted policy of prevention, the Caspian will adopt a similar course as that of the Gulf Region. It is not especially encouraging that after the massive systemic failure in 1989-1990 and the end of the Cold War, little more was expected world-wide than a return to classic power politics and geo-strategic thinking. A new round of the "Great Game" with a regression to the political mindset of the nineteenth century, and the metamorphosis of the Caspian countries into a battlefield of geopolitics: that would be the worst that could happen to this sensitive region, and it would be a political defeat for the whole of Europe. There are possibilities and instruments with which to build a different future for the Central Asian and Trans-Caucasian countries. There is realism in a strategy to not repeat the mistakes that would result in a second "hotzone à la Gulf". It is worthwhile to take advantage of the seldom-offered opportunity to bring regional and extra-regional economic interests together with the goal of a rational, preventative, and peace-oriented policy. Europe must use this chance. The Federal Republic of Germany has the possibility, through the EU Presidency in the first half of 1999, to give important impetus and make contributions to a common European policy, and thereby take advantage of the opportunity that presents itself.
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