The mystery of the Caspian oil boom part one

Contemporary Review, Sept, 2004 by Alec Rasizade

The first reason is geopolitical. In the so-called Silk Road Strategy Act of 1999, Transcaucasia represents an important geopolitical isthmus, linking the Black and Caspian Seas and providing the West with a 'silk road' to Central Asia. By reanimating the 'silk road', which would avoid passing through Iran (historically its integral part), Washington is trying to limit Russia's influence in the region, while at the same time restricting the number of potential allies for Tehran.

However, the economic appeal of the Silk Road Strategy pertaining to the presumed transportation significance of the region has become absurd since the sixteenth century when it lost its value as the Great Silk Route (transcontinental trade route that linked China to the Mediterranean for 1500 years) due to the great maritime explorations and the fact that the cheapest way to move goods between Europe and Asia is by sea, not by land. Remaining since then on the periphery of the 'global economy', the Caspian region does not constitute by itself an area of vital strategic interest for the West.

Secondly, the interest of international oil companies in sustaining the Caspian energy phantom can easily be explained by their motivation of profit. All of these ventures are joint-stock companies whose shareholders derive their main profit not from increasing dividends based on successful commercial activity but from the rising price of their shares on the stock exchange and oil futures on the mercantile exchange. This is the very essence of Western business activity in the Caspian Basin. By participating in high-profile Caspian projects and issuing rosy reports of great resources, oil companies improve their stock image, generating an instant profit without pumping a single barrel of oil. In fact, to begin seriously extracting oil would be counter-productive given the danger that the true extent of oil reserves would then be exposed. The recent disclosure at Royal Dutch Shell, that it would reduce its 'proven' oil and gas reserves by a remarkable one-fifth, has revealed that share prices are dictated not by real economic indicators but by the aura of promise affirmed by motivated Wall Street analysts.

In the months since Shell's announcement, BP-Amoco, Chevron-Texaco, Exxon-Mobil and several other oil corporations operating in the Caspian Basin have also announced revisions of their reserves spurred by the investigation into the discrepancy started by the US Securities and Exchange Commission (SEC). The investigation ensures that even the degraded appraisal of the Caspian oil potential would further diminish as soon as the SEC implements its new requirement that all energy firms whose shares are traded in the USA have their reserves reviewed by independent auditors.

Third motive: why do the local governments cheat on the contracts they are only too willing to sign, and how do they benefit from that? All Caspian governments are fully aware of the obvious truism in international politics: the greater the oil reserves--the more tolerant Western governments are in over-looking a poor human rights record of a petroleum-based regime. A regime with less significant oil production provokes more international scrutiny of the status of local democracy. Aside from the tumid sense of self-importance that the Caspian oil bestows upon them, their objective is entirely pragmatic: the more foreign investment--the easier to perpetuate autocratic rule and keep popular discontent at bay with tales of an oil-boom prosperity lying ahead, not to mention the Western slush funds and kickbacks for the ruling elite, which do not even enter the Caspian countries and are directly deposited in leaders' personal bank accounts abroad. For instance, the Azeri government has grossly underreported the huge 'signature bonuses' received after auctioning the concession rights to a prime deep-water oil fields block in 1994, and told the International Monetary Fund (IMF) that it received $285 million in bonus payments. But the consortium of oil companies, called Azerbaijan International Operating Company (AIOC), claimed that they paid Azeri leaders for the same block $400 million in bonuses.