We are not in the same Geopolitical realm as in the 1970’s

1. UCLA –CEESSecurity Issues and ImpactsThe Caspian Region and the New Canon of Security Alexandre Babak HedjaziInstitute of Environmental Studies -University of GenevaJune 1st 2007

2. We are not in the same Geopolitical realm as in the 1970’s Post-Cold War Security Environment • The end of the cold war and the equilibrium that a US-USSR rivalry has been superseded by a much more fluid yet volatile global order. • The end of US-USSR sponsorship in international relations, coupled with the rise of independent regional and international actors implied a new epoch in which security issues became multifaceted and involved many actors in addition to nation-states……but in face of growing insecurities, states are still expected to address many rising insecurities. Economic world order • Economies and markets across the globe had never had the level of integration they have today. • As Yergin phrases it there is only one oil market, a complex and worldwide system that moves and consumes about 86 million barrels of oil everyday. For all consumers, energy security resides in the stability of this market…

3. The Security Debate • Where as the traditional ‘state centric approach’ to security views the state as the main referent object of security and the physical violence from outside the main source of threat, the ‘human centric approach’ to security stresses that human being are the referent objects and threats are increasingly nonmilitary and can arise from within the states. • “Development” and “humanitarian” approach to security acknowledge new threats, hunger, diseases and disruptions in patterns of daily life as critical elements of today’s world. • UNDP in the Human Development Report (1994) categorizes these threats under seven headings: • food security, • environmental security, • personal security, • community security, • political security, • economic security…

4. The Energy Security Trap • From the Arab oil Embargo in 1970’s to Russia’s disruption of gas delivery to Ukraine during the winter of 2006, energy insecurities have become one of the central elements of the global economy. • It has become central to many official national and international agendas and even a subject of concern to end users. • There is little consensus on its definition, scope and adequate policies for its provision

5. …The new economic environment is one of…. Interdependence of economies and markets Energy Security illustrates the best these interdependencies …

6. Is energy security a matter of interdependence or scarcity? • “…For many Americans, energy security means producing energy at home and relying less on foreign oil”. (Sebastian Mallaby, Washington Post) • “…Real energy security requires setting aside the pipedream of energy independence and embracing energy interdependence”. (Daniel Yergin, Foreign Affairs) • The scale of global trade of energy grows substantially as world market become more integrated

7. Economic and political elements of Global Energy Equation 1- What are the risks that demand and supply induced scarcity impose on global hydrocarbons market? 2- How does the geopolitics of energy interact with these fundamentals of the market? 3- To what extend do emerging regimes of governance of energy mitigate new sets of economic and geopolitical risks that state and non-state actors are increasingly required to confront?

8. 1- What are the fundamentals of demand and supply induced scarcity of hydrocarbons? With the prospect of global trade growing in the years to come, risks of global conflict or economic dislocation aside, world markets will become even more interdependent than they are today. • Increasing Global trade of Hydrocarbons: As the global consumption of hydrocarbons rises, per capita availability of oil and gas from fixed stocks begins to decrease. • Increasing interdependence of producer and consumer countries: Interdependence under conditions of geographic and political mismatch.

9. Increasing Global trade of Oil Projected Net Oil Imports and Exports (mb/d) • Most projections indicate that fast growing developing economies (Asia china included) will begin to consume more than the developed world. • According to International Energy Agency a significant increase in international trade of oil and gas will meet a widening gap between consumption and indigenous output in many parts of the world. The projected net imports and exports of each major region from 28 [mb/d] in 1997 is to reach over 60 [mb/d] in 2020 Soruce International Energy Agency, energy outlook 2003

10. Increasing (inter)dependence Oil import Dependence (per cent) • Regions that depend on imports to meet a significant part of their oil needs will become even more dependent on imports over the projection period. • Oil dependence in Europe rises from 53% to 79% over the projection period. In OECD Pacific, it goes from an already very high 89% to over 92%. • China, which became a net importer of oil products only in 1993, is projected to import more than three-quarters of it needs, over 8mb/d by 2020. All other regions remain net importers. • Meanwhile, the Middle East, already the biggest exporting region, will see exports rise from 17mb/d in 1997 to over 41mb/d by 2020. Soruce International Energy Agency, energy outlook 2003

11. Energy Security and the question of Scarcity Energy security and the conditions of its provision is at the junction of: • 1- demand and supply scarcity. • 2- structural scarcity.

12. Demand induced scarcity • Demand-induced scarcity is in conjunction with three types of factors: • The first factor is the population growth in consuming countries. • The second factor consist in rising per capita income in high-income countries, which are the major consumers and importers, and in late industrializing economies, particularly in South and East Asia. • Finally ,the third factor regards the history of technological change which since the 1850s has rendered access to fossil energy more, not less, important for the production of wealth and power.

13. Supply induced Scarcity • Supply induced Scarcity is caused by the dwindling of the hydrocarbon stock and the capacity of producer countries to develop their hydrocarbon resources. • In reality, demand and supply-induced scarcity interact. Extraction cost, refinery and retail plus profit marks-ups determine oil and gas offer price. • Increasing international trade of oil and gas, under conditions of growing dependence on OPEC production added to the geographic mismatch between location of consumption and production suggest that consumer countries’ seek to develop non OPEC sources of energy and diversifying the geographic source of imports away from an increasingly volatile Middle East…. This brings us to structural scarcity …

14. 2- How does the geopolitics of energy interact with these fundamentals of the market? • Supply-induced scarcity, or its anticipation, provoke power projection by military capable and import-dependent nations (US, E.U., Russia, China) aiming at getting control over the stock by either internally engineered regime change or by conquest of territory. • Structural scarcity is induced by deliberate action of a major power, by non state actor such as major oil companies, or by producer cartels such as OPEC. • Thus, a major power that manages to get control over conditions of access by third parties to the stock has the option to induce scarcity for selected outsiders.

15. The Geopolitical paradigm of Energy Security: • Due to hydrocarbons’ strategic significance, limited volume and highly territorial nature, securing energy entails that one who controls access to oil and gas reserves and the transit routes could exercise global influence by excluding or limiting their availability to potential competitors. • Energy security is thus not exclusive to the security of energy supply. It also encloses diversion of trade, when traders of one group are ousted from the network to be replaced by the traders from another group. In this case the collusion of some states against one producer or a group of producer countries creates new barriers for third parties to project their power.

16. Caspian Sea: Poster Child of Geographic mismatch between Energy Security and the Security of a region • Caspian littoral states have often been heralded as holding together one of the world’s largest oil and gas reserves. According to the Statistical Review of World Energy (British Petroleum 2002), the total proven oil reserves is 15.5 billion bbl and the total proven gas reserves are 196 tcf. • The combined Caspian output will never rival that of Saudi Arabia or Russia which produce respectively 8.8 million and 7.1 mbd. So why all the Caspian Hype? • If the Caspian oil reserves are not so extensive, why is it so essential to the diversification rationale of the west?

17. Energy Security and the question of Global power The heartland of the heartland The Silk Road Act, the US created an extension of the country’s defense perimeter into the heartland of energy supply. This is the issue at the center of Caspian pipeline geopolitics. The growing economic rivalry between the US, the EU, Russia, China, Turkey and Iran for influence on the Caucasus and Central Asia is prompting analysts to turn to century-old notions of control of the Eurasian heartland, as they develop responses to new geopolitical developments. Caspian source of power In a world were putative great powers such as Europe, China, and India will be totally dependent on the Persian Gulf and the Caspian Sea oil to sustain economic growth, access to oil –-not only as source of fuel but also as source of power-- become the key to the control of the global new economic and political order. In other terms, whoever controls the Persian Gulf and the Caspian Sea, controls the world’s economy and therefore has the ultimate lever over other competing powers

18. Energy economics vs. control over territory • As the post –Soviet Caspian region was not divided into stable and agreed upon zones of influence, extra regional states and non-state actors projected their power and influence into the region. • In the Caspian Sea region, pipeline diplomacy, as stated earlier, required the US government’s involvement as the driving force of its main component, the Baku-Ceyhan-Tbilissi pipeline (BTC) as well as the much heralded Trans-Caspian Gas Pipeline (TCGP). The project was endorsed by the US as it evaded Iran and Russia and aspired to move Azerbaijan and consecutively Turkmenistan and Kazakhstan away from the Russian and Iranian sphere.

19. Energy Security and Regional Security • The result of these competitions is an “axial regionalism” of the Caspian Oil:East-West pipelines sponsored by the United States and endorsed by Azerbaijan (TCGP, BTC, Aktau-Baku) and North South pipelines (Turkmenistan, Armenia, Iran’s virtual pipeline Caspian/Persian Gulf, Baku-Novorossiysk-CPC). • The double East-West and North–South axis cooperation with old and new global powers (Russia and the US) provides flexibility to regional countries. • The positive impact of these “axial regionalisms” on the development of the Caspian Sea region seem limited and their scope highly questionable.

20. The Security Dilemma? 1)The Baku-Tbilisi-Ceyhan (BTC) Test. The world class $3 billion BTC pipeline project has been strongly supported for economic and geopolitical reasons by its three host countries namely Azerbaijan, Georgia and Turkey. Inter-Governmental Agreement (IGA) Host Government Agreements (HGAs) Javakheti region /Borjomi region 2) The Caspian Environment Test. -The fluctuation in the Caspian’s water level -The increasing offshore and onshore pollution on some of the world’s most sensitive marine ecosystems (More than 3,000 tons of sulfites, 3,150,000 tons of chlorides, and 25,000 tons of phenols. Furthermore, some 200,000 tons of tar entered the Caspian Sea annually. In three rivers of Daghestan, considered major spawning grounds for the sturgeon, quantities of heavy metals found exceeded the maximum permissible values for fisheries by 60 to 100 times (Kardavani 1996). - Direct dumping of household and agricultural waste into the Caspian and its adjoining rivers is commonplace.

21. What to expect.. • Environmental Caspian Sea Initiative (ECSI).ECSI seemed a major step forward and attracted Azerbaijan, Iran, Kazakhstan, Russia and Turkmenistan around the same goals. to strengthen the national institutional, legal and regulatory frameworks within UN “Capacity 21” agenda. • Convention for the Protection of the Marine Environment of the Caspian Sea known as the Tehran Convention.. A treaty to protect the marine environment of the Caspian Sea commits the five governments to prevent and reduce pollution, to restore the environment, and to use the sea's resources in a sustainable and reasonable manner

22. Conclusion remarks • Regional environmental agendas have suffered from political and economic rivalries in the region which misrepresented shared concerns and ended up portraying some countries’ priorities and/or those of energy actors rather than depicting a comprehensive lay of the land of the Caspian environmental degradation For example, in 1995, a report on the Caspian’s environmental challenges made no mention of the critical issue of sea-level rise and focused on oil related pollution (The World Bank 1998). The politicization of the Caspian environmental question led in another instance to the rather absurd situation where in a conference on the Caspian environment in March 1999 in Vienna, sponsored by NATO, did not permit Iran’s participation.

23. Conclusion remarks • Prospects of improvement of Caspian Sea’s environment is muddied by the uncertainty intrinsic to a regionalism intimately tied to energy security and aspiration of control over resources and their transit routes by many regional and extra-regional contenders. • At risk are onshore and offshore flora and fauna of one of ecologically richest regions in the world as well as the livelihood of millions depending on the Caspian Sea’s economic resources such as fisheries as well as fertile agricultural land. • Whether we consider project based regional initiatives (BTC) or those dealing with shared challenges such as the Caspian’s environmental crisis, the adoption of common grounds needed for the Caspian Sea regionalism to mitigate new risks, is impeded by distinct legislation, economic and political priorities and differences in national representations of the regional space. In both cases the kind of regionalism at play, as in the past, has the potential to distort socio-economic and environmental realities. Caspian regionalism will be guided by states’ short term domestic and international interests rather than long-term development strategies based on system of common values.