perilous from the standpoint of political risk.”
Finally, one of the participants who had sat quietly in the corner spoke up. Why choose ? he asked. Why not do both? The more pipelines, the better. Even if the cost was higher, dual pipelines would provide more security. It would be a great insurance policy. That approach would also help assure speed and discourage foot dragging—since the AIOC could always threaten to go with the “other” option. So taken together, two routes made a lot of sense.11
Of course, one had to start somewhere. And that meant starting with the Russian route. After all, a pipeline was in place. The politics were right.
Heydar Aliyev saw it that way. On a dreary, cold February night in 1995, in his office in the hills above Baku, Aliyev gave his marching instructions both to Terence Adams, the head of the AIOC, and to the head of SOCAR. Nothing should be done that would “alienate” the Russians, said the president. It was too risky. A contract had to be signed with the Russians before anything else was done. “The geopolitical imperative could not have been made clearer for Baku oil diplomacy,” Adams later said. The president made one other thing very clear. Failure in any form would be a major disaster for Azerbaijan, and thus would certainly also be a disaster for AIOC and personally for all those involved. He looked hard at both men. At the same time, Aliyev emphasized that the relationship with the United States was also essential to his strategy. His message to the oil companies was challenging but clear: “Offend no one.”
Things were also changing with the United States. There had been a very sharp debate in Washington between those highly suspicious of Russia, who favored an “anything but Russia” pipeline policy, and those who believed that a collaborative approach with Moscow was required for the development of energy resources and transportation in the former Soviet Union. And, in the latter view, that development was necessary to meet the two objectives: helping to consolidate the nationhood of the newly independent states and enhancing energy security by bringing additional supplies to the world market. In due course, matters were generally—although never completely—resolved in favor of the more collaborative approach. In February 1996, the northern route won official approval.12
Agreement for the western Early Oil route soon followed. For its part, the Georgian route offered a counterbalance to the Russians. Getting this plan done drew upon the personal relationship between Aliyev and Georgian president Eduard Shevardnadze, whose career, like Aliyev’s, had tracked from the local communist security service to leader of the Georgian communist party to the pinnacle of Soviet power in the Kremlin as Mikhail Gorbachev’s foreign minister—and, thus, the opposite number of U.S. Secretary of State James Baker in negotiating the end of the Cold War. Now Shevardnadze, who had returned as president to Georgia after the breakup of the Soviet Union, was negotiating a pipeline whose transit fees would be important to keeping impoverished, independent Georgia afloat. Even more important was the geopolitical capital that Georgia gained from U.S., British, and Turkish engagement with which to balance against the Russian giant to the north.
PIPELINE POLITICS
The battles over pipeline routes for oil and gas became known as the Caspian Derby.
Source: IHS CERA
By 1999 both Early Oil export lines were operating. The western route tracked the old wooden pipeline built by the Nobels in the nineteenth century. The Russian northern line passed through Chechnya, where in that same year the second Chechen War would erupt between Russian forces and Islamic rebels. That conflict forced the shutdown of the Russian pipeline. This proved the insurance value of a second, western Early Oil line through Georgia.
That took care of Early Oil. Meanwhile, as the decade progressed, the technical challenges were being surmounted offshore of Azerbaijan, and it was clear that very substantial additional production would begin in the new century. The resources had been “proved up”: oil could actually be economically extracted in large volumes from beneath the Caspian Waters.
WHAT ROUTE FOR THE MAIN PIPELINE?
Now that the resources were bankable, a main export pipeline capable of transporting much greater volumes had to be built. It was back to the same battles as over Early Oil. This time, however, there could be only one pipeline. Given the costs and scale, the difference could not be split between two lines. The Russians, of course, wanted the pipeline to go north and flow into their national pipeline system, which