The High-Stakes U.S. Courtship of Turkmenistan

The Bush administration's imminent creation of a powerful new Eurasian energy office is part of a late but broad strategy to catch up to and overtake Russia's advanced natural gas juggernaut in Europe.

As I reported a couple of days ago, the administration plans to appoint a potent two-man diplomatic team -- former ambassador to Russia Thomas Pickering, and Steven Mann, currently a senior State Department official on Central and South Asia.

People with whom I've been exchanging messages say the duo's main task is this: To transform a long-shot European natural gas pipeline proposal called Nabucco into reality. Nabucco would carry natural gas from the Caspian Sea to Europe.

By accomplishing that, the U.S. would blunt the impact of an advanced Russian pipeline project that's meant to secure and increase its position as Europe's most important natural gas supplier (Russia's Gazprom already controls about 30% of Europe's natural gas and oil supply).

While Russia sees itself as simply forwarding the market principles that the West espouses as a mantra, the Bush administration and the European Union think it's a bad idea for Gazprom to carve out greater economic influence in Europe. And Nabucco would give Europe a channel for Caspian natural gas independent of Russia.

The key to all this is the republic of Turkmenistan -- possessor of the world's fourth-largest supply of natural gas -- and its neophyte president, Kurbanguly Berdymukhamedov. A dentist by training, Berdymukhamedov was catapulted to the presidency last December on the death of Turkmenistan's ultra-bizarre ruler, Saparmurat Niyazov.

Now the new, 50-year-old Turkmen leader is the subject of one of the world's most curious diplomatic courtships.

Russia's Vladimir Putin is all over Berdymukhamedov. Were they not just five years apart in age, one wouldn't be surprised to hear of Putin trying to adopt him as his only son. Russian delegations are in the capital of Ashkabad almost constantly, and Putin himself has gone down at least twice to see Berdymukhamedov, in addition to meeting him one-on-one in Tehran and Russia.

Why? Putin wants Berdymukhamedov to agree to export almost all his natural gas north to Russia for onward shipment to Europe. And he seems close to succeeding. There actually is a handshake deal (in my experience in the former Soviet Union, a signed contract is equivalent to a western handshake; it only becomes a genuine contract when the pipes arrive on site for welding, and the work actually begins.).

Enter Washington. The State Department has been dispatching regular teams to Ashkabad since last summer. The European Union has, too. They've dangled a higher price for Turkmen natural gas to lure Berdymukhamedov into committing to a competing pipeline -- a trans-Caspian line that would ship his gas to Europe via Azerbaijan, Georgia and Turkey, into Nabucco.

In September, President Bush got into the act with a one-on-one chat with the Turkmen president in New York during the United Nations General Assembly.

But that hasn't been sufficient. I'm told that Berdymukhamedov keeps bringing up the Chinese, who have themselves decided to build a $26 billion natural gas pipeline east to China, absent any participation by the Turkmen at all.

If the West is so interested in the trans-Caspian line, the Turkmen leader says, why doesn't it emulate the Chinese and just go ahead and build it? Isn't the U.S. as great as the Chinese? Why must he aggravate his giant neighbor to the north -- Russia -- by taking the lead?

Plus, Berdymukhamedov is suspicious about the West's human rights agenda. Under the previous Turkmen leader, the republic had one of the worst human rights records in the former Soviet Union, which is saying a lot. Berdymukhamedov has moved to loosen up, but he isn't about to go European.

Washington and the EU have replied that the West isn't like the Chinese -- pipelines have to be built by private companies; the countries don't get involved in actual construction. And on the human rights side, "we tell him, 'We're not asking you to be Sweden or the U.K.," one person involved in the Western courtship tells me. For comparison purposes, they are telling Berdymukhamedov not to look to Europe, but to his neighbors Kazakhstan and Azerbaijan. They've got their autocrats, but generally aren't known for dark prisons with men in chains. "If we can get KazAzerTurk on the same page, that would be a nice little club," this person says.

Berdymukhamedov isn't quite biting, which brings in Pickering and Mann. Washington hopes they can manage to nudge the pipeline over the finish line.

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Explosion: The Age of Pipeline Power

The explosion on the Canada-to-U.S. oil pipeline should help people close to home grasp why the big powers are spending so much time these days worrying about the oil and natural gas flow from the Caspian Sea.

Yesterday's explosion in Minnesota shut off the flow of about a million barrels of oil a day from Canada to the U.S., and that temporarily sent crude oil prices up by $4 a barrel. Even though they settled down fast, the AAA says the accident may push up U.S. gasoline prices in the northeast and midwest for several weeks.

That's just a million barrels -- one-twentieth of the daily U.S. oil diet.

Further afield, NATO is helping to secure the Baku-Ceyhan oil pipeline, the million-barrel-a-day line carrying Caspian crude to the Mediterranean. The U.S. applied enormous diplomatic pressure to get the line built. It came on line last year. Within a decade, the Caspian will be exporting between 4.5 million and 5 million barrels of oil a day.

Now the U.S. and Europe are pitted against Russia to secure natural gas from another part of the Caspian -- the republic of Turkmenistan, which has the world's fourth-largest supply of the fuel.

Again, the matter is pipelines. Russia has actually obtained a contract allowing it to buy much of Turkmenistan's gas supply, move it north through new and refurbished pipelines, and ship it on to Europe and elsewhere at a huge markup. The U.S. and the European Union haven't given up, though. They are championing a competing pipeline that would take Turkmen natural gas West, skirting Russia.

They aren't the only players -- China would also like to grab a big share of Turkmenistan's gas and ship it east.

These countries understand that one big dimension of power and influence today is control not necessarily of oil and natural gas supplies themselves, but over their flow to the market. Similar to the long battle over sea lanes in prior centuries, they are doing all they can to take control over the pipelines that carry former Soviet oil and natural gas to the rest of the world.

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News: Bush Creating New Position Of Senior Envoy For Russia, Caspian

The Bush Administration is about to appoint a retired senior diplomat to a newly created position to try to advance ambitious U.S. aims in Russia and on the Caspian Sea. Like the 11th-hour push on Israel and Palestine, it's an example of Bush's determination to stay relevant by attacking the thorny global problems he largely sidestepped until now.

Thomas Pickering, a former U.S. ambassador to Russia and among the country's most respected statesmen, has been asked to return to the State Department as a special envoy with a broad portfolio in the Eurasian region, according to people with whom I've been talking.

I met Pickering in 1993, when he was ambassador to Russia, and he's an extremely smooth, well-connected, mannerly fellow. He's suited for his leading tasks -- to help smooth over some of the friction with Russia's Vladimir Putin, and work on getting Caspian natural gas to the West via a trans-Caspian pipeline from Turkmenistan.

Pickering's deputy would be Steven Mann, a Central Asia specialist with among the longest titles in the State Department -- principal deputy assistant secretary of state for South and Central Asian affairs. I've met Mann numerous times, and find him extremely knowledgeable and realistic without being cynical.

The twin appointments amount to a resurrection -- and elevation -- of the old job of Caspian Sea czar, a post that Mann previously held. It's a Clinton-era position that Colin Powell abolished as unnecessary when he became secretary of state.

One seasoned Washington hand with whom I exchanged messages said the Bush administration is re-inventing the job because it doesn't know what else to do in Moscow and on the Caspian. "They have run out of options and need someone with more gravitas to show they are serious and not irrelevant," he said. " The question is why Pickering would come back for this."

I'd say Condoleeza Rice must have seriously flattered Pickering that only he could salvage the situation. But we will wait for Pickering himself to speak after his appointment becomes official.

Petro-States: $4 Trillion Dollars in Change

Steve Weisman has a strong piece in today's New York Times on the spending habits of the world's new and long-time petro-states. According to his reporting, they have $4 trillion dollars on hand.

The oil-rich states, including Saudi Arabia, the UAE, Russia and Kazakhstan, are looking to invest the money wisely. But they are also wary of the type of political backlash that Dubai suffered last year in the attempted purchase of U.S. ports by D.P. World, Weisman writes. So they are spreading the property purchases into Europe although the U.S. is still their leading investment, he says.

Chip Cummins and Rick Carew, my former colleagues at The Wall Street Journal, have an extremely detailed piece on the same topic.

As a leading example, both pieces point out the Abu Dhabi Investment Authority's $7.5 billion purchase of a large slice of Citigroup's shares.

Officials in Russia and Kazakhstan have both said they intend to invest the proceeds of their oil wealth in western properties. In most of the cases, we are simply talking about investment. But Russia seems always to provoke concerns about a possible political agenda, and the coming buying spree will heighten them.

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An Arctic Play

The United States Geological Services says about one-fourth of the world's undiscovered oil and natural gas underlies the Arctic. Development has run into political opposition in the United States, but not across the Atlantic. In Europe, Norway and Russia are looking at how to exploit the energy underlying their respective Arctic territory.

Ed Crooks at The Financial Times has an interesting piece today on Norway's two-year drilling program. Norway is a huge, experienced player in these ultra-sensitive waters, and wants to parlay its seasoning into partnerships with Russia's Gazprom.

We've seen lots of reporting on Russia's plans to exploit its supergiant Shtokman natural gas field. Now the USGS estimates that a second Russian Arctic region, the Laptev Sea shelf, contains some 9.3 billion barrels of oil and natural gas, according to a Dow Jones Newswires report.

This is supergiant territory. It's surely, for instance, to attract much attention in the respective sides of the peak oil debate.

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Big Russian Deals; Motley Fool on Turkmenistan Gas

Cashing out in Russia? One sure signal of Vladimir Putin's actual political plans will be activity in big Russian dealmaking. One of the most active betting lines around the world is how Putin will manage to stay in the driver's seat after he's forced to step down as Russian president in March. If there's a rash of huge buyouts, mergers and share sales, it would be a sign of uncertainty of what comes after the presidential elections. It could mean that some of those who have gotten rich under Putin are cashing out. Dmitry Zhdannikov of Reuters has an interesting piece today suggesting that Gazprom may finally go after half of BP's venture with the Russian-held TNK, and that favored oligarch Oleg Deripaska may want to buy into Norilsk Nickel, the world's biggest producer of nickel and palladium.

Noticing Turkmenistan: I receive lots of emails and calls these days on whether the talk of deals and reform in Turkmenistan is realistic. David Lee Smith over at Motley Fool has a piece talking about the investment side. In a posting yesterday, Smith notes the international contest going on over the republic’s natural gas now that President Saparmurat Niyazov is dead. He’s only putting Turkmenistan on a watch list, which is about right. He does get it wrong when he says that Russia is the republic's only export route – Turkmenistan has a small natural gas pipeline into Iran. But essentially he's on the right track -- yesterday my friend Marat Gurt of Reuters reported a Russian announcement that it’s closer to sealing a pipeline construction deal that would virtually monopolize Turkmen gas. Look for another U.S. or European Union shuttle mission to Ashkabad.

For investment community readers of this blog, take a look at Smith’s prior posts on oil services companies (here and here). Given the coming demise of Big Oil, I’ve been suggesting that shareholders sell the majors and shift to the technology-laden companies that will be in huge demand by the new version of the Seven Sisters – state-owned oil companies in Venezuela, Russia, China, Saudi Arabia, Kazakhstan and so on.

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Georgia's Saakashvili resigns; Turkmenistan vs. Gazprom

What dictators don't do: Can you imagine Vladimir Putin resigning? Or allowing Russian elections to go forward absent his heavy hand? How about Kazakhstan's Nazarbayev or Azerbaijan's Aliyev? Uzbekistan's Karimov? The notion is preposterous. These leaders would no more risk such a rash throw of the dice than they would live off their official salary.

Yet that's precisely what Georgia's Mikheil Saakashvili has done. Yesterday, he resigned as president in order to take part in the January 8th snap elections he's called to challenge his opponents to electoral battle. Whatever his critics say, Saakashvili's act distinguishes him from the run-of-the-mill former Soviet autocrats.

Making Russia pay: Even if the West loses the pipeline battle for influence in Europe, it might find solace in helping to get Turkmenistan a working wage for its chief export. Russia has been buying Turkmenistan's natural gas for $100-$130 a thousand cubic meters, much less than the world price exceeding $260 a thousand cubic meters. And it's a pittance compared with the $350 a thousand cubic meters that Russia's Gazprom intends to charge its European customers starting next year.

Now, Turkmenistan is demanding more. It's asked Gazprom for a 30% increase, to around $170 a thousand cubic meters, according to a report by the Financial Times' Catherine Belton.

The report quotes Gazprom CEO Alexei Miller as blaming Turkmenistan's sudden request on the U.S. and Europe, which have been urging the republic to defy Russia and export a large portion of its natural gas directly to Europe. The West is championing the construction of the so-called trans-Caspian natural gas pipeline as a rival to a trio of Russian-planned pipelines to Europe. It's through that trans-Caspian line that the European supply would pass.

This courtship of rivals puts Turkmenistan at the center of the East-West battle for market -- and by extension political -- influence in Europe.

Whatever Turkmenistan decides, at the very least it will receive more of the pie.

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Peak Oiler's Anxiety: "Are We All Wasting Our Time?"

The rub about doomsday predictions is that one can't tell until it's too late whether he or she was shrewd to take heed, or foolish to be drawn in.

So it is with one of today's most active doomsday movements -- that known as Peak Oil.

Peak Oil adherents, as readers of this blog know, believe that at least half the world's fossil fuel has already been found (or soon will be), that production is declining, and that we're going to be forced to adjust to a stark new future.

There's plenty of smart analysis to buttress the theory, and the result has been panic in many countries. But last week an England resident calling himself Chris25 penetrated the nub of one of the movement's problems in a compelling remark on one of its key websites, called Peak Oil. (Another great peak oil site is The Oil Drum.) He headlined his post, "What If We Are All Wasting Our Time?"

In it, Chris identified himself as a doomsday believer, said his life had changed completely, but lamented that he didn't know how long in the future his worst fears would materialize. "Man, I wish I'd never heard about peak oil," he wrote.

The result has been a flurry of responses by fellow adherents. The string is worth reading.

Here is Chris25's post in its entirety:

"Oil prices shoot up .... I start to buy bags of grain and run for the hills .... now they've gone down again.

Now I'm not denying peak oil at all, and btw chaps i'm a doomer, but what i'm saying is, what if what we are waiting for is 25 years away?

Peak oil has already changed my life completely. It has now got to the point where everyplace I go, I look at buildings and I look at people and imagine what would be there without cheap oil.

I know that the luxuries I enjoy today will have to come to an end. But I don't know when and how they will go.

Man, I wish i'd never heard about peak oil.

The worse bit is the wait and having no idea how things will pan out. Eats you up inside. Knowing the collapse of modern civilisation could be round the corner, 25 years away or many more years away."

Chris's soul-searching struck a nerve. Here's just one example, from a blogger called Korosten:

"I feel the same way!

We are seriously thinking of completely relocating to a rural area (we have started to look for a job, selling the house etc!), a place where we might not necessarily go w/o peak oil, and starting a big garden etc - that probably means I have to give up my career...

So I keep thinking, will I feel very, very stupid in a few years when PO has not happened yet? Or if it happens, but nothing drastic happens and it was all unnecessary?

But then again, what if I do *nothing* and it does get as bad as I am afraid it will?

I think doing something (for nothing) is not as bad as doing nothing and be totally screwed...

But PO has totally change our life, view of live, values etc - you name it. It's scary in a way.. I feel like "wakinig up" in a matrix..."

The most reasonable analyses, I think, are that we are going to be living almost precisely as we are now for at least another two decades, probably three and perhaps longer. That said, we have found the easy oil, and prices hence are going to stay relatively high. The search for a locomotion version of the Holy Grail -- a non-carbon way to fuel the world -- is wholly reasonable, and necessary. Until then, so is conservation and the push for cleaner fuels.

Perhaps I'll regret my own conclusion. But at least for now I come down on the side of those who think we'll work our way out of the carbon world. For another such view, see Common Sense Forecaster.

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Saudis: Back from the Precipice

The Saudis are acting to keep oil from crossing the $100-a-barrel line. They are clearly apprehensive about the political hullabaloo in the U.S., Europe and even China over the steep price increase for crude oil this year.

Why are the Saudis worried? The stink over the 30% rise in crude prices since September -- not to mention increasing concern over short- and medium-term oil supplies -- could mean conservation, higher efficiency and hence less demand for OPEC's oil. And that could put a damper on the Saudis' bankroll.

Hence, according to a story in tomorrow's Wall Street Journal, OPEC -- led by the Saudis -- are in the middle of adding some 720,000 barrels a day to world exports. The story, by my former colleagues Spencer Swartz and Lananh Ngyuyen, reports that the fresh supplies appear to be headed West.

I've exchange a couple of messages this evening with Michael, who points out that according to U.S. government figures there's no supply problem right now. In my own opinion, we are in an intensely erratic time, when at one moment we are in crisis because of the supply impact of a hurricane or a war, and a little while later we are swimming in oil because of other factors.

There's no doubt that conservation would be the prudent thing; but we also don't quite need to move to the forest quite yet.

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Putin: Why Autocrats Don't Take Critics Seriously

On a slippery slope it's hard to discern when one loses one's footing. But in my opinion this weekend was that moment in Russia. Vladimir Putin arrested his most august critics, including chessmaster Garry Kasparov and former deputy prime minister Boris Nemtsov. With the move, Putin goes from megalomaniacal autocrat to despot.

Peter Finn of The Washington Post quotes another jailed figure, opposition political leader Nikita Belykh, as saying that he "was just about to begin talking when police appeared, grabbed me by the legs and arms and shoved me into a paddy wagon, where I am now."

Pakistan's Pervez Musharraf and Georgia's Mikheil Saakashvili have faced ear-splitting opprobrium from the diplomatic and press corps since they did similarly in the last two or three weeks. But with Putin it's regarded as more of the same, as if to say, "Who could expect better from a barbarian?"

That's why, when pressed by the West to reverse their actions, both Musharraf and Saakashvili listened with just one ear, if at all. There's no price to pay, and no credibility behind the West's disingenuous dismay.

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Exxon's Sharp Elbows

New Europe has an interesting story on the prospect of ExxonMobil assuming control of developing Kazakhstan's supergiant Kashagan oilfield. The issue is important, since amid tight oil supplies for the next few years we're talking about the eventual export of some 1.5 million barrels of oil a day from the field.

Italy's Eni, the current operator, has steadfastly denied that its position is at risk. But in the story, an unnamed source says that Energy Secretary Samuel Bodman actually lobbied the Kazakhs on Exxon's behalf.

It is a long shot. For one thing, where would the American giant find the skilled workers to carry out the job? But what's worth discussing is the prospect of finally getting management in place that could indisputably get the oil flowing as fast as humanly possible.

read more | digg story

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The Last Time There Were 85 Million Barrels a Day

Justin Fox at Time magazine has a dispassionate report on oil production. In July 2006, he writes, the world produced 85.5 million barrels of oil a day, but hasn't done so again despite the incentive of a $20-a-barrel rise in prices.

The report backs up recent analysis that -- quite distinct from so-called peak oil -- the world may simply be incapable of producing much more crude oil per day. And that has significant consequences for the global economy.

read more | digg story

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Trouble in Tbilisi

I've been exchanging messages with a friend in Tbilisi, the Georgian capital that until recently was the scene of bloody protests. He predicts political crisis almost regardless of what President Mikheil Saakashvili does.

Remember that Georgia is the crucial crossing point of the East-West Caspian oil route.

Why is there nothing for Saakashvili to do? I quote my American friend:

"Poverty.
GDP per capital here is $3,900.
Russia's is $12,100.
Azerbaijan's is $7,500.
Armenia's is $5,500.
Enough said."

Saakashvili has done much in terms of curbing corruption and attracting foreign investment. But, in my friend's view, Russia's economic embargo has made it impossible to truly dent the country's post-Soviet poverty. "They've sunk to just above Tajikistan, Kyrgyzstan, Turkmenistan maybe, Moldova," he said.

So Saakashvili's opposition is bound to be in the streets regardless of the results of the snap January presidential elections.

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Putin's Abiding Popularity

Peter Finn at the Washington Post has an interesting story today on why Vladimir Putin is so popular at home. As he reports, Putin has delivered what Russians most crave -- a feeling of economic security. Putin's strength and outsized public persona is rooted in the Russian version of Reagan's Morning in America.

read more | digg story

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NY Times: Wrongheaded on Pakistan

Wrong Way
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I am no basher of The New York Times editorial page, but its ostensibly pro-democratic position today on Pakistan would be amusing were it not so sad.

This issue -- whither Pakistan -- is central to the themes of democracy, security and oil usually discussed in the context of the Caspian region and Russia on this blog.

The Times supports a coalition of former prime ministers Benazir Bhutto and Nawaz Sharif as progress toward democracy. The newspaper supposes that this dual political front would be more democratic than Gen. Pervez Musharraf. To borrow one of The Times' own phrases, this is preposterously presumed. If the newspaper backed the head of the country's lawyers movement -- Aitzaz Ahsan -- it would be on far more solid ground, in my opinion. Instead, it reaches for Pakistan's tired, failed past.

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How to Survive in the New World of Big Oil

Italy’s Eni continues to pioneer a successful path to survival in Big Oil’s treacherous new world – get in bed, don’t compete, with the world’s state-owned oil companies.

Eni’s flexible strategy has already made it Big Oil’s most successful company in both Russia and Kazakhstan. Today, it announced a fresh partnership with Russia’s Gazprom – to build a $14 billion natural gas pipeline between Russia and Europe. The pipeline directly challenges U.S. and European Union policy.

Called South Stream, the pipeline would ship Central Asian and Russian natural gas into southern Europe. It’s part of a three-pronged Russian strategy to deepen its dominance of Europe’s natural gas market. Russia is also building a natural gas pipeline called Nord Stream, which would serve northern Europe. A third line would feed cheap Turkmenistan and Kazakhstan natural gas into Nord Stream and South Stream.

Eni hopes to parlay its cooperation with Gazprom into natural gas development deals in Russia, which has recently sharply resisted such relationships with western oil companies.

Washington and the EU are fighting to blunt the market impact of the trio of Russian lines. They are doing so by championing rival natural gas lines from Turkmenistan into Europe. But, as today’s announcement shows, Russia is more advanced in the contest.

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Happy Thanksgiving

Twenty Dollars of Air

I've been exchanging comments the last couple of days with Geoff on the question of whether oil company shares have had their run, and are headed down. With the top-line question being: Is it time to sell one's shares in the oil majors?

Geoff kindly led me to an AP story that Forbes posted yesterday. The piece quotes Fadel Gheit, the sober-thinking Oppenheimer analyst.

First, Gheit thinks that traders have driven up prices to their current levels exceeding $90 a barrel. He notes that Wall Street's consensus 2008 forecast average is $75 a barrel.

Which means that, if the estimate is roughly correct, there's currently a bubble of around $20 barrel. Gheit asserts that commodities traders have exaggerated the global supply situation, which is right -- in fact there's plenty of oil sloshing around the world right now.

All bubbles eventually pop. Prices could go a bit over $100 a barrel, but eventually they'll fall as speculators find some other place to put their money.

Here's the key quote: "Declining oil prices dim the outlook for energy stocks, since their performance usually reflects the direction, not the level, of oil prices," Gheit says.

I don't intend to play stock analyst, but simply to note this logical extension of the conclusion that Big Oil is in trouble because its reserves of oil and natural gas are shrinking. The companies to profit from this shift away from Big Oil are national oil companies and oil service companies; they are the growth energy stocks of the next decade or two.

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Turkmenbashi's Hidden Wealth

A website I hadn't previously heard of -- Gundogar -- poses one of the most self-evidently important questions I've heard recently: Whatever happened to Turkmen President Saparmurat Niyazov's fortune?

In her excellent piece, Gulnoza Saidazimova frames the stakes -- billions of dollars -- and the players (mainly German institutions) in the as-yet undisclosed location of Niyazov's presumed wealth.

We all know, just as a teaser, that the main reason the ultra-important trans-Caspian natural gas pipeline wasn't built during the 1990s was that Niyazov demanded that a $500 million bribe be deposited into his German bank account by the Western project developers, but was rebuffed.

What about the bribes that were paid? Given the history of the wealth of the world's fallen dictators, and the European banks that protect them, one is led to believe the money won't get back to Turkmenistan soon.

Note on Putin

Reporters in Moscow are weighing in on Vladimir Putin's latest anti-Western broadside. Peter Finn of the Washington Post has this account of Putin's attack today against his political opponents as pawns of the West.

It's rooted in Russia's traditional seige mantra -- the country is surrounded by enemies, and infiltrated by traitors, the story goes. Yet it's also uncanny how Putin has morphed smoothly from a failed junior KGB officer into a politician of the first rank.

The West will have years to figure out how to reach a modus vivendi with him.

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Interesting Stories

When the U.S. economy begins its expected downturn late next year, oil prices will fall a bit with it. Until then, reports my former Wall Street Journal colleague Russell Gold in tomorrow's paper, we will remain in the neighborhood of current record-breaking prices. Gold wrote the story as oil closed over $98 a barrel for the first time, and analysts surveyed by the Journal saw nothing that will soon pop the bubble.

The Economist argues in its current edition that, if Vladimir Putin is seeking his country’s best interests, it’s not always clear what they are.

Blogger Jeff “Maximos” Martin has an interesting if ultimately flawed tirade against U.S. involvement in the Caspian Sea region.

Update on Demise of Big Oil: What Goldman Sachs Knows

Venerable Goldman Sachs, seemingly the only private institution to be actually earning money during the current international banking crisis, has issued a contrarian recommendation: Buy Eni, says the investment banker to the rich.

That's a good call. Why? Because, among all the Big Oil dinosaurs, Italy's Eni has figured out a modus vivendi with the new power on the block -- the world's national oil companies, specifically Russia's Gazprom.

Big Oil is on the way out -- its reserve base is cratering, and it's been supplanted as global oil king by state-owned companies in Venezuela, Russia, China, Saudi Arabia, Kazakhstan and so on.

But this is a fresh wrinkle: Who will survive in the decades ahead? One can quibble with Eni's methods and associations. But Goldman's call can be seen as a sign of confidence that this flexible company, with its carefully negotiated entanglements with Gazprom, is one model for a re-invented oil major.

I won't be surprised down the road to see an effective or actual merger of the two companies.

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Who Said Musharraf Was a Democrat?

Prediction: Unless he's forced out by his military cohorts pre-emptively, Pervez Musharraf will retire as Army chief, take the oath of office for another five-year term, this time technically as a civilian president, and hold parliamentary elections as planned Jan. 8th.

The hullabaloo over Musharraf's declaration of emergency in Pakistan has been both amusing and absurd. When did Musharraf say he was a democrat? When he seized power in a coup? When he forced political feudals Benazir Bhutto and Nawaz Sharif into exile? When he manipulated parliamentary elections and installed a hand-picked prime minister?

The United States and the rest of the West is behind Musharraf for one reason: to try to contain the germination of jihadis. The democracy agenda was always a subtext.

One thing is sure. Were Musharraf to fall in the current crisis, it would not signal the advent of democracy. The Army would remain Pakistan's primary political force, and insist on continued dominant influence given the country's precarious security problem in the West.

I personally would be more impressed with Bhutto and Sharif's expressions of dismay if they demonstrated that they are not all about selfish aspirations, and passed their respective mantles on to untainted party colleagues. For instance, Bhutto could anoint Aitzaz Ahsan, the leader of the pro-democracy lawyer's movement.

Short of such selflessness, Pakistan remains a snake pit. And the West might curb its sanctimony over Musharraf's alleged perfidy regarding who he was.

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The Coming Oil Plateau

Oil Rig Platform
Originally uploaded by kittymaduk

Why is Big Oil behaving so gingerly in its negotiations to save its position in Kazakhstan's Kashagan oilfield? One reason is that it's the only oilfield discovery in the last 17 years capable of producing more than 600,000 barrels a day.

A piece in tomorrow's Wall Street Journal by my former colleagues Russell Gold and Ann Davis deliver the cold truth about the state of global oil: We may not be technically near a peak in terms of actual world oil supplies, but we are near an effective peak, because there simply isn't the technical capacity to produce much more.

The world consumes around 87 million barrels of oil a day. At an OPEC conference I attended in Vienna last year, a European oil executive told me that the industry was capable of producing only about 10 or 15 million barrels of oil more than that -- or a maximum of about 100 million barrels a day. Those are the limits of rigs and other equipment, technical staff, and the limits of actual drilling, he said. In addition, the industry simply isn't find any more big fields that can provide big scale production.

The Journal piece says the same thing, and suggests that in the next few years that ceiling could produce some real friction in the world as it struggles for a suddenly finite resource.

The good news, I think, is that this will accelerate the ingenuity of laboratories around the world seeking both more efficient ways to use the carbon molecule, and alternative ways to fuel the world economy.

Yet given this reality, Italy's Eni, negotiating on behalf of many of the world's largest oil companies with Kazakhstan, will try to satisfy Kazakhstan and proceed with the development of Kashagan, which contains a minimum of 13 billion barrels of recoverable oil. That could turn into production of another 1.5 million barrels of oil a day into this tightening world market.

Photo: Kittymaduk
Rights: Creative Commons

Stories I'm following today

Tom Friedman’s bemusing and creative diplomatic solution for Iran – an Obama-Cheney ticket. In The New York Times, Friedman calls for a good cop-bad cop routine that would squeeze out concessions from Iran. The catch: Washington needs to be prepared to accept yes for an answer.

It’s the U.S. and the west as a whole that keep getting the Pakistan story wrong – Musharraf was always an autocrat, but the outside persisted in seeing him as a democrat in a uniform. Peter Spiegel of the L.A. Times reports on the Pentagon finally adopting a constructive approach to Pakistan’s current crisis – tie aid to results in the pursuit of militants.

Saudi Arabia has a lesson for Russia – it’s okay to be a price-setting petro-superpower if you seem interested in establishing a stable market. Last week, Russia’s energy minister told Guy Chazan of The Wall Street Journal that the oil-thirsty world should expect only modest supply increases from Russia in the coming years. Here, Javier Blas of the FT reports on Saudi Arabia’s own plans to boost production in response to the world’s supply crunch.

Stories I'm following today

Steven Mufson of The Washington Post reports on Saudi Arabia’s continued towering role in the world oil industry.

Bruce Pannier of RFE-RL reports on the release of more leaked recordings of top insiders in Kazakhstan, including President Nazarbayev. They appear to be part of a campaign by his exiled former son-in-law, Rakhat Aliyev, to show he remains a force to contend with.

Stefan Nicola of UPI reports on the latest developments in Russia’s economic thrust into the European energy market, and Europe’s apprehensive reaction to it.

Book note

Random House has installed a search-the-book function for The Oil and the Glory

Steve's appearance at Google

Chevron and Exxon: Concession on the Caspian

A fresh concession by Chevron and Exxon Mobil in Kazakhstan is evidence of the shrinking influence of Big Oil.

After years of playing tough guy on the Caspian Sea, the two companies have knuckled under and paid their share of a whopping $309 million environmental fine to the country, according to an announcement yesterday. The story is posted on the Forbes website.

Just a few years ago, the companies went to the mat when Kazakhstan levied a $71 million fine for alleged violations at the supergiant Tengiz oilfield, in which they hold a combined 75% interest. They hollered, griped to journalists, deployed their lawyers, and the fine was reduced to $7 million.

But that was four years ago. Now, Big Oil has been knocked on its heels around the world, as national oil companies from Russia, Venezuela, Saudi Arabia and China have become the new, big and swaggering force in global energy.

So when Kazakhstan offered a cut of almost half in a newly levied $609 million fine for fresh alleged violations at Tengiz, Chevron and Exxon agreed.

This comes on top of conspicuous concessions the companies have made in recent months in Russia. There, Shell and France's Total have surrendered majority positions in oilfields, and Total and Norway's Statoil have agreed to be effective contractors at the giant Shtokman natural gas field.

Their calibration is that their bargaining position simply is too weak at the moment. Perhaps when crude oil prices drop they can talk tough again.

Photo: Niklas
Rights: Creative Commons

Meanwhile, On the Field of (Pipeline) Battle

The Europeans have supplied fresh entertainment for spectators of the ongoing East-West pipeline war. It comes in the form of an announcement by BP and Norway's Statoil that they have double the reserves they initially estimated at a huge offshore Azerbaijan natural gas field. That makes the underdog Western side a more serious contender in the battle for economic influence in Europe.

The Caspian Sea occupies its accustomed key role in the events.

For almost a year, Russia and the West (Europe and the U.S.) have been circling one another. At stake has been dominance over Europe's energy supply. Russia, which already supplies more than 30% of Europe's oil and natural gas, wants to build up that formidable position. The West wants to shrink it. The two goals are incompatible, so a diplomatic and economic battle have ensued.

Russia's Vladimir Putin has taken the lead by getting Turkmenistan and Kazakhstan to sign away their natural gas exports and fire sale prices, and to agree to help build a new pipeline to take the supplies north to Russia, and then on to Europe.

Europe and the U.S. have countered by suggesting that Turkmenistan and Kazakhstan instead ship their natural gas west, and on to Europe, where a pipeline called Nabucco would be built to supply the continent. But they are late to the game, and have suffered valid skepticism about their ability to harness sufficient natural gas to justify Nabucco.

The new announcement by BP and Statoil comes from across the Caspian, in Azerbaijan. The companies say they may be able in the next few years to start exporting the natural gas equivalent of an extra 150,000 barrels a day of oil from an offshore field they control.

That's because the companies discovered a new reservoir of natural gas at the giant Shah Deniz field. They did so by drilling the deepest well ever in the Caspian -- 7,300 meters below the seabed.

The companies had already expected to export a peak volume of the natural gas equivalent of 150,000 barrels a day of oil from Shah Deniz. Now they say the new reservoir seems likely to supply that much or more. So, in all, Shah Deniz will export the natural gas equivalent of more than 300,000 barrels of oil a day.

Some of the new gas will be absorbed locally. But the Russians are no doubt scowling, and the Europeans and Americans smiling, at the prospect that the remainder could go on to Europe through proposed Nabucco.

Photo by: Cadd
Photo rights: Creative Commons

The Dead Suspect

Saud Memon was a key figure for those who wished to solve a mystery about the murder of Wall Street Journal reporter Daniel Pearl: Why did the captors turn his abduction into a slaying? But when Memon, a Pakistani jihadi (left) who was central to the case, died earlier this year -- likely of complications related to injuries sustained under U.S. and Pakistani interrogation -- the secret may have gone with him.

The issue is reported in an article I co-authored in today's Wall Street Journal.

Pearl, my Pakistan reporting colleague after the Sept. 11, 2001, terrorists attacks, was kidnapped in January 2002. But it's not clear that his kidnappers intended to kill him. It appears that they weren't certain what they wanted, but thought they could leverage him for advantage. Meanwhile, they held Pearl at a nursery owned by Memon, the financier of various jihadi activities.

If the conclusions regarding Pearl's initial abduction are true -- I think they are -- all of that changed about a week later, around the end of January or the beginning of February. Memon arrived at the nursery, driving three Arabic-speaking men who proceeded to video-tape Pearl, then kill him.

Why did Memon drive the killers to the compound? What changed in the kidnappers' plans?

Khalid Sheikh Mohammed, the alleged conceiver of the Sept. 11th attacks, has supposedly confessed to being one of those three Arabic speakers, the one who actually wielded the knife.
But reporters on the story, including me, thought that the answer was best answered by Memon, who had vanished after Pearl's death became known.

In April, Memon turned up in Karachi, dumped in front of his Karachi home, senseless and weighing about 80 pounds. He died three weeks later in a hospital. Reporting showed he had fled to South Africa, where he was picked up by U.S. authorities, held for an unspecified period, then turned over to Pakistan.

The story is worth reading.

The Down Side of Leaving the Nest

A piece in The New York Times today demonstrates that a growing general grasp of the new hard geopolitics on the Eurasian dual continent, driven by economics -- in particular oil and natural gas -- rather than the traditional movement of armies.

In the story, Adam Ellick writes that "Russian power is rapidly returning to the Baltics, only this time the weapons are oil and money, not tanks."

That's an essential point, since the United States has yet to show that it fully comprehends that the nature of conflict, at least in this part of the world, has changed under its feet (see Josh Foust's excellent latest post on the pipeline war), and that Russia with its financial muscle is leading the charge.

But there's a larger point for the small nations crusading most vigorously to be shielded from the hostilities: For the up side of independence, you have to leave the nest entirely.

Which brings us to the Baltic republics' self-serving posture on the proposed Russian-German-Dutch Nord Stream natural gas pipeline. The Balts oppose Russia's resolution for its continuous disputes with the pesky neighbors that stand between it and its European oil and natural gas customers. Russian-controlled Nord Stream would go through the Baltic Sea, bypassing Latvia, Lithuania and Estonia.

There are reasons for apprehension over the total of three new natural gas lines through which Moscow proposes to export Central Asian and Russian gas into Europe. As I'll discuss in the last stop of the book tour tomorrow and Tuesday in New York, Moscow has a record of using its petro-power for political and economic leverage.

But the Baltic states want it both ways. They want NATO and European Union protection from possible Russian aggression, but also the cheap fuel and pipeline tariffs they get as a channel for Russia's energy.

But, like the rest of Europe, they will have to fend for themselves.


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Rights: Creative Commons

The Truth About Big Oil

For the record, Big Oil ISN'T suffering because of $96-a-barrel oil. Its bottom-line ISN'T worse off than at $25-a-barrel oil. The companies are profiting, and doing so handsomely.

This is important because, if one listens these days to Big Oil, such as in a piece yesterday in The Wall Street Journal, one might be led to get out the Kleenex.

In it, my former WSJ colleague Guy Chazan quotes a BP man, Bob Dudley, who runs the company's TNK operations in Russia, saying the following: "In general, it is the governments who are the big winners when prices reach new heights."

That statement is wholly misleading. It's rooted in a couple of facts about oil contracts abroad: when oil prices are low, the host country suffers the most, because regardless of the price, the companies get to use the same portion to pay off the bills for developing the field.

But when oil prices are high, a sliding scale is triggered that allows the country to earn a higher percentage of the price. The companies earn much more, but not as high a percentage as they do at $25 oil.

Alice-in-Wonderland Big Oil is arguing that somehow its current profit slide is partly attributable to high prices -- that those dastardly contracts they signed earn them lower absolute profit per barrel at $90 a barrel than at $25.

I think we can say with some confidence that if any oil lawyer did negotiate such a contract, one giving the company fewer absolute dollars at $90 than $25, he or she would not only be fired on the spot, but would quite possibly be liable for violation of fiduciary duty to shareholders.

A subtext involves how Wall Street values the companies, and what happens at the actual oilfield under high oil prices. Under all these contracts, the companies commit a lot of the barrels produced at the field -- say 100,000 barrels a day -- just to pay off the bills first. They call that "booking" the barrels. And, Wall Street -- understanding that one day those bills will be paid and the barrels turn to profit -- runs up the companies' share price based on those "booked reserves."

Now, since the bills are being paid off at Ferrari speed, the companies are "unbooking" reserves. So with fewer reserves, say the companies, Wall Street is valuing them less.

Again, the argument is muddled -- Wall Street is not so stupid as to be blind to Big Oil's historically unprecedented profit.

Instead, what Wall Street may in fact be seeing is Big Oil's low horizon. As Chazan quotes Stephen Thornber, global equity fund manager at Threadneedle in London (who Chazan says is now buying the shares of state-owned oil companies and oil services companies, which in my view is a forward-looking strategy that understands the industry's dismal future): "The majors are like dinosaurs. Their production is flat or falling, and their returns are under pressure."

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Rivalry of Dictators

No world leader, genuinely elected or not, is wholly free of self-proclaimed omniscience, but it's an especially interesting time to observe the autocrats afflicted with this delusion.

They are playing a strong hand, and it's not at all clear that their ostensibly democratic opponents have right on their side.

In Pakistan, it's now two decades since the first time Benazir Bhutto treated us to the spectacle of her massive popularity -- supporters lining the streets in Lahore, Karachi and elsewhere as she decries military dictators.

Only now we have the benefit of her decade of active politics (1989-1999). Bhutto is no democrat. As prime minister and out-of-power opposition leader, she compiled a record of intolerance of dissent, failure to attack the tax-free land-owning feudalism that's Pakistan's core problem, and pocket-lining corruption.

What's really going on in Pakistan is a contest between two dictators. In my view, Pervez Musharraf is more likable if only because he at least doesn't pretend interest in sharing power. He's a man who, though he came to power in a coup, is under fire by people claiming surprise by his declaration of emergency rule on the eve of a possible Supreme Court decision invalidating his right to remain president another five years.

In Georgia, which actually is a comparative democracy, Mikheil Saakashvili has out-smarted street-bound opponents by declaring a snap presidential election in January. These suspicious demonstrations, financed by Boris Berezovsky's former business partner, Badri Patarkatsishvili, now must turn to straight-forward campaigning.

While I was in California on my book tour the last two days, academic experts told me that Saakashvili's reaction to the demonstrations -- sending out police with batons and tear gas -- has ruined Georgia's chances to join NATO and the European Union.

But I think that case is premature. Saakashvili has chipped away at the opprobrium by inviting as many election monitors as anyone wishes to send.

If Saakashvili were more mature and less imperious, he would have avoided this crisis entirely by courting opponents.

But -- like autocratic brethren from Russia to Azerbaijan, from Kazakhstan to Pakistan, and Armenia to Uzbekistan -- Saakashvili isn't an intellectually modest man.

On the plus side, all these countries actually do have a deep bench of politicians, technocrats and businessmen entirely qualified to step into the executive chair. If the autocrats were truly wise, they would court and cultivate them.

Photo: Maulleigh
Rights: Creative Commons

Becoming Like the Soviets

So now we torture. We imprison without charges, contact with the outside world, or trial. We can't manage a credible national voting system. Our president has aspirations to be General Secretary, and the self-certitude to be one.

But must we have ear-splitting music at restaurants, airports, Starbucks, convenience stores, and supermarkets?

You know what I'm talking about. I'm on the West Coast on the book tour, headed today from UCLA to Google, and I'm led to dark memories of those restaurants and cafes in Tashkent, Almaty, Baku, Moscow and Tbilisi, not to mention St. Petersburg and Yerevan, where it was impossible to hold a civilized conversation because of the pounding music.

And how we would tut-tut when Aeroflot so much as touched down in those same cities, and the entire plane of passengers damned the safety, and stood up with the plane still moving.

And how -- unlike us considerate westerners -- the Soviets forced the entire line of boarding passengers to wait while they painstakingly stored their sacks of onions in the overhead.

Historians say that national fiber is strengthened by adopting the best of all nations. But people, standing in the aisles on American and Southwest while the plane is moving is not progress.

Dick Cheney favors a Politburo. Fine. But can my wife and I please drink our brew in peace?


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Rights: Creative Commons

How to Aggravate the Petro-States

If you want to know why the Kazakhs and Russians are irritated with the major oil companies -- and why Big Oil is in trouble all over the world -- look at this quote from a former oil executive in Venezuela.

In the latest New York Times Magazine, Tina Rosenberg asks this fellow why his company didn't do much for the average Venezuelan while at work in the country. The man replies, "It shouldn't have. It was an oil company."

The perverse part of this breathtaking remark is that it wasn't from a western oil executive, but Ramon Espinasa, former chief economist for the country's state oil company, known by its acronym Pdvsa (pronounced ped-uh-VAY'-suh).

Why has Hugo Chavez gone after Pdvsa as remorselessly as Big Oil? Because Pdvsa was behaving as haughtily as the foreigners -- it had learned to be Exxon.

The jury is still out on Chavez's Oil Socialism. But Espinasa reminds me of why Chevron, for instance, is in hot water in Kazakhstan (which though not fully apparent now, will become so in the coming months).

One reason is that at key, needy moments over the years -- needy on the Kazakh side, that is -- the California company declined to accelerate the payment of huge bonuses it owed to the government, to help the Kazakhs obtain cheap loans, or to lend them money itself.

In other words, before Kazakhstan's bonanza struck, when it needed cash, the biggest game in town -- Chevron, Exxon and the Tengiz oilfield -- declined to help. Why? "We're not a bank," one Chevron man once told me. In other words, like Espinasa, Chevron and Exxon are oil companies, businesses, and not a welfare society.

This attitude is blind. It misunderstands the history and enormity of Big Oil in the countries where it works. Oil executives saunter into these poorer nations like heads of state, and the contracts they sign are often seen within the countries themselves as the equivalent of a treaty with a superpower -- as a means of protection and prosperity.

Oil executives and negotiators of course know this, and use it to their advantage to get the deal. Then they conveniently forget, even when a favor sought by the host country isn't welfare, but reasonable need that would be no big deal fulfilling.

And the attitude is currently tripping up both Chevron and Exxon. At $95 oil, they would sorely love to triple production at Kazakhstan's 300,000-barrel-a-day Tengiz oilfield, in which they have a collective 75% stake. But Russia is blocking expansion of the 1,000-mile pipeline that would take that larger production to market.

Russia's condition for going along with the companies? That they effectively finance the construction of another pipeline that would serve Russia's interest -- one that would link the Black and Mediterranean seas through Bulgaria and Greece.

So far the companies have refused. Why? Because they are oil companies, not arms of the Russian strategic policy group.

The companies eventually will have to bend. But meanwhile they are also irritating the Kazakhs. Expect demands for contract renegotiation soon after the Kazakhs are finished with the dispute at the sister Kashagan field.

Photo of Chavez by henribergius
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Guest Column: A Cinematic Challenge to Hollywood (and Bollywood)

By Sasha Meyer

Instead of trying to succeed with home-brewed blockbusters, like the $40 million Nomad, Central Asians should take note of the trends in world cinema and leverage their cinematographic strengths. This strategy would bring both money and recognition sooner.

Up until few years ago, the cost of a professional setup to shoot and edit video was $500,000. Today the same can be achieved with a laptop, camcorder and an editing software – all for $3,000. This astonishing drop in costs has boosted independent cinema, a term used to describe low-budget, less commercially-driven films.

Such movies, known as "independent films" or "indies", have a growing share of the cinema market, already accounting for 15% of the US domestic box office revenue. They can also be big money makers. The most profitable film of all times is the 1999 "Blair Witch Project" which cost $25,000 to make and earned $248 million.

Everybody seems into indies today. "Tarnation" was a surprise hit at Cannes Film Festival - despite costing just $218 to make. Jonathan Caouette, the budding director, made it while working as a doorman at a jewelry shop in New York. Oscar-winning director Steven Soderbergh's Full Frontal was shot on consumer-range camcorders and edited with off-the-shelf editing software on a standard Apple Mac.

The indie trend is not limited to the United States. The achievements of the Iranian cinema are well known. Mongolia presents more recent examples closer to home. "The Story of the Weeping Camel" made in 2003 by two unknown directors on a minuscule budget, won an Oscar nomination and scored more than a dozen of other awards and nominations. Director Byambasuren Davaa has since followed up with "The Cave of the Yellow Dog" which has won five international awards.

The region's filmmakers already have exactly the kind of expertise necessary for success in the indie segment. Since the Soviet economy de-emphasized profits, the local film school had developed strong skills in making films that qualify as indie.

The tradition lives on, as evidenced by the lineup of movies at the recent film festival in Almaty. There are also NGO-supported film projects.

All that is not to say Central Asia shouldn't make big budget films at all. The region's history is replete in epic stories waiting to be told. But the best way to pursue megaprojects is through partnerships . Japanese filmmakers would make excellent partners in that regard. Beginning with Akira Kurosawa, they have mastered the art of using battle scenes and sword fights to tell deep stories. Their latest is "The Blue Wolf: To the Ends of the Earth and Sea", a Genghis Khan epic from director Shinichirô Sawai. Despite some historical inaccuracies, it delivers both action and substance. Costing $30 million, the film topped box office when opened in Japan last March and has been sold to 60 territories.

Nor should Central Asia miss out on Hollywood's glitz and special effects. The region could emulate Macedonia's so far successful efforts to become a global center for special effects production. The region shares with ex-Yugoslovia a legacy of communism: quality science education, which would facilitate the endeavor.

It's the Technology (and Immigrants), Stupid

The book tour took me yesterday to Austin, where I was on a panel called “American Empire.” Its driving theme was: Is America Rome, meaning has it peaked out and begun an irreversible descent as the world’s superpower?

Of course the last decade on the Caspian Sea -- and the construction of the Baku-Ceyhan oil pipeline -- shows that the U.S. is still quite capable of projecting triumphant, positively received policy thousands of miles from its shores. And one of the more intriguing points yesterday, raised by my co-panelist Cullen Murphy, author of Are We Rome, was that America has endured numerous declines, only to right itself. Another co-panelist, Amy Chua, author of Day of Empire, cited a common thread linking history’s successful “hyper-powers,” as she calls super great powers -- an ability to harness the genius of multiple nations through a tolerance of immigration.

These observations made me look anew at the current decline of Big Oil.

A hot topic today is the search for a technological breakthrough that would shatter the centrality of fossil fuels -- mainly oil and natural gas -- to the global economy. Something of the magnitude of the transistor and its impact on the vacuum tube. See Zoom, a new book by my Economist colleague Vijay Vaitheeswaran and Iain Carson, and the recent cover story in U.S. News & World Report by Marianne Lavelle, for instance.

For its very survival, Big Oil of course is a huge player in this furious search for a technological Holy Grail. But, as the authors write in Zoom and U.S. News, Big Oil isn't alone. Silicon Valley and its deep-pocketed venture capitalists and legendary garage-bound inventors are also in the fight.

That's because of the monumental stakes involved. Imagine a fortune encompassing the current wealth of Saudi Arabia, Big Oil and Russia, and you’ve got a notion of the possible figures.

Which brings us back to American Empire. Zoom and U.S. News seem to assume that an American company or inventor will make this breakthrough. If one does, it will be evidence that America retains its ascendance as not just the world’s strongest military power and biggest consumer of imported goods, but its most potent source of evolutionary technology.

And that is the stuff of what superpowers are made.

But what if it's not a U.S. company? What if the inventor is Indian, Chinese or Russian, such as one of the students or scientists whose entry to the U.S. has been blocked or long-delayed? Or possible immigrants from countless other countries, like Pakistan?

Since we are discussing a breakthrough of historical proportions, it could in fact be a decade, two, or more, before it’s made. Meaning that the key mind behind it could be a child at the moment, and have absolutely no genius identifiable to a consul in a distant U.S. Embassy.

If the discovery is made in, say, India or China, it will catapult that nation toward the comparative great power position of Microsoft in the software world.

The impact of America's less-open doors, including on its technological edge, has been discussed at length elsewhere. But technological superiority has been the hallmark of America's big oil companies for decades -- it's how it talked its way into great deals on the Caspian and in Russia, where in large part because of that technology, for instance in deep offshore drilling, Big Oil is experiencing perhaps its last heyday.

America would probably find a way to cope with the challenge posed by such a discovery elsewhere. But it would mark more evidence of the U.S. leaving it to others to bring cutting-edge invention to the world.

Oil ShockWave and the Caspian

In the basement of the Ritz-Carlton hotel in Washington yesterday, a bipartisan group of senior foreign policy hands participated in a mock crisis triggered by a closure of the Baku-Ceyhan oil pipeline.

The ultimate result once all the dominoes fell: $160-a-barrel oil.

The exercise was called Oil ShockWave, and the group's main prescription for averting this outcome was a reduction of U.S. dependence on foreign oil, and demand for oil and gas overall.

But the exercise -- which included retired Gen. John Abizaid, Reagan-era Navy Secretary John Lehman, Clinton-era Treasury Secretary Robert Rubin and Bush II State Department adviser Philip Zelikow, in addition to Dan Yergin, author of The Prize -- points up another reality.

Now that the West has built the Baku-Ceyhan pipeline -- which came on line last year, and now ships about 1 million barrels of oil a day onto the Mediterranean Sea -- it and the world as a whole are vulnerable to events in the region it serves.

And it will become more so in the coming decade and beyond. Once Kazakhstan's giant Kashagan oilfield is on line, the region will be exporting more than 4.5 million barrels a day of crude oil onto the world market. That will be 1 million-plus from offshore Baku, 1 million-plus from Kazakhstan's Tengiz field, 1.5 million from Kashagan and about 1 million barrels from Kazakhstan's Karachaganak and an assortment of other, smaller fields.

That means that the suggested resolution -- reduced demand -- while part of the solution, isn't nearly sufficient.

Azeri President Ilham Aliyev, in my opinion, needs to move into crisis mode in terms of reducing pocket-lining in his administration, starting with the first family itself. As he and his father before him have been urged for years, Azerbaijan should ensure that the fruits of the country's energy bonanza reach the broad population. And he's not moving nearly fast enough to diversify the economy so that when the oil goes into decline -- right on the visible horizon, in the next decade -- Azerbaijan doesn't plunge into crisis

Kazakhstan's Nursultan Nazarbayev has a longer time line, but he also needs to reel in official corruption and spread the wealth.

In addition, the U.S. should redouble its efforts to get Turkmenistan and Kazakhstan to take the risk and commit to construction of a trans-Caspian natural gas pipeline, and a companion oil line. They would make Central Asia more stable by providing them a more balanced supply route for their energy exports.

In the simulation, described by The New York Times' John Broder, unrest in Azerbaijan triggers the pipeline shutdown. But it as well could have suggested disturbances in Georgia or Turkey, the latter which has been the scene of a current confrontation between the Turkish Army and Kurdish militants across the border in Iraq.

Such gaming isn't new. U.S. Army strategists have spun out simulated crises in Central Asia and the Caucasus for at least a decade. What's different now is that the region's importance is no longer notional -- U.S. strategic interests are installed in the form of producing oilfields and pipelines in the western-friendly nations of Azerbaijan, Georgia and Kazakhstan, connecting with Turkey.

The Caspian has become integrated into the global economy. As Oil ShockWave dramatizes, it's already a price-maker on the supply margin, where the storms of crises start out.

Discussion note: Registan on Nordstream

Josh Foust has an interesting discussion on the pipeline war in Europe.