China, Russia and the Eastern Shift of Energy

The 800-pound gorilla in former Soviet energy is China. Since the late-mid 1990s, Beijing has steadily racked up oil and natural gas deals that draw more and more of Russia's and Central Asia's supplies to China. Cash-rich in a region struggling with the financial crisis, Beijing earlier this year agreed to a $25 billion loan to Moscow in exchange for a 20-year supply of oil. And later this year, a still hard-to-fathom 4,375-mile pipeline will supposedly begin pumping natural gas from Turkmenistan into China.

Now, Russian Prime Minister Vladimir Putin is on his way to Beijing, and a host of fresh energy deals are in the works. Chief among them is continued work on an important natural gas alliance between the countries that -- if completed -- would end up shipping a large portion of Russia's gas to China. It would come from the Kovykta gas field. The two countries have been working on the pact for three years but have yet to reach pricing agreement. But when they do, pressure will increase on Europe to figure out how it will satisfy its growing appetite natural gas. (Will the gas go off in Europe in the beginning of January in the annual flareup of tensions between Ukraine and Russia? The short answer is yes)

Listen this morning as my friend Jim Falk, president of the World Affairs Council in Dallas, interviews James Miles, the Economist's Beijing correspondent, who provides among the best coverage of the country out there. Sign up for it here, then listen in on this link to the live audio feed starting at 11 a.m. EST.

Nabucco and Trans-Caspian: Times Change, Pipeline Politics Goes On

On one hand, Turkmenistan is in the catbird seat. Exxon, Chevron, BP and ConocoPhillips are salivating over the country's onshore natural gas fields, in particular South Yolotan-Osman, the fifth-largest natural gas field in the world. It's fawned over by the U.S., in particular Richard Morningstar, the special U.S. czar for Eurasian energy.

Yet all is not well in Ashgabad. Four months ago, there was an explosion at a natural gas line connecting the country to Russia, effectively Turkmenistan's sole natural gas customer. Since then, the line has been fixed, yet the natural gas flow has failed to resume. Why? The global financial crisis. Natural gas demand in Europe -- which had been buying up the Turkmen gas through Russia's good offices -- has plummeted. So have prices. Moscow has told the Turkmen that it wants to renegotiate the volume-and-dollar terms for the gas. The Turkmen have protested that a contract is a contract -- a favorite expression that the Turkmen perhaps have learned from Western oilmen over the years -- and so the flow remains halted. With it, Turkmenistan is losing an estimated $1 billion a month in revenue, or about $4 billion to date. That's a lot for a place like Turkmenistan.

There's another problem. It's the pipeline politics in which Turkmenistan is a player, voluntarily or not, by dint of its location in great game territory.

Since the mid-1990s, Washington has pressed Turkmenistan to agree to an extension of the region's new East-West natural gas network that would connect the country with Azerbaijan, and onward with Europe. The rationale was that, in the same way that Azerbaijan and Georgia have ostensibly won some political breathing space from Russia because of the construction of the Baku-Ceyhan oil line, Central Asia and in particular Turkmenistan and Kazakhstan would benefit through the proposed trans-Caspian natural gas line.

Demands for bribes, Russian protests, war in Afghanistan, and gaffes of various sorts have confounded the trans-Caspian. But now it turns out that events may have wholly overtaken the linkup of Central Asia to the balleyhooed East-West Corridor in any case.

First, in its latest iteration, the trans-Caspian was ultimately supposed to feed Nabucco, a natural gas pipeline to Europe, which has ended up at the butt end of continued utility bill spats between Russia and Ukraine. But now it seems that Europe may very well become awash in natural gas from shale deposits within Europe itself, and liquified natural gas shipments from Qatar and elsewhere. In other words, the need for Nabucco -- and natural gas supplies all the way from Central Asia -- has diminished.

But what of Turkmenistan's gas? In terms of Russia's rivals, it turns out that the Chinese have gotten there first. I personally thought the notion was far-fetched, but the Chinese are actually on the verge of finishing the first phase of the Turkmen-China natural gas pipeline, which looks like it will begin flowing by the beginning of next year. Since South Yolotan-Osman are situated in far eastern Turkmenistan, even if one of the western Big Oil companies gets a piece of these fields -- still only a remote possibility -- they will ship east, not west.

In other words, there appears to be little reason for the U.S. to focus on the trans-Caspian any longer, either, except for its own, parochial sake, and not for any larger policy reason, such as how Baku-Ceyhan broke Russia's monopoly over energy transport in the Caucasus.

We'll keep hearing about these lines. And we'll write about them in this space. But their time has passed.

As for Turkmenistan -- it will find its own way.

The Malady Called Turkmenbashi

Earlier this week, we reported on the impressive surgical abilities of Turkmenistan's president. Gurbanguly Berdymukhamedov not only rode his dentistry skill to the country's top office three years ago; he also can remove a tumor.

The feat attracted much attention not just at the novelty of a head of state taking time off to perform surgery, but because of whom the president succeeded in 2006. The country's former leader was Saparmurat Niyazov, the self-styled Turkmenbashi, or Leader of the Turkmen. Here was a man with a serious fixation on monuments.

We all had good fun at Turkmenbashi's expense before and after his death in 2006. I did so in this promo for Oil and the Glory last year.



But is this all Turkmenistan is bound for? Being a source of humor to the region and beyond? After awhile, my Turkmen friends certainly didn't think all the fussing was funny, and initially Berdymukhamedov attracted good reports for tearing down some of Niyazov's monuments, and reopening schools and libraries.

But it turns out that the surgery incident was indicative of a problem. Berdymukhamedov seems to have contracted the same malady that afflicted Niyazov.

On Tuesday, we heard that Berdymukhamedov launched a book on Turkmen plants with medicinal uses. Now we are told that he's also an expert on the famed Turkmen horse breed, the Akhal Tekke. His book on the subject is called Akhal Tekke: Our Pride and Glory, according to Daniel Kalder at the Telegraph in London.

The day before yesterday, the president's press service reported that Berdymukhamedov is also a pretty good pilot. He took over the controls of a Sikorsky helicopter in order to get "acquainted with the pace of a season cotton treatment campaign, preparation of land for tillage and harvesting of crops." The Turkmen leader then inspected a construction site from the air before being congratulated on his performance by the head of the country's state airline.

This is a man of the people. Berdymukhamedov's caring reaches even the ordinary tree. As the news service noted, after his official inspection, Berdymukhamedov "issued instructions to government officials to 'carefully examine the state of urban plants and establish proper gardening by providing timely watering of plants.'"

Berdymukhamedov is continuing with at least one of his predecessor's grandiose projects -- "Golden Age Lake," in which he is filling up a 77-square mile desert depression called Karashor with cotton-field run-off.

Quite apart from focusing on such $20 billion ventures while his country is mired in poverty, some people think the project could actually provoke war with neighboring Uzbekistan, which like much of the region has a chronic water shortage.

At the project launch a week ago, Berdymukhamedov turned a shovel-full of earth, then got on a horse and rode away to a waiting helicopter.

There was no word on who piloted it.

Becoming a Central Asian Dictator: Family Helps; So Does Medical Training

We have just a few examples of what it takes to assume control in one of the Caspian's more serious dictatorships. One best way of course is to be the dictator's offspring. But Gurbanguly Berdymukhamedov triggered a search for the dentists of current dictators when he rose to Turkmenistan's leadership in 2006 on the sudden death of President Saparmurat Niyazov.

Now, however, the readers of Central Asian tea leaves may have to recast their successor-guessing net. It turns out that surgeons may do as well.

As Turkmenistan.ru reports today, Berdymukhamedov surpassed himself and actually performed cancer surgery on an unidentified patient from the Balkan Velayat province of western Turkmenistan. Well, he did have a bit of assistance -- two German and one Turkmen specialist were on hand with anesthesia and a helping hand.

This news is attracting attention. In Britain, the BBC reports that the tumor, declared benign, was behind the patient's ear. In Taipei, Taiwan News notes that some think that Berdymukhamedov's book on medicinal plants should be adopted in the training of health workers.

In other words, in terms of analysis, this development could shake up politics. In Kazakhstan, for instance, former first son-in-law Rakhat Aliyev is currently on the outs after unfortunately plotting a couple of coup attempts against President Nursultan Nazarbayev; he is on the run and living in exile in Austria. Central Asia's best analysts say this permanently puts the kabbosh on Aliyev's political ambitions. But these experts need to take into account this Central Asian shift: Aliyev is a trained surgeon.

Anyone have a list of the surgeons of Uzbekistan?

The Oil and Glory Interview: U.S. Eurasian Energy Czar Richard Morningstar

Richard Morningstar talks much about déjà vu. In the late 1990s, then-President Clinton appointed him as Washington’s first special envoy for the Caspian Sea. Against strong headwinds, he attempted to persuade, cajole and muscle Big Oil into building the Baku-Ceyhan pipeline. A hostile BP, Exxon and other companies declared that they would love to build the line, but that there simply wasn’t enough oil. Russia said it might fire on any installations built in the sea. Time and new turmoil within the oil industry changed BP’s attitude, and the geostrategic pipeline became a fact in 2006. Today, after a decade teaching law at Harvard and Stanford, Morningstar is back in the same job. The task? To persuade not just companies, but also several countries to build yet another pipeline – a much-troubled natural gas line called Nabucco. He just attended a signing ceremony among five of the proposed transit countries in Ankara. O&G caught up with Morningstar by cellphone as he passed through the Frankfurt Airport on the way back to Washington.


O&G: Nabucco supporters argue that the pipeline is necessary because Russia uses or will use its dominance of the natural gas supply in Europe for political leverage. Is the argument valid?

Morningstar: That gets into why Russia does what it does. Does Russia play commercial hardball to get the best deal it can, or as a political weapon? I think that Russia does want to maximize its commercial benefit. The result is that sometimes it has political implications. The benefit of Nabucco is that it does provide diversity of gas supply to Europe. It does develop the Caucasus and Central Asia. Though Nabucco won’t cure Europe’s energy security, it will provide a natural gas source, especially for countries that were cut off during the disputes between Russia and Ukraine.

Q: Some people including me thought that, had events turned out differently in Iran, it might have become the needed source of natural gas for Nabucco. Are the post-election events in Iran a setback for Nabucco?

A: It had not been anticipated that Iran gas would be part of Nabucco. Our policy has been clear – we don’t think that Iran should participate in Nabucco now. We’ve reached out, but it takes two to go to the prom. I don’t know what impact events of the last few weeks in Iran will have. If we can resolve our nuclear issues, we might be able to resume normalized relations.

Q: There is as yet insufficient natural gas to support Nabucco. Are the Europeans getting the cart before the horse in terms of emphasizing the pipeline before having the gas?

A: This reminds me of the talk in 1998 and 1999. At that time, the talk was that there wasn’t enough oil for Baku-Ceyhan. Sure enough, BTC is up and going. The supply issue needs to be dealt with, but this agreement [in Ankara] will help push those issues.

Q: But BTC started off with a supply of oil in Baku. Nabucco starts off with none.

A: But there was also a lot of concern in the early years that there wouldn’t be enough oil out of the western Caspian. That “you are on a fool’s errand.” We stuck to policy, and it ended up working out. The Ankara ceremony is similar to those early days.

Q: Is Nabucco getting away from its original reason for existence, which was to provide Turkmenistan and the rest of Central Asia with a non-Russian transportation corridor?

A: If Iraqi gas can be part of the project, that would be great. Azeri gas will be absolutely critical to this project. Turkmen gas will also be important. It may come after Azeri gas.

Q: You speak as though you are confident that Turkmen gas will supply Nabucco.

A: There are going to have to be steps. I was in Ashgabad on Friday, and the president stated strongly and publicly that Turkmenistan wants to contribute gas to Nabucco.

Q: Is Nabucco more of a European issue than a U.S. issue?

A: It’s clearly a European issue. I think we have significant interests as well. They are, one, increasing overall production; two, creating diversity in the European supply and enhancing energy security. We want to see a strong Europe. And three, helping the development of the Caucasus and Central Asia.

Q: What about shale gas, which has been discovered in Europe. Isn’t that something that can help to substitute for gas from a Nabucco line?

A: The Europeans think that shale gas will be much more successful in the U.S. than in Europe.

Q: And LNG from Qatar and elsewhere? Can’t that serve Europe?

A: LNG will be part of it. We are strongly supporting the southern corridor. But it is still only one part of a puzzle. Alternative technology and LNG will both be part of the puzzle. Also the natural gas interconnections between the countries. It may be possible to get the pipeline sanctioned on the basis of Azeri gas.

Q: You are saying that the pipeline is financeable just on the basis of gas from Azerbaijan?

A: The companies and governments say the project is financeable. They are confident they will have enough gas. I am not in a position to say that the pipeline is financeable just on Azeri gas. The European Union has some money – 5% -- and the EBRD is also willing to get involved.

Q: What do you think about the addition of Joschka Fisher, the former German foreign minister, to the Nabucco team?

A: He’s a tremendously dynamic person. He’ll add a lot of vigor to Nabucco. It’s fascinating given the role that [former German Chancellor and Nord Stream Chairman Gerhard] Schroeder is playing. He has a tremendous reputation and lots of influence in Europe. He can help to unify Europe’s position.

Dueling Scenarios on the Gazprom State

Choose your scenario: Portraits in The Wall Street Journal and The New York Times today provide starkly different measures of Russia's energy might.

The Journal’s Guy Chazan chronicles a fresh set of agreements that, if carried out, will double the size of Gazprom’s proposed South Stream natural gas pipeline. The pact was co-signed by Paolo Scaroni, CEO of Italy’s ENI, a frequent partner of Gazprom’s whose company will help build the line. Standing with Prime Minister Vladimir Putin, Scaroni succinctly described the reason for South Stream: "Most of this gas will substitute gas currently crossing Ukraine, and some new gas."

In other words, South Stream is meant to extract Ukraine from Europe’s natural gas equation. Fair enough – from Russia’s point of view, that's perhaps the only way to end once and for all its annual tugs-of-war with Ukraine over natural gas payments and the resulting gas cutoffs to Europe.

Raising the financing actually to build South Stream is another matter. Yet, despite the plunge in global energy prices and the financial crisis, Russia’s aims seem the same: To reinforce the weight -- its energy heft -- behind its restored global voice.

In the Times, however, Andrew Kramer delivers a page-one, above-the-fold story with basically the opposite message: The Kremlin’s efforts to use Gazprom to “restore Russian influence in the world are now backfiring, slashing both its profits and its influence.” The culprit is the price plummet.

Kramer backs up his lead with detail on the losses being absorbed by Gazprom on its long-term natural gas supply deal with Turkmenistan. Gazprom is paying the Central Asian nation $340 per 1,000 cubic meters for gas that the Russian giant sells on to Europe for $280, or a $60 loss on each 1,000 cubic meters. This has helped to crater Gazprom profits, Kramer writes: The company’s 2008 profits were $30.8 billion on revenues of $160.5 billion, according to annual results released this month. This year, Troika Dialog, a Moscow investment bank, has estimated that Gazprom’s profits will drop to $16.7 billion on revenues of $104 billion.

There is a bit of confusing data -- Kramer says the price received by Turkmenistan is based on a six-month delay; in other words, Turkmenistan is being paid today according to world prices last year (I’ve actually heard that the delay is eight months, but the principle remains the same). If that’s the case, the loss would work its way through the system soon enough: Turkmenistan would eventually start receiving payment based on the dirt-cheap, current price of natural gas.

Whatever the case, another section of the story is key. Kramer suggests that Gazprom has lost ground politically, noting that last week, the European Union signed another agreement vowing to build Nabucco, a rival natural gas pipeline to South Stream. Azerbaijan, Georgia, Egypt and Turkey were present for the accord.

The piece, however, does not note who wasn’t there to sign: Kazakhstan, Turkmenistan and Uzbekistan, the key natural gas suppliers. Nor does it note that there is every chance that Azerbaijan will sell much of its natural gas to Russia, which continues to offer to buy all of Azerbaijan’s supply. (Neither does it mention the South Stream signature agreement.)

For now at least, it seems to me that the Chazan scenario is more credible: Gazprom has its problems: It is failing to invest in arresting the depletion of its Russian fields. All the while, natural gas demand is plummeting.

Yet it’s early to suggest that Russian influence in its backyard or Europe has declined with it.

After Georgia, A Day of Reckoning For Washington

Russia says it will start withdrawing its troops from Georgia tomorrow. If that truly happens -- and there are contrary signs -- a new, probably far more important stage of the Georgian crisis will begin. That's the assessment of the affair by the arc of countries -- from Europe, swinging south and east to the edge of western China -- that are directly affected by what Russia does.

How these countries perceive the U.S. response to the war in Georgia will determine whether Russia has effectively crippled a hard-fought, 15-year-old American effort to inject itself as a power in Russia's backyard.

So far, much ink has been spilled over whether the U.S. and Russia are in a new Cold War. In Washington, we hear that the era of a post-Soviet U.S.-Russia alliance is over. The Kremlin counters that the West is intent on provoking it, and thwarting its natural rights as a great power.

The truth is that Moscow's presumptions are essentially correct -- the U.S. has conducted a definitively anti-Moscow policy on Russia's western and southern rims, one dressed up as reformist- and energy-minded, but nonetheless centrally designed to contain Russia within its borders.

But this policy well-suits American security aims, and those of the West as a whole. Conceived in the Clinton administration, it foresaw this very day, when then-forlorn Russia would regain its feet and possibly threaten the independence of its traditional colonial backyard.

One thing to keep in mind is that Russian disgruntlement with Georgia didn't originate with NATO expansion, Kosovo independence, Russia's resurgent petro-power, or Georgian President Mikheil Saakashvili's alleged jokes about Vladimir Putin's height.

Russia's first military attack on Georgia was not ten days ago but in 1993, when Moscow backed Abkhazia in its military separation from Georgia. In the subsequent years, then-Georgian President Eduard Shevardnadze was twice nearly assassinated, attacks that, in interviews with me and others, he blamed on Russia and his insistence on Georgia becoming the strategic transit route for the Baku-Ceyhan pipeline.

In other words, there's strong reason to believe that nothing Saakashvili did, short of capitulation to Russian domination of Georgia, would have satisfied Moscow. Friends tell me that Shevardnadze finally found an accommodation with Russia. If so, it was an accommodation that included the threat of assassination if he went too far.

Georgia wasn't the rationale behind American policy. But the Caspian Sea policy, conceived, as O and G readers know, by a today-forgotten National Security Council officer named Sheila Heslin, did attempt to get Russia accustomed to living within its own borders, and not threatening its neighbors.

The policy was dual. It involved a continuation of the expansion of NATO initiated by President George H.W. Bush, in order to prevent a future, resurgent Russia from gobbling up pieces of the former Soviet bloc in eastern and central Europe. And, on the Caspian, to the south of Russia, the U.S. promoted the construction of energy pipelines to link the Caucasus and Central Asia to the West, and provide them the financial wherewithal to withstand any Russian economic pressure. As a transit point for three of the new pipelines, otherwise-isolated Georgia, situated right on Russia's border, became a U.S. strategic partner.

After 9/11, the Bush administration -- carrying the policy further -- established military bases in Central Asia for the assault on Afghanistan, and then left them in place after the Taliban were dispersed.

The policy made sense considering U.S. interests. The West had a stake in making sure that Russia did not again become a threatening power; by encouraging Russia not to expand back into its former Soviet lands, it might express its nationhood in other ways, such as in business. (For those who see all policy as oil-generated, remember that there was no oil shortage in the 1990s; oil was much-discussed, but it was an instrument of policy -- how to give the Caucasus and Central Asia some breathing room from Russia -- rather than the rationale for it.)

Many of the eight presidents of the region embraced the U.S. agenda. At once, there was a lever against centuries-old Russian dominance.

But ten days ago, Russia put that declaration to the test. With its assault on Georgia, it seemed to expose the U.S. policy as a superpower vanity.

And it seemed true that Washington was caught off-guard. It seemed either to have forgotten the rationale behind its Caspian Sea policy, or, more probable, to have staked its policy on the hope that by now Russia had changed, and would not rotely use its military in the face of a perceived challenge.

Whichever the case, Russia's invasion of Georgia threatens the very real gains of these 15 years. If Russia is seen to have come out ahead, the U.S. may retain its influence in Europe, where Moscow could even suffer a backlash -- Europe could decide after all to build new pipelines to diversify away from Russian natural gas. But America's carefully built role as a great power in Russia's south would be in jeopardy.

The Central Asian and Caucasus leaders are watching.

I myself wonder now whether it matters if Russia in fact does withdraw all the way into Abkhazia and South Ossetia (which I doubt. I think Russia will maintain at least some troops outside the territories. It seems improbable that Russia will entirely give up the ground it gained within Georgia proper.).

Russia has demonstrated that it can and might cross borders of its former Soviet colonies when it sees fit. In Russia's view, these are not international borders; they are Georgia, they are Kazakhstan, they are Azerbaijan -- not real independent states, but former Russian territories.

Ultimately, Azerbaijan's Ilham Aliyev, Kazakhstan's Nursultan Nazarbayev and Turkmenistan's Gurbanguly Berdymukhamedov -- the stewards of the region's great energy wealth -- understand the language of power.

They understood when a parade of American officials visited and argued that it was wise to cultivate a relationship with the most powerful nation on Earth.

The trouble is that, these days, it's not clear any longer that the U.S. is very powerful in its declared zones of strategic interest.

The King is Dead. Long Live the King.

So much for friendly-old Berdy.

Radio Liberty has sent around a statement that one of its contributors in Turkmenistan was beaten and tortured in recent days for refusing to stop reporting for the American-funded broadcaster. Sazak Durdymuradov, whom Radio Liberty says is a history teacher who files reports on educational and constitutional reform, was seized from his home three days ago. According to the report, his beating and torture occurred at the same time that senior Turkmen officials were talking with European Union officials about human rights in the capital of Ashkabad.

Western governments have largely withheld judgement on Turkmenistan's new president, Gurbanguly Berdymukhamedov, hoping that he is different from his megalomaniacal predecessor, Saparmurat Niyazov. Berdymukhamedov has raised hopes by taking down ego-driven statues memorializing Niyazov, and reviving the right of young Turkmen to a full education, among other things.

But the human rights situation doesn't appear to have changed much.

Photo: Nicolai Bangsgaard

Rights: Creative Commons

Latest Score in Love versus War

In recent months, Italy’s ENI has seemed to have hit upon the winning formula in Big Oil’s battle for survival against the march of petro-states across the globe. ENI chairman Paolo Scaroni’s approach has been simple – jump in bed with your adversary. So you have had ENI saddling up with Russia’s Gazprom, Hugo Chavez’s PDVZA, and most recently Qatar Petroleum.

Scaroni’s strategy has been the polar opposite and, so far, more successful than ExxonMobil’s confrontational style toward the more assertive petro-states such as Russia and Venezuela.

But a scoop by Guy Chazan in today’s Wall Street Journal shows that co-habitation goes only so far. Turkmenistan, for instance, is so miffed with ENI that it refuses to issue visas to its senior executives. That’s important, because Turkmenistan is one of the world’s only largely untapped petro-states welcoming exploration offers from Big Oil. Chevron, BP and others have put much effort into winning access to fields there.

Based on ENI’s record, don’t be surprised if Scaroni himself tries to swoop into Turkmenistan to smooth over the situation.

Photo: Chrispitality
Rights: Creative Commons

The Western Side of the Pipeline War: On the Brink of Failure?

Readers: apologies for the week-long absence. I am back from vacation. Now, on to the latest in the pipeline war.

Another domino has fallen in Russia's relentless advance in the European natural gas pipeline war. After Monday's visit to Budapest by Russia's probable new president, Dmitri Medvedev, Hungary's prime minister is expected to sign the deal in Moscow tomorrow.

That's after an astutely run offensive in which Medvedev and his mentor, Vladimir Putin, have already recently signed on Bulgaria, Austria and Serbia, not to mention the prize in the contest -- Turkmenistan. These countries are now Russia's partners in the construction of a huge new natural gas pipeline system, Moscow's aim being to project power into Europe through dominance of the continent's gas market. Mathematically, Moscow's aim would be represented as: Economic power = Political power.

After all this, is there any reasonable case favoring a rival pipeline plan championed by Washington and the European Union? Generally, my own rule of thumb in pipeline politics is that no deal is a deal until Sumitomo's lengths of steel cylinders actually arrive on the spot, and welding begins. And they haven't.

Consider the first battle of this East-West pipeline war -- over the Baku-Ceyhan oil pipeline, connecting the Caspian and Mediterranean seas.

On Oct. 11, 1998, The New York Times committed a stupendous blunder. As readers of The Oil and the Glory know, the newspaper's lead story that Sunday, written by my former colleague Steve Kinzer, declared White House-backed Baku-Ceyhan to be "on the brink of failure." Less than a year later, a deal for the line was a reality.

Kinzer's mistake was in focusing on the big picture and armchair analysts in Washington and London, all of which indeed did make the strategic pipeline look to be dead. What he and these pundits missed were the facts on the ground -- from Central Asia and the Caucasus, it was clear that the pipeline was going to happen. Principally, Azerbaijan President Heydar Aliyev -- who had his hands on 5.4 billion barrels of oil that floundering Big Oil was desperate to develop and sell -- wanted that pipeline. It helped that essential NATO member Turkey wanted the line, too, as did the 800-pound gorilla, the White House. But the main thing was the insistence of Aliyev -- the essential man on the Caspian. Big Oil had to build it, and today, it's mightily glad it did so, since it's delivering about 1 million barrels a day of oil onto the tight world market, entirely free of interference by Moscow.

Yet today Heydar Aliyev is dead, and the Caspian is surrounded by presidents with, to put it kindly, shorter geopolitical stature. Big Oil seems to be absent the big corporate personalities who in the 1990s got in the sauna with one or more of the Caspian presidents, downed some vodka shots, and emerged with rights to huge reservoirs. And the White House lacks the vision to assign a political heavyweight -- in the 1990s, it was Clinton and Al Gore themselves, in addition to National Security Adviser Sandy Berger -- to spearhead a deal.

As for the future, there's no sign of the Bush administration suddenly changing course. The word is that Condi Rice will appoint Bush family friend Donald Evans to general the western battle. But Evans lacks the star power for instant success, and the longevity -- he will be out once the next administration takes power next year -- to manage through sheer effort.

Big Oil has been slow to snag a natural gas deal in Turkmenistan that would jump-start the western-backed Nabucco pipeline. And, short of a trip to Camp David, Turkmen President Gurbanguly Berdymukhamedov isn't suddenly going to grow a spine.

Meanwhile, Putin and his protege Medevedev are running Moscow's battle plan personally.

So, at the risk of repeating the Kinzer Blunder, Nabucco does appear to be on the brink of failure.

Of course, lightning could always strike.

Photo: Axel Rouvin
Rights: Creative Commons

Another Death in England

England is seeming less and less safe for its multitude of political exiles. The latest death is a colorful Georgian businessman named Badri Patarkatsishvili (whom I will call Badri). British authorities say they expect to finish a post-mortem on the 52-year-old Badri today after he was found dead yesterday of a possible heart attack in the county of Surrey. As is their routine in unexpected deaths, they have handed over the case to their major crimes investigation unit. (Photo by Reuters' David Mdzinarishvili)

Badri’s possible enemies list isn’t short. Just a few short weeks ago, he lost in an election for president of Georgia against Mikheil Saakashvili. He has been charged there with plotting a coup and planning a ``terrorist attack'' on a government official. He denied the charges.

But Badri was best known as the main business partner of Russian oligarch Boris Berezovsky, who himself lives in England in political exile. That has put both Badri and Berezovsky on a black list in Russia. Both men have been charged with fraud there for allegedly stealing cars in the mid-1990s from AvtoVAZ, a company they controlled.

If the British deem foul play to have been involved, Badri's business dealings would also be in question. In his 2000 book on Berezovsky, American journalist Paul Klebnikov described Badri as Berezovsky's "primary emissary to the traditional underworld."

In a BBC report, Berezovsky said he had seen Badri yesterday. He said that Badri wasn’t sick but did complain about his heart. "I have lost my closest friend," Berezovsky said.

Pipeline War Watch—Russia’s Vladimir Putin has astutely assembled most of the pieces for a Gazprom triumph in its battle with the West to control Europe’s natural gas market, and win the political leverage that goes with it. By appearances, he’s got the main player on board – Turkmenistan, which has all the natural gas. And he also has the main countries along the route of his proposed South Stream pipeline – Bulgaria, Austria and even Serbia.

Now, Putin seems to be moving in to harden the market victory by tying up the second-tier buyers of Turkmen gas, the objective being to completely submerge the West’s comparatively amateurish, rival pipeline plans. The key second-tier buyers of Turkmen gas are Hungary, Slovakia and Poland.

Readers of The Oil and the Glory know that when middlemen show up, deals get murky. That’s the situation with this latest turn in the pipeline war. I’m told that two middleman companies – a Hungarian firm named Millander International, and a shadowy Ukrainian-Russian company called RosUkrEnergo – are working to seal a long-term contract selling Turkmen natural gas to Hungary. The deal would be signed by these two firms, Gazprom, Turkmenistan and Hungary. I am told that it could happen as early as this week.

Currently, no Western oil company has obtained rights to any Turkmen gas fields, so there’s no guaranteed natural gas to feed into the West’s proposed trans-Caspian and Nabucco pipelines.

Such Gazprom deals mean to keep it that way.

Guest Column: Iran's Cold Winter

By Paul Sampson

Iran is in the grip of an energy crisis that has left homes without heating and electricity, forced the temporary shut-down of power plants, and even led National Iranian Oil Co to stop re-injecting gas into its onshore oilfields. How could this happen in a country with the world's second-largest oil and gas reserves, you might ask?

First, this year's winter has been the coldest in a half century; Turkmenistan cut gas supplies to Iran at the beginning of the year in a pricing dispute; and, President Mahmoud Ahmadinejad reacted very slowly to a national emergency.

Iranians I've spoken to say the trouble with Turkmenistan was entirely avoidable. Last autumn, Turkmenistan said that in 2008 Iran would have to remit much more than the $75 per 1,000 cubic meters, the extremely low price it had been paying. But rather than deal (what even Russia's Gazprom when the Turkmen raised the same gripe), the Iranians dug in their heels and -- hey presto -- had the taps turned off.

The Turkmen pipeline supplies remote northern Iran villages that are cut off from the mainland, so there was always going to be a problem. But, as the freezing weather started to bite, the problem became a full-blown crisis.

For Ahmadinejad, whose handling of the economy has been woeful at a time Iran is being squeezed by US-led sanctions, the energy shortages should be an embarrassment. Some analysts predict he'ill pay for his shortcomings with a hammering in next month's parliamentary elections, where his conservative rivals are expected to gain ground.

But don't bet on it; friends in Tehran have said over the past few days that Ahmadinejad is as confident as ever and, backed by the all-powerful Supreme Leader and his friends in the Revolutionary Guards, is setting his sights on being re-elected in June.

For some Iranians, that would be the last straw.

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Becoming Quieter on the Caspian

The prize in the Pipeline War is Turkmenistan. Russia and China -- especially the former -- are far ahead of the West in the contest. One reason has been their willingness to look the other way on the issues of human rights, rigged elections and presidents for life.

Chris Chivers of The New York Times weighed in over the weekend on the American response, which is to lower the volume on the moralizing.

There has been a U.S. policy shift on the Caspian, and that's to tell the presidents that they don't have to be like Norway to get along with Washington. As long as they stay on the good-behavior -end of the spectrum of the generally badboy former Soviet states, they're all right.

Some quiet diplomacy is needed in the region. The U.S. is right to give the benefit of the doubt, for instance, to Turkmen President Gurbanguly Berdymukhamedov as long as he continues to methodically dismantle the legacy of his predecessor, Saparmurat Niyazov.

The aim of the U.S. policy is to help to continue to carve out some long-term breathing room for the region from Russia by championing the trans-Caspian and Nabucco natural gas pipelines to Europe. So far, Turkmenistan has been more favorable toward Russia's competing system, the Nord Stream and South Stream pipelines.

Yet there's a line not to be crossed.

One is pandering. Chivers provides an astonishing public remark by Julie Finley, U.S. ambassador to the OSCE. Speaking to Kazakhs in Europe a couple of years ago about their seizure of unflattering newspapers, Finley said, “Maybe you saved some readers some waste of time, anyway.”

And a second is Uzbekistan. Chivers describes a recent visit to Tashkent by the apparently irrepressible Admiral William Fallon, commander of the U.S. Central Command. Fallon is seeking to help thaw currently frozen relations with Uzbekistan's Islam Karimov, who holds the distinction of being the former Soviet Union's most brutal dictator.

“I told them that we couldn’t do much about the past, but that we could look at the future,” Fallon said of his discussion with the Uzbeks.

With respect, that's incorrect, Admiral Fallon. There is no respectable future relationship with Karimov until, for starters, he proves that he has stopped torturing and killing his people.

Unlike some of the region's other leaders, Karimov took no road to post-Soviet ruthlessness. He began there. My own initial sign of that was back in January 1992, two weeks after the Soviet collapse, when I crossed the street from the Hotel Uzbekistan to talk to the Pulatov brothers at Birlik, the then-Tashkent-based opposition group whose office was across the street. At the bottom of the stairs was a pool of blood. Inside, I learned from the more active of the two Pulatovs -- Abdumanop -- that his brother Abdurahim had been knocked on the head with a pipe by an unknown assailant.

The situation has declined since. Karimov regards entreaties by westerners such as Fallon not as an opportunity to re-open a perhaps positive economic path for his people, but a display of weakness, evidence that he still calls the shots in the dance with the foreigners.

It will probably require Karimov going the way of Niyazov before normal relations with the West can resume.

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Serbia, Bulgaria and the World

Vladimir Putin today racked up another in a string of unbroken victories in the European Pipeline War. Serbia has sold Gazprom a majority stake in the state oil company, NIS, and joined Russia's South Stream Pipeline consortium. Last week, Bulgaria signed onto South Stream as well.

The pipeline is part of Putin's strategy to cement Russia's domination of Europe's energy market, which receives around a third of its oil and natural gas from Russia. Ultimately at stake is political influence in Europe, as Andrew Ross Sorkin discussed today in The New York Times.

The United States and the European Union oppose Russia gaining more of a foothold in Europe, but Putin has far eclipsed their rival Nabucco pipeline project, which would feed natural gas from Turkmenistan to Europe.

Putin's triumphs stem from his personal role in the energy strategy. He himself has flown to Central Asia, to eastern Europe and elsewhere numerous times to court the presidents of the transit countries personally. He even got former German Chancellor Gerhard Schroeder to chair a companion pipeline, called Nord Stream.

Europe and the United States meanwhile have barely gotten started. In recent days, the State Department has discussed a new name to lead the Western effort -- Bush family friend Donald Evans -- but there is legitimate doubt that he has sufficient star power to upstage Putin. The U.S. presidential election may push the issue even further back on the Western agenda.

For a contrarian view of the issue, read this piece by Stratfor, which argues that the Bulgaria deal shows that Russia is actually losing the pipeline war. I personally think this analysis is upside down, but afficionados of pipeline politics should hear all sides.

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Turkmenistan Starts to De-Bizarre: Libraries Legalized

It's true that outsiders (including myself) have spent a good 15 years making Turkmenistan the butt of our Central Asian humor. But in our defense, everyone from ordinary Turkmen to Central Asia's presidential circles felt the same way. When you'd simply mention the name "Turkmenbashi," local people couldn't contain themselves.

That of course was what Saparmurat Niyazov insisted that people call him -- Turkmenbashi, or Father of all Turkmen.

Well, all good fun must come to an end. Niyazov died a year ago, and today his successor, President Gurbanguly Berdymukhamedov (a dentist by profession who my friends at Registan.net insist on calling "Stomatalogbashi, or Father of all Dentists) began to discard some of the country's weirdest laws.

Berdymukhamedov announced in a nationally broadcast news conference that Turkmenistan needs a few libraries. Some working cinemas. An opera. A ballet. A circus.

What's next -- will he trash the Ruhnama, the delusional Niyazov tract that's required reading of all Turkmen?

I for one hope that Berdymukhamedov does not melt all the Niyazov statues for scrap. Humor, after all, is the root of sanity.

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Why Russia is Winning the Pipeline War

Vladimir Putin.

That's how Russia today made another advance in one of the most important battles under way anywhere in the world at the intersection of commerce and geopolitics -- for control of the natural gas market between Central Asia and Europe. This battle will decide who dominates the European energy market, and obtains commensurate political leverage in Europe and Central Asia. Russia already supplies more than 30% of Europe's natural gas and oil.

In another example of the role of personal diplomacy in the battle, Putin was in Sofia today and signed a deal nailing down Bulgaria's role as the principal transit point for the South Stream natural gas pipeline, which is meant to cement Russia's dominance of southern Europe's gas supply.

Putin had previously used the prestige of the Kremlin to push through plans for a separate pipeline serving northern Europe, called Nord Stream. And last month, he secured the natural gas supply required to feed the two lines. Turkmenistan and Kazakhstan sold a large portion of their natural gas supply for the next thirty years, and agreed to a third pipeline to take their natural gas to Europe.

One would hardly know that Russia has a competitor in this epic market battle. But it does -- the West, specifically the European Union and the U.S., which have advanced their own dual-pipeline idea. They are a proposed trans-Caspian natural gas pipeline, also starting in Turkmenistan, and hooking into a proposed Nabucco pipeline into Europe.

How is the Western effort faring? It's stalled at the starting gate. Indeed, while Putin personally jets around the world, wining, dining and flattering the presidents of other nations whose favor is required, no Western leader has invited any of them for a personal meal. The U.S. hasn't even managed to select a senior statesman to lead the effort since Thomas Pickering dropped out and decided to stay in the private sector.

If it were not for the way that post-Soviet history has been so topsy-turvy, with a winner one day ultimately losing, I'd say the battle is over. For starters, it's high time for Turkmenistan President Gurbanguly Berdymukhamedov to spend some time at Camp David.

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Russia's New Abbott and Costello Defense

Vladimir Putin -- listen up.

You now have an airtight defense against those who have savaged you ever since you temporarily cut off natural gas shipments to Europe a couple of years ago in a pricing dispute with Ukraine. It would make Abbott and Costello proud.

Last week, Turkmenistan made news by cutting off natural gas supplies to Iran. The Central Asian nation, the runt forever being picked on by neighborhood bullies, had been shipping 23 million cubic meters a day to Iran, but is tired of being short-changed by Russia and Iran for its natural gas and wants more money. Russia is now paying $130 a thousand cubic meters (versus $350 it plans to charge Europe); Turkmenistan presumably wants at least that much from Iran.

Here's where the story gets wind. You see, even though Iran buys natural gas, it also sells it. But this is an incredibly cold winter, and Iranians are freezing. The country needed those Turkmen imports. So it has cut off Turkey, which was supposed to receive 30 million cubic meters a day from Iran but is only getting about 5 million.

Except it's also mighty cold in Turkey. So it has cut off Greece.

The poetic coda? The rescue squad is from Russia. Gazprom, the lightning rod for things that go wrong across Eurasia, is shipping an extra 8 million cubic meters of natural gas a day to Turkey and 1.5 million cubic meters a day to Greece.

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Note on Yesterday's Post on the Pipeline War

I received a couple of warranted complaints about yesterday's description of a delay within the Bush administration in naming a top envoy to direct the U.S. side of the West's pipeline war with Russia. As background, I've complimented the choice of gray beard Thomas Pickering as Washington's chief envoy for the Caspian. Steve Mann, another talented senior diplomat, would be his deputy. But I've not understood why these men aren't already in the field making the case for a western-directed, trans-Caspian pipeline for Turkmenistan gas. Yesterday I reported that an 11th-hour struggle over personnel was partly to blame. Specifically I reported that Dan Fried, the U.S. assistant secretary of state for European affairs, was trying to get one of his deputies into the envoy's slot.

Fried rightly notes that I didn't offer him a chance to respond, and I regret that. Today Fried said the following in a telephone chat: "I think it's a great idea to have a senior person doing it, and he will be most effective if there is a team representing all the bureaus, economic, mine. (Under Secretary of State for Economics and Energy) Ruben Jeffrey should also be involved. We should get that team together and get them to work." On why there is a holdup, he said, "I'd like to do this as soon as someone identified is in place. The sooner the better is best."

Fried couldn't say so, but I'm still told that Pickering is headed into the top slot. I'm also told that there's a cat fight over who will be his deputy, including a turf war between the State Department and the National Security Council.

While the bureaucrats tussle over the details, they risk Russia gaining greater advantage.

The Pipeline War: As the CondiBoys Bicker, Putin Laps The West Again

Vladimir Putin has advanced again in the principal current theater of battle between the West and Russia -- the European pipeline war. His antagonists meanwhile are bickering over who will general their troops.

As wars go, this one is easy to figure out. It's purely business driven -- over who will dominate Europe's energy market -- and the spoils are political influence in Europe, where the votes are decisive on numerous issues vital to the West, in particular the U.S.

Russia, which currently controls about a third of Europe's oil and natural gas market, is seeking to enhance its dominance further by building large, new natural gas pipelines into northern and southern Europe.

On the other side, the European Union and the U.S. are trying to lessen Russian influence by building a competing set of natural gas pipelines into Europe.

The improbable key for both sides is that little can happen unless a single state -- Turkmenistan -- goes along. It possesses the world's fourth-largest reserves of natural gas, and it's these supplies that would make either side's pipeline strategy work.

So both the West and Russia have been assiduously courting this desert Central Asian nation, and its new president, Gurbangly Berdymukhamedov.

Except that Putin has been much more assiduous, and today that bore fruit as the leaders of Turkmenistan and also Kazakhstan signed a final agreement to build the first leg of Russia's new pipeline system. It would gather up the natural gas supplies of Turkmenistan and Kazakhstan, ship them north to Russia to be combined with Gazprom's volumes, then exported on to Europe at a much higher price (the profit to go to Russia alone).

I still think this is not a done deal. I've seen such seemingly concrete agreements silently disappear before. The real test is whether the pipeline lengths and bulldozers arrive on the spot, and welders begin working. As a smart friend posed the situation this morning, "Will Putin/Medvedev/Gazpromistan cough up the funds for it? Stay tuned." He was referring of course to Putin's probable successor, Dmitri Medvedev, and the character of today's Russia: The Gazprom State. The Russians aren't renown for willingness themselves to finance such projects.

As if to highlight this point, Berdymukhamedov himself didn't attend the signing ceremony -- which is notable since Putin and Kazakhstan's ultra-cautious Nursultan Nazarbayev did. He seems to be keeping the door slightly ajar for the Western route.

Still, the signs are not propitious for proponents of the Western route. While Putin has personally sat down with Berdymukhamedov numerous times, even flying down to Ashkabad to see him, President Bush gave him a mere photo op at the United Nations a couple of months ago.

Meanwhile, Bush's foreign policy team is in a catfight over who is going to lead the charge. Last month I reported that diplomatic warhorse Thomas Pickering was about to be named the new Caspian energy envoy. It's an inspired choice -- one of America's top two or three statesmen, Pickering brings undisputed gravitas wherever he goes. He exudes seriousness. His deputy is to be Steven Mann, a long-time ambassador and authority on the Caspian Sea.

But I'm told that Dan Fried, the U.S. assistant secretary of state for European affairs, isn't happy. He's intent on installing a senior deputy, Matt Bryza, in one of the two jobs. Bryza is deputy assistant secretary of state for European and Eurasian affairs. Fried and Bryza served together under Condoleeza Rice on the National Security Council before she became secretary of state.

Which brings me to CondiBoys. I realize I am out of it, having spent too much time in Central Asia, but until this week I had never heard this term. It apparently refers to the prevalence in key foreign policy positions of Rice's former mates at the NSC. Such proximity and loyalty to Rice, and not necessarily merit, is said to be key to promotion; loyalty to Bush is said to be helpful as well.

I happen to admire Dan Fried. I was told back in 2005 that he was singularly responsible for America's humane response to the massacre of hundreds of people in the Uzbekistan city of Andijan, apparently on the order of President Islam Karimov. Knowing that Karimov would force out the U.S. military base at the slightest hint of provocation, Fried pushed through a decision to fly out dozens of survivors who had fled to neighboring Kyrgyzstan, and eventually relocate many in the U.S. The U.S. did lose the base.

I also think that Bryza is a highly qualified Eurasian hand, probably the longest-serving Caspian expert in government. Plus he's a nice guy.

But Fried's campaign is absurd. If the CondiBoy description is true, neither Pickering nor Mann are Rice proteges. But you don't bench your first string quarterback if he's willing to play (Asian and European readers: You catch the drift). It seems to me that Fried and Bryza ought to get out of Pickering's and Mann's way so they can go to work.

They have a slog ahead. My friend Russell Zanca, an Uzbek export over at Northeastern Illinois University, just sent a comment on yesterday's posting about Putin containing the following notable remark:

"It's totally natural for the Cen Asians to go w/ Russia--all connections, work ethics, everything is well in place--um, not to mention geography. Meanwhile the U.S. organizes conferences and exhibitions in Ashgabat. As a Tashkent hat seller once told me, America's a good country, but Russia's much closer. "

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Fence-Sitting on the Caspian

Oil and the Glory readers are acquainted with irascible Valekh Aleskerov, Azerbaijan’s preening, blustery, table-pounding former chief oil negotiator. Aleskerov was in Washington this week for a conference run by my friend Zeyno Baran at the Hudson Institute.

I unfortunately wasn’t present, but heard that Aleskerov was his best, straight-talking self. I was particularly struck by a point on the second round of Pipeline Politics currently under way between Moscow, Europe and the U.S.

He noted that Azerbaijan’s courage was largely responsible for the diplomatic triumph in the game's first round, capped by last year’s completion of the Baku-Ceyhan oil pipeline linking the Caspian and Mediterranean seas. Azerbaijan President Heydar Aliyev opted to ignore Russian threats and, in partnership with Georgia’s Eduard Shevardnadze, spearhead the strategy of the thousand-mile, U.S.-backed line.

But Aleskerov was speaking in the context of the second-round battle between the West and Russia over who will control the resources of the Eastern side of the Caspian. Russia wants to take Kazakhstan’s and Turkmenistan’s natural gas north for onward shipment to Europe. But Europe and the U.S. are pressing a competing proposal to ship the gas west through a new trans-Caspian pipeline linking Turkmenistan to Turkey.

The Western proposal is prudent since going along with the Russian plan would mean isolation for Kazakhstan and Turkmenistan, which would then rely on a single buyer and shipper of this huge cash-earner.

The trans-Caspian idea is beset with indecisiveness and bungling from the Caspian all the way to Washington -- mainly in Europe and Washington -- but one of the problems is that neither Turkmenistan nor Kazakhstan have committed to the proposed line. And that’s the foremost step before anyone else can move. As Aleskerov put it: “Turkmenistan will not take risks like Azerbaijan took risks” with Baku-Ceyhan.

Yesterday, Kazakhstan unintentionally provided Aleskerov a coda.

For more than a decade, Kazakhstan’s president has played the cautious middle ground in Pipeline Politics. When Nursultan Nazarbayev is in front of Russian leaders, he says, We will ship our oil through Russia! Before Chinese leaders, it’s, China or bust! And with his Turkic brothers or the West, he’s a gushing fan of Baku-Ceyhan.

Yesterday was more of the same in the Kazakh capital of Astana. Standing with Turkish President Abdullah Gül, Nazarbayev was uncontainable. “Kazakh oil will be transported to the Baku-Tbilisi-Ceyhan pipeline,” he stated unequivocably.

Well, yes, because Chevron intends to ship a few hundred thousand barrels a day that way from its Tengiz oilfield. And so do the Italian-led developers of Kashagan, the mother of all Caspian oilfields, once they get on line in a few years.

But do the Kazakhs intend to ship any of their state-owned oil through the line? More to the point, would Nazarbayev ship oil or natural gas through trans-Caspian lines were they built?

As I write these questions, their absurdity becomes almost profound. Why would Nazarbayev not do so? And if there's no reason not to, why doesn’t Nazarbayev – the strongest current leader in the eight-nation Caucasus and Central Asia region – commit definite volumes to Baku-Ceyhan and a trans-Caspian line?

The answer is wrapped into Russia's own assumptions in its Pipeline Politics strategy. As Aleskerov put it so well, Vladimir Putin assumes that Turkmenistan and Kazakhstan "will not take risks like Azerbaijan took risks.”

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Big Oil's Last Heyday and What Comes Next

This blog tracks Big Oil’s last heyday – on the Caspian Sea – alongside its visible sunset as the major oil companies die off. As those who also follow these events know, the ‘Stans and Vladimir Putin already impact prices at the pump, and seem likely to have greater influence in the coming years. Meanwhile, what is coming a few decades ahead – the darkness and despair suggested by the self-proclaimed “doomers” of peak oil, or the relatively smooth transition to hydrogen cars and cellulosic fuel predicted by other futurists?

A couple of articles in today’s New York Times have interesting angles on the futurist questions. In one, Clifford Krauss describes how some of today’s big petro-exporters are themselves developing big carbon appetites, and will be competing with their customers for the world’s oil. In the second, Norman Mayersohn takes a spin in Honda’s FSX Clarity, the Japanese company's attempt to make a hydrogen car commercial. He likes it.

Both are worth Sunday reads.

Russia: Note to Presidential Candidates

This week's U.S. reversal on Iranian nuclear aims is a wake-up call on multiple fronts for those who will run American foreign policy for the next few years.

Among them is this: Vladimir Putin isn't a simple gadfly. Instead, he's one of the most important leaders the U.S. can cultivate over the next few years. Why? Because he's engaging and challenging the U.S. on issues that both countries care about, and happens to get it right -- and the U.S. wrong -- at important times.

As we learned this week, Iran is one. For years the U.S. tried to stampede him into supporting ever-escalating sanctions, leading to possible war, against Iran. But he resisted, asserting that President Bush's claims about Iran's nuclear weapons capability were overblown, and according to the new U.S. intelligence estimate it is Putin's judgment that was correct.

The new Iran intelligence highlights another needed correction: Putin in fact isn't inaccurate -- nor belligerent -- when he asserts that the U.S. presumes to know the only way on foreign policy.

U.S. policy on Russia currently amounts to this: You hurt my feelings.

It would be better to focus on issues, and the main one is energy, the foundation of Russian -- and Putin's -- power, how he's asserting Moscow's prerogatives in Europe and elsewhere.

As readers of this blog know, I think that one of the most potent instruments of power in Europe today is control of the flow of oil and natural gas. Putin has learned the lesson of the momentous U.S. foreign policy triumph last year with the completion of the Baku-Ceyhan oil pipeline and is conducting his own, much more ambitious pipeline policy.

Putin's strategy is market-oriented -- to cement and increase Russia's current control of 30% of Europe's natural gas market. It so happens, in my opinion, that that aim is incompatible with European and U.S. interests in a more diversified natural gas supply so that no one can dictate terms.

The U.S. is attempting to counter the Russian pipeline thrust, but is late to the game. U.S. energy bureaucrats led by Steven Mann are meeting in Sofia tomorrow and Friday to talk over how the U.S. can polish its strategy, and it'll be interesting to know the outcome.

I personally think that the new intelligence assessment on Iran -- like the previous one -- sounds too smugly certain. Anyone who has read Tim Weiner's excellent Legacy of Ashes can see that the intelligence business is barely manageable at best, like herding cats as the saying goes. But the fact that the intelligence services did not have rock-hard evidence before on Iran's intentions gives little comfort to those reading this week's abrupt, contrary assertions.

And it's equally discomfiting to those who have watched American policy on Russia amount to finger-pointing.

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Business Week Names The Oil and the Glory A Top-10 Business Book of the Year

Thanks to Business Week for the recognition. SL

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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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.

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.

Photo: Argenberg
Rights: Creative Commons