BACKGROUND: The month of May throughout the Transcaucasus region has been marked by a period of political volatility. A new prime minister and cabinet in Armenia, a newly revamped cabinet in Georgia, growing political tension in Azerbaijan, and internal political intrigue in the wake of a failed assassination attempt on the leader of Nagorno Karabagh, have all occurred in this past month. But most significant of all was the recent announcement by a consortium of international oil companies of the discovery of an extremely large offshore petroleum reserve in the northern sector of the Caspian Sea belonging to Kazakhstan.

Despite a record of overstating earlier discoveries in the region, initial estimates reveal that this new petroleum deposit may very well be the largest find in over twenty years. The size of the newly discovered petroleum reserve, a 480-square mile deposit known as the Kashagan field, is reportedly so large as to even surpass the size of the North Sea oil reserves. Such a find would enhance Kazakhstan to the position of the region's prime energy producer, overtaking oil-rich Azerbaijan and accelerating the international haggling over the selection and construction of pipeline export routes. With estimated reserves of anywhere between 8-50 billion barrels of oil, this discovery returns the region to the top of the geopolitical agenda for the world's major powers.

The first lesson of the Transcaucasus energy puzzle is the realization that the key to dominating the region rests with control over the pipelines crucial for the export of the energy reserves. The second lesson consists of the need to safeguard and secure the export routes. Without an adequate and reliable distribution network of pipelines and port facilities, the energy wealth of the region remains a mere potential and illusory prize.

IMPLICATIONS: For the United States, the discovery is being used to commercially justify its preference for the proposal to construct a new pipeline from Baku to the Turkish port of Ceyhan on the Mediterranean Sea. With a daunting cost estimate of nearly US$ 2.5 billion, this 1,080-mile Baku-Ceyhan pipeline plan has been more popular with statesmen than businessmen, as its appeal is much more geopolitical than commercial. However, even the combined diplomatic weight of the United States and Turkey has failed to overcome the commercial hesitation and cost-conscious reluctance of the Western oil companies to support the US$ 2.5 billion "pipeline pipedream."

In reality, there has not been enough oil production to justify the cost of the plan, a reality stemming from Azerbaijan's disappointing offshore reserves. And so long as U.S. policy continues to deny the promise of Iran's new markets to these companies, the focus will continue to be on the profit and not the political. But the potential of the Kashagan field for justifying the Baku-Ceyhan route rests on the premise that Kazakhstan will choose to ship the new oil by barge across the Caspian Sea to Baku rather than by pipeline through Russia.

The newly installed Turkish president, thrust into this arena of competing powers, is already challenged by the inheritance of a fracturing Turkish political ideology splitting along an eastward versus westward fault line. This new Turkish president also inherits the legacy of former President Suleiman Demirel that held a particular emphasis on fostering and consolidating a Turkish role in Central Asia and the Caucasus. Amid this looming geopolitical storm, however, the new Turkish president may find himself outpaced by regional rivals, a likely development demonstrated by the fact that the new Turkish leader speaks no foreign languages and has no foreign policy experience.

CONCLUSION: For the Russian president, the Kashagan oil discovery justifies his already keen realization of the geostrategic importance of the region within the Russian national interest. Although the Putin political record remains short both in duration and deed, there are some signs to indicate Moscow's direction in the region. In late April, on the same day that a new military doctrine was adopted, President Putin called for strengthening the Russian sphere of influence in the Caspian Basin. Matching the core of the new military doctrine, it now seems evident that Russia will fortify a policy of reasserting control over the "near abroad" along its southern flanks.

Such a reassertion is bolstered by Putin's move against the regions within the Russian Federation to correct the gradual devolution of power to the regions during the Yeltsin period. It remains to be determined, however, whether this new geostrategic importance will herald a new promise of stability and an incentive to peace, or a new peril to peace and reconstruction in the region. It seems certain that the region will once again become the arena for competing interests and combating powers that pose serious challenges and tests for its new governments which are already beset by a lack of good governance and a shortfall of leadership.

AUTHOR BIO: Richard Giragosian is a professional staff member with the Joint Economic Committee to the United States Congress specializing in international relations and economics in the former Soviet Union and China. He is the author of the monthly newsletter, "TransCaucasus" A Chronology," featured on the Soros Foundation website.

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