Russia, Georgia, Ukraine

As a follow-up to the initial post about Russia/Georgia by Becky, and the comments by clarita, Toby and combustible, I thought it might be useful to look at the sources of post-Soviet Russian foreign policy not just in the Caucasus but also in Ukraine. The August war in Georgia and the seemingly annual cutoff of Russian gas to Europe show the importance of these areas to energy, and thus national, security of the United States.

At the heart of Russian foreign policy after the dissolution of the Soviet Union is the attitude of Russia towards the former Soviet republics. To wit, the former Soviet republics are not thought of as foreign countries, but rather as areas comprising the 'Near Abroad' -- lands of non-Russians that have been under Russian control and domination since the Mongol hordes were booted out in medieval times and Russian tsars from Ivan the Terrible, Peter the Great and Catherine II steadily expanded the realm across 1/6 of the earth's area. To a typical Russian nationalist, of which Vladimir Putin and his associates are (along with wanting to restore the foreign and domestic might of the Soviet Union, but more on that below), Georgia is not a foreign country, but a lost province. Ukraine is not an independent country, but the origins of the Russian people (the Russian state and Orthodox Church began in Kiev, capital of Ukraine), so they have no natural ability to claim sovereignty over anything that belongs 'by rights' to Russia.

So after 1991, the Soviet Union fell apart, leaving behind the constituent republics to claim sovereignty over their own borders and largely to claim whatever (good, bad, ugly) Soviet infrastructure was in their territory. For the newly-independent countries around the Caspian Sea (particularly Azerbaijan and Kazakhstan), this was the golden opportunity to sell prospecting and drilling rights, leases and concessions to foreign oil companies for big money (the best book on this subject is probably The Oil and the Glory by Steve LeVine, who also runs a blog by the same name). Yet for Russia this was a period of great calamity as law and order broke down and insiders were able to exploit connections to claim much of public natural resource sectors as private prizes. Enter Vladimir Putin in 2000 who—very long story short—used   state coercion to consolidate his own position and bring the private owners of natural resources to heel; he did this by brokering a deal that allowed these 'oligarchs' to keep their assets so long as inter alia they helped the national gas company (Gazprom) and the national oil company (Lukoil) become the dominant companies in their respective commodity sectors.

As commodity prices rebounded at the beginning of this decade, Putin took a view towards revising the 1990s: at a time of weakness, outsiders (particularly the US and American oil companies) exploited Russia, while former Soviet republics took advantage of decades of Soviet infrastructure and investment without adequate compensation or including Russia in future plans. Specifically, constructing the Baku-Tbilisi-Ceyhan pipeline (as Becky rightfully pointed out) was an affront to Russia because it cut them out, and Ukraine charging Gazprom transit rates to move gas to Europe while still paying Soviet-era subsidized prices to purchase gas was totally ungrateful. And as these two countries had the temerity to move towards NATO membership, that was the final straw: Putin began moving to reverse the foreign policy losses of the 1990s and reassert control over oil and gas transit resources (as the main source of revenue).

In Georgia, Russia had been acting as a peacekeeping force in Abkhazia and South Ossetia to protect those areas against the Georgian central government, but had a stake in the outcome as they began issuing Russian citizenships in those areas. This allowed them to intercede in any conflict by claiming the defense of Russian citizens abroad. As for Ukraine, they claimed that cutting off gas in the middle of winter was the result of Ukrainian inability to compromise on the price of gas; the ‘commercial dispute’ leaving Eastern Europe shivering. This was a commercial dispute in the way that the Palestine/Israel issue is about property values in southern and central Israel. The intent of both actions was to destabilize the Georgian and Ukrainian governments and warn them away from doing anything further to displease Russia and its interests. The message to the rest of the world was that the BTC pipeline was not a safe bet for Caspian oil, and the Ukrainian gas network was also unreliable at best; Russia’s proposed North Stream pipeline (under the Baltic Sea to Germany) and South Stream pipeline (through the Balkans to Italy) were the only sure bets.

I respectfully disagree with Becky and her colleagues’ recommendation of a lower U.S. profile in the Caucasus region. U.S. foreign policy objectives regarding Russia and energy should be to support alternative pipelines (such as BTC and the proposed natural gas pipeline Nabucco) more openly and vigorously for the purpose of balancing Russia in the Caucasus region. These countries in the region (Central Asia, Caucasus, and southeastern Europe) have no other foreign policy levers to protect themselves against Russia. Russia will and has signed individual deals with these countries to their collective detriment. While the volumes of oil and gas reaching the United States is relatively low, the importance of this region is that its exports are critical to Russia, a prime strategic competitor to the U.S., and can provide enough capacity to reduce the bargaining power of OPEC. As combustible noted, this is the matter of US prestige and diplomatic capacity in the entire region.

Georgia and Russia: Intersection of Energy and Foreign Policies

During the Fall 2008 semester, I was part of a group that analyzed US policy options in responding to Russia's invasion of Georgia.  The team members are listed at the end of this post by way of attribution. 

The net-net of the analysis yielded very few reasons for the US to get more involved in what is essentially a regional conflict involving ethnic histories stretching back hundreds of years.

However, we found one fact that led us to recommend that the US maintain a low profile presence in the area: as of mid-2006, Georgia is now home to the only non-Russian pipeline that can get oil or natural gas out of the areas east of the Caspian sea.  This is more than mildly irritating to the Russians.

Here is a link to a map for those not familiar with the area:

www.utexas.edu/maps/commonwealth/caspian_pipelines_2002.pdf

The pipeline is the Baku-Tbilisi-Ceyhan, and it runs through Azerbaijan, Georgia, and Turkey (in order to not run through Iran).  It is a large capacity pipe, capable of transporting up to 1.1 million barrels per day (Dr. Webber, the maps don't use any of the standard units you showed us on Thursday!).

All other routes to get that oil out transit through Russia.  We have seen two situations in the past few weeks demonstrating how willing Russia is to use that logistics dominance to control behaviors of other countries.

We found that British Petroleum is the largest investor, owning a 30% stake in both the pipeline and the reserves in the largest fields under the Caspian.  U.S. oil interests in total were less than 25%.  The rest was held by a variety of countries, with Europe in total having a nearly 2/3 stake in the pipeline and the Caspian region's oil fields.

Our conclusion was that while the US has an interest, we do not possess the largest interest. Therefore, our role should be one of awareness and indirect support.  We trained 2,000 Georgian troops on how to protect the BTC pipeline in 2002-2004.  That is the type of assistance our analysis found we should continue, but not expand.

I found it interesting to see the direct and real-time interaction between our energy policy and our foreign policy.  They constantly interact and impact each other.

We also found it to be yet another reason that alternative energy and other methods to reduce our need for oil coming from unstable regions such as this one needs to be a high priority item for the Obama administration.

Credit and thanks to my team mates on this project: 

Jessie Neufeld (Law)

Kevin Gong (LBJ)

Joe Harvey (MBA)

COL John Kilgallon (Fellow)

Jonathan Witham (MBA)

Becky Taylor (LBJ)

The Kingdom: Oil as the Setting, Not as the Plot

Like many others, I used this week's blogging assignment as an opportunity to watch "The Kingdom," a movie that I had wanted to see for a while. I will admit that I am a sucker for big budget Hollywood action flicks, and I found the plot/characters/etc. to be interesting, so I definitely enjoyed the movie. What I noticed though (as is hinted at in the title), was that the movie primarily used Saudi oil production as a vehicle to set up a story of intergovernmental politics and terrorism, and that once the "brief history of The Kingdom" intro ended, oil itself didn't seem to be on anyone's mind.

I guess I was just hoping for a more focused look at the intricacies of the linkages between the government and oil industries in Saudi Arabia and America, topics that the movie seemed to leave in the dust after the first few minutes. It may seem obvious to some of us that oil is the entire reason for the movie's existence, but I feel like the general viewer may lose sight of that theme when watching Jamie Foxx dodge RPGs.

I did enjoy the movie's take on the political structure and process in Saudi Arabia, and while I'm sure that situations were sensationalized to a degree, the portrayal of the Saudi power structure was interesting. Specifically, I found it interesting how "pro-American" the higher levels of the Saudi goverment were portrayed as being, and I wonder to what extent that various levels of authority in Saudi Arabia really support a positive relationship with the US government and the American people.

What I believe was most powerful, however, was the overarching theme that despite all the ideological and cultural differences, Saudis and Americans are not so different. If you haven't seen the movie or do not recall, "The Kingdom" ends with the revelation that both the Saudi bomb maker and Jaime Foxx's FBI agent share the same sentiment that "we'll kill them all." I think this is an important message to send when, at least in America, we are so quick to assume that everything we think, know, and love, is the "right way to do it."

rising inflation in oil rich nations

With oil prices hovering around the $100 mark one assumes that the oil bearing nations are rolling in the dough and not worrying about such things as inflation. To the contrary, even with huge profits from oil, many Middle Eastern nations are facing rising inflation and poverty. See here.

The NY Times article mainly focuses on Jordan, where inflation has risen due to a weakened American dollar but also because of the lifting of government subsidies. It almost seems absurd that oil producing nations have trouble providing fuel to their own citizens, but the reality is that as these subsidies are lifted, the prices increase dramatically. From the Times:

…in Jordan, the cost of maintaining fuel subsidies amid the surge in prices forced the government to remove almost all the subsidies this month, sending the price of some fuels up 76 percent overnight. In a devastating domino effect, the cost of basic foods like eggs, potatoes and cucumbers doubled or more.

We’ve seen stuff like this before though. Remember the riots in Iran last year? They’re oil rich but have limited refining capabilities, so while they produce ~4.3 billion barrels/day¹, they’re forced to import gasoline. So while they make money selling crude at high prices, they take a hit from importing gasoline.

In the case of rising inflation, some theories have been thrown out there mainly focusing on corruption within the government. I would suspect that these are part of the problem, but you have to look at the increasing costs of energy on the world market. The problem will only get worse as a lot of these countries don't invest in long term infrastructure (minus the U.A.E.) that will benefit them when the rest of the world isn't dependent on their oil. With that said, I don’t see a shortage of silver plated cars or Saudi Palaces.

¹ For 2006, BP Statistical Review 2007

texas' role in the future of energy

Texans are fond of letting you know exactly what we’re thinking and why we’re the best and when it comes to energy there is no exception. We know what we’re talking about it when it comes to energy as we have been the leader in the past and it should be no different in the future as we move away from oil. Texas can and should lead the way as we move our dependence off of traditional sources.

As we’ve seen with the Texas State History Museum’s Oil! exhibit, a lot of our prosperity can be attributed directly to the discovery of oil and the subsequent industries that sprang up afterwards. Houston became the capital of the energy world and is poised to provide the necessary experience when taking on the world’s energy problems.

It would be foolish for Texas to be left behind in the transition away from oil, however long it takes, since we have the expertise and knowledge in place to lead us into the future. We should capitalize on the transition away from oil just as we did with its discovery here over a century ago.

This isn’t a new idea and as we’ve heard in class and read on our own, energy companies are diversifying and preparing for a future that is not dominated by petroleum. Texas can use all of its resources (educational, industrial etc..) to maintain its dominance and hopefully revolutionize the way we produce energy. Texas is in a great position to lead in all areas of energy including wind, solar and biofuels.

To incite some pride in you, and also because I just love it so much, I’ll leave you with a quote from Davy Crockett:

“You may all go to hell, I’m going to Texas.”

Learning from our Past: J.R. Parten

First, I must comment that the Bullock oil exhibit was a let down. After reading Daniel Yergin's The Prize, the coverage on Texas's oil history in the museum exhibit read like a kid's book.


If you happened to sit and watch the short film--narrated by UT Austin's own Walter Cronkite--you may have noticed the very quick reference to Texas's prominent role in the War (WWII) effort. Cronkite said something like, "... Texas was thrust to the forefront of global politics during the war....". If you happened to stroll through the neighboring exhibit, you may have notced a small placard discussing "Big Inch" and "Little Big Inch", the War Emergency Pipelines constructed during WWII that delivered 350 MMB of petroleum to the Allied war effort. The exhibit gives credit to Jubal R. Parten for managing the construction of the War Emergency Pipelines.


The Prize provides an amazing perspective on the history of WWII and the importance of oil in determining the strategies and outcome of the war. This book, and the museum exhibit, discuss how German submarines threatened shipments of oil moving from Texas to the East Coast, inspiring the construction of "Big Inch" and "Little Big Inch". Without the secure supply of oil from Texas--the world's largest producer of oil at that time--the US and Allies would not have been capable of defeating the Germans and Axis powers.


J. R. Parten's life is quite fasicnating and I recommend browsing the brief bibliography provided by The Center for American History. The most intersting aspect of his life came in his later, wiser years: after serving in the Army and playing instrumental roles in both WWII and the Korean War, Mr. Parten became a peace advocate. The following is an excerpt from The Center for American History's A Guide to the J.R. Parten Papers:

Parten spent much time and effort in his last years encouraging and supporting work aimed at fostering world peace, serving as an advisor and financial contributor to the American Committee on East-West Accord and the Center for Defense Information.

I believe that Mr. Parten was well aware of the fragile postion that the U.S. is in when reflecting on his life's work. He constructed the vein that fueled the Allies' victory, and realized that should the US be in such a position again, the nation will not be so fortunate. We should learn from men like Mr. Parten, and work to "foster world peace", rather than work to secure oil supplies with military power.