HITTING THE PIPE
Regimes get rocked, and rogues get rich, as Russia and the U.S. take turns muscling in on Caspian oil.
By Daria Vaisman

It wasn’t that long ago that the United States did not fear Russia as much as pity it. Russia had just been stripped of an empire (worse, the empire had peeled itself away) and what the country needed most was a soft touch, not recrimination. Or at least that was the argument posed by Strobe Talbott, Bill Clinton’s Oxford roommate, Khrushchev’s translator, and now, as the president’s advisor on the former Soviet Union, the lead Russophile of the bunch.



It was a lovely idea—Russia as kind of house pet, skittish after 70 years of being lost in the woods—but it would not survive. Rosemarie Forsythe, a regional director at the National Security Council, had tramped through the Soviet Union’s distant republics in the 1980s and returned to sound an alarm that would soon shape U.S. policy. There was “nationalism lurking still in their national psyche,” the NSC warned in the early 1990s, and a lack of vigilance on America’s part would allow the country to undermine its former republics using an “iron umbilical cord”—their Surrealist coinage for the mass of oil pipelines linking the energy-rich Caspian directly to Russia. The independence of the Soviet Union’s far-flung republics, they decided, was crucial to U.S. interests as well. Considering that the United States had spent tens of billions of dollars to protect the Persian Gulf, why not create an ounce of protection by pushing a pipeline of its own?

Looking back, it seems as much a prescient policy as an inconclusive one. The Clinton administration did, in the end, get what it wanted: a 1,100-mile pipeline from the oil fields of Azerbaijan to Turkey’s Mediterranean Coast, bypassing Russia and breaking its Caspian monopoly in the process. Russia, now the largest oil producer after Saudi Arabia, has emerged as a superpower sooner than best expectations, the result of a tight global oil market as much of the very deft—and dirty—energy policy that the NSC had predicted. Oil has made the Caspian countries very rich, though neither more America-friendly nor more Russophobe than some of the neighbors. But as for the strategy’s raison d’etre—making Russia “more comfortable in its borders” and, as a result, an eager partner with the West—it seems not to have mattered much at all.

Russia bristled repeatedly at the attempt. “The means of [U.S.] imperial defeat on the Caspian would resemble the mythical Trojan Horse, only less romantic,” Wall Street Journal writer Steve LeVine writes in his new book, The Oil and The Glory: The Pursuit of Empire and Fortune on the Caspian Sea. It’s a telling phrase, and it gets to the heart of the political wound that is one of the book’s central motifs. A Trojan horse is not just a thrashing; it is a thrashing disguised a gift, and it is this condescension that rankled Russia the most. Since the policy’s inception, the U.S. held tightly to its original line that this was an anti-monopoly policy, not an anti-Russia one. From a market perspective, this was incontrovertibly true. Clinton’s State Department argued that competition would bring investment and innovation to the region, and bumper stickers proclaiming, “Happiness is Multiple Pipelines” were distributed in Central Asia to hit the point home. In 1994, a week after Azerbaijan had signed “The Contract of the Century” allowing oil companies exploration rights to its fields but before the issue of who would build the pipeline had been decided, then-president Clinton stepped, not for the first time, into a deus ex machina role. “Oil development in this region is good for Russia and good for the U.S.,” he told Yeltsin, asking him politely to get out of the way.

Russia had always been sensitive about the Caspian. Of the vast resources the Soviet Union inherited, it was revenue from the Caspian that pushed back Hitler in WORLD WAR II and later offset the cost of running an empire even as it was disintegrating. What to America seemed like creeping imperialism was, to Russia, a matter of due course. “These resources in the Caspian were discovered by Russians, and Russian companies will be the ones developing them,” Russian Energy Minister Yuri Shafranik hissed to Bill White, the U.S. deputy energy secretary, on a trip to Moscow in the early 1990s. For Russia, an alternate oil exit route not only broke the country’s oil monopoly, it also pushed America uncomfortably close into what Russia thought of as its backyard. (Russia still refers to its former republics, sixteen years into their independence, as its “near abroad.” This oxymoron succinctly illustrates how empires built on contiguous landmasses have the greatest trouble letting go.)

A fossil-fuel Klondike, the Caspian of the ’90s was also, naturally, a playground for various James Bond types. There are enough of these characters in LeVine’s book to populate a picaresque (and to thoroughly ambush the reader—I kept wishing for a genealogy chart in the front). There is Johannes Christiaan Martinus Augustinus Maria Deuss, a floppy-haired Dutch oil trader with a scar running down his face, who has made a fortune smuggling crude from Iran to South Africa in contempt of a worldwide embargo (a group called Pyromaniacs Against Apartheid will later burn down his house); British Petroleum’s cantankerous, diminutive John Browne, the company’s “Ferrari engine” who, during a working lunch, lays out his china beside Gore advisor Leon Fuerth’s deli sandwich, in a scene straight out of Annie Hall; and, in one of the book’s most fascinating sidesteps, there is Unocal President John Imle, who, while trying to build a gas pipeline through Afghanistan, buys the Taliban a fax machine and invites four of its representatives to Houston, covering the nude Indonesian statues in his house with trash bags to make the guests feel more at home.

Merely acquainting oneself with this rogue’s gallery partially explains why the new Russia increasingly feels it has been conned by the West—and, as a result, increasingly depredates everything the West holds dear. While a team of Harvard economists clumsily scoured its economy with painful reforms in the early ’90s, foreign mercenaries, to the Kremlin’s mind, were taking advantage of its weakened state. Now the ex-Soviets wince at the memory of the period, hurt as much by the feeling of infantilization as its material result: “This is not a third-world intellect,” Chevron executives working in Kazakhstan told their bosses back home, and even on the page you can hear their surprise.

Kazakhstan is the more important oil story, but Azerbaijan the more interesting, in part because the geopolitical wrangling between Russia and the U.S. was more direct, in part because Azerbaijan lends itself better to the page. Kazakhstan, for all of its political intrigues, is a stultifying and oddly bloodless place, devoid of the Caucasus’ historical detail and virtually Midwestern in its newness.  (You have to leave Kazakhstan to find it interesting: the landscape is so unyielding in its sameness that it triggers the agoraphobia of the Australian outback.) Azerbaijan, in contrast, is charmingly jolie laide. The first U.S. diplomat in Azerbaijan aptly described its capital, Baku, as “Marseilles merged with Jersey City.” 

Baku had been a famous oil city since the 19th century. In 1872, Tsar Alexander II, pressed by his court to undercut Rockefeller’s American exports of kerosene to Russia, grudgingly consented to a plan that Lenin and Gorbachev would later hit upon as well: opening Baku’s oil fields to foreigners. The tsar dutifully announced that 3,400 acres under Moscow’s control would be privatized, vastly enriching some prescient locals as well as three brothers from the famed Nobel family then living in Moscow. As Alfred was making a fortune from dynamite, his two older brothers, Ludwig and Robert, had been commissioned to make automatic rifles for the tsar. It was in this capacity that Robert was sent to Baku to buy hardwood. He returned with an oil field and a refinery instead. Alfred carped, but it turned out to be a deft move: soon the Nobels were the largest oil producers in the city.

But the brothers soon had another problem: how to export the oil to distant Europe? The landlocked Caspian was 2,000 miles from the Baltic Sea, and with an inefficient system of oil export, even neighboring Georgia found it cheaper to buy its kerosene from the U.S. They soon commissioned a pipeline from Glasgow and began sending crude through Russia, an idea their competitors first found ridiculous before paying the Nobels to transport their oil through their pipeline as well. “Grandiose schemes are constantly being discussed for conveying the oil to Europe,” wrote British journalist Charles Marvin in 1885, in what would be the bumper sticker for the next century.

The pipeline not only made the brothers very rich, but transformed the region as well; by the turn of the century, Baku was producing most of the world’s oil, and had become a site of fierce competition between the Nobels and Rockefellers, who had arrived to build a railroad from Baku. But by 1903, there were the first signs of worker unrest. (A young Georgian later called Josef Stalin had trained in Baku, and would use its shipping network to distribute Lenin’s newspaper, The Spark.) By 1920, Baku had fallen to the Bolsheviks, and the local oil barons—those “capitalist bloodsuckers”—had fled to Constantinople, their mouths, hems, and hair stuffed with jewels.

With the oil fields burned, the barons gone, and industrial production at 13 percent of pre-World War I levels, Lenin returned to the tsar’s old strategy. He announced what he called the New Economic Policy—essentially, privatization in Communist clothes—inviting American oilmen to visit at a time when Woodrow Wilson, along with his attorney general’s promising young assistant, J. Edgar Hoover, were deporting suspected communists to Russia.  Europe, for its part, refused to recognize Bolshevik Russia, but would recognize its oil. “We have failed to restore Russia to sanity by force,” said British Prime Minister David Lloyd George. “I believe we can save her by trade.” It will be Russia’s epitaph.

When we jump ahead to the 1960s, it is the stirring of a detente. Nixon has set up a promising new venture called the U.S.-U.S.S.R Trade and Economic Council, inviting some thirty odd blue-chip companies to meet Brezhnev and discuss possible deals. American companies were intrigued but wary. The Soviet Union was not just a high-risk market; it was utterly incomprehensible. It was James Giffen, the anti-hero whose Icarus-like fall occurred in 2003, in the largest foreign bribery case in history, who facilitated the first of what will be many deals to come. A California haberdasher’s son with a fascination for American aristocracy (he married his first wife, LeVine suggests, in part for her name), Giffen had finished law school with a specialty in Soviet trade and, with his “telemarketer personality,” ingratiates himself with top officials in both countries, becoming the fixer for the biggest oil deals over the next two decades.

By the 1980s, Giffen had befriended the rising star of the Politburo, Mikhail Gorbachev, at the start of the Soviet Union’s last crisis before it would collapse. Trade between the two superpowers had all but halted. The Soviet Union (in what sounds like the beginning of a bad joke) was exporting few finished products besides vodka, wooden dolls, and weapons. Gorbachev had legalized 49 percent of Soviet resources to foreign ownership, and American businesses looked to Giffen to devise a plan that could protect their interests while turning a profit. His plan—by his own account, “fucking ingenious”—was to bring in a consortium of big businesses with an oil company at the helm. The oil company would drill for exports, split its profits with Moscow, and set aside the rest for currency exchange, ensuring that the other companies could convert their rubles into dollars while leaving Moscow virtually out of the process. But which? Exxon was too big, Mobil too maverick. Chevron seemed just right.

Chevron’s story was typical to most oil companies at the time. It had grown from a local California company to a global power, thanks to huge reserves in Saudi Arabia and Bahrain. But Saudi Arabia had begun to nationalize its oil sector, and with prices collapsing from $31 to $10 a barrel, Chevron was desperate for booked reserves—oil it could draw on in the future. Though there was little information on Kazakhstan’s mythical Tengiz field at the time—the best information came from the U.S. Geographical Survey—it was estimated that the oil field might hold 10 million barrels, making it one of the ten largest fields in the world.

British Petroleum also had its eye on Tengiz, having lost much of its booked reserves to a nationalizing oil sector as well. With a Giffen-brokered Chevron delegation close to getting Moscow’s blessing for access to Tengiz, BP’s only chance for entry was to make a “disrespectful end run around Moscow” by courting Kazakhstan directly. BP had its own Giffen in the form of an oilman named Jack Grynberg, a Belarussian Jew and a former member of the Jewish guerilla group Irgun, who had befriended Nursultan Nazerbayev, then leader of Soviet Kazakhstan and currently its president. After some tennis in Caracas, Nazerbayev has slipped an arm under Grynberg’s and promised, “Jack, you will have Tengiz.” BP head Browne is immediately dispatched to Kazakhstan, on the first private jet to land in the country since the Shah of Iran’s. But an early deal was soon canceled under pressure from Moscow and the U.S., which both backed Chevron. BP was given access to Azerbaijan as a consolation prize.

Though BP’s gambit was ultimately ineffectual, it marked an important change in the way the Soviet republics saw themselves in terms of Moscow. The republics were trying out autonomy, were seeing how it felt, and these inchoate stirrings of nationalism would soon culminate in full independence only a few years later. Kazakhstan and Azerbaijan were irked by Russia’s willingness to sell assets they felt belonged as much to them. Who was Russia to decide their future unilaterally? They were not averse to foreign investors—quite the opposite—but feeling fragile after years of Soviet rule, they were suspicious of deals made on their behalf.

BP, with its promise from Moscow, arrived in Azerbaijan just as the country was gaining independence. Led by a strongman with surprisingly unerring business instincts, Azerbaijan cancelled BP’s deal. It would take years of politicking, backstabbing, promise-scotching and a visit from Margaret Thatcher (all faithfully detailed in the book) by various companies before the final $800 million deal among a consortium of oil companies, BP included, was signed in 1994. But that was just the beginning. It would be another five years of politicking before the current pipeline traversing Georgia to Turkey was negotiated, with the debate over the direction of the pipeline even more contentious than the exploration rights to the field itself.

With internal disagreement over its Caspian policy, the NSC decided to leave Kazakhstan in private hands and focus their attention on the pipeline from Azerbaijan instead. The Dutch oil trader Deuss, with backing from Oman, had nimbly maneuvered himself into building the sole pipeline from Tengiz. During “one of the most prolonged and bitter confrontations of the era,” Chevron balked at Deuss’s suggestion to build a pipeline into the heart of Russia, on its Black Sea. But unlike the U.S., its concerns were not political, but economic. Though the pipeline to Russia was the shortest and cheapest of the possible routes, monopolist Deuss pushed monopolist prices, and the Russia pipeline meant mixing Tengiz oil—some of the best in the world—with inferior Russian crude.

Though a pipeline leading from Azerbaijan to Russia had already been built, and would have been considerably cheaper to update rather than build a pipeline from scratch, the U.S. aggressively pressed for a two-pipeline plan—an additional pipeline along with the existing Russian one. Russia balked, as did the oil companies, but for different reasons. Russia saw it as a personal attack; for the oil companies, which would have to cover the costs, oil prices were then so low that they wondered if they would make a profit. The U.S. stood firm, eventually bringing in Turkey to offset some of the extra costs and to sweeten the deal.

“Washington viewed BP and many of the other oil companies as an obstreperous and narrow-minded lot that failed to understand that the Caspian was unlike other places—commerce shouldn’t be divorced from politics,” writes LeVine. The oil companies suggested hundreds of pipeline routes—including one through Iran, which made the most sense economically—only to have them summarily rejected by the U.S. After much wrangling, everyone finally everyone agreed on the current route: a pipeline through Georgia, a desperately poor state recovering from a recent civil war and eager to offer itself to Washington’s disposal. Last year, the rest became history when the Baku-Tbilisi-Ceyhan (BTC) pipeline was inaugurated during a lavish ceremony in Istanbul. The second-largest pipeline world, it will soon transport 1 million barrels of oil per day.

The BTC pipeline may indeed be a “rare post-Cold foreign policy triumph” for the United States, but the deal was a triumph for Azerbaijan, which had seen in the U.S. an opportunity not just for economic leverage but also for political backing that could later serve as a counterweight to Russia’s force. Yet ironically, it is Kazakhstan, still connected to Russia through its iron umbilical cord, that may turn out to be the middling success. Though Nazarbayev recently granted himself the right to be president for life, and routinely routs out his opposition, the economy has grown 10 percent, which, unlike in Azerbaijan, has created a genuine middle class. When I visited Astana, Kazakhstan’s capital, in the summer of 2007, I found it awash in nationalist fervor and prohibitively expensive; its multiple luxury hotels were all packed, and with its futurist renditions of iconic structures (the pyramids, the Eiffel Tower), it looked like Las Vegas, a simulacrum of a simulacrum.

Though Azerbaijan’s economy is now the fastest growing in the world, it has fared worse. Its money will run out in about a decade, and, with power held tightly by the president and his family, there has been no development of institutions to suggest that the country will prosper much beyond that time. The model of the resource curse offers the seeming paradox that oil-rich countries generally fare worse than their energy-poor states; though there are some notable examples, such as Norway and Canada, in general the consensus is that oil wealth deters investment and entrenches authoritarian rule. When I was in Baku for their 2005 parliamentary election, Azeris told me that if only they didn’t have oil, Washington might be more willing to intervene on their behalf against their government. The opposition, now destroyed by infighting and government suppression, waved signs that read: “Stop trading our democracy for oil” in the telltale orange color used during the revolutions in Georgia and Ukraine. It was inevitable that the Caspian would be developed, if not by Russia or the United States, then by someone else. But meanwhile, Azeris now wonder: happiness may be multiple pipelines, but whose?