Source: Testimony before the U.S. Senate Foreign Relations Committee
With time the Caspian region seems certain to turn into more of a strategic burden to the US than it is a strategic asset. The area is a fascinating one, with layers of different civilizations piled on top of one another, set against a background of beautiful and exotic scenery that seemingly conceal the promise of wealth. This has been enough to lure romantic adventurers to the Caspian for hundreds if not thousands of years. But does this make it an area of strategic interest to the US?
When we first asked that question, at the time that these states were granted independence, we were hesitant to answer yes. The US initially opened embassies in only one of these three major oil and gas producing countries, in Kazakhstan because it had nuclear weapons. We quickly moved to open embassies throughout the region, although for the first couple of years of independence we still assumed that these states would remain as part of some still ill-defined Russian orbit, and we did little to diminish the influence of Moscow in the region.
However, then the Russians began to misbehave to some of their new neighbors, and in particular to Azerbaijan and Georgia, both of which were then led by former dissidents who refused to sign on for membership in the CIS. We were disturbed by these Russian actions, in part because the US is a traditional champion of vulnerable and weak states but also because we had come to be aware of the natural resources found in this region. This of course was something that the Russians were long aware of, as Soviet officials had mapped most of the strategic resources found in their country, and had had plans to develop much of the region's oil, gas and gold reserves in the 21st century, when some of the easier to work deposits in Russia proper would already be depleted.
So the second-term Clinton administration in particular came to reevaluate the importance of the Caspian region, and began a policy of weaning these states from Russia as a means of insuring their independence and economic well-being. One of the features of this policy is to maintain, at least on a rhetorical level, that the Caspian Region is an area of strategic importance to the US. When witnessing the signing of the inter-state agreements that endorsed the idea of the Baku-Ceyhan pipeline, President Clinton declared that: "These agreements… are truly historic. They will advance the prosperity and security of a region critical to the future of the entire world." The signing ceremony took place during the Istanbul OSCE summit of November 1999, and was attended by the presidents of Turkey, Azerbaijan, Georgia, Kazakhstan, and Turkmenistan.
Yet such statements beg the question of whether the Caspian region is in fact a strategic one for the US. I think that the answer to this questions is no.
At best this has been an area of secondary security interest for the US, and even this interest is derivative of our broader security concerns, having to do with Russia, South Asia and a host of global issues such as terrorism, the proliferation of weapons of mass destruction, international crime and drugs. Moreover, as US officials have come to better understand the difficulties inherent in the development of Caspian oil our more general security concerns are beginning to become more of a focus of these relationships. I would argue that with time they will become an even greater focus, as some of the states of the Caspian region go from being potential strategic assets to become active threats to their neighbors and the global community more generally. Our preoccupation with energy development has led us to form a partial picture of these states. However, it is not too late to widen our visual horizons, and recognize the risks that exist in the region, and the ways in which proposed plans for energy development may be increasing some of them.
How Important Are Caspian Reserves?
The US has never treated the Caspian region as if it were of primary strategic importance for the US. The President has never been there, and the Secretary of State will be making her first trip out to the region next week.
However, we were caught in a dilemma, as we recognize that Caspian energy reserves could make the region of strategic importance to the US. This presumes that these reserves are developed in a timely fashion by Western firms, and that we can insure that our enemies or potential rivals are unable to cut off the flow of the oil and the gas. This is obviously why we strongly support the idea of pipelines which by-pass both Russia and Iran. However, the need for such a pipeline is not considered to be of sufficient strategic interest to the US that we will underwrite the cost of its construction by using public funds, although we will provide US firms with some degree of investment security.
The partial nature of our commitment to the development of Caspian reserves has led us to create the illusion of a stronger strategic relationship with these states than exists in fact. Given our reluctance to spend significant amounts of money, we are trying to substitute symbolic goods for material ones, in order to create the illusion that our "partnership" with these states is stronger than in fact is the case. Otherwise, there is no prospect that the development of the region's energy reserves will proceed in a way that advances US strategic interests.
US preoccupation with energy politics was such that until recently we allowed many other issues of state-building in this region to take a back seat, especially if they created the potential to undermine US efforts to gain preferential treatment in the energy sector. By the time that we began to realize that the three most important states from the point of view of energy production---Azerbaijan, Kazakhstan and Turkmenistan--- were beginning to undermine their own long-term well-being because of their corrupt practices we had lost much of the leverage that we had enjoyed a few years previously.
The leaders of these countries are now rich men, and much more worldly wise. They now have a better understanding of how to evaluate the difference between symbolic offerings and firm financial commitments when offered in international negotiations. Five years ago they had an unrealistic sense of how easy it would be to develop their reserves, and thought that talk of strategic engagement might signal a major shift in US priorities sufficient to bring in the US as active partners to be called on to help them out of all kinds of difficulties, including security ones.
Today the leaders of all three of the Caspian states understand the nature of the US commitment quite differently. They are learning to make brilliant use of the photo-ops presented to them to impress their own domestic constituencies, but don't do much bowing in private when being pressured by visiting American officials. In other words, we are becoming less and less successful with regard to influencing these societies to develop in ways that serve US interests
Turkmenistan
The best example is probably the case of Turkmenistan, the most opaque of the Caspian states. President Saparmurad Niyazov has taken the name Turkmenbashi (head Turkmen) in the style of Attaturk, but has constructed a cult of personality that makes him more like a space-age version of a traditional medieval Khan. A seventy-five foot gold likeness of himself sits atop the Arch of Neutrality, which rotates with the sun to cast Niyazov's shadow over most of downtown Ashgabat, the nation's capital. Most prominent institutions are named after Niyazov, his photo at just about every important intersection and on all but the most insignificant of the Turkmen currency. Media is tightly controlled, and there is no intellectual life to speak of in the country.
In the first years of independence, when it looked like oil and gas wealth was just around the corner and that there would be plenty of revenue to raise the general standard of living of this small underpopulated nation, the peculiarities of the Turkmen political system seemed less troubling to us as well as to potential political and economic stakeholders in the country. Now with no new pipeline routes likely to rapidly materialize the situation in this increasingly more cash starved country is looking more dire. Fortunately Turkmenistan is a significant cotton producer as well, and this sector has continued to create jobs and opportunities for a part of the overwhelmingly rural population.
This country has never had a political opposition, and Niyazov's rivals from within the old communist party elite have been forced to leave the country. The President has managed to use foreign interest in Turkmenistan's oil and gas resources to accrue personal wealth for his family and close cronies. However, the other branches of the economy (especially the cotton sector) have allowed leading regional families (often powerful because of their tribal background) to continue to maintain some economic influence. Niyazov has tried to keep them at arm's length by periodically rotating the cadre close to him (which include representatives of these families), but these powerful regional families are certain to try and assert their influences in any subsequent succession struggle. Moreover, repeated rumors about Niyazov's ill-health mean that a succession struggle could be triggered at any time.
Turkmenistan is also struggling to define a distinct international identity. It recently reaffirmed its status as a internationally recognized neutral state. But Turkmenistan has not yet reached the point where it has made its neutrality work. It has not yet turned itself into a regional forum. It is unclear that it will ever be able to do this unless it moves forward with some sort of well-though out policy of social, economic and political reform.
The failure to engage in systematic economic reform puts the country at potential risk. There is strong evidence that chronic unemployment is already becoming a serious problem throughout the region. The age structure of the population exacerbates the unemployment problem brought on by even the limited degree of economic restructuring. For example in Turkmenistan, the average population age is 23 years; 43 percent of population are children and adolescents and 10 percent of the population are retirees. As of 1997 only 37 percent of the population were employed.
However instead of taking advice the Turkmen have chosen to distance themselves from the international financial institutions. They also have more strained relations with the US than any time in our shared history, and have put up a well-enforced visa regime to separate themselves from their neighbors. The Turkmen and Uzbeks have begun discussion on formal border demarcation between the two states, and must now deal with the troubling issue of water. Also of concern is the relationship between Turkmenistan and Azerbaijan, potential rivals in the Caspian region. The two states have found it difficult to agree on terms of transit of gas along the proposed Baku-Ceyhan route, and these problems are one reason why Turkmenistan appears on the verge of returning to marketing their gas via Russia. The latter will give the Turkmen some much needed cash (even if much of the payment comes in the form of rubles and barter) but it will set them back on the road of a long-term dependency relationship with Russia.
Azerbaijan
By contrast with Turkmenistan, Azerbaijan seems determined to remain an independent actor in the energy world. President Heydar Aliyev has made skillful use of the interest of western firms in the region, and most western countries are involved in at least one of the international consortia that have been formed to exploit Azerbaijan's resources. Disappointments in oil exploration have revealed that Azerbaijan has huge gas reserves. Given their pivotal geographic position they should have no trouble marketing these reserves, although Azerbaijani gas could push some of the Turkmen and the Kazakh out of the markets that they had planned to serve.
From Aliyev's point of view the goal was to try to skillfully lead Azerbaijan through the difficult years until the pipelines would be built, and then groom his son to succeed him. Ilham is now first vice president of SOCAR, the Azerbaijan State Oil Company and chair the Yeni Azerbaijan (Young Azerbaijan) Party. Thus Aliyev has tried to restrict the scope and range of independent political activities in the country, pressuring the media, and making life difficult for the many opposition figures that remain in the country.
Certainly Aliyev recognizes that he has problems. For example the education system that was already beginning to fail under Soviet rule was now in a state of virtual collapse, with teachers fleeing the profession as their salaries were roughly $24 a month, or enough to buy 50 kilograms of potatoes.
Aliyev is also learning first hand what it is like to be tied to fluctuations in the world old price. Low prices mean unexpected budget deficits, while high ones could also create unexpected problems. For example, rising world oil prices made it more profitable to sell oil rather than to refine it. As a result, while Azerbaijan's foreign partners in the Caspian have been exporting up to 115,000 barrels of crude oil per day, the country has run out of fuel oil to fire its power plants. In January 2000 the government of Azerbaijan introduced a schedule for the electricity supply. The official explanation for such measures was the corruption among the energy officials, but this did little to appease the Azerbaijanis, who are certainly used to the problem of corruption and familiar with the empty promises to eliminate it.
High oil prices, though, have done little to change the shape of Azerbaijan's security dilemma, and the uncertainty of their relationship with Russia as well as with their Caucasian neighbors. All that is familiar to us in the Caucasus has not changed, the Armenian and Azerbaijan dispute is unsolved and largely frozen in time, the process of national consolidation in Georgia is also stalled, and Russia's inability to secure its control of the north Caucasus combined with its refusal to withdraw means that the security of the entire region is put at risk.
Two things have changed though, Azerbaijani no longer holds out any real expectation that the US will serve as some sort of security guarantor of the region. Nothing of course has come of Azerbaijan's statement of interest in having a NATO base on their territory, and there seem to be in-built constraints on the expansion of the close relationships that are developing between Georgian and various NATO forces. The second thing that has changed is the emergence of Vladmir Putin and his willingness to offer the leaders of the other post-Soviet states a new set of carrots to go along with the old set of sticks. It is too soon to know how attractive Putin's offers will seem, but like the Turkmen, if Azerbaijan gets into a serious cash crunch in the next few years, they are apt to seriously consider whatever Russia has on offer.
This is especially true because the Russians have no interest in influencing the course of political or economic institution building in these countries. Elections can be as manipulated as corrupt leaders want them to be, and economic reform as sluggish as it suits the local power-holders. After all, it is bad times that help bring back the Russians and not the good ones.
Kazakhstan
The nature of the Kazakh-Russian relationship also seems ripe for redefinition, and both sides seem ready to bring a new realism to the table, as recent negotiations over Kazakhstan's long-term debt seem to suggest. These resulted in the transfer of partial ownership of Kazakhstan's state power company to Russia's UES. The Kazakhs, who now make up the majority of the population in the country that bears their name, are more self-confident about what the demographics of their country mean for national security. The border demarcation that is going on now along their border with Russia may have troubling implications for trade between the two states, but it does mean that Moscow is learning to accept the idea that Kazakhstan is a sovereign state with fixed boundaries.
Russia is also concerned about contagion from Kazakhstan. Deteriorating social conditions also feed the criminal underclass. Drug trafficking in particular is becoming more pervasive. Over 260 tons of drugs were seized in Central Asia between 1993 and 1999, most of which would have transited through Russia, and the increase in the trafficking in heroin is of particular concern. Drug enforcement estimate that only about 5 percent of drugs passing through the region are intercepted. In parts of Tajikistan and Kyrgyzstan drugs have already undermined the state. Drugs are creating a new virtual economy in parts of Kazakhstan as well. Trafficking though affects all of these states, and is aided by a political culture that tolerates an increasingly more pervasive pattern of official corruption. A culture of payoff and privilege is becoming an ever more dominant one throughout the Caspian region.
This is especially true in Kazakhstan, where there is a great deal of hypocrisy in the very public anti-corruption campaign that President Nursultan Nazarbayev has engaged in. The campaign has led to dismissals of a chief justice, a minister of economics and a minister of the interior among others. It has also led to major charges being levied against former a former prime minister (Akezhan Kazhegeldin) who is President Nazarbaev's chief rival. This underscores the atmosphere of political convenience in which such charges are made. President Nazarbaev's statements about the moral purity of current appointees has done little or nothing to quash the rumors about current members of the government that are on the take, or about the growing economic power of the official family itself. Little wonder when Nazarbayev's daughter, Dariga, controls the national television network and her husband, Rakhat Aliyev, is head of the tax police, while another son-in-law, Timur Kulidayev, is the financial director and vice president of Kazakhoil. In fact, when the Nazarbaev machine tried to generated Swiss press coverage about Kazhegeldin's secret Swiss bank-accounts they inadvertently triggered coverage about their own alleged holdings.
Nazarbayev has certainly tried to manipulate the country's political system to serve his own purposes. In 1999 Kazakhstan held very questionable parliamentary and presidential elections. Opposition was sharply limited in their participation, and the main political opponent of the president, Kazhegeldin was arrested in order to bar him from seeking office.
The current crackdown in Kazakhstan need not kill the prospects of the country having a democratic future, but it will insure that it has a non-democratic present. Kazakhstan is implicitly pluralistic, given the country's enormous size (roughly two thirds that of the continental US), its economic complexity and its ethnic diversity.
This informal pluralism is not a substitute for formal pluralism, but it does help keep alive the potential for democratic development in the absence of a supportive environment. That supportive environment is no longer present in Kazakhstan. Initially, until about 1995, the government of Kazakhstan pursued a policy of encouraging the development of pluralistic institutions, or at least not actively seeking to restrict their development.
From that time on the government has been on the defensive in the political arena, although considerably increasing the scope of independent economic activity. Executive power has been strengthened, legislative power has diminished, and the judiciary serves the interests of the incumbent regime. Kazakh media is also growing less free with time. Economic reform has been episodic, but has been largely linear, and it is currently much easier for foreigners to do business in Kazakhstan than anywhere else in the region. This does not mean that investment is secure, or that the playing field a level one. Although the presidential family and "court" dominate, currency is freely tradable, property is relatively sacrosanct, and the diversity of the economy is such that independent economic stakeholders are beginning to develop throughout the country. Regional economies are also beginning to develop. As yet neither the regions, nor the independent political actors have much political influence. They are also still too cautious to actively seek it, but they are likely to be a force that will need to be reckoned with at the time that power begins to ebb away from President Nazarbayev.
Much of Kazakhstan's future stability depends upon the success of economic reform. There has been an enormous amount of economic activity in Kazakhstan in recent years, in terms of economic assistance and foreign direct investment. Kazakhstan received $1.65 billion in World Bank loans between 1992 and 1998 and $500 million in IMF loans between 1993 and 1998. In addition, the country has attracted the highest rate of per capita direct foreign investment in the CIS, having received more than $7 billion by 1998. In the first quarter of 1999 another $366 million were invested. In 1998 Kazakhstan was in fourth place for FDI per capita within the CIS and CEE. Most of this money was concentrated in oil and gas sectors, which received 47.9 percent of the total FDI from 1993 and 1998 and 82.1 percent of FDI in the first quarter of 1999.
However the government has to be able to help the increasingly more impoverished lower third to half of the population maintain a minimal standard of living. The economy shows signs of real recovery, after a decline in 1998, the real GDP grew by 1.7 percent in 1999. The recovery in the oil industry helped the Kazakhs avert a large budget deficit, and they have been trying to insulate the needs of their domestic market from pressure to export oil in order to increase their foreign reserves. As is true of all the other newly independent states, Kazakhstan is coming up on a potential crisis of debt service, but as its successful Eurobond issues show, it is among the most credit-worthy of them.
The growing criminalization of the economy is a threat in Kazakhstan as well, although Kazakhstan is more removed from the risks of extremist or terrorist groups than is either Kyrgyzstan or Uzbekistan, both of which had violent incidents in 1999. Downtown Tashkent was rocked by a series of explosions in February 1999, while Uzbek terrorists held Kyrgyz (and Japanese) hostage for several months near the Tajik-Kyrgyz border. The situation in Tajikistan too remains a fragile one. Unrest in neighboring states would cast a shadow over prospects of foreign investment in Kazakhstan as well, and make the potentially diverse economy of the country more dependent upon oil and gas development, pipelines and pipeline politics. This would be troubling, as economic development is Kazakhstan's best recipe for success and for the eventual development of a civil and pluralistic society.
The Caspian As An Area of Growing Security Risk
The Caspian region is an area of potential wealth and of potential danger. With time the former is proving more difficult to access and the latter more difficult to avoid. In fact US policy is already implicitly beginning to recognize this. Secretary of State Madeleine Albright's upcoming trip to region will take her to Kazakhstan, Kyrgyzstan and Uzbekistan, and will focus on the relationship between democracy and security rather than on energy issues.
The Clinton administration has regularly said that the development of Caspian energy reserves has to be driven by market forces. These market forces are already expressing themselves, and have made it clear that the pace of development in the Caspian will be a much slower one than the administration had originally projected. As it proceeds these societies are likely to continue to evolve, and to do so in ways that are not necessarily much to our liking.
In the past year or two we have seen the cause of democracy "take a hit" throughout the region. Three states that seemed most promising with regard to their commitments to democratic values have begun to show serious signs of political reversal. There have been political assassinations in Armenia, the one political figure in Kyrgyzstan who might have beaten President Akaev in upcoming elections now sits in jail, and recent presidential elections in Georgia were filled with irregularities.
The war in Chechnya is a major source of potential instability for all three Caucasian states, adding to a serious regional refugee problem, stimulating the traffic of weapons and creating new incentives for international terrorist groups to travel to the region. The situation in Central Asia is being destabilized by its proximity to Afghanistan and Pakistan. This has enabled opposition groups from Tajikistan and more recently from Uzbekistan to become linked to global terrorist networks as well as to the criminal groups that run the growing drug trade through the region.
Drugs undermine weak states, and the developing situation in Central Asia is following true to course. Deteriorating economic conditions throughout much of the region are tailor-made to the needs of the drug industry. Economic necessity makes police and border guards more receptive to bribes and ordinary citizens more willing to take the risks associated with the transport or cultivation of drugs.
The proliferation of drugs is undermining these societies. It is a blight on the economic and social environment and a threat to the traditional system of values. Drugs are wreaking particular havoc on the younger generation. The flourishing drug trade in the region enables separatist, radical religious, and terrorist movements that have already sprung up in Central Asia to become financially self-sufficient.
However, improving security measures alone will not solve these problems. The countries of the region must add to the number of stakeholders in their countries. They can do this in a variety of ways, through economic reforms that increases the number of small and medium sized entrepreneurs, by broadening the nature of national political institutions and range of topics open for public debate, or by empowering local or other forms of traditional institutions. The role of the US in this process is a limited one. We can serve as a model, a source of investment in desirable economic projects, a training ground for young people, and where appropriate even as a source of assistance in the area of preventive security. However, we can't solve their problems for them, and this is true no matter what timetable is agreed on for building new oil and gas pipelines from the region.
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