Energy and the South Ossetian War: the BTC as the Main Casualty?

By Vladimír Šimoňák, PERG guest author

For the first time in the nearly twenty years since it began, the events in and around South Ossetia hit the world´s media landscape, almost overshadowing even the massive spectacle posed by the beginning Beijing Olympics. A peculiar tragedy of the events consists in the fact that this one has been regarded as the „friendliest frozen conflict“ in the South Caucasus. Intermarriage rates between Ossetians and Georgians and the density of contacts between ordinary citizens on both sides, the frequency and ease of travelling between the regions had been much higher than in Abkhazia and Nagorno Karabakh. Yet, few people ever assumed any degree of hostility between the two peoples might have caused the events of August 2008. It is equally evident that NATO´s interest in Georgia is to a major degree substantiated by the hydrocarbon transport routes running through the small and poor nation.


Being a part of a prolonged and rather complicated conflict, this full-scale war broke out after a shock-and-awe onslaught by Georgian forces on Tskhinvali, the separatist capital of South Ossetia located some five kilometres away from the de facto border. Even though the swiftness of Russia´s response has been interpreted as the corpus delicti of its evil intentions, it took a less than vigilant observer to see something was to come. Over the past months, tensions between Georgia and its breakaway regions had been rising and military confrontation had become a common sight. Immediately before August 8th, South Ossetian leadership decided to evacuate a part of its population, by itself an unprecedented step. By early August, signs of immediate escalation had become ubiquitous and Russia was certainly well informed and ready for action. The initial Georgian advance was halted and reversed after some three hours. In a nutshell, more than five years of intense and costly U.S.-led foreign military aid to Georgia produced an advance by less than twenty kilometres for a couple of hours. Afterwards, with the Georgian military effectively dissolved in thin air, the Russian troops took their time to complete what business their leadership wanted to get done. Russian forces took their time to inflict as massive a damage as they could to Georgia´s strategic infrastructure, the seaport of Poti and the only trans-Georgian railway being just examples. The next occassion for the Russians to roam about freely in Georgia might take years to come. With the fog of war dissolving, what is the impact on the energy market?

Regarding the oil transport, the Baku – Tbilisi – Ceyhan (BTC) pipeline had already been put out to a halt. Two days prior to the Georgian assault on Tskhinvali, a bomb exploded near the BTC on Turkish soil, forcing the operator to shut down oil transports for weeks. The Kurdish PKK claimed responsiblity, shifting the event out of focus. During the fighting, the BTC was also allegedly targeted by Russian jets, which the Georgian side swiftly interpreted as an attempt to destroy the facility. This isolated incident may be explained rather as a sort of message to the BTC operators, as nothing could have prevented the Russian forces from destroying the pipeline, had they intended to do so. The oil transport via the Black Sea port of Supsa has come to a halt on August 12th, the operator citing „security concerns“. Russian troops making themselves at home in the narby Poti have probably been thought to be more dangerous than the intense fighting itself, as August 12th was precisely the day on which Medvedev announced the end of Russian military actions.

The Baku – Tbilisi – Erzurum gas pipeline was working until August 12th and resumed functioning only two days later. No direct threat to the pipeline has been reported, not even by hysterical Georgian officials. Rather than the weapons used in the conflict, what we may find surprising are the ones actually not used: Russia never cut its gas supply to Georgia during the fighting, albeit it had done so several times in recent years. A possible explanation is the intention not to harm natural gas supplies to Armenia, Russia´s ally already put in a difficult position by the events.

Quite remarkably, the global oil market showed no perceivable reaction, even though the events effectively stopped Azerbaijani and Kazakh oil from using the „Georgian passage“ bypassing Russia´s pipelines. Russian troops have effectively stopped this highly valued transport routes from working for weeks, and showed a good deal of reluctance to leave central Georgia, the pipelines´ most sensitive point. Despite such tangible insecurity, the world markets recorded a decline in crude prices, actually quite a sharp one, compared to the record of several recent years. The bottom line is, there is no reason at all to claim that the energy industry in the region was caught by surprise by the events and that the war affected its business-as-usual. But are there consequences in the long run?

Not only have the Russians physically occupied territories adjacent to the highly valued and strategically important pipelines, forcing them to shut down. They even declared their firm intentions to establish a permanent presence in extensive „buffer zones“ close to South Ossetia and Abkhazia. Such a step would basically remove the advantage gained by forcing Russian troops from their cherished bases of Viazani and Akhalkalaki in recent years. What had been cited as an unacceptable threat to the BTC project in construction is escaping all attention as it is functioning.

The United States have reacted in perhaps the least self-confident way since 9/11. Strong rhetorics and high-profile visits (including the quite riduculous use of a destroyer for carrying „humanitarian aid“, instead of a freighter) are clearly less than expected by anyone, including the nervous Georgian president. The lack of a clear preference regarding the future of the region in general and of Saakashvili´s leadership in particular (accentuated by the forthcoming U.S. presidential elections) remind of Shevardnadze´s last years in office. South Ossetian war may well be the point when a replacement has to be found to overcome the barrier so painfully hit by Georgia.

In the eyes of the public, the only goal not attained by the Russians was their supposed interest in removing Saakashvili from power. A feasible explanation might be the simple remark that leaders are removed from power by being replaced by another ones and the Russians clearly had not had a full-fledged “liberation“ scenario including an alternative leadership. But, is there an option to regime change when the Russians leave? Georgian society will be left in deep depression, both economically and psychologically, with its leadership´s emblematic policies having suffered the most evident and complete defeat and foreign investors´ confidence plunging into the abyss. The opposition, once suppressed by Saakashvili´s regime, might come to pose a serious alternative.

The rhetoric confrontation accompanied by a striking lack of actions may be indicative of a change in direction. As almost anybody is more acceptable to Russia than Saakashvili, it should not be difficult to find an alternative acceptable to NATO. Such a person may also prove to be more predictable and controllable in his or her (let´s not forget several important female figures of Georgian politics) actions. The sight of a ruined and defeated important U.S. ally may lead to a number of conclusions, including the one that Saakashvili has been quite more of a maverick than fitted his role. Given Saakashvili´s deep-rooted Russophobia, almost anyone can be expected to understand the simple fact of Russian neighborhood more than he had.

As a conclusion, the recent events may well result in o certain sharing of influence in Tbilisi, or rather an acknowledgement of legitimate Russian interest in the Southerm Caucasus. Under such terms, the BTC may well lose most of its political appeal to potentially independent-minded leaders around the Caspian Sea, a signal that has probably already been understood in Astana. A partial gain of influence of Russia over the BTC means more of a loss for the others, depriving the region of the only way of exporting its oil and gas (by far largest source of income for any of its governments) without Russia´s interference. The „buffer zones“ and Russian posts along the pipelines may well be just the first steps of putting this emerging reality on the map.

August 26th, 2008