The Oil Economy: From the Caspian to the City

by Mika Minio-Paluello, Jamie Stern-Weiner

What links the British government, Azerbaijan's corrupt regime, Margaret Thatcher and a hot tub? Europe's most controversial oil pipeline, for one

First published: 11 October, 2012 | Category: Corporate power, Environment, Europe, Foreign policy, History

As everyone knows, access to and control over oil supplies is of no real import to Western governments, and certainly does not figure as a key interest shaping foreign policy. Also common knowledge: private corporations and governments are opposing forces, and Margaret Thatcher didn't fly into Azerbaijan on a private jet fitted with a hot tub and Michael Heseltine. Alas, these and other comforting illusions are dispelled in an important new book by James Marriott and Mika Minio-Paluello. The Oil Road: Journeys from the Caspian Sea to the City of London  is part travelogue, part extensively researched study of the political economy of Caspian oil, part exposé of the intimate political and economic links between BP and various unsavoury regimes, the British government among them.

I interviewed Mika, the book's co-author and a researcher and campaigner at Platform, about the politics behind Europe's most controversial oil pipeline.

'The Oil Road' is written, as a blurb on the back puts it, as a kind of 'political cartography', combining historical and political analysis with vivid descriptions of the areas in the Caucasus and Turkey through which BP's pipelines run. Can you describe the process of writing the book and what you were trying to do with it?

We didn't want to write a book that would just be for oil experts. Although we are a centre of expertise on the oil industry we also want to challenge the whole approach of rule by experts, which ultimately includes those working in campaign groups and NGOs. The aim was to really get under the skin of the way the movement and pumping of crude oil, from its extraction in the Caspian Sea to Central and Western Europe, works, and to find a way of making that process accessible and interesting to people who aren't oil geeks.

The book was the product of extensive research. James began thinking about the Caspian, the Caucasus and oil in the 1990s. Platform, the political campaigning group James helped establish in the 1980s and for which I have worked since 2005, has been engaged in related issues since 2001, particularly in challenging BP's then-proposed Baku-Tbilisi-Ceyhan pipeline, which forms the first part of the book. As a result we had a large base of knowledge to work from. We wrote a previous book before the pipeline was built called Some Common Concerns which tried to imagine what the pipeline would be like and what some of its consequences would be. Initially we saw this book as a follow-up to that, after the pipeline was built, to examine whether or not our warnings had been correct, and to challenge BP's writing of the history.

And to research the book you followed the route of the pipeline on the ground?

Yes, although we didn't do it in order. We tracked the movement of the crude westwards from the Caspian, so the book's narrative is spatial rather than chronological. That involved going to the villages, to the cities and political centres, through the valleys and mountain ranges and coastlines, and spending quite a lot of time in Georgia, in Baku, in north-eastern Turkey, and a lot of the time in places people don't normally visit: little villages and so on.

Did being there on the ground highlight stuff that you hadn't fully appreciated from reading the reports?

We'd already travelled to the region before. But yes: we had a long-term engagement with people living in the communities along the route before the pipeline was built, while it was being built, and after it was constructed. A lot of the voices of people along the pipeline don't really come out unless you actually go and speak to them. You don't hear their stories in BP's sustainability reports, unless they happen to work for BP, and even then the quoting can be very selective. They rarely appear in media coverage, or in the academic papers that have been done, most of which I've come across relating to the pipeline were written in cooperation with BP.

When you go there you find that people have varying perspectives. It's not that everyone you meet who lives near the pipeline says 'I hate the pipeline'. In fact a lot of people in Turkey, because of the way the pipeline has been represented as a national project and something the Turkish people should be proud of, will initially say 'the pipeline's great, it's wonderful, we should stand with it'. Only once you talk more, and less directly, about it do you start to hear their concerns or their unhappiness about the way their land was destroyed, or how they can't access their land, etc.

Can you describe the broad area the pipeline goes through? Where does it take the oil from, and where does it deliver it to?

We track the crude from far out in the Caspian Sea, where it's sucked from deep underground and pumped ashore in Azerbaijan just south of Baku to a BP terminal. It is then processed and pumped into a much longer pipeline, just over 1,000 miles long, that runs west from the Caspian Sea through Azerbaijan up into the Caucasus mountains, across the border into Georgia, before looping back down into Turkey, bypassing Armenia. It crosses the border into Turkey in the north-east and runs west towards Ankara, before turning south down to the Mediterranean coast. When it hits the coast, just south of Ceyhan, there's another BP terminal, where the crude is stored until tankers collect it—normally between 500,000 and 2 million barrels per tanker—and ship it away across the sea to anywhere: it can go to Chile, Japan, Israel, or to Britain (usually to Fawley, near Southampton). 

We followed one of the most common routes, where the crude is picked up from the coast of Turkey and taken west around Greece and north up the Adriatic to Trieste in north-east Italy, near the border with Slovenia. There it's unloaded again and pumped into another pipeline, built by BP 40-50 years ago, which takes the crude north over the Alps through Austria into Bavaria, where it's used to supply heavy industry.

So we follow the transportation of crude from the Caspian to Bavaria, but at the same time we also look at the movement of money and power and people relating to this whole industrial complex between London and the region.

Have the energy resources of the Caspian figured prominently in British foreign policy? How has the British government's approach to the Caucasus been shaped by the energy resources located there?

Energy resources have been pretty central to British foreign policy. Documents received through the Freedom of Information Act show Tory ministers in the '90s saying that the primary British foreign policy interest in Azerbaijan, as well as in Colombia, is the oil, and in particular BP's investments there. As the book shows, this isn't a new development.

If you look back into the late-nineteenth and early-twentieth centuries, and the period surrounding WWI, Britain clearly conceived of the area primarily in terms of its oil resources. That was the main reason why a British military force was shipped off to Azerbaijan after the end of First World War: to stop Trotsky's army gaining control of those reserves.  That interest has continued throughout, but through the years of the Soviet Union, Britain had much less chance of getting control. In the late 1980s the issue resurfaced, and in the early 1990s you had Thatcher pushing John Browne, then-head of exploration and production at BP, to go off and find oil contracts in Baku. BP then ended up bringing Thatcher, now an ex-Prime Minister, across to Azerbaijan to be there when they signed one of their initial contracts.  

As the Soviet Union disintegrated there was heavy pressure and geopolitical manoeuvring both from Britain and from the U.S. to secure control of the resources, and the infrastructure to remove and transport them to the global market, by Western companies. Regardless of where the oil ends up—in Japan or Chile or wherever—if it's moved from Azerbaijan to a port, such as Ceyhan in Tukey, from where it can be shipped across the world, then the economic power of Europe and the U.S. means that they can dominate it. 

That's why, ultimately, the pressure for the pipeline was largely coming from the British and American governments rather than BP. From a financial perspective, for BP it would have made more sense to pump the crude to Iran: it could have built a pipeline that was a few hundred kilometres long, routed it to the north of Iran where there isn't much crude, and in exchange received crude from the Iranian coast on the Gulf to ship elsewhere. That would have been much cheaper and much easier to construct, but obviously it wasn't acceptable for the Western powers. Neither was it acceptable to ship the crude through, or to upgrade, existing pipelines through Russia, or to build pipelines to transport it east towards China. Hence what we saw was one of the longest pipelines in the world being constructed over mountains and crazy geography, bypassing Armenia in a big loop, to take Caspian crude to the Mediterranean.

So Western governments have a lot of leverage over companies like BP in the region?

They have leverage, but it's more about cooperation and quid pro quo. For instance BP recognised that routing the pipeline to the Mediterranean made little financial sense, but it agreed to do it in exchange for public subsidies from the U.S. and UK. On the other side, in the early '90s when BP was struggling to win the contract to extract Azeri oil, it wanted the British government to establish a diplomatic presence in Azerbaijan to boost its chances. British officials were still based out of Moscow and hadn't yet established a presence there. So BP provided the government with space in its own corporate office in Baku, raised the British flag outside and said 'here is the British consulate'. So we see very close collaboration.

In the book you quote John Browne likening the process of winning the contract to extract Azeri oil to a James Bond novel. What kind of thing is he talking about?

Most of it hasn't come out. You hear a lot of allusions to, for example, negotiations where someone will just pull out a gun and start threatening other people, or crazy parties with drugs, people being paid for sex, lots of money being thrown around... Certainly a lot of money changed hands, with the oil companies offering large bonuses of between $30-$100m. Where all that money went is pretty unclear.

There were also various coups going on in Azerbaijan during that period, and there have been accusations that BP in particular supported the coup that brought Aliyev to power. BP has reacted very strongly to those accusations—a story reporting them in the Sunday Times, for instance, was quickly pulled and is no longer on their website.

What were the provisions of the 'contract of the century' that BP and other international oil firms signed with the Aliyev regime? Was it typical of such agreements?

 

The contract was a production sharing agreement, which is a long-term agreement: it can run for more than 40 years. It's very complex, as a lot of production sharing agreements are, which in itself makes transparency and tracking revenue flows difficult. Azerbaijan didn't get completely ripped off: it does get revenues from it. But it's not as good a contract as it could have been.

It gives vast profits to the private oil companies. What needs to be born in mind is that companies supposedly take a risk, and the more risk they take the greater the profit margin they demand. That's the logic within the capitalist context: if you're an oil company and let's say you're going to drill in the Arctic, a) you don't know if you'll find any crude, and b) it's quite risky. So you're going to want a lot of profit if you get it right. But in Azerbaijan they already knew where the crude was and how much of it was there, and much of the infrastructure had already been built. BP wasn't running the same kind of risk as in a new 'frontier' region, so you'd expect its profit margins to be much lower than they are. In that context, Azerbaijan was getting significantly ripped off, and oil companies were getting vastly more profits than they deserved.

This came about because Azerbaijan in the early '90s was in a very weak negotiating position. It was newly independent, scrambling to increase revenue, and getting trounced in a war with Armenia. The regime wanted to sign a contract that would start producing revenue quickly, and specifically to sign a contract with Western companies to underpin ties with Western powers, thinking that that would help it win the war against Armenia. Signing the contract helped Aliyev boost his position within Azerbaijan, by giving him a tangible achievement to point to, and to improve his relationships and status internationally. However as a result they had to concede quite a lot.

In the decade and a half since the contract went into effect, has the Azerbaijani economy experienced a boom?

'Boom' is a complicated thing. There has been, over the last 15 years, an influx of money to elements of the Azeri economy. That doesn't necessarily equate to people being better off, to rising income. It has equated to inflation and to a boom in certain parts of the skyline, with lots of new glass towers and skyscrapers, many of which are empty.

At the same time we've seen hundreds of thousands of internally displaced people living in shoddy housing with no water or electricity, while the Azeri agricultural sector, which used to be a significant exporter, has struggled. When you get a sudden influx of oil money to certain sectors you tend to see inflation and an increase in the exchange rate, which makes it much harder to export goods like vegetables.

You met with opposition activists in Azerbaijan. What were their views on BP's role in the country?

There's a variety. Some opposition activists have tried to ally themselves with BP. In some ways BP have even more power over civil society than the Aliyev regime, because of the way they've funded things.

Independent  opposition activists who refuse to ally themselves with corporate or state power are pretty furious. They say 'our country is run by the Aliyev family and a British company, and between the two of them they cut up the country and pick which bits of profit they want to take and which bits they're going to control'. They see it historically as yet another era in Azeri history where Azeri resources have been used for the interests of people and companies from abroad, keeping Azerbaijan in a state of dependence and unable to develop areas of its society and economy which don't rely on oil.

But the more activists speak out against BP, the more repression they face and the less funding they get. Notably our first book on BP, Some Common Concerns, was translated into Russian and Azeri, and both versions were banned.

Let's shift to Georgia, a 'transit country' rather than a source: its role is to host a pipeline going through it. Are energy politics in a transit country different from in a source state like Azerbaijan?

Oil politics doesn't dominate Georgia as intensely as in Azerbaijan: it's not as thoroughly part of the system. As a result it's also easier to overthrow the government. Aliyev's control over the oil in Azerbaijan and his relationship with BP makes it very hard to change the regime. OK, Georgia's regime has only changed once in the same time period, from Shevardnadze to Saakashvili, but that is one time more than Azerbaijan. The social and economic politics in Georgia are very different. Both Georgia and Azerbaijan have had wars since independence, but Azerbaijan was fighting its neighbour Armenia, while Georgia's conflicts have been with internal separatist movements, into which Russia has intervened.

However there are also similarities: as in Azerbaijan the two Georgian regimes tried to use the pipeline both to maintain control and to identify themselves with Western power and identity. In Georgia this took the form of a strong identification with American neoconservatives. When you drive to the airport in Georgia you travel along the 'George Bush highway', passing a big smiling picture of George Bush, waving at you. In Azerbaijan most streets like that will be called 'Heydar Aliyev', with posters of him everywhere. Georgia has managed to identify itself quite successfully with US power. It sent a lot of troops to Iraq, and there have also been a lot of American troops training the Georgian army. When I flew out of Georgia in 2005, there were only four other civilians on the plane, and everyone else was an American soldier. That was largely aimed at the regime maintaining control over the separatist movements in Abkhazia and South Ossetia. But that presence of foreign troops was because of the pipeline, and indeed the training bases are located along it.

The way it plays out in Georgia is different to how it plays out in Azerbaijan and in Turkey. But all along the route of the pipeline there is a consistent militarisation of parts of the countryside, of people's villages and land, which makes day-to-day life there difficult.

You quote one of BPs lawyers, who helped draft the Host Government Agreements which gave legal status to the pipelines, boasting: 'without having to amend local laws we went above them or around them by using treaties'. How were the host agreements formulated and what status do they confer on the pipelines and their operators?

This was a very clever move by BP. They signed Host Government Agreements in Azerbaijan, Georgia and Turkey, and managed to exempt themselves from pretty much all local regulations, except for those in the constitutions of those states, by establishing this other legal context that was framed as an international agreement. This meant that they were no longer subject to Georgian or Azeri or Turkish regulations. It also meant they weren't subject to regulatory improvements, because the legal context was fixed at the time the agreements were signed, a time when Turkey, Azerbaijan and Georgia had relatively weak regulations. So the agreements effectively removed those countries' ability to improve their regulations on human rights, the environment, wages, and so on.

What political conclusions would you want to draw from all this, for instance at the policy level?

Broadly speaking we think that the oil industry needs to have less political control, and that our societies and economies need to be less tied to corporate and colonial power. There are various policy changes that can connect to that, ranging from organisations like the Tate not taking oil money, to banks, like RBS, not funding dodgy pipelines, or even the oil industry, period. For a bank to be funding new pipelines and oil extraction nowadays just isn't acceptable. But they particularly shouldn't be funding especially dodgy and controversial pipelines.

The Foreign Office shouldn't be pushing for an expansion of BP operations in Azerbaijan or for that matter in Egypt. It shouldn't be supporting continued militarisation in Azerbaijan. And it shouldn’t be enabling the institutional credit that the Aliyev regime gets from participating in the Extractive Industries Transparency Initiative (EITI) process, which allows it to present itself as running a transparent oil and gas industry, while still clearly running a regime of mass corruption and abuse of power. The respect the Aliyev regime gets derives partly from DFID's role in championing the EITI process, and its accepting Aliyev's record as a success. That's also a policy that needs changing.

Could you mention some campaigning groups which exist around these issues?

There are lots. Liberate Tate has been working intensely on trying to get BP out of the Tate; Platform and others over the years have challenged RBS's role in funding dodgy oil and gas projects; there's a new campaign trying to redefine energy corridors; there's a lot of work being led by Jubilee Debt Campaign on Export Credit Agencies and their role in financing controversial projects; and so on.

There are many specific groups, but at Platform and in the book we think it's important to recognise that it's the structures of society and the economy which need shifting. It's not enough for us to win on one policy or one campaign, welcome though that would be, so what's particularly exciting for us is the interlinking of these different movements and organisations. We need a wider shift if we're going to move London away from being an oil city and a colonial power. 

Read an excerpt from The Oil Road here.

Jamie Stern-Weiner co-edits New Left Project.

All comments are moderated, and should be respectful of other voices in the discussion. Comments may be edited or deleted at the moderator's discretion.

Remember my personal information

Notify me of follow-up comments?