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. Last Updated: 07/27/2016

Clinton's Oil Pipeline May Be a Pipe Dream

WASHINGTON -- For both financial and political reasons, the agreement to build a pipeline to carry Caspian Sea oil across Turkey, which the Clinton administration views as a strategic victory, is far from being a reality, oil executives and administration officials say.

For years, oil companies have looked at various pipeline routes to get the Caucasus region's vast oil reserves to market. And they have signed similar deals before, though this one looks more solid.

For the oil companies, the chosen route must be profitable. But for the Clinton administration, the prime concern has been strategic: guaranteeing that any pipeline would skirt Russia or Iran and deny them a choke-hold over a new energy supply for the West. The administration would also like to use the oil deal to bring several former Soviet republics into a Western-looking bloc, and to enhance the regional power of Turkey, a key NATO ally.

But whether the route agreed to last week - which is strategically advantageous to the United States but costly for the oil companies - can be made profitable quickly is still a big question. So too is the nature and extent of political fallout with Russia, the loser in the deal.

The key oil company involved in the pipeline project, BP Amoco, said it would seek help from Washington to line up enough oil shipments from producers in the region to make the pipeline commercially viable.

The company, said Michael Townshend, its director of international affairs, has set a deadline of next October for raising financing and commitments to use the pipeline. A new batch of oil from the Caspian will be ready by 2004, and the oil companies will need to make a decision by October for where they are going to build a pipeline to carry it.

"It's not impossible, but it's a stretch," he said.

"The only way this is going to work is to make the pipeline as affordable as possible for shippers to put their oil down it," he added. "We're asking the United States government to attract as much oil as possible and to attract as much financing as possible."

If that money is not in place in time, BP Amoco can try to get the oil out by a different route, by expanding the capacity of an existing pipeline from Baku, Azerbaijan, to Supsa, Georgia, near the Black Sea, Townshend said. From there the oil would be taken by tanker through the Bosporus, a route less to the liking of Washington and the oil companies.

It was also possible that BP Amoco might just delay the next phase of oil production in the Caspian Sea if the structure of the pipeline deal was still not settled.

The Clinton administration has not pledged any money for the project beyond $500 million in loan guarantees from the Overseas Private Investment Corp. and the Export-Import Bank, officials said.

The oil companies had first hoped Washington would allow a shorter route through Iran, with an outlet at the Persian Gulf. But this was blocked by Washington's refusal to lift economic sanctions against Iran.

Beyond strategic considerations, the route through the narrow Bosporus also raises some environmental problems, and as they became more evident, the oil companies leaned more toward the more expensive route through Turkey.

As the oil companies wavered, Turkey tried to make the route to its port of Ceyhan more appealing by announcing it would pay for cost overruns on the estimated $1.4 billion the pipeline is expected to cost the oil companies.

When the deal was announced at a European summit meeting in Istanbul , Turkey, last week, it was, for Turkey, the most substantive part of President Bill Clinton's five-day visit there. The other countries to sign the deal were Azerbaijan, Kazakhstan and Turkmenistan.

That victory for the Clinton administration may have as yet unseen costs, however. Administration officials acknowledged that Russia has always viewed the pipeline route through Turkey as an implicit threat. While the Russian reaction appeared muted last week, even the prospect of a pipeline deal had led Moscow officials to speculate publicly that Washington was trying to foment chaos on its southern borders.

Alan Makovsky, an analyst at the Washington Institute for Near East Policy, said Russia perceived Washington's efforts in the Caspian Sea as the equivalent of NATO expansion on Russia's southern flank.

Russia came to live with NATO's embrace of its former satellites - Poland, the Czech Republic and Hungary - but how it would react to the pipeline that is designed to deprive Moscow of precious income and prestige was an open question.

"They clearly see this as threatening," a senior administration official said. "They see this as the next phase of U.S.-Russian competition. They don't seem to understand that they would be better off with a stable southern flank."