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. Last Updated: 07/27/2016

Baku-Ceyhan No Longer a Pipe Dream

BAKU, Azerbaijan -- More than oil will be flowing west from tiny Azerbaijan.

A planned pipeline from the Caspian Sea to a Turkish port on the Mediterranean is seen as a testament to Azerbaijan's political gambit: staking its future with the West despite deep irritation from powerful neighbors Iran and Russia.

"Azerbaijan has made a strategic decision to link itself with Europe and America," said Vafa Guluzade, a former Azerbaijan government adviser on foreign affairs. "The pipeline is clear evidence of this policy."

The $2.95 billion project, strongly backed by Britain and the United States, will fundamentally alter the way Caspian oil reaches world markets.

Currently, most Caspian oil is pumped up to 1,000 kilometers through pipelines that snake around hot spots such as Chechnya to Black Sea ports in Russia and Georgia.

From there, Mediterranean-bound tankers ship it through the dangerously narrow and crowded Bosporus strait, where environmentalists warn of far-reaching consequences from any major oil spill.

The new 1,760-kilometer route from near Baku through Georgia and to the Turkish port of Ceyhan will significantly shorten the time it takes for Caspian oil to reach the West.

It also bypasses Iran and Russia, both eager to boost their influence over the Caspian's vast energy reserves.

The United States, meanwhile, has found a friendly -- and cash-hungry -- partner in Azerbaijan.

"Azerbaijan profits by having an economic link with the West through NATO-member Turkey. America and its allies, in turn, increase their presence on the Caspian," said Guluzade. "It works for both sides."

But there were doubts the pipeline project would ever get this far.

Investors, including BP and U.S.-based Unocal Corp., worried whether reserves would justify the construction costs. Offshore fields, however, have shown promise.

A related project -- a $3.2 billion gas pipeline linking Azerbaijan and eastern Turkey -- received approval from partners on Feb. 27 and could be completed in 2006.

"We're confident there are sufficient reserves ... to make this [oil] pipeline viable," said David Woodward, president of BP's Azerbaijan operations.

A symbolic groundbreaking was held near Baku, capital of the country of 7.8 million, in September. Construction should begin this spring and oil should start flowing in 2005, said Woodward.

Yet not all problems have been settled. The final funding package -- 30 percent investors and 70 percent international lenders -- is not expected to be completed until later this year.

And the leg through Georgia remains troublesome.

Two regions -- Abkhazia and South Ossetia -- are generally out of government control following separatist wars. Georgian forces, trained in anti-terrorism tactics by the U.S. military, have also started hunting for al-Qaida supporters.

The pipeline avoids the flash points, but security worries are high.

A Western diplomat, speaking on condition of anonymity, said U.S. military advisers in Georgia would offer additional training for pipeline protection but would not get directly involved.

Success of the pipeline could also draw interest from Kazakhstan on the Caspian's opposite shore. Discussions are under way to increase sea transport of oil to Baku and possibly build an undersea pipeline.

Such moves could further anger Russia, which wants to remain the top Caspian oil export channel. On Feb. 26, Russia's deputy foreign minister, Viktor Kalyuzhny, said Moscow may seek to ban undersea Caspian pipelines.

Some Western oil companies also wonder whether the Mediterranean route is the right direction.

Drawing boards are full of plans for pipelines east to China and the Asian subcontinent, where fuel consumption is expected to rise while European demand stabilizes.

For Azerbaijan and other Caspian oil producers, a critical test will be how they use their riches.

Will cities like Baku someday resemble wealthy Dubai, or will corruption eat up the profits?

Many analysts say Caspian leaders should learn from Nigeria and Iran, where oil wealth hasn't reversed poverty and joblessness.