Strategic competition over control of the Caspian’s vast oil and natural gas resources, which became accessible particularly following the dissolution of the Soviet Union, has paved the way for the struggle between Russia, China, the EU and the U.S. If current trends are taken into consideration, a struggle for balance of power in the Caspian region between the ‘great powers’ would best serve China, as Russia’s previously dominant position is likely to dwindle over time, while the U.S would mainly remain engaged in trade and the EU would get a slightly smaller portion of resources than previously planned.
One of the main reasons the Caspian states have chosen to engage with China is down to Russia’s dominance in the region. Russia’s assertive policies have been pursued to such a degree that the Caspian states feel threatened; and with China, a counterweight to Russia in the region has been introduced.
Since China imports substantial volumes of oil and LNG through the Strait of Malacca, which Chinese authorities view as a strategic weakness, concerns have been raised as to whether this heavy reliance on the Pacific route would result in conflict with the U.S., the country that controls the regional sea lines. Thus, China has developed alternatives, one of which has been the Caspian route that has accommodated China’s energy transportation interests on land. However, this has never been an easy road neither for China nor for other great powers that have interests in the region, since Russia insists on maintaining its dominant role there.
After the collapse of the Soviet Union, the energy transport system of the Caspian states was controlled by Russia. At every possible opportunity, Moscow sought to prolong its heavy reliance on the region’s infrastructure and has aimed at insulating these states from the influence of predominantly China but also the EU and the U.S.
Following the catastrophic accident, which took place in Turkmenistan at the CAC pipeline in 2009 that halted gas flow to Russia resulting in a significant fall in gas purchases, Gazprom’s imported volumes increased from Uzbekistan and Kazakhstan to balance the demand and supply of the gas market in Russia.
Additionally, Gazprom signed a long-term gas purchase contract with the Republic of Azerbaijan in 2009 and started imports in 2010. This development has been interpreted as Gazprom’s weakening hegemony in the gas industry. By re-exporting Azeri natural gas to the EU market, Gazprom aims to limit access to a share in the market for any potential competitor. For this reason, the company invested in extra available natural gas in the region which could otherwise have flowed to Gazprom’s target markets through its rivals.
Russia knows that its virtual monopoly position can only be protected if other major gas suppliers are kept out of the EU gas market. A senior fellow in Hudson Institute Zeyno Baran, claims that “Moscow’s energy strategy is predicated on continuing and expanding its dominant market position in Europe and Eurasia.”
Consequently, the Russian government fought with great vigor to keep the biggest slice of the lucrative market share. It has done everything in its power to block the construction of any pipeline that might facilitate Caspian gas to flow to the EU gas market. To elaborate on this, the 1990’s pipeline that was planned to connect Turkmen gas to the European market through the Caspian Sea to Turkey, was eventually abandoned. This was achieved through Russia’s ploy, backed by the EU and the U.S. when Russia decided to construct the alternative Blue Stream gas pipeline. The Blue Stream was constructed to deliver a full capacity of 16 billion cubic meters (bcm) of natural gas to the Turkish gas market across the Black Sea bypassing third countries.
Although Russia has been buying low-priced imported gas from Central Asian countries for quite some time to close its demand deficit, Europe has been more focused on the Caspian region and China has paid more attention to the Central Asian gas resources for their energy needs. Given the recent developments in the region, the construction of Central Asia-China gas pipeline between China and Turkmenistan and the construction of Trans Anatolian gas pipeline has meant that gas demand from this region has already started to be more competitive rendering Russian imports more costly.
The historical role that Russia has undertaken in the Caspian region throughout the 20th century will be on the wane with the arrival of new players in the region, along with the Caspian states’ desire to attain more autonomy and maximize imports. As European and Chinese demand for Caspian and Central Asian gas increases, signaling lower prices in the region from the increased competition, Russia’s strong hand in the region will be weakened, but will not significantly disappear.