Oil prices surged Aug. 11 on concerns that fighting between Russia and Georgia could threaten the Baku-Ceyhan pipeline. Crude was up by $1.19 to $116.39 a barrel in New York. It rose $1.81 to $115.14 a barrel in London. (London Evening Standard [2], Aug. 11) Georgia's Black Sea ports of Supsa and Batumi, key transfer points for crude exports from Azerbaijan, have been reduced to partial operation as a result of the fighting. A third Georgian port, Poti, is completely shut following air-strikes. (Lloyd's List [3], Aug. 11) The Baku-Supsa pipeline, completed in 1999 by the Azerbaijan International Operating Company (AIOC), has a capacity of 115,000 barrels per day (bpd). (Alexander's Oil & Gas [4], May 17, 1999) The Baku-Ceyhan pipeline has a capacity of 1 million bpd (1% of daily world consumption). (Reuters [5], Aug. 7)
Russian forces have occupied Georgia's central city of Gori, and seized major bridges and arteries leading to Tbilisi, the capital. The Georgian government says they anticipate an imminent Russian assault on the capital. Russia denies any such intentions. (BBC World Service, Aug. 12; Thomson Financial [6], Aug. 11)
President Mikheil Saakashvili, in a televised address to the nation, said: "Today Russian imperial boots are again stomping our country... We will resist all aggression. Georgia will never be put on its knees again." He added, "This is [an] attempt to totally occupy Georgia... destroy Georgia. Russia's goal is to put an end to [the] existence of the Georgian state."
A Georgian government statement said Russian forces "are intensively bombing Tbilisi, Poti, villages in Adjara, and elsewhere. Overnight, as many as 50 Russian bombers were reported operating simultaneously over Georgia, targeting civilian populations in cities and villages, as well as radio and telecommunications sites." (EurasiaNet [7], Civil.ge [8], Aug. 11)
In Abkhazia, there are reports that Russia has sent in thousands more troops, far exceeding the 3,000 peacekeepers it is allowed to keep there under terms of the 1993 ceasefire agreement. Russian and Abkhaz troops are said to be pushing into the Upper Kodori Gorge, the only area of Abkhazia under Georgian control. Abkhaz troops have also moved into the enclave's southern sector of Gali—where more than 20,000 ethnic Georgians already live in a precarious position, caught between Tbilisi and the de facto authorities in Sukhumi. (IWPR [9], Aug. 11)
In Moscow, the Federation Council (upper house of parliament) held an extraordinary meeting where a measure was adopted calling on the international community to set up a tribunal to investigate acts of "genocide" by Georgian forces in South Ossetia before they were driven out of the enclave by the Russian advance. Sergei Mironov, the speaker of the upper house, said Georgia "unleashed [an] unprecedented aggression against South Ossetia... Thousands of peaceful people died and are dying as a result of genocide." (ITAR-TASS [10], Aug. 11)
But the "genocide" (real or not) comes at a convenient time for Moscow. As recently as August 4, Russian Foreign Minister Sergei Lavrov said, "We will do everything possible to prevent the accession of Ukraine and Georgia to NATO." (IWPR [9], Aug. 11)
Despite the oil market's perfectly predictable [11] reactions to military conflict in the producing and transporting regions, this factor is too frequently overlooked by analysts. An Aug. 11 Business Week [12] "Debate Room" exchange on whether speculation lies behind the oil shock pitted Andrew Horowitz ("Pro: Commodities Traders Are Running Amok") against Jay Yarrow ("Con: Sorry—It's All About Supply and Demand"). Neither Horowitz nor Yarrow even mentioned the war in Georgia, the insurgency in Iraq, or the pending invasion of Iran.
It's particularly irksome to see the left abandon the notion of war as the roots of the oil shock—or even oil as a motive for war. Writing for The Guardian [13] Aug. 11, Jonathan Steele states nonsensically: "This is no pipeline war but an assault on Russian influence"—as if oil isn't the key to global "influence"! Steele finds: "The Baku-Tbilisi-Ceyhan pipeline is only a minor element in a much larger strategic equation: an attempt, sponsored largely by the United States but eagerly subscribed to by several of its new ex-Soviet allies, to reduce every aspect of Russian influence throughout the region, whether it be economic, political, diplomatic or military." As if oil were not both the key to and the goad of economic, political, diplomatic or military power.
See our last post on Georgia and the pipeline war [14], and the oil shock [15].
