Air Date: Week of September 21, 2001

As military action in Afghanistan and its environs becomes more likely, host Steve Curwood talks with Frederick Starr of the Central Asian Institute at Johns Hopkins University about how the oil business around the Caspian Sea might be affected.

Transcript

CURWOOD: With the eyes of the military on Central Asia, oil markets are taking notice. Afghanistan's neighbors include Uzbekistan, Turkmenistan, Kazakhstan, and Azerbaijan. And these nations are rich in oil. I'm joined now by Frederick Starr, Chairman of the Central Asia Institute at Johns Hopkins University. Mr. Starr, what are some of the estimates on how much oil is in this region of the world?

STARR: Well, the estimates are only that. But what we now know for sure is that the proven reserves are slightly greater than those of the North Sea. This already puts it in the big leagues, although as a percentage of global proven reserves, it doesn't put it over four or five percent.

CURWOOD: Still, this is about what the United States has, if I remember my....

STARR: Exactly right. The fact is three percent, four percent of the world's proven reserves, depending on its physical location and accessibility, can be terribly important.

CURWOOD: Tell me about the infrastructure to get this oil out of the Caspian Sea region. How is it set up at this point?

STARR: The big problem with not only the Caspian itself, but Central Asia, is that it's remote from everywhere. There is a kind of transportation surtax on everything moving in or moving out, including oil. Now the pipeline system is basically through the old Soviet Union with one small pipeline going due west from Azerbaijan to Georgia on the Black Sea, and it gets piped from there. There is no real pipeline to the south that would take you to the Persian Gulf via Iran. Nor is there a pipeline to the east that would take you to China. Nor is there one southeast across Afghanistan to Pakistan and India. All of these are under discussion. The only one actively being planned at this point is the one due west across Turkey to the Mediterranean port of Ceyhan.

CURWOOD: So, tell us now, U.S. military action in this area, how does this affect oil business in the area?

STARR: Assume, for a moment, that there is serious military activity. Also, that this results in some kind of resonance elsewhere in the Arab world. And that, this, in turn, drives up the price of oil due to our sense of risk in Saudi Arabia, etc. If that happens, it means that a lot of oil in the Caspian basin that today may not be cost-effective to extract, becomes cost-effective. I assume the main result will be the Caspian region, even though it's only a marginal part of the world oil supply, will become more important. There will be more exploration. There will be more extraction. And it's importance as a kind of balance for Europe to its Persian Gulf sources will soar.

CURWOOD: From the standpoint of an oil consumer, who will feel the most impact from changes now in the Caspian basin?

STARR: In a narrow sense, most of this oil will be consumed in Europe. Indeed, probably in Eastern Europe. But, the nature of oil is that it is a globalized market. And, therefore, if you add, at a crucial point, a flow of oil from the Caspian, it could become a major stabilizer of prices that every consumer worldwide would feel.

CURWOOD: If the U.S. is involved on the ground here in this region, in particular, in Afghanistan, what kind of ripple effect might it have?

STARR: If the U.S. is involved in Afghanistan, the pressure is going to be on the entire Persian Gulf region. It could be even destabilizing particularly with regard to Saudi Arabia. That effects us very directly. It effects the Europeans even more so.

CURWOOD: What would those effects be?

STARR: In the very least, driving up the price of oil and forcing many questions about alternative sources of oil and, indeed, alternatives to oil. The short run could be a real crisis in oil supplies, not just to the west but to Asia, as well. That could drive all the economies into real crisis.

CURWOOD: Frederick Starr is Chairman of the Central Asia Institute at Johns Hopkins University. Thank you, sir, for joining us.

STARR: Thank you very much.