“The Chinese are eating your lunch!” I glanced down at the croissants at our table in a Jerusalem café while my American investment banker friend continued talking. He was honing in on China’s comparative advantage over the US, which he described as the Chinese government’s ability to achieve major foreign policy objectives working with its companies on specific economic projects. In general, he meant the way China prioritized the economic and commercial aspects of foreign policy. My friend had helped broker Chinese investments in Israel and elsewhere as part of the Belt and Roads Initiative, in which Chinese infrastructure construction overseas is tied directly to China’s geostrategic interests. He had never seen the US government do anything remotely similar overseas in conjunction with US companies.
He had a point, which I will explore below, but first I had a rejoinder and a story. Yes, I conceded, the US does not seek to integrate its companies into governmental policy the way China does. Under Chinese law, Chinese private companies must consult with and take guidance from Communist Party officials. When dealing with a Chinese company, one is also dealing with the Chinese state. Furthermore, when US and Chinese companies compete head-to-head on infrastructure projects, the US sometimes wins. I cited the recent case of the shipyard at Subic Bay, Philippines, where an American company, financed by a US firm and supported by the US government, won over a Chinese competitor.
The US government can, in its own way, effectively support US companies overseas, including through imaginative infrastructure projects that also support US strategic interests.
I proceeded to tell my young friend the story of the Baku–Tbilisi–Ceyhan pipeline. It begins during the winter of 1992/1993, one year after the fall of the Soviet Union, in Baku, the Caspian port and capital city of the newly independent republic of Azerbaijan. Lying some 70 miles offshore in deep waters of the Azerbaijani sector of the Caspian were rich oil and gas fields that had not been exploited by the Soviets. These “super giants” were the prize sought by a panoply of Western oil majors and state oil companies that hastened to set up offices in Baku and, with the help of their governments, began jockeying for oil rights and influence with the new Azerbaijani government.
A key question arose early in this revival of the 19th century Great Game for Central Asia: Once oil rights were awarded, how then was the Azerbaijani oil to be exported from the Caspian to international markets?
This question had already been answered for two other Caspian states. Both Turkmenistan’s gas and Kazakhstan’s oil would be exported through Russian pipelines, giving Russia often decisive leverage over these new states’ conduct of foreign relations. In the winter of 1992/1993, Azerbaijan’s oil export route—and with it the future orientation of the country’s foreign policy—were still up for grabs.
At that time, it was uncertain how much oil could be produced. First, exploration wells needed to be drilled and then a decision on how to get the oil to markets.
There were three export options.
(a) The least expensive and simplest option was a short pipeline going south over flat terrain, about 100 kilometers, to Iran, connecting to the existing pipeline network in northern Iran. Western companies could then swap this Azeri oil for Iranian crude in Persian Gulf terminals. This option was briefly supported by BP, which was then buying Iranian oil, but everyone figured it would face lethal political opposition.
(b) The “most likely to succeed” option, as viewed at the time, was to refurbish the leaky old Soviet pipeline heading north to Russia, which involved pumping oil over the Caucasus mountains more than 1,000 kilometers to the Russian Black Sea port of Novorossiysk. This was supported by Russia and some Western majors already working with Russia. The pipeline’s rights of way were established, and the pipeline physically existed, although new pumping stations and other upgrades were needed.
(c) The least likely route traveled west for over 1,700 kilometers, from Azerbaijan through southern Georgia and eastern Turkey to the oil terminal of Ceyhan on the Turkish Mediterranean. This would involve building a new pipeline through mountainous and politically treacherous terrain (skirting the Nagorno-Karabakh war but passing close by conflict zones claimed by different ethnic minorities in Georgia and Turkey). It was naturally championed by Turkey’s state oil company and the Turkish government.
Washington eventually (after a lot of back and forth with the US companies and within the government) chose to back option C, the western route through Georgia and Turkey, for solid strategic reasons. It then proceeded to turn the project into commercial viability. It appointed a State Department team to mobilize a “whole of government” effort integrating diplomatic and economic agencies, in close coordination with US and other Western companies, to secure private-sector financing and intergovernmental agreements. After 12 years and several team rotations, in 2006 the US-backed Baku–Tbilisi–Ceyhan (BTC) consortium celebrated completion of the pipeline and export of the first oil to international markets. More recently a parallel natural gas pipeline was built to carry Caspian gas to markets. BTC is one of most impressive engineering feats and diplomatic achievements of the late 20th century.
This pipeline has kept the economic interests and foreign policy alignment of both Azerbaijan and Georgia linked to the West, and it offers other ongoing strategic benefits for US interests. Through BTC, both Turkey and Israel have access to important energy resources outside of the control of Russia or Iran. At the time of its construction, the pipeline strengthened Turkey as an energy hub, helping to diversify oil and gas away from Russia, already then seen as a problem.
The heroes of this story are the career US diplomats who, once the US chose option C, volunteered for the assignment of turning a quixotic line on a map into a financeable project backed by three governments on the ground and many others behind the scenes. They knew how to scale up what the US government has on offer to US companies, from political risk insurance to export financing. They drew on the US government’s prestige at that post-Cold War moment to close difficult deals. One officer in particular stayed with the BTC project for much of its 12-year span. Laird Treiber was a quietly effective deputy head of BTC negotiations who became the Department of State’s premier energy officer. I followed his work on this pipeline with admiration and later recruited him to help run the Department of State’s economic policy engagement with Iraq.
US diplomats didn’t bring BTC to life on their own, of course. Financing decisions and attendant risks were in the hands of private companies. Also important, the US government had at that time a powerful regional ally in Turkey. The Turkey of Suleiman Demirel made clear that the main alternative to BTC—export via the Russian Black Sea port of Novorossiysk and then via Turkish straits to the Mediterranean—would be a non-starter, laying out in great detail the environmental dangers of increased tanker traffic through straits that traversed Istanbul, Europe’s largest city. The oil majors imagined phantoms of lawsuits dancing on their bottom line, swallowed hard, and opted for the 1,700 kilometer BTC pipeline.
The BTC pipeline story has gained both academic and journalistic attention (and was featured as a project under construction in the 1999 James Bond film, The World is Not Enough). But the best accounts are found in the diplomatic oral histories stored online at the Association for Diplomatic Studies and Training (https://adst.org).
Now there is no reason to think the US government can no longer take on bold infrastructure projects that connect strategic and commercial interests, like the BTC pipeline.
In fact, there is one such project that has needed US leadership for years: the Eastern Mediterranean natural gas consortium. If we had adopted the BTC approach—a creative US government team under professional diplomatic leadership that stays on the job even as political administrations change and that knows our technical and economic agencies as well as diplomatic practices—then we might have solved the complex intergovernmental, technical and commercial issues by now and provided Europe with a significant new source of gas (and brought our East Med allies closer together). Even the more modest plan currently envisioned, of pumping Israeli offshore natural gas via northern Sinai pipeline to Egypt, and from there to Europe in liquified form, will only work in a timely fashion with high-profile US leadership.
There are a variety of reasons for lack of US activism of late on the Eastern Med gas project, including that financing is more difficult when the product is gas and not oil. Another reason is that we should not be investing in any new infrastructure for fossil fuel energy. However, that concern fails to distinguish between the differing climate impacts among the various types of fossil fuels and fails to consider the realistic alternatives in realistic timeframes. If the likely result of failure to invest in Eastern Med natural gas means that Europe relies even more heavily for years on dirtier sources such as oil and coal and remains dependent on Russian or Qatari gas, then such a policy doesn’t serve anyone.
Some things haven’t changed from the halcyon post-Cold War days until now, and one of them is the reflexive skepticism of the State Department bureaucracy to prioritizing economic and commercial diplomacy. There is plenty of talk about the need to strengthen economic diplomacy but little action and certainly no prioritization. My investment banker friend’s cri du coeur about China’s comparative advantage in this area has a point. (Scot Marciel’s essay in this issue of JST on US–China competition in Southeast Asia makes the same point.)
This was true also initially in the BTC pipeline case. My walk-on role in this story came in that winter of 1992/1993, as the economic officer at the newly opened US embassies in Baku and Tbilisi. After talking with all the oil contacts in town and holding meetings with Azeri and Georgian leaders, I wrote a cable advocating for US promotion of the western export route as an American strategic interest. The initial response from Washington was, “We don’t get involved in commercial disputes involving multiple US companies. Let them sort it out.” But Embassy Baku was joined by Embassy Ankara and then by Embassy Tbilisi and others, and the leadership at the State Department was eventually won over. Then the hard work began.