Western oil firms face Central Asia's political minefield

Some analysts say Central Asia is the next Middle East. Turkmenistan has 21,000 billion cubic metres of gas, the third largest reserve in the world. Neighbouring Uzbekistan has comparable amounts of gas, while the oil reserves of Kazakhastan and Azerbaijan are legends in the industry.

However, these countries have a problem: how to get their products to market. It is partly a question of technology and money; but just as important are the politics, pitting Russia against Iran, and drawing in the Western powers and their oil and gas companies.

This was the central dilemma preoccupying the heads of seven Central Asian states, plus Turkey, Iran and Pakistan, who gathered under the aegis of ECO (Economic Co-operation Organisation) in Ashkabad to discuss how best to capitalise on the region's enormous reserves of oil and gas.

The existing pipelines of all the former Soviet states naturally go north towards Russia, which is unable, or unwilling, to pay the full price for their products. Since 1993, moreover, Russia has severely limited the amount of oil and gas passing through its territory in order to protect its own exports. None of the alternative routes is easy, since the region is mostly land- locked.

One possibility is to go due east to Japan, but the cost of laying a pipe across the whole of China makes it unlikely. West across the Caspian Sea is a better bet, though tanker transportation costs are prohibitive at $60 (pounds 38) a ton; which is the reason for a proposed oil pipe-line under the Caspian Sea from the giant Kazakh oil field of Tenghiz to Baku, through Georgia or Armenia to Turkey.

On Tuesday, however, before curtailing his visit to tend to the earthquake at home, Iran's President Ali Akbar Hashemi Rafsanjani trumped everyone by reviving a plan for a line running due south through Turkmenistan and eastern Iran to the deep sea terminal at Bandar Abbas on the Persian Gulf. This is the best and shortest route of them all: it is a rule of thumb in the pipeline business that the fewer borders you have to cross to get to market, the better. Western oil companies would have looked into the Iran option long ago were it not for the small matter of US sanctions against companies doing business with Iran.

"There's no question about it," says James Dorian, an energy specialist with the Asian Development Bank. "If sanctions were lifted you'd instantly see a mass migration south- wards of investors. Indirectly, Russia has benefited a great deal from US policy in the region."

There is another chance for the big Western companies, however. High on the agenda at ECO was a fourth export possibility, the pipeline route south through Afghanistan to the lucrative markets of Pakistan and beyond. The Texas-based company Unocal, in a consortium with the Saudi company Delta, are proposing a $2bn gas line as soon as hostilities in Afghani- stan cease. They are also planning a $2.5bn oil line.

The plan is problematic, to say the least. Critics say that Unocal's alliance with the Saudis, ideologically the closest to the fundamentalist Taliban, who control two-thirds of Afghani-stan, through which any line must pass, amounts to blatant political interference. Unocal insists that when they teamed up with Delta they had never even heard of the Taliban.

"Unocal is the leader of the consortium and we operate a policy of strict political neutrality," says Marty Miller, the company's vice president for new ventures in Central Asia. "We expect our partners to do the same."

But politics and business cannot always be separated. While the ousted Afghan president, Burhanuddin Rabbani, was invited by Turkmenistan to the ECO meeting, the Taliban were not. This week, the fundamentalists complained bitterly - in a statement they said they were the "real representatives" of Afghanistan. They specifically accused Iran of prolonging the Afghan war by supporting the Taliban's northern enemies, simply so that the pipeline might be built through their country instead.

Unocal's other difficulty is that although the Talibans want a pipeline, they don't seem to want Unocal's pipeline. This week, via Radio Shari'ah in Kabul, the fundamentalists backed the bid of a rival gas line project, run by "the famous Argentine company" Bridas. The Argentinians are prepared to start work on the line even before hostilities in Afghanistan has ceased, and the Taliban have gone for the bait. Unocal say such a risk is simply not acceptable to its shareholders. Bridas, meanwhile, are suing Unocal for "tortuous interference" in their business.

Watching this soap opera with particular attention are the Russians, half of whose export revenues have always come from oil and gas and who have the most to lose from the successful establishment of alternative routes.