Georgia: A Blow to U.S. Energy

Businessweek was reduced to blowing Russia too..., The Baku-Ceyhan was the Caspian's first western owned pipeline.

The sudden war in the Caucasus brought Georgia to heel, reasserted Russia's claim as the dominant force in the region, and dealt a blow to U.S. prestige. But in this part of the world, diplomacy and war are about oil and gas as much as they are about hegemony and the tragic loss of human life. Victory in Georgia now gives Russia the edge in the struggle over access to the Caspian's 35 billion barrels of oil and trillions of cubic feet of gas. The probable losers: the U.S. and those Western oil companies that have bet heavily on the Caspian as one of the few regions where they could still operate with relative freedom.

At the core of the struggle is a vast network of actual and planned pipelines for shipping Caspian Sea oil to the world market from countries that were once part of the Soviet empire. American policymakers working with a BP-led consortium had already helped build oil and natural gas pipelines across Georgia to the Turkish coast. Next on the drawing board: another pipeline through Georgia to carry natural gas from the eastern shore of the Caspian Sea to Austria—offering an alternate supply to Western Europe, which now depends on Russia for a third of its energy.

But after the mauling Georgia got, "any chance of a new non-Russian pipeline out of Central Asia and into Europe is pretty much dead," says Chris Ruppel, an energy analyst at Execution, a brokerage in Greenwich, Conn. The risk of building a pipeline through countries vulnerable to the wrath of Russia is just too high.

The plans of the U.S. and Western oil companies for expanded pipelines in the Caspian region may well be a casualty of Russia's attack.