Locals say the extravagant hotels that emerge from nowhere in the desert outside Turkmenistan's capital city, Ashgabat, were built to attract Western investment for the country's rich energy sector. But today, these small mansions are often devoid of energy executives and are reportedly havens for money launderers, smugglers, and other criminal elements. Meanwhile, a maze of rusting oil rigs, steel pipes, and other equipment, broken or in disrepair, leak large quantities of oil directly into the already polluted Caspian Sea while extracting oil.

These images reflect Central Asian hopes for the "black gold" that represents the economic lifeline of the regions. But they also reflect the more sinister realities of waste, crime, economic hardship, environmental devastation, and potential instability that may engulf these countries well before energy revenues begin to flow in. What kind of wealth are the Central Asian states likely to see from the vast energy resources of the region? What are the key sources of instability today, and to what extent are energy profits likely to ameliorate or exacerbate them? Finally, what are the key challenges for the United States as it balances competing commercial, foreign-policy, and security goals in this part of the world?

Politicized Pipeline

Hopes for development in Central Asia have relied heavily on the enormous untapped energy wealth that rests beneath these deserts and the Caspian Sea. Although original estimates of the region's oil reserves, which ran as high as 200 billion barrels, are now considered unrealistic, the amount of energy reserves is considerable. Kazakhstan's Tengiz oil field on the northeast shore of the Caspian is one of the world's ten largest, and new seismic studies suggest that Tengiz may contain up to 50 percent more recoverable reserves than previously thought, or as much as 9 to 13.5 billion barrels. In addition, Kazakhstan boasts large oil reserves inland, as well as in the field of Kashagan, now being explored in the Caspian, which may be as much as three times larger than Tengiz. Azerbaijan, one of the world's largest oil producers at the turn of the 20th century, still has significant oil resources at the turn of the 21st; Turkmenistan, which is relatively poor in oil, is home to roughly 102 trillion cubic feet in gas reserves, ranking it third in the world behind only Russia and Iran.

But the difficulties in extracting and transporting these resources may limit the potential revenue. All Soviet-era pipelines from the Central Asian- Caspian region cross Russia before reaching markets in the West; since independence, these countries have continued to rely on Moscow to get their energy resources to market. This dependency has worked largely to their disadvantage. The volume of oil Kazakhstan is permitted to ship was limited in the mid-1990s by Russian pipeline capacity and by politics in Moscow. Export of Turkmenistan's gas through the single gas pipeline that crosses Russia has likewise remained under Moscow's control; since the mid-1990s, Russia has refused to export Turkmen gas to markets outside of the former Soviet Union (FSU) and has kept prices low. As countries within the FSU, particularly Ukraine, fell increasingly into debt, Turkmenistan's deliveries frequently remained unpaid and have been intermittently halted. The one alternate export route, a small line to Iran built in December 1997, has been marginal, but enough to worry Western observers not only about oil revenues, but also about the potential influence of Iran as well as Russia throughout the region.

Discussions have focused largely on the construction of major oil and gas pipelines directly from the Caspian region to the West that can avoid both Russia and Iran. The most controversial of these is the Baku-Ceyhan pipeline project, a line proposed to run from the offshore oil fields of Azerbaijan, across Georgia, to the port of Ceyhan on Turkey's southern Mediterranean coast. Supported by the US government largely because it bypasses Russia and Iran, the project has been heavily criticized as commercially unviable by the business community, which argues that the Caspian has not turned up enough oil to justify the pipeline's estimated US$2.4 to US$3.7 billion cost.

Supporters of the project hailed a great victory in the signing of the Istanbul Declaration in November 1999 by the presidents of Turkey, Azerbaijan, Georgia, Turkmenistan, and Kazakhstan that renewed commitment to develop Caspian energy resources and supported their transport to the West through this "Main Export Pipeline" from Baku to Ceyhan. But it is unclear whether the pipeline will in fact be finalized, particularly within the five-year timeline envisioned by the agreement. While the Istanbul Declaration represents a major political step, there has been no concomitant commitment to the pipeline's financing and security. Noting the high price tag, some corporations support expanding the capacity of the Baku-Supsa line, opened in February 1999 from Azerbaijan to the Georgian Black Sea port of Supsa, or pursuing the idea of oil "swaps"with Iran; Russians continue to push for greater use of Russian pipelines through the Black Sea port of Novorossiysk. Whatever the outcome, it is unlikely that the effects of this pipeline will be felt for some time to come.

The same uncertainty plagues the so-called Trans-Caspian Pipeline, currently the most promising export route for Turkmenistan's gas. An agreement recently signed in Ashgabat provides for the construction of a 1200-kilometer pipeline under the Caspian Sea through Azerbaijan, and Georgia to Erzurum, Turkey, again bypassing both Iran and Russia. Construction cost is estimated at US$2 billion, with a capacity of upwards of 16 billion cubic meters of gas per year.

But this pipeline, too, is no sure thing. While the United States, Azerbaijan, and Georgia back the project, Russia and Iran, among others, strongly oppose it. In addition to economic motivations, both Iran and Russia object to a plan that is so explicitly supported by the United States for political reasons. The agreement to pursue a gas pipeline from Russia to Turkey through the Black Sea, the so-called "Blue Stream" project, raises the question of whether there would be adequate demand for gas in Turkey from both pipelines. The discovery of large volumes of gas in Azerbaijani fields raises the stakes of Turkmen-Azerbaijani political relations. Budgetary limitations also complicate its construction. Indeed, while the US government is strongly promoting both the Baku-Ceyhan and the Trans-Caspian pipelines, it can provide only limited financial assistance, and is constrained by the powerful Greek-American and Armenian-American lobbies who oppose the whole initiative on the grounds that it strengthens their age-old adversaries, Turkey and Azerbaijan.