Oil and Azerbaijan

Marie Antoinette, when told the peasants were out of bread due to a lack of wheat, famously quipped "Let them eat cake!".  The quote is one of the best known examples of a super wealthy class becoming so completely removed from the rest of the population they are unable to understand it.

We like to pretend that we have the situation here in the Untied States and to a certain extent that is true.  Super wealthy athletes and entertainers experience idolization and indulgence that rivals royalty.  Stock brokers and CEOs play fast and furious with stock options, rarely ever having to face the employees laid off due to a devalued stock.  As Americans, we firmly believe some or all of these explanations for why there is such discord in the United States.  We know that the United States is still the number one economic power and thus our experience is unique.

What is often forgotten is that elsewhere, wealth is even more concentrated into the hands of an elite few families.  Some resident in countries that we've heard of; Saudi Arabia (the Saud family), the Netherlands (Queen Beatrix, she of the Royal Dutch Shell corporation), and Azerbaijan.  What?  Take a look at this picture from the Daily Mail;

These are the wealthiest of Azerbaijani women who are bathing in crude oil.  Azerbaijan produces over 1 million barrels of crude oil a day (based on 2011 figures).  This is not a new phenomena, oil drilling first started in Azerbaijan in 1871 and has been going non-stop ever since.  By 1898, production exceeded that of the United States.  Before the outbreak of World War I, three companies controlled 86 percent of the oil in Azebaijan (Russian General Oil Company, Partnership of Nobel Brothers, and Royal Dutch Shell).

The oil industry is also why relations have never been good between Azerbaijan and Armenia.  Armenians ran almost 1/3 of the oil industry in Azerbaijan by 1900.

In 1920, only 1800 qualified specialists worked in the Russian oil industry of which 1232 worked in Azerbaijan. The industry urgently needed technology, education and specialists. The scientific exchange started with the US, where visitors from Baku were seconded to oil-fields in Pennsylvania, Oklahoma, California, Texas, learned new methods of well deepening and exploitation. The Azerbaijan State Oil Academy was established in 1920 to train oil specialists.

Just is this brief history, we can see all of the major oil powers (US, Royal Dutch Shell and Russia) having a presence in Azerbaijan.  Looking at the map below, you may see some other interesting thing.

Geography can often tell us more than words.  The Bake oil fields in Azerbaijan sit right on the Caspian Sea which is controlled by Russia (it is also land locked which we will get to in a minute).  Azerbaijan is bordered by Georgia, Armenia and Iran.  Armenia in-turn borders Turkey (a NATO member).  This should now make the situation in Iran and Syrian even more concerning as conflicts in either region could spill into Azerbaijan and its oil fields.

As I noted, the Caspian Sea is land-locked making exporting its valuable oil difficult beyond the region, especially the lucrative European markets. This problem was solved by the agreement for the construction of the Baku-Tbilisi-Ceyhan pipeline among Azerbaijan, Georgia and Turkey in 1998. The Baku-Tbilisi-Ceyhan pipeline was officially opened on July 13, 2006 and now transports crude oil 1,760 km (1,090 mi) from the Azeri-Chirag-Guneshli oil field in the Caspian Sea to the Mediterranean Sea.

The map above shows one of the main reasons for US and Europe to be concerned about conflicts in the region.  Syria taking pot-shots at Turkey could interrupt oil flow to Europe.  It also explains why France was so keen on being involved in the Libyan conflict, a hedge against any interruptions to the BTC pipeline.

We also see a reason for Russia's support of Iran.  A war with Iran could place US forces within striking distance of Baku.  Europe would feel better with the oil fields being under Washington rather the Moscow's influence. In Iran, the mullahs despise all they see in Azerbaijan, including its open business and diplomatic ties to Israel and the West. Tehran withdrew its ambassador in protest at the staging of Eurovision so nearby.  British royalty and high level government officials travel here frequently.  Read more about that here Daily Mail--"Filthy rich: Britain's favourite dictatorship"

Keep your eyes on the pipeline.