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An old article...but very true...

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What does Russia see in Chechnya? Oil

By Andrew Meier

Date: January 20, 1995

Of the many issues baffling Western observers about Russia's intervention in Chechnya, the question of timing -- why now? -- has gone unanswered. The reason is simple: oil.

Chechnya, as many correspondents have noted, has considerable oil reserves of its own that Moscow clearly wants to hold onto. But this would not explain the timing. Indeed, oil production in Chechnya has been dropping drastically -- by some 71 percent since 1991.

Much more significant is the fact that control of Chechnya enables Russia to control the flow of natural resources, mainly oil and gas, from its former Soviet republics. The small mountain region sits astride a critical pipeline that links the oil-rich republics of Azerbaijan and Kazakhstan (on the landlocked Caspian Sea) with the Russian port of Novorossiysk on the Black Sea.

Over recent months, a series of seemingly unrelated developments threatened to eliminate that strategic leverage, upping the ante on Yeltsin as he sought to contain the Chechnya movement for independence.

Last September, in a deal that went virtually unnoticed except by a few oil executives in the West, Azerbaijan signed what it called "the deal of the century" -- an $8 billion oil deal with a broad consortium of Western oil companies. The contract, worked out over months of hard bargaining, called for building a new pipeline that would skirt Russia to channel Azeri oil through Turkey or Iran to Western buyers.

Although Moscow managed to strongarm its way into a 10 percent cut of the deal, it stands to gain far greater control of both the licensing fees and the spigot if Kazakh oil flows along the existing pipeline from the landlocked Caspian Sea through a Russian-controlled Chechnya to the West.

Another important deal is soon to be signed among Kazakhstan, Russia and a Western consortium led by British Gas to develop the giant Karachaganak natural gas field in Kazakhstan. Originally, this plan -- which comes on the heels of even larger deals Kazakhstan signed with Chevron and other U.S. firms to develop its vast oil fields -- did not include direct Russian participation. But Moscow has made it evident it wants equity participation in all energy export deals planned by its former republics. Upcoming negotiations will focus on the terms for Gazprom's -- Russia's state-owned natural gas company -- participation, and arrangements for transporting the Kazakh gas and liquid condensate across Russian territory.

All told, these foreign deals with Central Asian states that border Chechnya total nearly $28 billion, far too much money for a cash-strapped Russia to ignore for the sake of risking another blotch on its inglorious record on human rights.

Yeltsin has cited numerous other factors to explain the military imbroglio in Chechnya, ranging from the domino effect it could have on other republics, to Chechen criminality to the dreaded spread of Islam through the Caucasus and Central Asia. But more clues have surfaced recently pointing to the oil imperative. Yeltsin recently named a former Soviet oil minister, Salambek Hajjiev, as head of the so-called Chechen "Government of National Rebirth" and has vowed to install him once the rebel leader Dzhokhar Dudayev is subdued.

In a letter dated Dec. 21, 1994, written by Yeltsin's increasingly influential bodyguard, Gen. Alexander Korzhakov, to Prime Minister Victor Chernomyrdin, Korzhakov warned against giving Westerners too much control of Russia's raw materials. He further instructed the prime minister to review his recent agreements with the World Bank aimed at liberalizing oil exports on the grounds that they would prove "profitable to the World Bank, but not for Russia."

Until now, the general's letter -- mysteriously leaked to the press -- was treated as a bizarre act in Russia's palace politics. But with Yeltsin's bodyguard assuming a kind of Rasputin role, his missive looks more and more like the smoking gun behind the Chechen invasion. At the least, it reveals the premium Yeltsin places on retaining control of oil flowing from all the former Soviet republics.

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