[OUTLOOK]We need a better oil strategy

The Bank of Korea published recently a report entitled “2004 Forecast of World Economy and Major Issues.” It predicted that rising international oil prices would press on the world economy this year.
Korea imports over 97 percent of its energy needs from abroad, and spends 38 trillion won ($ 32 billion) to purchase fuel annually. That is about a third of the national budget. As the twelfth-largest energy consumer in the world, the country’s economy is obviously sensitive to the fluctuations of oil prices.
The world’s energy map used to be focused on members of the Organization of Petroleum Exporting Countries. But the international oil supply network is rapidly moving northward to Russia and Eastern European nations around the Caspian and the Black seas. Under the strategic planning of President Vladimir Putin, Russia has launched a project to develop and export petroleum and natural gas.
This “oil money” has been an engine for the Russian economy. Russia has now secured a place as a major petroleum producer, solid enough to confront the Organization of Petroleum Exporting Countries and become a factor in world energy pricing.
Coincident with Russia’s emergence, members of the Commonwealth of Independent States adjacent to the Black Sea and the Caspian Sea are experiencing simultaneous energy development booms. The estimated oil reserves in the Caspian Sea region are about 218 billion barrels, nearly 50 percent of the total reserves of the Arab nations, including Saudi Arabia. It is also likely that the Caspian holds the world’s biggest natural gas reserve.
Ever since Russia realized the immense potential of the Caspian Sea region, Moscow has tried to expand its power and maintain hegemony in the region using its military and economic leverage. Russia has fueled regional conflicts among its neighbors around the Caspian Sea, placed Russian military in the region and cut electricity supplies. If Moscow attains its ambitious plan to create a new oil cartel with its Eastern European and Central Asian neighbors, Russia would rise as an energy superpower. Then Russia would be given a new level of power to sway the world economy, a power it never had during the Cold War era.
The United States and the European Union want to check Russia’s emergence. In order to hinder Russia’s attempt to get cozy with Iran, the United States and the European Union were only too happy to join the Caspian and the Black seas region pipeline construction projects.
The first is the Caspian Pipeline Consortium, which has commissioned construction of a pipeline across the Caspian and the Black seas. Petroleum production began in 2001, and the consortium wants to supply over 1 million barrels a day in the future.
The second is a project led by the World Bank, the European Bank for Reconstruction and Development, Citigroup and British Petroleum. The international consortium is building the world’s longest pipeline, spanning 1,760 kilometers. Expected to be completed by the end of 2004, the Baku-Tbilisi-Cheyhan oil pipeline would connect the Caspian directly to the Mediterranean. For security reasons, the consortium has allowed the presence of U.S. military along the pipeline and, therefore, is called the most political pipeline in history.
The third is the Baku-Tbilisi-Erzurum pipeline. When the line is completed in 2006, natural gas from the Caspian Sea will be delivered directly to Western markets.
The pipelines will also provide economic opportunities to the countries through which the lines pass. Georgia, Turkey and others can earn handsome fees from the transit rights. Another pipeline project from Kazakhstan to China is being planned. The world topography of oil trade is rapidly changing.
In order to manage the “second Middle East,” the U.S. National Energy Policy Development Group, numbering Vice President Dick Cheney, Secretary of State Colin Powell and the energy and commerce secretaries as members, is paying extra attention to the Caspian region. The group assigns roles to each department and promotes U.S. national interests through democratization of the region, economic aid and creating an investor-friendly business environment.
Having acknowledged the strategic importance and development potential of the Caspian region, Japan has already begun economic, educational, and medical aid projects to build its clout there. Led by ambassadors to Georgia and Azerbaijan, the Japanese government is also promoting cultural diplomacy by hosting Japanese culture festivals.
How far has Korea’s energy diplomacy come? While Georgian and Azerbaijan have emerged as the new strategic points in energy development, the two countries remain a diplomatic frontier for us, under the remote jurisdiction of the Korean Embassy in Moscow. Oil producing nations along the Caspian will serve as new strategic points, markets and opportunities. Instead of belatedly following the international trend, Seoul needs more active and agile foreign policies to turn the international situation favorable to us.
Before it is too late, the Ministry of Foreign Affairs, the Home Affairs Ministry and the Commerce Ministry must begin to cooperate to establish a new energy strategy for this changed world.

* The writer is a professor emeritus of international politics at Sejong University. Translation by the JoongAng Daily staff.

by Kim Joung-won