Russia, Georgia and The High Cost of Cheap Oil

The days when the US could kill, drill and consume its way out of crisis have ended. That new reality is made clear by the current conflict between Russia and Georgia, which is looking more and more like one between Russia and the US. As they look into the abyss, Americans will need to ask themselves once and for all how much more they are willing to pay to scrape the bottom of the last barrel of oil.

The Empire That Couldn’t Strike Back

The exact moment in history marking the last gasp of the American Empire will likely be debated by historians for years. But there is little doubt that August 7, 2008 will be viewed as a turning point in that history.

Georgia’s invasion of South Ossetia, followed by Russia’s predictable response, may have faded from the US media spotlight, but it is on the front pages of much of the international press – and for good reason.

On August 26, Moscow issued an extraordinary warning to the West. "If NATO suddenly takes military actions against Abkhazia and South Ossetia, acting solely in support of Tbilisi, this will mean a declaration of war on Russia," said Russian Ambassador Dmitry Rogozin. Russia has also made it clear that it would consider any military assistance to Georgia an act of war.

Ambassador Rogozin compared the current crisis to the atmosphere in Europe just before the start of the First World War. The extreme rhetoric from the Kremlin’s envoy to NATO came on the heels of President Dmitry Medvedev’s pronouncement that he would respond militarily to US missile defense installations in Eastern Europe.

That same week Colonel General Leonid Ivashov, president of the Academy of Geopolitical Studies in Moscow, alleged that the US and NATO had been arming Georgia as a ‘dress rehearsal’ for a future military operation in Iran. "We are close to a serious conflict," he said. "US and NATO preparations on a strategic scale are ongoing …"

"The Georgia quarrel has all but derailed US-Russian cooperation on the Iran issue," observed an August 30 special report on the DEBKAfile. "Moscow is not only pulling out of the diplomatic and sanctions front against Iran’s nuclear program … [It] has decided to finally finish building Iran’s nuclear reactor in the southern town of Bushehr before the end of the year, after holding back for five years at Washington’s insistence."

Later that day, Russian prime minister Vladimir Putin, commented: "If nobody wants to talk with us on these issues and cooperation with Russia is not needed, then for God’s sake, do it yourself."

Moscow has now committed to completing the reactor within four months. DEBKAfile’s military sources report that the plant will enable Iran to operate a heavy water reactor and produce plutonium as an alternative to enriched uranium for building a nuclear bomb.

The dangerous scenario unfolding today in and around the Southern Caucasus of the former Soviet Union has exposed an impoverished and vulnerable US, with neither the political clout nor the military capacity to take care of its own, much less bully other nations into submission. The Bush administration, by behaving as if it were unaware of its diminished status, has placed a once-powerful nation at the mercy of hostile powers, made a mockery of US foreign policy and turned geo-politics on its axis.

Energy – the Weapon of Choice

Russia, with its wealth of petroleum and natural gas, has become an energy superpower. It is feeling that power right now – and with good reason. For starters, it is the single largest supplier of oil and gas to the European Union. A full 25% of Europe’s natural gas comes from Russia. Its leaders well understand that Europe’s continued prosperity – and that of many Western states – depends on the uninterrupted flow of liquid fuel and/or the lucrative energy contracts they bring.

Other countries that rely on Russia for energy include Belarus, Poland, Turkey, the Baltics, Estonia, Lithuania, Latvia and Ukraine. Ukraine, a former Soviet state, is the conduit for 85 percent of the natural gas that Russia delivers to Western Europe. The International Energy Agency predicts that by 2030 Europe’s gas imports will have doubled with much of it coming from Russia.

Georgia, also a former Soviet state, occupies the strategically vital land bridge between the Black and Caspian Seas, making it vulnerable to both Russia and Iran. Georgia has not only clashed with Russia over its desire to become independent, but hosts the only transit route to the West for Azeri oil and gas that bypasses Russia. Georgia also depends on Russia for natural gas.

A key factor in US support for Georgian President Mikheil Saakashvili in his conflict with Russia has been Georgia’s emergence as a critical transit country from the Caucasus and the Caspian Sea basin. The August 7 outbreak of hostilities between Georgia and Russia over South Ossetia is the predictable result of the US’ aggressive use of pipeline politics and proxy states to assert its commercial and military influence in Central Asia.

This policy has dominated US relations with the former Soviet republics since the 1991 collapse of the USSR. Back then, US investors rushed in to grab what they could of the former USSR’s economy, notably the oil and gas industries of the Caspian Basin. From the outset, US firms and advisors pressed the ex-Soviet states to agree to pipeline routes bypassing ‘hostile’ countries like Russia and Iran.

"Such pipelines not only deprived US rivals of transit fees and political leverage arising from their ability to cut off pipeline flows, but also gave Washington the opportunity to weld together pro-US regional alliances," writes journalist Alex Lantier at

In the mid-1990s, the Clinton administration decided on two main pipeline projects to export Caspian oil and gas while bypassing Russia, Iran and China. The first was to export Turkmen gas through Afghanistan and Pakistan to ports on the Indian Ocean (which inspired the US to support the Taliban in the 1990s). That plan ultimately foundered on the Taliban’s inability to conquer northern Afghanistan.

The other was to build a pipeline through pro-US states Georgia and Azerbaijan. Together with an undersea trans-Caspian pipeline connecting Kazakhstan and Turkmenistan with Azerbaijan, the Baku Tbilisi Ceyhan (BTC) pipeline would send Caspian energy exports to the Mediterranean. The construction of this pipeline was viewed as a major affront to Russia’s domination of energy routes from the Caspian to the West.

Some of the Bush administrations’ top officials were involved in US energy companies’ initial penetration of the USSR. Among them, then-National Security Advisor Condoleezza Rice, who served on the board of Chevron from 1991 to 2001 when Chevron was acquiring a stake in the Tengiz oil field; and Vice President Dick Cheney, who served as CEO of oil infrastructure firm Halliburton and as a member of Kazakhstan’s Oil Advisory Board, set up by the Kazakh government (that included CEOs of Chevron and Texaco) after the fall of the USSR.

Georgia subsequently became the site of the ‘Rose Revolution,’ in which its unpopular president Eduard Shevardnadze was ousted in December, 2003. The US-trained Georgian military watched while its top officials, including then-Secretary of State Colin Powell, personally intervened to order Shevardnadze to step down.

This US-lead coup brought to power a series of former Shevardnadze associates who were closely associated with the US. One of them, Columbia University-educated lawyer Mikheil Saakashvili, formally assumed the Georgian presidency in January 2004.

From the point of view of US oil interests, the Rose Revolution was perfectly timed. It came one year before the opening of the BTC pipeline, a project whose value to US foreign policy depended on the Georgian government being independent from Russian pressure.

Developments in Central Asian pipeline politics since the Rose Revolution have not helped the US, which may at least partially explain the Bush administrations’ support of Saakashvili in an increasingly reckless confrontation with Moscow. The growth of resistance to the US occupation of Afghanistan has precluded all plans for constructing a pipeline south from Central Asia to the Indian Ocean. As a result, the Caucasian pipelines through Georgia represent the only viable path for Central Asian oil and gas exports that is acceptable to Washington.

In December 2007, Russia dealt a major blow to the US, when it signed an agreement with Kazakhstan and Turkmenistan to build a new natural gas pipeline along the eastern Caspian Sea coast. The US had wanted Central Asian governments to commit substantial oil and gas resources to a trans-Caspian pipeline linked to the US-backed pipelines in the Caucasus.

The two pipelines currently running through Georgia are the BTC pipeline and the Baku-Tblisi-Erzurum pipeline. The BTC pipeline alone can pump up to one million barrels a day of crude to the Turkish port of Ceyhan, where a bulk of it is shipped to the West. The pipelines were the first routes to bypass Russia in transporting Caspian energy to the West.

These issues are a key subtext to Russia’s conflict with Georgia. They are instructive as well regarding the Bush administrations’ motives for pressuring NATO to ‘fast track’ Georgia’s application to join the alliance.

A Vast Sea of Oil – The End of an Era

US wealth and power has long rested on the abundance of cheap petroleum. For many years, it was the world’s leading producer of oil, supplying its own needs while generating a healthy surplus for export.

"Abundant, exceedingly affordable petroleum was … responsible for the emergence of the American automotive and trucking industries, the flourishing of the domestic airline industry, the development of the petrochemical and plastics industries, the suburbanization of America, and the mechanization of its agriculture," writes Michael Klare, author of "Rising Powers, Shrinking Planet."

Without cheap and abundant oil, the US would never have experienced the historic economic expansion of the post-World War II era.

"No less important," notes Klare, "was the role of abundant petroleum in fueling the global reach of US military power … It has been oil above all that gave the US military its capacity to project power onto distant battlefields like Iraq and Afghanistan. Every Humvee, tank, helicopter, and jet fighter requires its daily ration of petroleum, without which America’s technology-driven military would be forced to abandon the battlefield. No surprise, then, that the US Department of Defense is the world’s single biggest consumer of petroleum.

"As long as most of our oil came from domestic sources and the price remained reasonably low, the American economy thrived and the … cost of deploying vast armies abroad was relatively manageable. But that sea has been shrinking since the 1950s. Domestic oil production reached a peak in 1970 and has been in decline ever since — with a growing dependency on imported oil as the result. When it came to reliance on imports, the US crossed the 50% threshold in 1998 and now has passed 65%."

The Bush administration, having failed to implement an energy policy that might begin to wean the US from its dependence on foreign oil, instead became fixated on it. Its attempts to encircle the Southern Caucasus with NATO members and its’ courting and grooming of Georgian president Mikheil Saakashvili seem only logical when viewed through such a distorted prism. Tragically, Saakashvili’s invasion of South Ossetia played right into Russia’s hands by providing just the excuse it needed to hit back – hard.

Russia has shown more than once that, when push comes to shove, it will not hesitate to make life miserable for its adversaries. In past disputes, it has cut off natural gas to Ukraine and halted oil deliveries to Estonian ports. Amid a trade row with its neighbor Belarus in 2006, it cut oil supplies to Poland, Germany and Ukraine. In July of this year, it cut oil deliveries to the Czech Republic by nearly half to punish Prague for its deal with the US to host a missile defense shield. In the past, both Poland and Germany have had their supplies threatened as well.

While the US does not depend on Russia to meet a significant share of its own energy needs, many of its NATO allies do. The conflict between Russia and Georgia is illustrative of what can happen when national security – and by extension prosperity – relies upon the good will of any foreign power.

There is little doubt that countries like Saudi Arabia and Venezuela, both major US petroleum suppliers, are observing recent developments with great interest. They, along with Nigeria, Russia, Colombia and a host of other oil-producing countries have grown increasingly wary of – and hostile to – the US and its allies since the launching of the ‘global war on terror’ in late 2001.

"The pursuit of freedom, as defined in an age of consumerism, has induced a condition of dependence on imported goods, on imported oil, and on credit," ex-Army Colonel and conservative historian Andrew Bacevich told Bill Moyers in a recent interview.

"The chief desire of the American people … is that nothing should disrupt their access to these goods, that oil and that credit. The chief aim of the US government is to satisfy that desire, which it does in part through the distribution of largesse here at home, and in part through the pursuit of imperial ambitions abroad."

Of course, the current administration is in no position to ‘distribute largesse’ here or anywhere else, and it remains to be seen whether facts on the ground will temper its imperial ambitions.

You Get What You Pay For: The High Cost of No Energy Policy

Whether Americans fully grasp it yet or not, cheap gas is the least of their worries. Included in the Bush administrations’ legacy to the next president are an open-ended ‘global war on terror;’ a food and water supply that is neither secure nor sustainable; an economy in shambles; a disintegrating infrastructure – from the electrical transmission grid to national highways; institutions in freefall – including healthcare, the banking industry, the military and the US Constitution; and no coherent energy policy with which to tackle the threat of accelerated climate change or, for that matter, any other kind of disaster.

Its military having been squandered and its coffers laid bare by gross excess and a cynically-conceived war on terror, the US must now face a moment of reckoning, the likes of which it has never experienced.

Within a few short months, a new president will assume the responsibility of trying to piece together the ruins left behind by one of the most corrupt and destructive administrations in US history. If that new president is serious about change of the kind anyone can believe in, he will seize the moment to tell Americans the truth about the cost of energy dependence, drilling in environmentally sensitive areas and over-consumption. He will make it the first order of business to put forward an energy plan that favors and offers incentives to de-centralized ‘energy farms’ and he will promote policies that encourage individuals, small businesses and/or communities to produce their own food and renewable energy. While he is at it, he should get rid of subsidies to Big Energy and Big Agriculture and hold the fossil fuel, nuclear and ethanol industries accountable for the damage they do.


Photo by Jouni Lehti