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Russia’s Oil Empire Teeters Over Rich Caspian Basin Reserves

October 10, 1995

NEFTYANYE KAMNY, Azerbaijan (AP) _ Teetering above the glittering waters of the Caspian Sea, the one-time pride of the Soviet oil industry lies rusting and falling apart.

Neftyanye Kamny (Oily Rocks), built in 1949 on a rocky offshore outcropping connected to mainland Azerbaijan by roads perched on iron stilts, was part of Josef Stalin’s drive to increase oil output following the fuel shortages of World War II.

Production at the site 40 miles east of Baku once topped 42 million barrels a year. But now it has tumbled to 5.6 million barrels and the complex is a jumble of collapsed buildings, junked machinery and obsolete oil pumps. Workers haven’t been paid for months.

All that is about to change dramatically.

Western oil companies have poured into the former Soviet republics on the Caspian Sea _ Azerbaijan, Kazakhstan, Turkmenistan and Russia _ to grab a slice of the huge reserves of oil and natural gas there.

The 11-company Azerbaijan International Operating Company (AIOC) has agreed to spend $7.4 billion on lucrative new oil fields. The consortium said Monday that it will export most of the crude through Turkey, breaking Russia’s historic grip on the Caspian Sea reserves.

The stage was set for big changes in Caspian development by the collapse of the Soviet Union in 1991.

Azerbaijan’s state oil company, Socar, took over Neftyanye Kamny when the republic gained independence.

It joined in a joint venture with the American oil company Pennzoil, a project that already brings 123 million cubic feet of natural gas ashore each day from Neftyanye Kamny. Previously, the gas was simply let into the air.

Economic benefits aside, the prospect of massive oil development has raised concerns for the environment.

The AIOC, which plans to produce 700,000 barrels of oil a day by the end of the century from two Azerbaijani offshore fields, has commissioned a study of the Caspian environment.

``We don’t want to get blamed for what’s already there,″ said AIOC’s spokesman Einar Bergh.

Defining the pollution is tricky.

Effluent from the Russian enterprises along the Volga, the largest river to flow into the Caspian, is a major source of pollution, on top of the slicks from the region’s aging oil industry.

But according to Jack Colonell, a scientist with Anchorage, Alaska-based consultants Woodward-Clyde, ``a lot of oil arrived into the environment naturally, from seepages and volcanic activity.″

Pollution and overfishing are widely blamed for the dramatic decline in catches of sturgeon in the Caspian. But Colonell reckons the main reason is a lack of cash for maintaining and fueling fishing boats that are now laid up in harbor.

The sturgeon’s delicious black eggs grace the tables of the world’s wealthy as caviar, also one of the region’s main contraband items.

Another environmental puzzle is the level of the Caspian Sea, which has risen six feet since 1977, leaving much of Baku’s seafront promenade underwater. Some predict the waters could rise another 15 feet, threatening to turn downtown Baku into a Venice on the Caspian.

With an area of 150,000 square miles, the Caspian is actually considered a lake _ the world’s largest. But Russia has sought to prove otherwise.

The Soviet Union and Iran, in bilateral agreements in 1940 divvying up the lake, both agreed to its status as a lake. A half-century later, to the Kremlin’s chagrin, the Soviet demise saw the Caspian divided another four ways that left Azerbaijan, Kazakhstan and Turkmenistan with choice petroleum deposits.

Determined to hold onto the oil riches of its former colonies, Russia is waging a diplomatic battle to have the Caspian recognized as a sea. This would make turn most of the Caspian into international waters, leaving it open to Russian oil companies.

Iran, casting an eye to the oil wealth of its Central Asian neighbors, has provided periodic support for the Russian campaign.