Where there is oil and where there is trouble, you can expect to find Dick Cheney – and the US Vice-President arrives today in Baku, the capital of Azerbaijan, for a brief tour of the Caucasus, taking in Georgia as well as Ukraine, three states in the front line of the West’s struggle for Asian energy supplies.

Mr Cheney is a veteran of this conflict and he is back, trying to rally support for a failing strategy. He has been a key supporter of the Caspian region as an alternative supplier of oil and gas to the West. Sandwiched between troublesome Iran to the south and overbearing Russia to the north, the oil and gas reserves of Azerbaijan, Khazakhstan and Turkmenistan were promoted as an energy safe haven, with independent links to the West via pipelines through the Caucasus. That Caucasian lifeline has been shown to be tenuous, its fragility exposed when President Sakashvilli, of Georgia, blundered into South Ossetia last month, guns blazing, to attack Russian separatists.

Today, it seems almost incredible that this chaotic region of gangsters, warring tribes and uncertain borders was trumpeted as an energy umbilical cord to the West, free of Russian influence. The construction by BP of a 1,700-kilometre (1,000-mile) pipeline (the BTC) linking Baku to the Turkish Mediterranean port of Ceyhan via Tbilisi was a feat of engineering, but it was even more of a political triumph, a two-fingered gesture to Moscow as two former Soviet states – Azerbaijan and Georgia – combined to build an oil export system that bypassed Russia.

Tortuous negotiations over the pipeline route through Georgia should have alerted investors to the long-term political risks. A more direct path close to the Armenian border was blocked by Georgia, a mysterious objection until it emerged that the route passed close to a Russian military base.

Built in the late 19th century and abandoned only in 2007, the garrison at Akhalkalaki existed to defend the Kremlin’s southern flank, initially from the Empire of the Ottomans and subsequently the empire of Nato.

In Moscow, the withdrawal from Akhalkalaki and the port of Batumi was probably regarded as diplomatic, not a strategic retreat. The rebel government in Abkhazia has now requested a permanent Russian military base on the Black Sea.

It is becoming clear that the Georgian export route to the Mediterranean is insecure, subject to Russian oversight and likely to become increasingly unreliable. The BTC was disrupted in August after an explosion that was blamed by the Turks on Kurdish separatists.

However, the real cause for concern is that we in the West have made a colossal strategic blunder over energy. We have closed off our options. In Brussels yesterday, the European Union delivered a petulant protest to Moscow, threatening to postpone trade talks. Brussels is anxious to present a united front over energy, but its strategy is barely credible. Leading European utilities in Germany and Italy long ago accepted the Tsar’s writ, offering Russia direct access to their markets in exchange for new supplies of Russian gas.

Mr Cheney’s world view is more in tune with that of Vladimir Putin than the European leaders who huffed and puffed but failed to blow the Kremlin’s house down. In Brussels, President Sarkozy plaintively urged that the world should not return to spheres of influence, but in energy terms we are already there.

Mr Cheney understands spheres of influence. That was his analysis in the National Energy Policy, an attempt to frame a strategy for the United States in the wake of 9/11. It was presented as a way of making America more energy independent, but in fact it was all about securing energy allies, alternative suppliers to Russia and the Opec cabal. These were to be found in West Africa and the Caspian.

To be fair to Mr Cheney, he at least understands the dilemma, even if he played a key part in its creation. He failed to persuade the leaders of Kazakhstan and Turkmenistan to follow the Azeri example and build a gas export pipeline across the Caspian to link up with BP’s gas and oil caravan across Georgia to Turkey. The proposed Trans-Caspian pipeline was bitterly opposed by both Moscow and Tehran, correctly seen by Gazprom as commercial interference in its patch and by Tehran as a Western incursion into an Iranian sea. The clannish Kazakh and Turkmen leaders looked north to Russia and south to Iran and decided that discretion and an improved gas price was the better part of valour. Kazakh gas still heads north into Gazprom’s network and Turkmen gas heads to Tehran.

Meanwhile, Europe is stymied. Where is the alternative supplier of gas to Europe? In the grip of a policy set in Washington that has run into the sand, we have no energy alternatives. We have excluded Iran, which holds the world’s second-largest gas reserves, as an unacceptable partner. Again, thanks to a policy set in Washington, Iraq remains an improbable energy partner.

In Brussels, some draw comfort from the notion that Russia needs Europe’s markets. That is true, but when there is no alternative supplier of scale, Europe’s ability to set terms is diminished. At the same time, China beckons. Russia is building pipelines to the east, as are the Caspian states. There is competition for resources from a buyer that understands and accepts spheres of influence.

Meanwhile, we in Europe have put all our cards on the table. Our hand looks weak and our partner is showing less interest in the game.

http://business.timesonline.co.uk/tol/business/columnists/article4663137.ece