Georgia Lights Up on Energy Map as it Finds Role of Its Own

The FINANCIAL — Mikheil Saakashvili appeared ebullient as he strolled around Tbilisi last week. Crowds of supporters followed him as he sampled local delicacies in the autumn sunshine.

But the Georgian president also looked a decade older than his 44 years, and had put on weight since the 2003 Rose Revolution when he came to power.

Now constitutionally barred from running for president next year, his party has been defeated in parliamentary elections by a billionaire businessman who owns a menagerie of zebras and penguins. Bidzina Ivanishvili, likely to become prime minister, made his money in Russia, was implicitly backed by the Orthodox church, and has pledged to improve relations with Moscow.

Geography makes Georgia vital: with Azerbaijan and Armenia still technically at war with each other, it commands the only route for oil and gas exports from the Caspian and Central Asia to the Black Sea, Turkey and Europe that bypasses Russia and Iran.

Through this beautiful, misty and mountainous country snake two key arteries: the Baku-Tbilisi-Ceyhan (BTC) pipeline, which carries 1 million barrels per day of oil from Azerbaijan to Turkey's Mediterranean coast, and another line bringing Azeri gas to Turkey.

The construction of BTC was a key American geopolitical priority of the 1990s, to open a window to the Caspian, bypass Iran, and make Azerbaijan and Georgia less dependent on Russia. A planned gas pipeline to bring Caspian and Middle Eastern gas through Turkey to Europe is also intended to weaken the Kremlin's grasp, but continuing debates on the route and sources of supply have been a saga worthy of Tolstoy.

In 2008, Russia and Georgia fought a short war over the breakaway territory of South Ossetia. Precipitated by Mr Saakashvili's misjudgement, it was an ideal opportunity for Russian president Vladimir Putin to damage a rival he reportedly hates.

But it also demonstrated how vulnerable this alternative to Russian routes is, as both BTC and another pipeline to the Black Sea were reportedly bombed during the conflict. And the war reminded other Caspian leaders not to oppose Moscow too blatantly.

Though prison abuse, stubbornly high unemployment and rural poverty remain problems, Mr Saakashvili clamped down impressively on corruption, liberalised business and diversified the economy. Visa-free travel and – surely a unique feature – a gift of wine at immigration make a contrast to Stalinist bureaucracy elsewhere.

One of his major achievements was to improve Georgia's domestic energy supply, ending winter blackouts and fuel shortages. The country is now a major exporter of hydro-electricity to all its neighbours, including Russia.

This month's election marked a rare peaceful democratic handover of power in the post-Soviet space, a precedent that might worry the oil-funded authoritarians in Russia, Azerbaijan and Central Asia.

But Mr Ivanishvili is suspected by some to be a stalking horse for Mr Putin – as Mr Saakashvili's campaign alleged. Russia has not even bothered to conceal its pleasure over its enemy's defeat, with the foreign minister Sergei Lavrov observing: "We hope the new Georgian government [will] improve relations with all its neighbours."

There is no reason to expect dramatic change in Georgia's energy alignment. The country has good relations with Turkey, a major investor, and Ankara wants to see more Caspian oil and gas flowing to its territory.

Any government in the former Soviet sphere has to balance cautiously between Russia, the West and regional powers such as Turkey and Iran. Georgia's new foreign minister-designate has said the country will retain its pro-western orientation while improving relations with Moscow. All politics are local: Georgia is not just a piece on the global energy chessboard, but a diverse country finding its own distinctive role.

Robin Mills is the head of consulting at Manaar Energy, and author of The Myth of the Oil Crisis and Capturing Carbon.