Why the fuss about Baku's new oil pipeline?

The oil flowing through the new pipeline connecting the Caspian Sea and the Mediterranean has been hailed by George Bush as a lubricant for global growth. But who are the real winners?

What is the BTC pipeline? The Baku-Tbilisi-Ceyhan oil pipeline: a brand new 1,094 mile stretch running from Baku, on the Azerbaijan coast, through Georgia, and then on all the way to Ceyhan in Turkey. It is so long that each gallon of oil will take two months to travel its full distance. This is the first time the Caspian and Mediterranean have been linked by an oil pipeline and means that those transporting oil from the rich fields of Baku can now avoid the overcrowded Black Sea ports, Russia and the Middle East. The Caspian region is thought to hold the world's third-largest oil reserves (they are estimated to be the same size as those of Qatar, although no one knows quite how accurate these estimates are) and when the pipeline is fully operational, one million barrels of oil per day should be pumped through it. That's equal to 1% of global production.

Why is the pipeline so important?

There are already two Caspian pipelines coming out of the Caspian region, both of which flow directly to the Black Sea, which is overcrowded and subject to the whims of Russian politics. This one goes directly to the Mediterranean, and as such goes some way towards reducing the West's reliance on the Middle Eastern Opec countries as well as on Russia. "Greater energy security through a more diverse supply of oil for global energy markets, these are the engines of global growth, and with this pipeline those engines can now run at high speed," says George Bush of the project. The pipeline took eight years to plan and three years to build for a total cost of £3.6bn paid by a consortium led by BP with loans secured by European Bank for Reconstruction, the World Bank and the US Export-Import Bank.

Who are the big winners in the Caspian?

Azerbaijan is the biggest winner. The government is anticipating making up to $5bn per annum for its coffers from increased sales of its oil something that will triple the country's GDP and allow Baku to reclaim its status as the original oil boomtown. Already, the city's historic old town is being smothered by high-rise blocks of flats, neon-lit shopping malls and fumes from countless top-of-the-range SUVs. Not long now and Azerbaijan could become the new Kuwait or even Norway. Indeed, the Azerbaijani government has already won international praise for setting up a state oil fund, where a large chunk of oil revenues will be invested for future generations.

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Can anything go wrong?

Azerbaijan might turn out to be more Nigeria than Norway. The pipeline passes close to Azerbaijan's tense ceasefire zone with neighbouring Armenia and runs near to separatist regions in Georgia, while also skirting Kurdish areas in Turkey. Horseback security guards will be patrolling it daily in Georgia and Azerbaijan and Special Forces units will be available to combat terrorist attacks: the pipeline is one metre below ground level, but its vulnerability has been highlighted by attacks on similar installations in Iraq. Last month, worries about the stability of the region were exacerbated when Azerbaijan police detained 30 leading opposition members and then arrested another 45 during a peaceful pro-democracy demonstration in central Baku. George Bush refers to Georgia as a "beacon of liberty", but Azerbaijan has one of the former Soviet Union's most authoritarian regimes, making a revolution like those seen in Georgia in 2003 and in Ukraine last year a reasonable possibility.

Any other winners?

Georgia and Turkey will benefit but not to the same degree as Azerbaijan. Based on an oil price of $25 per barrel, Turkey will earn about $2.5bn and Georgia about $600m over the course of the next 20 years. This will be of significant benefit to Georgia, as it will boost GDP by 1.5%. But this is dwarfed by the $50bn Azerbaijan will make over the same time period.

What about businesses?

Other winners could be the owners of the pipeline, which is predicted to make over $7bn a year income from 2007. BP is the biggest player, with a holding of 30.1% of the pipeline and 34% of ACG oilfield the main source that will feed the pipeline. The other main members of the consortium are SOCAR, or the State Oil Company of Azerbaijan (25%); Unocal, a US oil company (8.9%); Statoil, the Norwegian state oil company (8.7%); TPAO, or Turkish Petroleum (6.5%); ENI, the former state oil company of Italy (5%); TotalFinaElf, France (5%); and Itochu, a Japanese trading firm (3.4%)