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though Russian bombers did not target any energy facilities, the coincidence
of an explosion in the Turkish section of the BTC close to the Georgian border
a few days prior to the military operations raised some concern about the
possible targeting of the pipelines (Coskun , & Yevgrashina, 2008). The war
also demonstrated that the Western guarantees for Georgia lacked substance,
and the integrity of the oil and gas corridor depended simply on Russian good
will (Blagov , 2008).
A clear sign of this came from the BP decision to temporarily stop the oil
flows through Georgia to divert part of them through the Russian facilities,
while Kazakh Prime Minister Karim Masimov ordered KazMunajGaz to study
whether the domestic market could absorb the exports envisaged for transit
via Georgia. Even the Azerbaijani company SOCAR re-directed a portion of its
exports, normally sent through the Georgian terminal of Kulevi, towards the
Iranian port of Neka during August and September 2008 (IEA, 2008).
The military confrontation inflicted significant fiscal “collateral damage”
on Azeri oil exports, as all its westward export routes were closed. The war
did not spill across the border into Azerbaijan, but its economic repercussions
have. Foreign investment has been imperiled by the geopolitical instability
laid bare by the brief war and the continuing uncertainty about the present
peace (Ismailzade, 2008). For Azerbaijan the conflict was an unmitigated fi-
nancial disaster, as the country’s oil sector receipts account for almost half of
all government revenues, with oil exports generating around 90 percent of
total export revenues. Between the BTC explosion and the military clash,
Azerbaijan had been blocked from shipping approximately 17 million barrels
of crude, while the U.S. Department of Energy estimated that Azerbaijan’s
final cost for the lost shipments surpassed $1 billion. 
The Baku-Tbilisi-Ceyhan and Baku-Supsa oil pipelines and Baku-Tbilisi-
Erzurum gas pipeline, as well as the Azeri state oil company’s recent purchase
of the Kulevi oil terminal on the Black Sea, had begun to enhance the impor-
tance of the region as a major East-West energy corridor. Azerbaijan and
Georgia have agreed, in partnership with Turkey, to build the Baku-Akhalka-
laki-Kars railway, connecting the rail systems of the three countries. The proj-
ect would create a much shorter and faster rail corridor between Europe and
Asia than the current one through Russia, making Georgia and Azerbaijan the
key hubs for the Eurasian transport network. However, the war has shrouded
the future of these achievements in doubt and undermined the Azeri grand vi-
sion of turning the south Caucasus into the primary transit hub to central
Asia. The conflict froze the operations of the East-West energy corridor.
On Aug. 5, 2008, two days before the outbreak of hostilities between
Georgia and Russia, there was an as yet unexplained explosion on the BTC
segment at Yurtbasi village in eastern Turkey. The cause of the explosion re-
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mains unclear, although Ankara initially suspected that it might have been a
terrorist attack by the Kurdish separatist Partiya Karkeren Kurdistan, or Kur-
distan Workers’ Party. BTC operator BP declared force majeure, and the
pipeline only resumed operations on August. 25.
Following this unrelated attack on the Baku-Tbilisi-Ceyhan pipeline in
Turkey, the violence brought air and rail traffic to a sudden halt, closed the
Kulevi port of Georgia and forced the evacuation of Azeri personnel. As a re-
sult, Azerbaijan and its Western oil company partners were forced to suspend
operations in the Caspian oil and gas fields and energy contracts had to be
re-negotiated. Kazakhstan has backed off the plan to build a $1 billion oil re-
finery in Batumi, a $10 million grain terminal in Poti, and to export oil prod-
ucts and other goods through the territory of Georgia. The export of Turkmen
gas through the south Caucasus has been similarly affected.
The Georgia-Russia war has placed Armenia, which is hemmed in on all
sides by closed borders with Azerbaijan and Turkey, in a bind as well. The
war, and its complicated aftermath, has thus inflicted a considerable amount
of damage on the Armenian economy. One of the consequences of this action
was that some 107 train cars of wheat, 10 fuel containers and 50 additional
train cars with miscellaneous goods were left in limbo. The unloading of ships
with goods meant for Armenia reportedly resumed only on September 1, ac-
cording to the information of Armenian government (“Translations from Yere-
van Newspapers  “, 2008).
The delays were stoking concern about a possible wheat shortage in
Yerevan. Armenian companies were attempting to import the wheat via Iran.
Gasoline has been another problem. Until late August, many gas stations
country-wide posted “No gas” notices. Although the government declared that
gas reserves were sufficient to withstand a temporary shortfall, drivers who
were forced to wait in long lines to buy gas scoffed at the assurances. 
The stand-off has reminded Armenians that their country’s economy is
too dependent on Georgia for its own good. Only in August last year, when
the war interrupted Armenia’s export trade, the country lost 600-700 million
US dollars (“Russia-georgia tensions harm,” 2009). At the moment, 70-80 per
cent of Armenian exports travel to Russia, leaving the Georgian port of Poti for
Bulgaria, then shipped to Novorossiisk on Russia’s southern coast. The whole
journey can take eight or ten days, whereas the road through the mountains
and Upper Lars is relatively quick. This quickly drove Yerevan to intensify its
dialogue with Turkey over prospects for opening their common border that
has been closed for decades, and, like Belarus, to join the EU’s Eastern Part-
nership.
While the consequences of the conflict will be felt for a long time
throughout the region, the balance of power in the Caucasus has shifted.
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