Mr. Chairman, Ladies and Gentlemen:

Thank you for providing me with the opportunity to address the Subcommittee. Central Asia has re-emerged as a focus of American foreign policy since the Soviet Union collapsed in 1991, and new, fascinating countries have emerged from under the rubble of the empire.

Five Countries in Search of a Definition. American policymakers have at times failed to appreciate the complexity of Central Asia, with its multi-layer mosaic of history, culture, and religion. Four of the region's countries are Turkic speaking, while the Tajiks speak a language closer to Farsi. The populations vary in their degree of piety, as well as in their attitude toward Russia and Turkey. The concept of statehood is weak throughout Central Asia, and appears to be strongest in Uzbekistan. The first challenge to U.S. policymakers is to understand each country and its interrelations with its neighbors and the regional powers. It is necessary to grasp the individual nature of these countries and even sub-regions, rather than viewing Central Asia as "part of the former Soviet Union," the "near abroad" of Russia, or "part of the Moslem world."

When one measures the distances from Tashkent or Bishkek, the capital of Kyrgystan, to nearby cities, or when one compares flight times to regional capitals, it becomes clear that the "near abroad" of Uzbekistan is Afghanistan, Iran, China, and Pakistan, or perhaps Turkey¾ not only Russia. Since time immemorial, Central Asia has attracted conquerors¾ from Alexander the Great to Genghis Khan to Timur the Great, to the Russian czars and comissars. Today, the U.S. is striving to promote peace, stability, sovereignty, and the security of the five Central Asian states.

The Engine for Prosperity? Oil could be an engine of economic development for the Central Asian states. Revenues from oil transit and downstream industries, such as petrochemicals, are desperately needed by the governments of Central Asia to help propel their impoverished societies toward prosperity in the 21st century. However, the economic viability of the Central Asia ventures depend upon oil and natural gas prices. What made economic sense when oil was $20/barrel became infeasible if the current price range for oil persists. If the Gulf States maintain prices below $15- $18/barrel, the question of whether significant progress can be achieved would perhaps best be answered by an oil economist. One thing is clear¾ the development of Central Asia could provide lucrative business opportunities to American companies.

Table One below indicates the distribution of oil reserves in the Caspian region.

Table One: Estimates of Recoverable Oil and Gas Resources in the Caspian Region

Table Two: Current and Future Pipelines in the Greater Caspian Region

Source for both tables: U.S. Department of State.

REGIONAL POWERS IN CENTRAL ASIA

For a time (1992- 1995), Russia was thought to be in the process of recapturing a dominant position in its Southern tier, the Caucasus and Central Asia, but the effort foundered. Russia found itself caught between its inflated ambitions and declining capabilities. The redistribution and privatization of the Soviet wealth, plummeting military budgets, internal turmoil, and competing visions of Russia's future among its political and policy elites have all contributed to Russia's inability to restore the empire by force. Many of the tremendous resources once commanded by the USSR are now in the hands of private citizens and interests whose agendas do not necessarily include the restoration of old order in Central Asia.

Russia's expensive and prolonged involvement in Tajikistan indicates that the lofty rhetoric about Commonwealth of Independent States (CIS) integration remains just that, and that the human and economic resources and willingness to sacrifice which would be needed to cobble the empire back together are lacking. Prime Minister Evgenii Primakov has said much about Russia's "multi-vectored and multi-faceted policy," made much of Russia as a great power, and laid claims concerning the "objective processes of integration" of the areas contained within the former Soviet Union under Russian leadership. Nevertheless, the southern New Independent States (the "NIS")¾ including Central Asia¾ have been looking West (and East, and South) to break the mold of post-imperial dependency.

Russia would like to prevent the NIS from exporting energy resources to deny these countries the cash flows needed to build independence. Failing that, Russian oil interests will seek to direct the export routes and pipelines through Russian territory¾ for their own financial benefit as well as Moscow's strategic advantage. There is certainly room for Russian oil and gas companies to play a role in the future development of the hydrocarbon resources and the economies of the Southern NIS. However, both the West and the governments of the NIS have a common interest in warding off Russian attempts to impose hegemony by playing an irresponsible role in promoting ethnic conflicts, or preventing their speedy and peaceful resolution.

The elites of the region, having tasted independence, and lured by the prestige of their own flags, UN seats, and ministerial and ambassadorial titles, have no desire to revert to the status of provincial overseers for the Kremlin. Now, with expectations of oil wealth, they may fight tooth and nail to preserve their independence and access to their lands' natural resources. However, when states fail or are very weak, as in the case of Tajikistan or Kyrgystan, elites become more receptive to interference from outside powers.

Iran's Challenge. There are other powers coveting the region and its resources. Iran sees the Central Asian states and Azerbaijan as its potential sphere of influence and its strategic rear. Central Asia and the Caucasus are perceived in Tehran as a market for both its goods and its ideology. Moreover, Iran would like to profit from transit fees from the traffic of energy resources exported to the Persian Gulf via Iranian territory. However, the mullahs are treading softly. Thus far, Tehran, with its militant Islamic Shi'ite ideology, has been contributing money to rebuild the mosques and religious educational institutions neglected during the Soviet era. To date, there is little evidence of Iranian political sedition or terrorism in the region. Meanwhile, the secular governments of Central Asia, aware of the explosive potential of religious extremism, are keeping a tight leash on Iranian activities. The elites of the NIS are aware of the popular discontent of the Iranian society and do not wish to follow the example of the corrupt and bureaucratic theocracy next door.

Geographically, Iran is very attractive as an outlet for Caspian (Kazakhstani and Azerbaijani) oil and Turkmenistani gas. Small amounts of Kazakstani and Azeri oil brought by barge across the Caspian Sea are already entering the Iranian pipeline system in the north of the country, while offset sales are being performed from the Iranian oil terminal at Kharg Island in the Persian Gulf. Turkmenistan has built a railroad connecting its network to Iran and is actively exploring gas exporting options via Iranian territory. Energy-starved Turkey¾ an important U.S. ally¾ has negotiated a $20 billion gas pipeline project to bring Iranian and Turkmeni gas to its fast-growing economy, and further to the world markets in 1996 under former Islamic Prime Minister Necmettin Erbakan. However, that project may be abandoned in favor of a trans-Caspian option via Azerbaijan and Georgia. The shortest (and therefore cheapest) pipelines would go from the Caspian Sea south to the Gulf. However, this direction is undesirable from the American point of view given Iran's persistent support of terrorist organizations in the Middle East, its export of Islamic revolution to neighboring states, and its active efforts to become a nuclear power armed with ballistic missiles. It may also be problematic, as it will choke most of the world's energy reserve in the politically highly unstable area where the geopolitical "tectonic plates" of Iran and Iraq, and Shi'a and Sunni Islam, are colliding. On the other hand, the Gulf does have advantages of developed oil refining and port infrastructure, and the oil companies are certainly lured by cheaper exporting infrastructure.

The sanctions imposed by the Iran and Libya Sanctions Act, sponsored by Sen. Alfonse D'Amato (R- N.Y.) and Rep. Benjamin Gilman (R- N.Y.) forbid significant investment in projects which would either enhance the Iranian oil and gas system or benefit the current regime. It is in the interest of America and the West to deny Iran markets, revenues, and freedom of maneuver in Central Asia until such time as it abandons its anti-American and anti-Western position.

Geopolitical Pluralism? The challenge for U.S. policy for the next century is to keep conquerors away from Central Asia¾ and to foster regional cooperation between the states, as well as between the regional players: Russia, Iran, Turkey, China, India, and Pakistan. The multipolar world about which Russian Prime Minister Primakov likes to pontificate has surfaced¾ right next to Russia, in Central Asia. Different players from the region are pursuing their own economic and geopolitical agendas.

Because of its sheer size and might, China will loom increasingly large in Central Asia. To date, it has chosen to treat the region as its strategic rear while it focuses on the Pacific Ocean, absorbs Hong Kong, and challenges Taiwan. The 1996 Shanghai agreement with Russia and the Central Asian countries solidified Beijing's position while keeping the door open for Chinese economic penetration of the area. Yet Beijing is interested in keeping the restless Islamic Turkic Uighur minority in Western China under control, and is pursuing good relations with the Turkic Central Asian countries accordingly. China recently signed a troop reduction agreement with its Central Asian neighbors and Russia that will allow it to concentrate greater military power in the South.

Until the Asian economic crisis, the Chinese economy was attractive enough to spur projects to build the longest gas pipeline in the world, from Western Kazakhstan to the Xinjiang province in China. The Chinese national gas company has already acquired several fields in Kazakstan. If it comes to fruition, this pipeline may be attractive for consumers further East, in South Korea and Japan. However, questions abound regarding both the technical feasibility and the financing for such an ambitious project, especially if the Chinese economy does not resume its previous growth rates of 7- 8 percent a year.

Another emerging market, Pakistan, is trying to gain access to Central Asian energy resources. Through its support of the Taliban radical Islamic movement, Pakistan hoped to gain control of Afghanistan. Due to close relations between Pakistan and the U.S., Central Asians saw Taliban as enjoying American support. This is a challenge the U.S. policymakers need to address. Politically and morally, America cannot afford to be associated with a medieval fundamentalist Islamic movement which commits the worst human rights abuses and is supporting itself through drug trafficking. While the war was raging, plans were laid to build an oil and gas pipeline to Pakistan, and possibly further, to India. In the long run, gas pipelines may be built from Turkmenistan and Uzbekistan to Pakistan. One pipeline may run from Dauletabad field in Southern Turkmenistan to Central Pakistan. If peace in Afghanistan prevails, this pipeline would also be beneficial to the people of Afghanistan, bringing jobs and infrastructure development, such as roads, railroads, airports, and hospitals, to that much-suffering country. Energy companies have also suggested a concurrent oil pipeline. Unfortunately, because of the ongoing conflict, the prospects for such a pipeline remain grim, and the consortium led by the American UNOCAL and Saudi Arabian Delta folded as the hostilities dragged on.

ECONOMIC DEVELOPMENT

The flow of commerce, investment, and communication in Central Asia is changing. Formerly dominated by Russia, the region is opening up to the world. Provided commodities prices recover, this will be a rapid and transforming process which is going to change the nature and character of the area, making it much more dynamic. Currently, railroads between Turkmenistan and Iran, Kyrgyzstan, Uzbekistan, and China, and highways between these countries and China, Pakistan, and India, are being constructed. The volume of telephone calls and first-class mail from Central Asia to Russia is dropping drastically, while contacts with the U.S., the EU states, Turkey, Iran, China, Japan, and Korea are growing. However, to efficiently develop the East- West the Silk Road¾ a transportation corridor from the Chinese border to Western Europe and the Middle East¾ the cooperation of not only the Central Asian states, but also the countries of the Caucasus, such as Azerbaijan and Georgia, will be needed. New railroads connecting to trans-Caspian and cross-Black Sea ferries, and in the future pipelines to China, Korea, and Japan, will have to be constructed at a great cost.

Another ambitious project under consideration is the gas pipeline from Eastern Turkmenistan to the Pacific Coast of China. If built, this would be the longest pipeline in the world (3,700 miles). It is being considered by a consortium which includes Esso China (Exxon), Mitsubishi (Japan), and China National Petroleum Co. An oil pipeline from Western Kazakstan is also being considered along the same route.

Turkey is interested in diversifying its sources of natural gas away from Russia, which currently supplies 85 percent of its fast-growing needs. Turkey would like to import 10 billion cubic meters of natural gas over 23 years from Iran. However, the pipeline for this project has neither been constructed nor financed. Turkmenistan could have been an alternative for Iranian gas if a cross-Caspian pipeline, possibly along the Baku- Supsa and Baku- Ceyhan route, is built.

The Silk Road Blueprint. The countries of the region, together with the U.S., Western Europe. and regional players, are interested in cooperating on the development of a transportation and communications corridor stretching from the Chinese border to Georgia, and further across the Black Sea into Europe. To ensure railroad linkages between Europe and the Caucasus and Central Asia, railway-capable ferries need to be deployed in the ports of Batumi, Poti, and Novorossiysk on the Eastern shore of the Black Sea, and in the ports of Odessa (Ukraine), Constanta (Romania), and Burgas (Bulgaria). Similar ferries may connect the Turkmen port of Turkmenbashi with the European side of the Caspian to allow railway cars to travel all the way to Central Asia, and eventually to China. A network of modern highways with accompanying infrastructure is still to be built in the region. Airports are antiquated and require a major capital investment. Fiber optic cables needs to be deployed to ensure high-quality voice and data communication for the oil and petrochemical industries and emerging market economies in the Caucasus and Central Asia. This massive undertaking cannot occur without a substantial private-sector investment. The European Union is promoting its TRACECA (Transportation Central Europe- Central Asia) project, giving an advantage to European companies. However, these are the areas in which American companies have a competitive edge and are capable of greatly contributing to economic growth in the region.

Conditions for Economic Growth. In order to ensure that the economies of the Southern NIS eventually take off, vast social reforms and institution building need to be undertaken. It will be crucial to ensure that the wealth benefits wide strata of the Central Asian societies and is not siphoned off out of the country by a narrow and corrupt circle of high-level government officials, their cronies, and family members. Unfortunately, there signs that this is exactly what may happen. These societies need to develop the rule of law in order to provide for transparency, contract enforcement, and effective dispute resolution. They need to develop market institutions. Governments must improve wealth distribution and conditions for investment, foreign and domestic.

Without the rule of law, economic growth in the region will be limited to the foreign-managed energy sector alone. The trickle-down effect of the energy boom will be minimal, and will be beneficial only to a narrow elite. Stability and political development will suffer. To avoid this, the conditions for local and foreign investment in downstream production and other sectors of the economy must be created.

The region has a high rate of endemic crime and corruption, with venal and inefficient law enforcement organizations. To ensure economic growth, the national governments have to implement anti-corruption campaigns and upgrade and train law enforcement units. In addition, economic regulations should be simplified to deny bureaucrats the opportunity to extract bribes. The U.S. can help these countries to adjust their system of government to the demands of the 21st century.

Both the local governments and the West should encourage the development of free and open media, as well as non-government organizations (NGOs) which partially supplant the "mommy" state and promote individual rights. Western investors and local governments should support education and training of the indigenous workforce in order to allow it to acquire the new skills necessary for functioning in the market economy.

North- South or East- West? The Central Asian region is facing a dilemma: It can choose the economically more promising trade flows moving in the East- West direction through the Caucasus to Western Europe and the Mediterranean. Or it can rely on Iran and Russia, the traditional regional hegemons, thus furthering trade in the North- South direction.

East- West is the preferable route for the Southern NIS, as neither the U.S. nor the Western countries will pursue the heavy-handed tactics that both Moscow and Iran have in the past. The West is interested in independence and the development of the Central Asian states as this meshes with its foreign policy and security interests. Furthermore, East- West trade flows would ensure access for the Southern NIS to Western capital markets and technological prowess, as well as allowing Western companies to develop local markets in goods and services for the benefit of local consumers. Local elites could be educated based on Western know-how, thus leapfrogging a generation of government, legal, and technological skills which were formerly imported from the USSR. Still, rich histories, cultural achievements, and the Turkic and Islamic roots of most of the countries in the region must be cherished and appreciated by Westerners as they engage the Moslem Eurasians in trade and cooperation.

If the North- South trade prevails, the local elites will be further split, some preferring the Islamic orientation of Iran while others look North to Moscow's blend of lawlessness and robber baron capitalism. The ensuing clash of civilizations may exacerbate already existing fault lines in these multi-ethnic, multi-religious, and ethnically diverse countries. For example, the educated Russian minorities in Kazakstan, Uzbekistan, and Kyrgyzstan play an important role in the region's economic development and governance. In short, while East- West trade flows guarantee a win-win situation for the southern NIS, North- South trade may turn the region into a Russian- Iranian condominium, exacerbate religious conflicts, suppress the independence of the new states, stem the growth of secular civic societies, and hinder economic development.

LOCAL CONFLICTS¾ ROADBLOCKS ON PIPELINE ROUTES

There are a number of local regional conflicts that need to be resolved in order to secure the flow of oil from Central Asia to the Caspian, to the Black Sea, and further to the Mediterranean. The most important among them is the Azerbaijani- Armenian conflict over Karabakh. It is my opinion that the sanctions against Azerbaijan contained in Section 907 of the 1992 Freedom Support Act must be lifted to provide American neutrality in the conflict and enhance our position as a mediator. The other co-chairs of the Minsk Group, Russia and France, do not apply sanctions to Azerbaijan.

In addition, there is the ongoing dispute about the status of the Caspian Sea¾ whether it is a lake or a sea, and the legal status of the territorial waters and economic zones of the littoral states. This discord greatly affects the security of investments in the Caspian Sea oil exploration and rights of way for pipelines that in the future may criss-cross the bottom of the Caspian.

The civil war in Tajikistan, tragic as it is, affects oil and gas transportation issues to a lesser degree. However, as long as it continues, it provides a justification for the 30,000-strong Russian CIS-sponsored expeditionary force stationed in the area. This tragic war has demonstrated the civic weakness of Tajikistan and laid bare its clan and regional rifts. It has also caused over 500,000 refugees to spill over into Central Asia and beyond.

Last but not least, the war in Afghanistan, started by the Soviets in 1979, has left millions killed and wounded. It also has blocked the possibility of constructing oil and gas pipelines from Central Asia to Pakistan and India. Recent accords in Ashghabad (March 1999) fail to provide for a coalition government in Kabul necessary for the cessation of hostilities.

DEMOCRATIZATION

The U.S. is dealing with a number of conflicting objectives in the region. On the one hand, America is trying to provide stability, but on the other, it seeks to promote democracy and human rights. Authoritarian rulers tend to believe that they furnish stability, thus answering one of America's primary objectives. They are often quite surprised when the Department of State criticizes their human rights records. Unfortunately, countries in the region have not been paragons of virtue when it comes to political freedom, free elections, free press, and the preservation of human rights. The leaders of Turkmenistan, Tajikistan, Kazakhstan, and Uzbekistan have not conducted elections that were recognized as free and fair by international observers. The leaders of Kazakhstan and Kyrgyzstan have disqualified bona fide presidential challengers and dominated mass media. In 1995, President Nazarbaev shut down the Parliament of his country and got a more malleable one elected. Kazakhstani presidential election deadlines were arbitrarily shifted in 1998. Police in most Central Asian countries often harass oppositionists and democratic activists. The free media, where allowed to exist, often work in very difficult conditions.

The U.S. government must put more pressure on the regimes in the region and educate the top leaders to the notion that in the long run, it is the participation of the society, its stake in the economy, and its free economic and political development which makes their countries strong. In those cases where flagrant violations are taking place, the U.S. should strongly condemn the culprits and clarify that U.S. assistance will be on the line if the violations do not stop.

CRIME, CORRUPTION, AND DRUGS

Undoubtedly, Central Asia is a tough neighborhood. A flood of drugs is either flowing in from neighboring Afghanistan or being grown and processed locally, corrupting law enforcement and government officials, breeding organized crime, and contaminating the weak fabric of the local societies. Even without the drug problem, these societies have suffered from indigenous corruption for centuries. Corruption undermines the legitimacy of local governments, weakening their authority and opening the door for militant and radical Islam. The U.S. government needs to assist local authorities with the development of realistic and viable anti-corruption measures, cooperate in anti-drug activities, train local anti-drug forces, and monitor the most vicious organized crime syndicates.

ISLAMIC FUNDAMENTALISM

Usama Bin Ladin and his terrorists are less than one hour away from some Central Asian capitals by plane. Yet when Uzbek government officials brought their concerns about the Bin Ladin Afghanistan-based operations to U.S. executive branch decision-makers two years ago, they were not taken seriously, according to Uzbek diplomatic sources. I do not know whether this claim is true. However, while militant Islam, including anti-establishment Wahabbi sects, is a concern, the fight against it cannot be used by local authorities to justify major violations of human rights and due process. Mass arrests are not a substitute for good intelligence and law enforcement work. Excessively oppressive governments may push young unemployed males into the waiting hands of the Hezbollah recruiters and other militants.

CONCLUSION

Central Asia is in the midst of a revolutionary transformation¾ economic, political, and cultural. The peoples of the region look forward to partaking in the global economic game and in modernization, the fruits of which were denied to them by the strict controls of the Soviet regime and by geographic isolation. Unfortunately, their progress may be blocked or hindered by collapsed commodity prices. The issue of violent and militant Islam¾ be it of the Shi'ite Iranian or Sunni Taliban variety¾ will also need to be addressed. Vestiges of great power imperialism (of the 19th century vintage or otherwise) will need to be abandoned. The U.S. should encourage governments in the region to observe human rights and fulfill their obligations under Organization for Security and Cooperation in Europe (OSCE) documents and norms.

An important challenge for the governments of the region, as well as for the world powers, is to manage the process of constructing the Silk Road in a cooperative manner, to prevent competition which might result in violent conflict, and to ensure access for all domestic and foreign parties to the riches of the region. The U.S. should be involved in all stages of building that road.

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