Courtesy Reuters

OPEC as Omen

A WARNING TO THE CASPIAN

With the breakup of the Soviet Union in 1991, four new states emerged on the edges of the Caspian Sea, endowed with oil and gas reserves estimated to be worth between $2.5 trillion and $3 trillion at today's prices. The full extent of the subterranean energy resources of these countries -- Azerbaijan, Kazakstan, Turkmenistan, and Uzbekistan -- is still unknown, but by all accounts their mineral wealth is the largest find in three decades. Still, the nascent republics' current energy production is relatively minuscule. They are thus eagerly soliciting foreign capital and modern technology to exploit their reserves and are believed to need some $50-70 billion of foreign investment during the coming decades.

The economic boom that will inevitably follow such an enormous bonanza promises to mimic, in many respects, the plight of the members of the Organization of Petroleum Exporting Countries in the mid-1970s and after. OPEC's journey from riches to rags is powerful proof of the perils of a tempting but temporary energy boom. The Caspian states would do well to learn from their predecessors' failures.

THE NEW REPUBLICS

There are notable historical and institutional differences between the OPEC and the Caspian Sea players, but the newcomers seem to be on a path to financial and industrial development similar to that of their OPEC counterparts. Ritzy hotels, modern office towers, fancy Western restaurants, expensive designer boutiques, Mercedes fleets, and eye-catching villas are already mushrooming in Baku, Almaty, and Ashkhabad, just as they did in Lagos, Caracas, Tehran, and Kuwait City after the sudden oil price rise in 1974.

The Caspian beginners have much in common. Although ethnically heterogeneous, all four have Muslim majorities, albeit with varying measures of religiosity. Politically, all four countries are led by strong, autocratic ex-communists who rule with an iron hand. Without democratic and free-market fixtures like the rule of law, civil society, an independent judiciary, a free press, effective tax codes, and fiscal accountability, all four are among the least privatized and

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