But while investors see the region as "one of the last frontiers," it is "pipeline politics" that will determine its future role as an energy supplier, Nanay warns.
The construction of three major oil export pipelines "outside Russia's sphere of influence" over the last decade put the Caspian in this promising position, the author recalls. But despite such progress, "shifting domestic priorities, geopolitics and regional rivalries could delay the increased flow of oil," she warns, pointing to the "unparalleled political influence" being exerted in the region by Russia.
Western consortiums will export over two million barrels per day from the Caspian region in 2008, the author predicts – a figure which "could double by 2020" as significant increases in production in Azerbaijan and Kazakhstan are foreseen.
Meanwhile, a sizeable US and EU oil company presence in the area is being complemented by Russian, Chinese, Japanese, Korean and Indian companies which are "flocking to the region," says Nanay.
Regarding Kazakhstan, a lack of agreement over pipeline expansion "could lead to production slowdowns," she cautions, warning that the country "will be reliant on Russian routes for a significant portion of its oil and gas exports for the foreseeable future" and "old rivalries fester" between the two countries when it comes to oil and gas.
Another pressing issue is that the northern Caspian is "not deep enough to be accessible by tankers and remains frozen in winter," requiring new pipeline construction, she says.
Meanwhile, "China has begun to make its mark on the Caspian region," while Iran's role as an outlet for Kazakh and Russian Caspian oil exports remains "marginal" due to a US policy "which seeks to isolate Iran," believes Nanay.
The analysis concludes that current pipeline developments have given Azerbaijan "increased political flexibility," as the "clarity" of its export infrastructure means that it can "estimate its production outlook." Moreover, it can "anchor its exports to Turkey and the West" while relying "much less" on Russia.
Meanwhile, despite the "significant production" available to Kazakhstan, "it is stuck between Russia and other difficult choices" as it is also close to China and Iran, Nanay concludes. Kazakh oil production is thus "hostage" to "geopolitical factors" which are "at odds with commercial goals" and "beyond the control of corporate decision-makers".
All this means that "private pipelines are no longer likely" and so governments will either own or have majority stakes in the next generation, determining which get built.