Vast oil deposits beneath the Caspian Sea have made the regions of Georgia and Azerbaijan the focus of heated interest since the collapse of the Soviet Union in 1991. One area of dispute -- even though oil will not start to flow in quantity until 2004 -- is the path of the pipeline required to bring the precious stuff to market. Second of two articles by Thomas Goltz explaining the stakes involved for American oilmen, regional powers and strategic thinkers. Goltz is the author of "Azerbaijan Diary: A Rogue Reporter's Adventures in an Oil-rich, War-Torn, Post-Soviet Republic" due this winter from M.E. Sharpe of Armonk, New York.

SUPSA, GEORGIA -- The earth shudders as the giant, vertical jackhammer drives the 90 foot steel pipe section into the soggy ground like a spike.

"The ground is too soft here to hold the tanks over the long term," shouts Bill Lamport over the din. "We gotta go deep to secure a decent foundation."

Lamport is project manager of the Supsa Terminal and Offshore Facilities construction site in western Georgia. He is talking about the technical problems of constructing four huge tanks to hold the so-called "early oil" produced by the Azerbaijan International Operating Company (AIOC) in the Caspian Sea, which is due to come on line next year.

But he could be speaking metaphorically about the problems encountered by Georgian president Eduard Shevardnadze and his colleague in Azerbaijan, Heydar Aliyev, in building a new social and economic order on the shifting political sands of the post-Soviet Caucasus.

If Lamport can put his terminal together on time, and other members of the Georgian Pipeline Company can stitch and fit new and existing pipes from the Azerbaijani border to Supsa, Georgia will have a very good chance of claiming the multi-billion dollar Main Export Pipeline (MEP) when a route is chosen in the near future. And a trip along the line reveals enough determination and dedication to complete the $350 million project on time.

"If Georgia is chosen as the venue for the MEP, it stands to accrue $500 million in transit revenues per annum once real oil begins to flow," one energy observer predicts. "But more valuable than that, and the jobs MEP will produce, is that fact that Georgia--and thus Azerbaijan--will have won protection. Big oil companies do not like to see their billion dollar labors go up in smoke."

That is precisely the problem faced by the other main candidate for both early oil and the finished pipeline, the "northern" route up from Azerbaijan through Russia to the Black Sea port of Novirossisk. That line was supposedly in much better shape and thus cheaper to repair, and capable of much earlier delivery than the line through Georgia. Early returns are attractive to the AIOC which has sunk almost $1.5 billion into the project. The Northern route also has the distinct advantage of including the Russian state through its pipeline concern which would collect $15.57 per ton of oil run along the length of the line.

"I am not sure  if we should call it 'partnership' or 'protection,"' a Baku-based oil source said on condition of anonymity. "The main point is to have the Russians--or at least some Russians--aboard the project, lest things go wrong because no Russians are involved at all."

The biggest drawback to the 'northern' route is that 160 kilometers (100 miles) of the existing pipeline runs straight through the self-styled 'Chechen Republic of Ichkeria.' And the Chechens, in addition to demanding transit fees, want millions of dollars in war reparations -- and insist they come from the Russians' transit tariff, not from Moscow, so the payment cannot be seen as impinging on Chechnya's sovereignty in any way.

Negotiations on this issue became so complex that the Russian Minister for Fuel and Energy threw up his hands and announced plans to float a bond to raise $250 -$400 million to build a 283 kilometer long alternative pipeline that would bypass Chechnya entirely.

Industry sources scoffed at the idea. Such a line would not only invite sabotage by the Chechens but would delay the arrival of early oil by up to a year and massively increase the cost of all oil. The Russians then declared work would proceed on both routes, but at this juncture no one in the industry believes the Russians can deliver.

Meanwhile, work continues at full speed on the western route despite the fact that nearly all the experts initially scoffed at this option. Shevardnadze initiated work on the terminal even before any public decisions were taken to start work on the pipeline itself. As a result, Supsa is proving itself a viable shipment point of oil, even if it is now brought up from Azerbaijan by train and truck to the ancient facilities at the nearby Georgian port of Batumi.

Again, there are worrisome elements. The western route effectively cuts Russia out of the action--and the prospect of a ruffled bear is never far from the mind of Mr. Shevardnadze, who nearly lost his life when Russian-backed separatists in Abkhazia overran the Black Sea resort town of Sukhumi in 1993.

Even more worrisome is the fact that the leadership of the self-styled "Republic of Mountainous Karabakh" has threatened openly to interdict the western pipeline well inside Azerbaijan. They claim the revenues would allow Heydar Aliyev to build a new army and put an end to Karabakh's pretensions of independence. This in turn could bring on another round of war with Armenia, which has recently entered into a treaty of mutual self-defense with Russia.

Should that scenario occur, not only the AIOC but Mr Shevardnadze (and Aliyev) will discover that they have just built a multi-million dollar pipeline to nowhere.