Significant events that will determine the fate of a number of Caspian export pipelines have continued to occur in rapid succession, even as the government of Turkmenistan made a surprise announcement postponing a long-awaited summit among Russia, Azerbaijan, Kazakstan, Turkmenistan and Iran. That summit had been scheduled for March 8-9 in the Caspian port of Turkmenbashi.
1. Postponement of the March Meeting in Turkmenbashi
The purpose of the five-way meeting was to establish at least the ground rules for demarcation of the Caspian Sea and the division of its resources. Each of the five littoral states was to have been represented by its president. However, following a meeting of the Turkmenistani cabinet chaired by President Saparmurad Niyazov, Reuters quoted a government official in Ashgabat as saying that the summit had been postponed "at the request of Iran" until the first half of April and that no definite date had yet been fixed.
This report is a bombshell. It confirms that negotiations are deadlocked, as last noted in week's column. Moreover, it confirms that Iran's diplomatic isolation over the Caspian issue is the source of the deadlock, despite the flowery phrases with which last week's preparatory meeting in Tehran was concluded. (That meeting had itself been delayed for more than two years since it was first planned.) At the meeting in Tehran (which took place at the deputy foreign minister level), the Iranian side was compelled to clarify, in more detail than heretofore, its doctrine on Caspian demarcation and resources.
Turkmenistan's new position, announced earlier this month, gives the impression that Ashgabat is seeking to mediate between Iran and the Azerbaijan-Russia-Kazakstan troika. But Iran has now replaced Turkmenistan as the country with the diplomatic position furthest removed from the other four. Let us examine the particulars.
2. Iran Clarifies Its Position at the Tehran Meeting
Iran has reverted to the position that the regime governing the Caspian Sea during Soviet times—before Azerbaijan, Kazakstan and Turkmenistan became independent—is the prevailing regime in the region and must be respected. Moreover, says Tehran, the treaties signed in 1921 and 1940 on which that regime is based must form the basis for any contemporary revisions.
There are several problems with Iran's position. First, the USSR did not technically come into existence until 1922, when the first Soviet constitution took effect, largely due to the Russian Civil War that began during World War I and continued thereafter. Thus, the 1921 treaty was signed by Persia, and not with the USSR but with the Russian Soviet Federated Socialist Republic. So the case could be made that the 1921 treaty binds only Russia and Iran and not the other three littoral states. Furthermore, since Russia is the only state that is legally the successor to the Soviet Union, only a general declaration to observe Soviet-era treaties could bind other independent ex-Soviet republics—in this case, Azerbaijan, Kazakstan and Turkmenistan—to their terms.
Second, the 1940 treaty, as well as an earlier 1935 treaty, defined the Caspian as a "Soviet and Iranian sea." However, none of these treaties established any maritime boundaries. The only geographical zone defined for controlling the use of resources was a 10-nautical-mile coastal-waters zone, but even this was not defined as a fisheries zone or a territorial sea under law. None of these agreements referred specifically to division of rights to exploit subsoil offshore resources. However, the Soviet republics did themselves establish a division of the Caspian for certain administrative purposes.
Iran insists that these old treaties are binding upon all littoral states, but a principle of international law holds that a treaty between two states (such as the USSR and Iran) cannot bind third states. Thus, for example, even in the case of the START II nuclear weapons treaty, Belarus, Kazakstan and Ukraine had to adhere explicitly to its Lisbon Protocol through formal legal acts for it to be binding on them. So it is not clear that even the extremely weak terms of the 1940 treaty bind all the Caspian littoral states today.
3. Iran's Increasing Isolation on Caspian Legal Matters
Iran's position on the division of the Caspian seabed and waters is actually even more convoluted than just mentioned. As revealed at last week's preparatory conference in Tehran, Iran advocates the division of the seabed into national sectors but with a condominium arrangement governing the resource-use regime. Further, Iran insists on an "equal division" of the Caspian among the five littoral states. This word "equal" is sometimes also translated as "equitable," but it is unmistakable and explicit that by it Iran means 20% for each of the five, whereas under the modified median-line method of demarcation, Iran's national sector would be about 13% of the Caspian seabed.
A vice president of the State Oil Company of Azerbaijan (SOCAR) did tell a Baku television station after the conference that Iran now accepts the median-line or modified median-line method. But even if this report -- as yet unconfirmed -- is true, it appears that Iran has not modified its insistence on equal shares for all or its insistence on a condominium-type regime. Moreover, it is known that Iran, in contrast to the other four littoral states, is still insisting that all ongoing development work at energy deposits be halted until the legal status of the Caspian is fixed.
Turkmenistan, for its part, has never insisted on "equal division" but only on "equal cooperation," which could simply be Niyazov's way of endorsing Iran's contention that all decisions on the Caspian's state must be made by consensus. Before the conference, in a statement attributed to Niyazov, Turkmenistan opposed common use of the waters and insisted on the division of both the waters and the subsoil resources into national sectors. The significance of this was as a rapprochement with Iran and a rejection of the idea (which Iran also does not like) that Russia's navy should have the right to sail throughout the Caspian Sea unhindered.
If Turkmenistan has now taken a position favoring the modified median-line method of demarcating national subsoil-resource sectors, then it is in effective agreement with Azerbaijan on this principle. That in turn establishes the basis for a resolution of the dispute between the two countries over the offshore field that Azerbaijan calls Kyapaz and Turkmenistan calls Serdar. (Some weeks ago, Turkmenistan made as if to submit a dossier on the dispute to the International Court of Justice, after earlier refusing Azerbaijan's invitation to develop the field jointly, but apparently never followed through. Estimates are that about 70% of the field would lie in Azerbaijan's sector and 30% in Turkmenistan's.)
Indeed, Turkmenistan had insisted on the demilitarization of the Caspian as a precondition for progress on any resource-use or environmental regimes. Given that Niyazov was apparently willing to proceed with the full conference in March, it would seem either that his concerns in this regard were satisfied or that the rhetoric was mere boilerplate to start with, part of the polemic of the rapprochement with Iran.
4. Kalyuzhnyi's Explanations
According to Viktor Kalyuzhnyi, Russia's deputy foreign minister and presidential envoy for Caspian Sea affairs, the meeting in Tehran resulted in an agreement on half of a draft political statement that would have been adopted at the March summit in Turkmenbashi. Kalyuzhnyi underlined that three of littoral states—Russia, Azerbaijan and Kazakstan—have agreed (in bilateral treaties that Iran refuses to recognize) on the division of the seabed by the "modified median line" method while reserving the waters for use by all five countries.
If Turkmenistan had abandoned its insistence on dividing the waters into national sectors, he would probably have mentioned this in his post-conference statements to the press. What Kalyuzhnyi did mention, however, was that the agreement among Russia, Azerbaijan and Kazakstan on the modified median-line method had "enabled changes in Turkmenistan's position" concerning the technique of dividing the seabed into national sectors. That seems to indicate that Turkmenistan, which had advocated national subsoil resource sectors, has decided in favor of the modified median line principle. That in turn would mean that the three-to-two stand-off discussed in this column last week has turned into a four-to-one contest, with Iran isolated. And this would explain why Tehran requested a postponement of the March summit.
This is not the only remarkable statement Kalyuzhnyi made this past week. In an interview with the Moscow newspaper Vremia Novostei, he said quite plainly what everyone knows, or should know, about the Baku-Tbilisi-Ceyhan (BTC) main export pipeline but no one says (though this author did, in a series of columns printed last year). He stated very simply that the BTC pipeline does not affect Russian interests because it will provide oil for the United States, whereas Russia's pipeline strategy targets markets in Europe, China, Southeast Asia and the Far East.
The plain truth is that Ceyhan is a deep-water port and that the ocean-going tankers that berth there will go out through the Straits of Gibraltar and across the Atlantic. That is what ocean-going tankers do: They cross oceans. A test run of such a route was in fact made in the late 1990s, with crude delivered to a terminal offshore from Louisiana in the Gulf of Mexico. The industry technicians who ran this test were more than pleased with the results.
5. More Than Meets the Eye
There is still more here than meets the eye. LUKoil took an unofficially favorable position on the BTC project during the late Yeltsin period. However, after Vladimir Putin came to power, Russian energy trusts found their foreign economic activities more subject to the reins of state interest. As such, LUKoil declared that it would not participate in the construction of the BTC and that it would not put oil into the pipeline. Today, however, there is clearly a divergence of opinions within the Russian establishment and the most powerful ministries concerning proper policy towards the three South Caucasus states and the means to conduct that policy. (This divergence was evident in the flap over the suspension of Itera's deliveries of natural gas to Georgia, discussed here earlier this year.)
The idea of building a spur from Novorossiisk southward to connect to the BTC, mentioned by this author two years ago, has now become a viable option. On the political front, the spur would provide all parties to the Abkhazia conflict with an economic incentive to resolve their differences, at a time when the Abkhaz leader Vladislav Ardzinba has dropped from sight and is rumored to be seriously ill with an irreversible neurological disorder.
Moreover, the Russian Black Sea terminal is closed too often due to inclement weather. That is why a second terminal has already been built in Russia south of Novorossiisk to accommodate oil arriving from Kazakstan via the Caspian Pipeline Consortium (CPC) line.
And when Tengiz oil finally does start to flow through the CPC line -- and this will happen sooner rather than later, though the projected launch date has been postponed several times -- it will not all be able to exit through the Turkish Straits. Just a few days ago, Turkey's Ministry for Maritime Affairs reiterated that the Bosphorus and the Dardanelles have reached the limit of their capacity as a conduit for hazardous cargoes. Previous statements to this effect met with skepticism in the mid-1990s, but the international community, including
multinational energy companies and consortia, have now accepted the proposition that the Turkish concerns are justified. Furthermore, the ports and supporting transportation infrastructure on the western shores of the Black Sea are not yet capable of receiving it for transshipment on to European markets.
Georgia's planned refinery at Supsa would be able to handle throughput coming in via Novorossiisk. And if the European Union's new moves to settle the conflict between Armenia and Azerbaijan over Nagorno-Karabakh actually result in a resolution, there is nothing to prevent a spur from being built across Javakhetia (a largely Armenian-populated region in south Georgia) into Armenia proper. Indeed, the European Bank for Reconstruction and Development (EBRD) is now seriously considering backing the BTC pipeline. BP-Amoco, for its part, is actively promoting the project to the bank because revised engineering studies show construction costs at the lower end of previous estimates.
This has spurred confidence in the pipeline's commercial feasibility. Moreover, Chevron has applied to join the BTC sponsor group, known as the Main Export Pipeline Company or MEPCO. According to one report, a representative of the Armenian government will even be present at one of the next meetings on MEPCO between Georgian and Azerbaijani officials. At present, the State Oil Company of Azerbaijan (SOCAR) has a 50% share in MEPCO, the remainder being apportioned among BP-Amoco (25.41%), Unocal (7.48%), Statoil (6.37%), TPAO (5.02%), Itochu (2.92%), Ramco (1.55%), and Delta Hess (1.25%). Chevron may take about 10%, and its share will come out of SOCAR's stake.
There is one final note. In the context of last week's conference in Tehran, Iran claimed a victory in that all five states affirmed that all decisions on the status of the sea must be taken unanimously. But this does not and cannot mean that the approval of all five states is necessary even for bilateral agreements. In mid-1998, Turkmenistan actually took several offshore blocks off its auction list because of objections from Tehran over ownership. Iran has also clashed with Azerbaijan over rights to certain offshore patches.
Now that Moscow has reached agreements with Baku and Astana on division according to the modified median-line principle -- and has apparently also reached a similar understanding with Ashgabat -- nothing prevents Russia (whose national sector in the Caspian is not contiguous with Iran's) from applauding all the words coming out of Iran. The fact remains and was underlined by Iran's Foreign Minister Kamal Kharrazi after the Tehran conference that Iran seeks a condominium (which is not quite the same as "joint use" but rather more like "joint rule") regime in the Caspian basin. It is precisely the condominium principle that Niyazov explicitly ruled out, for the first time, in his statement before the conference in mid-February. And this is the irreducible essence of Iran's diplomatic isolation on Caspian issues, diplomatic niceties notwithstanding.
Meanwhile, Moscow has also reiterated a proposal to establish a special center for ecological conservation in the Caspian region. The Russian side tried to accommodate Iran's wish to halt resource development until a new regime is established by adding that this center should closely supervise the implementation of projects that could threaten the Caspian ecosystem. But the Iranian insistence on postponing resource development is motivated at least as much by political and economic concerns as by ecological ones: Tehran is the laggard in the race and falling ever further behind.
The Russian proposal is problematic for yet another reason: Niyazov in mid-February rejected the idea of any such coordinating center at all. He may have done so because Russia and Azerbaijan propose to establish this center in Baku. The Turkmenistani leader perceives himself to be in a continual competition for prestige with Azerbaijan's President Heidar Aliev and opposes the idea to begin with for that reason.
Copyright © Robert M. Cutler unless otherwise noted.
See reprint info if you want to reproduce anything in any medium.
For individual, non-commerical use only.
This Web-based compilation: Copyright © Robert M. Cutler
Firsb published in FSU Oil & Gas Monitor, No. 121 (28 February 2001): 5–7.