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Renewed conflicts in the Caspian

A good deal of attention has been devoted in recent days to the incident in the south Caspian on July 23, when Iranian military airplanes buzzed vessels that had been chartered by BP to begin exploring the Alov deposit, a component of the Araz-Sharg-Alov offshore block. Iranian ships subsequently intervened that evening, to dispute ownership of the block (which Iran calls "Alborz") and warn these exploratory vessels off. Almost paradoxically, this show of military force came only a day after Hassan Rouhani, the secretary of Iran's Supreme National Security Council, signed an agreement in Baku with Ramiz Mehdiev, the head of the analogous Azerbaijani body, concerning security cooperation and covering drugs, crime and terrorism. Indeed, it came only a few weeks before a long-planned visit by Azerbaijan's President Heidar Aliev to Tehran.

1. First the facts

Several years ago, Iranian ships destroyed buoys left by Azerbaijan as border-markers in the area now the focus of dispute. On July 21 of this year, two days prior to the incident in the south Caspian, Iran's Deputy Foreign Minister Ali Ahani handed a diplomatic note to the Azerbaijani chargé d'affaires in Tehran, objecting to plans made by the State Oil Company of Azerbaijan (SOCAR) and international firms to carry out exploration studies in the Alov/Alborz offshore area. On July 24, Azerbaijan's Prime Minister Artur Rasizade protested Iran's intervention to Iran's ambassador in Baku Ahad Gazai, but Gazai retorted with a statement to the press that Azerbaijan's exploration of the field was illegal and that no offshore prospecting was legitimate so long as the legal status of the Caspian was undefined.

Even more significant, however, was the Iranian Oil Ministry's subsequent public threat to cease dealings with any company that carried out prospecting in the sector that Iran claims. SOCAR's head Natik Aliev opined that exploratory work should go ahead even in disputed regions, but on July 24, BP, the operator of the Alov-Araz-Sharg project, did announce that it had suspended survey activities in the salient. It is fair to suppose that BP's decision was at least in part the result of a wish not to jeopardize the company's interests in Iran itself.

The Alov deposit reportedly holds about 7 million barrels of oil and 400 billion cubic meters of natural gas. BP holds a 15% stake in the Alov-Araz-Sharg complex. Other members of the consortium include SOCAR (holding 40%), as well as ExxonMobil and Statoil (each with 15%), TPAO (10%) and Alberta Energy (with 5%). The 25-year contract may involve investment of $9 billion for the whole complex, with $4 billion to be pumped into Alov alone.

2. Iran's stakes in the run-up to the planned October conference

Iran's resort to military tactics follows its diplomatic isolation earlier this year over plans for a five-way summit with the other four littoral states—Russia, Azerbaijan, Turkmenistan and Kazakhstan—concerning the legal status of the Caspian and establishment of an international-legal regime for the sea to govern energy development, ecology, fishing, shipping and the like. In negotiations earlier this year, Iran obtained Russia's agreement that two pre-World War II treaties would serve as the basis for any such future regime.

But Iran has a particular interpretation of what this means. Specifically, Iran recognizes the 1921 treaty with the Russian Soviet Federated Socialist Republic (RSFSR) and the 1940 treaty with the Union of Soviet Socialist Republics (USSR) as the only bases for proceeding forward. In other words, Tehran has reverted to the position that the regime prevailing in the Caspian basin during Soviet times—before Azerbaijan, Kazakhstan, Russia and Turkmenistan became independent—is the prevailing regime in the region and must be respected. That is because neither of those treaties dealt with the issues of territorial division of the Caspian.

Later however, in the 1950s, the Soviet Union delimited certain sectors of the Caspian Sea as falling under the jurisdiction of different of its constituent union-republics. This was done mainly for the administrative purpose of determining which bureaucracies were responsible for resource exploration and exploitation in which sections of the sea. Since the USSR and Iran were still the only two littoral states at the time, this necessarily involved an exchange of diplomatic notes with Iran. These established what is called the "Astara-Hosseingholi line", named for the Azerbaijani and Turkmenistani towns that anchor the line at the border with Iran. This is the line that gives Iran roughly the 12% share of the Caspian Sea with which it is discontent.

Iran's interpretation appears to rely upon the characterization of the Caspian in the earlier treaty language as a "Soviet and Iranian sea" with control vested in the two governments. Tehran wishes to treat it under the international-law doctrine of "mare nullius" (no-man's sea), meaning that there is no sovereignty and that no national or international borders exist there, regardless of the administrative divisions established under the Soviet regime. Russia officially agrees with this position but is too polite to point out that under international law a "national sector for subsoil resource use"—the preferred term of Viktor Kalyuzhnyi, President Vladimir Putin's special envoy for Caspian affairs, and of the Russian Foreign Ministry—is just not the same thing as a national or international border.

Tehran's rhetoric about "equal division" of the Caspian (i.e., 20% to everyone) has been relatively consistent; its stance on demarcation and resource allocation was rather vague until March of this year. Then at the deputy-ministerial level conference in Tehran, intended as a preparation for the spring presidential-level Caspian summit in Turkmenbashi that never took place, it became clear that Iran—at least at the time—meant to advocate the division of the seabed into national sectors but with a "condominium" arrangement governing the resource-use regime.

The latter, as interpreted by Tehran, would mean that the agreement of all littoral countries would be necessary for any single development project to proceed, even if were located entirely within one country's national sector. However, soon thereafter, Iran in practice reversed its advocacy of a moratorium on offshore exploration by announcing that it had signed a contract with a Swedish and an Iranian firm to begin such explorations.

3. Turkmenistan: Not just a copy-cat

Only a few days after the Iranian incident, Turkmenistan reiterated its claims to certain fields that Azerbaijan has under development or seeks to develop. However, Turkmenistan's bluster is not merely as a copy-cat of Iran's foray. Back in early June, the country withdrew its embassy from Baku and relocated the mission to Ashgabat. Soon thereafter, Ashgabat sent Baku a diplomatic note that protested against "illegal" activities in the Caspian Sea.

Still earlier this year, a source in the Turkmenistani government's leadership warned of "harsh measures" against Azerbaijan if the two countries could not reach agreement over offshore fields disputed between the two countries. Ashgabat was already buying Russian naval vessels by then (reportedly of the "Grif" and "Kalkan" classes), allegedly as patrol craft against infiltrators. The Foreign Ministry in Ashgabat warned of "unexpected consequences" if exploitation of the disputed Caspian oil fields continued.

Turkmenistan's purchases of Russian ships follow on President Saparmurad Niyazov's recent personnel purge in the country's Defense Ministry and the superposition over it, by presidential decree, of a state commission for military hardware procurement. It appears, following an earlier meeting between Niyazov and Sergei Chemezov, first deputy director general of the Russian state weapons-export enterprise, that Turkmenistani gas supplies to Russia will be used as payment in kind for Russian military hardware supplies.

Consequently, while Baku is officially keeping its cool, there is a growing speculation in unofficial and semi-official circles about an emerging anti-Azerbaijan entente among Turkmenistan, Iran and Armenia (which Iran has recently been courting as well).

Turkmenistan, for its part, has never insisted on (in Iran's phrase) "equal division" of the Caspian but only on "equal cooperation". Russia also uses a similar phrase, which—to Russia—merely means that all countries' voices should have the same weight in reaching a decision and that consensus diplomacy is the necessary approach to reaching an agreement.

In the run-up earlier this year to the Caspian summit conference that was never held, Turkmenistan appeared to shift its position on the Caspian legal regime. Before the preparatory Tehran conference, Niyazov opposed the common use of the waters and insisted on the division of both the waters and the subsoil resources into national sectors.

(This position was close to Iran's and represented a rejection of the Russian Navy's desire to sail throughout the Caspian Sea unhindered.) However, after the Tehran conference the Turkmenistani president had moved to a position favoring the modified median-line method of demarcating national subsoil-resource sectors.

4. Turkmenistan's stakes in the run-up to the planned October conference

Turkmenistan's dispute with Azerbaijan first flared in May 1997, when President Niyazov, meeting Azerbaijani President Aliev in Ashgabat, declared that the two disputed fields clearly belonged to Turkmenistan. At that time, Baku had already signed contracts with foreign companies to begin exploiting them.

In early July of the same year, SOCAR and the two Russian oil companies LUKoil and Rosneft signed an agreement with the Azerbaijani government to develop the offshore Kyapaz field. Later that month, Rosneft pulled out of the agreement because Turkmenistan made a challenge to Azerbaijan's ownership of Kyapaz, claiming the field for itself under the name "Serdar".

Turkmenistan had originally sought to include the Azerbaijan International Operating Company (AIOC) consortium's oil fields Azeri and Chirag (which it calls Khazar and Osman) in a broader claim but in the end focused on Kyapaz/Serdar. In September 1997, Turkmenistan announced tenders for that field, but SOCAR made clear its belief that Turkmenistan had no legal basis for claiming it. However, Ashgabat has never really relented on its earlier claims to deposits being developed by Azerbaijan.

Meanwhile, plans for the Trans-Caspian Gas Pipeline (TCGP)—a project to take Turkmenistan's gas to Turkey via Azerbaijan and Georgia—developed apace and seemed at the time set for a favorable outcome. Thus by the spring of 1999, the Kyapaz/Serdar conflict was the main outstanding issue in relations between Azerbaijan and Turkmenistan. Then the discovery that Azerbaijan's offshore Shah-Deniz field held large amounts of natural gas rather than the oil that had been expected, led Baku to seek a share of the TCGP's volume for itself. Turkmenistan resisted, and Niyazov's intransigence ultimately led to the project's downfall.

5. Conclusion

After the Caspian non-summit fiasco earlier this year, it was decided to look for some time before December, perhaps in autumn, to reschedule the meeting. It was hoped that some rapprochement of positions might be in evidence by then, permitting an agreement to be prepared in time for signature by the five presidents. A possible early-October date was discussed in the press at the time, but the latest reports indicate that Turkmenistan has suggested the dates of October 26-27. Details are being worked out to see whether it is feasible for all sides. Subsequent articles in this series will treat these developments and their ramifications.

Copyright © Robert M. Cutler unless otherwise noted.
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URL:  http://www.robertcutler.org/blog/2001/08/renewed_conflicts_in_the_caspi.html
First published in FSU Oil & Gas Monitor, No. 145 (13 August 2001): 4–6.

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