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The Caspian boils again

Iran expects to deploy its first deepwater semi-submersible drilling rig in the Caspian Sea next month, following the conclusion that the country's shallow-water sector has no exploitable resources, according to hydrocarbon energy industry sources.

The rig, named the "Iran-Alborz", was domestically constructed following a Swedish design. Its operation will be managed in the first instance by an unnamed foreign-owned drilling contractor (possibly Brazil's Petrobras), with Iran’s North Drilling Company set to take over after its personnel gain sufficient practical experience. Further seismic operations may be conducted with the assistance of Malaysia's Petronas.

The name of the rig is significant: "Alborz" is the Persian name for Azerbaijan's "Alov" (actually Araz-Sharg-Alov) deposit, believed to contain 4 billion barrels of oil, which Iran has disputed with the threat of using force. In July 2001, in an incident causing much ink to spilt but only by good luck no blood, an Iranian boat forced two survey vessels from the British-based energy giant BP (operator of the Alov Joint Venture) to return to port in Azerbaijan. BP subsequently decided to suspend work on the block until the dispute was resolved; it has not yet been resumed.

Tehran's only possible claim to the Araz-Sharg-Alov block would be its assertion that every Caspian Sea littoral state (comprising itself, Azerbaijan, Kazakhstan, Turkmenistan and Russia) should have a 20% share of the seabed.

The Caspian Sea legal regime was regulated through 1991 by two Soviet-Iranian treaties signed in 1935 and 1940, and one Russian-Iranian treaty signed in 1921 by the Russian Soviet Federated Socialist Republic (before the USSR was created in 1922).

Since the disintegration of the Soviet Union, the status of the sea under international law has been discussed at numerous ministerial and sub-ministerial meetings of the five countries, without resolution. In April 2008, the head of the Russian delegation to the Caspian working group, special envoy Aleksandr Golovin, stated that Russia considered that the two main agreements, those of 1921 and 1940, remained in force. (There is an expert consensus that the 1940 treaty prohibits Iran from deploying naval vessels in the sea.)

Those agreements, however, neither established national sectors of the sea or seabed nor addressed energy development questions in any way, addressing only fishing and shipping issues. Moreover, Golovin's diplomatic language does not exclude respect for other agreements that have come into force since 1991. Indeed, the Russian Federation has demarcated sub-sea sectors (with the right to exploit sub-sea resources) with Kazakhstan (in 1998) and with Azerbaijan (in 2001), following the established principle in international law of the "modified median line".

Also called the "equidistance method", this involves drawing a line equidistant from the closest mainland points of each of two adjacent countries, then adjusting ("modifying") the result either to take de facto boundaries into account or to avoid such problems as would result from dividing a single oil field between two states.

The implementation of the agreement between Russia and Kazakhstan, for example, has been exemplary, and the two countries have even devised administrative methods for joint development of "shared" fields in the north Caspian.

Kazakhstan and Azerbaijan have also agreed demarcation of their sub-sea sectors according to the modified median line principle. This leaves the Azerbaijan-Iran, Azerbaijan-Turkmenistan and Turkmenistan-Iran boundaries unsettled: thus the political naming of the Iranian drilling rig as "Iran-Alborz", even though it is not drilling in the Alov ("Alborz") block.

It is understandable that Iran should seek to increase its oil-drilling capability in the Caspian Sea, insofar as it looks to be increasingly squeezed out of the gas network expected to feed the Nabucco pipeline. Four days after the signing in Ankara this month of the inter-governmental framework accord that provides the stable business environment necessary for work on Nabucco, (see Nabucco ink starts to flow,16 July 2009), it was announced that Turkey had reached agreement with Iraq for the import of 10-15 billion cubic meters per year (bcm/y), as from 2014-15.

Specifically, Bulgaria's then-prime minister, Sergei Stanishev - his successor, Boiko Borisov, was elected into office by a vote in parliament this week - told the Kuwait News Agency in Sofia that as part of that agreement the project would begin with Iraq supplying to Bulgaria up to 1 billion cubic meters per year (bcm/y) as from next year through an existing gas pipeline that ends near the eastern Turkey gas hub of Erzerum, to where the South Caucasus pipeline from Azerbaijan likewise runs. A 20-kilometer pipeline would connect the existing Iraq-Turkey gas pipeline to the evolving Nabucco network.

This report also qualifies the Bulgarian accord not as a "memorandum of understanding" (MoU), which would not be legally binding, but rather as an "inter-governmental agreement" signed not only by Stanishev and his Iraqi counterpart, Nuri al-Maliki, but also by the prime ministers of Romania, Hungary and Austria, and in the presence of the European Union's energy commissioner Andris Piebalgs and the European Commission president Jose Manuel Barroso.

Moreover, the new Bulgarian knock-on agreement to the Nabucco transit signing ceremony would trump the July 2007 trilateral Turkey-Iran-Turkmenistan MoU that foresaw as much as 30 bcm/y of gas entering Turkey from Iran, including from Turkmenistan with Iran as transit country.

Previous reports, sourced to a March 2008 press release from the Italian gas equipment company BRC, had suggested that the Iraqi gas could be conducted not through Erzurum to Europe but through Diyabakir to Yumurtalik, in south central Turkey on the Mediterranean coast not far from Syria. Yumurtalik is near the Ceyhan end point of the Baku-Tbilisi-Ceyhan (BTC) oil pipeline.

From Yumurtalk, liquefied natural gas (LNG) could be shipped to world markets. While this might seem to exclude destinations served by Nabucco, it could still include such European markets as Poland, which has begun lately to increase its imports of LNG from Qatar. Both alternatives are possible.

To be sure, the Iraq-Turkey agreement is a signal to Iran that it is not the only country other than Azerbaijan and Turkmenistan that is a candidate for supply throughput to Nabucco. Indeed, the existing 20-bcm/y gas pipeline to Erzurum from Tabriz in northwest Iran has for years caused problems for Ankara and has recently been supplying only one-quarter of design capacity. The arithmetic is therefore instructive. The 15 bcm/y planned from Iraq, joining the Erzurum-Tabriz pipeline to the east of Erzurum, plus the 5 bcm/y currently received from Iran would fill Erzurum's 20-bcm/y capacity, obviating the need for any more Iranian gas to feed Europe.

As recently as last month, according to United Press International, the managing director at Iran Natural Gas Transmission Company, Reza Almasi, was still lobbying Turkmenistan to choose Iran over other transit partners, in particular Azerbaijan. This fact indicates that the trilateral MoU has not yet seen any concrete realizations. But it is increasingly clear, that however strongly Turkey's Prime Minister Recep Tayyip Erdogan insists that Iranian gas should contribute to Nabucco, this is not viewed as necessary to the success of the pipeline as a whole. That is the case even if differences between Azerbaijan and Turkmenistan preclude quick progress on an undersea Trans-Caspian Gas Pipeline (TCGP).

Even Tehran Times, an English-language Iranian newspaper targeted at an international readership and the domestic intellectual elite, reported this week that Austrian Chancellor Werner Faymann believes the first candidates for supplying gas into the Nabucco pipeline to be Azerbaijan, Egypt, Iraq and Turkmenistan: but not Iran.

Faymann was one of the few observers not to be misled by poor information into believing that the widely-hyped Turkmenistani declaration, that it would take its Caspian Sea demarcation dispute with Azerbaijan over the Kyapaz/Serdar field to "the International Court of Arbitration", was something significant. (See New chance for the Trans-Caspian pipeline, 28 February 2007, and Another trans-Caspian pipe dream, 24 October 2007.)

There is no "International Court of Arbitration". The two best-known juridical forums that could possibly be relevant here are the London Court of International Arbitration and the Stockholm International Arbitration Court, the latter of which specializes in energy issues.

The competence of these courts is limited to questions of contract fulfillment, to which territoriality issues are foreign and extraneous. The only international judicial forum competent to treat territorial disagreements, including jurisdictional issues over the continental shelf (which is what these matters are, given the present legal status of the Caspian Sea), is the International Court of Justice (ICJ, also World Court, not to be confused with the recently better-known International Criminal Court) in The Hague.

For the ICJ to have authority, both Azerbaijan and Turkmenistan would have to accept its jurisdiction in the particular case to hand and neither at present does. It is worth recalling that in 1999, during the last flare-up of disagreement between the two countries over sectoral demarcation in the Caspian Sea, Turkmenistan's then-president Saparmurad Niyazov declared that he would take the case to the ICJ, but no case was ever submitted, undoubtedly for the reasons just given if not others in addition.

So the recent reported declaration by Turkmenistan's President Gurbanguly Berdimuhamedow that he would take the case to the ICJ is either a misreporting of his actual remarks or a political negotiating ploy indicating dissatisfaction with how the new talks with Azerbaijan have been going.

Unfortunately, Iran has not even shown any inclination to sit down with Azerbaijan to discuss the Alov/Alborz field. The naming of its new deepwater drilling rig suggests that that is not about to change.

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URL:  http://www.robertcutler.org/blog/2009/07/the_caspian_boils_again.html
First published in Asia Times Online, 31 July 2009.

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