December 1, 2002
With an estimated 250 billion barrels of probable oil reserves and almost 600 trillion cubic feet of probable natural gas reserves, the Caspian Sea region is quickly becoming one of the most important areas in the world as the hunt for and securing of global resources marches relentlessly forward.
Five countries -- Russia, Kazakhstan, Turkmenistan, Iran, and Azerbaijan -- share the coastline of the mammoth Caspian Sea and are currently embroiled over how to divide its inevitable treasure trove. Before the dissolution of the Soviet Union, Moscow had only to share the sea with Iran, but now circumstances have become significantly more complex with multiple parties serving multiple interests, both transparent and hidden alike.
Azerbaijan stands alone as the most Western leaning of the five littoral states, especially since the construction of the Baku-Tbilisi- Ceyhan oil pipeline began with United States' and British investors providing the lion's share of capital. The pipeline will run from the Azeri capital of Baku on the southwest banks of the Caspian through the Georgian capital of Tbilisi and onto the Turkish Mediterranean port of Ceyhan.
The route's major advantage in the eyes of the United States and Europe is that it fully bypasses Russia and escapes all influence Moscow would otherwise have over such matters, whether it be security or control of operations.
But though the most welcome to free market capitalism, ironically Azerbaijan is the country with the strongest economic ties to a traditional foe of the United States: Iran. Because of this the U.S. and Great Britain want to maintain maximum presence in Azerbaijan. Iran has always been a major concern to Western powers, boasting the fifth largest proven oil reserves in the world at 90 billion barrels. Now, after the recent revelations over the wealth of resources available in the Caspian region, the careful monitoring of Iran is even more crucial than before as some view the Muslim country as openly hostile towards its Caspian neighbors. Highlighting such fears, in 2001 there was a brief incident between an Iranian gunboat and a British Petroleum (BP) oil exploration ship on a surveying mission for Azerbaijan. The Iranians claimed that the prospecting vessel was infringing on waters traditionally considered Iranian.
On the Caspian's northern shores, Russia and its massive neighbor to the southeast, Kazakhstan, have a partnership effectively in place represented by the Tengiz-Novorossiysk pipeline linking western Kazakhstan with the Russian Black Sea port of Novorossiysk. The U.S. Energy Information Administration also reports that "In June 2002, Kazakhstan and Russia signed a 15-year oil transit agreement under which Kazakhstan will export at least 350,000 bbl/d of oil annually via Russia, in addition to flows via the Caspian Pipeline Consortium (CPC) pipeline."
Moscow's main concern at the moment is maintaining stability in the North Caucasian republics of Chechnya and Dagestan where most of their Caspian coastline lies. Of the five littoral states, Russia's Caspian region oil production of 11,000 barrels per day (bpd) is negligible to that of its neighbors. Of Russia's proven oil reserves of 50 billion barrels, only 2.7 billion lie in the Caspian region.
Kazakhstan, on the other hand, produced 811,000 bpd in 2001. Their proven oil reserves in the region, a whopping 5.4 billion barrels, also dwarf all other littoral states. Possible oil reserves (defined as reserves that are 50 percent probable) stand at 92 billion barrels. Figures such as these, ones that rival or eclipse many of the world's largest reserves, are the ones causing such a stir among oil companies and foreign investors.
Turkmenistan and its eccentric leader, Saparmurat Niyazov, are the most isolated of the countries vying for Caspian dominance. The autocratic President Niyazov, considered delusional by many, calls himself Turkmenbashi, which means leader of the Turks; he declared himself president for life in 1999. Due to his isolationist nature and desire to control all that transpires in Turkmenistan, he has placed extensive restrictions on foreign direct investment (FDI) and privatization is slow, factors that lead to the country's isolation. Turkmenistan, by far the region's leader in natural gas production and exports, still has significant possible oil reserves at 80 billion barrels.
When it comes to the all-important question about the division of Caspian wealth, Iran maintains the toughest position of all. Iran insists that agreements addressing the division of the Caspian signed with the Soviet Union in 1921 and 1940 are still valid, though neither agreement addressed gas or oil exploration. They also reject all bilateral agreements between other involved states. Iran has said repeatedly that they will only accept equal division of the seabed and its resources or joint development.
Despite Iran's stance, many bilateral agreements have been struck and discussed regarding exploration of the Caspian: in 1997 Kazakhstan reached agreements with both Turkmenistan and Azerbaijan regarding temporary use of the sea until a multilateral agreement was reached; again in 1998 Kazakhstan brokered a deal with Russia concerning division of the seabed in their traditional spheres of influence in the northern waters of the Caspian; most recently, in January 2001, the presidents of Azerbaijan and Russia, Heydar Aliyev and Vladimir Putin, struck their own deal dividing the seabed while keeping the waters open for navigation by the various countries.
For the time being certain legal issues still need to be resolved before a multilateral agreement pleasing to all five countries can be reached. Lawyers and diplomats must first determine if agreements signed by the former Soviet Union and Iran in 1921 and 1940 are still valid today.
Furthermore, they must also determine whether the Law of the Sea Convention document governs the Caspian Sea. The convention basically divides a given body of water into strictly defined sectors which are then allotted to each county for their exclusive development. The size of the sectors is determined by a complex formula with a country's coastline mileage being a major factor. Some consider the Caspian an inland sea and therefore addressed by the convention whereas others see the Caspian as a lake and therefore not covered by its laws.
If the Caspian were determined to be addressed by the convention, then the seabed would be divided in a way that Iran would be given less than the other four countries. Because of this, Iran has taken a hard- line stance on equal division and/or joint development while rejecting the Law of the Sea Convention.
This has not proved an easy issue to resolve, as there are many countries with competing interests indirectly representing the wishes of numerous foreign investors, companies and countries.
The region's vast untapped resources will continue to be a focus of the world in the near future and the question of how to divide the Caspian's wealth will be of the utmost concern as already ChevronTexaco, ExxonMobil, Royal Dutch/Shell, Conoco, British Petroleum, TotalFinaElf, LUKoil and many others are heavily invested there.
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