Caspian division inches forward

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by John C.K. Daly
Washington DC

11 08 2010

Since 1991, the Caspian basin has emerged as the world’s leading untapped energy source. According to the U.S. government’s Energy Information Administration, the Caspian’s 143,244 square miles and attendant coastline could contain as much as 250 billion barrels of recoverable oil besides an additional 200 billion barrels of potential reserves. Additionally, the EIA places the Caspian basin’s natural gas reserves at up to 9.2 trillion cubic meters of recoverable natural gas; even with oil at $50 a barrel, down from its July 11 record high of $147.27 per barrel, the region’s recoverable oil alone is worth $12.5 trillion.

Such exploitable riches have involved the region in a fierce competition, primarily between Russian and U.S. concerns, but other political organizations and nations are entering the fray, including the European Union, China, Japan, India and South Korea, to name but a few.

The biggest roadblock to the full development of these hydrocarbon resources remains the fact that 18 years after the collapse of communism in the Soviet Union, no treaty definitively delineating the Caspian’s offshore waters has been concluded between the five nations now rimming the Caspian — Azerbaijan, Russia, Kazakhstan, Turkmenistan and Iran.

Accordingly, the five coastal states have all operated on an ad hoc basis on developing their close inshore waters, most notably Azerbaijan and Kazakhstan, as the last document to delineate the Caspian’s legal status — the 1940 Soviet-Iranian treaty, which replaced the 1921 Treaty of Friendship between the two countries — awarded each signatory an “exclusive right of fishing in its coastal waters up to a limit of 10 nautical miles.” The treaty further declared that the “parties hold the Caspian to belong to Iran and to the Soviet Union.” Now, after 18 years of claims and counterclaims, there are signs that the complex skein of legal issues surrounding the Caspian’s water and seabed may be moving toward resolution.

On April 14, the two-day 25th meeting of Caspian Sea littoral states’ working group opened in Moscow.

The gathering was significant because more than three years have passed since the previous meeting held in the Russian capital in March 2006. Iranian Deputy Foreign Minister for European and C.I.S. Affairs Mehdi Safari was in attendance, along with Russian Deputy Foreign Minister Alexei Borodavkin and the deputy foreign ministers of Turkmenistan, Azerbaijan and Kazakhstan. All the real diplomatic posturing took place between the Russian and Iranian delegations, however, with the Turkmen, Azeri and Kazakh ministers largely on the sidelines.

Safari pressed for the delegates to accelerate their efforts to finalize a convention, commenting, “Considering the emphasis laid by the heads of state on the accelerated finalization of the Caspian Sea legal regime convention, I stress it is necessary that this document be finalized at the earliest time in a bid to pave the way for an increase in useful mutual cooperation among the littoral states of the Caspian Sea.”

Russia’s ambassador at large, Aleksandr Golovin, was equally voluble, telling journalists, “We should do complex mathematical calculations to determine the readiness percentage of the document. The text is 70 to 80 percent ready.” He added that certain provisions of the document remained to be finalized, saying, “This is related to the delimitation of the bottom. We should also focus on the delimitation of the water area.”

Golovin’s bland optimism could not paper over the single outstanding issue that has stymied negotiations since 1991 — how to achieve an equitable “delimitation” of the Caspian’s seabed and waters. Shorn of diplomatic intricacies, Iran insists that all Caspian nations should receive an equitable 20 percent of the Caspian, while Russia has consistently maintained that Caspian nations should receive their portion based on the length of their coastline. Under the Russian formula, Iran’s sector would consist of 12 percent to 14 percent of the Caspian’s waters and seabed.

While Azerbaijan and Kazakhstan have consistently supported the Kremlin’s position, Turkmenistan under its mercurial former leader, president for life, self-styled “Turkmenbashi,” or “Father of the Turkmen,” Saparmurat Niyazov, veered between supporting Russia and Iran. Niyazov’s unexpected death in December 2006 removed his inconsistent diplomacy and was followed by foreign audits confirming Turkmenistan’s massive natural gas reserves, leading his successor, Gurbanguly Berdimuhamedov, to move increasingly toward outright support of Russia’s position, weakening Tehran’s hand.

The lack of a definitive treaty has blocked a number of Western-supported initiatives, such as a proposed $5 billion, 30 billion-cubic-meter annual capacity undersea Trans-Caspian natural gas pipeline, originating at Turkmenbashi and stretching westward to Baku. Such a project would find it difficult if not impossible to secure international funding in the absence of a treaty clearly delineating seabed sovereignty.

While nothing definitive was concluded at the meeting, there are signs that Iran is becoming more flexible. Safari said at a news conference, “There has been no change in the Islamic Republic of Iran’s position,” but his subsequent comments indicated a more malleable stance. The deputy foreign minister continued, “Every side defends its national interests. We’re going to bring closer our positions through talks. Different means of Caspian Sea delimitation are being discussed at various levels. We continue discussions with our Turkmen and Azerbaijani colleagues. We’re exchanging views on the delimitation of the sea, discussing economic problems and navigation on the Caspian Sea.” Inducing a note of caution, Safari added, “There are divergences in our positions. The way to bring them closer is long.”

Pressing all sides in the dispute is the region’s potential, thus far limited to onshore and largely inshore coastal production. Since 1991, the Caspian’s percentage of global oil production has risen steadily to the point of accounting for nearly 16 million barrels per day of global oil production and consumption of approximately 86 million bpd, a percentage certain to increase dramatically when significant offshore production begins.

Western governments and energy executives will not have long to wait for the next development, as Russian Minister of Foreign Affairs Sergei Lavrov commented that the Caspian nations would hold the third annual summit of the littoral states’ presidents in Baku before the end of the year, a development that Safari endorsed. Lavrov remained cautiously optimistic, telling attendees, “Now a couple of words about the work on the Convention on the Legal Status of the Caspian; I do not want to belittle the fact that there still remain questions that need to be agreed on, but from contacts with my colleague ministers of foreign affairs of Caspian states, I have gathered the impression that the participants of the negotiation process are coming closer to mutual understanding on the issues that are still open, primarily those concerning delimitation of the water area across the Caspian and the demarcation of the seabed in its southern part.”

Behind Lavrov’s comment is a veiled threat to Iran, as, according to Golovin, “Russia has approved and signed an agreement with Azerbaijan and Kazakhstan on the delimitation of the northern part of the Caspian Sea.” Russia needs only Turkmenistan to complete its isolation of Iran on the subject, and Berdimuhamedov’s administration has made developing the country’s reserves a high priority, which the current impasse stymies. If Iran is to receive its portion of the Caspian’s estimated $12.5 trillion hydrocarbon largesse, then it might ultimately find that 12 percent to 14 percent of such a sum made available relatively quickly holds more attraction than 20 percent of such riches postponed to the distant future.