#7
Asia Times
February 28, 2002
Troubled waters in the Caspian Sea
By Sergei Blagov

MOSCOW - In yet another attempt to reach a consensus on Caspian Sea issues, Moscow held a conference this week to discuss how to divide the sea's lucrative resources. Yet all the gathering demonstrated was that the long-awaited consensus remains elusive.

The Kremlin has been trying to urge the Caspian littoral states - which also include Azerbaijan, Iran, Kazakhstan and Turkmenistan - to agree on the sea's division. "The Caspian region is among the priority areas of Russia's foreign policy," its Foreign Minister Igor Ivanov told the international conference on Caspian Sea legal issues. The gathering, co-sponsored by Russia's Ministry of Foreign Affairs, Moscow's Institute of International Relations and some Russian oil firms, was attended by representatives from the five littoral states as well as lawyers, experts and researchers.

Russian officials renewed their calls for consensus. Continued disputes over the Caspian could entail violent conflicts, according to Viktor Kalyuzhny, Russia's special envoy on the Caspian and deputy foreign minister. Kalyuzhny reiterated at the conference that determination of the Caspian status was an "exclusive affair of the littoral states". Kalyuzhny described a "package solution" as counterproductive and suggested a phased solution instead. Joint conservation and management of the Caspian's unique bio-resources could become a first step in this direction, he said. The principle of shared water resources has proved viable, Kalyuzhny noted.

The Caspian, the world's largest inland sea, is a focal point of the accelerating clash of interests between Russian, its newly independent neighbors, and Iran. The Caspian, as an inland sea, has never been subject to international maritime laws and its status is regulated by bilateral treaties of 1921 and 1940 between the former Soviet Union and Iran. Russia believes that the status of the Caspian is already determined by those two agreements, Kalyuzhny said on February 26.

The Caspian Sea region has been widely viewed as important to world markets because of its large oil and gas reserves. Proven oil reserves for the entire Caspian Sea region are estimated at 18-35 billion barrels. The basin is also believed to hold some 5 trillion cubic meters of natural gas reserves. However, in recent years the myth of Caspian riches has began to fade somewhat as some oilfields seem not as lucrative as originally expected.

The situation in the Caspian basin could be described as a "curse of resources", Steven Mann, the US envoy on Caspian energy issues, told the conference. The region's economic progress lagged behind expectations because of a lack of the rule of law, low-level investments and graft, he was quoted as saying by RIA.

Russia currently controls 19 percent of the Caspian - according to the length of its shore - and was to gain from equal division. Kazakhstan (29 percent) and Azerbaijan (21 percent) were against the idea. Russia eventually changed its view and backed Azerbaijan and Kazakhstan, which argued for the delineation of the seabed but not the water itself.

The surface of the sea should remain shared, while the seabed needs to be divided on the principle of equal distance or median line, basically according to the length of the shore, according to the Russian experts. Turkmenistan and Iran have disagreed with Russia's plan for splitting the Caspian bottom along a "modified median line" while keeping the waters in common. Kazakhstan and Azerbaijan have agreed. Iran objects, seeking a larger share of the resources. Ashgabat's wavering stance has saved Iran from isolation.

In the wake of the Soviet Union's collapse, Iran has suggested that the Caspian should be divided equally and that the five littoral states should each get 20 percent of the sea. According to the treaties of 1921 and 1940, Iran controls just 13 percent of the sea and is poised to benefit greatly from equal division, but its post-Soviet neighbors disagree.

The littoral states should refrain from unilateral moves to develop the Caspian resources until the sea's status is determined, Iran's Deputy Foreign Minister and special envoy on the Caspian Mekhdi Safari told the conference. Iran still insists on a "condominium" approach to the Caspian, where oil and gas reserves would be developed jointly by all littoral states, Safari said.

Moreover, Iran insists on its original position as Safari said that in respect to the sea's division, the littoral states should get 20 percent of the sea's surface and seabed. Iran claims 20 percent of the Caspian seabed and "will not allow foreign oil firms" to explore and drill in the contested areas, RIA quoted him as saying.

Last July, an Iranian gunboat forced a British Petroleum (BP) exploration ship out of disputed waters. The Azeri government had given the BP ship a license to explore the Araz-Alov-Sharg concession, which Iran regards as its own. There have been pieces of circumstantial evidence relative to continued disagreements between Russia and Iran on the Caspian.

On February 19, the latter's official news agency IRNA commented that the scheduled two-day official visit of Iranian Foreign Minister Kamal Kharrazi to Moscow was aimed at "cementing existing good ties" and seeking a comprehensive legal regime to govern exploitation of the resources of the Caspian Sea. However, the trip was cancelled at the last minute.

On the other hand, Kazakhstan has tended to back Russia on Caspian-related issues. Kazakhstan favors a phased solution of the Caspian problem, Kazakh Deputy Foreign Minister Anatoly Smirnov told the conference. "We should act without waiting until a final solution," he said.

In response, there have been encouraging signals from Moscow to Kazakhstan. "Increased export of Kazakh oil will not destabilize Russia's domestic oil market and will not affect international oil prices," Russian Prime Minister Mikhail Kasyanov stated in Moscow on February 26. Russia signed an agreement with Kazakhstan to export up to 15 million tons of oil per year and such volumes "do not cause concern in Russia", Kasyanov said.

Subsequently, in Moscow on February 26, visiting Kazakh Prime Minister Imangali Tasmagambetov stated that Kazakhstan's oil export potential was estimated at 30 million tons a year, thus was no threat to the stability of the global oil trade.

Kazakhstan largely relies on Russian pipelines to export its oil. Incidentally, Mann opted to remind the conference about alternative routes. He said that both an oil pipeline from Baku to the Turkish port of Ceyhan and the Shah Deniz gas pipeline from Azerbaijan to Turkey should be operational by 2005.

Russia, and Kalyuzhny in his previous capacity as energy minister, have long lobbied in favor of of the CPC (Caspian Pipeline Consortium) pipeline that runs runs across Russia from the Tengiz field to Novorossisk on Russia's Black Sea coast. The competition between the CPC and Ceyhan pipelines has been widely seen as a part of "big game" around the Caspian hydrocarbon resources, with Washington trying to calm any fears Moscow might have of. The US has no intention of competing with Russia in the Caspian region, Mann was quoted as saying by RIA at the conference.

Turkmenistan, on the other hand, agrees that the seabed needs to be divided, but the country wants to use a method differing from that proposed by Azerbaijan, Russia and Kazakhstan. The Russian and Turkmen positions "have become considerably closer", Russian President Vladimir Putin told Turkmen President Saparmurat Niyazov last January in Moscow.

However, as Niyazov has a history of being an unpredictable negotiating partner in talks to determine the Caspian Sea's status, a final consensus will probably have to wait for a Caspian summit, tentatively scheduled for the next fall - or maybe even longer.

Notably, last January Niyazov warned that the summit could only be "an exchange of views", indicating he was not ready for a solution. Therefore, the remaining differences between the littoral states arguably indicate that the actual settlement of the status of the Caspian Sea is still some time off.

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