Caspian summit fails to resolve key issues about dividing oil and other mineral resources

Developing Just Leadership

Abul Fadl

Safar 18, 1423 2002-05-01

World

by Abul Fadl (World, Crescent International Vol. 31, No. 5, Safar, 1423)

The presidents of the five Caspian Sea littoral countries ended a two-day summit in Ashgabat, the Turkmen capital, on April 24 without reaching any agreement on how to share the Caspian and its rich hydrocarbon reserves. Throughout their heated talks, the leaders of Azerbaijan, Iran, Kazakhstan, Russia and Turkmenistan called for the quickest possible solution in order to begin to benefit from the sea’s underwater bounty. But by sticking tenaciously to their old positions, the rulers made it impossible for a multilateral agreement to define the Caspian’s legal status.

The Caspian is believed to have the world’s third-largest reserves of oil and natural gas after the Persian Gulf and Siberia, with untapped reserves estimated at 40 billion barrels of oil and 207 trillion cubic feet of gas. The area is expected to produce some 3.8 million barrels of crude a day by 2010.

Even the task of holding the summit has been made difficult by disagreements. Originally Saparmurat Niyazov, Turkmenistan’s president, tried to hold the summit in April last year, but the heated disputes forced its postponement to October and then again to this April. Just before the summit was convened, Niyazov hinted that his country was working out a “surprise” solution, yet the summit was held and adjourned with no breakthrough in sight.

The summit was the first time that rulers of all five littoral states had come together to discuss the Caspian. Even a vague general declaration of principles on the exploitation of the Caspian could not be signed. Niyazov described it as “an empty document.” The only thing the five presidents agreed was to hold regular meetings in the future. Russian president Vladimir Putin told a news conference after the summit: “We agreed to continue these discussions on all aspects of cooperation.” He proposed talks at a Caspian summit in the spring of 2003 in Tehran.

Questions about the legal status of the Caspian Sea emerged after the collapse of the Soviet Union. During the Soviet era the borders of the Caspian were demarcated in treaties signed between the Soviet Union and Iran in 1921 and 1940. Accordingly, Iran shared the Caspian’s resources equally with the Soviet Union. But the collapse of the Soviet Union and the consequent emergence of three new states with Caspian shorelines caused new dispute. Iran wants to divide the seabed into equal parts of 20 percent. But Russia, Kazakhstan and Azerbaijan want to divide the Sea in proportion to the length of each country’s shoreline.

These differences intensified when multinational oil companies began to pour billions of investment dollars into the region, especially to sectors claimed by Azerbaijan and Kazakhstan. Western countries, primarily the United States, have shown a keen interest in tapping the Caspian’s oil and gas, the idea being to reduce their dependence on the Persian Gulf, which is potentially subject to political disruption that would lead to energy shortages, rising prices and general panic in the world economy. They hope that oil from the Caspian, which holds 91 percent of the world’s excess hydrocarbon capacity, would serve as a crucial buffer of oil supply, easing the severe effects of any disruption in the flow of oil from the Persian Gulf.

Western oil companies have also tried to change the dynamics of the regional oil industry by constructing pipelines that bypass Russia and Iran, the two dominant energy producers in the region since the Cold War. Pipelines were built, and continue to be built, from oil-extracting countries in the Caucasus to ports in Georgia and Turkey. The Baku-Supsa pipeline, which came into operation in 1999, transports about 100,000 barrels a day from Baku, Azerbaijan, to the Georgian port of Supsa on the Black Sea. Another pipeline, the 1,085-mile Baku-Tblisi-Ceyhan pipeline, is scheduled to become operational in 2004, carrying 50 million tons of oil a year from Baku to the Mediterranean port of Ceyhan, Turkey, via Tblisi, Georgia. In March Georgian president Edward Shevardnadze signed an agreement with members of the consortium investing in the Shah-Deniz gas line, which is expected to cost $1.5 billion by the time it becomes operational in 2005.

However, despite the new pipelines, the Caspian is still not well suited to replace the Persian Gulf as the world’s main source of oil and gas. For the time being territorial disputes and restrictions on transporting oil preclude the Caspian overtaking the Gulf in the international market. The most serious disagreements involve Iran, Azerbaijan and Turkmenistan, about specific oil fields in the southern sectors of the Caspian. Last July tensions flared when an Iranian gunboat and military aircraft chased two exploration ships that were owned by British Petroleum and licensed by Azerbaijan to conduct seismic surveys out of the Alov oil field in a sector claimed by both countries. The incident resulted in the suspension of exploration work for a project worth $9 billion. Likewise disagreements between Azerbaijan and Turkmenistan over the ownership of the Kyapaz/Serdar offshore oil field have prevented foreign oil companies from submitting tenders for its exploitation.

Geostrategic concerns also figure high on the agendas of both Russia and Iran. Both want to roll back the increased American military influence in the region. Iran has warned outside powers not to interfere in Caspian affairs, and expressed alarm at the increasing militarisation of the region. Russian president Vladimir Putin and Mohammad Khatami, his Iranian counterpart, held a meeting on April 24 in which they urged greater regional and global cooperation in the fight against ‘terrorism’. Putin praised Iran, which the US accuses of “sponsoring terrorism” and has listed (with Iraq and North Korea) as part of an “axis of evil”, for its contribution to the fight against terrorism.

As the prospects of a comprehensive agreement involving all five countries remain as remote as ever, it seems that several littoral states will be seeking bilateral treaties as a way out of the current impasse. Just one day after the summit, Putin stopped in the Caspian port of Astrakhan, where he spoke openly of seeking bilateral Caspian deals. He said: “If it is impossible to come to an agreement on all problems with all the Caspian states, Russia considers it correct to settle problems with its neighbours on a bilateral basis.”

Kazakhstan and Russia have recently made moves to resolve disputes over several fields in the Caspian’s northern sector and their exploitation. Last month they agreed to divide the Kurmangazy oil field in the northern Caspian Sea. The two countries are scheduled to hold a meeting on May 26 to sign a bilateral treaty demarcating their northern Caspian border, thus removing differences blocking agreement over the offshore oil fields of Khvalinskoye and Tsentralnoye. But Iran remains adamant in calling for a multilateral solution.

Yet a variety of ecological problems afflicting the Caspian Sea compounds the difficulties facing the Caspian countries. The delicate Caspian ecosystem has been visited by nearly every imaginable environmental problem, including non-stop run-off of untreated sewage, misguided farm policies that brought a flood of chemical fertilizers and pesticides, the invasion of the floating azolla plant (imported from the Far East), and a sharp drop in seasonal bird populations. Over the past two decades, chemical pollution and poaching have contributed to a steep decline in sturgeon, the fish whose unfertilized eggs, the caviar, constitute another lucrative but dwindling Caspian resource.

Such an environmental crisis induces a sense of urgency. The chronic failure of Caspian politicians to settle the sea’s legal status can only exacerbate the crisis and make the need for an agreement even more urgent and pressing.

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