Geopolitics of Caspian Knot of Problems

The Caspian Sea, the largest landlocked body of salty water in the world, is surrounded by five “Caspian States”: Russia in the north; Iran in the south; Azerbaijan in the west, and Kazakhstan and Turkmenistan in the east.

The Caspian Sea’s location at the crossroads of Asia, Europe and the Middle East has raised the Caspian Region’s strategic importance to international geopolitics. Soon after the dissolution of the Soviet Union, the Caspian basin attracted the attention of international community. The Caspian basin has been considered as one of the world’s largest hydrocarbon resources awaiting development.

However, still-unresolved disputes arising from the Caspian Sea’s unsettled legal status and regime have posed serious obstacles to the exploitation of several offshore hydrocarbon deposits situated in the areas contested by neighboring states and block trans-Caspian oil and gas pipeline projects.

Source: wikimedia

The legal framework before and after 1991

Before the dissolution of the Soviet Union in 1991, the legal framework of the Caspian Sea was ruled by Soviet-Iranian Treaties of 1921 and 1940 (The Treaty of Friendship and The Treaty on Commerce and Navigation). With the independence of Azerbaijan, Kazakhstan and Turkmenistan after 1991, the number of Caspian littoral states rose from two to five. This has created a legislative black hole in the sea’s governance and sharing the sea under existing legal arrangements has become problematic. The newly independent states initially respected the Soviet administrative division as de facto international boundaries, but at the same time they challenged the already inadequate treaties of the past.

In the early 1990s, the Soviet Union and Iran argued for common ownership of the Sea by all littoral states, aiming for veto power over Western involvement in the region. Russia then changed its stance and favored dividing the seabed (together with the oil and gas resources underneath) into national sectors, while leaving most of the surface waters for common management and use. Consequently, Russia signed treaties with Azerbaijan and Kazakhstan, effectively dividing the northern part of the seabed into national sectors. Meanwhile, Iran continued insisting on the validity of the Soviet era treaties and hence refused to sign or recognize any bilateral treaties until a new multilateral legal framework is concluded among all five Caspian states. Conflicting interests of the littoral states, as well as the interests of other important actors in the Region, has made this issue even more complicated.

The legal framework of the Caspian Sea consists of two distinctive issues: legal status and legal regime

While the former concerns the sovereignty of a particular body of water, the latter is about using rights
and obligations. The unclear legal status of the Caspian (whether it is a sea or a lake) has brought uncertainties about its legal regime. Past treaties do not address the issue of seabed sovereignty nor the delineation of the seabed. Moreover, they provide information limited within the scope of the activities they cover: fishing, commercial and navigation rights, but not mining rights. With mining rights, the seabed is taken to consideration, and not the water layer.

In order to establish a convention that would definitively settle the legal framework of the sea, the littoral states organized a series of summits and working groups since 1992. Endless negotiations over nearly two decades have revealed a great divergence of views due to diverse motives and interests. Failed consensus paved the way for unilateral claims and actions, shifting alliances, and consequent disputes.

Resolving the legal status and regime of the Caspian Sea by international laws is extremely difficult, if not impossible, since the relevance of international maritime laws to the Caspian case is itself another disputed subject and all littoral states have some legal grounds for their arguments.

How the Caspian seabed is divided among the littoral states will determine which hydrocarbon fields will fall into whose sector. So far, all littoral states have been involved in ownership disputes over oil and gas fields. The most serious ones are between Azerbaijan and Turkmenistan and between Azerbaijan and Iran. The Russia-Kazakhstan dispute has been managed diplomatically since 2002 when they signed a protocol to jointly develop the three fields located on the median line between the two countries.

Disputed fields

In 1994, Azerbaijan and a consortium of foreign companies signed the so-called “Contract of the Century” to develop Azeri, Chirag and Guneshli fields. Turkmenistan, however, claims that the Azeri and (partly) Chirag fields are indeed in Turkmen territorial waters. Another disputed field between the two countries is Kapaz (known as Serdar in Turkmenistan).

The Alov field (called Alborz in Iran) is a subject of dispute between Azerbaijan and Iran. In 1998, Azerbaijan gave permission to a consortium including BP to carry out a seismic survey. When Iran’s call to Azerbaijan to stop activities until the establishment of a legal regime for the Caspian was ignored, Iran gave permission to a consortium including Shell to conduct similar studies in the same area. The tensions peaked when an Iranian warship and two military aircraft threatened two Azeri vessels exploring the field on behalf of BP in July 2001. All the above mentioned disputes still continue.

Trans-Caspian Energy Pipelines

Since the mid 1990’s there have been talks about trans-Caspian energy pipelines: one to transport Kazakh/Turkmen gas and the other to transport Kazakh oil to Europe via the Caucasus and Turkey. A stable and predictable environment that preserves corporate confidence in the legal validity of the demarcation of the Caspian is vital for the realization of trans-Caspian pipeline projects. Time is important because the longer these pipelines are delayed the less the chance to secure the large amounts of gas and oil to feed them. Given the unpleasant past experience with certain disputed fields, however, no private investor would dare to spend a dime into such multi-billion-dollar pipeline projects before the security issues inside the Caspian Sea are settled once and for all.

Why no agreement yet?

All Caspian littoral states agree that a multilateral treaty is the ideal way to resolve their disputes and to establish firm long term energy development and security in the region. They fail to agree, however, on how such a treaty should be formulated by taking into account past treaties and current realities.

On the one hand the problem boils down to sharing Caspian Sea and its resources among the littoral states. On the other hand, the genus of the problem goes well beyond and extends to the multiple and competing interests of those involved. For the new independent states, demarcating the Caspian is an opportunity to access more hydrocarbon resources and to set up transportation infrastructure for hydrocarbons originating in their own landlocked territories, hence stimulating economic development. Getting more, in a way, is important for the ability to consolidate and reinforce these states’ political independence. In other words, their positions are driven first by commercial interests and then followed by political considerations.

Danger of a military clash

Political disagreements among the players are inevitable in the region and will surface once their interests and priorities clash. The US-Russia cooperation may be possible if they take each other’s interests into account. A tension with China might surface in the long term since China views the region as an important supply source to its domestic markets, due mainly to its proximity to the region. Iran, on the other hand, is likely to delay any agreement on the Caspian Sea legal framework which will allow it to exercise its influence in the region until its relations with the US is put on track.

The legal status of the Caspian Sea has a security dimension too. A military conflict over the hydrocarbon resources in overlapping claims in the disputed fields in cannot be downplayed. Any significant confrontation between two or more coastal states would slow or halt offshore exploration, which would eventually have major economic consequences. As new fields are discovered in the future, even the bilateral treaties can become a conflict issue.

In August 2009, Turkmen President Berdymukhammedov said that by 2015, Turkmenistan will build a naval base on the Caspian to defend the sea border of the country. Even though he was referring to combating smugglers and terrorists, it was perceived by Azerbaijan as a warning for disputed oil and gas fields. Such kind of potential international conflict or controversy is a possible scenario.

The late president of Turkmenistan, Saparmurat Niyazov, warned at the end of the Caspian Summit on 22-23 April 2002 in Ashkhabad that territorial spats could one day get out of hand: "The Caspian smells blood." We hope that history will prove him to have been wrong.

Until and unless the multidimensional aspects of a legal framework on a practical basis are resolved, and a stable regime for governance is established, controversies and conflicts will continue.

For Iran and Russia the issue involves greater geopolitical considerations rather than the commercial interests since they have large hydrocarbons reserves outside the Caspian Sea. For them, it is more of a national security issue. Iran and Russia will continue to perceive the US and NATO as a threat to their security, and will freeze the process of the final resolution of the legal status issue by any means.

Prospects for the future

As Vladimir Putin has stated, the future of the Caspian—whether it is a sea of cooperation or a clash of interests—will depend on how the littoral states untangle the tight Caspian knot of problems.

It appears that a comprehensive and acceptable solution concerning the legal framework of the Caspian Sea can only be achieved through negotiations. However the signature of such a five-party treaty may seem unlikely in the short term, there is still hope. Geopolitics will continue to play an important role in resolving this issue and its timing.

See my other articles on Caspian Legal Framework and Its Implications:
(a) The Caspian's Unsettled Legal Framework: Energy Security Implications
(b) The Legal Status of the Caspian Sea: Implications on Caspian Resources Development and Transport (pages 20-25)