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Same-Day Analysis

Iran Remains Obstacle in Quest for Multilateral Agreement on Caspian Sea

Published: 21 June 2007
Not surprisingly, a meeting of the foreign ministers of the five Caspian Sea littoral states yesterday in Iran failed to break the 16-year-old impasse over the legal status of the Sea, particularly as Iran clings to its tired position insisting on an equal division of the Caspian's waters and its subsea oil and gas riches.

Global Insight Perspective

 

Significance

A meeting of foreign ministers of the Caspian Sea littoral states—Azerbaijan, Iran, Kazakhstan, Russia, and Turkmenistan—was held yesterday in Iran with a view towards resolving the long-standing impasse over the legal status of the Caspian and a division of its oil and gas reserves.

Implications

The lack of a multilateral agreement on the Sea's legal status and ownership of its subsea oil and gas resources has stymied hydrocarbon extraction from the Caspian, particularly in disputed waters in the south, as well as prevented the construction of proposed trans-Caspian oil and gas pipelines.

Outlook

Although Iran continues to stick to an unrealistic and untenable position, there is a glimmer of hope that Turkmenistan's evolving government policy under new president Gurbanguly Berdymukhammedov could break the impasse.

Iran Sticks to its Guns

Yesterday's meeting of foreign ministers of the five Caspian littoral states in the Iran capital, Tehran, Iran, resulted in little movement to break the stalemate between Azerbaijan, Iran, Kazakhstan, Russia, and Turkmenistan over the legal status of the Sea—at least not publicly. Iran, which has long stood alone in its support for a "condominium" approach to an equal division of the Sea's waters and joint ownership and development of the Caspian's subsea oil and gas reserves, stood firm in its argument that the previous legal agreements between the Soviet Union and Iran remain valid and should be the basis for any new legal, multilateral agreement. The four former Soviet states, however, reiterated their support for the modified median line approach, which would divide up the Sea's waters and its subsea resources based on their respective shorelines, thus reducing Iran's share to around 13%.

Not surprisingly, the meeting yesterday failed to yield a breakthrough agreement, as the littoral states essentially stuck to the same positions on this issue that they have held for the past several years (see table). The lack of an agreement on the division of the Sea's hydrocarbon resources, which are believed to rival the North Sea's oil and gas riches—not to mention the failure even to agree on whether the Caspian is a body of water governed by the Law of the Sea (which does not cover inland lakes)—continues to stymie greater cooperation between the littoral states in oil and gas development. Nevertheless, each of the individual countries has embarked on oil and gas exploration in what they consider their territorial waters, with Azerbaijan notable in that it is already producing significant volumes of oil and gas in it sector.

Caspian Sea Dispute: Positions of Littoral States

Country

Position

Azerbaijan

  • Argues that the Law of the Sea Convention should be applied.
  • Has signed bilateral treaties with Kazakhstan and Russia delineating each country's national sector of the Caspian seabed. In May 2003, the three countries reiterated their intention to co-operate in demarcating their sectors of the Sea by signing a trilateral agreement.
  • Proceeding with exploration and development of oil and gas fields in its generally accepted sector of the seabed.
  • Currently has disputes with both Iran (over the Araz-Alov-Sharg field, which Iran calls Alborz) and Turkmenistan (over a field called Kyapaz by Azerbaijan and Serdar by Turkmenistan) over the rights to develop fields it considers its own.

Iran

  • Asserts the validity of regional treaties signed in 1921 and 1940 between Iran and the former Soviet Union.
  • Wants any offshore oil developments to be approved by all littoral states until the legal status of the Caspian has been clarified.
  • Willing to divide the Caspian into national sectors, but only if there is equal division into five sectors of 20% each. At the same time, Iran has signed a bilateral agreement with Turkmenistan to co-operate in dividing the Sea.
  • Currently has disputes with Azerbaijan (over the field which Iran calls Alborz and Azerbaijan calls Araz-Alov-Sharg) over the rights to develop oil and gas fields it considers its own.
  • Argues that the trilateral agreement on the division of the Sea signed in May 2003 by Azerbaijan, Kazakhstan and Russia is "illegal".
  • Beginning to explore areas near the Iranian coastline.

Kazakhstan

  • Has signed bilateral treaties with Azerbaijan and Russia delineating each country's national sector of the Caspian seabed. In May 2003, the three countries reiterated their intention to co-operate in demarcating their sectors of the Sea by signing a trilateral agreement.
  • Proceeding with exploration and development of oil and gas fields in its sector of the seabed, including joint development with Russia of the Kurmangazy (Kazakhstan) and Khvalinskoye and Tsentralnoye (Russia) fields.

Russia

  • Has signed bilateral treaties with Azerbaijan and Kazakhstan delineating each country's national sector of the Caspian seabed. In May 2003, the three countries reiterated their intention to co-operate in demarcating their sectors of the Sea by signing a trilateral agreement.
  • Increasing exploration and development of oil and gas fields in its sector of the seabed, as well as joint development with Kazakhstan of the Kurmangazy (Kazakhstan) and Khvalinskoye and Tsentralnoye (Russia) fields.

Turkmenistan

  • Agrees with Azerbaijan, Kazakhstan and Russia that the Caspian should be divided along median lines, but disagrees with its neighbours over where the median lines for its sector should be drawn.
  • Has signed a bilateral agreement with Iran to co-operate in dividing the Sea.
  • Slowly proceeding with exploration and development of fields in its generally accepted sector of the seabed.
  • Currently has disputes with Azerbaijan over the rights to develop oil and gas fields that Turkmenistan considers its own. The main disagreement is over a field called Kyapaz by Azerbaijan and Serdar by Turkmenistan. Turkmenistan also claims portions of the Azeri and Chirag fields being developed by Azerbaijan (Turkmenistan calls these fields Khazar and Osman respectively).

Although several states have signed bilateral agreements on their maritime border in the Caspian, and Russia and Kazakhstan are even moving forward with joint development of several fields in the north Caspian as part of their border agreement, the absence of a multilateral solution has prevented more hydrocarbon exploration in the southern part of the Caspian. An Iranian gunboat famously threatened an Azeri research vessel in July 2001, bringing an abrupt halt to exploration in disputed waters there, while a disagreement between Azerbaijan and Turkmenistan over the Kyapaz/Serdar field in the middle of the Caspian has prevented any co-operation in oil and gas extraction between those two states. Moreover, both Russia and Iran have used the lack of a multilateral agreement on the Sea as a pretext for opposing the construction of any trans-Caspian oil or gas pipelines that would link Turkmenistan and Kazakhstan to Azerbaijan and potentially allow the Central Asian states to export hydrocarbons to western markets without transiting Russian or Iranian territory.

A New Hope?

With no outward signs of progress on the Caspian Sea impasse, the only hint of optimism is that Turkmenistan, which has long been a wild card in the Caspian talks, may be adjusting its position to bring the country in line with the other former Soviet republics. New Turkmen President Gurbanguly Berdymukhammedov, who took over following Saparmurad Niyazov's death in December, has signalled recently that his government is willing to take a more conciliatory approach to foreign investment in an effort to boost the country's oil and gas production (see "Related Articles").

Moreover, with Niyazov out of the way, Azerbaijan has once again reached out to Turkmenistan in an effort to resolve their differences, and Berdymukhammedov appears to be more open to Azerbajian's advances than his predecessor. The re-opening of the Turkmen embassy in Baku could be a sign that frozen relations between the two countries are beginning to thaw, with the potential for a rapprochement between Azerbaijan and Turkmenistan. Bilateral negotiations on their maritime border could lead to an agreement that would open the Kyapaz/Serdar field to joint development and eventually increased exploration in the south Caspian, while also putting more pressure on Iran to drop its unreasonable expectation of a 20% stake in the division of the Sea's resources.

Outlook and Implications

It is too soon to know whether Berdymukhammedov is ready to make such a formal break in policy from his predecessor, but with Azeri and Turkmen officials talking again, a possible bilateral agreement between Azerbaijan and Turkmenistan could be the impetus that is needed to break the stalemate over the legal status of the Caspian. Should Turkmenistan throw in its lot with the other former Soviet republics, perhaps by signing a four-way agreement on the modified median line approach to the division of the Sea, the Iranian government would find it hard to maintain its current stance.

This is not to say that Iran would necessarily cave into the modified median line argument, however. As the ongoing diplomatic crisis at the United Nations Security Council over Iran's nuclear ambitions has demonstrated, the Iranian government is not one to give into pressure, even when it is heavily outnumbered. If anything, Iran may become even more obstinate in its determination to stick to its equal division approach to the Caspian, knowing that Russia—which is keen to ensure that the bulk of Kazakh and Turkmen oil and gas exports are routed via Russian territory rather than via the Caspian—is not exactly clamouring for a final division of the Sea either.

Both Russia and Iran have also argued against trans-Caspian pipelines on environmental grounds, but Kazakh Foreign Minister Marat Tazhin challenged this view yesterday. Tazhin said that, "in our opinion, routes for laying pipelines in the sea should be defined with the agreement of a party in whose section of the seabed they should be laid", noting that Kazakhstan is ready to study the environmental impact on all littoral states of any pipeline projects. The Kazakh challenge to the status quo on the environmental issue, together with the potential for a new policy emerging from Turkmenistan, could eventually help foster a breakthrough in the long-running Caspian Sea dispute.

Related Articles

CIS: 19 June 2007: Azerbaijan Makes Overtures to Kazakhstan, Turkmenistan in Bid to Transport Oil and Gas Westwards 

Kazakhstan: 18 June 2007: President Urges Foreign Energy Investors in Kazakhstan to Invest in Transport Infrastructure

Turkmenistan: 7 June 2007: President Says Turkmenistan Open to Foreign Investors and Alternative Gas Pipeline Options

CIS: 14 May 2007: Russia Strikes Pipeline Deal to Secure Control over Central Asian Gas Exports

CIS: 11 May 2007: Kazakhstan Agrees to Russian Bosphorus Bypass Plan in Deal to Expand CPC Pipeline

Turkmenistan: 7 May 2007: Chevron Invitation Could Signal New Approach to Foreign Investors by Turkmenistan

Georgia: 23 March 2007: Competition for Caspian Rail Oil Re-Export Business Heats Up in Georgia

Turkmenistan: 16 February 2007: New President, Same Old Friends: Turkmenistan Reaffirms Russian Energy Ties

CIS: 9 June 2006: Kashagan Partners Eye US$4-bil. Trans-Caspian Oil Transport System to Connect to BTC Pipeline

CIS: 24 February 2006: Is the Trans-Caspian Gas Pipeline Plan Dead or Just Premature?

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