[A-List] BP watch: Caspian Sea carve-up

[Keaney Michael]

More possible connections with the Mittal scandal, plus the continuing
efforts of "Blair" Petroleum to assert "British" interests in Central
Asia, competing against Russia and others...


Troubled waters in the Caspian Sea
By Sergei Blagov
Asia Times, March 1, 2002

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.

Full article at:
http://www.atimes.com/c-asia/DC01Ag02.html

Michael Keaney
Mercuria Business School
Martinlaaksontie 36
01620 Vantaa
Finland

michael.keaney at mbs.fi