Stanislav Zhiznin, D. Sc. (Economics), Professor at the Moscow State Institute (University) of International Relations of The RF Ministry of Foreign Affairs, President of Center for Energy Diplomacy and Geopolitics
LEGAL MAZES OF THE CASPIAN
Uncertain legal status of the Caspian Sea cripples implementation of oil and gas projects
The importance of the Caspian region for the global energy market has grown notably due to the increased production of energy resources in the Caspian states. No doubt, its value for the global energy industry will increase even more as the world recovers from the global financial and economic crisis and hydrocarbon prices go up. The domestic conflicts in some Arab countries that destabilized the situation and put the oil and gas delivery schedule in question coupled with the delays on some projects (gas pipelines from Libya and Egypt) - this is what makes the EU states, China and some other Asian countries take a closer look at the oil and gas resources of the Caspian region.
The oil (Azerbaijan, Kazakhstan) and gas (Turkmenistan, Azerbaijan, Kazakhstan) export opportunities of the Caspian states are expanding. Though a major share of their oil and gas is currently exported via Russian territory, it is clear that fairly soon, other export routes will be explored and used heavily. Tangled behind each of the existing and future routes are the economic and geopolitical interests of various states as well as the commercial interests of many companies. Each project has its own pros and cons.
New times, old treaties
The uncertain international legal status of the Caspian Sea is a major problem that holds back implementation of large-scale international projects of Caspian offshore development and construction of underwater trans-Caspian pipelines.
The international legal status of the Caspian Sea is determined in the Russian-Persian Treaty of February 26, 1921, as well as the Soviet-Iranian Treaty of March 25, 1940. Both instruments are termless and based on the "common water" principle. They specifically set out the free navigation and fishing regimes for the Caspian states and close the Caspian Sea for vessels flying flags of non-Caspian states. The treaties are mute on the issues relating to use of the subsoil resources and environmental protection.
The new independent states that emerged after the collapse of the USSR came to the conclusion that the current international legal status of the Caspian Sea gave them right to explore and develop any oil and gas fields in the Caspian Sea. However, absence of a new legal status and regime of the Caspian Sea addressing in particular the Caspian states` ownership rights to Caspian energy resources has already caused conflicts between Azerbaijan and Turkmenistan as well as between Azerbaijan and Iran over several oil and gas fields. Kazakhstan and Russia have now resolved their differences over the ownership of an oil field in the Northern Caspian.
Despite the signing of several large contracts the uncertain legal status and regime of the Caspian Sea poses a serious obstacle to large-scale oil and gas development. Until the ownership of oil and gas resources has been expressly legalized the disputes between the five Caspian states are likely to continue on an inter-state level.
For over 15 years, these states have been engaged in tough negotiations over a draft convention on Caspian legal status. Pursuant to the minutes of the initial meeting of the heads of legal departments of the Foreign Affairs Ministries of the Caspian states (Teheran, 1995) the would-be convention should cover the issues of navigation, use of biological resources, environmental protection and development of mineral resources. It is also expected to set forth the new sovereign rights and jurisdictions of the five Caspian states.
Access to the Caspian Sea oil and gas resources and their transportation routes have been the focus of fierce diplomatic clashes between regional and nonregional states as well as large corporations. Without going into the details of the legal complexities and subtleties of problems arising in the negotiations process it should be noted that the parties have views as to how the Caspian resources should be divided and who should own the specific fields. Each point of view is driven by the preliminary financial and economic estimates based on the latest exploration data pertaining to oil and gas reserves.
In search of a compromise
Currently in place is the standing Ad Hoc Working Group (AHWG) to draft a convention on Caspian legal status that includes Deputy Foreign Ministers of the Caspian states. One of the major tasks of the AHWG is to develop recommendations for the regular meetings of the Foreign Ministers of the Caspian states and the summits of the Caspian heads of state.
The First pentalateral (Azerbaijan, Iran, Kazakhstan, Russia and Turkmenistan) summit was held in Ashgabat in April 2002. The Second summit took place on October 16, 2007, in Tehran, where the Caspian heads of state signed a joint declaration granting all littoral states sovereign rights with regard to the Caspian Sea and its resources. The declaration says, inter alia: "The current navigation shipping and fishing regimes will be implemented exclusively under the flag of the littoral states, pending the final approval of a new Caspian Sea legal regime." In addition, the summit participants reached an agreement on holding regular meetings of the Caspian heads of state with the session of the Foreign Ministers and authorized experts in between.
Further to this agreement on October 3- 4, 2008, Astrakhan hosted Intergovernmental Economic Conference of the Caspian States (IECCS) that was attended by the delegations from the five Caspian states. The delegations were chaired by Vice Prime Ministers and included key ministers as well as leading Russian and Western companies. The forum addressed the economic cooperation between the five states. The Conference format included plenary sessions, round-tables and bilateral meetings.
The Third Caspian summit was held on November 18, 2010 in Baku, where the Presidents signed an Agreement on Security in the Caspian Sea as well as an expanded joint declaration. The first document was meant to reinforce the Declaration signed by five Caspian heads of state at the Second Caspian summit in Tehran on October 16, 2007. At that summit the leaders of the littoral states proclaimed that "the Caspian Sea should only be used for peaceful purposes and any problems related to the sea should be resolved diplomatically by the littoral states." The Declaration also stated that the parties thereto will never launch a military attack against any of the littoral states. The Caspian Five also committed: "They will not let any country use their soil for a military attack against other littoral states."
On July 19-20, 2011, Moscow hosted the 26th session of the Ad Hoc Working Group of Deputy Foreign Ministers of the Caspian states to draft a Convention on the Legal Status of the Caspian Sea. The participants followed up on the decisions of the Third Caspian summit and negotiated the provisions of the draft convention. Aside from the official events of the Caspian Five various international conferences to discuss the Caspian hydrocarbons issue are held annually. Such conferences are attended by the representatives of the governmental, business and academic circles of some Caspian states, as well as European countries and the United States.
Five states - five strategies
The Caspian region is, due to its geographic location, of paramount strategic importance to Russia especially in light of the geopolitical changes triggered by the collapse of the USSR. Energy security is the underlying motive of the Russia energy interests in the region. Top priorities include diplomatic support for the pipeline projects for the utmost importance for Russia (CPC expansion, construction of the Atyrau-Samara trunk and the Caspian costal pipeline, upgrading of the Central Asia-Center gas pipeline, construction of the Southern Stream pipeline). Russia and Turkey have recently started looking into the options for the Samsun-Ceyhan pipeline to be fed by crude oil delivered by tankers from Novorossiysk.
As for Azerbaijan`s interests in the Caspian, we need to keep in mind that most of the Azeri onshore oil fields were depleted in the 20th century, which means that the Caspian offshore fields are, in essence, its only hope in terms of economical capacity and survival. Azerbaijan takes a rather flexible approach to hydrocarbon transportation routes: it strives not to make Russia unhappy but seeks to have most of its hydrocarbons transported along the routes that bypass Russia (the Baku-Tbilisi-Ceyhan pipeline, Baku-Tbilisi-Erzurum pipeline, Nabucco, Southern Corridor).
Kazakhstan`s interests are largely dependent upon the estimated oil and gas reserves in the Northern Caspian. The country is blessed with vast onshore energy resources and their development is a top priority for Kazakhstan.
Turkmenistan`s interests boil down to the simple fact that its oil and gas are produced from the onshore fields. However, this country claims the ownership of some fields that Azerbaijan has already included in its national sector. Ashgabat is interested in getting the gas transportation routes as diversified as possible to reduce its dependence on Moscow. Turkmenistan backs the idea of building a Caspian costal gas pipeline and has no objections against upgrading the Central Asia-Center pipeline system. In the meantime, it works on a China oriented pipeline project and mulls the possibility of building a Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline. Nabucco is still on the table too. Construction of a gas pipeline to Turkey and Europe via Iran has been put on hold but this most promising project may be resumed if the situation in Iran changes.
Iran is not so vitally interested in the Caspian energy resources because the bulk of its oil and gas resources are located much further to the south within its sovereign territory, including but not limited to the Persian Gulf shelf, while the hydrocarbon resources near the Iranian shore of the Caspian Sea are estimated as quite modest. Meanwhile, being a part of hydrocarbon and pipeline diplomacy helps Iran overcome its international isolation and strengthen its geopolitical influence in the region which is important for its foreign policy and foreign trade. At the current juncture, Iran has little, if any interest in expediting the development of a new legal status of the Caspian Sea since the uncertainty of the situation helps Tehran impede unwanted projects.
Interests of non-regional countries
Among the transiter countries Turkey deserves a special mention because its Caspian policy is largely driven by energy and geopolitical factors. Turkey seeks to get access to the rich mineral resources of the Caspian region for its companies. In addition, this country has been insistently lobbying construction of the trunklines for transporting Caspian oil and gas to the global markets across its territory. Control over the transit routes will undoubtedly increase Turkey`s influence in the Caucasus and Central Asia.
Besides, Turkey expects to solidify its position as the transit center for crude oil and gas transportation to the EU. To help its case in supporting beneficial projects Ankara often brings up the environmental aspects of the tanker passage through the Turkish Straits.
Ukraine and Georgia would not mind to increase their transit engagement as well. Bulgaria, Greece, Austria, Italy and the other EU countries while complying with the EU energy policy have never stopped pursuing their own economic and political interests relating to the Caspian oil and gas transit, which are, to a certain extent, varying.
As for the consumers, the Caspian interests of the United States, as well as the EU countries, Japan and China are related to their energy strategies that aim to diversify their external supply sources of energy resources, reduce their dependence on the politically unstable Middle East, and create an enabling foreign policy environment for securing unrestricted access to the region`s mineral resources.
All non-regional countries are intensifying their activities in the Caspian Region. Nearly all major international companies are important players in the Caspian game of oil and gas seeking, each in its own way, to legalize their rights to participate in the production and transportation of Caspian hydrocarbons without waiting until the legal status and regime of the Caspian Sea are formalized. These companies are forging various alliances and coalitions for this purpose.
The major factors hampering Caspian oil and gas projects implementation include the uncertainty about the fragile recovery from the global financial crisis, growing demand and, consequently, prices for hydrocarbons at the world markets. All of this makes attracting investments a tough job.
The problem is that there is not enough crude oil and gas to move via the Baku-Tbilisi-Ceyhan pipeline, Odessa-Brody pipeline, Southern Corridor, Nabucco, and White Stream. Conversely, neither the Southern Stream nor the CPC have problems with filling their lines. The political situation in and around Iraq effectively cripples implementation of Nabucco and Southern Corridor projects, while the ongoing tensions in Afghanistan and Pakistan as well as the strained relations between India and Pakistan hold back construction of a gas pipeline from Turkmenistan. The historically clouded relations between Turkmenistan, Kazakhstan and Uzbekistan interfere with the Central Asia-Center pipeline system refurbishment and construction of the Caspian costal pipeline.
The uncertain legal status of the Caspian Sea seriously affects construction of a subsea pipeline from Kazakhstan to Baku and its subsequent tie-in to the Baku-Tbilisi-Ceyhan system, as well as laying of a trans-Caspian gas pipeline to deliver Turkmen gas to Nabucco and the Southern Corridor. Furthermore, absence of the convention on the legal status of the Caspian Sea creates serious political risks in terms of attracting big-time investors to development of the oil and gas fields in the Caspian Sea.
http://www.oilru.com/
N 2, 2012
Станислав Жизнина, No. 2, 2012
