Document de travail 3

Spring 2003 Caspian Energy and Legal Disputes: Prospects for Settlement

Mehmet Ögütçü Ifri is a research center and a forum for debate on the major international political and economic issues. Headed by Thierry de Montbrial since its founding in 1979, Ifri is a non-profit organization.

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Institut français des relations internationales 27 rue de la Procession - 75740 Paris Cedex 15 - France Tél. : 33 (0)1 40 61 60 00 - Fax: 33 (0)1 40 61 60 60 CASPIAN ENERGY AND LEGAL DISPUTES: PROSPECTS FOR SETTLEMENT Mehmet Ögütçü1

Overview

In the past decade, the Caspian Sea has become one of the world's most promising new regions for petroleum investment and development, as well as the focus of intense international competition for access and pipeline routes. The problems of ethnic tension,

1 Mr. Ögütçü is the author of “China’s Quest World-wide for Energy Security” (IEA, 2000), “Eurasian Energy Prospects and Politics: Need for a Western Strategy”(Energy Charter Treaty, 1994), “Does Our Future Lay with Asia? China and Turkey” (Milliyet: January 1999), a major report “A New Economic and Trade Diplomacy Strategy for Turkey” (TUSIAD: October 1998), “Investment Review of Ukraine” (OECD, 2002), “2023 Turkey Vision: Dreams and Realities” (2003, Forthcoming), among other publications. The views expressed in this paper are his own personal and do not necessarily reflect those of any Organisation he is associated with. He can be contacted at E-mail: [email protected]

10 instability, slow democratisation, and It also elaborates on the investment geopolitical contest in the region are of environment, the geopolitical stakes and great concern to neighbouring countries, country positions for each key player as major external powers and investors. they relate to the legal arguments that are Border disputes and conflicting legal randomly advanced according to the claims to offshore oilfields of the littoral perceived national interests. Turkey’s nations of Azerbaijan, Iran, Kazakhstan, position as a consumer, transit country Russia, Turkmenistan are among serious and security provider for Caspian energy risk factors for investors engaged in the shipments in relation to other major development and export of hydrocarbons players active in the region is also of from the Caspian Sea. special interest to the paper. The paper puts forth a series of ideas for reaching a Disputes over the legal status remain an settlement of the disputes in the Caspian omnipotent barrier for a resolution of the region. political and economic problems among the littoral states. The present situation, Caspian Energy Potential despite serious political and legal quarrels, is fortunately calm. However, U.S. Energy Department estimates that the absence of conflict or visible the Caspian region's oil reserves confrontation does not mean that comprise 200 billion barrels -- about 16 unexpected tensions are ruled out. On percent of the world reserves. Others the contrary, there are causes for refer to more modest figures. Measuring predictions and anxiety, which have to the Caspian wealth is not easy. One be detected and resolved. Whether to difficulty in reaching exact values of the consider the legal status of the Caspian oil reserves is the clashing comments Sea as "closed" or "opened"2 has direct and gossips over the issue. The implication towards the exploitation of uncertainty in measurements is not the sea-bed or continental shelf zones merely because of the geological under the principles of "common obstacles, which makes measuring ownership" or "separate ownership". troublesome, but rather caused by the regional states’ and the actors’ benefits This paper aims to provide an overview in it. The Caspian states have of the Caspian energy prospects and considerable interests in keeping politics on the global scene with a estimates high in order to maintain their particular emphasis on the legal disputes attractiveness to outside investment. and their impact on business operations. While the regional political elite tries to exaggerate the potential of the region to profit from the higher share prices of the 2 The Caspian Sea, the largest close water body exploitation and transportation of the oil, in the world, divides Asia and Europe and links the Caucasus, Central Asia, Southwest Asia and the foreign companies engaged in the Russia. It is stretched to 371,000 square km. and Caspian oil race manipulate the statistics its depth is 1025 metres. It is about 1,200 km through their expert groups for striking long from north to south and 320 km wide from better deals. west to east. There are around 50 islands in the lake with a total area of 350 square km. Due to fluctuations in the water level, which is over the Although it is not another Gulf or Saudi past century has oscillated significantly, those Arabia, the Caspian oil reserves can play figures are not constant.

11 an important role in moderating per day (mbd), of which about two thirds worldwide oil prices. In the years ahead, is used domestically and less than 10 oil production outside Organization of percent is moved through Russia to export Petroleum Exporting Countries (OPEC) markets beyond the Commonwealth of member countries will likely see its Independent States. If investments in the biggest growth in the region of the Caspian region continue at the current Caspian Sea3. There has been some talk pace, and if sufficient export outlets are recently about downgrading Caspian developed, the annual oil production could reserves because of unsatisfactory reach 3.9 mbd by 2010, of which about 2.3 drilling results in the western Caspian4. mbd would be available for export. Kazakhstan is believed to hold nearly 70 Domestic consumption is also expected to percent of the Caspian total oil reserves. grow. In a “low case” scenario, which assumes some project delays, oil It should also be noted that, to date, there production by 2010 would reach 2.8 mbd, have been only three disappointing wells comparable to Venezuela, of which about drilled in the Caspian, which compares 1.5 mbd would be available for export. (To with about 100 in the North Sea before put this into perspective, Russia currently the first commercial discovery were exports about 2 mbd.)5. made. The IEA reserve estimates for the Caspian have been among the more Most analysts now agree that future flows conservative: proven oil reserves at of oil from the Caspian will make only a between 15 - 40 billion barrels. This marginal difference to world prices, represents about 2 to 6 percent of world perhaps ranking in importance with Britain and Norway's production from the North proven reserves. Because much of the 6 region remains to be explored, it is more Sea . However, fears of military conflict in likely that estimates of the reserve base Iraq and a waning supply of oil to the will increase rather than decrease. To put United States from Venezuela, which this in perspective, the most optimistic pushed the price of oil to around $30 in early January 2003– up more than 30 reserve estimates for Caspian oil still 7 pale in comparison with those for the percent from a November 2002 low , have Middle East, which holds over 650 increased the importance of Caspian crude billion barrels or some 65 percent of the supply in world markets. world’s proven reserves, but they are nonetheless roughly comparable to those of the North Sea.

Today, the oil production of Azerbaijan, 5 Kazakhstan, Turkmenistan and Uzbekistan “Future Trends in Supply and Demand in the Mediterranean and Black Sea Oil Markets”, combined is just less than 1 million barrels presentation by Ambassador William Ramsay, Deputy Executive Director, IEA, London, 27 3 4 November 2002, RFE/RL, New York. April 1999. 4 “Caspian: Sea's Oil Reserves Estimate Revised 6 At best the Caspian region will account for Downward”, Michael Lelyveld, Boston, 10 April about 4 to 5 percent of world oil supply in 2010. 2002 (RFE/RL). One of the largest oil companies By way of comparison, in recent years Middle in the Caspian region sounded a note of reality East-OPEC has supplied over 40 percent, and with a new and more modest estimate of the could supply over 52 percent of world area's oil reserves. Gian Maria Gros-Pietro, consumption by 2010. chairman of Italy's Eni oil company, said the 7 “Rising price of oil adds to world’s woes”, Caspian contains 7.8 billion barrels of oil. International Herald Tribune, 3 January 2003.

12 Caspian’s Access to World Markets: viability of investment. Transit Transportation Challenges facilities also require massive front- end investments. These can only then One of the things that sets the land- be funded if there is a commercially locked Caspian apart from the North Sea viable project - and if the risks and other important marginal suppliers is appear manageable. Transit costs are the difficulty of getting the oil and gas not only the purely "technical" costs production to world markets. The (construction and operation of construction of new export pipelines has pipelines and loading facilities), but become a priority. The region’s energy also additional "transit fees" charged transportation systems were originally by transit countries. The fewer designed and built to serve the strategic alternatives exist, the more can a needs of the Soviet Union. All oil and transit country occupying a quasi- gas export pipelines inherited from the monopoly role extract transit rent Soviet period pass through Russia. from pipelines. Russia’s pipeline operators, citing capacity constraints and various tariff S Second, transit in most of the problems have effectively capped available directions is fraught with exports from the region. Most routing substantial political risk. The East- options are currently fraught with West corridor solution (over the technical, financial, legal and political Caucasus, through Georgia and difficulties. They must pass through—or under the Caspian and Black Seas) take expensive detours to avoid— raises serious legal and politically troubled areas. environmental problems (crossing the seas and passage through the Obviously, oil and gas development in Bosphorus), insecurity problems the Caspian region will not be feasible (passage through Azerbaijan and without reliable long-distance transit. Georgia), the passage through Russia Local and regional markets are all exposes transporters to both Russian affected by the economic collapse post-colonialist hegemonic policy following the demise of the Soviet and the Russian oil and gas transport Union and can contribute neither monopolies, in addition to the sufficient demand nor ability to pay to Chechnya risk8. finance the large-scale investment under consideration. Transit to markets - The history of Middle East pipelines mainly in Western Europe, Turkey, in illustrates that few pipelines have the future perhaps also to Eastern Europe survived and prospered in politically when it prospers - is therefore the key to development. But, these transit 8 Pipelines through Turkey also involve the now requirements raise two issues: relatively reduced risk in Southeast Anatolia, pipelines through Afghanistan the civil war risk. S First, long-distance transit adds All these pipeline concepts involve the risk of appreciably to the costs of inter-state conflict with the well-observed lack of production. The lower the oil prices, ability of the neighbouring states to find lasting agreement. Pipelines through Iran confront the the more will transit requirements US sanction policy, pipelines to China (a large therefore obstruct the commercial market and a relatively risk-free transit area) are too long and therefore expensive.

13 volatile areas. Successful pipelines This multilateral treaty provides (Algeria-Tunisia-Italy; Paraguay-Brazil; assurance beyond the usual assurance Algeria-Morocco-Spain) seem to be provided by bilateral agreements since it based on a depoliticised environment, rests not only on the relationship private law models and avoidance of between two countries, but the 50 much state involvement9. The members of the ECT. Currently, there consequence of these difficulties is are negotiations to expand Art. 7 of the usually a multiplication of political risk. ECT into a specific multilateral transit Pipeline projects can, under favourable convention. economic circumstances, accommodate, deal with and manage the political risk But law is not enough. Contracts can be of individual countries - but the pipelines disregarded, and legal excuses will out of the Caspian are asked to handle always be found12. Procedures under the multiple inter-state and intra-state risk. ECT's transit regime are not necessarily Only the least expensive and least risky legally binding. Political pressure pipeline projects will be done over the through the Energy Charter Conference next ten years - and all with considerable procedures is likely to be slow in delay, slowly and in parallel with operating, and rests anyway on many equally delayed oil and gas other political considerations. The legal development10. arrangements, therefore, are a useful and facilitative device, reinforcing the The significance of transit has strength of other pipeline- and transit- encouraged the search for stronger legal related contracts, but they are not per se instruments to facilitate transit and sufficient to guarantee that states will not bolster the legal security of pipeline and disrupt transit, or that the relations transit arrangements. The approach is between states or the situation within a right - whether there is enough strength state will not lead to a disruption. to reinforce contracts in societies with a very weak respect for contract is another It may be useful to enumerate some of matter. The key legal instrument is the the drivers, which will ultimately lead to 1994 Energy Charter Treaty (ECT)11. transportation decisions. There is a substantial consensus on a few things 9 “International Good Governance and Civilised that will be on the minds of those Conduct among the States of the Caspian contemplating the alternatives: Region: Oil&Gas as Lever for Prosperity or Conflict”, Thomas Waelde, S Companies—not governments— http://www.dundee.ac.uk/cepmlp/journal/html/ar will build pipelines. If Caspian ticle4-16.html 10 producers and transit countries do not What is necessary is competition between pipelines as only such competition can provide create the conditions under which security against blackmail by transit countries (or companies are encouraged to invest, transit operators). Similarly, such competition can pressure difficult pipeline operators (e.g. in Russia) to seek to establish themselves as Art. 26). Second, it includes a novel obligation of respectable and reliable business partners. member states to comply on a provisional basis, 11 The ECT has two elements reinforcing the after signature and before ratification to enable legal value of pipeline contracts: First, it and facilitate transit, abstain from politically provides for extensive protection of property and motivated disruption and, within capacity, contract of foreign investors, bolstered by a provide access to pipelines. direct investor-state arbitration right (Art. 10, 12 See Waelde, 2002.

14 the marginal dollar can go somewhere will also be a major competitor for else. investment. Governments in the Caspian region that hope to attract production S Multiple pipelines are in the and transit investments must keep in interests of: (a) Shippers, who need mind that they are competing with other export alternatives to position them to regions for investment funds. negotiate competitive transit terms; and (b) Countries which want to avoid Against this background and given the creating single pipe vulnerabilities, region’s dubious reputation as a hotbed either in getting their oil or gas out—or of political intrigue13 -- not to mention getting it in. its lack of pipeline infrastructure --, S raising finance for oil and gas projects in There is some limit beyond which the Caspian region will always be tricky. the Turkish Straits cannot handle Oil price fluctuations and financial crises incremental cargoes. No oil pipeline is in emerging markets only made matters going anywhere until enough barrels worse, prompting bankers to think twice need a way out. No route is without about funding projects in Azerbaijan, political risk. Kazakhstan and Turkmenistan. And S No gas pipeline is going anywhere now, a string of well-advertised until there is bankable gas demand at exploration failures has prompted many the other end. Economic forecasts of to adjust their expectations of the gas demand are interesting, but a Caspian’s potential. For all this, the commercial gas supply obligation and region still has its fair share of oil and a viable power purchase agreement are development projects that need to be much more compelling. financed. For instance, the 14 biggest projects in Azerbaijan alone will require S Supplier pressures for early total investment of $45-bn and that pipeline decisions are going to increase figure does not include export 14 substantially as delays in the long pipelines . Even if many schemes fall promised earnings from oil and gas by the wayside, the scope for project create political tensions domestically. finance is potentially huge.

13 The escalation of the conflict in the northern Caspian Energy Investments Caucasus region of Dagestan threatens to engulf the Caspian region in yet another violent cycle of Most petroleum companies have the confrontation marked by the already present choice to invest their money elsewhere. flight of a large number of refugees and displaced people. Similar to the Chechen Production costs of the region may be conflict of 1994-1996, the events in Dagestan below those of the North Sea and Russia, and the Russian military response to the situation but they are certainly higher than those pose challenges to the neighbouring countries of in the Middle East, where some Georgia, Armenia and Azerbaijan. The countries are sending enticing messages geostrategic importance of the Caucasus to Russia as its vulnerable southern lank is about foreign participation. Furthermore, compounded by the presence of the sole export it is not enough to produce the oil. It pipeline utilised by Azerbaijan to transport its oil must also get to market. Central and exports from the Caspian Sea's offshore reserves. Western Africa, where companies have 14 “The Boom That Is Surely Coming (Some for years had access to offshore reserves, Day)”, International Petroleum Finance, March 1999, p.8.

15 arrangements, dedicated-cross border Slow Tracked Market Reform; Erosion transport routes and other strategically of Caspian Potential motivated investment plans. The acute Notwithstanding the international economic needs of the newly attention devoted to the Caspian, the independent Caspian states have often region still appears to fall short in the been cited in justification of this chosen following areas: focus. The dominance of the Caspian energy exporters’ traditional trading S Obtaining competitive terms for partners and their ongoing control over access to energy-consuming markets integrated regional energy infrastructure S Facilitating economic recovery calls out for market-based realignment through commercialisation of energy and diversification of intra-regional and sector enterprises and in regulating export trade routes. However, such state enterprises and natural realignment demands massive capital monopolies, inflows and potential investors remain to S Adhering to agreements for the non- be convinced of the likelihood of discriminatory treatment of foreign enduring market reform. A decade later, investors, several such infrastructure projects have S Installing and empowering necessary been realised with the support of market institutions, significant levels of investment S Providing a reliable supply of energy committed by international players. to domestic consumers at competitive prices, Nevertheless the risk of revived state S Transparently managing and interference remains. Barriers to entry allocating revenue derived from and terms for access to newly installed investments, transport systems and their operation continues to exist and in many instances S Removing regional obstacles to market reform remains fragile. Moreover enhanced economic development as state revenues derived from these and stability. ’first generation investments’ begin to flow, the urgency for attracting further Failing to address these important issues investments may ebb away. In this on any significant scale will undermine scenario the incentives to observe the attractiveness of the Caspian Region internationally accepted standards for the in the eyes of the international treatment of investments and to follow investment community. Capital is finite through on efforts at market reform may and operates in a global market. fall by the wayside over time. Such a Investors seek fair returns and aim for negative outcome would be unfortunate the line of least resistance or risk. The since the aggregate volume and Caspian must conform consistently to economic significance of future internationally accepted norms of generations of ’merchant’ investment is governance if they are to compete potentially significant and will have a successfully for limited capital direct impact on domestic growth. resources. When compared with current strategic For the past decade, attention has commitments protected by project- focused on project-specific

16 specific arrangements, new generation opportunities elsewhere will appear investments in for example, the more attractive. The Caspian states will manufacturing, equipment, services and have forfeited or at best, delayed the other energy related industries depend realisation of their ambitions to realise on whether effective markets and economic growth by failing to establish institutions are in place. themselves as a reliable supplier to oil and gas markets. What’s Next? To mitigate these risks, focus should Foreign investors have enjoyed a decade move beyond project specific issues that long ’welcome’ in the Caspian region. It have marked the first step in Caspian oil has been relatively straightforward to and gas market development and look navigate in comparison with the much towards matters of general market more complex and politicised investment reform and commercialisation. climate that Russia witnessed in the Stakeholders operating under the myriad 1990s. The relative attractiveness of the investment arrangements that make up less complex Caspian region combined the Caspian investment and commercial with a strategic focus on major projects climate, or that otherwise depend on the may be responsible for muting demands adequacy of related legal and for effective market reform in the region. institutional frameworks, should As a consequence of accumulating benchmark their Caspian experience investment flows in a weak legal and against the mechanisms and frameworks institutional context, arbitrary measures that are available to them globally. An and discrimination against ventures informed assessment of the economic operated or owned by foreign investors risks and opportunities that the Caspian looks set to increase. region offers and their comparison with developments in other markets will lead Such encroachments are difficult to to a better understanding of what can be demonstrate and challenge in the fragile expected reasonably from Caspian oil market environment presented by the and gas market development in the essentially project driven economies of decade to come. the Caspian. Applicable commercial benchmarks are hard to come by and Geopolitical Rivalry for Caspian and investors remain susceptible to the risk Energy Security that incentives granted to them in the early stages of an investment The growing significance of the Caspian relationship are clawed back over time. region in international politics and If commitment to market reform economy is due to its geostrategic continues to be lukewarm, regulatory location and huge energy reserves. institutions will remain largely Attempts by the Caspian countries ineffective and reliance on recourse to assisted by foreign actors to weaken international law does not present a cast their dependence on their Russia iron solution. Foreign investors dominated infrastructure (and on each operating in the Caspian may be exposed other) are at the heart of Caspian to a ’big squeeze’ over the next decade. geopolitics. The proposed pipeline In this scenario, investment routes are intended, in the main, to

17 contain the influence of Russia and Iran, In this 'New Great Game' the rivalry is thus diversifying sources of energy not as simple and plain as it used to be in supply and strengthening the the past. There are complex factors independence of Caspian nations. involved with many new players. It is However, Russia is keen to maintain its between Iran and Turkey, between Iran strategic interests in the Caspian region and the United States, between Russia and want the bulk of the pipelines to and Turkey; and between Iran and pass through it. Similarly, Iran is Russia on the one hand and the United interested that the pipelines pass through States and Turkey on the other. The its own territory. multinational oil and non-oil companies are also among the new players: while The winners in the struggle over pipeline the states are mainly interested in routes expect to secure major strategic enhancing their strategic position, advantages. The latest crisis in influence and interests, the companies Afghanistan seems to have altered the have primarily economic interests in the equations. The growing US military game. presence in the region and its involvement in Afghanistan and Iraq Caspian Energy and Security may help Washington establish and consolidate the bases of its influence and The Caspian developments have a permanent presence in the Caspian significant bearing on the world’s region. Russia's co-operation with the current and future energy security. But US in the war against Afghanistan has the importance of Caspian energy enhanced its role and importance in the resources to global energy supplies and region. The liquidation of the Taliban energy security should not be overstated. regime in Afghanistan also helped In comparison to the global energy Russia in containing the growing resource base, Caspian oil and gas separatist movement in Chechnya and reserves represent a tiny fraction of Dagestan. Moreover, Russia hopes, in overall supplies—one quarter of return, the US will accede to its major Venezuela’s, one-seventh of Iraq’s, and role in ensuring the flow of Caspian oil one-seventeenth of Saudi Arabia’s. Even and gas via the northern route if the region reached its maximum oil guaranteed by it15. Turkey is production potential, its exports would increasingly a key actor and an ally of account for slightly less than 3 percent the US in the new Caspian (and Middle of global oil consumption by 2010. East) geopolitics of energy Moreover, the degree to which the Caspian region’s potential reserves are recovered and exported over the next 10–15 years remains uncertain16.

15 “Pipeline Politics in the Caspian Sea Basin”, Shah Alam, Researcher, IDSA, at From the West’s perspective, therefore, http://www.idsa-india.org. In general, the US while the emergence of the Caspian Sea policy towards Russia is to integrate Russia into the Western- oriented market (like G-8) and security arrangements. But in relation to Central 16 “The Politics of Oil in the Caucasus and Asia and the Caucasus region, the US seeks to Central Asia”, Rosemarie Forsythe, Adelphi contain Russian influence and break the Russian Paper 300, Oxford University Press for IISS, monopoly through one means or the other. Oxford, 1996.

18 region as an important source of global Cold War, Turkish foreign policy was energy will contribute to improved typically insular and passive. Turkey energy security, Caspian supplies are focused its energy on internal unlikely to become critical to the West’s development and sought to avoid foreign security and prosperity, or a potential tensions that could divert it from that strategic vulnerability. Moreover, it is goal17. unlikely that the region will realise its full potential for some time (if at all), The activist trend in Turkish foreign given the constraints on rapid oil policy since the Gulf War includes both development and other factors that are a wider scope for imaginative diplomatic likely to create an oversupply of oil for initiatives and a greater preparedness to the next decade, even if the demand for use or threaten to use force. Preoccupied it is high. Consequently, it is unlikely as it is with the Iraqi situation, Cyprus that the world will become heavily and EU accession, Ankara is far from dependent on Caspian energy. Hence, adventurist in its foreign policy. It any severe interruption in the flow of continues to try to use diplomacy and Caspian oil is unlikely to cause more multilateralism, as far as possible, to than a temporary dislocation in the promote stability and prosperity in its availability of oil on the world market various regions. Most manifestations of and a modest increase in prices. its assertiveness are in the realm of diplomatic initiative, not the use of In sum, the treatment of energy security force. Its activism is a measured in the Caspian, which mirrors in general activism. the discussion in the academic literature, has become oversimplified and Whereas during the Cold War Turkey’s sloganized. Western access to Caspian foreign and security policy outlook was oil is not strategically vital. Rather, the relatively circumscribed and naturally West has a modest stake in helping to dominated by the country’s role in the ensure that (1) conflict in the region does containment of Soviet power, the last not impede the flow of oil, (2) no truly decade has witnessed a sweeping hostile state has a huge monopoly over enlargement of the country’s external oil, (3) U.S. and Western companies horizons. The notion that Turkey’s have a shot at the profits from oil interests and potential influence stretch development, and (4) no state has a from the Balkans to western China has monopoly over regional pipelines. proven quite realistic, even if some of Overall, these are important, but hardly the early assumptions about Ankara’s vital, interests.

Turkey’s elusive quest for activism in 17 It remained neutral during almost all of World Caspian War II, joining the allied side only in the war’s waning days with the outcome already decided. Turkey’s playing an active role in In joining the Gulf War coalition, Turkey broke Caspian energy politics is closely related several of its long-standing taboos. It took sides to its new foreign policy approach that in a Middle Eastern dispute and assumed a war- like posture on its borders for the first time since considers energy security in the region a brief period of tension with Syria in 1957. It as a top national interest. Throughout the forged a strategic partnership with Israel.

19 role in the Turkic republics of Central competition contributes to Turkish Asia proved somewhat overblown. unease, and reinforces more modern worries about Moscow as a geo-political Turkish policy interests and initiatives competitor and source of regional risk18. mirror this expanded concept of Two issues stand out in this regard. Turkey’s security space. Recent examples include defending the welfare S First, there is a possibility that a of Turkish residents in Germany, and resurgent and more assertive Russia more active diplomacy in the Caucasus. would find new spheres for The rise of Turkish nationalism and competition with the West, outside closer attention to sovereignty questions the center of Europe, on the Balkan as political forces within Turkey have and Middle Eastern periphery. led Ankara to vigorously defend its Competition along these lines, which interests in recent years. The most could, for example, take the form of impressive examples in this regard have increased Russian transfers of included the use or the threatened use of military technology to Turkey’s force beyond Turkey’s borders. Ankara Middle Eastern neighbours, would credibly threatened to attack Russian- directly affect Turkish security. Even supplied S-300 surface-to-air missile more tangibly, a reinforced (and sites if the system was deployed on permanent) Russian military Cyprus; the missiles were not deployed. presence in the region would go against the limits on Russian forces Turkey made clear its willingness to act set out in the Conventional Forces in against Syria if Damascus did not end its Europe agreement. Turkish military crossborder support for the Kurdistan planners fear that Turkey might be Workers’ Party (PKK) and expel the left to face such revived flank risks PKK leader, Abdullah Ocalan; Ocalan alone, as NATO focuses more left and Syrian support for the PKK heavily on other missions. essentially ceased. In their counter- insurgency campaign against the PKK, S Second, Turkey is exposed to Turkish forces have for some time spillover risks associated with engaged in extensive cross-border instability in the Russian near operations in northern Iraq and have abroad, along the lines of the crisis in established a de facto security zone in Chechnya. Turkey worries that in the the region. With the important exception future it might confront sudden and of the 1974 Turkish intervention in large-scale refugee flows, arms Cyprus, these assertive actions would smuggling and terrorism on its have been difficult to imagine in borders as a result of developments previous decades and under Cold War in or around Russia and the Black constraints. Sea region. Risks of this sort might also negatively affect the progress Notwithstanding Western opinions, and and reliability of new energy despite the fact that Turkey no longer shares a border with Russia, Ankara 18 "Turkey: The Changing European Security continues to view Russia with concern. Environment and the Gulf Crisis," Sabri Sayari, A long tradition of Russian-Turkish Middle East Journal, 46, no. I (winter 1992) p. 11.

20 infrastructure projects (for example, the Blue Stream, Trans-Caspian and Several factors continue to hinder Baku-Ceyhan pipelines) that are Turkish efforts to increase its role and important to Turkey’s own energy influence in the region: supply and economic prosperity19. • First, Turkey’s own domestic As a matter of fact, the Turkish-Russian problems, in particular Kurdish relationship of today is far more relaxed separatism, the growth of Islamic than it has been for decades. Mitigating influence, and economic security concerns has been a boom in weaknesses, diverted attention commerce. In the 1990s, bilateral trade away from the region. and Turkish investment in Russia have shot upward. The Russian Prime • Second, Turkish diplomatic Minister Mikhail Kasyanov‘s visit to energy in the Caspian region was Turkey in late October 2000 has not drained by other more pressing produced much in political terms, but security challenges, including economically it resulted in many threats to the south from Syria, important compromises. These include Iraq, and Iran, instability to the plans for electricity purchases from north in the Balkans, and Russia through Georgia, co-operation in ongoing disputes to the west with the defence industry, co-production of Greece over Cyprus and the some weapons20, additional natural gas Aegean. purchases through existing pipelines, an increase in bilateral trade volume and the • Third, Turkey’s lack of settling of Turkish contractors’ debts in geographic proximity to Central Russia21. Despite some troublesome Asian countries limited Ankara’s points, relations between the two ability to project influence there. countries currently seem to be on the right track. Kasyanov’s words, “Turkey • Fourth, as it became abundantly and Russia are not rivals but partners,” clear that cash-strapped Turkey also demonstrate that the two countries lacked capital for large-scale are determined to improve relations for economic aid and investments, the sake of regional stability. Central Asian countries lost much of their interest in Turkish

19 Quite apart from Russo-Turkish competition, proposals for regional economic Turkish security interests are therefore closely integration. interwoven with developments across the Black Sea. The risk of friction with Moscow over • Fifth, Turkey’s pretensions to regional policy has also encouraged a relatively leadership offended the conservative Turkish approach to developments in the Caucasus and Central Asia, where there sensibilities of many Central continue to be opportunities for more active Asian leaders, especially in the Turkish involvement. face of fewer common cultural, 20 Turkey plans to spend some $150 billion on social, or even linguistic links weapons during the next 25 years and Russia is than many of the parties keen to win some of these lucrative weapons contracts. 21 “Turkey and Russia Aren't Rivals but Partners”, Turkish Scanner, October 2000

21 expected.22 The peoples of the thwarting a significant expansion of south Caucasus and Central Asia Turkish influence in the region, have a strong sense of national especially Kazakhstan, and Turkey has pride, and—having suffered for been careful to avoid challenging years under the Soviet Union— important Russian interests. That said, were not about to become the Turkish engagement in the Caspian “little brothers” of Turkey or any remains substantial, and the long-term other outside power. prospects are promising for increased bilateral co-operation and a steady, if • Sixth, as many of the Central unspectacular, expansion of Turkish Asian countries developed their influence. For now, Ankara has a more own relations with Western realistic appreciation of the difficulties it countries, they felt less need to faces and has trimmed its policies and rely on Turkey as an expectations to fit these realities23. intermediary with the West. Iran: Chipping away at the margins • Seventh, Turkey’s capabilities In stark contrast to the relatively warm to project military power are reception given to the Turkish limited, especially beyond the engagement in the region, Iran’s forays south Caucasus. after the collapse of the Soviet Empire were met with fear and mistrust among • Finally, Ankara remains wary Caspian’s ex-communist rulers. Iran’s of taking actions, especially in interests in the region revolve around Georgia and Azerbaijan, that Caspian oil, its concern that Azerbaijan might antagonise Russia, a major might subvert the internal ethnic Azeri trading partner and significant population (who sometimes call the part source of energy and the only of Iran they live in “Southern country still capable of bringing Azerbaijan”), and the chance to use heavy military pressure to bear Armenia’s and Azerbaijan’s territory as on Turkey. 23 During his October 2000 visit to Central Asia, In retrospect, Turkey’s short-term goals the Turkish President Ahmet Sezer gave signals and expectations were unrealistic. of a change in Turkey’s approach vis-à-vis its Turkey is operating on a crowded Central Asian cousins. The traditional policy adopted by Turkey towards these republics playing field. Although Turkey has during the term of his predecessor was one based raised its profile in Azerbaijan, it has on rhetoric of brotherhood and personal nonetheless been frustrated in its desire relationships. Despite Turkey’s wish to to improve relations with Armenia. strengthen the ties with these countries, there Moreover, Ankara’s ties with Georgia, have been few concrete results in practice. The new Central Asian strategy aims to foster more while growing, are constrained by solid, institutional bases. A convergence of Georgia’s continued military and mutual interests will be actively pursued. economic dependence on Russia. Indeed, President Sezer called for the institutionalisation Russia has enjoyed some success in of relations in the region and mainly focused on the issues of security, military co-operation against Islamic terrorism and efforts to 22 See “Turkey in Post-Soviet Central Asia”, implement the energy projects to transport the Gareth Winrow, Royal Institute of International petroleum and natural gas resources of the region Affairs, London, 1995. to Western markets through Turkey.

22 energy transit routes. Iran suggests that it Iran’s historical claims to can also act as a mediator in settling regional domination in the ethno-political conflicts. Persian Gulf. These preoccupations will consume In the early 1990s, Iranian-sponsored much of Tehran’s energies for Islamic fundamentalism was perceived the foreseeable future. throughout the region as the most serious threat to regional peace and stability. • Because of Iran’s own ethnic However, since the middle of the problems, especially unrest decade, Iran has had some success in among its large ethnic Azeri projecting a more positive image. It has minority, Iran’s stability and kept a low profile in the region and territorial integrity could be pursued pragmatic, cautious, and undermined by the Azeri moderate policies. Tehran has attempted separatist movement24. to expand its influence by providing technical and financial assistance, • With the exception of supporting regional economic Turkmenistan, Iran does not integration, expanding cultural links, and border any of the Central Asian facilitating the efforts of Kazakhstan and states, and this lack of proximity Turkmenistan to develop alternative makes it more difficult for Iran to transit routes for oil and gas. project its influence.

Still, several factors have circumscribed • Iran currently lacks the Tehran’s opportunities for achieving resources to become a major substantial influence and presence in the economic actor. As in the case of near term: Turkey, Iran is not in the position to make major investments, and • Iran’s revolutionary vision, the abysmal performance of the especially its anti-imperialist and Iranian economy over the past anti-hegemony overtones, has two decades is hardly a model some appeal among Muslims, that the Caspian states would including Sunni movements. wish to emulate. Iran is unlikely Nonetheless, many Muslims in to emerge as a major market for Central Asia have little sympathy Caspian products, and there is a for Iran’s brand of radical Islam. far greater possibility that Iran

• Notwithstanding Iran’s 24 The possibility of a Southern Azerbaijan issue heightened interest in the becoming an international problem should be Caspian region and pipeline taken seriously. Mostly Azeri Turks identical to those across the frontier populate Iran’s north- routes, Tehran’s domestic and western province bordering on Azerbaijan. There foreign policy priorities are have been semi-nationalist movements in the currently focused primarily on province during past decades and some of the economic reconstruction at Iranian Azeris seek unification with Azerbaijan. home, safeguarding the Iranian Although Iran and Azerbaijan have normal relations and the Azerbaijani government revolution against perceived discourages pan-Azeri nationalism, a heightening external threats, and asserting of this issue could still cause considerable friction some day.

23 and Caspian states will become recognition of an exclusive Russian-led trade competitors rather than CIS peacekeeping role and Russia’s partners. “special powers” as guarantor of peace and stability in the region. • As long as Iran remains politically isolated, it will be Russian President Vladimir Putin has extremely difficult to carve out a pushed ahead with an aggressive policy major niche for itself as a designed to recover Moscow’s regional significant pipeline route. Until hegemony soon after his 26 March 2000 the fundamental character of the election. The National Security Council Iranian government changed, declared the Caspian region to be one of Caspian leaders and populations Russia’s key foreign policy interests25. will remain highly suspicious of Former energy minister Victor Iranian intentions. Kalyuzhny was appointed to a newly designated deputy foreign minister post, In sum, for at least the next decade, serving as special co-ordinator of Tehran will likely behave as a status quo Russia’s Caspian policy. The creation of rather than a revolutionary power the post underlined a significant shift because it has a strong stake in from Moscow’s ad hoc and disorganised preserving regional stability to minimise approach seen during the Yeltsin era to the risk of ethnic separatism at home. more efficient approach to the region. The ruling elites in Tehran almost certainly understand that any overt, Russian military doctrine stresses aggressive Iranian attempt to foment an regional threats and local conflicts, the Islamic uprising—or throw Iran’s need to improve the mobility and geopolitical weight around—would be deployability of Russia’s conventional met by strong opposition from Russia, forces to deal with conflicts on Russia’s the United States, China, and Turkey. periphery, the imperative of protecting Nevertheless, as long as Iran is excluded Russians in the “near abroad,” and the from the development and transport of importance of preventing other countries the region’s energy resources, Tehran from gaining a foothold in the region. will likely try to play the role of spoiler The Russian military thinks of the wherever possible. Caspian as a buffer zone along its southern border and has adopted a Russia: No longer a hegemon, but a forward defence strategy predicated on major player the belief that the defence of Russia’s

Russia continues to see the Caspian 25 The ominous implications of Russia's new region as vital to its security interests, policy were underlined by Andrei Urnov, Russia's ambassador at large and chief of the and has relied on three main tools to Foreign Ministry's Working Group on the advance these interests: integration of Caspian Sea, in a May 2000 appearance on the CIS under Russian domination; the Capitol Hill. Soon after Russia had forcibly use of military, economic, and political "pacified" the Northern Caucasus, Urnov told the leverage to subordinate the Washington audience, "it hasn't been left unnoticed in Russia that certain outside forces independence of the Caspian states to are trying to weaken our positions in the Caspian Russia’s interests; and international Basin, to drive a wedge between us and other Caspian states."

24 borders starts at the Caspian border26. Simply put, Russia lacks the military and Russia has played hardball to maintain economic wherewithal, as well as the its pre-eminent position in the region, political competence and ideological prevent the spread of foreign influence, legitimacy, to maintain its supremacy in muscle its way into energy development the region and to prevent other states and consortia, and retain exclusive control international organisations from gaining over energy pipeline routes. increased influence and access. Moreover, it is by no means certain that Heavy-handed attempts so far included Moscow will continue to pursue a hard- interventions on behalf of Abkhazian line “neo-imperialist” policy in the separatists in Georgia (which the Caspian region given that differences Russians exploited to extract basing have emerged within Russian decision- agreements from Tbilisi), military making circles over how Russia should support of Armenia in its conflict with define and pursue its interests there. Azerbaijan (which the Russians used to leverage Baku into joining the CIS), The Kremlin is skilfully advancing its attempts to install more pliant regimes in agenda by utilising Bush administration Azerbaijan and Georgia when these foreign policy rhetoric with its emphasis governments resisted Russian pressures on the anti-terrorism campaign and the for tighter CIS integration, and right of pre-emptive action27. It has numerous cut-offs of oil and gas exports concluded strategic partnership from Azerbaijan, Turkmenistan, and agreements with the United States, EU Kazakhstan. members and other countries. Thus, as Zbigniew Brzezinski has observed, Many post-Soviet Caspian states remain Russia will be too weak to reimpose its dependent on Russia for trade, energy imperial domination but too powerful to supplies, military equipment and be excluded. For historical, geographic, training, and internal stability and cultural, ethnic, and strategic reasons, external security. Further, in the south Moscow will try to use Russia’s Caucasus, the area of greatest concern to remaining leverage to protect Russian Moscow, the Russians have established interests in a weak, fragmented, and important footholds in Armenia and unstable region. The perception that Georgia: bases, installations, and Russia retains considerable leverage to security treaties. Nonetheless, given influence developments in the region is Russia’s resource constraints and reflected in the growing tendency of internal problems, as well as the growing Caspian states to try to co-opt rather than assertiveness of the Caspian states, exclude Russia from participation in key Moscow faces a huge and perhaps energy development projects. irreversible gap between its ambitious objectives and the means available to The US in the Caspian Game achieve them. American objectives in the Caspian have nominally included the promotion of

26 See “The Russian Military and Security Policy 27 “Russia moves to reassert influence in Central in the Near Abroad,” John W.R. Leppingwell, Asia”, Eurasia Insight, Igor Torbakov: 16 Survival, Vol. 36, No. 3, autumn 1994, p. 77. December 2002

25 democracy and free markets, regional systematically addressing Russian peace and co-operation, energy concerns. diversification, and American business opportunities. In practice, however, the An additional plank of American policy focus of such efforts has been on energy is preventing the spread of Islamic issues28. Accordingly, the US fundamentalism and terrorism in the Administrations have hosted the leaders region. In practice, this means of the Caspian states, promoted the containing Iranian influence abroad involvement of American firms, and while pressing for a domestic political encouraged specific deals for new transformation. While seeking to bolster pipelines and transportation links. Along the Caspian states’ sovereignty (and the way, US policymakers have tended perhaps also domestic legitimacy), US to emphasise bilateral solutions to policy has provided Azerbaijan, Caspian problems. Kazakhstan, and Turkmenistan with an alternative to institutionalised Policymakers are also concerned by the collaboration with Russia. The greatest effect of America’s Caspian policy on shortcoming of America’s Caspian US-Russian relations. Russia’s concerns policy is lack of clear prioritisation go beyond NATO enlargement—the lens among its stated goals. through which American policy is often viewed—to include numerous instances From this perspective, the vital of US intervention in Caspian politics American interest in both the short and including support for dividing the long haul is regional stability and seabed, endorsement of the Baku- democratic-political and market- Ceyhan pipeline as the main export route economic reforms likely to further that from Azerbaijan, and calls for end should be encouraged. Azerbaijan and Turkmenistan to resolve Environmental integrity and their quarrel over the delimitation of institutionalised international co- national zones. operation to achieve it is desirable for the same reason. Diversification, as well Although domestic political as gaining proceeds from oil developments have shifted Russia’s exploitation; while both significant—are Caspian policy, making it more in line distinctly secondary US national with American policy, US intervention is interests, long-term objectives that do still widely resented for its perceived not require the sacrifice of other key arrogance and marginalization of goals in the short term. Russian concerns. And while US Administration insiders have The United States has supported the increasingly voiced the need to include principle that the resolution of the legal Russian firms in oil and gas status of the Caspian Sea must be transportation deals, such concessions decided by the five littoral states. The are rendered ineffective by the absence concern of the US government is of any larger framework for apparently testified in 1999, when the Special Advisor to the President and secretary of State on Caspian Basin 28 “Value Tradeoffs and America's Caspian Energy Diplomacy, ambassador Richard Policy: Energy, the Environment, and Sustainable Development”, Douglas Blum, Morningstar, stated that: “… and we Providence College, May 1998 believe the sectoral boundaries are

26 ultimately the best way to go. It is Caspian Fleet. The scale and purpose of important that settlement of these issues the so-called "militarization" of the not hold up exploration and development waterway -- or, as Russia's "Vedomosti" of the Caspian resources.” 29 financial daily on 26 April 2002 phrased it, "the renunciation of the idea of demilitarizing the Caspian Sea" -- 'Militarization' of the Caspian Sea remain unclear and have given rise to Since 1991, Azerbaijan, Kazakhstan, much speculation. Russia, and Turkmenistan have undertaken the strengthening of their Defence analysts argue that despite the military capabilities in the Caspian assistance offered by the United States to region. Such steps, which would have Azerbaijan and Kazakhstan to build up remained unnoticed under normal national fleets, the military capabilities circumstances, have sparked much of these countries remain somehow concern after President Putin ordered the limited. The same goes for Russian military to arrange what he Turkmenistan, although Ashgabat claims suggested the largest regional war games to have recently acquired a number of since the break-up of the Soviet Union in Ukrainian speedboats and is reportedly 1991. considering purchasing Russian-made gunboats in return for natural gas. Of all The manoeuvres involved naval, ground, the Caspian littoral states, only Iran has and air forces equipped with some of the enough military strength to match newest weapon technologies. Putin also Russia. pledged to allocate more than $300 million in the coming years to modernise Russia considers Iran as a potential 30 Russia's Caspian Fleet . The Caspian counterweight to Turkey's influence in manoeuvres triggered swift reactions in the South Caucasus, while Tehran sees Iran, with official newspapers slamming in its co-operation with Moscow a way "Russia's threatening tone" against its to offset the policy of containment neighbours and President Mohammed imposed by Washington on the Islamic Khatami cautioning against an arms race Republic. Yet, when it comes to its 31 in the region . interests in the Caspian area -- a region it considers its backyard -- Moscow is There are also reports that Russia is ready to place its relations with Iran on currently deploying a new missile the back burner. This goes exclusively system on the Caspian Sea shore and for the Caspian. In Moscow's view, there recently moved several gunboats from is no point in isolating Iran completely, its Baltic and Black Sea fleets to the as the United States wants. It is just that, for Russia, it is much more important to

29 reach an agreement on the Caspian with http://azerilink.homestead.com/Caspian_Sea.htm its neighbours than with Iran. l 30 Prague, 10 June 2002 (RFE/RL) Azerbaijan’s legal dispute with both 31 Yet, reports also say Tehran has recently Turkmenistan and Iran over ownership deployed 38 new gunboats in the sea's southern sector, thus apparently contributing to what is rights to several oil fields was commonly referred to as the "militarization" of aggravated on 23 July 2002, when an the Caspian.

27 Iranian warship illegally entered Turkish energy problems. In fact, until Azerbaijan's territorial waters to chase recently, the prevailing mood in Ankara an oil-exploration vessel out of a on energy policy was unwaveringly disputed area. The Iranian move drew upbeat33. Political leaders and officials fierce protests from the U.S., which soon pointed to Turkey’s vibrant economy afterward presented Baku with two and projected energy needs as they gunboats, and Turkey. It also served as a focused on the important role the reminder that disputes could quickly turn country was destined to play in the into hot confrontation in the region. global energy picture.

Turkey’s special relationship with the Parallel to its own growing energy US and accession prospect with the EU consumption, they argued, Turkey would create a difficult dilemma. High-profile use its geographic location and strategic US pressure on the EU to create a influence, along with its ethnic links to special fast-track for Turkey at the the Caspian Sea region oil and gas December 2002 EU summit in producers, to provide the answer to the Copenhagen scored some favourable problem of transportation in the points with Ankara, but cut little ice with exploitation of Caspian energy EU members. Turkey received a 2005 resources34. Thus, as the primary date for conditional membership talks facilitator in the creation of the Eurasian even though it had pushed for one far Energy Corridor, in close co-operation earlier, and even worse, while the Greek with the United States, Turkey would be part of Cyprus was asked to join the EU, transformed into an indispensable energy the Turkish part got left behind. The hub in the transportation of Caspian oil crucial question now is what path and gas to world markets. A sober Turkey chooses to take. The US pressure assessment now seems to be in the for active Turkish involvement in Iraqi making. operation and partnership in the Caspian energy corridor may lead to greater As a country with an emerging and divergence of interests with the EU32. growing economy, Turkey is facing a rising growth of its demand for energy Turkey: Market, transit and security 33 provider for Caspian energy It is difficult to speak of Turkey having a co- ordinated and consistent policy on energy issues. There are too many players on the energy scene, The Turkish agenda has been each preferring to go its own way. Influential understandably dominated in recent people and groups on this issue include the years by the economic crisis and President and Prime Minister and their offices, Turkey’s possible role in the United the Energy Ministry, the Foreign Affairs Ministry, the State Planning Organisation, the States-led drive for a regime change in state-owned Pipeline Company (BOTAS), the Iraq, as well as by the domestic political Turkish Petroleum Corporation (TPAO), various upheavals that resulted in a November Turkish construction companies and finally the 2002 victory for the AKP. Consequently, National Security Council. When former there has been little serious discussion of President Demirel asserted that Turkey should not lose time and that the next two years would be very important, he was actually complaining 32 “Forget Iraq: The Real Battle Is In Turkey”, of this "mess of decision-making procedures”. Heather Wokusch, published on December 26, 34 “Turkey’s Caspian Energy Quandary”, 2002 by CommonDreams.org Caspian Energy Update, 13 August 2002.

28 by 8 percent per annum whereas the transition point for hydrocarbon supplies world average is 1.8 percent. Turkey’s from Russia, Iran, Iraq and, more energy consumption in 1998 was 76 recently, the Caspian region37. It is million tones of oil equivalent (mtoe) therefore not surprising that Turkey and is expected to reach 179 mtoe by figures largely in some of the major 2010, and 319 mtoe by 2020. Turkey has pipeline projects in the region, both as a been pursuing policies in order to meet consumer and as a transit point for its expanding energy need based on exports beyond its territory into Europe. diversified, reliable and cost-effective Besides, as one of the biggest investors supply sources. Former Turkish in the region and its close historical, President Suleyman Demirel had warned cultural and economic ties with the that Turkey needed to invest $130 billion countries of the region, Turkey acts not in energy over the next 20 years35. Such only along with its commercial interests huge investments cannot be realised but also feels a special responsibility for through state funds only; international supporting these nations in their social resources should be mobilised to make and economic development. the necessary energy investments. Turkey’s interest in the Caspian pipeline Yet, energy investments have declined issue began as just one of the many since 1994, as plans to privatise the strands of late President Turgut Ozal’s sector were raised. But the sector was broad policy of engagement with the pushed into chaos because the newly emerged Turkic states. The privatisation attempts began before the concept of making Turkey the main necessary legal and institutional export corridor for oil from Azerbaijan infrastructure was established. and perhaps Central Asia as well-by Meanwhile, maintenance and renovation means of a pipeline linking Baku to the work on state power plants was Turkish port of Ceyhan on the neglected. Due to a mismatch of energy Mediterranean Sea-was first discussed at demand and supply, Turkey would face a political level by Presidents Ozal of electricity shortages unless some solid Turkey and Elchibey of Azerbaijan in short-term solutions, including power 1992. As Turkey’s grander ambitions in conservation, can be produced and the region began to fade and the Caspian activated. oil boom picked up steam, the Baku- Ceyhan pipeline project increasingly It may well be a cliché to describe became the core of Turkish policy Turkey as the country where Europe towards the Caspian region and indeed ends and Asia begins, but this is an important priority of Turkish foreign particularly true in its strategic position policy overall. as a bridge between energy supplies from the East and consuming markets in The justification for the Turkish the West36. The country is a natural emphasis on the Baku-Ceyhan pipeline has three components38. 35 “Energy policy or politics of slogans?”,15 April 2000, Turkish Daily News, "Opinion" By Professor Huseyin Bagci 37 “Economic Potential Undermined”, Petroleum 36 "Turkey: A New Actor in the Field of Economist, July 1999, p.14. Energy?", Temel Iskit, Perceptions, I, no. I 38 For this section, the author benefited from the (March-May 1996). views contained in “Turkey and Eurasia:

29 Caspian oil terminate on the Black S First, Turkey has come to see the Sea rather than the Mediterranean, pipeline derby as a proxy for the number of oil tankers transiting strategic competition in the region the Straits and particularly the and ultimately the main determinant Bosphorus would grow of Turkish political influence in the significantly39. Occasional accidents Caspian. For the Baku-Ceyhan have served to emphasise the pipeline to be built would at very ongoing environmental risks of the least represent the symbolic passage, most disastrously in 1979 fulfilment of its activist foreign when a tanker ran aground and policy vis-à-vis the region; at most it spilled nearly 100,000 tons of oil- could create a long-term economic more than twice the volume spilled and political bond between Turkey by the Exxon Valdes ten years later and the Turkic states. in Alaska.

S Economic interests are the second The Fundamental Importance of Gas factor driving Turkey’s support for While access to oil supply is not a Baku-Ceyhan. The pipeline’s pressing issue for Turkey, the question construction would generate some of access to new supplies of natural gas business for Turkey’s dynamic certainly is. The gas business differs construction and engineering sector. significantly from the oil business, and Meanwhile the state budget would access to supply is a far more vexing receive transit fees from users of the problem for gas than it is for oil. For the pipeline. “Access to oil supply” is most part, sources of supply and areas of sometimes cited as another reason demand need to be connected directly by for Turkish interest in the Baku- pipelines, since shipping gas by tanker is Ceyhan project, but this is a less a technically complex and expensive important driver as Turkey has ready process. Pipelines for gas are typically and secure access to Middle Eastern much more difficult to finance than oil oil supplies. pipelines, since they require credible guarantees of payment from solvent end- S The third and most complex reason users. for Turkey’s support of the Baku- Ceyhan pipeline is related to its Turkey is the fastest growing gas market deeply felt environmental concerns in Europe, and in recent years it has had regarding the passage of oil tankers difficulty in obtaining enough gas to through the Turkish Straits. To pass meet its burgeoning near-term demand. from the Black Sea into the Aegean Turkish gas consumption-and therefore Sea and the Mediterranean beyond, economic growth-already is being ships must pass through two narrow artificially constrained by a shortage of straits, the Bosphorus and the Dardanelles, as well as the Sea of 39 While the very largest supertankers do not Marmara. Should pipelines for attempt this passage, there is currently considerable traffic in somewhat smaller (though still large) tankers, with a capacity up to about Opportunities and Risks in the Caspian Pipeline 120,000 dead weight tons. Ten to fifteen fully Derby”, Laurent Ruseckas, Vol. 54, No. 1, p loaded tankers of this size or smaller transit the 217-236, CERA, 2000. Bosphorus each week.

30 supply. Meanwhile, several consortia organised industrial regions and to the have built new gas-fired power plants in cities of Ankara, Istanbul, Bursa, order to meet Turkey’s rapidly growing Eskişehir and İzmit for the residential demand for electric power. Should gas and commercial usage. Demand for not be available to supply these plants in natural gas in the power sector is the real the next few years, it could trigger a driver for growth in gas consumption in serious economic crisis. Turkey due to the increase use of gas in base load power plants. Natural gas import started in 1987 from Currently Turkish natural gas demand is the former USSR with 500 million cubic provided by four contracts which are in meters and reached around 15 bcm in effect: two agreement with Russia for 2000. Dynamic economic growth, the quantities of 6 and 8 bcm per year industrialisation, population growth and respectively and the others in LNG form rapid urbanisation are the basic factors with Algeria for 4 bcm and with Nigeria for this rapid increase in gas for 1.2 bcm per year. The imported consumption. BOTAŞ supplies natural quantities in 1999, 2000 and 2001 are gas to 211 industrial plants, 59 power around 12 bcm, 15 bcm and 18 bcm plants including auto-producers, respectively.

Natural Gas Supply Contracts

Existing Contracts Quantity Date of Duration Status (bcm/year) Signature (Years) Russia (West) 6 February, 1986 25 In operation Algeria (LNG) 4 April, 1988 20 In operation Nigeria (LNG) 1.2 November, 1995 20 In operation Iran 10 August, 1996 25 Start 2003 Russia (Black Sea) 16 December, 1997 25 Start 2003 Russia (West) 8 February, 1998 23 In operation Turkmenistan 16 May, 1999 30 Start 2002-2004 Total 61.2 Source: Botas

Botas lowered its gas-demand estimates lower number implies that gas use would for 2003 by nearly 14 percent and grow more than 43 percent over the slashed its 2004 forecast nearly 20 predicted rate of 2002. (Note that the percent from predictions made less than country used only 16 bcm of gas in three months ago40. Botas’s new forecast 2001). Energy officials have apparently reduced Turkey’s gas demand in 2003 been trying to make adjustments for from 31.6 bcm to 27.8 bcm. But even the

unrealistically high expectations, but in 40 Turkey: Gas-Demand Forecasts Are Bad News For Exporters, Michael Lelyveld, 17 July 2002, the process, they are still predicting that RFE/RL gas use will grow many times faster than http://www.rferl.org/nca/features/2002/07/17072 the economy. 002161724.asp

31 With Turkey’s political and economic incremental LNG from various sources. future in the balance, gas issues may be Iran has been pumping small amounts of far down on the list of concerns. But gas under a 1996 contract that was countries including Russia and Iran have supposed to be worth $20 billion over 25 invested large sums to build pipelines to years. Russia’s Gazprom and Italy’s ENI a Turkish market that is now vastly oil company also opened their $2.5 oversupplied. In the short term, Turkey billion Blue Stream pipelines across the will require 8-10 bcm of additional gas, Black Sea in January 2003. And which it has amply booked from a investors in Azerbaijan are poised to number of suppliers. For long-term, approve a $3.2 billion plan for the Shah according to Botas, the Turkish natural Deniz gas field in the Caspian Sea with gas consumption is expected to reach 55 yet another pipeline to Turkey. All are bcm by 2010 (despite analysts’ warnings hoping that Turkey’s recovery from its that the estimate is 40 percent too high) last economic crisis in 2001 will get and 82 bcm by 2020. Agreements signed back on track. so far guarantee 45.2 bcm of natural gas Consequently, the two giant gas projects, a year, however. The shortfall will be Blue Stream and the Trans-Caspian gas around 10 bcm in 2010 and 38 bcm in 41 pipeline plus the Azeri line, were racing to 2020 . But, pipeline developers are “get to the Turkish market first,” knowing unlikely to have invested on unreliable that the loser would probably be shut out forecasts. Even with Botas’s latest for some time. The competition between revisions, gas exporters have reason to these projects has become part of the be sceptical. As with earlier forecasts, strategic competition over the future of the the new figures still assume enormous region. With Russia identifying the Blue leaps in consumption, suggesting that Stream project as a top priority, the fate of officials are reluctant to recognise the this project will surely help determine the damage that successive crises have direction of Turkish-Russian relations as caused. well as that of the Caspian basin. Significantly, Russia has made it clear that The options are that gas comes from it wants to not only to continue to Turkmenistan via Iran or across the monopolise the Turkish gas market but Caspian or even north around Caspian; 42 also participate in the profitable local from Iran via Turkey ; from Russia via distribution. Bulgaria, from Russia across the Black Sea via the “Blue Stream” pipeline, from Blue Stream changed the picture Russia via Georgia, and from Egypt by pipeline. Then there is always The Blue Stream project constitutes one of the most important facets of Turco- Russian relations43. The project 41 Petroleum Economist, July 1999, p.15. 42 Under a contract between the two countries, Iran is to export 3 bcm of natural gas to Turkey 43 During Kasyanov's visit in late October 2000, annually from July 2001 if the Turkish part of Turkey asked Russia, its main gas supplier, at 12 the pipeline is completed as planned. The bcm this year, for an extra 12 mcm of gas per volume of Iranian natural gas exports to Turkey day in addition to 33 mcm already being is to reach 7-bcm from 2005 and to 10-bcm from pumped. In addition, while Turkey wants to 2007. Iran is busy laying 48-inch gas pipelines in purchase electricity from Russia via Georgia, an area of 550 km from Qazvin, in central Iran to Russia is asking Turkey to help Russian Bazargan border with Turkey. companies in the construction of pipeline tenders

32 envisions bringing 16 bcm of additional Blue Stream has steamed ahead of its Russian gas directly to Turkey. It is faltering competitor, the Trans-Caspian environmentally challenging, as a Project. While American policy rupture in the pipeline would release a priorities46 may very belatedly be highly dangerous hydrogen-sulphite gas shifting from Turkmen gas to Azeri gas to the detriment of coastal life. Many in order to keep the gas portion of the observers, however, believe that Eurasian Energy Corridor project alive, available technology could overcome rapid progress seems doubtful. The such environmental and technical Turkish energy officials realise that the challenges. A more serious problem provision of cheaper Azeri gas is likely associated with Blue Stream is its threat to raise further doubts in the minds of to the Trans-Caspian project. From the Turkish consumers about the advisability outset the Blue Stream Agreement has of even greater dependence on Russia, been a highly debated project in Turkey, which primarily benefits certain Turkish as it was reached behind closed doors44. companies as well as their Russian The argument in favour of the project partners. However, one problem they was that Turkey and Russia are two may have to confront is that British giant neighbours that would gain from Petroleum, which leads the Shah Deniz co-operation instead of regional rivalry. gas consortium as well as the AIOC is To underline the significance of the new- implicitly linking its possible support for found partnership, then Prime Minister the Baku-Ceyhan pipeline to Turkish Chernomyrdin declared after the signing: willingness to buy Azeri gas. It is “No more Chechen and no more PKK unlikely that all of these projects can win problems”.45 the Turkish gas race unless they are synchronised over a longer time horizon and unless a reliable connection to the European gas market can be constructed in Turkey. Turkey expects its electricity deficit via Turkey and through South East to rise to 7 billion kWh at the year's end from 2 Europe. billion kWh in 1999, after a drought forced authorities to run coal and gas-fired plants to offset losses from hydroelectric stations. 44 The Energy Ministry, under Yilmaz's direction, was accused of hiding the full content of the agreement from the rest of the Turkish State. In fact, it was speculated in the press that, if the President and the Foreign Ministry had not intervened at the last minute, the agreement 46 One should also note here that Romano Prodi, would have given excessive concessions to the President of the European Commission, Russia. assured Russian President Vladimir Putin on 4 45 He was referring to Russia's belief that Turkey October 2000 that the EU supports the creation aided the Chechens during the 1994-1996 war of the east-west energy corridor proposed by and to Turkey's own suspicions that Russia Russia. Under its terms, Gazprom will sign supported the terrorist PKK group. Prior to his agreements with major German, French, and arrest in February 1999, the PKK leader Italian concerns to provide gas for 20 years. To Abdullah Ocalan sought shelter in Russia to the support that effort, the two sides will construct dismay of Turkey. Blue Stream advocates have new oil and gas pipelines from Russia to Europe. argued that certain Russian circles could Gazprom Chairman Petr Rodionov said that that revitalize the PKK unless there was strong this project would require the construction of "at commercial co-operation, with Blue Stream at least seven major pipelines both to meet our the heart of the strategic partnership. obligations and to keep Ukraine out of this."

33 Caspian Legal Status Disputes not exist) provide a clear solution. At the outset, Iran and Russia (which, Energy resource development requires, following the collapse of the Soviet or is at least much facilitated by, clear Union, became its successor state with jurisdictional rules developing in effect respect to international treaties, among separate property regimes. Investment is other things) insisted on applying the discouraged if severe jurisdictional previous provisions set by the bilateral disputes undermine the security of title treaties of 1921 and 1940 on all five issued by one of the state parties to such littoral states in connection with the disputes. The legal status of the Caspian delimitation and use of the Caspian Sea. Sea and its seabed and subsoil resources In particular, they both believed that, in has been hotly contested by its littoral light of the provisions of the 1921 and states since the dissolution of the former 1940 treaties, the Caspian Sea should be Soviet Union: whether those resources under joint ownership and exploited on a are owned in common or should be condominium basis. apportioned among the five littoral states and, if they should be apportioned, on Russia, relying on the idea of the what basis. These questions and Caspian as an international lake, on an environmental concerns have hindered— broader interpretation of earlier USSR- but not stopped yet—further Iran agreements and environmental development of the Sea’s mineral arguments, has used the "condominium" resources. concept to oppose the interest of the main littoral countries in using analogies Prior to the disintegration of the Soviet from the Law of the Sea (the "special Union, the Caspian Sea was the border circumstances", "equidistance" and of Iran and the former Soviet Union. Iran "equitable principles" rules) to divide the lost its territorial contiguity with Russia. Caspian among the coastal states47. The The Caspian Sea now has five littoral fact that Russia’s own sector (as the states. The legal status issue is not by Iranian) seemed at first to have little itself the core of the disputes. The petroleum prospectivity made it easier exploitation of mineral resources in the for Moscow to pursue a policy that was Sea and their transportation through meant to obstruct and delay energy pipelines have made the issue much development by the Caspian littoral more important and decisive. states using Western oil companies48.

To begin with, there is no clear rule for 47 Russian legal argument hence masked a policy defining the legal status of the Caspian to discourage economic independence of the Sea and dividing the underlying energy Caspian nations, and to prevent its geopolitical resources among the coastal states. competitor, the US, to develop political and economic linkages with its “near abroad”. The Neither previous (USSR-Iran) treaty Russian interest in maintaining post-colonial practice (binding upon the successor suzerainty over its former colonies in the states of the USSR) nor the United Caspian region is now challenged by more Nations Convention on Law of the Sea – modern economic interest. Russia, in pursuing UNCLAS - (which is not directly hegemonistic policies, is likely to lose economically. applicable) nor universal rules on the 48 “International Good Governance and Civilised status of international lakes (which do Conduct among the States of the Caspian Region: Oil and Gas as Lever for Prosperity or

34 The historic practice of the littoral was also called as the “Girkanian Sea”, states named after the state of ‘Girkania’. Russians for a long time named it as the Present-day discussions over the legal “Khvalynskoe More” or Khvaly Sea, status issue follow strictly the referring to the name of the people living developing international legal in the mouth of Volga. The name conceptualisation, but the legal norms, in ‘Caspian’ was given in relation to the their character, leave a vast area for people called Kaspi on the southwestern some other factors which may influence shores of the Sea.50 the case under discussion. The historical practice is recognized by the 1982 The Caspian Sea has been an important UNCLAS above the international legal trade route since the Middle Ages. The regulations, if it is applicable49, and Russian penetration started in the 16th refers, in the particular case of the century. As a result of the 1552 Caspian Sea, to the official documents occupation of Kazan and then the 1556 on the status of the Sea and the historical occupation of Astrakhan and in about a legal practice of the neighbouring states. decade establishing control on the north- eastern part of Caucasus down to the The Caspian Sea in its whole history had Terek river, Moscow became the owner been called with about 40 different of the waterway reaching the Caspian. In names in reference to the nations, cities this way, Russia began to establish its or geographical places by the Sea. The dominance over the Caspian. In the name “Hazar” or “Khazar”, which still beginning of the 18th century, the refers to the Caspian Sea in Turkish and Caspian Sea was almost completely Persian, was given in reference to the taken from the Persians during the reign Khazars, a medieval Turkic people who of Peter I51. Russia occupied some parts had established a vast empire stretching of the Caspian shores and even in 1723 from the Black Sea to the Caspian Sea. It an agreement was reached with the Persian representative in St. Petersburg,

Conflict”, Prof. Thomas Waelde, available at recognising the sovereignty of Russian http://www.dundee.ac.uk/cepmlp/journal/html/vo Tsar over Derbent, Baku, Gilan, l4-16.html Mazandaran and Astarabad. However, 49 In solving the conflictual cases, while also in Persia did not ratify this agreement and setting rules of delimitation and bordering, 1982 later in 1732, Russia was forced to leave UNCLAS sensitively sets the condition of lack of a historical point of agreement, as follows: the occupied regions. “Where the coasts of two States are opposite or adjacent to each other, neither of the two States The first international rule of law is entitled, failing agreement between them to the concerning military navigation on the contrary, to extend its territorial sea beyond the Caspian Sea was set after the wars median line every point of which is equidistant from the nearest points on the baselines from between 1804-1813 by virtue of the which the breadth of the territorial seas of each of the two States is measured. The above 50 K.K. Gul, Kaspiiskoe More, Baku, provision does not apply, however, where it is Aznefteizdat, 1956, p.16. necessary by reason of historic title or other 51 The ambitions of Peter I over the Caspian is special circumstances to delimit the territorial obvious in his note to his commander fighting seas of the two States in a way, which is at for the Caucasus: “Control over Baku is vital for variance therewith.” United Nations, Oceans and the Russian dominance over the Caspian and Law of the Sea. thus to reach Central Asia.”

35 Gulistan Treaty of 12 October 1813. conflicting. Although there are Because of this Treaty and of inclusion arguments that practically neither Soviet of the norms on military navigation by nor Iranian warships passed a the Caspian Sea, serious political and conditional line separating the Russian economic disagreements emerged waters from Iranian, as in the Russian- between Russia and Great Britain as the Iranian contracts, there are no sides of the ‘Great Game’. Despite all indications about the order of navigation efforts of English diplomacy, Russia of the warships by the Caspian Sea and forced Persia to sign the 1813 the flights over it. The Iranian warships agreement. According to the third article had the right to float in the Soviet part of of this treaty, Persia had to recognise the the Sea. The same applied to the Soviet sovereignty of the Russian Empire over warships. Sheki, Shirvan, Derbent, Kuba, Baku and Talysh regions52. The legal status of The ironic point in all the discussion on the Caspian Sea came to the agenda later the military navigation is the fact that with the Russian-Persian treaty of Iran did not have any military fleet on Türkmençay in 1828. the Caspian Sea at all. Thus, the principle of freedom of military After the establishment of the Soviet navigation did not become an effective rule, the status issue was not a concern and working rule. This article seems to of the outside countries, this time simply be aimed at preventing the hostile because of the completely closed activities of third powers (i.e. Britain, structure of the Soviet Union. The basic Turkey or another state, especially rules regulating the navigation by the against the ‘expansion of Russia towards Caspian Sea were set in the Contract of the warmer seas’), trying to gain power 1921, according to which the right to in the region, rather than the contracting navigation was equally given to the both parties. sides of the agreement. In this regulation the type of navigation was not exactly What does the international law say? stated. Therefore, the interpretations of the article were also ambiguous and One has to examine the legal status of the Caspian Sea as a special case from 52 Persia naturally was not satisfied with its the perspectives of history and humiliated situation, especially on the Caspian international law. The Caspian is not an Sea. A new campaign against Russia between 1826 and 1828 ended in a second victory of "enclosed sea" under the 1982 UNCLOS Russia and on February 10, 1828 Türkmençay because, for centuries, the countries treaty was signed between the two sides. around it have exercised exclusive According to this treaty, Russia captured the control over its use. Although five major Erivan and Nakhchevan Khanates. The rivers and more than a hundred minor borderline between Russia and Persia set beyond the earlier line at Astara on the river Arax. As it ones drain into it, the Caspian has no was in the Gulistan treaty Russian side had the contact with the world's oceans. Its only exclusive right to have a military fleet on the navigable outlets are the Volga River, Caspian Sea, while Persia had not. In the second and a series of canals and rivers th half of the 19 century and in the beginning of extending to the Black and Baltic Seas. the 20th century within approximately one century, form the point of regulations on military These, however, are long inland Russian navigation on the Caspian Sea nothing was changed.

36 waterways, unusable without Russia's that the "parties hold the Caspian to permission. belong to Iran and to the Soviet" (1940).

Neither can the Caspian be easily The 1940 Contract has the most characterised as an "international lake," important place in the system of completely free of the international rules contracts regulating the international governing seas. It bears the legal system of the commercial oceanographic characteristics of a sea, navigation by the Caspian Sea55. The and the number of states surrounding it Contract sets an extended definition and make agreement on the use of its description of the conditions and rules of resources and the boundaries crossing it navigation. Article 12 states that: “Trade considerably more difficult than, say, the ships, under the flag of one of the Great Lakes between Canada and the contracting parties, will be treated the United States. Accordingly, it is same as the national trade ships in every appropriate in some respects to view the respect, as they approach, stay and leave Caspian as a sea subject to the a port of the other party.” international laws of the sea. "Sea or lake, what difference does it make?" to These and other treaties provide for the borrow the words of one commentator53. right of free and equal navigation by Building on the solid UNCLOS ships of Iran and the USSR throughout framework, a hybrid legal model that the Caspian. The meaning of the works can be constructed, regardless of provisions in the two exchanges of notes how the Caspian is classified54. that the Caspian "belongs to Iran and to the Soviet" was, plainly, that no third No Soviet-Iranian boundary in the state had any rights in the sea, including Caspian was ever delimited. A the right of navigation. The USSR was a comprehensive boundary treaty of 1954 zealous proponent of this "closed sea" delimits the boundary on both sides of doctrine, which it sought to extend to the the Caspian but is silent as to any Black Sea as well56. Iran agreed that the boundary within the sea itself. Earlier Caspian was a closed sea. treaties in 1921 and 1935 established a 10-mile exclusive fishing zone for each For many years the USSR carried out country, and a Soviet-Iranian treaty of activities of exploration and exploitation 1940 gave each party an exclusive right in the Caspian, primarily in the area off of fishing in its coastal waters up to a Azerbaijan, which extended far more limit of 10 miles. Exchanges of notes than 10 miles from shore. The USSR attached to Soviet-Iranian treaties of never paid or offered a one-half share of 1935 and 1940 declared that the Caspian the proceeds to Iran or involved Iran in "is regarded by the two Governments as any way in its activities. The USSR a Soviet and Iranian sea" (1935)" and took the position that the seabed and subsoil resources of the Caspian 53 Bernard Oxman, Caspian Crossroads Magazine, winter 1996. 54 “Caspian Sea Legal Status, A practical regime 55 See, e.g.. D.P. O'Connell, I The International for the use and development of Caspian law of the Sea 548-51(1982). resources”, Theodore Jonas, Partner, Baker Botts 56 See Joseph J. Darby, "The Soviet Doctrine of L.L.P. at http://www.usacc.org/azerbaijan/oil- tile Closed Sea," 23 San Diego L., Rev. 685 caspian.htm (1986).

37 belonged to the USSR and Iran within for the Guneshli, Chirag, and Kapaz their respective areas of the sea57. Iran fields were conducted solely by the has never protested the USSR’s Azerbaijan government following the petroleum activities or claimed a share break-up of the USSR. Likewise, with of the proceeds from those activities; respect to natural resource development instead, it has conducted its own in the Caspian Sea sector adjacent to unilateral activities in the portions of the Kazakhstan, the negotiations with the seabed and subsoil adjacent to it. Kaspisheif Consortium had been conducted solely by the Kazakhstan Within the USSR, while no formal government. boundaries in the Caspian were delimited among the republics, in Thus, practice and custom during the practice petroleum operations were Soviet period recognized de facto assigned to agencies associated with one internal administrative boundaries in the or another republic on the basis of Caspian between the republics. Since the proximity to the maritime areas in dissolution of the Soviet Union these de question. The area that includes the facto boundaries have been respected by present Guneshli, Chirag, Azeri and the successor states, with each Kapaz fields was assigned for continuing to administer the resources exploration to Caspmor Neftgaz, a within its de facto maritime territory58. "production association" located in and In addition, Turkmenistan has identified with Azerbaijan. Caspmor proclaimed its "Block 1," whose western Neftgaz discovered the Guneshli, boundary runs east of the fields Chirag, Azeri and Kapaz fields, and discovered and traditionally developed and exploited the first of them administered by Azerbaijan, thereby while the Soviet Union still existed. A acknowledging the traditional de facto similar association in Turkmenistan was boundary between those two states. responsible for the area eastward of the Similarly, both Azerbaijan and Kapaz field. Kazakhstan have respected the rights of the Russian Federation to its sovereignty When the area containing the Azeri field over its adjacent sector of the Caspian was tendered for bid in January 1991, Sea. Lukoil, one of the newly created the tender was made jointly by the Russian oil and gas companies, has USSR Ministry of the Oil and Gas announced its intention to explore for Industry and by the Council of Ministers hydrocarbons in the Russian sector. of Azerbaijan. The Resolution-Decree authorizing the tender specifically Since 1991, various ideas have been declared that four giant oil and gas fields expressed by the littoral states over the have been discovered in the deep-water legal status of the Caspian Sea59: section of the Azerbaijan sector of the Caspian Sea. Negotiations on contracts 58 Ministry of the Oil and Gas Industry USSR and Council of Ministers Azerbaijan SSR, 57 See William E. Butler, "Tile Soviet Union and Resolution-Decree No.25/25, Jan.18, 1991, p.1. the Continental Shelf," 63 Am. 'I. Int'l L. 103, 59 "United States Energy Information 106 (1969); William E. Butler, The Law of Administration, Caspian Legal Issues," Soviet Territorial Waters 77 (1967). December 1998, p. 1. At http://www.eia.doe.gov/emeu/cabs/capslaw.html (April 19, 1999).

38 division of the Sea that would give each S The Soviet-Iranian treaties of 1921 country a 20 percent share. and 1940 should be observed in Russia defining the status of the Caspian Sea; and by virtue of the Almaty As the natural and legal successor of S agreement of 21 December 1991, the USSR, Russia accepted the validity of successor states are obliged to the previous agreements of 1921 and observe the international treaties 1940 between USSR and Iran, as these signed by the Soviet Union, until a agreements were not rescinded formally, new agreement is concluded and argued that they should be applied unanimously by the present five until new regulations and agreements littoral states. can be reached with the consensus of all the littoral states. S The former Soviet side of the Caspian Sea (above the imaginary The Russian position has considerably line between Astara and Huseinquli) evolved since early 1990s. As early as had been divided in 1970s by the June 1994, Russian Foreign Ministry Soviet government into economic stated that: “Our position is that… by zones of four union republics which nature, the Caspian Sea is an enclosed bordered the Sea, and the same water reservoir with a single eco- arrangement shall be in force in the system….” During the first meeting of post-Soviet period. the representatives of the littoral states to deal with the Caspian Sea’s problems –- S A temporary division of the Caspian then the status issue was not dwelled on Sea into national sectors shall be as the oil extraction contracts were not accepted until the new regime of the on the agenda -- Russia argued that the Caspian Sea is determined. Caspian Sea was an ‘enclosed sea’. According to the Russian position, the S Each littoral country may conclude Caspian states could have their territorial an agreement with the adjacent waters and the middle area of the littoral state, so as dividing part of Caspian Sea would be the common the Caspian Sea, by bilateral property of all the littoral states. This agreements, between neighboring argument followed the regulations of the states. 1940 Contract.

Positions of Each Littoral State However, Russia did not need a long Today each littoral state proposes the time to realize the disadvantage of solution for the ambiguity in the legal defending this argument for its interests. status of the Caspian Sea in a way Accepting the Caspian Sea a ‘sea’ meant serving to its economic interests best. that the rules of the 1982 UNCLAS have Russia, Kazakhstan and Azerbaijan to be applied. According to the favour a division of the Sea using UNCLAS every littoral state of an median lines. Iran opposes this because ‘enclosed sea’, has the right to set it would leave Iran with a share of only ‘internal waters’, ‘territorial waters’, 13 percent and insists on an equal ‘continental shelf’ and ‘exclusive economic zone’. Considering that the

39 Caspian Sea is not that large, the North America (between Canada and the application of the above mentioned United States), Lake Titicaca (between settings meant the delimitation of the Bolivia and Peru), and Lake Geneva Sea according to the ‘median line’ (between France and Switzerland). principle. The UNCLAS states that: Dividing these lakes into sectors gives “Where the coasts of two States are the littoral states exclusive sovereign opposite or adjacent to each other, rights over their sectors as state territory. neither of the two States is entitled, There is only one exceptional case in failing agreement between them to the which the border lake was not divided contrary, to extend its territorial sea into sectors among the littoral states, but beyond the median line every point of was set by the International Court of which is equidistant from the nearest Justice (ICJ) as a common property of points on the baselines from which the the surrounding states and is referred to breadth of the territorial seas of each of as a condominium: the Gulf of the two States is measured60.” Fonseca61.

Besides, accepting the Caspian a ‘sea’ Although there exist some contradictory from the legal point of view, would give official statements, the current official the other littoral states, which had no Russian position is that the Caspian outlet to the high seas, right to freely should be recognized as one of these: navigate over the Volga-Don and Don- ‘enclosed water reservoir’, ‘inland Baltic channels. If the rules of the 1982 basin’, ‘inland water’, ‘closed water Convention are applied to the Caspian pool’. Referring to the Caspian Sea in Sea, then Russia has to accept the status this way Russia officially aimed at of the stated channels as international escaping from giving a concrete waterways, thus has to open the Caspian description of the sea, such as naming it Sea to other states. Realizing these simply as a ‘sea’ or a ‘lake’, thereby geopolitical disadvantages of claiming rejecting all the regulations set by the the Caspian a ‘sea’, Russia quickly gave International Law of the Sea, and laying up this argument. the groundwork for a unique legal regime to be implemented in the Caspian It is also not advantageous for Russia to Sea. argue that the Caspian Sea is a ‘lake’. There are no regulatory rules or laws in Russia’s position has changed since the international law regarding the lakes. signing of the 1998 bilateral agreement However, the international custom is to divide the international border lakes among its littoral states. There are many 61 J.H.W. Verzijl, 3 International Law in examples of such divisions: Lake Historical Perspective 19 (1970). Russia could insist on the application of the Gulf of Fonseca Victoria (among Kenya, Tanzania, and case to the Caspian Sea, and thus a condominium Uganda), Lake Malawi (between Malawi to be established. Nevertheless, the Gulf of and Mozambique), the Great Lakes of Fonseca is a unique case. After all, it is not a “lake”, or an “enclosed sea”, but a wide-open gulf. Moreover, the other examples of 60 For detail see the 1982 United Nations delimitation of waters are so common that it is Convention on the Law of the Sea, Part IX, often said that equidistance delimitation of lakes Article 122. The Law of the Sea. 1983. United and inland seas is a general rule of international Nations. New York. law.

40 with Kazakhstan62. In its new approach clearly established and the territorial to address the realities of the region, sovereignty of the Republic on the Russia argues that the Caspian Sea matter of the division of the Caspian Sea should not be divided into zones that was declared as such: “The Azerbaijan becomes the territories of the littoral Republic territory shall include the states63. The airspace above the Caspian Azerbaijan Republic inner waters, the Sea, the surface of the Sea, and the Caspian Sea (Lake) sector relating to the waters of the Sea should have open Azerbaijan Republic, air space over the access, and be administered jointly. Azerbaijan Republic.” However, the seabed would be divided roughly along median lines between the In April 1998, Russia and Azerbaijan littoral states to permit the development agreed to divide the seabed adjacent to of mineral resources. These median lines their coasts into national sectors. Iran would not be drawn according to strict exclaimed surprise at the development. rules from the shores of the Caspian and Then, in July 1998, Russia and its islands, but would be open to Kazakhstan also agreed to divide their negotiation between littoral states to take adjacent seabed into national sectors. into account other issues such as equity This time, Iran and Turkmenistan and history. exclaimed even greater surprise. Neither of these agreements is public and in fact Azerbaijan the provision of the Russian-Kazakh agreement which provides the criterion Since 1991, Azerbaijan (and for demarcation of the offshore Kazakhstan) has consistently maintained boundary is itself subject of a separate that the Caspian seabed should be secret protocol. divided into national sectors along a median line -- although they have had Azerbaijan based its argument on the some differences over joint fishing and fact that the Caspian Sea was earlier, in navigation rights. In the Azerbaijani 1970, delimited by the USSR Ministry constitution of November 1995, the for the Oil and Gas Industry into sectors status of the Caspian as a ‘lake’ is among the neighboring republics, while the Sea was already delimited between the USSR and Iran by drawing a 62 “Legal Status of the Caspian: a Russian boundary line across the sea between View”, Iurii Merzliakov, Ambassador at Large, Head of the Working Group on the Caspian Sea Astara and Hasankuli, though it was not of the Russian Ministry of Foreign Affairs, confirmed by the formal agreements. International Affairs: A Russian Journal, March This practice meant that the Caspian Sea 1999. was accepted as a lake and Azerbaijan 63 It should be added that, although the Russian would continue the practice just as approach to the legal regime of the Caspian Sea 64 has changed many times until 1993, its approach before . The insistence of Azerbaijan on to the legal status of the Caspian Sea has not changed. Its definition of the legal status was the 64 While Azerbaijan is known as the most same when it defended that the Caspian Sea determined opponent of the Russian view, the cannot be divided and should be accepted under contradictory statements of the Azerbaijani the joint sovereignty of the littoral states, and officials were no less confusing. During the when its position has changed to stating that the Ashgabat meeting, then Azerbaijani Foreign seabed may be divided, but the water surface has Minister Hasan Hasanov set the Azerbaijani to be under joint management. position in the following way: “The Caspian Sea

41 delimitation and especially delimitation the unilateral exploitation acts of in accordance with the 1970 decision of Azerbaijan until its expulsion from the the USSR Ministry of Oil Industry is Azeri projects due to the pressure from understandable, as this would give the US. Azerbaijan the highest possible share. From the point of view of international When the Caspian Sea would be divided law Iranian claims seems to be some of its largest oil and gas reservoirs groundless. International Treaty law has will remain in the Azerbaijani sector. one basic principle: “Pacta tertiis nec Azerbaijani sector is estimated to nocent nec prosunt”, meaning that treaty contain 25 of the 32 known oil and gas between two states can not create fields of the Sea as well as 145 of the obligations for third states. Therefore, 386 prospective structures. According to Iran can not deprive other Caspian states the mentioned delimitation of 1970, from having their own national sectors, Azerbaijan had about 80,000 sq. km, the just because their names were not same share with Turkmenistan, mentioned in the Soviet-Iranian treaties. Kazakhstan had 113,000 sq. km, and On the other hand, even if to take Russia had 64,000 sq. km of the Caspian Soviet-Iranian treaties as a basis Iran is floor. Today Azerbaijan insists that the in disadvantage. According to Caspian Sea is a ‘sea’ to which the International Treaty Law treaties loose norms of the UNCLAS have to be their obligatory functions for the side of applied. the treaty in two cases: If object or subject of the treaties have significantly Iran changed or ceased to exist66.

Iran’s approach to the legal status of the Iran, just like Russia, refrained from Caspian Sea was not much different defining the legal status of the Sea from that of Russia, arguing that the precisely. The Iranian officials have Soviet-Iranian Treaties of 1921 and officially pronounced neither the term 1940, which accepted the Caspian Sea as ‘lake’ nor ‘sea’, for the Caspian Sea. The a ‘joint Soviet-Iranian Sea’, must govern National Iranian Oil Company stated until the five littoral states jointly devise that: “The Caspian is an inland sea a new legal regime for the Caspian Sea. Besides, Iran strictly argued that and warned, “the full responsibility for unilateral actions on the Sea, without the consequences of such illegal measures and consensus of all the littoral states, are actions, including damage caused to other coastal illegal65, although Iran remained silent to states, rests with the states violating the legal regime of the Caspian Sea.” 66 This principle is called “rebus sic is a border lake like the Great Lakes between the stantibus,”i.e.. “complete change of the United States and Canada. The traditional use of circumstances.” In this case one of the subjects the Caspian Sea and the implementation of of the treaty, USSR, collapsed. Nothing changed sovereign rights to ownership of its relevant with respect to Iran and Iran has no right to make sectors cannot be made dependent on the any changes in its sea borders. Plainly speaking, collective solution of the question of the Caspian Azerbaijan, Turkmenistan, Kazakhstan and Sea’s legal status.” Russia are involved in the process of dividing the 65 In its letter to the United Nations, Iran severely heritage of the USSR in the Caspian and Iran has criticised unilateral acts in the Caspian Sea no right to interfere to this process or make any without the consent of the other littoral states, claims.

42 whose status is not defined as an open the application of the equidistance line sea.” The Iranian foreign minister principle gave a 14,6 percent to Iran. For Velayati also named the Caspian Sea as that reason, Iran gave the signal that it ‘the world’s largest inland sea’. Thus, would not oppose a sectoral division on Iran claimed that the rules of the the condition that it would be an equal UNCLAS could not be applied to the (20 percent) or at least an equitable Caspian, as it was not an open sea. division67. Besides, it was not a ‘lake’; therefore, sectoral division as a part of Iran’s current legal position, in large part international customary law was not the by-product of Russia’s abandonment under discussion. To the Iranians, due to of its earlier position and Iran’s its size, geographical situation, increasing isolation equally in the face of environmental condition, and the the likely resolution of Azeri-Turkmen presence of littoral states, the Caspian disputes in mid-South Caspian, may be Sea is quite a special and unique sea; summarised as follows68: (a) the division thus, the usual international legal of the Caspian into bands of territorial practices do not completely correspond waters in which each state would have to the needs of the area. exclusive sovereignty over the water, seabed, subsoil and air space, and (b) Accordingly, Iran defended the equitable (no longer necessarily equal) establishment of territorial waters for apportionment of the outer seabed and each littoral state and the remaining part subsoil into national sectors for the would be under joint exploitation. In purpose of exploitation of oil and gas November 1996, Iran, Russia and resources. Iran continues to insist, as Turkmenistan signed a declaration before, on the freedom of navigation and stating that the Caspian belonged to all fisheries in waters situated outside of a riparian states and its oil resources be state’s territorial waters. exploited equally and equitably with the consent of all states. The political Kazakhstan implication was that no one state could exploit the resources of the sea without Kazakhstan’s position regarding the the consent of the others; this meant Caspian’s legal status was yet Iran, as well as any other state, would unformulated in 1993 during the littoral have a right to veto any future states’ prime ministerial meeting in exploitation of the sea. Astrakhan. Later, on July 1994, Kazakhstan submitted a draft By 1998, the Iranian approach to the “Convention on the Legal Status of the legal regime loosened as the Russian Caspian Sea” to the other littorals of the attitude towards the delimitation of the Sea. Since then, this draft formulated the seabed softened. The major fear of Iran Kazakh approach to the legal issues of is that if the Caspian Sea were delimited into sectors, the Iranian share would be 67“Kharrazi: Condominium concept best solution the minimum, namely the region below to Caspian Sea issue”, Tehran, July 29, IRNA -- the Astara-Hasankuli line, which at http://www.iran- embassy.org.uk/stoppress/300702kharrazi1.htm consists only a 12 percent of all the 68 The Iranian, October 29, 1998 seabed. Besides, it was calculated that http://www.iranian.com/GuiveMirfendereski/Oct 98/Caspian/

43 the Caspian Sea, which is based on the Kasymzhomart Tokayev has stated that ‘enclosed sea’ concept, arguing that “the Kazakhstan would consider modifying seabed and the resources should be the median line on economic delimited among the littoral states” and considerations; i. e., future hydrocarbon “consequently, each state would have finds. Both of these agreements are sovereign rights the seabed and its interim until the status of the Caspian resources in its sector.” Regarding the Sea is settled between all of the littoral historical experience Kazakhstan states. Kazakhstan has opposed an insisted that on the Caspian Sea, the Iranian proposal to divide the Caspian previous littoral states, USSR and Iran, into five equal sectors, stating that this had never applied common ownership; doesn’t correspond to historical on the contrary, each one extracted and traditions. exploited the resources without the permission and information of the other. Kazakhstan also refers to the 1982 UNCLAS with regard to the delimitation Kazakhstan has proposed delimitation by of the sea surface. After delimiting the drawing a median line which starts as a seabed and its resources, in its opinion, continuation of the onshore border and the appropriate zones (territorial waters, every point of this line is at equal exclusive economic zone), to which the distance from initial shore line of States coastal states’ sovereignty would be located on adjacent or opposite sites of applied, should be established. Besides, the sea. Kazakhstan has supported fishing and exploitation of biological Azerbaijan’s view for the establishment resources should be carried out by each of national sectors, but has stated that state inside the relevant offshore zones co-operation on the environment, of an agreed width and also through the fishing, and navigation would be establishment of fishing quotas and beneficial. In addition, its only licenses. Each littoral state should agreement signed in 1998 to date (with practice the exploitation of mineral Russia) divides only the seabed into resources inside its own zone. The national sectors, unlike the Azeri development of deposits inside the zones position for full division of the Caspian. of two or more states should be the subject of an agreement on sharing the In 1997, Kazakhstan signed a output between the relevant states. At communiqué with Turkmenistan the same time, Kazakhstan claims the pledging to divide their sections of the right of the land-locked littoral states to Caspian along median lines. Its bilateral passage through the Volga basin to the agreement with Russia on 6 July 1998 high seas. divides the northern Caspian seabed only along median lines between the two Turkmenistan countries69. Prime Minister Turkmenistan, different from the other 69 Although the agreement had vague articles, its four republics, did not have its own significance lays in the fact that Russia for the conceptualisation of the Caspian Sea’s first time had accepted some kind of a division, legal status, preferring to follow the though the division was restricted to the seabed. Moreover, the document said that if any oil or gas deposit were in between the national sectors side has recently proposed this rule as a solution both sides would jointly develop it. The Russian to the current and potential disputable cases.

44 others’ arguments and frequently changing sides. The sole act of President Niyazov’s current position (at Turkmenistan on the issue was its least for now) is that the Caspian Sea declaration of 12-mile territorial waters should be divided along the median lines on the Caspian Sea in October 1993, into national sectors that are not equal in which meant the acceptance of the size. Turkmenistan is currently UNCLAS. Turkmenistan initially developing oil fields far from 12-mile supported Iran's condominium proposal off its shore, claiming ownership rights and Russia’s proposal for a 45-mile over the oil deposits which are on the Exclusive Economic Zone at a border between Azerbaijan- November 1996 meeting in Ashgabat of Turkmenistan sectors and declaring that the foreign ministers from five littoral it shares ‘very similar ideas’ over the states. At that meeting, Turkmenistan legal status issue with Iran, Russia and signed a protocol with Iran and Russia to Azerbaijan, all of which contradicts with develop a joint stock company to each other. develop the energy resources in the national zones of the three countries. National Sectors with Disputes

However, Turkmenistan has changed its In 1997, when Turkmenistan still held position since then. In February 1997, the position that the Caspian should not the presidents of Turkmenistan and be divided to national sectors, President Kazakhstan signed a statement calling Niyazov made claims to three oil fields for division of the Caspian Sea based on of Azerbaijan -- “Azeri,” “Chirag” and Soviet-era divisions until the littoral “Kapaz” --, which it believed were in its states agreed upon a new status of the national sector and Azerbaijan had no Caspian. Azerbaijan and Turkmenistan right to exploit them. Interestingly, two also issued a statement in February 1998 out of three oil fields (“Azeri” and that both countries agreed on the “Chirag”) were part of the “Contract of division of the Caspian Sea along the Century,” concluded between Azerbaijan median line, but disagreements over and Western Oil Companies on where to draw that line caused a dispute September 20, 1994, and Turkmenistan’s over a field called Kapaz by Azerbaijan protest against those agreements came and Serdar by Turkmenistan70. Then, several years later. Iran and Turkmenistan issued a joint communiqué in July 1998 stating the Geographically and taking into account importance of a consensus among the the principle of equidistance “Chirag” littoral states, and President Niyazov and “Azeri” are completely within the stated that Turkmenistan shares Iran’s national sector of Azerbaijan71. Besides, view that the Caspian should be divided there is the principle of “Estoppel,” equally and that negotiations should be reflected in the article 45 of Vienna multilateral. Convention on International Treaties

70 “The new legal status of the Caspian Sea is the basis of regional co-operation and stability”, 71 RFE/RL Newsline, 2(130) Part-I, July 10, Yolbars A. Kepbanov, Deputy foreign minister 1998, Cited in Abraham S. Becker, "Russia and of Turkmenistan, Perceptions Journal of Caspian Oil: Moscow Loses Control," Post- International Affairs, December 1997-February Soviet Affairs, April-June 2000, 16(2), p. 98. 1998.

45 (1969) and later confirmed by a similar considered to be on the borderline convention of 1982. According to the between the two opposite states, while “Estoppel” principle, states loose the its major part remained in the right to voice claims at a later stage, if Turkmenistan sector. they did not protest against certain state of affairs for some time. As for the third Turkmenistan initially rejected even to oilfield, “Kapaz” Azerbaijan recognized discuss the issue. Azerbaijan certainly that it was in a boundary zone with could not and did not want to cancel the Turkmenistan and it was ready to co- oil agreements with Western companies operate to share it, to jointly exploit, or and freeze any economic activity in the include Turkmenistan to in the Caspian because of Russian and consortium72. On many occasions, either Turkmenistan claims. In these through diplomatic calls, or through circumstances it became quite risky for SOCAR’s invitations, Azerbaijan called Turkmenistan to hold a contradictory for a joint development of the field73. On position on the one hand being against 23 August 1999, Ilham Aliyev, son of national sector principle, on the other the President and the President of hand claiming that Azerbaijan violated SOCAR, proposed founding a joint its national sector74. In February1998 Azeri-Turkmen company to develop the after consultations in Ashgabat disputed oil field, Kepez. Turkmenistan Turkmenistan finally agreed to the perceived Azerbaijan’s efforts for a joint principle of dividing the Caspian into ownership as recognition of Azerbaijan’s national sectors and it accordingly flawed position. signed a document with Azerbaijan.75

A just division, based on the median line 74From a pure legal point of view, the principle would most probably give the delimitation rules regarding the median line field to Turkmenistan, as Kepez is principle set by the UN Law of the Sea located 184 km off Azerbaijan coastline Convention should be resorted to. In the 2nd Part th and 104 km off Turkmenistan’s coast. and 15 article of the Convention, it is stated that: “Where the coasts of two States are This meant that Kepez obviously opposite or adjacent to each other, neither of the remained in the Turkmenistan sector. two States is entitled, failing agreement between However, Azerbaijani argument stated them to the contrary, to extend its territorial sea that the islands offshore had to be taken beyond the median line every point of which is into account and the starting point must equidistant from the nearest points on the baselines from which the breadth of the be measured from the island’s shore. territorial seas of each of the two States is This certainly decreased the above- measured. The above provision does not apply, mentioned distance of the field from 184 however, where it is necessary by reason of km to approximately 145 km. historic title or other special circumstances to Accordingly, the field might be delimit the territorial seas of the two States in a way which is at variance therewith.” If the historical practice is considered, it was clear that 72 “Issues of International Law and Politics in the Azerbaijan (although it was known that Kepez is Caspian in the Context of the Turkmenistan- on the borderline between the states) explored Azerbaijan Discussion and Fuel Transport”, and developed the oil field, so historical practice Yagmur Kochumov, Caspian Crossroads gave Azerbaijan the right to exploit the field. Magazine, Volume 1, Issue No. 4 winter 1996. 75 A joint statement was adopted, which says: 73 “The sides have agreed to divide the sectors of http://ourworld.compuserve.com/homepages/usa the Caspian Sea between Azerbaijan and zerb/131.htm Turkmenistan along the median line in

46 Turkmenistan moved further away from and co-operation in the development of Russian influence and already in hydrocarbon reserves stretching over the February 1999 agreed to Trans-Caspian Caspian seabed zones. Around the same gas pipeline plan despite Russian time, on May 25-26 2002, the President protests76. of Azerbaijan, Mr. Aliyev, paid an official visit to Iran and met with his Is a settlement soon? counterpart Mr. Khatami. Despite of the "non-smooth" relations between these It seems that the issue of the Caspian Sea two countries, mostly with regard a status is coming to its logical end77. dispute over the Caspian seabed line Previous documents never determined distribution, the geopolitical imperatives completely the legal status of the have forced these countries to get closer Caspian Sea, as they did not contain any for a settlement. provisions on such important issues as the exploitation of the seabed, the But, the bilateral Russian-Azerbaijani airspace over the sea, and the agreement of 23 September 2002 "on the preservation of its ecosystem. The delimitation of sectors of the Caspian attempts to reach consensus among the seabed" was an encouraging new step in five littoral states came to a deadlock bringing the differing positions in the first of all due to Iran's demand of 20 Caspian issue closer. According to this percent of the sea and due to the document, the Caspian seabed is territorial disputes between Iran and delimitated between Russia and Azerbaijan and Azerbaijan and Azerbaijan basing on the median line Turkmenistan. The impasse led Astana principle, drawn from equidistant points and then Baku to make separate modified through agreement of the two agreements with Moscow and each other sides, and also based on common through bilateral agreements. principles of international law and practice. The document states that the In May 2002, Mr. Nazarbaev and Mr. agreement does not prejudice the Putin signed a bilateral treaty on reaching of a consensus among Caspian elaborating both the maritime borderline countries on the legal status of the Sea, and that the parties consider it as part of accordance with the generally recognized an eventual general agreement. This principles and norms of international law on the agreement to some extent accomplished basis of realising their sovereign rights to the Caspian and taking into account the existing the process of establishing a triple interests of the littoral states.” Though this joint Caspian alliance. Moscow, Astana and statement seemed to solve the question Baku agreed on common approach on theoretically, it came to nothing since the sides working out new legal status of the insistently continued to argue the ownership Caspian Sea. rights over the disputed fields, drawing their own median lines. 76 The special representative of the US President Just on the day of the agreement's on Caspian Region, Richard Morningstar visited signing, Teheran spoke with sharp Ashgabat and Baku and mediated between objection to this document. President Azerbaijan and Turkmenistan on the border Mohammed Khatami declared that conflict in the Caspian. 77 The Central Asia-Caucasus Analyst, October Teheran would not accept foreign 23, 2002. http://www.cacianalyst.org/2002-10- interference in Caspian issues, and the 23/20021023_Caspian_Sea_Agreements.htm

47 agreement regarding delimitation of the have complete sovereignty over its sea bottom must be fair and acceptable own territorial waters. to all Caspian countries. Otherwise it is impossible to reach a long-term S Because the Caspian is not wide agreement on the Caspian Sea, he added. enough for countries on opposing Meanwhile, President Niyazov made a coasts to have 200-mile Exclusive sensational statement, proposing to Economic Zones (EEZ), the lines divide Caspian Sea into four shares, between them must be drawn leaving Iran out. The U.S. supported the according to the median-line Moscow agreement of the "Caspian principle, taking into account special three" (Azerbaijan, Russia and factors that may cause the line to Kazakhstan) in the dispute with Teheran deviate in certain areas. Within its on the Caspian status issue. EEZ, each country would have exclusive control over oil and gas Conclusions: Progressing towards a development, fishing and the sui generis Caspian regime management of other resources. The EEZ would not, however, prevent An early settlement of the Caspian legal free navigation by the military and (and border) disputes to the satisfaction civilian vessels of other littoral of the five littoral states is critically states, nor would it prevent one state important for the future development of from laying pipelines or cables the region’s energy resources and through the EEZ of another state. stability in the region. Therefore, the littoral states should proceed to negotiate S Since the Caspian states are a multilateral settlement of the Caspian's environmentally and economically legal status, mindful of the juridical interdependent, any agreement equality of the littoral states, equitable between them must incorporate apportionment and reasonable utilisation mechanisms for co-operation, co- of commonly-shared resources, respect ordination of national policies, and for the basin’s unique geographical and the settlement of disputes. A joint hydrographical features, and due regard governing body is not likely to work for pre-existing special and historical in practice. A better approach would circumstances. be for the littoral states to form working groups to write model laws Such an agreement could include the that could be adopted by each following elements, according to country individually. The adoption 78 Jonas : of uniform laws on fishing, hydrocarbon production practices, S Twelve-mile territorial waters for pipeline standards and environmental each littoral country as provided issues will not only assist economic under UNCLOS. Each state would development in the region, it will also ensure that each country is required, under its own legislation, to 78 “Caspian Sea Legal Status, A practical regime for the use and development of Caspian adhere to the best environmental, resources”, Theodore Jonas, Partner, Baker Botts safety and conservation practices. L.L.P. at http://www.usacc.org/azerbaijan/oil- caspian.htm

48 S The agreement should create a on such experience is to encourage neutral forum for the resolution of deeper interdependence of regional disputes by mediation or arbitration. actors by expanding the realm of their In the first instance, the forum could functional co-operation at the local, adjudicate any disputes over the national, and international levels. It drawing of the median line that involves, first, assisting the Caspian cannot be settled by negotiation. In states to develop the capacity and addition, any Caspian state should expertise for shared energy and have the right to bring legal action environmental governance. It also against another state for failing to involves norm-building and contestation. enforce its own laws on fishing, In each of these ways the actions of hydrocarbon production practices, outside states, international pipeline safety or protection of the organisations, and the transnational marine environment. NGO community might play a key role as the Caspian regime takes shape. S Finally, the agreement should provide for joint activities in those The recent agreements on stratified areas where the five countries are ownership between Russia and most likely to find it in their interest Kazakhstan (involving individual state to co-operate. One obvious example ownership of seabed resources and is emergency response to oil spills shared ownership of fishing stocks in the and other environmental hazards. central aquatorium) could provide a The agreement should provide for solid legal foundation for a sustainable the joint training of development regime, if ultimately environmentalists and game accepted by Iran and Turkmenistan. wardens. That training could be Such a regime would underscore state carried out under the auspices of a interdependence by establishing Caspian Co-ordination Center led by functional issue-linkages between a neutral international organisation fishing, energy extraction, pollution such as the UN Environmental control, transportation, and sea-level Program, and staffed by the nationals management. of all five littoral states. If the five countries agreed to give it such The recommended approach for the powers, the Co-ordination Center Caspian has three main advantages. could monitor and report on each country's compliance with its S First, it is realistic. It builds on obligations under the agreement. accepted principles of international law to create a system that gives It is also worth looking at the each state maximum control over its experiences in other sea basins (i.e. the own resources. It therefore respects Aral Sea, the Baltic, the Black Sea, the the natural tendency of states, Danube, the Mediterranean, and the especially newly independent ones, Persian Gulf), which might provide to guard their sovereignty closely. useful insights on the factors necessary Co-operation is accomplished for successful regime and pitfalls to through non-coercive means, avoid. One of recommendations based focusing on issues that the states are

49 most likely to agree upon. And, and the US is shaping the geopolitical because it is realistic, the proposal environment, while energy development offers the quickest route to the is proceeding primarily on the basis of solution of legal, economic and the market realities reflected in the environmental problems that cannot investment. Turkey's most sensible afford to wait much longer. approach as politics and pipelines sort themselves out would be caution and S Second, it allows each state to moderation coupled with a focus on maximise its own wealth while market-based economic co-operation requiring it to give due regard to the rather than power politics. A policy interests of its neighbours. Supported along these lines would help to by a multilateral agreement, common maximise the economic opportunities legislation and collective monitoring, that the Caspian region offers to Turkey and provisions for resolving while minimising the risks of instability disputes, each state is free to pursue and geopolitical confrontation79. its own interests in a more stable environment that ensures the To sum up: The not yet clarified legal protection of collective interests. status of the Caspian is a serious obstacle to full development of the S Third, assured national control over Caspian oil and gas resources (and hydrocarbon resources and the development of an effective adoption of UNCLOS rules for environmental regime) under "normal" underwater pipelines offers greater circumstances. International law does certainty to potential investors, who not have a clear and specific solution at would be wary of a system based on hand (it never does), but it provides a unpredictable joint control full range of arguments, concepts, mechanisms. This certainty is good precedents and procedures. These are as not only for investors, but for the yet not well utilised by any of the littoral states who need their Caspian states. A mature, and civilised, investment. way of inter-state negotiation less obstructed by threats of pure power play The need to attract investors and and domestic bashing of diplomatic financiers for hydrocarbon export solutions, needs to emerge. All states projects will continue to drive this have not yet tested the justice, domestic process of consensus building, but the viability and international legitimacy of littoral states need to be reassured that it will have a clear and mutually beneficial 79 Turkey tries to reach an understanding with result. The international community and Russia, Iran, the US and other external powers that explicitly rules out any direct intervention in foreign investors should use their the internal politics of the Caucasian states. As contacts with governments in the region crucially located as it is, Turkey will remain to give them that confidence. important to Western and Russian policy initiatives in the Caspian and Central Asia Although Turkey is undoubtedly an region. Its strategic partnership with the US, its prospective accession to the European Union, its important player in the region, events historic, cultural ties, and geographical proximity today are being driven largely by other to Eurasia and the Middle East all make Turkey players. Competition between Russia an indispensable partner on all regional energy co-operation projects.

50 the legal procedures (e.g. submission of down to serious multilateral disputes to the International Court of negotiations. The rewards -- in terms of Justice) and legal methods (e.g. Joint increased trade, enhanced economic Petroleum Development Agreement) development, and the preservation of a available and tested sufficiently precious ecological resource -- are far elsewhere. too important to ignore.

These countries should be supported by training, education and technical assistance in familiarising themselves with international legal procedures for settling disputes; they should be prodded into trying them out. The international legal procedure by itself forces to depart from the discourse of threats and subversion to a language of legal arguments, appeals to universally recognised legitimacy where each concept representing a state interest competes with similar concepts utilised by the other state. It compels to view oneself as one party involved in litigation before an impartial tribunal rather than a state pursuing its self- interest through militant action.

Yes, the problem of the Caspian's legal status is complicated, but it is solvable: the difficult task of getting 135 states to agree on the UNCLOS demonstrates that. All five states now agree on the principle of dividing the seabed into national sectors. The only real sticking point is Iran's insistence on a disproportionate share. Although other issues remain, such as where to alter the median lines to account for special factors, the views of the littoral countries are converging on the principles of individual versus joint control and co- operation on environmental matters. Because of the recent flexibility shown in Iran’s position, the issue of Caspian’s future legal regime appears much closer to resolution that one might expect. The time is right for the Caspian states to get

51