Iran emerges as the biggest winner of Caspian summit

The United States may not be able to invest in new possibilities in the Caspian Sea because of its hostile policies towards Russia and Iran.
Sunday 19/08/2018
A map shows the Caspian Sea and Central Asia. (AFP)
A map shows the Caspian Sea and Central Asia. (AFP)

Countries on the shores of the Caspian Sea have signed a breakthrough agreement that has enormous implications for the global energy market, especially for one of the five signatories, Iran.

Of all the Caspian shoreline countries — Azerbaijan, Kazakhstan, Russia, Turkmenistan and Iran — it is Iran that could be the biggest beneficiary of any international race to exploit Caspian hydrocarbons.

The agreement, signed August 12, has 24 articles that cover territorial waters, maritime frontiers, navigation rules, fishing and the environment. Signatories can initiate offshore exploratory projects and develop resources. None can permit foreign militaries use of their waters or coastlines.

The agreement provides extraordinary opportunities for offshore drilling and the construction of subsea transit pipelines, making it possible for Caspian hydrocarbons to reach global markets. Little wonder then that Russian President Vladimir Putin described the agreement as having “epoch-making significance.”

It was a restatement of something former US Vice-President Dick Cheney said in 1998: “I can’t think of a time when we’ve had a region emerge as suddenly to become as strategically significant as the Caspian.”

As things stand, however, the United States may not be able to benefit much. Even though it was the first to assist post-Soviet Azerbaijan develop its offshore Caspian reserves, the United States may not be able to invest in new possibilities in the Caspian Sea because of its hostile policies towards Russia and Iran.

The prize is not inconsequential. There is an estimated more than 50 billion barrels of oil and 292 trillion cubic feet of natural gas in proven Caspian offshore reserves.

The treaty stipulates that 15 nautical miles from each country’s coastline will be regarded as sovereign waters and an exclusive economic zone (EEZ). A further 10 nautical miles will be for fishing and beyond that would be open waters.

Only Azerbaijan and Kazakhstan, with their relatively investor-friendly governments, have developed offshore reserves to any significant extent. Turkmenistan’s idiosyncratic government has, until recently, largely precluded foreign investment. Both Russia and Iran have long suffered under sanctions.

Iran benefits from the convention in three ways. First, the Caspian would be closed to outside military intervention. Second, Iran’s offshore territory is clearly delineated. Third, Iran gains access to other Caspian countries’ hydrocarbon, rail and transport network. These opportunities will go some way towards circumventing the Trump administration’s recently reimposed sanctions after the unilateral US withdrawal from the nuclear deal, the Joint Comprehensive Plan of Action.

The Caspian agreement could not have come at a better time for Iran. It was not possible until recently because of disagreement between Russia and Iran. Russia insisted each country receive offshore waters in proportion to its coastline but Iran maintained that all should receive 20% each. Under Russian terms, Iran’s share would be 11-13%.

While a definitive agreement on the Caspian central seabed has yet to be concluded, the new convention’s definition of EEZs and fishing rights was equitable enough for Iran to sign.

Two decades ago, the lack of clearly delineated maritime frontiers led Iran to engage in “gunboat diplomacy.” On July 23, 2001, an Iranian warship and two jets threatened two Azeri research vessels conducting surveys on behalf of BP-Amoco in the Araz-Alov-Sharg field, 140km south-east of Baku and 100km north of what were considered Iranian waters.

BP-Amoco immediately announced it would cease exploration activity and withdraw the research vessels. Azerbaijan denounced the move as a violation of its sovereignty and charged that an Iranian reconnaissance aircraft had violated Azeri airspace.

That was then. The new agreement will probably ensure no such incidents recur. Furthermore, in the interests of regional harmony, Iran, Russia and Turkmenistan will be able to avail themselves of Azeri and Kazakhstan offshore technology, as well as their pipeline and transport networks. These grids crisscross their territory, providing access to foreign markets. Customers are most likely to be East and South Asian. However much Washington might splutter about sanctions, China, Japan, South Korea, Pakistan and India all seek reliable energy supplies.

The agreement left several issues unresolved and that may prove to be its undoing. Still, Iranian President Hassan Rohani described it as a “major document,” even as he noted that the delimitation of the Caspian seabed will require additional agreements.

With billions of barrels of oil, trillions of cubic feet of natural gas and likely revenues of trillions of dollars, the lure of prosperity may prove stronger than the tendency to squabble.