On August 12, the fifth summit of the five coastal states of the Caspian Sea was held in the Kazakh city of Aktau: Azerbaijan, Iran, Kazakhstan, Russia and Turkmenistan. The main objective of this meeting was to establish a legal status of the Caspian Sea, an issue that was the subject of negotiations and disagreements for more than two decades, and which has important consequences in relation to energy security, environmental issues or within the defence agenda and security of all parties. In the framework of the summit, the presidents of the five states signed a historic agreement for the management of the largest inland body of water.
Located between Asia and Europe, the Caspian Sea is situated in an area of great strategic value for its large oil and gas reserves, both offshore and onshore, of approximately 48 billion barrels of oil and 8.7 trilion cubic meters of natural gas, respectively. Until the fall of the USSR, the rules that regulated access to the Caspian were contained in the Treaty of Russian-Persian Friendship of 1921 and the Trade and Navigation Treaty of 1940. In spite of this, neither of the two treaties regulated explicitly the division of waters, since they only referred to the right to use the Caspian by the actors involved. In practice, the USSR had a predominance over it, and the area used by Iran was limited to the area near its coastline.
However, since 1991, with the appearance of new states on the Caspian coast as a consequence of the disintegration of the Soviet Union, access to water and its division became a more complex issue, with higher international implication Furthermore, the fact that it is a rich area in hydrocarbon reserves did not help resolve the issue, especially considering the plans and agendas of the three new independent states – Azerbaijan, Kazakhstan and Turkmenistan – which wanted to take advantage of these resources to promote their economic development.
In the nineties, the Caspian Sea was described by some analysts as the new Alaska for the oil and gas industry. But most of the great plans that were designed have not been implemented so far, due to the fact that the Caspian does not have a coastline open to international trade. To this a historical litigation and the problem of demarcation and allocation of resources must be added. This did not allow full exploitation of the energy potential and natural resources of the Caspian Sea, with the exception of the management of some gas and oil fields such as Kashagan by Kazakhstan, Chirag-Guneshli and Shah Deniz by Azerbaijan, or Cheleken by Turkmenistan, which are key to the respective economies.
Therefore, the Convention signed in Aktau by the five countries establishes a legal framework for the Caspian Sea, although it leaves some issues unresolved and will require additional agreements. Among the most sensitive issues that were resolved in the framework of the summit was the definition of whether the Caspian is a sea or a lake. Opting for the first option would involve dividing the Caspian taking as reference the kilometres of the coastline of each State, while defining it as a lake would involve dividing the resources equitably among the five states, regardless of the length of their coasts. Finally, the chosen formula confirms that the Caspian is recognized as a sea, a decision that entails economic, military and political consequences of great relevance. In this sense, each State will control 15 nautical miles (24 km) of water from its coastline for its mineral exploitation, and will have 25 miles (40 km) destined to fishing. However, the lack of prior agreement had not stopped the Caspian countries from accessing energy resources close to their coasts, but in many cases their exploitation had been prevented beyond these.
Another key aspect addressed is how the Caspian is distributed in the areas that go beyond the territorial waters and the fishing zones of each State. In this sense, on one hand there is an agreement on the division of the northern part corresponding to 60% of the sea between Azerbaijan, Kazakhstan and Russia. But on the other hand, the lack of agreement between Azerbaijan, Iran and Turkmenistan to divide the remaining 40% continues to be one of the main problems on the agenda of pending issues to be resolved. In fact, Iranian public opinion has been very critical of this agreement, claiming that Iran had renounced its historic rights to the Caspian Sea for the benefit of its northern neighbours. One of the central arguments of this opinion states that the territorial waters that correspond to Iran according to the convention are 11% of the coast (equivalent to its percentage of coastline) with respect to the 50% that Iran supposedly had when the Caspian was divided between the USSR and Iran. In this regard, some members of the Iranian parliament have compared the agreement with the humiliation that was the Turkmenchay Treaty of 1928, in which the Persian Empire gave important territories of the Transcaucasia to Czarist Russia. Much of this controversy is generated by assuming that before the fall of the USSR according to the treaties cited above Moscow and Tehran had divided the Caspian into two halves, 50% for each of the parties..
From a military perspective, the current convention acquires a major importance for Iran and Russia, since the Article 3 establishes the non-presence of armed forces in the Caspian Sea except those of the states that signed the agreement. Both, Moscow and Tehran, negotiated harshly with the other parties to ensure this security guarantee, especially in relation to a possible military presence of the United States troops or other NATO members. This was an option that could have materialized with the construction of a US military base in Kazakhstan. In parallel, Washington had been pushing to use the Caspian as a logistical route for transporting military equipment from Azerbaijan to Afghanistan through Kazakhstan and Uzbekistan.
The agreement is also of great geopolitical relevance and with effects on the defence policies, especially for Russia and its Southern Military District, as the unlimited military activity of the fleets of the Caspian states is allowed in the areas that are not designated its territorial waters or fishing zones. This implies that the Russian Caspian Sea fleet, the most powerful of the five countries, belonging to the Southern Military District of the Russian Armed Forces, will be able to operate practically in the entire Caspian Sea. However, Russia had already been operating in these areas as demonstrated by the launching of cruise missiles on various targets in Syria from Caspian waters in October 2015, during the start of its military intervention to support al-Assad. At the same time, the Russian Ministry of Defence has announced the construction of a new military base for its Caspian Sea fleet in Kaspiysk, in the Republic of Dagestan, strengthening not only its presence in the region, but also its geostrategic position in the Middle East and Central Asia.
With regard to energy security, since the 1990s, several Western energy companies have shown their interest in the construction of Transcaspian gas and oil pipelines to connect the resources of Central Asia with global markets. In fact, already during Clinton administration, the US pushed to boost energy and commercial transport routes from the Caspian through Azerbaijan and Georgia, a route known as the Southern Corridor. The most important result of this strategy is the construction and opening of the Baku-Tbilisi-Ceyhan oil pipeline, which transports oil from the Azeri coasts to the Turkish port of Ceyhan, crossing Georgian territory, and from there it is transported to different destinations, especially to the Member States of the European Union (EU).
In spite of this, the lack of agreement between the states of the Caspian seaboard had paralyzed any project to build oil and gas pipelines through it. Among these, the project known as the Trans-Caspian Pipeline (TCP) that could allow Turkmenistan to export natural gas to European markets through Azerbaijan, Georgia and Turkey stands out. The TCP is an initiative that goes back to 1999 and that has the support of both, the United States and the European Union. This support is given as the main goal of the infrastructure would be to contribute to the reduction of the dependence of the EU Member States on imports of Russian gas, which represented 37% of the total in 2017. It would also be sought as a way to reduce Russia’s control over energy transit routes, especially in relation to gas from Central Asia destined for Europe. In addition, it would deprive Iran of developing a potential Turkmenistan-Iran-Turkey gas pipeline to transport Turkmen gas to Europe. For this reason, both Tehran and Moscow have historically opposed the construction of the TCP.
Although the new convention brings closer the possibility of the TCP, the biggest obstacle that it faces is the fact that the agreement specifies that any gas pipeline or pipeline built on the bottom of the Caspian Sea “must comply with the environmental standards and the requirements contemplated in international agreements”. In this sense, it cannot be ruled out that Russia and Iran would use the environmental charter to stop its construction. Meanwhile, Moscow could look for alternative ways to convince Ashgabat to renounce the TCP project, for example, by restoring Turkmen gas imports to Russia that were interrupted ten years ago, which would be an important boost for Turkmenistan’s battered economy. However, a change of position of Russia towards a more flexible one in relation to the TCP could occur if we consider a scenario in which Turkmen gas would compete in European markets not so much with Russian gas, with a fairly consolidated share of exports, and that could be reinforced with the construction of the Nord Stream II, but with possible exports of liquefied gas (LNG) from the United States.
In this sense, Turkmenistan is the State with the fourth largest reserves of natural gas on the planet (17.5 trillion cubic meters) being only behind Iran (33.5), Russia (32.3) and Qatar (24.3). According to the data for 2016, 78.8% of its total gas exports go to China. Turkmen gas exports also accounted for 40.6% of total Chinese gas imports. Therefore, Turkmenistan is very dependent on its gas exports and China is the only State that buys it in substantial amounts, especially since the entry into operation in 2009 of the gas pipeline linking the two countries through Kazakh and Uzbek territory. The TCP represents an alternative to sell its gas to the global markets, together with the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline, with some stretches already under construction, and Iran, a state that already exported in smaller quantities until they were interrupted in 2017 for alleged unpaid.
From the Russian point of view, another reason why Russia may have pushed the resolution of the status of the Caspian Sea after more than two decades opposing an agreement is the growing influence of China over the region, especially with the implementation of the Belt and Road Initiative (BRI). With Chinese support, Central Asian trade has largely been redirected towards Iran to the detriment of Russia. At the same time, the non-resolution of Caspian status has influenced the fact that a significant part of Central Asia’s energy exports in recent years have been destined to China instead of Russia.
On the Iranian side, Tehran’s insistence on its aspiration to control at least 20% of the Caspian was one of the causes of the stalemate in the negotiations for years. However, the renewed isolation to which the administration of Donald Trump wants to submit Iran, with its withdrawal from the Nuclear Agreement and the imposition of a new sanction regime against the Islamic Republic, would be a determining factor to provoke the change of opinion of the government presided by Hasan Rouhani, agreeing to normalize the status with the Caspian states to give an image of international openness and strengthening of the link with its northern neighbours.
Finally, the Aktau Convention introduces legal measures for the resolution of conflicts, but postpones the fundamental question of the delimitation of the portion of surface and seabed –and, therefore, of natural resources that correspond to each State, at least in relation to the three southern countries. Therefore, the convention signed on August 12th during the V Summit of the Caspian is far from solving this capital issue, a delicate aspect that should be addressed in subsequent negotiations.
Photo 1: Participants of the Fifth Caspian Summit. From left to right: President of Azerbaijan Ilham Aliev, President of Iran Hassan Rouhani, President of Kazakhstan Nursultan Nazarbaev, President of Russia Vladimir Putin, and President of Turkmenistan Gurbanguly Berdymukhammedov, Aktau (Kazakhstan), 12/08/2018 (Source: Kremlin).
Photo 2: Major oil and gas infrastructures in the Caspian region in 2013 (Source: EIA/WikiCommons).
Photo 3: Russia’s navy Caspian flotilla in 2017 (Source: Ministry of Defence of the Russian Federation).
Photo 4: Oil field Vladimir Filanovsky owned by the Russian company Lukoil in the northern part of the Caspian Sea, 14/06/2017 (Source: Lukoil).