ALL AT SEA: RUSSIA’S CASPIAN GAMBIT

by Najia Badykova

The legal status of the Caspian Sea remains unresolved despite lengthy and convoluted attempts to address the issue. But now Moscow, fishing in troubled waters, is playing an increasingly prominent role in the region. Russia is exploiting disagreements in the region in pursuit of its geopolitical, but also economic, interests. It has a broad array of instruments at its disposal, from the “Karabakh question” to its willingness to support the regime in Turkmenistan.

The other Caspian littoral states include: Kazakhstan, which is riding an oil boom; Iran, a part of U.S. President George W. Bush’s “axis of evil;” Azerbaijan, which is doing a balancing act between the United States and Russia; and Turkmenistan, whose regime now depends on Russian patronage.

An agreement on the division of the northern part of the Caspian was reached via a series of bilateral accords between Russia, Kazakhstan and Azerbaijan. But the division of the hydrocarbon-rich southern part of the Caspian remains unresolved. Recall that in July of 2001 an Iranian naval vessel expelled two BP survey ships from an area claimed by Azerbaijan. Negotiations are only just resuming, but there is reason to believe that Russia will emerge as the main intermediary in these dealings.

Foreign policy flexibility: The strong power can dictate or ‘propose’ terms.

One reason that the status of the Caspian Sea remains unresolved after a decade of discussion is that Russia is in no particular hurry to resolve the matter. Nor is Moscow in any rush to exploit the resources that lie in Russia’s own coastal waters. A second reason involves the deep differences among the Caspian states over how to divide the sea. The lack of agreement has served Russian (and Iranian) interests. For example, by blocking the laying of a trans-Caspian pipeline across the sea floor, an important part of the American plan for diversifying energy distribution systems and bringing Kazakh oil or Turkmen gas to Western markets–and bypassing Russia and Iran in the process–has been stymied.

Russia was also suspicious of the emergence of GUAM (the alliance of Georgia, Ukraine, Azerbaijan and Moldova),a security pact that seemed designed to shut Russia out of geopolitical security issues in the Caspian while aligning its members with the United States. Uzbekistan joined GUAM shortly after its founding, but later suspended its membership, preferring to rely on its bilateral relationship with the United States, which deepened dramatically after September 11. With Uzbekistan’s withdrawal, Russia felt it could afford to ignore GUAM, especially given its closer ties with Ukraine.

The general impact of September 11, however, was to galvanize Russia into a more active role in the region, since there was a real possibility that the United States would establish a permanent presence in the area. That threat, combined with the failure of the April 2002 Ashgabat conference on the status of the Caspian Sea, at which the leader of Turkmenistan suggested that the UN mediate the question of the Sea’s status, were seen by Russian geopolitical experts as a series of negative developments. They prompted Russia to adopt an aggressive policy line aimed at consolidating its position of primacy in the Caspian. The first step was a campaign to militarize the sea, which involved the addition to the Russian fleet in May, 2002 of a new warship, the “Tatarstan,” equipped with state-of-the-art weaponry. That was followed in June of the same year by military exercises, intended to serve as an unambiguous demonstration that Russia rules the waves and is effectively the sole naval power in the region.

The next phase was an energetic initiative to sort out the legal status of the Caspian. Russia decided to give up its previous “five states, one treaty” approach and instead to work out preliminary agreements with each country in turn. This broke one large problem up into several small ones.

As a result, by the end of 2002 Russia already had bilateral treaties with Kazakhstan and Azerbaijan. The terms of these treaties, moreover, coincided exactly with Russia’s interests: Only the sea floor is to be divided, while the surface waters are to remain under common ownership. This rules out the military presence of any non-regional nation while allowing Russian naval vessels free passage.

The worst may be yet to come…

Still on the agenda are unresolved questions concerning the hydrocarbon-rich southern part of the Sea, where Russia must mediate the competing claims of Iran, Azerbaijan and Turkmenistan.

Of the three, Iran is Russia’s strongest and most important partner, in economic, political and military terms. Resolution of the conflict will probably come down to an “understanding” between Russia and Iran. Russia feels something of a sense of urgency to lock down an agreement before some quirk of fate–such as the events of September 11–causes her to lose part of her geopolitical dominion. The need to resolve the Caspian’s status helps explain Russia’s wariness about getting involved in Washington’s latest efforts to pressure Iran into shutting down its nuclear program.

The visit by the leader of Turkmenistan to Iran on March 10, 2003, appeared to herald the conclusion of the most important accords on the division of the Caspian, yet the final document was never signed. Soon thereafter the Iranian president met with Vladimir Putin in Moscow, where, among other topics, the status of the Caspian was also discussed.

A routine meeting on March 24-27 in Ashgabat between an Iranian delegation headed by Iran’s special representative on the Caspian, Mehdi Sarafi, and Turkmenistan’s deputy prime minister showed that negotiations are ongoing between the countries, and may pick up momentum towards an agreement.

Turkmenistan calls for defining median lines between the contiguous Caspian states in accordance with the UN Convention on Maritime Law and other standards and principles of international law. However, Turkmenistan’s interpretation of the median line is wholly unacceptable to Azerbaijan, which has a different approach to defining the natural contours of the sea, including off-shore islands. It is an approach that, not coincidentally, would result in disputed oil and gas deposits ending up in the Azerbaijani sector.

Iran has been holding out for a larger share of the seabed than the 13 percent that the median line solution would grant it. Tehran is demanding an equal split among the five states, which would give Iran 20 percent. Such a solution would require a five state consensus. But that is clearly unrealistic, and Iran may be better served cutting a deal with Turkmenistan that would enable both countries to embark on a joint program of oil and gas extraction from their offshore maritime territory. But neither country has a particular sense of urgency about this. Both are suffering from a lack of investment and in any case have plenty of other deposits to exploit. So these maneuvers are actually all about putting further pressure on Azerbaijan. The Turkmen and Iranian sides also spoke of their shared view that the boundaries of national and economic zones should be set at 35-40 nautical miles, which sounds like an attempt to restrict Russian maritime traffic.

Overall, it would appear that Iranian and Turkmen claims to the so-called Azerbaijan portion actually work to Russia’s advantage, allowing her to play the role of intermediary between Iran and Azerbaijan. Russia’s relations with Azerbaijan have been improving: On February 27 Russian Foreign Minister Igor Ivanov signed an agreement in Baku on military cooperation. Recent events in Azerbaijan surrounding the health of President Haidar Aliev and the possibility of a succession crisis may provide Russia with another opportunity to increase her influence on Azerbaijani policy.

Strengthening links to mutual advantage…

During a visit by the president of Turkmenistan to the Russian capital on April 10, 2003, a long term agreement was signed between the two countries on the sale of Turkmen gas on terms that are highly advantageous to Russia. Both the Russian president and the chairman of Gazprom have described the deal as a revolutionary breakthrough between the two gas powers.

Starting in 2004, Russia will buy 6 billion cubic meters of gas per year, at a price of US$44 per thousand cubic meters of gas, 50 percent of which will be paid in currency, with the remainder paid in goods. The low price and the barter element of the agreement are highly advantageous for Russia. Allowing for problems with the quality and pricing of bartered goods, the final aggregate value of the Turkmen gas will be around US$33 per thousand cubic meters–a measly sum compared to the US$100-plus that Russia gets from its West European gas customers. (Recall also that back in 1997, Turkmenistan had suspended deliveries to Russia, claiming that the price offered–US$32–was too low.) By 2009 Russia will effectively be buying virtually all of Turkmenistan’s gas, amounting to 80 billion cubic meters by 2028, and Russia will retain the exclusive right to re-export the gas beyond Russia. Russian information agencies estimate Turkmenistan’s and Russia’s projected earnings over the next twenty-five years at US$200 billion and US$300 billion, respectively. In reality, under the terms of the present agreement, Russia’s earnings will be over US$350 billion, as against US$150 billion for Turkmenistan.

This agreement offers almost total protection against any other country breaking into the Turkmen gas market. Turkmenistan’s gas balance is such that its maximum possible production volume in the years ahead is estimated at approximately 100-110 billion cubic meters. Domestic demand is for 15-20 billion cubic meters, the maximum export volume to Iran is 10-13 billion cubic meters, and the remainder is now contracted wholly to Russia. This leaves almost nothing upon which any further discussion of new pipeline construction in the near future might be based.

With this treaty signed, one can also assume that Turkmenistan’s position on the division of the Caspian sea may have moved significantly closer to the interests of Russia.

But it should not be forgotten that there is nothing certain in this world, especially when the case in question involves a regime that is endowed with rich oil and gas reserves and is situated, moreover, in a strategically important region. So we should not rule out the possibility that this is a Pyrrhic victory for Moscow, and that the structure of deals engineered by Russia may collapse like a house of cards if another interested extra-regional country objects to the current distribution of power.

Najia Badykova is currently a Fulbright scholar at George Washington University in Washington, DC. She has a doctorate from the Institute of Economics, Russian Academy of Science.