Difficult Geopolitics of the Caspian Complicate Potential Energy Projects

Publication: Eurasia Daily Monitor Volume: 15 Issue: 18

(Source: financialtribune.com)

The foreign ministers of the five littoral Caspian states—Azerbaijan, Russia, Kazakhstan, Turkmenistan and Iran—met in Moscow, on December 5, 2017, to try to finalize an agreement on the legal status of the Caspian Sea. After the talks, the Azerbaijani and Russian representatives, Elmar Mammadyarov and Sergei Lavrov, respectively, praised the narrowing of the five country’s positions (Azernews.az, December 5, 2017). However, a final settlement of such a complex historical issue does not imply a solution to all regional disputes. For instance, since the collapse of Soviet Union, the littoral states’ divergent positions on the Caspian’s delineation—notably claims by Iran and Turkmenistan—have challenged Azerbaijan’s juridical ownership of its offshore energy fields (see EDM, February 1, 2006; September 14, 2010).

Following the ministerial meeting in Moscow, the Iranian Ministry of Foreign Affairs denied any change in Iran’s position over the demarcation amidst continued intra-regional disagreements, notably with Azerbaijan and Turkmenistan (Ifpnews.com, December 15, 2017). According to Azerbaijan’s Deputy Foreign Minister Khalaf Khalafov, the negotiations with Iran and Turkmenistan over controversial oil and natural gas fields in the Caspian have yet to bear fruit, but added that exploitation of those fields will be solved in accordance with international law (Minval.az, Report.az, December 6, 2017). It is not certain if Ashgabat and Tehran would accept the “modified median line” principle and, accordingly, drop their claims to Azerbaijani oil/gas fields (see EDM, May 8, 2017). Therefore, these disputes might need to be settled through bilateral dialogue but will likely not be reflected in the new convention on the Caspian settlement. Tehran and Ashgabat’s prior maximalist position left them isolated from various planned joint energy projects in the Caspian. But unlike Iran’s recent inclination toward joint collaboration with Azerbaijan on certain offshore energy fields (Trend, February 23, 2016), Turkmenistan has declined to pursue a similar approach to disputed fields.

Still, the largely positive post-ministerial statements raised optimism related to the Trans-Caspian Gas Pipeline (TCP) project, which for decades has been hindered by the disputes over the delamination of the Caspian Sea. Under discussion since the late-1990s, the TCP would annually carry 30 billion cubic meters (bcm) of Turkmenistani gas to Europe via the Southern Gas Corridor (SGC—across Azerbaijan, Georgia and Turkey), to lessen the European Union’s dependence on Russia (Trend, December 6, 2017). But even after the new convention on the Caspian’s settlement, Russia and Iran will probably still oppose the TCP, which they hitherto succeeded in blocking by subjecting the pipeline’s construction to the approval by all five littoral states (Commonspace.eu, December 19, 2017). Russia’s objection is especially peculiar since Moscow and Baku have already bilaterally solved the delimitation of the Caspian’s northern part, while the TCP’s construction would not pass through Russian waters. Azerbaijan and Turkmenistan stick to the principle that littoral states have the sovereign right to build infrastructure freely in their national sectors before the Caspian Sea’s final status is defined (see EDM, May 8, 2017). And Azerbaijani Deputy Foreign Minister Khalafov has emphasized that the construction of the gas pipeline will be agreed by the sides whose sectors it traverses. Russia and Iran’s opposition is driven by the fact that Turkmenistani gas exports via the TCP would circumvent them as transit countries and be detrimental to their market share in Europe and Turkey. Furthermore, the TCP would help further consolidate Azerbaijan’s geopolitical importance and bring more foreign energy companies to the Caspian (Payvand.com, January 8, 2018).

Russia’s insistence that construction of the TCP would negatively affect the ecological health of the Caspian is less credible now, following the construction of Nord Stream and Turkish Stream (TS) under Baltic and Black Sea, respectively (Trend, May 18, 2017; August 3, 2017). Furthermore, each Caspian state has been, hitherto, developing offshore oil/gas fields in its national sector without the consent of other littoral states.

Russia’s real opposition to the TCP is most likely linked to that pipeline competing with its Turkish Stream pipeline to Turkey. Therefore, Gazprom has accelerated the realization of TS to thwart the TCP, like it did earlier with the construction of Blue Stream. Russia understands that the completion of the TCP—thus combining Azerbaijani and Turkmenistan gas volumes destined to Europe—would render TS redundant. Similarly, TS’s early completion will undermine the geo-economic significance of the TCP. Russia, instead, wants to arrange the resale of Turkmenistan’s gas in Europe at self-defined prices, thus cutting into any volumes that would be contracted to the TCP. A decade ago, Russia wanted to apply the same strategy toward Azerbaijan by purchasing gas from the Shah-Deniz field to decrease the SGC’s promised gas volumes (EurasiaNet, July 2, 2008). Russia likely plans to resume its suspended imports of gas from Turkmenistan, promising joint gas exploration and dedicated transit via Russia to Europe in exchange for Ashgabat pledging not to commit to the TCP. Due to its financial troubles, Turkmenistan may opt for this rather than waiting for the TCP to be built (Commonspace.eu, December 19, 2017). Myrat Archaev, the head of Turkmengaz, declared late last year that Turkmenistan can ship gas via existing pipelines across Russian territory to Eastern European countries (Hronikatm.com, November 3, 2017). Meanwhile, tensions with Tehran over debt prevent Ashgabat from diversifying its energy export routes in the southwestern direction, thus increasing Turkmenistan’s dependence on the Chinese route (CACI Analyst, November 15, 2017).

Chronic impasse over the Caspian’s status has contributed to naval buildups. This militarization, however, never resulted in any massive clash between the littoral states, with cooperation on common security being the norm. Navy vessels frequently pay friendly visits to each other’s Caspian ports and participate in joint military exercises. Russia’s naval development has focused strongly on boosting capabilities to protect offshore oil/gas facilities from potential illegal armed groups. At the same time, Russia and Iran actively push the other littoral states to support the inadmissibility of “military presence of non-Caspian states in the Caspian.” Thus for Moscow, its greatest security-related preoccupation is not the TCP but the emergence of a Western military force in the Caspian (see EDM, July 25, 2016; November 2, 2017; EurasiaNet, December 5, 2017).

One would expect Turkmenistan to show greater interest in the TCP at the moment, due to the country’s urgent need to diversify its gas exports, replace the revenue streams lost following the suspension of gas exports to Iran and Russia, and overcome its dependence on China as a customer. Nonetheless, the Turkmenistani government itself is not willing to carry out the construction of the pipeline nor bear the financial costs (see EDM, March 11, 2015). For all the reasons detailed above, including the absence of coherent Western support, prospects for a Trans-Caspian Pipeline remain remote.