THE HYDROCARBON STAKE IN AZERBAIJAN’S SOUTHERN OFFSHORE SECTOR.

On July 23, Iran used military force to assert its claim to at least a part of Azerbaijan’s Alov-Araz-Sharg offshore oilfields (see the Monitor, July 26). Tehran’s move compelled the international consortium, led by British Petroleum Amoco, to suspend any further work there “until Iran and Azerbaijan resolve their dispute.” That decision, if adhered to, would in effect make the resumption a hostage to Tehran.

Alov-Araz-Sharg, referred to as Alborz by Iran and measuring 1,400 square kilometers, is located at distances of between 50 and 150 kilometers north of the Astara-Hassan Guli line–that is, well within what has been regarded as Azerbaijan’s offshore area by all parties save Iran. The Astara-Hassan Guli line, running west-east from Azerbaijan’s southernmost point to Turkmenistan’s southernmost point, formed the USSR-Iran maritime border, and has since 1991 been treated by Caspian and Western countries alike as forming the Azerbaijan-Iran and Turkmenistan-Iran maritime borders.

This project is second only to the “contract of the century” (Azeri-Chirag-Guneshli) in terms of hydrocarbons reserves. Alov is estimated to hold 300 million tons of oil and 400 billion cubic meters of natural gas. Alov, Araz and Sharg lie in water depths ranging from 300 to 800 meters, at drilling depths ranging from 2,500 to 6,500 meters under the seabed. The value of the investment is projected at US$4 billion for Alov and up to US$9 billion for the entire Alov-Araz-Sharg complex over the twenty-five-year contract period.

The production-sharing agreement was signed on July 21, 1998 in London in the presence of British Prime Minister Tony Blair and the visiting Azerbaijani President Haidar Aliev. The project operator British Petroleum (since 1999 BP Amoco), ExxonMobil of the United States and Norway’s Statoil each hold 15-percent stakes, the State Oil Company of Azerbaijan 40 percent, Turkish Petroleum 10 percent and Alberta Energy of Canada 5 percent.

Last year, the major phase of seismic work was completed at Alov-Araz-Sharg. The first three exploratory wells were to have been drilled this year, and up to five more until 2004. The exploratory drilling is several months behind schedule, owing to the shortage of drilling rigs–a problem affecting most Caspian projects. Iran’s July 23 military move appears timed to stop the drilling before it began.

In September 1999, Tehran had nominally authorized the state-owned National Iranian Oil Company (NIOC) and the Iran Petro company to explore “Alborz.” That gesture seemed largely symbolic and political, was not followed by any exploratory activity, and was generally ignored.

Tehran’s claim to Alov-Araz-Sharg seems baffling not only because of that area’s location, but also because Iran has–at least until now–not challenged Azerbaijani ownership of two offshore fields which are partially located further south than Alov-Araz-Sharg. Those two fields are Inam and Lenkoran-Talysh Deniz.

Inam is estimated to hold 100 million tons of oil and 100 billion cubic meters of natural gas. It is operated also by BP Amoco, in partnership with the State Oil Company of Azerbaijan. Exploratory drilling there runs ahead of Alov-Araz-Sharg. In February of this year, BP temporarily halted drilling of the first well at a depth of 4,400 meters because of high bed pressure. Drilling resumed last month, with the powerful Istiglal ring involved, just before Iran made its military move.

Lenkoran-Talysh Deniz has been undergoing exploration by a consortium that includes Iran. The partners are TotalFinaElf of France with 55-percent interest, the State Oil Company of Azerbaijan with 25 percent, Germany’s Wintershall with 10 percent and Iran’s Oil Industries and Engineering Construction with 10 percent. Project operator TotalFinaElf announced last month an intention to withdraw after the first exploratory well came up dry last February and the second looked unpromising. Tehran, with a stake in the project, never raised territorial claims, and may have lost interest altogether last month after the second well’s apparent failure.

Meanwhile, Iran claims a part of Azerbaijan’s Savalan offshore oilfield. ExxonMobil is the project operator there, with 30 percent interest; the State Oil Company of Azerbaijan holds 50 percent, and 20 percent is yet to be awarded. The value of the investment is projected at US$2.5 billion. The production-sharing agreement was signed in 1999, but has not yet been taken up by the Azerbaijani parliament for ratification. Iran’s claim is presumably one reason behind that delay. Inevitably, Iran’s military use of force at Alov-Araz-Sharg raises questions about Iran’s intentions elsewhere in the southern part of the Caspian Sea (Middle East Economic Survey, July 23; Dow Jones Newswires, Financial Times, Turkish Daily News, IRNA, Asia Pulse, July 24-August 1; see the Monitor, June 15, 29, July 25-26, 31).

INVESTMENT IN KYRGYZSTAN’S OIL INDUSTRY MAY HAVE JUST BECOME ENTICING.