Transformation of Caspian Sea Region Into Energy Hub Gaining Momentum (Part Two)

Executive Summary:

• The Caspian Sea region looks to become an international energy hub as the European Union seeks alternatives to its energy dependence on Russia through the export of natural gas from littoral Caspian Sea states.
• Moscow is concerned about the prospect of the Caspian region becoming a facilitator of EU energy security, potentially strengthening political-military cooperation between the historically Russian-leaning littoral Caspian states and Russia’s adversaries.
• Russia and Iran’s goals of bolstering north-south transit routes and increasing energy exports are at risk if the Caspian Sea region is successful in strengthening connections to Europe and prioritizing east-west routes.

(Part One)

Russia’s war against Ukraine and the Kremlin’s attempt to undermine EU energy security by cutting off natural gas supplies has caused Brussels to turn its attention to the Caspian Sea region. Energy transit via the Caspian Sea and trade with the littoral countries has the potential to decrease and maintain Europe’s overarching dependency on Russia for natural gas. For Russia, Moscow has traditionally viewed Caspian energy resources as inferior to its abundant Siberian- and Arctic-based deposits (Russian International Affairs Council [RIAC], 2017). For Russia’s trade with Europe, geopolitical calculations have played a significant role in considering the energy environment, precluding other Caspian Sea actors from supplying their oil and gas to the European Union and Türkiye (TASS, August 17, 2018; Casp-geo.ru, November 24, 2020). The realization of the Caspian Sea as an energy hub between the region and Europe holds many geopolitical obstacles, such as Russia and Iran’s stake in the region, that will affect opportunities not only in Central Asia and the Caucasus but in Europe and Russia as well.

Leading Russian policymakers are visibly concerned about the prospect of countries in the Caspian region becoming an important energy source for the European Union, potentially strengthening their political-military cooperation with Moscow’s adversaries. A report recently published by the RIAC outlines two paramount concerns that have emerged since February 2022. First, the report laments that the growing “interference” of “Western powers” that are conducting “anti-Russian policies”—namely, the United States and the European Union—could “diminish Russia’s influence.” Specifically, Moscow is concerned with the European Union’s economic interest and US political (and informational) support for the Trans-Caspian Natural Gas Pipeline between Turkmenistan and Azerbaijan (see EDM, May 16, 2023, June 5) According to the authors of the RIAC report, “The West is essentially pushing littoral Caspian Sea countries to support new hydrocarbon export infrastructure with little-to-no attention on technological issues and environmental concerns” (RIAC, April 11).

Second, the Kremlin is concerned with the growing determination of regional players—backed by the United States and the EU—to explore new opportunities to supply more hydrocarbons to Europe and China as an alternative to Russian-dominated routes. Specifically, Russia is concerned about Kazakhstan, Azerbaijan, and Turkmenistan for their individual potential in energy exploration and exports as well as joint initiatives. The RIAC report also expresses concern over “Caspian countries starting to pay more attention to attracting foreign direct investment in their new and emerging deposits of oil and natural gas [especially Turkmenistan-based Galkynyş]. They consider this an important factor in forging a political dialogue with Western countries.” In addition to economic and energy concerns, the report argues that strengthening oil- and gas-related cooperation will likely deepen political and security contacts between the European Union, United States, and littoral Caspian states (RIAC, April 11).

Moscow will likely seek to diminish the Caspian region’s role in Europe’s energy stability and avoid regional marginalization. Russia seeks to isolate the Caspian Sea region, with the “Caspian Five” becoming the key platform for intra-regional dialogue and communication. This will be based on the pre-2022 example of the Arctic region. This was demonstrated at the Sixth Caspian Summit in June 2022, where Russian officials explicitly stated that all regional problems and issues should be solved exclusively between regional players without the involvement of non-Caspian actors (Kremlin.ru, June 29, 2022). The same thesis was reiterated in Russia’s March 2023 Foreign Policy Concept, which stressed the need for “strengthening cooperation in the Caspian Sea region solely based on the competence of the five Caspian Sea countries in terms of solving all issues pertaining to the region” (Russian Foreign Affairs Ministry, March 31, 2023). In pursuit of this strategy, Moscow will rely on both regional inter-governmental forums and platforms, such as the Caspian Economic Forum, and Russia-led transit mega-projects, including the International North-South Transport Corridor. The INSTC could deliver benefits for Russia’s continued energy exports to India and other Asian markets (RG.ru, October 7, 2022; see EDM, March 6).

Russia is also likely to continue to strengthen ties with Iran, especially given Teheran’s own ambitions in developing its natural gas exports. At the Seventh Gas Exporting Countries Forum Summit in Algeria, Iran’s late president, Ebrahim Raisi, highlighted Iran’s “huge reserves of natural gas, transit capacities, and advanced technology.” He noted that those advantages have formed Iran’s strategy of increasing the production and export of natural gas (Caspianbarrel.org, March 4). According to National Iranian Gas Company CEO Majid Chegini, Russia has suggested forming an energy hub between Tehran and Moscow. He additionally stated that “constructive talks have been held with countries such as Oman, Russia, and Pakistan in the field of gas trade [and that] some European countries are requesting gas imports from Iran” (Tasnimnews.com, August 7, 2023).

On the sidelines of the Eighth Organization of the Petroleum Exporting Countries International Seminar in Vienna, Iranian Oil Minister Javad Owji noted that Tehran positively assesses negotiations with Moscow on the creation of a gas hub in the republic (En.mehrnews.com, August 7, 2023). Additionally, Russian Deputy Prime Minister Alexander Novak noted that Russia and Iran are discussing the possibility of creating an electronic gas trading platform in southern Iran. According to Novak, “To implement this idea, it is necessary to attract partners and suppliers, find sources of supplies, one of which may be Iranian gas produced with the participation of Russian companies” (TASS, August 7, 2023). Moscow and Tehran have also discussed cooperation between their special trade zones to boost commerce and investment (Caspiannews.com, August 10, 2023).

Russia may take a more aggressive stance if its tactic of carrots and sticks does not produce results. In the 1990s and early 2000s, the Caspian Sea region was an arena of mounting regional tensions between Russia and Kazakhstan over the Kremlin’s militarization of the region and between Azerbaijan and Iran over oil extraction in the southern part of the sea (Nezavisimaya gazeta, April 11, 2002; Mirperemen.net, July 27, 2017). Russia’s more aggressive methods may be seen in the recent mysterious explosion at Kazakhstan’s largest Tengiz oil field that killed two workers in 2022. The blast occurred after a Russian court ordered the Caspian Pipeline Consortium, which operates a key export route for crude oil from Tengiz, to suspend activities for 30 days due to environmental violations (En.inform.kz, July 6, 2022). In addition, the explosion happened after Kazakh President Kassym-Jomart Tokayev spoke with European Council President Charles Michel, expressing his “readiness to use [Kazakhstan’s] hydrocarbon potential to stabilize the situation in the global and European markets” (Akorda.kz, July 4, 2022).

The Caspian Sea region has the potential to become a central factor in strengthening EU energy security. Yet, while some regional actors are interested in capitalizing on their resource wealth and strengthening economic and trade partnerships with the European Union and Türkiye, Russia and Iran either do not share the enthusiasm of these players or do not wish to be cut off from the redistribution of Caspian wealth without their participation. Thus, practical implementation of a world-class regional energy hub will likely face obstacles as Moscow and Tehran seek to maintain their regional control and influence.