Caspian Energy And Transport Issues Expand Into

Military-Political Confrontation.
Source: Nezavisimoe Voennoe Obozrenie, May 18, 2007
Agency WPS
The Russian Oil and Gas Report (Russia) 23/5/2007

The presidents of Russia, Kazakhstan, Turkmenistan, and Uzbekistan

have agreed to build a joint gas pipeline to Europe along the Caspian
Sea shore. The leaders of Poland, Ukraine, Georgia, Lithuania,
and Azerbaijan have attempted to create their own energy alliance,
independent of Moscow. These developments have drawn the international
community's attention to the world's largest lake, which is turning
into a geopolitical apple of discord. New states have been established
in Central Asia and the South Caucasus; promising hydrocarbon deposits
have been discovered; new pipelines are operating; the region has a
number of frozen and active armed conflicts; the United States, NATO,
Iran, and Turkey are striving to expand their political, economic, and
military hardware influence in a strategically important region. All
this is intertwined in the Caspian.

According to Russian specialists, the West's estimates of the Caspian's

explored oil and gas reserves exceed the actual data several-fold. This
primarily applies to hydrocarbon reserves in Azerbaijan's sector of the
Caspian Sea. For example, American estimates of Azerbaijan's energy
resources are four times greater than Russia's estimates. The reason
for the discrepancy is clear. The Caspian countries are exaggerating
their reserves in order to attract foreign investors. But this is
also advantageous for Russia's geopolitical rivals, since it enables
them to influence policy in the Caspian countries.

All the same, there is good reason to call the Caspian the second
Persian Gulf. Oil production volumes here are comparable to the
combined output of Iraq and Kuwait, but far smaller than the combined
output of OPEC. Caspian production levels are expected to reach 4
million barrels a day by 2015. OPEC produced 45 million barrels a
day in 2006.

Russian companies control 10% of oil production in the Caspian and

about 8% of gas production. The largest oil deposits, and the three
largest oil projects, are in Kazakhstan and Azerbaijan. Western
oil majors have stakes in each of these projects. Turkmenistan's
potential offshore oil reserves in the Caspian Sea have not yet been
explored, and cannot be developed due to disputes between Turkmenistan,
Azerbaijan, and Iran about border demarcation in the southern part
of the sea.

By 2012, Kazakhstan is expected to take the lead in oil output volumes

(about 55%), followed by Azerbaijan with 32%; Russia and Turkmenistan
will produce around 13% between them. It is hardly surprising that
Washington intends to implement the Bush-Nazarbayev Houston initiative
by investing the huge sum of $200 billion in Kazakhstan's raw materials
sector over the next decade.

For the Caspian region countries, the local oil and gas reserves
are strategic riches; for Moscow, they are of interest only at the
strategic level so far. The main consumers of Russian oil and gas are
in Europe, and as yet there are no Caspian hydrocarbons mixed in with
the resources exported to Europe from Eastern Siberia and Russia's
Arctic regions. Hence our efforts to build the Baltic Pipeline System
and expand deliveries in the south - to Turkey and via Bulgaria and
Greece. But the Caspian Shore Pipeline construction agreement is
already inspiring hope that the Kremlin will pay more attention to
the Caspian.

Russia could not only maintain its positions here, but even enhance
them. The Kremlin's strategic interest in developing new fields
coincides with national interests in developing stable, friendly
relations with states in the South Caucasus (Azerbaijan, Armenia,
Georgia) and Central Asia (Kazakhstan and Turkmenistan), as well
as Iran.

At the end of the 20th Century, the Caspian map changed from two
states - the USSR and Iran - to five independent countries: Russia,
Kazakhstan, Turkmenistan, Azerbaijan, and Iran. This confronted them
all with the problem of defining the status of the lake-sea. Until
the Soviet Union's disintegration, the legal regimen here was based
on two treaties between the USSR and Iran (the RSFSR-Persia treaty of
1921 and the USSR-Iran Trade and Navigation treaty of 1940). These
treaties defined the Caspian as off limits to the vessels of other
states. Negotiations aimed at changing this regimen began in the 1990s,
but they are still at an impasse.

To date, a sea floor demarcation agreement has been signed by

three countries: Russia, Kazakhstan, and Azerbaijan. The trilateral
agreement concluded by these countries in May 2003 divided 64% of
the Caspian Sea floor: 27% to Kazakhstan, 19% to Russia, and 18%
to Azerbaijan. The northern agreement participants are prepared to
give Iran no more than what it had before the USSR broke up: 14% of
the shelf. But Iran wants 20%, and insists on moving the border 80
kilometers to the north of the former Soviet border. Then Iran could
claim the Alov, Araz, and Sharg oil fields, which an international
consortium is developing by agreement with Azerbaijan.

Iran's stance has been supported by Turkmenistan, which was ignored by

the three northern coalition countries when they signed their separate
agreement. Turkmenistan is challenging Azerbaijan's rights to the
Sharg, Chirag, and Azeri fields. At the same time, Turkmenistan is also
apprehensive about Iran's claims to its gas reserves. It has taken a
provisional stance, supporting Iran, but seeking to establish a 15-mile
coastal zone under national sovereignty and a 35-mile fishing zone.

Although Azerbaijan's position on sea floor demarcation is close to the

positions of Russia and Kazakhstan, it still proposes to distinguish
between water and airspace, which should be entirely under national
sovereignty. Baku also maintains that laying pipelines along the sea
floor should be the sole prerogative of the country that owns the
territory crossed by the pipeline.

Iran is proposing to allocate 20% of the Caspian to each of the

region's five countries, then using the sea in common, on the
condominium basis, and establishing an Organization of Caspian Shore
States to develop the sea's resources and distribute profits equally.

The Caspian demarcation problem now depends on whether Azerbaijan

and Iran can find a common language with Turkmenistan's new leader,
Gurbanguly Berdymukhammedov, and whether he will accept a compromise
with them, and what kind of terms he would require to sign a
demarcation agreement.

Development of the Caspian's energy capacities and energy resource

exports depends on more than developing oil and gas fields and
establishing the sea borders. The associated problems of hydrocarbon
transport and security have become particularly significant.

Caspian oil is exported via several pipelines. The Baku-Tbilisi-Ceyhan

system has a capacity of over a million barrels a day; according
to some Russian experts, this pipeline owes its existence to
political rather than economic considerations, and the outlook for
it is uncertain. The same applies to the Northern oil pipeline
(Baku-Novorossiysk) and the Western oil pipeline (Baku-Supsa),
with throughput capacities of 100,000 and 115,000 barrels a day
respectively. Kazakhstan and Azerbaijan recently signed an agreement
to transport 10 million tons (733 million barrels) of Kazakhstan's oil
to Baku by barge each year. There is also the Russian Atyrau-Samara
pipeline, starting in Kazakhstan and ending on the Volga. Its
throughput capacity is 300,000 barrels a day, but Russia has promised
to increase this to 500,000 barrels.

A Kazakh-Chinese pipeline is being built to deliver oil to China; its

first part links Kazakhstan's Aktube oil fields with the Atyptau oil
center, already complete. The second part, still under construction,
will run from Atasu (north-western Kazakhstan) to Alashkanou (Xinjiang,
China) and cost around $850 million. Initial throughput will be
200,000 barrels a day, with a maximum of 400,000 barrels.

In December 2002, the governments of Turkmenistan, Afghanistan,

and Pakistan signed a memorandum of intent to build a Central Asian
pipeline that will supply oil from Uzbekistan and Turkmenistan to
Gvadar, Pakistan's port on the Arabian Sea. This project has been
postponed due to continuing instability in Afghanistan.

Overall, most pipeline systems being built from the Caspian either
bypass Russia or run south outside Russia. So it is no coincidence
that the agreement reached by Russia, Turkmenistan, Kazakhstan and
Uzbekistan - on building a Caspian shore pipeline system leading to
Europe via Russia - has caused such a furor abroad. Efforts to cut
off Russia from the Caspian Sea's hydrocarbon riches have failed. And
many do not like this at all.

Presumably, the foreign policy of the United States in the Caspian

region over the next few years will be aimed at achieving several
objectives, including creating conditions that prevent Russia from
controlling and directing the development of various processes to the
detriment of Washington's interests. Those interests include ensuring
guaranteed access for American corporations to the Caspian region's
fuel and energy resources and other resources - especially in light of
uncertainty about the stability of Middle East hydrocarbon resources.

The United States will strive to take advantage of the favorable

military-political conjuncture shaping up in the course of the
anti-terrorist operation in Afghanistan, and to expand its presence
in Central Asia, and to secure additional defense infrastructure
facilities for deploying missile defense elements in Azerbaijan and
Georgia. In addition to the United States, Britain, and Turkey, some
other countries are also developing an increasingly visible presence
in the Caspian region: Germany, China, Saudi Arabia, the United
Arab Emirates, and Japan. It should also be noted that international
corporations control 27% of oil reserves and 40% of gas reserves in
the Caspian - and they do not intend to stop there.

The Georgian-Ossetian conflict (1991-92) and the Georgian-Abkhazian

conflict (1992-93), the war between Armenia and Azerbaijan over
Nagorno-Karabakh, the terrorist wars in the North Caucasus, the
tension in relations between the USA and Iran, the proximity of Iraq -
all this, in addition to the energy interests of various countries,
draws the Caspian region to the attention of the powerful, including
NATO, the CIS Collective Security Treaty Organization, and other
military-political alliances and organizations.

Washington's determination to build up its influence in this

region is understandable. It is seeking to ensure security for the
Baku-Tbilisi-Ceyhan oil pipeline, increase its military presence in the
Caspian, and establish rear bases in the event of a military solution
to the Iran problem. True, Washington is trying not to mention that
option - but it was stated plainly by Reno Harnish, US Ambassador to
Azerbaijan, who told the AFP news agency that Washington has already
spent $30 million on improving Azerbaijan's coastal defenses, and
now intends to spend $135 million on the Caspian Guard Initiative,
aimed at improving the navies of Azerbaijan and Kazakhstan.

According to AFP, the Pentagon has already built headquarters and

two radar stations in Azerbaijan. Moreover, the partnership plan
between Baku and Brussels includes measures to supply Azerbaijan's
Navy and Border Guard Service with modern military hardware. This
was mentioned in a report to the US Congress by General James Jones
from the United States European Command, who said that "the USA has
made great progress with the Caspian Guard Initiative: this program
entails establishing an integrated airspace, maritime, and border
control regime for Azerbaijan and Kazakhstan, and rapid reaction
to any emergencies, including the threat of terrorist attacks on
oil industry infrastructure." In fact, Washington is attempting to
surround Iran with military infrastructure - just in case.

Naturally, Russia wishes to restrain US influence in an area that is

directly adjacent to some of Russia's central regions - the Urals and
the lower Volga. Moscow has well-founded suspicions that the Caspian
Guard Initiative is not aimed against Iran alone, but also against
Russia's national interests. If America's plans are realized, they will
pose a danger to Russia's defense capacities. As an internal lake, the
Caspian Sea has always been Russia's territory and influence zone. The
presence of US military structures on the "internal lake" belonging
to the Caspian shore states is a direct threat to their security
and sovereignty. Apparently, this is why President Vladimir Putin
spoke as he did at the International Conference on Caspian Security
in Astrakhan; he said that "by uniting their efforts, the Caspian
states can resolve all these questions effectively on their own."