Senior thesis

The Caspian Sea as a Commons: Conflict and Cooperation
By: Alex Mette


Previous page: image 1.0 “The Caspian Sea” from: Kitāb Gharāʾib al-funūn wa-mulaḥ al-ʿuyūn' (The Book of Curiosities of the Sciences and Marvels of the Eyes) 11th Century Egyptian manuscript See Mirfendereski, 2001.

Glossary Chapter 1: Introduction • Abstract • Purpose • Thesis • Methodology • Overview Chapter 2: Background • Riparians • International Actors • Interstate Relations Chapter 3: The Caspian • History • Constraints • Location of Oil and Gas

Table of Contents pp. 3 4–5

5 – 10

11 – 12

Chapter 4: Theory • Competition – Cooperation matrix • Discussion • Units of Analysis • Benefits and Obstacles to Cooperation Chapter 5: Caspian Resources • Oil and Gas • Navigation • Fishing • Security

13 – 15

15 – 17

Chapter 6: Pipelines • Theory • Asian Routes • The Iranian 'Option' • Washington and Moscow Chapter 7: The Legal Regime • Legal History • Positions of the five States • The Legal Regime Today • Legal Issues in the Commons Chapter 8: Conclusion • The Future

17 – 20

20 – 26

26 – 28


Ambient – In this context ambient refers to the degree to which a resource is omnipresent. Air and security are both ambient resources. Commons – The commons is any space or resource that is used by multiple actors. An area can be privately owned by several people, states, or organization and still be considered as a commons. The most important point is that all the actors have access to the space. Condominium – Condominium is used here in the legal sense and refers to the definition of rights so that all actors have equal rights in any part of the commons. In other words, condominium is the total absence of property rights. The practical effect of this is that one actor, such as Russia, can legally exploit resources in any portion of the Caspian and the same goes for other states. Delimitation/delineation – In contrast to condominium delimitation or delineation is the use of dividing lines to specify where actors have rights to resources in the commons. This generally follows the practice of extending national borders out into a sea, gulf, territory, etc. Delineation, rather than condominium, is the norm in international law. Fugitive – A fugitive resource is one that does not respect human boundaries or divisions such as air pollution or fish. Hydrocarbon resources – In terms of chemistry a hydrocarbon is a molecule that contains only hydrogen and carbon. Such resources include petroleum, natural gas, methane, butane, etc. In this context it simply means oil and natural gas. Pentalateral – Literally five sided, in this context it means any action or agreement made by all five Caspian states. Regime – This can mean a social system, government, or period of time in which a particular form of management prevails. In the case of the Caspian sea the regime refers to the body of practices and agreements that govern the use of resources in the Caspian Sea. Riparian – One who resides on the bank of a waterway; in this context the five Caspian States: Russia, Iran, Kazakhstan, Turkmenistan, and Azerbaijan, who have sovereign rights over a portion of the Caspian Sea. Rivalrous – Refers to a resource where use by one actor limits use by another. This is generally the case when the resource is fixed in quantity such as a pool of water. Any water that one individual drinks is no longer available to others. A renewable resource is only rivalrous for a fixed period of time. Sui generis – Latin meaning “of its own kind.” Used in the context of the Caspian Sea it means that if the Caspian Sea's status cannot be determined by international law then its status is sui generis and must be determined by the actors based on its unique qualities. Transboundary – A resource that is transboundary is similar to a fugitive resource; both traverse human boundaries but a transboundary resource can be much more broadly defined than a fugitive resource because they can be in a set location or in motion. Transboundary water resources for example are rivers and lakes that either cross or form the borders of two or more states. Other resources such as fish or pollution are transboundary resources in the same sense as fugitive ones.


The Caspian Sea as a Commons: Conflict and Cooperation
Chapter 1. Introduction
Abstract The Caspian Sea contains many resources each of which is unique in terms of how states perceive it and how it is managed. This variability is due to traits of the resources themselves as well as history and politics. This paper outlines a theory of resource cooperation and places it in the context of historical and political events in the Caspian Sea region. The five states of that surround the Caspian are examined alongside other key international actors and four resources: oil and gas, navigation, fishing, and security are examined according to the theory. Purpose The goal of this paper is to understand how states compete and cooperate over resources and to weigh the strength of the theory being explored. Ultimately, the theory can help to provide a way to predict how states will view different resources and whether they will cooperate or compete over them. The Caspian Sea is an excellent case-study due to the fact that the legal regime is simple because it began largely with the breakup of the Soviet Union. The states that surround the Caspian are diverse and have unique relationships with each other and world powers. Also there are many different types of resources in the Caspian many of which are extremely valuable such as Sturgeon and Oil. International attention on the region reflects the Caspian's strategic importance which extends beyond oil and gas resources. Overall this region is very important and will increasingly become a transportation and energy hub as Caspian states and western markets such as India, China, Pakistan, and Indonesia continue to develop. Thesis Resources are subject to varying levels of conflict and cooperation. The extent to which actors (in this case states) compete over resources can be predicted based on their placement within the conflictcooperation matrix. While states always act in their own interest there are some resources that require cooperation in order that all actors maximize their benefits. Conversely, when individuals act in their own interest without regard for aspects of communal property that require coordination the effect can be the destruction of the environment or premature exhaustion of the resource. While this result harms all parties in the long-run, often individuals seek to exploit a resource to the greatest extent possible. This is due to the perception that the individual should try to gain as much as possible as quickly as possible before others deplete the resource and to the rational view that money today is worth more than money ten years from now. Ultimately, cooperation is the preferred outcome for all actors because coordination allows for the maximum yield in the long-run for renewable resources and allows for stability and clearly defined rights more generally. In this sense, the question of cooperation becomes one of compromise. When a state is unable to ensure the ideal outcome of negotiations it must compromise in order to secure rights or benefits. States' willingness to make compromises over resources is a product of their bargaining leverage as well as a preference for stability and clearly-defined rights. No state benefits if resources sit in the ground untapped because of disagreement. Methodology The theory of resource cooperation is based off the notion of a public good. A Punnett Square is built that includes values of public, private, good, and pool types of resources. A value of cooperation is assigned to different resources based on their location in the square. Then resources of the Caspian are categorized and examined according to this model and finally the ordering is compared to empirical evidence. The importance of looking at these resources in their context in the world is paramount. The theory itself is far too simple to explain how states will act regarding different resources but it does provide a basis for comparing states' interactions. The difficulty though is to balance the complex 4

histories and relations of the five Caspian States, as well as international and non-state actors with a theory of resource cooperation that can shed some light on whether some resources are more contentious than others and why. Overview The paper will begin with the history of the region and the Caspian states in order to understand each state's motives as well as the nature of their interactions with one another. Next, the Caspian Sea itself will be discussed to help with understanding of the multifaceted nature of this area. The theory of resource cooperation is presented in the next section followed by an examination of the Caspian Sea's resources within this framework. Finally, I will look at pipelines as a counterexample to the theory, and at the legal regime which serves as a medium through which negotiations occur. 1. Background 2. The Caspian Sea 3. Theory: Cooperation 4. Caspian Resources 5. Pipelines 6. Legal Regime

Chapter 2: Background
The Caspian Sea is the largest inland body of water and a remnant of the ocean that once covered Asia. It lies to the east of the Black Sea and to the west of the Aral. Politically it is surrounded by Iran, Russia, Kazakhstan, Turkmenistan, and Azerbaijan. Fig. 1.2 Political Map1 These 5 states surround a vast commons called the Caspian Sea, within which are quantities of oil comparable to those of Africa, Central and South America, or Asia and Oceania,2 as well as numerous varieties of Sturgeon that produce high quality caviar including the famed Beluga Sturgeon. Oil in the Caspian Sea region has an extensive history, dating back to almost three centuries3. Zoroaster is said to have traveled to Baku, capital of Azerbaijan in around 1000 BC to witness the phenomenon.4 In the early 19th Century the Nobels of Switzerland and the Rothschilds of France invested in Baku's oil resources.5 Each state in the Caspian has a unique history and though some share more than others each has high ambitions for the Caspian region. It has repeatedly been termed a “Sea of peace of friendship” and organizations such as the Caspian Economic Community and the Caspian Environment Programme are signs of a cooperative approach to the sea. Furthermore, the Caspian has great significance to each country in different ways and has played a key role in the changing political scene following the breakup of the USSR. For the three Former Soviet Republics (FSU) the Caspian is a way to achieve independence from Moscow. What is most remarkable is the balancing of the US and Russian positions vis-a-vis the Caspian region as their interests collide around the governments of oil and gas rich states. For Russia and Iran there was the common enemy of the United States who backed the new governments and supported private ownership of oil and gas resources. However, the way that Moscow and Tehran dealt with the US presence shows how different their positions are.

2 3 4 5 Rabinowitz, 29. Gokay, 3. Ibid, 3. Bahgat, 2007, 158.


Riparians Any theory that seeks to explain behavior on a state-wide level must provide context so that the strength of the theory can be weighed against other factors that could explain a state's actions. The five Caspian states are unique as independent entities and in their relationships with each other and international corporations and governments. To understand why the past two decades unfolded as they did we must first examine the states themselves. Azerbaijan Azerbaijan had the most developed oil infrastructure of the 3 FSU (Former Soviet Union) republics and sought to ensure that foreign companies would invest in their energy industry. The need for capital was apparent as the USSR had neglected the area, not for lack of oil, but to focus on the Siberian provinces. Furthermore, oil in the Caspian Sea is technology and capital intensive due to its great depth. Foreign capital and expertise were essential in Azerbaijan's view to develop the economy and to ensure independence from Moscow. Conflict in Nagorno-Karabakh continues as Azerbaijan protests territory taken by Armenia during the war that broke out in 1988. Following the end of Soviet control, war between Azerbaijan and Armenia in the contested region worsened and the province would ultimately become autonomous. Russia is accused of supporting Armenia during this conflict and even of attempting to overthrow Heydar Aliev, President of Azerbaijan (1993-2003) in 1995. Others hold that Aliev himself orchestrated the failed coup in order to eliminate opposition.6 Heydar Aliev built a centralized government that made him a virtual dictator. His son, and current president Ilham Aliev, inherited a legacy of electoral manipulation, control of the media, absence of competing political parties, and a state-owned oil company that has funded Azerbaijan's military growth in recent years. Western support of the Aliev regime(s,) especially through investment in the oil industry ensures that human rights and political and economic development are subservient to the stability of the government. Azerbaijan has an immense history with oil and focuses much of its attention on the Caspian region. Conflict with Armenia drained economic resources and the support of the west was crucial to secure foreign capital to develop oil and gas and to counterbalance the Kremlin's support of Armenia. The government in Baku embraces western investment wholeheartedly with favorable laws and contracts with state-run industries. Azerbaijan has aggressively defined itself as pro-west and used the support of the US to influence outcomes in the Caspian. Turkmenistan Saparmurad Niyazov became head of the communist party of Turkmenistan in 1986 and ruled the country for two decades. Like many in Turkmenistan, he was opposed to the dissolution of the Soviet Union and supported the coup against Gorbachav in August 1991.7 Turkmenistan was one of the least developed of the Soviet republics and its economy was heavily dependent on the Soviet Union. Support for a referendum to remain part of the USSR was overwhelming in 1991. The government of Turkmenistan reverted back to the Soviet-period central authority after independence was declared. Democratic reforms were reversed and communist ideology was swapped for nationalism. Niyazov himself created an extensive personality cult whose grandiosity overshadowed much of the politics of the time. He changed his name to Turkmenbashi (head of all Turkmen) and cities, streets, and schools were named after him. After September 11th Turkmenistan gained considerable strategic significance as a base for US forces operating in Afghanistan. Turkmenistan's oil and gas industry is composed of four, largely state6 Dekmeijan, 62. 7 Ibid, 68.


run companies. While gas reserves in Turkmenistan place it in a position to become one of the world's top producers, development is limited by corruption and the opaqueness of the Turkmen government. Dependence on Russia as a market limits Turkmenistan's ability to achieve consistent economic growth.8 Kazakhstan Kazakhstan is the largest FSU country and home to a population of 45% ethnic Kazakh. The large number of Russian's in Kazakhstan led many to fear the possibility of a north-south divide. The government is held together by the singular rule of Nursultan Nazerbayev. Like Niyazov, Nazerbayev was a communist-era ruler who changed his title with the fall of the USSR. Since then, the Kazakh president has prevented any political opposition and controlled the energy sector through the stateowned oil company. Nazerbayev has been criticized internationally for his record of electoral fraud, his rewriting of laws to allow him to serve as president for life, and for the high levels of corruption among the political elite. Ethnic diversity and tribal affiliations in Kazakhstan led Nazerbayev to institute a policy of Kazakhization that placed ethnic Kazakh in the government, promoted the Kazakh language, and encouraged the return of ethnic Kazakh from Mongolia and China. Kazakhstan is a vast country with significant hydrocarbon resources especially in the Caspian region. They are an active party in negotiations and scientific exploration of the Caspian and Nazarbayev skillfully balances the forces of ethnicity and competing international pressures to maintain Kazakhstan's role as a peaceful nation with multiple allegiances. The main drawbacks of Kazakhstan's position are extensive corruption and a lack of broad development, this approach is only amplified by large quantities of oil and gas that ensure incoming foreign cash. Iran The defining historical event to change Iran in the last 50 years is the Islamic Revolution of 1979. After the Pahlavi dynasty was overthrown, Iran's government became an Islamic theocracy dominated by conservative religious clerics. Control of Iran's armed forces, power to select top judicial positions, and the ability to veto presidential candidates are all given to the faqih. Politically, conservative religious leaders in Iran have prevented significant reforms and control key industries. President Khatami (1997-2005) sought to reform Iran's political system but was stifled by the conservative opposition. Today, Mahmoud Ahmadinejad espouses a conservative view aimed at bringing Iran back to a position of prestige in the international community. Iran's economy faces many barriers to the development of oil and gas in the Caspian Sea. Staterun monopolies called the Bonyad-e Mostazafin dominate and stifle private sector growth. Corruption and mismanagement coupled with a costly war in the 1990's, falling oil prices, and a US embargo have all impacted Iran economically.9 The US seeks to further alienate Iran and to prevent their involvement in deals over oil in the Caspian. Iran's ability to promote its views on the legal regime, pipeline routes, and to enter contracts is checked by US influence in the region. Further, Iran's relationship with Russia is seen to change based on the strategic interests of Moscow. Iran sought to improve diplomatic relations with Azerbaijan after 1991, capitalizing on the dominant Shiite population and historical ties to the country. This move angered Moscow who opposed the Azeri government's western leanings. When the US successfully prevented Iran from entering the “contract of the century” in 1994 they reverted to the “Russian” position of condemning such contracts as illegal. Iran sees the Caspian as its historical and political domain and there is extreme pressure inside Iran for a good outcome to the past two decades of political turmoil. Some in Iran say that they could have negotiated for half of the Caspian and now the 20% they claim as Iranian is in question. The pressure to gain ownership of oil and gas in Iran despite the conventions of division in international law
8 Ibid, 71. 9 Dekmeijan, 50.


has little space to move given the US presence in the Caspian and Washington's desire to isolate Tehran. Russia Russia is the most powerful Caspian state and the most influential actor in the region. The overarching Russian policy in the Caspian has evolved from a view towards maintaining economic dominance over, and political alignment with, the FSU countries in Central Asia. The post-Soviet period for Russia was defined by reform of the economy and the adoption of free market principles as well as the need to balance the newly independent republics against the center polis. Ethnic conflict arose as new republics gained independence from Moscow. Others, namely Chechnya and Tatarstan, rejected the new provision of autonomous regions, republics, and districts that gave greater sovereignty to large regions of the FSU. Russia faced the need to develop a new state structure that maintained the power of the federation. Two wars in Chechnya, terrorist attacks on Russian soil by Islamic Radicals, and conflicts in the Caucuses led to the rise of Vladimir Putin and the military intelligence paradigm that dominates Russian politics today. Putin's hardline stance on Chechnya won him favor and he has demonstrated his ability to make key reforms and alter his position as part of the policy of “constructive engagement.” Russia's energy sector is its largest hard currency earner with $22.8 billion in 1998.10 The energy industry is dominated by large privatized monopolies especially Lukoil and Gazprom. Russia also controls the vast majority of oil and gas pipelines in the region. In the past, all Caspian pipelines passed through Russia, many terminating at the Black Sea port of Novoroiisk. International actors The United States The US sees the Caspian Sea as a means of improving energy security. Interestingly, following the oil embargo in 1973 Russia was increasingly viewed as a potential source of oil. Today the US supports any move that will bypass Russia and Iran and limit Europe's dependence on Russian gas. In the Caspian, Russia is the major opponent of the US' presence as well as a major partner. The US supported Azerbaijan in its claim for oil off its coastline and EIA figures of oil and gas reserves in the Caspian sought to promote development of the region.11 US ties with Kazakhstan and Turkmenistan are especially crucial due to their strategic importance in the war in Afghanistan. The US seeks to alienate Iran from any agreement over the Caspian and prevented Iran from participating in the “deal of the century.” Furthermore, the US government refused to allow a pipeline through Iran that was supported by US oil companies.12 Turkey Turkey is connected with the Caspian Sea for two main reasons. One, Turkey seeks to improve its position strategically by building relations with Central Asian countries many of whom speak Turkic languages and share cultural traits with Turkey. Second, Turkey is geopolitically located to serve as an energy bridge from Asia to Europe. Before the construction of the Baku-Tblisi-Ceyhan (BTC) pipeline all of the pipelines leaving the Caspian Sea terminated in the Black Sea. Much of the oil and gas that arrives in the Black Sea passes through the crowded Bosporus straits before entering the Mediterranean. Today the BTC carries oil through Turkey directly to the Mediterranean port of Ceyhan. Russian control over pipelines was demonstrated when supplies were cut off to the Ukraine and many EU countries faced shortages. This Russian dominance coupled with Turkey's growing
10 Ibid, 47 11 Bahgat, 2003, 312. 12 Ibid, 315.


demand for natural gas has led to increasing attention on the NATO country. Interstate Relations Conflict over resources of the Caspian Sea centers around ownership of oil and gas. For the most part, these disputes manifest in disagreements over the legal definition of the Caspian but are in essence disputes over oil fields. Conversely, areas of cooperation are limited mainly to the environment, navigation, security, and transportation. Caspian states' interactions regarding these resources are built around complex political situations that define how states perceive each other and how they define themselves but also by traits of the resources specifically. Azerbaijan Azerbaijan was instrumental in defining the Caspian legal regime in opposition to the Russian view. Azerbaijan's desire to develop its oil resources coupled with Russian support of Armenia in the Nagorno-Karabakh conflict meant that western support politically and financially was crucial to ensure independence from Moscow and to finance the war in the west. The US strongly supported Azerbaijan's view that the Caspian be managed on the basis of delimitation13 and this claim would have carried very little weight if not for western interest in the region. Tension between Moscow and Washington was apparently reignited over oil in Azerbaijan and the implications of “foreign” companies developing oil in the Caspian Sea. Azerbaijan's alignment with the west had implications for Iran as well, as Tehran's effort to forge bonds based on the common Shiite Islam religion and ethnic Tajik in Azerbaijan gave way to the more practical strategic alliance with Moscow.14 Western backing of Azerbaijan meant that Iran was unable to gain shareholder status in any deals with Azerbaijan and prevented any future pipelines from passing through Iranian territory. For Russia, despite its greater power in the region, their inability to control oil resources throughout the Caspian meant that a shift in policy was necessary. Kazakhstan Kazakhstan maintains cooperative relations with Russia in terms of jointly-developed oil fields and in the establishment of boundaries. Initially, Kazakhstan was vocal about the use of UNCLOS as a means of defining the Caspian Sea. Russia responded with a letter to the UN that stressed the illegality of any agreements over resources in the Caspian and the potential consequences in so doing.15 However, Kazakhstan's position is one of cooperation with its neighbor. Unlike Azerbaijan who stressed the importance of American political support in completing the BTC pipeline,16 Kazakhstan has sought to maintain ties with Russia by exporting oil through Russian pipelines, developing fields jointly, and with Russian development of Kazakh oil fields. Russia Despite acquiescence to US involvement in the Caspian, Russia remains the dominant military and political power in the region. Following the breakup of the Soviet Union, many countries were faced with the choice of a Russian security guarantee in exchange for economic dominance. Azerbaijan is the only FSU republic on the Caspian to reject that military presence. Russia's role in conflict resolution in Central Asia and the Caucuses is evidence of its power in the region and its determined stand to check US influence.17 Russia has several means of influencing energy policies in the region including as an
13 14 15 16 17 Mehdiyoun, 184. Gokay, 31. UN doc. A/49/475 Bahgat, 2007, 166. Bahgat, 2002, 315.


investor in projects, as a transit country, as a competitor, and as a market. Russia has strategic and economic leverage in the Caspian and its political options are cheaper than those of the US.18 However, Russian policy has shifted from a primarily strategic focus to one driven by pragmatism and constructive engagement. Turkmenistan In the case of Turkmenistan, Russia was able to ensure the bulk of Turkmenistan's gas sales would be to Russia.19 Historically Turkmenistan has maintained cooperative relations with Russia and energy agreements between Ashgabat and Moscow show Turkmenistan's willingness to make concessions to appease Russian aggression. However, Turkmenistan has built a network of relationships that, if not successful in countering Russian dominance in the region, do show Ashgabat's ability to balance their relationships with Moscow, Tehran, and Washington. In recent years Turkmenistan shows an increasing desire to diversify its export options away from Russian control. The north-south corridor is an example of cooperation between Turkmenistan and its southern neighbor Iran who can provide the nation with access to the Persian Gulf. Iran Iran has been cautious towards Moscow since 1991. Before that time, Tehran and Moscow were united by strategic interests. In the aftermath of the Soviet Union, Iran sought to expand its strategic reach while cautiously testing Moscow. An attempted alliance with Azerbaijan soon failed and Iran's desire, above all else, not to provoke Moscow was apparent. Russian military superiority in the region means Iran feels strongly about the benefits of preventing the militarization of the Caspian. Iran initially found much comfort in its shared view with Moscow over the legal regime of the Caspian. When Tehran found itself outside of agreement that included the US and Russia the reality of their relationship with Moscow as strictly strategic, was clear. The United States Following the breakup of the Soviet Union the US position was one of caution. In the years after 1991 US interests were strictly economic and focused solely on oil.20 Moscow still controlled the situation and the US and American companies deferred to the Russian government regarding oil and gas. BP and Statoil negotiated with Moscow pre-1991 and even after 1991 companies such as ExxonMobil, Ramco, and Turkish oil firms negotiated with the Russian government. However, as foreign firms secured contracts with Azerbaijan and Kazakhstan Russian cooperation seemed inevitable, if not reluctant. As the US' cautious approach to Caspian politics yielded to the success of several ventures in the region that included the participation of Russia, political and economic interests clashed over conflict in Armenia. Just as western interest seemed to be congealing around Baku, the war with Armenia became a public issue for Americans who witnessed US cooperation with a regime responsible for denying Armenians energy supplies. Support for US policy is shaped overwhelmingly by its desire to expand its oil and gas supplies and to limit Russian and Iranian influence in the region. This frequently takes the form of supporting stable, pro-US governments in the FSU republics who are corrupt and undemocratic.

18 Ibid, 316. 19 Bahgat, 2007, 161. 20 Gokay, 28.


Chapter 3: The Caspian
The groundwork for a theory of interstate cooperation and conflict is the historical context and some basic understanding of the character of the states. The Caspian Sea is surrounded by diverse nations each with their own view of the future of the region. Furthermore, countries like the US and China also have interests in the oil and gas resources in the Caspian. The Caspian region is strategically located between East and West. As markets in the West grow, the Caspian will increasingly become host to a convergence of interests. It is already apparent that states such as Kazakhstan and Turkmenistan are engaged in a balancing act between different powers and as their options to the west expand more actors and more interests are likely to enter the Caspian scene. History The Caspian Sea has seen many empires, from Darius to Nicolas and today, following the end of the Soviet Union, has returned to a place of prominence in world politics. What Mirfendereski termed at one point a “Russian Lake” is now surrounded by five countries.21 Over the last 200 years control of the Caspian has swayed from Russian hands and we are witness to Russia's dynamism as well as its continuity. The most important international treaties on the Caspian Sea of the 19th and 20th centuries are the 1813 Treaty of Golestan that gave Russia the exclusive right to a navy on the Caspian22 the 1921 Friendship Treaty that granted Iran navigation rights and arose out of Russia's need to ensure the exclusivity of rights to the Caspian preceding the First World War, and the 1940 Commerce and Navigation Treaty that broadened Iran's rights to include freedom of commerce on the Caspian waters.23 When the FSU republics gained independence from the USSR in 1991, the number of states surrounding the Caspian increased and more importantly allowed the new republics access to world markets. From the perspective of the oil company, negotiations began before the fall of the Iron Curtain as the “deal of the century” was now truly underway. The battle to define the Caspian as either commonly owned or divided into state sectors was the main impediment to cooperation around other issues. Scholars saw rivalries between Moscow and Washington manifest in a discussion over whether the Caspian was in fact a “sea” and the situation was deemed “the new great game” in reference to the international attention and strategic considerations the region received. Over time the situation became more clear not just in the strategic sense but legally. By 1994 there was no question whether the Caspian would be managed communally and issues such as declining fish stocks, a seal die-off, oil pollution, sea-level rise, and desertification all led to the creation of the Caspian Environment Programme and the signing of the first Caspian-wide agreement that same year.24 In this way, different elements of what today make up the Caspian regime were addressed separately during the last two decades. Navigation, fishing, oil and gas, and security as well as any number of other issues present in the Caspian are subject to different types of management by the actors as well as corresponding levels of cooperation and competition.

21 22 23 24

Mirfendereski, 2001. Gokay, 56. See Mirfendereski, 2001. Lee, 41.


The Role of Constraints Fig. 1.3 Oil and Gas Resources in the Caspian25 Conditions, both historical and geological, led to the very different positions of some of the Caspian states. In terms of history, the most important elements of the Caspian states' relations are Russia's legacy of domination of the region, Iran's historical ambitions and inflexible position, and the three FSU Republics who are building foreign partnerships and developing independent economies. The political and economic conditions of the Caspian states are a product of their histories but the way they seek to go forward means an interaction between what is given and what varies. A theory is a guess at what breaches the determinism of history and geography. The theory of resource cooperation in the Caspian Sea is about how states view different resources and how they cooperate over them. In the Caspian there are fish, there are seas to navigate, there is security, and there is oil. How the states view these various components of the broader commons is related to the resources themselves as well as their positions politically and economically. Therefore, it is necessary to understand how states view resources based on givens such as history or geography as much as it is important to understand the resources analytically. Location of Oil and Gas Resources A quick look at the location of oil and gas resources in the Caspian helps show how this given variable led to certain states' legal positions in the early stages of the legal regime debate. As oil and gas are only resource being examined in this paper that are fixed in location it is important to see how geography and politics collide in this case. Oil and gas resources are located throughout the Caspian Sea primarily in the southern and eastern portions. Concentrations of oil are found on a rift that extends from Azerbaijan in the west to Turkmenistan in the east. These fields are the most developed in the Caspian and the most contentious among the three southern Caspian states. In the north oil and gas fields are located offshore of Kazakhstan above the Garabogazkol and in the northwest portion of the Caspian. Most of these resources lie offshore of Kazakhstan. This development, that Kazakhstan, Turkmenistan, and Azerbaijan would inherit the bulk of hydrocarbon resources in the Caspian following the breakup of the Soviet Union has led to the unique character of the post-Soviet history around the Caspian. Simply put, the states with the most political power ended up with the least amount of resources. This led to two opposing views about how to define the Caspian Sea and resulted in competition between Caspian states and international powers over control of oil and gas. The theory of resource cooperation is about analyzing how states manage resources based on their unique traits as well as why some resources are more cooperative than others. To do so a theory of cooperation will be explained and resources in the Caspian are framed within it. Understanding how states compete over resources means analyzing the resources themselves as well as states' abilities to influence desired outcomes.

25 Source: 12

Chapter 4: Theory
The Tragedy of the Commons The Tragedy of the Commons is a simple model of behavior first identified by a British mathematician in the early 19th century. In England, pastures were shared by many shepherds who grazed their flocks over any part of the land. He held that because people act in their own interest, each shepherd saw himself benefiting from more sheep. “Each new sheep,” thought the shepherd, “means more wool, more meat, and more money.” However, because every shepherd thinks this way, soon there are far too many sheep and the pasture is overgrazed. Economically speaking, the problem is not that the individuals are pursuing their “rational self-interest,” but that they fail to maximize their benefits in the long-run because of poor coordination. How do you solve the tragedy of the commons? The most frequent answer is to divide the land. The Caspian Sea as a Commons The commons can be anything: area in space or time, knowledge, rights and law but in economic terms it is related to property (space and time,) and benefits. Coase discussed private and social costs and found that it is possible to balance “costs of production” with private ownership.26 The basis of the theory behind categorizing resources deals with the intersection of public and private ownership. The Caspian Sea as a commons means separately analyzing each resource found in, under, on, and above the waters of the Caspian and comparing it to a public good. In this way it is possible to examine how specific resources are defined and competed/cooperated over. The essential qualities of a public good are that they are unlimited in quantity and available to all. These goods are the easiest to cooperate over because they are non-rivalrous in their use, meaning that use by one does not limit or prevent use by another. Conversely a good that is private in ownership and static in quantity is the most competed over of goods considered within this framework. The nature of goods as common-pool, public good, etc. plays a key role in “determining the outcome of mutual use of a common resource.”27 Competition – Cooperation Matrix Competition over resources increases with the degree to which those resources are excludable and/or rivalrous. The relationship is demonstrated by the following matrix and a discussion of the ordering of cooperative vs. competitive resources follows. Figure 1.1 competition and cooperation matrix Competition and Cooperation Rivalrous Non-rivalrous (X) (∞) xª ∞ª Excludable

Private pool

(xº, xª)

Private good (∞ª, xº) Public(common) good (∞ª, ∞ º)


X is a limited quantity ∞ is infinite or renewable

Public(common) pool (xª, ∞ º)

xº (private) Excludable, means one can be excluded from use of a resource ∞º (public) Non-excludable means one cannot be excluded from use of a resource xª (pool) Rivalrous, means use by one party limits use by another
26 “The Problem of Social Cost” RH Coase, 1960. Journal of Law and Economics. v.3. Oct. 27 Apesteguia, 2006.


∞ª: (good) Non-rivalrous, means use by one party does not limit use by another (xº, xª) private pool means that use by the public is regulated by its owner(s) and use of that good permanently limits its availability to others. Ex. oil, gas, money, food, gold (∞ª, xº) private good is one in which use by the public is regulated and where its use by one party does not limit its availability to others. Ex. electricity, communication, transportation (xª, ∞ º) public or common pool means that a limited or rivalrous amount of a resource is open to all. Ex. fish, a pool of water, trees, oxygen (∞ª, ∞ º) public good is one in which use is open and unrestricable and use by one party does not limit availability to others Ex. peace, radio signals, knowledge In order of prevalence of cooperation: 1. Public Good 2. Private Good 3. Common Pool 4. Private Pool Discussion A Punnett square does not tell us how to distinguish between the two middle values. The two extremes are clear, a public good is the most cooperative while a private pool resource is the most competitive. Pivate pool resources are rivalrous in terms of use and can be privately owned. Therefore, actors see the best outcome as private ownership of the resource. Public goods so defined are completely absent of competition; they are freely available to all regardless of how much one uses it. Understanding the ordering of private goods and common pool resources requires some discussion of the values on which those categories are based. A pool resource is a fixed quantity whose value is determined by the actors based on a limited length of time. A gas field is understood to be worth so many millions of dollars for the time it will take to extract and export them to market. A good is either limitless or renewable so that it is limitless in the long-run. This means that cooperation is essential for renewable resources such as fish and natural in resources that are limitless, such as air. The crucial distinction in whether a resource is public or private depends primarily on whether it is possible to exclude others from the use of the resource rather than who actually owns it. Colonel Kamal Mahmudzadeh, illustrates this in the “Shenakht-e darya-ye mazandaran”28 who wrote of the Astara-Hassanqoli line established between Iran and the USSR in May 1957 and how it is crossed by “planks and driftwood, stray boats that have lost their mooring, and the precious caviar fish that come to spawn in our rivers but end up in the net of Iranian fishermen.”29 It is possible to divide some resources and to specify who owns them or which territory is theirs but there are many levels on which different resources are present. Units of Analysis In the case of the Caspian Sea, the surface waters, the water itself, and the seabed represent distinct units of analysis as their respective resources vary considerably. Oil and gas are present in the seabed of the Caspian and are the most controversial. Fish, as well as pollution and rising sea levels represent public goods and bads respectively all of which are present in the water. Finally, the surface and the air 28 “The Survey of the Caspian Sea” Colonel Kamal Mahmudzadeh, 1971. From Mirfendereski, p. 177. 29 Mirfendereski 2001. 14

above the sea represent a facet of the Caspian that acts as a commons in which navigation, trade, and security are the resources. Benefits and Obstacles to Cooperation An agreement between the five Caspian States would encourage investment and promote greater usage of the resources beneath the Caspian Sea.30 This notion of cooperation as a key component to maximizing the benefits of all involved players is demonstrated in the literature regarding public goods and common pool resources, especially in public goods games.31 The success, in theory, of the Caspian states in creating agreement around environmental issues, navigation rights, fishing rights, and the exclusive use of the Caspian by the five littorals all reflect the mutual interests of the involved parties and their willingness to create regimes for cooperation in the use of Caspian resources and promoting peace in the area. The legal status of the Caspian and the fundamental differences expressed by the designation of the Caspian as a 'sea' or a 'lake' continues, as they have since the disintegration of the USSR, to hinder the formation of a comprehensive governing body for the Caspian Sea and all of its elements.

Chapter 5: Caspian Resources
Oil and gas: “private-pool” resources Oil and gas are considered private pool resources because they can be privately owned and use by one actor limits use by another. This is because there is fixed amount of the oil in a given field and each actor perceives that whenever another actor benefits from that oil there is less available for them to benefit from. Cooperation is not likely in the case of private pool resources because the main concern of actors is how to gain ownership over the resource so that they alone can benefit. It is important to remember that just because a resource is fixed in quantity it does not necessarily have to be owned by one state. In practice, states such as Russian and Kazakhstan jointly operate several oil fields and the fact that it is possible for anyone to own the resource means that states can be clear about how much each actor benefits. Private ownership should not be considered solely as to whether a resource can be owned, as is so important in other public resources, but as to why states choose to limit ownership over resources when it is possible. To answer this we need go no further than Coase, his theorem states that when property rights are defined and transactions costs are zero two or more actors can reach economic equilibrium regardless of the the initial distribution of resources.32 This means that when states know who owns what and can compensate each other for the difference both states maximize their benefits. However, states' preference for unilateral ownership is evident in that the only fields in the Caspian that are jointly managed are fields that lie on the median line between Russia and Kazakhstan. This means that division is a possibility but not preferable to ownership by a single state. The reason that Kazakhstan and Russia are able to jointly manage oilfields is the same reason that states generally prefer to own those resources themselves: ownership means benefits and the desire to own resources is based on whether that resource can be owned as well as whether there is an incentive to do so. Navigation: “private good” Navigation means access to the surface waters of the Caspian and refers to many activities such as ocean commerce (primarily fishing and trade,) as well as security, scientific missions, personal sea30 Bahgat, 2002 31 Bischoff, 2005 32 Coase, 1960.


faring, etc. The first element of navigation in the theory is that it is private. This means that it is possible to determine who is allowed to navigate the Caspian. The most fundamental legal agreements in the Caspian specify that the five Caspian states, and only those states have the right to navigate the Caspian. Further, we know that states have sovereignty over coastal waters and that governments issue permits that allow navigation. While it is not always possible to enforce navigation rights on a small scale navigation is subject to a management regime in which ownership is controllable. Whether navigation is a good or a pool resource is a distinction that is made according to degrees. In a relatively large area such as the Caspian one more boat navigating the sea's surface does not mean one less for another actor. This is the element of rivalry that determines whether a resource is a good or a pool. Even though there is a fixed amount of space for boats to occupy there is no reason to try to discourage others doing the same because the two parties do not interfere with each other. Fish: “public pool” resource Fishing is the quintessential example of a common pool resource and has long had an important role in the discourse surrounding public goods and its branches. The Caspian Sea is the only natural habitat of the Sturgeon on which the export sector relies for harvesting and selling caviar.33 Sturgeon in the Caspian Sea may be defined as a 'fugitive' or 'ambient' resource34 in that they ignore human boundaries and are present throughout the Caspian Sea. Sturgeon are limited only to the boundaries of the Caspian Sea itself and can move freely throughout its waters. Any delineation of the Caspian will not impact the distribution of Sturgeon and therefore cooperation regarding this resource must take place on a Caspian-wide level. The resource is managed communally by the Caspian States, employing regulatory regimes made up of rights to use, areas of exclusive rights, quotas, enforcement agencies, etc. in order to maximize benefits for all involved parties and prevent destruction of the environment. In the case of any renewable resource the most important point to consider is the time-frame in the use of the resource. The quantity of fish is only fixed for a given period of time. In the long-run the fish will replenish themselves so that they are infinite. The Tragedy of the Commons illustrates what happens when actors fail to limit their use to a sufficient degree as to allow the resource to reproduce. Cooperation, in other words, means the difference between a fixed quantity and an infinite quantity in the long-run. The difficulty in limiting the catch of fish is due to the fact that fish are public resources. Any regime that manages a renewable resource is composed of some means of limiting the catch along with enforcement agencies. Public resources in the purest sense are those that cannot be restrictive in terms of use like peace and security. A resource that needs to be managed as a renewable one requires a concept of ownership and actors attempt to define rights to use and to enforce those rights regarding these resources. This is evident in licensing and the use of quotas but enforcement becomes less a possibility as the size of the resource and the degree to which it is ambient or omnipresent increases. As overfishing, pollution, and damming rivers that sturgeon spawn in increase, catches are decreasing and Caspian states recognize the need to cooperate to ensure the stability of the fish stock. One of the main problems states face is illegal fishing which increases as legal fishing is limited by governments. The ability to enforce regulations on fishing in the Caspian is limited by how widespread of an area fishing takes place and the huge number of people who are able to fish.

33 Bahgat 2002. 34 Dellapenna 2007 16

Security: public good Security is the most widely cited example of a pure public good35 because it illustrates the idea of a resource that is available to all where one party benefiting does not limit another's ability to benefit at the same time. Security, like most public goods, is an abstract idea rather than a resource in the conventional sense. The only “resource” that it is a pure public good is air but peace and security, when they are present, are like air in terms of this model; they are omnipresent and infinite. However, when security is concretized it entails military, intelligence, and logistical agencies that are basically state-centered and non-cooperative. When all states see security as the best possibility the only question is: who owns the means of security? In the Caspian Sea Russia does, though Iran also has significant naval power and Kazakhstan and Turkmenistan continue to develop their own navies. Development of the Caspian states' naval capabilities is not necessarily a sign of lack of cooperation rather states seek to develop their own capacity following the history of Russian domination. The cooperative approach that the Caspian states have and the prevailing view that “peace and friendship” are the desired outcomes means that security apparatuses can be coordinated to address transboundary issues such as illegal poaching and to enforce laws about shipping and navigation. Cooperation in terms of security in the broadest sense allows states to coordinate their forces to maintain security and enforce legal agreement in other areas. Conclusion: Caspian Resources The four resources examined under the resource cooperation theory are oil and gas, navigation, fishing, and security. While these goods are subject to an array of political considerations the underlying nature of them determines how they will be managed by the involved parties. Oil and gas ownership is private and actors compete to own these static resources. They are the main point of contention in concluding comprehensive legal rulings in the Caspian. Rights to navigation are defined by general principles of international law36 and states agree that all of the Caspian states have the right to free navigation.37 In terms of fishing the Caspian states agree that issues of sustainability need to be addressed by the government but the lack of clearly defined rights hinges on agreement about delimitation of the sea.38 Security is the preference of all the Caspian states but opinions do differ on the extent to which the Sea should become militarized and the fear of the preeminence of Russian naval power. The best way to see the theory being presented is to understand the basic context that states operate in and to examine the resources in question from an analytic perspective. To understand the resource cooperation theory it is necessary to see it at its most essential but also to see how on the other end politics can be the most important determinant of how resources are managed. To see this we look at oil and gas pipelines in the Caspian Sea region.

Chapter 6: Pipelines
Pipelines serve to highlight the ways in which political and economic imperatives can outweigh any tendency towards cooperation that states may have. The theory itself is limited in that it can show how resources are managed differently according to their nature but it cannot explain why negotiations take the form they do, why some states benefit more than others, or when issues will be resolved. Pipelines show how overarching ideas about economic benefit are shaped by the politics of the day and how often resources are made private when it is possible to do so instead of being managed cooperatively. 35 Soderbaum, Fredrik. "Public Goods and the Public Good." UN Chronicle 3 (2005): 39+.
36 Caspian Environment Programme, Transboundary Diagnostic Analysis part 2, pp. 41. (CEP) 37 25 point declaration 38 CEP, pp. 42.


Theory Pipelines are a key element of the value of oil and gas resources. They also traverse international boundaries and create an upstream-downstream dynamic similar to that of rivers. Politics of rivers are defined by the extent to which individual states have rights to the water. The relationship is made up of two extremes: The Harmon Doctrine, or the doctrine of absolute territorial sovereignty which is often employed by upstream riparians.39 holds that a state can do whatever it pleases to water within its own political boundaries.40 The doctrine of absolute territorial integrity, usually cited by downstream riparians41 says that states have a right to uninterrupted river discharge from the upstream state.42 The underlying theories of upstream-downstream relations are the same regarding pipelines. The difference is in how the owners of pipelines, private or state-owned companies, view their property in the context of interstate relations. Concentration of interests: Oil and Gas Pipelines figure 1.4 Companies such as the BTC Pipeline Company define the situation in legal terms as one in which they exercise absolute sovereignty over the pipeline in terms of ownership. In terms of cooperation between “host states” intergovernmental agreements (IGA's) are made between the company and the governments and establish the obligation of the involved states on the basis of international law.43 Land is purchased from locals and the pipeline is monitored by private forces that cooperate with state and local security forces.44 Community-Liaison Officers are responsible for coordinating the operations of the pipeline company with local populations and security forces.45 The notion of the pipeline company as a third party with absolute sovereignty is important in understanding how the cooperative element is absent in the case of pipelines versus rivers. In essence the owners of a pipeline seek to limit its availability to those along its route. A river, though fixed in location is freely available to all who live near it. In the case of a pipeline, ownership is controlled by a third-party, non-state actor who exercises absolute sovereignty over the pipeline. A pipeline, even insomuch as it is a worthless object other than for what it transports, is considered to be valuable for its “value-adding” relationship with the resource. As such, ownership of pipelines is linked, in the case of the BTC with the company who owns the oil. The incentive to control transportation of oil is high for 39 40 41 42
Wolf 1999 Beaumont 2000 Wolf 1999 Beaumont 2000 43 Joyner, 211. 44 Caspian Development Advisory Panel, March 2007. “BP Response to the Letter from the Panel to the Lord Browne of Madingley” 45 Ibid.


governments and companies alike; however, a pipeline is not competitive by nature. It is the relationship between owners of oil and owners of pipelines that is crucial in understanding their dynamic as it relates to interstate cooperation.

Asian Routes During the 20th Century, pipelines built in the Soviet Union were aimed at transporting oil and gas to Russia, the Black Sea, and Eastern Europe. Russia sought to control transportation of oil and gas and used its ability to cut supplies to Ukraine, and thereby much of Europe in 2006 and 2009. This led to shortages in many EU countries and was an alarm to western powers over “energy security.” The bulk of major proposed pipelines face political and engineering setbacks. One of the major issues for oil supplying countries in the Caspian is that the entire pipeline network is geared towards western markets. Proposed routes through Iran to the Persian Gulf and the world marketplace are blocked by Washington and the Kazakhstan-Pakistan route suffers obvious setbacks in terms of security. The pipeline from Kazakhstan to China will eventually be the longest in the world but the difficulties in constructing it far outweigh questions about the safety of the pipeline after its built, as in Afghanistan. Ultimately, says Bahgat, pipelines that “make economic sense” will be built.46 China's demand for oil is expected to increase by more than 4 million b/d by 2020, making this relationship highly beneficial for both countries. The Iranian 'option' Routes through Iran have clear advantages. Iran has a developed pipeline network and energy infrastructure operating and pipelines could terminate at the Persian Gulf. Disagreement over whether this move would strengthen cooperation between Tehran and Washington or concede power to the antiAmerican government, are potentially overshadowed by the economic benefits both countries would receive and continue to receive if agreement was maintained. It is clear at this point the US does not wish to pursue any route that passes through Iran whose best option at this point is to “swap” oil with Azerbaijan, Kazakhstan, and Turkmenistan for oil produced in Iran and shipped from the Persian Gulf. This method bypasses US sanctions and allows Iran to supply its North where the bulk of the population lives. The fact that Iran represents so good an export option for the landlocked Caspian region and yet has seen very limited development of inter-Caspian transportation networks shows how critical US influence in the region is. Only in recent years the first stage of a railway line connecting Iran, Turkmenistan, and Kazakhstan was completed. Pipelines through Iran are limited to the internal network and sanctions by Washington have meant Tehran's only option is to swap oil with its neighbors. This in itself is evidence of the importance of transportation as these swaps represent a form of transportation for all the involved states. The need for transportation as a key element of the value of oil and gas resources means that cooperative use of so-called “transportation resources” such as sea and air routes, pipelines, swaps, and railways is present. However, competition between states over the political leverage and financial incentives they perceive as connected with pipeline ownership gives them an element of private ownership that is not present in navigation and transportation on the Caspian Sea surface.

46 Bahgat 2002, 326.


Washington and Moscow: Rivalry over pipeline control Four pipelines serve as examples of the rivalry between Washington and Moscow. The first two: the BTC and the Trans-Caspian pipeline flow from Baku and Turkmenistan to Turkey. The US strongly supported both of these pipelines seeing them as means of ensuring supplies of oil and gas that bypass Russia and Iran. Russia favored the Blue Stream pipeline from Russian Black Sea ports to Northern Turkey. Competition over the two gas pipelines between Moscow, Washington, and Ankara highlighted the Turkish government's conflicting business and political interests.47 Finally, the Caspian Pipeline Consortium (CPC) is an oil pipeline that connects Kazakhstan's Tengiz oil field with Novorosiisk in the Black Sea. Tengizchevroil, a consortium of Chevron, ExxonMobil, and Kazakhstan was initially opposed by Russia who saw their interest in maintaining control over Kazakh oil exports. Putin and Moscow would alter their stance and later gain a majority share in the CPC with 24%.48 Conclusion: pipelines Pipelines highlight the balance of competing state interests and trace the histories of areas through which they pass. The BTC pipeline makes sweeping changes in direction to avoid conflict areas in Azerbaijan and Turkey but the specific route the pipeline takes reflects more the political balance of the day than the nature of the resource itself. Bahgat's statement reflects the fact that in the long-run states all need these transportation networks and once a good arrives in international waterways it is available to all. The essence of the pipeline is that its private nature is due to its strategic significance and economic benefits in the short-term. Competition over pipelines as well as the exact route they take is evidence of these benefits. However, if a pipeline is operating unimpeded it provides a resource similar to any other transportation resource. It is private in terms of ownership but provides a good available to a vast number of customers. In this way, the long-term economic benefits to the market mean that short-term political rivalries are relatively insignificant.

Chapter 7: Legal Regime
Legal Regime The legal regime of the Caspian Sea is central in the literature about all aspects of the Caspian. Disputes over legal classifications reflect conflicts that surround this region but it is clear that the legal regime arises based on political and economic interests over specific oil fields. States stress the importance of deciding on a legal classification of the Caspian in order to coordinate exploitation of its resources.49 In this sense, the legal regime is crucial, but only in that its conclusion represents diplomatic agreement about specific resources in the Caspian. Unfortunately, disputes over oil and gas resources on the sea-surface often interfere with coordination on different levels of the Caspian such as for fishing and navigation zones. In general though there is a cooperative approach to three of the four resources examined and states act in accordance with the principles of the cooperation theory. Legal History Russian and Iranian diplomatic relations on the Caspian began in 1729 with the Treaty of Rasht, the first to deal with sovereignty in the Caspian.50 By the early 19th Century Russia had the exclusive right to a navy in the Caspian following the treaties of Gulistan (1813) and Turkmenchai (1828). Both of these treaties allowed for free commerce and navigation by the Russia and Persia.51 After the Russian revolution in 1917 the Friendship Treaty was signed in 1921 between the USSR and Persia giving the
47 48 49 50 51 Bahgat, 2002, 325. Ibid, 325. 25 Point Declaration,.Tehran, 2007. Dekmejian, 20. Ibid, 20.


latter the right again to maintain a navy on the Caspian.52 The 1940 Treaty of Commerce and Navigation, like the 1921 agreement sought to explicitly state that only Russia and Persia had sovereign rights to the Caspian.53 Speculation over whether the 1921 and 1940 treaties between Russia and Persia apply to the successor states of the Soviet Union plays a significant role in Iran's position. The Vienna Convention on Succession of States (1978) allows for Kazakhstan, Azerbaijan, and Turkmenistan to choose whether to adhere to these treaties,54 Azerbaijan points to the Astara-Husseingholi line that divided the two states, as evidence in support of its position of delimitation. All three FSU republics hold that the 1921 and 1940 treaties do not apply due to the absence of any mention by both treaty of oil or gas and the practice of exploiting those resources unilaterally. At the end of the Soviet period the Caspian Sea was scrutinized according to principles of international law and was in a unique position to be defined by the Caspian states. There approaches varied directly with the amount of oil and gas resources off of their coastlines. Russia and Iran favored condominium while Azerbaijan, Kazakhstan, and Turkmenistan all advocated delineation of the sea. The first question to be addressed was “is the Caspian a sea?” Caspian “Sea” The United Nations Convention on the Law of the Seas (UNCLOS) article 122 defines an enclosed or semi-enclosed sea as a “gulf, basin, or sea surrounded by two or more states and connected to another sea or the ocean by a narrow outlet or consisting entirely or primarily of the territorial seas and exclusive economic zones (EEZ's) of two or more states.”55 Therefore, the question of whether to define the Caspian as a sea in terms of UNCLOS rests mainly on whether it is connected with another sea, or the ocean. Until the completion of the Volga-don canal system the Caspian had no outlet to sea. In any case this network, as well as the Volga River itself, lies completely within Russian territory. UNCLOS provides for the creation of an EEZ's in which states have sovereign rights over an area of the seabed of 200 nautical miles (nm) extending from their land borders.56 While the Caspian Sea's maximum breadth is much less than 400 nm, making the “high seas” nonexistent, the definition of the Caspian as a Sea would call for the creation of sovereign zones based on political boundaries. “Layers of sovereignty” extend from the coastline begin with a territorial sea up to 12 nm out, then the contiguous zone which extends up to an additional 24 nm.57 The essence of UNCLOS in this case is that is provides for territorial division of the Caspian seabed, initially a highly contentious point among the Caspian states. Caspian “Lake” If the Caspian does not qualify as an enclosed sea according to the UNCLOS guidelines then there is no applicable international legal agreement to define its use by border states. International water law focuses on the high seas as well as international river-systems. In terms of precedence, there is only one example of a body of water that is communally managed by the three states that border it: the Gulf of Fonesca.58 Most international lakes, the Great Lakes in North America, Lake Victoria, and others are defined by treaties between the boundary states and use the territory as a basis for division.59 Defining the Caspian as a lake can have numerous consequences legally, all of which are a
52 Ibid. 20. 53 Mirfendereski, 142. 54 “Vienna Convention on Succession of States in respect of Treaties” 1978. 55 Dekmejian, 21. 56 Ibid, 22 57 Ibid, 22. 58 The Gulf of Fonesca is managed by El Salvador, Honduras, and Nicaragua. See Mehdiyoun, 188. 59 Dekmejian, 22.


matter to be decided by the border states. Precedence, as mentioned, is overwhelmingly for division (based on coastlines) rather than communal use. If neither of these options is agreed to, the status of the Caspian is sui generis. In most cases, international lakes are divided according to a median line which allows for a greater level of sovereignty than the UNCLOS statutes. In fact, discussions over the legal status of the Caspian touch on numerous issues between the Caspian states not limited to “how it should be divided.” The bulk of disputes are over division of the seabed whereas regimes to govern different elements of the Caspian proceed at their own pace. Here the Caspian is many things: it is oil and gas in the seabed, it is fish and pollution in the water, and it is navigation and transportation on the sea surface as well as in the air. Four distinct layers of the Caspian are addressed by legal outcomes and resources specific to those layers play a key role in the nature of those discussions. Positions of the Five States Russia and Iran initially held that the Caspian Sea was unique in that it was an enclosed body of water (having no natural connections to the open seas,) and therefore could not be defined by UNCLOS. They sought to define rights in the Caspian as communal: each state has equal rights throughout the entire Caspian. Azerbaijan, Kazakhstan, and Turkmenistan all held that the Caspian should be divided according to political borders by creating a different zones of sovereignty (UNCLOS) or a median line (sui generis.) Azerbaijan The presence of oil infrastructure and western interests in Azerbaijan as a potential new energy source led to support of Azerbaijan's legal position.60 This position is distinct from the UNCLOS definition which creates an Exclusive Economic Zone (EEZ) based on the state's political borders as well as a commons between that. Because of the size of the Caspian as well as the placement of oil and gas fields in the “center” of the Caspian (an area that would fall under the category of the commons,) Azerbaijan holds that the sea should be delimited into sovereign blocks by creating a median line that runs parallel to the borders of the states.61 Disputes should be resolved as they arise. Any oilfield that falls on this line will be negotiated individually while the overarching legal regime will be of delimitation. Kazakhstan Kazakhstan supports the definition of the Caspian as a sea in terms of UNCLOS and believes that the most important reason for this is that the Caspian is an enclosed sea. The only way that the Caspian is connected to the open seas is through the Volga-Don Canal system in Russia. Kazakhstan supports the use of UNCLOS because it argues that this system should be an international waterway. Furthermore, Kazakhstan favors the creation of EEZs that border states and allow for exploitation of seabed resources located within these zones. Turkmenistan Turkmenistan also favors the creation of sovereign rights over seabed resources and designated an exclusive zone where it had rights in 1993.62 However, Turkmenistan has, like Kazakhstan, supported cooperation and the creation of a legal regime in order to prevent unilateral claims over resources. This contradiction reflects Turkmenistan's view that while some resources in the Caspian clearly belong to it, others are in doubt and conflicts over those specific fields are best dealt-with through cooperative use.
60 Gokay 65 61 Ibid, 66. 62 Ibid, 66.


“3 + 2” Azerbaijan, Turkmenistan, and Kazakhstan's positions are essentially the same: delimitation of the seabed into sovereign zones. The question is how to draw the lines based on the location of some specific oil fields. This is evident today in disputes between Azerbaijan and Turkmenistan over oil fields between the two states. Russia and Iran initially favored the opposite approach: communal ownership and rights to all oil and gas resources regardless of their location in the Caspian. They sought to define those resources as common-pool resources. They are available to all, but they are limited. This would allow their greater political power, economic position, and industry expertise to compensate for the lack of oil and gas that would be theirs if property rights were granted based on political borders. Iran was most adamant about this point while Russia eventually signed two bilateral treaties with Azerbaijan and Kazakhstan delimiting the Caspian as well as a trilateral treaty between the three of them. Iran now holds that it has the non-negotiable right to 20% of the Caspian and has prevented the development of oil and gas fields it considers as belonging to it. The Legal Regime Today To date no comprehensive legal regime exists regarding the Caspian Sea. The main points of contention are over oil and gas fields in the southern Caspian. Russia and Kazakhstan were the first two Caspian countries to divide their portion of the sea in 1998 followed by an agreement between Russia and Azerbaijan.63 These actions effectively divided around 65% of the Caspian leading to a joint declaration of Iran and Turkmenistan opposing the division. However, at this point the question was no longer whether to divide the Caspian but how it would be done. This determination includes not only oil and gas resources on the seabed, the most controversial by far but other elements of the Caspian as well. However, at this point the only remaining sticking point is the seabed. There is agreement over the need to cooperatively manage the environment of the Caspian and an agreement signed in 1994 in support of this.64 According to Dr. Mehdi Safari, Iran's special envoy in Caspian Sea affairs, “regarding issues dealing with the environment, fisheries, transportation, and shipping some cooperation is continuing among the countries.”65 The Caspian states agree to their exclusive right to “navigation, fishing, and seafaring under the national flags of the Caspian littoral states” on the basis of their “sovereign rights.”66 All of the aforementioned aspects of the Caspian are public rather than private in terms of ownership and more importantly: none of them are rivalrous. Iran and Turkmenistan agreed to a division based on “strict accordance with the UN and convention on maritime law and the norms and principles of international law” which gives the two countries each a 20% share of the Caspian. Azerbaijan opposes this designation calling it “confused.”67 Indeed, the Iranian position is not clear, Safari states “[Iran] believes there are no binding methods regarding this issue in international law” and that division of the seabed should be based above all on the principle of “fairness.”68 This principle does not necessarily entail an equal share to each country a point that adds to the uncertainty as to the basis of Iran's claim. Despite cooperation between Iran and Turkmenistan the southern Caspian legal status remains undetermined due to disputes of both countries with Azerbaijan. Turkmenistan and Azerbaijan failed to come to agreement over three fields following 16 bilateral meetings and Turkmenistan has resolved to
63 64 65 66 Lee, 41. Lee, 45. “Iran's share of Caspian Sea is 20 per cent” - Official. BBC Monitoring. 2/3/2008 25 Point Declaration,.Tehran, 2007. 67 Lee, 44. 68 “Iran's share of Caspian Sea is 20 per cent” - Official. BBC Monitoring. 2/3/2008


accept a ruling from the International Court of Arbitration.69 Azerbaijan has been engaged in exploiting the fields in question and the ongoing negotiations represent an obstacle to exploration and development in the disputed area. Iran and Azerbaijan's position is much less reconcilable. Iran's claim of 20% of the southern Caspian encroaches on oil fields it considers its own. Iran continues to prevent development of fields in this region making clear the fact that it would not see its interests compromised. Iran demonstrated this resolve in 1996 when it sent military aircraft and naval forces to confront BP exploration vessels working with Baku.70 Most important though is not Iran's willingness to play spoiler to any Caspian-wide agreement it sees as excluding or infringing on its interests but its limited policy options. A meeting between Russia, Kyrgyzstan, Turkmenistan, and Azerbaijan in 2009 was widely perceived as a deliberate attempt by Moscow to alienate Iran. While Iran and Russia shared the position of condominium early on, when Russia gained a share in the “deal of the century” in 1994 Iran's attempt to join the consortium was blocked by Washington. Russia's ability to change its stance in order to maintain its presence in oil deals in the Caspian reflects a shift in policy advocated by the oil industry and implemented by Putin but also greater flexibility vis-à-vis the United States. Tehran on the other hand has been forced to gain advantage where it can and to skirt US sanctions and opposition to Iranian participation in energy projects. This has lead to Iran's rigid position where its strategic levers have been reduced largely to transportation and oil swaps. Therefore, in concluding a legal regime in the Caspian, a feat that Tehran said was 70% done as of early November71 questions between Azerbaijan and Iran are the most contentious. It is clear that cooperation is the preferred outcome for the two states and Iran's show of force in 1996 has since been replaced by a “positive atmosphere” in negotiations.72 Unlike Russia, Iran's limited ability to compromise has resulted in the extremity of its actions regarding the Caspian legal regime. For Russia, when claims over oil and gas in Azerbaijan's or Turkmenistan's territorial waters failed in the face of US support of the Azeri position, Russia was able to compromise, gaining a share in several primarily western consortia. Iran, left without the ability to successfully compromise its position makes the claim for 20% of the sea as its non-negotiable right. If it is not able to secure ownership over some fields in the southern Caspian Iran's negotiations will have failed to counter US and Russian dominance over the formation of the legal regime. Legal Issues in the Commons The difficulty in creating agreement among multiple states regarding communal property is evident in that the majority (86%) of treaties dealing with water have been bilateral.73 This has indeed been the case among the Caspian States who have so far signed only one pentalateral agreement. Rather Russia, the dominant state power, began to promote a “phased solution” in which bilateral treaties are created that should eventually lead to a comprehensive agreement.74 Furthermore, the idea that the Caspian Sea would be managed by a condominium of the five states came to a decisive end in the late 90's when Russia signed two treaties dividing the Caspian. Rivalry over oil and gas resources as well as their importance to the economies of Turkmenistan,
69 “Turkmenistan to take disputed oilfield to international court” BBC Monitoring. 7/25/2009. 70 Lee, 43. 71 Seventy per cent of convention on Caspian Sea legal status agreed on – Iran Deputy Foreign Minister. BBC Monitoring. 11/8/2009. 72 Ibid. 73 Wolf, Aaron T. "Conflict and Cooperation Along International Waterways." Water Policy 1 (1998): 251-265. 74 Bahgat 2002


Azerbaijan, and Kazakhstan means that other legal issues are overshadowed while others hinge on definition of territorial rights. For example, state practice of basing territorial boundaries on oil and gas resources has stalled agreement over simpler issues like navigation and fishing. Oil The fact that the environment, fishing, transportation, and shipping represent such minor points relative to the weight of seabed resources in creating a comprehensive legal regime is evidence of the greater degree of cooperation inherent to these resources. Also important is that oil and gas are more quantifiable resources in terms of value but it is clear that their value is linked with other more cooperative factors such as transportation and the environment. This means that aspects of the value of oil and gas such as transportation and environmental concerns regarding extraction that are cooperative are seen as secondary to ownership of the actual resources. Because oil and gas as well as transportation are private resources they are more competitive than environmental damages that result from oil and gas extraction or agreement about rights to navigation and shipping. Benefits, or in the case of pollution: damages, are most dispersed when ownership is public. Oil and gas, as well as pipelines and other forms of transportation are private resources. Only in the case of oil and gas are they also pool resources. For these reasons, the most competitive issue in the Caspian legal regime is ownership of oil and gas resources. Navigation Transportation, as it is a good rather than a pool resource is much less competitive than oil and gas. In terms of ownership, it is possible and desirable for the Caspian states to define rights to navigation as limited to the five Caspian riparians. These agreements find their basis in the 1921 Treaty of Friendship and the 1940 Commerce and Navigation Treaty signed between the Russia and Iran. The North-South corridor, a railway network linking Kazakhstan and Turkmenistan with Iran is underway. This development will ultimately connect Russia, Kazakhstan, and Turkmenistan with the Persian Gulf75 an extremely valuable asset to those states. Transportation has great value to all Caspian states and cooperation in this regard is essential to commerce in the Caspian. Treaties in place as well as new developments in the transportation network show how states benefit from shared use of transportation resources. The Environment The first agreement that all five Caspian states signed dealt with the environment.76 In 1994 the Treaty on the Protection of the Marine Environment of the Caspian Sea was signed. This agreement addressed issues such as pollution, fishing, sea-level rise, air quality, and desertification. From the standpoint of the commons, environmental issues are the easiest to agree upon because a good environment benefits everyone and is freely available to use without potential restriction. Conversely, issues of public bads such as air and water pollution harm the public in a way that makes ownership and blame difficult to assess. In terms of cooperation on a broad scale the environment is the least competitive because it is a public good. Conclusion: Legal Regime Although the legal regime in the Caspian represents an ongoing discussion and perhaps the most important issue to be addressed, it has largely been in place over the last 15 years. In fact, to a large degree the legal definition of the sea was set at the beginning of any debate over the Caspian legal status in that delimitation is the norm in situations such as this and states apparently consider resources
75 Press conference of Caspian leaders following the October 16, 2007 summit of the Caspian Sea littoral states. BBC Monitoring. 76 Lee, 45.


off their coasts as exclusively belonging to them. Thus, while Iran and Russia advocated a condominium approach to managing the hydrocarbon resources of the Caspian Sea in practice that was never the case and the current disputes over the “legal definition of the Caspian” would more accurately be described as states competing over specific oil fields. For example, a disputed field between Azerbaijan and Turkmenistan manifested in legal terms in the question of whether or not the median line should parallel the coast line. Azerbaijan's capital city, Baku lies on the Abseron peninsula which juts out into the Caspian along with several islands. Whether these islands accounted for in drawing the border ultimately decides ownership of oil fields.77 Therefore, questions about legal definitions and practices are frequently disputes over ownership of specific oil and gas fields. Secondary or altogether unrelated issues are sometimes used as part of a reason for or against a specific legal ruling. Russia held early on that the main reason that a condominium approach was necessary was in order to protect the ecology of the Caspian.78 Ecology was clearly not Russia's primary motivation but rather reflected Moscow's stance on the matter. Legal disputes over ownership of Caspian oil and gas cannot be considered as meaningful in and of themselves but rather as a major medium through which politics occurs. Overall, the legal regime debate focuses almost exclusively on oil and gas resources due to many factors including their high value, international competition, and the fact that these resources are fixed in time and location. There are signs that even oil and gas resources in the Caspian are not as rivalrous as many predicted in the mid 1990's, when Iran's position became more and more strangled. Today it seems that all the states are interested in resolving the discussion finally and advancing cooperation in broader forms including the environment, transportation networks, and an economic community.

Chapter 8: Conclusion
Some elements of the Caspian Sea are more conducive to cooperative management than others. Oil and gas resources are the most contentious for a variety of reasons including their high potential value as well as their “static” nature. The degree to which states cooperate in their use of oil and gas resources in the Caspian is dependent on numerous factors including, history, strategic alliances, geography, and political and economic determinism. Cooperation in fields such the environment or navigation remains uncontentious due to qualities inherent to them as resources. In terms of the more rivalrous oil and gas resources, analysis entails the redefining of cooperation to encompass the notion of compromise. Pipelines represent a distinct units of analysis in terms of ownership in particular as well as in how their route is determined largely by contemporary and projected political and economic conditions. Therefore, there is a key distinction in how a pipeline is owned and operated and which route it takes. Discussion of the legal regime of the Caspian Sea is dominated by questions over ownership of oil and gas resources. That the discussion took the form of a question of territory shows the importance of the location of these resources as static and ownership as private. The Future Russia's position, though only in recent years really being acknowledged, is dynamic. The leadership of Vladimir Putin seems more potent than ever and his return to the presidency, or not, “its fine” says Putin.79 Russia's success is a matter of balancing diversification and economic development, in which Putin sees technology as key, with an increase in US presence in the region. Russia's leader seeks to
77 Haghayeghi, 35. 78 Gokay, 36. 79 Youtube video: “Putin lashes out at NATO war games.”


develop Russia's long-term economy through technological growth and economic diversification. Washington is keen to build positive relations with Moscow but its unlikely that Russia will make strategic concessions. Rather, Moscow will seek to involve itself in profitable deals for energy and to strongly lobby for its preferred pipeline routes. This is a good index of some of the diversification to be expected from Turkmenistan and Kazakhstan especially, whereas Azerbaijan has succeeded in acquiring a major pipeline route. Putin is well aware of the need to diversify and the internal political levers are in place. Russia's past dominance of oil and gas transportation is being eroded and growth of the Russian economy is stalled by the global recession. When conditions improve, Russia's economy will accelerate its diversification especially towards high-tech and non-extractive industries. Iran's statement that 70% of the legal regime was completed as of November 9, 2009 is potentially a very misleading one. Less than 70% of the Caspian legal regime has been completed since the late 90's and if the disputed 30% represents in fact what is now the only open dispute then that 30% is really 100%. The ongoing dispute is between Iran and Azerbaijan over fields in the contested area of the Caspian between the two nations. Iran's position on this territory has not changed since 1994 when it flew military aircraft over BP exploration vessels. Its claim for 20% is said to be non-negotiable and so Azerbaijan is expected by Tehran to submit to a line it has drawn based on “fairness.” Silly as it sounds, it just might work. The question is: is it worth some oil and gas resources from Azerbaijan to develop additional fields in the contested area opened up by agreement with Iran? If not, nondevelopment does not harm either state in the short-term and this is a very likely outcome. The least likely possibility is that Iran accepts a ruling that favors Azerbaijan's position leaving itself with negligible resources. Agreements between Russia, Kazakhstan, Azerbaijan, and Turkmenistan (though not all four together) mean that the bulk of the Caspian is effectively delimited. The major constraint at this point is transportation, a view that bodes well for Iran. The conclusion of a comprehensive legal regime, though dependent on a resolution of disputes primarily between Iran and Azerbaijan is likely at this point due mainly to the fact that the costs of ongoing negotiations and non-use of resources by any party mean that there are incentives on both sides to resolve legal issues. While a “comprehensive” legal regime entails the definition of 100% of the Caspian Sea territory, the bulk of non-energy issues are in fact what make up the Caspian Sea overall. These less contentious issues will likely continue to see cooperation and separation from the territory issues of the seabed. The fact that different regimes are emerging for different parts of the Caspian (bed, surface, water, etc.) regarding different resources, shows that the uniqueness of these resources as well as different levels of cooperation are recognized. It is likely that the bulk of non-oil legal issues be resolved within five years. While territorial division of the Caspian on all levels does hinge to some degree on ownership of the seabed, if disputes between Turkmenistan, Azerbaijan, and Iran are not solved within five years they will continue for significantly longer. Because of uniqueness of different Caspian resources states will manage them separately from oil and gas as disagreement in that area continues. In terms of transportation, creative solutions involving Iran are likely in the future to expand as the railway is completed that will connect Russia and Iran along the Caspian's eastern side. Relations with Washington will have a decisive role in the extent of the development of Iranian transport options but Tehran has shown creativity in meeting the clear needs of its neighbors for transportation. Oil swaps and non-pipeline transportation through Iran will continue so long as Washington blocks pipelines. Shipping and railroads will continue to see cooperation in the Caspian due to their less contentious nature but pipelines in all states are more politically charged. The buildup of the navies of Caspian states is an important element of the Caspian that will likely continue to be a peaceful sea. Increases in naval power will contribute to declines in smuggling 27

and illegal fishing and will likely see the formation of some inter-Caspian cooperation and informationsharing in terms of policing. As the sea surface will probably be divided more or less in keeping with the principles of UNCLOS, policing will take place in sovereign territory but will also be necessary on a Caspian-wide level. Caspian policing will likely take the form of cooperation rather than the creation of a third-party force due to asymmetries in capabilities between the states. Overall the situation for the Caspian is optimistic. States are committed to cooperation amongst themselves and despite varied positions strategically seem united in the belief that all interests are served by peace in the Caspian. It is very unlikely that conflict occur between the Caspian states but one factor can play a decisive role: American-Iranian relations. As pressure from Washington has limited Tehran's options in the Caspian improved relations between the two states would allow Iran to see greater participation and significant export plans coming to fruition. On the other hand, as relations between the two deteriorate pressure on Moscow increases as well and Iran's options become fewer and fewer. The value of the theory of resource cooperation lies in the underlying tendencies states show in managing different resources. Depending on whether a resource is public or private, a good or a pool, cooperation and competition are inevitable when the question of how the resources will be used arises. Exactly who will gain access to which resources can be predicted when the answer is easy, in the case of transportation or fishing but oil and gas are fixed and states know that if they don't own the resource they cannot benefit from it. It is clear when examining the history of the Caspian states that politics are the most important part of which states get which resources when those resources are subject to private ownership or are fixed in quantity.

Notes: 1. Rabinowitz, Philip D., Mehdi Z. Yusifov, Jessica Arnoldi, and Eyal Hakim. "Geology, Oil, and Gas Potential, Pipelines, and the Geopolitics of the Caspian Sea Region." Ocean Development and International Law 35 (2004): 19-40. 2. "Presidents of Caspian countries issue 25-point Declaration in Tehran." Lexisnexis. BBC, 16 Oct. 2007. Web. 31 Aug. 2009. <>. 3. Gokay, Bulent. The Politics of Caspian Oil. New York: Palgrave Macmillan, 2001. 4. Mirfendereski, Guive. Diplomatic history of the Caspian Sea treaties, diaries, and other stories. New York: Palgrave, 2001. 5. Bahgat, Gawdat. "Prospects for Energy Cooperation in the Caspian Sea." Communist and Post Communist Studies 40 (2007): 157-68. 6. Mehdiyoun, Kamyar. "Ownership of Oil and Gas Resources in the Caspian Sea." The American Journal of International Law 94.1 (2000): 179-89. 7. Hagheyeghi, Mehrdad. "The Coming of Conflict to the Caspian Sea." Problems of PostCommunism 50.3 (2003): 32-41. 8. Lee, Yusin. "Toward a New International Regime for the Caspian Sea." Problems of PostCommunism 52.3 (2005): 37-48. 9. Dekmejian, R. Hrair, and Hovann H. Simonian. Troubled Waters The Geopolitics of the Caspian Region. London: I. B. Tauris, 2003. 28

10. Bahgat, Gawdat. "Pipeline Diplomacy: the geopolitcs of the Caspian Sea region." International Studies Perspectives 3 (2002): 310-27. 11. Joyner, Christopher C., and Kelly Zack Walters. "The Caspian Conundrum: Reflections on the interplay between law, the environment, and geopolitics." The International Journal of Marine and Coastal Law 21.2 (2006): 173-216. 12. Russian Federation. "Position of the Russian Federation regarding the legal regime of the Caspian Sea." Letter to UN General Assembly. Oct. 1994. United Nations. Vol. A/49/475. 13. Beaumont, Peter. "The 1997 UN Convention of the Law of Non-Navigational Uses of International Watercourses: Its Strengths and Weaknesses From a Water Management Perspective and the Need for New Workable Guidlines." Water Resources Development 16 (2000): 475-495. 14. Wolf, Aaron T. "Conflict and Cooperation Along International Waterways." Water Policy 1 (1998): 251-265.

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