Caspian Geopolitics

With the collapse of the Soviet Union in 1991, Russia lost influence and proprietorship over much of the Caspian Sea basin. Where there were only two littoral states, the USSR and Iran, there are now five. Even worse, in the view of many high-ranking Russian officials, Azerbaijan, Kazakhstan, and Turkmenistan sought to build upon their new-found independence by exploiting—with Western investment—the energy resources in what they viewed as their sectors of the Caspian. Russia openly objected, claiming that the Caspian was an inland lake; this meant that any projects had to be agreed by all the littoral states. Faced with the proliferation of consortia despite Russian opposition, the Russian Ministry of Foreign Affairs (MID) proposed in 1997, that each state have a 45-mile zone of its own, while the center of the sea would remain under joint administration—leaving a shape much like a doughnut.

More important issue however is the routing of the oil and natural gas export pipelines of the Caspian Sea to international markets which must cross Russia, Iran, or Georgia. The pipelines that will carry this oil and gas westwards, across Azerbaijan and Georgia to Turkey, are now finalized. But Russia already has its own pipelines to Turkey and the Black Sea. A Soviet era pipeline runs from Baku, the Azerbaijani capital, to the Russian Black Sea port of Novorossiisk, but it passes through war-torn Chechnya. When Chechnya descended into war for a second time in fall 1999, Putin authorized the building of a pipeline through Dagestan to by-pass Chechnya. It was completed in mid-2000. Consequently both the Russian and Georgian variants require tankers to pass through the Bosporus, alarming Turkey at the prospect of increased tanker traffic. Russia supplies almost all of Georgia's gas. But in future Georgia will be able to get much of it from the trans-Caucasian pipeline at an extra-cheap rate. In the past, Russia has cut off gas supplies in winter: theoretically for non-payment, but often apparently for political ends.

The United States has been pushing for a pipeline from Baku, through Georgia, to the Turkish Mediterranean port of Ceyhan. Officials claim that Baku-Ceyhan avoids a long list of obstacles: It frees the new littoral states from dependence on Russian pipelines; it continues to isolate Iran; and it eliminates tanker passage through the Bosporus. As a counter to Baku-Ceyhan, MID officials have, despite Turkish objections and the risks of transit through the unstable Caucasus, been adamant that the oil from the Caspian be piped through Russia. In the most benign interpretation, this would allow Russia to garner transit fees; more malignant observations are that Russia is determined to control the exports of the former Soviet republics.

In September 1994, Azerbaijan signed the “contract of the century,” the first of several consortia agreements with Western oil companies and with the Russian company LUKoil. The initial objection by Russia later was turned to approval by the Representatives of the Ministry of Energy and Fuel. Thus, Russia assured Azerbaijan that it would not object to the deal, but that Azerbaijan would need to coordinate policy with Russia regarding ecological issues and fishing. It was then in 1997 that the MID proposed the so-called doughnut, that is limited sectoral division of the sea. The proposal was not supported by the other littoral states, but it was a major step toward recognizing the validity of the several Caspian consortia. The agreement to divide the sea bottom, but not the waters of the Caspian,
was finally initialled in early July 1998 when Nazarbaev President of Kazakh travelled to Moscow.

It was in October 1999 that the Azerbaijani consortium companies agreed to Baku-Ceyhan pipe line which was faced with Russian efforts to block the route. Russian envoys travelled to the Caspian in a major initiative to dissuade Azerbaijan, Kazakhstan, and Turkmenistan from signing the final agreement. The following month, on the sidelines of the Istanbul OSCE summit, a formal agreement for Baku-Ceyhan was signed by the presidents of Turkey, Azerbaijan, Georgia, and Turkmenistan. Over the next 20 years Azerbaijan is expected to make $29 billion in oil revenues alone.

The United States was the promoter of the Baku-Ceyhan line at a time when contacts between the new littoral states and NATO were intensifying contributed to the sense of loss. Perhaps most importantly, Russia’s failure to prevent the deal came after NATO’s fiftieth anniversary celebration and the formal accession of Poland, the Czech Republic, and Hungary to the military alliance. The Caspian Pipeline Consortium CPC is the main export route from the vast Tengiz field in Kazakhstan, through Russia to Novorossiisk. According to many observers, Chevron and Mobil Oil companies involved in the area, ultimately realized that the only way to get Russia to cooperate was to bring in a Russian company—in this case LUKoil. In the final arrangement, the Russian government has a 24 percent stake in the pipeline and an additional 20 percent is held by LUKoil and Rosneft; the private oil company participants agreed to finance the pipeline’s construction. Despite repeated delays in obtaining construction permits from local and regional authorities, the CPC was scheduled to completion in 2001.

The Turkmen case also highlights the importance of export routes. Turkmenistan, with its tremendous natural gas reserves, is under the Russian gas monopoly Gazprom. Gazprom limited Turkmenistan to the Commonwealth of Independent States’ (CIS) market. Clearly, Russia, and Gazprom specifically, view Turkmenistan as a competitor in the natural gas market. Were Turkmenistan to secure alternative export routes, it would emerge as a significant rival to Gazprom. There is also heightened competition in the gas sector created by the discovery of vast gas reserves at Azerbaijan’s Shah Deniz field. As such Turkmenistan, Azerbaijan, and Russia’s Gazprom are rivals for the lucrative Turkish market. From Turkmenistan’s perspective, it turned out that export via Russia is the least bad scenario.

Russia’s attack on Yukos Oil Company and its former boss, Mikhail Khodorkovskii, can be interpreted in all sorts of ways. It is part of an attempt to re-establish state control over ‘strategic sectors’ of the economy, and above all over oil and gas. In Dec 19 2004, the main production subsidiary of the Yukos oil company was sold by the Russian federal Property Fund for $9.35 billion to Baikalfinansgrup, an unknown company. Its address turned out is shared by some liquor store, a food store, some mobile phone and jeans shops and one hundred and fifty invisible companies. The expected buyer, the Gazprom subsidiary Gazpromneft, did not participate in the bid. The approach to oil and gas is clear. Proposals to break up and partly privatise Gazprom have been dropped. The company is a near monopolist in Russian gas production and has complete monopoly over the country’s storage, processing and transportation of gas. Putin has clearly marked that oil and oil product pipelines will have to be controlled by the state. The attack on Yukos has been conducted not only during a boom, but also at a time when Russia has been negotiating to enter the WTO.

Putin seems to understand that he needs to bring Russia’s economic and geopolitical interests together. But the question remains how effective Russia’s policy can really be. Of particular importance will be Russia’s relationship with Iran. The community of interests between Russia and Iran—including the export of sophisticated nuclear technology to Teheran—is derived at least in part from their mutual exclusion from the Caspian by the Baku-Ceyhan pipeline. Teheran is demanding 20 percent share of Caspian resources-seemingly more than the other littoral states are willing to concede. One can only speculate on the impact of a change in U.S. policy that would allow Iranian participation in Caspian export schemes. This is the solution that the oil companies prefer: It is cheaper and more easily realized.

While Nuclear energy negotiations is facing crisis, Iran is driven toward strengthening its friendship with Russia. There has been a signed concession between Baku, Tehran and Moscow to construct railroad installations in the north of Iran - starting from Qazvin (centre) by crossing Rasht (north) and Anzali Port, and finally joining Astara Port in Azerbaijan. The news was first published in 'Ria novosti' Russian journal. It was explained that a consortium has been established for the construction of the railroad - 375 KM long - Azerbaijan is obliged to finance and construct 15 KM in its own territory to join the line to Astara Port.

Additionally Iran is looking forward to Russia's suggestion to set up Common Rapid Reactionary Forces to safeguard the Caspian Sea. 'Russland' an online Russian journal elaborates on that: Iran is in favour of the Russian initiation to launch the Reactionary Force with the cooperation of all neighbouring countries around Caspian Sea.

This is not merely to fight international terrorism, rather to restrict the presence of foreigners and non-locals in the area, including US. The aim is to make coalition against any foreign force who intends to use the Caspian Sea for its interest. However under condition that some of the local governments have established strong ties with US, the prevention of US army presence is unlikely.
This was a continuous effort by Russia for several years back when launched a military manoeuvre on 2002. Consequently, the trip of Ronald Ramsfield to the area triggered the necessity of a common agreement on the issue. Ramsfield made the trip on total confidentiality. Few months earlier the chief of NATO in Europe declared that US intends to set up military bases in the area, he pointed that US is drawing special plans for the next 10 years. US stresses his intention to outline bigger role for Azerbaijan - where it will be setting a Headquarter with equipped modern communication devices. This will particularly endanger Russia's interest in the area while US maintains its position by controlling equipment systems for NAVY, Ground and Air forces. The Headquarter in Baku will be operational by Americans.

Both US and Russia justify their moves out of the threats, emanating from international terrorism. But the bottom line is the threat of the two countries get closer - Russia and China - they are preparing themselves for the possible future wars in the area for control over oil resources and ultimate access of China to local energy resources. Russia recognizes well the threat and tries to shut down the US from entry in the region. Russia contested the militarization of the region while the other countries such as Kazakhstan, Azerbaijan and Turkmenistan obviously are after modernisation of their navy force, seeking full support from US.

US following up the case of Kazakhstan, planned on dispatching military ship - followed by similar projects for Azerbaijan and Turkmenistan. Additionally there are talks around military coalition between these three countries to be followed by Turkey and Uzbekistan. The unsuccessful attempt for a regional concession over dividing the Caspian sea among the neighbouring countries, while Iran and Turkmenistan rejected the previous talks, demonstrates the complexity of the issue.

The future of China to become world giant in economy is a threatening scenario. This has brought Russia and China on one side against the Western capitalism. Central Asia is where these two powers meet and US insist on holding the power in the area to avoid coalitions. Therefore any attempt from Iran or Mosquo to restrict US presence is hopeless. From Moscow’s perspective, the stakes are high—oil, natural gas, and an historic sphere of influence. It would also seem that in an era of diminished Russian capabilities, Moscow is concentrating its efforts on areas closer to home. Consequently two separate forces will dominate the area: one composed of Azerbaijan, Turkmenistan, Kazakhstan and possibly Turkey and Uzbekistan. The opposing force would be Iran and Russia - they will be played against one another as the game moves on.




References:

- The Russian Foreign Ministry Website. www.mid.ru
- The Economist, A moment of truth, Nov 27th 2003, MOSCOW AND TBILISI
- Saivetz, C., R., Fellow Davis Centre for Russian Studies, Harvard University, Caspian Geopolitics: The View from Moscow
- Hanson, P., The World Today, Volume 61, No 2, (p:25), February 2005