THE U.S. MUST SUPPORT ENERGY SECURITY IN THE CASPIAN AGAINST IRANIAN ENCROACHMENTS

Ariel COHEN


Arial Cohen, Ph.D., Research Fellow at the Kathryn and Shelby Cullom Davis Institute for International Studies at the Heritage Foundation in Washington, D.C.


The war on terrorism has highlighted the need to ensure security of energy resources and to support U.S. allies who come under pressure from regional bullies, such as Iran.

Since 23 July, Iran has repeatedly violated Azerbaijani air space and amassed ground troops on its border with Azerbaijan.1 In recent interviews, senior Iranian politicians have commented that Azerbaijan used to be an Iranian province, a statement that could be used to justify encroachments on the country. The energy and security interests of the United States are jeopardized by Tehrans use of force in the Caspian Sea region, as are other critical factors including regional stability, energy resource development, the economic growth of post-communist states in the region, and billions of dollars in Western investment.

Washington should take action to ensure that the pro-U.S. Azerbaijan is not threatened by Iran and that energy companies, such as British Petroleum-Amoco, Chevron, Exxon/Mobil, Frontera and others, which are the engines of economic development in the region, are not endangered. Tehrans aggressive behavior must be stopped so that the region can be stabilized and the Caspian remains a future source of accessible energy for the U.S. and the West.

Iran Threatens the Peace in the Caspian

On 23 July, an Iranian warship and two jets forced a research vessel working on behalf of British Petroleum (BP) Amoco at the Araz-Alov-Sharg field in the Azerbaijani sector of the Caspian Sea out of the area. The Alov field lies 100 kilometers (60 miles) north of Iranian waters. Due to this aggressive and unlawful pressure, BP-Amoco has announced that it will cease exploring this field.2

The Iranian military action has endangered the ability of international oil companies to peacefully explore for oil in the Caspian basin. Tens of billions of dollars in past and future U.S. investments are at stake (see Table 1).3

Table 1

International Oil Consortia Operating in Azerbaijan

No.

Company (Field)

Date signed

Shareholders percentage

 

AIOC (Azerbaijan International Operating Company)

20 September, 1994

BP Amoco (34.1); Statoil (8.56); Itochu (3.92); Exxon (8.0); Ramco (2.08); Unocal (10.04); TPAO (6.75); Delta (1.68); LUKoil (10.0); Pennzoil (4.81); SOCAR (10.0)

 

Shakh Deniz

4 June, 1996

BP Amoco (25.5); LUKoil (10.0); TPAO (9.0); Statoil (25.5); Elf (10.0); SOCAR (10.0); OIEC (10.0)

 

Lenkoran-Talysh Deniz

13 January, 1997

Elf (40.0); OIEC (10.0); Petrofina (5.0); Total (10.0); Wintershall (10.0); SOCAR (25.0)

 

Apsheron

1 August, 1997

Chevron (30.0); SOCAR (50.0); Total (20.0)

 

Nakhchivan

1 August, 1997

Exxon (50.0); SOCAR (50.0)

 

Yalama

4 July, 1997

LUKARCO: LUKoil (32.4), ARCO (27.6); SOCAR (40.0)

 

Oghuz

1 August, 1997

Mobil (50.0); SOCAR (50.0)

 

Kurdashi

1 August, 1997

SOCAR (50.0); Agip (25.0); Mitsui 15.0); TPAO (5.0); Repsol (5.0)

 

South-West Gobustan

2 June, 1998

Commonwealth Oil and Gas (80.0); SOCAR (20.0)

 

Kursangi and Garabagly

1 August, 1998

Frontera Resources (30.0); Delta Oil/Amerada Hess (20.0); SOCAR (50.0)

 

Muradkhanli, Jafarli, and Zardab

22 July, 1998

Ramco (50.0); SOCAR (50.0)

 

Inam

22 July, 1998

BP Amoco (25.0); SOCAR (50.0); Monument Oil and Gas (12.5); Central Russian Fuel (12.5)

 

Araz, Alov, and Sharg

22 July, 1998

BP Amoco (15.0); Exxon (15.0); Alberta Energy (5.0); Statoil (15.0); TPAO (10.0); SOCAR (40.0)

 

Ateshgah, Yanan Tava, and Mugan Deniz

25 December, 1998

JAPEX (22.5); Teikoku (7.5); INPEX (12.5); ITOCHU (7.5); SOCAR (50.0)

 

Zafar, Mashal

27 April, 1999

Exxon (20.0); SOCAR (50.0); with 20.0% to be determined

 

Savalan, Dalga, Lerik Deniz, Janub

27 April, 1999

Mobil (20.0); SOCAR (50.0); with 20.0% to be decided

 

Padar

27 April, 1999

Moncrief Oil International, Inc. (80.0); SOCAR (20.0)

Source: [http://www.bisnis.doc.gov/bisnis/COUNTRY/000216azoilgas.htm].

The military threat to oil supply may drive prices up and scare away investors. This will hurt oil companies currently active in the region, as they will be forced to forgo revenues, especially if the global economy recovers or demand starts rising again due to the anti-terrorist military action. At stake are over one hundred billion barrels of oil with the current market value over $1 trillion, as well as trillions of cubic feet of natural gas (see Tables 2-3 below).

The Iranian action is particularly offensive, as it targets a field which belongs to the major U.S.-British international oil company BP Amoco, as well as companies from Norway (Statoil); Azerbaijan (SOCAR), and Turkey (TPAO). Conveniently, Iran has not targeted any Russian or Arab interests.

Table 2

Estimated Oil and Gas Reserves of Caspian Region

Estimate source

Energy Information Administration

International Energy Agency

Commodity

Proven reserves

Possible reserves

Total

Proven reserves

Possible reserves

Total

Oil (in billions of barrels)

18-34

235

253-269

15-40

70-150

85-190

Gas (in trillion cubic feet)

243-248

328

571-576

237-325

283

520-608

Sources: [http://www.eia.doe.gov/emeu/cabs/caspgrph.html#TAB1-----Original];

[http://www.iea.org/pubs/studies/files/caspian/overview.htm].

Table 3

Caspian Sea Region Oil and Gas Production and Exports

Energy source

Production

Net Export

1990

2000*

2010**

1990

2000*

2010**

Oil (in thousand barrels per day)

1,216.4

1,284

3,900

86.9

713

3,200

Gas (in billion cubic feet per year)

5,358.8

4,032

8,500

2,112.6

1,480

4,850

*Estimated production.

**Possible production.

Source: Energy Information Administration [http://www.eia.doe.gov/emeu/cabs/caspgrph.html#TAB1-----Original].

While Araz field is but a small fraction of the total deposits, the Iranian action against it threatens the whole Caspian energy enterprise. It is also significant that the attack came during the final stages of planning for construction of the strategically important Baku-Tbilisi-Ceyhan pipeline, which will make Turkey, not Iran, the main outlet for the Caspian oil. Iran is opposing the Turkish route, as it will reduce the Iranian chokehold on oil exported from the Persian Gulf.

The Legal Status of the Caspian: A Sea or a Lake?

The status of the Caspian Sea has been in dispute since the collapse of the Soviet Union. Its status as a sea or lake has implications regarding the applicability of the Law of the Sea Convention and negotiation of the boundary demarcation regime affecting states rights for significant oil deposits.

The Caspian is the largest body of salt water on Earth with no natural connection to the ocean. Under the 1921 and 1940 treaties between communist Russia and Iran, the land borders were delineated and demarcated, but not the sea boundaries.4 These treaties defined rules for shipping and fishing, but not for oil and gas exploration. The U.S.S.R. explored the Caspian for oil without interference from Iran.5 Now, after the Soviet Unions collapse, this regime allowing unhindered oil exploration should apply to the U.S.S.R.s successor states. And according to experts, the existing treaties prohibit Iran from deploying naval assets in the Caspian.

The legal successors to the U.S.S.R. in the Caspian are Russia, Azerbaijan, Kazakhstan and Turkmenistan. They are currently involved in peaceful negotiations regarding the maritime boundaries for their national sectors. On the basis of decisions made by the International Court of Justice (ICJ) that determined the boundaries on Lake Constance between Germany and Austria and in the Fonseca Bay in the Pacific Ocean, most legal scholars agree that a combination of customary international laws of the sea and rules regulating lakes should guide decisions regarding the maritime boundaries of the Caspian. The post-Soviet countries will work to negotiate a settlement regarding boundaries as successors to the U.S.S.R., however, these countries do not include Iran (see Map).

The Iranian sector of the Caspian comprises 12 to14 percent of the Sea. Irans stake in the Caspian has not changed with the collapse of the U.S.S.R. Nevertheless, Iran is now demanding a condominium (joint sovereignty) that would allow it to claim equal proceeds from all energy developed at the seabed, regardless of its own investment,6 or a sector of the sea equal to at least 20 percent of the surface and the seabed. Thus, Iran is demanding to partially annex the oil rich Azerbaijani sector. Many legal scholars agree that the Iranian claims are baseless, without the backing of either legal precedent or law.7

1. Old sectoral division.

2. Sectoral division based on the median line.

Throughout the 1990s, the United States supported exploration for oil and gas in the Caspian region without intervention by either of the largest regional powers, Russia or Iran. U.S. corporations and multinational oil companies, as well as numerous corporations from Europe, Russia, Turkey and other Middle Eastern nations, have invested billions to develop the Caspian, and are involved in a number of consortia in Azerbaijani, Kazakhstani, Russian and Turkmenistani sectors.

There are no legal or political reasons why Tehran should be allowed to benefit from the Caspian resources beyond its territorial waters. The latest round of Iranian muscle-flexing endangers billions of dollars already invested in Caspian energy projects and could discourage billions more in future investments.

Russias Multiple Alliances

Iranian use of naval power in the Caspian Sea on 23 July put the Kremlin at the center of international attention. Russia, the strongest military power in the Caspian, is attempting to balance complicated security and economic interests in the region without alienating Iran, its third largest customer for arms.

Russia has raised its voice in favor of peace in the Caspian. At the August summit of leaders of the Commonwealth of Independent States (CIS), President Vladimir Putin called the land-locked Caspian the sea of peace and tranquility and termed the Iranian use of force in the Caspian impermissible.8 Moscow hinted that it might step in to mediate the Baku-Tehran row.

Iran interpreted Putins reaction as a call to order, and toned down its rhetoric. In its 1 August analysis, the Iranian news agency IRNA summarized the dispute without verbal attacks on Azerbaijan and dealt with the dispute only in terms of the Alov field, rather than the entire 1,400 square kilometer Araz-Sharg-Alov oil contract. Iran also claimed that the 17 August phone call between Iranian Foreign Minister Kamal Kharrazi and Azeri Foreign Minister Vilaiat Guliev resolved some misunderstandings.9

The Kremlin has done little to allay Tehrans fears that the Russian-Iranian condominium, hinted at by Presidents Putin and Khatami in March, will turn out to be short-lived. During Deputy Foreign Minister Ali Alhanis hasty visit to Moscow in August, the two countries reiterated that the 1921 and 1940 Soviet-Iranian treaties remain in place.10 However, these treaties deal with navigation and fishing, not oil exploration.

Moscow also refused to repeat the March 2001 Putin-Khatami statement that no bilateral boundaries or agreements on use of the Caspian can be signed before the final comprehensive regime is agreed upon. At the same time, Moscow did not fully support the position of its CIS allies. Nor did it approve Azerbaijani President Alievs statement that the four post-Soviet littoral states should negotiate among themselves, excluding Iran.

However, after initial hesitation (and a lukewarm reaction from the U.S. Department of State ) Iran decided to hang tough. According to Agence France-Presse, Irans Deputy Foreign Minister Ahani claimed that no energy exploitation by bordering countries should take place in disputed parts of the sea. Interviewed by Iran News, his superior, Foreign Minister Kamal Kharrazi, escalated the rhetoric further, declaring that no bordering country has the right to exploit its energy reserves before a legal status is established for the sea.11 Such statements indicate either that Russia has not been effective in curbing Iranian intransigence or that Moscow has an interest in the growing tensions in the Caspian region, which could slow oil exploration there.

Moscows equivocation has contributed to Irans assertiveness. Iran is Russias third-largest weapons buyer (after China and India) and, in October, Iranian Defense Minister Admiral Ali Shamkhani signed in Moscow a multi-billion dollar contract for supply of sophisticated weapons to Tehran.12 Russia may, therefore, have an interest in engaging Iran as a potential strategic partner against the United States, despite a secret 1995 agreement between then-Prime Minister Victor Chernomyrdin and Vice President Al Gore limiting advanced arms sales from Russia to Iran.13 (In fact, President Putin renounced this U.S.-Russian agreement in the fall of 2000.)

Finally, it is in the interest of both Iran and Russia to keep the United States and Turkey from expanding their influence in the area. In this respect, the developing relationship between Russia and Iran is similar to the Sino-Russian attempt to construct a condominium in Central Asia, an alliance evidenced by the June 2001 Shanghai Six agreement and the July 2001 Sino-Russian Treaty of Friendship.

Russian interests in the Caspian go beyond keeping Iranian-Azeri relations in check. Russia is attempting to juggle complex, and often competing, interests in this key geo-economic region. From a security point of view, Russia is interested in remaining the predominant military power in the Caspian. It boosted the military capabilities of its Caspian flotilla while the rest of the Russian Navy deteriorated. Moscow conducted live-fire maneuvers of the flotilla during President Putins visit to Baku in February 2001, in a blatant demonstration of gunboat diplomacy that predated that of Iran in August.14

Moscow may be unhappy with the demonstration of air power exhibited by Turkey when 10 F-16s accompanied the Turkish Chief of Staff General Hussein Kivrikoglu on a visit to Azerbaijan on 23 August.15 However, Moscow itself began an arms race in the region by supplying MIG-29 fighter jets and integrating its air defenses with its ally, Armenia.

Such tension underscores Russias balancing act. Russia and Iran may be allies, but they are also geopolitical and geo-economic competitors. While Moscow and Tehran are both trying to block any trans-Caspian oil and gas pipelines (which would go via the sea bottom in an East-West direction),16 each would prefer diverting energy flows to its respective territory.

Moreover, Moscow energy analysts believe that Russiaa high exploration-cost country that is saddled with a large national debtwould fare better in a tight energy market, with oil prices above $20 per barrel. But, according to Sergey Generalov, the former Russian energy minister, this is the price floor, which makes exploration in the Caspian profitable.17 And plans to expand the North-South transportation corridor from Europe to the Persian Gulf and to route the Caspian oil through Russia and Iran may result in hundreds of millions of dollars in revenue for the two governments.18

Putins warning to Iran that the Caspian must remain the sea of tranquility and his rapprochement with the United States and NATO over the fight against terrorism signals that the Kremlin is continuing its multi-vector policy of being friendly to the West (including the multinational oil companies) while attempting to direct the flow of Caspian oil and gas to its own pipelines. At the same time, Moscow must handle Iran with care, given that Russia is now part of the Western anti-terror coalition, while Iran is an important buyer of Russian arms and a potential partner for the Kremlin against the United States and its interests in Central Asia and the Middle East.

The entrance of Turkey into the Caspian equation will require a diplomatic tight rope dance from Moscow. A traditional Russia foe, Turkey is now also a major Gazprom customer through the Blue Stream pipeline.

Internal CIS Realpolitik would appear to dictate that the Kremlin protect its allies even against Iran, and prevent them from turning to the West. CIS allies will judge Moscow based on its ability to guarantee the stability needed to allow for the effective demarcation of the Caspian.

Finally, Washingtons growing interest in the Azeri-Iranian conflict could result in U.S.-Russian consultations and even cooperationto ease tensions in the region.

Protecting the Region from Aggression

The war on terrorism emphasizes the necessity of protecting U.S. interests in volatile regions, including the Caspian. It also makes obvious the necessity to keep Iran in check. Iran continues to support terrorism, has criticized Washington after the 11 September attack, and has not assisted the United States in its war effort. In order to keep the peace in the Caspian region and protect vital energy resources, the Bush Administration should:

  • Issue a statement, which is more emphatic than 25 July expression of concern by Philip Reeker of the U.S. Department of State.19 The statement, delivered by a senior Administration official, should support peace and security in the Caspian and warn Iran not to use its military to violate the status quo. This statement should contribute to rapid and commercially viable development of the Caspian energy resources, based on existing and future production-sharing agreements.
  • Endorse a new U.N. Security Council resolution calling for solving all disputes in the Caspian by peaceful means only. In this context, Great Britain could also intervene with its European Union allies, such as France and Germany, to generate support for demands that Iran refrain from any and all future use of force. As President Vladimir Putin called for peaceful settlement of claims in the Caspian, Russia should also be involved in drafting the U.N. resolution on peace in the Caspian, which it should support in the Security Council.
  • Support demands by the Caspian littoral states to negotiate a demilitarization treaty that would cover the entire area. Such an agreement, proposed by Kazakhstan and Azerbaijan, would require Russia and Iran to withdraw their militaries from the Caspian and would prohibit their future use in the region.
  • Promote amendments to Sec. 907 of the 1992 Freedom Support Act which would allow the United States to develop, supply, and train Azerbaijani ground, naval and air border guards. Sec. 907 was passed by the U.S. Congress at the height of the Nagorno-Karabakh war, which ended in a cease-fire in 1994. The rationale for this legislation no longer applies, as the two sides, Armenia and Azerbaijan, are now genuinely seeking peace. The national security and energy interests of the United State require that Sec. 907 now be lifted or at least amended to allow direct military ties with Azerbaijan.
  • Expand Azerbaijani ties with NATO and its military capabilities through the existing Partnership for Peace (PfP) contacts. Azerbaijan will benefit from NATO contacts and expertise, including training and capacity-building to protect its borders.

Conclusion

A weak Western response to Iranian provocation in the Caspian region may invite further moves by Tehran that would endanger promising energy projects in the area. Such energy development projects benefit U.S. and Western interests and promote the independence and economic development of post-Soviet states. The United States, in view of its good relations with Great Britain and other countries of the European Union, as well as its improving relations with Moscow, should mobilize the United Nations and the international community to protect the peace in the Caspian.


1 See: Mahir Iskenderov and Tim Wall, Caspian Sea Disputes Flare, Raising Doubts about Oil and Gas Exploration, Eurasianet.org, 7 August, 2001 [www.eurasianet.org/departments/insight/articles/eav073101.shtml].

2 See: Azerbaijan Protests Over Iranian Ship Interception, BBC News, 24 July, 2001, 14:35 GMT [http://news/bbc.co.ukl/hi/english/world/asia-pacific/newsid_1454000/145426/stm].

3 The author wants to thank Elena Simonova, The Heritage Foundation intern, for assistance with the tables.

4 See: Theodore C. Jonas, Esq., Parting the Sea: Caspian Littoral States Seek Boundary Disputes Resolution, Oil and Gas Journal, 28 May, 2001, p. 66.

5 For detailed treatment of the legal aspects of the problem see: Professor Bernard H. Oxman, Caspian Sea or Lake: What Difference Does It Make, Caspian Crossroads, Vol. I, Issue 04, Winter 1996. Available at [www.usazerbaijancouncil.org].

6 See: Azerbaijan Protests Over Iranian Ship Interception.

7 See, for example: Brice M. Clagett, Esq., Ownership of Seabed and Subsoil Resources in the Caspian Sea Under the Rules of International Law, Caspian Crossroads, Vol. I, Issue 03, Fall 1995.

8 Michael Lelyveld, Russia: Moscow May Intervene In Caspian Dispute, Radio Liberty-Radio Free Europe Newsline [www.rferl.org/nca/features/2001/08/03082001113745.asp].

9 Michael Lelyveld, Iran: Hurdles Remain In Improving Ties with Azerbaijan, Radio Liberty-Radio Free Europe Newsline [www.rferl.org/nca/features/2001/08/21082001111410.asp].

10 See: Michael Lelyveld, Russia: Iran Seeks Assurances on Caspian Division, Radio Liberty-Radio Free Europe Newsline [www.rferl.org/nca/features/2001/08/14082001115154.asp].

11 Ibidem.

12 See: Russia, Iran to Step Up Military Cooperation, Agence France-Presse, 5 October, 2001 [www.djinteractive.com].

13 See: Leonid S. Severtsev, Rossia-Iran: Druzhba Navek? Dipkurier Internet [ http://world.ng.azimuth/2001-04-05/5/friendship.html].

14 See: Vladimir Socor, The Guns of Summer: Iran Prowls the Caspian, Wall Street Journal Europe, 3 August, 2001, p. 7.

15 See: Michael Lelyveld, Iran: Hurdles Remain In Improving Ties with Azerbaijan.

16 See: A.P. Guzhvin, Dlia kogo-to Kaspiibolshaia igra, dlia astrakhantsevzhizn, Neftegazovaia vertikal, No. 4, April 1998, pp. 22-25.

17 See: Georgy Osipov, Neft vpadaet v Kaspiyskoie More, Segodnia, No. 167, 1 August, 2000 [www.segodnya.ru/w3s.nsf/contents/2000_167_econom_text_osipov1.html].

18 See: Leonid S. Severtsev, op. cit.

19 U.S. Concerned by Iranian Threats in Caspian Sea, Agence France-Presse, 26 July, 2001.


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