Sergei Zhiltsov, Ph.D., observer for the magazine Vestnik Kaspiia, consultant on the Standing Committee of the Russia-Belarus Union State (Moscow, Russian Federation)

The dynamics of interrelations among the Caspian states are determined by the regions hydrocarbon and biological resources. But after the Soviet Union collapsed, disputes over the use of biological (lucrative fish, primarily sturgeon, stocks) and hydrocarbon supplies (the development of coastal and offshore oil and gas fields) have become particularly aggravated.

The biological resources are mostly found in the fresh and shallow waters of the Northern Caspian. The rich biogenic river runoff, the extraordinarily favorable spawning and cultivation conditions, and the limited role of carnivorous predators make this part of the sea a kind of kindergarten for its most valuable species of fish: great sturgeon, stellate sturgeon, and barbel sturgeon. It is no accident that during the 1970s, this water area was declared a protected zone. The value of sturgeon is in its black caviar. This expensive delicacy is in great demand on the international market, where it goes for a much higher price than oil. Of course, the decline in sturgeon catches in the Caspian has also led to a decline in black caviar production.

Russia and Kazakhstan: Campaigning for Oil

Despite the detrimental effect it is having on the environment and the decline in commercial fish harvesting, the Caspian states are taking steps to further develop the oil and gas fields.

In 2002, Russia, Kazakhstan, and Azerbaijan signed bilateral agreements on the delimitation of adjoining sections of the seabed, and in mid-May 2003, a trilateral document on the point of intersection of these sections was entered. Russia, like Kazakhstan, is trying to increase its influence on the Caspian, as least in its northern part. It can do this by jointly developing promising structures with its closest coastal neighbors, as well as by retaining its dominant position in the transportation of hydrocarbons to the foreign markets.

In the summer of 2003, Russian and Kazakhstani oil and gas companies took their first steps toward joint development of fields in the Northern Caspian. LUKoil signed an agreement with Gazprom on assimilating supplies located in Russian territory, which resulted in the formation of TsentrKaspneftegaz. This joint Russian company and the Kazakhstan National Oil Company, KazMunaiGaz, intended developing the Tsentralnaia structure together, which is in Russian territory, 150 km to the east of Makhachkala. LUKoil estimates these deposits at 512 million tons of standard fuel. What is more, this company hopes to participate in developing the Kazakhstani Tiub-Karagan and Kazakhstan structures in cooperation with KazMunaiGaz.

In the very near future, there are plans to begin developing the Kazakhstani field, Kurmangazy, which borders on the water area that falls under Russian jurisdiction. KazMunaiGaz is participating on the Kazakh side as project developer, and Rosneft on the Russian side. At that time, there were plans to bore the first two wells (2,000 and 1,300 m deep), which would provide a final assessment of the structures oil- and gas-bearing capacity. The work was to be carried out with the help of an Astra self-hoisting drilling installation and Ispolin semi-submerged device. And not until the exploration wells have yielded positive results, will the next stage in the work begin in 2004-2006: three-dimensional seismic surveying, drilling, and the testing of several experimental wells. According to the estimates of the Kazakh side, the republics fields are expected to produce up to 100 million tons of oil by 2005, which is twice as high as the current level.

The increasing activity of both countries oil companies is essentially opening up a new stage in the development of the Northern Caspian oil fields. But the urgent question of how active Russian oil companies are to be in assimilating the fields in the Kazakhstan sector has still not been resolved. The agreement between Moscow and Astana on delimiting contiguous sections of the seabed does not mean that Kazakhstan is interested in attracting Russian oil money. Negotiations between their companies are extremely intense, but Astana is also holding an active dialog with western oil companies, trying to involve them in the development of the republics hydrocarbon resources. The list of these companies is extremely impressive: the French company, Total, the British-Dutch company, Royal Dutch/Shell, Spains Repsol, and British Gas. And it is more than likely that this list will grow.

Finally, the participation of Russian companies in the development of fields located in the Kazakh section of the Caspian will also be determined by political factorsbilateral relations between Russia and Kazakhstan, as well as the influence of the U.S. and other countries.

In all likelihood, Russian companies will have to deal with extremely tough competition not only from Kazakh oil companies, but also from western consortiums. And the position of Russian companies will largely be determined by their level of interaction with state structures. The experience of the past ten years shows that the relationship between Russian capital and the state suffers its ups and downs, and they frequently compete with each other for the right to define the strategy of action in the Caspian Region.

Capital and Power: Which Is to Lead?

Now that companies are taking hold of the fields in the Northern Caspian, the topic of relations between Russian business and the state is once more becoming popular. But it is not clear if they can find any common ground.

At the beginning of the 1990s, when new players appeared in the Caspian, Moscow should have taken into account the ambitious plans of the Caspian states to increase the deliveries of oil and gas to the foreign markets, as well as the growing influence of western companies in developing their fields. Head of the Central Asia and Kazakhstan Department of the CIS Countries Institute Andrei Grozin noted that Russia, Azerbaijan, Kazakhstan, and Turkmenistan have a common strategy for boosting hydrocarbon export. But for Kazakhstan, Azerbaijan, and Turkmenistan, this task is difficult to cope with since they are entirely dependent on Russia in terms of transportation and communication. Overcoming this problem is the main task for these countries. Whereas Russias strategic goal consists of making sure that the Caspian republics transport raw hydrocarbons through its territory.

Moscow has been unable to make full use of the advantages that could reinforce its foothold in the Caspian Region. Although it controls export pipelines and knows all it needs to about the fields, it has still yielded its leading position to western states and reduced its influence on the countries of the region. The reasons for its rather inert energy policy are explained by the delayed reaction of the state structures to the processes going on. After the geopolitical situation in the region changed, the Russian side began to make the Caspian Seas new status hinge on the development of its resources. By upholding the principle of common water, which it seems should have been the main issue when developing the seas new legal status, it offered the Caspian countries conditions which, before entering a new agreement, they could not have worked under in the Caspian without coordinating their activity with Russia and with Iran. In other words, the matter concerned continuing the former practice of using the Caspian under principally new geopolitical conditions.

Russias oil diplomacy at that time was notorious for its lack of coordination and at times serious divergence in the views of the state structures and the oil business on the events going on in the region. This is explained by the fact that they did not have a clearly formulated program of joint action. For example, the Russian Foreign Ministry noted more than once that, with respect to its participation in Caspian contracts, LUKoil essentially approves dividing the Caspian in a way the ministry opposes. It strictly objected to its sectoral division, whereas the countrys oil companies strove to actively participate in Caspian consortiums.

The independent steps of Russian oil companies, which had a keener and more efficient reaction to the situation, were not widely supported by the state structures. It was obvious to the latter that the Caspian has great prospects for Russia, but no one understood the mechanisms by which national interests under the new geopolitical conditions were to be defended. In other words, the state structures were still not willing to see the oil companies as a tool of foreign policy strategy, although oil diplomacy was one of Moscows most effective levers both in relations with the Caspian countries, and with states outside the region. As a result, the interrelations between these structures in the Caspian were more reminiscent of competition than cooperation.

The situation dramatically changed when Kazakhstan started making increasingly active preparations to develop its section of these fields. In order to raise relations with the other coastal states to a new level and gain access to developing their deposits, including those located in disputed areas, Russia suggested delimiting the seabed between contiguous and opposite-lying states, while leaving most of the water cover and surface in general use. In mid-1998, Moscow and Astana signed an agreement on delimitation of the bed in the northern part of the sea. In this way, Russia agreed to certain sections of the Caspian seabed being divided among the coastal states, that is, essentially decided to reconsider its policy in the region. This significantly reduced the likelihood of a conflict arising over disputed fields, since the Russian-Kazakh agreement left the sea in general use, but at the same time introduced clarity into the legal status of its northern part. It can be said that Russia took a pragmatic approach, since the new division of the Caspian going on could have left it on the sidelines of the regional processes.

The change in Moscows stance was due to several factors; in particular its new approach reflected the colossal geopolitical shifts occurring in the region. It became clear that strict adherence to former views and sole orientation toward the Soviet-Iranian treaties without looking for new ways of cooperation could lead to Russias isolation, restrict its influence in the region, and cut the countrys companies off from taking part in developing the fields. But it still retained the possibility of influencing the Caspian republics by means of its pipelines. Of top priority among them was the northern routefrom the Tengiz field (Kazakhstan) and from Azerbaijan through Russia to the Black Sea port of Novorossiisk.

When Vladimir Putin was elected Russian president in March 2000, a new stage began in Russias foreign policy regarding the region. For example, with respect to the joint development of disputed fields, Moscow suggested (in mid-2000) proceeding from the 50/50 principle, and instituted the post of special presidential representative for the Caspian Region at the level of deputy foreign minister, which allowed it to conduct a more precise policy here and coordinate the efforts of the state structures and business.

A new feature of Russias policy in the region was also the fact that Vladimir Putin, in contrast to his predecessor, relegated oil companies to the back seat and began to use Russias status as a major exporter and transporter of hydrocarbons to strengthen national security and the countrys defensibility. This tool of foreign policy is being used with increasing frequency at present. In all probability, this is precisely what will allow Moscow to retain relatively efficacious levers of geopolitical influence in the next decade, which is something western experts also note. In particular, according to Ariel Cohen, an analyst from the Washington Heritage Foundation, Russia is playing the energy card in the Caucasus and Caspian Region with increasing vivacity, since many of the states that have come into being since the collapse in the Soviet Union depend on deliveries of energy resources from Moscow.

What is more, under Vladimir Putin, Russia succeeded in completing work on a project initiated by the Caspian Pipeline Consortium (CPC), that is, the Tengiz-Novorossiisk oil pipeline. Its construction was finished in mid-2001 and was a diplomatic success for Russia in the Caspian, since Moscow obtained the right to pump Kazakh oil. Along with the financial advantages and the building of a terminal on the Black Sea, this pipeline reinforced Russias influence in the region and reduced the significance of alternative oil export routes from the region (or postponed this issue until a later date).

By using the pipeline as a tool of foreign policy, Russia allowed the Caspian countries to transport hydrocarbons to the foreign markets, but nor was it interested in Azerbaijan and Kazakhstan appearing on these markets as its competitors, or in Turkmenistan taking part in the world trade of natural gas.

Russias more active policy in pipeline transportation was also its response to the actions of western states to create a new pipeline system for transporting hydrocarbons from the Caspian and its adjoining territories. For example, in order to dampen the interest of the regions republics in cooperating with the U.S. in this sphere, at the beginning of 2002, Moscow came forward with the initiative to create a Eurasian alliance of blue fuel manufacturers, of which Russia, Turkmenistan, Uzbekistan, and Kazakhstan were to be members. The matter concerned coordinating their export policies. Russia put forward this proposal under the influence of increasing competition over future hydrocarbon export routes, as well as due to the appearance of American military bases in the Central Asian countries, which led to an increase in commercial opportunities for U.S. companies. According to Viktor Kaliuzhniy, special Russian presidential representative for the Caspian Sea, the main prerequisite for creating a gas alliance was the system of main pipelines built back in Soviet times and linking the countries in question (the throughput capacity of this system was 80 billion cubic meters per year).

The agreement (for 15 years) on the transit of Kazakh oil through Russian oil pipelines signed in July 2002 should also be considered part of Moscows pipeline policy. This document envisages pumping up to 15 million tons of oil a year via the AtyrauSamara oil pipeline and at least 2.5 million tons a year via the MakhachkalaTikhoretskNovorossiisk oil pipeline system. Signing this agreement is very important for Russia since it gave it the status of a transit country. The rather strict guarantees that Kazakhstan offered for such a long time regarding the pumping of its oil mean that essentially all of its export, including deliveries by the CPC (the volume of which will grow), will still go through Russia. In this respect, Astanas participation in other projects, including Baku-Ceyhan, at least in the next few years, is extremely doubtful (from the viewpoint of Kazakhstans oil resources). The agreement signed by the Russian and Turkmenistan presidents in March 2003 on cooperation in the gas sphere, intended for 25 years, should also be considered in the context of Moscow reinforcing its foothold in the region. This agreement made it possible for Moscow to take control over all the main suppliers of the Caspians resources.

In this way, for the past three years, Russia has been consistently carving itself a niche in the Caspian Region, primarily resolving the geopolitical tasks it considers important.

Sturgeon: In a Sea of Oil or in Sea Water?

The oil and gas scenario for exploiting the rich resources of the Caspian is having a negative effect primarily on fishing and the fishing business as a whole, since drilling in the Northern Caspian began in sturgeon spawning and cultivation grounds, as well as in their migration paths. From the losses incurred from sturgeon harvesting alone, the Caspian countries will lose an annual sum of approximately US$6 billion. What is more, the caviar business, the annual turnover of which is estimated at US$10 billion, will incur significant losses (more than 90%). The economic value of other biological resources is also sufficiently high. For example, the annual seal catch is estimated at US$22.3 million, pike perch at $14.4 million, Caspian roach at US$13 million, bream at US$2.4 million, and wild carp at US$2.1 million. Despite the measures adopted (quotas, artificial cultivation, restricting the place and time of fish harvesting, licensing, etc.), the size of the sturgeon population continues to decline.

But an agreement has still not been signed on preserving and using the bioresources of the Caspian. Russia began talking about the environment at the official level in the 1990s, but more as a political lever when it felt that Kazakhstan and Azerbaijan might start building a pipeline along the seabed, which would deprive Moscow of control over the flow of energy resources, than due to actual anxiety about the environmental state of the sea.

At present, the critical state of the sturgeon stocks in the Caspian is compelling Russia to raise the question of a temporary moratorium on their commercial exploitation with a simultaneous increase in their artificial reproduction. At the same time, serious talk is going on in the country about drawing up a federal law regarding state monopoly on the production and sale of caviar and other products from sturgeon.

As we have already noted, the Russian government is essentially against laying pipelines along the Caspian seabed. It is actively supported in this by the Iranian leadership, since this construction could be of irreparable damage to the seas ecological balance. Russias stance on this issue was expressed by A. Urnov, head of the Working Group on the Caspian of the Foreign Ministry. He noted in particular that such plans should be put on hold until a general agreement has been reached by all the Caspian states on the new legal status of the sea, or at least until questions concerning its environmental safety have been resolved. The unique Caspian ecosystem and its biological diversity are extremely vulnerable due to the closed nature of the water area. Under these conditions, drawing up measures to minimize damage to the marine environment is of immense significance, particularly due to the possibility of technically caused or natural accidents on the pipelines. This is even more urgent since the designated routes will pass through sections of extremely active geodynamics. Such measures should be coordinated at the level of all five states, since an accident on these routes will be of detriment to the interests of each of the coastal states.

All of these countries are not hiding their ambitious plans to increase the export of oil and gas 2-3-fold in the next decade. In this respect, it can be expected that competition between these and other states outside the region will develop during this time in the search for new routes for pumping hydrocarbons to the foreign markets. In all likelihood, the seas biological resources will become the victim of these plans and long-term geopolitical goals.

Summing Up

The sectoral principle for dividing up the Caspian does not meet either the political or the economic interests of Russia. In recent years, it has succeeded, although with great difficulty, in defending its point of view. For if each of the coastal countries sets its own rules and procedures for using the seas fish resources, this unique biosystem will soon be entirely depleted.

Taking into account the current reality, Moscow is in favor of sovereign subsurface use, of delimiting the seabed, of granting each country the right to develop the fields in its own zone, and of working jointly in disputed zones. The matter does not concern delimiting territory, rather we are talking about the interstate redistribution of resources. In so doing, the water cover will remain in general use, which will make it easier to resolve the seas environmental and biological resource problems. Taking into account the deterioration in the environmental situation, Moscow will suggest rapidly entering an agreement on the environment and bioresources, without waiting to conclude an all-encompassing convention on the Caspians legal status.

In this context, Russia should concentrate its efforts on resolving two interrelated strategically important problems. First, ensuring proper use of the environmental protection and natural resource component of its policy in the region as a tool for opposing attempts by certain countries to reduce Moscows role and influence on the political and economic situation in the region. Second, taking every possible measure to preserve the marine ecosystem. After all, in the final analysis, the Caspians biological resources, as opposed to its raw minerals, are renewable and if used properly could serve people for centuries.

From the geopolitical viewpoint, resolving both of these problems depends directly on the international legal justification of Russias rights to this water area, as well as its strategic role in preserving its bioresources and ecosystem, which are threatened with destruction.

If we proceed from the long-term interests of all the Caspian states, their well-considered and coordinated approach to managing all the different natural resources in the Caspian seems not only to be the correct solution from the legal point of view, but also the only solution in every other respect.

Russian companies have already begun to actively apply the results achieved by the countrys leadership in defining the international legal status of the Northern Caspian. But it is not yet clear whether Moscow can reinforce its foothold, or whether the Caspian Kazakh sector will become another attractive place for western oil money to flex its muscles.

It goes without saying that Russian oil companies and the state can both compliment and support each other, as well as compete with each other in the region for the right to determine its development strategy. The latter can only be engaged by the Caspian states, which are still looking for new export routes and have stated more than once that they do not like being dependent on Russia in terms of delivering hydrocarbons to the foreign markets. In all likelihood, Moscow will find it has rivals when bioresources and new fields are developed in the Northern Caspian, which means it will need to promote greater consolidation of the efforts of domestic oil money and the state structures.

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