October 9, 2015

Arithmetics for the “Caspian Five”: Is It “5” or “4 + 1”?

Oleh Makhno

Vice-President "Borisfen Intel"


The Caspian Sea

A year ago, an event took place in Astrakhan that at that time drew special attention of the world community — the 4th Summit of the so-called Caspian Five — Azerbaijan, Kazakhstan, Iran, Russia and Turkmenistan — countries, each of which claims its part of the Caspian Sea and its continental shelf, and, of course, hydrocarbons, in which the Caspian region is rich. And if today the military conflicts in the Donets Basin and the Middle East, so to speak, have pushed this event behind the scenes of the world geopolitics, it does not mean that it has been assigned a secondary role. This is confirmed by Russia's recent military exercises on the Caspian Sea, during which they were mastering an “anti-terrorism” scenario with firing, landing from LLS (large landing ships) and armored vehicles... And the talks about Iran's intention to have at its disposal Russian missile systems and the Russians' willingness to meet this desire half way, once again suggest that if it comes to resolving the Caspian issue, it will not happen easily. Moreover, it can be argued that if at one time it will be resolved, it is unlikely that all the Caspian states, without exception, will be pleased with the decision and will comply with the agreement signed. At least one of the participants in the “Five” — Russia — always takes its own way with agreements. As a rule, in a way beneficial to Moscow, especially when it feels that it is “being overcome on historic turns” ...We'll speak more about this a bit later.


The Truth of the Matter

Possible division of the Caspian Sea

At the end of World War II, the Soviet Union and Iran signed an agreement on the use of the water area, shore and mineral resources of the Caspian Sea(it should be mentioned that at the beginning of World War II military units of the Red Army of the USSR entered Iran and controlled it until 1946, when they had to leave at the request of the Iranian leadership). In fact, this agreement had been in effect until the Soviet Union's falling apart. The former Soviet republics, and now independent states — Azerbaijan, Turkmenistan and Kazakhstan — demanded to legitimate their rights to natural resources of the Caspian Sea, which was quite logical. Iran did not mind the revision of the current agreement, because it also was not satisfied with the previous agreements on the division of the Caspian Sea, according to which Iran had only 9 % of it. Tehran suggested a purely “mathematical” new way of division: each of the five candidates should gets 20 %. As for the length of the Coastal Zone of these countries, they are as follows: Azerbaijan — 955 km, Kazakhstan — 2320 km, Iran — 724 km, Russia — 695 km, Turkmenistan — 1200 km. Willy-nilly, they all had to sit down at the negotiating table to harmonize their interests. As the process took more than a year, and as we see, another summit has ended and the next one has been appointed, the interests of the “Five” do not coincide. At the latest, the 4th Summit, they agreed to establish two zones in the Caspian Sea — the coastal and the marine zones. That is the 25-mile coastal zone for fishing (at this, each party has the exclusive right to extract resources in the 15-mile zone and the 10-mile zone for fishing).

By the way, speaking about the ecology of the Caspian Sea. It is in such poor condition that no one dares to speak officially about profits in the industrial fishing. The lack of control over fishing (read — poaching) in recent years has resulted in the number of sturgeon having decreased to a minimum, and the price of the famous black caviar in the world market, according to experts, is higher than the price of oil and gas taken together. Here one can advance a claim against, first of all, Russia, whose irresponsible actions on the development of the Volga, with industrial activity in its estuary, polluting the River with sewage and the construction of dams and reservoirs has significantly reduced spawning of the sturgeon, 90 % of the world's population of which live in the Caspian Sea. That is why among the documents signed in Astrakhan, there is an Agreement on Conservation and Rational Use of Water Biological Resources of the Caspian Sea, which, finally, will make Russia take care of aquaculture and, in particular, restore fishery resources.

At the 4th Summit they also signed agreements on hydrometeorology and emergency situations.

In fact, it can be assumed that only the first stage is completed, where the Caspian countries wishing to get their potential share of the Sea's natural resources, are at last, establishing new rules for their coexistence in the new historical conditions — after the collapse of the Soviet Union. After all, as we have already mentioned, in the international “Caspian arena”, Russia (as the successor of the USSR) and Iran have recently been joined by three countries, of which Azerbaijan and Kazakhstan back in 2003 entered into a tripartite agreement with the Russians on the division of the northern sea shelf, where each country develops the existing oil fields as it likes. But the United States, by the way, were able to realize in the Caspian Sea the program “Caspian Guard”, which allows Azerbaijan, Kazakhstan and Turkmenistan to technically control the waters of the Sea, the coastal zone and airspace.


Pages of History

Map of the Caspian Sea and surrounding areas in 1736

The role of the Caspian Sea in the development of inter-state relations is well known from history. The region is an important point of the Big Silk Road and the crossroads with access to the Middle East and Europe. For example, Azerbaijan since the 15th century had been actively trading with Genoa and Venice. Sea ways to India across the ocean were controlled by Portugal. Sea routes of the Mediterranean and the Black Sea were under the control of the Ottoman Empire. Britain was building active relationships, as it was interested in the spice, raw silk, precious stones, etc., trade. Russia also was attracted by this rich region. Even in the times of Peter I (particularly in the period 1709–1724), Russians wedged from the north to the Caucasus and the Caspian lands to “clip coupons” from trade deals and at the same time to send caravans from east to west along the then new Volga-Caspian route.

Thus, the Russian Tsar demanded to take strict measures to the merchants, who did not want to use the trade routes in the territory of Russia and, accordingly, to pay the tax to the Russian treasury. But he soon began to organize military campaigns to capture the Caspian lands and, in particular, to exit from under the action of June 12, 1711, the Prut Agreement with Turkey, according to which Russia had, for example, “to destroy Taganrog harbor and the fortress of Azov, not to build a fleet there, not to have ambassadors in Istanbul, not to interfere in the affairs of Poland, Kabarda and Zaporizhzhya Cossacks”.

In 1722 Peter I embarked on another Caspian campaign, which has been studied in detail and described by historians. By the way, there is one detail about it, to which we cannot help paying attention today. I mean the excerpt from the second part of the Manifesto written on the occasion by the Russian tsar and sent on the eve of his trip to Derbent, Baku and Gilan. It concerned the relationship with the local population. Peter I's Manifesto contained the following requirement: “To all commanders and the army: officers and all commanders of infantry and cavalry, and other officers, and, in general, all the soldiers have been given a firm order and instruction” not to offend anyone, not to frighten, not to touch villages and hamlets, and not to do any harm. Does it not remind us of today's “polite men” in the Crimea, who like their ancestors sought not to frighten the local people by their appearance, so that the local population did not oppose the cynical annexation of the Ukrainian territory?

...Later, Moscow also tried to hold in its hands the oilfields of the Caspian Sea. For example, in the early 20th century, when there was a so-called Great October Socialist Revolution, and in the middle of the same century, when the Second World War began, in the most critical for itself moment of the summer-autumn of 1941, Moscow sent troops into Iran, and in modern times, when it tries to implicitly control the oil and gas market of the Caspian countries, considering this its exclusive right. It sees the division of the Caspian Sea as inappropriate worries, but it will never neglect this region, which it considers to be potentially more important than the Donbas and Luhansk region taken together.


The Current Turbulent Times

Interestingly, today the trade exchange between Russia and the four Caspian countries is 33 billion US dollars, of which Iran accounts for only 1.6 billion. Perhaps this trade will increase due to lifting of international sanctions against Iran, in which Russians are very much interested, because they have experience of cooperation with Iran in the nuclear energy sector, the construction of the Bushehr nuclear power plant.

No wonder the Russians are trying to make Iran their political ally, promising in the long term to help Iran in aerospace and energy industries, as well as in the construction of the railway. True, there is an important point here: after the lifting of international sanctions, Iran will compete with Russia in the export of oil and gas deliveries to Europe (it is being actively discussed in the international markets), hoping to fill up the budget, as well as to receive investments and the latest technologies from Western partners.

Iran most likely is inclined to cooperate with the West, especially if we take into consideration modern approaches to the organization of gas and oil markets. After all, Western investment is transparent, it allows to see the prospects of the industry, besides Europeans are against the fragmentation of the market and and the gas suppliers' owning oil and gas pipelines, and thus exclude the monopoly in this extremely important issue. And where there is no monopoly — there dominate civilized market relations, are significantly reduced chances for all kinds of gas deals and blackmail like the termination of gas deliveries from Russia to Europe in the winter of 2008-2009...


It is very difficult for Azerbaijan to defend its interests. It has not got the desired at the Caspian Sea. The development of its economy today is the most dynamic in comparison with its neighbors, but Azerbaijan's leadership believes that it is significantly affected by the confrontation with Armenia, especially in Nagorno-Karabakh. Today, Azerbaijan's oil production is decreasing significantly. While in 2014, it amounted to 41.9 million tons, in the current, 2015, it is expected to receive 40.7 million tons. As for gas, in 2015 they expect to produce 30.2 billion cubic meters, while in 2014 they produced 29 billion 615.3 million cubic meters of gas.

This is extremely important for the economy of Azerbaijan, because its GDP is by 52 % formed at the expense of the oil sector. Moreover, the current budget of Azerbaijan was made based on the oil price of 90 US dollars, while today its real price is 50 US dollars. The Finance Minister of Azerbaijan, Samir Sharifov, has recently said that the price will continue in the next few years, and mentioned the reason for it — an inefficient oil production in old fields, while new ones are being developed by foreign companies. The price is also affected by the increased oil production in other countries (for example, in the USA), so in the international markets offer prevails over demand. Adhering to independent enough, but balanced multi-vector policy in the international arena, Azerbaijan seeks to act pragmatically, seeking its own benefit, and not trying to put on the agenda the question of joining, for example, NATO, as it is well aware that this issue is premature, and the country may come back to it only after the idea has been implemented by Georgia. Azerbaijan is also buying Russian weapons for its Armed Forces for use in the confrontation with Armenia.


It should be noted that foreign companies, like in Azerbaijan, are also involved in oil production in Kazakhstan, which now owns 29 % of the Caspian shelf. Kazakhstan's economy is mainly based on the income from the sale and use of hydrocarbons, but, unlike its neighbors, Kazakhstan also pays enough attention to the reform of the mining industry. In fact, Kazakhstan is seeking to make its industry national, and this is the peculiarity of the economic changes in the country, which is very attractive for foreign investment. First of all, because Kazakhstan manages to virtually avoid possible complications at the international level and to consistently defend its national interests.

Thus, in the 90s of the last century, in north-western regions of Kazakhstan, there emerged a separatist movement, the supporters of the ideas of which were representatives of local non-Kazakhs population that after the collapse of the USSR found itself within the new Kazakh country. It did not come to the arrival of “polite little green men”, but the slogans of “Nashists” (“ours”) at the household level was enough to get the reaction of the Kazakh leadership, the most revealing manifestation of which was the transfer of the Kazakh capital from Alma-Ata into the center of the country, where Astana was built very quickly.

And in the Caspian region, since the first days of declaration of its independence, Kazakhstan began creating a Navy to protect its borders. By the way, the length of the border between Russia and Kazakhstan is 7.5 thousand kilometers, which, this way or other, influences their relationship, such as cooperation within the framework of the Eurasian Union. Also, thanks to the imposed on Russia international sanctions, Kazakhstan can take advantage of the situation and attract investors that have curtailed their work with the Russians.


Economic prospects of yet another member of the “Caspian Five” — Turkmenistan — completely depend on the country's leadership's ability and willingness to determine the direction of development of the state. We can judge about such a willingness from the specific facts. For example, the government of Turkmenistan also cooperates with foreign companies. In particular, together with the Japanese, Turkmen specialists have developed plans to build a number of industrial enterprises for the processing of natural gas, based on the most advanced technologies. There has been planned construction of ten enterprises for production of diesel fuel, gasoline, caustic soda, polypropylene, polyvinyl chloride and seventeen other gas chemical products.

The Turkmenistan's government has announced its plans to build large gas processing facilities in the Balkan and Dashoguz provinces, at the Turkmenbashi complex of oil refineries, to expand the gas field “Galkinysh”. Speaking at the Council of Elders on the 10th of September this year, the President of Turkmenistan told about the planned implementation of the project of the Turkmenistan — Afghanistan — Pakistan — India gas pipeline, about the prospects of Turkmen gas supplies to Europe as well as to Mongolia, by using the transit transport infrastructure of the transnational gas pipeline Turkmenistan — China (By the way, due to the fact that the Afghani mujahideen wanted to get some profit from this project, Turkmenistan had to turn to China for help to resolve this issue). Turkmens are also planning this year to complete the work on diversification of the hydrocarbon export, having oriented its oil and gas sector to increasing the depth of processing of raw materials and production of finished products.


About the importance for the Russian Federation of “keeping abreast” at the Caspian Sea and in the Caspian Region, we can judged by its active participation in Summits, where Moscow tries to persuade its colleagues that it is absolutely “objective” in its approaches to in this difficult issue. Although, frankly speaking, Moscow sees the redistribution of the Caspian Sea as its geopolitical trouble: putting Europe on the gas and oil “needle” and trying to profit greatly from this, Russia is trying to remove in advance its potential competitors in such an important matter. In other words, it wants the Caspian hydrocarbons in the nearest future not to compete with its own hydrocarbons, which are delivered to Europe from the Russian North. This was one of the main reasons for the “Caspian Five” failing to realize the idea of turning the Caspian Summits into a permanent Organization for the Caspian Cooperation. Because, according to “Borysfen Intel”'s experts, the organization's work is possible only under the condition that its members have no complaints for each other and cooperate on the principles inherent in, for example, the EU or NATO. In reality, almost each country of the “Caspian Five” has a “skeleton in the closet”. Thus, Azerbaijan is practically in a state of war with Armenia because of the large areas captured by the latter, and has some unresolved issues with Iran.

As we have mentioned, Turkmenistan has constant border problems with Afghanistan and unsolved territorial problems with the same Iran and some neighbors from the north. Kazakhstan does not intend to blindly go in the wake of Russia's policy, from time to time to justifying its actions by national interests, and quite sharply responding to some Moscow's “free historical” statements in its address. Most likely, this is the reason why has not been implemented the long-standing idea of joint construction of a modern highway around the Caspian Sea that was supposed to solve the eternal problem of interstate road connections.


Surely to Be Continued

The quite long negotiations of a year ago were completed more or less calmly. But this does not mean that “the case is closed”. The theme will be continued in 2016. What and how will be decided then, largely depends on the development of international events, such as those associated with Ukraine or the war in the Middle East, Western sanctions against Russia, refugees in Europe, and so on. And it remains to be seen whether in 2016, at the 5th Summit they will manage to sign the Convention on the Legal Status of the Caspian Sea. At least, analysts of international relations are not sure they will. The participants of the Summit are not sure either. In any case, each of them is preparing “spare convincing arguments”: Russia is strengthening its Caspian flotilla and is conducting exercises “to neutralize terrorists” by firing ship's rockets on units of Islamic State in Syria; Azerbaijan keeps buying weapons and military equipment from the same Russia; Kazakhstan is developing its fleet and has recently acquired combat boats for its border guards; and Iran in recent years has been purposefully strengthening its naval power, building on its shipyards not only tankers, but also warships designed for fighting in the ocean and the Caspian Sea.

The neutral Turkmenistan is going to actively develop its economy, which should guarantee its security, including security of maritime boundaries. Its Navy cannot be considered powerful, because it consists mainly of a dozen and a half of boats purchased from Turkey, Ukraine, the United States and Russia, and which are subordinate to the Turkmen border troops. The only demonstration Turkmen naval exercises were held back in 2012, when the tasks were carried out mainly to neutralize conditional terrorists. A few days ago, a new Defense Minister of Turkmenistan was appointed, and the dismissed one was appointed the Commander of the Garrison of the Naval Forces of Turkmenistan.

So each of the “Caspian Five” is consolidating its positions trying to have at least theoretical “excuses” to do so.

Outlining the prospects of the Caspian Sea, it is not superfluous to remind that several years ago, Russian political expert Alexandr Sobyanin said: “We see the reality of the Caspian Sea — the brittle balance and absence of war are possible only and exclusively at the indisputable advantages of one country — Russia. Any step of the rest of the countries' Navies' in the direction of matching the capacity of the Caspian Flotilla will break the delicate balance and increase the possibility of hostilities. So far the task is being fulfilled — the capability of the Caspian Flotilla exceeds the capabilities of all other Caspian countries taken together”. As they say, comments are superfluous. But the question is: how and on what principles will the naval power of the Caspian neighbors be developed in the closed waters?

The military-energy map of the Caspian region

According to experts of “Borysfen Intel”, a military confrontation with the participation of the above-mentioned countries is hardly possible in the nearest future. After all, the problem here is not just production of gas or oil. It is important to arrange their marketing, that is, to determine the demand. So far this is a hard task. Iran is being considered, as we have already mentioned, only as a potential supplier of oil and gas to Europe, which will be full only when the sanctions are lifted. Russian “Gazprom”, always positioning itself as the master here, in anticipation of the loss of the monopoly on the supply and dropping of gas prices, is forced to extinguish its “gas playfulness” and somehow to respect its neighbors across the Caspian Sea — Kazakhstan and Azerbaijan. But they all still do not see the need to invest into the development of this business a lot of money because of low world prices for hydrocarbons. After all, trade without profit can't be considered trade.

What conclusions suggest themselves about further developments in the Caspian Sea? Negotiations of the “Caspian Five” will further continue without making any concrete decisions, from which Russia benefits more than anybody else. The Russian Federation, in its turn, taking care of its GDP, will try to improve the marketing of its hydrocarbons from other regions (for example, through extending the Northern Stream gas pipeline, and constructing a new one through Turkey, etc), while seeking to mitigate the West's sanctions against it. Therefore, the “Caspian Five” has all the chances to get the format of “Four + One”, where Russia may be exactly that “one-aloner country” and rattling with the weapon to oppose the interests of its Caspian neighbors. And today, after the shelling by ship missiles of rebels in Syria, it is understandable why Russia is seeking just in case to have a powerful Caspian Flotilla, which is not as “harmless” as its sailing great-grandmother in the time of Peter the Great was.