EurasiaNet Business & Economics - Caspian Basin Competition Kicking Into High Gear

BUSINESS & ECONOMICS

CASPIAN BASIN COMPETITION KICKING INTO HIGH GEAR
Afshin Molavi 3/14/01

Azerbajani President Heidar Aliyev on March 12 began a state visit to Turkey. The same day, Iranian President Mohammad Khatami was wrapping up a landmark summit meeting in Moscow with Russian leader Vladimir Putin. The travels of these two key Caspian region leaders indicate that the competition over the region’s vast oil and gas resources is kicking into high gear.

A key issue in the battle for control over natural resources and export routes centers on the territorial division of the Caspian Sea. A meeting of the five Caspian Basin states � Azerbaijan, Iran, Kazakhstan, Russia and Turkmenistan � was originally planned for March 8-9 in the Turkmen capital Ashgabat, but it had to be postponed to allow for further bilateral talks.

Agreement on Caspian delimitation appears as elusive as ever. Iran is emerging as a powerful force in the search for a Caspian settlement, and does not appear content with the current thinking on territorial division. Under the current framework, Iran would gain a 14 percent share. Iran has been seeking to persuade the littoral states to divide the resources equally, 20 percent per country. Azerbaijan, along with Russia and Kazakhstan, has expressed opposition. Turkmenistan, a large natural gas supplier to Iran, has sided with Tehran’s view, though Iranian diplomats grumble privately that Ashgabat’s support is more talk than action.

During his Moscow visit, however, Khatami appears to have scored a significant diplomatic triumph by apparently convincing Russia to reevaluate its Caspian position. A joint declaration issued by Khatami and Putin said that both Iran and Russia will not recognize any Caspian deal unless it receives unanimous approval from all five states.

Although some Caspian observers still do not expect Iran to achieve its ultimate 20 percent aim, the Khatami-Putin meeting might pave the way for an acceptable solution. Caspian policy watchers say that Russia might be prepared to rewrite the division map to grant Iran an extra 1 or 2 percent.

Azerbaijani leaders have assailed the joint Iranian-Russian declaration. Ultimately, it may take a bilateral meeting between Aliyev and Khatami to iron out remaining Caspian differences. Aliyev is scheduled to visit Iran next June, but Caspian policy watchers in Tehran may be reluctant to mark their calendars. Three previous "scheduled" visits over the past two years have been postponed over policy differences, and the two countries continue to gripe over a range of issues from Caspian Sea resource-sharing to geopolitical alliance-building and, even, electricity distribution.

Even if a Caspian agreement is brokered, Iran-Azerbaijan relations are likely to remain rocky. Both sides have a laundry list of grievances, beginning with geopolitical concerns. Iran accuses Azerbaijan of opening up the Caspian to Israel due to its close ties to the Jewish state. It also complains that Azerbaijan’s ties to NATO offer the North Atlantic alliance a foothold in the region, a criticism echoed by Moscow.
Azerbaijan, in its delicate attempts to break away from the Russian orbit by increasing ties with the United States, finds Iran’s constant criticism disruptive. One Azerbaijani official put it this way: "We are surrounded by Russia and Iran, two big states with big armies. It makes sense to seek
alliances elsewhere." Russian-Iranian relations will play an important role in the course of ties
between Baku and Tehran. Caspian observers in Tehran have said that a conciliatory approach toward Russia could strengthen ties between the two states and undercut the regional influence of the United States, by lessening the power of Azerbaijan and Kazakhstan.

The issue of pipelines also strains ties. Iran is angered by Azerbaijan’s reluctance to support a pipeline plan through the Islamic Republic, even though Western oil companies have backed the idea. The Iran News daily reported that, in retaliation for lack of support from Baku, Iran cut off
electrical supplies in late October 2000 to the Nakhichevan autonomous region that borders northern Iran. Iran provides up to 60 percent of the Azerbaijani exclave’s electricity. The cut-off personally angered Aliyev, who hails from Nakhichevan.
Later, it emerged that the electricity cut-off was prompted not so much by pipeline politics, but by Iran’s frustration with slow debt payments from Azerbaijan on a power-for-diesel fuel deal for which Tehran says Baku still owes $45 million. And the list goes on. Azerbaijan says Iran is too close to Armenia. Azerbaijan’s ambassador to Iran Abbas Ali Hassanov recently said publicly: "Why does Iran have relations with Armenia, which occupies 20 percent of our territory (Nagorno Karabakh), expelled 1 million Azerbaijanis, and are these people not Muslim?" Ignoring Baku’s concerns, Iran, along with Greece, recently signed a tripartite agreement with Armenia pledging increased commercial and political cooperation.
Iran also complains privately of what they view as Israeli-inspired attempts to incite Iran’s large Azerbaijani community. Up to 25 percent of Iranians are ethnic Azerbaijanis. Like most Iranians, ethnic Azerbaijanis are frustrated with the deteriorating economy and the slow pace of promised political reforms, but there is little genuine support for an irredentist movement. Amid all of these spats - large and small - there also exists a fundamental mistrust on both sides that hamper the improvement of ties.

A Western oil consultant familiar with Azerbaijani official thinking put it this way: "Aliyev finds the Islamic Republic to be arrogant and meddlesome. He also personally dislikes Iranians. He knows he has to deal with them, but he would just as soon see them disappear entirely." An Iranian official, speaking on condition of anonymity, described official Tehran’s view toward Azerbaijan: "There are many that think Azerbaijan is just this little state that goes calling to Israel and Mossad and the United States for help and is bought and sold by oil interests and US interests. We have trouble trusting them as Caspian partners, because they would rather be American partners."
Still, despite the mistrust and the occasional bouts of heated rhetoric, signs have emerged that a slight thawing may be underway. In early February, Aliyev surprised local observers by attending a ceremony in Baku commemorating the 22nd anniversary of Iran’s revolution. Iran’s Supreme
Leader Ayatollah Ali Khamenei has, in turn, sent greetings to Aliyev through intermediaries. Last month, cooperation agreements were signed between local chambers of commerce and a customs agreement easing taxes on road vehicles was agreed. Nevertheless, it will take more than customs agreements and chambers of commerce signings to overcome the real differences between the two states.

Come June, Aliyev may show up in Tehran after all, but it remains to be seen if he will have a pleasant visit.

Editor�s Note: Afshin Molavi is a journalist based in Tehran, Iran. His work has appeared in the Washington Post.

The Central Eurasia Project aims, through its website, meetings, papers, and grants, to foster a more informed debate about the social, political and economic developments of the Caucasus and Central Asia. It is a program of the Open Society Institute-New York. The Open Society Institute-New York is a private operating and grantmaking foundation that promotes the development of open societies around the world by supporting educational, social, and legal reform, and by encouraging alternative approaches to complex and controversial issues.

The views expressed in this publication do not necessarily represent the position of the Open Society Institute and are the sole responsibility of the author or authors.