CASPIAN SEA DISPUTES FLARE, RAISING DOUBTS ABOUT OIL AND GAS EXPLORATION
Mahir Iskenderov and Tim Wall: 7/31/01

The lack of clarity in the Caspian Sea’s status is fueling confrontation among Azerbaijan, Iran and Turkmenistan, pushing tension in the region to dangerous levels and stalling oil and gas development. At least one Western oil company caught in the middle of the disputes has suspended operations in the region. The governments of Kazakhstan and the United States have urged restraint while calling for negotiations to resolve the Caspian question.

Azerbaijan and Iran have been sparring since July 23, when an Iranian gunboat challenged two Azerbaijani oil exploration vessels – which were conducting environmental studies on behalf of the BP Amoco conglomerate in the disputed Araz-Sharg-Alov field. Iranian officials asserted that the Azerbaijani ships were operating in Iran’s territorial waters. At the same time, Azerbaijan and Turkmenistan have feuded over debts. Bilateral discussions aimed at establishing a repayment framework to settle Azerbaijan’s debt to Turkmenistan ended in acrimony July 29. The two sides remain far apart on the amount of money owed by Baku to Ashgabat.

The disputes have already had a chilling effect on oil and gas development. Turkmenistan and Iran vigorously oppose efforts to develop natural resources in disputed areas until the Caspian Sea’s status is resolved. That opposition has prompted BP Amoco to suspended surveys in disputed areas until the sea is demarcated.

Finding accord on the Caspian’s status promises to be a complicated process. A summit to resolve the Caspian question has already been postponed twice this year. Iran claims the Araz-Sharg-Alov field, 150 kilometers (roughly 100 miles) southeast of Baku, as its own, while Azerbaijan says the area is within its territorial waters, as established by Soviet-era treaties that granted Iran a 14 percent share of the Caspian seabed. BP, with a 15 percent share, is the operator of the Araz-Sharg-Alov, according to the terms of a July 1998 Production Sharing Agreement between Azerbaijan and an international consortium. BP's partners comprise the Azerbaijani state oil company SOCAR (with a 40 percent stake), ExxonMobil (15 percent), Statoil (15 percent), Turkey's TPAO (10 percent) and Alberta Energy (5 percent).

Iran is seeking an equal 20 percent share of the sea's mineral rights. Azerbaijan, Russia and Kazakhstan oppose the equal division of the sea, and instead favor the establishment of national sectors among the littoral states. Such an arrangement would leave Iran with a smaller share. Turkmenistan is pursuing a middle path between the two positions. The maritime borders are due to be discussed at a summit of the Caspian countries' presidents this fall.

Officials in both Azerbaijan and Iran have publicly expressed a desire to resolve their differences through negotiations. However, media reports from Iran suggest that feelings continue to run high over the Caspian’s status. The English-language Tehran Times claimed July 26: "Following the imprudent act of Azerbaijan, supported by Britain, the Islamic Republic of Iran has deployed its military ground forces to Iran-Azerbaijan borders, said an unnamed informed source." On July 29, Azerbaijani officials claimed that an Iranian reconnaissance plane operated in Azerbaijani airspace for four hours.

Azerbaijani officials have steadfastly defended Baku’s position regarding the Caspian, while pointing to a planned visit by Azerbaijani President Heidar Aliyev to Tehran in August as an opportunity to reduce tension.

To a large extent, the Azerbaijani-Iranian dispute has overshadowed Baku's feud with Turkmenistan. Long-simmering tensions boiled over last month, when Ashgabat closed its embassy in Baku. [For additional information see the Eurasia Insight archives]. The two countries are jockeying for control of a Caspian oil field named Kyapaz by Azerbaijan and Serdar by Turkmenistan. The field is estimated to hold reserves of 2.3 billion tons of oil. The field, which was the subject of an aborted PSA between SOCAR and Russian major Lukoil in 1997, remains undeveloped due to uncertainty relating to its status.

Turkmenistan has helped ratchet up tension by sending signals that it intends to develop the field on its own. The Turkmen media has reported that the Ministry of Oil and Gas Industry and Mineral Resources of Turkmenistan plans to create a drilling fleet soon in its sector. Some analysts in Baku have expressed concern that Ashgabat’s offshore ambitions may not be limited to the Kyapaz/Serdar field. Ashgabat, they say, may be aiming to gain control of the highly-promising Azeri and Chirag fields currently being developed by the Azerbaijan International Operating Company (AIOC), also operated by BP.

The debt discord heightens the difficulty of finding common ground on Caspian-related issues. Turkmenistan claims that it is owed almost $60 million by Baku, including about $37 million for natural gas deliveries in 1993-94. Azerbaijani officials, meanwhile, accept responsibility for only about $19 million in debts, saying that the remainder is owed by private companies. Ashgabat has assailed Azerbaijani officials for maintaining an "uncompromising and insincere position of double standards," according to the semi-official Turkmenistan.Ru website.

Editor’s Note: Mahir Iskenderov and Tim Wall are freelance journalists based in Baku.

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Posted July 31, 2001 © Eurasianet
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