Disputes Caspian Oil Disputes*
[Reviewed]

August 3, 2001

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Hunt for Oil on Caspian Sea Stokes

Border Feuds and Arcane Theories

By STEVE LEVINE

Staff Reporter of THE WALL STREET JOURNAL

BAKU, Azerbaijan -- On a hot day last week, scientists working for oil giant BP PLC looked out from their aging research vessel, the Geofizik-3, to a disturbing sight coming across the Caspian Sea: an Iranian patrol boat, with machine guns mounted on its deck.

While no shots were fired, the Geofizik-3 and a sister ship were quickly shooed out of what Iran considers its own territorial waters. The trouble is, BP reckons those waters belong to Azerbaijan, under whose aegis the oil giant is leading a consortium exploring that part of the Caspian. But try telling that to Turkmenistan, which wasted no time reiterating its own claims to part of the same area.

A decade after the demise of the Soviet Union boosted the number of sovereign nations abutting the Caspian Sea to five from two, one of the planet's smallest seas has spawned one of the world's most spirited land grabs. The five countries -- Kazakstan, Turkmenistan, Iran, Azerbaijan and Russia -- are jockeying for position, each trying to stake the largest possible claim on some potentially huge oil fields that lie beneath the Caspian. While relatively little new oil has flowed so far, the increasingly intense competition has released a flood of paperwork and maneuvers: maps, surveys, treaty appraisals, legal opinions, diplomatic cables, bombastic proclamations and now armed confrontations on disputed frontiers.

A Core Question

Almost no assumption has gone unchallenged. That includes squaring off over some seemingly self-evident facts. One heatedly debated question at the core of the dispute: Is the Caspian really a small sea, or is it in fact a big lake?

According to scientists, it has qualities of both. But science won't settle the matter. "In the end it boils down to who can muster the political wherewithal to get their point across," says Guive Mirfendereski, a Newton, Mass., lawyer and author of a recently published book titled, "A Diplomatic History of the Caspian Sea." Mr. Mirfendereski describes the current chapter in that history as "a complete mess."

Among other things, the border disarray shows how the Soviet Union's collapse still reverberates through this corner of the defunct communist empire, even as these new nations gain importance to the West. For years, many foreign oilmen and diplomats largely ignored the boundary dispute, regarding it as a controlled curiosity. The festering disagreement also didn't really impede oil companies and states from proposing to develop promising oil finds.

The Geofizik-3 incident has changed all that. As more oil companies' plans move from drawing board to execution, more conflicts are likely. Russia's position that Caspian waters are jointly controlled, for example, may embolden it to try to scuttle U.S.-backed plans for a cross-sea pipeline running from Kazakstan to Azerbaijan.

BP, which is deeply involved in developing oil fields in the region, immediately suspended work in the disputed area, and the company is currently "evaluating our options," a spokesman says. Some countries, including the U.S., worry that even a minor escalation of conflict could hamper oil exploration and drilling for years.

"All it takes is one cannon shot at one oil rig to shut it down," says Daniel Matthews, an American lawyer based in Azerbaijan.

The Astara-Hosseingholi Line

The various Caspian disputes, which first erupted in 1994, have roots that go back eons. Lake or sea, the Caspian is the world's largest inland body of water. Measuring about 750 miles from north to south and averaging about 200 miles wide, it encompasses an area about equal to the landmass of Japan. Geologists agree that millions of years ago it was part of a great sea, connected to vast oceans by the Black Sea to its west.

Czar Nicholas I claimed the whole of it for Russia in the mid-19th century. That kept Caspian politics simple for many decades. In the 1950s, the Soviet Union negotiated a boundary with its single Caspian neighbor, Iran. They drew a line across the water from Iran's northernmost point on the Caspian's western shore -- near the Azerbaijan town of Astara -- to Iran's northernmost point on the Caspian's eastern shore, near the Turkmenistan town of Hosseingholi.

The Astara-Hosseingholi line cleanly partitioned the Caspian. Iran got 11%; the Soviets got the rest.

Then, three years after the republics of the Caspian broke free of the Soviet Union in 1991, Azerbaijan signed an oil deal allowing a BP-led consortium of oil companies to develop three known oil fields off its shores. That's when things got complicated.

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Oil and Water

The map below shows how the Caspian would be divided under the current claims of the five nations abutting the sea. The BP research ship Geofizik-3 (pictured at left) is located in an area on the map where claims by Azerbaijan, Turkmenistan and Iran overlap.

Five million to two million years ago The Caspian is cut off from the world's oceans, reconnected, then cut off again as the Caucasus Mountains rise into existence.

1854 Czar Nicholas I fully consolidates Russian control over Caspian.

1917 Soviet Union formed.

1954 Soviet Union and Iran negotiate Astara-Hosseingholi line, partitioning the Caspian in two.

1991 Soviet Union breaks up, creating five Caspian states.

1994 Russia declares the Caspian essentially a sea; Azerbaijan signs a western oil deal, says it's a lake.

Last Week Iranian gunboat forces research vessel Geofizik-3 to stop working in disputed area.

Source: Baker & McKenzie, Wood MacKenzie Consultants Ltd. and Middle East Economic Survey

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Russia, which hadn't been able to confirm many oil deposits off its Caspian shores, had issued a threat five months earlier: The Caspian was the common property of the states surrounding it, and Caspian nations needed permission from all the others to develop undersea resources. Those without it risked unspecified "consequences."

In legal jargon, the Russians were essentially counting the Caspian among the world's seas. And seas, under international practice, aren't divided into national sectors.

Azerbaijan objected. Caspian countries control the area all the way to the midway point between themselves and the nearest country, it said. In other words: It's a lake. And according to international practice, lakes are divvied up among countries.

A pattern was set. The "haves" of the Caspian -- countries such as Kazakstan and Azerbaijan, with probable huge offshore oil deposits -- were attracted to the ideas of lake proponents. The Caspian "have-nots" -- Russia, Iran and Turkmenistan -- tended to favor the notions of sea advocates.

But with so much at stake, the pattern was broken as needed. Caspian countries began mixing and matching legal theories from whichever school of thought best suited their ambitions.

Western business interests, smelling profit in the quarrel, were happy to help. Law firms delivered meticulous renderings of supposedly crucial agreements -- the Irano-Soviet Treaty of Friendship of 1921, the 1940 Convention on Commerce and Navigation. Consultants and think tanks weighed in on the lasting importance of the Astara-Hosseingholi line.

'Enclosed Sea'

Kazakstan eventually pronounced the Caspian an "enclosed sea." Translation: Caspian water could be a sea, but everything underneath is another matter. The bottom is like a lake bed, controlled by the nearest country. It's natural that Kazakstan adopted this posture, since off its shore lies Kashagan, which appears to be not only the largest oil field by far in the Caspian, but the largest find anywhere in the world in three decades.

Then, in 1997, what looked to be four large oil fields were discovered off Russia's shores. Moscow soon came around to Kazakstan's way of thinking. The two agreed that the northern Caspian, at least, was an enclosed sea.

Iran and Turkmenistan fumed -- and made more maps.

Khoshpakht Yusufzade, 71 years old, is a vice president of Socar, Azerbaijan's state oil company. He is among those appointed to talk with Iran about the recent Geofizik-3 incident.

In his office in the capital city of Baku, maps peek from every crevice -- rolled maps, colored maps, folded maps, framed maps and maps taken from satellite photos.

He pulls one map from a valise. "Look here," he says, unfolding a rendering of each state's proposed borders and pointing to a gray boundary put forth by Iran. "We're not ignoring them. We appointed a team that started working on this as soon as this became an issue."

Despite the appearance of the Iranian gunboat last month, Mr. Yusufzade remains confident that a diplomatic solution will be found. "We, a small republic of eight million people, are going to fight a war against a country of 65 million people?" he asks. "That's stupidity. We'll find a common language, and all these questions will be answered."

Just how isn't clear. Under slightly varying borders proposed by Azerbaijan, Kazakstan and Russia, Iran would get only about 14% of the Caspian. Turkmenistan would get 18% to 20%, but few apparent oil fields. Kazakstan, meanwhile, would have about 29% and Azerbaijan about 20%.

Iran and Turkmenistan want much more. Turkmenistan's map, for example, shows Azerbaijan's two largest oil fields squarely within Turkmen territory. Meanwhile, Iran says 20% of the Caspian is Iranian, including three rich oil fields claimed by Azerbaijan. Iran will also have to sort that one out with Turkmenistan. Turkmen officials claim part of one of those three fields, too.

Pressure for a Solution

The appearance of an Iranian plane over the Geofizik-3 on the afternoon of July 23 -- and the arrival of the patrol boat about seven hours later -- was a reminder that the pressure for a solution is rising.

Azerbaijan's speedy decision to move the BP ships out of the area didn't go unnoticed. Sensing an opening, Turkmenistan immediately restated a competing claim, accompanied by its own vague threat. "Turkmenistan will soon take decisive actions of its own unless Azerbaijan halts further work on the disputed blocks and adopts a more conciliatory position in negotiations," said Stan Polovets, an adviser to the Turkmen Ministry of Oil and Gas, to whom the Turkmen government referred media inquiries.

In a way, this was the day Azerbaijan President Heydar Aliyev thought he was prepared for -- an attempted military grab of part of his country's riches. He deliberately assembled an international cast of foreign oil companies to work in his country, assuming that their governments would come to the rescue should their fields be at risk. Only, none has offered more than vague assurances. U.S. National Security Adviser Condoleezza Rice said last week, addressing reporters in Moscow, "We believe that the Iranians need to be dealt with pretty clearly on issues like this and on issues like weapons of mass destruction."

Some of the states have complained of a naval buildup on the sea. Still, all sides say they will soldier on with negotiations. Even before the Geofizik-3 incident, Turkmenistan's president, Saparmurat Niyazov, invited the region's other leaders to his country in October to try again to settle the matter. It's unclear how many, if any, will attend. Analysts and diplomats say the most likely eventual solution is some Caspian-wide version of the agreement hammered out between Kazakstan and Russia, treating the surface like a sea and the bottom like a lake.

Mr. Mirfendereski, the author, applauds any effort at negotiation. He says the Caspian nations tend to get the legalities wrong in their zeal to stake a claim, as anyone who has read the Russian-Iranian treaties and notes of 1723, 1725, 1732, 1813, 1828, 1881, 1893, 1954, 1957 and 1962 can plainly see. To avoid anarchy, he says, the states ought to return to basics in their talks, which in his view is the Astara-Hosseingholi line.

"As it is," he says, "anybody with a gunboat is going to be staking out a part of the sea near the coast where there's oil and begin drilling."

Write to Steve LeVine at steve.levine@wsj.com

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