What Comes After the Caspian Sea Deal?

The presidents of the five countries with coastlines on the Caspian Sea — Azerbaijan, Iran, Kazakhstan, Russia, and Turkmenistan — agreed in August on the sea’s legal status after 22 years of negotiations. U.S. sanctions against Iran have somewhat devalued the importance of the agreement, especially with regard to implementation of economic projects in the region. However, the agreement can become the foundation of a regional security system and form the international legal basis for establishing good-neighborliness. This, in turn, significantly reduces the risks of regional conflicts.

The Caspian summit in August was the latest step in 22 years of discussions and dispute over the status of the sea, but it is by no means a finalized comprehensive agreement. In particular, ownership of the southern part of the seabed (and what it contains) is still in limbo. Iran, with the smallest coastline, is still holding out.

According to Article 7 of the Convention, the surface of the sea stays in common use with exception of a 15 mile zone extending out beyond the coast lines, plus another 10 miles each for exclusive fishing, under full control of littoral countries. Meanwhile, the Convention has had to fudge the details and not include geographical coordinates of the borders or even state the principle by which delimitation should occur. The compromise is that delimitation should be solved in both two- and three-sided formats as applicable. Azerbaijan, Iran, and Turkmenistan will use a variant of the middle modified line. It will help, for instance, Iran to lift domestic political obstacles for negotiations with Azerbaijan on a real delimitation of the southern part of the Caspian Sea.

Access to hydrocarbons is the most important element but the Convention has other elements too. It prohibits non-Caspian countries from establishing military bases or having armed forces present in any of those five countries. This part of the Convention was approved at an opportune moment to respond appropriately to the newly emerging challenges to regional security.

The introduction of a new package of U.S. sanctions against Iran in early November, as well as the work of U.S. diplomacy in the region with Iranian neighbors, have returned the situation in the Caspian Sea region to the state of 2015, before the signing of the Joint Comprehensive Plan of Action (JCPOA) on the Iranian nuclear program. The presence of the Convention reduces the risk of military conflict in the region, but of course cannot neutralize the impact of economic sanctions on regional cooperation.

Of more potential significance for Western energy companies, the agreement sets up rules for the construction of major transborder projects such as a Trans-Caspian pipeline. This means that, officially at least, there are no political obstacles for this long-discussed project and its implementation depends solely on economic and security factors.

The Convention is an important step for regional cooperation but it is not the final step in the battle for the ownership of the Caspian. True, it has summed up the meager progress made over the past 22 years and shown the West that some regional cooperation between autocracies is possible.

In the wake of the summit, there are several issues that still need to be worked out over the next few years. The most promising trend is a dialogue between Iran and Azerbaijan. The countries are on the way to activating cooperation, including in the energy sector. Iranian President Hassan Rouhani’s official visit to Baku in March resulted in a preliminary agreement on joint development of oil and gas fields. New common energy projects in the region might be expected, but cannot be developed without Western technologies due to geological difficulties. Thus U.S. sanctions became a serious obstacle for the deepening of Azeri-Iranian cooperation. According to unofficial information, SOCAR, the Azeri state oil company, has informally suspended the implementation of its agreements with Iran.

In this regard, the position of Brussels will play a crucial role for implementation of Azeri-Iranian energy projects and Iran’s transformation into a supplier of oil and gas to the European Union. If the European Commission turns words about its support for energy companies against U.S. sanctions into actions it would help to develop new important connections for European energy security projects.

Meanwhile, the Convention and additional documents set up a legal framework governing the construction of large infrastructure projects, the implementation of which may affect the environment of the sea. Conditionally, if Azerbaijan and Turkmenistan plan to build a Trans-Caspian gas pipeline, they should provide their neighbors with full information about the parameters of the project, technical characteristics, and geographic coordinates of the route. After that, within a period of not more than 180 days, the interested parties should provide their recommendations on the elimination of possible negative consequences of the project. Consultations are also envisaged to agree on the final parameters of the project. In other words, nonparticipants of such projects will still have information about them and can ask to implement additional measures for protection of the environment.

However, despite lifting legal restrictions for the Trans-Caspian project several political hurdles can negatively affect the implementation of the pipeline. For instance, Chinese influence in the Caspian region is becoming more and more ponderous, especially on the east coast. Due to Chinese position as the main (and today the only) major consumer of Turkmen gas, Beijing could also argue against the Trans-Caspian pipeline. This influence will increase even more if China’s plans to construct a fourth branch of the gas pipeline from Turkmenistan to China through Uzbekistan, Tajikistan, and Kyrgyzstan are implemented. Beijing would be not only the main consumer of regional natural gas but a main energy dispatcher in Central Asia.

Azeri-Turkmen relations have a long way to go. Despite Baku’s attempts for a joint exploration of the controversial Serdar/Kapaz oil field, Ashgabat systematically declines. Such stubbornness adversely affects not only bilateral relations, but also the political environment for the implementation of the Trans-Caspian project. In this regard, it is also interesting how the Trans-Caspian project approval procedures will be implemented in practice. It’s not clear whether Russia and Iran would use the Protocol try to increase the cost of the project or delay its construction due to environmental requirements.

The implementation of agreements made in Aktau will likely occur in the next year or two. However, successful realization of the emerging opportunities will largely depend on political will and the willingness of the participating countries and foreign companies to overcome the many political, technical, and financial difficulties and constraints.