In view of some movement in the dispute over the Caspian Sea legal regime, I interrupt my series on “How Shah-Deniz Is Changing the Equation” for a two-part analysis of these recent developments. I begin with a review of the background. Before 1992, the Caspian Sea legal regime was regulated by treaties signed by Persia and the Russian Soviet Federated Socialist Republic (not the USSR) in 1921, and between Iran and the USSR in 1935 and 1940. The latter two treaties defined the Caspian as a “Soviet and Iranian sea.” None of these treaties established any maritime boundary between the two states.

The only geographical zone that was defined as controlling the use of resources, was the right of each state to fish in its coastal waters up to a limit of 10 nautical miles. Yet even this zone was not defined as a fisheries zone or a territorial sea under law. None of these agreements referred specifically to division of rights to exploit resources in the continental shelf. The Soviet republics did themselves establish a division of the Caspian for certain administrative purposes.

Three Possible Caspian Sea Legal Regime Frameworks

Joint Use. According to a document signed at a CIS summit on March 20, 1992, “the states participating in the CIS guarantee the fulfilment of international obligations arising from treaties and agreements of the former USSR.” This binds the successor states to respect the terms of the 1940 treaty. The problem is that even the limited Caspian Sea legal regime established by that treaty does not take into account the existence of five littoral states. The sea itself was to be regarded as a “joint Soviet and Iranian sea.” This gave rise to the idea, proposed by Russia in the early 1990s and supported by Iran, of defining the entire Caspian and its resources as subject to a “joint use” regime — which, strictly speaking under law, is not exactly the same as its being a “joint sea”.

International Sea. Another possible Caspian sea legal regime is as an international sea located between independent states. In this case the 1958 and 1982 Law of the Sea Conventions would apply. They allow each state to claim full jurisdiction within 12 nautical miles of the shoreline and an Exclusive Economic Zone (EEZ) over an additional 24 miles. In this case, some of the offshore oil fields for which Azerbaijan has already signed contracts on investment and exploitation by transnational energy corporations would fall outside that country’s EEZ. The “international sea” solution does not decide the questions of how to allocate natural resources or what kind of Caspian Sea legal regime (unilateral, condominium, or joint) to apply to the “free zone” outside the national territorial and EEZ waters.

Another legal technicality also crops up. To be considered an international sea, the Caspian Sea must be linked to other seas by a navigable channel. And indeed it is: by the Volga and Don rivers and the Volga-Don canal, which link it to the Sea of Azov, itself an inlet of the Black Sea. However, the Volga-Don canal is not a salt-water channel and would therefore require clarification under international law. Indeed, Kazakhstan could then claim access to the Baltic through the Volga-Baltic Sea Canal and the Volga-Akhtyuba delta. If the Volga-Don canal acquired international status, then Russia would be required to provide free passage to all Caspian littoral states through it.

Inland Lake. A third possibility is to consider the Caspian Sea an “inland lake.” Under international law, this would mean that no coastal state would be able to take any unilateral action or establish national control over seabed resources without the agreement of all the others. Any national sectors eventually delimited would be under the absolute sovereignty of the given coastal state, and no rights of innocent passage would be guaranteed unless expressly agreed.

In the early 1990s, the Russian Foreign Ministry’s preference for regarding the Caspian as an inland lake conflicted with the Russian Fuel and Energy Ministry’s permission given to LUKoil to participate in the consortium to develop certain offshore Azerbaijani fields — and also with its support for the BP-led exploration of the Caspian seabed off Kazakhstan. LUKoil’s agreement with Azerbaijan damaged the Russian diplomatic position on the Caspian Sea temporarily, creating difficulties for Russian negotiators. LUKoil unsuccessfully sought to induce the Ministry of Foreign Affairs, which spoke against Azerbaijan’s move, to alter its position.

Caspian Sea Legal Regime Developments in the Mid-1990s

As a result of the difficulties just mentioned, Russia proposed another arrangement in late 1994. It would have provided for a 20-mile “zone of influence” for each coastal state and the establishment of a condominium-like (i.e., “joint rule”) governing board. For obvious reasons, Azerbaijan and Kazakhstan, the two countries with the most important offshore oil reserves, did not like this proposal. Only Iran supported Russia’s 1994 proposal in the beginning, and indeed this support was only rhetorical, since Iran did nothesitate to explore unilaterally its own Caspian shelf.

Turkmenistan originally sided with Azerbaijan and Kazakhstan. However, throughout 1994 and 1995 Russia refused to unlock valves that would have allowed Turkmenistan to make gas sales to hard-currency countries. This policy permitted Ashgabat to sell only to Ukraine and the south Caucasus. These countries were unable to pay for their consumption, and their gas debt was variously converted. In the case of Ukraine, it became a hard-currency loan plus repayment-by-barter agreement (brokered and guaranteed by the IMF with active official US participation); for Azerbaijan, it became a barter-plus-repayment-in-kind agreement; and in the case of Armenia, the gas was simply periodically cut off.

The effects on Turkmenistan’s foreign trade balance and general economic condition were of course disastrous. By coincidence or not, Turkmenistan’s opposition to the 1994 Russian proposal on the status of the Caspian Sea disappeared over the course of summer and autumn 1995.
In practice, there is little difference between negotiations that take as their point of departure Russia’s premise that the Caspian is an “inland lake”, to be exploited only with Russia’s active participation, and a “joint use” fig-leaf that covers over a free-for-all in which Russia’s preponderant force is exerted against other riparian states. These two approaches share the unspoken premise that Russian economic influence in Central Asia in the early 21st century, exerted through Russian energy trusts, would contribute to satisfying some Russian geopolitical security concerns. Official declarations by the Foreign Ministry notwithstanding, LUKoil’s actions were consonant with this premise.

Increased participation by Russian energy trusts in the exploitation of Caspian energy resources promotes Russia’s geopolitical health. Russia not only played this game with Turkmenistan but also took advantage of its transport monopoly to oblige Azerbaijan and Kazakhstan to cede portions of relevant ventures to LUKoil and other Russian energy trusts. Just recently, Gazprom has strongly entered the Kazakhstan energy field, taking over the operations of the Belgian company Tractebel, which left the scene disappointed with its dealings with various bureaucracies in Almaty.

The Caspian Sea Legal Regime “curiouser and curiouser”

Russia changed its position in December of 1996, when it called for a 45-nautical mile exclusive national zone, beyond which a joint-use zone in the centre of the Caspian would be regulated by an interstate committee to license exploration. Russia also called for a joint corporation of the littoral states to exploit the resources, joint navigation rights, as well as joint management of fisheries and environmental protection. Iran implicitly supported this position.

Azerbaijan rejected it. Kazakhstan continued to support Azerbaijan’s insistence on national sectors but agreed that cooperation on the issues of environment, fishing, and navigation would be beneficial.
Turkmenistan originally supported Russia’s proposal for a 45-mile nautical zone, but in February of 1997 it signed a statement with Kazakhstan calling for the Caspian Sea to be divided into national sectors according to Soviet-era administrative divisions, at least until the littoral states agreed upon a new status for the Caspian.

Turkmenistan’s position changed again after a dispute with Azerbaijan over a field called Kyapaz by Azerbaijan and Serdar by Turkmenistan.
Ashgabat made claims to the Azeri and Chirag offshore oil fields, which Baku had licensed out to Western oil companies in 1994, and Kyapaz, which was awarded to Rosneft and LUKoil in 1997. Turkmenistan had not registered any protest at the signing of the 1994 contract. In the end, only the claim to the Kyapaz field (called the Serdar field by Ashgabat) was entertained. Azerbaijan offered to include Turkmenistan in the consortium, but in July of 1997 the Turkmenistan Foreign Ministry issued a statement supporting Russia’s contention that no development at all should occur in the Caspian before a definitive legal regime was settled. Doing so, Turkmenistan not only contradicted its February 1997 joint statement with Kazakhstan, but also placed itself in the awkward position of opposing the national-sector principle while contending that Azerbaijan infringed on its own national sector.

[First published in FSU Oil & Gas Monitor, No. 96 (22 August 2000): 4 6.]