the caspian sea chessboard

The Caspian SeaChessboardGeo-political, geo-strategic and geo-economic analysis

The Caspian Sea Chessboard

Geo-political, geo-strategic and geo-economic analysis

Stuck in the middle of different as well as relevant regional complexes, theCaspian Sea basin represents a critical geopolitical hub in the heart ofEurasia landmass.

Political, economic as well as strategic considerations contribute to determine thesystemic relevance of the Caspian Sea, whose reputation in the West is mainly linkedto the vast availability of largely untapped oil and gas resources. However, behind thefierce competition aimed at the exploitation and transportation of the basin’s hy-drocarbons lies a much more complex picture, consisting of interlinked legal, mili-tary and soft power issues and threats. Aim of the volume – result of a joint research project conducted by the Center forStrategic Studies under the President of the Republic of Azerbaijan (SAM, Baku)and the Institute for International Political Studies (ISPI, Milan) – is to address therelevance of the Caspian Sea in the post-bipolar international system, analyzingboth soft and had security threats emerging form the basin, as well as the policiesof littoral and extra-regional actors.

Carlo Frappi is Research Fellow at the Department of Studies on Asia and Mediterranean Africaof Venice Ca’ Foscari University and Associate Research Fellow at Institute for International Poli-tical Studies (ISPI) Programme on Central Asia and the Caucasus.

Azad Garibov is a Research Fellow at the Center for Strategic Studies under the President of theRepublic of Azerbaijan (SAM) and Adjunct Professor at the Department of Political Science and In-ternational Relations of Khazar University.

edited byCarlo Frappi, Azad Garibov

€ 30,00 www.egeaonline.it

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Founded eighty years ago for the purpose of creating an Italian point of refer-ence for studying international dynamics, as was occurring in England, France and the United States, ISPI is the only Italian think tank – and among the few in Europe – to combine research work with an equally significant commitment to education, conferences, and the specific work of analyzing and providing orien-tation on international scenarios for companies and organizations. The institute is also distinctive for its inter-disciplinary approach – ensured by close collaboration with specialists in economic, political, legal, historical and strategic studies, coming even from non-academic spheres – and partnerships with prestigious institutions and research centers around the world, involved in the more than 200 publications, 100 conferences and 80 educational courses cre-ated to date.

The Center for Strategic Studies (www.sam.az) is Azerbaijan’s first govern-ment-funded, non- profit and academically independent think tank, known as SAM (Strateji Araşdırmalar Mərkəzi in Azerbaijani). The mission of SAM is to promote collaborative research and enhance the strategic debate as well as providing decision-makers with high-quality analysis and innovative proposals for action. Through publications, brainstorming meetings, conferences and policy recommendations, SAM conducts rigorous research guided by a for-ward-looking policy orientation, thus bringing new perspectives to academic research in international level. SAM was ranked 123th in the top 150 global think tanks according to 2013 Global Go To Think Tanks Rankings and asso-ciated trends report by Pennsylvania University.

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Index

List of Abbreviations ................................................................................ p. 9 Foreword, P. Magri, F. Mammadov ......................................................... » 13 Introduction, C. Frappi, A.Garibov ........................................................... » 17

Part I – What is at Stake: Transnational Issues

1. Caspian ‘Sea’ and Its International Legal Status, Kamal Makili-Aliyev ......................................................................... » 27

Introduction ..................................................................................... » 27 1.1 Historical background of

international legal status of Caspian ‘sea’ ................................. » 28 1.2 Doctrinal overview of international legal status

and regulations that may apply to the Caspian ‘sea’ ................. » 31 1.3 Legal issues of the delimitation of the Caspian

as an important element of the future international legal status ................................................ » 35

Conclusions ..................................................................................... » 38

2. Militarization of the Caspian Sea: Naval Arms Race and Conflicting Interests, Azad Garibov .................................................................................... » 41

Introduction ..................................................................................... » 41 2.1 Naval History of the Caspian Sea ............................................. » 42 2.2 1990s: Emergence of new naval actors ...................................... » 45 2.3 2000s: Initiatives for naval cooperation .................................... » 47 2.4 End of 2000s and beginning 2010s: Acceleration

to the full-scale arms-race in the Caspian Sea? .......................... » 49 Conclusions ..................................................................................... » 57


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3. Energy Infrastructure Protection and the Caspian Offshore, Matteo Verda ................................................................................... p. 59 Introduction ..................................................................................... » 59 3.1 Energy infrastructures as a key asset ........................................ » 60 3.2 Origin of threats to energy infrastructures ................................ » 62 3.3 Context and infrastructure protection ...................................... » 64 3.4 Security threats in the Caspian context ..................................... » 67 3.5 Countermeasures and challenges ahead .................................... » 69 Conclusions ..................................................................................... » 71

4. Escaping the Tragedy of the Commons: Environmental Cooperation in the Caspian Sea, Matteo Villa ..................................................................................... » 73

Introduction...................................................................................... » 73 4.1 The tragedy of the commons .................................................... » 74 4.2 The Caspian as a ‘transnational common’ ................................ » 75 4.3 Evidence of the ‘tragedy’ depletion and

degradation of Caspian resources .............................................. » 78 4.4 Environmental security:

the existing Caspian cooperation framework ............................ » 85 4.5 Climate change: dealing with an uncertain, global problem ...... » 88 Conclusions ...................................................................................... » 89

Part II – Littoral State’s Perceptions and Policies

5. The importance of the Caspian Sea to Azerbaijan: Opportunities, Challenges and Prospects, Rovshan Ibrahimov ........................................................................... » 93 Introduction ..................................................................................... » 93 5.1 Restoration of Azerbaijan’s independence and

the emergence of new coastal state on the Caspian Sea ............. » 94 5.2 Geostrategic importance of the Caspian Sea for Azerbaijan ..... » 99 5.3 The Caspian Sea resources and their importance

for Azerbaijan’s economy ......................................................... » 102 5.4 Impact of the Caspian Sea as the factor in the

formation of Azerbaijan’s foreign policy .................................. » 104 5.5 Azerbaijan’s perception on regional cooperation:

the existing and potential opportunities .................................... » 108 Conclusions ..................................................................................... » 111

6. Russia in the Caspian Region: An Attempt to Preserve an Inherited Role, Tomislava Penkova ........................................................................... » 113

Index

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Introduction ..................................................................................... p.113 6.1 USSR demise as the foundation for Russia’s inherited role

and its new claims in regional energy dynamics ........................ » 115 6.2 Russia’s interests in the oil sector .............................................. » 124 6.3 Russia’s interests in the gas sector ............................................ » 126 Conclusions ..................................................................................... » 128

7. Iran’s Policy in Caspian Sea Basin and beyond: The Great Game 2.0, Reshad Karimov ............................................................................... » 129 Introduction ..................................................................................... » 129 7.1 Iran’s security environment and relationship with

Caspian Basin countries ........................................................... » 132 7.2 Survival and religion: Iran’s winning hand in Middle East ........ » 137 Conclusions ..................................................................................... » 140

8. Geopolitics of Turkmenistan and Kazakhstan in the Caspian Region, Mukhit B. Assanbayev ...................................................................... » 143 Introduction ..................................................................................... » 143 8.1 Policies of Kazakhstan and Turkmenistan

over the issues of determining the status of the Caspian Sea ...... » 158 Conclusions ..................................................................................... » 161

Part III – Interests and Policies of Global and Regional Actors

9. On Regions and Regional Framings: The Missing Link between the European Union and the Caspian Sea Basin, Michela Ceccorulli ............................................................................ » 167

Introduction ..................................................................................... » 167 9.1 It’s all about energy ................................................................... » 169 9.2 Assessing the nature of the Caspian Basin ................................ » 175 9.3 EU and the Caspian Basin: the important

of a regional approach .............................................................. » 177 Conclusions ..................................................................................... » 178

10. The Caspian Sea Basin in United States Strategic Thinking and Policies, Carlo Frappi ..................................................................................... » 181 Introduction ..................................................................................... » 181 10.1 Engaging the Caspian: Clinton Administration

strategic thinking and policies .................................................. » 182 10.2 Bush Administration’s ‘security first’ approach

toward the Caspian .................................................................. » 190


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10.3 Obama Administration’s Caspian policy: reinventing regional commitment ............................................. p.196

Conclusions: the Caspian Basin in US strategic thinking ................. » 201

11. Chinese ‘Good Neighborhood Policy’ and Energy Diplomacy toward the Caspian Sea, Lorena Di Placido ............................................................................ » 203 Introduction ..................................................................................... » 203 11.1 The rationale of Chinese approach

toward the Caspian Sea area ..................................................... » 205 11.2 China’s energy supply needs ..................................................... » 209 11.3 Chinese imports from the Caspian area .................................... » 210 11.4 China-Turkmenistan: the end of Russian monopoly ................ » 211 11.5 China-Kazakhstan: strategic partnership and even more .......... » 214 11.6 Accomplishments and setbacks ................................................ » 216

12. Turkey’s Policy towards the Caspian Sea Region: Widening Gap between Ankara’s Expectations and Capabilities, Oktay F. Tanrisever .......................................................................... » 221

Introduction ..................................................................................... » 221 12.1 Principles of Turkey’s foreign policy

towards the Caspian Sea region ................................................ » 223 12.2 Geo-strategic and diplomatic dimensions of

Turkey’s Caspian Sea policy ..................................................... » 226 12.3 Geo-economic and energy dimensions of

Turkey’s Caspian Sea policy ..................................................... » 228 12.4 Geo-cultural dimension of Turkey’s

Caspian Sea policy .................................................................... » 232 12.5 Institutional framework of Turkey’s relations

with the Caspian region ............................................................. » 233 12.6 Turkey’s performance and the widening gap

between its expectations and capabilities .................................. » 235 Conclusions ..................................................................................... » 236

The Authors ............................................................................................. » 239

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List of Abbreviations

ABC Annual Bilateral Consultations ACG Azeri-Chirag-Guneshli ADR Azerbaijani Democratic Republic AGP Asian Gas Pipeline Bbl/d Barrells per day Bcm Billion cubic metres BOTAŞ Boru Hatları İle Petrol Taşıma Anonim Şirketi (Petroleum

Pipeline Corporation - Turkey) BP British Petroleum BTC Baku-Tbilisi-Ceyhan (oil pipeline) BTE Baku-Tbilisi-Erzurum (gas pipeline) CAC Central Asia Center CACGP Central Asia – China Gas Pipeline CAGP Central Asia Gas Pipeline CASFOR Caspian Force CASPAR Caspian Shipping Company of Azerbaijan Republic CASPECO Caspian Environment Program CBM Confidence Building Measures CCTS Cooperation Council of Tukic Speaking States CEIC The Caspian Environmental Information Centre CEP Caspian Environment Programme CICA Conference on Interaction and Confidence Building Measures

in Asia CIS Commonwealth of Independent States CNPC China National Petroleum Corporation CNPC Chinese National Petroleum Corporation COP Conference of Parties CPC Caspian Pipeline Consortium CTC Caspian Transport Consortium


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CTN Counter Terrorism Network EAPC Euro-Atlantic Partnership Council EBRD European Bank for Reconstruction and Development EIA Energy Information Administration EIB European International Bank ENPI European Neighbourhood and Partnership Instrument ENVSEC Environment and Security EP Eastern Partnership EPEG Europe Persia Express Gateway (Project) EU European Union FAO Food and Agricultural Organization FDI Foreign Direct Investment G20 Group of 19 Developing Countries and European Union Gbbl Giga billion barrells GDP Gross Domestic Product GEF Global Environment Facility GHG Greenhouse gases GOPLAT Gas and Oil Platform ICT Information and Communication Technology IEA International Energy Agency IED Improvised Explosives Device INOGATE Interstate Oil and Gas Transportation to Europe IPAP Individual Partnership Action Plans IPCC Intergovernmental Panel on Climate Change IPI Iran- Pakistan - India (Gas Pipeline) IRGC Islamic Revolution Guards Corps ISAF International Security Assistance Force ISIS Islamic State of Iraq and Syria IUCN International Union for Conservation of Nature JSC Joint-Stock Company KCO Kazakhstan Operating Company KCTS Kazakhstan Caspian Transportation System KMG KazMunaiGas КГБ (KGB) Комитет государственной Безопасности (Komitet Gosudar-

stvennoj Bezopasnosti) (Committee for State Security) (USSR) КНБ (KNB) Комитет Национальной Безопасности (Komitet Natsional’noi

Bezopasnosti) (Committee for National Security) LLP Limited Liability Partnership LNG Liquefied Natural Gas MFA Ministry of Foreign Affairs NATO North Atlantic Treaty Organization NCAPs National Caspian Action Plans

List of Abbreviations

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NCOC North Caspian Operating Company NDN Northern Distribution Network NEPDG National Energy Policy Development Group NOCs National Oil Companies OECD Organisation for Economic Co-operation and Development OKIOC Offshore Kazakhstan International Operating Company OPEC Organization of the Petroleum Exporting Countries OPIC Overseas Private Investment Corporation OSCE Organization for Security and Co-operation in Europe PAP-T Partnership Action Plan – Terrorism PLC Public Limited Company PSA Production Sharing Agreement REC Regional Environment Center for Central and Eastern Europe SAP Stabilisation and Association Process SASEPOL Safety and Security Pollution SCADA Supervisory Control and Data Acquisition SCO Shanghai Corporation Organization SOCAR State Oil Company of Azerbaijan Republic SOFAZ The State Oil Fund of Azerbaijan SPC Strategic Partnership Commission SSR Soviet Socialist Republic TACIS Technical Assistance to the Commonwealth of Independent

States TANAP Trans-Anatolian Gas Pipeline TAP Trans-Adriatic Gas Pipeline TAPI Turkmenistan-Afghanistan-Pakistan-India (Gas Pipeline) TASIM Trans-Eurasian Information Super Highway (Project) TCDD Türkiye Cumhuriyeti Devlet Demiryolları (The State Railways

of the Turkish Republic) TCGP Trans-Caspian Gas Pipeline TCO Transition Company TENs Trans-European networks TICA Turkish International Corporation Agency TRACECA Transport Corridor Europe-Caucasus-Asia TUİK Türkiye Ulusal İstatistik Kurumu (Turkish Statistical Institute) TÜRKPA Türk Dili Konuşan Ülkeler Parlamenter Asamblesi (Parliamen-

tary Assembly of Turkic Speaking States) TURKSOY Türk Kültür ve Sanatları Ortak Yönetimi (International Or-

ganization of Turkic Culture) UN United Nations UNDP United Nations Development Programme UNECE United Nations Economic Commission for Europe


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UNEP United Nations Environment Programme UNESCO United Nations Educational, Scientific and Cultural Organiza-

tion UNOPS United Nations Office for Project Services UNWTO United Nations World Tourism Organization US United States USGS United States Geological Survey USSR Union of Soviet Socialist Republics VBIED Vehicle Borne Improvised Explosive Device WB World Bank WMD Weapon of Mass Destruction

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Foreword

Until few decades ago very little was known to the World, and particularly Western audience, about the Caspian Sea and the region surrounding it. Locked between two countries, Soviet Union and Iran, the Caspian was rarely part of any international discussions and had hardly any significance for inter-national trade or energy security. As a matter of fact, it was mostly known for mere geographic facts, being the world's largest inland body of water and the largest lake. However, the dissolution of the USSR and the emergence of three new independent littoral states along with Iran and Russia completely re-shaped the nature of inter-states relations in the Caspian region. The sea was no longer subject to bilateral relations of the two states, and no longer a de facto internal water of its nominal hegemon, i.e. USSR. Thus, along with the independence of Azerbaijan, Kazakhstan and Turkmenistan, the Caspian area once again opened up to the outside world and, free from the constraints of the bipolar system, progressively regained the relevance to international sys-tem it used to have until half a century before.

The relegation of the Caspian Sea to a marginal role in international re-lations dates back to the post World War II period. Before that and at least since the second half of the XIX century the Caspian area, mainly as a conse-quence of the wide availability of oil deposits, became a key spot of interest for many countries of the international system. In particular, the oil exploration, transformation and transportation techniques tested and adopted under Rus-sian imperial rule in the Caspian area – and particularly in contemporary Azerbaijan – made the region a world-class laboratory for the development of the oil industry and, broadly speaking, for energy history itself. Moreover and from a strategic point of view, Caspian energy assets played a key role for the evolution of both the First and Second World War, shaping to a great extent the course of the military operations as well as the ultimate outcome of the conflicts.


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Following the dissolution of the Soviet Union, Caspian oil and gas ex-traction potential once again turned to be the key geostrategic and geo-economic asset which presided over the reaffirmation of the region's value to international relations.

From a systemic point of view, Caspian resources have become a key target for both state and non-state regional and extra-regional actors in order to diversify international sources of hydrocarbons supply, reducing Middle Eastern and OPEC's grip on global energy markets. Such a trend has been par-ticularly relevant due to the widening of the concept of security in the post-bipolar system. Moreover, in a post-bipolar system which was characterized by a self-evident widening of national security concept beyond the mere mili-tary sphere, the diversification of oil and gas supply became a core aim for both developing and advanced countries in order to protect energy security, i.e. in order to ensure an adequate supply of energy resources at reasonable prices and for the foreseeable future, free from serious risk of major disruption of service.

On the other hand, no less significant was the exploitation of national energy sectors for the sake of supporting newly independent states' post-Soviet economic recovery and development as well as to sustain the challenging pro-cesses of state and nation building. Thus, particular regional relations emerged in the Caspian region as new independent Caspian states, Azerbaijan, Kazakh-stan and Turkmenistan became active players in the geopolitics and geo-economics of the region, cooperating and competing with other littoral states – i.e. Russia and Iran – as well as with major international and regional actors, such as United States, European Union, China and Turkey.

The outcome of twenty years of energy cooperation and competition in the Caspian area is quite evident. Currently the area hosts multi-billion pipe-lines that carry million tons of crude and billion cubic meters of natural gas West and Eastward every year, playing significant role in ensuring energy se-curity of such huge economies in an area ranging from the Adriatic Sea to the Great Wall of China.

Whereas hydrocarbon resources represent undoubtedly the most visible regional asset and the main reason behind Caspian Sea rise to the center stage of Eurasian geopolitics, nonetheless its relevance to International Relations goes far beyond the basin's energy potential. Indeed, its strategic location be-tween West and East, its proximity to hot spots such as Afghanistan and Mid-dle East, make the Caspian area a critical juncture for regional and systemic powerplay, as well as for major transnational issues characterizing post-bipolar international system. Moreover, as a crossroad between Central Asia to the East and Near East and Eastern Europe to the West, between Russia to North and Middle East and Persian Gulf to the South, the Caspian area repre-sents a vital communications hub in the heart of Eurasian landmass, retaining

Foreword

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a huge and still developing transport potential. In this realm, whilst the Sea has historically acted as a barrier between the Caucasus and Central Asian re-gions, improving regional and trans-regional cooperation seems to make the Caspian more of a bridge between the two regions, in the broader meaning of a bridge between Asia and Europe.

While the Caspian Sea and the countries surrounding it are getting in-creasingly important for global political, security and economic affairs, a few comprehensive research has yet been done in order to analyze the various as-pects of regional politics and economics, and to consider how their interplay affects the intra-regional relations and the region’s ties with outside world. Looking comprehensively at geopolitical, geostrategic and geo-economic dy-namics at play in the Caspian area is the key aim of the latest joint project un-dertook by SAM and ISPI, whose final result is to present an edited book gathering together a bright list of authors – not just from Azerbaijan and Italy, but also from other Caspian littoral states as well as from regional countries.

The present volume stands not only as a further step toward the enhanc-ing of cooperation between SAM and ISPI, but also as a concrete demonstra-tion of the relevance the Caspian sea is taking on not only for a littoral coun-try such as Azerbaijan, but also for a Western European interlocutor such as Italy.

Paolo Magri, Executive Vice-President and Director, ISPI Farhad Mammadov, Director, SAM

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Introduction

Stuck in the middle of different as well as relevant regional complexes, the Caspian Sea represents a critical geopolitical hub in the heart of Eurasian landmass. As a matter of fact, the strategic geographical collocation of the ba-sin – traditional crossroads of empires, trade routes and cultures – represents the main feature which funded its regional and global significance, in the past as well as in contemporary times. Hence, even though the lack of common identities, institutions and aims among Caspian littoral states prevents the ba-sin to form a distinctive region within the Eurasian chessboard, nonetheless the peculiar collocation of the basin makes it a critical juncture for the Interna-tional Relations Analysis, the more so in consideration of the absolute and relative weight of its riparian countries. Indeed, alongside two traditional piv-otal actors of international community – such as Russia and Iran – the Soviet Union dissolution bought in three more states – Azerbaijan, Kazakhstan and Turkmenistan – which, for different reasons, have gained an increasing re-gional and systemic importance.

Along with the strategic geographical collocation, it is the availability in the Caspian Sea area of wide and largely untapped oil and gas reserves which, in the post-1991 period, presided over the rise of the basin at the top of institutional agenda of both riparian and non-littoral states. It is not hence by chance that the magnitude of the competition for Caspian hydrocarbons led international analysts to label the resulting regional dynamics as a “new Great Game” – recalling the XIX century competition between Russian and British empires for the hegemony over the Central Asian heartland. True, the compar-ison to the Great Game had the merit of emphasizing that the regional compe-tition went beyond the mere economic value of Caspian hydrocarbons. In fact, at stake was the post-Soviet and post-bipolar transition of a regional pivotal area, to which hydrocarbons' exploitation and transportation were key tools rather than an end in themselves. At the same time, however, the comparison was only superficial and to some extent misleading, hiding the complexity of


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Caspian politics both in quantitative and qualitative terms. Indeed, the “new” Great Game involved a higher number of actors, whose nature differed signifi-cantly from those of nineteenth-century one. Protagonists of post-1991 compe-tition were not just state actors, as one century before, but also super-national and private actors, each bringing different and in some case opposite interests and prerogatives. Moreover, the comparison does not fully acknowledge the active role played by local actors which, far from opposing the competition for influence, sought to capitalize on it with a view to support the difficult state and nation building process.

On this backdrop and in the context of an international system which seems to be characterized by the prevalence of the regional dynamics over the global ones – i.e. by the scarce permeability of the regional systems to the global power structure – the analysis of Caspian politics offers a privileged perspective enabling to look at and get relevant insights about the evolution of post-bipolar system itself or, rather, about the complex and still unfulfilled post-Cold War regional transition. Through the analysis of the Caspian poli-tics it is therefore possible to investigate issues of primary importance to Inter-national Relations: from the evolution of security challenges to the dynamics of regional cooperation, from the state-building process of the former Soviet Republics to the rethinking of international posture of the main state and su-per-national actors of the international community. Hence, aim of the volume is to address the relevance of the Caspian Sea in the contemporary interna-tional and regional systems, analyzing both soft and hard security issues and threats emerging from the basin, as well as the policies of littoral and extra-regional actors. Accordingly, the volume is divided in three parts dealing with aforementioned topics.

The first part of the volume examines the transnational issues at stake in the Caspian that play important role in determining littoral states’ regional policies and which, in order to be addressed, demand cooperation among all of the riparian countries. Uncertainty about the legal status of the Caspian Sea, naval arms race and militarization of the sea, energy infrastructure protection and environmental challenges represent the key transnational challenges with overwhelming influence over regional politics.

In combination with the rich resource base of the water basin, uncer-tainty about the legal status and maritime borders in the Caspian Sea inevita-bly leads to legal and political conflicts among littoral states, which sometimes resulted in resorting to the threat of force and in the show-off of power against civilian research vessels. Therefore, juridical clashes negatively affect possible cooperation among littoral states and the chances to jointly address other transnational challenges, hindering the partnership for infrastructure and envi-ronmental protection, as well as paving the way to naval build-up. Though there is an agreement concluded in 2003 among Azerbaijan, Russia and Ka-

Introduction

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zakhstan for delimitation of the seabed of the northern part of the Caspian based on the median line and equidistance principle, two southern countries, Iran and Turkmenistan, still oppose the mentioned accord. Moreover, while there is certain indications that Turkmenistan can possibly accept the median line principle (however in different interpretation of the line), Iran still contin-ues to be the most resilient opponent of such a delimitation and insists on the equal division principle, which would significantly enlarge its share of the Cas-pian seabed and surface.

Legal vacuum and existence of disputes over the sea borders paves the way to naval build-up and militarization of the Caspian. As Garibov illus-trates, naval arms race, a relevantly new phenomenon in the Caspian Sea, con-tinues in potentially dangerous way, threatening to transform Caspian from one of the less to one of the most militarized seas. Led by the Russian efforts, all states invest to re-train and re-arm their military forces in the sea, to create needed military infrastructure as well as to establish their own production ca-pacity of naval armament. Despite the chance of open military confrontation is currently negligible in the Caspian, nonetheless increased military capabili-ties encourage littoral states to forceful uphold of claims. Unintended escala-tion of tensions in the sea might possibly lead to the conflict that will endanger stability in the region, threatening to halt energy extraction and export, cause environmental disaster in the sea and result in humanitarian crises in the re-gion.

Energy resources of the Caspian Sea represent a primary strategic asset of the littoral states, standing as the single most important factor drawing at-tention of other regional and global players to the region. Integrity of energy extraction and transportation infrastructures is fundamental for the riparian states, as well as to the importers of the Caspian energy resources. Any serious damage that could disrupt exports flows will cause huge economic costs on the exporter countries in terms of income losses and importer counters in term of deteriorating their energy security. Morever, any sabotage or attack against energy infrastructure in the sea and consequent oil leak might turn into an the environmental catastrophe for such a closed water body. According to Verda, threats to energy infrastructures might come from state and non-state actors as well as some local groups, while main countermeasures – such as international and regional cooperation, building up appropriate protection capabilities against potential attackers including cyber-attacks, increasing public private cooperation etc. – have to be taken in order to provide effective protection to the energy infrastructures in and around the Caspian Sea.

Environmental pollution is another major transnational concern in the Caspian which demands common action and policy coordination among the riparian states. Over-exploitation of energy resources and over-fishing repre-sent two single most important environmental threats in the basin. As a closed


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water reservoir, possible degradation of the Caspian ecosystem will be very dif-ficult to reverse, and it will take time and efforts to achieve any meaningful so-lution of environmental problems by altering resource exploitation policies. Although risks still abound, as Villa notes, the environmental security regime that has been gradually emerging in the last fifteen years is an encouraging start. With the support of some international organizations and agencies, the five littoral countries have managed to agree upon a programme to monitor the environmental status of the Sea and have gone as far as signing a Frame-work Convention and two Protocols in this direction.

Existence of the five independent actors in regional politics – the five littoral states of the Caspian Sea, each of which with varying visions and dif-ferent agendas regarding the mentioned transnational issues and regarding Caspian politics in general – makes it quite a challenging task to agree upon common solutions to address the basin’s issues. The second part of the volume discusses the Caspian policies of these littoral states. Transnational issues have varying degree of importance for them and this importance stems from differ-ent reasons. For some, such as Caspian energy producer’s Azerbaijan, Ka-zakhstan and Turkmenistan, energy production in the offshore and onshore fileds along the sea coasts has vital importance as these resources played key role in their post-Soviet development. Although the biggest littoral actors, namely Russia and Iran, currently do not have substantial energy production in the sea, nonetheless Caspian politics is important for achieving broader re-gional goals, though it is reported that they have recently discovered new po-tentially rich energy fields in the sea. In fact existence of new independent ac-tors around the Caspian with the capability to maneuver with big powers to maximize their interests is one of the major differences of the current Caspian politics from the so-called “Great Game” of the end of the XIX century.

Russia has become a Caspian actor since the conquest of Astarkhan Khanate in 17th century, while since the establishment of standing navy in the sea in the beginning of 18th century Russia became the dominant state in the basin, gradually establishing a firm hold on the area. Thus, it had been the de-facto ‘owner’ of the sea until the collapse of the Soviet Union. Hence, after the demise of the Soviet superpower and emergence of the new independent actors in the Caspian basin, Russia tended to preserve and strengthen its influence over the Caspian region, with energy being its primary interest and focus of ac-tion. As Penkova describes, other spheres of intervention such as the dispute over the legal status of the Caspian Sea and security concerns play an instru-mental and complementary role in achieving its energy objectives. While Russia acts as status quo power to preserve its dominance in the Sea and influence over the region, Iran acts as the main revisionist power in the Caspian region, not recognizing geopolitical, geoeconomic and legal ralities emerged in the region after the collapse of Soviet Union. Tehran is also

Introduction

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seriously concerned with Azerbaijan’s and other littoral states’ cooperation with Western oil companies in exploration of the sea’s hydrocarbon resources. Thus, Iran’s attempts to establish strategic cooperation with Russia in the Caspian, serves the same aim of countering Western influence in the region. As Karimov points out, while elections of 2013 suggested increased moderation at home Teheran’s foreign policy remained bellicose and it will continue its at-tempts to strengthen influence over the neighbouring regions including Caspi-an Basin.

Caspian Sea has more importance for Azerbaijan, Kazakhstan and Turkmenistan, which have narrower foreign policy agendas in comparison with their bigger neigbours. Azerbaijan extracts almost all its oil and gas in the sea, while the Caspian shore hosts important part of countries’ population, including the capital city Baku. Major industrial capacity of the country is also concentrated on the Caspian shore in the Absheron peninsula, where major sea and air ports are located as well. It plays a key role for facilitating Azerbaijan’s trade with Central Asian countries including export of Central Asian energy resources through Azerbaijan to world market, and in general it is a key transit for Azerbaijan’s plans to become a trade facilitator between Asia and Europe. As Ibrahomov notes, Caspian Sea occupies an increasingly prominent place in the definition of the political, economic and social aspects of both domestic and foreign policy of Azerbaijan. Thus Azerbaijan works for finding sustainable solution to the Caspian legal status issue in order to carve the chances for potential deterioration of regional stability. Caspian Sea and its resources have paramount importance for the two states bordering the sea – Kazakhstan and Turkmenistan. As Asanbayev argues, oil and gas sector is the backbone of the economy of Turkmenistan and Kazakhstan and a relevant part of these resources are extracted either in the Caspian or in its immediate proximity. Both countries, having abundant supplies of hydrocarbons, are in-terested in developing a wide network of export routes and the sea plays a key role in Westward export of the resources. Thus, for these two countries stabil-ity in the sea is the key goal enabling to realize their extraction and export pro-jects.

One of the main features of Caspian policy is the key role it played in the context of the systemic transition from the Cold War to the post-bipolar international and regional systems. Once again, the two main features of Cas-pian geopolitics – namely its strategic geographic collocation and the posses-sion of large and untapped hydrocarbons’ reserves – set the scene for the rising of the basin to the core of Eurasian politics ever since 1991. Nowhere this dy-namic is more visible than in the analysis of the non-littoral states’ Caspian policies – main focus of the third part of the volume. Above all, the choice of the actors concerned itself – United States, European Union, Turkey and Chi-na – already testifies the relevance of the basin for regional as well as interna-


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tional politics, the more so if the interplay among littoral and non-littoral states’ policies and strategies is taken into consideration.

Against this backdrop, one of the most fruitful level of analysis of the volume seems to be the critical role played by Caspian policy for the redefini-tion of national foreign policies of concerned non-littoral states, i.e. for the process of redefinition of their national interest – and consequently foreign policy – in the aftermath of bipolar system dissolution. This trend is particu-larly evident and relevant in the case of Turkey, mainly due to its closeness to the Caspian Sea, not just in purely geographic terms, but also in ethnic, lin-guistic and cultural ones. As Tanrisever notes, the transformations occurring in the area in 1991 provided Turkey with a unique opportunity to project its economic and political influence. As such, Turkish Caspian policy was a key driver in order to advance its national interest in a region revolutionized by the Soviet Union dissolution, while simultaneously regaining the strategic signifi-cance to the Euro-Atlantic partners and, broadly speaking, consolidating its position in the Western world.

In the same vein, the essay dealing with the United States clearly high-lights the relevance assumed by the Caspian policy to all the main vectors of the White House’s Eurasian policy. Redefining Russian policy through a mix of containment and engagement, containing and isolating Iran, relaunching bilateral relations with Turkey in the aftermath of Soviet dissolution, support-ing Former Soviet Republics’ sovereignty and independence: all those critical goals of US regional policy saw the Caspian basin playing a decisive role. No less significant was European Union’s policy toward the area. Developed in parallel with the widening of its membership and the deepening of its func-tions, EU Caspian policy was mainly driven by the growing need for energy supply diversification. At the same time, however, it became a critical area of confrontation for the balancing of its national and supernational prerogatives as well as a relevant test case for the ability to set up coherent policies toward and to pursue concrete goals in the neighborhood. The meaningful political investment undertaken by the European Commission in order to advance a trans-Caspian gas corridor is probably the best example of the aforementioned dynamic, as clearly highlighted in Ceccorulli’s essay. Finally, notwithstanding the key role played by economic – and particularly energy – consideration for China’s Caspian policy, nonetheless the projection toward the area represents a basic pillar of Beijing’s Good Neighborhood Policy, as Di Placido’s essay shows. Moreover, due to the typical overlapping in policies and goal of Chi-nese governmental, banking and business institutions, it is hard to overesti-mate the linkages between Beijing’s energy and foreign policy. Thus, as per the other non-littoral states concerned, Caspian policy accounted for China as both a key foreign policy vector and a valuable test case for advancing nation-al interest at regional level in the complex post-bipolar system.

Introduction

23

The third part of the volume seems to highlight another common fea-ture in non-littoral states’ policies. As a matter of fact, notwithstanding the relevance of projection towards the area to respective foreign policies, non-littoral states Caspian policies were chiefly ‘derivative’. Indeed, as highlighted in the essay on the US, non-littoral states had never set up a Caspian policy per se, i.e. a comprehensive and consistent approach to the basin’s main issues. Apparently, this trend was the result of two main interconnected factors: on the one hand, the intricate overlapping of various as well as tricky transna-tional issues and, on the other hand, the influence exerted on the basin politics by different regional and sub-regional complexes, hindering the development of an holistic approach toward the Sea itself.

Finally, taking into consideration the interplay of littoral and non-littoral states Caspian policies as well as the basins’ tangled issues, all the es-says in the volume’s third part clearly show that the regional balance of power and influence is far from being achieved and that the systematization of the ar-ea remains an open issue. Indeed, while the single and most evident regional trend seems to be the steady advance of the “Chinese factor” – all the more ev-ident on the basin’s eastern front – simultaneously the regional policies of the Euro-Atlantic bloc are going through a period of deep rethinking, not without inner contradictions. Whether US and EU regional policies greatly overlapped and reinforced one another until the second half of the 2000s, over the last five-years period they seems to be taking different paths. While under Obama Administration, pressed by the needs of withdrawing from Afghanistan, the US shifted eastward the focus of its Caspian policy, the EU seems to follow an opposite trend. Indeed, even if the attempt to promote a trans-Caspian gas connection still implies a degree of political dialogue with Turkmenistan, the wider trends of Brussels’ regional policies make the Caspian Sea, as Ceccorulli notes, the eastern limes of EU neighborhood policies, increasingly focused on the basin’s west end. Last but not least, the seeming weakening of the Euro-Atlantic front is deepened by the more independent foreign policy course em-braced by Turkey as well as by its growing reluctance to coordinate policies with Western partners, recalled in Tanrisever’s essay. While it is still an open question whether Turkey will manage in bridging the gap between expecta-tions and capabilities which characterized its regional policies in the ’90s, at the same time, however, Ankara’s shifting regional priorities contribute to a great extent to draw the picture of Caspian politics’ unsteady dynamics.

Carlo Frappi, Azad Garibov

Part I

What is at Stake: Transnational Issues

27

1. Caspian ‘Sea’1 and Its International Legal Status

Kamal Makili-Aliyev

Introduction

Caspian “sea” is a unique water object on our planet. Its resource rich basin had for a long time been considered one of the main economic foundations of the peoples that used to live on its shores since times immemorial. Caspian ba-sin also possesses the unique capabilities for logistics and transportation, tour-ism, recreation and, of course, it is a great source of oil and gas.

Until the fall of Soviet Union in 1991, the whole of the Caspian “sea” have been under formal jurisdiction of the USSR and Iran. However, de facto the Caspian “sea” was in exclusive sovereignty of the Soviet Union.2 After 1991 the number of littoral states of the Caspian increased to five – Azerbai-jan, Iran, Kazakhstan, Russia and Turkmenistan. Consequently these states were faced with the challenge of effective cooperation while sharing such a common water basin. The attempts by these states to secure their rights and interests have created a lot of problems of not only the political character, but foremost of the legal character.

The key problem that needs to be solved for the further cooperation and rapprochement of all littoral states of the Caspian is thus its legal status. It has to be pointed out that such legal status was not a popular or trendy theme

1 Word “sea” is taken in quotation marks due to the point of view of the author (reflected further in the article) that Caspian water basin constitutes a lake. 2 B. Aghai Diba, “The Law and Politics of the Caspian Sea in the Twenty-First Century”, in The Positions and Views of Russia, Kazakhstan, Azerbaijan, Turkmenistan with Special Reference to Iran, Bethesda (Maryland), IBEX Publishers, 2003, p. 31-33; G. Nugman, “The Legal Status of Caspian Sea”, Eurasian Studies, Spring, 1998, 13, pp. 80-83; С.С.Жильцов, И.С.Зонн, А.М.Ушков, Геополитика Каспийского Региона, «Международные отношения», Москва, 2003, с. 52-53.


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in academia during the time of USSR for obvious political and ideological rea-sons. Its practical applicability was also under the strict question mark. How-ever, after the emergence of new littoral states and oil and gas production ‘boom’, the new generation of scholars has started to turn its attention to this rapidly developing legal problem. The situation became only more acute when it became clear that Caspian ‘sea’ slowly turned into a tight knot of geopoliti-cal, geo-economical and geo-strategic interest of both littoral states as well as actors from outside the region.

For littoral states the importance of the clear definition of legal status of Caspian ‘sea’ is surely, and first of all, lies in defining their property on the resources of this water basin. Due to the differences in positions and interests, the negotiations on the legal status have stretched out since the independence of Azerbaijan, Kazakhstan and Turkmenistan until now and they are still on-going. Despite the many bilateral and multilateral meetings of the representa-tives of littoral states, including those on the highest level, they have failed to come to a common ground on the position of legal status of the Caspian.

This article will try to look at the different theories concerning the legal status of Caspian ‘sea’ and see which of them are most comprehensive in re-flecting international law and practice and can be used to serve as theoretical legal background in negotiations on the status of the Caspian. It will also fo-cus on the legal problems of defining the status for the Caspian, due to the fact that there is a very limited number of cases in international practice that can be compared with the situation around the appropriate legal status of the Cas-pian ‘sea’.

1.1 Historical background of international legal status of Caspian ‘sea’

The history of the development of the international legal status of the Caspian has deep roots in ancient times and the historical references to this water basin can be found as early as the works of Herodotus, Aristotle, Eratosthenes, Hecataeus of Miletus and others.

The later historical works that deal closely with the region date to the time when this area was of interest to the growing Arabic Caliphate in VIII-XI centuries A.D. It has to be pointed out though, that it is known that these ter-ritories were important centers of civilization long before the emergence of Christianity in Russia or Islam on the south of the Caspian. Nonetheless, the sources that have lasted until our days indicate that southern parts of the Cas-pian have been conquered by the Abbasid’s dynasty in 760-761 A.D., despite the fact that they were not able to fully suppress the Zoroastrian small king-doms in this region until the IX century A.D. From that point on, the influ-ence of ‘Persia’ in this region has not seen major changes up until as late as the year of 1722. Azerbaijani Safavid dynasty (1501-1722), for example, has been

Caspian ‘Sea’ and Its International Legal Status

29

very active in the region of the Caspian spreading the Shia Islam among the populations of the southern part of that region, strengthening their own power in the process.3

Moreover Russians have also been very interested in the region since IX century A.D. They have been sending war parties to the Caspian region all throughout X-XIII A.D. centuries until the invasions of the Mongolians. After that, Russians started to come back and show interest to the region once more only in XVI century A.D., trying to establish control and supremacy here. Throughout XVI-XVIII centuries Russian navy have raided Caspian ‘sea’, get-ting into the open conflict with Persia. Russians have captured and fully occu-pied the Caspian ‘sea’ after the famous war against Persia waged by the Rus-sian tsar Peter the Great in 1722-1723.4 Struggle for the Caspian region, none-theless, have spanned the following centuries as well. In 1828 Russia have cap-tured all of the Northern Azerbaijan and in the second part of XIX century Turkmenistan as well. After the World War II Russia (Soviet Union at the time) even had a temporary control over Northern Iran, but failed to make it permanent. Thus, by the time of creation of the Soviet Union, it had practical-ly full control over Caspian ‘sea’.

The interesting part here was treaty law that has been used to legitimize the territorial claims that Russian Empire have extended to the Caspian re-gion. For example, the Treaty of Rasht of 1732 have granted property to Rus-sian Empire over certain territories captured from Persia, solidified freedom of trade and navigation for Russia on the Caspian ‘sea’ as well as in Araz and Kura rivers.5 Further conquests of Russian Empire on Persian territories were solidified in Treaty of Gulistan of 1813 and later in Treaty of Turkmenchay of 1828. In accordance with article 8 of the later treaty Persia was allowed civil and trade navigation on the Caspian, however it was banned from having a military navy there.6 These treaties have defined first elements of certain legal status of the Caspian. They have been in force up until the Russian-Persian Treaty of Friendship of 1921.

The Russian-Persian Treaty of 1921 is one of the core basic elements of the treaty law that is now studied by the international lawyers as a historical basis to determine the elements of the future possible international legal status for Caspian ‘sea’. It has to be pointed out that this treaty was basically a back-

3 M.R. Djalili, “Mer Caspienne: perspectives iraniennes”, Cahiers d’etutes sur la Méditerranée orientale et le monde turco-iranien, vol. 23, 1997, pp. 130-133. 4 R.Sardari, Un chapitre de l’histoire diplomatique de l’Iran, Thése…, Paris, Maurice Laverque inprimfur, 1941, p. 32; Р.Ф.Бадирбейли, Отношение западно-европейских дипломатов к персидскому походу Петра I, «Известия АН Азербайджанской ССР. Серия: история, философия и право», Баку, 1979, no. 4, с. 44. 5 Alexander Mikaberidze, Treaty of Resht (1732), Conflict and Conquest in the Islamic World: A Historical En-cyclopedia, ABC-CLIO, 2011, p. 346. 6 Text of the Treaty of Turkmenchay, 1828, http://www.hist.msu.ru/ER/Etext/FOREIGN/turkman.htm, 22 Janu-ary 2014.


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ground for future foreign policy of new communist Russia towards Iran. For Iran it was a direction that was taken both by shah and Islamic regimes in dealing with Soviet Union up until its dissolution

The analysis of the treaty is very rare and scarce though, taking into the fact that by definition Soviet Union and Iran have basically ignored the outside interest to the Caspian region while concluding this treaty, setting up a very closed and secluded (colonial maybe) regime of control over the water ba-sin, where Iran was willfully discriminated by Russia in exchange for the ‘pro-tectorate’ extended by the Russian regional domination. The conditions that led to this treaty have to be also taken into account.

After the Revolution of 1917, Russian newly found communist regime have taken steps to regain the control over the former territories of Russian Empire. Central Asia and Azerbaijan were practically re-occupied by 1920 and Russians were quite determined to push out the foreign naval presence from the Caspian. They have negotiated as much with Iran, solidifying the agree-ment that in the region of Caspian basin there will be no more foreign pres-ence, whereas Iran was promised the guarantees that it will not be occupied by Russia.7

The treaty itself is of particular interest. The Russian-Persian Treaty of Friendship has first of all in the article 1 abolished all the previous treaties that tsar regime had with Persia. Equality (though formal) was indicated by the treaty as the base of the bilateral relations.8 In article 3 the parties to the treaty have vowed to respect borders between Russia and Persia that have been es-tablished by the special commission as early as in 1881, however without iden-tifying the borders on the Caspian ‘sea’. In accordance with article 8 of the 1921 treaty the consular jurisdiction was also abolished. Thus, Russia has de-nounced any economical privileges it has acquired by the use of military force including the rights to the bonds bought by the tsarist government in Persia.9

Moreover, it is known that all the concessions on fishing before the treaty have been in exclusive ownership of Russians, however the treaty in ar-ticle 14 have ended such a monopoly, allowing the Iranians the full rights on fishing equal to the Russian side. The shipping and naval security has also been addressed in the treaty. In article 11 Iran was allowed the equal rights to have ships on the Caspian as Russia: “…the two High Contracting Parties shall enjoy equal rights of free navigation on that [Caspian] Sea, under their own flags, as from the date of signing of the present Treaty”.10

7 Б.Х.Парвизпур, Великий Октябрь и суверенитет Ирана, Тбилиси, ТГУ, 1984, с. 13-14. 8 S. Vinogradov, P. Wouters, “The Caspian Sea: Current Legal Problems”, Zeitschrift fur auslandisches offen-tliches. Rech und Volkerrecht, Heidelberg, 1995, pp. 607-608. 9 Text of the Russian-Persian Treaty of Friendship of 1921, http://bit.ly/1eRPErm, 22 January 2014. 10 Ibid.


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1.2 Doctrinal overview of international legal status and regulations that may apply to the Caspian ‘sea’

It is quite clear that in the times of Soviet Union the problem of the interna-tional legal status of the Caspian was not so acute because the water basin was de facto a property of the USSR.11 With the new states emerging in the region it became progressively hard to solve trans-border and legal issues regarding the fishing, exploration of the shelf and seabed, exploitation of the water ba-sins and energy resources. In that sense, there are some theories in legal doc-trine as well, that differ based on the legal school of the country they originate from.

In Russian doctrine for example, there are views that legal status of the Caspian ‘sea’ have been defined by the scholars mostly in two categories: 1) mare clausum (enclosed sea) or 2) border lake. Thus, only depending on the categorization of the water basin either as enclosed sea or border lake the in-ternational legal status of the Caspian can be defined.12 In line with that went the discussion in the Western doctrine that sought to differentiate between def-initions of ‘border lake’ and ‘enclosed sea’ in regard to the Caspian.13

In Iranian doctrine though, the general view went into the other direc-tion. Using the geographical factor to justify the view, Iranian scholars believe that Caspian ‘sea’ have always had a sui generis status. Basically such view equalizes the water basin to the condominium. They seem to suggest that geo-graphical unity of the territory of the Caspian is making it impossible to be shared and thus it becomes common property. One scholar relates this to the ‘spirit and letter’ of the agreements between Iran and USSR that “legally de-fine the Caspian sea as condominium”.14

Moreover, in Western doctrine the thought is deepening with the vies that international legal status of the Caspian is not dependent on the principles of jus cogens, meaning that the norms of international law that must be fol-lowed and enforced universally are not in place yet for that situation. That means that littoral states are free in defining such legal status by any treaty that they may have between them. It seems that the current status is seen as lacking basis and inadequate in the face of new realities and should be changed in accordance with the principle cessante ratione legis, lex ipsa cessat. Thus, the only solid legal status for Caspian ‘sea’ is the status that would allow equal

11 Р.Ф.Мамедов, Международно-правовой режим Каспийского моря: вчера, сегодня, завтра, Баку, Азернешр, 2006, с. 134. 12 А.А. Ковалев, Современное международное морское право и практика его применения, Москва, Научная Книга, 2003, с. 188. 13 H. Afshar, “The Caspian dispute: is doctrinal analysis too late or can we turn back the hands of time?”, New York Law School Review, vol. 48, 2003-2004, pp. 20-25. 14 M.R. Dabiri, “A New Approach for the Legal Regime of the Caspian Sea as a Basis for Peace and Develop-ment”, Iranian Journal of International Affairs, Spring-Summer, 1994, pp. 28-46.


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opportunities for the development of all littoral states and the fair exploitation of natural resources. Such status maybe achieved only by the expression of the free will of all the littoral states.15

However, despite the fact that the free will of the states will be decisive for the international legal status of Caspian ‘sea’, it seems fair and logical to take a look at and analyze the legal categories of ‘labeling’ this water basin as enclosed sea, border lake or condominium in order to understand which of them is more applicable and in line with international law doctrine.

When it comes to categorizing the Caspian as a sea, outside and sur-faced factors seem very attractive. Even more so because such a notion have been reflected in the name of water basin – ‘Caspian Sea’. However, when it comes to international law and generally to science, the situation may not be as clear and straightforward as it may seem.

It has to be taken into account that historical tradition of naming the water basin a ‘sea’ cannot be the starting point in defining the legal status of the Caspian. Equally, its size and depth cannot be objective criteria as well due to the fact that international legal acts do not count them as such in classifica-tion of the seas and lakes. Moreover, there are no universal legal criteria that allow for such classification at all. In most of the cases geographical factors, such as access to the oceans and salt levels as well as the general practice play bigger role.16

Nonetheless, there are arguments in doctrine that classify the Caspian as a sea. The straightforward notion of such classification can be found in the early Soviet publications that imply that Caspian ‘sea’ is geographically closed and surrounded by the territories of two states (Russia and Iran) and viewed as Soviet-Iranian sea.17 That notion has followed on through the whole period of Soviet doctrine and was supported by the counterparts in Iran even in early 1990s, for example in the works of Moghtader, that claimed that the Caspian is a largest enclosed sea in the world.18

Similar notions were also supported by geologists that have viewed the Caspian as a leftover of the larger sea that have covered the present territory of Central Asia in ancient times several thousand years ago.19 Authors from Kazakhstan, for example Salimgerey, also refer to the Caspian as the ‘sea’ put-

15 C.P.R. Romano, The Caspian Sea and International Law: Line Oil and Water, in W. Asher, N. Mirovitskaya (eds.), The Caspian Sea: a Quest for Environmental Security, Dordrecht/Boston/London, Kluwer Academic Publishers, 2000, pp. 72-73. 16 Ю.Е.Федоров, Российская политика в отношении каспийской нефти, «Каспийская нефть и международная безопасность», 1996, Москва, МГИМО, с. 8-9. 17 В.А. Белли, Военно-морской международно-правовой справочник, кн.2, Москва-Ленинград, 1940, с. 75. 18 H. Moghtader, “Iran’s International Boundaries”, Iranian Journal of International Affairs, Spring, 1993, no. 2, p. 205 19 W. Raczka, “A sea or lake? The Caspian’s long odyssey”, Central Asia Survey, 2000, vol. 19, no. 2, p. 190.


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ting forward the arguments of some western and Russian scholars that call it ‘continental sea’, ‘enclosed sea’ or even ‘deep internal sea’.20

What legal implications such a definition may lead to, is that if the Caspian is indeed the ‘sea’ then it will fall under the legal regime of the UN Convention of 1982 on the Law of the Sea (hereinafter the Convention) and specifically its Part IX “Enclosed or semi-enclosed seas” article 122 by defini-tion. The legal status of the Caspian then will be determined by the article 123 of the Convention in due course of the cooperation of the littoral states while fulfilling their obligations under the treaty. What is more important is that it would mean all the appropriate international legal status under the Conven-tion attributed to the seas. For example, 12-mile territorial waters, 200-mile continental shelf and exclusive economic zones.21 However, due to the fact that the Caspian’s breadth is not more than 200 miles, there maybe possibilities of determining the median line for the delimitation.

There are also arguments in favor of the theory that the Caspian should be a condominium. What is understood generally by such a notion is the international legal regime where two or more states exercise equal sover-eign rights in political and judicial sphere over certain territory. Such notion fits into the logic that the Caspian problem is foremost the territorial dilemma.

Generally in the international law doctrine mainstream view is that when it comes to the territory that is administrated jointly by the exercise of sovereignty over land or water by two or more states, it is impossible to talk about the separation of sovereign rights. In accordance with the same view the condominium legal regime can be applied to deal with the problems between states over the bordering rivers and such. However, condominium is not com-monly regulated by the norms of the international treaty law and mostly used as custom. To apply the regime of condominium to the given situation – the treaty between the parties should be concluded that would define the common sovereignty over territory, special administrative bodies, legal regime, etc.22

In Western doctrine some believe that condominium is a regime of shared sovereignty in international relations. The main precedent of such a shared sovereignty over the enclosed water basin in the international law is the shared participation of Salvador, Honduras and Nicaragua in the Gulf of Fonseca. Thought condominiums more commonly reflect the will of the par-ticipating states, in case of the Gulf of Fonseca, condominium was established by the decision of the International Court of Justice. The reason for that was that this gulf was formerly under sovereignty of a single state – Spain, that used it as a single water basin. The Court found that it would not be wise to

20 А.А. Салимгерей, Правовой статус Каспийского моря (проблемы теории и практики), Алматы, Издательский дом КазГЮУ, 2003, с. 33. 21 UN Convention on the Law of the Sea of 1982, http://bit.ly/1dSph2X. 22 I. Brownlie, Principles of Public International Law, Oxford, Clarendon Press, 1977, p. 187.


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end this unique situation when the new states appeared on the map. The view thus is that the situation with the Gulf of Fonseca is very similar to the situa-tion with the Caspian after the dissolution of the Soviet Union. The only dif-ference being that the Caspian as a whole did not belong to a single state.23

Russian doctrine has condominium theory followers as well, basing their view that such a regime was used in the past. Some say that there is a need to come back to previous Russian-Iranian agreements and that would lead to the political, territorial and environmental unity of the Caspian as the condominium zone would thus be established. The argument is that due to the regime in the Soviet times, Caspian ‘sea’ was a condominium with the excep-tion of the 10-mile fishing zone. Such views are contrasted with other scholarly perception that the condominium regime was a formal facade for the third states, but have never been a de facto reality for USSR and Iran. 24

It has to be pointed out that the condominium theory in regard of Caspian ‘sea’ is the least popular among scholars. On the over hand, the view that Caspian ‘sea’ is actually a border lake, with some interesting precedents and practice in international relations and specific norms in international law, can be pointed out as the most popular.

Moreover, such a point of view became popular even in the Iranian doctrine. For example, Afrasiabi in his work points out that the whole dispute over the Caspian lies in the question of whether the international norms of law of the sea will be applicable to the water basin or if the littoral states will be forced to negotiate on the status of the Caspian as a lake and dividing it into sovereign zones between the five parties. Author suggests that the status of the ‘lake’ would be a justified one.25 The same logic can be found in works of an-other Iranian author that acknowledges that the term ‘Caspian sea’ can be de-ceiving linguistically, due to the historical practice of calling this water basin a ‘sea’. However from the legal point of view the Caspian cannot be considered a ‘sea’.26 Geographical overview provided by yet another Iranian author, for ex-ample, views the Caspian as an intercontinental water basin that is not linked with any ocean and can be classified only as a lake.27 Such classification is a key toward the ultimate understanding of the legal status of the Caspian.

The similar views can be found in the Western doctrine as well. Some scholars argued that the Caspian is border lake bound between USSR and

23 M.P. Croissant, S.M. Croissant, “The Caspian Sea Dispute: Azerbaijani Perspectives”, Caucasian Regional Studies, vol.3, Issue 1, 1998, p. 2. 24 А.М.Бутаев, Правовой статус и проблема единства и разнообразия экосистем Каспия, «Каспий: правовые проблемы», Москва, 2002, http://bit.ly/1lj7jQw; С.Б.Дьяченко, Проблема правового статуса Каспийского моря, «Московский журнал международного права», n. 3, Москва, 1995, с. 72. 25 K.L. Afrasiabi, International Law and Iran’s Policy on the Caspian Sea: Shifting Paradigms, International Institute for Caspian Studies, p. 2, http://bit.ly/1buOPCH. 26 S.H.K. Javadi, The Many Names of Caspian Sea, Tehran, Naziran Madjid’s, 1999, pp. 32-33. 27 B. Amitahmadian, “The Geography of the Caspian Sea”, Central Asia and the Caucasus Review, vol. 5, no. 14, Summer, 1996, pp. 1-4.


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Iran as a water basin that does not have an access to the world ocean.28 More-over, as early as in 1960s the view that the Caspian was wrongfully classified as USSR’s enclosed sea when it is the largest border lake in the world can be found in British juridical literature.29 The same goes to the French doctrine where the views were quite similar pointing out that Caspian ‘sea’ as well as Aral ‘sea’ are in reality large lakes that fall under national jurisdictions. Thus, as they used to belong to the USSR and Iran their waters have been granted border status. Scholars find it surprising that despite the size, resources and ancient history of these border lakes they are one of the least regulated.30

Moreover, when it comes to the legal consequences of the (rightful) classification of the Caspian as a lake, the classical American doctrine of inter-national law (that has such an experience as Great Lakes between US and Canada) can be ultimately cited. It is believed that when a lake or an enclosed sea is surrounded by the territories of two or more states, it can be vied as be-longing to those states in equal proportions if they choose to agree to that.31 Basically such view tells us that when it comes to the border lake the will of the states will determine its final legal status. The states may chose to keep it in common property or they can choose to divide its waters to open and territo-rial, with limitations or exclusivity of rights of third parties on shipping, fish-ing or other types of maritime regimes. Unlike the status of the sea, which falls under strict norms of international law, border lake can be divided by the will of littoral states into the zones of functional jurisdiction in maximum capacity – including seabed, waters, subsoil and airspace.

1.3 Legal issues of the delimitation of the Caspian as an important element of the future international legal status

The legal issues of delimitation of the Caspian with a view to create the state borders between the new subjects of international law are in the center of the successful negotiation of the future legal status and will be one of the main el-ements of such a legal regime.

Critical situation with the border issues between the new actors were a result of the lack of the collectively legalized border. In combination with the rich resource base of the water basin, such situation inevitably led to legal and political conflicts between parties, as every side was concerned with the stabili-

28 B.M. Cladet, “Ownership of Seabed and Subsoil Resources in the Caspian Sea under the Rules of Interna-tional Law”, Caspian Crossroads, Summer-Fall, 1995, pp. 3-4. 29 W.E. Butler, The Law of Soviet Territorial Waters. A case study of maritime legislation and practice, New York, Washington, London, Oxford University Press, 1968, pp. 75-76. 30 F.D. Harting, Les conceptions soviétiques de droit de la mer, Paris, Liberté, 1960, p. 29; Ph. Pondaven, Les lacs frontier, Thése…, Paris, Pedone, 1972, p. 72. 31 Ч.Ч.Хайд, Международное право. Его понимание и применение Соединенными Штатами Америки, Москва, Издательство иностранной литературы, 1951, с. 68-69.


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zation of its own economy. It has to be pointed out that up until now there is no common decision on the borders between all of the five littoral states.

To grasp the gravity of the issues of delimitation on the Caspian, it has to be taken into account that after the dissolution of the Soviet Union new states have struggled with the problems of transformation of the administra-tive borders into international frontiers. That transformation resulted in new geopolitical and geoeconomical consequences on the scale largely dependent on the will of the states to cooperate on bilateral or multilateral levels. Gener-ally the clearly defined borders would play important geopolitical role in the Caspian, dividing the zones of national sovereignties and serving as a security beacons in terms of migration and trade. With that in mind, the states are very aware that zones adjacent to the borders carry not only legal, but also a geo-political status.

The determination of the international borders (delineation) is the pro-cess that presupposes two operations that differ both technically and legally. The first one is delimitation – which is the principal agreement on the elements of the border status. The second is demarcation – which is a series of physical operations that serve to fixate the border on its place.32 At the same time the process of delineation can take up decades, just as it is happening with Caspian ‘sea’. The single reason for the clear delineation of the resources and limits of sovereign power of states is to prevent future conflicts between such states and to ensure peaceful cooperation on the borders.

One of the legal issues is the lack of the historical basis for the delinea-tion. USSR was quite content with the de facto control over most of the Cas-pian and with total naval supremacy. For that reason Soviet Union did not bother to codify any kind of legal treaty with Iran on exact territorial borders on the Caspian that would include changes of domestic legislation of both states.33 It has to be pointed out though, that Soviet republics that were a part of USSR have been autonomous states in a very narrow sense. Their extremely limited sovereignty did not mean the full-scale demarcation and delimitation of borders, however the ‘intra-union’ delineation was formally present.

In 1970 Ministry of Oil and Gas of USSR have divided the seabed of the Caspian on Kazakh, Azerbaijani, Russian and Turkmen sectors using the principle of equidistance. Thus there was an opportunity to use previous inter-nal Soviet arrangement in negotiation of the new status and delimitation of the Caspian. It seems that littoral states have never agreed on that and as a result scholars did not pay much attention to the principle of uti possidetis juris in re-lation to the situation with the Caspian ‘sea’. However, this principle is of im-

32 Ph. Pondaven (1972), p. 59. 33 C.P.R. Romano, The Caspian Sea Dispute: The Role of International Law, University of Dundee, 2000, p. 6, http://bit.ly/1b77GUr.


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portance due to the fact that international law has a rich history and custom-ary practice of use of such principle in connection to the delineation of borders and so needs and additional research regarding its applicability to the Caspian dilemma.

Nonetheless, it seems that littoral states believe that the problem of de-limitation of the Caspian as well as the use of its waters, seabed and subsoil, can finally be solved after there will be a common agreement on the treaty that would bind all the Caspian states. In its turn such treaty can lead to the elimi-nation of all the previously reached agreements and resolutions.34

With that in mind it has to be said that while multilateral treaty is still left undecided, the bilateral arrangements are in place starting from late 1990s. In 1998 Russia and Kazakhstan have signed a bilateral agreement on delimita-tion of the seabed of northern part of the Caspian. Later Azerbaijan has joined in the same arrangement in 2001. Kazakhstan and Russia have separated their jurisdiction based on the altered and negotiated median line that they found appropriate. Moreover, that arrangement have determined that waters and general activity there (shipping, limited fishing system and environmental practices) will remain in common sovereignty. The agreement has also deter-mined the altered median line as one based on the equidistance from negotiat-ed baselines, with exception of several parts that ignore equidistance as a prin-ciple due to the islands, geological structures and other issues or geological ex-penditures.35 Similar arrangements were used in delimitation of the seabed be-tween Russia and Azerbaijan.

When it comes to Azerbaijan and Kazakhstan they were able to come to an agreement in 2001. They have also signed an agreement on delimitation of the Caspian seabed that stated that the seabed and subsoil of the Caspian ‘sea’ will be delineated between the parties by the median line based on the equidistance of baselines, islands and coast. Specific coordinates have also been determined.36 The final arrangement between all of this three littoral states have been the agreement on the junction point of the lines that delimit the seabed and subsoil of the Caspian based on bilateral agreements. It was signed in 2003 in Kazakhstan with the clear definition of the coordinates of the junction (42° 33,6’ North 49° 53,3’ East). According to the arrangement the

34 Александра Блохина, К вопросу о правовом статусе Каспийского бассейна, «Коментарии», ИА-Центр, 2006, http://bit.ly/1fwfkdZ. 35 Соглашение между Республикой Казахстан и Российской Федерацией о разграничении дна северной части Каспийского моря в целях осуществления суверенных прав на недропользование, 1998, http://bit.ly/1b9m0M7, ст. 1-2. 36 Соглашение между Республикой Казахстан и Азербайджанской Республикой о разграничении дна Каспийского моря между Республикой Казахстан и Азербайджанской Республикой, 2001, http://bit.ly/1icVoiw.


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shares of the Caspian were divided roughly as follows: Russia – 19%, Kazakh-stan – 29%, Azerbaijan – 18-19%.37

It has to be pointed out that this very restricted delimitation of the sea-bed of the Caspian that took place between only three of the littoral states is far from the adequate international legal status for the Caspian. These delimi-tation lines are hardly state borders, due to the fact that waters and their navi-gation as well as many other issues were left unresolved. Not to mention the fact that only northern part of the Caspian was involved.

Conclusions

The future international legal status of the Caspian is surely dependent on the will of the littoral states. The way the neighbors of the Caspian water basin will decide its fate is still unknown, however from the legal point of view the theories of the classification of the Caspian will still remain debated in the doc-trine.

Then most popular theory though – the one that classified the Caspian ‘sea’ as a lake – seems more valid, due to the fact that it was many times geo-logically proven that the Caspian is an enclosed body of water with absolutely no access to world ocean. The geological history of the Caspian being a part of larger sea thousands of years ago does not change the fact that nowadays it possesses all of the criteria of a lake. Hence, the legal status of the border lake is the most appropriate option of classification of the Caspian and should be used as the base point in the negotiations of its future international legal sta-tus. Moreover, the theory that states that Caspian ‘sea’ was historically treated as a condominium seems quite weak, due to the fact that it was never in such a legal regime de facto. Even de jure the provisions of the Russian-Iranian agreements do not hold a definite support of that theory.

Being a border lake the future international legal status of the Caspian can be determined by the examples from the state practice in that regard. Though such options are quite limited, the example of the Great Lakes and the arrangements between US and Canada seem like a good starting point. The problem is that the Caspian case is unique due to the number of parties. There is no other lake in the world that hosts five littoral states.

Another issue that would always be a tricky part of the legal arrange-ment is delimitation issues of the Caspian with the aim of establishing clear sovereign state borders. Not the least due to the fact that there will always be heavy geopolitical and geoeconimical factors involved in the schematics of the process.

37 Парламент Азербайджана ратифицировал дополнительный протокол к Соглашению о разделе дна Каспия между АР и РК, Kazakhstan Today, 2003, http://bit.ly/1aJqCy0.


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All in all, clearly defined international legal status will be an important step in the peaceful coexistence and cooperation with the aim of sustainable development of all littoral states. The appropriate norms of the future legal status will be a determinant of the future basis of the multilateral relations re-garding the Caspian and inevitably will become a unique precedent in interna-tional law and international state practice.

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2. Militarization of the Caspian Sea: Naval Arms Race and Conflicting Interests

Azad Garibov

Introduction The Caspian Sea has recently witnessed rapid naval build-up unprecedented in the history of the region. Despite the speed of the current build-up, naval-military history of the Caspian is relevantly new. The first standing flotilla ap-peared in the Caspian in the beginning of 18th century when Russia established of a navy-base in Astrakhan. Two wars fought between Iran and Russia in the beginning of 19th century formally established the Russian monopoly over mil-itary power in the Caspian Sea. With the demise of the tsarist Russian empire, Soviets recognized Iran’s right to maintain a navy in the sea, however until the collapse of the Soviet Union Iranian military power has never matched that of Soviets in the Caspian.

The collapse of the Soviet Union introduced profound changes in the geopolitics of the Caspian region. As a result four new naval powers emerged in the Caspian basin: Russia, Azerbaijan, Turkmenistan, and Kazakhstan. March 1992 agreement divided up the Soviet Caspian Flotilla among them. Discovery of the significant hydrocarbon resources in the sea after the collapse of the Soviet Union and location of substantial portion of them often in the areas claimed by the several coastal states, as well as absence of the agreement on legal status of the Caspian created fertile grounds for naval competition in the sea. Naval build-up was present in the sea over the course of the 1990s, however in the smaller scale. Littoral states simply did not have enough funds to invest in naval armament for that period and 4 of them were still trying to recover from the economic shock of the Soviet collapse. However, economic resurgence, due to the increased energy revenues during 2000s, effectively


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completed the list of all conditions conducive to the naval build-up. Since the end of the 2000s, fueled by the Russian policy of strengthening its naval forces, rapid militarization process started in the Caspian Sea that is still going on by the involvement of all littoral countries. In the absence of the hopes for achiev-ing the agreement over the legal status of the Caspian anytime soon that can settle down many geopolitical and economic discords in the sea, this militari-zation process seems to be likely accelerated in the upcoming years.

Though nowadays chances of open military engagement are negligible in the Caspian, there are areas which have the potential for escalation of ten-sions among the littoral states that might potentially lead to unintended con-flicts. The most outstanding disagreement lays over the legal status of the sea which makes Caspian states to ultimately rely on their own naval power in or-der to back their claims in the sea. It is particularly important for Azerbaijan, Kazakhstan and to certain degree Turkmenistan which explore significant hy-dro-carbon resources in the Caspian seabed. Some oil and gas field are disput-ed by the littoral state which sometimes leads to power show off by the ripari-an states to discourage neighbors from exploration works in the fields. West-ern energy comes have built extensive energy infrastructure in and around the Caspian, which might also become a target for terrorist attacks. Finally, rising smuggling and illegal fishing is another source of concern for the littoral states that demand them to have substantial capability to guard water of the Caspian against illegal activities.

2.1 Naval history of the Caspian Sea

Naval-military history of the Caspian is relevantly new. Until the 18th century, the Caspian Sea as a waterway, had not served any major interests of its im-mediate coastal countries. As an isolated body of water it did not have signifi-cance for commercial and trade interests, which resulted in ignorance by the coastal states towards building military presence in order to protect economic interest. Moreover, territories adjacent to the sea had historically been domi-nated by steppe nations in the North and East such as Khazars, Kipchaks, Mongols and Kazakhs, Turkmens, and land powers in the South and West such as the states existed in the territories of current Iran and the Caucasus. These nations have never had any rich maritime culture and interest in explo-ration of waterways.

Despite late militarization of the Caspian, episodic sails of military ships and marauder rides took place in the sea during the course of history, most notably, by the Vikings in the 9-11th centuries and by the Cossacks in the 17th centuries. During 9-11th centuries Vikings (from Kyevian Rus) repeatedly

Militarization of the Caspian Sea: Naval Arms Race and Conflicting Interests

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sailed down the Volga River and attacked Caspian coasts.1 Pirate flotilla did not only limit itself with attacking coastal cities, and as it was in 943-944 they raided deep inside Azerbaijan and ravaged rich middle ages city of Barda. During 17-18th centuries, the Kalmucks, who were settled in the area north of Dagestan and west of the Volga, Cossacks of the Don region and Turkmen marauders repeatedly raided Iranian and Azerbaijani coasts of the Caspian Sea.2 Raids of Cossack led by Stepan (Stenka) Razin were particularly disas-trous for the inhabitants of the coastal regions of the Caspian Sea and most notably in 1666-1667 Razin attacked and plundered the Caspian cities such as Derbend, Baku, Farhadabad, Rasht.3

Aiming to become transit country in the lucrative trade between East and West, starting from 17th century Russia began to seek the ways to control maritime trade in the Caspian. Having control over the maritime routes to Iran and to India was long a dream of Russian emperors.4 Russia became a Caspian power with conquest of the khanates of Kazan and Astrakhan by the 1560s. It attempted build a flotilla in Astrakhan in 1660s. However the first ships built there were burned down when the city was sacked by the rebelled Cossacks. The standing navy emerged in the Caspian Sea in the beginning of 18th century during the reign of the Russian tsar Peter the Great. In 1704 by decree of Peter the Admiralty was founded in Kazan and construction of ships for the Caspian Sea was begun making Russia the dominant maritime power in the sea ever since.5 During the campaign against Safavids (rulers of current Iran and Caucasus) in 1722-23, Peter ordered the construction of the navy-base in Astrakhan to strengthen the Russian presence in the sea. 1722-23 cam-paign of Peter resulted in peace treaty of St. Petersburg which gave all coastal areas of the Caspian Sea from Derbent up to Rasht to Russia. However treaty was not recognized in the Savafid capital. Indeed Russia had never had any ef-fective control over the conquered territories. Consequently, owning the terri-tories only on paper, Russia recognized Savafid rule over them with 1735 trea-ty hoping to get Savafid’s alliance against Ottomans. Thus, efforts launched by Peter did not produce Russian control of the sea, however, the Treaty of St.

1 F. Alakbarli, On Presence of Scandinavians in Caspian Sea during Middle Ages (9th-11th Centuries), Inter-national Medieval Congress IMC 2004, Paper 1123-c (12-15 July 2004), available at: http://www.aamh.az/alakbarli/index.files/vikings/Vikings.htm (last retrieved 4 February 2014). 2 G. Mirfendereski, A Diplomatic History of the Caspian Sea: Treaties, Diaries and Other Stories, 2001, pp. 116-17, in G. Mirfendereski, Caspian Sea ii. Diplomatic history in modern times, Encyclopedia Iranica, Sep-tember 14, 2004, available at: http://www.iranicaonline.org/articles/caspian-sea-ii-diplomatic-history-in-modern-times (last retrieved 4 February 2014). 3 Academic.ru, Разин Степан Тимофеевич, Биографический словарь. 2000, available at: http://dic.academic.ru/dic.nsf/biograf2/10662 (last retrieved 4 February 2014). 4 M. Laruelle and S. Peyrouse, “The Militarization of the Caspian Sea: ‘Great Games’ and ‘Small Games’ Over the Caspian Fleets, China and Eurasia Forum Quarterly, vol. 7, no. 2, 2009, p. 23. 5 Ministry of Defense of the Russian federation, Caspian Flotilla, available at: http://eng.mil.ru/en/structure/forces/navy/associations/structure/forces/type/navy/kasp/history.htm (last re-trieved 7 February 2014).


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Petersburg had come to signal Russia’s ambition to control the Caspian as a strategic necessity.6

During 1740s, Nadir shah Afshar who consolidated his authority over current Iran and Caucasus after overthrowing Safavid dynasty attempted to build his flotilla in Rasht with the help of Englishman John Elton; however his assassination halted this attempt.7 John Elton stayed in Gilan after Nadir’s death hoping the complete the establishment of the flotilla, but he was also killed in 1751. Using the chaos in Iran emerged after Nadir’s death, Russian flotilla burned the ships prepared for Nadir’s Caspian flotilla in their stores near Rasht in 1751-1752.

The next round of fighting to control the Caspian coasts happened be-tween Iran and Russia about 100 years after Peter the Great’s campaign. Gu-listan (1813) and Turkmenchay (1828) peace treaties signed after two major Iran-Russia wars gave the significant part of the Azerbaijani Caspian coastline from Derbent till Astara to Russia and Iran recognized Russian exclusive right to be the only power in the Caspian to maintain military ships in the sea.8 With the treaties Russia turned into an official monopolist of the military of power in the sea.

In 1867 Baku became the major naval base of Russia in the Caspian which retained this status until the collapse of the Soviet Union. Azerbaijani Democratic Republic (ADR) founded in 1918 after the fall of the tsarist Rus-sian empire established its own Caspian flotilla, based on the vessels remained in Baku from imperial Caspian fleet. After the invasion of the ADR by the So-viet Red army in 1920 short-lived Azerbaijani flotilla was integrated into the Soviet Caspian Fleet.

After consolidation of the Soviet rule in the territories of the collapsed Russian Empire, “Persia and the Russian Socialist Federal Soviet Republic Treaty of Friendship” of February 1921 provided Moscow and Tehran with “equal rights of freedom of navigation in the [Caspian] Sea under their own flags.”9 With this treaty, maybe in ambiguous terms, but Iran’s right to have a navy on the Caspian Sea had been recognized. Guaranteed by a series of inter-nationally recognized treaties (particularly those signed in 1927 and 1940)10, Iran and Russia exercised their rights to shipping, trade and fishing in the

6 G Mirfendereski, (2001), pp. 116-17. 7 M. Axworthy, “Nāder Shah and the Iranian Navy”, Encyclopedia Iranica, 20 December 2012, available at: http://www.iranicaonline.org/articles/navy-i-nader-shah (last retrieved 9 February 2014). 8 Константин Чуприн, От Гюлистанского мира до "Каспийского стража, Flot.com, 2009, available at: http://flot.com/nowadays/structure/caspianguard.htm?print=Y (last retrieved 11 February 2014). 9 G. Mirfendereski, (2001), pp. 116-17. 10 Agreement on joint exploitation (for 25 years) of fish resources of the southern coast of the Caspian Sea and Treaty of Warranties and Neutrality of 1927 and Treaty of Trade and Navigation of 1940.


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Caspian.11 However, Iranian naval power never matched the military capabili-ties of the USSR in the Caspian Sea. USSR had been an unchallenged military dominant of the sea until 1991.

During the World War II Soviet Caspian fleet was used for landing troops in the northern Iran, as well as for protecting sea transportation routes against German air raids. Part of the Caspian fleet also relocated into Volga to participate in the operations against German troops. Caspian fleet also played an important role in securing supply routes from allied countries through Iran. After the end of the war Caspian remained as a testing ground of the Soviet naval weapons (and the new warships, including diesel submarines and unique airfoils) until the collapse of the USSR.12

2.2 1990s: Emergence of new naval actors

On the eve of the collapse of the USSR the basic strength of the Soviet Caspi-an fleet was deployed in the territory of Azerbaijan. More than 80% of the fleet’s strength was based in Baku, 15% on Russian territory, and 5% divided between Kazakhstan and Turkmenistan (Bautino and Krasnovodsk).13 The Soviet collapse in 1991 posed a question of the division of the Soviet Caspian fleet among the new littoral states. However, Kazakhstan and Turkmenistan stated their intentions not to establish independent naval forces in the Caspian, instead preferring a common fleet under Russian command.14 This left Mos-cow and Baku as the major contenders in the division of the fleet. After nego-tiations between Azerbaijan and Russia in July of 1992, military ships and equipment comprising the Soviet Caspian fleet were formally divided among the each of the four newly independent states. Due to the refusal of Turkmeni-stan and Kazakhstan in favor of Moscow, Russia received 75% of the ships and equipment previously belonging to the Soviet Caspian fleet and Azerbai-jan a quarter. However, the collective management of the Caspian under Mos-cow’s control was short-lived; Kazakhstan and Turkmenistan soon decided to establish their own separate military forces in the sea. The Kazakh contingent was removed to serve as the basis for the new Kazakh naval service. For sever-

11 S. Main, The Bear, the Peacock, the Eagle, the Sturgeon and the Black, Black Oil: Contemporary Regional Power Politics in the Caspian Sea, Conflict Studies Research Centre, Caucasus Series 05/67, December 2005, p. 22. 12 Константин Чуприн, От Гюлистанского мира до "Каспийского стража”, Flot.com, 2009, available at: http://flot.com/nowadays/structure/caspianguard.htm?print=Y (last retrieved 7 February 2014). 13 “Tri veka Rossiyskogoflota”, vol. 3, M.1996, p. 417. in S. Main, The Bear, the Peacock, the Eagle, the Stur-geon and the Black, Black Oil: Contemporary Regional Power Politics in the Caspian Sea, Conflict Studies Research Centre, Caucasus Series 05/67, December 2005, p. 22 (last retrieved 14 February 2014). 14 S. Hunter, “Security and the Environment in the Caspian Sea”, in W. Ascher and N. Mirovitskaya (eds.), The Caspian Sea: A Quest for Environmental Security, NATO Science Series, vol. 67, 2000, p. 121; Chuprin, “Ka-zakhstan stremitsia obrestizdes’ vtoroipoznachimostivoenno-morskoipotentsial”, in M. Laruelle and S. Pey-rouse, (2009), p. 22.


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al years Russia continued to lead joint Turkmen-Russian forces based in As-trakhan. Later, Turkmenistan established its own naval forces in Turkmenba-shi (former Krasnovodsk).

With the collapse of the Soviet Union, the Russian Caspian fleet lost its long-time home base in Baku, was the largest and most strategically located port of the sea, which included all Soviet-built coastal infrastructures. Russia began to build new infrastructure in northern ports of the Caspian Sea and moved part of the fleet from Baku to Astrakhan and Makhachkala. After this Astrakhan once again became the major base for the Russian Caspian fleet. During 1990s, though the Caspian Sea did not have the major economic im-portance for Russia compared to other littoral states, military operations in North Caucasus pushed Moscow for increased attention to its southern flank, the Caspian fleet.

As a result of Soviet infrastructures and equipment, Azerbaijan became the second strongest naval power in the Caspian. In 1992 Azerbaijan received a significant part of the former Soviet naval material in the Caspian Sea, amounting up to fifteen ships of different classes. Along with a major base in Baku, the Azerbaijani fleet had other ports at its disposal such as Sangachal, Lankoran and Sumgayit. By 1994 Azerbaijan had four minesweepers, five landing ships, and three patrol boats. In 1994 the estimated total manpower strength of the navy reached 3,000 people.15 However, in most of the 1990s, Azerbaijan did not make any major investment in the development of its mari-time forces, as the war with Armenia who invaded Nagorno Karabakh and seven adjacent regions of Azerbaijan invaded by Armenia made the develop-ment of ground and air forces a priority for the country.

In 1994 Kazakhstan stated it no longer wanted to rely on Russian mar-itime protection in the Caspian and aimed to establish its own naval forces. At the time Kazakhstan possessed five ports: Aktau, Atyrau, Kuryk, Bautino and Sogandyk, but none were ever equipped with any military naval infrastructure during Soviet times. Aktau port underwent some modernization in order to host the new Kazakh fleet, but no full-fledged marine military infrastructure was created. Some minor naval forces based in Kazakhstan during Soviet pe-riod, namely the 284 division of the maritime border guard in Buatino and special division in the Aral lake (to serve Baikonur Cosmodrome and secret military sites in the island Vozrozhdenie) was used as the basis for the estab-lishment of the marine division of the border guard service. In January 1996, Russia and Kazakhstan signed military cooperation agreements, which includ-ed Russian assistance in developing a Kazakh maritime force.16 Late in the

15 GlobalSecurity.org, Azerbaijan Military Naval Forces, 14 November 2013, available at: http://www.globalsecurity.org/military/world/azerbaijan/navy.htm (last retrieved 15 February 2014). 16 J. Daly, “Analysis: Kazakhstan rules oceans”, Energy Daily, 19 February 2008, available at: http://www.energy-daily.com/reports/Analysis_Kazakhstan_rules_oceans_999.html.


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1990s Kazakhstan acquired patrol boats from Germany, the United States, United Arab Emirates and Turkey. In July of 1998 the Caspian Flotilla of Ka-zakhstan took delivery of the Kazakh-made combat cutter built at the Zenith shipyard in Uralsk (western Kazakhstan).17 In 1997 the division was trans-ferred to the border service of the KNB (Committee for National Security) successor of KGB. Only in 2003, the naval forces of Kazakhstan again became an independent branch of the country’s defense forces.

Turkmenistan was the last Caspian country to establish independent naval forces in the Sea. After independence, close defense cooperation with Moscow was maintained. In 1994, the country ended most of its military co-operation with Russia, except for the guarding of the maritime borders which continued in cooperation with Moscow until1999.18 Turkmenistan had three Caspian ports, Bekdash, Turkmenbashi and Cheleken, but they were poorly equipped in terms of naval military infrastructure. In 2000 Asghabat started to acquire several small size ships. A 1970 Point class cutter was received from the US within the framework of bilateral defense cooperation. Kalkan-M and Grif-T class patrol boats were acquired from Ukraine, and seven patrol and destroyer boats were rented from Iran in 2003.19 However, similar to Kazakh-stan, until the 2000s Turkmenistan did not have an independent fleet and its naval forces were integrated in the border guard.

Until the collapse of the USSR, Iran had not tried to balance Soviet naval preponderance in the Caspian, and preferred to pay its attention to the Gulf region. However, with the emergence of the new naval powers in the Caspian Sea, as well as due to the disputes over the maritime borders and oil fields and growing western presence, Tehran began to increase resources de-voted to building a strong naval deterrent in the Caspian Sea. In 1994-1995, Iranian authorities developed the naval base of its main Caspian commercial port, Bandar-e-Anzali.20 China, Russia and North Korea also provided Iran with new naval offensive and defensive system capabilities during the 1990s and in 2000s.

2.3 2000s: Initiatives for naval cooperation

Mid-2000s witnessed two initiatives for naval cooperation in the Caspian, though both of them failed to produce any serious action. The first one, “Cas-pian Guard” was launched and advocated by the US. However, the initiative

17 GlobalSecurity.org, Caspian Flotilla, 9 July 2007, available at: http://www.globalsecurity.org/ military/world/russia/mf-caspian.htm (last retrieved 16 February 2014). 18 M. Laruelle and S. Peyrouse, (2009), p. 28. 19 “Туркмения создает Военно-морские силы”,Оружие России, 25 January 2010, available at: http://www.arms-expo.ru/049057052048124049051052054049.html (last retrieved 17 February 2014). 20 M. Laruelle and S. Peyrouse, (2009), p. 25.


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did not bring about a tangible cooperation in the Caspian and after several years of discussions the parties lost interest in it. Determined to prevent the US involvement in the Caspian affairs, Russia launched a counter-initiative called “CASFOR” which was supported only by Iran and had a similar fate as previ-ous the American initiative.

9/11 2001 terrorist attacks resulted in massive expansion of the theater of the US military involvement in the world, particularly in the Middle East. It was also a period of the strong US commitment to the Caspian region. The US granted small size, mostly leftover boats to the Caspian countries to strengthen their maritime capabilities and put forward a special naval cooperation initia-tive “Caspian Guard” in the fall of 2003. The initiative was an integrated counter proliferation, counterterrorism, and illegal trafficking effort to help secure the Caspian Basin from transnational threats, it included a wide variety of maritime and border training exercises, and equipment upgrades.21 If to be implemented, the initiative coordinated by United States European Command, would establish integrated airspace, maritime and border control regime for Azerbaijan and Kazakhstan. It planned to improve the two countries’ ability to prevent and, if needed, respond to terrorism, nuclear proliferation, drug and human trafficking, and other transnational treats in the Caspian Sea. Since exploration and transportation hydrocarbon resources of the Caspian Sea considered having key importance for the US, program was particularly de-signed to ensure Caspian countries’ capability of efficient reaction to states of emergency, including attacks against oil infrastructure.

The Wall Street Journal on 11 April 2005 reported that the US planned to spend $100 million on “Caspian Guard” to respond to crisis situations in the Caspian Sea region.22 The US participated in joint naval exercises with the Azerbaijani side in the Caspian, donated up-to-date radar equipment and three motor boats to the Azerbaijani navy by the end of 2006.23 However, de-spite consultations during the most of the 2000s, the initiative failed to be fully materialized. While Azerbaijan and Kazakhstan showed interest in negotia-tions within the framework of the initiative, it faced fierce opposition by Iran and Russia who were determined to as much as possible lessen the US influ-ence and involvement in Caspian affairs. Towards the end of the 2000s, with

21 J.L. Jones, “U.S. European Command Posture”, Statement of General James L. Jones Commander, U.S. European Command U.S. Marine Corps, Senate Armed Services Committee, 7 March 2006, pp. 16-17, in G.J. Dyekman, Security Cooperation: A key to the challenges of the 21st century, Strategic Studies Institute of the US Army War College, November 2007, available at: http://www.strategicstudiesinstitute.army.mil/ pdffiles/pub820.pdf (last retrieved 19 February 2014). 22 Global Security.org, Caspian Guard, 22 July 2007, available at: http://www.globalsecurity. org/military/ops/caspian-guard.htm (last retrieved 19 February 2014). 23 Global Security.org, Azerbaijan Military Naval Forces, 14 November 2013, available at: http://www.globalsecurity.org/military/world/azerbaijan/navy.htm (last retrieved 20 February 2014).


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the decreasing US interest in the region, the initiative dropped from the discus-sion agenda of the Caspian countries.

Following the US initiative, Russia launched a counter-initiative called “CASFOR” in July 2005, offering its Caspian neighbors to establish the Cas-pian naval group for operational cooperation.24 The major argument behind Russian initiative was that only Caspian states should be allowed to partici-pate in the common schemes to provide security in the Caspian Sea. Iran sup-ported Russian position about unacceptability of foreign involvement in the sea.25 According to Russian plans, special joint naval group was to be estab-lished under the leadership of Russia. As it was stated by Sergey Ivanov, de-fense minister of Russia, during his January 24, 2006 visit to Baku, “CASFOR” was intended “to prevent the threat of terrorism and WMD pro-liferation, [and] the illegal trafficking of weapons and drugs” in the Caspian Sea basin. The initiative would also “protect the economic interests” of the sea’s five littoral states, Azerbaijan, Kazakhstan, Turkmenistan, Iran and Rus-sia.26 However, Russian initiative was failed too, because no Caspian country, having vital energy resources in the Sea was going to enter under Russian na-val domination again. Details about the program was never officially cleared, no littoral country stated that it had officially received the offer to establish a joint naval force within the framework of the program. After being in the agenda for several years, the issue lost the littoral states support and attention to it.

2.4 End of 2000s and beginning 2010s: Acceleration to the full-scale arms-race in the Caspian Sea?

The last several years were particularly noteworthy in terms of naval build up the sea by the littoral states. Though open military engagement is unthinkable in the Caspian Sea for now, there are certain areas with potential for escala-tion of tensions among the littoral states. The presence of strong offensive ca-pabilities creates potentially dangerous situations since escalation of tensions might lead to an unintended conflict. First of all, legal status of the sea has not been determined yet, making the littoral states to ultimately rely on their own naval deterrence in order to uphold their claims in the sea regarding its divi-sion. As is its known, these claims conflict with one another, particularly Iran continuously rejects the current division claiming the 20% of the sea. Secondly,

24 Ministry of Defense of the Russian federation, Caspian Flotilla, http://eng.mil.ru/en/structure/forces/navy/ associations/structure/forces/type/navy/kasp/history.htm (last retrieved 21 February 2014). 25 Александр Карпенкo, Страсти вокруг Каспия, Voenno Promishlennoy kurier, 5 сентября 2012, available at: http://vpk-news.ru/articles/9226 (last retrieved 21 February 2014). 26 R. Ismayilov, “Azerbaijan Ponders Russian Caspian Defense Initiative”, Eurasianet.org, 31 January 2006, available at: http://www.eurasianet.org/departments/insight/articles/eav020106.shtml (last retrieved 22 Febru-ary 2014).


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some oil and gas field are disputed by the littoral state which is also related to the uncertain situation with regard to the legal status of the sea. Moreover, western energy companies have build extensive energy infrastructure in and around the Caspian, which is potential target for terrorist attacks, though due to the location, such objects are difficult to reach for non-state actors. In case of the possible escalation of tensions around Iranian nuclear program and US military intervention in that country (which seems less possible now after re-cent government change in Iran), energy infrastructure used for Westward en-ergy supplies might become a target for Tehran bringing about interstate con-flicts in the Caspian. Moreover, rising smuggling and illegal fishing (with crim-inals sometimes entering in fighting with patrols boats) also demands strength-ening maritime military capabilities of the littoral states.

Since the beginning of 2000s Russia undertook first attempts to strengthen its fleet in the sea. Leaded by the Russian attempts to strengthen its forces in the Caspian, other littoral states also followed the suit to establish their own military naval infrastructure, re-arm and re-train their sea forces. After a decade of naval build-up, Russia continues to be a leading force in the sea far stronger than any other littoral state. Iran has the second largest naval force in the sea which also continuously launches new warships. Azerbaijan and Kazakhstan, by using their increasing energy incomes, also pursued a pol-icy of reinforcing their naval forces. Turkmenistan, a latecomer, has also re-cently started to purchase new ships for its navy in the Caspian Sea. United States and Turkey helped these three states by providing training and granted some small size patrol boats. Azerbaijan. Since its independence, due to the war with Armenia, the devel-opment of land forces was a major priority for Azerbaijan. However, increas-ing tension among the littoral states over the control of hydrocarbon resources during 2000s, as well as heightened naval build-up in the sea convinced Azer-baijan to increase its attention to building new defense capabilities in the Cas-pian. Along with ships, bases and other equipment inherited from the Soviet Union, Azerbaijan received a number of patrol boats from the US and Tur-key, and installed new radar stations along the coast of the sea and trained special marine forces.

In 2010, Azerbaijan reached a $75 million agreement with Russia for the purchase of the “Uran-E” shipborn missile systems to be delivered in 2014.27 Another large arms purchase deal was agreed between Azerbaijan and Israel in February of 2012.This $ 1.6 billion deal also included the delivery of

27 APA, Russia to start delivering Uran-E missile complexes ordered by Azerbaijan from next year, 15 October 2013, available at: http://en.apa.az/xeber_russia_to_start_delivering_uran-e_missil_201159.html (last retrieved 25 February 2014).


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“Gabriel-5” advanced naval anti-ship missiles. The latter deal provides Azer-baijan with drone technology increasing the surveillance and observation ca-pability of Azerbaijani fleet in the sea.

Azerbaijan plans also to further increase its capabilities and deploy modern ships within the framework of a navy power modernization program by 202028. Starting in 2014, Azerbaijan will launch construction of its own warships29. The Baku Shipyard has already submitted several projects to the naval forces for building ships for various purposes. A new naval base will al-so begin operating in 201430. At present, the naval base’s construction is un-derway in Puta in the Garadagh district of Baku.

Azerbaijan has also advanced air support capability to its fleet, as three major airbases of the country are located on the Caspian coast: Nasosnaya, Lenkoran and Qala. The Air Force posses fighter jets like the supersonic inter-ceptor jets Mig-29 Fulcrum, Mig-25 Foxbat, Mig-21 Fishbed, attack jets Su-25 Frogfoot, as well as the front bomber jets Su-24 Fencer that, operating from the coastal airbases, can be used to support the country’s naval forces. In 2012 Azerbaijan successfully completed a week-long tactical exercises in the Azer-baijani sector of the Caspian Sea (Protection of Oil and Gas Fields, Platforms, and Export Pipelines) involving around 1,200 servicemen, twenty one ships, twenty speedboats, as well as eight helicopters.31 Russia. Russia was the first country to launch a new naval build-up in the Caspian Sea triggering other littoral states to strengthen their naval deterrents. Russia has three major bases in Astrakhan, Mahackala and Kaspiisk. Despite the serious degradation of all other Russian fleets in comparison with that of the USSR, the Russian Caspian fleet is not inferior to its Soviet predecessor in terms of number and fire-power of ships.32A lot of war ships were transferred to the Caspian from the former USSR Black Sea fleet, however many of them were old and inefficient.

Within the framework of naval rearmament, the Caspian fleet received the jewel of contemporary Russian military naval construction; the $100 mil-lion Tatarstan missile ship (Gepard class frigate, project 11661К) built in 2001 at the Zelenodolsk shipyard and handed to the Russian Caspian fleet in 2003.33

28 N. Orujova, “Azerbaijantobuildwarshipsin 2014”, Azernews.az, 12 November 2013, available at: http://www.azernews.az/azerbaijan/61533.html (last retrieved 25 February 2014). 29 Ibid. 30 Rəşad Süleymanov , AzərbaycanHərbiDənizQüvvələrininyenihərbibazasıgələnilistifadəyəveriləcək, APA, 7 November 2013, available at: http://az.apa.az/news/320106 (last retrieved 26 February 2014). 31 Window on Heartland, The Azerbaijan Navy in the Caspian arms race, 31 May 2012, available at: http://www.windowonheartland.net/2012/05/azerbaijan-navy-in-caspian-arms-race.html (last re-trieved 26 February 2014). 32 Константин Чуприн, “От Гюлистанского мира до "Каспийского стража"”, Flot.com, 2009, http://flot.com/nowadays/structure/caspianguard.htm?print=Y (last retrieved 7 February 2014). 33 M. Laruelle and S. Peyrouse, (2009), p. 24.


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Launching the frigate was first important attempt of renewal of the fleet in the sea. The Tatarstan is armed with “Uran-E” missiles able to hit targets as far as 280 kilometers away using its missiles, “Palma” anti-aerial artillery and torpe-do launching equipment. Moreover, the vessel is able to facilitate helicopters and is thus can be effectively used in case of aerial or submarine attack.34

Despite some modernization throughout the 2000s, Sergey Ivanov, Russian deputy Prime Minister (ex-minister of defense) stated in a government meeting at the Caspian port city of Astrakhan in 2011 that “The fleet which is currently in service in the Caspian Sea could be characterized as outdated and uncompetitive” adding that most of its 148 ships were over 30 years old.35 Therefore, Russia is energetically expanding its naval forces in the Caspian adding new and modern vessels.

As a result of these increased, during the last few years, the Russian Caspian fleet has received a significant number of modern warships. The fleet took delivery of the first Buyan-M class small missile boats Grad-Sviyazhsk and Uglich (project 21631) produced with stealth technology in 2010.36 The next year two more same Buyan-M class boats, Velikiy Ustyuq and Volga-donsk were handed to the fleet. Twin sister to the Tatarstan, missile frigate Da-gestan was commissioned in 2012. The frigate is armed with the newest “Kali-ber-NK” missiles with a range of 300 kilometers, able to hit targets both in the sea and on the ground.37 In 2013 the Russian Caspian fleet received a Buyan class small artillery ship Mahackala. It was reported that in 2014 Russia planed to strengthen it Caspian fleet with five new warships (most of them Buyan class small artillery ships classified as corvettes) and several support boats making the single largest addition to the Russian Caspian fleet in a one year since its establishment. It was planned that, altogether sixteen new ships would join the Caspian flotilla by 2020.38 However, due to the events in Cri-mea, annexation of which substantially increased the importance of Black Sea

34 Оружие России, Сторожевой корабль «Дагестан» выйдет на боевое дежурство, 23 September, 2011, available at: http://www.arms-expo.ru/049057054048124050053050052049.html (last retrieved 4 February 2014). 35 J. Kucera, “Russia to Add 16 Ships to Caspian Fleet by 2020”, Eurasianet, 5 May 2011, available at: http://www.eurasianet.org/node/63426 (last retrieved 22 February 2014). 36 Центральный Военно-Морской Портал, В Зеленодольске заложат новый ракетный корабль для ВМФ России, 20 July, 2011, available at: http://flotprom.ru/news/?ELEMENT_ID=83308 (last retrieved 23 February 2014). 37 Оружие России, Сторожевой корабль «Дагестан» выйдет на боевое дежурство, 23 September, 2011, available at: http://www.arms-expo.ru/049057054048124050053050052049.html (last retrieved 23 February 2014). 38 J. Kucera, “The Great Caspian Arms Race”, Foreign Policy, 22 June 2012, available at: http://www.foreignpolicy.com/articles/2012/06/22/the_great_caspian_arms_race (last retrieved 23 February 2014).


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fleet for Russia, first Buyan-M class missile boats capable of carrying “Kali-ber” missiles ordered for the Caspian fleet will be delivered to Black Sea fleet.39

Russia has also a Lun class missile ekronoplan (ground effect vehicle project 903) armed with “Miskit” missiles and 2 Orlenok class landing ekronoplans (project 904) in the Caspian Sea. However, all three are in inop-erable conditions and were tested in the Caspian Sea during Soviet era rather than being developed for the needs of the Caspian fleet. Russia is also building up its naval air forces in the region, and establishing coastal missile units armed with anti-ship rockets capable of hitting targets in the middle of the sea.40 It is also reported that Russia is going to be the first country in the Cas-pian to deploy “Bal-E” coastal missile systems (120 km range) to defend its coastline from the threats that might come from the sea. The Russian Caspian fleet also has divisions of combat divers.41 The Kaspiisk air base, operational since 2000, can facilitate all types of aircraft necessary for monitoring and supporting the fleet at sea, such as amphibious aircraft and anti-submarine helicopters. The role that Russian air forces can provide for the fleet in the Caspian region further widens the power gap between Russian and other litto-ral states’ naval forces. Iran. During the 2000s the Iranian military naval presence was reinforced by the arrival of new warships and the development of its naval military infra-structure. Despite economic sanctions, Iran accelerated its naval armament process, and development of military infrastructure at ports such as Anzali, Nowshahr, Bandar-e Torkman and Babolsar, all of which underwent modern-ization at the end of the 2000s. During this period, according to official sources, a number of Mowj class mini-destroyers, and Paykan class missile boats were deployed to the sea to strengthen the Iranian Caspian fleet.42 In June of 2012, Iranian officials declared their intensions to deploy light-submarines to the Caspian Sea, while how many subs would be deployed or what the nature of their missions would be was not elaborated.43

In March 2013 Iran announced the deployment of the domestically made Jamaran-2 (twin sister of the Jamaran-1 deployed to Indian Ocean in 2011) Mowj class guided-missile destroyer (closer to a corvette by internation-

39 Алексей Никольский, Минобороны пересматривает программу базирования Черноморского флота, Vedomosti.ru, 07 May 2014, available at: http://www.vedomosti.ru/politics/news/26208011/vmesto-astrahani-v-sevastopol (last retrieved 12 May 2014). 40 Ibid. 41 R. Pukhov, Russia remains unrivalled in the Caspian Sea, Valdai Club, 25 April 2012, available at: http://valdaiclub.com/defense/41620.html (last retrieved 23 February 2014). 42 “Iran launches Paykan missile boat in Caspian waters”, Payvand News, 29 September 2003, available at: http://www.payvand.com/news/03/sep/1188.html (last retrieved 23 February 2014). 43 RT, Iranian submarines to navigate Caspian Sea, 30 June2012, available at: http://rt.com/news/submarines-caspian-iran-oil-123/ (last retrieved 24 February 2014).


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al standards) in the Caspian Sea.44 With a displacement of about 1,400 tonnes, the Jamaran-2 is the largest ship in Iran’s Caspian fleet, and is designed to host an armed helicopter. Along with a destroyer Jamaran-2, two other boats (P224 Paykan and P225 Joshan) are equipped with Chinese C-802 anti-ship missiles with a firing range of 120 kilometers.45 It is reported that, two other Mowj class destroyers are planned to be built for the Iranian Caspian fleet. Iran is al-so planning to build 75 smaller missile boats of the Peykaap II class, most of which will likely be based in the Persian Gulf, but if necessary, can be trans-ported by land to the Caspian in a short period of time.46

The fleet is commanded by two independent, but mutually coordinated bodies – the 4th military-naval zone (headquartered in Anzali) and the Navy Command of the Islamic Revolution Guards Corps (IRGC). In 2013 Iran conducted an intense maritime minelaying and minesweeping exercise giving a clear signal of Iran’s determination to uphold its claims for 20% of the sea and its alleged maritime borders. Overall, it is considered Iran’s advantage that it can increase the number of military vessels in Caspian via dislocating small size ships including hovercrafts and submarines from the Gulf. Kazakhstan. Kazakhstan retained two important factories of the Soviet naval-industrial complex, Zenit and Gidropribor, in the Uralsk, western part of Ka-zakhstan, which helped the country to build boats for its fleet. Between 2005 and 2006, the 240 tonnes patrol boat Sardar (Bars class) was commissioned in the Zenit shipyard and Gidropribor produced cutter Shagala for the Kazakh naval forces. The small patrol boats were delivered from the Republic of Ko-rea in 2006. Building military infrastructure in the port zones in Aktau, Kuryk and Bautino were launched in the end of 2000s to enable them to accommo-date ships of bigger sizes. In order to arm ships in the Caspian, Astana made $30 million order ti Russia for Uran-E naval missiles in 2010. According to the most recent re-ports, Ukraine provided short-range missile complex Arbalet-K and guided naval missile complex Barrier-KV, both of which of hitting targets in 5-7.5 kil-ometers distance47.

Recently, Kazakhstan made investment in its shipbuilding factories to produce bigger ships for its naval forces (less than 500 tonnes of displacement);

44 A. Paul, “The Caspian arms race”, Today’s Zaman, 4 April 2013, available at: http://www.todayszaman.com/columnists/amanda-paul_312509-the-caspian-arms-race.html (last retrieved 24 February 2014). 45 J. Kucera, (2012). 46 J. Kucera, “Arms Race on the Caspian?”, The Diplomat, 31 August 2010, available at: http://thediplomat.com/2010/08/arms-race-on-the-caspian/ (last retrieved 25 February 2014). 47 Лента.Ру, Украина поставила Казахстану корабельные ракетные комплексы "Арбалет" и "Барьер", 20 February 2014, available at: http://www.centrasia.ru/newsA.php?st=1392843240 (last retrieved 12 May 2014).


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in 2012, the Zenit commissioned missile and artillery ship named Kazakhstan. The country plans to build two more ships of this type in the factory by the end 2014.48 Nevertheless, ships of greater tonnage, from 500 to 1,000 tonnes, which would be able to ensure security in the deeper waters of Aktau and Bautino, still have to be imported. Along with Zenit and Gidropribor, there are other facilities inherited from Soviets which could also help Kazakhstan to further strengthen its naval forces. The industrial plant Kuybishev in Petro-pavlovsk, Hidromash and Mashinostroitelniy and plants in Almaty have the technology to produce anti-vessel aviation missiles (APR-3) and marine mines, production capacity of which far exceed the needs of Kazakhstan and were de-signed for supplying the Soviet navy.

To develop its national shipbuilding capacity, Kazakhstan recently signed an agreement with the South Korean shipbuilder STX to receive tech-nical support.49 A recent arms expo in Kazakhstan's capital of Astana drew a substantial number of shipbuilders and other naval arms producers from Eu-rope, Turkey, and Russia interested in getting contracts for establishing Ka-zakh naval capacity. In order to increase the professionalism of its navy, Ka-zakhstani cadets are trained in the United States, Germany, India and Paki-stan. Astana also plans to send cadets to South Korea. The declared objective is to establish a national marine training station within 2016.50 Turkmenistan The late 2000s also witnessed acceleration of the naval build-up in Turkmenistan, despite the permanent neutrality status since 1996. In 2008 Turkmenistan bought three guided-missile patrol boats and two smaller patrol boats from Russia. It purchased three guard ships with remotely-operated mis-siles from Russia in 2008 and two Sobol class patrol boats in 2009.51 Turkmen-istan also made $79.8 million order to Russia for naval missiles “Uran-E” in 2010. The first part of Turkmenistan’s order was delivered in 2011-2012. After the delivery Ashgabat made an additional $40 million order for the missiles.52

48 GlobalSecurity.org, Kazakhstan Navy, 22 May 2013, available at: http://www.globalsecurity.org/ military/world/centralasia/kazak-navy.htm (last retrieved 4 February 2014). 49 I. Gurbanov, The Militarization of the Caspian Sea is Inevitable: Cooperation is Needed, Bilgesam, 14 Sep-tember 2013, available at: http://www.bilgesam.org/en/index.php?option=com_content&view=article&id=587 :the-militarization-of-the-caspian-sea-is-inevitable-cooperation-is-needed&catid=86:analizler-kafkaslar&Itemid= 145 (last retrieved 26 February 2014). 50 A. Paul, (2013). 51 V. Kavkaza, (2013). 52 APA, (2013).


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Table 2.1 - The naval forces of the littoral states: military personnel and major vessels (above 250 tonnes of FLD* level)

Azerbaijan Iran** Kazakhstan Russia Turkmenistan

Active personnel

2,200 3,000 3,000 15,000 500

Principal surface combatants (FLD > 1500 tonnes)

- - -

2 Frigates (Gepard class)

-

Patrol and coastal

combatants (FLD between

250-1500 tonnes)

1 Corvette (Petya II class)

1 Offshore patrol vessel

3 Coastal patrol crafts w/anti-ship

missiles

3 Patrol boats

1 Corvette (Mowj class)

3 Coastal patrol crafts w/anti-ship

missiles

(other small-er missile

and artillery boats)

1 Coastal pa-trol craft w/guided missiles

5 Fast patrol boats

15 Patrol boats

2 patrol crafts w/guided missiles

3 patrol hy-drofoils with

missiles

1 patrol craft with CIWS or

SAM ***

2 Fast patrol crafts

w/guided mis-siles

4 Coastal pa-trol crafts

w/anti-ship missiles

12 Fast patrol boats

1 Patrol boat

Mine warfare

and countermeasure

vessels

4 Coastal mine hunters

1 coastal mine

sweepers (a number of other ships)

- 5 coastal mine

sweepers

2 inshore mine hunters

-

Amphibious

3 Landing ships

medium

2 Medium landing crafts

1 Landing craft utility

- -

2 Medium landing crafts

4 Landing crafts utility

5 Landing crafts air-

cushion (hov-ercraft)

-

Source: The International Institute for Strategic Studies, The Military Balance 2014, Routlege, London, February 2014 * FLD - full-load displacement; ** It is reported in several sources that Iran posses about 100 small missile and patrol boats in the Caspian Sea. However, many of them either fall below the 250 FLD limit or there is not available information on the exact dislocation of Iranian naval ships (either in the Gulf or in the Caspi-an Sea). Therefore, the table includes only confirmed information about Iran’s naval capability in the Cas-pian Sea; ***CIWS – a close-in weapon system (fast-reaction, rapid-fire gun system providing a vessel with a terminal defense against anti-ship missiles that have penetrated other defenses); SAM – surface-to-air mis-sile


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However, Turkmenistan still lacks navy as an independent branch of military forces. In 2010 the Turkmen President Berdymukhamedov announced the country would create a fleet, based at the port of Turkmenbashi by 2015.53 In 2011, Ashgabat took delivery of two 12418 Molniya class missile corvettes, Gayratly (Bold) and Edermen (Valiant) from Russia. The two ships feature re-cently purchased “Uran-E” missile systems each, making them heavily armed ships.54

In September 2012, Turkmenistan conducted its first military drill in the Caspian Sea.55 Ashgabat also plans to establish of a naval academy in the coastal city of Turkmenbashi to train Turkmen naval forces. In 2013, the country signed a contract worth $130 million with Hyundai Amco (South Ko-rea) to build a shipyard and a ship-repairing facility in Turkmenbashi to start constructing their own Arkadag patrol boats.56

Conclusions

While first decade after the Soviet collapse was relatively calm period in the Caspian in terms of militarization, starting from 2000s naval build up acceler-ated in the sea. Naval arms race, a relevantly new phenomenon in the Caspian Sea, continues in potentially dangerous way, threatening to transform Caspian from the one of the most lest militarized seas to the one of the most milita-rized. All states make substantial investments to re-train and re-arm their mili-tary forces in the sea, build advanced naval infrastructure and set up indige-nous production capacity.

Led by the Russian attempts to strengthen its forces, other littoral states also started to re-arm and re-train their Caspian flotillas. Russia contin-ues to be a leading naval power in the Sea and as a part of 2020 military re-form plan intends to massively invest in renewing its ageing ships in the sea. Iran has the second largest naval force in the sea which also continuously launches new warships. Azerbaijan and Kazakhstan, by using their increasing energy incomes, are trying to reinforce their naval forces. Turkmenistan, a latecomer, has also recently started to purchase new ships for its navy in the Caspian Sea. United States and Turkey helped these three states by providing training and granted some small size patrol boats.

53 J. Kucera, “Kazakhstan Gets Jump on Caspian Naval Race”, Eurasianet, 23 June 2010, available at: http://www.eurasianet.org/node/61386 (last retrieved 4 February 2014). 54 J. Kucera, “Turkmenistan: Ashgabat Quietly Builds Up Caspian Military Might”, Eurasianet, 5 July 2012, available at: http://www.eurasianet.org/node/65633 (last retrieved 27 February 2014). 55 Deutsche Welle, Arms race on the Caspian Sea heats up, 17 September 2012, available at: http://www.dw.de/arms-race-on-the- available at: caspian-sea-heats-up/a-16246863 (last retrieved 28 Febru-ary 2014). 56 “Vestnik Kavkaza, Azerbaijan to receive Uran-E missile systems in 2014”, 15 October 2013, available at: http://vestnikkavkaza.net/news/politics/46348.html (last retrieved 27 February 2014).


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Though military conflict potential is quite low in the Caspian Sea now-adays, increased military capabilities embolden littoral states for forceful up-hold of their claims and unintended escalation of the tensions might possible lead to the conflict that will threaten energy security of many regions feeding from Caspian hydrocarbons, including Europe.

In this naval arms race, energy resources are one the major reasons of naval build-up and the source of income for the littoral states that allows them to engage in that build-up. For Azerbaijan, Kazakhstan and Turkmenistan Caspian oil and gas has vital importance for economic well-being, and they in-vest energy money in acquiring naval capabilities to protect energy interests in the sea. For Iran and Russia, energy resources are of vital interest as well and feed their naval investments, but these are energy incomes from the fields not located in the Caspian basin. Generally, Moscow and Tehran are two regional powers that have wider interests in the Caspian region than mere protection of energy fields. However, it has recently been reported that both countries have also discovered promising oil fields in the Caspian.

Clearly defined international legal status will be an important step in the peaceful coexistence and cooperation with the aim of sustainable develop-ment of all littoral states and prevent the current arms race in the Caspian Sea. However, none of them seems to be achieved anytime soon. There are signifi-cant interests in the Caspian to foster the continuation of the current situation.

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3. Energy Infrastructure Protection and the Caspian Offshore

Matteo Verda

Introduction

Energy infrastructures represent a primary strategic asset for a producer coun-try. Their integrity is fundamental in order to maintain production rates: seri-ous damage could affect export flows and cause huge economic losses to the State. Moreover, energy companies typically invest several billion dollars in long-term projects: any damage to relevant infrastructures can seriously jeop-ardise their profitability, due to lost production and repair works.

Therefore, energy infrastructure protection is a main security concern for a producer country which wants to preserve its rents and attract more for-eign investments. Countermeasures need to address several key factors: the high potential impact of even small attacks, the relative ease of targeting visi-ble infrastructures, and their highly symbolic value.

The Caspian proves to be a particularly challenging case, due to its unique features. World-class upstream activities are located offshore and new projects are underway, but maritime borders are still being disputed. Moreo-ver, the littoral states have diverging agendas and interests, with unpredictable consequences. At the same time, international terrorism represents a common and untamed threat.

As a consequence, the littoral states need to tackle a complex situation, which requires a multi-level strategy. At the international level, multilateral and bilateral cooperation is fundamental in order to avoid escalations and find a solution to the legal conundrum. At the national level, there is the need for effective coordination between governments and international companies and for addressing the possible internal challenges, wherever they might arise.


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3.1 Energy infrastructures as a key asset

Caspian basin energy resources have traditionally played a central role in the economic and political dynamics of the region. After the collapse of the USSR, the post-Soviet republics exploited their reserves in order to develop their economies and underpin their political autonomy. According to EIA (Energy Information Administration) estimations, there are nearly 7,800 billion cubic metres (Bcm) of natural gas and 48 billion barrels of oil (Gbbl) in proved and possible reserves within the basins making up the Caspian and surrounding ar-ea.1

Offshore fields account for 36% of total Caspian natural gas and 53% of crude oil and lease condensate. In general, most of the offshore natural gas reserves are in the southern part of the Caspian Sea, while most of the offshore oil reserves are located in the northern part of the Caspian. In addition, the US Geological Survey (USGS) estimates that there are another 6,800 Bcm of nat-ural gas and 20 billion barrels of oil as so-far undiscovered, technically recov-erable resources.2 Much of these additional resources should be located in the South Caspian Basin, where territorial disputes over waters and the seabed currently hinder exploration.

Exploitation of offshore reserves represents a major challenge for the development of the oil industries. Energy reserves in the Caspian have been tapped since the Soviet era, especially near the shores of Azerbaijan, and have attracted international and local investments since the 1990s. As a conse-quence, the Caspian offshore became a hotspot for the oil and gas sector at the global level, with continuous development of new infrastructures and rigs.3

For all the littoral countries, oil and gas account for a large share of export flows and are one of the pillars of their economy. However, the im-portance of Caspian offshore production varies significantly from one country to another. Iran has no substantial oil and gas production at the moment, alt-hough the government has been planning new investments for years. Azerbai-jan and Kazakhstan are large producers of offshore oil and gas, while Turk-menistan and Russia each have a significant but more limited production.

1 EIA, Caspian Sea Region, 26 August update, 2013, p. 8. The applied conversion rate is 7.33 from barrels to tonnes and 0.028 from cubic feet to cubic metres, with gross calorific value of 39 MJ/cm (a standard in the rest of this work). Figures refer to the Caspian Basin geological area, not the whole territory of the countries in the region. 2 EIA, Oil and natural gas production is growing in Caspian Sea region, 11 September, 2013. 3 See S. Pirani, Central Asian and Caspian Gas Production and the Constraints on Export, Oxford Institute for Energy Studies, Working Paper, NG-69, 2012.

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For the littoral post-Soviet republics, oil and gas reserves beneath the seabed are indeed driving economic development.4 These reserves require ex-pensive and complex infrastructures in order to be exploited. Hydrocarbons need to be extracted, processed and transported to the consumption point. Every step requires special plants or rigs, and the reliability of the energy flows ultimately depends on their integrity and functioning. Indeed, there is no ener-gy security without energy infrastructure security.5

Energy infrastructures therefore represent a primary strategic asset for a producer country.6 Their integrity is fundamental in order to maintain pro-duction rates: serious damage could affect export flows and cause huge eco-nomic losses for both companies and states. In fact, energy operators typically invest several billion dollars in long-term projects and any damage to relevant infrastructures can seriously jeopardise their profitability.

For the state, interruptions stop cash flows, thus reducing the amount of money available for public spending. This problem is particularly relevant where energy receipts constitute a large share of the state budget, but it can be partially hedged with the creation of sovereign funds. Among their functions, sovereign funds buffer the availability of cash for public spending in the event of a sudden and unexpected interruption of export flows.

In the long-term, several interruptions or a protracted stop can endan-ger the producer’s perceived reliability. In turn, this perception could trigger a diversification process in the final markets, damaging the economic position of that producer. In an extreme case, this situation could eventually prompt in-ternational investors to exit the country.

Oil and gas offshore infrastructures represent an ideal target for several types of hostile action, since they are very complex systems which combine a material element (equipment, installations, pipes, cables), an organisational el-ement (a production chain with strong interdependence of the various steps), and an informational element (timely data flows are needed to govern the pro-cesses).7 All these elements represent potential vulnerabilities and can be ex-ploited to disrupt infrastructural integrity.

4 See M. Verda, “Landlocked Caspian States and the Access to International Energy Markets”, in M. Valigi (ed.), Caspian Security Issues - Conflicts, Cooperation and Energy Supplies. Edizioni Epoké, Novi Ligure, 2014. 5 See H. Borchert, K. Forster, “Protecting Critical Energy Infrastructures: How to Advance Public-Private Secu-rity Cooperation”, CTN Newsletter Special Bulletin Protecting Critical Energy Infrastructure from Terrorist At-tacks, no. 18, 2010. 6 See M. Kashubsky, “Protecting Offshore Oil and Gas Installations: Security Threats and Countervailing Measures”, Journal of Energy Security, 13 August 2013. 7 Adaptation from Romanian Intelligence Service, “The Management of Risks in the Process of Defining and Protecting Critical Infrastructure, as a Key-Factor of Regional Stability and Security”, CTN Newsletter Special Bulletin Protecting Critical Energy Infrastructure from Terrorist Attacks, no. 18, 2010.


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In order to secure energy infrastructures and devise countervailing measures, a producer country needs to understand and assess potential threats. This chapter will provide a preliminary framework to investigate the security situation in the Caspian offshore. The first step will be identification of the origin of threats to these infrastructures, while the second will be definition of the relevant capabilities and tactics, and the third an assessment of the Caspian context and its recent developments. Finally, the last step will be identification of the most relevant countermeasures and the outlook for possible evolutions in the region.

3.2 Origin of threats to energy infrastructures

Offshore energy infrastructures are complex constructions which require tech-nological expertise and hard work in order to be built, overcoming the chal-lenges posed by their geographical location. However, this same feature also constitutes an advantage in terms of security: attacking an offshore platform or a pipeline laid on the seabed or buried in it is a difficult task which can be performed only by an organisation able to deploy the relevant skills and re-sources.

Generally speaking, offshore security threats are activities that pose an intentional risk to offshore oil and gas installation operations.8 Such threats can be classified in several ways, based on different criteria.9 The most com-mon are geographical criteria, such as local or global, national or transnation-al. This classification can be applied easily, but does not represent a useful tool since it lacks reference to the attackers’ tactics and motivations, and therefore does not allow any effective countermeasure to be devised.

Another, more operative classification is based on the tactics used by the attackers i.e. air or sea warfare, suicide bombing, cyber-weapons and me-chanical sabotage, just to mention the most common ones. This classification allows clear design of tactical countermeasures. However, it does not provide a clear understanding of the goal pursued by the attackers and therefore does not allow a more global approach to risk-reduction measures.

A third possible classification is based on the political goals of the at-tackers. Compared to other classifications, this distinction provides a more useful tool for a strategic approach to possible countermeasures. Indeed, a producer country’s government can proactively address the causes of potential attacks, instead of devising passive or purely tactical countermeasures.

Political goals essentially overlap with the organisational nature of po-tential attackers: the government of a State clearly has a different set of goals

8 For a definition of risk, see World Economic Forum, Global Risks 2014 - Ninth Edition, 2014, p. 12. 9 See M. Kashubsky, (2013).


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from the leadership of a transnational non-state actors with a religious-inspired agenda, or the head of a criminal organisation.

Moreover, in turn, there is a strong link between the nature of poten-tial attackers and their capabilities and tactics. As we shall see in the next sec-tion, certain capabilities are typical of just one type of actor, while others are common to several different actors. However, the operative details of this tac-tical perspective are less relevant in this work, since the focus here is on the overall approach used by the government in order to reduce threats and grant a safer general context for the energy industries, rather than the procedures deployed by relevant security services on the ground.

All things considered, the classification used in this work will be based on the political goals of the potential attackers, distinguishing four major cate-gories. The first category is made up of those actors whose goal is to redefine sovereign boundaries, and is necessarily associated with the only international subject which can claim territorial rights i.e. the State. Bordering States may have governments which feel entitled to claim a redefinition of the maritime borders or, more importantly, to claim ownership of resources located below the seabed.

Offshore infrastructures in deep waters are particularly exposed to threats from this type of actor, especially when they are located near maritime borders and could therefore be included in territorial claims. Moreover, the ex-tension of the geological formation and the location of the reserves tapped by offshore infrastructures can be disputed. For an actor aiming at a redefinition of the borders, these infrastructures may become part of the claim or even a potential military target.

A second category is made up of actors whose goal is to cause an ideo-logical regime change, and is generally associated with national or transna-tional non-state actors. For an actor wishing to destabilise the government of a producer country, interrupting energy production or disrupting export flows is an effective way to reduce the cash flows to the State budget and thus weaken the government. Moreover, constantly attacking infrastructures owned or op-erated by international companies raises their operational costs and creates a disincentive to further investments.10

Non-state actors could also attempt to drive international operators away from a producer country and compromise its production capabilities, for example by targeting foreign workers. As a consequence, the government’s ability to collect export receipts could be dramatically undermined, in addition

10 See J. Giroux, “Global Platforms and Big Returns: Energy Infrastructure Targeting in the 21st Century”, CTN Newsletter Special Bulletin Protecting Critical Energy Infrastructure from Terrorist Attacks, no. 18, 2010.


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to its ability to continue public spending to foster economic growth and gain political support.11

Unlike states, which can theoretically aim to control an infrastructure or exploit the reserves in an area, non-state actors are not entitled to any rights. Therefore, they can pursue their goal of provoking a regime change through any means, including complete destruction of infrastructures. Provok-ing extensive damage is indeed functional to the success of their strategy of weakening a government in order to overthrow it.

A third category is made up of actors whose goal is to cause local or national policy changes. This group encompasses several potential groups with a local basis, ranging from environmental activists to local citizens aiming at an improvement of living standards, or striking workers.

In this case, the demands are more limited and do not usually include a regime change. As a consequence, their actions tend to be demonstrative and limited in scope. These actions are indeed largely symbolic, since they want to draw the government’s attention to a local issue rather than interrupt export flows or weaken the state budget.

The actors which can be part of this category are by far the most nu-merous and are present almost everywhere. However, the level of threat is very low, not only because these actors are usually small or loosely organised, but also because their actions are focused on a local objective which can be ad-dressed quite easily by the government.

A fourth category is made up of actors whose political goal is to gain tolerance for their illegal economic activities. Clearly, this category coincides with criminal organisations which may wish to indirectly exploit the wealth created by energy production.

Unlike the case of onshore oil infrastructures, offshore infrastructures cannot be easily tapped with illegal means, as occurs in several contexts, espe-cially in Africa. Offshore infrastructures can only become a potential target for blackmailing: minor incidents can be caused as retaliation against the govern-ment, in the case of tough anti-crime measures.12

3.3 Context and infrastructure protection

Energy infrastructures can be targeted by several types of actors, using a large array of tactics. Attacks have in common the goal of interrupting operations, thus causing damage to the companies involved and the government of the

11 See M. Stoppino, Potere e teoria politica, 3rd edition, Giuffrè, 2001. 12 A fifth category might made up of actors whose political goal is the complete submission and the annexation of producer countries. However, in this case the relevance of threats to infrastructure integrity is subordinated to the more general issue of the very existence of the producer country.


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producer country. However, different geographical contexts offer different ca-pabilities and tactics to attackers.

The security environment of the oil and gas industry largely depends on the overall stability and security of the region where the infrastructures are located. A situation of international tension in a region can indeed increase risks for the infrastructures, even when the producer country is not directly in-volved in the origin of the tension. In fact, the worsening of the multilateral context can lead to an arms race, which in turn could increase capabilities for damaging energy infrastructures.

A critical situation can create an uncomfortable environment for inter-national investors. In turn, non-state actors can exploit this situation by tar-geting foreign companies in order to further increase their incentives to leave the country and precipitate the situation.

Piracy is an extreme example of the importance of geographical con-text. This type of criminal activity typically targets oil tankers in order to re-ceive a ransom and, in theory, the same motive could also lead to an action targeting an offshore platform. However, piracy needs a regional context where a failed or semi-failed State has become a safe harbour for criminal groups. Incidentally, this condition is not met in the specific context of the Caspian, therefore piracy will not be afforded further attention in this work.

Besides the context, there is the issue of the potential attackers’ capa-bilities and technological level. States have direct access to conventional wea-ponry, even if their spending capacity, political alliances and military sophisti-cation vary widely. Non-state actors, local protesters and criminal organisa-tions have more limited access to conventional weaponry. However, when these actors hold significant financial resources, they have the possibility to ac-cess parallel markets for illegally traded arms, including heavy weapons. Un-conventional weaponry can also be used as a cheap alternative. For example, small boats carrying explosives can be used in order to ram offshore surface infrastructures, while improvised explosive devices can be used to kill or injure workers.

Tactics used by various attackers also include bomb threats, unauthor-ized boarding and armed intrusion of offshore installations, abduction of workers, and kidnapping of workers’ relatives in order to force them to sabo-tage plants. Different tactics can also be combined in order to create complex attacks, in a virtually infinite number of combinations.

The cyber domain is a further element to be considered when assessing capabilities. This domain is not a separate reality with separate threats. It is part of the physical world: acting in the cyber domain affects the physical reali-ty and cyber-weapons are conceived to affect this.

SCADA systems monitor and control industrial processes, including in the energy sector. Drilling, pumping, processing, refining: all major steps in the


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oil and gas industries rely heavily on computer-controlled systems. In every step, a potential security breach can be exploited for an attack, either as a stand-alone action or as part of a more complex action. For example, comput-er-based technologies are now essential for communication along command chains: a cyber attack can seriously limit defensive measures by interrupting communication flows.

Activities in the cyber domain can be very sophisticated and expensive and States retain a competitive edge, especially in the case of cyber-weapons. However, when compared with traditional military capabilities, cyber capabili-ties are more easily accessible by any potential attacker, including relatively small groups.

In assessing offshore security threats, it is important to have an under-standing of the offshore capabilities and tactics of different groups. In particu-lar, there are five capabilities and tactics which are common to every geo-graphical context but are particularly relevant to the current Caspian context: airpower, navy, bombings, internal sabotage, and cyber activities.13

Airpower is the most effective instrument for attacking and destroying civilian infrastructures such as offshore platforms. Air strikes can hit a target very quickly, while countermeasures are very complex to manage and general-ly have a limited effect. Airpower is an expensive capability which requires a military organisation, dedicated infrastructures and access to sophisticated technologies. Generally, this capability is reserved for states, since other groups do not have enough resources.

Similarly, sea power is generally a capability which is accessible only by states. A navy is an expensive organisation which requires financial resources, harbours and relatively sophisticated technologies in order to be effective. However, unlike air power, non-state actors and criminal groups can have ac-cess to limited naval power.

Explosive devices are, on the contrary, an almost universal capability, accessible by every type of organisation. Cheap and unsophisticated explosives can also be very effective in damaging major infrastructures. Therefore, bomb-ing is a common tactic which can be used for every goal, from symbolic ac-tions to complete destruction. Suicide bombing is a particularly effective tactic, usually used by non-state actors.

Internal sabotage is another relevant capability: contractors, offshore service providers, current and former workers involved in the functioning or maintenance of the infrastructures can intentionally damage operations. They may be part of the attacker organisation or they can be forced to cooperate.

All in all, these capabilities are instruments which can be used by dif-ferent actors in order to pursue their political goals. The current Caspian con-

13 This list includes only the most relevant capabilities and should not be considered exhaustive.


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text offers a particularly challenging environment which can be analysed using the proposed classification.

3.4 Security threats in the Caspian context

The Caspian context proves to be a particularly challenging case due to its unique features. World-class upstream activities are located offshore and new projects are underway, but maritime borders are still being disputed.14 The most important assetys are located in the Azerbaijani offshore: Azeri-Chirag-Guneshli (ACG) is one of the most important oil fields in the world, with hy-drocarbon reserves exceeding 5 billion barrels. The investments in the projects during the past twenty years led to the creation of an impressive system of in-frastructures, above and below the surface.

Total investments exceed 30 billion dollars, while other 6 billion dollars expected to be invested in the coming years. ACG represents the core of the Azerbaijan oil production and the most important foreing investment in the country.15 With its daily production of 650.000 bbl/d, it accounts for more than 80% of the Azerbaijani oil exports.16 Overall, ACG revenues for the Azerbaijani state amount to approximately 15 billion dollars per year, i.e. nearly 20% of the Azerbaijani GDP.17 As a consequence, among Caspian litto-ral states, Azerbaijan shows the highest level of reliance on the viability of its offshore infrastructures.

From the security perspective, the most sensitive part is the complex of offshore platforms located 120 km off the coast of Azerbaijan: Chirag, East Azeri, Central Azeri, West Azeri (two platforms), Deepwater Guneshli (two platforms), West Chirag. Those infrastructures represent a core asset for the Azerbaijani energy industry.

Another important infrastructure (and potential target) is also located in the Azerbaijani offshore: the Shah Deniz complex, 70 km south-east of Ba-ku. This natural gas field represents the core of the Azerbaijani production, with nearly 9 billion cubic metres (Bcm) of annual output. Currently, the off-shore surface infrastructures include one platform, with a total investment of 6 billion dollars. However, by the end of this decade two more platforms will be installed for the second stage of the project, after an investment of 28 billion dollars. With its huge proven reserves (nearly trillion cubic meters), Shah Den-iz will be a key-asset for the Azerbaijani energy sectore.

14 See Chapter 1. 15 EIA, Azerbaijan, 28 September update, 2013. 16 See BP, ACG 2013 full year results, February 2014; SOCAR, online database, (last access 16 Februray 2014). 17 SOFAZ (The State Oil Fund of Azerbaijan), Annual Report 2012.


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A third potential target for security threat is the artificial island built at the Kashagan field, 80 Km south-west of Atyrau, in the Kazakh offshore. The complex is the most expensive energy project in the world, with current cumu-lated costs exceeding 100 billion dollars.18 Its proven reserves are approximate-ly 9 billion barrels and its production is expected to begin shortly, becoming a strategic element of the Kazakh exports.19

The infrastructures in the offshore of the other Caspian littoral states are instead less relevant. In the Russian sector, the most important asset is Yuri Korchagin field, holding reserves for several hundred million barrels.20 The complex is made up of two platforms and it is located 180 km south of As-trakhan. Several minor fields are also located in the area off the coast of Norther Caucasus.

In the Turkmen sector of the Caspian, the most important asset is the Cheleken block, located 40 km east of Hazar.21 Three platforms are located in the area, exploiting reserves for several hundred million barrels. In the Iranian sector, instead, currently there are no major infrastructures which could repre-sent a significant target for a military or terrorist attack.

Theoretically the single most serious security threat in the seas is relat-ed to possible claims made by state actors to the same area or field. Though currently the possibility of military confrontation in the Caspian is negligible, over the past decade there has been a certain number of minor incidents in-volving exploration vessels and patrolling boats and aircrafts in the Caspian Sea. For example, during the summer 2001 Iranian forces threatened an Azer-baijani oil exploration ship operating in the Araz-Alov-Sharg oil field, in the Azerbaijani offshore, and forced it to leave the area. Currently cooperative re-lations in the region are largely prevailing, but the risk of unintentional escala-tion exists.22

The second most relevant source of threat in the Caspian context is posed by terrorist activities. In particular, transnational non-state actors could target producer facilities in order to disrupt energy exports from Azerbaijan and Kazakhstan. These two countries have a strongly secularized state with significant trade relationships with Western countries. Therefore, they might represent potential targets for terrorist attacks carried out by religious extrem-ists, either autonomously or with the backing of foreign countries.

All in all, this threat is less relevant when compared with interstate conflict. Indeed, with the exception of the Russian regions in the Northern

18 CNN Money, 10 most expensive energy projects in the world, 27 August 2012. 19 EIA, Kazakhstan, 28 October update, 2013. Another important project is the perspective exploitation of the Kazakh offshore field of Kurmangazy, which is estimated to hold reserves for 5 billion barrels. 20 EIA, Russia, 26 November update, 2013. 21 EIA, Turkmenistan, 25 January update, 2012. 22 “Iran Is Accused of Threatening Research Vessel in Caspian Sea”, The New York Times, 25 July 2001.


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Caucasus, the Caspian area is not a traditional hotspot for international ter-rorism, and given the current situation there are no signs of a different evolu-tion in the short-term. However, terrorist activities cannot be ruled out, espe-cially considering a structural vulnerability related to the Caspian: its nature of enclosed sea with a complex equilibrium would intensify the visibility and the effects of any terrorist attack involving major oil spills.23

Besides interstate conflict and terrorism, other threats are instead abso-lutely marginal in the Caspian context. In theory, local protesters could pose a threat to energy infrastructures, since purely local issues may arise at any mo-ment and a small-scale organisation could be created and could operate quite quickly. However, there is no significant threat at present, especially because the existing offshore infrastructures are generally located far from populated areas, while oil rents have allowed a significant increase in public spending which has placated social tensions. Similarly, crime cannot be considered a sig-nificant threat, since the littoral states have full control of coastal territories, hampering large-scale criminal activities which could endanger energy infra-structures.

3.5 Countermeasures and challenges ahead

The major threat to energy infrastructure security in the areas with disputed maritime borders, including Caspian Sea, comes from state actors. Though possibility of a interstate conflict can be almost ruled out in the current situa-tion in the Caspian, still the most relevant countermeasures which can be adopted by the littoral states of the Caspian should address the issue of inter-state relations.

The first countermeasure should be an improvement in international cooperation, on a bilateral and multilateral basis. The ideal goal would be a complete and mutually satisfactory solution to the border delimitation issue. After a comprehensive agreement, no government in the region could realisti-cally pursue an unilateral redefinition of the maritime borders without provok-ing a strong regional and global reaction.

Multilateral and bilateral cooperation could be useful and represent a confidence-building and security-enhancing measure even without a compre-hensive agreement. In particular, ongoing and structured diplomatic interac-tion could be relevant in order to quickly de-escalate tensions and avoid unin-tended overreactions.

A second-best option to international cooperation is internal balancing i.e. an increase in military capabilities to compensate for the capabilities of po-

23 See Chapter 4.


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tential enemies.24 Preservation of the equilibrium in military capabilities in the region represents a strong deterrent, since it raises the costs of every unilateral action. However, it is expensive and may entail the risk of accelerating and worsening the effects of a possible escalation.

International cooperation is also a countermeasure to transnational terrorism, the other relevant threat in the Caspian context. In this case, multi-lateral and bilateral cooperation should extend far beyond the group of Caspi-an littoral states, to include all relevant countries at the global level. Since transnational terrorism operates in several countries, the pooling of intelli-gence and police capabilities would represent an effective way to reduce the risks of an attack on energy infrastructures.25

At the same time, terrorist threats can also be reduced with targeted police action, which besides conventional anti-terrorism activities should focus on limiting terrorist groups’ acquisition of key capabilities. In particular, po-lice action should prevent contacts with those working on offshore platforms and service vessels.

Another relevant countermeasure would be the improvement of pri-vate-public cooperation. Private companies which operate offshore infrastruc-tures have security measures and special services devoted to protecting the in-tegrity of their facilities. Constant improvement in cooperation between these private services and state security services would enhance response capabilities.

A final countermeasure whose relevance is bound to increase in the years to come is the creation of cyber capabilities. The use of computers in eve-ry step of the energy industry cannot but increase in the future. At the same time, any possible attacker’s capabilities are also likely to increase due to their widespread and increasing access to information technologies. Producer coun-tries’ security services should therefore develop and strengthen their cyber ca-pabilities in order to assess the resilience of the current systems, and spot and fix their vulnerabilities.

24 See K. Waltz, Theory of International Relations, Wave Press, 1979, p. 168. 25 See A. Novikov, “Protection of Critical Energy Infrastructure against Terrorist Attacks in the Commonwealth of Independent States (CIS)”, CTN Newsletter Special Bulletin Protecting Critical Energy Infrastructure from Terrorist Attacks, no. 18, 2010.


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political goals type of actor capabilities and tactics countermeasures

- redefine rights (borders, resources

ownership)

- State - airpower

- navy and sea power

- bombings

- internal sabotage

- cyber domain

- international cooperation

- balancing

- cyber capabilities

- regime change - non-state actors - bombings - suicide-bombings - internal sabotage

- cyber domain

- international cooperation - policing

- private-public cooperation - cyber capabilities

- policy changes

- protesters activists

- bombings - internal sabotage

- cyber domain

- policing - private-public cooperation

- issue prevention - cyber capabilities

- tolerance for illegal activities

- criminal organisations - bombings - internal sabotage

- cyber domain

- policing - private-public cooperation

- cyber capabilities

Conclusions

The Caspian basin is one of the most relevant hydrocarbon producing areas in the World and the exploitation of its huge offshore reserves will represent a key driver for the development of the littoral States also in the coming dec-ades. Hence, the integrity of the offshore facilities will continue to be a security priority for their goverments, in particular for Azerbaijan and Kazakhstan, which have the largest proven reserves.

Theoretically, conflicts involving state actors represent the single most serious threat to the security of the Caspian offshore infrastructures. Despite current cooperative nature of interstate cooperation in the Caspian, littoral states still posses diverging agendas and interests which brings about the risk of unintentional escalations.

International and local terrorism could also represent another major security threat. Non-state actors could target energy infrastructures to destabi-lize the economies of the producing countries. A special risk is represented by the vulnerability of BP to the environmental risk: after the oil spill in the Gulf of Mexico, any major incident could indeed endanger the financial stability of the company.

Considering potential countermeasures, the most relevant si represent-ed by international cooperation. Littoral States have in common a strong in-terest in avoiding conflicts, which could be effectively served through a contin-uous and institutionalized relationship, on a bilateral and multilateral leve. In-creasing cooperation could help to rapidly de-escalate disputes, if needed, and it could also reduce the risk of incidents.


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International cooperation also represents an effective countermeasure against terrorist threats. Major attacks to a relevant infrastructure could be performed only with relevant capabilities and an accurate planning, more easi-ly attained by terrorist working at international level. At the same time, trans-national and regional terrorist groups could be more easily tackled through a multilateral action.

Another possible countermeasure could be a stronger cooperation be-tween the governments of producing countries and the international oil com-panies operating on the ground. Oil major could indeed rely upon internal se-curity services and advanced capabilities in the field of ICT and of the tech-nical functioning of their plants. Since governments and companies share a strong interest in the integrity and operation of the fields, a more intense rela-tionship could increase the resilience of the infrastructure and minimize the impact of a possible attack, while enhancing the instruments available to the national security services.

All in all, present and future challenges to the security of the Caspian offshore infrastructures will come from the international level: an effective re-sponse to this challenge could come only expanding the capabilities of the states through a constant and structured cooperation with other partners in the region.

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4. Escaping the Tragedy of the Commons: Environmental Cooperation in the Caspian Sea

Matteo Villa

Introduction

The Caspian Sea has been experiencing major changes as bordering countries increase utilization levels of it in their quest for economic development and prosperity. Population growth and a rise in average income are having a direct impact on per capita resource consumption as monitoring agencies constantly report that the Caspian is “undergoing increasing anthropogenic pressure”.1 Since at least almost half a century ago, scholars have drawn attention to how human factors such as increasing demand for natural resources could deter-mine local, regional and global environmental change.

Hosting many common-pool resources, resources which are finite and happen to be shared among self-interested rational actors, the Caspian Sea runs the risk of being overexploited. Overexploitation can arise not only as a consequence of conscious decisions taken by single riparian countries, but also due to the unintentional interactive effect of their collective behavior in a com-petitive environment: an emergent phenomenon known as the “tragedy of the commons”.

After a brief overview of the literature on the tragedy of the commons, which overwhelmingly focuses on intra-national actors, this essay will attempt to extend a similar reasoning to the international, transboundary case of the Caspian. It will assess the extent to which the international version of the trag-edy of the commons has had an impact on the Caspian Sea environment, and

1 A.G. Kostianoy et al., “Complex Monitoring of Oil Pollution in the Baltic, Black and Caspian Seas”, Proceed-ings of the ESA Envisat Symposium, 2007, p. 5.


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overview the effectiveness of international institutional arrangements that have already been put into place to protect Caspian resources – either by restoring them, regulating their use, or adopting mitigation and adaptation plans for human societies affected by such changes.

A brief, specific section will be devoted to climate change and its possi-ble effects on the region. The earth’s climate is possibly the single best example of a global public good which requires cooperation between all world actors (or at least the main greenhouse gas emitters), thus hugely exceeding the ca-pacities of the institutions designed to foster cooperation among Caspian ri-parian states alone.

4.1 The tragedy of the commons

The term “tragedy of the commons” was coined by Garrett Hardin in 1968.2 With this expression Hardin put the spotlight on the fact that whenever a finite resource such as a pasture is open to two or more rational actors who can ben-efit from it, e.g. through grazing, the latter have an incentive to behave in such a way as to lead to overutilization and ultimate rapid exhaustion of the re-source. Hardin was pessimistic about the possibility of avoiding resource de-pletion, given that any rational actor, “each pursuing his own best interest”, would benefit from overusing the resource, while imposing negative externali-ties (e.g. widespread costs to everyone but him) over the whole community of potential users of the resource.3

In the decades following the publication of Hardin’s article, the litera-ture on “common-pool resources”, as they came to be called, has expanded greatly.4 Common-pool resources have been formally defined as resources that can yield only a finite flow of benefits over time (i.e. are exhaustible) and from whose utilization potential users can be excluded only at a considerable cost. Many scholars have contributed to the mathematical formalization of the tragedy of the commons, while sociologists and anthropologists have attempt-ed to test it under different experimental or quasi-experimental conditions.

The main question scholars have sought to answer is whether one can devise institutions that might avoid the tragic overuse of common-pool re-sources. Such institutions could, for example, provide rules that specify who are the authorized users of the resource, or codify the rights and duties of au-thorized users. The problem with institution building is that such institutions would be a public good, meaning that their benefits would accrue to all users

2 G. Hardin, “The Tragedy of the Commons”, Science, v. 162, 1968, pp. 1243-1248 3 Ibid., p. 1244. 4 For a review of the literature on the topic, see S.C. Hackett, Environmental and Natural Resources Econom-ics: Theory, Policy, and the Sustainable Society, M.E. Sharpe, Armonk, 1998. See also E. Ostrom, Under-standing Institutional Diversity, Princeton University Press, Princeton, 2005.

Escaping the Tragedy of the Commons

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whether or not they contribute to their production, and would therefore be ex-posed to a free-riding problem.5 This way, the problem of avoiding overutiliza-tion of common-pool resources becomes logically recursive: no institutions limiting overuse could ever survive, because any rational actor would have an incentive to defect, actually using even more of the very resource that other ac-tors would have struggled to save, and ultimately bringing down the whole structure.

Given the theoretical impossibility of self-regulation, scholars have long advocated centralized regulation of common-pool resources. In practice, however, central regulation has frequently been revealed to be suboptimal, ac-celerating resource deterioration – sometimes because of corruption but often simply due to inefficiency, as the central regulator could not effectively moni-tor the effective implementation of its own regulations.6 Meanwhile, evidence accumulated of self-organizing communities that have been able to regulate access and use of common-pool resources consistently throughout history.7 Today, the consensus of the literature seems to go in the direction that “[l]ocally evolved institutional arrangements governed by stable communities and buffered from outside forces have sustained resources successfully for cen-turies” although “they often fail when rapid change occurs”.8

In the past thirty years, therefore, it occurred to some that “a more productive approach” would be “to ask under what conditions it is correct” to expect the tragedy of the commons to materialize, and when, instead, it is cor-rect to expect cooperation to succeed.9

4.2 The Caspian as a ‘transnational common’

A minor strand of the literature on the tragedy of the commons has attempted to address problems that arise when common-resource pools do not entirely fit within the boundaries of a single nation, falling instead within the sovereign jurisdiction of two or more of them. As Dietz and others recognize, “[c]ritical problems, such as transboundary pollution, tropical deforestation, and climate change” occur at larger than the national scales.10

The Caspian Sea seems to be an ideal testing ground for extending the literature on the tragedy of the commons to transboundary cases. At the same time, the existing literature can supply researchers studying the Caspian Sea

5 M. Olson, The Logic of Collective Action: Public Goods and the Theory of Groups, Harvard University Press, Cambridge, 1965. 6 E. Ostrom, Governing the Commons: The Evolution of Institutions for Collective Action, Cambridge University Press, New York, 1990, p. 12. 7 Ibid., pp. 58-103. 8 T. Dietz et al., “The struggle to govern the commons”, Science, v. 302, 2003, p. 1907. 9 E. Ostrom, “Tragedy of the commons” definition, in The New Palgrave Dictionary of Economics Online, 2008. 10 T. Dietz et al., (2003), p. 1907.


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environment with a precise theoretical framework, allowing them to shed light on the historical developments of the last 25 years. To what extent have pre-dictions originating from the tragedy of the commons literature become self-fulfilling in the Caspian region? And to what extent have sovereign states and international institutions managed to overcome this classical cooperation problem?

The dissolution of the USSR in December 1991 dramatically changed the nature and increased the number of actors bordering on the Caspian. Iran was the only surviving entity, while four new sovereign nation-states were born, each of them extremely interested in the Caspian region as an economic necessity and a geographic inevitability (Azerbaijan, Kazakhstan and Turk-menistan) and on the grounds of prestige and historical importance (the Rus-sian Federation). At the same time, the Soviet dissolution almost completely wiped out the tentative international cooperation regime of the previous era.

The first half of the 1990s were a transitional period in which tensions among riparian states moved environmental concerns away from the top spots of the diplomatic and political agenda. At the same time, environmental pro-tection obviously “tends to be a low priority” in areas where vested economic interests in natural and mineral resources are as strong as in the Caspian re-gion.11 On the other hand, negative externalities from overexploitation (mainly pollution) and depletion of the very natural resources which some countries have depended upon for decades increased the awareness of interdependences among riparian countries, and of interactions between social and environmen-tal problems.12 For example, riparian governments have had to face the fact that rapid industrial development that disregards environmental security can have immediate consequences on both the Caspian natural environment and on local communities living on or in the vicinity of the Caspian shores. These negative consequences could in turn “erode the region’s resilience and increase vulnerability to societal tension”.13

In the face of real domestic security threats that Caspian countries might face because of environmental deterioration, and as the transitional period of the 1990s came slowly to an end, cooperation on environmental matters

11 I. Rucevska, O. Simonett, Vital Caspian Graphics 2: Opportunities, Aspirations and Challenges, Zoï Envi-ronment Network and GRID-Arendal, Beaumont, 2011, p. 67. 12 Crucially, this is self-evident even to institutions charged with monitoring the situation on the ground, such as ENVSEC (see below, par. 5). See for example ENVSEC, Environment and Security: Transforming Risks into Cooperation. The case of the Eastern Caspian Region, 2008, p. 9, which acknowledges that “[i]n a context where fossil fuels are of paramount importance for the global economy, (…) the drive towards energy security can have both positive and negative local and global environmental effects”, “depending on which resources, solutions and technologies are prioritized”. “States that are well endowed with oil and gas resources (…) are confronted with the challenges of managing them”. 13 ENVSEC, (2008), p. 10. See also M.S. Soroos, “Environmental Change and Human Security in the Caspian Region: Threats, Vulnerability and Response Strategies”, in W. Ascher, N. Mirovitskaya (eds.), The Caspian Sea: A Quest for Environmental Security, Kluwer Academic Publishers, Dordrecht, 2000, pp. 13-28.


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among Caspian riparian states has slowly but steadily gained ground (see par. 5). Seeing Caspian countries’ cooperation on environmental matters as a co-operation problem in the face of common-pool resources allows us, for the moment, to point out some of the main policy results of the part of tragedy of the commons literature that studied successful cooperation of actors. In gen-eral, promising results to address transboundary problems have come from building “complex, redundant, and layered institutions”.14 Specifically, howev-er, Elinor Ostrom has proposed some principles for successfully managing domestic common-pool resources. Some of them can easily be transposed to transnational cases:

1. States contending for common resources must act within clearly de-fined boundaries. Namely, sovereignty rights should be well-defined. As independent states circling a limited body of water, the problem for the Caspian is to be clear about the jurisdiction of each of the enti-tled parties. International boundaries straddling the Caspian should be clearly agreed upon, with agreements originating from inter-state bargaining remaining essential;

2. Rules regarding the appropriation of common resources should be clearly established and be consistent with local conditions. Collective choice arrangements should be put into place, allowing resource ap-propriators (i.e. the five littoral states) to participate in the decision-making process;

3. Agreements should be effectively monitored by entities that can guar-antee impartiality while at the same time being accountable to appro-priators;

4. There should be a scale of graduated and enforceable sanctions for appropriators who violate the rules;

5. Appropriators should have rapid access to low-cost conflict resolution mechanisms if disputes arise;

6. There should be multiple layers of nested enterprises, each exercising monitoring rights and duties over its own jurisdiction. In the interna-tional context this clearly refers to the existence of appropriate and ef-fective national environmental agencies and/or ministries that possess the political leverage and technical tools to tackle common-pool issues such as negative externalities at the correct level.15

Whether the emerging Caspian environmental cooperation regime is consistent with these recommendations will be a matter of evaluation after a comprehen-sive overview of the environmental situation of the Caspian region.

14 T. Dietz et al., “The struggle to govern the commons”, Science, v. 302, 2003, p. 1907. 15 E. Ostrom, (1990), pp. 90-102.


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4.3 Evidence of the ‘tragedy’: depletion and degradation of Caspian resources

Environmental conditions in the Caspian region have influenced, and at the same time been affected by, the demographic and economic development of Caspian countries and their littoral regions. The ecological situation in the Caspian Sea has been shaped by long-term natural factors (e.g. centuries-old fluctuations in sea level and salinity) and recent socioeconomic develop-ments.16 In recent years the Caspian coastal population has risen, and today it amounts to around 14 million people.17 At the same time there has been con-siderable intra-coastal migration, from shrinking fishing communities to big industrial complexes.

The majority of the environmental problems of the Caspian region are transboundary in nature.18 This is partly because specific hydrological features of the Caspian Sea (cyclonic currents along the shores and intensive vertical water exchange) make it such that pollution in one region “invariably leads to pollution of other water areas”.19 Other problems, such as overfishing, clearly affect every single actor in the region, and regulation can suffer from consider-able free-riding effects by both legitimate and illegitimate actors (e.g. poachers, organized crime).

What, then, has actually happened to the Caspian environment in the 20th century, and specifically in the post-Soviet period when increasing re-source exploitation might have led to drastic overuse of Caspian resources? Is there evidence of depletion or degradation of the Caspian environment, and how has this trend evolved over time? Is the 2008 Strategic Convention Action Programme (see infra) right or wrong in stating that, at present, “the intensity of contamination exceeds the ecological capacity of the Caspian Sea”?20 An ac-curate description of known relevant trends follows below.

4.3.1 Sea level and salinity

The Caspian Sea has been endorheic (i.e. inwardly draining) since the Pliocene era, and hydrological studies have revealed alternating cycles of rising and fall-ing water levels. Despite receiving water from numerous freshwater tributar-

16 I.S. Zonn, “Environmental Issues of the Caspian”, in A.G. Kostianoy, A.N. Kosarev (eds.), The Caspian Sea Environment, in The Handbook of Environmental Chemistry series, vol. 5, Part P, 2005, pp. 223. 17 6.5 million live in Iran, 3.9 million in Russia, 2.2 million in Azerbaijan, 0.8 million in Kazakhstan and 0.4 mil-lion in Turkmenistan; see I. Rucevska, O. Simonett, (2011), p. 54-56. 18 T. Berkheliev, “Environment and Security in the East Caspian Region”, China and Eurasia Forum Quarterly, vol. 8, no. 2, 2010, pp. 187. 19 I.S. Zonn, (2005), p. 227. 20 TC/COP2/SCAP, Strategic Convention Action Programme. Annex 2 to the Framework Convention for the Protection of the Marine Environment of the Caspian Sea, 2008, p. 6.


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ies,21 the Volga river is the source of around 80% of total freshwater inflows into the Caspian.

In one century, between 1880 and 1977, the sea level dropped four me-ters (from -25 to -29m below sea level).22 Since the Northern part of the Caspi-an is less than 25m deep, in 1983 Soviet fears that the sea might retreat further led to the decision to build a dyke to close the Kara-Bogaz-Gol gulf, a shallow lagoon in North-Western Turkmenistan constituting around 5% of the surface area of the Caspian Sea.23 At that time the gulf was disappearing quickly: be-tween 1930 and 1977 its surface area had shrunk by 10%, and the process did not appear to be stopping. Although the Soviet Water Problems Institute had forecasted that the Kara-Bogaz-Gol waters would have lasted another 25 years after closing the dam in 1980, by 1983 almost all the water had gone and “the lagoon had turned into a vast desert covered with a 50-centimetre layer of pre-cipitated salt”.24

However, by 1977 the Caspian Sea waters had in fact started to rise again, and in 1995 they reached a level just 50cm below that recorded in the 1880s, settling to -1 m in the early 2000s. The sudden rise in water level was the cause of severe problems: it flooded urban facilities, damaged industrial infra-structures and compromised beaches and resorts. It also forced the relocation of tens of thousands of people in the lowlands of Azerbaijan, Dagestan and the Volga delta.

It is still unclear what caused such wide fluctuations, but it is believed that a major impact was due to changing climatic factors and human man-agement of surface water. The latter is mostly evident if one considers that in 1934 the course of the Volga was stopped by just one dam, while by 2005 the number of dams had grown to 13, considerably compromising the river’s water discharge which in some years reached only 10% of average levels.25 Moreover, the construction of industrial facilities along the river that withdraw and use significant amounts of water is also highly likely to have had an effect on the discharge. The difficulty in finding the main causes of sea level behavior is re-flected in different forecasts in sea level fluctuations for the foreseeable future, with estimates ranging from -2 meters from the actual levels to an almost spec-ular change of +2 meters (see Figure 4.1).

21 There are more than 130 streams and five major rivers contributing to a total water inflow of 300 km3 a year; see S. Wong, “Environmental Threats to the Caspian Sea”, in VV. AA., Treasures of the Caspian: The Coming Struggle for Energy East and West, University of Washington, 2012, p. 138. 22 A.N. Kosarev, “Physio-Geographical Conditions of the Caspian Sea”, in A.G. Kostianoy, A.N. Kosarev (eds.), (2005), p. 25. 23 I. Rucevska, O. Simonett, (2011), p. 20. 24 Ibid., p. 34; when, in 1992, the newly-independent Turkmenistan decided to destroy the Soviet dyke, it took only a few months to refill the basin, and during this time the Caspian Sea level continued to rise anyway. 25 Ibid., p. 23.


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The difficulty in predicting sea level changes is especially important given that, apart from determining the surface area of the sea, different levels also imply different water volumes, which in turn have an effect on average sa-linity concentrations. When waters drop, salinity can increase sharply; the op-posite can happen when waters retreat. This seems to have had a significant impact on biodiversity and species resilience over the last century.

Fig. 4.1 - Average Caspian surface level (metres below sea level), 1840-2035

Source: G.N. Panin, Transboundary Diagnostic Analysis, 2007.

4.3.2 Hydrocarbons

One of the largest single sources of pollution in the Caspian Sea is derived from hydrocarbons extraction. Prospecting and extraction of offshore oil and gas, construction of sea platforms and jetties, construction and operation of underwater pipelines, shipping and transporting of hydrocarbons: all these processes can involve involuntary or inevitable water contamination.

Since considerable hydrocarbon resources have been found in the Cas-pian, the region’s history has been cluttered with several oil spills. In 1985 a well in Kazakhstan’s Tengiz oil field blew out and burned for more than a year before it was eventually put out: 3.5 million tons of oil and half a million tons


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of hydrogen sulfide were burnt in the accident.26 Moreover, since the field con-tains a high amount of sulfur (up to 17%), this must be extracted and stored. The problem is that total storage capacity is limited, and the decreasing com-mercial demand for sulfur meant that storage capacity has tended to reach its upper limit in recent years. For this reason, in 2007 the Kazakh environmental authority imposed a $309 million fine on the TengizChevroil consortium for breaches of environmental regulations, including stockpiling sulfur.27 Even more recently, in 2013 new satellite imagery revealed that waters around Turkmenbashi suffer dozens of oil spills annually.28

But it is not only oil spills and the oil extraction process that contribute to hydrocarbon pollution. Chronic hydrocarbon contamination from washing out tanks and dumping bilge water and other oily waste “represents a danger at least three times higher than that posed by the oil slicks resulting from oil tanker accidents”.29 Experts acknowledge that during production as much as 2% of the total amount extracted can be lost at sea. Compare this amount with the fact that just one gram of petroleum product is able to render 20,000 liters of water unsuitable for use”.30

Moreover, it is not just offshore or coastal oil extraction that contrib-utes to pollution. Experts have estimated that, overall, the rivers that drain in-to the Caspian Sea carry more than 50% of total oil pollution.31 In 1996, the level of oil hydrocarbons in the lower reaches of the Terek river on the Russian shores “exceeded the admissible level more than 500 times”.32

4.3.3 Fisheries and marine animal population

One of the most important species for Caspian fishing communities is the be-luga sturgeon. The sturgeon is the source of one of the world’s most expensive luxury foods: beluga caviar. This fish, that can live more than 100 years, does not reach sexual maturity until it is 15 to 25 years old, therefore making it very vulnerable in cases of overfishing. Moreover, sturgeons need to migrate upriv-er in order to spawn, while dam construction and river diversion have reduced the availability of suitable rivers.

26 ENVSEC, (2008), p. 45. 27 I. Rucevska, O. Simonett, (2011), p. 49. 28 Crude Accountability (2013), Hidden in Plain Sight: Environmental and Human Rights Violations in the Turkmen Section of the Caspian Sea: “Between 2003 and 2012 (…) the AAAS team has identified between 43 and 64 possible oil slicks every year in the Turkmenbashi Bay”. 29 A.G. Kostianoy et al., (2007), p. 1. 30 W. Ascher, N. Mirovitskaya, (eds.), (2000), p. 68. 31 ENVSEC, (2008), p. 50. 32 I. Zonn, “The Caspian Sea: threats to its biological resources and environmental security”, in G. Chufrin, The Security of the Caspian Sea Region, SIPRI, Stockholm, 2001, p. 76.


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It is commonly held that sturgeon supplies started to plummet after the dissolution of the Soviet Union.33 This belief, which some take as evidence of the increasing difficulties in cooperation between the newly-formed littoral countries during the difficult transitional period of the 1990s, must be qualified and should not be taken for granted. According to the Caspian Environmental Programme (CEP), using data complemented by FAO, the total sturgeon catch in the Caspian peaked in 1979 at around 27 thousand tons, and already started to dramatically decline in the Eighties (see Figure 4.2).34 The black market for illegal sturgeon and caviar boomed during the 1980s, and by 1989 the total catch had more than halved, most possibly due to illegal fishing. The decline continued at almost the same rate until 1993, when the total catch reached just 5 thousand tons. From then on the sturgeon catch kept on declin-ing, although at a less rapid rate, and in 2007 it stood at less than 1 thousand tons a year. Today the beluga sturgeon is considered “critically endangered”; the formal classification that the International Union for Conservation of Na-ture applies to species just one step from being “extinct in the wild”.35

Fishing for wild sturgeon in the Caspian is now strictly regulated, and any export must be accompanied by international permits. However, overfish-ing and poaching continue: a recent study estimated that in 2006 more than 80% of the sturgeon catch in the Caspian was illegal.36 On 27 December 2013, at the 34th meeting of the Commission for water biological resources of the Caspian Sea, the five riparian Caspian countries agreed to stop sturgeon catches for 2014.37 But the fact remains that illegal fishing actually worsened the last time a moratorium was agreed between Azerbaijan, Kazakhstan and Russia, in 2002.38

Today, overfishing can therefore still be considered one of the Caspi-an’s worst unresolved cooperation problems. Although it started more than a decade before the formal dissolution of the Soviet Union, it can be argued that the increase in sea pollution and much less regulated fishing during the 1980s heavily contributed to the decline, and could actually be interpreted as a symp-tom of Soviet decline – it was most certainly a signal of decreasing Soviet con-trol over the Caspian area while attention was directed elsewhere. However, now there are increased attempts by littoral states to sustain the number of sturgeon population. Several pisciculture facilities, one of the biggest of them

33 L. Murphy, T. Nagel, The Myth of Ownership, Oxford University Press, 2004. 34 Caspian Environment Programme, Transboundary Diagnostic Analysis Revisit, 2007. 35 International Union for Conservation of Nature (IUCN), IUCN Red List of Threatened Species, Version 2013.2. 36 E. Strukova, O. Guchgeldiyev, Study of the Economics of Bio-Resources Utilization in the Caspian, CEP/World Bank, 2010. 37 ABC.az, “Starting from 2014 coastal countries will stop commercial catch of Caspian sturgeon”, 27 Decem-ber 2013. 38 VV.AA., Eastern Europe, Russia and Central Asia 2003 (Regional surveys of the world), Routledge, 2002, p. 128.


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in Azerbaijan, Shirvan, operate in the littoral states for artificially breeding sturgeon and then releasing them in the sea to support population of the fish.

Fig. 4.2 - Total sturgeon catch in the Caspian (thousand tonnes per year), 1932-2007

Source: Transboundary Diagnostic Analysis, CEP, 2002

A second, similar problem is the progressive disappearance of the Cas-pian seal. Unsustainable levels of hunting for seal oil and fur through much of the 20th century contributed to reduce the Caspian seal population by more than 90% between 1900 and 2007.39 In the coming decades climate change may add to the problem, as the progressive warming of the Caspian may reduce the extent and duration of winter ice that Caspian seals depend upon for breeding.

At the same time as the beluga sturgeon and Caspian seals were de-creasing, an opposite phenomenon was drastically changing the Caspian eco-system: the introduction of alien species. Until the 20th century, the Caspian had remained relatively intact thanks to its secluded nature. But by the 1990s, increased maritime communications fostered the arrival of the warty comb jel-ly, brought accidentally in the ballast water of some oil tankers.40 In the Eight-

39 CEP, (2007). 40 V.P. Ivanov, et al., “Invasion of the Caspian Sea by the comb jellyfish Mnemiopsis leidyi (Ctenophora)”, Bio-logical Invasions, no. 2, 2000, pp. 255-258.


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ies, comb jelly had already invaded the Black Sea, then moving on to the Azov, Marmara and Aegean Sea. Given that the jelly reproduces faster than endemic species and eats the same food, it has upset the Caspian food chain, contributing to the gradual reduction of other marine animals specific to the Caspian Sea.

4.3.4 Other forms of pollution

During the 1990s, the major sources of pollution in the Caspian were pollu-tants flowing in with river waters, the disposal of untreated industrial and ag-ricultural wastewater, and municipal and domestic effluent from cities and set-tlements in the coastal zone.41 Although it could be argued that hydrocarbons extraction nowadays represents the single most important danger to the Cas-pian environment, these and other sources of pollution should not be disre-garded. In particular, industrial activity, electricity generation, agricultural ex-ploitation and tourist industry investments have upset the Caspian ecosystem in the last two decades.

As for industry, some tributary rivers or canals have big industrial complexes upstream.42 Nearly 45% of Russian industry and 50% of its agricul-tural production take place in the Volga basin, and the river brings polluted water from locations as far as 3,500 km away.43 Very often, industrial wastewater is inadequately treated, and can also end up in many Volga tribu-taries. The Azeri Araz river’s situation is somewhat similar, as the river runs through Armenia and Iran, accumulating pollution from these countries in-dustrial facilities before reaching Azerbaijani territory and then joining to Ku-ra which flows into Caspian Sea.

Somewhere between industrial and radiological waste, in the Turkmen Cheleken peninsula industrial plants accumulated 18,000 tons of radioactive elements that are nowadays stored in the town of Hazar, in an open storage area just 200 meters from the sea. The rising sea level of the last two decades has already submerged some areas near the storage area, and air radon con-centrations today exceed average Turkmenistan concentrations 1,000 times, being very close to critical values for human exposure.44

As for electricity generation, thermal and nuclear power plants can pose significant risks. In Kazakhstan, the Koshkar-Ata lake, just 8 km from the Caspian shores, has been used for decades as a storage location for radio-active and toxic waste from the nearby uranium processing plant and nuclear reactor. Falling uranium prices and natural depletion of the mines led to the

41 I. Zonn, (2001), p. 74. 42 I. Rucevska, O. Simonett, (2011), p. 32. 43 Ibid., p. 45. 44 Ibid., p. 51.


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shutdown of uranium milling in 1999, but the lake is still being used as a dumping ground for waste and oil extraction sludge.

Therefore there is a considerable risk that pollutants may migrate through groundwater and contaminate the Caspian.45 Currently, contamina-tion is limited to a 2-4 km radius around the Koshkar-Ata lake, but this strip of land contains high concentrations of toxic metals (including lead, strontium and manganese), and a rise in the Caspian groundwater level might lead to more widespread dispersal of pollutants.

Another important source of pollution of the Caspian Sea is agricul-tural land reclamation, and the use of the Caspian water for irrigation. In par-ticular, the development of vast irrigation systems that were then left without maintenance for years polluted the sea along the coastlines with pesticides and heavy metals.46 Finally, some stretches of the Caspian coast have been targeted by the domestic tourism industry, and their population has increased markedly in the last 20 years. During the last decade, the Iranian coastal area has regis-tered a demographic increase averaging 5% a year. On the other hand, tourist pressures have decreased in some areas where oil pollution has rendered the Caspian Sea much less attractive. For example, domestic tourists have been stable or declining in Turkmenistan, while international tourists are still shun-ning the country, despite Turkmenistan’s efforts to modernize its resorts.47

4.4 Environmental security: the existing Caspian cooperation framework

For a long time, environmental cooperation between the five Caspian riparian countries suffered drawbacks comparable to other regions in the world facing common-pool resource problems.

However, despite all the obstacles, a periodic easing of tensions among Caspian riparian countries has contributed to the gradual emergence of a more cooperative environment. Regional negotiations to establish a cooperative programme had started already by 1992, and by 1995 the five riparian coun-tries had agreed upon the creation of the Caspian Environment Programme (CEP), which was eventually launched only in 1998 due to disagreements over its implementation.48 The members of the CEP Steering Committee are the five littoral states and four international donor organizations: the United Nations Environment Programme (UNEP), the World Bank (WB), The European Un-ion/Technical Assistance to the Commonwealth of Independent States

45 Ibid., p. 50. 46 Ibid., p. 31. 47 United Nations World Tourism Organization (UNWTO), Annual Report 2012. 48 A Global Environment Facility (GEF) mission to the Caspian region took place in May/June 1995, after which the GEF agreed to fund the preparatory phases of what would eventually become known as CEP.


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(EU/Tacis), and the United Nations Development Programme (UNDP).49 The CEP’s main output has most likely been the Caspian Transboundary Diagnos-tic Analysis, first produced in 2002 and revisited in 2007.50 As the title suggests, this long and comprehensive report aims at reaching a scientific and objective consensus over the state of Caspian resources, in order to paint a precise pic-ture of the environmental state of the Caspian Sea so that riparian countries may follow up by taking appropriate action.

The CEP was built with resilience and scalability in mind, as Ostrom recommended in 1990 (see supra, paragraph 3): apart from the central struc-ture of the Steering Committee and Secretariat to coordinate its day-to-day ac-tivity, the CEP is layered in sub-regional and national components which in-clude:

- the Regional Advisory Groups, whose purpose is to coordinate the Secretariat’s activities in “priority regional environmental concern are-as”;

- a National Coordination Structure in each of the 5 riparian countries. The Structure is responsible for implementing: (a) National Caspian Action Plans (NCAPs) that each of the riparian countries was required to adopt as autonomous domestic legislation; (b) the Strategic Action Programme (SAP), which is instead the result of negotiations between the five countries in order to define and address common priorities for the whole region;

- national stakeholders, which the CEP defines as including NGOs, local authorities, the private sector, universities, industries, and local com-munities.51

The SAP has established some important environmental principles that littoral states should respect. They are:

- the “polluter pays” principle, which maintains that the cost of prevent-ing and eliminating pollution shall be paid by the polluter;

- the “preventative action” principle, according to which timely actions should be taken to alert the relevant authorities of likely environmental impacts before they occur;

- the “public participation and transparency” principle, which aims to involve all stakeholders in the decision-making process, including communities, individuals and concerned organizations.52

49 CEP, http://www.caspianenvironment.org/newsite/Caspian-Background.htm. 50 GEF/CEP, Caspian Transboundary Diagnostic Analysis Revisit, 2007. 51 CEP, An Introduction to the Caspian Sea and the Caspian Environment Programme, online booklet, 2005, pp. 20-23. 52 CEP, Strategic Action Programme for the Caspian Sea, 2006 updated version, pp. 6-7.


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The main diplomatic success since the CEP’s inception was achieved at the 2003 Tehran Conference of Caspian Littoral States. Unlike the 2002 Cas-pian Summit of Heads of the Caspian Littoral States, which failed to material-ize into an agreement on the status of the Caspian, the Tehran Conference coalesced into just such an agreement. Signed on 4 November 2003, the Framework Convention for the Protection of the Marine Environment of the Caspian Sea (also known as the Tehran Convention) was a milestone in ripari-an states’ environmental cooperation.53

With the Tehran Convention, the riparian states agreed in principle on common action for the control of activities impacting the environment, offi-cially recognizing the three SAP principles mentioned above.54 Despite being only a Framework Convention, and thus expressing not much more than the will to cooperate over environmental issues, since it came into force on 12 Au-gust 2006 the Tehran Convention has been a successful achievement as such. Moreover, it has been followed by practical action in the subsequent years, particularly in the form of the signing of binding Protocols to the Convention.

On 23-25 May 2007, Baku hosted the first Ministerial meeting of the Conference of Parties to the Tehran Convention (COP I). During COP I the five littoral states declared that 12 August was to be regional Caspian Day, marking the importance of the Tehran Convention as the overarching legal in-strument for environmental protection in the region. 2011 saw the signing of the Aktau Protocol concerning Regional Preparedness, Response and Coop-eration in Combating Oil Pollution Incidents, while in 2012, on the margins of COP IV (held in Moscow) the five riparian countries signed the Protocol for the Protection of the Caspian Sea against Pollution from Land-Based Sources and Activities.

Obviously, the short history of the Tehran Convention is not without its low points. Since the Convention came into force, the parties have been un-able to agree on who should host the permanent seat of the Secretariat, so that an Interim Secretariat is still headquartered at UNEP’s Regional Office for Europe in Geneva, Switzerland. At the same time, the adoption of two other binding Protocols to the Convention was delayed due to disagreement between the parties.55

However, the conflict over the host country for the permanent seat of the Secretariat can also be interpreted as a sign of the importance the littoral states attribute to the main organ of the Convention. And while the prestige of hosting the Secretariat entailed a 7-year dispute, today the number of eligible

53 Framework Convention for the Protection of the Marine Environment of the Caspian Sea (Tehran Conven-tion), 4 November 2003. 54 Tehran Convention, art. 5. 55 The two outstanding protocols are the Protocol on the Conservation of Biological Diversity and the Protocol on Environmental Impact Assessment in a Transboundary Context.


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contestants seems to have shrunk to just two – Iran and Azerbaijan. In the meanwhile the five Caspian states seem to have reached an agreement in prin-ciple over the two outstanding binding protocols, and at least one of them could be signed as early as at COP V, to be held by late 2014 in Turkmenistan. Aside from the CEP and the Tehran Convention, other projects focus or have focused in the recent past on the environment and security of the Caspian Sea region. The main ones are:

- ENVSEC. The Environmental Security Initiative is a partnership of six international organizations: UNEP, UNDP, the Organization for Se-curity and Co-operation in Europe (OSCE), the Regional Environment Centre for Central and Eastern Europe (REC), the United Nations Economic Commission for Europe (UNECE), and the North Atlantic Treaty Organization (NATO). At the moment, ENVSEC’s portfolio comprises 54 projects, and the agency also acts in Eastern and South-Eastern Europe.

- CASPECO. This was a regional project funded by GEF, implemented by the UNDP and executed by the United Nations Office for Projects Services (UNOPS). It was active in 2009-2012 and its target was to re-store depleted fisheries and consolidate a permanent regional environ-mental governance framework.

- CEIC. The Caspian Environmental Information Centre has been in place since 2012, and is based on a network of collaborating institu-tions in Caspian littoral states, in particular Government sections, monitoring stations, the private sector and NGOs.

4.5 Climate change: dealing with an uncertain, global problem

Data accumulated over the years led the UN Intergovernmental Panel on Cli-mate Change (IPCC) to establish that CO2 and other greenhouse gases (GHG) accumulating in the atmosphere have been increasing the earth’s average tem-perature,56 and that much of this process is anthropogenic in origin. The im-pact of climate change on man, society and the environment as a whole can be likened to a Black Swan: impossible to predict with accuracy, but likely to have huge consequences and which therefore presents incalculable risks.57

The anthropogenic acceleration of sea level rise, together with changes in sea salinity, could have long-lasting effects on the Caspian ecosystem. But climate change is a problem that can only be tackled at global level, given that it requires cooperation among the world’s main polluters. Because of this, it

56 IPCC (2013), Summary for Policymakers. In: Climate Change 2013: The Physical Science Basis, Cambridge University Press, Cambridge, United Kingdom, p. 4, states: “Warming of the climate system is unequivocal”. 57 N. Taleb, The Black Swan: The Impact of the Highly Improbable, Random House, New York, 2007.


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faces huge coordination problems and free-riding risks. In the face of their in-ability to address climate change alone, what Caspian countries can do is to prepare to adapt to climate effects, should they occur in the near future.

2007 simulations by CEP in its updated Transboundary Diagnostic Analysis show that major risks posed by climate change include a high increase in temperatures (more than 4.5°C) during the cold season, severe desertifica-tion of around 50% of the coastal zone, and flooding due to storm surges and sea level fluctuations.58 As for the increase in temperatures, studies have con-firmed that 46 world glaciers are already shrinking. Between the 1950s and the 1990s, the Pamir-Alai glaciers lost 19% of their ice, with the process now gain-ing in intensity.59 In the Northern Caspian region, the ice cover shrank by 30% between 1930 and 2000.60

On the other hand, the effect of climate change on sea level rise is high-ly controversial, as seen in the recent stabilization of the Caspian sea level and in the inability of current models to forecast near-future developments in a consistent way (see supra, paragraph 4.1). What is certain, however, is that ris-ing sea levels had already caused widespread destruction during the 1980s and that, were sea-level rise to pick up again, water might flood the Iranian city of Anzali and turn it into an island.

Conclusions

In recent decades, dramatic environmental changes have occurred in the Cas-pian Sea region, ranging from sea level changes to overfishing, and water pol-lution reaching unsustainable levels. The five riparian countries share signifi-cant responsibilities for most of these changes. The ongoing alteration of the Caspian ecosystem will probably be very difficult to reverse, and it will take time and effort to achieve any meaningful solution to some of the issues – es-pecially those requiring countries to strike a balance between exploiting Caspi-an resources (hydrocarbons and fisheries) and preserving or restoring them for the benefit of local communities and future generations.

Although risks still abound, the environmental security regime that has been gradually emerging in the last fifteen years is an encouraging start. Thanks to the steady effort of some international organizations and agencies, the five littoral countries have managed to agree upon a programme to moni-tor the environmental status of the sea, and have gone as far as signing a Framework Convention and two Protocols. The existence of a periodic re-gional forum in which to discuss environmental matters and agree on further

58 GEF/CEP, (2007). 59 R. Perelet, “Central Asia: Background Paper on Climate Change”, Human Development Report, 2007. 60 A.V. Kouraev et al., “Sea ice cover in the Caspian and Aral Seas from historical and satellite data”, Journal of Marine Systems, 2004, p. 92.


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action has been fundamental in improving cooperation among the five littoral states.

However, the Tehran Convention still has its weaknesses: it lacks the possibility to enforce binding decisions, a sanctions mechanism to turn envi-ronmental principles into real international norms, and a conflict-resolution forum for countries to explain their grievances toward each other and come to a mutual understanding. Caspian states should seize the moment and take the necessary steps to build a resilient system of environmental governance: only by doing so will they be able to contain the tragedy of the commons and, hopefully, reverse it.

Part II

Litoral States’ Perceptions and Policies

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5. The Importance of the Caspian Sea to Azerbaijan: Opportunities, Challenges and Prospects

Rovshan Ibrahimov

Introduction

After the collapse of the Soviet Union, one of the new states that emerged on the world map, is Azerbaijan. Despite that Azerbaijan is relatively small in its territorial size, geographical position that it takes, makes this country strategi-cally very important. Azerbaijan locates on the juncture of Europe and Asia, at the same time representing a natural bridge between these two parts of the world. Simultaneously, in the north and in the south this state is adjacent to significant regional states such as Russia and Iran. At the same time, with these states, Azerbaijan has not only land border, but also maritime borders via the Caspian Sea, which washes the country’s eastern border. Despite the fact that the Caspian Sea is a closed body of water without access to the open seas, the importance of this water reservoir for Azerbaijan, as well as for other countries in the region, is very outstanding. Besides Azerbaijan, Russia and Iran, Kazakhstan and Turkmenistan are also littoral states on the Caspian Sea.

The Caspian Sea plays both connecting and dividing roles. Being a frontier water reservoir for these five countries, the Caspian Sea also plays a role as a place of contacting points of their different interests. At the same time these interests do not always coincide with each other, and sometimes can be-come a cause of serious contention. As the experience of the relationship of these littoral states in the last twenty years, there have been observed attempts to create strong cooperation as well as serious disagreements. That is why none of the coastal states can ignore the challenges that come directly from the


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fact that they are located on the shore of the Caspian Sea. In this case, the Caspian Sea is of great geostrategic importance for these countries, including Azerbaijan. Caspian Sea as geostrategic zone significantly affects the for-mation of perception of the external world from Azerbaijan and vice versa. In this context, very useful to determine the degree of importance of the Caspian Sea to Azerbaijan and the impact of this factor on the formation of its domes-tic and external policies.

5.1 Restoration of Azerbaijan’s independence and the emergence of new coastal state on the Caspian Sea

Azerbaijan regained its independence on 18 October 1991. In addition to her three new Caspian states appeared on the world map: Russia, Kazakhstan and Turkmenistan. The formation of new independent states has radically changed the geopolitics of the Caspian Sea. At least last two hundred years the ratio of the balance of forces, as well as the format of relations in the region depended on the attitudes of the two countries, Russia and Iran. These two countries de-termined the legal status of this water reservoir and albeit in different measures, but had the right in different level to use its resources.

At the same time it was important that the Caspian Sea was closed not only geographically- the last hundred years, access of the third countries ships to the Caspian Sea have been closed by the bilateral USSR-Iran treaties. Ideo-logical factor was played an important role in this issue. The only way out to the open seas of the Caspian Sea runs to the Black Sea through the channel connecting two rivers Volga and Don passing through the territory of the So-viet Union. Given the factor of the Cold War and strict centralized govern-mental system in the USSR, the probability of forming a direct relationship between the Caspian coastal Soviet republics and third countries was minimal. At the same time, marine vessels of the economic enterprises, as a part of their activities, had the opportunity to go into the international waters through the Volga-Don Canal.

The home port of the maritime transport Caspian Steamship fleet was the capital of the Azerbaijan Soviet Socialist Republic, Baku which was in charge of management of the activity of the entire fleet in the Caspian Sea. In this context Azerbaijan has had cooperation with the external world during the Soviet period. The ships stationed in the Azerbaijan SSR, though limited and only in the interest of the Soviet state, had access to the open seas. How-ever, all their activities coordinated under Soviet regulations and were not an independent initiative of this Union Republic.

The situation began to change only after the collapse of the Soviet Un-ion. In the late 80s Union Republics became able to form direct relations with third countries. This was possible due to the fact that all Soviet republics de-

The importance of the Caspian Sea to Azerbaijan

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clared their sovereignty and the right to use their own resources independently. Incidentally Republic of Azerbaijan was the first which declared its sovereign-ty on 23 September 1989. Even though it did not give the country full inde-pendence from the center, but allowed to act as a subject on international rela-tions in economic field with the active participation of the Soviet Union cen-tral government. It was a turning point in the history of the region, appearing harbinger of great change. Natural oligopoly of USSR and Iran on the devel-opment of the resources in the Caspian Sea began to disintegrate. As a result, Azerbaijan SSR launched cooperation with Western energy companies to start operating its offshore fields. In the early 1990s Soviet Azerbaijan began active-ly negotiate with the Western companies with the purpose on the joint exploi-tation of oil fields. During this period such Western energy companies as Brit-ish Petroleum, Statoil, Amoco and Unocal actively participated in the negotia-tion process. On 18 January 1991, by joint degree of the Soviet Union Ministry of Oil and Gas Industry and Cabinet of Ministers of Azerbaijan Republic, it was decided to hold a tender to create a join production association Cas-pmorneftegaz to explore and develop offshore Azeri oil field. As a result of this tender US Amoco company was declared winner. Amoco received 40% of the total shares in the consortium, the Soviet government also share was 40%, 20% battered Azerbaijan.1 Despite the fact that this agreement has never en-tered into force because of the collapse of the Soviet Union, it has a very im-portant symbolic meaning. Azerbaijan, still being a part of the USSR, maybe partially, but for the first time got an opportunity for direct participation in the management and operation of its own resources. Thereby the process of formation of the new actors in the Caspian Sea region has started. This pro-cess reached its climax after the collapse of the Soviet Union and littoral states gaining their independence. As a member of international system, Azerbaijan started actively seek opportunities to implement its interests in the Caspian Sea.

With the emergence of the new independent states the reconsideration of the Caspian Sea’s legal status became priority issue. The reason for this was the fact that each of the new states acquired this over eign right to use part of the Caspian Sea. Previous agreement signed in 1921 and 1940 between the USSR and Iran, concerned only the relations between these two states. With the emerging of the new littoral states the main question was what will be the new legal status of Caspian Sea and how the coastal states will use their sover-eign rights.

Azerbaijan’s position regarding to the division of the Caspian Sea formed both on practical reasons, as well as in the scope of legal context of the

1 R. Ibrahimov, Azerbaijan Energy History and Policy: From Past Till Our Days, in I. Rovshan (ed.), Energy and Azerbaijan History, Strategy and Cooperation, Baku, SAM, 2013, pp. 20-21.


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inheritance of territories on which the Azerbaijan SSR existed. A practical ap-proach was determined by the fact that already in the 60th years of the 20th cen-tury the main oil and gas exploitation in Azerbaijan occurred in offshore fields. Still, in the Azerbaijani sector of the Caspian Sea, there are many unde-veloped and rich in oil and gas deposits. Economic development and political stability in Azerbaijan is directly dependent on the possibility for exploitation of these deposits. In this sense, it was very important to create the necessary legal prerequisites for sustainable development of these fields.

Azerbaijani position regarding the legal aspects of the division of the Caspian is based on the principle of territorial continuity of inheritance, re-flected from the principle of international law, uti possidetis. Based on this principle, Azerbaijan refers to the decision taken in 1970 by the Ministry of Oil Industry on the division of the Caspian Sea between the littoral Union Repub-lics. As a result, practical division of the Caspian Sea into the national sectors was implemented. Division was carried out on the basis of the median line, based on the principle of equidistance and generates the appropriate sector for coastal republics.2 According to the aforementioned division, about 70 thou-sand m2 km area of the Caspian Sea belongs to Azerbaijan.3 Incidentally, in view of the fact that the legal status of the Caspian Sea is still uncertain, the Caspian countries still accept the lines, which divided this sea into the sectors, as the state border.

As a consequence, in the further negotiations with the other Caspian countries in order to determine the status of the Caspian Sea, Azerbaijan ad-hered to this position. Azerbaijan quoted that the Caspian Sea is an interna-tional border lake, requiring midline separation on the basis of the principles and norms of international law, in accordance with the UN Convention on the Law of the Sea, adopted in 1982. In addition, each coastal State shall have full and exclusive sovereign right to all activities in its national sector.4 Also, in 1995, Azerbaijan secured the sovereign right to its sector in the constitutional order. According to the Article 11 (2) of the Constitution of the Republic of Azerbaijan: Internal waters of the Azerbaijan Republic, sector of the Caspian Sea (lake) belonging to the Azerbaijan Republic, air space over the Azerbaijan Republic are integral parts of the territory of the Azerbaijan Republic.5

2 Фуад Гумбатов, «К Вопросу Применимости Принципа Uti Possidetis Juris в Разграничении Каспийского Моря между Прибрежными Государствами, Центральная Азия и Кавказ», n. 6, 1999, c. 162. 3 Разделение Каспийского Моря по 20% не Имеет Юридической Основы, September, n. 21, 2013, availa-ble at: http://novosti.az/expert/20130912/299361642.html, (last retrieved on 10 March 2014). 4 А. Темирбулатов, Правовой Статус Каспийского Моря: Позиции Прикаспийских Государств, available at: http://geobez.ru/index.php/arkhiv-nomerov/8-kategoriya-na-glavnoj/20-new-one, (last retrieved on 12 March 2014). 5 The Constitution of the Republic of Azerbaijan, available at: http://azerbaijan.az/portal/General/ Constitution/doc/constitution_e.pdf, (last retrieved on 13 March 2014).


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From this position, Azerbaijan signed a number of agreements with in-ternational energy companies and began exploitation of energy deposits in its sector, among which the most important are the Azeri-Chirag-Guneshli and Shah Deniz fields. In other words, with the starting of development its marine subsoil Azerbaijan de facto approved sovereignty right over its sector in the Caspian Sea.

Already by the early 2000s, Azerbaijan’s position on the sectoral divi-sion of the Caspian Sea were partially supported also by Russia and Kazakh-stan. These three countries agreed on the division of the Caspian seabed along the median line. This position of the parties as reflected in the bilateral and tri-partite agreements. In short, the first such agreement on division of the Caspi-an Sea was signed with Kazakhstan on the 29 November 2001. Additionally, on 27 February 2003, both countries signed an additional protocol to this agreement. Following, on 23 September 2002, similar agreement was signed with Russia. On the basis of the bilateral agreements on 27 February 2003, an agreement was signed between Kazakhstan, Azerbaijan and Russia on the de-limitation of adjacent sections of the Caspian Sea.6 Thereby the process of sea-bed division was completed with Azerbaijan’s northern and north-western neighbors. Despite the agreements with these two countries, the situation in determining of the Caspian Sea status with Turkmenistan and Iran was radi-cally opposite. Furthermore this has led to the serious disagreement between the neighbors. The first disagreement happened with Turkmenistan. The main reason was the issue of determining the ownership of oil offshore field on the maritime border of these two countries, referred as Kapaz (Azerbaijani name) or Sardar (Turkmen name). On 4 July 1997 Azerbaijan signed Production Sharing Agreement with Russian companies Lukoil and Rosneft to create a consortium for the development of this field. However, after the intervention of Turkmenistan the consortium has not started operations. Turkmenistan protested and then Rosneft and Lukoil canceled an agreement. In turn, in 1998 Turkmenistan signed an agreement with Mobil for the development of the mentioned field. But this company too was not able to start development work due to the uncertainty about the legal belonging of the field. In 2005 a similar situation emerged with a Canadian company Buried Hill Energy, which also in order not to anger Baku renounced its agreement previously signed with Turkmenistan.7

Controversies around the energy fields led to serious disagreements be-tween the Azerbaijan and Turkmenistan. Feasibility works on the definition of the possible passage route of the Trans-Caspian pipeline, sponsored by the

6 Статус Каспия, available at: http://www.analitika.az/browse.php?sec_id=80, (last retrieved on 12 March 2014). 7 «Сердар» Vs «Кяпаз»: Какой Суд Рассудит Азербайджан с Туркменистаном?, 3 July 2012, available at: http://www.fergananews.com/articles/7413, (last retrieved on 12 March 2014).


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United States, were halted by Turkmenistan. Ashgabat withdrew its ambassa-dor from Baku, and in early June 2001, closed its embassy and announced visa regime with Azerbaijan.8 Turkmenistan accused Baku of de facto annexation of its territory and threatened to apply to the international court. As a result, this oil field has not yet exploited either by Azerbaijan or Turkmenistan. With a new Turkmen president Gurbanguly Berdimuhamedov’s coming to power in 2008 relations between the two countries have visibly improved. This allowed to solve a number of controversies between the states. In particular, the prob-lem of debt incurred in the early 1990s for the Turkmen gas imported by Azer-baijan was solved and Turkmenistan again opened its embassy in Baku. How-ever, the controversy surrounding the legal belonging of Kapaz field has not been solved yet.

An attempt to start exploration in the offshore fields “Araz”, “Alov” and “Sharq” in the 23 July 2001 became the reason even for more acute disa-greement. Exploratory ship Geophysicist-3 of BP was sent to conduct research in the southern part of the Azerbaijani sector of the Caspian Sea in order to determine the presence of hydrocarbon reserves in these promising fields. However, this action was followed by a sharp negative reaction from Iran. Military patrol boats of the country pushed out the research vessel from the exploration region. Iran considered this circumstance as a violation of its terri-torial integrity and demanded the immediate cessation of any exploration work. Iranian airforce became plunged the airspace of Azerbaijan. It is worth noting that these deposits could be in Iranian territorial waters only if the Caspian Sea would be divided into five equal parts, as it actually demanded by Iran. Despite this, Azerbaijan did not aggravate relations with Iran, and tak-ing into account that these deposits are located in the border area, stopped re-search until the final definition of the status of the Caspian Sea. Only after a visit Iranian Deputy Foreign Minister Ali Ahani to Baku in late August 2001 incident was partially resolved.9

As for Iran itself, the country has repeatedly stated its readiness to begin energy field exploitation in the Caspian Sea. However, even if it has a se-rious intention to begin exploration work on these deepwater fields, it does not have the necessary infrastructure for such exploratory work. The only country in the Caspian Sea, which has this infrastructure and capability is Azerbaijan. In this case, in the medium term, it is not expected that any country would start operation of these fields.

8 Ровшан Ибрагимов, Статус Каспийского Моря и Проект Набукко. Развитие Отношений между Азербайджаном и Туркменистаном, 30 April 2008, available at: http://www.centrasia.ru/newsA.php?st= 1209563820, (last retrieved on 14 March 2014). 9 Дина Малышева, Каспийский Вектор Ирано-Российского Взаимодействия, available at: http://bs-kavkaz.org/2012/07/kaspijskiy-vektor-irano-rossijskogo-vzaimodejstvia/, (last retrieved on 14 March 2014).


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In general, it should be noted that the Azerbaijani position on the defi-nition of the legal status of the Caspian Sea has not changed. Partial solution to the problem with the two neighbors has allowed this country to successfully implement programs to exploit rich energy deposits, which have played a sig-nificant role in the economic development of the country.

5.2 Geostrategic importance of the Caspian Sea for Azerbaijan

It is hardly to say that the importance of the Caspian Sea is as huge for any other Caspian littoral country as it is in the case of Azerbaijan. Of course, Ka-zakhstan and Turkmenistan also produce oil and gas in the waters of the res-ervoir, but in the case of Azerbaijan, all its main energy deposits are concen-trated in the sea.

Since ancient times, the Caspian Sea has been used for navigation and transport of goods. With the development of oil production in the region, the Caspian Sea also started to be utilized for transportation of oil and oil prod-ucts. As a result, Azerbaijan became the birthplace of the tanker fleet. It is here for the first time in the history of maritime ships were used to transport oil. The first vessel for oil transportation was the oil barge Alexander, was built in 1873 in Baku. And in 1878 world’s first oil tanker Zoroaster was launched here.10

However, the significance of the Caspian Sea to Azerbaijan is not only limited to economic activity. The capital Baku and the third most populous city Sumgait are locatedon the coast of Caspian Sea which stretches from North to South as long as 955 km. Baku is also the largest city on the coast of the Caspian Sea. Both cities, as well as the Absheron peninsula are major in-dustrial centers of Azerbaijan. It focuses on the oil, gas production and oil re-fining industry of the country. In addition, the development of the petrochem-ical and chemical industry, heavy industry, ferrous and nonferrous metallurgy, power engineering, mechanical engineering, electrical engineering, light and food industries, the construction industry, transport infrastructure and ser-vices sector are also concentrated in and around Baku.

Residents of the republic as a whole tend to live along Caspian coast, particularly in the Absheron peninsula, where there is the highest population density in the country. Overall, the population of Absheron peninsula, which continuously rises due to immigration from other regions, is about the half the population of the entire country. Officially, according to the census conducted in April 2009, the population of Baku was 2,046.1 thousand inhabitants, in Absheron economic region, which includes Sumgait and Khirdalan cities –

10 Вновь Созданное Азербайджанское Каспийское Морское Пароходство Объединит Около 350 Судов, 22 March 2013, available at: http://neftegaz.ru/news/view/115215, (last retrieved on 14 March 2014).


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514.2 thousand people, while the overall population of the republic was 8922.3 thousand people.11 Today, the number of inhabitants of the Absheron penin-sula has grown considerably and is much more than the official figures.

There are many important historical monuments in the Absheron pen-insula. Many buildings, samples of medieval architecture, have preserved in this area. Here is fortress with a tower, built in 1301 in Nardaran village. An-other important monuments are Round fortress, built in 1232 and the quad-rangular castle, the construction of the 14th century located in Mardakan vil-lage, which was built during the reign of Shirvanshakhs dynasty. Caspian coast also hosts the square tower in Ramana, built in the 14th century. In an-other village of Absheron Peninsula, is a temple of Zoroastrians, Ateshgyah, which is listed as UNESCO World Heritage Sites. In the Baku preserved archi-tectural Shirvanshahs palace, located in the reserved Inner (Old) city. In addi-tion, there is also the main symbol of Baku, the Maiden Tower. All these monuments of medieval architecture are also included in the list of UNESCO World Heritage Sites.

Apart from Baku and Sumgait, several other cities of the country are located on the coast of the Caspian Sea, among which Lenkoran, Astara, lo-cated on the south of the Absheron Peninsula and Khachmaz, Siyazan, Na-bran, are in the northern part of Azerbaijan.

An important and unique site is Neft Dashlary (Oil Rocks) – the town on the sea, was built on the oil platforms in 1949. Oil Rocks is a unique city on stilts. In a short time in the open sea, at a distance of 50 kilometers from the coast there were created a large marine craft for drilling new oil fields in the Caspian shelf. The city has a bakery, a clinic, a tea house, water treatment plant, waste incineration plant, there is a football pitch. Connections ferry flights performed with the marine station in Baku and from the terminal on the Absheron Peninsula, as well as helicopters from the heliport on the island Pirallahi. Neft Dashlary consists of more than 200 stationary platforms, and the ‘streets and lanes’ of this city on the sea stretch for 350 km. This city to this day is an important producer of oil and natural gas.12

On the shore of the Caspian Sea are also located the important San-gachal and Dubendi oil terminals. Sangachal, is the world`s largest integrated oil and gas processing terminal, which is located 55 km south of Baku and re-ceives, processes, stores and exports crude oil and gas produced from the Azeri and Deepwater Guneshli and gas from the Shahdeniz field. There are different facilities in the terminal, including 3 crude oil storage tanks with 880,000 bar-

11 Official Site of the State Statistical Committee of the Republic of Azerbaijan, Territories, Number, Density of Population and Territorial Units by Economic and Administrative Regions of Azerbaijan Republic, available at: http://www.azstat.org/statinfo/demoqraphic/en/2_1.shtml, (last retrieved on 14 March 2014). 12 Mir-Yusif Mir-Babayev, Oil Rocks – The City on the Caspian Sea, available at: http://www.visions.az/oil,402/, (last retrieved on 14 March 2014).


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rels capacity each. Another port, the Dubendi terminal, has a multiple berth port with large storage comprising multiple tank farms and two railways. The terminal is designed to handle and then to export crude oil through the Baku-Tbilisi-Ceyhan (BTC) pipeline or to Georgian terminals via railway. Both of these ports comprise the South Caucasus sea gate in the Eastern direction and play a connecting role with Kazakhstan and Turkmenistan.13

In addition, in Baku there is the largest airport in the region, which is named after Heydar Aliyev. This airport operates flights to 58 destinations around the world and receives and dispatches 31,000 flights per year. In 2011, construction of a new airport terminal was started. The new terminal has the capacity to serve 5 million passengers and process thousands of tons of cargo per year. The largest Cargo Terminal in the region is in Baku, in the territory of the airport. The total storage area is 20,000 square meters.

Azerbaijan’s capital also operates the largest in the Caspian Sea Baku International Sea Trade Port, created back in 1902. The port consists of the Main Cargo Terminal, Dubendy Oil Terminal, Ferry Terminal, and Passenger Terminal. Its throughput capacity has been constantly growing and is now 15 million tons of liquid bulk and 10 million tons of dry cargoes. Baku authorities is intended to build Port Baku Towers in the near future and transferring the Baku International Marine Trade Port to Alyat just south of Baku. The inter-national trade seaport in Alyat, construction of which started in November 2010, will be able to receive both oil and non-oil freights from Kazakhstan and Turkmenistan ports, and then, send on in the western direction.14

As seen from the above, the Caspian Sea is central to the livelihoods of Azerbaijan. It is difficult to imagine Azerbaijan future without this sea. The Caspian Sea is closely interwoven with all categories activities of people in Azerbaijan, as well as being the basis for the formation of new areas of em-ployment of its citizens, be it work or leisure. It concerns completely different fields: industry, transport, culture, sports and recreation. And with the increas-ing of Azerbaijan economic potential activities related to the Caspian Sea are also diversifying. In the future, this feature will only be strengthened. It al-ready expected to implement several major projects in the Caspian Sea. Among them, special attention is drawn to the project to create a residential complex consisting of 41 man-made islands in the Caspian Sea connected by 150 bridges off the shores near Baku, in Garadagh district. Significant in this project is waiting construction world’s tallest tower, named as Azerbaijan tow-

13 R. Ibrahimov, Link in the Chain: South Caucasus as a Transport and Logistics Hub between Regions, Inter-regional Cooperation In Eurasia Transport and Logistics Projects as an Accelerator of Integration within and Between the Black Sea Region, the South Caucasus and the Central Asia, Baku, SAM, 2013, p. 59. 14 “New Seaport in Azerbaijan Constructed on Schedule”, 15 February 2012, available at: http://www.transcaspian.az/2012/?p=news__read&t=top&q=36&l=en, (last retrieved on 15 February, 2014).


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er whose height will reach 1050 m.15 Construction work of this complex is cur-rently underway on a road system which expected to include a Formula-1 quality race track. Another proposed project which is intended to be realized by the Avrosity Holding is the Zira Island touristic complex. The construction of a tourist complex is expected to be the largest island in the Caspian Sea Zi-ra, is one of the islands of Baku Archipelago located in the Baku bay. The cost of the project, known as “The dream island” by Danish architects Bjarke In-gels Group will be achieved 2 billion dollars. The complex will include one thousand villas, three thousand buildings, an international university, a hospi-tal, golf-ground with a total area of 100 ha and other administrative and pub-lic buildings and complexes.16 In the case of implementation of these two ma-jor projects, the value of the Caspian Sea to Azerbaijan not only be strength-ened in a strategic sense, but also get a new understanding of, and the scope of use, which have not been observed previously. In this case, the Azerbaijani sec-tor of the Caspian Sea will be the center of attraction not only for the citizens of Azerbaijan, but also for the rest of the world.

5.3 The Caspian Sea resources and their importance for Azerbaijan’s economy

Immediately after independence, Azerbaijan actively attracted foreign compa-nies in joint production of energy resources in its sector of the Caspian Sea. So, there have been given a start for the exploitation of oil in the largest fields Azeri-Chirag-Guneshli, with estimated reserves of about a trillion tons. Thanks to the exploitation of these oil fields Azerbaijan’s GDP has grown substantially over this period due to high revenues from oil export. For in-stance, in 2005 GDP growth was 26.4%, 32.5% in 2006, 25% in 2007 and 10.8% in 2008.17 In general it should be noticed, that Azerbaijan is heavily de-pendent on energy exports and the total exports in 2013, consisted of $29.975 billion, of which non-oil sector accounted for only $1.615 billion. In addition, the budget’s dependence on revenues from the oil sector was 75% in 2013 and it will be 66% in 2014.18 In this case, we can state the fact that virtually all of the export potential and more than half of Azerbaijan’s state budget is formed

15 S Grossman, “Azerbaijan Plans World's Tallest Tower Atop Artificial Islands”, 13 April 2012, available at: http://newsfeed.time.com/2012/04/13/azerbaijan-plans-worlds-tallest-tower-atop-artificial-islands/#ixzz2vMndwydt, (last retrieved on 16 February, 2014). 16 Остров Наргин Станет “Островом Мечты”, 18 February 2009, available at: http://www.aze.az/news_ostrov_narqin_stanet_21706.html, (last retrieved on 10 February 2014) 17 R. Ibrahimov, Azerbaijan Energy History and Policy…, cit., p. 24. 18 Azerbaijan State Budget for 2014: Brief Description, Baku, Center for Economic and Social Development, 4 November 2014, available at: http://cesd.az/new/wp-content/uploads/2013/11/Azerbaijan_State_Budget_ CESD_View.pdf, (last retrieved on 15 March 2014).


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by the resources of the Caspian Sea.19 Thereby once again confirms the eco-nomic importance of the Caspian Sea to Azerbaijan.

Another important agreement was signed on Shah Deniz field between Azerbaijan government, SOCAR (State Oil Company of Azerbaijan Republic) and foreign energy companies on 4 June 1996. The significance of Shah Deniz field, whose resources estimated on the level of 1 trillion cub m3, is that it is the closest gas field to Europe among those in Eurasia. The development of the field under the framework of Stage-1 was already initiated. It’s expected that, on the Stage-1 projected production of 178 billion m3 of gas and 34 million tons of gas condensate. Azerbaijan is also initiated to start exploitation on the Stage-2, which is expected to be on 2018. In general, Azerbaijan has signed more than 30 Product Sharing Agreements on exploitation of the offshore en-ergy fields. The most perspective fields among them are Umid, Absheron, Shafaq-Asiman, Nakhchivan, Oghuz, Zafar-Mashal. The development of some other structures in the shallow waters of the Azerbaijani sector of the Caspian Sea are also underway.20

But economic activities of Azerbaijan on the Caspian Sea is not only limited to extraction of oil and gas. The sea is rich in fauna. It is home to a large number of fish species, many of which are suitable for industrial catch. It is inhabited by fish in the Caspian Sea sturgeon family, which is extracted from the world famous caviar. Azerbaijan’s fishing industry today is concentrated on sturgeon and beluga in the Caspian Sea, but unfortunately their stock is dwindling. Overall, 793.8 tons of fish were caught in 2013. Among them 206 tons of sprats, 150 tons of herring, 125 tons of grey mullet, 117 tons of omul, 72 tons of roach, 59 tons of bream and other kinds of fish were caught last year. One of the companies in the sector is the private Caspian Fish Company founded on 10 February 2001 is a leader in the field of fish production not on-ly in Azerbaijan, but all over post-Soviet space as well. There is no analogue for such as this company in Caspian Sea region which is capable of processing power to take hundreds of tons of fish every day. The company manufactures 96 items of fish products including high-quality black caviar.21

Along with fishing, Azerbaijan actively uses the Caspian Sea for the transport of goods. In other words transportation of the Azerbaijani marine vessels in the Caspian Sea has been operated by the Azerbaijan Caspian Ship-ping, established in 2013 on the basis of two public companies: Caspian Ship-ping Company (CASPAR) and the Caspian Sea Oil Fleet of SOCAR. The company is the largest in the Caspian Basin. She is engaged in transportation

19 Official Site of the State Statistical Committee of the Republic of Azerbaijan, Macro-Economic Indicators (2013), available at: http://www.stat.gov.az/macroeconomy/indexen.php, (last retrieved on 16 March 2014). 20 R. Ibrahimov, Link in the Chain: South Caucasus…, cit., pp. 24-29. 21 Caspian Fish Co. Azerbaijan, Official Website, available at: http://www.caspianfish.com/lang,en/, (last re-trieved on 8 February 2014).


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of all kinds of freights, but a major stake in the transport oil and oil products. In addition, it also serves passenger traffic and is the operator of a railway fer-ry Baku-Turkmenbashi and Baku-Aktau. The company carries out interna-tional transportation and other basins in the seas and oceans, mostly in the Black Sea, Mediterranean and Baltic Seas and the Atlantic Ocean. In total, the newly formed company has about 345 various types of vessels. 259 vessels, previously belonged to the Caspian Sea Oil Fleet and 86 vessels, including 41 oil tankers, 35 bulk carriers, 10 support vessels, the fleet consisted of CAS-PAR. Number of ships continues to grow. Shipping company has also branch-es and representative offices in Turkey, Russia, Kazakhstan, Iran, Turkmeni-stan and Ukraine.22

5.4 Impact of the Caspian Sea as the factor in the formation of Azerbaijan’s foreign policy

Nature and direction of Azerbaijan’s foreign policy is directly linked to it geo-political location. Given that Azerbaijan does not have access to the open seas and is located between two important international actors, Russia and Iran, the country’s foreign policy is formed on a balanced approach. The main task of Azerbaijan’s foreign policy is to resolve the Armenia-Azerbaijan Nagorno-Karabakh conflict and the restoration of the territorial integrity of the coun-try. In this aspect of the task Azerbaijan is trying to achieve not only the liber-ation of the Nagorno-Karabakh and surrounding areas occupied by Arme-nia’s troops, but also recognition of its sovereignty over the national sector of the Caspian Sea. Without any doubt the resolution of the legal status of the Caspian Sea plays a multi-vector importance for Azerbaijan. First of all it is related to security of the country. The unresolved status of the Caspian Sea have been a reason of contention with Turkmenistan and Iran at different times. If in the case of Turkmenistan, it has caused the temporary freezing of relations between the two countries, then Iran is almost led to a military con-frontation.

In addition, the resolution of the status of the sea has also economic importance. In the case of determining the sector division of the sea, it will be able to develop resources in the disputed fields. At the same time, not only Azerbaijan, but also all other coastal states would benefit from this. This is primarily due to the possibility of co-operation on exploitation of the certain disputed fields. In addition, Iran has not previously engaged in a thorough oil and gas production in the Caspian Sea, and therefore does not have necessary

22 Утверждены Устав и Структура ЗАО “Азербайджанское Каспийское Морское Пароходство” с Капиталом Более 383 млн Манатов, 30 January 2014, available at: http://portnews.ru/news/174616/, (last retrieved on 11 March 2014).


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infrastructure and experience. In this case, the country could benefit from the opportunities which Azerbaijan may provide.

Another vector of Azerbaijan foreign policy, in which the importance of the Caspian Sea occupies, is intensifying transport capacity. Azerbaijan is located at the crossroads of important trade routes in the areas between North and South and East and West. Creation of transport and energy corridors provided an opportunity for Azerbaijan to become a significant hub in the Eurasian region.23 In this case, Azerbaijan is interested in the full advantage of its geographical position for a more active participation in the transport of goods between regions such as the Far East and the European Union. Azerbai-jan has a fairly well-developed infrastructure, which could contribute to the development of the transport corridor. There are a number of pipelines, through which it would be possible to transport oil and gas from Central Asia to European markets. One of such transport route is the Baku-Supsa pipeline which is also known as the Western Corridor with a volume of 5.5-6 million tons of oil per year.24 The pipeline has an outlet to the Black Sea port of Geor-gia, Supsa, where oil tankers may be exported to world markets. Another pipe-line is the Baku-Novorossiysk pipeline, also known as the Northern Corridor. The pipeline is designed for oil export port in the Black Sea in Russia. The Ba-ku-Novorossiysk pipeline had partly survived from the Soviet period: an im-portant part of this corridor, the Tikhoretsk-Baku pipeline, was built in 1983. At that time it was constructed with the purpose of transporting oil from Western Siberia to the Baku refineries. After a small investment it used in the reverse direction as Baku-Tikhoretsk-Novorossiysk.25 By the way, this line to-day can also be used to transport Russian oil and its further transfer to Euro-pean markets via the BTC pipeline or processing in the Baku refineries. Given the agreement on cooperation between the oil companies Azerbaijani SOCAR and Russian Rosneft, signed in August 2013,26 probability of such use of the pipeline exists.

The presence of these two pipelines allows diversification of the export of oil towards the Black Sea. As for the BTC, this pipeline has a length of more than 1,730 km with an export capacity of up to 50 million tons of oil a year. Moreover, it should be mentioned, unlike the other two pipelines, a pro-portion of Kazakhstani oil, in 2008, and Turkmenistan oil, since 2010, has al-ready been pumped through this pipeline. Another field in which Azerbaijan

23 E. Mammadyarov, “The Foreign Policy of Azerbaijan: Affecting Factors and Strategic Priorities”, in A. Peter-son, F. Ismailzade (eds.), Azerbaijan in Global Politics Crafting Foreign Policy, Azerbaijan Diplomatic Acade-my, 2009, pp. 12-13. 24 R. Ibrahimov, “Azerbaijan Energy Strategy and the Importance of the Diversification of Exported Transport Routes”, Journal of Qafqaz University, no. 29, 2010, p. 24. 25 Ильхам Алиев, Каспийская Нефть Азербайджана, Москва, Известия, 2003, pp. 425-427. 26 “SOCAR и «Роснефть» Ведут Переговоры по Реверсу Нефти по Баку-Новороссийск”, 19 August 2013, available at: http://www.trend.az/capital/energy/2180545.html, (last retrieved on 10 February 2014).


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may attract potential partners is cooperation in the transportation of natural gas. In parallel with the BTC pipeline, a natural gas transport corridor to the Turkish market was also built. The Baku-Tbilisi-Erzurum or South Caucasus pipeline was constructed on 21 March 2006 and natural gas from Azerbaijani offshore Shah Deniz field started to be transported to the Georgian and Turk-ish markets via the pipeline since then.27 That is why a new pipeline project was proposed by the Azerbaijani government. Besides of existing natural gas pipe-line, Azerbaijan together with Turkey decided to construct the Trans-Anatolian Pipeline (TANAP) from the Turkish-Georgian border through the whole territory of Turkey up to its western border.28 It is expected that Azer-baijani gas will be exported via TANAP to Turkey and Central and Eastern European states. TANAP will be a logical continuation of the Baku-Tbilisi-Erzurum pipeline and additional Trans-Adriatic Pipeline (TAP) will be con-structed from Turkey’s western borders.

In addition to pipelines, a railway routes play a significant role for the development of transit through the territory of Azerbaijan. The existing South Caucasian Azerbaijan-Georgia railway transshipment corridor makes it possi-ble to transport dry cargo and oil and oil products in both directions. These railways as well as ports on the Black and Caspian seas are modernized.

Another significant project is the construction of the Baku-Tbilisi-Ahalkalaki-Kars railroad, which started on 21 November 2007. This project is designed to connect the European railway network across the South Caucasus and Central Asia with the Far East. After completion of construction on 29 October 2013 of Marmaray tunnel under the Bosporus strait in Istanbul the new corridor will unite European and the Far Eastern states with the alterna-tive railroad route. The main initiator of the Baku-Tbilisi-Ahalkalaki-Kars railroad is Azerbaijan, which is interested in creating the necessary infrastruc-ture in the region.29 The total volume of cargo, which is expected to be trans-ported through the route annually will be about 20 million tons. Currently, Kazakhstan and China have already expressed their desire to transport their goods via this railway.

The Caspian Sea has played an important role in the formation of rela-tions with the European Union. It occupies a central place in a number of pro-jects implemented by this structure. One such project is the Transportation Corridor Europe-Caucasus-Asia (TRACECA) program. TRACECA is a transport initiative with the purpose of developing transport networks and en-

27 R. Ibrahimov, Azerbaijan Energy History and Policy…, cit., pp. 26-28. 28 Ровшан Ибрагимов, Трансанатолийский Трубопровод: Начало Новой Эры в Энергетической Политике Азербайджана, 1 January 2012, available at: http://www.1news.az/authors/ribrahimov/ 20120101054243783.html#page999 (last retrieved on 5 February 2014). 29 Азербайджан Выделяет Грузии Новый Льготный Кредит на $575 млн, 1 July 2011, available at: http://www.newsazerbaijan.az/economic/20110701/296142544.html (last retrieved on 12 March 2014).


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suring efficient and reliable Euro-Asian transport links.30 TRACECA route connects from the South Caucasus region heads up the Caspian Sea with ferryboats (Baku-Turkmenbashi, Baku-Aktau), reaches the railway networks of the Central Asian states Turkmenistan and Kazakhstan, the transportation networks of which are connected with Uzbekistan, Kirgizstan and Tajikistan, and reaches the boundaries of China and Afghanistan.

Another program which initiated by the EU for regional cooperation is Interstate Oil and Gas Transportation to Europe (INOGATE). The INOGATE is an international energy co-operation program between the EU and partner countries from the Black Sea, the South Caucasus and Central Asian regions. Among the main objectives of the INOGATE program are to enhance EU countries energy security by addressing the issues of energy ex-ports/imports, supply diversification, energy transit.31 To achieve this goal it needs more active participation of countries in the Caspian region.

As a consequence, in according to these EU initiatives in the region, Azerbaijan is trying to actively use these projects in accordance with its na-tional interests. At the end of 90-ies, Azerbaijan saw TRACECA Project as a chance to develop its relations with the EU. As a result, in September of 1997, Azerbaijan together with Georgia filed a proposal to a conference within the framework of the TRACECA with the purpose to form multilateral transpor-tation network. The EU welcomed this offer and a conference on “Revitaliza-tion of the Silk Road” was held in Baku on 8 September 1998. At the end of the conference, “Transport Corridor Europe-Caucasus-Asia for the Develop-ment of International Multilateral Treaty” within the framework of the TRACECA was signed.32 According to this agreement the parties were identi-fied as the main objectives as developing of economic relations, trade and transportation, formation of the routes to the world markets, railroad trans-portation and commercial sea routes in the Europe, the Black Sea region, the Caucasus, the Caspian Sea region and Asia.33 Thanks to the signing of this agreement, Azerbaijan acquired the possibility to transport part of goods des-tined to the EU through its territory. The volume of cargo carried in 2012 through the territory of Azerbaijan in the framework of TRACECA corridor, consisted 56.9 million tons. 37.5% of freight was transported by railway, 44.3% – automobile, 18.2% – sea transport.34 Only in the first half of 2013 cargo

30 TRACECA, available at: (last retrieved on 1 February 2014). 31 About INOGATE, available at: http://www.inogate.org/index.php?option=com_content&view=article&id =46&Itemid=72&lang=en (last retrieved on 1 February 2014). 32 Azərbaycan Respublikasının TRASEKA Layihəsində İştirakı, available at: http://www.mfa.gov. az/az/foreign_policy/inter_affairs/econom/regional/11.shtml (last retrieved on 2 February 2014). 33 TRACECA Project, available at: http://www.azembassy.com/traceca/browse.htm, (last retrieved on 2 Febru-ary 2014). 34 Грузоперевозки Через Азербайджан в Рамках TRACECA в 2012 году Увеличились на 5,5%, 21 Feb-ruary 2013, available at: http://interfax.az/view/566940, (last retrieved on 2 February 2014).


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transportation via Azerbaijani territory increased by 3.1% – in comparison with the same period of previous year, reaching up to 29 million tons the same period last year 25.8% or 7.5 million tons of cargo was transported along the corridor consist of transit freights.35 One third of transit goods, consists of oil and oil products from Kazakhstan and Turkmenistan. In addition, the TRACECA route is used to deliver freight from the EU states to the Central Asian states and Afghanistan via Baku.36

As can be seen from above the Caspian Sea plays a key role not only for the formation of relationships with the riparian countries in different direc-tions, but also serves to strengthen cooperation with other important actors in the Eurasian region. Due to the opportunities of using of the Caspian Sea re-sources, the foreign economic relations have formed, which are reinforcing Azerbaijan importance in the geo-economic term. This relations are develop-ing in the context of both bilateral and multilateral initiatives. Through the development of economic cooperation and creation of the logistics and transport infrastructure, Azerbaijan succeeded in diversifying export of its en-ergy resources to the world markets. Which in turn has enabled Azerbaijan a more independent foreign policy consistent with its national interests.

5.5 Azerbaijan’ perception on regional cooperation: the existing and potential opportunities

Intensive development of transport and logistics infrastructure in the Caspian Sea, enables Azerbaijan to actively participate in the formation of bilateral and multilateral relations. The existing infrastructure helps create additional op-portunities, which in turn creates a basis for strengthening relations and ex-panding them in perspective. Availability of pipeline routes allow the creation of opportunities for oil exports from the Central Asian countries, especially Kazakhstan. With the start of production in the Kazakh offshore field Kashagan, Kazakhstan would be interested in exporting oil through BTC pipeline, because the total volume of available transport corridors through Russia to the European markets may not be enough. In addition, Kazakhstan would be interested in exporting its oil in the European markets via alternative routes. As any other landlocked state, Kazakhstan is trying to diminish de-pendency on one transit state. With this purpose, during the Energy Summit held in Baku on 14 November 2008, Kazakhstan’s energy company KazMu-nayGaz, together with the Azerbaijani state oil company, SOCAR, signed an agreement on the creation of the Trans-Caspian Oil Transportation System.

35 Грузоперевозки Через Азербайджан в Рамках TRACECA в I полугодии Увеличились на 3%, 14 August 2013, available at: http://interfax.az/view/582931, (last retrieved on 2 February 2014). 36 R. Ibrahimov, Link in the Chain: South Caucasus…, cit., p. 65.


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The Trans-Caspian System is intended for marine oil transportation from Ka-zakhstan to Azerbaijan. For this purpose, in Kazakhstan, the Eskene-Kuryk pipeline will be constructed to connect Eskene, where oil from the Kazakh-stani Kashagan offshore field is prepared for transportation from the local plant, to the port of Kuryk, where it is planned to build a new oil terminal for tankers with tonnage up to 60 thousand tons. Oil from Kuryk will be trans-ported by tankers to Sangachal terminal and then via the BTC oil pipeline or by railroad to the Georgian ports. It is expected that the maximum capacity of the transportation system will be to achieve of 56 million tons of oil per year.37

This is a very important project for the development of cooperation be-tween two Caspian Sea coastal states. It is believed that oil transportation will also torpedo cooperation in other fields. Georgia, Azerbaijan and Kazakhstan are already cooperating in the transportation of grain produced in Kazakhstan and exported to the world markets from Georgian ports. As in the case with export of energy resources, Kazakhstan is very interested in the development of a new route for exporting of grain and other freights which would make it possible to decrease transportation and other fees. An alternative route for Kazakhstan may lay in the western direction through the Caspian Sea and then the Caucasus region. Azerbaijan is also very interested in development of relations with Kazakhstan and has already declared that it is ready to create the necessary conditions for the smooth release of Kazakh goods, including oil, oil products, grain and other products, to Western markets through its ter-ritory.38 At the same time, Azerbaijani public and private companies are ac-tively investing in Mangystau Province of Kazakhstan, which is bordering the Caspian Sea. Only in 2013 Azerbaijani investments in the region amounted to about $40 million. Since 2005 total investment by Azerbaijani companies in Mangystau consists $135 million. Kazakhstan is also interested in importing agricultural products from Azerbaijan. In this connection, the Azerbaijani company Azersun launched the construction of a logistics center for the stor-age of agricultural products.39 In other words, cooperation between the two countries will not be limited transport infrastructure in the energy sector, but will also include other spheres.

As for Turkmenistan, the transportation of oil from this country via the BTC oil pipeline began in July 2010. Ever since volumes of Turkmen oil transported through Azerbaijan has been growing steadily. In short, in Janu-ary 2014, the BTC oil pipeline transported 488,300 tons of Turkmen oil

37 Казахстанская Каспийская Система Транспортировки, 21 September, 2011, available at: http://www.kmg.kz/manufacturing/oil/kkst/, (last retrieved on 16 March 2014). 38 Азербайджан Готов Способствовать Беспрепятственному Выходу Казахстанских Товаров на Западные Рынки, 20 June 2013, available at: http://www.1news.az/economy/20130620101916256.html, (last retrieved on 16 March, 2014). 39 Инвестиции Азербайджана в Экономику Казахстана Составили $135 млн, 28 February 2014, available at: http://1news.az/economy/20140228121310292.html, (last retrieved on 16 March 2014).


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against 196,400 tons in January 2013. On the whole, the pipeline in 2013, transported 3.3 million tons of Turkmen oil against 3.1 million tons in 2012.40 It is expected that the volume of oil transported from Turkmenistan through BTC will further grow in 2014.

Along with oil exports transportation of other types of cargo is also will be important. The port in Alyat will be able to receive both oil and non-oil freights from Kazakhstan and Turkmenistan and then, send on in the western direction. After completing the construction, the port will be able to receive vessels, such as ferry boats, Ro-Ro ships, and universal dry cargo ships. This port would ship up to 25 million tons of loads per year. The cargo of non-oil freights from Kazakhstan and Turkmenistan to Azerbaijan will be increased. Now Azerbaijan, Kazakhstan and Turkmenistan are concentrating on the de-velopment of new and more appropriate common tariff policies, including dis-counts and preferential rates in the transportation sector. Infrastructure devel-opment and logistical coordination make it possible to further increase mari-time freight transportation in a West-East direction in the Caspian region.41

Another important area of cooperation is creation of a transport artery to supply the coalition forces in Afghanistan, as well as their subsequent with-drawal. Over the last several years, Caspian Sea littoral states have been con-sidered as the main alternative to the Pakistan route to Afghanistan. With this purpose, coalition forces in Afghanistan have created the Northern Distribu-tion Network (NDN), a new transport route connecting Baltic and Caspian ports with Afghanistan via Russia and the South Caucasus.

The freights via NDN South routes are transferred to barges and fer-ried across the Caspian Sea to the Kazakh ports Aktau and Atyrau and vice versa.42 The use of Azerbaijan’s territory as a supply route to Afghanistan matches with the country’s strategic position as a gateway to Central, Inner and South Asia.43 Transportation of approximately 40% of US and coalition non-lethal supplies bound for Afghanistan are provided by Azerbaijan via air and naval transit.44

Strengthening cooperation with the countries of the Caspian Sea can also be given by a Trans-Eurasian information project which is aiming at the creation of a transnational fiber-optic backbone between Frankfurt and Hong Kong, the two biggest exchange points in Europe and Asia that will benefit the

40 Транспортировка Туркменской Нефти по БТД Выросла Почти в 2,5 раза, 24 February 2014, available at: http://www.trend.az/capital/energy/2245352.html, (last retrieved on 16 March 2014). 41 R. Ibrahimov, Link in the Chain: South Caucasus…, cit., p. 67. 42 B. Marmon, “New Supply ‘Front’ for Afghan War Runs Across Russia, Georgia and the ‘Stans’”, The Europe-an Institute, February-March 2010, available at: http://www.europeaninstitute.org/February-%E2%80%93-March-2010/new-supply-front-for-afghan-war-runs-across-russia-georgia-and-the-stans.html, (last retrieved on March 17 2014). 43 “The Northern Distribution Network and Afghanistan Geopolitical Challenges and Opportunities”, A Report of the CSIS Transnational Threats Project and the Russia and Eurasia Program, CSIS, January 2010, p. 13. 44 R. Ibrahimov, Link in the Chain: South Caucasus…, cit., p. 68.


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Eurasian area. The project initiated by Azerbaijan in November 2008. After implementation of TASIM (Trans-Eurasian Information Super Highway) pro-ject there will be provided affordable connectivity to the land-locked countries of South Caucasus and Central Asia.45 An important development for this pro-ject is that Azerbaijan and Kazakhstan signed an agreement for the construc-tion of cable which will pass through the Caspian seabed. Moreover, TASIM depends directly upon this cooperation, because without realization of the Caspian segment of cable, all project implementation would be highly ques-tionable. So, development of this project is becoming another example of co-operation between Azerbaijan and Kazakhstan.46

The same segment of communication became the basis for cooperation between Azerbaijan and other countries in the Caspian Sea region, Russia and Iran. In short, Azerbaijan together with states and Oman participated in the realization of the information highway Europe-Persia Express Gateway (EPEG) project, which ended late in 2012.47 Thereby information communica-tions sector was the basis for cooperation as vector East-West and North-South.

These examples are not the only ones that show the degree of Azerbai-jan involvement in joint projects with countries on the Caspian Sea. At the same time as the experience shows, the existing areas of cooperation have be-come catalysts for the subsequent relations in various fields. Azerbaijan is very actively involved in any projects, contributing to the formation of mutual trust between the countries of the Caspian Sea and meet its national interests.

Conclusions

The Caspian Sea is important for Azerbaijan to establish relations with her neighbors and develop bilateral and multilateral cooperation. This sea is an additional opportunity to realize the potential of this country with the aim of strengthening the state and improve the living conditions of its citizens. In this case, Azerbaijan tries to synchronize and combine the existing opportunities emanating from its geographical location. For Azerbaijan, the Caspian Sea is of great importance for the realization of its interests. In general, the most im-portant for Azerbaijan is to prevent any kind of unwanted causes of disagree-ments and discord in this sea. Azerbaijan believes that the Caspian Sea should become the area of trust and mutually beneficial cooperation between the lit-

45 Trans-Eurasian Information Super Highway (TASIM), available at: http://www.itu.int/wsis/stocktaking/ plugin/broadband/documents2BB.asp?lang=en&project=1318837144, (last retrieved on 17 March 2014). 46 Trans-Eurasian Information Super Highway to be launched by mid-2013, February 2, 2012, available at: http://www.ictnews.az/read-10342-news-2.html, (last retrieved on 17 March 2014). 47 Проект TASIM Даст Азербайджану Возможность Стать Ключевым Хабом Прикаспийского Региона, March 29, 2013, available at: http://www.1news.az/economy/tech/20130329113244304.html, (last retrieved on 17 March 2014).


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toral countries. The main thesis of Azerbaijan's foreign policy is to create friendly relations with all neighboring countries and the strengthening of rela-tionships that would serve this purpose. It is difficult to imagine a situation in which Azerbaijan would ignore the factor that it is a coastal country on the Caspian Sea, in determining its priorities in any of its sphere of activities. That is why the Caspian Sea occupies an increasingly prominent place in the defini-tion of the political, economic and social aspects of both domestic and foreign policy of Azerbaijan. In this context, it is safe to say that the whole perception of Azerbaijan as a country without the Caspian Sea would not be complete, and without this approach it would be difficult understand clearly the process-es taking place in this country and around it.

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6. Russia in the Caspian Region: An Attempt to Preserve an Inherited Role

Tomislava Penkova

Introduction

The Caspian Sea is believed to account for 10% of world gas and oil reserves, which makes it essential for the global energy market. Despite its energy bo-nanza and related attractiveness for Europe, Russia and Asia, the main feature of this region is that it has no direct access to the world market, implying that transport of gas and oil is very difficult. In other words, its geographical loca-tion is both its blessing (meaning a diversity of customers) and its curse (due to the problematic export of those riches which need an adequate infrastructure). The construction of new energy routes requires the passage through a number of states, which may be a source of tensions between major regional powers or may further fuel existing conflicts. Consequently the Caspian energy riches transform any economic considerations into (geo)political ones and vice versa. In fact, in this region there is an intricate relationship between the interests of producer, consumer and transit countries. For example, the political instability of the Middle East makes oil production in the Caspian region an alternative source for the West, reducing its dependence on the former region. This ap-proach to the Caspian Basin signals a post-Cold War era trend of globalizing oil production. In this process, a chain of complementarity and interdepend-ence is created between the role played by Western governments (consumers) and their multinational energy companies (ensuring movements of capital), producer countries which seek to define better their interests, independence and to increase economic benefits, and finally, transit countries which attempt to exploit their favourable geographic position. Moreover, some transit coun-


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tries in the Caspian region also extract gas/oil and are therefore not eager to guarantee access to world markets for other regional competitors.1 There is al-so a question about the development timing of the most convenient distribu-tion and transit of energy resources. Governments and (multi)national energy corporations are flexing their muscles in an attempt to realise their projects and sabotage alternative ones.

Against this multifaceted background, Russia tends to preserve and strengthen its influence over the Caspian region, with energy being its primary interest and focus of action. Other spheres of intervention such as the dispute over the legal status of the Caspian Sea and security concerns play an instru-mental and complementary role in achieving its energy objectives. This is clearly stated in Russia’s 2000 Foreign Policy Doctrine2 which reads “Russia will work for the elaboration of such a status of the Caspian Sea as would en-able the littoral states to launch mutually advantageous cooperation in using the region’s resources on a fair basis and taking into account the legitimate in-terests of each other. Viewing the Greater Mediterranean as a hub of such re-gions as the Middle East, the Black Sea, the Caucasus and the Caspian Sea ba-sin, Russia intends to steer a purposeful course for turning it into a zone of peace, stability and good neighborliness [to] help advance Russian economic interests, including the choice of routes for important energy flows”. The strong emphasis on energy is due to the lack of other types of significant eco-nomic influence or interdependence3 between Russia and the rest of the Caspi-an states. This fact explains Russia’s vehement defence of its energy interests and its refusal to be considered a secondary actor in the region. Moreover, Russia’s energy politics are a symbolic expression of its post-USSR identity, sensitivities and perceived role both in the region and in world affairs. In par-ticular, Russia’s Caspian energy policy comprises four goals. First, the aim to maintain control over the development and extraction of Caspian oil and gas reserves, as well as over current or potential export routes from the Caspian Basin towards European and/or Asian markets in order to prevent diversifica-tion of supply as intended by the West. Second, to impose Russia’s solutions to regional disputes and promote Russian interests at the expense of those of its competitors. Third, to ensure Russian energy companies’ participation in regional projects and prevent Western rivals (US government and energy firms) from dictating the energy politics of this area. Fourth, to coordinate re-gional energy politics. Indeed the 2013 Russian Foreign Policy Doctrine af-firms the need “to strengthen the mechanism of cooperation among the Caspi-

1 A. Petersen, Russia, China and the geopolitics of energy in Central Asia, Centre for European Reform, 2012, p. 38. 2 For the full text version, see http://www.fas.org/nuke/guide/russia/doctrine/econcept.htm. 3 A. Kazantsev, “Russian policy in Central Asia and the Caspian Sea region”, Europe-Asia Studies, vol. 60, issue 6, 2008, p. 1086.

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an states on the basis of collectively taken decisions”4 and so to rule out any external actor’s involvement in regional affairs. These goals are partly deter-mined by the role and infrastructure that Russia inherited from the USSR but they are also partly due to the challenge that Russia faces today, namely to de-sign its new regional role without losing the positive aspects of its traditional positions.

6.1 USSR demise as the foundation for Russia’s inherited role and its new claims in regional energy dynamics

From the early 19th century until 1991, firstly the Russian Empire and then the Soviet Union conquered the Caspian Basin, gradually establishing a firm hold on the area. That long experience of domination by Moscow and the related restricted sovereignty played a decisive role in the ability of local cadres to manage the post-1991 independence and advance new approaches to domestic, economic (including energy) and foreign politics. After the fall of the USSR, the situation in the Caspian region changed drastically. Those transformations prompted new types of interaction between regional and extra-regional states and determined new trends, interests, perceptions and tactics. First, instead of having two coastal powers (USSR and Iran), the former Soviet Republics of Azerbaijan, Kazakhstan and Turkmenistan emerged as independent states. The heir of the USSR, Russia, which retained the northern shore and the up-per part of the western shore, remained the primary but no longer the sole player. The fact that Moscow considered the three states to be its traditional zone of political and economic influence determined Russia’s successive re-gional stance to a considerable extent.

Second, the modification of the legal status led these newly-formed states to the “unusual situation of being projected out of centuries of isolation onto the international scene [and therefore] exposed to pressures. [The latter came] from the former colonial ruler, Russia, in search of ways to reassert its power; from fast developing China seeking access to markets and raw materi-als; from the Muslim world to the south; and finally from the West where the US is in the forefront in searching for energy supplies from safe sources. All these pressures were experienced in the midst of serious internal difficulties”.5 In addition, siding with bigger foreign players entailed some problems. “Faced with a financial squeeze, many of the Caspian states settled for minority shares in a number of projects, leading critics to accuse them of trading their depend-ence on one great power for another. Their problems were exacerbated by the

4 For the full text, see http://www.mid.ru/brp_4.nsf/0/76389FEC168189ED44257B2E0039B16D. 5 M. Rywkin, “The geopolitics of the Caspian Sea Basin”, American Foreign Policy Interests, vol. 32, 2010, p. 96.


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fact that years of Soviet rule had left these states ill-equipped to run their economies, [once] fully state-owned”.6 Third, the new elites in power became increasingly more detached from Moscow compared to their Soviet predeces-sors. Russia felt anxious about losing influence over the new generations of lo-cal politicians, and uncertainty over their political course spurred Moscow to strengthen economic (mainly energy) relations as well.

Fourth, despite the fact that oil and gas had been extracted in the Cas-pian region throughout the last century, it was only after the demise of the USSR that its abundance attracted foreign players.7 The severe shortage of hard currency in the independent states in the 1990s and the related need to se-cure access to foreign markets for their energy riches encouraged local gov-ernments to implement a twofold policy. On the one hand they had to preserve their obliged relationship with Russia, while on the other they started gradual-ly to balance its influence by launching partnerships with other regional and extra-regional actors. “Reliance on foreign investment is crucial for their eco-nomic survival. Therefore, the choice of pipeline routes becomes an issue of political convenience”.8 However, they had to take into account that energy is a powerful instrument that Russia possesses to influence their development. After 1991, these countries inherited deep integration in the Russian energy transit system from the USSR. Traditionally, hydrocarbons from the Caspian region have been transported either through Russian territory or through the Russia-owned pipeline grid. “Since oil and gas are the primary source of prof-its for the Caspian countries, the control over their export granted to Russia a significant political influence and served its strategic goals”.9 This explains why Russia is so reluctant to surrender control over its system of pipelines to any external player (especially Western multinational companies). Therefore the independent states’ new attitude caused Russia’s resistance to regional tenden-cies of diversification of energy customers due to fears that this would gradual-ly weaken Russia’s role.

Fifth, and stemming from the importance of energy, is the ongoing dispute over the legal status of the Caspian Sea. The collapse of the USSR was an occasion to revise the condominium approach to the Caspian Sea between Moscow and Tehran as agreed by the Soviet-Iranian treaties of 1921, 1935 and 1940. These documents focused merely on navigation and fishing rights, over-looking the exploration of Caspian seabed resources. After 1991, Russia and Iran united their positions in resolving delimitation issues against the claims of the three independent states. For example, both insisted that the principle of

6 S.R. Dadwal, “Politics of oil: Caspian imbroglio”, Strategic analysis, vol. 22, issue 5, 1998, p. 758. 7 A. Petersen, (2012), p. 33. 8 A. Andrianopoulos, The economics and politics of Caspian oil, in Southeast European and Black Sea Stud-ies, vol. 3, issue 3, 2003, p. 82. 9 A. Petersen, (2012), p. 40.


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condominium should govern the use and exploitation of any hydrocarbon and other riches lying beneath the Caspian seabed. Although this was not explicitly affirmed in the 1921 and 1940 treaties, they argued that since the condomini-um principle had been included in those documents with reference to fishing and shipping, it should be implicitly applied to exploitation of seabed re-sources as well (unless a new regime be agreed by all parties). After 1991, the condominium approach meant that each country had veto power over new projects, which while serving Russian-Iranian interests also strengthened the leverage of the new independent states against Russian-Iranian positions. However, “Russia benefitted not only from a longer coastline but also from the discovery of substantial energy fields in what would be its sector of the Caspian under a median line delimitation regime [an approach supported by the three independent states]. As a result, the condominium principle became of less durable interest to Russia”.10

By 1998 Russia started to revise its official policy on Caspian delimita-tion, broke ranks with Tehran and abandoned the condominium approach to endorse national sectors defined by the median lines. Azerbaijan, Kazakhstan and Turkmenistan were all signing agreements with major multinational ener-gy consortiums to exploit fields off their coasts. Russia favoured the most re-munerative approach of working with its neighbours to resolve exploitation rights, and gave Russian energy giants the go-ahead to work with international consortiums, capital and advanced technology for mutual profit. This explains why Russia shifted from its previous consideration of the Caspian Basin as a lake (resources are split equally between all littoral states) to a sea, so that the stipulations of the Law of the Sea became applicable and each country had the right to exploit its continental shell without regard to the intentions of the oth-ers. “Analysts say that Moscow decided to abandon its insistence that the re-gion is a lake after realising that its own northern Caspian sector has huge hy-drocarbon potential”.11 Hence Moscow began negotiations in the first instance with Kazakhstan on an approach to delimitation which put aside Russia’s previous much contested condominium approach. In 1998 they agreed bilater-ally to negotiate their division of the seabed into national sectors using the modified national median line principle while sharing the water column and surface above it. Iran refused to recognise this. By 2002 Kazakhstan and Rus-sia signed a completed bilateral delimitation agreement. Another similar agreement followed, as will be shown below. As a result Russia broke off rela-tions with Iran, which began to explore its own self-proclaimed 20% sector. “The often-asserted congruence of Russian and Iranian approaches to Caspian issues was largely a myth that began to be clearly exposed by 1998. Tehran’s

10 J.W. Parker, Persian dreams: Moscow and Tehran since the fall of the Shah, Potomac Books, 2009, p. 152. 11 S.R. Dadwal, (1998), p. 753.


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isolation on Caspian issues revived in Iran a deep sense of historical betrayal by Russia, now in collusion with Kazakhstan and Turkmenistan but most bit-terly Azerbaijan”.12

Sixth, the new independent states were not the only ones to experience economic hardship in the 1990s. The demise of the USSR provoked a complex destabilising effect on Russia’s statehood and economy. Extra-regional actors such as the US found room for manoeuvre in the management of the region. A long-lasting game of power politics, deep mistrust and reciprocal provocation started between Russia and the US. Russia refused to accept that its monopoly over access to Central Asian energy resources was seriously challenged. “The US too hardly [agreed] to the role of a secondary actor in the energy sphere in this region”.13 The struggle for exploration of Caspian oil and gas and the means to bring them to Western markets that unleashed in the Caspian region after 1991 between the US, the European Union (EU) and Russia led some scholars to liken it to a New Great Game. These players have divergent inter-ests. For the West, “although Caspian energy reserves are underdeveloped, they are potentially critical on the margins for diversifying the international supply base. Thus control over the division and transport of Caspian energy has animated intense strategic and economic gamesmanship among outside states and global energy firms”.14 The US government declared the export of the region’s energy resources through multiple non-Russian/non-Iranian routes to be “its foreign policy priority, mainly to ensure that the West has ac-cess to secure supplies. To do this it had to ensure that the [new independent] states reduce their dependence on Russia”.15 The US interpreted Russia’s weakened regional position as a window of opportunity to influence those countries. Therefore it decided “to support the independence of those states and reject the notion of Russia’s traditional sphere of influence; to support democratisation; to secure open access to oil and gas riches in opposition to Russian efforts to control the routes of energy exports; and to uphold the view that the Caspian Sea is legally a sea and so each coastal state is the master in its own maritime sector”.16 Unlike the US, Europe is highly dependent on Rus-sia. Although non-Russian transit routes would augment the EU’s supply di-versification, Europe’s proximity to and interdependence with Russia implied a more cautious EU approach to Moscow. Russia, for its part, became a more assertive energy actor in Eurasia and, with each new term in leadership, Vla-dimir Putin strengthened Russia’s energy companies. Russia’s ambition was

12 J.W. Parker, (2009), p. 147-148. 13 G. Evstafiev, “Russia’s energy policy in Central Asia and the Caspian Sea region”, Security Index: A Russian journal on international security, vol. 14, issue 1, 2008, p. 75. 14 A.N. Stulberg, “Moving beyond the Great Game: The geoeconomics of Russia’s influence in the Caspian Energy bonanza”, Geopolitics, vol. 10, issue 1, 2005, p. 5. 15 S.R. Dadwal, (1998), p. 754. 16 M. Rywkin, (2010), p. 100.


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not only to keep its current European customers but also to gain new ones and to affirm itself as the transporter of Caspian hydrocarbons to the West.

Against this background, Russia’s economic and transition difficulties undermined significantly its capacity to finance both the former Soviet Repub-lics’ budgets and its own regional projects. Nevertheless, already in 1992 Rus-sian policy-makers agreed that control over Caspian energy resources was a fundamental national interest and a key factor in mitigating possible domestic energy bottlenecks and upholding special security concerns in the region. In the following years, Moscow initiated a strategy to ensure control over energy resources and their infrastructure, which determined the underlying principles of the current president Putin’s approach to the region. “First, Moscow fought to preserve its monopoly over the existing pipeline system and to contain im-pulses for regional diversification. Second, [it] consistently pressed for the Caspian Sea to be legally defined as a sea and to share the benefits of offshore energy development. By insisting on a collective decision regarding the sea’s final status, Russia attempted to broaden its jurisdiction and secure a veto over future off-shore exploration while leaving opportunity for participation in preferred commercial ventures. Third, Moscow exacerbated the political and commercial risks of those Caspian energy projects that competed directly with Russia’s strategic interests. By mid 1997, however, Moscow softened its stance by promoting the preferential participation of Russian companies in re-gional energy projects. It also endorsed the principle of multiple oil pipelines for the region with the proviso that at least one of the main export routes would include the north-south (Baku-Novorossyisk) route that traverses Rus-sia”.17

The coming to power of Vladimir Putin gave Russia’s politics in the region even greater stimulus. This was mainly due to the country’s improved financial situation and political influence worldwide. He launched a qualita-tively new approach to access to Caspian hydrocarbons and ensured a global energy superpower role for Russia. “The most notable features of this strategy included: the assertion of Russia’s unambiguous interests in competing for economic and diplomatic influence in the Caspian basin as well as concerted lobbying efforts aimed at gaining inclusion of Russian energy firms in joint development projects and blocking several US-sponsored proposals for trans-Caspian pipelines. Putin’s approach was akin to the classic entrepreneurial im-age”.18 Russian companies were encouraged to penetrate local economic activi-ties as deeply as possible with the aim of complementing geopolitical rivalry between states. For example, Moscow reiterated its support for commercially viable, non-Russian pipeline routes, going so far as to moderate opposition to

17 A.N. Stulberg, (2005), p. 5-6. 18 Ibid., p. 5.


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Russian firms’ participation in the rival Baku-Tbilisi-Ceyhan (BTC – see be-low) east-west oil pipeline and regional oil swaps with Iran. It also proposed to increase transit quotas for Azerbaijan, Kazakhstan and Turkmenistan to per-suade those countries to rely on the Russian pipeline system. In addition, Putin agreed to an equidistant median line division of the seabed (excluding surface or water columns) in a 2001 bilateral declaration with Azerbaijan which ex-tended the principle of national sectoral division stipulated with Kazakhstan in 1998. Hence Moscow explicitly clashed with the Iranian proposal of both dividing the Caspian resources into equal 20% parts for each littoral state and deciding all outstanding issues via a consensus accord, opting instead for bilat-eral agreements.

The approach of asserting Russia’s interests in the region was main-tained during the US counter-terrorism campaign in Afghanistan and despite Russia’s initial support for the US. In 2002 Putin proposed a Eurasian Gas Al-liance between gas producer states (Russia, Turkmenistan, Kazakhstan and Uzbekistan), which would serve as a means for Moscow to dominate and hence coordinate regional energy dynamics and multiply Russia’s future ener-gy advantages in European markets. “The project was to be a large part of the solution to the shortchanging of the Russian domestic market that had result-ed from Gazprom’s focus on export profits. But it went far beyond this, aim-ing at a monopoly on [less expensive] Central Asian gas in order to satisfy both domestic and [highly lucrative European] export markets and to greatly in-crease Gazprom’s profit margins in the latter”.19 The idea was to accomplish both geostrategic and commercial control over the Caspian energy bonanza. To support this stance a few months later, Putin announced his decision to hold a major naval military exercise in the Caspian Sea using Russia’s Caspian Flotilla (the larger one in the region). The Flotilla was perceived as instrument to defend political and economic interests in the region given the growing mis-trust of the US and its expanding presence due to Afghanistan (including through military bases in Central Asia). Officially, the exercise was justified by the need to combat terrorism, given the vicinity of Afghanistan and Georgia’s Pankisi gorge where Chechen rebel fighters and Arab mujahideen were operat-ing.

Moreover, two decisions point to the high priority that Putin assigned to Russian economic competitiveness in the area. First, in order to bolster the efficiency of Russian policies in the region, he appointed Viktor Kalyuzhnyy as Special Presidential Envoy for Caspian affairs in charge of coordinating the five littoral states’ policies in the region, as well as to emphasize Russia’s spe-cial interests. It is worth noting that Kalyuzhnyy – who made his career in the energy sector and later was Fuel and Energy First Deputy Minister when he

19 J.W. Parker, (2009), p. 167.


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appointed Semen Vaynshtok as head of Transneft, Russia’s oil pipeline mo-nopoly - was also Deputy Foreign Minister at that time. “Putin wanted some-one like Kalyuzhnyy to put into practice what was described as the president’s new foreign policy concept – the big business [was] obliged to support the pri-orities of the Russian state as defined by Putin”.20 Second, the Kremlin actively promoted the formation of a new Russian energy consortium comprising lead-ing Russian oil and gas firms. The consortium was intended to improve coor-dination of state and firms’ activities and orchestrate the development of ener-gy deposits along the northern Caspian rim.

Capitalising on successive years of boom in oil prices and the correlat-ed improvement of Russia’s international status, the country gradually became the second leading oil exporter after Saudi Arabia – a status that corresponded with Putin’s ambitions to transform Russia into a global energy superpower. Moscow used this opportunity to market Russian oil as an alternative source to unstable Middle Eastern supplies and to promote investment opportunities and expansion of the Russian oil sector’s export capacity through joint activi-ties with leading energy firms. Putin even proposed to supply the United States with Russian liquefied natural gas. Russia was emerging as an independent en-ergy player, which allowed it to influence the interests of some Caspian Sea states (the construction of the Tengiz-Novorossyisk oil pipeline was completed in that period).

In the same period, Russia managed to control and obtain concession-ary terms for the purchase and re-export of Turkmen gas. Moscow was able to exploit this vulnerability to guarantee Turkmenistan’s neutrality vis-à-vis ex-tra-regional leanings and secure acquiescence to its favoured positions on the legal status of the Caspian Sea. In 2003 Turkmenistan signed an unprecedent-ed and financially controversial 25 year export agreement with Russia (Turk-menistan agreed to a price 50-60% lower than Russia collected from re-exporting gas to European countries, as well as accepting only 50% of the payment in cash until 2007, after which time Russia could renegotiate the price for future deliveries). By signing this deal, Ashgabat reduced the estimated supply available for alternative export routes, thus diminishing the commercial appeal of investing in non-Russian gas pipeline options and reducing the pro-spects of diversifying foreign energy relations. This enabled Russia to earn a projected $300 billion by substituting cheap Turkmen imports to fill a growing percentage of Russian consumption, while freeing up a corresponding propor-tion of Russian gas for delivery in foreign markets.

In the case of Kazakhstan, Moscow succeeded in regulating the pace of its gas exploration and exports to Europe, but could not do the same in the oil industry. From 1998 to 2003 Moscow increased Astana’s short term oil ex-

20 J.W. Parker, (2009), p. 160.


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ports through Russia, but while it complained about Kazakhstan’s flirtation with the promoters of the BTC it failed to secure commitments regarding the richest projected Caspian offshore oil deposits in Kazakhstan’s Kashagan field. Recognising the latter to be essential for breaking out of Moscow’s transit monopoly and for the future cost-effectiveness of the BTC pipeline by-passing Russia, the Kazakh leadership gravitated towards its Western backers. Moscow secured only a minority stake for Russian energy firms in 4 out of 46 of Kazakhstan’s oil projects.

As for Azerbaijan, Moscow was unable to impede its competitive poli-cies. Azerbaijan encouraged both foreign-financed energy projects and a diver-sification of the main east-west oil pipeline routes at Russia’s expense. Some explain Baku’s attitude with the fact that “in the face of Moscow’s suspected schemes to stir unrest among separatist elements in the South Caucasus, Washington [may] guarantee pipeline security”21. Notwithstanding Moscow’s shift from coercion to offers of increasing the capacity of Russian pipelines available for transporting Azerbaijani crude, Baku held firm in pushing the development of the BTC pipeline. Facing the inevitability of this pipeline, Moscow started to relax its hostility to the project and explore construction of a connecting segment to the Black Sea. Baku’s defiance also extended to out-standing issues of ownership of Caspian crude. For example, Azerbaijan re-sisted Moscow’s early pressure to accede to a condominium solution for the legal status of the Caspian Sea, signing on to a bilateral agreement only after Moscow conceded to Baku’s insistence on a national sector division of under-sea energy resources. With Russian-Kazakhstani and Russian-Azerbaijani ac-cords sealed on adjoining national sectors, Azerbaijan and Kazakhstan com-pleted the triangle with a bilateral delimitation of their own in 2001 and Rus-sia’s interest in exploiting northern Caspian oil and gas fields was to a great ex-tent resolved.

Moscow also experienced difficulties in dissuading Russian oil firms from participating in the energy consortia in the region. Much to Moscow’s disappointment, its largest oil company, LUKoil, exerted its independence by acquiring a 10% stake in the international consortium charged with developing Azerbaijan’s main offshore oilfields. Despite the validity of the secret decree already signed by former president Yeltsin, arguing that Russia should pre-serve its sphere of influence and keep Western joint ventures out of the Caspi-an Sea, the Fuel and Energy Ministry backed LUKoil’s deal by affirming that it would have been a mistake not to take an active part in international pro-jects.22 LUKoil’s mere participation not only contradicted Russia’s official pol-icy but also strengthened the hand of advocates of the BTC. Ironically, LU-

21 A. Andrianopoulos, (2003), p. 82. 22 J.W. Parker, (2009), p. 153.


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Koil withdrew from the project after construction of the BTC was approved. Russia’s capacity to exercise leverage over domestic firms proved weaker in the oil sector than in the gas industry.

While from 2001-2003 Washington enjoyed strong domestic support as well as universal sympathy for its anti-terrorist cause, by 2005 when the situa-tion in Iraq deteriorated rapidly, the US treasury was depleted and domestic public opinion opposed the unpopular war, Moscow decided to confront US policies. This US weakness “gave Moscow the impression that Washington could no longer exercise decisive influence in the Caspian Sea Basin. That per-ception allowed Moscow to act without seeking allies in Europe or Asia. In Moscow’s view, Western Europe, dependent on energy imports from Russia, would tolerate whatever action Russia might take. China, aligned with Russia against the US presence in Central Asia, would do the same. Finally, the Cen-tral Asian states, if left to themselves, would not dare to mutter a word”.23 Ad-ditionally, Russia’s assertiveness was strengthened further after the Coloured Revolutions in Ukraine (2003), Georgia (2004) and Kyrgyzstan (2005). Mos-cow also attempted to ally with China within the Shanghai Cooperation Or-ganisation in order to curtail US influence in the region, being aware that “Central Asian states were not in a position to oppose Russia and China when they acted together”.24 Finally, according to the Kremlin, with the 2008 Rus-sian-Georgian war Russia gained an indirect victory over the US for its policy of instigating anti-Russian attitudes in the post-Soviet space. However, Rus-sia’s recognition of the independence of Abkhazia and South Ossetia, while cooling its relations with practically all states in its neighbourhood, increased Tbilisi’s desire to seek closer ties with the West. Kazakhstan allowed oil ship-ments to Baku to transit through the BTC pipeline. Turkmenistan demanded Moscow pay higher prices for its gas and expressed interest in shipping gas for the Nabucco project, backed by the West, if and when it becomes operational. Azerbaijan accelerated its promotion of Baku as a Caspian Sea Basin energy hub. “The August 2008 show of force by Moscow in Georgia, instead of cow-ing the states of the region into submission, ignited a contrary trend, namely a search for ways to strengthen links with Western powers and even with China in order to lessen dependence on Moscow”.25 This tendency survived in the subsequent years and is still a dominant approach in the area.

23 M. Rywkin, (2010), p. 98. 24 Ibid. 25 Ibid., p. 100.


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6.2 Russia’s interests in the oil sector

Russia is an important but not dominant player in the international oil mar-ket. This is due to several factors, the first being the complex and scattered sys-tem of Russia’s oil industry. “It was dominated by a combination of vertically-integrated private, semi-private and state oil companies. The [murky] owner-ship structures complicated issues of domestic control, and lead to the emer-gence of multiple and competing production, investment and export portfolios across the oil industry. These problems were especially acute in the transporta-tion sector, as private Russian oil firms battled repeatedly with the state pipe-line company over access, tariffs and pipeline construction. In sum, the Rus-sian government lacked an effective mechanism to integrate disparate interests into a consistent geo-economic policy towards Caspian energy development”.26 When Putin came to power, he launched a new policy according to which Rus-sian oil companies should not be at war with the state but should collaborate with it. Second, in the 1990s the oil sector was hit hard by the transition pro-cess in place in Russia, with domestic production and exports bottoming out in 1996. Russia’s oil monopoly was destroyed quite rapidly. After 1991, Azer-baijan and Kazakhstan opened their energy riches up to Western oil compa-nies such as BP (in Azerbaijan) and Chevron and ExxonMobil (in Kazakh-stan). In order to deliver oil to international markets these Western companies attempted to gain access to the existing Soviet oil pipelines controlled by Transneft. But negotiations were stranded due to fears of possible Russian control over the transit of oil. Third, given Russia’s limited import capacity, it represented a rather small regional market for Caspian crude. It was not able to dictate market prices to vie with rival Caspian producers in the integrated global oil market. Fourth, Russia was also poorly positioned to change the course of Caspian oil development and exports. Alternative, direct and politi-cally expedient projects offered larger economies of scale than Russia’s north-ern route.

In reality Russia’s objectives in the Caspian oil sector have been at odds with Western ones since 1990 when the Soviet Union, frustrated by the technical challenges of exploring and producing in the Caspian basin, invited bids from international energy companies. In the 1990s, the new independent states became contractual partners with various foreign companies - several of which were US based. At that time Russia was unable to be the leading factor in Central Asia due to the latter’s policy of wholehearted devotion to the West. In September 1994, the US, Britain, Japan, Norway, Saudi Arabia and others formed a consortium with the signing of a 30 year contract to develop the 3.8 billion barrel reserve in Azerbaijan. In 1995 the US company Chevron began

26 A.N. Stulberg, (2005), p. 16.


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development of the Tengiz oil field in Kazakhstan. Moscow showed a tenden-cy to regard the Western capital entering Russia’s sphere of influence as a threat to its security, but Russian oil companies showed their inclination to-wards non-opposition and as a result obtained compensation for their exten-sive participation.27 The Caspian states, international energy companies and the US government were set on freeing the region from Russian influence via non-Russian and non-Iranian energy routes. Russia unsuccessfully pursued various tactics (such as the above-mentioned dispute over legal status) to per-suade its former Soviet fellow nations and foreign firms to use the Russian pipeline infrastructure for exporting Caspian oil. The US was pushing hard to find a non-Russian/non-Iranian route and viewed this as a strategic project. This stance was provoked by the US disagreement with Turkey over its part-nership with Russia in the Blue Stream gas pipeline, which opposed the official Turkish policy of sustaining exports that bypass Russian soil.28

This US approach culminated in the 1768 km long BTC pipeline that was intended to lead east – south/west from Baku, via Georgia, to the Ceyhan port in Turkey in the Mediterranean Sea, from where the crude was to be shipped to European markets. The BTC pipeline line fill started in 2005 and the first oil reached the Ceyhan terminal in 2006. The US actively supported the realisation of the project. It helped negotiations between the institutions, international energy companies and international financial institutions con-cerned and also provided financial support. Russian policy-makers reacted negatively to the pipeline. Aside from questioning the project’s commercial vi-ability, Russian Minister of Foreign Affairs Igor Ivanov stated that the goal of the BTC pipeline was to oust Russia from regions which historically belong to its lawful interest. Russia also resisted Georgian and Azerbaijani integration into the Euro-Atlantic space. The realisation of the pipeline triggered different perceptions. For the US president Clinton it was “the largest achievement of American foreign policy in 1999 [while for] Russia it was a tremendous diplo-matic loss and an event that reduced Russia’s influence in the region of the Caspian Sea”.29 “The aim of the BTC was to increase the market leverage of Azerbaijan and Central Asian producers vis-à-vis Russia and more widely to lessen their political vulnerability to pressure from both Russia and Iran [as it would have provided] an alternative to routes passing through Russia or Iran”.30

27 Younkyoo Kim, Gu-Ho Eom, “The geopolitics of Caspian oil: Rivalries of the US, Russia and Turkey in the South Caucasus”, Global Economic Review: Perspectives on East Asian economies and industries, vol. 37, issue 1, March 2008, p. 90. 28 J.W. Parker, (2009), p. 154. 29 Younkyoo Kim, Gu-Ho Eom, (2008), p.100. 30 J.W. Parker, (2009), p. 155.


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As a meagre consolation, Russia succeeded in launching negotiations with Kazakhstan on a Caspian Pipeline Consortium (CPC) in charge of con-structing a 1510 km pipeline to transport Caspian oil from the Tengiz field to the Novorossiysk terminal on Russia’s Black Sea coast. The pipeline started operating in 2001. Although the Russian and Kazakhstani governments have shares of 24% and 19% respectively, Moscow had to allow the participation of Western companies such as Chevron, Shell, ExxonMobil, Eni and British Gas.

6.3 Russia’s interests in the gas sector

In the gas sector on the other hand, Russia has enjoyed many benefits of the role it inherited from the USSR. It has a de facto monopoly due not only to the structure of the Russian gas industry but also to the transit system built during Soviet times. By buying all Caspian gas and transporting it through its own transit grid, Russia did not give the countries in the region the opportuni-ty to access Western markets autonomously. This transformed Russia into Eu-rope’s leading gas supplier. Russia also represented the largest potential re-gional market in its own right. This market presence empowered it to manipu-late the economic criteria for landing gas to meet the growing international demand for Caspian gas in both established European and emerging Asian markets. The prohibitive costs of transporting gas via alternative pipelines al-lowed Russia to dictate gas dynamics against Western interests. In particular, these market advantages positioned Russia to squeeze incremental competition in the critical Turkish natural gas market and transit-hub. The above-mentioned Blue Stream gas pipeline was “hailed for promoting Russia’s geo-political goals by undermining projects that bypassed Russia. In Turkey [how-ever it] was subjected to withering criticism for increasing the country’s energy dependence on Russia”.31

As a traditional net gas exporter, Russia’s main goal is to prevent pro-ducer countries in the Caspian region from finalising agreements with Europe, which Russia considers to be its own exclusive market. Russia would rather allow some Caspian gas to flow to the East (India, China) and retain its Euro-pean clients.32 This stance is reinforced by the fact that Central Asian gas is, according to Gazprom, a cheap and ideal alternative to other sources of gas.

Russia’s comparative commercial advantages in gas markets were sim-ultaneously strengthened by the structure of its domestic gas sector. Amidst the institutional weaknesses that often characterise Russia, the gas industry stood out for its relative coherence. A single joint stock company, Gazprom, has the monopoly over the ownership (almost 100% of Russia’s domestic and

31 J.W. Parker, (2009), p. 156. 32 A. Petersen, (2012), p. 43.


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international gas pipelines and transit infrastructure), production and pro-cessing of Russia’s natural gas. The company also has the right to determine access to Russia’s export pipelines, and to establish prices, and it also owns equity stakes in gas industries across the post-Soviet space that provide it with extra-territorial political influence. The tight link between Gazprom and the Kremlin has enforced the consistency of Russia’s Caspian gas policy. Unlike in the oil sector, in the gas sphere Russia’s geo-economic strength sets tough pa-rameters for cooperation with the United States in developing and exporting Caspian gas. “Russia’s market and domestic institutional leverage undermines the commercial and political appeal of diversifying the export of Caspian gas to already crowded markets in western Europe and Turkey. On the other hand, the relatively concentrated institutional arrangements in the Russian gas industry offer potential pay-offs to an American sponsored approach to the strategic inclusion of Gazprom in new ventures that target the exploration and delivery of Caspian gas to new, emerging markets in Asia (such as Afghani-stan, Pakistan, India and China) that do not compete with Russia’s existing exports”.33

Similarly to the oil sector, Russia’s aim is to transport gas to Europe through Russian pipelines such as South Stream (expected to go on-stream in 2015), while the US prefers pipelines that bypass Russian territory. Although a number of gas projects have been backed by the West, most of them are still to be realised. In 1996 the US pushed for a trans-Caspian gas pipeline (TCGP) which would transport gas from Kazakhstan and Turkmenistan to Central Europe. Russia was strongly against the pipeline, as a trans-Caspian link would mean that the eastern Caspian states could route their gas westward without using the Russian infrastructure. The TCGP idea died when Russia and Iran vetoed the project. Planning for another contested major project be-gan in 2002 when several smaller European companies and Turkey’s BOTAS proposed the 3900 km Nabucco pipeline. This pipeline was envisioned to even-tually transport Caspian gas through Turkey, Bulgaria, Romania and Hunga-ry to Austria. Up until 2009, the US supported it strongly and American dip-lomats lobbied heavily for Azerbaijan to commit gas to Nabucco. The EU supported Nabucco, but seemed reserved about actively advocating the pipe-line in the Caspian region, even after it launched the Southern Gas Corridor initiative in 2008, explicitly designed to diversify suppliers and encourage non-Russian transit of Caspian and Middle-Eastern gas to Europe (particularly from Azerbaijan but also potentially from Turkmenistan and Iraq). Conse-quently, Nabucco was scaled down to the smaller Nabucco West pipeline. At almost the same time as the reduction in Nabucco’s size was announced in ear-ly 2012, Azerbaijan and Turkey agreed to build a new natural gas pipeline, the

33 A.N. Stulberg, (2005), p. 18.


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Trans-Anatolian Pipeline (TANAP), from the Shah Deniz gas field in Azerbai-jan to Turkey to link with a new gas pipeline in Europe. TANAP is designed to carry 16 billion cubic meters per year (bcm/y) by 2018 and 31 bcm/y (equal to the Nabucco project’s primordial version) by 2026. The TANAP project has engendered stiff criticism from Gazprom which warned Ankara that if TANAP is completed as planned in 2018, Turkey will no longer be able to rely on Russia for help in a possible gas crisis. The creation of TANAP indicated that Azerbaijan was no longer as malleable as it seemed to be twenty years ago. Turkmenistan is also able to play its cards with more self-assuredness, since it has China to back it up. Although the Caspian countries still need Western involvement – to develop their resource potential and finance the Eu-rope-bound infrastructure – they are generally becoming more astute contend-ers for regional influence. Meanwhile Russia’s pipeline proposals are compet-ing with European projects to bring Caspian gas to Europe (see the South Stream vs. Nabucco dispute), and China has been establishing a greater pres-ence in the region and has made significant energy investments, including an oil pipeline with Kazakhstan and a gas pipeline from Turkmenistan to China, which began operations in 2009.

Conclusions

The Caspian Sea energy dynamics illustrated above show that competition in the region for control over its energy bonanza is a key factor in and rationale for understanding Russia’s regional policies. The latter are built on what Rus-sia inherited from the USSR but also on means which help the Kremlin adjust its regional strength to today’s reality (e.g. the ongoing dispute over the legal status of the sea represents a flexible instrument for Moscow to adapt its poli-cies to the changing mood of the other littoral states). “National strategies are paramount in determining the course of events in the Caspian. Pipelines are discussed and designed on the basis of the national interests of the [regional and extra-regional] states involved. Economic considerations come second”34. Unlike the oil sector in which Russia has to cooperate with Western projects, in the gas sphere it still enjoys considerable might although competing projects do force it to find a new modus vivendi with the regional actors. In other words, Russia has to accept that its influence in the region is doomed to be shared with, and re-shaped by, the interests of both the Caspian littoral states and the West. Much of that will depend on the evolution of Russian-Western relations.

34 A. Andrianopoulos, (2003), p. 91.

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7. Iran’s Policy in Caspian Sea Basin and beyond: The Great Game 2.0

Reshad Karimov

Introduction

One of the most vibrant focal points in Eurasia, the Caspian Sea basin, has three major issues that contribute to its dynamism: the local engagement of re-gional and non-regional actors, complex interconnection of economic and po-litical motivations driving regional policies, and proxy competition of non-regional actors over dominance in geopolitically catalytic states.

Several features – like the finalizing the thorny process of Caspian Sea delimitation among the five littoral states, the issue of exploiting and trans-porting profitable energy resources, that have given the region its global im-portance, lead to the strong roles of external actors, both states and major en-ergy companies, in setting the regional agenda. The combination of internal political dynamics (mostly in the form of several conflicting issues between states of the Caucasus and Central Asia in the Caspian Sea basin and their immediate neighbors) and the inevitable external connection makes the re-gional situation so potentially turbulent. Moreover, the development of the events in the Middle East can affect the overall balance between Iran and Cau-casus and Central Asia in the Caspian Sea basin, reopening the chapters of the playbook that everyone thought were long gone.

While Iran is one of the main oil producers in the Organization of Petro-leum Exporting Countries, most existing fields are in the south and the Persian Gulf. Hampered by sanctions over nuclear ambitions, it doesn’t yet extract crude in the Caspian, where nations including Azerbaijan are tapping deposits and demarcation lines over territory are disputed.


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The Caspian Sea basin has long been a source of oil and natural gas. The fire-worshipping Zoroastrian religion was founded on the western shores of the Caspian as Zoroastrians built temples around local pillars of fire fed by es-caping natural gas. However, it was Baku with its almost 3,000 oil wells pro-ducing almost half of the world’s oil at the beginning of 20th century,1 that be-came the birthplace of the modern Oil Industry with British, Belgian, French German, Swiss, Swedish and American investors having their share of pie. The rapid increase in demand for oil, in the early case kerosene, led to more wells and a greater need for transportation of the products to markets. No surprise, that this was the case in Azerbaijan, when famous scientist Mendeleev pro-posed the construction of Baku-Batumi pipeline2 to ensure the transportation of Baku oil to the world market in 1880. Longest cross-country pipeline in the world of that time, compared, as an achievement, to the Eiffel Tower in Paris and the Trans-Siberian railway in Russia, Baku-Batumi (diameter 200 mm, length 885 km, 6 pump stations), was constructed over 10 years; it was official-ly opened on 24 July 1907. After the World War I, when Civil War raged in Russia, British forces landed in Batumi in a failed attempt to influence the fu-ture of Caspian Sea oil. Later, during World War II, Azerbaijani oil contribut-ed significantly to the war efforts, and its input – nearly 71.4% of overall amount of oil used in USSR’s struggle against Nazi Germany, became the rea-son for Adolph Hitler’s failed “Operation Blau” to capture the Caspian Sea oil fields.

Situation got more complicated in 1990s, as one of the most important consequences of the demise of the Soviet Union was the rise of intense political and commercial competition for control of the vast energy resources of the newly independent and – for that reason – vulnerable states of the Caucasus and Central Asia in the Caspian Sea basin. These energy resources, and the oil and natural gas deposits in particular, have become the point of discord in Central Asia and the Caucasus, introducing, according to some analysts, a ‘Great Game 2.0’ for control over Eurasia. While the ‘Great Game 1.0’ was the 19th century rivalry between tsarist Russia, Great Britain and the Ottoman Empire in Central Asia for control of the trade routes to India, this time the preconditions of the game changed drastically, while principles stayed the same. Main change though is the number of players, that are involved com-pared to the 19th century: China, Iran, Pakistan, Russia, Turkey, Saudi Arabia, the U.S., the European Union and even Afghanistan are now entangled. It could therefore be said that energy resources and ways of transporting them are now shaping the geopolitics of Caspian Sea basin.

1 J. Spath, «Focus on the Caspian», Journal of Petroleum Technology, from http://www.spe.org/ jpt/article/6051-presidents-column-20/ (accessed on June 20, 2014) 2 M. Vassiliou, The A to Z of the Petroleum Industry, Scarecrow Press, Inc, Lanham-Toronto-Plymouth, UK 2009, p 74.

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Although the Organization of Petroleum Exporting Countries will con-tinue to dominate the global energy market for decades to come, oil and gas development in the Caspian basin could help diversify, secure, and stabilize world energy supplies in the future, as resources from the North Sea have done in the past. With this in mind, Europe especially interested in the energy sup-plies from the Caspian. In particular, energy exploited by Azerbaijan and Turkmenistan and shipped via the strategic Southern Corridor route is seen as a way to diversify from Russia’s energy grip on the continent. However, de-spite the fact that the Caucasus borders NATO and will soon be on the bor-ders of the expanding EU, Europe has taken very little interest in the South Caucasus and Caspian region. Some experts argue, that the main European presence is in the form of European companies that fulfill the leading role in the major oil and gas projects in the region (BP, ENI/AGIP, Statoil). Even though Europe will presumably be the major consumer of Caspian gas, it has not taken a full-scale active role in the region in security or political spheres and have done little even in the field of promoting conflict resolution in this area, despite the fact that many of the states of the region are planning their orientations toward European integration.

Many local experts agree,3 that by doing so, Europe has demonstrated a lack of respect for the sovereignty and territorial integrity of many states, as well as a similar irreverence for international law. This Pandora’s box of dou-ble standards stems from the calculus of political ambitions and has taken to interpreting international law as one pleases.

However, this ostrich-like “head in the sand” strategy turned out to be-come a serious security issue for a Europe. Unresolved conflicts, as well as some clandestine networks operating in areas where state oversight is either weak or lacking – all have a direct and negative impact on security situation in the South Caucasus region, since unresolved conflicts erode the trust between states and societies. As a result, stability in the Caucasus is now considered to be a part of Europe’s internal security. It is no longer a matter of the EU en-gaging with its periphery. Like Yugoslavia in the 1990s, the Caucasus now is also a part of an internal EU security debate. The recent standoff in Ukraine, where conflict between pro-Russian separatists and Ukrainian government forces threatened Europe’s gas supply, has only increased the importance of the Caspian Sea in this regard, while creating an unusually tense geopolitical environment in the region, with the Caspian Sea reemerging as an important area of competition between Russia and the West.

3 From private conversations on a subject.


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7.1 Iran’s security environment and relationship with Caspian Basin countries

Iran’s strategic geographical location allows it to be the part of Middle East, Persian Gulf, Central Asia, and to some extent South Asia. Therefore, Iran’s foreign policy agenda is clearly dominated by the quest for security and the task of neutralizing external threats. Iran sees threats coming both from the neighborhood and from distant powers that can threaten Iran through its neighborhood. A whole new geopolitical trajectory has been foisted in the two main theaters of Iranian foreign policy: the Persian Gulf and Caucasus and Central Asia in the Caspian Sea basin, warranting a new appraisal of Iran’s foreign policy and priorities.

Historically Iran has lacked the luxury of a friendly environment. Dur-ing a course of a past centuries Iran had to compete and fight with Russia and Turkey. Religious discord also added to the discomfort as Shia Iran lived next to Sunni tribes that merged later into the independent Arab states. The percep-tion of hostile encirclement deepened after the Islamic Revolution, which led the country into a self-imposed isolation, being at odds with its neighbors and the West, particularly the U.S., which had a considerable presence in the Mid-dle East region. As an ambitious nation that claims to bear elements of an an-cient and unique culture, Iran always sought to be a regional leader and re-sented the presence of outside powers in its neighborhood. After the collapse of the USSR, while Russia has temporary lost its pre-eminence in the Caspian basin, new dilemma of growing Western influence has become the major source of discomfort for Tehran.

As a country that once enjoyed a huge influence over the South Cauca-sus and Central Asia, Iran welcomed the opportunity of re-establishing ties thanks to the collapse of the Soviet Union. The 1990s did not offer any serious opportunities for Tehran to advance its cause. Mainly because Russia at the down of the 20th century still enjoyed almost exclusive dominance over the South Caucasus and Central Asia as it maintained military bases there. Never-theless, Russia’s influence over these regions declined in other ways and vast gaps emerged in the local economy and trade, but these gaps were filled by Turkey in South Caucasus and China in Central Asia, which were much better prepared than Iran thanks to their openness to the outside world and its ability to produce cheap consumer goods. Although Iranian products arrived in Cau-casus and Central Asian markets in the early 1990s, Iran has proved unable to withstand competition and was eventually forced out. Iran simply could not compete with its big rivals and appeared to be doomed to playing second-rate role in the region. However, new areas of cooperation that value Iranian ex-pertise are under development in Central Asia: primarily oil and hydroelectric-ity, but also minerals, the industrial processing of agricultural production, and the textile and automotive industries.


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Meanwhile, China has enhanced its position in Central Asia in various fields (mainly economy and energy, but also politics) by means of bilateral re-lations and multilateral initiatives – such as the Shanghai Cooperation Organi-zation (SCO), the regional organization which includes all Central Asian re-publics (except Turkmenistan) and Russia. This has been the result of a suc-cessful strategy adopted by Beijing in early 1990s when China was forced to draw up a brand new approach in order to develop diplomatic, political and economic relations with the new states emerged in a post-Soviet scenario.

While Iran appears to be losing the race for Central Asia, it tries to compensate with its quest for dominance in the Caspian Sea, where disagree-ments among the littoral states go back to the treaties of 1920 and 1940 be-tween Imperial Iran and the Soviet Union. These treaties divided the Caspian Sea between Iran and the USSR, delineating both water and seabed rights based on the shoreline of each state. Yet, the collapse of the Soviet Union have created number of a new states on the shores of the Caspian in 1991, that still cannot agree in a lines that allow each of the new states some share of the Cas-pian resources. While Azerbaijan has based its sea boundaries with Iran on the Astara-Hasangulu line, which was accepted as the boundary line separating the former Soviet Union and the Islamic Republic of Iran, following the col-lapse of the Soviet Union the Iranian side decided to change the situation, in-cluding that can relate to the exploration of the resources of the Caspian Sea.

While the current working distribution gives Iran control of about 14% of the seabed, Tehran put forward numerous proposals, including the one that advocates the idea that any exploration that takes place anywhere in the Cas-pian Sea should be jointly owned by all five littoral states. When this proposal was not accepted, Iran suggested that the territory be equally divided so that each state would receive 20% of the sea territory regardless of how each state actually borders on the sea. This proposal has neither legal nor scientific basis, and thus, it goes without saying, it cannot be accepted by the Azerbaijani side, while both Turkmenistan and Iran argue that rights to the sea’s resources should be redistributed into five equal parts.

On this background, during past decade Iran began an aggressive cam-paign to claim a greater portion of the Caspian Sea and its resources. Tehran’s use of air and naval forces to threaten Western companies exploring a field in Azerbaijan's sector threatened to jeopardize, in addition to energy production and energy security, foreign (mainly Western) investments and the economic development of that region. For example, on July 23, 2001, an Iranian warship and two jets forced a research vessel working on behalf of British Petroleum


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(BP)-Amoco in the Araz-Alov-Sharg field out of that sector.4 That field lies 100 kilometers (60 miles) north of Iranian waters. Due to that pressure, BP-Amoco immediately announced that it would cease exploring that field, which it did by withdrawing the research vessels.

The analysis shows that the Caspian Sea basin re-emerged on Iran’s agenda after the collapse of the Soviet Union and relations between Tehran and the littoral states are destined to intensify as Iran looks to play a much bigger role in the area. Iran’s attitude towards the region is based on two ele-ments – its general foreign policy vision and its historical experience with the newly formed political neighborhood.

In addition to that, Iran’s foreign policy, particularly in the South Cau-casus, was seriously tested by the Armenian-Azerbaijani Nagorno-Karabakh conflict. The conflict confirmed Tehran’s commitment to balance-of-power calculations as it rather openly supported Armenia instead of backing Azer-baijan, the country that shares with Iran not just a border, but also a common heritage. This is a clear example of how realism won out over ideological and religious sentiments despite Iran’s strongly manifested dedication to Islamic principles – Azerbaijan is also a predominantly Shia Muslim country. While it is clear that Iran advocated for a ceasefire between Armenia and Azerbaijan, its underlying motives may not have been limited to a spillover effect of the conflict. Rather, experts suggest, that the support for Armenia mainly grew out of Iran’s traditional enmity towards Turkey, which was already emerging as Azerbaijan’s closest partner since country regained its independence. Anka-ra, after all, was seen from Tehran as close ally of the United States, and a re-turn of pan-Turkism would endanger Iran’s position in the region. Yet, on other hand, Iran viewed with suspicion any movement that sought to destabi-lize its own minority populations through a nationalist movement. Tehran also feared of growing irredentist sentiments among the Azeri minority in Iran it-self, as with around nine and a half million Azerbaijanis live in Azerbaijan, even more ethnic Azeris live across the border in Iran. According to a different sources, there is almost as much as half of the population of Iran that ethnic Azeris or have Azeri ancestry,5 including Iran's Supreme Leader Ayatollah Ali Khamenei. Such Tehran’s choice definitely did not make Azerbaijan happy while Armenia obtained a partner. Contrary to what might be expected in terms of Iran’s revolutionary Islamic rhetoric, Iran also did not supported Turkey’s decision to close its borders with Armenia due to Yerevan’s aggres-sion against Azerbaijan.

4 A. Cohen, Executive Summary: Iran's Claims over Caspian Sea Resources Threaten Energy Security, 5 Sep-tember 2002, from http://www.heritage.org/research/reports/2002/09/bg1582es-irans-claims-over-caspian-sea-resources-threaten-energy-security (last retrieved on 1 May 2014). 5 J.W. Parker, Persian Dreams: Moscow and Tehran since the Fall of the Shah, Washington, DC, Potomac Books, 2009.


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When it comes to South Caucasus, geopolitics underlines the issue of exploiting and transporting profitable energy resources, that have gave the Caspian Sea region its global importance. Trying to neutralize the Western in-fluence in the South Caucasus, Russia intensified its ties with Iran, and Arme-nia (Russia’s closet ally in the region) automatically became number three in this anti-Western coalition while Azerbaijan - Georgia - Turkey emerged as a separate pragmatic regional grouping. However, more recently, Washington and Tehran at some point have come to realize that they share some interests in wanting to prevent Russia from strengthening its already dominant position in Central Asia. Iran, for example, wants to prevent the Caspian Basin from effectively becoming a Russian geopolitical lake. Yet the ongoing U.S.-Iranian feud on other multiple issues has prevented any serious contemplation of bilat-eral cooperation on that front, despite the overlapping interests.

On other hand, given the economic and military ties and points of con-tention, for the past years Russia acts delicately in trying to curb Iran’s behav-ior: Kremlin does not have enough influence to directly correct Tehran’s poli-cies and it does not want to be an arbitrator between Iran and the U.S.. Mos-cow – Tehran cooperation was actually greater in the 1990s during the Boris Yeltsin era. It was then that Moscow agreed to help complete the Iranian nu-clear reactor at Bushehr (begun by the West Germans before the 1979 Revolu-tion and abandoned by them shortly afterward). In addition, Moscow and Tehran worked together to resolve the civil war in Tajikistan (which lasted from 1992 to 1997), and to prevent the Taliban from overrunning all of Af-ghanistan before the American-led intervention that began shortly after 9/11. Yet, as Iran’s neighbor, economic and military partner, and as a permanent member of the Security Council, Russia works with moderate political estab-lishment in Iran to compromise with the West on the nuclear issue instead of confronting Washington. After all, Kremlin perceives Iran as a rising regional power, and its nuclear ambitions play a major role.

On this background, after centuries of cultural, commercial and political exchanges, Central Asia still perceived a region that contemporary Iran has largely ignored. Following Central Asia’s independence, Iranian leaders had no specific ideas about what they might hope to achieve in the region, and they did not consider it to be a priority area. Iran’s primary concerns were domes-tic: after emerging from a decade of war with Iraq, the Islamic regime’s domes-tic economic and social situation was tense, and the death of Ayatollah Kho-meini in 1989 aroused concerns of political destabilization.

In the early 1990s, Tehran, among other reforms designed to lead the country towards a more market-oriented economy, encouraged local govern-mental bodies to establish relations with neighboring states. This ultimately allowed the Islamic Republic’s northern provinces to turn to their former So-viet neighbors. As a result, the new province of Golestan, located in the north-


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east of the country, south of the Caspian Sea, being the main Iranian province with a Sunni majority, have forged direct relations with Kazakhstan.6 At a same time the Mazandaran province, bounded on the north by the Caspian Sea has deepened its relationship with Turkmenistan, with whom its shares its northwest border. It was not until 2001, however, that the Foreign Minister of Iran, Kamal Kharrazi, announced that Central Asia would become a priority of Iranian foreign policy.

For their part, the Central Asian states were trying, through partnership with Tehran, somehow diminish the Russian influence, to diversify economi-cally, and to gain access to open seas, mainly through Persian Gulf. Central Asian states were also quite cautious about forging a relationship with the Is-lamic regime, as they feared that Tehran would seek to export the Islamic revolution as it had done in Lebanon and Palestine, and that Iran would thereby weaken Soviet successor regimes, which maintain a separation of state and religion. However, from 1997, the export of political Islam was clearly challenged by the rise of the reform-oriented president Mohammad Khatami, who accelerated the removal of Shia revolutionary ideology from Iran’s for-eign policy in an effort to bring the country out of international isolation and pursued that policy even after he left the office.7

These days the Iranian government does not distribute official Shiite propaganda and seeks instead to strengthen its image of cultural and economic power. Under the supervision of embassies, Tehran funded the opening of sev-eral cultural centers in countries of Caspian basin, including Azerbaijan, as well as chairs of Iranian studies at universities, including Kyrgyzstan (the Slav-ic Kyrgyz-Russian University of Bishkek,8 the University of Humanities, and the State University of Kyrgyzstan). The literature available in these centers is not at all focused on religious issues, but it seems that free courses for familiar-ization with Iranian Islam are sometimes offered in a totally informal manner. However, other key organs of the Iranian government continue to play the re-ligion card. Allegedly, clandestine groups linked to the Revolutionary Guard have attempted to infiltrate the region and radio and television is tasked with promoting Iranian policy while disseminating a positive image of Iran.

Naturally, the Iranian political establishment is not a monolith, and it is composed of different actors and influence groups, each with a specific agen-da. The Revolutionary Guard Corps seems, for instance, much more active in the Central Asian states than in South Caucasus, operating with ideological

6 M. Laruelle, S. Peyrouse, Globalizing Central Asia: Geopolitics and the Challenges of Economic Develop-ment, Armonk, NY, M.E. Sharpe, 2013, p 81. 7 “Iran hardliners condemn Khatami, May 6, 2008”, BBC, from http://news.bbc.co.uk/2/hi/middle_east/ 7386001.stm (last retrieved on 1 May 2014). 8 Iranian Ambassador awarded professor’s title in Kyrgyzstan, University of Tehran, Central Eurasia Program newsletter, 20 November 2008, from http://cep.ut.ac.ir/en/pages/news/1846.htm (last retrieved on 26 June 2014).


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goals that contrast with the more cautious position of Iranian diplomats. As a result of this, Iranian policy is paradoxical at multiple levels. This is because the Iranian actors are themselves diverse, and because Tehran sees Caspian Sea basin as an area of potential dual conflict: traditional conflict with the West, namely United States, and more recent conflict with Sunni fundamental-ist movements in littoral countries, including Russia and Kazakhstan, which Tehran sees as complicit in a general process of ideological alignment that it deems detrimental to its interests. The religious identity is just one component among others in the spectrum of arguments Iran uses to secure its interests in Caspian Basin, however, with the resent developments in the Middle East, Tehran may just reopen this chapter of the playbook.

7.2 Survival and religion: Iran’s winning hand in Middle East

Because of Iran’s fundamental importance to the vital Persian Gulf region and given the remarkable transformations sweeping the Arab world, including Iraq, one can see, that Tehran is interested in exploiting these developments to strengthen its position on its periphery. Iran’s ability to shape the outcome in Iraq and Syria will play a major role in determining how well Tehran is able to influence the wider political changes not only in Middle East and Persian Gulf region in particular, but also in the Caucasus and Central Asia in the Caspian Sea basin. For all of these reasons, what happens in Iraq, and what happens regarding Iranian influence on Shia, will inevitably influence Tehran’s policy regarding its neighborhood, and, potentially, will add certain nuances to Iran’s stance in Caspian Sea basin.

The year 2009 marked both the 30th anniversary of Iran’s Islamic revolu-tion and the most serious domestic crisis to strike the regime to date. The Green movement, led by Mir-Hussein Moussavi, Iranian prime minister from 1981 to 1989, attracted hundreds of thousands of supporters. These supporters staged near-continuous demonstrations challenging the regime and the legiti-macy of the 12 July 2009 re-election of President Ahmadinejad. Yet despite the scale and intensity of the demonstrations in 2009, by the 2013 Presidential elec-tions the political Tehran not only survived into its fourth decade, it opened a window of hope for an easing of tension between Iran and the West.

Given that sanctions have had a devastating effect on Iranian lives and the economy, Ahmadinejad, who came to power claiming to be able to do more for Iran’s poorest people, was exposed as a failure. At the same time in his election campaign Hassan Rouhani pointed out that in the several years when he was chief nuclear negotiator the issue was not taken to the Security Council. Rouhani’s win became the clear message from the majority of the Iranian electorate that they prefer his more rational approach. Moreover, Hassan Rouhani, who promised to improve the economy while calling for


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moderate policies both at home and abroad, with his win of the office put Iran in focus on the more urgent issue – the self-destructive clash between Shias and Sunnis that is killing thousands in Syria and Iraq and threatens the entire Middle East region. This problem was created – in part – after U.S.’ hostility to Iran has created condition for Saudi Arabia and other Arab states in Per-sian Gulf to turn into an anti-Iranian alliance of Sunnis versus Shias.

While the rift between the two great Islamic denominations runs like a tectonic fault-line along what is known as the Shia Crescent,9 starting in Leba-non in the north and curving through Syria and Iraq to the Gulf and to Iran and further East, this conflict is one which seems increasingly to be shaping the destiny of Middle East as thousands of devotees from both sides pour into Syria. These days al Qa’ida volunteers on the Sunni side and Hezbollah mili-tants on the Shia, are joining what is fast becoming a transnational civil war between the two factions.

The division between the two factions is older and deeper even than the tensions between Protestants and Catholics, which troubled and divided Eu-rope for centuries. While the two Christian denominations had a shared histo-ry for 1 500 years, by contrast the rift between the two biggest Muslim factions goes right back to the beginning of the emerging Islamic community in the ear-ly 7th century. Yet for much of the years the majority of Sunni and Shia Mus-lims have not routinely allowed their theological differences to create hostility and in many times and places the two fractions have co-existed peacefully.

Two major developments have triggered the escalation of tension between Sunni and Shia in recent years. The first was the Islamic revolution in Iran in 1979 when the rule of the pro-Western Shah was overthrown and replaced with a Shia theocracy, that left leaders outside Iran, both religious and secular, more divisive. The rift has been a consequence of the Iranian Islamic revolution that has identified Iran with militant Shia, and it entailed a religious radicalization of Sunni radicals that has been encouraged by Saudi Arabia both for religious rea-sons and for thwarting the growing Iranian influence in Afghanistan, the Per-sian Gulf, and Iraq. And the rift is growing, because the mutual distrust is grow-ing. Shias in the Persian Gulf are systematically perceived as an Iranian fifth column, partly based on the experiences of the 1980s, when Iran indeed use Shi-as in the Persian Gulf states to perpetrate terrorist attacks in order to destabilize Bahrain, Kuwait, and Saudi Arabia. Iran has also nurtured Sunni jihadists when it was convenient to do so, and it has also spent years cultivating Shia sectarian-ism. The Egyptian Sunni Islamist, Sayyid Qutb, “intellectual godfather” of modern Jihad and author of a “Milestones”, classic manifesto of the religious

9 Late in 2004, King Abdullah of Jordan coined a controversial phrase that still resonates powerfully in the Mid-dle East: there was, he argued, a «Shia crescent» that went from Damascus to Tehran, passing through Bagh-dad, where a Shia-dominated government had taken power and was dictating a sectarian brand of politics that was radiating outwards from Iraq across the whole region.


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terrorist wing, was even put on an Iranian postage stamp. In its effort to domi-nate the region after the U.S. invasion of Iraq in 1990, Iran fostered staunch Shia radicals, first in Iraq and more recently in Syria. By doing this, Tehran gave up completely on an earlier attempt to make Shia acceptable to Sunni under the banner of joint resistance against the “forces of global arrogance”, that is, the United States, Israel, and the Arab monarchies of the Gulf.

Yet, the invasion of Iraq in 2003 was the second big factor in the deterio-ration of Sunni-Shia relations. While the U.S. had backed Saddam Hussein, who led a Sunni elite, which governed Iraq’s Shia majority with a reign of state terror, in Iraq’s war with Iran throughout the 1980s, the invasion of 2003 and resulting election placed in power leaders from the Shia majority who have ex-cluded the Sunni minority. The response with the IEDs (Improvised Explo-sives Device) and VBIEDs (Vehicle Borne IED) still kills thousands in Bagh-dad and elsewhere. In a nutshell, the Sunnis and Shias were competing in a ze-ro-sum game for control over Iraqi political institutions. So long as Shias con-trolled the government, and Sunnis didn’t feel like they’re fairly represented, Sunnis has an audience for radical messages. Al Qa’ida jihadists have flooded into the country to join Sunni terrorists in attacking the Shia government. And now the polarized sectarian conflict has spilled over into Syria.

The U.S. invasion of Iraq has destroyed the main Sunni “fortification” against Iran, with two consequences: the solidifying of a de facto independent Kurdistan and the violent secession of a large Sunni populated area in North-ern Iraq. Saudi Arabia, instead of allying itself with the mainstream Sunni or-ganizations (like the Muslim Brothers), wants to crush them, while it support-ed for decades the very radicals that are now taking the lead in Pakistan, Iraq, and Syria. Thus Iran is the great beneficiary of the collapse of the dominant order built between 1918 and 1948, with a minimum engagement on the field. Yet, the situation is about to be changed with growing threat from resurgence of the conflict between Iraqi Shias and Iraqi Sunnis, that serves as a powerful recruiting tool for Islamic State of Iraq and Syria and mobilization stimulus for the Shia militias that were not part of the Iraqi security forces, but were fighting the civil war in 2007.

The advance of ISIS (Islamic State of Iraq and Syria), which many somehow perceive as the only alternative to the Bashar al-Assad’s regime, serves as a sign of a catastrophic civil war among Sunni and Shia. As one can see, when sectarianism matters, it really matters. Conflicts in Lebanon during the 1970s and 1980s, and in Iraq during the 2000s, highlight the sheer fero-ciousness that often accompanies sectarian clashes. These conflicts were de-fined by mass violence against civilians in which the belligerents employed tac-tics that were tremendously creative in their brutality. Such sectarian violence, when its breaks out, is extremely difficult to quell.


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A spokesman for ISIS, Abu Mohamad al-Adnani, urged the group’s Sunni fighters to march toward the “filth-ridden” Karbala and “the city of polytheism” Najaf, where they would “settle their differences”10 with Iraq’s Shia Prime Minister Nouri al-Maliki. That is a highly inflammatory statement, as Karbala is the focal point of the Shia faith, the place where its founding imam, Hussein, was killed by the troops of the original Sunni Caliphate at the start of the Sunni-Shia divide. This presents Iran with the biggest security and strategic challenge it has faced since the U.S.-led invasion of Iraq in 2003, but also a golden opportunity.

Iran has invested considerable financial, political and military resources over the past decade to ensure Iraq emerged from U.S. war as a strategic part-ner for the Islamic Republic and a strong Shia-led state. The aforementioned Shia crescent – stretching from Iran to Iraq, Lebanon and Syria – was forged largely as a result of this effort. Such involvement of Iran would pose yet an-other security challenge for the Washington, as it raises the prospect of the U.S. and Iran fighting on the same side. The U.S. opposes Iran’s support for Syrian President Bashar al-Assad, but looks like it will side with Tehran by supporting Iraqi Prime Minister Nouri al-Maliki. The fall of Baghdad would mean the tragic waste of American blood and treasure that went into the mak-ing of a new Iraq. For Iran, an ISIS triumph will put an end to the Shia-dominated political order in Iraq.

Conclusions

With solution of hard problem in Iraq with ISIS, looks like the balance of power in the region will tilt further toward Iran, as for Tehran, it is a historic opportunity to expand its influence to the west among the largest population of Arab Shia in the world, especially, given that the U.S. is a transitory player in Iraq, not a permanent part of the game. If Iran emerges as the savior of Ira-qi Shia (through an actions, that will fall in between “less, than a head-to-head war” to a safe zones, or any other combination of hard security and soft pow-er) the Shia of Bahrain, Kuwait and the Kingdom’s eastern province will be further inclined to see Iran as their savior, too. Sequentially, if Iran helps stop ISIS outside Baghdad, the impact will be felt in Syria, while Tehran and its proxies, like Hezbollah, will gain further credibility as the only force that is ac-tually on the ground resisting biggest and maddest bloodthirsty monster, such as ISIS. Tehran will emerge as the leader of a block of Shia-dominated states, each looking to Iran for critical security support. This will affect the last safety switch on “sectarian identity vs. political” question, as even Arab Shia were

10 F. Fassihi, “Iran Deploys Forces to Fight al Qaeda-Inspired Militants in Iraq”, The Wall Street Journal, 12 June 2014, from http://online.wsj.com/articles/iran-deploys-forces-to-fight-al-qaeda-inspired-militants-in-iraq-iranian-security-sources-1402592470 (last retrieved on 20 June 2014).


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likely to be more loyal to his Arab identity than to the Shia faith if the latter would imply acting against the interests of his country.

What all this means is that Sunni and Shia are still be locked in conflict all across the Shia Crescent. As each side steps up its activities, the other feels more threatened and hardens its response in turn. Moreover, Sunni-Shia tensions will be provoked and will increase across the world as a result. They will be on the rise in Afghanistan, Pakistan, Turkey, Kuwait, Lebanon, Bahrain, Libya, Tuni-sia, Malaysia, Egypt, and even in some European capitals, as issues of identity, rights, interests and enfranchisement will find sectarian expression.

Taking aforementioned into account, one can see, that unlike the origi-nal Great Game of the late 19th-early 20th century, the current Great Game 2.0 has geopolitical as well as religious overtones. An example of this is fact, that the current strengthening of Shia-Sunni divide will also affect the post-Soviet world, where Tehran will seek use the situation to increase its position in the Caucasus and Central Asia in the Caspian Sea basin – not so much for the purposes of propagating Shia ideology (though this can be a consequence), but in order to maintain an ability to balance the ambitions of Western and Sunni Middle Eastern powers and to promote its own state interests. Given, that over the past two years, under continuous pressure from international sanc-tions, Iran has been unable to find new customers for its oil, while existing buyers were forced to reduce their purchases by 10% to 20% every six months,11 Tehran will try to playing a right hand in the Middle East and use this opportunity to turn its already-strong regional influence into outright pragmatic dominance that will possibly become a game changer in Caspian Sea basin. On a background of the ongoing instability in Ukraine, that has ac-centuated the need for countries depending significantly on Russia for their gas supplies to diversify their energy sources, such leverage – both, tangible, in term of Iran’s own natural recourses, and intangible, in terms of Tehran’s level of influence among religious groups in neighboring countries, that has access to Caspian oil and gas – will play in Iran’s favor, adding additional hurdle to already complex region. While elections of 2013 suggested increased modera-tion at home, Tehran’s foreign policy remained bellicose. Looking at the world through the combined filters of fundamentalist Islam, the country’s growing sense of importance as a regional and global player and its impulse to empha-size insecurities and strategic loneliness and on a background of almost failed nuclear ambitions, Tehran may just aspire to a sphere of “dominating influ-ence” that includes Iraq, the South Caucasus, Central Asia, Afghanistan and the Persian Gulf.

11 N. Habibi, “How will OPEC respond to a rise in Iran’s oil output?”, 24 January 2014, from http://iranmatters.belfercenter.org/blog/how-will-opec-respond-rise-iran%E2%80%99s-oil-output (last retrieved on 1 May 2014).

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8. Geopolitics of Turkmenistan and Kazakhstan in the Caspian Region

Mukhit B. Assanbayev

Introduction

Oil and gas sector is the backbone of the economy of Turkmenistan and Ka-zakhstan. Both countries, having abundant supplies of hydrocarbons, as well as other littoral states are interested in developing a wide network of export routes. In the matter of the development of oil resources of the Caspian region, Turkmenistan and Kazakhstan were in the geopolitical isolation until recently. Therefore, any projects aimed to diversify supply of oil and gas resources from the Caspian region brings Turkmenistan and Kazakhstan together in a much greater extent than other littoral states in the region.

However, Turkmenistan’s foreign policy strategy differs from the strat-egy of Kazakhstan’s foreign policy. While Kazakhstan adheres to openness to the outside world, Turkmenistan is one of the closed countries. Turkmenistan initially pursued the official policy to be neutral and do not participate in or-ganizations established under the leadership of Russia, and kept aloof from external initiatives. Turkmenistan quickly realized that it is quite feasible to keep a regional isolationism with its vast natural resources. Besides, domestic political situation in Turkmenistan is characterized as fairly stable.

Beginning from the end of 1990s Turkmenistan has been trying to take more decisive actions toward a more alternative foreign policy of diversifying its energy exports bypassing Russia.

At first Kazakhstan’s open policy facilitated the appearance of West-ern-oriented energy policy since Astana had been full of hope for US assis-tance in matters of resolution of the Caspian Sea status and the diversification


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of transport communications. Tengizchevroil is a good example of first major contracts between Kazakhstan and the Western companies.

Like in Turkmenistan at the end of 1990s, for Kazakhstan it becomes obvious that the settlement of the Caspian Sea status and the emergence of new routes bypassing the existing Russian pipeline system are not yet foreseen. Reassessment of the role of the Western companies for Kazakhstan has been turning point. This turn resulted in the search of a new global partner and ac-tivation of the multi-vector foreign policy aimed at incorporating non-regional countries importing oil and gas resources in the Caspian region.

Nevertheless, these two countries of the Caspian region are still de-pended on Russia for oil and gas in regard to transportation more than other countries in the region. Exactly Turkmenistan and Kazakhstan are suffering most from the geopolitical isolation. Both countries are looking for new ways to get the routes to external markets. It has been the main objective of their foreign policy. In other words, any new project aimed to diversify the supply of raw materials brings Kazakhstan and Turkmenistan together to a much greater extent than the other littoral states. Both countries are equally interest-ed in the creation of new pipelines which will allow to reduce their transport dependence on Russia. And in this regard, China is positioning itself as a guarantor for achieving these goals for Kazakhstan and Turkmenistan. After the expansion the Chinese pipes will cover export opportunities of Kazakhstan and Turkmenistan in middle term.

Geopolitics of Turkmenistan in the Caspian region. Since the times of the first President of Turkmenistan S. Niyazov, the country has embarked upon the of-ficial course of neutrality, strongly emphasized in official propaganda. Ash-gabat still maintains neutrality. The country does not participate in organiza-tions which have been established or are being established in the former Soviet space. Turkmenistan has always kept aloof from the external initiatives and it quickly realized that such regional isolationism is real, when possessing raw materials inventory (especially gas) like Turkmenistan has. Internal political situation of Turkmenistan is characterized as fairly stable. The exception from the “self-imposed isolation” is the participation of Turkmenistan in the Com-monwealth of Independent States (CIS), which is purely formal association.

Most of the foreign policy activities of Turkmenistan are maintained by using bilateral ties. These bilateral ties and their specificity are mainly dic-tated by the extraction policy of raw materials. Turkmenistan is seeking to di-versify this sphere in order to withdraw from the previously predominant Rus-sian direction, which is dangerous in a strategic sense. To this effect, the policy of current President G. Berdymukhamedov coincides with the policy of the late head of state S. Niyazov. Since the gas industry is the backbone of today’s Turkmen economy, transpor-tation of gas through Russian pipeline system is of a very urgent importance

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for Ashgabat. Existing gas pipelines have been inherited from Soviet infra-structure. Turkmenistan participates in the Blue Stream project, which is in-tended to supply Russian gas to Turkey via the Black Sea, bypassing third countries. The project is supplemented with the already existing gas transpor-tation corridor from Russia to Turkey via Ukraine, Moldova, Romania and Bulgaria.1

At the same time, oil and gas fields on land in Turkmenistan are still not accessible to large investment. But Turkmen gas is supplied to Turkey within the above-mentioned Russian Blue Stream route. Western international oil and gas companies are well aware that such a situation has developed just by reason of dependence of Ashgabat on Russia. In turn Moscow restricts the development of alternative routes with global players.

In general, Turkmenistan’s dependence on Russia can be characterised like wait-and-see policy on many issues of cooperation in the Caspian region. However, repeated failures in the supply of Turkmen gas through Russian gas-pipelines2 pushed Turkmenistan to take more decisive actions, which were di-rected toward more active foreign policy in diversifying its energy exports.

Turkmenistan has started more active discussion of the various options for constructing a gas-pipeline through Uzbekistan and Kazakhstan to China, to Afghanistan, Pakistan and India, as well as through Iran and Turkey to Eu-rope.

In 2006, the Chinese company China National Petroleum Corporation (CNPC) acquired coastal concession in Turkmenistan and started to plan the construction of Central Asia Gas Pipeline (CAGP) for transporting Turkmeni-stan gas through the territories of Uzbekistan and Kazakhstan to China. The project focuses on the annual supply of 40 billion cubic meters of gas from Turkmenistan to China. Despite being very ambitious, launch of this project in 2009 showed the feasibility of such scenario. In 2009 and 2010, it became clear that Russia is unable to fulfil its obligations to Turkmenistan over purchase of previously agreed amount of gas for export to Europe. It increased urgency of energy transportation routes from Central Asia to China.

Turkmenistan’s projects with Iran. Turkmenistan also is very interested in transporting opportunity of raw materials through the territory of Iran. Con-struction of pipelines across relatively safe Iranian territory, and with access to

1 PII Pipeline Solutions, GE Oil & Gas and Al Shaheen joint venture, The Blue Stream pipeline inspection pro-ject, November 2011, available at: http://site.ge-energy.com/businesses/ge_oilandgas/en/newsletter/ geog_viewsandnews_062512/pdf/GEOG_TI2012_The_Blue_Stream_pipeline_inspection_project_020812.pdf (last retrieved on 23 March 2014). 2 March 1997 gas supplies to Ukraine and the Caucasus at the initiative of Gazprom were suspended. In April 2009, there was an explosion of the gas pipeline in Turkmenistan. Ashgabat accused of this explosion the Russian Gazprom, which had sharply reduced the volume of imported natural gas without notice of the Turk-men side.


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the world's main energy market – toward Persian Gulf, is a good prospect for Turkmenistan. To date decisive fact for Turkmenistan is found to be the Irani-an direction (line “Korpeje-Kurt-Kui”) – which is a good opportunity to ex-port its gas without usage of Russian pipelines. A gas processing plant was built in the Korpeje (Turkmenistan) as a part of the project about Turkmen gas export to Iran valued at $190 million.3

Iran imports annually 5 billion cubic meters of gas from Turkmenistan to meet their own needs (in the eastern part of Iran), and has announced its plans to increase gas supplies from Turkmenistan to 20 billion cubic meters.4 These plans are quite realistic, if to take into account the fact that in January 2010, the 182 kilometre pipeline Dowletabat-Sarahs-Hangiran has been con-structed for linking the Northern Iran and gas field in Turkmenistan.5

Turkmenistan-Afghanistan- Pakistan-India (TAPI). It should be noted that un-til recently, Turkmenistan has seriously been considering the possibility of pipeline construction within the framework of TAPI project as an alternative to the Russian gas supply routes. Realization of this project would help to strengthen regional cooperation in Central Asia, and the idea of active in-volvement of Turkmenistan was initiated by the United States in order to facil-itate the participation of Ashgabat in the peace-building process in neighbour-ing Afghanistan. However, Ashgabat will hardly meet rapprochement with the United States to the detriment of cooperation with Russia. It should also be borne in mind that Iran can make a certain pressure on Turkmenistan, which already has a number of aforementioned joint gas projects with Turkmenistan.

But there exists even more essential obstacle for realization of TAPI project – permanent instability of political situation in Afghanistan. Even if we imagine the possibility of normalizing the situation in Afghanistan, it will be another unresolved issue – how to fill pipeline in the direction of Afghanistan? Indeed, many projects that are currently at the stage of implementation will soon enter the production capacity and will significantly reduce the export op-portunities of Turkmenistan. For example, in the middle term it is expected to increase oil and gas supplies from Turkmenistan to China and possibly in a northerly direction. If Russia and China will agree on this issue this scenario

3 D. Kaliyeva, “The interests of Turkmenistan in the Caspian region: transportation issues”, in Collection of the International Conference “Prospects of development of regional cooperation in the Caspian region”, Almaty, 27 May 2005, p. 4 (Д. Калиева, «Интересы Туркменистана в Каспийском регионе: вопросы транспортировки», Сборник материалов международной конференции «Перспективы развития регионального сотрудничества в Каспийском регионе», г. Алматы, 27 мая 2005 г. c. 4). 4 E.C. Chow, L.E. Hendrix, “Central Asia’s Pipelines: Field of Dreams and Reality”, NBR Special Report no. 23, September 2010, pp. 34-35, available at: https://csis.org/files/publication/1009_EChow_LHendrix_ CentralAsia.pdf. 5 S. Smirnov, “Игри на каспийскихтрубах” (Games with Caspian pipes), Caspian World, 3 October 2013, available at: http://oilnews.kz (last retrieved on 23 March 2014).


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will become true further curtailing the capability of Asghabat to export anoth-er volumes to the Southern direction to and through Afghanistan.

Central Asia-China Gas Pipeline (CACGP). After the signing of the Agreement on the construction of the pipeline and natural gas supplies from Turkmeni-stan to China in 2006, the two governments have begun large-scale coopera-tion in this direction. Turkmen authorities consider that CACGP will provide an opportunity to bring in the near future volumes supplied to China Turkmen gas to 40 billion cubic meters per year.6

In December 2009 the heads of China, Turkmenistan, Kazakhstan and Uzbekistan officially opened the first direction CACGP (a) through Uzbeki-stan and Kazakhstan to China. The length of this section of the pipeline Turkmenistan-Uzbekistan-Kazakhstan-China is about 7 thousands km. At the same time on the territory of Turkmenistan laid 188 kilometers, 525 kilometers in Uzbekistan and 1293 kilometers in Kazakhstan and in China there are more than 4860 kilometers. In China, the pipeline will be laid to the city of Guang-zhou, where the gas will be distributed through existing gas line. Pipeline in Kazakhstan will consist of two parts. The first has a throughput capacity of up to 40 billion cubic meters of gas per year starting from the border of Uzbeki-stan and Kazakhstan to the Kazakh-Chinese border. The second part has ca-pacity of 10 billion cubic meters per year on the route Beyneu-Bozoi-Akbulak.7

As part of expanding CACGP today CNPC managed to pave the sec-ond direction (b) and scheduled for completion the third direction (c) in 2014 (route length is 2000 kilometers (or 1242 miles) on Chinese direction. To en-hance cooperation in the gas sector, in 2011 Turkmenistan signed a new agreement to supply China with an additional 25 billion cubic meters of Turkmen gas per year. Currently, this Agreement is being realized. Under the terms of the framework agreement concluded in 2012, the export of Turkmen gas to China to increase to 65 billion cubic meters (2.3 trillion cubic feet) per year.8

Through CACGP system about 27 billion cubic meters (953 billion cu-bic feet) of gas was delivered to China in 2013. According to information of CNPC, this is more than half of its gas imports and almost one sixth of con-sumption. On September 2013 during the last Turkmen-Chinese meeting the

6 Chronicle of 2013. Oil and Gas Industry, The Turkmenistan: The Golden Age, January 2014, available at: http://www.turkmenistan.gov.tm/?id=5765 (last retrieved on 20 March 2014). 7 “Turkmenistan-Uzbekistan-Kazakhstan-China became the pipeline project of the century”, Zakon.kz, 7 May 2013, available at: http://www.zakon.kz/kazakhstan/4555597-proektom-veka-stal-gazoprovod.html (last re-trieved on 19 March 2014). 8 M. Lelyveld, “China Pursues New Central Asian Gas Route”, Radio Free Asia, 10 February 2014, available at: http://www.rfa.org/english/commentaries/energy_watch/gas-02102014124143.html (last retrieved on 18 March 2014).


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sides came to an agreement on construction of the fourth direction (d) within the framework of CAGP. The new link from Turkmenistan will include 205 kilometers (127.4 miles) of pipeline through Uzbekistan, 415 kilometers (258 miles) in Tajikistan and 225 kilometers (140 miles) in Kyrgyzstan. In this direc-tion will be supplied an additional volumes of natural gas from Turkmenistan to China. However China’s plans have sparked speculation since the direction D bypasses Kazakhstan.9 It should be specially noted that, in the implementa-tion of new export routes for oil and gas, Turkmenistan will always be influ-enced by Iran, which, like Russia, is interested in strengthening its position in Central Asia and seeking to isolate the region on the rest of non-regional pow-ers. Iran, along with Russia, is actively using the unresolved dispute over the status of the Caspian Sea and does everything to prevent conclusion of an agreement on this issue.

As Kazakhstan is found in a similar situation too, Astana and Ash-gabat are equally interested in cooperation with each other. For example, Ka-zakhstan is of great interest for Turkmenistan as one of littoral Caspian states. Both countries are interested in creating favourable conditions for mutual im-plementation of joint projects in oil and gas transmission to third countries. Kazakhstan (like Uzbekistan) is a transit country for transporting Turkmen gas to the north and east. Similarly, Turkmenistan is a transit country for transporting Kazakh oil and Uzbek gas to southern and south-western direc-tion.

Relations between Turkmenistan and Azerbaijan are developing but still remain some complexities. The parties have experienced certain complexi-ties over the ownership of the oil fields in the Caspian Sea, Turkmenistan raised claims for deposits like “Azeri” (“Khazar”), “Sharq” (“Altyn Asir”), “Kapaz” (“Serdar”). But, nevertheless, both sides’ attempts to agree on this should be noted. Solution could be the joint development of the disputed fields10 or other alternative ways out of the conflict. But there is something im-portant that can contribute to the resolution of disputes between the two coun-tries. It is the aspiration of the two countries to find ways of entering foreign markets and their dependence on each other. Ashgabat and Baku realize that it is impossible to achieve this task without the normalization of bilateral rela-tions. So in general, cooperation between Turkmenistan and Azerbaijan in the future may have a perspective.

In general, it becomes apparent that the Turkmen authorities have come to realize the necessity of activating foreign policy. New initiatives of the authorities have not yet led to the final elimination of the regional isolation of

9 M. Lelyveld, 2China Pursues New Central Asian Gas Route”, Radio Free Asia, 10 February 2014, available at: http://www.rfa.org/english/commentaries/energy_watch/gas-02102014124143.html (last retrieved on 18 March 2014). 10 D. Kaliyeva, (2005).


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the country, but induce to suppose that the process of diversification of energy is already running. Launching of current projects and phased implementation of other initiatives in energy policy will allow Turkmenistan to find greater ac-cess to foreign markets in the future.

Geopolitics of Kazakhstan in the Caspian Region. Kazakhstan also possesses the large oil reserves in the Caspian region, but, like Turkmenistan, it is severe-ly limited in its foreign policy. Transport diversification issues are closely linked to geopolitics, and are particularly sensitive for Kazakhstan, whose economy is largely dependent on the implementation of the petroleum feed-stock in the world market. However, unlike Turkmenistan, questions of energy transportation to foreign markets for Kazakhstan turned out to be much complicated tangle of contradictions, as geopolitical interests of the three ma-jor independent players – Russia, the West and China – are clearly visible there. Russia, the West and China are lobbying contradictory projects to each other, which is clearly evident by the example of the fact that none of the many projects for transportation of oil and gas from the Kazakh sector of the Caspi-an Sea to foreign markets is running at full capacity.

In this complex geopolitical game Kazakhstan faces the task of balanc-ing the interests of all the leading players in the region. Originally covert stake Kazakhstan did on the US as the country which is the main guarantor of in-ternational independence. Astana had hoped to resolve questions about the status of the Caspian Sea and the diversification of transport communications, which by that time was largely dependent on the policy of neighbouring Rus-sia. And at the beginning of the 1990s Western oil companies actively rushed to Kazakhstan, while appreciating the prospects of the Kazakhstan sector of the Caspian as one of the few underdeveloped areas of the world’s oil and gas production. In 1994, they signed the first major contracts with Kazakhstan (project Tengizchevroil).

But in the early 2000s for many in Kazakhstan it has become apparent that the solution of the Caspian Sea status and the emergence of new routes bypassing the existing Russian pipeline systems are not yet in sight. Disappointment over the US and the EU leads to a reassessment of the role of foreign companies in many countries of the Caspian region, especially in Kazakhstan. Astana started to activate the multi-vector foreign policy aimed at incorporating of various extraregional oil and gas resources importing countries in the Caspian region. First of all, Kazakhstan speeded up new projects for the transportation of hydrocarbons to China.

Today Kazakhstan is actively cooperating as with the littoral states, so with involved regional blocs and outside players. Actively involving multina-tional companies promotes the emergence of consortiums, Astana is trying to create a balance of powers and interests in the region. However, the current situation is largely determined by the geopolitics of transport communications.


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Among littoral countries which have common energy projects with Kazakh-stan, as before, Russia is leading. This is due to the Russian pipeline network which has been operating since Soviet times, and also because of huge Rus-sian-Kazakh borders that run along the entire area of the northern part of the Caspian Sea, where is concentrated the bulk of Kazakhstan’s hydrocarbons. Therefore Kazakhstan had to exploit the northern oil fields Kurmangazy (with Rosneft), Khvalynskoe, and Atash, Tub-Karagan, Zhambai (with Lukoil) to-gether with Russian oil companies.

Among the oil companies of the West involved into the exploitation of the energy resources of Kazakhstan are: Exxon Mobil, Shell, Total, Eni-North Caspian Project (Kashagan, etc.), Chevron (Mesozoic and Palaeozoic project), Shell (Pearls) and others.

Belatedly from the West and Russia, China joined in oil extraction process in Kazakhstan, but with consistent asset growth and great prospects. It has been fundamentally important for China to control not only production projects in Kazakhstan but pipelines for oil deliveries to China. Since the basic means for their participation in construction was made under the safeguards of the Chinese government. Having bought some oil fields in the far western part of Kazakhstan, China managed to significantly expand its presence throughout Kazakhstan and reach a much greater effect in a short period of time.

Joint projects between Kazakhstan and Turkmenistan currently are developing, but they will largely depend on the prospects of bilateral coopera-tion with third countries, especially with China. China’s interest here is obvi-ous. Beijing firmly believes on importance of transportation routes construc-tion from Central Asia directly to China.

Joint projects between Kazakhstan and Azerbaijan, Kazakhstan and Iran, are also developing, but their capacity and promise is largely a derivative of cooperation between Kazakhstan and the aforementioned countries, as well as parties involved in the development of energy resources in Kazakhstan.

In the early 2013, the Kazakh authorities estimated oil and gas conden-sate reserves of National Company JSC NC KazMunaiGas to be at the level of 800 million tons. The main growth of production and reserves are associat-ed with the development of the Caspian shelf and by 2020 it is planned to in-crease the level of remaining recoverable oil and condensate reserves by 1.3 bil-lion tons.11 By improving the efficiency of geological exploration works and by the acquisition of new assets, JSC NC KazMunaiGas predicts an increase in production at the company's national assets to 37.4 million tons in 2020.12

11 Forbes-Kazakhstan, The reserves of “KazMunayGas” – 800 million tons of oil, 14 February 2013, available at: http://forbes.kz/process/resources/zapasyi_kmg_-_800_mln_tonn_nefti. 12 K. Iskaziev, Hydrocarbon potential of the Caspian region, JSC National Company “KazMunayGas”, availa-ble at: http://www.kmg.kz/manufacturing/oil/atyrau_samara (last retrieved on 23 March 2014).


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Major extractable proved reserves of the country are concentrated in the North Caspian. Here are undergone major explorations in recent years. The main production growth in the future will be provided by two giant de-posits of south-eastern part of the Caspian oil basin – Tengiz on overland and Kashagan on water area in the North Caspian. Opportunities of new petroliferous basin in the north-east of the country in the South-Turgay deflec-tion are also significant where large oil field Kumkol was discovered. It is no accident that in the early 1990s the scheme of the main supply routes of oil from the Kazakh sector of the Caspian Sea took shape in the northern direction.

Caspian Transport Consortium (CTC). First of all, Kazakhstan exports energy to the north through the Russian pipeline system CTC. This direction was es-tablished in the early 2000s for the supply of crude from the Tengiz field in Kazakhstan (developed by the American company Tengizchevroil) on the Black Sea coast of Russia. Last 1.5 thousand km parcel of the route was com-pleted by Western oil companies and set in operation in 2003.

According to information by JSC NC KazMunaiGas, which was up-dated last time only in 2011, since 2001 (or since the beginning of operation of this route) and up to the start of 2010 about 223.6 million tons of Kazakh crude was transported by this route. In particular for 2010 there was trans-ported 29.9 million tons of Kazakh crude and 15 million tons was transported in 2012. Perhaps the lack of the latest information can be regarded as evidence of decreased production in this direction.

Because American company TCO (Transition Company) transports Kazakh oil via the CTC pipeline, via rail routes to Odessa and Taman, as well as via mixed route Aktau-Baku-Batumi and Aktau-Baku-Kulevi, it clearly shows the dependence of TCO from the Russian pipeline system.

Oil-pipeline Atyrau-Samara. Another export route for oil from Kazakhstan to the north through the Russian pipeline is found to be Atyrau-Samara. This pipeline is one of the existing export routes by which the Kazakh oil transport-ed via the Transneft (Russian transport monopolist and operator of oil-trunk pipelines of Russia) in the ports of Primorsk, Novorossiysk and through the Druzhba system to the North-Western, Central and Eastern Europe markets. The average annual volume of oil transportation through the pipeline Atyrau – Samara is about 15 million tons of oil a year, but it has the ability to increase the capacity to 25 million tons of oil per year. However, evidence of an in-crease of this indicator is not available, so in 2015 the capacity of this pipeline is likely to remain the same.13

13 K. Iskaziev, (2014).


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Oil-pipeline Baku-Tbilisi-Ceyhan (BTC). Pipeline BTC was originally designed primarily for transportation of Azerbaijani oil. However, delivery of Kazakh oil planned to be an important element of the project. Indeed, president Naz-arbayev, along with his Azerbaijani, Turkish and Georgian counterparts, signed the “Istanbul declaration” in 1999 which pledged support to the Pro-ject. In 2006, Kazakhstan has officially joined the oil-pipeline BTC. In 2007, Azerbaijan and Kazakhstan signed an intergovernmental Agreement on trans-portation of Kazakh oil via the BTC pipeline in which Kazakhstan has con-firmed its readiness to support this project and expressed its intention to deliv-er to Azerbaijan tankers up to 20 million tons a year from the field Kashagan.14

BTC utilization began with the transportation of Kazakh crude through the Russian pipeline system Caspian Transport Consortium in 2008, developed by the American company Tengizchevroil (Tengiz and Korolev fields in the Atyrau region of Kazakhstan). But in the same year, the transpor-tation of Kazakh oil via the BTC pipeline was interrupted because of high tar-iffs for transferring and discrepancies in the negotiations on the terms of ship-ment. Being a monopolist in the Caspian Transport Consortium, Russia strongly delayed renewal process of oil transportation in this direction. As a result, this break lasted for 5 years and only resumed in October 2013.15

Thus, the question of how soon can Kazakhstan deliver to Azerbaijan tankers up to 20 million tons of oil per year remains open. There are several explanations for this. Firstly, the main volume of oil production in Kazakh-stan is currently carried out by foreign companies that make their own deci-sions about the transportation routes of their produced oil. First oil for the BTC pipeline under terms of agreements between Kazakhstan and Azerbaijan was to be oil from the Kashagan field, launch of which is still delayed (see be-low). Secondly, in the case of the planned increase of oil production in Ka-zakhstan, priority will be given to utilization of CTC, as Kazakhstan has lia-bilities to the Russian oil deliveries through the Russian pipeline system. In turn, Russia is doing everything to deliver the maximum flow of oil from Ka-zakhstan through the Russian pipeline system to Europe, bypassing third countries and Western consortiums, i.e. through the Russian CTC. For these purposes, Russia has launched a program to expand the CTC from 35 to 67 million tons, which is expected to be completed by 2015.16 Currently, a large-scale project to increase transport capacity is under realization. Works are car-

14 tankers from Aktau to Baku across the Caspian Sea and its further transportation via BTC, and if this value is greater, so construction of an oil pipeline across the Caspian sea will be possible. However, the launch of the project Kashagan is still delayed. 15 KIOGE, Tengizchevroil resumes oil transportation via Baku-Tbilisi-Ceyhan after five years, 28 October 2013, available at: http://www.kioge.kz/ru/press-tsentr/novosti/316-28-10-2013if-1 (last retrieved on 1 January 2014). 16 S. Smirnov, “Games Caspian pipes”, Caspian World, 3 October 2013, available at: http://oilnews.kz (last re-trieved on 23 March 2014).


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ried out not only on the entire line length of 1.5 thousand km, which runs from the Caspian to the Black Sea, but also in the framework of three phases of ex-pansion.17

Thirdly, the shareholders of the project Kashagan are also sharehold-ers of CTC. Therefore, one must assume that the CTC should be fully utilized, and only after that oil from the “Kashagan” field can go through the BTC.

Kashagan Project. In 2000, in the Kazakh sector of the Caspian Sea there was opened one of the largest deposits in the world – Kashagan (Atyrau oblast). This is a large oil and gas field in the North Caspian Sea. Geological reserves are estimated at 4.8 billion tons. Common oil reserves are 38 billion barrels where about 10 billion barrels of them are extractable. Large reserves of natu-ral gas also can be found in Kashagan – more than 1 trillion cubic meters.

Field Development Project Kashagan started by a consortium known as the Offshore Kazakhstan International Operating Company (OKIOC). Then this consortium was renamed as Agip KCO (Kazakhstan Operating Company), now called North Caspian Operating Company (NCOC). This project can still be characterized as a project of a consortium of Western oil giants consisting of Italian Eni, US ExxonMobil Corp., Anglo-Dutch Royal Dutch Shell PLC, French Total, and Japan’s Inpex.18 Since 2013, it involves Chinese CNPC, which entered into a consortium instead of withdrawn Cono-coPhillips.

According to the plans of the consortium, the initial oil production from the field will be 180 thousand barrels per day, then, rise to 370 thousand barrels per day. It is assumed that in the case of launching the project Kashagan oil production could reach 1.5 to 3 million tons. Kashagan oil deliv-ery is expected to be in a northerly direction, the Russian city of Samara, and then to Novorossiysk on the Black Sea, where it should be exported. For transportation of Kazakh oil will be used Russian transport monopoly power Transneft.19

In addition, oil from Kashagan will be exported to China. The consor-tium is considering the possibility of oil supply to Baku, where it will arrive in the BTC. Part of the oil will be exported through the Batumi Sea Port, which is managed by the Kazakh company. The oil-loading terminal in Batumi, which is also under the management of Kazakh company is currently idle. Now the terminal is unprofitable and each day brings a loss.

17 P. Kretov, “Caspian Transport Consortium: Diary expansion”, Truboprovodnyi transport nefti, no. 7, 2013, pp. 18-23, available at: http://www.transpress.org/_docs/07-2013/18-23.pdf (last retrieved on 20 March 2014). 18 M. Iskakov, “The start of production at Kashagan is postponed until September 10”, Pravda Kazakhstana, 24 September 2013. 19 Ibid.


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Launch of “Kashagan” oil production was planned to 2005. However, numerous technical problems led to the postponement. Since then Kazakhstan has been trying to run the project “Kashagan”. Kazakhstan government pres-sure on the consortium is growing every year, accusations against the consor-tium in the country are increasing, but the start of the project is postponed each time. Lack of mutual trust between the Western participants of the con-sortium and Kazakhstan has increased significantly over the past few years. As subsequent course of events has shown, exactly indeterminacy in time-frame for launching “Kashagan” and a crisis of confidence between the Government of Kazakhstan and Western companies eventually contributed to the emer-gence of members of the Chinese company CNPC among the consortium. The fact was that the appearance of a major geopolitical player in the “Kashagan” project in the face of China was in the best interest of Kazakhstan. Astana had to get support of a large and alternative to the West partner in order to pres-sure the consortium of Western companies, and Beijing had to enter into con-sortium of Western companies to promote alternative transport routes from Kazakhstan to China. Common interests between China and Kazakhstan were present and the position of the two countries developed in a very favourable way. Chinese company CNPC in 2013 bought 8.33% share of ConocoPhillips from National Company JSC NC KazMunaiGas20 that represents Kazakh-stani side in this project, which went out of the project before this, giving its share to SC NC KazMunaiGas. In other words, Kazakhstan buys and resells to Chinese company CNPC American ConocoPhillips share in the “Kashagan” project. This two-way combination was necessary for Kazakh-stan and China to avoid the procedure of approval of other shareholders of the consortium North Caspian Operating Company. At the same time Ka-zakhstan also avoids the growth of project costs and receives a symbolic lead-ership: share of JSC NC KazMunaiGas grows from 16.81% to 16.87%.21

Thus, the industrial launch of the “Kashagan” project has not yet done but the potential risks, to all appearance, are waiting for all project partici-pants. Their evidence is not associated with the technical parameters of the project, but with the legal part of the project. They lie on the geopolitical plane. If at this stage the fault line runs in the relationship between Western companies and the Government of Kazakhstan, so after the increase of the level of industrial production of “Kashagan” project and diversifications of the supply of oil from “Kashagan” fault line will lie in the relationship between the members of the consortium, i.e. between Western companies and China. Project “Kashagan” is one of the largest and most complex projects of the last

20 M. Iskakov, “The start of production at Kashagan is postponed until September 10”, Pravda Kazakhstana, 24 September 2013. 21 S. Smirnov, (2013), available at: http://oilnews.kz (last retrieved on 23 March 2014).


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decade. During the last few years the project “Kashagan” was repeatedly postponed (most recent experimental industrial project launch was in October 2013 but further development of the project has been suspended). Basic con-tradictions are associated with contractual and legal part of the agreement be-tween the Government of Kazakhstan and the Consortium, as the project is developed in the form of “Production Sharing Agreement” (PSA). If you do an analysis of the current situation, it will be obvious that basically the start of the project delayed due to arising legal problems. But there will be also some other problems. For instance, it is expected that the beginning of the first phase may start soon. However, examination of geological and commercial characteristics of the “Kashagan” will require an additional time. It is expected that achievement of the planned production levels will require an additional few years. All this can take up to 5 years. But there is another problem. Exx-onMobil and Shell, according to Bloomberg, are trying to become operators of the project and ensure profitability during the second phase. It should be un-derstood that, existing PSA is limited by 2041. In this regard, Shell and Exx-onMobil are also seeking the possibility of prolongation of the PSA on “Kashagan” for an additional twenty years in order to be able to recoup the costs and make a profit for the second phase. They even declared a possibility of their withdrawal from the project. It is likely that the intransigence of the Consortium does not facilitate the mutual understanding with Kazakhstan. Meanwhile Astana considers the change of the existing PSA may mean the signing of a new PSA. Thus, the industrial launch of the “Kashagan” project may be delayed once more for unknown period.

Oil and gas pipeline “West Kazakhstan-West China”. The serious intention of China to participate in the construction of oil and gas pipeline from Kazakh-stan to China became clear in 1997, after the acquisition of the Kenkiyak and Janajol oilfields in Western Kazakhstan by Chinese company CNPC. In the agreement between the governments of Kazakhstan and China, on the basis of which CNPC acquired these oil fields in the Aktobe region, it has already been included a point about the execution works for the development of project fea-sibility study about construction possibility of direct pipeline from Kazakhstan to China.

Oil-pipeline by the route West Kazakhstan-West China was set in op-eration in 2006 (main pipeline Atasu – Alashankou). In 2010, the second stage of the route West Kazakhstan-West China was built (Kenkiyak-Kumkol-Atasu in Kazakhstan) with a capacity of 20 million tons per year.22 The client

22 KAZENERGY Association, China’s Oil and Gas Industry, 29 January 2008, available at: http://www.kazenergy.com/ru/-4-2007/1228-neftegazovyi-kompleks-kitaya.html (last retrieved on 17 March 2014).


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and the owner of the pipeline became the company of Kazakhstan-China pipe-line, established by KazTransOil and CNPC. Parallel China built oil-pipeline through its own territory (Alashankou-Dushanzi), by which China will import 10 to 15 million tons of Kazakh oil. For the processing of this oil in 2006 the capacity of the oil-refining plant in Dushanzi (China) was increased, which in-creased the volume of oil for processing from 6 million to 10 million tons per year. At the same time, the capacity of the oil-refining plant in Karamay (Xin-jiang) was expanded. In 2005, the annual volume of oil refining at that plant was increased from 3.5 million to 5 million tons.

Kazakhstan-China gas pipeline. Construction of the Kazakhstan-China gas pipeline is implemented by the company Asian Gas Pipeline (LLP AGP). This company was founded in 2008 on a parity basis KazTransGas (Kazakhstan) and Trans-Asia Gas Pipeline Limited (China). The pipeline construction was completed in late 2009. In 2014, it is planned to bring up the capacity of the pipeline to 30 billion m3 per year. Further development of the gas pipeline to 40 billion m3 per year will be implemented in conjunction with the project Construction of gas pipeline Beineu-Shymkent (Kazakhstan).

It should be noted that at the beginning of the 1990s the Chinese gov-ernment referred to the construction of an oil pipeline from Kazakhstan as for alternative option. The main focus the Chinese did on the export of Siberian oil from Russia through the route Angarsk (Russia)-Daqing (China). The pro-spect of this route was due to the presence of Soviet pipeline network in East-ern Siberia and the relative proximity of the Russian border region to the terri-tory of China. However, the active participation of Japan in talks with Russia over the construction of an oil pipeline from Russia to the Far East with access to the coast of Pacific Ocean (Eastern Siberia-Pacific Ocean), bypassing China and unclear position of Russia on the construction of the Angarsk-Daqing eventually greatly accelerated the construction of a pipeline from Kazakhstan to China.

A similar situation happened with the project for construction of gas pipeline from Russia to China according to the route Eastern Siberia-China. In the early 2000s, the British BP started development of oil and gas fields on Sakhalin and Eastern Siberia. Based on the rights of co-owner of the gas field Kovyatka (East Siberia), the company BP actively negotiated the construction of a gas pipeline to China. However, tensions of relations between the Russian leadership and BP in 2003 nullified the initiative to build a gas pipeline. After several years of unsuccessful negotiations, China speeds up gas pipeline con-struction from Turkmenistan and focuses on Central Asia. In 2006, China gets its first major gas field in Turkmenistan. In December 2009, the Government of Turkmenistan, Uzbekistan, Kazakhstan and China officially launch a gas pipeline from Turkmenistan to China via Kazakhstan territory and Uzbeki-stan. Transit of Turkmen gas through Uzbekistan and Kazakhstan to China,


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as well as export of Kazakh gas allowed Astana to diversify export routes and provide with own gas its southern areas which were not previously gasified be-fore.

Thus, due to the construction of a new oil pipeline from Kazakhstan to China according to the project West Kazakhstan-West China and a gas pipe-line from Turkmenistan to China according to the project Turkmenistan-China through Uzbekistan and Kazakhstan, Astana could manage without any assistance from the West to diversify energy transport to foreign markets, bypassing Russia.

In general, geopolitics of transport links around the Kazakhstan is composed as follows. Western oil and gas companies have faced difficulties in the practical implementation of their projects in the Caspian Sea region, be-cause leaderships of the US and the EU practically failed to solve the problem of transport dependence of Kazakhstan from Russia. This allowed to Moscow significantly strengthen its influence. We must assume that Moscow’s initia-tives to expand the network of existing pipelines to the north through Russian territory, the completion of which is expected in the near future, will gradually lead to the narrowing of possibilities of Western companies in Kazakhstan.

Particular great achievements in the Caspian Sea region have made China. Thanks to the successful linking of interests of the supplier states with the prospects of its own economic development, Beijing has managed to build and run a new pipeline transporting Caspian energy resources of Kazakhstan directly to China over the past few years, as well as to associate Kazakhstan with other countries in the region into a single transporting chain. It can be stated that the struggle for energy resources in the Caspian region entered into a new stage, where a lot of things will depend on the volume of industrial pro-duction of raw materials on the new oil and gas fields, as well as on the man-ner in which the coastal countries will resolve the status of the Caspian Sea. The absence of agreement over the status of the Caspian Sea only contributes to further strengthening of the role of China in the process of forming a new path of transport communications in the region. In the near future the above circumstances would largely determine the geopolitics of transport communi-cations in the Caspian Sea region. It remains to add that for completion of the process of formation of new transport communication contours around Ka-zakhstan and the Caspian region in general, bloc of issues relating to the status of the Caspian Sea should be solved.


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8.1 Policies of Kazakhstan and Turkmenistan over the issues of determining the status of the Caspian Sea

For more than two decades, five Caspian littoral states have not been able to agree upon final solution of the legal status of the Caspian Sea.

The major challenge for Kazakhstan and Turkmenistan is the position of Iran, which seems originally maintained the isolationist policy in order to avoid a speedy resolution of the international legal status of the Caspian Sea. Such position resulted in the loss of an initiative in case of Iran. This also re-sulted in the loss of patience and interest in case of Kazakhstan and Turkmeni-stan since the basic initiatives happened to be in the hands of other littoral countries.

Earlier Russia’s position seemed close to Iran. Russia seemed were ready for long term discussion but not for finding quick compromise. But ac-tive involvement of Western companies in the process of development of oil and gas as well as rapid involvement of China to Central Asia to participate in the development of the resources of the Caspian Sea (that no one expected) eventually led to the change of the overall configuration in the region.

These and other circumstances contributed to the fact that Kazakhstan and Turkmenistan to some extent gradually came to a common position with Russia and Azerbaijan. Interests of all of these countries have met each other in regard to creation of five national sovereign sectors, i.e. when the Caspian Sea was declared common for shipping and fisheries of the Caspian countries. On this issue, Kazakhstan shares the position of Russia and Azerbaijan today. And tomorrow Turkmenistan will be ready to join to above-mentioned issue after settling the existing territorial claims with Azerbaijan.

Position of Turkmenistan on the international status of the Caspian Sea. On many issues relating to the definition of the international status of the Caspian Sea, Turkmenistan exercises restraint, trying to approach the solution of an issue sequentially, avoiding speedy decisions or bloc approach. First of all, Turkmenistan considers it premature to conclude any agreement on the status of the Caspian Sea before clarifying the issue over the ownership of disputed oil fields with neighbouring countries.

At the same time on the main issues concerning the status of the Cas-pian Sea, the following should be noted. Turkmenistan is generally not against of the division according to the middle line. But Turkmenistan adheres to de-termination of the coordinates of the middle line on the basis of equally-spaced positions of the latitudes. Partition of the seabed and water area of the Caspian Sea, in this way, leads to the fact that at the latitude of 40°20’ from the conditional border till the coast of Azerbaijan will be three times closer than till the coast of Turkmenistan (see Figure 1) which is obviously unac-ceptable for Baku.


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The red point on the picture - it is the border between Turkmenistan

and Azerbaijan sectors at the latitude of 40.2° of northern latitude.23 Baku cat-egorically against of this principle of the middle line calculation, because thereby contested by Ashgabat fields of “Kapaz” and “Azeri”, which are now controlled by Azerbaijan, would pass to Turkmenistan and would enter into its national Caspian Sea sector. Any concession of Azerbaijan in this issue can cause the appearance of a dangerous precedent in the Caspian region with par-ticipation of Iran. Iran may become the next country which will ignore geo-graphical affiliation of other controversial fields not only with Turkmenistan, but also with Azerbaijan. This situation is tacitly recognized by almost all countries in the region. Now Azerbaijan develops Chirag field which discov-ered and developed by Azerbaijani oilers during Soviet period, but Kapaz field (with estimated 30 million tons of oil resource) is not developed by any of these states. Azerbaijan offered to Turkmenistan to establish a joint company on equal basis to develop the field, however Turkmenistan insisted on waiting until the final resolution of the status of the Caspian Sea in order to start the development of the field. It is reported that there is a ‘gentleman’ agreement between the states not to attempt any research or exploration in the Kapaz field until the both sides agree on the future of the field (which is most likely happen with the all-inclusive agreement on legal status of the sea).

Similar disputes exist between Turkmenistan and Iran over border fields (blocks nn. 27, 28, 29, 30) in the southern part of the Turkmen sector. The attempt of Turkmenistan to develop these fields together with the consor-tium of Russian companies Zarit has angered Iran. Tehran opposed against this development, claiming own rights on that fields. Russia has invited Iran in

23 E. Chernyavski, “What is the Caspian Sea and how to divide it up?”, Priroda, no. 1,2007, pp. 40-48.


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response to join the consortium Zarit, but Tehran has refused, motivating it as a necessity for the final determination of the legal status of the Caspian Sea. As a result, in April 2004, Ashgabat decided to suspend all works over this project.24

Kazakhstan’s position on the international status of the Caspian Sea. Kazakh-stan’s position on the definition of the international status of the Caspian Sea from the beginning was the median one. Astana avoided blocking approach in the issue, preferring to wait and still operate on a bilateral basis. So, initially Kazakhstan proposed to consider Caspian as ‘closed sea’ which should be sub-ject to rules of the UN Convention on the Law of the Sea of 1982 (Art. 122 and 123).25 But this proposal was rejected by Russia and Iran. In turn, Ka-zakhstan has rejected Russia’s proposal to divide the Caspian Sea according to the ‘condominium’ principle. Later, however, Kazakhstan and Russia reached an agreement on the status of the Caspian Sea on a bilateral basis, which in principle, allowed Astana and Moscow come to agreement over the develop-ment on a par three disputed major oil fields in the North Caspian (Agreement between Russia and Kazakhstan, 6 July 1998).26

This case is very symbolic, because it shows that the absence of a common agreement on the status of the Caspian Sea between the riparian countries do not interfere with the determination of the Caspian status on the bilateral level. We must assume that in the absence of a final agreement on the status of the Caspian Sea among the riparian countries, exactly similar model of cooperation in the sphere of joint development of disputed deposits will take place in bilateral cooperation between the coastal many countries of the region (except for Iran).

It should be recognized that in the ‘oil diplomacy’ of Kazakhstan there has never been emphasized special attention as to what status should be given to the Caspian Sea – the status of the sea or a lake. Another thing is im-portant. Astana has always considered it necessary to examine the seabed and subsoil of the Caspian Sea as a matter of delimitation between riparian states, therefore, actively advocated for providing to the riparian countries national jurisdiction and exclusive rights concerning the exploration and development of mineral resources in their own part of the sea. This position Astana finally formed based on the already emerged in the early 1990s forecasts about pos-sessing in the Kazakh offshore of the large hydrocarbon reserves.

24 E. Chernyavskii, (2007) pp. 40-48. 25 A. Temirbulatov, “Legal status of the Caspian Sea littoral states position”, Geopolitics and Security, vol. 12, no. 4, 2010, available at: http://geobez.ru/index.php/arkhiv-nomerov/8-kategoriya-na-glavnoj/20-new-one (last retrieved on 15 February 2014). (Темирбулатов А. М. Правовой статус Каспийского моря: позиции прикаспийских государств //Геополитика и безопасность. – № 4 (12) 2010. http://geobez.ru/index.php/arkhiv-nomerov/8-kategoriya-na-glavnoj/20-new-one). 26 Ibid.


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Today Kazakhstan’s position on the definition of the international sta-tus of the Caspian Sea should be expressed as follows. The Caspian Sea can’t be recognized as like ‘sea’ so like ‘lake’. In the case of choosing the ‘lake vari-ant’ it will be extremely difficult for navigation and fishing, which is associated with the transfer of the boundaries of modern states. ‘A sea variant’ will not be recognized by Russia, which has long advocated a 45-mile zone national juris-diction. However, the ‘sea route’ would solve all problems relating to the defi-nition of international legal status. But Russia is clearly not happy with this option, because she did not want to lose control over the water of the Caspian Sea. It is also not convenient for Iran. Therefore, Kazakhstan continues to in-sist, as before, on adopting its methods of separation of the Caspian Sea to the special economic zones in the midline. Kazakhstan stands for the division of the Caspian seabed, because it wants to maintain the exclusive right to develop its resources, and for the overall water column as a way to maintain coopera-tion in the fields of shipping, fishing and restoration of biological resources. Thus, the absence of a final agreement on the international status of the Cas-pian Sea among littoral states does not prevent Astana from adhering to its previously chosen course.

Conclusions

At the very beginning of 1990s, the activity in the foreign policy of Turkmeni-stan is taken by bilateral ties. These bilateral ties and their specificity are dic-tated mainly by the policy of natural resources extraction. In this regard, Turkmenistan is seeking to diversify, that is to say to departure from the pre-viously predominant Russian direction, dangerous in a strategic sense.

Because the gas industry is the basis of today's Turkmen economy, the issues of transportation of gas through the Russian pipeline system, inherited from the Soviet infrastructure, is very sensitive for Ashgabat. Therefore, Rus-sian policy has a decisive importance for Turkmenistan.

Thus “wait-and-see” attitude of the Turkmen side on many issues of cooperation in the Caspian region, observed during1990's, can be explained by Turkmenistan's dependence on Russia. However, repeated failures in the sup-ply of Turkmen gas through Russian pipelines pushed Turkmenistan to take more decisive actions toward a more active foreign policy of diversifying its energy exports bypassing Russia.

After the signing of the Agreement on the construction of the pipeline and natural gas supplies from Turkmenistan to China in 2006 (Central Asia Gas Pipeline), Turkmenistan began to pay more attention to cooperation with China. For its part China has invested heavily in developing gas imports from Turkmenistan, opening its CACGP across Uzbekistan and Kazakhstan at the end of 2009. The new direction “D” is said to be completed in 2016. Thus, the


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recent Chinese plans to construct the fourth pipeline known as direction “D” is clear evidence of arising strategic partnership between Turkmenistan and China with the framework of Central Asia.

In general, it seems that the situation with the uncertainty of the inter-national status of the Caspian Sea in reality suits all parties of the negotiation process, and above all, Turkmenistan and Kazakhstan. Existing law allows them to conduct exploration and subsequent development of oil fields in a cer-tain range and without much consideration on neighbours. This is because the basic contradictions of the parties in the Caspian are related to the competing routes of hydrocarbons transportation, but conflicts can only be started only by laying them on the seabed, which will invariably address the issue of the in-ternational status of the Caspian Sea.

Since the late 1990s, Kazakhstan began to incline toward a more inde-pendent model of active “oil diplomacy”. The general idea of this diplomacy is characterised as "preserving certain distance from Russia and the West" within framework participation and assistance of China. The "Chinese factor" is the very one which makes the relationship between Kazakhstan and Russia not as unambiguous as they was before the arrival of Beijing to Kazakhstan and Cen-tral Asia. Unlike Western-oriented Azerbaijan or in contrast to Turkmenistan, which has retained the majority of hydrocarbon deposits under the state own-ership, Kazakhstan stands in a more difficult position.

It has to play with three strategic players: West (represented by West-ern multinational companies that own most of the explored deposits of the country), China and Russia. Here Kazakhstan should consider not only the today’s realities, but also geopolitics of coming decades, during which various scenarios can happen to destabilize the situation in the Caspian Sea region.

In recent years the oil and gas sector of Kazakhstan has become one of the key elements to support the socio-economic reforms. According to figures in 2013, Kazakhstan's oil production has increased more than three times and reached the level of 80 million tons per year. Gas production in Kazakhstan has grown five times and reached 40 billion cubic meters per year. Thus, today the oil and gas industry provides 25% of GDP and provides about two-thirds of the state budget. According to the authorities, Kazakhstan currently devel-ops three oil fields of the supergiant category. Wide network of main oil and gas pipelines are being actively built27.

Needless to mention that security and cooperation in the Caspian Sea region are of paramount importance for Kazakhstan, as about 70% of Ka-zakhstan’s hydrocarbon reserves are concentrated in the west of the country.

27 Capital, Oil and gas industry provides 25% of the GDP of Kazakhstan, 8 October 2013, available at: http://kapital.kz/economic/21860/neftegazovaya-otrasl-obespechivaet-25-vvp-rk.html (last retrieved on 21 March 2014).


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In proven oil reserves, Kazakhstan is among the top 15 countries in the world, having 3% of world oil reserves – According to the country’s authorities. Oil and gas areas occupy 62% of the country, where there are 172 oil fields, of which more than 80 are under development.

Part III

Interests and Policies of Global and Regional Actors

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9. On Regions and Regional Framings: The Missing Link between the European Union and the Caspian Sea Basin

Michela Ceccorulli

Introduction

That the European Union (EU) acknowledges the relevance of the Caspian Sea basin is clearly confirmed by the centrality of this regional area in its over-all energy strategy and policy. European energy security, it is broadly argued, builds inevitably on relations with both supply and transit countries: this is the main reason behind an ‘external dimension’ of energy security. Against this background, the Caspian basin assumes a prominent role for the European Union both because of the resources this geographical spot has and because of the transit role it may play for energy deliveries towards Europe. Thus, the EU has set forward a set of objectives regarding the area: the promotion of sus-tainable development of energy resources; the exchange of policy, regulatory and technical know-how; the deployment and advancement of new energy sources; the modernization of existing and the promotion of new energy infra-structures and transportation systems. Even though important results have been reached, some limitations keep characterizing the European approach and the cooperation path. An effective EU foreign policy strategy towards the Caspian to sustain the overall energy strategy is basically lacking and this fact, ultimately, impacts on the scope and the extent of cooperative attempts.

This basic acknowledgment brings one to wonder about the overall EU’s approach toward the area: is the Caspian perceived as a region in the same vein as other geographical areas? Has the European Union developed a strategy toward the Caspian? Where does the Caspian figure in EU’s strategic projections? Which issue-areas have been the object of dialogue or cooperation


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between the Union and the Caspian basin? These and more questions consti-tute the bulk of this chapter.

In fact, the EU has increasingly shaped its relations with the outer world through the promotion of regional approaches and policies, inde-pendently of the effective existence of institutionalized regional forms of coop-eration among foreign states. Indeed, this approach is easily understandable for at least two reasons: first, regional cooperation has been the distinctive trait of the EU’s experience and the promotion of integrative efforts elsewhere is supposed to bring about overall benefits. Second, most of the issue areas of concern for the European Union are better addressed through regional ap-proaches and solutions. For example, the promotion of transportation and in-frastructural projects demands for coordination among neighbouring states in the same vein as the limitation of pollution in the Caspian Sea waters. Trans-national challenges particularly require regional approaches following the ar-gumentations of the ‘regional complex’ theory developed by Barry Buzan and Ole Wæver (2003) according to which threats travel easier along short rather than long distances. In general, the regional one seems to be a fair geograph-ical context to look at to understand the interplay between global and local dynamics on the governance of a phenomenon. The increasing attention paid to the Caspian basin by powerful international actors adds to the importance of a regional approach, if not for the reason that this latter directly borders the Union’s neighbourhood.

Against this background this chapter discusses first how the EU has framed cooperation in the realm of energy and infrastructures with the Caspi-an basin. This specification is all the more important given that while bilateral relations between EU members and Caspian states may, in certain cases, prove to be quite developed, this chapter focuses on regional dynamics at play (EU-Caspian basin) and on their limits. Deriving from this latter consideration, in the second section the chapter explores the place of the Caspian basin in the EU’s strategic planning. This part highlights the reach and the weaknesses of the EU’s approach towards the geographical area, so as to offer insights for a comparison with approaches undertaken by other international actors consid-ered in this volume, such as the United States, China and Turkey. Finally, and building on what has emerged thus far, the third section considers the issue ar-eas that, aside from energy, have constituted the bulk of cooperation efforts with the Caspian basin, paying particular attention to the transnational issues discussed in the first part of the book.

On Regions and Regional Framings

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9.1 It’s all about energy

Cooperation with the Caspian region on energy issues is recognized by the Eu-ropean Commission to be at the top of the EU’s political priorities.1 Funda-mental is to deepen cooperation because ever more important is energy for the EU’s fundamental needs, growth and competitiveness. Right immediately after the enlargements waves, the European Commission recognized the importance to frame the development of the energy policy not only with new states but al-so and especially with neighbor countries and partner countries outside of the EU perimeter.2 Against this background it was explained that the EU had a ‘specific interest’ in the extensive oil and gas reserves of the Caspian basin. Ac-cordingly, it was fundamental to facilitate the transportation of Caspian re-sources towards Europe either through Russia or other transit routes. In par-ticular, it was reported, to ensure ‘safe’ and ‘secure’ export routes would an-swer EU’s energy security needs as well as promote the social, political and economic development of the Caspian region.3

Following a global trend, it is especially gas (of which the Caspian ba-sin is particularly reach) to witness the most relevant increase in demand, something which renders the ‘struggle’ for its achievement harsh and political in nature given the rigidity characterizing its market.4 Thus, explains an au-thor, “Linking together producers and consumers over the long-term, the gas market normally requires a wider entente between the two sides, which entails a higher degree of political entente and consequently a greater role for policy makers and so-called energy diplomacy”5. Also, key is to come to terms with Caspian states given the chronic turbulence characterizing the Middle East and North Africa and the declining EU domestic production.6 The Caspian region is full of already known and still untapped energy-related resources, es-pecially if Azerbaijan, Kazakhstan and Turkmenistan are considered.7 If rela-tions with Azerbaijan are already well on track, the Commission recognizes

1 European Commission, The Caspian region and Central Asia, Country file, Market Observatory for Energy, March 2010. 2 European Commission, On the development of energy policy for the enlarged European Union, its neigh-bours and partner countries, COM(2003) 262final/2, Bruxelles, 26 May 2003. 3 Ibid. 4 ExxonMobile, The Outlook for Energy: a View to 2040, 2012, available at http://corporate.exxonmobil.com/en/energy/energy-outlook. 5 C. Frappi, “EU Energy security policy and Azerbaijan”, in C. Frappi, G. Pashayeva, (eds.), The EU and east-ern partnership: common framework or wider opportunity? EU-Azerbaijani perspectives on cooperation, Mila-no, Egea, 2013, p. 48. 5 International Energy Agency, Worl Energy Outlook 2013, OECD/IEA, Paris, 2013, p. 55.

7 Azerbaijan, Kazakhstan and Turkmenistan jointly posses a share of 2.2% and 10.5% of ttal oil and gas world proved reserves. BP, Statistical Review of World Energy, Pureprint Group Limited, London, June 2013, pp. 6, 20.


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that relations with Kazakhstan and Turkmenistan should be enhanced.8 This is all the more important given that the two countries rank especially high re-spectively in oil and gas reserves. And yet, as of today, the EU has not even a delegation in Turkmenistan.

Table 9.1 - Major Caspian oil and natural gas export routes to European markets

Pipeline Content Transit route. Origin-destination

Baku-Tbilisi-Ceyhan (BTC)

Crude oil Kazakhstan-Azerbaijan-Georgia-Turkey

Caspian Pipeline Consortium (CPC)

Crude oil Kazakhstan-Russia

Uzen-Atyrau-Samara

Crude oil Kazakhstan-Russia

Baku-Novorossiysk (Northern Route Export Pipeline)

Crude oil Azerbaijan-Russia

Central Asia Center gas pipe-line system (CAC)

Natural gas Turkmenistan-Uzbekistan-Kazakhstan-Russia

Baku-Tbilisi-Erzurum (BTE, South Caucasus Pipeline)

Natural gas Azerbaijan-Georgia-Turkey

Source: EIA 2013, own adaptation.

The regional background of cooperation talks is represented by the ‘Baku Initiative’. Held in 2004 and gathering the twelve countries of the Black Sea and the Caspian basin plus the European Commission, the Ministerial Conference that set the bases of the Baku Initiative was mainly aimed to deep-en the integration of energy markets. The energy chapter was not only to pro-mote cooperation on the hydrocarbon sector, but also on electricity, energy ef-ficiency and renewable energy sectors. As a follow up to this meeting, four Working Groups of experts have been created. The Initiative was supported by INOGATE, the Interstate Oil and Gas to Europe programme funded until 2006 under the TACIS programme and aimed to promote energy cooperation9 between the European Union, the littoral states of the Black and Caspian Seas

8 European Commission, Regional Strategy Paper for Assistance to Central Asia for the period 2007-2013, 2007; European Commission, “An EU Energy Security and Solidarity Action Plan”, Second Strategic Energy Review, COM(2008) 781 final, Bruxelles, 13 November 2008. 9 Areas of cooperation include oil and gas, electricity, renewable energy and energy efficiency. For more on the programme see http://www.inogate.org/index.php?option=com_content&view=article&id=46&Itemid=72 &lang=en.


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and their neighbouring countries through a technical assistance programme. The 2nd Energy Ministerial Conference held in Astana (Kazakhstan) in 2006 convened the littoral states of the Black and Caspian Sea (the Republic of Azerbaijan, Georgia, the Republic of Kazakhstan, the Republic of Moldova, the Republic of Turkey, Ukraine, the Republic of Armenia, the Republic of Belarus, the Kyrgyz Republic, the Republic of Tajikistan, the Republic of Uz-bekistan and the EU Presidency, the European Commission, the EU Member States, the EU acceding countries, the EIB, the EBRD, the World Bank and Russia as observer. The conference concluded the process that, starting from the Baku Initative in 2004, has determined an enlargement of the INOGATE scope and objectives. In this Conference a Road map, enlisting short-medium and long term objectives for enhancing energy cooperation was established in line with the ENPI regional strategy for Eastern Europe 2007-2010.

Table 9.2 - Energy Road Map: objectives

a Converging of energy markets on the basis of the EU internal energy market principles taking into account the particularities of the Partner Countries.

b Enhancing energy security by addressing the issues of energy exports/imports,

supply diversification, energy transit and energy demand. c Supporting sustainable energy development, including the development

of energy efficiency, renewable energy sources and demand side management. d Attracting investment towards energy projects of common and regional interest.

Source: Ministerial Declaration 2006.

Given that a stable and predictable flow of energy resources is a com-mon interest of both the European Union and of the Caspian states10 coopera-tion dialogue has opened on various tables and has concerned 1) the promo-tion of the sustainable development of energy resources, included the imple-mentation on international agreements on transport, air and maritime safety; 2) the diversification of energy supply routes; 3) the development and ad-vancement of new energy resources and 4) the exchange of policy, regulatory and technical know-how to improve energy efficiency. Let’s explore each of these chapters.

The first issue is about the actual exploitation of energy resources in the region. Indeed, last years have seen a real misuse of energy resources, something which has greatly contributed to an amplification of environmental challenges. Against this background, the Caspian Sea Environmental Conven-

10 European Commission (2010).


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tion, of which Kazakhstan and Turkmenistan are members, provides a frame-work for discussion where the Caspian Sea and the close river waters protec-tion are seriously taken into account. A project on ‘maritime safety’ was fi-nanced between 2009-2011 with 3.5 million euro to support the development of common security management, maritime safety and ship pollution preven-tion for the Caspian and the Black Sea - SASEPOL.11 The trade-off between growth exigencies and sustainable development is sensitive in emerging coun-tries, and indeed one difficult to agree on. Given the likely environmental im-pact determined by the exploitation of energy resources and the objectives the EU has set for itself in its 2020 growth strategy, a particular emphasis has been put on environmental issues “no energy infrastructure project can escape an impact assessment to the highest environmental standards”.12

As far as the second issue is concerned, of particular interest for the EU has been the creation of a ‘Southern energy corridor’ where the idea of a trans-Caspian gas link was embodied. A mandate by the Council to the Euro-pean Commission has been authorized to negotiate this project, “Not many people are aware that this is the first time the European Union has proposed a treaty in support of an infrastructure project. This demonstrates how im-portant this project and co-operation with the region is for the European Un-ion and all of its 27 EU Member States”.13 In this sense, the Caspian would contribute to EU’s energy security through the provision of additional supply routes.14 In the 2008 Second Energy Strategic review it is strongly emphasized that the development of the Southern gas corridor is “one of the EU’s highest energy security priorities”; in this sense, work should be organized so as to “rapidly securing firm commitments for the supply of gas and the construction of pipelines necessary for all stages of its development”.15 Not only that; as Commissioner for Energy Oettinger has explained, the European Union is strongly convinced that the pipelines would improve stability and prosperity in the region.16 Throughout time, the European Union has supported various pipeline projects connecting the Caspian region to Europe such as the Nabuc-co and other regional projects crossing the Caspian.17 In 2011 the TANAP (Trans-Anatolian gas pipeline project) agreement has been signed, bringing natural gas from the Caspian directly to the European Union. Together with the World Bank and the European Investment Bank, the European Commis-sion has decided to establish a mechanism for the purchase of the Caspian gas,

11 Delegation of the EU to Ukraine (2010), TRACECA, “EU Co-operation News”, no. 50, 22 April 2010. 12 G.H. Oettinger, Remarks of European Commissioner for Energy, VI Kazenergy Eurasian Forum, Astana, 4 October 2011, p. 3. 13 Ibid. 14 European Community (2007). 15 European Commission (2008), p. 4. 16 G. Oettinger, (2011). 17 Ibid.


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with a special focus on deliveries from Turkmenistan, the so-called ‘Caspian Development Corporation’,18 although this project looks still rather fuzzy.

An issue strongly related to the delivery of energy resources towards the Union has to do with the transport systems, their interoperability, their ef-ficiency and their development. That of transportation figures as a regional is-sue and the European Union pays a particular attention to encouraging re-gional integration on the matter. In this sense, the role of TRACECA (Transport Corridor Europe-Caucasus-Asia), a transport cooperation pro-gramme between the EU and partners countries in Eastern Europe, the South-ern Caucasus and Central Asia, is of particular relevance to encourage cooper-ation in the region; to attract (also private) investments for specific projects; to link the corridor with the trans-European networks (TENs) and to increase partners’ capability to access to European and other markets.19 TENs, an EU device for the funding of transport investments, has placed the Caspian Sea within the Central and South-eastern transnational axes of interest individuat-ed for the Union, connecting the EU with the Caspian and this latter with ad-jacent regions for the enhancement of overall trade, traffic and exchanges.

As far as the third issue mentioned is concerned, there is not something specific referring to the Caspian basin. Instead, the fourth issue is of particular relevance for the European Union: lacking the instruments commonly em-ployed to approximate other states’ legislation and tools (included statistical standards and methods, European Community 2007) to its own standards, di-alogue has especially been attempted with non-member states in this domain. Specifically, it has been explained that the integration of neighbouring coun-tries in the EU market and the enhancement of proximity among societies would only be achieved through “compatible and interconnected” infrastruc-tures and “approximated regulatory environments”.20 Technical assistance for the implementation of the recommendations agreed upon in the ‘Baku initia-tive’ has been offered.21 The European Union has also put a particular empha-sis on the modernization and the further development of energy infrastructural projects, especially as far as gas delivery is concerned. As seen above, the sup-port of the private sector in this direction has been deemed fundamental.22 As-sistance in this domain is supposed to advance the progressive integration of the region’s energy market and the convergence of regional policies on the matter.23

18 IHS CERA, Caspian Development Corporation, Final Implementation Report, Cambridge, December 2010. 19 Delegation of the EU to Ukraine (2010). 20 European Commission, Extension of the major European trans-European transport axes to the neighbouring countries. Guidelines for transport in Europe and neighbouring regions, COM(2007) 32 final, Bruxelles, 31 January 2007. 21 European Community 2007. 22 Council of the European Union 2012b. 23 European Commission, (2007a).


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All these insightful elements notwithstanding, one wonders whether the “political nature of energy security policies”, as Carlo Frappi puts it,24 has been really investigated. As a matter of fact, the EU has admonished that it must demonstrate to be prepared to deal with the Caspian region on a long term basis both on the political and the economic level.25 If that holds true for energy it is even more so for other issue areas under debate today, such as transport and environmental issues where institutional harmonization is even more stringent and yet more difficult to impose. Even though the EU recog-nizes the geo-economic importance of the region, this seems to have not led to the framing of an overall regional policy, not even on energy issues. Ultimate-ly, this limitation calls into question the complicated relationship the EU has to manage with two of the players in the region, Russia and Iran which (alt-hough for different reasons) inevitably complicates the breadth and reach of the regional cooperation. The complicate relation with Iran seems to be a ma-jor impediment: as a matter of fact, the Commission seems to implicitly recog-nize that, given the fact that political conditions are not yet ripe to envisage forms of energy cooperation between the EU and the country, difficult is to conceive a regional strategy towards the Caspian.26 Not only that. Strong bi-lateral relations between Russia, Iran and single EU member states downplay the potential impact of a regional coordinated approach.

The lack of a political clout is partly to be attributed also to the scarce attention some of the states in the basin pay to EU’s dynamics and a prefer-ence for traditional although consolidated channels of cooperation. In fact, if exception is made for Azerbaijan, which, thanks to its geographical position is much more inclined to talk with Europe, Kazakhstan and Turkmenistan see probably of less interest an overall cooperation with the EU and even less so to be involved in an EU’s regional strategy on energy. More to that, legal issues regarding both off-shore deposits and more in general the regional develop-ment of the energy sector have complicated the realization of the Trans-Caspian corridor and have suggested the poor support the states of the region show for regional initiatives in general. This pushes to reflect on a further limit to overall regional cooperation in different domains, that is, the lack of an overall agreement on a legal definition of ‘the Caspian’,27 discussed elsewhere in this book.

For the time being and given political difficulties, the Union seems to insist on the promotion of cooperation tables at various levels and through dif-

24 C. Frappi, (2013), p. 44 25 European Commission, On security of energy supply and international cooperation –“The EU Energy Policy: Engaging with Partners beyond Our Borders”, COM(2011) 539 final, Bruxelles, 7 Sptember 2011. 26 European Commission, (2008). 27 EIA, Overview of oil and natural gas in the Caspian Sea region, US Energy Information Administration, 26 August 2013.


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ferent instruments. The idea is to create a ‘partnership’ with all countries en-gaged in particular through the development of bilateral relationship, hoping that this will increasingly promote regional integration among the partners and pave the way for a possible regional dialogue.28

9.2 Assessing the nature of the Caspian Basin

The focus of this book demands to further investigate on how the Caspian ba-sin is conceived by the European Union. As seen in the previous section, refer-ence to the ‘Caspian region’ surfaces here and there in EU’s documents but how is the Caspian really perceived? Is it recognized as a region to deal with? What is its place in the EU’s regional strategies? Before going deeper into these questions two preliminary statements can be made. First, and as widely argued in the first section, the Caspian basin is recognized as relevant from a geo-economic point of view: that is, the presence of energy resources is one of the (and from a EU’s optic probably the most important) leading elements in promoting the label ‘Caspian region’. Second, the Caspian basin appears in EU’s documents whenever the Eastern partners of the Union are called into question; that is, the Caspian represents both the eastern limes of the Neigh-borhood and the space between this latter and other regional frameworks the Union deals with, such as Central Asia.

Through years the European Union has developed a peculiar way to deal with the external world: on the one hand, it has established bilateral rela-tions with third states. On the other hand, it has tried to promote regional ap-proaches to specific geographical contexts. The reason is quite intuitive. Pro-cesses of integration are believed to be fundamental to better deal with eco-nomic and security matters. This peculiar working-method has gained particu-lar currency with the increasing pace of globalization that, while nesting coun-tries through a set of various relations, has also amplified the occasions for clashes among them, especially in an international context which seems more than ever rather fluid. Not only that. Globalization does not seem to have weakened physical borders (which in most of the cases have instead been strengthened) but instead the ability of states to counter the impact of external security challenges. Thus, environmental issues, organized crime and illegal flows which have a clear impact on a state internal security cannot be appro-priately faced through self-reliant strategies. Hence, globalization has in-creased the necessity of regional governance, that is, of coordination attempts at the regional level, a fact that the European Union recognized soon. Given the rapid propagation of threats and given the necessity of regional govern-

28 European Commission, (2008).


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ance approaches, when backed by political support, inter-regional cooperation among actors has followed suit.

Given the relevance of the Caspian for the EU’s security overall in-tended, that is for ensuring energy supply at fair prices as well as for counter-ing an increasing array of challenges arising in or transiting through this con-text towards the EU, such as illicit traffics, terrorist activities and environmen-tal issues, one would imagine the EU having framed a regional approach. In fact, considering that complex geographical landscape, the EU has inserted Central Asia and the South Caucasus among those recognized to be ‘regions of the world’.29 In the first case, regional policies, encompassing dialogue on hu-man rights, education, rule of law, energy, transport, environment and water, border management, trade and economic relations are framed through the ‘Central Asia Strategy’,30 mainly spurred this latter by the EU increasing en-gagement in Afghanistan and neighboring territories. In the second case, rela-tions are especially established through bilateral policies.31 The Black Sea Syn-ergy has been conceived to increase cooperation among the countries sur-rounding the Black Sea on transport, energy, the environment, civil society, information society and research and eventually on public health, high educa-tion and organized crime.32

References to the Caspian basin can be found in the EU’s strategy to-wards the Southern Caucasus states (Azerbaijan, Georgia and Armenia), alt-hough in this case energy is the theme through which the Caspian basin is dis-cussed.33 References to the Caspian basin can also be found in the Neighbor-hood Action Plan and in the Energy Strategic Partnership that the EU has agreed with Azerbaijan, the littoral state that exhibits the strongest relations with the Union.34 In this case, though, references are limited to the Caspian as a promising and relevant energy source, and refer to Azerbaijan as a key trans-it route especially from Turkmenistan. The same European Commission rec-ognizes that discussions on energy cooperation in the region have been firstly inserted in the Partnership and Cooperation Agreements with Azerbaijan and Kazakhstan, while technical assistance related to energy matters has been pro-vided through the TACIS (Technical Assistance to the Commonwealth of In-dependent States) programme.35 Strengthening inter-regional cooperation in the energy (oil, gas electricity), transport, science and technological develop-

29 See http://eeas.europa.eu/regions/index_en.htm. 30 The sort of ‘disengagement’ that some authors observe vis-à-vis Central Asia, explained among others by the substitution of the High Representative for Central Asia with a special envoy in early 2014 (Boonstra 2014) represents even a bleaker picture for the perspective of cooperation with the Caspian basin. 31 For more on relations with the South Caucasus see http://eeas.europa.eu/south_caucasus/index_en.htm. 32 For more on the Black Sea synergy initiatives see http://eeas.europa.eu/blacksea/index_en.htm. 33 Council of the European Union, 2012. 34 European Commission, European Neighbourhood Policy. Working towards a Stronger Partnership, SWD(2013) 88 final, Bruxelles, 20 March 2013. 35 European Commission (2003).


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ment fields between EU/Black Sea and Caspian littoral states is also empha-sized in the Action Plan for Georgia.36 Even in this latter case, though, and aside from the energy chapter, improved cooperation with the Caspian region is set vaguely. Part of the reason may be that, if exception is made for Iran and Russia, the states pertaining to the basin are already encompassed within re-gional frameworks either in the South Caucasus (Azerbaijan) or in Central Asia (Kazakhstan and Turkmenistan).37 The fact that this geographical con-text hosts two pivotal states, Iran and Russia, key for the regional balance and the development of the region and with whom the EU has peculiar approaches may also account not only for the lack of an approach but also for a missing projection towards the area.

9.3 EU and the Caspian Basin: the importance of a regional approach

One of the main aims that can be extrapolated from many documents not di-rectly engaging with the basin is the desire of the EU to promote broader re-gional cooperation in the Caspian.38 With a view to this objective, the EU has generally supported deepened bilateral and multilateral inter-regional coopera-tion among the Black Sea, the Baltic Sea and the Caspian Sea regions.39

As seen in the first section of this chapter, the European Union has emphasized the importance of a regional approach on environment and transport-related issues. Indeed, this has resulted as a spin-off of talks on ener-gy matters. As seen above, SASEPOL, a TRACECA project, funded with 3.4 million euro aims to improve the adoption of international legislative frame-works and conventions for maritime transport, security and environmental protection and engages both Black Sea and Caspian Sea countries. A Caspian Environment programme has also been created for the sustainable develop-ment of the basin. A general reference has also been made to the necessity to increase strategic and operational cooperation with Caspian littoral states to intercept narcotics shipment originating from Afghanistan in the Action Plans for Azerbaijan and Georgia.40 In a similar way, importance has been attributed to the enhancement of law enforcement cooperation with the Caspian Sea re-gion (European Union 2006a; European Union 2006b). Unfortunately, these and similar projects are spot initiatives in a set of related but limited issue-areas.

36 European Union, European Union-Georgia Action Plan, 2006a. 37 J. Boonstra, T. Tsetrstevadze, Mapping EU development aid to Central Asia, EUCAM Factsheet 1, FRIDE, July 2013. 38 (Council of the European Union 2012). 39 European Union, (2006a). 40 European Union, EU/Azerbaijan Action Plan, 2006b, European Union, (2006a).


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And yet, the variegated set of issues inserted in the EU’s conventional regional plans are overall missing here, as missing seems to be an EU’s under-standing of the geo-strategic in addition to the geo-economic relevance of the basin for its own security. The absence of an EU’s strategy towards the region clashes with the global reach the same is willing to pursue. Moreover, the lack of an overall regional approach by the European Union in a context where the EU has fundamental stakes is all the more problematic in consideration of the increasing militarization of this geographical context as well as in considera-tion of the chess-game at play among major actors projected here. As a matter of fact and as widely debated in this book, other international actors are quite active in this geographical context. In particular, as far as new challenges – ter-rorism, weapons of mass destruction proliferation, arms and drug trafficking – are concerned, different approaches have been undertaken. An example of that is the 2005 Russian initiative CASFOR or the “Operation Caspian Guard” fi-nanced by the US and addressing monitoring and surveillance in the Caspian sea.41

Conclusions

Discussing about the Caspian Sea basin or instead about Caspian littoral states poses a different set of questions and problems. In the first case the label suggests the existence of a geographical context which shows its own peculiari-ties and which is recognized as such by other actors. The wording seems to add something to the second label, which instead essentially photographs the geo-graphic location of states around the Caspian Sea.

This chapter has made clear that the EU’s reference to the importance of the basin is especially attached to this latter contribution to the EU’s overall energy security strategy. In fact, it is especially in this domain that cooperation attempts have assumed the most concrete forms. The academic literature seems to underline this focus: aside from the energy issue, the Caspian is poor-ly if at all treated in most accredited European reviews and academic journals. However, even in the area of energy, the lack of an overall institutional framework driving initiatives and connecting them synergically has down-played the potential reach of coordination, confining this latter to spot pro-jects and programmes. While the causes of this shortcoming are not only to be attributed to the European Union but also to the nature of the states pertain-ing to the basin and to their relations, the Union seems to lack an overall ap-proach to the region, something which seems to have many implications.

First, not only energy but also other security interests overall intended are at stake in this geographical context; the lack of a strategy weighs on the

41 (European Community 2007).


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possibility to have a say on these latter development and evolution. Second, other global actors not only recognize the relevance of the region but also try increasingly to engage in regional dynamics proposing their own strategies. Finally, the lack of a regional approach impinges on the EU’s overall capabil-ity to project itself out of its immediate neighbourhood, something which inev-itably undermines its global reach.

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10. The Caspian Sea Basin in United States Strategic Thinking and Policies

Carlo Frappi

Introduction

Ever since the formulation of a regional policy toward the former Soviet south in the mid 1990s, the Caspian Sea has played a special role in the White House's Eurasian policy. The geographical collocation of the basin, right in the heart of the Eurasian landmass at a critical crossroads of influence projection from the main regional actors, coupled with the presence of relevant and large-ly unexplored energy resources, were the main features providing the Caspian with a relevant place in US strategic thinking and on its foreign policy agenda.

Over the course of the last twenty years, a wide scholarly and institu-tional debate has developed around the nature of US interests at play in the Caspian area. All the more so, as the notion of a new ‘Great Game’ – taking place in the Caspian area and aimed at exploiting and transporting its energy resources as a key tool for regional influence – gained consensus among Inter-national Relations scholars and analysts.1 Although the reference to the nine-teenth-century Great Game proved misleading, not recognizing the higher complexity of post-1991 regional dynamics, it is nonetheless equally true that competition for influence has been fierce and the efforts made and role played by the United States in the political, institutional and economic regional tran-sition proved to be decisive.

That said, although the debate on the nature of US interests in the Caspian quite properly concluded that the United States had no vital interest

1 See, for instance, M.E. Ahrari, The New Great Game in Muslim Central Asia, McNair Paper no. 47, Washing-ton, National Defense University Institute for National Strategic Studies, 1996.


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in the area,2 this consideration does not diminish the importance of Caspian politics in the regional power transition, making it a significant subject of study in order to understand the dynamics and evolution of the United States’ post-Cold War Eurasian policy.

Moreover, starting from the assumption of the lack of a vital US inter-est at play in the Caspian area, it is also possible to agree with those who said that the United States’ policy toward the region – and hence the basin – has been largely a derivative of other objectives3 i.e. that the US never arranged a Caspian policy per se. However, the relevance of such objectives, accentuated by the strategic location of the basin – the convergence point of different and crucial regional security complexes – has made US Caspian policy both a stra-tegic vector and a key tool for US action in different Eurasian scenarios.

Against this backdrop, the aim of the article is to highlight patterns of continuity and discontinuity in US policy toward the Caspian – i.e. objectives pursued and instruments adopted – by analyzing the evolution of both energy and security cooperation, which have simultaneously represented the main tools and testing grounds of the White House regional policy.

10.1 Engaging the Caspian: Clinton Administration strategic thinking and policies

Assuming office one year after the dissolution of the Soviet Union and the emergence, along with Iran, of four newly independent riparian states, it was chiefly the Clinton Administration which took responsibility for laying the foundations of the US Caspian policy.

Despite the fact that the Administration’s choices marked the course of the White House regional policy from then on, the latter was rather slow in identifying US interests in the basin and, broadly speaking, in the area. This attitude apparently contrasted with the greater activism of US private inter-ests, which reached the Caspian Sea long before the policy makers turned their attention to the area. Indeed, although US energy companies were already en-gaged in the attempt to develop Caspian offshore resources on the eve of the

2 See, for instance, Joseph Nye categorization of US security interests, according to which the Caspian area would be considered as a “C” threat – i.e. posing threat to US interest, but not to its immediate security. The same view was shared by Administration officers – specifically by John E. Herbst, Deputy Coordinator for the New Independent States at the Department of State – portraying US interests in the area as important yet not vital. See J. Nye, “Redefining National Interests”, Foreign Affairs, vol. 78, no. 4, 1999; J. Herbst in: “US Inter-ests in Caucasus Region”, Hearing before the Committee on International Relations, House of Representa-tives, US Government Printing Office, Washington, 30 July 1996, p. 10. 3 See, F. Starr, “Power Failure: American Policy in the Caspian”, The National Interest, no. 47, Spring 1997, pp. 20-31; J. Barnes, US National Interests in the Caspian Basin: Getting Beyond the Hipe, James A. Baker III Institute for Public Policies, April 1998.

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Soviet collapse,4 the US Administration was not quick to follow and support private initiative.

Various were the motivations behind this initial reluctance to be active-ly involved in the area, the most relevant being the will not to jeopardize the unprecedented entente with the Kremlin which, moreover, came to be regard-ed as a stabilizing force in the volatile post-Soviet environment, whose ‘wrenching’ economic and political transitions posed “troubling uncertainties” to US strategic planning.5 Such an attitude resulted, on the one hand, in a lais-sez faire policy toward Russia – which de facto gained an indirect form of recognition of a privileged set of interests in what came to be regarded as the Russian ‘near abroad’ – and on the other hand, in an indirect ‘proxy’ engage-ment pursued mainly through Turkey, whose liberal-democratic and secular model appeared to be a natural reference and inspirational point to be provid-ed to the former Soviet republics, and especially to those linked to Turkey through ethno-linguistic affinity. Therefore, the very first phase of US policy toward the former Soviet Union was marked by a lack of regional or sub-regional focus, with the sole but relevant exception of disarmament policies, which brought specific regional actors – namely Belarus, Ukraine and Ka-zakhstan – onto the White House foreign policy radar.

It was only with the gradual decline of the so-called Russia First policy that, from late 1994, the White House set up a consistent regional policy to-ward the former Soviet south. In this scheme, Caspian Sea policy became a key vector for advancing US regional and sub-regional interests and goals, mainly due to the basin’s resource extraction potential.

The development of the Caspian Sea energy potential was functional to the achievement of three core objectives of Washington’s foreign and energy policy. Above all, it represented a key tool with which to support and foster the newly independent states’ recently-achieved independence and sovereignty, as well as help them overcome the tough economic crisis inherited at the end of the Soviet system.6 Indeed, concerns connected to state failure were paramount for the US view of the region and, therefore, while the successful transition of the newly-emerged and emerging democracies in Europe and the former Soviet Un-ion was considered to be “vital to world stability”, more specifically the Clinton Administration acted from the assumption that “a stable and prosperous Cau-

4 The reference goes primarily to the contacts established by the Kremlin, since 1987, with Chevron and BP for the development of Kazakh Tengiz field and Azerbaijani Azeri filed. S. LeVine, Il petrolio e la gloria. La corsa al dominio e alle ricchezze della regione del Mar Caspio, Fagnano Alto, Il Sirente, 2009, pp. 97ss. 5 The White House, National Security Strategy, US Government Printing Office, Washington, 1994, p. 1. With specific reference to the Caspian littoral states, US-Russian cooperation was essential in order to engage Kazakhstan, which inherited significant part of Soviet weaponry, in negotiations concerning nuclear disarma-ment and destruction of weapons of mass. 6 S. Talbot, A Farewell to Flashman: American Policy in the Caucasus and Central Asia, Address at Johns Hopkins School of Advanced International Studies, 21 July 1997.


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casus and Central Asia will help promote stability and security from the Medi-terranean to China”.7

Secondly, and consistently with the approach institutionalized by the 1998 Comprehensive National Energy Strategy,8 the development of Caspian energy potential responded to the need to diversify hydrocarbon producing ar-eas. Under this perspective Caspian resources would have allowed a reduction in over-dependence on Middle-Eastern suppliers and, at the same time, to limit OPEC’s grip on the oil market.9

The third and central tenet of the Clinton Administration’s Caspian pol-icy was “vigorous promotion of US business interests”.10 Indeed, in the Admin-istration’s view the engagement of national firms in projects aimed at the devel-opment and export of the basin’s hydrocarbons provided the ‘single best avenue’ for enhancing cooperation, as well as a favored tool for fostering regional coop-eration among the newly-independent states.11 Moreover, besides being func-tional to the enhancement of bilateral relations, US – and, broadly speaking, Western – private initiatives were seen as a way to promote the reform of the na-tional energy sectors as well as an incentive for producer states to improve busi-ness practices and the investment climate, thereby fostering the path toward the free market and, hence, toward regional prosperity and stability.12 Thus, sup-porting national companies meant advancing a logic of mutual convenience, al-lowing US companies to circumvent key constraints to activities in the area, and producer countries to attract FDI.

Against this backdrop, between 1993 and 1997, US firms supported by the White House took the lead in the development of the most promising Cas-pian oil and gas fields, especially in the Kazakh and Azerbaijani offshore sec-tors of the basin (see Table 1).

7 See The White House, National Security Strategy of the United States, Washington, US Government Printing Office, 1993, p. 1; Idem, A National Security Strategy for A New Century, Washington, US Government Print-ing Office, 1997, p. 72. 8 Department of Energy, Comprehensive National Energy Strategy, Washington, April 1998. 9 See remarks by D.L. Goldwyn, Assistant Secretary of Energy for International Affairs at the Department of Energy, in: “The Status of Infrastructure Projects for Caspian Sea Energy Resources”, Hearing Before the Subcommittee on International Economic Policy, Export and Trade Promotion of the Committee on Foreign Relations, US Senate, US Government Printing Office, 2000, p. 7. 10 J. Herbst, (1996), p. 4. 11 Ibid. 12 D. Goldwyn, (2000), p. 6.


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Table 10.1 - US firms stakes in major Caspian area oil and gas fields (at December 1998)

Field Country Company Stake Year*

Tengiz Kazakhstan Chevron (Texaco)

ExxonMobil (Mobil)

50%

25%

1993

Karachaganak Kazakhstan Chevron 20%

1997

Azeri-Chirag-Gunseshli

Azerbaijan Amoco Penzoil Unocal

McDermott

17.01% 9.82% 9.52% 2.45%

1994

Nord Caspian Sea (incl. Kashagan)

Kazakhstan ExxonMobil ConocoPhilips

18.52% 9.26%

1997

Absheron Azerbaijan Chevron 30% 1997

* year refers to the signing of the PSA and Joint venture establishment for Tengiz Sources: Compiled by the author from various sources.

Closely related to the aforementioned goals, US Caspian policy pur-sued other equally important strategic aims, the relevance of which went be-yond the boundaries of the Caspian area, gaining relevance in a broader re-gional perspective. The White House energy policy in fact represented a key tool for keeping “Turkey in, Iran outside and Russia tied down” in the wider Caspian area, to paraphrase Lord Ismay’s famous slogan.

Starting from the assumption that Ankara's and Washington's interests in the region complemented each other and from the need to work together to achieve common goals,13 keeping “Turkey in” basically meant actively sup-porting Ankara’s regional projection and, in particular, its Caspian energy strategy – both in terms of Turkish firms’ participation in upstream projects and of support for Turkocentric infrastructural projects. This goal had both an economic and a strategic rationale. Indeed, while it was functional to the enhancement of relations between Ankara and the Turkic states of the wider Caspian area, at the same time it aimed to ensure that the growing Turkish demand for energy would not result in an increase in dependence – and hence vulnerability – on energy imports from Russia and Iran.

Against this backdrop, diversification of Turkish energy supply chan-nels was in itself both an aim and a tool for achieving wider regional goals. In White House strategic thinking, Turkey had a greater role to play in US re-gional policy than merely offering an outlet for Caspian hydrocarbons. Tur-key’s strategic location between the Caspian basin and the European market

13 M. Adair, Deputy Assistant Secretary of State for European and Canadian Affairs, in: “US Interests in the Caucasus Region”, Hearing before the Committee on International Relations, House of Representative, 30 July 1996, Washington, US Government Printing Office, 1996, p. 47.


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provided a natural bridgehead for infrastructure projects, allowing the basin’s newly-independent producers to benefit from an export network able to reach Western consumers by simultaneously bypassing existing Russian infrastruc-tures to the North and potential Iranian routes to the South. Put forward in the second half of the 1990s,14 the concept of an East-West energy corridor be-tween Central Asia and Europe became the centerpiece of US Caspian policy and was one of the main reasons behind the support provided, since early 1995, to the Azerbaijani-Georgian-Turkish route for the export of oil and gas extracted in Azerbaijan – seen as the Western leg of the corridor project. In this context, the Caspian basin gained “double value” for the US regional en-ergy policy – not only as a producing area for relevant and largely unexplored energy resources but also, potentially, as a key transit channel for Central Asian hydrocarbons going westward.

In the Clinton Administration’s view, the primary justification of the East-West Corridor was the need to prevent Caspian exports from being de-pendent on transit through the territory of existing producer states – which could prioritize their own exports rather than those of Caspian producers – as well as from being dependent on an already-congested regional choke point such as the Strait of Hormuz or the Bosphorus.15

Besides addressing commercial logic, such a stance was consistent with the US broader strategic approach to the former Soviet southern tier. Indeed, while circumvention of the Russian network was a way to avoid perpetuating forms of economic – and therefore political – dependence on Moscow, the firm exclusion of Iran from the Caspian was the result of the long-standing crisis in bilateral relations and, simultaneously, the will to avert the expansion of Tehe-ran’s influence in the post-Soviet space. To simplify this, it may be argued that US Caspian policy was pursuant to a ‘double containment’ strategy which, however, worked at different degrees of intensity vis-à-vis Iran and Russia.

Keeping ‘Iran outside’ Caspian development represented an absolute imperative for US policy, an isolation strategy which went as far as vetoing any participation of Iranian companies in Caspian oil development projects.16 On the contrary, the Administration’s policy toward Russia was more nu-

14 The corridor concept was formalized and became the cornerstone for the 1997 Silk Road Strategy Act, whose main aim was “to target assistance to support the economic and political independence of the countries of the South Caucasus and Central Asia”. Hon. B. Gilman, The Silk Road Strategy Act of 1997, H.R. 2867, Congressional Record, vol. 143, Issue 156, US Government Printing Office, Washington, November 1997, pp. E2240-2. 15 F. Pena, US Secretary of Energy, in: “The Us Role in the Caucasus and Central Asia”, Hearing Before the Committee on International Relations, House of Representatives, 30 April 1998, US GPO, Washington, p. 12. 16 Besides influencing the decision of the Azerbaijan International Operating Company not to involve Iranian companies in the 1994 “Contract of the Century”, US Administration pursued the Teheran isolation policy main-ly through the 1996 Iran and Libya Sanctions Act. The Act imposed sanctions on companies investing over $20 million per year in Iran. As per the evolution of US normative action aimed at Iran isolation, K. Katzman, Iran Sanctions, Congressional Research Service Report, 11 October 2013.


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anced. With the ultimate goal of balancing, and not eradicating, Moscow’s in-fluence in its neighborhood, and consistent with the desire to keep dialogue and cooperation channels open, US policy toward Russia was a delicate bal-ance of containment and engagement strategies – a “carrot and stick” ap-proach in which Caspian energy development was one the most visible exam-ples. Therefore, although on the one hand US Caspian policy was basically aimed at breaking the Russian monopsony on the purchase of regional hydro-carbons – as well as limiting its dominant position on the Turkish market – on the other hand the White House constantly sought to avoid giving energy competition the connotation of a “zero sum game” between Russian and US interests. On the contrary, with the ultimate goal of keeping Moscow “tied down” in energy cooperation, it always stressed the win-win nature of Caspian development,17 welcoming joint ventures involving respective NOCs and advo-cating a ‘multiple pipeline’ scheme for the export of Caspian resources, fully compliant with the East-West Corridor concept.

The multiple pipeline logic was adopted on both shores of the Caspian. In Azerbaijan, it materialized in the support simultaneously provided for the Northern and Western routes – toward the Russian and Georgian Black Sea shores respectively – for the export of Early Oil extracted in the Azeri-Chirag-Guneshli (ACG) offshore field. In Kazakhstan, the US supported the Caspian Pipeline Consortium pipeline instead, designed to carry oil from the Tengiz field to the Russian Black Sea port of Novorossiysk, running along the north-ern Caspian shores (see Table 10.2).

17 Besides being consistent with the aforementioned logic, the prudent mix of containment and engagement policies was the result of the awareness that Moscow lacked a single and coherent vision of the relations with the neighbors, torn between neo-imperial tendencies and liberal views. Under this perspective, the engage-ment strategies were functional in supporting the “dovish” positions within the establishment, favoring a transi-tion suited to US interests and policies.


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Table 10.2 - US multiple pipeline scheme for the Caspian oil and gas export

Pipeline Main source US Companies Commissioned

Baku-Supsa Azeri-Chirag-Guneshli (ACG) Early oil

Chevron

ExxonMobil

Devon Energy

Hess Corporation

1999

Baku-Novorossysk ACG Early oil Chevron ExxonMobil Devon Energy Hess Corporation

1997

Baku-Tbilisi-Ceyhan (BTC) ACG Chevron, ConocoPhillips Hess Corporation

2005

Caspian Pipeline Consortium Tengiz Karachaganak

Chevron, Arco ExxonMobil AMOCO Orient

2001

South Caucasus Pipeline Shah Deniz No US company 2006

Trans-Caspian Gas Pipeline Turkmenistan ---- ----

Besides helping overcome the technical and financial issues that ham-

pered the realization of pipeline projects,18 US involvement in the Caspian en-ergy competition proved to be essential in coordinating governmental and pri-vate activities, and building a wider consensus and solidarity of intent among stakeholders which allowed for the laying of Caspian pipelines. Such consen-sus was all the more relevant for the realization of the Baku-Tbilisi-Ceyhan (BTC) pipeline which, though representing the fulfillment of US regional vision and primary goals, had a weak economic rationale compared to alternative ex-port routes due to the high costs of the project and the low energy prices in the world market throughout 1990s.19 Indeed it is difficult to overestimate the rele-vance of the BTC, which realized the US Administration’s vision and goals in terms of development of the basin’s resources, enhancement of cooperation

18 US support for pipeline projects proved to be decisive in involving international and national financial institu-tion as well as in helping coordinate stakeholders activities. Under the latter perspective, particularly significant was the 1998 opening, in Ankara, of the Caspian Finance Center, aimed at coordinating regional activities of US export finance agencies. Moreover, a key provision for the realization of the regional goals was the creation of the post of Special Advisor to the President and the Secretary of State for Caspian Basin Energy Diplomacy, entrusted sine July 1998 with the task of “assuring maximum coordination within the Executive Branch of US policy and programs relating to the development of oil and gas resources in the Caspian Basin”. The White House Office of the Press Secretary, Morningstar Named Secretary of State for Caspian Basin Energy, Statement by the Press Secretary, 24 July 1998. 19 As per coeval critic views on BTC economic rationale, see D. Dettke (ed.), A great game no more: oil, gas and stability in the Caspian Sea region, Friedrich-Ebert-Stiftung, Washington and Berlin, 1999.


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among regional actors and containment of both Russian and Iranian regional influence. In such a context, the October 1998 Ankara Declaration of support for the BTC as the main export pipeline project from Azerbaijan – subscribed to by the Turkish, Azerbaijani, Georgian, Kazakh and Uzbek presidents – and the November 1999 signing of the intergovernmental agreements for the pipeline construction were the main diplomatic achievements of Clinton’s Caspian ener-gy policy.

Although economic and commercial considerations were paramount for US regional projection – at least at first sight – security cooperation was a relevant and ineluctable component of US policy toward the Caspian Sea. Moreover, investing in security cooperation with Caspian partners – simulta-neously a key aim and a precious tool in view of regional development and stabilization – represented a basic tool for reducing the ‘above ground’ risks faced by US and Western investors in the energy sector.20

However, against the backdrop of the tensions generated by the NATO eastward enlargement, the will not to antagonize Russia as well as the difficult situation of the Caspian littoral states21 prevented the US from direct-ly engaging in the area – with the partial exception of the Congress-approved foreign military education and training programs and activities.22 Therefore, security cooperation was mainly pursued through multilateral means, both di-rectly and indirectly.

From the former point of view, although maritime cooperation never came to the fore, Caspian states were engaged in the process of transformation of the NATO from a defense alliance to a wider security cooperation mecha-nism projected over the wider Eurasian space. The main tools for engaging Caspian littoral states were the Partnership for Peace and the Euro-Atlantic Partnership Council (EAPC), launched in 1994 and 1997 respectively. While the EAPC involved partners in political dialogue, providing them with a signif-icant yet indirect form of territorial integrity guarantee, under the PfP scheme bilateral programs were initiated in order to reform the military apparatus,

20 As per a coeval perspective on the close link between energy or economic issues and security in the region, see S. Blank, Energy and Security in Transcaucasia, Strategic Studies Institute, US Army War College, Car-lisle Barracks, 1994. 21 Under this perspective, the 1994 Department of Defense Annual Report highlighted that: “Establishment of programs with [...] the Caucasus nations awaits a peaceful settlement to their armed conflicts, and cooperation with other Central Asian nations has been deferred until they implement political and economic reforms”. US Department of Defense, Annual Report to the President and the Congress, Washington: US Government Print-ing Office, 1994, p. 81. 22 Under the International Military Education and Training Program, 2.821 thousands dollars were allocated to Kazakhstan between 1992 and 2000, while 1.553 thousands dollar were allocated to Turkmenistan between 1994 and 2000. Moreover, in the same timeframe Kazakhstan and Turkmenistan received 7.050 and 2.150 thousands dollars under Foreign Military Financing program. Due to the restrictions on assistance to Azerbai-jan established by the Section 907 of the Freedom Support Act, no security cooperation was established be-tween Department of Defense and Baku. Department of Defense Security Cooperation Agency, “Foreign Mili-tary Sales, Foreign Military Construction Sales And Other Security Cooperation. Historical Facts”, Financial Policy And Analysis Business Operations, DSCA, September 2012, pp. 531-533; 697-699.


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improve defensive capabilities, foster regional cooperation, build mutual un-derstanding and promote interoperability of forces.

Besides developing under the NATO umbrella, security cooperation was simultaneously pursued through the promotion of multilateral mecha-nisms for regional cooperation. The foundation of the GUAM (Organization for Democracy and Economic Development) organization was a key initiative to support and foster regional cooperation outside Russian-promoted and hegemonized frameworks. Established in 1997 by Georgia, Ukraine, Azerbai-jan and Moldova, the grouping had tight relations with the Clinton Admin-istration.23 Moreover, though GUAM included only a single littoral state, the emphasis placed by the group on the coherent and effective development of the Caspian extraction and export potential, as well as the need to protect regional infrastructures24, nevertheless provided the forum with a special role in US policy toward the basin. Against this backdrop, although systemic and region-al conditions prevented security cooperation proposals and objectives from ac-tually being achieved, nonetheless such a vector of GUAM cooperation sig-naled the priority given to security both in relations among its members and between them and Euro-Atlantic partners, as well as in the White House's con-ception of regional policy.

10.2 Bush Administration’s ‘security first’ approach toward the Caspian

The advent of the George W. Bush Administration did not change the main drivers of US regional and Caspian policy.25 This was especially true in the en-ergy policy field, since the crisis experienced by the US in 2000-2001 placed the issue high on the electoral and presidential agenda, providing fresh stimulus to the fulfillment of the Clinton Administration’s regional goals.

Hence it was not by chance that one of the first initiatives undertaken by the new Administration was the establishment of a National Energy Policy Development Group which, under the guidance of Vice President Dick Chen-ey, was charged with the task of developing a comprehensive long-term strate-gy to meet US energy requirements – embodied by the May 2001 National En-ergy Policy.26

23 See T. Japaridze, “The Organization for Democracy and Development-GUAM: A road map to relevance?”, Central Asia and the Caucasus, no.3-4(51-52), 2008, p. 76. 24 For instance in 1998 GUAM members discussed about the possibility of establishing a regional peacekeep-ing force aimed at the protection of the Caspian pipelines to work, possibly, within the framework of the PfP. A. Burke, A US Regional Strategy for the Caspian Sea Basin, Naval War College, Newport, 2000, p. 16. 25 As per the primacy of security and energy, along with internal reform, for the US projection toward the area, see A.E. Jones, “Central Asia: Developments and the Administration’s Policy”, Testimony Before the Subcom-mittee on the Middle East and Central Asia House International Relations Committee, Washington, DC, 29 Oc-tober 2003. The same goals were put forward into the March 2006 US National Security Strategy. 26 National Energy Policy Development Group (NEPDG), National Energy Policy, US Government Printing Of-fice, Washington, 2001.


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Besides tackling the energy issue from the traditional domestic demand perspective, the so-called “Cheney Report” devoted special attention to the supply and external components of the energy equation, balancing domestic energy interests against international strategic concerns for the first time.27 Above all, the international scope of the document was the result of the shelv-ing of the “energy independence” rhetoric, which resulted in greater emphasis on the external component of energy security policies and the need to enhance the linkage between US international relationships and energy security – there-fore making the latter a priority of US trade and foreign policy. The document maintained, “US national energy security depends on sufficient energy sup-plies to support US and global economic growth”.28

In the above scheme, the Caspian Sea was regarded as one of the key areas in which the Administration was called to engage in order to strengthen trade alliances, deepen dialogue with major oil producers and work for greater oil production with a view to ensuring diversification of supply. In particular, the Report recommended that the Presidency deepen commercial dialogue with Caspian states – and particularly with Kazakhstan and Azerbaijan – in order to provide a strong, transparent and stable business climate for energy and related infrastructure projects. Moreover the Report recommended sup-porting the efforts of private investors and regional governments to develop the BTC oil pipeline and the Shah Deniz gas pipeline – the latter being seen as a way “to help Turkey and Georgia diversify their natural gas supplies and help Azerbaijan export its gas via a pipeline that will continue diversification of secure energy supply routes”.29

Besides being able to rely on the political and institutional channels set up by the previous Presidency, the Bush Administration’s Caspian energy pol-icy took advantage of the steady rise in oil prices30 which contributed to re-move one of the main commercial hurdles to the implementation of pipeline projects along the Azerbaijani-Turkish route. Therefore, having helped pipe-line projects receive financial support from the World Bank, the European Bank for Reconstruction and Development and the Overseas Private Invest-ment Corporation (OPIC), the Bush Administration presided over the con-struction of the BTC and BTE, inaugurated in 2005 and 2006 respectively.

27 For a coeval analysis of the 2001 National Energy Policy, see E. Morse, A. Myers Jaffe, Strategic Energy Policy Update, James A. Baker III Institute for Public Policy and Council on Foreign Relations, 2011. 28 NEPDG, (2001), pp. 8-13. 29 Ibid., pp. 8-13. The key role of the Caspian development in strengthening US energy security and the shared prosperity of the global economy was embodied in the 2002 National Security Strategy. See The White House, The National Security Strategy of the United States of America, US Government Printing Office, Washington, 2002, pp. 19-20. 30 The price of West Texas Intermediate oil – the U.S. benchmark – fell, in consequence of the Asian crisis, till $11.28 in December 1998. Instead, at the start of the BTC construction, in September 2002, the price was above $30 – while by the time first Azerbaijani oil reached Ceyhan, in May 2006, the price increased to $70.84.


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Notwithstanding the high degree of continuity between the Clinton and the Bush administrations’ approach toward the Caspian, the main difference between them lay in the balance of their major vectors i.e. the prioritization of energy and security considerations and policies. While energy policy took pri-ority over security cooperation during the Clinton presidential mandates, the Bush Administration marked the reversal of these priorities.

Clearly, the 9/11 attack on the US represented the single element trig-gering such a change in policy priorities – a change whose nature was tactical rather than strategic, basically accounting for an acceleration of policies initi-ated in the course of the previous decade. Above all, 9/11 had a direct and deep impact on the domestic premises of US Caspian policy, greatly influenc-ing the public opinion’s conception of the area. While before 9/11, it appeared difficult for the US Administration to pursue a more direct engagement to-ward an area perceived as remote and far from the national interest, after the terrorist attacks a broad consensus emerged on the need for a more proactive policy. Moreover, at a systemic and regional level, the anti-terrorist campaign launched after 9/11 generated an important convergence in transatlantic poli-cies as well as a relevant yet short-lived ‘honeymoon’ between Washington and Moscow, which lent support to the US in the Central Asian Enduring Free-dom campaign.31 Both trends facilitated a proactive US policy toward the Caspian basin and, broadly speaking, toward the Caucasus and Central Asian regions.

While continuing to lend support to the multilateral regional and sub-regional security cooperation frameworks,32 the Bush Administration’s Caspi-an policies were characterized by a greater emphasis on the bilateral level of relations with partners. In such a context, the main accomplishment which made it possible for the White House to pursue a more coherent Caspian poli-cy was the possibility – granted to the Administration by Congress – to waive on an annual basis section 907 of the 1992 Freedom Support Act, which pre-

31 In the wake of 9/11 events, the emerging of high expectations raised by Washington-Moscow entente the consequent possibility of building a “truly cooperative security regime across the former Soviet Union” are best portrayed by the vision of even US traditionally hard-liners. See e.g. S. Blank, The Future of Transcaspian se-curity, Policy Papers, US Army War College, 2002. 32 The reference goes particularly to NATO and GUAM. While the US supported the re-launching of GUAM framework under the denomination of GUAM-Organization for Democracy and Economic Development, NATO regional focus deepened considerably in the wake of September 11 and as a result of the decisions taken at Prague and Istanbul summits in 2002 and 2004. At Prague Summit Allies agreed to deepen bilateral coopera-tion through the Individual Partnership Action Plans (IPAP), a tailored mechanism designed to ensure that the various mechanisms in use correspond to partners’ priorities. Along with Georgia (2004), Armenia (2005) and Moldova (2006), Azerbaijan agreed the first IPAP with NATO in May 2005, while Kazakhstan in January 2006. Moreover, in Prague the North Atlantic Council launched the Partnership Action Plan against Terrorism (PAP-T), aiming at improving bilateral cooperation in the fight against terrorism, through political consultation as well as practical measures. Both Azerbaijan and Kazakhstan participate in the PAP-T framework. The Istanbul Summit marked the further deepening of NATO’s focus on the wider Caspian area, as primarily testified by the decision to create the post of Secretary General’s Special Representative for the Caucasus and Central Asia along with two NATO Liaison Officers, based in Georgia and Uzbekistan.


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vented direct military assistance to Azerbaijan. The circumvention of this legis-lation, unsuccessfully but constantly pursued also by the previous Administra-tion, was indeed facilitated by the aforementioned national consensus on the need for a proactive regional policy on the one hand, and the prompt support that Baku ensured for the Enduring Freedom operation on the other. Azerbai-jani support – along with Kazakh and Turkmen support – proved to be criti-cally important for the success of military operations in Afghanistan, as well as being fully in line with the guidelines for action outlined by the National Secu-rity Strategy released in September 2002.33 As a key transit area for reaching the Afghan scenario, the littoral states’ granting of overflight, landing and re-fueling rights in support of operations in Afghanistan, along with the availa-bility of their port and road networks for sea and land transportation of non-lethal equipment, made the Caspian a vital corridor for US and NATO re-gional power projection within the so-called Northern Distribution Network (NDN).34 In addition, the burden-sharing problem of the NATO-led Interna-tional Security Assistance Force (ISAF) participants, as well as the disagree-ment regarding the mission’s scope and threat perception, made the contribu-tion of regional non-NATO partners all the more important to the US.35

Therefore, as of 2002 the United States launched bilateral military co-operation with Azerbaijan and intensified its existing ties with Kazakhstan and Turkmenistan, providing the littoral states with a considerable amount of mili-tary aid, mainly under the Foreign Military Financing, Counterterrorism Fel-lowship Program and the International Military Education and Training pro-grams (see Table 10.3). Against this backdrop, US military assistance acquired a significant maritime dimension, designated to improve the partners’ ability to prevent and respond to terrorism, nuclear proliferation and other transna-tional threats in the Caspian, such as drug and human trafficking. These, in particular, were the basic aims of the Caspian Guard Initiative, launched in 2005 to coordinate activities in Azerbaijan and Kazakhstan with those of the

33 In particular, basing, refuelling and overflight rights proved to be critically important in order to create a web of small forward operation bases – the so called lily pads – ensuring US military strategy an higher degree of flexibility. See V. Korkmaz, “The New Power Calculations and ‘Structured’ Relations in the Fluctuating Security Environment of Eurasia”, in N. Atesoglu Guney (ed.), Contentious Issues of Security and the Future of Turkey, Ashgate, Albershot, 2007, pp. 99-119. 34 The NDN is composed of three main land routes. Among these, the Southern Route connects Georgian Black Sea port of Poti to the Kazakh Caspian port of Aktau – and from here to Afghanistan – via Baku and a sea route. Along the same route runs also an air corridor linking the US Incirlik base, in Anatolia, with Central Asia. The remaining NDN land routes connect Baltic ports to Afghanistan through the Kazakh territory. As per the relevance of NDN for US cooperation with Southern Caucasus and Central Asian partners, see A. Spruds, D. Potjomkina (eds.), Northern Distribution Network: Redefining Partnerships Within NATO and Beyond, Riga, Latvian Institute of International Affairs, 2013. 35 A. Bagbaslıoglu, “Beyond Afghanistan NATO’s partnership with Central Asia and South Caucasus: A tangled partnership?”, Journal of Eurasian Studies, no. 5, 2014, p. 89.


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US Central Command and other US government agencies with a view to en-hancing Caspian security.36

Table10.3 - Annual funds budgeted for US annual security assistance* to Caspian littoral states (FY2002-2008, in millions dollars)

2002 2003 2004 2005 2006 2007 2008 2002-2008

Azerbaijan 14.82 10.79 18.47 33.14 33.02 33.56 47.41 191.21

Kazakhstan 17.32 28.71 52.55 42.34 19.35 60.64 60.39 281.30

Turkmenistan 5.93 0.96 2.70 6.58 1.75 5.27 5.37 28.56

*Amounts refer to both Department of States and Department of Defense Source: U.S. Department of State, U.S. Government Assistance to and Cooperative Activities with Eura-sia, Country Assessments

As a matter of fact, while bilateral cooperation with the two littoral

states steadily improved during the Bush administrations, cooperation with Turkmenistan turned out to be more limited in scope and depth, mainly due to Ashgabat’s positive neutrality policy which restricted military exchanges with the US, and to isolationist policies that also had negative repercussions on en-ergy cooperation – especially under Saparmurat Niyazov’s rule (1991-2006). Indeed, although the US was successful in overcoming the challenge of west-ward transportation of Caspian resources from Azerbaijan and Kazakhstan, this was not the case with Turkmenistan, whose involvement in the TCGP pro-ject did not materialize.37

Due to its strategic location in the heart of the Central Asian mass, and its positive attitude toward cooperation with the White House, Kazakhstan became one of the key partners in view of the US power projection toward Af-ghanistan. Along with their cooperation under the NATO aegis, Washington and Astana developed bilateral security cooperation with a significant naval component. Although the topic of Caspian Sea militarization falls outside the scope of this article, it is worth noting that after 2003 the US contributed to the build-up and modernization of the Kazakh Caspian fleet and naval infra-

36 S. Quigley, European Command transforming to accommodate new challenges, American Forces Press Service, 10 March 2006. 37 Several were the factors which led to the failure of the TCGP project. Besides the fierce opposition of Mos-cow and Teheran, based upon the lack of a comprehensive agreement among littoral states, two were the main causes. Firstly, the completion of Blue Stream gas pipeline between Russia and Turkey (2003) seemed to limit the market prospects of Turkmen gas. Secondly, the realization of the pipeline was hindered by the lack of multilatreal agreemnt over status of the Caspian which would provide legal basis for construction of such a pipeline .


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structure, as well as to the formulation of a national military naval doctrine.38 A key component of US-Kazakh security cooperation was the attempt to pro-vide Astana with ground, sea and air-force support capabilities to protect its Caspian offshore and coastal energy infrastructure.39

Protection of offshore energy infrastructures has also represented a spe-cial focus within US-Azerbaijani bilateral security cooperation in the Caspian basin. It is worth noting that besides responding to a counterterrorism logic, the maritime cooperation was simultaneously – though indirectly – functional to defuse the risk of interstate crisis linked to cross-claims on offshore depos-its, in the absence of a collective agreement on border demarcation. This was particularly true in the case of Iran, whose claims on the Azerbaijani Alov field led to the July 2001 incident between an Iranian warship with air support and two BP prospecting vessels that were forced to cease operations.40 The linkage between maritime cooperation and the Iranian threat emerged mainly through the August 2003 Gas and Oil Platform (GOPLAT) joint maritime exercise, in-volving the Araz-Alov-Sharg deposits area and strongly criticized by Teheran as an attempt by Washington to interfere in the Caspian legal status issue.41

The relevance of the Central Asian chessboard for US strategic think-ing, as well as the primacy of the security consideration, also had a relevant impact on the conception of energy security and energy cooperation. Indeed, with more emphasis than in the 1990s, the development of the Caspian energy potential came to be regarded as a strategic asset for stabilizing and averting state-failure in the Central Asian region, as well as limiting Russian leverage on European allies once again and isolating Iran from potential new markets and business opportunities.

While the linkage between energy cooperation and Central Asian stabi-lization would become a key feature under Barack Obama’s Presidency (cf. in-fra), the trend toward securitization of energy policy had already emerged dur-ing the Bush Administration. Against the backdrop of renewed tensions be-tween Washington and Moscow, this trend became particularly evident in the wake of the so-called gas crisis between Russia and Ukraine (2006 and 2009) and, broadly speaking, as a result of Moscow’s ostensible tendency to resort to ‘energy leverage’ in relations with both neighbors and buyers.42 Accordingly, the will to bolster a European gas supplies diversification policy was the main

38 US-Kazakh naval security cooperation was part of a wider agreement reached in September 2003 and aimed simultaneously at combating terrorism, developing peacekeeping forces, bolstering air defense capabili-ties. The agreement was extended twice, in 2008 for a four-year period and in 2012 till 2017. 39 R. McDermott, Kazakhstan’s Defense Policy: An Assessment of the Trends, Strategic Studies Institute, US Army War College, Carlisle, 2009, pp. 14-15. 40 Eurasia Insight, 30 July 2001. 41 Radio Free Europe/Radio Liberty, Azerbaijan Report, 25 August 2003 . 42 In the aftermath of 2006 Russo-Ukrainian gas crisis, speaking in Vilnius US Vice President Dich Cheney re-ferred to Moscow’s “supply manipulation or attempts to monopolise transportation” as “tools of intimidation or blackmail”. See S. Wagstyl, “Cheney rebukes Putin on energy blackmail”, Financial Times, 4 May 2006.


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driver behind the support the US ensured for the EU Southern Corridor con-cept, aimed at connecting the Caspian Sea with European gas markets – and in particular for the Nabucco pipeline, its most ambitious project in terms of both transport capacity and markets targeted. Besides the relevance of the Southern Corridor in defusing the risk connected to the EU’s over-dependence on Russian gas supplies, US support for the Nabucco project was fully in line with Washington's traditional regional energy policy goals. Indeed, the South-ern Corridor ratio almost overlapped with the Clinton Administration’s East-West Corridor concept – in terms of potential suppliers, transit routes and re-gional development goals.43 Moreover, thanks in part to US pressure,44 the Southern Corridor project took over the principle of Iranian isolation from Caspian energy projects.

However, the switching role of the US - which moved from being the main promoter of Caspian infrastructure projects to being the supporter of EU plans – manifested a relevant regional transition, with Washington taking a backseat in the international competition for westward transportation of Caspian gas, leaving Brussels as the main external Euro-Atlantic anchor for regional producer and transit states.

10.3 Obama Administration’s Caspian policy: reinventing regional commitment

Having left the EU with the “responsibility to lead” the implementation of pipeline projects on the Caspian-Anatolian axis, under the Obama Admin-istration United States Caspian policy has been primarily linked to Afghan policy. The only exception to this trend has been the support the US provided to the upgrading of the Kazakh oil westward export network, in view of the production growth resulting from the second and third phases of the Kashagan field development which made the current CPC capacity inade-quate. Against the backdrop of the difficult negotiations on the CPC’s expan-sion, the US supported the development of the Kazakhstan Caspian Transpor-tation System (KCTS), whose linchpin is the creation of a trans-Caspian naval connection system between the Kazakh port of Kuryk and Baku.

Besides leaving the frontline of the Caspian energy competition, US in-terests and policies regarding the basin’s resource development gradually de-

43 In expressing the reasons for the support of the Southern Corridor, in 2012 a Congressional Minority Staff Report from perfectly highlighted the overlap between European energy policy and traditional US Goals, empa-thizing that: “The next phase of the Southern Corridor would advance several US and NATO foreign policy ob-jectives: it would further isolate Iran, assist in cultivating partners in the Caucasus and Central Asia and bolster their sovereign independence, and perhaps most importantly, curtail Russia’s energy leverage over European NATO allies”. Energy and Security from the Caspian to Europe, Minority Staff Report Prepared for the Use of the Committee on Foreign Relations, United States Senate, 12 December 2012, Washington, US GPO, p. 2. 44 See, e.g., the declaration of then-US Special Envoy for Caspian Energy, Richard Morningstar, in Reuters, 16 July 2009.


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tached themselves from those of Europe. Indeed, the center of gravity of the White House's Caspian policy gradually shifted eastward, moving from the South Caucasus-Anatolian to the Central-Southern Asian pole. Above all, such a shift was the result of the aforementioned attempt to stabilize the Cen-tral Asia region in view of withdrawal of the ISAF force from Afghanistan – an ambitious goal wherein energy cooperation emerged as a key tool. Thus, the main feature of the Obama Administration’s policy toward the wider Cas-pian area became its attempt to move from a security-first approach – which proved to be inconsistent and indeed counterproductive in both Afghan and Southern Caucasus scenarios – to an economic-oriented, trade-based ap-proach.

The watershed for the White House’s Caspian policy was the Novem-ber 2010 NATO Lisbon Summit, which fixed the 2014 deadline for the with-drawal of forces from Afghanistan and forced the US Administration to set up an holistic policy aimed at preventing troop withdrawal from turning into re-gional disengagement. Such a policy – labeled the “New Silk Road” initiative – was disclosed in July 2011 by Secretary of State Hillary Clinton. It revolved around the key goal of turning Afghanistan into a regional trade hub i.e. the core of “an international web and network of economic and transit connec-tions” aimed at ensuring Central Asian stability through development and economic interdependence.45

Against this background, US Caspian Sea policy turned out once more to be a key component of the White House’s Eurasian initiatives, from two perspectives. Firstly, from being conceived and exploited as a strategic sea and air route in support of coalition efforts in Afghanistan, the Obama Admin-istration came to view the basin as a potentially vital commercial route, epit-omizing its transition from a security-first to an economically-oriented ap-proach. Such a view was embodied by the new role envisioned for the NDN. Indeed, although the strategic value of the Network was far from reduced due to its relevance in view of the pullout of forces from Afghanistan, nonetheless it was gradually portrayed and promoted as a critical trade catalyst, enabling Central Asia to overcome its still poor regional integration with the world economy.46 Secondly, the development of Caspian producers’ energy potential and diversification of export routes – besides being consistent with the Admin-istration’s overall aim of enhancing global energy security47 – emerged once

45 See H. Clinton, Remarks on India and the United States: A Vision for the 21st Century, Anna Centenary Li-brary, Chennai, India, 20 July 2011, available at www.state.gov/secretary/20092013clinton/rm/2011/ 07/168840.htm (last retrieved on 20 March 2014). 46 See the US Assistant Secretary’s remarks at James A. Baker III Institute for Public Policy at Rice University, in R. Blake, The Obama Administration’s Priorities in South and Central Asia, 19 January 2011, available at: www.state.gov/p/sca/rls/rmks/2011/155002.htm (last retrieved 20 March 2014). 47 As per the main priorities of Obama Administration Central Asian policy, see the statement by George Krol, Deputy Assistant Secretary of State, Bureau of South and Central Asian Affairs, in: “Reevaluating US Policy in


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more as a key tool for achieving the economic security, sovereignty and pros-perity of Central Asian partners.

The centerpiece of Obama’s Caspian energy policy has been the re-launch of the gas pipeline project connecting Turkmenistan to India through Afghanistan and Pakistan – whence the acronym TAPI – which, first proposed by Unocal in the mid 1990s, was frozen due to the strained relations between the US government and the Taliban regime in Kabul. As was the case for Azerbaijani infrastructures a decade earlier, the White House has supported the pipeline project firstly and foremost by engaging with and assisting in-volved stakeholders, ranging from partner countries to US energy companies and IFIs. Under the current scheme and consistently with the agreements signed over the last five years, the 1700 km TAPI pipeline will run from the eastern Turkmenistan Dauletabad field to New Delhi through Herat and Quetta, with an annual capacity of 33 billion cubic meters of gas. Realization costs for TAPI – labeled by the Obama Administration as the ‘peace pipeline’ – are estimated at 7.6 billion dollars, to be partially provided by the Asian De-velopment Bank.

The US effort to promote the TAPI pipeline was facilitated by the 2006 presidential succession in Turkmenistan. Indeed, Gurbanguly Berdimu-hamedow’s rise to the presidency resulted in the overcoming of the excesses of the country’s isolationist tendencies and a renewed attempt to pursue an ex-port diversification policy aimed at decreasing dependence on the Russian ex-port network. In such a context, although Kazakhstan – considered to be the Central Asian “economic powerhouse” – remained a key regional interlocutor for the White House,48 after years of distrust in Washington-Ashgabat rela-tions, Turkmenistan became de facto the lynchpin of the US Caspian and Cen-tral Asian energy strategy.

The eastward shift of US Caspian energy policy showed some continui-ty with the former administrations’ strategies but, simultaneously, entailed a new set of tough challenges for the White House. As a matter of fact, the Iran isolation policy – along with the overall aim of making energy cooperation a key vector for regional development and cooperation – represents the main continuity factor linking Obama's Caspian strategy to those of the former ad-ministrations. Indeed, against the backdrop of the worsening Iranian nuclear program crisis, one of the main aims of the TAPI project has been to prevent Southern Asian importing countries – namely Pakistan and India – from set-

Central Asia”, Hearing Before the Subcommittee on Near Eastern and South and Central Asian Affairs of the Committee on Foreign Relations, United States Senate, 15 December 2009, US GPO, Washington, pp. 9-13. 48 Since 2010, as other Central Asian states, Kazakhstan was involved in the Annual Bilateral Consultations (ABC) with United States. The ABC format was replaced and elevated through the creation of a Strategic Part-nership Commission, whose first meeting was held in April 2012 in Washington. Under the SPC framework, several working groups were created, including non-proliferation and disarmament, economic cooperation, and science and technology.


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ting up a supply channel from Iran. Thus, as various declarations from US of-ficers clearly show,49 TAPI represents an alternative to the Iran-Pakistan-India gas pipeline (IPI), a project set up in the mid 1990s and relaunched after 2009 in order to simultaneously tackle the energy crisis which Islamabad faced after 2008 and India’s growing need for gas imports.

The discontinuity factors relate, on the other hand, to regional compet-itors as well as the relationship with European partners. Indeed, while in the 1990s the attempt to relaunch the Newly Independent States' energy sector saw Russia as the main regional hurdle and competitor, the current energy strategy has to deal with the steady rise of China as a key energy partner for the Caspi-an eastern littoral states. Driven by the steady growth in energy consumption, since 2005 Beijing has reached out to Eastern Caspian producers with a reso-lute oil and gas procurement strategy. This strategy has enabled China, in a very limited timeframe, to set up its first land import infrastructures between the Caspian area and Xinjiang – i.e. the Kazakhstan-China oil pipeline origi-nating in the port of Aktau, and the Central Asia-China Gas Pipeline (CACGP), a 1,800 kilometer infrastructure with a capacity of 40 Bcm/y origi-nating in eastern Turkmenistan.

Although China’s Central Asian projection seems not to be entirely in contradiction with US regional objectives, it nevertheless poses a major chal-lenge to the White House. The key element ensuring complementarity for US and Chinese Caspian energy strategies is the diversification of regional pro-ducers’ export channels which, traditionally pursued by the White House, was ensured by the realization of the Beijing-promoted oil and gas pipeline con-necting Central Asia to Xinjiang. Moreover, as long as Beijing and Teheran do not put forward joint infrastructural projects, Chinese pressure on Caspian producers would seem to play into the US hand by downgrading the attrac-tiveness of alternative export routes toward Iran and the Persian Gulf.

That said, it is difficult to overestimate the challenging nature of Bei-jing’s Caspian strategy for the US, both in quantitative and qualitative terms. Under the former perspective, Chinese pressure on Eastern Caspian producer states, by addressing the same counterparts involved in US projects, reduces the feasibility of the pipelines supported by the White House. This is particu-larly evident in the case of Chinese gas imports from Turkmenistan through the CACGP, which apparently could absorb the bulk of the Turkmen gas pro-duction increase and, consequently, the resources necessary for the realization of TAPI – all the more so after the recent agreements to upgrade the import network and increase the import flow from 40 to 65 Bcm/y by 2020.50

49 See, for instance, declaration by US Ambassador to Pakistan, R. Olson, “US supports TAPI but not Pak-Iran gas pipeline”, The Nation, 5 March 2013. 50 CACI Analyst, Field Report, 16 October 2013.


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The Chinese challenge is no less significant in qualitative terms i.e. in relation to Beijing’s way of doing business in the Caspian. The typical conver-gence of interests and policies of Chinese governmental, banking sector and energy institutions provides the target countries with a business model which has no parallel in the USA or other Western countries. Such a model – embod-ied by the so-called oil-for-loans policy51 – provides Beijing with a competitive advantage which bore its fruits in the race for Caspian energy resources, all the more so due to the grip on the national energy sector held by local executive powers. Moreover, the Chinese “no strings attached” policy – which postulates doing business without interfering in political issues – gives Beijing a flexibility and degree of adaptability to local conditions hardly achievable by the United States, for which the promotion of democratization represents a key regional policy priority.

Along with the impressive results achieved in Kazakhstan – where China’s share of the current oil production has reached 24%52 – the Turkmen case best embodies Beijing’s competitive advantage over the US. In Turkmeni-stan, the Chinese National Petroleum Corporation (CNPC) has managed to overcome the typical defense posture of the authorities, becoming the first for-eign company to hold exclusive rights over significant onshore gas fields – typ-ically granted only for offshore field development. This consideration is all the more relevant as the enduring failure of US companies – namely Chevron and ExxonMobil – to acquire analogous rights in Turkmenistan, notwithstanding the White House’s firm support for them, is currently one of the main imped-iments to the realization of the TAPI project.

The gradual decoupling of US and EU Caspian strategies is the second key factor of discontinuity between Obama’s and his predecessors’ regional energy strategies. Indeed, although the White House supports the EU attempt to feed the Southern Corridor with Turkmen gas, nevertheless the priority giv-en to the implementation of TAPI makes the United States a competitor ra-ther than a supporter of European plans – as demonstrated by the Turkmen authorities’ supposed prioritization of TAPI over TCGP.53 Indeed, in a situa-tion in which it is hardly questionable whether Turkmenistan would have suf-ficient gas resources to feed the TAPI project, intra-Atlantic infrastructural competition weakens EU plans to set up a trans-Caspian gas pipeline, resulting

51 The oil-for-loan policy revolves around the the concession of loans in exchange for future oil supplies to gov-ernments in search of financial assistance – a model which took advantage of the global economic crisis fol-lowing 2008. By doing so, Beijing ensured future supply, while simultaneously finding inroads into previously closed markets, deepening trade partnerships and providing fresh opportunities to national companies, both within and outside the energy sector. See A.C. Alves, “Chinese Economic Statecraft: A Comparative Study of China’s Oil-backed Loans in Angola and Brazil”, Journal of Current Chinese Affairs, vol. 42 no. 1, 2013, pp. 99-130. 52 Xinhua, 27 September 2013. 53 N. Moore, “Turkmenistan Weekly News Analysis”, Eurasianet, 22 November 2012.


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in a dangerous hiatus that threatens to undermine the interests and policies of the broader Western front.

Conclusions: the Caspian Basin in US strategic thinking

As this chapter has attempted to demonstrate, although US Caspian policy has been largely derivative over the last twenty years, nonetheless the magni-tude of interests at stake in the wider Caspian area – plus the key role the basin plays in the context of all major issues in the Eurasian post-bipolar system – have placed the Sea high on the White House’s foreign policy agenda. This largely derived from the basin's two main geopolitical assets i.e. its critical geo-graphic collocation in the heart of the Eurasian system and the significant presence of largely-unexploited hydrocarbon reserves, whose has development turned into a key tool for littoral and regional actors’ policies. From this per-spective, it may be affirmed that Caspian policy was simultaneously a key vec-tor and a test-case for the post-Cold War process of redefinition of the inter-ests and strategies of the main regional and international players active in the Eurasian space – and not least so for the United States and its key Atlantic al-lies.

The Clinton Administration deserves credit for having set the priorities and key tools of Caspian policy along key guidelines which are still valid to-day. Indeed, the overall aims of supporting the then-Newly Independent Cas-pian State’ independence, sovereignty and development, and creating business opportunities for US companies while simultaneously limiting Russian region-al influence and preventing the spread of Iranian influence, may be considered the main common features linking the three presidencies under scrutiny - three presidencies whose mandates roughly overlap the same number of stages of US Caspian policy.

Though working as an accelerator rather than a watershed for US Cas-pian policies, 9/11 and its resulting regional developments had a double impact by changing the regional objectives from which the policies derived. In the short-term, 9/11 presided over the prioritization of security cooperation versus energy cooperation, consistently with the needs of the Enduring Freedom Af-ghan operations. Hence, while in the 1990s requests for security cooperation and guarantees were primarily made by the Caspian actors and addressed to their Euro-Atlantic state and super-national interlocutors, in the following decade this trend was reversed and the White House regional interlocutors came to be viewed as security providers rather than security consumers. More-over, the priorities reversal was facilitated by the simultaneous conclusion of the first phase of Caspian energy policy i.e. by the realization of the BTC and SCP pipelines which, by breaking the Russian monopsony over the basin’s re-sources, still stand as the main accomplishment of US Caspian policies.


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Over the medium-term, the effects of post 9/11 regional developments on Caspian policy resulted primarily in the prioritization of the eastern dimen-sion at the expense of the western one, consistently with the White House’s need to put forward a regional stabilization strategy in view of the withdrawal of forces from Afghanistan. Significantly, this trend appears to have presided over a fragmentation of the wider Caspian area in US strategic thinking, with the Southern Caucasus and Central Asian regions gradually becoming de-tached from one another and the Caspian Sea being dragged into the latter, ra-ther than into the wider Black Sea region. Still in fieri, such a strategy sees the Obama Administration walking a difficult tightrope, which is all the more slippery due to the enduring instability of the Central Asian scenario and whose inherent contradictions seem to further undermine the “Atlantic Tick-et”. An Atlantic Ticket which, already regionally weakened by the burden-sharing issues arisen in Afghanistan, seems instead to be crucial for allowing the US – as well as the EU – to counteract old and new pressures exerted on its Caspian partners by Russia and China.

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11. Chinese ‘Good Neighborhood Policy’ and Energy Diplomacy toward the Caspian Sea

Lorena Di Placido

Introduction

The current political-strategic approach of China to the Caspian Sea is the corollary of the good neighborhood policy carried out in the last 20 years. During this period of time, China has stopped to consider Central Asia only from the point of view of national security and has started to consider it in terms of economic and, above all, energy security. It was a logical evolution that highlighted the complementarity of interests between China and the Cen-tral Asian republics and the eastern shore of the Caspian Sea. In this context, energy was consolidated as the main driver of Beijing’s policy toward its west-ern neighbors.

On this backdrop, aim of the paper is to track the evolution of Chinese foreign policy towards the Caspian countries, analyzing its motivations and its tools, as well as its accomplishments and shortcomings.

The dissolution of the Soviet Union and the subsequent independence of the republics of the area adjacent to the Caspian Sea has increased and di-versified China’s concerns and strategic priorities. Above all, protecting the western borders and building good relations with the newly independent coun-tries appeared to be the main priority for Beijing. In fact, the potential instabil-ity of the Central Asian space could lead to an extension of terrorism and ex-tremism even in neighboring western region of China, Xinjiang, fueling the subversive power of the local Uyghur separatist movement.1 Xinjiang is in fact

1 A. Petersen, K. Barysh, Russia, China and the Geopolitics of Energy in Central Asia, Centre for European Reform, 2011.


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an integral part of China’s policy of good neighborhood, as it is included in the Go West strategy launched by Beijing for the integration of its western frontier regions. More specifically, in the Nineties, by establishing new rela-tions with the Central Asian republics, China aspired to achieve a dual pur-pose: first, to build fruitful economic and trade relations with Central Asian countries to promote regional stability and secondly to make Xinjiang an im-portant and prosperous commercial hub, less and less prone to subversive tendencies and increasingly integrated in the path of an overall development of China.

China’s Good Neighborhood Policy has been used as a driver of for-eign policy in the post Cold War and led to the foundation of the Shanghai Cooperation Organization (SCO), a regional organization launched in 2001 by China, Russia, Kazakhstan, Uzbekistan, Kyrgyzstan and Tajikistan.2 By mon-itoring SCO it is possible to derive some useful elements for understanding the kind of relationship linking China’s interest toward its western neighbors. The origins of the Organization date back to negotiations that took place in the mid-Eighties between the Soviet Union and China for the settlement of border disputes and continued in the Nineties through the inclusion of the Central Asia republics. Over the years, a climate of mutual trust functional to the reso-lution of long-standing problems that threatened Central Asian security has been established among the five original negotiators (from 1996 known as the Shanghai Five). Once the SCO addressed the issue of border security in the Central Asian region, the Organization made a quantum leap adding the issues of cooperation in economy, energy, finance, culture, i.e. every other area of in-terest that member states needed to secure a regional and cohesive context to be developed properly.3 From the Declaration of Shanghai (which was the foundation act of the Organization), it emerges that the SCO4 is essentially based on four principles:

- good-neighborhood, friendship and peaceful co-existence, - promotion of mutually beneficial cooperation and common prosperity, - respect for the choices of each state and non-interference in its internal

affairs and

2 The Organization was founded in 2001, with the accession of Uzbekistan to that regional framework of confi-dence building measures (CBM). 3 L. Di Placido, “Origins, Development, and Consolidation of the Shanghai Cooperation Organization after the Bishkek Summit”, Connections: The Quarterly Journal, vol. 6, Issue 3, 2007, pp. 62-81. 4 Currently, China, Russia, Kazakhstan, Kyrgyzstan. Tajikistan, Uzbekistan participate in SCO as members; Iran, Mongolia, India, Pakistan, Afghanistan, as observers, Belarus, Sri Lanka and Turkey as partner of dia-logue.

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- respect for the member state sovereignty and promoting regional sta-bility.5

These four points are the cornerstones of good neighborhood policy implemented by China, which are also confirmed in China’s Independent For-eign Policy of Peace (2003):6 “the fundamental goals of this policy are to pre-serve China’s independence, sovereignty and territorial integrity, create a fa-vorable international environment for China’s reform and opening up and modernization construction, maintain world peace and propel common devel-opment”. The fundamental goals of this policy are to preserve China’s inde-pendence, sovereignty and territorial integrity, create a favorable international environment for China’s reform and opening up and modernization construc-tion, maintain world peace and propel common development.

It is an important component of China’s foreign policy to actively de-velop good-neighborly relations of friendship with the surrounding countries. “It is an important component of China’s foreign policy to actively develop good-neighborly relations of friendship with the surrounding countries. China has resolved problems left over by history with the overwhelming majority of neighboring countries. China has resolved problems left over by history with the overwhelming majority of neighboring countries. And China’s mutually beneficial cooperation with its neighbors has witnessed a vigorous develop-ment”.

11.1 The rationale of Chinese approach toward the Caspian Sea area

Beijing approach toward the Caspian Sea area has proved to be a fruitful sup-port to meet the energy needs resulting from Chinese economic growth. In the years of maturation of the Good Neighborhood foreign policy, Beijing was, in fact, developing a parallel growth of industrial activities, so extensive as to re-quire increasing amounts of energy resources to meet production needs. Part-nerships concluded with the countries of the eastern shore of the Caspian Sea have been the sublimation of Beijing neighborhood policy practiced towards them. Similarly, the absence of conflicts and tensions in the Central Asian space has allowed China to build the necessary infrastructures in order to transport eastward energy resources quickly and with sure success. This sug-gests that the foreign policy of good neighborhood has been functional to Chi-na in order to meet the sensitivity of its western neighbors and to create opti-

5 Ming-Te Hung, Tai-Ting Liu Tony, “China’s Foreign Policy in Central Asia”, Journal of Central Asian & Cauca-sian Studies, vol. 5, no. 10, 2010, pp. 92-118. 6 “China’s Independent Foreign Policy of Peace”, 18 August 2003, available at: http://www.fmprc.gov.cn/eng/wjdt/wjzc/t24881.shtml.


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mal conditions of safety and mutual trust through which it could more easily satisfy its need for energy supply.

In fact, the political and security partnership has proved to be a suc-cessful premise with respect to commercial approaches put in place by the oth-er partners of the republics of the Caspian Sea area – mainly Russia, European Union, United States – such as to make China an ideal partner for business.

Russia is also part of the confidence building measures (CBM) process among SCO partners and promotes various forms of partnership and coopera-tion with the countries of the Caspian area, but within a framework closely linked to the traditional relations inherited from the period of Soviet domina-tion, which taint its image of an equal partner. For the newly independent former Soviet republics, building their own national identity and presenting themselves as equal partners was a priority. This wasn’t possible with Russia, since the previous relationship of dependence consolidated unequal positions difficult to overcome, particularly in the transition phase of the 1990s. The rise of China in post Soviet space introduced a new element, based on a formally equal relationship, the recognition of the partner status as autonomous and independent entities and based on complementarity of interests. This approach was therefore very different from previous dependence or subjection relation-ships.

For its part, the European Union has proposed an overly bureaucratic approach, sometimes affected by diversity of views among members and, at times, paternalistic, due to the numerous requests for regulatory compliance and corporate taxes to potential governmental partners. Cumbersome and lengthy bureaucratic procedures related to the implementation of joint projects in the energy sector were not conductive in building a partnership with the Central Asian countries which, at the time of independence, strongly need to undertake a development path as fast as possible and without any kind of fur-ther difficulty. Since China does not require regulatory compliance inside states and ensures rapid realization of joint projects, it represents both a quali-fied partner and a guarantor for the institutional stability of partner countries.

The United States, finally, is an element of strangeness unable to enter more firmly within the regional framework. Even if it has considerable finan-cial resources available, however, compared to China, it lacks an efficient poli-cy of supporting relationships with the leadership of the partner states.

Therefore, China has the characteristics of financial efficiency, political reliability and, not least, geographical contiguity that make it an ideal partner for the energy resources producer Caspian Sea countries. In fact, over the past two decades, the neighborhood policy practiced by the Beijing authorities has evolved into a real energy diplomacy, which is based on a comprehensive ap-proach in which the needs of China’s energy supply match its own political


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and commercial interests with the interests of the countries with which it estab-lishes partnerships in the energy sector.

Therefore, commercial, economic, infrastructure improvement and partnership policies represent the different elements of the Chinese energy di-plomacy, which allow Beijing to establish long term energy partnerships and to build oil and gas pipelines running from the producing countries directly in the territory of China, thereby reducing the role of other extra regional importers of energy resources.7

The political and strategic long-term partnership established with its western neighbors enables China to count on a premise of loyalty to the agreements reached, thereby ensuring in the future the possibility to build in-frastructure oriented eastward able to come directly to the Chinese territory without intermediaries and without risk to the safety of the pipeline. Certainly, for China to qualify in the long run as an importer preferable to other import-ers outside the region, it is necessary that the benefits of the cooperation with Beijing are much more profitable, compared to those that could be offered by others.

Given the geographical proximity of China with producing countries of the Caspian basin and due to political and strategic ties linking partners each other, the rising of China into the regional energy market has forced the end of the Russian monopoly in the management of the energy distribution network. The advantage is twofold: thanks to the new partnership with Bei-jing, on the one hand the Central Asian countries are not bound by a single buyer and have the possibility to export even to the east; on the other hand, China has gained an important source for the differentiation of its energy sup-ply, until then dependent from the countries of the Persian Gulf for more than half of its oil needs.

The reasons orienting the interest of China to the energy resources of Central Asia and, in particular, of the Caspian Sea can be summarized as fol-lows:

- the geographical proximity to China makes most safe the transit by land with respect to imports from the Persian Gulf, which must pass through the critical points of the straits of Hormuz and Malacca;

- China gets rid of excessive dependence on imports from the Persian Gulf region, whose instability is a cause of concern for Beijing;

- from the point of view of the Central Asian countries – that are land-locked and without developed infrastructure networks – the geograph-ical proximity to China creates excellent conditions for the construc-tion of new pipelines, and this helps Beijing in its competition with

7 N. Janardhanan, China’s Search for Energy and its Strategy Towards Central Asia, Global Data-DMW Busi-ness and Market Research, Hyderabad, 2009.


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other energy resources importers countries such as India, Japan or South Korea.8

Differentiating the source of energy supply implied for China choices regarding both the energy resources and the types of transport. In other words, the decision to initiate large-scale imports of energy resources from the Caspi-an Sea basin (in the broad sense) imposed a change from ship to land transport and implicated a partial conversion of imports from oil to gas. In addition, since many fields in the Caspian area are exploited by western companies, the Chinese companies preferred to work in fields already operating, difficult to exploit or located in unstable countries frowned upon by the international community. From a technical point of view, Chinese companies have chosen instead to use methods of extraction already known and consolidated, in order to minimize the operational risks.

The main aspects of the relationship between China and the Central Asian republics (geographical diversification of energy sources; reduction of oil dependence and increase of gas consumption; reduction of purchases by large international companies already active on the the Caspian Sea basin market) are, therefore, the basis of Chinese energy diplomacy.9 In order to complete the picture, it must be added, however, an essential element which is not properly linked with energy security, but purely political, consisting in the unconditional support granted by China to the leadership of the countries with which it establishes economic partnerships.

China arrived in the Caspian area relatively late, but its involvement has been steadily growing and maturing during the 1990s. This is due to sever-al reasons. First, during the Soviet period it was not possible to maintain the traditional trade ties that existed since ancient times along the so-called Silk Road. Reaching the deposits of the Caspian Sea basin was, indeed, difficult for a combination of political (internal dynamics of the Soviet system), and geo-graphical (distance from the Chinese border Caspian deposits) reasons as well as for infrastructure issues (lack of pipeline geared toward east). Nevertheless, the result of the combined effect of neighborhood policy with the Chinese en-ergy diplomacy has allowed a penetration of the energy market based on polit-ical bonds which can ensure the establishment of long-term partnerships.

Another tool of consolidation of the Chinese presence in the Caspian basin could arise from signing in Moscow on 6 December 2013 of a memoran-dum for the creation of an SCO Energy Club, which should became a platform for discussing energy related issues, including demand and consumption of en-ergy, energy cooperation between producers and consumers, new technologies

8 Ibid. 9 K.E. Calder, China’s Energy Diplomacy and its Geopolitical Implications, The Edwin O. Reischauer Center for East Asian Studies, 2005.


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and innovations. The idea of forming an energy club was introduced for the first time in 2004, in order to create a common energy space in which the SCO members could discuss the political decisions on issues such as: price liberaliza-tion, standardization of tariffs for transportation of energy resources, devel-opment of unified common tax base, coordination of actions at the level of suppliers in order to avoid unnecessary competition between them.

11.2 China’s energy supply needs

For many years China has been experiencing a sustained economic growth, with a steady increase of the energy needs and the continual search for new sources of supply. According to the International Monetary Fund, after an av-erage annual GDP increase of 10% in the decade from 2000 to 2011, starting from 2012 China began a phase of decline, as a result of the difficulties gener-ated by global financial crisis in the China’s economic system. Industrial pro-duction and exports have slowed, while the government tried to curb inflation and excessive investment in some sectors of the market. This trend seems to be still in place, so that in 2014 a growth in GDP of 7.5% is expected, while it could further slow in 2015 (7.3%). The Chinese thirst for energy, however, hasn’t been reducing, so that today China is the second largest oil consumer behind the United States and the largest global consumer of energy, according to International Energy Agency (IEA).

China has been a net oil exporter until the early 1990s and became the world’s second largest net importer of oil in 2009. The IEA has calculated that in 2011 the growth in oil consumption in China accounted for half of the over-all growth in oil consumption.

Table 11.1 - Top world net oil importers (2012)

Country Million tonnes

United States 413.9

China 327.1

Japan 224.3

India 127.9

Source: BP Statistical Review of World Energy, 2013

Also with regard to the natural gas, consumption in China has grown a lot in recent years, so that it was necessary for the Chinese industry to increase imports by pipeline and to rely more on liquefied natural gas (LNG). In an ef-fort to diversify energy supply, China also included other sources which, how-


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ever, still form a small part of the energy mix, in which, according to the 12th Five Year Plan, an increasing proportion will be represented by non-fossil fuels. To date, the main source of energy supply for China is still coal (70%), followed by oil (19%), hydroelectric (6%) and natural gas (4%).

Due to the impressive Chinese need of energy resources, imports from the Caspian Sea area represent a significant investment in strategic terms. To date, import data related to oil are not so impressive, but they are set to grow in the next future thanks to the ongoing construction of new pipelines. Instead, natural gas imports from Turkmenistan are already relevant for the Chinese thirst of energy.

11.3 Chinese imports from the Caspian area

Among the Caspian Sea littoral countries, China has relations of growing stra-tegic importance mainly with those of the eastern shore, Kazakhstan and Turkmenistan.10 For the purposes of our topic, which focuses on the Caspian Sea basin, it is necessary to specify, however, that in Turkmenistan China is already exploiting gas fields and plans building new pipelines on shore, in the Amu Daria area, while only in Kazakhstan, Chinese companies are very active in fields located offshore in the Caspian Sea. Similarly, Beijing is also active in the import of gas from Uzbekistan, a landlocked country which, although not being a Caspian littoral state, nevertheless may be included in the Caspian en-ergy area, due to its relevance for all the regional infrastructural projects.

With Azerbaijan, China has not yet developed specific partnerships for the exploitation of energy resources. Joining the regional energy market during the Nineties, China has come after other Western companies, and could only reach modest agreements concerning onshore fields (Garachukur, June 2004). However, China was the first country in the Far East to recognize the territo-rial integrity of Azerbaijan and to open an embassy in Baku in 1992. A cooling in bilateral relations had been felt in 1999, following the news of the sale by Chinese Typhoon 8 multiple rocket systems to Armenia.11

Whatever the location of the oil fields (offshore or onshore), it must be kept in mind that the energy resources of the Caspian area exported eastwards belong to a single system of exploitation and distribution that favors only one importer – China – and distracts those resources from other possible destina-tions. In this way, the picture of the exploitation of the regional resources is certainly complicated by the comparative advantage of the energy-political

10 With the other littoral countries, China has no specific partnership for the exploitation of the Caspian Sea resources. However, China imports oil from Iran (via maritime routes that originate in the Persian Gulf) and from Russian Siberia (in perspective, also gas). 11 F. Ismailzade, “China’s Relations with Azerbaijan”, China and Eurasia Forum Quarterly, vol. 5, no I, 2007, pp. 29-34.


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strategy implemented by China to ensure the political loyalty of the eastern shore producing countries of the Caspian Sea and, therefore, a privilege in trade agreements.

From a purely chronological point of view, in 1997, the Chinese Na-tional Petroleum Company signed an agreement with the Kazakh authorities for the construction of a pipeline that would pass through Kazakhstan to the mountains of the Tienshan and from there would enter Chinese territory in Xinjiang. Securing funds for investment and solving some logistical problems related to the nationality of the workers who were employed in the project has partially delayed the realization of the investment. At the same time, the Chi-nese attempts to enter the British-led consortium for the exploitation of the immense Kashagan oil field had failed, due to obstructionism practiced by Western companies such as Shell, Total, and ExxonMobil.12

Just since 2003, the Chinese presence, which was less evident in the first decade of the independence of the former Soviet Republics of the Caspian Sea area, has become more incisive and determined.

11.4 China-Turkmenistan: the end of Russian monopoly

Turkmenistan is one of the world’s largest natural gas exporters with proven natural gas reserves of approximately 17,5 trillion cubic meters.13 The abun-dance of natural gas has drawn significant interest from China. In 2006, Bei-jing signed with Turkmenistan an agreement in order to buy 30 billion cubic meters of gas per year; the first phase of the project became operational in De-cember 2009. The first idea to build a gas pipeline between Central Asia and China dates back to 1994, and emerged during a visit by Premier Li Peng in Ashgabat. That year, Turkmenistan and China National Petroleum Company (CNPC) signed a Memorandum of Understanding for the development of co-operation in the oil and gas industry, whose feasibility was assigned to a spe-cific study. The isolationist policy carried out by the President of Turkmeni-stan, Saparmurad Nyazov, forced the project into dissolution due to both the lack of support during the preliminary study and the lack of political dialogue with neighboring countries (Uzbekistan and Kazakhstan) who were partners in the project. In 2000, during a new Chinese state visit in Ashgabat, a new Memorandum of Understanding was signed which also contained guidelines for cooperation in the energy field. The agreement allowed China to start pro-specting and exploration in storage allocated in the Amu Darya basin, which would then become the source of future Turkmenistan-China gas pipeline.

12 S. Peyrouse, Economic Aspects of the Chinese-Central Asia Rapprochement, Silk Roas Paper, September 2007. 13 BP, BP Statistical Review of World Energy, June 2013, p. 20.


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CNPC was the first foreign company allowed to operate on-shore gas extrac-tion activities on a production sharing agreement basis. In parallel, the Chi-nese state company initiated a feasibility study for the production of LNG from the field of Koturtepe (western Turkmenistan), where China already had some technicians. These were the first steps of the growing Beijing penetration into the energy market of Turkmenistan. In April 2006, during a visit to Chi-na, Nyazov concluded an agreement for the annual export of 30 bcm of gas to China, for a period of 30 years starting in 2009. Despite the skepticism of those who believed unrealistic to achieve in such a short time such an ambitious goal, times have been met and the pipeline was inaugurated in December 2009.14

According to IEA, in the next years China’s natural gas import would be around 30-40 bcm, an amount that could be satisfied by Turkmenistan with its 60 bcm annual export capacity. By 2020, China’s consumption will range between 180 bcm and 200 bcm, with a production between 120 bcm and 140 bcm. Based on this assumption, the gap between demand and domestic pro-duction will amount to between 40 bcm and 80 bcm. The special role granted to Chinese companies in the exploitation of Turkmen onshore gas fields has supported China’s aim to be more and more present in Turkmenistan natural gas market. In fact, breaking with the practice of attributing to foreign com-panies exclusive rights to exploit deposits only in the offshore sector (while for onshore ones they were requested to enter into partnership with Turkmengaz, the national energy company), CNPC was the first and to date the only foreign company to be granted exclusive rights to exploit significant onshore gas fields. This privilege is strictly linked to the relevance of a bilateral cooperation that would have deepened thanks to Chinese banking institutions loan for gas initiative. Indeed, in July 2009 and again in April 2011, the Development Bank of China granted Turkmengaz loans for a total value of $8.1 billion aimed at the development of the South Yolatan giant gas field – in whose exploitation CNPC concomitantly won a participation. As in other similar cases, the loan would have been repaid through gas supply – 40 billion cubic meter per year which CNPC and Turkmengaz agreed upon between 2008 and 2009.15

As a consequence, the entry of China as an energy partner of Turk-menistan has stopped the almost absolute Russian monopoly, making Beijing a privileged energy partner for Ashgabat. Moreover, the scope and the bene-fices of Beijing’s Central Asian gas strategy are not limited to Turkmenistan. Indeed, the lack of shared borders between China and Turkmenistan implied the need to involve other regional players as transit states. Building on this ne-

14 K. Hamm et al. Turkmenistan Natural Gas Outlook 2020: The Chinese Connection, Columbia University, 2011. 15 C. Frappi, M. Montanini, How Does China’s Thirst for Oil and Gas Impact on EU’s Energy Policies? The Af-rica and Central Asia Test Cases, ISPI Paper, April 2014.


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cessity, Kazakhstan and Uzbekistan were both engaged not just as transit countries but also as suppliers, through the laying of the three parallel lines currently composing the Central Asia-China Gas Pipeline (CACGP) system. Finally, as a result of the agreements signed in September 2013, a fourth line is going to be built, by 2020, along a route through Uzbekistan, Tajikistan and Kyrgyzstan.

During the Soviet period, all the pipelines were oriented towards Rus-sia, which acted as a real monopolist of the Turkmen resources. Once inde-pendent, Turkmenistan had the strong need to gain the control over the ex-ploitation of its resources. Hence the deteriorating of bilateral relation with Russia due to the restrictive agreements founding the commercial bilateral partnership and the lack of investment for the renewal of the obsolete infra-structures. Moreover, the incidents occurred along the pipeline from Turk-menistan to Russia in April 2007 widened the lack of trust between the two countries, while China was offering full support for the development of Turk-men gas market. Since then bilateral relations between Ashgabat and Beijing progressively strengthened and Turkmenistan is currently expected to became China’s principal supplier of natural gas.

Table 11.2 - China gas import by source (2012)

Country Import (Bcm) Share

Turkmenistan 21.3 51.4%

Australia* 4.8 11.7%

Indonesia* 3.3 8.0%

Malaysia* 2.5 6.1%

Yemen* 0.8 2.0%

Qatar* 6.8 16.3%

Russia* 0.5 1.2%

Nigeria* 0.4 1.0%

Egypt* 0.4 1.0%

Trinidad & Tobago* 0.2 0.5%

Others 0,3 0,7%

* LNG import Source: BP Statistical Review of World Energy, 2013


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11.5 China-Kazakhstan: Strategic partnership and even more

Beyond the maintenance of traditional trade relations with Russia in the ener-gy sector, in the early 1990s Kazakhstan started a multivectoral foreign policy which allowed the establishment of a fruitful relationship with China that still seems to offer new opportunities for broadening and deepening. At the base of this partnership, there are essentially agreements related to the exploitation of Caspian Sea energy resources and the construction of the necessary infrastruc-ture for the transport of those resources towards east. For China, in fact, Ka-zakhstan is a direct source for oil supply and a major transit route for gas im-ports from Turkmenistan and Uzbekistan.

Since 2006 a pipeline is operating as the result of a joint venture be-tween CNPC and KMG (KazMunaiGas). The pipeline connects the port of Atyrau (Kazakhstan northwest) with Alashankou (north-west of the north-western Chinese region of Xinjiang ) along 2,228 kilometers and has a capacity of 252,000 bbl/d of crude. An capacity increase of up to 400,000 bbl/d is ongo-ing in order to use the pipeline for the transportation of part of the oil from the Kashagan field. The pipeline consists of several segments. The most recent segment is Kenkiyak-Kumkol (Phase 3), which started commercial operations on 6 October, 2009, and connects the two pipeline Kenkiyak-Atyrau (Phase 1) and Atasu-Alashankou (Phase 2), and is online since 2006. The Kenkiyak-Atyrau pipeline was the first built in Kazakhstan since independence. The line was connected to the Kazakhstan-China pipeline and the flow direction was reversed, so that now runs from Atyrau to Kenkiyak. Prospects for coopera-tion in the short to medium term include increased Chinese participation in the exploitation of the reserves of Kashagan and the construction of Beineu-Bozoi-Akbulak pipeline, which should be completed in 2015.16

In mid-October, 2013, Kazakh President Nursultan Nazarbayev signed the law on ratification of the bilateral agreement on the development of the operations of the Kazakhstan-China oil pipeline, a 2228 km infrastructure running from the Caspian shore to Xinjiang and jointly owned by KMG and CNPC. The agreement establishes a uniform tariff for the transportation of Kazakh oil through the Kazakhstan-China pipeline, regardless of the distance from the entry point. In the event of shortage of oil in the internal distribution network in Kazakhstan, the body responsible for the Kazakh side may sus-pend exports for a month, after notifying the other party of China.17

The implementation of the agreements in the energy sector concluded by China and Kazakhstan are the core business of the bilateral cooperation

16 http://www.eia.gov/countries/analysisbriefs/cabs/Kazakhstan/pdf.pdf. 17 http://www.energyglobal.com/news/pipelines/articles/Kazakhstan_ratifies_oil_pipeline_deal_with_China.asp xKazakhstan ratifies oil pipeline deal with China.


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between the two countries as developed since the conclusion of the Sino-Kazakh 2003-2008 cooperation program, and the launch of the strategic part-nership in 2005. Periodically, the contents of the agreement have been updated and expanded in different stages of revision of the partnership itself, which is a clear example of how the Chinese Good Neighborhood Policy is implemented. In the bilateral summit in Astana on 7 September 2013, Chinese President Xi Jinping has specifically cited the partnership with Kazakhstan as an example of good neighborly relations and mutually beneficial cooperation. In his speech, he declared his full support for the process of development of Kazakh-stan as suited to its own national conditions, in order to safeguard state sover-eignty and independence, to ensure economic and social promotion, so that Kazakhstan can play a constructive role at international and regional levels. For Chinese diplomacy, indeed, the development of friendly relations with Kazakhstan is a diplomatic priority, in order to achieve fruitful results at the bilateral level and contribute to the peace and prosperity of the region. The words of the President of Kazakhstan Nursultan Nazarbaev were of similar content. He noted the support of the Kazakh people in the process of renova-tion going on in China and reiterated that, whatever happens Kazakhstan will forever be a good neighbor, good friend and good partner of China. The two heads of state declared that the mutual support of each issue or concern relat-ed to the fundamental interests of one of the partners is the essence of the comprehensive strategic partnership. With regard to energy cooperation, the two heads of state stressed that it is made up of complementary advantages, mutual benefit and win-win outcomes.

In the energy sector, the two countries are long-term, stable and relia-ble partners. Both sides agreed for the construction of cross-border oil and gas pipeline, the strengthening of cooperation on the exploration and processing of oil and gas, the strengthening of CNPC in the exploitation of the Kashagan oil field. In this regard, during the September 2013 meeting, the company KazMunaiGas and China National Petroleum Corp have signed an agreement for the purchase of a share of 8.33% of the Kashagan field, for about $5 bil-lion. Joining the exploitation of the largest oil field discovered in the last 50 years has been a great achievement for China, which had to overcome a for-midable opponent such as India. Moreover, China and Kazakhstan paved the way for further 22 agreements (for a total investment of $30 billion), which al-so affect the energy sector and, in particular, the construction of an oil refinery in Kazakhstan. Kashagan offers significant growth opportunities for the ex-port of Kazakh oil, which currently amount to about 1.2 million barrels per day. Some analysts estimate that by 2021 Kazakhstan could reach production of about 4 million barrels a day, a rate that approaches Iran’s daily production of 4.5 million bpd.


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Figure 11.1 - China’s Crude oil imports by source (2013)

Source: EIA

11.6 Accomplishments and setbacks

The arrival of China into the Caspian Sea area has been slow, but steady and profitable. Laying the foundations of a complex partnership, based on mutual benefit and the lowering (at least as a trend) of the regional security threats, over the course of two decades China consolidated beneficial and long lasting partnerships. This combination of good neighborhood policy and energy di-plomacy allowed Beijing to ensure long term energy supply, together with fur-ther expansion of cooperation in other economic sectors. Indeed a key feature of China’s energy diplomacy had been the so called oil for loan strategy, i.e. the concession by Chinese banks of generous credits – aimed, among other things at energy infrastructure development – repayable over the long term at


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a low interest rate and with energy supplies.18 In this way, Beijing ensures the continuity of energy cooperation in the long run.

In this privileged position, China is Russia’s direct rival even more than EU and the USA. For the countries of the region is preferable binding to China rather than to a former hegemonic power such as Russia, which still maintains a dominant posture. The privileged relationship with China frees the countries belonging to the production and distribution energy resources sys-tem of the Caspian Basin from the dependence of Russia and offers favorable possibilities of export that would be unthinkable towards the West (at least not in the medium term).

China offers safe and easy to implement business opportunities thanks to a remarkable ability to ensure costly investments completed in a relatively short time, unconditional political support to partner countries in both domes-tic policy issues (non-interference in internal affairs) and in foreign policy ones (benefit of having a member of the Security Council of the United Nations as ally), accompanying agreements in the energy sector with partnerships in other areas (economic, education and training) that facilitate the growth of partner countries. For all these reasons, China is a disturbing element in the marketing strategies of the other extra regional importers.

The special partnership between China and the Caspian Sea countries has been reinforced by the state visits of President of the People’s Republic of China, Xi Jinping occurred from 3 to 13 September 2013. During his long journey Xi Jinping participated to G20 group summit in Russia, to the SCO Summit in Kyrgyzstan and held state visits in Turkmenistan, Uzbekistan and Kazakhstan. He discussed about energy, trade and infrastructure with all the regional leaders, signing an estimated $48 billion worth of investment and loan agreements, including export agreements totaling over 100 billion cubic meters (bcm) of natural gas through a network of Chinese funded pipelines.

Nowadays bilateral trade between China and Central Asian states is a hundred times greater than in 1992 and Chinese trade with the region sur-passed Russian bilateral trade by $3.7 billion in 2012. Currently, Chinese busi-ness with each Central Asian state accounted for an average 33.3% of trade in each country, while Russia’s average is 14.7%.19 Besides the reinforcement of the traditional fields of trade and cooperation, the September journey high-lighted the boost of infrastructure and transport projects as a medium term goal of Beijing.

In fact, during his tour of Central Asia, Xi Jin Ping introduced the new large-scale regional project of the Silk Road, thereby establishing a new phase

18 C. Frappi, M. Montanini, (2014). 19 T. Yakobashvili, “A Chinese Marshall Plan for Central Asia?”, The Central Asia and the Caucasus Analyst, 16 October 2013.


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in the development of land transportation projects, based on the Caspian re-gion key role. Actually, the economic corridor of the Silk Road is part of the Chinese comprehensive transportation strategy which aims to support China’s ambitions in a number of fields: establishing a well-functioning logistical struc-ture for transportation of Caspian energy resources to China; developing a land transportation corridor for Chinese exports to Europe; creating a land bridge with Iran. Summarizing, China aims to diversify energy supply routes strengthening its position in the region and diversifying land routes to Europe, alternatives to those via Russia.20 Hence, the Chinese need to further develop the project of a railway linking China and Western Europe passing through Central Asia and the Caspian Sea area. Based on the ancient Silk Road route, the railway aims to became a connection between China’s eastern port of Lianyungang with Kazakhstan’s rail system then pointing west toward Russia and the Caspian area to Western European ports such as Rotterdam.

Of course, bilateral cooperation in the different fields of interest and infrastructural projects can be fulfilled only if all the regional partners share a peaceful environment and a cooperative spirit. Actually, the Central Asian space next to the eastern shore of the Caspian Sea is an area that China holds in enough stability and balance in order to create the best environment for the implementation of business. On the contrary, the business opportunities of-fered by Western partners are characterized by greater challenges, generally speaking depending on the political divided environment made by different ac-tors with different aims and needs. Instead, China is able to manage alone and without any interference its own policy towards the Caspian Sea region.

The presence of China as a partner in some states bordering the Caspi-an Sea expands the competition for supremacy in Eurasian space and makes Beijing a challenger for every other state or company who has an interest in the area. It is, however, a competition in which China has an advantage over other competitors: its comprehensive approach achieves security conditions for the business that other potential partners cannot offer. The Caspian area states – who are in need of infrastructure investment and political support – are therefore an ideal partner for China, which is able to satisfy the different needs of their political-economic system.

The partnerships established between China and the Caspian Sea basin countries go beyond the simply commercial-economic level and imply that the other actors (western or Russia) interested in energy resources should adopt new kinds of partnership. Actually, China’s success towards Caspian Sea gen-erates concern in Beijing opponents in the region, but at this time they have not still carried out a more effective political and strategic approach.

20 “China moves toward the Caspian Sea”, Vestnik Kavkaza, 14 March 2014.


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Given that the combined policy of good-neighborhood and energy di-plomacy of China in economic terms represents a successful strategy, attrac-tive to Beijing partners, it has to be considered that a relationship with China has also very heavy political and social implications. While it appears advan-tageous for Eastern Caspian states to gain a prominent partnership with Chi-na, it is also true that they are caught in a sphere of political and economic in-fluence in which China harnesses their financial and social choices. In an ex-treme case, this would even put them back into a situation not too different from the Soviet domination era.

With the aim of keeping an effective control over its own resources, each Beijing’s partners should seek hence also to achieve other partnerships. While maintaining a privileged relationship with China, each energy supplier should aim at differentiate buyers in order to ensure its own energy security from a selling point of view, thus limiting any implication of political depend-ence.

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12. Turkey’s Policy towards the Caspian Sea Region: Widenining Gap between Ankara’s Expectations and Capabilities

Oktay F. Tanrisever

Introduction

The independence of three Turkic states, Azerbaijan, Kazakhstan and Turk-menistan in the aftermath of the Soviet collapse in 1991 has transformed the geo-strategic, geo-political, geo-economic and geo-cultural balance of power in the Caspian Sea regional order which had been previously shaped mainly by the policies of Russia and Iran as the key dominant powers of this region. This transformation in the regional balance of power has also presented Turkey, a country with special historical and cultural ties to these newly independent Turkic states in the Caspian Sea basin with an unique opportunity to exert its economic and political influence over the Caspian Sea region.

In fact, Turkey’s complex web of relations particularly with its Turkic partners in the Caspian Sea region have largely made Ankara an important player in this region, if not a strategic regional player; because unlike Russia and Iran, Turkey considered the independent Turkic republics as its potential strategic partners in the creation of New Silk Road between Europe and China where Turkey and its Turkic partners in the Caspian Sea region will play a key role. By contrast, Russia and Iran have obstructed the integration of the Tur-kic states in the Caspian Sea region into the global economic and political networks of cooperation. In particular, Moscow and Tehran have sought to prevent these states from exporting their hydrocarbon energy resources in the Caspian Sea region through pipelines bypassing Russian and Iranian territo-ries. Remarkably, the Turkic states in the Caspian Sea region have managed to develop closer ties with countries other than Russia and Iran, partly thanks to


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Turkey’s role as a bridge between the Caspian Sea region and the Western world.

Turkey’s foreign policy establishment has considered the importance of the Caspian Sea region not purely in terms of economic and energy resources, but in terms of its geo-strategic and geo-cultural importance since their inde-pendence declarations in 1991. Ankara considered the development of its rela-tions with these states vital for the success of its geopolitical strategy of open-ing an East-West corridor between China and Europe. This corridor has been expected to marginalize its regional rivals, Russia and Iran, further while in-creasing Ankara’s geo-strategic value in the eyes of its Euro-Atlantic allies. Be-sides, significant parts of Turkey’s vibrant civil society have also been develop-ing socio-cultural and economic relations with their partners in the region.1 Consequently, Turkey’s relations with the Caspian Sea region have developed both at the inter-governmental and at the civil society levels too.

This chapter seeks to explore the characteristics of Turkey’s policies towards the Caspian Sea basin in terms of its key objectives and instruments as well as its strengths and weaknesses. The chapter also seeks to discuss Anka-ra’s policy towards this region by exploring its geo-strategic and diplomatic dimension, geo-economic and energy dimension as well as its socio-cultural dimensions. In addition, the chapter also aims at discussing the institutional dimension of Turkey’s policy towards the Caspian Sea region. Last but not least, the chapter also hopes to assess the performance of Turkey’s policy to-wards the Caspian Sea region by evaluating the relationship between Ankara’s ambitions and its capacity to realize these ambitions as well as its regional strengths and limitations.

The chapter argues that although the widening gap between Turkey’s expectations and capabilities concerning its Caspian Sea policy accounts for Turkey’s perceived poor performance in realizing some of its core strategic ob-jective of weakening the Russian and Iranian influences in the region, Anka-ra’s policies have been largely successful in realizing energy and transportation projects which linked the Caspian Sea countries more closely with the Europe-an countries. In addition, although Turkey’s role in the region is seen positive-ly by the Turkic speaking countries of the Caspian Sea region, Moscow and Tehran still consider Ankara as a potential rival for their own interests in this region. In this context, the shift in Turkey’s emphasis from the socio-cultural dimension as in the 1990s to mainly pragmatic economic and energy dimen-sion of its regional policy during the 2000s almost eliminated the fears of Rus-sia and Iran concerning the risk that Turkey might embrace the rhetoric of

1 See G.M. Winrow, Turkey in Post-Soviet Central Asia, London, Royal Institute of International Affairs, 1995.

Turkey’s Policy towards the Caspian Sea Region

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pan-Turkism as an ideological framework of its policies towards the region in the foreseeable future.2

This chapter is structured in the following order. To begin with, the chapter explores the principles and objectives of Turkey’s foreign policy to-wards the Caspian Sea region. Next, it discusses the development of Turkey’s geo-strategic and diplomatic relations with the regional actors in the Caspian Sea basin. Afterwards, the chapter examines the geo-economic and energy di-mension of Turkey’s relations with the regional countries. This will be fol-lowed by the discussion of the socio-cultural dimensions of Ankara’s policies towards the Caspian Sea region. The penultimate part will discuss the institu-tional dimension of its policy towards the region by exploring the potential of the Turkic Council as as an institutional framework for regional cooperation. The concluding part will evaluate the performance of Ankara in realizing its regional foreign policy objectives.

12.1 Principles of Turkey’s foreign policy towards the Caspian Sea region

From Ankara’s point of view, the significance of the Caspian Sea region stems from a number of factors including its geopolitical location, its position at the juncture of the Eurasian transport corridors as well as its ethno-cultural diver-sity. Geo-politically, the significance of the Caspian Sea basin stems mainly from the fact that it is located at the juncture of Europe, Asia and the Middle East, and occupies a central position on the traditional ‘Silk Road’ from China to Europe. Due to this geopolitical position, the regional security complex in the Caspian region has been more volatile and vulnerable to the geopolitical pull and pushes of the neighboring regions as compared to most of other re-gions in the world. Besides, the region is very diverse in terms of its ethnic and cultural make-up adding internal dimension to the already very unstable ex-ternal dimension of regional stability in the Caspian Sea basin.3

In this context, Turkey’s overall strategy towards the Caspian Sea re-gion has been guided by two principles: the principle of weakening the regional influences of Russia and Iran by supporting independence of the Turkic coun-tries of the Caspian Sea region, Azerbaijan, Kazakhstan and Turkmenistan, and the principle of strengthening of the regional roles of these countries. In line with these principles, Turkey has intensified its cooperation with the Tur-kic republics in the Caspian Sea region by supporting their socio-economic de-

2 O.F. Tanrisever, “Turkey’s Evolving Role in the Security of Afghanistan and Central Asia since 9/11: Sources and Limitations of Ankara’s Soft Power” in O.F. Tanrisever (ed.), Afghanistan and Central Asia: NATO’s Role in Regional Security since 9/11, Amsterdam, IOS Press, 2013, pp. 155-170. 3 B. Ara, M. Croissant, Oil and Geopolitics in Caspian Sea Basin, Westport, CT, Prager, 1999.


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velopment as well as their capacity to deal with the security challenges, such as international terrorism, organized crime, and human trafficking.4

Originally, Turkey’s policy towards the Caspian Sea region has also been guided by its search for regional leadership in its neighborhood during the 1990s. This is closely linked to Ankara’s perceived loss of its geopolitical importance after the end of Cold War, during which Turkey’s political elites hoped that Turkey could regain its lost strategic significance in the eyes of the international community if Ankara established its hegemony over the Turkic states in Caspian Sea region as their new ‘elder brother’ replacing Russia. To this purpose, Turkey supported the processes of post-Soviet transition in the Caucasus and Central Asia. It was also expected that if successful, this policy of integrating the Caspian Sea states into the Western institutions might have strengthened Turkey’s case for joining the European Union and consolidating its position in the Western world.5

In such a context, as the first country that established diplomatic rela-tions with most of the post-Soviet Caspian Sea states, Turkey considered the support for the independence of these states essential for countering the hege-monic policies of Moscow and regional temptations of Iran as the former im-perial centers of the region. To this purpose, Turkey supported the member-ships of the Central Asian states into the international institutions, such as the United Nations, NATO and the Organization for Security and Cooperation in Europe (OSCE). The international community expected that Turkey could en-able the Central Asian states to export their natural resources, mainly oil and natural gas, to the Western states through the “Silk Road” trade route by-passing Russia.6

Not surprisingly, the ‘romanticism’ and ‘utopianism’ of Turkey’s for-eign policy elites was soon replaced by a sense of ‘realism’. This was evident in Turkey’s attitude to the Turkic states, which was too inclined to ‘elder brother’ approach and not based on a genuinely egalitarian idea of international part-nership. Not surprisingly, it also turned out that Turkey is too weak to replace and counterbalance Russia in the post-Soviet region, including the Caspian Sea region. In addition, Ankara’s rivalry with Russia in the Caspian Sea re-gion attracted criticisms from Turkey’s European allies since this rivalry con-tradicted with the spirit of cooperation in the post-Cold War Europe.7

4 N. Devlet, “Taking Stock: Turkey and the Turkic World 20 Years Later”, GMFUS On Turkey Policy Briefs, 10 November 2011, available at: http://www.gmfus.org/galleries/ct_publication_attachments/Devlet_Turkic World_Nov11.pdf(Accessed last time on 10 February 2014). 5 M. Aydın, “Türkiye’ninOrtaAsya - KafkaslarPolitikası” in KüreselPolitikadaOrtaAsya, ed. Mustafa Aydın, İstan-bul, Nobel, 2005, pp.101-148. 6 G.M. Winrow, Turkey in Post-Soviet Central Asia, London, Royal Institute of International Affairs, 1995. 7 M. Aydin, “Foucault’s Pendulum: Turkey in Central Asia and the Caucasus”, Turkish Studies, vol. 5, no. 2, 2004, p. 5.


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Consequently, Turkey’s diplomatic establishment started to normalize its relations with Russia by pursuing a more non-confrontational policy in the Caspian Sea region as well as other parts of the post-Soviet space particularly after the end of the First Chechen War in August 1996. Between 1996 and 1999, Ankara and Moscow signed a number of bilateral agreements ranging from cooperation in the field of energy including the construction of the Blue Stream natural gas pipeline to cooperation in the area of counterterrorism. These agreements opened the way for a new era of cooperation between these countries in the 2000s.8

Starting from the 2000s, Turkey’s regional policy has been going through a process of transformation thanks to its Europeanization process in the aftermath of 1999 Helsinki Summit of the European Council when Turkey was granted an ‘accession country’ status. A series of domestic socio-economic as well as political reforms brought Turkey closer to its European and NATO allies too.9 The Justice and Development Party, which came to power in 2002, has also continued to implement these Europeanizing reforms that contributed to democratization and liberalization of Turkey’s political system as well as market economy actively, especially during the period between 2002 and 2005. Reflecting Turkey’s Europeanized foreign policy, Foreign Minister Ahmet Davutoglu, who is the architect of Turkey’s foreign policy under the Justice and Development Party, emphasized that Turkey should be oriented towards the peaceful settlement of international disputes among various international actors in any part of the world in addition to Ankara’s own disputes with its neighbors.10

Turkey’s desire to enhance its role in global politics and to advance its Europeanization have constituted the main reasons why Ankara has been very active in coming up with new initiatives that emphasizes the use of its soft power towards the Caspian Sea region particularly after the 2000s. In line with this tendency, Ankara has also changed its traditional understanding of securi-ty due to its neglect of international cooperation and its inadequacy in coping with the emerging soft security threats. The Europeanization and liberalization of Turkey’s conception of security led to the adoption of a ‘cooperative securi-ty’ understanding, which emphasizes the role of international cooperation

8 O.F. Tanrisever, “Turkey and Russia in Eurasia”, in L.G. Martin, D. Kerides (eds.), The Future of Turkish For-eign Policy, Cambridge, MA, MIT Press, 2004, pp. 127-155. 9 E.F. Keyman, Z. Öniş, “Helsinki, Copenhagen and Beyond: Challenges to the New Europe and the Turkish State”, in M. Ugur (ed.), Europeanization and the Nation State, London, Routledge, 2004, pp. 173-193. 10 Turkey’s Foreign Minister Ahmet Davutoglu published several books and articles to clarify his foreign policy vision. The most well-known and the comprehensive one of these publications his following book which was published when he was working as a professor in a university, well before his appointment as Foreign Minister: A. Davutoglu, StratejikDerinlik, Istanbul, Kure, 2000.


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through institutional frameworks.11 This new foreign policy approach also characterized Ankara’s policy towards the Caspian Sea region. This could be demonstrated better through the discussion of the geo-strategic, geo-economic geo-cultural as well as institutional dimensions of Turkey’s regional initiatives below.

12.2 Geo-strategic and diplomatic dimensions of Turkey’s Caspian Sea policy

The geo-strategic and diplomatic dimensions of Turkey’s policy towards the Caspian Sea region have evolved in response to the changes in the geo-strategic positions of Russia and Iran in the post-Soviet era since these coun-tries have formed the main rivals of Ankara in projecting its influence in this region. Among these countries, Russia was initially quite undecided about the nature of its involvement in the Caspian Sea affairs in the aftermath of the So-viet collapse in 1991 because, on the one hand, it had to maintain its influence in the region; on the other hand, it had to revise its relations with the regional actors considerably. In fact, any assertive form of Russian involvement in the Caspian Sea region might have further undermined Russia’s position, and provoked anti-Russian nationalisms among non-Russian groups in the re-gion.12

In this context, the competition between Turkey and Russia in the Caspian Sea region had been formulated in zero-sum game terms throughout the 1990s. Accordingly, any gain of one side was seen as the loss of the other side. Moscow’s conception of regional order assumed that these post-Soviet developments had to be rectified or at least kept under control in order to es-tablish a sustainable basis for regional order.13 Consequently, increasingly dis-illusioned with its post-Soviet weakness and Turkey’s growing influence in the Caucasus, Moscow started to give special importance to its naval control of the Caspian Sea militarily especially after Vladimir Putin’s election as Russia’s president in 2000.14

Iran is another geo-strategic rival of Turkey in the Caspian Sea region as it cooperates with Russia in maintaining their dominance over the region. Turkey has been quite worried about Iran’s capacity to destabilize the Middle East through its nuclear program. In fact, if Tehran acquired nuclear power, it could use this military power to influence the developments and at the expense

11 See A.L. Karaosmanoglu, “Globalization and Its Impact on Turkey’s Security” in A.L. Karaosmanoglu, S. Tashan (eds.), The Europeanisation of Turkey’s Security Policy: Prospects and Pitfalls, Ankara, Foreign Policy Institute, 2004, pp. 11-24. 12 O.F. Tanrisever (2004), pp. 127-155. 13 D. Bazoglu-Sezer, “Turkish- Russian Relations: The Challenges of Reconciling Geopolitical Competition with Economic Partnership”, Turkish Studies, vol. 1, no. 1, 2000, p. 70. 14 P.B. Henze, “Turkey’s Caucasian Initiatives”, Orbis: A Journal of World Affairs, vol. 45, no. 1, 2001, pp. 81-91.


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of Turkey’s interests in the Caspian Sea region too. Turkey has also been very critical of Iran’s periodic belligerency towards Azerbaijan, the key partner of Turkey in the Caspian Sea region.15

Among the regional countries Ankara gives the utmost importance to Azerbaijan. Turkey recognized the independence of Azerbaijan in November 1991, almost two months before the formal disintegration of the Soviet Union at the end of 1991. From Turkey’s perspective, Azerbaijan’s key security prob-lem, occupation of Nagorno-Karabakh by Armenia, needs to be settled, as the persistence of this conflict has given Russia a free hand in manipulating the conflicts in the Caspian Sea region to its advantage. The continuity of this con-flict marginalizes the role of Turkey in the region considerably too.16

It is in this context that Turkey and Azerbaijan have started to coordi-nate their positions on the settlement of the Nagorno-Karabakh conflict. In 2004, Presidents of Azerbaijan and Turkey, Ilham Aliyev and Ahmet Necdet Sezer respectively, stressed the unity of the positions of Azerbaijan and Turkey concerning the Nagorno-Karabakh conflict. This common position of Azer-baijan and Turkey meant the withdrawal of the Armenian armed forces from Azerbaijan’s occupied territories as a first step towards the resolution of this conflict. It also emphasizes that any Nagorno-Karabakh settlement would have to be based on the principle of respecting territorial integrity and borders of neighboring states.17 Although Ankara maintains this position of support-ing territorial integrity of Azerbaijan, in recent years Ankara has episodically sought to make progress in both the peaceful settlement of the Nagorno-Karabakh conflict and the normalization of its own relations with Armenia simultaneously. However, it was a failure by Turkey to attempt to separate rapprochement with Armenia and opening borders with this country from Nagorno-Karabakh peace process. The policy did not produce the expected results, on the contrary in caused certain cooling down in the relation of Tur-key with Azerbaijan, Ankara’s main ally in the Caspian region.

The other partners of Turkey in the Caspian Sea region are Kazakh-stan and Turkmenistan. Turkey supports Astana’s relations with Western se-curity institutions, especially NATO. Turkey also supported Kazakhstan’s chairmanship of the OSCE. Turkey assumed the Chairmanship of the Confer-ence on Interaction and Confidence-Building Measures in Asia (CICA) in or-der to alleviate the burden of Kazakhstan OSCE Chairmanship in 2010.18

15 See B. Aras and Rabia Karakaya Polat, “From Conflict to Cooperation: Desecuritization of Turkey's Relations with Syria and Iran”, Security Dialogue, vol. 39, no. 5, 2008, pp. 495-515. 16 D. Trenin, “Russia’s Security Interests and Policies in the Caucasus Region”, in B. Coppieters (ed.), Con-tested Borders in the Caucasus, Bruxelles, VUB University Press, 1996, p. 91. 17 M. Katik, “Azerbaijan and Turkey Coordinate Nagorno-Karabakh Negotiating Position”, Eurasia Insight, 23 April 2004. 18 MFA of Turkey, “Türkiye – KazakistanSiyasiİliskileri”, available at: http://www.mfa.gov.tr/turkiye-kazakistan-cumhuriyeti-siyasi-iliskileri.tr.mfa (last retrieved on 15 February 2014).


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Turkey’s relations with Turkmenistan are mainly limited to the socio-economic and cultural fields. The neutral position of Turkmenistan limits the scope of Turkmenistan’s security cooperation with Turkey as a NATO mem-ber. Despite this limitation, Ankara has provided training to the security forc-es of Turkmenistan for enhancing their institutional capacity to cope with emerging soft security challenges, such as terrorism and organized crime.19

To summarize, geo-strategic and diplomatic dimension of Turkey’s policy towardsthe Caspian Sea region is the most challenging aspect of its re-gional policy as it faces the rivalry of Russia and Iran, which have historically dominated the region. Despite these challenges, Ankara has been largely suc-cessful in developing its relations with Azerbaijan and Kazakhstan and con-tributed to their integration into the European political and economic net-works of cooperation effectively.

12.3 Geo-economic and energy dimensions of Turkey’s Caspian Sea policy

With its dynamic economic infrastructure, Ankara has viewed its geo-economic role in the Caspian Sea region in terms of promoting regional eco-nomic cooperation in the region since it is well placed to reap the benefits of increased economic activity in the region. Therefore, Turkey’s foreign policy towards this region has been determined basically by an economic priorities and energy needs. There has been a consensus among the foreign policy-making elites in Turkey that the promotion of regional economic cooperation in the Caspian Sea region would benefit both Turkey and its partners in the region. In this context, geo-economic and energy dimensions of Turkey’s Cas-pian Sea policy include the issues of trade, investments, energy diplomacy, the development of energy pipelines as well as transportation corridors between the Caspian Sea region and Turkey. In fact, trade and foreign direct invest-ment constitute key dimensions of Turkey’s relations with all of the littoral states in the Caspian Sea region.

Turkey’s trade volume with the countries in the Caspian Sea region (around $58 billion) constitutes a significant share (14%) of its overall trade volume of $400 billion in 2013. Among the Caspian Sea countries, Turkey’s largest trade partner is Russia. In 2013, Turkey managed to export goods and services to Russia with the total value of almost $7 billion while its imports from Russia reached $25 billion with the net trade deficit of $18 billion. In the same year, Turkey’s second largest trade partner in this region was Iran with the export volume of $4 billion as compared to the import volume of $10 billion in 2013. Taken together, Turkey had the net trade deficit of $24 billion

19 MFA of Turkey, “Türkiye - TürkmenistanSiyasiİlişkileri”, available at: http://www.mfa.gov.tr/turkiye-turkmenistan-siyasi-iliskileri.tr.mfa (last retrieved on 11 February 2014).


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vis-à-vis Russia and Iran, forming almost 25% of its total deficit of $99 billion in 2013.20

Remarkably, Turkey’s trade volume with all of the Turkic states in this region combined (nearly $11 billion) is considerably lower than its trade volume with the above-mentioned non-Turkic states taken separately. Among the Turkic states in the Caspian Sea region, Turkey’s largest trade volume (around $4.7 billion) is with Azerbaijan. In 2013, Turkey’s exports to Azerbaijan has the total value of around $3 billion while its imports from Azerbaijan is slightly above $1.7 billion. Turkey’s trade volume with Kazakhstan ($4.1 billion) is also as large as its trade volume with Azerbaijan. Turkey’s exports to Kazakhstan has the value of $1 billion while its imports from Kazakhstan reached $3.1 billion in 2013. The smallest share in Turkey’s trade with the Caspian Sea countries belongs to Turkmenistan. Although Turkey’s exports to Turkmenistan reached almost $2 billion, twice higher than its exports to Kazakhstan its import volume was the smallest (only 650 million) as compared to all regional countries in 2013.21

Concerning the levels of Foreign Direct Investment (FDI), Turkey makes considerable amount of FDI in the Caspian Sea region with the total value of $3.6 billion for the period between 2009 and 2013, Turkey’s largest FDI is attracted to Azerbaijan with the total value of $2.7 billion, followed by Russia ($340 million), Kazakhstan ($300 million), Iran ($200 million) and fi-nally Turkmenistan ($60 million).22 These figures demonstrate that Turkish businessmen experience relatively friendly foreign direct investment environ-ment in most of the Caspian Sea countries, with the exception of Turkmeni-stan.

Likewise, Turkey has also attracted large FDI from the Caspian Sea region with the total value of $2.6 billion for the period between 2009 and 2013, Turkey attracted the largest amount of FDI from Russia with the total value of $1.7 billion, followed by Azerbaijan (around $800 million), Kazakh-stan ($90 million), Iran ($45 million) and finally Turkmenistan ($500 thou-sand). 23As these figures demonstrate Turkey has more outgoing FDI to the Caspian Sea region than incoming FDI during the period between 2009 and 2013. Probably, Ankara needs to more financial and legal reforms to attract more FDI from these countries. It should also be mentioned that a considera-ble FDI flow from Azerbaijan to Turkey is expected to come from the con-struction of TANAP pipeline and STAR refinery in the Turkish territory by

20 These figures are calculated by the author based on the dataof Turkey’s official statistics institution - Türki-yeUlusalİstatistikKurumu (TUİK). This data is retrieved from the website of TUİK at http://www.tuik.gov.tr, (last retrieved on 8 April 2014) 21 Ibid. 22 This data on outgoing FDI is taken from Turkey’s Undersecretary of Treasury officials on 7 April 2014. 23 This data on FDI is taken from Turkey’s Central Bank officials on 7 April 2014.


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SOCAR – billions of USDs which promise to make Baku one of the biggest foreign investors in Turkey.

Geo-economic dimension of Ankara’s policy towards the Caspian Sea region has been shaped also in interaction with the energy policies of Russia, Azerbaijan, Kazakhstan, Turkmenistan and Iran, which found themselves in a very harsh struggle for the control over the energy resources of the region in the post-Soviet era. In fact, Iran and the post-Soviet states of the Caspian Sea region have developed increasingly uncompromising positions concerning the status of the Caspian Sea itself and the exploitation as well as transportation of the hydrocarbon resources of the Caspian Sea region.24

Russia and Iran’s energy policies contradicted with the policies of Tur-key towards the Caspian region because of the commitment of Moscow and Tehran to the policy of keeping the influence of external powers, including Turkey to a minimum. As part of its policy of keeping the post-Soviet Turkic states under its own sphere of influence, Russia accommodated some of the in-terests of the Turkic states either by supporting their policies of extracting their energy resources in the offshore areas of the Caspian Sea as with Azer-baijan and Kazakhstan or by importing their natural gas as with Turkmeni-stan in order to re-export this natural gas to the lucrative European markets. Iran has been largely sidelined by Moscow in this geo-economic dimension due to its lack of significant leverage over the post-Soviet Turkic states, let alone Russia.25

Turkey’s energy policy towards the Caspian Sea region has been based on the creation of East-West energy corridor, since the potential major energy consumers are concentrated in the west, while producers are located in the East. Thanks to energetic policies of Turkey and its closest regional ally Azer-baijan, the western route bypassing both the northern Russian-controlled and the southern Iranian-controlled options prevailed in becoming the main export pipeline for the hydro-carbon energy resources of Azerbaijan. Consequently, following the inter-state agreement on the construction of the Baku-Tbilisi-Ceyhan (BTC) pipeline, this oil pipeline became operational finally in the summer of 2006.26 This was a huge success for Azerbaijan and its partners in this project: Georgia, Turkey and the United States and an important step for strengthening European energy security.

24 A. Ehteshamii, “Geopolitics of Hydracarbons in Central Asia and Western Asia” in S. Akiner (ed.), The Cas-pian: Politics, Energy and Security, Oxfordshire, Routledge Curzon, 2004, p. 63. 25 O.F. Tanrisever, “Nagorno‐Karabakh Conflict and Regional Stability in the Caspian Basin”, EU4SEAS Pa-pers. 22 October 2009, available at: http://www.eu4seas.eu/images/stories/deliverables/WP2/Caspian/eue4 seas_oktay_tanrisever.pdf. 26 O.F. Tanrisever, “Turkey and the Politics of Pipelines in the Black Sea Region”, Energy Security and Security Policy: NATO and the Role of International Security Actors in Achieving Energy Security, The NATO School, Ed. Phillip Cornell, Oberammergau, 2007, pp. 74-78.


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In this context, Turkey’s energy relations with the Caspian Sea coun-tries have been determined by its overall objective of an energy corridor be-tween the Caspian Sea and Europe that could serve as an alternative to the ex-isting Russia-dominated energy corridor between the Caspian Sea and Europe. At present, the European Union countries receive energy from the Caspian Sea region through Russia which until recently imported energy from other post-Soviet states in the Caspian Sea region; namely, Kazakhstan, Turkmenistan and Azerbaijan at relatively lower price levels, and re-exported these energy supplies to the EU member countries at relatively higher price levels. With the recent agreements this situation has changed considerably since the Caspian countries started to export their hydrocarbon energy resources to Russia for higher prices. The creation of an alternative energy corridor between the Cas-pian Sea and Europe could decrease the price for natural gas for European en-ergy consumers by increasing the competition in the market.27

In this context, Turkey’s economic interests in the Caspian Sea region have increased significantly in the last decade when Turkey adopted a new trade policy which stressed the increase in its exports. Among the Caspian Sea countries, Ankara has prioritized economic cooperation with Kazakhstan and Azerbaijan particularly in the construction of oil and natural gas pipelines, namely BTC oil pipeline and its possible extension to Kazakhstan and Baku Tbilisi Erzurum (BTE) natural gas pipeline and the Trans-Anatolian Pipeline (TANAP) natural gas pipeline as well as construction of railways between Turkey and the Caspian Sea region, such as Kars-Tbilisi-Baku Railway, and the modernization of port facilities around the Caspian Sea. Turkey’s state owned enterprises such as BOTAS (Boru Hatları İle Petrol Taşıma Anonim Şirketi) and TCDD (Türkiye Cumhuriyeti Devlet Demiryolları) played signifi-cant roles in the realization of pipeline and railway projects respectively since these projects required long-term guarantees from the states involved.28 It should also be emphasized that Turkey’s private sector is also quite successful in winning major projects for modernizing Turkmenistan’s transportation in-frastructure, airports and ports around the Caspian Sea basin.For example, according to Ministry of Foreign Affairs (MFA) of Turkey, during the post-Soviet period, the total value of projects realized by contracting Turkish com-panies in Turkmenistan reached $40 billion.29 This is partly related to more cost-effective nature of Turkish construction companies as compared to con-struction companies of other states in realizing major infrastructure projects in this region.

27 O.F. Tanrisever (2009). 28 G. Gleason, Oktay F. Tanrisever, “A Bridge to Central Asia”, Concordiam: Journal of European Security and Defense Issues, vol.4, no.3, 2013, pp. 10-15. 29 See MFA of Turkey, “Türkmenistan’ın Ekonomisi”, available at: http://www.mfa.gov.tr/turkmenistan-ekonomisi.tr.mfa (last retrieved on 6 April 2014).


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To summarize, although Turkey faces difficult challenges ahead to its own energy strategy, Turkey’s relative success in creating an alternative energy corridor between the Caspian Sea and Europe could have very positive impact not only on its relations withthe Turkic countriesin the Caspian Sea region, but also on Euro-Atlantic energy security as a whole.

12.4 Geo-cultural dimension of Turkey’s Caspian Sea policy

Turkey’s soft power in the Caspian Sea region stems largely from its socio-cultural and economic policies based ethnic, linguistic, religious and historical kinship with Turkic speaking nations of the Caspian region. Ankara has been attempting at projecting its soft power through various educational and cul-tural institutions, particularly after the 2000s. The opening of Yunus Emre cul-tural centers is an important development for Turkey’s relations with the Cas-pian Sea region, since these centers are expected to enhance the cultural dia-logue between Turkey and the Turkic-speaking peoples in the region. In fact, the first Yunus Emre center in Central Asia was opened in Kazakhstan’s capi-tal city of Astana in 2010. Besides, there are several Turkish public and private schools and universities in Azerbaijan, Kazakhstan, and Turkmenistan. Ahmet Yesevi University is Turkey’s joint initiative with Kazakhstan. In addition, Turkey’s TICA (Turkish International Cooperation Agency) established com-puter centers in various schools and training centers in some of these coun-tries.30

The provision of foreign aid is also one of the key aspects of Turkey’s soft power in Kazakhstan and Turkmenistan. The TICA provides assistance to these Central Asian states in the fields of telecommunications and transporta-tion infrastructure, the supply of clean water as well as educational opportuni-ties for the students in Turkey’s universities and training for bureaucrats in various sectors.31

It should be noted that Russia and Iran pose significant challenges to Turkey in projecting its soft power to the Caspian Sea regions. Both Moscow and Tehran does not allow Ankara to distribute foreign aid inside their coun-tries out of the fear that Turkic communities in the Russian Federation and the Azeri community in the northern part of Iran would be oriented not only culturally but also politically towards Turkey. In addition, both countries also have considerable geo-cultural influence in the Turkic states of the Caspian Sea region. The Russian cultural influence is considerable mainly in Kazakh-

30 See MFA of Turkey, “OrtaAsyaÜlkeleriyleİliskiler”, available at: http://www.mfa.gov.tr/turkiye-orta-asya-ulkeleri-iliskileri.tr.mfa (last retrieved on 12 February 2014). 31 G.M. Winrow, “Turkish Policy towards Central Asia and the Transcaucasus”, A. Makovsky, S. Sayari (eds.), Turkey’s New World: Changing Dynamics in Turkish Foreign Policy, Washington D.C., WINEP, 2000, pp. 117-119.


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stan and partly in Turkmenistan. Iran is also keen, though unsuccessfully until now, on boosting its geo-cultural influence in Azerbaijan and Turkmenistan through its overt and covert activities. Although these countries have their own limitations in these Turkic countries in the Caspian Sea region due to the local reactions to the increased Russian and Iranian influence in their coun-tries, Turkey has significant limitations in projecting its geo-cultural influence in this region too.32

To sum up, despite Turkey’s stated objective of enhancing the geo-cultural dimension of its Caspian Sea policy, Ankara has been only partly ef-fective in projecting its soft power in the Caspian Sea region. This is mainly because Turkey’s soft power has significant economic and cultural limitations in this region.

12.5 Institutional framework of Turkey’s relations with the Caspian region

Turkey has been trying to develop its relations with the Caspian Sea region through a multilateral institutional framework too. The main institutional framework for Ankara to project its influence regionally is the Turkic Council or the Cooperation Council of Turkic Speaking States (CCTS). This organiza-tion was created by Azerbaijan, Kazakhstan, Kyrgyzstan and Turkey in 2009. Among the Caspian States, Azerbaijan and Kazakhstan are already full mem-bers of the Turkic Council whose main aim is to deepen the level of coopera-tion among the Turkic speaking countries in the areas of common interest. Turkmenistan, which has an observer status at the Turkic Council, could join this organization in the foreseeable future. Meanwhile, bearing in mind current foreign policy strategy of Tashkent, Uzbekistan’s membership is very unlikely in near future. Concerning Turkey’s relations with the Caspian countries, Uz-bekistan’s non-membership cannot pose a significant challenge. However, the full membership of Turkmenistan is very critical since it is a littoral state of the Caspian Sea region.33

The process leading to the formation of the Turkic Council originated from the summit meetings of the Turkic states. The first of these summits was held with the participation of the presidents of all Turkic states, – namely Azerbaijan, Kazakhstan, the Kyrgyz Republic, Turkey, Turkmenistan and Uzbekistan – in Ankara in 1992. Although five more summits were held with the full participation of all Turkic Presidents between 1994 and 2000, including the Istanbul summit in 1994, the Bishkek summit in 1995, the Tashkent sum-mit in 1996, the Astana summit in 1998, the Baku summit in 2000. First Uz-

32 T.S. Mohammadi, “Tensions Rise between Iran and Azerbaijan”, Deutsche Welle, available at: http://www.dw.de/tensions-rise-between-iran-and-azerbaijan/a-16006008-1 (last retrieved on 4 April 2014). 33 A. Bayaliyev, “The Turkic Council: Will the Turks Finally Unite?”,CACI Analyst, 19 February 2014.


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bekistan starting with the Istanbul summit in 2001 to be followed by Turkmen-istan starting with the Antalya summit in 2006 stopped participating in these summits at the presidential levels. This is the main reason why Azerbaijan, Kazakhstan, the Kyrgyz Republic, and Turkey established the Turkic Council during the ninth summit in Nakhchevan in 2009.34

The founding document of this institutional framework for multilateral cooperation is the Nakhchevan Agreement on the Establishment of the Coop-eration Council of Turkic Speaking States which was signed in the Azerbaijani city of Nakhchevan in 2009. This Agreement emphasized the commitment of the member states to the universal principles of peaceful international relations externally and democratic governance domestically in their attempts at realiz-ingthe common objectives of the Turkic speaking peoples who share common historical and cultural origins. According to Article 2 of this Agreement, the mandate of this institutional framework formultilateral cooperation covers a very wide agenda ranging from the issues of soft security and legal cooperation the issues of cooperation in the areas of economy, technology and culture.35

In terms of its organizational structure, the Turkic Council resembles other regional cooperation in many ways. Its highest decision making organ is the Council of Heads of State, which is assisted by the Council of Foreign Ministers. Its Secretariat, which is based in Istanbul and headed by a Turkish diplomat Ambassador Halil Akıncı, executes the policies and programs as agreed by the Council of Heads of State. Unlike other regional organizations, the Turkic Council includes the Council of Elders and the Senior Officials Committee as consultative bodies. In this way, the Turkic Council incorpo-rates the leading figures from civil societies and bureaucracies of the member states into its decision-making system.36

The Turkic Council is also keen on coordinating its activities with the already operational institutional frameworks for multinational cooperation among the Turkic-speaking countries, including the Parliamentary Assembly of the Turkic Speaking Countries (TURKPA) and the Turkic Business Coun-cil as well as the International Organization of Turkic Culture (TURKSOY). If the member states of these organizations decide to join the Turkic Council, these organizations could be integrated into the formal organizational struc-ture of the Turkic Council.37 Until that time, their relations with the Turkic Council will be coordinated through its Secretariat in Istanbul.

34 “History of Summits”, available at: http://www.turkkon.org/eng/icerik.php?no=29 (last retrieved on 14 March 2014). 35 “Nakhchivan Agreement on the Establishment of the Cooperation Council of Turkic Speaking States”, availa-ble at: http://www.turkkon.org/uploads/NahÃ§Ä±van%20AnlaÅŸmasÄ±-Ängilizce.pdf (last retrieved on 14 March 2014). 36 “The Cooperation Council of Turkic Speaking States”, available at: http://www.mfa.gov.tr/turk-konseyi-en.en.mfa (last retrieved on 14 March 2014). 37 Ibid.


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To summarize, the institutional dimension of Turkey’s policy towards the Caspian Sea region could be considered partially successful as it includes only Azerbaijan and Kazakhstan from the region. Turkmenistan’s observer status and the exclusion of Russia and Iran seem to be undermining the effec-tiveness of Turkey’s attempt at developing an institutional framework for mul-tilateral cooperation in this region. Besides, the ethnic focus in the Turkic Council is another factor that limits the multilataralist claim of Ankara’s poli-cies towards the region due to its exclusive character.

12.6 Turkey’s performance and the widening gap between its expectations and capabilities

When Turkey’s foreign policy towards the Caspian Sea region has been ana-lyzed in terms of its performance in realizing its stated objectives, it is far from being fully successful. Although Ankara has achieved significant results over the last 20 years, it suffers problems from to the lack of realism in setting its ambitious objectives. It has become already clear that Ankara’s objectives were too ambitious for a regional actor like Turkey to achieve.

Although the prospects for Turkey’s performance in the Caspian re-gion has been largely limited in realizing the desired outcomes, some of its shortcomings stems from factors that are beyond its control. In fact, the Cas-pian Sea region is a very complex region where other major regional powers like Russia and Iran experience significant troubles.

It should also be stated that, some of Turkey’s shortcomings in the Caspian Sea region are related to the nature of the regional geopolitics. In fact, Turkey’s capacity to project its power over the Caspian Sea region is limited due to its geographical distance to the region. Turkey is not a part of the re-gional security complex in the Caspian Sea region.

In addition to Ankara’s inability to project hard power in the Caspian Sea region, there are also significant limitations to Turkey’s soft power in this region. Firstly, Ankara lacks a comprehensive strategy for enhancing its soft power in the Caspian Sea region. In addition, although Turkey’s partners in the Caspian Sea region tend to use Turkey’s diplomatic channels in enhancing their relations with NATO and other Euro-Atlantic structures, Turkey has not coordinated its policy towards this region in close coordination with its West-ern allies yet.

Besides, Turkey’s economic power is not enough big to attract the re-gional countries. In the beginning of 1990s Azerbaijan, Kazakhstan and Turkmenistan were willing to get Turkish economic assistance to address their immediate economic problems emerged at the result of the Soviet collapse which made them open to Turkey’s economic influence. This took place par-ticularly in the form of Turkish “Eximbank” credits. However, soon regional


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countries got disappointed with Turkish incapability meeting their expectation for assistance. Later, utilizing them their rich energy resources Azerbaijan, Kazakhstan and Turkmenistan became too wealthy to be influenced by Tur-key’s limited economic power.

Last but not least, contrary to the taken for granted cultural similari-ties between Turkey and the Turkic countries in the Caspian Sea region, their actual linguistic and cultural differences, especially with Kazakhstan, limit Ankara’s capacity to project its soft power in this region considerably. Besides, these Turkic states prefer to promote their own national culture in order to maintain their autonomy vis-à-vis other cultures, particularly closer cultures, such as Turkey’s own culture.38

To sum up, Ankara’s performance in extending its influence in the Caspian Sea region is better in comparison with the results of its earlier poli-cies towards this region towards during the 1990s. This is mainly related to its adoption of a more cooperative attitude towards all countries in this region with a greater emphasis on the use of soft power and a cooperation based on pragmatic considerations.

Conclusions

To conclude, Turkey’s foreign policy towards the Caspian Sea region reflects its key strategic priority of protecting the political independence of the newly independence of Turkic countries of Azerbaijan, Kazakhstan and Turkmeni-stan. In this respect, as a medium-sized regional soft power, Turkey has been making significant contributions to the Turkic countries in the Caspian Sea re-gion. However, Ankara had treated these Caspian Sea countries as its junior partners until the early 2000s. This approach was not positively accepted by these countries since they had just recently liberated themselves from the dom-ination of another ‘big brother’ Moscow. Since then Turkey has made a signif-icant progress in reformulating its cooperation with the Caspian Sea countries on a relatively more egalitarian basis. Currently Turkey enjoys close socio-economic partnership and high level of cooperation and political dialogue with the Turkic speaking countries of the Caspian, particularly with its closest re-gional partner Azerbaijan.

Turkey’s approach towards the Caspian Sea region has been also re-flected in its preference to use its soft power emphasizing socio-economic and cultural aspects. Despite its limitations, Turkey’s soft power and its inclusive approach to international cooperation have enhanced Ankara’s relations with

38 For example, on the limits of Turkey’s capability to project its power beyond its borders in the Middle East, see M.B. Altunisik, “The Possibilities and Limits of Turkey’s Soft Power in the Middle East”, Insight Turkey, vol. 10, no. 2, 2008, pp. 41-54.


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these countries. This is particularly visible in the geo-economic dimension of Turkey’s relations with the countries in the Caspian Sea region albeit in vary-ing degrees.

Turkey’s use of its soft power in its policy towards the Caspian Sea re-gion has its own strengths and limitations too. Turkey’s soft power in the Cas-pian Sea region stems from three factors. First, Turkey has started to treat the Turkic countries in the Caspian Sea region as its equal partners since the 2000s which led to establishment of more practical mutual partnerships. Second, these countries consider Turkey as their gateway to Europe and the Western world in general in order to counterbalance the hegemonic powers of Russia and Iran. Last but not least, Europe’s southern energy corridor through Tur-key makes cooperation with Ankara more attractive to the energy-rich Caspi-an Sea countries.

Turkey’s policy towards the Caspian Sea region suffers from some lim-itations too. Despite Ankara’s generous contributions to the Turkic states in the Caspian Sea region, Turkey’s capabilities were below its Turkic speaking Caspian partners’ expectations for assistance. Although these states are rich in terms of energy resources, still they needed huge foreign investment to keep their economies growing. Turkey lacked the financial sources and new ad-vanced technologies that these countries needed. To counter these shortcom-ings, since 2000s Turkey have significantly improved its foreign and economic policy posture in Caspian Sea basin and established more pragmatic and prac-tical cooperation with the regional countries.

All in all, Turkey has demonstrated a successful performance in estab-lishing cooperation with the Caspian littoral states despite Ankara’s limita-tions in its capabilities. Ankara’s continuing commitment to the regional so-cio-economic development could enable it to play even a greater and more constructive regional role in future.

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The Authors

Mukhit B. Assanbayev is a head of international relations department at Sul-eyman Demirel University, Kaskelen, Kazakhstan. He worked as the president of the Center for Social and Humanitarian Research “Aspect M”, vice-president of Kazakhstan Center for Humanitarian and Political trends, direc-tor’s advisor at Kazakhstan Institute for Strategic Research under the Presi-dent of the Republic of Kazakhstan, research fellow at the Institute for Devel-opment of Kazakhstan. His professional activity is related to research in the field of “International Relations” and “Political Science”. He is regular con-tributor to matters relating to political processes in Kazakhstan (internal mi-gration, ethno-politics, ideology, nation-building, inter-ethnic conflict, religion in modern society). Recently he collaborated within regional and international research projects dedicated to Russia, Central Asia and China. He is the au-thor of 4 monographs, 1 tutorial, and co-author of 4 books and more than 60 scientific publications in Kazakhstan and abroad. Michela Ceccorulli is Research Fellow at the Scuola Superiore Sant’Anna (Pi-sa) and Associate Fellow at the Forum on the Problems of Peace and War (Florence). She holds a PhD in Political Systems and Institutional Change from the IMT Institute for Advanced Studies (Lucca) and a Master of Arts from SAIS, Johns Hopkins University (Washington DC). She graduated at the International and Diplomatic Science Faculty, University of Bologna at Forlì. She has widely published on migration, security and the EU’s eastern dimen-sion and approach. Lorena Di Placido is an analyst and researcher for the Military Center for Stra-tegic Studies (Italian MoD) for the areas of Central and Eastern Europe, Rus-sia and Central Asia, and works as a security analyst for consulting firms. Board member of ASIAC (Italian Association for the Study of Central Asia and the Caucasus), she has collaborated with the Ministry of Foreign Affairs,


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the Institute of Russian Language and Culture, the Center for International Policy Studies (CeSPI), the Italian Society for International Organization (SI-OI). She has lectured at universities and higher education courses of the Minis-try of Defense. She is also a translator from Russian and has participated in seminars and conferences in Italy and abroad. Carlo Frappi is Associate Research Fellow for the Caucasus and Central Asia Programme at ISPI and Researcher at the Department of Asian and North African Studies of Venice Ca’ Foscari University. Member of the Board of Di-rectors of the Association for the Study of Central Asia and the Caucasus in Italy (ASIAC), he has extensively published in its areas of expertise – security cooperation in the Black Sea and former Soviet areas; energy security policies and energy competition in the Eurasian space; Turkish foreign policy. Since 2010 he co-authors a quarterly monitoring on energy security for the Italian Ministry of Foreign Affairs and Parliament. Azad Garibov is a research fellow in the Foreign Policy Analysis Department of the Center for Strategic Studies under the President of the Republic of Azerbaijan (SAM) as well as adjunct professor in the Department of Political Science and International Relations of Khazar University where he teaches courses on EU Law and EU in Global Politics. He received BA International Relations degree from Baku State University and did MSc degree in Interna-tional Politics at the University of Glasgow (UK). His areas of inters include politics and security issues in the Caucasus and central Asia, trans-Eurasian transport as well as Caspian affairs. Azad Garibov is also a frequent contribu-tor to the various online and published newspapers and journals, including the Journal of Turkish Weekly (Turkey), Caucasus International (Turkey), Strate-gic Analysis (Azerbaijan), Geopolitica (Romania), Law and Politoclogy (Mol-dova), Kazakhstan in Global Processes (Kazakhstan) etc. Rovshan Ibrahimov received bachelor degree on International Relations at An-kara University in 1998. Defended own master degree at the same University in 2001 (Thesis topic: the EU TACIS Program and Azerbaijan). In 2008 re-ceived Phd on political sciences from Ankara University (Thesis topic: The re-lations between the EU and the Southern Caucasus Republics). Dr. Ibrahimov has worked at Qafqaz University since 1999. He has taken positions of Direc-tor for Center of Energy Studies, Head of Region Studies Department, and Vice-Rector on External Affairs. Since 2003 till 2013 took a position of Head of International Relations, founder of this department. Since 2011 Dr. Ibra-himov has taken position of Head of Foreign Policy Analysis at Center for Strategic Studies under the President of Azerbaijan Republic. 2010-2012 Co-producer “Gundem” TV program on foreign policy. Research interest: Energy

The Authors

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policy and security, Azerbaijan Foreign Policy, International Politics, Theories of International Relations, Conflict Studies. He has delivered lectures in Wroslaw University in Poland, Siegen University (Germany), SDU (Kazakh-stan) and Oil Academy and Odlar Yurdu (Azerbaijan). Dr. Ibrahimov has au-thored more than two hundreds articles and comments. Reshad Karimov is a Principal Research Fellow on subject of National Security Affairs for the Center for Strategic Studies under the President of Azerbaijan. He joined the Center in 2008 with the task to expand strategic analysis and col-lection efforts. Mr. Karimov has been featured and cited by numerous news-papers and broadcast sources, including CNN, The Associated Press, Al Jazeera, Haaretz, Hurriyet and Xinhua News Agency. He has had speaking appearances at a number of conferences covering political and security issues in Azerbaijan and abroad and authored more than 100 scholarly publications on the subject of international security and international relations. Mr. Kari-mov took part as an observer in launching multiple U.S. military initiatives, including military operations in Afghanistan and Iraq, and in order to amplify expertise on a subject he was nominated for Combating Terrorism Fellowship Program, an educational program, overseen by the U.S. Assistant Secretary of Defense for Special Operations/Low-Intensity Conflict. Mr. Karimov received his degree at the elite military institution, Naval Postgraduate School in Mon-terey, California. Kamal Makili-Aliyev is a leading research fellow at the Center for Strategic Studies under the President of the Republic of Azerbaijan (SAM), dealing with international and regional security and military issues as well as international legal affairs; editor of “Caucasus International” journal; has a working experi-ence in Ministry of Defense of the Republic of Azerbaijan, in Constitutional Court of the Republic of Azerbaijan, in Institute on Human Rights (Azerbai-jan) and in UNDP Azerbaijan; he is graduate of Baku State University, has a Master’s Degree in International Human Rights Law (Lund University, Swe-den), Master's Degree in Constitutional Law (Academy of Public Administra-tion, Azerbaijan) and a Legum Doctor degree (LL.D.) in International and Constitutional Law (Lund University, Sweden / Institute on Human Rights of Azerbaijan National Academy of Sciences). Dr. Makili-Aliyev has three pub-lished academic books, two monographies and more than forty articles. Tomislava Penkova is a Research Fellow at ISPI Programme on Russia and EU Eastern Neighbours and a researcher at the University of Kent. She has been also a Visiting Researcher at Carnegie Moscow Centre (Russia). She is a Senior Lecturer on Russia’s foreign policy at the Catholic University of Milan (Italy). She is also member of the British EU-Russia Network, the Italian As-


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sociation for Slavic Studies, the International Studies’ Association, the Euro-pean International Studies Association and the Bulgarian Geopolitical Associ-ation. She has extensively published (policy briefs, working papers, book chap-ters and journal articles) on the Russia’s foreign policy, Russia-US relations, integration in the post-Soviet space, EU Eastern Neighbourhood policy, Ukraine’s integration process in the EU both for international and Italian publishers as well as conducted analyses for the Italian Ministry of Foreign Affairs and the Italian Parliament. Oktay F. Tanrisever is a Professor of International Relations at the Middle East Technical University, Ankara, Turkey. He is also the Associate Dean of the Faculty of Economic and Administrative Sciences and the Chairperson of the Area Studies PhD Program at the same university. After graduating from the BSc and MSc programs in International Relations of the Middle East Technical University, he received his PhD degree from the University of Lon-don. His research interests include the foreign policies of Turkey and Russia, security and peace-building in the Black Sea, the Caucasus and Asia, interna-tional politics of energy, water and environment as well as theories of interna-tional relations. Matteo Verda is Associate Research Fellow at ISPI. He earned a MSc in Polit-ical Theory and a PhD in Politics at the University of Pavia (Italy). He is visit-ing fellow at the Italian Institute for Strategic Studies "Niccolò Machiavelli" (Rome). His main field of research is international relations and his expertise is on the exploitation of natural resources and the relationship between econom-ics and politics. He extensively published in its areas of expertise, in particular with reference to the energy sector, and since 2010 co-authors a quarterly mon-itoring on energy security for Italian Ministry of Foreign Affairs and Parlia-ment. Matteo Villa is a Research Fellow at ISPI. He holds a MA in International Re-lations obtained from the University of Milan, and is currently a PhD candi-date at the Graduate School in Social and Political Sciences of the University of Milan. For ISPI, he is editor of ISPI/Treccani’s Geopolitical Atlas and man-ages RAstaNEWS, a macroeconomic FP7 international research programme. Recently he has also been contributing to the NATO ACT / University of Bo-logna PREDICT project, a comprehensive foresight exercise. Matteo’s exper-tise is in comparative politics, but he has also published contributions on issues regarding international relations, European studies and the politics of energy.

the caspian sea chessboard

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