Is There Sufficient Pressure to Finally Force a Consensus as to the Legal Status of the Caspian Sea?

The 4^th Summit of the Caspian 5 (Russia, Iran, Azerbaijan, Turkmenistan, and Kazakhstan) will meet on September 29^th in the southern Russian city of Astrakhan. The purpose of the conference is for these countries to come to a consensus as to the legal status of the Caspian Sea. Though there is some precedent for cooperation in managing the Caspian Sea and its surroundings, such as tackling criminal activity, consensus has thus far proven elusive. There are a variety of reasons for this impasse with Russia’s fear that the proposed Trans-Caspian pipeline would undermine Moscow’s ability to influence its neighbors being of particular prominence. Despite such challenges a variety of factors such as the effects of sanctions against Russia and the developing détente between the United States and Iran could mean that this summit could actually result in a consensus as to the legal status of the Caspian Sea. If this consensus were to become a reality it would be of great significance to Eurasian energy markets.

Pipelines that bypass Russian territory and cause Moscow to lose influence over countries that are dependent upon Russian energy exports has been a concern of the Kremlin for a long time. Moscow is well aware that the fragile but ongoing rapprochement between Iran and the United States could set the stage for the construction of pipelines that would link the Caspian to the Persian Gulf. Moscow also knows that if such a pipeline were built the proposed Trans-Caspian pipeline linking Turkmenistan with Azerbaijan would likely become a reality. These potential pipelines and the existing Baku-Tibilisi-Ceyhan pipeline are thus a serious threat to Russia’s ability to project power therefore Moscow has done everything that it can to prevent the development of such infrastructure. Currently, Russia is carrying on with its usual points of contention, e.g. claiming that developing pipelines in a seismically active area is a recipe for disaster. Despite this and other tactics, such as arguing that the Caspian is in fact no more than a large lake and thus is not governed by international laws that pertain to the seas, Moscow is facing a variety of challenges including a negative demographic trajectory and the economic and political consequences of the crisis in Ukraine. All of these factors could cause Russia to lose influence in Eurasia in the long-term therefore it is not impossible that Russia might try to negotiate agreements to protect its interests now while Moscow is in a position of relative strength. Ending the ambiguity surrounding the legal status of the Caspian Sea would also allow Moscow to devote resources to other issue such as Russia's Arctic claims and desire to control shipping lanes North of the Arctic Circle which are becoming more useful as the planet warms.

If the Caspian 5 Summit were to produce consensus as to how the resources of the Caspian should be divided and managed it is likely that such a resolution would be contingent upon assurances that Russia would have a stake in the management of any Trans-Caspian Pipelines. For this to happen it is likely that Iran’s demand that the Caspian be divided in to five equal parts would also be met. After all it is unlikely that Tehran would give Moscow what it wants and not want something in return. If consensus were to occur it is also possible that the Caspian would be delimited to ensure that any Trans-Caspian Pipelines passed through Russian territory thus giving both countries a stake in the management of any pipeline. The other Caspian 5 countries might not like this but they might accept it especially if Russia paid for some of the pipelines. It is also not impossible that the Caspian 5 could push for the Caspian Sea to be classified as a lake. After all, many of the Caspian 5 countries have an interest in limiting outside influence in the region. Ensuring that the United Nations’ Convention on the Law of the Sea did not apply to the Caspian Sea would be a means to this end. That said, it should be noted that even if the Caspian 5 countries agreed that the Caspian Sea is in fact a lake it is unlikely that the international community would recognize this recategorization.

As things stand now the Caspian 5 countries are contending with very different realities than the ones that they were living with during the 3^rd Summit in 2010. As we have seen Russia is facing significant political and demographic challenges which could compel Moscow to make concessions that it might not have made in the past. We’ve already seen a precedent for similar concessions with May’s thirty year, $400 billion natural gas deal between Russia and China serving as a striking example. Negotiations for this deal had been going on for years but Russia had balked at China’s terms. Pressure put on Russia due to the crisis in Ukraine changed all this as Russia needed to find non-European customers. This shift forced Moscow to acquiesce to China’s demands. In terms of Iranian interests we should note that the ongoing rapprochement between the Washington and Tehran could set the stage for greater investment in Iran which would allow the country to further develop its energy infrastructure. We have also seen Kazakhstan and Turkmenistan’s energy sectors receiving a great deal of investment from the Chinese. The ability to export more energy would be beneficial to the treasuries of both countries thus any action that could lead to the development of pipelines in the Caspian Sea is likely to be championed by these countries. Turkmenistan and Azerbaijan will of course benefit from their proposed Trans-Caspian Pipeline so any move that can move that project ahead will presumably be backed by both Baku and Ashgabat. If these pipelines were developed it is likely that the political risks associated with Russia’s penchant for using energy exports as a tool of coercion are mitigated thus providing additional stability to energy markets in Eurasia. We shall know with in the coming days whether or not the 4^th Summit of the Caspian 5 results in real change. If it does it could prove to be one of the more significant developments that Eurasia has seen in recent years.

Russia’s Shift to the East and It’s Potential Impact on September’s Caspian 5 Summit

On Wednesday May 21st Russia and China agreed to a 30-year natural gas deal worth $400 Billion. This agreement serves as a clear indication that Moscow recognizes Russia’s need to diversify its client base. Though all of the terms of the deal are unclear it would appear that the Chinese were able to get the pricing that they wanted (a factor which had delayed this deal for a decade). Moscow would not have agreed to China’s price if it were not in Russia’s interest. In the past this price was not beneficial for Russia but recently a variety of factors such as Iranian-American détente, the situation in Ukraine, and the reality that Russia will be facing demographic challenges in the coming years has changed the equation. The deal will allow Russia to demonstrate that it has options other than European market as well as affording Moscow the opportunity to focus its attention on other areas where its interests are threatened. The Caspian is once such place.

On September 29th the Caspian 5 (Russia, Azerbaijan, Turkmenistan, Kazakhstan and Iran) will meet in the Russian city of Astrakhan to discuss the management of the Caspian Sea. This summit could serve as a starting point for Russia to ensure that Russian companies have a stake in any potential agreement which would see oil and natural gas pipelines running through Iranian or Turkish territory. Such a move would give Russia a degree of control over energy resources that bypass Russian territory and would presumably be lucrative. In the past it was in Russia’s interest to hinder the development of transit routes which did not pass through Russian territory. Now Moscow’s ability to interfere could be weakened especially if Turkey, Iran, Azerbaijan and Georgia cooperate. If the infrastructure is going to be built and Russia is less dependent on European markets Moscow could have a financial interest in aiding the exploitation of energy resources rather than hindering projects. It is also possible that Russia could have a degree of control over the operations of key infrastructure. Pipelines that bypass Russian territory are by no means an ideal development for Russia but if this outcome is inevitable Moscow will ensure that the situation evolves in the manner that is most beneficial to Russian interests. The fact that Russia is a significant regional player means that it has leverage. Even in a weakened state Moscow can project power. For example, in 1993 Russia demanded that Lukoil be awarded a 10% stake in a consortium to develop Azerbaijan’s offshore oil fields. Baku consented. Given that China will have a 19% stake in Rosneft means that Beijing might also become a player in the region as well if Rosneft is involved in any deals (a likely scenario). This would add an additional dimension to the geopolitical situation in the Caspian.

Wednesday’s deal allows Russia to demonstrate that in the coming years it will have alternatives to the European market. The reality is that Europe has an interest in diversifying its energy supplies while Iran, Azerbaijan and Turkey appear to be coming to some sort of agreement which could potentially see the development of transit corridors which link Caspian energy resources to the Mediterranean and the Persian Gulf. The United States also has a variety of interests in undermining Russia’s energy exports. Essentially, this shift is inevitable.  Moscow clearly understands this and is now making the best arrangements that it can. The terms of the China-Russia gas deal seem to favor Beijing. That said, Moscow is powerful enough to presumably force agreements in the Caspian that will favor Russia. September’s summit will provide insight into how this story will progress.