Russia and the Caspian Sea Perceptions and Interests

Columnist Dr MAQSUDUL HASAN NURI examines Russia’s perception towards the Caspian Sea.

Russia’s involvement with the Caspian Sea goes back nearly 300 years to the time of the Czars. For centuries, the Caspian region has formed a portion of the disputed frontiers between the Russian, Turkish and the Persian empires.1 After World War II, it has continued to be the focus of attention of the former Soviet Union. Following the breakup of the Soviet Union, the three republics of Azerbaijan, Turkmenistan and Kazakhstan began to significantly exploit the onshore and offshore holdings of oil and gas. Today, unofficial, loose but tacit political blocs vie for exploitation of the resources in the region: US, Turkey and Azerbaijan versus Russia, Armenia and Iran. Other players that are influencing the situation are Britain, Japan, China, Italy, France and others. Both Russia and Iran view the Western moves with distrust: Russia and Iran have good relations with Armenia thus counterbalancing Azerbaijan’s relations with the West and Turkey. Turkey has effectively capitalised on the pan-Turkic trend both in Azerbaijan and Turkmenistan.

On the legal status of the Caspian, Russia holds that it is not a ‘sea’ but a ‘lake’. And hence it argues that the Law of the Sea could not be applied to the Caspian. In the beginning, its position had been that the Caspian Sea belonged to all countries and should be kept in its original status and not divided up. Consequently, Russia had equal rights to jointly participate in shipping, fishery and resource exploitation. The Russian stance was understandable: in history, it is the strongest that often monopolise most of the resources. However, in November 1996, Russia changed its position when it proposed a 45-mile coastal zone beyond which there would be a condominium approach to the problem. It changed its position again, in which, following a bilateral agreement with Kazakhstan, the disputing sides decided to jointly divide up the seabed but not the column of water above the bottom. The present de facto situation is in favour of national sector community.

All the three resource-rich republics of Azerbaijan, Turkmenistan and Kazakhstan are in need of foreign investment for exploitation of their oil and gas wealth. The oil deposits of Russia are not as important as, for instance, those of Azerbaijan which is endowed with vast reserves. Kazakhstan has a large number of Russians in its population, much larger compared to any other CIS country, and Turkmenistan was the first country to adopt a policy of dual nationality and sign an agreement on joint defence with Russia. The coincidence of Iran’s views with Russia’s is based on its confrontation with the West and the western sanctions: obviously in such a situation it could not afford another confrontation — with Russia. Moreover, it cooperates with Russia in the Caucasus, Central Asia, southwest Asia and Middle Eastern matters. All these factors explain why Turkmenistan, Kazakhstan and Iran have avoided acute tension with Russia, notwithstanding their divergent national interests.

Some Russians seriously doubt if the Caspian oil will ever emerge as an alternative to the Middle East oil. Arguing that oil, gas and networks of pipelines and communications do not necessarily usher in stability or political democracy — they cite Saudi Arabia and the Gulf states as examples — they conclude that stability has to be maintained by other means than democracy. Moreover, the Caucasus region is faced with a host of internal conflicts, namely Nagorno Karabakh, Chechnya, Abkhazia and the Kurd question looming large in the shadows.2 In recent years, the increased US and NATO attention towards the region has led many Russian strategists to apprehend that the greatest threat to Russia emanates not from China or the Islamists but the possibility of a Desert Storm II over the Caspian economic issues. This apprehension, in their opinion, is validated by the presence of US airforce mission at Incirlik in eastern Turkey for guarding the Caspian oil pipelines.

A Russian analyst, however, differs over the Caspian oil capacity. For example, it is argued that Middle East oil production capacity is over 500 million tonnes a year whereas the combined potential of Azerbaijan and Kazakhstan will never add up to half that figure even with the utmost development of the entire production.3 Moreover, Iraq has ready-to-sell oil stocks equal to 120 million tonnes. Faced with the present-day crises and the current decline, he argues, the OPEC countries and Russia will be forced to curtail production thereby forcing on the Caspian Sea still greater oil reductions and overall deterioration of the market situation. There is the added view that oil has rarely been a source of increased well-being for the population of the developing world as seen in such oil-rich countries as Nigeria, Gabon, Indonesia, Iraq, Iran, Algeria and others. Citing reasons, he gives some figures: the amount of oil per one national in these countries is exorbitantly high due to the presence of foreign nationals: Qatar, 140 tonnes per person, Oman, 100 tonnes per person, and Kuwait, 160 tonnes per person. In comparison, even in the best of circumstances. Azerbaijan, Kazakhstan and Turkmenistan will not be able to produce more than 11 to 13 tonnes per person.4 Moreover, the oil industry has not led to diversification in these countries but instead widened differences between regions, leading to marked social tensions. A prime example is that of Kazakhstan where two-thirds of Kazakh population is concentrated in the southern and western areas whereas the Russian population is concentrated in the north and gets not much by the way of oil wealth dividends. These ethnic tensions, over the years, may exacerbate between the oil-producing and non-oil-producing regions. The above-quoted observer is, moreover, sceptical about the future plans such as the oil pipeline in the Caspian seabed or even the western route proposed by US and Azerbaijan through Turkey. According to him, these plans are more politically/ideologically motivated rather than based on pragmatic considerations of oil industry, inhospitable terrain and falling oil prices in the international market.5 While oil and gas account for 40-50 per cent of Russia’s export earnings, most of Russia’s reserves lie not in the Caspian Sea, nor for that matter in Siberia, but in the shelves of the Barents and the Karelian seas.6

Russians have proposed what is known as the ‘Northern Russian Plan’. In this plan, the pipeline will run from the Tengiz oilfields to the Black Sea port of Novorossiysk in southern Russia where oil tankers will be loaded for the world market. For Kazakhstan, this is the most efficient and convenient route for oil export. Besides the Tengiz oilfield, the Karachaganak and Aktyubinsk oilfields in the north can also use this pipeline to export oil. Previously, this oil was transported to Russia through Atyrau (formerly Guryev) and Samara (formerly Kuibyshev). Some experts have suggested partial reconstruction of the old pipelines. However, if the new plan materialises it will dramatically increase Kazakhstan’s capacity for oil export. The project, if it takes off, will be implemented by Caspian Sea Oil Pipelines Consortium in which investment will come from the Russian LUKoil, the American Chevron and Mobil and the Kazak and Omanese oil companies.

Russians are wary of increased American interests in the Caspian region, especially with the prospects of enormous amount of western Kazakhstan oil swiftly flowing to the west. This would not only affect its strategic oil reserves and market, but also heighten Kazakhstan’s dependence upon Moscow. On its part, the US does not want Russia to be a major contributor as it wants to reduce American dependence upon the Persian Gulf oil, seeks to enrich its own oil reserves and would like Russian investment in development and construction of the Tengiz oilfields pipeline. But since it is practically not possible to avoid Russia, the US is seeking a collaborative relationship with the former. As such, all parties have reached an agreement on the ‘northern Russian plan’.

Of late, Russians are getting wary of the substantial increase in US-Turkish influence in the region and the resultant threat to Russian interests in the Caspian. Strangely enough the Russians do not follow a coherent and focused policy. Their foreign and defence ministries concentrate on security while those of fuel and energy are focusing on economic interests. However, in a generic way, following main objectives seems to shape the positions of all the ministries.

These objectives include: first, secure a friendly buffer zone to ensure security and geopolitical interests; second, ensure stability in the region to avoid ethnic tensions from spilling into Russia or causing border tensions (for example, the Lezgins of Dagestan have indicated a desire to unite with Azerbaijan); third, maximise the economic benefits of Azerbaijan’s substantial oil and gas deposits, if possible; fourth, dismantle US position of power in the region; fifth, weaken the re-emergence of OPEC, and finally, strengthen ties with Iran and join the Caspian via a pipeline with the Persian Gulf.

Russia has adopted some strategies to realise these objectives. These include the creation of the Caspian Sea area as a zone of influence (in psychological and ideological sense): penetrating the littoral states from the inside (using companies like LUKoil and others to negotiate favourable terms with these states); using local conflicts to its advantage; or creating legal and other obstacles to prevent new competitors from participating in foreign investments in the Caspian Sea. For example, it could prevent any pipeline linking Azerbaijan with Kazakhstan or Turkmenistan or the Baku-Ceyhan (Turkey) pipeline. Another obstacle would be an effective blocking of the Volga-Don canal, the low-volume seasonal link between the Caspian and the Black Sea. This is literally the only ingress for oversized offshore drilling rigs and other equipment headed for the Caspian. Some observers are of the opinion that Russia may choose to block the Black Sea if it does not find things conducive to its plans in the Caspian.

Russia needs to be able to exploit the oil and gas resources lying beneath the earth’s crust. The extraction of these assets in the Caspian Sea has always been difficult for a number of reasons. Firstly, the oil has high sulphur content which requires additional financing for expensive corrosion-resistant pipes for transport; secondly, Caspian is an enclosed sea that is far removed from its centres of consumption,7 and finally, the Caspian Sea faces severe climatic and weather conditions — making it second only after Siberia for difficulty in extraction.

It is difficult to estimate the energy resources of each state on the shores of the Caspian. According to a Russian analysis, Turkmenistan has 6.5 million tonnes of oil and 5.5 trillion cubic metres of gas (fourth in terms of explored gas reserves); Kazakhstan, 6 billion tonnes of oil and 2 trillion cubic metres of gas; Azerbaijan, 3.5-5.0 billion tonnes of oil and 600 billion cubic metres of gas. Russia’s oil reserves amount to one billion tons, not counting a January 1998 discovery of a new field of about 600 million tonnes. The July 1998 agreement between Russia and Kazakhstan divided the seabed but kept the waters above the seabed open for fishing and navigation. This was to avoid poaching by others. The sturgeon population is decreasing because of pollution, oil production, organised crime and, not the least, damming of rivers and waterways.

A large-scale strategically important project for Russia is the building of an export gas pipeline, the ‘Blue Stream’, initiated by Gazprom along the Black Sea bed from Russia to Turkey. In December 1997, a Russian-Turkish agreement was signed calling for doubling the volume of Russian gas supply to the Turkish markets. The ‘Blue Stream’ will enable Russia to deliver to Turkey more than $ 25 billion worth of natural gas in the next decade or so and the cost of the project is estimated at about $ 2 billion.8 Turkey’s location as a trading country lying on the trijunction of Europe, Asia and Africa makes such an investment project very attractive for Russia. However, since this type of project has no precedence, it entails a lot of risks. A patent objection raised is its potential environmental impact. Also, the project faces stiff competition from alternative projects for gas supplies from Iran, Egypt, Oman, Nigeria and last but not least, Turkmenistan. Turkmenistan has already reduced tax rates on Turkmenistan gas project. A redeeming feature, however, is that according to the stipulated agreement Russia is bound to supply gas to Turkey at a level of 16 billion cubic metres a year.9 The only nagging worry is that due to delays in funding the exploration and development work there is a risk that Turkey might terminate the agreement. Some Russians believe that steps should be taken to lock Turkmen gas to the ‘Blue Stream’. This will obviate the need for Turkmenistan to depend on Western alternative routes and, besides, earn additional revenues for Russia as well as ensure an opportunity to control gas deliveries to Turkey.10

End Notes

1Tyler Marshall. “Caspian Sea: Oil in a Tinderbox.” Kansas City Star, 8 March 1998, p.K-6.

2Vitaly Naumkin, Russian Centre for Strategic and International Studies, Moscow, in “The Bergedorf Forum in Baku” International Affairs —A Russian Journal of World Politics, Diplomacy and International Relations, Moscow, Monthly, Vol. 45, No. 3, 1999, p. 152.

3Emile Payin, Director, Centre for Ethnopolitical and Regional Studies, Moscow, ibid., p. 129

4Ibid., p. 130.

5Ibid., p. 131.

6Timothy L. Thomas and John Shull, Perceptions, Vol. IV, No.4, December 1999-February 2000, p.82.

7For example, pumping one ton of Persian Gulf oil costs an average of $ 2-5, North Sea $ 10, Azerbaijan costs $ 17, and Siberia nearly $ 35-45.

8On Russia’s oil and gas strategy into the 21st century see the exclusive issue of International Affairs. Moscow, Vol.46, No.2, 2000.

9Ibid., p. 182

10Ibid.