Iran announces unilateral decision to develop Caspian resources

Artie McConnell

After several failed attempts to resolve territorial issues with its Caspian neighbors, Iran appears poised to begin developing unilaterally its energy resources in its portion of the sea. While Tehran does not seem intent on trying to develop resources in disputed areas, the announcement is sure to raise regional tension.

Iranian Oil Minister Bijan Namdar-Zanganeh told the IRNA news agency May 23 that Tehran would begin operations on the Caspian seabed without the consent of its neighbors once $300 million worth of drilling equipment is fully installed. The Minister stated that Iran’s two-year drilling projects would take place in the southern sector of the Caspian. He declined to specify whether Iran intended to explore the Aloz oilfields that lie in a disputed area currently claimed by both Iran and Azerbaijan. [For background see the Business and Economics archive].

The announcement marks a sudden shift in Iran’s stance on Caspian development. Tehran has long held that each of the five littoral states is entitled to 20 percent of the sea, and that exploitation of hydrocarbon reserves cannot begin until after the sea’s legal status has been resolved. The other four Caspian states – Azerbaijan, Kazakhstan, Russia and Turkmenistan – favor some type of partition plan for the Caspian that would leave Iran with approximately 12 to 16 percent of the seabed. Iran has shown little willingness to make concessions on the issue.

The Iranian announcement comes after several failed rounds of diplomacy on the territorial issue. A summit of the five Caspian states ended in late April without consensus on the division of the Caspian. [For background see the Business and Economics archive]. In May, Azerbaijani President Heidar Aliyev’s visit to Iran similarly concluded without agreement on bilateral territorial disputes. [For additional information see the Eurasia Insight archive].

Tehran’s insistence on a 20 percent share of the Caspian has already raised tension among the Caspian states, and is considered the primary stumbling block to progress on the sea’s territorial division and energy development. Tensions came to a head last summer when an Iranian warship threatened to fire on two Azeri research vessels if they did not immediately leave "Iranian territory."

Yet rather than reflecting a coherent change in strategy, Tehran’s dramatic alteration of policy is a manifestation of its inability to control the Caspian situation in the face of other regional developments. Specifically, as Iranian inflexibility dims the prospects for a comprehensive territorial agreement, the other littoral states have begun to parcel up the Caspian among each other through bilateral agreements. The recently-brokered accord between Russia and Kazakhstan, which Tehran called "legally invalid" and "unacceptable," will allow those two countries to unfreeze development in several northern oilfields. A similar understanding also exists between Russia and Azerbaijan. These agreements have effectively created a de facto partition of the Caspian’s northern sectors that Iran can do little to reverse.

Russia’s military buildup in the region is also perceived by Iranian leaders as a threat to their negotiating position on the Caspian issue. Shortly after the late April Ashgabat summit, President Putin called for massive military exercises in the region that will involve the Caspian fleet, border guards, the Fourth Air Force Group and troops from the North Caucasus Military District. The size of Russia’s Caspian flotilla has expanded in recent years, with several rapid-attack craft arriving from the Baltic and Black Sea fleets. Adding to this already sizeable force, Russia will soon deploy a ship that will be the Caspian’s largest and armed with the latest missile and artillery equipment. A land-site missile base has also been relocated from the Baltic to the Caspian region. [For background see the Eurasia Insight archive].

Ostensibly for counter-terrorism, counter-narcotics and sea rescue, most analysts agree that the military buildup and subsequent naval exercises are really designed to emphasize Russia’s military superiority over Iran in the Caspian. Though Russian and Iranian territorial interests in the area do not openly clash, Russian oil companies are set to profit from Azerbaijan’s oil fields, and the threat of conflict perpetuated by Iran has hampered investment in Russia’s sector of the Caspian. The impending display of Russian military force may work to undermine Iran’s coercive diplomatic strategy while simultaneously reducing Tehran’s negotiating clout.

While much has been made of the American military presence in Georgia and Central Asia, the United States has also been helping Azerbaijan to enhance its naval capabilities in the Caspian. In late March, US and Azerbaijani military officials held high level consultations concerning maritime defense, and the US Air Force has expressed interest in acquiring a base in Azerbaijan. In addition, Congress has lifted a ban on arms exports to Azerbaijan and has begun to render tangible military support to Baku. Such assistance leaves Baku less susceptible to Iranian military and diplomatic pressure.

On May 31, Ilham Aliyev, the son of the Azerbaijani president and deputy head of the SOCAR state oil company, said Azerbaijan would not back down in the face of Iranian pressure. "Azerbaijan does not lay claim to any oil fields in the national waters of other countries and expects neighboring countries to respond in kind," the Bilik Dunyasi news agency reported the younger Aliyev as saying. "We are not going to cede anything to anyone."

Iran’s announcement that it is prepared to drill in southern Caspian waters serves as a warning sign that Tehran is even more prone than ever to act aggressively out of fear that it is being left out of the Caspian equation. Thirty-eight new Iranian warships were recently deployed in the Caspian, and Tehran seems to be trying to keep some leverage by fomenting conflict until the other littoral states, most notably Azerbaijan, capitulate to their demands. The dangers of this new approach are self-evident, as any attempt by Iran to forcibly annex disputed oilfields via preemptive drilling could lead to a military escalation far more dangerous than the gunboat incident of last summer.

http://www.eurasianet.org/departments/business/articles/eav060402.shtml