Analysis of Caspian Sea Oil Controversies Article - Assignment Example

Article Review on Caspian Sea Oil Controversies The article reviewed is en d “Developing Caspian Oil: Between Conflict and Cooperation” written by Andrei Shoumikhin. It is a compilation of the results of various international seminars undertaken by the Center for Political and Strategic Studies on issues pertaining to developing Caspian oil resources and international security. The article gives light to the basic national and international interests on the Caspian oil resources and its corresponding effects. It is rich in detailed facts giving support and credibility to the points raised by the author. This article showcases many issues related to the course at hand. It offers lessons in international relations, diplomatic ties, politics, economics, geographical issues and security. An old saying goes that when a tree bears good fruit, it gets stoned so the fruits fall and consumed by the one who struck it. This is much like what is happening with Caspian natural resources. As the world is taking notice of its potentials, many countries have been trying to take a shot at hitting it. Centered by five nations namely Azerbaijan, the Islamic Republic of Iran, Kazakhstan, Turkmenistan and Russian Federation, the Caspian waters cause controversy over its being a sea or a lake. It has been found that gas and oil are produced by the Caspian sea. Shoumikhin (1997) explains the many issues that have cropped up about Caspian energy resources. Some compare the Caspian to the Persian Gulf, holding only slightly less oil than the latter. The natural oil deposits on the shelf of the Caspian sea have been a source of interest causing several geographic, geopolitical and economical disputes among nations. As early as the 10th century, wells were already being dug to collect the natural oils produced by the Caspian area (Adams, 1998). Europeans were aware of the rich oil and gas deposits around the area by the 1500s that English traders Thomas Bannister and Jeffrey Duckett amazingly described the area around Baku as “a strange thing to behold, for there issueth out of the ground a marvelous quantity of oil, which serveth all the country to burn in their houses. This oil is black and is called nefte. There is also by the town of Baku, another kind of oil which is white and very precious” (petroleum) (Yusifzade, 1996). This means that with the best strategies to improve production, energy resources from the Caspian sea may significantly supply some of the world’s countries and may help avert energy shortages in the future. Shoumikhin posits that oil found both on land and the sea shelf and seabed in the Caspian region. Those on land are obviously under the ownership of the appropriate states and are not disputable, however, those found in the Caspian sea are subject to controversy as to the rightful owner. “As early as the in the 1920’s, the Ministry of Oil Industry of the USSR had arbitrarily divided the Soviet zone of the Caspian Sea between the Russian Soviet Federated Socialist Republic, Azerbaijan, Kazakhtan and Turkmenistan. At the same time, the Soviet and Iranian sectors of the Caspian were delineated along the so-called “Astrara-Gasankuli” line, never confirmed by formal intergovernmental agreement” (Shoumikhin, 1997, p. 338). Worth over US $ 12 trillion, the oil in the Caspian basin has been an object of desire by numerous oil companies. When the USSR collapsed, the subsequent opening of the region has led to intense and aggressive investment and development plans proposed by international oil companies. One major problem to the further development in the region is the status of the Caspian Sea and the establishment of water boundaries among the five littoral states that land-lock it. This is especially salient with the Trans-Caspian oil and gas pipelines since the projects would allow western markets easier access to Kazakh oil and possible Uzbek and Turkmen gas as well. Likewise, security may be threatened in the affected areas, from the free flow of investors in the littoral states. America has shown ardent support for the pipelines to which Russia officially opposes on environmental grounds. However, it may be read that Russian interests are also affected in terms of possible denial of the country’s valuable transit fees as well as destroying its current monopoly on westward-bound hydrocarbon exports from the region (Blagov, 2006). The five littoral states are torn in support of the Trans-Caspian Pipeline. Recently, both Kazakhstan and Turkmenistan have expressed their support for the project (Blagov, 2007). As early as 1990, Azerbaijan, one of the littoral states began negotiations on developing its marine oil reserves with a number of international oil companies headed by British Petroleum. Political struggles in 1993 brought a nationalistic movement of pro-Turkish and anti-Russian orientation to power after the collapse of the USSR. A declaration on the “unitized” development of Ghuneshli, Azeri, and Chirag deposits was signed in cooperation with a group of Western companies. In March, 1993, a $1.4 billion Azeri-Turkish agreement was signed on building an oil pipeline from Baku to the Turkish Meditarranean shore via Iran. However, plans were disrupted due to a severe deterioration of the military-political situation in Nagorno-Karabakh and the Azerbaijan Republic proper. Out of the clashes between the states came former first secretary of Azerbaijan’s Communist Party, Meydar Aliyev returning as the president of the New Independent States (NIS). To appease Russia and to engage their help in resolving the conflicts in the Nagorno- Karabakh on Azeri (side of Azerbaijan) terms, Azerbaijan suspended the previous negotiations with foreign partners. In turn, in November, 1993, two Russian-Azeri deals were made between respective government companies, State Oil Company of Azerbajian (GNKA) and the Russian Federation Ministry of Energy. It was about developing Caspian oil resources and cooperation in pipeline transportation and oil and gas machine building. In addition, LUKoil, Russian’s oil giant, was invited to join the planned international consortium. Negotiations initiated years ago with foreign companies were resumed in 1994, this time including LUKoil. Aliyev seems to have been pleased with settling with Russia regarding the Caspian oil issues. Yuri Shafrannik, former Russian Minister of Fuel and Oil even declared that the signing of the treaty between Moscow and Baku will create an impact on resolving conflicts at Karabakh. However, as time passed, Russia revealed that it was not ready to change its political convictions on the Karabakh issue and the involvement of foreign interests in developing Caspian oil resources. They were also not sold on the legal status of the Caspian Sea to accommodate Azeri interests. In retaliation, the Aliyev government went ahead to conclude the “oil deal of the century” with Western companies, but still including Russian LUKoil. Shoumikhin reports that the agreement signed stipulated that “Chirag, Azeri and Ghuneshli deposits will be jointly developed and exploited by members of the consortium for the next 30 years. Overall production through this period is expected to reach 511 million tons, with 258 million tons belonging to Azerbaijan. Out of $8 billion in proposed investments, $7.4 billion will have to come from Western sources, while LUKoil is required to provide $800 million” (p. 343). Apart from LUKoil, it was decided that Iran be given an opportunity for involvement in the project in the belief that the Iranian Oil Company’s economic and financial participation in the project will moderate Iran’s responses to the entirety of Caspian troubles. All the while, America has maintained its interest in the Caspian deal. Former US President Clinton even sent a letter to Aliyev in May of 1995 ensuring the support of US on the idea of dividing the Caspian into sectors and proposed US guarantees on this matter. Russia, on the contrary, especially the “traditionalists” believe that its problems are caused by “machinations” from the West, just like the cold war. America, a Western monopoly is believed to plunder the Russian Caspian sea of its natural resources and is out to influence Azerbaijan, Chechnya, Kazakhstan and Turkmenistan into agreeing that they build pumping stations of the global network of Western pipelines in their respective areas. The Russian Foreign Ministry even protested against the signing into agreement of Azerbaijan with a consortium of Western companies on oil prospecting and developing in 1994. Russia’s confidence in being able to stop the sovereign nation from negotiating with foreigners stems from the knowledge that it only has the infrastructure that can allow safe and cost-effective transportation of hydrocarbons produced from the Caspian area. Further, the needed heavy oil extracting equipment for the offshore production of oil may only be delivered locally through Russian inland waterways. In addition, the Russian Federation has enough residual power to influence military and political action since it has established military presence in Armenia and Georgia where several Russian military bases have been established. However, there remain Russian pragmatists who keep a more open mind on the benefits of allowing western interests to seep in. LUKoil, the Russian company included in the oil deal has been doing very well. The first GNKA-LUKoil agreement earned the Russian giant 10% of the Azeri share in the international consortium created to develop the Azeri oil fields. Bigger projects fell into the hands of LUKoil, reaping in more profits for Russia. This has made Russian internally ambivalent as it continues to insist on its special rights in defining practical arrangements for developing Caspian resources and maintaining military presence in various camps in the periphery of the Caspian. Russia has found an ally in Iran, which is also anti-American. Iranian forces support anyone or anything that prevents Western “encroachments” in the Caspian region. The excitement of Georgia on building a pipeline through the Georgian territory to carry some of the expected Caspian oil flow is marred by its relations with Russia, specifically on issues related to the presence of Russian troops and military installations in Georgian territory. Add to that, the unsettled status of Abkhazian autonomy and likewise, the perceived lack of international support for its own sovereignty and integrity. These issues are usually swept under the rug by more celebrated breakthroughs such as receiving important commitments from various international organizations (e.g. US Agency for International Development, United Nations Development Program, European Union). These groups aim to facilitate the construction of the pipeline for Caspian oil using the Georgian route secondary to the traditional northern route via Russia. The Georgian International Oil Company was established to channel international assistance and investments for the project, hence it has established close working relations with the Azeri International Oil Consortium. Kazakhstan, another one of the littoral states surrounding the Caspian sea retains diplomacy over the issue by using compromise. Being a new independent state, it aims to maintain peace and harmony with its northern neighbors especially on issues as ways and procedures for developing Caspian oil, which is not that important to the state. This is because it has its own powerful raw material base, the Tengiz oil deposit, that may be developed independently regardless of what comes out of the Caspian controversies. Also, Kazakhstan uses every opportunity to demonstrate the independence of its foreign policy by stating its position on the Caspian situation. It argues that all littoral states have equal benefits to take advantage of the resources of the sea, basing its policies on three main principles. First, they recommend that “national zones should cover all major oil fields located in would-be sectors of the littoral states. Second, zone delimitation should not infringe on existing cooperative agreements concluded with international oil companies, investing in the Caspian zone. Finally, the legal status of the Caspian Sea should be resolved in such a way as to provide for unimpeded flow of outside investments, without which the development of local resources may not be possible” (Shoumikhin, 1997, p. 346). Another one of the littoral states is Turkmenistan, which remains relatively less involved in the Caspian issues. It just subscribes to the formula that “all Caspian problems should be resolved among the littoral states” (Shoumikhin, 1997, p. 346). However, realizing the great profit potential that could be generated by exporting Caspian resources, it has increasingly become more competitive and at the same time, more cooperative with other NIS. For instance, in 1997, Ashgabad protested that some key Caspian deposits such as Chirag and Azeri belong to them and not Azerbaijan. It also vehemently opposed negotiations between the Russian LUKoil and Rosneft companies and the State Oil Company of Azerbaijan on developing the Kyapaz oil field in the Azeri-claimed zone of the Caspian Sea. They claim that that zone where the oil field is located belongs to them and call it Serdar and not Kyapaz. The final littoral state concerned with the Caspian issues is the Islamic Republic of Iran which is the second largest state. Its notable size makes it a possessor of a large share of Caspian resources, hence, its policies significantly affect the future of the region. However, it is not as active as the other states since it has its own controversies that pit it against most of its neighbors and the entire Western world in general due to its unsavory reputation with the US. Iran is perceived of being driven exclusively by anti-Americanism and that their policy in the Caspian region aims to inflict as much threat to Western interests as possible. This line of thinking has motivated Iran to join forces with Russia in opposing American influence and investments on the Caspian area. USA has committed itself to supporting the political and economic independence of the Transcaucasian NIS, however, there have been some constraints to their policy in the Caspian region as well as in some other regions that belong to the former Soviet geopolitical space. These may be explained by the following reasons: One is “a prevailing desire not to overextend US global and regional obligations and capabilities in projection of political and military power”. Another reason may be the “need to prevent direct confrontation with Russia in situations where the latter tries to assert its “special” interests and responsibilities”. Lastly, there is a “lack of perceived direct and even indirect challenges to vital American interests necessitating more coherent and sustained responses, and so forth” (Shoumikhin, 1997, p. 348). In protecting its interests, America has employed more aggressive strategies to gain the favor of most of the littoral states. It has become involved in helping out Azerbaijan in its conflicts with Armenia and even implied disregarding serious human rights violations in that country just to strengthen US-Azeri business relations. Further, the US administration has exhibited moves that could be interpreted as a relaxation of American policy towards Iran. It did not oppose a pipeline scheme that would carry gas from Turkmenistan and the Caspian basin through Iranian territory into Turkey. This was in support of Iran’s assertion of independence from Russia. Shoumikhin suspects that such acts may suggest that US is courting Azerbaijan and Iran in competition for influence with its main rival, Russia, and other powers in the Caspian-Caucasian region. The ongoing disputes over the Caspian sea oil resources seem unlikely to end soon, as mounting issues never cease to grow. Shoumikhin has been thorough in this article, citing more issues and points of contention. He painted a canvass with unlimited possibilities and combinations of possibilities regarding the Caspian riches. It bespeaks of several nations’ desire for power and wealth once it dominates the flow of Caspian oil to them no matter what it takes. Shoumikhin has likewise been clever enough to portray greed and hidden agendas of the superpowers that are Russia and America masking their intentions as for the welfare of everyone, but actually intend to outwit each other. The reader is led to think of why America would be so interested in the Caspian oil resources, when the Persian Gulf hold far much more (Rasizade, 2002) contrary to what has been reported. Even if best efforts are exerted with the best technology, the Caspian oil supply will never be close to half of the supply yielded by the Persian Gulf (Rasizade, 2002). So there must be something more to it than just offering their help to the Caspian states to market their natural resources to the world. The unbelievably high cost it would take to build pipelines from the Caspian Sea to Georgia, averting the shores of Russia and Iran is just ridiculous! Shoumikhin has been successful in reporting the facts gained from several other credible conventions on the issue without blatantly accusing one party of blame. He manages to present various angles of the issue, backed up by historical events that may motivate present circumstances. Being Russian himself, the author managed to keep the image of Russia clean (albeit traditionalist in thinking) in this article. He effectively voiced out the Russian perspective against Azerbaijan’s openness to international business relations. It would seem that fresh from its collapse, Russia is concerned about the security of the littoral states and is wary of possible enemies. On the other hand, Shoumikhin seems to have tainted America with apparent hunger for oil supply, and Russia with its seemingly strong position weakening when money talks. In my opinion, the article is very informative and filled with details to make me think critically. Strange, how a great natural resource created to be used freely by man to serve his purposes in advancing his growth and development is the same reason why some nations around the Caspian cannot go forward. The main winners here are the big oil companies who continuously reap wealth from the Caspian sea regardless of the disputes that may hinder smaller nations like the littoral states to flourish on their own. I find it overwhelming to fathom such lengths and costs it takes to explore and exploit natural deposits treated as treasures that serve great purposes. It is no wonder why several nations could not help from dipping their finger into the brew. As a result of several hands dipping, it spoils the brew and becomes poisonous instead. Like with everything else, there remains hope for the issues to be settled. Demarcations and guidelines should be enforced to keep the order and harmony of the littoral states and the wider world they belong to. References Adams, T.D. (1998) Britain, Baku Oil and the Cycle of History, Azerbaijan International, Autumn, Volume 6, No. 3, pp. 81-84 Blagov, S. (2006) Russia Tries To Scuttle Proposed Trans-Caspian Pipeline, Retrieved on March 28, 2010 from http://www.eurasianet.org/departments/insight/articles/eav0328 06.shtml Blagov, S. (2007) Russia Seeking to Keep Kazakhstan Happy. Retrieved on March 28, 2010 from http://www.eurasianet.org/departments/business/articles/eav121107.shtml Christian Science Monitor, (n.d.) The Great Gas Game Who will run Caspian natural gas through Afghanistan?, Retrieved on March 27, 2010 from , http://www.csmonitor.com/2001/1025/p8s1- comv.html Rasizade, A. (2002) The mythology of munificent Caspian bonanza and its concomitant pipeline geopolitics, Central Asian Survey , Vol. 21, No. 1, pp. 37–54 Shoumikhin, A. (1997) Developing Caspian Oil: Between Conflict and Cooperation, Comparative Strategy, Volume 16, pp. 337-351 Yusifzade, K. (1996) The Development of the Oil and Gas Industry in Azerbaijan , Azerbaijan International, Summer Volume 4, No. 2, pp. 50-55 Read More