Washington Report on Middle East Affairs, May/June 1998, Page 57

Central Asia

With Billions of Petrodollars at Stake, Russia Offers Compromise on Whether Caspian Is Sea or Lake

By Gordon Feller

The meeting of Kazakh President Nursultan Nazarbayev and Russian President Boris Yeltsin on April 9 seems to have opened a new phase in the developments on Caspian Sea oil. The presidents agreed that a document on the status of the Caspian—and, thus, how to share its wealth—would be prepared for April 28.

This date coincides with a meeting in Moscow of the Customs Union among Russia, Belarus, Kazakhstan and Kyrgyzstan. And the Customs Union meeting immediately precedes the CIS (Commonwealth of Independent States) summit April 29.

The disputes over the oil-rich Caspian and the mineral resources of the surrounding area are long-term ones. From the very beginning, Iran and Russia were trying to persuade the other three Caspian states—Kazakhstan, Azerbaijan and Turkemenistan—to share the point of view of Moscow and Tehran on the matter. The Caspian, they said, was a land-locked “lake,” and all who surround it should share jointly. Azerbaijan and Kazakhstan openly refused, insisting that the Caspian is a sea, and that it is necessary to establish sectors among the five Caspian states, taking into account the coastal length of each country. Turkmenistan tried to be neutral, changing its viewpoint several times.

Russia recently expressed a new attitude, saying it agrees the seabed of the Caspian could be divided into sectors, but the water itself, and anything in it, should be considered common property of the five states. Moscow also demanded free surface navigation for all ships of the five states.

In another surprise move, Russia announced that it would pay, this year, part of its $115 million debt to Kazakhstan for use of the Baikonur Space complex. The balance of $345 million will be paid off over several more years.

This has been a top problem in Russia-Kazakhstan relations. Russia has made no payments on the Baikonur lease nor for several military test fields in various regions of Kazakhstan. For its part, Russia has complained of Kazakhstan’s energy-related debts.

Kazakh officials have, on various occasions, proposed six oil-transport routes. The first (called Atyrau-Samara) extends from western Kazakhstan to Samara, Russia.

The second (known as KTK—Konsortsium Kaspiyskiy Truboprovod) is a planned pipeline across the Caspian seabed. The estimated cost of the undersea pipeline is $4 billion, of which the first $2.5 billion already has been pledged by some foreign companies which are members of the consortium.

The third route transports oil in ships across the Caspian to Baku, Azerbaijan, and then by train to the West.

The fourth, a 3,000-km route, would connect west Kazakhstan with Xin Jiang, China. China’s State Oil and Gas Corporation agreed to invest up to $9 billion in that project.

The other two routes, through Iran and Pakistan, face many political and economic obstacles.

During his Washington visit last November, Nazarbayev stressed that Kazakhstan was adhering to a “multi-vectored” policy regarding the oil transportation issue. And, a recent visit of a U.S. delegation to Kazakhstan again displayed the interest of American companies in Caspian oil.

Kazakhstan sees the trans-Caspian (“East-West”) route for transportation of Caspian oil to world markets as a top priority, U.S. Deputy Energy Secretary Robert Jee told an Almaty news conference this week. Jee spoke as a U.S. inter-departmental delegation was conducting a feasibility study on the proposed routes. The study should be complete by year’s end.

Azerbaijan, said Jee, would determine its main route of oil transport to the West by the end of October, and others can make decisions based on what Azerbaijan decides.

In Baku, Azerbaijani President Heidar Aliyev announced approval for construction of pipelines along the Caspian seabed to transport oil and gas from Turkmenistan to the West. Aliyev made the announcement after talks with the U.S. ambassador to Azerbaijan, Stanley Escudero.

Some experts have suggested Russia’s apparent new policy simply reflects pragmatism, and grudging recognition of the sovereignty of former Soviet republics. But the more cynical say that Russia is tying its oil policy to plans for closer integration of the CIS, and that it is motivated by a determination to keep Moscow in control of political and economic issues it considers in its sphere of influence.