The geographical and economic significance of the Caspian basin is of great interest among regional countries and superpowers. Hydrocarbon reserves are of special importance to all big players. However, there is no exact information about the real volumes of the Caspian Sea natural resources because of the limited research and exploration, territorial disputes also contribute to the lack of knowledge on the sea’s assets.

The importance of the Caspian Sea energy reserves is not limited to the Caspian countries, it plays an important role in providing the European Union with energy. EU attaches importance to the Caspian Sea reserves observing it as a means of reduction on Russian energy dependence. This significance in Caspian energy reserves, brought about a new approach to render gas and oil viable to Europe. In 2008, this initiative of the Southern Energy corridor was established, fixed in the Second Strategic Energy Review (COM/2008/7810): “EU Energetic Security and Solidarity Activities Program”. The aim of the program is to provide gas supply from the Caspian and Near East region to Europe. The region is also important to the United States from the point of view of exporting energy reserves to the European and global markets, as well as reducing EU energy dependence from other sources.

Energy resources of the Caspian countries

A ccording to the U.S. Energy Information Administration there is about 48 billion barrels of oil in the Caspian basin and 8.7 trillion cubic meters of natural gas. About 75% of the oil resources and 67% of natural gas are 100 miles away from the coast.

The main consumers of the Caspian Sea energy reserves are the five Caspian countries: Azerbaijan, Kazakhstan, Turkmenistan, Russia and Iran. If the main source of energy reserves for Azerbaijan, Kazakhstan and Turkmenistan is the Caspian Sea, Russia and Iran have other energy resources as well.

According to the analysis of The 2018 British Petroleum (BP) Statistical Review of World Energy, proven oil reserves in Azerbaijan is 0.4% of the total global oil reserves or 7 billion barrels (in 2017). Daily oil production is 795000 barrels, 92000 of which is used for private needs. The natural gas reserves are 1.3 trillion cubic meters. At various times, international organizations such as “BP”, “Chevron”, “Statoil”, “Eni”, “Total”, “INPEX”, “ExxonMobil” and “ONGG” have been  involved in Azerbaijani oil-gas production. As a classic resource rich state, the considerable part of the Azerbaijan’s budget is made up of payments on oil and gas exports.

Kazakhstan’s proven oil reserves are 1.8% of the global oil reserves, or 30 milliard barrels (in 2017), and the daily production is 1835000 barrels of oil, 135000 barrels of which is for private consumption. The natural gas reserve is 1.1 million cubic meters (0.6%).   

Compared to other Caspian countries, Turkmenistan has the smallest part of the Caspian Sea oil reserves, which is 100 million tons. Instead, Turkmenistan stands out with the largest gas reserves in the region: 19.5 trillion meters or the 10.1% of the global gas reserves.

Russia’s total oil reserves are 106.2 milliard barrels or 6.3% of the global reserves. Russia’s natural gas reserves are 35 trillion cubic meters (13.1%), only the smallest part of which Russia receives from the Caspian Sea. The situation is the same in Iran, oil reserves of which are 157.2 milliard barrels or 9.3% of the global oil reserves. Iran’s natural gas reserves are 33.2 trillion cubic meters (17.2%). Perhaps this is the reason, that the Caspian Sea has mostly geopolitical rather than economic significance for Russia and Iran.

The Caspian Sea Exploration Problems 

A fter the collapse of the USSR, there appeared numerous disagreements between Kazakhstan, Russia, Azerbaijan, Turkmenistan and Iran on the Caspian Sea legal status.

Until the signing of the Convention on the Legal Status of the Caspian Sea in October, 2018, 68-70% of the seabed was already separated between Russia, Azerbaijan, Kazakhstan, and Turkmenistan by separate treaties. In 1998, the agreement on the separation of the northern part of the Caspian Sea was assigned and ratified in 2002, between Russia and Kazakhstan. Kazakhstan and Azerbaijan had signed a similar agreement in November 2001.

On May 14 2003, Kazakhstan and Azerbaijan Russia signed an agreement on the separation of the adjacent parts of the Caspian Sea. In 2004, Kazakhstan and Turkmenistan signed an agreement on separating the territorial waters, which was ratified only in 2015. In fact, only 30% of the sea bed was disputed. Until now, there are some disagreements on the use of oil extraction between Iran, Azerbaijan and Turkmenistan.

The disagreements between Azerbaijan and Turkmenistan refer to the oil and gas mines of Omar and Altin Asir, Osman, Serdar (in Azerbaijani version: Azeri, Charg, Chiraq, Qyapaz). The situation is more complicated around the Serdar mine (about 3 milliard oil in 2012), as Iran has eyes on it. Essentially, the difference between the principles of division of the seabed adopted by Baku and Ashgabat is at the center of this issue.

Official Ashgabat demands from Azerbaijan is to stop the exploration and exploitation of controversial oil and gas reserves, stating that the above-mentioned oil-gas constructions are in the Turkmen national territory. Officially Baku justifies their ambitions by the oil well location being in Azerbaijani economic zoning during Soviet times.

The disagreements between Iranian-Azerbaijani relations hinges on the Alov (Albroz)-Araz-Sharq, Serdar and Astara-Hasankuli oil-wells, around which the dispute began in 2001, when Iranian ships and airplanes “threatened” Azerbaijani research vessels, as a result of which, the oil-well operator British Petroleum stopped its activities.

On March 28, 2018, Hassan Rouhani, the President of Iran, signs a memorandum of the joint development of the Caspian Sea hydrocarbon wells. The names of the platforms have not been published, however, according to the various assessments, it refers to the above-mentioned areas.  Article 8 of the Convention on the Legal Status of the Caspian Sea signed at the Fifth Caspian leaders’ summit in Aktau on August 12, 2018, confines the division of the Caspian seabed into national sectors. This is planned out in the consent, by taking into account the norms and principles of international law. However, the article does not mention on what basis and principles of international law should be demarcation.  In fact, the Convention on the Legal Status of the Caspian Sea does not finally solve the territorial disputes of the seabeds (including indisputable oil wells). After the signing of the Convention, Rouhani, The President of Iran, stated that the Caspian Sea floor should be divided in a separate agreement.

Pipeline Construction 

P ipeline Construction is essential for the realization of the Caspian Sea’s energy potential, which is also a reason for Caspian counties’ disagreements. On the contrary to Iran and Russia, Azerbaijan, Kazakhstan and Turkmenistan were for the gas pipeline construction. First, it is about the Trans-Caspian gas pipeline, by which Turkmen gas can bypass Russia and Iran to reach Europe, through the territory of Azerbaijan, Georgia and Turkey.  

Iran and Russia have always been against the fact that other countries can enter the Caspian region. If the Caspian Sea hydrocarbon reserves are of economic importance to Azerbaijan, Kazakhstan and Turkmenistan, then Iran and Russia consider their activity in the Caspian Sea from the geographical point of view and recognize it as a threat.

Any “emergence” of an extraordinary power here (in the face of the West) is viewed as a threat by Russia and Iran. Russia and Iran have always claimed that any pipeline construction in the Caspian Sea is possible with the consent of the Caspian countries. Other Caspian countries, such as Azerbaijan, Kazakhstan and Turkmenistan consider the pipeline construction possible in the case of bilateral agreements.

Article 14 of the Convention on the Legal Status of the Caspian Sea signed in August 12, 2018, defines that all parties can build pipelines in the underwater areas of the Caspian Sea. Yet, they should comply with the environmental requirements defined by international agreements. It also states, that the road of the pipeline should be coordinated within the countries territory.

It can be assumed, that an agreement is obtained only between the parties installing the pipeline, and others will be only informed. In 2003, the Caspian countries signed the Framework Convention (Tehran Convention) for the protection of the Marine Environment of the Caspian Sea, its 5th protocol on “Environmental Impact Assessment in the Caspian Sea” being signed in July 2018. It envisages coordination of environmental standards for major projects in the Caspian Sea (including pipeline construction) with all the coastal countries.

Actually, due to this provision, Caspian countries got an appropriate lever to influence any pipeline construction in the Caspian Sea. According to the protocol, for any project implementation, the initiators should provide other countries with the criteria beforehand. The latter will have a maximum of 180 days to study and present the requirements and suggestions for environmental safety. After that, all the stakeholders should organize consultations for solving the project disagreements.  The Convention and the Protocol do not define the steps the parties can take in case of a disagreement.

The difference between the strategic interests of the 5 Caspian countries on the exploitation of the Caspian energy reserves was further complicated by the process of the legal status of the Caspian Sea. Though the Convention on the Legal Status of The Caspian Sea required long-term efforts and for the countries to sign and regulate the disagreements between the Caspian countries, though not all disputes were clarified. During these steadfast years, at least the two Caspian countries Russia and Iran have done their up most to keep their influence on the legal status of the sea but the other smaller nations now are also pushing for their stake in the Caspian resources with the Legal Status.