Caspian Sea: Shared Interests and Challenges

Legal/Contract Advisor
Caspian Sea: Shared Interests and ChallengesCaspian Sea: Shared Interests and Challenges

The Caspian region has long attracted the attention of the international community due to its rich hydrocarbon resources as well as its strategic location at the crossroads of Asia, Europe, and the Middle East which can be utilized, inter alia, for construction of trans-Caspian energy pipelines planned to deliver the region's hydrocarbon reserves to Europe.

However, decades-long endeavors to delineate the Caspian Sea between the five littoral states, namely Russia, Iran, Azerbaijan, Kazakhstan and Turkmenistan, have remained fruitless. Unresolved disputes arising from the sea’s inadequate legal status and regime have posed obstacles to the exploitation of several offshore oil and gas deposits, and might as well block many projects including trans-Caspian oil and gas pipelines.

Part of the legal ambiguity concerning the sea’s delimitation emerges from its nature.  If it is defined as a sea, then it can be divided according to the regulations of the UNCLOS.  But if it is regarded as a lake, there exists no uniform practice or a comprehensive international convention governing such a body of water.

  Provisional Solution

In the absence of a multilateral agreement between the five neighbors or an explicit legal framework, states can employ UNCLOS provisions which call for “provisional arrangements of a practical nature” pending the final delimitation of boundaries.

The problem of oil and gas exploration in disputed areas can be overcome if the impacted states enter into a cooperative arrangement for its development.  Joint petroleum development agreements are utilized across the globe to develop and share in agreed proportions the petroleum found within a geographic area whose sovereignty is disputed, until a final solution is reached.

In such arrangements, a Joint Development Zone (JDZ) is generally established as a temporary solution for a specified period of time, without prejudice to subsequent delimitation, but it can be a permanent solution in place of a delimited boundary. The economic interest of states is a compelling reason for cooperation in the joint development of common reservoirs that straddle international boundaries. A state may be interested in a cooperative approach because it prevents its neighbors from unilaterally extracting oil/gas from the common reservoir(s).

Iran had previously availed itself of joint development agreement when Occidental Petroleum discovered oil nine miles off the coast of Abu Musa, an island located in the Persian Gulf 43 miles off the Iranian coast and 38 miles from the emirate of Sharjah, in February of 1970.

A Joint Resource Development Agreement was signed in 1971, whereby Buttes Gas and Oil Company was licensed to explore and exploit the oil and natural gas resources in an around the island, the revenues derived from the sale of resources were then to be divided evenly between Iran and the tiny UAE emirate.

In 2001, Iran said it might use force to stop Azerbaijani vessels from exploring petroleum deposits in the $9 billion Araz-Alov-Sharg field, which is in a disputed section of the Caspian Sea. British Petroleum, the firm operating one of the survey ships, immediately halted exploration at the 2.2 billion-barrel oil field and announced it would not resume operations until Azerbaijan and Iran reach agreement on the field's ownership.

In December 2011, Iran announced that it has discovered a substantial oil deposit, called Sardar-e-Jangal field, which reportedly contains about 10 billion barrels of oil and 500 million cubic meters of recoverable natural gas. It is located 188 km north of Roudsar in Gilan Province and 250 km northwest of Neka. In May 2012, another field, called Sardar Milli, was discovered on the same structure.

Iran can sign joint development agreements with Azerbaijan and Turkmenistan, to jointly develop disputed Caspian fields as boundary dispute between Iran and other littoral states remains unresolved.

  Past Agreements

The former Iran-USSR land boundary on both sides of the Caspian Sea was delineated by agreements concluded in the mid-1950s.  According to the agreements, beyond a 10-mile limitation on the coastline of each state, the parties considered the rest of the sea as condominium, meaning that all resources in the sea would be jointly owned and managed by Iran and the USSR.

In the early 1970s, the USSR ministry for oil and gas industry divided the north of the Astara-Hasankuli line into four regional sectors (Russia, Azerbaijan, Kazakhstan and Turkmenistan) utilizing the median line principle, which extends an equal distance from the states’ coasts to the center of the sea until the boundaries met.

When the USSR was consigned to history in 1991 and Azerbaijan, Kazakhstan and Turkmenistan emerged as independent states, the number of Caspian littoral states rose from two to five, and with this the geopolitics of oil and the region changed dramatically. This resulted in overlapping ownership claims and a preference for unilateral or bilateral approaches on delimitation of the Caspian Sea.

Turkmenistan passed a 1993 law unilaterally declaring its jurisdiction over a 12-mile coastal zone on the Caspian in accordance with the rules of the UN Convention on the Law of the Sea of 1982 (UNCLOS). Later, Azerbaijan described a part of the sea as national territory in its constitution.  It began issuing licenses in 1994 for exploration and development of hydrocarbons at sites within its proclaimed sector.

The first bilateral agreement on sectoral division of the Caspian was signed by Azerbaijan and Kazakhstan in 1996. In 1997, Turkmenistan and Kazakhstan declared that they delineated territorial borders along a line running through the middle of the Sea.  That same year, Turkmenistan began issuing licenses for offshore drilling rights in its 12-mile zone.  Russia signed bilateral agreements with Kazakhstan in 1998 and with Azerbaijan in 2001 to delineate their sectors via an adjusted median line.

Seen from Tehran's perspective, the only equitable solution is to divide the Caspian into five equal sections (20% for each country). Iran has also stated that no country should develop Caspian resources until a resolution on the status of the Caspian has been agreed by all members, and that interim bilateral agreements concluded between Kazakhstan, Russia, and Azerbaijan to allow development of subsurface resources in the short term are illegitimate.