THE ECONOMIC AND GEO STRATEGIC IMPORTANCE OF THE CASPIAN SEA

Shahida Aman*

Abstract

This article analyzes critically, the economic and geo strategic importance of the Caspian Sea region. The Caspian Sea is one of the most important source of world’s energy resources, after the Persian Gulf and Siberia. However, one of the most serious limitations to its development is the lack of a legal regime, which has led to serious disputes among the littoral states over the question of energy exploitation and distribution. Politically, as well as economically, certain regional and international powers are trying to expand their sphere of influence in Central Asia and Caucasus and a strong rivalry is emerging among these powers for the control and exploitation of the energy resources, termed by some scholars as the New Great Game.

The Caspian Sea, termed as the world’s largest inland body of water is situated on the borders of Europe and Asia. The littoral states that surround the Caspian Sea include Russia and Azerbaijan that are lying to its west, Kazakhstan to its north, Turkmenistan to the east and Iran to its south. From north to south, the Caspian Sea has a length of 750 miles and a width of approximately 270 miles. Other vital statistics include a 7000 km. long shoreline and an area of 143,000 sq miles .

Geographically and historically, Caspian Sea as an important hub of water routes, has served as the link between the Volga and Iran and between Transcaucasia and Central Asia and provided a corridor for Russia’s expansion into the Middle East and Central Asia . Initially, Russian expansion was not motivated by oil, however, after 1900, the Caspian secured prominence as the major supplier of the energy needs of the Russian empire.

Economic Significance of the Caspian Sea

The history of oil in Central Asia’s Caspian region is very old. Azerbaijan’s name is traced in popular etymology to the Persian word azar or ‘fire’ or the land of fire probably because ancient Zoroastrian fire-temples were fed by local oil . The 13th century explorer Marco Polo, also reported the presence of springs that bubbled with black goo that was used for burning .

It was after 1871, that major oil companies like the French Rothschilds and Swedish Nobels drilled oil wells and constructed rail networks to export oil from the Caspian area of Baku .  During World War II, Soviet army extensively relied on Azerbaijani oil and Hitler tried in vain to capture Baku, the capital of Azerbaijan. Under Communist Russia, only modest amounts of oil were produced here as preference was accorded to developing oil fields in Siberia and other parts of Slavic Russia. The breakthrough came in 1987, when US oil company Chevron struck an agreement with the Soviet government to explore the region’s oil capacity.

The estimated oil reserves of the Caspian Sea Region vary according to different sources. The oil reserves of the region are estimated to be between 17 and 33 billion barrels. These figures, on the low end, closely resemble those of Qatar, a leading member of OPEC and on the higher one, the United States of America. The Caspian Sea Region by 2010, is forecast to increase its oil extraction capacity between 3 and 4.7 billion barrels a day. This is more than the annual oil production of Venezuela, South America’s biggest oil producer . These estimates suggest that the Caspian Sea cannot compete on the same footing with the Persian Gulf in terms of its importance for global security, however, its reserves are sizeable enough to justify the intense interest of major global and regional powers. Another estimate puts its oil reserves to be around 28bn barrels and 243 tcf of gas, amounting to almost 70bn barrels of oil equivalent, which in comparison is larger than Europe’s proven reserves of about 50bn barrels of oil equivalent .

The natural gas reserves of the Caspian Sea are more significant than its oil reserves. The natural gas reserves of this region are estimated to at 232 trillion cubic feet, almost equal to the natural gas potential of Saudi Arabia. In 2001, the natural gas production in the Caspian Region was roughly equal to combined output of Mexico, Central and South-America .

The littoral states of the Caspian Sea also vary in their natural resource potential. Among these states, Iran ranks at the top in terms of estimated reserves of 12721.00 million tons, followed by Russia with 6887.79 million tons, Kazakhstan with 672.95 million tons, Azerbaijan with 150.42 million tons and lastly, Turkmenistan with 79.17 million tons. The combined reserves of the Caspian states are estimated at 20511.33 million tons. This figure though significant is lesser than Saudi Arabia’s reserves of 35321.00 . This signifies that the energy reservoir of the Caspian region may not compare favourably with the Arabian Peninsula and the Persian Gulf. Nevertheless, the figures are quite significant if the world, particularly the developed one, is looking for alternative sources for meeting energy requirements. Investment in exploitation of the energy potential of the Caspian region will also benefit growing Asian economies like India, China, Japan and the rest.

Kazakhstan and Azerbaijan have been particularly active in developing the Caspian Sea oil reserves.  In 2002, two major projects produced 410,000 barrels of oil per daywhich is expected to rise to 1.7 million barrels per day by 2010. These include Kazakhstan’s Tengiz and Azerbaijan’s Azeri Chirag and deep water Gunashli projects . Turkmenistan which possesses smaller oil reserves has been unable to develop fully its oil and gas potential. Its disputes with Russia on the issue of natural gas exports dropped its production from 2.02 Tcf in 1992 to just 466 billion cubic feet (Bcf) in 1998. Turkmenistan’s slow pace took a turn in 1999, when under a Turkmen Russian agreement, production sky rocked to 1.7 Tcf in 2001. Once again in April 2003, Russia signed a long-term 25-year gas deal with Turkmenistan for exploration of gas resources .

The exploration of oil and gas on Caspian Sea’s Russian and Iranian side has also suffered stagnation despite efforts to undertake exploitation.  It was in 1995, that Lukoil, the Russian oil giant began initiative on the exploration of resereves in north Caspian Sea. The programme running between 2004-2010, was to begin natural gas production in 2005. In 2003, another project to extract hydro carbon resources from Tsentralnaya structure on the borders of Kazakhstan and Russia was initiated by the Russian, Lukoil and Gazprom firms alongside the Kazakh oil company, Kaz Munai Gaz. The drilling from this structure which is estimated to hold reserves of 20 tcf of natural gas was to begin in 2007. Gazprom is involved in the exploration of hydro carbon resources in another off shore Caspian project named Kurmangazy. Another littoral country that made relatively little progress in developing its Caspian resources is Iran which only recently in 2005 started its sea shelf exploration .

The exploration of oil and gas resources of the Caspian suffers manifold problems. These include its land locked geography, which is a logistical impediment to speedy oil exploration as well as energy transport. The massive distance from major supply centers for exploratory equipment also put the oil firms operating in the Caspian in a difficult position, facing shortages of drilling platforms and other related supplies. These obstacles prohibit an increase in oil and gas production in the region, despite having resources equivalent to the North Sea.
 
The New Great Game or End Game?

The emergence of the new states of Central Asia in 1991, gave a new face to the competition over control, extraction and export of hydrocarbon resources from the Caspian sea. This struggle is compared by analysts to the nineteenth century rivalry between Tsarist Russia and England, also termed as the Great Game. Although, the stakes remain as in the old game i.e., power, security and wealth, the milieu has undergone significant change.

Geography plays a pivotal role in the game board of the Caspian. The land locked status of these countries has increased their reliance for export of their energy resources on pipelines that are built in foreign territories. Prior to the fall of the Soviet Union, Russia was the major consumer of the Caspian Sea resources, however, after 1991, the littoral countries suffered problems in exporting their gas. Their only option was to either pay Russian gas company, Gazprom, transit fee for the exportation of their gas or sell the same at lesser prices to Russia. Turkmenistan, for example, has gas reserves of roughly 102 trillion cubic feet and except for a small pipeline to Iran, wholly dependent on the Russian pipeline network for the export of its gas. As a result Turkmenistan often gets poor prices, occasionally paid in cash and for the most part in Kind . The only pipeline availablie to the exporters was the 210,000- bb1 /d Atyrau Samara pipeline running from Kazakhstan to Russia . But increasing production has rendered the existing transportation routes inadequate and consequently, Russia, US, Iran and China proposed some new export pipelines. The prospective routes suggested by different countries include:

• The western route of which the US is a strong supporter especially the Baku-Ceyhan project. This project will transport oil and gas from the Caspian Sea port of Baku, via Tblisi in Georgia to the terminal at Ceyhan in Turkey and to the other parts of the world. The amount of oil to be transported is roughly one million barrels of oil per day and the US is promoting this project for bringing the Russian monopoly of hydrocarbon resources export to an end. The reason for Turkey’s support to this project is primarily economic. By 2010, Turkey will be needing 22 million tons of oil annually in order to keep up the ratio of its economic growth . However, feasibility of this $ 2.4 billion project may be questioned on the grounds of this region possessing not as significant oil reserves. Further, the Kazakh oil fields are expected to begin production only by 2008 .
• The Northern route that passes thruough the Russian territory is Moscow’ s proposed Caspian Pipeline Consortium . The Russian government, besides buying a 24% share in the project has also been forcing Kazakhstan for concluding a contract for exporting oil exclusively through the CPC pipeline. Kazakhstan has received economic threats of trade tarriff imposition on its goods passing through Russia, should Kazakhstan opt for the BTC project. There are also political and security apprehensions among the new states of Central Asia over questions of reliance on Russia as the chief export outlet of these states.
• The Southern route through Iranian territory is another way of exporting gas. The merits of this route include short distance, economic and commercial viability as well as less environment damage. However, the question of estranged US relations with Iran has stalled a meaningful progress on this proposal. US and non US companies have been banned to do business with Iran under the Iran and Libya Sanctions Act and under US laws respectively.
• Next is the eastern route via China. The spectacular economic growth complemented by the rising energy needs has made China develop its own stake in access to oil in Central Asia. Its major energy agreements are concluded with Kazakhstan. In September 1997, China, concluded a pipeline contract worth $9 billion with Kazakhstan . In September 2000, China discussed the possibility of a feasibility study for the 3000 Km long pipeline project. Kazakhstan is already supplying China with modest amounts of oil by rail . In August 2007, China and Kazakhstan signed agreements to expand the Atasu-Alashankou pipeline by 700 km westward. The pipeline due to be built by 2009, is to pump 30 billion cubic meters of gas and five million tons of Kazakh oil a year to China .    
• Another pipeline project is that of the South Eastern Route which has also been termed as the Trans Afghanistan Pipeline or TAP. TAP is a combined project in which Saudi Arabia, Afghanistan, Pakistan, US Unocal and Delta Oil have come together for transporting oil and gas from Turkmenistan and Kazakhstan via Afghanistan through Pakistan to India and onwards to the markets of South-east Asia and the rest. Unocal opted out of this $ 2 billion project owing to the ground realities in Afghanistan. The end of Taliban regime in 2001, raised hopes for reviving this pipeline project. However, the call for a feasibility study in July 2003 by the Asian Development Bank has put more problems in its way . Besides, according to expert’s opinion, the pipeline, which could have a capacity of 20 billion cubic meters, will only by feasible if it supplies gas to India as well . India has a current deficit of about 20 percent in oil and gas, which is expected to increase to 80 percent in about eight years as its economic expansion picks up . By 2006, a 50% rise in gas consumption in Pakistan means the country must increase its productive capacity and at the same time find alternative sources for gas import. The likely propability is that investors will shy away as long as the uncertain security situation in Afghanistan continues .

 
Caspian Sea is an important source of world energy resource after Persian Gulf and Siberia. However, the burning problem among the littoral states concerning its legal status, has hindered the Sea's natural resources development.  Until the dissolution of the Soviet Union, the only two littoral countries were Iran and the Soviet Union. Since 1991, debate has come up on questions of common and individual ownership of resources . Initially, all the littoral states passed individual laws authorizing development of the Caspian Sea bed. Subsequently, a number of bilateral and multilateral treaties were concluded among these states. In June 1997 and November 2001, Kazakhstan and Azerbaijan concluded agreements delimiting their areas in the Caspian. In July 1998, Russia and Kazakhstan also concluded agreement dividing the northern part of the Caspian. In January 2001 and April 2002, agreements were entered into by Azerbaijan and Russia for division of the seabed and for keeping the waters open beyond the 10-mile coastal zones in order to help in navigation by the littoral states. Further, in May 2003, Kazakhstan, Azerbaijan and Russia also came together in an understanding for division of their respective sectors of the Caspian sea . The littoral states through a consolidation of bilateral and regional co-operation can create a powerful block for the export of their energy resources to the world.

Geo-Strategic Importance of the Caspian Region

The above mentioned discussion emphasizes the economic importance of the Caspian Sea Region and the regional as well as world powers objectives of diversifying of control on hydro-carbon potential of the region. However, many scholars argue that the natural wealth of the region is not the sole reason for the presence of the different powers. There is political, security, and geo-strategic considerations involved as well. The geo-political significance of the Caspian region stems from the fact that it is situated at the intersection connecting Europe, the Middle East, the Caucasus, and Central Asia.

For the new republics of Central Asia, the Caspian Sea is not only their only waterway but also an important source of food and related products. For these states, unhindered access to the sea is a fundamental national objective. But as some observers stress that just as in the twentieth century, today also, only two powers would finally determine the fate of the Caspian. So there could again be two powers, with the resources to shape the Caspian’s new geo-politics in the new century. These two powers are Moscow and Washington, who have vital geo-strategic stakes in the region. To US, containment of Iran and Islamic fundamentalism constitute its short-term policy objectives while establishing control over Russia shall be the long term goal . Moscow on its part may try to revitalize its influence over its former republics for gaining geo-strategic leverage in the region.

In Stephen Blanks opinion, leverage over control and export of the energy resources in the Caspian region is the prima facia objective of all big and small powers. Thus, more than economics, politics determines the nature of decision makinig on pipeline and investment projects . US interests in Caspian Sea Region are not confined to containing Russia or Iran but also include that of diversifying sources of oil and gas, limiting its dependence on Middle East and keeping oil prices low and benefiting US oil and construction companies .

Another scholar has asserted that it is not the Middle East, the US is preparing to control, she is seeking much deeper and strategic objective of neutralizing the opposition of the Muslim population inhabiting the heartland of the Afro-Asian continents, from the shores of Atlantic to Central Asia and Indonesia. This geographical span is gifted with all kinds of raw material and oil/gas deposits and all the sea communication routes also flock within this land mass. US likes to influence and control this geo-strategically vital area so that access to these essential raw materials is unobstructed for meeting western nations industrial needs . Renewed US interest in Central Asia during George W. Bush’s administration has focused not only on finding alternative energy supplies but also, in preparation for the war in Afghanistan, the use of bases in Kyrgyzstan and Uzbekistan .

Another analyst, Khaleeq Kiani, quoting Ariel Cohen has stressed that the US could meet its future requirements of energy resources through reliance on the Caspian Sea region. Further, renewed Russian interest in the Caspian sea region’s energy exploration and transportation and Iran’s move at increasing its influence among the Islamic states of Central Asia are other causes for US involvement in the region. China may also get involved in the region. Ariel Cohen suggested that the U.S support for the economic growth in Central Asia would not only secure Central Asia’s independence, but also help counter radical influence of Iran and explore markets for its goods and services .

The major Russian security policy objectives in the Caspian region include: thwarting its use as a transit route for military, financial and human support for Chechen rebels; restraining escalation of regional conflicts particularly those destabilizing security and stability in Russia’s North Caucasus; protecting its former military infrastructure in the region, including key air defense, space and early warning facilities and retaining Russian military presence at bases in Georgia and Armenia; preserving an effective military force to protect Russia’s oil reserves and transportation routes from external intervention and lastly; addressing the security threats of drug trafficking, smuggling of contraband goods and illegal migration . Russia has leverage over US in maintaining its control in the region because of its monopoly of the pipeline system for oil and gas exports .

Iran is also drawing certain political and security benefits through developing economic, energy and transport relations with Central Asia. The different multilateral arrangements for developing trade and transport links have played an important role in bringing Iran and the Central Asian states closer together. Such arrangements have also helped their leaders to identify common interests in regional stability and security, a starting point of developing perceptions about their countries as belonging to the same region . Some scholars stress that Iran’s interest in South Caucasus is not economic but security oriented. Iran’s northern borders populated mainly by Azerbaijanis can be affected by the spillover effects of Caucasian conflicts, jeopardizing Iranian integrity. Further, Iran is concerned about the prospects of a Turkish intervention in South Caucasus. Iran is also fearful of the possibility of a Western led peace support operation that may extend NATO’s influence all the way to the Iranian border .

Strategic interests have propelled Ankara to support the construction of pipelines across Turkey rather than across Russia and Iran, as this would boost Turkey’s influence and prestige in the Caspian region at the expense of its rivals. Kazakhstan and Turkmenistan would also reduce their dependence on Russia if their energy were transported across Turkey . Turkey’s main geo-economic interests include not only ensuring that the BTC pipeline remains the main pipeline route for Caspian oil but also establishing good relations with Azerbaijan as the main oil producing country and Georgia as the main pipeline transit country .

Today, the global economy is being increasingly affected by prospects of energy and menace of violence and terrorism. Scholars are quick to observe that all countries are either exporters or importers of oil, a commodity that is going to remain crucial for the foreseeable future in the absence of any other alternative energy resource . The search for energy could lead to more conflicts and the Caspian region has become perhaps the most important area of direct Western-Russian contention. Stephen Blank, rightly emphasizes that the growing US involvement in the Caspian region is geo-strategic and geo-political, combining tools of superior economic and military prowess, and an understanding to integrate this area fully into the West in terms of both defence and economics . However, scholars are quick to point out that despite Russia’s growing economic power and political leverage in relations with other Caspian Sea states, it is still too weak to assume the regional leadership role to which it aspires .

Some scholars like Gvosdav and Bremmer, argue that the new great game has ended in a draw because Russia could not succeed in its endeavour to monopolize the Caspian region’s energy transport links. Some projects like the Baku-Tbilisi-Ceyhan pipeline had brought Russian monopoly over oil passing through its territory for onward export to the west to an end. Though, the regions countries have to rely on Russian Gazprom for the transport of Central Asia’s gas reserves through Russian territory. These writers assert rightly that Washington’s increasing security commitments emphasize the need for diversification of its energy supplies. Russia will benefit too if it pursues a co-operative relationship with the West for exploring and transporting of Caspian sea resources. .

Conclusion

The above-mentioned facts and figures point to the importance of Caspian Sea region which is endowed with vast hydrocarbon and marine resources. However, the strategic importance of the region cannot be denied. In fact, for the worlds major and other powers who are the stake holders in the Caspian Sea Region, economics mostly coincide with their strategic, political and security interests. The major world powers energy competition in the Caspian region termed as the new great game has a geo strategic objective of integrating the region into Russian or Western acumen. There is a need for the littoral states to consolidate their bilateral and regional cooperation, overcome their disputes and create sound relations with the other regions and countries. Investment into major undertakings particularly by the Europeans can further enhance the energy potential of the region. In the end, failure to resolve the disputes over the legal status of the Caspian Sea could lead to intra and inter-state conflicts and wars.

Bibliography

Books and Journals                 
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Kiani, Khaleeq ‘Afghanistan and Pipeline Politics’. Dawn, December 10, 2001.
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Correll, David. Caspian Sea Region: www.eia.doe.gov/Caspian.html.
      

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