How Will Natural Resources be Exploited in the Caspian Sea?

Laura Jurgeleviciute

The agreement of five Caspian states, for the governing of the Caspian Sea, has been touted as a very important deal for the region. After all, it moved to end the disagreements between some of the signatories. Yet, one year later, has the Caspian Sea and the Convention on the Legal Status of the Caspian Sea brought prosperity to the five countries?

The resources lying in the Caspian Sea, present an alternative to basins which are already being exploited. The sea and the shores, which still have the potential for exploitation, could have the power both to enrich the countries governing it, and to decrease the world’s oil and gas prices.

Out of the five Caspian states, one of them belongs to the OPEC. World’s crude oil prices are affected by the decisions of the OPEC. When member states need to sustain the same income from oil, the members can agree to keep exporting prices high.

However, Russia and Kazakhstan belong to OPEC+ group. Since only one of the five Caspian states belongs to the OPEC, the Trans-Caspian region has more individual power to set the prices of oil of own extraction.
The Caspian Sea could potentially hold a moderately-sized oil reserve (48 billion barrels). The division of the resources in the region could dip the balance of power towards these countries.

The 2018 deal between the five signatory countries (Azerbaijan, Iran, Kazakhstan, Russia, Turkmenistan) is a dichotomous solution. It both is an important and long-awaited stepping stone after 22 years of negotiations, and a small step towards the final division of the Caspian Sea and its resources.

Without the deal, the situation related to the relations of the five Caspian Sea countries would have gotten worse over time.

A division of territory, even if unsatisfactory to some countries, at least regulates the operations and the power of the signatory countries. If the same deal-less state were to continue, in a region full of valuable resources, skirmishes would have occurred sooner or later. There’s even a historical precedent for it: the Iranian and Azerbaijani confrontations.

The final division of the Caspian Sea will be ready when Azerbaijan’s disputes with Iran and Turkmenistan will be resolved. If the negotiations will be successful, the five Caspian Sea countries should see growing incomes from oil and gas. Whether this will bring fast development, and not just economic growth, remains to be seen. For one, the growing incomes from oil in Turkmenistan didn’t help with the stagnating GDP per capita growth
There’s one goal that unites all of the signatory countries of the Caspian Sea deal. That is, of course, extraction and exports of natural resources from the Caspian Sea. This uniting goal is also the largest dividing factor for the governance of the sea and its resources.

For countries which already have well-developed extraction systems in this region, the Caspian Sea deal presents an opportunity to rely on agreed judicial framework, and to take advantage of the suitable terms of it. Turkmenistan, which has developed oil infrastructure in the region, will now be able to take part in the Trans-Caspian gas pipeline.

countries like Iran, which have had difficulties in the past with delimitation, the 2018 deal is the start to a long path to incomes from oil and gas found in the sea. A clearer legal status of the sea, and the opening to further negotiations, should be an attractive prospect to investors.

The main disagreements of the signatory countries have been: the way to divide the territory related to the sea, the issue of pipelines and cables under the Caspian Sea.

How did the disagreements come to be? Both division of income, and competing goals of the Caspian Sea countries are reasons for them. Each of the two different ways to divide the territory, were more suitable to certain countries. More territory, in this case, meant larger incomes. This caused a disagreement.

Pipelines and cables under the Caspian Sea (regulated by Article 14 of the convention), should improve the exporting diversity in the region. Some analysts have stated that this could be a negative outcome to the already exporting countries.

Continuing talks are just the start for the division of power and incomes in the Caspian Sea region. Iran and Azerbaijan, previously dealing with disputed territories, now have agreed to a possible joint oil field. The agreement, signed before the Convention on the Legal Status of the Caspian Sea, was likely influenced by it. However, a “possible” joint field is a very small step forward towards full resolution of the continuing issues.

Moreover, the direction of the talks shows which states are vying for more power in the region, and the larger Central Asian territory.

Extraction of limited natural resources organically brings power to countries. In a region where agriculture can be difficult, and the manufacturing and services sectors are not as well-developed, natural resources enrich the extracting countries far more significantly. Countries with lower development of natural resources extraction, now may be able to grow both their economic and bargaining power due to the value of these resources.

The Caspian Sea resource-sharing deal is one of the many deals regulating the extraction of resources in seas. Similar deals have met both successful and unsuccessful fates.

Caspian Sea is one of the many seas and lakes which belong to several countries at once. Few, however, offer as many opportunities for new extraction wells as the Caspian Sea.

Resource sharing of seas, like the North Sea exclusive economic zones, and the Persian Gulf have delivered mixed results.

It can be argued that the success of the deals has been determined by the close relations of the signatory countries. The signatories of one of the North Sea’s delimitation deals, United Kingdom and Norway, entered this deal just two years after Norway had declared exclusive rights to oil on its continental shelf. This deal was developed and signed quickly, and as other North Sea delimitation agreements, hasn’t been the cause for disagreements.

Contrarily, the resource sharing and delimitation history in the Persian Gulf is a complicated one. Decades have passed after the start of division of the Gulf, its islands, and resources. Contested territories still exist (e.g. Saudi Arabia – UAE dispute). Although all of the gulf’s territory has been divided by the Gulf states, the high value of the gulf’s natural resources and historical territorial claims have limited the success of these deals.

One factor which influences the success of delimitation deals is the economic state of the signatory countries. Every country experiencing over-reliance on income from natural resources and/or underdevelopment of the manufacturing and services sectors seems to be a factor in the deals falling through.

A year after the convention concerning the Caspian Sea has passed, the high value of the sea’s resources doesn’t seem like a factor that could break up the convention. Instead, the Caspian Sea deal has brought the legal framework and issue resolution needed to build stable prosperity. The continuing talks and the building of infrastructure will bring higher incomes with time.