International Affairs:
A Russian Journal
March 1999

Legal Status of the Caspian

By Iu. Merzliakov _*

A surge of interest in the Caspian problems was provoked by an Agreement on Delimitation of the Sea Bed in the Northern Part of the Caspian Sea signed last July by the Presidents of Russia and Kazakhstan. Its aim was to let the two countries exercise their sovereign rights of its mineral wealth. The press wrote a lot on the political, legal, oil, pipeline, and ecological aspects. Some of the authors were full of pessimism saying that by agreeing to delimitate the seabed Russia allegedly lost her positions on the Caspian and its resources. As a result there would be no prospects for her to become the main transit country for the Caspian oil. Regrettably, the few publications on the critical state of the sturgeon resources complemented the gloomy picture creating an impression that Russia had suffered a catastrophe in the region. An objective analysis, though, will produce a less pessimistic picture.

 

***

The majority of the Caspian problems are caused by a lack of clarity of its legal status. Let’s look into the past. The 1921 and 1940 Soviet-Iranian treaties established the Caspian’s legal regime and presupposed its joint ownership and joint use. These treaties, however, relate solely to navigation and fishing. They established that navigation in the sea was free for all coastal states (no ships under flags of third countries are allowed). Fishing for them was free except in the 10-mile coastal zone reserved for the fishing vessels of the corresponding coastal states. In 1962, the Soviet Union and Iran reached an agreement banning commercial fishing of sturgeons in the sea: the fishing under definite quotas was limited to the rivers where the fish migrate for spawning.

It is more or less obvious that the new members of the Caspian club (Azerbaijan, Kazakhstan, Turkmenistan) would have never raised the question of the Caspian legal status if not its considerable oil and gas resources under the seabed. According to the latest Russian forecasts, there are from 15 to 17 billion tons of conventional fuel. The major resources prospected in the seventies and eighties are found mainly along the coasts of these three countries. It is believed that the deep water of Southern Caspian near Iran holds less promise. The Caspian bed to the south of the Volga delta, along the Russian coast, is even less studied. In 1975, the RSFSR Government issued a decision to turn the Northern Caspian into a natural reserve for sturgeon reproduction. Any kind of prospecting using drilling and seismic equipment were banned there.

Somewhat earlier in the same year a similar zone had been set up along the Kazakhstan coast to the north of Mangyshlak Peninsula when it became clear that prospecting and extracting oil there was ecologically hazardous because of salt plugs filled with hydrogen sulfide. In the mid-nineties Kazakhstan revised the regime: it lifted the ban because, it stated, contemporary technologies of marine extraction had greatly improved.

It stands to reason that the new coastal states did not want to cede their hydrocarbon resources to be extracted by a joint company of the five Caspian countries. We should recognize that the economic practice of 70 years when the Caspian Sea belonged to the Soviet Union and Iran provided them with certain reasons to believe that these resources belonged to them. First, in 1935 a secret order from G. Iagoda, People’s Commissar for the Interior, divided the Caspian along the Astara-Gasan Kuli line. It was shown as the Soviet Union’s state frontier though from the point of view of international law it was not such. Second, in 1949 the USSR launched oil extraction in the sea (Neftianye Kamni) without consulting Iran. In the fifties, Iran emulated the Soviet example. Official publications of both countries stated that the seabed resources of the Caspian within the coastal zones belonged to respective countries.

Finally, in 1970, the USSR Ministry of Oil Extraction divided the Soviet part of the Caspian among the union republics. It proceeded from its own departmental interests (mainly to be able to calculate forecast republican hydrocarbon resources.) The Ministry based itself on the median line without stating coordinates.

Russian and Iranian attempts to extend the regime of joint ownership and joint use on the seabed mineral resources in the course of the 1992 talks on a new legal status of the Caspian Sea failed. Azerbaijan wanted to divide the sea (its bed, water and air space together with the natural resources) into national sectors under complete sovereignty of corresponding coastal states. It even entered an article into its constitution proclaiming its sector part of its territory. Kazakhstan suggested that the UN Convention on the Law of the Sea be applied to the Caspian. This meant that the sea should be divided into territorial waters and exclusive economic zones. Turkmenistan announced that it would guide itself by the Soviet-Iranian treaties and the above-mentioned decision of the Oil Extraction Ministry until a new legal regime offered. At the same time it adopted a law on a 12-mile territorial zone and proceeded from the existence of the Turkmenian shelf.

Until Azerbaijan started developing marine oil fields and signed agreements on product sharing with foreign oil companies talks about the legal status of the Caspian Sea was of a theoretical nature. American corporations dominated the newly-formed consortiums. It should be admitted that the Russian companies Lukoil and Rosneft and the Iranian state oil company got their shares in developing marine oil fields despite the fact that both Russia and Iran, together with Turkmenistan, refused to admit that these fields were found in the Azerbaijanian sector.

The positions of Russia and Iran did not prevent American oil companies from coming to the Caspian as partners of the State Oil Company of Azerbaijan. Later, Kazakhstan and Turkmenistan also announced international tenders on prospecting the seabed along their coasts and developing hydrocarbon resources. They counted on fast development of their oil resources to revive the economies and raise the living standards. Obviously, they needed Western money and technologies.

Was the Caspian legal status registered in the Soviet-Iranian treaties violated? The Iranians state unequivocally “Yes.” They contend that a Caspian state unable to independently develop marine deposits should first invite the other coastal countries to participate with equal shares of 20 percent each before inviting third states. In an absence of the preferential regime any of the states has the right to start prospecting and developing hydrocarbon resources in any place.

The Russian side stated “Yes, the regime was probably violated in part.&148; Russia was prepared to go together with Iran. As prospecting and developing of the marine resources by other states went ahead she abandoned this stand as hopeless. Obviously, joint development of the Caspian resources by the five coastal states through a stock company would have been the best solution unrealizable at present. According to the sea’s current legal status the entire Caspian is open to economic activity by any of the states. Granted that hydrocarbon resources are unevenly distributed this approach would mean Iranian offshore platforms opposite Baku embankments or Russian drilling rigs to the south of the River Ural. The consequences are easy to guess. What was needed was a compromise and general agreement on the Caspian’s legal status.

 

***

In November 1996, at the Ashkhabad meeting of foreign ministers of five Caspian states Russia came up with a compromise solution. It said that within the 45-mile coastal zone each country exercised exclusive, or sovereign, rights of the seabed mineral resources. Outside the zone in places where any of the states had started prospecting or was ready to start it “point” resource jurisdiction of the deposit would be granted to the corresponding state. The central part was to remain common property with its hydrocarbon resources developed by a joint stock company of the five states.

Azerbaijan ready to develop the Chirag deposit (outside the 45-mile zone) rejected the compromise though it fitted perfectly its interests. Kazakhstan also rejected it. Russia, Turkmenistan and Iran tried to set up a tripartite company to prospect and develop seabed hydrocarbon resources. The attempt failed: Turkmenistan preferred to open an international tender on the resources along its coast where the tripartite company was supposed to work.

In the year that had elapsed since the Ashkhabad meeting none of the states offered any suggestion on the Caspian legal status. They stuck to their initial positions so it fell to Russia to work towards a compromise.

In January 1998, following an informal meeting outside Moscow between presidents Yeltsin and Nazarbayev, a joint statement was issued. It said that “a consensus on the legal regime of the Caspian can be reached through a just division of the seabed with its water space remaining in joint use for navigation, coordinated fishing, and environmental protection.” A Russian governmental delegation headed by First Deputy Foreign Minister B. Pastukhov spent six months negotiating with the Kazakh side and consulting the other coastal states. The results were the following.

An Agreement on Delimitation of the Seabed of the Northern Caspian was drawn and signed within a short period of time thanks to Russia and Kazakhstan common stand on the legal status. It seems that the agreement protects the rights of Russia and her oil companies. It can serve a basis for a convention on the legal status of the Caspian provided all other states agree to seek a consensus based on the conditions stated above.

How will it look in real life? Every state will have a 12-mile (or of any other agreed width) zone of border, customs, sanitary and other types of control, an analogy of territorial waters. It may be called “control zone.” A coastal fishing zone of 20 miles will be reserved for fishing vessels of the corresponding states. Beyond these zones there will be no other delimitations or frontiers. Corresponding agreements among the five states will take care of fishing, use of biological resources, coordinated ecological standards and control over them.

The seabed and its resources will be divided under agreements between neighboring states and those opposite them across the sea. They can be bilateral or tripartite as in the case of the Southern Caspian. All the five states may sign a delimitation agreement with actual delimitation being done by neighbors. The process will rely on the internationally recognized principles of justice and the sides’ agreement; in 80 percent of such cases all over the world the median line is used.

Russia and Kazakhstan agreed that delimitation between them will use a modified median line which will take account of the isles, geological structures, other special features, and the already made expenses on geological prospecting.

The coastal states enjoy sovereign rights of prospecting, developing, and managing the seabed mineral resources within their seabed stretches.

In case the demarcation line goes across promising hydrocarbon structures and deposits corresponding coastal states will have exclusive rights of their joint prospecting and development. Their shares will be established according to world practice and good-neighborly relations.

Finally, the coastal state whose physical or legal persons had discovered hydrocarbon deposits or identified promising structures in places the demarcation line ran, before it was negotiated with the adjacent and opposite states, acquires a priority right on obtaining a license on their prospecting and development. It is obliged to invite representatives of the neighboring or opposite states.

This proposition entered into the Russian-Kazakhstan Agreement makes it possible for Lukoil to go on with prospecting in the Northern Caspian in which it invested over $70 million; the agreement provides the legal context and protect the company’s investments.

Art 5 of the Russian-Kazakhstan Agreement envisages special legal regulation of all types of the economic use of the sea and underwater pipelines based on the Convention on the Legal Status of the Caspian when it is signed. This removes from the agenda the question of the trans-Caspian pipeline between Kazakhstan and Baku. The pipeline of the Caspian Pipeline Consortium remains the priority route for exported Kazakh oil. It is planned to start its construction on the Russian territory early in 1999. With the Kazakh oil excluded, the planned Baku-Ceyhan oil pipeline (the main rival of the already existing Baku-Novorossiisk pipeline) lost its economic advantages.

Preliminary assessments say that as a result of delimitation Russia will acquire not less than 17 percent of the seabed and about 10 percent of the hydrocarbon resources. This is less than the Kazakh and Azerbaijanian shares. We should not forget, though, that in case of shared possession Russia might claim a one-fifth of the resources (20 percent). The difference can be made up by developing marine deposits together with neighbors. Lukoil is doing precisely this in Azerbaijan. The Russian Caspian Consortium now being set up that will include Lukoil, Iukos, and Gazprom will have this opportunity.

How did other states receive this proposal? Azerbaijan hailed Russia’s agreement to delimitate the seabed yet was insisting on delimitation the sea space as well. While favoring the previous Russian plan of 45-mile coastal zones Turkmenistan was prepared to go along if other states agreed.

Tehran voiced its agreement, in principle, on dividing the Caspian Sea among the five states “on an equal and just basis.” It believed, however, that each of the states should get equal national sectors. This is a more realistic approach than the previous stand on an equal division of the resources. Russia suggested that Iran elaborated a technology of seabed division acceptable for all coastal states. She drew Tehran’s attention to the prospect of convincing those states which are to get over 20 percent of the seabed if demarcation is done by the median line, that is, Kazakhstan (about 29 percent) and Turkmenistan (about 22 percent).

None of the coastal states rejects any longer the idea of dividing the seabed. This is an important step towards a consensus on the legal status. The turn of the sea space has come.

Why is Russia set dead against dividing the seabed and the sea space into national sectors under a full sovereignty of the coastal states? Mainly because of the critical state of the sturgeons. Large-scale poaching and unilateral fishing that exceeded the allowed catch have undermined their population. In five years the sturgeons can be extinct. There is a chance of saving the fish population by promptly signing the already coordinated, by the relevant departments of the majority of the states, agreement on preservation and use of the biological resources. There is no political decision on that score. Russia gets a direct answer: first status and oil, then fish and ecology.

Those who favor the idea of the national sectors argue: “There is no problem. We shall divide the Caspian into five national sectors with all the resources, fish including, belonging to the corresponding coastal states. Then we shall coordinate the national fishing norms, make extractions from national jurisdictions and sign a relevant agreement.” The same is said about ecology. It is much more complicated to harmonize national legislation than to adopt approved norms. Some states may refuse to adjust their national norms to the common Caspian ones. This is what is in store for the Caspian from the point of view of biological resources and ecology.

Russia’s constant concern over a compromise is explained, in many respects, by her desire to protect the sturgeons.

If the Russian plan of dividing the bed and preserving the sea space for joint use is realized, the legal regime of the economic use of the sea that has taken shape in 70 years would be preserved intact. Division into national sectors will destroy the previous legal regime and breed a host of problems, including territorial disputes. Sometimes they flare up about several square meters and are much harder to settle than the disputes about resource jurisdiction: many problems are settled through shared participation. For example, it will not be easy for Azerbaijan to settle a dispute with Turkmenistan over the Kiapaz-Serdar deposit from the point of view of its territorial status; it will be much easier to come to an agreement on its joint exploitation based on the shared exclusive rights. When the deposit is depleted the object of dispute will disappear.

The national sectors on the sea space cannot be accepted because freedom of navigation may be limited by their owners under the pretext of national security. There is also a danger of uncontrolled laying of trans-Caspian pipelines hazardous in this seismically active region.

 

***

An objective observer cannot but agree that Russia has traveled more than half-way towards her neighbors where the legal status is concerned. In less than two years Russia forwarded a fundamentally new compromise; it was for the third time that she revised her initial position of undesirability of the division of the sea in any form. One hopes that at the next sitting of the Special Working Group on the Legal Status of the Caspian Sea at the foreign ministers level our partners will move forward to meet us.

---

Endnotes

*: Iurii Merzliakov is Ambassador at Large, Head of the Working Group on the Caspian Sea of the Russian Ministry of Foreign Affairs.  Back.