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The East: Governments Dispute Caspian Sea Oilfield Rights

Prague, 12 August 1997 (RFE/RL) - Barely a month after Russian oil companies Rosneft and LUKoil and Azerbaijani's state oil company SOCAR signed an agreement in Moscow on jointly exploring and developing a Caspian offshore oilfield known as Kyapaz the deal was last week formally annulled by the Russian government.

The turnaround has apparently been prompted by an immediate opposition from Turkmenistan, but Moscow's move seems to have been influenced by concerns of regional and international politics as well.

The signing on 4 July of the Russo-Azeri agreement generated a major diplomatic row involving the Russian Federation, Azerbaijan, and Turkmenistan, and has spotlighted the ongoing dispute over the legal status of the Caspian Sea and the ownership rights to the estimated millions of tons of oil that may lie beneath it.

At the heart of the dispute is the legal definition of the Caspian Sea. The five states with a Caspian coastline (Russia, Kazakhstan, Turkmenistan, Azerbaijan and Iran) have been at loggerheads for the past three years over whether that body of water should be legally defined as a sea or a lake.

The question quickly acquired a political importance when in September 1994 Azerbaijan signed a multi-billion dollar contract with a consortium of western oil companies plus Russia's LUKoil to exploit the Chirag, Azeri and the deep-water section of the Gyuneshli field. The Russian Foreign Ministry immediately pronounced the contract invalid and called for its annulment on the grounds that it contravened a treaty concluded between the USSR and Iran in1940 on the joint use of the Caspian's resources.

Russia and Iran continue to insist that the Caspian is a salt-water lake, and that under international law its various resources --whether sturgeon or oil and natural gas -- may only be exploited on the basis of an agreement concluded by all littoral states.

Kazakhstan and Azerbaijan disagree. They maintain the Caspian is a sea, and should therefore be divided into national sectors, which each country has the right to exploit as it pleases. This right to a sector of the Caspian is included in the constitution of the Azerbaijan Republic adopted by a referendum in November1995. Turkmenistan initially subscribed to the latter view, but as of late1996 had espoused the shared Russia/Iran argument. In November 1996, Russia modified its position by proposing that the Caspian be divided into zones, with each littoral state having the exclusive use of resources within its territorial waters, which would be extended from10 to 45 miles, and those resources lying beyond this point would be jointly used by all five countries. Iran and Turkmenistan approved this proposal.

Early this year, however, Turkmenistan again switched its tack. In an interview given to the Financial Times in January, Turkmen president Saparmurad Niyazov claimed the Azeri and Chirag fields lie in the Turkmen sector of the Caspian.

Azerbaijan's Foreign Minister Hasan Hasanov refuted this, stating that in 1970 the USSR Ministry divided up the Soviet sector of the Caspian between Russia, Kazakhstan, Turkmenistan and Azerbaijan, and that maps showing the respective sectors proved Niyazov's claim to the Azeri and Chirag fields false.

Russian Foreign Ministry officials likewise rejected Niyazov's argument, but on the grounds that no claims to individual fields could be made until an agreement is reached on the legal status of the Caspian.

Turkmenistan then sought the backing of Kazakhstan, and in February, the presidents of Turkmenistan and Kazakhstan, Niyazov and Nursultan Nazarbaev, proposed that the Caspian be temporarily divided into national sectors pending a new formal agreement on its status.

Following the signing of the July Russian-Azerbaijani agreement on Kyapaz the Turkmen leaders reacted instantaneously and strongly. On 5 July, Turkmenistan's Foreign Minister Boris Shikhmuradov issued a statement contesting Azerbaijan's ownership of the field, which is located some 180 km east of Baku and only 100 km from the coast of Turkmenistan, and demanding the immediate annulment of the agreement. Two days later, Shikhmuradov proposed creating an Azerbaijani-Turkmen joint commission to formalize the dividing line between the two countries' respective national sectors.

Russian government spokesman Igor Shabdurasulov downplayed the dispute, arguing that the agreement was "purely commercial" and therefore the Russian government was under no obligation to take any action.

But in late July, when Azerbaijan's President Heidar Aliyev traveled to Washington for talks with American officials, Russian deputy prime minister Valerii Serov unexpectedly flew to Ashgabat for talks with the Turkmen leadership.

On his return to Moscow, Serov informed Niyazov that the Kyapaz contract would be annulled. The Russian Foreign Ministry issued a statement confirming this on 5 August. Two days later, meeting with Niyazov in the Kremlin, Russian President Boris Yeltsin assured him that the signing of the agreement had been "a mistake" on the part of the Russian oil companies involved, and that neither he nor the Russian government had known of the planned deal beforehand.

By thwarting the deal, Russia not only mollified Niyazov (a potential ally), but succeeded in placing Aliev, whom it suspects of conspiring with the US to undercut Russia's influence in the Caspian, in an embarrassing situation.

Azerbaijan's Prime Minister Artur Rasi-Zade conceded last week that his country does not claim "exclusive" ownership of Kyapaz, and proposed that its reserves (estimated at 50 million metric tons) be jointly exploited by both Azerbaijan and Turkmenistan.

Turkmenistan has not yet commented on that offer...