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U.S.: Official Disputes Iranian Success With Caspian Project

A U.S. official said there is little chance that Iran will be able to settle its Caspian oil field dispute with Azerbaijan by proposing a joint development. A U.S. company is already part of a consortium for the field, and Tehran has shown no sign that it will drop its claim to 20 percent of the Caspian, clearing the way for an agreement among the five shoreline states.

Boston, 18 October 2002 (RFE/RL) -- Iran has proposed joint development of a disputed Caspian oil field with Azerbaijan, but a U.S. official says there is little chance the plan will succeed.

Tehran has been negotiating for months over the field, which Azerbaijan calls Alov and Iran calls Alborz, to resolve an argument that began when an Iranian gunboat threatened two Azerbaijani research vessels in July 2001.

The border row is seen as one of the biggest barriers to a Caspian legal division among the five shoreline states. The gunboat incident was also the most dangerous confrontation between Caspian neighbors since the Soviet breakup, leading to a series of warnings and a naval buildup over the past year.

Although tempers flared at the outset, Iran has since pursued diplomacy, especially following Azerbaijani President Heidar Aliev's visit to the country in May. After many meetings, Iranian officials confirmed speculation that it has offered Azerbaijan a deal.

Earlier this month, in an interview with the London-based "Financial Times," Iran's Caspian envoy Mehdi Safari spoke of dividing the disputed resources. Safari said: "To share the Alborz is a way. We are negotiating this. We have good relations with Azerbaijan." Iranian officials have said that one solution would be joint development of the field.

This week, President Mohammad Khatami met Aliyev in Istanbul during a summit of the 10-nation Economic Cooperation Organization and cited the "urgent need" to settle the division problem, the official Iranian news agency IRNA said. But there were no signs of a breakthrough. Khatami is expected to visit Baku at a date to be set later this month.

The idea of joint development would follow a pattern set in the northern Caspian, where Russia and Kazakhstan broke a long border deadlock by agreeing to cooperate in three contested oil fields earlier this year. A bilateral border agreement between Russia and Azerbaijan last month also opened the door to joint development of a large offshore oil field known as Saumur, Azerbaijan Deputy Prime Minister Khalaf Khalafov told the country's ANS television news.

But a similar solution for Alov-Alborz may face high hurdles, because a U.S. company is involved. In 1998, Azerbaijan signed a contract for the Araz-Alov-Sharg prospect with a consortium led by Britain's BP oil company. U.S.-based ExxonMobil holds 15 percent. Other members include Norway's Statoil, Turkey's TPAO, and Alberta Energy of Canada. The SOCAR state oil company of Azerbaijan owns the largest share with 40 percent. The Associated Press reported in July that the fields were expected to be the second largest in Azerbaijani waters with an estimated worth of $9 billion.

Analysts have debated for years whether U.S. sanctions on Iran would specifically bar U.S. and Iranian companies from taking part in the same Caspian consortium. Sanctions prohibit U.S. investment in Iran and threaten penalties against foreign companies investing in Iranian petroleum projects.

Although the laws have yet to be tested on the question of participation in a consortium, U.S. oil companies are seen as likely to avoid the risk. So far, Iran has a stake only in Azerbaijan's Shah Deniz gas field, a venture in which BP, but no U.S. firm, is involved.

The consortium issue is difficult from a policy standpoint, however, since an Iranian interest in a Caspian project could also be seen as ruling any U.S. interest out.

But in an interview with RFE/RL, a U.S. official who deals with Caspian issues cited other problems that make it unlikely that Azerbaijan would accept a joint development deal. The official, who spoke on condition of anonymity, said he was not familiar with Iran's proposal, but he doubted that Baku would agree to a concession on Alov before Iran deals with the broader issue of its Caspian territorial claims.

Iran has insisted on either common control or an equal 20 percent share of the Caspian. The claim clashes with the Russian formula, which has been accepted by Azerbaijan and Kazakhstan, that would divide the seabed along a "modified median line." That formula would give Iran only 13 percent of the seabed in proportion to its coast. Iran's presumed 20 percent share includes the Alov-Alborz field.

Iran's plan to split the oil field only as a prelude to a possible settlement of the decade-old division question is seen as a stumbling block. Safari told the "Financial Times," "The 20 percent has been approved by our Supreme National Security Council. We have to follow this. We are insisting on this."

The U.S. official voiced confidence that Russia's median-line formula would eventually prevail in the Caspian, saying, "That's how it's going to be settled." But he added, "The southern Caspian is taking more time."

The official blamed Turkmenistan for not negotiating the division issue, saying, "The Turkmen [government] has not come to the table with flexibility, for whatever reason." Analysts have speculated that Ashgabat has been holding back to save Iran from isolation, but it also has a long-standing oil field dispute with Azerbaijan.