While foreign energy companies eagerly await the easing of sanctions on Iran, there is one area of the country that will be off-limits to them – Iran’s claimed Caspian waters.
Iran’s Oil Minister Bijan Namdar Zanganeh has stated that no foreigners will be authorized to carry out drilling in Iran’s sector of the Caspian, making his comments during a meeting with members of the Iranian Parliament's Energy Commission. According to MP Zohreh Tayyebzadeh Nouri, Zanganeh commented that the offshore hydrocarbon fields are in deep water, requiring sophisticated technology.
Last but not least, Zanganeh said all littoral states of the Caspian Sea must drill in their own zones.
There’s only one small legal impediment to Zanganeh’s comments about national sectors – there are none, as there is no treaty delineating them.
Related Article: Iran Takes on the US: Is this Provocation, Defiance or Tomfoolery?
An equitable division of the Caspian’s offshore resources have bedeviled the region since the December 1991 implosion of the USSR, putting the Soviet Union’s previous cozy arrangements with the Shah’s Iran “into the dustbin of history,” to quote Leon Trotsky.
Before the collapse of the USSR, the Soviet Union and Iran effectively divided the inland sea amongst themselves, according to the terms of the 1940 Soviet-Iranian treaty, which replaced the 1921 Treaty of Friendship between the two countries, awarded each signatory an "exclusive right of fishing in its coastal waters up to a limit of 10 nautical miles." The treaty further declared that the "parties hold the Caspian to belong to Iran and to the Soviet Union."
Since 1991 three new nations have arisen in the Caspian basin to contest this bilateral arrangement – Azerbaijan, Turkmenistan and Kazakhstan. For the past two decades the five nations have wrangled about how to divide the Caspian offshore waters, and little has been achieved.
Amidst the disagreements Azerbaijan, Turkmenistan and Kazakhstan have tentatively moved cautiously to develop their offshore reserves in sectors that they believe would be indisputably within their future assignations under an eventual five-state agreement.
Even within these cautious offshore margins, Azerbaijan and Kazakhstan have increased their output in the last 15 years by 70 percent.
But at issue are the diametrically opposed positions of Iran and the Russian Federation about how to develop an international Caspian consensus beyond the now moribund 1921 and 1940 treaties. Iran insists that all Caspian nations should receive an equitable 20 percent of the Caspian, while the Russia Federation has consistently maintained that the five Caspian riverine nations should receive their portion based on the length of their coastline. Under the Russian formula, Iran’s sector would consist of 12 percent to 14 percent of the Caspian’s waters and seabed.
The stakes are high – in 2009 the U.S. government’s Energy Information Administration estimated that the Caspian could contain as much as 250 billion barrels of recoverable oil along with an additional 200 billion barrels of potential reserves, in addition to up to 9.2 trillion cubic meters of recoverable natural gas.
Accordingly, all five Caspian nations have been delicately developing their offshore Caspian reserves in areas that will undoubtedly remain theirs whatever eventual agreement is hammered out between Azerbaijan, Iran, Kazakhstan, the Russian Federation and Turkmenistan. The Russian Federation and Iran are the last two nations to move “offshore.”
Complicating the issue is that international law has yet to definitively designate whether the Caspian is an inland "sea" or a lake, an adjudication which has enormous implications for both the applicability of the 1982 U.N. Convention on the Law of the Sea and negotiation of the boundary demarcation regime affecting the littoral states' rights to significant undersea oil deposits.
As for defending national sectors, Iran has played the “gunboat diplomacy” card in the past. On 23 July 2001, an Iranian warship and two jets forced two Azeri research vessels, the Geofyzik -3 and the Alif Hajiyev, operating in what Azerbaijan calls the Alov oilfield on behalf of BP-Amoco, to leave the field where they were conducting surveys, which lies 60 miles north of Iranian waters. BP-Amoco immediately announced it would cease exploration activities and withdrew the research vessels. Azerbaijan denounced the move as a violation of its sovereignty and on 31 July charged that an Iranian reconnaissance aircraft had violated Azeri airspace and come within 90 miles of Baku. Ramping up the pressure, Iranian former Pasdaran Commander Mohsen Reza'i pointedly reminded Azerbaijan that the whole country had once been Iranian territory and that Iran might decide to take it back, even as the Iranian press speculated that the whole thing was a provocation cooked up by Azerbaijan who was scheming to bring about American intervention in the Caspian.
So, maybe foreign investors should look at Iran’s onshore oil assets – or those in the Persian Gulf.
By John Daly of Oilprice.com