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Opinion
March 23, 2018 www.intellinews.com I Page 23
MAPLECROFT RISK BRIEFING:
Will convention on Caspian unlock oil and gas exploration scope?
Camilla Hagelund of Verisk Maplecroft
As 2017 came to a close, Russian foreign minister Sergei Lavrov was optimistic that the legal status of the Caspian Sea would soon be resolved. His statement raised hopes in the oil and gas sector that the remaining border disputes in the south- ern section of the world’s largest lake will finally be settled. A resolution would remove a key ob- stacle to oil and gas investment in these disputed areas, which account for around 20% of licensed and unlicensed blocks in the Caspian.
Yet even if a convention is signed in 2018, bor- der demarcation will not be a part of it; the lit- toral states would still have to resolve this issue through bilateral negotiations. This means the convention would be much less consequential than generally assumed. Indeed, Iran has damp- ened the optimism generated by Lavrov by reit- erating its position, which is irreconcilable with that of the former Soviet states (see infographic below).
We therefore believe that when it comes to oppor- tunities for resolutions in 2018, the border dispute between Azerbaijan and Turkmenistan represents the only plausible prospect. Were these two coun- tries to reach a deal, the disputed Serdar/Kapaz oil and gas field would finally be open to renewed exploration.
The immediate gain from Serdar/Kapaz would likely be tempered by an indefinite freeze on developments in Azerbaijan and Turkmenistan’s border regions with Iran. An Azerbaijani-Turkmen
The Caspian seen from Turkmenbashi on the coast of Turkmenistan. The Turkmens' oil and gas ambitions for the world's largest lake have been greatly frustrated by border disputes over the years.
agreement would leave Iran in a position where any compromise it made would be seen as a climbdown. Without the full demarcation of the lake, the development of the southern section’s gas and oil fields will be held up for many years.
Oil and gas the root and key to Caspian dispute
While the uneven distribution of the lake’s hydro- carbon wealth lies at the root of the disputes, the oil and gas resources can also be the key to the solutions. Iran, for example, dispatched gunboats in 2001 to stop Azerbaijan from surveying the dis- puted Alov exploration block. Meanwhile, Russia was motivated to strike a deal with Baku because of the untapped oil resources. Once Moscow saw the prospective economic benefits – from cor- porate Russian participation in exploration and potential transit revenues – Russia shifted its po- sition. Similarly, Russia and Kazakhstan are jointly developing fields located in their border region.
These bilateral deals were later consolidated in a trilateral agreement between Russia, Kazakhstan and Azerbaijan. The resulting de facto legal ar- rangement has facilitated the successful devel- opment of oil and gas resources in the Caspian’s northern section.
Azeri-Turkmen dispute the chief candidate for progress
Iran’s position is at odds with that of the other Caspian states. Unless Tehran’s approach to settling borders – or that of Azerbaijan and Turk- menistan – changes, progress in the southern