Page 24 - bne_newspaper_March_23_2018

Opinion
March 23, 2018 www.intellinews.com I Page 24
section is only plausible in the dispute between Turkmenistan and Azerbaijan.
Indications are that the Turkmen coffers are emptying rapidly. This would explain why the government in Ashgabat appears open to compro- mise. While Turkmenistan would very likely have to forego some of its territorial claims in a deal with Azerbaijan, it would open the Serdar/Kapaz oil and gas field to renewed appraisal. The field would be technically challenging and expensive
to develop, but its large oil reserves could be the future commercial key – offering easier export logistics than a gas-heavy project in the Caspian.
A resolution to the border dispute with Azerbai- jan would also improve prospects for the trans- Caspian export of Turkmen hydrocarbons to the West, including via the proposed Trans-Caspian Gas Pipeline (TCGP), at least on paper. The Turk- men government places a high priority on the construction of TGCP and is therefore likely to be open to compromise with Baku. In practice, how- ever, without a convention on the Caspian Sea, the project risks further objections from Iran or Russia.
Whether a convention is signed or not, the com- mercial logic behind the TCGP will remain highly questionable. Existing and planned Southern Gas Corridor infrastructure cannot accommo- date significant volumes of Turkmen gas without further capital-intensive expansion. Moreover, it is unclear whether the demand for gas in Europe warrants significant imports from Turkmenistan.
Iran remains isolated
In contrast to Turkmenistan, Iran is by all ac- counts less concerned about the immediate monetary upsides of delineating borders in the
Caspian Sea. This, in part, reflects the relatively low priority afforded to the Caspian by the Iranian upstream sector. Moreover, since Iran is set to lose the most by accepting the median line ap- proach – which would give the country at best 13% of the Caspian, significantly less than the 20% it claims – the country has little incentive
to make concessions.
At the same time, however, a deal between Azer- baijan and Turkmenistan that excludes Iran would expose the country’s isolation and entrench its disputes. This would once and for all remove the possibility of a multilateral solution involving all the Caspian states and highlight any concessions Iran would make in bilateral deals as a sell-out.
In a worst-case scenario, renewed Azerbaijani or Turkmen attempts to explore in disputed waters risk provoking Iran to militarise the dispute. How- ever, under current conditions, Verisk Maplecroft’s Interstate Tensions Model forecasts very low risks of militarised conflict between the Caspian states.
Despite Lavrov’s talk of a breakthrough on the legal status of the Caspian in 2018, Verisk Ma- plecroft considers it very unlikely that full border demarcation is on the cards. Moreover, even if progress can be achieved, the TCGP and Serdar/ Kapaz face significant challenges. Any short-term opportunities from a deal between Azerbaijan and Turkmenistan would be countered by a long-term freeze on the remaining blocks under dispute as Iran remains isolated in a high-stakes game.
Camilla Hagelund is principal analyst - Central Asia at global risk consultancy Verisk Maplecroft. This article forms part of Verisk Maplecroft’s Political Risk Outlook – Oil & Gas 2018.