RIA Novosti, Russia
April 7 2004

RUSSIAN AND IRANIAN RAILROADS MAY BECOME PART OF A SINGLE
INTERNATIONAL TRANSPORT NETWORK

MOSCOW, April 7, 2004. (RIA Novosti) – Russia and Iran share a common
view on a strategy of developing of international transport
corridors, Gennady Fadeyev, the president of Russian Railways, said
after talks in Tehran with Iranian Minister of Roads and Transport
Ahmad Khoram and the head of the Iranian Railways, Mohammad Saeid
Nejad.

Mr. Fadeyev’s statement was included in a Russian Railways press
release.

“The sides agreed on a common development strategy for organizing
international transport corridors for both countries’ railroads. The
north-south corridor plays a key role here,” the press release notes.

During the talks, Mr. Fadeyev and his Iranian counterparts discussed
the possibility of transporting cargo by a Europe-Russia-Iran route
and which would eventually end in Madras, India.

The $177 million project to build a railroad from Astara (on the
Azerbaijan-Iran border) to Qazvin (200 kilometers northwest of
Tehran) was also discussed.

According to Mr. Fadeyev, Russian Railways can participate in
designing and building the railroad. There is also a proposal to set
up an Iran, Azerbaijan and Russia consortium to operate this section
of the railroad.

If this railroad is built and the border-crossing point at Julfa (in
the Nakhichevan autonomy of Azerbaijan) is restored the north-south
transport corridor will have three high-capacity outlets – a Caspian
Sea port, a railroad across Azerbaijan, and a railroad through
Armenia.

Iran displayed interest in cooperating with the Russians in
purchasing accessories: wheels, railroad car casting, rails and
sleeper cars. The press release says that the issues concerning the
delivering of safety systems was also discussed.

The Russian Railways president and Iran’s minister of roads and
transport discussed the prospect of setting up a direct, non-stop
Moscow-Tehran line. They hope that Azerbaijan, the line will pass
through its territory, will support the idea.

The economic advantages of the north-south transport corridor to
transport goods to and from Europe and Asia compared with the sea
route via the Suez canal were emphasized at the meeting, the press
release notes.

The cost of transporting cargo from Frankfurt by sea is estimated at
$5,670 for a 40-foot container, while transporting it through the
north-south corridor will only cost $3,670. The transportation time
will also be cut from five days to three, the press release says.

RIA Novosti, Russia
April 7 2004

COUNCIL OF EUROPE CHIEF TO DISCUSS AZERBAIJAN’S HUMAN RIGHTS RECORD
WITH OFFICIALS IN BAKU

BAKU, APRIL 7, 2004, (RIA NOVOSTI – Walter Schwimmer,
Secretary-General of the Council of Europe, has arrived in the Azeri
capital of Baku for a two-day visit. Here, he will meet with senior
government officials to discuss the implementation by Azerbaijan of
the obligations it assumed prior to its CoE accession.

Speaking to reporters about the issue of political prisoners in
Azerbaijan, Mr. Schwimmer described as an “important step” President
Ilkham Aliyev’s March decree granting pardon to 129 convicts. He also
pointed out that Council of Europe observers would be closely
watching the trials of participants in the disturbances of October 15
and 16, following presidential elections in the republic.

Mr. Schwimmer is scheduled to meet with President Aliyev, Parliament
Speaker Murtuz Aleskerov, Cabinet ministers, leaders of the
Opposition, activists of public organizations, and CoE member
nations’ ambassadors to Azerbaijan.

At his forthcoming Baku meetings, the Council of Europe
Secretary-General will discuss, among other things, the development
of cooperation between Azerbaijan and European countries and the
settlement of disputes, notably the Azeri-Armenian conflict over the
Nagorny Karabakh region (the OSCE has long been mediating in the
conflict, but without much effect).

Mr. Schwimmer is expected to appear before the students and the
faculty of the University of Baku, as well as to attend the
ribbon-cutting ceremony for the Council of Europe’s new information
office in Baku. He will also present here the Azeri version of his
book “Der Traum Europa” (“The Dream of Europe”).

DIVIDE AND CONQUER? THE RUSSIAN PLAN FOR OWNERSHIP OF THE CASPIAN SEA

Boston College International and Comparative Law Review
Winter, 2004

By Ben N. Dunlap (FNa1)

Abstract:

The search for alternative sources of oil has renewed U.S. interest in
the Caspian Sea. Bordered by Russia, Azerbaijan, Iran, and the Central
Asian states of Kazakhstan and Turkmenistan, the Caspian Sea contains
up to thirty-three billion barrels of proven oil reserves. The legal
status of the Caspian has remained unresolved since the collapse of
the Soviet Union, however. In the early 1990s Russia joined with Iran
to argue for common ownership of the sea by all five states, aiming
for veto power over Western involvement in the region. Now, Russia
argues for dividing the seabed (and the oil and gas underneath it)
into national sectors, while leaving most of the surface waters for
common management and use. The Russian solution offers political and
economic benefits to both Russia and the United States in the short
run, but may be an unsound basis for long-term stability in the
Caspian region.

INTRODUCTION

Since the September 11, 2001 terrorist attacks against the United
States, fears about U.S. dependence on Persian Gulf oil have
intensified. (FN1) With three-fifths of the world’s oil reserves
concentrated in the Persian Gulf, the United States and other Western
nations have increased efforts to ensure the continued availability of
oil elsewhere in the event of a catastrophic terrorist attack or a
destabilizing conflict in the region. (FN2) As a result, the search
for alternative sources of oil has renewed U.S. interest in the
potentially oil-rich Caspian Sea. (FN3) Bordered by Russia,
Azerbaijan, Iran, and the Central Asian states of Kazakhstan and
Turkmenistan, the Caspian Sea contains an estimated seventeen to
thirty-three billion barrels of proven oil reserves. (FN4) In the
early 1990s, U.S. oil companies Amoco and Chevron pioneered the
development of Caspian oil reserves off the coasts of Azerbaijan and
Kazakhstan. (FN5) The U.S. government championed the construction of
a new oil pipeline to bypass Russia and Iran by transporting Caspian
oil to Western markets via Azerbaijan and Turkey. (FN6) Uncertainty
about the Caspian’s legal status, however, has hindered development of
the sea’s oil reserves. (FN7) Soviet-Iranian treaties governed the
Caspian’s use in the Soviet era, but since the breakup of the Soviet
Union in 1991, the new Caspian states have failed to agree on how to
divide its vast resources. (FN8) In the early 1990s, Russia joined
with Iran to argue for common ownership of the sea by all five states,
aiming for veto power over Western involvement in the region. (FN9)
Now, Russia argues for dividing the seabed (and the oil and gas
underneath it) into national sectors, while leaving most of the
surface waters for common management and use. (FN10) More importantly,
Russia has signed bilateral treaties with Azerbaijan and Kazakhstan,
effectively dividing the northern part of the seabed 7 into Russian,
Azerbaijani, and Kazakhstani national sectors. (FN11) Iran insists
that the old Soviet- Iranian treaties are still in force and refuses
to sign or recognize any bilateral treaties carving up the sea until a
new multilateral convention is concluded by all five Caspian
states. (FN12)

This Note examines Russia’s proposed solution for the Caspian’s legal
status and its implications for U.S. interests in the region. Part I
provides a brief history of Caspian oil and an overview of post-1991
attempts to resolve the Caspian’s legal status. Part II discusses
proposed legal solutions, with special attention to Russia’s proposal
and its legal validity. Part III analyzes the implications of
Russia’s proposed resolution for Russia, Iran, and the United
States. Part IV concludes that the Russian solution offers political
and economic benefits to both Russia and the United States in the
short run, but may be an unsound basis for long-term stability in the
Caspian region.

I. BACKGROUND

A. Short History of Caspian Oil

Caspian oil fields began producing oil near Baku, Azerbaijan in 1871
and accounted for half the world’s still limited production in
1900. (FN13) The Soviets expanded their extraction operations, but
never fully explored the 700- mile-long Caspian Sea for new oil
fields, in part because they lacked the technology to exploit
effectively the reserves they found. (FN14) Following the breakup of
the Soviet Union in 1991, discovery of significant oil reserves in the
Caspian basin cast the region in a new light. (FN15) Early estimates
were as high as 659 billion barrels, or two-thirds of the world’s
known reserves. (FN16) Most of the oil discovered is located off the
coasts of Azerbaijan, Kazakhstan, and Turkmenistan. (FN17) Azerbaijan
8 and Kazakhstan, in particular, have concluded deals with foreign oil
companies to extract Caspian oil and transport it to world
markets. (FN18) Firms in the United States have acquired seventy-five
percent of Kazakhstan’s onshore Tengiz oil field, while a consortium
including Italy’s ENI, British Gas, ExxonMobil, France’s TotalFinaElf,
and Royal Dutch Shell is developing the newly discovered offshore
Kashagan field. (FN19) British Petroleum (BP) is leading the
Azerbaijan International Operating Company’s efforts to discover,
extract, and transport oil located off Azerbaijan’s coast. (FN20)
Chief among those efforts is the construction of a new pipeline from
Baku, Azerbaijan, through Tbilisi, Georgia, to Ceyhan, Turkey, which
U.S. policymakers hope will serve as the main export pipeline for
Caspian oil. (FN21)

In addition to U.S. and Western European firms, Russia’s largest oil
company, LUKoil, is currently a consortium member in Kazakh extraction
and transport projects and is negotiating a possible investment in the
Baku-Tbilisi-Ceyhan (BTC) pipeline. (FN22) Until recently, LUKoil also
held a stake in a sizable Azerbaijani oil field. (FN23)

B. Caspian Geopolitics

Drawn by cheap oil and the Caspian’s strategic location at the
crossroads of east and west, regional and world powers have converged
on the Caspian region to stake out and defend their political and
economic interests. (FN24) In particular, the United States, seeking
to diversify its energy supply and bolster the independence of the
former Soviet states in the region, has been adamant in its support
for multiple pipelines to transport Caspian oil to Western markets.
(FN25) U.S. policies for Caspian oil development benefit primarily
Azerbaijan, Georgia, and United States’ 9 NATO ally, Turkey, by
routing the BTC pipeline through those countries. (FN26) The BTC
pipeline will also benefit Kazakhstan if plans to export Kazakhstani
oil through it come to fruition. (FN27) As a result, throughout the
1990s, U.S. pipeline diplomacy alienated Russia and fueled Iran’s
fears of a long-term U.S. presence in the region that would exclude it
from any future development of Caspian oil. (FN28)

The strategic importance of the Caspian is underscored by security
concerns in the region. (FN29) To the northwest, Russian forces
continue to battle separatists in Chechnya. (FN30) To the west, an
uneasy peace holds in Nagorno-Karabagh, the predominantly Armenian
enclave in Azerbaijan that was the scene of horrific ethnic warfare in
the early 1990s. (FN31) To the east, Tajikistan suffered a protracted
civil war in the 1990s. (FN32) Kyrgyzstan and Uzbekistan both have
faced incursions by Islamic militant terrorists in recent
years. (FN33)

Since September 11, 2001, the United States has been particularly
concerned about nonstate actors and the threat of terrorism in the
Caucasus and Central Asia. (FN34) Proximity to the markets of Europe
and Iran and the porous borders of the former Soviet states make the
Caspian a convenient conduit for narcotics produced in Afghanistan and
Pakistan, and for weapons destined for sale to terrorists and
insurgents throughout Central Asia. (FN35) U.S. policymakers also fear
that the Caspian could become a smuggling route for weapons of mass
destruction. (FN36)

C. Legal Status of the Sea

1. UNCLOS and the Law of Inland Lakes Neither the international law of
the sea nor the law of inland lakes applies directly to the Caspian
Sea. (FN37) The Caspian is landlocked and has traditionally been used
only by the states that border it. (FN38) It is therefore unlike the
waters governed by the law of the sea, which are open to navigation by
all states. (FN39) Yet, its size, salt water, and hydrocarbon- rich
seabed also distinguish it from most lakes under international
law. (FN40) Both the law of the sea and the law of lakes have been
useful, however, in shaping the solutions that the littoral states
have advocated. (FN41)

The 1982 United Nations Convention on the Law of the Sea (UNCLOS)
essentially provides for the extension of a maritime state’s land
borders 200 miles into the sea. (FN42) The first twelve miles are
equivalent to a state’s sovereign territory on land, while the
remainder is the Exclusive Economic Zone (EEZ), in which the state
enjoys exclusive fishing and mining rights. (FN43)

Application of UNCLOS to the Caspian Sea would be complicated by the
sea’s dimensions, since the EEZs of Azerbaijan and Turkmenistan, for
instance, which are situated less than 400 miles apart across the sea,
would overlap. (FN44) In such cases, boundaries are usually drawn at a
point halfway between the two coastlines. (FN45) Thus, UNCLOS would
provide for division of the water and seabed into national sectors
roughly proportional to the length of each maritime state’s
coastline. (FN46) According to one calculation for such a division,
Kazakhstan would 1 control 29.9% of the Caspian; Azerbaijan, 20.7%;
Turkmenistan, 19.2%; and Russia and Iran–only 15.6% and 14.6%,
respectively. (FN47)

Not surprisingly, in the 1990s Azerbaijan and Kazakhstan argued in
favor of applying UNCLOS to the Caspian Sea, aiming to push ahead with
big oil projects off their coasts. (FN48) In recent years, however,
they have come to support the Russian proposal, which incorporates the
UNCLOS concept most important for their interests–division of the
seabed into proportional national sectors. (FN49) If the Caspian were
treated as a lake, ownership of its mineral resources would not differ
substantially from an arrangement under UNCLOS. (FN50) Rather, the key
difference would lie in the use of its surface waters. (FN51) The
surface waters of international lakes, unlike those of seas, can be
used exclusively by the states bordering them. (FN52) Russia has
borrowed this principle for the “common waters” element of its
proposed solution. (FN53)

2. Soviet-Iranian Treaties and the “Condominium” Principle

Much of the current legal dispute regarding the Caspian focuses on
treaties signed in 1921 and 1940 by the Soviet Union and Iran. (FN54)
The treaties provide for exclusive use of the Sea by the Soviet Union
and Iran, but cover only fishing and navigation rights, not mining
rights. (FN55) The 1940 treaty further stipulates a ten-mile fishing
zone extending from each state’s shoreline. (FN56)

Iran argues that the Soviet era treaties provide for common management
of the seabed and waters outside the ten-mile zone, according 2 to the
“condominium” principle. (FN57) Under such an arrangement, any oil
exploration and drilling operations undertaken in the Caspian would
have to meet the approval of all the bordering states. (FN58) As a
result, Iran suggests that Azerbaijan, Kazakhstan, and Turkmenistan
should suspend their oil and gas producing activities in the Caspian
until a new multilateral agreement is reached. (FN59) Russia also
argued for this approach in the early 1990s, but it has recently begun
supporting a division of the seabed and common management of the
surface waters. (FN60)

3. Recent Developments: Russia’s Proposed Solution In 1998, Russia
moved closer to the Azerbaijani and Kazakhstani positions by accepting
division of the seabed into proportional national sectors, but still
insisted on common management of the surface waters. (FN61) In the
spring and early fall of 2002, Russia signed agreements with
Azerbaijan and Kazakhstan recognizing national sectors based on lines
drawn in the middle of the sea halfway between each state. (FN62)
Russian diplomats have also succeeded in persuading Azerbaijan and
Kazakhstan to support Russia’s “divided bottom, common waters”
position in multilateral negotiations on the sea’s status among the
five states. (FN63) Thus, there is now general agreement among Russia,
Azerbaijan, and Kazakhstan on both the principle and the method of
dividing rights to the seabed and the oil beneath it. (FN64) For
Russia, coming to advocate this position has meant dropping any
“Soviet” claims to the oil-rich areas off the coast of Kazakhstan and
Azerbaijan, and giving up its struggle to block the BTC oil
pipeline. (FN65) 3 Russia has made these concessions for several
reasons. (FN66) Most significantly, under President Vladimir Putin’s
leadership, Russia has become more engaged in the negotiation process
and sought to maximize Russia’s share of economic wealth and
diplomatic influence in the Caspian. (FN67) Also, Russia has repaired
its pipelines to Western markets, built a new pipeline that bypasses
the troubled republic of Chechnya, and completed a joint project with
Kazakhstan to transport oil through a new pipeline that crosses
Russia. (FN68) Furthermore, Russian oil companies, such as LUKoil,
have pushed the Russian Foreign Ministry to make a deal with Russia’s
neighbors so that they can proceed with their own extraction
activities in the Caspian. (FN69) LUKoil is already working in
Azerbaijan and Kazakhstan and in new oil fields discovered off
Russia’s Caspian shores. (FN70) Russia has also proposed an oil
export deal with the United States and become a partner in the
U.S.-led “war on terror.” (FN71)

In contrast to Russia, Iran has shown little willingness to
compromise. (FN72) In addition to common management of the entire sea
and seabed, Iran’s negotiators have proposed an alternative solution:
division of the sea into five equal national sectors (twenty percent
each)–a position which none of the other states supports. (FN73)
Moreover, Iran has recently attempted to force concessions from the
other Caspian states by demonstrating its potential as a
spoiler. (FN74) In July 2001, an Iranian gunboat chased two BP survey
ships from a disputed oil field in the southern Caspian. (FN75) BP
immediately suspended all activity under its contract with Azerbaijan
in the disputed oil field. (FN76) Both the United States and Russia
protested the Iranian action. (FN77) The July 2001 incident
underscored Iran’s isolation, and events since then have demonstrated
the extent to which the other Caspian 4 states have aligned themselves
with Russia. (FN78) Following the unsuccessful April 2002 Caspian
Summit in Turkmenistan, at which Iran alone insisted on an equal
division of the sea, President Putin ordered large-scale military
exercises on the Caspian for August 2002. (FN79) Azerbaijan and
Kazakhstan also took part in the exercises, but Iran was pointedly
excluded. (FN80)

II. DISCUSSION

A. Russia’s Legal Arguments

Russia’s current legal argument regarding the status of the Caspian
Sea can be described as a “divided bottom, common waters”
approach. (FN81) Russia advocates dividing the seabed into national
sectors corresponding roughly to the amount of shoreline controlled by
each state, but leaving the surface waters, outside a fifteen-mile
territorial band, to be managed by all the states in common. (FN82) To
resolve disputes arising over claims to overlapping oil fields, Russia
proposes developing sharing agreements on a bilateral basis. (FN83) To
codify this argument permanently, Russia has concluded bilateral
treaties with its neighbors, Azerbaijan and Kazakhstan. (FN84) These
treaties cover the northern part of the sea, effectively dividing it
into Russian, Azerbaijani, and Kazakhstani national sectors. (FN85)
The legal effect of these bilateral treaties in the absence of a new
multilateral convention is not entirely clear, since it hinges on
whether the old Soviet-Iranian treaties remain in force, as Iran
argues 5 they do. (FN86) If the Soviet era treaties dissolved along
with the Soviet Union in 1991, or if they never effectively governed
ownership of the Caspian, then the new bilateral treaties between
Russia, Azerbaijan, and Kazakhstan should be governing law in the
Caspian. (FN87) If, however, the old Soviet era treaties are still in
force, then Iran may have a legal foothold for its argument that no
new bilateral treaties are valid in the absence of a new multilateral
agreement. (FN88)

B. Iran’s Legal Arguments

Iran contends that the 1921 and 1940 Soviet-Iranian treaties will
remain in force until a new multilateral convention is agreed upon by
all five littoral states. (FN89) Furthermore, Iran demands that any
new multilateral agreement provide for common management of both the
surface waters and the seabed, or, alternatively, for division of the
sea into equal national sectors–twenty percent each. (FN90)

Iran’s legal argument concerning the treaties has four main
weaknesses. (FN91) First, it gives great weight to general
Soviet-Iranian treaties that make little mention of the Caspian, and
are completely silent about division or ownership of the
seabed. (FN92) Second, it argues for a common ownership regime of the
Caspian’s resources when in fact such a regime is not explicit in the
treaties. (FN93) Such a common ownership regime would, therefore, have
to be inferred, but neither the Soviet Union nor Iran treated the
Caspian as joint property during the Soviet era. (FN94) Third, the
Soviets engaged in oil extraction activities outside the ten-mile
exclusive fishing zone stipulated in the treaty, with no objection
from Iran. (FN95) Some have suggested that Iran’s silence about de
facto divisions during the Soviet era should preclude it from raising
objections 6 to national divisions today. (FN96) Finally, Iran has
refused to recognize the continued validity of the 1921 and 1940
treaties in other areas they governed, such as security. (FN97)

III. ANALYSIS

A. Implications for Russia, Azerbaijan, and Kazakhstan

If Russia’s proposed solution becomes codified as international law–
either as a system of bilateral agreements, or as the basis for a new
Caspian convention–Russia will likely be the biggest winner for
several reasons. (FN98) First, playing a visible role in securing a
legal regime will allow Russia to be seen as a stabilizing force in
the region. (FN99) Second, Russia’s close cooperation with Azerbaijan
and Kazakhstan on this narrow legal question will facilitate
reciprocal cooperation from those states on problems Russian leaders
care deeply about, such as the instability in Chechnya. (FN100) Third,
division of the seabed into national sectors helps influential Russian
oil companies to pursue development of recently discovered reserves in
the Russian sector, as well as to engage in joint activities with
Azerbaijani and Kazakhstani counterparts. (FN101) Finally, the “common
waters” approach will give Moscow a free hand to patrol the Caspian
and fight what it calls crime and terrorism as it deems
necessary. (FN102)

Azerbaijan and Kazakhstan have traditionally been cautious in their
bilateral relations with Russia regarding the Caspian. (FN103)
However, the chief advantages of the Russian solution for Azerbaijan
and Kazakhstan are the clarity of sovereign rights, and, at least in
the short 7 run, cooperative relations with their Russian
neighbor. (FN104) Azerbaijan and Kazakhstan would no doubt prefer a
multilateral legal regime codifying the seabed boundaries, which would
make abrogation by any one party more difficult. (FN105) Nonetheless,
given their interest in securing their rights sooner rather than
later, and Iran’s intransigence, a system of bilateral treaties may be
the best solution Azerbaijani and Kazakhstani leaders can hope for at
the present time. (FN106)

B. Implications for the United States

The “divided bottom, common waters” approach offers several benefits
for U.S. interests. (FN107) The chief priorities of U.S. policy toward
the Caspian region continue to be the security of energy transport
routes, independence of the former Soviet Caspian states, and
isolation of Iran. (FN108) A Caspian legal regime that creates
definite boundaries and gives each border state sovereign control over
the resources in its national sector will favor these
interests. (FN109) A multilateral agreement based on clear national
sectors for the seabed and common management of most of the surface
waters would also be an encouraging sign for U.S. investors in the
region. (FN110) The actual borders would have to be drawn, and
disputes resolved over overlapping claims to oil and gas fields lying
between two sectors, but the series of bilateral agreements already in
place would help demarcate borders. (FN111) The U.S. government has an
additional stake in the success of some Caspian investment projects,
having provided risk insurance to the corporations investing in the
BTC pipeline through U.S. government financial institutions, including
the Overseas Private Investment Corporation (OPIC) and the
Export-Import Bank (Ex-Im Bank). (FN112)

The United States also has important security concerns in the Caspian
region with regard to its “war on terror.” (FN113) Russian
predominance in the Caspian region may have distinct advantages for
the United States in this respect. (FN114) Both the United States and
Russia, for instance, have strong interests in keeping terrorists away
from pipelines and oil-rigs, although they may disagree on the best
means for doing so. (FN115) Moreover, Russia’s security interests will
ensure its engagement in the region for the foreseeable future, while
Russia’s proximity to and familiarity with the region make it better
positioned than the United States to act on issues of mutual
concern. (FN116)

Nevertheless, for the long run, the United States should consider
carefully the implications of Moscow’s taking on a role as a
unilateral military and police power in the Caspian. (FN117) Such a
course may be expedient while U.S. and Russian interests overlap, but
it will be difficult to intervene if Russian leaders begin to act on
interests that conflict directly with those of their neighbors and
partners. (FN118)

C. Implications for Iran

For Iran, the Russian-backed, “divided bottom, common waters” approach
offers several disadvantages. (FN119) First, it will deny Iran key
economic opportunities. (FN120) The plan effectively excludes Iran
from any significant development of the Caspian’s oil and gas, since
the fourteen percent share that would be allocated to Iran contains
the least proven oil and gas reserves and the deepest water. (FN121)
Meanwhile, proactive treaty- making by Russia, Azerbaijan, and
Kazakhstan is rapidly closing off Iran’s ability to bargain for things
it desires most, such as securing support for a future oil export
route south through its territory. (FN122)

9 Second, Iran also fears instability in the region. (FN123)
Specifically, Iran has concerns that any strengthening of Azerbaijan
will embolden Iran’s significant ethnic Azerbaijani population,
possibly leading to political and social upheaval in the northern
parts of the country that border Azerbaijan. (FN124) Furthermore,
Iran’s feelings of insecurity may be exacerbated by tacit U.S. support
for Russia’s legal solution for the Caspian. (FN125) The possibility
of a large U.S. military presence on Iran’s border, depending on
future events in Iraq, will heighten feelings of insecurity in Tehran.
(FN126)

Iran may yet win some concessions in a final agreement on the
Caspian’s status, but given the current situation, that scenario looks
unlikely. (FN127) In the absence of a multilateral agreement involving
all five Caspian states, it is difficult to see how the bilateral
treaty system created by Russia, Azerbaijan, and Kazakhstan will
prevent further conflict arising over the disputed oil fields in the
southern part of the sea. (FN128) If Iranian leaders decide they have
nothing to lose, they may seek to disrupt other states’ activities in
the Caspian. (FN129) Iran would not have to engage in actual
hostilities to have an impact on the economic activities of the
Caspian states. (FN130) As the BP incident proved in July 2001,
foreign oil executives have a low tolerance for political uncertainty
in the region. (FN131)

CONCLUSION

Russia’s proposal for resolving the Caspian’s legal status is likely
to emerge as the defining legal framework for the sea–either as part
of a new Caspian convention or as a system of bilateral treaties. As
such, Russia’s plan offers important benefits to both Russian and
U.S. economic and political interests in the short term. However, it
may be an unsound basis for long-term security and strategic
interests. In particular, future events in Iran and Russia may have a
profound impact on the viability of the Russian-proposed solution.

Developments in Iranian domestic politics could affect Iran’s
willingness to recognize a Caspian treaty regime that excludes its
interests. The power struggle between President Mohammed Khatami’s
moderate administration and the hard-line clerics who control Iran’s
foreign policy raises questions about the possibility of a leadership
change and its effect on Iran’s relations with its Caspian neighbors.

Another potential problem with Russia’s proposed legal regime is that
its success or failure is directly linked to the maintenance of good
relations among the Caspian states. Neither Russia’s rapprochement
with Azerbaijan and Kazakhstan, nor its antiterror partnership with
the United States is a significant departure from the country’s
Russia-first foreign policy. Rather, both developments indicate a
pragmatic approach to pursuing Russia’s national interests. As those
interests change in the coming years, they will likely diverge from
the interests of their neighbors and those of the United States.

The “divided bottom, common waters” approach is essentially a
political solution to a legal problem. In the next several years, it
will help foster cooperation and get the oil flowing. In the longer
run, however, a number of events, such as leadership changes in Russia
or Iran or new trouble in Chechnya, may undermine the political
foundation of any agreement based on the Russian plan.

(FNa1). Ben N. Dunlap is the Solicitations and Symposium Editor of the
Boston College International & Comparative Law Review.

(FN1). Addicted to Oil, THE ECONOMIST, Dec. 15, 2001, at 9.

(FN2). Id.; A Dangerous Addiction, THE ECONOMIST, Dec. 15, 2001, at
15.

(FN3). See Michael Lelyveld, Caspian: Presidents Launch Construction
of Oil Pipeline, RADIO FREE EUROPE — RADIO LIBERTY (Sept. 18, 2002),
at
(hereinafter Lelyveld, Presidents Launch Construction); Lucian
Pugliaresi, Energy Security: How Valuable is Caspian Oil?, Caspian
Studies Program (Jan. 2001),

(FN4). ENERGY INFO. ADMIN., U.S. DEP’T OF ENERGY, COUNTRY ANALYSIS
BRIEFS: CASPIAN SEA REGION, at
(Aug. 2003)
(hereinafter D.O.E., CASPIAN SEA REGION).

(FN5). See Fiona Hill, Pipeline Dreams in the Caucasus, in CAUCASUS
AND THE CASPIAN SEMINAR TRANSCRIPTS (SDI Project ed., 1996),
(hereinafter Hill, Pipeline Dreams).

(FN6). Id.; ENERGY INFO. ADMIN., U.S. DEP’T OF ENERGY, CASPIAN SEA
REGION: OIL EXPORT OPTIONS, at
(July 2002)
(hereinafter D.O.E., EXPORT OPTIONS); Lelyveld, Presidents Launch
Construction, supra note 3.

(FN7). See ENERGY INFO. ADMIN., U.S. DEP’T OF ENERGY, CASPIAN SEA
REGION: LEGAL ISSUES, at
(July 2002) (hereinafter D.O.E., LEGAL ISSUES).

(FN8). See id.; see also Geoffrey Kemp, U.S.-Iranian Relations:
Competition or Cooperation in the Caspian Sea Basin, in ENERGY AND
CONFLICT IN CENTRAL ASIA AND THE CAUCASUS 148-49 (Robert Ebel & Rajan
Menon eds., 2000) (hereinafter ENERGY AND CONFLICT); Peter Rutland,
Paradigms for Russian Policy in the Caspian Region, in ENERGY AND
CONFLICT, supra, at 177.

(FN9). See D.O.E., LEGAL ISSUES, supra note 7; see also Kemp, supra
note 8, at 148-49; Rutland, supra note 8, at 177.

(FN10). Vystuplenie Prezidenta Rossii V.V. Putina na vstreche glav
prikaspiiskikh gosudarstv (Russian President Vladimir Putin, Address
at the Summit of Caspian Heads of State), available at
(Apr. 23, 2002) (hereinafter Putin Address).

(FN11). See D.O.E., LEGAL ISSUES, supra note 7; Sergei Blagov,
Kazakhstan Pushes for Trilateral Caspian Deal, ASIA TIMES ONLINE,
Oct. 10, 2002, at
(hereinafter
Blagov, Kazakhstan).

(FN12). See D.O.E., LEGAL ISSUES, supra note 7.

(FN13). See Hill, Pipeline Dreams, supra note 5; Bruce R. Kuniholm,
The Geopolities of the Caspian Basin, 54 MIDDLE E. J. 546 (2002),
LEXIS, Nexis Library, Magazine File.

(FN14). D.O.E., CASPIAN SEA REGION, supra note 4.

(FN15). See Kuniholm, supra note 13.

(FN16). Id.

(FN17). D.O.E., CASPIAN SEA REGION, supra note 4; ENERGY INFO. ADMIN.,
U.S. DEP’T OF ENERGY, CASPIAN SEA REGION: RESERVES AND PIPELINES
TABLES, at http:// (July
2002).

(FN18). D.O.E., CASPIAN SEA REGION, supra note 4.

(FN19). Jan H. Kalicki, Caspian Energy at the Crossroads, FOREIGN
AFFAIRS, Sept.-Oct. 2001, LEXIS, Nexis Library, Magazine File.

(FN20). Id.

(FN21). See id.; D.O.E., CASPIAN SEA REGION, supra note 4.

(FN22). ENERGY INFO. ADMIN., U.S. DEP’T OF ENERGY, KAZAKHSTAN: MAJOR
OIL AND NATURAL GAS PROJECTS, at
(June 2002)
(hereinafter DEP’T OF ENERGY, KAZAKHSTAN); Michael Lelyveld,
Iran/Azerbaijan: U.S. Rejects Military Involvement in Caspian Dispute,
RADIO FREE EUROPE — RADIO LIBERTY (Mar. 15, 2002), at

(FN23). ENERGY INFO. ADMIN., U.S. DEP’T OF ENERGY, AZERBAIJAN:
PRODUCTION- SHARING AGREEMENTS, at
(June 2002)
(hereinafter DEP’T OF ENERGY, AZERBAIJAN).

(FN24). See generally Kuniholm, supra note 13; Robert Ebel & Rajan
Menon, Introduction to ENERGY AND CONFLICT, supra note 8, at 4-10.

(FN25). Ebel & Menon, Introduction, supra note 24, at 5.

(FN26). See id. at 8-9.

(FN27). See id.

(FN28). See id.; Kemp, supra note 8, at 158.

(FN29). See Ebel & Menon, Introduction, supra note 24, at 7.

(FN30). The Lost Cause of the Caucasus, THE ECONOMIST, Nov. 2, 2002,
at 25.

(FN31). Ebel & Menon, Introduction, supra note 24, at 7.

(FN32). Lena Jonson & Roy Allison, Central Asian Security: Internal
and External Dynamics, in CENTRAL ASIAN SECURITY: THE NEW
INTERNATIONAL CONTEXT 13- 14 (Lena Jonson & Roy Allison eds., 2001).

(FN33). Id.

(FN34). See U.S. DEP’T OF STATE, JOINT PRESS STATEMENT BY THE
U.S.-RUSSIAN WORKING GROUP ON COUNTERTERRORISM, http://
(July 26, 2002) (hereinafter
D.O.S., PRESS STATEMENT); B. Lynn Pascoe, Security, Stability,
Prosperity: Engaging the Eurasian Front-Line States, Remarks Delivered
at the International Conference on Central Asia and the Caucasus, Yale
Center for the Study of Globalization, at
(Sept. 20, 2002).

(FN35). Martha Brill Olcott, Drugs, Terrorism, and Regional Security:
The Risks from Afghanistan, Testimony Before the U.S. Senate Judiciary
Committee,

(Mar. 13, 2002).

(FN36). See, e.g., U.S. DEP’T OF STATE, FACT SHEET: U.S. ASSISTANCE TO
TURKMENISTAN–FISCAL YEAR 2002, at
(June 6, 2002); Kalicki,
supra note 19.

(FN37). See Brice M. Clagett, Ownership of Seabed and Subsoil
Resources in the Caspian Sea Under the Rules of International Law,
CASPIAN CROSSROADS MAG.,

(1995); Bernard H. Oxman, Caspain Sea or Lake: What Difference Does It
Make?, CASPIAN CROSSROADS MAG.,

(1996).

(FN 38). See Clagett, supra note 37; Oxman, supra note 37.

(FN39). See Clagett, supra note 37; Oxman, supra note 37.

(FN40). See Oxman, supra note 37.

(FN41). See id.

(FN42). See Clagett, supra note 37.

(FN43). Faraz Sanei, Note, The Caspian Sea Legal Regime, Pipeline
Diplomacy, and the Prospects for Iran’s Isolation from the Oil and Gas
Frenzy: Reconciling Tehran’s Legal Options with Its Geopolitical
Realities, 34 VAND. J. TRANSNAT’L L. 681, 790 (2001).

(FN44). See Clagett, supra note 37.

(FN45). See id. The exact method of division was disputed even after
UNCLOS, however, particularly by states that were not parties to the
convention. See id.

(FN46). Sanei, supra note 43, at 790.

(FN47). Clagett, supra note 37.

(FN48). See Kamyar Mehdiyoun, Current Development, Ownership of Oil
and Gas Resources in the Caspian Sea, 94 AM. J. INT’L L. 179, 183, 187
(2000).

(FN49). See Ministerstvo Inostrannykh Del Rossiiskoi Federatsii,
Departament Informatsii i Pechati, Interviu spetsialnogo
predstavitelia Prezidenta Rossii po uregulirovaniiu statusa
Kaspiiskogo moria, zamestitelia Ministra inostrannykh del V.I.
Kaliuzhnogo (Russian Ministry of Foreign Affairs, Dep’t of Information
and Press, Interview of the Special Representative of the President of
Russia for Regulation of the Status of the Caspian Sea, Deputy Foreign
Minister Viktor I. Kalyuzhny), at (May 23, 2002)
(hereinafter Kalyuzhny Interview).

(FN50). See Clagett, supra note 37.

(FN51). See Oxman, supra note 37.

(FN52). See id.

(FN53). See id.; Lelyveld, Russia: Will a New Formula for Sharing
Caspian Riches Work?, RADIO FREE EUROPE–RADIO LIBERTY (Nov. 28,
2001), at http://
(hereinafter
Lelyveld, Sharing Caspian Riches).

(FN54). D.O.E., LEGAL ISSUES, supra note 7; see Sanei, supra note 43,
at 768-87.

(FN55). See Sanei, supra note 43, at 769-70.

(FN56). Id.

(FN57). See Abbas Maleki, Caspian Sea and Foreign Policy of Islamic
Republic of Iran, JOMHURI ESLAMI (Tehran), Oct. 23, 2001, at 3,
http:// Iran’s Share of the Caspian Sea
(Interview with Mehdi Safari), TEHRAN PERSIAN DAILY, Apr. 18, 2002, at
2, http:// (hereinafter Safari
Interview). See also generally Clagett, supra note 37; Oxman, supra
note 37 (describing the “condominium” principle in international law).

(FN58). See Sanei, supra note 43, at 786-87; Safari Interview, supra
note 57.

(FN59). See Sanei, supra note 43, at 786-87; Safari Interview, supra
note 57.

(FN60). See BRENDA SHAFFER, PARTNERS IN NEED: THE STRATEGIC
RELATIONSHIP OF RUSSIA AND IRAN 51 (2001).

(FN61). Mehdiyoun, supra note 48, at 187.

(FN62). Steven Lee Myers, Carving Up the Caspian, N.Y. TIMES,
Sept. 24, 2002, at A13; Blagov, Kazakhstan, supra note 11.

(FN63). Lelyveld, Sharing Caspian Riches, supra note 53; Kalyuzhny
Interview, supra note 49. Turkmenistan favors division of the seabed
into national sectors, but is unwilling to commit to the method of
division proposed by Russia. See Kalyuzhny Interview, supra note 49.

(FN64). See Kalyuzhny Interview, supra note 49.

(FN65). See Carol Saivetz, Caspian Geopolitics: The View from Moscow,
7 BROWN J. WORLD AFF. 53, 54-55 (2000).

(FN66). See Fiona Hill, Russia: The 21st Century’s Energy Superpower?,
20 BROOKINGS REV. 28 (2002) (hereinafter Hill, Superpower).

(FN67). See Saivetz, supra note 65, at 57-59.

(FN68). D.O.E., EXPORT OPTIONS, supra note 6; Kalicki, supra note 19.

(FN69). See Hill, Superpower, supra note 66.

(FN70). DEP’T OF ENERGY, AZERBAIJAN, supra note 23; DEP’T OF ENERGY,
KAZAKHSTAN, supra note 22; see Hill, Superpower, supra note 66.

(FN71). See Brenda Shaffer, The U.S. Needs Russia to Help Contain
Iran, L.A. TIMES, Feb. 21, 2002, at 13.

(FN72). See Maleki, supra note 57.

(FN73). See id.

(FN74). Michael Lelyveld, Caspian: A Delicate Balance Prevails, RADIO
FREE EUROPE–RADIO LIBERTY (July 16, 2002), at

(hereinafter Lelyveld, Delicate Balance).

(FN75). Id.

(FN76). Id.

(FN77). Id.

(FN78). Jean-Christophe Peuch, Caspian: ‘Militarization’ of the
Sea–Myth or Reality?, RADIO FREE EUROPE–RADIO LIBERTY (June 10,
2002), at

(FN79). Id.

(FN80). Michael Lelyveld, Russia: Are Moscow’s War Games in Caspian
Muscle Flexing?, RADIO FREE EUROPE–RADIO LIBERTY (Aug. 7, 2002), at

(FN81). Putin Address, supra note 10.

(FN82). Michael Lelyveld, Caspian: Russia Proposes Wider Offshore Zone
for Dividing the Sea, RADIO FREE EUROPE-RADIO LIBERTY (Aug. 28, 2002),
at

(FN83). See Kalyuzhny Interview, supra note 49.

(FN84). See Blagov, Kazakhstan, supra note 11; Michael Lelyveld,
Caspian: Azerbaijan, Iran Seek New Phase in Border Dispute, RADIO FREE
EUROPE-RADIO LIBERTY (June 18, 2002), at

(hereinafter Lelyveld, New Phase).

(FN85). See Blagov, Kazakhstan, supra note 11; Lelyveld, New Phase,
supra note 84.

(FN86). See Sanei, supra note 43, at 777-80, 786-87.

(FN87). See id.

(FN88). See id.

(FN89). Maleki, supra note 57, at 3.

(FN90). Id.

(FN91). See Mehdiyoun, supra note 48, at 188-89; Clagett, supra note
37. But cf. Sanei, supra note 43, at 786-87.

(FN92). See Mehdiyoun, supra note 48, at 188-89; Clagett, supra note
37. But cf. Sanei, supra note 43, at 786-87.

(FN93). See Mehdiyoun, supra note 48, at 188-89; Clagett, supra note
37. But cf. Sanei, supra note 43, at 786-87.

(FN94). See Mehdiyoun, supra note 48, at 188-89; Clagett, supra note
37. But cf. Sanei, supra note 43, at 786-87.

(FN95). See Mehdiyoun, supra note 48, at 188-89; Clagett, supra note
37. But cf. Sanei, supra note 43, at 786-87.

(FN96). See Mehdiyoun, supra note 48, at 188-89; Clagett, supra note
37. But cf. Sanei, supra note 43, at 786-87.

(FN97). See SHAFFER, supra note 60, at 63 n.46.

(FN98). See Kalyuzhny Interview, supra note 49; Hill, Superpower,
supra note 66.

(FN99). See Saivetz, supra note 65, at 59.

(FN100). See Sergei Blagov, Russia’s Asian Policy Gains Momentum, ASIA
TIMES ONLINE, Nov. 14, 2002, at
Asia/DK14Ag01.html (discussing Kazakhstan’s cooperation with Russia in
counterterrorist operations); Daan van der Schriek, Moscow Hostage
Crisis Encourages Closer Russian-Azerbaijani Relations, at

(Oct. 30, 2002) (discussing Azerbaijan’s clamp-down on Chechen
activity in its territory and the recent Azerbaijani-Russian
rapprochement).

(FN101). See Hill, Superpower, supra note 66.

(FN102). See Peuch, supra note 78.

(FN103). See generally Hooman Peimani, Russia Navigates Another
Caspian Rapid, ASIA TIMES ONLINE, Oct. 8, 2002, at
Asia/DJ08Df05.html.

(FN104). See Blagov, Kazakhstan, supra note 11.

(FN105). See, e.g., Peimani, supra note 103.

(FN106). See Blagov, Kazakhstan, supra note 11.

(FN107). See Michael Lelyveld, U.S.: Official Disputes Iranian Success
with Caspian Project, RADIO FREE EUROPE — RADIO LIBERTY (Oct. 18,
2002), at

(FN108). See Kuniholm, supra note 13.

(FN109). See id.

(FN110). See D.O.E., LEGAL ISSUES, supra note 7; Michael Lelyveld,
Iran/Azerbaijan: U.S. Rejects Military Involvement in Caspian Dispute,
RADIO FREE EUROPE–RADIO LIBERTY (Mar. 15, 2002), at

(hereinafter Lelyveld, Caspian Dispute).

(FN111). See D.O.E., LEGAL ISSUES, supra note 7; Lelyveld, Caspian
Dispute, supra note 110.

(FN112). See Kuniholm, supra note 13.

(FN113). See Assistant Secretary of State Beth Jones, U.S. Engagement
in Central Asia and the Caucasus: Staying Our Course Along the Silk
Road, Remarks at “Central Asia: Its Geopolitical Significance and
Future Impact” Conference, University of Montana, at
(Apr. 10, 2003).

(FN114). See D.O.S., PRESS STATEMENT, supra note 34; Lelyveld, Caspian
Dispute, supra note 110.

(FN115). See D.O.S., PRESS STATEMENT, supra note 34; Lelyveld, Caspian
Dispute, supra note 110.

(FN116). See, e.g., Saivetz, supra note 65, at 58-59.

(FN117). See generally Jonson & Allison, supra note 32; Kemp, supra
note 8, at 148-49.

(FN118). See Kuniholm, supra note 13.

(FN119). See Sanei, supra note 43, at 824; Maleki, supra note 57;
D.O.E., LEGAL ISSUES, supra note 7.

(FN120). See D.O.E., CASPIAN SEA REGION, supra note 4.

(FN121). Id.

(FN122). See Sanei, supra note 43, at 832.

(FN123). See BRENDA SHAFFER, BORDERS AND BRETHREN: IRAN AND THE
CHALLENGE OF AZERBAIJANI IDENTITY 1-7 (2002); Kuniholm, supra note 13.

(FN124). See SHAFFER, supra note 123, at 1-7; Kuniholm, supra note 13.

(FN125). See Kemp, supra note 8, at 158.

(FN126). See Sanei, supra note 43, at 824.

(FN127). See Mehdiyoun, supra note 48, at 188-89. But cf. Sanei, supra
note 43, at 786-87.

(FN128). See Peimani, supra note 103.

(FN129). See id.

(FN130). Lelyveld, Delicate Balance, supra note 74.

(FN131). See id.

Copyright – 2004 by Boston College International and Comparative Law Review

From: Emil Lazarian | Ararat NewsPress

In-depth analysis shows Caspian oil’s potential

World Oil
Monday, March 1, 2004
Volume 225; Issue 3
ISSN: 0043-8790

An in-depth analysis shows Caspian oil’s potential: whether one talks
about exploration, field projects or pipeline construction, the
Caspian Sea region is destined to influence global energy and
geopolitics for years to come.

(Supply And Demand)

By Collum, Randall, Jr., Gregorek, Adrian J., Sondhi, Amit, and
Economides, Michael J.

As new sources of hydrocarbons, particularly from non-OPEC countries,
become increasingly important to the world, the Caspian Sea region has
the potential to become one of the major oil- and gas-producing
areas. The region is thought to hold the world’s third-largest oil and
gas reserves behind the Middle East and Russia. New oil discoveries in
the northern Caspian Sea have underlined the region’s
importance. Kashagan field, off the northern shore of the Caspian Sea,
is expected to be the second-largest petroleum deposit in the world,
following Saudi Arabia’s Ghawar field. It is the largest new oil field
found over the last 30 years. By 2010, the Caspian region is expected
to produce 3 million bopd, doubling current output of about 1.5
million bopd.

Most of the Caspian discoveries are in Kazakhstan, although by 2010 a
significant amount of oil should come from Azerbaijan, predicted to
account for almost one-third of the region.

In December 2003, Kazakhstan President Nursultan Nazarbaev stated,
“Global experts consider the nervousness of Arab countries and all of
OPEC’s (members) comes not only from the massiveness of the Caspian
reserves, but also because the region’s states do not enter OPEC.” He
further suggested that the countries surrounding the Caspian should
create an OPEC-like oil cartel, to support oil prices and reassure
OPEC, itself.

Until recently, Russia controlled oil exports from the area, with the
main export pipelines for Caspian oil passing through its
territory. The US government supports alternative routes that bypass
Russia, which is not pleased that the new pipelines will give the West
access to Caspian oil and gas, without Russian control.

The geopolitics associated with the region have been a major influence
on the Caspian petroleum industry. The US has blatantly thrown its
clout behind the American petroleum companies involved.

Transportation of Caspian oil and gas does not only involve
Russia. Conflicts over land ownership and the US’ bad relationship
with Iran have played important roles in establishing potential
pipeline routes. Also, the division of reserves located in the Caspian
Sea has been an ongoing dispute, with Iran and Turkmenistan in
disagreement with Kazakhstan, Azerbaijan and Russia on how the Caspian
Sea should be divided.

An example of hostility that surrounds this issue is what happened to
BP in 2001. While a BP research vessel was in a presumably Azerbaijani
sector of the Caspian Sea disputed by Iran, an Iranian gunboat chased
it out of those waters. This event prompted BP to suspend its work in
that Caspian oil field for a period of time.

The US has played an important role in influencing the Caspian
pipeline situation by endorsing five pipelines in the region, three of
which originate in Baku. (1) These three pipelines consist of the two
already exporting oil, plus the Baku-Tbilisi-Ceyhan (BTC) pipeline
that is under construction. Construction associated with the BTC
pipeline is shown in Fig. 1. (2)

[FIGURE 1 OMITTED]

For now, the pipeline routes seem to be accepted by most
countries. Russia has accepted construction of the BTC pipeline, and
there are questions as to whether Iran would have transported
Azerbaijan’s oil through its territory. The route to ship oil through
Iran would have been the cheapest, by far.

AZERBAIJAN

Of the estimated 3 million bopd to be produced from the Caspian by
2010, about one third would come from Azerbaijan. (3,4) In 2002,
Azerbaijan’s oil production was 22% of total Caspian Sea output. If
Azerbaijan’s political situation continues to favor investment by
foreign companies, and the geopolitical state of affairs can be
resolved between the Caspian Sea’s surrounding countries, then
Azerbaijan’s potential is even greater.

Azerbaijan has been an oil-producing province for a long
time. According to some historians, it is supposed to be the site of
the first purpose-drilled oil well in the world, drilled in 1848-1849,
just south of Baku. Oil field exploitation began in the 1870s and
continued until World War I. Azerbaijan became an independent republic
after the demise of the Russian Empire in 1918 and was recognized as
an independent country by Western nations in January 1920. Three
months following this recognition (April 1920), the Russian Red Army
took over this country, and it became part of the emerging Soviet
Union (USSR).

Azerbaijan’s production peaked at over 500,000 bopd during World War
II, but it has yet to reach that production level again. It was a
strategic, potential oil supply that Nazi Germany targeted in World
War II but was never able to acquire. Had the Germans achieved this,
the balance of the war could have shifted from the Allies to the
Germans. Azerbaijan stayed as a member of the USSR for most of the
Twentieth Century, until it became an independent country for the
second time in history, in August 1991.

Azerbaijan’s current promise of hydrocarbons lies in the Caspian Sea,
to the country’s east. In 2002, Azerbaijan’s oil production was a
little over 300,000 bpd. (5) Given the current development projects in
the Caspian Sea, the country should surpass its historical oil
production peak in the near future.

From 1987 through 1995, Azerbaijan’s oil production declined at a
rate of 5.4%. (5) Thanks to the “Contract of the Century,” this
decline has ended. The contract, signed in 1994 between Azerbaijan and
11 international companies, involves the development of Caspian Sea
reserves in the Azeri, Chirag and

Gunashli (ACG) fields. Through this contract, Azerbaijan International
Oil Co. (AIOC) was created. Members include state oil company SOCAR
and 11 international firms.

After the contract was signed, oil production stabilized between 1995
and 1997. It has been increasing at an average 10.2% since 1997. (5)
If this rate (considered conservative, given the number of new
projects slated) continues, Azerbaijan will surpass 500,000 bopd in
2007. First oil from the BP-operated ACG fields was in 1997, and this
has been the main reason for the country’s production increase. In
early 2004, the area produced 130,000 bopd. It is expected to produce
400,000 bopd by 2005 and peak at 1 million bopd. (6) Production,
consumption and exports of Azerbaijani oil since 1985 are shown in
Fig. 2. (5)

[FIGURE 2 OMITTED]

The Contract of the Century paved the way for many more production
sharing agreements. So far, these pacts have committed a total
investment of more than $60 billion in Azerbaijan’s oil
development. (7) The prize that the international operators are
chasing is proven oil reserves of between 7 billion bbl and 12.5
billion bbl, with a potential for an additional 32 billion bbl.
Proven natural gas reserves also total 30 Tcf. Potential exists for
an additional 35 Tcf. (4) Although Azerbaijan has fewer reserves than
Kazakhstan, the country’s ability to cooperate with, and openness to,
international investment has enticed such companies as BP, ExxonMobil,
Statoil and others to invest heavily.

Azerbaijan’s economy. Azerbaijan’s future economy depends greatly on
the proper utilization of hydrocarbon revenues. The country is
low-income, with a per capita income in 2002 of only $710. (8)
Nonetheless, Azerbaijan’s income has quadrupled since 1995, much of it
due to the Contract of the Century. This increase compares to a GDP
that decreased by 18.5% in 1995. (8) The projected GDP growth in 2004
is 9.1%. (9) The economy is growing at a fast pace.

With 64% of the population below the poverty line, the country is in a
transitional economy. While the oil sector accounted for 90% of
Azerbaijan’s exports, it generated only 1% of all jobs. (10) The
projected $60 billion of international investment in oilfield
development should add plenty of employment.

One sign that the government is attempting to diversify its economy
and keep it growing far into the future is the creation of the State
Oil Fund of the Republic of Azerbaijan (SOFAZ). SOFAZ was established
in 1999 and created to put aside some of the country’s oil-related
revenue and manage it for future use. (11)

Becoming a major player. Azerbaijan faces many of the problems common
to other Caspian Sea nations in its quest to become a major player in
hydrocarbon exports.

While oil companies have lined tip to take part in Azerbaijan’s
hydrocarbon development, issues still stand in the way of delivering
commercially viable hydrocarbons. Azerbaijan sits on the western coast
of the Caspian Sea, and its neighbors include Iran to the south,
Georgia and Armenia to the west, and Russia to the north.

“Transportation of Azerbaijan’s abundant reserves is a major
problem. There is not enough pipeline capacity to export the amount of
oil that can be produced. Also, as Azerbaijan in the past has been a
gas importer, there are no export pipelines available for its
potential gas output. New lines will be necessary for fields that will
be coming onstream, such as Shah Deniz. As one of the largest
gas/condensate fields in the world, it will begin exporting gas in
2006.

Pipelines are the only feasible way to transport oil and gas out of
the Caspian Sea, where most of Azerbaijan’s reserves are located.
With the Caspian landlocked, there is no possibility of using tankers
to ship oil to other locations. Therefore, new pipelines are being
built, and more are contemplated for the future. With some of the
future pipelines still under consideration, Azerbaijan’s location and
Western geopolitics are playing an important role in the location of
these lines.

With current and planned pipelines, Azerbaijan seems to be in
reasonable shape regarding future capacity. Currently, Azerbaijan has
two export pipelines. The “northern route” is the 100,000-bpd
Baku-Novorossiysk pipeline, which sends oil to the Russian Black Sea
coast. h began exporting oil in 1997. Under present plans, this
pipeline’s capacity will be upgraded to 300,000 bopd. (2) The “western
route” is the 115,000-bpd Baku-Supsa pipeline, which sends oil to
Georgia’s Black Sea coast. It began exporting oil in 1999.

Under construction since early 2003, the Baku-Tbilisi-Ceyhan (BTC)
pipeline is expected to increase export capacity five-fold with its
1-million-bopd capacity. This new pipeline is scheduled to begin
exporting oil in early 2005, and it will cover 1,040 mi through
Georgia and Turkey, bypassing the progressively busier Bosporus
Straits. Another new pipeline will be built parallel to this, to
transport natural gas. It will be called the Baku-Tbilisi- Erzurum
pipeline and will handle 233 Bcf of natural gas per year. It should be
finished in 2006, in time for Shah Deniz’s first contracted gas
exports. The locations of the existing, under construction and/or
proposed pipelines in the region are shown in Fig. 3. (12)

[FIGURE 3 OMITTED]

Azerbaijan fully intends to become a major player and has tried to
alleviate the region’s geopolitical tensions. The one conflict that
needs to be resolved is a dispute with Turkmenistan and Iran with
regard to overlapping fields. Hopefully, this can be resolved
peacefully.

One troubling event to international observers is the recent election
of Ilham Aliyev as president in October 2003. He is the previous
president’s son, and he won in a landslide election described as
“falling short of international standards.”

GEORGIA

Georgia is strategically located between the Black Sea and the
oil-rich Caspian, and it has been a focus of potential conflict
between the US, other Western nations and Russia, Fig. 4. (13,14)
Although Georgia has limited hydrocarbon resources, it controls much
of the Caucasus Mountains and the potential pipeline routes through
them. Thus, it is emerging as a key transit country. (15,16,17)

[FIGURE 4 OMITTED]

Georgia was absorbed into the Russian Empire in the 19th
century. Independent for three years (1918-1921) following the Russian
revolution, it was forcibly incorporated into the USSR until the
Soviet Union’s collapse in 1991. Ethnic separation in Abkhazia (18)
and South Ossetia, plus poor governance and Russian military bases,
deny the government effective control over all of the state’s
internationally recognized territory. There has been a discernible
effort by Georgia to approach the West, often at the consternation and
mistrust of Russia. (19)

Widespread corruption in Georgia led to the storming of parliament in
December 2003. Mikhail Saakashvili, a 35-year-old American-trained
lawyer, organized and headed up the nearly month-long street
demonstrations that led to President Eduard Shevardnadze’s
resignation. Georgian parliamentary and presidential elections were
planned for January 2004.

Georgian economy. The dissolution of the USSR precipitated a
significant fall in the overall size of Georgia’s economy. This was
made worse by hyperinflation, and accompanied by an associated fall in
standards of living. The Georgian economy reached a record low in
1992-1994, although the country still enjoys a considerably higher
per-capita GDP than Azerbaijan, at about $5,500. However, recent
statistics suggest that more than half of Georgians are unemployed.

The country risks financial collapse without immediate Western
aid. The economy is in worse shape than is publicly known. Georgia’s
interim leaders are seeking help, not only in financing the new
elections, but even more important, in rebuilding Georgia’s
dilapidated public infrastructure.

Georgia vs. Russia. Russian President Vladimir Putin has expressed
readiness for radical improvement of Russian-Georgian relations. Yet
Georgia accuses Russia of being “barbaric” at the same time that it
wants to improve relations. This is important, as the Georgian
economy and energy needs depend so much on Russia.

One of the main issues of conflict with Russia is the Georgian army’s
inability to deal with Chechen rebels, who have been embroiled in
militant activities in Russia. The would-be, breakaway Russian
republic of Chechnya is crucial for control of the rich oil supplies
of the Caucuses. Georgia and Russia conflicted recently over the
“Pankisi Gorge” on the border with Chechnya, after Tbilisi accused
Moscow of aggression. Russia strongly denies the accusations and in
turn, claims that Georgia has failed to act against Chechen rebels,
who Moscow believes use the gorge as a shelter. Russian politicians
are also angry at US support of the Georgian version of events. (20,
21)

Russia is very much interested in Georgia’s political stability,
because an unstable Georgia can mean hundreds of thousands of refugees
crossing into Russian territory. Also, Georgia’s territory could be
taken by international terrorists, who might launch attacks on Russia
from that site. Russia has long considered Georgia part of its sphere
of influence and is uneasy seeing US troops deployed there.

Georgia and the US. The relationship between Georgia and the US is
growing stronger. The American influence and its role in the recent
political drama is the most vivid example. Shortly after Eduard
Shevardnadze resigned as president, his US-backed successors joined
with US Secretary of State Colin Powell to publicly criticize Russia,
and demand that it remove its troops from Georgia and another former
Soviet republic, Moldova. US Secretary of Defense Donald Rumsfeld’s
visit in December 2003 was an additional show of US support. In
return, Georgia has provided coalition troops in Iraq.

Energy in Georgia. Shortages abound in the energy industry, which is
the most corrupt sector in Georgia and has been for 10 years. Since
1991, Georgia has faced an acute energy crisis. Russia and
Turkmenistan (main exporters to Georgia) dramatically increased the
prices of their energy supplies, and this caused a severe decline in
Georgia’s economy. The situation worsened with destruction of a
stretch of the gas pipeline between southern Russia and Georgia in
1992. It was exacerbated in 1994 by Georgia’s inability to pay for gas
imports. Currently, Georgia imports oil from Iran and continues to
import electricity from Russia and Turkey.

Georgia is important, because it is positioned to become an important
corridor for oil and gas transportation between the Caspian Sea and
Western markets. At least four pipelines are either operational or
planned/under construction: (15,16,17)

* Baku-Supsa Oil Pipeline. In 1999, the Baku-Supsa early oil pipeline
was inaugurated at the Supsa terminal on the Black Sea coast,
beginning the flow of Azeri oil across the Caucasus to market. The
pipeline’s 115,000-bopd capacity can be doubled with additional
pipeline upgrades and facilities. The pipeline is owned by the AIOC
consortium of” Western energy companies.

* Kashuri-Batumi Pipeline. ChevronTexaco has been granted rights to
utilize an existing, yet aging, pipeline from Kashuri (near Tbilisi)
to Batumi (on the Black Sea coast).

* Main Export Pipeline, the Baku-Tbilisi-Ceyhan (BTC)
pipeline. Georgia is set to be the transit country for the Baku-Ceyhan
main export pipeline. When completed, the project should deliver up to
1.0 million bopd at its peak. This project is of regional
significance, as it represents the first direct transportation link
between the Caspian and the Mediterranean, thus avoiding the Bosporus
Straits.

The BTC pipeline should be completed by 2005. The Georgian section of
the pipeline is 248 kin (154 mi) long and will generate substantial
revenues for Georgia. Although BP owns 38% of the venture and ENI
recently took a 5% share, all nine members must make final commitments
to the 1,730-km (1,075 mi) project. Construction of the Georgian
section began in April 2003.

* Trans-Caspian Gas Pipeline Project: Georgia is set to be one of the
transit countries in the Trans-Caspian Pipeline (TCP) project between
Turkmenistan and Turkey. The line’s capacity is expected to be 1.0 Tcf
of gas per year, with about half consumed in Turkey and the remainder
re-exported to Europe.

KAZAKHSTAN

Situated in central Asia, on the edge of the European and Asian
continents, is the world’s largest landlocked country Kazakhstan. It
is four times the size of Texas and holds the largest recoverable
crude oil reserves in the Caspian Sea region. Kazakhstan produces
roughly 1.0 million bopd, or about two-thirds of the region’s total
production. (5)

It is easy to see why, as foreign investment pours into the country’s
oil and gas sectors, that Kazakhstan is beginning to realize its
enormous production potential. Such companies as ChevronTexaco (the
first major Western oil company to enter the region in 1993) have made
Kazakhstan their place to develop some of the world’s largest oil
fields. (22)

In 2003, ChevronTexaco announced plans to invest $4 billion in
Kazakhstan over the subsequent four to five years. (23) The funds will
further develop the company’s three regional projects, TengizChevroil,
the Caspian Pipeline Consortium and the Karachaganak Integrated
Organization. (24)

Russia’s LUKoil also made a similar announcement last December about
investing $3 billion in the Dostyk Block. Comprising two fields, the
block’s reserves are estimated at “several hundreds of millions of
tons of oil.” (24) With sufficient export options in the near future,
and with much infrastructure presently under development, these
announcements, alone, would make Kazakhstan a major producer and
exporter over the next decade.

Kazakhstan consists of three ethnic groups; it is primarily Kazakh, at
almost half of the population, followed by Russian and Ukrainian. The
population is split almost evenly between the Muslim and Russian
Orthodox religions. Although Kazakh is the official language, Russian
is also spoken rather widely, primarily in business.

After the USSR’s demise, the newly created, independent Republic of
Kazakhstan opened its doors to foreign business in 1991. Its economic
growth in recent years has been driven not only by petroleum, but also
by changes in its governing system. Its President, Nursultan
Nazarbaev, a former leader of the Soviet Kazakhstan Communist Party
since 1977, became the new republic’s first interim president. He was
then elected president in the country’s first national elections in
December 1991. Due to a 1995 referendum that extended his term,
President Nazarbaev was re-elected in 1999. He will be up for
re-election again in 2006. (25)

Kazakhstan’s economy. Kazakhstan holds Central Asia’s largest
economy. Because of its booming energy sector, economic 2reforms and
foreign investment, Kazakhstan’s GDP grew 9.5% in 2002 to an estimated
$120 billion. This resulted in an estimated per-capita GDP of about
$7,200. (25) This marked the first time that significant economic
growth was observed over three consecutive years since Kazakhstan’s
independence in 1991.

More than 55% of the country’s revenue is dependent on oil and
gas. The country’s other exports include zinc, copper, titanium, gold,
silver, machinery, coal and meat. Kazakhstan’s industrial sector
depends heavily on the recovery and processing of these natural
resources, as well as on its growing machine fabrication sector that
focuses on construction equipment, tractors, agricultural machinery
and armaments.

Kazakhstan’s economy experienced a decline in the mid-1990s, as a
direct result of the breakup of the USSR and the fall in demand for
Kazakhstan’s traditional heavy industry. The steepest annual decline
was observed in 1994.

Shortly following the decline, the pace of the governmental program of
economic reform and privatization quickened, resulting in a
significant shift of assets away from the state into the private
sector. The 2001 opening of the Caspian Consortium pipeline, from
Tengiz field to the Black Sea, has significantly raised export
capacity while allowing for economic growth. However, despite the
large petroleum sector, Kazakhstan has adopted an industrial policy
designed to diversify the economy away from over-dependence on oil and
gas by developing light industry. (25)

Kazakhstan’s energy sources. Kazakhstan controls a large portion of
Caspian coastline and possesses this freshwater lake’s largest known
oil field (Kashagan). According, the country has absorbed $20 billion
of foreign petroleum investment since the fall of communism. (26)

Combined onshore and offshore proven reserves are estimated to be
between 9.0 billion bbl and 18 billion bbl. This is comparable to the
reserves of Algeria or Qatar. (4) Kazakhstan’s 2002 oil production was
just shy of 1 million bpd, of which about 130,000 bpd were consumed
inside the country. (5) Kazakhstan’s historical oil
production/consumption trend is charted in Fig. 5. Although still a
relatively minor oil exporter, Kazakhstan is on its way to becoming a
significant player in the next 10 years. The country’s proven natural
gas reserves total 65 Tcf; mostly in western Kazakhstan’s Karachaganak
field. (4) These gas reserves rank roughly 20th in the world.
However, despite the large gas reserves, Kazakhstan has only recently
begun to produce more than it consumes, with current output around 0.4
Tcf(1.1 Bcfd). (5)

[FIGURE 5 OMITTED]

Kazakhstan’s oil production grew an average 16% annually between 1999
and 2002, and output has nearly doubled since its independence in
1991. In June 2003, the government announced a new offshore
development program. Through this program, new offshore blocks will be
auctioned off, starting as early as 2004. Kazakh officials hope that
this effort will boost the country’s production to approximately 2.4
million bopd by 2010 and 3.6 million bopd by 2015. (27) This output is
expected to come from the country’s three largest fields–Tengiz,
Karachaganak and Kashagan.

Located onshore, just inland from the shores of the Caspian, Tengiz is
considered to be the world’s deepest super-giant oil field. (22)
According to operator ChevronTexaco, its discovery in 1979 generated
estimated reserves of 6 billion bbl to 9 billion bbl. The field has
been developed by the Tengizchevroil (TCO) joint venture between
ChevronTexaco, ExxonMobil, Kazmunaigaz and Luk-Arco. Tengiz produces
about 285,000 bopd, or approximately one-third of national
production. A new agreement between Kazakhstan and TCO has initiated a
$3-billion expansion project that will increase the field’s capacity
to 450,000 bopd by 2006. (27)

In northern Kazakhstan is Karachaganak onshore oil and gas/condensate
field. It holds reserves comprising more than 2.3 billion bbl of oil
and 16 Tcf of gas. It has a projected 40-year life span at the
current output rate of about 100,000 bopd, with plans for
expansion. (28)

Kashagan field, although still being appraised, is expected to produce
its first oil in 2005, at an initial rate of 100,000 bopd. (27) As
stated earlier, the field is expected to be the second, most prolific
deposit in the world, following Saudi Arabia’s Ghawar Field. (29)
Future production potential is very significant, but current
difficulties that need to be resolved include Caspian ownership,
export routes and infrastructure.

Petroleum transportation. Kazakh oil is exported in three general
directions– westward, northward and southward. Oil heading west is
transported via the Caspian Pipeline Consortium. Additional excess
capacity is shipped on a barge through the Caspian Sea to Azerbaijan.

Oil transported north to Russia is shipped via a pipeline system or
carried on the existing rail network. Finally, the oil shipped south
is typically swapped with Iran. Because of its geographical location
and access to ports on both the Black Sea and Persian Gulf; Kazakhstan
is able to trade some of its oil on the world market. Because of the
expected rapid growth of Kazakhstan’s exports, many efforts are
underway to expand infrastructure to allow a higher export capacity.

One such project, which adds extra export capabilities and connects
the area’s oil deposits with Russia’s Black Sea ports, is the Caspian
Pipeline Consortium (CPC), overseen by the Russian, Kazakh and Omani
governments in conjunction with various international companies. The
pipeline opened in November 2001 at an initial capacity of” 560,000
bopd. (27) CPC recently announced plans to more than double its annual
capacity to 67 million t, or approximately 1.3 million bopd. (30)
Prior to completion of the CPC, nearly all of Kazakhstan’s oil exports
were distributed though the Atyrau-Samara line, a northbound pipeline
linking up to the Russian system.

Many other pipelines have been reported under active or theoretical
consideration. They include a highly ambitious, controversial pipeline
heading eastward to what will be an ever more oil-demanding China, as
well as a subsea pipeline across the Caspian Sea connecting to the
Baku-Tbilisi-Ceyhan project.

Several natural gas pipeline projects are also under consideration or
already in development. Although they are in their infancy, these
lines have the potential to open up markets for Kazakh natural gas.
Further, Kazakhstan could play an important regional role, given that
it serves as a gas transit center for Turkmen and Uzbek gas piped to
Russia and beyond, Fig. 6.

[FIGURE 6 OMITTED]

Kazakhstan-China connection. On its east, Kazakhstan borders China for
approximately 1,000 mi. (25) As the Chinese demand for oil and gas
increases, China has begun exploring options with its neighbor by
making major investments within the Kazakh oil and gas sector. China’s
CNPC recently Joined the Kashagan field consortium. and the firm in
1997 bought 60% of Kazakh oil company Aktobemunaigaz. (31,32) A
pipeline is essential to export oil from Kazakhstan into
China. Feasibility studies for route options are underway and should
be completed by the fall of 2004. (32,33)

Last October, Kazakhstan announced that work would begin in 2004 on
this project, one of the world’s longest pipelines. (34) Building the
pipeline, however, will be a formidable task, with many physical and
political problems looming. Many observers have warned that the
Kazakhstan-China route could be very problematic, due to numerous
obstacles associated with its 3,200-km length. One of the most
important project issues is that China has asked Kazakhstan to deliver
50 million t of oil annually via this pipeline. This is more than
Kazakhstan’s current, total production of 47 million t. The likelihood
of Kazakhstan selling all of its oil to one customer is zero, given
the country’s ambitions for a world role. Initial hopes from several
years ago to complete the entire Kazakhstan-China pipeline by 2005 are
now unattainable.

LITERATURE CITED

(1) “Caspian sea oil and gas exploration update and hearing summary,”
hearing testimony, 106th US Congress, May 16, 2000.

(2) BTC website; BP plc,

(3) Koerner, B., “What if the Caspian region was a major oil
supplier,” Worldlink magazine, World Economic Forum, January/February
2002.

(4) US Energy Information Administration (EIA), Caspian &a Region.”
Key Oil and Gas Statistics, August 2003.

(5) BP Statistical Review of World Energy, June 2003.

(6) BTC website, BP pie. ,
Azeri-Chirag- Gunashli fact sheet.

(7) The World Factbook, Central Intelligence Agency, December 2003.

(8) Azerbaijan fact sheet, Development Data Group, World Bank.

(9) Azerbaijan Country Analysis Brief, Energy Information
Administration, June 2003.

(10) United Nations Resident Coordinator’s Annual Report for
Azerbaijan, 2002.

(11) “About the fun&” State Oil Fund of Azerbaijan website,
http://www. oilfund.az.

(12) An energy overview of the Republic of Azerbaijan,” US Dep’t. of
Energy,

(13) “Georgia’s rose revolution: A made-in-America coup,”
, December 7, 2003.

(14) Caspian development map and pipelines, BTC website, BP pie,

(15) “Georgia: Transit of Caspian Sea region oil and gas.” US Energy
Information Administration, April 2001.

(16) “Pipeline projects in Georgia,” US International Trade
Administration

(17) “Oil & gas production, Georgia, 2000,” US Energy Information
Administration,

(18) The Republic of Abkhazia,

(19) Central Intelligence Agency, Ibid.

(20) Political news, Georgia,

(21) Delisio, C., “A quiet battle in the Caucasus: Georgia between
Russia and NATO,

(22) Kazakbstan Fact Sheet, Eurasia Operations, ChevronTexaco.

(23) “CheveronTexaco to invest $4 Billion in Kazakhstan in next 4-5
years,” TASS Energy Service News Agency, November 26, 2003.

(24) “LUKoil to develop Dostyk Block in Kazakhstan,” NOVECON: Russian
Energy Digest, December 8, 2003.

(25) Central Intelligence Agency, Ibid.

(26) “Kazakhstan seeks Caspian oil cartel,” Reuters, Moscow, December
28, 2003.

(27) Kazakhstan Country Analysis Brief, US EIA, July 2003.

(28) “Kazakhstan: Major oil and natural gas projects,” US EIA, July
2002.

(29) Kazakh oil finds Confirm Caspian as world class,” Energy Compass,
November 25, 2003.

(30) Caspian pipeline consortium to increase oil pipeline capacity,”
Kazakhstan-Gateway, RBC, November 20, 2003,

(31) Kazakhstan: China seeks oil investment with an eye on pipeline,”
Radio Free Europe, March 2003.

(32) “What’s at stake for whom–China,” World Press Review Online,

(33) “Kazakhstan-China gas pipeline study to be ready in 2004,”
Interfax, October 2003.

(34) “Work on mammoth Kazakhstan-China oil pipeline to start next
year,” Agence France-Presse, October 10, 2003.

Randall Collum Jr. graduated from the University of Houston with a BS
degree in chemical engineering in 2001 and is enrolled in the masters
of petroleum engineering program at the same university. He has almost
three years of experience with a major petroleum company and has had
roles as both a production and reservoir engineer in the Gulf of
Mexico Continental Shelf.

Adrian J. Gregorek received a BS degree in mechanical engineering with
honors from Texas A&M University in 2000. He has been employed by a
major petroleum company as both a facilities and subsea engineer,
within the firm’s E&P operations His experience ranges from operations
to project development and execution within Gulf of Mexico deepwater
blocks. His current focus is on subseawork He is working on his
masters in petroleum engineering degree from the University of Houston

Amit Sondhi has just completed his masters degree in petroleum
engineering at the University of Houston. He holds a BS degree in
electronics engineering from North Maharashtra University in India.

Michael J. Economides is a professor at the Cullen College of
Engineering, University of Houston, and the chief technology officer
of the Texas Energy Center Previously, he was the Samuel R. Noble
professor of petroleum engineering at Texas A&M University and served
as chief scientist of the Global Petroleum Research Institute
(GPRI). Before that, Dr. Economides worked in a variety of senior
technical and managerial positions with a major petroleum services
company. His publications include authoring or co authoring 11
professional textbooks and books, including The Color Of Oil, and
almost 200 journal papers and articles. He does a wide range of
industrial consulting, including major retainers by national oil
companies at the country level and by Fortune 500 companies.

COPYRIGHT 2004 Euromoney Institutional Investor PLC.

ASBAREZ ONLINE
TOP STORIES
04/07/2004
TO ACCESS PREVIOUS ASBAREZ ONLINE EDITIONS PLEASE VISIT OUR
WEBSITE AT <;HTTP://

1) New Karabagh Envoy for US, Abiyev Ties Unstable Armenia to Renewed War
2) ANCC, Canadian Foreign Ministry Reps Take-up Timely Issues
3) Krakow Armenian Officials Tell Turkey to Keep Distance on Monument Issue
4) Russian Official Injured in Georgia Explosion
5) Fierce Fighting Sweeps Iraqi Cities

1) New Karabagh Envoy for US, Abiyev Ties Unstable Armenia to Renewed War

YEREVAN (RFE/RL)–The United States will soon appoint a new chief
negotiator in
the long-running international efforts to resolve the Mountainous Karabagh
conflict, official Azeri sources revealed on Wednesday, citing the US
ambassador in Baku.
Azeri news agencies quoted Ambassador Reno Harnish as telling Defense
Minister
Safar Abiyev on Tuesday that Steven Mann, Washington’s special representative
to the Caspian Sea region, will soon take over as the new US co-chair of the
OSCE Minsk Group. Harnish said he hopes that the appointment will give new
impetus to the stalled Armenian-Azerbaijani peace talks. No other details were
reported.
In his current capacity, Mann has for years focused on the development of
Azerbaijan’s and Kazakhstan’s Caspian oil and natural reserves by Western
multinational companies. He also successfully lobbied on behalf of the US
government for the ongoing construction of the Baku-Tbilisi-Ceyhan pipeline
that will pump Azerbaijani and possibly Kazakh oil to the Turkish
Mediterranean
coast.
The multibillion-dollar oil projects, seen as reducing the ex-Soviet states’
dependence on Russia, have been a key motive for the close US involvement in
the Karabagh peace process. The Armenian-Azerbaijani line of contact around
Karabagh lies only several dozen kilometers south of the nearest section of
the
future pipeline.
Meeting with the US envoy, the Azerbaijani defense chief accused the Armenian
side of trying to “obstruct” the $2.5 billion work on the pipeline.
Abiyev also claimed that rising political tensions in Armenia make a renewed
war in Karabagh more likely. “Should the government lose control over the
domestic situation, a war may break out,” he said. As a defense minister, I
see
this and warn the public. We must be always ready to defend the territorial
integrity of our state.”
The US State Department has not yet officially announced Mann’s upcoming
appointment. An Armenian diplomatic source suggested that the information
provided by Harnish was not meant for publication by the Azeri government.
The current US co-chair of the Minsk Group, Rudolf Perina, has held the post
since September 2001. Perina and his Russian and French counterparts were due
to preside over an important meeting between the Armenian and Azeri foreign
ministers which was scheduled to take place in Prague late last week. The
talks
were canceled at Baku’s request.
This was followed by the weekend dismissal of Vilayat Guliyev, Azerbaijan’s
tough-talking foreign minister. Azerbaijani commentators said Guliyev’s
replacement, career diplomat Elmar Mamedyarov, will be more pliant to
President
Ilham Aliyev.

2) ANCC, Canadian Foreign Ministry Reps Take-up Timely Issues

OTTAWA–Representative of Canada’s foreign ministry and Armenian National
Committee of Canada (ANCC) met on April 2 at the ministry building in Ottawa.
ANCC representatives, Chairman Jirayr Basmadjian, and Toros Dimitian held a
two-hour meeting with the ministry’s Director General David Preston, and Peter
Curtis who heads Canada’s Armenia relations office.
Although ANCC representatives stressed the importance of current government
efforts to create dialogue between Canada’s minorities, they nevertheless
expressed concern about the timing of move that coincides with the vote in the
Canadian House of Commons on the Armenian Genocide.
Efforts for potential dialogue–presumably between all minorities–could
possibly overshadow the motion on the Armenian Genocide due for a vote in late
April.
Although the Canadian government opposes the use of the word “genocide,”
explained Preston, it also opposes a vote against motion, and will allow each
member of its party to rule their conscience on the issue.
ANCC representatives detailed the necessity of establishing a Canadian
embassy
in Armenia, considering the vast Canadian Armenian community.
They also covered the political situation in the Caucasus, specifically the
absurdity of attempts to regulate the Karabagh conflict without the
participation of Mountainous Karabagh Republic (MKR) in negotiations.
Though the meeting participants did not agree on all matters, they
nevertheless agreed that the talks were constructive and beneficial.
Preston and Curtis requested a follow-up meeting in the near future with ANCC
representatives.

3) Krakow Armenian Officials Tell Turkey to Keep Distance on Monument Issue

YEREVAN (Arminfo)–A Monument to the Victims of the Armenian Genocide of 1915
has been erected in Krakow, Poland, and will officially be unveiled on April
17.
There has been some degree of controversy surrounding the monument, with the
Turkish embassy in Poland repeatedly coming out against the use of the word
“Genocide” on the Monument.
Not surprised by the move, Armenia’s ambassador to Poland Ashot Hovakimyan,
said the time will surely come for Turkey to recognize the Armenian genocide,
and suggested that a monument dedicated to the victims of the Armenian
Genocide
be erected in Istanbul.
Hovakimyan thanked Krakow authorities for their ability to brave the
onslaught
of protests by Turkish diplomats, and expressed confidence that the incident
would not bring about a cooling off of Turkish-Polish relations. “The more
Poland knows about Turkey, the better,” Hovakimyan added.
The Archimandrite of the Krakow Monastery Tadeush Isakakyan-Zaleski, in an
open letter to the Turkish Ambassador, stated that any self-respecting
historian could not but confirm the historical fact of the Armenian Genocide,
and that disputes around the word “Genocide” are senseless. He also asked the
Ambassador to stay out of the issue.

4) Russian Official Injured in Georgia Explosion

TBILISI (AP)–The commander of Russian forces in the former Soviet republic of
Georgia was injured in a bomb blast Tuesday night, officials said Tuesday.
Gen. Alexander Studenikin was taken to a hospital with injuries that are not
believed to be life-threatening, Georgian deputy prosecutor Kakha Koberidze
said.
Koberidze said the blast occurred as the general walked to his home from the
Russian troops’ headquarters in the capital Tbilisi, on territory under
Russian
control. He said preliminary information indicates it was set off by remote.
The Russian Defense Ministry confirmed Studenikin was injured in an
explosion,
the ITAR-Tass news agency reported.
Russia maintains two bases and about 5,000 troops in Georgia as holdovers
from
the Soviet era when the republic was a key element in the Kremlin’s military
strategy. It has about 150 tanks, 240 armored vehicles and 140 artillery
pieces
on the bases.
After the collapse of the Soviet Union, Russia withdrew troops from two other
bases, and Georgia has been pushing for the withdrawal of the remaining two.
Moscow has said the withdrawal could take from seven to 11 years, but Georgia
has pressed for complete pullout in three years.
The Georgians have been nervous that Moscow might use the bases to support
the
defiant leader of Ajaria, the Black Sea province which has been reluctant to
cede any powers to Georgian central authorities. One of the Russian bases is
located in Ajaria.
Despite the tensions over the bases, Russia-Georgian relations have shown
signs of thawing since Georgian President Mikhail Saakashvili was elected in
January, after Eduard Shevardnadze resigned under pressure of mass public
protests.
Georgian Security Council secretary Vano Merabishvili said he suspects those
developments could be behind the bombing.
“I think that this has happened because there’s been an improvement in
relations recently between Georgia and Russia and our enemies don’t like warm
relations between our countries,” he said.
Koberidze said the explosion would be investigated jointly by Georgian and
Russian authorities.

5) Fierce Fighting Sweeps Iraqi Cities

“OUR RESOLVE IS FIRM; OUR RESOLVE IS UNSHAKABLE AND WE WILL PREVAIL”
–WHITE HOUSE SPOKESMAN SCOTT MCCLELLAN

FALLUJA (Reuters)–US-led forces are battling Sunni Muslim guerrillas and a
spreading Shi’ite uprising, as Iraqi anger was inflamed by a blast in the
grounds of a mosque that witnesses say killed 25 people.
In the last three days 35 American and allied soldiers and at least 200
Iraqis
have been killed in some of the heaviest fighting since the fall of Saddam
Hussein nearly a year ago.
The spiraling two-front war, with new flashpoints flaring across the country
as backers of radical Shi’ite cleric Moqtada al-Sadr take up arms, is calling
into question US plans to transfer sovereignty to Iraqis on June 30.
US President George W. Bush–campaigning for re-election in November with
opinion polls showing plunging support over Iraq–held phone talks with close
ally Prime Minister Tony Blair, but officials dismissed any suggestion of a
crisis.
But some countries with troops in Iraq signaled the situation was growing
serious. Ukrainian troops pulled out of the eastern city of Kut after clashes
and regrouped at a base camp. Japan said its troops would suspend
reconstruction work in Samawa, in the south, because of security concerns.
Battles raged between US Marines and guerrillas in the Sunni towns of Falluja
and Ramadi west of Baghdad.

NEW US “CASUALTIES”

A US military spokesman said there were five Marine “casualties” in
Falluja on
Wednesday, but it was not clear if any had been killed.
In Falluja, witnesses said the office of a Muslim organization in the grounds
of a mosque was hit by a rocket. Local residents said at least 25 people were
killed.
A US official at the Pentagon said a bomb had been dropped but “did not hit
the mosque–that was made very clear to us”.
In a small alleyway in the back streets of Ramadi, a dozen Iraqis crouched on
the floor of a house, sheltering from gunfire as Marines and masked insurgents
fought outside.
In a room close by, women and children were crying.
Mosques broadcast calls for a holy war against US troops, blasts echoed
across
the town and black smoke rose from a building blocks away.
Twelve Marines were killed on Tuesday in a seven-hour battle in
Ramadi–one of
the costliest single losses for US forces since the war that toppled Saddam
began last March.
A US soldier was killed in a rocket-propelled grenade attack in Baghdad on
Wednesday, bringing to 443 the number of US troops killed in action in Iraq
since last year’s invasion.
Since Sunday, clashes across Iraq have killed 33 US troops, a Ukrainian
soldier and a Salvadoran soldier.

MAJOR US OPERATION

The US military launched a major operation this week to secure Ramadi and
Falluja, where four US private security guards were killed last week and their
bodies set ablaze and mutilated by a jubilant crowd of Iraqis.
North of Baghdad, a US helicopter landed after being hit by gunfire. The US
army said there were no casualties.
Followers of Sadr have fought running battles with US-led forces in the
southern cities of Nassiriya, Amara, Kut, and Kerbala.
An aide to Sadr told a news conference some US soldiers had been captured in
the fighting.
“Some tribes have captured some occupation forces on the streets,” Qays
al-Khazali told a news conference in the Shi’ite holy city of Najaf.
US military spokesman, Brigadier General Mark Kimmitt, said US-led forces
would destroy Sadr’s Mehdi Army militia and that the cleric would be arrested.
“In the central and southern regions of Iraq the coalition and Iraqi security
forces are conducting operations to destroy the Mehdi Army,” he said.
The upsurge in violence has prompted critics of Bush to suggest US forces
face
a Vietnam-style quagmire.
Bulgaria summoned ambassadors of the United States, Britain, Spain and Poland
to the foreign ministry on Wednesday asking for back-up for 450 Bulgarian
soldiers stationed in Kerbala.
The base has come under attack several times by Shi’ite militiamen, and a
Bulgarian civilian truck driver was killed in an attack on a convoy in
southern
Iraq on Tuesday.
Sadr has appealed to all Iraqis, whatever their religion, to help expel the
US-led occupying forces.
“This insurrection shows that the Iraqi people are not satisfied with the
occupation and they will not accept oppression,” he said in a statement on
Tuesday.
Iraq’s top Shi’ite cleric Ayatollah Ali al-Sistani on Wednesday condemned the
way US-led forces were tackling the uprising and called for calm on all sides
and an end to violence.
Bush has vowed the campaign by Sadr’s supporters would not derail
Washington’s
plans.
“We will pass sovereignty on June 30,” he told a rally in Arkansas on
Tuesday.
“We’re not going to be intimidated by thugs and assassins.”
A US opinion poll on Monday showed support for Bush’s handling of Iraq at a
new low of 40 percent, with 44 percent wanting US troops withdrawn.

All subscription inquiries and changes must be made through the proper carrier
and not Asbarez Online. ASBAREZ ONLINE does not transmit address changes and
subscription requests.
(c) 2004 ASBAREZ ONLINE. All Rights Reserved.

ASBAREZ provides this news service to ARMENIAN NEWS NETWORK members for
academic research or personal use only and may not be reproduced in or through
mass media outlets.

From: Emil Lazarian | Ararat NewsPress

Russian aircraft takes part in CIS command post exercise

Interfax-AVN military news agency web site, Moscow
7 Apr 04

Zarya, Moscow Region, 7 April: Aircraft deployed at the Russian Kant
air base (Kyrgyzstan) will for the first time take part in the command
post exercise (CPX) of the CIS unified air defence system, which
starts on Wednesday 7 April .

“Aircraft, deployed at the Russian Kant air base in Kyrgyzstan, will
for the first time take part in the command post exercise of the CIS
unified air defence system, which means that the air base has been
completely integrated into this joint combat system, established by
our states,” Russian Air Force Commander-in-Chief Vladimir Mikhaylov
told Interfax-Military News Agency. He supervises the exercise from
the Russian Air Force central command post.

“Another important feature of today’s exercise consists in combat
employment of A-50 AWACS aircraft in order to increase the radar
coverage in various directions of the ongoing exercise,” he
said. According to him, the exercise will also see participation of
long-range aircraft, which will carry out air refuelling in the course
one of the missions.

“Russian Su-24 Fencer and MiG-31 Foxhound are expected to conduct
joint manoeuvres with Belarus and Kazakh attack aircraft and fighters,
as well as to land on airfields of participants in the exercise,”
Mikhaylov noted.

The CPX sees participation of air and air defence forces of the
following eight CIS member-states: Armenia, Belarus, Kazakhstan,
Kyrgyzstan, Tajikistan, Uzbekistan, Ukraine, and Russia. According to
Mikhaylov, over 100 air and air defence forces units of CIS
member-states, as well as over 80 aircraft will participate in the
exercise.

The exercise is aimed at refining over 10 various issues, pertaining
to improving CIS airspace security.

RUSSIA, CIS HOLD MAJOR AIR DEFENCE EXERCISES

ITAR-TASS news agency, Moscowan
7 Apr 04

Moscow Region (Russian Air Force central command post), 7 April: One
of the features of the current command and headquarters exercise being
held by the CIS joint air defence system is the use of A-50 long-range
radar aircraft, Russian Air Force Deputy C-in-C Lt-Gen Aytech Bizhev
said today.

The A-50 is fitted with the Shmel radar station, developed by the
Moscow Science and Research Institute for
Instrument-Building. According to public-domain sources, it can
simultaneously track 50 airborne targets at a range of 230 km and
guide 10 interceptors towards them. Air force and air defence units of
eight CIS states – Russia, Armenia, Belarus, Kazakhstan, Kyrgyzstan,
Tajikistan, Uzbekistan and Ukraine – are taking part in a command and
headquarters exercise of the Commonweath’s joint air defence
system. Over 50 CIS air defence command posts are involved, plus about
60 aircraft including Su-29, Mig-29 and Mig-31 fighters, Su-25 ground
attack aircraft, Su-24 front-line bombers and Tu-22M3 long-range
bombers. The Russian Air Force unit based in Kant, Kyrgyzstan, is
taking part in such exercises for the first time.

Russian Air Force C-in-C Vladimir Mikhaylov is in overall charge from
the central command post. The main purpose of the exercise is to
rehearse the repulse of sudden airspace incursions and prevent hijacks
by terrorists. The Tu-22M3s are “imitating airspace violators in the
Caucasus, East European and Central Asian regions. At the same time
the Su-24s are carrying out manoeuvres and landings at bases in Russia
and Belarus, and Russian and Kazakh Mig-31s are doing something
similar. (Quotes not closed as in original)

Asked if NATO aircraft will be used as notional targets during today’s
manoeuvres, Gen Bizhev said: “We track them by electronic means. If
NATO aircraft breach established flight rules, we shall take
appropriate action.”

Bizhev also said that “these exercises should not be seen as a
response to NATO’s deployment of warplanes in the Baltics. We plan
exercises like these ones every year and they are routine.”

Mikhaylov himself added that the exercises confirm that “the CIS joint
air defence system is operating reliably”.

(An inflight refuelling tanker had been noted taking off from NATO’s
base at Manas, near Kant, ITAR-TASS reported at 0807 gmt. “They’re
carrying out reconnaissance, of course. They know about today’s
exercises, which are being watched with great interest at all military
bases in adjacent countries,” Gen Bizhev was quoted as saying.)

KAZAKH DEFENCE MINISTER SAID TO PRAISE CIS AIR DEFENCE EXERCISES

Interfax-Kazakhstan news agency
7 Apr 04

ALMATY

The Kazakh defence minister, Army Gen Mukhtar Altynbayev, has praised
the interaction and coordination between the forces of the CIS joint
air defence system (of Russia, Armenia, Belarus, Kazakhstan,
Kyrgyzstan, Tajikistan, Uzbekistan and Ukraine ) on ensuring security
in the Commonwealth’s airspace which were demonstrated at a joint
exercise today.

A press release circulated by the Kazakh Defence Ministry has
said. The press release says that during the exercises the alert
forces and the means of the CIS joint air defence system have drilled
the tasks of combat alertness under the circumstances of the
aggravation of situation in the regions of the (CIS) collective
security.

The press release says that Su-27, MiG-29, MiG-31 fighter jets, Su-25
attack aircraft, Su-24 front-line bombers and other air technologies,
command centres of the air defence systems of the CIS states,
subdivisions and units of the air defence missile and radar troops,
the troops of signals and logistics took part in the exercises.

According to the press release, air patrols, detecting and
intercepting an aggressor in the air, escorting and providing aid to
aircraft that were suffering damage were carried out during the
exercises.

The distinctive feature of the exercises, the press release
emphasizes, is that the forces and the means that are on combat alert
and ensuring the security of the CIS countries’ airspace took part in
the exercises.

According to the press service, troops from the Kazakh air defence
forces, subdivisions from Karaganda, Taldykorgan, Balkhash and
Zhetygen air bases and air defence missile and radar troops took part
in the exercises.

RUSSIA AND CIS HOLD AIR DEFENCE EXERCISES, NATO WATCHES FROM SIDELINES

ITAR-TASS news agency, Moscow
7 Apr 04

Moscow Region (Russian Air Force central command post), 7 April: Air
force and air defence units of eight CIS states – Russia, Armenia,
Belarus, Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan and Ukraine –
are taking part in a command and headquarters exercise of the
Commonweath’s joint air defence system.

Over 50 CIS air defence command posts are involved, reporters were
told today by Lt-Gen Aytech Bizhev, the (Russian) Air Force deputy
C-in-C with responsibility for the joint air defence system. Also
taking part are about 60 aircraft including Su-29, Mig-29 and Mig-31
fighters, Su-25 ground attack aircraft, Su-24 front-line bombers,
Tu-22M3 long-range bombers and also intelligence-gathering aircraft.

The Russian Air Force unit based in Kant, Kyrgyzstan, is taking part
in such exercises for the first time, Gen Bizhev said. An inflight
refuelling tanker took off from NATO’s base at Manas near Kant
today. “They’re carrying out reconnaissance of course. They know about
today’s exercises, which are being watched with great interest at all
military bases in adjacent countries,” Bizhev stressed.

Asked if NATO aircraft will be used as notional targets during today’s
manoeuvres, he said: “We track them by electronic means. If NATO
aircraft breach established flight rules, we shall take appropriate
action.”

Bizhev also said that “these exercises should not be seen as a
response to NATO’s deployment of warplanes in the Baltics. We plan
exercises like these ones every year and they are routine.”

(The point of the exercise was to rehearse the “repulse of sudden
airspace incursions and prevent hijacks”, a later ITAR-TASS report, at
1027 gmt, said. It added that Russian Air Force C-in-C Vladimir
Mikhaylov was in overall command.)

Azat Artsakh, Republic of Nagorno Karabakh (NKR)
April 4, 2004

MINE CLEARANCE IS URGENT IN KARABAKH

On March 30 NKR minister of foreign affairs met with the director of
the international program of mine clearance and displacement of
unexploded ammunition Matthew Hovel. The program is implemented by the
British humanitarian organization The HALO Trust which has been
operating in Nagorni Karabakh since 1995. Mr. Hovel, whose term of
service has ended in Nagorni Karabakh, introduced to the minister the
new representative of the program in NKR Ed Row. He thanked the
government of the republic for providing favourable conditions for
their activities and great assistance to the implementation of the
mission of The HALO Trust. In his turn, Ashot Ghulian, the minister of
foreign affairs, mentioned that even 10 years after the cease-fire the
problem of mine-clearance remains urgent in NKR. The minister of
foreign affairs pointed out the willingness of the NKR government to
continue the works of mine-clearance, which is essential to providing
the security of the population and the economic development of the
republic. Matthew Hovel said The HALO Trust will continue its
activities in Karabakh for several years. At the end of the meeting
Ashot Ghulian thanked the organization for their humanitarian programs
in Karabakh and stated the willingness of the republic authorities, in
particular the Ministry of Foreign Affairs to continue assisting to
the organization.

AA.