Iranian-Azerbaijani dispute adds new sense of urgency to Caspian deliberations

by Charles Coe

A new sense of urgency was injected into the lingering question of the legal status of the Caspian Sea when Iran employed the threat of military force against two Azerbaijani research ships working in the southern portion of the sea. On the evening of July 23, an Iranian warship trained its weapons on the Geofizik-3 and demanded that it and an accompanying vessel depart from waters that Iran considers to be within its claimed 20 % portion of the Caspian.
Within hours, Baku lodged a formal protest with Tehran over the action, which forced the ships to withdraw from the Alov-Araz-Sharg concession area, where BP is serving as operator under a contract with the Azerbaijani government. The two ships were on a routine 10-14 marine survey of the area's seabed in anticipation of drilling that was tentatively scheduled to begin in 2002. On July 23, Azerbaijani Prime Minister Artur Rasizade met that night with Iran's ambassador to Baku, Ahad Gazai, and handed him a diplomatic note protesting Iran's actions.

According to the Azerbaijanis, an Iranian military aircraft flew over the Azerbaijan research vessels Geofizik-3 and Alif Hadjiyev for several hours during the afternoon of July 23 at a location some 150 km southeast of Baku. A little after 8:00 p.m. that evening, an Iranian warship approached Geofizik-3 and demanded that the two vessels leave the area. The captain of the Geofizik-3 and a BP representative onboard protested the demand, but the Iranian gunboat responded by targeting its weapons on the Geofizik-3. In response, the two ships returned to port in Baku.
"The government of Azerbaijan, in view of this incident, is resolutely protesting at and demands for an end to be put to the activities of Iranian soldiers in the Azerbaijani Caspian sector," the diplomatic note said. "These activities are contradictory to and could hinder the friendly relations between the two neighbouring countries. The Azerbaijani side is expecting an explanation of motives of this incident from Tehran."
Rasizade was also quoted as saying. "The Iranian side has given way to a gross violation of international norms." He added that such "aggressive and unceremonious" actions could seriously damage bilateral relations. Also attending the meeting were Natik Aliyev, president of the State Oil Company of Azerbaijan (SOCAR); SOCAR Vice President Khoshbakht Yusifzade; Deputy Foreign Minister Araz Azimov; and representatives of BP.

The incident comes but a few weeks before a scheduled visit to Iran in August by Azerbaijani President Haydar Aliyev. Whether that visit will now go ahead remains to be seen. President Aliyev's response to the incident has been to order the formation of a commission designed to discuss economic, trade and humanitarian issues with Iran. Relations between the two Caspian neighbours has never been all that good, with differences ranging from questions concerning Islam to Iran's good relations with Armenia, to Azerbaijan's political and economic closeness to western countries --particularly the US.
Ambassador Gazai tried to take a conciliatory stance on the incident, saying on July 24 that Iran "had never wished for such a situation to arise. The latest events cannot bring injury to bilateral relations because the interests of both countries are tied. Iran more than once has stated the intolerability of carrying out such work in disputed territory."Iran had expressed its concerns to Azerbaijan about the latter's plans for the Alov-Araz-Sharg block, which Tehran refers to as Alborz.

Iran's Foreign Ministry told the Azerbaijani charge d'affaires in Tehran on July 21 that it opposed Baku's plans to allow foreign oil companies to continue operating in a region of the Caspian that Iran considers part of its territory. The Foreign Ministry said that Iran considers invalid any exploration contract concerning the Alborz field and, according to Tehran radio, the ministry warned the charge d'affaires that "Azerbaijan will be responsible for any consequences of such an activity."
A communique issued by Iran's Oil Ministry on July 23 warned international oil companies against conducting activities in the Iranian sector of the Caspian Sea. "Should a company attempt to undertake operations in the said zone, the relevant bodies would prevent that and the oil ministry would refrain from any kind of deal or contract with that company," the communique said. Iran considers void any agreement signed with other Caspian states with regard to activities in Iranian waters, it added.

Meanwhile, the incident provided Turkmenistan with the opportunity to restate its grievances against Azerbaijan. A diplomatic note delivered to the Azerbaijani Foreign Ministry on July 27 said: "Azerbaijan continues to carry out oil work, including exploration work, in disputed territories of the waters of the Caspian. The [Turkmenistani] side considers such activities by Azerbaijan as absolutely illegal and considers them as going against the interests of the other Caspian littoral states."
Relations between Bakuand Ashgabat have also taken a dive in recent weeks, with Turkmenistan withdrawing its ambassador from Baku. Turkmenistan has insisted that Azerbaijan stop the development of the Azeri-Chirag-Guneshli (ACG) oilfields, which lie within the block awarded to the BP-led Azerbaijan International Operating Company (AIOC). Ashgabat claims that part of this block is within Turkmenistani waters. The two countries are also contesting the offshore oil field known alternatively as Kyapaz and Serdar.
"Having made declarations on the importance of reaching agreement on the fair division of the sea, the Azeri side nevertheless unilaterally and without consideration of the opinions and in breach of the rights of the other states, announces the priority of its rights over a number of fields in the Caspian and continues developing them," the diplomatic note said. It added: "The Foreign Ministry of Turkmenistan calls on the Azeri side to stop or the side breaching the norms of international law will be answerable for the consequences."

Both Turkmenistan and Iran have been slow to explore and development what resources may lie in their respective sectors of the Caspian, whereas Azerbaijan has actively pursued a policy of exploration and development during the 1990s, with great interest from foreign oil companies. For its part, Kazakhstan called on Iran and Azerbaijan to "avoid unjustified actions," and settle the dispute in the manner of good neighbourliness by the way of constructive dialogue and civilized discussion."
Meanwhile, BP has suspended all activity in the Alov-Araz-Sharg block. It said that its work in offshore Azerbaijan was in accordance with signed contracts with the Azerbaijan government and that it was implementing exploration and development of oil contracts on a legal basis. BP said that territorial disputes were matters for the two governments to resolve.
The Alov-Araz-Sharg PSA was signed in London in 1998, with SOCAR holding 40 % of the contract. Remaining shares are held by BP, with 15 % (operator); Statoil, 15 %; ExxonMobil, 15 %; Turkey's TPAO, 10 %; and Canada's Alberta Energy, 5 %. The contract area covers 1,400 sq km and is the largest offshore tract awarded by Azerbaijan. Last year, BP conducted a number of seismic tests in the concession.

Before the dissolution of the Soviet Union, there was a gentlemen's agreement between Moscow and Tehran that the Caspian would be demarcated by the Astara-Hosseingholi line. Since the break-up of the USSR, however, Iran has taken the position that it is entitled to 20 % of the Caspian Sea. This political stance means that Iran claims an area of the southern Caspian that takes the shape of a wedge that extends from the Astara-Hosseingholi line and encroaches on portions of the sea claimed by both Azerbaijan and Turkmenistan.
Meanwhile, Russia, Kazakhstan and Azerbaijan have signed agreements that endorse a median-line division of the Caspian as a method of determining the sea's legal status. If eventually this proposal is adopted, Iran will get a sector amounting to only 13 % of the sea. A summit of Caspian Sea leaders it scheduled to take place in Turkmenistan in October, but this gathering has been postponed twice before and it could certainly be delayed again.
However, if it does take place, it will be interesting to see how the positions line up. Neither Iran nor Russia is thought to be in any real hurry to have the matter resolved. Moscow is keen to reassert its influence over the area, especially with regard to crude exports. And Iran, currently somewhat hamstrung by the sanctions outlined in the US Iran-Libya Sanctions Act (ILSA), would prefer to see Caspian oil exports travelling to its southern ports, among other things.

By calling out the navy, Iran has made its determination at this point clear, but it is Russia's position, despite its bilateral agreements with Kazakhstan and Azerbaijan for a median-line division, that remains veiled. And the Russian government's role in bringing the issue of the legal status of the Caspian to a successful conclusion will certainly give a good indication of how the Kremlin wants hydrocarbon development in the region to progress.