BOFIT Viikkokatsaus / BOFIT Weekly 2018/35

On August 12, the five littoral states surrounding the Caspian Sea (Azerbaijan, Iran, Kazakhstan, Turkmenistan and Russia) signed a convention on administration of rights to the water resources and territorial bounds, easing construction of underwater oil & gas pipelines crossing the territorial zones and banning access of non-littoral military forces to the area. The convention makes the parties committed to protecting the Caspian Sea's rich biodiversity, for which some areas are already seriously polluted.

The long-awaited agreement, over 20 years in the making, still leaves open critical questions about rights to natural resources underlying the vast seabed. The Caspian basin's huge oil & gas potential has long been recognised and is already partly utilised. For example, the Kashagan oil field on Kazakhstan's coast was discovered in 2000. It accounts about 10 % of the country's oil production at present, and that share is expected to keep growing. Jurisdiction over some Caspian Sea oil & gas deposits is disputed, and the new agreement does not reconcile the situation.

Under the new treaty, construction of oil & gas pipelines only requires permission from those countries through which the pipeline runs, and not all littoral countries as earlier. Concerns have been raised, however, about the effectiveness of eased permissions if other littoral countries can use environmental laws to dispute oil & gas pipelines located in the area. The issue is especially important for Turkmenistan, which has long planned a pipeline from its Caspian Sea oil & gas fields to Azerbaijan and further to European markets. Kazakhstan is also planning to connect its oil field pipeline to Europe via Azerbaijan. Russia and Iran, which look askance at competition on Europe's energy markets, earlier used environmental protection rules to block pipeline projects proposed by others. Discussions among the parties to the convention are expected to continue to resolve outstanding issues.