Despite its name, the Caspian Sea by strict definition is a very large lake. The body of water that historically marks the boundary between Europe and Asia has no contiguous connection with any other outlet that would link it with the open oceans, so strictly speaking cannot be called a sea.
That might seem the ultimate pedantry, but actually it has profound implications for energy policy in the crucial central Asian and East European regions, with big knock-on effects for Middle East energy economics.
The Caspian basin is strategically important as the place where the tectonic plates of empires — the Russian, the Ottoman and the Persian — banged up against each other for centuries. But it has always been one of the world’s great energy-rich zones.
In 1900, as oil expert Daniel Yergin describes in his classic study “The Prize,” some 50 percent of the world’s crude oil went through the city of Baku, then part of the Romanov empire, now the capital of Azerbaijan.
Most of the rest, incidentally, came from Texas, USA, with virtually zero coming from the Middle East. How times have changed.
Back then, the status of the Caspian — sea or lake — did not really matter, because it was effectively controlled by Russia to the north and Persia/Iran to the south. The technology to exploit deep-sea energy sources did not exist, so both countries drilled on the shorelines and in the very shallow littoral areas where they found oil.
The Caspian will be declared a sea at last, paving the way for a convention to carve up areas of energy exploration in the region.
Frank Kane
That status quo existed for most of the last century, until in 1991 the Soviet Union, successor to the Romanov empire, broke up. Now, there are not two sovereign countries on the shores of the Caspian, but five, with Azerbaijan, Kazakhstan and Turkmenistan emerging from the Soviet collapse.
Each wants a share of the estimated 50 billion barrels of oil and nine trillion cubic meters of gas off their shores, but cannot agree as to how far out their drilling rights should go. If the Caspian is regarded as a sea, territorial limits can be agreed according to International maritime law, whereas no such provisions exist for lakes.
At a meeting in the Kazakh city of Aktau earlier this month, the five countries agreed: the Caspian will be declared a sea at last, paving the way for a convention to carve up areas of energy exploration in the region.
The big winners are Azerbaijan, Kazakhstan and Turkmenistan, who stand to gain a bigger area than they had before, as well as potential agreement on joint plans to exploit the Caspian’s resources.
By far the most important of these is the Trans Caspian Pipeline, or TCP, a project long on the drawing boards of some of the biggest contractors in the world. The TCP would ship energy products (mainly natural gas, but maybe oil as well) across the Caspian from Turkmenistan to Azerbaijan, whence it would be channeled into the European energy system by way of pipelines through Turkey to eastern Europe, perhaps even direct to southern Italy.
It would be a big game changer in European energy economics, allowing the continent to become less reliant on Russian supplies that come through more volatile parts of eastern Europe, such as Ukraine.
The Russians, it is fair to say, do not like the idea of the TCP, and will probably drag their feet on implementing the practical proposals of the Aktau agreement that would allow it to be completed. Security-conscious Russia is also likely to seek assurances that it retains overall naval control of the Caspian.
Iran also does not come out of Aktau particularly well. It ends up with the smallest and least resource-rich part of the Caspian, and is also therefore likely to try to delay final implementation.
So there are hurdles to a full agreement that would allow this potentially rich energy resource to be fully exploited, but adding such large reserves to the global oil and gas equation would complicate the delicate mathematics of OPEC, in which Saudi Arabia is the leading player.
It is not all down side for regional and global energy players, however. If — a big if — a deal was done some time in the future to fully implement Aktau, it would provide considerable opportunities for Western and Middle East energy leaders to extend their business — in oil services, refining, transportation and retail, for example — further north from the Arabian Gulf, building a presence in this vital area.
So, the Caspian is a sea after all. But it is still landlocked in the geopolitical rivalries of the region.
- Frank Kane is an award-winning business journalist based in Dubai. Twitter: @frankkanedubai