Kazakhstan Signs Caspian Sea Accord

MOSCOW (Reuters)–Russia and Kazakhstan signed an agreement on Monday dividing the northern sector of the Caspian Sea–the first such deal to clarify borders between states surrounding the oil- and gas-rich body of water.

The Caspian contains reserves of oil and gas estimated at up to 15 billion tons of oil equivalent–and has been touted as the world’s next great oil province. But development of its hydrocarbon resources has been held up by the absence of any legal clarity over the status of the water in which the reserves are located.

The accord–signed by President Boris Yeltsin and Kazakh leader Nursultan Nazarbayev–could pave the way for delineating the sea between all neighboring republics–allowing further energy development–analysts said. The document maps out a frontier beneath the Caspian–running along the seabed–but leaving the water itself in common hands.

The agreement allows each side to regard subsea resources on either side of the frontier as the property of the state in whose sector they fall–therefore providing legal protection to allow extraction of oil and gas to go ahead at last. It marks a growing trend towards reaching agreement on the thorny issue which has been building for some months.

"More countries will start to sign up–the momentum will be built and ultimately there will be an overall agreement between the bordering countries," said analyst Jim Henderson of MFK Renaissance in Moscow.There are strong economic reasons for other countries to follow suit–he added. "The international investment community will clearly direct its funds towards those areas where the risks are least."

The Caspian is surrounded by five sovereign states–Russia–Kazakhstan–Turkmen’stan–Iran and Azerbaijan. Until 1991–there were only two littoral states – Iran and the Soviet Union. But the collapse of the Soviet Union meant three new republics–Turkmen’stan–Azerbaijan and Kazakhstan–all wanted a share of the water they enclose. For all these newly-created countries–the potential oil and gas wealth under the water represented their best chance of getting rich quickly. The obstacle was that no decision could be reached on how–or even if–the sea should be carved up.

Both Russia and Iran took the view that the Caspian was legally a lake–not a sea–and so any resources should be the joint property of all the states surrounding it. The newly independent states took the line that it was a sea and should be carved up with national borders clearly dividing it into different areas–to be considered as integral parts of the territory of the states in question.

Iran is still holding out for a condominium involving joint ownership of the resources–but analysts say a softening of its position may soon be seen. "Iran is keen that at least some of the Caspian oil should go south through its territory to the (Middle East) Gulf," said Julian Lee–senior energy analyst at the Center for Global Energy Studies in London. "There could be room for negotiation between Kazakhstan and Iran–and between Turkmen’stan and Iran–that in return for supporting the division of the Caspian–then pipelines will be built," he said."Russia has come to the conclusion that with its other interests in the Caspian–it serves its purposes better to agree on a sectoral division of at least the sub-surface resources," said Lee.

"It will hope to preserve its economic and political interests through the involvement of companies like LUKoil and through pipelines from the Caspian running through Russia," he added–noting that Iran was already moving closer to the interests of western oil companies–citing the country’s offering of major onshore blocks to foreign investors in London last week. "They’re the least willing at the moment but ultimately they’ll come round," he said.

Turkmen leader Saparmurat Niyazov began a visit to Iran on Monday and the Iranian news agency IRNA said the division of the Caspian was on the agenda. Niyazov called for "a wise and just division of the Caspian resources so that none of the littoral states incur losses."

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