After the collapse of the USSR Kazakhstan's energy resources became an area of vigorous diplomatic struggle between major world powers, including Russia. In the new geostrategic situation both the economic and the political importance of these resources in Russia's CIS strategy increased substantially. Initially Russian policy was motivated by immediate economic concerns but later, with identification of Russia's new national interests, geopolitical considerations moved to the fore. At first sight, Russian economic interest in Kazakhstan's energy resources seemed unnecessary. Russia's own energy reserves were several times those of Kazakhstan. According to 1991 assessments, Russia possessed 86% of the former USSR's proven oil , 86% of its gas and 70% of its coal reserves, versus Kazakhstan's 14%, 2% and 12% respectively.(1) In 1992 Kazakhstan's oil output was only 5.56% of Russia's.
The Russian oil industry had been experiencing difficulties for some time, due to lack of investment and deteriorating infrastructure. Russian crude oil output had been shrinking steadily for years, but the most dramatic fall occurred in 1992. The Russian Ministry for Fuel and Power Engineering spotted the unfavourable trend as early as April, and warned that oil production in 1992 would be 360 million tonnes, 90 million tonnes less than in 1991.(2) The gravity of the problem was revealed at a government conference in the Kremlin on 30 May 1992, devoted to improving the performance of the Russian oil and gas complex. The conference promulgated a set of measures to revitalise the industry, including developing new oil and gas fields and encouraging foreign investments.(3) Thus in 1992 Russia's immediate concern was to stabilise its own oil and gas production.
Russia's enormous gas reserves ensured that it could supply its domestic and foreign markets for many years to come.(4) The situation regarding proven oil reserves was not as good, but it would be a long time before they fell too low to meet domestic demand. A 1993 estimate by the Minister for Fuel and Power Engineering indicated that domestic demand, at 240 million tonnes per year,(5) was well below annual output. But Moscow had had an interest since Brezhnev's time in maintaining high levels of oil and gas exports, which had provided an easy way of earning much needed foreign currency and postponing the urgent task of technological modernisation. The new Yeltsin regime looked at the oil and gas industry from the same perspective, but now required oil and gas exports to finance the costly social and economic transformation of Russian society towards capitalism.
Nazarbayev's regime had a similar agenda. In his strategy of nation-state building, independence had the highest priority. After the collapse of the USSR, the Kazakh leadership had no illusions about the real level of independence it had achieved. In an interview to Kazakh TV on the first anniversary of independence, Nazarbayev was quite frank about this: "So far we have not reached real independence...To achieve independence, the economy must be independent. To have an independent economy, we will have to face many future problems, because we will have to change the economic structure itself".(6) Nazarbayev and his government turned to the energy sector as the major lever for economic restructuring, industrial modernisation and political survival.
Almaty based its strategy on the premise that achievement of full economic independence should start with energy independence. A report on Kazakhstan's economic security, prepared in 1994 by Sh.Zhaksibekova, a Research Fellow at the Kazakhstan Institute of Strategic Studies, identified "formation of the policy of economic independence" as the major objective, and pointed at Kazakhstan's "vast energy resources" as the basis for securing such independence, by "providing sufficient financial means for reorientation of the entire economy".(7) The Kazakh leadership shared this view.(8)
At first sight, to speak of Kazakhstan's "energy dependence" looked strange, given its large oil and gas deposits. Nevertheless, Kazakhstan's energy dependence on Russia was a fact of life, mainly because of the structure of the oil and gas complex which it inherited from Soviet times. The distribution of major industrial enterprises in the USSR was based on a single economic space, and ignored inter-republican borders. As a result Kazakhstan's two major refineries, Pavlodar in the north-east and Shymkent in the south-east were far from the main oil and gas deposits in Kazakhstan. They processed West Siberian crude, delivered via the Omsk-Pavlodar-Shymkent pipeline, and had no pipeline connection to the West Kazakhstan fields.
Western Kazakhstan had only one refinery, in Atirau (Guriev) with capacity for processing just over 4 million tonnes of crude per year,(9) only a fraction of Kazakhstan's annual oil production of more than 20 million tonnes, 15 million of it from West Kazakhstan.(10) The rest was pumped via the Uzen-Samara pipeline to refineries in Russia's Volga region. Before the USSR's collapse, Kazakhstan's three refineries processed about 18 million tonnes of crude a year, almost equal to its domestic demand of 20 million tonnes. But locally-produced crude provided less than 30% of the feedstock.(11) As a result Kazakhstan found itself very unfavourably placed after independence.
For example, in 1994 Kazakhstan exported 8.14 million tonnes of oil to, and imported 8.87 million tonnes from Russia. But the price correlation was very unfavourable. Russia charged Kazakhstan $382.49 million, an average of $43.12 a tonne for its oil, but paid only $239.04 million, an average of $29.37 a tonne, for Kazakhstan's oil.(12) This was very disadvantageous for Kazakhstan, but it could do nothing about it, as it was dependent on Russian oil, whereas Russia was not dependent on Kazakhstan oil, and could buy or not as it saw fit. From 1991 to 1994 there was a decline in the volume of oil processed annually by 56% at Pavlodar and 41% at Shymkent, while Atirau's output remained at the 1991 level.(13)
A similar situation existed with Kazakhstan's gas production, also concentrated in Western Kazakhstan and oriented towards exports to Russia. Russia had no dependence on Kazakhstan's gas, while Kazakhstan could meet its domestic demand of 15 billion m3 a year only by importing gas from Russia, Turkmenistan and Uzbekistan.(14) E.Azerbaev, President of the state gas company "Kazakhgaz" complained, that Orenburg gas processing plant would pay only "a lower than dumping price" for gas and condensate from the Karachaganak field.(15) From 1992 to 1994 Kazakhstan's gas production fell from 7.56 billion m3 to 4.05 billion, and gas exports from 5.1 billion m3 to 1.49 billion.(16)
Kazakhstan's energy policy rested on maximising the involvement of Western companies in its oil and gas sector. In his address to the nation in October 1997 Nazarbayev justified it as follows: "Major companies and money from the USA, Russia, China, Britain and other leading states will be involved in development of the Caspian shelf and the Karachaganak field. This will increase the leading powers' interest in our independence".(17) Thus besides raising funds to modernise Kazakhstan's energy infrastructure and production base, Nazarbayev had a political objective, to involve the major powers in competition for access to Kazakhstan's energy resources, thereby achieving de facto independence from Russia without falling into dependency on any other country.
Kazakhstan began actively seeking foreign investment in its oil and gas industry very soon after independence. In April 1992 the French state-controlled oil company, Elf Aquitaine, concluded a deal to explore for oil in Atirau province. In May 1992, during Nazarbayev's visit to the USA, a contract was signed with Chevron Oil to develop the Tengiz oil field. In July 1992 British Gas and the Italian state oil company Agip bid successfully to exploit the Karachaganak oil and gas field.(18)
Nazarbayev's plans were definitely at odds with Russia's strategic line of stabilising its own oil industry. Competition with Kazakhstan for foreign investment in the energy sector weakened Moscow's bargaining position vis-a-vis Western companies, limited its choice of potential investors, and potentially threatened prices in the traditional and new markets the Russian oil and gas industry sought to penetrate. Moscow began searching for ways to put the brakes on Kazakhstan's unrestrained cooperation with foreign investors.
In December 1992 Chernomyrdin was appointed Prime Minister, which substantially strengthened the oil and gas lobby's position with the Russian government. Immediately after his appointment Chernomyrdin went to Almaty, where he and Tereshchenko signed an agreement "On Cooperation in the Industries of the Fuel and Energy Complexes" (24 December 1992). It was designed to secure Russian involvement in prospecting of Kazakhstan's energy resources. Of particular importance for Russia was Article 16, which stipulated that the sides would establish a working group on "creating a coordinating body for interaction of the oil and gas extracting industries".(19) Behind it was Moscow's desire to draw Kazakhstan into a multilateral arrangement within the CIS, which would limit Almaty's freedom of manoeuvre in attracting foreign investors into its energy sector. This clearly ran contrary to the Kazakh leadership's strategic plans. But Almaty did not want to disappoint Moscow by refusing to cooperate, because of dependence on Russian pipline network for exports of its oil and gas. Consequently Nazarbayev endorsed the Russian proposal without any strong desire to fulfill it.
At the International Congress of Industrialists and entrepreneurs on 26 January 1993 he mentioned a conference of the ministries of CIS states responsible for oil and gas, which was due to take place in Tyumen province, a major Russian oil producing region, and that a "mini-OPEC" would be formed in the immediate future within CIS.(20) He said "Kazakhstan is ready to take part in such a 'mini-OPEC"(21)
The meeting in Surgut, Tyumen province, took place on 2 March, and was attended by the heads of government of all former Soviet republics except Latvia, Estonia and Turkmenistan. The participants signed an agreement, which provided for setting up an inter-governmental council on oil and gas, which would be called upon to unite the republics' forces in the areas of investment, scientific, technological and other forms of cooperation, and would devise a common policy to promote stability and development in the oil and gas sectors. Shafranik, Russia's Minister for Fuel and Power Engineering reportedly said the agreement would lay the foundation for restoring Russia's coordinating role in the fuel and energy complex. Kazakhstan also welcomed the agreement. Prime Minister Tereshchenko said that "everybody finally understood that the oil problem should be resolved together".(22) However, later events showed that the agreement remained on paper. Kazakhstan had no intention of fulfilling it.
On 13 February 1993 the Kazakhstankaspiyshelf State Company was formed, for the purpose of exploring for oil and gas in the Kazakh zone of the Caspian shelf. On 22 April, while in Washington, K.Baikenov, Kazakhstan's Minister of Energy and Fuel Resources, told reporters that by September the country planned to form a consortium with up to ten Western oil companies to study development of oil and gas deposits under the Caspian Sea. He said the study should take about three years, and that companies joining the consortium would be given priority in obtaining licenses to extract the oil.(23) Since Russian companies were not invited to participate in the project, this meant that they would not get this "priority".
Oil reserves at the Caspian shelf off the Kazakhstan's coast were most significant. Earlier estimates, based on satellite photography and some preliminary ground research, indicated that it could contain 3-3.5 billion tonnes of oil and 2-2.5 trillion m3 of gas.(24) In a recent statement US Secretary of Energy F.Pena estimated proven oil reserves in the Caspian region as between 2.1 and 4.1 billion tonnes, comparable to those in the North Sea. The Caspian region's possible reserves could yield another 23 billion tonnes, roughly equivalent to a quarter of Middle East reserves. Proven gas reserves are estimated at 6.7-9.5 trillion m3, comparable to North America reserves. Possible gas reserves could yield another 9.3 trillion m3.(25)
On 3 December 1993 a consortium of Western companies signed an agreement with Kazakhstan to explore the geological, geophysical and ecological features of the Kazakh region of the Caspian shelf. The consortium, formed in June 1993, included seven companies - AGIP (Italy), British Gas, the joint British Petroleum and Statoil (Norway), Mobil Oil (United States), Shell (Holland/UK) and Total (France). Kazakhstan's contribution consisted solely in granting authorisation. The project was to be coordinated by the Kazakhstankaspiyshelf State Company, formed in February 1993. The cost of the project was estimated at $500 million, and its duration three years, after which the consortium would be dissolved and the firms to undertake extraction determined by auction. consortium members of the consortium were promised preferential terms. Kazakhstan reserved the right to all the geophysical information.(26) Russia was not invited to participate.
The contract was concluded even though after the collapse of the USSR the Caspian Sea's legal status was indeterminate. Previous Russian (Soviet)-Iranian agreements were inapplicable to the new situation manifested by the emergence of three more littoral states. Moscow's first serious attempt to tackle the issue was made on 15 October 1993, when the prime ministers of Azerbaijan, Kazakhstan, Russia and Turkmenistan met in Astrakhan to discuss the Caspian's status. At the meeting Russia outlined its position, to the effect that all questions related to the use of natural resources should be settled jointly by all the Caspian states. The participants agreed to set up a council to coordinate economic cooperation in the Caspian region. At the press-conference after the meeting Chernomyrdin announced that they had decided to formulate a common view on the Caspian problem, and that ways of protecting its natural wealth would be discussed at the next conference of CIS heads of government. Tereshchenko told reporters that his cabinet had not yet prepared a plan to develop oil and gas deposits on the Caspian shelf. He pledged that exploration of the shelf would be examined and supervised by an intergovernmental council on oil and gas, to be formed under CIS auspices.(27) But despite these assurances, Kazakhstan less than two months later took a unilateral decision on exploration of the shelf by Western companies.
Not surprisingly, Kazakhstan's move caused irritation in Moscow, especially aggravated by the circumstance that Azerbaijan was negotiating with a British Petroleum-led consortium over a deal to prospect for oil on Azerbaijan's Caspian shelf. If both projects went ahead unhindered, Russia would have lost control over a large part of Caspian energy resources and consequently a large share of its influence over the policies of the CIS states with Caspian coastlines. The Russians raised the issue of the Caspian Sea's status at negotiations during Nazarbayev's visit to Moscow in March 1994, but with little result. The joint protocol of the meeting between Tereshchenko and Chernomyrdin was limited to instructing their Foreign Ministries "to draft initial proposals within one month on the whole range of problems connected with the use of the Caspian Sea basin".(28)
On 28 April 1994 the Russian government notified the British Embassy that Caspian projects "cannot be recognised" without its approval. Its note said "the Caspian Sea is an enclosed water reservoir with a single eco-system, and represents an object of joint use within whose boundaries all issues or activities including resource development have to be resolved with participation of all the Caspian countries", and concluded that "no steps by any Caspian state aimed at acquiring any kind of advantage with regard to the areas and resources can be recognised... any unilateral actions are devoid of a legal basis".(29) The note was directed to the British Embassy because of British Petroleum's leading role in the Azerbaijan project, but it had very direct repercussions for Kazakhstan. On 2 June 1994 Russian Foreign Ministry spokesman Karasin said "the Caspian Sea should not be divided into sectors" and "all questions related to the use of natural resources should be settled by all the Caspian states".(30)
Initially Kazakhstan's reaction to these Russian dearches was passive. After all Kazakhstankaspiyshelf's project was only at the preliminary exploration stage, not the developmental as was Azerbaijan's. But some experts and officials in Nazarbayev's entourage obviously decided that Kazakhstan should take a more active stance as a preventive measure. In a report on Kazakhstan's foreign policy objectives, published in June 1994, U.Kasenov suggested that Kazakh diplomacy should pay greater attention to the problem of the Caspian's legal status, because "it could turn out to be explosive for the relationships between all five Caspian littoral states".(31) On 12 July B.Kuandykov, President of Kazakhstankaspiyshelf, said in an interview that foreign oil companies exploring the Caspian shelf off Kazakhstan were perturbed by Russian statements on the sea's legal status.(32)
Thus Kazakhstan's position on the Caspian contradicted that of Russia. Moreover, Almaty immediately began to form a coalition with Azerbaijan and Turkmenistan to counter the Russian demands. On 19 July 1994 Kazakhstan sent a draft "Convention on the Legal Status of the Caspian Sea" to the other Caspian States. The draft was based on the concept of a land-locked sea, and attempted to apply the provisions of the UN Convention on Law of the Sea to the Caspian. It envisaged delimiting the coastal states' borders on the Caspian, including internal waters, territorial waters and exclusive economic zones, as well as determining each state's continental shelf. Coastal states were to possess national jurisdiction and exclusive rights to explore and exploit the mineral resources in their sector of the seabed.(33) The draft contained some provisions favouring the Russian position. It recognised the need for unhampered navigation and fishing, each state's ecological responsibility, and need for a coordinating body, which would ensure a balance between the interests of all the littoral states.(34) But all these were token concessions.
An important element of Kazakhstan's diplomatic tactics was internationalisation of the Caspian Sea dispute, involvement in it of other powerful players, who were likely to support Kazakhstan against Moscow. This was hinted at in a report by Kazakhstan's Deputy Foreign Minister Gizzatov at a conference on foreign policy issues held in Almaty in February 1995. He said that "the Caspian problem has transcended regional boundaries, and even more clearly is becoming a factor in world politics". Among those whose interests were involved, Gizzatov named Turkey, Georgia, USA and Western Europe.35 However, among all them only USA, had real power to exercise pressure on Russia. US policy towards the Caspian was just being developed at that time, but its basis was already recognition of the area's importance for American economic interests.
On 27-28 September 1994 during Yeltsin's visit, Clinton raised the issue of the Caspian Sea and urged him to disavow his Foreign Ministry's statements that Moscow would not recognise contracts to exploit the Caspian fields. Yeltsin replied that the issue should be discussed bilaterally at the level of experts.(36) This was the result of pressure on Yeltsin by the powerful oil and gas lobby, which was not prepared to forgo its interests in the Caspian without a fight. On 5 October 1994 the Russian mission to the UN distributed a document entitled "The Russian Federation's Position on the legal regime of the Caspian Sea", which reiterated that unilateral action by any single state there was unlawful, and would be resisted.(37) It asserted that the International Law of the Sea could not be applied to the Caspian Sea, which has no natural connection to the oceans. In Russia's opinion the legal regime determined by the Russian-Iranian Treaty of 1921 and Soviet-Iranian Treaty of 1940 was still in force. Therefore exploration and exploitation, conservation and management of the Caspian seabed should be subject to agreement by all the littoral states. The document stated that the existing legal regime could be improved by concluding new agreements between the Caspian States, but must not be replaced by a totally new regime. Finally, the document warned that Russia did not exclude undertaking such measures as it consdered necessary to make other Caspian Sea states comply with the existing legal regime.(38)
Release of the document preceded the opening on 11 October of a two-day conference in Moscow of the five Caspian littoral states, called to discuss the establishment of a joint legal body on the Caspian Sea. The main idea was for it to regulate all aspects of use of the Sea and its resources, and it was an Iranian initiative, first put forward in October 1992. Iran was concerned about the growing Western, especially American, presence in the Caspian, and was looking to put a check on it by drawing the former USSR republics into a regional organisation.(39) Iran followed Russia in condemning as "illegal" the agreement between Azerbaijan and the Western consortium, signed on 20 September 1994. Thus an obvious coincidence of interests emerged between Russia and Iran positions, which Moscow took advantage of.
At the conference the Iranian delegation expressed concern about the "irreparable damage that uncoordinated exploitation was likely to cause to the fragile marine environment".(40) Initially it seemed that combined Russian-Iranian pressure would make the other Caspian states agree to creation of a joint body to monitor the Caspian. During a break in the conference, Kozyrev told journalists that "certain progress has been made towards an agreement on regional cooperation around the Caspian Sea.".(41) But in the end Kazakhstan's and Azerbaijan's desire to revise the legal status, and their insistence that further cooperation in the Caspian region be conditional upon such revision, prevented conclusion of this agreement.(42) The maximum the five nations tentatively agreed to was "to coordinate approaches to various aspects of their activity in the Caspian Sea in order to make the region a zone of stability, good neighbourliness, peace and security".(43)
Kazakh diplomatic tactics at the subsequent negotiations consisted in trying to undermine the existing legal regime of the sea and replace it with a new regime, based on international Law of the Sea. To do so Kazakh diplomacy needed to remove legal obstacles embodied in the Russian/Soviet-Iranian treaties. Initially Kazakhstan simply claimed that in the new international situation previous agreements on the Caspian had become invalid, and a new legal status for the sea should be defined. This line was reflected in Gizzatov's speech at a conference on foreign policy issues held in Almaty in February 1995. Gizzatov claimed that "The Caspian Sea regime in the form defined in the Russian-Persian Treaty of 1921 and the Soviet-Iranian Treaty of 1940 does not correspond to the changed political situation and new realities, because they did not contain "any reference whatsoever to the most important components of the legal status of international water reservoirs i.e. regimes for exploitation of the seabed and what lies beneath it, for ecology, for use of air space over the sea, not to mention such basic questions as the territorial sea and the adjacent exclusive economic zone, continental shelf, etc".
Kazakhstan advanced several arguments to justify its position. For example, Gizzatov disagreed that the Caspian Sea was not included in the Law of the Sea Convention, because "the convention does not contain a list of the seas to which its provisions could be applied". Following this logic any part of the world ocean could be claimed as exempt from the convention, because it was not specifically mentioned. Another Kazakh argument was that the Law of the Sea Convention should apply because the Caspian is connected to the high seas through the Volga-Don river system. Following this logic, the Law of the Sea Convention would be applicable to, say, Kazakhstan's lake Balkhash, because it is connected to the high seas through the Ob-Irtysh river system, or to the Great Lakes between the USA and Canada. But nobody has ever seriously tried to apply the Law of the Sea in this overextended way.
Russia's position on the Caspian issue was based on two main postulates. First, that the Caspian Sea, as a land-locked water reservoir with no connection to any ocean, could be regarded only as a lake. Second were international obligations assumed under the principle of continuity by the former USSR's legal successor-states. These were contained in the Alma-Ata declaration, signed by all former Soviet republics on 21 December 1991, and more specifically in the memorandum "On the Question of Legal Succession in Relation to the Treaties of the Former USSR, Constituting a Common Interest", signed by Nazarbayev at the CIS summit in Moscow on 6 July 1992. The memorandum singled out international agreements concluded by the former USSR which touched upon the interests of several CIS states, and described as requiring "decisions or actions on the part of those CIS states to whom they were applicable".(44) Both Russian/Soviet-Iranian treaties on the Caspian fell into that category.
Speaking at an international oil conference on the Caspian Sea in London in late February 1995, Director-General Khodakov of the Russian Foreign Ministry Legal Department explained that treaties between the former Soviet Union and Iran had established the Caspian Sea as an "object of common use by the Caspian countries, open for utilisation by them on an equal basis". He claimed that right of any one state to use the sea for its own purposes "can only be acquired on the basis of an international agreement", and "Unilateral moves by Kazakhstan and Azerbaijan to declare they owned sectors of the sea and sign deals with Western oil companies would be contested by Russia".(45)
Khodakov argued that the principle of "common use" was introduced by Article II of the 1921 Treaty, which said that Russia and Iran "both have the right of free navigation on the Caspian Sea under their own flags", and was further developed in the 1940 Soviet-Iranian Treaty on Trade and Shipping, Article 12 of which stipulated that "trading vessels carrying the flag of one of the Contracting parties in the Caspian Sea will be treated in the ports of the other party... on a totally equal footing with national vessels". At the same time, paragraph 4 of the article reserved fishing rights up to ten nautical miles from the coast to vessels of the littoral states. In Khodakov's interpretation, combination of these provisions established the Caspian "as an object of common use by the Caspian countries, open for utilisation by them on an equal basis across its entire area". Khodakov pointed out that the "clearest indication" of the Caspian Sea as an object of common use was contained in the exchange of letters which accompanied conclusion of the 1940 Treaty. The letters noted that the Caspian Sea was considered by both countries as "a Soviet and Iranian sea". Khodakov stressed that "enlargement of the "Caspian Club" does not per se imply any change in the Caspian's legal status". "Its legal regime as an object of common use by all Caspian countries, remains the same until such time as they conclude a new agreement altering this status".(46)
Russian adherence to the "common use" principle was economically and geopolitically quite logical. Semi-official Russian geological estimates showed that if the Caspian were divided into sectors, firstly, the potential recoverable resources in the Russian sector (2 billion tonnes of oil equivalent) would come below Kazakhstan's (4.5 billion) and Azerbaijan's (4 billion), and not far above Turkmenistan's (1.5 billion).(47) Secondly, all former Soviet republics would have sovereign rights in their respective sectors, and Russia would be unable to influence with whom and to what extent they would cooperate in the future. On the other hand, a "common use" regime would necessitate some multilateral body to govern exploitation of Caspian resources, and on it Russia, as the major power, would have a decisive voice.
Not surprisingly, at the London conference Russia's position met with objections not only from Kazakhstan, but also from the USA. G.Rose, Director of International Energy Policy at the State Department openly sided with Almaty. Rose said Russia could not impose its proposals on other states: "differences of opinion should be settled quickly in international courts, and through direct talks among the parties". He also argued that old treaties on the Caspian Sea had not meant cooperation, even before the breakup of the Soviet Union. "At no time did the former Soviet Union offer to share development of the Caspian with Iran, nor did it seek Iran's approval of Caspian region developments that might have environmental impacts".(48) Interestingly, American diplomacy, more experienced than Kazakh, chose not to challenge the validity of the Caspian Sea legal regime, established by the Russian (Soviet)-Iranian treaties, but to question Moscow's interpretation of it. The Americans also tried to internationalise the dispute by bringing it to world legal forums, evidently, expecting that there they could master necessary support against Russia.
American intervention in the Caspian Sea dispute caused irritation in Moscow. On 22 July 1995 an unidentified high-ranking Foreign Ministry official said that Azerbaijan and Kazakhstan were acting under US influence. he was quoted as saying that "Americans who are interested in Caspian oil absolutely overtly exert pressure on Baku and Almaty, appealing for division of the Caspian Sea and promising beneficial cooperation and large investments," that dividing the sea into national zones not only posed a threat to its ecological system, but would also leave Russia with a very small area.(49)
A major shift in Kazakhstan's position occured at the conference of Heads of Legal Departments of the Caspian states' Foreign Ministries, except Russia's, held in Almaty on 26-27 September 1995. Probably, realising that their initial stance was difficult to defend, the Kazakhs dropped their insistence on application of Law of the Sea to the Caspian, and agreed to regard it as a lake. During the negotiations they submitted a new version of a draft Convention on the Caspian Sea's legal status.(50) Gizzatov explained that despite the change in Kazakhstan's position, Almaty still insisted that territorial waters, subsea resource rights and fishing zones should be awarded to coastal states, on the grounds that "the idea of general ownership of the Caspian would not appeal to foreign investors who have already signed contracts with one of the five coastal states".(51)
To prove its point Kazakhstan tried to appeal both to international legal practice with regard to frontier lakes, and to the particular practice that had developed in the USSR and Iran. Recent statements and publications by Gizzatov centred on the argument that the Caspian legal regime provided for the de facto division of the sea. In an article he asserted that "the coastal states' practice proves the de facto division of the Caspian between Russia and Iran". To substantiate his point Gizzatov noted that neither the USSR nor Iran had consulted each other when they started prospecting for oil on the Caspian shelf. "If there was a condominium, one could have expected consultations with co-owner Iran, but such consultations did not take place... This practice unambiguously proves that neither the Soviet Union nor Iran regarded the Caspian's mineral resources as an object of common ownership".(52) The force of this argument is, however, undermined by the fact that the Russian position was based, as was shown, on the principle of "common use", not "common ownership". Russian interpretation of "common use" from the outset rejected the notion of condominium, despite Gizzatov's attempts to prove otherwise. As explained by Khodakov, the 1921 and 1940 treaties "contained no provision establishing any joint ownership, or extending national jurisdiction of the USSR and Iran, separately, or jointly, over the Caspian. For both states the Caspian, apart from the 10-mile exclusive fishing zone, was, in legal terms, territory beyond their national jurisdiction, where they had equal rights to its utilisation".(53)
Another argument used by Gizzatov entailed citing various internal documents of Soviet ministries which he contended established de facto division of the sea. One such document was the 1970 decision of the USSR Ministry of Oil Industry to divide the Soviet part of the Caspian between Azerbaijan, Kazakhstan, Russia and Turkmenistan "on the centre line basis accepted in international practice". As if anticipating possible objections, Gizzatov claimed that such an "administrative decision" can have international legal consequences because "in the former USSR "borders had an administrative and territorial character and later, after the USSR's collapse, were mutually recognised by the new independent states as inter-state borders". This position became government policy in Kazakhstan, and Nazarbayev referred to it at a press conference after the CIS summit in Moscow in March 1997.(54)
In practice, allusion in the Caspian Sea dispute to the administrative nature of the former USSR borders is no more than verbal acrobatics, linking without any logical reason two notions, "administrative borders" and "administrative decision". Administrative borders between republics in the former USSR could not be established by administrative decision. They were established or changed only by the highest legislative authority, the USSR Supreme Soviet. And it never passed any law dividing the Caspian into republican sectors. USSR Ministries could make internal administrative orders, for example for economic purposes, but these were binding only within a ministry's sphere of competence, and could not have international legal consequences. Overall, Kazakh diplomacy failed to establish a position from which it could force Russia into making substantial concessions.
The Caspian Sea issue was discussed during Yeltsin's visit to Almaty on 27 April 1996, and a joint Russian-Kazakh statement signed after the visit allowed for each to carry out exploration in its own waters, and called for the signing of a consensus-based convention respecting "sovereignty, territorial integrity and political independence".(55) Though it was obvious from the text that Yeltsin did not yield on any questions of principle, the Kazakhs hastened to turn the document's wording in their favour. At a news conference in Almaty on 30 April, Gizzatov said that Russia had opposed offshore seismic work carried out by Kazakhstan and Western oil companies in Kazakhstan's waters as "illegal and unilateral", but that both parties now recognised it as legal and were ready to cooperate.(56)
As expected the statement did not lead to any breakthrough in determining the Caspian Sea legal regime. Two meetings of the five Caspian states, in Teheran on 24 October 1996, and in Ashgabat on 12 November 1996 produced no noticeable results. The joint communique of the Ashgabat meeting barely went beyond repeating that a convention on the Caspian Sea's legal status was "priority and an urgent task", but did establish a working group, to meet regularly so as to speed up the negotiating process. Russian Foreign Minister Primakov proposed as a compromise to recognise A 45-nautical mile Exclusive Economic Zone, much larger than initially envisaged by Moscow, and indicated Russia's willingness to accept other coastal states' jurisdiction over oil sites outside the 45-mile zone, under certain criteria to be defined by experts, and provided they were already being or were about to be developed.(57) Obviously, the major "criteria" would be whether or not Russian companies were involved in the "development".
Shortly before the meeting Russia scored an important diplomatic victory by attracting Turkmenistan into its camp. A separate meeting of the Foreign Ministers of Russia, Iran and Turkmenistan signed a memorandum agreeing to cooperate in development of Caspian mineral resources and to establish for this purpose a tripartite joint company before the end of 1996.(58) Turkmenistan's Foreign Minister Shikhmuradov said that Russia, Iran and Turkmenistan had agreed on a 45-mile national limit, inside which they would have exclusive rights to oil or gas, and the remaining area in the middle of the Caspian would be common territory. Explaining Turkmenistan's position, Shikhmuradov said suggestions that the former Soviet republics could go it alone without Russian and Iranian agreement were unrealistic.(59)
Nevertheless, Almaty adhered to its position, and declined to accept Russia's compromise offer. Addressing a news conference after the Ashgabat meeting, Gizzatov said that "fundamental differences" over the legal status of the Caspian Sea still remained, that Primakov's proposals were "unpolished", but his government would study them carefully, and that "Almaty does not reject them, but this does not mean that it will accept them either".(60)
Russia's proposals were unacceptable to Kazakhstan, because the just-completed seismic survey of its Caspian shelf indicated estimated reserves of 10 billion tonnes of oil and 2 trillion m3 of gas.(61) These were great deposits, but not in the category of "being or about to be developed". Gizzatov made it clear that "differences between the Caspian states and lack of a convention on the Caspian Sea's legal status will not deter Kazakhstan from exploring its resources".(62) He also criticised the tripartite memorandum, and announced that Kazakhstan opposed the creation of the company and had no intention of joining it. He disclosed that the memorandum was "initially formulated to extend the company's activities all over the sea", but "as a result of talks, we managed to limit this area to the coastal zone of the three countries signing the memorandum...The company will not operate where Azerbaijan's and Kazakhstan's own work is under way".(63) However, Russia's real intentions regarding the company are not known. It is quite likely that the idea of a tripartite company intending to operate throughout the Caspian was generated simply to apply pressure to Kazakhstan and Azerbaijan.
On 18 December 1996 at a meeting in Moscow, delegations from Russia, Iran and Turkmenistan resolved to form a special committee to accelerate the establishment of a joint company to prospect for and develop oil and gas reserves in the Caspian Sea countries.(64) After that, obviously with Russian support, Turkmenistan laid claim to part of the Kyapaz/Serdar Caspian oilfield, which the Azerbaijan State Oil Company SOCAR intended to develop.(65) Baku had decided to develop it several years previously, but until then Ashgabat had never contested its right to do so. Though the claim was aimed at Baku, it had direct repercussions for Kazakhstan, because it introduced an element of instability into the whole Caspian basin, undermining business confidence.
Almaty saw all the disadvantages that Turkmenistan's changed position brought to Kazakhstan's diplomatic stance on the Caspian issue. Nazarbayev invited President Niyazov to Almaty for confidential talks. they took place on 27 February 1997, and the Caspian Sea issue was in the centre of the discussion. But Nazarbayev failed to persuade Niyazov to reverse his stance. The most he managed to extract was a pledge in a joint declaration that "the sides recognise each other's right and the right of each of the coastal states to prospect for mineral resources on the Caspian seabed".(66) This provision did not add anything new to the existing situation, because clearly every coastal state had rights for exploitation of the seabed.
But the declaration did not address the major controversy, concerning the geographical limits within which such unilateral exploitation was permissible. Niyazov neither abandoned his commitment to the Russian proposal, nor withdrew his claim to the disputed part of the Kyapaz/Serdar oilfield. Yeltsin rewarded Turkmenistan for its cooperation by cancelling Rosneft's and LUKoil's deal with SOCAR for joint exploitation of the Kyapaz/Serdar field.(67) On 22 May 1997 a meeting of the working group on defining the Caspian's legal status took place in Almaty. All littoral states attended, but once again failed to achieve any tangible results.(68)
In the second half of 1997 diplomatic struggle around the Caspian Sea issue substantially intensified. It was the result of growing American involvement in Caspian politics. A State Department report released in April 1997 recommended increased support for US energy companies' activities in the Caspian Basin. Emphasising the region's rich oil and gas reserves, the report said the US government "needs to enhance its efforts throughout the region to support American companies".(69)
During Nazarbayev's visit to Washington on 17-18 November 1997, the issue of Caspian energy development was discussed extensively in several meetings, including with Clinton, Vice-President Gore, Energy Secretary Pena, and Acting Secretary of State Talbott. Washington fully supported Kazakhstan's position on dividing the Caspian Sea into national sectors as a counter to Russian-Iranian advocacy of the "common use" principle. The joint statement by Clinton and Nazarbayev especially emphasised the "need to adopt a Caspian Sea legal regime that establishes a clear division of property rights based on the division of seabed resources".(70) Gore was conspicuously present at the signing of an agreement between Kazakhstankaspiyshelf and Agip, British Gas, British Petroleum, Mobil, Shell, Statoil and Total on prospecting and drilling in an area of the Caspian shelf covering some 6,000 square km in the north-east of the Caspian, part of which had been claimed by Russia.(71)
Russia in its turn also sharply raised the stakes in the struggle for control of the Caspian. In August, Russia's Natural Resources Ministry announced a tender for the right to explore a vast area in the northern Caspian estimated to hold anywhere between 150 to 600 million tonnes of recoverable oil reserves. A part of the area put for the tender overlapped with the sector of the Caspian, which Kazakhstan considers its own. Almaty reacted harshly. The Foreign Ministry expressed "strong disagreement" with Russia's plans, pointed out the "inadmissibility of unilateral actions, uncoordinated with Kazakhstan but taken on its territory and the necessity to reconsider the decision", and stated "From the location of the blocks put up in the tender it is clear that some of them are in Kazakhstan's sector of the Caspian Sea".(72)
During Chernomyrdin's visit to Almaty on 4 October, disagreements on the Caspian were a major topic in his discussions with Nazarbayev, but neither convinced the other. Soon after Chernomyrdin's return to Moscow, a senior Russian Foreign Ministry official said Kazakhstan's position "is, to say the least, inaccurate...There have never been any borders in the Caspian Sea legalised via treaties," and "the tender conditions will include terms requiring the winner to adhere to any agreements that may be reached thereafter, including adjustments to sector boundaries".(73) On 10 December LUKoil was named winner of the tender.(74)
Interestingly, the Russian tender coincided with one called by Turkmenistan. But if the Russian tender targeted Kazakhstan, Turkmenistan's targeted Azerbaijan. Both tenders were presumably a coordinated action designed to weaken the Azeri-Kazakh axis. A few days after meeting Yeltsin, who described the Russian and Turkmen positions as "quite close", Niyazov suddenly invited tenders for oil and gas fields on Turkmenistan's Caspian shelf. Ashgabat's plans envisaged exploiting the disputed Kyapaz/Serdar field together with the National Iranian Oil Company and an unnamed Russian company.(75) The first two rounds of the tender were held on 10-11 September and Turkmen sources claimed that they attracted "more than 57 major foreign companies". This caused an angry reaction in Azerbaijan, SOCAR even issuing a statement threatening unspecified reprisals against any Western oil companies that tendered for the disputed Kyapaz/Serdar field. Moreover, Turkmenistan reaffirmed its claims on the Chirag and Azeri fields, developed by a BP-led consortium, insisting that the Azerbaijani government give it a share of the profits.(76) On 19 November 1997 Turkmenistan lodged an appeal with the UN for assistance in settling its dispute with Azerbaijan over ownership of the Kyapaz/Serdar oilfield.(77)
Given the present correlation of forces in the Caspian basin, it is unlikely that the dispute will be resolved in Kazakhstan's favour. The most probable scenario is that negotiations will drag on indefinitely, a prospect quite suitable to Moscow. Unlike Kazakhstan, Russia is not interested in speedy clarification of the Caspian's legal status. Unclarity in no way obligates Russia, nor deprives it of freedom of diplomatic manoeuvre, nor does it prevent Russian participation in various profitable projects exploiting Caspian energy resources. Moscow is not inclined to rely on the Kazakhs' word, that they would like to see Russian companies take part in developing Kazakhstan's Caspian shelf. Were the legal status of the Caspian settled to Kazakhstan's satisfaction, Almaty would be free to go back on its promises. Russia can lose the struggle in the Caspian only if it becomes completely isolated from all the other littoral states, and if they form a US-backed coalition against Moscow. But at present such a scenario appears highly unlikely.
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