Trans-caspian trepidations: How serious?

This summer’s dispute over undersea Caspian energy resources between Azerbaijan and Turkmenistan, as well as Ashgabat’s recently stated intention to bolster its maritime military capabilities, have seemingly thrown Trans-Caspian relations into a tailspin, jeopardizing plans for energy cooperation to supply the strategic Nabucco natural gas pipeline. Given the Caspian’s delicate geopolitical balance, an international arbitration process on the Azerbaijani-Turkmen dispute may not in fact result in final resolution. That said, developments surrounding the mid-September informal Caspian summit, attended by presidents Ilham Aliyev and Gurbanguly Berdimuhammedov may signal that this Trans-Caspian flare-up will be short-lived.

BACKGROUND: Trans-Caspian relations between Azerbaijan and Turkmenistan have a history of great potential and disappointing realization. Geographically, the two countries are excellently positioned to facilitate bridging the water hazard that is the Caspian in the effort to grow trans-Eurasian trade, political, security and energy links. But the relationship between Ashgabat and Baku during former Turkmen President Saparmurat Niyazov’s term in office was often described as a “cold war”. Since his successor, Gurbanguly Berdimuhammedov, came to power, the two shores of the Caspian had not only reconciled, but begun genuine cooperation and serious momentum towards resolving the crux of Trans-Caspian tensions: overlapping claims on the central Caspian gas field of Serdar/Kyapaz.

That was the case until this July, when negotiations fell apart and Berdimuhammedov said that Turkmenistan would take the issue to international arbitration. This was followed by an announcement in late August that the Turkmen navy and coastguard will build a joint base in Turkmenbashi to "effectively fight smugglers, terrorists and any other forces." Baku’s response has been measured, but Azerbaijani decision-makers are very concerned that these moves could signal an abandonment of Berdimuhammedov’s ambitions for functional links to the West.

The implications are particularly serious for the strategic Nabucco natural gas pipeline, which would connect the Caspian’s resources, through Turkey, to European Union consumers. Azerbaijani gas reserves will likely be sufficient to supply the Nabucco project’s first, lower capacity phase. For a long time, Turkmen gas was considered essential to realizing the pipeline’s planned annual 31 billion cubic meter capacity in the project’s second phase. This would almost certainly require the construction of a Trans-Caspian gas pipeline, linking Turkmenbashi and Baku, a daunting feat in and of itself. Questions about the viability of linking Nabucco to Turkmen reserves have already been raised by energy analysts unconvinced that fields on the eastern shore of the Caspian can be developed fast enough, and by Russia and Iran, which insist that the sea must first be delimited before any Trans-Caspian projects can take place.

The objections from Moscow and Tehran do not pass muster, as a bilateral agreement between Ashgabat and Baku, similar to agreements amongst Azerbaijan, Kazakhstan and Russia in the north Caspian, would certainly allow for joint projects. But the longer that the Azerbaijani-Turkmen dispute continues, the less likely it is that Nabucco will be linked to the eastern Caspian. Until recently, this had contributed to the Nabucco project’s perceived lack of viability. However, since the signing of an intergovernmental agreement between the Nabucco transit countries in mid-July, potential suppliers such as Iraq and Egypt are seriously considering taking part in the project. The danger now may not be that Nabucco will not be realized, but rather that Turkmenistan will be left out. Should the Azerbaijani-Turkmen dispute not be resolved soon, it is increasingly conceivable that Nabucco will primarily be a pipeline carrying gas to Europe from the Middle East, not the Caspian.

IMPLICATIONS: The implications of Turkmenistan’s stated decision to seek international arbitration for the dispute with Azerbaijan over undersea resources are not as clear as some Caspian watchers have argued. So far, analysis has been split between those who argue that the recent Ashgabat-Baku row represents a nearly insurmountable obstacle to Trans-Caspian cooperation and those who point out that perhaps the intervention of an international legal body is exactly what the contentious issue needs in order to be settled once and for all.

International arbitration does not necessarily add clarity or finality to the picture, however. First of all, it is not clear which body Turkmenistan intends to approach. There are separate arbitration courts involved in the energy sector in London, Paris and Stockholm, but the territorial dispute at the center of the Caspian dilemma will likely have to be filed with the International Court of Justice (ICJ) in the Hague, if the court found it had jurisdiction, an additional complication since Azerbaijan has not accepted its compulsory jurisdiction. This complicates the issue significantly, as both parties would have to submit the issue, and a decision may not be reached for several years. Second, the party keen to arbitrate is generally considered by legal scholars as that with the weaker case: Turkmenistan argues that Azerbaijan’s Absheron peninsula should not be taken into account when drawing a line through the Caspian, but it most likely will be considered. Third, international arbitration, particularly when natural resources are concerned, does not always lead to settled relations, much less cooperation between the disputed parties. Romania-Ukraine relations have remained unconstructive since he ICJ delineated the continental shelf and its significant resources around Snake Island largely in favor of Romania.

Finally, this particular dispute may not only not be insurmountable, but could prove to be short-lived. Unlike his predecessor, Berdimuhammedov actively participates in regional and international fora. On September 11, the presidents of Azerbaijan, Kazakhstan, Russia and Turkmenistan met outside Aktau for what was dubbed an informal Caspian summit. While some reports cited that the divvying-up of energy resources was off the discussion table, no set agenda was announced, and Aliyev did speak with his Turkmen counterpart. Crucially, Berdimuhammedov went out of his way to publicly announce that although Ashgabat remains committed to the 40 bcm natural gas pipeline to China and is interested in potentially revitalizing the Trans-Afghan or TAPI gas pipeline to Pakistan and India (probably 30 bcm), Turkmenistan will have enough gas to supply Nabucco at 31 bcm. His statement did not mention supplies to Russia, and a meeting with Dmitry Medvedev a few days later did not result in a renewed gas export deal with Moscow.

Berdimuhammedov’s pointed mention of Nabucco indicates that he does not expect the row with Azerbaijan to drag on. This analysis is bolstered by his invitation of Aliyev to Ashgabat just before the summit, specifically to discuss the Serdar/Kyapaz issue. The geopolitical realities of the Caspian region mean that presidential-level talks are more likely to result in a resolution of the Trans-Caspian dispute than prolonged legal efforts.

CONCLUSIONS: The Trans-Caspian dispute between Azerbaijan and Turkmenistan must see quick resolution or risk undermining the eastern Caspian's role in the strategic Nabucco project. It seems as if leaders in Ashgabat and Baku understand this and are moving towards the high-level dialogue that will be necessary to achieve resolution. Such a path should be considered preferable to what would likely be a long and contentious legal struggle should the issue go to international arbitration. All of this said, the objective of Russia’s parallel energy diplomacy in the region, which is consistently conducted at the highest level, is aimed at orienting Turkmenistan’s gas exports away from a Trans-Caspian option. A final resolution for the Serdar/Kyapaz issue is a necessary, but not sufficient condition for Nabucco to be primarily a pipeline to the Caspian.

AUTHOR’S BIO: Alexandros Petersen is Dinu Patriciu Fellow for Transatlantic Energy Security and Associate Director of the Eurasia Energy Center at the Atlantic Council, Washington DC.

CACI Analyst