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Caspian Sea breakthrough treaty set to boost oil, pipeline plans

Nursultan Nazarbayev, Kazakhstan's president, reacts during a Bloomberg Television interview inside Akorda Presidential Palace in Astana, Kazakhstan, on Tuesday, Nov. 22, 2016. Kazakhstan’s largest lender by assets, Kazkommertsbank, won’t be allowed to fail after previous mismanagement and an economic crisis left it with a pile of overdue loans and short of cash, according to Nazarbayev. Photographer: Andrey Rudakov/Bloomberg

By BLOOMBERG

MOSCOW • Five Caspian Sea states reached a breakthrough agreement on sovereign rights to the sea, paving the way for new oil and gas extraction — and pipelines — after more than two decades of disputes.

The treaty ends a spat over whether the Caspian is a sea or a lake, granting it special legal status and clarifying the maritime boundaries of each surrounding country. It also allows each to lay pipelines offshore with consent only from the neighbouring states affected, rather than from all Caspian Sea nations.

“Many years of thorough work have culminated today in the signing of the Convention on the Legal Status of the Caspian Sea,” Kazakhstan President Nursultan Nazarbayev (picture) said yesterday in the coastal city of Aktau, as broadcast by Rossiya 24 television.

The five states also signed agreements on trade and economic ties, transportation and fighting terrorism.

Azerbaijan, Iran, Kazakhstan, Russia and Turkmenistan have tried to define the Caspian Sea’s legal status since the collapse of the Soviet Union, in order to divide up the waters and its natural resources for new drilling and pipelines. The territorial disputes have prevented the exploration of at least 20 billion barrels of oil and more than 240 trillion cu ft of gas, the US Energy Information Administration estimated in 2013.

While the treaty “will take us one step forward”, there remain “important issues” to be resolved, Iranian President Hassan Rouhani said yesterday before the summit, as reported by the IRNA news agency. One issue is the distribution of rights to seabed oil and gas (O&G) deposits, according to Eurasia Group analyst Zachary Witlin.

“Further talks will be needed to provide full legal clarity on the boundaries of the division and future rights to either contested or undiscovered fields,” Witlin said in a research note before the summit.

The new agreement states that the development of seabed reserves will be regulated by separate deals between Caspian nations, in line with international law. This essentially cements the current situation, since countries such as Kazakhstan and Russia already have bilateral accords on joint projects.

The five Caspian Sea nations already develop offshore O&G reserves that are located near enough to the coast not to be disputed. Projects in the northernmost waters are seen as sources of future oil-output growth for the countries.

The treaty will also remove a legal barrier to building a trans-Caspian gas pipeline from Turkmenistan to Europe, the Oxford Institute for Energy Studies said in July, adding that “political and strategic obstacles would remain”.