Baku Signs Caspian Convention but Territorial Disputes Remain

On 12 August, President Ilham Aliyev and the other heads of the five Caspian littoral states signed a long-awaited Caspian Convention and six related documents. Together, these could lead to the resolution of political, security and economic disputes in the sea. The agreement comes after two decades of bitter negotiations and four unsuccessful Caspian Summits (in Ashgabat in 2002, Tehran in 2007, Baku in 2010 and Astrakhan in 2014).

There are several key outcomes from the 5th summit in Aktau for Azerbaijan specifically. The convention classifies the Caspian Sea as a water reserve located inside the continent and without ocean access. This clause formally bars any foreign – i.e., US or NATO – naval presence. In the past, Azerbaijan participated in joint naval training and other partnership programs with the US and NATO. Baku even contemplated reopening the Gabala Radar Station for Western use after Russia reduced its military presence in Azerbaijan in the 2000s and withdrew entirely in 2012. However, after Azerbaijani-US relations deteriorated over human rights issues in the last five years, Baku abandoned the idea of any US military presence, regardless of the negotiations over the Caspian Convention.

However, Azerbaijan is unlikely to give up its informal military cooperation with the West. It is a well-known secret that over the past decade, Azerbaijan has deepened its military and security ties with Israeli and US intelligence services. Above all, this has focused on surveillance and special operations against Iran’s nuclear and other military programs. Arms and equipment purchases from Israel have rapidly grown over the last few years, as has the two countries’ security cooperation.

At the signing ceremony, Aliyev highlighted that, for Azerbaijan, the convention sanctifies the territorial sovereignty of each Caspian state. This clearly refers not just to the Nagorno-Karabakh dispute, but also to the ongoing territorial spats over seabed demarcation with Iran and Turkmenistan, as well as the possession of valuable oil and gas deposits in the southern part of the Caspian.

For now, the agreement brought only a partial compromise to Caspian territorial disputes. Each state will now enjoy 15 nautical miles of sovereign territory from its shore, with an additional 10 miles for exclusive national fishing zones. The rest of the sea surface is open to joint transport use and fishing quotas. However, delineation of the seabed and natural resources, including disputed oil fields in the south, is left to future bilateral negotiations. Tehran has already indicated that it will not easily give up its claim to 20% of the Caspian seabed, thus significantly infringing on the ambitions of Baku and Ashgabat.

As for Azerbaijani-Turkmen disputes, the two countries apparently made tentative steps in 2016-2017 to resolve the dispute over the Kyapaz-Serdar field in the middle of the sea’s southern region. However, our contacts in the Azerbaijani Ministry of Foreign Affairs suggest that now the discussion is again deadlocked, as Turkmenistan is not financially and politically prepared for joint development.

The convention also establishes that underwater cables and pipelines can now be built through the sea, and their routes only require approval by those states whose sectors are affected. However, all five states can still verify whether any project adheres to international environmental agreements that they have signed. This means that the Trans-Caspian gas pipeline (TCP) can now only be blocked formally by Russia and Iran on environmental grounds.

Both the Turkmen and Azerbaijani Foreign Ministries have already made upbeat comments about the TCP’s improved prospects. However, in our view, Russia understands that it can still block the TCP through a variety of pressure tactics on Ashgabat; the Turkmen regime is vulnerable to the Kremlin’s actions. There are also serious doubts as to whether Turkmengas has sufficient financial resources and gas reserves to build and supply the TCP, given Ashgabat’s reluctance to allow major foreign investment in exchange for ownership rights in the upstream and midstream. The exception has been for Chinese companies, but they have no desire to see the TCP built, as it would divert east-bound gas flows.

Meanwhile, Baku is only interested in the prospect of the TCP as a friendly diplomatic avenue for endless discussions with the EU. The latter, for its part, is genuinely interested in the TCP’s potential to add Turkmen supplies to the Southern Gas Corridor via Azerbaijan. However, at present SOCAR is not keen on building the TCP, as it would put Turkmen gas in direct competition with the major upcoming volumes from Azerbaijan’s own projects.

In our view, the TCP is possible in the medium term only if Russia is ready to negotiate the project’s start with the EU in exchange for some concessions on Moscow’s other initiatives, like TurkStream. Such a politically sensitive discussion would have to take place at an informal gathering of EU and Russian officials, making it an unlikely prospect. At the same time, Turkmen and Azerbaijani state energy companies would have to be assured of very favorable long-term incentives from Western IOCs. As these are all very complicated prospects, we do not foresee any progress on the TCP, despite recent media reports.