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IRAN’S ROLE IN THE GEOPOLITICS OF CASPIAN BASIN: IMPLICATIONS FOR INDIA RAMU C.M. Department of Geopolitics and International Relations Manipal University Manipal April 2015
IRAN’S ROLE IN THE GEOPOLITICS OF CASPIAN BASIN:
IMPLICATIONS FOR INDIA
RAMU C.M.
Department of Geopolitics and International Relations
Manipal University
Manipal
April 2015
Manipal University
Department of Geopolitics and International Relations
IRAN’S ROLE IN THE GEOPOLITICS OF
CASPIAN BASIN: IMPLICATIONS FOR INDIA
A Dissertation Submitted to the Department of Geopolitics and
International Relations in Partial Fulfilment for Master’s Degree in
Geopolitics and International Relations
Supervisor
DR. MONISH TOURANGBAM
By
RAMU C.M.
April 2015
I
Date: 06.04.2015
DECLARATION
I declare that the dissertation entitled “Iran’s Role in the Geopolitics of Caspian Basin:
Implications for India” submitted by me for the award of the degree of Master of Arts in
Geopolitics and International Relations of Manipal University is my own work. The dissertation
has not been submitted for any other degree of this University or any other University.
(Ramu C M)
CERTIFICATE
We recommend that this dissertation be placed before the examiners for evaluation.
(Dr. Arvind Kumar) (Dr. Monish Tourangbam)
Professor and Head of Department Supervisor
II
ACKNOWLEDGEMENT
I would like to express my gratitude to all those who were instrumental in helping me
complete this dissertation.
I am indebted to my guide, Dr. Monish Tourangbam, for his knowledgeable insights,
immense patience and constant guidance. I am very grateful to Dr. Arvind Kumar, Head of
the Department of Geopolitics and International Relations, Manipal University, for his
encouragement and support. Special thanks to Dr. Nanda Kishor, Dr. Praveen Kumar and
Dr. Ravindranathan P, teaching faculty at the Department of Geopolitics and International
Relations, Manipal University, for their valuable inputs.
III
ABBREVIATIONS
AIOC Azerbaijan International Operating Company
AKP Justice and Development Party
AZBTC Azerbaijan Baku-Tbilisi-Ceyhan Limited
BP British Petroleum
BTC Baku-Tbilisi-Ceyhan
BTE Baku-Tbilisi-Erzurum
CIS Commonwealth of Independent States
CNPC China National Petroleum Corporation
CPC Caspian Pipeline Consortium
CSTO Collective Security Treaty Organisation
EEZ Exclusive Economic Zone
EU European Union
FSA Free Syrian Army
FTA Free Trade Agreement
GAIL Gas Authority of India Limited
ILC Iran Liquified Natural Gas Company
IOTC Iranian Oil Terminals Company
IPI Iran-Pakistan-India
IRGC Iranian Revolutionary Guard Corps
IS Islamic State
ISIL Islamic State of Iraq and the Levant
ISIS Islamic State of Iraq and Syria / al Sham
KEPCO Khazar Oil Exploration and Production Company
KPP Kurdistan Workers‟ Party
LNG Liquified Natural Gas
MMLP Modified Median Line Principle
NAR Nakhichevan Autonomous Region
NATO North Atlantic Treaty Organisation
ONGC Oil and Natural Gas Corporation Limited
OPEC Organisation of Petroleum Exporting Countries
OVL ONGC Videsh Limited
PfP Partnership for Peace
SCO Shanghai Cooperation Organisation
SOCAR State Oil Company of Azerbaijan Republic
SPV Special Purpose Vehicle
TAPI Turkmenistan-Afghanistan-Pakistan-India
UNCLOS United Nations Convention on the Law of the Sea
US United Sates
USA United States of America
USD United States Dollars
USSR Union of Soviet Socialist Republics
WTO World Trade Organisation
IV
TABLE OF CONTENTS
Contents Page
Declaration…………………………………………………………………… I
Acknowledgement…………………………………………………………… II
Abbreviations……………………………………………………….............. III
Table of Contents…………………………………………………………….. IV-V
List of Figure/Maps………………………………………………................. VI
Abstract…………………………………………………………………… VII-VIII
CHAPTER 1 – INTRODUCTION………………………………………….. 1-6
1.1. Background ………………………………………. 2-3
1.2. Objectives of the Study…………………………………………... 3
1.3. Significance of the Study…………………………………………. 3-4
1.4. Importance and Relevance of the Study………………………….. 4-5
1.5. Methodology Used in the Study………………………………….. 5
1.6. Analytical Framework ……………………………………………. 5-6
CHAPTER 2 – THEORETICAL CONSTRUCT AND ITS CO-
RELATION………………………….............................................................. 7-16
2.1. Mackinder‟s Heartland Theory……………………………………. 8-12
2.2. Realism…………………………………………………………….. 12-13
2.3. Neo-realism………………………………………………………... 13-15
2.4. Neo-liberalism……………………………………………………... 15-16
CHAPTER 3 – THE EMERGING GEOPOLITICS OF THE CASPIAN BASIN:
THE HYDROCARBON FACTOR…………………………………………….. 17-37
3.1. The Caspian Basin‟s Legal Status and Challenges over Seabed
Division………………………………………………………………….. 18-25
3.2. The Caspian Basin‟s Hydrocarbon Wealth………………………… 25-28
3.3. The Energy Scramble and Pipeline Politics………………………... 29-37
V
CHAPTER 4 – IRAN AND THE EMERGING GEOPOLITICS OF THE CASPIAN
BASIN.......................................................................................... .................... 38-52
4.1. The Strategic Significance of Iran…………………………………. 39-41
4.2. Iran‟s Position on the Caspian Basin‟s Legal Status and Allocation of
Resources………………………………………………………………… 41-44
4.3. Iran as a Facilitator of the Caspian Hydrocarbon Trade…………... 44-52
CHAPTER 5 – COST-BENEFIT ANALYSIS OF THE IRANIAN TRANSIT
ROUTE…………………………………………………………………………... 53-70
5.1. The Iranian Transit Route and the Contemporary Regional
Geopolitics……………………………………………………………….. 54-56
5.2. The Geopolitics of Pipelines and Implications for Regional
Security…………………………………………………………………… 56-65
5.3. Possible Implications for the Major Stakeholders………………….. 65-70
5.3.1. Russia……………………………………………………… 66-67
5.3.2. The United States…………………………………………. 67-69
5.3.3. China………………………………………………………. 69-70
CHAPTER 6 – THE IMPLICATIONS OF THE IRANIAN TRANSIT ROUTE
FOR INDIA………………………………………………………………………. 71-82
6.1. A Brief Overview of the India-Iran Relationship…………………… 73-76
6.2. Iran‟s Role as Energy Provider cum Transit Facilitator: Benefits
for India…………………………………………………………………… 76-82
CHAPTER 7 – CONCLUSION………………………………………………….. 83-87
References………………………………………………………………………… i-vii
VI
LIST OF FIGURE/MAPS
Figure Page
Figure 3.1. The Caspian Basin‟s Hydrocarbon Reserves……….. 25
Map
Map 2.1. Mackinder‟s Heartland Model………………………. 9
Map 3.1. Dividing the Caspian Seabed………………………… 22
Map 3.2. Oil Pipelines from the Caspian Basin……………….. 30
Map 3.3. Gas Pipelines from the Caspian Basin……………….. 33
Map 4.1. Iran‟s Proposed Seabed Division using Mirza
Kouchik Khan Point………………………………….. 42
Map 4.2. The Trans-Iranian Pipeline Infrastructure…………... 46
Map 5.1. The Eurasian Pipeline Scramble…………………….. 60
Map 5.2. Syria and the „Pipeline‟ Conflict……………………. 61
Map 5.3. The Proposed Iran-Europe Islamic Pipeline………… 64
Map 5.4. The Proposed Iran-Europe Persian Pipeline………… 65
Map 6.1. The Central Asia-Iran-India Transport Corridor……. 77
Map 6.2. Chahbahar – India‟s Gateway to Afghanistan………. 78
Map 6.3. The Proposed Iran-India Subsea Pipeline………….. 79
Map 6.4. The Proposed Iran-Oman-India Deep-sea Pipeline… 80
VII
ABSTRACT
The dissertation on the theme, “Iran‟s Role in the Geopolitics of Caspian Basin: Implications for
India”, focuses on understanding the geopolitics of the Caspian Basin and the role of Iran in the
same. Based on a critical study of the feasibility of the Iranian transit route, an assessment has
also been done to understand the implications as far as India‟s interests are concerned. The
competition among nations over energy resources have become one of the driving forces of
contemporary geopolitics. The Caspian Basin contains the most abundant oil reserves outside the
already well-exploited Persian Gulf region. In this context, the region has witnessed and has been
witnessing a tussle among major players in gaining foothold over its vastly untapped energy
wealth. The potential of the Caspian Basin as a source of oil and gas for global energy
consumption has been understood significantly by the members of the international community
in general, and Iran in particular. It is estimated that Caspian oil will become the second most
important source of oil for the world‟s industrialised centres in the foreseeable future.
Furthermore, the discovery of hydrocarbon resources have not only nourished hopes for possible
co-operation and increasing regional wealth but also caused interstate competition and political
tension between Iran, Turkey, Russia, Azerbaijan, Georgia, Armenia, Turkmenistan, Kazakhstan,
and even Uzbekistan.
Both Russia and Iran rank among the top five producers of oil and natural gas in the world.
However, the vast majority of these countries' oil and natural gas resources are not located in or
near the Caspian region. Apparently, most of the energy resources found in or near the Caspian
Basin are largely held by the three states that are nascent both to political independence and to
formulating energy strategy: Azerbaijan, Kazakhstan and Turkmenistan. The level of oil and
natural gas production of these states is quite significant and has grown considerably in recent
years. And because these countries have relatively small populations; and therefore much smaller
domestic energy demands than Russia and Iran, much of this production growth has translated
into greater exports both westward and eastward. However, given the geographic isolation and
the landlocked nature of the Caspian region, there are limitations on the distribution of these
resources to end users.
VIII
Iran, due to its ideal location between the Caspian Basin and the Persian Gulf, offers the safest
and most cost-efficient route for transporting the Caspian oil to its end users. A rigorous pursuit
of the oil and gas swaps with the Caspian trio (Azerbaijan, Kazakhstan and Turkmenistan) could
enable Iran to eventually realize its long-awaited goal of attaining self-reliance and self-
sufficiency in meeting its burgeoning demand for energy. Apart from the added benefits to the
energy-dependent Asian economic giants, this route would effectively facilitate the transport of
the Caspian and Iranian gas to the European markets that are desperately looking for an
alternative to the Russian gas monopoly. The same applies to India, which sees Iran as an
indispensible partner in reaching out to its extended neighbourhood of Afghanistan and Central
Asia.
The research has attempted to assess and analyse the geopolitics of the Caspian Basin and its rich
hydrocarbon resources. The study has also focused on the role of Iran in the Caspian energy
trade. Along with encapsulating the challenges before the Caspian and Iranian hydrocarbon
sectors, it has delved into the cost-benefit aspects of the Iranian transit mechanism. One of the
major imperatives of this study has been to analyse the implications for India from such a
framework. Finally, the research has attempted to evolve a possible roadmap for Iran in terms of
its growing relevance as an energy supplier cum transit facilitator.
The major finding of this study is that Iran‟s inevitable participation in the Caspian energy
transit, in one way or the other, has benefits for all players involved in the energy scramble.
However, the incentives for both Iran and the Caspian trio are remarkably more significant. In
the case of Iran, it would help stem the huge gap between being a major producer of petroleum;
and yet not being able to sufficiently harness it (for domestic consumption). And as for the three
Central Asian republics, they would be able to export their oil and gas to the consumer nations,
in the cheapest possible way. Encapsulating the above two equations, it may be surmised that
both parties would undoubtedly be benefited with a win-win situation. The same applies to the
consumer/end-user scenario too. Being a long-time energy partner of Iran, India is poised to gain
substantially from the Iranian transit corridor – which is also India‟s gateway to Afghanistan as
well as the Central Asian/Caspian region.
1
CHAPTER ONE
INTRODUCTION
2
INTRODUCTION
1.1. Background
The potential of the Caspian Basin as a source of oil and gas for global energy consumption has
been understood significantly by the members of the international community in general, and
Iran in particular. It is estimated that Caspian oil will become the second most important source
of oil for the world‘s industrialised centres in the foreseeable future. Furthermore, the discovery
of hydrocarbon resources have not only nourished hopes for possible co-operation and increasing
regional wealth but also caused interstate competition and political tension between Iran, Turkey,
Russia, Azerbaijan, Georgia, Armenia, Turkmenistan, Kazakhstan, and even Uzbekistan. The
emerging geopolitical situation is guided and highly influenced by both competition and contest
in the region. Russia, in particular holds the ground, especially in the context of its assertive
posture. In addition to the regional powers, the United States, China and the European Union
have also shown their interest in exploiting the potential of the region. In other words, the recent
developments relating to the energy policies of the Caspian littorals have transformed the
regional balance of power, and it is understood that the Caspian oil will be one of the most
important factors in the regional politics of the littoral countries. This will undoubtedly have
ramifications for all stakeholders involved in the Caspian energy scramble.
Russia and Iran both rank among the top five global producers of oil and natural gas. However,
the vast majority of these countries' oil and natural gas resources are not located in or near the
Caspian region. Apparently, most of the energy resources found in or near the Caspian Basin are
largely held by the three states that are nascent both to political independence and to formulating
energy strategy: Azerbaijan, Kazakhstan and Turkmenistan. The level of oil and natural gas
production of these states is quite significant and has grown considerably in recent years. And
because these countries have relatively small populations; and therefore much smaller domestic
energy demands than Russia and Iran, much of this production growth has translated into greater
exports both westward and eastward. However, given the geographic isolation and the
3
landlocked nature of the Caspian region, there are limitations on the distribution of these
resources to end users.
Iran, due to its ideal location between the Caspian Basin and the Persian Gulf, offers the safest
and most cost-efficient route for transporting the Caspian oil to its end users. A rigorous pursuit
of the oil and gas swaps with the Caspian trio (Azerbaijan, Kazakhstan and Turkmenistan) could
enable Iran to eventually realize its long-awaited goal of attaining self-reliance and self-
sufficiency in meeting its burgeoning demand for energy. Apart from the added benefits to the
energy-dependent Asian economic giants, this route would effectively facilitate the transport of
the Caspian and Iranian gas to the European markets that are desperately looking for an
alternative to the Russian gas monopoly. The same applies to India, which in addition, sees Iran
as an indispensible partner in reaching out to its extended neighbourhood of Afghanistan and
Central Asia.
1.2. Objectives of the study
The objectives of the study would be the following:
To assess and analyse the geopolitics of the Caspian Basin and its rich hydrocarbon
resources;
To analyse the role of Iran in the Caspian energy trade;
To critically examine the politico-economic and technical hurdles faced by the Caspian
and Iranian hydrocarbon industries in optimizing their respective oil and gas wealth;
To ideate the cost-benefit aspects of the Iranian transit route;
To analyse the various implications for India from the above mechanism; and
To evolve a possible roadmap for Iran in terms of its growing relevance as an energy
supplier cum transit facilitator.
1.3. Significance of the Study
The competition among nations over energy resources has become one of the driving forces of
contemporary geopolitics. Going by the trend, notwithstanding the advantage that Iran enjoys
due to its strategic location at the crossroads of West, Central and South Asia, it also has the
potential to emerge as a responsible economic player by usurping the leverage enjoyed by the
4
‗Big three‘ (Russia, the US and EU), in terms of serving as an exit route for the Caspian oil and
gas. This study has therefore attempted to provide some insight into the larger oil politics of the
Caspian Sea Basin, focusing mainly on the inevitable role of Iran in driving the energy trade in
the region. It has also examined why the Iranian option is more cost-effective than the rest of the
hitherto existing energy transit routes in the region. The importance of the study has largely been
to point out the opportunities that lay before India, through the operationalisation of such a
mechanism.
1.4. Importance and Relevance of the Study
Recent findings have confirmed that the Caspian Basin contains the most abundant oil reserves
outside the already well-exploited Persian Gulf region. In this context, the region has witnessed
and has been witnessing a tussle among major players in gaining foothold over its vastly
untapped energy wealth. Contrary to the ‗Big three‘, Iran has adopted a more accommodative
posturing towards the Caspian oil-producing trio by agreeing to the ‗oil swap‘ policy. After
being at the receiving end of a prolonged spell of criticism and punitive sanctions from the West,
Iran‘s strategic advantage in this regard will certainly force its adversaries to shun down their
anti-Iran rhetoric. And most importantly, Iran could gradually lessen its dependence on other
countries for finished petroleum products; which is all the more important considering the
difficulty it faces in transporting its crude from the south to the refineries in the north.
Nonetheless, the ‗oil swap‘ could provide a way out for Iran, with respect to the sanctions in the
transfer of technology that has curtailed its ability to construct refineries in close proximity to its
oil wells in the south. Not to mention, the recent Ukrainian imbroglio involving Russia has
provided the European customers with sufficient rationale to woo in Iranian/Caspian gas (via the
Iranian pipeline route); in place of the Russian gas and pipeline monopoly. However, the study
becomes highly relevant in the current context as it focuses on the inevitable growing
prominence of Iran as a responsible guarantor of energy security for a number of nations.
In this study, an attempt has been made to assess and analyse the geopolitics of the Caspian
Basin and its rich hydrocarbon resources. The study has also focused on the role of Iran in the
Caspian energy trade. Along with encapsulating the challenges before the Caspian and Iranian
hydrocarbon sectors, the research has attempted to ideate the cost-benefit aspects of the Iranian
5
transit mechanism. One of the major imperatives of this study has been to analyse the
implications for India from such a framework. Finally, the research has attempted to evolve a
possible roadmap for Iran in terms of its growing relevance as an energy supplier cum transit
facilitator.
1.5. Methodology Used in the Study
The methods used in the research have been largely deductive and analytical. Both primary and
secondary source literature have been used in conducting the research. The collection of data and
its interpretations have been done in consonance with the research questions. The study has
proceeded in terms of content analysis of various reports, speeches, statements and articles
pertaining to the theme. The study has analysed the data obtained from think-tanks and
Government websites. Summing up, the study has attempted to conduct a mixed form of research
making use of available quantitative as well as qualitative data.
1.6. Analytical Framework
The dissertation has looked into the complexities of the geopolitics of the Caspian Basin with an
imperative on the role of Iran in it. The study has attempted to theoretically substantiate the role
of Iran in the Caspian hydrocarbon trade. Since the overall research deals with a wide array of
issues ranging from the strategic and economic importance of the hydrocarbon-rich Caspian
Basin to that of energy security of the various stakeholders -- and not to mention the ‗all win
none lose‘ scenario involved, it has included within its ambit, theories from both geopolitics as
well as international relations. The study has further attempted to understand the evolving
geopolitics of the Caspian Basin mainly on the basis of the negotiations among its littoral
nations, over the settlement of the legal status of the water body and subsequent division of the
seabed for granting exploratory rights. Besides delving into Iran‘s prospective role in the
transport of the Caspian hydrocarbons to its end users, the research has particularly focused on
Iran‘s stance on the legal status and division of the Caspian seabed. Apart from attempting to
understand the impediments to the conventional transit routes, the study has looked into the
regional geopolitics of pipelines and energy security -- and its ramifications for the Iranian transit
corridor. It has also attempted to outline the likely implications of the Iranian transit route on the
perceptions and actions of the major players involved in the energy scramble. However, one of
6
the major imperatives of the research has been to analyse the implications for India, from an
enhanced Iranian role in the Caspian hydrocarbon trade. In the concluding remarks, the
dissertation has attempted to club together the overall research findings and evolve a possible
trajectory for an enhanced Iranian role in the Caspian hydrocarbon trade.
7
CHAPTER TWO
THEORETICAL CONSTRUCT AND ITS CO-
RELATION
8
THEORETICAL CONSTRUCT AND ITS CO-RELATION
Any study in geopolitics and international relations becomes holistic when it is accompanied by
an appropriate theory. The very objective of the research is to encapsulate the various theoretical
underpinnings associated with the emerging geopolitics of the Caspian Basin. Further, the
research would attempt to theoretically substantiate the role of Iran in the Caspian hydrocarbon
trade. Since the study deals with a wide array of issues ranging from the strategic and economic
importance of the hydrocarbon-rich Caspian Basin to that of energy security of the various
stakeholders -- and not to mention the ‗all win none lose‘ scenario involved, it would include
within its ambit, theories from both geopolitics as well as international relations.
While the Heartland Theory of Mackinder would give a geopolitical construct to the study, the
chapter would attempt to dissect not only the energy security aspect but also the win-win element
(in proposing an upgraded Iranian role), by making use of selected theories from international
relations -- like Realism, Neo-Realism and Neo-liberalism respectively.
2.1. Mackinder‟s Heartland Theory
Halford J Mackinder‘s Heartland Theory is arguably the most appropriate geopolitical theory to
elucidate the great power scramble over the energy resources of the Caspian Basin (part of the
larger Central Asian region). Mackinder, in his 1904 article titled The Geographical Pivot of
History, had envisaged that the Eurasian landmass with its abundant natural resources, would
become the great ‗pivot‘ (or the ‗Heartland‘, as he described it), the control of which would be
indispensible for any nation that aspires to be a great continental power. He stated thus:
―Who rules East Europe commands the Heartland;
Who rules the Heartland commands the World Island;
Who rules the World Island commands the World.‖1
1 Christopher J Fettweis, ―Sir Halford Mackinder, Geopolitics, and Policymaking in the 21st Century‖, see
http://strategicstudiesinstitute.army.mil/pubs/parameters/Articles/00summer/fettweis.htm , accessed on 20 February
2015.
9
In his 1919 work titled Democratic Ideals and Reality, he further went on to expand the concept
of Heartland, from East Europe to include the entire Central Asian region.
Map 2.1: Mackinder‟s Heartland Model
Source: Mahdi Darius Nazemroaya, “Europe and America share the spoils of war”, see
http://www.globalresearch.ca/europe-and-america-sharing-the-spoils-of-war/6423?print=1, accessed on 21
February 2015.
As depicted in Map 2.1, according to Mackinder, the region denoted as Heartland consisted of
the entire geographical entity extending from the Volga and the Urals along the Russian West to
the Yangtze River valley in Central China. Encompassing all of Transcaucasia and Central Asia,
along with the whole of Russia, the Heartland stretches from the northern extent of the
Himalayas in the south to the Arctic Ocean in the north. World Island, on the other hand,
comprises the entire landmass of Africa and the rest of Europe and Asia which lies outside the
Heartland. Mackinder called this as the Inner/Marginal Crescent, whereas the outlier islands of
the Americas and Oceania were collectively known as the Outer/Insular Crescent.
10
Throughout the period of the Second World War and the Cold War era that succeeded it, the
Heartland was concealed from any external power intervention, as it was under the territorial
sovereignty of the Soviet Union. Following the dissolution of the Soviet Union and the end of
the Cold War, the emergence of newly independent republics in the Caucasus-Caspian-Central
Asia belt – revived international interest in the region. The region (particularly comprising the
three Caspian littorals: Azerbaijan, Kazakhstan and Turkmenistan), with its huge hydrocarbon
wealth was once again exposed to the vagaries of great power competition. Therefore, it could be
rightly surmised that the Mackinderian pivot has shifted from the East-Central European
hinterland (acting as a buffer zone between the West and the Soviet/Communist blocs) during the
Cold War, to the Central Asian region, in the context of the evolving contemporary geopolitical
environment.
During the time of his work in 1904, Mackinder conscientiously appealed to Great Britain to be
wary of a possible Russian control over the Eurasian region. His greatest worry was a likely
Russo-German alliance, the possibility of which according to him had to be prevented by all
possible means.2 Although the Russo-German alliance never materialized, the formation of the
Soviet Union and its gradual expansion to include most of Eurasia (stretching from East Europe
to Central Asia) by the end of the Second World War meant that Mackinder‘s calculations about
Russia/Soviet Union‘s continental expansionist tendencies were spot on; but also that Britain and
her allies were incapable of averting the likelihood of such an occurrence. However, by the time
of the end of the Second World War and the advent of the Cold War, rival geopolitical theories
(the already prevailing Alfred Mahan‘s Sea-power Theory and the then newly introduced
Nicholas Spykman‘s Rimland Theory) had started to compete with the Heartland Theory over
the question of greater acceptability.
With critics of the Heartland Theory pointing to the obsoleteness of the Mackinderian model of
geopolitics vis-à-vis the ongoing modifications in rudimentary geopolitical thinking, the
incumbent great power contest over the Caspian hydrocarbon riches reflects otherwise. On a tacit
note, it may be said that Mackinder‘s pivot has been currently relocated to Central Asia and it
2 Halford J Mackinder, ―The Geographical Pivot of History‖, The Geographical Journal (The Royal Geographical
Society: London, 1904) v. 23, n. 4, pp. 423-424, see http://www.jstor.org/stable/1775498, accessed on 12 February
2015.
11
will remain so for a long time to come.3 The major players involved in the energy scramble over
the Caspian energy resources are Russia, the West (the United States, the European Union and to
some extent, Turkey) and China. Among the prospective game-changers in this competition are
Iran and Turkey. Turkey has lately been embracing a policy of strategic and economic
pragmatism, thereby seeking to benefit from all -- rather than merely grounding on its traditional
role as a strategic ally of the West.
The battle for control over the Eurasian landmass continues to linger on. Immediately following
the collapse of the Soviet Union, the West had reassured Russia that it would not resort to
expanding the NATO (North Atlantic Treaty Organisation) into the traditional Russian sphere of
influence (the East Europe-Transcaucasia-Central Asia belt); a promise on which it eventually
reneged.4 In the immediate aftermath of the Cold War, in anticipation of losing its influence over
the Eurasian region, Russia formed the CSTO - Collective Security Treaty Organisation (by
roping in the new republics of Central Asia and Transcaucasia, with the exception of
Turkmenistan). However, the withdrawal of Azerbaijan, Georgia and Ukraine from the security
grouping speaks volumes about the tacit Western meddling in the Russian backyard.5 NATO‘s
intervention in the liberation of Kosovo (1999) was reciprocated with Russian intervention in the
liberation of South Ossetia and Abkhazia (the breakaway provinces of Georgia) in 2008.
The latest manifestation of the looming Russo-Western confrontation is conspicuous in the
Ukrainian imbroglio, which started off with the Maidan protests that brought down pro-Russian
President Victor Yanukovich in early 2014. NATO‘s enlargement/expansion and subsequent
deployment of Ballistic Missile Defense capabilities in some of the erstwhile Soviet states
(Lithuania, Latvia and Estonia) were indeed targeted at containing Russian suzerainty over the
post-Soviet nations.6 However, with the imminent threat of the traditional buffer states like
3 Margaret Scott and Westenley Alcenat, ―Revisiting the Pivot: The Influence of Heartland Theory in Great Power
Politics‖, 9 May 2008, see
http://www.creighton.edu/fileadmin/user/CCAS/departments/PoliticalScience/MVJ/docs/The_Pivot_-
_Alcenat_and_Scott.pdf , accessed on 4 February 2015. 4 Joshua Shiffrinson, ―Put It in Writing‖, 29 October 2014, see
http://www.foreignaffairs.com/articles/142310/joshua-r-itzkowitz-shifrinson/put-it-in-writing , accessed on 30
October 2014. 5 ―Collective Security Treaty Organisation‖, see http://www.globalsecurity.org/military/world/int/csto.htm ,
accessed on 13 February 2015. 6 John Mearsheimer, ―Why the Ukraine Crisis is the West‘s Fault‖, September/October 2014, see
http://www.foreignaffairs.com/articles/141769/john-j-mearsheimer/why-the-ukraine-crisis-is-the-wests-fault ,
accessed on 9 November 2014.
12
Georgia and Ukraine acceding into the NATO, Russia has clearly signaled its opposition through
its intervention in Crimea and Eastern Ukraine.7 Apart from the Russo-Western antagonism in
Eastern Europe, the SCO (Shanghai Cooperation Organisation) has served as the bulwark of the
Sino-Russian mutual interest in warding off Western influence in Central Asia.
On the economic front, Russian President Vladimir Putin has already floated a Eurasian Customs
Union (comprising Russia, Belarus and Kazakhstan – and with Ukraine not any more in
contention), as a counterweight to the eastward expansion of the European Union. The landmark
Sino-Russian USD 400 billion gas deal, signed in 2014, conveys a clear-cut message to the West,
of an evolving Eurasian energy partnership against Western designs in the region.8 Meanwhile,
the US, European Union (EU) and NATO continue its attempts to wield influence over the post-
Soviet states through its reliance on institutional mechanisms -- say for instance, the EU-NATO
Partnership for Peace (PfP) programme.9 To put it in a nutshell, the major motive behind the
actions of these major powers is to gain control over the hydrocarbon fields and transit routes of
Central Asia.
Therefore, the prevalence of Mackinder‘s dictum of the Heartland and the Strategic Pivot fairly
reflected in the case of the Central Asian region.
2.2. Realism
To understand the intentions of the various players involved in the Caspian energy scramble and
in identifying the means adopted by them to achieve these intentions, one needs to incorporate
certain theories from international relations. Without doubt, Realism holds sway in explaining
the relevance of energy security and its inevitability to a nation‘s interest – and therefore, how it
becomes an integral component of national security. This is reflected in Hans Morgenthau‘s Six
Principles of Realism.
Morgenthau argues that Realism is ingrained in human nature, and the main driver of political
realism is national interest projected by means of a nation‘s power capabilities. Nevertheless, he
7 Ibid, accessed on 9 November 2014.
8 Jeffrey Payne, ―Eurasia: The Hype of Continentalism‖, 3 February 2015, see
http://thediplomat.com/2015/02/eurasia-the-hype-of-continentalism/ , accessed on 23 February 2015. 9 ―The Partneship for Peace programme‖, 31 March 2014, see
http://www.nato.int/cps/en/natolive/topics_50349.htm, accessed on 12 December 2014.
13
says that a nation‘s political actions should not be linked with any kind of moral dispositions and
political decisions should remain autonomous from the universal laws of morality.
As per Morgenthau, ―the main signpost that helps political realism to find its way through the
landscape of international politics is the concept of interest defined in terms of power‖.10
This,
being the second principle of Morgenthau‘s Political Realism, is perhaps very appropriate in
understanding the crux of the geopolitics of energy access cum trade – which is undoubtedly the
arterial element of this study. For instance, in order to increase its power capabilities, a nation
must have access to energy resources. Whereas it is conventional wisdom that energy fuels a
nation‘s economy, it should also be borne in mind that the same applies to a nation‘s military
capabilities. After all, in times of war, the artillery is dependent on fuel – which is nonetheless
largely sourced from hydrocarbons.
2.3. Neo-Realism
When Kenneth Waltz came up with Neo-realism, apparently garnering wide acceptability in the
Cold War period, there was initially no mention of energy security anywhere in the neo-realist
framework. The Defensive Realists (Waltz himself being one) maintained that increasing its
security apparatus is paramount for a state. Moreover, they believed that the state‘s actions are
driven by the structure of the international system; hence also referred to as Structural Realism.11
For Waltz and other structural realists, the then prevailing bipolar environment (with the US and
the USSR being the two major power blocs) best justified their arguments. Meanwhile, John
Mearsheimer came up with his own version of Offensive Realism, which held that nations seek
to maximize power capabilities, as a precursor to bolstering their security.12
Both defensive and
offensive neo-realists were themselves proponents of Structural Realism, but differing in their
fundamental perception of how a state prioritizes its national interest. However, neither branches
of neo-realism, apart from embracing the military sphere, acknowledged the significance of
energy security in their conceptualizing phases. This was probably because of the demands of the
10
Brian A Keaney, ―The Realism of Hans Morgenthau‖, pp. 33-34, see
http://scholarcommons.usf.edu/cgi/viewcontent.cgi?article=3579&context=etd, accessed on 24 February 2014. 11
Kenneth Waltz, ―Structural Realism after the Cold War‖, see http://www.columbia.edu/itc/sipa/U6800/readings-
sm/Waltz_Structural%20Realism.pdf , accessed on 25 February 2015. 12
John Mearsheimer, ―Structural Realism‖, 31 July 2006, see
http://mearsheimer.uchicago.edu/pdfs/StructuralRealism.pdf , accessed on 25 February 2015.
14
Cold War era – which was nevertheless dominated by an environment of conflicting ideologies
(Capitalism versus Communism).
However, since the end of the Cold War, geo-economics has begun to be regarded as equally
important to geopolitics. In this context, energy security has once again shot up to the top of the
ladder in the list of entities that drive a nation‘s security and interest. All the more, neo-realism
has expanded its gamut to accommodate energy security in its framework. The present-day neo-
realists have indeed succeeded in establishing a clear link between a state‘s military build-up,
economic development / capacity-building and energy security.
The impending geopolitical developments in the Caspian Basin after the emergence of the CIS
(Commonwealth of Independent States) republics and the concomitant tussle by the major
players for gaining stakes in the former‘s hydrocarbon trade (both production and transport), are
a classic example of the neo-realist tint in the latter‘s respective foreign policies towards the
region. For instance, Russia (i.e. the erstwhile Soviet Union) lost its unchallenged hegemonic
status over the Caspian region – a region it considers as its own backyard, after 1991. During the
initial few years following the demise of the Soviet Union, the new republics – i.e. the Caspian
trio (Azerbaijan, Kazakhstan and Turkmenistan) in this case, were in desperate need of
technological investment in their hydrocarbon sector. Russia, at this point, was itself struggling
to revitalize its weakening economy. Capitalizing on the waning Russian clout in the Caspian
Basin, the West (the US and EU) and later, China came into the picture, with the primary
intention of grabbing a piece of the hitherto under-exploited Caspian pie.13
It was however the incipient transit/pipeline politics that helped gauge the intensity of this tussle.
Unlike most other resource hotspots of the world, the Caspian Basin had one inherent
disadvantage: its landlocked nature that isolated it from the global maritime trade routes.
Russia‘s prime motive has always been to preserve its monopoly over the hydrocarbon transit,
via the Northern Route that passes through its own territory. The West has been gradually
seeking to reduce the Russian transit monopoly by ―trying to induce greater diversity‖, via the
Western Route.14
For this reason, it is trying to rope in like-minded nations in the Transcaucasian
13
Paul Kubicek, ―Energy politics and geopolitical competition in the Caspian Basin‖, Journal of Eurasian Studies
(Elsevier: Seoul, 2013) v. 4, n. 2, pp. 171-172. 14
Ibid, pp. 172-173.
15
belt by invoking and exacerbating the prevailing Russia-skepticism (an obvious concern,
considering the long period of Soviet ―oppression‖). Amid the constant locking of horns between
Russia and the West, China has been advancing its interests in the Caspian energy trade,
spearheaded by excellent diplomatic maneuvering and banking on its typical ‗business-as-usual‘
approach. Turkey on the other hand, has tactfully played its pragmatic card and properly
leveraged its ideal geographic location to reap dividends from all parties concerned. Iran, albeit
late in the fray, is still poised to make up for its delay in entering the contest.
All these are a perfect illustration of the relevance of the realist / neo-realist school of thought in
analysing the geopolitics of the Caspian hydrocarbon trade.
2.4. Neo-Liberalism
Now, it is important to look into the Neo-liberal element in the Caspian hydrocarbon transit.
Robert Keohane and Joseph Nye are widely regarded as the progenitors of the Neo-liberalist
school of thought -- i.e. absolute gains for all, as against relative gains for each.15
One of the
major objectives of this study is to suggest a more active Iranian role in facilitating the smooth
transit of the Caspian hydrocarbons and in ensuring the energy security of the end-customer.
Through the increased oil swaps with the Caspian trio, Iran benefits not only from feeding the
Caspian crude to its northern refineries (and then fuelling its northern metropolises) but also
from not having to incur the additional expenses of building refineries in close proximity to its
oil wells in the south. Meanwhile, the Caspian producers get their due incentive once a
proportionate amount of the southern Iranian crude is shipped to the end-users. The same applies
to gas swaps, albeit in the foreseeable future -- whereby an equal amount of Iranian gas from its
southern gas fields would start flowing to markets in Europe and Asia, either via the proposed
pipelines or as LNG (through a terminal already nearing completion). As a matter of fact, the
unveiling scenario here is that of a win-win-win equation – implying that the producer, transit
facilitator and end user are at the rewarding end of the bargain.
15
Joshua Colebourne, ―An Appraisal of Robert Keohane: Neoliberalism and Liberal Institutionalism‖, 22 December
2012, see http://www.e-ir.info/2012/12/22/an-appraisal-of-robert-keohane-neoliberalism-and-liberal-
institutionalism-in-world-politics/ , accessed on 17 February 2015.
16
Nevertheless, feasibility studies conducted by various multinational oil companies (be it Western
or otherwise) have yielded results showing the Iranian Transit Corridor to be the most cost-
efficient, logistically supportive and lucrative for all parties involved.16
This has rendered the
possibility of mutual cooperation and collaboration among Iranian and foreign multinational oil
companies in building and operating pipelines and Oil/LNG terminals for expeditious shipment
of the hydrocarbons to the energy-dependent European and Asian markets.
Such is the likelihood of a prospective collaboration among companies/entities of hitherto
estranged nations, regardless of any politico-strategic difference among the parent nations
themselves.
The gist of such a mechanism is a collective gain for all participating nations -- as opposed to
relative gains for each player involved. This argument is undoubtedly in tandem with the
postulates of neo-liberalism.
Summarising from the above three theories of international relations, one could discernibly
juxtapose the centrality of national interest with a nation‘s drive for access to energy resources
and the subsequent need for guaranteeing its energy security. Whereas realism and neo-realism
try to justify the means adopted by a nation to exploit the hydrocarbon wealth of another nation,
neo-liberalism introduces the indispensible element of complex interdependence. This way, a
situation is constructed wherein all stakeholders in the energy tussle (the producer - transit
provider - end user axis) stand to reap equitable dividends by resorting to a cooperative
framework.
The research has attempted to consolidate a strong theoretical platform to the study being
conducted. Besides incorporating a geopolitical theory to justify the objectives of the study, the
study has not only attempted to dissect and juxtapose two mutually-contradicting theories of
international relations (Realism/Neo-realism and Neo-liberalism) but also helped to incorporate
the underlying tenets of these theories in the research being undertaken.
16
Hossein Ashkari and Roshanak Taghavi, ―Iran's Financial Stake in Caspian Oil‖, British Journal of Middle
Eastern Studies (Taylor & Francis Ltd: May 2006), v. 33, n. 1, pp. 10-11, see http://www.jstor.org/stable/20455422 ,
accessed on 12 June 2014.
17
CHAPTER THREE
THE EMERGING GEOPOLITICS OF THE
CASPIAN BASIN: THE HYDROCARBON
FACTOR
18
THE EMERGING GEOPOLITICS OF THE CASPIAN BASIN:
THE HYDROCARBON FACTOR
The Caspian Basin, with its abundant hydrocarbon reserves, has become a geopolitical hotbed
over which the great powers have been time and again competing to exert their influence.
However, the major challenge before the three younger Caspian littorals (Azerbaijan,
Kazakhstan and Turkmenistan) has been the geo-strategic barrier posed by their presumably
landlocked nature (with no direct access to the major maritime trade routes). Moreover, it is in
the context of the waning oil and gas deposits of the Persian Gulf that the Caspian Basin attains
prominence in meeting the international demand for hydrocarbons for a considerably long time
to come. But before delving into the intricacies of the external power competition over the
region, one must understand the geopolitics among the Caspian littorals over the division and
ownership of the Basin‘s seabed and the subsequent discourse over individual hydrocarbon
exploratory rights.
The research would attempt to understand the evolving geopolitics of the Caspian Basin mainly
on the basis of the negotiations among its littoral nations over the settlement of the legal status of
the water body and subsequent division of the seabed for granting exploratory rights.
Additionally, emphasis would be given to describing the Caspian Basin‘s resource wealth.
Moreover, the study would invariably focus on the energy scramble and incipient pipeline
politics in the surrounding region.
3.1. The Caspian Basin‟s Legal Status and Challenges over Seabed Division
The foremost point of contention over the legal status of the Caspian Basin is over the question
of whether it should be regarded as a lake or an internal sea – or for that matter, a condominium.
It may be noted that prior to the dissolution of the Soviet Union, only two nations shared
boundaries with the Caspian Basin. These were the former Soviet Union and Iran. But following
the emergence of the three new independent republics (Azerbaijan, Kazakhstan and
Turkmenistan) in 1991, the dispute over the Caspian Basin‘s legal status gained further
seriousness and international attention.
19
The first recorded consensual arrangement over the proprietorship of the Caspian Basin dates
back to the eighteenth century, when the Treaty of Resht (1729) was signed between Czarist
Russia and Persia, ensuring freedom of navigation and trade. The Golestan Treaty (1813) and the
Turkomanchai Treaty (1828) followed suit, in effect allowing Russia to maintain a maritime fleet
in the Caspian Sea. However, it was in 1917 that the new Soviet leadership forged an agreement
with Persia, calling for repudiation of all previous arrangements between them.17
This was
complemented with the reconciliatory measures adopted under the 1921 Friendship Treaty,
which became the landmark treaty for future bilateral relations between the Russian Socialist
Federal Soviet Republic and Persia. This treaty, albeit upholding Persia‘s navigational rights in
the Caspian Basin – was not able to provide for a standard framework over the legal status of the
Caspian Basin. Likewise, not much accrued from similar bilateral agreements in 1935 and 1940
respectively -- which were confined merely to navigation, commerce and fishing rights in the
landlocked water body.18
To sum up, the above treaties recognized the Caspian Basin as
reminiscent of a Soviet-Iranian salty lake (rather than an inland sea), to be administered through
a condominium regime. As a matter of fact, the status quo was maintained throughout the era of
the Cold War rivalry between the United States (US) and the Soviet Union.
However, following the dissolution of the USSR in 1991, the settlement of the legal status of the
Caspian body along with the division of its seabed became imperative to the five present-day
littoral nations. The 1991 Almaty Conference called for allegiance on the part of the newly
independent republics to adhere to the condominium regime promulgated by the Soviet Union
and Iran. But the discovery of huge chunks of recoverable oil deposits in the Kashagan and
Tengiz oil fields of Kazakhstan and the Shah Deniz oil field of Azerbaijan soon revived
international interest in the region. Now, the international community, especially the Western
governments and major Western oil companies had started to actively engage with the newly
independent Caspian trio (the Commonwealth of Independent States), comprising Azerbaijan,
Kazakhstan and Turkmenistan – especially in the light of a waning Russian influence in the
17
Barbara Janusz, ―The Caspian Sea: Legal Status and Regime Problems‖, see
https://www.chathamhouse.org/sites/files/chathamhouse/public/Research/Russia%20and%20Eurasia/bp0805caspian
.pdf, accessed on 1 January 2015. 18
Bruce R Kuniholm, ―The Geopolitics of the Caspian Basin‖, Middle East Journal (Middle East Institute:
Washington DC, 2000) v. 54, n. 4, pp. 547-548, see http://www.jstor.org/stable/4329543, accessed on 20 December
2014.
20
region.19
The external actors nonetheless pushed the Caspian trio to renounce the already existing
arrangements between the USSR and Iran respectively; thereby wanting the Basin to be
recognized as an inland sea – where seabed division is governed by the international law whose
standards and criteria are set by the UNCLOS (United Nations Convention on the Law of the
Sea) of 1982. Once again, the UNCLOS is regarded as the law of the high seas, and was
practically not applicable to a dichotomous case (whether it is a lake or an inland sea) like the
Caspian. More importantly, UNCLOS mandates the division of the Caspian into individual
territorial seas (one for each littoral) with each sector having a maximum width of twelve miles,
an Exclusive Economic Zone (EEZ) not exceeding two hundred miles, and a continental shelf.
But in the case of the Caspian, the 200 mile clause does not hold – and hence, article 15 of
UNCLOS is brought in, so as to divide the basin using median lines (which shall be dealt with in
the succeeding pages). Although the geological community regards the Caspian as a lake, legal
experts consider it a sea (citing historical references of the same). Nevertheless, among the
littorals, only Russia has ratified the UNCLOS – which obviously rules it out as an effective
mechanism in this particular case.20
The condominium regime, as espoused by Iran and the Soviet Union (and reiterated in the 1991
Almaty Conference) has always been most favourable (and hence acceptable) to the former. This
is because Iran does not share a very long coastline with the Caspian Sea (the third longest),
therefore standing to gain out of joint exploratory rights rather than opting for the normal
geographical/geophysical methods of seabed demarcation. Nevertheless, the condominium
method required consensual approval on the part of all five littorals for hydrocarbon exploration.
As a result, each state possessed veto-wielding power. Subsequently, Iran had initiated a
proposal for the formation of a ‗Caspian Oil and Gas Company‘, under the joint ownership of all
five Caspian littorals. Supplementing the efforts of the joint consortium would be a ‗Council of
Caspian Sea Countries‘ – another ambitious idea put forth by Iran. In sync with the above
proposals was Iran‘s insistence on an equal division of the seabed among the littorals, so that
each gets twenty percent of the seabed.21
However, despite Iranian protest, such an idea was
outright discarded because the Caspian Sea per se does not have a definite geographical shape –
19
Ramu C M, ―Iran‘s Role in the Energy Security of the Caspian Basin‖, Journal of Air Power and Space Studies
(Centre for Air Power Studies: New Delhi, 2014) v.9, n.4, pp. 118-119. 20
n. 17. 21
n. 16, pp. 3-4.
21
i.e. it is not a regular polyhedron, in which case equal division appears faulty. Moreover, division
on the above lines could possibly lead to overlap of the boundaries of two or more nations.
Later on, division in accordance with the ‗Modified Median Line Principle‘ (MMLP) held sway
for a prolonged period of time; and still continues to be acceptable to the majority -- albeit with
individually varying terms and conditions. The division of the Caspian Basin using median lines,
as mandated by the MMLP, is depicted in Map 3.1. MMLP provides for division of seabed using
median lines. A median line is a line drawn through the seabed in such a way that it remains
equidistant from the closest mainland points of two adjacent countries. Also, those deposits
falling on/along the median line would be equally divided between the countries mutually
sharing the median line.22
The MMLP, in this context, was the brainchild of Russia, which in
1997 deviated from its hitherto unrelenting stance against any sort of proportionate division.
This development was also unprecedented -- since Russia for the first time, decided to forego its
objections to the involvement of the West and Turkey (both of which had been openly invited by
Azerbaijan to prospect for oil in its portion of the Caspian Basin). According to the MMLP,
Kazakhstan would get 28.4 percent of the seabed, Azerbaijan 21 percent, Russia 19 percent,
Turkmenistan 18 percent; and Iran would end up as the sore loser with just 13.6 percent of the
seabed. Quite obviously, Kazakhstan and Azerbaijan showed active support for the MMLP. And
as expected, Iran and Turkmenistan had its own share of reservations. Iran, under then incumbent
President Mohammed Khatami, still insisted on equal division – refusing to agree to anything
less than twenty percent ownership of the seabed.23
22
n. 18, p. 556. 23
Aerial Cohen, ―Iran‘s Claim Over Caspian Sea Resources Threaten Energy Security‖, 5 September 2002, see
http://www.heritage.org/research/reports/2002/09/irans-claim-over-caspian-sea-resources-threaten-energy-security ,
accessed on 30 June 2014.
22
Map 3.1: Dividing the Caspian Seabed
Source: Aerial Cohen, “Iran‟s Claim Over Caspian Sea Resources Threaten Energy Security”, 5 September
2002, see http://www.heritage.org/research/reports/2002/09/irans-claim-over-caspian-sea-resources-threaten-
energy-security , accessed on 30 June 2014.
23
While Russia and Turkmenistan were largely unperturbed by Iran‘s demands, both Kazakhstan
and Azerbaijan objected to it. Turkmenistan, after some initial bickering, agreed to endorse the
MMLP, albeit with a few additional caveats of its own. It was mandated that each country‘s
sector of the Caspian Sea must include within its jurisdiction at least a width of forty five miles
(where the median line is to be drawn) – as opposed to the twelve miles width, as mandated by
the international law under the UNCLOS. With this arrangement, Kazakhstan would get 26.8
percent of the seabed, Azerbaijan 12.7 percent, Russia 12.9 percent, Turkmenistan 12 percent;
and Iran having to once again settle for a mere 10 percent. Additionally, the mutually shared area
would increase to 25.5 percent.24
Here, it needs to be understood that Turkmenistan‘s action was
partly influenced by the (still ongoing) dispute it has with Azerbaijan over the territorial rights of
the Kapaz/Sardar oil field – being called Kapaz in Azerbaijan whereas Sardar in Turkmenistan.
Citing this dispute, Azerbaijan foiled any attempts at materializing the adjusted MMLP. Another
case in point is Russia‘s bilateral agreement with Kazakhstan (in 1998), to exclusively divide the
Northern Caspian seabed along median lines; yet maintain dual ownership of its surface waters
(for navigation, fishing, shipping etc). With the slightest doubt, one could attribute this to
Russia‘s assertion of its maritime supremacy in the Caspian Sea. The above arrangement also
entailed the preliminary division of the Caspian Sea into North (including 49 percent of the sea,
to be shared between Russia and Kazakhstan) and South (the remaining 51 percent, to be shared
{as 17 percent each} among the rest). However, Azerbaijan played spoiler, as it would have lost
4 percent of its MMLP share had it agreed to endorse the framework.25
In spite of the failure in reaching a consensus, the Caspian littorals have nonetheless been
exploiting their respective onshore reserves falling within the Basin and also the offshore
reserves, that by default come within its territorial waters. But such actions are not completely
devoid of conflicts and setbacks, especially bearing in mind the dispute between Azerbaijan and
Turkmenistan over the Kapaz/Sardar oil field. On a brighter note – as a consensus-manufacturing
cum dispute redress mechanism, the summits of Caspian littoral countries were initiated since
2002. The negotiations have so far not borne fruit. For one, Iran has been hell-bent on an
equitable division of the seabed. Whatsoever, considering the practical shortcomings of the equal
24
Hooshang Amirahmadi, ―Challenges of the Caspian Region‖, in Hooshang Amirahmadi (ed.) ―The Caspian
Region at a Crossroad: Challenges of a New Frontier of Energy and Development‖ (St. Martin's Press: New York,
2000) pp. 3-4. 25
n. 16, pp. 5-6.
24
division method, the MMLP remains the most viable choice for Iran. Anyhow, one must not
forget the fact that Iran will still receive 17 percent of the seabed (including the common regions
it shares with Azerbaijan and Turkmenistan) – which is quite close to the 20 percent that Iran has
been claiming as its ‗natural right‘; and hence negotiable.26
Kazakhstan has been amicably balancing the involvement of external players (of both the West
and China), along with preserving their long-held loyalty towards Russia. A rationalization for
this state of events is perfectly showcased in its capital city of Astana – which has nonetheless
been identified as a state-of-the-art 21st century city, and whose growth has been mainly driven
by oil revenues. On the other hand, Kazakhstan is still dependent on Russia for a large part of its
military aid. Moreover, it harbours a 35 percent Russian (Slavic) minority in the north, who
virtually enjoy a monopoly in the movement of essential food grains; and lastly, 55 percent of
Kazakhstan‘s imports come from Russia.27
As for Azerbaijan, it is a matter of walking the
tightrope between Russian hegemony and an enterprising West. Plus for a country that has been
taxed with an ever-looming fear of ethnic backlashes with neighbouring Armenia (over the
disputed Nagorno-Karabakh enclave), petroleum has become the redeeming factor.
Turkmenistan, although a good friend of Iran, might still endorse MMLP, so long as its ‗45 mile
width‘ recommendation continues to fall in deaf ears. And regardless of how things may pan out,
Russia has less to worry -- as most of its hydrocarbon reserves in the Caspian Basin are onshore
and concentrated in and around the Caspian port city of Astrakhan. Nevertheless, it has abundant
oil and gas reserves in its other provinces like the Yamal-Nenets, Western Siberia and Sakhalin.
And so long as Russia maintains a monopoly over the Caspian hydrocarbon transit through its
well-connected pipeline network and logistical infrastructure already in place (which will be
discussed in detail in the succeeding pages), Russia is bound to dictate terms for some time to
come.28
Hitherto, there have been four summits of Caspian littoral countries. The latest of the summits
was held in Astrakhan in September 2014. As a sign of progress, there was hope of all five
littorals collectively agreeing to adopt a convention on the Caspian Sea‘s legal status, at most by
the next summit of Caspian countries, to be held in Kazakhstan in 2015. The discussions and
26
n. 24, p. 7. 27
n. 16, p. 11. 28
Andrey Korzhubayev, ―Siberia‘s Oil Future‖, see http://www.oilru.com/or/46/968/, accessed on 15 July 2014.
25
debates regarding the feasibility and construction of the undersea Trans-Caspian pipelines (from
Kazakhstan and Turkmenistan respectively) will perhaps continue to feature in the upcoming
summits, as no consensus has been reached so far on these issues.29
3.2. The Caspian Basin‟s Hydrocarbon Wealth
The discoveries of the first oil fields in erstwhile Czarist Russia were made off the coast of Baku
(present-day Azerbaijan‘s booming capital city) in the Apsheron Peninsula, in the latter half of
the nineteenth century. Preceded only by the Pennsylvanian oil exploration in the United States,
the Baku drillings soon became the forerunner in oil production. Additionally, the first oil
pipeline was laid from the oil fields in Baku to the Baku oil refinery.30
Figure 3.1: The Caspian Basin‟s Hydrocarbon Reserves
Source: Gene Kliewer, “New Caspian developments show high potential”, 12 November 2013, see
http://www.offshore-mag.com/articles/print/volume-73/issue-11/caspian/new-caspian-developments-show-
high-potential.html, accessed on 20 June 2014.
As depicted in Figure 3.1, among the three landlocked Caspian littoral nations (therefore
excluding Russia and Iran), Kazakhstan has the largest recoverable deposits of crude oil. As with
29
Richard Weitz, ―Low-Key Caspian Sea Summit Has Far-Reaching Implications‖, 30 September 2014, see
http://www.worldpoliticsreview.com/articles/14105/low-key-caspian-sea-summit-has-far-reaching-implications,
accessed on 29 December 2014. 30
Ian Bremmer, ―Oil politics: America and the riches of the Caspian Basin‖, World Policy Journal, v. 15, n.1 (Sage:
New York, 1998) pp. 27-28.
26
gas deposits, Azerbaijan boasts of the largest offshore natural gas reserves – however,
Turkmenistan tops the list if one takes into account the overall offshore as well as onshore
reserves. The Soviet era, however, could not tap into the vast potential lurking beneath the
Caspian Basin‘s hydrocarbon deposits. On the one hand, the fulcrum of the Soviet oil industry
got gradually shifted to the newly discovered oil fields in its other provinces (like the Yamal-
Nenets, Western Siberia and Sakhalin). Thereupon, the Caspian region also became a victim of
gross negligence on the part of the Soviet hydrocarbon sector – as unscientific and obsolete
methods of exploration resulted in irreparable damages to the regional environment. The adverse
impact on the deteriorating population of the endemic Caspian sturgeon -- is but one negative
consequence of such practices.
Following the dissolution of the Soviet Union, the three new independent Central Asian
republics (the Caspian trio) were in dire need of technological investment to revitalize their
respective hydrocarbon sectors. Russia was unable to meet their requirements, in the light of the
economic turmoil that it had been experiencing throughout the early 1990s.31
Baku, already
replete with the requisite infrastructure – was well disposed to woo investment from the West.
Bearing in mind Azerbaijan‘s geographical location (to the west of the Caspian Basin), it was
nonetheless seen by the West (the US, European Union and Turkey32
) as a gateway to the
Caspian‘s enormous hydrocarbon wealth – bypassing the hitherto prevailing monopoly exercised
by the Russian pipeline network (inherited from the Soviet era). Furthermore, the discovery of
the huge Shah Deniz gas field (off the coast of Azerbaijan) gave Baku an insurmountable
advantage in the revived Caspian hydrocarbon boom. Azerbaijan, has therefore, not only been
able to reap the benefits of both the Russian as well as the Western transit/pipeline network – but
also reel in Russian as well as Western oil companies in forming consortia along with its state-
owned counterpart.
Kazakhstan had its own share of troubles owing to its heavy dependence on the Russian transit
system. An unfortunate incident occurred in 1998 when Russia refused to transport Kazakh oil
through its existing array of pipelines, citing excess sulfur content. This was a genuine case,
31
Paul Kubicek, ―Energy politics and geopolitical competition in the Caspian Basin‖, Journal of Eurasian Studies
(Elsevier: Seoul, 2013) v. 4, n. 2, pp. 171–172. 32
Turkey has been categorised as part of the larger West (along with the US and EU) in the Caspian energy
scramble, more or less because of its traditional pro-Western inclination during the post-Ottoman era.
27
since most of the Soviet-installed pipelines were simply not custom-made for the varying
composition of the crude; i.e. non-resistant to the corrosive effects of extra-sulfurous oil. Even
otherwise, Kazakhstan had already been openly welcoming investments from Western oil
companies since the discovery of enormous deposits of oil in the Tengiz and Karachaganak
(onshore), and Kashagan and Kurmangazy (offshore) oil fields.33
Soon, China would also follow
suit, going on to successfully construct an oil pipeline from the Kazakhstani Caspian shore to its
own Xinjiang province (which became operational in 2009). Also, back in 2013, China‘s CNPC
(China National Petroleum Corporation) overwhelmed India‘s ONGC Videsh Limited after
Kazakhstan blocked the latter‘s USD 5 billion bid to buy stakes in the Kashagan oil field, left
behind by US-based Conoco Phillips.34
Apart from these, with the possibility of an undersea
Trans-Caspian pipeline (floated as part of the Western agenda of ‗transit-diversification‘) still
looming uncertain, its overreliance on the Russian transit network still continues. Despite the
logistical hindrances, Kazakh oil production has soared consistently in the last two decades, and
is second only to Russia, among the former Soviet republics.
Turkmenistan enjoys excellent relations with Iran. As a matter of fact, Iran was the first country
to recognize independent Turkmenistan and both share a relatively stable border. Trade ties
between the two have remained quite healthy (despite the sanctions against Iran) and the latest
manifestation of it can be seen in the commissioning of the north-south railway corridor
(connecting Iran, Turkmenistan and Kazakhstan) in late 2014.35
Turkmenistan‘s asset is its
abundant natural gas reserves; being the sixth largest natural gas holder and arguably among the
largest dry natural gas producers in Eurasia. Although the nation, under its first President
Niyazov, was initially reluctant to involve external participation in its hydrocarbon sector, things
have drastically changed since the coming of incumbent President Berdimuhamedow.
Meanwhile, China has so far been most successful among the external players in reaping
dividends from the Turkmen hydrocarbon sector. The Trans-Asia Gas pipeline takes gas from
33
―Kazakhstan-US Energy Information Administration‖, see www.eia.gov/country/country-data.cfm?fips=KZ ,
accessed on 14 June 2014. 34
PTI, ―India loses Kashagan Oil field to China‖, 2 July 2013, see
http://timesofindia.indiatimes.com/business/india-business/India-loses-Kashagan-oil-field-to-
China/articleshow/20879039.cms , accessed on 8 February 2015. 35
Economic Desk, ―Iran-Turkmenistan-Kazakhstan Railway to facilitate regional trade‖, 4 December 2014, see
http://www.tehrantimes.com/component/content/article/94-headline/119986-iran-turkmenistan-kazakhstan-railway-
to-facilitate-regional-trade , accessed on 5 January 2015.
28
Turkmenistan, all the way to China‘s Xinjiang province – traversing central Uzbekistan and
southern Kazakhstan on the way.36
Russia‘s energy policy in the Caspian Basin got a shot in the arm, after Vladimir Putin took over
as President in 2000. Putin reversed the almost-a-decade long neglect towards the Caspian
Central Asian countries, by accelerating Russian participation in the Caspian hydrocarbon
scramble and initiating a wide range of measures to replace and supplement the already existing
Soviet pipeline network with new installations. His actions were a signal to the West that
Russian suzerainty would continue to hover over the region. Meanwhile, Russian oil giants
Rosneft and Lukoil, along with its gas major Gazprom – have been successfully grabbing
sizeable stakes in the several oil fields and pipeline consortia, engaging the Caspian trio.
Bringing further reprieve for Russia was the discovery of the gigantic Velikoye oil field (holding
around 300 million tons of oil and 90 billion cubic metres of gas) in the Astrakhan region,
somewhere around early 2014. It is said to be the largest oil field discovered in Russia over the
last two decades.37
Iran‘s stakes in the Caspian Basin are by and large non-comparable to its enthrallingly abundant
oil and gas reserves in the south (along the Persian Gulf region). Moreover, it has been often
been criticized for its alleged role of a reluctant spoiler in the negotiations over the settlement of
the legal status of the Caspian Sea. However, Iran seems to be justified from its viewpoint, in its
uncompromising stance (for equitable division of the seabed) in the deliberations. For one, it has
a longer coastline (with the Caspian Sea) than both its neighbours, Azerbaijan and Turkmenistan
– yet stands to lose out sections of what it believes is its rightful territory, to either of them.
However, as stated elsewhere, the MMLP will not completely undermine Iran‘s justifiable claim
-- as it still benefits from joint exploration in the common portions it shares with Azerbaijan and
Kazakhstan. But what is of paramount importance is Iran‘s role as a transit facilitator in the
energy trade between the landlocked Caspian trio and the end-users across the world.
36
―Flow of natural gas from Central Asia‖, see
http://www.cnpc.com.cn/en/FlowofnaturalgasfromCentralAsia/FlowofnaturalgasfromCentralAsia2.shtml , accessed
on 23 January 2015. 37
―Mega oil field discovered in Southern Russia‖, 16 April 2014, see http://rt.com/business/oil-field-astrakhan-
discovery-948/ , accessed on 8 January 2015.
29
3.3. The Energy Scramble and Pipeline Politics
The demise of the Soviet Union marked the revival of what has historically been glorified as the
―Great Game‖, for access to the hydrocarbon riches of Central Asia and the Caspian Basin. Most
often referred to as the ―New Great Game‖, the major competitors for control and influence over
the region are Russia, the West and last but not the least, China. Additionally, Iran possesses all
the requisites to play the pivotal role of a trade facilitator of the energy resources in the Caspian
Basin. The contest over laying pipeline routes for the transport of oil and gas from the
landlocked Caspian shores, have resulted in the materialization of four different transit routes.
These are as follows: The Northern Route (favoured by Russia, in order to consolidate its
overarching transit monopoly and its indispensability for the Caspian trio), the Western Route
(favoured by the West – i.e. the US and EU, for ensuring ‗transit diversity‘ and reducing Russian
influence), the Eastern Route (China‘s ambitious overtures in the region), and finally, the
Southern Route (the Iranian route; whose actual potential has yet to attain fruition). There is also
a proposed South-eastern Route, which by all means, is part of the Western agenda to curtail the
Iranian influence in the transit tussle. Map 3.2 and Map 3.3 depict the various oil and gas
pipeline routes respectively from the Caspian Basin.
30
Map 3.2: Oil Pipelines from the Caspian Basin
Source: “Turkmenistan”, Analysis Briefs, 25 January 2012, see
http://www.eia.gov/countries/cab.cfm?fips=TX, accessed on 12 June 2014.
The Northern Route initially comprised of the Atyrau-Samara oil pipeline. This is a 280 000-b/d
capacity Soviet-era line which runs from the Kazakh terminal at Atyrau to the Russian Urals
refinery at Samara and then connects with Russia‘s main East-West Druzhba system. The
pipeline has a length of 691.2 km and transportation could be increased to 310,000 bbl/d.38
To
increase the capacity will cost approximately US$37.5 million. In 2001, the majority of Kazakh
oil exports were shipped through the Atyrau-Samara pipeline with additional supplies shipped by
rail and by barge across the Caspian Sea. In March 2000, Kazakhstan took a major step towards
increasing its oil exporting potential with the launch of the CPC (Caspian Pipeline Consortium)
pipeline system. The major stakeholders of the CPC are the Russian Federation (24%), the JSC
38
Manouchehir Moradi, ―Caspian Pipeline Politics and Iran-EU Relations‖, UNISCI Discussion Papers (University
of Spain: Madrid, 2006) p. 176, see http://pendientedemigracion.ucm.es/info/unisci/revistas/UNISCI10Moradi.pdf ,
accessed on 8 November 2014.
31
National Company KazMunaiGaz of Kazakhstan (19%) and the US-based Chevron Caspian
Pipeline Consortium Company (15%). The CPC pipeline network collects oil from the fields of
Western Kazakhstan and the Russian Caspian regions, and takes it to either the Black Sea
terminals or is linked to the Russian pipeline system taking oil to the Urals and then to Europe.39
The Baku-Tikhoretsk-Grozny-Novorossiysk oil pipeline, which is part of the CPC pipeline
network; transports oil from the Baku terminal of Azerbaijan to the Novorossiysk terminal on the
Russian Black Sea Coast. This pipeline is the main artery of the Northern Route, and is 1330 km
long. The contract for the transport of Azeri oil in this pipeline was signed in 1996 among the
State Oil Company of the Azerbaijan Republic (SOCAR), the Azeri pipeline operator -
Azerbaijan International Operating Company (AIOC) and the Russian state-owned pipeline
operator -Transneft.40
During 1999-2000, part of the Russian section of the pipeline was rerouted
through Dagestan (bypassing the Chechen capital of Grozny), citing the conflict-vulnerability in
the Chechen Autonomous Republic. Nevertheless, the 1500 km long trunk oil pipeline of the
CPC, from the Kazakh Tengiz oil field, runs parallel to the Baku-Novorossiysk pipeline. Back in
2013, Transneft terminated the 1996 agreement with SOCAR, for reasons ranging from
differences over the transit pricing mechanism and below-target oil inflows.41
However, a few
months later, in February 2014, both SOCAR and Transneft sorted out these differences and
decided to revive oil shipments – in view of the mutual benefits arising out of such an action.
The Central Asia Center Gas Pipeline facilitates the export of Turkmen gas to the Russian gas
major - Gazprom‘s natural gas systems, through Western Kazakhstan.42
In the last decade, the Blue Stream offshore/undersea Gas pipeline made history when it started
delivering Russian Caspian gas to Turkey, traversing the Black sea, at a depth of almost 2150
metres. The pipeline was significant for either country as it bypassed the restive regions of
Transcaucasia (comprising Azerbaijan, Armenia and Georgia) – and more so, because it relieved
Turkey from having to pay the extra finance for the hitherto long transit of Russian gas though
39
―Caspian Pipeline Consortium‖, see http://www.cpc.ru/EN/Pages/default.aspx , accessed on 6 February 2015. 40
―Baku-Novorossiysk Oil Pipeline‖, see http://www.socar.az/socar/en/activities/transportation/baku-novorossiysk-
oil-pipeline , accessed on 6 February 2015. 41
Mina Muradova, ―Russia and Azerbaijan Terminate Baku-Novorossiysk Agreement‖, 8 June 2013, see
http://www.cacianalyst.org/publications/field-reports/item/12767-russia-and-azerbaijan-terminate-baku-
novorossiysk-agreement.html , accessed on 5 January 2015. 42
Gulgiz Dadashova, ―SOCAR, Transneft update deal on Baku-Novorossiysk (UPDATE)‖, 19 February 2014, see
http://www.azernews.az/oil_and_gas/64526.html , accessed on 6 February 2015.
32
Ukraine and the Balkans. The pipeline was jointly taken up by Gazprom and Italy-based Eni, as
per the agreement signed between the former and Turkey‘s BOTAS Petroleum Pipeline
Corporation for the supply of Russian gas to Ankara for a period of 25 years. The construction
was completed in 2002 and gas shipments started flowing from the following year onwards. The
offshore section of the 1213 km long pipeline runs from the Russian Beregovaya compressor
station to the Turkish Black Sea port of Samsun.43
The second phase of the Blue Stream pipeline was proposed immediately, to extend the pipeline
from Ankara to Bulgaria (and then through the Balkans to Southern and Central Europe).
However later on, Russia decided to replace Blue Stream-2 with the South Stream offshore Gas
Pipeline Project.44
The South Stream, a highly ambitious and expensive project, was projected to
deliver Russian gas (directly to the Bulgarian Black Sea terminal of Burgas – thereby even
bypassing the heavily clogged (by oil-tanker and cargo shipping traffic) Turkish Straits of
Bosporus and Dardanelles. Further, an onshore extension of the South Stream pipeline would
have been the Trans-Balkan pipeline – which was planned to connect Burgas with the Greek
Aegean Sea port of Alexandroupoli. Unfortunately for Russia, both the South Stream as well as
the Trans-Balkan project have run into stormy waters. The talks over the latter were suspended
following Bulgaria‘s withdrawal, citing environmental and supply constraints.45
The South
Stream, on the other hand, had a climactic end when Putin himself announced the cancellation of
the project, towards the end of 2014. Expressing regret over the decision, Putin blamed the
European Union‘s latest energy policies and the anti-Russia sanctions (post the 2014 Ukrainian
imbroglio) as reasons for the project‘s burial, before it even took off. Nevertheless, the
subsequent downward slide of the Russian Ruble and the incumbent economic crisis – has
rendered Russia incapable of financing the project.46
Irrespective of the recent setbacks for Russia over the South Stream cancellation, Russia‘s clout
in the transport of Caspian hydrocarbons to its consumers (mainly in the West) has remained
43
―Blue Stream‖, see http://www.gazprom.com/about/production/projects/pipelines/blue-stream/ , accessed on 6
January 2015. 44
Ibid, accessed on 6 January 2015. 45
Jonathan Stern, Simon Pirani and Katja Yafimava, ―Does the cancellation of South Stream signal a fundamental
reorientation of Russian gas export policy?‖, January 2015, see http://www.oxfordenergy.org/wpcms/wp-
content/uploads/2015/01/Does-cancellation-of-South-Stream-signal-a-fundamental-reorientation-of-Russian-gas-
export-policy-GPC-5.pdf, accessed on 8 February 2015. 46
Ibid, accessed on 8 February 2015.
33
largely unabated. It may therefore be surmised that Russia has been rigorously attempting to
maintain its transit supremacy (via the Northern Route) over the Caspian trio, even in the face of
stiff competition from other external players like the West, China and Iran.
Map 3.3: Gas Pipelines from the Caspian Basin
Source: “Turkmenistan”, Analysis Briefs, 25 January 2012, see
http://www.eia.gov/countries/cab.cfm?fips=TX, accessed on 12 June 2014.
The Western Route of oil and gas pipelines from the Caspian shores runs mainly through
Transcaucasia and Turkey. The Baku-Batumi network of pipelines consists of an array of
pipelines transporting crude oil and kerosene from the Baku terminal to the Batumi terminal off
the Black Sea coast of Georgia. The kerosene pipeline, built in 1906 during the preliminary
stages of the operationalisation of the system, was the longest kerosene pipeline ever built until
then. The 824 km long Baku-Tbilisi-Supsa oil pipeline was added in 1998 and oil shipments
started flowing in March 1999. The pipeline connects Baku with the Georgian Black Sea port of
Supsa, via its capital, Tbilisi. The oil from the Supsa terminal is then shipped in barges and oil
34
tankers to the South Ukrainian Black Sea port of Odessa, from where it is taken to the Polish-
Ukrainian border town of Brody through a subsidiary pipeline.47
However, considering the volatility of the region encompassing the Baku-Supsa pipeline
(ranging from the Azeri-Armenian animosity -- especially over the Nagorno-Karabakh
autonomous enclave, and the proximity to the breakaway hitherto Georgian provinces of South
Ossetia and Abkhazia), Azerbaijan (with active support from the US, EU and Turkey) went
ahead with the construction of the Baku-Tbilisi-Ceyhan (BTC) oil pipeline. Ceyhan is a small
port city off the Mediterranean Sea in Southeastern Turkey. The 1768 km long BTC pipeline
(also called the Main Export Pipeline) was constructed by the BTC Pipeline Consortium,
consisting of an enthralling number of eleven major international oil companies (including
India‘s ONGC). The Azerbaijan BTC Limited (AZBTC) is the second largest shareholder in the
project that is operated under the vestiges of the British oil major, BP (British Petroleum).48
The
BTC pipeline was undoubtedly an important component of the US foreign policy agenda in the
hydrocarbon politics of the Caspian Basin. It is therefore no coincidence that the Rose
Revolution in Georgia (2005), which brought pro-US President Mikhail Saakashvili to power,
closely coincided with the completion (2005) and commissioning (2006) of the BTC pipeline.
This further reinstates the US‘ position of curtailing the predominant Russian influence in the
region.
The Baku-Tbilisi-Erzurum (BTE) natural gas pipeline was also commissioned alongside the
BTC oil pipeline, around the same time. The BTE pipeline runs parallel to the BTC pipeline and
collects gas from the Shah Deniz gas fields of Azerbaijan, at the Sangachal terminal, and
terminates at the Erzurum terminal in Northeastern Turkey. The extension of the this pipeline is
the much-touted Nabucco gas pipeline, which once completed, will take the Azeri Caspian gas
all the way to Central Europe.49
The operation of the 692 km long BTE pipeline (also referred to
as the South Caucasus Pipeline) did run into some trouble during the 2008 crisis in South Ossetia
and Abkhazia – forcing BP to temporarily suspend gas shipments. Later, in 2012, there was a
blast at one of the Turkish sections of the pipeline – which was alleged to be the handiwork of
the Kurdish Workers Party (KPP), demanding secession from Turkey. In fact, both BTE and
47
n. 38, p. 177. 48
―Azerbaijan-Baku-Tbilisi-Ceyhan Limited‖, see http://www.azbtc.com/profile.html , accessed on 9 January 2015. 49
n. 38, pp. 177-178.
35
BTC pipelines remains in constant threat of sabotage, because of its passage through the KPP‘s
strongholds in Southeastern Turkey.50
The much-awaited construction of the Nabucco pipeline has still not kicked off, owing to
problems related to financing, technical and environmental feasibility. This led to the further
division of the Nabucco project into two phases: the Trans-Anatolian Pipeline, which will take
gas from Erzurum to Bulgaria; and the Nabucco-West Pipeline, which will extend from Bulgaria
to Austria (traversing Romania and Austria).51
Needless to say, the cancellation of the South
Stream project has nonetheless brought back the much-needed attention on the Nabucco project.
The European Union and the US have been actively vouching for the Nabucco pipeline so as to
reduce the European dependence on the Russian gas. For that matter, the November 2013 interim
agreement between Iran and the P5+1 group (over the Iranian nuclear negotiations), saw among
other things, an attempt at arm-twisting Iran to agree upon supplying Iranian gas to the proposed
Nabucco pipeline by linking it with the Iranian pipeline network. In exchange for some sanctions
relief and release of a few of its frozen assets, Iran relented -- and this was an added blow to the
Russian designs (of garnering support for the South Stream) in the region.52
The construction of
the much-touted Trans-Caspian offshore pipelines is next in the fray. Once materialized, these
pipelines will bring oil and gas from the Caspian terminals along the western shores of
Kazakhstan and Turkmenistan respectively, and link it to the Nabucco and BTC pipeline systems
from Baku. Such a possibility will certainly lead to a waning relevance for the Northern Route.
However, as has been reflected before, the environmental and financial constraints of the Trans-
Caspian pipelines, implies that these will remain in the backburner for some time to come.
Not to forget, the proposed TAPI (Turkmenistan-Afghanistan-Pakistan-India) Natural gas
Pipeline is the second wing of the West‘s two-pronged strategy of containing the Russian as well
as Iranian influence in the Caspian hydrocarbon trade. The TAPI Route (or the Southeastern
Route), if fructified, will indisputably have a profound impact on the geopolitical equations of
the hinterlands linking Central Asia and South Asia. And most importantly, for the first time,
Caspian gas would find a direct land route to the energy-hungry Indian subcontinent. But the
50
―The BTE Pipeline Blast: Implications of Sabotage‖, 14 June 2012, see www.naturalgaseurope.com/bte-pipeline-
blast-the-implications-of-sabotage , accessed on 8 September 2014. 51
n. 38, pp. 177-178. 52
Mike Whitney, ―Did Iran just knife Putin in the back?‖, 18 August 2014, see
http://www.eurasiareview.com/18082014-iran-just-knife-putin-back-oped/ , accessed on 15 February 2015.
36
TAPI Project so far remains in doldrums, due to a multitude of reasons -- ranging from the
turmoil in Afghanistan and Pakistan, to technical and logistical challenges arising from the harsh
and rugged topography of the region. Also, as a case in point, India is still considering its options
of whether to opt for TAPI or go ahead with the seemingly more viable IPI (Iran-Pakistan-India)
gas pipeline. Whatever be the case, Pakistan has been the one common nemesis for India‘s
procrastinating approach to either of the pipelines. However, with Oman coming into the picture
and Iran agreeing to make the IPI a subsea pipeline (that passes only through the Pakistani
continental shelf, and not through the mainland), via an Omani terminal in the Hormuz Strait,
India has once again started to show some interest in the IPI.53
Yet, no matter how things pan
out, the uncertainty over the Iranian nuclear negotiations and India‘s burgeoning ties with the US
– have only added to India‘s dilemma over the question of whether to go for IPI or TAPI.
The Chinese, though relatively late, were still spot on to grab a piece of the Caspian pie. The
Chinese overtures into the Central Asian and Caspian region, somewhere around the late 1990s,
incidentally resulted in a new route for Caspian hydrocarbon trade. This is the Eastern Route that
mainly comprises of the two major pipelines which were discussed before: the Kazakhstan-China
Oil Pipeline and the Turkmenistan-China Trans-Asia Gas Pipeline. These two pipelines are
testimony to China‘s tactical approach towards the region – one that started off with an
enigmatic presence, to gradually move on to a consolidated position. ―Drawing on sizeable
capital from China‘s policy banks is one of the biggest advantages of Chinese national oil
companies abroad.‖54
The Chinese, with their efficient diplomatic maneuvering and business-as-
usual approach, were able to silence most of their detractors by laying the two oil and gas
pipelines through challenging terrain and covering an enviable distance. Both the pipelines were
commissioned in 2009, and the China National Petroleum Corporation (CNPC) has already
collaborated with the respective state-owned oil companies of the five CIS (Commonwealth of
Independent States) republics in the construction of supplementary pipelines connecting with the
trunk pipelines.55
The 2228 km long Kazakhstan-China oil pipeline links Atyaru oil fields of
53
Amitav Ranjan, ―Buy more oil, will re-route pipeline: Iran‖, 22 May 2013, see
http://archive.indianexpress.com/news/buy-more-oil-will-reroute-pipeline-iran/1118948/, accessed on 17 June 2014. 54
Luke Patey, ―An opportunity to outmuscle China in Oil‖, 18 December 2014, see
http://www.thehindu.com/opinion/op-ed/comment-article-an-opportunity-to-outmuscle-china-in-
oil/article6701685.ece , accessed on 23 December 2014. 55
―China-Analysis – US Energy Information Administration‖, see http://www.eia.gov/countries/cab.cfm?fips=ch,
accessed on 28 January 2015.
37
Kazakhstan with Alashankou in Xinjiang, through Uzbekistan; and is operated by MunaiTas (a
joint collaboration of CNPC and KazMunaiGas). Meanwhile, the 1830 km long Trans-Asia Gas
pipeline starts at the Turkmen-Uzbek border city of Gedaim and runs through central Uzbekistan
and southern Kazakhstan before reaching Horgos in China's Xinjiang Uyghur Autonomous
region.56
To that extent, CNPC‘s recent acquisition of Conoco Phillip‘s stakes in the Kazakh
Kashagan oil fields (after outbidding India‘s ONGC Videsh Ltd) is definitely a shot in the arm
for China‘s outreach into the Caspian region, vis-à-vis India‘s hitherto lackluster approach in the
region.
By far, the study has attempted to understand the nuances involved in the great power
competition among Russia, the West and China; over the Caspian energy riches. However, what
is often less talked about and mostly overlooked is the potential role that Iran could play – not
only as a major energy supplier (with regard to its stakes in both the Persian Gulf and the
Caspian Basin) but also as the most viable (both techno-logistically and environmentally), cost-
efficient and secure route (the so-called Southern Route) for the transit of the Caspian
hydrocarbons to its end users across the seas. Therefore, the subsequent study will attempt a
comprehensive and critical analysis of Iran and its role in the emerging hydrocarbon politics of
the Caspian Basin.
56
Ibid, accessed on 28 January 2015.
38
CHAPTER FOUR
IRAN AND THE EMERGING GEOPOLITICS
OF THE CASPIAN BASIN
39
IRAN AND THE EMERGING GEOPOLITICS OF THE CASPIAN
BASIN
The emerging geopolitics of the Caspian Basin has created an atmosphere of competition among
major powers. The role of Iran, technically, will be certainly important because of its
geographical proximity to the landlocked Caspian Basin on the one hand, and the global
maritime trade routes on the other.
The research would attempt to understand the primacy that Iran holds in driving the emerging
geopolitics of the Caspian Basin. The imperative of the study would not only be to look into
Iran‘s role as a transit facilitator for the Caspian hydrocarbons – but also to emphasize on the
former‘s importance as an energy-provider per se. But before delving into Iran‘s prospective role
in the transport of the Caspian hydrocarbons to its end users, there would be a particular
assessment of Iran‘s stance on the legal status and division of the Caspian seabed.
4.1. The Strategic Significance of Iran
Iran‘s geographical location is both economically and strategically significant – most importantly
because it serves as a bridge connecting the landlocked Caspian Sea with the Persian Gulf and
the Arabian Sea (part of the larger Indian Ocean). With the exception of Azerbaijan (with which
it has had inconsistent trade relations due to the former‘s predominantly pro-Western inclination;
and more so due to ethno-cultural issues), both Kazakhstan and Turkmenistan enjoy excellent
economic linkages with Iran.57
Such strong trade ties have had a larger beneficiary, say for
instance, in a major hydrocarbon importer like China. China, for a long period, had been
confronted with the question over the feasibility of constructing pipelines from Central Asia to
its territory. The issue had appeared problematic though, for these pipelines had to pass through
rugged terrain (the Tien Shan mountain range), which are not devoid of conflict-prone regions
(like the restive Xinjiang province). Although China went on to construct oil and gas pipelines
57
Ariel Farrar-Wellman, ―Azerbaijan-Iran Foreign Relations‖, 8 April 2010, see http://www.irantracker.org/foreign-
relations/azerbaijan-iran-foreign-relations , accessed on 6 June 2014; Also available in
―Iran- Azerbaijani Relations in 2013: decrease in trade, border clashes, ‗‗cultural wars‘‘, 28 December 2013, see
http://www.panorama.am/en/interviews/2013/12/28/a-israyelyan/ , accessed on 10 June 2014.
40
(as has been discussed in the previous chapter) from Kazakhstan and Turkmenistan respectively,
the ever-looming threat of sabotage (by Uyghur separatist rebels) continues to persist. Such fears
have been addressed to a considerable extent by the ―Oil swap‖ agreement (formally inked in
1997), among Iran and the Caspian trio (with Kazakhstan and Turkmenistan leading the way
from its inception, and followed soon by a West-leaning Azerbaijan).58
Under the arrangement, the oil from the three Caspian littorals is taken to the major refineries in
northern Iran (Tehran, Tabriz and Arak – to name a few). The refined products are used within
the country to meet its ever-increasing domestic energy demand. In the meanwhile, Iran exports
an equal share of its crude (from the oil fields in the south/south-west) via its terminals along the
Persian Gulf, the Sea of Oman and the Arabian Sea (for example: Bushehr, Kharg Island, Bandar
e Abbas, Jask and Chahbahar), to the energy-hungry Asian consumers as well as the European
markets.59
As a result, Iran has managed to circumvent the logistical hurdles in transporting its
crude (in the south), all the way to the refineries in the north. Moreover, a win-win situation is
created, wherein the supplier, intermediary and customer are at an advantageous position. As a
matter of fact, analysts agree that Iran represents the best route for energy transfer in the region,
as this route is shorter and less costly than the Russia, Turkey and China routes.60
Nevertheless,
the energy-rich Caspian states would obviously prefer to cooperate with Iran, rather than bowing
down to the suzerainty of the ―Big three‖ (Russia, the West and China).
Several contemporary surveys suggest that the Caspian region, as a whole, contains some of the
most abundant hydrocarbon reserves outside the hitherto well-exploited Persian Gulf region. In
this context, the region has witnessed, and perhaps has been witnessing a tussle among the major
players in gaining foothold over its vastly untapped energy wealth. Contrary to the Big three,
Iran has adopted a more accommodative posturing towards the Caspian oil-producing
triumvirate, no better exemplified than by the inception of the oil swap agreement. After being at
the receiving end of a prolonged spell of criticism and punitive sanctions from the West, Iran‘s
58
―Iran Resumes Oil Swap‖, The Moscow Times (Moscow), 15 November 1997, see
http://www.themoscowtimes.com/sitemap/paid/1997/11/article/iran-resumes-oil-swap/297473.html , accessed on 7
June 2014. 59
―Oil Swaps‖, The British Iranian Chamber of Commerce, see http://www.bicc.org.uk/in-iran.html , accessed on 5
June 2014. 60
―Iranian options most economically viable for exporting Caspian oil‖, Oil & Gas Journal, 17 March 2003, see
http://www.ogj.com/articles/print/volume-101/issue-11/general-interest/iranian-options-most-economically-viable-
for-exporting-caspian-oil.html , accessed on 6 June 2014.
41
strategic advantage in this regard will certainly force its adversaries to shun their anti-Iran
rhetoric. And most importantly, Iran could gradually lessen its dependence on other countries for
finished petroleum products, which is all the more important considering the difficulty it faces in
transporting its crude from the south to its major refineries in the north. Nonetheless, if taken up
and pursued on a more proactive basis, the oil-swaps could provide a way out for Iran, with
respect to the long-standing sanctions in the transfer of technology (which have curtailed its
ability to construct sufficient number of refineries in close proximity to its oil wells in the
south).61
4.2. The Caspian Basin‟s Legal Status and Allocation of Resources: Assessing
Iran‟s Approach
The precursor to Iran‘s potential for an enhanced role in the Caspian hydrocarbon trade is its
stance on the legality and disputes surrounding the Caspian Basin‘s division. Iran has always
been in favour of keeping off external players (other than the littorals) in decisions relating to
prospecting for hydrocarbons in the Caspian Basin. In this regard, it has consistently supported
the definition of the Caspian as a lake, whose territory is to be ‗equitably‘ divided among the
littorals and whose exploration ought to be carried out solely on the basis of consensus among all
five littorals. It is for this reason that Iran has been vouching for the ‗Condominium‘ regime from
the very beginning. The Soviet-Iran treaties of 1921, 1935 and 1940 respectively, along with the
1991 Almaty Conference declaration, certainly bear some semblance to the Iranian viewpoint.62
Another reason why Iran does not want to compromise on its steadfast position is because most
of the hydrocarbon deposits beneath the Caspian seabed lie either towards the centre or north of
the Basin. All the more, according to Iran, adoption of the MMLP would render it incapable of
lucratively exploiting the Caspian‘s oil and gas reserves – in the meanwhile allowing the rest of
the littorals to gain undue advantage (over Iran) in exploring the oil-rich regions of the Basin.63
Conversely, if at all the seabed is divided equitably (with each littoral receiving 20 percent
regardless of the length of one‘s coastline) using the ‗Mirza Kouchik Khan‘ point (as depicted in
Map 4.1), as articulated by Iran, then both Kazakhstan and Azerbaijan would have to forgo
61
n. 19, pp. 108-109. 62
n. 16, pp. 2-3. 63
Bahman Aghai Diba, ―Iranian Doctrine of the Caspian Sea‖, 27 December 2010, see
www.payvand.com/news/10/dec/1260.html , accessed on 17 January 2015.
42
portions of their respective shares -- to the benefit of the other three.64
Apart from this, Iran
desperately wants to rewrite its credentials from being simply regarded as a significant player in
the Persian Gulf to that of an influential player in the Caspian region too. As a result, the role of
being trade facilitator to the Caspian trio -- in addition to boasting sizeable stakes in the Caspian
Basin as well as the Persian Gulf, would boost Iran‘s regional and international image as a
powerful and responsible guarantor of international energy security.
Map 4.1: Iran‟s Proposed Seabed Division using Mirza Kouchik Khan Point
Source: “Iran's Changing Perspectives & Policies on the Caspian Sea: Interview with Abbas Maleki”, 22
March 2001, see http://www.netnative.com/news/01/mar/1112.html, accessed on 11 January 2015.
So far, since 2002, four summits of the Caspian Sea states have taken place; and none of these
summits has witnessed the signing of an agreement over the seabed demarcation. However, on a
positive trajectory, the last summit in Astrakhan (September 2014) concluded on a hopeful note
– with the heads of the five littorals agreeing to reach a decision on the Caspian‘s legal status, at
most by the next summit in Kazakhstan (poised to convene in 2018). Moreover, Iran, which was
till then regarded as a hindrance to any solution (due to its adamant position on the 20 percent
division), also extended cooperative support in the efforts towards the possible formation of a
64
n. 17.
43
five-nation Convention on the Legal Status of the Caspian Sea.65
This is certainly a
reconciliatory gesture on the part of a nation which had often argued for suspending the oil and
gas explorations in the Caspian until an agreement is reached. During the 2014 Astrakhan
summit, the leaders of the respective states sat together and successfully formulated the
fundamental clauses and principles which would define the Convention. Russian President
Vladimir Putin and his Iranian counterpart Hassan Rouhani expressed considerable hope that the
Convention‘s official document would be struck preferably by 2015.66
Throughout the summits and the concomitant deliberations over the past twelve years, Iran has
clearly voiced its indignation over the MMLP and the eagerness on the part of the Caspian trio to
involve foreign players in the Caspian conundrum, i.e. at least in the non-military domain. As a
matter of fact, following the latest of summits in Astrakhan, both Iran and Russia were able to
garner support from the Caspian trio in creating a joint mechanism for economic cooperation, or
rather a free trade zone among the littorals. Additionally, Iran‘s insistence on the demilitarization
of the Caspian Sea and ensuring unhindered access between the Caspian and the open
seas/oceans gained salience in the just-concluded negotiations. Another significant achievement
of the Astrakhan summit, of utmost significance for Iran, is the decision to allocate 15 mile zones
of national jurisdiction and 10 mile national fishing zones respectively – including common
usage and sharing of the surface waters for shipping and navigation. Nonetheless, Iran had
already signaled its enthusiasm in the discussions on the Caspian Basin, when it played a
midwifery role in the signing (in 2003) of the Framework Convention for the Protection of the
Marine Environment of the Caspian Sea (also called the Tehran Convention).67
Howsoever goes the trajectory of the deliberations over the Caspian‘s legal status -- and despite
the odds stacked against Iran‘s contention, Iran, unquestionably, is bound to play an
indispensible role in offering the best possible transit route for the Caspian oil and gas. Judging
from a pragmatic perspective, the Condominium regime -- however justifiable and convincing it
may appear to be from the Iranian point of view, faces the risk of being rejected by Kazakhstan
and Azerbaijan (the top beneficiaries of the MMLP). But in a dramatic transformational shift, in
65
Elena Dunaeva, ―Results of the Astrakhan Summit of the Caspian States‖, 9 October 2014, see http://journal-
neo.org/2014/10/09/rus-itogi-astrahanskogo-sammita-prikaspijskih-gosudarstv/ , accessed on 6 November 2014. 66
RFE/RL, ―Putin Optimistic of Eventual Accord after Fourth Summit of Caspian States‖, 29 September 2014, see
http://www.rferl.org/content/caspian-sea-summit/26610935.html , accessed on 22 January 2015. 67
n. 65.
44
August 2014, Iran‘s Khazar Oil Exploration and Production Company (KEPCO) – a subsidiary
of the state-owned National Iranian Oil Company (NIOC), forged a Memorandum of
Understanding (MOU) with Azerbaijan‘s state-owned oil company SOCAR – for joint
exploration cum extraction of oil from the Caspian seabed adjoining their territories.68
This
development not only strengthened Iran‘s agenda ahead of the Astrakhan summit in the
following month – but also helped define a new roadmap in the often-patchy relationship
between the two ethno-linguistically brethren nations. As for Russia, neither the MMLP nor the
Condominium method makes much difference. Turkmenistan on the other hand, might
fatalistically endorse MMLP, since its recommendation of the 45 mile-width ‗adjusted‘ MMLP
failed to muster acceptability. However, its ‗all-weather‘ friendship with Iran should bring about
a change in Turkmenistan‘s position, provided the Condominium regime stands the test of times.
Also, taking cue from what has already been elaborated in the last chapter, a probable Iranian
consent for the MMLP would not necessarily compromise Iran‘s alleged prerogative in the
Caspian Basin. Despite its laxities, the fact of the matter is that MMLP would still guarantee the
availability of 17 percent of the seabed (instead of the 13 percent, if one takes into account the
common areas enclosed by Iran‘s median lines with each of Azerbaijan and Turkmenistan
respectively).69
Insofar as to say that Iran‘s negligible loss in endorsing MMLP would be
belittled by the revenue it stands to earn through oil and gas swaps, levying transit charges for
pipeline-support and other technical cum logistical infrastructure (like railway and shipping,
LNG terminals etc). And what more, the oil and gas swaps would ensure easier and cheaper
availability of fuel for the populous cities of Northern Iran – which would nevertheless help
reduce Iran‘s dependence on other countries for refined petroleum products.
4.3. Iran as Facilitator of the Caspian Hydrocarbon Trade
Having taken into account the various constraints faced by the Russian, Western and Chinese
transit networks, Iran has the onus before itself to take advantage of the situation. Several
surveys and feasibility studies conducted till date, have confirmed that the Iranian Route offers
the safest; and perhaps the most cost-effective option for transporting the Caspian oil to its end
68
―Iran seeks stronger position in Caspian Sea‖, 27 August 2014, see
http://www.worldbulletin.net/news/143233/iran-seeks-stronger-position-in-caspian-sea , accessed on 8 September
2014. 69
n. 16, p. 2.
45
users. A more active pursuit of the oil-swap agreement would enable Iran to eventually realize its
long-awaited goal of attaining self-reliance and self-sufficiency in meeting its burgeoning
demand for energy. Add to this, the cost-effectiveness and a relatively better safety guarantee
that is ensured in the process.70
Likewise, any increase in oil-swaps can be comprehended with
the construction of an arterial trans-Iranian pipeline cutting across the Iranian north-south
corridor and linking it to the already existing pipeline network within Iran. Fortunately, Iran has
a well-connected railway network cutting across its north-northwest frontier. This could serve as
a direct linkage between its Caspian Sea ports and the major refineries. For instance, the crude
that is shipped from the Caspian oil terminals to the Iranian Caspian Sea ports of Neka and
Amirabad, is taken to the major refineries in Tabriz, Tehran and Arak, in oil tankers (through rail
-- a testimony to the well-equipped railway network within the country). It is also to be borne in
mind that there already exists a well-equipped pipeline network in this route.71
By all means, the need of the hour is a proactive energy diplomacy initiative from Iran.
Considering the stalemate that the Caspian littorals have intentionally or inadvertently put
themselves in, the time is ripe for reconciliatory measures aimed at steering themselves out of the
quagmire. Iran is already upgrading the capacity of the Bandar e Abbas-Isfahan pipeline system
for transporting oil products from the Bandar Abbas oil storage facility in the south to the Isfahan
oil refinery in Central Iran. This would greatly reduce the heavy costs incurred from transporting
the oil in tankers (through trucks and rail). Strictly speaking, Iran needs to enhance and expedite
its oil-swaps with the triumvirate. Besides this, all possible options for the construction of the
Trans-Iranian oil pipeline ought to be given utmost priority.72
Once operational, the approximately 1550 km long Trans-Iranian oil pipeline (depicted in Map
4.2) would connect the Iranian Caspian Sea port of Neka in the north to the southern Persian
Gulf port of Jask, adjoining the Sea of Oman.73
In a series of constructive developments, the
National Iranian Oil Company signed a contract agreement with a South Korean company for the
70
n. 19, pp. 119-120. 71
Hooman Peimani, ―Russia turns to Iran for oil exports‖, 11 February 2003, see
http://www.atimes.com/atimes/Central_Asia/EB11Ag03.html , accessed on 8 February 2015. 72
―National Iranian Oil Engineering and Construction Company (NIOEC)‖, see
http://niordc.ir/index.aspx?siteid=77&pageid=392 , accessed on 7 January 2015. 73
Stephanie Clancy, ―Pipeline Projects in the Middle East‖, see
http://pipelinesinternational.com/news/pipeline_projects_in_the_middle_east/040183/ , accessed on 8 February
2015.
46
construction of the strategic and economically important pipeline. This comes as no surprise,
considering the fact that South Korea is one among the leading importers of Iranian oil.
Moreover, the Trans-Iranian pipeline would facilitate the oil-swaps with the Caspian
triumvirate.74
Thereby, with a conducive and well-supported infrastructure and logistics base, the
Iranian government can confidently vouch for an increase in the volume of oil swaps with the
Caspian trio. Notwithstanding a one-year hiatus (back in 2010) when oil swaps were temporarily
halted – citing dearth in the requisite support infrastructure, the Rouhani administration has more
or less been vigorously engaging in some active energy diplomacy; specially in appealing for a
hike in the volume of the Central Asian crude oil, which is shipped in barges and oil tankers to
the port of Neka.75
Map 4.2: The Trans-Iranian Pipeline Infrastructure
Source: “Iran oil and energy analysis”, 2 February 2014, see http://www.ecasb.com/en/article/2273, accessed
on 5 January 2015.
74
―S Korea signs on to trans-Iran pipeline‖, 7 October 2011, see http://edition.presstv.ir/detail/203348.html,
accessed on 30 June 2014. 75
Arron Merat, ―Rouhani‟s Central Asia Policies in Spotlight at SCO Summit‖, 15 September 2013, see
http://www.al-monitor.com/pulse/tr/originals/2013/09/rouhani-central-asia-policy-at-sco-summit.html , accessed on
29 June 2014.
47
In consonance with the long-term target of hiking oil swaps, Kazakhstan has offered to construct
an oil pipeline (in addition to the Neka-Jask cross-country pipeline), running through Iranian
territory and terminating at Jask. Concomitantly, Kazakhstan, Turkmenistan and Iran recently
accomplished a major feat with the commissioning of the trilateral railway (part of the grand
North-South Corridor) – connecting the oil fields of Kazakhstan and Turkmenistan to the Iranian
Persian Gulf port of Bandar e Abbas.76
Further ahead, Iran, in anticipation of future gas
shipments through pipelines connecting the different gas fields in the south (especially the
gigantic South Pars gas fields off the Persian Gulf coast), has also mooted the idea of
constructing a natural gas pipeline all the way to an Omani LNG plant. The Omani tankers
would then ship the Iranian gas to its South Asian and East Asian customers.77
Another case in
point is the plan for building an oil terminal in the port of Jask. The Iranian Oil Terminals
Company (IOTC), which is in charge of the overall construction and operation of the terminal,
has been mulling over the possibility of inviting tenders from Iranian private players and foreign
companies for building additional storage tanks, loading and unloading wharves, single-point
moorings (SPMs) as well as onshore and offshore facilities as part of the terminal‘s provisions.78
The Jask oil terminal would incentivize Iran‘s oil exports by increasing the oil storage capacity
of the port, thereby minimizing the time, cost and energy involved in its transportation from the
oil fields.
As has been pointed out so far, though Iran could boast of its credentials as a major exporter of
crude oil, yet the unilateral sanctions of the US have curtailed Iran‘s ability to export let alone
make optimal use of its abundant natural gas reserves (the second largest in the world, after
Russia)79
. The stringent punitive sanctions over the transfer of technology have resulted in Iran
not being able to convert its huge stockpiles of natural gas into liquefied form, or LNG
(Liquified Natural Gas); which is the domestically transportable form of natural gas meant to be
shipped over distances of continental proportions. Although it must not be forgotten that
76
Economic Desk, ―Iran-Turkmenistan-Kazakhstan Railway to facilitate regional trade‖, 4 December 2014, see
http://www.tehrantimes.com/component/content/article/94-headline/119986-iran-turkmenistan-kazakhstan-railway-
to-facilitate-regional-trade , accessed on 8 December 2014. 77
Benoit Faucon, ―Iran Considering Exporting LNG via Plant in Oman‖, see
http://www.wsj.com/articles/SB10001424052702303287804579445373706670940 , accessed on 8 December 2014. 78
―Iran mulls construction of big oil terminal along Oman coast‖, see
http://www.presstv.ir/Detail/2014/08/16/375525/Iran-mulls-big-oil-terminal-in-south, accessed on 9 February 2015. 79
―Iran: Country Analysis Brief Overview‖, 30 May 2013, see http://www.eia.gov/countries/country-
data.cfm?fips=ir , accessed on 19 June 2014.
48
conversion into LNG is the only viable method for transporting gas in oil tankers; especially for
supply to the eastern markets like India and the Far-eastern markets of Asia (like China, South
Korea and Japan). But recently (in March 2014), in the process of reducing its unprecedented
dependence on gas imports (which is very ironical for a country with the world‘s second largest
gas reserves), Iran has entered into an agreement with the Sultanate of Oman. As per the deal,
Iran would export LNG to the Asian markets, via an LNG plant/terminal in Oman. The Omani
oil tankers would subsequently be used to ship Iranian LNG to the Asian consumers. Both
countries have already proposed to build a gas pipeline for transporting Iranian gas from its
southern gas fields (mainly the South Pars gas fields) to the Omani LNG terminal.80
Last but not the least, Iran is on the verge of completing the construction of its first ever LNG
terminal in Tombak, close to the Persian Gulf port town of Assaluyeh. Moreover, it has also
envisioned three more LNG terminals in quick succession to the one at Tombak. Unfortunately,
for now, the work on the Tombak terminal seems to be stymied after facing severe financial
constraints from eroding prices, caused by the US Shale boom.81
But in the foreseeable future,
Iran‘s aspiring role as both an LNG and a dry natural gas supplier (considering its abundant
reserves) is likely to gain some traction. As one could see how Qatar became the world‘s largest
LNG exporter (and also the richest nation) by exploiting its share of the Pars gas fields (which it
shares with Iran), Iran certainly has the potential to exploit what is known to be 34 percent more
than Qatar‘s possession of the Pars gas fields.82
A possible waning of sanctions, combined with a
foreseeable normalization of the oil prices, would push Iran to the top of the oil and gas supply
ladder. This would further incentivize Iran to negotiate (from a position of strength) with the
Caspian trio for more oil and gas swap agreements. As a testament to Iran‘s elevating salience in
the Caspian region, Azerbaijan has explicitly stated its intent to proceed with more oil swaps
with Iran, on the same lines as the gas swaps it carries out with the latter, to feed the
80
Benoît Faucon, ―Iran Considering Exporting LNG via Plant in Oman‖, The Wall Street Journal (Middle East
News), 17 March 2014, see
http://online.wsj.com/news/articles/SB10001424052702303287804579445373706670940 , accessed on 23 June
2014. 81
Anthony Dipaola and Robert Tuttle, ―Iran‘s LNG Dreams Vanish as U.S. Shale Gas Looms‖, 10 July 2013, see
http://www.bloomberg.com/news/2013-07-09/iran-s-lng-dreams-vanish-as-u-s-shale-gas-looms.html, accessed on
28 October 2014. 82
Ibid, accessed on 28 October 2014.
49
Nakhichevan Autonomous Republic (NAR).83
This is in contrast with the deep-rooted skepticism
between the two, the most startling being Iran‘s unhindered support for Azerbaijan‘s arch-rival
Armenia and Azerbaijan‘s bonhomie with Israel.
Besides the LNG option, Iran already exports natural gas per se to its consumer nations, via
pipelines. However, its hitherto existing pipelines extend only till neighbouring Iraq and Turkey.
Therefore, in order to realize its potential as a leading gas exporter, Iran is forced to further
extend its pipeline dominance to the gas-thirsty markets in Europe and (South and East) Asia. On
a brighter note for Iran, the 2014 Ukrainian imbroglio and the Russian threat of blocking gas
supply to Europe (in response to the sanctions), have forced the Europeans to reduce its
dependence on Russian gas and look for other alternatives.84
In this regard, Iran has virtually
capitalized on the unfolding situation. A Persian pipeline (Iran-Turkey-Europe Gas Pipeline) has
been proposed to directly connect the South Pars gas fields to Europe, traversing countries like
Turkey, Greece, Italy, Switzerland, Austria, France and Spain.85
Coinciding with these
developments, on 24 November 2013, Iran finally managed to negotiate an interim deal with the
P5+1 countries, for a temporary reduction in economic sanctions and release of some of its
frozen oil revenue assets; in exchange for agreeing to reduce its uranium enrichment level to
below twenty percent; and allowing IAEA access to its not-so-contentious nuclear facilities.
With the gestation period (provided for meeting the obligatory clauses) further extended
following the deadlock over the 24 November 2014 meeting (and negotiations still going on), the
proponents of a constructive engagement between Iran and US are expecting committed and
calculated measures from both sides.86
Hopefully, with the eventual lifting of sanctions (a
process already underway, albeit at snail‘s pace), Iran could invite increased participation from
83
―Iran Swaps 1.750 Bcm of Azerbaijan Gas for Nakchivan‖, 12 June 2013, see
http://www.lngworldnews.com/iran-swaps-1-750-bcm-of-azerbaijan-gas-for-nakchivan/ , accessed on 12 January
2015. 84
―Iran ready to supply Europe with natural gas: Official‖, 8 May 2014, see
http://www.presstv.com/detail/2014/05/08/361803/iran-ready-to-export-gas-to-europe/ , accessed on 27 June 2014. 85
―Iran starts Persian gas pipeline construction‖, 30 May 2009, see http://edition.presstv.ir/detail/96451.html ,
accessed on 21 June 2014. 86
Mick Krever and Joshua Berlinger, ―Nations agree to 4-month extension of Iranian nuclear negotiations‖, 21 July
2014, see http://edition.cnn.com/2014/07/19/world/meast/iran-nuclear-negotiations-extension/ , accessed on 22 July
2014.
50
foreign companies to develop the necessary infrastructure for oil and gas
production/transportation.87
With regard to the proposed Persian Gas Pipeline, Iran remains confident of bringing in Chinese
participation, considering the fact that China is the largest beneficiary of Iran‘s crude oil exports;
plus the largest foreign investor in Iran‘s technical infrastructure. However, back in 2010, a
Swiss company had pulled out from the proposed project, fearing US sanctions. However,
assuming the possibility of an all-pervading thaw in relations between Iran and the West, the
project expects to be revived.88
Once operational, it will serve as a more cost-efficient alternative
to the already proposed Nabucco pipeline (connecting Azerbaijan to Central Europe via Turkey,
Bulgaria, Romania, Hungary and Austria). Additionally, the idea of an Iran-Iraq-Syria Gas
Pipeline was also floated. However, in spite of beginning preliminary construction work on the
pipeline; the project was put on the back burner following the Syrian ―Civil War‖.89
In the wake of the Western punitive sanctions against Russia, following the Ukrainian imbroglio,
another noteworthy and contemporaneous development is the looming possibility of an oil-swap
deal between Iran and Russia. However, the incumbent Iranian oil minister Bijan Zanganeh
denied the existence of any fixed barter system in place (following speculations that sanctions-
bitten Russia would buy Iranian oil; and in exchange -- provide Iran with food grains, technical
assistance for its hydrocarbon sector and supply two more reactors for its Bushehr atomic power
plant).90
Given the current situation and the underlying circumstances surrounding the committed
efforts between the P5+1 (spearheaded by no other than the US) and Iran in concluding a nuclear
deal once and for all, it will be interesting to see if Iran would express solidarity with its
87
―Iran Names 7 Western Oil Companies It Wants to Return‖, 4 December 2013, see
www.reuters.com/article/2013/12/04/iran-oil-idUSL5N0JJ2A420131204 , accessed on 2 July 2014. 88
Benjamin Weinthal, ―Swiss adopt EU sanctions on Teheran‖, 26 January 2011, see http://www.jpost.com/Iranian-
Threat/News/Swiss-adopt-EU-sanctions-on-Teheran , accessed on 25 June 2014; also see
Gawdat Bahgat, ―The Emerging Iranian-Turkish Energy Partnership: Strategic Implications‖, 18 July 2014, see
http://www.isn.ethz.ch/Digital-Library/Articles/Detail/?id=181685 , accessed on 2 February 2015. 89
―Iran plans gas link to Europe distinct from Nabucco‖, Reuters, 19 October 2008, see
http://company9688.ecasb.com/en/news/87 , accessed on 24 June 2014; also see
Dmitry Minin, ―The Geopolitics of Gas and the Syrian Crisis: Syrian ―Opposition‖ Armed to Thwart Construction
of Iran-Iraq-Syria Gas Pipeline‖, 3 June 2013, see http://www.globalresearch.ca/the-geopolitics-of-gas-and-the-
syrian-crisis-syrian-opposition-armed-to-thwart-construction-of-iran-iraq-syria-gas-pipeline/5337452 , accessed on
28 June 2014. 90
―Sanctioned Russia and Iran sign 5-yr deal to ease Western pressure‖, 6 August 2014, see
http://rt.com/business/178316-russia-iran-oil-deal-sanctions/ , accessed on 8 February 2015; also see
―Zanganeh denies Iran, Russia ‗oil bartering‘‖, 10 December 2014, see
http://en.mehrnews.com/detail/News/105035, accessed on 5 January 2015.
51
―sanctioned‖ brother-in-arm Russia (by proceeding with the so-called ‗oil-for-goods‘
programme) and thereby antagonize the West into probably reeling back its ongoing diplomatic
outreach. This becomes all the more relevant considering that President Obama has dared to veto
any Republican (not to exclude Iran-skeptic Democrats) – sponsored bill that seeks to scale up
the anti-Iran sanctions (after these were considerably waned following the November 2013
interim nuclear agreement with Iran and the P5+1).91
Without doubt, President Obama wants to
make a legacy for himself, of being ‗the American President who went the extra mile to
normalize relations with the Islamic Republic of Iran‘. In fact, a gradual phasing out of the
sanctions could see more Western oil companies investing in the Iranian hydrocarbon sector. The
one undisputable fact here is that it was the Western oil companies (especially those based in the
US) which had deep reservations over sanctions on the Iranian hydrocarbon sector, from the very
beginning. More than losing out on opportunities to prospect for hydrocarbons in Iran‘s
enormous oil and gas fields, these companies have nevertheless remained unabated in their
preference for the Iranian/Southern Route in transporting the Caspian hydrocarbons to its end
users across the world.92
Needless to say, following the Ukrainian fiasco (and Russia‘s political wrangling with Ukraine‘s
new government by willfully choking gas supplies – and threatening a new gas route through
Turkey), the European Union (EU) has been earnestly striving to curtail all sorts of Russian
influence over the region by cutting down on its dependence on the Russian gas. In a precursor to
the EU‘s Russia-targeted reforms in its energy policy, the pro-West Poroshenko government of
Ukraine signed into law a bill that would allow foreign oil companies (in this case, the US and
European oil companies) to buy up to 49 percent stakes in the Ukrainian gas pipeline network.93
Moreover, the sanctions – together with the debilitating impact of the falling crude oil prices,
have literally crippled the Russian gas exports to Europe and devalued the Russian Ruble to an
all-time low against the US dollar. The final blow for Russia was delivered with the
announcement (by Putin himself) of the cancellation of the highly anticipated and ambitious
91
Andrew Trotman, ―Vladimir Putin signs historic $20bn oil deal with Iran to bypass Western sanctions‖, 6 August
2014, see http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/11014604/Vladimir-Putin-signs-
historic-20bn-oil-deal-with-Iran-to-bypass-Western-sanctions.html , accessed on 9 August 2014. 92
Jay Solomon, ―Oil, Auto Companies Make Plans to Invest in Iran if Sanctions Ease‖, The Wall Street Journal
(Middle East News), 1 July 2014, see http://online.wsj.com/articles/oil-auto-companies-make-plans-to-invest-in-
iran-if-sanctions-ease-1404257812# , accessed on 8 July 2014. 93
―Ukraine makes first step to let EU, US co-manage national gas pipes‖, 4 July 2014, see
http://rt.com/business/170436-ukraine-pipes-eu-us/ , accessed on 5 July 2014.
52
South Stream Project – citing lack of funds and more so, because of the EU‘s stringent energy
policies.94
The current unfolding scenario has warranted the European market to look for
alternatives in the Iranian and Caspian gas sectors. And as could be easily deduced, the West‘s
arm-twisting of Iran to agree upon supplying the latter‘s gas (for exchange of sanctions relief) in
the proposed Nabucco gas pipeline (the West‘s pet-project), as against Russia‘s South Stream
pipeline, came as a back-stab for the overall Russian design.95
As things stand, even if Russia manages to pressurize Iran into signing similar swap deals, Iran
would still weigh its options before jumping onto any hasty decision. The dichotomy within the
Iranian government (on whether to go closer with an isolationist Russia and possibly face the
brunt of continued Western criticism, or cull out its long-held pariah status through
rapprochement with the West) is reflected in the difficulty in ironing out differences between the
leadership (including its diplomatic corps representing the nuclear negotiating team) and the
various other ministries (including opposing factions in the parliamentary rostrum). It is striking
to note that the elites within the constitutionally empowered cum self-autonomous Expediency
Council as well as the Sepah (the Iranian Revolutionary Guard Corps) have only become more
prosperous with increasing sanctions; and that too, at the expense of the layman‘s sufferings.
Strictly speaking, the Sepah has so far been able to successfully turn around the crippling effects
of the sanctions (in its favour) by indulging in smuggling and bootlegging of important
commodities (arms, food etc) through special ports and making use of bottlenecks and
chokepoints to circumvent the sanctions.96
The research has so far covered the facets and dimensions of Iran‘s role in facilitating the smooth
transit of the Caspian oil and gas to its end users. The subsequent study would deal with the
prospects and challenges before the Caspian and Iranian hydrocarbon sectors in realising the full
potential of the proposed mechanism. The research would simultaneously attempt to present a
cost-benefit analysis of the Iranian Transit Route, vis-à-vis the other existing and planned routes.
94
Jonathan Stern, Simon Pirani and Katja Yafimava, ―Does the cancellation of South Stream signal a fundamental
reorientation of Russian gas export policy?‖, January 2015, see http://www.oxfordenergy.org/wpcms/wp-
content/uploads/2015/01/Does-cancellation-of-South-Stream-signal-a-fundamental-reorientation-of-Russian-gas-
export-policy-GPC-5.pdf , accessed on 9 February 2015. 95
n. 52. 96
Robert Bear, ―Why Sanctions won‘t Beat Iran‘s Revolutionary Guards‖, 17 February 2010, see
http://content.time.com/time/world/article/0,8599,1964509,00.html , accessed on 26 January 2015.
53
CHAPTER FIVE
COST-BENEFIT ANALYSIS OF THE
IRANIAN TRANSIT ROUTE
54
COST-BENEFIT ANALYSIS OF THE IRANIAN TRANSIT
ROUTE
Over the course of the past two decades, the geopolitics of energy transit has gained center-stage
in relation to the scramble for energy resources, particularly when it comes to a land-locked
region like the Caspian Basin. As a matter of fact, several of the contemporary geopolitical
developments in the adjoining region have its roots in the overall pipeline politics being played
out by the major powers, for dictating terms in the hydrocarbon trade through the Eurasian
region.
The research, apart from attempting to understand the impediments to the conventional transit
routes, would look into the regional geopolitics of pipelines and energy security -- and its
ramifications for the Iranian transit corridor. The study would also outline the likely implications
of the Iranian transit route on the perceptions and actions of the major players involved in the
energy scramble.
5.1. The Iranian Transit Route and the Contemporary Regional Geopolitics
It is important to understand the role played by the various stakeholders in the Caspian energy
scramble and how Iran‘s proactive role in the transport of the hydrocarbon riches would
influence the dispositions of each player. More important would be to correlate the wider
implications of the hydrocarbon trade for the regional and global heavyweights. But before that,
it is pertinent to understand the challenges before the hitherto widely-discussed pipeline routes
(the Northern, Western and Eastern Routes). In fact, the Russian, Western and Chinese transit
channels are replete with problems of grave concern, ranging from environmental feasibility to
conflict-vulnerability; and not to mention, logistical shortcomings.
Despite the incessant competition among the major players for exercising monopoly over the
control of the Caspian energy transit, their efforts are not devoid of stumbling blocks. Say for
example, all the three pipeline routes, be it the Northern (Russia-dominated), Western
(US/EU/Turkey-dominated) or Eastern (China-dominated); have to traverse considerably long
55
distances, running through uncharted territories consisting of rugged terrain and volatile conflict-
prone regions. In fact, the Russian pipeline network along the Northern Route passes in close
proximity to the Chechen Autonomous Region and Dagestan Republic, regions which have
witnessed violence since the First Chechen War of 1994.97
Moreover, some of the pipelines in
the Russian territory (those built during the Soviet era) have come under heavy criticism for
being obsolete, and therefore, non-resistant to corrosion. To that extent, Russia had initially
refused to transport Kazakh oil through some of its pipelines, citing excess sulfur content in the
oil.98
Neither is the Western Route bereft of any hurdle. It passes through the Nagorno-Karabakh
region, which has seen violent ethnic clashes between the Karabakhi Armenians and the
Azerbaijani state. Nonetheless, the BTC Pipeline goes through South-eastern Turkey, where the
Kurdistan Workers‘ Party (KPP) has long been waging a turf-war against the Turkish
government forces, demanding secession and establishment of an independent state. To add to
the woes, the pro-Russian breakaway provinces of South Ossetia and Abkhazia pose a threat to
the safety of the Baku-Tbilisi-Supsa Pipeline, in Georgia.99
Meanwhile, the proposal for a Trans-
Caspian Undersea Pipeline has come under the scanner for possible environmental degradation
and sea water contamination. (The pipeline, if supposedly ruptured, could release poisonous
hydrogen sulfide gas into marine and coastal life).100
As with the Eastern Route, the Tien-Shan Mountain System poses a huge challenge to the safety
of the pipelines. On the one hand, the region is prone to earthquakes (it is situated in a
seismically-active belt where the Indian plate continuously pushes onto the Eurasian continental
plate); and on the other, besides the construction costs, even maintenance of the pipelines in such
difficult-to-access rugged topography involves massive expenditure.101
In addition to all these factors, even corrupt practices on the part of both the government regimes
and oil companies in awarding/winning tenders have hindered all-round progress. This has been
97
Adam Rodriguez, ―Oil Export for a Unified Caspian Oil Conglomerate‖, Autumn 2002, see
http://web.stanford.edu/class/e297a/Unified%20Oil%20Conglomerate.htm, accessed on 8 June 2014. 98
n. 31, pp. 175-176. 99
n. 97. 100
"Trans-Caspian Pipelines -- Ecological Concerns of Turkmenistan...‖ The Free Library- 2011 Al Bawaba (Middle
East) Ltd., 21 July 2014, see http://www.thefreelibrary.com/Trans-Caspian+Pipelines+--
+Ecological+Concerns+of+Turkmenistan.-a0250749847, accessed on 17 June 2014. 101
―China‘s Central Asia Problem‖, International Crisis Group Asia report (ICG: Brussels, 27 February 2013), see
http://www.crisisgroup.org/~/media/Files/asia/north-east-asia/244-chinas-central-asia-problem.pdf, accessed on 7
June 2014.
56
rather critically reflected in the inability of the host governments to sustain the financing of the
pipelines over a long period of time. For example, the US, which paid a whopping $200 million
in subsidies for the construction of the BTC Pipeline, remains concerned over the ability of the
Azeri government in financing and overseeing the maintenance of the pipeline.102
5.2. The Geopolitics of Pipelines and Implications for Regional Energy
Security
Despite the politico-strategic differences between Iran and Turkey over a multitude of issues --
ranging from the Iranian nuclear imbroglio and the question over the sustenance of President
Bashar-al-Assad‘s leadership in Syria to either power‘s regional hegemonic ambitions, both
countries share mutual economic interests (which boasts the potential for inducing greater
strategic cooperation in the foreseeable future). It may be noted that since the victory of the
Justice and Development Party (AKP), an Islamic Party, in the 2002 Turkish elections, there has
been an extra vigour within the Iranian policy elites to actively engage with the regional
heavyweight. It would indeed suffice to say that the influential Azeri (ethnically Turkic) minority
within Iran (of which the present Supreme Leader Ayatollah Ali Khamenei himself is a member)
are the keenest proponents of Iran developing cordial relations with the ethnic Turkic/Turkic-
speaking countries in its neighbourhood.103
Turkey had time and again offered financial and technological assistance to Iran‘s energy sector.
It was only during Mahmoud Ahmadinejad‘s tenure as the Iranian President (2005-13), when the
international community tightened the sanctions-laden noose on the Iranian economy that
Turkish technological investment in the Iranian energy sector plunged to an all time low. The
obvious reason was that the Turkish companies feared the aftereffects of the sanctions. As a
result, there have been strong voices within the Turkish enterprising community, calling for an
expeditious normalization of Turkey-Iran economic relations – following developments hinting
at a possible nuclear deal between Iran and the P5+1 nations.104
102
n. 16, p. 17. 103
―The Turkey, Russia, Iran Nexus: Economic and Energy Dimensions‖, Proceedings of an International
Workshop Ankara, 29 March 2012, see
http://csis.org/files/attachments/120529_Turkey_Russia_Iran_Nexus_Ankara_Workshop_Proceedings.pdf ,
accessed on 23 September 2014. 104
Ibid, accessed on 23 September 2014.
57
Both Iran and Turkey display an element of pragmatic regionalism in each other‘s economic
policies. Turkey on the one hand, is dependent on both Russia and Iran for a huge majority of its
oil and gas imports -- whereas for Iran, Turkey is seen as a transit hub for the prospective export
of its natural gas, through pipelines to the energy-hungry European market. In this context, it is
aptly worthy of mentioning the economic, but specifically the energy partnership, between
Turkey and Russia; and for that matter, between Turkey and the West (US and EU). Here, one
must bear in mind that Turkey, despite its traditional Western inclination, has had a very healthy
economic relationship (particularly in energy) with Russia over the past one decade. Russia, for a
long time, has been dependent on the East European countries like Ukraine and Belarus to serve
as transit territories for the multitudes of pipelines taking oil and gas (but mainly gas) from the
Russian oil and gas fields and also from the Caspian hydrocarbon fields. Moreover, maintaining
monopoly over the hydrocarbon transit has been the prime tool for the Russians in strong-arming
and hence effectually profiting from levying transit and transportation charges from the two
Caspian littorals on the eastern side – i.e. Kazakhstan and Turkmenistan. Azerbaijan
considerably reduced its dependence on the Russian transit corridor after the commissioning of
the BTC (Baku-Tbilisi-Ceyhan) and BTE (Baku-Tbilisi-Erzerum) oil and gas pipelines
respectively.
However, transit through Ukraine came at its own costs for Russia. The Russia-Ukraine disputes
over gas supplies (specifically between Gazprom and Ukrainian hydrocarbon major Naftohaz
Ukrayiny) in 2006 and 2009 respectively are grim reminders for Russia of the risk of
transporting gas through onshore pipelines transiting East Europe. In both cases, Russia was
forced to put the gas shipments in abeyance, following alleged siphoning off and diversion of gas
by Ukraine and delay in the payment of debts it owed to Gazprom. Ukraine on the other hand,
accused Gazprom of overpricing the gas supplies.105
These were testing times for Russia, as
these confrontations were bound to disrupt gas flows to Russia‘s major gas markets in the
European Union (EU) – such as Poland and Germany. But shortly thereafter, following the 2010
Ukrainian elections which brought the pro-Russian President Victor Yanukyovich to power,
Russia was able to dictate terms in its East European gas transits; i.e. except until 2014 when the
105
Aleksander Kovacevic, ―The Impact of the Russia-Ukraine Gas Crisis in South-eastern Europe‖, 1 March 2009,
see http://www.oxfordenergy.org/wpcms/wp-content/uploads/2010/11/NG29-
TheImpactoftheRussiaUkrainianCrisisinSouthEasternEurope-AleksandarKovacevic-2009.pdf , accessed on 2
February 2015.
58
Maidan protests flared up (eventually ousting Yanukyovich, who fled to Russia). To add to
Russia‘s woes, the incumbent Ukrainian government, in late 2014, decided to divest 49 percent
stakes in its gas transportation system and sell them to a cobbled-together coalition of foreign
(specifically Western) shareholders.106
This came as the writing on the wall for any future
prospective overtures for Gazprom and its subsidiary pipeline operator Transneft, in Ukraine.
Having long foreseen some of these impediments in transporting gas to its Western European
customers, Russia had decided to construct offshore/undersea gas pipelines bypassing mainland
Ukraine. The Northern gas corridor is known as the Nord Stream, which transports gas from
Russia to Germany -- from where it is taken elsewhere to Western Europe through subsidiary
pipelines. The Nord Stream was commissioned in 2011.107
The Blue Stream and the much-hyped
South Stream projects were slated to be the southern equivalent of the Nord Stream. Blue Stream
was planned to proceed in two phases. The first phase of Blue Stream connects the Russian
Black Sea terminal of Beregovaya to the Turkish counterpart in Samsun – traversing under the
Black Sea. It was commissioned in 2003 and was a joint collaborative effort of Gazprom and Eni
(of Italy), under the auspices of the joint agreement entered into between Gazprom and BOTAS
(of Turkey). This pipeline was a win-win for both Russia and Turkey as well – since Turkey
benefited from not having to pay for the extra burden of re-importing Russian gas through
Ukraine, Moldova and the Baltic states of Romania and Hungary.108
The second phase of Blue Stream was proposed by Putin himself in 2009. This would be another
pipeline parallel to Blue Stream-1, but touted to be further extended to the Turkish
Mediterranean port city of Ceyhan – from where the gas would be shipped to the Levantine
states of Cyprus, Israel, Lebanon and Syria. 109
Coming to the South Stream project – this was by far, one of Russia‘s most ambitious projects
proposed till date. The South Stream gas pipeline was touted to take Russian and Caspian gas
from the Russian Black Sea shores to the Balkan countries and the rest of Southern Europe
106
Tyler Durden, ―Has Ukraine Shot Itself In The Foot With Gas Pipeline Deal?‖, 29 August 2014, see
http://www.zerohedge.com/news/2014-08-29/has-ukraine-shot-itself-foot-gas-pipeline-deal , accessed on 8
September 2014. 107
―Nord Stream‖, see http://www.nord-stream.com/ , accessed on 20 February 2015. 108
―Blue Stream‖, see http://www.gazprom.com/about/production/projects/pipelines/blue-stream/ , accessed on 20
February 2015. 109
Ibid, accessed on 20 February 2015.
59
through Bulgaria. Nevertheless, construction of this challenging undersea pipeline would have
incurred a huge expense, on a never-before seen scale. The extension of the off-shore segment of
the South Stream pipeline was supposedly a Trans-Balkan pipeline, taking the gas from Burgas
terminal in Bulgaria to Alexandroupoli, off the Adriatic coast of Greece. The South Stream
would have bypassed Turkey and also the heavily-clogged Turkish straits of Bosporus and
Dardanelles – thereby being able to tone down the long-reiterated complaints from Turkey,
pointing to the dangers of heavy shipping and pipeline traffic through its sensitive choke point
(adjoining the densely populated city of Istanbul).110
Russia‘s decision to proceed with the South Stream was also in partial terms, a retaliatory gesture
to Turkey‘s decision to be party to the rival Western-backed Nabucco pipeline. The Nabucco
project would link the Shah Deniz gas fields of Azerbaijan to Central Europe, via Turkey. It
would basically comprise the already existing BTE (Baku-Tbilisi-Erzurum) pipeline, which
would be extended to Europe through the Trans-Anatolian pipeline from Erzerum (traversing the
Turkish central country and then passing through the Straits of Bosporus and Dardanelles). In
Europe, the pipeline would be extended till Austria through Bulgaria, Romania and Hungary.
However, till the latter half of 2014, the South Stream project appeared more feasible in
comparison to the Nabucco project. Nonetheless, Russia was quite confident about the
materialization of the South Stream project, all the more after the project bagged the requisite
environmental clearances -- and Gazprom and Eni jointly negotiated with the Turkish
government of Recep Tayyip Erdogan for usage rights in the Turkish territorial waters. Russia
had bet all its money on this venture – to such a degree that it offered to compensate Turkey for
its loss (of losing transit rights), with the Blue Stream-2 pipeline.111
But later on, the project started to go through stormy waters. The initial blow came with the
backing out of the Bulgarian government (in 2011) from the Trans-Balkan pipeline (depicted in
Map 5.1), citing environmental ramifications and financial constraints. Later on, under a covert
agreement, Iran was arm-twisted by the US and the EU into getting its support for the Nabucco
pipeline (and also for rerouting Iranian gas to Europe through it), as against the South Stream
110
―EU will have to transport Russian gas from Turkey on its own – Gazprom chief‖, 6 December 2014, see
http://rt.com/business/212095-gazprom-eu-turkey-setup/, accessed on 7 December 2014. 111
―Russia sheds light on Turkish Stream Project‖, 6 February 2015, see http://www.euractiv.com/sections/global-
europe/russia-sheds-light-turkish-stream-project-311900 , accessed on 9 February 2015.
60
pipeline. This had featured as one of the conditions put forward by the West in exchange for
slackening down some of the sanctions and releasing some of Iran‘s frozen assets (oil revenues)
– as part of the November 2013 interim nuclear agreement between Iran and P5+1.112
The final
blow was delivered by the Ukraine crisis, following which Russia came under punitive Western
sanctions – resulting in the much-anticipated devaluation of the Russian Ruble. All the more,
falling crude oil prices came at a no better time for Russia. Wilting under the combined pressure
of all these factors, the decision to cancel the South Stream project was made by Putin himself
(in December 2014), citing Gazprom‘s inability to finance the project -- Adding to Russia‘s woes
was EU‘s stringent energy policies aimed at curtailing the Russian gas monopoly in the
region.113
Map 5.1: The Eurasian Pipeline Scramble
Source: “Competing European and Russian pipeline projects for a Eurasian gas corridor (06/2009)”, see
http://www.css.ethz.ch/policy_consultancy/products_INT/graphics/natural_resources_EN, accessed on 23
December 2014.
112
n. 52. 113
Jonathan Stern, Simon Pirani and Katja Yafimava, ―Does the cancellation of South Stream signal a fundamental
reorientation of Russian gas export policy?‖, January 2015, see http://www.oxfordenergy.org/wpcms/wp-
content/uploads/2015/01/Does-cancellation-of-South-Stream-signal-a-fundamental-reorientation-of-Russian-gas-
export-policy-GPC-5.pdf , accessed on 4 February 2015.
61
In this context, it becomes imperative to analyse Turkey‘s indispensible role in both the
prospective North-South (the Blue Sream-2 -- supplying Russian and Caspian gas to the Levant
region and also to the South Asian and East Asian markets) and East-West gas corridors (either
the Nabucco pipeline or the proposed Persian gas pipeline -- supplying Caspian and Iranian gas
to the markets of Europe). Apart from being an inevitable transit provider for the Russian,
Caspian and Iranian gas shipments, Turkey has been actively negotiating with gas-rich Qatar for
vouching for a gas pipeline from Qatar‘s huge North Pars gas fields (which it shares with Iran),
all the way to Europe, transiting Saudi Arabia, Jordan, Syria and Turkey itself, on the way. Here,
it is crucial to correlate the Syrian conflict (that has been raging from 2011 onwards) to the
pipeline geopolitics of the entire West Asian-Eurasian belt.114
Map 5.2: Syria and the „Pipeline‟ Conflict
Source: “The Destabilisation of Syria: Who Gains?”, see http://www.passionforliberty.com/2013/09/14/the-
destabilization-of-syria-who-gains/, accessed on 10 January 2015.
114
Steve Austin, ―Crude oil and the Syrian Conflict‖, 12 November 2014, see http://oil-price.net/en/articles/crude-
oil-syrian-conflict.php , accessed on 17 January 2015.
62
Both Qatar (along with Saudi Arabia) and Turkey stand to reap mutual dividends in toppling
down the Assad regime from power in Syria. Even though sectarian reasons do preponderate (the
larger Sunni-Shia divide; and the ulterior motive of inflicting irreparable damages on the so-
called Iran-led Shia crescent, consisting of Iran, Iraq, Syria and Lebanon), an equally important
common prize for the former three (as well as their backers in the West), was to curtail the heavy
European dependence on the Russian gas transit; and certainly not brushing aside a possible and
more feasible Iranian alternative. Interestingly, back in 2010, Assad chose to go with the
proposed Iran-Iraq-Syria-Lebanon (and then to Europe) pipeline (a complementary pipeline to
the already proposed Iran-Turkey-Europe Persian pipeline), over the much-hyped Qatar-Saudi
Arabia-Jordan-Syria-Turkey (and then to Europe) pipeline.115
This certainly did not go well with
the vested interests of Qatar and Saudi Arabia. For this reason, Qatar and Saudi Arabia has from
the very beginning of the Syrian conflict, been supporting and heavily funding the Syrian rebels
(hobbled up into the so-called Free Syrian Army - FSA). Turkey even went on to offer part of its
territory (bordering Syria) to host a Syrian ‗opposition in exile‘, mainly composed of the
defectors from the Syrian Army, grouped under the common banner of the FSA. But things
started to take a different turn, when Turkey went ahead with openly assisting and training the
Jabhat-al-Nusra front, an offshoot cum Syrian affiliate of the ‗Al-Qaeda in Iraq‘ group.116
What Turkey did not anticipate was that the same organisation would one day (in this case, early
2014) midewife the birth of the brutally deplorable ISIS (Islamic State of Iraq and al-sham) / IS
(Islamic State) – the terrorist group which has been rampaging the territories of Iraq and Syria
and committing atrocities on a hitherto unprecedented scale. In this way, Turkey, along with
Qatar and Saudi Arabia (along with their arm-suppliers in the West) has created a ‗Frankenstein
monster‘, which is nevertheless biting back on its progenitors. As things stand, apart from having
to sort out the dilemma (further exacerbated by Western pressure) of whether to support its long-
time foe, i.e. the separatist Kurdistan Workers Party (KPP) in its struggle against the mutual
enemy (ISIS), Turkey has inadvertently got itself enmeshed in between a rock and a hard place –
115
Ibid, accessed on 17 January 2015. 116
―Mapping Militant Organisations: Jabhat-al-Nusra‖, 12 November 2014, see
http://web.stanford.edu/group/mappingmilitants/cgi-bin/groups/view/493 , accessed on 19 December 2014.
63
as far as its disposition towards the continuation of the Assad regime in Syria is concerned. The
one common linkage here is that everybody detests the ISIS.117
In this regard, it is imperative to point out some of the few incipient developments that took
place at the zenith of the Syrian ―Civil War‖. Incidentally, Saudi Arabia, in an effort to mobilize
Russian opinion against the Assad regime – offered to forge a lucrative arms deal (worth more
than USD 15 million) and also vowed not to initiate any projects that would jeopardize the
Russian gas-export interests.118
But Saudi Arabia‘s declaration itself was anathema to its
prospective gains through the Qatar-Europe pipeline (depicted in Map 5.2). However, Russia had
no better incentive to comply, since it had greater priorities in safeguarding its official warm-
water naval base (based at the Syrian Mediterranean port of Tartus) – which could be possible so
long as Assad stays in power. It is for this very significant strategic rationale that the Russian
President Putin himself negotiated to arrange for the transshipment of the Syrian government‘s
alleged chemical weapons arsenal to safer locations (to be safely destroyed).119
Now by putting together all the bits and pieces, or rather by trying to connect the odds and ends
of the last half a decade (starting from the 2009 Russia-Ukraine gas disputes, to the Syrian
conflict, the Ukrainian imbroglio and even the Iran-P5+1 nuclear negotiations), one could
discernibly deduce from the overall scenario, a very conducive environment for a mutually
beneficial Iran-Turkey energy partnership. The one insurmountable advantage enjoyed by
Turkey, is its ideal location – of being a beneficiary to the pipelines originating from the Russian,
Caspian, Iranian as well as the ―Arab‖ part of the ―Persian‖ Gulf. Above all, with the
cancellation of the South Stream project and the underlying friction over the initiation of the
work on the Nabucco pipeline (citing various techno-logistical, financial and environmental
constraints), Turkey stands to gain substantially from extending its already existing pipeline
system from Iran, crossing the Turkish straits to mainland Europe (which will after all deliver
Iranian gas from the South Pars gas fields of the Persian Gulf, as well as Caspian gas delivered
117
Aaron Stein, ―Turkey‘s Evolving Syria Strategy‖, 9 February 2015, see
http://www.foreignaffairs.com/articles/143023/aaron-stein/turkeys-evolving-syria-strategy , accessed on 10
February 2015. 118
Steve Austin, ―Crude oil and the Syrian Conflict‖, 12 November 2013, see http://www.oil-
price.net/en/articles/crude-oil-syrian-conflict.php , accessed on 8 December 2014. 119
The Associated Press, ―Syria Credits Putin While Handing over Last of Declared Chemical Weapons‖, 23 June
2014, see http://www.themoscowtimes.com/news/article/syria-credits-putin-while-handing-over-last-of-declared-
chemical-weapons/502401.html , accessed on 9 December 2014.
64
through feeder pipelines in the Iranian territory to Europe). Moreover, Europe is already placing
its bets on the Iran-Iraq-Syria pipeline (depicted in Map 5.3), which ostensibly, is said to be
extended to Greece, through Lebanon and under the Mediterranean Sea. This approximately
6000 km long pipeline, once operational, will be the longest so far in the region.120
Map 5.3: The Proposed Iran-Europe Islamic Pipeline
Source: “Feasibilty study of the Persian Pipeline”, see http://gscpgroup.com/project2.html, accessed on 5
February 2015.
Nevertheless, together with the Persian pipeline (depicted in Map 5.4), this pipeline would help
Iran and the Caspian trio in tapping the most viable and cost-efficient hydrocarbon transit
corridor to the Levant and Europe. Subsequently, with Qatar‘s North Pars-Europe pipeline
proposal losing steam in the face of the intractability of the Syrian conflict (especially over the
question of the allegiance and uniformity of the rebel factions) – and Russia‘s own problems
with Ukraine and the West, the time is ripe for Iran (along with the Caspian trio) and Turkey in
120
―Iran Iraq Syria Gas Pipeline the Real Reason Why Syria is Targeted by America and Allies‖, 2 August 2013, see
http://www.liveleak.com/view?i=982_1412128773 , accessed on 5 February 2015.
65
exploiting the enticing potential of this ‗middle path‘.121
Needless to say, with the positive
trajectory of the ongoing Iranian nuclear negotiations, both Turkey and Europe ought to engage
opportunistically with Iran, especially in the light of the waning Russian and Qatari gas
monopoly over the Eurasian region.
Map 5.4: The Proposed Iran-Europe Persian Pipeline
Source: “Feasibilty study of the Persian Pipeline”, see http://gscpgroup.com/project2.html, accessed on 5
February 2015.
5.3. Possible Implications for the Major Stakeholders
It is necessary to understand the likely reactions of the other major players involved, to an
increasing Iranian clout in facilitating the Caspian hydrocarbon trade. Apart from this, it is even
more pertinent to assess the possible implications for the major stakeholders including Russia,
the United States and China
121
Editorial Board, ―Iran-Iraq-Syria Pipeline Must Tempt Europe‖, 2 August 2013, see
http://oilprice.com/Geopolitics/Middle-East/Iran-Iraq-Syria-Pipeline-Must-Tempt-Europe.html ; also see
http://www.liveleak.com/view?i=cc0_1376039759&comments=1 , accessed on 8 February 2015.
66
5.3.1. Russia
Iran‘s relationship with Russia has always been one of expediency. Moreover, contrary to what
most naysayers think, an Iran-West rapprochement may not necessarily create an unfillable void
in the Iran-Russia bonhomie. One reason for this is that Russia is currently more focused on
exploiting its newly discovered hydrocarbon reserves in the Sakhalin, West Siberian (Priobskoye
and Samotlor) and East Siberian (Yamal-Nenets) regions. Moreover, it has already set its eyes on
the vast untapped potential of the Arctic (with which Russia shares the longest coastline).
However, in the face of the increasing antagonism within the EU towards Russia (following the
intervention in Ukraine) and vice-versa (due to the EU‘s compliance to NATO‘s
expansion/enlargement into Eastern Europe), there is a clear indication that Russia is already set
to make a quantum shift and concentrate more on the Eurasian and East Asian markets -- away
from its traditional European customer base. A noteworthy example in this regard is Putin‘s
floating of a Eurasian Customs Union (with Russia, Kazakhstan and Belarus already in
adherence; but with Ukraine‘s probable accession now out of the cards), as a rival politico-
economic counterpart to the EU.122
To add to this, Russia is looking forward to a more
cooperative engagement with China (both bilaterally and through the SCO) and it has already
hinted at deeper economic and military cooperation with Turkey and Israel (despite both being
traditional Western allies); but also for that matter, Iran and Syria.123
With the possible exception of Germany (which is still heavily dependent on Russian gas --
courtesy of the Nord Stream gas pipeline), Russia has found the going tough -- especially with
the introduction of the ‗Third Energy Package‘ by the EU. The clauses of this law mandate that
the owner of any arterial pipeline system within the EU should not be a gas producing company
per se. If it is so, it should either divest its stakes in the EU or hand over management of those
pipelines to companies within the EU.124
This law was specifically targeted at Gazprom and its
European pipeline operations. As a matter of fact, Russia-EU energy relations took a nosedive
122
Jon Henley, ―A brief primer on Vladimir Putin's Eurasian dream‖, 18 February 2014, see
http://www.theguardian.com/world/shortcuts/2014/feb/18/brief-primer-vladimir-putin-eurasian-union-trade ,
accessed on 17 January 2015. 123
―Russia and Israel sign military agreement‖, 7 September 2010, see http://rt.com/news/israel-barak-military-
serdyukov/ , accessed on 9 February 2015. 124
―Third Energy Package‖, see http://www2.nationalgrid.com/UK/Industry-information/Europe/Third-energy-
package/ , accessed on 17 February 2015.
67
when Russia (in May 2014) filed a lawsuit at the WTO against the EU‘s stringent Third Energy
Package.125
However, with the EU-Russia energy ties sliding on a downward trajectory, China
came into the picture and offered to fill into the void. As a result, just days after the WTO
debacle, both Russia and China signed a landmark USD 400 billion gas deal, for the supply of
Russian gas to China via a new pipeline – for a period of thirty years. Interestingly, this was a
defining moment which came at a no better time for the world‘s top energy producer and the
world‘s largest energy consumer.126
Likewise, through such diversification strategies and pragmatic innovations, Russian oil and gas
would still continue to retain its huge market base. And regardless of a probable equilibrium shift
in the energy trade, Russia-Iran defense ties would continue to foster smooth sailing in the rough
seas. The same applies to China, which would be largely unperturbed by the possibility of a thaw
in Iran-West relations. Needless to say, this is best showcased in China‘s rigorous pursuit of its
highly ambitious and far-sighted New (Continental and Maritime) Silk Road Programme.
5.3.2. The United States
The US presently does not import any oil or gas from Iran. Firstly, it has its other sources in the
Persian Gulf (like Saudi Arabia, Kuwait, UAE, Iraq, Qatar etc); secondly, its dependence on
Persian Gulf oil and gas is gradually declining in relation to its increasing preference for crude
oil from alternative sources like Africa (Angola, Nigeria etc), Latin America (Venezuela,
Ecuador etc) and Canada; the latter being its own backyard. Nevertheless, the ongoing
advancement in fracking / hydraulic fracturing technology (fracking is the method used for
extracting gas trapped between shale rock formations, by employing high-pressure water jets)
and the success of the shale gas revolution, would mean that the US would attain self-sufficiency
-- at least for a long time to come, in meeting its demand for oil and natural gas.127
No doubt that
the US Shale boom has helped it to rise above top ranker Saudi Arabia in terms of oil (not gas)
125
―Russia files suit in WTO against EU Third Energy Package‖, 5 May 2014, see
http://rbth.com/news/2014/05/05/russia_files_suit_in_wto_against_eu_third_energy_package_36401.html , accessed
on 23 January 2015. 126
Elena Mazneva and Stepan Kravchenko, ―Russia, China Sign $400B Gas Deal After Decade of Talks‖, 21 May
2014, see http://www.bloomberg.com/news/articles/2014-05-21/russia-signs-china-gas-deal-after-decade-of-talks ,
accessed on 24 December 2014. 127
―What is fracking and why is it controversial?‖, 27 June 2013, see http://www.bbc.com/news/uk-14432401 ,
accessed on 26 December 2014.
68
production. In this context, the US lawmakers are actively considering revoking its long-imposed
ban on crude-oil exports, so that the American private oil companies can get their due benefits
from exporting shale oil and gas to countries with which it has signed an FTA (Free Trade
Agreement) – but also non-FTA nations. Well at least for now (on account of the relatively lower
crude oil prices), the oil majors appear reluctant to go ahead with exports; the minimum support
price for exports, according to their standards, is at least USD 90 per barrel.128
But the situation
is liable to change within a few years, and US LNG exports may eventually kick-off.
Anyhow, regardless of such a scenario, the Caspian hydrocarbon trade (which is yet to pick up
steam) is likely to realize its true potential once the Iranian transit route is replete with all the
necessary wherewithal (logistics and infrastructure) – a process already underway. The very
eagerness on the part of the US administration (under President Barack Obama), to seal a
permanent nuclear deal with Iran, is itself testimony to the changing perceptions towards Iran in
the US. On the flip side, even if partisan attitude (the pro-Israel Rightwing Congressional
legislators wanting to increase the anti-Iranian sanctions) takes its toll in delaying such a deal,
the bold threat by the President himself (to wield the Executive veto, if need be) is a conducive
signal for a progressive Iranian role in the Caspian energy trade.
Meanwhile, with its eyes set on the increasing relevance of the Caspian oil and gas reserves, the
US would certainly hope to churn out a fairly fruitful stake in the Caspian Basin‘s immense
resource wealth. Likewise, with the Iranian transit route outweighing the other West-owned
pipeline routes (like the BTC) in various parameters, the US is slowly coming to terms with the
importance that Iran holds as a security-guarantor in the Caspian energy transit. Moreover, the
US government can no longer lend deaf ears to the long-repeated demand of American
Multinational oil companies like Chevron Corporation and Conoco Phillips to invest in the
Iranian oil and gas sector.129
Resonating with these appeals were the words of Iranian Oil
Minister Bijan Zanganeh- in a meeting of OPEC oil ministers (in December 2013), the first of its
kind since the interim nuclear deal was struck. He expressed his desire for the return of seven
major Western Multinational oil giants namely: Total of France, Royal Dutch Shell, Italy's ENI,
128
Tuncay Babali, ―What Shale Gas Revolution Means for International Energy Geopolitics and New World
Order?‖, 1 October 2014, see http://www.huffingtonpost.com/tuncay-babali/what-shale-gas-
revolution_b_5896254.html?ir=India , accessed on 8 December 2014. 129
n. 92.
69
Norway's Statoil, Britain's BP (British Petroleum) and U.S. companies, Exxon Mobil and
Conoco Phillips.130
Apart from the presumably profound merits that the Iranian transit route
enjoys in the technical, economical and environmental spheres, it also presents its geopolitical
advantages for the West: a West-driven strategy, pivoted on an official embracement of the
Iranian transit route for the Caspian oil and gas; combined with further active encouragement
(mainly through financial assistances), would help weaken Russian suzerainty in the Caspian
region.
5.3.3. China
China and Iran enjoy strong trade ties, ever since formal diplomatic relations were established in
1971.131
Not to mention the fact that China continued to invest heavily in Iranian trade and
infrastructure, often unperturbed by the looming threat of sanctions. Although China operates a
gas pipeline from Turkmenistan to its northern Xinjiang province, the ever-present conflict-
vulnerability in the route, coupled with an unquenchable domestic demand for energy; have
pushed China to rigorously invest in Iran‘s oil and gas fields. Moreover, it is already actively
partaking in the infrastructural development activities to link Iran‘s northern Caspian ports to the
southern Persian Gulf ports; so as to facilitate the quick and efficacious transit of Caspian gas
through Iranian territory (as part of the Maritime Silk Route project).132
To meet the prerequisites
for converting the natural gas to LNG (for shipment by tankers), CNPC (China National
Petroleum Corporation) and other Chinese companies have been awarded tenders by Iran
Liquefied Natural Gas Company (ILC), to jointly build and operate LNG terminals.133
The contemporaneous discovery of huge recoverable reserves of shale gas within China (in fact,
the largest in the world) has pushed the Chinese oil companies to invest substantially in domestic
oil and gas production.134
Yet this will not contribute to an abrupt waning of Chinese investments
in the energy sector of foreign countries, especially when it comes to a traditional energy partner
130
―Iran Names 7 Western Oil Companies It Wants to Return‖, 4 December 2013, see
www.reuters.com/article/2013/12/04/iran-oil-idUSL5N0JJ2A420131204 , accessed on 2 July 2014. 131
John S. Park, ―Iran and China‖, see http://iranprimer.usip.org/resource/iran-and-china , accessed on 22 June
2014. 132
―Iran calls on Chinese to enter multi-billion-dollar energy deals‖, Tehran Times, 11 July 2009, see
www.payvand.com/news/09/jul/1106.html , accessed on 22 June 2014. 133
Ibid, accessed on 22 June 2014. 134
Matt Insley, ―Large Shale Gas Reserves Discovered in China‖, 25 July 2014, see
http://dailyresourcehunter.com/large-shale-gas-reserves-discovered-in-china/ , accessed on 2 January 2015.
70
like Iran. Interestingly, as a case in point, China has only gone ahead with increasing its
hydrocarbon imports -- in the light of the deep surge in crude prices.135
Rest assured, with a
likely reduction in sanctions, there is every possibility that Japanese and South Korean
companies will soon follow suit in vying for stakes in the Iranian oil and gas sector.
The research has made a modest attempt to conduct a comprehensive cost-benefit analysis of the
Iranian Transit Route, in relation to the contemporary regional geopolitics (specifically pipeline
politics) of not only the Caspian region but also of the Eurasian region. Besides throwing light on
the various demerits of the conventional transit routes, the research has been able to analyse the
likely win-win scenario presented by the Iranian transit corridor – not only for the hydrocarbon
producers (the Caspian triumvirate) and the end users (the existing and prospective stakeholders)
but also for the producers and the intermediary/transit provider (Iran). The research has also
discussed in detail the approaches of the major stakeholders towards the Iranian transit route.
The subsequent study will exclusively focus on the implications of the Iranian transit corridor for
India.
135
Lucy Hornby, Anjli Raval and Neil Hume, ―China‘s oil imports climb above 7m barrels a day for first time‖, 13
January 2015, see http://www.ft.com/cms/s/0/78f88222-9aff-11e4-882d-00144feabdc0.html#axzz3SNup1YRW ,
accessed on 25 January 2015.
71
CHAPTER SIX
THE IMPLICATIONS OF THE IRANIAN
TRANSIT ROUTE FOR INDIA
72
THE IMPLICATIONS OF THE IRANIAN TRANSIT ROUTE
FOR INDIA
India‘s economy has been growing at a rapid pace and the country has been striving hard to meet
its burgeoning demand for energy. It is already the world‘s fourth largest energy consumer and is
projected to leapfrog Russia onto third place by the year 2020 (only China and the US consume
more energy).136
In this context, apart from Iran‘s role in facilitating the Caspian hydrocarbon
trade, its role as an energy exporter itself has a beneficiary in India. Both nations have long
enjoyed excellent economic relations in the area of hydrocarbon trade. The bilateral energy
partnership, albeit undergoing minor hiccups here and there, have on a whole not been adversely
impacted by the punitive sanctions on Iran‘s nuclear programme. With the increasing realization
of Iran‘s significance as an energy provider cum transit facilitator, and in the light of a possible
Iran-West entente, India‘s energy security requirements are poised to get a fillip with the
growing relevance of the Iranian Route. More importantly, Iran is also India‘s gateway to Central
Asia and Afghanistan.
The chapter will try to analyse the implications of an enhanced Iranian role in the Caspian
hydrocarbon trade, for India. Apart from covering the significant aspects of the India-Iran
relationship, the chapter will delve into the various factors that make Iran crucial for India and its
overall energy security equation. Moreover, an attempt will be made to ideate an India-Iran-
Central Asia trilateral energy partnership on the basis of the emerging geopolitics of the Caspian
Basin. Last but not the least, an attempt will be made to analyse the prospects and challenges for
a closer India-Iran energy cooperation, taking into consideration the Iranian nuclear negotiations
and the changing contours of the Iran-US and India-US ties respectively.
6.1. A Brief Overview of India-Iran Relationship
136
―India is fourth largest energy consumer in the world: Report‖, 19 March 2013, see
http://www.thehindubusinessline.com/industry-and-economy/india-is-fourth-largest-energy-consumer-in-the-world-
report/article4525172.ece, accessed on 26 January 2015.
73
India and Iran had close ties with each other since time immemorial. Both countries share a clear
commonality in boasting of rich civilisational histories. As a matter of fact, India is one country
that has maintained a steady relationship with Iran, both prior to and after the Iranian Islamic
Revolution of 1979. Iran‘s enviable reserves of hydrocarbons and its dominant clout in the
OPEC (Organisation of Petroleum Exporting Countries) cartel, especially in the 1960s and 70s,
helped deepen ties between both countries – especially in the light of India‘s rising energy
requirements. Since the Islamic Revolution and the subsequent US-Iran animosity, though
India‘s outreach towards Iran receded initially – bilateral ties picked up since the 1990s after the
domestic liberalisation reforms initiated by both countries. Both countries for the first time,
started to discuss the possibility of an Iran-Pakistan-India (IPI) gas pipeline – to supply Iranian
gas from the South Pars gas fields to an energy-hungry and rapidly developing India.137
However, later on, due to a combination of factors like Iran‘s controversial nuclear programme
and deepening Indo-US ties, apart from the Pakistan conundrum, the project proposal was put in
the backburner.
India and Iran incipiently share a lot of salience in their regional strategic interests – especially if
one takes the case of Afghanistan. Both countries supported the Northern Alliance led by Ahmed
Shah Massoud, against a Pakistan-supported Taliban government – which wreaked havoc in
Afghanistan during its torturous reign between 1996 and 2001.138
It is also interesting to note that
despite India‘s very natural and obvious concerns about the probable emergence of a third
nuclear power in its neighbourhood (apart from China and Pakistan), India‘s general reaction
towards Iran‘s nuclear programme has been rather been one of unperturbed pragmatism. India
does not share the US‘ traditional post-1979 view of Iran as a pariah state in the global
geopolitical environment. It was only in 2009 that India was left with no other option but to vote
against Iran in one of the IAEA (International Atomic Energy Agency) Resolutions condemning
Iran‘s nuclear programme.139
This action was nevertheless driven by the concomitant demands of
a deepening Indo-US relationship; but most importantly, it was India‘s reciprocatory gesture to
137
Chaitanya Ravi, ―The Intersection of the Debate over the Iran-Pakistan-India (IPI) Pipeline and the US-India
Nuclear Deal‖, see https://www.academia.edu/9254280/Intersection_of_debate_over_Iran-Pakistan-
India_pipeline_and_US-India_nuclear_deal , accessed on 28 January 2015. 138
Gulshan Dietl, ―India‘s Iran Policy in the Post Cold War Period‖, Strategic Analysis (Institute of Defense Studies
and Analyses: New Delhi, 2012) v. 36, i. 6, pp. 871-872. 139
Indrani Bagchi, ―India votes against Iran at IAEA‖, 28 November 2009, see
http://timesofindia.indiatimes.com/india/India-votes-against-Iran-at-IAEA/articleshow/5276462.cms , accessed on
18 February 2015.
74
the Indo-US Civilian Nuclear Cooperation Agreement. With the exception of such very few
inevitable incidents, India has consistently expressed its difference over the US‘ sanctions
regime on Iran – maintaining that sanctions would only push the Iranians to adopt a resilient
posture and go ahead with their alleged development of a nuclear bomb. To justify this, India
cited its own example of how it managed to conduct a second nuclear test (1998) in spite of the
US‘ sanctions following the first test in 1974. In fact, India‘s disposition has been time and again
proved right, since Iran‘s number of centrifuges (used for enriching uranium to nuclear fuel
grade) have apparently shown an increasing trajectory ever since the US tightened its sanctions
regime.140
However, India‘s opposition towards the punitive sanctions also arose from pragmatic
concerns that revolve around its heavy dependence on the Iranian crude oil and the importance
that Iran holds for India as a major importer of the latter‘s refined petroleum products (an
exceptional strongpoint for India).
India-Iran energy relations gained considerable leeway during the reign of Iranian President
Mohammed Khatami (1997-2005). It was during this time that the then Indian Minister for
External Affairs Jaswant Singh charted down his energy diplomacy initiative with Iran. Singh
visited Tehran in May 2000, to participate in the eleventh Indo-Iranian Joint Commission – and
discussed on a variety of issues ranging from agriculture, science and technology, industry,
communications and transport, energy and trade. Subsequently, then Indian Prime Minister Atal
Bihari Vajpayee and Khatami signed the Tehran Declaration in April 2001, during the former‘s
visit to Tehran.141
When Khatami visited New Delhi in January 2003, the New Delhi Agreement
was bilaterally signed, which resultantly featured the ―Roadmap to Strategic Cooperation‖.
Accordingly, both nations agreed to extend their areas of cooperation from energy, commerce
and trade to include counterterrorism and educational training and reconstruction activities in
Afghanistan. India also committed to expand non-hydrocarbon bilateral trade, jointly collaborate
in developing the Chahbahar port complex, the Chahbahar-Fahranj-Bam railway link, and the
140
―India opposes fresh sanctions against Iran‖, 10 April 2010, see http://www.ndtv.com/world-news/india-opposes-
fresh-sanctions-against-iran-415027 , accessed on 1 February 2015. 141
C Raja Mohan, ―Indo-Iran JWG set up‖, 24 May 2000, see
http://www.thehindu.com/thehindu/2000/05/24/stories/0124000b.htm , accessed on 8 February 2015.
75
Marine Oil Tanking Terminal -- as part of Jaswant Singh‘s ‗Energy Diplomacy‘ in developing a
North-South Transport Corridor linking Central Asia.142
Although the Iran-US relations nosedived during Mahmoud Ahmadinejad‘s stint as Iranian
President (2005-2013), India still continued to import large volumes of Iranian crude oil and
exported petrochemicals produced in its refineries, back to Iran. However, in 2012, with
additional sanctions being targeted at Iran, India found it hard to maintain normalcy in the
hydrocarbon trade. As a result, India slipped from its traditional position of being the
second/third largest importer of Iranian crude to the seventh/eighth position. But at this point,
Indian diplomacy made a mark for itself when it successfully negotiated with the Iranian
government for payment of the Iranian crude oil imports through the Indian Rupee. This was a
strategic initiative by India to reduce its foreign exchange outflows through the import of crude
oil.143
However, the coming of incumbent reformist President Hasan Rouhani to the Iranian leadership
has made a lot of ripples in its relationship with the US. Along with his Foreign Minister and
Chief Nuclear Negotiator Javed Zarif, Rouhani has successfully managed to tone down the long-
sustained animosity between both countries. Even the diplomatic outreach extended by US
President Barack Obama cannot be overlooked in this regard. Consequently, Iran and the P5+1
group of nations were able to forge an interim nuclear agreement in November 2013. As per the
agreement, Iran agreed to cut down on its level of uranium enrichment for exchange of a
relaxation of sanctions and release of some of the frozen Iranian assets (mainly on account of oil
revenues).144
This landmark feat was considered by India as a great opportunity to resume active
bilateral relations with Iran, especially in the field of energy. As a result, India even decided to
proceed with its development of the Chahbahar port complex in Iran, after it had got stalled in
2010. The first phase of the development work at Chahbahar was completed in the latter part of
2014, after the incumbent Indian Prime Minister Narendra Modi vowed to move on with the
142
―The Republic of India and the Islamic Republic of Iran "The New Delhi Declaration", 25 January 2003, see
http://www.mea.gov.in/other.htm?dtl/20182/The+Republic+of+India+and+th , accessed on 12 January 2015. 143
Nidhi Verma, ―Indian pays for Iran oil in rupees, Turkey route halted: sources‖, 18 February 2013, see
http://www.reuters.com/article/2013/02/18/us-india-iran-imports-idUSBRE91H0AN20130218 , accessed on 23
January 2015. 144
―P5+1 and Iran agree landmark nuclear deal at Geneva talks‖, 24 November 2013, see http://rt.com/news/iran-
historic-nuclear-deal-201/ , accessed on 3 February 2015.
76
delayed work – just after taking power in May-June earlier that year.145
Judging by the ongoing
trends, with Iran and the P5+1 inching towards striking a permanent nuclear deal (upheld as a
matter of utmost priority by incumbent US President Obama himself; and notwithstanding the
long-held demands of several major Western oil companies), there is every bit of a conducive
environment for the Indo-Iranian energy partnership to be elevated to a hitherto unprecedented
scale. 146
6.2. Iran‟s Role as Energy Provider cum Transit Facilitator: Benefits for India
The Chahbahar port has been partly leased out to India by the government of the Islamic
Republic of Iran, as per a memorandum of understanding signed between the then Indian Prime
Minister Atal Bihari Vajpayee and Iranian President Mohammed Khatami, back in 2003. Both
leaders had then pledged to jointly develop the Chahbahar port complex and link it with the
North-South Trade Corridor (as depicted in Map 6.1) -- that serves as the transit corridor for the
Central Asian states (most importantly Azerbaijan, Kazakhstan, Turkmenistan and Uzbekistan),
but particularly the Caspian hydrocarbon resources, to its Asian end users.147
Located along the
Makaran coast in the Gulf of Oman, Chahbahar is located close to the Strait of Hormuz.
However, the exceptionality of Chahbahar lies in the fact that it is situated outside the enclosed
Persian Gulf, instead facing the unhindered Arabian Sea – which shields it from any form of
repercussions arising out of a probable calamity inflicting the narrow choke point of Hormuz (as
opposed to the other major Iranian oil and gas terminals like the Kharg Island, Bandar e
Khomeini, Bandar e Abbas and Jask). Apart from serving as India‘s gateway to Central Asian
and the Caspian states, Chahbahar has been often hailed as India‘s fitting and appropriate
response to Chinese designs in the nearby Gwadar port in Pakistan (just 76 km from
Chahbahar).148
In addition to getting easy access to the hydrocarbon riches of the Caspian and
Central Asian region, Chahbahar along with the Iranian Transit Route (the North-South
145
Deepshikha Sikharwar, ―Narendra Modi government puts Iran's Chabahar port work on fast track‖, 21 June 2014,
see http://articles.economictimes.indiatimes.com/2014-06-21/news/50756391_1_chabahar-gwadar-port-india-and-
iran , accessed on 21 June 2014. 146
n. 92. 147
―The Republic of India and the Islamic Republic of Iran "The New Delhi Declaration", 25 January 2003, see
http://www.mea.gov.in/other.htm?dtl/20182/The+Republic+of+India+and+th , accessed on 12 January 2015. 148
Press Trust of India, ―India to Develop Chabahar port in Iran‖, 5 November 2014, see
http://www.india.com/news/india/nitin-gadkari-india-to-develop-chabahar-port-in-iran-187546/, accessed on 6
November 2014.
77
Corridor) is also India‘s secure passage to Afghanistan (as depicted in Map 6.2) -- which is the
largest recipient of Indian bilateral aid and assistance. Although theoretically, India shares a
marginal border with Afghanistan (through the Wakhan corridor in Pakistan Occupied Kashmir
{POK}), the very fact that it is on the Pakistani side of the Line of Control (LOC) warrants India
to make optimum use of the Iranian route for making further inroads into Afghanistan. To that
degree, India successfully dispatched its first (through the Iranian route) consignment of food aid
to Afghanistan, towards the latter part of 2014, via the Chahbahar port.149
Map 6.1: The Central Asia-Iran-India Transport Corridor
Source: M Ramesh, “For India, a 70-km Iran rail line can open doors to Central Asia”, see
http://www.thehindubusinessline.com/industry-and-economy/logistics/for-india-a-70km-iran-rail-line-can-
open-doors-to-central-asia/article5418512.ece, accessed on 8 December 2014.
149
―Iran to help India develop Chabahar port‖, 11 February 2015, see
http://www.eximin.net/NewsDetails.aspx?name=28262 , accessed on 12 February 2015.
78
Map 6.2: Chahbahar – India‟s Gateway to Afghanistan
Source: “[Diplomacy] Delaram Zaranj Highway, Chabahar Port: India-Iran-Afghanistan trade relations”,
see http://mrunal.org/2012/08/diplo-delaram.html, accessed on 14 February 2015.
India has traditionally been an importer of Iranian crude oil. However, as far as the case of LNG
is concerned, Iran‘s difficulty in constructing LNG terminals (due to the prolonged spell of
punitive sanctions in transfer of technology) have seen it faced with the prospect of having to
depend a lot on export of dry natural gas through trans-national pipelines to other countries. The
much touted IPI pipeline had remained in suspended animation for almost two decades since its
inception – basically due to a variety of factors ranging from India‘s concerns with the transit
through Pakistan, the deepening Indo-US ties which ostensibly vouched for the promotion of the
TAPI (Turkmenistan-Afghanistan-Pakistan-India) pipeline at the expense of the IPI pipeline to
the Iranian nuclear conundrum. Although GAIL (Gas Authority of India Limited), along with its
partners in the respective participating nations have already formed a Special Purpose Vehicle
(SPV) under the auspices of a TAPI Pipeline Company, the project still faces challenges of
gigantic proportions.150
For one, transit through the restive, conflict-prone and unstable provinces
of Afghanistan and Pakistan is easier said than done. All the more, if one looks at the
environmental impacts of such a project, it would be easy to surmise the adverse effects on the
mountainous and glacial topography of the Hind-Kush mountain system.
150
Rachita Prasad, ―GAIL, partners form SPV for TAPI pipeline project‖, 13 November 2014, see
http://articles.economictimes.indiatimes.com/2014-11-13/news/56060643_1_inter-state-gas-systems-mmscmd-
turkmenistan-afghanistan-pakistan-india , accessed on 11 January 2015.
79
However, immediately after the signing of the interim nuclear agreement between Iran and the
P5+1, Iran managed to reel in a new player in Oman, to come up with a solution to India‘s
bottled-up approach towards the IPI project. According to one of the proposed arrangements,
Iran which has planned to extend its overland gas pipeline system and already has a pipeline in
place from the South Pars gas fields, all the way to Oman – considered the option of supplying
natural gas via a deep-sea pipeline (depicted in Map 6.4) between Oman and India. This pipeline
would be able to supply Caspian, Iranian as well as Omani gas to India.151
Another option on the
table for India is to go ahead with the Iran-India subsea pipeline (depicted in Map 6.3) that would
bypass Pakistani mainland, and instead pass from the South Pars gas fields through the Pakistani
continental shelf, along shallow waters. Nevertheless, with the realisation of the trans-national
pipeline still in the offing, representatives from Iran, Oman and India met in March 2014 to
discuss on the possibility of Iranian LNG exports to India through an LNG terminal in Oman.152
In this context, it is to be borne in mind that Iran‘s first proposed LNG exports to India was
targeted for 2009 (as per a multi-billion dollar agreement whereby Iran would supply India with
7.5 million tons of LNG annually for a period of 25 years).153
However, with the sanctions
curtailing Iran from getting timely access to the adequate technology (to finish construction on
its very first LNG terminal at Tombak), Iran was forced to renege on its commitment back then.
Map 6.3: The Proposed Iran-India Subsea Pipeline Route
Source: “India quits IPI gas pipeline project: report”, 7 September 2009, see http://www.domain-
b.com/industry/power/20090907_pipeline_project.html, accessed on 25 February 2015.
151
Ankit Panda, ―India, Iran and Oman Open Talks On Deep Sea Gas Pipeline‖, 1 March 2014, see
http://thediplomat.com/2014/03/india-iran-and-oman-open-talks-on-deep-sea-gas-pipeline/ , accessed on 8 March
2014. 152
n. 19, pp. 127-128. 153
Robert Kaplan, ―Center Stage for the Twenty-first Century – Power Plays in the Indian Ocean‖, Foreign Affairs,
v. 88, n .2 (March/April 2009), pp. 16-18, see http://www.jstor.org/stable/20699491 , accessed on 6 February 2015.
80
Map 6.4: The Proposed Iran-Oman-India Deep-sea Pipeline Route
Source: “India, Oman, Iran in Subsea Pipeline Talks”, see http://www.offshoreenergytoday.com/india-oman-
iran-in-subsea-pipeline-talks/, accessed on 20 February 2015.
However, apart from floating the idea of LNG exports to India via the Omani LNG terminal, the
National Iranian Oil Company (NIOC) had also proposed building an LNG terminal in
Chahbahar jointly with Indian collaboration. This project is said to be developed with the surplus
revenues it sought to generate from persuading India to increase its crude oil imports – after
India had showed some restraint in its appetite for Iranian crude imports in the light of the 2012
round of sanctions. Moreover, through the establishment of an LNG terminal in Chahbahar, in
addition to meeting India‘s unquenchable thirst for gas, Iran also intends to use the gas to
generate electricity and thereby generate jobs through the setting up of an electricity generation
unit. This would eventually cater to the relatively impoverished and neglected state of the Sistan-
and-Baluchistan province and avert any likely development of dissent in the native youth.154
Nonetheless, the NIOC also expressed its willingness to enter into a production-sharing
154
Sara Vakhshouri, ―Iran-India energy ties may take off‖, 5 March 2014, see http://www.al-
monitor.com/pulse/ru/originals/2014/03/india-iran-energy-ties-nuclear-accord.html# , accessed on 15 February
2015.
81
agreement with India‘s ONGC Videsh Limited (OVL), for the Farzad-B gas field -- its first such
contract.155
However, with Iran and the P5+1 actively negotiating with each other to seal a permanent
nuclear deal and a probable Iran-US détente hanging in the fray, it remains to be seen to what
extent India will bend in order to revive and further enhance the energy partnership with Iran.
India‘s incumbent National Security Adviser (NSA) Ajit Doval‘s personal meeting with Rouhani
in Tehran (in February 2015) speaks volumes about India‘s reinvigorated overtures to Iran, both
in the economic (mainly energy) and strategic domains – not to forget the rich socio-cultural ties
shared between both nations.156
Without doubt, it is high time that India and Iran starts
converting their common strategic interests in Afghanistan into fruition. With the withdrawal of
the ISAF (International Security Assistance Forces) from Afghanistan, there is a looming threat
of the possible resurgence of the Taliban in Afghanistan, which could prove detrimental to the
security interests of both India and Iran. Together with the pre-existing threat of Al Qaeda, the
foraying of the gruesome ISIS into South Asia (in the Khurasan region bordering Afghanistan
and Pakistan), and the allegiance extended to them by the anti-India and anti-Shia (hence anti-
Iran) Sunni Deobandi and Salafi terror groups based in the area)157
– beckons India and Iran to
revitalize their cooperation in counterterrorism and jointly address mutual regional security
concerns.
India should also keep in mind its past failures in the Caspian/Central Asian energy scramble (its
losing out on the bid to the Chinese in the Kashagan oil fields of Kazakhstan) and hence make
optimum use of the opportunity present before it (of effectively capitalizing on the advantages
offered by the Iranian Transit Route).158
The commissioning of the Iran-Turkmenistan-
Kazakhstan rail link is therefore a welcome signal for India‘s inroads into the Caspian Basin,
155
n. 19, pp. 128-129. 156
―Iran‘s President meets with Indian National Security Advisor‖, 10 February 2015, see
http://en.mehrnews.com/detail/News/105921 , accessed on 12 February 2015. 157
Arif Rafiq, ―Islamic State Goes Official in South Asia‖, 4 February 2015, see
http://thediplomat.com/2015/02/islamic-state-goes-official-in-south-asia/ , accessed on 5 February 2015. 158
Press Trust of India, ―India loses $5 bn bid for Kashagan oil field to China‖, 2 July 2013, see
http://articles.economictimes.indiatimes.com/2013-07-02/news/40329249_1_kashagan-cnpc-kazakh-law , accessed
on 17 January 2015.
82
through Iran.159
Nevertheless, in February 2015, in a clearly discernible attempt to re-engage
with Iran's energy sector, India submitted a reworked master development plan for Iran's Farsi
natural gas block. India‘s OVL had acquired propriety rights over the gas block way back in
2002, but could not proceed with operations unless an immaculate master development plan was
charted out.160
On the same pretext on which one cannot overhype an imminent US-Iran détente working
entirely in India‘s favour, it is also difficult to deny outright the possibility of an immediate
commencement of US Shale-boom driven LNG exports to India. At least, what can be said with
certainty is that such an eventuality is liable to get postponed due to the unwelcome (at least for
the oil companies) slide in crude oil prices. India should, in the underlying circumstances,
exercise its strategic autonomy tactfully, so that it can churn out the maximum benefit from
either side – in the meanwhile, being able to draw a clear understanding between its interests and
priorities.
159
Economic Desk, ―Iran-Turkmenistan-Kazakhstan Railway to facilitate Regional Trade‖, 4 December 2014, see
http://www.tehrantimes.com/component/content/article/94-headline/119986-iran-turkmenistan-kazakhstan-railway-
to-facilitate-regional-trade , accessed on 8 December 2014.
160 Live Mint, ―India revives Energy ties with Iran‖, 24 February 2015, see http://www.defenddemocracy.org/media-
hit/india-revives-energy-ties-with-iran/ , accessed on 25 February 2015.
83
CHAPTER SEVEN
CONCLUSION
84
CONCLUSION
The Caspian Basin has over the years, evolved as an arena for competition and contest among
the great powers. The major imperative behind this constant tussle for control and influence has
been the rich yet underexploited hydrocarbon wealth that lay beneath the region. The unsettled
legal status of the Caspian Basin notwithstanding, the littorals (particularly the triumvirate of
Azerbaijan, Kazakhstan and Turkmenistan) have nonetheless depended on outside investment to
boost their hydrocarbon sector and improve their economies. However, the landlocked nature of
the Caspian Basin has resulted in the shifting of the centre of gravity from the question
pertaining to hydrocarbon exploitation to that of the geopolitics behind the transportation and
transit of the produced oil and gas.
It is therefore important to understand the geopolitics of the Caspian hydrocarbon transit through
the lens of the contest and competition among the major powers for achieving dominance over
the transportation of the oil and gas from the landlocked Caspian Basin to the markets across the
global maritime trade routes. For instance, Russia continues to enjoy monopoly over the vast
array of pipeline and transit infrastructure taking oil and gas from the Caspian shores to its end
users, particularly in Europe. However, the Western oil majors, under the aegis of the US and the
EU, have arguably been making considerable advances into the region. China, for that matter,
has gained much leverage in the Caspian oil sector, more or less by piggybacking on the CIS‘
apprehensiveness towards Russia on the one hand, and the impending West-Russia animosity on
the other. However, this should not deter one from giving due credit to China‘s efficient
diplomatic maneuvering and business-as-usual approach towards the Caspian hydrocarbon
politics. Moreover, owing to the contemporary geopolitical developments in the Eurasian realm,
ranging from Syria to Ukraine, the geopolitics of pipelines and hydrocarbon transit has seriously
undergone significant transformation.
With regard to the overarching question on the legal status of the Caspian Basin and its
subsequent division among the littorals, there seems to be an agreement on the part of all littorals
to finally adopt a framework convention on the Basin‘s legal status. This would definitely prove
to be a milestone -- given the prolonged state of sheer uncertainty and bad-blood that have
85
hitherto plagued any possibility of the littorals evolving a cooperative mechanism, to sustainably
exploit the Caspian Basin‘s vastly untapped hydrocarbon wealth. Such a development would
greatly increase Iran‘s clout in the Caspian Basin‘s regional hydrocarbon politics – given Iran‘s
steadfast adherence to espousing a condominium regime for hydrocarbon exploration in the
Caspian Basin.
However, irrespective of whether the issue of the legal status of the Caspian Basin would be
sorted out, Iran‘s onus lies in exploiting its proven potential in efficaciously facilitating the
Caspian Basin‘s hydrocarbon trade. The revived oil and gas swaps with the Caspian trio
notwithstanding, Iran has been progressively developing its pipeline infrastructure (both internal
and transnational) to ensure and further enhance the smooth and secure transit of the Caspian oil
and gas to its end users both in Asia and Europe. Additionally, such measures have contributed
to Iran having been able to cater considerably to its own energy demand – the ability of which
has for long been crippled by the prolonged spell of Western punitive sanctions on its
controversial nuclear programme, inextricably linking it with the inability/difficulty in getting
access to the technology to build the requisite infrastructure (Oil & LNG terminals and
Refineries).
A cost-benefit analysis of the Iranian/Southern Transit Route vis-à-vis the Northern (Russia-
controlled), Western (West-controlled) and Eastern Route (China-controlled) routes, have
yielded results favouring the former, especially with regards to very significant parameters like
cost-effectiveness, techno-logistical efficiency and environmental feasibility. As a matter of fact,
this has been clearly understood by several oil giants, be it the Western or the Chinese – or for
that matter, a conspicuous beneficiary like India. For this reason, these oil majors have time and
again vouched for the relaxation/discontinuation of the anti-Iranian sanctions that have hitherto
stood in the way of any likely promising partnerships with the Iranian hydrocarbon sector.
However, judging from the trajectory of the contemporary Eurasian geopolitical developments
and the uncertainty surrounding the Iran-P5+1 nuclear negotiations, there is high possibility of
Iran‘s growing role in the Caspian and Eurasian energy trade gathering steam. For instance,
Russia‘s fiasco in Ukraine has signaled an imminent shift in the European energy security
equation. With Europe looking for viable alternatives to its heavy dependence on the Russian
gas, Iran stands to gain from the unfolding scenario. Even the Chinese are considerably reducing
86
their external investments and focusing more on exploiting their huge untapped shale deposits.
However, on the flip side, with record low oil prices looming in the background, China is
simultaneously resorting to increased hydrocarbon imports. This is well manifested in its
rigorously pursued Maritime Silk Road programme, of which the Iranian North-South Transit
Corridor is a part of. On the western front, Turkey has also been exercising reasonable
pragmatism and shunning political differences by trying to engage proactively with the Iranian
oil sector. Here, it is important to bear in mind that both Turkey and Iran are mutual beneficiaries
in the transit of the Caspian and Iranian oil and gas to the markets in Europe.
India, as a successful practitioner of strategic autonomy, has long enjoyed a generally fruitful
energy partnership with Iran. Moreover, with the increasing realisation within the Indian policy
elites of the importance of Iran as India‘s only viable gateway to Afghanistan and Central Asia,
the Iranian transit route would only serve to catalyse the bilateral energy ties. Given the
trajectory of the negotiations between Iran and the United States over the former‘s nuclear
programme, a thaw and relative easing of tension can be expected in the future. Although
domestic imperatives in both Iran and the US, and the approach of regional heavyweights like
Israel might play spoilers, the possibility of better understanding between Iran and the US cannot
be neglected. If such a scenario arises, further streamlining of energy commerce between India
and Iran can be expected.
Summing up, Iran‘s inevitable participation in the Caspian energy transit, in one way or the
other, provides benefits for all players involved in the energy scramble. However, the incentives
for both Iran and the Caspian trio are remarkably more significant. In the case of Iran, it would
help stem the huge gap between being a major producer of petroleum; and yet not being able to
sufficiently harness it (for domestic consumption). And as for the three Central Asian republics,
they would be able to export their oil and gas to the consumer nations, in the cheapest possible
way. Encapsulating the above two equations, it may be surmised that both parties can
undoubtedly expect a win-win situation. The same applies to the consumer/end-user too.
Needless to say, the governments of the three landlocked Caspian littoral states must incorporate
radical reforms in their energy sectors, to ensure the smooth conduct of trade. Without doubt,
development of the necessary infrastructure should be given utmost priority. Moreover, there
needs to be a greater impetus towards imparting transparency and accountability in the
87
governmental policies of both the parties involved – be it the hydrocarbon producers or the
transit facilitator—with respect to awarding tenders/contracts to foreign players or in managing
the flow of funds. An investment-friendly approach with least complacency and corruption will
reap maximum dividends. If these steps are seriously taken into consideration, then it would not
be long before the world realizes the true potential of the Caspian region.
As with the case of Iran, the punitive economic sanctions have long withheld it from realising the
true potential of its hydrocarbon sector. If Iran could successfully negotiate with the P5+1 group,
particularly the United States, for a complete lifting of the economic sanctions -- then the Iranian
oil and gas sector would eventually be able to redeem itself to full production levels.
Subsequently, Iranian oil and gas exports would finally reach global energy markets in full flow.
Additionally, this would help Iran to expedite any ongoing or pending work related to enhancing
its transit and logistical infrastructure (oil rigs and drilling machinery, refineries, pipelines and
oil/LNG terminals etc) and gaining access to the latest hydrocarbon extraction technologies. This
would indisputably boost Iran‘s role in facilitating the Caspian hydrocarbon trade as well. The
eagerness on the part of both the Iranian oil ministry and the various international oil companies
to invest in the Iranian hydrocarbon sector, is itself testimony to the changing perceptions of Iran
towards the West and vice versa. However, in the event of a failure of the Iran-P5+1 nuclear
negotiations and a subsequent tightening of the sanctions, Iran would find the going tough. Yet it
is to borne in mind that Iran‘s role in the Caspian hydrocarbon trade is poised to scale up,
regardless of the final outcome of the nuclear negotiations. The failure of a permanent nuclear
deal would only delay the inevitable. The very viability and cost-efficiency of the Iranian Transit
Route, indeed speak volumes about the likely possibility of such a scenario.
i
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