DATE:April 2001                                                                                         International Institute for Caspian Studies



                               DISCUSSIONS ON DIFFERENET IRANIAN VIEWS

By Abbas Maleki (Chairman of IICS)




     All forecast of future global oil demand point to an increasing trend for the years to come. The forecast by OPEC’s World Energy Model suggests a world oil demand of about 84 million barrels per day in 2005, around 91 mb/d by 2010, close to 97 mb/d by 2015 and about 103 mb/d by 2020. OPEC members would have to come up with a crude oil and NGL production of about 36 mb/d in 2005, 41 mb/d in 2010, 47.8 mb/d in 2015 and 54.6 mb/d in 2020.

     The security of energy supply to Asia/Pacific is becoming a big issue. By 2010, Asian/Pacific demand for oil would reach 33.5 million b/d if consumption growth averages 5% per annum. China alone could be consuming 7.2 mb/d by 2010 and 10.7 mb/d by 2020. Oil production in Asia/Pacific might decline from its current level of 6.3 mb/d. The Middle East would not be able to meet Asian /Pacific demand by then. The Caspian oil supply is important from that perspective.

     In recent years, Iran has been holding a share in OPEC production in the range of 13 to 14 per cent. In order to maintain this share, Iran would need to produce at least 4.7 mb/d in 2005, increasing it thereafter by approximately 160000 b/d per year, reaching 7.1 mb/d by the year 2020.  As a result Iran needs to develop adequate volumes to not only counter the natural decline in the present production but also to meet the required additional production capacities. It goes without saying that with proven oil reserves of over 90 billion barrels, Iran has more than enough potential but, with a present capacity of over 4mb/d much work needs to be done and this means a very intense level of activities specially in attraction of foreign investments, new technologies, exploring new fields and extensive EOR operations in many of Iran’s giant older fields.

     Iran’s recent activities in oil and gas industries are very interesting. These are like two-dimensional blanket seismic of the Iranian part of Persian Gulf, negotiations over buy-back agreement on Dar Khuwain field and development of new field of Azadegan with 26 billion barrels, Bangestan reservoirs in Ahwaz, gas injection in the Asmari reservoir of the Agha Jari (about 2 billion cubic feet per day with additional oil recovery in the range of 1.7 to 3 billion barrels) and South Pars gas reserve around 460 TCF in the Persian Gulf.


II-Caspian Sea & Iran

     Iran has vast energy reserves and its proximity to Caspian region among others gives it an important advantage. Iran’s strategic location at the geographic “concern” of southwest Asia puts in astride the route for oil exports from the Caspian region to the Persian Gulf, Turkey and Asian markets. Most attention has been given to trans-Caspian and Black Sea oil export routes, but Iran has begun to move toward making export swaps [Caspian crude into its refining system against offsetting exports through the Persian Gulf], which is a more feasible and more commercially attractive.

     At the same time, Iran’s geostrategic position and its status as the world’s second largest holder of natural gas reserves make it a potential major player in the race to market the Caspian-Persian Gulf area’s burgeoning gas resources. As always, market access is the key to gas commercialization. As a neighbor to Turkey -the region’s prime market- Iran, though lagging in development of its gas resources, remains a competitor with other Caspian region suppliers.


III- Iranian Different Approaches to the Caspian:

In Iran there are two approaches for the Caspian sea policy:


1)      Economic Approach:

This approach was dominated during Mr Hashemi’s Presidency. Despite western accusation of Iran for exporting religious extremism in central Asia and Caucasus, Iran followed expansion of economics, and social relations with its neighbours.  For this reason Iran enjoyed from historical social and even individual relations among leaders to expand contacts with the New Independent States.

The role of Iran for training different Institutions and facilitating the entrance of these States to international organizations such as UN, OIC, NAM and others is regarded. 

Iran also facilitated the entrance of Central Asian States and Azerbaijan in the Economic Cooperation Organization (ECO), despite of Russian pressure that wanted those states to be under influence of the Russia.

In 1992 Iran took the opportunity of creating a Organization for the Caspian littoral States, which was ratified by Azerbaijan, Iran, Kazakhestan and Turkmenistan leaders. The Russian Ambassador in Tehran took part in the summit.  In 1997 during the foreign ministers of Caspian littoral States gathering in Ashkabat, Iran played a key role on concluding two points.  First the change and establishment of the new legal regime in the Caspian is only with acceptance of 5 countries.  This case was referred to in an agreement between Kazakhistan and Russia in July 1998.  Second founding of a joint oil and gas company between Russia, Turkmenistan and Iran for exploration and production. In this approach Russia is the most important country in the region and Iran must have the best relations with this country.  This approach believes Russia is a vast market for Iranian goods and on the other side Russia is a land of opportunities.  These opportunities are high tech equipment, military technology and scientific knowledge industries. In this approach each Iranian province has a direct relations with each of the Russian Republics within Federation.  For instance the province of Gilan with the Astrakhan Oblast has close contacts and big ferries from Bandar Anzali to Astrakhan travel twice a week. This is the very route that decreases the travel distance between Asia and Europe by a considerable amount. This approach believes Iran optimum opportunities are achieved via a legal regime based on condominium or common use of the Caspian Sea.


2)      Political-Security approach:

A view, which is presently accepted between the Advisors of Iran’s High National Security Council, regards the presence of the Russian Military in the Caspian sea a potential threat and believes the most important result in the Iranian foreign policy history is the collapse of former Soviet Union and the disappearance of Iran-Russian land borders.  It also believes that if one can avoid water boundaries, Iran will be immune from a big power threat.  The Central Asian and Trans-Caucasian countries act as buffer zones between Russia and Iran and the legal regime based on division will complete this immunity.  The interesting point is that in none of the 1921 treaty of friendship between Persia and Russian Soviet Federative Socialist Republic, and in the 1940 Soviet-Iranian Trade and Navigation Agreement, there has been no differentiation between warships, passenger and cargo ships. It is confirmed that generally the ships from both sides can move freely and enter all ports in both countries.

Although Russian warships never entered Iranian ports after this agreement, some experts believe that the reason for Russian emphasis on dual regime in seabed and surface indicates that Russia wants to enjoy the privilege of exclusivity in the Caspian Sea.

This exclusivity means that other Caspian States don’t have any particular Naval forces in the Caspian, while Russia has about 100 warships in Astrakhan port.  Part of this naval forces is from the Black Sea, which was transferred via Volga-Don canal after disagreement between Russia and Ukraine.  This approach believes Iran’s best choice in the Caspian legal regime is the complete division and establishment of national waters for each country in seabed and surface. Also part of this approach is that Iran starts focusing on agreements with Azerbaijan and Turkmenistan rather than Russia. And the last point does not view Iran’s helping of Central Asia and Caucasus countries as logical, because the help of Iran in whichever way, especially in the oil and gas sector could create competitors for Iran in the near future.


IV-          Caspian Countries: legal views

Apart from Iran, four other littoral States have specific views about the legal regime of the Caspian sea.


1)      Russia: Russia believes that until the new legal regime convention has not been passed, the 1921 and the 1940 Friendship Treaty between Iran and the Soviet Union is in place.  Russia also believes that at the same time, the sea bed resources should be divided on the basis of equi-distance while the sea surface should be based on common use.  This means common use of the fishery, transportation, environment and space over the Caspian sectors.  Russia proposed the width of coastal waters as 20 miles and believes a monitoring organization can resolve all disputes.

2)       Azerbaijan: This country is following complete division of the sea on the base of equi distance, which each country has full authority in its national waters.  Sea boundaries are based on the former internal boundaries, which was established for oil and gas activities before 1992 and during the Soviet era. Iranian border for Caspian sea in the view of Azerbaijan is the Astara-Hoseingholi line.

3)      Turkmenistan: This country signed an agreement in 1997 with Azerbaijan, for dividing the sea on the base of the median line, but they disagreed on its implementation, specifically on the oil field Kapaz (Sardar). This country proposes if 45 miles width for exclusive use of water for each country and the rest of water for common use.  President Niazov offers a summit of all littoral States for approving the new legal status of the Caspian. 


V-             Four options for the Caspian legal status

Up to now four options have been considered for defining the Caspian legal status:

1)      Demilitarization:  Considering that in some agreements the Caspian sea has been denoted a peace area, the demilitarization of the Caspian sea by the use of some laws and limitations is one option.  However one should keep in mind that the peace region is not ruled by any legal commitment for any sides.   Thus the only conclusion of the concept “peace area” is that governments be committed to an agreement which refrains them from using military forces for threatening each other.  However the demilitarization of the sea also stops them from moving military equipment via this route.  The other issue is defining the specific level for weapons and acceptance of the resolution on “region without nuclear or mass destruction weapons”.


2)      Emphasis on the current legal regime: Use of treaties 1921 & 1940 which regards the sea as a common area, is economically in advantage of Iran.  But one should also keep in mind that both treaties were written and designed by the former Soviet Union and freedom of navigation without any discrimination between warships and non military vessels, had great security privileges for the former Soviet Union.  The only advantage to this option opposes the movement of other countries vessels and their citizens in the Caspian sea.


3)      Use of International Law of the Seas: The 1982 Convention on the international law of the seas cannot be expanded to the closed seas but governments can use definitions and concepts from this convention.  For instance on several occasions Kazakhstan has repeatedly and clearly referred to the 1982 Convention.  Turkmenistan and Russia have also referred to this convention on some occasions; which includes Russia’s position about the use of living sources of the Caspian Sea. According to provision 64 from the 1982 Convention, Anadromous fish (those, which lay eggs in riverbeds,) can only be fished by the country in which the river delta is situated. Sturgeon is one of these fishes and Russia is referring to this provision for its own benefit.  This option proposes that each country can have territorial waters with width of 12 to 20 miles. Some countries like Turkmenistan on the other hand have proposed up to 45 miles.  Beyond territorial waters it would be for free navigation for all vessels from all countries.  This option has some negative points for Iran especially the probable presence of the United States and other powers in the Caspian sea.

4)       Establishment of National Waters: This option which has been put forward by Azerbaijan after the collapse of the Soviet Union, would be the next best option for Iran if the condominium would not be accepted with consensus.  On the basis of national waters, sea is divided to the national sectors and in these sectors governments without any limitations can implement their authorities.


VI-          The share of Iran from the Caspian sea waters

The most important thing for Iran in national sector option is the surface, which it will acquire. As you can see from the attached picture each division option has different opportunities for Iran:

1)      If we draw a line from one side to the other side of the Iranian land borders, which is generally referred to the Astara-Hoseingholi line, the distance of waters between this line and Iranian coasts is 11% of the total Caspian surface.  This line was never considered for Iran’s activities during the Soviet era, however in the activities for air traffic control (FIR) over the Caspian, there were only two points which were based on this line. Also in domestic Soviet maps in oil and gas sectors, which showed the responsibility and activities for each of the former Soviet Union Republics, this line was presented as the edge of geographical and seismically data which the Soviet Union had obtained.  These maps are referred to by Azerrbaijan now. Although this point is correct that Iran has never gone beyond this line for oil and gas activities during the former Soviet Union regime, but one should not forget that one the basis of 1921 treaty and 1940 agreement the name of the Caspian was written as the “Common Sea of Iran and Soviet”. On the other hand the reason for the lack of the use of Caspian oil and gas and in generally lack of activities of Iran in the Caspian during Soviet era was due to Iran’s fear from communism and the threat of Marxism ideology which had spread throughout Europe and Asia.  This fear was serious because after the world war II the Soviet army like British and American soldiers did not return to their homes, and only after nuclear threat from the U.S. in 1945, the red army left the Iranian north west provinces.

Iran after the revolution rendered the provision 6 of 1921 Treaty void and null.   This provision allowed the Bolshevik government to enter the Iranian territory for confrontation with the 1917 counter revolutionaries. After the revolution Iran also bought the passenger ship “Mirza Kuchik Khan” which on basis of the common sea agreement, freely moved in between all ports of the Caspian Sea.


2)      The other model for the dividing of the Caspian Sea in the national waters is use of median line. In this respect each country that has the convex coast with the Caspian Sea, acquires a larger portion of the water surface, and vice versa.   This way Kazakhstan and Azerbaijan will receive 28.4% and 21% respectively, while Russia, Turkmenistan and Iran will each receive 19%, 18% and 13.6% in that order.


3)      Iran had proposed that the Caspian Sea be divided on an equal basis.  This would give Iran a 20% share of the Caspian Sea surface, which is based and currently known as the Mirza Kuchik Khan point.  This option would reduce the share of Kazakhstan and Azerbaijan and increase that of Iran, Russia and Turkmenistan.  In this respect Heydar Aliev has remarked that “ The main problem is reaching an agreement with Iran. I have therefore asked Mr. Putin to propose a mutual solution to Iran. It is not possible to consider an equal division of sea bed and surface between all countries, because this would bring Iranian borders into Azerbaijan coastal area and extend Azerbaijan’s sea boundaries into Russia and Kazakstan coastal area.


VII-  Conclusions:

There are some trends in Iranian oil and gas markets inside and related to Iran. Caspian Sea is a new space for Iran to increase its share in world’s energy market.


1-     The prospect for construction of a gas pipeline from Iran to the Armenia has been discussed for many years by the respective governments and other interested parties. The amount of gas to be transported to Armenia is one billion cubic meters per year in the first phase. There is also a possibility of expanding the project to export more natural gas to pass through Armenia for other countries. Armenian border is within 60 km of the Iranian gas pipeline network, which connects Astara to Tabriz. Inside Armenia there would be another 60-100 km of new pipeline to be constructed depending on the final destination of this pipeline. The cost of construction of the pipeline and required compressors are expected to be in the range of 120-150 million US$ and it would take less than a year to be completed by the Iranian and Armenian engineering and construction companies. Both Iranian and international companies have carried out the preliminary study of the project and several financing possibilities have been suggested. The fact that such project with strategic and economic importance for the region has been delayed for so long shows that there are other variables to be considered.

2-     Iranian experts on the Caspian oil and gas fields believe the oil fields in Azerbijan Republic like Guneshly, Chirag, Azeri and Kapaz, all of them developed and exploited while the Soviet Union still existed and probability for new oil giant reserves is not high. Therefore, the Baku-Tiblisi-Ceyhan may be confronted with the lack of proportional amount of oil. The Kazak oil also is going via CPC to the Black Sea.

3-     Some analysts, who are suspicious of the cost/benefit factor of the Baku-Tiblisi-Ceyhan, propose the route of Baku-Tabriz-Ceyhan. Tabriz refinery has capacity for delivering about 150000 barrel per day and the reverse pipeline should send up to 200000 b/d to Tehran refinery. It means a pipeline with dual capacity from Baku to Tabriz and then to Ceyhan should be designed. 

4-     Another route for a cheap pipeline from Iran’s territory should be Anzali-Tehran pipeline. Studies over this pipeline show that with only 50 US million Dollars a new pipeline with 200 000b/d capacity from Anzali port to Zanjan can be constructed. For this respect, Iran offered Azerbaijan a 20-year crude oil purchase agreement for 200 000 b/d that would enter through the port of Anzali and a new pipeline to connect to Iran’s oil transportation system in order to supply the refineries at Tabriz (110000b/d) and Arak (150000b/d).

1)      Koichiro Nagata, director of Trans Peninsula Oil, proposed a new pipeline with two options. As it was mentioned in part I, the growth of energy consumption in the Asia/Pacific will be great and a new source outside of Persian Gulf is needed.   The first option is for a large pipeline to take crude oil from producers in all four Caspian republics for export. As it could be seen in the map, the first option calls for a southern route from Baku to Chah Bahar . This is to run from Baku to Krasnovodsk and from there to the Iranian area of Mashhad and then across the desert along a line near the borders with Afghanistan and Pakistan to Chah Bahar. The length of this route is 2400 km and it will have a 52-inch pipe. The pipeline capacity is 2 mb/d. Total costs for option one has been estimated at US$ 4.4 billion. The operating costs in this option total US$0.52 per barrel for the pipeline and US$ 0.04 barrel for the terminal. The second option calls from a northern route from Krasnovodsk to Baku and then Iranian areas of Rasht, Tehran, down to the Persian Gulf port of Dayyer. The length of this route is 2000 km and it will have a 24-inch pipe. The pipeline’s capacity will be limited to 400000 b/d. This second option gives the advantage of a possible use of segments of existing oil pipelines within Iran. The total costs for option two are US$1.1 billion excluding the use of existing pipelines within Iran. The operating costs in the second option are higher than option one, estimated to total US$0.64/b, US$0.08.b for the terminal

5-     The dependency of world oil supply must not be completely dependent on the Persian Gulf region. But Iran has shown its commitment to the free flow of oil during the first and second war in the Gulf and especially via Hormuz straight. Also, Iran is a consumer of Caspian oil and gas inside its territory and specifically in the north. As a consumer it cannot close the oil pipe and this should guarantee the security of the pipeline.      

6-     It seems it is useful to send part of Shah Deniz gas production to Iran. Iran’s IGATT-1 gas pipeline, which sent gas to the Soviet, can be reversed for receiving gas and distribution in the north west of the country.