Gunboat Diplomacy in the Caspian?
The Iran-Azerbaijan Incident

An incident on July 23 in which an Iranian warship ordered an Azerbaijani exploration ship hired by British Petroleum to withdraw from exploration operations in a disputed zone in the southern Caspian has called new attention to the longstanding disputes over exploration rights in that landlocked body of water, and raised new tensions between Iran and Azerbaijan.

Since the incident took place July 23, the dispute has waxed hot and cold. In the first days after the confrontation, both sides were strongly critical of the other. Then Iran appeared to mute the dispute, calling for negotiations and calm, perhaps in part because BP — which also has interests in Iran — froze exploration in the disputed zone. But Azerbaijan continued to denounce the move, and on July 31 charged that an Iranian reconnaissance aircraft had violated Azeri airspace and come within 90 miles of Baku. And if the Iranian Foreign Ministry was calming things down, more hotheaded Iranians were not: former Pasdaran (Revolutionary Guards) Commander Mohsen Reza'i pointedly reminded Azerbaijan that the whole country had once been Iranian territory and that Iran might decide to take it back, while other Iranians said that Azerbaijan was scheming to bring about American intervention in the Caspian. Meanwhile, when Turkmenistan criticized Azerbaijan and resurrected its own territorial disputes, Baku in effect charged Ashgabat with piling on, joining Iran in trying to poach on Azeri territory. (But Turkmenistan and Iran have differing interpretations of their own.)

Propaganda aside, the dispute focuses attention once again on the Caspian. Though Caspian oil and gas has been slow to fulfill some of the early prophecies made for it, no one denies that significant deposits of hydrocarbons do lie under the inland sea, and that the legal regime is confused. Formerly, the entire littoral of the Caspian was controlled by two countries: Iran and the Soviet Union. With the collapse of the USSR, Azerbaijan, Kazakhstan and Turkmenistan became Caspian powers as well. Since that time there have been efforts to resolve thorny questions of the seabed rights: is the Caspian a lake under international law, or a sea? Do two treaties between Iran and the Soviet Union signed in 1921 and 1940 bind the successor states, or not? And finally, if the seabed is to be carved up territorially, where do the lines run?

There seems to be little real dispute over what, more or less, happened on July 23. Two Azerbaijani research vessels, the Geofyzik -3 and the Alif Hajiyev were operating in what Azerbaijan calls the Alov oilfield (Map, Below) in the southern Caspian, which Iran considers part of what it calls the Alborz field. Azerbaijan has a production sharing agreement, signed in 1998, with BP and other companies. Beginning at 1:42 pm, according to an Azerbaijani statement, an Iranian Air Force aircraft flew for two hours over the research vessels. Later in the day, at 8:10 pm, and Iranian Navy warship approached, and the captain demanded that the Azeri vessels withdraw some eight kilometers to the north. When the captain of the Geofyzik-3 insisted that he had papers authorizing him to be in the area, the captain of the Iranian vessel replied that he had firm instructions to order the research vessels to leave the area. When the Azeri captain asked that a BP representative aboard be allowed to explain the situation, the Iranians reportedly responded that no one aboard understood English. According to Azerbaijani statements, the Iranian crew then went to their action stations and guns were made ready. At this point the Azeri ships withdrew. Some accounts suggested the guns had actually been brought to bear; no shots were fired.

The incident did not occur in a vacuum. Two days earlier, on July 21, Iranian Deputy Foreign Minister ‘Ali Ahani had called in Azerbaijan's chargé d'affaires in Tehran and strongly protested exploration in the area, and warned that "Azerbaijan bears the responsibility for its irresponsible and illegal actions"; Iran also reportedly warned Western oil companies that it would not recognize deals signed with Azerbaijan in disputed territory.

Azerbaijan responded with strong protests of what it called Iran's "aggressive, impudent actions" violating "international norms", but both the British Embassy in Tehran and British Petroleum rushed to reassure Iran that BP would suspend its marine operations in disputed territory.

In the charges and countercharges between Tehran and Baku, Iran said that an Azerbaijani warship had "recently" violated Iranian territorial waters, but did not apparently specify a date or location. On July 30, Azeri television reported that an Iranian reconnaissance aircraft had violated Azeri airspace, entering that airspace shortly after noon on Sunday, July 29, and flying for four hours "over the Azeri sector of the Caspian", at an altitude of 200 meters, reportedly taking reconnaissance photographs. It reported that it came within some 90 miles/160 kilometers of Baku. The report was not officially confirmed as this was written.

Over the week which followed the incident, Iran seemed to be playing it down, calling for an international conference on the status of the Caspian (as it has long done), and for a peaceful resolution of the dispute. But less official Iranian positions were more strident, with some hardliners claiming that Azerbaijan was operating as a tool of the United States, and former Islamic Revolution Guards Corps (Pasdaran) Commander Mohsen Reza'i, now Secretary General of the Expediency Council, reportedly said that "Azeri officials should govern the country in such a manner, so that the Iranian people do not demand the return of Azerbaijan to Iran", noting that Azerbaijan had been annexed by Russia in the early 19th century after conflicts with Iran.

Since Iran has, at times in history, controlled the area of the modern state of Azerbaijan, and since the northwestern province of Iran, also called Azerbaijan, is ethnically and linguistically linked to Azerbaijan and speaks Azeri Turkish, there are potential irredentist claims from both sides. These have generally remained latent in the decade since Azerbaijan gained its independence with the collapse of the Soviet Union, but they have never been completely forgotten on either side.

The Concession
The incident involves several levels of dispute: the broader issue of how the Caspian seabed should be exploited, which divides Iran from several of its neighbors, and the more specific issue of Azerbaijan's numerous production sharing agreements with foreign companies in areas of the Caspian which are in dispute, primarily with Iran and Turkmenistan.

The specific Alov field where the incident occurred is a case in point. Azerbaijan signed a Production Sharing Agreement for what it calls the Alov-Araz-Sharq field in July of 1998; it was ratified in December of that year. The participants in the agreement are SOCAR — Azerbaijan's national oil company — with 40%, BP with 15%, ExxonMobil with 15%, Russia's Statoil with 15%, Turkey's TPAO with 10% and Alberta Energy of Canada with 5%. Estimated oil reserves are said to be 4 billion barrels.

Azerbaijan has signed a number of such production sharing agreements, though many of them involve Caspian regions in dispute with its neighbors, particularly Turkmenistan and Iran. (For a table of Azerbaijani production sharing agreements, see the tables at the US Energy Information Administration's website at:http://www.eia.doe.gov/emeu/cabs/caspian.html)

The issue, however, is not just a question of disputed lines on the map. There are still fundamental disagreements among the littoral states of the Caspian over whether and how international law applies to the resources under the seabed, and efforts to resolve these have not made much headway.

Iran's position is perhaps the most absolutist of the states around the Caspian. It insists that, absent any newly negotiated agreement, bilateral treaties signed between the then-Soviet Union and Iran in 1921 and 1940 govern exploration rights. Those two treaties did not seek to allocate territorial claims offshore; those treaties essentially recognized each others' rights in the Caspian and agreed to a sharing of the sea.

Or is it a sea? There is a deeper issue which has haunted the debate since the collapse of the Soviet Union: does the Law of the Sea Convention apply to the Caspian? If so, then the maritime boundaries of the five states around it would be established using the principle of an equidistant division from the shoreline, dividing the sea up into five national sectors.

But Iran, and to some extent Russia, have tended toward the interpretation that the Caspian is a lake, that the Law of the Sea Convention does not in fact apply, and that therefore, the resources should be shared equally through a condominium of the littoral states. When Iran and the USSR were the only states controlling this landlocked body of water, the issue was moot so long as they respected the existing treaties. But with five states on the shoreline today, it is unclear what the legal status is.

With no formal agreement among the five littoral states, Iran has insisted that the 1921 and 1940 treaties apply, which would also (apparently) mean a sharing of the resources. Meanwhile, the scramble for concessions has not been prevented (though it has perhaps been somewhat deterred) by the outstanding questions of sovereignty. In 1997, Kazakhstan and Azerbaijan agreed with each other that they would adhere to borders along the median line between them, until such time as a formal convention could be agreed. That same year Kazakhstan and Turkmenistan reached a similar agreement, and in July 1998, Russia and Kazakhstan divided the northern Caspian seabed — where they are the only two littoral states — along the median lines, but agreeing that the waters themselves would be jointly held for such purposes as shipping, fishing etc. That marked a step away, for Russia, from strict adherence to a condominium policy. In January of this year, Russian President Vladimir Putin and Azeri President Heydar Aliyev issued a statement agreeing to similar terms to those agreed between Russia and Kazakhstan.

Thus four of the five littoral states have reached some sort of agreement on using median lines to divide the seabed; some of these however use what has been called a "common waters, divided seafloor" arrangement. (For a good summary of the present status, see the backgrounder on Caspian legal issues from the United States Energy Information Administration at: http://www.eia.doe.gov/emeu/cabs/casplaw.html

These agreements leave many issues unresolved, including those of overlapping oilfields (that is, where the median lines run through a field), environmental questions, and others. And, while the parties have generally agreed to abide by Soviet-era boundaries, there are some potential disputes involving land borders which could raise questions on the seabed as well. Nor is it totally clear how the median lines should be drawn: Azerbaijan and Turkmenistan dispute at least two major fields as a result of differing interpretations of the median line. These uncertainties led to a failure of a Turkmenistan tender for production-sharing agreements because it included the field which Turkmenistan calls Serdar and Azerbaijan calls Kyapaz. (The highly technical issues involved relate to the features of the shoreline of Azerbaijan and how the line into the sea should be drawn.)

But the major problem is that Iran is not a party to any of these agreements, and in fact refuses to recognize the concessions made under them. Iran refuses to recognize the other agreements made by the littoral states. It has reportedly argued that if the Caspian is to be divided into national sectors, it should be divided into five equal sectors of 20% each, whereas the use of equidistant rules would give Iran only about one eighth of the whole. (The white lines shown on the map below are the hypothetical equidistant lines, which Iran does not recognize.)

The Time Bomb?
For years, the whole question of the status of the Caspian has been left more or less unresolved, except for the bilateral agreements already mentioned. The fact that international oil companies were already exploring the seabed even though Iran's non-recognition of their production-sharing agreements remained unresolved may have persuaded Iran of the need to get tough in order to get its point across. BP's reported decision to suspend marine operations in the region until agreements are reached on sovereignty suggests that the flexing of muscles worked, despite expressions of concern (including some from the US) about "gunboat diplomacy". Diplomacy has made little progress; Tehran appears to have decided on a somewhat tougher stance. Gunboats are a traditional way of doing just that.

No one expects Iran and Azerbaijan to go to war; at the moment Iran seems to have accomplished its goals without firing a shot, anyway. And precisely since the sea is landlocked, naval forces there are necessarily limited. But the first threatened use of force in the Caspian may serve as a reminder that the question of Caspian seabed rights cannot be left aside forever, especially with signs that the long-promised wealth beneath the Caspian may actually be realized.

Reza'i's warning is a reminder that Azerbaijan and Iran have other, historical baggage which may impede direct negotiations, though they also have some interests in common, most of all, extracting the oil and gas wealth believed to exist there.

In any event, the July 23 incident got the attention of the region and the petroleum industry, and that is likely to mean more attention will be paid to the issue in the months to come.

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