The status of the oil-and-gas-rich Caspian Sea was regulated by agreements reached between Iran and the Soviet Union until the dissolution of the latter, followed by the emergence of newly independent states surrounding the body of water, namely Azerbaijan, Kazakhstan, Russia and Turkmenistan, who had managed to reach the agreement after over 20 years of diplomatic efforts.
The recently signed convention closed the door to this uncertainty by dividing the seabed and subsoil between the five littoral states on the basis of international law, while the major surface of the sea will be shared. The document regulates such issues as fishing and pipeline construction, establishes rules for maritime navigation in the sea, and bans any activities threatening the sea's biological resources.
Caspian Deal Opens Opportunities for New Energy Projects
The signing of the Convention on the Legal Status of the Caspian Sea opens up great prospects for cooperation in the fuel and energy sector, according to the experts.
"The Convention on the Caspian Sea signed on 12 August 2018, in Aktau, Kazakhstan […] opens major economic possibilities. Most important, an estimated 68 billion barrels of oil and 535 trillion cubic feet of natural gas in proved and probable reserves may be available for extraction by the five countries. In addition to easing domestic energy costs for those nations, commercial exploitation presents the possibility of the region becoming a pivotal player in global supply if the signatories act cooperatively for mutual benefit," Dr. Jamsheed K. Choksy, the chair of Department of Central Eurasian Studies at Indiana University, told Sputnik.
In particular, the Caspian Convention may give a new impetus for building the Trans-Caspian pipeline, which will help transport the region’s gas through Azerbaijan to new markets in Europe, bypassing Iran and Russia.
"The agreement may lead to more cooperation between Iran and Turkmenistan, and Iran and Kazakhstan. They are both land-locked countries and wish to export their oil and gas. There has been much talk about Trans-Caspian pipeline," Muhammad Sahimi, the NIOC Chair in petroleum engineering at the University of Southern California, told Sputnik.
In November, the signatories are set to gather in Azerbaijan to hold the first meeting of a working group on implementation of the convention, which in the long run will integrate the whole region, according to another expert.
"The Convention will help to improve the relations between all of the states and help to integrate the region. It’s something that benefits all from all sides of the Caspian. I hope that cooperation will help to improve the environment as well, while also enhancing energy cooperation," Mohammad Marandi, a professor at the University of Tehran, told Sputnik.
The convention on the Caspian Sea was hard to agree due to the fact that its legal status as either a sea or a lake was to be determined; the two bodies of water are regulated by different provisions of international law.
Iran’s Exports Fall in the Face of US Sanctions
The signing of the Caspian convention comes at a time when Iranian oil exports are about to be seriously undermined due to US sanctions, the first set of which was implemented on August 6. As the result, Iran’s oil production fell by 56,300 barrels per day to 3.73 million barrels per day in July. The US sanctions are expected to extend to the Iranian energy sector and cover the purchase of petroleum and petrochemical products from Iran.
"Some of the importing countries cut back their imports from Iran, and it takes time to replace them. By swapping oil and natural gas with its neighbors to the north that are signatories to the Caspian Sea agreement, Iran will effectively be exporting its oil even in the face of US sanctions," Sahimi said.
One of the solutions for Tehran to restore its exports would be to connect to the proposed Trans-Caspian pipeline, which will be "political benefit for Iran by making it part of a pipeline that Europe needs," the NIOC chair in petroleum engineering added.
"This is a purely political line because the more economic route is through Iran. The main obstacle to a route through Iran has been the United States," Sahimi argued.
However, it remains unclear how Azerbaijan, Kazakhstan, and Turkmenistan plan to swap oil and gas with Iran under threat to be sanctioned by the United States. US President Donald Trump previously warned that the United States would cut trade ties with "anyone doing business with Iran."
"[The three states] definitely cannot afford to circumvent the American demand-and covert trade between Iranian companies and organizations in those three Caspian states and from there to the west or the east will not make a fundamental difference to any economic sectors," Choksy warned.
The professor explained that in order for the Caspian regional grouping to help partially offset the impact of US sanctions and set up trading routes to Europe and Asia, Tehran would still need to negotiate with Washington, a step they repeatedly refused.
"[Iranian President Hassan] Rouhani administration in Tehran will have only a short timeline to demonstrate the Convention is a positive step for the Islamic Republic, and the US administration is likely to act to block any gains to Iran from the Convention. For the Convention on the Caspian Sea to achieve its full potential and benefit the five signatory nations and the world, Iran needs to settle its disputes with the US," Choksy concluded.
The United States is set to introduce secondary sanctions against countries that will continue to import oil from Iran after Washington reintroduces sanctions on Tehran on November 4, according to the US Department of State.
The views and opinions expressed by the contributors are those of the analysts and do not necessarily reflect those of Sputnik.