1
The Caspian Basin: Geopolitics and the Future Balance of Power
1) Introduction (pg. 2)
2) Brief overview and history of the Caspian Sea (pg. 3-4)

Overview

History
3) Littoral states – Geopolitical fundamentals and regional relations (pg. 5-6)

Russia

Azerbaijan

Kazakhstan

Turkmenistan

Iran
4) Current dynamics (pg. 7-18)

Economy and energy

Maritime disputes

Military

External players and the geopolitical balance of power in the region
5) Future dynamics (pg. 19-26)

Economy and energy

Maritime disputes

Military

Balance of power
6) Conclusion (pg. 27)
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Introduction
The Caspian Sea region as defined in this report consists of the Caspian littoral states of Russia,
Azerbaijan, Kazakhstan, Turkmenistan and Iran. This region is perhaps one of the most dynamic
places in the world because of the presence of Russia and Iran -- two established powers -- and
because of the emergence of Azerbaijan, Kazakhstan, and Turkmenistan first as independent
states in the early 1990s, and now as important regional actors in their own right. Adding to this
complexity and dynamism is the interest the region has attracted from other global players,
including the United States, European Union, Turkey and China.
This report will examine the current dynamics of the Caspian Sea region -- ranging from
relations among the littoral states over various issues such as energy, maritime disputes and
military matters -- and will explore the geopolitical balance of power of the region as a whole.
The report will also look forward at how these regional relationships and the geopolitical balance
of power could change in the coming decade. Because of its strategic location and array of
resources and competing actors, the Caspian Sea region is one that presents enormous
opportunity but also significant risks for all players involved.
*Graphic 1 - Insert map of Caspian Sea region
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Brief overview and history of the Caspian Sea
The Caspian Sea is a unique body of water in many respects. It is the world's largest inland body
of water. Its waters are salty, and the northern part of the Caspian freezes over for much of the
year. These factors, plus winds that often exceed 70 miles per hour on the sea's waters, make the
Caspian very difficult body to navigate. Indeed, the Caspian might not even be a sea at all; it is
sometimes referred to as the world's largest lake.
The Caspian covers an area of 386,000 square kilometers (nearly 150,000 miles), roughly the
size of Japan. The Caspian is roughly 1,200 km long from north to south, and is 320 km wide on
average. The Caspian's surface is around 27 meters (90 feet) below sea level.
The Caspian gets its water flow from two major rivers -- the Volga and the Ural -- as well as
several smaller ones. It is divided into three distinct regions regions: Northern, Middle and
Southern. The Northern Caspian is quite shallow and represents less than 1 percent of the sea's
total water volume. The Middle Caspian contains about a third of the water volume, while the
Southern Caspian is the deepest part and holds roughly two-thirds of total water volume.
While the Caspian Sea is significant as a geographical feature, it is the countries surrounding the
sea -- Russia, Azerbaijan, Kazakhstan, Turkmenistan and Iran -- and the resources within and
near the sea that makes it important. Ultimately, these factors and the sea's strategic location in
the middle of the Eurasian land mass give the Caspian its true geopolitical importance.
History
Roughly 10,000 years ago, the first human civilization began near the Caspian Sea in what is
today western Turkmenistan. Since antiquity, various empires have risen and fallen in the
general area around the sea. From around the late 17th century, the two empires that came to be
the most important proximate powers were the Russian Empire and the Persian Empire. Russia
and Iran would maintain their positions in the region until the early 20th century.
An important development transpired near the Caspian Sea in 1846 that would come to change
the region in ways felt to this day. This is when the world's first oil well was drilled in Baku. In
the 1870s, this well drew the interest of the Nobel brothers from Sweden, who then pioneered the
oil industry and commercialized it for global purposes (oil was discovered and had been used for
millennia before then on a smaller scale). By the early 20th century, Baku was home to some of
the largest oil producing fields in the world, accounting at its peak for 50 percent of global
production in 1905.
By the early 1920s, Russia and Persia remained the sole Caspian major powers, but in different
incarnations: the Soviet Union and Iran. The former controlled most of the territory of the
Caspian Sea and the majority of its resources, including Baku's oil, while the latter held the
southernmost waters of the Caspian. They were the only two states that bordered the Caspian Sea
from the 1920s until the collapse of the Soviet Union in 1991.
With the fall of the Soviet Union, three new countries -- Azerbaijan, Kazakhstan and
Turkmenistan -- achieved independence and joined Russia and Iran as littoral states of the
Caspian Sea. The ensuing 20 years brought many notable developments, particularly in terms of
the development of their respective oil and natural gas sectors and construction of major energy
projects, as these countries adopted their own national policies and strategies.
In 2011, these states are celebrating two decades of independence. The dynamics in and
surrounding the Caspian Sea have changed dramatically since Azerbaijan, Kazakhstan and
Turkmenistan became independent states.
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5
Littoral states – Geopolitical fundamentals and regional relations
Russia
Russia is perhaps most notable for its geographic size; it is the biggest country in the world,
spanning more than 17,000 square kilometers and nine time zones. But just as important as its
size is Russia's northern/central location in the Eurasian land mass. This size and location
ensures that Russia's interests and influence reaches toward all major regions in Eurasia, from
Europe to the Middle East to East Asia.
<insert Russian core/expansion phases map>
Despite its size, Russia lacks natural barriers, such as mountains, oceans, or deserts around the
Russian core of Muscovy -- the area in and around Moscow where Russia's political power is
concentrated -- to protect it from other powers. This gives Russia the need to control
surrounding territories in order to create defensive barriers in the form of distance, or buffers,
from other powers.
This need has manifested itself throughout history first in the form of the Russian Empire and
then in the form of the Soviet Union, where Russia absorbed various nations from Eastern
Europe, the Caucasus and Central Asia under its political rule. Russia has used a strong and
centralized political system, pervasive security apparatus and large standing army in order to
manage this system and its interests.
The Caspian Sea region is key for Russia as it is in the middle of two of Russia's southern buffer
regions: the Caucasus and Central Asia. In this context, Azerbaijan, Kazakhstan and
Turkmenistan are all important countries that Russia aims to influence and incorporate as buffer
states. Russia is interested in blocking the emergence of Azerbaijan, Kazakhstan and
Turkmenistan as independent states, particularly when these countries invite in foreign
(specifically, Western) influence.
Russia views Iran differently; Tehran is one of the established Eurasian powers Moscow seeks to
defend against, not an area to integrate as a buffer. Russia sees Iran as a historical rival in the
Caucasus and Central Asia and therefore wants to block the expansion of Iranian influence into
the Caspian region. However, Russia is willing to cooperate with Iran in certain respects to
prevent the rise of the three smaller Caspian states, particularly Azerbaijan.
Azerbaijan
Azerbaijan's defining geographical feature is its location: It is a relatively small country that sits
between two large powers, Russia and Iran. It is bordered to the north by the Caucasus
Mountains and to the south by the Iranian plateau. To the east is the natural border of the
Caspian Sea, where Azerbaijan's oil and natural gas reserves are concentrated. To the west are
less-definable natural borders, which have led to political and territorial confrontations with
neighboring Armenia over Nagorno-Karabakh and several surrounding regions since the end
of the Soviet era.
The majority of the population (more than 90 percent) is Azerbaijani, with small populations of
Lezgins, Avars, Udins, Tsakhurs, Tats, Kurds, Talysh, Tatars, Armenians, Georgians
Russians and others. One notable feature is the number of ethnic Azerbaijanis living in Iran, who
outnumber Azerbaijan's domestic population and make up around 30 percent of Iran's total
population.
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Azerbaijan's view of the Caspian region is framed by its relationship with its two large
neighbors. Azerbaijan has sought to keep a balance between Russia and Iran while striving to
preserve its autonomy or independence as much as possible. Since Azerbaijan gained
independence from Russia following the breakup of the Soviet Union, the Caspian region has
been key to the development of Azerbaijan's energy resources and projects. This development, in
turn, has led to opportunities for cooperation with Kazakhstan and Turkmenistan, as well as with
outside powers like Turkey and the European Union, and has played a major role in shaping
Azerbaijan's foreign policy.
Kazakhstan
Kazakhstan consists of mostly steppe and desert flatland. Its defining features are its large size
(one-third the size of the United States) and its long and open border with Russia to the north.
Kazakhstan borders the Caspian to the west, Turkmenistan and Uzbekistan to the south, and
Kyrgyzstan and China to the east. Its population of 15 million gives Kazakhstan one of the
lowest population densities in the world. It also has the largest ethnic Russian population of all
the Central Asian countries, making up nearly 40 percent of the total population.
Kazakhstan, like Azerbaijan, must also take into account the larger powers of Russia and Iran -particularly Russia -- in its approach to the Caspian region. As with Azerbaijan, the Caspian
region has been key to Kazakhstan's development of energy resources and projects since the
Soviet collapse and has provided a platform for cooperation with numerous countries.
Turkmenistan
Turkmenistan is covered nearly entirely by desert. It borders the Caspian Sea to the west, Iran
and Afghanistan to the south, and Uzbekistan to the north. Turkmenistan has a small population
of roughly 5 million people. This population is mostly concentrated along its northern and
southern borders, near Iran and Uzbekistan.
Turkmenistan, like Azerbaijan and Kazakhstan, must also take into account the larger powers of
Iran and especially Russia in its approach to the Caspian region. Also like Azerbaijan and
Kazakhstan, Turkmenistan has benefited from the Caspian region in developing energy resources
and projects and creating opportunities for cooperation with several other countries.
Iran
Iran is almost entirely mountainous, with the major ranges being the Zagros and the Elburz. Iran
borders the Caspian Sea to the north and the Persian Gulf to the south. It also borders Azerbaijan
to the northwest and Turkmenistan to the northeast, Turkey and Iraq to the west, and Afghanistan
and Pakistan to the east.
Iran is a multiethnic country; the Persian population makes up slightly more than half of the total
population. Ethnic Azerbaijanis make up a significant part of the population, as do Kurds and
other groups.
The Caspian Sea region is not Iran's strategic priority, as its geopolitical interests are more
oriented toward Iraq, the Persian Gulf and the wider Middle East. Iran, like Russia, is interested
in blocking the emergence of Azerbaijan, Kazakhstan and Turkmenistan as independent states
and in preventing foreign (particularly Western) influence from entering those countries.
However, Iran sees Russia as a historical rival in the Caucasus and Central Asia and ultimately
as a competitor when it comes to projecting influence in the region.
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CURRENT DYNAMICS
Economy and Energy
The Caspian Sea holds a number of important resources within its waters. The Caspian has
approximately 80 percent of the world's sturgeon, a fish used to make caviar (# - value annually).
The northern part of the Caspian is also known for the seal industry, where there is a
considerable fur trade (# - value). Several minerals are also found in the Caspian, such as sodium
sulfate, which is used for the production of several commodities like glass and textiles.
*Graphic 2 - Insert map of Caspian Sea ports
The Caspian Sea is also an important transit hub for goods. Whether they are transporting wood,
foodstuffs, cotton or finished goods, the sea's five littoral states conduct much trade via the
Caspian (# - value). There are several important ports and transit hubs on the Caspian Sea,
including Baku in Azerbaijan, Astrakhan and Makhachkala in Russia, Turkmenbashi in
Turkmenistan, Aktau in Kazakhstan, and Bandar-e Anzali in Iran serving as some of the largest.
However, since the Caspian is a relatively small and landlocked body of water, these ports are
much smaller than some of the world's largest ports like Singapore or New York (#s - compared
to other global ports).
But the most significant economic driver of the Caspian region is the energy sector, which is a
major factor in the modern geopolitical relationship among the Caspian countries. The Caspian
Sea is unique in terms of the sheer amount of energy that is located, produced and exported from
within or near its waters. In 2010, more than 3 billion bpd of oil was produced in the Caspian
region (not including energy resources from Russia and Iran that are not immediately in or near
the Caspian Sea), accompanied by roughly 100 bcm of natural gas. The Caspian region accounts
for #% of global oil production and #% of global natural gas production.
Russia and Iran both rank in the top five globally for oil and natural gas production, with Russia
by far the world's top natural gas producer and constantly switching with Saudi Arabia for the
No. 1 position in oil. Iran trails just behind Russia, Saudi Arabia and the United States in oil
production, and is also the world's fourth-largest natural gas producer.
However, the vast majority of these countries' oil and natural gas resources are not located in or
near the Caspian region. Russia has huge concentrations of energy resources in the YamalNenets region and both West and East Siberia, with only marginal volumes near the Caspian
Sea. Iran's resources are predominantly found near the Persian Gulf, with virtually no resources
near the Caspian.
Therefore, most of the energy resources found in or near the Caspian Sea -- and there are a lot of
them -- are largely held by the three states that are newest 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.
Resources/fields
Three major oil fields are currently in production in or near the Caspian Sea. There are the
Tengiz and Kashagan fields in Kazakhstan, and the Azeri-Chirag-Guneshli complex in
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Azerbaijan. Additionally, four major natural gas fields are currently operating in the region: the
South Yolotan and Dauletabad fields in Turkmenistan, Karachaganak field in northwestern
Kazakhstan, and the Shah Deniz field in Azerbaijan.
Production/exports
*Table 1 - Insert table on oil/natural gas production and exports
Pipelines/transit infrastructure
Because the three major Caspian energy-producing states -- Azerbaijan, Kazakhstan and
Turkmenistan -- are former Soviet states, it is no surprise that much of the pipeline and transit
infrastructure that carries energy flows in the Caspian region is oriented toward Russia, since
much of it was built during the Soviet era.
Energy is one of Russia's primary geopolitical tools of influence. It uses its vast network of
pipelines and other export infrastructure such as tankers and rail to increase the dependence of its
primary market -- the Europeans -- on Russia for energy and thus increase its own political
leverage. In the past, Russia has also used infrastructure to hook in other energy-producing states
in its periphery in order to limit competition, to control pricing and to further increase the
volume of supplies it sends to Europe. Russia often pays these other countries a low price for
their energy supplies, which it eventually sells to the Europeans.
While Russia had a near monopoly on energy supplies coming from Azerbaijan, Kazakhstan
and Turkmenistan in Soviet times, this has changed considerably in recent years with the
completion of several energy infrastructure projects that run to the west, east and south. Russia
does still import or transit the majority of these countries' energy supplies, but the percentage of
supplies Russia imports or transits is shrinking fast: In 2008, 80 percent of the Caspian region's
exports went to or transited Russia, but only 55 percent went to or transited Russia in 2010
(IEA*).
Oil
While Russia and Iran have long been major oil producers, the status of Azerbaijan and
Kazakhstan is growing in the field (Turkmenistan is a marginal player when it comes to oil).
This is not to say that Azerbaijan and Kazakhstan did not have significant oil production in the
past -- Baku was the first major oil producing region in the world -- but a renewed focus on
exploration and investment into these countries’ oil reserves since independence has opened up
new resources and potential for Azerbaijan and Kazakhstan.
In addition to contributing to energy revenues and building up government coffers (especially
when energy prices are high), these new resources have changed the picture of oil infrastructure
in the region considerably. In 2006, the Baku-Tbilisi-Ceyhan (BTC) pipeline debuted and made
Azerbaijan's oil imports available not only to Turkey but also to larger markers further into
Europe.
Kazakhstan has also sought new markets, occasionally contributing to Azerbaijan's oil exports to
the west and also sending its supplies to the east to energy-hungry China. This has allowed
Kazakhstan to become one of the top 10* oil exporting countries in the world. Both Kazakhstan
and Azerbaijan, however, are still significantly involved in Russia's oil pipeline network.
*Insert pipeline maps here
*Insert table on oil pipelines
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Natural gas
Natural gas is in many ways more strategic than oil, because most natural gas -- excluding
liquefied natural gas, which as of 2010 accounted for 10 percent* of all natural gas trade -- must
travel through pipelines. This means its distribution networks are fixed, and hence control over
the territory in which those networks are located gives total control over distribution. That gives
natural gas exporters less flexibility and a less-diverse range of export markets than oil exporters,
who can use pipelines or ship their products via tanker virtually anywhere there is access to the
oceans. (It is much easier to ship by sea than to build and maintain a pipeline through Siberia to
China, for example.) Not only do exporters of traditional natural gas have to contend with
geographic distance, crossing natural boundaries with pipelines and the cost effectiveness of
transporting their products, they also face -- particularly in Central Asia -- the inherent political
hurdles associated with building natural gas infrastructure without involving Russia.
Another crucial factor of natural gas is pricing. Natural gas consumers have a greater ability to
set the price than oil consumers, because natural gas producers cannot easily find a new market
(new pipelines would be required for that). Yet if a producer can gain control over the majority
of natural gas distribution networks, one gains greater power in pricing, since consumers cannot
easily diversify away from the same set pipelines.
However, since the fall of the Soviet Union, Western powers and international energy firms
made a concerted effort to take advantage of the newfound independence and energy wealth of
Azerbaijan, Kazakhstan and Turkmenistan. While this process took a while to get started, in
recent years several major projects have come online that have changed the dynamics of this
region.
*Insert pipeline maps here
*Insert table on natural gas pipelines
Maritime disputes in the Caspian Basin
The status of the Caspian Sea is disputed and controversial and has been since the breakup of the
Soviet Union. The primary issue at hand among the Caspian's littoral states is resources -particularly energy -- and how to divide them. This has translated into the question of how to
divide the maritime borders of the Caspian Sea among Russia, Iran, Azerbaijan, Kazakhstan and
Turkmenistan.
This is where the legal status of the Caspian Sea comes in. There is an open question as to
whether the Caspian should be classified as a sea or as a lake, as the Caspian does not fit neatly
into either category according to international law. If it is classified as a sea, the delineation and
boundaries of the Caspian would differ from what they would be if it were classified as a lake.
While Iran proposes delineating the Caspian Sea into five equal parts, the smaller states oppose
this method of division as it would give a greater share of the resources to Iran, and Russia
opposes a division according to national sectors entirely.
*Insert map of sea vs. lake boundaries?
Historical precedent does not offer much guidance. According to a treaty signed between the
Soviet Union and Iran in the 1920s, the Caspian Sea was technically considered a lake. The
Caspian was divided into two sections, and its resources were to be shared. But at that time, the
primary resource in the Caspian that was for mass consumption was fish -- not oil and natural
gas. Also, the treaty did not clarify rights regarding the energy sector in terms of exploration or
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seabed boundaries, so energy resources have changed the calculus regarding maritime
boundaries in the Caspian. Furthermore, it is likely no surprise that when the Soviet Union
dissolved, Russia and Iran decided to continue to abide by their treaty and classification system,
but the three newly independent states did not.
There have been negotiations among the littoral states on formally demarcating maritime borders
in the Caspian for more than a decade, and many proposals and counter-proposals have been
considered, but these negotiations have not yet produced a solution agreeable to all five states.
Several bilateral agreements were made in the northern part of the Caspian between Russia and
Azerbaijan, Russia and Kazakhstan, and Azerbaijan and Kazakhstan in the late 1990s and early
2000s, but agreements in the south between Azerbaijan, Turkmenistan, and Iran remain elusive.
These are the most important disagreements -- and not coincidentally involve areas where major
disputed and untapped oil and natural gas fields are located.
Practically speaking, however, these political issues and disagreements have not yet been a
significant barrier to energy production with the Caspian Sea. Each of the three major Caspian
producers -- Azerbaijan, Kazakhstan and Turkmenistan -- have followed through with national
projects within the portion of their sectors that are relatively close to shore and are not
significantly disputed. While exploration efforts have created frictions (such as an incident in
2001 in which an Iranian patrol boat forced an Azerbaijani energy exploration vessel to turn
away), littoral disagreements have not significantly hampered current energy operations or each
country's production or export strategy. And, crucially, at this point there are no subsea pipeline
projects that cross national sectors of the Caspian.
While legal and environmental factors could significantly affect energy projects in the Caspian in
the future, these factors have not yet been obstacles to energy development in the Caspian.
Technological and financial barriers have been the limiting factors so far in energy production in
the region.
Military
Confronted with large range of issues, Russia, Iran, Azerbaijan, Kazakhstan, and Turkmenistan
have revised their positions on their military presence in the Caspian Sea. Though most of the
littoral states were opposed to the militarization of the Caspian Sea in the 1990s, they are now
convinced of the necessity for the military supervision of their own wealth and strategic
objectives.
The official budgets of Iran and of the former Soviet states of the South Caucasus and Central
Asia clearly show that defense spending has increased in the Caspian basin region since 1995.1
The evolving national security doctrines of several countries in the region consider international
terrorism and political and religious extremism as the main threats to national security, resulting
in increased priority being given to the development of interior ministry forces during the latter
half of the 1990s. In this report, these forces and their sources of funding are considered
independently of the regular armed forces. Armed non-state groups are also active in the region,
and the secret nature of their sources of funding and equipment makes it difficult to reach
reliable conclusions about their military capability and their effects on security in the region. But
among the security issues the states in the Caspian region have had to address since the fall of
the Soviet Union, the Caspian Sea has turned out to be particularly complex, since it involves
1
Inconsistent reporting and coverage of defense budgets by regional countries are the norm, and available data are
often unreliable, seldom reflecting the actual military/security environment of the region. For example, paramilitary
forces possessing military capabilities and performing defense-related tasks are not usually funded through defense
budgets but by interior ministries.
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matters that are at once politico-juridical (definition of the sea's legal status), economic (control
of subsoil wealth) and geopolitical (balancing of the great powers).
Western companies participating in international consortiums exploiting Azerbaijani and Kazakh
oil supplies and the export routes from the Caspian to the Caucasus and then to the Black Sea
require security assistance. In light of this, NATO has sought to strengthen military relations
with Azerbaijan, Turkmenistan and Kazakhstan with the signing of the Partnership for Peace.
The West's increased presence has provoked reactions from Russia and Iran, the two historical
powers of the Caspian Sea, who both oppose the U.S. military presence and hope to win the
former Soviet states over. To avoid Russian -- and to a lesser extent, Iranian -- domination,
Azerbaijan, Kazakhstan and Turkmenistan are hastening to develop national navies. By
increasing their naval power, each country is trying to gain more freedom of movement. What is
really at stake is the ability of the littoral states to defend themselves -- not just against common
militant threats, which have yet to materialize in the Caspian but could occur, or against the
proliferation of weapons of mass destruction, but against potential Russian and Iranian threats to
their energy projects (and thus their independence). The militarization of the Caspian Sea is
therefore part of multiple competitive perceptive strategies: Iran versus the United States, Russia
versus the United States, and Russia versus Iran.
Although the military buildup in Caspian Sea has accelerated in the last few years, the buildup is
not a new development. Recurrent tensions between the Soviet Union and Iran actually led
Moscow to establish the Soviet Caspian fleet at Baku and to construct a small military naval base
at Astrakhan. As a result of the treaties signed with the Soviet Union, Iran was not permitted to
establish itself in the region militarily.
The disintegration of the Soviet Union increased the number of Caspian littoral states from two
to five. Of the four ex-Soviet republics, Russia inherited the largest chunk of the Soviet military
assets, including almost the entire Caspian naval force, leaving the remaining countries in a very
disadvantageous military position. Efforts by the newly sovereign Azerbaijan, Kazakhstan and
Turkmenistan to form their military forces were quite natural in the early 1990s, when they were
trying to consolidate their independence. Yet, especially in the second half of the 1990s,
disagreements over the division of the energy-rich Caspian Sea -- in the absence of a legal
regime acceptable to all the littoral states -- led to numerous territorial disputes, including
multiple ownership claims to a number of oil fields. Apart from political and security
considerations, fear of losing those potentially revenue-generating fields to their neighbors
created strong economic incentives for all the Caspian states to boost their military power.
Arms transfers to the countries of the Caspian basin increased during the second half of the
1990s, with Iran and Kazakhstan emerging among the world's leading recipients of conventional
weapons. Today, to modernize their armed forces, the region's countries are importing more
sophisticated weaponry and repairing existing weapons, concluding military-technical
cooperation agreements with regional and extra-regional states, and developing indigenous
scientific and industrial defense capabilities.
The development and capabilities of the national armed forces in the Caspian basin are
influenced by four factors:
<ul><li>Foreign financial aid, which partially supplements national defense capabilities;</li>
<li> The presence of foreign forces in some countries: Russia is strengthening its cooperation in
the military-political and military-technical spheres via alliances like the Commonwealth of
Independent States (CIS) and Collective Security Treaty Organization (CSTO), while NATO has
emerged as a major institutional player in South Caucasus and Central Asian security affairs;
</li>
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<li>Participation in international military exercises and training programs (under CIS, NATO
and U.S. auspices); and </li>
<li>Participation in bilateral and multilateral defense, security and military agreements and
cooperation. </li></ul>
Russia
Russia was in political and economic turmoil from the fall of the Soviet Union until the mid2000s. The parity of the Russian and U.S. nuclear arsenals was symbolic and of more political
value; throughout the 1990s, Russia was weak militarily and bogged down in Chechnya. The
loss of the K-141 Kursk, the pride of the Northern Fleet, was the culmination of a decade of both
psychological and material degradation on a massive scale.
But in the last five years or so, there have been at least two modernization surges for Russia's
armed forces. The first occurred around 2005-2007, facilitated by increased revenues flowing in
due to rising oil prices and increases in Russian arms exports. The second surge in the
modernization of Russian Armed Forces seems to be under way, once again funded by
increasing oil revenues resulting from higher global oil prices. The present surge in Russian
military modernization has drawn more attention, due to the fielding of new intercontinental
ballistic missiles and the long-delayed commissioning of Russia's first new, post-Soviet multipurpose nuclear submarine, Project 855. Russian strategic bombers have also resumed global air
patrols. These developments suggest the creation of a credible military deterrence and force
projection capabilities. Some experts suggest that because the strategic arsenal was always a
priority, the reorganization of the conventional forces from ponderous divisional structures to
independent brigade-sized structures -- more flexible and better suited for military interventions
and dealing with asymmetric challenges -- as well as greater funding for the forces led to the
Russo-Georgian war of 2008.
With its military on the rise, Russia fully intends to dominate the Caspian by building up and
modernizing its Caspian fleet and the accompanying naval infrastructure. However, the current
Caspian fleet is a small force meant for coastal defense and waterways patrols. Even if Russia
has the largest fleet on the Caspian, the forces are outdated and uncompetitive; most of its 148
ships are at least 30 years old and are not seaworthy.
Since the taking of Astrakhan -- a natural outlet of the Volga -- in 1556, Russia has continued its
attempts to advance southward to gain new territories and thwart the desires of neighboring
empires. After several wars against the Persians and Ottomans, in 1813 Russia acquired the
exclusive right to have a military fleet in the Caspian Sea. From 1867 to 1992, Baku served as
the home base for this fleet. After the fall of the Soviet Union, the fleet was repatriated to its
main port in Astrakhan. This port still serves as the Russians' main port by the Caspian, although
its infrastructure is deteriorating and is mostly occupied by commercial ships. Russia has
therefore decided to invest in other strategic ports, such as Kaspiisk (*Makachkala?) in
Dagestan, which will become Russia's southernmost ice-free port.
Russia's presence in the Caspian region has intensified as the region's oil exports made their way
into the world market. Russia's current geopolitical conditions mean the importance of the
Caspian fleet is on the rise.
Iran
Like Russia, Iran has a long history as an independent state with determined and committed
armed forces and a developed economy which accommodates significant spending on defense.
Its relative military strength -- particularly in covert operations around the region -- combined
with its cultural, political, economic and strategic interests in the region makes it an important
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actor in the Caspian geopolitical environment. As only a few countries are willing to supply it
with weapons, Iran is focused on developing its indigenous arms industry, especially missile
production technology. Iran produces numerous other conventional weapons domestically,
including main battle tanks, Armored Infantry Fighting Vehicles, various surface-to-air and antitank missile systems, fighter aircraft and attack helicopters, and several types of naval vessels.
Iran lost all control over the Caspian Sea when it signed treaties with Tsarist Russia in 1828, and
was prohibited from maintaining a military (but not commercial) fleet on the Caspian. This
prohibition was renewed during the friendship treaties signed with Moscow in 1921 and 1940,
but the collapse of the Soviet Union enabled Tehran to declare itself freed from the agreements.
At the beginning of the 1990s, Iran's military fleet was obsolete after having suffered enormously
from the termination of cooperation with British and U.S. crews after the overthrow of the Shah
and from its decade-long war with Iraq. The Islamic republic therefore decided to embark on a
large-scale modernization of its military naval forces. The navy became perhaps Iran's most
important military service, since the Persian Gulf is the primary route for all of Iran's oil exports
and most of its other trade.
Consequently, Iran has made the modernization of its naval forces a high priority. Since the end
of the Iran-Iraq war, Iran has obtained new anti-ship missiles and missile patrol craft from China,
midget submarines from North Korea, and submarines from Russia. Iran has also received
modern mines and enhanced its anti-ship missile capabilities. Tehran has expanded the
capabilities of the naval branch of the Islamic Revolutionary Guard Corps, acquired additional
mine warfare capability and upgraded some of its older surface ships.
The accelerated modernization of Iran's navy principally is focused on the strategic waters of the
south, particularly the Strait of Hormuz and the Gulf of Oman. However, the Caspian region, to
date used as a training zone, has also benefited from this dynamism. The Iranian navy in the
Caspian Sea is represented by two commands independent of one another: the Naval Armed
Forces Command in the Caspian Sea Zone (4th Naval Region, with naval base at Anzali) and the
Naval Corps Guards Command of the Islamic Revolution in the Caspian Sea Zone (a coastal
defense battalion at the port of Noshahr). Iranian naval training centers are operational in the
ports of Noshahr and Anzali, as well as in Rasht. A school for Iranian combat divers is also
located in the Caspian area. Meanwhile, in the event of a crisis, Tehran can use rail to transfer
midget submarines and other smaller craft from its southern coast to the Caspian.
The most dramatic differences between Iran and other Caspian littoral states are its anti-ship
missile arsenal, knowledge and capabilities for asymmetric naval warfare and other war-tested
capabilities from the Persian Gulf that could be transferred relatively seamlessly to any naval
conflict in the Caspian.
Kazakhstan
Kazakhstan's military and security relationship with Russia, strong and rooted in common
interests and approaches expressed through bilateral and multilateral defense cooperation, shows
signs of deepening in new ways that reveal some of Kazakhstan's most pressing defense
priorities.
Kazakhstan has a new concern about achieving interoperability of forces (command and control
structures) with NATO and with Russia, but the bulk of Kazakhstan's armed and security forces
remain predisposed to cooperation and interaction with Russian forces. Kazakhstan made slight
progress toward NATO interoperability within higher readiness formations, which seems a long
way off, when the decision was made to create a military language institute in Almaty to train
officers in military English, French and German. Overall, Astana's efforts to attain NATO
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interoperability only extend to certain high-profile, key formations; and arguably its bilateral
cooperation with Russia and multilateral cooperation in bodies such as the CSTO and Shanghai
Cooperation Organization do more to enhance its capabilities for dealing with actual security
needs.
Kazakhstan's 2007 military doctrine refers to the emerging relationship that Kazakhstan has
fostered with the West, emphasizing its bilateral military cooperation with the United States.
Therefore, Kazakhstan plans to deepen its military cooperation with Washington but only in
specific areas: the technological modernization of Kazakhstan's armed forces, the transfer of
military technology, training, and helping to construct and consolidate key military infrastructure
in order to promote regional security.
In the Caspian Sea, Kazakhstan has advantages and disadvantages. It has five ports -- Aktau,
Atyrau, Kuryk, Bautino and Sogandyk -- but none was ever equipped with military naval
infrastructure during the Soviet era, and Astana has had to construct them from scratch. There
has been some modernization at Aktau, the only Kazakh port with military infrastructure, but no
proper naval forces have been created. It was not until 2003, more than 10 years after
independence, when the Kashagan hydrocarbon deposit was discovered, that Kazakhstan
announced the creation of naval military forces and began formulating a doctrine for their
development.
Kazakhstan currently has coast guard assets -- nine ships and 22 motor boats -- which patrol as
far as 25 kilometers from the coast. Kazakhstan's announcement of plans to purchase three patrol
boats and three corvettes would bring Astana into rough naval parity with Baku and would give
Kazakhstani armed forces the hardware to begin patrolling the open waters of the Caspian and
defending offshore energy rigs. Statements from Astana suggest that the navy's chief mission
would be deterring terrorism, not dealing with threats posed by other Caspian littoral states. But
the firepower of the ships that Kazakhstan is considering, while modest compared to the
competition, is much greater than would be required to thwart militant attacks. Also, a top
priority will be refurbishing a fourth helicopter in Kazakhstan's Huey II helicopter fleet, which
will help to protect significant energy infrastructure and respond to threats in Kazakhstan and on
the Caspian. However, the problems this project faces suggest that the Kazakh navy will face
continued limitations, particularly in its war fighting capability.
Azerbaijan
The distinction between Western-oriented and Russian-oriented security and defense policies
among former Soviet states is clearest in the countries of the South Caucasus. Armenia and
Azerbaijan are increasing their defense spending on the basis of perceived threats -- mainly from
each other. While Armenia consolidates its ties with Russia and Iran, Azerbaijan is moving
closer to the West in the area of security, maintaining and developing certain ties with Russia but
supplementing and sometimes replacing them with new security links with NATO and bilateral
cooperation with NATO members (particularly the United States and Turkey). Because of its
ongoing territorial dispute with Armenia, Azerbaijan has devoted most of its attention in recent
years to developing its land and air forces in order to be able to counter and possibly end that
occupation. However, Baku has not neglected the development of a naval presence on the
Caspian Sea -- a reflection of its own key interests there and the challenges presented by the four
other littoral states.
Until 1992, Baku was the base of the Soviet Caspian fleet and is still the region's largest military
port. Azerbaijan's naval forces are the second most powerful in the former Soviet Union (after
Russia) and are doubly strategic in that they are able to play a key role in both the Russian and
NATO frameworks and thus are the object of both Western and Russian desires. After the Soviet
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Union collapsed, Russia gave Azerbaijan different classes of poorly conditioned assets -- a small
part of the former Soviet Caspian fleet, almost entirely based in Baku. Meanwhile, NATO's
training institutes -- particularly in the United States and Turkey -- host numerous Azerbaijani
officers in domains such as the protection of offshore oil rigs. Western experts are sent to the
country regularly to train naval personnel in new technologies. The United States continues to
work with Azerbaijan's navy to increase Caspian maritime security, develop professional
military education, enhance peacekeeping capabilities in support of coalition operations and
promote progress toward NATO interoperability.
Today, Azerbaijan's military budget reflects Baku's security concerns on land and sea.
Azerbaijan historically had a strong presence in the Caspian not just because it was the main
naval base during the Soviet rule, but also because a considerable number of Soviet naval
officers received their training at Azerbaijan Naval Academy. Considering this, it is no surprise
that Azerbaijan has reacted strongly to challenges from the other littoral states. Since the 1990s,
Baku has had few occasions to be concerned about the Russian fleet in the Caspian, but it has
expressed concerns about the development of the navies of the other three littoral countries,
seeing these steps as a possible challenge to Azerbaijan's position on the Caspian. The navy's
most critical role is patrolling and securing the country's coastal waters, ports and key sea-lanes,
and protecting key assets including its sea-based oil fields and infrastructure, and the sector of
the Caspian seabed it claims. This latter mission took on renewed importance following the 2001
naval confrontation with Iran.
Overall, there is an existing fleet and doctrine for the Caspian for Azerbaijan to build upon; the
Azerbaijani navy will almost certainly remain in a position to cope with all its responsibilities,
notwithstanding the occasional faltering expected of an institution that did not even exist two
decades ago.
Turkmenistan
Turkmenistan is trying to strengthen its armed forces, vowing to fight more energetically against
transnational drug smuggling, and reaffirming its neutrality even though Russia had a major
effect on defense planning until 2005. The amount of Turkmenistan's current military
expenditure is not sufficient to suddenly change the regional balance of military power in its
favor. However, Ashgabat's significant arms purchases compared to its limited annual revenues
in hard currency could encourage, if not provoke, other Caspian littoral states -- especially Iran,
Azerbaijan and Kazakhstan -- to accelerate and expand their military build-ups. Ashgabat's
military budget increase is partly due to serious territorial disputes with Baku over certain
Caspian oil fields. The resulting accelerated arms race could complicate the peaceful settlement
of current territorial disputes in the Caspian region.
In terms of Caspian security, Turkmenistan is currently the weakest state. It has announced plans
to create a navy, but developments are by their very nature relatively slow, given how long it
takes to build ships and train personnel. Barring something unexpected, Turkmenistan should be
able to receive help from the United States through the International Military Education and
Training and Foreign Military Financing programs to purchase U.S. defense supplies, services
and training to establish a fledgling naval capability on the Caspian Sea.
Following independence, Ashgabat announced its intention to create its own border troops. In
1994, it ended most of its military cooperation with Russia, except for the guarding of the
maritime borders, which continued until 1999. When its relations with Azerbaijan deteriorated at
the beginning of the 2000s, Turkmenistan resolved to commit to the naval protection of its
Caspian interests and so sought the support of foreign partners. Turkmen President Gurbanguly
Berdimukhammedov announced in January 2010 that the country would create a navy, based at
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the port of Turkmenbashi, by 2015. In 2008, Turkmenistan bought three guided-missile patrol
boats and two smaller patrol boats from Russia. Turkmenistan has said it wants to buy two or
more larger warships, possibly corvettes, as well. The lack of naval equipment limits
Turkmenistan's naval ambitions, but the lack of experience with operating the equipment, much
less maintaining it, conducting damage control and using it effectively in a war fighting scenario
are other obstacles Turkmenistan will have to overcome in creating a naval force.
*Insert table on Caspian naval assets
* According to the Jane's World Navies and other online defense database', note: some of the
vessels of various tonnage/class combined here for demonstration purposes only (What does this
disclaimer refer to?) To a table we will include here
External players and the geopolitical balance of power
Energy resources in the Caspian Sea have attracted the interest of many countries outside the
region. In addition to resources within the sea itself, the Caspian is also surrounded by energy
resources that littoral countries hold onshore near the Caspian. These resources have brought in
many of the world's top multinational energy companies, such as BP, Chevron and Total.
Energy resources are not the only factor making the Caspian region so significant; it is located in
the middle of Eurasia and serves as a convergence zone of the Russian and Iranian spheres of
influence. Furthermore, it contains three growing states on the borderlands of these spheres of
influence: Azerbaijan, Kazakhstan and Turkmenistan. Given its resources and location, the
Caspian region is an area of interest -- for both economic and political reasons -- for four
external powers: the United States, the European Union, China and Turkey. This makes the
region subject to a dynamic geopolitical competition among some of the world's strongest
powers.
External Players
United States
Economically, the United States has been quite influential in the Caspian, particularly in the
development of the energy industries in Azerbaijan, Kazakhstan and Turkmenistan since their
independence. The United States was instrumental in bringing investment and technology into
these countries' energy sectors in order the get their supplies online. Without U.S. political
backing and financing and technical expertise from U.S. firms like Chevron and ExxonMobil,
projects like the Baku-Tbilisi-Ceyhan pipeline and Baku-Tbilisi-Erzurum arguably would
never have materialized, or would not have been completed as quickly.
Politically, the United States' position in the Caspian basin has not been as strong or direct.
Kazakhstan is firmly tied to Russia, while Turkmenistan is closed off to virtually any foreign
involvement in the country's political system. Azerbaijan is closer to the United States than
these two states and cooperates with Washington via logistical support for Afghanistan and
intelligence sharing, but relations between the two have suffered in recent years due to what
Azerbaijan perceives as lack of commitment from the United States over the Nagorno-Karabakh
dispute. Given its geopolitical realities, Baku is more interested in pursuing an independent
position and not committing too firmly to any one side. Ultimately this is the path all three of the
smaller states want to take, but Azerbaijan is in the best position to pursue such a strategy as
Russia has less direct influence or control over Baku than over Astana or Ashgabat.
European Union
17
The European Union has also been active in the Caspian region's energy development, with
several leading firms like Total, E.On and Eni as significant stakeholders in several Caspian
projects and pipelines.
But the European Union's political hand in the Caspian region is even weaker than the United
States'. Kazakhstan and Turkmenistan are not active in any significant way politically with the
European Union. Azerbaijan is closer to the union than and participates in EU programs like the
Eastern Partnership and in other western institutions, but Baku continues to stress its
independence.
China
China has built substantial ties into Central Asia via the financing and construction of the oil and
natural gas pipeline through Kazakhstan, Uzbekistan and Turkmenistan to western China. In
addition, China has increased its involvement in other economic sectors in these countries, such
as metals, mining, infrastructure and telecommunications.
However, China's role in these countries currently is almost exclusively economic, as Beijing
currently pursues a policy of non-interference in terms of domestic politics in this (and any
other) region of the world. But energy and investment does have a political nature, and the
choices of business partners and deals to get contracts all require political accommodation to a
certain extent. Also, Beijing has sought to deepen military cooperation with the Central Asian
states, especially with the goal of combating terrorism and separatism, but so far this has been
done generally under the rubric of regional organizations.
Turkey
Turkey has close political ties to the smaller Caspian states -- ties which are backed by cultural
and ethnic links, since Azerbaijan, Kazakhstan and Turkmenistan share similar Turkic origins.
This can be seen in the Turkish educational institutions and social organizations throughout these
states. Turkey also has a traditionally influential geopolitical role in region, particularly in
countering Russian and Iranian influence in the Caucasus, largely via its relationship with
Azerbaijan.
Turkey is involved in the smaller Caspian countries economically, with a strong presence in
construction and business in these countries. Turkey also plays a key role as a transit state for
Azerbaijan's gas westward and is therefore a key consideration in Azerbaijan's energy-related
decision making.
*Insert FDI/trade #s between external powers and Russia/Iran for Az, Kaz, Turkmen
The geopolitical balance of power
Despite the substantial and growing presence of external powers in the Caspian region, the
strongest player in the region is currently Russia. Though the enormous efforts put into building
new pipelines and infrastructure have loosened Russia's grip on the region's energy industry,
Russia is still the primary destination and transit point for the region's energy supplies.
Though many countries are attempting to translate their economic ties into political influence,
and some are building influence at grassroots levels, Russia still has the closest political ties to -and influence over -- the three smaller Caspian states. Although it has been 20 years since the
breakup of the Soviet Union, Russia's presence in these countries lingers and resonates in many
ways, whether through trade, political ties to the countries' governments, or security and
intelligence links into these countries.
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Iran's role and focus is relatively limited in the Caspian and the smaller Caspian states are still
growing as energy producers, and the West and China are still working to improve their
positions in the region. This leaves Russia as the leading decision-maker and game-changer in
the region as of 2011.
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FUTURE DYNAMICS
Economic and energy activities
The non-energy related economic dynamics of the Caspian Sea are unlikely to change
significantly within the next decade. Fishing and shipping will continue to be major activities,
and while technological advancement will no doubt make certain industries more efficient, the
energy sector will continue to be the region's primary economic driver.
While the Caspian is already a major energy-producing region, its potential for greater
production is the aspect that has attracted the attention of so many countries and international
energy companies. This is particularly the case for Azerbaijan, Kazakhstan and Turkmenistan.
As previously mentioned, because these countries have relatively small populations and
therefore small domestic energy demands, much of the future production growth will translate
into more export potential. Many powers, from Europe to East Asia and points in between, are
interested in this potential. However, there are still risks and obstacles -- technological, economic
and geographical (since the Caspian is landlocked) -- involved in getting the Caspian region to
realize its full production and export potential. Still, the region will be a focal point for energy
development in the next decade.
Reserves/fields
The Caspian holds an estimated 40-44 billion barrels of oil reserves, along with 3.5 trillion cubic
meters of natural gas. This creates a huge potential for economic gain; the oil deposits alone are
estimated to be worth $12 trillion. These oil and gas reserves are not shared equally among the
littoral states, however, and are concentrated in only a few large fields.
One major oil field in or near the Caspian is currently under development: Kazakhstan's
Kashagan field, which is projected to yield 1.5 million barrels per day by 2025. Three major
natural gas fields located in or near the Caspian have yet to be tapped for production:
Azerbaijan's Shah Deniz II, which is expected to reach its peak production of 16 billion cubic
meters (bcm) by 2017; Kazakhstan's Kashagan field, which is projected to have a 5 bcm peak
production by 2025 (though mainly for burn off, not consumption); and Turkmenistan's South
Yolotan field, which is projected to produce 30 bcm by 2020.
There are other small fields, both oil and natural gas, though the aforementioned fields have the
most potential in terms of contributing to production and exports in the next decade.
Future energy production/exports
The following is what the Caspian countries are projected to produce and export in the next
decade. Russia and Iran's projections for this time period will not be included, as they are either
disputed or insignificant:
*Insert table on oil/natural gas production and exports
Future energy/pipeline projects
In terms of energy projects, the Caspian region is looking toward -- and being looked at by -powers to the east and west, but the region continues to be pulled in the traditional directions of
north and south. Because of the aforementioned geopolitical and technical nature of natural gas,
virtually all major pipeline-related energy projects are for natural gas supplies and not oil.
*Insert table on oil/natural gas projects
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*Insert map of projects here
The primary pipeline project that has come to embody the "Southern Corridor" projects aimed at
diversifying supply and transit infrastructure away from Russia is the Nabucco natural gas
pipeline. Nabucco has been championed by the Europeans -- particularly the Central and Eastern
European countries that are especially dependent on Russia for natural gas -- since the mid
2000s.
Nabucco is the most ambitious project of all the Southern Corridor projects in terms of length
and technological difficulty, requiring infrastructure that would take natural gas from the
Caspian region across Turkey and through southeastern Europe to the natural gas trading hub of
Vienna. Because of these considerations, Nabucco is also the most expensive of the pipeline
projects, with estimates of the project jumping from the originally planned $8 billion to $30
billion currently.
But cost and time are not the only obstacles. In order to meet Nabucco's 30 bcm planned
capacity, a substantial and reliable source of natural gas is required. Iran and Iraq are both
potential sources, but it is unclear if the political and security risks associated with the two
countries will be lowered to the point where they could be involved in the project in the next
decade. Turkmenistan is also a possible supplier, but currently there is no pipeline from Central
Asia that crosses the Black Sea to the Caucasus.
This makes the Trans-Caspian project, a pipeline that would connect Turkmenistan to
Azerbaijan, an extremely strategic potential energy project. The Trans-Caspian would not
only connect Turkmenistan's substantial gas flows and combine them with Azerbaijan's, it
would also present the key to any future energy diversification project away from Russia
and would thus be a vital asset for the West. But for this very reason it faces substantial
resistance from both Russia and Iran, and is contested by both on legal and political grounds.
Azerbaijan is therefore the key to Nabucco, but Baku is opposed to getting involved in the
project on its own. Azerbaijan is projected to get an additional 16 bcm out of its Shah Deniz II
project by 2017, with 12 bcm available for export. But 12 bcm is far short of Nabucco's capacity,
and Azerbaijan would have to pay substantial fees for exporting natural gas through the pipeline.
Therefore Azerbaijan has thus far been cautious in committing to Nabucco, as current
circumstances make it against Baku's interests to join such an ambitious and costly project.
An additional obstacle to Nabucco is political and comes from Russia. Russia knows that if
Nabucco were to come online, it would be a substantial blow to Moscow's use of energy as a tool
of influence with the Europeans, especially Central and Eastern Europe. Therefore Russia has
been working to block the progress of Nabucco and exploit divisions among the various partners
involve din the project. Russia has also presented its own ambitious energy project called South
Stream, which would take Russian gas across the Black Sea through Turkey and on to Europe, as
a rival to Nabucco. While the technical and financial feasibility of such a pipeline is just as
questionable as Nabucco, it does serve Russian interests to use this pipeline in order to compete
with and distract from Nabucco.
There are less ambitious Southern Corridor projects -- such as Interconnector Turkey-GreeceItaly (ITGI) and Trans-Adriatic Pipeline -- that likely have a better chance of materializing in
the next decade than Nabucco does. Both of these projects would use existing infrastructure in
Turkey that is already connected to Azerbaijan's natural gas exports (making them much cheaper
than Nabucco), and both would build an additional pipeline to connect this infrastructure to Italy,
21
a major natural gas consumer and importer. This would give Azerbaijan an outlet for its
increasing gas exports, and could even one day be expanded to include infrastructure into wider
Europe to increase supplies further.
But these projects also face obstacles, such as continued opposition from Russia and divisions
between European countries and companies on which project to pursue. How these various
projects will play out will depend on the strength of Russia compared to the strength of the West
in influencing the small but strategic countries in the Caspian region.
Maritime disputes in the Caspian
Until now, the political and legal differences among the Caspian littoral states have not
significantly affected the countries' energy development strategies. Despite the tensions among
these states and countless summits that have failed to resolve the issues, Azerbaijan, Kazakhstan
and Turkmenistan have continued to explore, develop and export oil and natural gas relatively
unencumbered in growing quantities for the past several years.
But this could change in the next decade. The energy that has been developed and produced in
the last 20 years could be thought of as the "low-hanging fruit" of supplies in the Caspian Sea.
This energy was derived from oil and natural gas fields that were relatively close to the coast of
each of the respective states and therefore was not subject to much contention and competition
over legal right of use. Though the next 10 years offer much potential in terms of exploiting new
fields and building new energy infrastructure and projects, these new fields are much further
away from the coast and are therefore subject to much more contention among the littoral states.
This will particularly be the case for Azerbaijan and Iran, who are contesting the rights to
numerous fields. There are also fields contested between Azerbaijan and Turkmenistan, and
Turkmenistan and Iran. And though Russia isn't directly involved in these legal disputes,
Moscow can be expected to feed the controversy in order to advance its own interests.
Therefore, all the previously mentioned projections for oil and natural gas production and
exports in the next 10 years cannot be taken for granted, as much of these forecasts assume that
political and legal differences will not impede development. This caveat is especially the case for
energy projects and pipelines, which also assume the efficient and unhindered exploitation of
these resources but must contend with each other in order to secure the allocation of these
resources. All projected completion dates and costs are therefore highly likely to change.
Because there is no precedent for a subsea pipeline that crosses national sectors of the Caspian
Sea, this will be a particularly daunting challenge, as Russia and Iran contend that such projects
would need the approval of all littoral states, not just the ones involved in the pipeline.
Thus, projects like Nabucco, the Trans-Caspian, or ITGI must not only secure financing and
political will between partners, they also must overcome any legal hurdles over rights to
resources that will increasingly become heated in the next decade. This does not mean that no
future projects will go forward; it does mean that significant obstacles will need to be overcome
for future projects to progress.
Military
In the Caspian Sea region, the traditional link between increasing economic prosperity and
decreasing military tensions does not seem to work; the region's increasing wealth could in fact
prompt a resumption of hostilities. All the littoral states have much to gain and much to lose,
both in terms of economics and political loss of face.
The region has one of the world's most complicated regional security systems. There are more
Azerbaijanis in Iran than in Azerbaijan, and yet Azerbaijan is arguably the United States'
22
strongest ally in the region. Iran has very strong ties with both Russia and Armenia, despite their
different religions. There is a large and powerful Armenian lobby in the United States. Thus,
traditional alliance politics do not seem to apply around the Caspian Sea. Russia's interests in the
region are many and varied, and as the single largest player in the region Moscow is crucial in
keeping the Caspian basin from becoming another conflict zone.
*Insert table on projected military spending
Russia
The growing complexity of political and economic interests in the Caspian region has forced
Russia to change its position on the Caspian's status on more than one occasion. At stake are the
Caspian's resources, transportation networks, commercial operations, the status of the sea itself
and the issue of military control over the region. The Russian military presence in the Caspian
can be viewed as part of Moscow's overall strategy in the neighboring Caucasus region, where
Russian troops have been trying to quell insurgency for nearly 20 years. Although most North
Caucasus republics do not border the Caspian, the neighboring autonomous republic of Dagestan
-- which serves as a rear base for separatist fighters -- has a maritime front.
Azerbaijan
The United States needs Azerbaijan in a way unprecedented in the history of the former Soviet
country, due to pressure on Washington to remove its forces from Central Asia. Bordering both
Iran and Russia -- and located at a very useful interception point for monitoring the movements
of terrorists to and from the North Caucasus -- Azerbaijan is key to protecting U.S. interests in
the region as the United States' closest ally on the Caspian. Some view U.S. policy toward
Azerbaijan as another attempt to push Russia out of a country which is important to Moscow and
to minimize Russia's influence in the whole region; this view has some support from several U.S.
political figures. One component of a broader U.S.-Azerbaijani partnership to secure peace and
stability in the region and to combat international terrorism is U.S. military training of
Azerbaijani military forces in specialized tactics to protect offshore oil platforms in the
Azerbaijani sector of the Caspian Sea. Azerbaijan has proposed several times that the entire
Caspian Sea should be demilitarized, its waters used only for peaceful aims or at least subject to
some regulations on military buildup, but this idea is not popular with the rest of the littoral
states.
Iran
Tehran is unhappy with the U.S. assistance to Azerbaijan, complaining that it represents a
military buildup against Iran. According to various sources, the Iranian navy plans to organize an
operational-tactical squadron in the Caspian Sea to be able to conduct combat operations in
certain areas of the sea if necessary. Nonetheless, moving a naval aviation squadron from the
Persian Gulf and setting up anti-ship missile batteries is not of the same magnitude as a major
buildup program on the Caspian, where Iran historically has not had naval shipbuilding
capabilities. Such a move would require a significant diversion of resources. Iran is also locked
in a dispute with Azerbaijan over ownership of an oil-rich corner of the Caspian Sea. Iran even
threatened military action if its warnings remain unheeded and indeed, on July 23, 2001, in
blatant violation of international law, an Iranian warship and two fighter jets forced a research
vessel working on behalf of BP-Amoco in the Araz-Alov-Sharg field out of that sector. A real
threat to Azerbaijan could shed a new light on Russia's role in the region; Moscow will not
openly support Azerbaijan and will not quarrel with Iran. Most likely, Russia would play the role
of peacekeeper if tensions between Baku and Tehran escalate.
Turkmenistan
23
After the collapse of the Soviet Union, Turkmenistan inherited the largest aviation group in
Central Asia. Turkmen military helicopters are reportedly already patrolling disputed territories,
but it is unlikely that Turkmenistan will ever be strong enough to support its claim to a national
sector of the sea by force of arms alone (similar to the Iranian-Azerbaijan deadlock over disputed
areas). Although it has had problems in the past, particularly with Azerbaijan, Turkmenistan is
unlikely to force any issue.
Kazakhstan
Kazakhstan is the world's ninth-largest country, with one of the world's lowest population
densities. Given that it borders both Russia and China, Kazakhstan is well-placed in terms of
future oil and gas pipeline development, but pipelines might be a way to make claims or to
express threats. Kazakhstan, which contains the huge gas field at Tengiz and the increasingly
important oil field at Kashagan, is set to become one of the world's major players in the oil and
gas markets. Thus, it is not only important to the energy security of the region, but also
potentially very important in ensuring stability in the area, if not beyond.
Increased Spending and Military Buildups
In some Caspian littoral countries, defense budgets are growing because of numerous ongoing
conflicts (in Afghanistan and Russia's North Caucasus, and the Armenian-Azerbaijani conflict
over Nagorno-Karabakh). However, territorial disputes in the Caspian basin have triggered a
small-scale arms race. In particular, in the late 1990s, Turkmenistan found itself in a dispute with
Azerbaijan over a few major operating and non-operating oil fields under Azerbaijani control
such as Azeri-Chirag-Guneshli. Not only did those disputes damage their diplomatic relations,
they prompted Turkmenistan to respond to Azerbaijan's acquisition of two American light patrol
boats by purchasing several Ukrainian military boats. In 2001, disputes between Iran and
Azerbaijan over an undeveloped oil field resulted in an Iranian show of force. All the Caspian
littoral states have plans to increase spending on national defense over the next decade in an
attempt not only to maintain their national armed forces but also to improve particularly their
national naval capabilities.
The Caspian's five littoral states have accepted assistance in strengthening their militaries from
countries outside the region (the United States has helped Azerbaijan, and Ukraine has assisted
Turkmenistan, plus the littoral states participate in international security arrangements). Thus,
outside powers are getting involved in tensions in the region. At this point, from Russia's
perspective, the growing U.S. influence in Kazakhstan, Turkmenistan and Azerbaijan is
perceived as a threat to its sphere of influence. The U.S. influence in the region also adds to
Russia's feeling of geopolitical encirclement via the west and south and jeopardizes Moscow's
control over deposits and export routes. U.S. involvement in the region could lead Washington to
have access to territory stretching from Turkey to the Black Sea and the Caspian states.
U.S. and NATO aid in the region so far has been small in comparison to Russian aid, particularly
in arms transfers. However, military aid from the West represents a new set of influential actors
contributing to the military capability of regional states and competing with Russia for political
influence. The role of China in the military affairs of regional states is also increasing and cannot
be overlooked. This increased international engagement could lead to both cooperation and
confrontation between these external actors, especially Russia and the West. Moreover, the
emerging threats to regional security and stability which motivate much of the increased
engagement show few signs of disappearing in the near future.
In short, given current trends, there is a good probability that the region will see a steady increase
in the military influence and/or presence of both littoral and non-littoral players. Also, sooner
rather than later, the lack of clearly defined borders and ongoing disputes over energy resources
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likely will increase the chances of an accident triggering a violent incident. Such an incident
most likely would be a skirmish and remain contained rather than result in an all-out war. At the
very least, the inability to agree on territorial boundaries will inhibit the development of seabased energy resources.
Of course, ships of 500-1,000 tonnes, which would be able to ensure security in the deeper
waters of the Caspian, would have to be produced locally (Russia and Iran can do this, and
Azerbaijan is about five years away form having the capability) or imported through Russia.
Thus, it appears that Russia can accelerate or hold back the overall militarization of the Caspian
Sea.
On the other hand, the Caspian lends itself to naval aviation -- particularly squadrons armed with
anti-ship missiles -- due to its size. Since anything but the largest warships in the Caspian are too
small to have a meaningful anti-air capability, proficient air crews trained in anti-ship operations
are likely to be devastating. Certainly some patrol vessels will be necessary for coastal patrolling
and defending oil platforms, but countries' naval aviation plans and capabilities will be key in the
future military balance in the Caspian.
Geopolitical balance of power
As previously mentioned, the Caspian Sea region is most important for its location -- not only as
a convergence zone of influence of two major powers (Russia and Iran), but also as an area of
interest for four external players -- the United States, the European Union, China and Turkey -for political influence, energy resources or both. In terms of energy, future production and
exports in this area and the projects that secure this energy are being influenced by all of these
players. If any power would want to stop such projects, it is Russia, and we begin there.
Russia
The Caspian region threatens Russia's role as an energy supplier and, by extension, its political
influence over Europe. If the Europeans are able to achieve any significant diversification away
from Russia, it would more than likely be from or through the Caspian. Also, Azerbaijan and the
western Central Asian states of Kazakhstan, Uzbekistan and Turkmenistan represent crucial parts
of Russia's buffer zone from major powers to the south and east. The more these countries slip
from under Russia's influence and pursue greater political and economic independence (or, more
likely, the patronage of other powers), the more vulnerable Russia becomes.
Therefore, from Moscow's perspective it is imperative to block the materialization of energy
projects that seek to circumvent Russia, just as it is imperative for Russia to keep Azerbaijan,
Kazakhstan and Turkmenistan within its sphere of influence and away from other powers.
Azerbaijan
For Azerbaijan, the Caspian Sea presents an opportunity to continue increasing its oil and natural
gas production and exports, and to boost its status as a key energy exporter and possible transit
state. It also is the key to maintaining and possibly increasing its independence by gaining
leverage with the Russians as it becomes an energy diversification option for the Europeans.
But with opportunity comes risk, and the more successful Azerbaijan becomes as an energy
producer and diversification hub away from Russia, the more it will come into conflict with
Moscow's interests. And because Russia is still the strongest conventional military force in
region and has a substantial military presence in Azerbaijan's neighbor Armenia, Azerbaijan will
be careful to take these realities into account.
Kazakhstan and Turkmenistan
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The Caspian is also an opportunity for Kazakhstan and Turkmenistan (along with Uzbekistan) to
hook into the European and especially the growing Chinese market in the next decade. But the
same risks of diversification for Azerbaijan are double for the Central Asian states, which are
currently more connected to Russia politically, economically and in security matters, and are
more resistant to Western influence. Therefore they will probably act more conservatively
relative to Azerbaijan.
Iran
Iran has been on the geopolitical rise in recent years, and its ascent will accelerate if the United
States continues withdrawing forces from Iraq. Iran has also benefited from the continuing unrest
in the Middle East, particularly in the Persian Gulf region. In addition, Iran maintains a powerful
conventional military force in the region but does not want to seek confrontation with its Caspian
neighbors, particularly Russia.
But for Iran, the Caspian is not a primary area of focus -- Tehran looks more toward the Persian
Gulf -- and its participation in Western energy projects at the moment looks unlikely. However,
as Iran builds its influence in the Middle East and Persian Gulf region, it could start to focus
more on the Caspian, particularly its tense relationship with Azerbaijan. Tehran will not be a
primary actor in this region, though, and Russia and Turkey would counter its rising influence
there.
External powers
For the United States, the primary interest in the Caspian is not the search for energy resources;
it is supporting projects that would diversify energy resources and transit away from Russia in a
larger geopolitical game with Moscow.
The European Union's primary interest is energy resources, but is also a game of geopolitics.
Russia's energy supplies have fueled its resurgence, and with North African energy supplies
subject to political and security risks, the Caspian is the closest and most viable region from
which to secure energy supplies for Europe.
Ankara's interests in the Caspian region are largely complementary to the Europeans' in terms of
seeking energy diversification away from Russia. But Turkey wants to make sure it is a key
component in any such future energy projects in terms of being a vital transit state.
For China, the interests are less complementary. While the European Union and Turkey are
trying to make sure that Caspian region energy resources go westward, China wants to make sure
they go eastward to meet its rising energy needs.
Overall balance of power
With all of this in mind, there is one important factor to consider. Because the major external
power involved in the Caspian -- the United States -- has been distracted in the Middle East,
Russia has had an opportunity to resurge its influence into its former Soviet territory. But if the
United States carries out its plans to extricate much of its military forces from Iraq and
Afghanistan, it will make the United States more capable of countering Russia's presence in the
Caspian region.
Furthermore, China is slowly building inroads into Central Asia to secure energy supplies and
meet its rising energy demands, Beijing could become a much bigger player in the region in the
years ahead. Meanwhile, Europe could resolve the competition among its competing projects to
secure Caspian region energy supplies and settle on one or two realistic pipeline projects to
diversify away from Russia.
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These are possibilities the Russians might have to deal with and are undoubtedly calculating
contingency plans for. More powers more actively involved in the Caspian region in 2020 than
in 2011. It remains to be seen how this will determine which energy projects will be chosen,
which pipelines will be built and how various legal disputes will be resolved. But there are
several possible scenarios for the evolution of the Caspian region over the next decade.
One scenario is that Russia will continue to strengthen and maintain its position as the most
influential player in the region. In this scenario, Russia will continue to build influence in
Azerbaijan, Kazakhstan, and Turkmenistan, and will continue to keep the Europeans divided and
thus block or stall all major European energy diversification projects. While Moscow may not be
able to prevent all energy projects from happening, it would still be the major player in the
region in terms of energy and political influence and would have an advantage over external
players like the United States, European Union and China. Essentially, this would be a
continuation of the status quo.
Another scenario is that Russia's position weakens considerably, whether as a result of economic
weakness (such as from a financial crisis) or more likely from some sort of political or
security-related setback. This outcome, combined with a more assertive United States that is
extricating itself from the Middle East, would change the landscape in the Caspian region
significantly. This could take the form of increased U.S. financial and political assistance to
Azerbaijan, Kazakhstan and Turkmenistan, and an increase in energy diversification projects.
This would increase the position of the smaller states at the expense of the more established
powers of Russia and Iran, but it could also increase the chance for conflict between these
regional states.
A third scenario involves a major political or regime change in Iran. If such a change caused the
Iranian government to shift its foreign policy substantially from one that is confrontational with
the West to one that is cooperative, this could alter the energy landscape in the region and
possibly make Iran more open and able to participate in Western energy projects like Nabucco.
This could also open the possibility of Iran and the United States working together (whether
overtly or covertly) to undermine Russia's position in the region.
A fourth scenario is that China could undergo a significant economic and financial crisis that
would limit its position in Central Asia considerably to allow Beijing to focus more on domestic
issues. This could make the region more dependent on Russia for energy imports and transit and
would strengthen Russia's position. Alternatively, this could be met with a stronger push from
the United States and Europeans to secure Central Asia in their energy diversification plans.
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Conclusion
With so many states vying for influence, and the political, energy and military landscapes
changing so quickly, it is difficult to predict what the Caspian region will look like even one year
from now, much less 10 years in the future. What is indisputable is that the Caspian has changed
dramatically since three new states emerged on its shores 20 years ago. The addition of
Azerbaijan, Kazakhstan and Turkmenistan, and their access to key resources -- as well as their
locations -- has made this region one of the most strategic in the world.
These factors will drive and be driven by the geopolitical forces that converge in the Caspian Sea
region in the next decade and beyond.