The Convention on the Legal Status of the Caspian Sea - A sea or not a sea: that is still the question

On August 12, 2018, the leaders of Azerbaijan, Iran, Kazakhstan, Russia and Turkmenistan signed the Convention on the Legal Status of the Caspian Sea (the Convention). The Convention is a positive development which should help to facilitate the implementation of new projects like the Trans-Caspian Pipeline (TCP). In this updater we briefly consider the Convention’s achievements alongside the important issues still left to be decided in future negotiations.

One of the Convention’s greatest accomplishments is the progress made in relation to the construction of submarine pipelines.¹ The Convention confirms at Article 14(3) that a pipeline route requires agreement only between countries through which the pipeline crosses. This represents a positive departure from the previous status quo by resolving any ambiguity over which countries had approval rights to any submarine pipelines, since Turkmenistan and Iran are not party to the United Nations Convention on the Law of the Sea (UNCLOS).

The Convention should help to pave the way for the development of the abbreviated above TCP. If constructed, the TCP will transport up to 30 billion cubic meters of natural gas from the eastern shores of the Caspian Sea to Azerbaijan before being transported onward on to Europe. Whilst the Convention removes some of the legal obstacles to the construction of the pipeline, notable commercial and strategic challenges remain.

The Convention is silent on how the parties are to go about providing their approvals for the purposes of routing the pipeline. Further, it is also silent on the issue of private sector involvement, and the extent to which private sector entities themselves may apply for, or benefit from, an “agreement” reached under Article 14(3) of the Convention.

The Convention has helped to clear an important legal hurdle and has set a meaningful and important basis for future negotiations but potentially complicated issues remain to be settled (e.g. demonstrating cost-competitiveness is key). The cost of transporting natural gas from Turkmenistan to Europe remains a challenge particularly as Turkmen gas is unlikely to find demand in either Azerbaijan or Turkey. It would therefore need to be transported along the entire route of the South Caucasus Pipeline (SCP), Trans-Anatolian Natural Gas Pipeline (TANAP), and Trans-Adriatic Pipeline (TAP) before finally arriving at a viable market.

The costs of developing the transportation infrastructure, and any additional infrastructure that may be required for gas processing in Turkmenistan, will need to be benchmarked against other gas import opportunities available to European buyers. There is also the issue of the involvement of Turkmenistan in each of the transport pipelines, particularly, whether it takes existing capacity, funds an expansion, or participates as a shareholder in these pipelines. Further, it is unclear exactly which parties currently participating in the Southern Gas Corridor project would need to consent to Turkmenistan’s involvement.

Until the collapse of the Soviet Union in 1991, the legal status of the Caspian Sea was governed by a series of Soviet-Iranian treaties concluded in the first part of the twentieth century. Following the breakup of the USSR and the resultant creation of four new littoral sovereign states, questions soon arose as to the legal nature of the Caspian Sea. The resolution of this question is crucial to the determination of how the huge amounts of natural resources it contains are to be divided.

Under the classification of the Caspian Sea as a “sea”, each littoral state would have a territorial sea of up to 12 nautical miles, an exclusive economic zone (EEZ), and a continental shelf. The boundaries of the EEZs would be set based on a median line. Such a division would be made in accordance with the terms of UNCLOS.

In broad terms, the states with longer coastlines have favoured categorising the Caspian Sea as a “sea”, whilst those with shorter coastlines have favoured categorising it as a “lake”. If the Caspian Sea is classified as a “lake”, customary international law governing border lakes would apply, with legal agreements between the bordering states regulating use of the water. One such proposal suggests the equal division of the Caspian Sea between the five littoral states, with each controlling a 20 per cent share.

The Convention goes part way towards resolving this question by granting the Caspian Sea a new “special legal status”. It provides that each party shall have exclusive control over an area extending up to 15 nautical miles from its shores for mineral and energy exploration, and a further ten miles for fishing. The remaining area is to be shared jointly, pending further negotiations.

The Convention is silent on the important question of how subsoil resources within the Caspian Sea are to be divided. Article 8(1) instead provides that “delimitation of the Caspian Sea seabed and subsoil into sectors shall be effected by agreement between States with adjacent and opposite coasts, with due regard to the generally recognized principles and norms of international law”.

This means that long-standing disputes in the south of the Caspian Sea will remain an unsettled reality going forward. For example, Iran and Azerbaijan have historically disagreed on the ownership of the Araz-Alov-Sharg exploration block.

Separately, the resolution of the long-running dispute between Azerbaijan and Turkmenistan over the Serdar/Kapaz field may play a role in discussions on the development of the TCP.

Whilst the Convention does not resolve this issue directly, it does pave the way for a deal to be made by the parties, which should help them realise their key strategic objectives. Azerbaijan has long viewed the Serdar/Kapaz field, and its estimated reserves of 620 million barrels of oil, as a strategic asset. Similarly, Turkmenistan understands that the TCP provides it with an invaluable alternative export route, which would reduce its vulnerability and reliance on its only other existing export route.² It may be that Azerbaijan and Turkmenistan are able to find a compromise on the ownership of the field as part of their discussions on the TCP.

The Convention is also ambiguously drafted as to how disputes between parties are to be resolved. Whilst Article 21(1) makes a reference to disagreements being settled through “consultations and negotiations”, the Convention fails to outline a clear dispute resolution forum should the parties find themselves in a stalemate. Instead Article 21(2) states, that to the extent that disputes can’t be resolved in accordance with Article 21(1), they are to be referred “for settlement through other peaceful means provided for by international law”, at the discretion of the parties. Given this broad wording it remains to be seen how parties actually go about resolving any disagreements which may arise.

To conclude, while the Convention helps pave the way for the development of key pipelines and infrastructure, it does not provide answers to all legal questions pertaining to the exploitation of natural resources, and the delineation of the seabed remains unresolved. It remains to be seen whether the Convention will actually lead to greater levels of pipeline investment within the Caspian Sea area. More immediately, with the Convention currently awaiting ratification, a telling indicator of each party’s commitment will be the time taken by the parties to deposit their instruments of ratification with the Republic of Kazakhstan (as the Depositary under Article 22).