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Monday, July 6, 1998 Published at 18:55 GMT 19:55 UK

World: Analysis

The Caspian's untapped mineral wealth

New players could soon join the Caspian oil game

The Russian-Kazakh agreement marks the first step towards drawing new national borders through the Caspian Sea. It also helps clear the way for further exploration and development of some of the world's largest untapped reserves by multinational oil and gas companies eager for a share of the Caspian's mineral wealth. The BBC correspondent, Ian MacWilliam, reports:

The Caspian Sea was once shared between the Soviet Union and Iran, but the Soviet collapse added three new countries - Azerbaijan, Kazakhstan and Turkmenistan - along its coastline.

The agreement in Moscow, which divides the northern half of the sea down the middle into Russian and Kazakh national sectors, is the first concrete step towards defining who owns what in the Caspian - and in particular which country has the right to explore and develop which potential oilfields.

[ image: Iran wants slice of Caspian cake]
Iran wants slice of Caspian cake
The Moscow agreement could pave the way for agreements between other Caspian countries to define their national sectors of the sea.

The Russian-Kazakh agreement will draw a border along the bottom of the sea, dividing up the seabed and the mineral resources below it. The waters themselves, however, will be subject to joint supervision. Both countries will have freedom of navigation and a say over fishing rights.

Joint supervision of the waters could become a key factor in the future. Kazakhstan is considering laying a pipeline across the seabed one day so that it can export oil through Azerbaijan, avoiding its current reliance on export pipelines through Russia.

Some oil analysts point out that Moscow has been fighting to restrict non-Russian export routes for Caspian oil. Joint supervision of the waters, they argue, could enable Moscow to delay or prevent the construction of an undersea pipeline.

Russian compromise

Russia has moderated its original stance however. Both Moscow and Iran had previously insisted that the entire sea and the development of its oil and gas resources should be subject to the joint agreement of all five Caspian states.

Moscow has compromised at least partly because Russian oil companies are eager to carve out their own share of the Caspian cake. A Russian consortium is to begin exploration of the Russian sector of the sea.

So far, American and European companies, with their greater resources and superior technology, have been most active in new Caspian developments.

Azerbaijan, Kazakhstan and Turkmenistan - which have the largest potential Caspian reserves - have been encouraging investment by Western oil companies to lessen their dependence on Russia.

Caspian competition

Iran still says that the Caspian and its resources must be subject to joint supervision. Analysts however say that Tehran could moderate this position in exchange for greater involvement in oil and gas export routes.

Tehran has been presenting its own pipeline network to the Persian Gulf as the cheapest and shortest export route for Caspian oil. Until recently, however, United States sanctions against trade with Iran have largely kept Tehran out of the Caspian oil game.

While it will take much more talking to agree on a final division of the entire Caspian, the oil companies are getting on with exploration and development, trusting that the politicians will eventually sort it out.

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