russia and the caspian sea: projecting power or competing for influence?

8/20/2019 Russia and the Caspian Sea: Projecting Power or Competing for Influence?

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Strategic Studies Instituteand

U.S. Army War College Press

RUSSIA AND THE CASPIAN SEA:PROJECTING POWER OR COMPETING

FOR INFLUENCE?

Tracey German

August 2014

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FOREWORD

In November 2012, Russia’s Caspian Flotilla cel-ebrated its 290th anniversary. Established by Peter theGreat in 1722, the Flotilla was a key component of theRussian Empire’s expansion into the Caspian region,and nearly 300 years later, it remains a vital element ofcontinued Russian inuence in its “south.” The Cas-pian Sea and the “south” have been fundamental toRussian security since the 18th century, when impe-rial Russia needed to secure and maintain trade linkswith the Persian Empire, as well as prevent any fur-ther Persian encroachment. Growing rivalry betweenRussia and its imperial competitors in the Caucasusand Central Asia in the 18th and 19th centuries ledto frequent military clashes in the Caspian Sea, giv-ing the Caspian Flotilla renewed military signicance.

The drivers of international interest in the Caspian Seahave changed little since the 18th century, and histori-cal events have resonance with the contemporary situ-ation: the competition for inuence between differentregional powers; the region’s geostrategic signi-cance, with Iran lying directly to the south; the vitalimportance of economic factors; maintaining accessto natural resources, as well as lucrative trade routes;and the inuence of external actors on the develop-ment of the region.

Moscow’s concerns in the Caspian region reectwider concerns about growing U.S. (and European)inuence in areas traditionally perceived as Rus-sia’s “strategic backyard,” in states such as Georgia,Ukraine, and the Central Asian republics—concern

that is reected in key Russian strategic documents,including the 2008 Foreign Policy Concept, 2009 Nation-al Security Strategy, and 2010 Military Doctrine. Rus-


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sian political discourse focuses on the former Sovietspace as a sphere of its exclusive inuence, or, as Rus-

sian President Dmitry Medvedev has put it, Russia’s“zone of privileged interest,” and Moscow has soughtto counterbalance the growing involvement of otheractors in the region. Russian policies vis-à-vis formerSoviet states in Central Asia, the South Caucasus, andits Western periphery (Ukraine, Moldova, and Belar-us) in the contemporary era are focused on maintain-ing inuence and protecting Russia’s interests. The“inuence” narrative reects Russia’s desire to reas-sert itself across the former Soviet space in order tocounter the perceived expansion of Western involve-ment, particularly North Atlantic Treaty Organizationenlargement, within its “sphere of inuence.” Eventsin Ukraine in 2014 (and Georgia in 2008) emphasizethe crucial importance of having a clear understand-

ing of how Russia views the growing inuence of ex-ternal actors within its “zone of privileged interest”and the impact on its relations with states in what isconsidered to be its “near abroad.”

DOUGLAS C. LOVELACE, JR. Director Strategic Studies Institute and U.S. Army War College Press


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ABOUT THE AUTHOR

TRACEY GERMAN is a senior lecturer in the DefenceStudies Department at King’s College London, Unit-ed Kingdom (UK), which provides postgraduate-lev-el teaching at the UK’s Joint Services Command andStaff College (JSCSC). Her research focuses on Rus-sia’s relations with its neighbors, military reform,energy issues, as well as conict and security in theCaucasus and Caspian region. Dr. German has pub-lished widely on intra- and interstate conicts in theregion, notably Nagorno-Karabakh, Chechnya, SouthOssetia, and Abkhazia. Publications include Region-al Cooperation in the South Caucasus: Good Neighboursor Distant Relatives? (Ashgate Publishing Ltd., 2012),Russia’s Chechen War (Routledge, 2003), and co- authored Securing Europe: Western Interventions to-

wards a New Security Community (IB Tauris, 2009), aswell as articles in journals such as European Security,Europe-Asia Studies, Small Wars and Insurgencies, Central Asian Survey, Vestnik analitiki, and Politique étrangère.


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SUMMARY

This monograph examines Russia’s policy towardthe Caspian Sea region as Moscow attempts to coun-terbalance growing American involvement withinwhat it perceives to be its zone of privileged interest,focusing on the recent expansion of the Caspian Flo-tilla and the rationale behind it. Moscow has soughtto counterbalance the growing involvement of otheractors in the region, which has led to rising tensionbetween Russia and its southern neighbors. The pri-mary objectives of the research are to examine Rus-sian perceptions of threat and security in the Caspianregion and assess the implications for other actors.This monograph analyzes the drivers of the increasingcompetition for inuence, focusing on developmentswithin the energy sector, and assess the implications

of Russia’s consolidation of its dominance for securi-ty and stability in the region. This issue is importantbecause a clear understanding of Russian strategicthinking and threat perception in the Caspian Sea isvital in order to facilitate effective U.S. policy in thewider Caucasus and Central Asian region.


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RUSSIA AND THE CASPIAN SEA:PROJECTING POWER OR COMPETING

FOR INFLUENCE?

In November 2012, Russia’s Caspian Flotilla cel-ebrated its 290th anniversary. Established by Peterthe Great in 1722, the Flotilla was a key componentof the Russian Empire’s expansion into the Caspianregion, and nearly 300 years later, it remains a vitalelement of continued Russian inuence in its ”south.”The Russian Ministry of Defense (MOD) describes theCaspian Flotilla as “not only the southernmost out-post of Russia, but also the guarantor of the integrityof maritime boundaries and the most important for-eign policy tool of the state in the Caspian Sea.”1 TheFlotilla has recovered from the collapse of the Unionof Soviet Socialist Republics (USSR) in 1991 and its

subsequent redeployment from Baku to Astrakhan.Unlike other Russian eets, it has not been reduced insize, but has been the focus of signicant investmentin recent years. By 2020, the Caspian Flotilla will havereceived as many as 16 new vessels, a striking numberfor a relatively small, “closed” basin with no access tothe open seas, where the littoral states control accessin and out of the region. This raises questions aboutRussian perceptions of threat and security in the Cas-pian region: who and/or what does Russia perceive tobe such a security challenge in the area that it needs toupgrade its naval capabilities so signicantly?

The Caspian Sea is part of Russia’s “southern un-derbelly” (yuzhnaya podbryush”ye2), a term that under-scores the sense of vulnerability Russia feels along its

southern border. Rich in resources, the broader Cas-pian region is also an area of ongoing border disputes,transnational threats, and growing international


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interest. The region’s geographic location confers bothimportant advantages and a number of challenges:

The development of international transport and com-munication corridors across the Sea are undoubtedlyan advantage, although this is countered by the factthat Azerbaijan, Kazakhstan, and Turkmenistan arelandlocked and reliant upon other countries to exporttheir hydrocarbons to international markets. Further-more, the key strategic location of the Caspian, link-ing Asia and Europe, and the lack of consensus amongthe ve littoral states about the legal status of the Sea,facilitate the passage of security challenges such as in-ternational terrorism, illegal migration, transnationalorganized crime, and trafcking from Central Asiato Europe.

Russia traditionally has been the biggest regionalpower and, despite the appearance of new actors

within the region in the wake of the breakup of theUSSR that challenged Russian hegemony, it remainsthe principal economic and military power in theCaspian region, largely a result of historical legacy.Moscow considers the region to be a sphere of itsexclusive inuence, or, as former Russian PresidentDmitry Medvedev has put it, Russia’s “zone of privi-leged interest,” and has sought to counterbalance thegrowing involvement of other actors. Thus, Russianpolicies vis-à-vis the Caspian region (and the widerformer Soviet area) are focused on maintaining inu-ence and protecting its political and economic inter-ests in the region. Former Soviet states are generallywary of pursuing policies that run counter to Russianinterests, limiting the ability of other actors, such as

the United States, to increase their cooperation withthese states. The region is unique in terms of Russia’srelations with its neighbors within the wider “south,”


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as it contains three former Soviet states, none of whichis willing to remain wholly dependent on Moscow (as,

for example, Armenia is), but which have also beenunwilling to turn their backs on Russia (as Georgiahas tried to do). Both Azerbaijan and Kazakhstanhave sought to balance their relations with Russiaagainst deepening cooperation with the West in orderto maintain their independence, while Turkmenistanpursues a policy of “Positive Neutrality” in its foreignrelations. The nal littoral state, Iran, is an historic ri-val of Russia. It considers itself to be a regional powerand has substantial historical, cultural, and ethniclinks with neighboring states in the region, inheritedfrom the Persian Empire, which complicate its foreignrelations. Nevertheless, although it is a rival for inu-ence, Iran also shares a common desire with Russia tocounter the increasing presence of external powers in

region, particularly the United States.The rise in U.S. (and European) interests in the

Caspian region over the past decade has led to risingtension between Russia and its southern neighbors.The United States views the Caspian as an importantstrategic arena: as well as its geostrategic location,with Iran lying directly to the south, it is a signicantsource of hydrocarbons. It has become increasinglyimportant to the economic security of the West asinternational oil companies have spent vast sums ofmoney on exploration and development there, par-ticularly in Azerbaijan and Kazakhstan. However,limited export options, as well as reliance upon theRussian pipeline network and neighboring coun-tries, have restricted the ability of countries in the

Caspian to prot fully from their extensive oil andgas reserves. Consequently, there has been consider-able investment in new international export pipelines


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over the past decade, undermining Russian inuence.Some Russian observers have described the issue of

pipelines in the landlocked Caspian region as a “battlefor domination,” particularly on the part of the UnitedStates, which “is seeking to accelerate the process ofthe political and economic isolation of former Sovietrepublics from Russia.”3 While this view ascribes lit-tle autonomy of action to the states involved, it doeshighlight the suspicion with which Moscow regardsgrowing Western (particularly U.S.) inuence in theCaspian region.4

The Caspian Sea has also been playing a vital rolein the logistics operation to support the InternationalSecurity Assistance Force (ISAF) in Afghanistan. Itforms part of the southern route of the Northern Dis-tribution Network (NDN), which was established in2009 to move troop supplies into Afghanistan, avoid-

ing the hazardous route through Pakistan. By 2011, theNDN handled about 40 percent of Afghanistan-boundtrafc, compared to 30 percent through Pakistan. Thesouthern route starts at the Georgian Black Sea portof Poti, crossing the Caucasus to Baku in Azerbaijan,where goods are then ferried across the Caspian Sea toKazakhstan and then moved by rail or truck throughUzbekistan to the Afghan border. This route carriesapproximately one-third of the NDN’s trafc. Kazakh-stan has been seeking to develop its port of Aqtau onthe Caspian Sea and turn it into a major regional tran-sit hub. As the country’s only seaport and describedas the “sea-gate to a sovereign Kazakhstan,”5 Aqtauhas played a key role in the ISAF logistics chain andis set to grow in importance as the United States and

other ISAF contributors withdraw from Afghanistanin 2014. Reports in the Russian media suggested thatthe United States may establish a transhipment point


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at Aqtau, as a means of getting its military equipmentout of Afghanistan and highlighted Russian opposi-

tion to the presence of any external actors in the closedsystem of the Caspian Sea. An article in NezavisimayaGazeta argued that, if Aqtau became a base for “thePentagon and its allies,” the “already fragile Caspiansecurity architecture would effectively collapse.”6 Moscow has tolerated limited U.S. military supportfor Azerbaijan and Kazakhstan in terms of trainingand equipment support through the Caspian Guardinitiative. However, the prospect of the potential es-tablishment of a transhipment base at Aqtau appearsto be a step too far for Russia (and Iran) and could leadto growth in tension in the area.

This monograph examines Russia’s policy towardthe Caspian Sea region as Moscow attempts to coun-terbalance growing American involvement within

what it perceives to be its zone of privileged interest,focusing on the recent expansion of the Caspian Flotil-la and the rationale behind it. The primary objectivesof the research are to analyze Russian perceptions ofthreat and security in the Caspian region and assessthe implications for other actors. It will assess the im-portance of the “south” to Russian perceptions of se-curity and analyze whether U.S./Western inuence inthe Caspian region is viewed as a security challengeby Moscow. What steps have been taken since 1991to develop any form of regional security system andwhat has been Russia’s role in this? The monographfocuses on developments within the energy sector andassesses the implications of Russia’s consolidation ofits dominance for energy security and stability in the

region. This issue is important because a clear under-standing of Russian strategic thinking and threat per-ception in the Caspian Sea is vital in order to facilitate


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effective U.S. policy in the region and avoid a repeatof the events of 2008 in Georgia.

THE CASPIAN SEA AND ITS SIGNIFICANCE

According to some sources, over the centuries theCaspian Sea has been known by more than 50 differentnames.7 At various times, the ancient Persians calledit the Hyrcanian and Persian Sea, while old Russiandocuments refer to it as the Khvalin Sea, after the Kh-vali people that inhabited the area. Other names givento the Sea have included Avar, Baku, Apsheron, andKhazar. The name “Caspian” is thought to be derivedfrom the name of an ancient tribe that lived on thesouthwest shore of the Sea, the Caspi people.8 Russianinterest in the Caspian began in earnest during the17th century with the development of trade links with

Persia, which led to an expansion of shipping routesalong the Volga river and down across the CaspianSea. The growing Russian empire needed the abun-dant natural resources found in and around the Sea,as well as the trade links between east and west androutes across the Caspian. This stimulated the needfor the development of a Russian naval capability toprotect its commercial interests in the region, and TsarAlexis I ordered the construction of naval ships. TheOryel was the rst Russian warship to be constructed;it set sail for Astrakhan in 1669, under the commandof Dutch captain David Butler.9

During the 18th century Russia sought to domi-nate the area, leading to the development of its ownCaspian naval otilla. Established by Peter the Great

in 1722, the otilla was a key component of the Rus-sian Empire’s expansion in the Caspian region. Russiawas becoming increasingly concerned about growing


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rivalry with both the Ottoman and Persian Empires inthe southwest Caspian and Caucasus.10 As the empire

grew, it had come into conict with the other imperialpowers in the region, the Ottomans and Persians. Thecompetition for territory and resources in the 18th and19th centuries led to frequent military clashes on theCaspian Sea, giving the Caspian Flotilla renewed mili-tary signicance. Moscow was determined to main-tain its lucrative trade routes and defend its allies inthe region, a state of affairs that has resonance withthe contemporary situation.

There are signicant similarities between historicalevents and contemporary circumstances in the region,and the drivers of international interest in the Caspi-an Sea have changed little since the 18th century: thecompetition for inuence between different regionalpowers, the region’s geostrategic signicance, with

Iran lying directly to the south; the vital importance ofeconomic factors and maintaining access to natural re-sources; as well as lucrative trade routes and concernabout the inuence of external actors on the develop-ment of the region. Over the past decade, the regionhas grown in further signicance within the contem-porary security environment, particularly its politi-cal, strategic, and economic importance for Westernsecurity. International oil companies have spent vastsums of money on exploration and development inthe wider Caspian region, and the Sea has become animportant transit route for the ISAF logistics opera-tion. Rich in resources and lying on a key East-Westtransit route, the Caspian has attracted considerableinternational (particularly U.S.) interest over the past

decade, triggering rising tension between Russia andits southern neighbors. Russia traditionally has beenthe biggest regional power, and its ties to the region


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remain strong. Moscow considers the broader Cas-pian region to be a sphere of its exclusive inuence,

and it is unhappy about the growing inuence of oth-er external actors such as the United States, Europe,Turkey, and Iran, which, since 1991, has posed a directchallenge to Russian hegemony in the region.

The Caspian Sea is also where imperial Russia be-gan to develop naval vessels for the purpose of de-fending its national and commercial interests duringthe 17th and 18th centuries, leading to the develop-ment of a navy. Russia’s current maritime doctrine, ap-proved in 2001 and looking out to 2020, describes thenavy as an “instrument of foreign policy . . . intendedto protect the interests of the Russian Federation andits allies.”11 It goes on to describe Russia as “histori-cally . . . a leading maritime power,” a consequenceof the country’s “spatial and geophysical attributes,”

and identies the Caspian as a unique region in termsof the “volume and quantity” of its mineral and bio-resources. This is reected in the role of the CaspianFlotilla which, in addition to protecting Russian ship-ping, also provides protection to Russian offshorehydrocarbon production facilities against potentialthreats and monitors the extraction of hydrocarbonsand bio-resources (such as sturgeon) in disputed areasof the Sea. The objectives of Russian maritime policyin the Caspian Sea region are:

• The establishment of a legal regime in the Cas-pian Sea that is favorable for Russia in termsof exploiting resources such as sh stocks andhydrocarbons;

• Protecting the marine environment in coopera-

tion with the other littoral states;• Creating the conditions for basing and utiliza-

tion of all naval/maritime potential;


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• Renewal of merchant, combined (river-sea) andshing eets;

• Preventing displacement of Russian eet frommaritime transport market;

• Organization of ferry services as part of “inter-modal” transport network with access to theMediterranean and Baltic Seas; and,

• Development, reconstruction, and specializa-tion of existing ports.12

This monograph uses these maritime policy objectives, particularly the rst three, as a frameworkto analyze the signicance of the Caspian Sea regionfor Russia and further understand the motivationsfor the expansion and capability upgrade of the Cas-pian Flotilla. It begins with an appraisal of the Sea’sresources, both hydrocarbons and sturgeon, before

examining cooperation and obstacles to cooperationbetween the littoral states, the importance of the Seafor Russian security, and the development of navalcapabilities there.

CASPIAN RESOURCES

Oil and Gas Reserves.

The Caspian Sea was the site of the world’s rstcommercial oil industry, with the development of oilreserves in Azerbaijan (then part of the Russian Em-pire) at the end of the 19th century. Following the col-lapse of the Soviet Union in 1991, the Caspian regionwas heralded as the Middle East of the future because

of its potential hydrocarbon reserves. However, theeuphoria and optimism that accompanied the initialinvolvement of foreign investors in the region has


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been tempered by difcult operating conditions, bothpolitical and geological. Although the Caspian has

been lauded as the new Middle East, current provenreserves indicate a greater similarity with the NorthSea than with the Persian Gulf (see Table 1).

Table 1. Comparison of Proved Reservesin the Caspian and Middle East, 2012.13

The North and South Caspian Basins are very differ-ent. The North is comprised of shallow waters, whichare ice-bound during the winter months, presentinga serious technical challenge for energy companies.It is also the location of sturgeon breeding grounds.The South is deeper, but is not thought to contain asmuch oil and is possibly more gas-prone. Exploratorydrilling in the South Caspian Basin has signicantlyreduced estimates of future oil potential and foreigncompanies have begun to adopt a more moderate atti-tude toward the development of the Caspian’s hydro-carbon reserves. In terms of hydrocarbon resources,

oil reserves are predominantly concentrated in West-ern Kazakhstan and the Caspian Sea, with large natu-ral gas reserves found in Turkmenistan, Uzbekistan,and Kazakhstan.

Proven OilReserves(BillionBarrels)

Share ofGlobalTotal

Percent

Reserve-to-Production(R/P) Ratio

Proven GasReserves(TrillionCubic

Meters)

Share ofGlobalTotal

PercentR/P

Ratio

Azerbaijan 7.0 0.4 21.9 0.9 0.5 57.1Kazakhstan 30.0 1.8 47.4 1.3 0.7 65.6

Russia 87.2 5.2 22.4 32.9 17.6 55.6

Turkmenistan 0.6 - 7.4 17.5 9.3 -

Saudi Arabia 265.9 15.9 63 8.2 4.4 80.1

Iran 157 9.4 - 33.6 18.0 -


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Kazakhstan, where oil was rst discovered over100 years ago, has the largest recoverable reserves of

oil in the Caspian Sea region. According to British Pe-troleum’s (BP) Statistical Review of World Energy, pub-lished in 2013, the country has proven oil reserves of30 billion barrels and was producing 1.7 million bar-rels per day (bpd) in 2012, making it a major producer.Kazakhstan’s proven natural gas reserves stood at1.3 Trillion cubic meters (Tcm) in 2012, the majorityof which are located in the west of the country. Ac-cording to the U.S. Energy Information Agency (EIA),around 80 percent of the country’s total natural gasreserves are found in just four elds: Karachaganak,Tengiz, Imashevskoye, and Kashagan.

Oil is located primarily in the west of the country,both on- and offshore. Current production is domi-nated by two giant onshore elds, Tengiz and Kara-

chaganak, which together produced over 40 percentof the country’s total output in 2013.14 Tengiz is Ka-zakhstan’s largest eld, with daily production of over500,000 bpd. It is operated by Tengizchevroil (TCO),a joint venture that includes major U.S. oil companiesChevron and ExxonMobil, together with KazMun-aiGaz and LukArco.15 Karachaganak accounted foraround 12 percent of the total oil production in 2013.Its operator, Karachaganak Petroleum Operating(KPO), includes BG, ENI, Chevron and LUKoil.16

It is estimated that two-thirds of future oil produc-tion will be from the North Caspian Basin, predomi-nantly from the giant offshore Kashagan eld beingdeveloped by the North Caspian Operating Compa-ny (NCOC) consortium, comprising KazMunaiGaz,

Shell, ENI, ExxonMobil, Total, Inpex, and the ChinaNational Petroleum Corporation (CNPC). Kasha-gan is thought to be one of the largest known elds


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outside of the Middle East and has been describedas the “world’s largest oil discovery in 5 decades.”17

It is hoped that it will provide a reliable indicator ofthe Caspian’s potential oil supply: exploratory drill-ing has indicated that the eld holds up to 35 billionbarrels of oil, of which approximately 25 percent (7-9billion barrels) can be produced. Production has beendelayed several times, largely because of extreme op-erating conditions. The rst production is expected inthe spring of 2014, with production being increasedfrom 180,000 bpd during the rst phase to as muchas 370,000 bpd in the second. Located in shallow wa-ters that freeze in winter, damaging equipment andmaking maintenance difcult, the eld also producestoxic hydrogen sulphide. A gas leak in October 2013led to a further halt in operations and raised concernsabout potential environmental damage. The develop-

ment of Kazakhstan’s “superelds” is key to the coun-try’s long-term economic growth, and Kashagan inparticular is vital for the country to achieve its goal ofincreasing crude oil output by 60 percent by the endof the decade. Kashagan is the only offshore “super-eld” and therefore the only one currently with directrelevance to the Caspian Sea.

In September 2013, China’s CNPC acquired an 8.33percent stake in the Kashagan consortium for U.S.$5billion.18 The purchase was part of a series of dealssigned by Chinese President Xi Jingping19 during atour of Central Asia to secure access to the region’shydrocarbons and was symbolic of the increasingChinese presence in the region. The deal was also in-dicative of the competition for inuence occurring in

the region, particularly over access to hydrocarbons:CNPC beat its Indian rival Oil and Natural Gas Com-pany (ONGC) to the stake, which was held by U.S.


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major oil company, ConocoPhillips, until July 2013.Kazakhstan’s extensive hydrocarbon reserves have

stimulated a lot of international interest and increasedthe presence of external actors in the Caspian region,undermining Russian inuence. While the countryhas so far managed to balance successfully its relationswith Moscow, the West, and Beijing, their conictinginterests and notions of security could underminestability in the medium to long term, and Kazakh-stan will need to develop its naval forces to be ableto demonstrate its intent to protect its interests in theCaspian Sea.

Azerbaijan’s sector of the Caspian Sea also containssignicant hydrocarbon reserves, although there areindications that it may be more gas- than oil-prone. Re-cent exploration in the Azeri sector of the Caspian Seahas been disappointing, with the exception of the BP-

led Azeri-Chirag-Guneshli (ACG) superstructure, andseveral wells have been plugged. Azerbaijan’s provencrude oil reserves were estimated at 7 billion barrelsin 2012 (see Table 1). The country’s largest hydrocar-bon basins are located offshore, with the majority ofits oil currently being produced from the ACG elds.The U.S.$8 billion deal, which established the BP-led Azerbaijan International Operating Corporationto develop the Azeri, Chirag, and Guneshli offshoreelds, was concluded in 1994. Dubbed the “contractof the century,” it was the Azeri government’s rst in-ternational oil agreement with a consortium of globaloil companies and marked Azerbaijan’s entrance ontothe international energy market. The ACG concessionis the largest international project in Azerbaijan and

comprises three elds with total reserves estimatedto be at least 5.4 billion barrels of recoverable oil.20 Azerbaijan’s total oil production was expected to


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peak by 2012, and recent data suggests that produc-tion has been declining over the past couple of years

(see Table 2).

Table 2. Comparison of Oil andGas Production in the

Caspian and Middle East, 2012.21

The ACG elds also produce a signicant quantityof natural gas. In 2012, Azerbaijan’s natural gas re-serves were estimated at 0.9 Tcm and, like its oil, mostof Azerbaijan’s natural gas is produced from a fewelds in the Caspian: ACG and Shah Deniz. Situatedin the Caspian Sea around 60 miles southeast of Baku,the eld’s operator BP claims that Shah Deniz is one ofthe world’s largest gas-condensate elds with over 1Tcm of gas. Stage One of the eld’s development beganoperations in 2006, with an annual production capac-ity of 9 Billion cubic meters (Bcm).22 Shah Deniz is sig-nicant because it is the only major eld developmentin the Caspian Sea focused primarily on natural gas,rather than oil, despite the fact that, as mentioned ear-

lier, the region is likely to be more gas- than oil-prone.With the exception of Shah Deniz, foreign investmentin Azerbaijan’s hydrocarbon sector (and across theCaspian) has centered on oil projects, which require

OilProduction(barrels perday)

Year-on-YearChangePercent

Share ofGlobalTotalPercent

GasProduction(Billion cubicmeters)

Year-on-YearChangePercent

Share ofGlobalTotalPercent

Azerbaijan 872,000 -5.2 1.1 15.6 +5.1 0.5Kazakhstan 1,728,000 -1.6 2.0 19.7 +2.0 0.6Russia 10,643,000 +1.2 12.8 592.3 -2.7 17.6

Turkmenistan 222,000 +2.5 0.3 64.4 +7.8 1.9Saudi Arabia 11,530,000 +3.7 13.3 102.8 +11.1 3.0Iran 3,680,000 -16.2 4.2 160.5 +5.4 4.8


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less capital expenditure than natural gas projects, andless investment in infrastructure to get them started.

Oil is also a more tradeable commodity than naturalgas, which generally requires supply agreements to bein place before production begins.

Turkmenistan possesses some of the world’s larg-est reserves of natural gas, as well as signicant re-serves of oil, although its ability to prot from theseextensive hydrocarbon reserves has been restricted. In2012 it had proven gas reserves of 17.5 Tcm, over 9percent of total global reserves of natural gas, most ofwhich is located onshore, in the east of the country;there is little in the Caspian Sea. While an indepen-dent audit of Turkmenistan’s South Yolotan-Osmaneld in 2008 revealed huge quantities of natural gas,suggesting that the eld may be one of the ve larg-est in the world, in 2009 the Turkmen president dis-

missed the heads of several key gas departments for“falsication” of the data on natural gas reserves.23 According to BP’s Statistical Review of World Energy,in 2012 Turkmenistan had proven oil reserves of 0.6billion barrels, the majority of which are located inthe South Caspian Basin and onshore in the west ofthe country.24 It also claims to have signicant oil re-serves in areas of the Caspian Sea that are subject to adispute with Azerbaijan over ownership, notably theSerdar eld (called Kyapaz by Azerbaijan), which lieson the maritime border between the two countries andhas estimated recoverable reserves of 370-700 millionbarrels. Despite Turkmenistan seeking internationalarbitration to settle the boundary dispute, this issue,alongside Turkmenistan’s claims to portions of the

Azeri and Chirag elds (called Khazar and Osman byTurkmenistan) being developed by Azerbaijan, arestill unresolved.


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Russian production of oil and gas in the Caspian islimited: although it is thought that Russia may have

estimated hydrocarbon reserves of up to 32 billion bar-rels of oil equivalent in its sector of the Caspian Sea,exploration has been limited to date. Between 1999and 2005, the major Russian oil company, LUKoil,discovered six oil and gas elds in the northern sec-tor of the Caspian, with total estimated reserves of 4.7billion barrels. In 2010, the company began develop-ing the Yury Korchagin offshore eld, which holds anestimated 270 million barrels of oil and over 63 Bcm ofnatural gas.25 It is important to note that the statisticsin Table 1 for Russia include the whole of the country,not just its reserves in its sector of the Caspian Sea.

Potential hydrocarbon reserves in the Iranian sec-tor of the Caspian remain largely unexplored, andthere is no signicant Iranian production in the Sea.

According to the National Iranian Oil Company, thecountry’s Sardar Jangal eld in the Caspian containssignicant reserves worth over U.S.$50 billion.26 Iranannounced at the end of 2011 that it had discovered theeld, which it claims holds at least 1.4 Tcm of naturalgas and as much as 100 million barrels of oil.27 Despitethese optimistic announcements, Iranian explorationand production in the Caspian is very limited, largelybecause its national sector of the Sea is very deepwaterand therefore difcult to explore with its current tech-nologies. U.S. and European sanctions have restrictedthe involvement of international oil majors in thecountry and, consequently, Iran’s access to the mostup-to-date production technologies. Furthermore, theCaspian Sea is not as important for Iran as it is for

some of the other littoral states: Iran has reserves else-where that are much easier and cheaper to produceand transport to international markets. However, Iran


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is unlikely to commit to any common agreement onthe Caspian Sea’s legal status (discussed later) until it

has fully explored its national sector, and thus, it willcontinue to be a spoiler in the Caspian region, block-ing any prospective collective settlement.

Pipelines.

Azerbaijan, Kazakhstan, and Turkmenistan haveconsiderable hydrocarbon reserves and hope to be-come major players on the world energy market. How-ever, even if they increase the production of hydro-carbons, they still face several enduring obstacles: thedifculty of transporting products from the remote,landlocked Caspian region to lucrative internationalmarkets, together with the unclaried legal status ofthe Sea. Export infrastructure from the Caspian Sea

region is still insufcient, and the development of ad-ditional export capacity is vital for future productiongrowth. Limited export options, as well as relianceupon the Russian pipeline network and neighboringcountries, have so far served to restrict the ability ofthe Caspian littoral countries to prot from their ex-tensive oil and gas reserves. During the Soviet era, therouting of pipeline infrastructure was not a prominentissue for oil-producing areas of the USSR—pipelineswere constructed to serve the needs of the Union, andthus, republics such as Azerbaijan and Kazakhstanwere part of the national network, which generallyowed towards western Russia and Moscow. How-ever, independence meant that the question of howto get oil and gas out of a relatively isolated area to

international markets rose progressively to the top ofthe agenda for producers in the Caspian region. Un-til a decade ago, countries in the region were reliant


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upon the Russian network of pipelines to reach Eu-ropean consumers, undermining their political and

economic autonomy and giving Moscow substantialleverage. In 1997 Azeri President Heydar Aliyev an-nounced that his country was “no longer prepared tobe totally dependent upon Moscow” for the transit ofits oil.28 Consequently, there has been considerable in-vestment in new international export pipelines overthe past decade, which has led to the development of asouthern oil and gas corridor between the Caspian andMediterranean Seas and brought signicant economicand security benets. Pipelines have a permanencyand an impact on political relations that highlight thestrategic signicance of hydrocarbons in the contem-porary era. The static network of pipelines currentlysupplying Europe reects the geopolitical situationof the Cold War, while new links demonstrate the

geopolitical shift.The focus to date has been on oil export infra-

structure, symbolized by the ambitious Baku-Tbilisi-Ceyhan (BTC) project, a vital element in expanding oilproduction in the Caspian Basin.29 The BTC (and BTE/South Caucasus [SCP] gas) pipeline has considerablesymbolic signicance, providing a direct link betweenthe Caspian region and Europe. Its construction hassignicantly altered the balance of power in the region,strengthening the political and economic autonomyof states such as Azerbaijan and Georgia, reducingRussian inuence and cementing the involvement ofWestern actors such as Europe and the United States.Nevertheless, producers on the eastern side of theCaspian, Kazakhstan and Turkmenistan still remain

largely reliant on the Russian pipeline network to gettheir hydrocarbons to Western markets.30


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Kazakhstan has been seeking to keep its optionsopen in terms of export routes. The Kazakhstan-China

pipeline, which shipped its rst oil in 2009, is a sym-bol of Beijing’s strengthening ties with Central Asia(and China’s rst international oil pipeline), althoughall pipeline routes that run out of Kazakhstan towardthe West cross Russian territory. Most Kazakh oil isexported via the Russian (and Chinese) pipeline net-work, including being shipped across the Caspian toterminals at Makhachkala and Taman and then on tothe Russian Black Sea port of Novorossiisyk. Kazakh-stan had been exporting Kazakh oil to internationalmarkets through the BTC, following a bilateral agree-ment with Azerbaijan in 2006. From 2008 to 2010, Ka-zakh oil transit via the BTC pipeline totaled 2.2 mil-lion tons, although Kazakhstan then switched to otherexport routes after disagreement over the conditions

of shipment. It was reported at the end of 2013 thatKazakh oil would again be transported via the BTC:Tengizchevroil, the operator of the Tengiz eld, an-nounced it would be exporting 400,000 tons per monthvia the pipeline, shipping the oil across the Caspianby tanker.31 The agreement also included provisionfor an increase in Kazakh oil shipments via the BTCto around 20 percent of the pipeline’s throughput ca-pacity by 2018-20, once production at the Kashaganeld moves into its second phase. It is expected thatKazakhstan’s oil exports will double once Kashagan isfully productive, necessitating a signicant expansionof export infrastructure capacity, including greateruse of the BTC and cross-Caspian tanker routes.

Kazakhstan has signed a memorandum with

Azerbaijan on the development of a Kazakh CaspianTransportation System (KCTS), although progress hasbeen slow. The agreement between KazMunaiGaz


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and SOCAR (the national oil companies of Kazakh-stan and Azerbaijan), signed with the operators of the

Kashagan and Tengiz elds, was intended to developoil shipment routes to deliver crude from these twoelds to the BTC and onward to international mar-kets.32 The KCTS is an integrated system consisting ofa pipeline to transport crude from Eskene and Ten-giz to an oil terminal in Kuryk on the Kazakh coastof the Caspian Sea, tankers and vessels to transportcrude across the Caspian, an oil discharge terminalon the Azerbaijani coast, and connecting facilities tothe BTC. The original agreement envisaged the proj-ect being operational by 2013-14, initially transportingup to 23 million tons of crude per year, increasing to36 million tons. However, in 2010, KazMunaiGaz an-nounced that implementation of the KCTS was beingpostponed because of delays on the Kashagan proj-

ect, which is not expected to get underway until 2014at the earliest.33 Nevertheless, Kazakhstan still shipscrude oil across the Caspian and exports it via Azer-baijan, as discussed previously. Azerbaijan’s EnergyMinistry expects around four million tons of Kazakhoil to be transported via Azeri territory in 2014.34

The three major littoral producers of oil and gas—Azerbaijan, Kazakhstan, and Turkmenistan—need todevelop their maritime capabilities in order to be ableto protect their interests in the Caspian Sea, includingunexplored elds, production installations, and trans-port infrastructure such as tankers. Russia alreadydominates energy export infrastructure, giving it anundue amount of inuence, and its investment in theCaspian Flotilla (whose roles include monitoring the

extraction of hydrocarbons in disputed areas of theSea) suggests a desire to maintain and possibly expandthis inuence. Some Russian observers have described


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the issue of pipelines in the landlocked Caspian re-gion as a “battle for domination,” particularly on the

part of the United States, which “is seeking to acceler-ate the process of the political and economic isolationof former Soviet republics from Russia.”35 While thisview ascribes little autonomy of action to the statesinvolved, it does highlight the suspicion with whichMoscow regards growing Western (particularly U.S.)inuence in the Caspian region. Russian successes,such as the subsea Blue Stream gas pipeline, are con-sidered to be the result of the “failure of Americanpipeline strategy in the Caucasus and Central Asia asa whole.”36 A major division has opened up betweensupporters of Russian and non-Russian export routes,which has the potential to produce new dividing linesin an already unstable region. In March 2008, RussianForeign Minister Sergei Lavrov had scathing remarks

about European plans for a Southern Corridor totransport energy from the Caspian region, describingthe proposal for the multibillion-dollar, 3,900 kilome-ter (km) Nabucco pipeline linking Turkey and Aus-tria as an “obviously articial project.” He stated thatRussia has:

answers that are economically more effective, and we

are going to realise them. Blue Stream is already op-erational. The Caspian gas pipeline, expansion of theCentral Asia-Centre gas pipeline, Burgas-Alexandrou-polis, Nord Stream and South Stream: all these rest ona rational economic base.37

The decision to drop the Nabucco pipeline in fa-vor of the more economically viable Trans-Adriatic

(TAP)/Trans-Anatolian (TANAP) pipeline projectsuggests there was an element of truth in Lavrov’swords. Nabucco was driven by political, rather than


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commercial, considerations, but the European Union(EU) appeared determined to drive it forward. The

BTC was a triumph of politics over commercial sense;thus the precedent had been set. However, ultimately,shifts in the European gas market meant that Nabuccolost its strategic advantage, and the decision to aban-don it was made on a commercial, not political, basis.The U.S.$7 billion, 2,000-km TANAP pipeline will ini-tially transport up to 16 Bcm of gas (expected to reach31 Bcm by 2023) from Azerbaijan to Turkey, where itwill connect with the TAP, which links Turkey to Italyvia Greece and Albania. The rst gas ow is expectedin 2018. These pipelines will be part of the SouthernGas Corridor, which will encompass planned infra-structure projects to transport natural gas from theCaspian and Middle East to European markets, inaddition to existing supply corridors from Russia, Af-

rica, and the North Sea. In its second Strategic EnergyReview, released at the end of 2008, the European Com-mission (EC) called for the development of a SouthernGas Corridor to be recognized as an energy securitypriority for the EU, reducing European dependenceon Russia as a supplier of oil and gas.38

The proposed Trans-Caspian Gas (TKG) Pipelineis a further element of the Southern Corridor, but, un-til recently, the project had been on the back burner.In 2011, Medvedev warned that construction of thepipeline, planned by Azerbaijan and Turkmenistanand supported by the EU, is unacceptable until all velittoral states have reached agreement over the legalstatus of the Sea, an issue that has remained unre-solved since the collapse of the USSR. Nevertheless,

Azerbaijan and Turkmenistan have declared that theTKG will cross the Caspian within their own nationalsectors and therefore the other littoral states have no


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say. In November 2013, the EU made it clear that itwas intent on pushing ahead with the project, despite

Russian unease. Denis Daniilidis, head of the EU mis-sion in Turkmenistan, said that conditions were “mostfavourable” for the construction of the pipeline, andthat the EU and Turkmenistan were in the nal stagesof their negotiations.39 The 300-km pipeline will crossthe Caspian from Turkmenistan to Azerbaijan, whereit will feed into the South Caucasus country’s existinggas export infrastructure. It will enable Turkmen gasto reach European consumers without having to tran-sit through the Russian pipeline network. However,this will mean a reduction in transit tariffs for Moscow,which, as mentioned previously, is unhappy that theproject may begin before nal agreement between theCaspian Five on the Sea’s legal status. Igor Bratchikov,the Russian president’s special envoy for the delimita-

tion and demarcation of borders with the Common-wealth of Independent States (CIS), warned of the po-tential “catastrophic” impact the pipeline could haveon the Caspian’s “extremely sensitive ecosystem,” stat-ing that in the event of an incident it would not be theEuropeans (or Americans), but the littoral states whowould have to tackle the aftermath.40 While potentialenvironmental damage is clearly a concern, Russia isusing these instrumentally to mask its real concerns,namely, the loss of inuence and transit tariffs that willresult from the construction of the TKG. Mikhail Alek-sandrov from Moscow’s Institute of CIS countries haswarned that “the West is underestimating Moscow’sresolve to resort to force in order to prevent the reali-sation of pipeline projects across the Caspian Sea.”41 It

is very unlikely that Moscow will resort to the use offorce to prevent the construction of the TKG, althoughit is likely to continue to voice its opposition and use


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its inuence to “persuade” Azerbaijan and Turkmeni-stan to abandon the project. Russia has watched its in-

uence over pipelines and export infrastructure in theCaspian Basin erode over the past decade, which hashad both an economic and political impact: Moscowhas lost out on revenue from transit tariffs, but hasalso seen its political dominance undermined. The up-grade of the Caspian Flotilla is a strong signal that itis unwilling to cede any further inuence and intendsto remain the predominant power in the CaspianSea region.

Cooperating for Caviar?

In addition to its signicant hydrocarbon reserves,the Caspian contains another high-value natural re-source: it is home to ve of the most valuable species

of sturgeon, which produce caviar. According to sci-entists from the Caspian Sea Fish Scientic-ResearchInstitute, the commercial value of the Sea’s biologicalwealth, if properly managed, amounts to 1.1 trillionrubles (U.S.$37 billion), equivalent to the total mar-ket value of the Sea’s recoverable reserves of oil andgas.42 This makes them highly sought after, by legaland illegal means, and illegal poaching of sturgeon isa serious problem for the littoral states. Poaching anduncontrolled shing have had a dramatic impact onthe Caspian’s sturgeon population since the collapseof the Soviet Union: stocks of beluga sturgeon in theSea have fallen by 30-40 percent over the past decade,and some species of the sh are on the verge of extinc-tion.43 According to the Iranian International Scientic

Research Institute, at the current rate of decline, wildsturgeon may be extinct by 2021.44


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Reecting the lack of consensus about the Cas-pian’s legal regime, the ve littoral states have yet

to reach agreement on the best way to manage theremaining sturgeon stocks. Russia introduced a banon the commercial shing of sturgeon in 2002 and acomplete ban on all shing in 2007, although thereis an exemption for scientic research. The only le-gally available caviar in Russia currently comes fromfarmed (not wild) sturgeon. In 2012, head of Russia’sFederal Fisheries Agency Andrei Krainy said thatthe ban on shing may be lifted if the other four lit-toral states agreed to a 5-year moratorium to enablesturgeon stocks to recover.45 Kazakhstan has bannedsturgeon shing in its sector of the Caspian. However,although the ve littoral states formally agreed on aninstitutional mechanism and common environmentalpolicy in the sea under the Framework Convention for

Protection of the Marine Environment of the CaspianSea signed in Tehran in 2006, the rst legally bindingregional agreement, they have yet to fully implementit or reach any common agreement on shing quotasor a moratorium on shing. Azerbaijan and Iran sup-port a ban, but Turkmenistan does not.

As mentioned previously, poaching is a seriousproblem. Russia’s Border Guards service said it seizedseven tons of illegally caught sturgeon in 2011. In therst 10 days of a joint month-long operation conduct-ed by Russian and Kazakh border guards in October2013, over 17 km of net was seized, along with 10,000sh hooks.46 At the end of November 2013, Kazakhborder guards killed a suspected Russian poacherduring an anti-poaching operation in the Caspian. Ac-

cording to reports, eight small boats refused to stopfor inspection, forcing the border guards to open re.47 The high value of the sturgeon and their caviar mean


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that poachers are willing to take greater risks to pro-tect their income. According to one report, “80 percent

of the poachers are now armed with small arms andgrenades; the more sophisticated are even using spacetracking systems to locate the exact position of theshoals,” prompting Vladimir Putin to describe theiractivities as not just poaching, but “bioterrorism.”48 Given the high value of the sturgeon and the scale ofillegal shing and poaching, it is not surprising thatthe littoral states are investing in smaller, faster navalvessels in an attempt to interdict illegal activities andprotect their national interests.

THE UNCLARIFIED LEGAL STATUSOF THE CASPIAN

The unclaried legal status of the Caspian Sea re-

mains a serious impediment to the development ofthe region’s natural resources (including sturgeon andhydrocarbon reserves) and the establishment of a sta-ble security environment. It also facilitates illegal sh-ing and poaching. During the Soviet era, there wereonly two states bordering the Caspian Sea: the USSRand Iran. The collapse of the USSR in 1991 saw the ap-pearance of four new states in its place—Azerbaijan,Kazakhstan, Russia, and Turkmenistan—all of whomhad access to the Sea’s valuable natural resources. Thelegal status of the Caspian Sea was thrown into doubt,and a dispute has been simmering since 1991. Ongo-ing negotiations between the Caspian Five have so farfailed to establish whether the Caspian is legally con-sidered to be a lake or inland sea. This lack of agree-

ment means that the area remains one of political dis-pute that has, at times, threatened to turn into militaryaction. In addition to the lack of clarity over the Sea’s


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legal status and whether it is a sea or a lake, there isalso disagreement among the littoral states over how

to demarcate the Sea and what legal regime to apply(for example, median line or condominium).

Russia’s position has shifted since 1991: Initially itsupported the condominium approach, which wouldentail an equal division of the Sea among the ve litto-ral states (giving them 20 percent each) and commonsovereignty of its resources, without dividing it upinto national zones. It was opposed to any unilateralaction by the littoral states with regard to developmentof the Sea’s resources and was furious when Azerbai- jan announced its so-called “contract of the century”with international oil companies in 1994. However, by1998, following the discovery of hydrocarbons in itssector of the Sea, the Russian government had movedto support a median-line approach, giving each state

a share proportional to the length of its Caspian coast-line. The year represented a turning point for the divi-sion of the Caspian. Viktor Kaluzhny, then Russia’sMinister for Oil and Gas, stated that “[w]e will dividethe seabed or, more precisely, the resources of the sea-bed. The water is common to all, it has no borders.”49 The lack of progress toward consensus among all vestates stimulated bilateral negotiations between thethree northern states. In 2002, Russia and Kazakhstanagreed to share the northern section of the Caspianseabed and established an ofcial line demarcating thetwo national zones. Under the agreement, each coun-try will exploit half of the three oil and gas elds in thedisputed area, Kurmangazy, Tsentralnoye, and Khva-linskoye. In 2003, Russia, Azerbaijan, and Kazakhstan

divided the northern 64 percent of the Caspian seabedinto three unequal parts, using a median-line princi-ple, giving Kazakhstan 27 percent; Russia, 19 percent;and Azerbaijan, 18 percent.


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Iran believes that the status of the Caspian Seashould be resolved on the basis of consensus between

the ve littoral states and has rejected bi- and trilat-eral deals struck between Russia, Kazakhstan, andAzerbaijan. It supports the “condominium” conceptand equal division of the Sea among the ve littoralstates. The Iranian government has also consistentlyinsisted that the 1921 and 1940 agreements betweenthe USSR and Tehran are to remain legally binding.This has put it in conict with Azerbaijan, which iscalling for the Law of the Sea (and thus a median-lineprinciple) to be applied (under which Iran would get14 percent) and has also continued to sign explora-tion agreements with oil companies despite the lack ofconsensus among the littoral states.

Iran wants a suspension of all oil and gas activityin disputed areas until an agreement has been reached

on the division of the Caspian. Confrontation eruptedin July 2001, when an Iranian warship threatened ageological survey ship in Azerbaijan’s territorial wa-ters. The ship was surveying the Alov-Sharg-Arazcontract area (known as Alborz to the Iranians) forBP. The Iranian action was prompted by BP’s plans todrill an exploration well at the Alov eld in 2002 in theabsence of a multilateral agreement on the Sea’s legalstatus. The Azeri government claims that the disput-ed sector is located above the Astara-Gasankuli line,which links residential areas on the coasts of Azer-baijan and Turkmenistan. During the Soviet era, thisline marked the Soviet-Iranian border in the CaspianSea. BP subsequently suspended exploratory drillingat the site, scheduled for 2002. ExxonMobil also post-

poned the development of the offshore Savalan block,citing concerns about the unclaried legal status ofthe Caspian Sea. The 850-square-km block is located


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in the southern sector of the Caspian, an area that isthe focus of a border dispute between Azerbaijan and

Iran. These territorial disputes contribute to tensionsbetween the two countries, which are exacerbatedby Azerbaijan’s burgeoning relationship with Israel(see Table 3).

Table 3. Fields Under Dispute.

Azerbaijan has also failed to resolve a dispute withTurkmenistan over ownership of specic elds in theCaspian, notably the Kyapaz eld—called Serdar byTurkmenistan—which has estimated reserves of over50 million tons. In May 2001, Turkmenistan threat-ened Azerbaijan with legal action after the failure ofbilateral talks between the two countries on severaldisputed oil elds. The Azeri and Chirag elds, whichare being developed by the AIOC as part of the “con-tract of the century,” are also in dispute. Turkmeni-stan calls these elds Khazar and Osman and claimsthey lie partly in Turkmen territorial waters. Azer-baijan has offered to jointly develop the elds withTurkmenistan, but the latter has refused and, in 2009,

Gurbanguly Berdymukhammedov announced thatthe government would seek dispute resolution at theInternational Court of Arbitration.50

Name Who?

Azeri, Chirag(Khazar, Osman)

AzerbaijanTurkmenistan

Kyapaz (Serdar) Azerbaijan

Turkmenistan

Araz, Alov and Sharq(Alborz)

AzerbaijanIran


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Azerbaijan is the only littoral state to have formallyasserted its sovereignty over its sector of the Caspian

Sea in any ofcial document. The country’s constitu-tion states that “[t]he internal waters of the Republicof Azerbaijan, the sector of the Caspian Sea (lake)belonging to the Republic of Azerbaijan, and the airspace over the Republic . . . are integral parts” of thecountry’s territory.51 Despite the ongoing ownershipdisputes with Iran and Turkmenistan, the countryhas continued to develop its Caspian hydrocarbon re-sources and press ahead with negotiations on the pro-posed TKG highlighting Baku’s belief that agreementon demarcation among all ve states is not necessar-ily vital. In spite of Azerbaijan’s condence, the lackof consensus on the Sea’s legal status impacts uponmaritime navigation, environmental protection, pipe-line construction, and exploitation of the Sea’s natural

resources, including its hydrocarbons and sturgeon.

THE CASPIAN AND RUSSIAN SECURITY

The Caspian Sea is part of Russia’s “southernunderbelly” (yuzhnaya podbryush’ye), a term that un-derscores the sense of vulnerability it feels along itssouthern border (which also includes the Caucasus). A2009 article in the Russian military journal, Voennaya Mysl’, emphasized the signicance of the “south,” de-scribing it as “the most worrying in terms of ensuringthe national security of the Russian Federation. It ison our southern ank that events occur which directlyaffect national security and require a clear denitionof Russia’s geopolitical interests.”52 As discussed pre-

viously, the area is rich in resources, but also containscontested borders, increasing tension between states,notably Azerbaijan and Iran, and numerous trans-


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pany ConocoPhillips) to China’s CNPC, which wasfavored over India’s ONGC. The growing presence of

international actors in the Caspian region is of concernto Moscow, which perceives it to be a challenge to itsown interests and inuence in the area, especiallywith regard to pipelines. The NSS goes on to state that:

The resolution of border security problems is achievedby creating high-technology and multifunctionalborder complexes, particularly on the borders with

the Republic of Kazakhstan, Ukraine, Georgia andAzerbaijan, and likewise by increasing the effective-ness of state border defence, particularly in the Arcticzone of the Russian Federation, the Far East and on theCaspian.54

Russia’s western coastline on the Caspian is a vola-tile neighborhood, containing the ongoing insurgency

in the North Caucasus, which has engulfed Dagestanon the Caspian Sea. Although Moscow formally de-clared the end of its “counterterrorism operation” inChechnya in the spring of 2009, it is still tackling anongoing insurgency across the North Caucasus, andthe region remains very unstable. In 2010, the Russianauthorities admitted that the situation had deteriorat-ed signicantly, and that it is ghting an insurgencythroughout the region. There has been a continuouscampaign of assassinations targeted against local of-cials, particularly clerics and security representatives,and a string of terrorist attacks against economic tar-gets such as railway lines, gas pipelines, and otherstrategic infrastructure. While the situation in Chech-nya provided the inspiration for growing radicalism

across the North Caucasus, recent violence in the re-gion has been fueled by corrupt local governments,poverty, and the Kremlin’s policy of seeking to exert


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direct control over republics; for example, appointingregional leaders instead of allowing them to be elected

locally, as was previously the case. Dagestan, on theCaspian’s western coast, has been particularly badlyaffected by the insurgency. This is of concern to theCaspian Flotilla, as the Kaspisyk base, where severalof the most potent new ships are based (including theGepard class Dagestan and Tatarstan), is located only20 km from the Dagestani capital, Makhachkala.

Interestingly, when Russian Defense Minister Ser-gei Shoigu identied three principal military threatsto Russian security in November 2013, the North Cau-casus insurgency was not on the list, although inter-national Islamist terrorism was. In addition to this, hespecied the withdrawal of Western coalition forcesfrom Afghanistan in 2014 and continued NATO en-largement on Russia’s borders.55 The Russian govern-

ment is very concerned about the impact of ISAF’swithdrawal from Afghanistan in 2014 and the poten-tial for instability affecting its Central Asian neigh-bors and, ultimately, Russia. Konstantin Sokolov, vicepresident of Russia’s Academy of Geopolitical Prob-lems, highlighted Russian concerns about instabilityin the wider Middle East region spreading to Russiaand the Caspian region:

What happens in the Near East reaches Russia fairlyquickly. The conict will move in the direction of Iran,and this is already the Caspian region. If combat op-erations begin in Iran, the strategic ties between thatcountry and China, which receives energy sourcesfrom Iran, will be disturbed. There is a danger of theundermining of stability in Central Asia. It would not

be difcult to do this, because the economic situationof the majority of inhabitants there is very difcult.From there, the conict would cross into Russia.56


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The upgrade of the Caspian Flotilla highlights thesense of vulnerability Russia feels along its southern

periphery. Stability and predictability are core con-cerns for Russia in the Caspian region, and Russia isseeking to assert its control over the area to ensurethese objectives, which potentially could be under-mined by security challenges such as the activity ofterrorist and extremist groups and criminal organiza-tions, as well as the increasing inuence of externalactors, particularly the United States and the West.Russia is keen to reassert its inuence, both within theCaspian region and across the former Soviet space, tocounter the perceived expansion of Western involve-ment, within its “sphere of inuence.” The decision toupgrade the Caspian Flotilla was made over a decadeago, at a time of growing concern about rising West-ern interest in the region. On his arrival in the Kremlin

in 2000, Putin was determined to reassert Russian in-uence in the Caspian region to counter the growinginuence of external actors such as Turkey, the UnitedKingdom (UK) and the United States. The issue wasconsidered of such importance that it was discussedat a session of the Russian Security Council in April2000. Putin was quoted in Russian media reportsas stating:

We must understand that the interest of our partnersin other countries—Turkey, Great Britain, and theUSA—toward the Caspian Sea is not accidental. Thisis because we are not active. We must not turn theCaspian Sea into yet another area of confrontation, noway. We just have to understand that nothing will fallinto our lap out of the blue, like manna from heav-

en. This is a matter of competition and we must becompetitive.57


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Putin’s statement reects the broader Russian po-litical narrative, which remains dominated by talk of

“competition” and the need to be “competitive” withthe West, highlighting the zero-sum approach thatMoscow tends to take in its foreign policy: the state-ment above suggests there is little room for coopera-tion or collaboration. Russia’s response to suggestionsthat the United States may establish a presence at theKazakh port of Aqtau, as a means of getting its mili-tary equipment out of Afghanistan, highlighted its op-position to the presence of any external actors in theclosed system of the Caspian Sea, as mentioned ear-lier. Russian sentiments reect those of the other lit-toral states: the leaders of the Caspian Five have longmade it clear that the presence of external forces in theSea would not be tolerated. This was noted in a formaldocument for the rst time in the declaration signed

by the Caspian Five at the Second Summit Meetingof Caspian Heads of State held in 2007 in Tehran, inwhich the littoral states formally agreed to deny ac-cess to third states who wished to use the region tolaunch military operations against any Caspian state,in an attempt to promote stability across the region.The declaration also stated that only littoral stateswere permitted to deploy ships and military forces inthe Sea, again seeking to limit the inuence of externalactors, particularly the United States and the NorthAtlantic Treaty Organization (NATO). Regional sta-bility is particularly important for Caspian states, asinstability or renewed conict could have a negativeimpact on the development of their hydrocarbon po-tential, including the construction of new export in-

frastructure, and deter vital foreign investment, ulti-mately undermining their economic development andpossible internal political stability.


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It has been suggested that an important objectiveof Russian foreign policy is the establishment of a

multipolar world, an aim that can be achieved by se-curing the country’s geopolitical interests in various“vectors” encompassing the “southern geopoliticalvector,” which includes the Caspian region and theCaucasus.58 This is reected in key Russian strategicdocuments, including the 2008 Foreign Policy Concept,2009 National Security Strategy and 2010 Military Doc-trine. All three documents emphasize the importanceof a multipolar world, reecting Moscow’s unhappi-ness with U.S. dominance of the international system,which it feels is destabilizing. The Kremlin has be-come increasingly concerned about growing U.S. (andEuropean) inuence in areas traditionally perceivedas Russia’s “strategic backyard,” that is, in formerSoviet states such as Georgia, Ukraine, and the Cen-

tral Asian republics. In an attempt to counterbalanceWestern inuence in the post-Soviet space and retainits leverage, the Kremlin is seeking to reassert its inu-ence by political, economic, and military means. Themilitary aspect of this approach is vital, as it providescredibility to the potential to project inuence: with-out an effective and visible military capability, Rus-sia’s ability to inuence events in the Caspian wouldbe undermined. Thus, the efcacy of Russian effortsto preserve its inuence has been underpinned by itsconsiderable military footprint across the “south.”

THE CASPIAN FLOTILLA

The Caspian is central to the maintenance of Rus-

sian national security, both in terms of its natural re-sources and as a source of an array of cross-bordersecurity challenges, demonstrated by the Caspian


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Flotilla’s combat capability upgrade. The RussianMinistry of Defence describes the Caspian Flotilla as

“the guarantor of the integrity of maritime boundariesand the most important foreign policy tool of the statein the Caspian Sea,”59 highlighting the signicance ofthe Flotilla for contemporary Russian security and thereason it is one of Russia’s only naval forces that hasseen a growth in strength, rather than a reduction, inrecent years, under Putin’s leadership.

Following the disintegration of the USSR in 1991,the Soviet Caspian Flotilla was divided evenly betweenthe four former Soviet littoral states on the Caspian:Azerbaijan, Kazakhstan, Russia, and Turkmenistan.Kazakhstan and Turkmenistan ceded their share toMoscow, which operated a joint otilla under Russiancommand.60 This joint otilla was transitory, however,and the newly independent states soon decided to es-

tablish their own independent naval capabilities. TheFlotilla’s base moved from Baku (now in independentAzerbaijan) to Astrakhan, a Russian port city at themouth of the Volga River. It is estimated that Russia’sCaspian Flotilla initially comprised only of two frig-ates, approximately 12 patrol boats and some smallervessels, and there was little investment in new equip-ment. This changed with Putin’s arrival in the Krem-lin in 2000. One of his rst priorities on taking powerwas to halt the perceived decline of the Russian armedforces. A program of reform was launched to modern-ize the armed forces, making them smaller, more af-fordable, and more exible, congured to ght small,low-intensity regional conicts as well as high-inten-sity global war. Military reform has led to cuts in both

personnel and equipment, with the aim of creatinga more mobile military with an expeditionary focus.The Pacic Fleet was slated to lose 5,000 personnel,


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while overall the Navy’s inventory was expected to beslashed from 240 vessels to 123 by 2016.61

However, there has also been considerable invest-ment in modernization and rearmament. In September2010, Russian Defense Minister Anatoly Serdyukovdeclared that annual defense spending for the period2010-20 was expected to equate to 3.8 percent of thegross domestic product.62 In 2011, Dmitry Medvedevannounced that over U.S.$700 billion would be allo-cated to modernize Russia’s defense armaments overthe period 2011-20, although it was revealed in August2012 that as much as 70 percent of this would be helduntil after 2016.63 Thus, the modernization of the Cas-pian Flotilla is part of a wider expansion and renewalof Russia’s naval (and broader military) capabilities.The Flotilla has recovered from the collapse of theUSSR in 1991 (and the subsequent redeployment from

Baku to Astrakhan) and has been the focus of signi-cant investment in recent years: by 2020, the CaspianFlotilla will have received as many as 16 new vessels,a striking amount for a relatively minor eet operat-ing in a closed basin (see Table 4). In addition to newvessels, the Flotilla has also acquired a new base atKaspisysk, following a decision by the Russian navalcommand in 2010 to concentrate its missile groupingthere. While Astrakhan is still Russia’s principal porton the Caspian, it has invested in the development ofthis new port in the volatile North Caucasus republicof Dagestan.


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Table 4. Caspian Flotilla Vessels.

Russia is focused on the establishment of forces thatare able to deploy rapidly and cope with instability onits periphery, but that also signals its intent to remaina dominant force in the region. Speaking in 2012 priorto the commissioning of the Dagestan Gepard class frig-ate, Dagestani president Magomedsalam Magomedovvoiced his pleasure that “one of Russia’s most power-ful ships” was to be based on the Caspian:

It is good news for our foreign allies, and a weightyargument for those who are not. Today, the CaspianSea and Caucasus are places where interests of variouspowers intersect, so Russia must have a mighty eethere. I’m sure that the frigate Dagestan and further

ships will strengthen that might.64

Name Class Type Year Commissioned

Dagestan Gepard Frigate 2012Tatarstan Gepard Frigate 2003

Makhachkala Buyan Corvette 2012

Volgodonsk Buyan Corvette 2011

Astrakhan Buyan Corvette 2006

Grad Sviyazhsk Buyan-M Corvette 2013

Uglich Buyan-M Corvette 2013

Veliky Ustyug Buyan-M Corvette under constructionZelyony Dol Buyan-M Corvette under construction

Serpukhov Buyan-M Corvette under construction

Borovsk Matka Hydrofoil missile boat 1983

Buddenovsk Matka Hydrofoil missile boat 1983

various Serna Landing craft 5 in service; 3 purchased in 2013


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The Dagestan is armed with the Kalibr-NK system,making it far more potent than her sister ship, the

Tatarstan, both of which are located in Kaspisyk. Ac-cording to the Russian Ministry of Defense, the frig-ate, which is “absolutely invisible to enemy radar,” isarmed with cruise missiles that have a range of over2,000 km and “considerably boost Russia’s militarycapability. . . . [N]o other otilla on the Caspian hassystems effective against both ships and land targets”:

The Dagestan in effect heralds the start of qualitativeand comprehensive re-equipment of the Caspian Flo-tilla as a whole, moreover, not just technically, but alsoconceptually. As early as next year [2013], the RussianNavy on the Caspian will add at least three more mo-bile, quick ships armed with cruise missiles. This typeof armament at sea is now becoming the main one. By2015, the Flotilla will be renewed almost completely.65

The Dagestan frigate is just one of a range of newvessels that have been commissioned into the CaspianFlotilla over the past decade (see Table 4), developedto operate in shallow littoral waters, rather than blue-water operations. The Makhachkala, Volgodonsk, and Astrakhan are the Caspian Flotilla’s small artilleryships. These Buyan class littoral patrol vessels costan estimated U.S.$20 million each and are relativelyheavily armed for their size, equipped with SA-16Gubka (Strelets) surface-to-air missiles and a rapid-ring main gun with a 15-km range. Each ship also hastwo 30 milimeter (mm) six-barreled AK-630 cannons,two 14.5-mm machine guns, three 7.62-mm machineguns and a UMS-73 Grad-M 122-mm multiple rocket

launcher.66 The Buyan-M variant is a more heavilyarmed version. The Grad Sviyazhsk is the lead ship ofthe Caspian Flotilla’s Buyan-M class small guided-mis-


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sile ship series, which also includes the Uglich, VelikiyUstyug, and the Zelenyy Dol (currently under construc-

tion in Tatarstan). They are multi-purpose river/seaships equipped with the Kalibr-NK anti-ship missilesystem, 100-mm and 30-mm guns, as well as Igla-1Mair defense missiles.67 They also incorporate “stealth”technology for a reduced radar signature: inclinedat superstructure surfaces, hull skirting, doors, andhatches concealed within the superstructure anddeck.68 According to the Ministry of Defense, theBuyan-M class ships are intended to protect Russia’soffshore economic zones and have been designed toengage surface warships in littoral areas and rivers.69 This reects the roles assigned to the Caspian Flotilla,which includes the protection of Russian shipping, aswell as providing protection to Russian hydrocarbonproduction facilities at sea against potential threats,

monitoring the extraction of hydrocarbons and bio-resources in disputed areas of the Sea.

In addition to the new vessels, the strike powerof the Flotilla has also been augmented by a separatecoastal missile battalion that was established at thebeginning of 2011, equipped with Bal-E anti-ship mis-siles with a range of 130 km. Speaking in November2012, commander of the Caspian Flotilla Rear-Admi-ral Sergei Alekminskiy discussed the modernizationof the Caspian Flotilla, outlining the Podsolnykh over-the-horizon radar station for aerial and surface obser-vation and the new coastal battalion:

We set up last year, and are making operational thisyear, a permanent–readiness shore battery equippedwith the latest Bal missile, which has already beenred. . . . By 2016 the Caspian Flotilla will have a solidmissile and gunnery group.70


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The Bal coastal missile complex is capable of en-gaging targets up to 120 km away and includes a self-

propelled command, control, and communicationspost, as well as a self-propelled launcher and othervehicles.71 It has a defensive posture, which raisesquestions about the threat Russia sees approaching itsterritory from the waters of the Caspian. The acquisi-tion of the system by the Caspian Flotilla also high-lights Russia’s sense of vulnerability in the region andthe desire to secure itself against all possible threats,both traditional state-based threats and nontraditionaltransnational security challenges such as trafckingand extremism. The Russian Navy has also purchasedthree additional Serna class landing craft for the Cas-pian Flotilla in addition to those already in service.The landing craft are air-cushioned, enabling themto deploy troops onshore more easily than ordinary

vessels, and can carry either one tank or two infantryghting vehicles, or a 92-man landi

russia and the caspian sea: projecting power or competing for influence?

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