Russian-Iranian ties: the Caspian basin is where cooperation begins

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President of Iran Hassan Rouhani finishes speaking with moderator and journalist Fareed Zakaria at the New York Hilton Midtown in New York City on September 24, 2014. (Photo: AFP-Yana Paskova)

By: Hassan Chakrani

Published Monday, September 29, 2014

International politics and direct economic and security interests are not the only thing that brings Russia and Iran closer together. Geographically, both nations are Caspian riparian states. Hidden under the waters of the Caspian is immense natural wealth, which is one of the pillars of potential cooperation between Moscow and Tehran in the context of international conflict. Today, a new round of talks will be held focusing on the Caspian in the framework of broader cooperation.

Strategic interests in the Caspian Sea and Central Asia are at the heart of all analyses involving the Asian nations concerned and the energy tension between East and West. The main two countries concerned are Russia and Iran, even though there are three other Caspian littoral countries – Kazakhstan, Azerbaijan, and Turkmenistan. The problem here is that even today, there is no legal or technical regime to manage interests in the region with the exception of the understandings between Moscow and Tehran, though these are ambiguous and have been sitting in the drawers gathering dust.

Technically speaking, the Caspian region is considered one of the richest regions in the world in terms of oil resources. According to US Energy Information Administration (EIA) estimates, the Caspian Sea region holds around 48 billion barrels of crude oil and 242 trillion cubic feet (tcf) of natural gas. Recall that the entire world consumption of oil is approximately 85 million barrels of oil a day and 120 tcf of gas.

In addition, the estimates of the US Geological Survey puts undiscovered resources in the Caspian basin at more than 20 billion barrels of oil and 243 tcf of gas.

In the final analysis, it is possible to speak confidently about 70 billion barrels of oil at the very minimum, which is a figure to be reckoned with. Currently, the world is tapping no more than 3.5 percent of this wealth to meet its demand.

Talks will kick off today in Russia between the leaders of the five nations concerned, with a view to agree to mechanisms to manage those resources. This follows three previous rounds that had failed to achieve this – in Ashgabat in 2002; in Tehran in 2007; and in Baku four years ago.

Perhaps it is best for Russia, Iran, and other Caspian riparian states to sleep on their joint maritime resources. Perhaps it is best for disputes on how to divide their resources in the basin to continue. The argument behind this idea is that oil resources are depleting, and therefore, delaying their extraction – of course not indefinitely – would ensure that they would gain greater value.

But perhaps the counterargument is stronger: that these resources should be exploited as soon as possible to accelerate the pace of the development process or confront schemes meant to disrupt this process, including, arguably, Western-led sanctions.

Either way, the problem is that a full century has passed since the first Russian-Iranian agreements were signed over how to exploit resources in the region, albeit they were reinforced by other agreements in the 1940s. However, these agreements remain ambiguous, stressing cooperation and equitable distribution without going into details.

In effect, if the two countries want to strengthen their respective international positions, they cannot delay the exploitation of their resources even by a decade.

More than ever today, there is a need for the two countries to strengthen their relations. For one thing, the US economic dominance of the globalized world order is also more apparent more than any time in the past. The US GDP exceeds $17 trillion, which is more than the GDPs of China, Russia, Germany, and Iran combined. The GDP advantage the US has – in addition to its GDP per capita figure of $55,000, its monetary domination through the US dollar, and its technological domination thanks to its major corporations – gives the US a persistent edge.

It is not possible to easily circumvent the U.S. dominance, in the way some targeted economic and financial sanctions can be circumvented.

According to former Russian Finance Minister Alexei Kudrin, the Russian economy could contract by about 3 to 4 percent in the event Western-led sanctions imposed on Russia are tightened further. But in light of the front lines being drawn, oil represents a weapon of the first grade. The oil held by the Caspian basin is worth $6.5 trillion. If these resources are divided evenly among the five countries, Russia and Iran’s share would be $2.6 trillion.

The prospects for cooperation between the two nations are without a doubt substantial. Over the past decade, the strength of the Russians and Iranians was proven on many occasions and issues, particularly as regards the nuclear program in the Islamic Republic. The Russian maneuvering on the international stage with respect to the Bushehr reactor is a clear example of the strength of Russian-Iranian ties and shared interests.

The two countries have been seeking to improve their international stance through bilateral agreements and understandings that improve the margin for resisting sanctions and battles involving the West, whether in the military, security, or economic arenas. For instance, a $5 billion agreement is being considered to build a thermal power plant in Iran. Other proposed agreements include an oil-for-goods program, and another for producing Tupolev TU-204 SM planes in Iran.

Yet even today, despite the extent of confrontations being fought by the two countries, their bilateral cooperation is below the level one would expect. For example, trade between the two countries is worth no more than $5 billion. While experts stress it is possible to double this figure by concluding cooperation agreements for various sectors, this is easier said than done.

Recently, on the sidelines of the summit of the Shanghai Cooperation Organization (SCO), which was held in Tajikistan, Iranian President Hassan Rohani, after a meeting with his Russian counterpart, Vladimir Putin, said that Tehran was determined to strengthen its relations with neighboring countries. Rohani also said that the growth of Russian-Iranian economic ties had seen an upsurge in the previous year.

The trend of activity in the framework of the SCO shows that the world has been witnessing rapid and dramatic changes from a historical perspective, as opposed to the perspective of the daily news cycle. China, which is asserting its regional influence in Asia through the SCO in order to defeat “terrorism, separatism, and extremism,” is seen as the most prominent player in this dynamic, though its war with the West remains soft to the extreme.

For Iran, meanwhile, the problem is that full SCO membership is conditional upon the lifting of the UN economic sanctions. One regional economic/political leverage Iran has is the Caspian. Agreeing over this rich region will not only be crucial to achieve economic gains, but also possibly the key to improving its negotiating position internationally in the direction of strengthening regional alliances in Central Asia.

This article is an edited translation from the Arabic Edition.

Comments

Interesting: 'Russia and Iran Lock NATO Out of Caspian Sea.'

http://thediplomat.com/2014/10/russia-and-iran-lock-nato-out-of-caspian-...

'Iran and Russia have built unanimous consensus among the Caspian states, which also feature Azerbaijan, Kazakhstan and Turkmenistan, over the inadmissibility of a foreign military presence in the Caspian Sea, ruling out any future possible deployment of NATO forces in the basin.'

The move comes as both Russia and Iran are experiencing tense diplomatic relations with Western countries and feel increasingly threatened by a foreign military presence in the Caspian Sea.

On the other hand, the former Soviet republics in the Caspian basin have been stepping up cooperation with the U.S. and Europe on security and energy issues, particularly Azerbaijan. Since it gained independence in 1991, Azerbaijan has emerged as a strategic partner to the West thanks to its vast oil and gas riches flowing westwards through the Baku-Tbilisi-Ceyhan and Baku-Tbilisi-Erzurum pipelines, which are both outside Moscow’s control.

The decision to seal off the Caspian Sea from a foreign military presence now makes any plan for a NATO military base in the basin very unlikely. It may also have repercussions in the sphere of energy security.

Dear Writer,

While I agree with many things you said, allow me to point out some areas where I disagree with you:

- On the GDP of the US it is true that the GDP of the US is as much as the countries you mentioned combined..however, it has been proven that the GDP of a country is a completely flawed way of looking at a countries wealth as GDP ignores many things such as the huge payments done for off shore military bases and purposes and military spending and wars (which the US is a wizard in) or the fact that GDP completely focuses on output and completely ignores the dwindling natural resources needed to produce that output..or if the Government decides to spend money on building prisons to address an increase in crime and inmates for example..or money spent on a natural disaster...GDP also doesn't take into account income distribution (i.e.) you might have a high GDP but terrible income distribution..a high GDPin no way means a country has a healthy economy except if that GDP was being measured on actually positive outputs on the populace and the country and GDP completely ignores that
- Another thing you failed to mention, even if the US had a GDP of Russia, Germany, Iran, China combined, you also fail to mention that the US also has an external Debt that is higher than the four countries combined

Just felt like adding these but thanks for the wonderful article

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