Iran Strengthens its Role in the Caspian Sea and Central Asian Regions

The strategic implications of a more solid and permanent Caspian Sea alliance led by a strong Iran are substantial, and it is likely that the country will be using the ongoing dispute over the Caspian Sea as a bargaining chip to obtain more security and economic insurance from its neighbors.

Benedetta Berti, PINR, 11/06/07.

Despite the ongoing nuclear crisis and the increasing tensions between Iran and the United States and Europe, Tehran's ongoing economic cooperation and energy policy might be effectively creating a "counter-alliance" that could substantially influence the existing balance of power, while enhancing the country's regional status. Iran's growing emphasis on energy and economic cooperation in Latin America, Asia, and in the Central Asian/Caspian region, as central elements of its foreign policy, are macro-indicators of this strategic re-alignment. In this sense, an important trend is Iran's current role in Central Asia.

Increased Cooperation toward a Caspian Sea Alliance

On October 15 and 16, 2007, Iran hosted the second summit of the Caspian Sea countries, which included Azerbaijan, Iran, Kazakhstan, Russia, and Turkmenistan. The meeting followed the 2002 Ashgabat summit, and it had the same main objective: to achieve an agreement on the legal status of the Caspian Sea, and to define the littoral states' ownership of the sea's resources.

The ongoing controversy over the access and exploitation of the Caspian Sea arose in the aftermath of the dissolution of the Soviet Union, which led to the collapse of the previous bilateral agreement that divided the Caspian Sea and its resources equally between Iran and Russia. To adjust to the new political environment, Iran now proposes to divide the existing resources equally among the new five independent states, claiming therefore a 20 percent share of the sea.

Russia, Azerbaijan and Kazakhstan, on the other hand, propose to base the new demarcation agreement on coastal sovereignty (an option that would leave Iran with a smaller share of the sea, correlated to the actual length of its shore). The three countries have already reached an agreement and they have divided the 64 percent of the sea among themselves, although Iran does not recognize the legitimacy of this demarcation.

In this sense, the 2007 meeting did not indicate a serious change in the countries' positions on this issue, thus failing to produce a final agreement on the legal status of the sea; however, the Caspian Sea summit was significant in terms of regional politics, and it emphasized Iran's growing influence and role in the area.

Iran had invested strongly in the summit as a means to create a more permanent organizational platform with the other littoral states -- to enhance economic and political relations. In his address to the summit, Iranian President Mahmoud Ahmadinejad clearly expressed the Iranian vision by stating that to facilitate economic and security cooperation he envisions "a type of regional organization to be established in the near future."

In this sense, the declaration of intent produced in Tehran certainly constitutes a positive step for the country, as it did institutionalize regular meetings of the foreign ministries of the five countries, and it laid down conditions for economic cooperation and trade. Most importantly, the declaration indicated a commitment to prevent foreign powers from assuming a role in deciding the sea's resources.

The Tehran declaration also included a two part security arrangement indicating a general commitment to a "non-aggression policy," and a specific promise by each country to deny the use of their territory for military actions against other Caspian Sea states. This embryonic security arrangement is particularly important in the context of the ongoing U.S.-Iran crisis, as numerous security sources indicated that, in case of a U.S. military operation against Iran, U.S. troops would consider opening a second front from Azerbaijan, a U.S. ally in the region.

The strategic implications of a more solid and permanent Caspian Sea alliance led by a strong Iran are substantial, and it is likely that the country will be using the ongoing dispute over the Caspian Sea as a bargaining chip to obtain more security and economic insurance from its neighbors -- perhaps in exchange for the acceptance of the current demarcation lines adopted by Russia, Azerbaijan and Kazakhstan.

Stronger Bilateral Ties and Regional Influence

Besides the achievement of a more solid regional alliance and the affirmation of Iranian regional diplomacy, the 2007 Caspian Sea summit also provided the opportunity to improve and solidify bilateral ties in the region.

First and foremost, the summit emphasized the existence of substantial common regional interests between Iran and Russia. Both countries agreed on the importance of including the "non-aggression" policy in the declaration of intent, and most importantly Iran backed Russia in its opposition to the Trans-Caspian Gas Pipeline. This project -- seen favorably by the United States and the European Union -- would aim at transporting gas from Kazakhstan and Turkmenistan to Europe through a pipeline across the Caspian Sea.

Russian President Vladimir Putin has objected to the construction of the Caspian Sea pipeline by expressing concerns for the environmental damage that could be caused by this project, but it seems obvious that Russia is highly concerned about the possibility that this project would allow the former Soviet republics to bypass Russia in transporting their gas to Europe (at the moment, all Kazakh and Turkmen gas is transported via the Russian Gazprom system).

The current standing of the two countries in the summit indicates that Russia and Iran -- at least in this phase -- can capitalize on their common concern to keep foreign powers outside the Caspian Sea. For instance, following the summit, the two countries have announced renewed cooperation in the field of energy production and transportation. According to the Itar-Tass news agency, the countries agreed to increase Russian corporate participation in the development of Iranian oil and gas deposits (such as the South Pars gas field), as well as to cooperate in "marketing policy in oil and gas exports and setting up capacity for producing, storing and exporting natural gas in Iran."

However, the synergy between Russia and Iran and the renewed ties are effectively combined with Iran's ongoing efforts to gain a stronger and more autonomous role in the region, a policy that distances Iranian interests from those of its eastern partner. A prime example of the increased autonomy and influence of Iran in Central Asia is its recent energy and electricity cooperation with Turkey and Turkmenistan. In July 2007, Iran signed a memorandum of understanding with Turkey to transport Turkmen gas to Europe, and to allow Turkey to operate Iranian natural gas fields, granting the right to extract and sell 30 billion cubic meters of gas from the South Pars region.

This agreement is particularly significant, as it would concretely offer Turkmenistan -- also a participant in the Caspian Sea summit -- an alternative route, away from Russia, to transport its gas into European markets. This new energy corridor, favorably seen by the European Union -- which is increasingly worried about its over-reliance on Russia to obtain natural resources from Central Asia -- would go against Russian interests, as it would break its current route monopoly.

The energy agreement is thus a significant example of Iran's current regional diplomacy, aimed at increasing its influence through energy and economic cooperation. Significantly, only one month after the agreement, Turkey and Iran also revealed the existence of an additional electricity agreement to increase the capacity of electricity transmission lines, construct new lines, and to build three thermal power plants and one hydropower plant. This declaration was followed in October 2007 by the announcement of a memorandum of understanding to invest US$1.5 billion to build lines to transport electricity between Iran and Turkey.

Meanwhile, Iranian-Turkmen energy economic cooperation improved through the creation of a series of trade, investment, and development agreements in the summer of 2007, and through the increased volume of Turkmen gas exports to Iran, which doubled in less than a year.

Furthermore, Iran is in the process of increasing its economic ties with all the littoral Caspian Sea countries, aside from Russia and Turkmenistan. Since the summer, Ahmadinejad has expressed his interest in improving relations with the regional U.S.-ally Azerbaijan. In this sense, Iran agreed to sell energy and gas to Azerbaijan, as a signal of stronger ties between the two countries, but also to indicate Iran's willingness to help meeting the energy needs of its neighboring countries. Furthermore, in August, the countries' increased energy cooperation led to the agreement to build two hydroelectric power plants on the Araz River, on the Iranian-Azerbaijani border.

Finally, the Caspian Sea summit was an opportunity for Iran to sign bilateral cooperation and infrastructure agreements with Kazakhstan, also announcing the intention to increase mutual trade up to $10 billion, and to increase energy cooperation by joint oil refinery and swap operations.

The Significance of Iranian Caspian Sea Politics

Iran's current economic and energy policy in the Caspian Sea region has several far-reaching implications in terms of domestic, regional, and global politics.

The analyzed cooperation agreements attempt to increase the amount of foreign investments and intervention in Iran's oil and gas fields. This is particularly relevant as the Iranian economy suffers enormously from chronic under-investment in its oil and gas sector, and it badly needs foreign investment as well as technology and expertise to improve its obsolete extraction, production, and export capacity.

The stagnation of Iranian oil and gas production is also a great cause for concern and unrest domestically, especially given the rising imbalance between energy demand and actual production (which forces Iran to import large quantities of refined oil).

This situation is only worsened by the ongoing nuclear crisis and the high disincentives for foreign investment and international oil companies in investing in Iran. In this sense, the recently announced partnerships with Russia and Turkey have a special strategic significance, as it addressed -- if only partially -- one aspect of Iran's dependence on foreign investments/exports.

However, the implications of the increasing economic and energy ties with neighboring countries go beyond the domestic and economic spheres. Iranian diplomacy and involvement in the Caspian Sea summit indicates an increased interest in the region, and the desire to assert a substantial diplomatic and political role.

Iran's energy and cooperation policies show that the country is using its resources and available economic incentives to affirm its political weight regionally, perhaps signaling Russia that, in the future, it will have to share its local leadership position with Iran.

Furthermore, Iran's increased regional status has a substantial impact outside Central Asia. On the one hand, it is possible that Iran will use its regional role and stronger ties with Russia and Kazakhstan to demand a greater role within the Shanghai Cooperation Organization (S.C.O.). On the other hand, the creation of an embryonic Caspian Sea organization, and the shared non-aggression policy among the littoral states, improves Iran's political standing in the context of the ongoing nuclear crisis.

In fact, while the political alliance significantly reduces its actual political isolation, the renewed bilateral agreements diminish its vulnerability to sanctions. It is likely that Iran will capitalize on these two achievements in its relations and negotiations with the United States and the European Union.

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