The Caspian Sea Legal Regime, Pipeline Diplomacy, and the Prospects for Iran's Isolation from the Oil and Gas Frenzy: Reconciling Tehran's Legal Options with Its Geopolitical Realities

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The signing of the "deal of the century" in Baku creating one of the first major Caspian energy consortiums between Azerbaijan and western oil companies signaled the beginning of a new era in world energy politics. The discovery of potentially huge oil and gas reserves in the newly-independent states of Azerbaijan, Kazakhstan, and Turkmenistan opened the door for western oil companies rushing to gain a competitive foothold in the new energy market. For Asia and the West this discovery provides a golden opportunity to ensure market stability through diversification of energy export routes. For the United States and its political allies, however, the Caspian region holds the key to the realization of a long-term strategic agenda. By establishing its presence in the region, Washington could: 1) weaken the influence of the Persian Gulf states and prevent the Organization of Petroleum Exporting Countries (OPEC) from monopolizing the production and distribution of world energy reserves; 2) create a controlled environment ensuring that the flow of petro-dollars will lead to political and economic reform in Central Asia and the Caucuses; and 3) undermine the historical dominance of the Russian Federation and the Islamic Republic of Iran not only in the Caspian Sea region but in Eurasia and Central Asia.

The political and economic changes brought about by the collapse of the Soviet Union and the reemergence of the Caspian region as a focal point of geopolitical importance have broad implications for the new government in Tehran. On the one hand Iran clearly finds itself in a tough and unfamiliar neighborhood. It seems to have lost the game of political and cultural influence over the newly-independent states to Turkey, which claims common ethnic and linguistic bonds with its Turkic brethren in the east. It has failed to play the religious card effectively--both Kazakhstan and Turkmenistan and even Shi'ite Azerbaijan have looked to secular Turkey as the model of governance and reform. On the economic front the discovery of vast reserves in the Caspian has done little to increase the prospects for Iran's share of the world hydrocarbon market--relatively small oil and gas capacity has been found in the deep waters off Iran's coastline. Finally, Washington has actively engaged in a political and economic campaign to isolate Iran by allying itself with Turkey and the newly-independent states and continues to discourage the establishment of economic relations with Tehran. In this regard the imposition of unilateral trade sanctions on Tehran, the most important of which seeks to disrupt the country's economy by discouraging foreign involvement in the development of its oil and gas sector, have far-reaching legal implications for Iran's involvement in the Caspian energy scene.

Iran's geopolitical situation, however, affords it the distinct advantage of being the only land-bridge route linking the Caspian Sea to the oil-rich Persian Gulf. The importance of this cannot be overemphasized because the key to unlocking the Caspian's wealth lies in finding sustainable export routes that will carry the land-locked states' oil and gas to the open seas. Iran represents one of the shortest and arguably the most efficient routes not only because of its location but because of its advanced transportation and infrastructural capacity. Therefore, Iran's ability to take advantage of its position in the region will largely determine whether it will be able to frustrate the ultimate policy agenda of Washington. More importantly, it will ensure Iran increased participation in the world's oil and gas market and allow it to use the Caspian Sea as a springboard to strengthen its own regional and international policy goals.

It is in this context that the legal implications of energy exploration, production, and transportation in the Caspian Sea will be discussed. This study will seek to address competing notions of a Caspian Sea legal regime as they relate to Iran's geopolitical interests. …