Russia Eyes Stronger Clout In Caspian Region

Russian President Vladimir Putin took advantage of a Caspian security conference on July 14 to promote the restoration of Moscow’s influence in the region. Kazakhstan appears to be the country most receptive to Russia’s offer of closer economic and strategic cooperation.

The security conference was held aboard the Tatarstan, the flagship of Russia’s Caspian Sea Flotilla. Putin, during an inspection tour of the Tatarstan, reiterated Russia’s readiness to work with other Caspian littoral states to resolve “common problems.”

“It would be correct if we used our capabilities for this purpose,” the RIA-Novosti news agency quoted Putin as saying.

Russia in recent years has beefed up its Caspian military presence. The flotilla, based in Astrakhan, includes two frigates, 12 patrol ships and a variety of smaller vessels. The Tatarstan, launched in 2003, is one of the newest ships in the Russian navy.

The Caspian flotilla would play a major role in any regional effort to combat terrorism and narcotics trafficking in the region, Vice-Admiral Yuri Startsev, the flotilla’s commander, said at the conference. He added that the concept has the backing of other states in the region. “The idea is to create a task group of the littoral states’ ships, similar to the Black Sea Force Group,” RIA-Novosti quoted Startsev as saying.

While Russia is stressing the need for an improved regional security framework, energy issues also appear to play a big role in Moscow’s geopolitical calculations. A stronger strategic presence in the Caspian would provide Russia with added leverage as it competes with other regional powers, especially the United States, over energy export routes. [For background see the Eurasia Insight archive].

Cooperation has proved elusive for the five Caspian littoral states. Negotiations are stalled on a pact that would delimit the Caspian Sea’s territorial boundaries. Such a treaty is seen as the key to unlocking the region’s full energy potential. An effort to organize a summit meeting of Caspian states, envisioned as the follow up to a gathering held in Ashgabat in 2002, has experienced repeated delays. [For additional information see the Eurasia Insight archive]. Iran forced the postponement of the summit in late 2004, citing the approaching presidential election, eventually won by Mahmoud Ahmadinejad last month. [For background see the Eurasia Insight archive]. In the aftermath of the vote, Tehran has given no indication of wanting to reschedule the summit. [For background see the Eurasia Insight archive]. Iranian and Russian leaders have long been at odds over the formula to be used to divide the sea.

In the absence of a multilateral agreement on the sea’s status, Russia continues to work on strengthening bilateral relationships. So far in 2005, Russian officials have strenuously courted Azerbaijan and Kazakhstan in hopes of reestablishing Moscow’s strategic and economic primacy in the region. Kazakhstan has responded to some of Russia’s overtures, forging stronger energy-development links. On July 6, Putin and Kazakhstani President Nursultan Nazarbayev hailed the signing of a 55-year production-sharing agreement for the Kurmangazy oilfield in the Caspian Sea. KazMunaiTeniz, a subsidiary of Kazakhstan’s state oil company KazMunaiGaz, will hold a 50 percent stake in the project. Two state-owned Russian oil companies, Rosneft and Zarubezneft, could end up holding the other 50 percent in the venture.

"Profits from this project are estimated at $50 billion," Putin said. Nazarbayev added that the project was of global importance, and that oilfield reserves are estimated at 1 billion tons. The countries’ joint investment in the project could reach $22 billion.

On July 12, Putin toured the Astrakhan region on the Kazakhstan border. Astrakhan’s governor, Alexander Zhilkin, informed Putin that the Caspian oilfield deal between Russian and Kazakhstan had already provided a considerable boost to the local shipbuilding industry. Zhilkin also reported that GazProm, the Russian energy giant, was on the verge of building a major petrochemical complex in Astrakhan, and that crude oil production will start in Russian-owned Caspian areas by 2007. Putin also discussed investment projects in Astrakhan with Transport Minister Igor Levitin and executives from GazProm and LUKoil.

Earlier this year, Russia and Kazakhstan also completed a deal to develop another Caspian oilfield, the Khvalynskoye. LUKoil agreed to invest in a $1 billion partnership with KazMunaiGaz, developing Khvalynskoye for a production start date of 2010.

These are only the latest development deals between Russia and its Caspian neighbors. On March 16, for example, KazMunaiGaz announced it would acquire GazProm’s 50 percent stake in the Orenburg Gas Processing Plant in Russia, and would use it to process gas from the Karachaganak oilfield in Kazakhstan. The JV partners would also upgrade the plant and build a $320-million Kazakhstan-Orenburg gas pipeline within two years, while possibly dropping plans to build its own $1.3-billion gas processing plant in Kazakhstan.

Since 2002, Russia has pursued a series of separate deals between the Caspian nations rather than one umbrella agreement. In the Kurmangazy case, Russia agreed to Kazakhstan's ownership, but demanded that the oilfield fall under a bilateral venture. Russia also reportedly insisted that Kurmangazy crude would be funneled via the Caspian Pipeline Consortium (CPC) pipeline to Novorossiisk, rather than the Baku-Tbilisi-Ceyhan (BTC) pipeline.

Russia has long urged Kazakhstan and Azerbaijan to ship more oil through the CPC pipeline. Azerbaijan, meanwhile, has tried to convince Kazakhstan to export via the BTC pipeline. [For background see the Eurasia Insight archive]. Kazakhstan has been reluctant to commit to the BTC, in part out of a desire to avoid a confrontation with Russia.