The Caspian Basin has over the years, evolved as an arena for competition and contest among the great powers. The major imperative behind this constant tussle for control and influence has been the rich yet underexploited hydrocarbon wealth that lay beneath the region. The unsettled legal status of the Caspian Basin notwithstanding, the littorals (particularly the triumvirate comprising Azerbaijan, Kazakhstan and Turkmenistan) have nonetheless depended on outside investment to boost their hydrocarbon sector and improve their economies. However, the landlocked nature of the Caspian Basin has resulted in the shifting of the centre of gravity from the question pertaining to hydrocarbon exploitation to that of the geopolitics behind the transportation and transit of the produced oil and gas.
It is therefore important to understand the geopolitics of the Caspian hydrocarbon trade through the lens of the contest and competition among the major powers for achieving dominance over the transportation of oil and gas from the landlocked Caspian Basin to the markets across the global maritime trade routes. For instance, Russia continues to enjoy monopoly over the vast array of pipeline and transit infrastructure taking oil and gas from the Caspian shores to its end users, particularly in Europe. However, the Western oil majors, under the aegis of the US and the EU, have arguably been making remarkable advances into the region. China, for that matter, has gained much leverage in the Caspian oil sector, more or less by piggybacking on the CIS troika’s apprehensiveness towards Russia on the one hand, and the impending West-Russia animosity on the other. However, this should not deter one from giving due credit to China’s efficient diplomatic maneuvering and business-as-usual approach towards the Caspian hydrocarbon politics. Moreover, owing to the contemporary geopolitical developments in the Eurasian realm, ranging from Syria to Ukraine, the geopolitics of pipelines and hydrocarbon transit has seriously undergone significant transformation.
With regard to the overarching question on the legal status of the Caspian Basin and its subsequent division among the littorals, there seems to be an agreement on the part of all littorals to draft and adopt a framework convention on the Basin’s legal status. This would definitely prove to be a breakthrough — given the prolonged state of sheer uncertainty and bad-blood that have hitherto plagued any possibility of the littorals evolving a cooperative mechanism, to sustainably exploit the Caspian Basin’s vastly untapped hydrocarbon wealth. Such a development would greatly increase Iran’s clout in the Caspian Basin’s regional hydrocarbon politics – given Iran’s steadfast adherence to espousing a condominium regime for hydrocarbon exploration in the Caspian Basin.
However, irrespective of whether the issue of the legal status of the Caspian Basin would be sorted out, Iran’s onus lies in exploiting its proven potential in efficaciously facilitating the Caspian Basin’s hydrocarbon trade. The possibility ofresumption in crude oil swaps with the Caspian trio notwithstanding, Iran has been progressively developing its pipeline infrastructure (both internal and transnational) to ensure and further enhance the smooth and secure transit of Caspian oil and gas to its end users both in Asia and Europe. Additionally, such measures have contributed to Iran having been able to cater substantially to its own energy demand – the ability of which has for long been crippled by the prolonged spell of Western punitive sanctions on its controversial nuclear programme, inextricably linking it with the difficulty in getting access to the technology to build the requisite infrastructure (Oil & LNG terminals and Refineries).
A cost-benefit analysis of the Iranian/Southern Transit Route vis-à-vis the Northern (Russia-financed), Western (US/EU-financed) and Eastern (China-financed) routes, have yielded results favouring the former, particularlywith regard to significant parameters like cost-effectiveness, techno-logistical efficiency and environmental feasibility. As a matter of fact, this has been clearly understood by several oil majors, be it Western or Chinese – or for that matter, a conspicuous beneficiary like India. For this reason, these oil majors have time and again vouched for the relaxation/discontinuation of anti-Iranian sanctions that have hitherto stood in the way of any likely promising partnerships with the Iranian hydrocarbon sector.
However, judging from the trajectory of the contemporary Eurasian geopolitical developments, thereare greater chances of Iran’s growing role in the Caspian and Eurasian energy trade gathering steam. For instance, Russia’s fiasco in Ukraine has signaled an imminent shift in the European energy security equation. With Europe looking for viable alternatives to its heavy dependence on Russian gas, Iran stands to gain from the unfolding scenario. With staggeringly low oil prices hovering in the background, China is simultaneously resorting to increased hydrocarbon imports. This is well manifested in the rigorous pursuit of its ‘One Belt One Road’programme, of which the Iranian North-South Transit Corridor is an integral part. On the western front, Turkey has also been exercising reasonable pragmatism and shunning political differences by trying to engage proactively with the Iranian oil sector. Here, it is important to bear in mind that both Turkey and Iran are mutual beneficiaries in the transit of Caspian and Iranian oil and gas to the markets in Europe.
India, as a successful practitioner of strategic autonomy, has long enjoyed a generally fruitful energy partnership with Iran. Moreover, with the increasing realization within the Indian policy elites of the importance of Iran as India’s only viable gateway to Afghanistan and Central Asia, the Iranian transit route would only serve to bolster the bilateral energy ties. Given the outcome of the negotiations between Iran and the US over the former’s nuclear programme, a thaw and relative easing of tension can be expected in the future. Although domestic imperatives in both Iran and the US, and the approach of regional heavyweights like Israel might play spoilers, the possibility of a better understanding between Iran and the US cannot be neglected. If such a scenario arises, further streamlining of energy commerce between India and Iran can be expected.
Summing up, Iran’s inevitable participation in the Caspian energy transit, in one way or the other, provides benefits for all players involved in the Caspian energy scramble. However, the incentives for both Iran and the Caspian trio are remarkably more significant. In the case of Iran, it would help stem the huge gap between being a major producer of petroleum; and yet not being able to sufficiently harness it (for domestic consumption). And as for the three Central Asian republics, they would be able to export their oil and gas to the consumer nations, in the cheapest possible way. Encapsulating the above two equations, it may be surmised that both parties can undoubtedly expect a win-win situation. The same applies to the consumer/end-user too.
As with the case of Iran, the punitive economic sanctions have long withheld it from realising the true potential of its hydrocarbon sector. However, with the nuclear deal having been signed between Iran and the P5+1, and the expectation of a gradual withdrawal of economic sanctions, Iranian oil and gas sector would eventually be able to redeem itself to full production levels. Subsequently, Iranian oil and gas exports would finally reach global energy markets in full flow. Additionally, this would help Iran to expedite any ongoing or pending work related to enhancing its transit and logistical infrastructure (oil rigs and drilling machinery, refineries, pipelines and oil/LNG terminals etc) and gaining access to the latest hydrocarbon extraction technologies. This would indisputably boost Iran’s role in facilitating the Caspian hydrocarbon trade as well. The eagerness on the part of both the Iranian oil ministry and the various international oil companies to invest in the Iranian hydrocarbon sector, is itself testimony to the changing perceptions of Iran towards the West and vice versa. Suffice it to say that Iran’s role in the Caspian hydrocarbon trade is poised to scale up. Nevertheless, the increasing credentials of the Iranian Transit Route speak volumes about the likelihood of such a scenario.
Disclaimer: The views expressed in the article are personal.
Ramu C. M., Independent strategic analyst with a primary research focus in the field of hydrocarbon politics.
