On 12 August 2018, Russia, Azerbaijan, Iran, Kazakhstan and Turkmenistan, being the Caspian littoral states, signed the Convention on the Legal Status of the Caspian Sea (the “Convention”). The Convention, which has been in the making for nearly three decades, establishes the legal framework for the sharing of the Caspian Sea and its resources. The Convention is of “unlimited duration”.
The key features of the Convention are as follows:
- the Convention establishes a 15-mile-wide sovereign waters zone, plus an additional 10 nautical miles of exclusive fishing zone, followed by common waters;
- the construction of underwater pipelines does not require parties’ unanimity. A party proposing to construct a pipeline only needs to agree (on a bilateral basis) with the party through whose territory the pipeline will cross. However, the route of the pipeline must be communicated to the remaining signatories;
- the key condition for the construction of pipelines is compliance with environmental standards and requirements, including compliance with the Framework Convention for the protection of the Marine Environment of the Caspian Sea; and
- the Caspian Sea is declared a zone of peace and only signatories can deploy military assets in the Caspian Sea.
The Caspian Sea is the world’s largest inland body of water shared by five littoral nations. Debates on whether the Caspian Sea is actually a “sea” (or a lake) and consequently which international laws should regulate its delineation and use have been ongoing since the early 1990s. The Convention is a big step in settling this dispute in respect of the Caspian water area. However, one of the most controversial issues – the sectoral division of the hydrocarbon-rich seabed – has been left for further multilateral discussions.
The division of the seabed and the drawing up of state boundaries amongst the littoral states will be a key milestone for upstream oil and gas projects. Following which, it is likely that new offshore blocks will be made available for prospection and development.
In terms of mid-stream projects, whilst the Convention has likely given renewed impetus to the realisation of the Trans-Caspian Gas Pipeline, commercial challenges are likely to persist.
Whilst it is too soon to predict the impact of the Convention on the oil and gas industry, the short-term implications are likely to be limited as there is more work to be done. However, in the long-term the signing of the Convention will bring the industry another step closer to utilising the Caspian Sea’s 48 billion barrels of oil and 8.3 trillion cubic metres of natural gas proven offshore reserves.
When Marco Polo, the renowned Venetian explorer, visited Baku on the shores of the Caspian Sea more than 750 years ago, he famously wrote, “there is a fountain from which oil springs in great abundance in as much as a hundred shiploads might be taken from it at one time.” The signing of the Convention is a vital stepping-stone to the full realisation of the potentially vast oil and gas reserves of the Caspian Sea.