Azerbaijan-EU relations and Caspian Convention

Energy relations between the EU and Azerbaijan

In 1991, after the dissolution of USSR Azerbaijani nation got a second chance of independence and the Republic of Azerbaijan was recognized with its sovereign, democratic, political and economic development strategy by the world community. Azerbaijan is an energy-rich country, and it was an ideal choice to bring its energy resources to the world market to revive the economy of Azerbaijan. On September 20, 1994, one of the most political, economic, and strategic necessary contracts – “An agreement on the joint development and production sharing of the Azeri, Chirag and Gunashli fields located in the Azerbaijani sector of the Caspian Sea” was signed under the leadership of ex-President Heydar Aliyev. The contract had historical, political and international importance for all the joined parties. The agreement was financially beneficial for Azerbaijan. This should have given Azerbaijan access to global oil markets and generate immense revenues for the state treasury. This agreement put Azerbaijan back on the oil map of the world and gave impetus to the revival of political stability and economic independence of the country. Therefore, this agreement has been dubbed the “Contract of the Century” and became one of the vital projects in Azerbaijan’s energy history. At the initial stage, the “Contract of the Century” was signed by 11 international oil companies (Amoco, BP, McDermott, UNOCAL, SOCAR, Lukoil, Statoil, Turkish Petroleum, Pennzoil, Ramco, Delta) representing seven countries (Azerbaijan, the USA, the UK, Russia, Turkey, Norway and Saudi Arabia).

Since 1999, Azerbaijan plays a key role in European foreign policy towards South Caucasus. Azerbaijan was in the constant interest of the EU due to its rich energy resources and geostrategic location. Because the EU was in sought of alternative energy sources to reduce its oil and gas dependence from Russia. In this regard, Azerbaijan was an ideal and reliable partner for the EU to bring Caspian Basin energy resources to the EU. Azerbaijan achieved its economic development through the “Contract of the Century”. On the other hand, the European market had strategic importance to Azerbaijan. Firstly, the integration of Azerbaijan into the West promotes the further consolidation of democratic values. Secondly, strengthening Azerbaijan-EU relations boosts the economy and diplomacy of Azerbaijan. Thirdly, from its independence, the absence of internal conflicts in Azerbaijan, continuous promotion of peace, active involvement in international missions resulted in the stable political system.

As a result, on April 22, 1996, the Partnership and Cooperation Agreement was signed in Luxembourg between the European Union and the Republic of Azerbaijan on cooperation in trade, investment, economy, legislation, culture, immigration and illegal trade. The trade relations between the EU and Azerbaijan started with TACIS programme, which was proposed to help member countries’ economies. The INOGATE project has been established within the Eastern Partnership, and this project has played an invaluable role in the development of energy trade since 1996. The main objectives of INOGATE were to emerge energy markets with the principles of the EU internal energy market, to ensure the security of supply and to support partner countries’ energy industry by attracting investments.

In the context of positive trends in the development of relations over the past period, the Eastern Partnership initiative since 2009 envisages raising the EU-Azerbaijan ties to a higher level and expanding existing partnerships in bilateral and multilateral formats. In 2011 Azerbaijan and the EU signed a joint declaration on the Southern Gas Corridor. SGC was more an optimal and promising version of Nabucco. At the initial stage, TAP and TANAP, which is an integral part of SGC, will deliver Azerbaijani gas to the South of Europe – Italy and Greece from the Shah Deniz field. The length of the SGC is 3,500 kilometres and costs about the US $ 40 billion and consists of three main pipelines: South Caucasus Pipeline (SCP), Trans Anatolian Pipeline (TANAP), Trans Adriatic Pipeline (TAP).

Currently, Azerbaijan meets 5% of Europe’s energy needs through the Southern Gas Corridor by bringing Caspian gas to the EU energy market. The Southern Gas Corridor is a strategic tool in terms of diversification of energy routes and security of energy supply.

It should be taken into account that its future prospects and economic efficiency determined the choice of gas export routes, and TAP is considered to be the most successful option. Thus, the length of this pipeline is 459 km less than NABUCCO-WEST. Firstly, this means reducing construction costs. Secondly, the shortage of the length of the pipeline is more profitable by reducing transport costs. Thirdly, the TAP consortium is represented by powerful states, such as Switzerland, Norway, and Germany, which is indicating that investment demand is based on severe economies. Fourthly, this project will allow the Azerbaijani gas to be exported to the Western European markets in the future via Italy. Lastly, the provision of direct access to the Italian market will increase the country’s huge economic potential. TAP is a strategically important project for Azerbaijan as well. The investment program under the project will provide an investment flow to Azerbaijan, opening new jobs, improving the ecological situation in the Caspian Sea, accelerating the flow of modern technology and Innovation into Azerbaijan. On the other hand, it will increase investment opportunities of the SOCAR in the EU and Italy as a shareholder of Shah Deniz consortium.

Italy will not be the final target for delivering Azerbaijani gas to Europe, and it is planned to be exported gas resources from the Shah Deniz field to Austria, Switzerland, Germany and other countries. From this point of view, TANAP and TAP projects as well as Greece-Bulgaria, Bulgaria-Romania and Romania-Hungary gas networks supported by the European Union, are significant in terms of establishing the infrastructure of transportation of energy, carrying energy resources, and the integration of the European energy transport system.

Caspian Convention and legal status of Caspian Sea

The actual legal status and regime of the Caspian Sea were based both on the Soviet–Iranian treaties concluded in the first part of the twentieth century and on earlier state practice and agreement. The first such treaty was the Treaty of Resht (1729) concluded between the Russian and the Persian empires, which provided for freedom of commerce and navigation. It was followed by the Gulustan Treaty (1813) and the Turkmenchay Treaty (1828), which provided Russia with the exclusive right to have a naval fleet in the Caspian Sea. In 1917 the Soviet government drew up a new agreement with Persia, which declared that all previous international agreements between them were abrogated. The Treaty of Friendship between the Russian Socialist Federal Soviet Republic (RSFSR) and Persia (26 February 1921) became the basis for bilateral relations between the two states; however, except for the restoration of Persia’s equal rights of navigation it did not specifically address the issue of the legal regime of the Caspian. Natural resources were mentioned only in connection with the renewal of fisheries agreements.

On navigational issues, the 1935 Treaty of Establishment, Commerce and Navigation between Iran and the Union of Soviet Socialist Republics8 was replaced in 1940 by the Treaty of Commerce and Navigation. Both treaties reserved navigation (military and commercial) as well as fishing rights in the Caspian Sea for Soviet and Iranian vessels and other vessels flying their flags. In 1991, after the disintegration of the USSR, three newly independent Caspian states – Azerbaijan, Kazakhstan and Turkmenistan – challenged the legal validity of the Caspian treaties, which had remained uncontested legally, either by the international community or by any of the signatory states, for several decades. legal regime of the Caspian Sea was linked to the question of the newly independent states’ legal succession under the Vienna Convention on Succession of States in Respect of Treaties.

A sea or lake? If the Caspian Sea were classified as a ‘sea’, according to the UNCLOS provisions, the following regime would apply. Each littoral state would have a ‘territorial sea’ with a breadth not exceeding twelve miles, an exclusive economic zone not exceeding 200 miles and a continental shelf. However, that the maximum width of the Caspian Sea does not exceed 200 miles. If, considering the channel connections between the Caspian and Black Sea and Caspian and Baltic Sea, the Caspian Sea were recognized as a sea, the three newly independent states, as land-locked states, could claim the right of access to the high seas under Articles 69 and 124–132 of UNCLOS. The Caspian Sea may have to be treated as a transboundary lake, not as a sea. The international lake is a lake that is surrounded by the territory of various states. Use of the waters of border (international) lakes is regulated by the international agreements of border states, which determine the lines of state borders, right of navigation, and terms of use of waters for non-navigation purposes. In the absence of an international convention regarding international lakes, apart from those that are part of an international watercourse, international custom appears to be the primary source for establishing the Caspian Sea’s legal regime.

The practice of delimiting lakes between riparian states shows that lakes are divided so that each coastal state has exclusive sovereignty over the biological and natural resources, water surface and shipping in its national sector. The most popular principles for delimitation of international lakes are thalweg, coastal line and middle line (median). The thalweg is usually applied to border rivers, and relatively seldom to international lakes. The coastal line principle was mostly applied in a period of colonization of tropical countries and later often replaced by middle line.

After twenty-two years of negotiations, in Aktau on August 12, 2018, Kazakhstan, Azerbaijan, Iran, Russia, and Turkmenistan signed the Convention on the Legal Status of the Caspian Sea. In addressing the waters in the Caspian, the Convention deals extensively with the water column area. The Caspian seabed and subsoil will be delimited into sectors by agreement between the littoral states. These seabed delimitation agreements divided the relevant seabed areas into proportional national sectors. Two of the seabed delimitation agreements appear to have used a modified median line—modified equidistance—with one seabed delimitation described as based on a median line.

Conclusion

Since the restoration of state independence in 1991, the Republic of Azerbaijan has defined integration and expansion of cooperation with the EU as one of the strategic directions of foreign policy. The economic integration interests of Azerbaijan towards Europe are shaped by geopolitical and geo-economic position and socio-economic development of the country. As a result, relations between the European Union and Azerbaijan are intensifying rapidly. The European Neighbourhood Policy, the Eastern Partnership Program and the Southern Gas Corridor are the main contributors for further integration of Azerbaijan into Europe. Thus, after many years the European Union has taken an important step on behalf of common energy policy. With the TAP and TANAP projects, several European regions will be supplied with energy in the future, and it will lead to the most important thing, which will ensure Europe’s energy security by reducing dependence on one source. Caspian Convention will determine future relations, projects, policies and economic dimensions over the Caspian Sea in regard with its natural resources.

The delineation of the mineral-rich seabed was also left for future negotiations. The parties created a new, undisclosed legal status for the Caspian that makes it a kind of special, though as yet undefined, sea. So, while this agreement only partially resolves the Caspian’s disputed questions, it nevertheless clearly represents progress. This accord now makes it possible for countries to construct pipelines, provided they comply with very strict environmental standards that have been frequently used to obstruct such pipelines. So, while Turkmenistan and/or Kazakhstan may now build a pipeline to Azerbaijan, it is by no means certain that Russia will not use the environmental condition to block it. Still, the construction of this pipeline now becomes legally possible.

References:

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