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Sea of opportunities
... if large and small states cooperate over the Caspian

By Hooshang Amirahmadi
August 15, 2000
The Iranian

From the introduction to The Caspian Region at a Crossroad (1999, St. Martin's Press).

Notwithstanding the increasing recognition of its significance, there is no clear definition of what constitutes the Caspian Region. Does it comprise the newly independent states, the littoral states, states within the catchment area of the Caspian Sea, states with noteworthy hydrocarbon reserves, or states that contain the primary network of hydrocarbon reserves and routes to transport oil and gas? Despite the changing configuration of empires in the region, significant population movement over time, and the focus of activity around the Caspian Sea, the area is not viewed as an integrated whole, but rather as a collection of isolated geographic fragments. A more robust methodological approach to defining the region is of primary importance for preparing a regional vision and for planning and policy formulation in individual countries.

The new emphasis on the Caspian Sea area results from its regional development potentials. Few countries, perhaps with the exception of Iran, can hope to achieve much development without regional cooperation. Most are landlocked and depend on other countries to transport oil and gas to world markets. Also, given their long history of exploitation, most are devoid of sufficient infrastructure, modern technology, appropriate expertise, consumer products, and domestic markets. Such a state of affairs does not fare well with a world where economic forces dominate international relations.

The accumulation of capital, agglomeration of production, and expansion of marketing opportunities is important for autonomy of the new Caspian economies. In today's world, regions form because of the need for transnational synergy and concomitant prospect for development. This is different from the past when regions were defined on the basis of religion, culture, colonial legacy, and like criteria. While economic institutions are key to regional development, non-economic networks are also needed for managing challenges that may threaten balance and growth.

The Caspian Region may be defined as comprising Iran, Afghanistan, Pakistan, Turkey, Georgia, part of the Russian Federation, Armenia, Azerbaijan, Turkmenistan, Uzbekistan, Tajikistan, Kyrgyzstan and Kazakstan. This excludes India and the Arab world. Both political and economic factors underlie this proposed grouping of countries. Even though the Caspian Region is predominantly Muslim, Islam is not viewed as an important political force in the area. Rather, the proposed constellation "constitute(s) an economically viable assemblage of states with common developmental interests and an awareness of their potential for development synergy. Three interrelated bases for the development potential of the region may be identified: capital, transportation, and economic reciprocity. Growing world demand for hydrocarbon fuel guarantees capital, which could be distributed among all countries to an extent because of the landlocked nature of most littoral states and the need for pipelines that traverse several countries. Rail networks could be expanded to link countries in the region and the network could be integrated with other transport systems to facilitate interaction particularly via maritime access. As most economies are in a state of sectoral imbalance, though not in the same way, significant potential for intra-regional trade exists. Iran, Turkey, Russia and China form a ring of outlets to the rest of the world for the region.

The functioning of the Economic Cooperation Organization (ECO), established to facilitate economic affiliation and cooperation in the region has been inhibited because it has not been formed with a clear regional focus. Turkey, for example, has tended to subordinate ECO to its ambition to join the European Union (EU) and to its relationship with the United States, Israel and Azerbaijan. On the other hand, the Caspian focus of the Organization for Regional Cooperation of the Caspian States (ORCCS) may be too narrow to represent the varied interdependencies of countries in the region.

There are also political obstacles to regional cooperation. For example, Pakistan is not on good terms with India, while Russia has tenuous relations with the countries in its "near abroad". Similarly, the current policy of the United States towards the Caspian Region and its so-called East-West directional strategy excludes Iran as a player in the region. Instead, the United States emphasizes relations with certain so-called pivotal states, particularly Turkey, Azerbaijan, Georgia and Armenia, which are not economically linked or politically allied. The US view of the region negates the important development interdependencies that exist between Iran and its northern neighbors. It is not also conducive to regional stability, which is a prerequisite for development in the region.

Within the larger region, there are other definitional issues. For example, in relation to the environment, how should the region be defined? Does it only include the Caspian Sea area and the rivers that feed it, or also the Black Sea, which will have to carry the risk of acting as conduit for the Caspian oil? Apart from concerns about the adequacy of present navigational systems, the Turkish government, in particular, is concerned about the environmental risk to Istanbul owing to increased tanker traffic through the straits of Bosphorus and Dardanelles.

With this in mind, how should the Caspian Sea legal regime be resolved? For example, a legal regime based on the so-called "donut" principle of common resource use opens the opportunity for joint development while a division of the Sea will reduce such possibility. From an environmental perspective, the first option is certainly more desirable as it increases the chance for a region-wide management of resource extraction and pollution control.

Russia's role in the region should not be underestimated. It is a littoral state controlling a significant stretch of the Caspian shore. For example, it is difficult to envisage how the Caspian Sea legal regime can be resolved without Russia's cooperation, not to mention meeting its challenges of resource management and environmental protection. Further, Russia cannot be ignored as an outlet for some oil and gas from the region, and as a partner in intra-regional oil and gas swaps, transport and trade. Sidelining Russia in regional developmental programs could also unleash its considerable "spoiling" potential, illustrated by its control of pipeline access for Central Asian oil and gas. It will also strengthen the hand of conservative and retrogressive elements within Russia's as yet fragile new power structure.

The Primitive State of Caspian Studies

There is a dearth of empirical study of the Caspian Region, a factor that underlies the significant misunderstanding of the area's resources, problems and needs. For example, despite severe stress on the Caspian's natural environment, relevant information in the field is scarce. As a consequence, aspects of the environmental regime are poorly understood. In recent years, a significant rise in sea level has caused loss of life, damage to infrastructure, and an increase in pollution. What causes the rise in Caspian's water level? A generally acceptable answer is yet to be formulated.

More empirical studies are required for theory building and conceptualization if a deeper, more analytical understanding of the region as a whole and in terms of its various building blocks is to be achieved. The initiative of Iran and Russia to establish a center for Caspian studies in Moscow in 1992 was aimed at addressing the need for environmental data collection and analysis. Unfortunately, inadequate resources and cooperation have inhibited this venture. Furthermore, disagreement over the legal regime of the Caspian Sea represents a major impediment to regional studies. For example, current debate on the issue focuses largely on past legal arrangements and understandings of use rights. What explicit implications the legal regime of the Caspian Sea would have for the environment, for example, remains copiously devoid of study because certain states do not wish to entertain the idea.

There is no doubt that the Caspian basin contains significant hydrocarbon resources. However, estimates of the region's oil and gas reserves vary owing to a lack of reliable information. In particular, individual governments, desperate to attract foreign investment and to manage their own fragility in the face of high expectations and socio-economic hardship, tend to present a rosy picture of the extent of resources. Analysts and consultants, hoping to secure contracts, fuel this optimism and romantic image of the area's riches. Western companies stand to benefit from exaggerating the extent of the region's reserves, as they seek favorable trading conditions with oil producers in and outside the region. The US Government has also tended to ignore the problem because such exaggerations serve to justify its growing involvement in the region. Yet, in order to secure the socio-economic and political stability of the Caspian frontier, realistic rather than fictitious estimates of its resources are required.

More significantly, we are reminded that judgement is still out as to whether the oil and gas reserves of the region, and particularly the export of such resources, will make a significant contribution to the welfare of the Caucasian and Central Asian states and their inhabitants. As compared to the Persian Gulf, the oil and gas export industry in these countries face severe inhibiting factors. For example, gas from the Caspian Region may not be as easy to be placed on world markets as many would like to believe. No doubt, more thorough studies are required about how best to utilize the Caspian's hydrocarbon resources for sustainable long-term socio-economic development.

At a more general level, the lack of empirical studies is also illustrated in external actors' perceptions and views of the Caspian Region as a whole. It is unfortunate that the Caspian Region, home to one of the world's oldest civilizations, and an ethnically diverse community, continue to be seen in the West in terms of certain stereotypes, namely hydrocarbon wealth, geopolitical importance, internal conflicts and Islamic fundamentalism. The concomitant diplomacy and policies of the Western players towards the area are anglocentric and chauvinistic, ignoring the new reality of a world where different world-views and cultural forces are being reasserted.

The need to change these outdated stereotypes forms the basis for future positive engagement in the region by the outside players. For example, it should be recognized that Islam and Islamic fundamentalism are not of similar significance as cultural and political forces throughout the Caspian Region. Besides, as Ali Mazrui remarks: "against Western claims that Islamic 'fundamentalism' feeds terrorism, one powerful paradox of the twentieth century is often overlooked. While Islam may generate more political violence than Western culture, Western culture generates more street crime than IslamWestern liberal democracy has enabled societies to enjoy openness, government accountability, popular participation, and high economic productivity, but Western pluralism has also been a breeding ground for racism, fascism, exploitation, and genocide. If history is to end in arrival at the ultimate political order, it will require more than the West's message on how to maximize the best in human nature.

Yet, the formal educational system of the region and beyond remains the monopoly of a select few in higher education, whereas students in elementary and high schools learn very little about the geography, cultures or history of the area. At the same time, centers of Caspian studies at US universities largely function as isolated enclaves, divorced from the internal dynamism and policy processes of the Caspian Region. No wonder that this educational system should mold the current misunderstanding of the area, particularly in the United States.

The Dominance of Fictional Prospects

The dismal state of Caspian studies has produced more fiction than fact about the region, negatively effecting a more realistic assessment of regional problems and prospects. For example, current and projected medium-term production of hydrocarbon resources in the Caucasus and Central Asia is relatively meager. Yet, governments keen on attracting foreign investment and assisted by analysts in search of short-term opportunities, often inflate estimates of resources. This could lead to an unrealistic estimation of the extent to which oil exports can boost development, guarantee foreign assistance, and improve the stability of governments for managing national affairs.

A more balanced view of resources and constraints to extraction would facilitate a deeper understanding of the interdependence of countries, as well as the interconnectedness of different facets of development. It would also temper the regional hegemonic aspirations of some countries. For example, inflation of Caspian resources and the consequent increase in US' activities there gives an outward expression of increasingly deeper American involvement in the region. Yet, it is not for certain that the United States, given the real size of regional resources, the likelihood of reaction from Moscow, and the minimal investments by the West thus far in the area, will engage in the long-term "hegemonic management" of the area.

Fictional notions also underlie popular geopolitical and developmental strategies for the region, particularly those originating in the West. The so-called New Silk Road proposal aimed at a western-oriented infrastructure and pipeline corridor stretching from Central Asia to Turkey to markets in West is a case in point. It fails to consider the significance of Russian and Iranian political interests in the region, as well as their capacity to assist in its development. Further, it is oblivious to the underdevelopment of the Caucasus and Central Asia as a market for Western goods and to the structural dependence of these countries on its northern and southern neighbors. Ignored are also the serious geographic and political constraints that could impede the viability of a Western-oriented development corridor and the limited extent of the European market as an outlet for Caspian hydrocarbon resources. Worse still, it probably underestimates the tenacity of Caspian countries to resist any form of new hegemonic control and integration.

Simplistic Notions of a Complex Reality

Simplistic notions of a complex and interconnected phenomena such as the Caspian Region abound. Views of both external and internal actors suffer from this problem. One reason why the complexity is overlooked is that commercial interests in the region preceded academic research. This relates to the rapid opening up of the region, expectations of its resource riches, and the work of consultants relating to the exploration of these resources. Generally, the area is viewed as a good piece of real estate - up for grabs by the toughest and highest bidder. Very little attention is focused on the people and environment of the place, and its long-term socio-economic and political stability. This mindset has led to the neglect by the littoral states to properly define their national interests. Leaders have been concerned primarily with securing the best deal in relation to the selling of hydrocarbon resources.

As an example, there is an almost reckless inattention to the legal regime of the Caspian Sea, while at the same time, international contract after contract is secured for the exploration and extraction of its oil and gas. The issue of delimitation of the Caspian Sea persists. It impedes implementation of development projects. The debate on the Caspian Sea legal regime is largely restricted to legal issues, instead of including important environmental and development imperatives. Legal perspectives can serve as a resource for determining an appropriate legal regime, but they cannot serve as the point of departure regional development. The political and environmental context has changed significantly since the standing legal regime was introduced. Not only has the number of littoral states increased, but also the extent of pressure on the Caspian Sea as a natural resource, both as a container of pollutants and a source of development and livelihood.

Simplistic notions of inherently complex phenomena also prevail in relation to perceptions of the internal dynamics of countries. For example, studies of post-revolutionary Iran have focused on the Islamic government, largely ignoring the non-state sector. As a consequence, the understanding of Iran has been largely reduced to one of the regime in power. What is ignored is, for example, that with the republican revolution, Iranians entered the political scene en-masse as participants. It was they who overthrew the Shah; it was they who fought Saddam Hussein while his war machine was backed by the West and the wealthy Persian Gulf monarchies; and it was they who forced the Islamic system to retreat from many restrictive cultural and social policies. If there is anything that the Iranian clergy are concerned with, it is not the United States or Israel, but the latent power of their own people. Expediency vs. Historical Perspective

Policy and action in the region shows a dearth of historically-based reflection. Life and governance in the Caspian Region has been intertwined with the exploitation of oil and gas reserves since ancient times. A richly textured history exists for individual places and for the region as a whole. This represents an important source of experience and knowledge, often forgotten in the rapidly changing development context of today, where decisions have to be made fast, and time spent on reflection is not viewed as an asset. For newly independent states, history is often associated with times best forgotten, as opposed to being viewed as a source of guidance and insight for the future. There is an ill-informed belief that the events of the past will not be repeated.

Perhaps now more than ever, there is a need for reflection, and a view of history as a means to make sense of today's increasingly complex world. The scale and nature of the Caspian problematic is vastly different to what it once was. There are many more actors involved, more people with pressing needs to be met, and governments with less power to act unilaterally and no longer able to rely on force to achieve their aims. They are also more dependent on external sources of finance. Although the present situation is substantially more complex than before, we have the benefit of history to teach us precedent, to serve as both a guiding light and a warning. That history shows that the Caspian Region experienced a crossroads before, and was subject to watershed decisions that subsequently affected all aspects of life in the region, many of them unforeseen. Most significantly, the interconnectedness of circumstances and the decisions that affect them must be taken into account. Attitudes affect policies which could have unintended consequences later.

Despite the curtailment of state powers today, many facets of the role played by the state in earlier times are important. First, the state's view of a valuable resource as a means to increase government revenue rather than one that formed the basis for more sustainable development warrants careful consideration. Second, the state's intense internal delays in decision-making impeded the potential constructive development of the oil industry. Recent developments to consolidate the various ministries engaged in energy matters in the newly independent states should be welcomed in this regard. Also important is the kind of support the state provides in resources over which it has substantial control, from infrastructure to education, to allow for a more beneficial exploitation of the resource.

Finally, the state has a role to play in protecting the interests of smaller industries so that opportunities associated with hydrocarbon resources can be spread more widely. The state should not favor foreign capital to the detriment of local development. Instead, it has a responsibility to establish rules or conditions for foreign investment, which further support rather than inhibit local opportunities. Less dependence on foreign capital and a few multinationals would reduce dependency on the whims and woes of the international market. We are reminded of the harmful consequences of over-dependence by the incidents of the Baku oil crisis in the early twentieth century, and the control of transportation routes by first the Noble and later the Rothschild companies.

History offers important lessons for foreign companies. Even today, the tides can turn unexpectedly. Companies should not contribute to the vulnerability of governments through exploitative practices. When the tide turns, as it did in the Baku crisis, they cannot necessarily rely on the support of the state, and may lose everything. The institutional impasse, which was previously a result of a lack of co-ordination among government departments, could now conceivably occur between nation-states. The impasse leads to problems that currently relate to fundamental developmental and environmental issues.

History also suggests the wisdom of stronger states bearing responsibility, when possible, to secure against the perils faced by weaker states in the region. States could gain from respecting and assisting each other in developing their comparative advantages. In a region where the advantages of interdependence are prominent, focusing primarily on competitive advantage is inappropriate. The approach should be to gauge the competitive advantage of the region as a whole, and within that, to address the comparative advantage of its parts. The interdependent destinies of the Caspian Region and the oil industry means that both will suffer if problems are addressed unilaterally. Regional co-operation is necessary not only for environmental management, but also for the installation of pipelines, among other development projects.

There are, however, contradictions in the extent to which history determines present-day action. The past may be forgotten in adherence to an export-driven development view, but it has been revived in shaping the foreign policy and the worldviews of key actors in the region. US sanctions against Iran is a case in point, based on historic events and premises which may no longer be relevant. Current pipeline preferences have tended to take current US-Iran relations as a given, not recognizing that much can change within the period of construction of these pipelines. Perhaps more time should be spent defining the pre-conditions for viable pipeline routes rather than speculating about routes within an uncertain context. The future development of the Caspian Region is too grand a topic to be viewed through the lens of the current US Administration, the leaders of the Islamic Republic, or of present US-Iran relations. Long after the current political players have left the scene, there still will be two great regions who must one day mend their fences and make the world a better place for posterity.


Hooshang Amirahmadi, a Rutgers Universtiy professor, is the president of the American Iranian Council.

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