News | April 23, 2014

Bochkarev Participates in Caspian Sea Dialogue

EWI Senior Fellow Danila Bochkarev participated in "Defining the Caspian Sea: Aspirations, Opportunities and Challenges," an Eastern Promises Policy Dialogue hosted by the European Policy Centre. Bochkarev discussed the region's rich energy resources and an ongoing struggle to control them, with China as a growing regional influence. 

Defining the Caspian: Aspirations, Opportunities and Challenges

Eastern Promises Policy Dialogue – March 25, 2014

Summary
The Caspian is the largest inland body of water in the world, stretching from the shores of the Black Sea to the heart of Central Asia; it is a region rich in energy resources, with huge economic potential, and a meeting point between cultures and civilizations. Given the region’s geographic position between powerful states, for much of its history it has been at the heart of global confrontations.

Today there is still an on-going struggle. Russia remains very present, there is an increasingly powerful China, the EU is trying to make some inroads - Azerbaijan has made it possible for Caspian gas come to EU markets; Turkey is also trying to increase its role and of course there is Iran - isolated but ever present and if normalization takes place Iran’s role can become much more large in scale. Yet this region continues to face a number of significant challenges including economic under-development, security threats/frozen conflicts, corruption, inadequate governance and weak rule of law.

Full Report
Amanda Paul, EPC Policy Analyst, opened the dialogue by describing EPC and BSCSIF’s new project Defining the Caspian, which is designed to analyse and discuss geopolitical, energy and economic issues in the Caspian region and its neighbourhood

Alev Balgi, Executive Director of the Black Sea-Caspian International Fund, presented BSCSIF describing it as an international non-governmental non-profit organization, established in 2009 by the initiative of various representatives of influential non-governmental organizations from Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Republic of Moldova, Romania, Russia, Turkey and Ukraine.
Balgi expressed her satisfaction over the launch of the project Defining the Caspian, and stressed that it is important to launch actions that enhance democratic processes, economic development and dialogue among civilizations by using transportation territories, developing trade and creating a sustainable energy network.

Svante Cornell, Director of the Institute for Security and Development Policy, described the Caspian as Europe’s entry point to the heart of Eurasia and stated that without access through the Caucasus and the Caspian, there is no Western presence in Central Asia and Afghanistan. He outlined Western interests in the Caspian region, which he summarised as energy, military and trade-related interests.

On energy, he noted that Europe is well connected to Western Caspian oil and gas reserves through the Baku-Tbilisi-Ceyhan and the soon to be built, Trans-Anatolian pipeline, but not well linked to the much larger East Caspian oil and gas reserves of Kazakhstan and Turkmenistan respectively. Over the past years, Europe has not been particularly active in East Caspian and since the establishment of the East-West corridor – brought together by the US and of which the EU has been a major beneficiary – there has been remarkably less interest in connecting Europe to the East Caspian reserves. This has allowed China to move in and to build pipelines to bring Turkmen gas to China.

Cornell stated that the West should engage Turkmenistan more actively in order to bring Turkmen gas to Europe, especially since Turkmen official representatives expressed their interest in diversifying their exports. Nevertheless, according to him, “unless and until the Caspian reserves get connected to Europe through the Trans-Anatolian pipeline, Turkmen gas will not be brought to Europe. Europe needs to show Ashgabat that a connection is possible and can work. Turkmenistan will not make a move on its own.”

As for military and security interests, Cornell noted that the Caspian countries proved willing and able to cooperate with the West on counter-terrorism, and have been crucial in enabling the coalition efforts in Afghanistan over the past decade. He also stated that the land corridor across the South Caucasus is the only one that will allow the withdrawal of Western military forces from Afghanistan without relying on Russia or Pakistan. “This is just an example illustrating why it is so important for the West to have a presence in the heart of the Eurasian continent and why it would be foolish to abdicate
the possibility of cooperating with the countries of the Caspian region”, he said. 

On trade and transportation, Cornell mentioned the EU’s Transeca project - a land transport corridor connecting Europe, the Caucasus and Asia, which was never achieved - and described it as visionary. According to him, the market needs a land corridor connecting Europe to Asia, as a land connection is cheaper than air and faster than sea.

According to Cornell, the EU can exert leverage in the Caspian region in two ways: via energy diplomacy and via regional policy. Both instruments are very weak at the moment: since EU member states still hold a prerogative on their energy policy, which makes a concerted EU action in the energy field relatively difficult, and the EU has engaged only Western Caspian countries through the Eastern Partnership (EaP), but has not yet developed a policy for the countries of the Eastern Caspian. According to Cornell, when the future of Turkmenistan’s gas and Kazakhstan’s oil resources and their export will be determined, a higher level of political engagement with the countries of the region will be fundamental, if the West wishes energy commodities from the Caspian to go towards Europe.

Denis Daniilidis, EU Chargé d'Affaires in Turkmenistan, outlined Turkmenistan’s history since its independence and the country's energy policy. For many years, Turkmenistan had been relying on Russia as the main customer of its gas exports. This changed in 2009, when the explosion of the Davletbat-Dariyalyk pipeline halted Turkmen exports to Russia and trust broke down between partners after Ashgabat blamed Moscow for the incident. After that, Turkmenistan started investing in energy diversification, mainly by concluding several agreements with China, with whom Turkmenistan is now connected via three pipelines. It is estimated that by the end of 2020, Turkmenistan will export around 60 bcma of gas to China, making Ashgabat the biggest gas supplier to Chinese market via pipeline. “China is the ideal partner for Turkmenistan: both have a highly centralised decision making process, and human rights violations do not play a role in deciding with which partner is right for business,” he noted.

Daniilidis noted that despite being surrounded by countries rigged by ethnic conflicts and radical Islamism, Turkmenistan has managed to have good relations with all its neighbours. According to him, this great accomplishment was achieved by Ashgabat by unilaterally declaring the Permanent Neutrality State of Turkmenistan, which postulates that the country cannot be part of military alliances or engage in military cooperation.

Moscow’s influence in the country is extremely limited. According to Daniilidis, this is due to several reasons: Russia buys only a small percentage of Turkmen gas and does not have large investments in Turkmenistan and military cooperation between the two countries is very limited. In addition to this, not only is there no Turkmen diaspora in Russia, but also the Russian minority in Turkmenistan is decreasing. Despite events of 2009 President Berdimuhamedow is not antagonizing Russia, as Turkmenistan is also attempting to have a minimum participation in the CIS.

On the EU's influence in Turkmenistan, Daniilidis agreed with Cornell, acknowledging that it is extremely difficult for the EU to exert any leverage on Ashgabat, as the country is not anchored to any international institution or agreement. The EU has no Partnership and Cooperation Agreement (PCA) in place with Turkmenistan and in fact, Turkmenistan is also not a member of WTO, the Council of Europe or of any military alliance.

Daniilidis called for an upgrade in EU relations with Turkmenistan and stressed the need to establish an institutional dialogue with Ashgabat. “Not having a PCA with Turkmenistan to protest its bad human rights records is not a solution, instead it is part of the problem. Ratifying the PCA should be a priority in EU relations with Turkmenistan. At the moment, if we want any systemic change in Turkmenistan, we need to work through the UN and OSCE,” he said.

“The EU needs to have political meetings at a high level and a presence on the ground if it wants to upgrade its relations with Turkmenistan. If the pace with other countries is a thousand meters per second, with Turkmenistan it is 1 millimetre per second, but that millimetre is worth investing,” he concluded.

Danila Bochkarev, Fellow at the EastWest Institute, drew an energy map of the Caspian region. As the other speakers, he pointed out the division between East and West Caspian, with on the one side Azerbaijan having limited export routes, very focused towards the EU, and on the other side Iran, Turkmenistan and Iraq being in a more complex situation and more connected to China.

In particular, Bochkarev stressed the growing importance of China as an energy player in the region and mentioned domestic inflation in China, the Blue Sky Initiative of the Chinese government, as well as China's enormous market, financial resources, readiness to provide infrastructure, as elements making China an attractive business partner for East Caspian countries. “For Turkmenistan it is not important if it is the EU, China or Russia buying its gas, as long as they buy its gas and can pay higher prices.”

Comparing gas prices in the region, Bochkarev stated that Turkmen gas is very expensive if compared with Qatari, North Russian or Iranian gas because it is very expensive to extract and difficult to export to Europe at a profitable price. “I don’t think will we see Turkmen gas going to Europe, the question of Turkmenistan’s importance to Europe is overrated, Azerbaijan is more important to Europe than Turkmenistan,” he said.

According to him, Iranian gas offers more advantages than Turkmen, not only in terms of reserves and production costs, but also in terms of export options. In fact, Iran exports to Pakistan and Turkey and it has plans to export to Oman and the United Arab Emirates. “The EU’s scepticism on Iranian gas is surprising, as no one but Iran can be a Gazprom competitor. Whether Iran will try to be a Gazprom competitor or not is an open question, yet there is a need to engage Iran on global gas.”

Diba Nigar Göksel, Editor-in-chief of the Turkish Policy Quarterly, contributed to the discussion analysing Turkey’s role in the Caspian region. According to her, Turkey's recent aspirations in the region were too ambitious and unrealistic for the time-frame they were conceived for. Not only Turkish “zero problems with neighbours” aspirations in the Caspian area were set into action with ill-conceived undertakings–such as the Caucasus Stability and Cooperation Platform or the Turkish-Armenian normalization process–but also Turkey's efforts to redefine its relations with Russia and Iran by minimizing conflict and maximizing economic interdependence were unsuccessful.

According to Göksel, Turkey has realised that its effort to gain traction in the Caspian region together with Iran and Russia while reducing its alignment with the West was not going to yield the results that it hoped for. Ankara finally understood that its interests are not necessarily aligned with Russian and Iranian interests and that its grand ambitions of either leading the Muslim middle-east or being welcomed in the Shanghai Cooperation Organization were unfounded.

Turkey has therefore downgraded its ambitions in the region and started focusing on the East-West corridor and on integration between Azerbaijan, Georgia and Turkey in terms of energy and transportation corridor. Nevertheless, according to Göksel, Turkish foreign policy has not yet been re-articulated and various possibilities are open.

While some argue that Turkey will revert to a Western strategic assurance framework in light of its own vulnerabilities, Göksel believes that this is not likely to happen any time soon, given the Turkish government’s efforts to spread scepticism and animosity towards the West among Turkish society and the poor democratic track record of the Turkish government, which reduces its credibility in the eyes of the West.

Göksel stated that Ankara needs to reconceptualise its foreign policy but underlined the existence of a “clash between Turkish economic interests, geopolitical interests and domestic political interests” that will make redefining Turkish foreign policy harder.

As for challenges to Turkish influence in the region, Göksel identified the biggest obstacle to Turkish leverage in the Caspian in the Nagorno-Karabakh conflict and acknowledged the limited progress so far achieved. Russia’s influence in the region poses a challenge to the Turkish presence in the area as well, especially as Ankara is trying to compete with Russia while not upsetting it–as of this being the fact that Turkey has been very cautious to back the European choice of some countries and at the same time didn’t comment Russia's actions in Ukraine. Finally, Göksel noted that some issues belonging to the Turkish domestic situation undermined Turkish foreign policy on several occasions–such as the battle between Gülen movement and Erdoğan which had repercussions with Turkey’s relations with Azerbaijan and Kazakhstan.

Göksel concluded by stating that recent events in the Crimea might create the opportunity to address the Karabakh issue in more concrete terms and finally bring a solution to this decades-long conflict.

Dennis Sammut, Director of LINKS, stated that the EU has the ability to influence decisions in the countries of the Caspian region, as it can bring investments and it carries a model of relationship that is never built on exploitation, but rather on the basis of mutual benefits. Iran and Russia are still important players in the area–with whom the EU has very complicated relations–and out of the other three countries touched by the Caspian, the EU has most advanced relations with Azerbaijan. Despite not yet signing an Association Agreement, Baku has expressed a desire to upgrade its relations with the EU and Sammut believes that a stronger cooperation with Azerbaijan should be pursued and can yield positive results.

According to Sammut, a dialogue can be established also with Turkmenistan, as long as the EU increases its political engagement with Ashgabat. He warned against the danger of thinking that a relationship with Caspian countries can be built only on energy and economics. “Politics is central to cooperation: we have learnt this the hard way with Ukraine, where a small political problem destroyed an extremely technical agreement,” he said.

Sammut referred to the Nagorno-Karabakh conflict, stating that a solution has yet to be found not only because the parties involved do not have enough political will to find a solution, but also because the situation they find themselves in does not encourage them to take strong political decisions. “Solutions to crisis are to be found within a context: the EU, Russia and the US are part of the context. The situation in Ukraine has now raised many questions about context and it is only by adopting a long-term perspective that we will be able address conflicts successfully.”

Discussion
Questioned about the EU's role in the region, Daniilidis agreed that the European Union has lost more and more leverage in the Caspian area over the past ten years. He said that in order to change the current situation, the EU needs to have three things: high level political contacts with Turkmen officials; a framework able to bring all the Central Asian countries to the table with the EU; and EU experts on Central Asia, who are able to understand the specifics of this region. Daniilidis added that the EU should present itself as a mediator on water conflicts and border management, since it has already obtained good results on these issues and the countries of the region are particularly sensitive to these topics.

When asked to elaborate further on Iran's possible role as a Gazprom competitor, Bochkarev stated that Iran could be an advantageous source of oil and gas for Europe since “it borders with Turkey, so it is a country with a direct access to the Southern Corridor. Moreover it has access not only to large resources but also to very cheap gas, therefore it can acquire a conditional share by dumping the price, which is not always possible for other countries, like Azerbaijan or Iraq.”

Being asked what will be the solution of the Nagorno-Karabakh conflict, Cornell stated that every side involved knows that a successful settlement will need to involve a multiple stage process, culminating in a Balkan style-normalisation procedure and the involvement of peacekeepers coming from a third country that does not belong to the region.

On why Ukraine has not yet signed the DCFTA, Sammut stated that the new government will need some time to deal with the technical aspects of the agreement and that the choice of postponing a decision on it until after the elections is understandable.

When asked to elaborate further on the possibility of having Turkmen gas flowing to Europe, Daniilidis stated that since the law on hydrocarbons forbids onshore PSIs, any attempt to reach an agreement by linking progresses on the TCP to the concession of PSI onshore for US or EU companies is doomed to failure. “In order to make the TCP operational, large quantities are necessary - at least 20 or 30 bcma - and a long term contract should be drafted. Turkmenistan will not spoil its relations with Russia or Iran without concrete guarantees,” he said.

Asked whether Georgia could become an EU ambassador in the Caspian region, since it has signed the A.A., Göksel stated that the West should stand by the Europeanising voice of the neighbourhood but also the EU should be very clear on what it has to offer.

Cornell downplayed the future importance of Iran as a gas supplier for the West, since Iran is a net importer of gas and it is trying not to become a net importer of oil. According to him, the idea of Iranian gas flowing to Europe in large quantities is only an illusion, as oil and gas are heavily subsidised in Iran and the country is seeing a massive increase in domestic demand.

Photo Credit: Richard Petry