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. Last Updated: 07/27/2016

Azerbaijan Ratifies Caspian Oil Deal

The parliament of Azerbaijan ratified a $7.4 billion contract Tuesday to develop three Caspian Sea oilfields with a foreign consortium, removing the last official barrier to development of reserves expected to produce as much as a small OPEC nation.

Deputies in Baku voted overwhelmingly in favor of the contract, 34 to 1, while a senior Azerbaijani official confirmed reports that Iran has been invited to join the project.

At stake are oil reserves estimated at over 4 billion barrels with potential production of 600,000 barrels per day, as well as Moscow's loss of exclusive control over oil supplies in the former Soviet Union.

Consortium partners said parliament's ratification of the contract Tuesday had opened the way for work to begin in the oil fields.

"The contracts are ratified and government financial guarantees are in place here and from the mother countries. We can now upgrade the rig and go ahead with operations," said an official in Baku for British Petroleum, the leading foreign partner with a 17 percent stake.

Natik Aliyev, head of the state oil company SOCAR, confirmed Azerbaijan had offered Iran one-quarter of SOCAR's 20 percent stake in the project to develop the Chirag and Guneshli fields in exchange for financing the remaining Azerbaijani share.

The consortium's foreign members include BP and Statoil, Amoco, Pennzoil, Ramco, Unocal, McDermott, Delta-Nimir, the Turkish Petroleum Company and Russia's LUKoil.

Iran's inclusion has still to be approved by the consortium's foreign partners, including U.S. companies that together hold a 40 percent share in the project and have traditionally been wary of doing business with Tehran.

The BP official, however, said that he saw no obstacle to the approval. "It is a political issue between Azerbaijan and Iran. If they feel fine about it, we feel fine," he said. "Azerbaijani authorities have offered to allow any companies who object to give up their share to Iran, since Iran's participation wasn't officially discussed."

The deal, signed Sept. 20, triggered strong objections from the Russian Foreign Ministry, which said no single country had the right to dispose of Caspian Sea resources without the agreement of the other littoral states.

But a special commission has now been set up to coordinate activities by the five states -- Russia, Azerbaijan, Kazakhstan, Turkmenistan and Iran -- and Azeri officials say Moscow is not blocking the deal.

Foreign Ministry spokesman Grigory Karasin was unavailable for comment Tuesday.

Itar-Tass said Iran agreed to fund energy projects in Azerbaijan's autonomous enclave of Nakhichevan as part of the deal giving it a share in the consortium.

"Iran will allocate funds for an oil pipeline construction project in Nakhichevan and build a refinery there with an annual processing capacity of 500,000 tons, as well as an electricity supply system," Itar-Tass said.

Azerbaijan also agreed to supply 1.5 million tons of refined oil products to Iran in 1995, and to do test drilling in Iran's part of the Caspian shelf under a contract worth $14 million, it said.

Tehran's participation was agreed during a visit to Baku last week by Iranian Oil Minister Gholamreza Aghazadeh. The Iran-Azerbaijan partnership is unlikely to please Russia which, according to a recently leaked letter from Foreign Minister Andrei Kozyrev, had counted on Iran as an ally to block the deal.

Interfax quoted a senior Foreign Ministry official as describing the Azeri-Iranian agreement as "simply a pay-off."

"Baku simply threw a bone to Tehran to induce it to revise its attitude and support Azerbaijan's claim to part of the Caspian Sea shelf," the unidentified official said.

The Turan agency said Azerbaijan was unable to afford its $1.4 billion share of the finance and wanted to transfer some of the burden and that Iran may also have been included in the deal as a political counterweight to Russia. Russia's LUKoil conglomerate has a 10 percent stake in the project.

(MT, Reuters)