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. Last Updated: 07/27/2016

Oil Profits from Caspian Prove Hard to Extract

BAKU, Azerbaijan -- A multibillion-dollar oil deal expected to bring Azerbaijan long-awaited prosperity has run into obstacles from Russia, which wants a stake in the bubbly black riches of the Caspian Sea.


Russia's demands are threatening to delay further the giant Western project, already stalled for more than a year while Azerbaijan sinks deeper into an economic bog despite its oil riches.


Earlier this year, agreement was reported on most points of a deal to let a consortium led by British Petroleum and Norway's Statoil AS develop two Caspian oil fields off Azerbaijan. They hold an estimated 3 billion barrels of oil.


Then Russia abruptly demanded the right to approve Caspian Sea projects, and said it did not recognize anycarving up of the inland, saltwater sea into national sectors.


Russian Foreign Ministry spokesman Grigory Karasin said in early June that "all aspects of activity, including exploitation, prospecting and use of resources must be decided upon by all Caspian Sea nations."


The Caspian Sea, famous for its rich, black caviar as well as oil, is surrounded by the former Soviet republics of Russia, Azerbaijan, Kazakhstan and Turkmenistan, as well as Iran.


Russia's new assertiveness also cast doubt on large Western oil and natural gas projects in Kazakhstan.


Karasin warned that "any steps by any of these countries aimed at gaining certain advantage over others ... contradict the interests of other Caspian Sea countries and, in this context, cannot be recognized as lawful."


This spelled bad news for Azerbaijan, devastated by a six-year war with neighboring Armenia over the enclave of Nagorno-Karabakh. Its economy is in ruins, oil production and exports are falling and many people live below the poverty level.


Oil rigs standing idle amid the gray waves of the Caspian testify to the bleak present of Azerbaijan, a world leader in oil output in the early 1900s.


Russia's oil offensive was accompanied by peacemaking efforts in Nagorno-Karabakh, complete with an offer to station Russian peacekeepers there.


Some Azerbaijani observers said Russia was trying to control the flow of oil to the West. Opposition leaders blasted the two-pronged offensive as a Russian attempt to dominate the former Soviet republics.


However, Azerbaijani government officials in Baku say they are not particularly concerned by Karasin's warnings.


"I think these statements have no political or judicial meaning," said Hassan Husserly, a top adviser to President Geidar Aliyev. "A statement by one person is not an official point of view of the government."


Prime Minister Viktor Chernomyrdin has assured Aliyev that "the statement was not made in the name of the government," Husserly added.


For Husserly, the conflicting voices of Moscow simply reflect lack of coordination within the Russian leadership.


Representatives of Western oil companies are confused. They say they are familiar with Chernomyrdin's assurances, but would like something definite.


"Oil companies were advised that Aliyev discussed that with Chernomyrdin, who advised Azerbaijan this will not be a problem," said Richard Ward, vice president of Caspian Sea operations for the U.S. marine construction company McDermott.


"We don't see it as a major problem but we would like some verification, some official interpretation, if you wish, from the Russian government," he said.


Russia's demands have added to the complexity of oil negotiations, stalled earlier by the war and political instability in Azerbaijan, which has changed presidents -- and oil officials -- three times in as many years.


In June, yet another round of talks between Azerbaijani and Western oil officials ended in Turkey with many questions about what Russia had in mind but with no conclusive results. The officials signed an agreement, but consortium member Amoco Corp. said export pipelines and the status of the Caspian Sea remained unresolved.


So for the time being, Azerbaijan's dreams of prosperity will have to wait.