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. Last Updated: 07/27/2016

Battle Rages for Caspian Oil Reserves

ALMATY, Kazakhstan -- Turkmenistan and Azerbaijan clashed Thursday over who owns oil under the Caspian Sea, underscoring political risk as a recurrent nightmare for foreign firms planning energy investments worth billions of dollars.

Turkmenistan said the Azeri oil field and part of the Chirag field -- both in a sector of the Caspian claimed by Azerbaijan and under development by an $8 billion international consortium -- belonged to Turkmenistan.

"The Azeri oil field and part of the Chirag field are located in the Turkmen part of the Caspian Sea and therefore fall under Turkmenistan's jurisdiction," a Foreign Ministry spokesman said.

Reaction was swift from the Azeri capital, Baku, across the Caspian Sea to the West.

"Methods of defining the economic border clearly show that the Azeri and Chirag oil structures lie completely within the Azeri sector of the Caspian Sea," said a statement issued by Azerbaijan's Foreign Ministry.

Reaction from the Azerbaijan International Operating Company, or AIOC, the multinational group that hopes to pump more than 700,000 barrels of oil a day by 2010 from the Azeri, Chirag and Guneshli oil offshore fields, was predictably muted.

"We regard it as a government-to-government matter," said Barry Holton, spokesman for British Petroleum Co. plc, one of the consortium's 13 members.

Several oil majors lining up to sink billions of dollars into developing the sea's vast reserves of oil and gas have kept their counsel in the mind-boggling battle for influence over the Caspian, which laps the shores of six states, most of which are prey to instability and infighting.

"The oil companies don't want to say anything as they don't want to rock the boat with their boards or their shareholders," said one experienced observer.

An executive from an AIOC member said: "Of course, it can't be said there's no risk. There is an element of background risk."

The consortium, headed by the British Petroleum/Statoil alliance, includes the Azeri state oil firm SOCAR, Amoco Corp., Pennzoil Co., Unocal Corp., Exxon Corp., Ramco Energy plc, Russia's LUKoil, the Turkish Petroleum Corp., McDermott International Inc., Itochu Corp. and Saudi Arabia's Delta Nimir.

At issue is who can claim ownership to the Caspian's oil resources, which rank eighth in the world in terms of discovered reserves and could be a new Kuwait. The Caspian was divided up between Iran and the Soviet Union first in 1921 and again in 1940. But the appearance of four new states on its shores in 1991 -- Russia, Azerbaijan, Kazakhstan and Turkmenistan -- put its spoils under question once more.

Russia and Iran have previously argued that the sea is actually a lake and is the common property of all states surrounding it. Azerbaijan, Turkmenistan and Kazakhstan have said it is a sea and should be divided into national sectors and exploited by each country as such.

But Turkmenistan's approach appears to have become less clear, and it is now at odds with Azerbaijan rather than Russia.

Along with Iran, which also has regional ambitions, Russia has been pressuring the new republics into accepting its desired status for the Caspian, saying it will recognize a coastal zone of 72 kilometers and some oil fields outside the zone. Russia is smarting from the loss of its Soviet-era control over the Caspian, but its monopoly on oil and gas export pipelines to the West enable it still to influence its energy-rich neighbors.

Impoverished Turkmenistan's economy was brought to a virtual halt when Russia stopped Turkmen gas from flowing to Western Europe, cutting off a source of desperately needed cash.

But the legal arguments have even well-informed oil executives based in the region at a loss for explanation.

"The problem with Russia is that no one is really clear on its specifics -- what are the specifics?" said a senior Western oil company chief. "No oil company is going to go for a deposit when its status is unclear."