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. Last Updated: 07/27/2016

Russia Softens Stand On Caspian Division

Russia, faced with the knowledge that Caspian Sea oil development is proceeding without it, is softening its confrontational stance over how to divide the sea's vast reserves among the countries that border it.

Russia and Kazakhstan this week revealed they have reached a preliminary agreement to divide the Caspian seabed into national sectors: Each country would be entitled to the oil lying off its shores, and to share the water in the sea.

The decision marks a sharp change from Russia's previous stance that all the Caspian's resources should be shared equally among the countries bordering it, a position Russia held because it was thought to have relatively little oil off its shores.

Recent exploration has proved Russia has more oil than it thought. But whatever the economic incentives, Russia also is motivated by politics, and its hardline approach to the Caspian has made it look increasingly foolish as Azerbaijan and Kazakhstan plow ahead with development of key oil fields.

"Kazakhstan and Azerbaijan have gone and ignored the debate and tendered assets," said Matt Thomas, an oil analyst with CAIB. "Russia was pushed into a corner, with the entire debate of the Caspian being decided by action rather than words."

Countries bordering the sea have good reason to debate the point. The Caspian is thought to contain a staggering 200 billion barrels in oil reserves, and at full-scale production could be the world's second largest supplier of oil after the Middle East.

Judging the riches at stake, Russia's recent turnabout can't be motivated by sheer goodwill. The country is eager to begin mining its own fields and to ensure Russian companies such as LUKoil and Rosneft a place in development projects throughout the sea.

By agreeing to cooperate with the Caspian community, Russia also improves the chances that more pipelines from the region will be built on Russian soil, allowing Russia to charge heavy transit fees.

"Russia has no interest in maintaining confrontation with Caspian countries," said Nikolai Petrov, an analyst at the Carnegie Moscow Center.

Still, a final agreement on Caspian division likely is a long way off. All five nations must approve a plan, a scenario difficult to imagine given Iran's continued insistence that the entire sea be shared.

And political maneuvering still threatens to stall economic development, with Russia and the United States jockeying to plot the future of this strategic region bordering Russia, the Middle East and Asia.The United States aims to create a rim of Caspian states through which oil could be exported independent of Russia, said Euan Craik, CIS editor of the journal Petroleum Argus. A unified corridor formed by Azerbaijan, Turkmenistan and Kazakhstan would weaken Russia's influence in the region and lessen Central Asia's political dependence on Russia, he said.

One pipeline proposal supported by the U.S. and by Azerbaijan would travel underwater from Kazakhstan's Tengiz oilfields to Turkmenistan and out through Azerbaijan, completely bypassing Russian soil.

Russia, meanwhile, is attempting to thwart such an alliance by driving a wedge between Kazakhstan and the other Central Asian states, Craik said.

In its talks with Kazakhstan, Russia is proposing that the Caspian nations share equally the sea's waters, a position Azerbaijan and Turkmenistan oppose. Such an arrangement could complicate construction of a pipeline traveling through Caspian waters, as all five littoral states would have to approve such a project.

Top U.S. and Russian energy officials this month denied they are pulling political levers to influence construction of pipelines, insisting the investments will be decided by the business community.

But whatever the political wrangling, this week's Russian-Kazakh talks are proof that "events are driving everyone toward a resolution," said one Western diplomat who asked not to be identified.