Iran should stop trying to pressure its oil-rich Caspian neighbors to follow an agenda not supported by US political or commercial interests, a top US official told government and industry officials at a US-Azerbaijan Chamber of Commerce meeting Mar. 7.
"We will not stand idly by and watch them pressure their neighbors," said Deputy Sec. of State Richard Armitage, who prior to his return to government service was a past cochairman of the chamber. "Everyone must understand this."
The five nations with Caspian coastlines (Russia, Kazakhstan, Turkmenistan, Azerbaijan, and Iran) have not fully resolved ownership of the mineral rights to the seabed or demarcation of surface waters.
Russia, Azerbaijan, and Kazakhstan have agreed to divide the sea by a "modified median" principle; Iran insists the sea either be used in common or its floor and water basin divided into equal shares. Turkmenistan, meanwhile, agrees on the principle of dividing the sea but does not like the meth- odology used by Russia, Azerbaijan, or Kazakhstan.
Exploration ongoing
US government and industry officials at the chamber conference said that while they would prefer that the five Caspian countries resolve the issue, the absence of an agreement will not hinder oil and gas development. Although a final agreement is still elusive, US and European diplomats have been working with individual countries to ensure that commercial development can continue.
That view was bolstered by comments made by a top official in Azerbaijan's state-run oil company, who said that while problems over Caspian boundaries "may be solved in the near future," exploration and development will continue whether or not the Azeri and Iranian government can resolve their differences. The State Oil Co. of Azerbaijan Republic official said he plans to start negotiations with companies on additional tracts in the southern Caspian.
Industry officials attending the conference said they remain committed to the region and strongly believe in its exploration potential despite a recent string of dry holes.
"Finding oil and gas is exciting, but it can also be frustrating work, as our recent experience shows. After the large initial success at Shah Deniz, industry has drilled several dry holes on other prospects in the South Caspian. However, some key prospects such as Zafar Michal and Alov and some large uncontracted prospects have yet to be drilled, and updip potential still needs to be evaluated at Nakchivan and other structures," said A. Tim Cejka, executive vice-president, ExxonMobil Exploration Co.
"Of course, in the world of oil exploration, disappointments come with the territory. It's not enough to find it. You have to find enough of it, and it has to be located in a reservoir that will produce high volumes. Our well at Nakchivan is a good example. Although we did find sands much further into the deep basin than we had seen before-setting a drilling depth record of 6,746 m-we did not find the oil-bearing reservoir that we had hoped for. Nevertheless, we are encouraged by the thickness of the productive series as well as by hydrocarbon shows that indicate an active hydrocarbon system. These results support our plans for future exploration efforts at Nakchivan and elsewhere in the basin," he said.
Industry officials at the conference also predicted there would be enough production from the area to support a Western export pipeline from Baku to the Turkish port of Ceyhan. ExxonMobil Corp. and BP PLC, key investors in the country, said they expect to add to what already is a sizable investment both in Azerbaijan and elsewhere in the Caspian region.
Stronger tone
Armitage's comments on Iran reflected the stronger tone the White House has been using in recent weeks. Some senior US officials say they are frustrated that political changes promised under reform-minded President Mohammad Khatami are not happening fast enough.
President George W. Bush's first State of the Union speech Jan. 29 gave US oil companies the clearest indication yet the administration is not yet prepared to allow American investment in Iran.
President Bush linked Iran with North Korea and Iraq, saying "states like these, and their terrorist allies, constitute an axis of evil, arming to threaten the peace of the world."
But even before the president made those controversial remarks, the Caspian region was receiving more attention by policy-makers in light of ongoing Middle East violence. It's also been widely rumored that the White House is preparing the groundwork to take a major military offensive against Iraq within the year.
US industry investment
With the US war on terrorism in the region threatening to destabilize the situation in the Middle East further in the short term, Azerbaijan could be even more attractive for US oil industry investment, some US policy experts say.
"The only thing less popular to the American public than Enron [Corp.] is OPEC," said David Merkel, an aide serving the Republican minority on the Senate Committee on Foreign Relations.
In his remarks before the Azeri group and in an interview after the meeting, Armitage did not indicate what the administration's future military plans in the Middle East might be. On Azerbaijan, Armitage said he "fully expects" that an oil pipeline from the Caspian Sea to Ceyhan will be completed by 2005 on time and on budget (OGJ Online, Jan 16, 2002). Neither he nor other US diplomats attending the conference would get into specifics on what financial role, if any, the US will play in seeing that the $3 billion project meets the deadline.
However, Ambassador Steve Mann, senior advisor on Caspian Basin Energy Diplomacy for the Department of State, said he has "every confidence" that US government lending agencies such as the Export-Import Bank and the Overseas Private Investment Corp. would "offer their full support for this project."
US officials further said direct foreign aid from the US to the region would also expand.
US assistance to Azerbaijan will reach about $60 million this year, and Congress may appropriate more-although exactly how much more will become clearer when negotiations between the White House and Congress over the 2003 budget begin in earnest later this year.
