THE CASPIAN SEA - The Legal Issue.

Continued uncertainty over the Caspian Sea's legal status is hindering further oil and gas development in the area. The five littoral states - Azerbaijan, Iran, Kazakhstan, Russia, and Turkmenistan - have failed to agree on a plan to divide up the sea's resources, including the oil-rich seabed.

Azerbaijan, along with Russia, and Kazakhstan, has advocated the establishment of maritime boundaries based on an equidistant division of the sea. But Iran and Turkmenistan disagree.

Azerbaijan remains locked in disputes with Turkmenistan and Iran over competing claims to overlapping fields. Turkmenistan and Azerbaijan have traded harsh words over the Kyapaz-Serdar, Khazar, and Osman fields, while Azerbaijan has objected to Iran's decision to award Royal Dutch/Shell and Lasmo a license to conduct seismic surveys in Alborz - a region of the Southern Caspian Sea which Azerbaijan considers to fall in its territory.

In July 2001, tensions flared in the South Caspian when a BP seismic ship, licenced to explore Azerbaijan's Araz-Alov-Sharg concession, was ordered to leave the area by an Iranian gunboat, since Tehran considers the area, which it calls Alborz, to be a part of the Iranian sector of the sea.

Although a long-delayed summit of the heads of state of the Caspian littoral states was held in Ashgabat in April 2002, the meeting, as expected, failed to produce a final resolution of the sea's status.

Tehran maintains that the 1921 and 1940 agreements between the Soviet Union and Iran on the inland sea are valid until a new legal regime has been agreed by the five littoral states. Tehran, meanwhile, regards any unilateral or bilateral deals for energy exploration of the Caspial null and void.

At issue are not only the economic resources of the Caspian but also the security of the littoral states. Three options have been proposed:

A. Joint ownership of both the sea bed and surface of the Caspian.

B. Division of the sea bed and common sovereignty over sea water.

C. Dividing up both the sea bed and water.

Legal experts in the region have said that, since Option A is not practicable, the choice must be between Options B and C.

Russia favours Option B, with its common sovereignty over the sea's surface, because it will provide the best security. Regarding the sea bed, much to Tehran's chagrin, Russia has already divided the bed with Kazakh-stan, accepting a share of 16.5%.

Tehran goes along with the idea of joint sovereignty over the surface but wants an equal division of the sea bed between the five littoral states. Equal division of the sea bed would give Iran a share of 20%, whereas its shoreline only covers 13%.

This is the gist of the issue between Iran and Azerbaijan, with which Tehran shares its Caspian maritime border. Azerbaijan is not willing to cede its area of the sea bed to the south to boost Iran's share, especially as that zone is believed to have large oil resources.

On Aug. 1, 2001, after the Iranian warship threatened to fire on BP's oil search vessel doing a seismic survey of the disputed area, President Aliyev warned Tehran that it must not use force to get its way in this issue.

Speaking as he prepared to fly to the Russian resort of Sochi for an informal summit of the 12 CIS rulers on the Caspian, Aliyev told reporters: "no country should use force against another country. Those are the principles of the United Nations and other international organisations and every country should observe them. We observe them and want that all countries should live in a friendly atmosphere and not allow conflicts to happen".

Aliyev also chided Turkmenistan for staking its own claim to parts of the Azeri sector of the Caspian, saying: "Turkmenistan is also putting forward claims which have no basis in international law. We have sent them a note of protest". Earlier in the year Turkmenistan had recalled is five-member diplomatic mission from Baku.

On July 31, 2001, a group of ethnic Azeris living in northern Iran sent a letter to Aliyev saying they were ready to take up arms against Tehran if there was an attack on Azerbaijan. Asked about the letter, Aliyev said: "We don't need that sort of thing because we have never wanted to allow the worsening of relations with Iran. The Azeris living in northern Iran are Iranian citizens and I am telling them this: we recognise the territorial integrity of each country and do not interfere in any country's internal affairs. Therefore we do not accept that kind of statement. We do not need to create any kinds of incidents".

(Some Azeri nationalists have suggested that the Azeri-populated region of northern Iran should be absorbed into Azerbaijan).

In January 2002 Aliyev said in Moscow after talks with Russian President Vladimir Putin: "We agreed to begin work on drawing a median line between Russia and Azerbaijan". By then both Russia and Azerbaijan had signed bilateral deals with Kazakhstan to draw a line between their respective sectors of the Caspian. Aliyev added that once Russia and Azerbaijan reached such an agreement, "use of the Caspian mineral resources will be fully solved between our three nations".

However, after his meeting with Putin in St. Petersburg in June, no accord was reached; and Aliyev said "we have failed to clarify a couple of points" concerning the proposed agreement and described these as being "of small significance".

President Aliyev's visit to Tehran in May 2002 did little to resolve the dispute. And his son Ilham, who is vice president of the State Oil Company of the Azerbaijan Republic (Socar), has ruled out any prospect of joint exploration of the disputed area.