The Caspian Sea - The History & Legal Background.

For thousands of years the Caspian Sea has been an area of considerable interest to the world's greatest empires. The sea was once the border of a Chinese empire expanded by the Mongols; an official in Beijing reminded the ambassador of Kazakhstan of this historical fact a few years ago.

Oil exploration in the Caspian and along the coast predates the travels of Marco Polo. Legend has it that the "eternal flame" of the Zoroastrian religion was fuelled by gas around Baku before the 8th century AD.

The Caspian is mentioned in the old testament. There were tales of oil use in medieval days. During the Arab era of the Abbasids, for example, the caliph of Baghdad controlled most of the region and simply gave to the residents of Baku and the surroundings the right to sell any natural oil that they found.

Oil exploration and exploitation in the Caspian began in earnest in the 1850s. By the 1890s, this instigated rapid development in the Baku area. Contrary to Western prejudice in recent decades, this region had a vibrant capital market, albeit dominated by a few key players from Europe.

After the first oil wells were drilled in the region, the Czar of Russia took control of it. But the Russian bureaucracy was not able to manage the complicated task of oil exploration, development, production and refining. Not knowing what a valuable resource he had, the Czar sold off the rights to oil production and the oil infrastructure at fairly low bids. Then a circus atmosphere ensued.

Two buyers who were shrewd enough to know the true value of what was there and who rivalled Rockefeller in the oil game were the Nobel brothers of Sweden. The Nobels, the first big players to control oil in the Caucasus, got the oil industry in the region on its feet.

By 1901, Azerbaijan was producing half the world's oil, and the output in that year reached 11 million tons. This subsequently attracted such legendary business names as the Rothschilds, the Siemens and even Rockefeller himself. During World War II Azerbaijan's oil production reached 500,000 b/d.

There were ups and downs in the industry during the early 1900s. Then Azerbaijan and the rest of the Caucasus had a huge oil collapse and many went bankrupt. This and other circumstances allowed new big players to enter the region. Rothschild and Royal Dutch Shell joined the oil game, rivalling the Nobels. Rockefeller tried to get a corner of the market there but was less successful.

World War 1 caused the oil to be nationalised by Russia. Soon thereafter, Russia was taken over by the Bolsheviks. Stalin, a Georgian who managed to reach the top in Moscow and rule the Soviet Union, put Kirov in charge of oil in Azerbaijan and the rest of the Caucasus.

Due to a cumbersome Soviet Communist system, sheer incompetence and discovery of petroleum in Siberia, oil production in the Caspian region stagnated over the years and went into decline. And there were more than a few environmental problems in the Caspian.

It was only in the 1980s that modern technology enabled geologists to perceive the deeper fields in the Caspian region, with most of the oil reserves which became accessible. After the collapse of the Soviet Union in late 1991, Russia began to be less of a geo-political player in the Caspian region. Gradually, the five littoral nations of the Caspian became free to develop their oil as they saw fit.

However, it has not been easy going for some of the new post-Soviet republics of the Caspian. During a 1988-1994 war that killed more than 30,000 people and drove one million from their homes, Nagorno-Karabach, backed by Armenia, drove Azerbaijani troops out and seized adjacent areas. Baku accused Moscow of siding with the Armenians. But in more recent years President Heidar Aliyev of Azerbaijan improved ties with Russia and said Moscow could play a "decisive" role in a final settlement of the conflict. Heidar Aliyev died in late 2003. His son Ilham was elected president of Azerbaijan in mid-October 2003. Since then the young Aliyev has repeatedly vowed to regain Nagorno-Karabach (see omt1AzerPros-Jul3-06).

Chechnya rebelled against Moscow and Russia stormed that republic in 1994. That war continues now, but with much less intensity than was the case in recent years. In return for joining the US in its war against global terrorism, after 9/11, Moscow got Washington's backing for more effective Russian assaults against Chechen terrorists as well as Islamic volunteers including Wahhabi and other Neo-Salafi Arabs. Now Neo-Salafi militants are openly challenging both Russia and the US and they are trying to control the Horn of Africa (see news1-E.AfricaCaspianJuly3-06).

Oil production in the Caspian has been kept low due to a lack of seaports and infrastructure, combined with such conflicts and long negotiations over oil lease agreements. In fact, there is more scarcity of oil for domestic consumption in this region than anyone wants to admit.