by David Zenian
Armenia is a landlocked nation whose well-being often depends on the goodwill of its neighbors. The same is true with Azerbaijan, especially when it comes to the export of its oil to western markets.
When Azerbaijan signed an eight billion dollar phased production sharing contract with a western consortium in September this year, a sense of euphoria spread across not only Baku, but also the boardrooms of its newfound western partners.
These included oil industry giants Amoco Corp., which has a 17.01% stake in the deal, British Petroleum Co. PLC 17.12%, Lukoil of Moscow 10%, McDermott International Inc. 2.45%, Pennzoil Co. 9.81% , Ramco Energy Corp. 2.08%, Den norsk 8.56%, Turkish Petroleum Corp. 1.75%, Unocal Corp. 9.52%, and partner Delta Nimir Khazar, a Saudi Arabian-backed company registered in Bermuda, 1.68%.
The remaining 20% interest would be assumed by Socar, the state oil company of the Azerbaijan Republic.
The terms of the agreement to develop three oil fields in the Caspian Sea are lucrative. For one, it is a long term deal, which assures Azerbaijan 80% of the profits during the 30 year life of the agreement that involves the development of some offshore oil wells 120 miles off the Azerbaijani coast in the Caspian Sea.
But cash-strapped Azerbaijan, in an apparent effort to placate initial Iranian apprehension over its exclusion from the multi-billion dollar deal, agreed to give Teheran 20% of its share in return for 500,000-ton capacity oil refinery in Nakhichevan, as well as an electricity supply system and a pipeline from Iran to Nakhichevan to transport oil to the refinery.
The bilateral deal with Iran, which was approved by the parliament in Baku November 15, along with the broader terms of the agreement with the multinational consortium to develop three oil fields in the Caspian Sea, are lucrative.
At least on paper they assure Azerbaijan much of the 80% of the profits during the 30 year life of the agreement with the consortium, and an Iranian-built oil refinery in the enclave of Nakhichevan.
Agreements, however, are only as good as their level of implementation.
The Russian media described the Azerbaijan-Iran side-accord as a blow to Russian diplomacy, and no sooner the ink had dried over what was billed as the first major oil agreement signed in Azerbaijan with a Western consortium since the breakup of the Soviet Union, when Moscow took its first official jab at the accord despite the 10% stake in the deal by a Russian company.
Russia's Foreign Affairs Ministry, insisting on a bigger role in decisions involving the Caspian Sea, said the government would not recognize Azerbaijan's 10 billion dollar deal with the western consortium.
It also demanded that the countries with a Caspian Sea shoreline -; Russia, Iran, Azerbaijan, Turkmenistan, and Kazakhstan -; should re-examine the 1921 and 1940 treaties governing the sea and be included in talks on exploiting its resources.
A serious message effectively reminding the rulers of Baku that they could not go it alone and that Russia, while no longer the Soviet Union, was still on top of the region's power pyramid.
By calling for a re-opening of old books on territorial limits in the Caspian Sea, Russia was also in effect disputing Azerbaijan's very claim on oil wells that fall within 12 miles off the Baku coast.
The territorial question, coupled by the controversy involving a regional pipeline to carry the oil to western markets, have dampened Azerbaijan's initial euphoria.
How soon can it start reaping the benefits of the multi-billion dollar deal, and if the development of the oil fields gets off the ground, how and where will the oil be exported.
Few months after the accord was signed, there still were no immediate answers to these questions, especially those involving the pipeline.
While the Azerbaijan authorities said they were waiting for the outcome of a feasibility study on the route the pipeline should take, oil industry sources were skeptical of any imminent solution to the problem.
The United States has indicated it opposes any notion of routing the pipeline either through Russia to the Black Sea or Iran to the Gulf.
Russia, while joining Washington in its opposition to the Iranian route, was not ready to accept any alternative which did not serve its national interests.
Two other alternative routes-; through Armenia and Turkey to the Black Sea or Georgia and Russia to the Black Sea - might be more palatable to Washington and to some extent even Russia, but both are vehemently opposed by Azerbaijan.
"This is a vicious circle. The agreement is in place but objections over the territorial limits of the Caspian Sea and the routing of the oil pipeline are already making a mockery out of the whole thing.
"If Azerbaijan resolves one issue with Russia, it also has to resolve the other one, and to do that it needs peace with its neighbors, and primarily Armenia, " an oil expert said.
"A look at the map of the region indicates that the Armenia-Turkey-Black Sea route is the safest in as far as the west, and particularly the United States is concerned. Washington does not want the pipeline to be under Russian control as much as it hates letting the pipeline go through Iran.
"It would be in Azerbaijan's interest to think twice about these issues. Azerbaijan has a lot to gain from peace in the region," he added.
