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Vital Caspian Graphics

A sea of many ambitions


Figure: Composition of Human Development Index. The characteristic feature in all four post-Sovie­t countries is a relatively high level of education in relation to national income and rather low life expectancy, indicating high levels of poverty and deficient healthcare. In contrast the level for all three indicators in Iran is fairly balanced.

In recent years the Caspian Sea has been the focus of increased global attention. The world-wide decline in oil and gas reserves and the corresponding rise in the price of hydrocarbon derivatives have heightened interest in an area where there is still growth potential in oil and gas exploration. In addition, the region presents a wealth of opportunities in other areas, including bioresources, transport corridors, and not least ecotourism. These new ventures may bring increased prosperity, but they also put pressure on traditional rural communities and the environment.

The expected surge in the exploitation of hydrocarbons in an area once more open to foreign investors has completely changed the rules for development in many sectors, in particular oil, land and sea transport, and services. National interests multiplied after the breakdown of the Soviet Union as Azerbaijan, Kazakhstan and Turkmenistan gained independence. Relationships between these states are being tested as the possibility of large profits emerges. And with China entering the game as an increasingly strong economic player the centre of gravity is moving east, demanding that new transport and communication routes are considered across the region.

Figure: Purchasing power parity (PPP) measures how much a currency can buy in terms of an international benchmark (usually dollars), since the cost of goods and services differs between countries. PPP is below the value of a US dollar in countries where the general price index is lower than in the US (as is the case for all five Caspian states, to varying extents), and above it where the prices are higher. One dollar thus buys much more in the Caspian countries than in the US, which only marginally compensates for the much lower income per person. These curves do not allow any conclusions on the wealth of individuals or income distribution among the population.

The Caspian once only played a minor role in world politics. Interest focused exclusively on the Apsheron peninsula and Baku, where the oil industry started developing in the last quarter of the 19th century, providing the only significant economic growth in the region. Otherwise the area remained largely rural, on the margins of two vast states (Tsarist Russia and Persia, subsequently USSR and Iran) and well away from the centres of industry. They often lagged behind in terms of development and infrastructure. North-south trade between Moscow and Tehran was limited, particularly as both countries had other much more significant coastlines.

In 2004 regional oil production reached roughly 1.9 million barrels per day, comparable to South America´s second largest oil producer, Brazil. The BP Statistical Review of World Energy estimated the Caspian’s share of oil and gas reserves in 2002 at 1.6% and 4.2%, respectively, of the world total, and oil and gas production at 2.2% and 4.8%.

Note the similar pattern in the post-Soviet countries, where the effects of the collapse of the Soviet system are reflected in a steep decline in economic activity in the early 1990s. The economy finally bottomed out and started rising steadily at the beginning of the 21st century. This contrasts with development in Iran, which is characterised by a constant rise.

As a result of the arid and semi-arid continental climatic conditions many of the coastal areas have specialised in extensive stock raising, essentially sheep and camels. Only in a few foothills with higher rainfall in the Eastern Caucasus and the Iranian provinces of Gilan, Mazandaran and Gulistan has prosperous mixed farming developed, with orchards and market gardens. 

Fishing is important for all the coastal countries. In Russia the catch of fish from the Caspian contributes a significant share of the regional economy, with Russia taking half of the total catch from the Caspian. Fisheries provide more than 7,000 jobs in Iran and perhaps an equal number in related activities. However with fisheries declining due to environmental degradation and changes in the ecosystem, the sector is losing its importance, depriving many who depended on it of a job. Tourism plays a major role on the Iranian coast, where a pleasant subtropical climate attracts a large number of Iranian vacationers during the hot summer months.

Sharing the new oil wealth

The prospects for rapid oil wealth contrast with fast spreading poverty following the collapse of the Soviet economy. Although massive investment has suddenly been channelled into the area, its effect is still both geographically and socially very limited, with little widespread impact on society. Nor does it compensate for the crisis in older, more traditional activities such as fisheries and agriculture and in the case of former Soviet republics, the closure of inefficient industrial complexes. In many countries the benefits of oil revenue are still restricted to the ruling elite. A few cities – Baku, and to a lesser extent Makhachkala and Astrakhan – have enjoyed spectacular growth. In the meantime much of the infrastructure – transport, telecommunications, drinking water – in small towns and rural areas is very run-down. The poverty gap is widening, with much of the population increasingly excluded from services and wealth as privatisation of social services progresses.

In all the areas bordering on the Caspian, priority must be given to diversifying activities and investment. Particular attention should be given to sectors such as tourism, agriculture and food production as well as services. Oil and gas alone cannot be expected to provide sufficient jobs for the fast-growing population. Only widespread diversification can contain rising unemployment, which is severely affecting several areas around the Caspian and forcing many young people to find work elsewhere. 

Figure: Claiming the Caspian Sea. The high economic expectations and the newfound quest for national identity partly explain the obstacles to agreement over the legal status of the Caspian Sea. Existing maritime agreements between Iran and the Soviet Union, formerly the only countries bordering the sea, needed re-negotiation as the three new republics of Azerbaijan, Kazakhstan and Turkmenistan emerged. Negotiations among the five countries are underway for a regional convention on the legal status of the Caspian Sea, but an over-arching agreement has yet to be reached on the division of the Caspian waters and – indirectly – its natural and mineral resources. But the northern states – Russia, Azerbaijan and Kazakhstan – signed a trilateral agreement in 2003 that allows them to proceed with the development of the hydrocarbon potential of the northern Caspian. The vital economic interests provide third parties and international stakeholders with a good reason to downplay the tensions between states bordering on the sea. 

Transportation on the move

Figure: Share of food in total household expenses. In the 1990s, following the collapse of the Soviet regime and massive market deregulation, the breakdown of total household expenditure radically changed. Its focus shifted towards basic human needs, such as food, for which spending increased two or threefold in 10 years, reducing funds available for other essentials such as education and health.
For many years, coastal navigation has connected republics in the former Soviet Union. It used the only outlet from the Caspian, the Volga-Don canal, which connects the Black Sea and the Russian canal system to the Baltic. It is still used to transport raw materials, timber, coal, grain, fertilisers, and other products.

However, the oil boom has completely changed the way the Caspian Sea is used. As there is no agreement on use of the seabed, including the laying of pipelines, crude oil is transported in tanker wagons rolled onto ferries or in small tankers. This has stimulated the ferry business. The shipyards at Nizhny Novgorod have recently delivered several 8,000 deadweight tonnage (DWT) and 13,000 DWT tankers, the largest that can be used given the limitations on access to the sea and its ports. 

The European Union’s TRACECA programme (TRAnsport Corridor Europe-CAucasus-Central Asia) modernised the Baku-Turkmenbashi ferry line, for long the only one, and added a Baku-Aktau service to Kazakhstan. To counter competition from this new Silk Road, Russia has launched a project to build a north-south link, connecting the Baltic and Russia to Iran and the Persian Gulf. It has opened a new port at Olia, on the Volga delta, connected to the river and canal system, and to the rail network that runs parallel to the river, providing for fast container transport. It also has plans to supplement the maritime route by developing a coastal rail link, modernising the existing track between Azerbaijan and Iran.