WASHINGTON, May 13 (UPI) -- The biggest diplomatic Gordian knot left over from the 1991 demise of the Soviet Union is how equitably to divide the Caspian Sea, until then partitioned between the Soviet Union and Iran. The Caspian's coastline is now rimmed by Iran, the Russian Federation and three new nations that emerged from the implosion of the Soviet Union -- Azerbaijan, Turkmenistan and Kazakhstan, all eager to develop the sea's hydrocarbon assets. While Azerbaijan and Kazakhstan have been at the forefront of developing oil deposits in their commonly recognized sectors, Iran, in a historic move, is now preparing tentatively to dabble its feet in its coastal waters as well.
What is impressive about Iran's intentions is the fact that its offshore equipment is indigenously produced, a result of 30 years of U.S.-led sanctions stymieing Tehran's efforts to acquire advanced offshore technology. The Fars News Agency reported May 4 that Iranian Oil Minister Gholamhossein Nozari announced that President Mahmoud Ahmadinejad will inaugurate the 14,000-ton, $400 million Iran-Alborz semi-submersible drilling rig, designed to operate in the Caspian, in "the coming weeks."
The Iran-Alborz rig, built to a Gotaverken GVA-4000 design for the National Iranian Oil Co. in Iran Marine Industrial Co.'s shipyard in Neka, will give Tehran the capacity to explore its Caspian oil reserves down to a water depth of around 3,300 feet and is designed to be able to drill a further 20,000 feet under the seabed. The project has had a long genesis: In 2002, Iran Marine Industrial Co., known by its Farsi initials SADRA, won an international tender offered by NIOC to build the Iran-Alborz platform and began the project with a 95 percent share in a joint venture with Swedish company GVA, which held the remaining 5 percent. The rig will prove profitable for SADRA, as its rental cost will run $400,000 to $500,000 a day. On Tuesday, NIOC Managing Director Seifollah Jashnsaz announced that the previous day the Iran-Alborz rig had successfully passed its first drilling test. Given that the Caspian has a maximum depth of about 3,363 feet, Iran's new rig essentially gives it the capacity to explore anywhere in the world's largest enclosed body of water.
On Feb. 25, the Khazar Oil Co. released a statement that, under a license issued by NIOC under Iran's 2008 fourth development plan Article 14, as Tehran considers explorations in its 6th Caspian concession block as its main priority, the Iran-Alborz rig will initially be deployed there before moving on to Tehran's other priority, the Caspian's 29th block. The rig's first exploration well in the 6th Caspian concession block will be drilled to a depth of 2,300 feet.
The Iran-Alborz rig will allow Iran to begin exploiting territorial waters that were previously off-limits because of a lack of advanced technology. Oil is the crucial mainstay of the Iranian economy; last month Iran's Economics Ministry and central bank released statistics that in the past four years, Iran's oil income totaled $212 billion. While the nation's onshore reserves have been developed, those in the Caspian have not.
And the Caspian represents one of the world's richest energy frontiers; the U.S. government's Energy Information Administration estimates that the Caspian's 143,244 square miles and attendant coastline could contain as much as 250 billion barrels of recoverable oil besides an additional 200 billion barrels of potential reserves, along with up to 9.2 trillion cubic meters of recoverable natural gas. In 1998, no less a pundit than Halliburton Chief Executive Officer Dick Cheney remarked, "I can't think of a time when we've had a region emerge as suddenly to become as strategically significant as the Caspian."
Iran, the world's fourth-largest oil producer, has given a high priority to explorations of its claimed Caspian territorial waters. But one drilling rig does not an offshore oilfield make, and the question for foreign companies is whether Iran will allow them into its Caspian waters in the form of production-sharing agreements.
If so, it may well be a question of money. Despite the influx of revenue over the past few years, NIOC Managing Director Jashnsaz said Iran will need substantial foreign investment if it is to meet its plans to invest up to $30 billion a year in its oil sector. Iran's Resalat daily quoted Jashnsaz on May 12 as remarking at a conference, "The available information indicates that the use of internal resources does not meet investment needs. We must seek foreign investments."
For several years, Iran's Petroleum Ministry and the Majlis, Iran's parliament, have debated proposals to offer PSAs for Iran's Caspian blocks, seen as high-risk areas because they are contested by Iran's maritime neighbors. Last August, NIOC Vice President for Investments Hojjatollah Ghanimifard speculated that, contrary to current practice, Iran might offer one-off PSAs in the Caspian, saying, "We think this region might be the exception to the rule."
While Iran in its search for foreign investment might be willing to show unprecedented flexibility, inextricably intertwined with the issue is a final division of the Caspian's waters among Azerbaijan, Iran, Kazakhstan, the Russian Federation and Turkmenistan. Given that 18 years of negotiations among the quintet have yet to produce a definitive solution, it seems likely in the short term that, while foreign companies will undoubtedly show interest in Iran's Caspian potential, they are unlikely to assist Iran in pumping $30 billion annually into its energy sector until questions of seabed ownership are finally resolved, however seductive any proposed PSAs might be.