IRAN AND CHINA SIGN AGREEMENT TO EXPLORE OIL IN THE CASPIAN SEA

On January 18, Iran's North Drilling Company (NDC) and the Hong Kong-registered China Oilfield Services Ltd. signed an oil-exploration agreement for management, repair, and maintenance of the Alborz semi-floating platform, currently being constructed by the Iranian Offshore Industries Company.

A three-year contract with an estimated cost of $33 million will enable Iran, with China's help, to move its exploration activities to the deep waters of the southern Caspian (MehrNews, January 20). Until now, Iran has been unable to explore fields that were deeper than 90 meters.

In November 2005, the Iranian Offshore Industries Company (Sadra) announced that 97% of the Alborz platform had been completed and the rig would be ready for oil exploration operations in February 2006 (Iran Daily, November 24, 2005).

Tehran has not yet made public where exactly in the Caspian Sea it plans to use its Alborz platform. But the rig's name indicates that the drilling might take place in a contested offshore oil and gas field in the southern Caspian, which Azerbaijan calls Alov and Iran calls Alborz. This could lead to another crisis between Baku and Tehran.

In July 2001, Azerbaijan and Iran came close to confrontation when an Iranian gunboat threatened and chased away a BP-operated research vessel that was exploring the Alov/Alborz field. All exploration activities in this area were halted following the 2001 incident.

Azerbaijan and the United Kingdom signed a production-sharing agreement to explore this field in 1998. Iran, however, has refused to recognize the deal. Tehran claims that the agreement is not valid due to the undetermined legal status of the Caspian Sea.

Since the collapse of the Soviet Union in 1991, the legal status of the Caspian Sea has been in limbo. Only three -- Azerbaijan, Kazakhstan, and Russia -- out of the five littoral states were able to agree on how to divide the seabed of the Caspian. Iran and Turkmenistan adopted different positions, although Turkmenistan has been moving closer to the position of the three states.

Iran claims that the Caspian Sea should be divided into five equal parts with 20% for each littoral state. Azerbaijan disputes Iran's claim and argues that the division should be done according to a median line, which leaves Iran with only 12-13 %. The trilateral agreement signed among Azerbaijan, Kazakhstan, and Russia is based on the median-line approach, which has weakened Iran's stance. But Tehran insists on its right to 20% of the sea, as only then does the Alov/Alborz field fall under Iranian sovereignty.

In September 2005, Abbas Maleki, director of Tehran's International Institute for Caspian Studies, stated that Iran would not wait for a final resolution of the legal status of the Caspian Sea. "Iran is already active," added Maleki (IranMania, September 18, 2005).

In fact, the negotiations over the legal status of the Caspian Sea were used by the Iranian government as an opportunity to buy time and develop its deep-sea technology. During this lull, Iran has also negotiated with foreign companies, including some European and Brazilian energy firms, that were interested in taking part in exploration work (IranMania, September 18, 2005).

The executive director of NDC, Haidar Bahmani, declared that Iran chose the Chinese company "due to its technical capabilities and more reasonable offer in comparison with its European rivals" (MehrNews, January 20). Nonetheless, the timing of the agreement led many to believe that the contract had a political agenda as well.

As the members of the International Atomic Energy Agency (IAEA), scheduled to meet on February 2, seriously consider referring the Iranian nuclear program to the UN Security Council, Tehran hopes that Beijing will veto potential economic sanctions against Iran, which could damage China's energy interests in this country.

On January 20 the Governor of the Central Bank of Iran, Ebrahim Sheibani said, "We are moving our foreign exchange reserves to countries that we consider to be safe." Since most of the money is going to banks in Southeast Asia, and potentially China, observers have interpreted this move as Tehran's attempt to ease the impact of a probable UN economic embargo (Echo-Az, January 24).

In 2004, Beijing and Tehran signed a $100 billion mega-gas deal that enabled China to import as much as 10 million tons of Iranian liquefied natural gas (LNG) annually over a 25-year period (Asia Times, November 6, 2004). Hence, the Iran-China energy cooperation is not accidental.

The recent Iran-China deal to develop oil fields in the Caspian Sea, however, may spark another crisis in the region if Iran unilaterally decides to start exploration of the disputed Alov/Alborz field. To confront Iran, Azerbaijan is likely to turn to Turkey and the United States for help, which will further escalate the situation in the region. Baku may also try to approach China and improve its bilateral relations, hoping that Beijing will not attempt to drill this field before the legal status of the sea is decided.

Here's a bit of info that might make all this even more interesting. And be a precursor to conflict.

The Caspian Sea oil resides in a sloping field which means if Iran pumps oil from that field from Iranian territory, it drains the former "Soviet" reserves. During the time of the late-Shah, oil wells on the Iranian side were capped and not untilized for this very reason, to avoid butting heads with the Soviets.

As a side bar, the Caspian Sea depth levels are also in the form of a spoon with the handle in the north and the deep part in Iranian territorial waters. And sturgeon in general and the caviar producing Beluga and Sevruga like deep water. Thus they pretty much reside in Iranian waters.

Much of the Russian Caviar sold originating from the Caspian is actually Iranian caviar but the Iranian Shilat Fisheries had to sell a certain amount of their catch and caviar to the "Soviets" to re-export as Russian variety.

Now, with the new countries of the former Soviet Union in the region, it will be interesting to see what happens to the oil. Caviar is apparently already being "banned" by international bodies as a forbidden purchase to save the sturgeon.

Remember President Reagan with cajones???

Following the September 21 raid, Iran amassed 60 gunboats and directed the flotilla toward Khafji, a Saudi-Kuwaiti oil facility. The USS La Salle, flagship of Rear Admiral Harold Bernsen, commander of the U.S. Navy Middle East Force, moved to intercept the gunboats, which turned back after being buzzed by Saudi warplanes. Another encounter involved an Iranian warship that locked fire control radar on a USN destroyer, the Kidd; warned off by the Kidd's skipper, the Iranian ship sailed away. Then, on October 8, Iranian gunboats fired at a U.S. Army helicopter, missing the target but attracting the attention of two U.S. AH-6 gunship choppers, which sank one of the gunboats and damaged two others. Iran responded by firing Silkworm missiles at the U.S.-owned Liberian supertanker Sungari and the reflagged Kuwaiti tanker Sea Isle City, damaging both vessels. There were no fatalities, though the American skipper of the Sea Isle City, Captain John Hunt, was blinded.
Few doubted the U.S. would retaliate. Two weeks later, four U.S. destroyers fired over one thousand rounds of 5-in. shells into Iran's Rashadat oil-loading platforms in the Persian Gulf -- after giving the platform crews twenty minutes to evacuate. Ninety minutes of continuous shelling left the platforms smoldering ruins; SEAL commando teams exploded the pilings and sent the rubble plunging into the sea. The Iranians answered by firing another Silkworm at Sea Island, Kuwait's deep-water oil-loading facility, destroying the loading dock. "We're not going to have a war with Iran," said President Reagan. "They're not that stupid." But it certainly seemed as though an undeclared war was already underway. A public opinion poll revealed that while 68% of Americans expected a "military exchange" between the U.S. and Iran, 60% were in favor of stronger retaliatory action against the Iranians.
The situation remained tense throughout the winter, but not until April 1988 did violence erupt once again in the Persian Gulf. Ten seamen were injured when the USN frigate Samuel B. Roberts struck an Iranian mine on April 14. Being careful to consult with Congress this time, President Reagan ordered a retaliatory strike against two Iranian oil platforms in the southern gulf -- platforms that served as bases for Iran's intelligence service. While one platform was shelled by the frigates Simpson and Bagley, Marines helicoptered to the second, seized it, planted explosive charges, and destroyed it. A few minutes later, the Simpson sank an Iranian patrol boat that had fired a missile at the USN guided-missile cruiser Wainwright. (The Wainwright defended itself by dispensing aluminum chaff in the air, which deflected the missile.) Meanwhile, near the Strait of Hormuz, two Iranian frigates and several gunboats were sunk by American warships and an F-14 Tomcat from the aircraft carrier USS Enterprise. During the day-long battle, a Cobra helicopter carrying two American crewmen was shot down by the Iranians.
This defeat at sea, coupled with grave setbacks in the land war with Iraq, persuaded Iranian leaders to seek improved relations with the West. The Ayatollah Khomeini agreed with Hashemi Rafsanjani, Speaker of the Iranian Parliament, on the need to pursue a new foreign policy that would defuse tensions in the Persian Gulf. As for the United States, its resolve in the gulf in 1987-88 improved its standing with allies, not only in the Middle East but also around the world.

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