Turkmenistan’s recent plans to sue Azerbaijan over the Kyapaz oil field as well as to create a military base, border patrol service and navy in the Caspian have shocked Baku and sent a worrying signal to European energy and political circles. These intentions put the much-hoped Nabucco gas pipeline at risk and set the scene for an arms race in the region. Nobody is likely to emerge as a winner in this situation, and the general security framework in the Caspian basin is likely to worsen. Turkmenistan is trying to boost its negotiation position, yet such signals only alienate official Baku and damage the prospects of regional energy and trade projects.

BACKGROUND: The security situation in the Caspian has never been calm. The disputed legal status of the sea, resulting from to the lack of progress in negotiations among the littoral states as well as regular military exercises by regional powers make the Caspian basin one of the most volatile and insecure regions in the post-Soviet space. Trafficking, pouching and other forms of criminal activity add to the security problems of the region. While large scale conflicts and wars have been avoided since the collapse of the Soviet Union, sporadic shows of force have occurred, as was the case with the Iranian gunboat diplomacy against Azerbaijan in the summer of 2001.

More recently, much has been said about the potential of the Caspian Sea to turn into a sea of cooperation and collaboration. The sharp competition over the energy resources of the sea seemed to calm down as most rich oil and gas fields were being explored. Western analysts and local politicians started talking about trade and commerce among the Caspian states and turning the sea into a hub for Eurasian trade. The beginning of construction of the Baku-Kars-Akhalkalaki railroad, which would connect the European and Asian rail grids, as well as skyrocketing trade between Azerbaijan and Kazakhstan were cited as examples of such vision and the realization of the idea of a “Modern Silk Road.”

The improving relations between Turkmenistan and Azerbaijan following the death of Turkmen President Sapamurad Niyazov in late 2006 provided hope to those who would like to see the Caspian as a sea of prosperity and peace instead of rivalry and instability. Both countries had been engaged in a bitter dispute over the Serdar/Kyapaz oil field, located in the middle of the sea and claimed by both sides. The cold war between Baku and Ashgabat led to the complete deterioration of bilateral relations, with Turkmenistan closing its embassy in Baku. Yet Turkmenistan’s new President, Gurbanguly Berdymukhammedov, brought a new dynamic into the relationship between the two neighbors and reopened the embassy along with visiting Baku and establishing intergovernmental ties on economic issues.

While most analysts believed that the two governments were on the right course toward settling all outstanding disputes, President Berdymukhammedov this summer stated his government’s intention to take Azerbaijan to an International Arbitration Court for the resolution of the dispute over the Serdar/Kyapaz field. Subsequently, the Turkmen government announced the beginning of a government program on establishing a naval and military base on the Caspian sea.

The Turkmen President informed the public that his country has no territorial claims against any other country. Yet, both news came as a shock to official Baku, which would prefer to resolve disagreements in a peaceful manner through bilateral negotiations and mutual consensus. Government officials in the Azerbaijani capital refrained from commenting on Ashgabat’s intentions, but local analysts and media outlets have widely discussed the potential harm to bilateral relations and the general regional security situation coming from Turkmenistan’s actions. Nobody in Azerbaijani political circles appears to understand the Turkmen leadership’s real intentions. Especially puzzling is the fact that the sudden change of heart in Turkmenistan happened following several rounds of successful intergovernmental talks between the two countries.

The press secretary of the Azerbaijani Ministry of Foreign Affairs, Elkhan Polukhov, stated on September 1 that “Azerbaijan wants to see the Caspian region in peace and cooperation, thus demilitarized and not militarized. We are in favor of disarmament, not armament.” The head of the Inter-Parliamentary Turkmen-Azerbaijani group and member of the Azerbaijani Parliament Astan Shahverdiyev also condemned the Turkmen plans and called for the demilitarization of the sea.

IMPLICATIONS: Turkmenistan’s decision to seek to bring Azerbaijan to International Arbitration as well as to create a military base on the Caspian is likely to severely damage the regional security framework. Foremost, bilateral relations between the two fraternal nations are now likely to return to the Turkmenbashi-era “Cold War,” and the recent progress in political and economic negotiations will probably be put in the freezer. This, in turn, will negatively impact prospects for trade and commerce between Azerbaijan and Turkmenistan.

Moreover, the prospects for the Nabucco pipeline project are likely to diminish further, should Turkmenistan decide to focus on legal disputes. The EU and U.S.-supported Nabucco pipeline is gradually shaping up and becoming the main focus of regional energy security projects, yet without Turkmenistan’s gas reserves (the fifth largest in the world), the chances for the pipeline’s construction will be reduced. Much of Nabucco’s fate depends on the construction of a gas pipeline connecting Turkmenistan’s gas fields with Azerbaijan, yet with such developments, bilateral cooperation on this pipeline is unlikely. It is especially surprising that official Ashgabat opted for confrontation, given its reliance on Russia for gas exports and its stated intention to participate in the Nabucco project.

Yet the most dangerous consequence of the ongoing developments lie in the potential militarization of the Caspian basin, which would constitute a waste of financial resources for both countries and the subsequent deterioration of the general security situation in the region. In worst-case scenarios, militarization of the Caspian with its contested boundaries could lead to military incidents, should the disputed issues over the gas and oil fields not be resolved through peaceful means. Both Azerbaijan and Turkmenistan earn significant revenues from the sale of their hydrocarbon resources. Yet, Azerbaijan, having a military conflict with Armenia, has been focusing on the improvement of its army, rather than navy. Growing threats from Turkmenistan could force official Baku to re-define its priorities and start spending more on its own navy. Such an arms race is not good for the future of the Caspian, especially because Iran and Russia are likely to participate in any escalation of the situation. Russia has long sought an opportunity to expand on its “CasFor” program in the Caspian to counter the American financed Caspian Guard program.

CONCLUSIONS: Azerbaijani officials appear still to be hoping to turn the tide and invite Turkmenistan back to the negotiating table. It is likely that sharp statements and parallel actions from the Azerbaijani capital will be delayed in order not to exacerbate the situation. In the short run, Azerbaijan is likely to continue pursuing normal relations with Turkmenistan in order to engage this country into regional energy and economic projects.

Turkmenistan, for its part, is likely to further strengthen its emboldened position in the short term in order to maximize its gains on the negotiation table regarding gas exports to Europe. Some Russian and European analysts have already expressed the opinion that the recent Turkmen actions are driven by their insecurity and weak negotiating position. It is also possible that Turkmenistan could be aiming its moves partly at Russia and not at Azerbaijan. But if Turkmen policies continue in a similar manner, Azerbaijan is likely to take countermeasures. No one is likely to emerge as a winner from such a spiraling deterioration of the security situation in the region.