Caspian Cooperation Organization: new format for regional integration

Caspian Economic Forum

On 5-6 October 2022, Moscow hosted the second Caspian Economic Forum (CEF), which the major platform for discussing the regional cooperation issues. The speakers at the plenary session were Mikhail Mishistin, the RF Prime Minister, Ali Asadov, the Prime Minister of Azerbaijan, Alihan Smaiylov, the Prime Minister of Kazakhstan, Mohammad Mokhber, the First Vice-President of Iran, Khodjamyrat Geldimyradov, the Vice-Premier of Turkmenistan. The second CEF hosted over 1,000 participants representing «the Caspian Five» countries and a number of their allied countries – Belarus, Kyrgyzstan and Uzbekistan. Sometime before the event, President Vladimir Putin emphasized the importance of having CEF in Moscow and highlighted the key tasks for the Caspian countries: further development of commercial and investment-related contacts, deepening mutually beneficial cooperation in industrial and hi-tec spheres.

Let us remind here, that the decision to establish CEF was made by «the Caspian Five» national leaders (Russia, Azerbaijan, Iran, Kazakhstan and Turkmenistan) at the 5^th Caspian summit on 12 August 2018 in Aktau. Initially this Forum was focused at developing commercial and economic ties and transport/logistics infrastructure of the Caspian countries. The First Caspian Economic Forum took place on 11-12 August 2019 in Turkmenbashi and confirmed that this format was of high demand and very relevant. The Second CEF demonstrated the broadening of the commercial and economic cooperation spectrum of «the Caspian Five» including transport, energy, tourism and ecology; the Forum set the task of establishing a standing coordination body for the integration of the Caspian countries.

In his speech, Russian Prime Minister Mikhail Mishustin drew the participants’ attention to the fact that the Caspian Region was one of the most dynamic and growing economic macro-region of the world. For example, over the recent 20 years the aggregate GDP in this region grew almost three times, while mutual commerce grew five times. During the recent five years the share of the Caspian countries in the global GDP grew up to 3.6%. Mutual sales turnover of “the Caspian Five” grew 1.5 times; based on the preceding year results, Russian turnover with the Caspian countries grew by more than one-third. The Chairman of the RF government emphasized the great importance of the Caspian Sea, which is situated on the crossroads of transp[ort and energy throughways. Mikhail Mishustin finished his speech by saying the world has eneterd into the period of fundamental transformations: «New centers of growth are developing right now, and the Caspian region is one of them». [1]

Proposals by «the Caspian Five» partners

Alihan Smaiylov, the Prime Minister of Kazakhstan, emphasized that the unique geographical position of Kazakhstan played an important role in developing the international trade. The head of the Kazakhstan Government named transport infrastructure developed among the key areas of the joint efforts, and identified the North-South transport corridor as one of the most important transit routes. «This is the shortest way to the Persian Gulf countries. The port of Aktau in Kazakhstan may become a hub of the route «India – Persian Gulf countries – Iran – Kazakhstan – Russia», Alihan Smaiylov believes. The head of the Kazakhstan cabinet focused on the need to synchronize debottlenecking efforts at the international Trans-Caspian route, which is necessary for expanding the cargo traffic between Europe, Central Asia and China. To do that, the coordination of efforts by all «the Caspian Five» countries will be required – to develop the respective Road Map and to implement practical measures targeted at developing transit routes in the Caspian region. [2]

In their speeches, representatives of Azerbaijan, Iran and Turkmenistan also supported the idea of comprehensive and multi-faceted cooperation in the Caspian region. For example, Ali Asadov, the Prime Minister of Azerbaijan, stated that cooperation with the Caspian countries has a special strategic position in the foreign policy of Azerbaijan. During just 8 months of 2022, the sales turnover between Azerbaijan and these countries grew by more than 45%. The Prime Minister of Azerbaijan paid special attention to cooperation in the sphere of transit transportation. He emphasized a weighty contribution of Baku in developing the East-West and North-South International Transport Corridors (ITCs), which go through the Caspian Sea. «During 8 month of the current year, the transit cargo traffic through our country along the East-West ITC grew by 20%, and along the North-South ITC – by 33%», Ali Asadov said. He emphasized that the new geopolitical realities in the South Caucasus allow to expand the capabilities of transportation routes in the region, and in this sense opening of the Zangezur corridor is very important for the entire Caspian region. [3]

Khodjamyrat Geldimyradov, the Vice-Premier of Turkmenistan, called for cooperation of all the Caspian countries in the energy sphere. According to him, all of them have huge natural resources and a developed fuel-and-energy industry. «The aggregate oil production in our countries in 2021 made 13.7 mln barrels, which is 20% of the global production. Natural gas production exceeded 1 bln cubic meters, which is 26% of the global volumes. The countries of the region generate 6% of the global electricity output», the Turkmenistan representative emphasized. In the opinion of Ashkhabad, the relevant issue here is to improve coordination of inter-government activities targeted at creating favorable conditions for implementing joint fuel-and-energy projects. Turkmenistan also advocates the elimination of transport barriers in the Caspian countries and for establishing a common uniform commodity distribution scheme. [4]

Caspian Economic Forum results

Analyzing the speeches of «the Caspian Five» leaders helps to identify a number of the key areas for multilateral cooperation in the regions. The priority one is coordination of efforts to develop the transport and logistics capabilities. The Caspian region is to turn into one of the major transcontinental transit hubs in Eurasia. According to expert estimates, last year the North-South corridor transported around 14 mln tonnes, but the growth potential is huge – the throughput capacity may practically double by 2030. The second relevant task is transition of the Caspian countries to settlements in national currencies and development of independent financial infrastructure including creation of common payment system. The associated task is the stringent necessity of making a comprehensive evaluation of sanctions-related risks and developing the collecting response to those long-term threats. Implementation of joint fuel-and-energy projects will create vast opportunities for that.

The third strategic objective of «the Caspian Five» is to enhance business cooperation and form new value chains. Each of these countries is now undergoing new industrialization striving for overcoming their dependency on imported products and Western sanctions. A number of countries, such as Russia, Kazakhstan and Turkmenistan, already have their national import phase-out programs, and Iran has its own unique experience of by-passing the sanctions. Only the joint efforts of the five countries may help to build a stable macroeconomic situation in the regions resistant to external factors.

The fourth important task is to develop tourism in the Caspian region forming the capacity to receive at least 1 mln travelers annually. It could be based on the experience of Turkmenistan in creating the Avaza health resort zone and new proposals on behalf of Azerbaijan to develop the cruise lines in the Caspian Sea.

The fifth area for cooperation is protecting the environment of this unique region, where joint efforts are required to mitigate negative environmental impacts. The Sixths Conference of the Parties to the Framework Convention for the Protection of the Environment of the Caspian Sea.

A joint communique was signed based on the Caspian Economic Forum outcomes fixing the reference points for future penta-lateral cooperation. The heads of the delegations confirmed their interest in developing the interaction of the Caspian countries with the purpose of increasing the trade turnover and mutual investment; they especially emphasized the importance of developing industrial cooperation. The top-five Caspian countries agreed that «only multi-lateral cooperation in the Caspian region will allow for mitigating the negative consequences of the pandemic and the current turbulence of global economic processes». They emphasized the importance of interaction between the Caspian Economic Forum participating states in the sphere of international transport corridors development, the North-South ITC in particular.

The summary document confirms the commitment of the countries of the region to support the common understanding of the Caspian Sea as the «the sea of peace, friendship and cooperation», and the commitment to resolve all the Caspian-related issues by way of dialogue and applying peaceful means. The participants agreed to hold the next similar forum in 2023 in Iran. In this regards, the proposal of Mohammad Mokhber, the First Vice-President of Iran, about establishing a common economic zone in the Caspian region deserves special attention. This initiative is very important for two reasons. Firstly, it originates from the Iranian party, which used to be quite reserved with respect to the integration initiatives in the Caspian region. Secondly, it reflects the common opinion of CEF participants about the need to facilitate the transition from the previous practice of formal meetings and discussion formats the full-fledged practical cooperation within a common influential organization. Otherwise, all the interesting business proposals heard from the CEF rostrum will remain just an example of opinion exchange without transforming into specific projects and government assignments.

Searching for the format of Caspian integration

In essence, the proposal of Mohammad Mokhber, the First Vice-President of Iran, about establishing a common economic zone in the Caspian region may become the turning point in the history of this macro-region. It characterizes the Change of Landmarks: it is time to switch from the established practice of splitting the frontiers and resources of the Caspian region to the joint development of its entire huge potential. Let us remind here, that prior to disintegration of the USSR, the Caspian Sea was in fact the “inner lake” of the two countries – the USSR and Iran, hence, the entire set of Caspian relations was regulated by bilateral Soviet-Iranian agreements. After 1991, «the Caspian Five» appeared comprising Russia, Azerbaijan, Iran, Kazakhstan and Turkmenistan. Difficult negotiations between them about the use of the Caspian resources, the maritime traffic and other issues lasted for almost three decades.

Thirty years ago, sharp – in October 1992 – in Teheran the first meeting of the heads of the Caspian states and governments took place. They discussed, among other things, the possibility of establishing the Caspian Economic Cooperation Organization. The potential of the following organizations were reviewed: Caspian Inter-Government Oil Company, Caspian Inter-Government Economic Development Bank, Caspian Development Bank, Center for Caspian Economic and Political Studies, Center of Caspian Bio-Resources Studies. Neither of these important strategic initiatives was implemented at that time, including for such reasons as special position of Iran and the unsettled legal status of the Caspian Sea. Now it is time to turn back to those postponed issues, at today’s new volution of political and economic cooperation of the Caspian countries.

As is known, the negotiations between the top-five countries of the Caspian region on the new legal status of the Caspian Sea ended by signing the International Convention at the 5^th Caspian Summit in Aktau in 2018. To be straight, the 5^th Caspian Summit de-facto completed the historical mission of dividing the Soviet legacy. It was then, when the Caspian Sea legal status foundations were defined. For example, the most important principle of non-participation of external forces in assuring security at the Caspian Sea. The zones of national interests were defined along with the mechanisms for joint projects implementation based on the bilateral agreements. The Caspian Sea ecology became an important factor of controlling the economic activities in the region, as well as the factor of joining the efforts of «the Caspian Five». In the opinion of the majority of experts, the existing Convention on the Caspian Sea allows for active cooperation of the member countries, and the remaining legal lacunae will be gradually filled based on the routine practice.

Now it is time to switch from the civilized divorce to the productive collaboration across the entire Caspian area. This transition has become imminent due to the following key factors: a noticeable aggravating geopolitical situation in Eurasia and growth of the geoeconomic value of the Caspian Sea. Previously, the Caspian region was important as a source of oil and gas, but today its transit capabilities come into the picture. This is a strategic crossroads for East-West and North-South transport corridors, an important hub for Eurasian military and political stability, the point of integration and application of forces for many countries of our continent. The Ukrainian crisis and unprecedented Western sanctions have drastically changed the geopolitical situation in the Caspian region. In essence, the all-out suffocation war proclaimed by the Western coalition forces Russian to decisively review its previous Caspian strategy and place a bet on facilitation of integration in this macro-region.

Right before the 6th Caspian Summit in Ashkhabad, the pressing issue of improving the efficiency of existing mechanisms and arrangements for cooperation in the Caspian region and structuring them into a uniform system was actively discussed. At that time, Russian diplomacy offered to establish a «flexible five-sides forum – the Caspian Council, which could function without any secretariat and bureaucratic build-ups». This idea of the RF Ministry of Foreign Affairs was studied by experts and was voiced in Ashkhabad. Some of the Summit participants including Kassym-Jomart Tokayev, the President of Kazakhstan, supported the institutionalization of the penta-lateral interaction. However, this initiative did not receive absolute support, first of all – due to the amorphic format of the proposed organization («without any secretariat and bureaucratic build-ups») and hence – without real powers and mechanisms of influence. In the environment of fast political changes and economic turbulence, the Caspian countries will require a different format of cooperation, a more effective one, allowing for quick coordination of positions, debottlenecking of problems an uniting the resources for practical solutions.

Caspian Cooperation Organization

In our opinion, «the Caspian Five» leaders should explore the possibility for establishing the Caspian Cooperation Organization (CCO) as a full-fledged platform for comprehensive regional integration. The main objective of such organization should be joint achievement of common strategic goals and promotion of economic development of the Caspian region. It includes rational use of the Caspian Sea resources, resolving common environmental problems, building the new transit infrastructure – both for energy and cargo transportation. On top of pure economic tasks, CCO could efficiently use its own resources to assure the security in the Caspian region: protection of the critical infrastructure using the joint air-defense systems; developing the common security foundations; organizing joint anti-terrorist and rescue drills; improving mutual trust and on-going monitoring of the situation in the Caspian region.

The success of the new organization will be determined by summarizing the existing capabilities of the member countries and by the growing synergy effect from the joint projects’ implementation, where each participant will be duly represented and everyone’s voice will be heard and taken into account. The feasible location of the CCO Headquarters is Baku – the only capital city of «the Caspian Five» situated on the Caspian seashore, which will have a big political and symbolic meaning. Baku’s experience in hosting and organizing major international summits and top-level forums should also be taken into account. The city’s architecture combines carefully preserved historical landmarks with ultra-modern buildings and facilities, which could be to the credit of any global capital. Baku is a landmark of the Caspian region with all the necessary business and financial infrastructure and with an international airport. The Caspian Sea Environmental Monitoring Center could also be placed in Baku.

The penta-lateral cooperation format and the consensus principle of decision-making has already been naturally established due to geographical and political factor and the need to assure joint development of the Caspian natural resources. For that reason, «the Caspian Five» will form the core of the Caspian Cooperation Organization, and in future there may be more member countries by way of coopting the observer-states. They may include major Eurasian players interested in implementing new projects in the Caspian region – such as Turkey, China and India. The countries of Southern Europe already taking part in the Caspian energy projects (e.g., Italy) may also like to join. As the transit projects grow, other regional partners may become the CCO members (such as Pakistan and Afghanistan), as well as the neighboring Central Asian countries (Uzbekistan, Kyrgyzstan, Tajikistan) and a number of interested member of the Eurasian Economic Union (EAEU) – Belarus, for example.

In the nearest future, the Caspian Cooperation Organization may become an influential global actor. The story of the Shanghai Cooperation Organization (SCO) may be an example: from the modest regional platform established for delineation of frontiers and division of disputable territories it grew into a major global player. Today, SCO is a guarantor of peace and security in a vast macro-region, of implementing a number of international projects within the «One Belt, One Road» initiatives. Let us emphasize that the Caspian region today is an import geopolitical hub and a center of attraction for many transit and geoeconomic projects, hence, it has a great potential for the quick growth of its international influence.

Transport corridor

The value of the Caspian Sea and the entire Caspian region for transit is huge and it will be only growing in future. This is connected with a number of objective factors. Firstly, the economic growth of the Asian countries with China and India becoming global players has already resulted in multiple expansion of commodity flows in Eurasia and the need to establish new transport corridors. Secondly, the development of containerized cargo traffic and modern port at the Caspian Sea has made the multimodal transport competitive in terms of speed and prices. Thirdly, after the European ports were closed for Russian cargo fleet and other sanctions were imposed, the commodity flows are inevitably turning eastward. According to Russian leaders, the Caspian Sea can become «the new gate for Russian export and import», and that is why Russian President lays special emphasis on developing the transit infrastructure in the Caspian region.

Today, the Caspian region is becoming the crossing point for main Eurasian trade routes: from the East to the West and from the North to the South. This is the main geostrategic value of the relatively small Caspian region, noninferior to its natural wealth. In the new political realities, Russia intends to focus on each transit project here – such as upgrading of the sea ports to enhance the transit capabilities, and increasing the throughput of railways on both sides of the Caspian Sea. Also, Russia is ready to help with launching new routes capable of playing a significant role in the regional infrastructure development. For example, establishing Zangezur corridor with direct access to Turkey and to North-South ITC.

Western analysts believe that soon the Caspian countries will be vigorously competing for cargo flows, especially – for the transit ones. In their opinion, this may result in conflicts and even destabilization of the entire region. Establishment of the Caspian Cooperation Organization will completely remove this hazard, as it means switching from brute-force competition to mutual cooperation. Participation of observer countries (such as Turkey, India and China) will be an additional stabilizing factor. These countries are the leaders in shipping and delivering cargos, and they are vitally interested in the Caspian transit safety, hence – in stability and well-being of the entire transit area.

The Caspian Cooperation Organization is capable of implementing in fully the strategic intent to create the «transport oligopoly» in Eurasia. In late 1990s, Vadim Tsymbursky, a Russian geopolitical expert, proposed to form such transport and communications system based not on competing, but on mutually dependent routes. According to his idea, Russia was absolutely obliged to make overtures to Turkey, China and Iran fixing such trend by a strategic agreement about joint geoeconomic and transportation projects of big scale. [5]

Eventually, such aggregation of transit routes will bring a win-win situation and positive interdependency of the Caspian countries. Neither member of the Caspian Cooperation Organization would want to compete or fight a war, because other partners can use alternative routes quickly rearranging the logistics. In practice, such «transport oligopoly» will be very efficient for cargo transportation and will be well protected against sanction pressure, which is especially important in the current geopolitical situation.

Geoeconomics instead of geopolitics

Today, we are witnessing the acute crisis of the existing world order, and the events in Ukraine represent a particular manifestation of it. The very idea of globalism is breaking-up and is being replaced by regionalism. Separate macro-regions of our planet are differentiating and separating  themselves – in the economic, technological and military senses; they strive to survive independently like compartments in the sinking submarine. The geo-strategy of Russia in the environment of lengthy confrontation with the West appears in a series of interconnected elements: preserving its civilization nucleus; reinforcing its ties with reliable allies, firstly, with its neighbors; creating new strategic unions and implementing tactical alliances. The establishment of the Caspian Cooperation Organization is fully in line with such approach, as CCO is a new strategic union for the long-term horizon.

In the changed political environment, Russia should change its current strategy in the Caspian region switching from the geo-policy of deterrent to the geo-economy of cooperation. What is the key difference between geo-policy and geo-economy? Geo-policy stipulates for turning the geographical entities into political ones including the states. It is focused on political cleaning the spaces for new structures, in particular – conversion of weak and failed states into inhabited territories open for alterations. However, the modern warfare methods and sanctions-related costs can turn the geopolitical and military victory into Pyrrhic victory. The cleaned-up territory may turn into social and economic desert requiring significant time and costs for its rehabilitation.

Geo-economy is another area of political engineering dealing not with territories, but with flows of different types of resources. Its objective is to regulate transit and resources flows using both peaceful methods and – in case of need – enforcement. The objective for that may be to undermine the power of hostile states and other political entities, or – on the contrary – to strengthen its own global position and the positions of its allies. Establishing the Caspian Cooperation Organization is fully in line with the geo-economic win-win strategy with respect of both joint development of the Caspian resources and transport corridors. This approach turns the Caspian region from the potential conflict and split-up zone into the territory of mutually beneficial projects.

Win-win strategy

According to the win-win strategy, the CCO member countries will be able to use all the geo-strategical advantages of Russia. What does it mean? Firstly, this is assurance of comprehensive security and the protective «umbrella» for the entire Caspian region. Secondly, guarantees of stabilizing political regimes of the Caspian countries. Thirdly, significant financial potential and practically unlimited resources of Russia. Fourthly, strong incentives for implementing new projects as a way out of the embargo and transit blockade. Fifthly, the transit capabilities of the huge area – from the North to the South and from the East to the West.

It is important that contrary to other purely regional Caspian players Russia is a major global actor and the permanent member of the UN Security Council with veto powers. Moscow can speak easily with such competing countries as Turkey and Iran, India and China, which cannot reach an agreement between themselves. That is why the role of Russia as the mediator for the Caspian projects is very valuable and meaningful. Another weighty factor: in addition to positive encouragement, Russia has got negative sanctions in its toolkit – it can always hold any player overstepping the red lines liable for violation of mutual agreements.

The necessity for Russia is to view the establishment of the Caspian Cooperation Organization not as a momentary PR exercise or another political move, but as shaping an efficient tool for a long-term strategic perspective. That is why the CCO charter needs to include strategic objectives of different levels.

The first and the mid-term priority (3-5 years) is the «geo-economic shield». This is counteraction to the imminent transport blockade and the threat of oil and gas embargo – by way of implementing common transport and energy policy, quick infrastructure projects like debottlenecking of certain problems, comprehensive analysis of the Caspian region potential. The long-term strategy (5-10 years) may be called the «geo-economic sward». It means shaping the political and economic realities and finding the rightful decent position in the changed global reality by way of implementing the «transport oligopoly» strategy, developing the new «energy order», turning the Caspian region into the transit and energy heart of Eurasia.

We are absolutely sure that establishing the Caspian Cooperation Organization is in the interest of all «the Caspian Five» countries, it will provide for a new impetus for the comprehensive development of this macro-economic region and will eventually become a milestone event in the modern history of the Caspian region.