The Great Caspian Arms Race

The Caspian Sea, once a strategic backwater, is quickly becoming a tinderbox of regional rivalries -- all fueled by what amounts to trillions in petrodollars beneath its waves. Observers gained a first glimpse into this escalating arms race last fall, when Russia and Kazakhstan held joint military exercises on the Caspian, which abuts Iran and several former Soviet republics. Russia's chief of general staff framed it as a precautionary measure related to developments in Central Asia, saying it would prepare for "the export of instability from Afghanistan after the withdrawal of NATO troops from there."

But a scoop by a Russian newspaper, Moskovsky Komsomolets, told a different story. The newspaper got hold of a map apparently showing the real scenario of the exercise: the defense of Kazakhstan's oil fields from several squadrons of F-4, F-5, and Su-25 fighters and bombers. The map didn't name which country the jets came from, but the trajectory and the types of planes gave it away: Iran.

While the world focuses on the possibility of an Israeli attack on Iran, a little-noticed arms buildup has been taking place to Iran's north, among the ex-Soviet states bordering the Caspian. Twenty years after the collapse of the Soviet Union created three new states on the sea, their boundaries have still not been delineated. And with rich oil and natural gas fields in those contested waters, the new countries -- Azerbaijan, Kazakhstan, and Turkmenistan -- are using their newfound riches to protect the source of that wealth. So they're building new navies from scratch, while the two bigger powers, Russia and Iran, are strengthening the navies they already have. It all amounts to something that has never before been seen on the Caspian: an arms race.

The biggest reason for this buildup may be mistrust of Iran, but it's not the only one. The smaller countries also worry about how Russia's naval dominance allows Moscow to call the shots on their energy policies. Iran and Russia, meanwhile, fear U.S. and European involvement in the Caspian. All of this, among countries that don't trust each other and act with little transparency, is setting the stage for a potential conflict.

For the last several centuries, Russia has been the undisputed master of the Caspian. Tsar Peter the Great created Russia's Caspian Flotilla in 1722, and a quote from him still shines on a plaque at the flotilla's headquarters: "Our interests will never allow any other nation to claim the Caspian Sea." Until now, that's pretty much been the case. Because the Caspian was a relative strategic backwater for most of history, no one cared enough to challenge Russia. The Soviet Caspian Fleet, based in Baku, was perhaps best known for a novelty, the "Caspian Sea Monster," a massive experimental hovercraft/airplane.

Since 1991, however, the Caspian has started to matter. While the Caspian may still be marginal to Iran or Russia, it is of crucial strategic importance to Azerbaijan, Kazakhstan, and Turkmenistan. Upon gaining independence, those three countries quickly contracted with Western oil majors to explore the untapped resources in the sea, and discovered a fortune capable of transforming their economies. Caspian energy expert (and FP contributor) Steve LeVine estimates that the sea contains about 40 billion barrels of oil, almost all of it in the areas that those three countries control.

The issue of who controls what, however, is a tricky one. While certain pairs of states have worked out bilateral treaties dividing the sea between themselves, some boundaries -- most notably those involving Iran -- remain vague. In addition, the legality of building a "Trans-Caspian Pipeline" under the sea (as Turkmenistan would like to do, to ship natural gas through Azerbaijan and onward to Europe) is unclear, and both Russia and Iran oppose the project.

This uncertainty has contributed to several tense incidents on the Caspian over the last few years. In 2001, Iranian jets and a warship threatened a BP research vessel prospecting on behalf of Azerbaijan in waters that Baku considered its own. In 2008, gunboats from Azerbaijan's coast guard threatened oil rigs operated by Malaysian and Canadian companies working for Turkmenistan near the boundary between those two countries. And in 2009, an Iranian oil rig entered waters that Azerbaijan considered its own, prompting Azerbaijani officials to fret that they were powerless against the Iranians, Wikileaked diplomatic cables show.

And so all five countries on the Caspian have taken significant steps to build up their navies in recent years. Russia's Caspian Flotilla is by far the strongest of the lot, but that hasn't stopped Kremlin officials from publicly worrying the fleet is "uncompetitive," and declaring that they are taking steps to cement its superiority. Russia's second frigate for the flotilla is currently undergoing sea trials in the Black Sea and should be transported to the Caspian later this year -- part of a plan to add 16 new ships to the fleet by 2020. Russia is also building up its naval air forces in the region, and establishing coastal missile units armed with anti-ship rockets capable of hitting targets in the middle of the sea.

"The military-political situation in the region is extremely unpredictable. This is explained on one side by the unregulated status of the sea, and from the other, the aspirations of several non-Caspian states to infiltrate the region and its oil and gas," the Russian magazine National Defense, in a not-so-oblique reference to the United States and Europe, wrote in a special report this year on the Caspian naval buildup. "In these conditions Russia is compelled to look after the security of its citizens and the defense of the interests of the Caspian countries."

Iran is the second power on the Caspian, and while it keeps details of its posture on the sea under close wraps, its growing presence is impossible to miss. Iran has built up its navy on the Caspian from nearly nothing during the Soviet era to a force of close to 100 missile boats, two of which are equipped with Chinese C-802 anti-ship missiles. And Tehran has announced that it's building a "destroyer," which will become the largest ship in its Caspian fleet (though probably closer to a corvette by international standards).

The other three countries on the sea inherited some decrepit vessels from the former Soviet Caspian flotilla, which they augmented with donations of small patrol boats by the United States in the early days following independence. But all now appear serious about developing real navies. Turkmenistan, for example, is building a naval base and naval academy in the coastal city of Turkmenbashi and has bought two Russian missile boats, with plans to buy three more, as well as Turkish patrol boats.

Kazakhstan launched its first proper naval vessel this year -- a domestically built missile boat -- with plans to buy two more. It also recently contracted with South Korean shipbuilder STX to help develop its shipbuilding capacity. A recent arms expo in Kazakhstan's capital of Astana drew a substantial number of shipbuilders and other naval arms producers from Europe, Turkey, and Russia, and Kazakhstan appears poised to buy Exocet anti-ship missiles from European consortium MBDA.

Azerbaijan has been the relative laggard, focusing nearly all of its booming defense budget on land and air forces designed to win back the disputed territory of Nagorno-Karabakh, now controlled by Armenian forces. But it too has lately shown signs of focusing more on Caspian security, buying anti-ship missiles from Israel.

Adding a few frigates here and a few corvettes there, of course, doesn't mean the Caspian is the next South China Sea; the firepower and the geopolitical tension on the sea are still low enough that the Caspian is far from "flashpoint" status. But the trend is moving in a dangerous direction. The five countries on the Caspian are all so opaque about their intentions that there is plenty of room for miscalculation, leading to a disastrous conflict that no state truly wants. It is also particularly ironic because all the governments officially call for demilitarization of the Caspian. Most of the countries justify their Caspian naval buildups in light of this rhetoric by citing a threat from terrorists or piracy -- though there has been nearly no indication of either the intent or ability of terrorists to attack.

In reality, the Caspian is a classic case of the security dilemma, in which defensive moves can be perceived by neighbors as offensive ones. "Even if we don't want to spend that much money on naval militarization, we end up spending it to keep up with all the threats," says Reshad Karimov, an analyst at Baku's Center for Strategic Studies. "If someone is too safe, no one is safe."

The tension on the sea takes many forms. All of the post-Soviet states mistrust Iran, especially Azerbaijan. "How will we react if tomorrow Iran decides to install one of their oil wells in some territory that we consider ours?" asks Taleh Ziyadov, an analyst in Baku. "Maybe some crazy guy, because he got frustrated by Azerbaijan-Israeli relations, tomorrow he will declare, 'Go and install that well over there.' The possibility of serious tension is there, and Azerbaijan will attempt not to allow it."

Russian opposition to the proposed Trans-Caspian Pipeline is another potential source of conflict. The United States and Europe have been active in promoting the pipeline, which would allow Turkmenistan to export natural gas to Europe, while bypassing Russia. But commentators in Moscow have occasionally threatened force if a pipeline were to go ahead. "The reaction can be very hard, up to some sort of military conflict in the Caspian Sea," said Konstantin Simonov, director general of the Russian think tank, National Energy Security Fund, in an interview last year.

"Russia is the wildest card in the deck -- they have so many ways to mess things up. They have the resources, they have the firepower, they have established the political will to do that," Karimov said.

Meanwhile, just this week, the two would-be partners in the Trans-Caspian Pipeline, Azerbaijan and Turkmenistan, traded accusations about the disputed oil field that was at the heart of their 2008 standoff.

Russia and Iran both appear motivated to keep foreign (especially U.S. and European) influence out of the Caspian. The U.S. has offered some modest military assistance to help the new countries bolster their defenses on the Caspian, including donations of some patrol boats and training of Azerbaijani naval special forces. And it's clear from WikiLeaked U.S. diplomatic cables that Azerbaijan in particular relies heavily on U.S. advice for naval issues.

Baku also appears to be using the escalating tensions on the sea to press for greater help -- and U.S. officials appear receptive to their requests. During the 2009 incursion of the Iranian oil rig into Azerbaijani waters, several high-level Azerbaijani officials consulted with U.S. diplomats and military officials. One official in Baku fretted: "You know our military capacity on our borders. We do not have enough capacity. We need military assistance." In a later cable, one U.S. diplomat said the incident "offers a timely opportunity to gain traction on Caspian maritime cooperation with the [government of Azerbaijan]."

Russia, and especially Iran, tend to see this activity on the Caspian as an encroachment on their strategic backyard, and they delivered thinly veiled warnings against "third parties" getting involved in the region. "Iranians think they are a besieged fortress," said a Baku naval analyst who asked not to be named. "The U.S. cooperation here is nothing special but they build conspiracy theories about it." Meanwhile, Azerbaijan's strong military relationship with Israel only adds to Iran's suspicions.

The United States, however, has vowed to expand its involvement in the Caspian and appears determined to help the smaller countries stand their ground against Russia and Iran. The most recent U.S. State Department military assistance plans call for aid to "to help develop Azerbaijan's maritime capabilities and contribute to the overall security of the resource-rich Caspian Sea."

Meanwhile, the tension seems destined to rise. Iran recently announced a huge new oil discovery in the Caspian, which Tehran says contains 10 billion barrels of oil. While Iran hasn't yet announced the exact location of the find, the information it has put out suggests that the discovery, according to regional analyst Alex Jackson, is in "what would reasonably be considered Azerbaijan's waters."

As the vast wealth at stake in the Caspian becomes clearer, expect all parties in this new battleground to deploy ever more sophisticated weaponry to defend their interests. No word yet on when Azerbaijan is taking delivery of those Israeli anti-ship missiles.