The Caspian is the birthplace of tankers; in 1877 the first tanker Zoroaster, built at Sweden’s Motala shipyard, began operating in Baku. Tankers now appear to be returning to the economics and politics of the Caspian. As international attention increasingly focuses on the vast energy reserves of the Caspian, a small but growing fleet of tankers is plying its waters in the absence of a definition division of its seabed, which precludes for the present the construction of proposed undersea pipelines.

BACKGROUND: While both Russia and Iran maintain tankers on the Caspian, their fleets are relatively insignificant, as they move the bulk of their energy exports via pipelines to the Black Sea and Persian Gulf, respectively, for tanker transport. Most notable is the steady rise of shipping in the newly rich petro-states Azerbaijan and Kazakhstan. Even Turkmenistan has begun to charter and build vessels for Caspian hydrocarbon transport. The tankers are not the massive AFRAMAX behemoths so decried by environmentalists - the largest ones currently plying its trade is are two Tanker project 19619 13,000-ton vessels Koroglu and Dede Qorqud, constructed for the Caspian Shipping Company of the Azerbaijani Republic, or CASPAR, at Russia’s Krasnoe Sormovo shipyard in Nizhny Novgorod on the lower Volga. The two ships are the fourth and fifth of a series of tankers built for CASPAR, which now has the largest fleet on the Caspian, with 41 of its 86 vessels being tankers. The advantage of the 19619 class is that it can use existing port facilities with any modification. Earlier tankers constructed for CASPAR at Krasnoe Sormovo include the President Geidar Aliev, Babek and Shah Ismael Khatai.

If Azerbaijan was the first post-Soviet republic out of the starting gate in expanding its tanker operations, Kazakhstan, which used to lease CASPAR, Russian and Iranian vessels is now diverting some of its oil wealth to constructing its own craft. Kazakhstan’s state-owned oil and gas company KazMunayGas subsidiary Kazmortransflot and Mobilex in 2002 signed a contract, largely underwritten by the European Bank for Reconstruction and Development, with Nizhny Novgorod’s Vympel Ship-Design Company for the construction of three Caspian tankers. In August 2005 Kazmortransflot’s first tanker, the $18.75 million Astana, designed by Vympel and built at Russia’s Vyborg Shipyard in Leningrad Oblast, began sea trials. After a month-long transit of Russian inland waterways and the Volga-Don canal, the vessel arrived in the Caspian and on May 25, 2005 Kazakh President Nursultan Nazabayev visited the Astana in Aktau and told reporters that besides the two sister ships under construction, Kazakhstan intended to build a 60,000-ton tanker. Construction of tankers for Kazakhstan has proved a boon to Vympel and now provides about 30 percent of the bureau’s revenue.

The Astana sails on the Aktau-Baku and Aktau-Makhachkala routes, carrying oil from Kazakhstan’s Tengiz and Buzachi fields, making 7-8 voyages per month, hauling a million tons of oil annually. Such voyages, with oil at $60 a barrel and each ton containing 7.14 barrels, will prove immensely profitable, generating more than $428 million in annual revenue per million tons carried, an immensely profitable return on an initial $18.75 million investment. Since its launch, the Astana has been joined by sister ships Aktay, Abaj, Kazakhstan and Almaty.

Even Turkmenistan, long the isolated maverick of Caspian producers, which long rented CASPAR tankers, has begun to transport its oil by sea. Ireland’s Burren Energy Shipping and Transportation, operator of the Nebit Dag Production Sharing Agreement in Turkmenistan, in 2001 signed construction contracts for ten tankers for its Samara subsidiary, some of which were to be used in Turkmenistan. Burren previously chartered Russian Volgotanker tankers for Turkmen oil exports. The same year Turkmenistan received its first 5,000-ton tanker, built in Turkey, but Niyazov proved reluctant to make substantial investments in Turkmen-owned vessels for transiting oil through its Caspian ports of Turkmenbashi, Alaja and Ekerem.

IMPLICATIONS: Not everything is smooth sailing. Two months ago, KazMunaiGas president Uzakbai Karabalin complained about the “discriminatory tariffs” levied against Kazak tankers by Russian and Azeri Caspian ports, stating that Kazak vessels pay $36,000 to dock in Baku, while Azeri vessels are charged only $12,500 dollars to use Kazakhstan’s Aktau port. Despite Kazmorflot’s efforts, the company still only transports half of Kazakh Caspian oil exports, with the remainder still being transported by foreign ships. Kazmortransflot chief engineer Nikolai Lagutkin added to the criticism by noting that Kazakh tankers using Russia’s Dagestani Makhachkala port need a depth of 23 feet to moor in the fairway at the entrance to the harbor, but are only given permission for 21.3 feet, forcing Kazakh tankers to carry less than a full load.

In the short term, prospects for rising Caspian tanker volumes are good, especially as Washington’s ongoing hostility towards Iran precludes the interim prospect of either significant oil swap arrangements or pipelines for land-locked Caspian exporters. Kazakhstan is expanding its existing port facilities at Aktau and contemplating constructing a new oil port in Kuryk, 47 miles south of Aktau, capable of handling 10 million tons of exports annually, to cope with the rapidly rising volume of oil exports from its Caspian Kashagan field. But the shipping costs are hardly cost effective, as they are currently estimated at $7.50 per ton to transport oil across the Caspian.

Despite these considerations, the Caspian mini-tanker fleet is an interim, highly profitable short-term solution to the problem of transporting increasing amounts of Caspian crude to world markets. It seems unlikely however that the Caspian's flotilla of mini-tankers will live out its twenty-five year old operational life under International Maritime Organization guidelines. Now that Niyazov’s death has removed the last potential block to a final division of the Caspian seabed, expensive but profitable undersea pipelines are certain to follow. The possible pipeline routes could avoid Russia, freeing the Caspian producers from reliance on Moscow and its exorbitant Transneft monopoly and possibly extend to Iran, still currently subject to harsh U.S. sanctions.

CONCLUSIONS: The May 12 agreement between Russia, Kazakhstan and Turkmenistan to build a natural gas pipeline along the Caspian’s eastern shore to export Turkmen gas to Russia’s Transneft monopoly is a severe blow to both EU and American hopes for Caspian underwater pipelines that could transmit Turkmen exports via Azerbaijan onwards to European natural gas and oil markets, obviating Western concerns about Russia maintaining its dominance of Caspian exports or Iran undercutting U.S. sanctions. The May 12 agreement represents a major diplomatic and economic coup for Russia and Gazprom, despite Niyazov’s efforts last year before his death to diversify Turkmen export markets. In the short term Turkmenistan appears firmly in Russia camp. The major loser in the agreement is Azerbaijan, which had hoped that Kazakhstan and eventually Turkmenistan would commit some exports to maintaining the million bpd flow of the $3.6 billion, 1,092 mile-long Baku-Tbilisi-Ceyhan pipeline. Azerbaijan's Industry and Energy Minister Natik Aliyev, returning from a May 11-12 energy summit in Krakow, where potential routes to transit oil and gas from the Caspian to the EU were discussed, tried to put a brave face on Putin’s triumph, saying that the BTC pipeline was still available for shipping Kazakh oil. But the May 12 agreement not only indicates that Caspian exporters are committed to pipeline construction, but that miniscule tankers as an interim transit solution are already fading as a viable option.
Undersea pipelines will eventually obviate the need for small, inefficient and expensive tanker transits of the Caspian. For the foreseeable future however, the Caspian’s fleet of petite tankers will continue to enjoy their highly profitable, short-term life.

AUTHOR’S BIO: Dr. John C. K. Daly received his Ph.D. in 1986 in Russian and Middle Eastern Studies from the School of Slavonic and East European Studies, University of London, and is currently an adjunct scholar at the Middle East Institute in Washington, DC.