The issue has bedeviled relations between the five nations since the implosion of the Soviet Union in December 1991, and represents one of the most complex maritime issues in international law. A definitive agreement could advance some of Washington's most cherished projects, such as the underwater Trans-Caspian and Nabucco pipelines. The U.S. administration since 1991 has persistently foisted the slogan "happiness is multiple pipelines" in its discussions with Azerbaijan, Kazakhstan and Turkmenistan, even as its tacit proviso is that such pipelines bypass both Russia and Iran.

The prize is enormous, as the Caspian's 143,244 square miles and attendant coastline are estimated to contain as much as 250 billion barrels of recoverable oil, boosted by more than 200 billion barrels of potential reserves, quite aside from up to 328 trillion cubic feet of recoverable natural gas, with conservative estimates valuing its reserves at over $12 trillion.

American interest in the Caspian reaches to the very highest levels of the executive branch; in 1998, Vice President Dick Cheney remarked, "I can't think of a time when we've had a region emerge as suddenly to become as strategically significant as the Caspian." Since 1991 the Caspian's percentage of global oil production has risen steadily to the point that, of global daily oil production and consumption of approximately 86 million barrels per day (bpd), the five Caspian nations now account for 15.75 million bpd, a figure sure to increase dramatically when significant offshore production begins.

The core issue that up to now has precluded a final division of the Caspian's waters and seabed are the diametrically opposed positions of Russia and Iran over a post-Soviet formula. The Kremlin has persistently maintained that a final division of the Caspian's seabed should be based on a country's shoreline, while Iranian leaders have asserted with equal force that all five nations should equitably receive a 20 percent share of the resources and that Iran consequently has territorial and treaty rights to 20 percent of the Caspian Sea surface area and seabed, significantly more than its sector of 12 percent to 14 percent under Russia's shoreline definition.

Iran has disputed not only the maritime and seabed boundaries demarcating its sector of the Caspian Sea but also the sea's legal status since the 1991 collapse of the Soviet Union. Complicating the issue is that international law has yet to definitively designate whether the Caspian is an inland "sea" or a lake, an adjudication which has enormous implications for both the applicability of the U.N. Convention on the Law of the Sea and negotiation of the boundary demarcation regime affecting the littoral states' rights to significant undersea oil deposits.

The Iranian-Russian Caspian dispute dates back to Russia's conquest of Astrakhan on the lower Volga in 1556 by the forces of Ivan the Terrible, which established Russian power on the Caspian. Land borders between Iran and the Russian Empire were delineated and demarcated by a series of 19th century treaties, and the Soviet Union in 1921 and in 1940 concluded treaties with Iran. The two agreements did not establish sea and seabed boundaries, and the treaties moreover defined only shipping and fishing regulations, making no proviso for oil or gas exploration.

Since 1991 Azerbaijan, Kazakhstan and Turkmenistan have been wooed and threatened by both Russia and Iran for support on the issue, with Azerbaijan and Kazakhstan broadly supporting Moscow's interpretation. Turkmenistan under its mercurial leader "Turkmenbashi" Saparmurat Niyazov vacillated between Moscow and Tehran's positions, but his death in December 2006 removed a major diplomatic impediment to a final resolution of the issue.

Iran could be a major beneficiary of a final settlement, as it possibly could sidestep the United States' crippling Iran and Libya Sanctions Act, first imposed in 1996 and renewed each year since, which has largely precluded development of its natural gas reserves, estimated at more than 26 trillion cubic meters, the world's second-largest after Russia's. Despite such potential riches, a lack of foreign investment means that Iran currently produces a paltry 460 million cubic meters of gas per day. An agreement also could open up Iran as a transit corridor, rather than the Western routes through Georgia and Turkey favored by Washington. Despite being touted by Washington, Caucasian routes are vulnerable, as highlighted by the Aug. 5 explosion on the Baku-Tbilisi-Ceyhan pipeline and the armed confrontation between Russia and Georgia that broke out two days later.

Not that the Caspian itself is immune from possible military conflict. In the absence of an agreement, on July 23, 2001, an Iranian warship and two jets forced a research vessel working on behalf of BP-Amoco to leave Azerbaijan's offshore Caspian Araz-Alov-Sharg field, which lies 60 miles north of Iranian waters. Due to that pressure, BP-Amoco immediately announced it would cease exploration activities and withdrew the research vessels.

The Caspian Economic Cooperation Organization proposal gives the clearest indication yet that the five Caspian nations are considering finally drawing up a regime to resolve the seabed issue once and for all. Lest Western governments and energy companies get too optimistic, however, they should remember that the present state of poor relations between Washington, Moscow and Tehran will hardly impel Russia and Iran to invite massive Western investment in the sea's future development. Given the current economic turmoil in Europe and Wall Street, such exclusion for the foreseeable future may be a moot point anyway.

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