TURKMEN-AZERI JOINT CASPIAN EXPLOITATION: A WILL

C O N F I D E N T I A L SECTION 01 OF 03 ASHGABAT 000666

SIPDIS

STATE FOR SCA/CEN, EEB, E-U/S JEFFERY
PLEASE PASS TO USTDA DAN STEIN
ENERGY FOR EKIMOFF/THOMPSON
COMMERCE FOR HUEPER
USEU FOR AMBASSADOR GRAY

E.O. 12958: DECL: 05/27/2018
TAGS: PGOV PREL EPET AJ TX
SUBJECT: TURKMEN-AZERI JOINT CASPIAN EXPLOITATION: A WILL
TO SUCCEED, BUT NOT THERE YET

REF: A. BAKU 0482

B. ASHGABAT 0656

C. ASHGABAT 0527

Classified By: CDA RICHARD E. HOAGLAND: 1.4 (B),(D)


1. (C) SUMMARY: During a readout of President
Berdimuhamedov's May 19-20 visit to Baku, Hydrocarbon State
Agency Director Muradov said:

-- the will exists in both Ashgabat and Baku for
trans-Caspian transportation of Turkmenistan's natural gas
through Azerbaijan to Europe, and for a bi-national
commercial venture to exploit disputed mid-Caspian fields,
leading to a pipeline, but the ownership of the Serdar/Kyapaz
field remains the sticking point;

-- the issue for Azerbaijan is reportedly "political face"
and President Aliyev's need to take into account public
opinion;

-- the political will seems to exist on both sides to resolve
this problem, but it will probably require agreement between
the two presidents;

-- Turkmenistan, in Muradov's view, would welcome U.S. quiet
diplomacy to bring the two sides together;

-- Turkmenistan and Azerbaijan will jointly host in September
in Baku an International Gas and Oil Conference; and

-- Turkmenistan has structured its agreement with
Canadian-Omani firm Buried Hill to exploit Serdar/Kyapaz so
that at any time Turkmenistan can invite other firms to
exploit the field. END SUMMARY.


2. (SBU) Following President Gurbanguly Berdimuhamedov's
historic state visit to Baku May 19-20, Charge sought a
readout on May 21 from Hydrocarbon State Agency Director
Bayrammurad Muradov on the results of the negotiations to
establish a joint business venture to exploit the disputed
major gas fields in the Caspian: Serdar (Kyapaz) and
Omar/Osman (ACG).

A QUESTION OF POLITICAL FACE


3. (C) Muradov prefaced his readout sardonically, "I just
don't understand the Azeris. But then, I don't understand
some on our side, either!" -- a possible reference to
hard-line Deputy Prime Minister for Oil and Gas Tachberdi
Tagiyev. Muradov said he had intensified contacts in Baku
with SOCAR in April, and he felt they were making real
progress. He was perplexed why Azeri Foreign Minister Elmar
Mammadyarov, rather than the hydrocarbon experts, conducted
the Caspian hydrocarbon negotiations during the
Berdimuhamedov visit. But he answered his own question when
he noted Mammadyarov had said the issue of joint exploitation
in the Caspian is first and foremost political, rather than
economic or technical. This echoes Berdimuhamedov's comment
to Under Secretary Jeffery on April 21 (reftel C): "Solve
the political issue first; then we work on the technical."


4. (C) The Turkmen position as Berdimuhamedov laid it out on
April 21 is that Serdar is solely Turkman, but Omar/Osman can
be discussed. During the May 19-20 negotiations in Baku, the

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Azeris reportedly offered to share Serdar, to which,
according to Muradov, the Turkmen replied, "OK, we'll share
Serdar, but then you have to share Omar/Osman." Muradov said
he made clear Turkmenistan really wanted to steer clear of
appearing to lay a claim to Omar/Osman because they do not
want to disrupt the Azeri consortium already working there.


5. (C) According to Muradov, Mammadyarov said ceding Serdar
to Turkmenistan would have "internal political consequences"
for Azerbaijan. He reportedly added, "Your president
(Berdimuhamedov) can impose unilateral decisions, but we have
to pay attention to public opinion. President Aliyev cannot
lose face." Muradov said he urged the Azeris to "think
deeply about the strategic future" and help find a solution.
He said he offered the Azeris that SOCAR would be welcome to
apply to develop any Turkmen field of SOCAR's choice as
compensation for Serdar. (COMMENT: We would welcome EMBASSY
Baku's analysis of this "political face" position. We wonder
if it might be related to the upcoming presidential election
or, more remotely, to Nagorno-Karabakh and the question of
national territory? END COMMENT.)


6. (C) When asked if the two president's might have
discussed this issue one-on-one, Muradov said he wasn't sure.
He said the only response from Aliyev he was aware of was,
"We'll see," suggesting the door is open for further
negotiation. At the same time, Muradov also commented, "All
of this is really at the political level of the two
presidents." He mused, "We need to understand them (the
Azeris) better." When the Charge noted that both Azeris and
Turkmen are "good bazaaris, good businessmen," Muradov
replied, "They are, but we aren't yet," once again revealing
Turkmen insecurity.

OVER ALL, UPBEAT


7. (C) Although the two sides are still stuck on Serdar,
Muradov was quite positive, noting both sides "have a will to
succeed." He judged it a good signal that the Azeris were
"not nearly as aggressive as before." He said the Azeris
made clear their desire for a Trans-Caspian or production
pipeline to be able to transport Turkmen natural gas to
Europe, which, Muradov said, is also Turkmenistan's desire.
He said both sides agreed that this is an historic strategic
moment that should not be lost.

U.S. ROLE?


8. (C) When the Charge asked if there were any way the
United States could be helpful, Muradov replied, "In my
opinion, we will need your quiet help. I personally would
welcome having the United States at the table." More
specifically, he asked that the United States help the Azeris
get past the issue of "political face" vis--vis Serdar. He
also said he would very much appreciate a model business plan
for bi-national exploitation of disputed fields.

JOINT TURKMEN-AZERI HYDROCARBON CONFERENCE


9. (C) Muradov confirmed Turkmenistan and Azerbaijan will
jointly host in September in Baku an International Oil and
Gas Conference.

NEW TWIST ON BURIED HILL IN SERDAR


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10. (C) Muradov revealed an interesting detail about the
Buried Hill license for Serdar. When he commented
Turkmenistan wants to start production soonest in Serdar, the
Charge asked if he has full confidence in the ability of
Buried Hill to do so. Muradov said, "We see Buried Hill as
beneficial to us. Something you don't know about the
agreement is that we reserve the right to invite in others
when it's time for full-scale production." (COMMENT: This
seems to confirm our previous speculation that the Turkmen
see Buried Hill as a place holder only for initial
exploitation to enhance their claim to Serdar. END COMMENT.)
HOAGLAND