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Ukraine and Romania Fight Over Oil-Rich Seas

With additional reporting from Dumitru Balaci (RO), Ivan Khokhotva (UA) and Oleg Varfolomeyev (UA)

Danube Delta - river ends, debate begins
PRAGUE, Czech Republic--The mighty Danube river forms a natural boundary at the eastern end of the Ukrainian-Romanian border. But as the river delta spreads out and flows into the Black Sea, the political and economic divide - which should continue for another 230 miles - dissolves with the freshwater.

While nobody knows exactly where one country ends and the other begins, both countries now claim larger chunks of the coastal waters than the other is willing to give up on. It's not beaches they want, however: it's oil.

If preliminary estimates are correct, there might be as much as ten million tons of high-quality oil and even more natural gas underneath the continental shelf of the Black Sea, worth billions of dollars. Incidentally, the oil field lays right underneath the unclear Romanian-Ukrainian borderline, around a small rocky outcrop off the Danube delta, called Serpent Island.

"The matter will be judged only on whether that piece of land above the sea level is a rock or an island; and that will make a huge difference on the map," one senior Romanian diplomat said in an interview with TOL's correspondent. Ukrainians claim it's an island, and deserves its own coastal waters, but Romania says it's just a rock, and has no such international legal status.

Since 'coastal waters' also means a 230-mile strip of exclusive economic rights, that area is huge even though the island itself is just over a mile (1,7 kilometers) around. At more than 5,000 square miles, or a third of the size of the Netherlands, the difference in opinion is enough for the two countries to contemplate taking the case to the International Court of Justice (ICJ).

"It would of course be desirable to find a compromise on the bilateral level," said Oleksandr Motsyk, the Ukrainian Foreign Ministry's deputy state secretary who led the Ukrainian team at talks with Romania earlier this year. The countries signed a border treaty, which was hailed a great success despite avoiding border issues over the seas - the most important part of the debated area.

For that reason, the ICJ might still see Romanian and Ukrainian lawyers soon. "Referring the matter to the court is also a civilized way of solving the problem, there is nothing intrinsically wrong about it," Motsyk said to journalists after the partial border treaty was signed in mid-June.

When the Crimean Petroleum Company (CPC), a consortium with exclusive rights to deposits on the Ukrainian side, announced the extraordinary finds of their oil drills in December 2001, the case got an unexpected urgency. Ukrainians have since been eager to start serious probing in the continental shelf, while on the Romanian side, they have seen the Ukrainian intentions as an outright territorial challenge.

"[Ukrainians] want to do something even the Soviets did not dare do: they want to extend their national waters so that Romania will be virtually left with none," said Ileana Stratulat, head of the National Agency for Mineral Resources in an interview with TOL's correspondent.

"They also did two drillings, though both sides signed an agreement to abstain from it while the demarcation of the sea bed is pending," Stratulat added.

But the drilling hasn't continued since, the oil has remained 2.5 kilometers under the seabed, and a political solution is yet to come.

The Black Sea - oil under top left red
The issue is more pressing in Romania, since the country is to resolve its border disputes with all of its neighbors before it can enter NATO. Similar prerequisites will apply before the country is admitted to the European Union as well. Bucharest has been invited to join the military alliance in 2004, while EU accession is now projected at 2007 at the earliest.

The Ukraine will not join either of those organizatins in the foreseeable future. Although they are not as hurried as Romanians, the oil question keeps Ukrainians on the edge as well. Eager to start making money, diplomats in Kiev try hard to convince everyone of Serpent Island's rights to 'island-hood'.

"The island already has a post office, a first-aid station with two doctors, satellite television, a proper phone network and an internet link," said Viktor Ostrohlyad, the head of the state-owned company Ostrovnoye, which is charged with building up the island's infrastructure.

"Equipment is being brought in to drill water wells, and we have dispatched a floating crane to install an experimental mussel farm there," he added. "My staff are working in shifts of 2-4 weeks there, but at any given time there is an average of 50-60 people on the island."

The Ukrainian effort does not convince Romanians. "The [place] has no water resources of its own," said Bogdan Aurescu, judicial affairs director in the Romanian Ministry of Foreign Affairs. That, he says, makes it "unfit for island status, that is, the ability to sustain one's life only with resources naturally found on it."

"Of course, [Ukraininans] are opening a shop here, installing a fix phone line there, but basically everything having to do with life is ferried there from the mainland," Aurescu added.

The Ukrainians who live on the small land see the situation differently. "This place doesn't look like a rock, come and see," Ostrohlyad's deputy Volodymyr Yasnyuk, speaking to a TOL correspondent on the phone from the island, said. "It has unique flora and fauna, the fertile layer of soil here is 50cm to 1 meter thick. I have been here for about a month now. Can one live for one month on a rock?"

Ukraine also plans to finance an archaeological expedition to the island, a permanent scientific presence and a small museum, Ostroglyad told TOL. Asked whether he believes the island can sustain a meaningful economic activity, Ostroglyad said "I don't just believe such activity is possible. My company is already involved in this activity."

But for all the dreams of tourists flocking to the island to view the ruins of an ancient temple of Achilles, and relax at the hotels and resorts, the nicest dream is of course of oil drilling platforms. That is what spurred even larger investments - like a $ 4m harbor - on an otherwise desolate army outpost.

Under the programme of the island's demilitarization and economic development, worth at least 20m dollars over the period until 2008, all existing infrastructure - save for the lighthouse and a border post - has been transferred to civilians. The island itself has been incorporated into the administrative region of Odessa.

But as soon as the border issue is resolved, civilians are more likely to be dressed in oily overalls than Hawaiian shirts.

"Deposits of 10 m tons of oil and 10 bn [cubic meters] of gas were discovered near the island. The oil discovered is of very high quality," Alexander's Oil and Gas Connections, an expert news service, reported shortly after the discoveries in 2001. According to our calculations, the total assets would sell for well over 4 billion dollars on the global market today. That is roughly an eighth of Romania's 2002 GDP, and almost a tenth of the Ukraine's in the same year.

But there is more to be gained than cash. Who gets what here translates into investment, even a potential economic boom in the entire region. According to Noam Ayali, a legal expert of such issues at Chadbourne & Parke, a Washington-based law firm, the effects might prove much more profound.

"I suspect in this case it's not just the actual amount of oil involved," Ayali said. "Significant additional economic impact might be generated if international oil companies were to get involved and the potential for technology transfer from the international oil companies to the local Romanian or Ukrainian oil sector [would also be significant]."

International oil companies are, indeed, interested. JKX Oil & Gas Plc., a small London-based energy company, already holds a 45 per cent stake in the Crimean Petroleum Company, which has exclusive rights to explorations on the Ukrainian side. (A Ukrainian firm, Chernomorneftegaz, owns the remaining 55 per cent.) JKX, at a market capitalization of just over 40 million Pounds (57m euro, or $ 64m) is a relatively small fish in the oil industry. No wonder why Jackie Range, the company's spokesperson said the opportunity to exploit a large oil field "would be fantastic news."

"Until the governments resolve their dispute, we are beholden to them," Ms. Range added. Other, gigantic companies such as Shell or British Petroleum are also present in the Black Sea, making an economic boom and expertise import more than a passing possibility - but those companies, too, would have to get past the obstacles of diplomacy.

International investment could then bring Ukraine and Romania what's been called secondary recovery. Since they both lack the latest production technology, the intensity of production at the presently working oil and gas fields remains far from the possible maximum. The rate would gain a sizeable boost in both countries, well beyond the fields around Serpent Island.

Originally written for Transitions Online

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