Border Dispute: A Long Shelf Life

The Hague-based International Court of Justice (ICJ) ruled last month on the partitioning of the Black Sea continental shelf between Ukraine and Romania and their respective exclusive economic zones, ending a 40-year dispute.

The case stirred a whirlwind of heated political statements in both countries over who would receive the greatest allocation of natural gas and oil under the body of water that could cover one-third of The Netherlands.

But more importantly, the 3 February decision, which is final, put the two contenders' energy policies under public scrutiny once more. It highlighted Ukraine's poor planning and the weak position it holds with respect to Russia, which is still calling the shots in the energy sector for the region. It also sparked allegations of seedy energy deals by Romanian officials.

The political establishments in both countries claimed victory following the ICJ ruling. Romania was pleased with receiving some 80 percent of the disputed area, while Ukrainian President Viktor Yushchenko said his country "lost nothing" since it received 21 of the 26 gas deposits evaluated so far. The president continued to put a positive spin on the judgment, stating that most of the oil went to Ukraine: an expected reaction since he was criticized by Ukrainian nationalists following the ICJ ruling. 

If preliminary estimates are correct, as much as 10 million tonnes of high-quality oil and 100 billion cubic meters of gas, currently valued at €23.4 billion (US$29.7 billion), lie below the Black Sea's continental shelf. The ICJ verdict draws up a new sea border between the two, but it is still unclear who actually has the greater portion of the gas and oil reserves since a full exploration of the region hasn't been conducted.

However, in terms of exploitation of the waters above, Romania is the clear winner, as the ruling also gives the country exclusive economic rights.  The Court’s decision recognized Romania's sovereignty over nearly 10,000 sq km of continental shelf, about 79.3 percent of the 12,200-square-kilometers that the two countries both claimed as their domain.

The matter of the water border has been subject to negotiations between Ukraine and Romania since 1998. Bucharest also made numerous attempts during the communist regime to retrieve the territory lost to the then-Soviet Union in an agreement signed in the 1950s but never ratified by the respective parliaments. A settlement deadline in 2004 was never met and the case was opened that same year when Romania filed a complaint against Ukraine after half a dozen rounds of bilateral efforts failed to resolve the dispute.

Serpent's Island

The post-World War II borders settled in Paris were amended during the Stalinist period in an agreement between Romanian and Soviet officials, giving the former USSR possession over a small rocky outcrop off the Danube delta which both countries call Serpent's Island.

The once-Romanian island was de facto owned by the Soviet Union between 1944 and 1948, when a technical document signed between a Romanian and a Soviet diplomat as part of the border delineation process stated that “the Serpents’ Island was restored to the USSR.” Only that the territory never belonged to USSR for ownership to be restored. In its relationship with Ukraine, Romania did not make any territorial claims over its eastern regions taken over by the USSR and inherited by Ukraine, Serpents Island included, choosing to focus on the equitable division of the maritime area instead.

Once gas and oil reserves were discovered under the seabed, Kiev sought to elevate the island's international status to give it its own coastal waters. (In the open sea, an island has economic rights to everything within a radius of 370 kilometers.)

In the case of Serpent's Island, which is 45 kilometers off the Danube delta, such a status would have given Ukraine the right to 12,800 square kilometers of coastal waters for which it would have been able to claim exclusive economic rights.

Since the initial agreement was signed in the 1950s, some 40 years of bilateral negotiations between Romania and the USSR and later on between Romania and Ukraine, failed to come to any resolution. The dispute has prevented either side from organizing tenders for interested international companies.

Ukraine did its best to prove that Serpents' Island could sustain life on its own, a precondition for full international status. However, water was never found on the formation, rendering futile any other argument for life support capability. Romania made a countermove, focusing on showing that the outcrop was only a rock with no coastal water rights. According to Romanian officials, Serpent's Island should be disregarded. The ICJ took this position in its 3 February ruling. 

Sea sick in Ukraine

With Ukraine in a political deadlock and the effects of the global economic crisis deepening, Kiev was keen to put a positive spin on the ruling - especially coming on the heels of a Central Bank warning of an unfolding economic crisis.

The ruling also has implications for Ukraine's dysfunctional energy market, which lacks industrial diversification. The country's leaders have failed to develop a national energy policy, exacerbating Ukraine's reliance on Russian gas.

"Hence political divisions could only have played into Russian hands during the recent gas negotiations and, Russia's behavior aside, created a level of dysfunctionality that would have done enormous damage to Ukraine's reputation in Europe," Adrian Severin, a Romanian European Parliament lawmaker and chairman of the delegation to the EU-Ukraine Parliamentary Cooperation Committee, said in a press release.

On the face of it, Romania's case seems rather different. Dropping exports on account of the international economic crisis had a lower impact on the economy, as exports make only 30 percent of the country's output.

Exploit contracts under scrutiny

In the meantime, former and current Romanian leaders are under suspicion regarding contracts they sealed for the exploitation of oil and gas under the Black Sea.

At the crux of the matter is that the former liberal government, headed by Calin Popescu Tariceanu, gave the rights to exploit the fields under the seabed to Canada-based Sterling Energy, which lacked the funding, expertise, equipment and manpower to conduct such operations, according to Iulian Iancu, chairman of the House Committee for Industries.

The geological data gathered so far show that oil is some 2.5-kilometer under the seabed, and only companies with extensive expertise in deep drilling techniques could bring the oil to the surface. "The executive branch knew Sterling could not perform the task, hence it agreed the company would invest only US$8 million dollars in the next five years," Iancu said at a press conference

Prime Minister Emil Boc, head of the Liberal Democrat Party, and Tariceanu's arch-rival, has threatened to declassify all commercial contracts dealing with the exploitation of natural resources and the energy sector. Moreover, Elena Panaite, the head of Torta (The Torch), a nongovernmental watchdog organization, said she would take the Romanian state to court for harming national interests by agreeing to the contracts.

But if previous cases are taken into account, the investigation into the Sterling contracts will be short lived:  Beyond the initial publicly expressed outrage at the deeds of political adversaries, usually little is done to clean up the act governmental officials.

Coming in from the cold

Even as both countries put continue to put a positive spin on the February ICJ decision, the real importance of the four-decade-long dispute was made clear in January during the Kiev's gas dispute with Moscow in which gas supplies were cut for most of Europe for three weeks. The main quest for Romania and Ukraine: reducing dependence on Russian gas.

Romania imports an estimated six billion cubic meters of Russian gas a year. Ukraine, whose pricing challenge sparked the gas row, imports approximately the same amount.

If the exploitation of the Black Sea seabed is successful for either country, continental shelf's treasures may cause a rumble in the region's balance of power.