When US President George Bush met his Russian counterpart Vladimir Putin in bucolic Slovenia in June, something curious was underway near the Caspian Sea. The 'neutral' government of Turkmenistan struck a deal with Russia to exchange gas for Russian arms. In the transaction, Turkmenistan reportedly acquired an undisclosed number of small gunboats, adding to the couple already obtained a few weeks earlier from Ukraine.

During the same period, the United States gave similar patrol craft to Azerbaijan, and Turkey shipped vessels to Kazakhstan. These actions signal that disputes over the Caspian's hydrocarbons might someday be settled with force. What has changed in the Caspian to prompt this new concern for security?

For now it is not clear what any of these states plans to do with its handful of patrol boats. Kazakhstan's 10 ships – which don't include five non-operational Boston Whalers donated by the US in 1995 -- or Turkmenistan's five vessels would be no match against Russia's approximately 40 naval craft based at Astrakhan and Makhachkala, or Iran's nearly 50 at Bandar-e Anzali. Azerbaijan's few boats and vessels operate out of Russian bases.

The reasons for acquiring the boats may be largely economic: Turkmenistan, like its neighbors, is desperate to turn an energy profit, and to control smuggling along its coast – as well as poaching of caviar stocks; while Russia is looking for alternatives to hard currency to pay for costlier gas supplies.

But there is more to the story. Dialogue among regional governments is at a dangerous standstill. In early June Turkmenistan's government recalled its ambassador from Baku, citing financial strain, but hinting that it was fed up with the lag in resolving its boundary dispute with Azerbaijan over three Caspian oil fields. Azeri president Heydar Aliyev has postponed indefinitely his trip to Iran, announced over a year ago, while his efforts to reach a settlement with Armenia over Nagorno-Karabakh are once again on hold. Talks among the five littoral states over a legal framework for the Caspian have also reached a standstill after nearly eight years of sporadic negotiations.

Commercial factors continue to drive developments. On June 30, the Iranian government announced that Italy's oil-group ENI had signed a long awaited $920 million deal for the Darkhovin oil field. This adds to the nearly $10 billion in foreign investment in Iran's oil and gas sector during the past three years, including ENI's own $3.8 billion stake in the South Pars gas field acquired last year. Even though the US Congress will probably renew Iranian sanctions in August, major European and Japanese companies show no sign of being deterred from Iran's rich energy market. BP Amoco chief John Browne affirmed this in June when he announced plans to accelerate his company's investments in Iran.

However, BP and the other major Western companies want to avoid the perception of picking regional favorites. Browne thus made the firmest-ever pledge of support to the $3 billion Baku-Ceyhan pipeline, which he said would be completed by 2004, though he hinted that BP might restrict the volume to supplies from its fields in the area of the Caspian claimed by Azerbaijan. Not too long ago all the critics were saying that there was not enough oil to fill the pipeline; now the problem seems that BP has enough oil to fill it on its own.

Nonetheless, BP has welcomed access to the pipeline by others, including its competitors in Iran. ENI's CEO Vittorio Mincato has showed particular interest in Baku-Ceyhan, which is significant because ENI is the main Western operator of the vast Kashagan oil project in the Kazakh portion of the Caspian. Kashagan oil reserves are estimated to be as high as 50 billion barrels.

In light of this new activity, is the Caspian fated to become a new area of conflict by proxy, or even by design? Not necessarily. The burst of commercial activity need not presage an armed rivalry over Caspian resources. Whether most Kashagan oil eventually goes to market through Turkey or Iran is ultimately less important than the latest confirmation of a serious Western stake in the Caspian regional economy. But the Western security commitment there remains miserably thin -- despite the presumption of most regional leaders that a commercial presence makes one automatic.

The recent moves to build naval forces suggest they are trying to make the most of this contradiction by playing one imaginary big brother off another. Arms races -- and the instability they cause -- are generally the result of weakness, not strength.

Attempts to link demilitarization with a new Caspain legal regime have failed in part because the United States and EU have not participated in negotiations. Both should now use the months leading up to the next Caspian summit, now scheduled for October, to launch a diplomatic effort for demilitarization of the Caspian. In exchange for a joint NATO-Russian-Iranian pledge against the introduction of armaments into the region, the other littoral states would mutually agree to cap the growth of their 'navies,' and forswear the use of force in settling boundary disputes. Russia and Iran would also need to agree to draw down their existing forces on the Caspian.

To skeptics who would call demilitarization pollyannaish, consider one possible scenario: Russia will continue to feed the military appetites of its southern neighbors, namely Armenia and Turkmenistan, worrying the others, not to mention Iran and Turkey – whose army has already begun to plan with counterparts in Azerbaijan and Georgia for the forward defense of pipelines. A worse case scenario would have a misunderstanding among arms suppliers come to a head right about the time Baku-Ceyhan goes on line, as both countries, along with Turkmenistan, descend into crises over presidential succession. In such circumstances, the meager Caspian flotillas may trigger an escalation or accident that nobody wants.

Proposals for demilitarization of the Caspian have been around for decades, but only the Iranian government has promoted them with anything resembling enthusiasm. Others may have warmed to the idea in recent years, yet ambivalence over the Western stake in the Caspian has kept things on the drawing board. The time has come to put an end to the parading of such ambivalence as tactical ambiguity. Whatever our differences with Iran, or with Russia, for that matter, US interests would be well served by nipping a Caspian arms race in the bud.