A wide range of strategic, economic and cultural ties between Azerbaijan and Russia creates the illusion of fairly stable bilateral relations between states. Nonetheless, given the recent geopolitical developments in the South Caucasus after the Second Karabakh War and Azerbaijan’s growing role as a producer and transit hub for natural resources, it can be assumed that there is a prospect increasing uncertainties which may or already generate tensions. These tensions can be observed in the context of energy diplomacy, used as a strategic tool by the two states to access and consolidate in external markets. This article summarizes the prospects of potential and existential rivalry between Azerbaijan and Russia in terms of integration into the EU energy market via their gas pipelines, in particular the rifts on the Trans-Caspian gas pipeline.
European Energy Union: Gas market trends
The concept of “energy union” was developed under the chairmanship of Jean-Claude Juncker and covers five dimensions. The following two dimensions are relevant in the context of relations with foreign markets: 1. Security, solidarity and trust; and 2. Energy efficiency. The first encourages cooperation between EU Member States involving energy security and the diversification of energy sources. The latter, on the other hand, emphasizes the need to reduce dependence on imports and stimulate local growth in energy sectors. Both strategies consider a long-term perspective to create an independent and self-sufficient energy market within the framework of environmental standards. To determine whether these strategies have succeeded in diversifying and simultaneously ensuring independence vis-à-vis external players in the European gas market, let us recall the statistical data on imports and local gas production in the EU over the years. last years.
Trends in the EU energy market over the past two years, particularly in the gas sector, reveal its heavy dependence on imports from abroad. Although net gas imports fell 7 percent in 2020 to 81 billion cubic meters, overall EU gas production fell by almost 23 percent (16 billion cubic meters) . According to the Union’s quarterly report, local gas production in the first quarter of 2021 reached the second lowest production rate in the last decade, falling by 11% respectively. In this regard, the European internal energy market needs a sustainable supply of natural gas resources, mainly for residential heating needs. Currently, around 44% of the EU’s net additional gas imports are channeled through Russian pipelines, 12% through Algeria and 1.2% through the TAP pipeline. Although import indicators suggest that Russia holds the dominant position in supplying the EU’s energy needs, Azerbaijan’s ever-growing gas supplies are raising concerns among Russian stakeholders. Thus, in 2020, Gazprom’s supplies to the Turkish market decreased by 72% compared to March 2019, reports the Russian RBK. Could the next official Baku steps on the European energy front call into question the positions of the Russian energy giant Gazprom? To answer this question, it is necessary to briefly present the already launched and planned projects in which Azerbaijan is directly involved.
Azerbaijan’s “energy diplomacy” and Russia’s counter-strategy
In 2020, the South Gas Corridor (SGC) project officially began operating, connecting three sub-pipeline routes: the South Caucasus Pipeline Expansion (SCPX), the Transanatolian Pipeline (TANAP) and the Trans-Adriatic Pipeline (TAP) ). The project aims to ensure the commercial delivery of gas from the Shah Deniz field to Turkey, continuing to European markets and finally landing in southern Italy (Melendugno). The initiative has been supported by many financial institutions and stakeholders in Asia and Europe such as the Asian Development Bank (AfDB) and the European Investment Bank (EIB). The current gas supply via the corridor is estimated to be 10 billion bcm.
At the 7th Ministerial Meeting of the CGT Consultative Council, Azerbaijani President Ilham Aliyev noted the need to strengthen bilateral and multilateral energy relations and mentioned the Memorandum of Understanding between Azerbaijan and Turkmenistan: “[…] It will also be very useful for future energy cooperation in the Caspian Sea and beyond.. President Aliyev also stressed that Azerbaijan has already become a reliable transit of energy resources from the eastern shores of the Caspian Sea. In this regard, the recent intensification of talks on the realization of the Trans-Caspian gas pipeline project is not surprising.
As part of the Trans-Caspian gas pipeline project, natural gas will be delivered from the port of Turkmenbachi via the gas pipeline to the Sangachal terminal across the Caspian Sea with an annual capacity of 32 billion m3. However, despite numerous attempts to bring the issue to the agenda by both Western partners (EU and US) and Azerbaijan, there has been no significant progress towards the implementation of the project. The reason for the constant extension of negotiations over the past two decades may be both the reliability of the capacities of the Turkmen natural gas resource pool, and external intervention in the negotiation process and attempts to discredit it by Russia and Iran.
First, the credibility of Turkmenistan’s gas supply capacity is quite questionable. After the opening of the Central Asia-China gas pipeline in December 2009, Turkmenistan has gradually become the largest gas supplier to the Chinese energy market in Central Asia. Currently, Turkmenistan covers nearly 60% of China’s pipeline gas imports, while over 90% of Turkmenistan’s overall exports are gas exports to the Chinese energy market. Therefore, the sufficiency of Turkmenistan’s gas reserves for the Trans-Caspian pipeline is still a subject of discussion. The Ashgabat official refrains from specifying his capabilities.
Another challenge is posed by the joint attempts by Russia and Iran, bypassed by pipelines, to prevent the initiative from being carried out, to protect their local energy markets. In addition, the Kremlin must eliminate any potential external supplier of natural gas by pipeline to the EU, to maintain the status quo. Turkmenistan has already become Central Asia’s largest gas supply hub, and the prospect of its expansion into Europe poses a strategic challenge for Russia.
“With the new Iranian gas pipeline, the Chinese export route has given Turkmenistan a powerful lever which has strengthened its ability to negotiate with Russia. However, these export routes do not harm Russian interests so much, since Moscow’s main objective at the moment is to keep Turkmen gas out of the lucrative European energy market ”. (Vasánczki 2011).
Russia and Iran both refer to the environmental damage that the gas pipeline could cause in the Caspian Sea and recall the so-called Tehran Convention (the Framework Convention for the Protection of the Marine Environment of the Caspian Sea). However, experience with SGC and other pipeline projects in the region does not suggest any environmental crisis to be expected. On the other hand, there are claims regarding the long contested legal status of the Caspian Sea. Moscow and Tehran share their concerns regarding the extraction and transportation of energy resources and believe that these issues should be resolved within the framework of the five Caspian states.
According to Marco Marsili, the Russian energy strategy is part of a “Grand Strategy” aimed at re-establishing a sphere of influence in the area previously controlled by the USSR. As he further notes in his article: “If the Trans-Caspian gas pipeline comes to fruition, it will also strengthen Azerbaijan’s status as a producer and transit hub. In addition, the pipeline will decrease Moscow’s influence in the region and bypass both Russia and Iran. This is why Moscow strongly opposes the project.
As far as the European front is concerned, Russian strategy faces various burdens. On the eve of the opening of the Nord Stream 2 gas pipeline, Russian-European relations are in a lasting state of crisis. The persecution and assassinations of political dissidents, the imprisonment of the leader of the opposition movement Alexei Navalny, the support for the authoritarian regimes of Lukashenko and Assad, as well as the multiple attempts to interfere in the elections within the EU, reduce the level of trust between The Kremlin and the West on energy security too. In addition, gas supply problems between Russia and Ukraine in 2006 and 2009, which caused the European energy crisis, worsened the situation and gave a signal to the EU to diversify its gas supplies.
Nord Stream 2 is a controversial € 9.5 billion gas pipeline that will supply the EU with 55 billion cubic meters each year. According to skeptics, the new gas pipeline not only endangers the EU’s energy security, placing it in a position of dependence on Gazprom, but also causes discontent in Eastern European countries ( especially Ukraine). Germany and the United States already issued a joint statement in July to support Ukraine, European energy security and climate protection. Azerbaijan, in turn, is ready to provide the necessary diversification tool and security of delivery of natural gas to the European market without polarizing the European community on geopolitical issues.
Opportunities for Azerbaijan in the New Era of South Caucasus Geopolitics
After the Second Nagorno-Karabakh War between Azerbaijan and Armenia, the constellations of power in the South Caucasus changed dramatically in almost 44 days. Azerbaijan restored its territorial integrity and opened up new opportunities for economic growth and increased mobility through the development of transport centers and infrastructure rehabilitation projects. At the same time, Russia has deployed its peacekeeping contingent in the region, “officially” ensuring its status as a regional power. Despite this, Azerbaijan, after nearly three decades focused on resolving a devastating conflict, can now set new foreign political priorities to ensure energy security and strengthen cooperation with the EU.
With the EU Strategy on Central Asia adopted in May 2019 and the intensification of negotiations between Central Asian countries with the EU and with the Western Hemisphere as a whole, projects such as the Trans-Caspian Gas Pipeline are necessary. In these circumstances, Azerbaijan can play the role of mediator both in the negotiation process and directly participate in the implementation of the project. In view of this, Russia fears losing its role of hegemony both in its relations with Central Asia and within the South Caucasus. Also economically, it is in Russia’s interest to keep the monopoly in the hands of its state-owned enterprises to strengthen influence over the EU in the event of geopolitical collisions.
In any case, the growing competition in the EU energy market between the two former Soviet states could significantly diminish the sense of mutual reliability between them.