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Azerbaijan: a real alternative to Russia?

LNG Industry,

As Europe grows increasingly weary of the Russian energy dominance that its member states regularly complain about, this issue has yet to be addressed, as bilateral negotiations with Moscow are ongoing. Azerbaijan has long been touted as a potential alternative to Gazprom, but just how different is Azerbaijan from its former ruler, and is the move towards Baku merely swapping one set of political problems for another?

The joint declaration signed by Azerbaijan and the EU on 13 January 2011 regarding the supply of additional Caspian gas to Europe via Azerbaijan’s southern corridor represents one of the first concrete attempts to diversify European gas supplies. Whilst Azerbaijan is keen to demonstrate it can be a reliable partner, there are still a number of domestic issues that undermine Baku’s credibility. Firstly, as is the case in other post-Soviet states, the prevalence of nepotism within business and politics cannot be ignored.

Doubtful democracy

Current President Ilham Aliyev is the son of the country’s third independent leader Heydar Aliyev, who was the former head of the Azeri KGB and a close associate of local organised crime groups. The transfer of power to Aliyev junior in 2003 was widely criticised for not meeting international standards and since then, he has gone on to further cement his grip on power by amending the constitution to abolish presidential term limits. Azeri politics are clearly not that different from Russia’s vertical power advocating sovereign democracy, and may even be moving towards Kazakhstan’s ‘lifetime leader’ model. Long-term economic agreements with Aliyev could also weaken the EU’s argument against sanctions on non-democratic states like Belarus.

Security situation

Despite stability, Azerbaijan faces mounting security concerns. In addition to violent suppression of the political opposition, Azerbaijan is leading a religious crackdown on devout Muslims, which risks breeding the sort of social discontent that acts as a powerful incentive for such groups to radicalise. At a regional level, the most immediate security concern – Azerbaijan’s unresolved dispute with Armenia regarding the status of Nagorno-Karabakh - also poses longer-term political concerns, which would be exacerbated should Yerevan grow closer to EU accession. But none of these issues are perhaps as important as being sure that Azerbaijan can fulfill its ambitious export plans. 

Enough gas to go round?

It has been reported that Azerbaijan had proven natural gas reserves of roughly 30 trillion feet3 as of January 2010, a figure which gives it the sixth largest reserves in the region. This does not even include the potential gas in the Umid field in the Azerbaijani section of the Caspian Sea, which was discovered in November 2010 and believed to be the country’s second-largest find since independence, after Shah Deniz. Baku remains confident that it has sufficient gas to supply existing clients as well as future ones, including the EU and its long-awaited Nabucco pipeline, which will bypass Russia by shipping Caspian gas directly to mainland Europe via Turkey. However, Russia is reluctant to be cut out and in anticipation of such a deal upped its own gas imports from Azerbaijan in 2010. But this crafty attempt to monopolise available resources has not significantly slowed Azerbaijan’s intent to increase gas exports, although it is not just agreements with Russia that could potentially complicate burgeoning EU business.

International relations

Like Russia, Azerbaijan continues to do business with regimes condemned by the EU: Baku’s close bilateral relations with Iran extend to supplying 1 billion m3 of gas to Tehran in 2011, with the option of increasing this amount over the next five years. Azeri-Iranian relations are therefore set to intensify, and the EU’s stance on Tehran could therefore cause friction between Brussels and Baku, as well as complicating EU deals with state energy company SOCAR under the existing sanctions programme. Whilst opening up to Europe presents a potentially huge political and financial opportunity for Azerbaijan, the energy industry is already recognised as the state’s most lucrative cash cow, and as Azeri self-confidence and economic power continue to grow thanks to supply contracts with Iran, Syria, Russia, and now the EU, there is no guarantee that Baku will be able to resist imitating Russia’s strategic resource nationalism.

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