Azerbaijan’s energy future depends on tightrope diplomacy

Azerbaijan’s energy future depends on tightrope diplomacy

Surrounded by regional and international heavyweights, Azerbaijan must use its specific brand of diplomacy if it is to realize its economic aspirations.

With the EU clamouring for energy diversification and Washington pressuring Europe to adopt the Southern gas corridor bypassing Russia, Azerbaijan has an opportunity to take advantage of the widest gulf between Russia and the West since the Cold War.

The eyes of both the West and Russia are on the small Caucasus state that has the potential to change Russia’s monopoly on the European gas market. Precariously positioned between Russia, Georgia, Armenia and Iran, Azerbaijan is strategically situated at the centre of the geopolitical balance between the U.S. and NATO on one hand and Russia and China on the other.

Although this may be a pivotal moment for Azerbaijan, any policy has to be approached with a careful balance.

The Russian giant

Throughout its short 23-year history, Azerbaijan has smartly maintained a neutral stance since independence, choosing not to alienate either NATO or Russia. With historical ties to the Soviet Union, an Azerbaijani alliance with Russia may seem natural given its proximity to other Central Asian states.

For example, Kazakhstan, the largest former Soviet republic in Central Asia, enjoys close ties with Russia and is also a member of the Eurasian Economic Union alongside Russia and Belarus. A similar scenario would offer Azerbaijan economic incentives with Russian firms, the development of its Caspian resources and military support.

Close ties with Russia could also lead to the de-escalation of the conflict with Armenia over the Nagorno-Karabakh region. Russia currently supplies Armenia with arms to keep Azerbaijan off-balance. Moving into the Russian orbit could translate into declining Russian support for Armenia and greater military links with Azerbaijan.

But there are also risks associated with closer Russian alignment. Azerbaijan could risk the threat of Russian integration, often seen as Putin’s larger aim in the region. Once Azerbaijan becomes tied to Russia, any move perceived to threaten Russian interests could become casus belli for invasion, like Russia’s invasion of Georgia in 2008.

Russian integration would also destroy any chance of a Trans-Caspian pipeline connecting Turkmenistan to Azerbaijan, killing any chance of Central Asia becoming an alternative to Russian gas exports to Europe.

The diplomatic move west

Azerbaijan’s move westward has been a strategic inevitability to buffer Russia, but has been done so through a careful balance without creating regional aftershocks. A small state in the midst of regional heavyweights, diplomacy has proven to be Azerbaijan’s greatest weapon.

In 1994 in what was dubbed as the “Contract of the Century”, which allowed U.S. firms to develop Azerbaijan’s Caspian oil reserves, Russian oil company Lukoil was also provided with a 10 percent stake. More recently, Lukoil was also included in the BP-led consortium involved in the development of the Shah Deniz II gas field.

More interestingly, Naftiran Intertrade Company (NICO), a subsidiary of the National Iranian Oil Company (NIOC), is also included as a partner with a 10 percent stake. Given that Russia and Iran are two of Azerbaijan’s more challenging neighbours, providing them with an economic stake in its development is a sign of trademark Azerbaijani diplomacy.

The deal ensures that Iran and Russia do not attempt to thwart the oil and gas exploration by using the legal status of the Caspian Sea as an argument. Such a compromise allows Azerbaijan to continue to make economic links with the West without raising the ire of its neighbours.

Western alignment too, however presents a risky proposition. American foreign policy would like nothing better than to exert greater control in Azerbaijan. Ironically, the Russian and Iranian presence serves helps Azerbaijan by serving as a deterrent to more aggressive U.S. meddling in the region. The last thing Russia would accept is a Western-backed revolution in Azerbaijan, tilting the balance power.

‘One nation, two states’

Dubbed by both Turkish and Azerbaijani Foreign Ministers as ‘one nation, two states,’ Azerbaijan’s most effective and strategic partner over the last decade has been Turkey.

Given Turkey’s grand vision as an energy crossroad between East and West and Azerbaijan’s goal as an energy exporter, the states’ interests coincide. Both the Baku-Tbilisi-Ceyhan (BTC) pipeline and the Baku-Tbilisi-Erzurum (BTE) are the real-life manifestations of these common interests and highlight the geo-strategic significance of Central Asia as a potential energy exporter to the West.

What makes this partnership extra special is the shared Turkic lineage and similar language spoken by both countries, which points to a relationship that is more than just one of convenience.

Although Turkey is a NATO member, it also has an energy dependent trade relationship with Russia, which makes it a safe ally from the perspective of both camps. With the Trans-Anatolian pipeline (TANAP) from the Shah Deniz gas field bypassing Russia through Georgia and Turkey set to become operational by 2019, Azerbaijan’s relationship with its Turkish neighbour is its most significant.

Maintaining the status quo

The key for the Aliyev regime is to continue to maintain an arm’s length distance from both the U.S. and Russian camps while keeping close relations with Turkey. It must also find solutions to the Nagorno-Karabakh conflict outside of the OSCE’s Minsk Group which is partly chaired by the U.S. and Russia, but who have also used the conflict to apply pressure on Baku.

Balancing a relationship between the U.S., Russia, Israel, Iran and Turkey is no easy feat, but if Azerbaijan is to realize its potential as an energy exporter, such tightrope diplomacy will be essential for long-term economic success.

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Aurangzeb Qureshi

Aurangzeb Qureshi is the editor of and a freelance foreign affairs writer based in Canada. He focuses on energy geopolitics in the Middle East, South Asia and Central Asia. Follow him on Twitter @aqureshi80.