Yesterday’s meeting in Prague on the ‘Southern Corridor’ – the pipelines that will bring gas and oil to Europe – produced a decent result, though still missing are agreements on a transit regime with Turkey and on the volumes to be sold on the European market. The key lies in Azerbaijan.
The EU has never been particularly in tune with Azerbaijan’s strategic importance, making no real distinctions in its approach to the southern Caucasus. But as far as energy is concerned, Azerbaijan is the partner that Europe needs the most.
Azerbaijan is an energy producer, with oil already flowing to the international market via the Baku-Tbilisi-Ceyhan (BTC) pipeline. And the country has substantial volumes of natural gas ready for export. In fact, the volumes are proving larger than initial projections, which means that Azerbaijan could soon send even more gas to southern and eastern parts of Europe, provided the southern gas corridor to Europe is built.
Azerbaijan is also important as a transit country for gas from Turkmenistan. Since the change of government in Ashgabat in 2006, Europe has been buzzing about Turkmenistan and its gas potential. The country’s proven and unproven reserves are enormous, which is also confirmed by the interest expressed by Russia, China, India and Iran. But, so far, Turkmenistan is refusing to sell its gas beyond its borders. This means that it will be European and Azeri money that will have to be invested in connecting the gas pipeline under the Caspian Sea to allow Turkmen gas to flow west.
In order to realise its southern gas corridor, Europe will need gas from both Azerbaijan and Turkmenistan. Without the Turkmen gas the best hope for bringing Caspian gas to the EU is a pipeline connecting Azerbaijan, Turkey, Greece and Italy. So far it has been Azerbaijan that has most diligently and systematically pursued this option.
Despite this, Azerbaijan’s relations with Europe are not blooming. Never mind the niceties exchanged between the EU and President Ilham Aliyev last month in Brussels, Azerbaijan’s frustration with Europe is multifarious. The biggest disappointment is the lack of support from Europe in Azerbaijan’s dispute with Armenia over Nagorno-Karabakh.
The official EU position is a careful balance between the interests of Armenia and Azerbaijan. Baku is asking the EU to acknowledge the Armenian occupation of Azerbaijani land and demand that Armenia pull its troops out, something the EU has so far refused.
Recent developments in Georgia – last year’s war with Russia and the subsequent declaration of independence by both South Ossetia and Abkhazia – has made Azerbaijan even more nervous about the future status of Nagorno-Karabakh.
But unlike Georgia, Azerbaijan has not made relations with the EU and NATO its key foreign policy priority. In fact, Baku’s foreign policy has been a sober balancing game: keeping close relations with Russia, Iran, Europe, the US and Turkey, as well as with countries on the east coast of the Caspian.
Up for grabs
Azerbaijan’s multi-vector policy also means that its energy is up for grabs. But Europe is not the only custumer around. Both Russia and Iran have made concrete offers for Azeri gas and are ready to pay the EU market price for it.
It would be in keeping with Azerbaijani multi-vector foreign policy strategy if Baku were to sell some of its gas to Russia, some to Iran and some to Turkey. It could also decide to sell some direct to European buyers such as Greece and Italy. Under this scenario, the trans-Caspian option will also become less relevant, which means there will be no Turkmen gas for Europe either.
As Azerbaijan gets neither special benefits, nor a better price for selling its gas to Europe, the benefits for signing up to the Southern Corridor project do not match the costs associated with undermining its strategic relations with Iran and Russia.
Baku would be shortsighted to give in to the EU’s wishes on gas without Brussels sweetening the offer, including increasing the political support for Azerbaijan in its dispute with Armenia over Nagorno-Karabakh.
Borut Grgic is a nonresident senior fellow at the Atlantic Council. This article previously appeared in European Voice.