azerbaijan-turkey energy cooperation: back to a strategic agenda

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Summary: Turkey and Azerbaijan

have nally sealed agreements

on the transit of Azerbaijani gas

to the European markets through

Turkish territory. This news might

come as a natural development,

as Azerbaijan and Turkey have

the warmest relations in the

region. Yet, for the past threeyears, the two sides were bogged

down in difcult negotiations and

at times have seemed so far from

a compromise that Azerbaijan

started looking for alternative

options to transport its gas to

Europe. The obvious victim of

a row between these countries

would be the European Union,

with its ever-growing thirst for

natural gas and the increasing

desire in Brussels to lower the

dependence on the Russian gas.Development of new gas elds

and pipelines turn Azerbaijan and

Turkey into strategic and, most

importantly, equal partners in a

new era of economic develop-

ment in the Caspian region.

Analysis

Azerbaijan-Turkey Energy Cooperation:

Back to a Strategic Agenda

by Fariz Ismailzade

November 16, 2011

Washington, DC• Berlin • Paris • Brussels

BelgraDe • ankara • BuCharest

O f f i c e s

Analysis

What happened during Azerbai-

jani President Ilham Aliyev’s mostrecent visit to urkey on October 25can surely be called “a new page” inregional geopolitics. Te two brotherly nations have nally sealed agreementson the transit o Azerbaijani gas to theEuropean markets through urkishterritory. Te agreements also includedetails on the price o the gas that isbeing sold to urkey through 2017,the volume and price o gas to be soldaer 2017, transit ees or the Azerbai-

jani gas, and ways to deliver gas to theEuropean markets.

For an outside observer, this newsmight come as a natural develop-ment, as Azerbaijan and urkey havethe warmest relations in the region.urkey was the rst country to recog-nize Azerbaijan’s independence, andthe ethnic, cultural, and linguistic tieshave led political leaders in both coun-tries to call it “one nation, two states.”

In early years o Azerbaijan’s indepen-dence, urkey provided humanitarianand economic assistance, trained army ocers, and supplied much neededoreign direct investment. During the1990s, the two neighbors enjoyed the“honeymoon eect,” as the public andpoliticians in both countries pursuedso called “urkic solidarity.”

Yet, or the past three years, the two

sides were bogged down in dicultnegotiations and at times have seemedso ar rom a compromise that Azer-baijan started looking or alternativeoptions to transport its gas to Europe.

In addition, loyal to its new oreignpolicy doctrine o “zero problemswith neighbors,” urkey’s ruling AKPparty launched an apparent rapproche-ment with Armenia, Azerbaijan’sarchrival, in 2009, which was deeply

unpopular in Azerbaijan. At the time,urkey and Armenia were poised toestablish diplomatic relations, despiteAzerbaijan’s vocal opposition to thedecoupling o the Nagorno-Karabakhconfict rom urkey’s relationshipwith Armenia. In 1993, urkey closedits border with Armenia, cuttingall diplomatic and ormal ties withits neighbor, a clear show o soli-darity with Azerbaijan during the violence in Nagorno-Karabakh. Te

understanding was that the borderwould remain closed until Armeniaand Azerbaijan were able to reach apeaceul resolution to the protractedNagorno-Karabakh confict. Ocially,Baku insists that there should be acomprehensive peace in the region,linking the normalization o urkey-Armenia relations to the resolutiono Nagorno-Karabakh confict. Seem-



Analysis

2

AnalysisThe Balkan Trust for Democracy

ingly despite Baku’s position, urkey’s President Abdullah

Gul visited Yerevan as part o his “ootball diplomacy” in2009 and the oreign ministers o the two nations signedthe historic protocols in Zurich, which would have laid thegroundwork or establishing diplomatic ties and reopeningtheir shared border. Baku responded with anger and rus-tration, and or the rst time damaged the bilateral relation-ship between urkey and Azerbaijan, built upon a deepsense o solidarity and cooperation..

Te obvious victim o a row between these countries wouldbe the European Union, with its ever-growing thirst ornatural gas and the increasing desire in Brussels to lower

the dependence on the Russian gas, which is unreliabledue to issues between Russia and Ukraine. Most o the EastEuropean countries depend on Russian gas entirely, butpolitical disagreements between Russia and Ukraine in 2006and 2009 and Russia and Belarus in 2008 caused sporadicdelays in the supply o gas to the European markets. Tiscame in the middle o cold winters, causing millions o EUresidents considerable discomort. Policymakers in Brusselsresponded by developing an energy strategy geared towardsthe diversication o the energy supply.

Te Caspian region seems to be the rst and the mostconvenient choice or the supply o alternative gas. Azer-baijan’s current gas reserves stand at almost 3 trillion cubicmeters (tcm) ollowing a large discovery in the Shah Denizeld a decade ago (some 1.3 tcm) and recent discoveries inthe Absheron and Umid elds, each containing close to 400bcm. Te “Southern Corridor” concept o the EU envisionsthe transportation o this Caspian gas to Southern Europe via urkey through various proposed pipelines. One o theproposed pipelines — Nabucco — would have the capacity o 31 billion cubic meters (bcm) and would run romurkey all the way to Austria. Other proposed pipelines,such as the Inter-Connector urkey-Greece-Italy (IGI)

and the rans-Adriatic pipeline (AP), are smaller, and areplanned to transport Caspian gas primarily to the Italianand Greek markets.

Azerbaijan and urkey’s preoccupation with the details andtactics o the gas agreement rustrated geopolitics experts,who wanted the deal as soon as possible in order to urtherlink the Caspian region with the strategic interests o thetransatlantic space. Te United States, or example, is one o the strongest supporters o the “Southern Corridor.” Yet, the

two allies seemed unwilling to make compromises. Some

pundits even showed nostalgia or the mid 1990s, whenAzerbaijan and urkey, despite objections rom Russiaand Iran, put their resources together and made a strategicchoice to build a new major pipeline (Baku-bilisi-Ceyhan-BC) or the export o Azeri and later Kazakh oil to theworld markets. Tat decision was truly a visionary one,linking both Azerbaijan and the transit country Georgiato the NAO member urkey and thus orever sealingWestern energy interests in the Caspian region. Tis BCpipeline is now operational, with a capacity o 1 millionbarrels per day. Even Israel is purchasing 25 percent o itsoil supply rom this pipeline. Tis was the rst pipeline to

break the monopoly o the Russian pipelines or the supply o oil rom the post-Soviet republics to the EU. In act, itwas such a tectonic project that U.S. President Bill Clintonpersonally lobbied or it. President Heydar Aliyev o Azer-baijan and President Suleyman Demirel o urkey workedclosely together to realize this project.

Te new gas agreement seems to have had a “BC-2” eect.It is clear that the agreements between Azerbaijan andurkey once again moved bilateral relations to a strategiclevel, brought a visionary approach to regional energy projects, and put aside tactical dierences or the sake

o bigger gains on the political and economic map o theregion. urkey and Azerbaijan showed an understanding o the importance o this project and a willingness to cut a dea

It is clear that the agreements

between Azerbaijan and Turkey

once again moved bilateral

relations to a strategic level,

brought a visionary approach to

regional energy projects, and put

aside tactical differences for the

sake of bigger gains.



Analysis

3

Analysis

despite previous disagreements and a chill in bilateral rela-

tions. Some pundits claim that the two nations had no otherchoice but to seal the deal. It would have been too much o a waste o an opportunity not to do it. Others believe thataer the 2009 coolness in bilateral relations and Azerbaijan’sresistance to the urkish-Armenian rapprochement, Ankaracame to respect Baku even more. Aer all, Azerbaijan, withthe astest growing economy in the region is no longer alittle brother but an equal partner. It is not a coincidencethat the gas agreements were signed on the same day that President Aliyev and Prime Minister Recip ayyipErdoğan inaugurated the US$5 billion Petkim project, oneo the largest chemical plants in urkey, owned now by the

Azerbaijan state oil company, SOCAR, and laid the ounda-tion or the construction o new oil renery, also owned by SOCAR, in the urkish city o Izmir. Azerbaijan has alsoinvested more than $500 million in the construction o arailway, which will connect Baku to Kars, urkey, and thuscreate a shorter railway connection between Beijing andEurope. All o these recent developments turn Azerbaijanand urkey into strategic and, most importantly, equal part-ners in a new era o economic development in the Caspianregion. Symbolically, Azerbaijani President Aliyev alsopersonally brought a large amount o humanitarian assis-tance to the victims o the October 2011 earthquake in the

urkish city o Van, showing both the growing capacity o his country and the appreciation or urkey’s past humani-tarian assistance to Azerbaijani IDPs and reugees.

International analysts are now ocusing their attention tothe pipeline competition in the region, asking a milliondollar question: “Which pipeline will Azerbaijan chooseto export its gas?” Bidders rom our competing proj-ects submitted their proposals on October 1 to the gasproducers’ consortium in Azerbaijan. Azerbaijan and itsconsortium partners will shortly make a decision. Te EUhas meanwhile given legal permission and instruction to

the European Commission to launch trilateral talks withAzerbaijan and urkmenistan or the construction o aransCaspian pipeline and the resulting export o urkmengas, along with Azerbaijani gas, to the European markets. I this happens, the ate o Nabucco will no longer be in doubtand the European customers will receive Caspian gas intheir homes. urkmenistan, as the h largest holder o gasreserves in the world, will open its export to the Westernroutes, along with its current supply o gas to China, Iran,and Russia. Azerbaijan meanwhile will become both a

supplier o gas and a transit country. Some call it an alterna-

tive to the Russian gas, but in reality, it will be a complimen-tary supply, as the EU will continue to need Russian gas inthe uture as well.

Te great game is still ahead o us, but urkish-Azerbaijanigas agreements have only accelerated it.

About the Author

Fariz Ismailzade is the executive vice rector o the Azerbaijan Diplo-

matic Academy and a 2010 alum o the Black Sea Young Reormers

Fellowship program supported by the Black Sea rust and the Robert

Bosch Stiung. Tese views are his own and do not necessarily refect

the views o the Azerbaijan Diplomatic Academy.

About GMF

Te German Marshall Fund o the United States (GMF) is a non-par-

tisan American public policy and grantmaking institution dedicated

to promoting better understanding and cooperation between North

America and Europe on transatlantic and global issues. GMF does this

by supporting individuals and institutions working in the transatlantic

sphere, by convening leaders and members o the policy and business

communities, by contributing research and analysis on transatlantic

topics, and by providing exchange opportunities to oster renewed

commitment to the transatlantic relationship. In addition, GMF

supports a number o initiatives to strengthen democracies. Founded

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DC, GMF has six oces in Europe: Berlin, Paris, Brussels, Belgrade,

Ankara, and Bucharest. GMF also has smaller representations in

Bratislava, urin, and Stockholm.

About the On Turkey Series

GMF’s On urkey is an ongoing series o analysis bries about urkey’s

current political situation and its uture. GMF provides regular analy-

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azerbaijan-turkey energy cooperation: back to a strategic agenda

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