Russia and Azerbaijan: Rapprochement Implications for Iran

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Russia and Azerbaijan: Rapprochement Implications for Iran

Anwar Altaqi – Esam Aziz

With plans to station more American troops in eastern Europe, particularly in Poland, Russia is hedging the risk to its southern borders by tying more knots with Azerbaijan. At the end of last month, President Vladimir Putin visited Baku to discuss doubling trade between the two countries. This came after bold Russian steps in Azerbaijan’s oil and gas sector. The question now is: Will there be any future impact on Iran if Moscow’s strategy toward Azerbaijan succeeds?

Admittedly, it is not likely that Russia succeeds in turning Azerbaijan’s foreign policy around or weakening its ties with the West. President Putin met Azerbaijani first Deputy Prime Minister Yagub Eyyubov, Deputy Foreign Minister Khalaf Khalafov, and other officials, but not the president or even the prime minister. Yet, it is important to follow what happens on this front in order to analyze the impact on Iran. In either case, the results will have a profound effect on the great game of Central Asia.

However, even with Russia fully aware of the strong nature of Baku’s ties with Washington, it is not likely that President Putin will raise the white flag. Azerbaijan is second only to Turkey from the perspective of Central Asia’s great powers strategy. Russia is working patiently on its relations with Baku, particularly through the gate of oil and gas cooperation. 

An oil pipeline built in the 1990s between Baku and Novorossiysk that was long frozen over is now coming back to life. Azerbaijan plans to export 1.5 million tons of oil via the 1,147-kilometer Baku-Novorossiysk pipeline in 2019. The length of the Azerbaijani section is 231 kilometers and the Russian section is 916 kilometers.

Russia’s determination to tie as many knots as possible is also evident in the moves of big Russian oil companies and their financial arms. Gazprombank is ready to finance infrastructure projects in Azerbaijan. Gazprombank is a Russian leader in financing infrastructure projects. The bank, per its general manager, shows a special interest in ensuring that Russian equipment finds its place in the Azerbaijani industry. Azerbaijan’s President Ilham Aliyev visited Moscow to discuss mutual energy projects. Many Western observers did not feel comfortable with Aliyev’s visit.

Then, Russia’s Deputy Economic Development Minister Azer Talibov told journalists recently that Russia has a longterm, multi-phased plan to develop its trade with Azerbaijan. In the first phase of this plan, Russia hopes to increase trade with Azerbaijan by 20-25 percent, said Talibov. In order to achieve this goal, it is necessary to eliminate certain obstacles in mutual trade, Talibov said. “If these obstacles are eliminated, we can increase the turnover by 20-25 percent. As for the current turnover, it grew 10 percent in 1H2018. We expect this figure to remain until the end of the year,” Talibov added.

But what does all this mean for Tehran?

Iran has always been interested in participating in the trans-Anatolian and trans-Adriatic gas pipeline projects. Previous sanctions had delayed achieving this objective, and new sanctions will certainly delay it further. But once the sanctions obstacle is lifted one way or another, Iran will move faster toward finishing the two strategic pipelines. Such an Iranian strategy pleases the Europeans. The primary objective of the European Union (EU) is the diversification of energy resources. Thus, Iran and Azerbaijan have the potential to become key suppliers of gas to the European market.

Energy cooperation could help both Iran and Azerbaijan to improve mutual relations. Now, with the Caspian Sea delineation dispute almost over, and with Iran’s global isolation, it was time for Russia to move to hedge the risks and potentially accomplish some strategic gains, at least in the long run. 

In the 1990s, Iran and Azerbaijan signed their first energy agreement.  According to the agreement, Iran was to build a pipeline from Khoy (a province in western Azerbaijan) to Jolfa and into Nakhichevan. By 2004, the two countries agreed to deliver gas to Nakhichevan, with Iran pledging to supply the small statelet with 1 million cubic meters (mcm) per year over the next 25 years. (This explains Turkey’s plans to establish a presence in Nakhichevan). 

Slowly, the importance of the Iran-Azerbaijan role in the EU gas market is emerging.  The Southern Gas Corridor, initiated by the European Commission (EC) as part of its diversification strategy, requires infrastructure to transport supplies from the Caspian Basin and Middle Eastern supplier states (primarily Azerbaijan, Turkmenistan, Iran, and Iraq) to EU markets. Political and economic concerns, as well as a lack of developed infrastructure and gas resources, mean that Azerbaijan remains the only partner on this project. As the Southern Corridor is a top priority for the EU, its member states are doing all they can to realize this dream, and Iranian gas will be strongly connected to the project, if it finally takes place. The Southern Gas Corridor aims to provide an alternative source of natural gas for Europe, eroding the continent’s dependency on Russian reserves. The move comes at the time when Turkmenistan is trying to reduce its economic dependency on Russia, the main destination of Turkmen gas, just as European states are looking to diversify their supply lines.

The EU has already discussed with Turkmenistan’s president the possibility of transporting Turkmenistan’s gas via Iran. Both sides have discussed the idea of building a pipeline through Iran, after the end of the previous sanctions. When President Trump hit Iran with the second round of sanctions, the EU was actively working on the Southern Corridor route to transfer Azerbaijani gas. However, the main issue is that Azerbaijan does not have enough gas to make the pipeline a viable source of power. Thus, the EU has maintained the possibility of importing natural gas from Iran, but this has become a major challenge, given the new sanctions and Iran’s under-investment in even the most basic logistical infrastructure. This is one important reason why the Europeans oppose the current sanctions.

By improving ties with Azerbaijan, and with existing warm ties with Iran, Russia understands that the new round of sanctions gives it some time to rearrange the cards of the game in its favor. If Russian oil companies succeed in developing a somewhat joint infrastructure to connect Russia’s gas exports with both the Azerbaijani and Iranian exports, the EU will have no alternative to dealing with Moscow in order to get its gas.