Azerbaijans Foreign Policy and the New Silk Road

Tarek Shehata (April 2013)..

Motivation
Two years ago, I didn't know what 'Azerbaijan' was; except that I guessed that it was a country. It all started after my friend applied to the same contest, and won. From there on, picture and information about Azerbaijan started to flow in. The same friend sent me the details of this years contest, and I decided to write about Azerbaijan's foreign policy. I read the Wikipedia article of course and I was surprised: was Azerbaijan the first democratic Muslim state?! Azerbaijan is rich with natural resources?! Or Iran and Russian on its boarders?! As a Muslim, an Egyptian, and an engineering student who loves Egypt and numbers; Azerbaijan was a model. I then decided to write about energy's influence in Azerbaijani's foreign policy, because it seemed relevant to my studies. Of course I found out later that it was not relevant. Not as I imagined it at least. But I was too late already. I liked the topic.

Introduction
A year after the collapse of the Russian Empire, the Azerbaijani National Council established the first democratic republic in the east. It had been only two years before the Red Army takes over and turns it into a Soviet republic. In 1991, Azerbaijan proclaimed itself independent of the Soviets. Since then, oil played a crucial role in boosting the economy, developing the countrys infrastructure, and shaping Azerbaijans foreign policy. (University of Michigan) Azerbaijan is a small state surrounded by powerful neighbors, like Russia, Iran and Turkey, with complicated relations. In such a case Azerbaijans foreign relations become an important tool for the countrys survival. Additionally, being a secular state with Muslim heritage, a gateway connecting Europe and Central Asia, and an energy exporting country, gives Azerbaijan a strategic importance for world powers, which is an advantage, but harmful sometimes. Regional neighbor and international players, like US and EU, definitely have conflicted interests in Azerbaijan. (Cornell, 2011; Makili-Aliyev, 2013) In 2009, the conflicts between Russia and Ukraine on natural gas transit issues made natural gas prices go high, as a result Europe suffered. It is due to this, along with political problems with Iran over their nuclear program, Europe showed a lot of interest in Azerbaijan, as an energy supplier as well as a corner stone of the Southern Gas Corridor project to transport energy from the Caspian region to Europe. A project such as the Southern Gas Corridor or the New Silk Road as politicians like to call it will shift Azerbaijanis economy. However, orbiting around the western powers is not the very good choice, especially for a country surrounded by Russia and Iran. Any Azeri foreign policy strategy should take into account possible impacts by different players. (Cornell, 2011; Makili-Aliyev, 2013; Ratner, 2012)

Due to the Southern Gas Corridor project, Azerbaijan is facing challenges to balance its foreign relations, and realize its national interests. Some of these interests can be: resolving the Nagorno-Karabakh dispute, resolving the Caspian Sea legal state dispute, developing a stronger economy, and preserving regional stability and national security. The essay will analyze European needs, and Azerbaijani potential as an energy supplier and transporter. In the second section, four Azerbaijanis interests will be discussed, and strategies will be suggested for each one. Finally the interests of regional and international players will be discussed to be considered when developing a foreign policy strategy.

European Energy Needs and Azerbaijans Potential

During the Soviet republic, Azerbaijan experienced an industrial and infrastructural development. But it was useless after 1991 independence because of the soviets strategy of integrating republics economy, which made Azerbaijan and its neighbors from the collapsed Soviet Union dependent on Russia to coordinate between their economies. Additionally, Azerbaijanis oil industry was fluctuating during the soviets. Oil production peaked in the World War II when Azerbaijan used to produce half a million barrels per day. That record was not exceeded until 2006. Production, then, declined due to lack of soviet investment, which affected Azerbaijanis economy badly especially in the 80s. After the soviets, the United States realized the geopolitical importance of Azerbaijan, and started projects to develop Azeris energy infrastructure; Azerbaijan welcomed this partnership. (Cornell, 2011; Makili-Aliyev, 2013) In order to get a feeling of how much can Azerbaijan supply Europe with energy, and natural gas particularly, we need to consider figures about production, needs, and future projects. We will start with a brief on European energy outlook. Europe has many challenges concerning future energy needs. An important part of the European strategy is shifting to natural gas to address climate change policies; which is, along with domestic production decline, going to increase EU gas demand. The European Commission forecasts that the EU will import over 80% of its natural gas needs by 2030. (Ratner, 2012) European Union states imported 11.6 trillion cubic feet of natural gas in 2011, 36% (4.2 tcb) of them came from Russia. The following figure explains why some countries are more enthusiastic about finding alternative gas suppliers than others. (Ratner, 2012) As for Azerbaijan, the proven reserves are about 30 trillion cubic feet, making it the 26th in the world. Production reached 589 billion cubic feet in 2010, while consuming about 350 bcf. Most exports goes to Europe. A volume of natural gas production is transported to Russia. A small portion of production is exported to Iran; in exchange Iran supplies Nakhchivan exclave with energy. By 2017, phase two of developing Shah Deniz field should be completed, adding production of 560 bcf. As a result Azerbaijan will be able to export about 800 bcf, which could replace 19% or the European gas imports from Russia if Azerbaijan exports it all to Europe. In October 2011, Azerbaijan and Turkey signed accords to transport 700 bcf of natural gas through Turkey, of which Turkey will take 210 bcf for domestic use. (AzerbaijanEIA, 2012)

Transporting Azerbaijanis gas to Europe, away from Russian and Iranian influence is a European priority. Many proposals were suggested to transport gas through Turkey or the Black Sea; most of which was rejected except the Trans-Anatolian Gas Pipeline (TANAP), the Trans Adriatic Pipeline (TAP), and the Nabucco West Pipeline. Azerbaijan and Turkey signed accords in Jun 2012 to build the first stage of the TANAP pipeline with capacity of 565 bcf, and to be completed in 2018. This leaves about 350 bcf of Shah Deniz gas production for either Naboccue or TAP pipeline, to be decided in mid 2013 according to the Shah Deniz Negotiation Team. On the other hand, Russia started construction of the South Stream gas pipeline with a very small capacity (2.2 bcf) and to be completed in 2015. According to some analysts, the pipeline is not economically viable, but is being built by Russia to counter proposals to build the Nabucco West pipeline and perhaps a trans-Caspian pipeline, so that Russia may maintain a dominant gas presence in Europe. (Ratner, 2012) Azerbaijan is a strategic partner to Europe and the US. Europe needs natural gas and a reliable nonRussian, non-Iranian gas transport. To the US, Azerbaijan has a geopolitical importance to reduce Russian influence on the post-soviet states as well as Europe, the major Russian oil importer. In the next section we discuss Azerbaijan interests and key causes that help defining Azeris foreign policy.

Azerbaijanis Interests
As we stated earlier, foreign policy is crucial to Azerbaijan survival, and Azerbaijan has been doing very well at this. Azerbaijan is a member in the Organization of Islamic Cooperation, the United Nations, the Commonwealth of Independent States, NATO's Partnership for Peace, and many other international organizations. It is worth mentioning that Azerbaijanis President was the chairman of a high level United Nations Security Council meeting on terrorism in May 2012. In this section we will analyze Azerbaijanis interests that shape its foreign policy. (Newtimes.az, 2012) Nagorno-Karabakh Conflict By 1994, the Armenian military was occupying Nagorno-Karabakh region, leaving 600,000 internally displace Azeri. (CIA World Factbook, 2013) The Nagorno-Karabakh conflict was the major driving force of Azeris foreign policy in the past decade. According to a paper published by the Institute of International Affairs (IAI) by Elizabeth Fuller: Azerbaijans motivation for prioritizing a solution to the Karabakh conflict is two-fold. First, to remove the long-term security threat posed by the existence on Azerbaijani territory of an Armenian-populated enclave with a highly trained military. And second, to enhance Azerbaijans international prestige and further its aspiration to parlay its Caspian hydrocarbon wealth into the status of the dominant power in the South Caucasus. (2013) Azerbaijan energy capabilities are an important tool in this conflict. First, these capabilities attracted world powers intentions and increased Azerbaijanis geopolitical weight. Second, energy cash can be directed to strengthen Azerbaijanis armed force for possible long-term objective of military act. Finally, raising energy prices could be used to threaten political actions against Azeris efforts to resolute the conflict, like the case of unfavorable development of Turkish-Armenia relations in 2009. (Fuller, 2013)

Legal status of the Caspian Sea The conflict on the Caspian Sea borders goes to the 8th century. Caspian boarding states couldnt decide whether it is a lake or a sea, which will define each states share of the Caspian. In 2002, Russia, Kazakhstan and Azerbaijan signed an agreement defining the share of each state; Iran however wants a larger share. Solving this conflict will easily allow the construction of a pipeline connecting Azerbaijan and Turkmenistan, and transport Turkmens gas to Europe, which will add to Azerbaijanis economy. Additionally, it will also allow Azerbaijan to explore for new oil and gas reserves in disputed territories of the sea. (Kapyshev, 2012) In April 2013, a new Azerbaijani seaport was announced to be the largest seaport in the Caspian. The International Sea Trade Port will receive goods from central Asia as well as China, and transport to Eastern Europe. (AzerNews, 2013) Iran is a significant potential supplier to the southern gas corridor, if only the political conditions allows. (Commission of the European Communities, 2008) Until then, ending the dispute with Iran is going to be hard, bearing in mind the poor relations history between the two. Azerbaijan negotiations with Iran over the Caspian legal statue will be supported by the raise of Azerbaijanis influence in the region as a result of the project. Strengthening Azerbaijans Economy From 2002 to 2006, Azerbaijanis GDP doubles, and growth rate peaked at 30% making Azerbaijan the fastest growing economy in the world, thanks to oil industry and foreign investments from the US, UK and Turkey. However, in 2008 the economy experienced a slowdown that is temporary and linked to technical problems in the oil industry according to Jens Hlscher. Azerbaijan needs to maintain a diversified economy, and to be careful from dependency over energy industries. Similarly, Azerbaijan needs to be careful from dependency on a single power bloc, due to its geopolitical status. (Hlscher, 2012) To strengthen Azerbaijans economy, policy makers have use the southern gas corridor to attract more investment. They also need to plan and encourage countries, other than the US and EU, to invest in the sectors that will grow as a result of the project, counties like regional friends. Additionally, energy revenue can be directed to focus on new industrial sector or increase the efficiency of the economic system. Regional Stability and National Security Nagorno-Karabakh conflict is vital to national security; however it is not the only one. Other threats may include: ethnic and religious extremism, terrorism, and weapons of mass destruction. Azerbaijan faces such threats by the contribution to international security, participation in international organizations, strengthening defense capabilities, and more importantly, regional cooperation and bilateral relations. These efforts will be supported by the increase of Azeris importance in the region if the southern gas corridor project was implemented. The project will wills also integrate Azeris economy with other regional potential suppliers, such as: Georgia, Turkmenistan, Kazakhstan, Iraq, Egypt and other eastern countries.

Key Players and Their Interests

This section will discuss key players and their interests in the Caspian and Caucasus regions, to get understand the challenges that may face Azerbaijan when planning its foreign policy strategy. Turkeys relation with Azerbaijan can be concluded in One nation, two states. The two countries are ethnically and historically related. Turkish dream of becoming an energy hub is another motive for the brotherly relations between the countries. Additionally, Turkey views Azerbaijan as a link to central Asia states which are ethnically and historically linked too. On another level, Azerbaijan supports Turkish military action against the PKK. (Makili-Aliyev, 2013) Russia, the successor the Soviet Union, feels the duty to keep Azerbaijan, a post-soviet state, in the area of influence. Areas of cooperation include economic and military cooperation. Russian is Azerbaijans number one trade partner in the non-oil sector claims Kamal Makili-Aliyev. In the region, Russia wants to deepen its influence and maintain regional security. (Makili-Aliyev, 2013) Relations with Iran always experienced tension. Iran is concerned about Azerbaijanis relations with US, Israel, and NATO. Additionally, it fears the separation of the northwestern part with Azerbaijani large minority living there. On the other hand, Iran wants to increase its influence and spread its ideology in Azerbaijan. The United States realized Azerbaijan importance since its independence in 1991, mainly because its location and natural resources. The US then invested in Azerbaijan starting economic and military cooperation, which was welcomed by Azerbaijan. USs main interests in the region are reducing Russian influence and countering security threats by Iran. (Makili-Aliyev, 2013)

Conclusion
Azerbaijani's energy reserves play an important role in shaping its foreign policy strategy, which has to be balanced in order to survive in a location such as Azerbaijan's. In recent years, the development of an Azeri natural gas reserve promised additional 560 billion cubic feet of production. This discovery drew Europe's attention as part of EU's energy supply diversification strategy. Russia supplied Europe with 36% of their natural gas needs in 2011, whereas Azerbaijan can replace 19% of Russian natural gas exports to European states. This added to Azerbaijan geopolitical influence in the region. In the light of this new influence and export, Azerbaijan can realize its national interests by one of two ways: use their influence to solve disputes, or use energy revenue to develop military capabilities or support new economy sectors. Policy makers have to be careful however. They should consider possible impacts by different players.

Acknowledgment
I would like to thank my friends Khalid Gomaa and Abdelrahman Hesham for their help and support.

References
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