Russia Tries to Snuff Out Nabucco

by Bedros Terzian
Monday, 03 November 2008 17:36

Russia is poised to strike the final blow to the European Nabucco gasline project, by making the
most of its renewed influence in the Caucasus after the “five-day war” in Georgia. This is part of
an all-out diplomatic drive launched by Moscow, in the aim of luring Azerbaijan into its sphere of
influence. Gazprom’s purchase offer for the Azeri gas, which in principle is intended for the
Nabucco project, is a central piece in this strategy. If it succeeds, the Europeans will see the
main potential gas source for Nabucco slip from their grasp.
 

What's more, if Moscow purchases all of the new gas that Azerbaijan is planning to produce, as
is reportedly its intention, Baku will have nothing left to sell either to Turkey or to the gasline
projects promoted by Greece and Italy, which also aim to diversify Europe’s supply sources.
Such a scenario would considerably boost Iran’s chances of emerging as a potential gas source
for Europe, since contributions from other possible suppliers (Egypt, Iraq and Turkmenistan)
appear distant, riddled with obstacles and inconsequential in a number of cases. But the dispute
over Iran’s nuclear program is hindering the development of relations between Europe and this
country. In any case, if Moscow manages to lure Baku into its game plan, Europe’s hopes of
reducing its dependence on Russian gas will be crushed for a long time to come. And this would
occur just as Russia—with the support of Venezuela and Iran—is seeking to convert the Forum
of Gas Exporting Countries into a “Gas OPEC”, to quote the Iranian Oil Minister.

The most extraordinary outcome of the targeted strengthening of ties between Baku and
Moscow is that Armenia could be asked to pay the political price. Russia’s President, Dimitri
Medvedev, is apparently pushing hard to seize concessions from the two parties, especially
Armenia, to try to achieve a solution over the Nagorno Karabagh conflict. The latter is a small
Armenian enclave, which Stalin handed to Azerbaijan in 1921 and which proclaimed its
independence at the end of a revolt followed by a war, which together lasted for six years
(1988-1994). Baku is demanding the “return” of Karabagh, invoking the principle of territorial
integrity; the Armenians refuse this outcome, invoking the principle of self-determination.
Medvedev, who visited the Armenian capital on October 20 and 21, announced a forthcoming
meeting in Moscow with the Presidents of Armenia and Azerbaijan which, according to Russia’s
Foreign Minister, Sergei Lavrov, has a “very real chance” of putting an end to this conflict.
“There remain two or three unresolved issues that need to be agreed upon at the next meetings
of the Presidents of Armenia and Azerbaijan”, said Lavrov. The first meeting took place on
November 2, 2008 in Moscow and, according to a joint statement, the two presidents agreed “to
speed up further moves in the negotiating process”.

In fact, the conditions that would lead to an acceptable compromise for the two opposing parties
do not appear to have been secured. The Russians are perfectly aware of this, of course. But,
since the war in Georgia, they have wanted to make the most of the recent low profile of the US
and weak European presence, in order to secure new footholds in the Caucasus. They want

1/2
Russia Tries to Snuff Out Nabucco

by Bedros Terzian
Monday, 03 November 2008 17:36

their much publicized efforts to find a solution to the Karabagh problem to be seen as proof of
their good will, especially towards Baku, but this also implicitly means that, should such efforts
fail, the conflict will not be resolved, or might even flare up again. For their part, the Azeris are
wondering how they should react. The Georgian war in August revealed, on the one hand, the
limits of the support that the Americans and Europeans can provide them, and on the other
hand, just how far the Russians are prepared to go when they believe that their most important
interests are at stake. During this mini war, Azerbaijan asked Russia to spare its hydrocarbon
facilities in Georgia: the BTC and Baku-Supsa oil pipelines, the BTE gasline, the Port of Poti….
No facility was damaged, but bombs fell not too far away. Which is now providing the Azeris
with food for thought: to use the words of the Vice-President of state-owned oil firm Socar, why
put all of one’s eggs in the same basket, especially when this basket is so fragile?
(Petrostrategies, October 6, 2008).

For their part, a number of European countries are suggesting that Azerbaijan should diversify
its export routes, by ensuring that the Nabucco project’s gasline runs through Armenia.
Moreover, this would reduce the length of the line by around 350 kilometers, compared with the
Georgian route, which bypasses Armenian territory. But for Baku, this solution is only
foreseeable within the framework of a solution to the Karabagh dispute. Since Moscow wants to
buy the Azeri gas itself, the prospect of a solution to the Karabagh conflict (which Russian
diplomats say they are seeking) could turn out be against the Kremlin’s interests, at least seen
from this angle. In addition, having the Nabucco gasline run through Armenia would enhance
the energy independence of the latter, which currently relies heavily on Russian supplies.

Baku is not sure which signpost to follow. Is it wise to have the future Nabucco gasline run via
Georgia? What would Russia’s reaction be if Gazprom (which wants to purchase gas) were
snubbed by the Azeris? Should Baku try to win Russia over while hoping that Moscow will
gradually keep its distance from the Armenians? And then what’s all the hurry? After all, having
just reached its plateau of 1 million b/d, the ACG oil project ensures that Baku will receive very
comfortable revenues up to 2015 at least. Besides, the Italian-Russian South Stream gasline
project, which is considered to be a rival to Nabucco, has itself been delayed by a few years.

Officially, Azerbaijan is planning to produce 32 bcm of gas in 2014 and 40 bcm in 2017. Its
production stood at only 6.3 bcm in 2007 and is expected to rise to around 11 bcm in 2008. Its
Shah Deniz field currently supplies the BTE gasline (which serves Georgia and Turkey), and it
is the incremental production from Shah Deniz that is being wooed by both the Russians and
the Europeans. This field produced 3.1 bcm in 2007 and 7.7 bcm are expected in 2008. The
second development phase is expected to boost its production to 10-11 bcm. Baku is also
pinning high hopes on the Absheron field, and is currently negotiating the development of the
latter with France’s Total.

Petrostrategies, France
November 03, 2008

2/2