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Whether Nagorno-Karabakh Factor is a Challenge or an Advantage in Energy Policy?
In 1994, after gaining independence, Azerbaijan put his first brilliant signature in his energy history following signing of the “Deal of Century” with western energy companies. This deal gave a birth to foundation of the Baku-Tbilisi-Ceyhan (BTC) oil pipeline project. BTC pipeline project starts from Azerbaijan (Baku), goes through Georgia (Tbilisi) to Turkey (Ceyhan port) and then transports the oil to the world energy markets.
The project was initially (as well as now) considered completely as a political project. Because, according to some analysts, since Armenia occupied the 20% of Azerbaijani territories (including Nagorno-Karabakh region) and still remains under occupation, BTC pipeline project envisaged to be crossed through Georgia, but not Armenia. Of course, if it would pass from Armenian territories, consequently it would cover less distance and would require less construction cost. Yes, it’s true! However, if there would not be “Nagorno-Karabakh” conflict today and pipelines would go through Armenian territories, what would be advantages and disadvantages of this initiative? Have you ever thought about it?
As we know, Armenia doesn’t have its own oil reserves and his oil consumption is provided by Russia. Since Soviet era, Armenia imported crude oil through the Armenian-Georgian-Russian railway. The oil transportation has been suspended between Armenia and Azerbaijan in the early 1990s after discontinuation of railway connection. Furthermore, after closure of Georgian-Abkhazian borders, the oil transportation carried out via Black Sea to Georgia, then to Armenia via railway. Moreover, there are still ongoing negotiations between Iran and Armenia on the construction of Iranian-Armenian oil pipeline. The main reason that Armenia tries to ensure its relations with Iran is the energy factor. In this regard, Moscow-Yerevan-Tehran axis constitutes a rivalry against Baku-Tbilisi-Ankara axis.
After the Nagorno-Karabakh conflict, the borders of Armenia from both east (with Azerbaijan) and west (with Turkey) have been closed. Since Armenia remains in blockade from both sides, he meets its natural gas demand from Russia and Iran. As Armenian thermal power plants running with natural gas, country is highly dependent on Russia, the richest country of the world in terms of natural gas resources. Russian natural gas supplied to Georgia and Armenia through two pipelines: North Caucasus – Transcaucasia pipeline and Mozdok-Tbilisi (North-South pipeline)
Recent years (notably in 2011), one of the moot points was the privatization of the Georgian part of the Russian-Armenian natural gas pipeline (North-South pipeline). The matter of concerns rose about the possibility of potential purchase of this section by Azerbaijan’s energy giant SOCAR. Georgia is dependent on Azerbaijan in terms of energy provision and SOCAR controls numerous of natural gas infrastructure in Georgia, and SOCAR has enough financial capacity to buy this pipeline. In case of Azerbaijan would buy this section, he can suspend the natural gas transportation any time showing the economic and technical reasons as a basis. Because, the pipeline is quite old and it needs urgent modernization studies.
The natural gas exporting country for Armenia is not limited only with Russia. Armenia imports natural gas from Iran through Iranian-Armenian natural gas pipeline. The pipeline system is owned by ArmRosGazprom which holds monopoly over Armenian natural gas import and distribution system. 80% stake of Company owned by Russian energy giant Gazprom. Because, Armenian natural gas transportation system is almost demolished and strong investment required. Armenia doesn’t have such a capacity. Normal operation of Russian-Armenian natural gas pipeline depends on more Russian-Georgian relation rather than Georgian-Armenian relations. Given tension in US-Iranian and Israeli-Iranian relations, the possible war can damage the Iranian-Armenian natural gas pipeline. Furthermore, Armenia considers Iran as a potential corridor to export its electricity production to Middle East region.
Besides ArmRosGazprom, all the economic, social, technical, communication and industry infrastructure of Armenia have been owned by Russia. Russia owns the 75% of the Armenian section of the Iranian-Armenian natural gas pipeline. The main reason, Russia intends to secure its pipeline projects in case of EU-Iranian relations will be strengthened. Moreover, Russian companies such as Gazprom, RAO UES, RusAI, Alrosa and etc, own and controls the industrial, communication, service, airlines, railway, and banking infrastructure of Armenia.
Now, let’s go through “Nagorno-Karabakh” problem again. Let’s say, we never had this problem and Azerbaijan constructed the BTC pipeline (BTC is just an example, it might be BTE or TANAP) through Armenia and finished it in Ceyhan. As soon as relations will be soured, Armenia was going to suspend the oil transportation based on either technical excuses or direct political reasons. Because, Armenia imports oil from Russia anyway. Let’s say, Karabakh war launched after the construction of pipelines. One cannot except the possibility of potential ballistic missile attack by Armenia to the pipeline system of Azerbaijan. Armenia would attack Azerbaijan’s pipeline system, but Azerbaijan could not, if the pipelines passing through Armenia would be built by Azerbaijan. It means that, Azerbaijan would fire its money in others pocket. 
From the other hand, would Russia reckon without this opportunity, while owns the energy infrastructures of Armenia? Did you forget that, Russia owns the 75% of Iranian-Armenian natural gas pipeline? And consequently, Russia would be eager to be owner of pipeline going through Armenian territories. Because, even if the pipeline route would cross through Armenia, it would bypass Russia again. However, the situation in Armenia is absolutely different. Because of its huge dept to Russia and economic problems, Armenia still is not able to bypass Russia. But, Azerbaijan is not dependent upon Russia, like Armenia. The ownership issue over pipeline section (passing through Armenia) would depend on by which country the pipeline will be constructed and controlled. If Azerbaijan would own the biggest stake (such as in TANAP) in this pipeline (passing through Armenia), the situation would be much more different. In this case, Russia had to negotiate with Azerbaijan in spite of Armenia. From this point of view, Azerbaijan possesses the unique significance for Russia in comparison with other two South Caucasus countries in terms of its energy resources.
Just for kind remind, recently, Russian state-owned oil company Rosneft fully owned the TNK-BP consortium. By this way, Rosneft gained an additional chair in the BP’s Board of Directors. Thus, Russia will have a voice in any international agreements of BP. In the meantime, BP has also willingness to buy a share in Trans-Anatolian Gas Pipeline (TANAP) consortium. In this way, Russia will have a direct or indirect fingerprint in the “Southern Gas Corridor” concept of EU and TANAP project.
Shortly after the signing of TANAP agreement, BP, Total and Statoil expressed their willingness to acquire share in the TANAP consortium. Recently, those three companies officially appealed to State Oil Company of the Azerbaijan Republic (SOCAR) to buy certain shares in TANAP. Due to some analysts, Russian oil company LUKoil also has an opportunity (LUKoil also owns share in Shah-Deniz consortium) to acquire share in TANAP, but there was not any official appeal or statement made by LUKoil yet. However, it is very much clear that, why Russia kept silence about TANAP so far. The cunning plans of Putin and Sechin made in Kremlin in order to influence on TANAP (by owning TNK-BP) have been already emerged.
Another approach is from the Georgian point of view. How would be Azerbaijani-Georgian relations, if pipelines would pass through Armenian territories? How would be attitude of West toward Georgia? Could Georgian dream of being NATO member accepted with such warmness? Could Armenia host Russian military bases and military units in his territories today? Could Armenia hold the military exercise in Nagorno-Karabakh backing to Russian Federation? Consequently, could Russian use the “Nagorno-Karabakh” card toward Azerbaijan? As we may see, Nagorno-Karabakh issue constitutes both advantage and challenges for different parties.
However, unconstructive position of Armenia on Nagorno-Karabakh issue, bypasses him from the all regional energy projects. Armenian Government bypassed in terms of both being a transit state and of energy agreements in the South Caucasus. Such kind of isolation poses a great impact on Armenian economy. Consequently, any project intended to transport Caspian energy resources to Europe bypasses Armenia and this consolidates the Azerbaijani-Georgian-Turkish axis against Russian-Armenian-Iranian axis. The strained relations with two countries from both east and west, being a poor country in terms of energy resources, including being a land-locked country in spite of other two countries (Azerbaijan and Georgia), makes Armenia to remain its relations stable with Russia. Even if, Armenia would reduce its energy dependence upon Russia, he could not act alone in other areas without Russian support. Since, Armenia situates in blockade from both east and west by two Turkish countries, it also prevents Turkey’s integration with former USSR’s Turkish-speaking countries (Central Asian States). To summarize the challenges and the advantages faced region countries:
1. “Nagorno-Karabakh” conflict gives a great chance (advantage) to Russia in order to have leverage over Azerbaijan, notably over Armenia. Even if, Azerbaijani pipeline (oriented to the west) bypassed Russia, Kremlin could compensate this failure linking its natural gas transportation with Armenia. From the other side, conflict also impedes (challenge) the smooth running of relations between Azerbaijan and Russia.
2. Even if, “Nagorno-Karabakh” conflict prevents Azerbaijan to lay down its pipelines through Armenia (from the economic point of view), from the other side, Azerbaijan gained more than it was going to try the first option (from the political point of view), i.e Azerbaijan made a strategic step by laying down pipelines through Georgia. I have already talked about the reasons above.
3. Armenia cannot even benefit of this conflict. Because, Armenia is blockaded from both (east and west) sides and without Russia and Armenian lobby in the world, Armenia should be deleted from the map. Armenia bypassed from all the regional cooperation initiatives and projects.
4. Georgia also benefitting of his transit state status, as BTC, BTE and Baku-Supsa pass through its territories. Georgia keeps its relations warm with Azerbaijan, because he has no option in terms of energy provision.
5. Iran is benefiting of the hostile relations between Azerbaijan and Armenia. Since Armenia situated in blockade, country can directly cooperate only with Iran, as Armenia imports meets its natural gas demand from Iran. Armenia can cooperate with Russia only indirectly – via Black Sea or trans-Georgian pipelines.
In a nutshell, given all these above-mentioned factors, after the solution of the Nagorno-Karabakh problem, Azerbaijan have to determine its energy politics very carefully and wisely, as energy politics will be main foreign policy priority after solution of conflict. The mistakes made in the history usually resulting by bloodshed or loosing of image. The agreements - basically the “Deal of Century” - signed by Azerbaijan after gained its sovereignty is very accurate and well-thought-out step. The strong energy policy of the country depends not only on its geographical position and vast energy resources, but as well as depends on the state management by strong leadership. Today we can see the plenty harvest of the far-seeing energy policy of strong state leader in the framework of Azerbaijan’s successful initiatives and steps in energy sector.
Ilgar GURBANOV - Analyst, Strategic Outlook
18.11.2012 - Hit : 2359

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