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The Baku Energy Summit, CU Issue 10, November 17, 2008

Whilst attention last week focused on the EU-Russia summit at Nice - at which the European Union essentially accepted Russia’s invasion of Georgia in exchange for help on energy and the financial crisis – another summit was going on in Azerbaijan, the topic of which is just as important as the wider relationship with Russia. Ironically, although the EU-Russia discussion was intended to re-affirm the role of Russian gas supplies in the relationship, the Union’s Energy Commissioner Andris Piebalgs was actually in Baku to push forward the Nabucco pipeline, which would be a major step in breaking Russia’s stranglehold over the European gas market.

 

The Baku Energy Summit was attended by high-ranking officials from the US – which has been a strong backer of Nabucco, even though it would receive almost no gas from the project itself – and representatives (on either presidential or ministerial level) of a number of eastern European countries, vying to host, inter alia, the final leg of Nabucco, which would run from Azerbaijan to central Europe. Russian delegates were invited but declined the offer, unsurprisingly given that the summit was intended to look at ways to bypass Moscow’s control of oil and gas supplies to Europe (‘diversification of supply’, in diplomatic speak).

 

The summit’s final declaration said nothing truly unexpected, but emphasised commitment to co-ordination of action in implementing joint projects. Nabucco was explicitly mentioned as a project to which attention should be paid, which is noteworthy, but no concrete statement – for instance, regarding the choice of supplier country – was announced. More striking was the fact that the final declaration was not joined by the representatives from Kazakhstan or Turkmenistan, two countries whose input will be vital for Nabucco’s long-term profitability.

 

Since Azerbaijan is unable to fill the Nabucco pipeline with its own supplies in the long term, the project’s backers hope that Kazakh and Turkmen gas can be pumped across the Caspian Sea in a Trans-Caspian Pipeline (TCP) (to be built still) to Azerbaijan. Referring to the undetermined legal status of the Caspian Sea Russia opposes the construction of any pipelines in the Caspian. Moreover, although the pipeline is still officially on the table, the likelihood of its being built is highly uncertain. It will depend on whether, for one, Europe is willing to commit serious resources to countering Russia’s gas stranglehold. Despite a recent plan promoting Nabucco, and the presence of Mr. Piebalgs in Baku, the EU’s approach to ‘diversifying supply’ – in other words, escaping Russia – is patchy and incoherent, in part because heavyweight EU members like Germany would rather deal with Russia than exclude it. Nabucco’s prospects also depend on whether Astana and Ashgabat are happy to go ahead with such a risky venture and face incurring Russian disapproval. So far, they have successfully fudged the issue, and will continue to do so unless European pressure can persuade them otherwise.

 

Iran has also been mooted (especially by many EU countries) as a potential supply source for Nabucco which would avoid the geopolitical, legal and financial obstacles in a TCP, although including Iran in such a project would instantly incur strong disapproval in Washington. President-elect Barack Obama has an opportunity here: if he considers Russia to be the bigger threat, thawing relations with Tehran and tying it to the West through Nabucco would deprive Moscow of a key source of leverage. However, the amount of energy that the US has poured into isolating Iran and imposing sanctions on companies that deal with it make this a very unlikely avenue to pursue.

 

However Europe and the Central Asian states act, Azerbaijan is in a position of strength. Moscow, a longstanding Armenian ally, has begun to shift back towards Azerbaijan as it sees a clear opportunity developing. This is most evident in its renewed attempts to settle the Nagorno-Karabakh conflict, but also in its offers to buy all Azeri gas (designed for exportation towards Europe) at market prices. The two may be linked: Russia might be willing to tone down support for Armenia and push for a Karabakh resolution favourable to Azerbaijan in exchange for Azeri gas supplies. This deal would kill Nabucco off and would, as Borut Grgic and Alexandros Petersen pointed out this week in the Wall Street Journal, prompt a major foreign-policy rethink amongst other Eurasian states, away from the West and back towards Russia.

 

The absence of a clear, detailed commitment to Nabucco at the Baku summit is therefore worrying, not least in Georgia, for whom Nabucco would be a signal that the West can still rely on it as an energy transit route. But in the long run it will be equally worrying for Europe, the US and the Eurasian states if Western dithering allows Russia to consolidate its grip. Europe must commit itself to the pipeline and develop a unified approach to energy diversification. President Obama must also throw his weight behind the project, perhaps offsetting Russia’s irritation by an equal offer elsewhere, for instance on European missile defence. Azerbaijan, Kazakhstan and Turkmenistan can hardly be blamed for considering the Russian option. If nothing else, Moscow is willing to pay handsomely for the privilege of geopolitical strength. The same cannot be said of the West. Europe’s softly-softly approach to Russia and squabbles over energy policy threaten to hand the Caspian’s gas and oil riches to the Kremlin on a plate. If, as suspected, Vladimir Putin returns to the presidency next year, he is unlikely to pull his punches over Caspian energy.



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