Oil and Gas Factor in Karabakh Conflict: New Trends

By Sergey Minasyan

It’s not a secret that today the main financial-economic and partially geographic resource of Azerbaijan within its policy in Karabakh conflict – are particularly significant incomes from Caspian energy sources production (oil and gas). They give hope to military-political leaders of Azerbaijan to achieve cardinal advantage in military-technical sphere and activation of armament race, to finance big regional projects around Armenia, to invest or even open corruption financial aid in third countries, and undertake other steps with the target to achieve favorable change of processes within Karabakh conflict, to force Armenia to make one-side concessions. Simultaneously oil factor also increases geopolitical significance of Azerbaijan per estimations of regional and even world actors.


Summary evaluations of Azerbaijani oil and gas stocks at the Caspian Sea shale vary depending from political preferences of the researchers, and it’s really hard to compile an unbiased image of the real hydrocarbon potential of Azerbaijan. In any case, it’s necessary to note that oil and gas stocks in Azerbaijani water area of the Caspian Sea are pretty sufficient, although not unlimited. However the policy of Azerbaijan, grounded on oil and gas profits, faces a number of serious problems.



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First of all, oil and gas are not the guarantee of stable economic growth or political development of exporting countries, especially if these countries have only little experience of state development and make only first steps on the way to democratic transit and formation of civil society institutions formation.  There is even a term “oil curse”, which pretty precisely characterizes the level of economic, social and political problems and complications, rising when profits from natural resources sale flow into the country. These problems are the dark side of the front of economic well-being of oil exporting states. History knows dozens of examples of states in fate of which existence of reach natural resources (first of all oil and gas) played its crafty and even femme role – from Nigeria to Mexico, from Spain Empire of Habsburgs (in this case cheap silver from the mines in Spanish colonies in America) to the USSR. Hypertrophied dependence of the economy of Azerbaijan from profits of energy resources sale (directly or indirectly according to various estimations, up to 85% of budget incomes and 92% of export) represents a serious and chronic threat for stable social-economic and political development of the country.


On the other hand, by this moment it becomes evident that earlier announced by Azerbaijani leaders scopes of their own oil and gas have been significantly exaggerated. According to a number of experts, the chief developer of hydrocarbons in Azerbaijani water of the Caspian Sea – AMOK – has evidently already reached the peak of its production at the main oil field Azeri-Chigar-Giuneshli. By this it didn’t happen in 2013-2015 as Azerbaijani government has declared declared earlier (and wasn’t argued by the main AMOK operator – British company British Petroleum), but already in 2010. At the moment oil production in Azerbaijan (considering the stocks of State Oil Company of Azerbaijan – SOCAR) shall gradually decrease for about 10% annually from maximum scopes more than 50 mln tons of oil in 2010 (and about 45 mln tons in 2011) up to the level of production about 20 mln already in 2018-2019. AMOK plans some stabilization of reduction of oil production by commissioning by the end of 2013 – beginning 2014 of the new platform “Western Chirag” at the same field ACHG, but the term of its active operation shall be only 4-5 years and shall only allow preserving the minimal level of industrial development at the given field by 2020.


Naturally Azerbaijan also has a potential in definite increase of its options on energy sources production after the start-up of the second stage of its main gas field “Shakh-Deniz:. But the poor fate of broadly promoted gas pipeline “Nabucco” (earlier observed as the main infrastructure project on introduction of Azerbaijani gas to European market) shows, that announced gas stocks in Azerbaijan have also been significantly overestimated. Potential incomes from gas export from the given field shall not be able to compensate reducing scopes of profits from oil export by this country.


Even according to the most optimistic estimations, in case of starting  industrial development of the second stage at “Shakh-Deniz”, gas export of Azerbaijan from this field can comprise not more than 8-19 bln cubic meters annually. Considering theoretically maximum possible gas prices, income for the development at this gas field can comprise not more than 4 bln USD annually, which is incomparable with the current profits from oil import of Azerbaijan (about 15-20 bln USD annually). Let’s remind that at the moment maximum market price for gas exported by Azerbaijan is paid by Gazprom – about 220-240 USD for 1 thousand cubic meters, when Azerbaijan delivers gas to Turkey and Georgia under significantly lower price.


By this we should consider that by 2017, when the supplies from the second stage of Shakh-Deniz are planned (and it’s possible that by this term the project shall not be accomplished), the situation at gas market can be sufficiently changed, and as a result – Azerbaijani gas price shall be much lower. For example, according to the Energy and Natural Resources Minister of Turkey Taner Yildiz, already in 2013-2014 Turkish energy company BOTAS intends to refuse of the principle “Take or Pay” within gas purchases from the first stage of Shakh-Deniz field, which gave more preferential terms for Azerbaijan. Except for that by 2017, new scopes of condensed and shale gas can appear in European market, which also can lead to global reduction of process in the common gas prices market.


Thus, although in near future oil and gas factor shall preserve its role as the main financial and geopolitical resources, assuring accomplishment by Azerbaijan of its policy in Karabakh conflict, nevertheless, its options and importance shall gradually reduce. Naturally, it shall affect the approaches of official Baku in Karabakh conflict, the parameters of which, judging by all, can be significantly adjusted.


Translated by EuroDialogueXXI from politcom.ru