Russia returns to Azerbaijan

Russia returns to Azerbaijan


Yevgeni Krishtalyov, exclusively to VK

The fleeting but extremely rich visit by Vladimir Putin to Azerbaijan marked a shift in Russia's energy policy in the region. Moscow confirmed its intention to abandon the old geopolitical dogmas and prejudices and to be guided exclusively by pragmatism - to initiate and participate in all projects that are economically feasible and profitable for Russian companies.

Putin stayed in Baku for a few hours. The schedule of a working trip did not expect large ceremonial celebrations, but, nevertheless, he managed to see all the beauty of the renewal of the Azerbaijani capital and drink some tea with his counterpart, President Ilham Aliyev, and even show him a Russian warship which arrived in Baku on a friendly visit.

Such a background for a working trip could not help reflecting on the comments of analysts, many of which stereotypically associated the visit with political factors – the upcoming elections in Azerbaijan or the settlement of the Armenian-Azerbaijani Nagorno-Karabakh conflict. Undoubtedly, in one way or another, these issues were raised during the negotiations, but were not touched upon as central ones.

But the main topic was the economy, or rather the energy industry. The ideologist and conductor of the new energy policy of Russia was the current head of Russia's largest oil company "Rosneft," Igor Sechin, who previously held the post of vice-premier of the Russian government overseeing the entire energy sector. His visit to Baku in early July, looked sensational against the backdrop of a slowing intensity of contacts between the Azerbaijani and Russian representatives in the higher echelons of power. Sechin's arrival in Azerbaijan and his initiatives to work together with colleagues from the State Oil Company of Azerbaijan (SOCAR) completely refuted the findings of ill-wishers on a certain cooling in relations between the two countries. The shadow of the winter "conflict" over the Qabala radar station, which in reality was not necessary neither for Russia, nor for Azerbaijan, was fully dissipated.

In just a month, "Rosneft" and SOCAR were able to agree on the main areas of joint work that were formulated in the two agreements: on cooperation and on basic conditions of supply of oil between the two companies. A joint venture will be created on a parity basis that will be engaged in search for and implementation of projects for the exploration and production of oil and gas in various countries, including Russia and Azerbaijan. "Rosneft" and SOCAR will cooperate in marketing and sale of hydrocarbons and petroleum products and share a number of infrastructure projects, including pipelines and terminals.

If the agreement between SOCAR and "Gazprom" concluded several years ago on the beginning of purchases by the Russian side of Azerbaijani gas was called a breakthrough, the contract with "Rosneft" can be considered revolutionary. The fact is that the deal with "Gazprom" fitted into the scheme of the former Russian energy policy of concentrating all hydrocarbon streams of oil and gas on itself. The new scheme is beyond the old patterns: Russia is ready to work more widely, using all ways and means to effectively export its own raw materials, including ways which were once considered "political", bypassing Russia, and therefore were touted as malicious. Attempts to prevent the promotion of new ways of hydrocarbon exports have not yielded the desired results.

For the first time in ten years, the Russian company recognized the importance of the Baku-Tbilisi-Ceyhan oil pipeline and wanted to use a new route to its advantage. "Rosneft" acknowledged that it acquired high quality Azerbaijani oil to its refineries in Western Europe, and now they want to make such deliveries a system. The parties may exchange oil supplies (so-called swap transactions) in a variety of configurations.

In this context, the cooperation in the Far East and South East Asia is considered promising and no less important. "Rosneft" is one of the biggest suppliers of oil to China and other Southeast Asian countries, and the State Oil Company of Azerbaijan is actively working at the oil trading market in the region. The parties agreed to identify possible joint operations in this part of the world.

For Azerbaijan, such a reversal of Russian policy can be considered a great success and confirmation of self-righteousness in the chosen path of development defined as far back as the early 1990s by the strategy of Heydar Aliyev, who could not conceive grand Azerbaijani projects without Russia. After nearly two decades Moscow comprehended the situation and returned to Azerbaijan.

With Sechin’s transition from the government to "Rosneft" it has been made possible to scrap stereotypes and to practically implement the new energy policy. In other words, common sense prevailed on the possibilities of promoting the interests of Russian companies on a global scale. The deal between "Rosneft" and Azerbaijan, like BP and Exxon earlier, should be seen in this perspective. And the fact that this policy is long-term and guaranteed was confirmed by Vladimir Putin’s public statement in Baku at a joint press conference with President Ilham Aliyev.

Putin's support for projects of "Rosneft" in Azerbaijan is extremely important. Sechin, a friend and associate of the Russian leader, was able to organize real visit to Baku of the Russian president and his personal presence at the signing of strategic agreements. Putin stressed the national importance of Sechin’s actions and brushed aside the prejudices of his opponents, but at the same time confirmed the level of strategic partnership with friendly Azerbaijan.

For the implementation of the agreements with the State Oil Company of Azerbaijan and other international projects, "Rosneft" still has to overcome resistance from the Russian monopolies - "Transneft" and "Gazprom", which control the exports of Russian oil and gas. It is noteworthy that in the vast Russian delegation in Baku there was not a single representative of "Transneft" or “Gazprom".

The mission of "Rosneft" at the present stage is to reshape the Russian oil and gas market, so that monopolies were less able to influence it. The deal with Azerbaijan is only one element of the impact in this case on "Transneft", which is negotiating with SOCAR on a new agreement for 2014 on oil transportation via Baku-Novorossiysk pipeline, the so-called "northern route" of export of Azerbaijani oil. As variants of cooperation, "Rosneft" and SOCAR consider reverse, at least, from Makhachkala to be possible for supplies of Russian oil for processing at the underutilized factories of SOCAR. (Such a scheme operated in Soviet times and allowed efficient use of the processing power of the Azerbaijani oil refineries, that provided the entire region of the Caucasus with petroleum products). However, the pumping of all Russian oil for exports now belongs to "Transneft", for which such an agreement can be a complete surprise.

Gas potential of the cooperation between "Rosneft" and SOCAR is no less intriguing. In the future, it may somehow affect the interests of the Russian monopolist – "Gazprom". Today it has the opportunity to purchase from Azerbaijan up to 3 billion cubic meters of gas per year to supply customers in the North Caucasus. In turn, "Rosneft" plans to increase by 2020 its gas production to 100 billion cubic meters per year, which will make it the second-largest natural gas producer in Russia. However, like in the case of oil, the company has no self-service access to the gas transportation system of the country. Like other Russian gas producers, "Rosneft" delivers gas at the disposal of "Gazprom", which in turn is responsible for export sales, sending hydrocarbons abroad.

Equal access to Russian pipelines gets more urgent in the light of a number of complexities that "Gazprom" is concerned about in Europe after the launch of the "Nord Stream" and the start of construction of the "South Stream". The third energy package adopted by the European Union and limiting the ability of companies – owners of gas to possess pipeline capacities and distribute gas to the EU has created great difficulties for the Russian monopolist. SOCAR will also soon face a restrictive effect of the measures on the European gas market after the launch of the Southern Gas Corridor, which includes pipelines TANAP and TAP (passing through Turkey, Greece, Albania and Italy), and the purchase of Greek DESFA, which owns the gas distribution system in Greece.

The alliance between "Rosneft" and the State Oil Company of Azerbaijan may create conditions to circumvent the stringent requirements of the EU. We cannot exclude that in some configuration Russian gas could fall in Azerbaijani Southern Gas Corridor, formally breaking the monopoly of "Gazprom". Otherwise, the owner of gas will be considered as Russian company, from which SOCAR as the owner of the gas transportation system of Greece will buy gas for domestic needs of the country. The joint venture agreed upon by corporate executives may be useful in the most unexpected variants. In addition, the parties may exchange assets, and SOCAR will receive a number of interesting projects in Russia, in return for giving the Russians its participation in the projects on the Caspian shelf – for example, gas field "Absheron", about which so much has been said during his first Sechin’s visit to Baku.

Russia's new energy policy in the Caspian region is able to form a completely new system of economic relations, which will link and unite Azerbaijan and Russia stronger than any political declarations. You can definitely say that a single economic interest can help finding solutions to the most complex and regional conflicts, particularly the Nagorno-Karabakh conflict, the end of which is looked forward to by Azerbaijan.