Hailey Cook

How would you describe the current situation in the South Caucasus and wider region?

Let me start by putting your question in the context of the current political tension over the settling of old disputes and the contemporary geopolitical climate.

If Turkey ratifies the latest draft of the protocol agreement signed by Turkey and Armenia, then it will risk souring relations with Azerbaijan - essentially the strategic backbone of the region. This would further complicate energy negotiations. If Turkey ultimately decides not to ratify the protocols, Turkey will face serious pressure from the US, Europe and the international community.

The dispute settlement over the Nagorno-Karabakh conflict also remains a monkey on the back of the Ankara-Baku-Yerevan triangular relationship. Iran has also expressed its desire to be at the Nagorno-Karabakh resolution table, a move that irritates the West. The US is wary of a visible increase in cooperation in economic and energy security projects between Turkmenistan, Turkey and Iran. Moreover, the US does not see a place for Iranian gas in the Southern Corridor.

The future of the Turkey-Armenia peace protocols depends greatly on the larger political debate over the events of 1915. Tension rises here in Washington as the 24 April date approaches. Congressman Berman has announced a 4 March 2010 mark-up of the genocide convention in the House Foreign Affairs Committee. Time is running short for both the Armenian and Turkish governments to reach a compromise.

It’s clear that the US still needs to develop a comprehensive strategy towards the region, updated from what is no longer a post-Cold War environment. It has dealt with Central Asia with an ad-hoc policy. As the August 2008 war in Georgia showed us, the US can no longer afford to use what some analysts refer to as a policy of “benign neglect”. Within Europe, including Turkey, there needs to be an emphasis on diplomatic advocacy of coordination of supplies, good governance practices, as well as transparency in opening markets. Russia’s interest in Turkey-Armenia rapprochement is centered around two key interests: to isolate Georgia and disputes over South Ossetia and Abkhazia, and to minimize the strategic partnership between Turkey and Azerbaijan. As for the geopolitical climate, the struggle between Iran, Russia, China and the US over pipeline routes for Central Asian oil is an indicator of continued struggles to come. 

What is the role of the Caspian region, and Azerbaijan in particular, in ensuring global energy security? 

Central Asia is already the centre of the world’s transport of oil and natural gas, with the Caspian region holding an enormous wealth of natural gas reserves. The new catch phrase is that natural gas is the oil of the future. I think that the capacity of the governments of the Caspian region will be tested like never before, and they will need to make smart, consistent decisions on investments in trade and economic reform. In the next decade or two, there will be three vital components of energy security policy in the region: a comprehensive regional policy, one that we would have seen formed in the Central Asia, Caucasus and Stability Act; secondly, a fluid and consistent EU and US policy toward the region, including engagement on the part of NATO and the OSCE; and thirdly, all policy toward the region should focus on diversification, as natural gas has the potential to fuel the gap between renewables and non-renewables.

Since July 1999, Armenia, Azerbaijan and Georgia, respectively, have established partnerships under the European Neighbourhood Policy. The EU’s Partnership and Cooperation Agreements [ENP] were geared toward improving trade economic integration with the EU. The ENPs included better practical access for its products to EU markets, non-preferential trade and the harmonization of partner country's laws and practices with the EU's main trade related standards. Hoping to align itself with international trading standards, and appealing to the EU, Turkey, as a hub in the East-West corridor has much to gain from its positioning; maybe one step closer to EU accession. The structural mechanism is in place under the ENP, but we have yet to see real movement on such trade integration. Without question the Southern Corridor has the greatest potential for stimulating a solid energy investment climate in the region, and Azerbaijan is the key player within the Southern Corridor.

Running parallel to the Baku-Tbilisi-Ceyhan oil pipeline is the South Caucasus Baku-Tbilisi-Erzurum, Pipeline, a natural gas pipeline that would transport natural gas from the Shah Deniz gas field in Azerbaijan to Turkey. The Trans-Caspian Gas Pipeline project, if built, would transport natural gas from Kazakhstan and Turkmenistan to central Europe, also circumventing both Russia and Iran. The US is likely to continue to push for Kazakh and Turkmen gas, especially Turkmen gas, as well as to focus on Ukraine’s energy investment climate. As for US policy toward Azerbaijan and US support for the completion of the Nabucco project - the lack of a US ambassador in Baku sends a message to the Azeris that the US doesn’t view political and economic stability in the region as urgent. The US cannot afford to drag its feet on cooperation with Azerbaijan. Azerbaijan has shown its relative power to go elsewhere for allies. The same goes for Turkmenistan, where the US only has a part-time ambassador. On the topic of transit in the Southern Corridor, the US secretary of state's special envoy for Eurasian energy, Richard Morningstar, has said that the US supports a new Southern Corridor that would provide natural gas to Europe, whether or not that is through Nabucco or the Turkey-Italy-Greece Interconnector, as long as it’s also providing a commercial benefit for Central Asia and the Caucasus.

An important role of the Caspian will be to focus on diversification, as I said before. Turkmenistan is doing a very good job of this. Diversification of course enhances market function by reducing the incentive for political manipulation, which is needed in the region.

What will be the fate of the Nabucco project to build a pipeline to pump gas from the Caspian region to Europe?

My sense is that the partners in the Nabucco project will find an alternative. Ultimately, I think Nabucco will succeed. The Nabucco project would diversify gas supply routes in Europe, and though it is still more expensive than South Stream, in the interest of European energy security, it is the best option. It would bring natural gas to Europe from Iraq and Azerbaijan, via Turkey. The chief executive of the Nabucco project, Reinhard Mitschek, is optimistic about its implementation and also said that the European Bank for Reconstruction and Development, the European Investment Bank and other financial structures have expressed interest in financing the project. It remains to be seen if these burgeoning offers come to fruition.

Those wary of Russia’s interest in collecting transit fees and desire for political gains also feel that Nabucco will be on shaky ground if Russia succeeds in accessing more Azerbaijani gas. Nabucco is really the prize project of the region. In the meantime, despite the better option of Nabucco, international attention may continue to examine the cheaper, and more viable South Stream projects which would transport gas from Russia via the Black Sea, bypassing Ukraine. 

Russia has agreed with Azerbaijan on increased deliveries of Azerbaijani gas. How might this affect global energy security? 

Russia’s policy is to maximize the available capacity for the export of gas through pipelines. It has done this to such an extent that export pipeline capacity substantially exceeds the actual availability of gas for export from Russia. Russia still stands to be a big winner if it can exert pressure on the Turkey-Azerbaijan relationship. At the same time, Azerbaijan has also increased the commercial export of gas to Iran. The building of the Sangachal-Azadkend-Astara pipeline is under way as of 2010. Additionally, Turkey signed major economic trade deals with Iran in October 2009. The three powers - Iran, Turkey and Russia - are still vying for the largest stake possible. Meanwhile, Turkmenistan, which has the fourth highest gas reserves in the world, has been actively following the policy of diversifying its gas supplies. Interestingly, Turkmenistan has chosen China as a route, not the already existing trade routes in Iran and Russia. These developments underscore the lack of regional cooperation. A complex set of factors, including political disputes, point to major fault lines in the future of energy security in the region.

Kazakhstan has stopped sending its oil through the BTC pipeline. Is this a threat to the Nabucco project?

The Kazakh minister of energy and mineral resources, Sauat Mynbayev, recently said that Kazakhstan’s Tengizchevroil had suspended oil supplies by the Baku-Tbilisi-Ceyhan pipeline (BTC) due to a dispute with Chevron over the tariff for oil pumping. The Kazakh case is a very new development, therefore it’s hard to forecast what the impact of this dispute over raising tariffs will be; however, I will say that since Kazakhstan is not the main supplier of the project, supplying around 8%, I think this will only be a short-term crisis. 

Azerbaijan is still discussing with Turkey transit prices for gas exports from the Caspian region to Europe. Azerbaijani President Aliyev stated recently that unsuccessful negotiations with Turkey had delayed progress on pipelines in the South Caucasian energy corridor. What is your view of this? 

It’s true that there have been significant delays. The most pressing obstacle in Baku and Ankara is determining gas pricing for Azerbaijani gas that would transit through Turkey to fill another Southern Corridor pipeline in the Turkey-Greece-Italy Interconnector. I would suggest that it’s likely that Azerbaijan will begin to look to Russia and Iran to increase its gas exports in response to the stalled projects and dialogue with Turkey over the Southern Corridor. Though, the export of Azerbaijani gas to China remains open to question. There is no reason to believe that Azerbaijan will permanently turn its back on Turkey. Turkey is also currently preoccupied with delicate domestic political problems, namely a battle between the Islamic leaning civilian leadership and the Turkish Armed Forces, the guardians of the Kemalist-secular state. This week the ruling Justice and Development party (AK Party) has arrested top military officials over an alleged coup plot against the current government. Secondly, we await next week’s debate over the Armenian genocide resolution. Both of these factors have the power to cause civil unrest in Turkey. Unfortunately political issues over the last two years have overshadowed major pipeline deals, and stunted positive trade growth.

Hailey Cook is program coordinator and research associate of SETA (Siyaset Ekonomi ve Toplum Araştırmaları VAKFI) Foundation for Political, Social and Economic Research in Washington DC.

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