Geopolitics

Armenia and Azerbaijan are one step closer to a peace agreement. What opportunities and possibilities would peace bring for the region and the EU?

Alžbeta Gavalcová

Nikol Pashinyan, Prime Minister of Armenia, and Ilham Aliyev, President of Azerbaijan, reached an agreement on mutual recognition of territorial integrity and sovereignty between Armenia and Azerbaijan at the European Political Community summit in Prague. Armenian officials later declared that Yerevan was ready to sign a peace treaty and an agreement on the delimitation of the mutual border with Azerbaijan by the end of this year. Should this happen, it could mark the end of the decades-long conflict between the two countries. Stability in the South Caucasus is also in the interests of the EU, which has been quietly improving its relations with Baku in the energy sector in particular in recent years. Azerbaijan’s importance to Brussels has grown even more following Russia’s attack on Ukraine and because of Europe’s need to find an alternative to Russian gas and oil. So what possibilities and opportunities in the field of energy can peace between Armenia and Azerbaijan bring, not only for the region but also for the EU?

Russia, which has been Armenia’s greatest ally, is currently focusing all its attention on Ukraine. This significantly limits its ability to support Yerevan, which has been reflected in Azerbaijan’s willingness to escalate its pressure on Armenia in recent months. Moscow did not intervene even during the recent Azerbaijani shelling of Armenian territory. Moreover, it does not appear from Russian statements that this attitude of Moscow is likely to change in the near future. Russia is thus showing that it is no longer a reliable guarantor of security in the region or a partner capable of defending Armenian interests vis-à-vis Azerbaijan. This situation thus puts pressure, in particular, on Armenian Prime Minister Pashinyan, who seems willing to sign a peace treaty with Azerbaijan even at the cost of recognising Azerbaijani sovereignty over Nagorno-Karabakh. Indeed, the recent armed clashes between the two countries have shown that in the event of continued Armenian reluctance to sign a peace treaty, Azerbaijan is prepared to intervene militarily not only in Nagorno-Karabakh, but also to take the conflict to the territory of Armenia itself. Moreover, the achievement of an agreement is supported diplomatically by the US and the EU. Moreover, a possible peace would almost certainly normalise also Turkish-Armenian relations, as Ankara has long been Azerbaijan’s closest partner.

In terms of energy, the situation of the two countries is diametrically opposed. Unlike Armenia, Azerbaijan has access to the Caspian Sea, which is the region’s source of fossil fuels. This makes it a lucrative partner with the largest oil field, Azer-Chirag Guneshli, as well as natural gas reserves in the Shah Deniz gas field. However, even with its mineral reserves, the country is largely underutilising its potential for renewable energy production. Armenia, on the other hand, has neither natural gas nor oil reserves and is heavily dependent on energy imports. Russia currently supplies Armenia with up to 85% of the natural gas that flows through Georgia. In the Soviet and post-Soviet era, the country faced constant blackouts and severe energy shortages. Today, the Russian subsidiary Gazprom is the sole distributor of natural gas in Armenia, with the exception of minor supplies from Iran.

From Brussels’ point of view, the transit infrastructure in the form of the Baku-Tbilisi-Ceyhan and Baku-Supsa pipelines and the Southern Gas Corridor, which runs from Azerbaijan, through Georgia and Turkey to the EU, is particularly crucial. Although Azerbaijani gas cannot fully replace Russian gas, Azerbaijan is currently able to supply the EU with around 11.5 billion cubic metres of gas per year. By comparison, until recently the EU imported up to 155 bcm a year from Russia. The newly opened Greek-Bulgarian interconnector feeds a further 3 bcm, of which Azeri gas accounts for a third. However, the Union recently signed an agreement with Azerbaijan to increase annual gas supplies to 20 billion cubic metres by 2027 at the latest. Cooperation is also expected in solar and hydro projects.

The EU is therefore actively working with the Caucasus countries to improve energy security and build capacity in the field of renewable energy. Overall, Azerbaijan is consolidating its position as a dominant energy player in the region and is also concluding bilateral agreements with Pakistan, which is currently facing energy shortages. The same applies to Turkey, for which Azerbaijan’s gas exports have increased by 20%.

However, there are also voices within the EU’s energy security framework that warn against relying too much on Azerbaijani gas as an alternative to Russian gas. This is mainly due to Russian interests in Azerbaijan’s energy sector – Russia’s Lukoil has a stake in the Shah Deniz gas extraction field in Azerbaijan (which is due to reach its peak in production next year), or possible links of the Azerbaijani leadership to corruption and money laundering. Moreover, Azerbaijani gas will never replace Russian gas in terms of volume.

Photo credit: The Prime Minister of the Republic of Armenia Website

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