Wednesday, April 1, 2009

Memorandum of Understanding between Gazprom and SOCAR: No Shah-Deniz Gas for Nabucco?

Turkey’s improper conditions for transit of Azeri gas from Shah-Deniz field vie its territory and the lack of unique stance and the commitment by EU on the proposed Nabucco project encouraged Russia to feel confident in its strives to gain control over Azeri gas export. The recent Memorandum of Understanding signed by Gazprom and SOCAR is basically seen as Azerbaijan is seeing no better alternative than going to negotiation with Russia.

On March 27, 2009, Rovnag Abdullayev, president of SOCAR (Azerbaijani State Oil Company) and Alexei Miller, chief of Gazprom came together to discuss the terms of deliveries of Azeri gas. The Memorandum of Understanding, signed by the two says the first delivery was projected for January 2010 on DAF conditions (Delivered on Frontier). According to the Memo, Gazprom and SOCAR will perform technical inspection of gas pipeline system at the Baku – Nova-Filya sections, through which Azerbaijani gas will be supplied to Russia. There was no reference to the volume of gas to be delivered. What was known was the intended supply of gas to Russia’s Dagestan, in southern border.

Russian newspapers presented the March 27 Memorandum as a victory of Gazprom as a result of recent Russian-Western confrontation over the oil-rich Caspian region. Citing Tatyana Mitrova, Director of the Centre for the Study of the Global Energy Markets at the Russian Academy of Sciences, Interfax reported that Gazprom’s grip of Azeri gas would reduce the probability of sufficient gas for Nabucco.


Azerbaijan is growingly disposed to have unfailing transport route for exporting its gas. Baku always seemed to have preferred EU-supported Nabucco. In president’s level, Azerbaijani authorities have publically endorsed the Nabucco. The Active participation of Azeri President Aliyev in Budapest summit of Nabucco and the recent visits of high level officials from European countries were seen as Azerbaijan has made Nabucco a priority. However, following ambivalent philosophy of European Union and Turkish obstruction, Azerbaijan is going to find much profitable alternative routes.

The gas to be transported through Nabucco pipeline in the EU-planned Southern Corridor for gas export to Europe is being blocked by Turkey through unilateral demands that are not acceptable both the EU and Azerbaijan. During his Brussels and Moscow visits early this year AKP leaders went further outlining their government’s position as trying to press the EU on this project, in order to speed up Turkey’s accession negations with EU (Eurasia Daily Monitor, March 16). In the meantime, Turkish government was asking Baku to pay the prices for Ankara’s idealistic dreams. Ankara insists on having a right to purchase 15 percent of the Azerbaijani gas but paying less than European netback prices for that lift-off portion. Through its inappropriate conditions, Ankara is holding back the export of natural gas from Azerbaijan to European consumers. Moreover, Turkey’s postponing maneuvers hamper Azerbaijan’s direct access to European market through Nabucco project.

Along with Turkey, EU has not displayed unique stance with regard to the proposed pipeline. While this ambivalence of EU became manifest in the Budapest summit, where EC, after difficult political bargaining, had managed to allocate €250 million as a start-up credit to help launch the project (although project’s estimated cost is €8 billion), the recent statement by German chancellor Angela Merkel deepened those beliefs about EU’s cautiousness. Merkel has taken a stance against proposals to use EU funds to finance Nabucco pipeline project, during the EU’s informal summit of heads of state and governments on March 1 in Brussels (Eurasia Daily Monitor, March 9). German Chancellor argued there has been no need for EU to finance Nabucco: “Nabucco’s problem is where gas would come from – not an insufficiency of investment funds.” Although the arguments of Merkel are rather disputable and seem inaccurate, the views on Nabucco among EU countries are pretty fragmented.

It is true that Baku understands Nabucco’s importance in increasing Azerbaijan’s role as a gas supplier playing a momentous role in Europe’s energy security. However, seeing the project is not moving forward due to above mentioned hindrances, Azeri government, who takes the position that gas export is a business project, is going to seek other alternatives. In this respect, Gasprom’s offer to buy Shah-Deniz at netback prices is seen much lucrative and commercial for Baku. As Baku-based political expert Rasim Musabeyov maintained, Azerbaijan is interested in the economic aspects of the project: “The more gas markets are available the more Azerbaijan benefits.” Besides, other sub-factors are forcing Azerbaijan to feel enthusiastic in his deal with Gazprom. Azerbaijan bought gas from Gazprom until 2007. Following Gazprom’s raising the gas prices and BP-led fields’ beginning production that year Azerbaijan became a gas exporter and refused importing gas from Russia. According Ilham Shaban, Director of Oil Researches Centre, the pipeline, through which Azerbaijan exported gas from Russia until 2007, is still useless and Azerbaijan loses much from that. Selling gas to Gazprom Azerbaijan would ensure to reuse that pipeline. Another reason why Shaban makes optimistic statement on SOCAR-Gazprom agreement is his belief in chances of Azerbaijan to expand geography of gas export in a short run.

Russia-hosted Nagorno-Karabakh talks: Background motives

Joint declaration signed

Armenian and Azerbaijani Presidents met in Moscow on November 2 at the invitation of Russian President Dmitry Medvedev to discuss ways to resolve the Nagorno-Karabakh conflict. The trilateral summit was ended with signing joint declaration on peaceful resolution of the long-standing dispute. This is a first document signed by the two countries on the issue after 1994 ceasefire agreement.

In the resolution, Azerbaijani and Armenian Presidents pledged to intensify negotiations to end the dispute. “The presidents of Azerbaijan and Armenia decided to continue their work to agree on a political settlement to the Nagorno-Karabakh conflict”, Medvedev said. He further added that the presidents instructed their foreign ministers to activate the negotiation process, in collaboration with the co-chairs of the OSCE Minsk Group.

The Presidents “state that they will promote improvement of the situation in the South Caucasus and provision of establishment of stability and security in the region through political negotiation on the basis of the principles and norms of international law […] in order to create favorable conditions for economic development and comprehensive cooperation in the region”, ITAR TASS reported.

Aliyev, Sagsyan and Medvedev “confirmed the importance of continuation of the mediation effots by the OSCE Minsk Group co-chairs”.

The Presidents further agreed that “attainment of the peaceful solution must be accompanied by legally binding international guarantees of all its aspects and stages”.

The last paragraph of the resolution says that the presidents “consider it important to encourage creating conditions for taking steps to strengthen trust in the context of efforts on resolution”.

Russia’s interests

The Western Media commented Russian push as seeking to underline its influence in the Caucasus. It is regularly reported that Moscow has been vying for influence with Washington in Azerbaijan, a key energy exporter that ships oil and gas through Western-backed pipelines through Georgia and Turkey, bypassing Russia. Medvedev’s proposal was seen as a renewed Kremlin effort to strengthen its influence in the Caspian region following Russia’s brief war with U.S.-allied Georgia in August which raised tensions throughout the region. The War between Russia and Georgia in August appears to have lent new impetus to diplomatic efforts to resolve the Nagorno-Karabakh conflict, with Russia trying to show it can act as a broker for “frozen conflicts” in the former Soviet Union. “Georgia’s August attack on South Ossetia had underlined the need to settle complicated issues only on the basis of international principles and negotiation”, said Medvedev.

Yerevan-based U.S. analyst Richard Grigosian sees Medvedev’s initiative as intended to counter and challenge a bid by Turkey to promote itself as a guarantor of stability in the Caucasus. But even more important, Grigosian says, is Moscow’s clear commitment to working together with Washington to achieving a solution to the conflict. “It is a sign that Russia remains committed to the ongoing OSCE Minsk Group peace process seeking solution to Nagorno-Karabakh and, most importantly, despite the fact that this presidential summit is being hosted by the Russians, it is a demonstration and affirmation that the U.S. and Russia still share the same goals of pursuing the Minsk Group process and trying to negotiate a solution to this last frozen conflict in the South Caucasus”. “The U.S. and Russia do have areas of cooperation, do have areas where they could work together, and in many ways it is in Russia's interest to maintain at least the status quo regarding Nagorno-Karabakh," Giragosian adds, "and both the U.S. and Russia remain committed to preventing any new escalation or outbreak of hostilities, especially to prevent Azerbaijan from trying to solve this unresolved conflict militarily." For this point of view, therefore, simply hosting the summit may be perceived in Moscow as more important than any actual outcome.

Speculation about the imminent breakthrough in the peace process

The Russian President-mediated talk fueled rumors about a sooner resolution of the conflict. First, while all sides have publicly affirmed that the August war between Georgia and Russia has demonstrated the futility and risks inherent in trying to resolve conflicts on the territory of the former Soviet Union by military force, the Armenian and Azerbaijani negotiating positions still remain far apart on several key points.
A second problematic issue is that of Karabakh's future status. But the 200-word declaration avoided the main sticking point -- the status of Nagorno-Karabakh itself -- and did not go into detail about ways to resolve the conflict. Azerbaijani President Ilham Aliyev reiterated on October 24 during his inauguration for a second presidential term that Azerbaijan will never agree to concede part of its territory. "Karabakh will never be independent," news agencies quoted him as saying. "Azerbaijan will never recognize it. Neither in five years, nor in 10, 20 years. Never." Aliyev's Armenian counterpart Serzh Sarkisian, for his part, told Armenian Public Television on October 27 following a visit to Nagorno-Karabakh during which he toured the heavily militarized Line of Contact between Armenian and Azerbaijani forces east of the NK that "a resolution of the Nagorno-Karabakh conflict is possible if Azerbaijan recognizes the right of the people of Nagorno-Karabakh to self-determination; if Nagorno-Karabakh has a land border with Armenia; and if international organizations and leading nations guarantee the security of the people of Nagorno-Karabakh."

Speculation about a breakthrough in the peace process has focused not on the status issue, but the question of deploying international peacekeepers in the Lachin Corridor and the regions of Azerbaijan bordering the NK that are currently controlled by Armenian forces. Some analysts have suggested Russia could insist that its 58th Army take on those responsibilities. But Armenian Defense Minister Colonel General Seyran Ohanian told the Armenian newspaper "Iravunk-De Facto" on October 31 that any peacekeeping force will not be 100 percent Russian. Meanwhile, concern is growing in Armenia that Sarkisian might be constrained to make a major concession, possibly on the withdrawal of Armenian forces from occupied Azerbaijani territory, without securing any tangible benefits in return. The Armenian Revolutionary Federation-Dashnaktsutiun (HHD) released a statement on October 31 warning that it will quit the coalition government if Sarkisian betrays "national interests" by agreeing to cede those territories.