SOCAR Brings Gas to Armenia Negotiations

Azerbaijan’s state oil company SOCAR is not your run-of-the-mill energy company. But it was still surprising to see it wading so far into politics recently when it outlined the conditions under which it would send gas to Azerbaijan’s arch-rival Armenia. Although the proposal will come to nothing, it sheds a light on SOCAR’s growing importance as an instrument of national policy, and on Azerbaijan’s use of energy for political ends.

On 10 June, SOCAR issued a statement saying that gas could be sent to Armenia if it liberates ‘the occupied territories’ – the enclave of Nagorno-Karabakh (a self-declared independent state) and surrounding regions. The areas are internationally recognised as Azerbaijani territory but which have been held by Armenian forces since the bloody Nagorno-Karabakh war between the two states, which began in 1988, ended in 1994. Nineteen years on the ceasefire remains tenuous, and Armenia remains under blockade by both Azerbaijan and Turkey.

The statement highlighted Azerbaijan’s growing importance for global energy security, and its pivotal role in the EU’s Southern Gas Corridor. It said that the Armenian government’s policy “is against the vital interests of its people, impedes the social and economic development of the country, as well as in the whole region”, and that if it took steps towards a peaceful resolution, “it may be involved in regional and global energy projects.”

It’s a curious statement, but one that makes more sense in the light of a little-publicised remark by SOCAR’s president two days prior. Rovnag Abdullaev, discussing Armenia’s current gas dispute with Russia, said that “Azerbaijan is a humanitarian country and realizes its role of a leader of the region. If Armenia applies to us for settling its gas issue we will certainly help”. The formal SOCAR statement looks like an attempt to clarify what seems to have been an off-the-cuff remark.

Still, analysts have been discussing the reasons behind it. One explanation is that it was a riposte to a statement by the Armenian president that Azerbaijan would soon be “bankrupt”. Another is that it was intended to reassure both Armenia and international audiences that Armenian concessions would be economically rewarded; another analysis suggests that the proposal was, in part, to test the domestic reactions in both Armenia and Azerbaijan.

The time is certainly ripe to make Armenia a tempting offer. The country is in the grip of an energy crisis as Gazprom, Armenia’s dominant gas supplier, takes over the Armenian government’s stake in ArmRusGazProm, a joint-venture set up to import and distribute Russian gas. Gazprom moved after threatening to increase Armenian gas prices by 60%; Armenia managed to wrangle that down to an 18% rise, but apparently at the cost of control over the joint venture. The move has caused anger in Armenia, where resentment of Russia’s economic chokehold is growing, and created an ideal opportunity for Azerbaijan to step in.

On the Azerbaijani side, the proposal illustrates two things. Firstly, it is another indicator of Azerbaijan’s evolving strategy towards Armenia. It has been clear for years that the official peace process on Nagorno-Karabakh is going nowhere, whilst Azerbaijan’s regular threats of war seem hollow given its pursuit of economic stability and the region’s fragility.

So Baku is pursuing a third way: using its booming economy and emergence onto the global stage to persuade Armenia into compromising. Azerbaijani officials are keen to contrast the glitz of Baku and their growing diplomatic clout with Armenia’s economic and political stagnation. Offering to sell plentiful gas – par for the course for an energy superpower – only reinforces this narrative.

This policy is distinctly different from the ‘pipelines for peace’ idea floated in the mid-1990s as Azerbaijan’s oil industry got off the ground. That idea was not only pushed by the US rather than by one of the conflict parties; it was also based on a notion of ‘pipelines for peace’, with an oil pipeline through Armenia to Turkey acting as an incentive to peace and regional stability. This time, Azerbaijan is putting the idea out, and it’s suggesting ‘peace for pipelines’: compromise, and we’ll give you gas.

Nobody seriously expects the idea to get off the ground: Armenia has not withdrawn its troops for twenty years and won’t do so for some cheap natural gas. But it indicates Azerbaijan’s supreme confidence on using its gas as a political weapon.

Secondly, the proposal sheds a light on the role of SOCAR as an increasingly critical state actor. It is no longer just a domestic upstream oil and gas company and a necessary partner for IOCs in Azerbaijan. It has now set its sights on expanding internationally, in both upstream projects (exploration work in Israel and Saudi Arabia), midstream (its purchase of Greece’s DEFSA gas grid) and downstream (the $5 billion Star oil refinery on Turkey’s Aegean coast, as well as a network of filling stations across eastern Europe).

Dipping its toes into the political waters marks a significant extension of that. It may have been a one-off under very specific circumstances, but it could also be part of a bigger trend as gas production takes SOCAR’s wealth, global reach, and domestic influence to a new level. And if the energy crisis between Russia and Armenia continues, gas is likely to become a crucial part of Azerbaijan’s negotiating toolbox.

Alex Jackson is an analyst of political, energy and security issues in the Caspian region. He is based in London and can be contacted at ajackson320@gmail.com.