Russia's hardball pricing policy for natural gas is prompting Azerbaijan to accelerate its search for alternate sources of energy. Azerbaijani President Ilham Aliyev has indicated that Baku would look "whenever possible" to Iran for gas imports.
Russia's recent row with Ukraine over gas pricing has attracted international attention. Less publicized have been dramatic price increases imposed by the Russian state-controlled conglomerate Gazprom on other members of the Commonwealth of Independent States, including Armenia, Azerbaijan, Georgia and Moldova. [For background see the Eurasia Insight archive]. Russia and Ukraine settled their pricing dispute on January 5, but bitter feelings linger across the CIS about Gazprom's actions. For Armenia, Azerbaijan and Georgia, for instance, the price rose to $110 per thousand cubic meters of gas (tcm) from the previous rate of between $61-62/tcm.
In late December, Gazexport, subsidiary of Gazprom, and the State Oil Company of Azerbaijan agreed that Baku would import 4.5 billion cubic meters of gas in 2006. In comments to journalists December 28, Azerbaijani President Ilham Aliyev indicated that Baku had little choice but to agree to Gazprom's new pricing structure. "Despite the fact that the price approximately doubled, we, nevertheless, consider, that it is necessary for Azerbaijan. ... We had no other way," Aliyev said.
Although Azerbaijan possesses abundant natural resources, the country has yet to develop its natural gas sector to the extent that it can meet the country's domestic needs. According to the Turan news agency, Azerbaijan has been importing Russian gas since November 2000. The imports are especially needed for power generation, as Azerbaijani power stations have switched from fuel oil to gas. Over the last five years, Azerbaijan has imported roughly 21 billion cubic meters of gas at a cost of $1.1 billion.
In addition to Gazprom's price hike, another Russian state-controlled monopoly, United Energy Systems (UES), wants to substantially raise its price for electricity from 2.8 cents per kilowatt-hour to 4 cents per kWh. Etibar Pirverdiyev, the president of state-controlled power company Azerenergy, has termed the price hike "unacceptable" and indicated that Azerbaijan might opt to cease importing electricity from Russia. Besides Russian electricity, Azerbaijan imports roughly 50-60 megawatts from Turkey and 90-100 megawatts from Iran, mainly to cover the needs of the country's Nakhchivan exclave.
At his December 28 news conference, Aliyev indicated that Azerbaijan was eager to explore its energy alternatives. He noted that the Azerbaijani government would intensify efforts to develop the country's Shah Deniz gas field, thus reducing Baku's demand for Russian energy. Aliyev also expressed hope that Azerbaijan can develop energy links with its southern neighbor Iran. "It is not excluded, that one day we will be able to receive gas from Iran," President Aliyev said.
On December 20, shortly before the conclusion of the Gazprom export deal, Aliyev met with Iranian President Mahmoud Ahmadinejad in the Nakhchivan exclave, the Azerbaijani president's home region. The two participated in a ceremony opening a pipeline between Iran and the Azerbaijani territory. It marked the first time in approximately 15 years that natural gas had flowed into Nakhchivan, which had been blockaded by Armenian forces in connection with the still unresolved conflict over Nagorno-Karabakh. [For background see the Eurasia Insight archive]. Under terms of the 20-year swap deal, Iran will supply 250 million cubic meters of gas to Nakhchivan in 2006. The exports are expected to quickly peak in 2007 at 350 million cubic meters.
"Relations between the two friendly and fraternal countries [Azerbaijan and Iran] are rapidly developing. There is mutual understanding, cooperation and friendship between us," Aliyev said during the Nakhchivan ceremony. Ahmadinejad followed up by saying that "Iran will always be with Azerbaijan in its good and bad days."
The Iranian president's visit offered confirmation that an Azerbaijani-Iranian thaw is underway. The rapprochement has far-reaching geopolitical implications, given reports that US defense officials have been eager to expand strategic cooperation between Washington and Baku as a way of exerting increased pressure on Iran. [For background see the Eurasia Insight archive]. Stronger political and economic ties between Azerbaijan and Iran would help hard-line Iranian leaders frustrate any US attempt to "encircle" Iran geopolitically.
Alikhan Malikov, the president of gas distribution company Azerigas, said that Azerbaijan had started negotiations with Iran on buying 1 billion cubic meters of gas in 2006. "Currently, we are preparing a plan to import Iranian gas via Astara. This gas will be delivered to the Alibayramly power station," he said.
Rufat Abbasov and Mina Muradova are freelance journalists based in Baku.