Azerbaijan: SOCAR's Westward Expansion Could Hamper Russia's Caspian Plans

SOCAR, Azerbaijan's state energy company, is aiming to become an influential regional player in the Caspian Basin's already crowded field. The company's emergence may bolster Azerbaijan's ability to resist potential bullying by Russia, which currently enjoys a dominating advantage in the regional game over energy development and exports.

Flush with cash generated by record oil and gas production in 2007, SOCAR this year is in the midst of carrying out an ambitious plan to establish an international profile. Already, the company has opened offices in Britain, Romania, Switzerland and Turkey, and it is currently laying the groundwork to establish a refining presence in Central Europe.

It is the neighboring state of Georgia, however, that is the focal point of SOCAR's initial move into foreign markets. The Azerbaijani company has established a Georgian subsidiary, and has renovated export facilities at the Georgian Black Sea port of Kulevi. It is also participating in the privatization of the Georgian gas distribution network, while planning to open 20 gas stations throughout Georgia.

Togrul Juvarly, an independent energy analyst in Baku, said economic and political motives were guiding SOCAR's expansion. Investing abroad, he stressed, would help promote domestic tranquility in a country like Azerbaijan, which currently has a relatively low standard of living, but which is generating vast income via the rapid rise in energy exports. The sudden influx of petrodollars has some analysts worrying about the appearance of "Dutch disease" in Azerbaijan. [For background see the Eurasia Insight archive].

"The investment policy by SOCAR is good practice [in that it] decreases inflationary pressure and [the possibility of] overheating of the economy in the country," Juvarly said. According to a February 4 report distributed by the Trend Capital news agency, officials in Baku have doubled the estimated revenue from energy exports that the state expects to receive through 2024 to $400 billion.

On the foreign front, SOCAR expansion has the potential to deal Russia a severe blow in the Caspian Basin. A mature SOCAR, possessing a strong distribution and refinery network in Central Europe, could help entice Central Asian producers Kazakhstan and Turkmenistan to participate in the long-planned Trans-Caspian Pipeline project. It could also infuse a long-directionless grouping of states, comprising Georgia, Ukraine, Azerbaijan and Moldova, known as GUAM, with a sense of purpose that would definitely run counter to Russia's interests. [For background see the Eurasia Insight archive].

"SOCAR's foreign activity