Aiming to Reduce Russian Role in Caspian, Azerbaijan Builds Economic Ties with Asia

Azerbaijani President Ilham Aliyev's late-April trip to South Korea underscores how Asian states are becoming an increasing factor in the Caspian Basin energy equation. Aliyev is intent on exploiting the growing oil & gas needs of China, South Korea, Japan and other nations to weaken Russia's ability to use energy issues as a lever of geopolitical influence.

Aliyev's three-day visit to South Korea began April 23, marking a reciprocal gesture in recognition of South Korean President Roh Moo-Hyun's trip to Azerbaijan in 2006. On the first day of Aliyev's stay in Seoul, the two leaders signed an economic cooperation pact covering energy development, construction and information technology.

That agreement stands to build on an already solid foundation of bilateral cooperation. In 2006, the two governments signed a Memorandum of Understanding to search for oil and develop jointly Azerbaijan's Inam field in the Caspian by September 2007. Energy cooperation is also extending to power generation. South Korea's STX group is working to sign a MOU with Baku to build 10 wind generators that could potentially generate 20 megawatts of electricity, and the Korea Electric Power Corp. is poised to begin construction on a gas-fired thermal power plant.

While it is obvious to analysts that South Korea is primarily seeking new energy sources and Azerbaijan new energy export markets, the significance of Aliyev's foray to Asia is far greater than the completion of bilateral business deals. It is symbolic of the rapid expansion of East and South Asian economic influence in the Caspian Basin. This is a development that significantly increases the challenges that Russia faces as it seeks to defend its dominating energy position in the region.

East Asian states' intensified quest for access to Caspian energy points to their increased skepticism concerning the reliability of Russia as exporter and producer. South Korea, China and Japan, as well as the South Asian states of India and Pakistan, are unwilling to assume the role of supplicant to Moscow, thereby exposing themselves to bullying and blackmail on the part of the Kremlin, as has been the case with Ukraine, Belarus and Georgia.

Over the past decade, East and South Asian states have all seen Russian promises broken, contracts disregarded, and projected deliveries and pipelines stalled for reasons of Russian foreign policy or bureaucratic politics. Consequently, these states see Caspian energy sources as a more reliable alternative to Russia. Even if the rapidly increasing energy demands require that they purchase Russian oil or gas, East and South Asian leaders are determined to avoid becoming energy dependent on Moscow.

Asia's thirst for new energy sources is coinciding with a desire by Aliyev to use Azerbaijan's leverage and revenues generated by its oil and gas holdings to enhance its foreign-policy independence from Russia. The Baku-Tbilisi-Ceyhan pipeline at present serves as Azerbaijan's primary mechanism for the enhancement of its autonomy. Aliyev is now pressing hard to build another pipeline that circumvents Russia -- trans-Caspian route that links his country to Turkmenistan and Kazakhstan. [For background see the Eurasia Insight archive]. In addition, Azerbaijan has committed to shipping natural gas to Georgia to make up for shortfalls created by Russia's punitive price hike, and it is exploring export deals with the European Union, which has professed a desire to diversify its energy sources. [For background see the Eurasia Insight archive].

Russian commentators have complained bitterly about Azerbaijan's energy policies. Observers elsewhere, however, see the moves mainly as a response to the opportunities created by globalization. Whatever Baku's motivations, recent developments -- in particular the rise of Asian states and major energy players -- are likely to make it much harder for Russia to maintain its dominant position, and the ability that comes with it of imposing the Kremlin's will on neighboring CIS states.

Globalization appears to be helping Caspian Basin energy suppliers -- Azerbaijan, Kazakhstan, and now, potentially, Turkmenistan -- enhance their independence by creating multiple new export opportunities. In the months and years ahead, it will become more difficult for any one state to corner the region's energy market.