Azerbaijan: Russia Is Increasingly Nervous About Its Grip on Caspian Energy

Russia is growing increasingly worried about losing its grip on Caspian Basin energy exports, and this fear is causing the Kremlin to take bold steps. The latest evidence of this is the memorandum of understanding signed between the Kremlin-controlled energy giant Gazprom and the State Oil Company of Azerbaijan (SOCAR).

The memorandum, signed March 27, paves the way for Russia to gain controlling influence over Azerbaijan's natural gas exports. The two sides basically agreed to launch talks on export volume and price. If all goes according to the Kremlin's wishes, Baku could be shipping the bulk of its gas via Russia by 2010. To get President Ilham Aliyev's government to reorient its export expectations away from the US- and EU-backed Nabucco pipeline route, Russia is seemingly prepared to match whatever price Europe is willing to pay directly to Azerbaijan for the gas.

The signing of the memorandum was made possible by a combination of factors -- a diplomatic offensive carried out by Russia and prolonged dithering by the EU.

In early March, it became clear that Moscow was trying to reestablish its influence in Baku, but the initial returns did not seem promising for Moscow. Foreign Minister Sergei Lavrov's March 11-12 visit to Baku, for instance, did not produce any noticeable warming of relations. [For background see the Eurasia Insight archive]. Bilateral ties in recent months had been strained not only by the lingering stalemate in the Nagorno-Karabakh conflict, but by Russia's reported transfer of arms to Armenia. [For background see the Eurasia Insight archive].

The arms transfer question remains a point of contention. Russia continues to deny that the alleged transfer occurred, and officials in Baku still refuse to believe Moscow's profession of innocence.

But amid the worsening global economic climate, energy issues are taking precedence over all else. And it is here that Baku and Moscow have something to potentially offer each other.

It is growing increasingly apparent with each passing day that the Russian economy is in deep trouble. [For background see the Eurasia Insight archive]. And the only way the country can hope to stay economically afloat is if it can remain the EU's chief purveyor of gas.

Conversely, Azerbaijan is increasingly eager to have a reliable outlet for its gas. Baku seems to prefer the long-planned Nabucco route, but the European Union has seemed ambivalent about building it. By reaching out to Russia, Azerbaijani leaders may be trying to take the best deal that they see as available at this time. Or, perhaps, they may be trying to send a signal to Brussels that it is time to get moving with Nabucco.

Beyond energy, there is a bevy of reasons for Russia to push for closer ties to Azerbaijan. First among the second-tier factors is the Gabala radar station. Russia currently is using the facility, but worries that if Baku ever decided to terminate the lease, the radar station could be turned against Moscow, becoming a cog in the US-envisioned missile defense network for Central Europe.

Russia also needs warmer ties if it is ever going to succeed in promoting its broader economic agenda in the Caspian Basin. Moscow, for example, wants to make a renewed push for a Caspian Sea territorial treaty. In addition, the Kremlin is hoping to create a new regional structure, The Caspian Economic Cooperation Organization (OKES), which theoretically would enhance Russia's ability to curb US influence in the region.

Russian strategic planners are apparently convinced that wars over energy are becoming a growing possibility in world politics. Thus, the Kremlin seems to expect that struggles for access to energy sources will grow. The Caspian Basin is clearly one of the key areas in this struggle, along with the Middle East, the Arctic, and the Barents Sea shelf.

Keeping this perception in mind, it is likely that Russia will be prepared to go to extreme lengths to preclude Azeri gas from going directly to Europe and bypassing Russia. Likewise, the Kremlin seems ready to use all levers of influence at its disposal to ensure that neither Azerbaijan nor any other South Caucasian government joins NATO or the EU -- lest they become staging grounds for Western military installations.

Finally, for the same reasons, it is imperative for Russia that Iran not normalize relations with the United States. If Tehran ever reconciled with Washington, thus allowing Iranian gas to fill the Nabucco pipeline, Moscow would lose its trump card in world politics.

The Kremlin is now desperate, and has to act fast. By 2010, Russia may well lack the economic clout that it has relied upon in the recent past to bully its neighbors into going along with the Kremlin's geopolitical wishes. The United States and the European Union have the ability to frustrate what is certain to be a furious political and economic offensive by Russia. All they have to do is build Nabucco, lock up Azerbaijan and watch the Kremlin's energy aspirations go pop!