The State Oil Company of Azerbaijan is looking to become an international energy producer. And in its first move beyond the Caspian Basin, SOCAR is turning to Israel.
Under a deal signed without fanfare last autumn, a SOCAR subsidiary, the Caspian Drilling Company (CDC), gained a 5-percent stake in Med Ashdod, Israel’s only economically viable oil field, located 16 kilometers off the Mediterranean coast. SOCAR will also be a major drilling contractor at the offshore field.
The project is SOCAR’s first oil-production or drilling operation outside of Azerbaijan. News of the agreement had largely escaped international notice until Israeli Foreign Minister Avigdor Lieberman’s April 23-24 visit to Baku. CDC will be working with Israel’s Shemen Oil & Gas Resources consortium (known by its unfortunate acronym SMOG).
“The drilling will begin soon. The work is at a very advanced stage and delivery of a drilling rig to the field is now expected,” Israeli Ambassador to Baku Michael Lotem told the Russian-language, Israel-based IzRus news portal on April 23.
Med Ashdod’s oil reserves are estimated at about 280 million barrels, a mid-size field compared with SOCAR operations in the Caspian Sea. But the field is seen as providing SOCAR a critical chance to gain experience in international oil production operations.
During the last few years, SOCAR, Azerbaijan’s largest taxpayer, has been expanding [7] its energy distribution network into foreign markets, and currently owns extensive assets in Georgia, Turkey, Romania, Switzerland, and the United Arab Emirates, among others.
Baku-based energy expert Ilham Shaban sees the Med Ashdod deal a potential springboard for additional SOCAR projects abroad in the future. “Even 5 percent in a large, offshore project in Israel is good for SOCAR’s capitalization, international ratings and, simply, for its image,” Shaban said.
With $4 billion worth of transactions in 2011, Azerbaijan ranks as Israel’s top trade partner in the former Soviet Union. Azerbaijan currently supplies over a third of Israel’s oil supplies: in 2011, it exported to Israel some 2.5 million tons (about 18.5 million barrels) of oil, worth about $2.1 billion. Aside from energy, trade focuses on military equipment, agriculture, healthcare and water conservation. Azerbaijan’s recent $1.6-billion Israeli military-hardware shopping spree [8]caused a stir in Western capitals.
SOCAR has not commented officially on the deal. A high-ranking SOCAR manager, however, told EurasiaNet.org that the Israelis had offered Baku “discounts and better supply deals for weaponry, military technology, agricultural equipment and so on” to secure SOCAR’s deep-water drilling experience for Med Ashdod. Israel first pitched the idea in 2010, he added.
The Azerbaijani government turned down that initial offer. Ultimately, however, Azeri negotiators opted to do the deal after securing the 5-percent ownership stake. The discussions “took some time,” said the SOCAR manager, who spoke on condition of anonymity.
The deal may contain some political risk. In particular, it is likely to rile Iran [9], which repeatedly has lambasted Azerbaijan, a fellow majority Shi’a [10] Muslim country, for developing close ties with Israel. Tehran has yet to comment publicly on the production agreement, though.
Rasim Musabekov, an independent MP who sits on parliament’s International Relations and Inter-Parliamentary Affairs Committee, asserts that Iran lacks leverage to cause trouble for Baku. “Iran will be unhappy, but since SOCAR does not own any assets in or have serious trade with Iran, there is no risk to lose anything,” he said.