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Baku's Position on Karabakh Will Weaken by 2019-20

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  • Baku's Position on Karabakh Will Weaken by 2019-20

    Baku's Position on Karabakh Will Weaken by 2019-20

    3/9/2014 - 17:00


    Petrostrategies, a French consultancy and think tank, published an
    article on the recent Armenian-Azerbaijani escalation in its magazine,
    "World Energy Weekly." The authors of the article highlight the
    fragility of oil and gas pipelines stretching from Azerbaijan to
    Europe. They also stress that Baku will be forced to resolve the
    Nagorno-Karabakh problem one way or another by 2019-20 given the fact
    that its net hydrocarbon revenues are going to continue to fall and
    its capacity to purchase arms will also dwindle.

    At the beginning of August, a 6-day micro-war took place between
    Azerbaijan and Armenia, just a stone's throw from the Southern
    Corridor that is used to export 37 million tons/annum of Azeri oil and
    6 bcm/annum of Azeri gas. The event went unnoticed by the mainstream
    press. The latter was more preoccupied by the (much bigger) wars that
    are raging in Ukraine, Iraq, Libya and Syria. Yet it does highlight
    the fragility of this Corridor, which is supposed to contribute to
    Europe's energy security, and the implementation of which occupied the
    efforts of western governments for almost a quarter of a century. This
    is the second time in six years that hostilities have broken out in
    the vicinity of these pipelines. The first of these was the war
    between Russian and Georgia, in August 2008. This summer's micro-war
    was not as long and bloody as the Russia-Georgia conflict. But it does
    contain the seeds of a possible future larger-scale clash breaking out
    in the medium term between Armenia and Azerbaijan if the necessary
    steps to prevent it are not taken. And if war does break out, it is
    almost certain that the pipelines of the Southern Corridor will not be
    spared this time around.

    The origin of the Armenian-Azeri conflict goes back to 1921. At the
    time, within the framework of Stalin's policy of mixing nationalities
    in the Caucasus, the Armenian region of Nagorno-Karabakh was
    incorporated into Soviet Azerbaijan. In 1998, taking full advantage of
    Gorbachev's Perestroika, Nagorno-Karabakh sought to exercise its right
    to self-determination. Baku refused. The full-on war that was sparked
    after the collapse of the USSR in 1991 led to the defeat of
    Azerbaijan. The ceasefire agreement that was concluded in May 1994 has
    not always been respected, but it had never been so badly violated as
    it was this summer. At the end of July and beginning of August 2014
    several thousand infractions were recorded. From August 1 to 6,
    between 20 and 50 deaths (according to sources) were registered. On
    August 7, the announcement of a mediation by Vladimir Putin eased the
    intensity of the military clash. But on the same day, the Azeri
    President, Ilham Aliyev posted nearly 60 messages on Twitter in which
    he notably stated: "The war is not over. Only the first stage of it
    is. But the second stage may start soon". The day before, he had told
    his soldiers: "The fascist leadership, the military junta" is leading
    "an Armenian state [that] was created on the historical Azerbaijani
    lands" and "we, Azerbaijanis must and will return to these lands",
    including the capital city, Yerevan, which he described as the ancient
    Azeri (kingdom of) "Irevan khanate".

    The meetings held between the Armenian and Azeri Presidents, in Sochi,
    between August 8 and 10, under the auspices of Putin, should in
    principle lead to a resumption of negotiations aimed at finding a
    political solution to the conflict. But nothing guarantees a happy
    outcome of these talks. Azerbaijan is demanding the re-establishment
    of its "territorial integrity". The Armenians answer back that
    historically, Nagorno-Karabakh has never been part of an independent
    Azerbaijan. Strengthened by the huge purchases of arms it has carried
    out in recent years, notably from Russia, Azerbaijan claims its can
    destroy any given target in Armenia and it states that "the very
    existence of the Armenian state can be open to question". For its
    part, Armenia says it owns missiles that can hit targets 300 km into
    Azeri territory.

    In a rare occurrence in international relations, on August 4, the US
    Ambassador to Yerevan and the Armenian Minister of Defense published a
    joint press release in which they expressed "their deep concern for
    the recent increase in tensions" and state that they "have explored
    ways to de-escalate the situation". The US diplomat went as far as to
    express "his condolences to the families of soldiers who lost their
    lives during recent events". No initiative of this kind has been
    undertaken by the US ambassador to Baku. It was thus made clear that
    Washington held Azerbaijan responsible for the military escalade. The
    US and Europe hailed the Russian mediation that led to a
    de-escalation. But, unless a political solution can be found to the
    conflict, Azerbaijan (which refuses the current status quo) risks
    resuming hostilities over the medium term.

    Time is running out for Baku which, over the next 5-6 years, is going
    to lose its importance as an oil supply source. The production from
    its three main fields (Azeri, Chirag and Deep Guneshli - ACG) did not
    reach its target of 50 million tons/annum in 2011. Since then, it has
    hit a ceiling of around 42 million tons/annum. In October 2012, Aliyev
    publicly accused BP (the operator of ACG) of having lied to it. It
    issued an order to the company to stabilize production. At best, the
    latter could be maintained for another few years, but with a rise in
    production costs, and therefore a drop in the State's revenues. A
    total of 2.5 billion barrels have been produced on ACG to date. At the
    current rate of 315 million barrels/annum, 70% of the ACG's original
    proven reserves of 6 billion barrels will have been produced within
    the next five years.

    It is over the next five years that Azerbaijan is also going to
    develop phase 2 of the Shah Deniz field, in order to supply 6
    bcm/annum of gas to Turkey and 10 bcm/annum to Europe, as of 2019. At
    least $56 billion will be invested in this project. This gas is going
    to be transported via the same route as the current pipelines of the
    Southern Corridor. In certain places, these run only 25 km away from
    the front line with Armenia. They are therefore highly vulnerable.
    Furthermore, Azerbaijan's relations with its main ally in the region,
    Turkey, could change. When the Shah Deniz gas lines are built, Baku
    will be completely dependent on Ankara for its oil and gas exports,
    with the exception of small volumes sold via Georgia and Russia. On
    the other hand, Ankara will be able to diversify its oil and gas
    transits, thanks to additional volumes from Iran and Iraq. The new
    'rapport de forces' that will then emerge between Azerbaijan and
    Turkey could enable the latter to take its distance from Baku's
    political stance (which it has unreservedly supported up to now) if it
    deems this necessary for its national interests.

    In other words, Baku had better solve the problem of Nagorno-Karabagh
    one way or another by 2019-20. The closer it gets to this date, the
    more its position will be weakened. Furthermore, its net hydrocarbon
    revenues are going to continue to fall and its capacity to purchase
    arms will also dwindle. Gas sales cannot compensate for the drop in
    its oil revenues, as the investments required by Shah Deniz are very
    high and gas prices usually suffer from a discount compared with oil.
    Furthermore, the price of Shah Deniz 2 gas is indexed on the European
    spot market, which up to now has been lower than the price of the
    Russian or Algerian gas indexed on oil.

    The recent micro-war has brought to light a complex political
    equation. On the one hand, the Americans and Europeans designed the
    Southern Corridor in order to enable the export routes for Azeri oil
    and gas to bypass Russia. But on the other hand, the micro-war of
    August 2014 illustrated that the Western powers need the Russians to
    ensure the security of these pipelines, which are supposed to
    contribute to the security of Europe's energy supply. The conflicting
    parties also need the Russians. And this will remain to be the case
    for as long as conflict zones subsist in the region... Thus, in a
    nutshell, the current status quo suits Russia and, insofar as the
    situation will depend on Moscow, the latter will only support a change
    if it thinks it can benefit from the new status quo even more than it
    does now.


    http://civilnet.am/petrostrategies-baku-position-karabakh-weaken-2019-2020/

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