Azerbaijan is trying to shake off its Soviet past and increase its cooperation with Gulf countries, particularly in the energy field.
The oil and gas rich Central Asian Republic of Azerbaijan is increasingly becoming a strategic hub for exporting its natural resources to the surrounding region and the West. Following the fall of the Soviet Union, the country decided to capitalise on its oil wealth.
In 2005 its 1,776 kilometre-long Baku-Tbilisi-Ceyhan pipeline – the second-longest oil pipeline in the world – began carrying oil from its massive Azeri-Chirag-Guneshli oil field in the Caspian Sea to supply Western markets.
The fall of the Soviet Union, for Azerbaijan also led to the development in strategic geopolitical relationships with countries it saw eye to eye with and in doing so, the Muslim-majority country has beaten itself a path to court the oil and gas-rich Gulf States of the Middle East.
Last summer, the country announced its plans to increase its presence in the UAE oil and gas market by planning to open the branch office of a subsidiary of its state-owned oil company SOCAR.
The subsidiary known as “AZERNEFTQAZTIKINTI” is said to have experience in construction of onshore oil and gas pipelines, a possible hint at the nature of the work it is targeting to undertake in the United Arab Emirates.
Last June, SOCAR signed a production sharing agreement with UAE-based Bahar Energy on the exploration restoration and production of two Caspian fields. The joint venture, which covers activities at the Bahar and Gum Daniz blocks is estimated to be worth US$1-2 billion.
Bahar Energy has an 80% controlling stake of the project, while SOCAR owns the remaining 20% in the venture. The Bahar field is said to have remaining gas reserves of about 25 billion cubic metres, while Gum Daniz holds an unspecified amount of oil.
Today UAE based companies like Rafi Oil which, in 2005 invested $500 million in the Azerbaijani oil sector are now part and parcel of Azerbaijan’s hydrocarbons industry.
To discuss this and more, Oil & Gas Middle East met with Elkhan Gahramanov, Azerbaijan’s Ambassador to the UAE. He says that there is much to be gained from strengthening Azerbaijan’s cooperation with the UAE particularly in the energy field.
“In recent years Azerbajan has strengthened its state independence, created a stable social and political atmosphere in the country.
Azerbaijan has turned into a geopolitical centre concentrating the interests of the USA, the European states, Asia as well as the Gulf countries,” he adds.
“Such relations allow us to establish reliable cooperation with foreign countries. After the collapse of the Soviet Union, Azerbaijan and the UAE created their diplomatic relations and since then both countries demonstrated their willingness to develop bilateral economic and political relations.”
Non-oil-related trade between Azerbaijan and the UAE, although modest, is a growing area between the two countries the Ambassador noted.
In 2009, trade between the two countries reached nearly $160 million and $101 million by September last year according to UAE Federal Customs Authority figures.
Azerbaijan is also making significant investment in the UAE’s oil and gas sector. Recently SOCAR and the Swiss Aurora Progress commodity trading house have partnered in the development of oil storage facilities, including the new 641 000 cubic metre oil product storage terminal being built in the Port of Fujairah.
Infrastructure developments
The UAE has reciprocated with its investment in recent years in Azerbaijan’s post-Soviet-era infrastructure, says Gahramanov.
“From 2002 to 2009, UAE companies have invested over $100 million in Azerbaijan. In addition Abu Dhabi Development Fund allocated a loan of $10 million to the project for restoration of the Baku Bypass Highway and $60 million for finance of the South Thermal Power Plant project in Azerbaijan,” the Ambassador said.
Strengthening ties
In 2009, the UAE sent a high-level delegation led by UAE Energy Minister Mohammed bin Dha’en Al Hamili to meet Azerbaijan’s President Ilham Aliyev and their counterparts where he submitted proposals to explore business opportunities in the oil and gas sectors in Azerbaijan.
“The energy sector – alternative and renewable energy, oil and gas sectors – is a priority for UAE-Azerbaijan cooperation,” Ambassador Gahramanov reiterated.
“In recent years we had meetings of Intergovernmental Economic and Trade Commission between the two countries and both sides agreed to make efforts to further develop cooperation in various sectors with particular emphasis on trade, investment, industry and energy.”
With reference to the last protocol of the joint intergovernmental commission for economic, trade and technical cooperation, Azerbaijan and the UAE stressed their strong intention to cooperate in the energy sphere and both sides had presented to each other several projects for future realisation.
It seems that there is a lot of future potential in developing an energy relationship between the hydrocarbon-rich geographies of the Caspian and Gulf regions where countries such as Azerbaijan and the United Arab Emirates can reap rewards from mutually beneficial strategic alliances.
