Azerbaijan: A new energy and transport hub between Europe and Asia

Written by Ceyhun Osmanli on 24 November 2017

Railway track | Photo credit: Fotolia


The new the Baku-Tbilisi-Kars (BTK) railway is good news for the EU, says Ceyhun Osmanli.

Azerbaijan is once again in the spotlight not only for its footballing success in the UEFA Champions League but also for its strategic repositioning in the world’s transport and energy markets. 

Earlier this month, the Baku-Tbilisi-Kars (BTK) railway, also referred to the ‘Iron Silk Road’, was inaugurated, highlighting the country’s strategic importance at the crossroads of Central Asia, China, Turkey, Europe, Russia, Iran and the Middle East. 

The 826-km route hailed as the shortest and most reliable link between Europe and Asia by Azerbaijani President Ilham Aliyev, reduces transit time between Chinese and European markets to 15 days, making it twice as fast compared to the sea route and less costly than air transport. 

Given Russia’s growing isolation since its annexation of Crimea in 2014, exacerbated by food blockades from European countries supporting sanctions against Russia, this is good news for the EU. 

Considering the fact that there has been only one railroad connection - the Trans-Siberian railway - between China and Europe until now, the EU called the project “a major step in transport interconnections linking the European Union, Turkey, Georgia, Azerbaijan and Central Asia”. This is also good news for China as it looks for regional allies for its trillion-dollar infrastructure plan, the Belt and Road initiative. 

With the addition of the new BTK railroad, trains departing from China, crossing into Kazakhstan and reaching the new Baku international sea port by ferry across the Caspian Sea, would be able to follow a new track to head to western Europe via Georgia and Turkey, bypassing Russia and Armenia.

Although the project was slowed down by the Russia-Georgia war, Azerbaijan stepped in to finance Georgia’s part of the railway with a loan from the State Oil Fund (SOFAZ) and contributed to the building of a new 105-kilometre-track (Kars-Akhalkalaki railway), thus facilitating the replacement of the old track through Armenia and Turkey, which has been out of use since 1993. 

With the establishment of new free zones along the route, the BTK railway in addition to the already existing Baku-Tbilisi-Ceyhan oil pipeline and the Baku-Tbilisi-Erzurum gas pipeline, promises to boost the economy of the region, with increased investment and trade opportunities. Especially so, taking into account that Azerbaijan ranked 35th in the World Economic Forum’s 2017-2018 global competitiveness Index out of 138 countries. 

The region’s transport and energy interconnectivity will be strengthened further with the implementation of the southern gas corridor project. On 18 October, the European Bank for Reconstruction and Development approved a $500m funding for the Trans Anatolian Pipeline (TANAP), which together with the Trans Adriatic Pipeline (TAP) is critical for transmitting gas from the Shah Deniz field of Azerbaijan to Europe. This is a major step for the European energy security and diversification, which will render it less dependent on Russian gas.  

Another remarkable development last month further anchored Azerbaijan as a reliable and sound partner in major energy projects: the extension of the production sharing agreement for the Azeri-Chirag-Guneshli (ACG) oil field until the end of 2049. 

Notwithstanding the challenges posed by some consortium members, Azerbaijan’s SOCAR was able to conclude a deal increasing its stakes from 11.65 per cent to 25 per cent, while BP’s share fell from 35.8 per cent to 30.37 per cent. 

The new contract will not only guarantee large investments in Azerbaijan’s energy sector, which could amount to $40bn, but will also ensure a $3.6bn bonus payment for the Azerbaijani government. 

Even in 1994, when oil prices were falling and offshore production in the Caspian Sea was seen as a risky enterprise, it was difficult to imagine a war-torn post-Soviet Republic to sign a contract with world energy giants. 

It is no wonder that the contract was referred to as the ‘contract of the century’. Twenty-seven years later, it was easier to negotiate new terms for Azerbaijan, which had proven reserves (estimated at 500 million tonnes) and revenues generated from extraction (three billion barrels of oil since the beginning of the ACG). 

Moreover, more contracts of the century are in the making. If parties decide to develop the ACG field with a third production sharing agreement, the ACG deep gas field could potentially meet TANAP’s annual need of 15 billion cubic meters in the future. In addition, a seventh production platform in the ACG field, the Azeri Central East production platform, is expected to be commissioned in 2020. 

Baku, which was a pioneer in oil production in the 19th century, is once again promising to be a key driving force in establishing new and safe transport and energy corridors along the ancient Silk Road, as recently exemplified by the BTK and the ACG. 

Considering the volatile nature of the region wedged between the conflict-prone Middle East, theocratic Iran and increasingly belligerent Russia, this is a welcome development both for Europe and China, who would benefit from a politically and economically stable ally in the South Caucasus, such as Azerbaijan. 

 

About the author

Ceyhun OSMANLI is a former MP of Azerbaijan and board member of Odlar Yurdu University in charge of international relations and innovations

 

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