Oil has been exploited in Azerbaijan for well over 100 years. In 1846 the first successful industrial oil well was drilled in the suburbs of Baku. This was more than a decade before Col. Edwin Drake hit oil in Pennsylvania. Indeed, by the turn of the century an influx of foreign companies came to Baku like bees around a honey pot as Azerbaijan stamped its mark on the oil market, becoming the world’s biggest oil producer. Azerbaijan also holds the record for having the world’s first oil pipeline, which was built around the Absheron Peninsula, as well as the famous Baku-Batumi pipeline, which began to pump oil in 1907 -- at that time the world’s longest pipeline.Almost 100 years on, Azerbaijanis still love to drill and vibrate. While in-between foreign powers controlled the nation’s energy resources, exploiting them for their own interests, with the breakup of the Soviet Union and Azerbaijan’s ensuing independence Baku took control and is nowadays regarded as a key player in global energy security. With the signing of the “Contract of the Century” in September 1994 for the development of the Azeri-Chirag-Guneshli oilfield, American companies secured major stakes in projects to develop Azerbaijan’s hydrocarbon reserves, which brought substantial funds to Baku’s coffers and was the start of an “energy roll” in the country.
Today Azerbaijan is the only westward route from the Caspian, breaking Russia’s monopoly to world export markets with the Baku-Tbilisi-Ceyhan (BTC) and the Baku-Tbilisi-Erzurum (BTE) oil and gas pipelines, transporting 1 million barrels of oil per day and 6.6 bcm of gas per year, respectively (with a capacity to increase). Azerbaijan pursues a smart policy of diversification. It has no intention of putting all its eggs in one basket, becoming over-dependent on one market. It wants to spread its energy around, keeping as many options on the table as possible. While Russia and, to a lesser extent, Iran remain important markets, Azerbaijan is increasingly beefing up its energy relations with the West and in particular the EU. Azerbaijan is the lynchpin of EU “Southern Energy Corridor” projects, including the Nabucco gas pipeline which will have the capacity to transport 31 bcm of gas across Turkey to Central Europe.
Finally, the country is the gateway to the vast wealth of Central Asian hydrocarbons, which will also be crucial for EU projects, making Azerbaijan a crucial energy transporter, too. However, at times, the EU’s somewhat sluggish and divided approach leaves Baku frustrated and mystified. On the one hand the EU cites that energy security and diversification of sources is a priority while on the other each member state continues to do their “own thing,” with the club failing to have common energy policy, which results in this lack of strategy.
The billions of energy dollars that have rolled in have been quite challenging to manage, but Azerbaijan has done considerably better than many other energy-rich nations in making transparent its use of the funds. In 1999 the government established its State Oil Fund, which is responsible for the management of these revenues. So far substantial amounts of money have been used to solve the housing shortage created by the Armenian occupation of Azerbaijani territories in the aftermath of the war over Nagorno-Karabakh, which saw some 1 million Azerbaijanis displaced. At the same time this policy goes hand-in-hand with Azerbaijan’s foreign policy. During his presidency, Haydar Aliyev tried to balance the interests of the major powers in the region to secure Azerbaijan’s independence and, ever since, the country has pursued a multi-vector foreign policy, performing a delicate balancing act between Russia and the West, making it something of a “geopolitical pivot.” While Azerbaijan is a member of NATO’s Partnership for Peace program and part of the EU’s European Neighborhood Policy for the present time, at any rate, Baku has no desire to be a member of either and is taking a careful, step-by-step approach towards Euro-Atlantic integration.
Azerbaijan has no intention of repeating the “Georgian experience,” which saw President Mikheil Saakashvili hurtle at full speed towards the West, egged on by then US President George W. Bush, only to be brought to its knees by Moscow. The fact is, small countries don’t really matter that much on the grand scale of things; they are expendable and, as the Georgian case proved, certainly not as important to the West as their relations with the Kremlin. While many in Azerbaijan continue to view Russia as untrustworthy and in cahoots with the enemy Armenia, they understand the importance of “friendly” relations with Moscow.
So while Azerbaijan finds itself in an increasingly important geostrategic position, it will need to maintain a visionary and focused policy, building on its so far successful strategy, if it is to sustain its importance globally and regionally. If it achieves this, the nation that loves to vibrate will continue to go from strength to strength.
