Azerbaijan: Caucasus pivot and Europe’s bridge to Central Asia

Azerbaijan will host next year’s COP 29. The EU should seize the moment and make it a game changing event, ushering in a new era of European-Turkish-Central Asian energy and trade co-operation.

After COP 28 in the United Arab Emirates, next year’s COP 29 is set to take place in another country dominated by oil and gas, Azerbaijan. However, the country has considerable potential in renewable energy, is pivotal for the economic integration of the South Caucasus, and is a geographical and cultural bridge between Europe, Turkey, and Central Asia.

This is why the European Union should seize the moment and make COP 29 in Baku next November the start of a new era, not only in energy transition but also in the European-Turkish-Central Asian energy and trade relationship, with enormous geopolitical strategic advantages for the future of Europe and Eurasia.

Current events in Ukraine and the Middle East (including the recent Houthi attacks on trade routes) show how Eurasian stability, at both the geopolitical and energy-resource-economic level, is in a delicate and fragile moment, with evident risks of increasing international instability with repercussions on global scale.

Recent events in Azerbaijan, following its successful military offensive against Armenian secessionists in Karabakh and ongoing peace negotiations with Armenia, are also impacting the geopolitics of the Caucasus, with Russia losing its grip on Armenia but still wanting to impose its influence in the region.

The West meanwhile, in particular the US, is supporting Georgia and Armenia amid strained relations with Azerbaijan.

The relationship between the EU and Azerbaijan therefore becomes highly strategic not only as a partnership (Azerbaijan has the potential to become the strategic leader of future South Caucasus integration) but also as a bridge to a broader alliance between the EU and Central Asia, through Turkey.

This role, at once a Caucasus pivot and a bridge with Central Asia, becomes crucial and a potential game changer for Eurasia, helping Europe to curb the Iranian and Russian spheres of influence in the area.

There are two main reasons for this.  

First, with a stronger EU-Turkey-Azerbaijan partnership, the West would make sure that the ‘Heartland’ is not falling under the domination of the last two East Eurasian imperialist states (Russia and China).

The Zangezur Corridor in particular, the last piece of the Middle Corridor project to connect Turkey with Azerbaijan, is becoming crucial, for energy, the trade of goods and the passage of people between Central Asia and Europe. A land corridor passing through Armenia’s southern territory would also represent the first steps towards South Caucasus integration.

Secondly, a stronger partnership could be useful to help the EU, Turkey and Azerbaijan to augment the sustainable energy transition, globally and regionally, transforming a challenge into an opportunity.

Currently, the economy of Azerbaijan remains dependent on oil and gas, which account for a third of GDP and 90 per cent of exports. However, the country has a green transition plan to cut emissions 35 per cent by 2030 compared to 1990 and has great potential for renewable energy in wind, solar and rare earth materials.

Central Asia also has great potential for renewable energy, but the Central Asian countries have hitherto taken separate paths. A partnership with the EU, through Azerbaijan and Turkey therefore, could help them to integrate their renewable energy investments and help the Caspian region to coalesce in the resources-energy sector, transforming Eurasian geopolitics in favour of inclusive and integrated development.

Energy partnership

The EU energy strategy is first and foremost based on the green transition plan and the end of all Russian energy imports by 2030, according to the REPower EU Plan.

The EU imported 380 bcm of gas last year and will likely continue to import gas for some time, notwithstanding its plans to increase the production of nuclear energy. In the meantime the EU needs two main strategies: one is to use less gas with more efficiency, meaning a reduction of losses and better distribution. The second is diversification. The South Caucasus is very important here, not only in itself but as a connector to the Caspian Sea and so Central Asia. And the pivot country in the South Caucasus is Azerbaijan.

The EU partnership with Azerbaijan is currently based on two crucial programmes: the EU and Azerbaijan Partnership and Cooperation Agreement (signed in 1999) and the EU Strategy for the South Caucasus, inside the Eastern Partnership Programme, signed in 2010.

The EU is Azerbaijan’s main trading partner, accounting for around 52 per cent of Azerbaijan’s total trade (with a positive trade balance of 29 billion euros) and Azerbaijan has signed or agreed strategic partnerships with nine members of the EU.

In July 2022 the EU and Azerbaijan signed a memorandum of understanding which would double Azeri gas exportation to the EU by 2027, to 20 bcm, and expand the Southern Gas Corridor. Just recently, at COP 28, Azerbaijan’s President Ilham Aliyev said that while the country can meet the target of doubling natural gas exports to Europe, it had yet to secure the long-term sales deals it needs to invest billions to boost production.

Green transition

Azerbaijan has tremendous potential in renewable energy, in particular offshore wind and low-carbon green hydrogen, but the path for its green transition is still long.

In 2019 95 per cent of Azerbaijan’s electric power came from natural gas, four per cent from hydropower and only one per cent from renewables. Under the Paris Agreement on climate change the country has committed to a 35 per cent emission reduction target by 2030 compared to the base year of 1990.

At COP 28 Azerbaijan committed to a renewable energy sources target of 30 per cent by 2030, and aims for a significant reduction of greenhouse gas emissions—40 per cent by 2050. This includes the establishment of a green energy zone in the Karabakh and Eastern Zangezur regions.

According to a World Bank report Azerbaijan could accelerate its green economic transformation, focusing more on decarbonising and diversifying the economy, bolstering innovation, and natural and human capital development.

Regarding the cooperation with the EU, in December 2022, Azerbaijan, Georgia, Romania, and Hungary signed a strategic partnership for green energy, to build a 1000 MW electric cable linking Azerbaijan to Romania, with two billion euros in funding from the EU. This is the first of possibly many other projects that could be carried out with the EU.

For example, Azerbaijan could export 50-100,000 tonnes of green hydrogen to the EU (worth 250-500 million US dollars per year), according to the Boston Consulting Group.

The Caspian region and Central Asia also has tremendous wind, solar, and hydropower potential for regional and global energy needs. The EU’s Global Gateway Initiative on Water, Energy, and Climate in Central Asia, demonstrates its commitment to supporting the green transition in the region. As some scholars argue, the EU could strengthen Central Asia’s resilience, prosperity, and regional cooperation in the green transition by focusing on these key sectors.

Middle Corridor

Central Asia is on a path towards regional integration, through the Organisation of Turkic States, the Central Asia Regional Economic Cooperation (in which Azerbaijan and Georgia are also present) and other regional organisations, with the aim to boost development, increase cultural ties and avoid the Russian and Chinese spheres of influence.

To connect Central Asia to the European continent through the Middle Corridor therefore would be an important step to support this process, not only through trade and energy exchange but also supporting the institutionalisation of the Central Asian regional organisations.

The Global Gateway project, an alternative to Chinese Belt and Road Initiative, aims to encourage links, not dependencies, with countries on the Eurasian continent, with a budget of 300 billion euros between 2021-2027 for connectivity projects, notably in the digital, climate and energy, transport, health, education and research sectors. This is another opportunity to boost the role of Azerbaijan as a bridge between Europe and Central Asia.

In this plan there is crucial area that has to be solved, the connection between Turkey and Azerbaijan though the Zangezur Corridor. Recently, Armenia and Azerbaijan declared that they are getting close to a peace deal through confidence building measures (for example Armenia supporting Azerbaijan in hosting COP 29), and the resolution of the Zangezur Corridor would be an important element for this.

Turning point

We are at a turning point in the South Caucasus and Caspian region, as we are at a turning point in the relationship between Europe and the rest of Eurasia.

Stronger integration among the three Southern Caucasus countries, through the current peace process between Azerbaijan and Armenia, a stronger cooperation between EU with Azerbaijan, through Turkey, and a stronger connection between Europe and Central Asia would give more stability to international systems, helping at the same time the support to the regional integration of the South Caucasus and Europe’s connection with Central Asia.

In this way, the region avoids Russian-Chinese future hybrid warfare, in particular in the energy-resources security nexus.

A possible first step for such a ‘grand strategy’ for the EU could be to consider creating a new ‘whole of government’ approach (similar to the US, C5+1 Diplomatic Platform) for better coordination to facilitate future dialogue, energy and transportation cooperation across the wider Black Sea and Caspian Basin.

Europe should seize the moment and make COP 29 a game changing event.

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