Thursday, July 25, 2013

Baku-Moscow Growing Closer on Energy

While the Baku-Novorossiysk pipeline remains out of commission, talks have resumed between Baku and Moscow on the future of the pipeline.  Russia claims the line is underutilized and therefore unprofitable; Azerbaijan claims they lose money when Russia mixes Azeri crude with the heavier, Ural blend.

On 8 July 2013, however, Transneft spokesman Igor Demin said commercial negotiations with the State Oil Company of Azerbaijan (SOCAR) had resumed.  In making the announcement, he underscored the issues dividing the two sides: "The issue of the quality of transit oil has not been rasied in negotiations yet, but discussion of the matter of Azeri light oil quality is hardly possible because of the small volume of transportation.  At that, oil can be carried by shipments to maintain the quality, but it will greatly increase the cost of its transportation."

Despite the controversy, talks on other forms of energy cooperation are progressing.  SOCAR President Rovnag Abdullayev and Rosneft President Igor Sechin met in June 2013 in Moscow and July in Baku to discuss long-term projects.  SOCAR issued a press release stating, "The presentation opened the possibility of expanding cooperation between the two companies in Azerbaijan and Russia and in third countries.  In particular, possibilities exist on ongoing and pending projects by the two companies."

One area of cooperation is the Absheron off-shore gas field, jointly owned (40% each) by SOCAR and the French company TOTAL.  Sechin has held recent talks with both parties about obtaining a stake in the project.

The new-found cooperation in energy reflects improving ties in other fields, as well.  In 2012, Azerbaijan ordered a billion dollars worth of weaponry from Russia, including 100 T-90C tanks, and truck-mounted multiple rocket launchers.  Previously, Azerbaijan purchased a $2 billion air defense system from Russia.