EVEN SHORT ACCOUNTS MAKE LONG-TERM FRIENDS

The diversification of transit routes for Caspian energy resources to Europe was the issue dominating agendas in the second half of October and it acquired a new flavour.  It is possible that some amendments will be made to current plans to diversify energy routes.  Azerbaijan's President Aliyev explained the country's position on this issue at the latest meeting of the cabinet:  "Azerbaijan is ready today to export its natural gas to EU markets.  Out potential partners are EU countries like Greece, Bulgaria, Italy, Romania, Hungary, Austria, Germany and Switzerland.  These countries are ready to import our gas at market prices, which is also what we want.  This project is mutually beneficial.  But unfortunately, for almost two years we have not had this opportunity.  And the main reason for this situation was that terms of transit have not been agreed between Azerbaijan and Turkey.  Azerbaijan maintains its relations with friends, partners and other countries based on mutual interest.  But, just as all other countries pursue their interests in all kinds of relationships, we too, first and foremost, pursue our own interests.  Nonetheless our proposals, both on prices and on transit tariffs, were predicated on international patterns.  For several years now Azerbaijan has been selling its gas to Turkey for one third of the international price; this agreement is unique in the world.  Despite numerous discussions since April 2008, we have unfortunately failed to reach a reasonable agreement.  We want the price of our gas to be at least close to the international price, if not equal to it.  If it is not sold at the same price as Russian natural gas, then it should be cheaper by, at most, 8-10%, but not by 50%."  The Azerbaijani president also touched on the issue of the transit tariffs for Azerbaijani gas demanded by Turkey.  Strange though this might sound, Turkey demands tariffs which are 70% higher than existing international standards.  Precisely in view of these realities, the Azerbaijani president said that our country, pursuing its own economic interests first and foremost, will begin to consider other offers to sell and transport energy resources.  And these offers must be very close to current international prices and tariffs; especially as Azerbaijan does have choice.  Moscow and Tehran have been barraging Baku with lucrative offers to both buy wholesale and to transport Azerbaijani gas.  President Aliyev reminded the ministers of this fact in his speech.  This statement by the Azerbaijani leader must be a message of sorts for other potential buyers of Azerbaijani energy resources, who need to diversify energy routes more than the producing countries do.  But unfortunately, there is more talk and delay on their part than real action.

It is not surprising that some people espied political motives behind the president's words, related to the intensification of the process to normalise Turkish-Armenian relations, which was encouraged by the West and Russia.  Baku had decided to "punish" Ankara in this way for its rapprochement with the aggressor country, they claim.  Perhaps there is some logic in these statements, but it does not boil down to just this.

First, talks with Turkey on terms for the purchase and transit of Azerbaijani gas have been under way for two years now, in other words, they started long before the intensification of the process of rapprochement between Armenia and Turkey.

Second, indeed, as the Azerbaijani president said, show us a country which sells its energy resources against its best economic interests, out of altruistic or brotherly motives.

Third, why should Turkey, which is part of the G20 and which has the 15th largest GDP in the world, demand significant economic dividends from Azerbaijan, whose GDP is 20% of Turkey's?  International practice indicates that precisely the opposite should take place.  After all when, three years ago, Russia asked for a price 2.5 times higher than previously charged for gas supplies to Azerbaijan, no one raised the issue of preferential treatment.

Four, why does Ankara not demand such preferential treatment from Russia? Russia is also one of the strong economic powers and it revoked its ban on selling the gas it supplies to Turkey to third countries, probably intending Armenia to be the foremost beneficiary.  Not to mention the fact that Moscow periodically threatens to raise customs duties on imported Turkish goods.

Five, some Turkish businessmen and Ankara pursue their own economic interests in opening the Turkish-Armenian border.  In the opinions of some experts, including Turkish ones, if today, when the border is closed, trade between the two countries is about US$150-200 million, after the opening of the border it might double.  Let us point out that this is the gross volume of trade, not the net profit which Turkey plans to make.  Taking this into account, the question arises of why Azerbaijan should lose hundreds of millions in net profits a year?  This money would be very useful for strengthening Azerbaijan's defensive capability, increasing the population's prosperity, increasing allocations for social programmes and modernising the country's infrastructure.

Finally, we should not forget the popular Turkic proverb:  "Brothers are brothers, but they still have their own pockets."

Now to the political motives behind this issue.  No one has managed yet to prove that politics and economy are independent areas.  As is known, there is no such thing as politics for politics' sake.  Politics always depend on economic interests, and the link between politics and economy is one of cause-and-effect.  Yes, in big-time politics you sometimes have to make economic concessions in relations with allies to consolidate political positions.  But sometimes the allies take this for granted, so you have to change tone.  The prospect of an opening of the Turkish-Armenian border without significant positive changes in the regulation of the Nagorno-Karabakh conflict is a direct threat to Azerbaijan's national security, because it will lead to an improvement in the economic position of the aggressor.  This is why Azerbaijan has the right to disagree with Turkey if it uses financial benefits derived from cooperation with Azerbaijan in the energy sector to invest into the economy of Armenia which occupies 20% of Azerbaijani territory.

It has to be noted that Ankara itself added a political hue to this issue from the very outset.  For a while it tried to link the implementation of the Nabucco project to Turkey's membership of the EU.  But after stiff resistance from the old members of the EU, it demanded 25% of the gas which was to be transported via the gas pipeline for itself on preferential terms.  Lengthy talks then ensued between Baku and Ankara on fair prices and transit tariffs; but they proved fruitless.  The process of signing the intergovernmental agreement on the launch of the Nabucco project unfolded to roughly the same pattern:  It was postponed several times because of the Turkish side, but at long last the agreement was signed in the second half of July.

However, Baku understands Ankara's desire to derive maximum political and economic benefit from its transit potential.  This is why it is also normal that Ankara has intensified its efforts in the South Stream project which is promoted by Moscow as a rival to Nabucco.  The working visit by Italian Prime Minister Berlusconi to Russia clarified the intrigue to some extent.  During a St Petersburg-Ankara televised teleconference, with Berlusconi's participation, Prime Minister Putin told his Turkish opposite number Mr. Erdogan that Berlusconi had set a very difficult task for Russian companies - "he says that South Stream should be built faster than North Stream is built under the Baltic Sea" - Putin was full of optimism.

Putin claimed that this was possible because Russia already had experience of building Blue Stream in Turkey.  And the three countries had worked together on that project.  In reply, the Turkish prime minister promised to visit Moscow in the near future to coordinate the details.  The Russian prime minister's optimism can be accounted for by some aspects which have been made public.  In the first half of October, Baku and Moscow signed an agreement on the sale of Azerbaijani natural gas to Russia.  Although the initial quantity is not so great (only 500 million cubic metres per year), the sides did not rule out the possibility of greatly increasing the volume by agreement.  Russia is very much counting on this.  There are plans to pump up to 63 billion cubic metres of gas to southern Europe via South Stream.  But gas production in Russia is falling, and Gazprom's financial situation prevents major investment in exploration or the development of new deposits.  This is why Moscow plans to fill South Stream, among other sources, with Caspian gas from the Shahdeniz deposit, which the EU also sees as one of the main resource bases for the Nabucco pipeline.  Against the backdrop of the differences on pricing and tariff policy between Baku and Ankara, Moscow's chances are improving quite sharply; especially as Ankara has also begun to sway towards the South Stream project.  As early as the eve of the abovementioned TV conference, Turkish President Gul told his Russian opposite number President Medvedev, in a phone conversation, that Turkey was ready to conduct geological exploration in his country's zone of the Black Sea shelf to implement the South Stream project as quickly as possible.  But such actions by Ankara, which is an ally of the West, are not welcome in Europe, which is interested in a diversifying energy routes and minimizing dependence on Russia,.

In the mean time, during a recent visit by Kazakhstani President Nazarbayev to Turkey, President Gul said that his country values highly Kazakhstan's interest in the implementation of the Nabucco project.  It seems, then, that Ankara does not mind supporting two mutually exclusive projects which are direct rivals both economically and politically?!  It seems that Ankara needs to supply answers to all these questions.  And it should do so very soon.  And the West, which has still not found the funds to launch the construction of Nabucco, should also try to act more quickly.  Otherwise Russia might totally monopolize natural gas supplies to Europe from the post-Soviet area.  In addition, Moscow, in contrast to others, proposes very attractive prices and transit tariffs.  The positions of the energy producing countries of the Caspian basin are also very clear:  "The routes depend on prices and the activity of interested parties."