CASPIAN TANDEM

Baku and Astana's long-standing, successful partnership in the transport and energy sectors has taken on a new dimension over the past two years. The two friendly countries have set themselves a goal of multiplying trade by expanding cooperation in logistics, agriculture, industry, IT, etc. These efforts are accompanied by numerous forums, negotiations on the governmental level, visits of heads of states – each time focused on the discussion of new priority vectors. For example, a Kazakh trade mission visited Baku in early April to join a meeting of the Azerbaijan-Kazakhstan intergovernmental commission on trade and economic cooperation. The business agenda also dominated the recent official visit to Kazakhstan by Azerbaijani President Ilham Aliyev.

New dynamics

"The allied relations between our countries are a solid foundation for the future development of cooperation. Today we are filling it with concrete content. The decisions taken in Baku last August are already being implemented today, including the start of the transit of Kazakh oil through Azerbaijan, serious works on the integration of transport and logistics infrastructure of our countries in order to fully use the opportunities of the Middle Corridor," President of Azerbaijan Ilham Aliyev said in a joint statement to the press in Astana on April 10. Together with his Kazakh counterpart Kassym-Jomart Tokayev and members of the governments of the two countries, President Aliyev discussed specific figures, a clear timetable for increasing the transportation of commodities along the East-West route. Following the meeting in Astana, the presidents signed a joint statement and a protocol on the creation of the Supreme Interstate Council supposed to intensify the development of bilateral relations.

The energy and food crises, global geopolitical rifts caused by the Russian-Ukrainian war and the consequent disruption of decades-old transport and logistics links along the Northern Transport Corridor have shifted the focus of business cooperation in the wider Eurasian area. Today, global transport routes in the region are oriented towards the Middle Corridor, with multiplied interest in the logistics potential of Central Asia (CA), Azerbaijan, Georgia and Türkiye, and these trends are fully supported by the EU and China.

Unsurprisingly, the past year and a half has proven to be a landmark for the expansion and deepening of trade and economic relations between Azerbaijan and Kazakhstan, long-time partners in energy and transport projects.

In particular, the negative trends associated with the war in Ukraine last year also affected the repeated suspension of the Caspian Pipeline Consortium (CPC) linked to the Novorossiysk marine terminal in the west. This 1,511-km pipeline with an annual throughput capacity of 67 million tonnes of crude oil is of enormous importance to Kazakhstan, as it supplies about three-quarters of all the Kazakh oil exports, mainly from the Tengiz and Kashagan fields.

Due to problems in handling crude oil, Astana is trying to diversify the transit of energy resources to the regional countries.

Number one alternative

Azerbaijan has therefore been regarded as the main alternative for the transit of the Kazakh crude. It is planned to ship about 1.5 million tonnes of crude oil through the Baku-Tbilisi-Ceyhan (BTC) pipeline annually. About 1.2 million more tonnes can be transported by ferries to Alat and then by rail towards the Batumi oil terminal owned by the Kazakh investors.

As another option, Azerbaijan and Kazakhstan were discussing the potential of the temporarily idle Baku-Supsa pipeline. A little earlier, Kazakh Prime Minister Alikhan Smailov noted the possibility of further growth of Trans-Caspian oil transit to 6-6.5 million tonnes annually.

The tanker President Heydar Aliyev delivered the first batch of oil produced at the Tengiz field from the port of Aktau to the Sangachal terminal in Baku on March 23. According to agreements between SOCAR Midstream Operations, a subsidiary of the State Oil Company of Azerbaijan, and the Kazakh state company KazMunayGas, it is planned to arrange additional 12-14 tanker deliveries of Kazakh oil for BTC from Aktau by the end of 2023 to arrange transit.

"The BTC oil pipeline is currently loaded by 40%, and there is still about 20 million tons of possible capacity for shipment. This is the volume we plan to use over the joint cooperation," said Serik Zhumangarin, Deputy Prime Minister and Minister of Trade and Integration of Kazakhstan, who took part in the 19th meeting of the Azerbaijan-Kazakhstan intergovernmental commission held in Baku. According to him, 20,000 tons of oil was transported via BTC in March 2023 and another 125,000 tons are expected to be shipped in April. The Kazakh side uses the first volumes of oil as part of a pilot project to test the supply route.

Meanwhile, Azerbaijan has expressed its readiness to increase the volume of transportation of Kazakhstani oil, as well as to increase the deliveries of Kazakh oil products and LNG. These issues will be discussed in future during the third meeting of the working groups that will discuss the expansion of energy transit between the two countries.

Transit potential

"Today we pay special attention to increasing energy cooperation. Our priority is to further diversify energy supplies to the world markets. This year, Kazakhstan delivered its first oil through Azerbaijan; the next step is to increase the volume of supplies and make them stable in the long-term," Kassym-Jomart Tokayev said in a press statement in Astana on April 10.

As noted by the Kazakh leader, we can see the increasing significance of the Trans-Caspian International Transport Route (TCITR), the so-called Middle Corridor, which plays a crucial role in the non-oil cargo deliveries. Therefore, Astana and Baku are committed to improving logistics services, creating single transport operators and upgrading technical and tariff conditions.

As part of these initiatives, Kazakhstan started to create a container hub at the Aktau Sea Port FEZ last year. The country will add four ferries to its existing Caspian fleet. There are also plans to build second track and electrify the Dostyk-Moyinty railway section by 2025. China has recently initiated a new China-Kyrgyzstan-Uzbekistan railway project. Eventually, this main line through the ports of the Caspian Sea will ensure the transportation of additional cargo volumes in transit through Azerbaijan.

In 2022, Azerbaijan accelerated the pace of works to increase the capacity of the Baku International Sea Port in Alat—from the current 15 million to 25 million tonnes of cargo annually. The funding has already been allocated for this purpose. This year it is planned to provide additional funding to increase the throughput capacity of railway infrastructure of the Baku-Tbilisi-Kars corridor (BTC). The capacity of this highway will be brought to 5 million tons of cargo. It is also expected to intensify the upgrade of the Georgian section Marabda-Turkish border and the construction of logistic terminals in Akhalkalaki in Georgia and Kars in Türkiye along the BTC route.

Azerbaijan Railways (ADY) and its partner Kazakhstan Temir Zholy (KTZ) recently set up a joint dispatch centre to optimise the flow of information on freight traffic. Cross-border and customs procedures have been simplified and a single-window regime has been introduced to optimise the passage of non-oil cargo and its handling in ports, including container multimodal trains transiting from China along the Middle Corridor. Optimal handling arrangements at the ports of Alat and Aktau thanks to the single-window processing method has reduced the transportation and unloading/loading time from 10-12 hours to 4 hours.

Thanks to all these measures, we can observe a growth in rail and ferry traffic between the two countries: in 2022, it was more than 3 million tonnes, which is 4 times higher than in the previous year. This positive trend continued in the first quarter of 2023, with a 40% increase in the volume of cargo transported between the countries via the TCITR.

"The development of transport and logistics links is critical for increasing transit traffic from China and Central Asia to Europe. We are ready to continue and deepen cooperation with Kazakhstan as part of the TCITR development, as well as within the framework of new transit transport opportunities, including the Zangezur corridor, which in the future will become part of the Middle Corridor," Azerbaijani Energy Minister Parviz Shahbazov said at the intergovernmental commission.

The two states attach great importance to the effective implementation of the road map for the development of the Middle Corridor in 2022-2027. According to President Tokayev, Astana and Baku have agreed that it is important to take full advantage of the increased interest of third countries in the route.

Increasing turnover

All these projects will also help increase mutual trade turnover between Azerbaijan and Kazakhstan. Last year, trade turnover between the countries quadrupled and reached $598m. A noticeable increase was recorded in the first quarter of this year as well. "Kazakh entrepreneurs are interested in the Azerbaijani market, but the potential of our mutual trade is not used even by half, although there is a demand for Kazakh goods in the Azerbaijani market and for Azerbaijani goods in Kazakhstan. We can together develop markets of third countries," said Vice Minister of Trade and Integration of Kazakhstan Kayrat Torebayev. He stressed that meetings in the B2B format make it possible to strengthen trade and economic cooperation between entrepreneurs. Thus, following the trade and economic mission in Baku, agreements were reached with Azerbaijani parties for the supply of batteries, sheet steel, food products. The commercial volume of 8 contracts has thus reached $55m.

These positive trends will expand further in the near term. Astana has presented a set of proposals to Baku for potential cooperation projects and a list of 100 commodities ($300m) to be sold in the Azerbaijani market. To optimise this work, the state-owned company Kazakhexport is ready to fund trade supplies on a long-term basis. A separate export credit agency will soon be established on the basis of this company. It plans to develop the Azerbaijani market. In turn, Azerbaijan's specialized bodies, including trade missions and chambers, are also aimed at expanding reverse deliveries of commodities to the Kazakh market. There is tremendous potential for mutually beneficial cooperation in agriculture. Last year, the volume of bilateral trade in farming products grew threefold to $146 million, which is more than a third of the total turnover volume. The countries are also planning to expand partnership in laying a fibre-optic communication line along the Caspian Sea bed, in space cooperation, digitalisation of public services, as well as in joint start-up projects.

"It is natural that we should complement each other's infrastructure and industrial potential with what we can supply to each other, thereby increasing trade turnover. There are expectations that our medium-term trade turnover can reach $1b, which I believe is quite a realistic figure," President of Azerbaijan Ilham Aliyev summarised the results of his visit to friendly Kazakhstan.

In short, the objective is clear, the path to its achievement is also clear, and the political will of the leadership of the two countries is there. We hope that we will see all these ideas come true very soon.