Publication: Eurasia Daily Monitor Volume: 4 Issue: 220

Azerbaijan’s decisive role in launching the Baku-Tbilisi-Kars (Turkey) railroad project to link Asia and Europe (see EDM, November 27) underscores the country’s surge to regional leadership on energy and transport projects. Barely one year into full-scale operation of the Baku-Tbilisi-Ceyhan oil pipeline, Azerbaijan has begun investing its oil revenues into further revenue-generating projects, in close and mutually beneficial association with Georgia and Turkey.

On November 18 gas from Azerbaijan flowed into European Union territory for the first time ever, through the Turkey-Greece-Italy Interconnector (TGI) pipeline, which began commercial operations that day. Azerbaijan’s President Ilham Aliyev attended the inaugural event alongside U.S., Turkish, Greek, and Italian officials on the Turkish-Greek border. TGI carries mainly gas from Azerbaijan’s Shah-Deniz offshore field, reaching Turkey through the Baku-Tbilisi-Erzurum pipeline.

The Interconnector is due to be prolonged from Greece to Italy in 2008. Azerbaijan expects to ramp up its gas exports through TGI to 11.5 billion cubic meters annually by 2011. Within the same timeline, Azerbaijan plans to kick-start the first phase of the Nabucco pipeline from Turkey to Europe, feeding that line also from Shah-Deniz through the Baku-Tbilisi-Erzurum pipeline.

On November 21 Presidents Aliyev and Mikheil Saakashvili of Georgia opened the expanded oil export terminal Kulevi, near Poti on the Georgian Black Sea coast. Azerbaijan’s State Oil Company owns the terminal, has recently expanded its capacity to 9 million tons annually, and envisages a further increase to 15-20 million tons per year. The terminal is equipped for exporting both crude and refined products from Azerbaijan. The same company plans to build a refinery at Kulevi with a processing capacity of 10 million tons of crude annually.

The state oil company of Azerbaijan is currently also participating in the privatization tender for sections of Georgia’s gas distribution system.

On November 22 Azerbaijan’s state oil company and its partners — Saudi-based Injaz Projects and Turkey’s Turkcas — won the privatization tender for Petrochemical Holding (Petkim), Turkey’s largest petrochemicals company. After Turkish authorities had disqualified another group’s bid, the Azerbaijan-led group won a 51% stake in Petkim for $2.04 billion. Another 40% of Petkem’s shares were already listed on the stock market. Petkim controls one-quarter to one-third of Turkey’s petrochemicals market (New Anatolian, November 23).

Meanwhile, Azerbaijan’s state oil company has teamed up with the Turkish company Topras on a project to build a 10 million-ton refinery at Ceyhan on Turkey’s Mediterranean coast. That site is the terminus of both the Baku-Tbilisi-Ceyhan pipeline and the pipeline running from Iraq’s Kirkuk oil fields to the sea. With the Kulevi project operational and slated for expansion, and the Ceyhan refinery planned, Azerbaijan is advancing to the role of exporter of refined products in addition to that of crude oil exporter.

Turkey is also moving rapidly toward closer relations with Georgia — a process made possible largely by Azerbaijan’s energy export and investment potential. After the Baku-Tbilisi-Ceyhan and Baku-Tbilisi-Erzurum pipelines, the Baku-Tbilisi-Kars railroad project reinforces this tripartite economic and political rapprochement.

Attending the railroad project’s groundbreaking event in Georgia on November 21, the three countries’ presidents remarked that Georgia, Azerbaijan, and Turkey are beginning to form a common economic region. Gul’s Georgia visit ensued shortly after his visit to Azerbaijan, his first visit abroad as Turkish president. Turkey and Georgia signed a Free Trade Agreement during Gul’s visit there (Georgian Public Television, November 21). Turkey became the number one foreign trade partner of Georgia in 2006, with an estimated 15% share and $800 million turnover, replacing Russia in that position. Russia’s economic sanctions against Georgia accelerated Turkey’s surge to first place among Georgia’s trade partners, but that dynamic was already in evidence before 2006. (Civil Georgia, November 21).

This year, Georgia and Turkey introduced arrangement for joint use of Batumi International Airport in Georgia, modernized with Turkish assistance. “While Russia closes its borders with Georgia, Turkey lifts visa procedures, opens its borders and eliminates obstacles to trade,” Georgian President Mikhail Saakashvili remarked. (Prime-News, November 21).

For its part, the Armenian government conducts a policy of self-isolation from energy and transport projects in the South Caucasus. Yerevan opposes the Azerbaijan-Georgia-Turkey railroad project to the extent of working with political allies in the United States and within the European Union to block international funding for the project. Earlier, Yerevan and allied groups in the West unsuccessfully opposed the Baku-Tbilisi-Ceyhan oil pipeline project. Azerbaijan and Turkey take the position that Armenia cannot be included in regional projects because of the occupation of Azerbaijani lands and perceived territorial claims on Turkey. The Armenian government’s declared goal is for Armenia to be included in regional projects. However, this goal is not likely to be achieved by working to oppose projects that Armenia’s neighbors regard as their vital national and common interests.