Publication: Eurasia Daily Monitor Volume: 3 Issue: 12

Iran’s recent decision to resume nuclear fuel research has sparked a strong reaction from the United States, the European Union, and even Tehran’s traditional ally, Russia. It also brought back the question of referring Iran to the UN Security Council, which could eventually lead to economic sanctions against Tehran. It is an outcome that many in Azerbaijan fear will affect Iran’s neighbors as well.

One of Baku’s main economic partners is Tehran, and it is worried that potential economic sanctions or a military attack will adversely affect Azerbaijan. The energy sector is one area that will likely suffer as a result of such an outcome.

According to Azerbaijan’s State Statistic Committee, the Iranian share in Azerbaijan’s annual import trade has declined from 4.5 percent in 1999 to 1.3 percent in 2004. Iran was the 6th largest source of imports in 1999, but ranked only 14th in 2003. Yet it remains the 10th largest trade partner of Azerbaijan.

Iran is also an important gas supplier and transit country. Although Azerbaijan produces about 5 billion cubic meters (bcm) of natural gas domestically, its annual natural gas demand is 9.5 -10 bcm. Baku buys the remaining portion of gas (around 4.5 bcm) from Russia (AssA-Irada, December 16).

Russia and Turkmenistan have traditionally been Azerbaijan’s major natural gas suppliers, though all gas transfers were carried out using the Russian gas pipeline networks. The recent crisis between Russia and Ukraine over gas prices highlighted the need for diversifying natural gas supply. Squeezed between Russia from the north, Iran from the south and the Caspian Sea from the east, Azerbaijan has limited options for alternative gas providers. After Gazprom’s decision to increase its gas prices from the previously agreed price of $61 per thousand cubic meters (tcm) of natural gas to $110 tcm, Azerbaijan started to look for other potential natural gas suppliers, including Tehran.

Recently, Iran began to supply natural gas to Azerbaijan’s landlocked Nakhchivan Autonomous Region, which is separated from the mainland of Azerbaijan by a strip of Armenian territory. Nakhchivan has been cut off from gas supplies as a result of the Armenia-Azerbaijan conflict over Nagorno-Karabakh.

On December 20, Azerbaijani President Ilham Aliev and Iranian President Mahmoud Ahmadinejad attended the opening ceremony of a new gas pipeline from Iran to Nakhchivan (, December 22).

Under a 25-year swap contract signed between the two countries in August 2004, the new pipeline will supply the region with Iranian natural gas. Azerbaijan will also deliver its gas to Iran’s northeastern provinces. The volume of gas imports to Nakhchivan is expected to reach 250 million cubic meters in 2006 and 350 million cubic meters in 2007 (Today.Az, December 16).

Another report indicated that Azerbaijan and Iran are expected to sign a new gas agreement for the purchase of additional 1 bcm of the Iranian natural gas (BakuToday, December 28).

Indeed, economic relations with Iran make Azerbaijan anxious about the possible implications of economic sanctions against this country. In addition to economic concerns, Baku is interested in the responsible treatment of more than 20 million ethnic Azerbaijanis who live in Iran.

The survey conducted by InterMedia Survey Institute in March 2005 suggested that more than half of Azerbaijan’s 8 million population oppose the military action against Iran. Sixty-one percent of participants in the survey believed that the Azerbaijani government should not provide assistance to the U.S. or the coalition forces in the case of possible U.S.-led military action against Iran.

In his interview to a local Echo-Az newspaper, Azerbaijani political scientist Rasim Musabekov warned that “any military attack against Iran is not in Azerbaijan’s national interest… [and] the Azerbaijani government should do its best to avoid such an outcome.” Musabekov stated that Azerbaijan is interested in “a resolution that could be reached through negotiations and compromises” (Echo-Az, December 24).

Some local analysts have already predicted that 2006 will not be an easy year for Azerbaijan and the South Caucasus region. An Azerbaijani military expert, Uzeyir Jafarov, declared that “the situation surrounding Iran’s nuclear program is not too promising and for a country like Azerbaijan that borders Iran, the prospects for 2006 are looking grim” (Echo-Az, December 24).