Publication: Eurasia Daily Monitor Volume: 3 Issue: 221

Azerbaijani-Russian relations, increasingly warm in the past five years, are about to enter a difficult phase that could turn both countries into regional rivals. There are three reasons for the shift: Azerbaijan’s increasing gas production, Russia’s fight against illegal migration, and the recent visit by President Ilham Aliyev to Brussels to sign an EU Neighborhood Policy with Azerbaijan. The fall-out, however, will only affect a single, key issue: resolution of the Karabakh conflict.

Many analysts expected President Ilham Aliyev’s visit to Moscow, and his meetings with Russian President Vladimir Putin a few weeks ago, to launch a new stage in bilateral ties. Both leaders have enjoyed friendly relations in the past several years, and the relations between two countries have been deepening at a gradual but steady pace. Yet Putin gave Aliyev the cold shoulder. Analysts speculate that Putin is wary of Azerbaijan’s growing capacity to produce and even export natural gas, thus becoming a natural economic rival to Russia in the region.

In fact, President Aliyev traveled to Moscow straight from Brussels, where he had signed not only a new EU Neighborhood Policy with Azerbaijan, which envisions more concrete steps towards integration of the south Caucasus country into EU institutions and structures, but also an agreement on energy transit to Europe. EU members, hungry for alternative sources of energy, have welcomed such moves. Putin, however, warned Aliyev that Moscow had carefully watched Azerbaijan authorities negotiate in Brussels and that all energy projects in the regions must be coordinated. This hint was a message to President Aliyev not to try to bypass Russia in an attempt to secure European energy markets. Some regional analysts have even indicated that Putin has suggested creating an OPEC-style gas-export organization.

Following the tough negotiations over Azerbaijan’s gas exports, the Russian gas monopoly Gazprom decided to triple the price of gas deliveries to Azerbaijan. This decision follows the same pattern observed toward Georgia and Ukraine last year. In fact Georgia, facing the same problem this year, is already looking for alternative energy sources.

Azerbaijani authorities have responded to the Gazprom decision by planning to reduce gas imports from Russia and instead delay its own gas exports from the Shah Deniz field for one year. Considering the fact that Azerbaijan will also deliver gas to Georgia, as part of the agreement reached between Aliyev and Georgian President Mikheil Saakashvili in Minsk this week, it is unlikely that Baku will be able to export much gas to the EU and Turkish markets in 2007 using the recently built Baku-Tbilisi-Erzurum gas pipeline. The agreement between Saakashvili and Aliyev in itself is another reason for frustration and anger in Kremlin circles, as Moscow has been trying to squeeze Georgia economically for its pro-Western stance.

As if energy problems were not enough, the Russian government has also decided to pass a new law on retail market operations and limit the number of emigrants working in Russian bazaars. It is estimated that close to 2 million Azerbaijani citizens are currently working in Russian markets, earning meager incomes and sending payments home. The expulsion of Azerbaijan emigrants would put a major strain on Azerbaijan’s economy and increase socio-economic tensions in the country. Although Azerbaijan’s economy is growing at one of the fastest paces in the world, it will not be able to accommodate a large inflow of unemployed persons from Russia.

Thus, President Aliyev has issued an urgent decree to establish a state commission, headed by Deputy Prime Minister Eyyub Yagubov, to deal with this issue and to plan activities to ease the transition of these labor migrants from Russia to Azerbaijan. Local experts, meanwhile, consider this move by Russia as another strike at Georgia and Azerbaijan for their close ties with the EU and NATO.

Following the November 28 Minsk summit of the Commonwealth of Independent States, President Aliyev said that Azerbaijan has carried and will continue to carry out a balanced foreign policy. This means that he will continue to form friendly and mutually respectful relations with Russia. Yet, the recent trends show that both countries are about to enter a turbulent phase, which will require significant work from both sides to sort out economic and energy conflicts of interests. If this does not happen, Russia is unlikely to help with the Nagorno-Karabakh peace process, which, in the words of President Aliyev, has “entered the final stage.”

(President Aliyev’s interview to AZTV on November 29, Xalq Qazeti, Echo, Zerkalo, Turan News Agency)