Transformation of Caspian Sea Region Into Energy Hub Gaining Momentum (Part One)

Executive Summary:

• Kazakhstan, Azerbaijan, and Uzbekistan have formed a plan for the transmission of green energy to the European Union via the Caspian Sea.
• The use of Caspian routes to transport energy to Europe has increased following Russia’s full-scale invasion of Ukraine and the subsequent loss of access to European markets.
• The countries of Central Asia and the Caucasus hope to leverage their wealth of natural resources and advantageous geography to transform the Caspian Sea region into a major hub for satisfying Europe’s energy needs.

On May 1, Azerbaijan, Kazakhstan, and Uzbekistan signed a memorandum of understanding (MoU) on the export of electricity generated by wind and solar power to the European Union. As noted by Kazakh Energy Minister Almasadam Sätqaliev, the three countries have begun to form a concrete plan for the transmission of green energy to Europe, including the expansion of a joint business model and the integration of their respective energy industries (Gov.kz, May 1). Sätqaliev also confirmed that preliminary talks with EU member states—potential buyers and investors—are already underway (TASS, May 10). Following the outbreak of Russia’s full-scale invasion of Ukraine in 2022, Moscow tried employing energy blackmail to put pressure on Kyiv and dissuade Western support. That strategy ultimately resulted in cutting off Russian energy access to European markets, causing many countries to search for alternative suppliers and transit routes. Under such circumstances, the transformation of the Capsian Sea region into a major hub for European energy security has gained more momentum. The region’s energy potential has been thoroughly assessed by the United States and the European Union, as highlighted by US President Joe Biden’s meeting with the leaders of Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan as part of the B5+1 business initiative in 2023 (Forbes.ru, September 16, 2023; DW, October 23, 2023; The Astana Times, January 2024). The development and use of Capsian routes will rely heavily on regional cooperation and the ability to attract outside investment—if not from the West or Russia, then likely from China.

The strategic significance of the Caspian Sea region as a rich source of energy resources rests on several main pillars. To begin with, the surrounding countries’ oil potential plays a critical role. Currently, Kazakhstan has about 30 billion barrels of oil in its reserves, and Azerbaijan has about 7 billion. Before Moscow’s “energy war” against Europe in 2022, the roles of both Russia and the European Union in European energy security were undermined by a visible lack of coordination with countries in the Caspian region and Kazakhstan’s strategic dependency on Russia regarding oil exports. Now, the situation is changing. For example, the flow of oil from Kazakhstan (and Turkmenistan) to the European Union through Azerbaijan has increased, accounting for 17.3 percent of the total volume of oil transported via the Baku–Tbilisi–Ceyhan pipeline in January (Caspiannews.com, February 21). Russian sources have already expressed concern over Kazakhstan’s ability to transport increasingly more oil via alternative routes (RBC, April 22, 2023). Some Russian experts are also concerned with Astana’s aims to double oil exports transported via Azerbaijan (Baku-Supsa oil pipeline) in two years (Kommersant, February 5).

The Caspian Sea plays a critical role in the regional transit of liquid natural gas supplies, particularly for Turkmenistan and Azerbaijan (Az.sputniknews.ru, June 11). Moscow is concerned with Ashgabat’s reported readiness to drastically increase the extraction of natural gas from the Galkynysh gas field. This would enable Turkmenistan to boost exports not only to China and Europe but to the other Central Asian countries as well, particularly Uzbekistan and Tajikistan (Ng.ru, August 13, 2023). Such a development could decrease Russia’s role in Central Asia’s energy security.

Baku remains committed to expanding its role in Europe’s energy mix. This was clearly articulated in June 2022 when Azerbaijan and the European Union signed an MoU on a strategic partnership in the energy sector. According to the agreement, Baku commits to doubling the amount of exported natural gas to 20 billion cubic meters over the next five years (President.az, July 18, 2022).

Renewable energy is a growing aspect of Europe’s energy collaboration with the countries of the Caspian Sea region. Kazakhstan, Azerbaijan, and Uzbekistan have voiced their ambitious plans to greatly expand their production and export of green energy. Tashkent has declared that it plans to generate an additional 20 gigawatts (GW) of energy via renewable sources (primarily solar and wind power) by 2030. A number of contracts accounting for the production of 12 GW have already been signed (Neftegaz.ru, April 24). Additionally, during the Tashkent International Investment Forum in May, agreements worth a cumulative $26.6 billion were signed and the Uzbekistan government concluded a special agreement with Saudi investors for the development of more wind-generated power (Gazeta.uz, May 6).

For its part, Baku has declared its commitment to generating 5 GW of solar and wind power by 2030 and hopes to assume the role as a critical supplier of green energy to the European Union (Mir24.tv, March 1). Georgia, Hungary, Romania, and Azerbaijan signed an MoU to establish a joint venture for the Azerbaijan-EU Green Corridor. The project includes the construction of a Black Sea underwater electricity cable with a capacity of 1,000 megawatts and a length of 1,195 kilometers (742 miles) (En.trend.az, July 25, 2023). Baku’s green energy ambitions are viewed with growing interest by major international organizations, such as the World Bank and the International Financial Corporation, and private investors, such as Masdar from the United Arab Emirates. These entities have voiced their readiness to invest and share their experience in transforming Azerbaijan into a global actor for the production and export of green energy (Qazaqgreen.com, June 24, 2022).

Kazakhstan’s own green energy ambitions are of particular importance as the country currently generates 2.9 GW of power via renewable sources and plans to add an additional 5 GW by 2030 (Kapital.kz, February 23). According to the director of investments at Hyrasia Energy, Ainur Tumysheva, Kazakhstan hopes to emerge as a large-scale export-oriented producer of green energy in 2030 (The Astana Times, February 26). While Kazakh energy experts express concerns over the country’s ability to implement this ambitious agenda, local officials claim that the plans are doable, referring to their successful joint work with Germany who brings impressive technological prowess and know-how to the table (Commonspace.eu, May 8).

The vast deposits of rare-earth minerals in Central Asia will play a central role in Caspian Sea trade (see EDM, June 12, 13). Kazakhstan is the top global supplier of uranium and could become a realistic alternative to Russian uranium, which the United States recently sanctioned (Aa.com.tr, February 6; see EDM June 3). Astana is actively working to diversify its uranium exports and transportation routes away from Russia. Currently, Kazakhstan exports uranium to customers based in Europe and North America via St. Petersburg. The Trans-Capsian International Transport Route, or Middle Corridor, could become an effective alternate route in that regard (Paluba.media, May 14).

The countries of Central Asia and the Caucasus hope to leverage their wealth of natural resources and advantageous geography to transform the Caspian Sea region into a major hub for satisfying Europe’s energy needs. Some regional players—namely, Russia and to some extent Iran—will likely seek to counter any developments that drive transit and export routes away from their territories. Beijing will presumably support projects that promote east-west trade with Europe but that do not take away from the preferred projects and routes of the Belt and Road Initiative. As a result, beyond building strong regional cooperation, the sources of investment for infrastructure development in the region will play an important role in determining the Caspian Sea’s role in future transit and trade arrangements.