Time in Yerevan: 11:07:36,   23 March

The impact of the oil factor on foreign and inner policy of Azerbaijan


After the signing of the agreement on the construction of international consortium for the construction of Baku-Tbilisi-Ceyhan oil pipeline in 1999 in London, President of Azerbaijan Heydar Aliev stated "not oil but politics will flow through this pipeline". With this, the main point of the Azerbaijani policy was registered according to which the latter uses its oil factor for strengthening the foreign policy, trying to reinforce its positions in the region.

The official Baku, speculating the oil issue, is trying to present itself as the supplier of oil and gas to West tying this issue with the Karabakh conflict. But the oil factor of Azerbaijan is not only the reason of its firmness but weakness too. West understands that the Azerbaijani oil and gas cannot be an alternative for the energy bearers of the Persian Gulf countries but the relations with the official Baku are important taking into consideration the circumstance that it ensures exit to the South Caucasus and particularly Caspian Sea and entrance to the Central Asian region rich in raw materials.

Azerbaijan's oil sector which makes more than 60% of its GDP increases its dependence from the oil prices in the international raw materials exchanges. And as much as Azerbaijan increases the export volume, the more its dependence from the fluctuations of oil prices increases, that is to say its economy becomes more vulnerable. The increase of investments in the oil sphere brings to the unprecedented growth of the gross domestic product which saved that country during the years of economic crisis 2008-2009.

The investments in the oil sphere though do not have essential impact on the livelihood of the people as this branch, taking quite big finances, at the same time does not ensure jobs: only 1-2% of Azerbaijan's population is working in this sphere. Azerbaijan has long time ago turned into "one economy" country and the unprecedented incomes from oil give the Alievs' clan an opportunity to strengthen the positions inside the country, making steps peculiar to the authoritarian states rich in raw materials – reduce taxes or in certain cases eliminate them at all, reduce the role of the country's population and business circles in the formation of the budget of the country, and consequently the dependence of authorities from these circles. Instead, they expect big financial entries from the volume of oil export which though increases dependence from the transnational companies.

The fact that Azerbaijan's dependence from oil is critical was seen during the crisis years. In 2009 the foreign trade circulation declined 2,6 times making 20.8 billion USD from previous 54 billion and it is not the result of the decline of oil export volume but the decrease of oil prices in the international raw materials exchanges. The export sphere declined 3.6 times making 14.6 billion USD. The 92.8 % of the export of that country is the raw oil and gas.

That is to say the fluctuations of the oil price in international exchanges directly affects the economy of that country, more increasing the latter's dependence from the raw materials prices and transnational oil companies.

"British Petroleum", "Statoil" and other international powerful oil companies have focused the pressing majority of Azerbaijan's oil sector in their hands. They not only manage the most profitable oil mines of this country but have taken under control the main oil and gas pipelines– Baku-Ceuhan and Baku-Erzrum.

The lion's share of the oil exported from Azerbaijan belongs to the Azerbaijan International Operating Company (AIOC) the main shareholders of which are 9 big oil companies and the control package belongs to the "British Petroleum" 34.1%. The AIOC also manages the biggest oil mine of Azerbaijan Chirag and Gunashli.

"British Petroleum" controls the Baku-Ceyhan oil pipeline. It possesses the 30.1% of its shares. The actives of the Azerbaijani state oil company make only 25%, the rest belong to other transnational companies.

The same is the situation in the sole gas field of Azerbaijan - Shah Deniz. It is being operated by "Shah Deniz Field Program" company the main shareholders of which are "British Petroleum" – 25.5% and "Statoil" 25.5%. Azerbaijan possess only 10% of the shares. Thus, British "British Petroleum" and Norwegian "Statoil" control not only Shah Deniz Field but the pipeline through which Azerbaijan's gas flows to Turkey and Europe.

It may be concluded that taking the path of raw exporting countries, Azerbaijan appeared in full dependence from transnational companies who oversight and manage the country's oil and gas spheres.

After the adoption of new energy doctrine by the European Union in 2011, Brussels was trying to activate its role in the Central Asia and through NABUCCO and such like programs create an alternative for the import of energy bearers from Russia. January 13, 2011 in Baku president of Azerbaijan Ilham Aliev and President of the European Commission Jose Manuel Barosso signed a joint declaration on participation of Azerbaijan in the "Southern Energy Corridor". This program supposes export of the energy resources to the EU through the construction of NABUCCO gas pipeline.

And so, the current administration of Azerbaijan is trying to use the energy factor for solving two main issues – strengthen the Aliyevs' clan inside the country getting the loyalty of West and getting privileges in the Karabakh issues. Becoming oil appendage of West, Alievs' clan solves an important issue – legitimizes the political tradition of passing the power from father to son.

The oil boom in Azerbaijan brings to the increase of that country's dependence from transnational companies, who control the majority of the economy of that country. That is to say the oil sector of Azerbaijan is its most vulnerable place: the future of this country depends on the volume of export of the raw materials and their prices in exchanges. In 2008-2009 the unprecedented decline of oil prices caused serious issues for the economy of that country but lasting for quite short period saved Azerbaijan's economic and political system from collapse.

But as western analysts say, the dependence of Azerbaijan's economic and political system from oil reached such a volume that the suspension of oil and gas export from that country, for instance in case of possible military conflict, will bring to the collapse of the power pyramid and economy. 

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