Geopolitical Report ISSN 2785-2598 Volume 23 Issue 5
Author: Silvia Boltuc
In October 2022, representatives of Kazakhstan, Turkmenistan, Azerbaijan, Iran, and Russia will attend the second Caspian Economic Forum hosted in Moscow to discuss future energy cooperation and projects. Given the ongoing Ukrainian Conflict, which pushed European countries to reduce their energy dependence on Russian supplies dramatically, this event will be particularly relevant. Indeed, European countries are focusing their strategies on the Caspian region, looking for alternative energy sources.
Turkmenistan has the 6th largest world natural gas reserve. Azerbaijan proved natural gas reserves were estimated at 1.9 trillion cubic meters, while Kazakhstan has around 1.8 billion cubic meters, ranking third in the Commonwealth of Independent States (CIS) after Russia and Turkmenistan. Russia has the 1st largest natural gas reserves worldwide, followed by Iran.
This data suggests that the Caspian Sea is one of the world’s largest oil and gas producing regions. Nevertheless, due to historical ties and geographical location, it has always been considered under the Russian sphere of influence.
Due to the Western sanctions and the military involvement in Ukraine, the European Union believes that post-Soviet republics, especially those located in the Caspian Sea region and Central Asia, might decrease the Russian influence. Indeed, Brussels has often stated that Moscow is isolated from the rest of the world even though only the West (European Union, the United States and its allies) has imposed sanctions against the Russian Federation.
In this context, Washington and Brussels have tried to exploit local discontent in the post-Soviet space to push their regional policies and gain new contracts in the energy sphere. By contrast, Western oil and natural gas market strategies might face structural problems: ramping production to the level needed to replace Russian gas exports is impossible for any regional actors in the short term. Moreover, as Azerbaijan’s President, Ilham Aliyev, underlined in his interview for the Italian newspaper Il Sole 24Ore, it will take massive investments and time to realise the infrastructure to get the supplies to Europe.
Azerbaijani Role in the European energy strategy
Assuming that Caspian Sea countries might play a significant role in the European energy diversification, Brussels pursued the partnership with Turkey as a possible secure transit country. The Southern Gas Corridor project was designed to link the Azerbaijani and Turkmen gas to Europe through Turkey, thus bypassing Russian soil. Fourteen years after the initiative’s launch, Turkmen gas still doesn’t reach European customers, and Turkey cannot provide Brussels with the needed supplies.
At the beginning of September 2022, in an interview with the Italian newspaper “Il Sole 24 Ore”, President Aliyev said that Europe is requesting more natural gas from Azerbaijan, aiming at doubling the imported supply volume from the Southern Gas Corridor pipeline. He underlined that no one was prepared for this new situation, and even if he described the doubling of natural gas exports to Europe as a priority in a meeting with European Commission President Ursula von der Leyen in Baku in July 2022, some issues could not be underestimated. Europe is not the Azerbaijani gas-only destination. Baku also supplies Turkey, a market which is also growing and Georgia. Moreover, to increase supply, many investments must be made to expand the Trans Adriatic Pipeline (TAP) and Trans-Anatolian Pipeline (TANAP) capacity. Azerbaijan’s authorities intend to put two new gas fields into operation in response to the growing demand for natural gas in global markets, adding a significant portion to the current volumes reaching European consumers, but it will take time.
It is essential to underline that gas pipelines need safe transit routes to be reliable. The scenario Europeans experienced with the interruption of gas supplies from Moscow might also happen with supplies from Azerbaijan. While the Azerbaijani President stated in his recent visit to Italy that Baku and Yerevan might sign a peace agreement to stabilise the Caucasus region in a few months, the reality has proven to be different. The European need for gas and the so-called Azerbaijani “caviar diplomacy” pushed Brussels to ignore the problems of democracy in Baku. Nonetheless, given that support was given to Ukraine in defence of democratic values, Europe could not ignore the recent Azerbaijani aggression against Armenia’s sovereign territory. Several European Parliament members requested sanctions against Azerbaijan and what they called “Aliyev’s regime”. A peace deal seems far from being achieved, putting a considerable instability risk on the Caucasus and its infrastructures. Furthermore, Yerevan could evoke the CSTO members’ military support against Azerbaijan, also involving Russia in the confrontation.
United States interests in the Caspian region
2022 marked the 30th anniversary of diplomatic relations between the United States and Azerbaijan. Azerbaijan has strategic importance in Washington’s foreign policy perspective because the country shares its borders with Iran and Russia, U.S. primary opponents. Furthermore, Baku is the largest port on the Caspian Sea and an important transportation hub for goods shipped between Europe and Central Asia. The United States has long supported Azerbaijan’s efforts to develop and export its energy resources to Western markets. U.S. companies also actively participated in offshore oil development projects in this context.
As for Kazakhstan, the United States and the Netherlands are the most prominent investors in the Central Asian Republic. Around 600 U.S. companies operate across Kazakhstan. The U.S. oil company Chevron runs Kazakhstan’s most giant oilfield, Tengiz, located near the Caspian Sea, alongside other partners, including the other U.S. oil company ExxonMobil. U.S. oil firms own 75 per cent of the joint venture company, Tengizchevroil, which provides the most significant revenues to the Kazakh government.
In January 2022, protests in Kazakhstan were triggered by a 100 per cent liquefied petroleum gas (LPG) price hike. The instability of the country and its external influences, such as the Russian and China ones, worried Western investors, particularly after the Collective Security Treaty Organisation (CSTO) intervention to quell the unrest. Kazakh President Kassym-Jomart Tokayev quickly reassured Western countries of the willingness of Astana to continue cooperation. In this light, it is possible to see the reasons behind the recently controversial stances Tokaev had on Moscow, condemning Russian military operations in Ukraine. Tokayev moreover declared that in Russia, “some people misrepresent CSTO intervention in Kazakhstan arguing that Russia saved Kazakhstan, and Kazakhstan should now forever serve and bow at the feet of Russia”. He stressed that “it was CSTO, not Russia, so this reasoning is unjustified”. 
Despite the unrest, the Wall Street Journal reported Chevron’s interest in developing a 45-billion-dollar expansion project in Tengiz after the company’s oil concession in the country expires in 2033.
Kazakhstan is also rich in rare earth minerals and is the world’s biggest uranium producer, holding 40 per cent of the world’s total production, and this is part of why it is so attractive to foreign investors. Given Chinese dominance over worldwide rare earth production since the 1990s and the efforts Beijing put into consolidating China’s rare earth industry, it is risky to have foreign investors controlling Kazakh reserves, particularly now that under the Biden administration, the U.S. attempt to re-emerge as a dominant player in a rare earth supply chain. Due to the substantial Chinese investments and Russian influence, the country became one of the battlefields of the so-called ‘New Great Game’ between China, Russia and the United States.
Kazakhstan is also a vital part of the Chinese Belt and Road Initiative (BRI), and Beijing invested billion in the country. China-Kazakhstan total bilateral trade accounts for 22.94 billion dollars, and, at the end of 2019, Beijing invested 29.43 billion dollars in Kazakhstan. Some 55 China-backed projects worth nearly 28 billion dollars will be finished by 2023. Finally, between January and November 2021, China imported 4.02 million tonnes of natural gas from Kazakhstan.
Increasingly Western influence is not something neither Russia nor China will likely accept. Nevertheless, it is essential to underline that Kazakhstan total foreign direct investment stood at 161 billion dollars in 2020, with 30 billion dollars coming from the United States.
The Trans-Caspian Route and Pipeline
In May 2022, The U.S. Agency for International Development (USAID) conducted a study tour to Kazakhstan, Azerbaijan and Georgia to find opportunities to increase trade along the Trans-Caspian route, an alternative means for transporting goods from Central Asia to Europe. The Trans-Caspian International Transport Route (TITR), known as the “Middle Corridor”, is a rail freight and ferry system linking China with Europe. It starts from Southeast Asia and China and runs through Kazakhstan, the Caspian Sea, Azerbaijan, Georgia and Turkey before reaching southern or Central Europe, depending on the cargo destination. The U.S. is considering a regional hub with its International Development Finance Corporation (DFC) in Tbilisi, Georgia.
For Europe, which has been trying to reach landlocked Turkmenistan’s gas supplies for years, particularly important will be the realisation of the proposed Trans-Caspian Pipeline, which could be connected to the TANAP and TAP systems. Previous attempts to develop pipelines across the Caspian Sea have failed, mainly due to disagreements between the five Caspian littoral states over the shared use of the seabed. The legal status of the Caspian Sea was eventually resolved in 2018 with the Aktau Convention, but Russia has added some environmental clauses to the agreement that could allow Moscow and Tehran to oppose the construction of such a pipeline. The Turkmen gas, theoretically, can be transported to Turkey via Iran. However, sanctions on Tehran’s oil exports have affected agreements with foreign companies on natural gas field development projects and delayed the Iranian government’s long-standing plans to build the necessary infrastructure to export liquefied natural gas.
Another essential aspect that should not be underestimated is the Turkmenistan-Russia relations, which are noticeably strengthening in the trade, economic, energy, cultural and humanitarian fields. The trade turnover between the states has increased significantly recently, and Russian companies expressed their interest in investing in the Turkmenistan-Afghanistan-Pakistan-India (TAPI) natural gas pipeline project. TAPI might significantly decrease Turkmenistan’s interest in the Trans-Caspian Pipeline.
Moreover, Turkmenistan and Kazakhstan have become one of the main recipients of Chinese investment among the Central Asian republics. Due to the strengthening of energy ties and a massive delivery of Turkmen gas to China, Beijing has become Turkmenistan’s leading trading and economic partner.
Finally, the recent gas swap agreement signed by Azerbaijan, Turkmenistan and Iran is Tehran’s attempt to enter the new energy route toward Europe by sponsoring the Islamic Republic of Iran as a transit country alternative to the Trans-Caspian Pipeline, which clearly would undermine Tehran’s interests.
The International North-South Transport Corridor (INSTC)
The multimodal International North-South Transport Corridor connects the northwestern part of the Eurasian Economic Union (EAEU) and the Nordic countries with the countries of Central Asia, the Persian Gulf, and the Indian Ocean. The Corridor includes railway, road, and inland water transport infrastructure, Caspian Sea ports (Astrakhan, Olya, Makhachkala, Baku/Alat, Aktau/Kuryk, Türkmenbasy, Anzali, Nowshahr, Amirabad), Persian Gulf ports (Bandar Abbas and Chabahar), automobile crossing points (ACPs), railway crossing points, and international airports.
Active interaction of the EAEU countries with India, Iran, and other countries in the southern part of the Corridor has pushed this ambitious project. The Corridor reduces the negative economic impact of large distances and high transport costs, connects landlocked countries with open waters, and reduces delivery times. The INSTC may be transformed from a transport corridor into an EAEU economic development corridor, strongly impacting the Eurasian economy.
Notably, INSTC will connect three of the world’s most oil and gas-rich areas, the Caspian Sea, Central Asia and the Persian Gulf and will serve the vital regional trade, helping goods transit. Although Russia and Iran are still under sanctions, Eurasian countries are reorganising along new routes and have reached several agreements that allow them to exchange with local currency.
The upcoming Caspian Economic Forum will bring together key players in the actual energy sector. The Ukrainian Conflict highlighted European dependence on Russian gas and pushed Brussels to search for alternative partners. In this light, the Caspian region is becoming of fundamental relevance for Western countries to provide the needed energy supplies and to contrast Russian regional influence.
For Russia, the Caspian region is critical for economic and security reasons. Moscow considers the area part of its blizhnee zarubezhe (near abroad) and needs these countries to work as a buffer zone that protects the Russian Federation’s borders. Since some of them are members of the CSTO and EAEU and depend differently on Moscow’s support and alliance, like Iran, the risk is that the Kremlin might put post-Soviet space in front of a tricky final decision between Russia and the West. Notably, sanctions against Russia aimed to achieve peace in Ukraine and reduce Moscow’s influence in the Eurasian scenario.
Having Western countries more involved in the Caspian region will also contrast Russia’s trade strategy, pushing littoral countries into new routes and agreements with the final goal of isolating Moscow. In this light, more Western investments in the Caspian region and central Asia are likely to become a destabilising factor.
As for the European search for energy suppliers, even if the Southern Gas Corridor capacity is increased in the short term, Azerbaijan will not be able to improve gas exports to Europe in the coming years as its production levels will not allow it. Turkmenistan has deep ties with Russia and China and realising the Trans-Caspian Pipeline seems complicated. Kazakhstan appears to be the country most open to Western investments, but its internal instability makes it unsafe for energy routes.
Another essential element is that Europe must seriously reflect on its policies. Brussels openly sided and supported Ukraine against Russia’s military operation, accusing Putin of being a dictator and Moscow of not respecting human rights. If democratic values are at the base of European strategies, neither Azerbaijan nor Turkmenistan, Turkey and Kazakhstan are acceptable partners.
In addition, Russian minorities live in several post-Soviet republics. Therefore, if these countries shift toward European or U.S. influence, local Russian minorities might cause internal problems and ask for self-determinations, as happened in Ukraine in the case of Crimea, Donetsk and Lugansk.
Finally, even though the European Union looks at the Caspian Sea region as a strategic region to diversify its energy imports and improve its trade and connection with Asia, it is not possible to underestimate that investments and financial markets are progressively moving to the East. The Southeast Asian countries have registered significant economic performance: local governments are interested in finding new logistic and trade solutions and might rely more on the INSTC corridor, favouring the Russian Federation and Iran, while European countries are facing economic crises and problems which decrease Brussels’ capacity to invest in regional infrastructures.
 Azertag (2022) President Ilham Aliyev, President of European Commission made press statements. Link: https://azertag.az/en/xeber/President_Ilham_Aliyev_President_of_European_Commission_made_press_statements_VIDEO-2218994
 Roberto Bongiorni (2022) Aliyev, presidente Azerbaijan: «Disponibili a raddoppiare l’export di gas. Presto la pace con l’Armenia», Il Sole24Ore. Link: https://24plus.ilsole24ore.com/art/parla-aliyev-presidente-dell-azerbaijan-disponibili-raddoppiare-l-export-gas-presto-pace-l-armenia-AE28XKxB
 Giuliano Bifolchi, Silvia Boltuc (2022) Azerbaijani military aggression against Armenia threatens the stability of the South Caucasus, Geopolitical Report ISSN 2785-2598 Volume 23 Issue 3, SpecialEurasia. Link: https://www.specialeurasia.com/2022/09/13/azerbaijan-armenia-caucasus/
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