Intersecting interests of several parties involved in the conflict

Energy ... a decisive factor in the Nagorno Karabakh war

• Widespread damage in an explosion outside a hospital in Nagorno Karabakh.

  Reuters

• Two citizens examine the destruction of the neighborhood in which they live in the Azerbaijani city of Tartar, after it was bombed.

  Father

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The renewed military conflict between Azerbaijan and Armenia, in late September, over the Nagorno Karabakh region, raised fears that oil and natural gas production facilities and pipelines in Azerbaijan would be damaged, a possibility that would impose wide negative repercussions on the Azerbaijani economy, which depends heavily on Exporting the two raw materials abroad.

Also, oil and gas supplies to neighboring markets, most notably Georgia and Turkey, may be affected, which may force them to search for alternative sources, but it will not be without additional political and economic costs.

This comes at a time when the importance of Azerbaijan to the European gas market has increased, as it is preparing to export gas to the latter through the "Southern Gas Corridor" pipeline by the end of this year or the beginning of 2021.

Perhaps this dedicates the fact that Azeri oil and gas supplies will play a vital role in strengthening political and diplomatic efforts to limit the ongoing conflict around the region, in a way that does not threaten regional energy paths, which seems to be one of the factors that contributed to reaching a ceasefire agreement on October 10. Ongoing.

Domestic threats

Military clashes erupted between Azerbaijan and Armenia in the Nagorno Karabakh region, within 40 kilometers of the infrastructure for transporting Azerbaijani oil and natural gas, raising fears of interruption of supplies of the two crude to international markets.

Azerbaijan’s supply of oil and natural gas does not represent a large share of the international supply of the two crude at present, but it plays a major role in energy supply for neighboring markets, such as Turkey and Georgia.

Azerbaijan's oil production reached about 799 thousand barrels per day in 2019, which is equivalent to 0.8% of global supplies. Most of the oil is produced from the "Chirag-Gunsli" field.

While the country's production of gas reached about 24.3 billion cubic meters last year, which is equivalent to 0.6% of global supplies. Most of the gas is produced from the "Shah Deniz 1 and 2" field, which overlooks the Caspian Sea.

Azerbaijan is connected to neighboring markets through a major oil pipeline, which is the Baku-Tbilisi-Ceyhan pipeline, which has a length of 1768 km, and carries crude and condensates through Azerbaijan and Georgia to the Turkish port of Ceyhan.

In addition, Azerbaijan has a major gas export pipeline, the 693 km South Caucasus pipeline that carries gas from the Shah Deniz field through Georgia to Turkey, as well as the Baku-Supsa oil pipeline with a capacity of 150,000 barrels. Daily to the Black Sea coast in Georgia.

With the escalation of military clashes in the past days, Azeri officials claimed that Armenian missiles fell 10 meters from the Baku - Tbilisi - Ceyhan oil pipeline in Yevlakh, which could expose supplies to the risk of unprecedented interruption.

Azerbaijan appears to be concerned that military attacks on pipelines will not only harm oil and natural gas exports, which account for more than three-quarters of its total exports, but also undermine its international reputation as an international supplier of the two crude.

A growing interest

From a geopolitical perspective, the international and regional parties have been keen in the recent period to limit the escalation of military clashes between Armenia and Azerbaijan.

In turn, Russia led a mediation between the two countries in recent days to sign a ceasefire agreement, which was tacitly supported by the European Union.

Moscow fears the escalation of the military conflict between the two countries, and its impact may spread to other regions in the Caucasus, close to Russian territory.

In addition to the above, none of the international and regional parties supports the escalation of military operations between the two countries, as this would have a negative impact on their economic interests, especially in the field of energy.

On the European side, the outbreak of clashes between the two countries comes amid ongoing preparations to start exporting Azerbaijani gas to Europe, which will place Azerbaijan on the map as a true international supplier of crude.

Although the Azerbaijani gas supplies will cover only a small part of Europe's needs, and can be compensated for through LNG shipments from other suppliers, they may play a symbolic role in breaking the dominance of Russian gas in European markets.

On the other hand, Georgia awaits the recent events with great concern, as it receives about 95% of its gas and oil needs from Azerbaijan.

Last year, Georgia received about 2.4 billion cubic meters from Azerbaijan, and a small amount (0.16 billion cubic meters) was imported from Russia.

In the event that Azerbaijani supplies are cut off, the alternative will be either to increase imports from Russia, or to resort to shipments of liquefied gas, which it seems that it is not fully prepared for in light of the lack of the necessary infrastructure for imports, in addition to the stagnation of its relations with Moscow in recent years.

The same is true for Turkey, as the latter received about 9.2 billion cubic meters of Azerbaijani gas in 2019 through the "South Caucasus" pipeline, which represents about a quarter of its total gas imports, which are large quantities that may be difficult to replace entirely through gas shipments. Therefore, it may seem important for Ankara to continue the flow of Azerbaijani supplies without being affected, at a time when it is considering reducing dependence on Russian gas.

For observers of the oil industry, in the event of a partial disruption in the supply of Azerbaijani oil or gas, energy markets will only be affected slightly, as this will not be reflected in energy prices, given the surplus global supply of oil and gas crude, with the slowdown in global demand for them due to the pandemic. Corona ».

Supply compensation

Although neighboring markets, such as Turkey and Georgia, will be able to compensate for oil and natural gas supplies from other suppliers, this may be at a great political and economic cost, and it may be in Russia's interest more, which is not desired by either party, which means in the end. The energy factor will have an essential role in calming the military conflict that recently erupted between Azerbaijan and Armenia in the Nagorno Karabakh region.

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