The issue of energy security is the most actual one in 21 st Century. The superpowers and EU economies largely depend on stable tariffs of gas and oil, as well as the existence of available and reasonable energy alternatives. Energy dependence on Russia is problematic especially for EU countries. To overcome this issue, EU member states especially emphasize renewable energy sources aiming to reduce the dependence on mining gas and oil. Nevertheless, these steps are not enough to provide energy needs of EU. Thus, EU seeks to find new energy markets trying to overcome the issue of energy dependence.

This article aims to survey the transit potential of South Caucasus countries as alternative route for Iranian hydrocarbon resources. The article reveals the contradictions and obstacles between South Caucasus states and third party countries in terms of implementing strategies concerning energy projects in the region. Moreover, it tries to find the ways of cooperation between Islamic Republic of Iran and South Caucasus states in the frames of exporting Iranian gas to Europe and expending the energy transitional opportunities of South Caucasus.

Azerbaijan in multinational energy projects

After the collapse of the Soviet Union, Azerbaijan became one of the important regions of gas and oil transportation. Having over passed the influence of USSR, Azerbaijan strongly activated its own energy supplies. As a result, SOCAR (Azerbaijani State Oil Company) signed 7.4 billion US dollar multinational agreements with the other international oil companies. With its engagement, the construction of the Baku-Novorossiysk oil pipeline with the length of 1376 km and capacity reaching 100.000 barrel per day was completed. However, the pipeline passes through the Autonomy Republic of Chechnya considered being one of the unstable regions of Russia.

After the military activities of 1999 in Chechnya Baku-Novorossiysk pipeline was temporary out of its operation. During this period, another pipeline, Baku-Supsa, with 120.000-barrel capacity per day and 917 km in length was constructed.  Even though, the construction of the up-mentioned pipeline certainly helped Azerbaijan to find alternatives of energy exports and bypass Russian dependency, however, it had relatively small capacity and didn't perceive as an

energetic alternative (Caucasus Analytical Digest 33, Lusine Badalyan, ''Interlinks Energy Supply Challenges in the South Caucasus'': The Baku-Novorossiysk and Baku-Supsa pipeline, 12 December 2011

The development of energy infrastructures enabled to enrich its position especially after the disclosing of ''Shah Deniz'' oilfield, increasing Azerbaijan participation in the energy projects. Moreover, Azerbaijan was involved in projects ''Nabuco'', ''TAP'' (Trans-Adriatic pipeline), TANAP (Trans-Anatolian pipeline), SEEP (South-East European pipeline) etc. Furthermore, the construction of TANAP started on March 17 2015 is likely to transfer Azerbaijani gas via Georgia and Turkey and connect this pipeline to TAP (the construction of which is expected in 2020), resulting in Azerbaijani gas reach Italy via Greece and Albania. The total cost of TANAP project construction amounts to 16 billion Euros and is expected to be finished in 2018. As a result, Azerbaijan will export 16 billion and 10 billion cubic meter gas to Turkey and Europe respectively(Stefan Meister, ''Energy Security in the South Caucasus'': The Southern Gas Corridor in its geopolitical environment, DGAPkompact Nº 2,2014, p. 5,

 Nevertheless, Azerbaijan aims to become an energy alternative for EU in a short term, with a possible input of 55-60 % of the investments of TANAP. The point is that well-desired direct foreign investments may provide a solid foundation for its development. For the construction of TANAP, Ukraine expressed its readiness to invest 800 million dollars. Besides Ukraine, Turkmenistan is considered to get involved in the project in future. During the meeting of Ministers of Foreign Affairs of Turkey, Azerbaijan and Turkmenistan, the appeal to Turkmenistan to participate in TANAP project was announced by the Mevlut Chaushoglu, the Foreign Affairs Minister of Turkey, Turkmenistan, in its turn, expressed its interest to diversify its energy market especially after the decision of Russia in 2015 to buy 4 billion cubic feet of Turkmen gas instead of 10 billion (Narek Minasyan, ''New trends in regional energy geopolitics''. Analysis in Armenian, 20 February 2015,

Besides the uncompleted projects TAP, TANAP, Nabuco etc., completed pipeline projects exist in South Caucasus. Azerbaijan particularly realized Baku-Tbilisi-Ceyhan and Baku-Tbilisi-Erzurum projects. Baku-Tbilisi-Ceyhan is considered being the second longest oil pipeline (1768 km) after Russian Druzhba pipeline (4000 km). For the construction of Baku-Tbilisi-Ceyhan have already been spent 4.6 billion dollars. It started to operate from July 2006 and has an opportunity to deliver 1 million barrel oil per day from Azeri-Chirag-Guneshli oil field to Turkish Ceyhan port. In the same way, in 2006 Kazakhstan made a request to join to this program and started to export 53 million barrel oil per year via this pipeline.

Azerbaijan also delivers gas to Turkey via Baku-Tbilisi-Erzurum pipeline, which also has been operating since 2006 and has 6 billion cubic feet capacities per year. This pipeline carries gas from Shah Deniz to Erzurum. Turkey consumes the most part of the gas and only little amount of gas is exported to Europe via Greece (Lusine Badalyan, ''Interlinks Energy Supply Challenges in the South Caucasus'', BTC and BTE pipelines, Caucasus Analytical Digest 33, Bremen, 12 December 2011,

Geopolitical situation in Azerbaijan

Despite the development of energy projects, Azerbaijan is in controversial geopolitical situation. It has complicated relations with Iran and balanced affairs with Russia. Because of military situation with Armenia connected with Nagorno-Karabakh conflict, it doesn't have a direct and short way to Turkey and Nakhichevan. The issue of Nagorno-Karabakh conflict continues to be insoluble for Azerbaijan and Armenia.  The increment of energy role of Azerbaijan can let Azerbaijan gain a beneficial situation in Nagorno-Karabakh conflict issue.          

The energy strengthening of Azerbaijan also can bring forward new problems for Iran, a country with the fourth largest sources of oil and third largest sources of gas in the world. After the construction of TANAP, Iran's role will decrease in the energy market of the world. At the same time, the construction of TANAP project can reduce the energy importance of Russian project ''South Stream'', which can supply 63 billion cubic feet gas to Europe per year via Balkans, Greece and Austria.

Participation of Azerbaijan in Nabuco project would be also controversial for Russia and Iran. Nabuco was planned to supply gas from Caspian and Middle East regions to Europe via Turkey and Austria. The main source of Nabuco would be Shah Deniz gas field. In the future new pipelines would connect this pipeline Kazakhstan and Turkmenistan. After the implementation of this program Azerbaijan could become one of the important energy suppliers of Europe (EU sanctions against Russia over Ukraine crisis, However, the project NABUCO also collapsed. The reasons were various. First, there was the issue of costs. Nabucco’s construction bill had spiraled, reaching well over €10 billion, compared with the Trans Adriatic Pipeline’s modest €1.5 billion. Furthermore, banks and customers were unwilling to commit themselves to Nabucco before it could guarantee gas supplies. Yet, at the same time, Azerbaijan would not sign any delivery contract before being certain of Nabucco’s viability. In addition of this, Russia tried to prevent any competition to Gazprom deciding to construct the South Stream pipeline (JUDY DEMPSEY, Victory for Russia As the EU’s Nabucco Gas Project Collapses, There is also one more issue concerning energy. After the August war in 2008, resulting in Russian troop’s reinforcement in Samachablo (South Ossetia) changed Europeans attitude in energy issues and confirmed Azerbaijan gas position as impossible alternative for Russian gas not only for its small capacity, but also because of unstable situation of Georgia.

Russia's new energy initiatives

Russia's new energy initiatives especially became more active after international sanctions. Since crisis in Crimea, Russia is in a difficult economic situation. EU, trying to make a pressure on Russia, used the following sanctions against Russia:
  • EU nationals and companies may no longer buy or sell new bonds, equity or similar financial instruments with a maturity exceeding 30 days, issued by:
  1. Five major state-owned Russian banks, their subsidiaries outside the EU and those acting on their behalf or under their control.
  2. Three major Russia energy companies and
  3. Three major Russian defense companies.
  • Services related to the issuing of such financial instruments, e.g. brokering, are also prohibited.
  • EU nationals and companies may not provide loans to five major Russian state-owned banks.
  • Embargo on the import and export of arms and related material from/to Russia, covering all items on the EU common military list.
  • Prohibition on exports of dual use goods and technology for military use in Russia or to Russian military end-users, including all items in the EU list of dual use goods. Export of dual use goods to nine mixed defense companies is also banned.
  • Exports of certain energy-related equipment and technology to Russia are subject to prior authorization by competent authorities of Member States. Export licenses will be denied if products are destined for deep water oil exploration and production, arctic oil exploration or production and shale oil projects in Russia.
  • Services necessary for deep water oil exploration and production, arctic oil exploration or production and shale oil projects in Russia may not be supplied, for instance drilling, well testing or logging services (EU sanctions against Russia over Ukraine crisis, 
As a consequence of EU sanctions, capital worth $75 billion has left Russia in 2015. So the economy of Russia grew just 1.3% last year and did not grow at all between April and June. Nevertheless, some EU countries will feel the impact more than Russia (The EU's trade with Russia - worth nearly 270 billion Euros in 2012). Russia has become a booming market for Western consumer goods in the past decade. Germany has appeared especially reluctant to ratchet up sanctions. That is not surprising, as German exports to Russia totaled 38 billion Euros in 2013 - the highest in the EU. More importantly, Germany gets more than 30% of its oil and gas from Russia. Italy is also highly dependent on Russian energy (How far do EU-US sanctions on Russia go? Do any of these measures really hurt the Russian economy? So, during recent years, Russia initiated construction of ''South Stream'' pipeline to supply more gas to Europe and to have more energy power tools on Europe. Turkey is admitted as an enrolled side of ''South Stream'' pipeline. But In the recent period, Russia announced about the stoppage of the “South Stream” construction, which would allow providing 20 per cent of gas demand of Europe (''Why Putin pulled the plug on South Stream project'',

''South Stream is dead. For Europe there will be no other gas transit options to risky Ukraine other than the new Turkish Stream pipeline'' Vice-president of Gazprom, Aleksey Miller said (Gazprom announces final nail in the South Stream coffin,

Turkish Stream pipeline will be connected with the pipeline operated from Anapa. The interception of the newly constructed pipeline from Anapa will deliver 15 billion cubic feet gas to Turkey and 50 billion cubic feet gas to Europe via Greece. Apparently the main reason of the termination for the “South Stream” pipeline is regularly imposed obstacles by EU. For example EU Energy Commissioner Günther Oettinger said ''the Commission-mediated talks to solve legal issues over the Gazprom-favoured South Stream gas pipeline could continue only if Russia adheres to international law in the context of the Ukraine crisis'' (Oettinger: EU help in resolving South Stream's legal problems is conditional, In its turn, Bulgaria twice stopped the construction of the “South Stream” project causing anxiety in Moscow. In fact, EU has been regularly announcing that this pipeline will not be operated by Gazprom only.

The termination of South Stream pipeline had a serious and significant impact upon European organizations. They had already invested 2.5 billion dollars for that project. Russian Gazprom also invested 4.66 billion dollars for South Stream project.
Russia continues search for opportunities for energy export diversification trying to strengthen energy cooperation having its second biggest costumers of Russian gas Turkey and China (''Why Putin pulled the plug on South Stream project'',  Instead, for Europe, One of the ways to overcome energetic dependency from Russia is to find energy alternatives for gas and oil. In the framework of this issue, EU seeks to develop renewable energy sources. As a result, if in 2012, the world relied on renewable sources for around 13.2% of its total primary energy supply, and in 2013 renewable energy sources accounted more than 20% of global electricity generation (International energy agency, Renewable energy, How much of the world's energy comes from renewable  sources, The primary production of renewable energy within the EU-28 in 2013 was 192 million tons of oil equivalent (toe) - a 24.3 % share of total primary energy production from all sources. The quantity of renewable energy produced within the EU-28 increased overall by 84.4 % between 2003 and 2013. The largest producer of renewable energy within the EU-28 in 2013 is Germany (17.5 %), Italy (12.2 %), France (12.0 %), Spain (9.1 %) and Sweden (8.7 %) (Renewable energy statistics, Primary production,

It is also important to indicate that according to EU Member States' national plan, EU seeks to have 20 % of total energy consumption by 2020 (Ibid, Consuption).  In any cases EU still needs to use mostly hydrocarbon energy resources, because renewable energy resources cannot be enough for EU energetic needs in the nearest future. So involvement of Iran in regional energy projects can be the most appropriative choice for EU to overcome energetic dependency from Russia.

Iran's energy exports

Energy recourses of Iran are big, it is true especially Hormuz Strait and South Pars region, where approximately 40 per cent of Iranian gas resources are concentrated (Iran; International energy data and analysis, effects of recent sanctions,  Iranian official resources announced that new gas fields have been found recently in Iranian part of Caspian Sea.  Iran has announced that the newly found Caspian gas field has at least 50 trillion cubic feet (some 1.4 trillion cubic meters) of gas (Bahman Aghai Diba, Iran and Russia have conflicting Interests in Export of Gas to Europe, In spite of this fact, Iran doesn't play a significant role in the global energy market. Export of Iranian gas remarks 810 million cubic feet per day, with 90 per cent directed to Turkey. Armenia and Azerbaijan get 6 and 3 per cent of Iranian gas accordingly. As for Turkey, it only exports 733 million cubic feet gas to Turkey by Tabriz-Dogubayazit pipeline. Iran as the second gas supplier of Turkey after Russia provides 20 per cent of Turkey’s gas needs. The increment of Iranian gas exports to Turkey can become serious alternative of Russian ''Blue Stream'' pipeline, which provides approximately 60 per cent of Turkey gas demands. Baku-Tbilisi-Erzurum pipeline also can serve as an alternative energy infrastructure for Turkey. This pipeline supplies 200 million cubic meters gas daily (U.S. energy Imformation administration, Natural Gas Exports from Iran, Possible alternatives to Imports of Iranian Gas,

Energy pipelines passing through Turkey are not protected well. For example, on 28 July, 2015 Turk-Iranian pipeline was exploded 15 km far from the Iranian border, near Aghri region. Soon after that, on 4 August, another pipeline passing through Turkey and, operated by British Petroleum underwent an attack. A Bomb exploded near Sarighamish, not far from Erzurum. According to the Energy Minister of Turkey, Tanner Yildiz, it was PKK who had organized those explosions (Steve Le Vine, ''A second US-backed energy pipeline has been attacked, this time in Turkey'', 4 August 2015,
International sanctions had serious influence on Iranian gas and oil exports. Thus, if in 2011-2012 Iran exported 118 billion dollar energy gas and oil, so in 2012-2013 exports decreased to 63 billion and 2013-2014 to 56 billion dollars (Iran; International energy data and analysis, 19 June 2015 So, after the suspension of economic and political sanctions against Iran, the opportunity for Iranian gas and oil exports will increase.

New alternatives of Iran's energy exports: Azerbaijan

The exporting of Iranian gas to Europe has two possible alternatives. The first is the Azerbaijan variant with whom Iran already has common energy projects such as ''Salmast-Nakhchivan'' pipeline. It supplies annually 250 million cubic feet gas to Nakhchivan. In return, Azerbaijan exports gas to Iran by ''Kazi Magomed-Astara-Abadan'' pipeline. This project can serve as a basis for the future cooperation (David Ramin Jalivald, ''Iran's gas exports'': can past failure become future success?, Iranian gas exports, Azerbaijan, NG 78.pdf, The Oxford Institute for Energy Studies, 2013, p. 5.). Particularly, during the meeting of the Minister of Economy and Industry of Azerbaijan Shakhin Mustafaev and Oil Minister of Iran Bijan Zangeneh in the framework of the development of Azerbaijani-Iranian energetic affairs, Shakhin Mustafaev announced, that Azerbaijan demonstrates readiness to supply its infrastructures to Iran for exporting Iranian oil to Europe. According to Mustafaev, Iran can use the Azerbaijani part of Baku-Tbilisi-Ceyhan pipeline for its own oil export and similarly, Iran can become part of TANAP project via the territory of Azerbaijan (''Iran says it is in talks with Azerbaijan on joint gas exports'', 11 August 2015,

But controversial affairs of Iran and Azerbaijan can become a barrier to the future energy cooperation. Particularly, Azerbaijan referred to the idea of ''Big Azerbaijan'' especially by the ex-president of Azerbaijan Elchibey arguing that Atrpatakan is a part of historical Azerbaijan. It made Iran be more careful during relations with Azerbaijan taking into consideration that the most part of the population of territories near Iran-Azerbaijan border has Azerbaijanian descent, which can bring forward separatist ideas among them. Besides, Azerbaijan has close energetic and military relations with Israel, which affecting negatively on Iran. So realization of energy projects with Azerbaijan will increase the role of Azerbaijan in the Caucasian region, which can be profitable only for Turkey and Azerbaijan, but not for Iran (Alexander Murinson, A welcome new stage in Azerbaijani-Israeli ties, 06 January 2009,

New alternatives of Iran's energy exports: Armenia

Another possible energy cooperation of Iran can be with Armenia. It is important, that affairs between Armenia and Iran have developed parallel with Nagorno-Karabakh war since 1992. Iran adopted neutral policy in this issue in spite of having common religious ideas with Azerbaijan and then agreed to supply gas and fuel to Armenia and open transport ways (Lusine Badalyan, ''Interlinks Energy Supply Challenges in the South Caucasus'', Iran-Armenia pipeline, Caucasus Analytical Digest 33, Bremen, 12 December 2011, An agreement of the construction of Iran-Armenia pipeline was signed in 1992, but construction finished in 2007. That pipeline could export 2.3 billion cubic meter gas to Armenia annually and it could also supply gas to Europe via Georgia and Ukraine (Construction of Iran-Armenia gas pipeline starts, 12-20-2004, increasing the capacity of gas supply more than four times. The construction of the Armenian-Iranian pipeline was profitable both for Armenia and Iran. Iran gets 3kW electrical energy for 1 cubic meter gas. Thus, 23 per cent of the gas supply of Armenia comes from Iran, which can be serious alternative for Russian gas (U.S. energy information administration, Natural Gas Exports from Iran, Armenia and Azerbaijan, This pipeline can develop the energy security of South Caucasus and supply gas from Iran to Europe via Armenia and Georgia decreasing Russian energy influence.

However, the energy cooperation between Armenia and Iran also met some barriers. It contradicts Russian interests wishing to increase energy projects especially in the framework of Nabuco project, in which Iran was also included. As we indicated, Iran's energy role can increase in Europe and affect negatively on the export of Russian gas. It is no coincidence that 142 km length Meghri-Qajaran part of the Armenian-Iranian pipeline had been raised twice after 200 million investment of Russia drawing to 2.3 billion cubic feet annually (Lusine Badalyan, ''Interlinks Energy Supply Challenges in the South Caucasus'', Iran-Armenia pipeline, Caucasus Analytical Digest 33, Bremen, 12 December 2011, The construction of the pipeline was also appreciated by EU. The European Bank for Reconstruction and Development (EBRD) has announced its readiness to be part of the project financing (Yerevan invites Kyiv to Iran-Armenia pipeline tender, May 12 2004, During the meeting of energy minister of Georgia Avtandil Djorbenadze and vice-president of Armenia Andranik Margaryan in May 2002, launched discussion was mainly about the possible participation of Georgia in energy projects between Armenia and Iran (SESSION OF CIS PRIME MINISTERS' COUNCIL, 30 May 2002, The development of energy cooperation between Armenia and Iran can be profitable also for Georgia, because it can decrease energy dependency on Azerbaijan and enlarge the role of Georgia as an important transit country of gas and oil.

The energy dependency of Armenia on Russia increased especially after the selling Meghri-Qajaran short pipeline to Russia. The fact of selling Meghri-Qajaran pipeline was announced by Energy and Natural Resources Minister of Republic of Armenia Ara Simonyan in May 2015. With this contract Armenia lost the last alternative pipeline to Russian gas (, ''Meghri-Kajaran section of Iran-Armenia gas pipeline to be sold to Gazprom Armenia'', 4 June 2015,

In any case, there is a project to build another pipeline between Armenia and Iran to export gas from Iran to Europe. Iranian Deputy Oil Minister Ali Majedi spoke about the development of energy affairs between Armenia and Iran, saying that Iran is ready to export gas to Europe via Armenia ( “Iran ready to export gas to Europe via Armenia”, 7 May 2014

Taking into consideration geopolitical situation in South Caucasus, exporting Iranian gas via this region, besides being profitable for Armenia and Georgia, can also help Iran to find new energy markets in Europe and Europe in its turn can reduce energy dependency from Russia. In spite of this, there is opportunity for cooperation between Russia, Iran and Armenia as a counter of the Trans-Caspian energy project, which plans to export Turkmen gas via Azerbaijan and Turkey. Iran and Russia will try to counteract to this project, because it contradicts their energy projects in international energy markets and can become a serious competitor for them (Startfor Global Inteligence, A Proposed Pipeline Lends Turkmenistan Greater  Importance, The Politics of the Trans-Caspian Besides, taking into consideration Iran's political, ideological and religious problems with Azerbaijan and Turkey, the role of Armenia for exporting Iranian gas is not foggy.


Caucasus region has a huge potential to become an energy hub and one of the main suppliers of gas and oil to Europe. Caucasus energetic resources are important for diversification of Europe energy demands. Its role can become bigger if energy pipelines connect to already existed pipelines of South Caucasus in the framework of TANAP project. But TANAP project would be controversial for Iran and Russia, as it can be out from their interests becoming a competitor for them. Russia will not be involved in this project, because Europe needs to reduce its dependency on Russia.  Iran, in its turn, sometimes gets suggestions to participate in TANAP project. Having huge energy resources, Iran avoids exporting its gas or oil via Azerbaijan and Turkey. Firstly, the territory of Turkey is dangerous for energy exports and the second; there is a large Azerbaijani community in Iran. In case of increasing the role of Azerbaijan in the region, Azerbaijani separatists can activate becoming a serious headache for Iran. So, the appropriative opportunity for the exporting Iranian gas and oil can be Armenia, who doesn't threaten any dangers for Iran. The main barrier to the energy cooperation between Armenia and Iran can be Russia. Armenia should try to overcome the influence of Russia or find a common ground with it, which can help to develop energy affairs between Armenia and Iran. This cooperation can be useful not only for Iran and Armenia, but also for Georgia and EU, who can find a new source of energy alternative bypassing dependency accordingly from Azerbaijan and Russia.

Armenia should not lose time in the issue of Iran-Armenia energy cooperation and should be enterprises, because this project especially appropriative for the weak economy of Armenia. Otherwise even not desired energy alternative projects for Iran can be realized and promote the blockade of Armenia.
2629 reads | 07.03.2016

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