In July 2022, European Commission President Ursula von der Leyen signed a memorandum of understanding with Azerbaijan to double the country’s natural gas exports to the European Union by 2027. Currently, several technical and political dilemmas are emerging that may hinder achieving this goal, including expanding the capacity of gas pipelines connecting Azerbaijan to the EU and European discontent with Azerbaijan’s behavior towards its neighbor Armenia, which is urging the EU to impose sanctions on Baku.
Core Motives
There are several motives enhancing the option of developing relations between Azerbaijan and the EU, which can be summarized as follows:
Enhancing European Energy Security: In July 2022, European Commission President Ursula von der Leyen signed an agreement with Azerbaijani President Ilham Aliyev to increase Azerbaijani natural gas imports to EU countries as an alternative to Russian gas. In 2023, these imports reached 13 billion cubic meters, an increase of 5 billion cubic meters from 2021. This amount currently covers about 3.5% of the EU’s consumption, which was around 350 billion cubic meters in 2023. According to the agreement, this quantity should double by 2027, and negotiations are ongoing with several European countries to expand the coverage of Azerbaijani gas supplies to ensure their energy security.
Reducing Russian Influence in Eastern Europe: As Azerbaijan has proven to be a reliable partner in gas supplies, Hungary’s state-owned MVM company decided in June 2024 to acquire a 5% stake in Azerbaijan’s Shah Deniz gas field, equivalent to supplying 1.5 billion cubic meters of gas annually to Hungary. This move is seen by some European circles as Hungary’s desire to diversify its energy sources and reduce reliance on Russia. Albania is also working on reaching an agreement with Azerbaijan to supply it with 200 million cubic meters of gas annually starting in 2026. Although this quantity is small, its importance lies in its potential to push for the expansion of the Trans Adriatic Pipeline (TAP). Other initiatives to secure Azerbaijani gas to Europe include making Bulgaria a hub for Azerbaijani gas destined for Romania, Hungary, and Austria.
Stimulating Growth in Azerbaijan via Gas Revenues: This energy cooperation helps Azerbaijan diversify its economy. Some opinions suggest that Azerbaijan needs the EU more than the EU needs Azerbaijan, as the EU represents a significant economic outlet for it. Currently, several European countries import gas from Azerbaijan, including EU members Bulgaria, Greece, Italy, Hungary, and Romania, as well as EU candidate countries Georgia and Serbia. More than half of Azerbaijani gas exports go to Europe. These gas contracts with European countries have provided Baku with significant revenues, which it relies on to establish new energy projects in the Caspian Sea and aim to supply the EU with 20 billion cubic meters by 2027.
Maintaining Ukraine as a Gas Transit Country: Ukrainian President Volodymyr Zelensky indicated in July 2024 that his country is discussing transporting Azerbaijani gas to the EU after the contract with Russia ends in late 2024. Reports suggest that Ukraine earned about $1 billion from gas transit in 2021. Continuing to use its pipeline network would support its economy. Despite European efforts to reduce reliance on Russian gas in 2022, some European countries like Austria, Hungary, and Slovakia still heavily depend on it. These countries may face high financial burdens to secure alternatives when their contracts with Russia end, making continued operation of the Ukrainian network with Azerbaijani gas an optimal solution.
Leveraging the Energy System Adjustment in the Caspian Sea: By late 2020, the first direct imports of natural gas from the Caspian Sea (specifically from Azerbaijan’s Shah Deniz field) reached Europe via the Southern Gas Corridor (SGC), a 3,500 km pipeline from Azerbaijan to Europe. Baku plans to expand its gas exports to Europe by transporting Turkmen gas through the SGC, having already signed contracts to that effect. Azerbaijan has also benefited from poor navigation conditions in the Black Sea post the Ukraine war to transport Kazakh crude oil and export it via the Baku-Tbilisi-Ceyhan (BTC) pipeline.
The Middle Corridor’s Importance as an Alternative Trade Route: The Ukraine war and recent Red Sea disturbances have increased European focus on the Middle Corridor, an international transport route via the Caspian Sea connecting China to Europe through Central Asia and the South Caucasus. This corridor bypasses Russia and the Bab el-Mandeb Strait. Despite several options for traversing Central Asia, there is no alternative to passing through Azerbaijan, giving its location strategic importance. Azerbaijan views the Middle Corridor as an additional income source alongside oil and gas revenues, while Europe sees it as a strategic alternative to current global trade routes.
Obstacles to Closer Relations
Conversely, several factors could hinder the development of relations between the two parties. Here are the main ones:
Doubts About Reliance on Azerbaijani Gas: The EU has sought to diversify its gas supplies since the 2006 gas crisis between Russia and Ukraine, turning to alternatives after Russia’s 2022 invasion of Ukraine. Some believe Azerbaijani gas does not present a genuine alternative to Russian gas, as Europe still buys more gas from Russia than Azerbaijan. Additionally, Russian company Lukoil owns about 20% of Azerbaijan’s Shah Deniz field. Some argue Azerbaijan’s current production capabilities cannot meet both local and external demand, prompting Baku to contract Russian company Gazprom to supply it with gas to meet its EU commitments. This raises significant questions about whether the EU is effectively buying Russian gas through Azerbaijan.
Disputes Over Gas Contracts: Recent discussions between Azerbaijan and the European Commission revealed differences in viewpoints regarding contract terms. While Azerbaijan prefers long-term contracts, the EU wants companies, not governments, to finalize agreements. Azerbaijani officials believe the EU’s stance is driven by its aim to reduce fossil fuel consumption and reach net-zero greenhouse gas emissions by 2050. Azerbaijan sees the lack of long-term contracts as a barrier to securing financing for new drilling operations in the Caspian Sea, thus limiting its ability to meet the EU’s additional gas demand. This issue was highlighted by Vaqif Sadiqov, Azerbaijan’s ambassador to the EU, who told the Financial Times in July 2024: “We cannot be firemen sending gas for just 3 to 6 months. We need contracts to approach banks for financing deep-sea drilling in the Caspian.”
European Regulations on Fossil Fuels: Ensuring 20 billion cubic meters of Azerbaijani gas for Europe by 2027 requires expanding the Southern Gas Corridor (SGC) pipeline. However, the EU’s commitments to reducing greenhouse gas emissions prevent it from funding this expansion due to rule changes prohibiting spending EU budgets on fossil fuel infrastructure. The European Bank for Reconstruction and Development (EBRD) states its funding for this expansion depends on compliance with the 2015 Paris Climate Agreement. Azerbaijan is set to host the annual UN climate summit COP29 in November 2024, where its hesitation to shift away from fossil fuels raises concerns among some participants, especially as Baku aims to increase gas production by a third over ten years.
European Support for Armenia: The deep ties between Armenia and France and the sizeable Armenian community in France, estimated at 600,000, give France a prominent role in mobilizing its European partners against Azerbaijan. This tension is exacerbated by French arms sales to Armenia and Azerbaijan’s support for separatist movements in New Caledonia, Polynesia, and Corsica against France. Anti-Azerbaijani propaganda in some European countries, including France, argues that the EU, by purchasing gas from Azerbaijan, is “strengthening the authoritarian regime in Baku, which is conducting ethnic cleansing against Armenians in Nagorno-Karabakh.” Some European opinions suggest the EU should refuse to buy gas from Baku due to Azerbaijan’s human rights violations. While some European countries favor a firm stance towards Baku, others like Austria, Italy, and Hungary avoid such measures. Various estimates place Azerbaijan behind other countries like Norway, the UK, and Algeria in gas exports to the EU, even over two years after the Ukraine war began. Therefore, some suggest replacing Azerbaijani gas with Algerian or Norwegian gas, considering Azerbaijan a marginal partner for Europe.
Weak European Investment in Azerbaijan: The EU and Azerbaijan defined partnership priorities in 2018, focusing on governance, economic development, energy efficiency, and climate action. Between 2021 and 2024, Azerbaijan received 60 million euros in aid from the EU’s Neighborhood Program, significantly less than Armenia’s 180 million euros and Georgia’s 340 million euros. Among the Caucasus countries, Azerbaijan is the furthest from EU integration, with EU financial aid not serving as leverage on Baku due to its substantial energy revenue, which has multiplied its GDP by 45 times since 1995.
Azerbaijani-Turkish Closeness: Azerbaijan relied on Turkey to bolster its military arsenal and achieve victory in the Nagorno-Karabakh war. This alliance, seen by some as brotherhood, reflects the “One Nation, Two States” slogan by former Azerbaijani President Heydar Aliyev. Some European perspectives view this Azerbaijani-Turkish alliance with suspicion, fearing it harbors hidden anti-Western ambitions and seeks to establish a new hegemonic order in the South Caucasus and Central Asia based on Turkish nationalism. Although Azerbaijan, a former Soviet republic, seeks strategic balance between Russia and the West, some Western opinions fear its increasing closeness with Turkey could form a united front reshaping power dynamics in the region and affecting Western and European interests.
Conclusion
Azerbaijan’s economic stability heavily relies on gas exports to the EU, while Europe finds Azerbaijani gas a convenient interim option to replace Russian gas. Despite this mutual dependence, this trade relationship won’t elevate Azerbaijan to political integration with the EU due to disparities in many areas (Armenia, human rights, relations with Russia and Turkey). However, both parties currently seem capable of absorbing these differences to maintain an active energy relationship.
