Heidi Kjærnet

Research Fellow

Energy Programme

Norwegian Institute of International Affairs

 

Russia has increasingly used its economic power to promote strategic foreign policy goals, an approach that has forced other countries to modify the way they conduct their relations.  Azerbaijan is one of those countries, and it has responded by employing its own economic resources as a foreign policy tool, thus giving Moscow what might be called a taste of its own medicine. [1]

“Economization,” the term for the assignment of particular importance to economic priorities and instruments in foreign policy reflecting the heightened influence of business and economic actors in decision-making (Wallander 1997), has acquired special importance under President Vladimir Putin, but it has also been a part of Moscow's foreign policy in earlier periods, because the dissolution of the Soviet Union and the ensuing decay of Russia's military machinery left Russia with few other effective foreign policy tools.  And that is particularly the case in Russia’s policy toward the former Soviet republics: it is primarily through economic strength that Russia has been able to exercise a measure of indirect control in these states (Lo 2006, pp. 63-64).

Because Moscow views the "near abroad" as lying within Russia's undisputed sphere of interest, the Kremlin, according to Bobo Lo (2006, p. 62), has reserved to itself both the right and the duty to exploit every advantage at its disposal to promote Russian national interests.  Among these advantages, the Russian government believes, are its economic strengths, and consequently “economic trumps serve not only commercial ends but also larger political and strategic aims” (Lo 2006, p. 63).  Thus, for Moscow, the economization trend can be defined as “the use of economic tools to reach strategic aims,” a definition that calls attention to the distinction between Moscow's belief in the efficacy of this tool and its actual success in doing so. 

          

The sector in which the Russian government has exerted its economic muscle for political gain most forcefully has been the energy sector, although it has employed trade embargoes and labour migration restrictions toward that end as well.  Several former Soviet republics are totally dependent on Russia for their energy supplies, and this has allowed Moscow the chance to maintain economic and political leverage in what it sees as its legitimate sphere of influence.  And even in those former republics which are net exporters of energy, Russia has used its control of transit routes and its market power to exert influence.  Kazakhstan, for example, competes with Russia in the same oil markets, but it remains dependent on Russian pipelines, allowing Moscow to limit Kazakh export volumes (Dodsworth et al. 2002, p. 23).

 

Azerbaijan was subject to the same kind of pressures until the BTC pipeline from Baku via Tbilisi to Ceyhan went online in 2005 and broke the Russian monopoly on the transit of Caspian petroleum.  But demonstrating that other countries can make use of economic power to promote political ends and reflecting the fact that Russia no longer can block its oil flows, Azerbaijan has exploited this new situation to position itself as an increasingly powerful and independent actor in the South Caucasus. 

 

In the first instance, this means that Azerbaijan need not defer to Russian pressure to survive, be that in the form of transit blockade or stops in Russian gas deliveries.  When Gazprom in 2006 sought a steep price increase for the gas it delivered to Azerbaijan, Baku was in a position to respond by simply stopping the import.  And in pursuit of its own political goals, Azerbaijan supported Georgia during the latter's 2006 gas feud with Russia, something Baku was able to do without suffering any reprisals from the Russian side. [2]

          

Unlike Russian relations with Baku, the relationship pattern between Russia and Georgia provides a clear example of the consequences of energy dependence if one is not sufficiently accommodating.  After a troublesome year in Georgian–Russian relations in 2006, Gazprom demanded a more than twofold increase in gas prices (from USD 110 to 235 per 1000 m3) from both Georgia and Azerbaijan.  Azerbaijan's response was not only to cut the Russian gas import but also to offer Georgia gas at only USD 120 per 1000 m3, thereby helping its neighbour out of a tight situation. [3]

         

In doing so, Azerbaijan managed to strike a balance between maintaining good working relations with Georgia, an important partner due to the transit of Azerbaijani oil through its territories, and accommodating Russia, a central actor in the negotiations over Nagorno-Karabakh.  That Azerbaijan chose to support Georgia through the crisis points up the new possibilities available to Baku now that it is no longer dependent on Russia for transit.  But in contrast to Georgian rhetoric on this issue, Azerbaijan has struck a more conciliatory tone, thus showing both skill and caution in its own use of economic leverage.

 

Despite this, there is still the risk that Azerbaijan's energy interests and ambitions may collide with the Russian ambitions and interests in the future.  Discussions concerning the possible construction of a Trans-Caspian Pipeline that would provide BTC with Central Asian oil after the expected peak in Azerbaijani production already have become a source of tension with Russia, which wants to monopolize the transit of Central Asian petroleum to Western markets.  

At the same time, Russia, its weakened economic sanctions opportunities toward Azerbaijan notwithstanding, still holds a rather strong hand in the economic sector.  On the one hand, the large Azerbaijani diaspora working in Russia, one whose members send remittances home, may become subject to Russian pressure, just as the Georgian one was in 2006.  And on the other, Moscow's status as a Minsk Group co-chair means that it plays a key role in the policy area of greatest concern to Azerbaijan, thus reducing Baku's ability to ignore Russian demands.  Indeed, Russia's leverage in this area may be one of the most important reasons for Baku's decision to build up its military capacity, something that could give it more independence in that area as well. 

 

The military build-up and an independent energy policy are only few of several ways Azerbaijan is employing its economic strength to reduce Russia’s influence.  And it is striking that, at least in comparison to the other post-Soviet states, Azerbaijan has shown that it is ready, willing and to a large extent able to give Russia a taste of its own medicine by pursuing an economic-centric foreign policy.  

 

 

References

 

Dodsworth, John R., Paul H. Mathieu & Clinton R. Shiells (2002). “Cross-Border Issues in Energy Trade in the CIS Countries,” IMF Policy Discussion Paper, 02/13.

 

Kjærnet, Heidi (2007).  I stormaktens skygge: To russiske energiselskapers rolle i forholdet mellom Aserbajdsjan og Russland.  [In the shadow of the great power: The role of two Russian energy companies in Azerbaijani-Russian relations.]  (In Norwegian).  MA thesis, University of Oslo.

 

Lo, Bobo (2006). “Evolution or Regression? Russian Foreign Policy in Putin's Second Term,” in Helge Blakkisrud, ed. (2006). Towards a Post-Putin Russia, Oslo: NUPI.

 

Wallander, Celeste (1997). “The Economization, Rationalization and Normalization of Russian Foreign Policy,” PONARS, Policy Memo 1, Harvard University.

Notes 

[1]  This article draws upon my previous work, in which I analyzed Azerbaijani elite perceptions of the operations of two Russian companies in Azerbaijan (Lukoil and RAO UES), as a proxy for the Azerbaijani response to the economization trends in Russian foreign policy (Kjærnet 2007). 

[2]  Azerbaijan had the opportunity to choose between continued import from Russia for domestic consumption and export of its own Shah Deniz gas to Western markets, or meeting its own demands with the Shah Deniz gas and postponing the export of the gas.  Azerbaijan has thus taken the cost of losing the possible revenues from gas export.

[3]  One could perhaps go so far as to argue that Azerbaijan has undertaken the cost of subsidizing Georgia, with all the implications this could have for political influence.