Paul Goble

Publications Advisor

Azerbaijan Diplomatic Academy

  

Held in the aftermath of the Russian invasion of Georgia, which revealed the vulnerabilities of all pipelines bypassing the Russian Federation, and of the gas war between Moscow and Kyiv, which underscored Moscow’s commitment to using gas as a political weapon against its neighbors and Europe, the Nabucco Budapest summit on January 27th was organized in order to give new impetus to plans for yet another alternative gas pipeline from the Caspian Basin to Europe.

  

But instead of achieving that goal, the meeting highlighted the old problems which have dogged this project since the beginning, called attention to the new challenges that both the project’s backers and other countries now face, and showcased the changed status of Azerbaijan within this project and more generally, a shift that was highlighted by one of the most important speeches President Ilham Aliyev has ever delivered.

  

Three old problems with this 10.1 billion US dollar, 3300 km project which have plagued it since the beginning were very much on public view in the Hungarian capital.  First of all, the Nabucco pipeline flows through so many countries and affects so many of their neighbors that any final agreement is difficult if not impossible to obtain.  That is particularly true because any one of the countries involved potentially has the ability to kill the project by holding out for its special needs or falling under the pressure of outsiders.  At Budapest, there were not only the six original Nabucco partners – Austria, Bulgaria, Germany, Hungary, Romania, and Turkey – but also representatives from six other countries, the European Bank for Reconstruction and Development, the European Investment Bank, and the European Union.

  

Second, and at least equally important, two important players were not there: the Russian Federation and Iran.  Nabucco, of course, has been promoted to avoid having gas flow through either of these countries lest Moscow exercise too much influence over Europe through its control of gas supplies and lest Iran escape the international isolation that the United States has insisted upon for many years.  But their exclusion had the unintended effect of causing Moscow to demonstrate its ability to affect the project by putting pressure on Central Asian suppliers and of highlighting the ways in which Iran is now playing an expanded role in the Caucasus after the August war in Georgia.

  

Third, the Budapest meeting called attention to tensions within and among suppliers, transit countries and consuming nations, tensions which may be inherent in any pipeline deal but which the organizers of Nabucco have done little or nothing to address.  Moreover, the meeting showcased the change in status of one country – Azerbaijan – from being only a transit route to being that and a supplier as well, a reminder to all concerned that new discoveries and new technologies may fundamentally alter the landscape and hence the value of particular strategies of pipeline diversification.

 

Moreover, lying behind all of these is a harsh reality that few of Budapest’s organizers wanted to acknowledge: Even if all these problems are overcome, Nabucco, if it becomes operational, would supply only 31 billion cubic meters of gas a year, only about six percent of Europe’s current consumption.  And that in turn means that others, the Russian Federation in particular will play a far larger role in supplying Europe’s natural gas at least in the next decade or two than the Nabucco countries ever could.

   

But perhaps more important for the future are three new challenges that the Budapest meeting highlighted.  First, by highlighting both the competing interests between and among the participants, the Budapest summit pointed to precisely those weak links that the project’s opponents could exploit.  Many commentators suggested that the biggest problem with Nabucco is not the political geography through which its pipeline must past but rather the question of whether there would be enough gas to make it worthwhile.  Russia and Iran rank first and second in the world in terms of proved natural gas reserves, and neither will be sending gas this way.  And partially as a result, Moscow has been able to pressure Uzbekistan to send gas to Europe via Russia, and Tehran has been working with Ashgabat to get Turkmenistan, the country with the third largest proved natural gas reserves in the world, to dispatch its production via Iran.

  

Second, in the wake of Georgia and Ukraine, Budapest underscored just how much the rules of the game in the gas sector have changed in the last six months.  None of the countries in the region can be sure of just how far Moscow may be prepared to go to advance its interests.  Consequently, all of them are recalibrating their policies, seeking to avoid alienating the Russian authorities lest Moscow’s power be directed at them.  Nor can the Nabucco countries be sure of what the US and the EU might be willing to do to counter Russian actions – or even whether the new American administration may open a dialogue with Iran, an action that would make that country a far easier, less expensive and more attractive route out for Caspian Basin gas and one that would almost certainly postpone if not kill Nabucco.

  

And third, the meeting was held as the world financial crisis deepened, a development that not only makes the financing of this project more problematic but raises questions about the level of price and demand for gas in the future.  Many consuming nations are cutting back, and in the face of high prices, they are seeking alternative sources of energy.  While producers and transit countries seem confident that the consumer will not be able to make any fundamental shift away from gas and oil quickly, they cannot be sure.  And that uncertainty has the effect of casting a shadow over the entire project. 

  

But perhaps the most intriguing aspect of the meeting was the increased status of Azerbaijan, a rise that President Ilham Aliyev called attention to in his speech and one that is likely to play a major role not only in the plans of the backers of Nabucco but also in the calculations and actions of its opponents.

  

Aliyev began his speech by stating flatly that “Azerbaijan has always supported this project” and asserting that “we will continue our support” as part of Baku’s general approach to oil and gas issues as laid out in the declaration of the Energy Summit there last fall.  The Azerbaijani president then made three major points:

  

First, he said, Azerbaijan now has a new status in Nabucco.  Originally, it was defined only as a transit country, a reflection that reflected the lack of awareness of the enormous natural gas reserves on its territory.  “But today the situation is different,” and Azerbaijan is not only a transit country but a supplier in its own right, with some two trillion cubic meters of gas,” enough natural wealth to last “through the next decades and even century.”  And that supply means that it wants to be heard in this dual capacity and not treated any longer “exclusively as a source of raw materials.”  

  

Second, President Aliyev pointed out, Azerbaijan has always been committed to the diversification of pipeline routes.  It has been a leader in the construction of the Baku-Tbilisi-Ceyan oil pipeline and the Baku-Tbilisi-Erzerum gas pipeline, and it is a participant in five other pipeline projects, a reminder that from Azerbaijan’s point of view – and the point of view of many others even if not expressed – Nabucco is far from the only game in town.

  

And third, the Azerbaijani leader said that recent events had demonstrated that “the time has come to unite the interests of all participants – suppliers, transit countries and consumers” to resolve the issues of pipelines and prices so that gas will “unite peoples and countries” rather than divide them.  But at the same time, he stressed that Azerbaijan is financially and politically independent and wants “a partnership” with others and clearly not a junior one.

             

Each of President Aliyev’s points represents a challenge to the Nabucco organizers even as he reaffirmed his commitment to the project, but they also suggest that Azerbaijan which as Aliyev has often said is at “the energy crossroads” not only east-west but north-south is likely to be subject to new pressures, not only directly but indirectly from Russia and Iran, who oppose Nabucco, and Europe and the United States, who want to see this pipeline built. 

  

And to the extent that conclusion is correct, it will mean that Budapest has pushed Azerbaijan and perhaps the other Nabucco countries into a new and more complicated political game, however much the leaders of all these countries say that this gas pipeline project is all about economics.