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CAUCASUS UPDATE

In this section, we publish the weekly analysis of the major events taking place in the Caucasus and beyond. The Caucasus Update is written by our Senior Editor Alexander Jackson. Click here to subscribe.

The last two weeks has seen Russia’s access to European energy supplies grow stronger still. On June 24 Gazprom, the state energy giant, signed a deal with Nigeria to create a joint oil and gas venture, giving Russia influence over Europe’s African energy supplies (Financial Times, June 26). Meanwhile in Baku on June 30, President Medvedev and Gazprom boss Alexei Miller managed to take a step towards locking in Azeri gas supplies for export to Russia (BBC News, June 29). All of this occurs whilst Russia holds the biggest military exercises since the fall of the USSR just across the border from Georgia, and the week before President Obama flies to Moscow to try and cut a deal with the Kremlin over Afghanistan and Iran. So much for the theory that Russia is somehow ‘on its knees’. This analysis, which held that Russia’s faltering economy made it unwilling or unable to assert itself in foreign policy, has been proved wrong in two different ways.

Firstly, and most importantly, Russia’s geopolitical ambitions are not tied solely to the price of oil and gas. Whether the oil price is $20 a barrel or $120 a barrel, Moscow can act confidently across Eurasia and indeed the wider world. In the long run, low prices will of course deal serious damage to Russia’s economy, but it to assume that Russia’s support of Iran, or its willingness (or otherwise) to attack Georgia is predicated entirely on energy prices is short-sighted. To put the shoe on the other foot, no commentators have seriously suggested that the breakdown on Wall Street would cause the US to withdraw from Afghanistan.

There is another reason. To a small extent, Russia’s assertiveness is influenced by energy markets. But as recent weeks have shown, these prices are very elastic. Oil prices are now at around $70 a barrel, and if prices continue to rise Russia’s coffers could soon be filling up again. Clearly there are other economic factors to take into account, such as world credit markets, but the raw power of Russia’s economy – oil and gas – is likely to recover relatively quickly.

In any case, Moscow’s stranglehold on European energy supplies means that Europe is as dependent on Russia as Russia is on Europe. If Russia decided to raise its rates above market levels in order to offset a depressed price, there is very little that the EU could do beyond complain loudly. This is particularly true in light of the Nigeria and Azerbaijan deals. The first commits Gazprom to investing $2.5 billion into Nigeria’s huge oil and gas and develop infrastructure.

The agreement in Baku is probably more significant in the long-run. The Kremlin will buy up 500 million cubic metres of Azeri gas for export to southern Russia – a tiny amount, but the price of $350 per thousand cubic metres is significantly high. The second part of the deal is much bigger, although not immediate. It makes the Kremlin a priority buyer for gas from Phase Two of the Shah Deniz field – the gas which is, to date, the only confirmed source of gas for the ill-fated Nabucco pipeline. European buyers would therefore have to outbid Gazprom to get Shah Deniz Phase Two gas, which looks near-impossible given existing concerns about the project’s cost. (In another unwelcome development, on June 25 a senior official from Kazakhstan dismissed Nabucco, which suggests that another potential supplier has pulled out (RFE/RL, June 25)).

The sale of 500 million cubic metres to Dagestan looks like a placeholder deal, which will reassure Baku that Gazprom is serious about paying European market prices for Azeri gas whilst not forcing the energy giant to commit to Shah Deniz too early (Phase Two is, after all, only due to open in 2016). From Baku’s point of view the deal also forces its would-be European partners to take its commercial demands seriously. If and when a competitive bidding round develops for Phase Two, Azerbaijan can be assured of some very rich rewards.

Novruz Mammadov, the head of the foreign relations department in the Azerbaijani presidency, insisted that the agreement was purely economic (APA, June 30). But as always in the Caspian region, the deal was also a political affair. After all, the agreement was announced by the two countries’ presidents and seems to have been the primary purpose for President Medvedev’s visit (the other documents that were signed were routine memoranda).

The fact that the deal came just a week before Barack Obama’s Moscow visit was almost certainly a coincidence. Nonetheless, for Baku it may serve as a useful reminder to Washington that Azerbaijan should not be neglected, for geopolitical and energy reasons (Eurasia Daily Monitor, July 2). Since April, when President Obama seemed briefly involved in the Turkish-Armenian thaw, US attention to the Caucasus has slipped. The stalling of the rapprochement between Ankara and Yerevan is one reason; the need to engage Russia on the big questions (Afghanistan, Iran, NATO) rather than trying to solve the tangled problems of the Caucasus is another.



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PREVIOUS ISSUES

  Caspian Compromise Backfires for Russia and Iran, CU Issue 83, November 24, 2010
  Turkey in a Tight Spot on Missile Defense, CU Issue 82, November 11, 2010
  The OSCE and Kyrgyzstan’s Election, CU Issue 81, October 30, 2010
  Unblocking the US-Azerbaijan Relationship, CU Issue 80, October 07, 2010
  Nabucco Pipeline: Quo Vadis?, CU Issue 79, September 30, 2010
  Russia tightens its grip in the South Caucasus, CU Issue 78, August 23, 2010
  Armenian Politics: Rigidity Versus Flexibility, CU Issue 77, August 10, 2010
  Russia and Georgia: Ready To Talk?, CU Issue 76, July 21, 2010
  Can the US walk and chew gum at the same time?, CU Issue 75, July 9, 2010
  The Kyrgyzstan Crisis – A Qualified Success for Turkish Diplomacy?, CU Issue 74, June 24, 2010
  Brussels downgrades the Caucasus, CU Issue 73, June 07, 2010
  NATO’s New Strategic Concept and the Caspian Region, CU Issue 72, June 01, 2010
  Joe Biden and European Security, CU Issue 71, May 13, 2010
  Behind the US-Azerbaijan row, CU Issue 70, May 6, 2010
  Turkey and Iran: The risks of failure, CU Issue 69, April 30, 2010
  Kazakhstan, the OSCE, and the crisis in Kyrgyzstan, CU Issue 68, April 19, 2010
  The Implications of the Moscow Bombings, CU Issue 67, April 12, 2010
  Iran Manoeuvres for a role in Karabakh, CU Issue 66, April 5, 2010
  The EU and Abkhazia: Between a rock and a hard place, CU Issue 65, March 16, 2010
  Fallout from the US ‘Genocide’ vote, CU Issue 64, March 9, 2010
  Ukraine's elections and future of GUAM, CU Issue 63, February 10, 2010
  Less Democracy, More Security: Kazakhstan and the OSCE, CU Issue 62, January 18, 2010
  Tackling the North Caucasus Insurgency: Development or Rhetoric?, CU Issue 61, January 11, 2010
  The Caspian Region in 2010, CU Issue 60, January 4, 2010
  The Caspian Region in 2010, CU Issue 59, December 31, 2009
  The Turkmenistan-China Pipeline Changes the Energy Balance, CU Issue 58, December 21, 2009
  Russia’s European Security Treaty, CU Issue 57, December 7, 2009
  The ‘Kidnapping War’ in Georgia and its Implications, CU Issue 56, December 3, 2009
  Azerbaijan Shifts its Energy Priorities, CU Issue 55, November 23, 2009
  The South Caucasian States and Afghanistan, CU Issue 54, November 11, 2009
  Is Turkey turning East?, CU Issue 53, November 2, 2009
  What is Russia’s Gameplan for Iran?, CU Issue 52, October 26, 2009
  Turkey, Armenia and Azerbaijan: Where Next?, CU Issue 51, October 19, 2009
  The Armenians of Georgia: A New Flashpoint in the Caucasus?, CU Issue 50, October 12, 2009
  Turkey’s EU Membership: Will The ‘Armenian Opening’ Help?, CU Issue 49, October 5, 2009
  The Missile Defence Shift: Implications for the Caucasus, CU Issue 48, September 22, 2009
  Rising Tensions in the Black Sea , CU Issue 47, September 14, 2009
  Armenia, Turkey, and Azerbaijan: The Clock Is Ticking, CU Issue 46, September 7, 2009
  The Battle of the Bases in Central Asia, CU Issue 45, August 31, 2009
  Russia, Israel, and the S-300s, CU Issue 44, August 24, 2009
  The motivations behind Turkey's 'Kurdish Initiative', CU Issue 43, August 17, 2009
  The Implications of the Turkmenistan-Azerbaijan Dispute, CU Issue 42, August 10, 2009
  What has changed since the August war?, CU Issue 41, August 3, 2009
  The Internal Dynamics of Armenia’s Karabakh Policy, CU Issue 40, July 20, 2009
  Gazprom’s Baku Triumph, CU Issue 39, July 06, 2009
  Ingushetia: The New Chechnya?, CU Issue 38, June 29, 2009
  Georgias Economy - A Matter for Diplomats, CU Issue 37, June 22, 2009
  ‘Progress’ In The Nagorno-Karabakh Peace Process, CU Issue 36, June 08, 2009
  Iran's Azerbaijanis and the presidential election, CU Issue 35, June 01, 2009
  Nabucco and South Stream - The Race Heats Up, CU Issue 34, May 25, 2009
  China and Central Asia, CU Issue 33, May 19, 2009
  Russia, Georgia, and NATO - A Bad Week, CU Issue 32, May 11, 2009
  The Obama Administration’s Emerging Caucasus Policy, CU Issue 31, April 27, 2009
  Integration and Division in the Caspian Sea, CU Issue 30, April 20, 2009
  The Turkish-Armenian Rapprochement - Implications for the South Caucasus, CU Issue 29, April 13, 2009
  Turkey's local elections and Armenian issue, CU Issue 28, April 6, 2009
  Is There Life Left In The Nabucco Project?, CU Issue 27, March 30, 2009
  Problems and Prospects for Russian Military Reform, CU Issue 26, March 23, 2009
  Russia and Georgia: Not back to war, CU Issue 25, March 16, 2009
  Armenia: Heading towards crisis?, CU Issue 24, March 9, 2009
  Drug trafficking in the Caucasus, CU Issue 23, February 23, 2009
  Russian-led military block: A real counterweight to NATO?, CU Issue 22, February 16, 2009
  Are the International Missions in Georgia still relevant?, CU Issue 21, February 9, 2009
  Israel and Azerbaijan: Baku’s Balancing Act, CU Issue 20, February 2, 2009
  The North Caucasus in 2009: A Bleak Forecast, CU Issue 19, January 26, 2009
  The Military Balance in Nagorno-Karabakh, CU Issue 18, January 19, 2009
  Russia, Iran, and Barack Obama in 2009, Part II, CU Issue 17, January 12, 2009
  Looking forward to 2009 in the Caucasus and beyond, Part I, CU Issue 16, January 5, 2009
  The opportunities and the risks of NATO’s new supply routes, CU Issue 15, December 22, 2008
  The Black Sea Ambitions of Armenia, CU Issue 14, December 15, 2008
  Another Small Step for Nabucco, CU Issue 13, December 8, 2008
  Will Saakashvili survive politically?, CU Issue 12, December 1, 2008
  The latest fashion: conflict mediation, CU Issue 11, November 24, 2008
  The Baku Energy Summit, CU Issue 10, November 17, 2008
  Obama and the Caucasus, CU Issue 9, November 10, 2008
  Kazakhstan's oil options, CU Issue 8, November 3, 2008
  Is the Minsk Group being sidelined?, CU Issue 7, October 27, 2008
  Gas and oil developments in the Caspian region, CU Issue 6, October 20, 2008
  Where next for the Georgian peace process?, CU Issue 5, October 8, 2008
  Unrest in the North Caucasus, CU Issue 4, September 29, 2008
  Saakashvili's future, CU Issue 3, September 22, 2008
  Iran after the Georgian War, CU Issue 2, September 15, 2008
  Football diplomacy, CU Issue 1, September 8, 2008
       
 
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