Caucasus Ceasefire & Its Energy Implications

Article by Vivek Jha

Read part-1 of this article.

Even as the conflict in the Caucasus winds down, for the moment at least, it leaves behind in its wake, a lot of unanswered questions; about the reasons and manner of the sudden ceasefire, and more importantly on the steep terms Armenia agreed to it. The ceasefire came into effect at 0000 hrs on the 10th November, after almost six weeks of bitter fighting which saw both sides losing over 2000 personnel (though actual Azeri numbers could be higher). Azerbaijan captured the strategic highland town of Shusha after a weeklong assault, while both sides made and refuted claims on capturing higher ground in the Nagorno-Karabakh. Throughout the fighting, Turkey remained in steadfast support of Azerbaijan, as expected against Armenia, providing military hardware- drones and air support among other things, even sending mercenaries from the Syrian conflict according to various reports, though Turkey denies such allegations. What is surprising to many though was Israelis supporting the Azeris- a majority Muslim country, against a Christian Armenia, supplying them with Surface to Air missiles (SAM), Anti Tank Guided Missiles (ATGM), loitering munitions (Harop, Sky Striker), etc. Armenians seemed betrayed by the continued Israeli support to Azerbaijan and recalled their ambassador to Israel early in October.

Screen grab from a video released by Azerbaijan Defence Ministry shows a drone passing over a site attacked by Azeri forces

Though Israeli actions seem to be baffling at first, it is not the first time Israelis have been standing with Azerbaijan against Armenia. For a conflict lying in cold storage for almost three decades, with only sporadic fighting, and that in a remote and lesser reported corner of the globe, details are often forgotten. Israel and Azerbaijan have had diplomatic connections since 1992, Azeris being one of only a few Muslim countries recognizing Israel. Azerbaijan has over 30,000 strong Jewish community living in peace. Historically, given the determination of Israel to safeguard Jews across the globe, establishing diplomatic connect with Azerbaijan in 1992 must have had something to do with the safety of Jews in a not pro-jews country. More importantly, Israel imports over 40% of its crude oil from Azerbaijan (Israel has many and diverse sources for crude oil even from countries with which it has no diplomatic relations). With its relations with most of the oil producing gulf countries in bad shape over the decades, Israel needed to safeguard its oil supply sources which explains its unexpected support to Azerbaijan. All that might soon change. With Abraham Accord signed thus opening possible new sources of crude oil for Israel, its relationship with Azerbaijan might come to suffer. Moreover as Israel shifts more and more from crude oil to natural gas for its energy needs, its dependence on foreign crude imports would be further reduced, as natural gas was found in large quantities in offshore Israeli EEZ in mid 2010s and has since become an exporter of natural gas. Some have argued that Israeli support to Azerbaijan stems from Israeli plans against Iran in the event of an armed conflict erupting in future. Rumours of the non-operational Sitalchay airbase in Azerbaijan on the western shores of the Caspian Sea being used by Israel keep doing rounds. Though no concrete evidence regarding such a deal between Israel and Azerbaijan has surfaced, but that Iran categorically has stated that it won’t allow any Israeli bases in Azerbaijan rings bells of some partial truth in such rumours, and that Israel might be actually using Azeri territories for covert activities against Iran. Or it could just be Iranians being paranoid. In any case an Israeli base in Azerbaijan seems improbable given the close relations, especially recently between Turkey and Iran, and that Turkey wields considerable influence in Baku. This leads us to the Turks. Given that Turkey has managed to alienate everyone from USA to Russia to Greece to India, it hardly has any partners left in the west Asia or the world except the uncomfortable relationship it has with Iran. Despite the overt belligerent tones, Erdogan knows Turkey cannot financially afford a conflict with its regional rivals, be it Israel or Syria or any other states of the region. Moreover a conflict in the Caucasus can cause a major headache to the Turks, who have been trying to move away from Russian gas. Trans-Anatolian part of the Southern Gas Corridor (South Caucasus Pipeline + Trans Anatolian Pipeline + Trans Adriatic Pipeline) has a lot to offer Turkey, apart from cheaper rates compared to Russian gas.


Turkey depends on natural gas for both heating and power needs and Russia has been the biggest supplier to it. But with their worsening relations day after day, due to Ankara and Moscow supporting opposite parties in Syria, and Turkey expressing its displeasure at the high prices of Russian gas, it was imperative that Turkey would look elsewhere for a source of gas, especially with its economy in doldrums. Over the last three years, Turkish gas imports have fallen considerably- over 40%. Instead it has now taken to spot LNG purchases which are considerably cheaper, mostly from Iran. But since that cannot go on forever, it has also established five new gas terminals, as the Southern Gas Corridor gets operational. Clearly, Turkey is looking long term and there seem to be no concrete reasons for Turkey to start a war in the Caucasus with so much on the line. A new pipeline supplying gas from the Caucasus and across the Caspian Sea to Europe is not something Russia would favour. It still supplies most of Europe’s gas needs, oil and gas exports accounting for over 30% of the Russian GDP. Add Turkish reluctance to further its gas contracts and whose LNG imports from Russia are second only to Germany.


 Europe on the other hand would happily diversify its gas sources and loosen the Russian grip on it, precisely what is the intent of the Southern Gas Corridor. Interestingly, the Trans Adriatic part of the corridor went into operation on 15 November, only 5 days after the ceasefire between Armenia and Azerbaijan. But besides the obvious desire of European countries to go beyond Russian gas, there are short term interests which carry weight here. Spot gas prices have been at a historic low for the last year and continuing the same trend. European countries would like them to remain so for as long as possible, with no conflicts causing a price hike. As the winter approaches, the gas needs all over Europe will soar and they would not be happy spending extra forex over a little conflict in a small corner of the globe, which can be their new gas trump card. In essence, except perhaps Russia, no parties would want a war in Caucasus causing gas prices to rise and compromise supplies. Russians, though not happy with the Southern Gas Corridor, asking Armenia to start a conflict, is too farfetched and would only further deteriorate its relations with Turkey whom they desperately want to sell gas to, given the slowdown of the Russian economy. It all finally comes down to Armenia and its miscalculation of the situation. Right after the hostilities erupted on 27 September, Azeris had reported Armenians’ rocket attack near BTC oil pipeline- one rocket landing barely 10 metres from the pipeline according to Azerbaijan. Armenia obviously rejected the reports. But since the BTC and South Caucasus Pipeline are in close proximity, it must have been enough to spook the European energy mandarins to seek an end to the war, whatever the cost, which was ultimately paid by Armenia- losing most of the Nagorno-Karabakh territory to Azerbaijan, thus safeguarding the pipelines from any fighting in the near future. Prime Minister of Armenia Nikol Pashinyan is facing immense protests over the terms of the ceasefire and demands for his resignations are rising. The ceasefire will hold for now. But what the summer brings the next year remains to be seen.

Article by Vivek Jha

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