Since the start of Russian President Vladimir Putin’s invasion of Ukraine on Feb. 24, Azerbaijan and its vast oil and gas reserves have emerged as a key front in the economic war between Russia and the West. Since this week, Azerbaijan is also on the verge of a real war.
On Monday, the de facto authorities of the breakaway region of Nagorno-Karabakh, whose population is majority ethnic Armenian, reported that Azerbaijani forces had attacked the region. On Wednesday, Azerbaijan said it had carried out “an anti-terrorist operation against illegal Armenian armed groups in the territory of Azerbaijan.” Nagorno-Karabakh announced a partial military mobilization in response.
The fighting comes just weeks after European Commission President Ursula von der Leyen visited Baku and struck a new bilateral agreement aiming to more than double European Union imports of Azerbaijani gas—from 8.1 billion cubic meters in 2021 to 20 billion cubic meters in 2027. Brussels also pledged to support Azerbaijan’s “strong untapped renewable energy potential.”
Azerbaijan sits at the heart of efforts to break Europe’s Russian energy dependency. But the eruption of fighting less than two years after the bloody 2020 Armenian-Azerbaijani war over Nagorno-Karabakh is yet another sign that the West’s approach to Azerbaijan is failing. It does not have a suitable strategy for addressing the risk of conflict in Nagorno-Karabakh. For all the happy talk of ramped-up gas imports, these goals are not presently realistic—not least because of a lack of spare pipeline capacity that’s not controlled by Russia.
Europe’s failure to take relations with Azerbaijan seriously risks amplifying the continent’s energy crisis, exacerbating the security crisis in the Caucasus, and empowering Russia. Unfortunately, there is little sign of any change in Western capitals.
Western diplomacy was absent in September 2020, when fighting erupted into the Second Nagorno-Karabakh War. With crucial support from Turkey, Baku retook some 20 percent of Nagorno-Karabakh and surroundings districts of Azerbaijan controlled by Armenia since the First Nagorno-Karabakh War in 1994. Azerbaijan’s offensive ended when Russia intervened. Putin summoned Azerbaijani President Ilham Aliyev and Armenian Prime Minister Nikol Pashinyan to Moscow after a Russian helicopter went down under opaque circumstances along the Armenian-Azerbaijani border. Within 24 hours, the two countries agreed to a cease-fire, with Russia a co-signatory. The pact included an agreement for Russian troops to serve as peacekeepers, including oversight of the Lachin corridor, the sole road link between Nagorno-Karabakh and Armenia.
Western diplomacy has largely remained absent since then. The Organization for Security and Cooperation in Europe’s Minsk Group—created in 1992 to resolve the Armenian-Azerbaijani conflict over Nagorno-Karabakh; co-chaired by Russia, France, and the United States; and not to be confused with the Minsk format charged with resolving the Russian-Ukrainian conflict—has failed to make any progress in 30 years. The Minsk Group played no meaningful role in responding to 2020 war, just as the Minsk format has been impotent in the face of continued Russian aggression against Ukraine.
While Azerbaijan strives to paint Armenia as a Russian client state, Pashinyan has retained Armenia’s neutrality over Ukraine. The divisions in the South Caucasus are, in fact, far grayer. Aliyev has embraced the role of Europe’s energy savior—but has also sought accommodation with Moscow. On Feb. 22, one day after Putin recognized his puppet statelets in Ukraine, Aliyev signed a “declaration on allied cooperation” with him.
Aliyev’s regime may be at the heart of Europe’s energy agenda, but its corruption and arbitrary rule of law have garnered blistering criticism in the West. The 2020 war brought further condemnation, including by Armenian diaspora groups influential in the West.
Western energy investment is central to Azerbaijan’s efforts to bolster the regime and retain independence from Moscow—an approach pioneered by Aliyev’s father and predecessor, Heydar Aliyev. In the aftermath of the First Nagorno-Karabakh War, he signed the “contract of the century” with BP. The British oil giant shepherded Azerbaijani oil to global markets via a newly built pipeline to an export terminal in Ceyhan on Turkey’s Mediterranean coast.
The younger Aliyev has continued this approach. Europe’s Southern Gas Corridor strategy depends on Azerbaijani gas. In 2013, however, Europe scuttled the Nabucco pipeline project that envisaged a vast increase of export capacity, opting instead for two smaller pipelines, TANAP and TAP. No plan is on the table to realize von der Leyen’s pledge to more than double Azerbaijani gas imports, making the agreement a paper tiger at best.
Lately, energy majors have actually been seeking to divest from Azerbaijan. Chevron sold out in 2020, and ExxonMobil is considering following suit. Last September, BP sold half its share in a key exploration project to Russia’s Lukoil. This July, it was reported that BP would relinquish its remaining stake after failing to discover commercial gas reserves.
Azerbaijan today faces domestic supply constraints. In recent years, blackouts not seen since the 1990s have become increasingly frequent. Since 90 percent of the country’s electricity production is gas-powered, that does not bode well for gas export plans.
If Azerbaijan is to become an alternative energy source for Europe, rapid work must be done to arrange investment in its energy sector. That includes the EU agreement’s renewable energy pledges, which are necessary to free up more Azerbaijani gas for export.
The framework for such an approach is emerging. At the G-7 summit in June, the EU and United States agreed to a new Partnership for Global Infrastructure and Investment. Along the same lines, Brussels announced last December the 300 billion euro Global Gateway infrastructure investment plan. The political will must be found on both sides of the Atlantic to deploy some of these funds to Azerbaijan.
If the West is to prevent a third Nagorno-Karabakh war, it must also seek a new format for negotiations, as Washington has belatedly acknowledged. Were the West to abandon Nagorno-Karabakh to Baku, reactionary pro-Russian forces from Armenia’s pre-Pashinyan regime would likely return to power. Russia’s so-called peacekeepers could also turn hostile, forcing concessions from Aliyev that would end any hopes of additional energy supplies to Europe. Russia’s dominance of the South Caucasus would be solidified.
It is a challenging but not impossible task. Diplomacy will prove difficult, but there is little Baku likes as much as hard cash. The new Western infrastructure funds should enable the money to be found. Russia’s forces in Nagorno-Karabakh and Armenia proper mean it cannot be ignored, but there is no need to include the Kremlin in economic statecraft. Russia’s mandate in Nagorno-Karabakh expires in 2025, offering an opportunity for the West to propose alternatives. The Biden administration’s emerging anti-kleptocracy agenda can help hold the Aliyev regime to account, providing some sticks along with the carrots. With gunfire already erupting, efforts need to begin now.