15 years since the Contract of the Century

15 years have passed since the so-called Contract of the Century was signed. This brought about the realisation of a number of Caspian energy projects and very seriously determined further developments in the region. The date was celebrated with due pomposity in Azerbaijan but there was no mention of it here in Georgia, although initially this country placed much hope in the contract.

In 1994 Azerbaijan’s President Heidar Aliev, father of current President Ilham Aliev, decided to exploit the advantages Azerbaijan possessed to the full. First he brought the world’s leading oil companies into the Caspian basin and then he facilitated direct foreign investment into Azerbaijan, which improved the country’s economy and therefore the welfare of its population. The other historic task Azerbaijan undertook was to resolve through international involvement and economic necessity the problem of Nagorno Karabakh and return it to Azeri jurisdiction. Although the Karabakh problem has not yet been resolved, international players have invested billions of dollars in Azerbaijan and the country is now prosperous.

The first of the new energy projects to start functioning was the Baku-Novorossisk (Russia) pipeline. Then came the Baku-Supsa (Georgia) pipeline. This was the first link in the oil transportation chain from from Supsa to Odessa (Ukraine) which then could have been extended via Brody to Poland and the rest of Europe. Next came the Baku-Tbilisi-Ceyhan (Turkey) pipeline which took Azeri oil via a Mediterranean port to the world. At almost the same time the natural gas pipeline Baku-Tbilisi-Erzerum was also built, and all these routes became very important and essential in transporting Caspian andCentral Asian oil and gas to the West.

Suddenly Azerbaijan, which previously had only regional significance, became a very important player in world energy, moving from “regional level to global level” as President Ilham Aliev stated during the celebrations of the fifteenth anniversary of the signing of the contract. American analysts state that Caspian energy transit should become the instrument through which Central Asia and the South Caucasus are introduced and established in Western markets and thus free themselves from Russian influence, preventing any possibility that they will be reintegrated into a new post- Soviet Empire.

Although the Contract of the Century has been celebrated in Baku there still are some issues challenging Azerbaijan. Its failure to resolve the Karabakh problem has given Armenia the chance to draw closer to Russia, which already has strained relations with Georgia. Russia has a grudge against all its neighbours, including Azerbaijan, which become Western-oriented. Meanwhile Armenia has managed to interfere in Azeri-Turkish relations. This has resulted in the moves lifting by Turkey of the blockade of Armenia imposed by Azebaijan due to Karabakh.

Georgia’s situation as a partial beneficiary of this blockade, gaining additional transit importance as a route to and from Armenia which circumvents closed borders, is also now rather controversial. It got involved with much pleasure in this game for two reasons: to receive economic benefits and secure its political safety from the Russian threat. The August 2008 Russian invasion showed that Georgia’s hopes in this direction have been frustrated. Western capital could not save Georgia from the Russian aggression and moreover Russia has established two puppet regimes and military strongholds in Georgian territory and the West has been unable to seriously influence Moscow. Neither did Georgia gain the level of economic benefit expected and the Russian invasion even more dramatically decreased investment in Georgia.

The Obama administration welcomed the 15th anniversary of the Contract of the Century, but Hillary Clinton’s message also contained some hints signifying the importance of united efforts to implement the ‘southern corridor’ project and supply the West with Caspian basin oil and gas. The NABUCCO project, the one most often discussed, still only exists on paper although a deal to implement it has been signed. It looks as if Azeri natural gas will not be able to satisfy NABUCCO’s capacity and it has become necessary to involve Turkmenistan as a possible source. There are multiple problems concerning transit issues as well, so the West has to concentrate on making it viable to implement the NABUCCO project in order to isolate Russia from direct involvement in this southern corridor, secure the transit importance of Georgia and Turkey and stick to its primary goal of supplying Western Europe in particular with energy which does not come via Russia.