Azerbaijan-Turkey

=Overview=

Turkey plays an active role in the geopolitics of the South Caucasus. This influence on the region goes back historically to the period of intense competition between the Persian-Sassanid and Turkish Ottoman Empires, and since the fall of the Soviet Union in 1991 has manifested itself in Turkey's role as a key investor in the region and conduit for trade and energy transportation tying the Caspian Basin to the outside world in circumvention of Russian territory. The strong political and cultural ties between Ankara and Baku is encapsulated in the oft-cited slogan 'one nation, two states'.

According to reports by the Economist in 2012, Turkey resents the recent warmth shown by Azerbaijani president Aliyev to Israel, but when the Turkish envoy to Azerbaijan urged the country to break relations with Israel, they did not succeed. As of 2012 Israel represented Azerbaijan's second largest oil customer and a crucial transit point for Azerbaijani oil flowing to Asia's growing markets.

=Gas Transit Agreements=

Turkey is the main conduit for Azerbaijan's oil exports, primarily through the Baku-Tbilisi-Ceyhan (BTC) Pipeline and in the future for gas through the chosen Southern Corridor route. However diplomatic spats over gas transit arrangements have caused cracks to show in the usually warm relations between the two nations, according to a paper by the London School of Economics (LSE).

A leaked US diplomatic cable from October 2009 reported that SOCAR President Rovnag Abdullayev expressed his frustration in a private meeting with what he viewed as Turkish BOTAS's refusal to compromise or negotiate in good faith on issues of gas transit and pricing for Southern Corridor gas. SOCAR was attempting to push Turkey for parity with gas prices paid to Russia ($440 USD/thousand cubic meters) and for lower transit fees, and Abdullayev viewed the low gas prices paid by Turkey to Azerbaijan as exploitative.

In the Turkish city of Izmir on the 25 October 2011, Azerbaijani president Ilham Aliyev and Turkish Prime Minister Recep Tayyip Erdogan signed a protocol on gas transit which opened the door to shipments of Azerbaijani, and potentially Turkmen, gas to European consumers. Under the terms of the deal, Turkey is to buy gas from the Shah Deniz-2 Field and transport the gas through its territory to Europe.

On the 26 December 2011 Turkey finally signed a Memorandum of Understanding with Azerbaijan on the Trans-Anatolian Gas Pipeline to carry Azeri gas across Turkey. This commitment was viewed by many as an important step towards resolving the Southen Corridor puzzle for the delivery of non-Russian gas to Europe. However in the same week Turkey gave Moscow the go-ahead to build South Stream through Turkey's Black Sea territorial waters, effectively playing the two pipelines off against each other. Once this transit issue was resolved, the only remaining task was to come to a final decision on the Southern Corridor pipeline route.

=SOCAR Investments in Turkey=

As of February 2012 the total investment Azerbaijani companies had made in Turkey had already exceeded US$10 billion.

In March 2012 Azerbaijan's SOCAR purchased a further 10.32 percent stake in Turkey's Petkim petrochemical complex, increasing its overall stake in Turkey's largest oil facility to 61.32 percent. This privatisation of Petkim became a "strategic issue in the cooperation between the two countries", in the words of Chief Executive Kenan Yavuz. The two nations were already partners in several large-scale projects, including the BTC Pipeline, the development of the Shah Deniz gas field and the TANAP pipeline. The Azerbaijani Ambassador to Turkey also commented that SOCAR was interested in bidding for natural gas distribution tenders in Ankara and Istanbul, as well as establishing oil stations across the country.

In June 2012, a Vice President of Azerbaijan's state oil company SOCAR announced plans to invest up to US$17 billion in Turkey over the following eight years. Aside from pipeline projects such as the Trans-Anatolian Pipeline (TANAP), this would include an investment of $5.5 billion on a new refinery and $800 million on a power station.

=References=