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Petro-aggression and the energy transition

Azerbaijan’s conflict with Armenia provides a case study of how oil and gas-fueled aggression can impede the energy transition. Here’s what corporations can do about that.

Oil field, with sunset in background

Oilfield infrastructure in Baku, the capital of Azerbaijan. Source: Unsplash/Orkhan Farmanli

In the wake of its brutal war in Ukraine, as of Sept. 5, Russia’s natural gas exports had fallen to 21 billion cubic meters, two-thirds lower than last year and six times lower than in 2021. 

The EU has responded by upping its renewable energy strategy while seeking alternative sources to help meet its natural gas demands in the meantime. Azerbaijan (a part of the former Soviet Union) is one of those countries, signing a new deal for doubling gas exports to Europe by 2027. 

However, increasing energy imports from petro-states such as Azerbaijan will not hasten Europe’s renewable energy transition; it will only complicate it. 

Azerbaijan is not the first petro-state where undemocratic and aggressive governments are propped due to their oil and gas exports; Saudi Arabia and Iran are the best-known examples. But Azerbaijan’s situation, lying at the center of the Eurasian heartland, and its proximity to the war in Ukraine are unique. International support for countries such as Azerbaijan engaged in "petro-aggression" has implications for the broader global shift to renewable energy, and it’s worth asking what multinational companies can, and should, do in response. 

Of pipelines and conflict

If the world has rejected normalizing Russia’s aggression, why the double standard with Azerbaijan? As an American of Armenian descent, I’ve followed the long history of violence in the South Caucasus between Azerbaijan and Armenia, most recently resulting in the "Second Karabakh War" and thousands of casualties on both sides. As of September, Azerbaijan has forcibly removed and ethnically cleansed 100,000 Armenians from the region known as Nagorno-Karabakh.  

Shortly after President Ilhan Aliyev claimed victory in Karabakh, Turkey, which also has a history of genocide and violence against Armenia, Azerbaijan signed a new gas pipeline deal connecting the Turkish city of Igdir with Nakchivan, a region controlled by Azerbaijan, just west of Karabakh and Armenia. The new pipeline will join other pipelines connecting the Caspian Sea oil and gas fields with the Mediterranean.

Anna Ohanyan, a professor of political science and international relations at Stonehill College, wrote recently in Foreign Policy that Azerbaijan likely seeks to achieve an extraterritorial corridor that would allow it to gradually take control of Armenian land and circumvent geopolitical sanctions for ignoring internationally recognized borders.

False power and petro-aggression  

Azerbaijan's rise as an energy exporter is already giving it "false geopolitical power." The country’s fossil resources are quickly diminishing as its own domestic demands increase, limiting its export supplies even as it tries to execute deals with Europe and leverage them to prevent European nations from thwarting its ambitions in Armenia. 

"It is very unlikely that Azerbaijan will be able to meet its rising export demands to the EU," wrote analysts at The Economist Intelligence Unit. Azerbaijan’s oil and gas reserves could be depleted by 2030, according to a report in Third World Quarterly. "Azerbaijan's leverage is honestly a puzzle to me and is hugely overestimated," Ohanyan told me. "Azerbaijan signed an agreement with Russia before Russia invaded Ukraine for energy cooperation; Azerbaijan is unable to meet its own demands and promises to Europe and as a result is basically buying gas from Russia and then selling it to Europe." 

Azeri-style belligerence is sometimes known as petro-aggression: when a country's fossil fuel riches and supposed economic clout embolden it to be more aggressive, targeting neighboring states to expand its geopolitical power. "In this situation, … [Azerbaijan] is not only an authoritarian state, which is already a risk factor, but it’s a petro-state," said Ohanyan. "Petro-states behave completely differently and they are more likely to start wars."

Fully 50 percent of Azerbaijan’s state budget and 90 percent of its export revenue comes from oil and gas output, showcasing just how intertwined fossil fuels are with the country’s future.  

The shift to renewables needs to accelerate

As the world shifts to more renewable energy, countries such as Azerbaijan or Russia, which heavily rely on fossil fuel exports for their geopolitical power, will face new limits as demand for gas and oil decreases. Renewable energy is a force function for democracy and democratic practices as it decentralizes power and privatizes economic authority, but only when met with government support. "[President Aliyev] going to resist the green transition because if carried out, it would diversify Azerbaijan's economy and bring new players into it along with decentralizing power, which are all things President Aliyev has been working against," said Ohanyan. 

Even authoritarians such as Aliyev can’t stop this transition: Azerbaijan recently signed agreements with the Abu Dhabi Future Energy Company for solar and wind projects totaling 1 GW, and the country has a stated goal to reach carbon neutrality by 2050.

Call to action

The conflict in the South Caucasus matters to large multinational corporations and their shift to a greener future, and they should get involved, said Ohanyan: "I think companies need to invest and start paying attention to how conflicts are resolved. Conflicts should be resolved through negotiation and companies need to speak much louder against the use of force." 

Multinationals, she added, "are a beneficiary of a peaceful transition to a green economy." Rather than relying on fossil fuel supplies from petro-states, multinational corporations can accelerate their investments in the energy transition and reduce the need for such fossil-fuel imports. Programs such as the REPowerEU, launched in response to Russia’s invasion of Ukraine, are an example of promising action; but for now, the focus on Russia has only shifted fossil-fueled power grabs elsewhere.

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