This weekend’s drone attacks on Saudi Aramco’s energy output demonstrate the fragile nexus between global security, politics, and economics. In an era of great-power competition with Iran’s and Russia’s expansionary and asymmetric moves, it is worth highlighting a key international accord that has effectively stunted their influence in one important part of the world — the energy-rich South Caucuses.
Sept. 20 marks the 25th anniversary of a deal signed between 11 international oil companies representing seven countries and Azerbaijan. Dubbed the “Contract of the Century”, this agreement represented not only an economic achievement, but also a shift of political realities in the broader region. The hydrocarbons developed over the last 25 years now serve as an alternative source of energy for 11 European countries and former Soviet states to reduce their reliance on Russia and Iran.
The Caspian Sea region, with its abundant natural resources, sparked Washington’s interest in the early 20th century. The late renowned diplomat, former U.S. national security adviser Zbigniew Brzezinski once famously called Azerbaijan the “cork in the bottle” containing riches of the Caspian Basin and Central Asia. Sandwiched between Russia and Iran, Azerbaijan was the center of Soviet oil production. It was Azerbaijani oil that fueled Soviet tanks and supply lines during World War II stalling the Nazi advance. Since Azerbaijan supplied as much as 75% of all Soviet oil at the time, it was an existential threat.
Numerous oil and gas fields have been discovered in the post-war years, yet the crown jewel of Azerbaijani oil riches are the Azeri-Chirag-Guneshli (ACG), discovered in mid 1980s, which serve as the backbone of the Contract of the Century. Largely undeveloped, the ACG was the biggest trump card that leaders in Baku had following the collapse of the Soviet Union. With decaying production equipment and lack of technologies, Azerbaijan needed foreign investment, know-how and sophisticated technologies to develop the fields. The three-year negotiations between State Oil Company of Azerbaijan Republic (SOCAR) and international companies (led by BP, with the participation of four American companies) successfully concluded under the leadership of Azerbaijan’s third president, Heydar Aliyev.
Displeased with Azerbaijan’s pro-Western course, Moscow exerted immense pressure over the newly independent country. To appease Russia, Baku gave 10% of its share to Lukoil, and agreed to ship some of the oil through a previously used oil pipeline to Russia. But Russian envoys kept harassing President Aliyev in an effort to dissuade the pro-Western Azerbaijani leader from building a pipeline which would exclude Russia. It took reassurances from the Clinton administration, including U.S. Ambassador and later Secretary of State Madeleine Albright, and strong support from Washington, to allow Baku to maintain its course.
Tehran has been just as unhappy with Baku’s pro-Western overtures. Iran offered Azerbaijan to transport its oil through Iran, but that was a no-go option due to its poor relations with the West.
And given territorial disputes between Azerbaijan and Armenia on the Nagorno-Karabakh Region, Baku would route its main pipeline by 2006 through Georgia to the Mediterranean coast of Turkey, with the support of the Clinton and Bush administrations. In 2018, with the imposition of U.S. sanctions on Iranian oil, the alternative supply originating from Central Asia and has become increasingly important. In a further affront to Tehran, Israel is perhaps one of the greatest beneficiaries of this project, as 40% of Israel’s oil is imported from Azerbaijan.
The significance of the Contract of the Century cannot be understated. The $7.4 billion project encompassed three large offshore fields, believed to hold up to 4 billion barrels, brought billions of dollars to Azerbaijan and its partners, and weaned European and post-Soviet states off of Russian and Iranian hydrocarbons, while creating thousands of jobs. The deal led to 26 subsequent production-sharing agreements with international oil companies.
Fueled by the success of the Contract of the Century, Azerbaijan invested in infrastructure, social development, security, and more advanced energy and transportation projects in subsequent years, helping to retain the region’s newfound political and economic independence. Gas exports through railway projects and the important Southern Gas Corridor will connect three natural gas pipelines of Azerbaijani gas to European markets by 2019. The Southern Gas Corridor will contribute to shifting geopolitical realities by reducing dependence of Eastern European countries on Russia gas supplies. Just like with the 1997 oil pipeline bypassing Russia, U.S. support for the Southern Gas Corridor is paramount.
When it comes to U.S. foreign policy, countering Russian and Iranian influence is one constant. Over the years, successive U.S. administrations, both Republican and Democratic, have underscored the importance of the Southern Gas Corridor to ensure Europe’s energy security. President Trump’s support exemplifies the Contract of the Century as an American project, unifying national and international interests of European partners. A framework for sustainable economic and political cooperation between the West and newly emerged independent states to counterbalance the rise of Russia and Iran fulfills major U.S. foreign policy aims. The Contract of the Century cements these bonds for years to come.
Geovanny Vicente Romero (@geovannyvcienter) is the founder of the Center of Public Policy, Leadership and Development in the Dominican Republic.
