Putin Fails to Wrest Azerbaijan from Western Oil Majors Grip

Ever since the collapse of the Soviet Union, Western oil majors such as BP, Statoil, and Exxon Mobil have dominated the oil and natural gas industry in Azerbaijan, causing a slight worry for Russia who feared for their complete dominance of the European natural gas market.

Currently the only significant Russian presence in Azerbaijan’s energy industry is the privately owned Lukoil, but ever eager to close off any potential threats, Russia’s government had been working to sort a deal for the state-controlled gas giant, Gazprom. For nearly a decade Gazprom has tried to agree a deal that would allow them to buy nearly all natural gas produced in Azerbaijan, but with no luck.

In fact Azerbaijan has agreed a deal with the Western oil majors that will see the majority of its natural gas supplied to Europe via a new pipeline that will be completed around 2019.

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Luckily for Russia the project poses little threat in terms of its share of the natural gas market in Europe, especially as Turkmenistan, a major producer, decided to start sending most of its gas to China, and therefore away from the European market.

Even so, Vladimir Putin decided to take a rare trip to Baku, his first visit in seven years, to try and hammer out a deal between the Azeri state-owned energy company Socar, and the Russian energy giant, Rosneft.

Igor Sechin, a close friend of Putin’s and the head of Rosneft, spent time preparing for the President’s visit; however, unlike with most trips that Putin makes to foreign countries, this one was not followed by a string of new business deals.

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The best Sechin could agree to with Socar was a vague cooperation deal, which he explained would see the two companies “cooperate on a number of issues including crude swap operations, a joint use of infrastructure.”

For a long time Russia has tried to rest Azerbaijan from the Western oil majors, but it seems that they have failed once again. One Russian source explained to Reuters that “Azerbaijan is asking such a high price for its assets that Rosneft is not willing to offer.”

By. Joao Peixe of Oilprice.com