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How The New Conflict Between Armenia And Azerbaijan Threatens Oil Markets

Sunday the 27th of September 2020, fighting flared up again in the South Caucasus between Armenia and Azerbaijan. The most recent war has displaced tens of thousands of citizens in primarily Nagorno-Karabakh and hundreds of soldiers have lost their lives. While the human costs are tremendous, Europe’s energy security could also be at risk.

Energy-rich Azerbaijan is connected to global markets by a number of crucial pipelines – the Baku-Tbilisi-Ceyhan oil pipeline (BTC), the Baku Supsa pipeline – and the South Caucasus gas pipeline (SCP). The pipelines pass through the narrow “Ganja Gap” (named after Azerbaijan’s second most populous city). The relative proximity of the infrastructure to the battlefield in Nagorno-Karabakh has led to speculations that it could become a target if fighting escalates beyond Nagorno-Karabakh.

Although the Azeri oil exports are sizeable, 700,000 barrels per day, competitors could easily replace lost volumes, in what still is an oversupplied global market. According to Julian Bowden, a senior visiting research fellow at the Oxford Institute of Energy Studies, "oil markets are well supplied and can readily adapt to make up for any losses.”

In the worst-case scenario that one or more pipelines are hit, Azerbaijan would be seriously affected given its strong dependence on hydrocarbon sales. Oil and gas account for 37 percent of total GDP and 80 percent of the country’s exports. Already, the country is suffering from the low energy prices caused by the ongoing Coronavirus pandemic.

Source: Radio Free Europe

In the meantime, both countries have accused each other of shelling civilian targets. Azerbaijan claims that Armenian forces in Nagorno-Karabakh have been shelling Ganja to disrupt the flow of oil and gas. Assuming this is true, the disruptions would have a limited effect. Damages to pipelines aren’t likely to result in long term disruptions as most often, the infrastructure can be repaired quickly. Sabotage acts by Kurdish rebels in the past have disrupted energy flows in Turkey, but most outages didn’t last longer than a week. Related: Libya Restarts Oil Production At Its Largest Oilfield

Furthermore, Armenia is unlikely to target these pipelines early in the conflict as it risks causing the ire of Turkey and providing it with an excuse to intervene more directly. Already reports in the international media have shown the presence of Turkish soldiers and material in Azerbaijan. According to the New York Times, several F-16s were spotted in Ganga most definitely belonging to the Turkish Airforce. Armenia’s Defense Ministry reported one of its SU-25 being shot down by the American made fighter jets.

Also, the Guardian confirmed reports by the Syrian Observatory of Human Rights of 1,000 Syrian mercenaries being recruited and sent to Azerbaijan via Turkey. The Syrian involvement has dismayed the Iranian and Russian leaderships. Moscow and Tehran fear infiltration and incursions on their territory once fighting subsides.  

If fighting escalates even further, regional players could get involved more directly. Already Turkey has voiced unconditional support for Azerbaijan and it is the only country not calling for de-escalation and resumption of talks. Also, the upcoming U.S. elections in November are distracting Washington which has emboldened Turkey and Azerbaijan.

According to Thomas de Waal, a leading authority on the Nagorno-Karabakh conflict, fighting will continue despite the recent ceasefire. Azerbaijan will probably continue its military campaign until a significant amount of territory is recaptured. Also, changing weather conditions could have an impact such as the approaching winter.

Until a successful diplomatic solution is found, human suffering will increase and fighting will continue.

For now, it remains highly unlikely that Armenian forces will try to directly hit the pipelines in the “Ganja Gap” on purpose. However, if the war continues to escalate, an attack on critical oil and gas infrastructure can’t be completely ruled out.

By Vanand Meliksetian for Oilprice.com

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