Oil and Networks in Azerbaijan*

한국지역지리학회지 제11 권 제 6 호 (2005) 640-656 Black Gold or the Devil’s Curse? Oil and Networks in Azerbaijan* Chaimun Lee** 검은 황금인가 악마의 저주인가? 아제르바이쟌의 석유와 연줄망 * 이 채 문** Abstract ：A chronic depression in the Korean economy, which depends mostly on imported oil, has been attributed partly to rising crude oil prices recently. Against the backdrop of these realities in Korea, Azerbaijan in the Caspian region, with vast oil and gas deposits, has been greeted enviously by some Koreans. Many transition economies, especially on the Caspian region trumpeted by the oil boom, however, are rich in natural resources, but the benefits of those resources are appropriated by the local elite in collusion with foreign companies. Azerbaijan, in particular, is dominated by a series of internal and external patronage networks. Foreign capital nourishes those networks surrounding President Aliev. Thus, the case of Azerbaijan shows that resource rents in the transition economies sometimes do not help in improving the living conditions of ordinary people. Rather rich resource rents turn out to be a major impediment to the emerging development of the transition economy, lessening the incentives to reform in the country. The result was the possibility of the so-called Dutch Disease, in which disproportionate growth in a certain energy sector tends to crowd out investment in other sectors of the economy. Key Words： Azerbaijan, oil, network, PSA 요약：주로 수입원유에 의존하는 한국경제의 만성적 불황은 최근 급등하고 있는 수입 원유가에 기인하는 바가 상당히 크다. 이러한 한국의 현실을 감안할 때 풍부한 유전과 가스전을 보유하고 있는 카스피해 연안의 아제르바이쟌은 일부 한국인들로부터 선망의 대상이 되고 있다. 그러나 많은 이행경제체제 국가들 , 특히 아제르바이쟌을 포함한 카스피해 지역에서 석유 붐을 타고 있는 것으로 알려진 상당수 국가들이 천연자원은 풍부하지만, 이러한 자원의 혜택이 외국자 본과 결탁한 국가의 엘리트에 의해 유용되고 있는 것이 현실이다. 특히 아제르바이쟌은 내부적 연줄망과 외부적 연줄 망에 의해 지배되고 있다. 이러한 과정에서 외국의 자본은 아제르바이쟌의 알리예프 대통령과 관련된 이러한 사적인 연줄망을 더욱 강화해 주는 역할을 하고 있다. 따라서 아제르바이쟌의 경우 , 풍부한 부존자원으로 인한 국가수입이 일 반국민들의 생황향상에는 도움이 되지 못하고 있는 것이다. 오히려 이러한 부존자원으로 인한 증대되는 수입은 개혁의 유인을 감소시키면서, 에너지 분야의 과도한 성장으로 인해 여타 경제 부문에 대한 투자를 밀어냄으로써 이행경제체제 의 발전에 장애가 되는 소위‘’ 네덜란드병 을 발생시킬 가능성까지 야기하고 있다. 주요어：아제르바이쟌, 석유 , 연줄망 , 생산물분배법 1. Introduction heard the news that national troops along the 1) demarcation line with North Korea were asked Recently the Korean economy, which depends to cut down on the number of field military mostly on imported energy sources, has been in maneuvers to save on fuel, this was received an economic slump partly due to rising crude oil with mixed feelings (AsiaNews, 2004.10.27). prices hovering around $60 to $70 per barrel. A Against the backdrop of these realities in sharp increase in the price of oil threatens the Korea, Azerbaijan in the Caspian region, with Korean people with a surge in commodity prices vast oil and gas deposits, represents a subject of and an ensuing fear of inflation. When citizens enormous interest in and around the country. * An earlier version of this paper was presented at the annual conference of the Korean Association of Slavic Studies (November 19-20, 2004). I appreciate the comments on an earlier draft by Dr. Sang-Won Kim and other participants. ** Associate Professor, Department of Sociology, Kyungpook National University( 경북대학교 사회과학대학 사회학 과 부교수)([email protected]) - 640 - 한국지역지리학회지 제11 권 제 6 호 (2005) Azerbaijan, for instance, has been greeted in the country goes backward rather than forward. 2) Korea with such grandiose compliments as “the According to the World Bank, 78% of people in point of the most strategic importance in the the ‘oil-rich’ Azerbaijan eke out a scanty livelihood 21st century in terms of petroleum development,” on less than $2 a day (World Bank, 2001, 36). “the country into which massive foreign capital Millions of Azerbaijanis moved out of the around the world is flowing,” “one of the nations country even after the ostentatious declaration of along the Caspian littoral with 233 billion barrels the “Deal of the Century” in 1994. Why are power that can be comparable to Saudi Arabia with 261 shortages commonplace events in the “oil-rich” billion barrels in terms of potential oil reserves.”1) Azerbaijan? What is worse, one-third of school- In addition, the country in the Caspian region age children, who are so busy helping their was also described as “… on the list of the rich parents picking up a scanty livelihood, are not oil-producing countries by means of exploration attending their schools (Rasizade, 2004b, 145). of black gold,” or “a country dreaming of becoming The goal of this paper is to show how the the second Kuwait,” in a Korean newspaper dismal phenomena above are taking place in (Joongang Daily, 2000.1.6). ‘oil-rich’ Azerbaijan. Specifically, this study tries Internationally, such extravagant rhetoric to show how the corruption process, which has regarding the country is also common. The word led to the hardships of the average people, has ‘Azerbaijan’ always reminds us of the following been unfolding in the country on the Caspian descriptions: oil-rush, “United Nations of oil,” Sea. It is argued that internal and external and “the Former Soviet Union’s ‘showcase’ for patronage networks are mainly responsible for the art of doing business” (Goldberg, 1998, 57). the corruption in Azerbaijan. The internal network According to Alec Rasizade, an internationally involves extensive connections among the President, known expert on Azerbaijan, however, it is his family members, and his inner circle, while Western analysts and newsmen who created the the external network is oiled by a close alliance stereotype that Azerbaijan is an “energy-rich between the President and foreign capital in the former Soviet republic on the Caspian Sea” course of investing in the Azeri oil sector. (Rasizade, 2003, 358). Section Two of this paper describes the Thus when the construction of the $3 billion background in which the Azeri government has Baku-Tbilisi-Ceyhan (BTC) pipeline was made an all-out effort to focus on oil. Section inaugurated in 1992 or when the $7.4 billion Three provides us with the process of the “Deal of the Century,” which involves the internal and external patronage networks centered development of the Azeri, Chirag and Gunashli around the ruling elite, in addition to the (ACG) offshore fields, was signed in 1994 at the explanation of the Production Sharing Agreements extravagant ceremony between Azerbaijan and (PSA) as a means of co-prosperity between 11 international companies, most of the Western foreign capitals and the authoritarian regime. newspapers reported that the oil-boom in the The last section is devoted to discussion about country seemed to be right around the corner. the reason why Azeri oil is becoming the devil’s The gloomy realities of the ordinary people in curse rather than ‘black gold’. Azerbaijan, however, are completely ignored, covered with the grandiose prospect of the 2. Political Economy of Oil Caspian oil-boom pledging billions of dollars in Development in Azerbaijan foreign investment. There are many signs that - 641 - Black Gold or the Devil’s Curse? Oil and Networks in Azerbaijan Azerbaijan has been famous for its enormous but increasing foreign capital after the country’s untapped oil and gas reserves since it became independence in 1991, revived large-scale oil independent in 1991. Many foreign investors have development. rushed to the country in the Caspian Sea basin So far, more than 20 major international oil with huge amounts of foreign capital. Between contracts 4) have been signed between 30 foreign 1995 and 2001, for instance, $4.1 billion of energy companies from 15 nations and the SOCAR foreign capital have been invested in the energy (State Oil Company of Azerbaijan Republic). The sector in the country. Thus, crude oil and SOCAR is responsible for all exploration and oil-related products account for more than 70 development related with oil and gas in the percent of all Azerbaijani exports and about 50 country. One of the largest consortia is the percent of budget revenues, according to a report AIOC (Azerbaijan International Operating Company). published in 2004 (U.S. Department of Energy, The AIOC, whose partners are BP, Unocal, 2004). Oil production in the country averaged SOCAR, Inpex, Statoil, ExxonMobil, TPAO, Devon 327,000 barrels per day (bbl/d) in 2003, which is Energy, Itochu, Delta/Hess, operates offshore half of the OPEC member Qatar. In 2010, however, Azeri, Chirag, and the deep water Gunashli production is estimated to reach between 0.79 (ACG) mega-structure. The ACG, which is and 1.14 million barrels per day, which is called a super-giant oil field for its estimated comparable to or even exceeding Qatar. 3) proven crude oil reserves of 5.4 billion barrels, Here we briefly need to look at the current produced 144,000 barrels per day (bbl/day) in situation of international oil contracts in June 2004, approximately half of the total oil Azerbaijan. Azerbaijan’s old oil fields cultivated production in the country. The ACG introduced during the Soviet era remain in poor condition, the “second Caspian oil rush” of the international major oil companies a century after the first one in the late 1800s. Meanwhile, oil exports from Azerbaijan are being made through two pipelines: the Baku- Novorossiisk pipeline (northern route) and the Baku-Poti/Supsa pipeline (western route). The so-called “early oil” from the ACG (Azeri- Chirag-Guneshli) field in the Azerbaijan sector of the Caspian Sea is exported through the western route, while the northern route transmits the Azeri oil to the Georgian port of Supsa on the Black Sea.

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