MASARYK UNIVERSITY FACULTY OF SOCIAL STUDIES Department of International Relations and European Studies Failure of the Nabucco Pipeline Project The role and interests of Azerbaijan Master‘s Thesis Elgun Jafarov Supervisor: Mgr. Jan Osička, Ph.D. UČO: 404865 Study Field: PL – EUP Year of Enrollment: 2012 Brno, December 2015 1 I hereby declare that this thesis I submit for assessment is entirely my own work and has not been taken from the work of others save to the extent that such work has been cited and acknowledged within the text of my work. Date: 13 December 2015 Signature 2 ABSTRACT The collapse of the Nabucco gas pipeline project which was to carry Azeri gas to Europe in 2014 demonstrates how small states have a major impact on the geo politics of oil and gas supply. When the Nabucco natural gas pipeline project started, the successful completion of the Baku-Tbilisi-Jeyhan oil pipeline seemed to prove that pipelines could be independent of politics. That project too had raised doubts. The failure of the Nabucco project is a case of how a small state was successful in playing big powers against each other. This thesis argues that Azerbaijan uses energy policy as a tool to achieve broader strategic and foreign-policy aims, and that was why it played a major role in the dismissal of Nabucco as a valid natural gas project. Using neorealism as a lens it tries to understand how Azerbaijan used the project to project its capabilities/power to protect its national interests. In doing this it showed that in contrast to the Great Game theory, small states are not mere pawns but can be active players in global geo politics. In other words, small states have agency. As the only available independent gas supplier in the region, Azerbaijan had a big say on the decision making in terms of choosing the countries through which the gas would pass and how it should be delivered to Europe. Often scholars argue that it is big states like Russia or USA or EU who decide on the big projects. The role of small countries like Azerbaijan is overlooked. In fact, by playing one country against the other, Azerbaijan was able to achieve its strategic goals. How and why Azerbaijan chose the failure of Nabucco is an interesting question. And I believe this calls for a more insightful look, and this is the topic of this thesis In this research, besides Azerbaijan, other actors such as Russia and EU will be also investigated but only in how they relate to Azerbaijan. This thesis will also look at the failure of Nabucco and how Azerbaijan's preference for other projects impacted the energy supply diversification policy of EU countries such as Bulgaria, Romania and Greece. It will also look at prospects for the revival of Nabucco. ACKNOWLEDGMENTS I would like to thank my family who supported me to study at the Masaryk University. For me it would not have been possible to study abroad without their full support. I would also like to thank my friend Francis who helped to improve the wording of the thesis. Additionally, I would like to thank Agshin Umudov, who was my lecturer at Qafqaz University, for sparing his time to discuss my thesis subject with me. TABLE OF CONTENTS ABSTRACT ......................................................................................................................................... 2 ACKNOWLEDGMENTS ................................................................................................................... 3 TABLE OF CONTENTS ..................................................................................................................... 4 LIST OF TABLES ............................................................................................................................... 5 LIST OF MAPS ................................................................................................................................... 6 CHAPTER I: Introduction ................................................................................................................... 7 Methodology ...................................................................................................................................... 20 CHAPTER II: Literature Review ....................................................................................................... 23 CHAPTER III: Nabucco pipeline project .......................................................................................... 31 Project outline ............................................................................................................................... 31 Analysis of Azerbaijan’s energy policy ........................................................................................ 36 CHAPTER IV: Azerbaijan’s response to external factors ................................................................ 42 Importance of Azerbaijan’s strategic location and energy resources for the EU, and inconsistent EU backing .............................................................................................................. 42 Turkmenistan: Competition or Co operation? .............................................................................. 53 Russian interests............................................................................................................................ 61 Iranian interests ............................................................................................................................ 66 Turkish Interests............................................................................................................................ 71 American interests ....................................................................................................................... 75 Summing up .................................................................................................................................. 79 CHAPTER V: Conclusions................................................................................................................ 81 BIBLIOGRAPHY .............................................................................................................................. 87 Appendix ............................................................................................................................................ 93 LIST OF TABLES Table 1. Components of the Southern Gas Corridor............................................47 LIST OF MAPS Map 1. Nabucco Pipeline Project………………………………………………….….31 Map 2. Proposed Trans-Caspian gas pipeline………………………………………....59 CHAPTER I: Introduction Azerbaijan is a republic in the Caucasus with 8.2 million habitants and shared frontiers with three powerful states, Iran, Turkey and Russia. However, by carefully balancing its interests and playing on differences the country has been able to influence geo political strategy far more than it should have been able to.1 This chapter will, by putting the Nabucco gas pipeline project at the center of the analysis, look at how the country has been able to do this. Azerbaijan is a young country born in 1991 following the fall of Soviet Union. Independence brought many burdens along with it, among them the need to build and develop the economy. Without a doubt promising natural mineral resources were available. But the geopolitical and economical conditions were not easy as Azerbaijan was in war with neighboring Armenia until May 1994; with higher inflation a destabilized country was not a perfect destination for the oil companies. However, power was quickly consolidated under the third President of Azerbaijan, Heydar Aliyev who had been leader of Soviet Azerbaijan from 1969 to 1982 and became the president of independent Azerbaijan from 1993 to 2003. However, countries like Azerabaijan have always been seen as pawns in an international game between big players. 1 Mehdiyeva, Nazrin, Power Games in the Caucasus: Azerbaijan's Foreign and Energy Policy Towards the West, Russia and the Middle East. London: I.B. Tauris, 2011, Available online at https://books.google.ca/books? hl=en&lr=&id=wQYCAwAAQBAJ&oi=fnd&pg=PP7&dq=Analysis+of+Azerbaijan%E2%80%99s+evolv ing+policy+ +in+gas+industry&ots=tKSALZys- K&sig=nvaiEhyCO2IDwiICbFukgOe8r1A#v=onepage&q&f=false Google Books, p.5. 8 Most of the theoretical literature on the subject follows the Great Game theory that emerged out of conflicting Russian and British interests in Central Asia in the 19th century.2 The original Great Game had control of territory as its aim. It is significant because it introduced the term „“geo politics“ into political science. In a famous 1904 article, the British geographer Harold Mackinder argued that Russia's position in Eurasia made the country „“the pivot region“ of world politics. In a nutshell, Mackinder saw history as a struggle between land-based and sea-based powers. He saw that the world had become a "closed" system, with no new lands left for the Europeans powers to discover, to conquer, and to fight over without affecting events elsewhere. Sea and land- based powers would then struggle for dominance of the world, and the victor would be in a position to set up a world empire. In this system, small countries like Azerbaijan were seen as mere pawns. Today while control for territory is no longer central, control over resources and resource rich countries is. According to this theory Azerbaijan should have been reduced to a satellite state. Azerbaijan had been dominated by external powers, especially by Russia for most of the last 200 years