ROLE OF ENERGY IN AZERBAIJAN’S FOREIGN POLICY DURING ILHAM ALIYEV ERA A THESIS SUBMITTED TO THE GRADUATE SCHOOL OF SOCIAL SCIENCES OF MIDDLE EAST TECHNICAL UNIVERSITY BY KAMRAN ABBASOV IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY IN THE DEPARTMENT OF INTERNATIONAL RELATIONS OCTOBER 2015 Approval of the Graduate School of Social Sciences Prof. Dr. Meliha Altunışık Director I certify that this thesis satisfies all the requirements as a thesis for the degree of Doctor of Philosophy. Prof. Dr. Hüseyin Bağcı Head of Department This is to certify that we have read this thesis and that in our opinion it is fully adequate, in scope and quality, as a thesis for the degree of Doctor of Philosophy. _____________________ Prof.Dr. Oktay. F. Tanrısever Supervisor Examining Committee Members Prof. Dr. Meliha Altunışık (METU,IR) Prof. Dr. Oktay F. Tanrısever (METU,IR) Prof.Dr. Hüseyin Bağcı (METU,IR) Assoc.Prof. Dr. Fırat Purtaş (GU, IR) Assoc.Prof.Dr.Toğrul İsmayıl (TOBBU,IR) I hereby declare that all information in this document has been obtained and presented in accordance with academic rules and ethical conduct. I also declare that, as required by these rules and conduct, I have fully cited and referenced all material and results that are not original to this work. Name, Last name : Signature : iii ABSTRACT ROLE OF ENERGY IN AZERBAIJAN’S FOREIGN POLICY DURING ILHAM ALIYEV ERA Kamran Abbasov Department of International Relations Supervisor: Prof.Dr. Oktay F. Tanrısever October, 2015, 310 pages This Ph.D thesis seeks to explore the political and economic aspects of Azerbaijan’s energy sector and its role in the conduct of Azerbaijan’s foreign policy during the Presidency of Ilham Aliyev. The thesis focuses mainly on the formation and development of Azerbaijan’s energy policy after the collapse of the Soviet Union. The thesis argues contrary to the arguments of the political realists scholars who argue that Azerbaijan’s energy policy reflects the dynamics of power politics in and around Azerbaijan, this thesis argues that a liberal approach is more capable of explaining Azerbaijan’s energy policy since Azerbaijan implements its energy policy through forging partnerships with regional and international actors rather than through rivalries with the relevant actors. Azerbaijan emphasizes its potential role in European energy security by developing joint ventures with the regional and European companies without alienating any country in its neighborhood, including Russia. The thesis consists of eight chapters. The introduction and the second chapter are dealing with general theoretical frameworks. The third chapter examines post-Cold war historical development in the energy sector of Azerbaijan. The fourth chapter describes energy strategy of Azerbaijan government in internal and external dimension in the period from 2003 to 2013. The fifth chapter deals with competition and cooperation of Azerbaijan with other Caspian countries and Azerbaijan’s main contracts. The sixth is on BTC oil pipeline, its construction and management. The next chapter, studies Azerbaijan’s iv cooperation with the EU in energy projects. Finally, the conclusion chapter underlines and summarizes the main ideas and approaches. Keywords: Azerbaijan, Energy Security, Oil, Natural Gas, Pipeline Politics. v ÖZ İLHAM ALİYEV DÖNEMİNDE AZERBAYCAN’IN DIŞ POLİTİKASININ ENERJİNİN ROLÜ Kamran Abbasov Uluslararası İlişkiler Bölümü Tez Yöneticisi: Prof. Dr. Oktay F. Tanrısever Ekim, 2015, 310 sayfa Bu doktora tezi İlham Aliyev’in iktidara geldiği 2003’den bu güne Azerbaycan’ın enerji sektörünün politik ve ekonomik yapısını ve bu yapının dış politikaya etkisini incelemeyi amaçlamaktadır. Tez, Sovyetler dönemi sonrası Azerbaycan’ın enerji politikalarının oluşumu ve gelişimine yoğunlaşmaktadır. Tez, Azerbaycan’ın enerji politikasının ülke içi ve etrafındaki güç politikalarının yansıması olduğunu iddia eden politik realistlerin iddialarının aksine, liberal yaklaşımın bu politikaları anlamakta daha işlevsel olduğunu iddia etmektedir. Söz konusu liberal yaklaşıma göre, Azerbaycan, enerji politikasını ilgili aktörlerle çatışarak değil bölgesel ve uluslararası aktörlerle ortaklıklar kurarak oluşturmuştur. Azerbaycan, Avrupa enerji güvenliği içindeki potansiyel rolünü bölgesel ve Avrupalı firmalar ile ortak yatırımlar yaparak ve Rusya dahil hiçbir komşusunu karşısına almadan oluşturmayı becermiştir. Bu tez, altı ana bölümden oluşmaktadır. Girişten sonra ikinci bölüm genel teorik çerçeveyi incelemektedir. Üçüncü bölüm Soğuk Savaş sonrası Azerbaycan’ın enerji sektörünün geçirdiği tarihsel süreçleri ele almaktadır. Dördüncü bölüm 2003-2013 yıllarında İham Aliyev yönetimindeki enerji stratejisinin iç ve dış boyutları incelenmiştir. Beşinci bölüm Azerbaycan‘ın Hazar bölgesindeki enerji kaynaklarının paylaşımındaki iş birliği ve rekabet tartışılmaktadır ve ana anlaşmalar incelenmektedir. Altıncı bölümde Azerbaycan‘ın Bakü Tiflis Ceyhan boru hattının yapımı ve işletimindeki iş vi birliğini ele almaktadır. Yedinci bölümde Azerbaycan‘nın ve Avrupa Birliği ile enerji alanındaki iş birliğinin gelişimi incelenecektir. Sonuç bölümü ise tezin ana bulgularını tartışmaktadır. Anahtar Kelimeler: Azerbaycan, Enerji Güvenliği, Petrol, Doğal Gaz, Boru Hattı Politikaları. vii To My Parents viii ACKNOWLEDGEMENTS I would like to express my deepest gratitude to my supervisor, Prof. Dr. Oktay F. Tanrısever, who supported me throughout the whole process of my dissertation by giving continuous constructive feedback, motivation and support. I would also like to thank my examining committee members, Prof. Dr. Meliha Altunışık, Prof. Dr. Hüseyin Bağcı, Assoc. Prof. Dr. Fırat Purtaş and Assoc. Prof. Dr. Toğrul İsmayıl who helped me finetune my dissertation with their constructive feedback and their support. I would also like to express my gratitude to Şeniz Bilgi, who meticulously dealt with editing this thesis and helped me with her proofreading skills. Last but not least, I would like to thank my family who supported me at every single stage of my Ph.D. Without them, this thesis would not be possible. ix TABLE OF CONTENTS PLAGIARISM........................................................................................................iii ABSTRACT............................................................................................................iv ÖZ…………………………………………………………………………..…….vi DEDICATION…………………………………………………………......……viii ACKNOWLEDGMENTS…………………………………………….…..……...ix TABLE OF CONTENTS…………………………………………...….………….x CHAPTER 1.INTRODUCTION.................................................................................................1 2. REALIST AND LIBERALIST APPROACHES TO ENERGY IN IR…….......9 2.1. Political Realist Approach to IR ………………...……………….…….…10 2.2. Liberalist Approach to IR …...……. …………………………...………..15 2.3.Comparison of Realist and Liberal Theories………...……………...…..…20 2.4. Realist Approach to Energy in IR…………...…..………………...…...….22 2.5. Liberal Approach to Energy in IR…………...…...…...……….…….……29 3. ENERGY SECTOR OF AZERBAIJAN…........................................................43 3.1. Energy Sector.…………..……………...…….....…………………...….……43 3.2.Origins of Oil Sector in Azerbaijan…………………………..……….…...45 3.3. Origins of Gas Sector in Azerbaijan……………………………..…..........51 3.4. Oil and Gas Sector of Azerbaijan during the Independence Period…………………………………………....……………………….…….53 3.5. Origins of the Development of the Electricity Industry Sector of Azerbaijan………………………………...........................................................62 3.6. The Electricity Industry Sector of Azerbaijan during Independence Period……………………………………………….........…….66 3.7. Legal Framework of Azerbaijan’s Energy Sector………………...………71 3.8. Main Actors in Azerbaijan’s Enery Sector……..…………..……....….....75 4. ILHAM ALIYEV’S PRESIDENCY AND AZERBAIJAN’S ENERGY POLICY.................................................................................................79 4.1. Importance of Energy for Post-Soviet Azerbaijan……………...…..……79 x 4.2. Azerbaijan’s Energy Policy before the Presidency of Ilham Aliyev.............................................................................................82 4 .3. The Energy Policy Of Ilham Aliyev ………………………..........93 4.3.1. Ilham Aliyev as the Vice- President of Socar…...……..........93 4.3.2. Ilham Aliyev as the Prime Minister………...………............95 4.3.3. Ilham Aliyev as the President………………..…………….....98 5. INTERNATIONAL COOPERATION AND COMPETITION IN THE CASPIAN REGION AND MAIN ENERGY CONTRACTS.....……108 5.1. The Geopolitics of the Caspian Region………….…………..…….108 5.2. The Realist Theory and the Caspian Region ………………….…..118 5.3. The Liberalist Theory and the Caspian Region ……………….......124 5.4. The Caspian Region and Russia …………………...………...........128 5.5. The Caspian Region and USA …………………….....…….……...136 5.6. The Caspian Region and Other Foreign Countries……………………………………………………………......143 5.7. Azerbaijan and Energy Contracts…….……………………………148 6. BAKU-TBLISI-CEYHAN MAIN PROJECT………………....………..160 6.1. The Energy Situation after the Fall of USSR…………...…….......160 6.2. The Initial Pipelines Projects of Post-Soviet Azerbaijan..............................................................................................162 6.3. Pipeline Diplomacy in Azerbaijan for the Export of Azerbaijan’s Oil…...…...………………....……………………..……..167 6.4. Pipelines for the Export of Early Oil………...……..……………...169 6.5. BTC……………………...……………………................................175 7. THE EUROPEAN SOUTHERN