Baku-Riyadh alliance: Spearheading non-oil trade and green energy initiatives
Tradition of beneficial ties

ANALYTICS  04 May 2024 - 11:53

Azerbaijan views the Persian Gulf region as a pivotal area for enhancing trade and investment cooperation. Specifically, fostering business ties with the Kingdom of Saudi Arabia is identified as the most promising avenue for expanding non-oil trade, as well as for undertaking projects in the fields of agriculture, tourism, and innovation. This mutual interest is evident in the frequent visits of Saudi delegations to Azerbaijan in recent years, as well as in collaborative ventures with ACWA Power in green energy.

The recent meeting between Azerbaijani President Ilham Aliyev and a delegation from the Saudi Arabian Ministry of Energy in Baku signifies another stride towards deepening business connections.

Over the past thirty-two years since the establishment of diplomatic ties, Azerbaijan and Saudi Arabia have cultivated a tradition of friendly and mutually beneficial relations. They have maintained close alignment on key global and regional political issues. Riyadh has consistently supported Azerbaijan's stance on the Karabakh conflict in various international forums, including the UN and the Organization of Islamic Cooperation (OIC), and has refrained from establishing diplomatic relations with Armenia, the occupying state.

Saudi Arabia was a significant partner in Azerbaijan's oil consortium under the "Contract of the Century" signed in 1994. In recent years, the two countries have successfully collaborated within the framework of the OPEC+ program to stabilize oil production and mitigate market price volatility for energy resources. Azerbaijan has consistently backed Saudi Arabia's initiatives to voluntarily reduce oil production. Notably, Baku endorsed agreements reached in April and June of last year by OPEC+ countries to reduce production by 1.66 million barrels per day (bpd) in 2023 and 1.4 million bpd in 2024, respectively. In April of this year, OPEC+ members reaffirmed existing production limits, indicating no immediate need for upward adjustments in production volumes.

In addition to full mutual understanding in the regulation of oil production, Azerbaijan and Saudi Arabia are consistently expanding cooperation in the trade and economic sphere: more than two dozen intergovernmental and interstate agreements have been signed between the countries, contributing to the further development of economic relations and the implementation of humanitarian, cultural and social projects. Among other things, since 2016 Azerbaijan has simplified the procedure for obtaining visas for Saudi applicants, and the number of flights has been mutually increased, making this country one of the leaders in the Persian Gulf region in terms of tourist traffic to Azerbaijan.

Baku is also interested in involving Saudi companies in infrastructure and reintegration projects in the liberated territories of Azerbaijan. In the past, very successful experience has been gained in this direction; Saudi investment funds have financed several initiatives to modernise road and water infrastructure in our country. In general, Saudi companies have invested more than $370 million in Azerbaijan in recent years, and about 26 companies of the Kingdom are engaged in trade and financial transactions with our country.

While the trade turnover between our nations may not be substantial, it has demonstrated steady growth in recent years, particularly fueled by the expansion of Azerbaijani exports, primarily in non-oil goods. With the backing of the Azerbaijan Export and Investment Promotion Foundation (AZPROMO) and the Small and Medium Business Development Agency of Azerbaijan (KOBIA), domestic companies and SMEs have seen increased participation in exhibitions in Saudi Arabia, all aimed at promoting products under the unified brand "Made in Azerbaijan". AZPROMO's initiatives have notably bolstered the supply of domestic food products to Saudi retail chains, while Azerbaijan has also made strides in exporting aviation jet fuel and introducing its textiles, carpets, and silk products to the Saudi market. Efforts to diversify trade since 2019 have yielded positive results: despite a dip to $13.497 million in 2020 during the peak of the coronavirus pandemic, bilateral trade has dynamically picked up momentum, reaching $22.938 million in 2022 and surpassing $30.8 million in 2023.

According to information provided to Caliber.Az by the Ministry of Economy of Azerbaijan, the positive trends in Azerbaijan-Saudi trade have only strengthened in the recent period: “In 2023, the volume of trade turnover between Azerbaijan and Saudi Arabia increased by more than 34%, including our exports increased by more than 50%. This positive trend was also strengthened in the first quarter of 2024, the volume of trade turnover between the two countries increased by more than 13%.” According to the Ministry of Economy, today Azerbaijani exports to Saudi Arabia are mainly represented by non-oil industry products, including optical and medical devices, furniture, and clothing, as well as chocolate, tea, fresh and canned fruits and vegetables, confectionery and pasta, etc.

However, despite the successes in the sphere of trade, the basis of Azerbaijan-Saudi business relations is built on the realization of joint investment projects. To discuss these endeavours, Azerbaijani President Ilham Aliyev received a delegation headed by Prince Abdulaziz bin Salman Al Saud, Minister of Energy of the Kingdom of Saudi Arabia, in Baku the previous day.

During the meeting, it was underscored that the friendly relations between our nations are thriving across various sectors, notably in the energy domain. The significance of cooperation within the OPEC+ framework was highlighted, emphasizing the fruitful collaboration between our countries. Notably, successful ventures with the leading Saudi firm ACWA Power in green energy initiatives were lauded, showcasing promising potential in this area. Discussions also touched upon the importance of COP29 in Azerbaijan and ongoing efforts concerning the UN climate agenda.

Simultaneously, talks between the energy ministers of both nations delved into cooperation and investment prospects, particularly between Saudi companies and the State Oil Company of Azerbaijan (SOCAR).

"Discussions revolved around cooperation and investment prospects in oil refining, petrochemical product supply, low-carbon fuels, and technologies. The third meeting of the Joint Technical Committee of the energy ministries of both countries concluded with the signing of a protocol," stated the Azerbaijani Energy Ministry.

It is worth highlighting the promising joint efforts with the leading Saudi company ACWA Power in the field of renewable energy development in Azerbaijan. In particular, ACWA Power Azerbaijan Renewable Energy laid the foundation stone for the 240 MW Khizi-Absheron Wind Power Plant (WPP) in January 2022. Having invested $245 million in this project, the company will install 40 turbines with a capacity of 6 MW each: 17 turbines will be installed in the village of Pirekyushkul in the Absheron district, while another 23 turbines will be installed in the village of Sitalchay in the Khizi district. The plant is expected to be commissioned in 2025, and the generators of this wind power plant will produce about 1 billion kWh of electricity annually, saving up to 220 million cubic meters of gas. The project will be implemented on a build-own-operate basis.

However, this isn't the sole Azerbaijani-Saudi project in the renewable energy sector: over the past year, ACWA Power and the Ministries of Energy and Economy of Azerbaijan have inked several agreements and memorandums for specialized projects. This collaborative effort entails joint development of renewable energy projects encompassing wind and solar generation, green hydrogen production, seawater desalination, as well as the production and subsequent export of "green" fertilizers, primarily urea, under the Low Carbon/Green Fertilizer Project. Given these initiatives, it's no surprise that ACWA Power Azerbaijan Renewable Energy recently became the first company in our country to receive an investment promotion document in the renewable energy sector.

Caliber.Az