The emerging Azerbaijan-Gulf partnership in energy Energizing ties

Fuad Shahbazov, a policy analyst covering regional security issues in the South Caucasus has written an article for the Gulf International Forum, saying that As Azerbaijan and the GCC, both major oil and gas exporters, are strengthening their partnership in the sphere of green energy, Baku is actively seeking guidance and investment from the Gulf states to tackle a common objective: transitioning from a reliance on oil and gas exports to fostering a green energy-driven economy. Caliber.Az reprints the article.

On January 8, Mohammad bin Zayed Al-Nahyan (MBZ), the leader of the United Arab Emirates (UAE), paid an official visit to Azerbaijan upon the invitation of his counterpart, President Ilham Aliyev. While MBZ’s visit to Baku signalled an era of deepening economic and energy ties between Azerbaijan and the UAE, it also reflected significant progress made in recent years.

Indeed, the bilateral relationship has seen a raft of new projects and investments, particularly in the renewable energy sector. Notably, according to 2022 data, the Gulf countries are now among Azerbaijan’s top investment partners, though reciprocal investment remains low, compared to Azerbaijan’s other partners.

Breaking New Ground

Since Russia’s invasion of Ukraine in early 2022, energy-importing countries across North America and Europe redoubled their efforts to develop alternative sources of clean energy, hoping to deprive the Kremlin of a powerful economic weapon and decrease their own dependence on fossil fuels. In light of Russia’s dwindling exports of oil and gas to Europe, EU and non-EU countries alike have significantly increased their investments in green energy-related projects.

Of course, these efforts come amid a broader climate crisis, which has demonstrated the importance of a clean and secure energy future for the well-being of the planet. Hence, the current momentum toward adopting green energy resources can act as a turning point for many nations to build policies and strategies towards sustainable development.

Azerbaijan, which is rich in oil and natural gas, has emerged as one of the foremost beneficiaries of the Russian invasion, as European nations pivoted to fossil fuel imports from Baku to meet their energy needs. Therefore, the small Caucasian country is an unlikely participant in the green energy revolution. However, the Aliyev administration has used the proceeds from greater oil exports to finance green energy initiatives across the country.

These initiatives were granted a major boost in both 2020 and 2023, when Azerbaijan recaptured part—and then all—of the disputed Nagorno-Karabakh region from neighbouring Armenia. Considering the hilly, high-elevation geography of the region, Azerbaijani authorities estimate that solar and wind power plants in this area could produce more than 9,200 megawatts of clean energy.

Baku found willing partners to assist with its green energy development in the UAE and Saudi Arabia—both among the world’s leading hydrocarbon exporters. Following bilateral meetings between Aliyev and these states, both indicated that they would invest in the construction of solar and wind power plants in Karabakh and the northern territories of Azerbaijan.

In May 2023, Riyadh and Baku signed memoranda of understanding (MoU) that encompassed various fields including petroleum, petrochemicals, gas, electricity, and renewables. Following this, in October 2023, Saudi-listed ACWA Power and the UAE’s Future Energy Company, also known as Masdar, partnered with the State Oil Company of the Republic of Azerbaijan (SOCAR) to develop 500 megawatts of renewable energy projects in the Nakhchivan Autonomous Republic of Azerbaijan.

During the face-to-face meeting between President Aliyev and the UAE’s MBZ, additional documents were signed to grow the green energy partnership between Baku and Abu Dhabi; the new documents emphasized joint exploration and investment opportunities to expand rooftop solar projects, explore green hydrogen, green ammonia,  and sustainable aviation fuel production, and even touched on the export of green energy.

In addition, the projects the two leaders discussed encompassed 2 GW of solar energy and 2 GW of onshore wind projects, along with 6 GW of offshore wind energy. The UAE is set to finance the construction of two solar power plants and one wind plant in Azerbaijan between 2024 and 2027. According to the initial estimates, these new power plants will unlock access to 1 GW of alternative energy supply for stakeholders.

Open for Business

For Azerbaijan, cultivating an image of a reliable energy partner is of great strategic importance, as it falls within the country’s pragmatic foreign policy strategy of economic diversification. Moreover, this strategy allows Baku to establish closer ties to the wealthy Gulf monarchies, thereby lessening its dependence on European finance to power its economy.

Considering recent diplomatic tensions between Azerbaijan and some European countries after its reconquest of Nagorno-Karabakh last year, Baku has sought to slightly distance itself from the West and instead foster partnerships with Saudi Arabia and the UAE—two monarchies that generally avoid placing human rights or moral judgements at the center of their foreign economic policies, and which have so far avoided making any political statement regarding the post-war situation in Nagorno-Karabakh.

After successfully mulling green energy partnerships with an array of countries like Georgia, Romania, Hungary, and Serbia, Azerbaijan turned to the UAE and Saudi Arabia to make additional inroads into the Gulf region. It seems that the economic model of prosperity built by Saudi Arabia and the UAE is attractive to Azerbaijan, which is desperately keen on maintaining its leading role in the Caucasus.

Moreover, the UAE and Saudi Arabia, which have been diversifying their economies away from hydrocarbons, serve as an instructive model for Baku, which is also oil- and gas-reliant and hence shares an interest in economic diversification.

Blossoming Azerbaijan-Gulf relations may also help achieve another of Baku’s core interests: mitigating the threat posed by Iran, a longtime adversary. Like the UAE and Saudi Arabia, Azerbaijan cautiously watches Iran’s growing hybrid warfare capabilities. Unsurprisingly, all three perceive Iran as a common threat, especially in light of renewed Iranian-backed Houthi rebels in the Red Sea. As such, the Gulf states may see Azerbaijan as a reliably anti-Iran bastion on the Islamic Republic’s northwestern border—and potentially even a partner in containing it, if cross-Gulf tensions worsen further.