The Strategic Energy Implications of the 2020 Nagorno-Karabakh Conflict

THE STRATEGIC ENERGY IMPLICATIONS OF THE 2020 NAGORNO-KARABAKH CONFLICT

The collapse of the Soviet Union resulted in the sudden creation of newly independent states that now have the responsibility of governing over different ethnic groups, many of whom are constantly on the verge of conflict. During the reign of the USSR, boundaries were changed and different ethnic groups were moved. Despite this, nationalist uprisings and terrorist organizations were managed ruthlessly due to the nature of the Soviet government. The absence of this iron fist has left room for conflicts between states and ethnic groups, fueled by nationalist sentiments over everything from rightful claims to territory to representation in their nation’s government. This instability presents a challenge for states and private companies that wish to develop energy pipelines throughout Central Asia and the Caucasus. There may be no clear cut solution to these conflicts, but securing these pipelines is vital to nations that are exporting and importing hydrocarbon resources from Central Asia and the Caucasus regions.



The Nagorno-Karabakh Conflict

Nagorno-Karabakh is a region within the boundaries of Azerbaijan that is under the control of the partially recognized Republic of Artsakh, with its presence there assisted by Armenia and it’s military. The origin of this disputed area dates back to 1920, when the USSR designated this area as an autonomous region with a ninety-five percent Armenian population. Conflicts over this region have become frequent ever since the breakup of the Soviet Union. The Nagorno-Karabakh government passed legislation in 1988 declaring that they wished to become part of Armenia. In 1991, when the Soviet Union finally collapsed, war could no longer be contained. This conflict resulted in approximately 30,000 casualties and led to the region falling under the military control of Armenia who held approximately fourteen percent of Azerbaijan’s territory. With the help of Russian mediation a ceasefire was reached in 1994, but tensions resurfaced again in 2016. U.S. Ambassador Perina, Special Negotiator for Eurasian Conflicts, was called in to help negotiate an end to the conflict. However, he has stated that he was pessimistic about finding a peaceful solution.

Stabilizing this region is required in order to secure vital infrastructure, such as pipelines. Armenia’s occupation of the Nagorno-Karabakh region in Azerbaijan has left a relatively small gap for pipelines to pass through on to the West. This sixty mile wide space is known as the Ganja Gap. Named after the Azeri city of Ganja, this pathway is the only region in Azerbaijan that can securely house these pipelines. It would make sense for countries who are interested in seeing natural gas and oil successfully exported to the West from the Caucasus region to invest in the security of this unstable area. At times, up to 25,000 Armenian troops have been stationed in the Nagorno-Karabakh region. These forces are heavily backed by Russia who has maintained military bases in Armenia since the 1940’s. The most recent outbreak of the Nagorno-Karabakh conflict in 2020 follows closely on the heels of the KAVKAZ-2020 joint military exercises held in the Caucasus region, which both Russia and Armenia took part in. This served as a red flag for both Azerbaijan and Turkey to expect disruptions to pipelines feeding into the Trans-Anatolian Pipeline system (TANAP). Russia has an interest in seeing this conflict flare up because it will disrupt the Baku-Tbilisi-Cehyan Pipeline and the Baku-Tbilisi-Erzurum Pipeline. The Baku-Tblisi-Ezerum Pipeline feeds into TANAP and serves as a vital artery for transporting natural gas into Europe. TANAP threatens Russia’s monopoly over European energy imports by offering a viable alternative source of natural gas from the Caucasus. The flare up of the Nagorno-Karabakh conflict threatens Turkey’s ability to operate as a key transit state and Azerbaijan’s ability to operate as both a producer and transit state. Despite Russia’s involvement in brokering peace talks between Azerbaijan and Armenia in the past, Moscow has habitually exploited ethnic conflicts as a way of fostering instability in regions that pose a threat to their energy hegemony over Europe.



The South Ossetia Conflict

Competing Georgian and Russian claims over the republic of South Ossetia, a region located in northern Georgia, led to armed conflict in which gas pipelines were a strategic objective for both sides. South Ossetia is partially recognized as its own state, but is officially recognized as a part of Georgia. Tensions between Georgia and the Ossetians date back to the early years of the USSR. When Georgia declared its independence from the Russian Empire after the Russian Revolution, they began to clash with separatists in South Ossetia who were backed by the USSR. South Ossetia became an autonomous region within Georgia. In 1991, the South Ossetians stated that it was their plan to separate from Georgia and rejoin the Republic of North Ossetia – Alania, the Russian federal subject adjacent to the north. War ensued, which resulted in approximately 2,000 deaths and hundreds of thousands of people escaping from Georgia and South Ossetia. Even though this was a relatively short war and a ceasefire was brokered in 1992, there was no agreement made regarding the status of this territory. It still remains within Georgia’s borders. In 2008, war broke out again. The 2008 Russo-Georgian war saw the Russian backing of two separatist entities, the Republic of Abkhazia in Georgia’s northwest, as well as the Republic of South Ossetia. During the conflict, Russia took control over a 1.5 km section of the Baku-Supsa Pipeline which runs through South Ossetia. Two days before the conflict began, the Baku-Tbilisi-Cehyan Pipeline which connects Azeri oil to Turkey via Georgia, was attacked and partially exploded in its Turkish section. The explosion, which was claimed by the Kurdish Workers Party, caused the temporary closing of the Baku-Tbilisi-Cehyan Pipeline on August 6th 2008. Its closing prompted the oil to be rerouted to the Baku-Supsa Pipeline. The Russo-Georgian war started on August 7th. During the conflict, Russian forces assisting South Ossetian separatists overtook a segment of the Baku-Supsa Pipeline, effectively causing the closure of that pipeline by the conflict’s end on August 12th. Journalistic and Georgian government sources cite that throughout the conflict, Russian forces had targeted both the Baku-Tbilisi-Cehyan Pipeline and the Baku-Supsa Pipeline. After the conflict subsided, tensions around these pipelines eased, but Russia has maintained its presence in South Ossetia. In 2015, a Russian demarcation team tasked with marking the Georgian-South Ossetian border pushed the line to include a segment of the Baku-Supsa Pipeline. Although this action did not cause escalation, it was seen as a projection of power from Russia to Georgia about their presence in the region as well as a symbol to dissuade Georgia from joining NATO.


Caspian Energy as a Strategic Western Asset

In addition to engaging in proxy wars and stoking ethnic conflicts, Russia also rejects international law in order to block alternative pipelines to Europe. The proposed Trans-Caspian Pipeline system, which is currently being contested by Russia, provides further proof of Moscow’s consistently aggressive energy policy. There are multiple factors at play within the Caspian Sea region that are interrelated. The legal regime for this body of water has profound impacts on the development of subsea pipelines. The proposed Trans-Caspian Pipeline would afford eastern Caspian littoral states, such as Kazakhstan and Turkmenistan, the ability to efficiently export their massive hydrocarbon reserves to foreign markets in Europe via TANAP, bypassing Russia altogether. Subsea cables and pipelines are permitted under the United Nations Law of the Sea (UNCLOS), both on the high seas and along a coastal nation’s continental shelf. These provisions are also applied to enclosed and semi-enclosed bodies of water, as set by past precedents. All states are permitted to lay lines past the continental shelf, because the deep seas are defined as global commons. No one nation has sole ownership of these waters. Subsea cables and pipelines on the high seas must be planned out in coordination with all existing infrastructure so as to not cause any interference or damage. States may lay pipelines and cables within their own territorial waters as they wish. If another nation is proposing to install a pipeline or cable within another state’s territorial waters then this development is up to the discretion of the nation that claims jurisdiction over these waters. The coastal state has every legal right to dictate infrastructure development and implement fees related to pipeline transportation.

Provisions under UNCLOS regarding subsea pipelines are crucial to Azerbaijan, Turkmenistan and Kazakhstan’s ability to legally construct a Trans-Caspian Pipeline. Russia has vehemently contested this specific UNCLOS ruling in the Caspian Sea, and thus have successfully blocked the development of this pipeline system in order to maintain its dominance in the regional energy market. As a result Kazakhstan and Turkmenistan are forced to export the majority of their hydrocarbon products through Russia, effectively making these two resource wealthy nations subservient to Moscow’s energy policies. This chokehold is detrimental not only to Kazakhstan and Turkmenistan, but to European energy markets as well. Europe desperately needs to diversify their sources of oil and natural gas imports. However they currently remain heavily dependent upon Russia for their energy needs. The upcoming installation of the Nord-Stream 2 pipeline will only further entrench Europe into this unhealthy relationship of reliance on Russia.

The Trans-Caspian Gas Pipeline would play a crucial role in creating an East-West Caspian gas corridor that would connect to TANAP. The development of this subsea pipeline, and the maintenance of existing ones rely heavily upon the backing of western corporations. While Azerbaijan, Turkmenistan, and Kazakhstan are all resource-wealthy nations, they are also experiencing a prolonged period of economic crisis. Their economic recovery is pinned to the success of their respective energy sectors. Due to the fact that they have not recovered financially yet, they need help financing energy projects, such as the construction of pipelines, storage facilities, and developing gas and oil fields. For this reason most of these states have signed Production Sharing Agreements (PSA). These contracts allow them to receive funding from corporations such as BP, Total and Chevron as well as from institutions like the World Bank and the EBRD in order to build and develop energy projects in exchange for a share percentage. Azerbaijan’s energy sector is backed heavily by corporations interested in connecting hydrocarbon reserves from Central Asia and the Caucasus, to Europe via Turkey. While all foreign military presence is strictly prohibited within the Caspian Sea, PSA’s allow corporations to engage in exercising soft power on behalf of the West. In 2017, an amended PSA was agreed upon between SOCAR, Azerbaijan’s state owned oil company, and the private sector to help further develop the Azeri-Chirag-Gunashli (ACG) offshore oil fields through 2049. The upstream development of ACG must be matched with midstream upgrades to pipelines and storage facilities in order to meet heightened production capacities.

Western corporations and NATO allies have a lot at stake in this region in their attempt to achieve greater energy security. The role of the West, within the Caspian Sea region is limited but crucial to providing funding for the development of upstream and midstream energy infrastructure. Russia’s attempt to restart conflicts in this region in order to disrupt hydrocarbon transport will undoubtedly draw the attention of Europe and Turkey. This has also drawn attention from Israel as well, which receives a large portion of their nation’s oil from Azerbaijan. Israel has been noted for its limited involvement in the 2020 Nagorno-Karabakh conflict, mainly through its arms-trade relationship with Azerbaijan which existed before the conflict began. This relationship has recently been brought to light by correspondence from the battle space reporting on Israeli-made weapons and technology being used by Azerbaijan’s armed forces. As the conflict develops, it is possible that transactions between Israel and Azerbaijan have accelerated, which can be shown through public flight data citing cargo plane flights between Baku and northern Israel. This relationship allows for Israel to arm its ally, Azerbaijan, in which it has a heavily vested interest in its territorial integrity. Israel receives 40% of its oil for domestic consumption from Azerbaijan. This oil is transported to Israel by the pipelines that travel through the Ganja Gap, through Georgia, into Turkey, and then by oil tanker to Israeli ports. If the pipelines are interrupted, Israel can quickly have its energy consumption needs shocked, leaving it with temporary shortages and potential gaps in economic or military efficiency. Therefore, Israel has rejected claims that it has hostility towards Armenia, but has affirmed that it wishes to see stability in the Caucasus.

Potential Obstacles to the Peace Process

The ongoing conflict in Nagorno-Karabakh has brought impediments to life, prosperity, and peace in the Caucasus region. It is important to consider the geopolitical and energy aspects that are spurring the conflict. In addition to the territorial disputes between Armenia and Azerbaijan, it is likely that this conflict has been hijacked, and is being used as a proxy war by Russia to stifle and restrict the energy demands of the West. Nagorno-Karabakh is the latest instance of the employment of Russia’s hybrid warfare model, in which all aspects of society, including energy, are militarized in an effort to project control along the Russian periphery. As Russia is offering to lead peace talks between the two parties, there are outcomes to consider that would in some way benefit Russia’s position over the West.

First, it would be beneficial for Russia to close the Ganja Gap, or at least to continue its chess-like maneuvers to place assets closer to energy routes in Azerbaijan. If Armenia gains the Nagorno-Karabakh region, or the Republic of Artsakh gains independence from Azerbaijan, Russian influence around the Ganja Gap will be solidified. If so, Russia may be able to construct a base closer to this energy chokepoint. Another obstacle to lasting peace would be the risk of the peace process being sabotaged. There have been many peace treaties between Azerbaijan and Armenia throughout the years, yet these agreements have fallen through, and some failures have been attributed to interference from the Russian intelligence community. A main example of interference would be the complications created by the Soviet GRU in orchestrating the 1999 Armenian Parliament shooting, as stated by the late FSB officer Alexander Litvinenko. The regional peace must be sustained fully and justly, because doubts about security can encourage further actions from external states such as Russia. Russia may attribute the lack of regional security as a justification to occupy the area, effectively taking over the pipelines of the Ganja Gap. The Collective Security Treaty Organization (CSTO) has also previously stated that the six-nation alliance will engage in this region militarily if Armenia proper is attacked. This is justified by the mutual defence treaty the organization holds and would effectively blockade the westward energy market. The CSTO nations recently participated in the KAVKAZ-2020 war-game exercises where many of the exercises took place in South Ossetia, the Caspian coastline, and in Armenia. Other objectives may be to in some way gain more control over the Caspian Sea energy market.

MPSG will continue to follow these key world events as they unfold. It is important to know that this story is a developing one, and will warrant subsequent inquiries into the region by MP Strategic Group.


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