International Institute For Caspian Studies




Azerbaijan: A Common Neighbor for I.R. Iran & Caspian, But Indifferent to Common Interests

                      Vahid Ahmady(Expert of Energy Markets and Finance)   

*        Caspian Sea Region

*            Importants[1]:

       The Caspian Sea region is important to world markets because it has large oil and gas reserves that are only now beginning to be fully developed.
The Caspian Sea region's oil and gas potential has attracted much attention since the breakup of the Soviet Union. At the crossroads of Europe, the Near East, and Asia, but one of the largest unexploited sources of oil in the world[2]. It should be noted that reservoirs of this region is attractive to western oil companies since access to other world-class oil fields is either blocked or unattractive due to government monopolies, political issues, violence, and sanctions. The distance from potential markets and the relative lack of infrastructure to export gas reservoirs have tempered interest in the region's gas potential. Due to the fact that the resources of the Caspian region remain largely untapped, in the 90s turned into the world's energy focal point and attracted the attention of all specialists and became a center for international challenges and rivalries[3]. As world demand for natural gas is growing faster than that for oil (2.6% per annum as opposed to 1.9%)and The Caspian is rich in gas, the region’s proximity to Turkey, the EU, the Indian sub-continent and southern Russia places it in a good position, potentially, to supply these markets. Beside hydrocarbon resources, The Caspian Sea is, also, rich in valuable biological resources. Western statistics put the value of biological resources of the sea at 200 to 500 billion dollars, with 5 to 6 billion dollars worth of fishery products. Presently, 600,000 tons of various types of fish and 250 tons of caviar, or about 80 percent of the world caviar output, are obtained from the sea annually.

*    New transportation routes needed[4]:

        New transportation routes will be necessary to carry Caspian oil and gas to world markets. Most of the existing Russian oil export pipelines terminate at the Russian Black Sea port of Novorosiisk, requiring tankers to transit the crowded and ecologically and politically sensitive Bosporus in order to gain access to the Mediterranean and world markets. Furthermore, there is some question as to whether the Mediterranean is the right place to send all of the forthcoming oil and gas from the Caspian, as oil demand over the next 10-15 years in Europe is expected to grow by little more than 1 million barrels per day (bbl/d). Oil exports eastward, on the other hand, could serve Asian markets, where demand for oil is expected to grow by 10 million bbl/d over the next 10-15 years. Finally, there are political and security questions as to whether the newly independent states of the former Soviet Union should rely on Russia or any other country as their sole export outlet. As a result, multiple routes for Caspian oil and gas exports have been proposed.

Export Route Issues:

v     Options for Oil and Gas Export Routes:

       A comprehensive analysis in evaluating various possible routes for such a transmission allows 14 main routes. These include 4 northern, 4 western, 3 seabed, 1 eastern, 1 southern- east and 1 southern[5].

*   To China Oil - An oil pipeline from Kazakhstan (Aktyubinsk) (and May extend to Turkmenistan & Uzbekistan) to China (Xinjiang) (a feasibility study for, was halted in September 1999 because Kazakhstan would not be able to commit the minimum flows needed for the pipeline) this route faces numerous financial and technical difficulties because of the distances and terrain along this route. But for Natural Gas case Exxon, Mitsubishi, and China National Petroleum submitted a preliminary feasibility study for the construction of the world's longest natural gas pipeline from Dauletad Field (Turkmenistan) to the Chinese coast, and perhaps continuing onwards to Japan.

*   Cross-Caspian Pipelines -To avoid crossing Iranian or Russian territory, Proposals have been made to bring oil and gas from Kazakhstan and Turkmenistan across the Caspian (FOR OIL A Feasibility Study for route Tengiz-Baku or Turkmenbashi-Baku was made, For gas Turkmenbashi (Turkmenistan) -Baku (Azerbaijan) route has been proposed). [6]

*   To Europe via Russia: Tengiz-Novorosiisk route, Azerbaijan oil via Chechnya to the Russian Black Sea port of Novorosiisk[7], shipping oil via barge and tanker from Turkmenistan and Kazakhstan to Russian ports on the Caspian Sea such as Makhachkala and Astrakhan, to apply the Russian pipeline system using Mediterranean ports (not Black Sea) and to use the Russian pipeline system to Baltic Sea ports can be the choices. Natural Gas transportation -The existing Russian gas network expansion to export Central Asian gas to Europe via Russian pipeline system can be a case. The Russian natural gas pipeline through Astrakhan and Dagestan provides another option for exports. Turkmenistan is ready to export up to 3.5 Tcf per year through Russia. Another proposal has been to transport natural gas from Kazakhstan to a proposed new LNG terminal on the Taman peninsula in Russia, where it would be transported to world markets via tankers mean while using an existing Russian gas pipeline to Georgia, connecting to a proposed new pipeline from Georgia to Turkey can be a choice.


   There are 4 alternatives:

1.       Northern Black Sea Route: Baku (Azerbaijan)-->Grozni (Chechnya)-->Tithoretsk (Russia)-->Novorossisk (Russia): "Green Line on Map"
This pipeline system already exists, but needs extensive repairs and renovations. There are 2 alternatives after Novorossisk:
(a) Novorossisk-->Bosphorus (Istanbul/Turkiye)
(b) Novorossisk-->Bulgaria-->Greece

2.       Southern Black Sea Route: Baku (Azerbaijan)-->Tbilisi (Georgia)-->Supsa (Georgia): "Blue Line on Map"
This pipeline system already exists, but needs extensive repairs and renovations. There are 2 alternatives after Supsa:
(a) Supsa-->Bosphorus (Istanbul/Turkiye)
(b) Supsa-->An Eastern Black Sea Turkish Port-->Ceyhan (Mediterranean Turkiye)

3.       Southern Land Route: Baku (Azerbaijan)-->Georgia/Armenia-->Eastern Turkiye-->Ceyhan (Mediterranean Turkiye): "Pink Line on Map"

4.      Baku (Azerbaijan)-->I.R.Iran-->Persian Gulf Land Route: "Black Line on Map"

*   To Pakistan via Afghanistan – Turkmenistan, Afghanistan and Pakistan signed a MOU to build a pipeline to carry natural gas to Pakistan via Afghanistan. These three countries plus Uzbekistan also signed a MOU to build an oil pipeline to Pakistan,but , No progress has been made on these pipelines due to the ongoing civil war in Afghanistan.

*   To Turkey – Baku-Ceyhan[8], Turkmenistan-I.R.Iran-Turkey, Kazakhstan or Turkmenistan-Armenia or Georgia –Turkey, I.R.Iran-Turkey are different alternatives.

*   Via Georgia Oil - The western route for early oil from the AIOC joint venture in Azerbaijan passes from Baku, Azerbaijan to the Georgian port of Supsa on the Black Sea, although western route was one of the alternative routes considered for the MEP for oil from the AIOC, but support for the final route has recently been given to the Baku-Ceyhan route that traverses Georgia en route to Ceyhan. Georgia has already become a rail transit center for Caspian Sea oil, and over 50,000 bbl/d of oil from the Tengiz project in Kazakhstan were shipped across the Caspian Sea by barge to Azerbaijan and carried across Azerbaijan and Georgia by rail.

Natural Gas - Georgia could become a major transit center for natural gas. Azerbaijan plans to export over 175 bcf per year of its own natural gas via Georgia in 2002-2003 once production at the Shah Deniz field comes on line. Turkey would be the first export market, with Bulgaria, Greece, and Romania also possible markets.Natural gas also could transit Georgia via a proposed north-south pipeline from Russia to eastern Turkey, with one route also passing through Armenia en route. A smaller north-south pipeline has been proposed that would transport up to 88 bcf per year of natural gas from Iran to Armenia, and then to Georgia, Russia's North Caucasus region, and northeastern Turkey. Gazprom, Gas de France, Conoco is also moving forward with a plan to ship 1.5 million metric tons of liquefied natural gas (LNG) per year from Kazakhstan and Turkmenistan across the Caspian to Baku, where it would then be shipped by rail to Georgian ports en route to Turkey and other Mediterranean customers.

*   Via Iran to the Persian Gulf [9]or Turkey:

In the oil sector, Iran can expand its production capacities within OPEC's framework to secure a significant part of the need of the region. At the same time Iran, because of its geopolitical and geoeconomic situation does realize that it must assume the important role of transmission of hydrocarbon resources of Turkmenistan, Kazakhstan and Azerbaijan to fast growthing energy consumption markets of the south and east Asia[10] .Oil could be exported via Iran in two ways: 1) by direct transportation by pipelines that pass through Iran en route to the Persian Gulf; and 2) by oil swaps. Meanwhile, the EU potential energy markets for Iran oil and gas via turkey (and Turkmenistan gas via Iran to turkey) shouldn’t be ignored. Iran has also shown interest in natural gas swaps with Azerbaijan using an existing 283 bcf per year pipeline built during Soviet times from Baku to Astara, Iran that has been unused for two decades. A 200 km pipeline from Turkmenistan to Iran with the annual potential of 4 billion cubic meters of gas, can export Turkmen gas to Turkey and Europe via Iran. Turkmenistan is also carrying out a pipeline project for the transfer of oil via Iran, and expressed the hope that 250,000 barrels of oil will be transferred to world markets through the pipeline. Iran has planned for the implementation of a transfer project in three stages through the utilization of its pipelines and refineries in northern part of the country.The first stage consists of being oil carried to Neka port, in northern Iran, oil tankers from ports in Kazakhstan, Turkmenistan and Azerbaijan, and then transferred to Tehran refinery through a 390 km pipeline. The oil delivered to Iran will be consumed domestically and swapped at oil terminals in the Persian Gulf. The total cost of the project is estimated to be around 400 million dollars, implementation of which would transfer 350,000 barrels of oil every day. The project will be implemented within two years. In the second stage, crude oil will be transferred to Tehran refinery through tankers or pipeline from west or east of the Caspian Sea, and by reversing Tehran-Isfahan and Tehran-Arak pipelines, 450,000 barrels of Caspian Sea oil will be refined and consumed domestically, while the equivalent amount will be swapped in the Persian Gulf. The second phase will cost between 300 to 500 million dollars. The third stage deals with the direct transfer of oil from the Caspian Sea for which preliminary studies have been started. However, due to the absence of sound estimates of the Caspian oil export statistics, more time is needed for making the final decision.

*   Romania: SNP planned to ship up to 140,000 bbl/d of Kazakh oil to its refineries, and transport refined products to Europe. Barges could transport the oil to Germany via the Danube-Main-Rhine link. Romania could also use its own distribution network to transport refined products into other European lines .Trans-Balkan pipeline links via Romania also have been proposed.

*   Ukraine: Ukraine has made several proposals in an effort to be included into the transport network for Caspian Sea oil. The primary one calls for Ukraine to use its port of Odessa to import Caspian oil flowing westwards across the Black Sea, and to transport it via pipeline to Brody, where it would tie into the existing Druzhba pipeline network that brings Russian oil into central Europe.[11] Earlier variants also called for transporting Caspian Sea oil to Ukraine via a spur from the planned Baku-Ceyhan pipeline. This proposal would give Ukraine access to both Caspian oil and Middle Eastern oil from the Strategic Pipeline bringing Iraqi oil to Ceyhan. This plan would be more expensive because it would involve numerous transshipments from one transportation mode to another. An agreement on pipeline construction with Turkey along this route was ratified in 1997 by the parliaments of both countries, but the agreement was not implemented both because of a lack of financing, and because the Ukrainian legislature did not guarantee a minimum flow of 500,000 bbl/d through the pipeline.


*   About Azerbaijan

Azerbaijan is one of the world's oldest oil exporters, and development of the country's extensive petroleum reserves remains central to its economic future. The most important sector of the industrial economy is the petroleum industry, established in the 1870s. Other industrial products include textiles, carpets and processed foods. Agriculture is also important, the country benefits from fertile farmland and a diverse climate, enabling it to raise a wide range of crops. It resembles the Central Asian states in its majority Muslim population, high structural unemployment, and low standard of living. Azerbaijan shares all the formidable problems of the ex-Soviet republics in making the transition from a command to a market economy, but its considerable energy resources brighten its prospects somewhat. Old economic ties and structures have yet to be replaced. A particularly galling constraint on economic revival is the Nagorno-Karabakh conflict, said to consume 25% of Azerbaijan's economic resources. 
Two years of political instability following independence, war with Armenia, and some other factors, led to the collapse of Azerbaijan's economy in the early 1990s. By 1995, however, the gradual return of political stability and a ceasefire with Armenia declined the economic descent and
a comprehensive stabilization program was begun. The government’s broad program of reforms included the following:
• Liberalization of prices;
• Widespread cuts in government subsidies;
• Tight budgetary and fiscal controls to limit inflation;
• Restructuring the banking sector to improve transparency;
• Modernizing the tax structure;
• Instituting a land reform program; and
• Privatization

But obstacles to reform(as before), Were the rigidity of remaining Soviet economic structures, the Nagorno-Karabakh conflict[12], continued trade dependence on the other former Soviet republics, insufficient economic expertise to guide the transition, and capital stock that is inefficient and environmentally hazardous.  Despite its oil wealth, and a flourishing trading sector, there has been slow progress toward a market economy. Any way Azerbaijan’s economic future depends on how the GOAZ proceeds with economic reform and uses the revenue from its energy resources. Azerbaijan today is the country with utterly wrecked national economy. The following problems are the most serious:

  • Corruption
  • Unemployment
  • Financial capital lack and capital investments negative balance
  • Lack of effective system for economy financing
  • Local capital export and foreign investors flight
  • Lack of guarantees for property rights and investments
  • Badly developed employment market
  • Lack of labour discipline
  • Badly developed infrastructure
  • Tough business climate
  • Lack of significant economic reforms and the strategy for economic development
  • Unilateral development of the economy for oil, ignoring the other orientations

Foreign policy priorities of the Republic of Azerbaijan (officially stated) are as follows:

·         Promotion of the establishment of pluralistic democracy based on market economy and the rule of law;

·         Conduct of an independent foreign policy aimed at the soonest restoration of sovereignty and territorial integrity of Azerbaijan over its territory;

·         Elimination of threats and risks to the security, political independence, sovereignty and territorial integrity of Azerbaijan;

·         Peaceful settlement of the conflict with Armenia over Nagorno-Karabakh region of Azerbaijan through negotiations within the framework of the OSCE Minsk Group on the basis of the principles of the OSCE Lisbon Summit;

·         Liquidation of the consequences of military aggression of Armenia against Azerbaijan;

·         Development of good-neighborly and mutually advantageous relations with neighboring countries;(but unfortunately this principal is not so evident in, its relations with I.R.Iran)

·         Promotion of security and stability in the region;

·         Prevention of illegal arms and other transfers in the region;

·         Adherence to existing global non-proliferation regimes and establishment of a nuclear-free zone in the Southern Caucasus;

·         Demilitarization of the Caspian Sea basin;

·         Integration into European and Transatlantic security and cooperation structures, including NATO, EU, WEU, CE;

·         Facilitation of the development of development of various sectors of the country's economy with due consideration of Azerbaijan's crucial geo strategic location at the crossroads between the East and West;

·         Development of the Eurasian Transport Corridor of which Azerbaijan is a part.


For Azerbaijan, the Islamic Republic of Iran is not just an ordinary country. First of all, Iran is the Azerbaijan Republic's southern neighbor. The 2 states share about 618 kilometers of land borders. These two countries border each other in the Caspian Sea as well. Both countries share values from their mutual past and some elements of a common culture. Azerbaijan has the second largest Shi'i population in the world, after Iran. The membership of both countries in Muslim and regional organizations like the Organization of Islamic Conference and ECO, is an indicator of the countries' affinities in terms of geography and religion.
The history of direct relations for the last 10 years shows that such positive and binding factors as neighborhood and the same religion are not enough to create close relations between them. Other important factors, which affect current relations between Azerbaijan and Iran, exist as well.
Any way, Iran viewpoints on Azerbaijan, can be recognized from different meetings held between two countries officials (clearing that Iran‘s behavior is more rational than Azerbaijan‘s). These viewpoints can be summarized as follows:

·        Tehran opposes the development of disputed sectors of the Caspian until agreement is reached on how the sea should be divided between the five states that border it -- Russia, Azerbaijan, Kazakhstan, Turkmenistan and Iran.

·        Underlining the 1921 and 1940 treaties as the basis of the existing legal status Iran has emphasized for determining an appropriate formula for the Caspian sea legal status acceptable to all the Caspian sea littoral states, and has stressed, "As long as an appropriate legal regime has not been determined for the Caspian sea, there will be legal obstacles to utilization of the sea's resources, and due to this foreign companies are not certain to cooperate".

·        Pointing to the importance of stability and security in the Caucasus region, officials have stressed the need for settlement of the regional concerns and the adoption of joint security arrangements by the regional states. "The five littoral countries of the Caspian Sea have to respect one another's viewpoints and to take a final decision together".." Iran, while respecting the rights of the Caspian littoral states, expects its rights and interests to be respected in turn, and will continue to cooperate with CIS states on the basis of good- neighborliness and long-standing interests of the region,"

·        Due to Iran’s capabilities in different fields of industry, manufacturing, and agriculture, Iranian officials have declared Iran’s readiness to participate in Azerbaijan economic development plans. Officials have stressed the importance of the improved ties between Iran and Azerbaijan and the regular contacts between the two sides on bilateral ties, and have emphasized the exploitation of the existing potentials in both states by Tehran and Baku.

·        Dr. Kharrazi: The Republic of Azerbaijan is one of our neighbors and in our foreign policy our neighbors have priority. We are interested to expand relations with the Republic of Azerbaijan.



·        On Mar.14, 2000, Dr. Kharrazi said "The two governments are duty-bound to remove the obstacles to bring the two nations closer together, and it is hoped the talks between the two sides would prepare the ground for this, Expansion of relations with neighboring countries is a top priority and the Azerbaijan Republic is not an exclusion but it requires a decisive will and decision on developments and regional security issues in the Caucasus and Karabakh crisis.

·        On Apr.26, 2000, Pointing to the commonalities between the two countries, Dr. Kharrazi expressed Tehran’s readiness to cooperate and have closer relations with Baku and said, “Political will is the most significant factor to remove obstacles and to pave the ground for having closer and more solid relations between the two countries. Referring to the importance of Caucasus security on all the regional states and the need for peaceful settlement of conflicts, Dr. Kharrazi, in response to the request of Azeri foreign minister, expressed Iran’s readiness for offering any assistance in this respect.

  • On July 27, 2000, Dr. Kamal Kharrazi said Iran has always being after establishing strong relationships with its neighbors, he added, it is preferential for both Iran and Azerbaijan to try to consider the Caspian Sea as an area of friendship and peace. He went on to say that Iran would seriously protect its interests in the Caspian Sea. He said the Caspian Sea countries should avoid any action which could create misunderstanding among the regional states adding that the Caspian sea littoral states should wait for the determination of the Caspian Sea legal regime before any move to prospect for the energy-rich spots. He voiced Iran's readiness to hold talks with the Azeri officials and said considering the Iranian foreign ministry notes and policies would surely contribute to achieving positive results as for the Iran-Azerbaijan cooperation.

·        On Nov. 11, 2000, Referring to recent elections in Azerbaijan Dr. Kharrazi expressed hope the elections would further consolidate the country. Iranian foreign minister said, "Good bilateral and regional ties help economic development as well as establishment of stability and security in the region", adding, "These factors help the settlement of crises in the region”. Referring to high potentialities of the two countries Dr. Kharrazi underlined that full and correct utilization of the potentialities would have a positive effect on the people of the two countries and regional development.

·        On Jan.1, 2001,attending a press conference Iranian foreign ministry spokesman Dr. Hamidreza Assefi said, "What the Azerbaijani media say is unacceptable and if they think that they can achieve any goal by this, they are surely mistaken, adding, "We have witnessed few inappropriate positions by the government of Azerbaijan in the past few months. We attach importance to working with Azerbaijan and bilateral ties, especially in the economic sector, is not a matter to be overlooked.

·         On Feb 8, 2001,Dr. Kharrazi stressed the need for political will towards promotion of relations and said that improvement of ties between Iran and Azerbaijan republic served the interests of both countries and the region. He added the Islamic Republic of Iran as the big power in the region is interested in helping its neighbors. Welcoming the expansion of bilateral ties, Iranian foreign minister said, "It is necessary to take practical steps towards promotion of relations".

·        On June 11, 2001, In reply to a question on the "cold and complicated relations" between Iran and Azerbaijan Dr. Assefi said, "I prefer to categorize the relations between Iran and Azerbaijan not cool but complicated as this term suits better. Iran as a neighbor to Armenia and Azerbaijan has always emphasized good neighborly relations with these countries and we wish they can settle their problem through peaceful means and reach a comprehensive agreement. Because it not only serves the interests of Azerbaijan and Armenia but also the whole region. We are for better relations between Armenia and Azerbaijan. .







·        "The Islamic Republic of Iran has always called for a peaceful and honorable solution to the Karabakh crisis and welcomes direct talks between the presidents of Azerbaijan and Armenia."

·        On July 23, 2001,Iranian foreign ministry spokesman Dr. Hamidreza Assefi said” The Azeri republic is expected to understand sympathetic pieces of advice given by the Islamic Republic and keep away from any action which may intensify misunderstandings,” Iran will firmly defend its rights and interests," he added, "The Azeri republic should be committed to the provisions of treaties signed in 1921 and 1940 over the legal status of the Caspian."

·        On August 3, 2001,Iranian foreign ministry spokesman Dr. Hamidreza Assefi rejected claims that it had violated Azeri airspace and stressed that the Islamic Republic respects Azerbaijan's territorial integrity and the common borders of the two countries.


·        On 15 August 2001,Iranian officials condemned the US intervention in the Caspian Region and added that any intervention in the Caspian Region by extra-regional countries will not only fail in helping to solve the problems, but also will make them to be more complicated.

·          On 17 August 2001,the two ministers said holding talks over sharing the Caspian's oil resources is the best way to settle the dispute between the neighboring countries. Guliyev expressed satisfaction with the settlement of "some misunderstandings" in Tehran-Baku ties and asked Iran to send a representative to Baku for discussions on Caspian Sea issues and bilateral relations, IRNA said.


1- A Tale of Two Seas, The Energy Future of the Caspian and Black Seas, Istanbul (25 - 27 May 1998), A Energy Security Issues in the Caspian and Black Sea Regions, Robert Priddle, International Energy Agency


3-"The Importance of the Caspian in Global Oil Supply", Robert Priddle, International Energy Agency, [Updated Version: 12/2/1999]












[1] -The Caspian region probably will not become A another Middle East but it will be a significant oil producer and exporter,perhaps on the order of the North Sea today. Like the North Sea, it could play a role as an important supplemental oil supplier at the margin

[2] - Even the most optimistic scenarios for the Caspian note that due to a lack of large-scale production and transportation capacity, oil will not begin flowing from the region in significant quantities before 2005

[3] - Because the Caspian is land-locked, in order to reach world markets all oil produced there, has to be transported via pipeline, which increases the environmental risks so environmental questions surrounding the Bosporus in particular and the Black Sea in general have begun to factor heavily in the choice of export routes for Caspian oil

[4] - The lack of adequate export infrastructure is probably the most difficult problem facing investors in the oil and gas sectors of the Caspian region. The construction of new export pipelines has become a priority. However, most routing options are fraught with technical, financial, legal or political difficulties. For example, many proposed pipelines must pass through -- or take potentially expensive detours to avoid -- politically troubled areas. There are concerns that some pipelines could become vulnerable targets for terrorist activity.

The creation of multiple export routes increases the energy security of both exporters and importers by making exports less subject to technical, political or other disruptions on any single route. However, energy security has to be balanced by economic feasibility. A larger number of pipelines will mean smaller economies of scale -- and greater expenses -- for each project.

1- But, only four main routes for exports to Western markets have been seriously considered:

  • A new pipeline from Baku, Azerbaijan to the Turkish Mediterranean port of Ceyhan, via Azerbaijan and Georgia
  • A “northern” route, which would take Azerbaijan oil to the Russian Black Sea port of Novorossiisk via the areas of Dagestan and Chechnya
  • A “western route” by which oil from Baku would be piped through Azerbaijan and Georgia to the Black Sea port of Supsa, Georgia

·         Through Iran to the Persian Gulf through swaps or an outright pipeline’s.

[6] -But first of all, Caspian Sea legal and environmental issues need to be settled, which requires that all Caspian countries             cooperate on these issues.

[7] - Currently, most exported Caspian oil goes to the Russian Black Sea port of Novorossiysk from the Black Sea, oil must pass through the Turkish Straits to reach world markets. Turkey has strongly opposed Russian plans to export more oil via Novorossiysk on the grounds that it would lead to unacceptable levels of supertanker traffic through the Bosphorus. Turkey has argued that increased tanker traffic, narrow width, and poor weather conditions are a recipe for serious accidents in the strategically important Bosphorus.Turkey believes that Bending under the pressure from Russia, the Azerbaijan Government and the AIOC favored the Northern Black Sea Route (Baku to Novorossisk) in April 1996 and this will bring an additional 35-40 million tons of oil per year into the narrow straits of bosphorus. Building alternative routes, such as pipelines that avoid the Turkish Straits, will improve the security of supply of Caspian oil, and hence increase its value as a supplement to OPEC supplies. One of the ways to avoid the Straits is to build a pipeline to the Mediterranean around them. Proposed projects of this sort include pipelines

• from Burgas, Bulgaria, to Alexandroupolis, Greece, or to Vlore, Albania.

• via Romania, or

• across Turkey to the Mediterranean port of Ceyhan, either from Samsun, on the Black Sea, or from a point in Georgia or Armenia where it would connect with a pipeline from Baku.

The Ceyhan option with a Baku connection would avoid an extra loading and unloading in the Black Sea, along with associated costs and environmental risks .Ukraine has proposed a route that would involve shipping Caspian oil to an import terminal that it is building near Odessa to diversify its oil supplies. In addition to purchasing oil for its own use, Ukraine hopes to send oil via the Druzhba pipeline to European refineries and/or Baltic ports.



[8] -Azerbaijan is set to play a key role in helping to meet rising world energy demand in the 21st century. 
 The option with most support is to build a $2.5 billion pipeline from Baku to the Turkish Mediterranean port of Ceyhan. This proposed 1,730 km pipeline is favored by Ankara, which would receive substantial transit fees. The other pipeline routes --through Novorossiysk port or Supsa -- would require the use of the Bosphorus as a transit point. This is opposed by Turkey which points to the environmental risks of increasing oil tanker traffic through what already is one of the world's busiest sea lanes. 
The shortest and probably most economic route is through Iran to the Persian Gulf.

[9] -I.R.Iran is considered by some as an attractive export route for both oil and gas. It already has a well developed oil and gas transportation infrastructure, including portions of pipeline that could be used for various routes. By some estimates, an Iranian oil export pipeline to the Gulf could prove significantly cheaper than other proposed lines A number of companies are investigating the possibility of oil swaps with Iran. For example Kazakstan has delivered Kazak crude to the Iranian port of Neka on the Caspian Sea in exchange for Iranian exports of equal value from the Persian Gulf. It is estimated that Iran could absorb up to 650,000 barrels per day of swapped crude for its northern refineries.

[10] -In the twenty-first century, much of the world’s growing demand for oil will come from Asian industrialization.  Although vast distances would have to be covered, there has been some serious consideration of pipelines from the Caspian to Asian markets.  Caspian oil is of a lesser quality, and has to be sold at a discount as the Atlantic basin market (Mediterranean and European) is based on higher quality Brent oil. So, a number of industry experts believe that rather than competing in the already competitive Mediterranean market, Caspian oil should be exported to Asia, where prices are historically higher.

[11] -Ukraine has argued that this route is the cheapest way to bring Caspian oil to northern Europe, and estimates that transport costs would be less to northern Germany using the Ukrainian route. In addition, the Ukrainian route would not dilute the quality of low-sulfur oil by blending it with high-sulfur oil as would be the case on the Baku-Novorosiisk route Azerbaijan is interested in the future creation of a Baku-Supsa-Odessa-Brody-Gdansk export route.


[12] - Azerbaijan and Armenia fought a vicious war in the early 1990's after Armenia occuppied the Azeri territory of Nagorno-Karabakh. Though there is now a ceasefire, the two remain on a war footing.