Can the Middle East help Azerbaijan sell “green electricity” to Europe?

Following the Russian invasion of Ukraine, Azerbaijan has become one of the most important gas suppliers to Europe. The South Caucasus nation of around ten million people is now actively seeking investments from Middle Eastern countries in its renewable energy sector, aiming to begin exporting green energy to European nations.

In November 2023, Azerbaijan, Georgia, Romania and Hungary announced their plans to set up a joint venture to lay an electricity cable under the Black Sea, bringing green electricity from Azerbaijan to Europe. According to Azerbaijani President Ilham Aliyev, the green energy cable from Caspian to the Black Sea, and then further down to Europe, is in the last phase of feasibility study.

Given that the EU, as a result of Moscow’s actions in Ukraine, has decided to abandon Russian fossil fuel and diversify its options towards other energy partners, Brussels will likely push for a quick realisation of the ambitious project of laying the 1,100 kilometre cable from Azerbaijan to Romania. That explains why the two nations, strategic partners in the field of green energy, plan to increase their energy cooperation.

Despite being rich in oil and natural gas, and heavily-dependent on fossil fuel exports, Azerbaijan now seeks to position itself as an important green energy producer.That is why the Caspian state has started heavily investing in renewables such as wind and solar, and also attracting millions of foreign investments from various countries, from China, through Saudi Arabia, Qatar, to the United Arab Emirates.

In November this year, Azerbaijan will host the 2024 United Nations Climate Change Conference (COP29), a significant pro-green energy event hosted by the UAE in 2023. The former Soviet republic is one of the countries with very high potential for renewable energy sources (157 GW in wind and 27 GW in solar power, according to Aliyev), which is why the EU, far too dependent on energy imports, plans to additionally strengthen ties with Baku, not only in terms of natural gas and oil imports, but also renewables.

“We are confident that Azerbaijan will evolve from being a fossil fuel supplier to Europe, to becoming a very reliable and prominent renewable energy partner in the future”, Tim McPhie, spokesman for Climate Action and Energy at European Commission, said on April 22.

But it will take time before Azerbaijan, a petro-state with the oil and gas sector as the cornerstone of the country’s economy, achieves its ambitious goal and increases the share of renewables in its electricity mix to 30 percent. Meanwhile, Baku will undoubtedly continue providing Europe with fossil fuels.

Azerbaijan, thanks to its proximity to Europe and well-established energy infrastructure, is among the ten largest oil exporters to the EU. The fact that, on April 18, BP started oil production from its new 48-slot production, drilling and quarters platform in the Caspian Sea off the coast of Azerbaijan, clearly indicates that the South Caucasus nation will remain Europe’s major oil supplier for the foreseeable future.

Baku will, however, almost certainly continue developing close cooperation with Middle Eastern countries. Some of are interested in Azerbaijani renewable energy sector, for instance Qatar, a tiny kingdom that back in 2022 discussed with Baku a potential construction of wind power plants in Azerbaijan, while other actors, like Iraq, plan to increase collaboration with Azerbaijan in the oil and energy industry.

It is, therefore, no surprise that some Middle Eastern energy officials and business leaders will attend the upcoming Baku Energy Forum in early June, aiming to strengthen ties with their Azeri partners. But for Baku, at least at this point, energy cooperation with Europe seems to be a top priority.

Amid its “energy divorce” from Russia, the European Union sees Azerbaijan as a strategically important actor who can help European economies avoid potential energy shortages.

“The best solution to the current energy crisis would be to bring more gas to Europe, from more sources and through more routes,” Hungarian Foreign Minister Peter Szijjarto said on April 26, pointing out that the most realistic solution for Central Europe today would be to import more gas from Azerbaijan, although that, in his view, would require appropriate transport routes.

But since global oil demand may reach 104.46 million barrels per day in 2024, and 106.31 million barrels per day in 2025, Europe, as the world’s largest oil importer, also seeks to purchase more oil from Azerbaijan and its neighbours. In order to do that, Baku, European nations, as well as other oil producers, would have to improve the existing pipeline infrastructure, and potentially even build new oil routes.

European leaders are undoubtedly quite aware of the Azerbaijani strategic importance for the continent’s energy security. Even Baku’s arch-enemy Armenia, following its closer ties with the West and the de facto decoupling from Russia, hinted that it might begin importing natural gas from Azerbaijan. As a result, Azerbaijan is expected to continue developing both its fossil fuel and renewable sectors, aiming to strengthen its role of an energy leader in the South Caucasus.