Turkey eyes economic gains in backing Azerbaijan against Armenia

About 1 million Azeri nationals traveled to Turkey in 2019, while the number of Armenian visitors has stood at less than 60,000 per year, with most of them coming via Georgia to work in unregistered jobs in Istanbul, reportedly often at businesses owned by Turkey’s ethnic Armenians. 

The Azeri economy relies heavily on the production and export of energy. The country produces about 800,000 barrels of crude oil per day in normal times, which makes it the world’s 23rd largest oil producer. Most of the oil is exported to other countries. With about 7 billion barrels of proven oil reserves, Azerbaijan ranks 18th in the world in terms of oil wealth. Its natural gas reserves amount to 991 billion cubic meters, the 25th largest in the world. In normal times, the country produces 17 billion cubic meters of gas per year. Given these figures, Azerbaijan ranks as a medium-size country in terms of energy wealth and enjoys good prospects to grow richer by making better use of its potential. 

The country’s population numbers some 10 million and has a GDP per capita of about $5,000 — a figure that hardly reflects its natural riches. Azerbaijan’s energy-dominated exports are worth some $15 billion per year, with Turkey second only to Italy among the top buyers. Azerbaijan’s imports, meanwhile, amount to about $10 billion, with Russia holding the largest share.

Energy resources are clearly at the core of Azerbaijan’s appeal to foreign investors and the mainstay of its economic development potential. Baku is keen to move forward by reducing its reliance on Russia; hence it is looking for Turkish and European support. Like other energy producers, Azerbaijan has felt an immediate impact from global economic volatilities in recent years, experiencing economic turmoil and a hard-currency crunch and even seeking assistance from the International Monetary Fund. 

Following its troubled ventures in the Middle East and the eastern Mediterranean, Ankara’s quest for greater regional power seems to be taking it to the Caucasus now, right in Russia’s backyard.

Turkey and Azerbaijan often praise their relationship as “one nation, two states,” but the economic aspect of their ties has been relatively lackluster thus far. Exports to Azerbaijan, including military sales, represent only 1.3% of all Turkish exports. Turkey’s energy purchases from Azerbaijan remain relatively low as well, mainly because of its long-term contracts with Russia and Iran. Turkey’s imports from Azerbaijan were limited to $411 million last year, while its exports were worth $1.8 billion. 

Turkish direct investments in Azerbaijan had once hit $8 billion a year, but were down to $325 million last year, according to central bank data, showing how the Turkish business world’s Azeri dreams had quickly waned. 

In contrast, Azeri direct investments in Turkey stood at nearly $6 billion in 2019, accounting for 4% of the foreign direct investment stock in the country. The main investments belong to SOCAR. The company debuted in Turkey in 2008 when its Turkish subsidiary, SOCAR Turkey Enerji, acquired a 51% stake in Turkey’s petrochemical company Petkim. SOCAR owns an array of other energy enterprises in the country and is the majority stakeholder in the Trans-Anatolian Natural Gas Pipeline — a major project completed last year to carry Azeri gas to Europe via Turkey. The company says its investment stock in Turkey will reach $19.5 billion once all ongoing investments are completed. 

The predominance of Shiite Islam in Azerbaijan may not be exactly to the liking of Turkey’s government, but Erdogan’s ambitions aim at stronger bonds with Baku and increased cooperation in the development and marketing of Azerbaijan’s energy wealth. Whether Ankara can turn the Azeri-Armenian crisis into an opportunity despite Russian and Iranian clout in the region remains to be seen.