Energy relations between Iran and the Republic of Azerbaijan go back to the 1990s, after the collapse of the Soviet Union. Before Azerbaijan gained its independence, direct economic relations between the two were impossible. Once the leadership of Heyder Aliyev emerged as uncontested, however, the first energy agreement between the two countries was signed. Azerbaijan, with huge oil and gas reserves, began to present itself as a key ally in the European energy market, partly by retaining an interest in having a potential role in the southern gas corridor. At the same time, Iran — holding the largest natural‐gas reserves in the world and the fourth‐most‐abundant proven oil reserves — has been planning to take its rightful share in the world energy market, primarily as a major natural‐gas exporter.

The primary objective of the European Union is the diversification of energy resources. Thus, Iran and Azerbaijan have the potential to become key suppliers of gas to the European market. Iran may involve itself as a player in the trans‐Anatolian and trans‐Adriatic gas‐pipeline projects, inviting foreign companies to make investments in its energy sector in time for the post‐sanctions era; Azeri companies have a potential role in this also, investing in the current energy sector from a close, and therefore more knowledgeable, proximity. Energy cooperation could help both Iran and Azerbaijan to improve their mutual relations and develop ties. However, energy resources in the Caspian Sea — and the exact delineation of the maritime borders within it — are a major contributor to the rift between the two, impeding a cohesive policy on sharing oil and gas revenues from their common inland sea.

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