Europe’s energy demand meets Azerbaijan’s gas supply: Potential and limitations

by Alexandros Koutras

As Europe is slipping into a vicious cycle of energy crisis and the need for green transition, the capability to meet the growing energy demands has recently become a great geopolitical stalemate. Be it the Russian gas stock maneuvers or the post-Covid mobility that drives high gas prices, Europe is likely to revise its energy policy to mitigate its gas (primarily based on Russia) supply.

This paper reviews the energy potential of the Azerbaijani gas sector to meet Europe’s needs and the benefits on its economy. The literature review remarks the advantages and warnings of the energy booming economy of the South Caucasus state. Theories underline how rich-resources countries receive financial revenues at the expense of democratising society and the political unwillingness to diversify their economy.

Azerbaijan is also following the pattern of a “rentier state”, with evident patronage system, bride, dysfunctional economy, poor infrastructure and lack of freedom of speech. The monoculture of oil and gas entails a “Dutch disease” oriented economy, threatening sustainable advancement. It is also Europe’s will to establish closer ties with an authoritarian regime while the Green transition is the most widely preferred energy policy.

Up to date data show a gradual investment from Azerbaijan to supply Europe with natural gas (TAP pipeline). However, future predictions (that show how Azerbaijan’s fossil fuels are far below other competitors (Russia, Norway, Algeria) supports the difficulty in gaining a substantial part in the European energy pie. It seems that Azerbaijan does (and can) not compete with Russia’s exports, neither such a political goal exists.

The need for sector diversification is essential in order to sustain a competitive economy when the resources will be dried off. Simultaneously, other countries in the region might also face similar chances. An increase in the investment does not necessarily imply growth, as it primarily pushes them to higher dependence on oil and the soaring of the Dutch disease. This analysis is a step to reconsider
energy policies within the country of concern and the interested parties.

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The opinions expressed in this publication are those of the author. They do not purport to reflect the opinions or views of the Institute of International Relations or its members.