Russia and Eurasia

‘Black Gold’ Brings New Wealth to Azerbaijan

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By Emil Agazade** | 02.08.2011


Azerbaijan has proven to be one of the fastest-growing economies due to its energy reserves, but oil and gas brought more than just petrodollars.

In 1848, while Europe was engulfed by social protests and revolutions, the fountain of dark liquid spurted from beneath the ground in the tiny village of Bibiheybat on the outskirts of Baku. This signaled the beginning of a new era in the modern history of mankind – the industrial and commercial production of oil.

petrol-kuyusuWhen that fountain of black gold struck, Baku was just a small, ancient settlement on the shores of the Caspian. Within two decades, it would turn into the fastest growing city in the Russian empire and the whole of Europe, becoming the global energy capital – by 1899 the famous Baku oilfields produced over half of the world’s oil.

In almost no time, this dusty medieval town would transform into an attractive European seaside city with some of the best examples of the European architecture and landscaping of the time, featuring a Viennese-style opera-house, classical English gardens and shops selling the latest fashion items from Paris. Leading industrialists of the time, including the Nobels and the Rothschilds, flocked to Baku in pursuit of the black gold.

In fact, when the Nobel Prizes were established more than a century ago in 1901, roughly 12 per cent of the prize money was supplied from Alfred Nobel’s shares in his oil company in Baku. This, in a way, has been Azerbaijani people’s tacit contribution to the development of sciences and literature across the world.

Today, Azerbaijan is going through another boom brought about by the development of large offshore oil and gas fields in the Caspian. Baku’s skyline has changed beyond recognition with crumbling Soviet buildings replaced by impressive ultra-modern infrastructure. Some have already dubbed the city a Dubai on the Caspian.

Ilgar Veliyev, the country managing partner for Azerbaijan at Ernst & Young, says: “Dubai or not, I personally find it more of a European city with a southern feel to it. And the new wealth I see around is not about fancy new buildings, flashy cars or hip restaurants. It is about people, and how they feel about themselves. Oil brought us the opportunity to change our lives, and become better-educated and very competitive at an international level.”

Ilgar, and many other dynamic professionals in Baku, have personally witnessed the transformation of their country from a backward post-Soviet republic into a fast-developing country with big aspirations and global ambitions. Harvard-educated Shahmar Movsumov is the head of the country’s so-called Oil Fund, established to accumulate and invest oil revenues as a resource to sustain the country in the future post-oil economy.

“In 2001, we had $491.5m, and in ten years that amount grew 62-fold, having reached $30.4bn. The growth of our investments will enable current and future generations of Azerbaijanis to benefit from the country’s energy reserves”, commented Movsumov.

Azerbaijan has followed Norway’s example by creating a special Oil Fund, SOFAZ, entrusted with managing and investing the petrodollars. It is the profits from this fund that are being used for building new hospitals, schools, roads and other public services. The government also pays for hundreds of Azerbaijani youngsters to be educated at the leading universities in Europe and the US.

But it is not just better career opportunities, travelling and improved quality of life that gives a sense of hope for many ambitious and successful Azerbaijanis. “This country’s voice is being increasingly heard and taken into account, since it proved itself to be a stable and reliable partner, and not just in business”, explained Nargiz Nasrullayeva-Muduroglu, director at the American Chamber of Commerce in Azerbaijan. “It gives us a sense of optimism that our young country is taken seriously and listened to internationally.”

It is easy to see the source of Azerbaijan’s increased profile and assertiveness. In less than 15 years, the country evolved from being an importer of energy resources into a reliable supplier, exporting to some of its neighbours, like Russia, Turkey and Georgia. But the country’s energy reserves allow it to be more than just a guarantor of regional energy stability and a driving force of the South Caucasus’ economic development.

The country’s oil reserves total two billion tons, and recoverable gas reserves amount to 2.2 trillion cubic meters, according to figures recently voiced by Rovnag Abdullayev, the head of the state-run oil and gas company, SOCAR. By 2015, according to Abdullayev, Azerbaijan will produce 30 billion cubic meters of gas, playing an ever-increasing role in providing Europe’s energy security.

After the infamous Russian-Ukrainian gas rows which left millions of Europeans freezing a few winters ago, politicians and energy pundits in Brussels and other European capitals realised just how important Baku could become in diversifying Europe’s energy supplies. Azerbaijan is already exporting its oil to European markets via the Baku-Tbilisi-Ceyhan pipeline, running through Georgia onto Turkey’s Mediterranean cost.

EU and various European governments have, for a few years, been discussing an ambitious Nabucco pipeline project that would bring gas from the Caspian shores to hubs in Vienna, Sofia or Bucharest, bypassing Russia and thus reducing Europe’s energy dependence on Moscow.

In January 2010, as a journalist and a political commentator, I was invited to the Budapest summit dedicated to Nabucco. The gist of Azerbaijani President Aliyev’s confident speech in English was as follows: “Look, we’re ready to fill Nabucco with our gas and do what’s needed to make this project a reality. It’s up to you guys to decide how soon you want it.”

And just as the Azerbaijani leader was talking about the recoverable reserves of natural gas in Azerbaijan, I overheard a French diplomat behind me saying to a colleague “Now, that’s what I call meaning business. Cool, yet passionate, and to the point.”


* First published at PublicService Europe.

**Emil Agazade is head of media at the European Azerbaijan Society in London.

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