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Azerbaijan: Baku Warns It May Sell Gas To Teheran

In the past week, Azerbaijan has warned other countries that it may start dealing with Iran on both gas exports and imports. This year, Baku needs gas for electricity, but starting in 2002, it will also need a new export route for its Caspian discoveries if agreements are not reached soon. Our correspondent Michael Lelyveld reports.

Boston, 19 December 2000 (RFE/RL) -- Azerbaijan President Heidar Aliyev has shown impatience with Turkey for its delay in agreeing to buy Azeri gas, suggesting that he could turn to Iran unless a deal is signed soon.

At a meeting with Turkish energy officials in Baku last week, Aliyev stressed that "our objective is to supply gas to Turkey," the AssA-Irada news agency reported. The president said his first preference is a plan to build a trans-Caspian pipeline from Turkmenistan across Azeri territory for gas exports from both countries to Turkey.

Failing that, Azerbaijan would proceed with its own project to pipe Azeri gas from the Caspian across Georgia instead, Aliyev said. But if both of those options remain stalled, Azerbaijan will open talks on gas sales to Iran, he said, according to AssA-Irada and the Russian news service Interfax.

The warning on the Iran option comes more than 10 months after the BP oil company outlined plans to upgrade and build lines through Georgia from Azerbaijan's Shakh-Deniz field in the Caspian at a cost of $1.3 billion. Officials had hoped that Turkey would sign a purchase agreement for the gas by early this month.

Although Ankara has repeatedly voiced willingness to buy gas from Azerbaijan, it has also hoped for an agreement that would include Turkmenistan and the trans-Caspian line, which is backed by the United States. That agreement, in turn, has been blocked for the past year by Azerbaijan's feud with Turkmenistan over their shares in the pipeline.

The stalemate has led to Aliev's threat to sell the country's gas to Iran, when it starts flowing from the Caspian in late 2002. The official Iranian news agency IRNA quoted a Foreign Ministry source as saying that no talks have taken place yet.

But this is hardly the first time that Azeri officials have aired the idea of exporting to Iran. Last March, officials explored the idea of restoring a Soviet-era gas line between the two countries, which crosses the border at the town of Astara.

Iran reportedly offered to advance funds for the project on Azeri territory and buy up to 8,000 million cubic meters of gas per year. Officials also discussed the option of converting the line to carry Azeri oil.

At the time, the Azerbaijani government was frustrated over Georgia's refusal to drop its tariff demands for transiting oil through the Baku-Ceyhan pipeline. The dispute had delayed an agreement on the pipeline project for over four months. But within days of threatening to export oil through Iran instead, Azerbaijan gave in to Georgia's demands by reducing its own tariff to cover the cost. The deal led to a new agreement on Baku-Ceyhan, and the threat to export through Iran was quickly dropped. According a Reuters report last June, the reconstruction of the Astara line would cost $300 million to $400 million, although some analysts believe the estimate is high.

It is not clear whether the talk of an Iranian route is only another last-minute negotiating ploy aimed at Turkey. But Aliev's public statement before opening discussions with Iran suggests that his message was meant more for Ankara and Ashgabat than for Tehran. The signal is also likely to be aimed at Washington, which has previously opposed any deals with Iran. Certainly, Aliyev would welcome some help in untying the knot that has been created by competing pipeline plans.

One implication is that exports of Azeri gas to Iran could help Tehran when it starts to supply gas to Turkey under a contract for deliveries which will start next July. In other words, if Azeri gas does not reach Turkey through Georgia, it could go through Iran. At the same time, it could displace Turkmen gas, which Ashgabat hopes to sell to Turkey over the same Iranian route. Azeri gas is still closer to the Turkish market, whether it travels through Georgia or Iran.

But the situation has been complicated even more by Azerbaijan's statements last week that it not only wants to sell gas to Iran, but also to buy gas from it. On Friday, the president's son, Ilham Aliev, the vice president of the Azerbaijani state oil company SOCAR, said he wants to open talks with Iran for gas supplies in the near term because deliveries from Russia have proved undependable.

Although Azerbaijan may have enough gas to export two years from now, it is suffering with shortages of gas and electric power this winter. A recent delay in Russian customs clearance for gas deliveries demonstrated how vulnerable Azerbaijan will be if it relies on a single source for gas.

But the result of turning to Iran could create an extraordinary situation. If the pipeline between the two countries is restored, gas could flow from Iran to Azerbaijan to ease shortages next winter, for example. After 2002, the flow might be reversed if Iran agrees to buy Azerbaijan's gas from the Caspian when it is ready for export.

One possibility is that gas could be supplied to Azerbaijan first and repaid with exports later. But for now, it seems more likely that Azerbaijan's talk of dealing with Iran for both imports and exports is a warning that other countries must move faster so that no deals with Tehran will take place.