Customs Union on verge of expansion
After the March presidential elections in Russia, some experts predicted the intensification of negotiations on extending the Customs Union of Russia, Kazakhstan and Belarus, connecting it with Vladimir Putin's return to the presidential post. One can say as of the first five months since the day of his inauguration, that these predictions have come true.
During this period, Russia launched wide propaganda on the Customs Union within the organisation and towards potential new members. Putin himself during this period held a number of meetings with colleagues on this economic unification, as well as with the leaders of neighbouring countries. Discussing the Customs Union's activity is on the agenda of the negotiations.
Kazakh President Nursultan Nazarbayev is not behind his Russian counterpart. Certainly, Kazakhstan's political and economic influence in the world is not so great compared to Russia, but this Central Asian country's viewpoint is rather significant in the region. Therefore, President Nazarbayev actively urges the neighbours to join the Customs Union which can rightly be considered as his brainchild (Nazarbayev proposed the idea of integration association, similar with customs union, a few years before its establishment).
Belarusian Presidential Alexander Lukashenko also voiced positive comments on the Customs Union and its prospects. Moreover, Belarus is a good example of the Customs Union's positive impact on the country's trade balance. While significantly losing its partners in the Customs Union in terms of the economy, Belarus has gained much benefit from joining the organisation. Belarus increased its export to Russia from $6.719 billion in 2009 to $14.509 billion in 2013. Export to Kazakhstan rose from $313.4 million to $673.9 million in this period.
Therefore, the Customs Union countries are actively working to expand the integration association. Of course, Russia and other members of the organisation are interested in expanding the borders of the Customs Union in the long term and the Eurasian Union in the future at least up to the limits of the former Soviet Union. However, emphasis is primarily focused on Ukraine, Kyrgyzstan and Tajikistan in the near future.
There is every reason to believe that Kyrgyzstan will be the next member of the Customs Union. Bishkek, as well as Russia and Kazakhstan show interest in Kyrgyzstan's accession to the Customs Union.
President Bishkek has repeatedly stated his country's desire to join the organisation. Moreover, Tajikistan has recently voiced its desire to join the Customs Union. Its joining the organisation will only be possible if there is a common border which will appear only after Kyrgyzstan joins. Therefore, there is reason to believe that concessions will be made to Kyrgyzstan and the process of its joining the organisation will be accelerated.
The deteriorating relations between Bishkek and Minsk in connection with the case of Kyrgyz ex-President Bakiyev complicate this issue. However, Belarus's voice in this issue is unlikely to be decisive.
Regarding the prospects of Tajikistan's joining the Customs Union, it is necessary to take into account that Russia and Kazakhstan are major economic partners for Tajikistan. Around 20 and 13.6 per cent respectively of the total volume of foreign trade of the Republic fell to them in January-August 2012. Moreover, joining the Customs Union will allow Tajikistan to receive a significant discount on energy resources imported from Russia and Kazakhstan and save up to $350 million per year on imports of petroleum based fuels.
Tajikistan's accession to the Customs Union will also simplify the conditions for the registration of Tajik migrants in Russia. Thus, Tajikistan's economic benefits from joining the Customs Union are obvious. However Tajikistan will become a burden for Kazakhstan and especially Russia from the economic point of view due to the weakness of its economy, but the political interests of the parties play their role in the region.
Ukraine is the most desirable, yet at the same time the least probable candidate for accession to the Customs Union. Ukraine's accession would be very beneficial for Russia, Kazakhstan and Belarus because of Ukraine's economy, its geographical location, as well as established economic ties. Russia is ready to pay for such a union and Gazprom promises to reduce the price of imported gas by the Ukraine twice if it joins the Customs Union.
However, despite the economic preferences offered by Russia, Ukraine is looking toward Europe. Joining the Customs Union will force Kiev to abandon old plans to join the European Union, but the Ukrainian political elite are not ready yet.
One must await the actions of Russia, Kazakhstan and Belarus to improve the economic attractiveness of their integration association. Only in this case, the Customs Union will be able to hope for joining strong and economically prosperous countries.
Future of Azerbaijani-Uzbek relations: transport communications and investments
Azerbaijan's relations with CIS partners, in particular with the countries of Central Asia, have intensified recently. It is proved by the state visits of the heads of Tajikistan, Kyrgyzstan and Uzbekistan.
Uzbekistan has played and plays an important role in the foreign policy of Azerbaijan, which is based not only on historical and linguistic affinity of the two nations, but also on the mutual political support and broad prospects for economic cooperation between them. Uzbekistan and Azerbaijan historically have similar positions on major aspects of regional and international politics, including the Nagorno-Karabakh conflict, which occupies a special place, the position of Baku on which is consistently and strongly supported by Tashkent.
The current visit of President Islam Karimov to Azerbaijan aims to address the multifaceted issues of bilateral cooperation, to give a new impetus to bilateral relations, as well as open new promising directions.
We have already seen the results of the last exchange of visits by the heads of Azerbaijan and Uzbekistan, including in the economic sphere.
Uzbekistan and Azerbaijan are trading partners - Uzbekistan supplies vehicles, nonferrous metals, pharmaceuticals, fertilizers, electrical and mechanical equipment, and agricultural products to Azerbaijan, provides services in transportation, tourism and other areas. Azerbaijan exports mechanical devices, pastries and various organic chemicals, tanning and dyeing extracts to Uzbekistan.
The companies with investment capital of Azerbaijan are also represented in some economic sectors of Uzbekistan.
Azerbaijan is also an important partner of Uzbekistan in the area of transport infrastructure. Its geographical location, as well as political and economic stability make Azerbaijan an important transit country through which Uzbekistan will be able to carry out freight to Europe and back.
In recent days the Central Asian countries have a particular interest in transport links to Europe via the Caspian Sea and the Caucasus to the Black and Mediterranean seas. This interest is justified, as these routes will reduce the length of the existing transport corridors around the Caspian Sea, and diversify the transportation routes in the region.
In this respect, it is worth noting the importance of Baku-Tbilisi-Kars railway, which is able to transport goods from Uzbekistan through Azerbaijan to Europe and the Middle East.
The two presidents have given particular attention to this issue during Karimov's visit to Azerbaijan. The parties anticipate that this project will create new conditions for transport and communication projects, which are economically efficient.
Baku-Tbilisi-Kars railway is important not only for Azerbaijan as a transit country, for the Central Asian region as a short and convenient way to Europe, but, of course, for Tashkent, which will gain a great opportunity to further expand into new markets.
In addition, the sides touched upon the issue of building a new line, the new Silk Road, which, as noted in a press statement, "will unite the continent for many years and provide a large transport capacity, realization of this capacity for our countries, as well as promote confidence-building measures in the region."
During the visit the presidents of Uzbekistan and Azerbaijan also discussed the issue of investment, which was predictable.
Both Azerbaijan and Uzbekistan have great economic and financial potential as well as extensive technical capabilities for the development of investment cooperation.
The sides signed an action plan to implement the program of economic cooperation between the governments of Azerbaijan and Uzbekistan for 2012-2015 in the frame of the visit of Islam Karimov to Azerbaijan.
The signing of these documents gives reason to expect an expansion of economic cooperation between the two countries, which is essential to strengthen their economies and diversification of foreign economic relations.
Now it's safe to say that Karimov's visit to Azerbaijan in case of implementation of agreements, will make a major contribution to the strengthening of constructive political dialogue between the parties, as well as promote the development of economic and cultural relations between Tashkent and Baku, which will be another important element in effective cooperation of two fraternal republics.
Iranian economy: poor management or influence of sanctions
Iranian President Mahmoud Ahmadinejad made a surprise announcement on Tuesday about the lack of budgeted government funds and as a result the impossibility to allocate a budget for many organizations. This statement of Ahmadinejad was received ambiguously both at home and abroad.
Western countries consider new sanctions effective enough to suspend Iran's nuclear program in June last year during the imposition of sanctions on oil and the banking system of Iran. The recent statement of Ahmadinejad, at first glance, gives the impression that the sanctions actually affected Iran. In particular, the decline of the national currency by two times in recent months clearly shows the influence of sanctions.
Iranian Parliament Speaker Ali Larijani told reporters last week that the sanctions account for only 20 percent of the problems and that the other 80 percent, which have arisen in the economic sector of the country, were due to problems in the governance of the country.
But Ahmadinejad, in contrast to the position he has occupied before (various performances of failure to provide the pressure of sanctions on the country), said for the first time that the statements of Larijani are unfounded and confirmed the impact of sanctions on the Iranian economy during a press conference held last week.
Iran has been producing oil for 103 years. Former deputy minister of oil during the first presidency of Mahmoud Ahmadinejad Akbar Turkan said oil revenues amounted to $531 billion during the seven-year presidency of Ahmadinejad's (2005-2011), and it is half the oil revenues that the country received from the sale of oil for 103 years.
According to the reports of OPEC Iran's oil revenues amounted to more than $500 billion during 2005 - 2011.
At the same time the report of the International Monetary Fund indicated that the economic development of Iran decreased by 9 percent in 2012 compared to last year and the inflation rate amounted to more than 25 percent.
In addition, the market liquidity increased by six times and reached 4 000 trillion rials during the last seven years. If the exchange rate of Iranian rial against foreign currencies amounted to 10, 400 riyals in the beginning of 2010, then this figure reached 35,000 riyals in the free market. All this demonstrates the failure of Ahmadinejad's administration in the economic sphere.
Above all, the development of Iranian economy was at 2 percent and inflation has exceeded 20 percent in 2011, before the Europe and the U.S. imposed new economic sanctions against Iran.
Turkey to use EU sanctions against Iran
The EU intends to toughen its sanctions against Iran from mid-October, by banning the Iranian gas supplies. These will be applied to countries purchasing Iranian gas.
In 2011, Iran exported nine billion cubic meters of gas, the bulk of which (8.5 billion cubic meters) was supplied to Turkey.
Turkey is the largest importer of natural gas in the region, buying an average of 39.7 billion cubic meters annually. It has the agreements with Russia to import gas (30 billion cubic meters per year), with Iran (10 billion cubic meters per year), Azerbaijan (6.6 billion cubic meters (after 2017, plus six billion more from the second phase of Shah Deniz field development). Moreover, Turkey buys liquefied gas from Algeria (four billion cubic meters) and Nigeria (1.2 billion cubic meters).
Along with these agreements, Turkey is also considering the variant of importing liquefied natural gas from Qatar and Saudi Arabia. According to the Ministry of Energy and Natural Resources, Turkey's energy demand will grow by an average of 1.5 billion cubic meters of gas per year, amounting to 59.3 billion cubic meters per year in 2020.
Turkey's agreement on the gas supplies with Iran was signed in 1996 for 25 years on a 'take or pay' principle. That is, if Turkey refuses to import Iranian gas or reduce it because of the sanctions, the country will have to pay for not taking gas until 2021.
Earlier, Turkey ignored the U.S. sanctions against Iran's oil imports, calling them illegal and their making no sense for Ankara. Turkey did not rush to recognise EU sanctions against Iran's oil imports, adopted last year. Turkish Minister of Energy and Natural Resources Taner Yildiz said that Turkey will switch part of the imported Iranian oil to Saudi Arabian.
Taking into account Ankara's attitude to the sanctions against Iran's energy sector, one can assume that Ankara will not refuse from taking the Iranian gas. Moreover, the country cannot afford this because of the 'take or pay' principle.
Turkey's cooperation with Iran in the field of natural gas imports will be limited by the existing contract, but at the same time, the country is unlikely to sign new contracts with Iran in the field, showing solidarity with the EU.
If one recalls the trial between Turkey and Iran over the decline in gas prices, Ankara in this case can still win due to the EU sanctions.
This means that Turkey previously filed a lawsuit against Iran in the arbitration court with the outcome being announced in April 2013. Turkey may put pressure on Iran, making a condition that either Tehran will reduce gas prices or Ankara will reject Iranian gas.
Taking into account that Turkey is a major importer of Iranian oil, Tehran is likely to significantly reduce gas prices, even without a court of arbitration's decision.
Thus, EU sanctions against the import of Iranian gas can become an exceptional opportunity for Turkey to implement a commercial plan for the country's energy supply without any damage to relations with the EU and Iran.
Importance of Azerbaijani gas increases
The European Union has decided to tighten sanctions on Iran by imposing a ban on the import of fuel from the country.
Such an agreement was reached last week, the foreign media reported, quoting the source familiar with the situation. Although the European Commission refused to comment on the decision, calling the information appeared in the press rumors, this possibility shouldn't be excluded. The EU has already demonstrated its commitment to fight against Iran's nuclear program through sanctions. The EU embargo on imports of Iranian oil is in force since July.
In the case of the ban on gas imports, the EU will have not much to lose. Iranian gas directed to Europe in minimum amount. The main consumer of Iranian gas is Turkey.
Turkey imported 39.7 billion cubic meters of gas in 2011, the Turkish state pipeline company Botas said. Russia ranks first among the exporter of gas to Turkey followed by Iran and Azerbaijan.
There is an agreement between Turkey and Iran on deliveries of ten billion cubic meters of gas per year (30 million cubic meters per day) to Turkey, signed in 1996. The export of Iranian gas to Turkey increased by 12 percent in 2011 compared to 2010, amounting to 24 million cubic meters of gas per day.
Iran is really an important exporter of natural gas to Turkey, but the country may stop buying Iranian gas in the future by increasing supplies from other countries, namely Russia and Azerbaijan.
Turkey had earlier expressed intention to stop importing Iranian gas due to Iran's refusal to lower prices for exported fuel, and compensate the lack of gas from other sources.
Azerbaijani gas can be one of such sources for Turkey.
According to the existing contract, Turkey must receive 6.6 billion cubic meters of gas in the frame of the first stage of development of the Azerbaijani Shah Deniz field. However, Turkey did not get annual contracted volumes of Azerbaijani gas. Possible refuse of Turkey to import Iranian gas will allow the country to comply with its contractual obligations to Azerbaijan, as well as to receive gas from the second phase of Shah Deniz development, in full volume - six billion cubic meters.
The introduction of the EU embargo on Iranian gas is also further increase the importance of Azerbaijani gas as an alternative source of supply to the European market, as well as its role in the energy security of Europe
Despite the fact that Iran ranks second in terms of natural gas reserves, it can't make full use of the existing potential and realize their desire to enter the European market due to nuclear ambitions. If earlier the country made statements regarding the agreements with Turkey on transit of gas through Turkish territory to Europe, then the possible introduction of new sanctions can close the door for Iran in that direction.
According to BP, the proven gas reserves of Iran amounted to 33.1 trillion cubic meters at the beginning of 2012, accounting for 15.9 percent of total world proven reserves of this fuel. Gas production in the country, according to BP, amounted to 151.8 billion cubic meters in 2011, which is 3.9 percent more than in 2010.