BAKU (Combined Sources)—Azerbaijan said its arms trade with Russia is worth $4 billion as it boosted military spending in connection with the Nagorno-Karabakh conflict, reported Bloomberg.
“As of today, military and technical cooperation with Russia is measured at $4 billion and it tends to grow further,” Azeri President Ilham Aliyev said Tuesday after meeting with Russian President Vladimir Putin in Baku. It was the first time Azerbaijan disclosed the price of its arms deals.
Azerbaijan has increased military spending by almost 30 times to $3.7 billion in the past decade and repeatedly threatened to use force to regain control of Karabakh if peace talks fail.
At a press conference following their meeting, Putin said only a diplomatic solution would be acceptable for the Karabakh conflict.
“There is only a political solution to Karabakh conflict,” the RIA Novosti agency quoted Putin as saying.
“During the negotiations we touched upon international issues, including the Nagorno Karabakh conflict. Russia is providing active assistance to the settlement, which is possible only by political means,” added Putin.
He also stressed the need for a resolution of the existing problems in the Caspian region related to delimitation, ecological issues, for the benefit of all countries of the region.
But, Putin failed to clinch a concrete energy deal on his rare trip to Azerbaijan on Tuesday, dashing Moscow’s hopes to challenge the dominance of major Western energy companies in the former Soviet republic, reported Reuters.
Putin’s trips abroad usually yield a flurry of deals and one of his closest allies, state oil champion Rosneft’s head Igor Sechin, went to Baku last month to prepare the ground.
Russia has long tried to increase its presence in Azerbaijan, a country Europe is hoping will help it lessen its dependence on Russian gas after Moscow’s “gas wars” with Ukraine disrupted deliveries in 2006 and 2009.
But on Tuesday, Sechin signed only a vague cooperation agreement with Azeri state energy firm Socar as Putin landed in Baku for the first time in seven years.
“Under this agreement, we plan to cooperate on a number of issues including crude swap operations, a joint use of infrastructure,” Sechin told reporters without giving details.
Sources on both sides said a lot of differences needed to be removed for the companies to agree on teaming up on field development or swapping energy supplies.
“Azerbaijan is asking such a high price for its assets that Rosneft is not willing to offer,” a Russian energy source said, asking not to be named. A Socar source also said a lot of work needed to be done to iron out the differences.
Western oil companies such as BP, Statoil and Exxon Mobil have dominated the Azeri oil industry since the collapse of the Soviet Union while relations between Moscow and Baku have been mostly cool.
Ties between Moscow and Baku were strained late last year after protracted talks between the two countries failed to reach a deal over Moscow’s use of a radar station on Azeri territory.
The only Russian company with a significant presence in Azerbaijan is the privately-held Lukoil.
Russian state gas monopoly Gazprom agreed in the last decade to buy almost the entire gas output from Azerbaijan, in what was seen as a successful attempt by Russia to defend its leading position in Europe’s gas markets.
But the deal never materialized in full, and Azerbaijan and major oil companies have instead agreed to supply most of their gas through a new pipeline to Europe from 2019.
The project does not represent a major challenge to Russia’s gas dominance in Europe, although Moscow has always been keen to make sure Azerbaijan does not become a major transit route for gas from other Caspian Sea producers.
The threat has somewhat diminished since major producer Turkmenistan rerouted most of its gas to China away from Russia and the European markets.
Azerbaijan has almost a trillion cubic meters in gas reserves, according to BP data, relatively small compared to Russia’s 33 trillion cubic meters.
Last month, industry sources told Reuters Rosneft was seeking a stake in Azerbaijan’s Absheron gas project but this was not mentioned in the cooperation agreement.
SOCAR and French oil company Total each hold 40 percent in Absheron with the remainder being held by GDF Suez. Azeri officials have said Absheron will help increase Azeri gas exports in coming years.
Sources have also said Rosneft and Socar were also considering swapping Azeri oil in Europe against Russian supplies to Asia which would allow Rosneft to service its plants in Italy and Germany while Socar would supply its Asian buyers.