Azerbaijan and Türkiye struck a major energy deal in May, with state-owned giants BOTAŞ and SOCAR signing agreements for the transfer of natural gas from Turkmenistan. The agreement follows May meetings where Turkish Minister of Energy and Natural Resources Alparslan Bayraktar and Azerbaijani Minister of Economy Mikail Jabbarov agreed to boost cooperation in the energy sector, particularly in the transfer of natural gas.

There are several potential routes for the gas to reach Türkiye or Europe. One route could involve an Iran-Azerbaijan-Türkiye gas swap. Turkmen gas could be transferred to Türkiye through Iran via a swap, or it could arrive in Türkiye through an exchange involving Iran and Azerbaijan. Alternatively, Turkmen gas could be supplied to Türkiye via a pipeline passing through the Caspian Sea.

A gas swap with Iran has been done before. In 2021, Turkmen gas was transferred to Azerbaijan via an exchange deal with Iran. However, the arrangement was discontinued this year due to disagreements on pricing between Baku and Ashgabat. The heavy international sanctions imposed on Iran make such agreements difficult, but possible.  However, today sanctions could pose a sufficient deterrent for resuming a swap arrangement, especially as the region looks to strengthen its ties to the West.  U.S. Ambassador to Turkmenistan Matthew Klimow commented earlier this year that, “The transfer of gas to Azerbaijan via a swap through Iran does not violate sanctions. Therefore, it will depend on how this deal is structured.” Despite this, in the most recent deal, Minister Bayraktar made no mention of Iran, which seems to indicate that Iran was ultimately left out of the agreement.  The higher volumes of gas discussed by Türkiye and Azerbaijan appear significantly more than what could be transited via an Iranian swap.  

Azerbaijan announced that it intends to nearly double its gas exports to Europe, reaching 20 billion cubic meters annually by 2027, while Türkiye has consistently expressed its ambition to become a key regional hub for natural gas transit and distribution. The new deal could help both countries accomplish their objectives. The European Commission (EC) had previously designated a trans-Caspian pipeline proposal from Turkmenistan to Azerbaijan a project of common interest, seeing it as an extension of the current Southern Gas Corridor pipeline network, which runs from Azerbaijan through Georgia and Türkiye to southern Europe and has an ultimate capacity of 32 billion cubic meters per year.

Logistics aside, the deal reflects Türkiye's ambitions to meet domestic demand and its ambition to solidify its position as the transit hub between Europe and the greater Caspian region. Türkiye and the West recognize that Azerbaijan is an unavoidable stopping point for this connection. In 2023, Türkiye reported an increase in its gas imports from Azerbaijan to 10.25 bcm, resulting in the share of Russian and Azerbaijani gas in Türkiye's import mix rising to around 45% and 21.6%, respectively.

The last few years have brought significant changes to the energy sector in the greater Caspian region. In many ways, Russia’s invasion of Ukraine created economic opportunities for the region, forging new routes and partnerships. The prospect of a viable trans-Caspian pipeline appears to be closer to reality.  At the same time, the changes that geopolitical events have made to the fabric of exchange and connectivity of the region have made the security norms less certain. 

Currently, the 29th Baku Energy Forum is underway, kicking off one of the most significant energy events in the Caspian region and highlighting the region's progress toward its energy future. Alongside regional state energy company participation, energy companies from around the globe are participating, as Caspian energy can provide alternative supplies to Russian gas and oil exports.  As a result, interest in the region’s energy potential is drawing the attention of global energy actors and investors. 

As a key transit country and energy supplier, Azerbaijan's role is essential for the successful transfer of natural gas to Europe. Its strategic partnerships with Türkiye and other regional players will be crucial in shaping the region’s energy future. The new agreement between Türkiye  and Azerbaijan, as well as this week’s forum, highlight Baku’s positioning as a linchpin in the broader effort to enhance energy security and connectivity between Central Asia, the Caspian region and Europe.