THE IMPACT OF GEOPOLITICAL RISKS ON CHINA-AZERBAIJAN ENERGY COOPERATION UNDER THE BELT AND ROAD INITIATIVE AND MEASURES

Abstract

This article provides a comprehensive analysis of the evolving energy partnership between China and Azerbaijan within the framework of the Belt and Road Initiative (BRI), examining its current state, geopolitical challenges, and strategic recommendations for future collaboration.

The foundation of bilateral energy cooperation rests on strong resource complementarity. Azerbaijan possesses substantial hydrocarbon wealth, including approximately 2 billion tons of proven oil reserves and 2.55 trillion cubic meters of natural gas in the Caspian region. For China—the world's largest energy importer—Azerbaijan represents a valuable opportunity to diversify supply sources and reduce dependence on traditional suppliers. This mutual benefit is reflected in investment patterns: between 1995 and 2023, 81 percent of China's nearly US$1 billion direct investment in Azerbaijan was directed to the oil and gas sector. The flagship CNPC-SOCAR collaboration in the Salyan onshore oil field, involving over US$600 million in joint investment, exemplifies this cooperation. A significant emerging trend is the acceleration of renewable energy partnerships, with Chinese companies transitioning from contractors to major investors in Azerbaijan's green energy strategy following the 2025 comprehensive strategic partnership.

However, the article identifies complex geopolitical risks threatening this cooperation. The long-standing Nagorno-Karabakh conflict poses direct security threats to critical energy infrastructure, including the Baku-Tbilisi-Ceyhan oil pipeline and Baku-Tbilisi-Erzurum gas pipeline, which pass near former conflict zones. Additionally, the South Caucasus serves as an arena for great power competition among Russia, the United States, the European Union, and Turkey—each pursuing competing geopolitical objectives that complicate the environment for Chinese investment. Most significantly, the European Union's Southern Gas Corridor strategy has created long-term supply contracts and deep political ties that prioritize Azerbaijani gas for the European market, potentially limiting availability for China.

To address these challenges, the article proposes a systematic response framework. Key recommendations include diversifying cooperation beyond oil trade to include equity participation in gas field development and the Trans-Caspian Gas Pipeline; promoting RMB settlement for energy trades to mitigate currency and sanctions risks; leveraging multilateral financial institutions such as the Asian Infrastructure Investment Bank and Silk Road Fund; upgrading transportation infrastructure including the Baku-Tbilisi-Kars railway; and embracing green energy cooperation through joint renewable projects and a proposed "green energy corridor."

The article concludes that China-Azerbaijan energy cooperation stands at a critical juncture. By combining strategic vision with pragmatic risk management—particularly through green transformation and a structured framework to counter geopolitical pressures—both nations can build a resilient, mutually beneficial partnership that serves their national interests while contributing to broader regional energy security.