VZCZCXRO4494
PP RUEHAG RUEHROV
DE RUEHKB #0535/01 1611319
ZNY CCCCC ZZH
P 091319Z JUN 08
FM AMEMBASSY BAKU
TO RUEHC/SECSTATE WASHDC PRIORITY 5448
INFO RUCNCIS/CIS COLLECTIVE
RUCNMEM/EU MEMBER STATES
RUEHAK/AMEMBASSY ANKARA 2843
RHMFISS/CDR USEUCOM VAIHINGEN GE
RUEAIIA/CIA WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEKDIA/DIA WASHDC
RHEHNSC/NSC WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 BAKU 000535 
 
SIPDIS 
 
E.O. 12958: DECL: 06/09/2018 
TAGS: PGOV PREL AJ ENRG TK
SUBJECT: AZERBAIJAN: TURKEY NAKHCHIVAN SUMMIT A SUCCESS, 
THOUGH NO GAS TRANSIT BREAKTHROUGH 
 
Classified By: Political-Economic Counselor Joan Polaschik, Reasons 1.4 
 (b,d) 
 
¶1. (C) SUMMARY.  Initial press accounts indicate that 
Azerbaijani President Aliyev and Turkish Prime Minister 
Erdogan's June 4 meeting in the Azerbaijani exclave of 
Nakhchivan was successful, with the two countries announcing 
that their positions coincide "in all spheres." However, 
SOCAR Vice President Nasirov told us that there was no 
progress on the specific issue of transit of Azerbaijani gas 
through Turkey.  Nonetheless, by definition increased 
cooperation between these two countries on energy issues 
increases the possibility that the two sides will find a 
mutually agreeable solution, and there are indications that a 
solution on Turkish transit will involve Azerbaijan selling 
Turkey some of the gas expected to be produced from Shah 
Deniz Phase Two.  END SUMMARY. 
 
¶2. (U) The June 4 meeting between Azerbaijan President Aliyev 
and Turkish Prime Minister Erdogan came during the latter's 
first visit to the Azerbaijani exclave of Nakhchivan, which 
shares a border with Turkey.  Initial press accounts indicate 
the meeting was successful, with a joint statement following 
the two leaders' one-on-one meeting and a joint press 
conference.  In the press conference, Aliyev and Erdogan 
stressed their common positions on all major regional issues, 
with PM Erdogan saying the positions of Azerbaijan and Turkey 
"coincide in all spheres," and referring to the two countries 
as "one nation - two states," with Aliyev saying the two 
countries had "the same interests and the same enemies." 
Erdogan said the two countries would continue to support each 
other in international fora such as the UN, the Organization 
of the Islamic Conference and the Council of Europe. 
Agreeing, Aliyev added that the next meeting of 
Turkic-speaking nations would be organized in Baku. 
 
¶3. (U) During the press conference the two leaders expressed 
unanimity of opinion on N-K, with President Aliyev referring 
to Turkey as having demonstrated its support for Azerbaijan's 
N-K position "during the adoption of the UN resolution on the 
occupied Azerbaijani territories."  PM Erdogan said that 
resolving N-K within the framework of Azerbaijan's 
territorial integrity in accordance with international norms 
was "Turkey's greatest wish."  He also thanked Azerbaijan for 
its support to Turkey on the Northern Cyprus issue. 
 
¶4. (U) Economic issues played a large role in the meeting, 
especially energy and transportation.  PM Erdogan pointed out 
that Turkey has invested approximately USD 5.5 in 
Azerbaijan's non-oil sector, that the trade turnover between 
the two countries is USD 1.2 billion, with the goal of 
increasing this number to USD 3 billion within two years.  In 
terms of large projects, the two leaders discussed 
cooperation on the Kars-Nakhchivan railway line and regular 
Nakhchivan-Istanbul air flights.  After the one-on-one 
meeting between the two leaders, the two countries' Energy 
and Transportation Ministers and 
supporting staff met. 
 
¶5. (U) On energy, Aliyev announced that no cooperation within 
the region was possible without the two countries' 
participation, and that Turkey will deliver natural gas to 
Nakhchivan via the Baku-Tbilisi-Erzurum gas pipeline. 
Erdogan said that: 
 
"Turkey is a transit country. At the same time, Turkey will 
use the Baku-Tbilisi-Erzurum gas pipeline project to meet its 
own needs.  Energy ministers have received relevant 
instructions on this matter.  The amount of gas that will be 
delivered to Turkey has yet to be defined.  We also discussed 
the Nabucco (gas pipeline) project.  Within the existing 
capacity, it's planned that natural gas will also be 
delivered through Nabucco." 
 
¶6. (C) The specific issue of Azerbaijani gas transit through 
Turkey was not mentioned in public accounts of the meeting. 
However, in June 5 conversation on the fringes of the Caspian 
Oil and Gas Conference, SOCAR Vice-President for Marketing 
Elshad Nasirov, one of President Aliyev's close advisors on 
energy issues, told Emboff that the Turkish gas transit issue 
was not broached, much less solved, when the two leaders met. 
 
¶7. (C) COMMENT:  According to Azerbaijan, Turkish gas transit 
has to be solved for SOCAR to finalize sales and purchase 
 
BAKU 00000535  002 OF 002 
 
 
agreements with whichever of the three competing pipeline 
projects it chooses (TAP, Nabucco, TGI) to sell Shah Deniz 
Phase Two (SD2) gas.  As such, while it is regrettable that 
no specific progress was made on this issue during this 
meeting of the two countries' leaders, that Erdogan referred 
to Turkey as a 'transit country' (vice 'energy hub'), and 
that he referred to the Nabucco project as something that 
would deliver gas to Turkey, are encouraging signs.  When 
Erdogan said that "the amount of gas that will be delivered 
to Turkey has yet to be defined," he is referring to the GOT 
desire to buy all of Shah Deniz Phase Two gas (SD2 - 
approximately 13 billion cubic meters annually, starting 
approximately in late 2013), or at least a minimum of 8 
bcm/a.  In conversations with SOCAR Embassy has learned that 
SOCAR is seeking to sell some SD2 gas to Turkey, but wishes 
to sell no more than 5 bcm/a, so that there is enough SD2 gas 
left to sanction at least one pipeline project (although 
SOCAR still holds out the hope of sanctioning two, or, with 
Turkmen gas, all three).  As such, it seems that the two 
sides could be moving toward a solution to the Turkish 
transit issue in which the GOAJ sells some SD2 gas to Turkey 
at prices that are politically palpable for the GOT (i.e. 
below Gazprom and Iranian prices), with Turkey allowing the 
rest to transit Turkey under a fair and transparent tariff 
regime, without the "15 percent netback" clause that has up 
until now impeded progress on SD2 gas sales.  END COMMENT. 
LU