An Overview of the Turkish-Azerbaijani Economic Cooperation

The presence of Turkey, undoubtedly, is one of the active forces concerning the Karabakh issue between Armenia and Azerbaijan. The historical ties between Azerbaijan and Turkey continue to play an influential role today, and the cooperation between the two countries, as evident in the conflicts of 2016, 2020, and 2023, has notably impacted the fate of the Armenians in Karabakh. The collaboration between Turkey and Azerbaijan extends across a broad spectrum, from economics to the military, from culture to education. In this alliance, alongside ethnic and linguistic ties between the two peoples, the perception of Armenians as a “common adversary” holds significant importance. Both countries, as a matter of their security concepts, share the objective of weakening Armenia as much as possible and making its existence more challenging. Turkey’s closure of its border with Armenia and the imposition of economic embargo in the early 1990s to support Azerbaijan due to the Karabakh issue, without any change in this stance to date, are among the most crucial indicators of this situation.

While historical and ethnic ties play a significant role in cooperation between Turkey and Azerbaijan, economic cooperation, despite being crucial in the context of the Karabakh issue, can sometimes be overlooked in bilateral relations. Economics transcends ideology or discourse, forming deeper relationships, and Turkey and Azerbaijan have made significant progress in this regard over the past thirty years. In the early 1990s, during the First Nagorno-Karabakh War, when economic relations between Turkey and Azerbaijan had not yet been established, Turkey’s abstention from direct involvement in the war, but its practical support alongside verbal and moral support for Azerbaijan in 2020 and 2023, when the trade volume between the two countries reached record levels, is significant. Moreover, Azerbaijan, although considered a minor partner in bilateral relations, has expanded its investments in Turkey through its energy resources, gaining strength and involvement in Turkey’s foreign relations in this regard.

During the rapprochement between Turkey and Armenia in 2010, Azerbaijan’s dissatisfaction with the issue was expressed by raising the price of natural gas it sold to Turkey, which already had a fragile economy, causing significant concern to Turkey. Eventually, the normalization process between Turkey and Armenia was suspended by Turkey. Therefore, one of the essential keys to understanding the Karabakh issue and Armenian-Turkish and Armenian-Azerbaijani relations is to look at the Turkish-Azerbaijani relations through the lens of the economy.

Undoubtedly, the most crucial aspect of cooperation between the two countries in the economic field is in the energy sector. Investments ensure the transportation of Azerbaijan’s oil and natural gas to Turkey and onward to third countries, allowing Turkey to benefit from this trade while integrating Azerbaijan’s economic gains into the global economy. Especially in cooperation between European countries and Azerbaijan in the oil and natural gas sector, the effectiveness of Azerbaijan in European politics increases, leading to the overlooking of its negative human rights record and crimes against humanity committed against Armenians. Especially, the increase in the effectiveness of Azerbaijan’s national energy company SOCAR due to this, and the significant increase in Azeri natural gas sold to Europe through the energy pipeline called TAP due to the bans imposed on Russian energy companies because of the war in Ukraine, provide Azerbaijan with economic gains and reputation as an alternative energy source.

Azerbaijan serves as a bridge for Turkey to establish connections with the Turkic republics in Central Asia, while Turkey provides Azerbaijan with access to the West and world markets, allowing its integration into the system, thus being seen as a commercial partner by major powers.

Total Trade Volume Between Two Countries

1. 2017: $2.6 billion
2. 2018: $3.4 billion
3. 2019: $4.4 billion
4. 2020: $4.5 billion
5. 2021: $4.8 billion
6. 2022: $5.8 billion
7. 2023: $7.5 billion

This data shows a clear upward trend in trade volume between Azerbaijan and Turkey, highlighting the deepening economic ties and mutual strategic interests in various sectors, particularly in energy. Turkey is Azerbaijan’s second largest trading partner after Italy in terms of exports. Similarly, in terms of imports, Turkey is second after Russia. 

Azerbaijan and Turkey have a robust economic cooperation characterized by strong bilateral relations, extensive trade, and significant energy projects. Here are some key aspects of their economic cooperation:

1.Trade Relations

Trade between Azerbaijan and Turkey has been steadily increasing. In recent years, the trade volume has exceeded several billion dollars annually. Turkey is one of Azerbaijan’s largest trading partners. Azerbaijan mainly exports oil, natural gas, and petroleum products to Turkey, while Turkey exports machinery, food products, and consumer goods to Azerbaijan.

2.Energy Projects

The Trans-Anatolian Natural Gas Pipeline (TANAP) is a significant pipeline project that delivers natural gas from Azerbaijan’s Shah Deniz field to Turkey, extending further into Europe. It serves as a crucial component of the Southern Gas Corridor. On the other hand, the Baku-Tbilisi-Ceyhan (BTC) Pipeline carries oil from the Caspian Sea starting in Baku, passing through Georgia, and reaching the Mediterranean port of Ceyhan in Turkey. It is a primary channel for exporting Azerbaijani oil. Although it would have been more economical for these two pipelines to pass through Armenia, Azerbaijan chose longer and more expensive routes to exclude Armenia from energy projects due to the Karabakh conflict, benefiting Georgia in particular.

3.Investment

Both countries have substantial investments in each other. Turkish firms are involved in multiple sectors in Azerbaijan, such as construction, telecommunications, and banking. Similarly, Azerbaijani firms invest heavily in Turkey, especially in the energy sector.  According to various sources, there are more than 2,000 Azerbaijani-owned companies operating in Turkey. These businesses cover a variety of sectors, including energy, construction, real estate, telecommunications, and retail. Estimates indicate that over 4,000 Turkish-owned companies are operating in Azerbaijan. These companies are engaged in various sectors, including construction, energy, telecommunications, finance, retail, and hospitality.

4.Joint Ventures and Industrial Cooperation

The State Oil Company of Azerbaijan Republic (SOCAR) has made substantial investments in Turkey, including the STAR refinery, the Petkim petrochemical complex, and involvement in various energy distribution projects. SOCAR’s STAR Refinery, with an investment of approximately $6.3 billion, enhances Turkey’s ability to process crude oil and reduces dependence on refined oil imports. SOCAR’s cumulative investments in Turkey are among the largest by any foreign entity, estimated to be around $20 billion. The two countries are working on creating industrial zones and enhancing free trade agreements to boost bilateral trade and investment.

5.Economic Agreements and Forums

Several bilateral agreements have been signed to enhance economic cooperation, covering areas like taxation, trade facilitation, and investment protection. Regular economic forums and business councils are held to foster closer cooperation and discuss new opportunities for mutual benefit.

These elements highlight the multifaceted economic relationship between Azerbaijan and Turkey, which is driven by strong political ties and mutual strategic interests.

Azerbaijan’s exports to Turkey primarily consist of energy products, but they also include a variety of other goods. Here is a more detailed breakdown:

Main Export Products

Oil and Petroleum Products

Crude Oil: The largest export product, transported mainly through the Baku-Tbilisi-Ceyhan (BTC) pipeline.

Refined Petroleum Products: Various refined products, including diesel, gasoline, and jet fuel.

Gas

Natural Gas: Exported through the Trans-Anatolian Natural Gas Pipeline (TANAP), a major component of the Southern Gas Corridor.

Petrochemicals

Petrochemical Products: Products from SOCAR’s investments, such as those from the Petkim petrochemical complex in Turkey.

Agricultural Products

Fruits and Vegetables: Azerbaijan exports fresh fruits, vegetables, and nuts to Turkey.

Chemicals

Chemical Products: Various chemical products used in different industries.

Metals and Minerals

Aluminum and Copper: Various metal products including aluminum and copper.

Azerbaijani Exports to Turkey:

1. 2019: $3.1 billion
2. 2020: $3.3 billion
3. 2021: $3.5 billion
4. 2022: $3.7 billion
5. 2023: $3.9 billion

Turkey’s exports to Azerbaijan are characterized by a mix of industrial, consumer, and capital goods. Here is a more detailed summary:

Main Export Products:

Machinery and Equipment

Industrial Machinery: Equipment for various industries including construction, manufacturing, and energy. Appliances, electrical machinery, and equipment.

Food and Agricultural Products

Processed Foods: Including confectionery, dairy products, and packaged foods.

Fresh Produce: Vegetables, fruits, and other agricultural products.

Construction Materials

Cement, Steel, Ceramics etc: Key materials for Azerbaijan’s construction sector. Ceramics and tiles used in construction.

Textiles and Apparel

Ready-to-wear garments and fabric materials. Bed linens, curtains, and other textile products.

Chemicals and Plastics

Plastics and Rubber, products for various industrial applications. Chemical Products including cleaning agents, pharmaceuticals, and other chemicals.

Automotive Products

Vehicles and Parts: Cars, trucks, and vehicle parts, tires, batteries, and other accessories.

Turkish Exports to Azerbaijan

1. 2019: $1.7 billion
2. 2020: $2 billion
3. 2021: $2.3 billion
4. 2022: $ 2.8 billion
5. 2023: 3.5 billion (estimated)

Key Infrastructure and Projects

Key infrastructure and projects between Turkey and Azerbaijan include enhanced transportation links, such as improved road and rail connectivity that supports the flow of goods and regular flights between major cities facilitating trade. Economic zones and free trade agreements, including tariff reduction agreements and special economic zones with favorable trade regulations, boost economic activity. Significant Turkish investments in Azerbaijan span various sectors, including construction, telecommunications, and retail, with numerous joint ventures between Turkish and Azerbaijani companies across multiple industries. Bilateral agreements and cooperation are bolstered by numerous economic and trade agreements aimed at enhancing economic cooperation and facilitating trade, along with investment protection agreements to safeguard and encourage mutual investments. Future prospects for the economic partnership involve increased diversification of exported goods, continued development of transportation and trade infrastructure, and regular economic forums to identify new opportunities and strengthen existing trade relations. 

The Baku Tbilisi Kars railway runs from Baku, the capital of Azerbaijan, through Tbilisi in Georgia, and ends in Kars, Turkey. This route establishes a direct rail connection between Azerbaijan and Turkey, bypassing Armenia. The railway line became operational in October 2017, marking a significant milestone in regional connectivity. The BTK railway facilitates the transport of goods between Azerbaijan, Turkey, and beyond, enhancing trade relations and reducing transportation times. By connecting with Turkey’s existing rail network, the BTK railway provides a direct link to Europe, thereby integrating the South Caucasus region into the broader European rail system. The railway is part of the modern Silk Road initiative, aiming to revive the historic trade route by providing a seamless land transport corridor between Asia and Europe.

The energy partnership between Azerbaijan and Turkey is a critical component of their economic relationship, driven by significant projects and investments in the oil and gas sectors. This partnership has strategic importance for both countries and the broader region. Here’s an in-depth look at their energy cooperation along with relevant economic statistics:

The Baku-Tbilisi-Ceyhan (BTC) pipeline transports crude oil from Azerbaijan’s offshore oil fields in the Caspian Sea to the Mediterranean port of Ceyhan in Turkey. Stretching approximately 1,768 kilometers, it has a capacity of around 1 million barrels of oil per day, generating significant revenue for both countries through transit fees and exports. 

The Trans-Anatolian Natural Gas Pipeline (TANAP) is a major pipeline transporting natural gas from Azerbaijan’s Shah Deniz field to Turkey and further to Europe as part of the Southern Gas Corridor. Spanning around 1,850 kilometers, it initially has a capacity of 16 billion cubic meters per year, with potential expansion up to 31 billion cubic meters. TANAP provides substantial transit revenues to Turkey. 

The South Caucasus Pipeline (SCP) runs parallel to the BTC pipeline, transporting natural gas from the Shah Deniz field to Turkey over approximately 692 kilometers. With a capacity of around 25 billion cubic meters per year after recent expansions, the SCP is an integral part of the Southern Gas Corridor, boosting Azerbaijan’s gas exports.

Recent Developments and Future Prospects

Expansion projects in the energy partnership between Azerbaijan and Turkey include plans to increase the capacity of the TANAP pipeline to meet growing demand in Europe and potential new gas field discoveries in the Caspian Sea, which could further boost Azerbaijan’s export capacity. Strategic initiatives focus on enhancing energy security and diversifying energy sources, including collaboration on renewable energy projects and investments in sustainable energy infrastructure. The economic impact of this partnership is significant, with the energy sector being a major contributor to Azerbaijan’s GDP and playing a crucial role in Turkey’s energy security and economic growth. Significant job creation occurs in both countries through direct employment in the energy sector and related industries. In summary, the trade volume in oil and gas amounts to multi-billion dollars annually, with billions of dollars in cross-border investments, particularly by SOCAR in Turkey. Substantial revenues are generated from transit fees, energy exports, and joint projects, highlighting the foundational role of the energy partnership in Azerbaijan-Turkey economic cooperation, which also enhances their capacity in the region. 

The economic dimension of Azerbaijan-Turkey military cooperation is substantial and multifaceted, encompassing defense procurement, joint ventures, training programs, and strategic investments. This cooperation not only enhances the military capabilities of both nations but also contributes significantly to their economies. 

Defense Procurement and Trade

Azerbaijan has been a significant purchaser of Turkish military equipment, acquiring items such as drones, armored vehicles, artillery, and missile systems. Notably, the Bayraktar TB2 drones played a critical role in the 2020 Nagorno-Karabakh conflict. These acquisitions represent substantial financial transactions that benefit Turkish defense manufacturers, bolstering the industry’s growth. Defense trade between the two countries has been steadily increasing, with Azerbaijan emerging as one of the primary export markets for Turkish defense products. The annual trade volume, while varying, remains consistently significant, reflecting ongoing procurement contracts and deliveries.

Joint Ventures and Collaborative Projects

Turkey and Azerbaijan have collaborated on joint production initiatives, with Azerbaijani facilities producing or assembling Turkish-designed military equipment. This partnership facilitates technology transfer, creates jobs, and develops local expertise in Azerbaijan. Through these collaborations, Azerbaijan gains access to advanced military technology and manufacturing processes, contributing significantly to the development of its own defense industry.

Turkish military experts provide extensive training programs for Azerbaijani personnel, covering the operation and maintenance of purchased equipment, tactical training, and specialized courses. These programs involve significant expenditures on facilities, equipment, and personnel, contributing economically to the host country, Turkey. Additionally, Azerbaijani military officers receive education at Turkish military academies, which includes both academic and practical training. This exchange enhances the professional capabilities of the Azerbaijani military and fosters deeper ties between the armed forces of both nations.

Bilateral Agreements and Strategic Partnerships

Bilateral defense cooperation agreements often include economic clauses that facilitate economic cooperation, such as favorable trade terms, investment protections, and joint development clauses. These agreements are part of broader strategic initiatives aimed at strengthening economic and military ties, ensuring mutual benefits.

Future Prospects

Future prospects for Azerbaijan-Turkey military cooperation include expanding joint ventures to produce more advanced military systems and components within Azerbaijan, enhancing its self-sufficiency in defense and creating economic opportunities. Continuous procurement of new and more advanced military equipment from Turkey is expected, driven by Azerbaijan’s strategic needs and ongoing modernization efforts. Both countries are likely to increase collaboration in defense research and development, focusing on new technologies and innovations that can be jointly developed and produced. A strong military partnership contributes to regional stability, creating a favorable environment for economic growth and investment. Stable regions are more attractive to investors and can achieve sustained economic development.

The economic dimension of Azerbaijan-Turkey military cooperation is extensive, with significant investments, trade, and collaborative projects that benefit both countries economically and strategically. This cooperation not only strengthens their military capabilities but also supports economic growth and development in both nations.

As of recent years, the number of Azerbaijani-owned companies operating in Turkey has been steadily increasing, reflecting the growing economic ties between the two countries. While precise numbers can fluctuate, a general overview can be provided based on available data:

There are over 2,000 Azerbaijani-owned companies operating in Turkey, spanning sectors such as energy, construction, real estate, telecommunications, and retail. Significant investments in the energy sector are led by SOCAR, with projects like the STAR Refinery and Petkim petrochemical complex. Azerbaijani companies are active in construction, real estate, telecommunications, and retail sectors, contributing to Turkey’s economic growth. Cumulative Azerbaijani investments in Turkey are estimated at around $20 billion, making Azerbaijan one of the largest foreign investors in the country, with notable contributions from SOCAR. These companies contribute to job creation, facilitate trade between the two countries, and promote technological transfer and collaboration.

Future prospects include increasing investments, diversification into sectors like technology and finance, and strategic initiatives aimed at enhancing economic cooperation between Azerbaijan and Turkey, further solidifying their economic partnership. 

Turkish-owned companies have a significant presence in Azerbaijan, reflecting the strong economic ties between the two countries. There are over 4,000 Turkish-owned companies operating in Azerbaijan, spanning various sectors including construction, energy, telecommunications, finance, retail, and hospitality. 

Turkish construction companies such as Tekfen, Enka, and GAMA have been involved in major infrastructure projects in Azerbaijan, including highways, buildings, and industrial facilities. Turkish firms have contributed significantly to landmark projects such as the Baku-Tbilisi-Ceyhan pipeline and residential and commercial developments. 

In the energy sector, Turkish companies are involved in oil and gas projects, with collaborations like the Trans-Anatolian Natural Gas Pipeline (TANAP) enhancing energy infrastructure. Turkish presence is notable in telecommunications with companies like Turkcell offering services, while Turkish banks like Ziraat Bank operate in finance alongside Turkish insurance companies. Major Turkish companies in Azerbaijan include Tekfen Holding, Enka İnşaat ve Sanayi A.Ş., Turkcell, Ziraat Bank, and Anadolu Group, engaging in various sectors.

Turkish-owned companies significantly contribute to employment, trade facilitation, and technology transfer in Azerbaijan, enhancing local capabilities and knowledge. Future prospects include increased investments across sectors such as infrastructure, energy, and technology, supported by strategic initiatives and enhanced economic cooperation agreements between the two countries.