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25 Years After the “Contract of the Century”: The Implications for Caspian Energy

The Caspian Basin is an important oil supplier.

25 Years After the “Contract of the Century”: The Implications for Caspian Energy

By Ambassador (Ret.) Robert F. Cekuta

WHEN THE AGREEMENT BETWEEN Azerbaijan and an international oil consortium was signed in 1994, it launched the development of the Azeri-Chirag-Guneshli (ACG) oil fields in the Caspian Sea and signaled the region’s return as a serious oil supplier. Dubbed “The Contract of the Century,” it had implications beyond just an agreement to drill for, produce, and sell oil. The investment boosted the income and helped strengthen the independence of Georgia and Azerbaijan and demonstrated international interest in the region’s newly independent countries. It would become the model for future deals and projects, e.g., the Southern Gas Corridor, that would further energy security.

Even 25 years later, the Caspian Basin remains an important supplier. Bordering Iran and Russia and an oil and gas source for Asian and Western markets, the region’s geopolitics remains complex. While there might be questions about the likelihood of future international mega-energy projects on the scale of the $40+ billion Southern Gas Corridor, the Caspian region can contribute further to regional and global energy security.

Revisiting the contract after 25 years reveals its significance: in 1994, Azerbaijan and others in the region recognized the need to be responsive to the concerns of private enterprise to tap, market, and profit from the resources. The contract’s provisions were ratified by the country’s parliament and enshrined as constitutional law. Thus, the Azerbaijani government sent a strong signal in 1994—a time when most of the former Soviet Union faced chaotic business conditions—that it would take necessary steps for foreign investment. The contract also established that the region’s countries need to work together and sparked a model that would help re-establish trans-Eurasian trade links to foster greater regional connectivity.

In 2017, when the ACG contract was renewed for another 25 years, over 3 billion barrels of oil had been produced in the ACG fields as a result of $33 billion in investments. While circumstances continue to change, Caspian oil and gas remain important. The process begun with the 1994 contract continues to be important in world markets, global energy security and the stability of the Caspian region.

LEARN MORE
Ambassador Cekuta’s full article is available through the Caspian Policy Center at https://www.caspianpolicy.org/25-years-after-the-contract-of-the-century-the-implications-for-caspian-energy/

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