I n September 2019, Turkish Vice President Fuat Oktay announced at the 8^th meeting of the Joint Intergovernmental Commission on Economic Cooperation between Turkey and Azerbaijan held in Baku that Turkey was ready to increase trade with Azerbaijan to $15 bil. by 2023. I. Aliyev also repeated the same point during the 8^th meeting of the Baku High-Level Strategic Cooperation Council on February 25, 2020, emphasizing that agreements will be signed between Turkey and Azerbaijan. This included preferential trade agreements, which will boost trade in the future. [1]

Future trade has been increasing steadily between Turkey and Azerbaijan. Despite these recent developments, the officials from the two countries insist that it isn’t still at the desired level.

Investment Cooperation

A zerbaijan has gradually turned into one of the largest investors in the Turkish economy. According to the Ministry of Foreign Affairs of Turkey, between 2002-2018, Azerbaijani investments in Turkey amounted to $11.2 bil., and Turkey’s investments in Azerbaijan to $11 bil. In 2019, Azerbaijan had already invested about $17 bil. and it is expected that as a result of the implementation of many new projects with SOCAR, investments will increase to $20 bil. by the end of 2020. [2] Most of the Azerbaijani investments are directed to Turkey’s energy sector.

In 2006, the two countries launched a joint venture, called SOCAR Turcas Energy (Turcas Petrol- 25%, Turkey, Aksoy Holding-24%, Turkey and SOCAR-51%, Azerbaijan). It operates mainly in the oil and gas fields. Besides processing, sale, import and export of gas and oil, the company also deals with the marketing issues of gas (Baku-Tbilisi-Erzrum gas pipeline) and oil (Baku-Tbilisi-Ceyhan oil pipeline). [3]

In 2008, the State Oil Company of Azerbaijani Republic (SOCAR) acquired one of Turkey’s largest petrochemical complexes Petkim Petrokimya Holding through a Turkish partner. [4] The initial investment was $2.4 billion. This holding is a subsidiary of the SOCAR Turkiye Enerji.

In 2018, Star (SOCAR Turkey Aegean Refinery) oil processing factory was launched in the area of Petkim complex. The investment value of the project was $6.3 bil., $2.4 bil. of which was funded by SOCAR and the other parts by 23 commercial banks which SOCAR Turkiye Enerji  signed loan agreements in 2014. The factory will annually process about 10 mil. tons of crude oil (will produce oil coke, liquefied gas, aviation fuel, sulfur and so on).

Alongside the refinery, SOCAR has launched its other projects, Petlim Container Terminal in the port of Aliaga, Izmir, as well as Petkim Wind Power Plant with a capacity of 51 MW, as part of SOCAR’s renewable energy investment in Turkey. [5]

Petlim terminal, source: http://www.petlim.com.tr/images

In 2019, SOCAR acquired EWE Turkey Holding, operating in the Turkish gas distribution market and is owned by German energy company EWE AG. New investment flow is expected in the future. SOCAR Turkiye Enerji plans to invest $120 mil. in the construction of reservoirs for oil and oil products. [6]

In the short run other projects are envisaged, the construction of power plants, gas and petrol stations and the second oil refinery. In general, SOCAR’s investment in Turkey in 2019 was $14.2 bil. The company envisages investing another $5.3 bil. in the construction and modernization of energy and communication infrastructure in the next three years.

Besides SOCAR and its subsidiaries, there are 2400 Azerbaijani business organizations in Turkey [7], which in parallel with their commercial activities, also invest in agriculture, real estate, transport infrastructure, energy, information technologies, chemical and metallurgical industry and so on.

Turkish investments in Azerbaijan are mainly aimed at what yields profits. The share of Turkish capital (5-19%) is in almost all international consortia, related to the development and export of Azerbaijani oil and gas fields. For instance, Turkish Petroleum Corporation (TPAO) has its share in the following projects:

1. “Baku-Tbilisi-Ceyhan” (oil pipeline) - 6,53%,
2. “Azeri-Chirag-Gunashli” (development of oil fields) - 6,75%,
3. “Shah Deniz” (gas extraction) - 19%,[8]
4. “Araz-Alov-Sharg” and “Kyurdashi” oil production projects, respectively 10 and 5%. [9]

More than a thousand companies from Turkey also operate outside the energy field the majority of which were founded by Turkish businessmen. 380 of them are completely Turkish with 370 with joint Turkish-Azerbaijani capital. There are also representatives of companies or enterprises representing Turkish brands.

Small and medium sized investments by these companies are made in the fields of banking, insurance and real estate, in the production of clothing, construction, wood and household goods, in telecommunication and so on. [10] Taking into account the share of the states in the investments, let us state that between 1993-2016, 25% of foreign investments in Azerbaijan fell to the USA and Great Britain with Turkey ranking third with 15%. [11]

There are also Turkish construction companies in the Azerbaijani market. According to the statistics of the Association of Construction Contractors of Turkey, Turkish companies implemented about 385 projects in various regions of Azerbaijan with a total value of $12.127 bil. Turkish construction companies build enterprises of different significance, sports complexes, highways and so on. 

Tekfen İnşaat is the largest of the Turkish construction companies existing since 1996, whose construction works in Azerbaijan are related especially to the buildings of energy field (oil and gas field, renewable energy) and state institutions.

Bilateral Trade Turnover

A s shown in the statistics of 2018-2019, Turkey ranks second after Italy in Azerbaijan’s 5 main trading partners (Table 1). It applies equally to both exports and imports (Table 2). [12]

Country	Total
Italy	6 008 539
Turkey	4 509 496
Russia	3 022 046
China	2 184 194
Germany	1 642 151

Table 1

Major trading partners of Azerbaijan (2019, $bil.)

Country	Export	Country	Import
Italy	5 638 641	Russia	2 290 219
Turkey	2 862 694	Turkey	1 646 801
Israel	1 331 616	China	1 432 031
India	955 865	Switzerland	1 223 277
Germany	931 783	USA	767 758

Table 2

Azerbaijan’s export and import according to major partners (2019, $ bil.)

According to the data presented by the State Statistics Committee of Azerbaijan, bilateral trade with Turkey amounted to about $220 mil. in 1992, however, currently it reaches $4.5 bil. (Graphic 1). Between 2009-2013, Turkey’s exports to Azerbaijan increased by about 1.6 times, and imports by 4.8 times.

By 2017, export volumes from Turkey were higher than import from Azerbaijan. There was an exception in 2007 and in 2015. However, between 2017-2019, due to primary energy sources, Azerbaijani exports to Turkey increased 2 times (graphic 2).

Graphic 1

Import and Export Structure (2018)

I n 2018, among major products exported from Azerbaijan to Turkey were: mineral fuels and oil ($1.5 bil.), cotton, cotton yarns and fabrics ($78 mil.), aluminum ($ 66 mil.), plastics ($ 36 mil.), copper ($30 mil.), chemicals ($29 mil.), iron and goods made of steel ($12 mil.).

Among the products exported from Turkey to Azerbaijan were: boilers, machinery and its equipment ($232 mil.), iron and steel ($110 mil.), electrical equipment ($104 mil.), plastics ($98 mil.), clothing ($81 mil.), furniture and bedding ($80 mil.), glass and glassware ($79 mil.). [13]

Thus, in 2018, Turkey-Azerbaijan bilateral trade turnover amounted to $ 3.4 bil., $1.8 bil. of which belongs to Azerbaijan and $1.5bil. to Turkey.

Graphic 2

Between 2013-2018, Azerbaijan sharply increased natural gas exports from Shah-Deniz mine to Turkey from 4.2 bil. cubic meters to 7.5 bil. cubic meters. As of 2018, Azerbaijan was the third largest supplier of gas to Turkey after Russia (23.6 bil. m³) and Iran (7.8 bil. m³) (graphic 3) [14]. Azerbaijani participation in oil exports to Turkey is very low: it ranks 25^th among the major suppliers. In 2018, it exported 30 thous. tons of crude oil [15].

Graphic 3

Summing up, on February 25, 2020, Turkey and Azerbaijan signed different cooperation agreements, some of which are of major economic significance. Particularly, the preferential trade agreement envisages a zero customs duty on reciprocal shipments of Turkish and Azerbaijani goods (15 products). It should also be noted that according to the decision of the Turkish Government, 43 products (13 agricultural and 30 industrial) produced in Nakhchivan have been exported to Turkey without customs duties and on preferential terms since October 2017. Besides the preferential trade agreement, the sides signed a memorandum of understanding on the construction of Kars-Nakhchivan (Kars-Igdir-Aralik-Dilucu-Sadarak-Nakhchivan-Julfa) railway project [16].

There was also discussed the construction issue of a 160-km-long gas pipeline from Nakhchivan to the Turkish border and from Igdir to Nakhchivan, on which the parties signed an agreement in 2010. There was also a signed a protocol on antitrust policy and consumer market control between public services of the two countries.

The other agreements signed between the interdepartmental institutions from the perspective of cooperation refer to the fields of visas, radio and television [17] and digital media [18], military and other fields between the two countries.

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[1] http://interfax.az/view/793491

[2] Азербайджан увеличит инвестиции в экономику Турции до $20 млрд за счет новых проектов SOCAR, Cumhurbaşkanı Recep Tayyip Erdoğan, Azerbaycan'da

[3] А. Булатов, Научно-практическая конференция «Проблемы Вывоза Капитала из России», Научная жизнь, 2013, с. 290.

[4] Petkim Petrokimya Holding-ը, is one of the leading oil and chemical complexes in Turkey, which produces ethylene, polyethylene and other oil and chemical products, which are used in the production of other industrial products.

[5] SOCAR’s giant investment project - STAR Refinery launched

[6] SOCAR вышла на рынок газораспределения Турции

[7] Azerbaycan ekonomisine en büyük yatırımcı Türkiye

[8] Based on the agreement signed in 1996, the share of Türkiye Petrolleri Anonim Ortaklığı (TPAO) in Shah Deniz project was 9% (see, Каспийская нефть. Экономика и геополитика), however in 2014, French oil and gas company Total S.A. sold its 10% shares to the Turkish company.

[9] Каспийская нефть. Экономика и геополитика (с. 55-57)

[10] “Azərbaycan İqtisadiyyatı” –Yenilənmiş ikinci nəşr, Osman Nuri Aras, Elçin Süleymanov, Bakı, 2016, səh.369

[11] Same place, p. 330

[12] State Statistics Committee of Azerbaijan, Ölkələr üzrə xarici ticarət əlaqələri (Ölkələr üzrə idxal, Ölkələr üzrə ixrac)

[13] International Trade Centre, և  Azerbaycan Cumhuriyeti ülke raporu, 2019,  s. 7

[14] DOĞAL GAZ PİYASASI 2018 YILI SEKTÖR RAPORU, Ankara, 2019.

[15] PETROL PİYASASI 2018 YILI SEKTÖR RAPORU, Ankara, 2019.

[16] Still in 2017, Former Minister of Transport and Infrastructure Ahmet Arslan stated that this railway would be part of an even larger project, the Baku-Tbilisi-Kars (BTK) railway, see in details here Габриелян Айк, О строительстве железной дороги Карс-Игдыр-Нахичевань –Иран.

[17] The agreement was signed between Digital Transformation Office at the Presidency of the Republic of Turkey and the State Agency for Pubic Services and Social Innovations under the President of the Azerbaijan (ASAN).

[18] The agreement was signed between the Turkish Radio and Television Corporation (TRT) and Azerbaijani AzTV  State Television.