BP in Azerbaijan

The​ 29th UN Climate Change Conference begins in Baku on 11 November. For the third year in a row, as a recent editorial in the Financial Times pointed out, COP is being hosted ‘in an authoritarian state with a dubious human rights record, and for the second year in a petrostate’ (the previous two conferences took place in Sharm El-Sheikh and Dubai). The UK has outsized influence in Azerbaijan, thanks mainly to BP, the country’s biggest foreign investor. In September 2023, senior BP executives travelled to Baku for the centenary of the birth of Heydar Aliyev, a former KGB officer who bequeathed the presidency to his son, Ilham, when he died in 2003. The celebrations were held at Gulustan Palace, a Soviet-era complex overlooking Baku Bay. BP’s chairman, Helge Lund, and its former CEO Lord Browne had come, as a corporate press release put it, to ‘pay tribute’ to Heydar’s ‘exceptional contributions to the development of Azerbaijan and the entire region’. The previous day, Ilham Aliyev had seized the breakaway region of Nagorno-Karabakh in a lightning assault, expelling more than 100,000 Armenians from their homes. Azerbaijani forces have been accused of extrajudicial killings in the region.

This wasn’t the first time BP had come to Baku’s aid at a difficult moment. In 1992, Margaret Thatcher became the first Western leader to visit the newly independent Azerbaijan when she was flown in at BP’s behest to secure a lucrative oil deal. Browne recalled in his autobiography that Thatcher ‘was delighted to be asked’. The government in Baku was broke, isolated and at war with Armenia. After promising to establish scholarships in Britain for Azerbaijani students and to support efforts to reclaim national treasures from Moscow, Thatcher handed over cheques worth $30 million to Azerbaijan’s then president, Abulfaz Elchibey. That sealed the deal: BP signed a contract with the state oil company, Socar, giving it certain exclusive rights; it would soon be running operations in the Chirag oilfield and the vast gas field at Shah Deniz.

The arrangement marked a spectacular turnaround in BP’s fortunes. When Thatcher’s government privatised it in 1987, it was mocked by industry insiders as a ‘two-pipeline company’, almost entirely dependent on its reserves in the North Sea and Alaska. Thatcher, sensitive to the danger of a famous British brand being swallowed up in a hostile takeover, urged BP to move aggressively into the cash-strapped Soviet Union. ‘Start some investment rolling,’ she told Browne, who was then the managing director of BP’s Exploration and Production division. He ordered an underling to ‘get to Moscow and make something happen.’ (Browne was later commissioned by Peter Mandelson ahead of the 2010 general election to write the higher education review that opened the floodgates to the marketisation of British universities.)

The Soviet Union owned the pipelines through which all Caspian oil was exported, but with Moscow’s grip waning, opportunities were opening up. BP’s first port of call was Kazakhstan, which looked promising until larger US firms muscled in. Browne fared better in Azerbaijan, where he turned the tables on his American rivals by aligning the company with the British government. When BP opened its first office in Baku, a few months before Thatcher’s visit, London had diplomatic relations with Azerbaijan but no embassy. So BP partitioned an area of its office and gave it to British diplomats. A Union flag was hoisted outside the building. This elision of state and corporate interests, redolent of the colonial era, was ‘essential for us’, Browne later wrote, ‘as post-Soviet countries still found it easier to understand and accept government-to-government dealings’.

The deal Thatcher brokered in 1992 was formalised two years later in a production-sharing agreement between Azerbaijan’s government and eleven oil companies. The ‘contract of the century’, as it was referred to, designated some 330 square kilometres of the Caspian Sea as an industrial zone under the control of a foreign consortium led by BP. In return, Azerbaijan would receive much needed hard currency – the contract was worth $7.4 billion – and could expect significant revenue from future oil production. A photograph from the signing shows a beaming Browne shaking hands with Aliyev while the British energy minister, Tim Eggar, looks on. ‘From the UK’s point of view, our interest was that our major flag-bearing company BP had a very major part in that contract,’ Eggar told an Azerbaijani magazine. (After stepping down in 1997, he took up various roles in the oil industry, including chairing a joint venture between a British firm and Socar, and overseeing the North Sea’s regulator.)

The agreement was a huge success for BP. The Caspian Sea oil and gas fields aren’t the company’s most profitable holdings, but they are among its most dependable. According to data from the research agency Rystad, BP is on track to have made a profit of £23 billion from fossil fuel production in Azerbaijan by 2050. Ilham Shaban, an oil expert based in Baku, told me that ‘BP projects in Azerbaijan are much more profitable than projects in other post-Soviet countries,’ where oil and gas are often more difficult to extract and the cost of doing business is higher. Azerbaijan has become so important for BP that when the Deepwater Horizon spilled more than three million barrels of oil into the Gulf of Mexico in 2010 – a moment when BP’s very future seemed in doubt – Baku was one of the first places Tony Hayward, the then CEO, visited to garner support.

Azerbaijan’s oilfields were originally auctioned off by Alexander II in the second half of the 19th century. But when the Baku Commune seized power in 1917, a week after the October Revolution, it established the world’s first nationalised oil industry. A protracted struggle followed as international oil companies tried to protect their interests, with help from their national governments. Britain weighed in on behalf of BP’s predecessor, the Anglo-Persian Oil Company, which had been set up a few years earlier to extract petroleum from the oilfields of south-western Iran. In November 1918, keen to protect its interests in the region, Britain sent troops to occupy Baku. Major General William Thomson reprivatised the oil industry and declared martial law, ordering his soldiers to break a general strike. At the war cabinet in London, Lord Curzon argued that Britain should let the new Caucasian republics ‘cut each other’s throats’. The foreign secretary, Arthur Balfour, said he was ‘in favour of that’ so long as ‘Batum, Baku, the railway between them and the pipeline’ were protected.

When Baku fell to the Red Army in 1920, Azerbaijan and its oilfields were subsumed into the Soviet Union. The vast resources held by Shell, Standard Oil, the Rothschilds, the Nobels and the Anglo-Persian Oil Company came under state control. By 1974 the Soviet Union was the world’s biggest oil exporter, thanks to the Caucasus reserves, along with major discoveries in the Volga Basin – known as the ‘Second Baku’ – and Western Siberia. But Moscow was slow to modernise the industry. As the former Soviet oil minister Lev Churilov wrote, ‘exploration and production equipment stood frozen in time.’ By the time the oil and gas multinationals returned to Azerbaijan, shortly before independence, Baku’s power-brokers were desperate for investment. BP was particularly interested in a recently discovered field called 26 Baku Commissars, named for the communist cadres killed with the collusion of the British Expeditionary Force more than seventy years earlier.

In 1993, a military coup brought Heydar Aliyev to power. An article published in the Sunday Times seven years later alleged that BP had been involved in the coup, and quoted a Turkish secret service agent who claimed BP executives had helped to supply weapons to the Aliyev regime as part of an ‘arms-for-oil’ deal. BP denied any involvement, and the story soon fell apart. Then, in 2007, Leslie Abrahams, a former employee, told the Mail on Sunday that BP had worked with MI6 in the early 1990s to help bring about a more pro-Western, pro-business regime in Baku. Abrahams claimed that in the course of just four months the company had spent more than £5 million plying local figures with caviar, champagne and call girls, most of whom were also in the employ of the KGB. ‘Everywhere was bugged and all the phones were tapped,’ Abrahams said. ‘One of our executives was recorded saying unflattering things about the president, and his comments were played back to us in a meeting with local state oil company officials.’ A BP spokesman said that ‘there are some facts in [Abrahams’s] account that are accurate, but we don’t recognise most of it. We regard it as fantasy.’ The story is no longer on the Mail website. I did manage to find a photograph of Abrahams in Baku in the 1990s, wearing dark glasses and holding an AK-47.

The question of whether or not BP smoothed Aliyev’s ascent to power is ‘a bit of a red herring’, says James Marriott of the campaign organisation Platform, co-author with Mika Minio-Paluello of The Oil Road (2012), the authoritative account of the company’s dealings in Azerbaijan. ‘The important point is how BP helped form a state that would assist in meeting the company’s needs.’ By 1993, BP had already spent millions of pounds in Azerbaijan. But it was still a long way from being ready to produce oil in the Caspian and there was a risk that, in the turmoil of the early post-independence years, a new regime might come to power and seize its assets. BP threw its weight behind Aliyev as the best guarantee of a return on its investment. The British government followed suit. In February 1994, Aliyev made an official visit to the UK. He met the prime minister, John Major, and the foreign secretary, Douglas Hurd, signing a ‘declaration on friendship and co-operation’ between Britain and Azerbaijan. The UK made representations on Azerbaijan’s behalf at the UN, while British special forces and attachés provided support to the Azerbaijani military. When Aliyev returned to the UK in 1998, he had an official meeting with the queen and posed for photographs with Tony Blair at Number 10. Blair later became an advisor to a BP-led consortium in Azerbaijan.

The Aliyevs have provided the stability that BP craved. In February, Ilham Aliyev was re-elected for a fifth term, with 92 per cent of the vote. His wife, Mehriban, is vice president. Sixty per cent of government spending is financed by revenue from oil and gas. BP, which reported profits of $13.8 billion last year, is still producing oil from the Azeri-Chirag-Gunashli complex and extracting gas from the Shah Deniz field. It also spearheaded the construction of the thousand-mile Baku-Tbilisi-Ceyhan crude oil pipeline, which opened in 2006, to connect Baku to Turkey’s Mediterranean coast. In the course of construction, people were uprooted from their land. BP set up a grievance process for affected landowners, but an official UK government report in 2011 found that many were too scared to file a complaint and that BP had failed to investigate alleged human rights abuses. Since Russia’s invasion of Ukraine, the pipeline’s strategic importance has grown. As Marriott explains, ‘the whole point of the BTC was so oil could be shipped out of the Caspian without going through Russia.’

Oil production in Azerbaijan is in decline, but gas production has expanded significantly. In September, BP signed a number of new contracts and agreements with Socar and Azerbaijan’s energy ministry. Among the newly commissioned projects is the Shafag solar plant in the Jabrayil region, which was retaken by Azerbaijan in the Nagorno-Karabakh war of 2020. Aliyev’s government has announced plans to establish ‘green energy zones’ across the territory it seized – territory which the UK’s current foreign secretary, David Lammy, has referred to as having been ‘liberated’. Gary Jones, BP’s regional president for Azerbaijan, Georgia and Turkey, has used similar language, telling an audience at Energy Week 2022 that Karabakh is the ‘perfect opportunity for a fully net-zero system’ that ‘can be built fresh from a new start’. ‘If there is a contested land, one way to legitimate it is to have an international company build on it,’ says Louis Wilson, head of fossil fuel investigations at the NGO Global Witness. He points out that the solar energy produced at Shafag will be used to power the fossil fuel industry. This is in keeping with BP’s recent environmental record: after ditching its ‘beyond petroleum’ campaign, it has now abandoned its pledge to cut oil production 25 per cent by 2030.

In the run-up to COP, the number of political prisoners in Azerbaijan’s jails has grown, tripling since the start of last year to more than three hundred. In July 2023, Gubad Ibadoghlu, a research fellow at the LSE and a vocal critic of the Aliyev regime, was arrested while visiting family in Azerbaijan. Ibadoghlu, who suffers from a serious heart condition, had previously conducted in-country research for BP and worked alongside it on an anti-corruption initiative. Ibadoghlu’s son, Ibad, told me that he had appealed to BP for help. ‘Even though my father worked for them for so many years, they have no interest in his case. BP is acting as if he never existed.’ Journalists, too, have increasingly come under attack. Almost the entire Azerbaijani media is under state control. Independent news sites that operate from abroad are blocked. In August, six journalists at Abzas Media, which has reported on the business dealings of Baku’s elite, were arrested and charged with crimes including money laundering and forging documents.

The British government routinely expresses ‘concerns’ about human rights in Azerbaijan, but has done little to prevent the country’s oil money washing up in London. The Pandora Papers leak of offshore documents in 2021 revealed that Aliyev’s children, father-in-law and associates controlled a London property empire worth nearly $700 million through a network of shell companies. Among the holdings were three Knightsbridge apartments and four commercial buildings in Mayfair owned by Aliyev’s son, Heydar Jr, who is expected eventually to succeed his father as president. Between 2012 and 2014, the Azerbaijani regime allegedly funnelled £2.2 billion through UK-registered companies to launder money and pay bribes. Beneficiaries included members of the Council of Europe’s parliamentary assembly. The now defunct European Azerbaijan Society was the second highest-spending foreign lobby group in the House of Commons between 2010 and 2017, taking dozens of MPs on all-expenses-paid trips to Baku.

In the last few years, however, relations between Azerbaijan and the West have become more fractious. The invasion of Nagorno-Karabakh last year was criticised by the US, France and other former allies; the UK called on Azerbaijan to ‘cease its unacceptable use of force and return to dialogue’. While the West has embraced Armenia, Aliyev has grown closer to Putin. For the first time in three decades, there is a rift between the UK’s and BP’s interests in Azerbaijan. The company’s representatives will be among the thousands of fossil fuel lobbyists at COP29. ‘The 2024 State of the Climate Report’, published last month in the journal Bioscence, warns that the world is on the brink of ‘irreversible climate disaster’, but few experts predict significant progress at Baku. It has recently been reported that Azerbaijan is set to expand fossil fuel production significantly over the next decade. ‘Having oil and gas deposits isn’t our fault,’ Aliyev said earlier this year. ‘It’s a gift from God.’