Gas Factor of War: How the Crisis Around Iran Strengthens Azerbaijan's Position in the Energy Market

The ongoing military conflict around Iran has significantly impacted and continues to exert a destructive influence on global energy markets.

According to many assessments, the confrontation may drag on, and its consequences for the global energy system could be more severe than initially anticipated. Increasingly, energy infrastructure—facilities for extraction, processing, and transportation of oil and gas—has become the target of attacks. This heightens the risks of supply disruptions and increases nervousness in global energy markets.

Against this backdrop, the rise in oil and gas prices could bring additional revenues to exporting countries, including Azerbaijan. Analysts from the international rating agency Fitch Ratings note that sustained high energy prices could improve the foreign trade and budgetary indicators of several nations. Among the potential beneficiaries, they list Azerbaijan, Angola, Argentina, Brazil, Colombia, Ecuador, Gabon, Kazakhstan, Nigeria, and Congo.

At the same time, Azerbaijan remains one of the countries most sensitive to fluctuations in energy prices. Net exports of fossil fuels account for about 28.8% of GDP, so changes in global market conditions are quickly reflected in the country’s macroeconomic indicators.

The impact of the crisis is particularly noticeable in the gas market. The near-complete halt of shipping in the Strait of Hormuz—one of the key routes for global energy supplies—and the suspension of production at one of Qatar’s LNG facilities have led to a sharp increase in gas prices in Europe.

While gas futures on the European TTF platform were trading at around 31.95 euros per megawatt-hour at the end of February, within a week the price rose to 53 euros, later approaching 68 euros per megawatt-hour. In equivalent terms, this amounts to approximately 685 euros per thousand cubic meters of gas, or about 750 dollars.

Even accounting for transportation costs and long-term contract discounts, the actual export price of Azerbaijani gas under these conditions remains significantly higher than the average of recent years.

A similar situation was observed during the energy crisis of 2022, triggered by the Russian-Ukrainian war and sanctions against Moscow. At that time, the surge in prices allowed Azerbaijan to substantially increase revenues from gas exports. In certain months, income from gas sales even surpassed revenues from oil exports—a rare occurrence for an economy traditionally focused primarily on the oil sector.

Additional pressure on the market comes from the state of European gas storage facilities. Their fill levels have dropped below 30%, increasing market sensitivity to any supply disruptions.

Under these circumstances, the importance of the Southern Gas Corridor—a pipeline system connecting the Shah Deniz field in Azerbaijan to the European market via TANAP and TAP—has grown significantly. Deliveries through this route have already reached a stable level, and the entire project infrastructure is operating normally.

The total cost of the project is estimated at approximately 33 billion dollars, with an initial payback period set at 8–10 years. However, the current price environment could accelerate this process.

The financial performance of the project operator, CJSC 'Southern Gas Corridor,' already demonstrates consistent economic returns. By the end of 2024, the company’s revenue amounted to about 3.25 billion dollars, while net profit increased to 1.7 billion dollars, a 34% rise compared to the previous year. Importantly, income is generated not only from gas sales but also from its transportation through the pipeline system.

As of mid-2025, the company had approximately 2.3 billion dollars in cash reserves, enabling it to confidently service debt obligations while simultaneously generating a stable cash flow.

All of this indicates that the Southern Gas Corridor has reached a stage of sustainable profitability and is gradually transforming from a large-scale infrastructure project into a stable source of income.

Recent years’ experience also shows that earlier concerns about the project’s economic unviability for Azerbaijan have largely proven unfounded. Despite significant initial investments, the corridor’s infrastructure has already begun to deliver consistent financial results.

Under these conditions, the Southern Gas Corridor is gradually becoming not only a crucial element of Europe’s energy security but also a long-term source of export and budgetary revenues for Azerbaijan itself. If the current price dynamics in the gas market persist, this could further accelerate the project’s payback and strengthen the country’s position as one of the key gas suppliers to Europe.