ASSESSING ENERGY SECURITY IN THE CASPIAN REGION: THE GEOPOLITICAL IMPLICATIONS TO EUROPEAN ENERGY STRATEGY

Following the collapse of the former Soviet Union, Western countries have signed several agreements on using hydrocarbon resources in the Caspian basin, aiming to diversify their energy suppliers. On the other hand, recession in the world economy and persistently low oil prices deeply affected economies of the Caspian states, whose gross domestic product and exports are dominated by oil and oil products. Strongly dependent on export revenues from oil and gas, the economic growth of the Caspian states slowed, beginning from 2014. Although limited energy resources mainly lead to focus on security of supply that is fundamentally understood as a continuity and a low risk of interruption of energy import flows, low oil prices have reminded one of the challenge of security of demand that energy-producing economies may face in terms of stable energy export revenues. However, geopolitical developments in the world, especially local armed conflicts, show the importance of secure routes as they present a threat for energy transportation. Using the indicator-based approach and country-level data over the period 2000–2017, this chapter assesses the security of demand for oil and gas of three countries from the Caspian region, Azerbaijan, Kazakhstan, and Turkmenistan, over a 16-year period, capturing the geopolitical situation and contributing to broadening the understanding of the impact of geopolitical situation in energy-transporting countries on energy transportation to the EU.The results demonstrate that risk of energy security of demand is greater when political risk in energy-transporting countries is included in a measure of energy security of demand, i.e. risky external energy demand. The sharp decline of political stability and absence of violence/terrorism index in Ukraine and Turkey increased the risk of security of energy demand in Azerbaijan, Kazakhstan, and Turkmenistan. The results highlight the necessity for cooperation not only between the EU and the Caspian region, but also with energy-transporting countries, e.g. Ukraine, Georgia, and Turkey, or finding alternative routes bypassing countries with low political stability, e.g. through the Trans-Caspian pipeline.