Azerbaijan's Energy Interests Face Challenges Amidst Regional Conflicts and Infrastructure Issues

Recent events in August 2025 highlight significant challenges for Azerbaijan's energy infrastructure and exports, stemming from the ongoing conflict in Ukraine and various operational issues. Azerbaijan's State Oil Company (SOCAR) facilities have been targeted in Ukraine, while its oil export routes have faced contamination issues.

Repeated Attacks on SOCAR's Odessa Oil Base

Azerbaijan's State Oil Company (SOCAR) has seen its oil base in Odessa, Ukraine, targeted by Russian forces multiple times in August 2025. The latest reported attack occurred on the night of 18 August 2025, using "Shahed" drones, causing a fire and significant damage.

The attack damaged 17 fuel tanks, the pump house, operator and technical rooms, and the perimeter fence. The base has a total capacity exceeding 16,000 cubic metres. Although the full extent of the damage is still being assessed, urgent restoration work has begun.

This was the second attack on the same base, with the first occurring on 8 August, which also resulted in a fire and damage to a diesel fuel pipeline. Additionally, on 6 August, Russian forces struck a Ukrainian gas compressor station that was used for test deliveries of Azerbaijani gas.

Ukrainian President Volodymyr Zelensky and Azerbaijani President Ilham Aliyev discussed these attacks by telephone on 10 August. Both leaders stated that the attacks were deliberate, aimed at disrupting energy cooperation and striking at Ukraine's energy independence. They affirmed that these incidents would not halt energy cooperation between Azerbaijan and Ukraine.

Following the first attack, Azerbaijani pro-government media suggested that if such incidents continued, Azerbaijan might lift its embargo on arms supplies to Ukraine. Some reports from Russian Telegram channels even claimed that Azerbaijan had already begun producing 122 mm and 155 mm artillery shells for Ukraine. Russia's Ministry of Foreign Affairs, through deputy director Aleksey Fadeyev, reiterated their stance against the supply of weapons or dual-use humanitarian aid to what they term the "neo-Nazi regime in Kyiv". Azerbaijan has previously provided humanitarian aid to Ukraine, including generators, transformers, and cables, for the restoration of its energy system. A gas purchase agreement between Ukraine's "Naftogaz Ukrainı" and SOCAR was signed in July 2025.

Azerbaijan's Oil Exports and Pipeline Contamination

In the first seven months of 2025, Azerbaijan exported over 14.47 million tons of oil, valued at $7.66 billion, to 19 countries.

Italy was the primary recipient, importing 8.43 million tons worth $4.42 billion. The Czech Republic ranked second with 1.02 million tons valued at $547 million, followed by Croatia with 827,000 tons worth $450 million.

The Baku-Tbilisi-Ceyhan (BTC) pipeline experienced a significant issue with chloride contamination. This led to a temporary halt in oil supplies through the pipeline, impacting countries like Romania (where KMG International's refineries operate), Austria (OMV), and Italy (Eni), which declared an "extraordinary situation".

Initially, there were concerns that oil from Kazakhstan might be responsible for the contamination. However, examination results confirmed that Kazakh oil from Tengiz and Kashagan did not contain organic chlorine compounds, absolving Kazakhstan of blame. Due to the contamination, Kazakhstan temporarily redirected its oil supplies from the BTC pipeline to the CPC pipeline. This diversion of Kazakh and Turkmen oil is expected to reduce daily August deliveries from Ceyhan to below 500,000 barrels, with a September forecast of approximately 550,000 barrels. The incident also led to a significant drop in the quality and value of Azerbaijan's "Azeri Light" oil. Cleanup operations for the contaminated tanks at the Ceyhan terminal are nearing completion, and Kazakh oil exports via Azerbaijan are expected to resume soon.

Druzhba Pipeline Incident and Geopolitical Tensions

Separately, Hungary reported an attack on the "Druzhba" oil pipeline that transports Russian oil to the country.

Hungarian Foreign Minister Péter Szijjártó stated on social media that oil transport from Russia to Hungary was halted following an attack on the pipeline. Szijjártó blamed Kyiv for repeatedly attacking energy infrastructure, asserting that these actions "strike at Budapest's energy security" and are intended to draw Hungary into the war. He also highlighted that electricity purchased from Hungary plays a vital role in Ukraine's power supply.

Ukraine's Foreign Minister Andriy Sibiqa responded by reminding Hungary that Moscow is the party preventing the end of the war. He criticised Hungary's long-standing reliance on Russia despite warnings about Russia being an unreliable partner, even after the full-scale war began.

These incidents underscore the vulnerability of energy infrastructure in a volatile geopolitical landscape, impacting energy security and international relations across the region.