MEDVEDEV IN BAKU: NAGORNO-KARABAKH, ENERGY

C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 001763

SIPDIS

E.O. 12958: DECL: 07/08/2019
TAGS: PREL PGOV ENRG RS AZ
SUBJECT: MEDVEDEV IN BAKU: NAGORNO-KARABAKH, ENERGY

Classified By: A/Pol M/C David Kostelancik for reasons 1.4(b) and (d)


1. (C) Summary. In the wake of President Medvedev's visit
to Baku June 29, Russia is optimistic that the
Nagorno-Karabakh conflict can be resolved in the near future.
To effect that, Moscow plans no actions outside of the Minsk
Group Process, which is organizing a meeting between the
Armenian and Azerbaijan Presidents July 17 in Moscow to
resolve the differences on the two principles the sides have
yet to agree upon. Russia agreed the SOCAR-Gazprom contract
covered a "symbolic" volume of natural gas deliveries, but
would (a) relieve Gazprom of delivering gas to Dagestan, (b)
provide Russia with access to the Shah-Deniz gas production,
and (c) let Gazprom develop gas fields on the Arctic shelf at
a slower pace, but using its own means. SOCAR agreed to put
Gazprom in the first group of priority buyers, along with the
Shah Deniz consortium member countries. End Summary

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Nagorno-Karabakh
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2. (C) In a meeting with visiting Under Secretary Burns July
7, DFM Karasin was "unusually optimistic" about the chances
to resolve Nagorno-Karabakh. He welcomed the Minsk Group's
proposal for a U.S.-Russia-France statement at the G8, and
thought there was a good possibility that Sargsian and Aliyev
could reach agreement on the principles at their meeting on
the 17th, which would be a very important achievement.
Karasin added that the Turkey-Armenia new "love affair" had
Baku nervous, but said it was good and we should welcome it.
He said he would be interested in any new ideas on how to
proceed.


3. (C) MFA 4th CIS Director for Azerbaijan Andrei Krutko
told us July 7 that Russia saw "great prospects" for a
breakthrough in settling the Nagorno-Karabakh conflict. At
the press conference following the four-hour meeting between
President Medvedev and President Aliyev in Baku June 29,
Medvedev said that there was "every chance" that the conflict
could be resolved "in fairly short order." He added that
Russia stood ready to "do everything it could, along with
other nations" to settle the conflict "as efficiently as
possible," noting that there was no place in the issue for
"petty jealousy" among the mediators.


4. (C) Krutko, who accompanied Medvedev to Baku but did not
take part in the one-on-one discussion of Nagorno-Karabakh,
echoed Medvedev's appeal that the parties resolve the
conflict "within a strong international legal framework" and
"without trying to invent something completely different,"
saying Russia had no plans outside of the Minsk Group
co-chairs' plan for pursuing the conflict settlement. Moscow
placed high hopes on Azerbaijani President Aliyev and
Armenian President Sargsian's July 17 meeting in Moscow at a
horse-racing derby on the margins of the CIS informal summit
July 18.


5. (C) Krutko said the July 17 talks would focus on the two
Madrid Principles the sides have yet to agree upon, the
question of the referendum and the Lachin corridor. Krutko
described the format of the July 17 meeting as a one-on-one
between Sargsian and Aliyev, followed by a "2 plus 1" with
Medvedev joining, after which the Foreign Ministers and at
the end the Minsk Group co-chairs would be included.


6. (C) Krutko said Medvedev agreed to visit Baku at the June
4-6 St. Petersburg Economic Forum, and called the trip the
"routine" follow-on to Aliyev's April 17-18 visit to Moscow.

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Energy
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7. (C) Krutko agreed that the gas deal signed by Russian and
Azerbaijan energy companies Gazprom and SOCAR was largely
symbolic in light of the small volume contracted, only 500
million cubic meters (mcm). However, he underscored that it
would relieve Gazprom of delivering gas to Dagestan as an
immediate benefit to Russia, and in the mid-term provide
Russia with access to the Shah-Deniz gas production. In
addition, the budding gas cooperation allowed Gazprom in the
long-term to develop gas fields on the Arctic shelf at a
slower pace (10-15 years) but using its own means, rather
than being forced to rely on currently elusive Western
funding.

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8. (C) Krutko said that while Gazprom had not received the
"right to first refusal" of Shah Deniz gas, SOCAR had agreed
to put Gazprom in the first group of priority buyers, along
with the Shah Deniz consortium member countries. Given
Gazprom's willingness to outbid Turkey for Azeri gas, Krutko
felt certain that Russia would receive regular and increasing
supplies of Azeri gas, possibly up to the connecting
pipeline's limit of 6 billion cubic meters per year.


9. (C) Krutko said the USD 350/thousand cubic meter (tcm)
price quoted in the press was incorrect, as the pricing would
follow the European price (less transit and operating
charges),which was indexed to oil prices with a nine-month
lag. USD 350/tcm would be the price if Russia were to
receive the gas now; however, it was contracted for delivery
starting January 2010, for which a lower price would result.
BEYRLE