A significant part of the operating well stock in the oil industry stood idle, the scope of production and exploration drilling was reduced, and oil-gas recovery fell substantially. Oil engineering plants which had previously met 70% of the Soviet Union’s need for oil equipment did not operate at full capacity.

Thus, the recovery of the oil industry of Azerbaijan, the development of large oil-gas fields discovered in the deep-water parts of the Azeri sector of the Caspian Sea, and the exploration of promising structures required large capital investments, as well as introduction of state-of-the-art technology and equipment into the practices of oil-gas production inclusive of offshore oil-gas recovery.  Both could be catered by attracting large-scale foreign investments into the oil industry. 

In the challenging, crucial circumstances of the early 1990s, Heydar Aliyev who at the call of the people headed the republic once again, proclaimed the principle of “Politics and economy complementing each other” and stood with the motto that “Oil is the national wealth of the Azerbaijani people.”

On February 4, 1994 Heydar Aliyev signed an order on accelerating oil field development in Azerbaijan. He was strategically right to recognize the growth of oil and gas production as one of the main means of overcoming the socio-economic and socio-political crisis in the country, and viewed limited financial resources as a prerequisite for attracting foreign capital to the country.

Discussions with foreign companies over the prospects of the oil agreement started virtually from zero, but the status quo fully meeting the interests of the Azerbaijan Republic was reached after difficult and multi-stage negotiations. Without waiting for the outcome of the prolonged disputes over the determination of the Caspian Sea status, the signing ceremony of the historic document on the joint development of deposits in the Azerbaijani sector of the Caspian Sea took place with the participation of 11 trans-national companies at ‘Gulustan’ palace on September 20, 1994.

Representatives of 7 countries signed an agreement “On the joint development and producing sharing for Azeri, Chirag and deep-water portion of Gunashli fields in the Azerbaijani sector of the Caspian Sea,” and that document subsequently went down in history as the “Contract of the Century.” 

The “Contract of the Century” marked the beginning of an “open door” policy for foreign companies. The project was initially designed to operate until 2024. Over that period, it was planned to produce 511 million tons of oil, of which 253 million tons would belong to Azerbaijan. The term of the contract was to expire in 2024. However, on September 14, 2017, the signing of the ACG PSA extension until 2050 took place in Baku. According to the new contract, BP’s (project operator) share totaled 30.37%, SOCAR (25%), Hungarian MOL (9.57%), American ExxonMobil (6.79%), Indian ONGC (2.31%), Japanese Inpex Corp. (9.31%) and ITOCHU Oil (3.65%), Norwegian Equinor (7.27%), and Turkish TPAO (5.73%).

The Agreement on Exploration, Development and Production of the Shah Deniz Field in the Azerbaijani Sector of the Caspian Sea was signed on June 4, 1996, and ratified by the Milli Mejlis on October 17 the same year. The parties’ share holding in the contract is as follows: BP (operator, 29.99%), SOCAR (21.02%), LUKoil (19.99%), NICO (10%), TPAO (19%).  Gas production at Shah Deniz field began in December 2006.

According to the data as of February 2023, Azeri-Chirag-Gunashli (ACG) field has produced a total of 570 million tons of oil and 205 billion cubic meters of gas since the launch of production.

Around 60% or 345 million tons of produced oil were sold at external markets, which gave impetus to further economic development of the country.

After signing the Contract of the Century, Azerbaijan concluded another 35 agreements. Annual oil production in Azerbaijan totaled just 9 million tons in 1997, whereas the implementation of the Contract of the Century enabled raising the output by 5.6 times and bringing it up to 51 million tons in 2010.

In terms of economy, the Contract of the Century created an opportunity for making even much larger investments into the sectors linked to the oil industry; from that time forward, the republic could independently create foreign exchange reserves and pursue its own investment policy; the process of Azerbaijan’s integration into the world community accelerated, and the country’s prestige throughout the world increased.

Not a single dollar flew from abroad into the Azerbaijani economy until 1993, while foreign direct investments utilized in the country during 1994-2000 totaled $5.5 billion, including $3.3billion (60%) which was directed to the oil sector and $2.2 billion towards the development of infrastructure and other sectors of the economy. Joint or full foreign enterprises operating in Azerbaijan invested over $1.8 billion into the country’s economy, with nearly 1/3 of that sum utilized in the oil sector, 20.9% in the construction, 17.4% in trade and services sphere, and with 23.9% spent on the development of transportation and communication.

The decree, signed by Heydar Aliyev on December 29, 1999 to create the Azerbaijan Republic State Oil Fund which already received funds over $1 billion since the start of its operation, became a reliable financial guarantor for the large-scale economic reforms policy implemented in the republic.

According to the State Oil Fund, from 2001 until August 1 2021, revenues from sale of profit oil from the Azeri-Chirag-Gunashli block (ACG) amounted to $152.308 billion. From 2007 until August 1, 2021, total revenues from sale of profit gas and condensate extracted from Shah Deniz field reached $3.738 billion. SOFAZ’s total revenues from sale of gas and condensate extracted at Shah Deniz field (from 2007 until January 1, 2022) amounted to $4.55billion.

The Contract of the Century joined the ranks of the largest world agreements both in volume of hydrocarbon resources and size of investments made. Since then, September 20 – the date of signing of the Contract of the Century in 1994 has been celebrated as the professional holiday - Oilmen’s day.

Baku-Tbilisi-Ceyhan

The realities of life have confirmed the validity of Heydar Aliyev’s multiple-option oil export strategy built primarily on the long-term interests of the country. The idea of transporting Azerbaijani oil to the world market first emerged back in 1992. But it got a chance to be embodied only in 1994 after the Contract of the Century was signed. That was also when it became apparent that the Baku–Tbilisi–Ceyhan (BTC) route would be the basis of the East–West energy corridor and the largest project in the South Caucasus. Political passions were raging for more than five years around the feasibility of building the BTC oil pipeline. The BTC negotiations coincided with a crisis in the oil market, when the Brent price dropped to $10-15 per barrel and many even transnational oil companies had to cease their activities, unlike Baku-Tbilisi-Ceyhan that was just getting started. The implementation of the megaproject implied great risks for investors, and the State Oil Company of Azerbaijan remained extremely dissatisfied with the actions of the Consortium of foreign oil companies.

“From the way AIOC acts, it’s hard to believe that negotiations on determining the route of the main export pipeline will be completed by October 1998”, stated Ilham Aliyev who then was the First Vice President of SOCAR. In his opinion, there was no clarity about the goals AIOC pursued by delaying the solution of that issue.

«Some kind of a game, not quite clear, is going on, and while it continues it raises concern,” I.Aliyev noted.

According to him, “it was clear for a long time that the consortium of western oil companies does not want to build a main export pipeline and postpones the construction, but now this reluctance takes such forms that forces us to fight such manifestations”. But even in such conditions, “Determining the composition of participants of the main export pipeline construction project and their shares is the exclusive prerogative of Azerbaijan,” I.Aliyev confirmed.

 Transfer of large volumes of Azerbaijani oil to the Mediterranean refineries was recognized as the most attractive from the commercial point of view. Based on this, AIOC shareholders were suggested to consider three possible options for laying a strategic oil pipeline:

·       Baku-Supsa,

·       Baku-Novorossiysk,

·       Baku-Ceyhan.

Baku-Tbilisi-Ceyhan pipeline was recognized as the most expensive. According to AIOC experts, the project would require capital investments worth at least $3.3billion. Using of the “north” option (Baku-Novorossisyk) as the main route would cost $2.3billion. Finally, Baku-Supsa pipeline worth $1.2 billion was found to be the most profitable from the financial point of view at that time.

The key point in the main export pipeline-related activities was to conduct extremely difficult negotiations with the governments of Russia, Georgia and Türkiye in order to determine technical and legal aspects of the strategic pipeline’s passage through the territories of these countries, and also to fix transit tariffs. Azerbaijan, aspiring to the controlling stake, insisted on the unprofitableness of the future pipeline company and on gaining dividends through oil sales. This stance was at odds with the plans of AIOC.

A multi-year process of reaching a consensus on the construction of the main export pipeline began, which ended on July 13, 2006 with the ceremony of the Baku-Tbilisi-Ceyhan system commissioning at the Ceyhan terminal.

“Our current development, our current achievements and Azerbaijan’s entry into the world community as a truly independent country are largely connected with the signing of the “Contract of the Century”. It was a very brave and wise step. This step taken by the great leader Heydar Aliyev serves to improve the welfare of the Azerbaijani people and the comprehensive development of Azerbaijan,” Ilham Aliyev noted then.

Baku-Tbilisi-Erzurum (South Caucasus Pipeline) was laid to ensure further implementation of the republic’s energy strategy. The construction of the Baku–Tbilisi–Kars railway, which, among other things, is of great geopolitical importance, was started in 2008.

“For me, as for every Azerbaijani, the name of Heydar Aliyev is very dear. Not only because he is my father but also because he is the person who, in the most challenging time in the modern development of independent Azerbaijan, was invited by the people to lead the country”, so said President of Azerbaijan Ilham Aliyev at the solemn opening ceremony of Heydar Aliyev Street in Astana in April 2023.

The head of state reminded that Heydar Aliyev’s main testament was that “we must liberate our lands from occupation, return our territories, and restore the dignity of the Azerbaijani people. We are faithful to his memory and his testaments. We have fulfilled all his instructions with honor. And today, on the eve of his 100th birthday anniversary, we can confidently say that everything he conceived has been realized”.

“Speaking of Heydar Aliyev, one cannot but recall the period when he headed Soviet Azerbaijan, and this was also a period of creation and development. Under his leadership from the late 1960s to the early 1980s, Azerbaijan became one of the USSR leaders regarding socioeconomic development”, the head of state noted.

“There was a period when he was subjected to undeserved obstruction, and there was a period of defamation and slander. Still, the Azerbaijani people always believed in him and in the most difficult period when the future of the Azerbaijani people depended on people like him, he led the country. He saved Azerbaijan from virtually disappearing from the political map of the world. Unfortunately, that was at stake at the time because the country was torn apart by internal strife, and civil war was in full swing. At the same time, the creeping occupation of Azerbaijani lands was going on. During this turbulent period, he led Azerbaijan and, in essence, prevented further troubles and tragedies for our people. The ten years of his tenure as President – from 1993 to 2003 – were years of stability and development, which laid the foundations for a future leap”, the head of  the Azerbaijani state noted.