As Azerbaijan prepares to host the 2024 UN Climate Change Conference (COP29) in Baku from November 11 to 22, the choice of venue has attracted significant criticism, Jody LaPorte, the Gonticas fellow in politics and international relations at Lincoln College, University of Oxford, said in a recent paper for Carnegie Endowment for International Peace.

What is a major oil and gas producer doing chairing a global meeting designed to reduce the use of fossil fuels at a time when the Climate Crisis is accelerating?

The Baku meeting follows on from the equally bizarre choice of hosting the COP28 meeting in the United Arab Emirates (UAE), another major oil and gas producer, which was generally seen as a cop-out. While COP28 did produce a commitment to reduce the use of fossil fuels that was limited to “non-abated” fossil fuels.

“We are moving away from fossil fuels,” said John Kerry, in one of his last acts as the US negotiator at the close of COP28. Today, the US is producing more oil than any other country in history and more production increases are planned in the next few years. The rising tide of American oil doesn’t just contradict Kerry’s pledge; it goes against authoritative projections by the International Energy Agency (IEA) and other analysts who conclude no new fossil fuel fields should be tapped if the world wants to hit net zero in the next 25 years, Bloomberg reports.

The compromise was to allow the continued use of fossil fuels, but with the emissions mitigated by removing the CO₂ this produces using carbon capture and storage (CCS) – a technology that does not exist at scale yet. While investment into solar technology is booming and running ahead of expectations thanks to China, the de facto carve out for fossil fuels has seen emissions accelerating, not falling. The levels of the three most dangerous GHG gases are now at all-time record highs and continue to rise. Scientists have already concluded that holding temperature increases to 1.5C above the pre-industrial baseline is a pipedream and the world is on course for a catastrophic 2C-3C increase in temperatures by 2050.

The mantle of saving the planet now falls on the unlikely shoulders of Azerbaijan, whose economy is deeply rooted in hydrocarbons. Indeed, the oil extraction business was begun in 1847 at Bibi-Heybat on the outskirts of Baku over 100 years ago. By 1876, the Nobel brothers had established themselves as oil producers in Azerbaijan, sending their first shipment of refined oil for lighting to St Petersburg in that year. By the turn of the twentieth century, Azerbaijan was producing over half of the world’s oil. Today Azerbaijan’s labour market is dominated by employment in the agricultural and service sectors, while most of the GDP is produced in oil-dependent sectors, according to the World Bank.

A second problem with allowing Azerbaijan to host the event is its poor human rights record. Activists have called on participating governments to link the event to exerting pressure on Azerbaijan to address its treatment of opposition parties and its free press – something that the government in Baku is resisting vigorously.

The long oil production legacy will make it hard for the government to play the role of impartial chairman of the event. Since gaining independence in 1991, the country has relied on oil and natural gas under the Caspian Sea to fund its development, attracting foreign investment to fuel economic growth.

“This situation has created a “rentier model” of political economy in Azerbaijan with two characteristics: first, an economic dependence on external rents derived from the extraction and export of natural resources; and second, the capture of political and economic power by a narrow set of elites,” says LaPorte.

Azerbaijan’s State Oil Company (SOCAR), which oversees oil and gas operations, has become the largest state revenue source, yet the wealth generated largely flows to the ruling Aliyev family and their close associates and little trickles down to the general population. In 2024, tax payments from SOCAR alone are expected to constitute 7% of the government’s total revenue.

“Azerbaijan’s oil industry and political structures are intimately linked. President Ilham Aliyev served as vice president of SOCAR from 1994 to 2003. More formally, the head of SOCAR reports directly to the country’s president, who holds the power to appoint and dismiss members of the company’s governing bodies, including the supervisory and management boards,” says LaPorte.

The government has excluded other stakeholders, such as opposition parties and civil society, from its resource governance processes and in 2017 withdrew from the Extractive Industries Transparency Initiative, an organisation that promotes good governance of natural resources.

The government’s central role in energy has granted Aliyev significant influence over SOCAR, including control over production-sharing agreements (PSAs) with international oil firms. The president’s extensive authority over the State Oil Fund of Azerbaijan (SOFAZ), a sovereign wealth fund managing $57bn in reserves, further cements the link between oil profits and the regime’s political power. Although SOFAZ was designed to secure long-term wealth distribution, it has often been used to cover short-term budget needs and fund infrastructure projects, raising concerns about transparency.

“While Azerbaijan has begun to diversify its economy, for example by investing in the development of renewable energy, Baku also remains committed to hydrocarbon production. At least for the time being, it appears that the government intends to pursue these two trajectories in parallel, rather than seek to use renewables to wean itself off fossil fuels,” says LaPorte.

Elites with strong ties to the government have also profited through state-affiliated holding companies, securing lucrative contracts for major infrastructure projects.

NGO Global Witness has found links between the elites and business structures doing business with SOCAR. Likewise, the Organized Crime and Corruption Reporting Project reported the use of “fake charges and padded contracts” by two companies owned by Azerbaijan’s state oil company that “looted the expansion of BP’s operations” in the Shah Deniz gas field in the Caspian Sea.

Notable beneficiaries include Pasha Holding, associated with First Lady Mehriban Aliyeva’s family, and Gilan Holding, founded by former customs chairman and emergency minister Kemaleddin Heydarov, according to LaPorte. Other major holding companies have included Ata Holding, founded in 2003 by Fazil Mammadov, the tax minister at the time; ZQAN Holding, linked to Zia Mammadov, the minister of transportation until 2017; and Silk Way Holdings, co-owned by the president’s daughters, LaPorte adds. In recent years, these entities have expanded their reach across sectors including construction, banking and tourism, prompting accusations of corruption and self-enrichment.

“Reports suggest that conglomerates linked to the Aliyevs and their close associates have benefited from privileged access to state contracts. Through Azerbaijan’s oil boom, these firms have won rights to carry out major construction and infrastructure projects – often through opaque bidding processes, without independent oversight, and amid allegations of inflated costs and rent-seeking intentions,” says LaPorte.

Nevertheless, the population has benefited from the oil boom of the last three decades with levels of poverty falling and average incomes rising. But at the same time the country’s aggregate GDP per capita is $7,640 – significantly lower than the average across Central Asia and the South Caucasus ($9,480) and below the levels in neighbouring Georgia ($8,830) and Armenia ($8,580). Additionally, the oil sector’s capital-intensive nature limits employment opportunities, creating a structural dependency that could prove unsustainable as global energy demand shifts toward renewables.

The regime has pledged economic diversification investing into the non-oil sector where growth has been fast, albeit a small proportion of overall GDP. Investment is also being channelled into green energy, exemplified by Azerbaijan’s first large-scale solar plant, developed with the UAE’s Masdar. The new strategy is a slow transition from hydrocarbons to become a green energy production hub to supply Europe. With an estimated 7bn barrels of extractable oil, Azerbaijan’s hydrocarbon fields are considerably smaller than those of many other oil-reliant countries, three-times smaller than those of Kazakhstan and more than ten-times smaller than those of Russia. Experts say that Azerbaijan has some 25 years of extraction left before its fields are exhausted.

Gas reserves on the other hand have been increasing; the Shah Deniz deposit is one of the largest gas fields ever discovered and went into production beginning in 2007. It is from this field that Baku intends to be able to double gas deliveries to Europe in the coming years.

But LaPorte argues green energy is only intended as a halfway house, that will not replace hydrocarbons but rather supplement the country’s export capacity by freeing up natural gas for foreign markets. As Aliyev stated at the Petersburg Climate Dialogue in April, “Our oil and gas will be needed for many more years, including in European markets.”

Azerbaijan’s dual-track energy policy underscores its complex relationship with Europe, a vital energy partner. Since Russia’s invasion of Ukraine in 2022, Azerbaijan has pledged to double gas supplies to Europe from the current 13bn cubic metres per year to 20 bcm per year, positioning itself as a strategic alternative to Russian energy. The European Union’s investment in infrastructure to support Azerbaijani exports has bolstered this alignment, but these partnerships have sparked debate over governance. Analysts warn that Europe’s support should be conditional on reforms to ensure that all Azerbaijanis benefit from economic growth.

Looking ahead, Azerbaijan’s energy strategy presents competing pressures for political reform. Declining oil output and the eventual depletion of gas resources could weaken the state’s patronage networks, potentially pushing the regime to adopt economic and political reforms. European policymakers, too, can influence Azerbaijan’s path by demanding open, transparent contracting for energy projects and linking technical assistance to governance improvements.

As COP29 brings Azerbaijan into the global spotlight, the focus on sustainability, transparency, and inclusive growth could set the tone for the country’s future beyond oil. However, balancing this path with the entrenched interests of Azerbaijan’s elites may ultimately determine whether Azerbaijan can transition to a more equitable, resilient economy.