Intercontinental Exchange joins Baku energy bourse plan

The need has arisen in Azerbaijan to create its own commodity-raw materials exchange platform, which could become a key instrument for risk hedging and the development of regional trade in energy resources, said Anar Habib, senior trader of light petroleum products at SOCAR Trading, at the Second Caspian and Central Asian Oil Trading and Logistics Forum held in Baku, Report informs.

According to him, the Caspian Pipeline Consortium continues to operate under conditions of high geopolitical risks, which periodically affects the stability of oil supply: "In this regard, producing companies are forced to make adjustments to production volumes to ensure the necessary transportation levels. One of the issues that has long been discussed among traders, sellers, and buyers in the Caspian region is the creation of an effective hedging mechanism. Perhaps today this sounds like a futuristic idea, but every such idea has its own realization time horizon."

Habib emphasized that the launch of an exchange platform in Baku would not only increase the transparency of price determination but also enable the formation of a regional benchmark for oil and petroleum products of the Caspian basin.

In his opinion, such a platform could serve as a connecting link between producers, traders, and end consumers, providing them with access to modern financial instruments for risk management.

The expert also added that a potential Baku Energy Exchange could operate as an analogue of the world's leading trading venues, offering futures and options contracts for oil, petroleum products, and possibly gas supplies.

The trader noted that the implementation of such a project is possible in the format of a joint venture with the participation of leading international players, including the London exchange (Intercontinental Exchange, ICE), as well as with the support of the largest investment banks such as JPMorgan Chase and Goldman Sachs:

"I am confident that they would be interested in being part of such an initiative in Baku. At the same time, the existing infrastructure can only temporarily meet current demands, as the creation of a new modern base will be required in the future."

Habib identified the Alat Free Economic Zone (FEZ) as a potential platform for the project's development: "In Azerbaijan - on the shores of the Caspian Sea - an analogue of the ARA (Amsterdam-Rotterdam-Antwerp) hub, the largest logistics, industrial, and energy center in Northwestern Europe, could be formed."

The expert noted that against the backdrop of the current geopolitical situation in the Middle East, the issue of creating such infrastructure has once again gained particular relevance: "Today we are already observing the excessive overloading of both aviation and ground transportation and logistics routes through Baku. This is a signal that the region needs additional capacities and more flexible mechanisms for managing flows."

According to the SOCAR Trading representative, the creation of the relevant infrastructure essentially means the formation of strategic reserves of petroleum products without a direct financial burden on the state: "The costs will be borne by market participants - traders, buyers, and sellers. They will be able to supply petroleum products - fuel oil, diesel, and aviation fuel - to Baku and store them here. At the same time, it is still too early to talk about crude oil."

In his opinion, the main advantage will be the possibility of hedging risks on a local exchange, which will provide traders with greater flexibility in managing flows.

He emphasized that the implementation of such a project could open new opportunities not only for the energy sector but also for the entire logistics ecosystem of the region: "This project is real. It needs to be implemented, and it should have been started yesterday. But at least today it is still not too late. The development of logistics and transportation can be a driving force for many related sectors."

The creation of such a platform could stimulate the development of accompanying infrastructure, from clearing systems to logistics hubs, and strengthen Baku's role as an energy and trade center between Europe and Asia.