oil angle

["Ian Murray" <seamus2001@xxxxxxxx>]

< http://www.eurasianet.org >
BUSINESS & ECONOMICS   November 7, 2001


AZERBAIJAN ENGAGED IN BALANCING ACT THAT COULD INFLUENCE OIL & GAS
DEVELOPMENT
Kenan Aliyev: 11/06/01

In the Caucasus' new geopolitical environment, Azerbaijan is hoping to
take advantage of new opportunities for cooperation with the United
States. At the same time, Azerbaijani leaders are wary that Russia may
be intent on reasserting its influence in the Caucasus while the
United States is preoccupied with its anti-terrorism campaign. As a
result, Baku is engaged in a delicate diplomatic balancing act, which
could have profound ramifications for the development of Caspian Basin
natural resources.

Azerbaijan has been an enthusiastic backer of the US-led
anti-terrorism campaign, sharing intelligence and granting fly-over
rights. US lawmakers have reciprocated by bolstering support for
President Heidar Aliyev's government, in particular voting to lift
trade sanctions imposed during the height of the Nagorno-Karabakh
conflict in 1992. The lifting of sanctions, which is dependent on
White House approval, would facilitate aid and trade, as well as
potentially boost Azerbaijani efforts to develop its oil and gas
sector.

While Azerbaijani leaders seem anxious to align themselves with the
West in the hopes of reaping enormous oil and gas profits, they are
taking care to placate Russian security concerns, seeking to reassure
Moscow that Baku's strategic cooperation with Washington is not a
zero-sum gambit. Aliyev and other officials know Russia retains
powerful economic and political weapons that, if deployed, could
hinder - even upend - Azerbaijan's development plans. For example,
Russia could impose visa requirements for Azerbaijanis. An estimated 1
million Azerbaijanis live and work in Russia, and the imposition of
visa requirements on them would have profound economic implications
for Azerbaijan.

Baku's tactics seem dedicated to addressing Moscow's immediate
strategic interests. Moscow in recent weeks has stepped up efforts to
resolve its Chechnya conundrum, and to this end Baku has appeared more
responsive to Russian demands concerning Chechen refugees in
Azerbaijan.

During a late October visit to Azerbaijan, Russian Interior Minister
Boris Gryzlov called on the Azerbaijani government not to accept
Chechen refugees, and to repatriate those already in Azerbaijan. In
pressing his case, Gryzlov asserted that Chechens were terrorists,
with close links to Islamic radicals in Afghanistan. Gryzlov added
that Chechen terrorists utilized Azerbaijan to engage in drug
trafficking, and warned Azerbaijani officials about a risk of
terrorist incidents being organized by Chechens residing in
Azerbaijan.

While there are no official statistics, some experts estimate that
there are about 9,000 Chechen refugees, mainly women and children, in
Azerbaijan. Even before the September 11 terrorist attacks in the
United States dramatically altered geopolitical conditions in the
Caucasus, Baku had extradited dozens of Chechens to Russia. Local
observers say that Baku is now increasingly willing to consider the
large-scale repatriation of Chechen refugees. In addition, Azerbaijani
authorities are lending preliminary support to a proposal by the
pro-Moscow Chechen Authority of Akhmad Kadyrov to open a
representative office in Baku, the Ekho newspaper reported October 30.

Meanwhile, President Aliyev, accommodating a longstanding Russian
demand, has signaled his willingness to lease the Gabala early-warning
radar station to Russia. The station was built by Moscow in 1984, and
is Russia's only military facility in Azerbaijan. Russia and
Azerbaijan had been haggling over a lease extension for several years.
Azerbaijani government sources say a deal on the radar station could
be signed during Aliyev's next trip to Moscow, which is scheduled for
early 2002.

Azerbaijan's newfound readiness to accommodate Russia on Chechnya and
the Gabala facility is more than just a geopolitical balancing act; it
is a direct response to what Baku perceives as a national security
threat. Azerbaijani officials are alarmed by the simmering tension
between Russia and Georgia, as well as the political turmoil now
gripping Tbilisi. [For background see the Eurasia Insight archives].
Azerbaijani politicians believe that Russia is responsible for foment
the ongoing unrest in Georgia.

A big motive for Russia, as Azerbaijani leaders see it, is a desire to
retain a controlling influence in the competition to develop Caspian
Basin natural resources. Georgia figures prominently in the potential
construction of a pipeline, known as Baku-Ceyhan, which would break
Russia's stranglehold on Caspian export routes. The pipeline as
envisioned would take Caspian resources from Azerbaijan, via Georgia,
to Turkey, bypassing Russia altogether.

Prior to September 11, Russia had been a steadfast opponent of
Baku-Ceyhan. But the Russian stance on construction of the pipeline
seems to have softened in recent weeks. The reason may be that
Azerbaijan, along with the United States, may now be more willing to
share the wealth. Indeed, Baku-Ceyhan's best chance for realization
may depend on the participation of Russian companies in the
construction consortium. Local observers believe that Russian energy
giant Lukoil could become a participant. The company and its
president, Vagit Alekperov, enjoy the high esteem of Baku's
leadership. Recently, Aliyev awarded Alekperov one of Azerbaijan's
highest honors.

During recent congressional testimony, Brenda Shaffer, the research
director of the Caspian Studies Program at Harvard University, said
that incorporating Russian interests into projects such as Baku-Ceyhan
increase "the likelihood of these projects' realization." She added:
"Actions resulting from US-Russian rivalry can be very destabilizing
to the region and, as a result, contrary to US goals."

Editor's Note: Kenan Aliev is a journalist based in Washington, DC.