Azerbaijan: Recent Developments and U.S. Interests

Azerbaijan: Recent Developments
and U.S. Interests
Jim Nichol
Specialist in Russian and Eurasian Affairs
Foreign Affairs, Defense, and Trade Division
This report discusses political, economic, and security challenges facing
Azerbaijan, including the unsettled conflict in the breakaway Nagorno Karabakh region.
A table provides basic facts and biographical information. This report may be updated.
Related products include CRS Report RL33453, Armenia, Azerbaijan, and Georgia,
Political Developments and Implications for U.S. Interests, by Jim Nichol.
AzerbaijanAutonomous Oblast (AO)U.S. Policy
RussiaBoundaryAutonomous Republic(ASSR) Center
Autonomous Oblast(AO) CenterAccording to the Administration,
GeorgiaShekiXacmaz(Khachmas)005075 Kilometers75 Miles252550Azerbaijan needs to bolster its commitment to
democratization and respect for human rights in
ArmeniaSumgaitMyusyuslyuGyandzha(Kirovabad)Mingacevirorder “to be a reliable partner of the United
KyurdamirBakuStates and to ensure that the country’s energy
Ali-BayramlyXankandirevenues are used to improve the lives of itscitizens.” Azerbaijan is viewed as a regional
( S t epan ak er t )
security partner of the United States in com-
CaspianSeaNakhichevanbating money laundering, terrorist financing,
corruption, and trafficking in weapons of mass
TurkeyIrandestruction, narcotics, and humans. U.S.
security assistance improves the interoperability
Source:Map Resources. Adapted by CRS. (K.Yancey 3/10/05)of Azerbaijan’s troops with U.S. forces in Iraq
and the capabilities of its naval forces “in the
resource-rich Caspian Sea.” Another major focus of U.S. aid is diversification of
Azerbaijan’s economy away from over-reliance on the energy sector (Congressional
Budget Justification for Foreign Operations, FY2009).
Cumulative U.S. aid budgeted for Azerbaijan from FY1992 through FY2007 was
$752.2 million (FREEDOM Support Act and agency funds). Almost one-half of the aid
was humanitarian, and another one-fifth supported democratic reforms. In FY2007, U.S.
budgeted assistance to Azerbaijan was $74.5 million (FREEDOM Support Act and

agency budgets). In FY2008, U.S.
Basic Factsbudgeted assistance was $28.4 million,
Area and Population: Land area is 33,774 sq. mi.;and the Administration requested
about the size of Maine. The population is 8.2
million (The World Factbook; mid-2008 est.).$26.925 million for FY2009 (for both
Administrative subdivisions include the Nakhichevanyears, includes FREEDOM Support Act,
Autonomous Republic (NAR) and the NagornoPeace Corps, and other foreign aid and
(Mountainous”) Karabakh Autonomous Regionex-cludes Defense and Energy
(NK). NKs autonomy was dissolved in 1991.
Ethnicity: 90.6% are Azerbaijani; 2.2% Dagestani;Department funds and food aid). The
1.8% Russian; 1.5% Armenian, and others (1999highest priority for FY2009 aid will be
census). An estimated 6-12 million Azerbaijanisdemocratization aid to combat
reside in Iran.corruption, promote government
Gross Domestic Product: $72.2 billion; per capitatransparency, foster inde-pendent media,
GDP is about $9,000 (World Factbook; 2007 est.,
purchasing power parity).strengthen the legislature, and bolster
Leaders: President: Ilkham Aliyev; Chairman of thecivil society. Security assistance will be
Milli Mejlis (legislature): Oqtay Asadov; Primethe next-highest priority, and will focus
Minister: Artur Rasizade; Foreign Minister: Elmaron fostering military interoperability
Mamedyarov; Defense Minister: Safar Abiyev.with NATO forces, improving maritime
Biography: Ilkham Aliyev, born in 1961, graduated
with a kandidata (advanced) degree from the Moscowand airspace management capabilities,
State Institute of International Relations in 1985 andand bolstering border controls. Another
then taught history. In 1991-1994, he was in businesspriority is economic aid to encourage
in Moscow and Baku, then became head of the Statenon-energy private sector growth,
Oil Company (SOCAR). He was elected to the legis-
lature in 1995 and 2000. In 1999, he became deputy,government budgetary transparency,
then first deputy chairman, of the ruling New Azer-poverty reduction, job creation, and anti-
baijan Party. In August 2003, he was appointed primeinflationary strategies. No aid was
minister, and was elected president in October 2003.requested in FY2009 for conflict
mitigation and reconciliation. Since
FY2004, Azerbaijan has been designated
as a candidate country for enhanced U.S. development aid from the Millennium Challenge
Corporation, but it has not been selected as eligible for aid because of low scores on
measures of political rights, civil liberties, control of corruption, government
effectiveness, the rule of law, accountability, and various social indicators.
Congressional concerns about the ongoing NK conflict led in 1992 to Section 907
of the FREEDOM Support Act (P.L. 102-511) that prohibited most U.S. government-to-
government assistance to Azerbaijan until the President determined that Azerbaijan had
made “demonstrable steps to cease all blockades and other offensive uses of force against
Armenia and Nagorno-Karabakh.” Congress eased many Section 907 restrictions on a
year-by-year basis until the terrorist attacks on the United States in September 2001, after
which it approved an annually-renewable presidential waiver (P.L.107-115). The
conference managers stated that the waiver was conditional on Azerbaijan’s cooperation
with the United States in combating terrorism and directed that aid provided under the
waiver not undermine the peace process. Congress has called for equal funding each year
for Foreign Military Financing and International Military Education and Training for
Armenia and Azerbaijan.
Other congressional initiatives have included the creation of a South Caucasus
funding category in FY1998 to encourage an NK peace settlement, provide for
reconstruction, and facilitate regional economic integration. Congress also has called for
humanitarian aid to NK, which has amounted to $29 million from FY1998 through
FY2007. Congress passed “The Silk Road Strategy Act” in FY2000 (as part of

consolidated appropriations, P.L. 106-113) calling for enhanced policy and aid to support
conflict amelioration, humanitarian needs, democracy, economic development, transport
and communications, and border controls in the South Caucasus and Central Asia.
Contributions to the Global War on Terrorism
After the terrorist attacks on the United States on September 11, 2001, Azerbaijan
“granted blanket overflight clearance, engaged in information sharing and law-
enforcement cooperation, and ... approved numerous landings and refueling operations
... in support of U.S. military operations in Afghanistan,” according to the State
Department’s Country Reports on Global Terrorism 2007 (released April 2008).
Azerbaijan has participated in International Security Assistance Force (ISAF) operations
in Afghanistan since late 2002 (about 45 Azerbaijanis were deployed there as of mid-
2008). In August 2003, Azerbaijani troops began participating in the coalition
stabilization force for Iraq (as of mid-2008, 150 Azerbaijanis were deployed in Iraq). To
support the Global War on Terrorism, Azerbaijan also “has aggressively apprehended and
prosecuted members of suspected terrorist groups,” according to the Report.
Foreign Policy and Defense
President Ilkham Aliyev has emphasized good relations with the neighboring states
of Georgia and Turkey, but relations with foreign states have often been guided by their
stance regarding the NK conflict. Azerbaijan views Turkey as a major ally against
Russian and Iranian influence, and as a balance to Armenia’s ties with Russia. Ethnic
consciousness among some “Southern Azerbaijanis” in Iran has grown, which Iran has
countered through repressive actions. Azerbaijani elites fear Iranian-supported Islamic
fundamentalism and question the degree of Iran’s support for an independent Azerbaijan.
Azerbaijan is a founding member of GUAM (an acronym of members Georgia, Ukraine,
Azerbaijan, and Moldova), which has discussed energy, transport, and security
cooperation, partly to counter Russian influence. Azerbaijan is a member of the Black
Sea Economic Cooperation group, the Council of Europe (COE), the Economic
Cooperation Organization, and the Organization of the Islamic Conference.
Frictions in Azerbaijani-Russian relations include Azerbaijan’s allegations of a
Russian “tilt” toward Armenia in NK peace talks. In 1997, Russia admitted that large
amounts of Russian weaponry had been quietly transferred to Armenia, and in 2000 and
2005-2007, Russia transferred heavy weaponry from Georgia to Armenia, fueling
Azerbaijan’s view that Russia supports Armenia in the NK conflict. Azerbaijani-Russian
relations appeared to improve in 2002 when the two states agreed on a Russian lease for
the Soviet-era Gabala early warning radar station in Azerbaijan and they reached accord
on delineating Caspian Sea borders. Perhaps seeking Russian support for his new rule,
Ilkham Aliyev in March 2004 reaffirmed the 1997 Azerbaijani-Russian Friendship Treaty.
In late 2006, Russia’s demands for Azerbaijan and Georgia to pay substantially higher gas
prices appeared to contribute to the cooling of Azerbaijani-Russian relations.
According to The Military Balance (February 2008), Azerbaijani armed forces
consist of 66,740 army, air force, air defense, and navy troops. There also are about 5,000
border guards and more than 10,000 Interior (police) Ministry troops. Defense spending
has been increasing in recent years, to about $1 billion in 2007, and a planned $1.6 billion

in 2008 (about 13% of budget expenditures). Under a 10-year lease agreement, about
1,400-1,500 Russian troops are deployed at Gabala. Azerbaijan reportedly received
foreign-made weapons of uncertain origin and armed volunteers from various Islamic
nations to assist its early 1990s struggle to retain NK. In 1994, Azerbaijan joined
NATO’s Partnership for Peace (PFP) and began an Individual Partnership Action Plan
(IPAP) in 2005, but President Aliyev has not stated that the country seeks to join NATO.
Some Azerbaijani troops have participated in NATO peacekeeping in Kosovo since 1997
and operations in Afghanistan since 2002.
The NK Conflict. In 1988, NK petitioned to become part of Armenia, sparking
ethnic conflict. In December 1991, an NK referendum (boycotted by local Azerbaijanis)
approved NK’s independence and a Supreme Soviet was elected, which in January 1992
futilely appealed for world recognition. The conflict over the status of NK resulted in
about 30,000 casualties and over one million Azerbaijani and Armenian refugees and
displaced persons. The non-governmental International Crisis Group (ICG) estimates that
about 13-14% of Azerbaijan’s territory, including NK, is controlled by NK Armenian1
forces (the Central Intelligence Agency estimates about 16%). A ceasefire agreement
was signed in July 1994 and the sides pledged to work toward a peace settlement. The
“Minsk Group” of concerned member-states of the Organization for Security and
Cooperation in Europe (OSCE) facilitates peace talks. The United States, France, and
Russia co-chair the Minsk Group.
On November 29, 2007, Undersecretary of State Nicholas Burns, Russian Foreign
Minister Sergey Lavrov, and French Foreign Minister Bernard Kouchner presented the
Foreign Ministers of Armenia and Azerbaijan with a draft text — Basic Principles for the
Peaceful Settlement of the Nagorno-Karabakh Conflict — for transmission to their
presidents. The Basic Principles reflected agreements the two sides had reached during
the Minsk Group talks as well as proposals by the co-chairs on “just and constructive
solutions” to the few remaining issues of contention. The officials urged the two sides
to accept the Basic Principles and work toward a comprehensive peace settlement.2
Although the text was not released, Azerbaijani Foreign Minister Elmar Mammadyarov
reportedly claimed that the principles uphold Azerbaijan’s territorial integrity and NK’s
autonomous status as part of Azerbaijan. Armenia’s then-Foreign Minister Oskanyan
asserted, on the other hand, that the principles accord with Armenia’s insistence on
respecting self-determination for NK.
In March 2008, the peace process faced challenges from a ceasefire breakdown along
the NK front that reportedly led to some troop casualties and from the passage of a
resolution by the U.N. General Assembly that called for Armenia to “immediately and
unconditionally” withdraw from “occupied” Azerbaijani territory. Deputy Assistant
Secretary of State Matthew Bryza stated that the United States had voted against the
resolution because it violated the provisions of the Basic Principles and thus harmed the

1 ICG. Nagorno-Karabakh: Viewing the Conflict from the Ground, September 14, 2005. CIA.
The World Factbook, []. The casualty estimate is from the State Department,
Background Note: Azerbaijan, May 2008.
2 U.S. Department of State. Office of the Spokesman. Media Note: Support for Basic Principles
for Peaceful Settlement of the Nagorno-Karabakh Conflict, November 29, 2007.

peace process. Many observers suggest that progress in the peace talks may occur only
after the current electoral cycle concludes in Armenia and Azerbaijan.
Political and Economic Developments
The Azerbaijani constitution, approved by a popular referendum in November 1995,
strengthened presidential power and established an 125-member legislature (Milli Mejlis)
with a five-year term for deputies. The president appoints and removes cabinet ministers
(the Milli Mejlis consents to his choice of prime minister), submits budgetary and other
legislation that cannot be amended but only approved or rejected within 56 days, and
appoints local officials. The U.S. State Department viewed an August 2002 constitutional
referendum as flawed and as doing “very little to advance democratization.”
In October 2003, Ilkham Aliyev handily won a presidential election, beating seven
other candidates with about 77% of the vote. Protests alleging a rigged vote resulted in
violence, and spurred reported government detentions of more than 700 opposition party
“instigators.” Trials reportedly resulted in several dozen prison sentences. In early 2005,
the OSCE issued a report that raised concerns about credible allegations of use in the
trials of evidence derived through torture. Aliyev in March 2005 pardoned 114 prisoners,
including many termed political prisoners by the OSCE.
Changes to the election law were approved by the legislature in June 2005, including
some making it easier for people to become candidates for a November 2005 legislative
election. Azerbaijan’s Central Electoral Commission (CEC) declared that the ruling Yeni
Azerbaijan Party won 54 seats and independents, 40 seats. Opposition party candidates
were declared the winners in a handful of constituencies. The U.S. Embassy in
Azerbaijan issued a statement urging the government to investigate and rectify some
voting irregularities but also praised the election as evidence of democratization progress.
The CEC and courts eventually ruled that 625 (12.2%) of precinct vote counts were
suspect, and repeat races were held in May 2006 in ten constituencies. The opposition
Azadliq electoral bloc refused to field candidates in what it claimed were “rigged”
elections. OSCE monitors judged the repeat race as an improvement over the November
election but stated that irregularities still occurred.
A presidential election is scheduled to be held on October 15, 2008. In early June
2008, the legislature approved changes to the electoral code, including a reduction of the
presidential campaign season from 16 weeks to about 10 weeks. Some of the changes had
been recommended by the Venice Commission, an advisory body of the Council of
Europe. However, other recommendations of the Venice Commission were not enacted,
including those on eliminating the dominance of government representatives on election
commissions, clarifying reasons for refusing to register candidates, and reducing the
number of signatures necessary for candidate registration. The opposition Azadliq
(Freedom) party bloc denounced the reduction in the length of the campaign season as an
attempt to limit the exposure of opposition candidates, and announced that it would
boycott the election. Other opposition parties have rejected Azadliq’s call for a boycott.
Candidate registration has not begun. Many observers suggest that the opposition parties
will not be able to agree on a single candidate, so that several leaders of these parties are
likely to run. Incumbent President Ilkham Aliyev is widely expected to win re-election
despite the recent sharp rise in inflation and reported food shortages.

According to the U.S. State Department’s Country Reports on Human Rights
Practices for 2007 (released March 2008), the Azerbaijani government’s human rights
record remained poor and worsened in some areas in 2007. Torture and beating of persons
in police and military custody resulted in four deaths during the year. There were cases
of arbitrary arrest and detention, particularly of members of the political opposition. One
positive sign was the January 2007 conviction of a high-ranking police official on charges
of running a kidnaping, murder, and extortion ring. NGOs maintained that there were
dozens of political prisoners. Media freedoms significantly deteriorated during the year.
Some observers considered the imprisonment of several journalists to be politically
motivated. Most were released by presidential pardon late in the year or their verdicts
were overturned. The government intimidated and harassed the media, primarily through
defamation suits and court fines for libel. The government restricted freedom of
assembly, including by strictly limiting the areas in Baku where rallies were permitted.
Some religious groups complained about government harassment.
The collapse of the Soviet Union and the NK conflict in the early 1990s contributed
to the decline of Azerbaijan’s GDP by over 60% by 1995. The economy began to turn
around in 1996-1997. GDP growth in 2006 and 2007 were estimated at more than 30%
per year, which contributed to a rise in consumer price inflation to an estimated 16% in
2007 (World Factbook). Rising inflation may harm economic growth in 2008. The
energy sector accounts for most GDP growth, and the non-oil economy is fragile. A State
Oil Fund is supposed to save oil revenues for future use, but the government allegedly has
extensively tapped it to alleviate budget deficits. According to the International Monetary
Fund, “strong political action” is needed “to counter the vested interests” that discourage
competition in several sectors of the economy.3 Up to one-fourth of the population lives
and works abroad because of high levels of unemployment in Azerbaijan.
Energy. The U.S. Energy Department in December 2007 reported estimates of 7-13
billion barrels of proven oil reserves, and estimates of 30-48 trillion cubic feet of proven
natural gas reserves in Azerbaijan. U.S. companies are shareholders in three international
production-sharing consortiums that have been formed to exploit Azerbaijan’s Caspian
Sea oil and gas fields, including the Azerbaijan International Operating Company or
AIOC, led by British Petroleum (developing the Azeri, Chirag, and Gunashli fields). The
United States backed the construction of a large (one million barrels per day capacity) oil
pipeline from Azerbaijan through Georgia to Turkey’s Ceyhan seaport on the
Mediterranean (the Baku-Tbilisi-Ceyhan or BTC pipeline) as part of Azerbaijan’s
economic development, and because this route neither allows Russia to gain undue
control over Azerbaijan’s resources nor forces Azerbaijan to seek export routes through
Iran. Construction began in 2003 and the first tanker was filled in Ceyhan in mid-2006.
A gas pipeline from Azerbaijan’s offshore Shah Deniz field to Turkey was completed in
March 2007. In mid-November 2007, Greece and Turkey inaugurated a gas pipeline
connecting the two countries that permits some Azerbaijani gas to flow to an EU member-
state. This pipeline is planned to be extended to Italy. Azerbaijan also has pledged to
supply some gas for the proposed Nabucco pipeline from Turkey to Austria.

3 International Monetary Fund. Azerbaijan: 2008 Article IV Consultation, Preliminary
Conclusions of the IMF Mission, March 12, 2008.