Azerbaijan – US relations based on the Energy Card

The Caspian region emerged asacritical component forWestern energy security policy and also becamea key player in the evolving balance of power in Eurasia, Asia and the Middle East. The US has strong economic, political and strategic interests in Azerbaijan, because of its energy resources and geostrategic position,which puts it right in the neighbourhood of two important Eurasian players, Iran and Russia and on the road to the Afghanistan.

The collapse of the Soviet Union created both a new political reality and geographical borders in the region. The South Caucasus has drawn attention from regional powers such as Russia, Iran and Turkey and external powers such as the US and Europe, while a political vacuum created by the fall of the USSR madethe newly independent Caucasus nations to look for new allies in the West. However, the newly gained independence of these nations has been marred by economic and political chaos.The Caucasus, situated betweenthree powers, Russia, Iran and Turkey, is a home to abundant natural resources, diverse ethnic groups and several ethno-political conflicts. The geopolitical importance and abundant energy resources in the Caucasus and Central Asia have attracted considerable attention from the US and Europe.

The Caspian region emerged asacritical component forWestern energy security policy and also becamea key player in the evolving balance of power in Eurasia, Asia and the Middle East. According to Zbigniew Brzezinski in his book ‘The Grand Chessboard’, “Azerbaijan has taken on a particular strategic value since independence, connected by pipelines to Western markets that do not pass through the territory controlled by the Russians, and would be an important channel of access for advanced economies and energy consumers to the oil-rich Central Asian republics” [1].The US has strong economic, political and strategic interests in Azerbaijan, because of its energy resources and geostrategic position,which puts it right in the neighbourhood of two important Eurasian players, Iran and Russia and on the road to the Afghanistan.

The Beginning of US involvement

Up on the fall of the USSR, Azerbaijan became an independent nation with significant energy resources and an experienced, well-developed oil industry.Azerbaijan is one of the oldest oil-producing regions,as evidence by the exploitation of petroleum as early as the 3rd and 4th centuries. However, industrial development at the end of the 19th century led to actual oil production. The first modern oil well was drilled on the Absheron Peninsula at the Bibi Heybat field near Baku in 1848 [2]. From the beginning of the 1920s until WWII, Azerbaijan remained at the centre of the world due toits energy resources. The independence of Azerbaijan opened the route for the country to become part of the Euro-Atlantic Organisations, such as NATO and European Union, which were previously forbidden from operating in this region. The US and other countries took no time in opening their embassies in oil-rich Baku. It was a surprise for the Azerbaijan government to receive invitations to join the NATO Partnership for Peace programs, as for years NATO was considered an enemy military force. These countries received military aid from NATO and signed a strategic partnership deal that was considered to bepart of a counterbalancing to Russian influence.

Azerbaijan experienced several governmental collapses in the initial years of independence (1991-93) and a war with Armenia over Nagorno-Karabakh. This war not only worsened relations with Russia but also with the US. The US imposed Sanction 907 [3] on Azerbaijan under pressure from the strong Armenian lobby, which prevented Azerbaijan from receiving any direct US aid. However, Azerbaijan was determined to improve relations with the US in order to balance the influence of other powers in the region. Azerbaijan recognized the ‘diplomatic’ value of its energy resources and used them to charm American energy companies and the US government.

Photo: Oleg Nikishin/Bloomberg
BP workers at West Chirag platform in
Azerbaijan

During this period, Azerbaijan’s access to the US government travelled through this ‘energy card’. By leveraging its energy riches, the Azerbaijani government attracted the attention of US policymakers. The US realised that Azerbaijan’s energy resources could be transported to Europe, bypassing Russia and Iran and thus decreasing the regional and international influence of these two countries. Azerbaijan and Georgia are important to the US and Europe as transport countries of Caspian gas and oil. In the future, Azerbaijan may also be an important transit state, transporting landlocked Central Asian energy resources to Europe. On-going negotiations between Azerbaijan, Turkmenistan and European counterpartsmay result in relevant agreements in the coming years.

After independence, the main challenge of the government of Azerbaijan was to develop its energy industry in the absence of the required financing and technical expertise. The government resolved to secure Western finance and assistance in order to develop thecountry’s energy resources. For Azerbaijan, establishing a policy of energy diversification while balancing foreign interests in the region was a difficult task.Former President of Azerbaijan Ayaz Mutalibov, signed oil transport agreements with western companies; he later was forced to resign his position as the conflict over Nagorno-Karabakh erupted in 1991-92. His successor was also forced to resign as a result of the Khojaly massacre in 1992 [4]. Nonetheless, since 1993, Azerbaijan government has strengthened its relations with Russia, recognizing the latter’s economic and political importance, and has delicately tried to balance relations between the West and Russia. Following the improvement in these relations, the Russian oil company Lukoil was given a 10% stake in the Azeri, Chirag and Guneshli (ACG) field as a part of the Contract of the Century deal [5].

In 1994, the States Oil Company of Azerbaijan (SOCAR) led by the government of Azerbaijan and the Western Oil Consortium led by British Petroleum (BP) and Amoco signed the Contract of the Century on 20 September 1994 [6]. The Azerbaijani government invited the major oil companies of the world to participate in this contract, thus insuring its vulnerability against dominance by any one foreign interest.Political analysts in Azerbaijan believed that the construction of multiple pipelines, involvement by Western companies and energy export diversification would guarantee them ‘real’ sovereignty and independence. The Contract of the Century opened Azerbaijan to many Western energy companies. Russia offered to buy Azerbaijan’s natural resources at a competitive market price. This offer was commercially lucrative, but it would risk Azerbaijan’s political interests. The Azerbaijani government understood that multiple energy pipelines and cooperation with the West mightlead the country away from Russia’s orbit. For the government of Azerbaijan, it was commercially viable to use existing infrastructure ofpipelines to Russiaand transport its energy resources, but possibly would have jeopardized country’s independence. By involving Western companies and diversifying its export markets, Azerbaijan has strengthened its political security.The ‘oil card’ brought political and economic stability to Azerbaijan and increased the country’s importance in the international arena.

The extent of US cooperation with the countries of the South Caucasus states increased in the latter part of the 1990s. The first Bush administration clearly recognised the geopolitical importance of the energy wealth of the Caspian States. US involvement in the region intensified under PresidentClinton and the second Bush administration through military cooperation, economic exchanges and the development of energy infrastructure. In the 1999 “Silk Road Strategy Act” was passed, authorizing greater policy attention and aid for supporting conflict resolution, humanitarian needs, economic development, transport and communications, border controls, democracy, and the creation of civil societies in the South Caucasus and Central Asia [7]. Later in 2006, a bill was proposed to update the Silk Road Strategy Act of 1999 in order to change the targeting of assistance in order to support the economic and political independence of the countries of Central Asia and the South Caucasus in recognition of political and economic changes in these regions, since enactment of the original legislation [8].

US policies regarding Azerbaijan were based on the strategic significance of Azerbaijan’s energy reserves. They also reflectedthe US’s recognition of the strategic necessity of developing Azerbaijan’s extensive energy reserves,through a policy of “energy seduction,” which came to serve as an underlying priority for developing relations with Baku. Azerbaijan also served as the main element of both the American and the larger West’s attempts to bypass both Russia and Iran in developing regional energy sectors and in building new export pipelines [9].

Asthe energy resources of Azerbaijan became more relevant to the US, President Clinton’s engagement became more responsive to Azerbaijan. Under his administration, the foundation of Baku-Tbilisi-Ceyhan (BTC) pipeline was laid. This pipeline, opened in 2006, was strategically important as it bypassed Russian and Iranian routes and supplied high quality, Azeri light crude oil to Europe. However, in comparison,the total Russian volume of energy exports to Europe is still very high. Nonetheless, BTC set the trend and challenged the Russian monopoly in a small but strong way.

Energy diversification away from the Middle East has had extreme importance for the energy security needs of NATO allies,as well asfuture oil shocks caused by instability in the Persian Gulf region. While the US and its NATO allies share a profound interest in maintaining the balance of power in the Caspian, the premier challenge for NATO is the delicate task of balancing Western energy security concerns with those of Russia.The core US policy concerning the transit of oil from the region revolves around the concern that no nation should monopolize the pipeline routes for exporting Caspian oil. NATO’s interest in alternative pipelines outside Russian control has additional strategic significance forthe NATO-aligned states of Eastern Europe.

Photo: www.theguardian.com

Azerbaijani and US relations reached a peak with the opening of the BTC pipeline. The BTC and Baku-Tbilisi-Ezurum (BTE) oil and gas pipelines gave new impetus to Azerbaijan’s relations with the West. European countries received oil and gas of Caucasus that bypassed Russia and Iran. These pipelines created a new geopolitical dimension for Turkey and Georgia. Turkey, already a NATO member country, became an important transit hub. Georgia received its required energy supplies from Azerbaijan plus heavy transit fees, thus reducing its energy dependence on Russia. Georgia became less dependent on Russia and pursued a pro-Western course. These developmentscreated problems in its relationship with Russia, which feared that Georgia and Azerbaijanwere gradually moving away from its sphere of influence.

Changed Dynamicssince 2008:

The conflict between Russia and Georgia in 2008 changed the power equation in the Caucasus. Prior to this conflict, balancing Russian interests in the region was not a paramount aspect of the foreign policies of the countries in the South Caucasus. This conflict exposed the potential risks of challenging Russia.US interest in Georgia was significantly misinterpreted by former President Mikhail Saakashvili, putting Georgia more at odds with Russia and creating instability in the South Caucasus. Georgia neither receivedactive US support nor was supported by its neighbouring states. The US did not want to entera direct clash with Russia by openly backing Georgia. Each of the three Caucasus states now has frozen conflicts (Nagorno-Karabakh, South Ossetia, Abkhazia) and Russia is indeed an important partner in the resolution of these conflicts. Apart from conflict, demographic and economic aspects also play a large role in maintaining Russian influence in this region.

Russia’s efforts are more geopolitical and strategic than economicin working to prevent the South Caucasus states from gaining wider traction with NATO and the EU.The cooperation of Azerbaijan and Georgia with the EU and the NATO Partnership of Peace program creates has benefits for economic modernization in the two countries and soft political integration into the Western world. However, it is also their desire to be integrated within Euro-Atlantic structure that is raising flags in Russia. EU countries backed by Washington have lobbied strongly for NATO’s involvement in energy issues.

The terrorist attack of September 11thon the US increased Azerbaijan’s significance. Azerbaijan became a strategic partner in the US’s war on terror in Afghanistan and later in Iraq. The legislation knows as Section 907 of the Freedom support Act was amended after September 11 by a Presidential waiver. Azerbaijan was provided aid of $50 million in 2002 and $52.98 million in 2003 [10]. The Azerbaijani government offered use of its airbase for coalition refuelling en route to Central Asia. Secular Azerbaijan, even though the majority of population are adherents of Islam, was an ideal partner for the US. Azerbaijan supported the US military campaigns in Afghanistan and Iraq by sending troops and serving as a key member of the Northern Distribution Network. Azerbaijan and Georgia acquired a new security perspective in the wake of September 11th. The ‘train and equip’ missions in Georgia and greater military assistance for border securityand counter-proliferation in Azerbaijan were useful for the United States’ war on terror. However, Azerbaijan does not receive active US backing in the resolution of the Nagorno-Karabakh conflict. Also, being the energy producer state, it has its own security challenges.

The Azerbaijani government has tried not to fall out with Russia, but it has also cultivated the image of a pro-Western state by joining the GUAM alliance [11] and by building the BTC gas pipeline, much to Moscow's displeasure.With Russia’s resurgence in full swing, the United States would like to see Azerbaijan play a critical role in developing an energy production and transportation system that will allow European markets to diversify from Russian energy supplies. If Russia and Azerbaijan manage to forge an agreement that allowsAzerbaijan to focus on developing energy projects whichdo not interfere with Russia’s energy dominance, it would be a blow to US interests in the region. This game is not only about acquiring energy resources, but it is also about winning influence.

The status quo of the Nagorno-Karabakh conflict has benefited Russian interests more than those of Armenia and Azerbaijan. The so-called frozen conflict has allowed Moscow to keep Armenia and Azerbaijan, to varying degrees, in its orbit. While Armenia has become totally dependent on Russian economic and military aid, Azerbaijan’s progress toward the West has been much morelimited.Russian policy remains deeply suspicious of Washington’s efforts to project US military and economic influence into an area that Moscow still regards as its own “backyard”.

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Photo: www.rferl.org
U.S. and Azerbaijani soldiers participate in
a joint NATO military exercise outside Baku in
April 2009

The South Caucasus is struggling to find the correct balance between East and West, but it is hard to strengthen ties with the West without upsetting Russia. Moscow is anxious to maintain its influence in South Caucasus due to its energy resources and geopolitical location. Also, another issue is the unpredictable nature of US foreign policy in the South Caucasus.US and EU policy in this region is under critical examination due to the lack of a concrete approach. The Russia-Georgia war in 2008 showcased the delicate nature of US involvement in the South Caucasus. US interests in the South Caucasus shape its foreign policy and nature of its involvement rather than reflect the needs of the Caucasus states.

As of late, Russia has re-emerged as a strong regional player and is applying its ‘muscular diplomacy’ on surrounding countries through the idea of the Customs Union and Eurasian Union. Under this trade union, Russia wants to bring the former USSR states in its economic orbit, and prevent them from joining Euro-Atlantic organisations. The last minute turn in Armenia and Ukraine with regards to the EU association agreement has shown power of Russia’s ‘muscular diplomacy’. With America’s focus on the Middle East and the winding up of the war in Afghanistan in 2014, US goals in the region are under question. Russia is exploiting the lack of concrete US foreign policy goals in the South Caucasus. Azerbaijan and Georgia are looking forward for more concrete US engagement in the region. Georgia is willing to be a full NATO member and Azerbaijan may wish the same. However, Azerbaijan is hesitating to openly demonstrate its ambition without an offer from NATOfor it fears a backlash from Russia.

Democracy and human rights are other irritants in Azerbaijan-US relations. The government of the Azerbaijan is highly criticized in Western media for its lack of openness and democratic values. Azerbaijan does not want any interference in its domestic politics by the West. Also, there is a double standard approach from the West with regards to democracy. For the West, a stable Azerbaijan is more important than a democratic but unstable Azerbaijan. Azerbaijan lacks a strong opposition and the present government is providing much needed stability.

Lately,the advancement of shale gas in the UShas alsochanged the dimensions of the US involvement in the South Caucasus. The US has renewed its energy independence by extracting shale gas, whichmay shift the geopolitical balance by lessening American and European reliance on the energy resources of Caspian and Middle East. Nonetheless, the environmental hazards of fracking are well known and the long-term future of shale energy is still debatable.

For a peaceful and prosperous South Caucasus, cooperation between the US and Russia is vital, as South Caucasus nations do not wantoverly heavy influence from Russia andlook to the US for political balance. Russia may feel threatened with the advancement of the US and NATO in its so-called ‘sphere of influence’. Also, without keeping Russia in loop, the West cannot achieve its objectives in this region. The failed diplomacy in the case of Armenia and Ukraine shows the extent of Russian influence in this region. US and Russian cooperation can create peace in the Caucasus. The period of the Cold War is over, but the fight for geopolitical influence is not. The goal should be a stable, politically secure and economically strong region.

1. Brzezinski, Zbigniew (1997) The Grand Chessboard, New York: Basic Books.

2. Mir-Babayev, Mir-Yusif (2002), “Azerbaijan’s Oil History: A Chronology Leading up to the Soviet Era”, Azerbaijan International, (10.2): 34-40. http://azer.com/aiweb/categories/magazine/ai102_folder/102_articles/102_oil_chronology.html.

3. The Freedom Support Act was created after the fall of USSR to facilitate the newly independent states of former USSR in their transition to democracy and economic and political stability. The US imposed Section 907 of the Freedom Support Act on Azerbaijan during the war over Nagorno-Karabakh under the influence of Armenian lobby in the US. This Act prevented Azerbaijan from receiving any direct aid, including humanitarian assistance from the US. The also ban makes Azerbaijan the only exception among the countries of the former USSR for receive direct aid from the US under the Freedom Support Act. Section 907 has been a constant irritant in US-Azerbaijan relationsup to present day. On 24 October 2001, the US Senate adopted a waiver of Section 907 which would provide the President with the ability to waive Section 907; it has been waived since then, but has not been fully removed to date.

4. Former President Mutalibov was forced to resign when Baku witnessed heavy rioting in protest of the Khojaly massacre of Azerbaijanis by Armenia on the night of 25-26th February 1992during the Nagorno-Karabakh war. The Armenian armed forces with the support of the 366th infantry regiment of the former Soviet Army killed Azerbaijanis living in Khojaly.

5. Sagheb, Nasser and Masoud Javadi (1994), “Azerbaijan’s Contract of the Century”, Azerbaijan International, (2.4): 26-28 http://www.azer.com/aiweb/categories/magazine/24_folder/24_articles/24_aioc.html.

6. Government of Azerbaijan, Contract of the Century, http://azerbaijans.com/content_775_en.html.

7. US State Department, 1997 & 1999, The Library of Congress, http://thomas.loc.gov/cgi-bin/bdquery/z?d106:hr1152:.

8. Silk Road Strategy Act of 2006, 109th Congress 2005-2006.

9. Pashayev, Hafiz M. (2006), Racing Up Hill, New York: Global Scholarly Publications.

10. Tsypkin, Mikhail (2013), Russia’s Security and the War on Terror, Routledge, 45

11. GUAM (Organization for Democracy and Economic Development) was founded by four countries: Georgia, Ukraine, Azerbaijan and Moldova. GUAM is seen as an alternative organization to the Russia-led CIS. Initially hailed and supported by the US and the EU, GUAM later lost its attractiveness to the West. The absence of visible actions from the member-states made this organization more of a club of countries dissatisfied with Russia. However, anti-Russian rhetoric was not enough to cement the weak military, economic, and political ties between the member countries.