Azerbaijan has through the last decade been mainly associated with two things: oil and unresolved, historical ethnic conflicts. Russia on the one side and the United States and Turkey on the other are competing for a stake in the exploitation and transport of the rich oil and gas reserves in Azerbaijan and Kazakhstan. The victor will share in the profits and secure political influence in the region. For Azerbaijan, it is a geopolitical game that involves choosing among old Soviet paternal ties, a revival of the Turkic brotherhood in the south Caucasus, and a marriage into the riches and security of a Western family.

Oil has a long history in these parts. By the mid-19th century, Baku had become the center of an oil bonanza, and drilling was underway more than 10 years before the first wells gushed in Pennsylvania. At the turn of the century, Azerbaijan was producing half of the world's oil. Azeri oil served the Russian empire and then the Soviet Union, which siphoned off much of the oil-generated riches for industrialization. As new fields were discovered and exploited after World War II, Azerbaijan's position as a primary energy source for the Soviet Union dissipated—by the 1970s, Baku had become less important to Moscow. New prosperous fields were discovered in the late 1980s, and a range of multinational oil companies were invited to compete for tenders and rights for drilling in the now independent republic of Azerbaijan. In 1991, U.S.-owned Amoco came out as a temporary winner. Internal political struggles, supported by a revisionist Russia, overthrew the democratically elected government, and brought Heydar Aliev to power in June 1993. All bets were off, and a new bid was announced. The Russian giant LUKoil was granted a 10 percent share in the (now merged) British Petroleum-Amoco-led consortium in 1994, known under the acronym of AIOC.

The euphoria of the first years has since died out, replaced by a less optimistic attitude, as most of the fields have turned out to contain gas and not the more valuable commodity, oil. But then, in the spring of this year, drilling reports emerged from the new Caspian-Kazakh field of Kashagan about a possible "gusher." On 24 July, these hopes were solidified when the Offshore Kazakhstan International Operating Company (OKIOC)—composed of nine international companies—confirmed that its first test well located substantial reserves of oil and gas. Kazakh officials have said that this is one of the largest discoveries in recent decades. U.S. government sources expect Kashagan to contain as much as 6.8 billion tons, making it the biggest find in the world in the last 20 years. Talk of the "deal of the century" has resurfaced. Kazakh President Nursultan Nazarbayev has said he hopes to turn out as much oil as Saudi Arabia by the year 2015.

PIPE DREAMS
Geographically, Baku is a gateway to a proposed southern pipeline route, across Azeri territory to the Mediterranean port of Ceyhan on the Turkish coast. The proposed U.S.-backed Baku-Ceyhan pipeline has grown to carry huge diplomatic and geopolitical significance—and if successfully implemented, it has the potential to shift the region's geopolitical balance.

The United States sees the Baku-Ceyhan pipeline as a tool to lessen Russian influence over the former Soviet republics. That can most pragmatically and directly be accomplished by weakening the energy transport monopoly that Russia has enjoyed since the breakup of the USSR. The monopoly is a legacy of the economic infrastructure of the Soviet era—an infrastructure which sought to tie less advanced areas of the Soviet Union with the less developed regions.

Recent events following Russia's March presidential election have already revealed a markedly more demanding tone from the new Kremlin administration toward the former Soviet republics. Pipelines run from the south to the north, to Russian ports in the northern Black Sea. At the Commonwealth of Independent States (CIS) summit in June, Russian President Vladimir Putin earned the South Caucasian leaders' approval for the creation of a permanent body for cooperation and security known as the "Caucasus Four," and consisting of Georgia, Armenia, and Azerbaijan, with Russia as the driving force.

Putin has made the control of the Caucasus and greater influence in Central Asia one of his highest priorities. The newly elected president has taken great pains to frequently visit the former Soviet republics to lobby for their support to negotiate oil transport through Russia. Furthermore, Russia launched its second war in Chechnya last fall in a much more fierce, united, and determined campaign than the first one in 1994-1996. Under Putin, the Kremlin has sent unambiguous signals to the "Near Abroad" republics that the claws of the Russian bear have grown back.

A revival of Soviet ties is viewed by the United States as anathema to its post-Soviet efforts to promote market mechanisms and stable democracies. Azerbaijan has eagerly pursued membership in the Council of Europe for the past few years, and was finally admitted last month. A connection to Europe could add weight in counterbalancing Russian influence in the tough negotiations over future oil transport and exploitation rights. And the negotiations are quickly heating up. On 1 August, Azerbaijan and Iran announced an agreement to conduct joint research in Caspian border areas, a move analysts are saying could be aimed at balancing relations with Russia.

Passing through Tblisi and making use of Georgia as a transit country, the U.S. backed Baku-Ceyhan plan has one fundamental problem: There is currently not enough deliverable oil in the Caspian to make the project viable. The pipe dream is estimated to cost $2.4 billion and needs at least 20 million tons of oil annually to be economically sustainable. AIOC, the main producer and exporter of oil in Baku, reported that only 2.7 billion tons of oil have been produced for the first six months of this year.

The plans for this route were born out of the high hopes in the Azeri sector of the Caspian in the early 1990s. As mostly gas has been discovered, many observers have for long doubted the feasibility of the 1,730-kilometer Baku-Ceyhan line. The plan has since been largely dependent on the results of the new drillings off the coast of Kazakhstan. If the prognosis turns out to be true, following the OKIOC's second testing later this year, Kazakh oil could itself provide more than the 20 million tons the Baku-Ceyhan line is looking for.

POLITICS MEETS BUSINESS
But the Russians are competing for this oil—and influence over Azerbaijan—as well. Based on earlier finds in Kazakhstan, construction on a pipeline from Novorossiisk on the northern Black Sea coast has already begun and is expected to be finished by 2001. The latest discovery only gives this nearly completed Russian pipeline a greater advantage, serving to balance supply and demand in the favor of Russia. Despite these advances on the Russian side, on 24 May a spokesperson for the U.S. State Department said the Baku-Ceyhan project had made "enormous progress" and would be moving into the design and financing phase the following week. It seems the United States is determined to stay in the game.

With the amount of oil coming out of Baku at the moment, the 18 million-ton annual capacity of the Baku-Novorossiisk pipeline—which is in its final stage of development—can handle all of Azerbaijan's needs. Passing through Chechen territory, the pipeline has an impact on the entire Caucasus region, and could provide Russia with resources in the form of fat transit fees for rebuilding the war-torn republic and securing a Russian grip on the Caucasus.

On 7 July, U.S. Special Envoy for Energy Issues of the Caspian John Wolf held meetings with Georgian President Eduard Shevardnadze. The high-level talks suggested that the Baku-Tblisi-Ceyhan deal has not yet reached the technical and administrative level, and the AIOC has not yet made the West any promises of oil. It could also mean that U.S. political determination will prevail over purely business considerations as regards to Central Asia and the South Caucasus. Taking the geopolitical aspect of the game into consideration, scrapping the Baku-Ceyhan project at this stage would be interpreted as a retreat from the Caspian.

In May, a representative of the U.S. oil giant Chevron told the Economist: "There simply isn't any oil looking for a transportation system. Most pipelines are built after the demand, rather than before the demand." Furthermore, it will likely be less costly to transport the Caspian oil through Iran to the already existing infrastructure in the Persian Gulf. That option also has support from large parts of the oil business operating in the region. Letting Iran's theocratic regime get its hands on the spoils and giving it a new political credibility as a partner is hardly a preferable alternative as far as the U.S. government is concerned.

BALANCING PATERNAL FORCES
At the beginning of the 1990s, Western oil companies received the bulk of the extraction rights and consortium deals. Changes in the Azeri government have not altered that picture—a reflection of Russia's waning political clout in the last decade. But the internal developments in Russia have placed the country back in the front line of the oil struggle, with Azerbaijan looking for ways to distribute its oil and gas on several pipe routes, in several geographical directions, in order to balance the outside powers. In this respect, it has met with certain successes. The Azeri oil consortium is one example of a mixture of small and large, Western and Russian companies. The Baku-Supsa oil line—which opened last year and crosses Georgian territory to the Black Sea coast, avoiding Russian territory—is another. Again, Russia's LUKoil will have a stake in helping operate that pipeline.

Azerbaijan is also playing the Turkish card as a possible counterweight to Russian influence. The cultural bond of Turkic-speaking nations is widely celebrated across the country. At a Turkic summit in Baku in April, a common pledge to further cooperation on energy politics was made, and former Turkish President Suleyman Demirel at the summit proclaimed the 21st Century "a century of strengthening ties between Turkic nations." The presidents of Azerbaijan, Kazakhstan, Kyrgyzstan, and Turkey were present. Turkmenistan, which has huge gas reserves, and Uzbekistan—consistently playing hard-to-get in the oil game—chose not to attend the summit. The newly elected Turkish president, Ahmet Necdet Sezer, on 11 July made his first official foreign visit to Azerbaijan, showing the continued importance of the country as a gateway to energy riches and political influence among the Caspian states.

A long-serving former foreign policy adviser to President Aliev, Vafa Guluzade has gone further by proposing a union of Azerbaijan and Turkey in his vision of a Turkic brotherhood. In an interview with Transitions Online, Guluzade gave his interpretation of the current geopolitical situation of Azerbaijan: "If the world does not want to help Azerbaijan to solve its problems, why should we not think of uniting with Turkey?" The now-retired, but politically active statesman expressed deep concern that the Belarus-Russia union might include Azerbaijan's arch-enemy, Armenia. The military-industrial complex in Russia has reinforced itself, and Azerbaijan fears a new "invasion from the north," he said. Guluzade also said two centuries of foreign domination had undermined the true cultural direction of the Azeri people. "I think that Azerbaijan is only a [geographic] area and that our language is Turkish. All the world is calling us Turk."

THE CASPIAN COURTING GAME
This view of a strong cultural and ethnic bond between the two peoples has had a certain resonance among the masses. In a more moderate form, that sentiment makes sense from a geopolitical perspective. Turkey is already a NATO member and may eventually qualify as an EU candidate. Some kind of formal interstate link could boost Azerbaijan's independent status. Earlier, Turkey strongly voiced its opinion on the disputed Nagorno-Karabakh issue, siding with Azerbaijan—a move which has served as a security guarantee that can only strengthen Azerbaijan's sovereignty. Guluzade said he foresaw Western military bases in Azerbaijan should the country formally tie itself to NATO-member Turkey. On the other hand, any such attempts would surely be interpreted by Moscow as adding insult to injury.

Aliev himself has taken to customizing his statements according to his audience, pledging cultural identity and the need for increased state-to-state cooperation between Azerbaijan and Turkey, while emphasizing the great power status of Russia and its legitimate right to sanction all geopolitical changes in the Caucasus.

After Putin's victory in the recent elections, Aliev has been bending over backwards to reassure the Kremlin of his good intentions. On 14 June, Russian Security Council Secretary Sergei Ivanov held talks with the Azeri president in Baku. They mutually assured one another that there were "no unresolved issues between Azerbaijan and Russia," according to Interfax. Itar-Tass quoted Aliev as saying that Azerbaijan would like to see Russia as a great power in the region and saw Moscow as essential in bringing a settlement to the Nagorno-Karabakh conflict. Also, the Russian Special Envoy for the Caspian and Deputy Foreign Minister Viktor Kalyuzhny has made a number of recent visits to the Caspian oil- and gas-rich countries, signing bilateral agreements and holding talks, mostly behind closed doors.

Russian and Azerbaijan are still flirting. During the height of the recent Chechen campaign, Russia issued several warnings to Azerbaijan for allegedly harboring Chechen guerrillas on its territory. The ethnic mosaic of the Caucasus is also being used as a political weapon. The Lezghin minority—which has its homeland in the Russian republic of Dagestan, but has migrated into Azeri territory—has shown separatist tendencies. Some members of the Lezghin people form the "Sadval" organization, which with possible Russian backing, has made demands for Azeri land to be incorporated into Dagestan.

Azeri media have been suggesting that the Russians are exploiting Lezghin separatism to put pressure on Baku. According to RFE/RL on 16 June, Azeri officials have also claimed the Russians have threatened to impose further economic sanctions if the Azeri government fails to deliver the agreed amount of oil through Russian pipelines this year. Russia also announced on 3 July that it would impose a $29 million contractual fine on Azerbaijan for nonfulfillment. As of mid-June, Azerbaijan had only delivered 300,000 to 340,000 tons out of an agreed 2.3 million tons annually. The smaller amount is largely due to contracts signed a few years back, when expectations of oil coming out of Azerbaijan were much higher. The country's obligations to Russia last winter led to major energy shortages in Azerbaijan, as Russia stipulated such high volumes in the contract, depleting Azerbaijan's reserves.

In the current Caspian oil situation, Azerbaijan will find it extremely difficult to stall off Russian influence and demands for its pipelines, especially if the Baku-Ceyhan line fails to materialize. On the other hand, excessive cuddling with the Russian bear could lead to a Western retreat and a consequent isolation of the young republic. In any case, Azerbaijan needs to portion out its oil with a goldsmith's accuracy if the country is to create a space for itself between the giant rocks that encircle it.

Tor Harald Monsen is a research student at the University of Oslo, Institute of History, and Masters student at the University of Glasgow, Institute of Russian and East European Studies. He is working this summer as a TOL intern. Seymur Selimov is a freelance writer based in Azerbaijan.

The above story is reposted with permission from Transitions Online (TOL). TOL (http://www.tol.cz) is an Internet magazine covering Central and Eastern Europe, the Balkans, and the former Soviet Union. If you aren't already a member, you can fill out the registration form at <http://www.tol.cz/trialsubscr.html> to receive a free two-month trial membership. If you're a citizen of a post-communist country, FREE annual memberships are available at <http://www.tol.cz/trialsubscr2.html>.