Order Code IB95024
CRS Issue Brief for Congress
Received through the CRS Web
Armenia, Azerbaijan, and Georgia:
Political Developments and Implications
for U.S. Interests
Updated March 19, 2002
Jim Nichol and Julie Kim
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Obstacles to Peace and Independence
Political Situation
Armenia
Azerbaijan
Georgia
Regional Tensions and Conflicts
Nagorno Karabakh Conflict
Civil and Ethnic Conflict in Georgia
Economic Conditions, Blockades and Stoppages
Russian Involvement in the Region
Military-Strategic Interests
Caspian Energy Resources
The Protection of Ethnic Russians
The Roles of Turkey, Iran, and Others
Overview of U.S. Policy Concerns
Aid Overview
U.S. Security Assistance
U.S. Support for Economic Reforms
Trade and Investment

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Armenia, Azerbaijan, and Georgia:
Political Developments and Implications for U.S. Interests
SUMMARY
The United States recognized the inde-
promote non- proliferation, Trade and Devel-
pendence of all the former Soviet republics by
opment Agency aid, Overseas Private Invest-
the end of 1991, including the South Caucasus
ment Corporation insurance, Eximbank financ-
states of Armenia, Azerbaijan, and Georgia.
ing, and Foreign Commercial Service activi-
The United States has fostered these states’
ties. The current Bush Administration ap-
ties with the West, including membership in
pealed for a national security waiver of the -
the Organization on Security and Cooperation
prohibitions on aid to Azerbaijan, in consider-
in Europe (OSCE) and NATO’s Partnership
ation of Azerbaijan’s assistance to the interna-
for Peace (PFP), in part to end the dependence
tional coalition to combat terrorism. In De-
of these states on Russia for trade, security,
cember 2001, Congress passed a FY2002
and other relations. The United States pur-
appropriations bill that authorizes the Presi-
sued close ties with Armenia to encourage its
dent to waive Sec. 907 under certain condi-
democratization and because of concerns by
tions through December 2002. President Bush
Armenian-Americans and others over its fate.
exercised his waiver authority on Jan. 25,
Close ties with Georgia have evolved from
2002. In the South Caucasus, U.S. policy
U.S. contacts with former Soviet Foreign
goals have been to buttress the stability and
Minister Eduard Shevardnadze, Georgia’s
independence of the states through multilateral
president for the last decade. Growing U.S.
and bilateral conflict resolution efforts and to
private investment in Azerbaijan’s oil
provide humanitarian relief. U.S. aid has also
resources strengthened U.S. interest there.
supported democratization, free market re-
The United States has been active in diplo-
forms, and U.S. trade. The Bush Administra-
matic efforts to end conflicts in the region,
tion supports U.S. private investment in
many of which remain unresolved.
Azerbaijan’s energy sector as a means of

increasing the diversity of world energy suppli-
Faced with calls in Congress and else-
ers, and encourages building multiple oil
where that the Administration develop policy
pipeline routes to world markets. In the after-
for assisting the new independent states (NIS)
math of the September 11 terrorist attacks in
of the former Soviet Union, then-President
the United States, the three South Caucasus
Bush proposed the FREEDOM Support Act in
countries have expressed support for the U.S.-
early 1992. Signed into law in 1992, P.L. 102-
led operations in Afghanistan and campaign
511 authorized funds for the NIS for humani-
against the Al-Qaeda terrorist organization.
tarian needs, democratization, creation of
U.S. Defense Secretary Rumsfeld visited all
market economies, trade and investment, and
three countries in mid-December 2001. In
other purposes. Sec. 907 of the Act prohibited
February 2002, the Bush Administration an-
most U.S. government-to-government aid to
nounced plans to provide military aid and
Azerbaijan until its ceases blockades and other
trainers to Georgia to help Georgian authori-
offensive use of force against Armenia. This
ties fight guerrilla groups, linked with interna-
provision was partly altered over the years to
tional terrorist organizations, in the Pankisi
permit humanitarian aid and democratization
Gorge region of the country.
aid, border security and customs support to
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
On March 11, 2002, President Bush announced plans to “send up to 150 (U.S.) military
trainers to prepare Georgian soldiers to re-establish control” over Georgia’s Pankisi Gorge
region, near the Russian Border. U.S. officials have claimed that dozens of Afghan fighters,
including al-Qaeda members, have infiltrated this region in Georgia and elsewhere in recent
months. The Defense Department is finalizing plans for the program, which will reportedly
include $64 million in weapons and equipment. The first U.S. Special Forces team is
expected to arrive in Georgia by the end of March and the training program is expected to
last at least six months. U.S. and Georgian officials say that U.S. forces will not be sent into
the Pankisi Gorge region to conduct anti-terrorist operations themselves. Russian President
Putin has expressed support for the U.S. plan in spite of some Russian concerns about a U.S.
military presence in Georgia. Russia has long considered the Pankisi Gorge to be a haven
for Chechen separatist guerrillas.
On January 25, 2002, President Bush exercised his authority to waive Section 907 of
the FREEDOM Support Act, thereby lifting restrictions on U.S. assistance to Azerbaijan for
the first time since they were established in 1992. According to the White House, the waiver
clears the way for deeper cooperation with Azerbaijan in fighting global terrorism. Congress
authorized the President to waive the restrictions in the Foreign Operations Appropriations
Act for FY2002 (P.L. 107-115). The waiver of Sec. 907 was conditioned on a determination
by the President that U.S. assistance to Azerbaijan would support U.S. efforts to counter
international terrorism, support the operational readiness of U.S. and allied forces to
counter terrorism, enhance Azerbaijan’s border security, not be used for offensive purposes
against Armenia, and not undermine efforts to reach a peaceful settlement to the conflict
between Azerbaijan and Armenia.
BACKGROUND AND ANALYSIS
Armenia, Azerbaijan, and Georgia are
The Caucasus States: Basic Facts
located in the South Caucasus region of the
former Soviet Union. This region borders Area: The region is slightly larger than Syria:
Turkey, Iran, the Black and Caspian Seas, and Armenia is 11,620 sq. mi.; Azerbaijan is 33,774
sq. mi.; Georgia is 26,872 sq. mi.
Russia’s northern slopes of the Caucasus Population: 17.4 million, similar to Australia;
Mountains (termed the North Caucasus). Armenia: 3.8 m.; Azerbaijan: 8.1 m.; Georgia:
Historically, the South Caucasus states served as 5.5 m. (World Bank estimates for 2001)
a north-south and east-west trade and transport GDP: $10.2 billion; Armenia: $1.9 b.;
“land bridge” linking Europe to the Middle East Azerbaijan: $5.3 b.; Georgia: $3.0 b. (World
and Asia, over which the Russian Empire and Bank estimates for 2000)
others at various times endeavored to gain
control. In ancient as well as more recent times,
oil and natural gas resources in Azerbaijan attracted outside interest. While Armenia and
Georgia can point to past periods of autonomy or self-government, Azerbaijan was not
independent before the 20th century. After the Russian Empire collapsed in 1917, all three
states declared independence, but by early 1921 all had been re-conquered by Russia’s Red
(Communist) Army. They regained independence when the Soviet Union collapsed in late
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1991. (For background, see CRS Report RS20812, Armenia Update; CRS Report 97-522,
Azerbaijan; and CRS Report 97-727, Georgia.)
Obstacles to Peace and Independence
In the ten years since achieving independence, the South Caucasus states have had
difficult experiences in developing fully sovereign and independent states and robust
democratic and free market systems. Persistent regional conflicts further undermine these
efforts.
Political Situation
Armenia. Armenia appeared somewhat stable until 1998. Then-President Levon Ter-
Petrosyan had been effective in orchestrating a major victory for his ruling and other pro-
government parties in 1995 legislative races, in obtaining approval for a new constitution
granting him enhanced powers, and in orchestrating his reelection in 1996. Nonetheless, he
was forced to resign in February 1998, reporting that his endorsement of OSCE peace
proposals had not been supported by others in his government. Former Prime Minister
Robert Kocharyan won March 1998 presidential elections. Armenia’s last parliamentary
elections were held in May 1999, and produced a plurality (61 out of 131 parliamentary seats)
for the ruling Unity bloc coalition. Illustrating the ongoing challenges to stability faced by
Armenia, on October 27, 1999, gunmen entered the legislature and opened fire on deputies
and officials, killing Prime Minister Vazgen Sarkisyan and Speaker Karen Demirchyan, and
six others. The killings may have been the product of personal and clan grievances. Abiding
by the constitution, the legislature met and appointed Armen Khachatryan as speaker (a
member of the ruling Unity bloc), and Kocharyan named Sarkisyan’s brother the new prime
minister. Political infighting intensified until May 2000, when Kocharyan appointed former
Soviet dissident Andranik Margaryan the new prime minister. Kocharyan has co-opted
several opposition party officials into his government in order to increase political stability.
He has announced that he will run again in the 2003 presidential election, which will take
place alongside the next parliamentary elections. (See also CRS Report RS20812, Armenia
Update.)
Azerbaijan. Azerbaijan has had three presidents and other acting heads of state since
independence, and has suffered several coups or attempted coups. A constitutional
referendum in 1995 granted Azerbaijani President Heydar Aliyev sweeping powers. He has
concentrated power in his office, arrested many of his opponents, and taken other measures
to keep the opposition weak. Aliyev’s health problems and age (78) have raised the question
of political succession. Observers believe he is grooming his son Ilkham to be his successor;
in November 2001, the ruling New Azerbaijan Party elected Ilkham to be deputy party
chairman. However, President Aliyev maintains that he will stand for re-election in 2003.
Economic hardship and repressive policies have diminished his popularity. The 1995
legislative and 1998 presidential elections were marred by irregularities, according to
international observers. In late June 2000, the Parliamentary Assembly of the Council of
Europe (PACE) approved Azerbaijan’s membership, conditioned on its compliance with
commitments, including holding a free and fair legislative election. OSCE and Council
observers to the November 5, 2000, legislative election judged it “seriously flawed,” though
they said it showed some progress compared to previous elections; the U.S. Helsinki
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Commission differed with this assessment, seeing virtually no progress. Problems included
the disqualification of most opposition candidates seeking to run in single constituency races,
ballot-box stuffing, and irregular vote tabulation. Although international observers also
judged January 2001 legislative run-off elections as seriously flawed, PACE admitted both
Azerbaijan and Armenia as members later in the month. In January 2002, PACE adopted a
resolution that criticized Azerbaijan’s human rights record and called on Azerbaijan to release
over 40 political prisoners.
Georgia. Georgia experienced political instability during the early 1990s, and a fragile
stability in the second half of the decade. President Shevardnadze has survived several coup
attempts and has prevailed over most political rivals both within and outside of his Citizens’
Union Party (CUG). According to some critics, U.S. policy has relied too heavily on personal
ties with Shevardnadze (and with Aliyev in Azerbaijan), whose successions could bring
instability and setbacks to U.S. interests. The OSCE reported that legislative races in
October-November 1999 in Georgia appeared mostly fair, but a lack of transparency in the
electoral law and irregularities in voting marred full compliance with OSCE standards. In the
April 2000 presidential elections, Shevardnadze received 80% of 1.87 million votes cast. The
OSCE reported that the election did not meet its standards, reporting such problems as
government aid to the incumbent, biased state media, non-uniform and non-transparent vote
counting and tabulation, and ballot box stuffing. Shevardnadze’s age (73) and stated intention
not to seek another term in 2005 have fueled speculation about possible successors, although
no obvious candidate has yet emerged. Shevardnadze has supported a proposal to reinstate
a prime minister position, which, if enacted, may reduce somewhat the powers of the
presidency.
Along with unemployment and poverty, corruption is viewed by the Georgian public as
a leading concern. In August 2001, the shooting death of a popular television anchor, widely
thought to be a political assassination, fanned public outrage at the state of organized crime
and possible government involvement in criminal activities. In late 2001, some members of
the government resigned in protest of the lack of progress on economic reforms and anti-
corruption measures. On November 1, Shevardnadze fired his entire cabinet in the aftermath
of massive public rallies protesting a police raid on a television station. He has refused to step
down from power himself, as some demonstrators have called for. The new government has
focused on increasing security in the unruly Pankisi Gorge region (neighboring Chechnya),
but with little success. In early 2002, the Bush Administration announced plans to provide
military assistance to train and equip Georgian units for counter-insurgency operations in the
Pankisi Gorge.
Regional Tensions and Conflicts
U.S. and international efforts to foster peace and the continued independence of the
South Caucasus states face daunting challenges. The region has been the most unstable in the
former Soviet Union in terms of the numbers, intensity, and length of its ethnic and civil
conflicts. The ruling nationalities in the three states are culturally rather insular and harbor
various grievances against each other. This is particularly the case between Armenia and
Azerbaijan, where discord has led to the virtually complete displacement of ethnic Armenians
from Azerbaijan and vice versa. The main languages in the three states are mutually
unintelligible (also, those who generally consider themselves Georgians – Kartvelians,
Mingrelians, and Svans – speak mutually unintelligible languages). Few of the region’s
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borders coincide with ethnic populations. Attempts by territorially-based ethnic minorities
to secede are primary security concerns in Georgia and Azerbaijan. Armenia and Azerbaijan
view NK’s status as a major security concern. The three major secessionist areas — NK,
Abkhazia, and South Ossetia — have failed to gain international recognition, and receive
major economic sustenance from, respectively, Armenia, Russia, and North Ossetia. Also,
Georgia’s Ajaria region receives backing from Russia for its autarchic stance toward the
Shevardnadze government.
The South Caucasus states, because of ethnic conflicts, have not yet been able to fully
partake in peace, stability, and economic development some ten years after the Soviet
collapse, some observers stress. Countries are faced with on-going budgetary burdens of
arms races and caring for refugees and displaced persons. Other costs of ethnic conflict in
the region include threats to bordering states of widening conflict and economic decline, and
the inability of the region or outside states to take optimal advantage of energy resources or
trade and transport networks.
Nagorno Karabakh Conflict. Since 1988, the separatist conflict in Nagorno
Karabakh (NK) has resulted in 15,000 deaths, about 1 million Azerbaijani refugees and
displaced persons, and about 300,000 Armenian refugees. About 20% of Azerbaijan,
including NK, is controlled by NK Armenian forces. Various mediators have included Russia,
Kazakhstan, Iran, the United Nations, and the OSCE. The OSCE began the “Minsk Group”
talks in June 1992. A U.S. presidential envoy was appointed to these talks. A
Russian-mediated cease-fire was agreed to in May 1994 and was formalized by an armistice
signed by the ministers of defense of Armenia and Azerbaijan and the commander of the NK
army on July 27, 1994 (and reaffirmed a month later). Moscow talks were held by the sides,
with token OSCE representation, along with Minsk Group talks. With strong U.S. backing,
the OSCE at its December 1994 Budapest meeting agreed to send OSCE peacekeepers to the
region under U.N. aegis if a political settlement could be reached. Russia and the OSCE
merged their mediation efforts. The United States, France, and Russia co-chair meetings of
the Minsk Group.
A new round of peace talks opened in Moscow in 1997. The presidents of Azerbaijan
and Armenia recognized a step-by-step peace proposal as a basis for further discussion,
leading to protests in both countries and to Ter-Petrosyan’s forced resignation. New
Armenian Foreign Minister Varden Oskanyan instead called for the withdrawal of NK forces
from areas of Azerbaijan as part of a simultaneous and comprehensive settlement of NK’s
status that excluded it as part of Azerbaijan. Azerbaijan rejected a new Minsk Group
proposal in November 1998 embracing elements of a comprehensive settlement, citing
vagueness on the question of NK’s proposed “common state”status. At U.S. urging,
Kocharyan and Aliyev met in April 1999 and agreed to stepped-up presidential talks. The
October 1999 assassinations of Armenian political leaders set back the peace process.
In 2001, the two presidents met in Paris on January 26 and March 4-5 and in Key West,
Florida, on April 3-6, 2001. In Key West, no documents were signed and the two presidents
talked mainly through intermediaries. By some accounts, the sides discussed elements of a
new fourth peace plan that may include territorial concessions and the establishment of land
corridors. Former U.S. Special Negotiator for NK and Minsk Group co-chairman Carey
Cavanaugh stated on April 16 that there was “a potential for reaching peace this year.”
Indicating the Administration’s high-level concern, the two Presidents flew to Washington
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D.C. after the talks and each met with President Bush, who reportedly highlighted U.S.
support for settling the conflict and facilitating economic development (including Caspian
energy) and regional stability (including Georgia’s). Talks planned for June in Geneva were
postponed, however. President Aliyev in July 2001 assured the co-chairs that Azerbaijan
remained committed to a peaceful settlement. In the aftermath of the September 11 terrorist
attacks, international mediators have emphasized renewed commitment to reach a political
settlement. New U.S. Special Negotiator Rudolf Perina has said that the new international
environment resulting from the anti-terrorism campaign has increased the importance of
resolving regional conflicts and restoring stability. In March 2002, the presidents of Armenia
and Azerbaijan agreed to appoint personal representatives, who will meet regularly to discuss
options on ending the conflict. (See also CRS Issue Brief IB92109, Armenia-Azerbaijan
Conflict.)
Civil and Ethnic Conflict in Georgia. Several of Georgia’s ethnic minorities
stepped up their dissident actions, including separatism, in the late 1980s and early 1990s.
South Ossetians in 1989 called for joining their territory with North Ossetia in Russia or for
independence. Repressive efforts by former Georgian President Gamsakhurdia triggered
conflict in 1990, reportedly leading to about 1,500 deaths and 50,000 displaced persons,
mostly ethnic Georgians. In June 1992, former Russian President Yeltsin brokered a
cease-fire, and a predominantly Russian military “peacekeeping” force has been stationed in
South Ossetia (currently numbering about 530). A coordinating commission composed of
OSCE, Russian, Georgian, and North and South Ossetian emissaries was formed to promote
a settlement of the Georgian-Ossetian conflict. Rapprochement remains elusive. South
Ossetia held presidential elections on December 7, 2001, which were not recognized by
Georgian authorities or international organizations.
Abkhazia. In late 2001, the Abkhaz conflict heated up after remaining dormant for
several years. In July 1992, the Abkhaz Supreme Soviet declared its effective independence
from Georgia. This prompted Georgian national guardsmen to attack Abkhazia. In October
1992, the U.N. Security Council (UNSC) approved the first U.N. observer mission to a NIS
state, termed UNOMIG, to help reach a settlement. UNOMIG’s mandate has been
continuously extended and currently runs through July 2002. In September 1993, Russian
and North Caucasian “volunteer” troops that reportedly made up the bulk of Abkhaz
separatist forces broke a cease-fire and quickly routed Georgian forces. The U.N. sponsored
Abkhaz-Georgian talks, with the participation of Russia and the OSCE, leading to a
cease-fire. In April 1994, the two sides signed framework accords on a political settlement
and on the return of refugees. A Quadripartite Commission was set up to discuss repatriation,
composed of Abkhaz and Georgian representatives and emissaries from Russia and the U.N.
High Commissioner for Refugees. In May 1994, a cease-fire was signed by Georgia and
Abkhazia, providing for Russian troops (acting as CIS “peacekeepers”) to be deployed in a
security zone along the Inguri River that divides Abkhazia from the rest of Georgia. The
Military Balance estimates that about 1,700 Russian “peacekeepers” are deployed. The
conflict resulted in about 10,000 deaths and over 200,000 refugees and displaced persons,
mostly ethnic Georgians.
The U.S. Special Negotiator for Regional Conflicts works with the U.N. Secretary
General, his Special Representative (currently Dieter Boden), and other Friends of Georgia
(France, Germany, Russia, the United Kingdom, and Ukraine) to facilitate a peace settlement.
There are 107 UNOMIG military observers as of January 2002, including two U.S. personnel.
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The UNSC agreed that cooperation with the CIS (Russian) forces was a reflection of trust
placed in Russia. Under various agreements, the Russian “peacekeepers” are to respond to
UNOMIG reports of ceasefire violations, carry out demining, and provide protection for
UNOMIG’s unarmed observers. After a hiatus of two years, U.N.-sponsored peace talks were
reconvened in mid-1997. In late 1997, the sides agreed to set up a Coordinating Council to
discuss cease-fire maintenance and refugee, economic, and humanitarian issues. Coordinating
Council talks and those of the Quadripartite Commission have been supplemented by direct
discussions between Abkhaz and Georgian representatives. Sticking points between the two
sides have included Georgia’s demand that displaced persons be allowed to return to
Abkhazia, after which an agreement on broad autonomy for Abkhazia may be negotiated.
The Abkhazians have insisted upon recognition of their effective independence as a
precondition to large-scale repatriation. Moreover, an upsurge in fighting in late 2001 shifted
international focus to crisis management rather than the promotion of a political settlement.
Clashes in October 2001 in the Kodori Gorge region of Abkhazia, resulting in
approximately 75 deaths, revived the threat of renewed violent conflict between Georgian
forces and Abkhaz separatists backed by Russia. A U.N. helicopter was shot down by a
missile on October 8, killing all nine persons on board; the assailants remain unknown.
Abkhaz officials claim that Georgian irregular forces have been joined by at least 200 Chechen
rebels arriving from the border area with Chechnya. Georgian officials deny any direct
involvement in the fighting, but mobilized the armed forces to the Abkhaz border. On
October 11, the Georgian parliament voted to demand the withdrawal of Russian
peacekeeping troops from Abkhazia. In January 2002, the U.N. Secretary-General reported
greater calm in the region. On January 17, the two sides agreed to security measures to
defuse the potential for armed conflict and build mutual confidence. President Shevardnadze
agreed to extend the mandate of the CIS peacekeeping force until June 2002. The Secretary-
General pointed to the future possibility of direct negotiations between the two parties. A
draft negotiating document being prepared by the U.N. and the Friend of Georgia reportedly
calls for Abkhazia to be recognized as “a sovereign entity...within the state of Georgia.”
In response to recently-announced U.S. plans to train and equip Georgian security forces
for anti-terrorist operations, Abkhaz officials have expressed concerns about the potential for
Georgian forces to use the training for operations in Abkhazia.
Economic Conditions, Blockades and Stoppages
The economies of all three South Caucasus states greatly declined in the early 1990s,
affected by the dislocations caused by the breakup of the Soviet Union, conflicts, trade
disruptions, and the lingering effects of the 1988 earthquake in Armenia. Although gross
domestic product (GDP) began to rebound in the states in the mid-1990s, the economies
remain fragile and subject to outside shocks such as Russia’s 1998 financial crisis. Investment
in oil and gas resources and delivery systems has fueled economic growth in Azerbaijan in
recent years. Armenia’s GDP in 2000 was about $3,000 per capita, Azerbaijan’s was about
$3,000, and Georgia’s was about $4,600 (CIA World Fact Book 2001 estimates, purchasing
power parity). Widespread poverty and regional conflict have contributed to high emigration
from Armenia, Azerbaijan, and Georgia.
Transport and communications obstructions and stoppages have severely affected
economic development in the South Caucasus and stymied the region’s emergence as an
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East-West and North-South corridor. Since 1989, Azerbaijan has obstructed railways and
pipelines traversing its territory to Armenia, and for a time successfully blockaded NK. These
obstructions have had a negative impact on the Armenian economy, since it is heavily
dependent on energy and raw materials imports. Turkey has barred U.S. shipments of aid
through its territory to Armenia since March 1993. P.L. 104-107 and P.L. 104-208 mandated
a U.S. aid cutoff (with a presidential waiver) to any country which restricts the transport or
delivery of U.S. humanitarian aid to a third country, aimed at convincing Turkey to allow the
transit to U.S. aid to Armenia. According to the U.S. Embassy in Baku, Azerbaijan’s
poverty-stricken Nakhichevan exclave “is blockaded by neighboring Armenia,” severing its
“rail, road, or energy links to the rest of Azerbaijan.” Iran has at times obstructed bypass
routes to Nakhichevan. Georgia has cut off natural gas supplies to South Ossetia. Russia at
times has closed its borders with Azerbaijan and Georgia because of conflict in Chechnya.
In 1996, the CIS supported Georgia in imposing an economic embargo on Abkhazia, but
Russia announced in 1999 that it was lifting most trade restrictions, and a railway was
reopened in mid-2000.
Russian Involvement in the Region
Russia has appeared to place a greater strategic importance on maintaining influence in
the South Caucasus region than in Central Asia (except Kazakhstan). Russia has exercised
most of its influence in the military-strategic sphere, less in the economic sphere, and a
minimum in the domestic political sphere, except for obtaining assurances on the treatment
of ethnic Russians. Russia has viewed Islamic fundamentalism as a potential threat to the
region, but has cooperated with Iran on some issues to contain Turkish and U.S. influence.
Russia has tried to stop ethnic “undesirables,” drugs, weapons, and other contraband from
entering its borders, and to contain the contagion effects of separatist ideologies in the North
and South Caucasus. These concerns, Russia avers, has led it to establish military bases in
Armenia and Georgia. The states have variously responded to Russian overtures. Armenia
has close security and economic ties with Russia, given its unresolved NK conflict and
grievances against Turkey. Georgia has objected to Russia’s actions related to the conflict
in Chechnya, its military bases in Georgia, and its support to Abkhaz separatists. Azerbaijan
has been concerned about Russia’s ties with Armenia.
Military-Strategic Interests
Russia’s armed presence in the South Caucasus is multi-faceted — including military
base personnel, “peacekeepers,” and border troops. The first step by Russia in maintaining
a military presence in the region was the signing of the Commonwealth of Independent States
(CIS) Collective Security Treaty by Armenia, Russia, and others in 1992, which calls for
mutual defense consultations. Russia prevailed on Georgia and Azerbaijan to join the CIS in
1993, but they withdrew from the collective security treaty in 1999. Russia also secured
permission for two military bases in Armenia and four in Georgia. Russian forces help guard
the Armenian-Turkish border. The total number of Russian troops has been estimated at
about 2,900 in Armenia and 4,000 in Georgia (The Military Balance 2001-2002). Another
76,000 Russian troops are stationed nearby in the North Caucasus. In 1993, Azerbaijan was
the first NIS to get Russian troops to withdraw, except at the Gabala radar site in northern
Azerbaijan. In January 2002, Russia and Azerbaijan resolved their longstanding dispute over
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the Gabala station and signed a leasing agreement that would permit up to 1,500 Russian
troops to man the site. In January 1999, Georgia assumed full control over guarding its sea
borders, and in October 1999, most of the Russian border troops left, except for some liaison
officers. Armenia has argued that its Russian bases provide for regional stability by protecting
it from attack. Russia has said that it has supplied weapons to Armenia, including S-300
missiles and Mig-29 fighters for air defense, to enhance Armenia’s and NK’s security.
Azerbaijan and Georgia have raised concerns about the spillover effects of Russia’s military
operations in its breakaway Chechnya region. In December 1999, the OSCE agreed to
Georgia’s request that it send observers to monitor Georgia’s border with Chechnya.
Since the September 11 terrorist attacks in the United States, Russia has stepped up its
campaign against separatist rebels in Chechnya, claiming links between them and Osama bin
Laden. Georgia has been on the front line of this renewed conflict. Georgia has accepted
thousands of Chechen refugees, but long denied the presence of armed rebels among them.
Russia officials have criticized Georgia for harboring Chechen militants in the Pankisi Gorge
area, which they consider to be a staging ground for the Chechen rebels. They have
demanded that Georgia extradite Chechen rebels to Russia. Some Russian officials have
threatened military action in Georgia to eliminate the Chechen rebel threat. At the November
29 CIS summit in Moscow, Georgian officials raised complaints about alleged Russian army
incursions into Georgia during air attacks on Chechnya. Russian President Putin denied any
Russian involvement in the alleged attacks. In January 2002, Russian and Georgian authorities
agreed to cooperate on improving border security and on organizing the return of Chechen
refugees. Some Russian officials initially opposed U.S. plans to provide military assistance
to Georgia, but President Putin gave the plan his backing, calling the effort to fight terrorists
in the Pankisi Gorge in Russia’s interests. Russia officials claim that al-Qaeda terrorists have
infiltrated Georgia and have even speculated that Osama bin Laden may be hiding in the
Pankisi Gorge.
Russia’s Bases in Georgia. In 1999 Russia agreed to provisions of the adapted
Conventional Armed Forces in Europe (CFE) Treaty calling for Russia to reduce weaponry
at its bases in Georgia, to close its bases at Gudauta and Vaziani by July 2001, and to discuss
closing Russian military bases at Batumi and Akhalkalaki. Russia moved some weaponry
from the bases in Georgia to bases in Armenia, raising objections from Azerbaijan. On July
1, 2001, Georgia reported that the Vaziani base and airfield had been turned over by Russia
to Georgia. The Russian government, however, reported that it was unable to turn over the
Gudauta base by the deadline, ostensibly because it had not had enough time to build weapons
warehouses and replacement barracks in Russia, and because fearful Abkhazians had
hampered the withdrawal. It proposed that the base be turned into a rehabilitation center for
Russian “peacekeepers.” Some observers speculated that Russia would use the anti-terrorism
issue after September 11 as an excuse not to withdraw from its military bases. However, in
November, Russia announced the withdrawal of its forces and equipment from the Gudauta
base. The Georgian foreign ministry has questioned some of the terms of closure, such as the
continued presence of some 600 Russian troops on the base. With regard to the Batumi and
Akhalkalaki bases, Russia has proposed that it would need 14-15 years and $150 million to
close them, but might be able to move more quickly if the West paid for the closings.
Georgian officials have spoken of a period of 2-3 years for their closure.
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Caspian Energy Resources
Russia has tried to play a significant role in future oil production, processing, and
transportation in the Caspian Sea region. Russia’s oil firm LUKoil has investment stakes in
the Azerbaijan International Oil Consortium (AIOC) and other consortiums, and Transneft
in an oil pipeline to Russia’s Novorossisk Black Sea port. In an effort to increase influence
over energy development, Russia’s policymakers during much of the 1990s insisted that the
legal status of the Caspian Sea be determined before resources could be exploited. Iran and
Turkmenistan initially endorsed Russia’s view of a “closed sea” or “lake,” where resources
are commonly exploited. Russia changed its stance somewhat by agreeing on seabed
delineation with Kazakhstan in 1998 and with Azerbaijan in January 2001, prompting
objections from Iran. In January 2002, Russian and Azerbaijani leaders agreed to cooperate
on drawing a median line in the Caspian Sea between the two countries. Russian President
Putin criticized Western private investment in energy development in the Caspian region, and
appointed a special energy emissary to the region. As part of this new assertiveness, Russian
energy firms stepped-up their efforts to gain major influence over Caspian energy resources
and routes. In the past year, however, Russian opposition to non-Russian pipeline
development has waned, perhaps reflecting improved U.S.- Russian relations. Russian energy
firms have expressed interest in investing in construction of the Baku-Ceyhan pipeline project.
The Protection of Ethnic Russians
As a percentage of the population, there are fewer ethnic Russians in the South Caucasus
states than in most other NIS. According to the 1989 Soviet census, there were 52,000
ethnic Russians in Armenia (1.6% of the population), 392,000 in Azerbaijan (5.6%), and
341,000 in Georgia (6.3%). These numbers have declined since then. Russia has voiced
concerns about the safety of ethnic Russians in Azerbaijan and Georgia. Many observers
argue that the issue of protecting the human rights of ethnic Russians is a stalking horse for
Russia’s military-strategic and economic interests.
The Roles of Turkey, Iran, and Others
The Clinton Administration generally viewed Turkey as able to foster pro-Western
policies and discourage Iranian interference in the South Caucasus states, though had some
concerns about a Turkish tilt to Azerbaijan in the NK conflict. Critics of Turkey’s larger role
in the region also caution that the United States and NATO are liable to be drawn by their ties
with Turkey into regional imbroglios. Turkey seeks good relations with Azerbaijan and
Georgia and some contacts with Armenia, while trying to limit Russian and Iranian influence.
Azerbaijan likewise views Turkey as a major ally against such influence, and as a balance to
Armenia’s ties with Russia. Armenia is a member of the Black Sea Economic Cooperation
zone, initiated by Turkey, and the two states have established consular relations. Obstacles
to better Armenian-Turkish relations include Turkey’s rejection of Armenians’ claims of
genocide in 1915-1923 and its support for Azerbaijan in the NK conflict, including the border
closing. Georgia has an abiding interest in ties with the approximately one million Georgians
residing in Turkey and the approximately 50,000 residing in Iran, and has signed friendship
treaties with both states. Turkey and Russia are Georgia’s primary trade partners. Consistent
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with the U.S. focus on the global anti-terror campaign, Turkey has worked with Azerbaijan
and Georgia on tripartite cooperation on combating terrorism and international crime.
Iran’s interests in the South Caucasus include discouraging Western powers such as
Turkey and the United States from gaining influence (Iran’s goal of containing Russia
conflicts with its cooperation with Russia on these interests), ending regional instability that
might threaten its own territorial integrity, and building economic links. A major share of the
world’s Azerbaijanis reside in Iran (estimates range from 6-12 million), which also hosts about
200,000 Armenians. Ethnic consciousness among some “Southern Azerbaijanis” in Iran has
grown, which Iran has countered by limiting trans-Azerbaijani contacts, raising objections
among many in Azerbaijan. Azerbaijani elites fear Iranian-supported Islamic extremism and
object to Iranian support to Armenia. Iran has growing trade ties with Armenia and Georgia,
but its trade with Azerbaijan has declined. To block the West and Azerbaijan from
developing Caspian Sea energy resources, Iran has proposed either common control by the
littoral states or the division of the seabed into five equal sectors. Iranian warships have
challenged Azerbaijani oil exploration vessels in the Caspian Sea. U.S. policy aims at
containing Iran’s threats to U.S. interests (See CRS Issue Brief IB93033, Iran). Some critics
argue that if the South Caucasus states are discouraged from dealing with Iran, particularly
in building pipelines through Iran, they face greater pressure to accommodate Russian
interests. (See also below, Energy.)
Among non-bordering states, the United States and European states are the most
influential in the South Caucasus in terms of aid, trade, exchanges, and other ties. U.S. and
European goals in the region are broadly compatible, involving integrating it into the West
and preventing an anti-Western orientation, opening it to trade and transport, obtaining
energy resources, and helping it become peaceful, stable, and democratic. The South
Caucasus region has developed some economic and political ties with other Black Sea and
Caspian Sea littoral states, besides those discussed above, particularly with Ukraine, Romania,
Kazakhstan, and Turkmenistan. Azerbaijan shares with Central Asian states common
linguistic and religious ties and concerns about some common bordering powers (Iran and
Russia). The South Caucasian and Central Asian states have common concerns about
terrorist threats and drug trafficking from Afghanistan. Energy producers Kazakhstan,
Turkmenistan, and Uzbekistan have considered trans-Caspian transport as a means to get
their oil and gas to Western markets. As Central Asia’s trade links to the South Caucasus
become more significant, it will become more dependent on stability in the region.
Overview of U.S. Policy Concerns
By the end of 1991, the United States had recognized the independence of all the former
Soviet republics. The United States opened an embassy in Azerbaijan in March 1992. The
United States established close ties with Georgia after Eduard Shevardnadze, formerly pro-
Western Soviet foreign minister, assumed power there in early 1992. The United States
pursued close ties with Armenia, because of its profession of democratic principles, and
concerns by Armenian-Americans and others over its fate. Faced with calls in Congress and
elsewhere for a U.S. aid policy for the NIS, then-President Bush sent the FREEDOM Support
Act to Congress, signed with amendments into law in October 1992 (P.L. 102-511). Other
authorizing language includes the “Silk Road Strategy Act” in Consolidated Appropriations
for FY2000 (P.L.106-113), that calls for enhanced policy and aid to the region.
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Focusing on the Armenia-Azerbaijan conflict over the breakaway Nagorno Karabakh
(NK) region, the FREEDOM Support Act’s Sec. 907 prohibits U.S. government-to-
government assistance to Azerbaijan, except for nonproliferation and disarmament activities,
until the President determines that Azerbaijan has taken “demonstrable steps to cease all
blockades and other offensive uses of force against Armenia and NK.” U.S. aid was at first
limited to that supplied through international agencies and private voluntary and
nongovernmental organizations (NGOs). A provision in P.L. 104-107 eased the prohibition
for FY1996, by stating that “assistance may be provided for the Government of Azerbaijan
for humanitarian purposes, if the President determines that humanitarian assistance provided
in Azerbaijan through NGOs is not adequately addressing the suffering of refugees and
internally displaced persons.” Further easing was provided for FY1998 by P.L. 105-118,
which permitted humanitarian aid, support for democratization, Trade and Development
Agency (TDA) guarantees and insurance for U.S. firms, Foreign Commercial Service (FCS)
operations, and aid to prevent the spread of weapons of mass destruction. In FY1999 (P.L.
105-277) and thereafter, changes included approval for Overseas Private Investment
Corporation (OPIC) activities and Export-Import Bank financing.
Notwithstanding the exceptions, the State Department argued that Sec.907 still
restricted aid for anti-corruption and counter-narcotics programs, regional environmental
programs, and programs such as good business practices, tax and investment law, and
budgeting. The Defense Department argued that Sec. 907 restricted military assistance to
Azerbaijan, including for anti-terrorism measures and energy pipeline security. In a letter to
the Senate Foreign Relations Committee in 2001, Secretary of State Powell requested a
national security waiver for Sec. 907, arguing that it severely constrained the U.S.’ ability to
provide support to Azerbaijan in the war against terrorism. In December, Congress passed
the conference report to H.R. 2506, the FY2002 foreign operations appropriations bill. It
included a conditional waiver of Sec. 907 if the President determined that doing so would:
support U.S. efforts to counter terrorism; support the operational readiness of U.S. armed
forces or coalition partners to counter terrorism; enhance Azerbaijan’s border security; not
be used for offensive purposes against Armenia; and, not undermine ongoing efforts to
negotiate a peaceful settlement between Armenia and Azerbaijan. President Bush invoked
the waiver of Sec. 907 on January 25, 2002.
U.S. policy toward the South Caucasus states includes fostering free market democracies
and promoting resolution of regional conflicts. Aid for resolution of the NK, Abkhazia, and
other regional conflicts supports these goals. The Bush Administration named Ambassador
Rufolf Perina to serve as the next Special Negotiator for the NK and Eurasian conflicts. The
Special Negotiator is co-chair of the Minsk Group of states mediating the NK conflict and
takes part in the Friends of the U.N. Secretary General consultations and efforts of the
Secretary General’s special representative to settle the Abkhaz conflict. At the invitation of
President Bush, Georgian President Shevardnadze visited Washington in early October 2001,
and received assurances of continued U.S. support for Georgia’s independence and territorial
integrity. In mid-December 2001, Defense Secretary Rumsfeld made brief visits to all three
countries in order to bolster support for the international anti-terror campaign.
In the wake of the September 2001 terrorist attacks on the United States, U.S. policy
priorities have shifted toward the global anti-terrorist response. U.S. - Russian cooperation
on many fronts of this effort may carry profound consequences for the South Caucasus
region. For example, some observers say that the West has acquiesced to Russia’s own
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counter-insurgency campaign in Chechnya and to its demands that Georgia help counter the
Chechen rebel threat from its side of the border. In this new global environment, some
observers point out that developments in the South Caucasus region are largely marginal to
the anti-terror campaign and to U.S. interests in general. They suggest that the oil and other
natural resources there are not vital to U.S. trade and security and are, in any event, unlikely
to be fully developed and available to Western markets for many years. They urge great
caution in adopting policies that will heavily involve the United States in a region beset by
ethnic and civil conflicts. They are skeptical of arguments that there is a “power vacuum” in
the region that the United States must fill.
Other observers believe that the new security situation calls for far more active U.S.
policy engagement in South Caucasus. They point to weakness and instability in these states
caused by warfare, crime, smuggling, terrorism, and Islamic extremism (in the case of
Azerbaijan), requiring sustained and even greater U.S. aid and conflict resolution efforts to
contain extremism and bolster independence. Some argue that improved U.S. relations with
these NIS would serve to “contain” Russian and Iranian influence, and that improved U.S.
ties with Azerbaijan would benefit U.S. relations with other Islamic countries, particularly
Turkey and the Central Asian states. Many add that Azerbaijani and Central Asian oil and
natural gas deliveries would expand world supplies, making the United States and the West
less vulnerable to supply cutoffs in the Middle East. In the aftermath of September 11, the
governments of Azerbaijan, Armenia, and Georgia have offered support and assistance to the
U.S.-led anti-terror coalition. In February 2002, a senior U.S. diplomat in Georgian claimed
that dozens of Afghan fighters had infiltrated the South Caucasus region over the past
months. Another U.S. official claimed that there were clear connections between the al-
Qaeda network and the Chechen rebels, making them potential targets in the global anti-
terrorist campaign.
Aid Overview
The United States is the largest bilateral aid
FREEDOM Support Act (FSA)
donor by far to Armenia and Georgia, and Armenia
Assistance (in millions)
is among the three NIS that have received more
than $1 billion in U.S. aid FY1992-FY2000 (the
FY2002
FY2003
others are Russia and Ukraine). U.S. assistance
Estimate
Request
has included FREEDOM Support Act programs
(see box), food aid (U.S. Department of
Armenia
$90.0
$70.0
Agriculture), Peace Corps, and some security
Azerbaijan
$43.3
$46.0
Georgia
$89.0
$87.0
assistance. Georgian President Shevardnadze has
often stated that U.S. humanitarian aid made a
Source: State Department
critical difference in averting famine in Georgia in
the early 1990s and helping it maintain its stability
and independence. The United States also supplied
critical food and heating oil to Armenia in 1993-
1995, and has sent aid focused on ameliorating the impact of the blockades. Armenia and
Georgia have regularly ranked among the top world states in terms of per capita U.S. aid,
indicating the high level of concern within the Administration and Congress. Foreign
Operations Appropriations for FY1998 (P.L. 105-118) created a new South Caucasian
funding category and earmarked $250 million of $770 million in NIS aid to this category.
FY1999 appropriations (Omnibus Appropriations, P.L. 105-277) sustained this category, with
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Congress earmarking $228 million of $847 million in FREEDOM Support Act aid, and in
FY2000 and FY2001 (though without an earmark). Besides bilateral aid, the United States
contributes to multilateral organizations such as the International Monetary Fund and the
World Bank that aid the region. (See also CRS Issue Brief IB95077, The Former Soviet
Union and U.S. Foreign Assistance.)
While for most of the 1990s the Clinton Administration devoted the bulk of aid to the
South Caucasus to urgent humanitarian needs, increasing attention by the late 1990s was
given to fostering democratization. U.S. democratization aid includes advice on drafting
legislation, training judges, and electoral support. Section 907 restrictions on some support
for democratization in Azerbaijan were eased in FY1998 and thereafter.
For FY2002, the House passed H.R. 2506, the Foreign Operations Appropriations bill,
on July 24, 2001. The House bill repeated language from previous years establishing a South
Caucasus funding category, of which 15% may be devoted to foster peace settlements,
especially in the Abkhazia and Nagorno Karabakh regions. Equal earmarks were provided
for Armenia and Georgia (“not less than $82.5 million”). The bill repeated language from
previous years on exclusions from Section 907 limits on aid to Azerbaijan. The Senate passed
its version of H.R. 2506 on October 24, 2001. It earmarked $90 million each in FREEDOM
Support Act assistance for Georgia and Armenia. The Senate bill included a waiver of Sec.
907 restrictions on assistance to Azerbaijan (Sec. 599) through the end of December 2002.
It added an earmark of $4.6 million in military assistance for Armenia. The conference report
for H.R. 2506, passed by the House on December 19 and the Senate on December 20,
earmarked $90 million each for Armenia and Georgia, and $4.3 million in military assistance
to Armenia. It called for funds (unspecified) to be used for confidence-building measures in
support of the resolution of regional conflicts, especially in Abkhazia and Nagorno-Karabakh.
It authorized the President to waive Sec. 907 if he determines that aid to Azerbaijan is
necessary to support U.S. efforts to counter international terrorism and support U.S. and
allied forces, will enhance Azerbaijan’s border security, and will not undermine peace efforts
in the conflict between Azerbaijan and Armenia. The waiver is valid through December 2002;
the President may thereafter extend the waiver on an annual basis if the same conditions are
met. The bill included reporting requirements on U.S. aid to Azerbaijan and on the status of
peace negotiations between Armenia and Azerbaijan.
U.S. Security Assistance

Besides economic and humanitarian aid, some U.S. security assistance has been
provided. The FY1997 Defense Authorization Act (P.L. 104-201) permitted aid for customs
and border enhancements to prevent the spread of mass destruction weapons. Sec. 517 of
Foreign Operations Appropriations for FY2001 (P.L.106-429) repeated prior year language
forbidding use of FREEDOM Support Act aid to enhance military capabilities. In Georgia,
the State Department set up a Border Security and Related Law Enforcement Assistance
Program. Some of this aid has been used by Georgia to fortify its northern border with Russia
and Chechnya. In 1997, a U.S.-Azerbaijan Bilateral Security Dialogue was inaugurated to
deal with joint concerns over terrorism, drug trafficking, international crime, and the
proliferation of weapons of mass destruction (WMD). The United States committed millions
of dollars to facilitate the closure of Russian military bases in Georgia. In October 2000, the
Security Assistance Act of 2000 was signed into law, authorizing nonproliferation, export
control, border, anti-terrorism, and other security aid for the South Caucasus states and
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earmarking such aid for Georgia. The United States has signed many other agreements with
the South Caucasus countries on military cooperation, combating WMD proliferation, and
securing nuclear materials.
The Azerbaijani and Georgian presidents have stated that they want their countries to
join NATO; much greater progress in military reform, however, will likely be required before
they are considered for membership. All three states joined NATO’s Partnership for Peace
(PFP) and Azerbaijan and Georgia have actively participated in PFP exercises. Azerbaijani
and Georgian troops serve as peacekeepers in the NATO-led operation in Kosovo.The
“Cooperative Partner” PFP amphibious assault landing and natural disaster response exercises
were held on Georgia’s Black Sea coast in June 2001, involving 4,000 mostly U.S., Georgian,
and Turkish troops. Sec. 907 had prohibited much U.S. PFP aid to Azerbaijan (including
FMF), and by U.S. policy similar aid has not been provided to Azerbaijan’s fellow combatant
Armenia. Both countries are receiving some U.S. PFP aid for democratizing their military
establishments. The presidential waiver of Sec. 907 in FY2002 has enabled a modest increase
in the amount of U.S. security assistance to Azerbaijan, focused on border security and anti-
terror programs. In February 2002, the Bush Administration announced plans to provide up
to $64 million in training and equipment to Georgia, including the dispatch of 150-200 U.S.
special forces to train Georgian anti-terrorist units for at least a six-month period. The United
States has already delivered ten unarmed helicopters to Georgia. U.S. officials say the U.S.
forces will be engaged in training only, and not in anti-terrorist operations in the Pankisi
Gorge. They also say there are no plans to establish a permanent U.S. military presence or
military base in Georgia.
U.S. Support for Economic Reforms
The development of expertise for economic reform in Armenia has been fostered through
the Center for Economic Policy, Research, and Analysis (CEPRA), set up in FY1994. U.S.
aid to Georgia has included setting up a business service center in Tbilisi to encourage small
business development, and technical aid for monetary and fiscal reform, including through the
FY1996 creation of a Center for Economic Policy Analysis and Reform (CEPAR). A U.S.-
Azerbaijan Tast Force on Economic Development was set up in January 2000, and a U.S.-
Armenia Task Force on Economic Cooperation held its first meeting in March 2001. Both
these task forces bring together high-level economic officials and are headed on the U.S. side
by the Coordinator of Assistance to the NIS. Congress earmarked $15 million for FY1996
for the creation of a Trans-Caucasus Enterprise Fund, emphasizing its interest in providing
capital resources and technical assistance to private enterprise. Congress provided an added
$10 million in FY1997, but granted a Clinton Administration request that, as alternatives to
creating the Fund, allocations might be transferred to other funding groups or to OPIC to
support privatization.
Trade and Investment
The Bush Administration and others maintain that U.S. support for privatization and the
creation of free markets directly serve U.S. national interests by opening new markets for
U.S. goods and services, and sources of energy and minerals. Among U.S. economic links
with the region, bilateral trade agreements providing for normal trade relations for products
have been signed and entered into force with all three states. Bilateral Investment Treaties
(BIT) providing national treatment guarantees have been signed (that with Azerbaijan has
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been submitted to the U.S. Congress for advice and consent). OPIC has signed agreements
that are in force with all three states on financing and insuring U.S. private investment. The
Export-Import Bank has signed agreements with Armenia and Georgia for financing U.S.
exports. Peace Corps volunteers teach small business development, English language skills,
and health awareness in Armenia. With U.S. support, Georgia was formally admitted to the
World Trade Organization in June 2000, the second NIS (after Kyrgyzstan) to gain
admission.
P.L.106-476, signed into law on November 9, 2000, stated that the President may
determine that Title IV should no longer apply to Georgia and proclaim that its products will
receive permanent nondiscriminatory (normal trade relations - NTR) treatment. Citing “due
regard for the findings of the Congress,” President Clinton on December 29, 2000,
determined and proclaimed such permanent normal trade relations. Armenia and Azerbaijan
currently receive conditional NTR treatment subject to a semi-annual presidential
determination (see also CRS Issue Brief IB93107, Normal-Trade-Relations). On January 6,
2002, the Washington Post reported that the Bush Administration wants Congress to allow
nine CIS countries, including Armenia and Azerbaijan, to graduate from trade restrictions as
a reward for assisting in the fight against terrorism.
Energy Resources and Policy. The U.S. Energy Department reports estimates of
11 billion barrels of proven oil reserves, and estimates of 11 trillion cubic feet of proven
natural gas reserves in Azerbaijan. Many problems remain to be resolved before Azerbaijan
can fully exploit and market its energy resources, including project financing, political
instability, ethnic and regional conflict, and the security and construction of pipeline routes.
The recent conflict in Afghanistan is likely to increase regional insecurity, which could affect
some or all of the Caspian Sea energy projects.
U.S. policy goals regarding energy resources in the Central Asian and South Caucasian
states have included supporting their sovereignty and ties to the West, supporting U.S. private
investment, breaking Russia’s monopoly over oil and gas transport routes by encouraging the
building of pipelines that do not traverse Russia, promoting Western energy security through
diversified suppliers, assisting ally Turkey, and opposing the building of pipelines that transit
Iran. In 1998, the Clinton Administration set up the post of Special Advisor to the President
and the Secretary of State for Caspian Basin Energy Diplomacy to coordinate policies and
programs of TDA, OPIC, the Department of Energy, and other agencies (this post was
retained by the Bush Administration).
On May 17, 2001, President Bush announced his national energy policy, in the form of
a report issued by Vice President Cheney. It recommended that the President direct U.S.
agencies to support building the Baku-Ceyhan oil pipeline, expedite use of the pipeline by oil
companies operating in Kazakhstan, support constructing a Baku-Ceyhan natural gas pipeline
to export Azerbaijan’s Shah Deniz gas, and otherwise encourage the Caspian regional states
to provide a stable and inviting business climate for energy and infrastructure development.
Administration officials maintain that fundamental U.S. interests in Caspian energy pipeline
development have not changed in the post-September 11 environment.
U.S. companies are shareholders in about one-half of twenty international production-
sharing consortiums, including the Azerbaijan International Operating Company (AIOC),
formed to exploit Azerbaijan’s oil and gas fields. In 1995, Aliyev and the AIOC decided to
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transport “early oil” (the first and lower volume of oil from AIOC and other fields) through
two Soviet-era pipelines in Georgia and Russia to ports on the Black Sea. The capacity of
each of these pipelines is around 100-115,000 barrels per day. The trans-Russia “early oil”
pipeline began delivering oil to the port of Novorossiisk in late 1997. Instability where the
pipeline crosses Russia’s Chechnya region halted oil flows in mid-1999, but a detour around
Chechnya was completed in April 2000. The trans-Georgian pipeline began delivering oil to
Black Sea tankers in early 1999.
The Clinton Administration launched a campaign in late 1997 stressing the strategic
importance of the Baku-Ceyhan route as part of a “Eurasian Transport Corridor.” In
November 1999, Azerbaijan, Georgia, Turkey, and Kazakhstan signed the “Istanbul Protocol”
on construction of the Baku-Tbilisi-Ceyhan (BTC) oil pipeline. In October 2000, an oil
pipeline construction group, the Main Export Pipeline Company (MEPCO) was formed,
composed of the Azerbaijani State Oil Company (SOCAR; with a 50% stake), BP-Amoco
(25.41%), Unocal (7.48%), and others. MEPCO’s basic engineering feasibility study was
completed in May 2001. Estimates suggest that the 1,000-mile pipeline (carrying half a million
barrels per day) may cost $2.7-$3 billion and be completed in 2005. BP-Amoco leads the
pipeline project. BP-Amoco has also led negotiations between Azerbaijan and Turkey on
building a gas pipeline, estimated to cost $1 billion, parallel to the planned Baku-Ceyhan oil
pipeline. On September 29, 2001, Georgia and Azerbaijan signed an accord to transport and
sell natural gas from Azerbaijan’s Shah Deniz offshore field to Georgia and on to Turkey.
Ships operated by BP-Amoco conducting a survey of the Araz-Alov-Sharg oilfields in
the south Caspian Sea off Azerbaijan’s coast on July 23, 2001, were buzzed by Iranian
military aircraft and ordered by an Iranian gunboat to leave the area. BP-Amoco suspended
its survey in the field. In August, the State Department expressed support for Azerbaijan in
its efforts to explore Caspian oil resources and called Iran’s threatening actions against two
BP oil research ships “provocative” and “counter-productive to efforts to achieve a peaceful
resolution of Caspian boundary disputes.” Additional border violations have since been
reported.
Congressional interest has been reflected in several hearings on the South Caucasus and
Central Asia. Conferees on Omnibus Appropriations for FY1999 (P.L. 105-277) stated that
they “believe that the development of energy resources in the Caspian Sea region is important
for the economic development of the countries involved, as well as regional stability,”
endorsed “alternatives to a pipeline through Iran,” and supported “an east-west energy
corridor to assist in developing the region’s energy resources.” The “Silk Road Act”
language in P.L. 106-113 authorized enhanced policy and aid to support economic
development and transport needs in the South Caucasus and Central Asia. The Europe
Subcommittee of the House International Relations Committee held a hearing on U.S.
interests in the Caucasus and Caspian region on October 10, 2001. Congressional action to
lift aid sanctions on Azerbaijan may provide a boost to energy development in the South
Caucasus.
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