Order Code IB95024
Issue Brief for Congress
Received through the CRS Web
Armenia, Azerbaijan, and Georgia:
Political Developments and Implications
for U.S. Interests
Updated July 10, 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
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
Russia’s Bases in Georgia
Caspian Energy Resources
The Protection of Ethnic Russians and “Citizens”
The Roles of Turkey, Iran, and Others
Overview of U.S. Policy Concerns
Aid Overview
U.S. Security Assistance
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 fi-
states of Armenia, Azerbaijan, and Georgia.
nancing, and Foreign Commercial Service
The United States has fostered these states’
activities. The current Bush Administration
ties with the West, including membership in
appealed for a national security waiver of the
the Organization on Security and Cooperation
prohibition 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 approved foreign
and other relations. The United States pur-
appropriations for FY2002 (P.L.107-115) that
sued close ties with Armenia to encourage its
authorizes the President to waive Sec. 907
democratization and because of concerns by
under certain conditions through December
Armenian-Americans and others over its fate.
2002. President Bush exercised his waiver
Close ties with Georgia have evolved from
authority on Jan. 25, 2002. In the South
U.S. contacts with former Soviet Foreign
Caucasus, U.S. policy goals have been to
Minister Eduard Shevardnadze, Georgia’s
buttress the stability and independence of the
president for the last decade. Growing U.S.
states through multilateral and bilateral con-
private investment in Azerbaijan’s oil
flict resolution efforts and to provide humani-
resources strengthened U.S. interests there.
tarian relief. U.S. aid has also supported
The United States has been active in diplo-
democratization, free market reforms, and
matic efforts to end conflicts in the region,
U.S. trade. The Bush Administration supports
many of which remain unresolved.
U.S. private investment in Azerbaijan’s en-
ergy sector as a means of increasing the diver-
Faced with calls in Congress and else-
sity of world energy suppliers, and encourages
where that the Administration develop policy
building multiple energy pipeline routes to
for assisting the Eurasian states of the former
world markets. In the aftermath of the Sep-
Soviet Union, then-President Bush proposed
tember 11, 2001 terrorist attacks in the United
the FREEDOM Support Act in early 1992.
States, the three South Caucasus countries ex-
Signed into law in 1992, P.L. 102-511 autho-
pressed support for U.S.-led operations in
rized funds for the Eurasian states for humani-
Afghanistan against Al-Qaeda and other
tarian needs, democratization, creation of
terrorist groups. U.S. Defense Secretary
market economies, trade and investment, and
Rumsfeld visited all three countries in mid-
other purposes. Sec. 907 of the Act prohibited
December 2001. As part of the U.S. global
most U.S. government-to-government aid to
anti-terrorism campaign, the U.S. military in
Azerbaijan until its ceases blockades and other
April-May 2002 began providing security
offensive use of force against Armenia. This
equipment and training to help Georgia com-
provision was partly altered over the years to
bat terrorist groups in the Pankisi Gorge area
permit humanitarian aid and democratization
and elsewhere in the country.
aid, border security and customs support to
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
The State Department announced in July 2002 that 25 U.S. Special Operations troops
are assisting U.S. nongovernmental organizations and training Azerbaijani troops in
Azerbaijan in a continuing program of mine-clearing aid.
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:
Armenia is 11,620 sq. mi.; Azerbaijan is
Turkey, Iran, the Black and Caspian Seas, and 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
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 for the ruling Unity bloc coalition.
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Illustrating the ongoing challenges to stability faced by Armenia, in October 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 PACE
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
Commission differed with this assessment, seeing virtually no progress. 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 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 democratic standards. Shevardnadze’s age
(74) 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.
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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. Reformist Justice
Minister Mikheil Saakashvili and Tax Minister Mikheil Machavariani resigned in August
2001, citing the lack of progress on economic and anti-corruption reforms. On November
1, Shevardnadze fired his entire cabinet in the aftermath of massive public rallies protesting
a police raid on a private television station. Former Shevardnadze supporter Zurab Zhvania
also resigned as legislative speaker, condemning the government’s civil rights record. A
newly formed government has addressed increasing insecurity in the unruly Pankisi Gorge
area (abutting neighboring Chechnya).
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 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 Russia’s North
Ossetia region. 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
include threats to bordering states of widening conflict and the limited ability of the region
or outside states to fully exploit energy resources or trade/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. The OSCE at its December
1994 Budapest meeting agreed to send OSCE peacekeepers to the region under U.N. aegis
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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. 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 assassinations of
Armenian political leaders in late 1999 set back the peace process.
In 2001, the two presidents met in Paris in January and March and in Key West, Florida,
in April. In Key West, no documents were signed and the two presidents talked mainly
through intermediaries. By some accounts, the sides discussed elements of a fourth peace
plan that included territorial concessions and the establishment of land corridors. Indicating
the Administration’s high-level concern, the two Presidents flew to Washington D.C. after
the talks and each met with President Bush. Talks planned for June 2001 in Geneva were
postponed, however. In the aftermath of the September 11, 2001 terrorist attacks, U.S.
Special Negotiator for NK and Eurasian Conflicts, Rudolf Perina, has stressed 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 appointed new personal emissaries – Araz Azimov
from Azerbaijan and Tatul Markaryan from Armenia – who met in mid-May 2002 with no
results. (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.
Abkhazia. In late 2001, the Abkhaz conflict heated up after remaining dormant for
several years. Abkhazia’s Supreme Soviet declared its effective independence from Georgia
in July 1992. 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
Eurasian 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, that led to a
cease-fire. In April 1994, the two sides signed framework accords on a political settlement
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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 UNHCR. In May 1994, an accord provided 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.
U.S. Special Negotiator Perina 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. The UNSC
agreed that cooperation with the 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. A draft negotiating document prepared by the U.N. and the Friends of
Georgia was released in January 2002 that calls for Abkhazia to be recognized as “a
sovereign entity...within the state of Georgia.”
An upsurge in fighting in Abkhazia’s Kodori Gorge area and elsewhere in August-
October 2001 shifted international focus to crisis management rather than the promotion of
a political settlement. Parts of the gorge are controlled by Georgians, and they were joined
by Georgian irregular forces and several dozen Chechen rebels led by warlord Ruslan
Gelayev. The Chechen fighters reportedly were siding with the Georgians in appreciation
for Georgia’s sheltering of Chechen refugees. The Chechen fighters supposedly were
attempting to cross the Abkhaz border into Russia, but were beaten back by Abkhaz and
Russian troops and Russian airstrikes. A U.N. helicopter was shot down by unknown
assailants on October 8, killing all nine U.N. observers on board. Russia claimed that its
“peacekeepers” were thwarted in eliminating Gelayev by the intervention of Georgian
military and police troops that moved into the area in violation of ceasefire accords. On
October 11, 2001, the Georgian parliament voted to demand the withdrawal of Russian
peacekeeping troops from Abkhazia, claiming that were not facilitating peace. In January
2002, Abkhaz and Georgian officials agreed to security measures to defuse the potential for
armed conflict and build mutual confidence, including the withdrawal of Georgian troops
from the Kodari Gorge area, and President Shevardnadze agreed to extend the mandate of
the CIS peacekeeping force until June 2002 (a further extension is now under negotiation).
In response to the U.S. provision of training and equipment to Georgian security forces
for anti-terrorist operations (see below, Security), Abkhaz officials have expressed concerns
about the potential for Georgian forces to use the training for operations in Abkhazia.
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Reports that al-Qaeda and other terrorists may be currently in Abkhazia create dilemmas for
a U.S. policy that holds governments responsible for terrorists operating on their territories.
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
remained 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 all three states.
Transport and communications obstructions and stoppages have severely affected
economic development in the South Caucasus and stymied the region’s emergence as an
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 counter 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
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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 Eurasian state to get Russian troops to withdraw, except at the Gabala radar site in
northern Azerbaijan. (Giving up on closing the site, in January 2002, Azerbaijan signed a
10-year lease agreement with Russia to permit up to 1,500 personnel 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 (currently 40-50) to monitor Georgia’s border with Chechnya.
Since the September 11, 2001 terrorist attacks in the United States, Russia has stepped
up its claims that Georgia harbors Chechen terrorists with links to bin Laden, who use
Georgia as a staging ground for attacks into Chechnya. Georgia long denied these claims.
Georgia, which borders Chechnya, has accepted thousands of Chechen refugees, mainly
because many Chechens, termed Kists, live in Georgia’s Pankisi Gorge area. At the
November 2001 CIS summit in Moscow, Georgian leaders raised complaints about alleged
Russian army incursions into Georgia, but Russia denied its involvement. In January 2002,
Russian and Georgian authorities agreed to improve border security and to organize the
return of Chechen refugees. Some Russian officials initially condemned U.S. plans,
announced in early 2002, to provide military advisory assistance to Georgia. However, in
June 2002, President Putin backed “temporary” U.S. aid in fighting terrorists in the Pankisi
Gorge, but stated that such aid would be ineffective unless Russian troops took part.
Russia’s Bases in Georgia. In 1999 Russia agreed to provisions of the adapted
Conventional Armed Forces in Europe (CFE) Treaty calling for it 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. The Treaty remains unratified by
NATO signatories until Russia satisfies these and other conditions. 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 reported that it was unable to turn over the
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Gudauta base by the deadline, ostensibly because it had not had enough time to build
replacement facilities 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, 2001 as an excuse not to withdraw, but in November 2001, it announced
that its forces and equipment had been removed, but that some 600 Russian “peacekeepers”
would continue to use some facilities. In June 2002, UN and OSCE representatives briefly
visited the Gudauta base, but reached no conclusions pending a thorough inspection. The
base remains inaccessible to Georgian forces. Russia has stated that it needs 14-15 years and
$150 million to close the remaining Batumi and Akhalkalaki bases, but might move more
quickly with Western financing.
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, but a meeting
between the two presidents in June 2002 did not result in the expected accord.
Russian President Putin has criticized Western private investment in energy
development in the Caspian region, and appointed a special energy emissary to the region to
lobby the states to increase their energy ties with Russia. As part of this assertiveness,
Russian energy firms have stepped-up their efforts to gain major influence over Caspian
energy resources and routes. Since September 11, 2001, President Putin has appeared to ease
criticism of a growing U.S. presence in the region. At the May 2002 U.S.-Russia summit,
the two presidents issued a joint statement endorsing multiple pipeline routes to transport
Caspian region energy, implying Russia’s non-opposition to plans to build the Baku-Ceyhan
pipeline. Also, in May 2002, Russia’s Rosneftegazstoi pipeline firm signed an agreement
with Georgia on building an oil pipeline from Russia’s port of Novorossiisk to Georgia’s port
of Supsa, perhaps to link up with the prospective Baku-Ceyhan pipeline. Such a pipeline
would permit Russian and Kazakh oil to enter the Baku-Ceyhan route. However, while
Russian energy firms have expressed interest in investing in construction of the Baku-Ceyhan
pipeline project, the Russian government remains of two minds over whether to permit them
to invest in a pipeline that it still argues is unnecessary because of Russia’s pipeline capacity.
The Protection of Ethnic Russians and “Citizens”
As a percentage of the population, there are fewer ethnic Russians in the South
Caucasus states than in most other Eurasian states. 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.
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Russia has voiced concerns about the safety of ethnic Russians in Azerbaijan and Georgia.
A related Russian concern has involved former Soviet citizens who want to claim Russian
citizenship. In June 2002, Georgian press reports that Russia might grant citizenship and
passports to most Abkhazians under a new citizenship law heightened Georgian fears that
Russia seeks de facto annexation of Abkhazia. Many observers argue that the issue of
protecting the human rights of ethnic Russians and “citizens” is a stalking horse for Russia’s
military-strategic and economic interests.
The Roles of Turkey, Iran, and Others
The United States has generally viewed Turkey as able to foster pro-Western policies
and discourage Iranian interference in the South Caucasus states, though favoring Azerbaijan
in the NK conflict. Critics of Turkey’s larger role in the region 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 with the U.S. focus on
the global anti-terror campaign, Turkey, Azerbaijan, and Georgia reached a tripartite security
cooperation accord in January 2002 on combating terrorism and international crime and
protecting pipelines. Turkey has hoped to benefit from the construction of new pipelines
delivering oil and gas from the Caspian Sea, though a Turkish economic downturn has
resulted in an oversupply problem for the time being.
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 insisted on 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.)
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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 pursued close ties with Armenia, because of its
profession of democratic principles, and concerns by Armenian-Americans and others over
its fate. The United States pursued close ties with Georgia after Eduard Shevardnadze,
formerly a pro-Western Soviet foreign minister, assumed power there in early 1992. Faced
with calls in Congress and elsewhere for a U.S. aid policy for the Eurasian states, then-
President Bush sent the FREEDOM Support Act to Congress, which was signed with
amendments into law in October 1992 (P.L. 102-511).
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
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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. Days after signing Foreign
Operations Appropriations for FY2002 into law (P.L.107-115), President Bush on January
25, 2002 issued Presidential Determination 2002-06 waiving Sec. 907. The White House
press office stated that the waiver serves to “deepen [U.S.] cooperation with Azerbaijan in
fighting terrorism and in impeding the movement of terrorists into the South Caucasus,” and
to deepen security cooperation with Armenia. The waiver also helps advance “a new web
of U.S. security relationships with both Armenia and Azerbaijan” to deter them from
renewing hostilities and to facilitate a peaceful settlement of the NK conflict, according to
the White House (see also below, Aid).
U.S. policy toward the South Caucasus states includes fostering free market
democracies and promoting the resolution of regional conflicts. Aid for resolution of the NK,
Abkhazia, and other regional conflicts supports these goals. Successive U.S. Special
Negotiators have served as co-chair of the Minsk Group of states mediating the NK conflict
and taken 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. Georgian President
Shevardnadze visited Washington in October 2001 to pledge support for the U.S. global anti-
terrorism campaign, and in turn received assurances of continued U.S. support for Georgia’s
independence and territorial integrity. In December 2001, Defense Secretary Donald
Rumsfeld made brief visits to all three countries and received support for the U.S. anti-
terrorism campaign.
In the wake of the September 2001 terrorist attacks on the United States, U.S. policy
priorities have shifted toward global anti-terrorist efforts. Some observers argue that
developments in the South Caucasus region are largely marginal to global anti-terrorism and
to U.S. interests in general. They urge great caution in adopting policies that will heavily
involve the United States in a region beset by ethnic and civil conflicts. An earlier argument
against significant U.S. involvement – that the oil and other natural resources in the region
are undeveloped, inconsequential, or will not be available to Western markets for many years
– appears to be losing credibility (see below, Energy Resources).
Other observers believe that U.S. policy now requires more active engagement in the
South Caucasus. They point to weakness and instability in these states caused by warfare,
crime, smuggling, terrorism, and Islamic extremism, and urge greater U.S. aid and conflict
resolution efforts to contain extremism and bolster independence. Some argue that improved
U.S. relations with these Eurasian states also 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 the
energy and resource-rich Caspian region is a central U.S. strategic interest, including because
Azerbaijani and Central Asian oil and natural gas deliveries would lessen Western energy
dependency on the Middle East. They also point to the prompt cooperation and assistance
offered by the governments of Azerbaijan, Armenia, and Georgia in the aftermath of
September 11, 2001 events.
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Aid Overview
The United States is the largest bilateral aid donor by far to Armenia and Georgia, and
the two states are among the four Eurasian states that have received more than $1 billion in
U.S. aid FY1992-FY2002 (the others are Russia and Ukraine). See Tables 1 and 2. U.S.
assistance has included FREEDOM Support Act programs, food aid (U.S. Department of
Agriculture), Peace Corps, and security assistance. 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 aid to this category. FY1999 appropriations (P.L. 105-277)
sustained this category, with Congress earmarking $228 million of $847 million in
FREEDOM Support Act aid, and in FY2000-FY2002 (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. Since September 11, 2001, greater
attention has been given to providing security assistance to the region (see section, below).
Foreign Operations Appropriations for FY2002 (P.L.107-115) earmarked $90 million
each in FREEDOM Support aid for Armenia and Georgia, and $4.3 million in FMF and
IMET for Armenia. It sustained the South Caucasus funding category, calling 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 permitted 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
extend the waiver on an annual basis if the same conditions are met. The law includes
reporting requirements on U.S. aid to Azerbaijan and on the status of peace negotiations
between Armenia and Azerbaijan. The conferees warned that they could “amend the waiver
language” during the FY2003 appropriations process if conditions are not met.
U.S. Security Assistance
Besides economic and humanitarian aid, the United States has provided some security
assistance in recent years (see box and Table 2). 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 FY2002
(P.L.107-115) repeated prior year language forbidding use of FREEDOM Support Act aid
to enhance military capabilities, except for nonproliferation, demining, and demilitarization.
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,
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and the proliferation of weapons of
Cumulative Budgeted Funds FY1992-FY2001 for
mass destruction (WMD). The
South Caucasian Security Programs
United States committed millions

(Freedom Support Act and Agency Funds)
of dollars to facilitate the closure
(million dollars)
of Russian military bases in
U.S. Department of Health & Human Services
3.02
Georgia. In October 2000, the
DOE Materials Protection Control and Accounting
0.21
Security Assistance Act of 2000
DOS International Military Exchanges and Training
2.46
was signed into law, authorizing
DOS NADR / Counterproliferation
2.0
nonproliferation, export control,
DOS Nonproliferation/Disarmament Fund (NDF)
3.45
border, anti-terrorism, and other
DOS Science Centers
13.1
security aid for the South
DOS Export Control / Border Security
24.1
Caucasus states and earmarking
DOS Anti-Terrorism Assistance (ATA)
2.28
DOS Warsaw Initiative (FMF)
21.49
such aid for Georgia. The United
DOD Warsaw Initiative (PFP)
1.3
States has signed many other
DOD-CTR Chain of Custody
5.94
agreements with the South
DOD Customs Border Security/Counterproliferation 2.67
Caucasus countries on military
DOD/FBI Counterproliferation
1.44
cooperation, combating WMD
U.S. Customs Service / Georgia Border Security
53.57
proliferation, and securing nuclear
Military Relocation (U.S. Dept. Of State & DTRA)
23.8
materials. Indicative of
NSF / Civilian R & D Foundation (CRDF)
9.88
proliferation problems, as much as
TOTAL SECURITY PROGRAMS
170.71*
Source: State Department, Coordinator’s Office
four pounds or more of highly
*FY2002 Emergency Terrorism Response Funds and other FY2002 spending
enriched uranium-235, other
have not been broken down. See Table 2 for FY1992-FY2002 totals.
radioactive materials, and uranium
d i f f u s i o n e q u i p m e n t a n d
centrifuges are unaccounted for and may be missing at a former nuclear research lab in
Abkhazia (Washington Post, April 26, 2002).
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). 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. Follow-on “Cooperative Best Effort 2002” PFP
exercises were held at the former Russian Vaziani airbase in Georgia in June 2002, involving
600 troops from 15 countries.
Until waived, Sec. 907 had prohibited much U.S. PFP aid to Azerbaijan (including
Foreign Military Financing or FMF), and by U.S. policy similar aid had not been provided
to Azerbaijan’s fellow combatant Armenia. The waiver enabled both Armenia and
Azerbaijan to participate in the “Best Effort” exercises. The waiver has permitted an
increase in the U.S. security assistance program to Azerbaijan, which is focused on border
security and anti-terror programs. A U.S.-financed center for de-mining opened in Armenia
in March 2002. In April 2002, President Bush issued Presidential Determination 2002-15,
making Armenia, Azerbaijan, and Tajikistan eligible to receive U.S. arms exports and
services in order to “strengthen the security of the United States.”
As part of the U.S. global anti-terrorism campaign, a $64 million Georgia Train and
Equip Program (GTEP) began in April-May 2002 with the deployment of an initial 70
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Special Operations Forces advisors (to increase to 150 this summer). They are providing
training to Georgian military, security, and border forces to help them combat Chechen,
Arab, Afghani, al-Qaeda, and other terrorists who allegedly have infiltrated Georgia. Some
refurbishment of Georgian military facilities also will be carried out, but U.S. officials say
there are no plans to establish a permanent U.S. military presence in Georgia. The leader of
Georgia’s breakaway Abkhaz region, Vladislav Ardzinba, has rejected reports that the region
might host terrorists and warned that U.S. training could increase Georgia’s revanchism
regarding Abkhazia. The Administration has requested $20 million in FY2002 supplemental
funding for FMF for Georgia.
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
providing national treatment guarantees have been signed (that with Azerbaijan has been
submitted to the U.S. Congress for advice and consent). OPIC has signed agreements that
are in force with the 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, in June 2000 Georgia became the
second Eurasian state (after Kyrgyzstan) to be admitted to the World Trade Organization.
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 presidential determination (see also
CRS Issue Brief IB93107, Normal-Trade-Relations).
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
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agencies (this post was retained but downgraded to Senior Advisor for Caspian Basin Energy
Diplomacy by the Bush Administration; the current advisor is Steven Mann).
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
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, each with a
capacity of around 100-115,000 barrels per day. The trans-Russia “early oil” pipeline began
delivering oil to the port of Novorossiisk in late 1997. 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, and its 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 $2.9 billion.
Construction of the pipeline is planned to begin in 2002 and be completed in 2005. In mid-
2002, the project received a major boost when the European Bank for Reconstruction and
Development announced that it would provide $300 million in financing and the U.S.
Overseas Private Investment Corporation (OPIC) also said it would provide $300 million in
loan guarantees. In September 2001, Georgia signed an accord with Azerbaijan to build a
pipeline to import natural gas from Azerbaijan’s Shah Deniz offshore field, and to permit
remaining gas to be piped to Turkey. BP-Amoco has led negotiations between Azerbaijan
and Turkey on building a BTC gas pipeline, estimated to cost $1 billion.
Congressional interest in the South Caucasus states have been reflected in hearings,
legislation, and the creation of a Senate Subcommittee for Central Asia and the South
Caucasus. 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. Congressional action to lift aid sanctions on
Azerbaijan aims to facilitate regional cooperation on anti-terrorism, conflict resolution, and
energy development.
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Table 1. FY2001 Obligations, the FY2002 Estimate, and the FY2003
Foreign Assistance Request
(in millions of dollars)
FY2002 Estimate
Including the Emergency
FY2001
Terrorism Response (in
FY2003
Central Asian Country
Obligations
parentheses)*
Request**
Armenia
117.19
103
77.683
Azerbaijan
36.85
54.9
52.98
Georgia
121.7
103
97.492
Total
275.74
260.9
228.155
Sources: USAID and State Department. FREEDOM Support Act and Agency budgets.
*Does not include proposed second emergency supplemental FY2002 assistance of $135 million.
**FREEDOM Support Act and other Function 150 funds (does not include Defense or Energy Department
funding).
Table 2: U.S. Government FY1992-FY2002 Budgeted Assistance to the
South Caucasus, by Category (FREEDOM Support Act and Agency
Budgets)
(millions of dollars)
Programs
Armenia
Azerbaijan
Georgia
Total
Percent
Democracy Programs
146.64
70.56
115.93
333.13
11.95
Market Reform Programs
299.51
39.37
185.34
524.22
18.8
Security Programs
29.39
23.75
173.58
226.72
8.13
Humanitarian Programs
723.45
192.48
601.64
1,517.57
54.43
Cross-sectoral/other
133.43
14.43
38.43
186.29
6.7
Total
1,332.42
340.59
1,114.92
2,787.93
100
Source: Coordinator’s Office, State Department, and CRS calculations. The included FY2002 data are
estimates.
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