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 January 23, 2003
Jim Nichol
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
Overview of U.S. Policy Concerns
Obstacles to Peace and Independence
Regional Tensions and Conflicts
Nagorno Karabakh Conflict
Civil and Ethnic Conflict in Georgia
Economic Conditions, Blockades and Stoppages
Political Developments
Armenia
Azerbaijan
Georgia
The South Caucasus’ External Security Context
Russian Involvement in the Region
Military-Strategic Interests
Caspian Energy Resources
The Protection of Ethnic Russians and “Citizens”
The Roles of Turkey, Iran, and Others
Aid Overview
U.S. Security Assistance
U.S. Trade and Investment
Energy Resources and U.S. Policy

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Armenia, Azerbaijan, and Georgia:
Political Developments and Implications for U.S. Interests
SUMMARY
The United States recognized the inde-
aid, border security and customs support to
pendence of all the former Soviet republics by
promote non- proliferation, Trade and Devel-
the end of 1991, including the South Caucasus
opment Agency aid, Overseas Private Invest-
states of Armenia, Azerbaijan, and Georgia.
ment Corporation insurance, Eximbank fi-
The United States has fostered these states’
nancing, and Foreign Commercial Service
ties with the West, including membership in
activities. The current Bush Administration
the Organization on Security and Cooperation
appealed for a national security waiver of the
in Europe and NATO’s Partnership for Peace,
prohibition on aid to Azerbaijan, in consider-
in part to end the dependence of these states
ation of Azerbaijan’s assistance to the interna-
on Russia for trade, security, and other rela-
tional coalition to combat terrorism. In De-
tions. The United States pursued close ties
cember 2001, Congress approved foreign
with Armenia to encourage its democratiza-
appropriations for FY2002 (P.L.107-115) that
tion and because of concerns by
granted the President authority to waive Sec.
Armenian-Americans and others over its fate.
907, renewable each year under certain
Close ties with Georgia have evolved from
conditions. President Bush exercised the
U.S. contacts with former Soviet Foreign
waiver on Jan. 25, 2002 and Jan. 17, 2003.
Minister Eduard Shevardnadze, Georgia’s
president for the last decade. Growing U.S.
In the South Caucasus, U.S. policy goals
private investment in Azerbaijan’s oil
have been to buttress the stability and inde-
resources strengthened U.S. interests there.
pendence of the states through multilateral and
The United States has been active in diplo-
bilateral conflict resolution efforts and to
matic efforts to end conflicts in the region,
provide humanitarian relief. U.S. aid has also
many of which remain unresolved.
supported democratization, free market re-
forms, and U.S. trade. The Bush Administra-
Faced with calls in Congress and else-
tion supports U.S. private investment in
where that the Administration develop policy
Azerbaijan’s energy sector as a means of
for assisting the Eurasian states of the former
increasing the diversity of world energy sup-
Soviet Union, then-President Bush proposed
pliers, and encourages building multiple
the FREEDOM Support Act in early 1992.
energy pipeline routes to world markets. In
Signed into law in 1992, P.L. 102-511 autho-
the aftermath of the September 11, 2001
rized funds for the Eurasian states for humani-
terrorist attacks on the United States, the
tarian needs, democratization, creation of
South Caucasus states expressed support for
market economies, trade and investment, and
U.S.-led operations in Afghanistan against al
other purposes. Sec. 907 of the Act prohibited
Qaeda and other terrorist groups. As part of
most U.S. government-to-government aid to
the U.S. global anti-terrorism campaign, the
Azerbaijan until its ceases blockades and other
U.S. military in April-May 2002 began pro-
offensive use of force against Armenia. This
viding security equipment and training to help
provision was partly altered over the years to
Georgia combat terrorist groups in its Pankisi
permit humanitarian aid and democratization
Gorge area and elsewhere in the country.
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
Presidential Determination No. 2003-12, released January 17, 2003, extended the
waiver of Section 907 of the FREEDOM Support Act limiting U.S. aid to Azerbaijan. The
President stated that a waiver is necessary to support U.S. counter-terrorism and the
operational readiness of U.S. Forces and coalition partners. He also averred that the waiver
would permit U.S. border security aid for Azerbaijan and would not hamper efforts to settle
the Nagorno Karabakh (NK) conflict (see below, Regional Tensions).
In early January 2003, the co-chair of the US Congressional Caucus on Armenian
Issues, Rep. Frank Pallone, wrote a letter to Azerbaijani President Heydar Aliyev
condemning “war-mongering” being fomented by Azerbaijani mass media against Armenia
and NK. He called on Aliyev to halt his “aggressive stand toward Armenia and NK,” and
to become committed to a peaceful settlement of the conflict.
Georgia accused the Organization for Security and Cooperation in Europe, at its
ministerial meeting in December 2003, of failing to support it in pressing for the closure of
Russia’s military bases in Georgia, in line with Russia’s 1999 pledge to the OSCE.
BACKGROUND AND ANALYSIS
Armenia, Azerbaijan, and Georgia are
The Caucasus States: Basic Facts
located south of the Caucasus Mountains that Area: The region is slightly larger than Syria:
Armenia is 11,620 sq. mi.; Azerbaijan is
form part of Russia’s borders (see map). The 33,774 sq. mi.; Georgia is 26,872 sq. mi.
South Caucasus states served historically as a Population: 16.85 million, similar to
north-south and east-west trade and transport Netherlands; Armenia: 3.8 m.; Azerbaijan: 8.1
“land bridge” linking Europe to the Middle East m.; Georgia: 4.95 m. (Economist Intelligence
and Asia, over which the Russian Empire and Unit, 2001 est.)
others at various times endeavored to gain GDP: $12.8 billion; Armenia: $2.1 b.;
control. In ancient as well as more recent times, Azerbaijan: $5.7 b.; Georgia: $5.0 b. (EIU,
oil and natural gas resources in Azerbaijan 2001 est., current prices)
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 1991.
(For background, see CRS Report RS20812, Armenia Update; CRS Report 97-522,
Azerbaijan; and CRS Report 97-727, Georgia.)
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 Shevardnadze, formerly a
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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 Azerbaijan’s 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 permitting the provision of humanitarian aid to the Azerbaijani government
under certain conditions. 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.
U.S. policy toward the South Caucasus states includes promoting the resolution of NK,
Abkhaz, and other regional conflicts. 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. In the wake of 9/11, U.S. policy priorities
shifted toward global anti-terrorist efforts. In the South Caucasus, the United States obtained
quick pledges from the three states to support U.S. and coalition efforts in Afghanistan,
including overflight rights and Azerbaijan’s and Georgia’s offers of airbase support and
“whatever [else is] necessary.” The State Department’s Patterns of Global Terrorism 2001
highlighted U.S. support for Azerbaijan’s and Georgia’s efforts to halt the use of their
territories as conduits by international mujahidin and Chechen guerrillas for financial and
logistic support for Chechen and other Caucasian terrorists.
Congressional interest in the South Caucasus states has been reflected in hearings,
legislation, and the creation of a Senate Subcommittee for Central Asia and the South
Caucasus. 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 events of 9/11 altered Congressional attitudes toward Sec.907, causing it to permit
the lifting of aid sanctions on Azerbaijan to facilitate regional cooperation on anti-terrorism,
conflict resolution, and energy development. In a letter to the Senate Foreign Relations
Committee a few weeks after the terrorist attacks, Secretary 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. Permanent Presidential waiver authority
was added to the Senate version of Foreign Operations Appropriations for FY2002 (H.R.
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2506) and retained by the conferees. The President may use the waiver authority if he
certifies to the Appropriations Committees that it supports U.S. counter-terrorism efforts,
supports the operational readiness of the armed forces, is important for Azerbaijan’s border
security, and will not harm peace talks between Armenia and Azerbaijan or be used for
offensive purposes against Armenia. The waiver may be renewed annually on or after
December 31, 2002, and sixty days after the exercise of the waiver authority, the President
must send a report to Congress specifying the nature of aid to be provided to Azerbaijan, the
status of the military balance between Armenia and Azerbaijan and the effects of U.S. aid
on that balance, and the status of peace talks between Armenia and Azerbaijan and the effects
of U.S. aid on those talks. Days after being signed into law (P.L. 107-115), President Bush
on January 25, 2002, exercised the waiver. The White House explained that the waiver
served 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. It also stated that the waiver helped advance “a new web of U.S. security
relationships with both Armenia and Azerbaijan” to deter them from renewing hostilities and
to facilitate a settlement of the NK conflict (see also below, Aid and Security).
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. Earlier arguments against significant U.S. involvement – that the oil and
other natural resources in the region were not commercially viable because of development
and export costs and inadequate amounts, or would not be available to Western markets for
many years – have lost much credibility (see below, Energy Resources). Other observers
believe that U.S. policy now requires more active engagement in the South Caucasus. They
urge greater U.S. aid and conflict resolution efforts to contain warfare, crime, smuggling,
terrorism, and Islamic extremism and bolster independence of the states. Some argue that
improved U.S. relations with these 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 argue 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 offered
to the United States by Azerbaijan, Armenia, and Georgia in the aftermath of 9/11.
Obstacles to Peace and Independence
Regional Tensions and Conflicts
Ethnic conflicts have kept the South Caucasus states from fully partaking in peace,
stability, and economic development over a decade since the Soviet collapse, some observers
lament. The 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.
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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 part
of 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.
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. Azerbaijan claims that about 20%
of its territory, including NK, is controlled by NK Armenian forces. Various mediators have
included Russia, Kazakhstan, Iran, the United Nations, and the Organization for Security and
Cooperation in Europe (OSCE). The OSCE’s “Minsk Group” of concerned member-states
began talks in 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
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. Azerbaijan
rejected a new Minsk Group proposal in late 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, the sides reportedly discussed elements of a peace plan first
broached in 1999 that included territorial concessions and the establishment of land
corridors. The two Presidents later met separately with President Bush, highlighting early
Administration interest in a settlement. In the aftermath of 9/11, U.S. Special Negotiator for
NK and Eurasian Conflicts and Minsk Group co-chair, Rudolf Perina, has stressed that
worldwide anti-terrorism efforts increase the importance of resolving regional conflicts and
restoring stability. The presidents reported that their meetings in Nakhichevan in August
2002, in Moldova in October 2002, and Czech Republic in November 2002 merited further
discussions. In January 2003, Kocharyan proclaimed that Armenia’s policy on the settlement
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of the NK conflict rested on three pillars: a “horizontal” – instead of hierarchical –
relationship between NK and Azerbaijan; a secure land corridor between Armenia and NK;
and security guarantees for NK’s populace. (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.
Georgia’s South Ossetian region in 1989 lobbied for joining its 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. 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 1,000). 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. Relations with Georgia deteriorated following a contentious
“presidential” election in South Ossetia in late 2001, won by Russian citizen and resident of
St. Petersburg Eduard Kokoyev (Kokoiti), who had run on a platform of “associating”the
region with Russia. In January 2003, a Shevardnadze emissary met with Kokoyev.
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. 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 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 displaced persons, mostly ethnic Georgians.
U.S. Special Negotiator Perina works with the U.N. Secretary General, his Special
Representative, and other Friends of Georgia (France, Germany, Russia, the United
Kingdom, and Ukraine) to facilitate a peace settlement. There were 108 UNOMIG military
observers as of mid-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. 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
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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,” but the UNSC in July 2002 criticized Abkhaz authorities for refusing to
consider the draft. Deputy Assistant Secretary of State Lynn Pascoe in Congressional
testimony on September 24 stated that Russia is stalling on negotiations on a political
settlement of Abkhaz conflict.
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. Investment in oil and gas resources and delivery systems has fueled
economic growth in Azerbaijan in recent years. Armenia’s GDP was about $550 per capita,
Azerbaijan’s was about $700, and Georgia’s was about $1,000 (Economist Intelligence Unit,
2001 estimates, current dollars). 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, and Russia
has at times cut off gas supplies to Georgia. 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 December 2002. Indicating the complicated
politics surrounding regional transport, Aliyev alleged that, during an August 2002 meeting
with Kocharyan, his conditional offer to reopen a railway transiting the two countries was
rejected by Kocharyan. Armenian presidential press secretary Vage Gabriyelyan responded
that an unconditional reopening could be a confidence-building measure, but that it
preferably should be part of a comprehensive settlement of the NK conflict.
Political Developments
All three regional states face possible changes in political leadership. Armenia and
Azerbaijan will hold presidential elections in 2003 and Georgia’s President Shevardnadze
has declared that he will not run for re-election in 2005, opening the competition for
succession in that country. Also, Armenia and Georgia will hold legislative elections in May
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and November 2003, respectively. The organization Freedom House rates all three states as
“partly free,” but ranks Armenia and Georgia as further along in democratization.
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 1998, reporting that his endorsement of peace proposals suggested
by the Organization for Security and Cooperation’s “Minsk Group” of concerned member-
states had not been supported by others in his government. Former Prime Minister Robert
Kocharyan won a 1998 presidential election termed flawed by the U.S. State Department.
Armenia’s 1999 parliamentary election was viewed as improved but still falling short of
OSCE standards. 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 mid-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.
At the end of November 2002, Defense Minister Serzh Sarkisyan announced that he
was taking a leave of absence to head up Kocharyan’s presidential election campaign, and
Margaryan announced that the Republican Party, which he heads, would fully back
Kocharyan’s candidacy. Eleven candidates are running in the February 19, 2003, race. Polls
indicate that the main contenders are incumbent President Kocharyan; Stepan Demirchyan,
leader of the People's Party (Karen Demirchyan’s son); and Artashes Gegamyan, leader of
the Law and Unity party. Gegamyan had run against Kocharyan in 1998. The other
contenders include the chairman of the National Democratic Unity Party, Vazgen Manukyan
(who ran in 1996 and 1998); First Secretary of the Armenian Communist Party, Vladimir
Darbinyan; a member of the Anrapetutyun (Republic) Party political board, Aram Sarkisyan
(brother of Vazgen Sarkisyan); Chairman of the Democratic Party of Armenia, Aram
Sarkisyan; Chairman of the National Accord Party, Aram Arutyunyan; Chairman of the
United Armenians Party, Ruben Avagyan; Deputy Chairman of the Motherland and Honour
Party, Garnik Manukyan; and the head of the Perspektiva Strategic Research Center, Aram
Karapetyan. Several of the opposition parties had pledged to seek a common candidate but
in the end fielded their own candidates. By fielding so many candidates, the opposition may
hope to force the presidential race into a second round if no one candidate receives over 50%
of the vote, and then to unify behind the remaining opposition candidate. (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. 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
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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. U.S. Helsinki Commission observers saw 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. U.S. State Department Spokesman Richard Boucher stated in August 2002 that
widespread irregularities appeared to have taken place during a just-held constitutional
referendum, and concluded that it “did very little to advance democratization.” Several of
the constitutional changes had been encouraged by the Council of Europe, such as the
creation of a executive-level human rights ombudsman. Others, however, were criticized by
some opposition party leaders, in particular the elimination of party list voting, which may
sharply reduce opposition political party representation in the legislature, and a designation
of the prime minister as the next in line in the case of presidential incapacity, death, or
resignation, which oppositionists feared could permit Aliyev to more effectively position his
son Ilkham as successor. Azerbaijan’s President Aliyev maintains that he will stand for re-
election in a race planned for October 2003. Aliyev’s health problems and age (79),
however, have raised the question of political succession. Many observers believe he is
grooming his son Ilkham to be his successor.
Georgia. Georgia experienced political instability during the early 1990s, and a fragile
stability in the second half of the decade. President Eduard Shevardnadze has survived
several coup attempts and has prevailed over 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), and his replacement
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 did not fully comply
with OSCE standards. Shevardnadze received 80% of 1.87 million votes cast in an April
2000 presidential race that the OSCE concluded did not meet democratic standards.
Shevardnadze refused to relinquish control over mayoral appointments, though he permitted
local city council elections in mid-2002. Political instability has increased in 2001-2002.
Shevardnadze fired his entire cabinet in November 2001 after mass protests against a police
raid on a private television station. Former supporter Zurab Zhvania also resigned as
legislative speaker, condemning Shevardnadze’s civil rights record. Shevardnadze’s stated
intention not to seek another term in 2005 has fueled speculation about possible successors.
His naming of State Secretary Avtandil Dzhorbenadze at the end of June 2002 to head the
CUG was viewed by many Georgians as an attempt to designate an heir. According to some
reports, U.S. aid to set up a Georgian National Security office reflected in part U.S. concerns
that Shevardnadze’s succession proceed smoothly.
The South Caucasus’ External Security Context
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
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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 maintain 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 and South Ossetian
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 (CST) by Armenia,
Russia, and others in 1992, which calls for mutual defense consultations (Azerbaijan and
Georgia withdrew from the CST 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 6,200 in Georgia. Another 77,400 Russian troops are stationed nearby in the North
Caucasus (The Military Balance 2001-2002). 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 Chechnya. In
December 1999, the OSCE agreed to Georgia’s request to send observers (currently 42) to
monitor its 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, which borders Chechnya,
has accepted thousands of Chechen refugees, mainly because many Chechens, termed Kists,
live in Georgia’s Pankisi Gorge area. Some Russian officials initially condemned U.S. plans,
announced in early 2002, to provide military training and equipment to Georgia to help it
deal with terrorism in the Pankisi Gorge and elsewhere. The United States has expressed
“unequivocal opposition” to military intervention by Russia inside Georgia. Georgia
launched a policing effort in the Gorge and agreed with Russia to some coordinated border
patrols in October 2002 that have appeared to reduce tensions (for details, see CRS Report
RS21319, Georgia’s 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 it to reduce weaponry at its
bases in Georgia, to close its bases at Gudauta and Vaziani by July 2001, and to discuss
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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 in June 2002 that it had closed its
Gudauta base, but announced that 320 troops would remain to guard facilities and support
“peacekeepers” who would relax at the base. Russia has stated that it needs $300 million and
eleven years to close the other two bases. At its December 2002 ministerial meeting, the
OSCE hailed the Gudauta closure over Georgia’s objections that the base was not under
Georgia’s control, and appeared unwilling to press Russia on terminating the other bases.
Pascoe testified on September 24, 2002, that Russia is temporizing on implementing its CFE
Istanbul commitments. At the OSCE meeting in December, the United States voiced “hope”
that Russia would make progress in 2003 in meeting its CFE commitments.
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. Russia has changed its stance by agreeing on seabed
delineation with Kazakhstan and Azerbaijan, prompting objections from Iran. In September
2002, Russia and Azerbaijan signed a long-delayed delineation agreement that appears to
resolve tensions over this issue, and which enables Russia to woo Azerbaijan to ship more
of its oil through Russian pipelines and otherwise pursue better relations.
Putin has criticized Western private investment in energy development in the Caspian
region, and appointed a special energy emissary to lobby the region to increase its 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. After 9/11, Putin
appeared to ease his 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-Tbilisi-Ceyhan (BTC) oil and gas pipelines. However, in September 2002, Foreign
Minister Ivanov resurrected opposition to the BTC pipeline, stating during a U.S. visit that
“we will not put up with the attempts to crowd Russia out.” Some observers view Russia’s
stepped-up pressure on Georgia during 2002 as calculated to increase its influence, including
over pipelines. Russia conducted a major military exercise in the northern Caspian Sea in
August 2002, demonstrating its armed predominance and underscoring its proposals for
dividing Caspian Sea resources among the five littoral states.
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 CIA World Factbook, ethnic Russians constituted about
3.6% of the region’s population in 2002. Russia has voiced concerns about the safety of
ethnic Russians in Azerbaijan and Georgia. A related Russian interest has involved former
Soviet citizens who want to claim Russian citizenship or protection. In June 2002, a new
Russian citizenship law permitted granting citizenship and passports to most Abkhazians and
South Ossetians (they are already able to enter Russia without visas, while Georgians are
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not), heightening Georgian fears that Russia has de facto annexed the regions. Many
observers argue that the issue of protecting the human rights of ethnic Russians and pro-
Russian groups is a stalking horse for Russia’s military-strategic and economic interests.
Some observers have raised concerns that Russia is taking advantage of fellow-travelers and
agents in place in the South Caucasus states to oppose U.S. 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.)
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
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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.
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 each have received more than $1
billion in U.S. aid FY1992-FY2002 (the others are Russia and Ukraine). See Tables 1 and
2. By comparison, aid from the European Union to the region has totaled about $1 billion
over the past decade. 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. In
FY1999 appropriations (P.L. 105-277), Congress earmarked $228 million of $847 million
in FREEDOM Support Act aid for this category. The category was sustained 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.)
Foreign operations are at present being funded under a continuing resolution at FY2002
levels until FY2003 appropriations are enacted. In the 107th Congress, the House version of
Foreign Operations Appropriations for FY2003 recommended that not less than $83.433
million in FREEDOM Support Act aid be made available for Armenia and $82.5 million for
Georgia. Both it and the Senate version sustained the South Caucasus funding category and
called for funds (unspecified) to be used for confidence-building measures in support of the
resolution of regional conflicts, especially in Abkhazia and NK. Both bills restated past
exemptions to Sec. 907 (to cover a contingency in case the President did not exercise his
waiver authority). Both bills called for remaining amounts of $20 million earlier provided
for humanitarian needs in NK to be dispersed and urged that up to $5 million more be made
available if needed. The Senate bill provided $3 million in FMF funds and recommended
$750,000 for Armenia. It also provided not less than $3 million for small business
development in Georgia. The House bill provided $3 million for FMF and $750,000 for
IMET for both Armenia and Azerbaijan.
The calendar year 2002 waiver of Sec.907 permitted U.S. advisory economic assistance
to the Azerbaijani government, as well as added security aid (see below). In March 2002,
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the TDA awarded a $1 million grant to the Ministry of Economic Development to help it
prepare to join the World Trade Organization (WTO), and in April 2002, the Commodity
Credit Corporation guaranteed $10 million in credit by the International Bank of Azerbaijan
for exports of U.S. agricultural goods. Also, the U.S. Treasury Department has considered
providing debt and budget advisory aid to the Azerbaijani government.
U.S. Security Assistance
The United States has provided some security assistance to the region, and bolstered
such aid after 9/11, though overall aid amounts to the countries did not increase post-9/11
as they did in regard to the Central Asian “front line” states. See Table 2 for cumulative
budgeted security assistance for FY1992-FY2002. In Georgia, Congress in 1997 directed
setting up a Border Security and Related Law Enforcement Assistance Program, and some
of this aid has been used by Georgia to fortify its northern borders with Russia and
Chechnya. The United States has committed millions of dollars to facilitate the closure of
Russian military bases in Georgia. Congress initiated the Security Assistance Act of 2000
(P.L.106-280) that authorized nonproliferation, export control, border, anti-terrorism, and
other security aid for the South Caucasus states and earmarking such aid for Georgia. 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 has signed many other accords with
the regional states 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). Azerbaijani and Georgian troops serve as peacekeepers in the NATO-led operation
in Kosovo. “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. Azerbaijan
in November 2002 deployed 30 troops to assist the U.S.-led coalition in Afghanistan.
Until waived, Sec. 907 had prohibited much U.S. security 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 permitted an increase in U.S.
security and law enforcement aid to Armenia from a budgeted $5.96 million in FY2001 to
an estimated $11.53 million in FY2002, and to Azerbaijan from $3.23 million to $11.33
million. The waiver enabled both Armenia and Azerbaijan to participate in the “Best Effort”
exercises. A U.S.-financed center for de-mining opened in Armenia in March 2002.
Similarly, the State Department announced in July 2002 that 25 U.S. Special Operations
troops were assisting U.S. nongovernmental organizations in training troops in Azerbaijan
in de-mining. 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 May 2002 with the deployment of up to 150 Special
Operations Forces, Marines, and other troops. They are providing training to Georgian
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military, security, and border forces to help them combat Chechen, Arab, Afghani, al Qaeda,
and other terrorists who allegedly infiltrated Georgia. Reported other U.S. aims include
bolstering Georgia’s ability to guard its energy pipelines and ensuring internal stability.
Some refurbishment of Georgian military facilities also was carried out, but U.S. officials
say there are no plans to establish a permanent U.S. military presence in Georgia. U.S.
Secretary of Defense Donald Rumsfeld and the chairman of the Joint Chiefs of Staff, Gen.
Richard Myers, visited Georgia in November 2002 and reviewed the GTEP. After meeting
with Georgian President Eduard Shevardnadze, Myers declared that “the U.S. and Georgian
relationship is a very rare, important one [and] it’s been strengthening over the years.” 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. Reports that al Qaeda and other terrorists may be currently in Abkhazia (and
elsewhere in Georgia) create dilemmas for a U.S. policy that holds governments responsible
for terrorists operating on their territories. (For details, see CRS Report RS21319, Georgia’s
Pankisi Gorge.)
U.S. 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 entered into force. U.S. investment is highest
in Azerbaijan’s energy sector, but rampant corruption in Azerbaijan and Georgia otherwise
have stifled investment. The EIU attributes paltry U.S. and other foreign investment in
Armenia to business concerns about inadequate law enforcement. With U.S. support, in
June 2000 Georgia became the second Eurasian state (after Kyrgyzstan) to be admitted to the
WTO. 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 was admitted
into WTO in December 2002, but until U.S. legislation is passed, it will continue to receive
conditional NTR treatment subject to a presidential determination, as does Azerbaijan (see
also CRS Report RL31558, Normal-Trade-Relations).
Energy Resources and U.S. 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 political instability, ethnic and regional conflict, and the security
and construction of pipeline routes.
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.
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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. These goals are reflected in the Administration’s national energy
policy, in the form of a May 2001 report drawn up by Vice President Cheney. It recommends
that the President direct U.S. agencies to support building the BTC oil pipeline, expedite use
of the pipeline by oil companies operating in Kazakhstan, support constructing a BTC 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. Another consequence of 9/11 has been greater Administration concern about
the vulnerability of the United States to possible energy supplies disruptions. The 9/11
attacks have intensified the Administration’s commitment to develop Caspian energy and the
BTC pipeline as part of a strategy of diversifying world energy supplies.
U.S. companies are shareholders in about one-half of twenty international production-
sharing consortiums, including the Azerbaijan International Operating Company (AIOC;
which includes U.S. firms Unocal and Exxonmobil, U.S. Devon Energy, and U.S.-Saudi
Delta Hess), 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) 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 BTC route as part of a “Eurasian Transport Corridor.” In November 1999,
Azerbaijan, Georgia, Turkey, and Kazakhstan signed the “Istanbul Protocol” on construction
of the BTC oil pipeline. Estimates suggest that the 1,040-mile pipeline (carrying a million
barrels per day) may cost $3 billion. In mid-2002, the pipeline 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) said it would provide $300 million in loan guarantees. U.S. Eximbank may also back
the project. In August 2002, the BTC Company was formed to construct, own, and operate
the oil pipeline, and it awarded contracts to begin construction in 2003, with a completion
date of early 2005 (BTC Co. includes the U.S. firms Unocal and Amerada Hess, and U.S.
construction firms include Bechtal and Petrofac). 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, but plans for this
pipeline are uncertain (in the meantime, Russia built the Blue Stream gas pipeline under the
Mediterranean Sea to Turkey, delivering its first gas in January 2003). In a September 2002
letter to the presidents of Azerbaijan, Georgia and Turkey, President Bush stated that the
BTC pipeline would enhance global energy security “through a more diverse supply of oil
for global markets,” and strengthen regional and global economic growth and the sovereignty
and independence of the region. Although full investment funding for the pipeline has not
yet been reached, actual construction reportedly began in Georgia in mid-January 2003.
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Table 1. FY2002 Budgeted Aid and the FY2003 Foreign Assistance
Request
(in millions of dollars)
FY2002 Budgeted Aid,
Including Emergency
Central Asian Country
Supplementals
FY2003 Request*
Armenia
107.61
77.683
Azerbaijan
51.79
52.98
Georgia
110.01
97.492
Total
269.41
228.155
Sources: USAID and State Department. FREEDOM Support Act and Agency budgets.
*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
140.01
69.7
102.27
311.98
11.16
Market Reform Programs
298.22
40.38
196.0
534.6
19.12
Security Programs
35.19
22.02
183.74
240.95
8.62
Humanitarian Programs
725.24
192.15
602.42
1,519.81
54.35
Cross-sectoral/other
138.42
13.43
37.34
189.19
6.77
Total
1,337.08
337.68
1,121.77
2,796.53
100
Source: Coordinator’s Office, State Department, and CRS calculations.
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