Order Code RL30679
Report for Congress
Received through the CRS Web
Armenia, Azerbaijan, and Georgia: Security Issues
and Implications for U.S. Interests
Updated May 29, 2003
Jim Nichol
Analyst in Foreign Affairs
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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Armenia, Azerbaijan, and Georgia: Security Issues and
Implications for U.S. Interests
Summary
The South Caucasus region has been the most unstable in the former Soviet
Union in terms of the numbers, intensity, and length of ethnic and civil conflicts.
Other emerging or full-blown security problems include crime, corruption, terrorism,
the proliferation of weapons of mass destruction, and narcotics trafficking. The
regional governments have worked to bolster their security by combating terrorism,
limiting political dissent they view as threatening, revamping their armed forces, and
seeking outside assistance and allies.
The roles of neighbors Iran, Russia, and Turkey have been of deep security
concern to one or more of the states of the region. These and other major powers,
primarily the United States and European Union (EU) members, have pursued
differing interests and policies toward the three states. Some officials in Russia view
the region as a traditional sphere of influence, while some in Iran view Azerbaijan
and Armenia as part of a “new Middle East,” and Turkish officials tend to stress
common ethnic ties with Azerbaijan and most of Central Asia. EU members are
increasingly addressing instability in what they may view as a far corner of Europe.
Armenia has pursued close ties with Russia and Iran in part to counter Azerbaijan’s
ties with Turkey, and Georgia and Azerbaijan have stressed ties with the United
States in part to bolster their independence vis-a-vis Russia.
The United States has supported democratization, the creation of free markets,
conflict resolution, regional cooperation, and the integration of the South Caucasian
states into the larger world community. The Administration has backed regional
energy and pipeline development that does not give neighboring Iran undue control
or benefit. U.S. aid has been provided to bolster the security and independence of the
states. Critics have asserted that the United States historically has had few interests
in this region, and advocate limited U.S. involvement sufficient to ensure general
U.S. goals of fostering stability and reforms.
Most in Congress have supported U.S. assistance to bolster independence and
reforms in the South Caucasus, but questions remain about the suitability, scope,
emphasis, and effectiveness of U.S. involvement. Congressional support for the
security of Armenia and Nagorno Karabakh (NK; a breakaway region of Azerbaijan
mostly populated by ethnic Armenians) led in 1992 to a ban on most U.S.
government-to-government aid to Azerbaijan. Congress authorized a presidential
waiver to the ban after the terrorist attacks on the United States on September 11,
2001, to facilitate U.S.-Azerbaijan anti-terrorism cooperation. Congressional support
for U.S. engagement with the region was reflected in “Silk Road Strategy” legislation
in FY2000 (P.L.106-113) authorizing greater policy attention and aid for conflict
amelioration, humanitarian needs, economic development, transport and
communications, border control, democracy, and the creation of civil societies in the
South Caucasus and Central Asia. Congress regularly has earmarked foreign aid to
Armenia, funded a border and customs security program for Georgia, and upheld a
South Caucasus funding category to encourage conflict resolution, provide for
reconstruction assistance, and facilitate regional economic integration.

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Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Overview of U.S. Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
External Security Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The Confluence of Outside Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Regional Assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Internal Security Problems and Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Political and Social Disorder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Ethnic Tensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Terrorist Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Crime and Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Illegal Narcotics Production, Use, and Trafficking . . . . . . . . . . . . . . . . 9
Non-Proliferation of Weapons of Mass Destruction . . . . . . . . . . . . . . . 9
Economic and Defense Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
U.S. Policy and Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Contributions to Operation Enduring Freedom in Afghanistan . . . . . . 16
Support for Iraqi Freedom Operations . . . . . . . . . . . . . . . . . . . . . . . . . 18
U.S. Security Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Non-proliferation Aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Partnership for Peace Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Counter-Narcotics Aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Safety of U.S. Citizens and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Issues for Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Should the United States Play a Prominent Role
in the South Caucasus? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
What are U.S. Interests in the South Caucasus? . . . . . . . . . . . . . . . . . 24
What Roles Should Outside Powers Play in the Region? . . . . . . . . . . 25
How Significant Are Regional Energy Resources to U.S. Interests? . . 25
What U.S. Security Involvement is Appropriate? . . . . . . . . . . . . . . . . 26
Should the United States Try to Foster Democratization? . . . . . . . . . . 27
Appendix 1: Selected Players . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Russia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Caspian Energy Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Turkey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Iran . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

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List of Figures
Figure 1: Armenia, Azerbaijan, and Georgia . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
List of Tables
Table 1. Armenia, Azerbaijan, and Georgia: Basic Facts . . . . . . . . . . . . . . . . . . 37
Table 2: Security Program Funding for Armenia, Azerbaijan, and Georgia,
FY1992-FY2002 (million dollars) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

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Armenia, Azerbaijan, and Georgia: Security
Issues and Implications for U.S. Interests
Introduction
The countries of Armenia, Azerbaijan, and Georgia are generally considered as
comprising the South Caucasus region, which borders Russia, Turkey, and Iran.1
This isthmus between the Black and Caspian Seas is an age-old north-south and east-
west trade and transport crossroads. The region has been invaded many times,
quashing periods of self-rule. These invasions and other contacts have resulted in
many and diverse historical, cultural, ethnic, religious, and linguistic links with
neighboring peoples. Russian and Soviet tutelage over the region lasted from the
early nineteenth century until the break-up of the Soviet Union in 1991, deeply
affecting economic and social development, borders, and nationality relations. Soviet
control, in particular, resulted in the isolation of the crossroads region from the rest
of the world. After gaining independence, all the states spiraled into economic
collapse and conflicts began or deepened that threatened their existence, though in
recent years the states have appeared less unstable. The new states remain weak in
comparison to neighboring powers in terms of populations, economies, armed forces,
and other capabilities.
This report discusses the internal and external security concerns of the South
Caucasus states and U.S. interests and policy toward the region. The ambitions of
neighboring powers, particularly Russia, may pose the greatest threat to the stability
and sovereignty of the South Caucasus states. It is also possible that internal security
problems are greater threats. The states find themselves unable to address external
threats because of internal weaknesses such as political and economic instability,
ethnic and regional conflicts, and crime and corruption.
Overview of U.S. Policy
U.S. security policy toward the South Caucasus states became more active after
the mid-1990s, as a result of Russia’s military activities in Georgia, Russia’s first
1 For background, see CRS Reports RS20812, Armenia Update; 97-522, Azerbaijan; and 97-
727, Georgia. See also CRS Issue Brief IB95024, Armenia, Azerbaijan, and Georgia; and
CRS Issue Brief IB92109, Armenia-Azerbaijan Conflict, updated regularly. Analysts Eldar
Ismailov and Zia Kengerli posit that in terms of proximity to the Caucasus Mountains,
swaths of Iran and Turkey could be included in the Caucasus region. Central Asia and the
Caucasus, No. 2, April 2003. The Caspian region encompasses the littoral states
Azerbaijan, Russia, Iran, Kazakhstan, and Turkmenistan, but sometimes the region is widely
viewed as including Armenia, Georgia, and Uzbekistan.

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CRS-2
conflict in its breakaway Chechnya region, and an emerging U.S. focus on the
transport of Caspian regional energy resources to Western markets. While continuing
to advocate a constructive Russian role in the region, the United States also
increasingly has supported broad engagement with the South Caucasian states in
order to help them “remain independent, and [to] become democratic, stable, and
prosperous partners of the United States.” The United States is “wholly committed
to intensive engagement and dialogue with each of the nations” over the long term
through diplomacy and by providing the greatest amount of international assistance
to the region.2
The United States provided some security assistance to the region prior to the
September 11, 2001, terrorist attacks on the United States, particularly to Georgia.
This aid and the establishment of military-to-military ties facilitated U.S. anti-
terrorism cooperation with these states in the wake of 9/11. The United States
obtained quick pledges from the three states to support U.S. and coalition efforts in
Afghanistan, including overflight rights and information sharing and Azerbaijan’s
and Georgia’s offers of airbases. The State Department’s Patterns of Global
Terrorism 2002 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.
The United States has placed growing strategic significance on energy supplies
from the Caspian region. The Bush Administration’s May 2001 National Energy
Report, issued by a commission headed by Vice President Cheney and other top
officials, concluded that oil exports from the Caspian region could reach millions of
barrels per day within several years, and suggested that greater oil production there
could not only benefit the economies of the region, but also help mitigate possible
world supply disruptions. The Bush Administration’s National Security Strategy of
the U.S.A. also emphasized these themes, stating that U.S. energy security and global
prosperity would be strengthened by expanding the numbers of suppliers, including
those in the Caspian region.3

Most in Congress have supported U.S. assistance to bolster independence,
security, and reforms in the South Caucasus, but questions remain about the
suitability, scope, emphasis, and effectiveness of U.S. interest and involvement in the
region. Attention has included several hearings and legislation, the latter including
regular earmarks of aid for Armenia and sense of Congress provisions on U.S. policy
toward the South Caucasus.
Congressional concern in the early 1990s over the Armenian-Azerbaijan conflict
contributed in 1992 to the enactment of an aid prohibition for the government of
Azerbaijan until the President determines that Azerbaijan has made “demonstrable
2 Assistant Secretary of State A. Elizabeth Jones, U.S. Engagement in Central Asia and the
Caucasus: Staying Our Course along the Silk Road, Speech at the University of Montana,
April 10, 2003.
3 The White House. National Energy Policy, May 17, 2001; The National Security
Strategy of the United States of America, April 29, 2003.

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CRS-3
steps to cease all blockades and other offensive uses of force against Armenia and
Nagorno Karabakh” (NK; a breakaway region of Azerbaijan mostly populated by
ethnic Armenians). After 9/11, Congress provided a Presidential waiver of this
provision in order to facilitate Azerbaijan’s assistance for the war on terrorism, but
emphasized its continuing attention to the peaceful resolution of the NK conflict.
Beginning with FY1998 appropriations, Congress created a border and customs
security funding program for Georgia and a South Caucasus funding category to
encourage conflict resolution, provide for reconstruction assistance, and facilitate
regional economic integration. 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. 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).
Congress has been at the forefront in calling for greater Administration attention
to energy issues in the Caspian region as part of a broad engagement policy. This
interest included a 1997 Congressionally requested report on Administration energy
policy.4 This interest was prominently reflected in the 1999 “Silk Road Strategy Act”
authorizing greater policy attention and aid to support conflict amelioration,
humanitarian needs, economic development, transport and communications, border
controls, democracy, and the creation of civil societies in the South Caucasus and
Central Asia (P.L.106-113). (See also below, U.S. Policy and Issues.)
External Security Context
Overview
Major outside players involved in the South Caucasus include the three powers
bordering the South Caucasus region (Russia, Turkey, and Iran), the United States,
and the European Union (EU). The outside players have both complementary and
competing interests and policies toward the three regional states. Some officials in
Russia view the region as a traditional sphere of influence, while some in Iran view
Azerbaijan and Armenia as part of a “new Middle East,” and Turkish officials tend
to stress common ethnic ties with Azerbaijan and most of Central Asia. The EU
states have focused on the region as a stable transport corridor and energy supplier,
and the United States has focused on antiterrorism in the post-9/11 period.
Neighboring states have been drawn into the region through threats they
perceive to their interests. Regional turmoil also has drawn in international security
organizations such as the U.N., Organization for Security and Cooperation in Europe
(OSCE), NATO, and the Commonwealth of Independent States (CIS). In the early
4 U.S. State Department. Caspian Region Energy Development Report to Congress, April
15, 1997, (required by the conference managers on H.R. 3610, Omnibus Appropriations for
FY1997, including Foreign Operations, P.L. 104-208).

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CRS-4
1990s, Iran was greatly concerned about Azerbaijanis who called for Iran’s ethnic
Azerbaijani areas to secede, and some recently renewed calls have heightened these
concerns.5 Instability in Chechnya and other areas along Russia’s North Caucasus
borders threatens Russia’s security and creates reasons and pretexts for Russian
intervention and the presence of military bases. At the same time, the instability
along its southern borders hinders Russia in building trade and economic relations
with the South Caucasus states. Russia has attempted to retain influence in the South
Caucasus since 9/11 to counter increased U.S. anti-terrorism assistance to the states.
Among other players, Western oil and gas firms play a dominant investment role
in the region, dwarfing assistance given to the region by outside governments or
international financial institutions. All three states benefit greatly from remittances
by their citizens who work abroad. Armenia’s multi-million member world diaspora
has provided important aid and expertise, and has publicized Armenia’s plight.
The Confluence of Outside Interests. Neighboring and other interested
powers, while sometimes competing among themselves for influence in the South
Caucasus, also have cooperated in carrying out certain regional goals. All the
external powers seek influence over regional energy resources, possibly providing
grounds for a common understanding that no one power shall be predominant.
Prominent powers Iran, Turkey, and Russia might also come to agree not to foster
instability that could spill across their borders. None of these powers officially
opposes the territorial integrity of the states of the region, because each has its own
separatist problems (although some Russian and Iranian interests have clandestinely
supported ethnic instability in the region).
Iran and Russia have cooperated sometimes in trying to retain regional influence
by blocking outside involvement in developing Caspian Sea oil resources or transit
routes bypassing their territories. More recently, they have clashed over Caspian Sea
border delineation and regional export routes. The apparent rift in early 2003
between NATO members Turkey and the United States over U.S.-led coalition
operations in Iraq may contribute to a more nuanced treatment of Turkey’s regional
role by Iran and Russia.
Regional Assessments. Dismissing views that the region is a mere
playground for outside powers, many observers stress that the regional states’ own
strategic priorities and assessments of threats and opportunities have influenced their
ties with other countries. Given a long history of repeated foreign invasion and
occupation, the states are bound to be concerned with regional and international
politics. However, regional security cooperation remains elusive. Instead, conflict
has driven the states and separatist areas to search for outside supporters as leverage
against each other, creating risks of entanglement for outside powers. The security
orientations of the states and regions — whether toward NATO, the CIS, or some
other group — have become of great concern to neighboring and other states.
5 Richard Giragosian, RFE/RL Newsline, April 29, 2003. According to Giragosian,
Azerbaijan may be stressing that there is a sizable ethnic group in Iran, similar to the Kurds
in Iraq, whose repression poses another reason for the U.S. Administration to pursue regime
change in Iran.

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CRS-5
The Armenia-Azerbaijan conflict over NK heavily colors foreign lobbying by
these states and by NK, with Armenia seeking close security and economic ties with
Russia and Iran to counter Azerbaijan’s close ties with Turkey, while securing similar
aid from the United States and NATO to balance its world view. Armenia’s
relations with Turkey are heavily colored by its memories of genocidal actions by the
Ottomans during World War I. Turkey’s prolonged economic weakness and
associated inability to offer much security and other aid to Azerbaijan may have
contributed to Azerbaijan’s pursuit of closer relations with the United States,
according to some observers. Georgia appears more concerned about countering
Russian influence and building ties with Turkey and the United States, than about
enhancing relations with non-bordering Iran. Georgia’s ports on the Black Sea
directly link it (via the Turkish Straits) with the Mediterranean Sea, providing it more
of a Western focus. Many in Azerbaijan have objected to Russia’s violence against
Chechnya’s Muslims, and Russia and Georgia have repeatedly clashed over the
latter’s seeming toleration or support for Chechen separatists. Azerbaijan’s
agreement with Russia and Kazakhstan over oilfield delineation in the Caspian Sea
seems aimed at least in part as a defense against border claims by Turkmenistan and
Iran.
The U.S. Administration has stressed even-handedness in mediating regional
conflicts, though other players have not, harming conflict resolution and regional
cooperation. Another view is that the United States is one of several balancing
powers in the South Caucasus that, in parallel with the uncompromising stances of
opposing ultranationalist elements in the three states, contributes to deadlock rather
than the resolution of regional conflicts.6 (See also below, Issues for Congress.)
Internal Security Problems and Progress
The South Caucasus 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.
Other internal security problems include crime, corruption, terrorism, proliferation,
and narcotics trafficking. There are few apparent bases for regional cooperation in
resolving security problems. 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. Ethnic
relations between Azerbaijanis and Georgians, on the other hand, have been less
contentious. 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,
6 Bruno Coppetiers, Caucasian Regional Studies, Vol. 5, 2000,
[http://poli.vub.ac.be/publi/crs/eng/Vol5/].

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CRS-6
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.
Political and Social Disorder
Azerbaijan and Georgia were engulfed by political turmoil during the early
1990s, but during the 1990s their leaders appeared to consolidate power. In both
Azerbaijan and Georgia, new constitutions in 1995 granted the presidents sweeping
powers and their ruling parties have held sway in the legislatures. During the 2000s,
these states again may be entering periods of political instability, because of
Azerbaijani President Heydar Aliyev’s health problems and age (80) and Georgian
President Shevardnadze’s statement that he will not seek re-election in 2005.
Successions could be violent, or even include wider regional conflict.7 According to
some critics, U.S. policies toward Azerbaijan and Georgia are too dependent on
personal links with these two leaders, so that even peaceful political successions
could bring setbacks to U.S. influence.
In contrast to Azerbaijan and Georgia, Armenia appeared somewhat stable until
1998, when then-Armenian President Levon Ter-Petrossian was forced to resign by
military and other forces opposed to his rumored concessions to settle the NK
conflict. Armenia also was roiled when gunmen with apparently personal grievances
assassinated the premier, legislative speaker, and six other politicians in late 1999,
but a new speaker and premier were chosen peacefully. Robert Kocharyan, elected
president in 1998, was re-elected in a contentious race in February 2003. (See also
CRS Report RS20812, Armenia Update.)
The serious decline in the standard of living in all three South Caucasus states
during the early 1990s affected their security by harming the health of the population,
setting back economic recovery. High unemployment rates and hundreds of
thousands of ill-housed refugees contribute to civil tensions. These states remained
economically disadvantaged in the early 2000s, with a low quality of life.8
Widespread poverty and conflict reportedly have contributed to the emigration of up
to one-half (two million) of Armenia’s population, up to one-half (four million) of
Azerbaijan’s, and about one-fifth (one million) of Georgia’s.
Azerbaijan is beginning to gain sizable revenues from oil exports, but some
observers doubt that the ruling elite will use such revenues to broadly raise living
standards for the poor. In June 2002, some residents of the town of Nardaran (near
Baku) demonstrated against the lack of fuel, electricity, and other basic necessities,
but were forcibly suppressed by the government, leading to dozens of injuries and at
7 One troubling scenario might involve a successor in Azerbaijan who seeks to gain popular
favor by renewing the NK conflict. Peter Rutland, Jamestown Foundation, Russia and
Eurasia Review, May 13, 2003.
8 U.N. World Health Organization. The World Health Report 2002, Statistical Annex,
October 30, 2002; U.N. Development Program. Human Development Report 2002, 2002.
The Human Development Indexes show some small improvements in quality of life in the
early 2000s in Azerbaijan, but stalled or declining quality of life in Armenia and Georgia.

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CRS-7
least one death. Authorities blamed the unrest on Islamic terrorists supported by Iran
and subsequently carried out raids and other police actions in the town. This harsh
treatment was condemned by many Azerbaijanis. Town residents have denied that
they are terrorists and have continued to call for improved living standards.
Ethnic Tensions. Regional analyst Elkhan Nuriyev has lamented that the
South Caucasus states, because of ethnic conflicts, have not yet been able to fully
partake in peace, stability, and economic development over a decade since the Soviet
collapse.9 The countries are faced with on-going budgetary burdens of arms races
and caring for refugees and displaced persons. Other costs of ethnic conflicts in the
South Caucasus include the threat to bordering states of widening conflict and the
limited ability of the region or outside states fully to exploit energy resources or trade
and transport networks. Some development advocates call for regional populations
to repudiate exclusivist ultranationalism and for outside powers to cease trying to
exploit such views.
Azerbaijan has faced dissension by several ethnic groups, including Armenians
in NK, Lezgins residing in the north, and Talysh residing in the south. Some ethnic
Lezgins have called for seceding and joining kindred Lezgins residing in Russia’s
Dagestan, and formed a separatist group called Sadval, while some Talysh have
called for autonomy and recently have lobbied for the legalization of a political party.
Since 1988, the separatist conflict in Nagorno Karabakh (NK) has resulted in about
15,000 deaths, 900,000 Azerbaijani refugees and displaced persons, and 300,000
Armenian refugees. Georgia’s southern Ajaria region, populated by Islamic ethnic
Georgians, has been substantially free from central control. Some residents of
Georgia’s southern district of Javakheti, populated mostly by ethnic Armenians, also
have called for autonomy. Repressive efforts by Georgian authorities triggered
conflict in 1990 in Georgia’s north-central South Ossetian region, reportedly leading
to about 1,500 deaths and 50,000 displaced persons, mostly ethnic Georgians.
Beginning in 1992, separatist fighting involving Georgia’s north-western Abkhaz
region has resulted in about 10,000 deaths and over 200,000 refugees and displaced
persons, mostly ethnic Georgians.
Although ceasefires have been declared for the three major separatist conflicts
— those involving Abkhazia, South Ossetia, and NK — none yet have moved
beyond the fragile stage of confidence-building to robust economic cooperation,
trade, and exchanges. The ceasefires between Georgia and Abkhazia and between
Azerbaijan and NK are provisional and subject to intermittent violations. (For
details, see CRS Issue Briefs IB95024, Armenia, Azerbaijan, and Georgia; and
IB92109, Armenia-Azerbaijan Conflict, updated regularly.)
Terrorist Activities. South Caucasus states and breakaway regions have
alleged the existence of various terrorist groups that pursue mixes of political, ethnic,
and religious goals, with such allegations having increased greatly after 9/11 and the
intensification of international anti-terrorism efforts. Armenia accuses Azerbaijan
of sponsoring terrorism, and Georgia accuses Abkhazia, and vice versa. Abkhazian
9 Elkhan Nuriyev, in Gary Bertsch, et al., eds., Crossroads and Conflict, New York,
Routledge, 2000, p. 151.

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CRS-8
paramilitaries have terrorized ethnic Georgians attempting to resettle in the Gali area
of Abkhazia, and have been countered by the Georgian militias. South Caucasus
governments sometimes have accused political parties of terrorism and banned and
jailed their followers. However, some of the so-called terrorist violence has been
hard to attribute to specific groups or agents that aim to destabilize the governments.
Other sources of violence, such as personal or clan grievances, economic-based
crime, or mob actions, are also prominent.
Among reports of regional terrorism, the Azerbaijani government has
suppressed the activities of the Warriors of Islam group and the clandestine Islamic
Party, charging the latter’s members with receiving terrorist training in Iran, but
Islamic extremism has appeared a lesser threat in Azerbaijan than in the Central
Asian states.10 According to the State Department’s Patterns of Global Terrorism
for 2000, 2001, and 2002, until Russia launched its incursion into Chechnya in
August-September 1999, Azerbaijan had served as a conduit for international
mujahidin, some of whom supported the Chechen insurgency in Russia. After
Russian security forces attacked Chechnya, however, Azerbaijan reinforced border
controls to discourage foreign mujahidin from operating within Azerbaijan. The
State Department reports that Azerbaijan stepped up such interdiction efforts after
9/11 and “had some success in suppressing these activities.”11
In Georgia, Zviadists (supporters of former President Zviad Gamsakhurdia) in
1998 launched an assassination attempt against Shevardnadze and an abortive
military insurrection aimed at his overthrow, but a government reconciliation
campaign has since contributed to quiescence by this group. The State Department’s
Patterns of Global Terrorism for 2002 stated that Georgia also contended with
“third-country terrorists with links to al Qaeda” who used Georgia as a conduit for
financial and logistic support for the mujahidin and Chechen fighters.” Georgia,
however, appeared unwilling and unable to prevent mujahidin activities until prodded
and supported by the United States and Russia after 9/11.
U.S. concerns over the presence of international terrorists in Georgia’s Pankisi
Gorge were spurred when, reportedly during the 9/11 attacks, a phone call was made
from a bin Laden operative in Afghanistan to Georgia announcing the success of the
first phase of attacks. President Bush in late February 2002 explained the U.S.
decision to launch a military training program in Georgia (see below) by emphasizing
that there were some al Qaeda in the Gorge. Russian demands that Georgian forces
10 U.S. State Department, Patterns of Global Terrorism 2002, March 2003, pp. 28-29;
Tadeusz Swietochowski, World Policy Journal, Fall 2002, pp. 69-76. Many members of the
Warriors of Islam (Jeyshullah; an indigenous terrorist group whose members had been
trained in Chechnya and had set up a training camp in Azerbaijan) were arrested in 2000 and
thirteen were convicted in 2001 for planning or carrying out various terrorist acts. Other
young members of the group were let off. Azerbaijani authorities alleged that some
Warriors of Islam were Lezgin separatists.
11 U.S. State Department, Patterns of Global Terrorism 2002, pp. 28-29. Azerbaijan also
served as a conduit for some terrorist financing, as evidenced by fund transfers to
Azerbaijan by the bin Laden-associated organization Benevolence International. Money
Laundering Alert, March 2003.

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combat international terrorists based in the Gorge led to the launch of Georgian
police and security operations in the Gorge in August 2002. The Security Ministry
reported that its anti-terrorist operation was virtually finished in the Gorge by late
2002. Concerns about the renewal of terrorist operations in the area in the
springtime, however, led the Georgian government in March 2003 to send extra
military and police forces into the Gorge to prevent Chechen rebels from re-entering.
(For details, see CRS Report RS21319, Georgia’s Pankisi Gorge.)
Crime and Corruption. Crime and corruption are serious threats to
democratization and economic growth in all the states. The increasing amount of
foreign currency entering the states as the result of foreign oil and natural gas
investments, drug trafficking, and other means, the low pay of most government
bureaucrats, and inadequate laws and norms, are conducive to the growth of
corruption. Also, the weakness of the rule of law permits the Soviet-era political
patronage and spoils system to continue. According to the private organization
Transparency International, Azerbaijan in 2002 ranked among the top five “seriously
corrupt” countries it surveyed, with Georgia close behind (Armenia was not
ranked).12
Illegal Narcotics Production, Use, and Trafficking. According to the
State Department’s International Narcotics Control Strategy Report for 2002, none
of the South Caucasian states is a major drug producer, but all are vulnerable transit
routes for drug trafficking from the Middle East and Central Asia to Europe. Drug
consumption and cultivation is increasing in Azerbaijan. Armenia's borders with
Azerbaijan and Turkey remain closed due to the Nagorno-Karabakh conflict, but
when these borders open, drug transiting could increase significantly, the State
Department warns. Azerbaijan's main narcotics problem is the increased transit of
drugs through its territory resulting from the disruption of the "Balkan route" due to
regional ethnic conflicts in several countries of the former Yugoslavia. Narcotics
from Afghanistan and South Asia enter from Iran or cross the Caspian Sea from
Central Asia and continue on to markets in Russia, Turkey, and Europe. Azerbaijan
shares a 700-km frontier with Iran, but its border control forces have faced training
and equipment deficits that have challenged effective patrolling. Georgia is
vulnerable to increased trafficking because of lack of control over all its territory and
its borders, some of which are under separatist control. Chechen and al Qaeda
terrorists that were based in the Pankisi Gorge area of northeast Georgia at least
partly financed their activities by drug-trafficking. After such trafficking was
disrupted during Georgian counter-terrorism actions in the Gorge in 2002, routes
shifted to other areas of Georgia, according to the State Department.
Non-Proliferation of Weapons of Mass Destruction. The South
Caucasus states have only in recent years begun implementing effective export
control regimes to prevent the proliferation of weapons of mass destruction and
12 U.S. Embassies in South Caucasian capitals, Investment Climate Statements, 2002-2003;
Problems of Post-Communism, July/August 2000, pp. 35-36; Transparency International,
Corruption Perceptions Index 2002, http://www.transparency.org].

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associated technologies.13 There are not as many nuclear fuel cycle-related facilities
in the South Caucasus as elsewhere in the former Soviet Union, but virtually all of
the facilities lack adequate security systems such as cameras and computerized
accounting to safeguard medical and industrial nuclear materials and wastes. Border
and customs officials have halted some smuggling of WMD materials, and are
receiving increasing levels of U.S. and other international training and other
assistance to bolster their effectiveness (see also below, Security Assistance).14
Economic and Defense Security. The South Caucasus states have worked
to bolster their economic and defense capabilities by seeking assistance from Western
donors such as the United States, by seeking private investment, by joining
international organizations and by cooperating with each other to limited degrees.
Georgia was the first state in the region to achieve World Trade Organization
membership in June 2000, followed by Armenia in December 2002. Azerbaijan has
encouraged foreign firms and governments to become involved in energy
development to ensure the widest possible international interest in Azerbaijan’s
independence and to attempt to influence attitudes toward the NK conflict.
Georgia, as a major conduit for the Baku-Tbilisi-Ceyhan oil pipeline (and the
proposed gas pipeline), and because of its economic and democratic reforms, has
emerged as the key to regional stability and security, according to some observers.15
By the same token, greater instability in Georgia could threaten the whole region by
providing greater opportunities for outside powers to meddle. Georgia has working
relations with the other two states of the region and with Turkey, and is a member
with Azerbaijan in GUUAM (see below). Georgia and Azerbaijan have common
interests that have encouraged limited cooperation. Both face separatism, perceive
Russia as domineering, seek revenues from oil and gas transport, and are pro-
Western. Their interests are not completely concordant, however, as evidenced by
their inability to settle mutual border delineation and by Georgia’s ongoing concerns
about anti-Armenian actions undertaken by Azerbaijanis residing in Georgia.
Armenia seeks workable relations with Georgia so that it may retain transport links
to Russia, its major energy supplier, although there has been some discussion of
developing a trade route from Armenia to Iran’s Caspian seaports, and thence to
Russian seaports. Both Armenia and Georgia are dependent on Russia for gas
supplies, and Russia’s Gazprom (state-controlled gas firm) has moved aggressively
13 NIS Nuclear Profiles Database. Center for Nonproliferation Studies, Monterey Institute
of International Studies. Armenia has the most developed export control system on paper.
14 NIS Trafficking Database. Center for Nonproliferation Studies, Monterey Institute of
International Studies. Among prominent smuggling attempts, Azerbaijani border troops
halted a shipment of Russian missile parts bound for Iran in March 1998 and about one
kilogram of uranium 235 allegedly bound for Iran in April 2000. In early 2002, Russian and
Georgian media reported that two of eight Soviet-era small nuclear generators containing
strontium-90 were missing in Georgia. In June 2002, a Georgian scientist warned that
nuclear materials in a lab in Abkhazia were vulnerable to theft. FBIS, April 27, 1998, Doc.
No. FTS-558; February 4, 1999, Doc. No. FTS-1112; May 3, 2000, Doc. No. CEP-9;
January 24, 2002, Doc. No. CEP-55; June 29, 2002, Doc. No. CEP-7; October 13, 2002,
Doc. No. CEP-13.
15 Robert Cutler, Newsbase FSU Oil and Gas Journal, June 6, 2000.

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CRS-11
in recent months to take over distribution networks in the two states. Russia’s
increasing ownership or control over Armenia’s economic infrastructure is
endangering its independence, according to some observers.16
All three states have been faced with constructing military forces to address
regional conflicts and low-intensity threats. Poverty and the need for know-how and
equipment have forced them to seek outside assistance. Armenia has proceeded the
farthest. It suppressed most paramilitary forces potentially dangerous to civil order
in the early 1990s. The Yerevan-based Soviet 7th Army, disbanded in 1992, provided
a ready-made model for Armenia’s armed forces. Russia provides officer training
and military equipment, including regional air defenses, under the CIS Collective
Security Treaty (CST) and bilateral accords. Azerbaijan’s rejection of many ties with
the Russian military stymied its early military development. Azerbaijan’s and
Georgia’s reliance until the mid-1990s on paramilitary forces to combat regional
separatism contributed to wider civil disorder in both states.
Azerbaijan and Georgia have been most interested in pursuing military
equipment and training cooperation with NATO countries, and Georgia’s forces are
led by a Western-trained defense minister. Shevardnadze has called for modernizing
Georgia’s armed forces so they will be ready to join NATO by 2005, but Georgia’s
ongoing budget crises bedevil this effort. Aliyev has called for Azerbaijan to
eventually join NATO. All three states belong to NATO’s Partnership for Peace
(PFP). NATO Secretary-General George Robertson stated during May 2003 visits
to the South Caucasus countries that NATO would assist Azerbaijan and Georgia in
revamping their militaries for eventual eligibility for membership, but also cautioned
Azerbaijan that it could not become eligible until 2007 or later. Through military
exercises and conclaves, NATO has encouraged the three South Caucasus states to
cooperate among themselves on security affairs.17
CSTO. At an April 28, 2003, summit, Armenia joined Russia, Belarus,
Kazakhstan, Kyrgyzstan and Tajikistan in creating the CST Organization (CSTO),
which will set up a secretariat for operational military planning and budget
coordination. The main stated objectives of CSTO are to combat terrorism and drug
trafficking, particularly in Central Asia, with an initial focus on establishing the rapid
deployment force in Kant, Kyrgyzstan. Many observers view the creation of the
CSTO as a mainly Russian initiative to increase security influence over member-
states to counter U.S. and other outside influences.18 By establishing a joint military
16 Vladimir Socor, IASPS Policy Briefings, Institute for Advanced Strategic and Political
Studies, November 13, 2002.
17 Besides hosting military exercises where the three states participate, NATO’s Euro-
Atlantic Cooperation Council hosted a regional cooperation conference in Armenia in
October 2002. NATO also sponsored a conference in December 2002 where newly inducted
NATO member Lithuania urged the three states to use the example of economic and military
cooperation among the Baltic states as their model. FBIS, December 16, 2002, Doc. No.
CEP-67; October 9, 2002, Doc. No. CEP-343.
18 Ibragim Alibekov and Sergei Blagov, Eurasia Insight, April 29, 2003. According to Igor
Tobakov, the CSTO is the centerpiece of President Putin’s efforts to create a close-knit
(continued...)

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leadership, the CSTO is supposed to be able to quickly decide on sending troops to
troublespots. While the CSTO appears initially focused on Central Asian security,
Azerbaijan and Georgia have raised concerns about the CSTO’s possible role in the
South Caucasus.19
Caucasus Security Pact Proposals. At the November 1999 OSCE
Summit and other forums, Shevardnadze, Kocharyan, Aliyev, and Turkey’s then-
President Suleyman Demirel called for the creation of a South Caucasus security
system that would provide regional states and external powers with shared stakes in
regional stability. Kocharyan explained that his “Round Table on Stability” proposal
was prompted by the withdrawal of Azerbaijan and Georgia from the CIS Collective
Security Pact. He called for the creation of a sub-CIS system whereby the three
regional states, buttressed by their neighbors, and aided by the EU and the United
States, would guarantee regional stability. Iran endorsed the creation of such a pact,
though calling for it to initially exclude external powers.20
Seeking to play a leading role in forming such a pact, Putin convened side
meetings with the leaders of the three Caucasus states during the January and June
2000 CIS summits (meetings of lower-level officials of the four states had begun in
1997), but the region’s leaders appeared to disagree with Putin that Russia and other
“Caucasus countries must alone shape the region's fate,” excluding outside interests.
Nonetheless, consultative meetings of what Putin has termed the “Caucasus Four”
have continued. The most recent 6th meeting took place in Ukraine in January 2003.
Perhaps indicating the ineffectiveness of the grouping, important issues of Russian-
Georgian relations were discussed separately by the two leaders, with Shevardnadze
reportedly unsuccessfully calling for Russia to reverse the granting of Russian
citizenship to most Abkhazians and the cessation of railway transport from Russia
into Abkhazia. He also reportedly acquiesced to the continued presence of Russian
peacekeepers in Abkhazia. At the Caucasus Four conclave, Putin reportedly stressed
economic cooperation and anti-terrorism and law enforcement cooperation among
security agencies.21
Attempting to involve itself in regional security issues in order to counter
growing U.S. influence, Iran’s foreign minister toured the South Caucasus states in
April 2003, at each stop proposing the formation of a regional security system to
include Russia and Turkey. The Georgian foreign minister appearing to faintly praise
the idea but stressed that it would take some time to work out the structure. In
18 (...continued)
close-knit economic, political, and military alliance of former Soviet republics. Eurasia
Insight, April 9, 2003. NATO Secretary-General George Robertson in May 2003 stated that
NATO will seek to cooperate with the CSTO. FBIS, May 14, 2003, Doc. No. CEP-417.
19 FBIS, April 29, 2003, Doc. No. CEP-96; April 29, 2003, Doc. No. CEP-132.
20 Gerald Libaridian, reported in RFE/RL Caucasus Report, June 15, 2000; Wayne Murray,
reported in Caucasus Reporting Service, No. 38, June 30, 2000.
21 Nezavisimaya gazeta, May 17, 2000, p. 1; Caucasus Stability Pact - Iran Counters
Russian Expansion, May 25, 2000; FBIS, January 28, 2003, Doc. No. CEP-348; January 29,
2003, Doc. No. CEP-125.

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CRS-13
Armenia and Azerbaijan, however, the proposal was seemingly dismissed. In all
three states, officials expressed a preference for closer ties to NATO and the United
States as more likely to enhance their security and to result in the settlement of
regional conflicts.22
GUUAM. In another area of regional cooperation, the GUUAM states (formed
from the initials of the member-states; Georgia, Ukraine, Uzbekistan, Azerbaijan and
Moldova) share common interests in resisting Russian domination of former Soviet
republics and in securing energy transport and supply that is outside Russian control.
Formed in 1997, the group admitted Uzbekistan as a member in April 1999 while
officials were attending the Washington NATO Summit. Azerbaijan, Georgia, and
Ukraine in early 1999 held joint military exercises aimed at protecting the Georgian
oil pipeline. Russia opposes GUUAM as usurping CIS functions, but also calls for
GUUAM to admit Russia as a member. The organization was reinvigorated by a
meeting of the heads of state of member countries during the U.N. Millennium
Summit in September 2000, where they agreed to convene regular summits and
ministerial-level conclaves.23
GUUAM has received significant encouragement from the United States,
including a Congressional authorization for funding (The Security Assistance Act of
2000; P.L.106-280),24 that some observers have viewed as sustaining the group. At
the July 2002 meeting in Yalta, GUUAM countries signed an "Agreement on
Cooperation in the Battle against Terrorism, Organized Crime and Other Dangerous
Types of Crime." Assistant Secretary of State Elizabeth Jones met with GUUAM
foreign ministers in New York in September 2002 and urged greater multilateral
cooperation. In December 2002, Assistant Secretary Jones and the GUUAM
ambassadors adopted a framework program of projects to facilitate regional trade and
transport, the improvement of border and customs services, and the fight against
terrorism, organized crime and drug-trafficking.25 Under the accord, the United
States will fund pilot programs of customs and border training and a GUUAM law
enforcement center, with rotating meetings in each of the GUUAM capitals of expert
level working groups. At a Georgia-Ukraine presidential summit in May 2003, the
two leaders called for naming military coordinators to work out security cooperation
within GUUAM, with Georgian officials arguing that such cooperation could help
prepare the members for NATO membership.26 Despite these various actions and
proposals, the GUUAM organization remains a work in progress and its members
continue to debate its economic and security roles.
22 Iya Barateli, ITAR-TASS, April 29, 2003; Prime News, April 29, 2003, Ariel Cohen,
Eurasia Insight, May 14, 2003.
23 FBIS, March 17, 2000, June 19, 2000, and September 9, 2000.
24 P.L. 106-280 authorized assistance to GUUAM and Armenia for FMF, IMET,
nonproliferation and export control, and antiterrorism assistance for FY2001-FY2002.
Section 907 provisions blocking FMF and IMET aid to Azerbaijan remained in place.
25 U.S. Department of State. Office of the Spokesman. Joint Statement of the United States,
Azerbaijan, Georgia, Moldova, Ukraine, and Uzbekistan, December 23, 2002.
26 FBIS, May 7, 2003, Doc. No. CEP-224.

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Energy and Transport. Issues of regional security and the balance of
regional power, as well as of economic advantage, have increasingly come to be
wrapped up with the issue of pipeline politics. The discovery of major new oil and
gas resources in the Caspian Sea in recent years has contributed to the strategic
significance of the South Caucasus region as an energy producer and transport
corridor. This significance is no longer hypothetical, since Azerbaijan has been
producing and shipping oil to international markets since 1997, many observers
stress. The U.S. Energy Department reports 1.2 billion barrels of proven oil reserves
and 4.4 trillion cubic feet of proven natural gas reserves in Azerbaijan.27 Further
exploration and test drilling could result in revised estimates. Many problems must
be resolved before Azerbaijan can fully exploit and market its energy resources,
including project financing, political instability, ethnic and regional conflict, and
pipeline security.
U.S. companies are shareholders in about one-half of about twenty international
production-sharing consortiums, including the Azerbaijan International Oil
Corporation (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 fields, along with other Azerbaijani oil) through two Soviet-era
pipelines in Georgia and Russia to ports on Russia’s Black Sea coast. The capacity
of each of these pipelines is around 100,000-115,000 barrels per day.
A “main oil” pipeline is also under construction from Baku through Georgia to
Turkey’s Mediterranean port near Ceyhan. The Clinton Administration launched a
major campaign in late 1997 stressing the strategic importance and suitability of this
route as part of a “Eurasian Transport Corridor,” including possible trans-Caspian
links to Central Asia. Volatile oil prices and questions about the amount of oil in the
Caspian region raised concerns among oil firms about financial risks of the route.
Political endorsement of the Baku-Tbilisi-Ceyhan (BTC) route was provided by
a 1998 meeting of the presidents of Turkey, Georgia, Azerbaijan, Kazakhstan, and
Uzbekistan, and then-U.S. Energy Secretary Bill Richardson, where they pledged to
cooperate to ensure the commercial viability of the route. An even more important
“Istanbul Protocol” on construction of the BTC oil pipeline was signed on November
18, 1999, by Azerbaijan, Georgia, Turkey, and Kazakhstan. The pipeline is expected
to be completed in 2005 at a cost of $3 billion with a capacity of one million barrels
per day. Attending the signing, President Clinton hailed the pipelines as
“advanc[ing] the prosperity and security of [lands on the ancient Silk Road] critical
to the future of the entire world.”
Some analysts argue that the construction of a Baku-Ceyhan main oil pipeline,
along with the re-opening of the region’s roads, railways, and other transport, may
well transform the economies of the region by bringing substantial energy transit
27 U.S. Department of Energy. Energy Information Administration. Country Analysis
Report: Azerbaijan, June 2002. Oil & Gas Journal reports 7 billion barrels of proven oil
reserves and 30 trillion cubic feet of proven natural gas reserves. December 23, 2002, p.
113.

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fees, energy revenues, and trade.28 Others are less optimistic, warning that the states
and separatist areas still maintain transport blockades and barriers. Many in Armenia
oppose a BTC pipeline that they fear would give Azerbaijan a major means of
gaining significant financing for military action against NK.29
U.S. Policy and Issues
According to Assistant Secretary of State Elizabeth Jones, U.S. goals in the
South Caucasian and Central Asian states include helping them “remain independent,
and [to] become democratic, stable, and prosperous partners of the United States.”
The United States is “wholly committed to intensive engagement and dialogue with
each of the nations” over the long term through both diplomacy and assistance.
Important or critical U.S. security interests in these states received greater emphasis
after 9/11, including combating terrorism and drug trafficking and detecting,
deterring, interdicting, controlling, and reducing weapons of mass destruction and
associated technologies that are a legacy of the Soviet period. Thanks to U.S.
security assistance, “as each day passes, the countries of Central Asia and the
Caucasus are becoming better equipped, better trained and better coordinated with
one another to deal with transnational threats.” However, she also emphasizes that
U.S. security assistance is “integrated” with programs to enhance human rights and
political and economic reforms.30 Conflict resolution also is part of this policy to
enhance stability in the region. Among the first foreign policy acts of the Bush
Administration was the hosting of peace talks in Key West, Florida between Armenia
and Azerbaijan, and Bush reportedly pledged to Shevardnadze in March 2003 that
after the Iraq conflict the United States would enhance its diplomatic efforts to end
the Abkhaz conflict.
Specific U.S. interests in Armenia include cooperation in the war on terrorism
and combating arms and other illicit trafficking. A durable and peaceful resolution
of the Armenia-Azerbaijan conflict acceptable to both parties is “key” to U.S.
interests that include stability in the South Caucasus, regional economic cooperation
that ends Armenia’s isolation, and improved Armenian-Turkish relations. Armenia’s
shift away from a war footing would also further U.S. interests in Armenia’s
economic development and improved standards of living (Congressional Budget
Justification for Foreign Operations, FY2004).
U.S. national interests in Azerbaijan include cooperation in the war on
terrorism, the advancement of U.S. energy security, and progress in democratic and
economic reforms, which will enhance internal stability. Such stability, according
to the Administration, will reduce tendencies for Azerbaijani conflict with Iran and
Armenia. Azerbaijan’s creation of a transparent and corruption-free market economy
is essential to its role as a corridor for trans-Caspian energy exports. The
28 Robert Cutler, Newsbase FSU Oil and Gas Journal, June 6, 2000.
29 Edmund Herzig, The New Caucasus. London, Royal Institute of International Affairs,
1999, p. 93; Amy Myers Jaffe and Robert Manning, Survival, Winter 1998-1999, p. 115.
30 Elizabeth Jones, Speech at the University of Montana, April 10, 2003.

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involvement of U.S. firms in the development and export of Azerbaijani energy is
“key” to the U.S. objectives of diversifying world oil supplies and promoting U.S.
exports. As a “vital” link in the trans-Caspian energy corridor, Azerbaijan must
develop a corruption-free market economy (Congressional Budget Justification for
Foreign Operations, FY2004).
Georgia plays a “key role” in furthering U.S. strategic and economic interests
in the South Caucasus and with neighboring regions, according to the Bush
Administration. U.S. support for Georgia’s ability to protect its borders reduces the
chances of conflict in the region and blocks the transit of terrorists into and out of the
North Caucasus areas of Russia. Georgia will become a “key conduit” through which
Caspian energy resources will flow, helping the United States and Europe to diversify
their energy sources. U.S. democratization aid has helped to bolster Georgia’s
significant progress on legal reforms and to ensure that independent media are among
the strongest in Eurasia (Congressional Presentation for Foreign Operations for
FY2004).
Contributions to Operation Enduring Freedom in Afghanistan. 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 and other support. The State
Department’s Patterns of Global Terrorism 2002 has 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.
President Shevardnadze immediately condemned the “scum” who attacked the
United States on September 11, 2001, and one week later offered Georgian “airspace
and territory” for use by U.S. troops. During his U.S. visit with President Bush in
October 2001, he reiterated Georgia’s “full cooperation and solidarity” with the U.S.
and coalition actions in Afghanistan, and the full use of Georgia’s airspace and
airbases. He also reportedly asked for U.S. training assistance for Georgia’s security
forces to help them reassert control in the Pankisi Gorge.31 On February 11, 2002,
the U.S. Embassy in Georgia declared that the United States was ready to help
Georgia combat several dozen al Qaeda and other terrorists who had fled to the
Caucasus from Afghanistan. Some had relocated to Georgia’s Pankisi Gorge area
bordering Chechnya, where they maintained links with Chechen terrorists. On
February 27, 2002, President Bush announced that the United States would provide
equipment and training to help Georgia rout al Qaeda influences. The next day, the
U.S. Defense Department announced plans for a “Georgia Train and Equip Program”
(GTEP), as part of the global war on terrorism (see also below, Security Assistance).
Russia initially reacted critically to the U.S. announcement. Russian Foreign
Minister Igor Ivanov warned that the GTEP would “further aggravate” instability in
31 According to Patterns of Global Terrorism 2002, p. 29, the United States strongly urged
Georgia to “regain control of the Pankisi Gorge,” where terrorists with links to al Qaeda
threatened the security of both Georgia and Russia.

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the region, although he hailed the announcement as U.S. acceptance of the Russian
claim that Chechen terrorists were using the Pankisi Gorge as a base to attack Russia.
President Vladimir Putin on March 1, 2002 stated that he had received assurances
from Shevardnadze that the United States was not seeking permanent bases, and that
“we support this fight [in the Pankisi Gorge] no matter who takes part in it,”though
he called for Russian participation. National Security Advisor Condoleezza Rice on
May 11, 2002, stated that Russia was a “stalwart asset and friend” in viewing the
GTEP as “helpful to Russian interests.” Questions about Russia’s stance on GTEP
were raised anew in April 2003, when Russia’s State Duma (lower legislative
chamber) passed a resolution criticizing the GTEP and a U.S.-Georgian status of
forces agreement as “violating the existing balance of forces“ in the region and as a
“hostile act” against Russia.
The day after the terrorist attacks on the United States, Azerbaijan’s President
Aliyev averred that Azerbaijan was a “strategic partner” of the United States and
would join the United States in operations against terrorism. Azerbaijan granted
blanket overflight rights and intelligence support and offered the use of its bases.
After the commencement of air operations in Afghanistan on October 6, 2001, Aliyev
endorsed coalition actions in a phone conversation with Secretary Powell on October
9 and with President Bush on October 30, 2001. Many prominent Azerbaijani
opposition parties endorsed Aliyev’s support for the U.S.-led coalition efforts, such
as the Musavat Party and the reform wing of the Popular Front, but others, such as
the Communist Party, condemned Aliyev’s support for U.S. actions in Afghanistan.
Some Azerbaijani commentators, while not opposing U.S.-led coalition efforts in
Afghanistan, nonetheless termed them “hypocritical,” arguing that the U.S. definition
of terrorism has not included NK separatism. NK Armenians and U.S. diplomats
have censured statements by Aliyev and other Azerbaijani officials calling for
international “counter-terrorism” actions against NK. Azerbaijan in November 2002
deployed 30 troops to assist the U.S.-led coalition in Afghanistan.
Immediately after 9/11, Armenia’s President Kocharyan offered condolences
and Armenia’s Department for Emergencies proffered rescue aid. On September 19,
Armenian Defense Minister Serzh Sarkisyan stated that Armenia would contribute
to U.S.-led counter-terrorism efforts, and Kocharyan the next day offered Armenia’s
support for international counter-terrorism efforts during a meeting with the U.S.
Ambassador to Armenia. On September 27, the presidential press service reported
that this support included military overflight rights, and other reports mentioned
intelligence sharing. While supporting diplomatic efforts to convince the Taliban to
extradite those responsible for the 9/11 attacks, after the start of coalition actions in
Afghanistan on October 6, Armenia expressed support for the “consistent and
decisive” military actions to safeguard the “global community” from international
terrorism. Armenian Foreign Minister Vardan Oskanyan stressed this support during
a meeting with Deputy Secretary Armitage on October 25, and President Bush
reportedly telephoned Kocharyan at the end of October to thank Armenia for
supporting the U.S.-led coalition actions in Afghanistan. Defense Secretary
Rumsfeld, during his December trip to Armenia, also expressed U.S. appreciation for
Armenia’s support. Armenian officials explained that Armenia’s support for OEF
was consistent with its foreign policy of complementarity, which calls for good
relations with both Russia, the United States, and Middle Eastern countries such as

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Iran in order to buttress Armenia’s independence, gain support for NK Armenians,
and protect the interests of Armenians living in the Middle East and elsewhere.32
In the U.S. Congress, the events of 9/11 altered attitudes toward Sec.907,
causing the Members to permit the lifting of aid sanctions on Azerbaijan to facilitate
regional cooperation on anti-terrorism, conflict resolution, and energy development.
Permanent Presidential waiver authority was added to the Senate version of Foreign
Operations Appropriations for FY2002 (H.R. 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.
Presidential Determination No. 2003-12, released January 17, 2003, extended the
waiver another year, with the President stating that the 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 NK conflict.
Support for Iraqi Freedom Operations. Azerbaijan and Georgia are
among the countries that openly pledged to support U.S.-led Iraqi Freedom coalition,
with both offering the use of their airbases and to assist the United States in re-
building Iraq. Azerbaijan’s foreign minister on March 14, 2003, indicated
Azerbaijan’s preference for a peaceful solution, but stated that Azerbaijan would
support U.S. action in Iraq. Azerbaijan in late May 2003 sent 150 troops to serve
with U.S. forces in Iraq. Armenia did not support military intervention in Iraq, citing
its concerns about the safety of 15,000 ethnic Armenians residing in Iraq and 200,000
in the Middle East, concerns about Turkish expansionism into Kurdish areas of Iraq,
and affinities with the views of France, Germany, and Russia. However, it offered
unspecified aid in rebuilding Iraq and refuge for ethnic Armenians displaced by the
fighting. Azerbaijan and Georgia reportedly suffered some economic losses
associated with the Iraq conflict. BTC pipeline construction was reportedly
temporarily delayed because of delivery problems, and Azerbaijan reported that its
support for the United States led several Islamic banks and investors to curtail
operations or negotiations.33 The resurgence of Iraqi oil on world markets could
contribute to lower world oil prices, at least temporarily harming the economic
viability of the BTC.
32 Armenian Agency Praises Foreign Policy, BBC Worldwide Monitoring, September 24,
2001.
33 FBIS, March 25, 2003, Doc. No. CEP-226.

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CRS-19
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.
Cumulative budgeted funding for FY1992-FY2002 security programs amounted to
$71 million for Armenia, $22 million for Azerbaijan, and $191 million for Georgia,
amounting to about 10.1% of cumulative budgeted funding for all South Caucasus
programs (see Tables 1 and 2).
The three states and the
Cumulative Obligations FY1992-FY2002 for
Caspian Sea came under the
South Caucasian Security Programs
purview of the U.S. military’s
(Freedom Support Act and Other Funds)
European Command in FY1999,
(million dollars)
and USEUCOM launched a U.S.-
DOD Cooperative Threat Reduction
1.7
DOD DoD/FBI Counter-proliferation
2.0
Georgian Peacetime Military
DOD DoD/US Customs Service Counter-
Engagement Program. Georgia
proliferation
3.4
became eligible for security-
DOD Warsaw Init. (Partnership for Peace)
4.3
related International Military
DOE Material Protection, Controls & Acct.
1.6
Education and Training (IMET)
DOE/DOS Nuclear Reactor Safety
35.5
DOS Export Control & Border Security
104.5
and Foreign Military Financing
DOS HHS - Bioterrorism Engagement Prog.
5.1
(FMF) programs in FY1997. In
DOS DTRA / Military-Ammo Relocation
5.0
1999, the United States provided
DOS Foreign Military Financing
60.5
grant aid of ten UH-1H unarmed
DOS Intern. Military Education and Training
3.8
combat helicopters, six of which
DOS Peacekeeping Operations
2.7
DOS Science Centers
15.1
are operational, while the others
DOS Anti-Crime Training & Techn. Asst.
13.9
are for spare parts. The
DOS Anti-Terrorism Assistance
4.7
Administration’s budget request
DOS DoJ - Overseas Prosecutorial Development
for FY2004 calls for $1.3 million
& Training
7.1
DOS Civilian R&D Foundation
13.1
for IMET programs and $10.0
TOTAL 284.0
million for FMF for Georgia,
Source: State Department
compared to $900,000 for IMET
and $2.5 million for FMF for
Armenia and Azerbaijan, reflecting both close U.S.-Georgian security ties and
perhaps the ramping up of smaller programs in the other two states. On February 6,
2003, the United States announced that it would fully fund stepped-up Georgian
border guard deployments along Georgia’s border with Russia’s Dagestan region
(bordering Chechnya), and that it hoped to provide some personnel for an expanded
OSCE observer mission along this border.
Until waived, Sec. 907 had prohibited much U.S. security aid to Azerbaijan, 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 “Cooperative Best
Effort” PFP military exercises in 2002 and 2003. 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

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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 an expanded OEF, the $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 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, with Myers declaring 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.)
Indicating the difficulties of sustaining these U.S. efforts, President
Shevardnadze on March 12 criticized his ministers for failing to adequately pay
troops belonging to the first battalion trained under GTEP. Reportedly, the battalion
faced desertion and discipline problems because of the pay arrears. The pay problem
was reportedly resolved, but at the cost of underfunding other functions and
personnel of the Ministry of Defense, raising the threats of military unrest and
deteriorating readiness.34 One episode of military unrest occurred on March 23, when
roughly 50 National Guard veterans occupied a base near Tbilisi to protest the poor
social and economic conditions faced by members of the armed forces and veterans.
Non-proliferation Aid. The United States has gained greater support in the
region for combating the proliferation of weapons of mass destruction (WMD) by
emphasizing how this goal enhances the security interests of the states.35 The United
States has been the largest aid donor for such efforts. Congress funneled much of
this aid to Georgia prior to 9/11, but Armenia and Azerbaijan have joined Georgia
in receiving boosted aid after 9/11. Through FY2002, the United States has provided
$35.2 million to enhance the safety and security of Armenia’s Metzamor nuclear
reactor and $2.2 for training by the FBI and Customs in efforts to combat
proliferation.36 The FY1997 Defense Authorization Act (P.L. 104-201) permitted
34 Jaba Devdariani, Eurasia Insight, May 19, 2003.
35 Cassady Craft, Crossroads and Conflict, p. 239.
36 In May 2002, the United States imposed sanctions on the Armenian firm Lysine Open
Joint Stock Co. and its former owner, Armen Sarkisyan, for transferring WMD technology
(continued...)

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CRS-21
aid for customs and border enhancements to prevent the spread of WMD, clearing
the way for such aid to Azerbaijan under the nonproliferation exception from the ban
of Sec. 907 of the Freedom Support Act. In 1999, the first U.S.-Azerbaijani security
agreements were signed on providing such U.S. aid, and this aid has increased since
9/11. At Georgia’s behest, U.S. personnel removed 8.8 lbs. of highly enriched
uranium and 1.8 lbs of spent fuel from an Institute of Physics research reactor near
Tbilisi in April 1998. The United States had earlier provided security assistance to
safeguard the material prior to removal, after two criminal attacks on the reactor
facility.37 The United States has provided $4.9 million in Cooperative Threat
Reduction, nonproliferation, and Department of Energy aid through FY2002 to help
Georgia secure nuclear materials. The Energy Department and U.S. Customs have
hosted conferences on preventing nuclear proliferation in the South Caucasus states.
The Nuclear Security Initiative Act of 2003 (H.R. 1719; introduced in the House on
April 10, 2003) calls for the Energy Department to develop employment for scientists
and others in the Silk Road states who were formerly involved in the production of
weapons of mass destruction. It suggests that the pilot program be started in
Georgia.38
Partnership for Peace Support. All three of the South Caucasus states
have joined NATO’s Partnership for Peace (PFP). PFP status seeks to assure the
South Caucasus states that they are not in a “power vacuum” or completely
vulnerable to neighboring powers. At the same time, NATO seeks to reassure Russia
– by including it as a member of PFP and by establishing a NATO-Russia Council
– that it is not excluding Russia from a regional role as long as Moscow supports
regional stability, democratization, and the creation of free markets.
Despite these NATO assurances to Russia, the Azerbaijani and Georgian
presidents have looked to links with PFP as the road to eventual NATO membership
that will provide security guarantees against possible Russian revanchism.39
Illustrating support for PFP, 34 Azerbaijani troops serve as NATO peacekeepers in
Kosovo as part of the Turkish battalion in the German sector, and 36 Georgian troops
serve as part of the Turkish battalion in the U.S. sector.
Armenia announced in July 2000 that it aimed to increase activities with PFP.
Its Foreign Ministry argued that Armenia was falling behind Azerbaijan and Georgia
36 (...continued)
to Iran, specifically, transfer of biochemical equipment. Federal Register, May 16, 2002,
pp. 32983-32984; RFE/RL Newsline, May 17, 2002.
37 NIS Nuclear Profiles Database. Center for Nonproliferation Studies, Monterey Institute
of International Studies.
38 The United States in early 2003 raised concerns that unemployed Georgian technicians
were servicing military aircraft or assisting in nuclear programs in Iran. Shevardnadze
verified that Georgian citizens had illicitly aided Iran. FBIS, January 12, 2003, Doc. No.
CEP-23; January 13, 2003, Doc. No. 167; January 15, 2003, Doc. No. 282; AFP, January
14, 2003.
39 Georgian President Shevardnadze has argued that neither the continuing presence of
Russian bases nor ongoing separatist conflicts should deter NATO from admitting Georgia.
FBIS, May 12, 2003, Doc. No. CEP-173.

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CRS-22
in such activities and wished to ensure its security by developing the widest possible
international ties, especially with the world’s “most influential” security body. The
Foreign Ministry explained that Armenia had been reluctant to increase ties with
NATO because of possible Russian reactions, but that Russia itself had developed
such ties.40 In late April 2003, Armenia announced that it would send peacekeepers
to Kosovo as part of the Greek peacekeeping battalion. PFP exercises that include
the three South Caucasus states and other PFP and NATO members are being hosted
by Armenia in June 2003 and by Georgia in September 2003.
Counter-Narcotics Aid. There is rising U.S. concern that drugs transiting
the South Caucasus may eventually reach the United States in major quantities, since
Latin American and other international organized groups have become involved in
the wider regional drug trade. Terrorist groups in the region may be using drug
trafficking to help finance their operations, so counter-drug activities may support
counter-terrorism.41 U.S. policy also emphasizes the threat of rising crime,
corruption, and instability posed by illegal narcotics production, use, and trafficking
in the region. The FBI and U.S. Customs Service have given training in counter-
narcotics to police, customs, and border control personnel in the region as part of the
Anti-Crime Training and Technical Assistance Program sponsored by the State
Department's Bureau of International Narcotics and Law Enforcement Affairs. The
waiver of Sec.907 of the Freedom Support Act has permitted U.S. government-to-
government aid for counternarcotics programs in Azerbaijan.42
Safety of U.S. Citizens and Investments
U.S. Embassies in the South Caucasus states have reported that corruption
stifles U.S. investment in the region. In Armenia, the U.S. Embassy reports that it
“receives a moderate number of complaints by U.S. firms” regarding corruption, and
“regularly and forcefully conveys to the Armenian government the unacceptability
of corrupt practices.” U.S. firms are the largest investors in Azerbaijan, investing
nearly $4 billion, or about 25% of all foreign investment. However, corruption and
the arbitrary implementation of laws and regulations “significantly impede the ability
of many companies to do business in Azerbaijan,” particularly in non-energy
projects, according to the embassy. Total U.S. direct foreign investment in Georgia
is less than $200 million. The U.S. Embassy in Georgia reports conditions similar
to those in Azerbaijan, warning that “many U.S. and foreign firms doing business in
Georgia have had direct experience with official corruption. This includes
interference by customs and tax officials, legislation and decrees that adversely affect
their interests, and unfavorable court rulings in investment disputes.” The embassy
40 FBIS, July 26, 2000, Doc. No. CEP-63; January 18, 2003, Doc. No. CEP-166; February
12, 2003, Doc. No. CEP-174; February 16, 2003, Doc. No. CEP-66; May 19, 2003, Doc. No.
CEP-213.
41 U.S. Senate. Judiciary Committee. Narco-Terrorism. Testimony of Raphael Perl, May
20, 2003.
42 International Narcotics Control Strategy Report 2002. U.S. State Department, March
2003.

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CRS-23
also warns that there are a few criminalized sectors of the economy, such as gasoline
and cigarette distribution, that foreign investors should avoid.43
U.S. Government facilities worldwide were on a heightened state of alert after
9/11, and U.S. embassies were subject to temporary closure for security reasons. In
March 2003, U.S. embassies in the region issued Warden’s Messages warning that
U.S. citizens and interests worldwide were at risk of terrorist attacks. There were
some anti-U.S. demonstrations in early 2003 in the region related to the Iraq conflict,
but the State Department reported no significant violence against U.S. interests.
Terrorists have not targeted U.S. citizens and interests in Armenia. In Azerbaijan,
members of Warriors of Islam were convicted in 2001 for planning an attack against
the US Embassy and other terrorism. The U.S. Embassy in Baku reports that there
have been no major acts of political violence against U.S. businesses or assets. In
August 2002, the embassy warned U.S. citizens not to travel to Nardaran, Azerbaijan,
the scene of anti-government protests. In Georgia, the embassy has warned U.S.
citizens not to travel to Georgia’s Pankisi Gorge, and the State Department has raised
concerns about violence against U.S. citizens practicing minority faiths. A January
2003 crime and safety report also warns that U.S. and other foreigners are highly
vulnerable to robbery and even “violent street attacks.” In a September 2001
Warden’s Message, the embassy reported that it had received credible evidence that
U.S. citizens were being targeted for kidnaping for ransom in the Tbilisi area, and a
warning about the general danger of kidnaping was repeated in a February 2003
Consular Information Sheet.
According to the risk analysis firm World Markets, foreign businesses in the
three states face “significant” risks to investment because of high and arbitrary taxes,
bureaucratic red tape and corruption, and transport problems and other poor
infrastructure. In Georgia and Azerbaijan, business personnel face some risks from
organized crime.44 In Armenia, personnel face few risks from crime, kidnaping,
terrorism, or political violence.
Issues for Congress
Should the United States Play a Prominent Role in the South
Caucasus?
While a consensus appears to exist among most U.S. policymakers on the
desirability of fostering democratization, the creation of free markets, trade and
investment, integration with the West, and responsible security policies in the South
Caucasus states, others urge different emphases or levels of U.S. involvement. Some
consider the United States as being the “indispensable power,” leading the way in
fostering peace, stability, security, and development in the region.
43 U.S. Embassies in South Caucasian capitals, Investment Climate Statements, 1999; U.S.
Foreign Commercial Service and the Department of State; Country Commercial Guides,
1999-2000; [State Department: Country Commercial Guide, Azerbaijan, FY2003] Country
Commercial Guide, Georgia, oct 2002:State Department, Patterns of Global Terrorism
2002, pp. 28-29. In Georgia, the largest U.S. direct investor is AES Telasi, an electricity
distribution firm, that has faced severe government interference.
44 World Markets Research Centre, [http://www.worldmarketsonline.com].

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CRS-24
Critics assert that the United States has historically had few interests in this
region, and argue that developments there are largely marginal to U.S. interests.45 In
any event, they argue, EU expansion is bringing the South Caucasus into closer
proximity to Europe, making the region a higher priority interest of Europe than of
the United States. They advocate limited U.S. involvement to ensure general U.S.
goals of ameliorating strife and instability, fostering democratization and regional
cooperation, and improving human rights and the quality of life.
What are U.S. Interests in the South Caucasus? One view holds that
greater U.S. assistance for the region to bring stability could have a positive effect on
North Caucasian areas of Russia and on Turkey, as well as on European security.
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.
More U.S. ties with the region might serve to “contain” or modify Iranian influences,
particularly U.S. military support that would help the South Caucasus states to resist
some threats such as insurrections. Some also argue 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 Caspian region oil and natural
gas deliveries would expand world supplies, making the West somewhat less
vulnerable to supply cutoffs in the Middle East (see below, Energy Resources). The
Administration also has pursued close ties with Armenia and Georgia because of
their professions of democratic principles, concerns by Armenian-Americans and
others over Armenia’s fate, and appreciation among some U.S. policymakers for
Shevardnadze’s former role as a pro-Western Soviet foreign minister. They also
point to the prompt cooperation offered to the United States by Armenia, Azerbaijan,
and Georgia in the aftermath of 9/11, and Azerbaijan’s and Georgia’s military
support for U.S. post-Saddam peacekeeping in Iraq.
An opposing view is skeptical that there is a strategic “power vacuum” in the
region that the United States must fill. U.S. aid for humanitarian and counter-
proliferation purposes should continue, according to this view, but other aid should
be curtailed, particularly since these states fall short of U.S. goals for
democratization, human rights, and peace settlements. Great caution is in order in
adopting policies and actions that will heavily involve the United States in a
dangerous region beset by ethnic and civil conflicts.46 Some observers question
whether U.S. interests are threatened by alleged al Qaeda or other international
terrorists in the region. They also question whether the amounts of oil and gas in the
Caspian region merit U.S. involvement. Many in Congress and elsewhere object to
45 Joe Barnes, U.S. National Interests, in Energy in the Caspian Region, ed. by Yelena
Kalyuzhnova, Amy Jaffe, Dov Lynch, and Robin Sickles, New York: Palgrave, 2002, pp.
212-233.
46 Zbigniew Brzezinski has warned that the South Caucasus and Central Asian regions are
the “Eurasian Balkans.” See The Grand Chessboard. New York, Basic Books, 1997.
Similarly, a group of analysts in 2000 assessed the South Caucasus as potentially more
dangerous than the Balkans as a “theatre of conflict, human suffering, and escalating
geopolitical instability in the wider European area.” A Stability Pact for the Caucasus,
Brussels, Belgium, Centre for European Policy Studies, January 2000.

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CRS-25
any substantial U.S. assistance to Azerbaijan until Azerbaijan moves toward peace
with Armenia and NK.
What Roles Should Outside Powers Play in the Region? Some U.S.
policymakers who consider U.S.-Russian cooperation on arms control and anti-
terrorism as top priorities argue that the United States should seek closer cooperation
with Russia in economic and security affairs in the South Caucasus.47 Despite recent
problems in U.S.-Turkish relations, some observers advocate a major role for Turkey
to counter undue influence by Iran, including by calling for closer EU-Turkish
cooperation. Some observers, pointing to political moderation within Iran, urge a
reassessment of U.S. containment policy to permit broader South Caucasian energy
cooperation.

The U.S. policy of engagement with both Russia and the South Caucasus states
may become more difficult to reconcile if Russia becomes more assertive in the
region against U.S. interests, and will force the United States to make a choice,
according to some observers. Those who view Russia as encouraging separatism
rather than conflict resolution in the region urge stronger U.S. positive or negative
inducements to Russia.48
How Significant Are Regional Energy Resources to U.S. Interests?
The National Security Strategy of the U.S.A. maintains that U.S. energy security and
the global economy can be strengthened by expanding the sources and types of global
energy supplied, including from the Caspian region.49 The May and November 2002
U.S.-Russia summit statements on energy cooperation appear to mark a U.S. policy
of cooperation with Russia in the development of Caspian oil resources. Such a
policy may bring into question the rationale that the BTC oil pipeline is needed to
preclude a monopoly on regional pipeline routes by Russia, but the pipeline policy
may by justified as a possible additional export route for Russia or even as a U.S.
hedging option in case Russian cooperation does not progress. The Administration
and others argue that the economic benefits gained by the region by developing its
47 Stephen Blank, Problems of Post-Communism, January-February 2003, pp. 8-21; Olga
Oliker and Tanya Charlick-Paley, Assessing Russia’s Decline, Santa Monica, CA: RAND,
2002, p. 120. Analyst Martha Olcott has argued that the United States should recognize that
Russia has important economic and security interests in the Caspian region, and place
greater stress on cooperating with Russia on regional energy projects, particularly since we
also want access to Russian energy. Testimony. Senate Foreign Relations Committee.
Subcommittee on International Economic Policy, April 8, 2003.
48 Caspian Energy Update, Center for Strategic and International Studies, February 25,
2000.
49 The White House. National Security Strategy of the United States of America, April 29,
2003. Analyst Zeyno Baran states that most speeches delivered by U.S. Caspian energy
envoys in the past few years have included the U.S. policy principles of strengthening the
independence of Caspian states, bolstering regional cooperation, enhancing global energy
supply diversification, and increasing investment opportunities for U.S. firms. Washington
Quarterly, Winter 2002, p. 222.

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CRS-26
energy resources will be accompanied by contractual and other rule of law
developments, which could foster regional stability and conflict resolution.50
The Administration’s May 2001 National Energy Policy report 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. The 9/11 attacks appeared to intensify the
Administration’s commitment to develop Caspian energy and the BTC pipeline as
part of a strategy of reducing the vulnerability of the United States to possible energy
supply disruptions by increasing and diversifying world energy supplies.
Critics of Administration policy question the economic viability of Ceyhan and
trans-Caspian pipeline routes compared to routes through Russia or Iran and given
uncertainties about regional stability, ownership of Caspian Sea fields, world oil and
gas prices, and the size of regional reserves.51 They question whether the oil and
other natural resources in these new states are vital to U.S. security and point out that
they are, in any event, unlikely to be fully available to Western markets for many
years. Some observers also reject the argument that energy and pipeline development
may boost economic development and thereby foster the settlement of ethnic and
civil conflicts in the region. Instead, they call for greater attention to conflict
resolution and broader-based economic and democratic reforms that would better
serve the population of the region.52
What U.S. Security Involvement is Appropriate? Observers who urge
greater emphasis on U.S. security assistance to the South Caucasus states argue that
such aid serves crucial U.S. interests. Without greater assistance, these states may
not consolidate their independence. The states remain vulnerable to possible
coercion from neighboring countries and to international terrorist groups.53 These
observers emphasize that U.S. customs and border training and equipment and other
nonproliferation aid prevent WMD technologies, materials, and personnel from
falling prey to terrorist states or groups and from being smuggled through the region.
50 Thomas Waelde, Sergey Vinogradov, and Armando Zamora, Caucasian Regional Studies,
[http://poli.vub.ac.be/publi/crs/eng/Vol5/].
51 Eric Rasizade, Comparative Studies of South Asia, Nos. 1-2, 2002.
52 Jaffe and Manning, pp. 113, 118; Michael Evans, Strategic Review, Spring 1999, pp. 4-10;
Peter Rutland, Russia and Eurasian Review, May 13, 2003. Analyst Edward Chow has
argued that “by focusing too much on energy relationships ... we give the impression that
we care less about improvement in fundamental conditions like the rule of law,
transparency, and more political openness .... Russia, Central Asia, and the Caucasus are
important to U.S. foreign policy interests whether these countries have oil or not.”
Testimony. Senate Foreign Relations Committee. Subcommittee on International Economic
Policy, April 30, 2003.
53 Oliker and Charlick-Paley offer a possible scenario of clashes between Georgian and
Russian troops in Georgia that could trigger a U.S. military intervention. They suggest that
closer cooperation with Russia in South Caucasian affairs would reduce the likelihood of
such a scenario (pp. 107-120).

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CRS-27
They also argue that the states may not be able to adequately safeguard their energy
pipelines from terrorists or criminals.
They urge greater U.S. military-to-military assistance, including for military
institution-building, basic soldier life support, and military education and training
programs that bolster human rights. Such aid, in this view, will foster the creation
of a professional, Western-style military that is better able to resist external security
threats, and will foster democratic civil-military relations that reduces the chance of
military coups. Greater U.S. support for PFP training — involving cooperation
among regional militaries — would spur these states to work together. The observers
also argue that as Iran increases its military capabilities, including missiles and
possibly nuclear weapons, the South Caucasus states may necessarily seek closer
countervailing ties with the United States. Alternatively, the region might feel
pressured to seek greater accommodation with Iran, including by distancing itself
from the United States.
Critics question whether the region is a vital U.S. interest necessitating
enhanced U.S. security commitments and aid. They warn that the stepped-up U.S.
security training and arms transfers has added to the arms race in the region and
tensions with other outside powers. They argue that the United States should
primarily seek to encourage conflict resolution and regional cooperation in
demilitarization. They oppose providing formal security guarantees or establishing
military bases in the region, and endorse making it plain that any U.S. security
assistance provided implies no defense "umbrella."54
Should the United States Try to Foster Democratization? Some
observers argue that the major security problems faced by the South Caucasus states
are largely the result of inadequate or fragile democratization. The illegitimacy of
the governments in the eyes of many or most citizens precludes civil and ethnic peace
and sustainable development, and invites foreign meddling, in this view.55 Other
observers caution that democratization can be destabilizing if authorities are not able
to adequately address burgeoning public demands unleashed by liberalization.
Increasing income inequalities and requests by international financial institutions for
balanced budgets that shortchange social needs can exacerbate popular discontent
that leaders then try to block by reversing democratization. They urge greater U.S.
and Western attention to bolstering social programs and other efforts to safeguard
democratization.56
54 These views were more prevalent prior to 9/11. John Kreul argued against a U.S.
“strategy that entails deeper defense relationships and hints of security guarantees” to
Caspian regional states despite risks “which appear to be out of proportion to U.S. interests
there.” National Security Watch, Association of the U.S. Army, Institute of Land Warfare,
June 15, 2000. On the unintended consequences of U.S. security assistance, see Jamestown
Foundation, Russia and Eurasia Review, May 13, 2003.
55 Alexander Rondeli, Crossroads and Conflict, p. 48.
56 S. Neil McFarlane, Government and Opposition, No. 3, 1997, pp. 399-420; S. Neil
McFarlane, Western Engagement in the Caucasus and Central Asia, London, Royal Institute
of International Affairs, 1999, pp. 48, 60.

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The United States has provided most assistance for democratization to Armenia,
and somewhat less for Georgia. U.S. aid for democratization in Azerbaijan was
explicitly permitted by Congress in FY1998 and thereafter. While the U.S. Agency
for International Development (USAID) argues that such aid has bolstered
democratization, including the role of nongovernmental organizations, it also
acknowledges that democratization is not firmly established, and that
democratization has faced slim progress in Armenia and setbacks in Azerbaijan.57
The 2003 Armenian presidential and legislative elections did not mark substantive
further democratization, according to some observers. While there was some
question about the direction of democratization in Azerbaijan before the 1998
presidential race, many observers viewed irregularities during that election,
municipal elections in 1999, and the 2000 legislative races as evidence of deepening
crisis. There are deepening concerns that President Aliyev might seek to position his
son as a dynastic successor and that a presidential election scheduled for 2005 in
Georgia (Shevardnadze has declared that he will not run) might be destabilizing.
Critics of U.S. democratization aid have suggested that the Administration's
stress on gradual and peaceful political change in the South Caucasus connotes U.S.
support for the stability of current leadership. They contend that U.S. support may
unwittingly assist the regimes to stay in power, make peaceful political succession
more problematic, and encourage the countervailing rise of extremist parties and
groups as alternative channels of dissent. They urge greater adherence to the policy
that “aid follows reform,” so that U.S. assistance is reduced to regimes that fail to
democratize and continue to violate human rights.58
57 U.S. Agency for International Development. Foreign Aid in the National Interest, 2002,
pp. 37, 39, 46.
58 Assistant Secretary Jones rejects the idea that U.S. sanctions should be put in place in
some states because of human rights abuses or corruption, stating that “we cannot risk our
engagement in Central Asia or the Caucasus” through “legislatively imposed sanctions,” but
instead should continue to use “diplomatic tools ... to ensure a stable and prosperous region.
Speech at the University of Montana, April 10, 2003.

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CRS-29
Appendix 1: Selected Players
Russia. According to many observers, the role of Russia – the former colonial
power – in the South Caucasus is the most serious potential threat to the security and
independence of the region’s states. Russia has appeared to place a greater strategic
importance on maintaining influence in the South Caucasus region than in much of
Central Asia (except Kazakhstan). Its early determination to remain closely involved
in the region included its pressure on Azerbaijan and Georgia in 1993 to get them to
join the CIS and sign the Collective Security Treaty, and on Georgia to acquiesce to
Russian military bases on its soil.59
Russia’s actions have not always seemed best suited to maintain or increase its
influence, however. Elements of the Russian government and other interests have
at times disagreed on policy toward the region, with some pressing more coercive
policies and some more conciliatory and business-like policies. Russian military
elements and the Foreign Ministry have appeared at times to follow contradictory
policies regarding the Abkhaz conflict. Also, Russian legislative and military
interests and the presidential administration have clashed over arms transfers to
Armenia, and Russian firms and the Fuel Ministry have differed with the Foreign
Ministry on regional energy development and Caspian Sea delineation.
The elevation of Vladimir Putin to Russia’s presidency marked a more
coordinated and activist Russian stance toward the region. Then-Acting President
Putin approved a “national security concept” in January 2000 that termed foreign
efforts to “weaken” Russia’s “position” in the South Caucasus, or to thwart
“integrative processes” in the CIS, as security threats. It also calls for protecting
Russia’s economic interests in routes for energy flows from the Caspian and
elsewhere. A new military doctrine approved by Putin also stressed these threats,
including warnings that NATO might intervene in conflicts in the CIS, such as the
NK or Abkhaz conflicts, as it did in the Kosovo region of Yugoslavia.60 Russia’s
1999-2003 Chechnya campaign, in this view, demonstrated Putin’s determination to
grasp for regional influence over the South Caucasus. Other observers argue that
such Russian intentions, however, may in fact be unattainable because of Russia’s
strategic weakness.61
Russia under Putin launched new regional initiatives in 2000. These included
an agreement in July to hold regular biannual “Caucasus Four” summits focusing on
59 The Russian military reportedly provided assistance for overthrowing the Azerbaijani
government, opening up Heydar Aliyev’s return to power, after which Azerbaijan joined the
CIS. Similarly, the Russian military assisted Shevardnadze in defeating insurgency, after
which Georgia joined the CIS.
60 In contrast, a 1997 draft of the national security concept emphasized the importance of a
democratizing CIS, rather than a militarized CIS protecting against outside threats. Herzig,
p. 49. See also Stephen Blank, Threats to Russian Security, U.S. Army War College, July
2000, pp. 18-19.
61 The Economist, August 19, 2000; Stephen Blank, U.S. Military Engagement with
Transcaucasia and Central Asia, U.S. Army War College, June 2000, pp. 22-35.

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CRS-30
deepening Russia’s influence in the region through dispute mediation and security
cooperation, and an agreement in September between Russia, Iran, and India on
north-south international transport corridor (ITC).62 According to Russian media,
major reasons for pursuing a Russian-oriented ITC included counteracting the
regional development of routes bypassing Russia, such as the BTC oil pipeline, and
the Russian strategic concept’s call for protecting Russia’s interests in the Caspian
region.63 A railway would be built through Azerbaijan and ferries on the Caspian
would be used to connect Russia to Iran. Transport ministers of Russia, Iran, and
India met in January 2002 to form a coordination council to work on joint customs,
financial, and legal issues. In May 2002, an inter-ministerial agreement was signed
between Russia, Iran, and India inaugurating the ITC with termini at Bombay and St.
Petersburg. Armenia, Azerbaijan, Kazakhstan, Bulgaria, and Belarus expressed their
willingness to join the agreement. At a coordinating council meeting in Tehran in
April 2003, Belarus and Kazakhstan formally were slated to join the ITC, and Oman
and Syria shortly thereafter. Armenia, Azerbaijan, and Bulgaria have applied to join.
Russia has also proposed that the corridor be linked to several EU east-west trade
routes.64
Successive U.S. Administrations have generally viewed a democratizing Russia
as able to play a stabilizing role in the South Caucasus, though they have also
emphasized to Russia that it should not seek to exclude other positive international
involvement. Congressional concerns over Russia’s motives in the Eurasian states
have been reflected in provisions in every Foreign Operations Appropriations Act
since FY1994 prohibiting aid to any Eurasian state that violates the territorial
integrity or national sovereignty of another (a presidential waiver is included; the
waiver has been used to provide aid to Armenia).
Russia has exercised most of its influence in the region in the military-strategic
sphere, an increasing degree in the economic sphere, and the least in the domestic
political sphere (except for obtaining assurances on the treatment of ethnic Russians).
Turkey’s membership in NATO makes it part of NATO’s encroachment, in the view
of some Russians. Russia has tried to stop terrorism, ethnic “undesirables,” drugs,
weapons, and other contraband from entering its borders, and to contain the
62 Russian and Iranian transport ministers discussed setting up such a transport corridor at
a meeting in September 1999. India was interested in sending an experimental cargo
shipment to Scandinavia along this corridor. Interfax, September 14, 1999.
63 FBIS, January 15, 2000, Doc. No. CEP-162; April 26, 2000, Doc. No. CEP-15;
September 15, 2000, Doc. No. CEP-193; November 10, 2000, Doc. No. CEP-58; April 2,
2002, Doc. No. CEP-201; May 23, 2002, Doc. No. CEP-150; August 5, 2002, Doc. No.
CEP-309; May 5, 2003, Doc. No. CEP-204.
64 In the case of Armenia, Moscow Mayor Yuriy Luzhkov in January 2003 called for
establishing a “direct” trade route between Armenia and Russia running from Armenia
through Iran to the Caspian Sea, and thence to Russian seaports. FBIS, January 30, 2003,
Doc. No. CEP-258. The Baku Declaration, signed by Presidents Aliyev and Putin in
January 2001, calls for Russia to facilitate Azerbaijan’s participation in the ITC. FBIS,
January 16, 2001, Doc. No. CEP-12. The ITC coordinating council reported that it was still
defining its functions at its April 2003 meeting in Tehran. Ravil Musin, ITAR-TASS, April
29, 2003.

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CRS-31
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 is interested in
close security ties with Russia – given that it is almost surrounded by Islamic states
that support Azerbaijan’s sovereignty over NK – and it views Russia as a traditional
protector against the Turks. Georgia has objected to problematic Russian support for
its policies toward Abkhazia, and Azerbaijan has been concerned about Russia’s ties
with Armenia.
Military-Strategic Interests. Russia’s armed presence in Armenia and
Georgia — including military base personnel, “peacekeepers,” and border troops —
was significant during most of the 1990s, but is declining recently in Georgia. The
first step by Russia in maintaining a military presence in the region was the signing
of the 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 and also sign the treaty, but they withdrew in early 1999. Russia
secured permission for two military bases in Armenia and four in Georgia, and
Russian forces help guard the Armenian-Turkish border.65 In 1993, Azerbaijan was
the first Eurasian state to pressure Russia to withdraw its troops, except at the Gabala
radar site in northern Azerbaijan. (Giving up on closing the site, in January 2002
Azerbaijan signed a 10-year lease with Russia to permit up to 1,500 personnel to man
the radar.) In 1999, Georgia assumed full control over guarding its land and sea
borders, except for some liaison officers (Russia also pledged to close two bases and
discuss closing two others; see below).
At the November 1999 OSCE Summit, the South Caucasus states joined 27
others in agreeing to adapt the Conventional Armed Forces in Europe (CFE) Treaty.
The Treaty adaptation process gave Georgia a forum to push for a reduced Russian
military presence in Georgia, and when fully implemented also will provide for a
reduced Russian military presence in the North Caucasus.66 To comply with new
weapons limits under the Treaty, Russia agreed to reduce weaponry at its bases in
Georgia, to close its bases at Gudauta and Vaziani by July 2001, and to discuss the
disposition of its weapons at its 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
65 The total number of Russian troops has been estimated at about 2,900 in Armenia, 4,000
in Georgia (plus an additional 1,600 “peacekeepers” in Abkhazia and 530 in South Ossetia),
and over 104,000 in the North Caucasus region (The Military Balance 2002-2003).
66 The CFE Treaty adaptation signatories have concurred that they will not move to ratify
the Treaty until Russia complies with the proposed flank limits, covering weapons it has
deployed in the North Caucasus. Arms Control Today, April 2000, p. 32.

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CRS-32
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 2002, the United States voiced “hope” that Russia would make
progress in 2003 in meeting its CFE commitments.
Russia’s military force reductions in Georgia have made its presence in Armenia
more significant as a means to retain regional influence, according to many Russian
officials. Armenia, in turn, has argued that the Russian bases provide for regional
stability by protecting it from attack. Russia has supplied many weapons to Armenia,
including S-300 missiles and Mig-29 fighters for air defense, which Azerbaijan
deems as destabilizing.67 However, Russia also has appeared to try to develop closer
security ties with Azerbaijan to counter U.S. influence. In February 2003, a
framework agreement on Azerbaijan-Russia military cooperation accord was signed,
opening the possibility of Russian military training and arms sales to Azerbaijani
forces. If implemented, such Russian assistance might retard the development by
Azerbaijani forces of interoperability with NATO systems.68
Many observers caution that Russia’s decreased military presence within the
region has been more than met by its buildup of forces in the North Caucasus area
that Russia can use to intimidate the region. Other Russian forces along the region’s
borders include the Black Sea Fleet and the Caspian Flotilla. The latter has been
expanded in recent years while the former faced dwindling funding until 2003.69
Armenia is the base for a regional air defense system. Russia’s conflict in Chechnya
has heightened regional fears about a spillover of fighting. Since 9/11, Russia has
stepped up its claims that Georgia’s Pankisi Gorge harbors Chechen terrorists with
links to bin Laden, who use the Gorge as a staging ground for attacks into Chechnya.
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 Gorge and elsewhere (for details, see CRS Report RS21319, Georgia’s Pankisi
Gorge).
Caspian Energy Resources. Russia has tried to play a significant role in
future oil production, processing, and transportation in the Caspian Sea region. 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 and Turkmenistan. Before, 9/11, Putin criticized Western
67 Highlighting Russia’s view of Armenia as a vital regional beach-head, Col. Gen. Leonid
Ivashov, Chief of the International Directorate of the Defense Ministry, reportedly stated
that Russian-Armenian military cooperation is the guarantee of stability in the whole
Caucasus. Nezavisimaya gazeta, May 17, 2000, p. 1.
68 Igor Torbakov, Eurasia Insight, April 9, 2003.
69 According to State Duma Deputy Vladimir Lysenko, the Caspian Sea Flotilla is being
enlarged to assert Russia’s energy interests, while the Black Sea Fleet is benefitting from
President Putin’s 2002 call for an expanded defense budget. FBIS, January 15, 2003, Doc.
No. CEP-530.

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CRS-33
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.
After 9/11, however, he appeared to ease his criticism of a growing U.S. presence.
At the May 2002 U.S.-Russia summit, the two presidents issued a joint statement
endorsing multiple pipeline routes, implying Russia’s non-opposition to plans to
build the Baku-Tbilisi-Ceyhan (BTC) oil pipeline (and the Baku-Erzurum gas
pipeline). Nonetheless, 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.” Russian officials have continued to argue
that a BTC oil pipeline is not commercially viable.70 Some U.S. 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
perhaps spurring Azerbaijan and Kazakhstan in May 2003 to join Russia in a
trilateral agreement on dividing Caspian seabed resources among the three littoral
states.
The Protection of Ethnic Russians. As a percentage of the population,
there are fewer ethnic Russians in the South Caucasus states than in most other
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 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.
Turkey. The Bush Administration has generally viewed Turkey as able to
foster pro-Western policies and discourage Iranian interference in the South Caucasus
states. According to these policymakers and others, Turkey can play an important
role in the region, and provide a model of a non-authoritarian, non-theocratic Islamic
state. Critics of an over-reliance on Turkey ’s role in the region point to the Turkish
tilt toward Azerbaijan in the NK conflict and Turkey’s less than full support for U.S.-
led coalition actions in Iraq in March-April 2003 in cautioning that the United States
and NATO might be drawn by their ties with Turkey into policy imbroglios.
70 The Russian proposals for developing the ITC also may be seen as a means of competing
against the BTC oil pipeline. In February 2003, Russian Deputy Foreign Minister
Kalyuzhny asserted that Russia would insist that any legal agreement among the littoral
states on the Caspian’s status include provisions banning undersea pipelines, viewed by
some observers as a Russian attempt to block proposals for such pipelines linking
Kazakhstan to the BTC oil pipeline. FBIS, February 26, 2003, Doc. No. CEP-116.

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CRS-34
Some in Turkey have envisaged Azerbaijan and Central Asia as part of a pan-
Turanic (Turkic peoples) bloc. Turkey seeks good relations with Azerbaijan and
Georgia and some contacts with Armenia, while trying to limit Russian and Iranian
influence. While Turkey has gained some influence in the region, it has been
constrained by its own economic problems, poor relations with Armenia, and
countervailing Russian influence. Armenia is a member of the Black Sea Economic
Cooperation zone, initiated by Turkey, and the two states have established consular
relations. Roadblocks to better Armenian-Turkish relations include Turkey’s
rejection of Armenians’ claims that Turkey perpetuated a genocide against them in
1915 and its support for Azerbaijan in the NK conflict. Turkish officials stated in
1995 that “Armenia must withdraw from occupied Azerbaijani lands” before Turkey
would consider establishing full diplomatic relations. Turkey’s increased influence
in Azerbaijan has included Azerbaijan’s adoption of a Latin alphabet and the BTC
oil pipeline project. Georgia has an ongoing 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. Russia has been able to establish military bases in
Armenia and Georgia to buoy up its regional influence. Turkey views the Russian
bases in Armenia and Georgia as security threats, and Turkey and the United States
succeeded within the CFE Treaty adaptation process in obtaining Russian pledges to
close down two bases in Georgia and to discuss the status of the remaining two bases.
Turkey reportedly has some military aircraft landing and servicing privileges at
Georgia’s Marneuli airbase.
Iran. Many in Iran initially viewed the breakup of the Soviet Union as creating
a “new Middle East” centered on Iran, and including Afghanistan, Armenia,
Azerbaijan, the Central Asian states, Pakistan, and Turkey, but poor relations with
Afghanistan’s Taliban group and others caused this idea to fade. Iran’s interests in
the South Caucasus have appeared moderate and not focused on dominating the
region through subversion or the promotion of Islam, although Azerbaijan at times
has alleged that elements in Iran have fostered Islamic fundamentalism or sponsored
terrorism.
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. Iran and Russia cooperated during most of the 1990s in
trying to block Western energy development in the Caspian by demanding that the
legal status of resources first be determined. Russia has broken with Iran on this
stance by signing bilateral and trilateral border agreements with Azerbaijan and
Kazakhstan.71
A major proportion of the world’s Azerbaijanis (estimates range from 6-12
million), and about 200,000 Armenians reside in Iran. Ethnic Azerbaijanis are Iran’s
71 Analyst Julia Nanay has pointed to Iran’s support for demilitarization of the Caspian Sea
as marking its fears of a greater Russian Caspian Sea naval presence. Conference Remarks,
Middle East Policy Council, Washington, D.C. September 15, 2000.

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CRS-35
largest ethnic minority, constituting almost one-third of its population. Iran has
limited trans-Azerbaijani contacts to discourage the emergence of ethnic
consciousness among its “Southern Azerbaijanis,” and has heavily criticized
politicians in Azerbaijan who advocate separatism in Iran. The example of the
assertion of Kurdish ethnic rights in post-Saddam Iraq in 2003 has galvanized some
Azerbaijanis who propagandize for greater rights for “Southern Azerbaijanis.”
Alternatively, Azerbaijani elites fear Iranian-supported Islamic fundamentalism and
question the degree of Iran’s support for an independent Azerbaijan.
Iran has growing trade ties with Armenia and Georgia, but its trade with
Azerbaijan has declined. Iran has argued for some time that Azerbaijan would most
benefit financially by cooperating with Iran in building energy pipelines to Iran.
Islamic Shiite fundamentalists in Iran have urged Iran’s government to forego its
official policy of neutrality in the NK conflict and embrace solidarity with Shiites in
Azerbaijan.72
U.S. policy aims at containing Iran’s threats to U.S. interests in the region (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 would face greater pressure to accommodate Russian interests.
Others. 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. Major programs have been pursued by the European Union,
NATO’s Partnership for Peace, OSCE, European Bank for Reconstruction and
Development, and European-based non-governmental organizations.73
U.S. and EU policies toward the region have sometimes differed, primarily on
the greater willingness of the EU to cooperate with Russia and Iran in regional
projects. U.S. and European energy firms also have vied to develop resources. The
Brussels-based Center for European Policy Studies has called for the EU to play a
larger role relative to the United States in the region, arguing that the region
geographically borders Europe, so that Europe naturally is interested in its stability
and resource development. The Center calls for the South Caucasus states to form
a security regime even before regional conflicts are resolved; to cooperate with PFP
and the OSCE on conflict resolution, peacekeeping, and border patrolling; and to
implement the CFE Treaty framework for demilitarization and confidence-building.74
72 Analyst Brenda Shaffer argues that Iran tacitly supports the continuation of the NK
conflict by assisting Armenia, since the conflict constrains Azerbaijan’s ability to foster
ethnic nationalism among Azerbaijanis in Iran and makes war-torn and poverty-stricken
Azerbaijan appear less inviting as a homeland. Caucasian Regional Studies, Vol. 5, 2000,
[http://poli.vub.ac.be/publi/crs/eng/Vol5/].
73 Herzig, pp. 114-117.
74 Centre for European Policy Studies, A Stability Pact for the Caucasus, Working
(continued...)

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CRS-36
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 Ukraine, Romania, Kazakhstan, and Turkmenistan. Various Central
Asian states have common interests with Azerbaijan, including some linguistic and
religious ties and concerns about some common bordering powers (Iran and Russia).
Both the South Caucasus and Central Asia face 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 and transport links to the South Caucasus
become more significant, it will become more dependent on stability in the region.
74 (...continued)
D o c u m e n t N o . C E P - 1 4 5 , M a y 2 0 0 0 ,
[http://www.ceps/be/Pubs/Caucasus/NDC/Newdeal.htm]. CEPS juxtaposes the success of
EU policy in the Baltic states and Finland and in northwest bordering areas of Russia, which
Russia views as cooperative, to U.S. actions in southeastern areas, which Russia views as
disruptive.

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CRS-37
Table 1. Armenia, Azerbaijan, and Georgia: Basic Facts
South Caucasian State
Armenia
Azerbaijan
Georgia
Total
Territory (Square Miles)
11,620
33,774
26,872
72,266
Population (2002; Millions)
3.0
8.1
4.93
16.03
Gross Domestic Product (Bill.
2.3
6.1
3.3
11.7
Dollars, 2002 Est.)
GDP per capita (Dollars)
770
750
670
730 (Avg.)
Proven Oil Reserves (Bill.
0
1.2
0.35
1.55
Barrels)
Proven Natural Gas Reserves
0
4.4
0.3
4.7
(Trillion Cubic Feet)
Size of Security Forces (Mili-
45,610
87,100
19,200
50,600
tary and Police/Border Troops)
(Avg.)
Cumulative U.S. Aid Budgeted,
1.34
0.34
1.12
2.8
FY1992-FY2002 (Bill. Dollars)*
of which: Security Assistance
70.8
22.3
190.9
284.0
(Mill. Dollars)*
FY2002 Budgeted Funds (Mill.
107.6
51.8
110.0
269.4
Dollars)*
FY2003 Budgeted Funds (est.,
89.4
45.7
83.5
218.6
Mill Dollars)**
Sources: Economist Intelligence Unit; Department of Energy, U.S. Energy Information
Administration, Caspian Sea Region and Country Analysis Briefs; International Institute of
Strategic Studies, 2002, The Military Balance, 2002-2003; U.S. Government Assistance to
and Cooperative Activities with the New Independent States, FY2002 Annual Report,
Department of State; Congressional Presentation for Foreign Operations, FY2004, The
Secretary of State.
*FREEDOM Support Act and Agency budgets.
**FREEDOM Support Act and other Function 150 funds (does not include Defense or
Energy Department funding).

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CRS-38
Table 2: Security Program Funding for Armenia, Azerbaijan, and Georgia, FY1992-FY2002
(million dollars)
Approp
Program
Armenia
Azerbaijan
Georgia
Total
DOD
Cooperative Threat Reduction
0.0
0.0
1.7
1.7
DOD
DoD/FBI Counterproliferation
0.9
0.4
0.7
2.0
DOD
DoD/US Customs Service Counterproliferation
1.3
1.6
0.6
3.4
DOD
Warsaw Initiative (Partnership for Peace)
1.0
1.3
2.0
4.3
DOE
Material Protection, Controls & Accounting
0.0
0.0
1.6
1.6
DOE / DOS
Nuclear Reactor Safety
35.2
0.0
0.3
35.5
DOS
Export Control & Border Security (EXBS)
5.6
9.4
89.4
104.5
DOS
HHS - Bioterrorism Engagement Program (BTEP)
1.0
0.0
4.1
5.1
DOS
DTRA / Military-Ammo Relocation
0.0
0.0
5.0
5.0
DOS
Foreign Military Financing
4.0
4.0
52.5
60.5
DOS
International Military Exchanges and Training
0.1
0.4
3.4
3.8
DOS
Peacekeeping Operations
0.0
1.0
1.7
2.7
DOS
Science Centers
8.4
0.0
6.8
15.1
DOS
Anti-Crime Training & Technical Assistance (ACTTA)
5.0
1.0
7.9
13.9
DOS
Anti-Terrorism Assistance (ATA)
1.2
1.4
2.1
4.7
DOS
DoJ - Overseas Prosecutorial Development and Training
0.8
0.2
6.1
7.1
DOS
Civilian R&D Foundation (CRDF)
6.4
1.6
5.1
13.1
TOTAL
70.8
22.3
190.9
284.0
Source: State Department.

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CRS-39
Figure 1: Armenia, Azerbaijan, and Georgia

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