Order Code IB95024
CRS Issue Brief for Congress
Received through the CRS Web
Armenia, Azerbaijan, and Georgia:
Political Developments and Implications
for U.S. Interests
Updated July 31, 2003
Jim Nichol
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Overview of U.S. Policy Concerns
Post-9/11
Iraqi Freedom
Obstacles to Peace and Independence
Regional Tensions and Conflicts
Nagorno Karabakh Conflict
Civil and Ethnic Conflict in Georgia
Economic Conditions, Blockades and Stoppages
Political Developments
Armenia
Azerbaijan
Georgia
The South Caucasus’ External Security Context
Russian Involvement in the Region
Military-Strategic Interests
Caspian Energy Resources
The Protection of Ethnic Russians and “Citizens”
The Roles of Turkey, Iran, and Others
Aid Overview
U.S. Security Assistance
U.S. Trade and Investment
Energy Resources and U.S. Policy
LEGISLATION

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

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IB95024
07-31-03
MOST RECENT DEVELOPMENTS
Since collapsing on April 21, 2003, Azerbaijani President Heydar Aliyev has spent
several weeks (in two visits) convalescing at a Turkish hospital, creating heightening popular
speculation about whether he will be able to serve if re-elected in a scheduled October 6,
2003, race.
Azerbaijan’s Central Electoral Commission (CEC) will soon make the
extraordinary decision whether to approve the candidacy of Aliyev’s son, Ilkhim, although
Ilkhim demurs that he will run to help his father win. On July 28, he reportedly proclaimed
that the opposition would not be permitted to come to power. On July 21, 2003, the U.S.
State Department raised concerns about the denial of candidate registrations, harassment of
opposition parties, and use of violence against political protesters.
President Bush tasked former U.S. Secretary of State James Baker as his personal
emissary to Georgia to propose a plan to solve a dispute over the composition of electoral
commissions in the run-up to November legislative races. The Georgian government and
major political parties agreed to the “Baker plan” following his July 5-6 visit to Georgia, and
the Georgian legislature on July 24 began considering legislation creating electoral
commissions that are not controlled by pro-government parties and providing wide access
by electoral observers. One opposition party official denounced the legislation as designed
to perpetuate a “pro-American” legislature.
Georgia signed a 25-year gas supply accord with Russia’s Gazprom state-controlled
energy firm on July 1, 2003, that also involves Gazprom’s involvement in revamping
Georgia’s gas supply infrastructure. Reportedly, U.S. officials as well as many Georgians
were surprised by the deal. Georgian President Eduard Shevardandze on July 28 stated that
“we pin our hopes” on the eventual building of a gas pipeline from Azerbaijan, but that
Georgia’s energy needs are currently pressing, and denied that the Gazprom deal would harm
such plans.
BACKGROUND AND ANALYSIS
Armenia, Azerbaijan, and Georgia are
The Caucasus States: Basic Facts
located south of the Caucasus Mountains that Area: The region is slightly larger than Syria:
Armenia is 11,620 sq. mi.; Azerbaijan is
form part of Russia’s borders (see map). The 33,774 sq. mi.; Georgia is 26,872 sq. mi.
South Caucasus states served historically as a Population: 16.03 million, similar to
north-south and east-west trade and transport Netherlands; Armenia: 3.0 m.; Azerbaijan: 8.1
“land bridge” linking Europe to the Middle East m.; Georgia: 4.93 m. (Economist Intelligence
and Asia, over which the Russian Empire and Unit, 2002 est.)
others at various times endeavored to gain GDP: $11.7 billion; Armenia: $2.3 b.;
control. In ancient as well as more recent times, Azerbaijan: $6.1 b.; Georgia: $3.3 b. (EIU,
oil and natural gas resources in Azerbaijan 2002 est., current prices)
attracted outside interest. While Armenia and
Georgia can point to past periods of autonomy or self-government, Azerbaijan was not
independent before the 20th century. After the Russian Empire collapsed in 1917, all three
states declared independence, but by early 1921 all had been re-conquered by Russia’s Red
(Communist) Army. They regained independence when the Soviet Union collapsed in 1991.
(For background, see CRS Report RS20812, Armenia Update; CRS Report 97-522,
Azerbaijan; and CRS Report 97-727, Georgia.)
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Overview of U.S. Policy Concerns
By the end of 1991, the United States had recognized the independence of all the former
Soviet republics. The United States pursued close ties with Armenia, because of its
profession of democratic principles, and concerns by Armenian-Americans and others over
its fate. The United States pursued close ties with Georgia after Eduard Shevardnadze,
formerly a pro-Western Soviet foreign minister, assumed power there in early 1992. Faced
with calls in Congress and elsewhere for a U.S. aid policy for the Eurasian states, then-
President George H.W. Bush sent the FREEDOM Support Act to Congress, which was
signed with amendments into law in October 1992 (P.L. 102-511).
U.S. policy toward the South Caucasus states includes promoting the resolution of the
Armenia-Azerbaijan conflict over Azerbaijan’s breakaway Nagorno Karabakh (NK) region,
the Georgia-Abkhaz conflict, and other regional conflicts.
Successive U.S. Special
Negotiators have served as co-chair of the Minsk Group of states mediating the NK conflict
and taken part in the Friends of the U.N. Secretary General consultations and efforts of the
Secretary General’s special representative to settle the Abkhaz conflict.
Congressional
concerns about the NK conflict led to the inclusion of Sec. 907 in the FREEDOM Support
Act, which prohibits U.S. government-to-government assistance to Azerbaijan, except for
nonproliferation and disarmament activities, until the President determines that Azerbaijan
has taken “demonstrable steps to cease all blockades and other offensive uses of force against
Armenia and NK” (on waiver authority, see below). U.S. aid was at first limited to that
supplied through international agencies and private nongovernmental organizations (NGOs),
but provisions in FY1996, FY1998, and FY1999 legislation eased the prohibition by
permitting the provision of humanitarian aid to the Azerbaijani government, support for
democratization, Trade and Development Agency (TDA) guarantees and insurance for U.S.
firms, Foreign Commercial Service (FCS) operations, aid to prevent the spread of weapons
of mass destruction, Overseas Private Investment Corporation (OPIC) activities, and Export-
Import Bank financing. Notwithstanding these exemptions, the State Department argued that
Sec. 907 still restricted aid for anti-corruption and counter-narcotics programs, regional
environmental programs, and programs such as good business practices, tax and investment
law, and budgeting. The Defense Department argued that Sec. 907 restricted military
assistance to Azerbaijan, including for anti-terrorism measures and energy pipeline security.
Some observers argue that developments in the South Caucasus region are largely
marginal to global anti-terrorism and to U.S. interests in general. They urge great caution
in adopting policies that will heavily involve the United States in a region beset by ethnic and
civil conflicts. Earlier arguments against significant U.S. involvement – that the oil and
other natural resources in the region were not commercially viable because of development
and export costs and inadequate amounts, or would not be available to Western markets for
many years – have lost much credibility (see below, Energy Resources). Other observers
believe that U.S. policy now requires more active engagement in the South Caucasus. They
urge greater U.S. aid and conflict resolution efforts to contain warfare, crime, smuggling,
terrorism, and Islamic extremism and bolster independence of the states. Some argue that
improved U.S. relations with these states also would serve to “contain” Russian and Iranian
influence, and that improved U.S. ties with Azerbaijan would benefit U.S. relations with
other Islamic countries, particularly Turkey and the Central Asian states. Many argue that
the energy and resource-rich Caspian region is a central U.S. strategic interest, including
because Azerbaijani and Central Asian oil and natural gas deliveries would lessen Western
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energy dependency on the Middle East. They also point to the prompt cooperation offered
to the United States by Azerbaijan, Armenia, and Georgia in the aftermath of 9/11.
Post-9/11. 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 Operation Enduring Freedom (OEF) in Afghanistan, including
overflight rights and Azerbaijan’s and Georgia’s offers of airbase and other support. OEF
was later expanded to Georgia (see below, Security Assistance). The State Department’s
Patterns of Global Terrorism 2001 highlighted U.S. support for Azerbaijan’s and Georgia’s
efforts to halt the use of their territories as conduits by international mujahidin and Chechen
guerrillas for financial and logistic support for Chechen and other Caucasian terrorists.
After 9/11, Congressional attitudes toward Sec. 907 also shifted.
Permanent
Presidential waiver authority was added to the Senate version of Foreign Operations
Appropriations for FY2002 (H.R. 2506; P.L. 107-115) 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 NK peace talks or be
used for offensive purposes against Armenia. The waiver may be renewed annually, 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, President Bush on January 25, 2002, exercised the
waiver. Presidential Determination No. 2003-12, released January 17, 2003, extended the
waiver another year.
Iraqi Freedom. Azerbaijan and Georgia were among the countries that openly
pledged to support U.S.-led Iraqi Freedom coalition actions, with both offering the use of
their airbases and to assist the United States in re-building Iraq. The U.S. Administration has
announced that both countries have agreed to participate in the stabilization force for Iraq,
although both reportedly have called for the United States to finance some part of their
participation. Azerbaijan has offered 150 troops to assist rebuilding in Iraq, and Georgia has
offered 75 troops. Before the Iraq action, Armenia raised concerns about the safety of 30,000
ethnic Armenians residing in Iraq and 200,000 residing in the Middle East and Turkish
expansionism into Kurdish areas of Iraq. On July 17, 2003, the Senate Appropriations
Committee (S.Rept.108-106) stated that it “regrets that Armenia was not more supportive
of Operation Iraqi Freedom.”
Obstacles to Peace and Independence
Regional Tensions and Conflicts
Ethnic conflicts have kept the South Caucasus states from fully partaking in peace,
stability, and economic development over a decade since the Soviet collapse, some observers
lament. The countries are faced with on-going budgetary burdens of arms races and caring
for refugees and displaced persons. Other costs of ethnic conflict include threats to bordering
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states of widening conflict and the limited ability of the region or outside states to fully
exploit energy resources or trade/transport networks.
U.S. and international efforts to foster peace and the continued independence of the
South Caucasus states face daunting challenges. The region has been the most unstable part
of the former Soviet Union in terms of the numbers, intensity, and length of its ethnic and
civil conflicts. The ruling nationalities in the three states are culturally rather insular and
harbor various grievances against each other. This is particularly the case between Armenia
and Azerbaijan, where discord has led to the virtually complete displacement of ethnic
Armenians from Azerbaijan and vice versa. The main languages in the three states are
mutually unintelligible (also, those who generally consider themselves Georgians –
Kartvelians, Mingrelians, and Svans – speak mutually unintelligible languages). Few of the
region’s borders coincide with ethnic populations. Attempts by territorially-based ethnic
minorities to secede are primary security concerns in Georgia and Azerbaijan. Armenia and
Azerbaijan view NK’s status as a major security concern. The three major secessionist areas
— NK, Abkhazia, and South Ossetia — have failed to gain international recognition, and
receive major economic sustenance from, respectively, Armenia, Russia, and Russia’s North
Ossetia region. Also, Georgia’s Ajaria region receives backing from Russia for its autarchic
stance toward the Shevardnadze government.
Nagorno Karabakh Conflict. Since 1988, the separatist conflict in Nagorno
Karabakh (NK) has resulted in 15,000 deaths, about 1 million Azerbaijani refugees and
displaced persons, and about 300,000 Armenian refugees. Azerbaijan claims that about 20%
of its territory, including NK, is controlled by NK Armenian forces. Various mediators have
included Russia, Kazakhstan, Iran, the United Nations, and the Organization for Security and
Cooperation in Europe (OSCE). The OSCE’s “Minsk Group” of concerned member-states
began talks in 1992.
A U.S. presidential envoy was appointed to these talks.
A
Russian-mediated cease-fire was agreed to in May 1994 and was formalized by an armistice
signed by the ministers of defense of Armenia and Azerbaijan and the commander of the NK
army on July 27, 1994 (and reaffirmed a month later). Moscow talks were held by the sides,
with token OSCE representation, along with Minsk Group talks. The OSCE at its December
1994 Budapest meeting agreed to send OSCE peacekeepers to the region under U.N. aegis
if a political settlement could be reached. Russia and the OSCE merged their mediation
efforts. The United States, France, and Russia co-chair meetings of the Minsk Group.
A new round of peace talks opened in Moscow in 1997. The presidents of Azerbaijan
and Armenia recognized a step-by-step peace proposal as a basis for further discussion,
leading to protests in both countries and to Ter-Petrosyan’s forced resignation. Azerbaijan
rejected a new Minsk Group proposal in late 1998 embracing elements of a comprehensive
settlement, citing vagueness on the question of NK’s proposed “common state”status. The
assassinations of Armenian political leaders in late 1999 set back the peace process. In 2001,
presidential meetings included one in Key West, Florida, in April, where they reportedly
discussed (via emissaries) elements of a peace plan first broached in 1999 that included
territorial concessions and the establishment of land corridors. The presidents later met
separately with President Bush, highlighting early Administration interest in a settlement.
In the aftermath of 9/11, the U.S. Special Negotiator for NK and Eurasian Conflicts and
Minsk Group co-chair, Rudolf Perina, has stressed that worldwide anti-terrorism efforts
increase the importance of resolving regional conflicts. Presidential meetings in 2002 were
inconclusive.
In January 2003, Kocharyan proclaimed that Armenia’s policy on the
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settlement of the NK conflict rested on three pillars: a “horizontal” – instead of hierarchical
– relationship between NK and Azerbaijan; a secure land corridor between Armenia and NK;
and security guarantees for NK’s populace. Armenian Foreign Minister Vardan Oskanyan
stated on July 29, 2003, that he would step up diplomatic cooperation with NK to get the
world to recognize it as an independent state.
(See also CRS Issue Brief IB92109,
Armenia-Azerbaijan Conflict.)
Civil and Ethnic Conflict in Georgia. Several of Georgia’s ethnic minorities
stepped up their dissident actions, including separatism, in the late 1980s and early 1990s.
Georgia’s South Ossetian region in 1989 lobbied for joining its territory with North Ossetia
in Russia or for independence.
Repressive efforts by former Georgian President
Gamsakhurdia triggered conflict in 1990, reportedly leading to about 1,500 deaths. In June
1992, former Russian President Yeltsin brokered a cease-fire, and a predominantly Russian
military “peacekeeping” force has been stationed in South Ossetia (currently numbering
about 530). A coordinating commission composed of OSCE, Russian, Georgian, and North
and South Ossetian emissaries was formed to promote a settlement of the Georgian-Ossetian
conflict. Relations with Georgia deteriorated following a contentious “presidential” election
in South Ossetia in late 2001, won by Russian citizen and resident of St. Petersburg Eduard
Kokoyev (Kokoiti), who had run on a platform of “associating”the region with Russia. In
January 2003, a Shevardnadze emissary met with Kokoyev.
Abkhazia. In late 2001, the Abkhaz conflict heated up after remaining dormant for
several years. Abkhazia’s Supreme Soviet declared its effective independence from Georgia
in July 1992. This prompted Georgian national guardsmen to attack Abkhazia. In October
1992, the U.N. Security Council (UNSC) approved the first U.N. observer mission to a
Eurasian state, termed UNOMIG, to help reach a settlement. UNOMIG’s mandate has been
continuously extended. In September 1993, Russian and North Caucasian “volunteer” troops
that reportedly made up the bulk of Abkhaz separatist forces broke a cease-fire and quickly
routed Georgian forces. The U.N. sponsored Abkhaz-Georgian talks, with the participation
of Russia and the OSCE, that led to a cease-fire. In April 1994, the two sides signed
framework accords on a political settlement and on the return of refugees. A Quadripartite
Commission was set up to discuss repatriation, composed of Abkhaz and Georgian
representatives and emissaries from Russia and UNHCR. In May 1994, an accord provided
for Russian troops (acting as CIS “peacekeepers”) to be deployed in a security zone along
the Inguri River that divides Abkhazia from the rest of Georgia. The Military Balance 2002-
2003 estimates that about 1,600 Russian “peacekeepers” are deployed. The conflict resulted
in about 10,000 deaths and over 200,000 displaced persons, mostly ethnic Georgians.
U.S. Special Negotiator Perina works with the U.N. Secretary General, his Special
Representative, and other Friends of Georgia (France, Germany, Russia, the United
Kingdom, and Ukraine) to facilitate a peace settlement. There were 108 UNOMIG military
observers as of mid-2002, including two U.S. personnel. The UNSC agreed that cooperation
with the Russian forces was a reflection of trust placed in Russia. Under various agreements,
the Russian “peacekeepers” are to respond to UNOMIG reports of ceasefire violations, carry
out demining, and provide protection for UNOMIG’s unarmed observers. In late 1997, the
sides agreed to set up a Coordinating Council to discuss cease-fire maintenance and refugee,
economic, and humanitarian issues.
Coordinating Council talks and those of the
Quadripartite Commission have been supplemented by direct discussions between Abkhaz
and Georgian representatives. Sticking points between the two sides have included Georgia’s
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demand that displaced persons be allowed to return to Abkhazia, after which an agreement
on broad autonomy for Abkhazia may be negotiated. The Abkhazians have insisted upon
recognition of their effective independence as a precondition to large-scale repatriation.
Abkhaz authorities have refused to consider a draft negotiating document prepared by the
U.N. and the Friends of Georgia in January 2002.
Deputy Assistant Secretary of State Lynn Pascoe in Congressional testimony on
September 24, 2002, stated that Russia was stalling on negotiations on a political settlement
of the Abkhaz conflict. Perhaps addressing this criticism, Putin, Shevardnadze, and an
Abkhaz emissary met in Sochi on March 6-7, 2003, and the three sides agreed to set up
working groups to facilitate opening a rail line through Abkhazia and repatriating Georgians
to Abkhazia’s Gali area. Georgia agreed to an indefinite extension of the mandate to the
Russian peacekeepers, to participate in a proposed economic zone led by Russia, and to
permit Russian control of the Inguri hydroelectric station. A troubling sign after this meeting
included Abkhazia’s immediate rejection of Shevardnadze’s report that the parties had
agreed to work out a federal status for Abkhazia.
Shevardnadze reported on March 19, 2003, that President Bush pledged in a letter that
the Administration would pay more attention to the conflict in Georgia’s breakaway
Abkhazia region after it dealt with Iraq. In June 2003, Shevardnadze reportedly sent a letter
to President Bush reminding him of the pledge, and U.S. State Department and National
Security Council officials, and former Secretary Baker, visited Georgia July 5-6 to discuss
Abkhazia, terrorism, and electoral reforms.
Economic Conditions, Blockades and Stoppages
The economies of all three South Caucasus states greatly declined in the early 1990s,
affected by the dislocations caused by the breakup of the Soviet Union, conflicts, trade
disruptions, and the lingering effects of the 1988 earthquake in Armenia. Although gross
domestic product (GDP) began to rebound in the states in the mid-1990s, the economies
remain fragile. Investment in oil and gas resources and delivery systems has fueled
economic growth in Azerbaijan in recent years. Armenia’s GDP was about $550 per capita,
Azerbaijan’s was about $700, and Georgia’s was about $1,000 (Economist Intelligence Unit,
2001 estimates, current dollars). Widespread poverty and regional conflict have contributed
to high emigration from all three states.
Transport and communications obstructions and stoppages have severely affected
economic development in the South Caucasus and stymied the region’s emergence as an
East-West and North-South corridor. Since 1989, Azerbaijan has obstructed railways and
pipelines traversing its territory to Armenia, and for a time successfully blockaded NK.
These obstructions have had a negative impact on the Armenian economy, since it is heavily
dependent on energy and raw materials imports. Turkey has barred U.S. shipments of aid
through its territory to Armenia since March 1993. P.L. 104-107 and P.L. 104-208 mandated
a U.S. aid cutoff (with a presidential waiver) to any country which restricts the transport or
delivery of U.S. humanitarian aid to a third country, aimed at convincing Turkey to allow the
transit to U.S. aid to Armenia. According to the U.S. Embassy in Baku, Azerbaijan’s
poverty-stricken Nakhichevan exclave “is blockaded by neighboring Armenia,” severing its
“rail, road, or energy links to the rest of Azerbaijan.” Iran has at times obstructed bypass
routes to Nakhichevan. Georgia has cut off natural gas supplies to South Ossetia, and Russia
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has at times cut off gas supplies to Georgia. In 1996, the CIS supported Georgia in imposing
an economic embargo on Abkhazia, but in 1999 Russia lifted most trade restrictions.
Indicating the complicated politics surrounding regional transport, Aliyev alleged that, during
an August 2002 meeting with Kocharyan, his conditional offer to reopen a railway transiting
the two countries was rejected by Kocharyan. The Armenian presidential press secretary
responded that an unconditional reopening could be a confidence-building measure, but that
it should be part of a comprehensive “package” settlement of the NK conflict.
Political Developments
All three regional states are undergoing presidential and/or legislative elections.
Armenia had such elections in March and May 2003, respectively. Azerbaijan will hold
presidential elections on October 15, 2003. Georgia will hold legislative elections on
November 2, 2003, and Shevardnadze has declared that he will not run for re-election in
2005, opening the competition for presidential succession in that country. The organization
Freedom House rates all three states as “partly free,” but considers Armenia and Georgia as
further along in democratization.
Armenia. Armenia appeared somewhat stable until 1998, when then-President Levon
Ter-Petrosyan was forced to resign, reporting that his endorsement of peace proposals
suggested by the OSCE’s “Minsk Group” of concerned member-states had not been
supported by others in his government. Former Prime Minister Robert Kocharyan won a
1998 presidential election termed flawed by the U.S. State Department. Nonetheless, this
peaceful transfer of power is one of the few so far among the Eurasian states. Armenia’s
1999 parliamentary election was viewed as improved but still falling short of OSCE
standards. Illustrating the ongoing challenges to stability faced by Armenia, in October 1999,
gunmen entered the legislature and opened fire on deputies and officials, killing Prime
Minister Vazgen Sarkisyan and Speaker Karen Demirchyan, and six others. The killings may
have been the product of personal and clan grievances. Abiding by the constitution, the
legislature met and appointed Armen Khachatryan as speaker (a member of the ruling Unity
bloc), and Kocharyan named Sarkisyan’s brother the new prime minister. Political infighting
intensified until mid-2000, when Kocharyan appointed former Soviet dissident Andranik
Margaryan the new prime minister. In late 2002, Margaryan announced that the Republican
Party, which he heads, would fully back Kocharyan in presidential elections scheduled for
February 19, 2003. None of the nine candidates on the ballot received a required 50% plus
one of the vote, forcing a run-off on March 5 by the top two candidates, Kocharyan and
People’s Party head Stepan Demirchyan (Karen’s son). OSCE and PACE observers termed
the campaign vigorous and largely peaceful, but concluded that the election did not meet
international standards for a free and fair race, because of “widespread” ballot box stuffing,
a lack of transparency in vote-counting, and other “serious” irregularities.
On May 26, the Armenian Central Electoral Commission issued preliminary results for
the legislative election and a constitutional referendum held the previous day. In the party
list section of the voting (75 of 131 deputies are elected by party lists), six out of 21 parties
running passed a 5% hurdle and won seats. Margaryan’s Republican Party won 24.63% of
the votes, the opposition Justice bloc won 14.03% (led by Stepan Demirchyan), the pro-
government Land of Laws Party won 11.78%, pro-government Dashnaktsutiun won 10.46%,
the opposition National Unity Movement won 9.66%, and the pro-government United Labor
Party won 5.24%.
Many seats in individual constituency races were won by party
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independents. The Organization for Security and Cooperation in Europe (OSCE), said that
the election was “less flawed than the recent presidential poll, but still fell short of
international standards.” Proposed constitutional changes failed to be approved by the
voters, allegedly in part because of a poor government effort to inform the public about the
proposed changes. (See also CRS Report RS20812, Armenia Update.)
Azerbaijan. Azerbaijan has had three presidents and other acting heads of state since
independence, and has suffered several coups or attempted coups.
A constitutional
referendum in 1995 granted Azerbaijani President Heydar Aliyev sweeping powers. He has
concentrated power in his office, arrested many of his opponents, and taken other measures
to keep the opposition weak. The 1995 legislative and 1998 presidential elections were
marred by irregularities, according to international observers.
In late June 2000, the
Parliamentary Assembly of the Council of Europe (PACE) approved Azerbaijan’s
membership, conditioned on its compliance with commitments, including holding a free and
fair legislative election. OSCE and PACE observers to the November 2000 legislative
election judged it “seriously flawed,” though they said it showed some progress compared
to previous elections. U.S. Helsinki Commission observers saw virtually no progress.
Although international observers also judged January 2001 legislative run-off elections as
seriously flawed, PACE admitted both Azerbaijan and Armenia as members later in the
month. U.S. State Department Spokesman Richard Boucher stated in August 2002 that
widespread irregularities appeared to have taken place during a just-held constitutional
referendum, and concluded that it “did very little to advance democratization.” Several of
the constitutional changes had been encouraged by the Council of Europe, such as the
creation of a executive-level human rights ombudsman. Others, however, were criticized by
some opposition party leaders, in particular the elimination of party list voting, which may
sharply reduce opposition party representation in the legislature, and a designation of the
prime minister as the next in line in the case of presidential incapacity, death, or resignation,
which oppositionists fear could permit Aliyev to more effectively position his son Ilkham as
successor. Despite poor health, President Aliyev maintains that he will stand for re-election
in a race planned for October 2003.
Georgia. Georgia experienced political instability during the early 1990s, a fragile
stability in the second half of the decade, and seemingly increased instability in recent years
linked to President Eduard Shevardnadze’s stated intention not to seek another term in 2005.
Over the years, Shevardnadze has survived several coup attempts and has prevailed over
political rivals both within and outside of his Citizens’ Union Party (CUG). According to
some critics, U.S. policy has relied too heavily on personal ties with Shevardnadze (and with
Aliyev in Azerbaijan), and his replacement could bring instability and setbacks to U.S.
interests. The OSCE reported that legislative races in October-November 1999 in Georgia
appeared mostly fair, but did not fully comply with OSCE standards. Shevardnadze received
80% of 1.87 million votes cast in an April 2000 presidential race that the OSCE concluded
did not meet democratic standards. Shevardnadze’s appointment of State Secretary Avtandil
Dzhorbenadze at the end of June 2002 to head the CUG was viewed by many Georgians as
an attempt to designate an heir. According to some reports, U.S. aid to set up a Georgian
National Security office has reflected in part U.S. concerns that Shevardnadze’s succession
proceed smoothly. Legislative elections are scheduled for November 2, 2003. Observers
have raised concerns about reports that some political parties are forming militias and about
the possibility of criminal syndicates infiltrating the vote.
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The South Caucasus’ External Security Context
Russian Involvement in the Region
Russia has appeared to place a greater strategic importance on maintaining influence
in the South Caucasus region than in Central Asia (except Kazakhstan). Russia has exercised
most of its influence in the military-strategic sphere, less in the economic sphere, and a
minimum in the domestic political sphere, except for obtaining assurances on the treatment
of ethnic Russians. Russia has viewed Islamic fundamentalism as a potential threat to the
region, but has cooperated with Iran on some issues to counter Turkish and U.S. influence.
Russia has tried to stop ethnic “undesirables,” drugs, weapons, and other contraband from
entering its borders, and to contain the contagion effects of separatist ideologies in the North
and South Caucasus. These concerns, Russia avers, has led it to maintain military bases in
Armenia and Georgia. The states have variously responded to Russian overtures. Armenia
has close security and economic ties with Russia, given its unresolved NK conflict and
grievances against Turkey. Russia’s security actions against its breakaway Chechnya region,
its military bases in Georgia, and support to Abkhaz and South Ossetian separatists draw
Georgia’s ire. Azerbaijan has been concerned about Russia’s ties with Armenia.
Military-Strategic Interests. Russia’s armed presence in the South Caucasus is
multi-faceted, including military base personnel, “peacekeepers,” and border troops. The
first step by Russia in maintaining a military presence in the region was the signing of the
Commonwealth of Independent States (CIS) Collective Security Treaty (CST) by Armenia,
Russia, and others in 1992, which calls for mutual defense consultations (Azerbaijan and
Georgia withdrew from the CST in 1999). Russia also secured permission for two military
bases in Armenia and four in Georgia. Russian forces help guard the Armenian-Turkish
border. The total number of Russian troops has been estimated at about 2,900 in Armenia
and 4,000 in Georgia. Another 100,000 Russian troops are stationed nearby in the North
Caucasus (The Military Balance 2002-2003). In 1993, Azerbaijan was the first Eurasian
state to get Russian troops to withdraw, except at the Gabala radar site in northern
Azerbaijan. (Giving up on closing the site, in January 2002 Azerbaijan signed a 10-year
lease agreement with Russia to permit up to 1,500 personnel at the site.) In January 1999,
Georgia assumed full control over guarding its sea borders, and in October 1999, most of the
Russian border troops left, except for some liaison officers. Armenia has argued that its
Russian bases provide for regional stability by protecting it from attack. Russia has said that
it has supplied weapons to Armenia, including S-300 missiles and Mig-29 fighters for air
defense, to enhance Armenia’s and NK’s security. Azerbaijan and Georgia have raised
concerns about the spillover effects of Russia’s military operations in Chechnya.
In
December 1999, the OSCE agreed to Georgia’s request to send observers (currently 42) to
monitor its border with Chechnya (later expanding this monitoring to nearby border areas).
Since the September 11, 2001 terrorist attacks in the United States, Russia has stepped
up its claims that Georgia harbors Chechen terrorists with links to bin Laden, who use
Georgia as a staging ground for attacks into Chechnya. Georgia, which borders Chechnya,
has accepted thousands of Chechen refugees, mainly because many Chechens, termed Kists,
live in Georgia’s Pankisi Gorge area. Some Russian officials initially condemned U.S. plans,
announced in early 2002, to provide military training and equipment to Georgia to help it
deal with terrorism in the Pankisi Gorge and elsewhere. The United States has expressed
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“unequivocal opposition” to military intervention by Russia inside Georgia.
Georgia
launched a policing effort in the Gorge and agreed with Russia to some coordinated border
patrols in October 2002 that have appeared to reduce tensions (for details, see CRS Report
RS21319, Georgia’s Pankisi Gorge).
Russia’s Bases in Georgia. In 1999 Russia agreed to provisions of the adapted
Conventional Armed Forces in Europe (CFE) Treaty calling for it to reduce weaponry at its
bases in Georgia, to close its bases at Gudauta and Vaziani by July 2001, and to discuss
closing Russian military bases at Batumi and Akhalkalaki. The Treaty remains unratified by
NATO signatories until Russia satisfies these and other conditions. Russia moved some
weaponry from the bases in Georgia to bases in Armenia, raising objections from Azerbaijan.
On July 1, 2001, Georgia reported that the Vaziani base and airfield had been turned over by
Russia to Georgia. The Russian government reported in June 2002 that it had closed its
Gudauta base, but announced that 320 troops would remain to guard facilities and support
“peacekeepers” who would relax at the base. Russia has stated that it needs $300 million and
eleven years to close the other two bases. At its December 2002 ministerial meeting, the
OSCE hailed the Gudauta closure over Georgia’s objections that the base was not under
Georgia’s control, and appeared unwilling to press Russia on terminating the other bases.
Pascoe testified on September 24, 2002, that Russia is temporizing on implementing its CFE
Istanbul commitments. At the OSCE meeting in December 2002, the United States voiced
“hope” that Russia would make progress in 2003 in meeting its CFE commitments.
Caspian Energy Resources. Russia has tried to play a significant role in future oil
production, processing, and transportation in the Caspian Sea region. 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 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 and gas pipelines. 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.” Some observers view Russia’s stepped-
up pressure on Georgia during 2002 as calculated to increase its influence, including over
pipelines. Russia conducted a major military exercise in the northern Caspian Sea in August
2002, demonstrating its armed predominance and underscoring its proposals for dividing
Caspian Sea energy and other resources among the five littoral states.
The Protection of Ethnic Russians and “Citizens”. As a percentage of the
population, there are fewer ethnic Russians in the South Caucasus states than in most other
Eurasian states. According to the CIA World Factbook, ethnic Russians constituted about
3.6% of the region’s population in 2002. Russia has voiced concerns about the safety of
ethnic Russians in Azerbaijan and Georgia. A related Russian interest has involved former
Soviet citizens who want to claim Russian citizenship or protection. In June 2002, a new
Russian citizenship law permitted granting citizenship and passports to most Abkhazians and
South Ossetians, heightening Georgian fears that Russia has de facto annexed the regions.
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Kokoyev reported in April 2003 that the vast majority of South Ossetians had been granted
Russian citizenship. 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 also is using fellow-
travelers and agents in place in the South Caucasus states to further its interests.
The Roles of Turkey, Iran, and Others
The United States has generally viewed Turkey as able to foster pro-Western policies
and discourage Iranian interference in the South Caucasus states, though favoring Azerbaijan
in the NK conflict. Critics of Turkey’s larger role in the region caution that the United States
and NATO might be drawn by their ties with Turkey into regional imbroglios. Turkey seeks
good relations with Azerbaijan and Georgia and some contacts with Armenia, while trying
to limit Russian and Iranian influence. Azerbaijan likewise views Turkey as a major ally
against such influence, and as a balance to Armenia’s ties with Russia. Armenia is a member
of the Black Sea Economic Cooperation zone, initiated by Turkey, and the two states have
established consular relations. Obstacles to better Armenian-Turkish relations include
Turkey’s rejection of Armenians’ claims of genocide in 1915-1923 and its support for
Azerbaijan in the NK conflict, including the border closing. Georgia has an abiding interest
in ties with the approximately one million Georgians residing in Turkey and the
approximately 50,000 residing in Iran, and has signed friendship treaties with both states.
Turkey and Russia are Georgia’s primary trade partners. Consistent with the U.S. focus on
the global anti-terror campaign, Turkey, Azerbaijan, and Georgia reached a tripartite security
cooperation accord in January 2002 on combating terrorism and international crime and
protecting pipelines. Turkey has hoped to benefit from the construction of new pipelines
delivering oil and gas from the Caspian Sea, though a Turkish economic downturn has
resulted in an oversupply problem for the time being.
Iran’s interests in the South Caucasus include discouraging Western powers such as
Turkey and the United States from gaining influence (Iran’s goal of containing Russia
conflicts with its cooperation with Russia on these interests), ending regional instability that
might threaten its own territorial integrity, and building economic links. A major share of
the world’s Azerbaijanis reside in Iran (estimates range from 6-12 million), which also hosts
about 200,000 Armenians. Ethnic consciousness among some “Southern Azerbaijanis” in
Iran has grown, which Iran has countered by limiting trans-Azerbaijani contacts. Azerbaijani
elites fear Iranian-supported Islamic extremism and object to Iranian support to Armenia.
Iran has growing trade ties with Armenia and Georgia, but its trade with Azerbaijan has
declined. To block the West and Azerbaijan from developing Caspian Sea energy resources,
Iran has insisted on either common control by the littoral states or the division of the seabed
into five equal sectors. Iranian warships have challenged Azerbaijani oil exploration vessels
in the Caspian Sea. U.S. policy aims at containing Iran’s threats to U.S. interests (See CRS
Issue Brief IB93033, Iran). Some critics argue that if the South Caucasus states are
discouraged from dealing with Iran, particularly in building pipelines through Iran, they face
greater pressure to accommodate Russian interests. (See also below, Energy.)
Among non-bordering states, the United States and European states are the most
influential in the South Caucasus in terms of aid, trade, exchanges, and other ties. U.S. and
European goals in the region are broadly compatible, involving integrating it into the West
and preventing an anti-Western orientation, opening it to trade and transport, obtaining
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energy resources, and helping it become peaceful, stable, and democratic. The South
Caucasus region has developed some economic and political ties with other Black Sea and
Caspian Sea littoral states, besides those discussed above, particularly with Ukraine,
Romania, and Kazakhstan. Azerbaijan shares with Central Asian states common linguistic
and religious ties and concerns about some common bordering powers (Iran and Russia).
The South Caucasian and Central Asian states have common concerns about ongoing
terrorist threats and drug trafficking from Afghanistan. Energy producers Kazakhstan,
Turkmenistan, and Uzbekistan have considered various forms of trans-Caspian transport as
a means to get their oil and gas to Western markets. Central Asia’s increasing trade links to
the South Caucasus will make it more dependent on stability in the region.
Aid Overview
The United States is the largest bilateral aid donor by far to Armenia and Georgia, and
the two states are among the four Eurasian states that each have received more than $1
billion in U.S. aid FY1992-FY2002 (the others are Russia and Ukraine). See Table 1. By
comparison, aid from the European Union to the region has totaled about $1 billion over the
past decade. U.S. assistance has included FREEDOM Support Act programs, food aid (U.S.
Department of Agriculture), Peace Corps, and security assistance. Armenia and Georgia
have regularly ranked among the top world states in terms of per capita U.S. aid, indicating
the high level of concern within the Administration and Congress. Foreign Operations
Appropriations for FY1998 (P.L. 105-118) created a new South Caucasian funding category
and earmarked $250 million in aid to this category. In FY1999 appropriations (P.L. 105-
277), Congress earmarked $228 million in FREEDOM Support Act aid for this category.
The category was sustained in FY2000-FY2003, though without an earmark. Besides
bilateral aid, the United States contributes to multilateral organizations such as the
International Monetary Fund and the World Bank that aid the region. Georgia has been
suggested as a recipient of enhanced U.S. development aid under the proposed Millennium
Account. On the other hand, in June 2003, the State Department listed Georgia among states
inadequately addressing the problem of human trafficking, possibly making it a target of U.S.
aid sanctions. (See also CRS Issue Brief IB95077, The Former Soviet Union and U.S.
Foreign Assistance.)
In the 108th Congress, Omnibus Appropriations for FY2003 (H.J.Res. 2; P.L. 108-7,
signed into law on February 20, 2003) provides $760 million in FREEDOM Support Act
assistance for the Independent States of the Former Soviet Union. The law reaffirms the
South Caucasus spending category, and permits funds “notwithstanding any other provisions
of law” to be used for confidence-building and other efforts to foster the settlement of
regional conflicts, especially those involving NK and Abkhazia. It earmarks not less than
$90 million for Armenia. It provides for exemptions to Sec. 907 in case the presidential
waiver is not exercised for nonproliferation, democracy, TDA, Foreign Commercial Service,
OPIC, and Eximbank aid and services. The Conferees (H.Rept. 108-10) recommend
continued funding for study of a proposed synchrotron project in Armenia. The Conferees
state that, unlike prior years, aid was not earmarked for Georgia, but they “continue to
support [its] sovereignty and territorial integrity.” They call on Georgia to uphold human
rights and the rule of law by protecting religious minorities against mob violence. They
commend the conclusion of USAID that the establishment of a wastewater management
program for Georgia should be deferred (to focus on energy supply needs). They call on the
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State Department and Azerbaijani authorities to continue to investigate the death of a U.S.
democracy worker in Azerbaijan.
U.S. Security Assistance
The United States has provided some security assistance to the region, and bolstered
such aid after 9/11, though overall aid amounts to the countries did not increase post-9/11
as they did in regard to the Central Asian “front line” states. See Table 2 for cumulative
budgeted security assistance for FY1992-FY2002. In Georgia, Congress in 1997 directed
setting up a Border Security and Related Law Enforcement Assistance Program, and some
of this aid has been used by Georgia to fortify its northern borders with Russia and
Chechnya. The United States has committed millions of dollars to facilitate the closure of
Russian military bases in Georgia. Congress initiated the Security Assistance Act of 2000
(P.L. 106-280) that authorized nonproliferation, export control, border, anti-terrorism, and
other security aid for the South Caucasus states and earmarking such aid for Georgia. In
1997, a U.S.-Azerbaijan Bilateral Security Dialogue was inaugurated to discuss terrorism,
drug trafficking, international crime, and the proliferation of weapons of mass destruction
(WMD). The United States has signed many other accords with the regional states on
military cooperation, combating WMD proliferation, and securing nuclear materials. 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. Azerbaijan in November 2002 deployed 30 troops to assist the
U.S.-led coalition in Afghanistan.
The Azerbaijani and Georgian presidents have stated that they want their countries to
join NATO; much greater progress in military reform, however, will likely be required before
they are considered for membership. All three states joined NATO’s Partnership for Peace
(PFP). Azerbaijani and Georgian troops serve as peacekeepers in the NATO-led operation
in Kosovo, and Armenian troops will serve beginning in July 2003. “Cooperative Best Effort
2002" PFP exercises were held at the former Russian Vaziani airbase in Georgia in June
2002, involving 600 troops from 15 countries, and follow-on exercises took place in June
2003 in Armenia, involving about 400 troops from 19 countries, including troops from
Turkey and Russian troops based in Armenia.
Until waived, Sec. 907 had prohibited much U.S. security aid to Azerbaijan (including
Foreign Military Financing or FMF, and International Military Education & Training or
IMET), and by U.S. policy similar aid had not been provided to Azerbaijan’s fellow
combatant Armenia (both countries were on the Munitions List of countries ineligible for
U.S. arms transfers). The calendar year 2002 waiver of Sec. 907 (followed by the April
2002 Presidential Determination 2002-15, making Armenia, Azerbaijan, and Tajikistan
eligible to receive FMF in order to “strengthen the security of the United States”) permitted
the provision of $4.075 million in IMET and FMF aid to Armenia and $4.377 million to
Azerbaijan in FY2002. The waiver enabled both Armenia and Azerbaijan to participate in
yearly “Best Effort” PFP exercises. A U.S.-financed center for de-mining opened in Armenia
in March 2002. Similarly, the State Department announced in July 2002 that 25 U.S. Special
Operations troops were providing de-mining training in Azerbaijan. The calendar year 2003
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waiver permitted additional IMET and FMF aid for both Armenia ($3.7 million) and
Azerbaijan ($5.75 million).
As part of Operation Enduring Freedom, a $64 million Georgia Train and Equip
Program (GTEP) began in May 2002 with the deployment of up to 150 Special Operations
Forces, Marines, and other troops. They are providing training to Georgian 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 Abkhazia might host terrorists, warned that U.S. training
could increase Georgia’s revanchism and regional instability, and praised Russia as a
bulwark against such instability. Reports that al Qaeda and other terrorists may be currently
in Abkhazia (and elsewhere in Georgia) create dilemmas for a U.S. policy that holds
governments responsible for terrorists operating on their territories. (For details, see CRS
Report RS21319, Georgia’s Pankisi Gorge.)
U.S. Trade and Investment
The Bush Administration and others maintain that U.S. support for privatization and the
creation of free markets directly serve U.S. national interests by opening new markets for
U.S. goods and services, and sources of energy and minerals. Among U.S. economic links
with the region, bilateral trade agreements providing for normal trade relations for products
have been signed and entered into force with all three states. Bilateral investment treaties
providing national treatment guarantees have entered into force. U.S. investment is highest
in Azerbaijan’s energy sector, but rampant corruption in Azerbaijan and Georgia otherwise
have stifled investment. The EIU attributes paltry U.S. and other foreign investment in
Armenia to business concerns about inadequate law enforcement. With U.S. support, in
June 2000 Georgia became the second Eurasian state (after Kyrgyzstan) to be admitted to the
WTO. P.L. 106-476, signed into law on November 9, 2000, stated that the President may
determine that Title IV should no longer apply to Georgia and proclaim that its products will
receive permanent nondiscriminatory (normal trade relations - NTR) treatment. Citing “due
regard for the findings of the Congress,” President Clinton on December 29, 2000,
determined and proclaimed such permanent normal trade relations. Armenia was admitted
into WTO in December 2002, but until U.S. legislation is passed, it will continue to receive
conditional NTR treatment subject to a presidential determination, as does Azerbaijan (see
also CRS Report RL31558, Normal-Trade-Relations).
Energy Resources and U.S. Policy
The U.S. Energy Department reports estimates of 1.2 billion barrels of proven oil
reserves, and estimates of 4.4 trillion cubic feet of proven natural gas reserves in Azerbaijan
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(Country Analysis Brief, June 2002).
Many problems remain to be resolved before
Azerbaijan can fully exploit and market its energy resources, including political instability,
ethnic and regional conflict, and the security and construction of pipeline routes.
U.S. policy goals regarding energy resources in the Central Asian and South Caucasian
states have included supporting their sovereignty and ties to the West, supporting U.S.
private investment, breaking Russia’s monopoly over oil and gas transport routes by
encouraging the building of pipelines that do not traverse Russia, promoting Western energy
security through diversified suppliers, assisting ally Turkey, and opposing the building of
pipelines that transit Iran. These goals are reflected in the Administration’s May 2001
National Energy Policy. It recommends that the President direct U.S. agencies to support
building the BTC oil pipeline, expedite use of the pipeline by oil companies operating in
Kazakhstan, support constructing a BTC gas pipeline to export Azerbaijan’s Shah Deniz gas,
and otherwise encourage the Caspian regional states to provide a stable and inviting business
climate for energy and infrastructure development. Since 9/11, the Administration has
emphasized the vulnerability of the United States to possible energy supplies disruptions and
intensified its commitment to develop Caspian energy and the BTC pipeline as part of a
strategy of diversifying world energy supplies.
U.S. companies are shareholders in about one-half of twenty international production-
sharing consortiums, including the Azerbaijan International Operating Company (AIOC;
which includes U.S. firms Unocal and Exxonmobil, U.S. Devon Energy, and U.S.-Saudi
Delta Hess), formed to exploit Azerbaijan’s oil and gas fields. In 1995, Aliyev and the AIOC
decided to transport “early oil” (the first and lower volume of oil) through two revamped
Soviet-era pipelines in Georgia and Russia to ports on the Black Sea, each with a capacity
of around 100-115,000 barrels per day.
The trans-Russia “early oil” pipeline began
delivering oil to the port of Novorossiisk in late 1997. The trans-Georgian pipeline began
delivering oil to Black Sea tankers in early 1999.
The Clinton Administration launched a campaign in late 1997 stressing the strategic
importance of the BTC route as part of a “Eurasian Transport Corridor.” In November 1999,
Azerbaijan, Georgia, Turkey, and Kazakhstan signed the “Istanbul Protocol” on construction
of the BTC oil pipeline. Estimates suggest that the 1,040-mile pipeline (carrying a million
barrels per day) may cost $3 billion. Full financing has been difficult to arrange. The
European Bank for Reconstruction and Development and the International Finance
Corporation have each pledged $300 million in financing. OPIC expects to provide loan
guarantees in FY2003. U.S. Eximbank may also back the project. In August 2002, the BTC
Company was formed to construct, own, and operate the oil pipeline, and it awarded
contracts to begin construction in 2003, with a completion date of 2005 (U.S. construction
firms awarded contracts include Bechtal and Petrofac). In September 2001, Georgia signed
an accord with Azerbaijan to build a pipeline to import natural gas from Azerbaijan’s Shah
Deniz offshore field, and to permit remaining gas to be piped to Turkey, but plans for this
pipeline are uncertain. In a September 2002 letter to the presidents of Azerbaijan, Georgia
and Turkey, President Bush stated that the BTC pipeline would enhance global energy
security “through a more diverse supply of oil for global markets,” and strengthen regional
and global economic growth and the sovereignty and independence of the region. Actual
construction reportedly began in Georgia in May 2003. The pipeline does not cross Armenia,
raising objections from some in Armenia of lack of access. Armenia and Iran have discussed
building a gas pipeline to link up with Iran’s pipelines.
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Table 1. U.S. FY1992-FY2002 Budgeted Aid, FY2003 Allocations,
and the FY2004 Foreign Assistance Request
(millions of dollars)
FY2002 Budgeted Aid,
FY2003
Central Asian
FY1992-FY2002
Including Emergency
Allocated
FY2004
Country
Budgeted Aid*
Supplementals*
Aid**
Request**
Armenia
1,337.08
107.61
89.415
49.5
Azerbaijan
337.68
51.79
45.7
41.5
Georgia
1,121.77
110.01
83.45
75.0
Total
2,796.53
269.41
218.565
166.0
Sources: USAID and State Department.
*FREEDOM Support Act and Agency budgets.
**FREEDOM Support Act and other Function 150 funds (does not include Defense or Energy Department
funding).
LEGISLATION
H.R. 2800 (Kolbe)
Makes Appropriations for Foreign Operations. Introduced July 21, 2003; referred to
Committee on Appropriations. Reported July 21 (H.Rept. 108-222). Approved July 24,
2003; placed on calendar in Senate. Earmarks not less than $70 million for Armenia.
S. 1426 (McConnell)
Makes Appropriations for Foreign Operations. Introduced July 17, 2003; referred to
Committee on Appropriations. Ordered to be reported as an original measure July 17
(S.Rept. 108-106). Earmarks $75 million for Georgia and $75 million for Armenia.
Provides $2.5 million in Foreign Military Financing and not less than $900,000 in
International Military Education and Training funds for Armenia.
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