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 September 9, 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
Operations in Iraq
Obstacles to Peace and Independence
Regional Tensions and Conflicts
Nagorno Karabakh Conflict
Civil and Ethnic Conflict in Georgia
Economic Conditions, Blockades and Stoppages
Democratization Problems
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
U.S. 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-
support to promote non- proliferation, Trade
pendence of all the former Soviet republics by
and Development Agency aid, Overseas
the end of 1991, including the South Caucasus
Private Investment Corporation insurance,
states of Armenia, Azerbaijan, and Georgia.
Eximbank financing, and Foreign Commercial
The United States has fostered these states’
Service activities. The current Bush Adminis-
ties with the West, including membership in
tration appealed for a national security waiver
the Organization for Security and Cooperation
of the prohibition on aid to Azerbaijan, in
in Europe and NATO’s Partnership for Peace,
consideration of Azerbaijan’s assistance to the
in part to end the dependence of these states
international coalition to combat terrorism. In
on Russia for trade, security, and other rela-
December 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, President George H.W. Bush
pliers, and encourages building multiple
proposed the FREEDOM Support Act in early
energy pipeline routes to world markets. In
1992. Signed into law in 1992, P.L. 102-511
the aftermath of the September 11, 2001
authorized funds for the Eurasian states for
terrorist attacks on the United States, the
humanitarian needs, democratization, creation
South Caucasus states expressed support for
of market economies, trade and investment,
U.S.-led operations in Afghanistan against al
and other purposes. Sec. 907 of the Act pro-
Qaeda and other terrorist groups. As an
hibited most U.S. government-to-government
outgrowth of the U.S. anti-terrorism campaign
aid to Azerbaijan until its ceases blockades
in Afghanistan, the U.S. military in May 2002
and other offensive use of force against Arme-
began providing security equipment and
nia. This provision was partly altered over the
training to help Georgia combat terrorist
years to permit humanitarian aid and democra-
groups in its Pankisi Gorge area and elsewhere
tization aid, border security and customs
in the country.
Congressional Research Service ˜ The Library of Congress

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09-09-03
MOST RECENT DEVELOPMENTS
Four Georgian troops of the 69 serving with U.S.-led coalition forces in Iraq were
injured in a non-combat related incident and were flown to the United States for treatment
in late August 2003.
Political dissidence has increased in the run-up to Azerbaijan’s October 15, 2003,
presidential election. On September 7, thousands of people marched in the capital of Baku
in support of opposition Musavat Party candidate Isa Gumbar. This rally, approved by the
government, was largely peaceful, but a televised political debate among presidential
candidates the previous day deteriorated into a brawl, and police reportedly forcibly attacked
representatives of the opposition Popular Front (Reform) party on September 8. The Central
Electoral Commission, controlled by pro-government interests, has proposed that the state
consider prosecuting two opposition candidates who criticized President Heydar Aliyev as
corrupt, but refused to consider sanctions against pro-government candidate Hafiz Haciyev,
who accused Gumbar and other opposition candidates of spying for Armenia and Iran.
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.)
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).
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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
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 2002 highlighted U.S. support for Azerbaijan’s and Georgia’s
efforts to stop their territories from being used by international mujahidin and Chechen
guerrillas to finance and supply Chechen and other Caucasian terrorism.
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After 9/11, Congressional attitudes toward Azerbaijan and 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 U.S. aid 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.
Operations in Iraq. 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. Both countries also agreed
to participate – subject to U.S. financial support – in the stabilization force for Iraq. In early
August 2003, Georgia dispatched 69 troops – 34 special operations personnel, 20 medics,
and 15 engineers – to Iraq, and also is considering sending police. Azerbaijan’s 150 troops
were dispatched in mid-August. Before the U.S.-led operation in Iraq, Armenia raised
concerns about the safety of 30,000 ethnic Armenians residing in Iraq, among some 200,000
residing in the Middle East, and about 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
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
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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 the forced resignation of President Levon Ter-
Petrosyan. 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 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, Armenian President Robert
Kocharyan proclaimed that Armenia’s policy on the 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,
resulting in the loss of central government control over the regions of South Ossetia and
Abkhazia. South Ossetia 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
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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. During 2003,
there has been little progress in reaching a peace settlement.
Abkhazia. In late 2001, the Abkhaz conflict heated up after remaining dormant for
several years. The regional legislature declared Abkhazia’s effective independence from
Georgia in July 1992, prompting 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 the parties reach a settlement. UNOMIG’s
mandate has been continuously extended and consisted of 114 observers in May 2003
(including a few U.S. troops). 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. U.N.-sponsored Abkhaz-Georgian talks, with the
participation of Russia and the OSCE, led to a cease-fire, and in April 1994 the two sides
agreed to a framework for a political settlement and 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. A May 1994 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. 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 cease-fire violations, carry
out demining, and provide protection for UNOMIG’s unarmed observers. In late 1997, the
sides agreed to set up a Coordinating Council to discuss cease-fire maintenance and refugee,
economic, and humanitarian issues. Coordinating Council talks and those of the
Quadripartite Commission have been supplemented by direct discussions between Abkhaz
and Georgian representatives. Sticking points between the two sides have included Georgia’s
demand that displaced persons be allowed to return to Abkhazia, after which an agreement
on broad autonomy for Abkhazia may be negotiated. The Abkhazians have insisted upon
recognition of their effective independence as a precondition to large-scale repatriation.
Since January 2002, Abkhaz authorities have refused to consider a draft negotiating
document prepared by the U.N. and the Friends of Georgia.
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 simultaneously opening a rail line through Abkhazia to Tbilisi
and repatriating Georgians to Abkhazia’s Gali area. Georgia agreed to an indefinite
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extension of the mandate to the Russian peacekeepers, to participate in a proposed economic
zone led by Russia, and to a Russian role in modernizing the Inguri hydroelectric station.
The sides continue to wrangle over implementing the Sochi accords.
Shevardnadze reported in March 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 James Baker, visited Georgia July 5-6 to
discuss Abkhazia, terrorism, and electoral reforms (see also below, Democratization).
Economic Conditions, Blockades and Stoppages
The economies of all three South Caucasus states greatly declined in the early 1990s,
affected by the dislocations caused by the breakup of the Soviet Union, conflicts, trade
disruptions, and the lingering effects of the 1988 earthquake in Armenia. Although gross
domestic product (GDP) began to rebound in the states in the mid-1990s, the economies
remain fragile. Investment in oil and gas resources and delivery systems has fueled
economic growth in Azerbaijan in recent years. Armenia’s GDP was about $550 per capita,
Azerbaijan’s was about $700, and Georgia’s was about $1,000 (Economist Intelligence Unit,
2001 estimates, current dollars). Widespread poverty and regional conflict have contributed
to high emigration from all three states.
Transport and communications obstructions and stoppages have severely affected
economic development in the South Caucasus and stymied the region’s emergence as an
East-West and North-South corridor. Since 1989, Azerbaijan has obstructed railways and
pipelines traversing its territory to Armenia, and for a time successfully blockaded NK.
These obstructions have had a negative impact on the Armenian economy, since it is heavily
dependent on energy and raw materials imports. Turkey has barred U.S. shipments of aid
through its territory to Armenia since March 1993. P.L. 104-107 and P.L. 104-208 mandated
a U.S. aid cutoff (with a presidential waiver) to any country which restricts the transport or
delivery of U.S. humanitarian aid to a third country, aimed at convincing Turkey to allow the
transit to U.S. aid to Armenia. According to the U.S. Embassy in Baku, Azerbaijan’s
poverty-stricken Nakhichevan exclave “is blockaded by neighboring Armenia,” severing its
“rail, road, or energy links to the rest of Azerbaijan.” Iran has at times obstructed bypass
routes to Nakhichevan. Georgia has cut off natural gas supplies to South Ossetia, and Russia
has at times cut off gas supplies to Georgia. In 1996, the CIS supported Georgia in imposing
an economic embargo on Abkhazia, but 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.
Democratization Problems
The organization Freedom House considers Armenia and Georgia as somewhat more
democratic than Azerbaijan, but views all three states as only “partly free” and as making
scant democratization progress. During 2003, all three are conducting presidential and/or
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legislative elections. Armenia held 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 a competition for presidential succession in that country.
Armenia. Armenia appeared somewhat stable until 1998, when then-President Levon
Ter-Petrosyan was forced to resign after prominent officials opposed his endorsement of NK
peace proposals suggested by the OSCE. 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 legislative election was viewed as improved but still falling short of OSCE standards.
Illustrating ongoing challenges to stability, in October 1999, gunmen entered the legislature
and opened fire on deputies and officials, killing Prime Minister Vazgen Sarkisyan, 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, 2003, 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
about 25% of the votes, the opposition Justice bloc won 14% (led by Stepan Demirchyan),
the pro-government Land of Laws Party won 12%, pro-government Dashnaktsutiun won
10%, the opposition National Unity Movement won 10%, and the pro-government United
Labor Party won 5%. Many seats in individual constituency races were won by party
independents. The 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
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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. Some opposition party leaders,
however, objected to the elimination of party list voting in legislative elections, which may
sharply reduce the number of seats won by opposition parties, and the designation of the
prime minister as the next in line in the case of presidential incapacity, death, or resignation,
which oppositionists feared could streamline Ilkham’s positioning as successor.
President Aliyev suffered serious cardiac problems in April 2003 and has been
hospitalized for most of the time since then. He was flown from a Turkish hospital to one
in Cleveland, Ohio, in early August 2003, creating heightening popular speculation in
Azerbaijan about an imminent political succession. In what some critics termed an apparent
effort to keep the Aliyev dynasty in power, his son Ilkham in July proffered his candidacy
for an upcoming presidential election scheduled for October 15, 2003, demurring that he was
running only to buttress his father’s candidacy. On August 4, the legislature hurriedly
convened to confirm Ilkham as prime minister, a post permitting him to rule as interim head
of state in case his father resigned or died. Two days later, however, he took a “leave of
absence,” and the former prime minister was assigned to carry out official duties of the
office, since it was discovered that the electoral law forbade civil servants from running for
office. 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, but on August 4, it endorsed Ilkham’s appointment as prime minister as
constitutionally legitimate. Despite the “leave of absence,” Ilkhim seems to be carrying out
many official duties as prime minister.
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. President Bush tasked former U.S.
Secretary of State James Baker as his personal emissary to Georgia in early July 2003 to
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break a political deadlock over the composition of electoral commissions in the run-up to the
November elections. The Georgian government and major political parties seemed at first
to agree to the “Baker plan,” but the legislature still had not adopted it by early August.
The South Caucasus’ External Security Context
Russian Involvement in the Region
Russia has appeared to place great strategic importance on maintaining influence in the
South Caucasus region. 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
responded in various ways 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.) By October 1999,
most of the Russian border troops had left Georgia, 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 144 in summer and 111 in winter) to monitor its border with Chechnya (later this
monitoring was expanded 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,
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has accepted thousands of Chechen refugees, mainly because many Chechens, termed Kists,
live in Georgia’s Pankisi Gorge area. Some Russian officials initially condemned U.S. plans,
announced in early 2002, to provide military training and equipment to Georgia to help it
deal with terrorism in the Pankisi Gorge and elsewhere. The United States has expressed
“unequivocal opposition” to military intervention by Russia inside Georgia. Georgia
launched a policing effort in the Gorge and agreed with Russia to some coordinated border
patrols in October 2002 that have appeared to reduce tensions over this issue (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
four bases in Georgia, to close two of the bases (at Gudauta and Vaziani) by July 2001, and
to discuss closing the other two 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 Russia had turned over the Vaziani
base. Russia reported in June 2002 that it had closed its Gudauta base, but announced that
320 troops would remain to guard facilities and support Russian “peacekeepers” taking leave
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 in September 2002
that Russia is temporizing on implementing these 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.”
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.
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
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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 to balance 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 westward from the Caspian Sea.
Iran’s goals 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, Iran long 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. U.S. policy
aims at containing Iran’s threats to U.S. interests (See CRS Issue Brief IB93033, Iran).
Some critics argue that if the South Caucasus states are discouraged from dealing with Iran,
particularly in building pipelines through Iran, they face greater pressure to accommodate
Russian interests. (See also below, Energy.)
Among non-bordering states, the United States and European states are the most
influential in the South Caucasus in terms of aid, trade, exchanges, and other ties. U.S. and
European goals in the region are broadly compatible, involving integrating it into the West
and preventing an anti-Western orientation, opening it to trade and transport, obtaining
energy resources, and helping it become peaceful, stable, and democratic. The South
Caucasus region has developed some economic and political ties with other Black Sea and
Caspian Sea littoral states, besides those discussed above, particularly with Ukraine,
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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. Central Asia’s increasing energy and
other trade with the South Caucasus will make it more dependent on stability in the region.
U.S. 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
to emphasize regional peace and development. Georgia has been suggested as a recipient of
enhanced U.S. development aid under the proposed Millennium Challenge 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 if it fails to reform over the next year. Besides bilateral aid, the United States
contributes to multilateral organizations such as the International Monetary Fund and the
World Bank that aid the region. (See also CRS Issue Brief IB95077, The Former Soviet
Union and U.S. Foreign Assistance.)
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 the usual exemptions to Sec. 907 (see above) in case
the presidential waiver is not exercised. The Conferees (H.Rept. 108-10) recommended
continued funding for study of a proposed synchrotron project in Armenia. The Conferees
stated that, unlike prior years, aid was not earmarked for Georgia, but they “continue to
support [its] sovereignty and territorial integrity.” They called on Georgia to uphold human
rights and the rule of law by protecting religious minorities against mob violence. They
commended the conclusion of USAID that the establishment of a wastewater management
program for Georgia should be deferred (to focus on energy supply needs) and called on the
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 1. In Georgia,
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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. In February 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 it has provided some personnel for an expanded
OSCE observer presence 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). Armenian, Azerbaijani, and Georgian troops serve as peacekeepers in NATO-led
operation in Kosovo. “Cooperative Best Effort 2003" PFP 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. PFP exercises involving some 700 U.S., Georgian,
German, Estonian, Bulgarian, Turkish, Ukrainian, Moldovan, and Albanian troops were held
in Georgia in September 2003. A separate exercise was held at the same time by Russia and
Armenia in an area bordering Georgia.
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. calendar year 2003 waiver permitted additional IMET
and FMF aid for both Armenia ($3.7 million) and Azerbaijan ($5.75 million).
A $64 million Georgia Train and Equip Program (GTEP) began in May 2002 that U.S.
officials explained would help Georgian military, security, and border forces to combat
Chechen, Arab, Afghani, al Qaeda, and other terrorists who allegedly had infiltrated Georgia.
Some of these terrorists had allegedly fled U.S.-led coalition operations in Afghanistan, so
the GTEP was initially linked to the Afghan campaign. Other reported 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
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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.
military 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
has 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
(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 report. 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
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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 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. 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.
Table 1. U.S. FY1992-FY2002 and FY2002 Budgeted Aid, FY2003
Estimated Aid, and the FY2004 Foreign Assistance Request
(millions of dollars)
FY2002 Budgeted Aid,
Central Asian
FY1992-FY2002
Including Emergency
FY2003
FY2004
Country
Budgeted Aid*
Supplementals*
Estimate**
Request**
Armenia
1,337.08
107.61
98.231
49.5
Azerbaijan
337.68
51.79
59.797
41.5
Georgia
1,121.77
110.01
94.152
75.0
Total
2,796.53
269.41
252.18
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).
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LEGISLATION
H.R. 2800 (Kolbe)
Makes Appropriations for Foreign Operations for FY2004. Introduced July 21, 2003;
reported by the Committee on Appropriations 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 for FY2004. 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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