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 January 19, 2005
Jim Nichol
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Overview of U.S. Policy Concerns
Post-September 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


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Armenia, Azerbaijan, and Georgia:
Political Developments and Implications for U.S. Interests
SUMMARY
The United States recognized the inde-
In the aftermath of the September 11,
pendence of all the former Soviet republics by
2001 terrorist attacks on the United States, the
the end of 1991, including the South Caucasus
Administration appealed for a national secu-
states of Armenia, Azerbaijan, and Georgia.
rity waiver of the prohibition on aid to
The United States has fostered these states’
Azerbaijan, in consideration of Azerbaijan’s
ties with the West in part to end the depend-
assistance to the international coalition to
ence of these states on Russia for trade, secu-
combat terrorism. In December 2001,
rity, and other relations. The United States
Congress approved foreign appropriations for
has pursued close ties with Armenia to en-
FY2002 (P.L. 107-115) that granted the Presi-
courage its democratization and because of
dent authority to waive Sec. 907, renewable
concerns by Armenian-Americans and others
each calendar year under certain conditions.
over its fate. Close ties with Georgia have
President Bush exercised the waiver most
evolved from U.S. contacts with its pro-West-
recently on January 13, 2005.
ern leadership. The Bush Administration
supports U.S. private investment in
As part of the U.S. Global War on Ter-
Azerbaijan’s energy sector as a means of
rorism, the U.S. military in May 2002 began
increasing the diversity of world energy sup-
providing security equipment and training to
pliers and encourages building multiple en-
help Georgia combat terrorist groups in its
ergy pipelines to world markets. The United
Pankisi Gorge area and elsewhere in the
States has been active in diplomatic efforts to
country. Azerbaijani and Georgian troops
end conflicts in the region, many of which
participate in stabilization efforts in Afghani-
remain unresolved.
stan and Iraq. Armenia dispatched personnel
to Iraq on January 18, 2005.
The FREEDOM Support Act (P.L. 102-
511) provides the major authorization for
Consolidated Appropriations for
assistance to the Eurasian states for humani-
FY2005, including Foreign Operations (P.L.
tarian needs, democratization, creation of
108-447, signed into law on December 8,
market economies, trade and investment, and
2004), provides $205 million in FREEDOM
other purposes. Sec. 907 of the act prohibits
Support Act (FSA) assistance to the South
most U.S. government-to-government aid to
Caucasus states. The Conference managers
Azerbaijan until its ceases blockades and other
(H.Rept.108-792) direct $75 million in FSA
offensive use of force against Armenia. This
funding for Armenia ($13 million above the
provision has been partly altered over the
budget request), $38 million for Azerbaijan,
years to permit humanitarian aid and democra-
and $92 million for Georgia ($2 million above
tization aid, border security and customs
the budget request). The managers call for at
support to promote non- proliferation, Trade
least $3 million to be “provided to address
and Development Agency aid, Overseas
ongoing humanitarian needs in Nagorno
Private Investment Corporation insurance,
Karabakh.” Among other foreign assistance,
Eximbank financing, and Foreign Commercial
$8 million is provided for Armenia, $8 million
Service activities.
for Azerbaijan, and $12 million for Georgia
for Foreign Military Financing.
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MOST RECENT DEVELOPMENTS
Assistant Secretary of State Elizabeth Jones indicated on January 13, 2005, that
President Bush would urge Russian President Vladimir Putin at an upcoming summit to
intensify Russia’s mediation to settle conflicts in the South Caucasus by the end of the year.
She stated that “it is in Russia’s interest for ... Transnistria, Abkhazia, South Ossetia,
Nagorno- Karabakh, for these areas to be stable, for corruption to end there, for the criminal
secessionists who rule there to be removed.” She explained that “Russia can play a very
positive leadership role in addressing these questions.... [These areas] can be a breeding
ground for terrorists.... It is not in Russia’s interest, or in the interests of the United States
or Europe for these areas to be free for weapons transportation, for narcotics transportation
and trafficking.... It is appropriate for us to get down to cases and try to figure out how to
address these issues in a political framework.”
Russia in December 2004 withheld its approval to extend the mandate of observers from
the Organization for Security and Cooperation in Europe (OSCE) who have been monitoring
Georgia’s northeastern border with Russia. These monitors had helped inform Russia and
Georgia about trans-border terrorist movements, but Russia termed their help “ineffective.”
On January 19, 2005, the United States backed a Georgian proposal for an OSCE assessment
mission to evaluate the security situation along the border and for the removal of observers
to be delayed until the assessment mission has presented its findings.
BACKGROUND AND ANALYSIS
Armenia, Azerbaijan, and Georgia are located south of the Caucasus Mountains that
form part of Russia’s borders (see map). The South Caucasus states served historically as
a north-south and east-west trade and transport “land bridge” linking Europe to the Middle
East and Asia, over which the Russian Empire and others at various times endeavored to gain
control. In ancient as well as more recent times, oil and natural gas resources in Azerbaijan
attracted outside interest. Although 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.)
The Caucasus States: Basic Facts
Area: The region is slightly larger than Syria: Armenia is 11,620 sq. mi.; Azerbaijan is 33,774
sq. mi.; Georgia is 26,872 sq. mi.
Population: 15.6 million, similar to Netherlands; Armenia: 3.0 m.; Azerbaijan: 8.3 m.;
Georgia: 4.3 m. (Economist Intelligence Unit, 2003 est.)
GDP: $13.9 billion; Armenia: $2.8 b.; Azerbaijan: $7.1 b.; Georgia: $4.0 b. (EIU, 2003 est.,
market exchange rate)
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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,
and Georgia’s conflicts with its breakaway regions of Abkhazia and South Ossetia.
Successive U.S. Special Negotiators for NK and Eurasian Conflicts have helped in various
ways to settle these conflicts. 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 non-proliferation 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). Provisions in FY1996, FY1998, and FY1999 legislation eased the
prohibition by providing for humanitarian, democratization, and business aid exemptions.
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. 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 to bolster the
independence of the states. Some argue that such enhanced U.S. relations also would serve
to “contain” Russian and Iranian influence, and that close 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 support offered to the United States by Armenia, Azerbaijan, and Georgia in the
aftermath of the September 11, 2001, attacks by al Qaeda on the United States.
Post-September 11. In the wake of September 11, 2001, 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 terrorism.
Congressional attitudes toward Azerbaijan and Sec. 907 also shifted. Presidential
waiver authority was added to Foreign Operations Appropriations for FY2002 (H.R. 2506;
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P.L. 107-115). The President may use the waiver authority if he certifies 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 report to Congress
on 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. The waiver
most recently was exercised on January 13, 2005.
Operations in Iraq. Azerbaijan and Georgia were among the countries that openly
pledged to support the U.S.-led Operation Iraqi Freedom (OIF) — with both offering the use
of their airbases — and to assist the United States in re-building Iraq. Both countries agreed
to participate — subject to U.S. financial support — in the stabilization force for Iraq. In
August 2003, both Azerbaijan (150 troops) and Georgia (69 troops) dispatched forces to Iraq.
Georgia plans to boost troop deployments to 800 in February 2005, making it among the top
ten countries providing troops. U.S. officials reportedly asked Azerbaijan and Georgia at the
end of April 2004 to bolster their troop contributions in the face of Spain’s troop pullout.
In October 2004, the Georgian defense minister met with Secretary of Defense Donald
Rumsfeld in Bahrain, where the minister pledged to boost troops in Iraq and Rumsfeld
pledged to substantially boost military aid to Georgia in return.
Before the U.S.-led operation in Iraq, Armenia raised concerns about the safety of about
25,000 ethnic Armenians residing in Iraq, 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 OIF.” However, in
September 2004, the presidents of Poland and Armenia agreed that Armenian troops could
serve with the Polish contingent in Iraq to carry out humanitarian work and support the
ethnic Armenian community residing there. The Armenian legislature approved the planned
deployment, and 46 personnel left for Iraq on January 18, 2005.
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
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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.
Nagorno Karabakh Conflict. Since 1988, the separatist conflict in Nagorno
Karabakh (NK) has resulted in up to 20,000 deaths, up to 1 million Azerbaijani refugees and
displaced persons, and about 300,000 Armenian refugees. About 15-20% of Azerbaijan’s
territory, including NK, reportedly 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). The United States, France,
and Russia co-chair meetings of the Minsk Group.
The Minsk Group reportedly has presented four proposals as a framework for talks, but
a peace settlement has proved illusive. A first proposal in 1997 was rejected, leading to a
late 1997 step-by-step peace proposal that the presidents of Azerbaijan and Armenia
recognized as a basis for further discussion. This led to protests in both countries and to the
forced resignation of Armenian President Levon Ter-Petrosyan in early 1998. Heydar Aliyev
in February 2001 stated that he had “turned down” and refused to discuss a late 1998 Minsk
Group proposal embracing elements of a comprehensive settlement. Other Azerbaijani
officials had criticized the proposal’s alleged vagueness on the character of NK’s proposed
“common state”status. The assassination of Armenian political leaders in late 1999 by a
disgruntled Armenian set back the peace process. In 2001, the two presidents attended talks
in Key West, Florida, and then met with President Bush, highlighting early Administration
interest in a settlement. In January 2003, Armenia’s President Robert Kocharyan proclaimed
that its peace policy 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 Oskanyan in
October 2004 stated that the continued occupation of NK border areas was necessary
leverage to convince Azerbaijan to agree to NK’s status as a “common state” apart from
Azerbaijan, and that there could be no compromise on this status, since “every inch of
Armenia is priceless, including Karabakh.” In January 2005, media in both countries
reported progress in talks on a “hybrid” peace plan involving the return of most NK border
areas prior to a referendum in NK on its status.
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
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Abkhazia. Georgian President Mikheil Saakashvili in his inaugural address on January 25,
2004, proclaimed his responsibility to re-integrate these regions into Georgia. Some
observers have argued that Russia’s increasing controls over South Ossetia and Abkhazia
have transformed the separatist conflicts into essentially Russia-Georgia disputes (see also
below, Russia).
South Ossetia. In 1989, the region 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, Russia brokered a cease-fire, and a “peacekeeping” force composed of Russian,
Georgian, and Ossetian units has been stationed in South Ossetia (reportedly numbering
around 1,000 troops, including about 530 Russians, 300 South Ossetians, and until recently,
100-150 Georgians). A Joint Control Commission composed of OSCE, Russian, Georgian,
and North and South Ossetian emissaries was formed to promote a settlement of the conflict.
Relations with Georgia deteriorated following a contentious “presidential” election in South
Ossetia in late 2001, won by Russian citizen and St. Petersburg resident Eduard Kokoyev
(also spelled Kokoiti), who had run on a platform of “associating” the region with Russia.
There has been little progress in peace talks. According to some estimates, some 25,000
ethnic Ossetians and 20,000 ethnic Georgians reside in the now largely vacant region.
President Saakashvili increased pressure on South Ossetia in 2004 by tightening border
controls, an action that severely harmed the region’s economy. He also reportedly sent
several hundred police, military, and intelligence personnel into the region. Georgia
maintained that it was only bolstering its peacekeeping contingent up to the limit of 500
troops, as permitted by the cease-fire agreement, and stated that these peacekeepers were
preventing smuggling and guarding ethnic Georgian villages. Georgian guerrilla forces also
allegedly entered the region. Allegedly, Russian defense and security officers assisted
several hundred paramilitary elements from Abkhazia, Moldova’s breakaway Transdnistria
region, and Russia (Cossacks) who rallied to a call for help from South Ossetian authorities.
On August 13, Georgia and South Ossetia signed an agreement on removing illegal forces
from the region, but fighting continued. On August 19, Georgian troops reportedly gained
a tactical success that some observers speculate permitted Saakashvili to save face — since
his efforts to win control of the region had stalled — and announce that all troops except
Georgia’s peacekeepers would withdraw. Large numbers of undeclared troops remained in
place until early November 2004, however, when both sides signed another agreement to
remove them from the region. Russia has opposed Georgia’s calls for an international peace
conference and for boosting the OSCE presence in the region.
Abkhazia. In July 1992, Abkhazia’s legislature declared the region’s effective
independence from Georgia, prompting Georgian national guardsmen to attack the region.
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 118 observers in early
2004 (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. In April 1994, the two sides agreed to a
framework for a political settlement and the return of refugees. A Quadripartite Commission
(QC) 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
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(acting as CIS “peacekeepers”) to be deployed in a security zone along the Inguri River that
divides Abkhazia from the rest of Georgia. The UNSC agreed that UNOMIG’s cooperation
with the Russian forces was a reflection of trust placed in Russia. The Military Balance
2003-2004
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.
Steven Mann, the U.S. Special Negotiator for NK and Eurasian Conflicts (and Minsk
Group co-chair), 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. In late 1997, the sides agreed to set up a Coordinating Council
to discuss cease-fire maintenance and refugee, economic, and humanitarian issues. The QC
meets periodically and addresses grievances not considered by the Coordinating Council,
which Abkhazia has boycotted since 2001. These talks have been supplemented by other
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 2002, Abkhaz authorities have refused to
consider a draft negotiating document prepared by the U.N. and the Friends of Georgia.
Tensions between the two sides have escalated during 2004, with Georgian naval forces
interdicting Turkish, Ukrainian, Greek, and other boats off Abkhazia’s shores. Peace talks
were disrupted following a disputed October 2004 Abkhaz “presidential” election. Perhaps
alarmed by Russia’s growing control, voters rejected the candidate preferred by Moscow.
Russia quickly dispatched an official from its Ministry of Emergencies to serve as the
Abkhaz “premier” to protect its interests. Russia orchestrated a power-sharing arrangement
and the two candidates successfully ran on the same ticket in a new election held on January
12, 2005.
Ajaria. Aslan Abashidze had controlled the semi-independent Ajaria region since 1991
and had long resisted many of Shevardnadze’s attempts to establish central authority over
the region. After being elected as Georgia’s president in January 2004, Saakashvili called
for the region to submit to central government authority. Georgia began military exercises
near the border of Georgia on April 28, which prompted Ajarian paramilitary elements on
May 2 to blow up two bridges linking roads to the rest of Georgia. Saakashvili successfully
appealed for the allegiance of many Georgian military and police elements in the region, and
they abandoned loyalty to Abashidze. After talks between Putin and Saakashvili, Russia
offered sanctuary to Abashidze and flew him to Moscow on May 6. Regional legislative
elections in June 2004 were judged by OSCE monitors to be administered in a credible,
transparent, and professional manner.
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 $930 per capita,
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Azerbaijan’s about $865, and Georgia’s about $930 (Economist Intelligence Unit, 2003
estimates, market exchange rates). Widespread poverty and regional conflict have
contributed to high emigration from all three states, and remittances from these emigres
provide major support for the remaining populations.
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 2004, Georgia severely restricted traffic from
South Ossetia and in October 2004 banned all Armenian and Azerbaijani traffic through
South Ossetia’s Roki tunnel linking it to Russia, proclaiming that because Georgia could not
regulate the traffic, it would ban it.
Democratization Problems
The organization Freedom House considers Armenia and Georgia as somewhat more
democratic than Azerbaijan. It judges the former two as “partly free,” and in 2004
downgraded Azerbaijan’s status to “not free,” in part because of abuses surrounding its 2003
presidential election (see below). All three states conducted presidential and/or legislative
elections in 2003. Armenia held such elections in March and May, respectively. Azerbaijan
held presidential elections in October, and Georgia held legislative elections in November.
According to the OSCE, none of the elections were free and fair. Protests in Georgia against
the tainted vote led to Shevardnadze’s overthrow (see below).
Armenia. Illustrating ongoing challenges to stability in Armenia, in October 1999,
gunmen entered the legislature and opened fire on deputies and officials, killing the prime
minister, the legislative speaker, and six others. The killings may have been the product of
personal and clan grievances. Political infighting led President Robert Kocharyan in mid-
2000 to appoint former Soviet dissident Andranik Margaryan as prime minister. In late 2002,
Margaryan announced that the Republican Party, which he headed, would fully back
Kocharyan in a re-election bid scheduled for February 2003. None of the nine candidates on
the ballot received a required 50% plus one of the vote, forcing a run-off in March by the top
two candidates, Kocharyan and People’s Party head Stepan Demirchyan (the murdered
speaker’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.
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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 were 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.)
Oppositionists in Armenia in early 2004 stepped up their protests against the legitimacy
of President Robert Kocharyan’s 2003 re-election. They argued that a ruling after the
election by the Constitutional Court had called for a referendum to be held within one year
on confidence in the president. Kocharyan termed the Court’s call only advisory, a view also
evinced by the Parliamentary Assembly of the Council of Europe (PACE). The runners-up
in the presidential election, Demirchian and Artashes Geghamian (head of the National Unity
Party) joined forces and urged nationwide civil disobedience until Kocharyan resigned. The
government termed this advocacy a criminal attempt to change the constitutional order and
raided the premises of the main opposition parties, arrested several dozen opposition
activists, and forcibly broke up a demonstration. The U.S. State Department called on the
government and opposition to peacefully resolve their disputes and termed the government
actions “excessive and contrary to international standards.” At its October 2004 meeting,
PACE resolved that it remained disappointed by the government’s delay in prosecuting those
who orchestrated presidential election “fraud.” Some of those detained in April have been
released and others sentenced to prison terms.
Azerbaijan. Marking the closing of an era, long-time ruler Heydar Aliyev suffered
serious cardiac problems in April 2003 and was mostly in hospital up through the expiration
of his presidential term. In what some critics termed a move to ensure a dynastic succession,
Ilkham in July became a candidate in the scheduled October 15, 2003, presidential election,
but demurred that he was running only to buttress his father’s candidacy. On August 4, the
legislature hurriedly convened to confirm Ilkham as prime minister. In early October, the
ailing Heydar Aliyev withdrew from the race in favor of his son. Ilkham Aliyev handily won
the election, beating seven other candidates with about 77% of the vote. Protests alleging
a rigged vote resulted in violence, and spurred arrests of hundreds of alleged “instigators”
of the violence. On October 21, the State Department expressed “deep disappointment” with
“serious deficiencies” in the election and “extreme concern” about post-election violence and
“politically-motivated arrests.” In October 2004, seven leading oppositionists arrested after
the election — People’s Party leader Panah Huseynov, Hope Party Chairman Iqbal Agazada,
Democratic Party secretary-general Sardar Calaloglu, Musavat Party deputy chairmen Arif
Hacili and Ibrahim Ibrahimli, Union of Karabakh Veterans chairman Etimad Asadov, and
Yeni Musavat newspaper editor Rauf Arifoglu — were sentenced to 2-5 years in prison. In
a resolution on October 5, 2004, PACE called for releasing or pardoning these and other
individuals arrested after the presidential election.
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Georgia. Georgia has experienced increased political instability in recent years. Polls
before a November 2, 2003 legislative race and exit polling during the race appeared to
indicate that the opposition National Movement (NM) and the United Democrats (UD)
would win the largest shares of seats in the party list vote. Although admitting that there
were many irregularities, the CEC instead certified results giving the largest shares of seats
to the pro-Shevardnadze “For a New Georgia” bloc and the Revival Party. The U.S. State
Department criticized “massive vote fraud” in Ajaria and some other regions. Mass protests
led to Shevardnadze’s resignation on November 23. Russia and the United States appeared
to cooperate diplomatically to urge Georgians to resolve their crisis peacefully.
UD co-leader and outgoing legislative Speaker Nino Burjanadze assumed the interim
presidency and appointed co-leader Zurab Zhvania as State Minister (to oversee the
ministries). UD and NM agreed to co-sponsor NM head Mikheil Saakashvili for a
presidential election scheduled for January 4, 2004. Saakashvili received 96% of 2.2 million
popular votes from a field of five candidates in the presidential race. OSCE observers judged
the vote as freer and fairer than previous elections and as bringing Georgia closer to meeting
democratic electoral standards. The legislature approved constitutional amendments in
February that created the post of prime minister, and it confirmed Zhvania for the post (for
background, see CRS Report RS21685, Coup in Georgia). Meeting with visiting President
Saakashvili on February 25, 2004, President Bush termed him “a strong friend, a friend with
whom we share values,” and hailed the rose revolution as “people taking charge of their own
lives and transforming society in a peaceful way,” and as “a powerful example to people
around the world who long for freedom and long for honest government.”
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 quash separatism in
its North Caucasus areas while seemingly backing it in the 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 thousands of 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)
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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. Armenia reportedly pays Russia to
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 103,000 Russian troops
are stationed nearby in the North Caucasus (The Military Balance 2003-2004). 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; Russia’s state-controlled REN
Television reported in late 2003 that there were 1,500 troops 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
to monitor its border with Chechnya (later this monitoring was expanded to nearby border
areas and included 144 monitors in the summer and 111 in the winter).
After the September 11, 2001 terrorist attacks in the United States, Russia stepped up
its claims that Georgia harbored Chechen terrorists (with links to al Qaeda) who used
Georgia as a staging ground for attacks into Chechnya. The United States 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 late 2002 that somewhat reduced tensions over this issue. In February 2004,
Saakashvili reportedly pledged during a Moscow visit to combat “Wahabbis” (referring to
Islamic extremists) in Georgia, including Chechen terrorists hiding in the Pankisi Gorge and
international terrorists that Russia alleged had transited Georgia to fight in Chechnya (for
background, see CRS Report RS21319, Georgia’s Pankisi Gorge).
Russia’s Bases in Georgia. In 1999 Russia and Georgia agreed to provisions of the
adapted Conventional Armed Forces in Europe (CFE) Treaty calling for Russia to reduce
weaponry at its four bases in Georgia, to close two of the bases (at Gudauta and Vaziani) by
July 2001, and to complete negotiations during 2000 on the status of 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 its bases in Georgia
to 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 that 320 troops would remain to guard facilities and support Russian
“peacekeepers” taking leave at the base. Russia has maintained that it needs $300 million
and 9 to 11 years to close the other two bases. The Military Balance 2003-2004 reports
about 3,000 Russian troops at the bases (other sources report greater or lesser numbers).
After some hesitancy, the OSCE proposed a resolution at its December 2003 ministerial
meeting — which Russia blocked — that strongly criticized Russia’s stance on the bases.
The Georgian media alleged in November 2004, that Russia had proposed that its
military bases be converted into anti-terrorism centers for professional rapid-reaction troops.
Russia earlier had called for creating an anti-terrorism center while continuing to discuss the
status of its bases, and Georgia had countered that such anti-terrorism cooperation could take
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place only after the bases are closed. Many Georgians reacted negatively to the latest
proposal, considering it as an attempt to re-classify and thereby retain bases that Georgia and
the West have demanded be closed.
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 are exploited. Russia
has changed its stance by agreeing on seabed delineation with Kazakhstan and Azerbaijan.
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 oil and gas pipelines from Azerbaijan to Turkey that do not transit Russia. On March
18, 2004, Russia’s Caspian affairs emissary Viktor Kalyuzhny stated that Putin had directed
him to ensure that the greatest volume of Caspian energy flows through Russian pipelines.
The Protection of Ethnic Russians and “Citizens”. Russia has claimed to be
concerned about discrimination and other human rights abuses committed in Azerbaijan and
Georgia against ethnic Russians and pro-Russian groups. Many observers argue that this
ostensible interest in protecting human rights is a stalking horse for Russia’s
military-strategic and economic interests. 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. A new Russian citizenship law enacted in 2002 made it easier to grant
citizenship and passports to most residents of Abkhazia and South Ossetia, heightening
Georgian fears that Russia de facto has annexed the regions. In an interview with Russian
reporter Anna Politovskaya published on September 2, 2004, the “foreign minister” and the
“presidential advisor” of Abkhazia stated that their salaries came from Moscow and that they
were Russian citizens. Putin interfered in Abkhazia’s October 3, 2003, “presidential”
election by appearing to favor Abkhaz “prime minister” Raul Khajimba, a former Russian
security agent. His favor proved inadequate, however, when both Khajimba and Sergey
Baghapsh claimed they had won a close race. Some observers viewed this outcome as a
blow to Russia’s influence in Abkhazia, but others pointed out that Baghapsh has close ties
to Russia. Reportedly, Putin dispatched Nodar Khashba, a high-level Russian official, to
Abkhazia as its “premier” to protect Russian interests during the electoral contretemps.
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
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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. 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), as well as 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 Report RL32048, Iran: U.S.
Concerns and Policy Responses
). 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,
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-FY2003 (the others are Russia and Ukraine). See Table 1. 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. Assistant Secretary of State Jones testified to Congress in
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March 2004 that “rapid” democratic reforms in Georgia merited a boost in U.S. foreign aid
from an estimated $86 million in FY2004 to a proposed $108 million for FY2005, an
example of the principle that aid follows reform (see below, Table 1). The Conference
Report (H.Rept. 108-792) on H.R. 4818 (P.L.108-447; Consolidated Appropriations for
FY2005) directed FREEDOM Support Act (FSA) and Foreign Military Financing (FMF)
funding for Azerbaijan and Georgia that matched, or nearly matched, the amount called for
by the request, but somewhat boosted such requested aid to Armenia (from $62 million to
$75 million in FSA aid and from $2 million to $8 million in FMF). Besides bilateral aid, the
United States contributes to multilateral organizations such as the International Monetary
Fund and the World Bank that aid the region.
By comparison, aid from the European Union (EU) to the region has totaled about $1
billion over the past decade. However, in June 2004, EU foreign ministers invited the South
Caucasus states to participate in a “Wider Europe” program of enhanced aid, trade, and
political ties. A World Bank/EU-sponsored donor conference that month resulted in over $1
billion in three-year pledges for development in Georgia (U.S. pledges amounted to about
one-third of the total). In January 2004, Congress authorized a major new development
assistance program, the Millennium Challenge Account (Section D of P.L. 108-199).
Shortly thereafter, all three South Caucasus states were designated as candidates for aid by
the newly established Millennium Challenge Corporation. It announced in May 2004 that
Armenia and Georgia would be among the first states invited to apply for FY2004 aid.
Georgia was deemed eligible despite scoring below the median on the categories “ruling
justly,” “encouraging economic freedom,” and “investing in people,” with the Corporation
arguing that the new government in Georgia appeared committed to reforms. This assistance
could dwarf that appropriated under the authority of the FREEDOM Support Act.
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 in the war on terrorists in
Afghanistan (see Table 1). Azerbaijan and Georgia play “important” anti-terrorism roles,
according to the Administration, including by sending some troops to support coalition
actions in Afghanistan and Iraq. In Georgia, Congress in 1997 directed setting up a Border
Security and Related Law Enforcement Assistance Program. 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 earmarked such aid for Georgia.
Azerbaijani and Georgian leaders 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) in 1994. Troops from Armenia, Azerbaijan, and Georgia serve as peacekeepers in
NATO-led operations in Kosovo (from the latter two since 1999 and from Armenia since
early 2004), and in NATO-led operations in Afghanistan (from Azerbaijan since late 2002
and Georgia since September 2004). There reportedly have been some fistfights and even
a murder involving Armenians and Azerbaijanis during some PFP activities. NATO
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cancelled a PFP exercise in Azerbaijan in September 2004, stating that Azerbaijan had
violated NATO principles of inclusiveness by refusing to host Armenian forces. The June
2004 NATO summit pledged enhanced attention to the South Caucasian and Central Asian
PFP members. A Special Representative of the NATO General Secretary was appointed to
encourage democratic civil-military relations, transparency in defense planning and
budgeting, and enhanced force inter-operability with NATO.
Until waived, Sec. 907 had prohibited much U.S. security aid to Azerbaijan, including
Foreign Military Financing (FMF), and International Military Education & Training (IMET).
By U.S. policy, similar aid had not been provided to Azerbaijan’s fellow combatant Armenia.
From 1993-2002, both had been on the Munitions List of countries ineligible for U.S. arms
transfers. The Conference Report (H.Rept. 108-792) on H.R. 4818 (P.L.108-447;
Consolidated Appropriations for FY2005) directed that FMF funding for Armenia be boosted
to match that for Azerbaijan (from $2 million as requested to $8 million). The Members
appeared to reject the Administration’s assurances that the disparate aid would not affect the
Armenia-Azerbaijan military balance or undermine peace talks.
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. U.S.
officials say there are no plans to establish a permanent U.S. military presence in Georgia.
GTEP ended in May 2004, but follow-on programs provide training to troops destined to
serve in Iraq, advice on reorganizing the military, and support to GTEP-trained units.
Reports that al Qaeda and other terrorists may be hiding in Georgia create dilemmas for a
U.S. policy that holds governments responsible for terrorists operating on their territories.
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 the three regional states otherwise
has discouraged investors. With U.S. support, in June 2000 Georgia became the second
Eurasian state (after Kyrgyzstan) to be admitted to the WTO. Then-President Clinton in
December 2000 determined that Title IV should no longer apply to Georgia and proclaimed
that its products would receive permanent nondiscriminatory (normal trade relations or NTR)
treatment. 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).
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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 pipelines.
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 so-called Baku-Tbilisi-Ceyhan (BTC) oil pipeline, expedite use of the
pipeline by oil companies operating in Kazakhstan, support constructing a 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 September 11, 2001, the Administration has emphasized the vulnerability of the
United States to possible energy supply 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 three 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, Heydar 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 an “Eurasian Transport Corridor.” In November
1999, Azerbaijan, Georgia, Turkey, and Kazakhstan signed the “Istanbul Protocol” on
construction of a 1,040-mile BTC oil pipeline. In August 2002, the BTC Company was
formed to construct, own, and operate the oil pipeline (U.S. construction firms awarded
contracts include Bechtal and Petrofac). BTC hopes to begin loading oil tankers at Ceyhan
in mid-2005. The pipeline does not cross Armenia, raising objections from some in Armenia
of lack of access. On the other hand, Armenian Foreign Minister Oskanyan on January 14,
2004, suggested that the opening of the BTC pipeline would make Azerbaijan reticent to
launch conflict. Armenia and Iran signed accords in May and September 2004 on building
a gas pipeline to link up with Iran’s pipelines.
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Table 1. U.S. FY1992-FY2003 and FY2003 Budgeted Aid, FY2004
Estimated Aid, and the FY2005 Foreign Assistance Request
(millions of dollars)
South Caucasus
FY1992-FY2003
FY2003 Budgeted
FY2004
FY2005
Country
Budgeted Aida
Aida
Estimatec
Requestc
Armenia
1,406.56
106.16
80.46
67.08
Azerbaijan
435.21
68.13
49.06
51.24
Georgia
1,304.0
124.84
85.93
108.06
Total
3,145.77
301.12b
215.45
226.38
Sources: State Department, Office of the Coordinator for U.S. Assistance to Europe and Eurasia; State Department, U.S.
Government Assistance to and Cooperative Activities with Eurasia: FY2003 Annual Report,
January 2004.
a. FREEDOM Support Act and Agency budgets.
b. Caucasus Regional funds are included in the total.
c. FREEDOM Support Act and other Function 150 funds (does not include Defense or Energy Department funding or
funding for exchanges).
Figure 1. Map of the Region
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