Order Code 97-522 F
Updated March 4, 2005
CRS Report for Congress
Received through the CRS Web
Azerbaijan: Recent Developments
and U.S. Interests
Jim Nichol
Specialist in Russian and Eurasian Affairs
Foreign Affairs, Defense, and Trade Division
Summary
This report discusses political, economic, and security challenges facing
Azerbaijan, including the unsettled conflict in the breakaway Nagorno Karabakh region.
Oil and natural gas resources are briefly examined. A table provides basic facts and
biographical information. This report may be updated. Related products include CRS
Issue Brief IB95024, Armenia, Azerbaijan, and Georgia, updated regularly.
U.S. Policy1
Figure 1. Map
Azerbaijan
Autonomous Oblast (AO)
Boundary
According to the Administration, U.S.
Russia
Autonomous Republic
(ASSR) Center
Autonomous Oblast
national interests in Azerbaijan include “strong
(AO) Center
0
25
50
75 Kilometers
bilateral security and counter-terrorism cooper- Geo0rgia25 50 75 Miles
Xacmaz
(Khachmas)
Sheki
ation, the advancement of U.S. energy security,
Gyandzha
progress in free-market and democratic re- Armenia
(Kirovabad)
Mingacevir
Myusyuslyu
Sumgait
forms, and mediation of the Nagorno Karabakh
Kyurdamir
Baku
conflict.” The participation of U.S. firms in
Ali-
Bayramly
Xankandi
(Stepanakert)
developing Azerbaijan’s energy sector “is key
Nakhichevan
to our objectives of diversifying world oil
Caspian
Sea
supplies,” and helping the country improve its
economy. Azerbaijan has supported the Global Turkey
Iran
War on Terrorism by offering “crucial law
enforcement and intelligence cooperation,
Source: Map Resources. Adapted by CRS. (K. Yancey 3/10/05)
blanket overflight rights, and the possible use
of bases” (Congressional Budget Justification for Foreign Operations, FY2005).
Cumulative U.S. aid budgeted for Azerbaijan from FY1992 through FY2004 was
$500.1 million (FREEDOM Support Act and other program funds), reportedly about the
same as donated by the European Union. Of this U.S. aid, about 50.8% was humanitar-
1 Sources include Foreign Broadcast Information Service, Daily Report: Central Eurasia; Radio
Free Europe/Radio Liberty, Newsline; Eurasia Insight; Economist Intelligence Unit; State
Department and U.N. information; and Reuters and Associated Press wire service reports.
Congressional Research Service ˜ The Library of Congress

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ian, while the rest supported democratic
Basic Facts
reforms (21.5%), economic and social
Area and Population: Land area is 33,774 sq. mi.;
reforms (16.4%), security and law en-
about the size of Maine. The population is 8.3 million
forcement programs (9.6%), and cross-
(Economist Intelligence Unit; 2004 estimate), about
40% of whom live in the capital, Baku.
cutting initiatives (1.7%). In FY2005,
Administrative subdivisions include the Nakhichevan
estimated U.S. aid was $52.6 million,
Autonomous Republic (NAR) and the Nagorno
and the Administration has requested
(“Mountainous”) Karabakh Autonomous Region
$48.1 million for FY2006 (excluding
(NK). NK’s autonomy was dissolved in 1991.
Defense and Energy Department funds),
Ethnicity: 90% are Azerbaijani, 2.5% Russian, 2.0%
Armenian, 3.5% Lezgins, Talysh, or Tats, and others
focusing on developing small and
(CIA, World Factbook, 1998 est.). An estimated 6-12
medium-sized farms and other agricul-
million Azerbaijanis reside in Iran.
tural enterprises, on reforming the energy
Gross Domestic Product: $8.5 billion; per capita
sector, the judiciary, and law enforce-
GDP is about $1,020 (EIU; 2004 est., current prices).
ment, and on strengthening private busi-
Leaders: President: Ilkham Aliyev; Chairman of the
Milli Mejlis (legislature): Murtuz Aleskerov; Prime
ness, export controls, and border secu-
Minister: Artur Rasizade; Foreign Minister: Elmar
rity. Law enforcement initiatives include
Mamedyarov; Defense Minister: Safar Abiyev.
counter-narcotics training, support for
Biography: Ilkham Aliyev, born in 1961, graduated
combating corruption and trafficking in
with a kandidata (advanced) degree from the Moscow
State Institute of International Relations in 1985 and
persons, advice on anti-terrorism and
then taught history. In 1991-1994, he was in business
money laundering legislation, and help
in Moscow and Baku, then became head of the State
in implementing a criminal code. Hu-
Oil Company (SOCAR). He was elected to the
manitarian aid is planned for internally
legislature in 1995 and 2000. In 1997, he became
displaced persons and to demine border
head of the National Olympic Committee. In 1999, he
became deputy, then first deputy chairman, of the
areas. Azerbaijan signed an agreement
ruling New Azerbaijan Party. In August 2003, he was
in late 2003 to implement funding for
appointed prime minister, and was elected president
some Comprehensive Threat Reduction
on October 15, 2003.
(CTR) programs. In FY2004 and
FY2005, Azerbaijan was designated as a
candidate country for enhanced U.S. development aid from the Millennium Challenge
Corporation, but in neither year did the MCC (meeting in closed session) select it as a
country eligible for aid.
Congressional interests in Azerbaijan and the Caspian regions have been reflected
in hearings, visits, and legislation. Congressional concerns about the ongoing NK conflict
led in 1992 to Section 907 of the FREEDOM Support Act (P.L. 102-511) that prohibited
most U.S. government-to-government assistance to Azerbaijan until the President
determined that Azerbaijan had made “demonstrable steps to cease all blockades and
other offensive uses of force against Armenia and Nagorno-Karabakh.” Congress eased
many Section 907 restrictions on a year-by-year basis until the terrorist attacks on the
United States in September 2001, after which it approved an annually-renewable
presidential waiver (P.L.107-115). The conference managers stated that the waiver was
conditional on Azerbaijan’s cooperation with the United States in combating international
terrorism, and that they intended to “review and reserve the right to amend the waiver
language.” Among other Congressional initiatives, beginning with FY1998
appropriations, Congress created a South Caucasus funding category to encourage conflict
resolution in NK, provide for reconstruction assistance, and facilitate regional economic
integration. Congress passed “The Silk Road Strategy Act” in FY2000 (as part of
consolidated appropriations, P.L. 106-113) calling for enhanced policy and aid to support
conflict amelioration, humanitarian needs, democracy, economic development, transport
and communications, and border controls in the South Caucasus and Central Asia.

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Contributions to the Global War on Terrorism
After the terrorist attacks on the United States on September 11, 2001, Azerbaijan
quickly granted blanket overflight rights and intelligence support and offered the use of
its bases for Operation Enduring Freedom (OEF) in Afghanistan. It participated in
coalition peacekeeping in Afghanistan beginning in late 2002 (33 Azerbaijanis were
deployed there as of early 2005). The State Department’s Patterns of Global Terrorism
2003 reported that Azerbaijan also stepped up its interdiction efforts against terrorists and
equipment transiting its territory and moved against indigenous terrorists and terrorist
financing. Azerbaijan was among the “coalition of the willing” countries that openly
supported the U.S.-led Operation Iraqi Freedom (OIF). It offered the use of its airbases
and assistance in re-building Iraq. In August 2003, Azerbaijan contributed 150 troops to
the coalition stabilization force for Iraq (as of early 2005, 150 Azerbaijani troops were
deployed in Iraq). NK Armenians and U.S. diplomats have censured some statements by
Azerbaijani officials calling for international “counter-terrorism” actions against NK.
Foreign Policy and Defense
President Ilkham Aliyev has emphasized good relations with the neighboring states
of Georgia and Turkey, but relations with foreign states have often been guided by their
stance regarding the NK conflict. Relations with neighboring Russia have been poor until
recently (see below) and remain cool with Iran. Azerbaijan views Turkey as a major ally
against Russian and Iranian influence, and as a balance to Armenia’s ties with Russia.
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 fundamentalism and question the degree of Iran’s support for
an independent Azerbaijan. Azerbaijan is a founding member of GUUAM (formed by
the first initials of the members — Georgia, Ukraine, Uzbekistan, Azerbaijan, and
Moldova). GUUAM has discussed energy, transport, and security cooperation, perhaps
partly in an effort to counter Russian influence. Azerbaijan is a member of the Black Sea
Economic Cooperation group, the Council of Europe (COE), the Economic Cooperation
Organization, and the Organization of the Islamic Conference. Tensions with fellow
member Iran have been displayed during meetings of the latter two organizations, and
with Armenia during meetings of the former two.
Giving in to Russian pressure, Azerbaijan joined the Commonwealth of Independent
States (CIS) in September 1993, but it never ratified the CIS Collective Security Treaty
and in 1999 refused to re-sign it. Frictions in Azerbaijani-Russian relations include
Azerbaijan’s rejection of Russia’s proposals for a predominantly Russian peacekeeping
force in NK and its allegations of a Russian “tilt” toward Armenia in NK peace talks. In
1997, Russia admitted that large amounts of Russian weaponry had been quietly
transferred to Armenia, and in 2000, Russia transferred heavy weaponry from Georgia to
Armenia, fueling Azerbaijan’s view that Russia supports Armenia in the NK conflict.
Russia long raised objections to Azerbaijan’s efforts to build oil and gas export pipelines
bypassing Russia. In 1999, Russia accused Azerbaijan of failing to halt the transit of arms
and mercenaries to Russia’s breakaway Chechnya region. Azerbaijani-Russian relations
appeared to improve in 2002 when the two states agreed on a Russian lease for the Soviet-
era Gabala early warning radar station in Azerbaijan and they reached accord on

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delineating Caspian Sea borders. Perhaps seeking Russian support for his rule, Ilkham
Aliyev in March 2004 reaffirmed the 1997 Azerbaijani-Russian Friendship Treaty.
According to The Military Balance 2004-2005, Azerbaijani armed forces consist of
66,490 army, air force, and navy troops. There also are about 5,000 border guards and
more than 10,000 Interior (police) Ministry troops. Defense spending has been increasing
in recent years, to $240 million in 2005, about 12% of the budget. Under a 10-year lease
agreement, about 1,400-1,500 Russian troops are deployed at Gabala. Azerbaijan
reportedly received foreign-made weapons of uncertain origin and armed volunteers from
various Islamic nations to assist its early 1990s struggle to retain NK. In 1994, Azerbaijan
joined NATO’s Partnership for Peace (PFP) to “bring Azerbaijan closer to the Western
world,” increase aid possibilities, and contribute to ending the NK conflict. Some
Azerbaijani troops have participated in NATO peacekeeping in Kosovo since 1997.
Within PFP, there are tensions between Armenia and Azerbaijan.
The NK Conflict. In 1988, NK petitioned to become part of Armenia, sparking
ethnic conflict. In December 1991, an NK referendum (boycotted by local Azerbaijanis)
approved NK’s independence and a Supreme Soviet was elected, which in January 1992
declared NK’s independence and futilely appealed for world recognition. The conflict
over the status of NK resulted in about 15,000 casualties on both sides and over 840,000
Azerbaijani refugees and displaced persons (plus over 300,000 Armenians). NK
Armenians control about 15-20% of Azerbaijan’s territory (NK and adjacent areas). A
ceasefire agreement was signed in July 1994 and the sides pledged to work toward a peace
settlement. Reportedly, four peace plans have been proposed by the Organization for
Security and Cooperation’s (OSCE’s) “Minsk Group” countries. In April 2001, the
presidents of Armenia and Azerbaijan attended Minsk Group talks in Key West, Florida,
and the two later met with President Bush, indicating early Administration interest in a
settlement. In January 2005, media in Armenia and Azerbaijan reported negotiations on
a “hybrid” peace plan involving the return of most NK border areas prior to a referendum
in NK on its status. Also in January, PACE approved a resolution that termed the
“occupation of foreign territory by a member state ... a grave violation” of COE
commitments. It also called for the safe return of displaced persons and for Azerbaijan
to open talks with NK separatists and suggested that if the Minsk Group failed to soon
facilitate a settlement, Armenia and Azerbaijan should submit the dispute to the
International Court of Justice.
Political and Economic Developments
The Azerbaijani constitution, approved by a popular referendum in November 1995,
strengthened presidential power and established an 125-member unicameral legislature
(Milli Mejlis) with a five-year term for deputies. The president appoints and removes
cabinet ministers (the Milli Mejlis consents to his choice of prime minister), submits
budgetary and other legislation that cannot be amended but only approved or rejected
within 56 days, and appoints local officials. It is extremely difficult for the Milli Mejlis
to impeach the president. The U.S. State Department viewed an August 2002
constitutional referendum as flawed and as doing “very little to advance democratization.”
Some opposition party leaders objected to provisions eliminating party list voting in
future legislative races and designating the prime minister as the next in line in the case
of presidential incapacity, death, or resignation, which they predicted would facilitate a
succession from then-President Heydar Aliyev to his son, Ilkham.

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In June 2000, the Parliamentary Assembly of the Council of Europe (PACE)
approved Azerbaijan’s membership, conditioned on its compliance with commitments it
made, including holding a free and fair November 2000 legislative election. Final results
of the vote on the party list ballot resulted in four parties surmounting a hurdle of 6% of
the votes to receive seats: the NAP (16 seats); Popular Front (Reform) (4); Civic
Solidarity (3); and the Communist Party (2). In single constituency races, NAP or
independent candidates won most seats. Prominent opposition parties National
Independence, Democratic, and Musavat (Equality) did not win seats in the party list vote
(though some members were elected in single constituencies). OSCE and COE observers
judged the race “seriously flawed,” though they said it showed some reform progress.
International observers also judged January 2001 legislative run-off elections as seriously
flawed, but PACE admitted both Azerbaijan and Armenia as members later in the month.
December 2004 city council elections were also marked by serious irregularities,
according to the OSCE.
Marking the closing of an era, Heydar Aliyev suffered serious cardiac problems in
April 2003 and was mostly in hospital up through the expiration of his term in October.
In what some critics termed a move to ensure a dynastic succession, Ilkham in July
proffered his candidacy for 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, a post permitting him
to rule as interim head of state in case his father resigned or died. In early October, the
ailing Heydar 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 reported government
detentions of more than 700 alleged opposition party “instigators” of the violence. Trials
reportedly have resulted in convictions for over 100 and prison sentences for about 40.
On October 21, 2003, the State Department expressed “deep disappointment” with
“serious deficiencies” in the election. It also expressed “extreme concern” about post-
election violence by both police and civilians and about “politically-motivated arrests.”
Pointing to these problems, in December 2003 the non-governmental organization (NGO)
Freedom House downgraded Azerbaijan from “partly free” to “not free.” In October
2004, seven leading oppositionists arrested after the election were sentenced to 2-5 years
in prison. In February 2005, the OSCE issued a report that concluded that many of the
trials fell short of OSCE standards because of pervasive, credible allegations of torture
of detainees and the use by the courts of evidence said to have been derived through
torture. The OSCE called on the Azerbaijani government to rescind or commute the
sentences of those convicted in unfair trials. Also in February, visiting PACE officials
warned Azerbaijan that the Council of Europe might consider sanctions against
Azerbaijan, including expelling it as a member, if a planned November 2005 legislative
election is not free and fair.
According to the U.S. State Department’s Report on Human Rights Practices for
2004, the Azerbaijani government’s human rights record remained poor. Arbitrary arrests
and lengthy pretrial detentions continued to be problems. There were fewer credible
reports in 2004 that security forces beat and tortured detainees to extract confessions and
fewer reported instances of police harassing members of opposition political parties or
their families. The president pardoned 55 political prisoners as defined by the COE, but
some others remain in prison. The government continued to restrict freedom of speech

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and of the press. Most television stations either were controlled by the government or by
pro-government owners. Independent print media enjoyed somewhat more freedom and
often criticized government policies. However, such media were bedeviled by
government-sponsored defamation suits, high court fines for libel, and limitations on
printing and distribution. The government did not approve any requests by opposition
political parties to demonstrate during the year. It also harassed domestic human rights
activists. Some low-level officials continued to harass minority religious groups.
Trafficking in persons remained a problem.
The collapse of the Soviet Union and the NK conflict in the early 1990s contributed
to the decline of Azerbaijan’s GDP by over 60% by 1995. The economy began to turn
around in 1996-1997, and the Economist Intelligence Unit estimated that real GDP growth
was10.2% and that consumer inflation was 6.7% during 2004. Double-digit GDP growth
is anticipated in 2005-2006 with further development of the oil and gas sectors and high
levels of foreign investment. A State Oil Fund provides some accountability for revenues.
Most small and some medium-sized enterprises have been privatized, but the government
is lagging in privatizing large-scale, inefficient firms, where much of the labor force is
employed. Net foreign direct investment has increased dramatically in recent years, from
$129 million in 2000 to $2.4 billion in 2004 (EIU est.). The World Bank and the non-
governmental organization Transparency International have viewed Azerbaijan’s
government as among the most corrupt worldwide. The World Bank reports that poverty
rates in Azerbaijan are among the highest in Europe and Eurasia. Azerbaijani officials
in 2004 reported that over 40% of the population lived on less than $1 per day. Up to
one-fourth of the population lives and works abroad because of lack of suitable
employment within Azerbaijan, according to the State Department.
Energy. The U.S. Energy Department in September 2004 reported estimates of 7-
13 billion barrels of proven oil reserves and 30 trillion cubic feet of natural gas reserves
in Azerbaijan. U.S. companies are shareholders in three international production-sharing
consortiums that have been formed to exploit Azerbaijan’s Caspian Sea oil and gas fields,
including the Azerbaijan International Operating Company or AIOC, led by British
Petroleum (developing the Azeri, Chirag, and Gunashli fields). In 1995, Azerbaijan and
the AIOC announced a decision to transport “early oil” (the initial volume of oil from the
AIOC fields, along with other Azerbaijani oil) through two Soviet-era pipelines in
Georgia and Russia to Black Sea ports. 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 United States also has backed the
construction of a large (one million barrels per day) oil pipeline from Azerbaijan through
Georgia to Turkey’s Ceyhan seaport on the Mediterranean (the Baku-Tbilisi-Ceyhan or
BTC pipeline) as part of Azerbaijan’s economic development, and because this route
neither allows Russia to gain undue control over Azerbaijan’s resources nor forces
Azerbaijan to seek export routes through Iran. Construction began in 2003. Tankers may
begin receiving the oil at Ceyhan by late 2005. A gas pipeline from Azerbaijan’s offshore
Shah Deniz field to Turkey is also proposed. As Shah Deniz and other gas fields and
infrastructure are developed, Azerbaijan will become self-sufficient in gas.

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