Order Code RL33453
CRS Report for Congress
Received through the CRS Web
Armenia, Azerbaijan, and Georgia:
Political Developments and
Implications for U.S. Interests
June 2, 2006
Jim Nichol
Specialist in Russian and Central Asian Affairs
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

Armenia, Azerbaijan, and Georgia: Political
Developments and Implications for U.S. Interests
Summary
The United States recognized the independence of all the former Soviet
republics by the end of 1991, including the South Caucasus states of Armenia,
Azerbaijan, and Georgia. The United States has fostered these states’ ties with the
West in part to end the dependence of these states on Russia for trade, security, and
other relations. The United States has pursued close ties with Armenia to encourage
its democratization and because of concerns by Armenian-Americans and others over
its fate. Close ties with Georgia have evolved from U.S. contacts with its pro-
Western leadership. The Bush Administration supports U.S. private investment in
Azerbaijan’s energy sector as a means of increasing the diversity of world energy
suppliers and to encourage building multiple energy pipelines to world markets. The
United States has been active in diplomatic efforts to end conflicts in the region,
many of which remain unresolved.
The FREEDOM Support Act of 1992 (P.L. 102-511) provides authorization for
assistance to the Eurasian states for humanitarian needs, democratization, creation
of market economies, trade and investment, and other purposes. Section 907 of the
act prohibits most U.S. government-to-government aid to Azerbaijan until its ceases
blockades and other offensive use of force against Armenia. This provision has been
partly altered over the years to permit humanitarian aid and democratization aid,
border security and customs support to promote nonproliferation, Trade and
Development Agency aid, Overseas Private Investment Corporation insurance,
Eximbank financing, and Foreign Commercial Service activities.
In the aftermath of the September 11, 2001, terrorist attacks on the United
States, the Administration appealed for a national security waiver of the prohibition
on aid to Azerbaijan, in consideration of Azerbaijan’s assistance to the international
coalition to combat terrorism. In December 2001, Congress approved foreign
appropriations for FY2002 (P.L. 107-115) that granted the President authority to
waive Section 907, renewable each calendar year under certain conditions. President
Bush exercised the waiver most recently in February 2006. As part of the U.S.
Global War on Terrorism, the U.S. military in May 2002 began providing security
equipment and training to help Georgia combat terrorist groups in its Pankisi Gorge
area and elsewhere in the country. Azerbaijani and Georgian troops participate in
stabilization efforts in Afghanistan and Iraq, and Armenian personnel serve in Iraq.
Foreign Operations Appropriations for FY2006 was signed into law November
14, 2005 (H.R. 3057; P.L. 109-102). It calls for $75 million in FREEDOM Support
Act aid to Armenia ($20 million above the request), $35 million for Azerbaijan, and
$67 million for Georgia. It calls for $12 million in Foreign Military Financing for
Georgia and $5 million each for Armenia and Azerbaijan. It also supports $750,000
in International Military Education and Training aid each for Armenia and
Azerbaijan. The conferees (H.Rept. 109-265) agree that at least $3 million be
provided to address ongoing humanitarian needs in Nagorno-Karabakh. This CRS
report replaces CRS Issue Brief IB95024, Armenia, Azerbaijan, and Georgia:
Political Developments and Implications for U.S. Interests
, by Jim Nichol.

Contents
Most Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Overview of U.S. Policy Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Post-September 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Operations in Iraq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Obstacles to Peace and Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Regional Tensions and Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Nagorno Karabakh Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Civil and Ethnic Conflict in Georgia . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Economic Conditions, Blockades, and Stoppages . . . . . . . . . . . . . . . . . . . . . 7
Democratization and Human Rights Problems . . . . . . . . . . . . . . . . . . . . . . . 7
Armenia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Azerbaijan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Georgia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The South Caucasus’s External Security Context . . . . . . . . . . . . . . . . . . . . . . . . 10
Russian Involvement in the Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Caspian Energy Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Military-Strategic Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
The Roles of Turkey, Iran, and Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
U.S. Aid Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
U.S. Security Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
U.S. Trade and Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Energy Resources and U.S. Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
109th Congress Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
List of Figures
Figure 1. Map of the Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
List of Tables
Table 1. U.S. FY1992-FY2005 and FY2005 Budgeted Foreign Assistance,
FY2006 Estimated Aid, and the FY2007 Request . . . . . . . . . . . . . . . . . . . . 20

Armenia, Azerbaijan, and Georgia:
Political Developments and
Implications for U.S. Interests
Most Recent Developments
Russia’s Foreign Ministry spokesman Mikhail Kamynin stated on June 1, 2006
that “we respect the principal of territorial integrity. But when this integrity is
applied to Georgia it is more a possible state than a political-legal reality.” He argued
that Georgia’s South Ossetia region was calling for self-determination, so that
Georgia’s “political-legal reality” was in limbo pending the outcome of settlement
talks between Georgia and South Ossetia.
President Bush met with visiting Azerbaijani President Ilkham Aliyev (his first
summit as president with Bush) in late April 2006. Bush hailed the “alliance”
between the two countries and Azerbaijan’s “understand[ing] that democracy is the
wave of the future.” Aliyev stated that he briefed Bush on Azerbaijan’s
“unchanging” insistence on regaining central authority over its breakaway Nagorno
Karabakh (NK) region and other surrounding “occupied territories.” Aliyev hinted
that after central authority was regained, international peacekeepers could be
deployed to NK. At a conference before the summit, Aliyev asserted that he had
been democratically elected, that “we have all the major freedoms,” and that his jails
hold no political prisoners. After the U.S. visit, the Azerbaijani foreign minister
stated that it marked Azerbaijan’s emerging role as the major power in the South
Caucasus region. Some human rights and other observers criticized the summit as
providing undue U.S. support to a nondemocratic leader.1
Background
Armenia, Azerbaijan, and Georgia are located south of the Caucasus Mountains
that form part of Russia’s borders (see Figure 1). 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. All three peoples
can point to periods of past autonomy or self-government. After the Russian Empire
1 The White House. Office of the Press Secretary. President Bush Welcomes President
Aliyev of Azerbaijan to the White House
, April 28, 2006; Foreign Broadcast Information
Service (FBIS), Central Eurasia: Daily Report, May 2, 2006, Doc. No. CEP-950092;
Council on Foreign Relations. A Conversation with Ilkham Aliyev, April 26, 2006.

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collapsed in 1917, all three
The Caucasus Region: Basic Facts
states declared independence,
Area: The region is slightly larger than Syria:
but by early 1921 all had been
Armenia is 11,620 sq. mi.; Azerbaijan is 33,774
re-conquered by Russia’s Red
sq. mi.; Georgia is 26,872 sq. mi.
(Communist) Army. They
Population: 15.57 million, similar to
regained independence when
Netherlands; Armenia: 2.98 m.; Azerbaijan: 7.91
the Soviet Union collapsed in
m.; Georgia: 4.68 m. (CIA World Factbook, July
1991.2
2005 est.). Over a million people from the region
are migrant workers in Russia and elsewhere.
GDP: $67.9 billion; Armenia: $15.3 b.;
Azerbaijan: $36.5 b.; Georgia: $16.1 b. (World
Factbook
, 2005 est., purchasing power parity)
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 Eurasian Conflicts have
helped in various ways to try to settle these “frozen” conflicts. Congressional
concerns about the NK conflict led to the inclusion of Section 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 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 region. They urge greater U.S. aid and
2 For background, see CRS Report RS20812, Armenia Update, by Carol Migdalovitz; CRS
Report 97-522, Azerbaijan: Recent Developments and U.S. Interests; and CRS Report
97-727, Georgia: Recent Developments and U.S. Interests, by Jim Nichol.

CRS-3
conflict resolution efforts to contain warfare, crime, smuggling, 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. They also point
to the prompt support offered to the United States by the regional states in the
aftermath of the September 11, 2001, attacks by Al Qaeda on the United States.
Some argue that energy resources in the Caspian region are a central U.S. strategic
interest, because Azerbaijani and Central Asian oil and natural gas deliveries would
lessen slightly Western energy dependency on Russia and the Middle East (see
below, Energy Resources).
Post-September 11. In the wake of September 11, 2001, the United States
obtained quick pledges from the three South Caucasian 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). Congressional attitudes
toward Azerbaijan and Section 907 shifted, resulting in presidential waiver authority
being incorporated into Foreign Operations Appropriations for FY2002 (H.R. 2506;
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, the President must
report to Congress on the nature of aid to be provided to Azerbaijan, the military
balance between Armenia and Azerbaijan and the effects of U.S. aid on that balance,
the status of Armenia-Azerbaijan peace talks, and the effects of U.S. aid on those
talks. President Bush has exercised the waiver annually, most recently on February
8, 2006. Since late 2002, Azerbaijan has contributed troops for peacekeeping in
Afghanistan (23 troops were deployed in early 2006), and Georgia contributed about
50 troops during Afghan elections in late 2004-early 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. U.S. officials reportedly asked
Azerbaijan and Georgia in April 2004 to bolster their troop contributions in the face
of Spain’s troop pullout. Georgia boosted its deployment to almost 900 troops as of
July 2005, making it a major contributor. Armenia began sending personnel to Iraq
in January 2005, where 46 serve with the Polish contingent.

CRS-4
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 the 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/transportion 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 dissimilar (also, those who generally
consider themselves Georgians — Kartvelians, Mingrelians, and Svans — speak
dissimilar languages). Few of the region’s borders coincide with ethnic populations.
Attempts by territorially based ethnic minorities to secede are primary security
concerns for all three states. The secessionist NK, Abkhazia, and South Ossetia have
failed to gain international recognition. NK relies on economic support from
Armenia, and Abkhazia and South Ossetia from Russia.
Nagorno Karabakh Conflict. Since 1988, the separatist conflict in Nagorno
Karabakh (NK) has resulted in about 15,000 casualties and hundreds of thousands
of refugees and displaced persons in Armenia and Azerbaijan. Armenia has granted
citizenship and acted to permanently house most of the ethnic Armenians who fled
Azerbaijan. The non-governmental International Crisis Group estimates that about
13-14% of Azerbaijan’s territory, including NK, is controlled by NK Armenian
forces (the CIA World Factbook estimates about 16%).3 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 elusive. In late 1997, a new step-by-step
peace proposal was recognized by the presidents of Azerbaijan and Armenia 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
3 International Crisis Group. Nagorno-Karabakh: Viewing the Conflict from the Ground,
September 14, 2005; CIA World Factbook. Azerbaijan, [http://www.odci.gov].

CRS-5
Aliyev in early 2001 stated that he had “turned down” and refused to discuss a late
1998 Minsk Group proposal embracing elements of a comprehensive settlement.4
The assassination of Armenian political leaders in late 1999 set back the peace
process. In April 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.5 Armenian Foreign Minister
Vardan 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.”6 Since 2005, media in both countries have reported negotiations on
a fourth “hybrid” peace plan to return most NK border areas prior to a referendum
in NK on its status. Talks in France in February 2006 between the Armenian and
Azerbaijani presidents reportedly made little progress.

Civil and Ethnic Conflict in Georgia. Several of Georgia’s ethnic
minorities stepped up their dissidence, 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. President Saakashvili in his January 2004 inaugural
address 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. Most residents of Abkhazia and South Ossetia reportedly have been
granted Russian citizenship.
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 North and 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. 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. 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. Georgian guerrilla forces also reportedly entered the region.
Allegedly, Russian officials likewise assisted several hundred paramilitary elements
4 FBIS, February 27, 2001, Doc. No CEP-262.
5 FBIS, January 17, 2003, Doc. No. CEP-338.
6 FBIS, October 13, 2004, Doc. No. CEP-11.

CRS-6
from Abkhazia, Transnistria, and Russia to enter. Following inconclusive clashes,
both sides by late 2004 ostensibly had pulled back most undeclared forces.
Saakashvili announced a new peace plan for South Ossetia in 2005 that offered
substantial autonomy and the creation of an international fund to facilitate
repatriation and rebuilding. South Ossetian “president” Eduard Kokoiti rejected the
plan, asserting in October 2005 that “we [South Ossetians] are citizens of Russia.”7
The plan has received U.S. and OSCE backing (see also below, Russian
Involvement
).
Abkhazia. In July 1992, Abkhazia’s legislature declared the region’s effective
independence, prompting an attack by Georgian national guardsmen. 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. Russian
and North Caucasian “volunteers” (who reportedly made up the bulk of Abkhaz
separatist forces) routed Georgian forces. Georgia and Abkhazia agreed in April
1994 on a framework for a political settlement and the return of refugees. A
Quadripartite Commission (QC) was set up to discuss repatriation and Russian troops
(acting as CIS peacekeepers) were deployed along the Inguri River dividing
Abkhazia from the rest of Georgia. The conflict resulted in about 10,000 deaths and
over 200,000 displaced persons, mostly ethnic Georgians. In late 1997, the sides
agreed to set up a Coordinating Council (CC) to discuss cease-fire maintenance and
refugee, economic, and humanitarian issues. The QC meets periodically and
addresses grievances not considered by the CC. Since 2001, Abkhazia resisted
holding CC meetings, but the two sides finally met on May 15, 2006, and the Abkhaz
“foreign minister” proffered a peace plan. Georgia found the plan “interesting” but
rejected it, claiming that the plan was virtually a declaration of independence. On
May 24, 2006, Irakli Alasania, Georgia’s Presidential Advisor for Conflict
Settlement, proffered an alternative peace plan which Abkhazia in turn reportedly
rejected as unconstructive.8
The U.S. Special Negotiator for Eurasian Conflicts works with the Special
Representative of the U.N. Secretary General and other Friends of Georgia (France,
Germany, Russia, the United Kingdom, and Ukraine) to facilitate a settlement. A
“New Friends of Georgia” group was formed by Bulgaria, Estonia, Latvia, Lithuania,
Moldova, Poland, Romania, and Ukraine in 2005 to advocate increased EU and
NATO attention to a settlement. Sticking points have included Georgia’s demand
that displaced persons be allowed to return to Abkhazia, after which an agreement
on autonomy for Abkhazia would be negotiated. The Abkhazians have insisted upon
recognition of their 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. Abkhaz officials in January 2006
also refused to establish a U.N./OSCE human rights office in the Gali district of
Abkhazia (where many Georgians formerly resided). In the UNSC, Russia in late
January 2006 renounced the draft negotiating document and agreed to only a two-
7 FBIS, October 7, 2005, Doc. No. CEP-15001.
8 U.N. Council on Resolving Abkhazia Dispute Meets for First Time in 5 Years, Associated
Press, May 15, 2006; Georgian Peace Plan Unacceptable: Abkhaz Foreign Minister,
Interfax, June 1, 2006.

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month extension to UNOMIG’s mandate, raising concerns among some observers
that Russia might openly endorse Abkhaz “self-determination.” The UNSC in
March, however, agreed to a normal six-month extension.
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 has
fueled economic growth in Azerbaijan in recent years. 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. 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 Nakhichevan exclave “is blockaded by
neighboring Armenia.” 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. Georgia severely restricts traffic from South Ossetia.
Russia hinders Azerbaijan’s use of the Volga-Don Canal to reach world shipping
channels.
Democratization and Human Rights Problems
The non-governmental organization Human Rights Watch (HRW) in its annual
report covering 2005 judged that the Armenian government had failed to improve its
human rights record during the year. It alleged that torture and ill-treatment in police
custody remained widespread. The government made little progress in combating
corruption. HRW reported that torture and excessive use of force by Azerbaijani
security forces also were widespread, and that Azerbaijani authorities had not taken
adequate measures to prosecute personnel committing such abuses. There continued
to be convictions of those widely considered to be political prisoners, and the
government pressured independent media by limiting their access to printing and
distribution facilities and by imposing fines for alleged defamation. In Georgia,
human rights abuses continued in many areas, according to HRW. Although there

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was a reduction in reports in the capital, Tbilisi, of torture while in detention, torture
by police and security forces appeared to remain widespread outside Tbilisi.9
Armenia. In a February 2003 presidential election, none of the nine candidates
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. OSCE and
PACE observers 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. In a May 25, 2003,
legislative election, 6 out of 21 parties running passed a 5% hurdle and won seats in
the party list section of the voting (75 of 131 deputies were elected by party lists).
Prime Minister Andranik Margaryan’s Republican Party won about 25% of the votes,
the opposition Justice bloc (led by Demirchyan) won 14%, the pro-government Land
of Laws Party won 12%, the pro-government Armenian Revolutionary Federation
(ARF) won 10%, the opposition National Unity Movement won 10%, and the pro-
government United Labor Party won 5%. The OSCE said that the election was “less
flawed than the recent presidential poll, but still fell short of international standards.”
Proposed constitutional changes also were voted on but were not approved. A
coalition government was formed by the Republican, Land of Laws, and ARF
parties.10
New constitutional changes were drawn up for a planned November 27, 2005,
popular referendum. The Venice Commission of the Council of Europe (COE) in
July 2005 stated that these proposed changes would provide a “good basis for
ensuring ... respect for human rights, democracy and the rule of law, and would pave
the way to further European integration.” Armenian officials announced that the
constitutional referendum had been approved by 93.2% of 1.5 million voters, with
a 65.4% turnout. A small delegation of monitors from the Parliamentary Assembly
of the Council of Europe (PACE) reported observing ballot-box stuffing and few
voters. Opposition parties, which boycotted the vote, alleged that the low observed
turnout placed into question whether the required one-third of the electorate had
actually voted.11
Azerbaijan. Ailing long-time ruler Heydar Aliyev withdrew from a scheduled
October 15, 2003, presidential election in favor of his son, Ilkham Aliyev, who
handily beat 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. The State Department expressed “deep
9 Human Rights Watch. World Report 2006, January 2006.
10 OSCE. Office of Democratic Institutions and Human Rights (ODIHR). Final Report on
the Presidential Election in Armenia
, April 28, 2003; Final Report on the Parliamentary
Elections in Armenia
, July 31, 2003.
11 PACE. Constitutional Referendum in Armenia: General Compliance Marred by Incidents
of Serious Abuse
, November 28, 2005.

CRS-9
disappointment” with “serious deficiencies” in the election and “extreme concern”
about post-election violence and “politically-motivated arrests.”12
Changes to the election law, some in line with proposals from the Venice
Commission, were approved by the legislature in June 2005, including those making
it easier for people to become candidates for a planned November 6, 2005, legislative
election. However, the deputies rejected some of the most significant proposals,
including a more equitable representation of political interests on electoral
commissions. PACE emissaries visiting Azerbaijan in July raised concerns that
myriad electoral officials accused of abuses in the 2000 legislative race remained in
place. In May and October 2005, Aliyev ordered officials to abide by election law,
and authorities permitted some opposition rallies. The October decree also led
legislators to approve marking hands and permit outside-funded NGOs to monitor
the election, as advocated by PACE. After the election, the U.S. State Department
issued a statement praising democratization progress, but urging the government to
address some electoral irregularities.13 Repeat elections were scheduled for May
2006 in ten constituencies where alleged irregularities took place. Many
oppositionists refused to run in what they claimed would be another sham election.
According to OSCE election monitors, the repeat race appeared to be an
improvement over the November election, but irregularities needed to be addressed,
including the composition of electoral commissions and interference by local
officials in campaigns.14
Georgia. Georgia has experienced increased political instability in recent
years. Polls before a November 2, 2003 legislative race and exit polling during the
race suggested that the opposition National Movement (NM) and the United
Democrats (UD) would win the largest shares of seats in the party list vote. Instead,
mostly pro-regime candidates were declared winners. Demonstrators launched a
peaceful “rose revolution” that led to Shevardnadze’s resignation on November 23.
Russia and the United States appeared to cooperate during the crisis to urge
Georgians to abjure violence. UD and NM agreed to co-sponsor NM head
Saakashvili for a January 4, 2004, presidential election. He received 96% of 2.2
million popular votes from a field of five candidates. OSCE observers judged the
vote as bringing Georgia closer to meeting democratic electoral standards. The
legislature, headed by UD co-leader Nino Burjanadze, approved constitutional
amendments in February 2004 that created the post of prime minister and confirmed
UD co-leader Zurab Zhvania for the post. After Zhvania’s death in early 2005, his
12 U.S. Department of State. Press Statement: Presidential Election in Azerbaijan, October
21, 2003.
13 U.S. Department of State. Press Statement: Azerbaijan Parliamentary Elections,
November 7, 2005. See also CRS Report RS22340, Azerbaijan’s Legislative Election, by
Jim Nichol.
14 OSCE/ODIHR Mission. Press Release: Partial Repeat Parliamentary Elections in
Azerbaijan Underscore Continuing Need for Electoral Reform
, May 15, 2006; Alman Mir
Ismail, The Changing Nature of Azerbaijani Elections, Central Asia - Caucasus Analyst,
May 17, 2006.

CRS-10
colleague Zurab Noghaideli replaced him.15 Legislative elections were held on
March 28, 2004 involving 150 party list seats (winners of district seats in November
retained them). NM and BD ran on a joint list and captured 67.2% of 1.53 million
votes, giving the bloc a majority of seats, seemingly ensuring firm legislative support
for Saakashvili’s policies. The OSCE judged the election as the most democratic
since Georgia’s independence.
President Bush visited Georgia on May 9-10, 2005, and praised its “rose
revolution” for “inspiring democratic reformers” and freedom “from the Black Sea
to the Caspian and to the Persian Gulf and beyond.” President Saakashvili hailed the
Bush visit as marking “final confirmation that Georgia is an independent country
whose borders and territory are inviolable” and stressed that the U.S.-Georgian
“partnership” ultimately was based on “our shared belief in freedom” and was the
reason Georgia had sent troops to Iraq to end “enslavement” there.16
The South Caucasus’s External Security Context
Russian Involvement in the Region
After Vladimir Putin became president in 1999, Russia appeared to place great
strategic importance on maintaining influence in the South Caucasus region. But
although such efforts appeared initially successful, several developments since 2003
may have altered this assessment, including the “rose revolution” in Georgia,
NATO’s increased ties with Armenia, the completion of the Baku-Tbilisi-Ceyhan oil
pipeline (and construction on an associated gas pipeline), Russia’s ongoing concerns
about security in its North Caucasus regions (including Chechnya), and Russia’s
agreement to close its remaining military bases in Georgia.
Recently, Russia has appeared to place its highest priority on exercising
influence in the region in the energy sphere and slightly less priority on influence in
the military-strategic and domestic political spheres. Russia has viewed Islamic
fundamentalism as a growing 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. It
has quashed separatism in its North Caucasus areas while seemingly backing it in the
South Caucasus. 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. Georgia has protested what it views as
Russia’s support to separatists. Azerbaijan has been concerned about Russia’s ties
with Armenia.
15 For background, see CRS Report RS21685, Coup in Georgia [Republic]: Recent
Developments and Implications
, by Jim Nichol.
16 The White House. Office of the Press Secretary. President and President Saakashvili
Discuss NATO, Democracy
, May 10, 2005. See also President Saakashvili’s remarks in
FBIS, May 4, 2005, Doc. No. CEP-26020.

CRS-11
Caspian Energy Resources. Russia has tried to play a major role in future
oil production and transportation in the Caspian Sea region. 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. In early 2004,
however, a Russian official stated that Putin wanted to ensure that the greatest
volume of Caspian energy flowed through Russia.17 Armenia and Georgia are
heavily reliant on Russian gas supplies, and Azerbaijan plans to continue to import
some Russian gas until its own gas fields are developed further. In early 2006,
Russia charged all three states much more for gas (see also below, Energy
Resources
).
Military-Strategic Interests. Russia’s armed presence in the South
Caucasus has been multifaceted, 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) by Armenia, Russia, and others in 1992,
which pledges the members to consult in the event of a threat to one or several
members, and to provide mutual aid if attacked (Azerbaijan and Georgia withdrew
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 in Armenia has been estimated at about
3,500. Armenia has argued that its Russian bases provide for regional stability by
protecting it from attack. More than 100,000 Russian troops also are stationed
nearby in the North Caucasus.18 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 permitting up to 1,500 troops there.)
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 its northern Pankisi Gorge 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 Gorge and
international terrorists that Russia alleged had transited Georgia to fight in Chechnya.
In April 2006, Azerbaijan convicted 16 alleged terrorists who reportedly had received
training from Al Qaeda operatives in the Pankisi Gorge.19
17 The White House. Office of the Press Secretary. Joint Statement by President George
W. Bush and President Vladimir V. Putin on the New U.S.-Russian Energy Dialogue
, May
24, 2005. For the statement by Viktor Kalyuzhny, Putin’s Special Envoy to the Talks on the
Legal Status of the Caspian Sea, see FBIS, April 6, 2004, Doc. No. CEP-17.
18 The Military Balance 2005-2006. London: International Institute of Strategic Studies,
2005.
19 For background, see CRS Report RS21319, Georgia’s Pankisi Gorge, by Jim Nichol.

CRS-12
The Georgian legislature in October 2005 called on the government to certify
that the activities undertaken by Russian peacekeepers in Georgia’s breakaway
regions of Abkhazia and South Ossetian were contributing to peace settlements. If
the government was unable to make these certifications as stipulated, then it must
request that the peacekeepers leave, according to the resolution. A Georgian National
Military Strategy document released in November 2005 was blunt, terming Russian
peacekeepers and bases security threats. In February 2006, Georgia’s legislature
unanimously approved a resolution calling for the president to revoke the 1992
agreement providing for Russian “peacekeeping” in South Ossetia, on the grounds
that it is counterproductive and an attempt by Russia to annex the region. The
resolution urged greater international involvement in peacekeeping and a peace
settlement. The U.S. State Department has urged Georgia not to abandon the existing
peace process. Russian President Vladimir Putin rhetorically asked in January 2006
why Russia should not recognize the independence of Georgia’s breakaway Abkhazia
and South Ossetia regions, if some countries recognized Serbia’s Kosovo region.20
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. On July 1, 2001, Georgia reported that Russia had turned over the
Vaziani base. Russia declared in June 2002 that it had closed its Gudauta base, but
that 320 troops would remain to support Russian “peacekeepers” taking leave at the
base. Georgia objects to this stance. Russian Defense Minister Sergey Ivanov stated
in mid-2005 that there were about 2,500 Russian troops and family members at
facilities in Georgia.21
The Georgian legislature in March 2005 passed a resolution calling for Russia
to agree by mid-May on closing the bases or face various restrictions on base
operations. This pressure, and perhaps the U.S. presidential visit (see above), spurred
Russia to agree with Georgia in late May on setting the end of 2008 as the deadline
for closing the bases. Putin explained that his military General Staff had assured him
that the bases were Cold War-era relics of no strategic importance to Russia.22 The
two countries agreed that the base at Akhalkalaki would be closed by late 2007, and
that Batumi would be closed during 2008. Some in Georgia have criticized a
provision permitting some Russian troops to remain at Batumi as part of a
prospective joint anti-terrorist center. The accord did not mention Gudauta. In early
2006, Georgian Defense Minister Irakli Okuashvili reportedly asserted that Gudauta
remained a “fully functioning” Russian base. Russian and Abkhaz officials rejected
this claim. In April 2006, Abkhazia agreed to a visit by members of NATO’s
Parliamentary Assembly, but rejected its interest in inspecting the Gudauta base, on
the grounds that Russia had to agree. During the May 2006 visit, the delegation
20 FBIS, January 31, 2006, Doc. No. CEP-27075.
21 FBIS, June 7, 2005, Doc. No. CEP-23002.
22 FBIS, May 24, 2005, Doc. No. CEP-378001.

CRS-13
reportedly was blocked from visiting the base and also had scant success in
encouraging a peace settlement.23
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 organization, along with 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. 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 hopes 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. 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. Some thawing in Azerbaijani-Iranian relations
has occurred in 2005-2006 with the long-delayed opening of an Azerbaijani consulate
in Tabriz and various leadership summits. U.S. policy aims to contain Iran’s threats
to U.S. interests.24
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
23 FBIS, March 31, 2006, Doc. No. CEP-950202; April 21, 2006, Doc. No. CEP-20003; May
2, 2006, Doc. No. CEP-950141; May 4, 2006, Doc. No. CEP-20004; May 12, 2006, Doc.
No. CEP-27137.
24 See CRS Report RL32048, Iran: U.S. Concerns and Policy Responses, by Kenneth
Katzman.

CRS-14
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. Azerbaijan shares with Central Asian states common linguistic and religious
ties and concerns about some common neighbors (Iran and Russia). The South
Caucasian and Central Asian states are concerned about ongoing terrorist threats and
drug trafficking from Afghanistan. Central Asia’s increasing ties with the South
Caucasus 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 five Eurasian states that each have
received more than $1 billion in U.S. aid FY1992-FY2005 (the others are Russia,
Ukraine, and Kazakhstan, which have received sizeable CTR funds). See Table 1.
U.S. assistance to the region has included FREEDOM Support Act (FSA) 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, which still exists, to emphasize
regional peace and development. Besides bilateral aid, the United States contributes
to multilateral organizations such as the International Monetary Fund and the World
Bank that aid the region. In perspective, cumulative EU aid to the region over 1992-
2004 has totaled about $1.4 billion. In 2004 the EU invited the South Caucasus
states to participate in a “Wider Europe” program of enhanced aid, trade, and
political ties.
In January 2004, Congress authorized a major new global assistance program,
the Millennium Challenge Account (Section D of P.L. 108-199). A newly
established Millennium Challenge Corporation (MCC) approved a five-year, $295.3
million agreement (termed a “compact”) with Georgia in August 2005 to improve a
road from Javakheti to Samtskhe, repair a gas pipeline, create a small business
investment fund, set up agricultural grants, and improve municipal and rural water
supply, sanitation, irrigation, roads, and solid waste treatment. Reportedly, no MCC
funds have been disbursed yet. In December 2005, the MCC approved a five-year,
$235.65 million compact with Armenia — to bolster rural agriculture through road-
building and irrigation and marketing projects — but raised concerns about the
November 2005 constitutional referendum. Following assurances by Foreign
Minister Oskanyan that Armenia would address democratization shortfalls, the MCC
indicated that the compact would be signed.25
25 Millennium Challenge Corporation. Ambassador Danilovich’s letter to Armenian
President Robert Kocharyan
, December 16, 2005; Press Release: Millennium Challenge
Corporation Board Approves Armenia Compact but Expresses Concern Regarding
Irregularities in the November Referendum
, December 19, 2005; and Ambassador
Danilovich’s letter to Armenian President Robert Kocharyan
, January 18, 2006,
(continued...)

CRS-15
U.S. Security Assistance
The United States has provided some security assistance to the region, and
bolstered such aid after September 11, 2001, though overall aid amounts to the
countries did not increase post-September 11 as they did in regard to the Central
Asian “front line” states in the war on terrorists in Afghanistan (see Table 1). In
testimony in March 2005, Gen. James Jones, head of U.S. European Command
(EUCOM), stated that “the Caucasus is increasingly important to our interests. Its
air corridor has become a crucial lifeline between coalition forces in Afghanistan and
our bases in Europe. Caspian oil, carried through the Caucasus, may constitute as
much as 25 percent of the world’s growth in oil production over the next five years
... This region is a geographical pivot point in the spread of democracy and free
market economies to the states of Central and Southwest Asia.”26
EUCOM initiatives in the region include the Sustainment and Stability
Operations Program (SSOP) in Georgia, the South Caucasus Clearinghouse, the
Caspian Guard program, and the Caspian Hydrocarbons initiative. The 16-month
SSOP was launched in early 2005 as a follow-on to the Georgia Train and Equip
Program (GTEP; see below). Funded at $60 million, SSOP is providing training for
four battalions (2,000 troops), in part to support U.S.-led coalition operations. The
Clearinghouse aims to facilitate cooperation by sharing data on security assistance
among both donor and recipient countries. Gen. Jones testified that the Caspian
Guard program, launched in 2003, enhances and coordinates security assistance
provided by U.S. agencies to establish an “integrated airspace, maritime and border
control regime” for Azerbaijan and Kazakhstan. The Hydrocarbons initiative
provides maritime security and crisis response and consequence management aid to
help the regional states protect their pipelines and other energy transport to the
West.27 The United States acknowledged in late 2005 that it had supplied two
maritime surveillance radars to help detect and direct interdiction of illicit weapons
of mass destruction and other trafficking in the Caspian Sea.28 Gen. Charles Wald,
deputy head of EUCOM, in November 2004 suggested that the Administration was
exploring the establishment of “cooperative security locations” (CSLs) — sites
without a full-time U.S. military presence that are used for refueling and short-
duration deployments — in Azerbaijan or Georgia.29
25 (...continued)
[http://www.mca.gov]. See also Armenian Foreign Ministry. Oskanian Thanks MCC for
Millennium Compact
, January 12, 2006, [http://www.armeniaforeignministry.com].
26 U.S. Senate. Committee on Armed Services. Testimony by Gen. James Jones, March 1,
2005. See also CRS Report RL30679, Armenia, Azerbaijan, and Georgia: Security Issues
and Implications for U.S. Interests
, by Jim Nichol.
27 Senate Armed Services Committee. Statement of General James L. Jones, USMC,
Commander, United States European Command
, March 1, 2005.
28 Two Radar Stations Become Operational in Azerbaijan under the U.S.-Funded Caspian
Guard Initiative, International Export Control Observer, Center for Non-proliferation
Studies, Monterey Institute of International Studies, November 2005.
29 Vince Crawley, Army Times, November 22, 2004.

CRS-16
Georgia wants to join NATO, but much greater progress in military reform will
be required, according to many observers. All three regional 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 and the latter two states
support NATO-led operations in Afghanistan. There reportedly have been some
fistfights and even a murder involving Armenians and Azerbaijanis during PFP
activities. NATO 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 Secretary General was appointed to encourage democratic civil-military
relations, transparency in defense planning and budgeting, and enhanced force inter-
operability with NATO.
Until waived, Section 907 had prohibited much U.S. security aid to Azerbaijan,
including Foreign Military Financing (FMF), and International Military Education
& Training (IMET). Under 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. Since the waiver
provision to Section 907 was enacted, some Members have maintained that the
Armenian-Azerbaijani military balance is preserved by providing equal amounts
(parity) in IMET and FMF assistance to each country. In FY2005, the conference
report (H.Rept. 108-792) on H.R. 4818 (P.L. 108-447; Consolidated Appropriations)
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. Apparently in anticipation of
similar congressional calls, the Administration’s FY2006 foreign aid budget
requested equal amounts of FMF as well as IMET for each country. However, the
FY2007 budget request called for more such aid for Azerbaijan than for Armenia.
The House Foreign Operations Subcommittee and the Appropriations Committee in
late May 2006 approved equal amounts of $3.5 million in FMF and $790,000 in
IMET for Armenia and Azerbaijan.
A $64 million Georgia Train and Equip Program (GTEP) was carried out in
2002-2004 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 allegedly had fled U.S.-led
coalition operations in Afghanistan, so the GTEP was initially linked to OEF. Other
reported U.S. aims include bolstering Georgia’s ability to guard its energy pipelines
and ensuring internal stability. The program formally ended in April 2004 (see
above, SSOP).

CRS-17
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
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. The application of Title IV of the Trade Act
of 1974, including the Jackson-Vanik amendment, was terminated with respect to
Georgia in December 2000, so its products receive permanent nondiscriminatory
(normal trade relations or NTR) treatment. Armenia was admitted into WTO in
December 2002. The application of Title IV was terminated with respect to Armenia
in January 2005.
Energy Resources and U.S. Policy
The U.S. Energy Department reports estimates of 7-13 billion barrels of proven
oil reserves, and estimates of 30 trillion cubic feet of proven natural gas reserves in
Azerbaijan.30 U.S. policy goals regarding energy resources in Central Asia and the
South Caucasus have included supporting the sovereignty of the states, their ties to
the West, and 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 2001 energy policy report.31 It recommended that
the President direct U.S. agencies to support building the Baku-Tbilisi-Ceyhan (BTC)
oil pipeline, expedite use of the pipeline by oil firms operating in Kazakhstan, and
support constructing a gas pipeline to export Azerbaijani gas. Since September 11,
2001, the Administration has emphasized U.S. vulnerability to possible energy
supply disruptions and its commitment to Caspian energy development. Critics
argue that oil from the Caspian region will amount to less than 4% of world supplies.
Senator John Kerry in late July 2005 criticized H.R. 6, the Energy Policy Act (P.L.
109-58), by arguing that it did not address the U.S. over-dependency on foreign oil,
which was necessitating U.S. training of security forces “to guard oil facilities around
the Caspian Sea.”32
The United States launched a campaign in 1997 stressing the strategic
importance of the BTC route as part of an “Eurasian Transport Corridor.” In
30 U.S. Department of Energy. Energy Information Administration. Azerbaijan Country
Analysis Brief
, June 2005.
31 The White House. The National Energy Policy Development Group. Reliable,
Affordable, and Environmentally Sound Energy for America’s Future
, May 16, 2001.
32 Congressional Record, July 28, 2005, p. S9263.

CRS-18
November 1999, Azerbaijan, Georgia, Turkey, and Kazakhstan signed the “Istanbul
Protocol” on construction of the 1,040-mile BTC oil pipeline. In August 2002, the
BTC Company (which includes U.S. firms Conoco-Phillips, Amerada Hess, and
Chevron) was formed to construct, own, and operate the oil pipeline. Azerbaijani
media reported at the end of May 2006 that the first tanker began on-loading oil at
Ceyhan. A gas pipeline to Turkey (termed the South Caucasus Pipeline or SCP) is
being built by the Shah Deniz and SCP Partners (which includes Iran, with
construction work by U.S. firm McDermott). Georgia will receive some of this gas,
reducing its reliance on Russian gas. Some in Armenia object to lack of access to
these pipelines. In May 2006, Armenia agreed to relinquish various energy assets to
Russian firms (including a gas pipeline to Iran) as partial payment for a price increase
in Russian gas. Some critics have alleged that Russia now has virtual control over
Armenia’s energy supplies.
109th Congress Legislation
H.R. 3361 (Knollenberg)/S. 2461 (Santorum)
To prohibit U.S. assistance to develop or promote any rail connections or
railway-related connections that traverse or connect Baku, Azerbaijan; Tbilisi,
Georgia; and Kars, Turkey, and that specifically exclude cities in Armenia. H.R.
3361 was introduced on July 20, 2005. S. 2461 was introduced on March 28, 2006.
H.R. 3103 (Schiff)
To direct the Secretary of State to submit a report outlining the steps taken and
plans made by the United States to end Turkey’s blockade of Armenia. Introduced
June 29, 2005.
H.Con.Res. 195 (Schiff)
Commemorating the Armenian Genocide of 1915-1923. Introduced June 29,
2005. The Committee on International Relations on September 15, 2005, ordered it
to be reported.
H.Res. 316 (Radanovich)/S.Res. 320 (Ensign)
Calling the President to ensure that the foreign policy of the United States take
into account issues of human rights, ethnic cleansing, and genocide documented in
the United States record relating to the Armenian Genocide. H.Res. 316 was
introduced on June 14, 2005. The Committee on International Relations on
September 15, 2005, ordered it to be reported. S.Res. 320 was introduced on
November 18, 2005.
H.Res. 326 (Gallegly)/S.Res. 226 (Biden)/S.Res. 260 (Biden)
Calling for free and fair legislative elections in Azerbaijan. H.Res. 326 was
introduced June 16, 2005, and passed on July 20, 2005. S.Res. 226 was introduced
on July 29, 2005. A similar bill, S.Res. 260, was introduced September 29, 2005, and
was approved in the Senate on October 20, 2005.

CRS-19
S. 2749 (Brownback)
To update the Silk Road Strategy Act of 1999 to modify targeting of assistance
in recognition of political and economic changes in the Central Asian and South
Caucasian countries since 1999. Introduced May 4, 2006. Designates Afghanistan
as a Silk Road country. States that supporting democracy, mineral and other property
rights, the rule of law, and U.S. trade with energy-rich Kazakhstan, Azerbaijan, and
Turkmenistan, and with energy-transporting states, will strengthen U.S. energy
security by enhancing access to diversified energy resources. Urges close U.S.
relations with the Silk Road states to facilitate maintaining military bases near
Afghanistan and Iraq. Recognizing that China and Russia have acted at odds with
U.S. security interests, such as by curbing the U.S. military presence in Uzbekistan,
calls for U.S. observer status in the Shanghai Cooperation Organization (SCO) in
order to promote stability and security. Calls for providing greater access to
Export-Import Bank loans, promoting the development of trans-Caspian oil and gas
pipelines, and supporting the building of a rail link in Kazakhstan that will facilitate
the shipment of oil and other goods to Europe. Calls for the Export-Import Bank and
OPIC to help set up a Caspian Bank of Reconstruction and Development. Urges
consideration for setting up a Silk Road Advisory Board (consisting of experts in
agriculture, democratization, banking, finance, legal reform, infrastructure planning,
and oil and gas extraction and transport), a private sector energy consultancy (to
coordinate business projects and promote production, transportation, and refining
investments), and an annual meeting of Silk Road aid sponsors and beneficiaries to
be held in conjunction with the Energy Security Forum of the U.N. Economic
Council of Europe.
H.R. 5122 (Hunter)
National Defense Reauthorization Act for FY2007. Sec. 1022 restates and
revises Defense Department authority to provide support for counter-drug activities
of certain foreign governments. Adds Azerbaijan as eligible for assistance, including
possible nonlethal equipment, boats, aircraft, and vehicles. Amount obligated and
expended is not to exceed $40 million in FY2006 or $60 million in FY2007 or
FY2008. Sec. 1025 calls for the Defense Secretary to submit a report by the end of
2006 updating the interagency counter-narcotics plan for Afghanistan and South and
Central Asia (and including Azerbaijan). Introduced on April 6, 2006. Passed House
on May 11, 2006.
S.Res. 69 (Lugar)
Expressing the sense of the Senate about the actions of Russia regarding
Georgia and Moldova. Resolves that the United States should urge Russia to live up
to commitments to close or otherwise resolve the status of its military bases in
Georgia and Moldova; maintain strong diplomatic pressure to permit an OSCE
Border Monitoring Operation (BMO) in Georgia to continue; and seek (if BMO
ceases to exist) an international presence to monitor borders between Georgia and
Russia. Introduced March 3, 2005, and agreed to on March 10.
S.Res. 139 (Reid)
Expressing support for the withdrawal of Russian troops from Georgia.
Introduced May 12, 2005. Passed on May 12, 2005.

CRS-20
S.Res. 344 (McCain)
Expressing Support for the Government of Georgia’s South Ossetian Peace
Plan. Calls for all Members of the OSCE to respect Georgia’s territorial integrity
and urges the U.S. government to play a more significant role in facilitating a peace
settlement. Introduced and approved on December 21, 2005.
Table 1. U.S. FY1992-FY2005 and FY2005 Budgeted Foreign
Assistance, FY2006 Estimated Aid, and the FY2007 Request
(millions of dollars)
FY1992-FY2005
South Caucasus
FY2006
FY2007
Budgeted Aida
FY2005
Country
Budgeted Aida
Estimateb
Requestb
Armenia
1,581.09
91.01
81.7
58.14
Azerbaijan
588.72
79.15
47.94
40.12
Georgia
1,611.17
126.87
86.01
75.84
Regional
38.73
2.03


Total
3,819.71
299.06
215.65
174.1
Percent
13.6
15
36
33
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: FY2005
Annual Report
; State Department, Congressional Budget Justification for Foreign Operations,
FY2007
.
a. FREEDOM Support Act and Agency budgets.
b. FREEDOM Support Act and other Function 150 funds. Does not include Defense or Energy
Department funding, funding for exchanges, or Millennium Challenge Corporation programs in
Armenia and Georgia.
Figure 1. Map of the Region