Order Code RL30679
Armenia, Azerbaijan, and Georgia:
Security Issues and Implications
for U.S. Interests
Updated February 1, 2007
Jim Nichol
Specialist in Russian and Eurasian Affairs
Foreign Affairs, Defense, and Trade Division

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Armenia, Azerbaijan, and Georgia:
Security Issues and Implications for U.S. Interests
Summary
The South Caucasus region has been the most unstable in the former Soviet
Union in terms of the numbers, intensity, and length of ethnic and civil conflicts.
Other emerging or full-blown security problems include crime, corruption, terrorism,
the proliferation of weapons of mass destruction, and narcotics trafficking. The
regional governments have worked to bolster their security by combating terrorism,
limiting political dissent they view as threatening, revamping their armed forces, and
seeking outside assistance and allies.
The roles of neighbors Iran, Russia, and Turkey have been of deep security
concern to one or more of the states of the region. These and other major powers,
primarily the United States and European Union (EU) members, have pursued
differing interests and policies toward the three states. Some officials in Russia view
the region as a traditional sphere of influence, while Turkish officials tend to stress
common ethnic ties with Azerbaijan and most of Central Asia. EU members are
increasingly addressing instability in what they view as a far corner of Europe.
Armenia has pursued close ties with Russia and Iran in part to counter Azerbaijan’s
ties with Turkey, and Georgia and Azerbaijan have stressed ties with the United
States in part to bolster their independence vis-a-vis Russia.
The United States has supported democratization, the creation of free markets,
conflict resolution, regional cooperation, and the integration of the South Caucasian
states into the larger world community. The Administration has backed regional
energy and pipeline development that does not give Iran and Russia undue political
or economic influence. U.S. aid has been provided to bolster the security and
independence of the states. Some critics have asserted that the region is not a top
strategic priority for the United States and have advocated limited U.S. involvement
sufficient to ensure general U.S. goals of fostering stability and reforms.
Congress has been at the forefront in supporting U.S. assistance to bolster
independence and reforms in the South Caucasus, but debate has continued over the
scope, emphasis, and effectiveness of U.S. involvement. Congressional support for
the security of Armenia and Nagorno Karabakh (NK; a breakaway region of
Azerbaijan mostly populated by ethnic Armenians) led in 1992 to a ban on most U.S.
government-to-government aid to Azerbaijan. Congress authorized a presidential
waiver to the ban after the terrorist attacks on the United States on September 11,
2001, to facilitate U.S.-Azerbaijan anti-terrorism cooperation. Congressional support
for U.S. engagement with the region also was reflected in “Silk Road Strategy”
legislation in FY2000 (P.L. 106-113) authorizing greater policy attention and aid for
conflict amelioration, humanitarian needs, economic development, transport and
communications, border control, democracy, and the creation of civil societies in the
South Caucasus and Central Asia. Congress regularly has earmarked foreign aid to
Armenia and upheld a South Caucasus funding category to encourage conflict
resolution, provide for reconstruction assistance, and facilitate regional economic
integration.

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Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Overview of U.S. Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
External Security Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The Confluence of Outside Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Regional Assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Internal Security Problems and Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Political and Social Disorder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Ethnic Tensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Terrorist Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Crime and Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Illegal Narcotics Production, Use, and Trafficking . . . . . . . . . . . . . . . 17
Non-Proliferation of Weapons of Mass Destruction . . . . . . . . . . . . . . 17
Economic and Defense Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
U.S. Policy and Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Contributions to Operation Enduring Freedom in Afghanistan . . . . . . 27
Support for Iraqi Freedom Operations . . . . . . . . . . . . . . . . . . . . . . . . . 29
U.S. Security and Law Enforcement Assistance . . . . . . . . . . . . . . . . . . . . . 30
Non-proliferation Aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Counter-Narcotics Aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Safety of U.S. Citizens and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Issues for the 110th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Should the United States Play a Prominent Role in the
South Caucasus? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
What are U.S. Interests in the South Caucasus? . . . . . . . . . . . . . . . . . 38
What Roles Should Outside Powers Play in the Region? . . . . . . . . . . 39
How Significant Are Regional Energy Resources to U.S. Interests? . . 39
What U.S. Security Involvement is Appropriate? . . . . . . . . . . . . . . . . 40
Should the United States Try to Foster Democratization? . . . . . . . . . . 41
Appendix 1: Selected Players . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Russia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Turkey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Iran . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
List of Figures
Figure 1. Armenia, Azerbaijan, and Georgia . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

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List of Tables
Table 1. Armenia, Azerbaijan, and Georgia: Basic Facts . . . . . . . . . . . . . . . . . 51
Table 2: Security Funds Budgeted for Armenia, Azerbaijan, and Georgia,
FY1992-FY2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

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Armenia, Azerbaijan, and Georgia:
Security Issues and Implications
for U.S. Interests
Introduction
The countries of Armenia, Azerbaijan, and Georgia are generally considered as
comprising the South Caucasus region, which borders Russia, Turkey, and Iran.1
This isthmus between the Black and Caspian Seas is an age-old north-south and east-
west trade and transport crossroads. The region has been invaded many times,
quashing periods of self-rule. These invasions and other contacts have resulted in
many and diverse historical, cultural, ethnic, religious, and linguistic links with
neighboring peoples. Russian and Soviet tutelage over the region lasted from the
early nineteenth century until the break-up of the Soviet Union in 1991, deeply
affecting economic and social development, borders, and nationality relations. Soviet
control, in particular, resulted in the isolation of the crossroads region from the rest
of the world. After gaining independence, all the states spiraled into economic
collapse and conflicts began or deepened that threatened their existence, though in
recent years the states have appeared more stable. The new states remain weak in
comparison to neighboring powers in terms of populations, economies, armed forces,
and other capabilities.
This report discusses the internal and external security concerns of the South
Caucasus states and U.S. interests and policy toward the region. The ambitions of
neighboring powers, particularly Russia, may pose the greatest threat to the stability
and sovereignty of the South Caucasus states. It is also possible that internal security
problems are greater threats. The states are less able to ameliorate external threats
because of internal weaknesses such as political and economic instability, ethnic and
regional conflicts, and crime and corruption.
1 For background, see CRS Report RS20812, Armenia Update, by Carol Migdalovitz; CRS
Report 97-522, Azerbaijan: Recent Developments and U.S. Interests, by Jim Nichol; and
CRS Report 97-727, Georgia [Republic]: Recent Developments and U.S. Interests, by Jim
Nichol. See also CRS Report RL33453, Armenia, Azerbaijan, and Georgia: Political
Developments and Implications for U.S. Interests, by Jim Nichol. The Caspian region
encompasses the littoral states Azerbaijan, Russia, Iran, Kazakhstan, and Turkmenistan, but
sometimes the region is viewed expansively to include Armenia, Georgia, Uzbekistan, and
even Afghanistan. The Black Sea region also has been viewed expansively to include
Armenia and Azerbaijan.

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CRS-2
Overview of U.S. Policy
U.S. security ties with the South Caucasus states increased in the latter part of
the 1990s, as a result of Russia’s military activities in Georgia, Russia’s first conflict
in its breakaway Chechnya region, and an emerging U.S. focus on the transport of
Caspian regional energy resources to Western markets. While continuing to envisage
a constructive Russian role in the region, the United States also increasingly has
supported broad engagement with the South Caucasian states in support of three
inter-related sets of U.S. interests in the region. According to Deputy Assistant
Secretary of State Matthew Bryza, “we’re not embarrassed to say that energy is a
strategic interest. We [also] have ... traditional security interests — meaning fighting
terrorism, fighting proliferation, avoiding military conflict, and restoring (or
preserving, in some cases) the territorial integrity of the states of the region.... And
then we have a third set of interests, in ... democratic and market economic reform
... based on our belief that stability only comes from legitimacy. And legitimacy
requires democracy on the political side and prosperity on the economic side.”2
The United States provided some security assistance to the region prior to the
September 11, 2001, terrorist attacks on the United States, particularly to Georgia.
This aid and the establishment of military-to-military ties facilitated U.S. anti-
terrorism cooperation with these states in the wake of September 11, 2001. The
United States obtained quick pledges from the three states to support U.S. and
coalition efforts in Afghanistan, including overflight rights and information sharing
and Azerbaijan’s and Georgia’s offers of airbases. The State Department’s Country
Reports on Terrorism 2005 highlighted U.S. support for Azerbaijan’s and Georgia’s
efforts to halt the use of their territories as conduits by international mujahidin and
Chechen guerrillas for financial and logistic support for Chechen and other Caucasian
terrorists.3
The United States has placed growing strategic significance on energy supplies
from the Caspian region. The Bush Administration’s May 2001 National Energy
Report, issued by a commission headed by Vice President Cheney and other top
officials, concluded that oil exports from the Caspian region could reach millions of
barrels per day within several years, and suggested that greater oil production there
could not only benefit the economies of the region, but also help mitigate possible
world supply disruptions. The Bush Administration’s 2003 and 2006 National
Security Strategy of the U.S.A. also emphasized these themes, stating that U.S. energy
security and global prosperity would be strengthened by expanding the numbers of
suppliers, including those in the Caspian region.4

2 “Caucasus: U.S. Says Aliyev, Kocharyan Must Show ‘Political Will,’” RFE/RL, June 23,
2006.
3 U.S. Department of State. Country Reports on Terrorism, Apr. 28, 2006.
4 The White House. National Energy Policy, May 17, 2001; The National Security Strategy
of the United States of America, Apr. 29, 2003; The National Security Strategy of the United
States of America, Mar. 16, 2006. Unlike the 2003 edition, the 2006 edition does not
specifically mention the Caspian region.

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CRS-3
Most in Congress have supported U.S. assistance to bolster independence,
security, and reforms in the South Caucasus, but questions remain about the
suitability, scope, emphasis, and effectiveness of U.S. interest and involvement in the
region. Attention has included several hearings and legislation, the latter including
regular earmarks of aid for Armenia and sense of Congress provisions on U.S. policy
toward the South Caucasus.
Congressional concern in the early 1990s over the Armenian-Azerbaijan conflict
contributed in 1992 to the enactment of an aid prohibition for the government of
Azerbaijan until the President determines that Azerbaijan has made “demonstrable
steps to cease all blockades and other offensive uses of force against Armenia and
Nagorno Karabakh” (NK; a breakaway region of Azerbaijan mostly populated by
ethnic Armenians). After September 11, 2001, Congress provided a Presidential
waiver of this provision in order to facilitate Azerbaijan’s assistance for the war on
terrorism, but emphasized its continuing attention to the peaceful resolution of the
NK conflict. Beginning with FY1998 appropriations, Congress created a South
Caucasus funding category to encourage conflict resolution, provide for
reconstruction assistance, and facilitate regional economic integration. In FY1998-
FY2001, Congress specified funding for a border and customs security program for
Georgia, and some of this aid was used by Georgia to fortify its northern borders with
Russia and Chechnya. The United States has committed millions of dollars to
facilitate the closure of Russian military bases in Georgia. Congress initiated the
Security Assistance Act of 2000 (P.L. 106-280) that authorized nonproliferation,
export control, border, anti-terrorism, and other security aid for the South Caucasus
states.
Congress has been at the forefront in calling for greater Administration attention
to energy issues in the Caspian region as part of a broad engagement policy. This
interest included a 1997 congressionally requested report on Administration energy
policy.5 This interest was prominently reflected in the 1999 “Silk Road Strategy Act”
authorizing greater policy attention and aid to support conflict amelioration,
humanitarian needs, economic development, transport and communications, border
controls, democracy, and the creation of civil societies in the South Caucasus and
Central Asia (P.L. 106-113). (See also below, U.S. Policy and Issues.)
External Security Context
Overview
Major outside players involved in the South Caucasus include the three powers
bordering the South Caucasus region (Russia, Turkey, and Iran), the United States,
and the European Union (EU). The outside players have both complementary and
competing interests and policies toward the three regional states. Some officials in
Russia view the region as a traditional sphere of influence, while some in Iran view
5 U.S. State Department. Caspian Region Energy Development Report to Congress, Apr.
15, 1997, (required by the conference managers on H.R. 3610, Omnibus Appropriations for
FY1997, including Foreign Operations, P.L. 104-208).

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CRS-4
Azerbaijan and Armenia as part of a “new Middle East,” and Turkish officials tend
to stress common ethnic ties with Azerbaijan and most of Central Asia. The EU
states have focused on the region as part of the wider “European Neighborhood” and
as a stable transport corridor and energy supplier, and the United States has focused
on antiterrorism in the post-September 11, 2001, period.
Neighboring states have been drawn into the region through threats they
perceive to their interests. Regional turmoil also has drawn in international security
organizations such as the U.N., Organization for Security and Cooperation in Europe
(OSCE), NATO, and the Commonwealth of Independent States (CIS). In the early
1990s, Iran was greatly concerned about Azerbaijanis who called for Iran’s ethnic
Azerbaijani areas to secede, and it remains vigilant in suppressing such advocacy
among its own ethnic Azerbaijanis. Instability in Chechnya and other areas along
Russia’s North Caucasus borders has threatened Russia’s security and created reasons
and pretexts for Russian intervention and the presence of military bases. At the same
time, the instability along its southern borders has hindered Russia in building trade
and economic relations with the South Caucasus states. Russia has attempted to
retain influence in the South Caucasus since September 11, 2001, to counter
increased U.S. anti-terrorism assistance to the states. However, Georgia’s peaceful
2003 “rose revolution” witnessed closer U.S.-Georgia ties and reduced Russian
influence, including the May 2005 Georgia-Russia agreement on the closure of
remaining Russian military bases in Georgia (for background, see CRS Report
RS21685, Coup in Georgia).
Among other players, Western oil and gas firms have played a dominant
investment role in Azerbaijan, dwarfing assistance given to the region by outside
governments or international financial institutions. All three states have benefitted
greatly from remittances by their citizens who work in Russia and elsewhere, but
Russia’s recent efforts to expel some Georgian workers and restrict labor by non-
citizens may threaten these remittances. Armenia’s multi-million member world
diaspora has provided important aid and expertise, and has publicized Armenia’s
plight.
The Confluence of Outside Interests. Neighboring and other interested
powers, while sometimes competing among themselves for influence in the South
Caucasus, also have cooperated in carrying out certain regional goals. All the
external powers seek influence over regional energy resources, possibly providing
grounds for a common understanding that no one power shall be predominant.
Prominent powers Iran, Turkey, and Russia might also come to agree not to foster
instability that could spill across their borders. None of these powers officially
opposes the territorial integrity of the states of the region, because each has its own
separatist problems, but Russia and Iran have followed policies that support
separatists in the region.
Iran and Russia have cooperated somewhat in trying to retain regional influence
by impeding outside involvement in developing Caspian Sea oil resources or transit
routes bypassing their territories. More recently, the two countries have clashed over
Caspian Sea border delineation and regional export routes.

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CRS-5
Regional Assessments. Dismissing views that the region is a mere
playground for outside powers, many observers stress that the regional states’ own
strategic priorities and assessments of threats and opportunities have influenced their
ties with other countries. Given a long history of repeated foreign invasion and
occupation, the states are bound to be concerned with regional and international
politics. However, regional security cooperation remains elusive. Instead, conflict
has driven the states and separatist areas to search for outside supporters as leverage
against each other, creating risks of entanglement for outside powers. The security
orientations of the states and regions — whether toward NATO, the CIS, or some
other group — have become of great concern to neighboring and other states.
The Armenia-Azerbaijan conflict over NK heavily colors foreign lobbying by
these states and by NK. Armenia seeks close security and economic ties with Russia
and Iran to counter Azerbaijan’s close ties with Turkey. Since Iran has lesser
economic and military capabilities, Armenia has relied more on Russia. President
Robert Kocharyan stressed in April 2006 that Armenia’s top priority in foreign policy
was close relations with Russia and that good relations with the United States,
NATO, and the European Union do not jeopardize Armenian-Russian ties.6
Armenia’s relations with Turkey are strained. Although Turkey has recognized
Armenia’s independence, the two countries have not established full diplomatic
relations. Armenia has called for diplomatic ties with Turkey to be established
without regard to preconditions, but Turkey has called first for Armenia to withdraw
from Azerbaijani territory, to drop claims to some Turkish territory, and to end
efforts to gain Turkish and international recognition of what Armenians term their
national genocide at the hands of the Ottoman Empire in the early 1900s.
Besides its interest in garnering international support for bolstering sovereignty
over NK, Azerbaijan has a fundamental interest in links with and the well-being of
Iran’s multi-million population of ethnic Azerbaijanis. Azerbaijan’s agreement with
Russia and Kazakhstan over oilfield delineation in the Caspian Sea seems aimed at
least in part as a defense against border claims by Turkmenistan and Iran.
Georgia appears more concerned about reducing Russian influence and building
ties with Turkey and the United States, than about enhancing relations with non-
bordering Iran. Georgia’s ports on the Black Sea link it to littoral NATO members
Turkey, Bulgaria, Romania, and (via the Turkish Straits) to countries around the
Mediterranean Sea, providing it with a Western focus.
The U.S. Administration has stressed even-handedness in mediating regional
conflicts, though other players have not, harming conflict resolution and regional
cooperation. Another view is that the United States is one of several powers in the
South Caucasus that, in parallel with the uncompromising stances of opposing ultra-
nationalist elements in the three states, contributes to deadlock rather than the
resolution of regional conflicts.7 (See also below, Issues for Congress.)
6 Open Source Center. Central Eurasia: Daily Report (hereafter CEDR), Apr. 24, 2006,
Doc. No. CEP-27026.
7 Bruno Coppetiers, Caucasian Regional Studies, Vol. 5, 2000, available online at
(continued...)

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CRS-6
Internal Security Problems and Progress
The South Caucasus region has been the most unstable in the former Soviet
Union in terms of the numbers, intensity, and length of its ethnic and civil conflicts.
Other internal security problems include crime, corruption, terrorism, proliferation,
and narcotics trafficking. There are few apparent bases for regional cooperation in
resolving security problems. 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. Ethnic
relations between Azerbaijanis and Georgians, on the other hand, have been less
contentious. 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. NK receives major economic sustenance from Armenia
and diaspora Armenians, and Abkhazia and South Ossetia from Russia.
Political and Social Disorder
Azerbaijan and Georgia had been engulfed by political turmoil during the early
1990s, but later in the decade their leaders appeared to consolidate power. In both
Azerbaijan and Georgia, new constitutions in 1995 granted the presidents sweeping
powers and their ruling parties held sway in the legislatures. During the 2000s,
however, these states again entered a period of political instability, because of
Azerbaijani President Heydar Aliyev’s declining health and Georgian President
Eduard Shevardnadze’s announcement that he would not seek re-election.
Successions offered high drama in both cases. In Georgia, the “rose revolution”
resulted in the Shevardnadze’s ouster in November 2003 after a tainted legislative
election. In Azerbaijan, a violent repression of oppositionists took place in the wake
of the handover of power from Heydar Aliyev to his son, Ilkham, in October 2003
after a tainted presidential election.8
In contrast to Azerbaijan and Georgia, Armenia appeared somewhat stable until
1998, when then-Armenian President Levon Ter-Petrossian was forced to resign by
military and other forces opposed to his rumored concessions to settle the NK
conflict. Armenia also was roiled when gunmen with apparently personal grievances
assassinated the premier, legislative speaker, and six other politicians in late 1999,
but a new speaker and premier were chosen peacefully. Robert Kocharyan, elected
president in 1998, was re-elected in a contentious race in February 2003.
Oppositionists in Armenia in early 2004 stepped up their protests against the
7 (...continued)
[http://poli.vub.ac.be/publi/crs/eng/Vol5/].
8 Malkhaz Matsaberidze, Central Asia and the Caucasus, No. 2, Apr. 30, 2005.

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CRS-7
legitimacy of Kocharyan’s re-election. 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, arrested several dozen opposition activists, and forcibly broke up a
demonstration. The opposition claimed that it had little input into drafting
constitutional changes that were approved in a popular referendum in November
2005. Relations between the government and opposition remain strained.
Legislative elections are scheduled for mid-2007 and a presidential election for 2008.
Kocharyan will step down in line with a two-term presidential limit, which heightens
the political stakes of these upcoming elections.
The serious decline in the standard of living in all three South Caucasus states
during the early 1990s affected their security by harming the health of the population,
setting back economic recovery. Although Armenia reportedly has resettled most of
the refugees who fled Azerbaijan after 1988, Azerbaijan has moved more slowly to
improve housing conditions for refugees from NK and surrounding areas. Many
people in the regional states remain economically disadvantaged, with a low quality
of life.9 The widespread poverty has contributed to the emigration or labor migration
of millions of citizens from Armenia, Azerbaijan, and Georgia.
Azerbaijan is beginning to gain sizable revenues from oil exports, but some
observers are concerned that the ruling elite will not use such revenues to broadly
raise living standards for the poor. In its annual review, the IMF in 2006 called on
the Azerbaijani government to accelerate social welfare spending to alleviate poverty
among some 45% of the population. The IMF praised Armenia for making progress
in reducing poverty rates from 56% in 1999 to 39% in 2004. In Georgia, the IMF
expressed some disappointment that efforts to alleviate poverty among some 51% of
the population had not progressed as quickly as hoped and urged the government to
soon remedy wage and pension arrears and introduce targeted benefits to those in
extreme poverty. In all these countries, the IMF urged a more equitable distribution
of income to increase popular support for economic reforms.10
Ethnic Tensions. Regional analyst Elkhan Nuriyev has lamented that the
South Caucasus states, because of ethnic conflicts, have not yet been able to fully
partake in peace, stability, and economic development since gaining independence
9 U.N. World Health Organization. The World Health Report 2005, Statistical Annex, April
7, 2005; U.N. Development Program. Human Development Report 2004, July 15, 2004.
According to the quality of life index (which includes measures of GDP per capita, life
expectancy, school enrolment, and literacy), Armenia ranks 82st, Azerbaijan 91st, and
Georgia 97th among 151 world countries, placing them among other developing countries
with a “medium” quality of life but far below other top-ranked European states.
10 International Monetary Fund. Middle East and Central Asia Department. Armenia:
Second Review Under the Three-Year Arrangement Under the Poverty Reduction and
Growth Facility and Request for Waiver of Performance Criterion - Staff Report, May 31,
2006; IMF Executive Board Concludes 2005 Article IV Consultation with the Republic of
Azerbaijan, April 25, 2006; Georgia: 2006 Article IV Consultation, Third Review Under the
Poverty Reduction and Growth Facility, and Request for Waiver of Performance Criteria
- Staff Report, May 16, 2006.

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CRS-8
in 1991.11 The countries are faced with on-going budgetary burdens of arms races
and caring for refugees and displaced persons. Other costs of ethnic conflicts in the
South Caucasus include the threat to bordering states of widening conflict and the
limited ability of the region or outside states fully to exploit energy resources or trade
and transport networks. Some development advocates call for regional populations
to repudiate exclusionary ultranationalism and for outside powers to cease trying to
exploit such views.
Azerbaijan has faced dissension by several ethnic groups, including Armenians
in NK, Lezgins residing in the north, and Talysh residing in the south. Some ethnic
Lezgins have called for seceding and joining kindred Lezgins residing in Russia’s
Dagestan, and formed a separatist group called Sadval, while some Talysh have
called for autonomy and have lobbied for the legalization of a political party. 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. The U.N. High Commissioner for Refugees (UNHCR) has reported
that at the end of 2005 there were still about 581,500 people considered refugees or
displaced persons in Azerbaijan and 219,550 in Armenia.12 Armenia has granted
citizenship and acted to permanently house many of the ethnic Armenians who fled
Azerbaijan.
Georgia’s southern Ajaria region, populated by Islamic ethnic Georgians, was
substantially free from central control until 2004. Some residents of Georgia’s
southern district of Javakheti, populated mostly by ethnic Armenians, also have
called for autonomy. Repressive efforts by Georgian authorities triggered conflict
in 1990 in Georgia’s north-central South Ossetian region, reportedly leading to about
1,500 deaths and tens of thousands of displaced persons, mostly ethnic Georgians.
Beginning in 1992, separatist fighting involving Georgia’s north-western Abkhaz
region has resulted in about 10,000 deaths and hundreds of thousands of displaced
persons, mostly ethnic Georgians. UNHCR has reported that at the end of 2005 there
were about 234,000 displaced persons in Georgia.
Although ceasefires have been declared for the three major separatist conflicts
— those involving Abkhazia, South Ossetia, and NK — none yet have moved
beyond the fragile stage of confidence-building. The ceasefires are provisional and
subject to intermittent violations.
Azerbaijan’s Nagorno Karabakh Region. 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.
The U.N. High Commissioner for Refugees has reported that at the end of 2005, there
were still about 581,500 people considered refugees or displaced persons in
11 Elkhan Nuriyev, in Gary Bertsch, et al., eds., Crossroads and Conflict, New York,
Routledge, 2000, p. 151.
12 U.N. High Commissioner for Refugees. 2005 Global Refugee Trends, June 2006.

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Azerbaijan and 219,550 in Armenia.13 Armenia has granted citizenship and acted to
permanently house many of the ethnic Armenians who fled Azerbaijan. The non-
governmental International Crisis Group estimates that about 13% to 14% of
Azerbaijan’s territory, including NK, is controlled by NK Armenian forces (the CIA
World Factbook estimates about 16%).14 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
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.15
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.16 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.”17 Since 2005, officials 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.
The Minsk Group co-chairs issued a statement and made other remarks in April-
July 2006 that revealed some of their proposals for a settlement. These include the
phased “redeployment of Armenian troops from Azerbaijani territories around
Nagorno-Karabakh, with special modalities for Kelbajar and Lachin districts
(including a corridor between Armenia and NK); demilitarization of those territories;
and a referendum or population vote (at a date and in a manner to be decided ...) to
13 U.N. High Commissioner for Refugees. 2005 Global Refugee Trends, June 2006.
14 International Crisis Group. Nagorno-Karabakh: Viewing the Conflict from the Ground,
Sept. 14, 2005; CIA World Factbook. Azerbaijan, [http://www.odci.gov].
15 Open Source Center, Central Eurasia: Daily Report (hereafter CEDR), Feb. 27, 2001,
Doc. No CEP-262.
16 CEDR, Jan. 17, 2003, Doc. No. CEP-338.
17 CEDR, Oct. 13, 2004, Doc. No. CEP-11.

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determine the final legal status of NK.” International peacekeepers also would be
deployed in the conflict area.18
At peace talks in Bucharest on June 4-5, 2006, the presidents of Armenia and
Azerbaijan reportedly agreed on some basic principles but failed to reach a
settlement. In statements issued after this meeting, the Minsk Group co-chairs raised
concerns that the two presidents lacked the “political will” to make decisions about
a settlement and stated that they would wind down their “shuttle diplomacy” until
the two presidents demonstrated political will.19 Disagreeing with the Minsk Group
settlement proposals, President Aliyev in early July 2006 stated that the withdrawal
of NK forces from occupied territories (including NK itself) must be followed by the
return of Azerbaijani displaced persons. Then, he averred, Azerbaijani (including
NK) citizens would discuss the status of NK, but its secession from Azerbaijan was
forbidden.20
At a Minsk Group-sponsored meeting of the Armenian and Azerbaijani foreign
ministers in Paris on October 24, 2006, Armenian Foreign Minister Oskanyan
proposed that all occupied territories around NK (including Kelbajar and Lachin)
could be returned if there was clarity on the plan for a referendum to be held in NK
on its status. Until the referendum, an interim status for NK is to be agreed upon.
Although the referendum must deal with NK’s independence from Azerbaijan as one
choice, he stated on October 26 that he considered an NK ultimately independent
from Armenia as artificial and not viable. Instead, NK would be persuaded
eventually to “fully integrate” with Armenia.21
On October 27, 2006, Aliyev stated that Azerbaijan proposes that NK have a
high level of autonomy during the interim period before a referendum. He argued
that NK should accept Azerbaijan’s guarantees of political autonomy overseen by
international peacekeepers. Otherwise, he warned, Azerbaijan has the sovereign
right, as the United Kingdom did in regard to the Falkland Islands, to “retake our
territory.” He also asserted that the international community would not recognize
NK even if independence was approved by a referendum, if Azerbaijan opposed this
referendum outcome.22
18 OSCE. Statement by the Minsk Group Co-Chairs, July 3, 2006.
19 In June 2006, the duties of the U.S. co-chair were transferred to the Deputy Assistant
Secretary of State. On the proposals, see RFE/RL, June 23, 2006; U.S. Embassy in Armenia,
Statement by the Minsk Group Co-Chairs to the OSCE Permanent Council, June 22, 2006;
and Statement by the OSCE Minsk Group Co-Chairs, July 3, 2006. According to polls
conducted by the Armenian Sociological Association and the Georgian Institute for Polling
and Marketing in July 2006, the population of Armenia is overwhelmingly opposed to an
autonomous status for NK within Azerbaijan, and the population of Azerbaijan is
overwhelmingly opposed to the independence of NK from Azerbaijan.
20 Leyla Tavshanoglu, Interview with the President of Azerbaijan, Cumhuriyet, July 4, 2006.
21 CRS Interview, Oct. 26, 2006. See also Fariz Ismailzade, Eurasia Daily Monitor, Oct.
31, 2006.
22 CRS Interview, Oct. 27, 2006.

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CRS-11
At a meeting in Moscow between the Armenian and Azerbaijani foreign
ministers on January 23, 2007, the Azerbaijani foreign minister reportedly termed
the negotiations on a settlement of the NK conflict “intensive” and said that they
concerned “the last principle of the settlement.” Armenian sources allegedly reported
little progress. The Minsk Group co-chairs plan to hold discussions with the
presidents of Armenia and Azerbaijan.
Georgia’ South Ossetia Region. 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
contributing to an estimated 2,000-4,000 deaths and the displacement of tens of
thousands of people. In June 1992, Russia brokered a cease-fire, and Russian,
Georgian, and Ossetian “peacekeeping” units have set up base camps in a security
zone around Tskhinvali, South Ossetia. Reportedly, the units total around 1,100
troops, including about 530 Russians, a 300-member North Ossetian brigade (which
is actually recruited locally and staffed by South Ossetians and headed by a North
Ossetian), and about 300 Georgians. OSCE monitors do most of the patrolling. A
Joint Control Commission composed of Russian, Georgian, and North and South
Ossetian emissaries promotes a settlement of the conflict, with the OSCE as
facilitator. According to some estimates, some 25,000 ethnic Ossetians and 20,000
ethnic Georgians reside in a region that, according to the 1989 Soviet census, at that
time contained over 98,000 residents.
Saakashvili tightened border controls in 2004, ostensibly to stanch smuggling,
which is a major source of income for the Ossetians. 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.
Following inconclusive clashes, both sides by late 2004 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.”23
The plan has received U.S. and OSCE backing. In December 2005, South Ossetia
issued its own plan, which called for demilitarization, confidence-building measures,
and reconstruction aid. At a meeting of the Joint Control Commission (co-chaired
by the Georgian, Russian, North Ossetian, and South Ossetian sides, with the OSCE
as a facilitator) on May 11-12, 2006, the parties agreed to try to merge the two peace
23 CEDR, Oct. 7, 2005, Doc. No. CEP-15001. Protesting against the extension of Russian
citizenship to most South Ossetians and Russia’s pledges to protect the interests of these
citizens, Deputy Chief of the U.S. Mission to the OSCE, Kyle Scott, stated that the moves
“call into question [Russia’s] stated support for Georgia’s territorial integrity and
commitment to support a peaceful resolution of the South Ossetia conflict based on that
principle.” U.S. Department of State. The Washington File. U.S. Questions Russian
Support for Georgian Territorial Integrity: Calls on Russia, South Ossetians to Reciprocate
Georgian Overtures, Mar. 3, 2006.

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CRS-12
plans and approved a list of rebuilding projects for an OSCE-sponsored donors’
conference in June 2006. The conference garnered pledges of over $10 million for
economic reconstruction in the conflict area, including $2 million from the United
States. A Steering Committee composed by the sides to the conflict and donors met
in October 2006 to discuss project implementation.
The U.S. Mission to the OSCE issued a statement on August 11, 2006, that
urged “meaningful progress” on the peace plan endorsed by the OSCE. It also called
for international monitoring of the Roki Tunnel (separating Russia from South
Ossetia), a permanent checkpoint at Didi Gupta (a South Ossetian village near Roki
on a transport route), and an increase in the number of OSCE monitors in the region.
However, at a JCC meeting on August 17-18, 2006, in Moscow, the Ossetian and
Russian emissaries reportedly balked at forming a working group under the JCC to
work on the peace plan. Kokoiti a few days later announced that a popular
referendum would be held in the region on November 12, 2006, to reaffirm its
“independence” from Georgia. After a planned JCC meeting in mid-September fell
through, the Georgian state minister argued that the JCC format “was no longer of
any use.”24 Emissaries at a JCC meeting on October 12-13, 2006, reportedly failed
to agree on a communique, and no further meetings had been held as of late January
2007.
South Ossetia’s separatists reported that 95% of 55,000 registered voters turned
out and that 99% approved the referendum on “independence.” In a separate vote,
96% re-elected Kokoiti. The OSCE and U.S. State Department declined to recognize
these votes. In “alternative” voting among ethnic Georgians in South Ossetia (and
those displaced from South Ossetia) and other South Ossetians, the pro-Georgian
Dmitry Sanakoyev allegedly was elected governor, and a referendum was approved
supporting Georgia’s territorial integrity. Sanakoyev demands representation on the
JCC, which Kokoiti opposes.
Georgia’s Abkhazia Region. 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.
Abkhazia had resisted holding CC meetings since 2001, but the two sides finally
met on May 15, 2006, and the Abkhaz “foreign minister” proffered a new peace plan.
24 CEDR, Sept. 15, 2006, Doc. No. CEP-950088.

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Georgia found the plan “interesting” but rejected it, claiming that the plan was in
effect a declaration of independence. In late May 2006, Georgia proffered an
alternative peace plan, which Abkhazia in turn reportedly rejected as
unconstructive.25

The Deputy Assistant Secretary of State 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. In the UNSC, Russia in late
January 2006 renounced the draft negotiating document and agreed to only a two-
month extension to UNOMIG’s mandate, raising concerns among some observers
that Russia might openly endorse Abkhaz “self-determination.” The UNSC in March
2006, however, agreed to a normal six-month extension.
In October 2006, the UNSC approved a resolution extending the UNOMIG
mandate for another six months, until the end of April 2007. The Security Council
criticized Georgia for introducing military forces into the Kodori Gorge area of
Abkhazia (see below) in violation of cease-fire accords and for other “militant
rhetoric and provocative actions” and called on it to abide by the accords. Some
violations by Abkhaz forces were also criticized. The UNSC stressed the “important”
and “stabilizing” role played by Russian peacekeepers and UNOMIG.26 Some
Georgian officials viewed the resolution as negating their calls for a wider
international composition of the peacekeeping forces.
The Kodori Gorge. In July 2006, a warlord in the Kodori Gorge area of
Abkhazia, where many ethnic Svans reside, foreswore his nominal allegiance to the
Georgian government. The Georgian government quickly sent forces to the area and
defeated the warlord’s militia. Saakashvili asserted that the action marked progress
in Georgia’s efforts to re-establish its authority throughout Abkhazia, and he directed
that the Abkhaz “government-in-exile” make the Gorge its home. Georgia claims
that the bulk of its troops have left the Gorge, leaving only construction platoons, but
Abkhazia asserts that many troops are still present, in violation of the ceasefire
agreement. The Abkhaz side broke off revived meetings of the CC (which had been
taking place almost every week) at the beginning of August 2006, and all talks were
suspended in October. It has called for Georgia to remove the government
representatives and alleged military forces. The U.S. Mission to the OSCE issued a
25 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.
26 U.N. Security Council. Resolution 1716 (2006), Adopted by the Security Council at its
5549th meeting, Oct. 13, 2006.

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statement in August 2006 that supported demilitarizing the Kodori Gorge and
sending international civilian police to Abkhazia and called on the government of
Georgia and the Abkhaz de facto authorities to show restraint and to abide by the
1994 cease-fire agreement. According to some reports, Abkhazia and Georgia may
renew talks in February 2007.
Terrorist Activities. South Caucasus states and breakaway regions have
alleged the existence of various terrorist groups that pursue mixes of political, ethnic,
and religious goals, with such allegations having increased greatly after September
11, 2001, and the intensification of international anti-terrorism efforts. Armenia
accuses Azerbaijan of sponsoring terrorism, and Georgia accuses Abkhazia, and vice
versa. Abkhazian paramilitaries have terrorized ethnic Georgians attempting to
resettle in the Gali area of Abkhazia, and have been countered by Georgian militias.
Georgian militias reportedly were active in Georgia’s efforts in 2004 to regain control
over South Ossetia. In reaction, Russian defense and security officers allegedly
assisted several hundred irregulars from Abkhazia, Transnistria, and Russia to enter
the region. South Caucasus governments sometimes have accused political parties
of terrorism and banned and jailed their followers. However, some of the so-called
terrorist violence has been hard to attribute to specific groups or agents that aim to
destabilize the governments. Other sources of violence, such as personal or clan
grievances, economic-based crime, or mob actions, are also prominent.
Islamic extremism has appeared a lesser threat in Azerbaijan than in the Central
Asian states, although some observers warn that the threat may be growing as
unemployed young people are attracted to radical missionaries. The Azerbaijani
government has moved against the indigenous terrorist group Jayshullah and the
clandestine Islamic Party, charging the latter’s members with receiving terrorist
training in Iran.27 In mid-2006, Azerbaijani officials raised concerns that Islamic
extremists might target the country, after al Qaeda member Ayman al-Zawahiri stated
that Azerbaijan and other Muslim countries should be punished for “aligning
themselves with the infidels.”28
According to the State Department’s Country Reports on Terrorism, until
Russia launched its incursion into Chechnya in August-September 1999, Azerbaijan
had served as a conduit for international mujahidin, some of whom supported the
separatist leadership in Chechnya. After Russian security forces attacked Chechnya,
however, Azerbaijan reinforced border controls to discourage foreign mujahidin from
operating within Azerbaijan. The State Department reports that Azerbaijan stepped
27 U.S. State Department, Country Reports on Terrorism 2004, Apr. 27, 2005; Tadeusz
Swietochowski, World Policy Journal, Fall 2002, pp. 69-76. Many members of Jayshullah
(Warriors of Islam; members had been trained in Chechnya and had set up a training camp
in Azerbaijan) were arrested in 2000 and thirteen were convicted in 2001 for planning or
carrying out various terrorist acts. Other young members of the group were let off.
Azerbaijani authorities alleged that some Warriors of Islam were Lezgin separatists.
28 CEDR, June 30, 2006, Doc. No. CEP-950096.

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CRS-15
up such interdiction efforts after September 11, 2001, and “had some success in
suppressing these activities.”29
Reportedly, more than 100 individuals have been convicted in Azerbaijan in
recent years for supporting Chechen separatism. In December 2003, Azerbaijan
sentenced the leaders of Revival of Islamic Heritage, a Kuwaiti humanitarian
organization, on charges of recruiting Azerbaijanis and sending them to the Pankisi
Gorge for paramilitary training to fight in Chechnya against Russia. In February
2005, six individuals who called themselves “al-Qaida Kavkaz” received sentences
of 3-14 years on charges of planning terrorist attacks in Baku. The group was
apprehended with arms and propaganda materials and allegedly had attempted to
recruit female suicide bombers. In December, the government extradited two
members of the Kongra-Gel/PKK to Turkey.30 In April 2006, fifteen alleged Al
Qaeda members that were apprehended in Azerbaijan — who were citizens of
Azerbaijan, Russia, Turkey, and Yemen who had received training in the Pankisi
Gorge for fighting in Chechnya — were sentenced to 5 to 10 years in prison.31
Azerbaijan’s head of the State Committee for Work with Religious Structures warned
in mid-2006 that Al Qaeda-linked Chechen rebels continue activities in Azerbaijan,
that an Iranian Shiite extremist group named “72 Martyrs” is operating in southern
Azerbaijan, and that increasing numbers of other Islamic extremists are entering the
country to recruit members and set up cells.32
In Georgia, Zviadists (supporters of former President Zviad Gamsakhurdia) in
1998 launched an assassination attempt against then-President Shevardnadze and an
abortive military insurrection aimed at his overthrow, but a government
reconciliation campaign has since contributed to quiescence by this group. Georgian
officials have alleged that a supporter of ousted Ajarian leader Aslan Abashidze was
behind an abortive hand-grenade attack during the May 2005 visit of President Bush
to Tbilisi.
The State Department’s Patterns of Global Terrorism for 2002 stated that
Georgia also contended with “third-country terrorists with links to al Qaeda” who
used Georgia as a conduit for financial and logistic support for the mujahidin and
Chechen fighters.” Georgia, however, appeared unwilling and unable to prevent
29 U.S. State Department, Country Reports on Terrorism 2004. Azerbaijan also served as
a conduit for some terrorist financing, as evidenced by fund transfers to Azerbaijan by the
bin Laden-associated organization Benevolence International. Money Laundering Alert,
March 2003. Azerbaijani media have reported that Turkey is concerned that the Kurdistan
Workers’ Party (PKK) receives some funds and arms via Azerbaijan. CEDR, June 30, 2006,
Doc. No. CEP-950224.
30 U.S. State Department, Country Reports on Terrorism 2005, Apr. 28, 2006, pp. 88-89.
31 CEDR, Apr. 19, 2006, Doc. No. CEP-950146; Apr. 25, 2006, Doc. No. CEP-950069; Apr.
27, 2006, Doc. No. CEP-381001; Middle East Quarterly, Summer 2005.
32 CEDR, June 29, 2006, Doc. No. CEF-26001. Haci Ilqar Ibrahimoglu, head of the Center
for the Protection of Freedom of Religion and Conscience (and former imam of the Juma
Mosque), has argued that the government’s warnings of increasing Islamic extremism in
Azerbaijan are overblown, but could become reality if the government fails to implement
democratic and economic reforms. CEDR, June 23, 2006, Doc. No. CEP-950182.

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mujahidin activities until prodded and supported by the United States and Russia
after September 11, 2001.
U.S. concerns over the presence of international terrorists in Georgia’s Pankisi
Gorge were spurred when, reportedly during the September 11, 2001, attacks, a
phone call was made from a bin Laden operative in Afghanistan to Georgia
announcing the success of the first phase of attacks. President Bush in late February
2002 explained the U.S. decision to launch a military training program in Georgia
(see below) by emphasizing that there were some al Qaeda in the Gorge.
Russian demands that Georgian forces combat international terrorists based in
the Gorge led to the launch of Georgian police and security operations in the Gorge
in August 2002. The Security Ministry reported that its anti-terrorist operation was
virtually finished in the Gorge by late 2002. Concerns about the renewal of terrorist
operations in the area in the springtime, however, led the Georgian government in
March 2003 to send in extra military and police forces to prevent Chechen rebels
from re-entering. In late 2004, Russia claimed that some terrorists remained in the
gorge but still refused to agree to renew the mandate of OSCE personnel who had
been monitoring the Georgian-Russian border area since early 2000. Although they
had been effective in publicizing border violations and were viewed by many
commentators as discouraging border incursions, Russia claimed that they had been
ineffective. The OSCE subsequently launched a program to help train some
Georgian border guards. In January 2007, the Russian Federal Security Service’s
Border Authority alleged that some Chechen “militants” remained in the Pankisi
Gorge but that they “have not tried to trespass the Georgian-Russian border from
Pankisi in the past three years,” in part because Russia had set up dozens of border
guard posts.33
Crime and Corruption. Crime and corruption are serious threats to
democratization and economic growth in all the states. The increasing amount of
foreign currency entering the states as the result of foreign oil and natural gas
investments, drug trafficking, and other means, the low pay of most government
bureaucrats, and inadequate laws and norms, are conducive to the growth of
corruption. Also, the weakness of the rule of law permits the Soviet-era political
patronage and spoils system to continue. Saakashvili has pledged to combat
corruption, firing many policemen and emphasizing merit-based examinations for
college entrance, but overall results have been mixed. According to the private
organization Transparency International, all three South Caucasus countries in 2005
ranked among those where “rampant corruption ... poses a grave threat to institutions
as well as to social and political stability,” but Armenia was considered somewhat
less corrupt than the other two regional states. Transparency International, the World
Bank, and the EBRD have perceived some reform progress in Armenia in reducing
corruption in recent years, including by simplifying licensing procedures, revamping
the civil service, and introducing a new criminal code.34
33 ITAR-TASS, Jan. 26, 2007.
34 U.S. Department of State. Bureau of Economic and Business Affairs. Investment Climate
Statements, 2002-2005; Transparency International, Annual Report 2005, July 18, 2006, pp.
(continued...)

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Illegal Narcotics Production, Use, and Trafficking. According to the
State Department’s International Narcotics Control Strategy Report, none of the
South Caucasian states is a major drug producer, but Azerbaijan is a transit route for
drugs from Afghanistan that enter from Iran or Central Asia and are smuggled to
markets in Russia, Turkey, and Europe.35 Armenia’s borders with Azerbaijan and
Turkey remain closed due to the Nagorno-Karabakh conflict, but when these borders
open, drug transiting could increase significantly, the State Department warns. Drug
consumption and cultivation are increasing in Azerbaijan. Border control capabilities
on the border with Iran and Azerbaijan’s maritime border units are inadequate to
prevent narcotics smuggling, and the police lack counter-narcotics equipment and
training, according to the Report.36
Georgia does not appear to be a route for large-scale drug smuggling, but could
be vulnerable to increased trafficking because of lack of control over parts of its
territory and its borders, some of which are under separatist control. Drugs from Asia
that transit Georgia are smuggled out through land routes in Abkhazia and Black Sea
ports in Ajaria. Previously, Chechen and al Qaeda terrorists that were based in the
Pankisi Gorge area of northeast Georgia at least partly financed their activities by
drug-trafficking. This trafficking was disrupted during Georgian counter-terrorism
actions in the Gorge in 2002-2003. Georgia’s border control forces are capable of
controlling drug trafficking and appear motivated, according to the Report.
Non-Proliferation of Weapons of Mass Destruction. The South
Caucasus states have only in recent years begun implementing effective export
control regimes to prevent the proliferation of weapons of mass destruction and
associated technologies.37 There are not as many nuclear fuel cycle-related facilities
in the South Caucasus as elsewhere in the former Soviet Union, but there is an
operating nuclear power reactor in Armenia. Virtually all of the facilities lack
adequate security systems such as cameras and computerized accounting to safeguard
medical and industrial nuclear materials and wastes. Border and customs officials
have halted some smuggling of WMD materials, and are receiving increasing levels
of U.S. and other international training and other assistance to bolster their
effectiveness (see also below, Security Assistance).38
34 (...continued)
16-17.
35 The State Department. Bureau for International Narcotics and Law Enforcement Affairs.
International Narcotics Control Strategy Report, March 2006.
36 Col. Ramiz Nagiyev, the chief of the Azerbaijani Interior Ministry’s Counter-Narcotics
Trafficking Department, has warned that drug trafficking — mainly from Afghanistan via
Iran — greatly increased in 2005. CEDR, July 27, 2005, Doc. No. CEP-27075.
37 NIS Nuclear Profiles Database. Center for Nonproliferation Studies, Monterey Institute
of International Studies. Armenia has the most developed export control system on paper.
The State Department’s Country Reports on Terrorism 2004 states that Armenian border
guards in 2004 seized 42 grams of non-weapons-grade radioactive material, demonstrating
that “they are capable of detecting and interdicting nuclear material.”
38 NIS Trafficking Database. Center for Nonproliferation Studies, Monterey Institute of
(continued...)

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Economic and Defense Security. The South Caucasus states have worked
to bolster their economic and defense capabilities by seeking assistance from Western
donors such as the United States, by seeking private investment, by joining
international organizations, and by cooperating with each other to limited degrees.
Georgia was the first state in the region to achieve World Trade Organization
membership in June 2000, followed by Armenia in December 2002. Azerbaijan has
encouraged foreign firms and governments to become involved in energy
development to ensure the widest possible international interest in Azerbaijan’s
independence and to attempt to influence attitudes toward the NK conflict.
Georgia, as a major conduit for oil and gas pipelines,39 and because of its
economic and democratic reforms, has emerged as the key to regional stability and
security, according to some observers.40 By the same token, instability in Georgia
could threaten the whole region by providing greater opportunities for outside powers
to meddle. Georgia has working relations with the other two states of the region and
with Turkey, and is a member with Azerbaijan in GUAM (see below). Georgia and
Azerbaijan have common interests that have encouraged limited cooperation. Both
face separatism, perceive Russia as domineering, seek revenues from oil and gas
transport, and are pro-Western.41 Armenia seeks workable relations with Georgia so
that it may retain transport links to Russia, its major energy supplier. Georgia must
balance its relations to prevent one or the other regional state from accusing it of
favoritism regarding the NK conflict.42 Armenia has increasing links (and proposals
for links) with Iran. Trade ties with Iran already permit Armenia to export electricity
and import oil from Iran and to receive products shipped via Iran.
In early 2006, Russia charged all three states much more for gas. In May 2006,
Armenia agreed to relinquish various energy assets to Russian firms as partial
38 (...continued)
International Studies. Among prominent smuggling attempts, Azerbaijani border troops
halted a shipment of Russian missile parts bound for Iran in March 1998 and about one
kilogram of uranium 235 allegedly bound for Iran in April 2000. In early 2002, Russian and
Georgian media reported that two of eight Soviet-era small nuclear generators containing
strontium-90 were missing in Georgia. Georgian and Russian authorities on January 25,
2007, verified media reports that Georgian security in cooperation with U.S. agencies in
early 2006 had apprehended a Russian citizen who was attempting to smuggle a tiny amount
of highly-enriched uranium into Georgia. CEDR, Apr. 27, 1998, Doc. No. FTS-558; Feb.
4, 1999, Doc. No. FTS-1112; May 3, 2000, Doc. No. CEP-9; Jan. 24, 2002, Doc. No. CEP-
55; Jan. 25, 2007, Doc. No. CEP-950026; Jan. 25, Doc. No. CEP-950351.
39 The oil pipeline from Baku, Azerbaijan, through Tbilisi, Georgia, to Ceyhan, Turkey (the
BTC pipeline) and an associated South Caucasus Pipeline (SCP) for gas from Azerbaijan’s
offshore Shah Deniz fields to Turkey’s gas pipeline network.
40 Robert Cutler, Newsbase FSU Oil and Gas Journal, June 6, 2000.
41 Another issue of contention, border delimitation, reportedly moved closer toward
resolution in 2005. CEDR, May 9, 2005, Doc. No. CEP-39.
42 CEDR, Feb. 2, 2005, Doc. No. CEP-347.

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payment for this price increase. Some critics have alleged that Russia now has
virtual control over Armenia’s energy supplies.43
In late 2006, Russia again requested price hikes for 2007. In the case of
Georgia, Russia’s state-controlled Gazprom gas firm announced in early November
2006 that it would cut off gas supplies to Georgia by the end of the year unless
Georgia agreed to a 100% price hike or sold its main gas pipeline to Gazprom.
Spurred by Russia’s economic sanctions and this announcement, Georgia negotiated
an agreement to receive some Azerbaijani gas via the new South Caucasus Pipeline
(SCP; see below) and another small existing pipeline. It also agreed to continue to
purchase some higher-priced gas from Gazprom. Russia’s requests for higher prices
and reductions in the amounts of gas and electricity supplied to Azerbaijan led
President Aliyev to announce that the country would no longer purchase Russian gas
(however, agreement was reached to provide the same amount of Russian electricity
as in 2006, but at a higher price). Azerbaijan halted oil shipments through a small
pipeline from Baku to Russia’s Black Sea port of Novorossiisk, ostensibly so the oil
could be used domestically as an alternative to gas.
The activities of Russia’s state-controlled United Energy Systems (UES) in
Armenia and Georgia have raised concerns among some observers. UES in mid-2005
gained management control or ownership over virtually all of Armenia’s electric
power system, including the Metsumor nuclear power plant. In Georgia, UES in late
2003 bought controlling interests in the Tbilisi electrical grid and several hydro- and
thermal power generation facilities.
All three states have been faced with constructing military forces to address
regional conflicts and low-intensity threats. Poverty and the need for know-how and
equipment have forced them to seek outside assistance. Armenia has proceeded the
farthest. It suppressed most paramilitary forces potentially dangerous to civil order
in the early 1990s. The Yerevan-based Soviet 7th Army, disbanded in 1992, provided
a ready-made model for Armenia’s armed forces. Russia provides officer training
and military equipment, including regional air defenses, under the CIS Collective
Security Treaty (CST) and bilateral accords. Azerbaijan’s rejection of many ties with
the Russian military stymied its early military development. Azerbaijan’s and
Georgia’s reliance until the mid-1990s on paramilitary forces to combat regional
separatism contributed to wide civil disorder in both states.
Partnership for Peace. All three of the South Caucasus states have joined
NATO’s Partnership for Peace (PFP) to facilitate the modernization of their armed
forces and to increase ties with Europe. PFP status seeks to assure the South
Caucasus states that they are not in a “power vacuum” or completely vulnerable to
43 Despite earlier denials, Armenian officials announced on October 31, 2006, that Gazprom
would assume control of an Iranian-Armenian gas pipeline currently under construction.
According to analyst Vladimir Socor, this acquisition may provide Gazprom with another
source of inexpensive foreign gas so that it may boost sales of its own gas to Europe. Also,
this acquisition may indicate Russia’s intent to block use of Armenia as a pipeline route
independent of Russian control. Eurasian Daily Monitor, Nov. 3, 2006. See also RFE/RL,
Armenia Report, Oct. 31, 2006.

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neighboring powers. Georgia has looked to links with PFP as the road to eventual
NATO membership that will provide security guarantees against possible Russian
revanchism. In 2004-2005, all three states agreed with NATO to participate in
Individual Partnership Action Plans (IPAPs) for military and civil-military reforms.
On September 21, 2006, NATO approved Georgia’s application for “Intensified
Dialogue” with the alliance, ostensibly because of Georgia’s military reform
progress, although NATO also emphasized that much more reform work needed to
be done before Georgia might be considered for NATO membership.44 Although the
United States reportedly urged that Georgia be considered for a Membership Action
Plan (MAP; preparatory to membership), NATO’s Riga Summit in November 2006
reaffirmed support for an intensified dialogue to assist Georgia in implementing
reforms.45
Illustrating support for PFP, Azerbaijani troops serve as NATO peacekeepers
in Kosovo as part of the Turkish battalion in the German sector, and Georgian troops
serve as part of the Turkish battalion in the U.S. sector. 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. While including
the South Caucasus states in NATO activities, NATO seeks to reassure Russia — by
including it as a member of PFP and by establishing a NATO-Russia Council — that
it is not excluding Russia from a regional role as long as Moscow supports regional
stability, democratization, and the creation of free markets.46
Armenia announced in July 2000 that it aimed to increase activities with PFP.
Its Foreign Ministry argued that Armenia was falling behind Azerbaijan and Georgia
in such activities and wished to ensure its security by developing the widest possible
international ties, especially with the world’s “most influential” security body. The
Foreign Ministry explained that Armenia had been reluctant to increase ties with
NATO because of possible Russian reactions but that Russia itself had developed
such ties. To support NATO, Armenia began to send peacekeepers to Kosovo in
44 As a sign of this optimism, Giorgia Baramidze, Georgia’s Minister for European and
Euro-Atlantic Integration, has stated that Georgia has hopes of joining a NATO Membership
Action Plan in 2007 and of becoming a member of NATO in 2008.
45 NATO. North Atlantic Council. Riga Summit Declaration, Nov. 29, 2006. President
Bush stated that the United States supported Georgia’s NATO membership. Remarks By
President Bush In Riga, Latvia, PR Newswire, Nov. 28, 2006. Sen. Richard Lugar urged
soon granting Georgia a MAP and suggested that NATO’s energy security would be
facilitated by eventually offering NATO membership to Azerbaijan and Kazakhstan. Senator
Lugar Delivers Remarks at the Riga Summit, Latvia, Congressional Quarterly Transcripts,
Nov. 27, 2006.
46 Eugene Rumer and Jeffrey Simon caution that as these states increase their ties to NATO,
Russia may object and reduce its Black Sea-Caspian Sea regional security cooperation.
They argue that NATO has “no option but to engage Russia in a focused and difficult
dialogue about the way ahead in a region where both [NATO and Russia] have interests.”
Toward a Euro-Atlantic Strategy for the Black Sea Region, Institute for National Strategic
Studies, National Defense University, April 2006, p. 16.

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2003 as part of the Greek battalion. Armenia’s officials also stressed that
participation in PFP kept the country abreast of PFP training and aid provided to
Azerbaijan.47 Armenia decided in December 2005 to further advance its relationship
with NATO by adopting an Individual Partnership Action Plan, but President
Kocharyan has indicated that Armenia will not seek NATO membership.
CSTO. At an April 28, 2003, summit, Armenia joined Russia, Belarus,
Kazakhstan, Kyrgyzstan and Tajikistan in creating the CST Organization (CSTO),
which set up a secretariat for operational military planning and budget coordination.
The main stated objectives of CSTO are to combat terrorism and drug trafficking,
particularly in Central Asia, with an initial focus on establishing the rapid
deployment force in Kant, Kyrgyzstan. Many observers view the creation of the
CSTO as a mainly Russian initiative to increase security influence over member-
states to counter U.S. and other outside influences.48 By establishing a joint military
leadership, the CSTO is supposed to be able to quickly decide on sending troops to
troublespots. Its possible usefulness appeared sorely tested by the “tulip revolution”
in Kyrgyzstan in March 2005. Although Russian Gen. Nikolay Bordyuzha, the
secretary general of CSTO, urged intervention, Kyrgyzstan’s then-President Askar
Akayev reportedly vetoed his offers. While the CSTO appears focused on Central
Asian security, Azerbaijan and Georgia have raised concerns about the CSTO’s
possible role in the South Caucasus.49
Caucasus Security Pact Proposals. At the November 1999 OSCE
Summit and other forums, Kocharyan, former Turkish President Suleyman Demirel,
and former presidents Shevardnadze and Aliyev called for the creation of a South
Caucasus security system that would provide regional states and external powers with
shared stakes in regional stability. Kocharyan explained that his “Round Table on
Stability” proposal was prompted by the withdrawal of Azerbaijan and Georgia from
the CIS Collective Security Pact. He called for the creation of a sub-CIS system
whereby the three regional states, buttressed by their neighbors, and aided by the EU
and the United States, would guarantee regional stability. Iran endorsed the creation
of such a pact, though calling for it to initially exclude external powers.50
Seeking to play a leading role in forming such a pact, Putin convened side
meetings with the leaders of the three Caucasus states during CIS summits in 2000
(meetings of lower-level officials of the four states had begun in 1997), but the
region’s leaders appeared to disagree with Putin that Russia and other “Caucasus
countries must alone shape the region’s fate,” excluding outside interests. The last
meeting of the so-called “Caucasus Four” took place in Moscow in September 2003
among the region’s legislative speakers. A meeting planned for early 2004 in Tbilisi
was apparently sidelined by Georgia’s “rose revolution.” Russia and Armenia have
47 CEDR, July 26, 2000, Doc. No. CEP-63; Jan. 18, 2003, Doc. No. CEP-166; Feb. 12, 2003,
Doc. No. CEP-174; Feb. 16, 2003, Doc. No. CEP-66; May 19, 2003, Doc. No. CEP-213.
48 Ibragim Alibekov and Sergei Blagov, Eurasia Insight, Apr. 29, 2003.
49 CEDR, Apr. 29, 2003, Doc. No. CEP-96; Apr. 29, 2003, Doc. No. CEP-132.
50 Gerald Libaridian, reported in RFE/RL Caucasus Report, June 15, 2000; Wayne Murray,
reported in Caucasus Reporting Service, No. 38, June 30, 2000.

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called for the resumption of “Caucasus Four” meetings, but the new Georgian
government has appeared to balk at participating in the Russia-led grouping,
appearing to render it moribund.51
In recent years, Iran has intensified its attempts to involve itself in regional
economic and security cooperation, to dissuade the states from bolstering security ties
with the United States, including agreements to host U.S. military assets, which Iran
fears the United States would use to attack it. High-level visits have been made to
each regional state. Iran’s then-President Seyyed Mohammad Khatami visited
Azerbaijan in August 2004. Reportedly, Khatami and Aliyev could not agree on the
text of a friendship and cooperation declaration during the visit, in part because
Khatami insisted that it contain a pledge by the parties not to permit foreign bases on
their soil, which was rejected by Aliyev.52 Iran’s Defense Minister, Rear Admiral Ali
Shamkhani, visited Azerbaijan in December 2004 and urged the regional states to
embrace “cooperation, confidence building, and the promotion of sustainable peace,
in order to neutralize the opportunist attempts of extra-territorial forces.” Meeting
with Armenia’s National Security Council Secretary, Serzh Sarkisyan, in February
2005, Iran`s visiting Supreme National Security Council (SNSC) Secretary,
Hojatoleslam Hassan Rowhani, offered the services of the SNSC to help the regional
states cooperate on strategic security issues. Iran’s First Vice-President
Mohammad-Reza Aref visited Georgia in April 2005, urging greater regional
cooperation on trade and transportation and offering technical security assistance for
counter-terrorism.53
51 Nezavisimaya gazeta, May 17, 2000, p. 1; Caucasus Stability Pact - Iran Counters
Russian Expansion, May 25, 2000; CEDR, September 30, 2003, Doc. No. CEP-386. A
planned “Caucasus Four” meeting of legislative speakers planned for November 2006 on
the sidelines of a CIS speakers summit in St. Petersburg apparently was not held. At the CIS
speakers’ meeting, Russian Duma Speaker Boris Gryzlov reportedly refused to meet with
Georgian Speaker Nino Burjanadze. CEDR, Nov. 16, 2006, Doc. No. CEP-950221.
52 Azerbaijan’s 2003 national security law stated that no foreign military bases would be
permitted in the country, but officials reportedly demurred that other types of presence, such
as Russia’s Qabala radar, were allowable under the law. CEDR, Aug. 17, 2004, Doc. No.
CEP-200; Nov. 22, 2004, Doc. No. CEP-75; Nov. 29, 2004, Doc. No. CEP-300.
53 Among other efforts, in May 2004, Iran’s Foreign Ministry spokesman Hamid Reza Asefi
stated that “Tehran is ready to take more serious steps within the framework of bilateral ties
with Tbilisi and regional cooperation in the Caucasus, in order to bolster peace and security
in the region.” Saakashvili visited Iran in July 2004 and the two sides signed several
economic cooperation accords. On January 1, 2005, Khatami told the Georgian ambassador
that the South Caucasian and Central Asian states should cooperate so that there would be
no need for foreign troops on their soil. IRNA, Jan. 1, 2005; Apr. 25, 2005. CEDR, August
10, 2004, Doc. No. CEP-186.

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GUAM. In another area of regional cooperation, the GUAM states (formed
from the initials of the member-states: Georgia, Ukraine, Azerbaijan and Moldova)54
share common interests in resisting Russian domination of former Soviet republics
and in securing energy transport and supply that is outside Russian control. Formed
in 1997, Azerbaijan, Georgia, and Ukraine in early 1999 held joint military exercises
aimed at protecting the Georgian oil pipeline. Russia opposes GUAM as usurping
CIS functions, but also calls for GUAM to admit Moscow as a member. In 2000, the
members agreed to convene regular summits and ministerial-level conclaves.55 At
the July 2002 meeting in Yalta, GUAM countries signed an “Agreement on
Cooperation in the Battle against Terrorism, Organized Crime and Other Dangerous
Types of Crime.” At a Georgia-Ukraine presidential summit in May 2003, the two
leaders called for naming military coordinators to work out security cooperation
within GUAM, with Georgian officials arguing that such cooperation could help
prepare the members for NATO membership.56
The “rose revolution” in Georgia in late 2003, the “orange revolution” in
Ukraine in late 2004, and political reforms in Moldova gave GUAM a democratic
orientation. At a meeting in April 2005, the members and invited guests (including
Lithuania and Romania) proclaimed the goal of consolidating democracy in the Black
Sea region and beyond, called for ending regional “frozen conflicts,” and discussed
energy transport cooperation. Ukrainian President Viktor Yushchenko suggested that
GUAM focus on integration with NATO and the EU. All these subjects had
concerns about Russian behavior at their core. The first GUAM-sponsored Virtual
Center for Fighting Against Terrorism, Organized Crime, Drug Trafficking and Other
Dangerous Crimes opened in Azerbaijan in July 2005 and the second in Kyiv,
Ukraine, in May 2006 (it is envisioned that these centers in each member-state will
exchange data).
In May 2006, the heads of state of the GUAM countries signed a charter
renaming the organization “GUAM: the Organization for Democracy and Economic
Development” and proclaiming that the group seeks economic and security
integration with the West. Combating crime, terrorism, and separatism were
highlighted. In June 2006, the Ukrainian defense minister proposed that GUAM
form a peacekeeping force, including to possibly substitute for Russian peacekeepers
in the “frozen conflict” regions. In December 2006, Colonel-General Sergiy
Kirichenko, chief of the Armed Forces of Ukraine General Staff, reportedly
announced that a GUAM peacekeeping force was planned to be formed in early
2007, to serve in U.N. peacekeeping operations. A meeting of parliamentary
representatives of member states in mid-October 2006 reportedly sidelined Georgia’s
call for a resolution critical of Russia’s pressure on Georgia, allegedly because other
54 The group admitted Uzbekistan as a member in April 1999, but Uzbekistan stopped
participating in most activities in 2002 and formally withdrew in May 2005. In a letter
announcing the withdrawal, Karimov reportedly stated that Uzbekistan disliked “the
organization’s emphasis on the resolution of frozen conflicts, the formation of joint armed
blocs, and the review of existing security systems,” outside its geographical area of interests.
CEDR, May 9, 2005, Doc. No. CEP-23004.
55 CEDR, Mar. 17, 2000, June 19, 2000, and Sept. 9, 2000.
56 CEDR, May 7, 2003, Doc. No. CEP-224.

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GUAM members did not want to jeopardize their energy relations with Russia. Just
two days later, however, GUAM foreign ministers issued a statement calling on
Russia to refrain from “unilateral actions” against Georgia and supporting Georgia’s
call for Russian-Georgian talks on introducing international forces in the separatist
areas.57
GUAM has received significant encouragement from the United States,
including a Congressional authorization for funding (The Security Assistance Act of
2000; P.L. 106-280),58 that some observers have viewed as sustaining the group. In
December 2002, then-Assistant Secretary Jones and the GUAM ambassadors adopted
a framework program of projects to facilitate regional trade and transport, the
improvement of border and customs services, and the fight against terrorism,
organized crime and drug-trafficking.59 Under the accord, the United States funded
pilot programs of customs and border training and GUAM law enforcement offices,
with rotating meetings in each of the GUAM capitals of expert level working groups.
The budget requests for FY2005 and FY2006 called for FREEDOM Support Act
funds to be used to bolster Moldova’s and Ukraine’s participation in GUAM, and the
budget request for FY2007 calls for some portion of $29.4 million for FSA regional
programs to be used to fund GUAM activities.
Energy and Transport. Issues of regional security and the balance of
regional power, as well as of economic advantage, have increasingly come to be
wrapped up with the issue of pipeline politics. The discovery of major new oil and
gas resources in the Caspian Sea in recent years has contributed to the strategic
significance of the South Caucasus region as an energy producer and transport
corridor. The U.S. Energy Department reports 7-13 billion barrels of proven oil
reserves and 30 trillion cubic feet of proven natural gas reserves in Azerbaijan.60
Russia and Kazakhstan have reported finding energy reserves in the Caspian Sea
rivaling those of Azerbaijan. Azerbaijan faced many obstacles to fully exploit and
market its energy resources, including project financing, political instability, ethnic
and regional conflict, and pipeline security.
57 CEDR, Apr. 22, 2005, Doc. No. CEP-238; Apr. 25, 2005, Doc. No. EUP-87; Apr. 25,
2005, Doc. No. CEP-102; May 25, 2006, Doc. No. CEP-4002; Oct. 16, 2006, Doc. No.
CEP-950116; Oct. 17, 2006, Doc. No. CEP-950149; Dec. 13, 2006, Doc. No. CEP-358001;
What the Papers Say (WPS) Russian Media Monitoring Agency, June 2, 2006. According
to Georgian analysts Pikria Asanishvili and Avtandil Tukvadze, GUAM will not meet its full
potential until Armenia is admitted — making GUAM a true regional organization — and
the people of the South Caucasus realize that regional integration will benefit them. Central
Asia and the Caucasus, No. 3, June 30, 2005.
58 P.L. 106-280 authorized assistance to GUAM and Armenia for FMF, IMET,
nonproliferation and export control, and antiterrorism assistance for FY2001-FY2002.
Section 907 provisions blocking FMF and IMET aid to Azerbaijan remained in place.
59 U.S. Department of State. Office of the Spokesman. Joint Statement of the United States,
Azerbaijan, Georgia, Moldova, Ukraine, and Uzbekistan, Dec. 23, 2002.
60 U.S. Department of Energy. Energy Information Administration. Country Analysis
Report: Azerbaijan, June 2005.

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U.S. companies are shareholders in about one-half of about twenty international
production-sharing consortiums, including the Azerbaijan International Oil
Corporation (AIOC), 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 from AIOC fields, along with other Azerbaijani oil) through two
Soviet-era pipelines in Georgia and Russia to ports on Russia’s Black Sea coast. The
capacity of each of these pipelines is around 100,000-115,000 barrels per day (bpd).
A “main oil” pipeline — with a capacity of one million bpd — began delivering
oil from Baku through Georgia to Turkey’s Mediterranean port near Ceyhan in early
2006. The Clinton Administration launched a major campaign in late 1997 stressing
the strategic importance and suitability of this route as part of a “Eurasian Transport
Corridor,” including possible trans-Caspian links to Central Asia. Volatile oil prices
and questions about the amount of oil in the Caspian region raised concerns among
oil firms about financial risks of the route.
Political endorsement of the Baku-Tbilisi-Ceyhan (BTC) route was provided by
a 1998 meeting of the presidents of Turkey, Georgia, Azerbaijan, Kazakhstan, and
Uzbekistan, and then-U.S. Energy Secretary Bill Richardson, where they pledged to
cooperate to ensure the commercial viability of the route. An even more important
“Istanbul Protocol” on construction of the BTC oil pipeline was signed on November
18, 1999, by Azerbaijan, Georgia, Turkey, and Kazakhstan (with then-President
Clinton in attendance). It is reported that the pipeline cost $4 billion to build.
Kazakhstan has agreed to barge some oil across the Caspian Sea for transport through
the pipeline, helping to address under-utilization of the pipeline until oil production
increases in Azerbaijan. A gas pipeline to Turkey built parallel to the oil pipeline
(the South Caucasus Pipeline or SCP) was commissioned in December 2006. The
SCP was immediately pressed into service to deliver gas from Azerbaijan’s offshore
Shah Deniz gas fields to Azerbaijan and Georgia. Azerbaijan had balked at paying
substantially increased prices for Russian gas, and Georgia had greatly reduced its
own purchases of Russian gas after the price increase.
Some analysts argue that the opening of the Baku-Ceyhan main oil pipeline and
associated SCP, along with the re-opening of the region’s roads, railways, and other
transport, may well transform the economies of the region by bringing substantial
energy transit fees, energy revenues, and trade. Others are less optimistic, warning
that the states and separatist areas still maintain transport blockades and barriers.
Many in Armenia are concerned that Azerbaijan will gain added revenues from oil
and gas exports that it will channel into military action against NK. However,
Armenian Foreign Minister Vardan Oskanyan in January 2004 suggested that the
completion of the pipelines could make Azerbaijan reticent to launch a conflict that
could result in the destruction of the pipelines.61
61 Edmund Herzig, The New Caucasus. London, Royal Institute of International Affairs,
1999, p. 93; Amy Myers Jaffe and Robert Manning, Survival, Winter 1998-1999, p. 115;
CEDR, Jan. 14, 2004, Doc. No. CEP-153.

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U.S. Policy and Issues
In congressional testimony in March 2005, Gen. James Jones, the head of
USEUCOM, 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.” Former Assistant
Secretary of State Elizabeth Jones in 2003 stated that, thanks to U.S. security
assistance, “as each day passes, the countries of Central Asia and the Caucasus are
becoming better equipped, better trained and better coordinated with one another to
deal with transnational threats.” However, she also claimed that U.S. security
assistance is “integrated” with programs to enhance human rights and political and
economic reforms.62
Conflict resolution is part of this policy to enhance stability in the region.
Among the first foreign policy acts of the Bush Administration was the hosting of
peace talks in Key West, Florida between Armenia and Azerbaijan. President Bush
reportedly pledged to then-President Shevardnadze in March 2003 that after the U.S.-
led coalition had eliminated WMD in Iraq, the United States would enhance its
diplomatic efforts to end separatist conflicts in Georgia. President Bush re-
emphasized this support during his May 2005 visit to Georgia.
In some respects, U.S. policy has tended to view the South Caucasian countries
(and those of Central Asia) as part of the Caspian Sea-Black Sea region, to include
the Black Sea littoral states in the west and Afghanistan in the east. This view is
partly the result of the necessary transit of U.S. and NATO forces and supplies based
in Europe across these countries to the Afghan military theater. Also, U.S. policy has
tended to focus on westward oil and gas transit routes from Caspian regional states.
On the other hand, the U.S. State Department in 2005 implemented a persistent
congressional call to re-assign responsibility for the Central Asian states to the
Bureau for South Asian Affairs, leaving responsibility for the South Caucasus to the
Bureau for European and Eurasian Affairs.63 U.S. military operational planning also
separates these regions. In 1999, the Central Asian states were reassigned to
USCENTCOM’s area of responsibility, covering Horn of Africa countries and many
Middle Eastern and South Asian states, leaving the South Caucasus states (and the
Caspian Sea) in USEUCOM’s area of responsibility, covering Europe.

Specific U.S. interests in Armenia include cooperation in the war on terrorism
and combating arms and other illicit trafficking. A durable and peaceful resolution
of the Armenia-Azerbaijan conflict acceptable to both parties is “key” to U.S.
62 U.S. Congress. Senate. Committee on Armed Services. Testimony by Gen. James Jones,
Mar. 1, 2005; Elizabeth Jones, Speech at the University of Montana, Apr. 10, 2003.
63 Jaroslaw Skonieczka, A Black Sea strategy, according to some observers, would “de-link”
the South Caucasus countries from the Central Asian states, so that the former might be
more clearly viewed as European countries and included in European institutions. The
Black Sea Region, NATO International Staff, 2004.

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interests that include stability in the South Caucasus, regional economic cooperation
that ends Armenia’s isolation, and improved Armenian-Turkish relations. Armenia’s
shift away from a war footing would also further U.S. interests in Armenia’s
economic development and improved standards of living (Congressional Budget
Justification for Foreign Operations, FY2007).
U.S. national interests in Azerbaijan include cooperation in the war on
terrorism, the advancement of U.S. energy security, and progress in democratic and
economic reforms, which will enhance internal stability. Such stability, according
to the Administration, will reduce tendencies for Azerbaijani conflict with Iran and
Armenia. Azerbaijan’s creation of a transparent and corruption-free market economy
is deemed essential to its role as a “vital” link in the trans-Caspian energy corridor,
and it has the “potential to play a significant role in the diversification of American
and global energy supplies.” Azerbaijan’s conflict with Armenia over Azerbaijan’s
Nagorno Karabakh area, and its tensions with Iran upset stability in the “critical”
South Caucasus region (Congressional Budget Justification for Foreign Operations,
FY2007).
According to the Administration, “Georgia plays a key role in furthering U.S.
interests” and has been a “premier partner” in the Global War on Terrorism by
providing troops for coalition operations in Iraq and other support. Since its late
2003 “revolution of roses” (see below), Georgia has been a model of free market
democratic reform and a “close partner” in supporting U.S. democratization goals in
the Soviet successor states and beyond. Georgia is becoming “a key conduit through
which Caspian Basin energy resources will flow to the West, facilitating
diversification of energy sources for the United States and Europe” (Congressional
Presentation for Foreign Operations for FY2007).
Contributions to Operation Enduring Freedom in Afghanistan. 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 U.S. and coalition efforts in Afghanistan, including
overflight rights and Azerbaijan’s and Georgia’s offers of airbase and other support.
The State Department’s Patterns of Global Terrorism 2002 highlighted U.S. support
for Azerbaijan’s and Georgia’s efforts to halt the use of their territories as conduits
by international mujahidin and Chechen guerrillas for financial and logistic support
for Chechen and other Caucasian terrorists.
Then-President Shevardnadze immediately condemned the “scum” who attacked
the United States on September 11, 2001, and one week later offered Georgian
“airspace and territory” for use by U.S. troops. During his U.S. visit with President
Bush in October 2001, he reiterated Georgia’s “full cooperation and solidarity” with
the U.S. and coalition actions in Afghanistan, and the full use of Georgia’s airspace
and airbases. He also reportedly asked for U.S. training assistance for Georgia’s
security forces to help them reassert control in the Pankisi Gorge.64 On February 11,
64 According to Patterns of Global Terrorism 2002, p. 29, the United States strongly urged
Georgia to “regain control of the Pankisi Gorge,” where terrorists with links to al Qaeda
(continued...)

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2002, the U.S. Embassy in Georgia declared that the United States was ready to help
Georgia combat several dozen al Qaeda and other terrorists who had fled to the
Caucasus from Afghanistan. Some had relocated to Georgia’s Pankisi Gorge area
bordering Chechnya, where they maintained links with Chechen terrorists. On
February 27, 2002, President Bush announced that the United States would provide
equipment and training to help Georgia rout al Qaeda influences. The next day, the
U.S. Defense Department announced plans for a “Georgia Train and Equip Program”
(GTEP), as part of the global war on terrorism (see also below, Security Assistance).
Russia initially reacted critically to the U.S. announcement, but President
Vladimir Putin on March 1, 2002, stated that he had received assurances from then-
President Shevardnadze that the United States was not seeking permanent bases. He
stressed that “we support this fight [in the Pankisi Gorge] no matter who takes part
in it,” although he called for Russia’s participation. National Security Advisor
Condoleezza Rice on May 11, 2002, stated that Russia was a “stalwart asset and
friend” in viewing the GTEP as “helpful to Russian interests.” Questions about
Russia’s stance on GTEP were raised anew in April 2003, when Russia’s State Duma
(lower legislative chamber) passed a resolution criticizing the GTEP and a U.S.-
Georgian status of forces agreement as “violating the existing balance of forces” in
the region and as a “hostile act” against Russia.
The day after the terrorist attacks on the United States, Azerbaijan’s then-
President Heydar Aliyev averred that Azerbaijan was a “strategic partner” of the
United States and would join the United States in operations against terrorism.
Azerbaijan granted blanket overflight rights and intelligence support and offered the
use of its bases. After the commencement of air operations in Afghanistan on
October 6, 2001, Heydar Aliyev endorsed coalition actions in a phone conversation
with Secretary Powell on October 9 and with President Bush on October 30, 2001.
Many prominent Azerbaijani opposition parties endorsed Heydar Aliyev’s support
for the U.S.-led coalition efforts, but some, such as the Communist Party, condemned
Heydar Aliyev’s support for U.S. actions in Afghanistan. NK Armenians and U.S.
diplomats have censured statements by Azerbaijani officials calling for international
“counter-terrorism” actions against NK. Azerbaijan in November 2002 deployed 30
troops to assist the U.S.-led coalition in Afghanistan.
Immediately after September 11, 2001, Armenia’s President Kocharyan offered
condolences and Armenia’s Department for Emergencies proffered rescue aid. On
September 19, Armenian Defense Minister Serzh Sarkisyan stated that Armenia
would contribute to U.S.-led counter-terrorism efforts, and Kocharyan the next day
offered Armenia’s support for international counter-terrorism efforts during a
meeting with the U.S. Ambassador to Armenia. On September 27, the presidential
press service reported that this support included military overflight rights, and other
reports mentioned intelligence sharing. While supporting diplomatic efforts to
convince the Taliban to extradite those responsible for the September 11, 2001,
attacks, after the start of coalition actions in Afghanistan on October 6, Armenia
expressed support for the “consistent and decisive” military actions to safeguard the
64 (...continued)
threatened the security of both Georgia and Russia.

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“global community” from international terrorism. Armenia explained that this
support was consistent with its foreign policy of complementarity, which calls for
good relations with both Russia, the United States, and Middle Eastern countries
such as Iran in order to buttress the country’s independence, gain support for NK
Armenians, and protect the interests of Armenians living in the Middle East and
elsewhere.65
In the U.S. Congress, the events of September 11, 2001, altered attitudes toward
Sec.907, causing the Members to permit the lifting of aid sanctions on Azerbaijan to
facilitate regional cooperation on anti-terrorism, conflict resolution, and energy
development. Permanent Presidential waiver authority was added to the Senate
version of Foreign Operations Appropriations for FY2002 (H.R. 2506) and retained
by the conferees. The President may use the waiver authority if he certifies to the
Appropriations Committees that it supports U.S. counter-terrorism efforts, supports
the operational readiness of the armed forces, is important for Azerbaijan’s border
security, and will not harm peace talks between Armenia and Azerbaijan or be used
for offensive purposes against Armenia. The waiver may be renewed annually on or
after December 31, 2002, and sixty days after the exercise of the waiver authority, the
President must send a report to Congress specifying the nature of aid to be provided
to Azerbaijan, the status of the military balance between Armenia and Azerbaijan and
the effects of U.S. aid on that balance, and the status of peace talks between Armenia
and Azerbaijan and the effects of U.S. aid on those talks.
Days after being signed into law (P.L. 107-115), President Bush on January 25,
2002, exercised the waiver. The most recent waiver was exercised on January 13,
2005. The President has stated that the waiver is necessary to support U.S. counter-
terrorism and the operational readiness of U.S. Forces and coalition partners. He also
has averred that the waiver permits U.S. border security aid for Azerbaijan and does
not hamper efforts to settle the NK conflict.
Support for Iraqi Freedom Operations. Azerbaijan and Georgia are
among the countries that openly pledged to support the U.S.-led Operation Iraqi
Freedom. Both offered to make their airfields available and to assist the United
States in re-building Iraq. Azerbaijan’s foreign minister on March 14, 2003,
indicated Azerbaijan’s preference for a peaceful solution, but stated that Azerbaijan
would support U.S. action in Iraq. Azerbaijan has raised concerns about the welfare
of some 300-900,000 Turkic speakers in Iraq it considers to be Azerbaijanis. 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 nearly 900 troops in 2005, matching the contributions by Australia
and Ukraine and making it tied for fifth place among the top contributors (after
Poland pulls out in late 2005). Azerbaijan’s troops help U.S. Marines guard the
Haditha dam. Georgia’s troops guard military and other facilities, help patrol around
the town of Ba’qubah, and also help protect U.N. and coalition offices in Baghdad.66
65 Armenian Agency Praises Foreign Policy, BBC Worldwide Monitoring, Sept. 24, 2001.
66 The U.S. and Azerbaijani troops do not fraternize, ostensibly because of “language and
(continued...)

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CRS-30
Armenia initially did not support military intervention in Iraq, citing its concerns
about the safety of 15,000 ethnic Armenians residing in Iraq and 200,000 in the
Middle East, concerns about Turkish expansionism into Kurdish areas of Iraq, and
affinities with the views of France, Germany, and Russia. 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. The Armenian
legislature approved the planned deployment, and 46 personnel left for Iraq in
January 2005.
Azerbaijan and Georgia reportedly suffered some economic losses associated
with the Iraq conflict. BTC pipeline construction was reportedly temporarily delayed
because of material delivery problems, and Azerbaijan reported that its support for
the United States led several Islamic banks and investors to curtail operations or
negotiations.67 Some Azerbaijanis have objected to support for coalition actions in
an Islamic country.
U.S. Security and Law Enforcement 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 as much post-September 11, 2001, as they did to the
Central Asian “front line” states. Cumulative budgeted funding for FY1992-FY2005
security programs (including law enforcement) was $131.6 million for Armenia,
$90.2 million for Azerbaijan, and $379 million for Georgia, amounting to about 16%
of cumulative budgeted funding for all South Caucasus programs (see Tables 1 and
2).
The Administration’s budget request for FY2007 called for $1.2 million for
IMET programs and $58 million for FMF for Georgia. These amounts were larger
than the $790,000 for IMET and $3.5 million for FMF for Armenia and the $885,000
for IMET and $4.5 million for FMF for Azerbaijan, reflecting close U.S.-Georgian
security ties and perhaps the ramping up of smaller programs in the other two states.
Foreign Operations Appropriations for FY2007 (H.R. 5522) was introduced on
June 5, 2006, and passed the House on June 9, 2006. H.Rept. 109-486 recommended
equal amounts of $790,000 for IMET and $3.5 million for FMF for Armenia and
Azerbaijan (it did not earmark IMET and FMF funding for Georgia). H.R. 5522 was
reported in the Senate with an amendment in the nature of a substitute on July 10,
2006. S.Rept. 109-277 followed the House in recommendations for IMET and FMF
for Armenia and Azerbaijan and recommended $1.235 million for IMET and $10
million for FMF for Georgia. A continuing resolution was signed into law on
September 29, 2006 (H.R. 5631/P.L. 109-289, Division B, as amended) that provides
funding for foreign operations at the lower of the House-passed, Senate-passed or
66 (...continued)
culture” barriers. Tony Perry, CENTCOM NEWS, June 21, 2005; CEDR, May 20, 2005,
Doc. No. CEP-27036; May 23, 2005, Doc. No. CEP-20005.
67 CEDR, Mar. 25, 2003, Doc. No. CEP-226.

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CRS-31
FY2006 level through February
Cumulative Budgeted Assistance FY1992-
15, 2007.
FY2005 for South Caucasian Security & Law
Enforcement Programs
Until waived, Sec. 907 had
(Freedom Support Act and Other Funds)
prohibited much U.S. security
(in millions of dollars)
aid to Azerbaijan,68 and by U.S.
DOD Cooperative Threat Reduction
78.01
DOD Counterproliferation
7.37
policy similar aid had not been
DOD Warsaw Initiative (Partnership for Peace)
8.27
provided to Azerbaijan’s fellow
DOE Material Protection, Controls & Acct.
6.4
combatant Armenia. The
DOE Non-Proliferation and Intern. Sec. Prog.
0.8
waiver permitted an increase in
DOE/DOS/NRC Nuclear Reactor Safety
58.34
U.S. security and law enforce-
DOS/DHS/CUST Export Contr.&Border Sec.
161.36
ment aid to Armenia from a
DOS/HHS/EPA Non-Prolif. of WMD Expertise
28.21
budgeted $5.96 million in
DOS Foreign Military Financing
122.13
FY2001 to an estimated $11.53
DOS Intern. Military Exchanges and Training
12.82
million in FY2002, and to
DOS Peacekeeping Operations
20.54
Azerbaijan from $3.23 million
DOS Anti-Terrorism Assistance
15.3
to $11.33 million. A U.S.-fi-
DOS/DHS/CUST/DOJ Law Enforcement
50.53
nanced center for de-mining
DOS Russian Military Relocation
5.0
opened in Armenia in March
DOE Russian Transition Initiative
0.09
2002. Similarly, the State De-
DOS OSCE
1.72
partment announced in July
DOS Small Arms/Light Weapons Destruction
0.81
2002 that 25 U.S. Special Oper-
DOS/NSF/NIH Civilian R&D Foundation
23.24
ations troops were assisting U.S.
TOTAL
600.94
Source: State Department, Office of the Coordinator of U.S.
nongovernmental organizations
Assistance to Europe and Eurasia.
in training troops in Azerbaijan
Key: DHS: Department of Homeland Security; DOD: Department
in de-mining. In April 2002,
of Defense; DOE: Department of Energy; DOJ: Department of
Justice; DOS: Department of State; DTRA: Defense Threat
President Bush issued Presiden-
Reduction Agency; HHS: Health and Human Services; NRC:
tial Determination 2002-15,
Nuclear Regulatory Commission; NSF: National Science
making Armenia, Azerbaijan,
Foundation.
and Tajikistan eligible to receive
U.S. arms exports and services
in order to “strengthen the security of the United States.”
Georgia became eligible for security-related International Military Education
and Training (IMET) and Foreign Military Financing (FMF) programs in FY1997.
In 1999, the United States provided grant aid of ten UH-1H unarmed combat
helicopters, six of which are operational, while the others are for spare parts. In
FY1999, the U.S. military’s European Command (USEUCOM) launched a U.S.-
Georgian Peacetime Military Engagement Program after the South Caucasus states
were included in USEUCOM’s area of responsibility.
The Georgia Train and Equip Program (GTEP) grew out of a request made by
former Georgian President Eduard Shevardnadze during his U.S. meeting with
68 A U.S.-Azerbaijan Security Dialogue working group has met since 1996 to discuss mutual
security concerns. According to Deputy Foreign Minister Araz Azimov, a March 2006
meeting discussed anti-terrorism, non-proliferation, and energy security cooperation,
Azerbaijan’s relations with NATO and the OSCE, the settlement of the NK conflict, and the
military situation in the Caspian region. CEDR, Apr. 2, 2006, Doc. No. CEP-950041.

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President Bush in October 2001 for help to resist Russia’s request that it be allowed
to pursue or attack Chechen rebels in Georgia, to combat terrorists who were hiding
in Georgia’s Pankisi Gorge area, and otherwise to keep terrorists from entering
Georgia. Some of these terrorists allegedly had fled U.S.-led coalition operations in
Afghanistan, so the U.S. Administration initially linked GTEP to OEF. Other
reported U.S. aims included enhancing military reform by helping Georgia set up a
National Command Center and bolstering Georgia’s ability to guard its energy
pipelines and ensure internal stability.69
The $64 million Georgia Train and Equip Program (GTEP) began in April-May
2002.70 USEUCOM coordinated training in light infantry airmobile, mechanized,
and mountain tactics, and medical and logistical methods by personnel from U.S.
Special Operations Command Europe and from U.S. Marine Forces Europe, which
took over training in late 2002. Four battalions of over 2,000 troops, a 270-member
mechanized armor company, about 200 military, security, and border officers, and
a small number of Interior (police) Ministry troops and border guards were trained.
Equipment provided included small arms, communications and medical gear,
uniforms, and construction materials for base refurbishment. The program formally
ended in April 2004. U.S. officials deemed GTEP a model for programs planned for
other countries and praised its contribution to Georgia’s deployment of a 550-
member infantry battalion to Iraq in March 2005, which boosted the number of its
troops there from about 300 to about 850. Other GTEP-trained troops have been
deployed to Afghanistan and Kosovo.71
In 2004, USEUCOM developed a follow-on program to GTEP termed the
Georgian Sustainment and Stability Operations Program (SSOP), for reasons that
69 Department of Defense. Press Release: Georgia “Train and Equip” Program Begins,
Apr. 29, 2002. See also Department of State. Embassy of the United States in Georgia.
Press Briefing on the Georgia Train and Equip Program at the Georgian Ministry of
Defense, May 7, 2002. Besides GTEP and its follow-on program (see below), the United
States supports multilateral security efforts that aid Georgia, such as GUAM (named for its
members, Georgia, Ukraine, Azerbaijan, and Moldova) and NATO’s Partnership for Peace.
70 GTEP was funded from a variety of sources, including Foreign Military Financing,
International Military Education and Training, Peacekeeping Operations, border security and
other foreign operations appropriations for FY2002 through FY2004; FMF in the 2002
Supplemental Appropriations Act (P.L. 107-38); and Defense Department drawdown funds.
71 The 113th Shavnabada battalion (550 troops) was deployed to supplement a 300-member
group which had been deployed in November 2004. On the end of GTEP, see Embassy of
the United States in Georgia. Embassy News: GTEP Program Graduates Last Group of
Georgian Soldiers, April 24, 2004. U.S. Ambassador Richard Miles assured Georgia that
“normal military-to-military assistance programs with the United States will continue. The
United States, as part of its routine military assistance programs, will provide follow-on
training....” See also U.S. Embassy in Georgia. U.S. Ambassador Thanks Marines, GTEP
Cadre, Apr. 21, 2004. Hamlin Tallent, the Director of EUCOM’s European Plans and
Operations Center, praised training that supported Georgia’s troop deployment to Iraq. See
House International Relations Committee. Subcommittee on International Terrorism and
Nonproliferation. Written Statement, Mar. 10, 2005.

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CRS-33
included helping Georgia sustain increased troop deployments to Iraq.72 Funded at
$60 million, the 16-month program began in January 2005 to bolster military reforms
and to train four battalions of 2,000 troops.73 The majority of training has taken place
near Tbilisi at the Krtsanisi Training Area, where $6.5 million of SSOP funds were
used to build barracks, classrooms, a dining hall, and other infrastructure. By the end
of March 2006, the 21st, 22nd, and 23rd battalions had finished seventeen weeks of
training and had been rotated to Iraq. Other training and equipping has involved the
reconnaissance, engineer, and signal companies of the 1st Brigade; the military staffs
and the logistics battalions of the 1st and 2nd Brigades; the general staff command
and control elements, and the Operational Headquarters staff.74
In July 2006, following President Saakashvili’s U.S. visit, the Administration
announced that the SSOP would be extended another year and allocated $30 million
for the program.
The 2006 National Security Concept of Georgia states that the country’s defense
capabilities “have significantly increased as a result of [U.S.] assistance programs”
and that troops trained under GTEP and SSOP “constitute the core of the Georgian
Army.” GTEP and SSOP have provided training to a major portion of Georgia’s
armed forces. Among the successes of the programs may have been the
encouragement of democratic values in the armed forces and an increase in regional
stability, according to some observers.75
Georgian and international media have provided some information on possible
problems associated with GTEP and SSOP. Russia’s relations with the United States
have appeared strained at times by concerns by some Russian officials about U.S.
military training in what they consider a traditional sphere of Russian influence.
72 Deputy Assistant Defense Secretary James MacDougall, quoted by The Jewish Institute
for National Security Affairs, JINSA Online, Jan. 12, 2005, [http://www.jinsa.org].
According to some reports, Defense Secretary Donald Rumsfeld had pledged added military
assistance to Georgia — in return for an increased deployment — at an October 2004
meeting in Bahrain with coalition defense ministers. ITAR-TASS, Oct. 11, 2004.
73 According to testimony by Rear Admiral Hamlin Tallent, funding for SSOP is provided
for FY2005-FY2006 under U.S. Code Title 10 (covering armed forces, $27.1million), U.S.
Code Title 22 (covering foreign affairs, $17.33 million), and other authorities and sources
(including Excess Defense Articles and donor nation aid, $16.5million). Written Statement,
Mar. 10, 2005.
74 Gen. James Jones, Commander of EUCOM and the Supreme Allied Commander, Europe,
testified in early 2006 that the United States had trained over 1,000 Georgian troops who
had been deployed on rotation to Iraq. U.S. Senate. Committee on Armed Services, Mar.
7, 2006.
75 According to Charles Western, Commander of Task Force GTEP, during Georgia’s late
2003 “rose revolution,” “the GTEP battalions told us that they did not want to use their
troops against their own people,” and this “may have had an influence on the Defense
Minister’s decision not to use force.” Leatherneck, February 2004, pp. 26-28. For an
argument that GTEP enhanced regional stability, see Peter Forster, The Paradox of Policy:
American Interests in the Post-9/11 Caucasus, National Defense Academy and Bureau for
Security Policy, Vienna, February 2004.

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CRS-34
President Putin, however, has acknowledged the useful role played by U.S.-trained
Georgian troops in counter-terrorism efforts in the Pankisi Gorge. Sensitive to
Russian concerns, U.S. and Georgian officials gave assurances to Russia in 2002 that
U.S. military trainers would not enter the Pankisi Gorge to assist GTEP-trained and
other Georgian troops to eliminate alleged terrorists based there. In contrast to
Putin’s earlier stance, Russia formally protested to the United States in mid-2004
about the alleged involvement of some U.S.-trained troops in Georgia’s actions in its
breakaway South Ossetia region.76
Some problems were reported in finalizing applicants for the first phase of
SSOP training in early 2005, particularly in recruiting some technically-skilled
personnel, which allegedly caused some delay in beginning the program.77 Another
Georgian source alleged that there was a lack of discipline in some U.S.-trained
units.78 According to one Georgian military analyst, Chief of the General Staff Levan
Nikoleishvili complained in late 2005 that SSOP training and associated construction
of facilities at the Krtsanisi Training Center did not meet expectations.79 Some
Georgian legislators have raised concerns that many troops in the first battalion
trained under GTEP did not re-enlist when their service contracts ended in 2005,
resulting in a loss of expertise among active duty personnel. They also have
questioned whether some military officials are resisting SSOP and other U.S. and
NATO-backed military reforms.80 Some Georgian observers have cautioned that
Georgia’s relatively large-scale involvement in SSOP and deployments to Iraq might
divert Georgia from other vital national security concerns, although most Georgian
officials view these efforts as boosting the professionalism of the armed forces and
moving Georgia toward NATO membership.81
Other USEUCOM initiatives in the region include the South Caucasus
Clearinghouse, the Caspian Guard program, and the Caspian Hydrocarbons initiative.
The Clearinghouse aims to facilitate cooperation by sharing information on security
assistance programs 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 the littoral states of Azerbaijan and Kazakhstan. The
Hydrocarbons initiative provides maritime security and crisis response and
consequence management assistance to help the regional states protect their pipelines
and other energy transport to the West.
76 New York Times, Mar. 2, 2002, p. 9; Jim Heintz, Associated Press, June 11, 2004.
77 U.S. European Command. SSOP Signing Ceremony and Press Briefing Transcript, Mar.
29, 2005; CEDR, Feb. 2, 2005, Doc. No. CEP-249.
78 CEDR, May 17, 2005, Doc. No. CEP-20001.
79 Koba Liklikadze, as reported in Foreign Broadcast Information Service (CEDR). Central
Eurasia: Daily Report, Jan. 18, 2006, Doc. No. CEP-20003.
80 CEDR, Oct. 27, 2005, Doc. No. CEP-27165.
81 CEDR, Nov. 15, 2004, Doc. No. CEP-59.

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Gen. Charles Wald, deputy head of USEUCOM, in November 2004 suggested
that the Administration was exploring the possible establishment of “cooperative
security locations” — sites without a full-time U.S. military presence that are used
for refueling and short-duration deployments — in Azerbaijan or Georgia.
Non-proliferation Aid. The United States has gained greater support in the
region for combating the proliferation of weapons of mass destruction (WMD) by
emphasizing how this goal enhances the security interests of the states. The United
States has been the largest aid donor for such efforts. Congress funneled much of
this aid to Georgia prior to September 11, 2001, but Armenia and Azerbaijan have
joined Georgia in receiving boosted aid after September 11, 2001. Through FY2005,
the United States has provided more than $55 million to enhance the safety and
security of Armenia’s Metzamor nuclear reactor and nearly $50 million for programs
to combat proliferation.82 The FY1997 Defense Authorization Act (P.L. 104-201,
Section 1424) permitted aid for customs and border enhancements to prevent the
spread of WMD, clearing the way for such aid to Azerbaijan. In 1999, the first U.S.-
Azerbaijani security agreements were signed on providing such U.S. aid, and this aid
has increased since September 11, 2001. At Georgia’s behest, U.S. personnel
removed 8.8 lbs. of highly enriched uranium and 1.8 lbs of spent fuel from an
Institute of Physics research reactor near Tbilisi in April 1998. The United States had
earlier provided security assistance to safeguard the material prior to removal, after
two criminal attacks on the reactor facility.83 The United States has provided nearly
$85 million in Cooperative Threat Reduction, nonproliferation, and Department of
Energy aid through FY2005 to help Georgia secure nuclear materials.84 The Energy
Department and U.S. Customs have provided training and equipment to help prevent
nuclear proliferation in the South Caucasus states.85
Counter-Narcotics Aid. There is rising U.S. concern that drugs transiting
the South Caucasus may eventually reach the United States in major quantities, since
Latin American and other international organized groups have become involved in
the wider regional drug trade. Despite efforts to eliminate them, terrorist groups still
in the region may be using drug trafficking to help finance their operations, so
82 In May 2002, the United States imposed sanctions on the Armenian firm Lysine Open
Joint Stock Co. and its former owner, Armen Sarkisyan, for transferring WMD technology
to Iran, specifically, transfer of biochemical equipment. Federal Register, May 16, 2002,
pp. 32983-32984; RFE/RL Newsline, May 17, 2002.
83 NIS Nuclear Profiles Database. Center for Nonproliferation Studies, Monterey Institute
of International Studies.
84 The United States in early 2003 raised concerns that unemployed Georgian technicians
were servicing military aircraft or assisting in nuclear programs in Iran. Then-President
Shevardnadze verified that Georgian citizens had illicitly aided Iran. CEDR, Jan. 12, 2003,
Doc. No. CEP-23; Jan. 13, 2003, Doc. No. 167; Jan. 15, 2003, Doc. No. 282; AFP, Jan. 14,
2003.
85 In December 2005, the United States signed agreements with Azerbaijan and Georgia on
combating illicit trafficking in nuclear and radioactive materials. Under the agreement with
Georgia, border control posts will be provided with radiation detectors and communications
equipment, and training will be given to customs officials. U.S. Department of Energy.
National Nuclear Security Administration. Press Release, Dec. 21, 2005.

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counter-drug activities may support counter-terrorism.86 U.S. policy also recognizes
the problems of rising crime, corruption, and instability posed by illegal narcotics
production, use, and trafficking in the region. These problems are increasingly
emphasized by regional governments that urge the United States to take the lead in
combating rising drug trafficking from Afghanistan. Dissatisfaction with U.S.
actions in this area eventually could harm U.S. relations with the governments.
Among U.S. efforts, the FBI and U.S. Customs Service have given training in
counter-narcotics to police, customs, and border control personnel in the region as
part of the Anti-Crime Training and Technical Assistance Program sponsored by the
State Department’s Bureau of International Narcotics and Law Enforcement Affairs.
The waiver of Sec.907 of the Freedom Support Act has permitted U.S. government-
to-government aid for counter-narcotics programs in Azerbaijan.87
Safety of U.S. Citizens and Investments
U.S. firms are the largest investors in Azerbaijan, investing nearly $4 billion, or
about one-third of all foreign investment. The U.S. Commerce Department warned
in late 2004 that corruption impedes the ability of many companies to do business
and has driven some Western firms to leave Azerbaijan. Businesses indicate that
some customs and tax personnel and contract dispute arbitrators may be corrupt.
Particularly in the non-energy sector, political connections have been used to reward
some businesses, including cotton- and tobacco-related firms, resulting in harm for
U.S. and other foreign investors.
Foreign direct investment in Georgia has increased since its “rose revolution,”
mainly involving investment by BP in oil and gas pipeline infrastructure. Many
medium and small investors allegedly remain wary.88 The U.S. Embassy in Georgia
reports conditions similar to those in Azerbaijan, warning that many U.S. and foreign
firms have suffered from official corruption. The embassy also warns that there are
a few criminalized sectors of the economy, such as gasoline and cigarette
distribution, that foreign investors should avoid. U.S. foreign direct investment
(FDI) in Georgia was about $70 million in 2005, about 16% of total FDI of $447.8
million in 2005. The State Department suggests that U.S. FDI increased in 2006.
U.S. government facilities worldwide were on a heightened state of alert after
September 11, 2001, and U.S. embassies were subject to temporary closure for
security reasons. In March 2003, U.S. embassies in the region issued Warden’s
Messages warning that U.S. citizens and interests worldwide were at risk of terrorist
attacks. There were some anti-U.S. demonstrations in early 2003 in the region
86 U.S. Senate. Judiciary Committee. Narco-Terrorism. Testimony of Raphael Perl, May
20, 2003.
87 International Narcotics Control Strategy Report 2005. U.S. State Department, March
2006.
88 U.S. Department of Commerce. Bureau of Economic Analysis. U.S. Direct Investment
Abroad, 2005, historical-cost basis, [http://www.bea.gov]; Structure and Dynamics of
Foreign Investments in Georgia, Georgian Economic Trends, Georgian-European Policy and
Legal Advice Center, December 2005; CEDR, Mar. 24, 2006, Doc. No. CEP-20002.

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related to the Iraq conflict, but the State Department reported no significant violence
against U.S. interests.
In Georgia, the State Department has advised U.S citizens to avoid travel to
South Ossetia, the Pankisi Gorge, and to other border areas near Russia’s Chechnya
and Dagestan regions. It also has warned Americans that areas of relative lawlessness
include South Ossetia, upper Svanetia, Samtskhe-Javakheti, and Abkhazia and areas
near the latter’s border with the rest of Georgia.
The U.S. Embassy in Tbilisi warns that high rates of poverty have contributed
to an increase in violent crimes against Americans and other foreigners who are
viewed as wealthy. Despite Georgia’s efforts to combat corruption and increase the
caliber of law enforcement personnel, criminals continue to operate freely in Tbilisi.
The State Department in February 2005 warned that crime against U.S. citizens “is
a critical problem in Georgia,” including carjackings and armed robberies. The risk
of kidnaping for ransom still exists. A hand grenade exploded at a U.S. diplomat’s
house in Tbilisi in February 2005, but the explosion was allegedly aimed at scaring
a neighbor. During President Bush’s visit to Georgia on May 10, 2005, a hand
grenade was thrown toward a podium containing Presidents Bush and Saakashvili.
It failed to explode. In late July, a suspect possibly linked to former Ajarian
politician Aslan Abashidze was taken into custody. In June 2006, the State
Department reiterated a warning that employees of U.S. businesses should avoid the
Turtle Lake area near Tbilisi because of robberies. A more secure U.S. Embassy
building opened in Tbilisi in December 2005.
The State Department has warned U.S. citizens in Armenia that foreigners have
been the targets of violent assaults and robberies (although the general level of
violent crime is less in Yerevan than in many U.S. cities). Several U.S. investors
report being victims of financial scams. In January 2005, there was a protest rally at
the U.S. Embassy in Yerevan against a statement made by former Assistant Secretary
Jones about crime in Armenia. A more secure U.S. Embassy building opened in
Yerevan in May 2005.
In Azerbaijan, members of the indigenous terrorist group Jayshullah were
convicted in 2001 for planning an attack against the US Embassy and other terrorism.
Homeowners who lived near the U.S. embassy in Baku picketed in January 2005
over the razing of their homes for security purposes. U.S. citizens traveling to
Azerbaijan are advised that the occupied areas around NK are dangerous because of
ceasefire violations and the presence of minefields and that travel into NK is not
possible from Azerbaijan. U.S. travelers were warned in April 2006 about street
crime in Baku and, in July 2006, were cautioned to be on guard against violent acts
and possible terrorist attacks against Americans in the face of Israeli military actions
in Lebanon.89
89 U.S. Department of State. Investment Climate Statements, 2004, 2005, and 2006; U.S.
Foreign Commercial Service and the Department of State. Country Commercial Guides,
2004-2005; U.S. State Department. Country Reports on Terrorism 2005; U.S. State
Department. Consular Information Sheet, Armenia, Mar. 15, 2006; Consular Information
(continued...)

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Issues for the 110th Congress
Should the United States Play a Prominent Role in the South
Caucasus? While a consensus appears to exist among most U.S. policymakers on
the desirability of fostering democratization, the creation of free markets, trade and
investment, integration with the West, and responsible security policies in the South
Caucasus states, others urge different emphases or levels of U.S. involvement. Some
consider the United States as being the “indispensable power,” leading the way in
fostering peace, stability, security, and development in the region.
Critics assert that the United States has historically had few interests in this
region, and argue that developments there are largely marginal to U.S. interests.90 In
any event, they argue, EU expansion is bringing the South Caucasus into closer
proximity to Europe, making the region a higher priority interest of Europe than of
the United States. They advocate limited U.S. involvement to ensure general U.S.
goals of ameliorating strife and instability, fostering democratization and regional
cooperation, and improving human rights and the quality of life.
What are U.S. Interests in the South Caucasus? One view holds that
greater U.S. assistance for the region to bring stability could have a positive effect on
North Caucasian areas of Russia and on Turkey, as well as on European security.
They urge greater U.S. aid and conflict resolution efforts to contain warfare, crime,
smuggling, terrorism, and Islamic extremism and bolster independence of the states.
More U.S. ties with the region might serve to “contain” or modify Iranian influences,
particularly U.S. military support that would help the South Caucasus states to resist
some threats such as insurrections. Some also argue that improved U.S. ties with
Azerbaijan would benefit U.S. relations with other Islamic countries, particularly
Turkey and the Central Asian states. Many add that Caspian region oil and natural
gas deliveries would expand world supplies, making the West somewhat less
vulnerable to supply cutoffs in the Middle East. The Administration also has
pursued close ties with Armenia and Georgia because of their professions of
democratic principles, concerns by Armenian-Americans and others over Armenia’s
fate, and appreciation among U.S. policymakers for Georgia’s pro-Western policies.
They also point to the prompt cooperation offered to the United States by Armenia,
Azerbaijan, and Georgia in the aftermath of September 11, 2001, and their military
support for U.S. post-Saddam peacekeeping in Iraq.
Other observers doubt that there is a strategic “power vacuum” in the region that
the United States must fill. U.S. aid for humanitarian and counter-proliferation
purposes should continue, according to this view, but other aid should be curtailed,
particularly since these states fall short of U.S. goals for democratization, human
89 (...continued)
Sheet, Azerbaijan, Mar. 31, 2006; Consular Information Sheet: Georgia, Feb. 10, 2005;
Associated Press, Mar. 6, 2006; CEDR, Jan. 20, 2005, Doc. No. CEP-92; Jan. 27, 2005,
Doc. No. CEP-229; Feb. 18, 2005, Doc. No. CEP-224.
90 Joe Barnes, U.S. National Interests, in Energy in the Caspian Region, ed. by Yelena
Kalyuzhnova, Amy Jaffe, Dov Lynch, and Robin Sickles, New York: Palgrave, 2002, pp.
212-233.

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CRS-39
rights, and peace settlements. Great caution is in order in adopting policies and
actions that will heavily involve the United States in a dangerous region beset by
ethnic and civil conflicts.91 Some observers question whether U.S. interests are
threatened by alleged al Qaeda or other international terrorists in the region. They
also question whether the amounts of oil and gas in the Caspian region merit U.S.
involvement. Many in Congress and elsewhere object to any substantial U.S.
assistance to Azerbaijan until the country moves toward peace with Armenia and NK.
What Roles Should Outside Powers Play in the Region? Some U.S.
policymakers consider U.S.-Russian cooperation on arms control and anti-terrorism
to be top priorities and argue that the United States should seek to cooperate with
Russia in the South Caucasus on these priorities.92 Despite recent problems in U.S.-
Turkish relations, some observers advocate a major role for Turkey to counter undue
influence by Iran, including by calling for closer EU-Turkish cooperation.

The U.S. policy of engagement with both Russia and the South Caucasus states
could have become problematic if Russia had pursued a more assertive foreign policy
in the region that clashed with U.S. interests. However, developments in Georgia,
including Russia’s agreement to pull out troops and the opening of the BTC pipeline
and the SCP, have reduced Russia’s undue influence in the region, according to some
observers. Nonetheless, those who view Russia as encouraging separatism rather
than conflict resolution in the region urge stronger U.S. positive or negative
inducements to Russia.93
How Significant Are Regional Energy Resources to U.S. Interests?
The National Security Strategy of the U.S.A. maintains that U.S. energy security and
the global economy can be strengthened by expanding the sources and types of global
energy supplied, including from the Caspian region.94 The May and November 2002
91 Zbigniew Brzezinski has warned that the South Caucasus and Central Asian regions are
the “Eurasian Balkans.” See The Grand Chessboard. New York, Basic Books, 1997.
Similarly, a group of analysts in 2000 assessed the South Caucasus as potentially more
dangerous than the Balkans as a “theatre of conflict, human suffering, and escalating
geopolitical instability in the wider European area.” A Stability Pact for the Caucasus,
Brussels, Belgium, Centre for European Policy Studies, January 2000.
92 Stephen Blank, Problems of Post-Communism, January-February 2003, pp. 8-21; Olga
Oliker and Tanya Charlick-Paley, Assessing Russia’s Decline, Santa Monica, CA: RAND,
2002, p. 120. Analyst Martha Olcott has argued that the United States should recognize that
Russia has important economic and security interests in the Caspian region, and place
greater stress on cooperating with Russia on regional energy projects, particularly since we
also want access to Russian energy. Testimony. Senate Foreign Relations Committee.
Subcommittee on International Economic Policy, Apr. 8, 2003.
93 Caspian Energy Update, Center for Strategic and International Studies, Feb. 25, 2000.
94 The White House. National Security Strategy of the United States of America, Apr. 29,
2003. Analyst Zeyno Baran states that most speeches delivered by U.S. Caspian energy
envoys in the past few years have included the U.S. policy principles of strengthening the
independence of Caspian states, bolstering regional cooperation, enhancing global energy
supply diversification, and increasing investment opportunities for U.S. firms. Washington
(continued...)

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U.S.-Russia summit statements on energy cooperation appeared to mark a U.S. policy
of cooperation with Russia in the development of Caspian oil resources. However,
the United States backed the construction of the BTC oil pipeline and the SCP for gas
in part as hedges against a possibly uncooperative Russia. The Administration and
others also argued that the economic benefits gained by the region by developing its
energy resources would be accompanied by contractual and other rule of law
developments, which could foster regional stability and conflict resolution.95
The Administration’s May 2001 National Energy Policy report recommended
that the President direct U.S. agencies to support building the BTC oil pipeline,
expedite use of the pipeline by oil companies operating in Kazakhstan, support
constructing a gas pipeline from Azerbaijan to Turkey, and otherwise encourage the
Caspian regional states to provide a stable and inviting business climate for energy
and infrastructure development. The September 11, 2001, attacks appeared to
intensify the Administration’s commitment to develop Caspian energy, the BTC
pipeline, and the SCP as part of a strategy of reducing the vulnerability of the United
States to possible energy supply disruptions by increasing and diversifying world
energy supplies.
Critics of Administration policy raise concerns about regional stability,
ownership of Caspian Sea fields, and the size of regional reserves.96 They question
whether the oil and other natural resources in these new states are vital to U.S.
security. Some observers also reject the argument that energy and pipeline
development may boost economic development — rather than merely the wealth of
regional elites — and thereby foster the settlement of ethnic and civil conflicts in the
region. Instead, they urge greater attention to conflict resolution and broader-based
economic and democratic reforms that would better serve the population of the
region.97
What U.S. Security Involvement is Appropriate? Observers who urge
greater emphasis on U.S. security assistance to the South Caucasus states argue that
such aid serves crucial U.S. interests. Without greater assistance, these states may
94 (...continued)
Quarterly, Winter 2002, p. 222.
95 Thomas Waelde, Sergey Vinogradov, and Armando Zamora, Caucasian Regional Studies,
[http://poli.vub.ac.be/publi/crs/eng/Vol5/].
96 Eric Rasizade, Comparative Studies of South Asia, Nos. 1-2, 2002; Anush Begoyan, Iran
and the Caucasus, Vol. 8 Issue 1, 2004, pp. 141-155. At least until the run-up in crude oil
prices, critics of Administration policy also questioned the economic viability of Ceyhan and
trans-Caspian pipeline routes compared to routes through Russia or Iran.
97 Jaffe and Manning, pp. 113, 118; Michael Evans, Strategic Review, Spring 1999, pp. 4-10;
Peter Rutland, Russia and Eurasian Review, May 13, 2003. Analyst Edward Chow has
argued that “by focusing too much on energy relationships ... we give the impression that
we care less about improvement in fundamental conditions like the rule of law,
transparency, and more political openness .... Russia, Central Asia, and the Caucasus are
important to U.S. foreign policy interests whether these countries have oil or not.”
Testimony. Senate Foreign Relations Committee. Subcommittee on International Economic
Policy, Apr. 30, 2003.

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not consolidate their independence. The states remain vulnerable to international
terrorist groups and to possible coercion from neighboring countries.98 These
observers emphasize that U.S. customs and border training and equipment and other
nonproliferation aid prevent WMD technologies, materials, and personnel from
falling prey to terrorist states or groups and from being smuggled through the region.
They also argue that the states may not be able to adequately safeguard their energy
pipelines from terrorists or criminals.
They urge greater U.S. military-to-military assistance, including for military
institution-building, basic soldier life support, and military education and training
programs that bolster human rights. Such aid, in this view, will foster the creation
of a professional, Western-style military that is better able to resist external security
threats, and will foster democratic civil-military relations that reduces the chance of
military coups. Greater U.S. support for PFP training — involving cooperation
among regional militaries — could spur these states to work together. The observers
also argue that as Iran increases its military capabilities, including missiles and
possibly nuclear weapons, the South Caucasus states may necessarily seek closer
countervailing ties with the United States. Alternatively, the region might feel
pressured to seek greater accommodation with Iran, including by distancing itself
from the United States.
Critics question whether the region is a vital U.S. interest necessitating
enhanced U.S. security commitments and aid. They warn that the stepped-up U.S.
security training and arms transfers has added to the arms race in the region and
tensions with other outside powers. They argue that the United States should
primarily seek to encourage conflict resolution and regional cooperation in
demilitarization. They oppose providing formal security guarantees or establishing
military bases in the region, and endorse making it plain that any U.S. security
assistance provided implies no defense “umbrella.”99
Should the United States Try to Foster Democratization? Some
observers argue that the major security problems faced by the South Caucasus states
are largely the result of inadequate or fragile democratization. After the “rose
revolution” in Georgia and a relatively free and fair presidential election in early
2004, the government has been considered legitimate by most citizens. The
illegitimacy of the governments in the eyes of many citizens in Armenia and
Azerbaijan precludes civil and ethnic peace and sustainable development and invites
98 Oliker and Charlick-Paley offer a possible scenario of clashes between Georgian and
Russian troops in Georgia that could trigger a U.S. military intervention. They suggest that
closer U.S. cooperation with Russia in South Caucasian affairs would reduce the likelihood
of such a scenario (pp. 107-120).
99 These views were more prevalent prior to September 11, 2001. John Kreul argued against
a U.S. “strategy that entails deeper defense relationships and hints of security guarantees”
to Caspian regional states despite risks “which appear to be out of proportion to U.S.
interests there.” National Security Watch, Association of the U.S. Army, Institute of Land
Warfare, June 15, 2000. On the unintended consequences of U.S. security assistance, see
Jamestown Foundation, Russia and Eurasia Review, May 13, 2003.

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foreign meddling, in this view.100 Other observers caution that democratization can
be destabilizing if authorities are not able to adequately address burgeoning public
demands unleashed by liberalization. They urge greater U.S. and Western attention
to bolstering social programs and other efforts to safeguard democratization.101
The United States has provided most assistance for democratization to Armenia,
and somewhat less for Georgia. U.S. aid for democratization in Azerbaijan was
explicitly permitted by Congress in FY1998 and thereafter. While the U.S. Agency
for International Development (USAID) argues that such aid has bolstered
democratization, including the role of nongovernmental organizations, it also
acknowledges that democratization is not firmly established, and that
democratization has faced problems in Armenia and Azerbaijan.102 The 2003
Armenian presidential and legislative elections did not mark substantive further
democratization, according to some observers. While there was some question about
the direction of democratization in Azerbaijan before the 1998 presidential race,
many observers viewed irregularities during that election, municipal elections in
1999, the 2000 legislative race, and the 2003 presidential contest as evidence of
halting pluralism. Although OSCE monitors reported large-scale irregularities during
the 2005 legislative election, particularly in vote-counting, the U.S. Administration
viewed the race as indicating the Azerbaijani government’s commitment to
democratization.103
Critics of U.S. democratization aid have suggested that the Administration’s
stress on gradual and peaceful political change in the South Caucasus connotes U.S.
support for the stability of current leadership. They contend that U.S. support may
unwittingly assist the regimes to stay in power, make peaceful political succession
more problematic, and encourage the countervailing rise of extremist parties and
groups as alternative channels of dissent. They urge greater adherence to the policy
that “aid follows reform,” so that U.S. assistance is reduced to regimes that fail to
democratize and continue to violate human rights.104
100 Alexander Rondeli, Crossroads and Conflict, p. 48.
101 S. Neil McFarlane, Government and Opposition, No. 3, 1997, pp. 399-420; S. Neil
McFarlane, Western Engagement in the Caucasus and Central Asia, London, Royal Institute
of International Affairs, 1999, pp. 48, 60.
102 U.S. Agency for International Development. Foreign Aid in the National Interest, 2002,
pp. 37, 39, 46.
103 U.S. Department of State. Press Statement: Azerbaijan Parliamentary Elections, Nov.
7, 2005.
104 Deputy Assistant Secretary of State Bryza stated in June 2006 that “just because
Azerbaijan hasn’t gone as far as we would like on democracy doesn’t mean we’re going to
ignore our energy interests or our military interests. That’s not to say that our energy
interests or our military interests or our counter-terrorism interests are driving us to ignore
democracy....we have to pursue a balance.” Caucasus: U.S. Says Aliyev, Kocharyan Must
Show ‘Political Will,’ RFE/RL, June 23, 2006.

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Appendix 1: Selected Players
Russia. According to many observers, the role of Russia — the former
colonial power — in the South Caucasus is the most serious potential threat to the
security and independence of the region’s states. Perhaps until recently, Russia has
appeared to place a greater strategic importance on maintaining influence in the
South Caucasus region than in much of Central Asia (except Kazakhstan). Its early
determination to remain closely involved in the region included its pressure on
Azerbaijan and Georgia in 1993 to get them to join the CIS and sign the Collective
Security Treaty, and on Georgia to acquiesce to Russian military bases on its soil.105
The elevation of Vladimir Putin to Russia’s presidency marked a more
coordinated and activist Russian stance toward the region. Then-Acting President
Putin approved a “national security concept” in January 2000 that termed foreign
efforts to “weaken” Russia’s “position” in the South Caucasus, or to thwart
“integrative processes” in the CIS, as security threats. It also calls for protecting
Russia’s economic interests in routes for energy flows from the Caspian and
elsewhere. A new military doctrine approved by Putin also stressed these threats,
including warnings that NATO might intervene in conflicts in the CIS, such as the
NK or Abkhaz conflicts, as it did in the Kosovo region of Yugoslavia.106 Russia’s
1999-2005 Chechnya campaign, in this view, demonstrated Putin’s determination to
grasp for regional influence over the South Caucasus. Other observers argue that
such Russian intentions, however, may in fact be unattainable because of Russia’s
strategic weakness.107
Putin launched new regional initiatives, including an agreement in July 2000 to
hold regular biannual “Caucasus Four” summits focusing on deepening Russia’s
influence through dispute mediation and security cooperation (only a few ever were
held). Another agreement in September 2000 between Russia, Iran, and India called
for creating a North-South International Transport Corridor (NSTC).108 According
to Russian media, major reasons for pursuing a Russian-oriented NSTC included
counteracting the regional development of routes bypassing Russia, such as the BTC
oil pipeline and SCP, and the Russian strategic concept’s call for protecting Russia’s
105 The Russian military reportedly provided assistance for overthrowing the Azerbaijani
government, opening up Heydar Aliyev’s return to power, after which Azerbaijan joined the
CIS. Similarly, the Russian military assisted then-President Shevardnadze in defeating
insurgency, after which Georgia joined the CIS.
106 In contrast, a 1997 draft of the national security concept emphasized the importance of
a democratizing CIS, rather than a militarized CIS protecting against outside threats.
Herzig, p. 49. See also Stephen Blank, Threats to Russian Security, U.S. Army War
College, July 2000, pp. 18-19.
107 The Economist, Aug. 19, 2000; Stephen Blank, U.S. Military Engagement with
Transcaucasia and Central Asia, U.S. Army War College, June 2000, pp. 22-35.
108 Russian and Iranian transport ministers discussed setting up such a transport corridor at
a meeting in September 1999. India was interested in sending an experimental cargo
shipment to Scandinavia along this corridor. Interfax, Sept. 14, 1999.

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interests in the Caspian region.109 In May 2002, an inter-ministerial agreement was
signed between Russia, Iran, and India inaugurating the NSTC with termini at
Bombay and St. Petersburg. Shipments along the route began in July 2004, and at
a meeting in late 2004, representatives from Russia, Kazakhstan, India, Iran,
Azerbaijan and Oman discussed measures to expedite shipping. The opening of the
BTC pipeline and the SCP, however, have been a blow to Russia’s rationales for the
NSTC.
Armenia has been concerned about proposals to build regional railroads that
would bypass the country, which it argues will further isolate it from transport routes.
Accords were signed in 2004-2005 between the state-controlled Russian Railways
Company and Azerbaijani and Iranian railway officials to form a consortium to build
a 250-mile railway from Azerbaijan’s town of Astara to Iran’s towns of Resht and
Kazvin. This proposed railway, if built, would link with others to the north and
south, permitting land-based transport of cargo from Europe to the Persian Gulf, and
would supplement existing transport by ferry from Russian and Iranian Caspian Sea
ports.110 Armenia has urged Russia to refurbish a railway through Abkhazia (and has
hoped that Georgia would permit transport via this railway).111 The presidents of
Turkey, Azerbaijan, and Georgia signed a declaration of intent in May 2005 to build
a railway eventually linking Kars in Turkey to Baku in Azerbaijan. Financing of the
railway reportedly was agreed upon by the parties in January 2007. Armenia has
objected that this project bypasses Armenia.112 Armenia in late 2006 reportedly was
exploring granting a concession to the Russian Railways Company to revamp
Armenia’s railways. Russia’s interest in these railways includes links with Iran.113
Successive U.S. Administrations have generally viewed a democratizing Russia
as able to play a stabilizing role in the South Caucasus, though they have also
109 CEDR, Jan. 15, 2000, Doc. No. CEP-162; Apr. 26, 2000, Doc. No. CEP-15; Sept. 15,
2000, Doc. No. CEP-193; Nov. 10, 2000, Doc. No. CEP-58; Apr. 2, 2002, Doc. No. CEP-
201; May 23, 2002, Doc. No. CEP-150; Aug. 5, 2002, Doc. No. CEP-309; May 5, 2003,
Doc. No. CEP-204.
110 CEDR, May 20, 2004, Doc. No. CEP-302; Feb. 10, 2005, Doc. No. CEP-109; ITAR-
TASS, May 3, 2005; May 5, 2005; President of OAO RZHD Vladimir Yakunin visited the
Islamic Republic of Iran, International Congress of Industrialists and Entrepreneurs News,
Nov. 6, 2006.
111 CEDR, Feb. 17, 2005, Doc. No. 189; February 21, 2005, Doc. No. CEP-27.
112 The first phase of the proposed railway project is a 61-mile line between Kars and
Akhalkalaki in Georgia. A second phase envisages extension of the line to Tbilisi, Georgia,
to link with a rail line to Baku, Azerbaijan. This railway provides an alternative route to an
existing unused rail-line from Kars to Armenia. CEDR, May 25, 2005, Doc. No. CEP-
27089; July 2, 2005, Doc. No. CEP-30019. In the 109th Congress, H.R. 3361, introduced on
July 20, 2005, and S. 2461, introduced on March 28, 2006, prohibited U.S. assistance to
build 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. S. 3938, the Export-Import Bank Re-authorization Act of 2006 — prohibiting
Eximbank credits or guarantees for the railway — was signed into law on December 20,
2006 (P.L. 109-438).
113 CEDR, Oct. 17, 2006, Doc. No. CEP-9001.

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emphasized to Russia that it should not seek to exclude other positive international
involvement. Congressional concerns over Russia’s motives in the Eurasian states
have been reflected in provisions in every Foreign Operations Appropriations Act
since FY1994 prohibiting aid to any Eurasian state that violates the territorial
integrity or national sovereignty of another (a presidential waiver is included; the
waiver has been used to provide aid to Armenia).
At least until recently, Russia appeared to place the greatest strategic importance
on exercising influence in the military-strategic sphere, less on influence in the
economic sphere, and a minimum on influence in the domestic political sphere,
except for obtaining assurances on the treatment of ethnic Russians. Russia tried to
stop terrorism, ethnic “undesirables,” drugs, weapons, and other contraband from
entering its borders, and to contain the contagion effects of separatist ideologies in
the North and South Caucasus. These concerns, Russia averred, led it to maintain
military bases in Armenia and Georgia and a relatively large Caspian Flotilla. The
states variously responded to Putin’s policies. Armenia was interested in close
security ties with Russia — given that it is almost surrounded by Islamic states that
support Azerbaijan’s sovereignty over NK — and it viewed Russia as a traditional
protector against the Turks. Georgia objected to the problematic Russian
“peacekeeping” role in Abkhazia and South Ossetia, and Azerbaijan was concerned
about Russia’s ties with Armenia.
Although Putin’s regional influence efforts appeared initially successful, over
the past three years several developments may have altered this assessment. These
include the “rose revolution” in Georgia, NATO’s increased ties with all the states
of the region, the completion of the BTC oil pipeline and the SCP for gas, the
lessening but still distracting Chechnya conflict in Russia, Russia’s agreement to
close its remaining military bases in Georgia, and decisions by Azerbaijan to end and
Georgia to reduce imports of Russian gas. These developments appear to be
strengthening the region’s pro-Western and pro-U.S. orientation, according to many
observers.
Military-Strategic Interests. Russia’s armed presence in Armenia and
Georgia — including military base personnel, “peacekeepers,” and border troops —
was significant during most of the 1990s, but is declining recently in Georgia. The
first step by Russia in maintaining a military presence in the region was the signing
of the CIS Collective Security Treaty by Armenia, Russia, and others in 1992, which
calls for mutual defense consultations. Russia prevailed on Georgia and Azerbaijan
to join the CIS and also sign the treaty, but they withdrew in early 1999. Russia
secured permission for two military bases in Armenia and four in Georgia, and
Russian forces help guard the Armenian-Turkish border. In 1993, Azerbaijan was
the first Eurasian state to pressure Russia to withdraw its troops, except at the Gabala
radar site in northern Azerbaijan. (Giving up on closing the site, in January 2002
Azerbaijan signed a 10-year lease with Russia to permit up to 1,500 personnel to man
the radar.) In 1999, Georgia assumed full control over guarding its land and sea
borders, except for some liaison officers.
At the November 1999 OSCE Summit, the South Caucasus states joined 27
others in agreeing to adapt the Conventional Armed Forces in Europe (CFE) Treaty.
The Treaty adaptation process gave Georgia a forum to push for a reduced Russian

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military presence in Georgia, and when fully implemented also will provide for a
reduced Russian military presence in the North Caucasus. To comply with new
weapons limits under the Treaty, Russia agreed to reduce weaponry at its bases in
Georgia, to close its 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 the bases
in Georgia to bases in Armenia, raising objections from Azerbaijan. On July 1, 2001,
Georgia reported that the Vaziani base and airfield had been turned over by Russia
to Georgia. The Russian government reported in June 2002 that it had closed its
Gudauta base, but announced that 320 troops would remain to guard facilities and
support “peacekeepers” who would relax at the base. At its December 2002
ministerial meeting, the OSCE hailed the Gudauta closure — over Georgia’s
objections that the base was not under its control — and appeared unwilling to press
Russia on terminating the other bases. At the meeting, the United States voiced
“hope” that Russia would make progress in meeting its CFE commitments. A more
determined stance was taken by the OSCE in subsequent fora. Russia asserted that
it needed $300 million to $1 billion and three to ten years to close the other two
bases. Russian Defense Minister Sergey Ivanov stated in June 2005 that about 2,500
Russian troops were at the bases.
Putting pressure on Russia to abide by its commitments, the Georgian legislature
in March 2005 passed a resolution calling for Russia to come to an agreement by
mid-May on closing the bases by January 2006 or face various restrictions on base
operations. This pressure, and perhaps a May 2005 U.S. presidential visit, spurred
Russia to come to an agreement with Georgia announced on May 30, 2005, setting
2008 as the deadline for closing the bases. Reportedly, the Russian base at
Akhalkalaka will be closed by the end of 2007, and the base at Batumi will be closed
during 2008. Paving the way for this agreement, President Putin on May 23, 2005,
stated that Georgia had the sovereign right to request the base closures and that his
military General Staff had assured him that the Cold War-era bases were not of
strategic importance to Russia.
Russia’s military force withdrawals from Georgia have made its presence in
Armenia more significant as a means to retain regional influence, according to many
Russian officials. Armenia, in turn, has argued that the Russian bases provide for
regional stability by protecting it from attack. According to The Military Balance
2005-2006, there are 3,500 Russian army and air force personnel stationed in
Armenia. Russia has supplied many weapons to Armenia — including S-300
missiles, Mig-29 fighters, and some of the equipment being relocated from Georgia
as part of the base-closure process — which Azerbaijan views as destabilizing.
Until late 2006, it appeared that Russia was trying to develop closer security ties
with Azerbaijan to counter U.S. influence. Russia was concerned about possible U.S.
plans to seek a greater security presence and feared that U.S. assistance would permit
Azerbaijan to bolster its Caspian Sea navy, challenging Russian naval predominance.
In February 2003, a framework agreement on Azerbaijan-Russia military cooperation
accord was signed, opening the possibility of Russian military training and arms sales
to Azerbaijani forces. However, such cooperation has appeared minor, perhaps
because Azerbaijan’s aim in signing the agreement was to persuade the United States

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to offer more security assistance. Among other Russia-Azerbaijan security
cooperation, in May 2005, the Interior (police) Ministers of the two countries signed
an accord to cooperate on anti-terrorism and announced that cooperation in 2004 had
resulted in the extradition of dozens of suspected criminals by both sides.114 In
March 2006, visiting President Putin called for enhanced bilateral economic and
security cooperation, but Aliyev reportedly would not agree to support the creation
of a Russia-led Caspian Sea naval security alliance or commit to greater Azerbaijani
use of Russian oil export pipelines. In late 2006, Azerbaijani-Russian relations
appeared to worsen over demands by Russia’s Gazprom for substantial gas price
hikes, which led Azerbaijan to cease importing from Gazprom.
Some observers caution that Russia’s decreased military presence within the
region has been more than met by its buildup of forces in the North Caucasus area
that Russia can use to intimidate the region. Other Russian forces along the region’s
borders include the Black Sea Fleet and the Caspian Flotilla. The latter has been
expanded in recent years while the former faced dwindling funding until 2003.
Armenia is the base for a regional air defense system.
After September 11, 2001, Russia stepped up its claims that Georgia’s Pankisi
Gorge harbored Chechen terrorists with links to bin Laden, who used the Gorge as
a staging ground for attacks into Chechnya. Some Russian officials in 2002 initially
condemned U.S. plans to provide military training and equipment to Georgia to help
it deal with terrorism in the Gorge and elsewhere The United States in turn
expressed “unequivocal opposition” to some Russian assertions of a right to military
intervention within Georgia to combat terrorism. 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).
Caspian Energy Resources. In recent years, Russian energy firms have
played more prominent roles in the Caspian Sea region. With Russia’s military
influence in the region perhaps declining with the closure of its military bases in
Georgia, Russia may place even greater emphasis on retaining or expanding influence
over energy development and transport.115 As part of such efforts, Russia’s
policymakers during much of the 1990s insisted that the legal status of the Caspian
Sea be determined before resources could be exploited. Russia has changed its
stance by agreeing on seabed delineation with Kazakhstan and Azerbaijan, prompting
objections from Iran and Turkmenistan. Before, September 11, 2001, 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 September 11, 2001, however, he appeared to ease his criticism
of a growing U.S. presence. At the May 2002 U.S.-Russia summit, the two
114 Igor Torbakov, Eurasia Insight, Apr. 9, 2003; CEDR, Apr. 15, 2005, Doc. No. CEP-78;
Apr. 25, 2005, Doc. No. CEP-122; May 20, 2005, Doc. No. CEP-39062.
115 Jeronim Perovic, Demokratizatsiya,Winter 2005, pp. 61-85.

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presidents issued a joint statement endorsing multiple pipeline routes, implying
Russia’s non-opposition to plans to build the BTC oil pipeline and an associated gas
pipeline). In March 2004, however, a Russian official stated that Putin wanted to
ensure that the greatest volume of Caspian energy continued to flow through Russian
pipelines.
The Protection of Ethnic Russians. 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
less than 4% of the region’s population in 2005. Russia has voiced concerns about
the safety of ethnic Russians in Azerbaijan and Georgia. A related Russian interest
has involved former Soviet citizens who want to claim Russian citizenship or
protection. In June 2002, a new Russian citizenship law permitted granting
citizenship and passports to most Abkhazians and South Ossetians (they are already
able to enter Russia without visas, while Georgians are not), heightening Georgian
fears that Russia has de facto annexed the regions. Many observers argue that the
issue of protecting the human rights of ethnic Russians and pro-Russian groups is a
stalking horse for Russia’s military-strategic and economic interests. Pro-Russian
fellow-travelers and agents in place are used to boost Russian influence and to
oppose U.S. interests.
Turkey. The Bush Administration has generally viewed Turkey as able to
foster pro-Western policies and discourage Iranian interference in the South Caucasus
states. According to these policymakers and others, Turkey can play an important
role in the region, and provide a model of a non-authoritarian, non-theocratic Islamic
state. Critics of an over-reliance on Turkey ‘s role in the region point to the Turkish
tilt toward Azerbaijan in the NK conflict and Turkey’s less than full support for U.S.-
led coalition actions in Iraq in March-April 2003 in cautioning that the United States
and NATO might be drawn by their ties with Turkey into policy imbroglios.
Some in Turkey have envisaged Azerbaijan and Central Asia as part of a pan-
Turanic (Turkic peoples) bloc. Turkey seeks good relations with Azerbaijan and
Georgia and some contacts with Armenia, while trying to limit Russian and Iranian
influence. While Turkey has gained some influence in the region, it has been
constrained by its own economic problems, poor relations with Armenia, and
countervailing Russian influence. Armenia is a member of the Black Sea Economic
Cooperation zone, initiated by Turkey, and the two states have established consular
relations. Roadblocks to better Armenian-Turkish relations include Turkey’s
rejection of Armenians’ claims that Turkey perpetuated a genocide against them in
1915 and its support for Azerbaijan in the NK conflict. Turkish officials stated in
1995 that “Armenia must withdraw from occupied Azerbaijani lands” before Turkey
would consider establishing full diplomatic relations. Turkey’s increased influence
in Azerbaijan has included Azerbaijan’s adoption of a Latin alphabet and the
construction of the BTC oil and associated gas pipelines. Georgia has an ongoing
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. Russia has
been able to establish military bases in Armenia and Georgia to buoy up its regional
influence. Turkey views the Russian bases in Armenia and Georgia as security
threats, and Turkey and the United States succeeded within the CFE Treaty

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CRS-49
adaptation process in obtaining Russian pledges to close down two bases in Georgia
and to discuss the status of the remaining two bases. Turkey reportedly has some
military aircraft landing and servicing privileges at Georgia’s Marneuli airbase.
Iran. Many in Iran initially viewed the breakup of the Soviet Union as creating
a “new Middle East” centered on Iran, and including Afghanistan, Armenia,
Azerbaijan, the Central Asian states, Pakistan, and Turkey, but poor relations with
Afghanistan’s Taliban group and others caused this idea to fade. Iran’s interests in
the South Caucasus have appeared moderate and not focused on dominating the
region through subversion. Azerbaijani officials at times have alleged that elements
in Iran have fostered Islamic fundamentalism or sponsored terrorism, and Georgian
officials have reported Islamic missionary activities in areas of Georgia with Islamic
populations, including Kvemo Kartli (in which about one-half of the population is
ethnic Azerbaijani) and Kakheti (in which about one-tenth of the population is ethnic
Azerbaijani or Kist).
Iran’s interests in the South Caucasus include discouraging Western powers
such as Turkey and the United States from gaining influence, ending regional
instability that might threaten its own territorial integrity, and building economic
links. Iran and Russia cooperated during most of the 1990s in trying to block
Western energy development in the Caspian by demanding that the legal status of
resources first be determined. Russia has broken with Iran on this stance by signing
bilateral and trilateral border agreements with Azerbaijan and Kazakhstan.
A major proportion of the world’s Azerbaijanis (estimates range from 6-12
million), and about 200,000 Armenians reside in Iran. Ethnic Azerbaijanis are Iran’s
largest ethnic minority, constituting almost one-third of its population. Iran has
limited trans-Azerbaijani contacts to discourage the spread of ethnic consciousness
among its “Southern Azerbaijanis,” and has heavily criticized politicians in
Azerbaijan who advocate separatism in Iran. The example of the assertion of
Kurdish ethnic rights in post-Saddam Iraq in 2003 has galvanized some Azerbaijanis
who propagandize for greater rights for “Southern Azerbaijanis.” Alternatively,
Azerbaijani elites fear Iranian-supported Islamic fundamentalism and question the
degree of Iran’s support for an independent Azerbaijan.116
Iran has growing trade ties with Armenia and Georgia, but its trade with
Azerbaijan has declined. Iran has argued for some time that Azerbaijan would most
benefit financially by cooperating in building energy pipelines to Iran. Islamic Shiite
fundamentalists in Iran have urged Iran’s government to forego its official policy of
neutrality in the NK conflict and embrace solidarity with Shiites in Azerbaijan.117
116 Cameron Brown, The Middle East Journal, Autumn 2004, pp. 576-597; Brenda Shaffer,
Borders and Brethren: Iran and the Challenge of Azerbaijani Identity, Cambridge, Mass.,
MIT Press, 2002.
117 Analyst Brenda Shaffer argues that Iran tacitly supports the continuation of the NK
conflict by assisting Armenia, since the conflict constrains Azerbaijan’s ability to foster
ethnic nationalism among Azerbaijanis in Iran and makes war-torn and poverty-stricken
Azerbaijan appear less inviting as a homeland. Caucasian Regional Studies, Vol. 5, 2000;
(continued...)

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CRS-50
A major thaw in Azerbaijani-Iranian relations took place in 2004-2005 with an
exchange of visits by the heads of government. Khatami visited Azerbaijan in
August 2004, during which the two presidents agreed to open an Azerbaijani
consulate in Tabriz. In January 2005, Ilkham Aliyev visited Iran. However, on major
issues such as border delineation in the Caspian Sea and Iran’s objections to
Azerbaijani security ties with the United States, the two sides did not come to
agreement. In March 2005, Iranian Air began weekly flights from Tabriz to Baku.
Some observers suggested that Iran’s increased acrimony with the United States may
have been a spur to its improved relations with Azerbaijan, in order either to
encourage Azerbaijan to be a mediator or to urge it not to permit U.S. basing.118
More recently, some in Azerbaijan have criticized Iran’s arrests of dozens of ethnic
Azerbaijani civil rights advocates and alleged separatists during mid- to late 2006,
including Abbas Lisani.119
U.S. policy aims at containing Iran’s threats to U.S. interests in the region (See
CRS Report RL32048, Iran: U.S. Concerns and Policy Responses, by Kenneth
Katzman). Some critics argue that if the South Caucasus states are discouraged from
dealing with Iran, particularly in building pipelines through Iran, they would face
greater pressure to accommodate Russian interests.
Others. 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. Major programs have been pursued by the European Union,
NATO’s Partnership for Peace, OSCE, European Bank for Reconstruction and
Development, and European-based non-governmental organizations.120
U.S. and EU policies toward the region have sometimes differed, primarily on
the greater willingness of the EU to cooperate with Russia and Iran in regional
projects. U.S. and European energy firms also have vied to develop resources. In
2004, EU foreign ministers invited the South Caucasus states to participate in a
“Wider Europe” program of enhanced aid, trade, and political ties.
117 (...continued)
Borders and Brethren, pp. 136-140.
118 BBC Monitoring International Reports, New Iranian Leader Might Improve Ties with
Azerbaijan, June 29, 2005.
119 CEDR, Jan. 31, 2007, Doc. No. CEP-950234; Nov. 1, 2006, Doc. No. CEP-950311; Aug.
11, 2006, Doc. No. CEP-950113. Amnesty International terms Lisani a “prisoner of
conscience.” Iran: Further Information on Incommunicado Detention/Fear of
Torture/Medical Concern, Abbas Lisani, Sept. 19, 2006; Iran: Further information on
Incommunicado Detention/Fear of Torture/Medical Concern, Prisoner of Conscience. New
Concern: Fear of Flogging, Jan. 19, 2007.
120 Herzig, pp. 114-117.

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CRS-51
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, Kazakhstan, and Turkmenistan. Various Central
Asian states have common interests with Azerbaijan, including some linguistic and
religious ties and concerns about some common bordering powers (Iran and Russia).
Both the South Caucasus and Central Asia face terrorist threats and drug trafficking
from Afghanistan. Energy producers Kazakhstan, Turkmenistan, and Uzbekistan
have considered trans-Caspian transport as a means to get their oil and gas to
Western markets. As Central Asia’s trade and transport links to the South Caucasus
become more significant, it will become more dependent on stability in the region.
Table 1. Armenia, Azerbaijan, and Georgia: Basic Facts
South Caucasian State
Armenia Azerbaijan Georgia
Total
Territory (square miles)
11,620
33,774
26,872
72,266
Population (mid-2006 est.; millions)
2.98
7.96
4.66
15.6
Gross Domestic Product (billion
13.46
37.92
15.56
66.94
dollars, 2005 est., purchasing power
parity)
GDP per capita (dollars)
4,500
4,800
3,300
4,200
(Avg.)
Proven Oil Reserves (billions of
0
7 to 13
0.3 7.3 to 13.3
barrels)
Proven Natural Gas Reserves
0
30
0.3
30.3
(trillion cubic feet)
Size of Security Forces (Military
49,160
81,490
23,020
51,200
and Police/Border Troops)
(Avg.)
Cumulative U.S. Aid Budgeted,
1,581.09
588.72
1,611.17
3,819.71
FY1992-FY2005 (billions of $)a
— Security & Law
131.57
90.24
379.02
600.94
Enforcement Assistance
(millions of $)b
FY2006 Estimated Aid (millions of
81.7
47.94
86.01
215.65
$)c
FY2007 Requested Aid (millions of
58.14
40.12
75.84
174.1
$)c
Sources: Central Intelligence Agency. The World Factbook; Department of Energy. U.S. Energy
Information Administration. Caspian Sea Region and Country Analysis Briefs; International Institute
of Strategic Studies, 2005, The Military Balance, 2005-2006; Department of State. U.S. Government
Assistance to and Cooperative Activities with the New Independent States, FY2005 Annual Report;
The Secretary of State. Congressional Presentation for Foreign Operations, FY2007.
a. FREEDOM Support Act and Agency budgets; includes region-wide funding of $38.73 million.
b. FREEDOM Support Act and Agency budgets; includes region-wide funding of $110,000.
c. FREEDOM Support Act and other Function 150 funds (does not include Defense or Energy
Department funding).

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Table 2: Security Funds Budgeted for Armenia, Azerbaijan, and Georgia, FY1992-FY2005
(millions of $)
Approp
Program
Armenia
Azerbaijan
Georgia
Total
DOD
Cooperative Threat Reduction
0
21.98
56.03
78.01
DOD/FBI
Counterproliferation
3.34
2.8
1.23
7.37
DOD
Warsaw Initiative (Partnership for Peace)
1.86
2.54
3.84
8.27a
DOE
Material Protection, Controls & Accounting
0.6
0.7
5.1
6.4
DOE
Non-Proliferation and International Sec. Programs
0.56
0.07
0.17
0.8
DOE/DOS/NRC
Nuclear Reactor Safety
55.02
0
3.32
58.34
DOS/DHS/CUS/DOJ
Law Enforcement Assistance
12.93
8.53
29.07
50.53
DOS/DHS/CUST
Export Control & Border Security (EXBS)
9.12
17.66
134.58
161.36
DOS/HHS/EPA
Non-Proliferation of WMD Expertise & Disarmament
10.75
0.75
16.63
28.21a
DOS
Foreign Military Financing
19.42
19.42
83.29
122.13
DOS
International Military Exchanges and Training
2.42
3.22
7.18
12.82
DOS
Peacekeeping Operations
0
5.0
15.54
20.54
DOS
Anti-Terrorism Assistance (ATA)
3.29
3.4
8.61
15.3
DOS/NSF
Civilian R&D Foundation (CRDF)
10.45
3.76
9.03
23.24
DOS
Russian Military Relocation
0
0
5.0
5.0
DOS
Small Arms & Light Weapons Destruction
0
0.4
0.41
0.81
DOE
Russian Transition Initiative
0.09
0
0
0.09
DOS
OSCE
1.72
0
0
1.72
TOTAL
131.57
90.23
379.03
600.94a
Source: State Department. Office of the Coordinator of U.S. Assistance to Europe and Eurasia. FY2005 data are included through mid-2005.
a. Includes Caucasus Regional Funds.

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CRS-53
Figure 1. Armenia, Azerbaijan, and Georgia

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