Order Code RL33453
Armenia, Azerbaijan, and Georgia:
Political Developments and
Implications for U.S. Interests
Updated July 12, 2007
Jim Nichol
Specialist in Russian and Central Asian Affairs
Foreign Affairs, Defense, and Trade Division

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Armenia, Azerbaijan, and Georgia: Political
Developments and Implications for U.S. Interests
Summary
The United States recognized the independence of Armenia, Azerbaijan, and
Georgia when the former Soviet Union broke up at the end of 1991. The United
States has fostered these states’ ties with the West in part to end the dependence of
these states on Russia for trade, security, and other relations. The United States has
pursued close ties with Armenia to encourage its democratization and because of
concerns by Armenian-Americans and others over its fate. Close ties with Georgia
have evolved from U.S. contacts with its pro-Western leadership. The Bush
Administration supports U.S. private investment in Azerbaijan’s energy sector as a
means of increasing the diversity of world energy suppliers and to encourage building
multiple energy pipelines to world markets. The United States has been active in
diplomatic efforts to end conflicts in the region, several of which remain unresolved.
The FREEDOM Support Act of 1992 (P.L. 102-511) authorizes assistance to
the Eurasian states for humanitarian needs, democratization, creation of market
economies, trade and investment, and other purposes. Section 907 of the act
prohibits most U.S. government-to-government aid to Azerbaijan until its ceases
blockades and other offensive use of force against Armenia. In the aftermath of the
September 11, 2001, terrorist attacks on the United States, the Administration
appealed for a national security waiver for Section 907, in consideration of
Azerbaijan’s support to the international coalition to combat terrorism. In December
2001, Congress approved foreign appropriations for FY2002 (P.L. 107-115) that
granted the President authority to waive Section 907, renewable each calendar year
under certain conditions. President Bush exercised the waiver most recently in
March 2007. As part of the U.S. Global War on Terror, the U.S. military in 2002
began providing equipment and training for Georgia’s military and security forces.
Azerbaijani troops participate in stabilization efforts in Afghanistan and Iraq, and
Armenian and Georgian personnel serve in Iraq. Georgia has announced that it will
soon send some troops to Afghanistan.
Key issues in the 110th Congress regarding the South Caucasus are likely to
focus on bolstering Georgia’s democratization and security; Azerbaijan’s energy
development; and Armenia’s independence and economic development. At the same
time, concerns might include the status of democratization and human rights in
Azerbaijan, the on-going Armenia-Azerbaijan conflict over the breakaway Nagorno
Karabakh region, and threats posed to Georgia by ongoing separatism and Russian
actions. Congress will likely scrutinize Armenia’s and Georgia’s reform progress as
recipients of Millennium Challenge Account grants. Some Members of Congress
believe that the United States should provide greater attention to the region’s
increasing role as an east-west trade and security corridor linking the Black Sea and
Caspian Sea regions. They urge greater U.S. aid and conflict resolution efforts to
contain warfare, crime, smuggling, and Islamic extremism and to bolster the
independence of the states. Others urge caution in adopting policies that will heavily
involve the United States in a region beset by ethnic and civil conflicts.

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Contents
Most Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Overview of U.S. Policy Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Post-September 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Operations in Iraq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Obstacles to Peace and Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Regional Tensions and Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Nagorno Karabakh Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Civil and Ethnic Conflict in Georgia . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Economic Conditions, Blockades, and Stoppages . . . . . . . . . . . . . . . . . . . . 10
Democratization Problems and Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Armenia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Azerbaijan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Georgia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
The South Caucasus’s External Security Context . . . . . . . . . . . . . . . . . . . . . . . . 16
Russian Involvement in the Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Caspian Energy Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Military-Strategic Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
The Roles of Turkey, Iran, and Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
U.S. Aid Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
U.S. Security Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
U.S. Trade and Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Energy Resources and U.S. Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
110th Congress Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
List of Figures
Figure 1. Map of the Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
List of Tables
Table 1. U.S. Foreign Aid to the Region, FY1992-FY2006, and
FY2008 Request . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

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Armenia, Azerbaijan, and Georgia:
Political Developments and
Implications for U.S. Interests
Most Recent Developments
Thomas Fingar, the Deputy Director of National Intelligence, presented the
annual Global Security Assessment to the House Armed Services Committee on July
11, 2007. He raised concern that Russia’s relations with the West might be further
strained if it follows through on a threat to recognize the independence of Georgia’s
breakaway regions of Abkhazia and South Ossetia, if European governments
recognize Kosovo’s independence.
On June 28, 2007, the non-governmental organization Amnesty International
raised concerns that over 600,000 refugees and displaced persons in Azerbaijan —
the result of conflict over Azerbaijan’s breakaway Nagorno Karabakh region and
other instability in the late 1980s and early 1990s — face discrimination and
segregation. They are more likely to be unemployed and in poverty.
Background
Armenia, Azerbaijan, and Georgia are located south of the Caucasus Mountains
that form part of Russia’s borders (see Figure 1). The South Caucasus states served
historically as a north-south and east-west trade and transport “land bridge” linking
Europe to the Middle East and Asia, over which the Russian Empire and others at
various times endeavored to gain control. In ancient as well as more recent times, oil
and natural gas resources in Azerbaijan attracted outside interest. All three peoples
can point to periods of past autonomy or self-government. After the Russian Empire
collapsed in 1917, all three states declared independence, but by early 1921 all had
been re-conquered by Russia’s Red (Communist) Army. They regained
independence when the Soviet Union collapsed in 1991.1
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: Recent Developments and U.S. Interests, also by Jim Nichol.

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CRS-2
Overview of U.S. Policy Concerns
By the end of 1991, the United States had recognized the independence of all
the former Soviet republics. The United States pursued close ties with Armenia,
because of its profession of democratic principles, and concerns by Armenian-
Americans and others over its fate. The United States pursued close ties with
Georgia after Eduard Shevardnadze (formerly a pro-Western Soviet foreign minister)
assumed power there in early 1992. Faced with calls in Congress and elsewhere for
a U.S. aid policy for the Eurasian states, then-President George H.W. Bush sent the
FREEDOM Support Act to Congress, which was signed with amendments into law
in October 1992 (P.L. 102-511).
The Caucasus Region: Basic Facts
Area: The region is slightly larger than Syria: Armenia is 11,620 sq. mi.; Azerbaijan
is 33,774 sq. mi.; Georgia is 26,872 sq. mi.
Population: 15.6 million, similar to Netherlands; Armenia: 2.98 m.; Azerbaijan: 7.96
m.; Georgia: 4.66 m. (CIA World Factbook, July 2006 est.). Over a million people
from the region are migrant workers in Russia and elsewhere.
GDP: $91.89 billion; Armenia: $15.99 b.; Azerbaijan: $58.1 b.; Georgia: $17.8 b.
(World Factbook, 2006 est., purchasing power parity)
In June 2006, Deputy Assistant Secretary of State Matthew Bryza stated that the
United States has three inter-related sets of interests in the region: “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
In addition, U.S. policy toward the South Caucasus states includes promoting
the resolution of the Armenia-Azerbaijan conflict over Azerbaijan’s breakaway
Nagorno Karabakh (NK) region, and Georgia’s conflicts with its breakaway regions
of Abkhazia and South Ossetia. Since 1993, successive U.S. Special Negotiators for
Eurasian Conflicts have helped in various ways to try to settle these “frozen”
conflicts. (In early 2006, the State Department eliminated this post and divided its
responsibilities among the Deputy Assistant Secretary of State and the Office of
Caucasus Affairs and Regional Conflicts.) Congressional concerns about the NK
conflict led to the inclusion of Section 907 in the FREEDOM Support Act, which
prohibits U.S. government-to-government assistance to Azerbaijan, except for non-
proliferation and disarmament activities, until the President determines that
Azerbaijan has taken “demonstrable steps to cease all blockades and other offensive
2 “U.S. Says Aliyev, Kocharyan Must Show ‘Political Will,’” RFE/RL, June 23, 2006. The
three priorities were repeated in a joint statement issued after the 10th annual meeting of the
U.S.-Azerbaijan Security Dialogue. U.S. Department of State. Office of the Spokesman,
July 9, 2007.

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CRS-3
uses of force against Armenia and NK” (on waiver authority, see below). Provisions
in FY1996, FY1998, and FY1999 legislation eased the prohibition by providing for
humanitarian, democratization, and business aid exemptions.
Some observers argue that developments in the South Caucasus are largely
marginal to global anti-terrorism and to U.S. interests in general. They urge great
caution in adopting policies that will heavily involve the United States in a region
beset by ethnic and civil conflicts, and some argue that, since the European Union
has recognized the region as part of its “neighborhood,” it rightfully should play a
major role. Other observers believe that U.S. policy now requires more active
engagement in the region. They urge greater U.S. aid and conflict resolution efforts
to contain warfare, crime, smuggling, and Islamic extremism and to bolster the
independence of the states. Some argue that such enhanced U.S. relations also would
serve to “contain” Russian and Iranian influence and that close U.S. ties with
Azerbaijan would benefit U.S. relations with other Islamic countries, particularly
Turkey and the Central Asian states. They also point to the prompt support offered
to the United States by the regional states in the aftermath of the September 11, 2001,
attacks by Al Qaeda on the United States. Some argue that energy resources in the
Caspian region are a central U.S. strategic interest, because Azerbaijani and Central
Asian oil and natural gas deliveries could lessen Western energy dependency on
Russia and the Middle East (see below, Energy Resources).
Post-September 11. In the wake of September 11, 2001, the United States
obtained quick pledges from the three South Caucasian states to support Operation
Enduring Freedom (OEF) in Afghanistan, including overflight rights and
Azerbaijan’s and Georgia’s offers of airbase and other support. OEF was later
expanded to Georgia (see below, Security Assistance). Congressional attitudes
toward Azerbaijan and Section 907 shifted, resulting in presidential waiver authority
being incorporated into Foreign Operations Appropriations for FY2002 (H.R. 2506;
P.L. 107-115). The President may use the waiver authority if he certifies that U.S.
aid supports U.S. counter-terrorism efforts, supports the operational readiness of the
armed forces, is important for Azerbaijan’s border security, and will not harm NK
peace talks or be used for offensive purposes against Armenia. The waiver may be
renewed annually, and sixty days after the exercise of the waiver, the President must
report to Congress on the nature of aid to be provided to Azerbaijan, the military
balance between Armenia and Azerbaijan and the effects of U.S. aid on that balance,
the status of Armenia-Azerbaijan peace talks, and the effects of U.S. aid on those
talks. President Bush has exercised the waiver annually, most recently in March
2007.
Since late 2002, Azerbaijan has contributed troops for peacekeeping in
Afghanistan. In May 2007, Azerbaijan’s Foreign Ministry announced that the
country planned to double the number of troops (currently 22) it deploys to
Afghanistan. Georgia contributed about 50 troops during Afghan elections in late
2004-early 2005. In March 2007, Georgian President Mikhail Saakashvili announced
that Georgia intended to send 100 troops to support NATO in Afghanistan.
Operations in Iraq. Azerbaijan and Georgia were among the countries that
openly pledged to support the U.S.-led Operation Iraqi Freedom (OIF), with both
offering the use of their airbases, and to assist the United States in re-building Iraq.

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CRS-4
Both countries agreed to participate, subject to U.S. financial support, in the
stabilization force for Iraq. In August 2003, both Azerbaijan (150 troops) and
Georgia (69 troops) dispatched forces to Iraq. U.S. officials reportedly asked
Azerbaijan and Georgia in April 2004 to bolster their troop contributions in the face
of Spain’s troop pullout. Azerbaijan’s troops serve under U.S. command and provide
security in northern Iraq. Georgia boosted its deployment to 850 troops in July 2005.
In March 2007, President Saakashvili announced that Georgia intended to boost its
troop deployment to Iraq from 850 to up to 2,000. Georgian troops serve under U.S.
command, with many providing security in the “Green zone”in Baghdad and others
in northern suburbs of Baghdad. Armenia began sending personnel to Iraq in January
2005, where 46 serve with the Polish contingent in non-combat roles.
Obstacles to Peace and Independence
Regional Tensions and Conflicts
Ethnic conflicts have kept the South Caucasus states from fully partaking in
peace, stability, and economic development since the Soviet collapse in 1991, some
observers lament. The countries are faced with on-going budgetary burdens of arms
races and caring for refugees and displaced persons. Other costs of ethnic conflict
include threats to bordering states of widening conflict and the limited ability of the
region or outside states to fully exploit energy resources or trade/transportation
networks.
U.S. and international efforts to foster peace and the continued independence
of the South Caucasus states face daunting challenges. The region has been the most
unstable part of the former Soviet Union in terms of the numbers, intensity, and
length of its ethnic and civil conflicts. The ruling nationalities in the three states are
culturally rather insular and harbor various grievances against each other. This is
particularly the case between Armenia and Azerbaijan, where discord has led to the
virtually complete displacement of ethnic Armenians from Azerbaijan and vice versa.
The main languages in the three states are dissimilar (also, those who generally
consider themselves Georgians — Kartvelians, Mingrelians, and Svans — speak
dissimilar languages). Few of the region’s borders coincide with ethnic populations.
Attempts by territorially based ethnic minorities to secede are primary security
concerns for all three states. The secessionist NK, Abkhazia, and South Ossetia have
failed to gain international recognition. NK relies on economic support from
Armenia, and Abkhazia and South Ossetia from Russia.
Nagorno Karabakh Conflict. Since 1988, the separatist conflict in Nagorno
Karabakh (NK) has resulted in about 15,000 casualties and hundreds of thousands
of refugees and displaced persons in Armenia and Azerbaijan. 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 Azerbaijan and
219,550 in Armenia.3 Armenia has granted citizenship and acted to permanently
house many of the ethnic Armenians who fled Azerbaijan The non-governmental
3 U.N. High Commissioner for Refugees. 2005 Global Refugee Trends, June 2006.

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CRS-5
International Crisis Group estimates that about 13-14% of Azerbaijan’s territory,
including NK, is controlled by NK Armenian forces (the CIA World Factbook
estimates about 16%).4 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. The late
President 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.5 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.6 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.”7
Since 2005, officials in both countries have reported negotiations on a fourth
“hybrid” peace plan. 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 included the phased “redeployment of Armenian troops from Azerbaijani
territories around NK, 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
determine the final legal status of NK.” International peacekeepers also would be
deployed in the conflict area.8
4 International Crisis Group. Nagorno-Karabakh: Viewing the Conflict from the Ground,
September 14, 2005; CIA World Factbook. Azerbaijan, online at [https://www.cia.gov/cia/
publications/factbook/geos/aj.html].
5 Open Source Center, Central Eurasia: Daily Report (hereafter CEDR), February 27, 2001,
Doc. No CEP-262.
6 CEDR, January 17, 2003, Doc. No. CEP-338.
7 CEDR, October 13, 2004, Doc. No. CEP-11.
8 OSCE. Statement by the Minsk Group Co-Chairs, July 3, 2006.

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CRS-6
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.9 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.10
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 would 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.11
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.”12 In May 2007, Aliyev reportedly stated that all seven occupied areas
around NK had to be returned in phases, and that Azerbaijani displaced persons had
to return to NK, before the question of NK’s status could be determined (he ruled out
the status of independence).13
The presidents of Azerbaijan and Armenia met on June 11, 2007, for talks
reportedly lasting over three hours, but no breakthrough on settling the NK conflict
was announced. The U.S. co-chair of the Minsk Group, Deputy Assistant Secretary
Bryza, asserted on July 9, 2007, that talks were at a point where the two presidents
needed to make “some tough decisions” to resolve the conflict.14
9 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.
10 Leyla Tavshanoglu, Interview with the President of Azerbaijan, Cumhuriyet, July 4, 2006.
11 CRS Interview, October 26, 2006. See also Fariz Ismailzade, Eurasia Daily Monitor,
October 31, 2006.
12 CRS Interview, October 27, 2006.
13 CEDR, May 4, 2007, Doc. No. CEP-950237.
14 U.S. Department of State. Office of the Spokesman. On-The-Record Briefing on the 10th
Annual U.S.-Azerbaijan Security Dialogue, July 9, 2007.

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CRS-7
Civil and Ethnic Conflict in Georgia. Several of Georgia’s ethnic
minorities stepped up their dissidence, including separatism, in the late 1980s and
early 1990s, resulting in the loss of central government control over the regions of
South Ossetia and Abkhazia. President Saakashvili in his January 2004 inaugural
address proclaimed his responsibility to re-integrate these regions into Georgia.
Some observers have argued that Russia’s increasing controls over South Ossetia and
Abkhazia have transformed the separatist conflicts into essentially Russia-Georgia
disputes. Most residents of Abkhazia and South Ossetia reportedly have been
granted Russian citizenship, and the separatist leaders have appeared to declare that
the regions should be part of Russia.15 According to U.N. Secretary-General Ban
Ki-moon, President Putin’s threats that Russia might recognize Abkhazia and South
Ossetia — if the international community recognizes Kosovo — have helped spur
Georgia to set up pro-Georgian governments in Abkhazia’s Kodori Gorge and in
South Ossetia (see below) to complicate such recognition attempts.16 U.S. diplomacy
generally has appeared to urge Georgia to respect existing peace settlement
frameworks for Abkhazia and South Ossetia — including the presence of Russian
“peacekeepers” — while criticizing some Russian actions in the regions.
South Ossetia. In 1989, the region lobbied for joining its territory with North
Ossetia in Russia or for independence. Repressive efforts by former Georgian
President Gamsakhurdia triggered conflict in 1990, reportedly 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 composed of
South Ossetians and headed by a North Ossetian), and about 300 Georgians. OSCE
monitors do most of the patrolling. A Joint Control Commission (JCC) 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.
President Saakashvili increased pressure on South Ossetia in 2004 by tightening
border controls, breaking up a large-scale smuggling operation in the region that
allegedly involved Russian organized crime and corrupt Georgian officials. He also
reportedly sent several hundred police, military, and intelligence personnel into the
region. Georgia maintained that it was only bolstering its peacekeeping contingent
up to the limit of 500 troops, as permitted by the cease-fire agreement. Georgian
guerrilla forces also reportedly entered the region. Allegedly, Russian officials
likewise assisted several hundred paramilitary elements from Abkhazia, Transnistria,
and Russia to enter. Following inconclusive clashes, both sides by late 2004
ostensibly had pulled back most undeclared forces.
15 Vladimir Socor, Moscow Welcomes Three Emboldened Secessionist Leaders, Eurasia
Insight, November 20, 2006.
16 U.N. Security Council. Report of the Secretary-General on the Situation in Abkhazia,
Georgia, S/2007/15, January 11, 2007.

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CRS-8
President Saakashvili announced a new peace plan for South Ossetia in July
2005 that offered substantial autonomy and a three-stage settlement, consisting of
demilitarization, economic rehabilitation, and a political settlement. South Ossetian
“president” Eduard Kokoiti rejected the plan, asserting in October 2005 that “we
[South Ossetians] are citizens of Russia.”17 The Georgian peace plan received
backing by the OSCE Ministerial Council in early December 2005. Perhaps faced
with this international support, in mid-December 2005, Kokoiti proffered a South
Ossetian peace proposal that also envisaged benchmarks. The JCC in May 2006
agreed on economic reconstruction projects estimated to cost $10 million, and the
next month, the OSCE sponsored a donor’s conference that raised these funds. A
Steering Committee composed by the sides to the conflict and donors met in October
2006 to discuss project implementation. In February 2007, the pro-Georgian
alternative leadership (see below) called for participating in projects.
The U.S. Mission to the OSCE issued a statement in August 2006 that
unsuccessfully 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. 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.” Emissaries at a JCC meeting on October 12-13, 2006, reportedly failed to
agree on a communique.18 Georgia again insisted on changing the format at a JCC
meeting on December 27, 2006, which ended with no plans for a future meeting.
South Ossetia’s separatists reported that 95% of 55,000 registered voters turned
out and that 99% approved the November 2006 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 Dmitriy Sanakoyev was elected governor, and a referendum was
approved supporting Georgia’s territorial integrity.
A hiatus in JCC meetings was broken by a get-together session in Istanbul on
March 21, 2007. On March 26, 2007, Saakashvili proposed another peace plan for
South Ossetia that involves creating “transitional” administrative districts throughout
the region ostensibly under Sanakoyev’s authority, which would be represented by
an emissary at JCC or alternative peace talks. Each side accused the other in mid-
2007 of blockading water supplies in South Ossetia and other “provocations,”
including failure to hold JCC meetings. In July 2007, Saakashvili decreed the
establishment of a commission to work out South Ossetia’s “status” as a part of
Georgia.
17 CEDR, October 7, 2005, Doc. No. CEP-15001. CEDR, December 12, 2005, Doc. No.
CEP-27204. South Ossetians who were citizens of Russia voted in the 2003 Russian
presidential election, and a poster in South Ossetia proclaims that “Putin is our president.”
18 CEDR, September 15, 2006, Doc. No. CEP-950088.

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Abkhazia. In July 1992, Abkhazia’s legislature declared the region’s effective
independence, prompting an attack by Georgian national guardsmen. In October
1992, the U.N. Security Council (UNSC) approved the first U.N. observer mission
to a Eurasian state, termed UNOMIG, to help the parties reach a settlement. Russian
and North Caucasian “volunteers” (who reportedly made up the bulk of Abkhaz
separatist forces) routed Georgian forces. Georgia and Abkhazia agreed in April-
May 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 in May 2006, and the Abkhaz “foreign minister” proffered a new peace plan.
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.19

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. From
2002 until 2006, the U.N. and the Friends of Georgia attempted unsuccessfully to get
Abkhaz authorities to consider a draft negotiating document. Finally, Russia in late
January 2006 renounced the draft negotiating document in the UNSC 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 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
19 U.N. Council on Resolving Abkhazia Dispute Meets for First Time in 5 Years, Associated
Press, May 15, 2006; “Georgian Peace Plan Unacceptable: Abkhaz Foreign Minister,”
Interfax, June 1, 2006.

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UNOMIG.20 Some Georgian officials viewed the resolution as negating their calls
for a wider international composition of the peacekeeping forces. In January and
April 2007, the U.N. Secretary General reported that Georgia appeared not to have
heavy military weaponry in the Gorge.21
The Kodori Gorge. In July 2006, a warlord in the Kodori Gorge area of
northern 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 military troops have left the Gorge, leaving only
police, 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 Friends of Georgia hosted a meeting
in Germany in June 2007 that urged the sides to abide by the existing ceasefire
agreement and to renew talks.
Economic Conditions, Blockades, and Stoppages
The economies of all three South Caucasus states greatly declined in the early
1990s, affected by the dislocations caused by the breakup of the Soviet Union,
conflicts, trade disruptions, and the lingering effects of the 1988 earthquake in
Armenia. Although gross domestic product (GDP) began to rebound in the states in
the mid-1990s, the economies remain fragile. Investment in oil and gas resources has
fueled economic growth in Azerbaijan in recent years. Widespread poverty and
regional conflict have contributed to high emigration from all three states, and
remittances from these emigres have provided major support for the remaining
populations.22
Transport and communications obstructions and stoppages have severely
affected economic development in the South Caucasus and stymied the region’s
emergence as an East-West and North-South corridor. Since 1989, Azerbaijan has
20 U.N. Security Council. Resolution 1716 (2006), Adopted by the Security Council at Its
5549th Meeting, October 13, 2006.
21 U.N. Secretary General. Report of the Secretary-General on the Situation in Abkhazia,
S/2007/15, January 11, 2007; Report of the Secretary-General on the Situation in Abkhazia,
S/2007/182, April 3, 2007. U.N. Security Council. Resolution 1752 (2007), Adopted by the
Security Council at Its 5661st Meeting, April 13, 2007. This resolution extended
UNOMIG’s mandate to October 2007.
22 A. V. Korobkov, “Migration Trends in Central Eurasia,” Communist and Post-Communist
Studies, No. 2, 2007, pp. 169-89.

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CRS-11
obstructed railways and pipelines traversing its territory to Armenia.23 These
obstructions have had a negative impact on the Armenian economy, since it is heavily
dependent on energy and raw materials imports. Turkey has barred U.S. shipments
of aid through its territory to Armenia since March 1993. P.L. 104-107 and P.L.
104-208 mandated a U.S. aid cutoff (with a presidential waiver) to any country which
restricts the transport or delivery of U.S. humanitarian aid to a third country, aimed
at convincing Turkey to allow the transit to U.S. aid to Armenia. According to the
U.S. Embassy in Baku, Azerbaijan’s Nakhichevan exclave “is blockaded by
neighboring Armenia.” Iran has at times obstructed bypass routes to Nakhichevan.
Since 2006, Russia has severely restricted agricultural trade and land, air, and sea
links with Georgia. Russia has at times cut off gas supplies to Georgia. Georgia
severely restricts traffic from South Ossetia. Russia is building a 110-mile gas
pipeline to South Ossetia to end the region’s dependence on gas transiting from other
Georgian territory. Russia hinders Azerbaijan’s use of the Volga-Don Canal to reach
world shipping channels.
Democratization Problems and Progress
The World Bank, in its annual report assessing the quality of democratic
governance in 212 countries during 2006, ranked Armenia as perhaps among the
better-performing one-half of the countries in terms of government effectiveness and
regulatory quality.24 On four other indicators — accountability,25 stability, rule of
law, and anti-corruption — Armenia ranked slightly below world norms but had not
regressed in recent years, except perhaps on accountability. Georgia ranked slightly
below Armenia on all indicators except accountability and anti-corruption, and seems
to have made recent progress on all indicators but stability, according to the World
Bank. Azerbaijan was deemed to rank below the other two regional states on all
indicators, but seems to have made some progress in regulatory quality.
23 Armenia opposes the construction or revamping of a section of railway from Kars,
Turkey, to Tbilisi that would bypass Armenia, arguing that an existing section of railway
from Kars that transits Armenia into Georgia could be returned to service “in a week.”
Azerbaijan and Turkey oppose a transit route through Armenia, despite Armenia’s offers not
to use the railway for its own goods or to impose transit tariffs. In late 2006, however,
Armenia and Russia reportedly had discussed possible participation by Russian firms in
repairing and operating railways within the country. In April 2007, a ferry between Russia’s
Black Sea port at Kavkaz and Georgia’s Poti seaport resumed carrying freight cars, which
were then transported by rail to Armenia. Some observers claim that one rationale for a
railway from Baku to Kars — that it would fall outside Russian control — would be
compromised if the Armenian section was controlled by Russia.
24 Government effectiveness refers to “the quality of public services, [and] the quality of the
civil service.” Regulatory quality refers to policies that promote a market economy. The
World Bank. Governance Matters 2007: Worldwide Governance Indicators, 1996-2006,
July 10, 2007.
25 Accountability refers to “the extent to which a country’s citizens are able to participate
in selecting their government, as well as freedom of expression, freedom of association, and
a free media.” Governance Matters 2007, July 10, 2007.

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CRS-12
Armenia. In a February 2003 presidential election, none of the nine candidates
received a required 50% plus one of the vote, forcing a run-off in March by the top
two candidates, Kocharyan and People’s Party head Stepan Demirchyan. OSCE and
PACE observers concluded that the election did not meet international standards for
a free and fair race, because of “widespread” ballot box stuffing, a lack of
transparency in vote-counting, and other “serious” irregularities.26
New constitutional changes were drawn up for a planned November 27, 2005,
popular referendum. The Venice Commission of the Council of Europe (COE) in
July 2005 stated that these proposed changes would provide a “good basis for
ensuring ... respect for human rights, democracy and the rule of law, and would pave
the way to further European integration,” if implemented. Armenian officials
announced that the constitutional referendum had been approved by 93.2% of 1.5
million voters, with a 65.4% turnout. A small delegation of monitors from the
Parliamentary Assembly of the Council of Europe (PACE) reported observing ballot-
box stuffing and few voters. Opposition parties boycotted the vote.27 In January
2007, PACE praised progress in passing legislation implementing the constitutional
reforms and urged Armenia to hold free elections.
In the legislative election on May 12, 2007, five parties cleared a 5% vote hurdle
to win 90 seats that were allocated through party list voting. One other party won 1
of the 41 seats subject to constituency voting. The party that had won the largest
number of seats in the 2003 election — the Republican Party of Armenia — won a
near majority (64 of 131 seats) in 2007. Two opposition parties won 16 seats.
According to the preliminary conclusions made by observers from the OSCE, COE,
and the EU, the legislative elections “demonstrated improvement and were conducted
largely in accordance with ... international standards for democratic elections.”
However, they raised some concerns over pro-government party domination of
electoral commissions, the low number of candidates in constituency races, and
inaccurate campaign finance disclosures. In follow-on assessments, the
OSCE/COE/EU observers raised more concerns that vote-counting problems could
harm public confidence in the results.28
26 OSCE. Office of Democratic Institutions and Human Rights (ODIHR). Final Report on
the Presidential Election in Armenia, April 28, 2003.
27 PACE. Constitutional Referendum in Armenia: General Compliance Marred by Incidents
of Serious Abuse, November 28, 2005.
28 OSCE. ODIHR. Parliamentary Elections, Republic of Armenia, 12 May 2007: Statement
of Preliminary Findings and Conclusions, May 13, 2007; Post-Election Interim Report, No.
1, May 22, 2007. PACE. Ad Hoc Committee of the Bureau of the Assembly. Report:
Observation of the Parliamentary Elections in Armenia, Doc. 11312, June 20, 2007.
According to this report, “the shortcomings and irregularities, some of which were serious,
observed during the crucial vote count and tabulation processes stain the positive
preliminary assessment.... [T]hey could undermine the transparency and public confidence
in the conduct and results of these elections. In addition, they raise questions with regard
to the robustness of the electoral process....” See also CRS Report RS22675, Armenia’s
Legislative Election, by Jim Nichol.

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The two parties that won the most votes in the May 2007 election — the
Republican Party of Armenia and the Prosperous Armenia Party — announced on
June 6 that they had formed a coalition to cooperate on legislative tasks and the
formation of the government. They also agreed to jointly back one candidate for the
upcoming 2008 presidential election. They signed a side agreement with another
pro-government party that won many votes — the Armenian Revolutionary
Federation — on its participation in the coalition, although it reserved the right to
run its own candidate in the presidential race. On June 7, the new legislature
convened and re-elected Tigran Torosyan as its speaker. President Robert Kocharyan
appointed Serzh Sargisyan as prime minister on June 7.
Azerbaijan. Ailing long-time ruler Heydar Aliyev withdrew from a scheduled
October 15, 2003, presidential election in favor of his son, Ilkham Aliyev, who
handily beat seven other candidates with about 77% of the vote. Protests alleging a
rigged vote resulted in violence, and spurred arrests of hundreds of alleged
“instigators” of the violence. The State Department expressed “deep
disappointment” with “serious deficiencies” in the election and “extreme concern”
about post-election violence and “politically-motivated arrests.”29
Changes to the election law, some in line with proposals from the Venice
Commission, were approved by the legislature in June 2005, including those making
it easier for people to become candidates for a November 6, 2005, legislative
election. However, the deputies rejected some of the most significant proposals,
including a more equitable representation of political interests on electoral
commissions. PACE emissaries visiting Azerbaijan in July raised concerns that
myriad electoral officials accused of abuses in the 2000 legislative race remained in
place. In May and October 2005, Aliyev ordered officials to abide by election law,
and authorities permitted some opposition rallies. The October decree also led
legislators to approve marking hands and permit outside-funded NGOs to monitor
the election, as advocated by PACE. After the election, the U.S. State Department
issued a statement praising democratization progress, but urging the government to
address some electoral irregularities.30
Repeat elections were scheduled for May 2006 in ten constituencies where
alleged irregularities took place. Many oppositionists refused to run in what they
claimed would be another sham election. According to OSCE election monitors, the
repeat race appeared to be an improvement over the November election, but
irregularities needed to be addressed, including the composition of electoral
commissions and interference by local officials in campaigns. The ruling Yeni
29 U.S. Department of State. Press Statement: Presidential Election in Azerbaijan, October
21, 2003. In January 2007, the European Court of Human Rights ruled that one of those
arrested, opposition politician Sardar Jalaloglu, had been tortured while in detention.
30 U.S. Department of State. Press Statement: Azerbaijan Parliamentary Elections,
November 7, 2005. See also CRS Report RS22340, Azerbaijan’s Legislative Election, by
Jim Nichol.

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Azerbaijan Party won 62 seats, the independents 44, and Musavat 5. The remaining
14 seats were held by several small parties.31
During the run-up to the 2005 legislative election, authorities arrested several
prominent officials on charges of coup-plotting. Further arrests on such charges have
taken place since then. Some critics of the arrests claimed that the defendants
included former cohorts of Heydar Aliyev or others who simply opposed Ilkham’s
policies. Although arrested on suspicion of coup-plotting, several officials instead
have been convicted on lesser charges. One sensational trial involves Farhad Aliyev,
former minister of economic development (no relation to Ilkham Aliyev), who was
among those arrested in 2005. After much delay, his trial began in late February
2007. He is being tried along with his brother, Rafiq (a businessman), and 17 others
on charges of embezzlement. He denies the embezzlement and coup-plotting
allegations, and claims he is being tried because of his advocacy of closer Azerbaijani
ties with the United States and the European Union, economic reforms, and anti-
corruption efforts. Senator John McCain and Representative Gary Ackerman have
been among those in Congress concerned about due process in the case.32
Meeting with visiting President Aliyev in late April 2006, President Bush hailed
the “alliance” between the two countries and Azerbaijan’s “understand[ing] that
democracy is the wave of the future.” At a conference before the summit, Aliyev
declared that he had been democratically elected, that “we have all the major
freedoms,” and that his jails hold no political prisoners. After the U.S. visit, the
Azerbaijani foreign minister stated that it marked Azerbaijan’s emerging role as the
major power in the South Caucasus region. Some human rights and other observers
criticized the summit as providing undue U.S. support to a nondemocratic leader.33
Answering this criticism, Deputy Assistant Secretary 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.”34
On November 29, 2006, the State Department issued a statement raising
concerns that by closing the popular independent television station ANS and evicting
an opposition newspaper and an independent news agency from their premises,
Azerbaijan’s “government is seriously impeding the ability of independent journalists
to work.” The government soon permitted ANS to resume broadcasts and at the end
31 OSCE/ODIHR Mission. Press Release: Partial Repeat Parliamentary Elections in
Azerbaijan Underscore Continuing Need for Electoral Reform, May 15, 2006.
32 Eurasia Insight, October 30, 2006; Congressional Record, March 29, 2007, pp. E708-709.
See also PACE. Committee on the Honoring of Obligations and Commitments by Member
States of the Council of Europe, Honoring of Obligations and Commitments by Azerbaijan,
Explanatory Memorandum, Doc. 11226, March 30, 2007.
33 The White House. Office of the Press Secretary. President Bush Welcomes President
Aliyev of Azerbaijan to the White House, April 28, 2006; CEDR, May 2, 2006, Doc. No.
CEP-950092; Council on Foreign Relations. A Conversation with Ilkham Aliyev, April 26,
2006.
34 RFE/RL, June 23, 2006.

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CRS-15
of April 2007 issued it a six-year license.35 The U.S. Embassy in May 2007
reportedly raised concerns that the conviction of two journalists on charges of
fomenting religious hatred — because they had written an article comparing Islam
to Christianity — was another example of restrictions on freedom of the press.36
Among other incidents involving independent media, Eynulla Fatullayev, the
editor-in-chief of the Realnyy Azerbaydzhan and Gundalik Azarbaycan newspapers,
was sentenced to prison in April 2007 for 30 months. He was charged with authoring
Internet remarks on the conflict over Azerbaijan’s breakaway Nagorno Karabakh
region that were deemed to defame the Azerbaijani military. He denied that he had
been the author of the remarks. The U.S. Embassy in Azerbaijan reportedly reacted
to the sentence by stating that a journalist should not face criminal prosecution
because of his opinions.37 Azerbaijan’s court of appeals on June 6, 2007, upheld the
30-month prison term. He currently faces new charges of “terrorist” writings.38 His
prosecution — and the beating by unknown assailants of one of his colleagues,
Uzeyir Cafarov — spurred about two dozen Azerbaijani journalists to request
political asylum at the U.S., U.K., and German embassies. The NGO Freedom
House took this increased mistreatment of opposition journalists and legal pressure
on independent media into account in June 2007 when it further reduced its
democratization ranking for Azerbaijan.39
Georgia. Georgia experienced increased political instability in the 2000s as
President Shevardnadze appeared less committed to economic and democratic
reforms. Polls before a November 2, 2003 legislative race and exit polling during the
race suggested that the opposition National Movement (NM) and the United
Democrats (UD) would win the largest shares of seats in the party list vote. Instead,
mostly pro-Shevardnadze candidates were declared winners. Demonstrators
launched a peaceful “rose revolution” that led to Shevardnadze’s resignation on
November 23. Russia and the United States appeared to cooperate during the crisis
to urge Georgians to abjure violence.
UD and NM agreed to co-sponsor NM head Saakashvili for a January 4, 2004,
presidential election. He received 96% of 2.2 million popular votes from a field of
five candidates. OSCE observers judged the vote as bringing Georgia closer to
meeting democratic electoral standards. The legislature, headed by UD co-leader
Nino Burjanadze, approved constitutional amendments in February 2004 that created
the post of prime minister and confirmed UD co-leader Zurab Zhvania for the post.
35 For concerns about eroding media freedom, see Amnesty International. Azerbaijan: The
Contracting Space for Freedom of Expression, January 24, 2007; and PACE. Honoring of
Obligations and Commitments by Azerbaijan, March 30, 2007.
36 CEDR, May 7, 2007, Doc. No. CEP-950111.
37 Turan Information Agency, April 23, 2007.
38 Amnesty International. New Terrorism Charge Brought Against Journalist Serving
30-month Sentence for Defamation, July 5, 2007.
39 Freedom House. Nations in Transit 2007, June 14, 2007. The ranking was reduced from
5.93 in 2006 to 6.0 in 2007, on a scale of one to seven, with one representing the highest and
seven the lowest level of democratic progress.

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CRS-16
After Zhvania’s death in early 2005, his colleague Zurab Noghaideli replaced him.40
Legislative elections were held on March 28, 2004 involving 150 party list seats
(winners of district seats in November retained them). NM and BD ran on a joint list
and captured 67.2% of 1.53 million votes, giving the bloc a majority of seats,
seemingly ensuring firm legislative support for Saakashvili’s policies. The OSCE
judged the election as the most democratic since Georgia’s independence.
President Bush visited Georgia on May 9-10, 2005, and praised its “rose
revolution” for “inspiring democratic reformers” and freedom “from the Black Sea
to the Caspian and to the Persian Gulf and beyond.” President Saakashvili hailed the
Bush visit as marking “final confirmation that Georgia is an independent country
whose borders and territory are inviolable” and stressed that the U.S.-Georgian
“partnership” ultimately was based on “our shared belief in freedom” and was the
reason Georgia had sent troops to Iraq to end “enslavement” there.41
Some Georgian observers claim that Saakashvili’s reforms demonstrate that
Soviet successor states can democratize and that this example threatens regimes in
Belarus and Russia that argue that such reforms are culturally inappropriate. These
observers allege that President Putin has reacted by ratcheting up economic pressure
on Georgia to reduce Saakashvili’s popularity in Georgia and so encourage “regime
change,” but that the wins by most National Movement candidates in municipal
elections indicate that this tactic is not working.
The South Caucasus’s External Security Context
Russian Involvement in the Region
After Vladimir Putin became president in 1999, Russia appeared to place great
strategic importance on maintaining influence in the South Caucasus region. But
although such efforts appeared initially successful, several developments since 2003
may have altered this assessment, including the “rose revolution” in Georgia,
NATO’s increased ties with Armenia and Georgia, the completion of the Baku-
Tbilisi-Ceyhan oil pipeline (and an associated gas pipeline), Russia’s ongoing
concerns about security in its North Caucasus regions (including Chechnya), and
Russia’s agreement to close its remaining military bases in Georgia.
Recently, Russia has appeared to place its highest priority on exercising
influence in the region in the economic sphere (particularly energy) and slightly less
priority on influence in the military-strategic and domestic political spheres. Russia
has viewed Islamic fundamentalism as a growing threat to the region, but has
cooperated with Iran on some issues to counter Turkish and U.S. influence. Russia
40 For background, see CRS Report RS21685, Coup in Georgia [Republic]: Recent
Developments and Implications, by Jim Nichol.
41 The White House. Office of the Press Secretary. President and President Saakashvili
Discuss NATO, Democracy, May 10, 2005. See also President Saakashvili’s remarks in
CEDR, May 4, 2005, Doc. No. CEP-26020.

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has tried to stop ethnic “undesirables,” drugs, weapons, and other contraband from
entering its borders. It has quashed separatism in its North Caucasus areas while
seemingly backing it in the South Caucasus. It is the main source of security and
economic support for separatist Abkhazia and South Ossetia.42
The South Caucasian states have responded in various ways to Russian
influence. Armenia has close security and economic ties with Russia, given its
unresolved NK conflict and grievances against Turkey. Georgia has attempted to end
Russia’s military presence and support to separatists. Azerbaijan has been concerned
about Russia’s ties with Armenia, has worked to ensure that its energy resources are
not controlled by Russia, and has limited Russia’s military presence, but also has
tried to cooperate with Russia on some regional issues. Until late 2006, it appeared
that Azerbaijan valued its cooperative relations with Russia, and criticized Georgia’s
inability to maintain such ties with Russia. However, Azerbaijani-Russian relations
seemed to worsen in late 2006 when Russia’s demands for higher gas prices and
moves against migrant workers contributed to greater solidarity between Azerbaijan
and Georgia.
NATO’s September 21, 2006, approval of an “Intensified Dialogue” with
Georgia on reforms needed that might lead to membership appeared to contribute to
heightened concerns in Russia about NATO enlargement and about an increased U.S.
presence in the South Caucasus. At the end of February 2007, Russian Foreign
Minister Sergey Lavrov warned that Russia “will not permit” such NATO expansion
to its southern border.43
Georgia’s arrest of four Russian servicemen in late September 2006 on charges
of espionage and plotting to overthrow the government heightened tensions between
Georgia and Russia. Although Georgia handed over the servicemen on October 2,
Russia retaliated in a form viewed as troubling by many international observers,
including cutting off financial flows to Georgia, severing direct transport and postal
links (Russia had banned imports of Georgian wine, mineral water, and other
agricultural products in spring 2006), ending the issuing of visas, raiding ethnic
Georgian-owned businesses, expelling hundreds of Georgians, and compiling lists
of ethnic Georgians in the public schools. Russia sent its ambassador back to Tbilisi
in January 2007, but relations remain brittle. Russia continues to restrict most trade
but began to ease some visa restrictions in late May 2007.

Caspian Energy Resources. Russia has tried to play a major role in future
oil production and transportation in the Caspian Sea region. At the May 2002 U.S.-
Russia summit, the two presidents issued a joint statement endorsing multiple
pipeline routes, implying Russia’s non-opposition to plans to build oil and gas
pipelines from Azerbaijan to Turkey that do not transit Russia. In early 2004,
however, a Russian official stated that Putin wanted to ensure that the greatest
42 “Separatist Abkhazia a Paradise for Russian Tourists,” Agence France-Presse, July 19,
2006; “Breakaway Region’s Fate in Limbo,” Agence France-Presse, July 19, 2006.
43 Kakha Jibladze, “Georgian-NATO Relations Receive Boost from Brussels,” Central Asia-
Caucasus Analyst, March 7, 2007.

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volume of Caspian energy flowed through Russia.44 Armenia and Georgia are
heavily reliant on Russian gas supplies. Until 2007, Azerbaijan also imported some
Russian gas pending the development of its own gas fields.
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
payment for this price increase. Some critics have alleged that Russia now has
virtual control over Armenia’s energy supplies.
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
(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).
Military-Strategic Interests. Russia’s armed presence in the South
Caucasus has been multifaceted, including thousands of military base personnel,
“peacekeepers,” and border troops. The first step by Russia in maintaining a military
presence in the region was the signing of the Commonwealth of Independent States
(CIS) Collective Security Treaty (CST) by Armenia, Russia, and others in 1992,
which pledges the members to consult in the event of a threat to one or several
members, and to provide mutual aid if attacked (Azerbaijan and Georgia withdrew
in 1999).45 Russia also secured permission for two military bases in Armenia and
four in Georgia. Russian border troops guard Armenia’s borders with Turkey and
Iran. The total number of Russian troops in Armenia has been estimated at about
3,500. Armenia has argued that its Russian bases provide for regional stability by
protecting it from attack. More than 100,000 Russian troops also are stationed
nearby in the North Caucasus.46 In 1993, Azerbaijan was the first Eurasian state to
get Russian troops to withdraw, except at the Qabala (Gabala) radar site in northern
44 The White House. Office of the Press Secretary. Joint Statement by President George
W. Bush and President Vladimir V. Putin on the New U.S.-Russian Energy Dialogue, May
24, 2005. For the statement by Viktor Kalyuzhny, Putin’s Special Envoy to the Talks on the
Legal Status of the Caspian Sea, see CEDR, April 6, 2004, Doc. No. CEP-17.
45 According to Armenian Foreign Minister Oskanyan, Article 4 of the CST (“in case an act
of aggression is committed against any of the member-states, all other member-states will
render it necessary assistance, including military, as well as provide support with the means
at their disposal through an exercise of the right to collective defense”) pertains to
aggression from outside the CIS, so does not pertain to the Armenia-Azerbaijan conflict
(since Azerbaijan is a member of the CIS). Interview, October 26, 2006.
46 The Military Balance 2005-2006. London: International Institute of Strategic Studies,
2005.

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CRS-19
Azerbaijan. (Giving up on closing the site, in January 2002 Azerbaijan signed a 10-
year lease agreement with Russia permitting up to 1,500 troops there.)
After the September 11, 2001 terrorist attacks in the United States, Russia
stepped up its claims that Georgia harbored Chechen terrorists (with links to Al
Qaeda) who used Georgia as a staging ground for attacks into Chechnya. The United
States expressed “unequivocal opposition” to military intervention by Russia inside
Georgia. Georgia launched a policing effort in its northern Pankisi Gorge in late
2002 that somewhat reduced tensions over this issue. In February 2004, Saakashvili
reportedly pledged during a Moscow visit to combat “Wahabbis” (referring to Islamic
extremists) in Georgia, including those hiding in the Gorge and others that Russia
alleged were transiting Georgia to fight in Chechnya. In April 2006, Azerbaijan
convicted 16 people on charges that they had received terrorist training from Al
Qaeda operatives in the Pankisi Gorge. Russia’s security service reported at the end
of November 2006 that it had killed Al Qaeda member Faris Yusef Amirat (aliases
included Abu Haf and Amzhet). It alleged that he had hidden in the Pankisi Gorge
during the winter of 2005-2006, had operated in Chechnya in the summer of 2006,
and was returning to the Gorge when he was killed in Russia’s Dagestan region.47
At the summit of the Group of Eight (G-8) industrialized countries, Russia’s
President Vladimir Putin on June 7, 2007, proposed that President Bush consider
using Russia’s Soviet-era missile radar in Qabala as an early warning system. Putin
claimed that the radar would be able to detect possible tests by Iran of a missile that
could target Europe, and would render unnecessary or premature U.S. plans to build
a radar site in Czech Republic and an interceptor missile site in Poland.48 On June
10, Azerbaijani President Ilkham Aliyev reportedly stated that the possible joint U.S.-
Russia use of the radar might enhance Azerbaijan’s strategic ties with both countries.
Russian “Peacekeepers”. The Georgian legislature in October 2005 called
on the government to certify by July 2006 that the activities undertaken by Russian
“peacekeepers” in Georgia’s breakaway regions of Abkhazia and South Ossetian
were contributing to peace settlements. If the government was unable to make these
certifications as stipulated, then it must request that the “peacekeepers” leave,
according to the resolution. A Georgian National Military Strategy document
released in November 2005 was blunt, terming Russian “peacekeepers” and bases
security threats.
In February 2006 Georgia’s legislature approved a resolution calling for the
president to revoke the 1992 agreement providing for Russian “peacekeeping” in
South Ossetia. The resolution accused Russia of aiming to annex the region and
urged greater international involvement in peacekeeping and a peace settlement. The
U.S. State Department has urged Georgia not to abandon the existing peace process.
47 CEDR, November 27, 2006, Doc. No. CEP-358003. For background, see CRS Report
RS21319, Georgia’s Pankisi Gorge, by Jim Nichol.
48 Open Source Center. Central Eurasia: Daily Report (CEDR), March 5, 2007, Doc. No.
CEP-358007; May 17, 2007, Doc. No. CEP-4009; May 24, 2007, Doc. No. CEP-950157;
June 7, 2007, Doc. No. CEP-950369.

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Since the Georgian government did not certify that Russian “peacekeepers”
contributed to peace settlements in Abkhazia and South Ossetia, the Georgian
legislature in mid-July 2006 approved a resolution calling on the government to
replace the Russian “peacekeepers” with an international police contingent. No
deadline was specified. Russia’s Foreign Minister Sergey Lavrov denounced the
resolution as war-mongering and warned Georgia that Russian “peacekeepers” would
protect “our citizens” in South Ossetia and Abkhazia from attack by Georgia (Russia
has granted citizenship to the majority of Abkhazians and South Ossetians).
Russia’s Bases in Georgia. In 1999, Russia and Georgia agreed to
provisions of the adapted Conventional Armed Forces in Europe (CFE) Treaty
calling for Russia to reduce weaponry at its four bases in Georgia, to close two of the
bases (at Gudauta and Vaziani) by July 2001, and to complete negotiations during
2000 on the status of the other two bases (at Batumi and Akhalkalaki). NATO
signatories hesitated to ratify the amended Treaty until Russia satisfied these and
other conditions. On July 1, 2001, Georgia reported that Russia had turned over the
Vaziani base. Russia declared in June 2002 that it had closed its Gudauta base, but
that 320 troops would remain to support Russian “peacekeepers” taking leave at the
base.49 Georgia objects to this stance.
The Georgian legislature in March 2005 passed a resolution calling for Russia
to agree by mid-May on closing the bases or face various restrictions on base
operations. This pressure, and perhaps the U.S. presidential visit (see above), spurred
Russia to agree with Georgia in late May on setting the end of 2008 as the deadline
for closing the bases. Putin explained that his military General Staff had assured him
that the bases were Cold War-era relics of no strategic importance to Russia.50 The
two countries agreed that the base at Akhalkalaki would be closed by October 2007,
and that Batumi would be closed by October 2008. On June 27, 2007, Russia
formally handed over the Akhalkalaki base to Georgia’s control.
The Roles of Turkey, Iran, and Others
The United States has generally viewed Turkey as able to foster pro-Western
policies and discourage Iranian interference in the South Caucasus states, though
favoring Azerbaijan in the NK conflict. Critics of Turkey’s larger role in the region
caution that the United States and NATO might be drawn by their ties with Turkey
into regional imbroglios. Turkey seeks good relations with Azerbaijan and Georgia
and some contacts with Armenia, while trying to limit Russian and Iranian influence.
Azerbaijan likewise views Turkey as a major ally against such influence, and to
balance Armenia’s ties with Russia. Armenia is a member of the Black Sea
Economic Cooperation organization, along with Turkey, and the two states have
established consular relations. Obstacles to better Armenian-Turkish relations
include Turkey’s rejection of Armenians’ claims of genocide in 1915-1923 and its
49 A Russian military analyst reported in early 2007 that there also were nine aircraft and ten
helicopters at “airbase Gudauta.” CEDR, May 3, 2007, Doc. No. CEP-305001.
50 CEDR, May 24, 2005, Doc. No. CEP-378001. In June 2007, two Russian mountain
brigades consisting of about 4,500 troops began to deploy near Georgia’s borders, ostensibly
to enhance security after the base closures. RIA Novosti, June 26, 2007.

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CRS-21
support for Azerbaijan in the NK conflict. Georgia has an abiding interest in ties
with the approximately one million Georgians residing in Turkey and the
approximately 50,000 residing in Iran, and has signed friendship treaties with both
states. Turkey is one of Georgia’s primary trade partners. Turkey hopes to benefit
from the construction of new pipelines delivering oil and gas westward from the
Caspian Sea.
Iran’s goals in the South Caucasus include discouraging Western powers such
as Turkey and the United States from gaining influence (Iran’s goal of containing
Russia conflicts with its cooperation with Russia on these interests), ending regional
instability that might threaten its own territorial integrity, and building economic
links. A major share of the world’s Azerbaijanis reside in Iran (estimates range from
6-12 million), as well as about 200,000 Armenians. Ethnic consciousness among
some “Southern Azerbaijanis” in Iran has grown. Azerbaijani elites fear Iranian-
supported Islamic extremism and object to Iranian support to Armenia. Iran has
growing trade ties with Armenia and Georgia, but its trade with Azerbaijan has
declined. To block the West and Azerbaijan from developing Caspian Sea energy,
Iran long has insisted on either common control by the littoral states or the division
of the seabed into five equal sectors. Some thawing in Azerbaijani-Iranian relations
occurred in 2005-2006 with the long-delayed opening of an Azerbaijani consulate in
Tabriz and various leadership summits. In recent months, Iran has boosted its
diplomacy in the region, perhaps to counter growing international concern about its
nuclear programs. Iran’s relations with Azerbaijan appeared to worsen in 2007, as
Iran stepped up its suppression of rising dissent among “Southern Azerbaijanis.”
U.S. policy aims to contain Iran’s threats to U.S. interests.51
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. As part of its European Neighborhood Policy, the EU signed Action
Plans with the three regional states in November 2006 that it hoped would foster both
European and regional integration. The South Caucasus region has developed some
economic and political ties with other Black Sea and Caspian Sea littoral states,
besides those discussed above. Azerbaijan shares with Central Asian states common
linguistic and religious ties and concerns about some common neighbors (Iran and
Russia). The South Caucasian and Central Asian states are concerned about ongoing
terrorist threats and drug trafficking from Afghanistan. Central Asia’s increasing ties
with the South Caucasus make it more dependent on stability in the region.
U.S. Aid Overview
The United States is the largest bilateral aid donor by far to Armenia and
Georgia, and the two states are among the five Eurasian states that each have
51 See CRS Report RL32048, Iran: U.S. Concerns and Policy Responses, by Kenneth
Katzman.

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CRS-22
received more than $1 billion in U.S. aid FY1992-FY2005 (the others are Russia,
Ukraine, and Kazakhstan, which have received sizeable Comprehensive Threat
Reduction funds). See Table 1. U.S. assistance to the region FY1992-FY2005
amounts to about 14% of all aid to Eurasia and has included FREEDOM Support Act
(FSA) programs, food aid (U.S. Department of Agriculture), Peace Corps, and
security assistance. Armenia and Georgia have regularly ranked among the top world
states in terms of per capita U.S. aid, indicating the high level of concern within the
Administration and Congress. Foreign Operations Appropriations for FY1998 (P.L.
105-118) created a new South Caucasian funding category, which still exists, to
emphasize regional peace and development. Congress also has called for
humanitarian aid to be provided to NK, which has amounted to $27 million from
FY1998 through FY2006, and an estimated $2 million planned for FY2007. Besides
bilateral aid, the United States contributes to multilateral organizations such as the
International Monetary Fund and the World Bank that aid the region.
In January 2004, Congress authorized a major new global assistance program,
the Millennium Challenge Account (Section D of P.L. 108-199). A newly
established Millennium Challenge Corporation (MCC) signed a five-year, $295.3
million agreement (termed a “compact”) with Georgia in September 2005 to improve
a road from Javakheti to Samtskhe, repair a gas pipeline, create a small business
investment fund, set up agricultural grants, and improve municipal and rural water
supply, sanitation, irrigation, roads, and solid waste treatment. The MCC reported
in April 2007 that it had so far disbursed $21.9 million to Georgia.
In December 2005, the MCC approved plans to sign a five-year, $235.65 million
compact with Armenia — to bolster rural agriculture through road-building and
irrigation and marketing projects — but raised concerns about the November 2005
constitutional referendum. Following assurances by Foreign Minister Oskanyan that
Armenia would address democratization shortfalls, the MCC and Armenia signed the
compact, and it went into force in September 2006.52 The MCC reported that as of
April 2007 it had disbursed $1.4 million to Armenia.
Regarding FY2007 foreign assistance, a continuing resolution was signed into
law on September 29, 2006 (H.R. 5631/P.L. 109-289, Division B) that provided
funding for foreign operations at the lower of the House-passed, Senate-passed, or
FY2006 level through February 15, 2007. P.L.109-289 was amended by P.L.
109-369 and P.L. 109-383. On February 15, 2007, H.J.Res. 20 was signed into law
(P.L. 110-5), to further amend P.L. 109-289 to provide funding for foreign operations
for the remainder of FY2007 under the authority, conditions, and level of FY2006
funding, except as adjusted.
52 Millennium Challenge Corporation. Ambassador Danilovich’s letter to Armenian
President Robert Kocharyan, December 16, 2005; Press Release: Millennium Challenge
Corporation Board Approves Armenia Compact but Expresses Concern Regarding
Irregularities in the November Referendum, December 19, 2005; and Ambassador
Danilovich’s letter to Armenian President Robert Kocharyan, January 18, 2006,
[http://www.mca.gov]. See also Armenian Foreign Ministry. Oskanyan Thanks MCC for
Millennium Compact, January 12, 2006 [http://www.armeniaforeignministry.com].

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CRS-23
U.S. Security Assistance
The United States has provided some security assistance to the region, and
bolstered such aid after September 11, 2001 (see Table 1). In testimony in March
2005, Gen. James Jones, head of U.S. European Command (EUCOM), stated that
“the Caucasus is increasingly important to our interests. Its air corridor has become
a crucial lifeline between coalition forces in Afghanistan and our bases in Europe.
Caspian oil, carried through the Caucasus, may constitute as much as 25 percent of
the world’s growth in oil production over the next five years ... This region is a
geographical pivot point in the spread of democracy and free market economies to
the states of Central and Southwest Asia.”53
EUCOM initiatives in the region have included the Sustainment and Stability
Operations Program (SSOP) in Georgia, the South Caucasus Clearinghouse, and the
Caspian Maritime Security Cooperation program.54 The 16-month SSOP was
launched in early 2005 as a follow-on to the Georgia Train and Equip Program
(GTEP).55 SSOP was funded at $60.5 million in FY2005. SSOP provided training
for four battalions (2,000 troops), in part to support U.S.-led coalition operations. In
July 2006, the United States announced that the SSOP would be extended another
year and funded at $30 million.56 The Clearinghouse aims to facilitate cooperation
by sharing data on security assistance among both donor and recipient countries.
Gen. Bantz Craddock, Commander of EUCOM, testified that the Caspian Maritime
Security Cooperation program aims to “enhance the capabilities of Azerbaijan and
Kazakhstan to prevent and, if needed, respond to terrorism, nuclear proliferation,
drug and other trafficking, and additional transnational threats.” (This program
appears to combine elements of the former Caspian Guard and Hydrocarbons
programs.) The United States acknowledged in late 2005 that it had supplied two
maritime surveillance radars to help detect and direct interdiction of illicit weapons
of mass destruction and other trafficking in the Caspian Sea.57 Gen. Charles Wald,
then-deputy head of EUCOM, in November 2004 suggested that the Administration
was exploring the establishment of “cooperative security locations” (CSLs) — sites
53 U.S. Senate. Committee on Armed Services. Testimony by Gen. James Jones, March 1,
2005. See also CRS Report RL30679, Armenia, Azerbaijan, and Georgia: Security Issues
and Implications for U.S. Interests, by Jim Nichol.
54 Senate Armed Services Committee. Statement of General James L. Jones, Commander,
United States European Command, March 1, 2005; Statement of General Bantz J. Craddock,
Commander, United States European Command, May 17, 2007.
55 U.S. officials explained that the $64 million GTEP carried out in 2002-2004 would help
Georgian military, security, and border forces to combat Chechen, Arab, Afghani, Al Qaeda,
and other terrorists who allegedly had infiltrated Georgia. Some of these terrorists allegedly
had fled U.S.-led coalition operations in Afghanistan, so the GTEP was initially linked to
OEF. Other reported U.S. aims include bolstering Georgia’s ability to guard its energy
pipelines and ensuring internal stability. The program formally ended in April 2004.
56 U.S. Allocates $30 mln for SSOP Army Training Program, Civil Georgia, July 17, 2006.
57 “Two Radar Stations Become Operational in Azerbaijan under the U.S.-Funded Caspian
Guard Initiative,” International Export Control Observer, Center for Non-proliferation
Studies, Monterey Institute of International Studies, November 2005.

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CRS-24
without a full-time U.S. military presence that would be used for refueling and short-
duration deployments — in Azerbaijan or Georgia.58
All three regional states joined NATO’s Partnership for Peace (PFP) in 1994.
The June 2004 NATO summit pledged enhanced attention to the South Caucasian
and Central Asian PFP members. A Special Representative of the NATO Secretary
General was appointed to encourage democratic civil-military relations, transparency
in defense planning and budgeting, and enhanced force inter-operability with NATO.
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. 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.59 Troops from Armenia, Azerbaijan, and Georgia serve as peacekeepers in
NATO-led operations in Kosovo, and Azerbaijan supports NATO-led operations in
Afghanistan (Georgia in March 2007 announced that it planned to send troops to
Afghanistan).
Until waived, Section 907 had prohibited much U.S. security aid to Azerbaijan,
including Foreign Military Financing (FMF), and International Military Education
& Training (IMET). Under U.S. policy, similar aid had not been provided to
Azerbaijan’s fellow combatant Armenia. From 1993-2002, both had been on the
Munitions List of countries ineligible for U.S. arms transfers. Since the waiver
provision to Section 907 was enacted, some Members have maintained that the
Armenian-Azerbaijani military balance is preserved by providing equal amounts
(parity) in IMET and FMF assistance to each country. In FY2005, the conference
report (H.Rept. 108-792) on H.R. 4818 (P.L. 108-447; Consolidated Appropriations)
directed that FMF funding for Armenia be boosted to match that for Azerbaijan (from
$2 million as requested to $8 million). The Members appeared to reject the
Administration’s assurances that the disparate aid would not affect the Armenia-
Azerbaijan military balance or undermine peace talks. Apparently in anticipation of
similar congressional calls, the Administration’s FY2006 foreign aid budget
requested equal amounts of FMF as well as IMET for each country. However, the
FY2008 budget request calls for more such aid for Azerbaijan than for Armenia.
58 Vince Crawley, Army Times, November 22, 2004.
59 NATO. North Atlantic Council. Riga Summit Declaration, November 29, 2006.
President Bush stated that the United States supported Georgia’s NATO membership.
Remarks By President Bush In Riga, Latvia, PR Newswire, November 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, November 27, 2006.

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CRS-25
U.S. Trade and Investment
The Bush Administration and others maintain that U.S. support for privatization
and the creation of free markets directly serve U.S. national interests by opening
markets for U.S. goods and services and sources of energy and minerals. Among
U.S. economic links with the region, bilateral trade agreements providing for normal
trade relations for products have been signed and entered into force with all three
states. Bilateral investment treaties providing national treatment guarantees have
entered into force. U.S. investment is highest in Azerbaijan’s energy sector, but
rampant corruption in the three regional states otherwise has discouraged investors.
With U.S. support, in June 2000 Georgia became the second Eurasian state (after
Kyrgyzstan) to be admitted to the WTO. The application of Title IV of the Trade Act
of 1974, including the Jackson-Vanik amendment, was terminated with respect to
Georgia in December 2000, so its products receive permanent nondiscriminatory
(normal trade relations or NTR) treatment. Armenia was admitted into WTO in
December 2002. The application of Title IV was terminated with respect to Armenia
in January 2005.
Energy Resources and U.S. Policy
The U.S. Energy Department reports estimates of 7-13 billion barrels of proven
oil reserves, and estimates of 30 trillion cubic feet of proven natural gas reserves in
Azerbaijan.60 U.S. policy goals regarding energy resources in Central Asia and the
South Caucasus are reflected in the Administration’s 2001 energy policy report.61
They include supporting the sovereignty of the states, their ties to the West, and U.S.
private investment; breaking Russia’s monopoly over oil and gas transport routes by
encouraging the building of pipelines that do not traverse Russia; promoting Western
energy security through diversified suppliers; assisting ally Turkey; and opposing the
building of pipelines that transit Iran. The report recommended that the President
direct U.S. agencies to support building the Baku-Tbilisi-Ceyhan (BTC) oil pipeline,
expedite use of the pipeline by oil firms operating in Kazakhstan, and support
constructing a gas pipeline to export Azerbaijani gas. Since September 11, 2001, the
Administration has emphasized U.S. vulnerability to possible energy supply
disruptions and has encouraged Caspian energy development. Critics argue that oil
and gas from Azerbaijan will amount to a tiny percent of world exports of each
resource, but the Administration argues that these exports will nonetheless boost
energy security somewhat for European customers currently relying on Russia.
The United States launched a campaign in 1997 stressing the strategic
importance of the BTC route as part of an “Eurasian Transport Corridor.” In
November 1999, Azerbaijan, Georgia, Turkey, and Kazakhstan signed the “Istanbul
Protocol” on construction of the 1 million barrel per day capacity and 1,040-mile
long BTC oil pipeline. In August 2002, the BTC Company (which includes U.S.
60 U.S. Department of Energy. Energy Information Administration. Azerbaijan Country
Analysis Brief, June 2005.
61 The White House. The National Energy Policy Development Group. Reliable,
Affordable, and Environmentally Sound Energy for America’s Future, May 16, 2001.

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CRS-26
firms Conoco-Phillips, Amerada Hess, and Chevron) was formed to construct, own,
and operate the oil pipeline. Azerbaijani media reported at the end of May 2006 that
the first tanker began on-loading oil at Ceyhan. Azerbaijani media reported in July
2007 that the BTC pipeline had delivered over 150 million barrels of oil to Ceyhan
and filled 194 tankers.62 A gas pipeline to Turkey (termed the South Caucasus
Pipeline or SCP) was completed in March 2007, and exports initially are planned to
be 233 billion cubic feet per year. The joint venture for the SCP includes Norway’s
Statoil (20.4%), British Petroleum (20.4%), Azerbaijan’s Ministry of Industry and
Energy (20%), and companies from Russia, Iran, France, and Turkey. Some in
Armenia object to lack of access to these pipelines.
Some observers argue that the completion of the BTC and SCP and the decision
to build a railway from Azerbaijan through Georgia to Turkey reflects growing
awareness in the European Union as well as in the United States of the strategic
importance of the South Caucasus.63 In Autumn 2007, Greece plans to complete the
last section of a gas pipeline connection to a Turkish pipeline. When operational,
some gas from Azerbaijan can be exported to Greece. If an extension is built to Italy,
this Turkey-Greece-Italy or TGI pipeline could permit Azerbaijan to supply some
fraction of the European Union’s gas needs, according to some analysts, providing
a source of supply besides Russia. On March 22, 2007, Azerbaijan and the United
States signed a memorandum of understanding on energy cooperation that calls for
discussions on the proposed TGI pipeline and a potential EU-backed Nabucco gas
pipeline from Turkey to Austria. In a speech on June 6, 2007, Deputy Assistant
Secretary Bryza reportedly urged building the TGI and Nabucco gas pipelines and
a trans-Caspian gas pipeline, so that Azerbaijani and Central Asian gas could be
transported to Europe. He argued that these routes would be more economical than
routes through Russia.64
Appearing to move against U.S. and European proposals for building a trans-
Caspian gas pipeline that would link to the SCP and perhaps send gas through the
proposed TGI and Nabucco pipelines, President Putin reached agreement with the
presidents of Kazakhstan and Turkmenistan in May 2007 to build a new pipeline to
transport their gas to Russia. Kazakhstan also agreed to send more oil to Russia
through an upgraded Caspian Pipeline Consortium pipeline that Russia controls. To
compete with the BTC oil pipeline, Russia signed an agreement with Bulgaria and
Greece in April 2007 to build an oil pipeline that it will control.
In the winter of 2006-2007, Russia greatly boosted gas prices charged
Azerbaijan and Georgia. Azerbaijan stopped importing gas from Russia and relied
on its own resources, while Georgia tried to secure alternative and cheaper sources
62 Azer-Press, July 11, 2007.
63 Jaba Devdariani and Blanka Hancilova, “EU Broaches Peacekeeping Possibility in
Georgia,” Central Asia-Caucasus Analyst, March 7, 2007; Rovshan Ismayilov, “Azerbaijan,
Georgia and Turkey: Building a Transportation Triumvirate?” Eurasia Insight, February 7,
2007.
64 U.S. Department of State. Transcript: U.S. Official Discusses Energy Security Agreement
with Azerbaijan, March 22, 2007; Associated Press, June 6, 2007.

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of supply. Azerbaijan agreed to supply some gas, but Georgia was forced to purchase
some Russian gas. Georgia is currently negotiating with Azerbaijan and Turkey on
purchasing a greater share of SCP gas for a longer period than originally envisaged.
On March 19, 2007, Armenian President Robert Kocharyan and Iranian
President Mahmoud Ahmadinejad inaugurated an 88-mile gas pipeline from Tabriz
in Iran to Kadjaran in Armenia. Initial deliveries reportedly will be 14.1 billion cubic
feet per year of Iranian (and possibly Turkmen) gas. The Russian-controlled
ArmRosGazprom joint venture operates the Iran-Armenia pipeline. Work has started
on the second part of the pipeline, a 123 mile section from Kadjaran to Ararat. When
it is completed in 2008, 88.3 billion cubic feet of gas per year will be supplied. Some
of this gas will be used to generate electricity for Iran and Georgia, but the remainder
may satisfy all Armenia’s other consumption needs, removing its dependence on
Russian gas transported via Georgia.65
110th Congress Legislation
H.Res. 106 (Schiff)/S.Res. 106 (Durbin)
A resolution calling on the President to ensure that the foreign policy of the
United States reflects appropriate understanding and sensitivity concerning issues
related to human rights, ethnic cleansing, and genocide documented in the United
States record relating to the Armenian Genocide. H.Res. 106 was introduced on
January 30, 2007. S.Res. 106 was introduced on March 14, 2007.
H.R. 2764 (Lowey)
Department of State, Foreign Operations, and Related Programs. Introduced
and passed by the House on June 18, 2007 (H.Rept. 110-197). Reported in Senate
with an amendment in the nature of a substitute (S.Rept. 110-128) on July 10, 2007.
The House recommends $68 million in FREEDOM Support Act aid to Armenia ($33
million above the Administration request), $18 million for Azerbaijan (equal to the
request), and $50.5 million for Georgia (equal to the request). It recommends $9
million in FMF for Georgia ($1 million below the request) and $3 million in FMF
and $500,000 in IMET for each of the countries of Armenia and Azerbaijan. The
Senate calls for $39 million in FREEDOM Support Act aid to Armenia ($4 million
above the President’s request), $22 million for Azerbaijan ($4 million above the
request), and $55 million for Georgia ($5 million above the request). The Senate
supports the Administration request for $114.8 million to construct a new embassy
in Azerbaijan and $10 million for FMF for Georgia.
S. 494 (Lugar)
The NATO Freedom Consolidation Act of 2007. Endorses NATO enlargement
and the timely admission of new NATO members. Urges NATO to extend a
Membership Action Plan for Georgia. Designates Georgia as eligible to receive
security assistance under the program established by the NATO Participation Act of
1994 (P.L. 103-447). Introduced on February 6, 2007. Ordered to be reported
without amendment by the Foreign Relations Committee on March 6, 2007 (H.Rept.
65 Platt’s Commodity News, May 31, 2007.

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CRS-28
110-34). Passed the Senate on March 16, 2007. Passed the House on March 26,
2007. Signed into law on April 9, 2007 (P.L. 110n17).
S.Res. 33 (Lugar)
A resolution urging the U.S. government to open negotiations on a free trade
agreement with Georgia to eliminate tariffs and non-tariff barriers on trade in goods.
Introduced on January 18, 2007.
Table 1. U.S. Foreign Aid to the Region,
FY1992-FY2006, and FY2008 Request
(millions of dollars)
FY1992-
FY2005
FY2006
South Caucasus
FY2008
FY2005
Budgeted
Budgeted
Country
Requestb
Budgeted Aida
Aida
Aida
Armenia
1,581.09
91.01
89.66
40.781
Azerbaijan
588.72
79.15
88.97
27.409
Georgia
1,611.17
126.87
153.01
66.421
Regional
38.73
2.03
11.1
—
Total
3,819.71
299.06
342.74
134.611
Percent
13.6
15
17
31
Sources: State Department, Office of the Coordinator for U.S. Assistance to Europe and Eurasia; State
Department, U.S. Government Assistance to and Cooperative Activities with Eurasia: FY2006 Annual
Report; State Department, Congressional Budget Justification for Foreign Operations, FY2008.
Note: The Continuing Appropriations Resolution, 2007 (P.L. 109-289), as amended, provides funding
for foreign operations for FY2007 under the authority, conditions, and level of FY2006 funding,
except as adjusted. Final figures are not available.
a. FREEDOM Support Act and Agency budgets.
b. FREEDOM Support Act and other Function 150 funds. Does not include Defense or Energy
Department funding, funding for exchanges, or Millennium Challenge Corporation programs
in Armenia and Georgia. The FY2008 figures do not include food aid, which will be disbursed
as necessary.

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CRS-29
Figure 1. Map of the Region

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