Order Code RL33453
Armenia, Azerbaijan, and Georgia:
Political Developments and
Implications for U.S. Interests
Updated September 20, 2007
Jim Nichol
Specialist in Russian and Central Asian Affairs
Foreign Affairs, Defense, and Trade Division

---

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.

---

Contents
Most Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Overview of U.S. Policy Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Economic Conditions, Blockades, and Stoppages . . . . . . . . . . . . . . . . . . . . . 9
Democratization Problems and Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Armenia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Azerbaijan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Georgia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
The South Caucasus’s External Security Context . . . . . . . . . . . . . . . . . . . . . . . . 15
Russian Involvement in the Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

---

Armenia, Azerbaijan, and Georgia:
Political Developments and
Implications for U.S. Interests
Most Recent Developments
The Georgian Defense Minister announced on September 14, 2007, that in
accordance with a U.S.-Georgia agreement that led Georgia to boost its troops in Iraq
to 2,000 in July 2007, the number of troops would be reduced to 300 by mid-2008.
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
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).
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.

---

CRS-2
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
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
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.

---

CRS-3
major role. Some observers argue that the U.S. interest in democratization should
not be subordinated to interests in energy and anti-terrorism.3
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. 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.
Reportedly, they may be deployed in late 2007 or early 2008.
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
3 U.S. House of Representatives. Committee on Foreign Relations. Subcommittee on
International Organizations, Human Rights and Oversight. Ideals vs. Reality in Human
Rights and U.S. Foreign Policy: The Cases of Azerbaijan, Cuba, and Egypt, July 12, 2007;
U.S. Commission on Security and Cooperation in Europe. Energy and Democracy, July 23,
2007.

---

CRS-4
offering the use of their airbases, and to assist the United States in re-building Iraq.
Both countries agreed to participate, subject to U.S. financial support, in the
stabilization force for Iraq. In August 2003, both Azerbaijan (150 troops) and
Georgia (69 troops) dispatched forces to Iraq. 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 up to 2,000. The new troops were
fully deployed by September 2007. Georgian troops serve under U.S. command.
Many have provided security in the “Green zone”in Baghdad and others in northern
suburbs of Baghdad. Reportedly, the new troops will help patrol the border with
Iran. With these new deployments, Georgia has the fourth-largest number of troops
in Iraq, after the United States, the United Kingdom, and South Korea. 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 2006, there were still
about 692,000 people considered refugees or displaced persons in Azerbaijan and

---

CRS-5
114,000 in Armenia.4 Armenia has granted citizenship and acted to permanently
house most of the ethnic Armenians who fled Azerbaijan The non-governmental
International Crisis Group estimates that about 13-14% of Azerbaijan’s territory,
including NK, is controlled by NK Armenian forces (The World Factbook estimates
about 16%).5 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.6 The assassination of Armenian political leaders in late 1999 set back the
peace process.
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.7 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.”8
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
4 U.N. High Commissioner for Refugees. 2006 Global Trends: Refugees, Asylum-seekers,
Returnees, Internally Displaced and Stateless Persons, July 16, 2007. The NGO Amnesty
International has raised concerns that refugees and displaced persons in Azerbaijan face
prejudice and segregation. They are more likely to be unemployed and in poverty.
Azerbaijan: Displaced then Discriminated Against – the Plight of the Internally Displaced
Population, June 28, 2007.
5 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].
6 Open Source Center, Central Eurasia: Daily Report (hereafter CEDR), February 27, 2001,
Doc. No CEP-262.
7 CEDR, January 17, 2003, Doc. No. CEP-338.
8 CEDR, October 13, 2004, Doc. No. CEP-11.

---

CRS-6
(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.9
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.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 Aliyev reported on October 27, 2006,
that at the Paris meeting Azerbaijan had proposed 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 only after all seven occupied areas around
NK had been returned in phases, and Azerbaijani displaced persons had returned to
NK, could the question of NK’s status 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.
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
9 OSCE. Statement by the Minsk Group Co-Chairs, July 3, 2006.
10 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.
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.

---

CRS-7
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.14 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.15 U.S. diplomacy
generally has appeared to urge Georgia to work within existing peace settlement
frameworks for Abkhazia and South Ossetia — which provide for 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.
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
14 Vladimir Socor, Eurasia Insight, November 20, 2006.
15 U.N. Security Council. Report of the Secretary-General on the Situation in Abkhazia,
Georgia, S/2007/15, January 11, 2007.

---

CRS-8
[South Ossetians] are citizens of Russia.”16 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. In April 2007,
Kokoiti praised Russia’s unilateral aid efforts and accused the Steering Committee
of dallying.
In November 2006, a popular referendum was held in South Ossetia to reaffirm
its “independence” from Georgia. The separatists reported that 95% of 55,000
registered voters turned out and that 99% approved the referendum. In a separate
vote, 96% reelected 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.
In March 2007, Saakashvili proposed another peace plan for South Ossetia that
involved 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.
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. The two sides finally held some CC meetings in mid-2006 but
rising tensions led to the suspension of the meetings in August.
16 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.”

---

CRS-9
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 in 2005 (members include Bulgaria, Czech Republic,
Estonia, Latvia, Lithuania, Moldova, Poland, Romania, and Sweden) 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.
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
cease-fire agreement.
All Georgia-Abkhazia talks were suspended in October 2006. Abkhazia has
called for Georgia to remove the government representatives and alleged military
forces. In October 2006, the UNSC criticized Georgia for introducing military forces
into the Kodori Gorge in violation of cease-fire accords and for other “militant
rhetoric and provocative actions” and called on it to abide by the accords. Some
violations by Abkhaz forces were also criticized. The UNSC stressed the
“important” and “stabilizing” role played by Russian peacekeepers and UNOMIG.17
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. In June 2007, however, he reported that UNOMIG had seen
what appeared to be a Georgian military truck in the upper Kodori Gorge. He also
reported that UNOMIG had seen several Georgian military vehicles and personnel
in the border area near the town of Zugdidi.18 The Friends of Georgia hosted a
meeting in Germany in late June 2007 that urged the sides to abide by the existing
cease-fire 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,
17 U.N. Security Council. Resolution 1716 (2006), Adopted by the Security Council at Its
5549th Meeting, October 13, 2006.
18 U.N. Secretary General. Report of the Secretary-General on the Situation in Abkhazia,
S/2007/15, January 11, 2007; S/2007/182, April 3, 2007; S/2007/439, July 18, 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.

---

CRS-10
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.19
Transport and communications obstructions and stoppages have severely
affected economic development in the South Caucasus and stymied the region’s
emergence as an East-West and North-South corridor. Since 1989, Azerbaijan has
obstructed railways and pipelines traversing its territory to Armenia.20 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.21 On four other indicators — accountability,22 stability, rule of
19 A. V. Korobkov, “Migration Trends in Central Eurasia,” Communist and Post-Communist
Studies, No. 2, 2007, pp. 169-89.
20 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 rail cars, which then
travel 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.
21 Government effectiveness refers to “the quality of public services, [and] the quality of the
(continued...)

---

CRS-11
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.
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. Observers
from the OSCE and the Parliamentary Assembly of the Council of Europe (PACE)
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.23
In November 2005, constitutional changes were approved by 93.2% of 1.5
million voters, with a 65.4% turnout. A small delegation of monitors from PACE
reported observing ballot-box stuffing and few voters. Opposition parties boycotted
the vote.24 Before the vote, the Venice Commission of the Council of Europe (COE)
had suggested that the 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. In January 2007, PACE praised progress in
passing legislation implementing the constitutional reforms and urged Armenia to
hold free elections.
A legislative election was held on May 12, 2007, and 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
21 (...continued)
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.
22 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.
23 OSCE. Office of Democratic Institutions and Human Rights (ODIHR). Final Report on
the Presidential Election in Armenia, April 28, 2003.
24 PACE. Constitutional Referendum in Armenia: General Compliance Marred by Incidents
of Serious Abuse, November 28, 2005.

---

CRS-12
OSCE/COE/EU observers raised more concerns that vote-counting problems could
harm public confidence in the results.25
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. Kocharyan has openly
expressed his support for Sarkisyan’s bid for the presidency.
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.”26
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
25 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.
26 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.

---

CRS-13
address some electoral irregularities.27 Repeat elections were scheduled for May
2006 in ten constituencies where alleged irregularities took place. According to
OSCE election monitors, the repeat race appeared to be an improvement over the
November election, but irregularities needed to be addressed, including interference
by local officials in campaigns. The ruling Yeni Azerbaijan Party won 62 seats, the
independents 44, and Musavat 5. The remaining 14 seats were held by several small
parties.28
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 claims he is being tried because of his advocacy of
closer Azerbaijani ties with the United States and the EU, economic reforms, and
anti-corruption efforts. Senator John McCain and Representatives Gary Ackerman
and Alcee Hastings have been among those in Congress concerned about due process
in the case (see below, Legislation).29
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.30
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
27 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.
28 OSCE/ODIHR Mission. Press Release: Partial Repeat Parliamentary Elections in
Azerbaijan Underscore Continuing Need for Electoral Reform, May 15, 2006.
29 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.
30 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.

---

CRS-14
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.”31
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
of April 2007 issued it a six-year license.32 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.33
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 NK conflict that were deemed to defame the Azerbaijani
military. He denied authorship 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.34 New charges of tax evasion were filed in
September 2007.35 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. PACE
reportedly will consider a critical assessment of press freedom in Azerbaijan at its
October 2007 session.36
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.
31 RFE/RL, June 23, 2006.
32 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.
33 CEDR, May 7, 2007, Doc. No. CEP-950111.
34 Turan Information Agency, April 23, 2007.
35 CEDR, September 7, 2007, Doc. No. CEP-950351.
36 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.

---

CRS-15
UD and NM agreed to co-sponsor NM head Saakashvili for a January 4, 2004,
presidential election. He received 96% of 2.2 million popular votes from a field of
five candidates. OSCE observers judged the vote as bringing Georgia closer to
meeting democratic electoral standards. The legislature, headed by UD co-leader
Nino Burjanadze, approved constitutional amendments in February 2004 that created
the post of prime minister and confirmed UD co-leader Zurab Zhvania for the post.
After Zhvania’s death in early 2005, his colleague Zurab Noghaideli replaced him.37
Legislative elections were held in March 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.38
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.”39
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
37 For background, see CRS Report RS21685, Coup in Georgia [Republic]: Recent
Developments and Implications, by Jim Nichol.
38 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.
39 One perhaps troubling human rights case in Georgia involves the arrest in September 2006
on coup charges of 13 leaders and members of opposition political parties and groups
allegedly linked to exiled former security head Igor Georgadze. In August 2007, 12 of the
13 were sentenced for up to 8.5 years, and one person received a suspended sentence.
Human Rights Watch had raised concerns that the closed trial might not be fair. Human
Rights Watch’s Open Letter to the Tbilisi City Court Chair, April 3, 2007.

---

CRS-16
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
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.40
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. Until late 2006,
it appeared that Azerbaijan valued having some 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.41
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
40 “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.
41 Kakha Jibladze, “Georgian-NATO Relations Receive Boost from Brussels,” Central Asia-
Caucasus Analyst, March 7, 2007.

---

CRS-17
of ethnic Georgians in the public schools. Russia sent its ambassador back to Tbilisi
in January 2007, but continued to restrict most trade.
Russia’s move to ease some visa restrictions in late July 2007 raised hopes of
a thaw in Georgia-Russia relations, but such hopes were quickly dashed in early
August 2007. Georgia alleged that some aircraft were tracked on its radars as they
entered the country’s airspace from Russia, and that one launched a missile which
failed to detonate. A group of experts from Latvia, Lithuania, Sweden, and the
United States concluded on August 14 that one aircraft entering from Russia dropped
a Russian-designed KH-58 (NATO designation AS-11 Kilter) anti-radar air to
surface missile. Another group of experts from the United Kingdom, Estonia, and
Poland similarly concluded on August 20 that one or possibly more aircraft had
flown from Russia into Georgian airspace, and that one had launched a KH-58U. A
group of experts representing the CIS, on the other hand, asserted on August 22 that
the incident was a Georgian fabrication. An OSCE emissary on September 6
declined to support either Georgia’s or Russia’s version of events, but he did
advocate a greater OSCE presence (an earlier OSCE presence along the Georgia-
Russia border, however, had been ended at Russia’s insistence in 2005).42
Seeming to add to worsening relations, Georgia seized two North Ossetian
peacekeepers in late August on the grounds that they had harassed Georgian
journalists. The Russian Foreign Ministry stated on September 13, 2007, that the
“open arbitrariness against the Russian citizens goes beyond the norms of civilized
interstate intercourse.”43
Caspian Energy Resources. Russia has tried to play a major role in future
oil production and transportation in the Caspian Sea region. At the May 2002 U.S.-
Russia summit, the two presidents issued a joint statement endorsing multiple
pipeline routes, implying Russia’s non-opposition to plans to build oil and gas
pipelines from Azerbaijan to Turkey that do not transit Russia. In early 2004,
however, a Russian official stated that Putin wanted to ensure that the greatest
volume of Caspian energy flowed through Russia.44
In early 2006, Russia charged all three regional states much more for gas. In
May 2006, Armenia agreed to relinquish various energy assets to Russian firms as
42 Report from the International Group of Experts Investigating the Possible Violation of
Georgian Airspace and the Recovered Missile Near Tsitelubani, Georgia, 6 August 2007,
August 14, 2007; Second Independent Inter-Governmental Expert Group (IIEG-2). Report
Investigating Possible Violations of Georgian Airspace and the Recovered Missile near
Tsitelubani, Georgia, 6 August 2007, August 20, 2007; States News Service, Press
Conference by Russian Federation, August 21, 2007; CEDR, August 8, 2007, Doc. No. CEP-
950011.
43 CEDR, September 14, 2007, Doc. No. CEP-950064.
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.

---

CRS-18
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
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
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.

---

CRS-19
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 June 2007 summit of the Group of Eight (G-8) industrialized countries,
President Putin 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 Aliyev reportedly stated that the possible joint U.S.-Russia use of the radar
might enhance Azerbaijan’s strategic ties with both countries. A U.S., Russian, and
Azerbaijani delegation toured the radar site in September 2007.
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.
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).
47 CEDR, November 27, 2006, Doc. No. CEP-358003. For background, see CRS Report
RS21319, Georgia’s Pankisi Gorge, by Jim Nichol.
48 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.

---

CRS-20
Russia’s Bases in Georgia. In 1999, Russia and Georgia agreed to
provisions of the adapted Conventional Armed Forces in Europe (CFE) Treaty
calling for Russia to reduce weaponry at its four bases in Georgia, to close two of the
bases (at Gudauta and Vaziani) by July 2001, and to complete negotiations during
2000 on the status of the other two bases (at Batumi and Akhalkalaki). 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
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. New pipelines delivering
oil and gas westward from the Caspian Sea reflect cooperation between Azerbaijan,
Georgia, and Turkey.
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
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.

---

CRS-21
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 and to counter U.S.
influence. Iran’s plans for better relations with Azerbaijan have appeared to be
jeopardized by its alleged suppression of rising dissent among “Southern
Azerbaijanis,” but the leaders of both countries hailed close ties during President
Mahmud Ahmadinezhad’s Baku visit in August 2007. The two presidents signed
accords on facilitating Azerbaijan’s access to its Nakhichevan exclave and on
cooperating in dam-building. President Ahmadinezhad supported Azerbaijan’s
territorial integrity and Baku blocked an attempt by some “Southern Azerbaijanis”
and others to protest the visit. 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
received more than $1 billion in U.S. aid FY1992-FY2005 (the others are Russia,
51 See CRS Report RL32048, Iran: U.S. Concerns and Policy Responses, by Kenneth
Katzman.

---

CRS-22
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. In Foreign Operations Appropriations for FY1998
(P.L. 105-118), Congress created a new South Caucasian funding category to
emphasize regional peace and development, and since then has upheld this funding
category in yearly appropriations. 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 August 2007 that it had so far disbursed $29.04 million to Georgia, although plans
had called for disbursing over $157.3 million by the end of the year.
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
August 2007 it had disbursed $5.94 million to Armenia, and planned a total
disbursement of $12.6 million by the end of the year.
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].

---

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, then-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. The 16-month SSOP was
launched in early 2005 as a follow-on to the Georgia Train and Equip Program
(GTEP).54 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.55 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 in May 2007 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.”56 (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 In
November 2004, Gen. Charles Wald, then-deputy head of EUCOM, suggested that
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 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.
55 “U.S. Allocates $30 mln for SSOP Army Training Program,” Civil Georgia, July 17,
2006.
56 U.S. Senate. Committee on Armed Services. Statement of General Bantz J. Craddock,
May 17, 2007.
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.

---

CRS-24
the Administration was exploring the establishment of “cooperative security
locations” (CSLs) — sites 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.

---

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.

---

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 Greece and Turkey plan to inaugurate the
opening of a gas pipeline connection in September 2007. 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 a small
fraction of the European Union’s gas needs, according to some analysts, providing
a source of supply besides Russia.
In March 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 June 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. On August 16, 2007, the U.S. Trade
Development Administration granted Azerbaijan $1.7 million to fund feasibility
studies on building both an oil and a gas pipeline across the Caspian Sea to link to
the BTC pipeline and the SCP. Some analysts raise concerns that without a trans-
Caspian gas pipeline, there will not be enough Azerbaijani gas to fill the Nabucco
pipeline, and argue that Iran also should be considered as a gas supplier.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
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.

---

CRS-27
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. China appeared to
complicate the plans of both Russia and the West when it signed accords with
Turkmenistan and Kazakhstan in August 2007 on building oil and gas pipelines to
the east.
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
of supply. Azerbaijan agreed to supply some gas, but Georgia was forced to purchase
some Russian gas.
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
P.L. 110n17 (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.
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).
P.L. 110-53 (H.R. 1, Bennie Thompson)
Implementing the 9/11 Commission Recommendations Act of 2007. Introduced
on January 5, 2007. Passed the House on January 9, 2007. Passed the Senate with
an amendment in the nature of a substitute on July 9, 2007. Conference report
(H.Rept. 110-259) agreed to in the Senate on July 26 and in the House on July 27.
Signed into law on August 3, 2007 (P.L. 110-53). Title 21 calls for the executive
branch to promote democratization and respect for human rights in nondemocratic
and democratic transition countries. Sec. 2033 calls for expanding scholarship,
exchange, and library programs in predominantly Muslim countries to enhance
respect for democracy and human rights.
65 Platt’s Commodity News, May 31, 2007.

---

CRS-28
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.
Passed the Senate on September 6, 2007; conferees appointed. The House
Appropriations Committee recommended $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 recommended $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 Committee recommended that that up to $6 million
be made available to address humanitarian needs in NK. The Senate Appropriations
Committee called 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
Committee supported the Administration request for $114.8 million to construct a
new embassy in Azerbaijan and $10 million for FMF for Georgia. The Committee
recommended that funds be made available to address humanitarian needs in NK.
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. Referred to the Committee on Finance.
H.Con.Res. 183 (Hastings)
A concurrent resolution calling on the Azerbaijani government to release Farhad
Aliyev and Rafiq Aliyev from detention pending a fair and open trial. Introduced on
July 12, 2007. Referred to the House Committee on Foreign Affairs.

---

CRS-29
Table 1. U.S. Foreign Aid to the Region,
FY1992-FY2006, and FY2008 Request
(millions of dollars)
FY1992-
South
FY2005
FY2006
FY2005
FY2007
FY2008
Caucasus
Budgeted
Budgeted
Budgeted
Estimateb
Requestb
Country
Aida
Aida
Aida
Armenia
1,581.09
91.01
89.66
65.7
40.781
Azerbaijan
588.72
79.15
88.97
40.81
27.409
Georgia
1,611.17
126.87
153.01
75.95
66.421
Regional
38.73
2.03
11.1
NA
—
Total
3,819.71
299.06
342.74
182.46
134.611
Percent
13.6
15
17
28
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.
a. FREEDOM Support Act and Agency budgets.
b. FREEDOM Support Act and other Function 150 funds. Includes Peace Corps funding, but 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.
Figure 1. Map of the Region
crsphpgw

---