Azerbaijan's Foreign Policy Agenda

IMGXYZ409IMGZYXOn August 4, The Carnegie Endowment for International Peace hosted Elmar Maharram Mamedyarov, Minister of Foreign Affairs of the Republic of Azerbaijan. Carnegie Senior Associate Martha Brill Olcott chaired the meeting. Mamedyarov’s remarks are summarized below.

The transition from a command to a market economy has not been easy for Azerbaijan, which returned to its 1990 level of economic development just this year. In moving forward the country must take particular care to avoid the Dutch Disease, that is, the overdevelopment of resource-exporting industries and the neglect of the rest of the economy. Seventy-five percent of the state budget currently comes from energy, and that is too high a figure. Since 2001 the government has directed some energy revenues into the State Oil Fund of Azerbaijan (SOFAZ) to reduce macroeconomic distortions and ensure intergenerational equity. More recently Azerbaijan has begun depositing windfall energy revenues into a Stabilization Fund, as insurance against a drop in oil prices below the level forecast in the budget. [In 2004 that level was US $20 per barrel.]

Nonetheless there are several ongoing energy sector projects that promise to boost the economy. Azerbaijan completed its portion of the Baku-Tbilisi-Ceyhan (BTC) oil pipeline on May 25, 2005. When operational this US $3 billion pipeline will carry one million barrels per day. Work on the Baku-Tbilisi-Azerum gas pipeline will conclude in 2006. Azerbaijan estimates that its energy revenue over the next thirty years will amount to some US $160 billion. In the longer term the country hopes to exploit not only its own energy resources, but also its geo-strategic location, which may prove vital to many regional transport and energy-transport projects.

Politically Azerbaijan seeks integration into Euro-Atlantic political structures. It already receives army reform aid from NATO and is one of the partner states for the EU’s European Neighbourhood Policy. Azerbaijan is in the process of harmonizing its legislation with Council of Europe standards. Recent meetings with US policymakers, including Secretary of State Condoleeza Rice, have been very promising.

To facilitate this political integration with the West, Azerbaijan is continuing its process of democratization. It already has the most developed civil society in the South Caucasus. President Ilham Aliyev is committed to free and fair elections. During Azerbaijan’s last elections the country hosted 3,000 observers, half of them foreigners. Opinion polls show the citizens are satisfied with the performance of the government. Thanks to this democratic development corruption is down for the first time since independence. While of course some aspects of the political system could be improved, democracy is a generational issue. Recognizing this, Azerbaijan is focusing on educational reform. Soon more and more schools will have internet access and will be better able to prepare their pupils for citizenship.

Azerbaijan faces terrorism, as do all states in the modern world. There have been 32 terrorist attacks in Azerbaijan, which have killed 3000 people. The Armenian secret service was behind some of these. Azerbaijan also has its own particular security problem in Nagorno-Karabakh. Meetings with the Armenian side continue, but there is a long way still to go. Yerewan is sending mixed messages and does not understand that one can’t change borders with an avtomat Kalashnikov (Kalashnikov rifle).

Q&A

—The recent flights from Azerbaijan to North Cyprus were private and served businesspeople interested in investigating new opportunities.

—Armenia is not likely to make trouble for the BTC pipeline, because that’s not in its interests.

—Azerbaijan’s relationship with Iran will not change much in the near future.

—Baku is very polluted, but cleaning it up will take a lot of money. Azerbaijan won’t push western oil companies to do the cleanup, especially because in many cases they weren’t the ones responsible for the pollution.

—Azerbaijan is working closely with the US, because it is in the interests of the country. But it must also work with Iran because of the Armenian blockade.

—The US House resolution calling for freer elections in Azerbaijan is actually a sign that the two countries are engaging with each other in a constructive way.

—Azerbaijan’s new railroad to Turkey means the country will no longer be hostage to Armenia. Other Central Asian states will also benefit.

—No government has asked for a military base in Azerbaijan, which is trying to avoid any unnecessary military presence in the region.

Summary prepared by Matthew Gibson, Junior Fellow with the Russian and Eurasian Program.