BAKU’S OIL BOOM

August 6, 2006
The Chrnical Herald

Azerbaijan gets a jump on its neighbours in developing Caspian Sea oil
By SCOTT TAYLOR

BAKU, Azerbaijan— "It’s getting too bloody soft around here for my liking," says Terry, a 46-year-old ex-British paratrooper who now runs a bar in Baku. "It used to be the case that the sight of a foreigner in Azerbaijan was so rare that the locals would stop and gawk at you when you walked down the street."

Missing a front tooth and sporting a shaved head, the barrel-chested combat veteran would likely still create a stir in most civil societies. But over the past decade the renewed oil boom has brought a cast of such characters into this previously isolated former Soviet republic.

In 1994, the newly independent Azerbaijani government signed a deal with several Western companies to develop and export the vast, untapped offshore oil and gas reserves in the Caspian Sea. British Petroleum is the key player in this region, with established pipelines through neighbouring Kazakhstan. The experience gained in its North Sea oil projects has given BP a tremendous advantage in the international race to develop the Caspian Sea reserves. As a result, Azerbaijan has kept well ahead of the other four nations who share a border on this newly discovered wealth.

"The Russians, Iranians, Kazakhs and Turkmens have no idea how much oil we are already pumping through (BP’s) oil rigs," said Terry, who spent 10 years in the region as a BP employee before opening his pub, the Garage, which caters strictly to foreign oil workers. "Our gap on the competition in terms of technology would need to be measured in light-years."

The outer-space analogy is appropriate, as a patron in the Garage describes expatriate bars in Baku as being like the intergalactic nightclub in the Star Wars movies, "only instead of strange individuals from foreign planets, they are bizarre representatives from across the globe."

The original bars and clubs were deliberately rough around the edges to appeal to the mostly ex-military types who blazed the trail through this previously non-Westernized territory. For instance, at the Garage they serve bowls of free hot french fries at the bar instead of the traditional peanuts ("I’m an Englishman, not a monkey," says Terry when asked about this custom). But as the boom in the Azerbaijan economy — 25 per cent growth last year in GDP alone — spreads into sectors outside the oil industry, the hospitality business has begun to cater to a much greater variety of foreign tastes.

"First it was McDonald’s, then a whole bunch of fancy restaurants and now we’ve even got expensive wine bars," bemoaned the Garage’s owner. "Baku will never be the same."

This recent wave of change will not be the first time outside forces have left an indelible imprint on Azeri society and culture. As descendents of central Asian Turkic tribes, the Azeris are essentially Muslim Turkmen. But in 1920, Russian Bolsheviks occupied the oil-rich territory of the current Republic of Azerbaijan. The subsequent seven decades of communism and Russian influence drastically diminished the Islamic influence in this region.

Throughout my weeklong visit I spotted just one Azeri woman wearing a traditional hijab; most dressed in Western-style, MTV-inspired fashions. Although minarets and mosques still dot the cityscape, the call to prayers is not broadcast over loudspeakers five times a day.

Culturally, the long period of Soviet control has left an ongoing legacy of authoritarianism. Journalists are still escorted about the city by official handlers wearing dark suits and driving old black Volgas, once considered a "Mercedes equivalent" in the Soviet Union. On the plus side, many of the hosted luncheons were capped off by the Russian tradition of exchanging elaborate toasts with over-proof vodka — certainly not something one would expect from a member nation of the Organization of the Islamic Conference.

The impact of the sudden economic boom in Azerbaijan is illustrated by the two separate currencies. The worn-out manats are valued at 4,800 US, while the crisp new (Yeni) mantas trade in at about $1.20 US. Of course, with such a tremendous influx of foreigners, a lot of international currency is also accepted in the marketplace, although Canadian dollars have yet to be introduced.

"It is regrettable that we have achieved the lowest of co-operation from Canada among all of the world’s developed nations," says Novruz Mammadov, special adviser to the president. "It is frustrating for us when we see so little interest in something which holds so much potential." Canada is alone among the G8 nations to have no diplomatic representation in Baku, and the nearest consular functions are conducted either in Ankara, Turkey or Moscow.

"In the 15 years since independence, Canada has sent just two official delegations to visit our country, one from your foreign ministry in 2005 and some members of Parliament back in 2003," says Mammadov

The Azeris, on the other hand, maintain a full embassy in Ottawa and are keen to encourage Canadian trade. After years of Soviet communism and post-collapse instability, the Azerbaijan infrastructure is in need of just about every commodity conceivable. Add to this the vast oil revenues and ongoing development in the region, and the Azeri government is in a cash-rich position to acquire its needs.

"You have to remember that we are starting from absolute zero — we need just about everything," said Mammadov. "There are still tremendous opportunities for international companies in the energy field, telecommunications, agriculture, electronics — the list is endless. And we have the revenue to pay for it."

One drawback to foreign investment is that in the immediate post-Soviet climate, corruption was rife. Every level of government — right down to the policeman on the street — wanted a piece of the huge windfall that was expected to follow development of the oil fields. But as the volume of foreign business increases, such practices are being more seriously challenged.

An ad in a Baku English-language daily newspaper calls upon foreign corporations to create an investor forum to fight corruption. It’s not easy doing business in Azerbaijan, reads the headline. Corruption? Unfair practices? Vague regulations? Unjust courts? Monopolies? Unseen traps for investors? Together, let’s try to change things!

Another sign that the flow of new money is having an impact is that the police are no longer as aggressive in their encounters with foreign nationals. "One night the local police stopped a BP employee on his way home from the bar. When he refused to pay them the usual ‘We’ll let you go this time’ bribe, they locked him in jail," said Hermann Lehmann, a six-year veteran on the Azerbaijan oil scene.

"The next day, when he informed his bosses at BP, they immediately demanded justice and heads rolled at the police station. Believe me, money talks in Baku."


A reputable free press has yet to be established in Azerbaijan. A recent report by the international watchdog agency Freedom House strongly criticized the ruling party (New Azerbaijan Party) for "eroding democracy" through media controls. The chairman of the Azerbaijan Press Council, Aflatun Amashov, admits journalism in his country has no credibility but says the problem is a lack of control.

"There are 3,000 registered newspapers in Azerbaijan, most funded by various political interests, and there is no control mechanism to challenge libellous statements," he said. "Everyone is free to publish what they want. You can even libel the president without real fear of recrimination. As a result, the media reports have become so contradictory and sprinkled with lies that no one knows what to believe."

Amashov and his council are lobbying the government for more money for independent media to diminish their vulnerability to political pressure. They are also working on initiatives such as freedom of information legislation to help build a legitimate news media. "These things will inevitably take some time," said Amashov. "You cannot create a climate for a western-style free press overnight."

Westernizing Azerbaijan seems to be the cornerstone of government policy. Virtually every official I interviewed proclaimed: "We are a European nation — our values are oriented toward the West." Given the country’s pivotal location in the Caucasus region, this shift in attitude threatens to alter the international trade balance.

When Alexander the Great conquered Baku in the third century BC, he proclaimed it to be "the gateway to China" — the vital link between eastern and western civilizations. In addition to development of the Caspian Sea oil reserves with western corporations, Azerbaijan is also the key link in the newly built Baku-Tblisi-Ceyhan pipeline. The pipeline is already carrying vast amounts of oil through Georgia to the Turkish Mediterranean seaport of Ceyhan; within a few months, it is expected to deliver one million barrels of oil per day.

Tension between the U.S. and Iran also puts the Azeris in a very delicate situation. In addition to the 8.5 million people living in the independent Republic of Azerbaijan, about 17 million ethnic Azeris live within the borders of Iran. This division occurred in 1828, when Imperialist Russia and Iran divided the territory.

Azeris constitute about one-third of Iran’s population. Although until recently the nationalist sentiment of Azeri-Iranians has been tempered by their strict adherence to the Shiite fundamentalist movement, there are indications that a rift is developing between them and the Persian majority.

In May, Iranian newspapers published a controversial cartoon that depicted Azeri-Iranians as cockroaches too dumb to realize what they were. This prompted several days of violent protests throughout northern Iran, culminating in a riot in the town of Naghadeh that left four protesters dead and more than 70 injured. Iranian authorities were quick to respond by arresting the cartoonist and editor responsible for the offending graphic, and calls rang out for the impeachment of the interior minister for the mishandling of the crisis.

Naturally, Tehran blamed the U.S. State Department for trying to ignite the flames of Azeri nationalism. During the wave of demonstrations, U.S. agencies and nationalists in Azerbaijan used the Internet and radio broadcasts to whip up protesters. While the Azerbaijani government denies that any policy exists to establish stronger links to Azeri-Iranians, it does recognize there will only be an increase in such sentiments in the coming years.

"What do you think will happen when Azeri-Iranians look north of their border and see their brothers enjoying a prosperous democratic lifestyle with all the western amenities which they are denied?" asked Samad Seyidov, director of the foreign relations committee to the European Union.

Another concern for Tehran as the U.S. steps up the sabre-rattling is the ever-increasing military ties between Azerbaijan and NATO. Although officially denied, the presence of British and American forces along the Azerbaijan-Iran border is an open secret throughout Baku. More openly, the government proudly proclaims its contributions to the U.S.-led war against terrorism. "We have troops in Iraq, Afghanistan and Kosovo; furthermore, as a secular Islamic nation that recognizes and has good relations with the state of Israel, I believe we are a key ally of the United States," said Seyidov

How deep that relationship has developed may soon be put to the test over the unresolved issue of the Armenian occupation of the Nagorno-Karabakh region, now mainly under Armenian control.

The Azeri-Armenian conflict over Armenian separatist aspirations in Nagorno-Karabakh dates back more than a century. Although the Organization for Security and Co-operation in Europe has recommended that inhabitants of the region, mostly of Armenian descent, be allowed to vote on their area’s fate, Azerbaijan has said it cannot agree to the region’s secession.

"With the completion of the B.T.C. pipeline, their increased military capability and key regional strategic significance, the Azerbaijanis have certainly increased their bargaining position (with regards to Nagorno-Karabakh)," said one Baku-based U.S. official. "However, you have to remember that there are 1.2 million Armenians residing in America and they are too powerful a lobby to ignore."

While Armenia cannot keep pace with Azerbaijan’s recent arms build-up, it can still count on potential political and possible military support from both Russia and Iran. Armenia’s tactical deterrent to any Azeri military offensive to retake the occupied territory is the threat of missile strikes against Azerbaijan’s oil infrastructure. The new pipeline tops the list of potential targets. For their part, Azeri military officials are coy about any possible time frame for an offensive, but they are convinced the disputed territory will one day be back under their control.

"Sooner or later we will come to terms with the Armenians, given the steady growth of (Azerbaijan’s) military strength," said Maj.-Gen. Ramiz Najafov. "Up until now we have shown patience in our resolve for a peaceful solution, but our patience is not endless."

For the foreign ex-pats in Baku, it is apparent that the Azeri government has very limited options in dealing with this conflict. "Before he died, the old man (Heydar Aliyev) promised that he would take (Nagorno-Karabakh) back," said Terry, the publican. (Aliyev was the former member of the Soviet politburo who led the country to independence from the Soviets in 1991.) "Now he is revered as a virtual saint and as president, his son (Ilham Aliyev) has inherited that legacy. It’s not a matter of ‘if,’ but rather when they try to settle this again."

In the meantime, the oil continues to flow, the revenue pours in and Azerbaijan sits at the vortex of what is a potential perfect storm of geopolitical, cultural and strategic interests.

staylor

Scott Taylor is a columnist for The Chronicle Herald and editor-in-chief of the military affairs magazine Esprit de Corps. Second of a two-part series by The Chronicle Herald’s military affairs columnist.



Note: Above are excerpts from the article. The full article appears here. Clarifications and comments by me are contained in {}. Deletions are marked by [...]. The bold emphasis is mine.