Azerbaijan treads a cautious diplomatic path

By bne IntelliNews March 22, 2013

Andrew MacDowall in Baku -

Azerbaijan is in a situation that Poles can sympathise with - wedged between two powerful and occasionally belligerent neighbours, both of which have occupied and ruled it in the past. But while it has in common with Poland a difficult relationship with Russia, on its other flank lies not liberal democratic Germany, but theocratic and difficult Iran.

Azerbaijan's foreign policy, therefore, seeks to maintain cordial relations with both Moscow and Teheran, while resisting the powerful duo's attempts to exert a baleful influence within its borders. The third big power on the doorstep is Turkey, with which there are close linguistic and cultural ties.

Azerbaijan, a country of just 9m people, is in the fortunate position of having abundant hydrocarbon resources that make it important beyond its immediate region; growing energy ties with Europe should boost its external security, while allowing it quietly to build economic and diplomatic influence in emerging markets.

But ask Azerbaijani officials what their single biggest foreign policy priority is, and many will say something else: the issue of Nagorno-Karabakh, a mountainous region internationally recognised as part of Azerbaijan but occupied by Armenia. The two countries fought a war over Nagorno-Karabakh between 1988 and 1993 as the Soviet Union crumbled, and since then this has remained one of the world's most intractable frozen conflicts: frozen, that is, apart from sporadic but all-too-frequent fatal cross-border shootings.

The region was majority-Armenian before the war and today, following ethnic cleansing and flight, even more so. Even so Baku insists on it being restored to Azerbaijani rule, in line with Soviet-era borders. Elnur Soltanov, assistant professor at the new Azerbaijan Diplomatic Academy, which has close links to the government, tells bne that while Azerbaijan seeks "the end of the military occupation," Baku is willing to offer "the highest possible autonomy within Azerbaijan... to reconcile territorial integrity and self-determination" and that its position is still open to negotiation.

Currently, he says, the suspicion is that Armenia is using the sporadic peace talks as an excuse to maintain the status quo rather than to make concrete progress towards a solution.

Internationally, few believe there is much hope of a breakthrough anytime soon. "Negotiations will continue and will be promising from time to time, but barren of results," says Charles Fairbanks, an American academic and Caucasus expert currently based in Tbilisi. "The side which won is understandably very reluctant to give up its gains, even if it winds up being isolated; I'd bet very heavily against any resolution."

Michael Taylor, senior Eastern Europe analyst at Oxford Analytica, an analysis and advisory firm, points out that the Armenian military has the advantage of being literally dug in in the forested mountains of Nagorno-Karabakh, but argues that economics and demographics could play to Azerbaijan's advantage in the long term.

Baku has not ruled out a military assault to retake its territory. But while, according to Azerbaijani government sources, Azerbaijan's annual military spending exceeds Armenia's whole budget, Taylor says that the army's effectiveness is questionable. "War could break out by mistake," he tells bne. "But the international community, and particularly Russia, will do everything they can to prevent it."

Balancing act

Baku's uneasy relationship with both Moscow and Teheran is not unconnected to their support for Armenia. While the close relationship between Russia and Armenia is well known, Iran's influence is significant but often overlooked.

Azerbaijani officials are fairly straightforward about their desire to maintain independence from Russia, and about their suspicions that the Kremlin resents this; some claim that it backs opposition movements.

Similar fears are expressed about Iran's support of militant groups. Iran's religiosity and unpredictability unnerves Azerbaijan, a secular country that seeks security above all. The substantial Azeri population in Iran (estimates vary between 12m and 30m, the latter probably including other Turkic groups) is seen as providing a degree of insurance against Iranian aggression.

Soltanov says that "two out of three" of Azerbaijan's big neighbours (the other being Turkey) "have not scored well" on respecting its sovereignty and territorial integrity. But as both Fairbanks and Taylor note, Russia's power and importance in the Caucasus and beyond is a reality. Azerbaijan cannot entirely detach itself from its former ruler and instead seeks cordial relations, while seeking allies elsewhere to balance against Moscow's influence.

Turkey has historically been a rival to Russia and Iran in the Southern Caucasus, and is a natural ally for Azerbaijan, a secular Muslim country with a mutually intelligible Turkic language. Azerbaijan has benefitted from Turkey's economic and diplomatic Drang nach Osten (German for "yearning for the East") since the collapse of the Soviet Union, and particularly in recent years as Central Asia's energy wealth and strategic importance have risen. The Baku-Tbilisi-Ceyhan BTC) oil pipeline in particular has proved beneficial to both countries and their trading partners.

But both countries realize that the Baku-Ankara link cannot be so close as to crowd out other relationships. "Turkey continues to be very important for Azerbaijan," says Fairbanks. "But it no longer plays the role of dominant patron. Turkey's reconciliation with Armenia was ruined in the end, but that fact hat it was even contemplated shows how independent of Azerbaijani interests the [current Turkish] AKP government is. Azerbaijan may need Turkey more than Turkey seems to want Azerbaijan."

Well oiled

The key to Azerbaijan's security and independence arguably lies in its hydrocarbon resources - and not (just) because they can buy quite a lot of weaponry.

The country's oil and gas helps secure powerful friends beyond the Black Sea/Caspian region: the EU and US are well aware of the country's potential as an alternative source of energy to diversify Europe's supply and reduce its dependence on Russia. Azerbaijan's state energy firm Socar is gearing up to supply the EU's planned Southern Gas Corridor, which would take Azeri gas into the heart of Europe via the Balkans. If executed, it would provide an alternative to, or at least supplement, Gazprom's planned huge South Stream pipeline that will deliver Russian gas to the same markets. The scale of European, and particularly British, investment interests in Azerbaijan - BP is the single biggest source of foreign investment - also contributes to Western support for the country's independence and sovereignty, if not for massive efforts to resolve Nagorno-Karabakh in Baku's favour.

But it's not only Europe that Azerbaijan can sell energy to. Quietly, the country has established a remarkably close relationship with Israel, which sourced 40% of its oil from the Caucasus country via the BTC pipeline last year. In return, Israel sells arms that some Western countries are too squeamish to export.

Finally, hydrocarbon cash is helping fund both overseas investments and "soft power" initiatives. The State Oil Fund of Azerbaijan (Sofaz), a sovereign wealth fund, has a diversified portfolio worldwide, including a £180m office block in Mayfair, London, and other government-linked firms are scoping out opportunities in sectors including tourism.

As for soft power, oil money is helping turn central Baku into something of a set-piece capital of the Caspian and South Caucasus. And subtly, or otherwise, Azerbaijan is raising its profile through charitable projects. In Belgrade, for example, not only has the city's only remaining Ottoman mosque been restored with Azerbaijani money, but much to many locals' bemusement a chunky statue of the late Heydar Aliyev (father of the current president) stands in the historic Tasmajdan Park, which was renovated thanks to Baku's largesse.

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