VZCZCXRO5761
RR RUEHBC RUEHDE RUEHDIR RUEHKUK
DE RUEHKB #1069/01 3121331
ZNR UUUUU ZZH
R 071331Z NOV 08
FM AMEMBASSY BAKU
TO RUEHC/SECSTATE WASHDC 0316
INFO RUCNIRA/IRAN COLLECTIVE
RHMFISS/CDR USEUCOM VAIHINGEN GE
RUEAIIA/CIA WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEKDIA/DIA WASHDC
RHEHNSC/NSC WASHDC
RUEKJCS/SECDEF WASHDC
RUEKJCS/JOINT STAFF WASHDC

UNCLAS SECTION 01 OF 03 BAKU 001069 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PREL ENRG ECON RU IR AZ
SUBJECT: IRAN-AZERBAIJAN SNAPSHOT AND OVERVIEW 
 
¶1.  This cable provides a general unclassified snapshot of 
Iranian political, economic, and commercial activities in 
Azerbaijan, outlining apparent evolving Iranian regional 
priorities and recent and pending developments in bilateral 
political and economic relations.  Many issues noted in the 
cable have been or will be the subject of more detailed 
reporting, and this overview will be updated periodically to 
ensure its continued utility as a general unclassified 
reference.  In this context, comments, questions, and/or 
requests for inclusion of additional topics in future 
snapshots are welcomed. 
 
¶A.  General Background 
----------------------- 
 
¶1.  Iran made a major effort in the early 1990s toward 
economic and political subversion of Azerbaijan including 
subsidizing a pro-Iranian Islamist movement and other 
activities.  These were mostly mopped up in the mid-1990,s 
by former President Heidar Aliyev, and subsequent bilateral 
relations have generally gravitated between mildly surly to 
smilingly correct (which is basically the current state). 
 
¶2.  Azerbaijan currently provides refuge to a small number of 
Iranian regime opponents, including monarchists and 
Iranian-Azerbaijani pan-Turks, autonomists, and separatists 
(far more ethnic Azeris live in Iran than Azerbaijan). 
Azerbaijan,s relatively cool posture towards Iran contrasts 
with its much warmer relations with Turkey, with which it 
frequently exchanges official visits. 
 
¶3.  Iran continues to make propagandistic TV broadcasts 
visible in the south of Azerbaijan, including a widely 
watched Azeri language current events show that includes 
gossip and stories embarassing to the GOAJ, and often 
challenges the secular policies of the government.  At the 
same time, economic cooperation is modestly increasing, and 
some irritants such as violations of Azerbaijani airspace and 
sea space by Iranian military have reportedly decreased 
greatly over the last few years. 
 
Education: Iranian Students in Azerbaijan 
----------------------------------------- 
 
¶4.  More than 2,000 Iranian students are currently studying 
in Baku, most from Iranian Azerbaijan.  Unlike students in 
Armenia and many other countries, these students are not 
entitled to GOI loans or subsidies, and many reportedly 
experience considerable harassment and red tape when they 
return to Iran.  Ability to study in the Azeri language, 
freer life style, and relatively easy cash-based admissions 
policies at many Azerbaijani universities are key attractions 
cited by Iranian student interlocutors. 
 
¶5.  For its part, Iran provides material support to some 
Farsi language schools, and allegedly entices village and 
lower-income Azerbaijani children with all-expenses paid Iran 
study scholarships (some reportedly including stipends for 
their families). 
 
Possible Aliyev Visit to Iran 
----------------------------- 
 
¶6.  The desirability and even &imminence8 of an official 
visit by President Aliyev is a frequent public theme of GOI 
diplomats, including Foreign Minister Mottaki.  These 
assertions are almost invariably met with silence by the 
GOAJ.  Some interlocutors assert that Aliyev is loath to 
visit Iran in the absence of concrete progress in areas of 
bilateral tension, including Caspian demarcation and de facto 
Iranian support for Armenia. 
 
¶7.  Nonetheless, an official visit to Iran by Aliyev is 
likely sometime during 2009, given recent geopolitical 
developments and related improved energy ties (see below). 
The GOAJ is also cognizant of the need to repay President 
Ahmadinejad,s August 2007 official visit to Baku. 
¶B.  Regional Political Picture 
------------------------------ 
 
¶8.  The Russian invasion of Georgia cast a shadow over 
security and stability in the region.  Though a bit slow off 
 
BAKU 00001069  002 OF 003 
 
 
the mark, since the Georgian invasion Iran has been 
attempting to assert a position as a key regional player with 
a significant role to play in stabilizing the region. 
 
¶9.  Since last September, Foreign Minister Mottaki has made 
high profile visits to Baku, Moscow, and other regional 
capitals to lobby for an ill-defined Iranian Caucasus 
stability plan which appears to have gotten nowhere.  Local 
interlocutors speculate that Iran welcomes increased Russian 
influence in the region so long as this comes at the expense 
of the U.S. and the West, and sees itself (not Russia) as the 
long-term winner in such an eventuality. 
 
¶10.  Iran may also be attempting to insert itself more 
aggressively as a player in the Armenia-Azerbaijan/Nagorno 
Karabagh issue, adopting a dismissive stance towards the 
Minsk Group (Russia, France, and the USA) that are the 
official mediators between Azerbaijan and Armenia. 
 
Iran,s &Me-Too8 Caucasus Plan 
----------------------------- 
 
¶11.  Iran was not included as a notional member of Turkey,s 
proposed &Caucasus Stability Pact,8 postulated in early 
September.  Iran,s subsequent regional activity, including 
Mottaki,s recent flurry of visits to neighboring capitals 
and vague talk of submitting a new Caucasus policy plan, does 
not seem to be paying off yet in terms of any significantly 
increased Iranian role or influence.  Interlocutors here 
bluntly characterized Iran,s recent Caucasus efforts as 
essentially catch-up and &me-tooism8 in response to the 
Turkish initiative. 
 
C Economic Issues/Relations 
--------------------------- 
 
Energy 
------ 
 
¶12.  For several weeks during the Russia-Georgia conflict, 
Azerbaijan reportedly utilized   Iran as an outlet for some 
oil exports blocked from Georgian ports, and Iran has been 
quick to emphasize the value to Azerbaijan of maintaining 
this alternative energy route.  Azerbaijan,s state oil 
company, SOCAR, announced in September that it will soon open 
a permanent office in Teheran, its third overseas office. 
Meanwhile, Iran and Azerbaijan have regularized the supply of 
gas and electricity to the Azerbaijani enclave of Nakchivan 
based on energy swaps, and is cooperating on a related border 
hydroelectric project. 
 
Energy Infrastructure Issues 
---------------------------- 
 
¶13.  The Iranian company NICO, which serves as the National 
Iranian Oil Company's (NIOC) marketing arm, is a ten-percent 
partner in the large Shah Deniz energy consortium, which is 
Azerbaijan,s (and the Caspian Sea,s) largest offshore 
producer of gas.  In addition, Iran (as well as Russia) 
continues to offer to buy all Shah-Deniz "Phae II" gas 
(thereby torpedoing current USG and European-supported plans 
for new pipelines bringing Caspian gas to Europe, and 
increasing the probability of an Iran-Europe energy 
connection).  Neither this nor the Russian offer are 
currently taken seriosly by the GOAJ, which (in addition to 
other reasons) prefers a direct tie to the European market. 
 
¶14.  As a consortium partner, NICO is also entitled to ten 
percent of the multi-billion-barrel oil condensate reserves 
also being tapped into at the Shah Deniz field, but due to 
international/USG sanctions, NICO is unable to ship its share 
of this condensate through the BTC pipeline.  NICO reportedly 
plans to use a new energy terminal being constructed by a 
private Azerbaijani company, and a related proposed pipeline 
project, to transport its share of the oil condensate from 
Azerbaijan to Iran. 
 
¶15.  Iran also continues to tout to international oil 
companies in Baku its expanding energy infrastructure at the 
Caspian port of Neka, and a related proposal to build a new 
oil pipeline from Neka to Jask on the Indian Ocean. 
 
Iran: Not a Business Magnet for Azerbaijanis... 
 
BAKU 00001069  003 OF 003 
 
 
-------------------------------------------- 
 
¶16.  According to local interlocutors, Azerbaijani 
entrepreneurs have little interest in investing in Iran due 
to government interference and red tape, unreliability of 
Iranian contracts, and faster and more lucrative returns on 
investment offered domestically and by Russia, Ukraine, &and 
even Moldova.8  Most Iranian agricultural products and hard 
goods are also reportedly unattractive to Azerbaijani buyers, 
&due to issues of price and quality.8 
 
Iranian Business Activities in Azerbaijan 
----------------------------------------- 
 
¶18.  In contrast, several local sources claim that Iranian 
traders and entrepreneurs are increasingly active in 
Azerbaijan.  The Iranians are allegedly participating in the 
Baku construction boom by purchasing apartments and by 
providing wide varieties of inputs, including 
Iranian-produced plaster, marble, furniture, kitchen wares, 
and other materials.  In addition, Iranian suppliers and 
shippers allegedly play a large role in the purchase and 
transportation to Azerbaijan of electronics, appliances, and 
similar items from the UAE.  Iranians are also active in 
local service, tourism, and financial sectors. 
 
¶19.  For example, dual-citizenship Iranians own two 
Baku-based bank companies, a telecommunications/internet 
company, and agro-business and oil services companies, and 
manage the major international hotel.  An undetermined number 
of Iranian-Azerbaijani (or other national) joint venture 
companies also operate here, including at least one insurance 
company that was shut down in March 2008 by the GOAJ Ministry 
of Finance due to unspecified &repeated violations.8  Many 
interlocutors report that tourism from Iran is visibly 
increasing, and several travel agencies and small hotels are 
allegedly catering to this business. 
 
Proposed Tri-Country Railroad 
----------------------------- 
 
¶20.  A proposed tri-country railroad consortium linking Iran 
with Russia through Azerbaijan could have a significant 
impact on regional commercial and economic relationships. 
Although the proposal has been around for several years, it 
may have picked up some steam recently following a Russian 
government commitment to underwrite a feasibility study to be 
completed by the end of this year.  Both Iran and Russia have 
expressed strong support for this railroad, while GOAJ 
support has been more cautious. 
 
¶21.  A major alleged sticking point is alleged Iranian 
inability up to now to dedicate the estimated 280 million 
Euros needed to build its share of the proposed rail line; 
other issues include a possible connection to Armenia 
(opposed by Azerbaijan), and disputes within Azerbaijan over 
the political, commercial, and economic costs and benefits 
likely to result from the proposed project.  According to 
some sources, GOAJ support for this project (assuming it is 
realizable) may be growing. 
 
Iranian Medical Care:  The Best in the Region? 
--------------------------------------------- - 
 
¶22.  Compared to other regional options, Iranian medical 
facilities and doctors are highly regarded, and Iran is 
reportedly increasingly favored as a destination over 
Azerbaijan and Russia by middle-class individuals in need of 
significant medical care.  Even an ethnic Russian 
interlocutor asserted that, apart from expensive facilities 
in Moscow and Petersburg, the quality of Iranian medical care 
is the best in the region. 
DERSE