VZCZCXRO9323
PP RUEHDBU RUEHLN RUEHVK RUEHYG
DE RUEHKB #0822/01 1800955
ZNR UUUUU ZZH
P 290955Z JUN 07
FM AMEMBASSY BAKU
TO RUEHC/SECSTATE WASHDC PRIORITY 3375
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUEHAK/AMEMBASSY ANKARA PRIORITY 2220
RUEHIT/AMCONSUL ISTANBUL PRIORITY 0058

UNCLAS SECTION 01 OF 03 BAKU 000822 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
H PLEASE PASS TO REP. TIERNEY'S STAFF 
 
E.O. 12958: N/A 
TAGS: PREL PGOV ECON ENRG PBTS IR RU AJ
SUBJECT: SCENESETTER FOR CODEL TIERNEY'S VISIT TO 
AZERBAIJAN, JULY 2-4 
 
 
SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET DISTRIBUTION. 
 
¶1. (SBU) President Aliyev's April 28, 2006 meeting with 
President Bush laid the foundation for advancing U.S. 
interests through a strengthened bilateral relationship. 
Azerbaijan is a key partner to the U.S. because of its 
geopolitical situation, its status as a secular, 
democratizing, Muslim country, and its key role in ensuring 
alternative energy supplies.  We hope that your visit will 
build on the momentum of President Aliyev's visit in the 
three key areas of our cooperation:  security, energy, and 
promoting democracy through political and economic reform. 
 
REGIONAL ISSUES 
--------------- 
 
¶2. (SBU) Azerbaijan's primary foreign policy goal is to 
preserve its sovereignty and independence.  To help achieve 
this goal, the GOAJ since the mid-1990s has pursued a policy 
of integration with Euro-Atlantic structures.  Azerbaijan is 
a member of NATO's Partnership for Peace Program, and is 
actively pursuing an Individual Partnership Action Plan 
(IPAP) that will increase Azerbaijan's NATO interoperability. 
 Azerbaijan and the U.S. have robust cooperation in border 
control and counter-proliferation programs, including the 
Cooperative Threat Reduction Program.  Since 2002, Azerbaijan 
has been a Member of the Council of Europe, and in October 
2006 signed a far-reaching Action Plan as part of the EU's 
New Neighborhood Policy.  Resolution of the Nagorno-Karabakh 
conflict figures prominently in Azerbaijan's foreign policy 
agenda, and the US continues to be actively involved in the 
OSCE Minsk Group's quest for a peaceful, negotiated 
settlement. 
 
¶3.  (SBU) Azerbaijan keeps a wary eye on its two powerful 
neighbors, Russia and Iran.  Sparked in part by Russia's 
heavy-handed gas politics, Azerbaijan has recently veered 
from its traditional practice of not publicly acknowledging 
tensions in the bilateral relationship. President Aliyev and 
other GOAJ officials have publicly criticized Russia's 
behavior in gas negotiations and questioned the viability of 
the Commonwealth of Independent States as an organization. 
Azerbaijan declined to purchase Russian gas, at great 
expense; arrested and sentenced a Ministry of Defense 
employee for spying for Russia; protested a Russian law 
clamping down on foreigner involvement in Russian retail 
markets; and decided to halt Russian television broadcast as 
of July - all of which have increased tensions.  Public 
tensions with Russia have eased considerably since the winter 
gas stand-off, and senior Azerbaijani officials have said 
that they welcome Russia's proposal to bring the Gabala radar 
station into a global missile defense system. 
 
¶4.  (SBU) Azerbaijan pursues a decidedly more low-key 
approach to its relations with Iran, balancing its pragmatic, 
daily needs (including trade, energy, and access to 
Azerbaijan's isolated Nakhchivan exclave) with its real 
differences with the Iranian government.  Although Azerbaijan 
is careful not to criticize Iran publicly, it worries about 
Iran's claims to oil fields in the Caspian and efforts to 
export terrorism and its brand of political Islam throughout 
the world, including in Azerbaijan.  The Iranian Government 
continues to send Azerbaijanis to Iran for religious studies, 
and Iran is widely believed to provide support for small, 
underground religious groups in Azerbaijan, support that is 
of concern to Azerbaijan's decidedly secular government.  In 
line with its careful relationship with Iran, the Azerbaijani 
Government has declared its support for Iran's right to 
develop peaceful nuclear programs but has also pledged to 
implement UN Security Council Resolutions 1737 and 1747. 
Iran's large ethnic Azeri population -- estimated to be 
nearly one-quarter of Iran's total population -- further 
complicates relations between the two countries; both the 
Iranian and Azerbaijani governments are careful not to 
endorse any actions that could be seen as advocating 
"unification" of "northern" and "southern" Azerbaijan.  Some 
Iranian-Azeri nationalist groups maintain offices in Baku. 
 
SECURITY: COOPERATION STRONG 
---------------------------- 
 
¶5. (U) Azerbaijan is a strong partner in the Global War on 
Terror. In Iraq, 151 Azerbaijani (Muslim) infantry troops 
stand alongside U.S. Marines guarding the Haditha Dam. 
Azerbaijan is also contributing troops in Afghanistan - and 
has pledged to double its contingent - and peacekeepers in 
Kosovo.  Azerbaijan provides blanket overflight rights for 
 
BAKU 00000822  002 OF 003 
 
 
U.S. aircraft, which allows the U.S. to sustain critical 
strategic access to sustain our operations in OIF/OEF. 
Azerbaijan also provides strong information sharing and law 
enforcement cooperation in fighting terror. 
 
¶6. (SBU) In May 2005, Azerbaijan agreed to an Individual 
Partnership Action Plan (IPAP) with NATO that has promoted 
good cooperation in a number of areas.  The USG and NATO 
partners support Azerbaijan's efforts to advance IPAP 
implementation.  In support of Azerbaijan's IPAP goal, the 
U.S. is working with the Ministry of Defense to make a 
military airfield "NATO compatible," which potentially could 
be used by NATO aircraft as a "gas and go" location for 
operations in Afghanistan. 
 
ENERGY:  MOVING BEYOND BTC 
-------------------------- 
 
¶7. (SBU) The Baku-Tbilisi-Ceyhan (BTC) First Oil ceremonies 
in Turkey in July 2006 highlighted the outstanding level of 
U.S.-Azerbaijani cooperation on energy issues and 
Azerbaijan's growing role as a regional energy producer and 
transit country.  In June 2006, Azerbaijan and Kazakhstan 
signed an Intergovernmental Agreement (IGA), which will 
facilitate the delivery of Kazakh crude to global markets via 
the BTC pipeline.  The completion of the South Caucus 
Pipeline lays the groundwork for gas exports to and through 
Turkey.  Full development of the Shah Deniz gas field, access 
to "deep gas" in the ACG field, and a possible new 
Trans-Caspian Gas pipeline would allow still higher volumes 
of Caspian gas to reach international energy markets, further 
enhancing European energy security.  On March 22, Secretary 
Rice and Foreign Minister Mammadyarov signed a Memorandum of 
Understanding on a Dialogue on Energy Security in the Caspian 
Region, an important public affirmation of our two countries' 
commitment to further development of the East-West energy 
corridor. 
 
¶8. (SBU) At the start of this winter, Gazprom offered 
Azerbaijan a 2007 gas contract of 1.5 billion cubic meters at 
USD 235 per thousand cubic meters, vice the 2006 contract of 
4.5 billion cubic meters at USD 110 per thousand cubic 
meters.  The GOAJ saw this new offer as Russian pressure to 
prevent it from helping Georgia with its winter gas supply 
problems, and also as an effort to stop the export of 
Azerbaijani gas westward.  The GOAJ is proud that it did not 
submit to what it perceived as Russian political pressure, 
choosing to supply gas to Georgia from its own reserves and 
to convert some of its own oil to heavy fuel for use in its 
electrical power plants, at considerable expense. 
 
MANAGING THE OIL BOOM 
--------------------- 
 
¶9. (U) With GDP growth of 36 percent, Azerbaijan has the 
fastest growing economy in the world, driven nearly entirely 
by an unprecedented inflow of energy revenue. The 
government's economic planning, and the country's judicial, 
regulatory and banking sectors are weak and ill-prepared to 
manage this enormous influx of revenue.  Corruption is 
pervasive throughout Azerbaijan.  Significant institutional 
reform and capacity-building will be required to manage the 
stable growth of Azerbaijan's economy and to prevent 
Azerbaijan from succumbing to the "oil curse" experienced by 
many other energy producers.  The U.S. is providing technical 
assistance to help Azerbaijan manage this transition, with 
technical advisors in the Ministries of Tax and Finance, 
anti-corruption programs, rule of law programs and a program 
to help strengthen the GOAJ's consolidated budgeting process. 
 The February 7 inaugural session of the U.S.-Azerbaijan 
Economic Partnership Commission (EPC) elevated the bilateral 
economic dialogue, and resulted in eight signed Memoranda of 
Understanding (MOUs) between the GOAJ and the USG in a range 
of sectors.  Moreover, we believe the WTO accession process 
is the key vehicle through which we can promote GOAJ 
implementation of successful economic and political reform 
that will keep Azerbaijan's development on a stable path. 
 
REFORM: PROGRESS, SETBACKS AND OBSTACLES 
---------------------------------------- 
 
¶10. (SBU) Parliamentary reform, media freedom, and freedom of 
assembly are key areas for further democratic reform.  We 
have seen some positive signs that Speaker of Parliament 
Ogtay Asadov hopes to change the Parliament from a Soviet-era 
rubber stamp body to a more empowered institution.  At the 
February 7 EPC, the GOAJ signed an MOU with the USG on a 
 
BAKU 00000822  003 OF 003 
 
 
multi-million dollar parliamentary assistance project.  This 
project will provide technical assistance to Parliament over 
the next few years.  Azerbaijan's Members of Parliament (MPs) 
lack adequate training as well as many of the basic resources 
vital to their work:  adequate office space, computers and 
Internet access, phone lines, and staff members - although 
the GOAJ's 2007 budget provides funding for one staff member 
per MP.  Empowering MPs to do their jobs will encourage 
accountability between the MPs and their constituency, which 
will be vital to strengthen Parliament as an independent, 
transparent and democratic institution. 
 
¶11. (U) The past year has seen a decline in media freedom and 
freedom of assembly in Azerbaijan.  There have been three 
high-profile, physical assaults on opposition newspaper 
journalists by unidentified assailants. Separately, GOAJ 
officials have increasingly resorted to civil and criminal 
libel suits against opposition-affiliated journalists to 
silence criticism.  In November 2006, the GOAJ temporarily 
suspended broadcast of Azerbaijan's most influential 
independent media conglomerate, ANS Television.  In 2006 the 
GOAJ did not approve any applications from opposition parties 
to hold political rallies.  In addition, the GOAJ often 
detained opposition members who attempted to hold 
unsanctioned rallies - sometimes preemptively.  The GOAJ's 
decision to allow the opposition Musavat party to hold 
several protests in response to the January utilities price 
increases was a welcome step, and we continue to press for 
full restoration of the right to freedom of assembly. 
 
¶12. (U) Your visit next week provides an excellent 
opportunity to advance the USG's agenda in Azerbaijan. We 
look forward to welcoming you. 
LU