VZCZCXRO8092
OO RUEHAG RUEHROV
DE RUEHKB #0804/01 2381547
ZNY CCCCC ZZH
O 251547Z AUG 08
FM AMEMBASSY BAKU
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5887
INFO RHEHAAA/WHITE HOUSE WASHDC PRIORITY
RUEAIIA/CIA WASHINGTON DC PRIORITY
RUEKDIA/DIA WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUCNCIS/CIS COLLECTIVE
RUCNMEM/EU MEMBER STATES

C O N F I D E N T I A L SECTION 01 OF 04 BAKU 000804 
 
SIPDIS 
 
E.O. 12958: DECL: 08/24/2018 
TAGS: OTRA CHENEY RICHARD AJ GG
SUBJECT: SCENESETTER FOR THE VISIT OF THE VICE PRESIDENT TO 
AZERBAIJAN 
 
REF: BAKU 797 
 
Classified By: AMBASSADOR ANNE E. DERSE, REASONS 1.4 B and D 
 
¶1.  (C) SUMMARY:  The unfolding Russia-Georgia conflict has 
critical and sensitive ramifications for Azerbaijan. In 
particular, President Aliyev worries about the implications 
of the crisis in terms of resolving the Nagorno-Karabakh 
conflict and its impact on Azerbaijan's westward oil and gas 
exports, which are key to Azerbaijan's economic viability and 
its strategic goal of maintaining independence through 
integration with the Euro-Atlantic community.  Baku has been 
largely quiet at an official, public level, though key 
officials express solidarity with the Georgians in private. 
While President Aliyev is critical of Georgian President 
Saakashvili, calling his actions vis-a-vis Russia 
"irresponsible" and damaging to Azerbaijan's sovereignty and 
independence, he underscores the assistance Azerbaijan was 
quick to send and his commitment to continuing to provide 
assistance to Georgia.   Azerbaijan's leadership is listening 
very closely to the USG's message on the West's response to 
the recent events in the region. Baku remains sensitive with 
respect to the decision the United States (and other Minsk 
Group partners) took to vote against a UN General Assembly 
resolution on Nagorno-Karabakh sponsored by Azerbaijan in 
March. President Aliyev also continues to protest what 
Azerbaijan's leadership maintains is an unbalanced USG 
assessment of Azerbaijan's democratic development, 
particularly with respect to the record of its neighbors. A 
strong, unequivocal signal of continued USG commitment to 
partnership with Azerbaijan is critical at this point.   END 
SUMMARY. 
 
Energy Links Azerbaijan to the West 
------------------------------------ 
 
¶2.  (C) Azerbaijan is a crucial link in the East-West energy 
corridor that aims to help Europe diversify its oil and gas 
supply. Azerbaijan sees its role as a major Caspian oil and 
gas producer and transit country, in particular, as key to 
its larger strategic goal of maintaining independence by 
building strong ties with the West and moving towards 
Euro-Atlantic integration.  U.S.-Azerbaijan cooperation was 
critical in realizing the Baku-Tbilisi-Ceyhan (BTC) pipeline 
project, which in July 2006 delivered its first oil to 
Ceyhan, Turkey.  Prior to disruptions to the BTC and the 
Russia-Georgia crisis, volumes exceeded 800,000 barrels per 
day.  Plans should eventually be realized to link expanding 
oil production in Kazakhstan with the BTC pipeline, initially 
by tanker.  Azerbaijan's key role in producing and 
transporting natural gas from the Caspian to Europe via 
Georgia and Turkey increasingly is the focus of bilateral 
energy discussions; the significance of these issues, 
particularly the need for security and stability in the 
Caspian-Caucasus-Black Sea corridor, has been heightened as a 
result of Russia's actions in Georgia. 
 
Georgia-Russia Conflict Effects on Energy 
----------------------------------------- 
 
¶3. (C) Infrastructure damage resulting from Russian military 
actions in Georgia is a major concern for Azerbaijan.  A 
previous explosion and fire along the Baku-Tbilisi-Ceyhan 
pipeline in Turkey, likely a result of terrorism, temporarily 
halted oil exports along that route.  The crisis in Georgia 
has now closed off other non-Russian options for oil 
transport.  Technicians are reviewing BTC, with repairs 
expected to allow resumption of 450,000 barrels or more per 
day of exports soon, and corresponding increases in 
production at the ACG offshore fields. 
 
¶4. (C) The Baku-Supsa (Western route) oil pipeline remains 
closed in Georgia for security reasons.  Oil is not flowing 
from Baku-Batumi (Georgia Black Sea) by rail because of a 
destroyed railroad bridge near Tbilisi.  Georgian railway 
damage has also stopped crude oil shipments to the Kulevi 
Port, in which Azerbaijan is heavily invested, and exports of 
refined products to Poti. 
 
¶5.  (C) Azerbaijan's only other viable oil export route, the 
Baku-Novorossiysk (Northern Route) oil pipeline, is 
functioning at full capacity.  However, it is only partially 
compensating for the loss elsewhere, and is dependent on 
Russia as operator.  At this time, about 80,000-100,000 
barrels per day of Azerbaijan's oil are moving to Russia's 
Black Sea coast via Baku- Novorossiysk. President Aliyev told 
 
BAKU 00000804  002 OF 004 
 
 
Seator Lugar that Azerbaijan has always sought to avid 
exporting significant amounts through the Norhern Route to 
avoid dependence on Russia. The crisis in Georgia has now 
forced such exports and Aliyev noted Russia is offering 
various incentives to induce Azerbaijan to continue or expand 
use of the route. The Shah-Deniz offshore natural gas field 
and the South Caucasus natural gas pipeline are now operating 
nearly at pre-crisis levels, with natural gas moving from 
Azerbaijan to Georgia and Turkey. 
 
¶6.  (C) President Aliyev sees Russia's actions in Georgia as 
striking fundamentally at Azerbaijan's long term goal of 
independent export of Caspian energy to the West. It is 
important for the USG to underscore our commitment to 
continue to work with the GOAJ and other responsible partners 
in the region to develop and deliver to the West the next 
generation of Caspian energy resources -- including joint 
work with Georgia, Turkey and Europe on projects such as the 
Turkey-Greece-Italy and Nabucco natural gas pipelines, and on 
regional infrastructure security.  The USG should applaud 
Azerbaijan's efforts to work with Turkmenistan and Kazakhstan 
and offer our support for Azerbaijan's work with these and 
other regional partners to develop and transport energy 
resources in and from the Caspian Basin. 
 
Security Cooperation 
-------------------- 
 
¶7.  (C) Azerbaijan is a steadfast partner in U.S. 
counterterrorist efforts.  In Iraq, 150 Azerbaijani infantry 
troops stand alongside U.S. Marines guarding the Haditha Dam. 
 At the NATO Summit in Bucharest in April, President Aliyev 
announced Azerbaijan's plans to double its peacekeeping 
forces in Afghanistan from 45 to 90 troops and provide new 
training programs for Afghan security forces, as well as 
increase its civilian support.  Azerbaijan provides unlimited 
overflight and landing rights for Coalition aircraft bound 
for Iraq and Afghanistan (with some 3,000 overflights and 200 
landings last year for U.S. aircraft alone), as well as 
strong information sharing and law enforcement cooperation in 
fighting terror. 
 
¶8.  (C) Security cooperation, focused on our support for 
Azerbaijan's defense reform under its second NATO Individual 
Partnership Action Plan (IPAP) and including our efforts to 
bolster maritime and border security, is one of the strongest 
aspects of our bilateral relationship.  It will take on new 
significance in the aftermath of Russia's military action in 
Georgia.  Azerbaijan agreed at the 2008 Bilateral Defense 
Consultations to work with the USG to develop a three-to-five 
year security cooperation program, and Washington should 
explore what Aliyev has in mind as next steps, particularly 
in light of developments in Georgia. 
 
Nagorno-Karabakh 
---------------- 
 
¶9.  (C) Resolution of the Nagorno-Karabakh (NK) conflict is 
Azerbaijan's top domestic and foreign policy priority, and 
the sole issue that unites Azerbaijani citizens across the 
political spectrum.  All conversations in Azerbaijan 
eventually turn to NK and the adjacent occupied territories. 
Azerbaijanis seek the return of Nagorno-Karabakh and the 
seven surrounding territories, which they lost during a late 
1980s-early 1990s conflict with Armenia, and the right of the 
estimated 800,000 refugees and internally displaced persons 
to return to their former homes.  From Baku's perspective, 
any solution to the conflict must preserve Azerbaijan's 
territorial integrity; NK cannot become an independent state. 
 The GOAJ's position on NK is that Armenia must return the 
region to Azerbaijan's control, and in return, Baku promises 
to grant NK and its majority Armenian population the highest 
possible degree of autonomy, within Azerbaijan's 
internationally recognized borders. 
 
¶10.  (C) Azerbaijanis uniformly believe that the 
international community, including the USG, should pressure 
Armenia for a solution consistent with Azerbaijan's 
territorial integrity.  They are increasingly frustrated with 
what they believe is insufficient progress in the OSCE Minsk 
Group negotiations, led by the US, Russia and France. 
Azerbaijan is critical of the U.S. Congress for what it 
maintains is unjust favoritism of Armenia over Azerbaijan. 
The Azerbaijani Government was extremely disappointed by the 
Minsk Group Co-Chairs' "no" vote on Azerbaijan's March 2008 
UN General Assembly resolution regarding Nagorno-Karabakh and 
 
BAKU 00000804  003 OF 004 
 
 
continues to express its concerns in public and private fora. 
 President Aliyev seeks the same strong support for 
Azerbaijan's territorial integrity that the US is offering 
Georgia with respect to its separatist regions. 
 
Reform Remains Difficult 
------------------------ 
 
¶11.  (C) Promoting substantive political and economic reform 
in Azerbaijan is an ongoing challenge that mirrors 
difficulties in most other post-Soviet states.  The USG 
engages with the GOAJ all levels, arguing that our 
cooperation in three key areas of shared interest, -- energy, 
security, and democracy  -- is mutually reinforcing and 
interdependent, and that political and economic reform to 
strengthen democratic institutions and respect for human 
rights is essential to Azerbaijan's long term stability and 
prosperity.  Many in the government still have business 
interests and do not perceive reform as serving their 
immediate, personal, short-term interests. 
 
¶12.  (C) Through its membership in the OSCE and Council of 
Europe, its partnerships with NATO and the EU, and its WTO 
aspirations, Azerbaijan has pledged to conduct the systemic 
political and economic reform needed to ensure its long-term 
stability and prosperity.  Azerbaijan's democratic and 
economic reform record, however, is poor, hamstrung by an 
entrenched Soviet-era bureaucracy, endemic corruption and 
weak democratic institutions.  The country's October 2008 
presidential election presents an important opportunity for 
Azerbaijan to demonstrate its commitment to democratic 
reform.  The USG is engaged in an intensive effort, offering 
USD 3.2 million in technical assistance to promote the 
conditions necessary for free and fair elections. 
 
¶13. (C) Although there is a large number of media outlets, 
print, and Web sites, the media environment is heavily 
restrictive, with dubious criminal court cases and violent 
attacks against journalists that have not been prosecuted. 
Many in Azerbaijan argue that the media's ability to 
criticize or question government officials and policies has 
significantly deteriorated in the last year.  President 
Aliyev, at the end of 2007, pardoned 119 prisoners, including 
five high-profile journalists imprisoned for libel. Three 
high-profile journalists remain imprisoned, ostensibly for 
criminal acts, and several others in recent weeks have 
expressed concern about their safety. 
 
¶14.  (C) The government restricts the rights of peaceful 
groups to assemble, particularly in central areas of Baku, 
and has put pressure on opposition political parties by 
restricting their ability to rent office space, hold 
meetings, raise funds and carry out normal political 
activities.  In preparation for the 2008 election, the 
government made changes to its election code and law on 
freedom of assembly which were generally viewed favorably by 
the OSCE and the Council of Europe, although implementation 
will be key. 
 
Rapid Economic Growth 
---------------------- 
 
¶15. (C) With GDP growth of 25 percent in 2007, Azerbaijan has 
one of the fastest growing economies in the world, driven 
nearly entirely by the energy sector.  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 are 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. 
 
¶16. (C) The U.S. is providing technical assistance to help 
Azerbaijan manage this transition, primarily through USAID's 
Trade and Investment Program, anti-corruption programs and 
rule of law activities as well as an initiative to strengthen 
the GOAJ's consolidated budgeting process.  Moreover, experts 
suggest the World Trade Organization (WTO) accession process, 
for which the USG is providing technical assistance, is the 
key vehicle through which we can promote implementation of 
successful economic reform that will keep Azerbaijan's 
development on a stable path. The government has submitted 
important, WTO- compliant draft legislation to Geneva and is 
working with us on a plan to co-finance the Trade and 
 
BAKU 00000804  004 OF 004 
 
 
Investment Program.  Nonetheless, much work remains to be 
done on WTO accession and the GOAJ needs to bolster its 
efforts to facilitate and expedite negotiations. 
 
Religious Issues 
----------------- 
 
¶17.  (C) Azerbaijan is traditionally a secular Shia Muslim 
country with a significant Sunni minority, well-integrated 
Jewish and Christian communities and a long history of 
religious tolerance.  Current estimates show that Azerbaijan 
is roughly 65 percent Shia and 35 percent Sunni.  Following a 
broader post-Soviet trend, there is a growing number of 
practicing Muslims, many of whom follow mainstream teachings 
and make no distinction between Sunnis and Shia.  There are, 
however, isolated pockets of extremists fuelled by increasing 
interaction with Arab, Turkish and Iranian missionaries. 
Rivalry among Muslim sects and religious groupings is on the 
rise.  Acts of terrorism are rare in Azerbaijan but have 
occurred.  For example, the GOAJ is currently investigating 
an unprecedented August 17 bombing of a Sunni mosque that 
killed three people and injured several others.  Azerbaijani 
citizens are free to travel abroad, and some Azerbaijanis 
have accepted scholarships and other vehicles to study in 
Iran, Saudi Arabia and elsewhere.  The strongly secular 
Government of Azerbaijan often clamps down on religious 
activity, especially that which it considers "fringe" or 
radical, and has outlawed proselytizing by foreigners. 
DERSE