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TO RUEHC/SECSTATE WASHDC IMMEDIATE 1536
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S E C R E T SECTION 01 OF 04 BAKU 000595 
 
SIPDIS 
 
E.O. 12958: DECL: 07/30/2019 
TAGS: PGOV KDEM ENRG ETRD PREL AJ RU IR TR
SUBJECT: AZERBAIJANI PRESIDENT TELLS THE DEPUTY SECRETARY 
NAGORNO-KARABAKH BREAKTHROUGH IS POSSIBLE BY YEAR'S END 
 
REF: A. BAKU 524 
     ¶B. BAKU 453 
 
Classified By: Charge Donald Lu, for reasons 1.4 (b,d). 
 
¶1.  (S) SUMMARY:  In a wide-ranging set of meetings and 
dinner on July 10, President Aliyev told Deputy Secretary 
Steinberg that he believes that there is a good chance for 
agreement on the Nagorno-Karabakh Basic Principles by the end 
of the year.  He warned that a breakthrough on 
Nagorno-Karabakh must precede a reopening of the 
Turkey-Armenia border.  If not he believes this will 
undermine efforts to bring Armenia to the negotiating table 
on Nagorno-Karabakh.  Aliyev recounted with glee how he 
lectured the Russian Gazprom CEO about Gazprom's 
unreliability as a trusted partner.  He suggested that the EU 
finance the Nabucco Pipeline now as a matter of national 
security, rather than wait for transit and purchase 
agreements.  Finally, he reported that he has information 
confirming Musavi's victory in the Iranian elections, which 
he described as a vote for change that will result in 
continuing tensions there.  END SUMMARY. 
 
¶2.  (U) On July 10, Deputy Secretary James Steinberg met with 
President Ilham Aliyev for three and one-half hours for a 
one-on-one meeting, a meeting of delegations and a dinner. 
The delegation meeting and dinner was attended by Foreign 
Minister Elmar Mammadyarov, Azerbaijani Ambassador to the 
U.S. Yashar Aliyev, EUR A/S Philip Gordon, EUR DAS Matthew 
Bryza, D Special Assistant Amy Scanlon and Charge Donald Lu. 
 
¶3.  (C) The tone of the discussion throughout was notably 
warm and constructive -- absent the lecture and anger of 
previous interactions since the Turkey-Armenia Roadmap was 
initialed (reftels).  The President appeared relaxed as 
evidenced by the unusually long amount of time he devoted to 
the meeting and dinner.  Rather than simply be responsive to 
the Deputy Secretary's message, President Aliyev had prepared 
a number of points that he made sure to raise. 
 
President Expresses Optimism on Minsk Group Process 
--------------------------------------------- ------ 
 
¶4.  (S) President Aliyev expressed uncharacteristic optimism 
about a near-term breakthrough on NK.  "We have a good chance 
to agree (on the Basic Principles) by the end of the year," 
he proclaimed.  He said that in his public statements he was 
consciously trying to prepare the public "in a systematic way 
and not for the first time."  On the two remaining issues, he 
said that there existed "conceptual agreement," but that one 
was an issue of terminology and the other would require being 
able to physically see the Lachin corridor.  He said that 
Azerbaijanis had not seen the corridor for almost 20 years. 
After seeing it he believed Azerbaijan would understand the 
dangers and be able to agree on the width of the corridor. 
 
Turkey-Armenia Reconciliation must await an NK Breakthrough 
--------------------------------------------- -------------- 
 
¶5.  (S) President Aliyev, in a measured and unemotional 
presentation, reviewed the reasons why the Turkey-Armenia 
process must happen only after a breakthrough on 
Nagorno-Karabakh (NK).  He never used the word "linkage," 
although he argued that the issue of the closed border was 
essential to bring the Armenians to the table on NK.  He 
argued that during the May NK discussions in Prague, Armenian 
President Serge Sargsian was not cooperative because Turkey 
had recently initialed the Turkey-Armenia Roadmap document. 
In contrast, the President noted, Sargsian was forward 
leaning in St. Petersburg just after Turkish Prime Minister 
Erdogan had announced that Turkey would never open its 
borders with Armenia until the "liberation" of NK.  "A closed 
border can be a useful instrument," the President concluded. 
 
¶6.  (C) The Deputy Secretary emphasized the favored outcome 
in which both processes make significant progress so that the 
linkage issue is no longer relevant.  A/S Gordon noted that 
the progress in St. Petersburg could reflect a Russian desire 
to receive credit for the breakthrough.  He added that 
progress on the Turkey-Armenia process could also relieve 
pressure on Yerevan that might allow the Armenians greater 
flexibility domestically to pursue progress on NK. 
 
Mistrust of Moscow 
------------------ 
 
BAKU 00000595  002 OF 004 
 
 
 
¶7.  (C) On his relations with Moscow, President Aliyev was 
thankful for Russia's role in the Minsk Group, but 
mistrustful of the role Russia continues to play on energy 
and Armenia.  He said he believed Russian President Medvedev 
was sincere in playing a helpful role on NK.  He added that 
Medvedev had personally told him that he wanted to find a 
final solution to the NK conflict. 
 
¶8.  (C) According to Aliyev, Medvedev also asked him to allow 
overflight of Russian military equipment to resupply its 
bases in Armenia.  Aliyev laughed and said that Medvedev 
insisted that this equipment would be only for the use of 
Russian bases, but he knows the Russians then give the 
equipment to the Armenians. 
 
¶9.  (C) Aliyev described with pride how Azerbaijan refused to 
pay extortionist prices to Gazprom for Russian natural gas 
last year.  With glee he went on to say that Gazprom CEO 
Alexei Miller this year begged to buy Azerbaijani gas.  "I 
told him, 'I do not trust you or your company.  Bring an 
(intergovernmental agreement) as you are not a reliable 
partner,'" the President recounted. 
 
Continuing Frustration with the Turks over Gas Transit 
--------------------------------------------- --------- 
 
¶10.  (C) Aliyev had a clear message on Turkey gas transit 
-- he will sell to Russia and Iran if the Turks do not allow 
transit of Azeri gas to Europe.  "Demand is growing.  We now 
sell gas, oil products and electricity to Iran and Russia. 
Turkey must understand that we have a market all around us. 
They're wrong if they think we will wait for them," the 
President declared. 
 
¶11.  (C) Aliyev added that the Nabucco Pipeline would be left 
without sufficient gas volumes if the Turks get their way on 
the negotiations.  He noted that the Turks want 8 billion 
cubic meters (bcm), but that this would leave nothing for 
Nabucco.  The President added that Azerbaijan does not need 
the money from gas sales, but it is pursuing gas exports to 
Europe in order to strengthen the southern corridor to the 
West. 
 
¶12.  (C) The President assessed the problem in getting Turkey 
to agree on gas transit was 90 percent rooted in commercial 
interests.  He said that Turkey insists on linking the 
transit issue for Shah Deniz Phase II gas with the price 
charged to Turkey for the past 18 months of Shah Deniz Phase 
I gas.  The President said the President of the State Oil 
Company of Azerbaijan (SOCAR) was in Turkey trying to work 
out this issue with the Turkish Energy Minister ahead of the 
July 13 signing of the Nabucco inter-governmental agreement. 
 
"Build it and They will Come" - Build the Pipeline First 
--------------------------------------------- ----------- 
 
¶13.  (C) President Aliyev repeatedly made the pitch that the 
European Union (EU) should finance the Nabucco Pipeline now 
as a matter of national security, and not wait for transit 
and purchase agreements.  He cited the Baku-Tbilisi-Ceyhan 
Oil Pipeline as an example of having the pipeline precede all 
of the other agreements. 
 
¶14.  (C) "We only need investment and the EU has the money. 
They need a centralized EU investment package as a matter of 
national security.  Europeans believe that Nabucco will be 
financed by energy companies from the receiving states 
(Bulgargaz, MOL, OMV, and the Romanians).  These companies 
have no money and no power," the President explained. 
 
Musavi Won the Iranian Election as a Vote for Change 
--------------------------------------------- ------- 
 
¶15.  (C) Aliyev said that Iran has been transformed since the 
election and that these tensions would continue.  "(Iranian 
Presidential Candidate) Musavi is one of (the elites).  His 
victory was a movement for change.  He won with a big margin. 
 We are certain of that.  There was an unbelievable turnout 
of 90 percent and a big manipulation when it came to the 
counting," the President noted. 
 
¶16.  (C) He said that his government has many sources in Iran 
as well as information from the thousands of Iranians 
traveling to Azerbaijan.  He said that the dissatisfaction of 
 
BAKU 00000595  003 OF 004 
 
 
the people is with the general situation, not specifically 
with President Ahmadinejad.  He said that a well-placed 
source told his government that Supreme Leader Khamenei took 
his helicopter over the crowds and he saw more than a million 
people in the streets.  This is when Khamenei became scared 
and decided he would support Ahmadinejad at any cost.  "It is 
not the same country as it was before the election.  Mullahs 
can't run an economy.  The tensions will continue," he 
predicted. 
 
¶17.  (C) After a discussion about the Iranian nuclear weapons 
program, President Aliyev added that Iran is dangerous for 
Azerbaijan even without nuclear weapons.  He recalled that 
shortly after independence, Iran sent spies and missionaries 
into Azerbaijan.  They also broadcast a daily TV program on 
Seher TV in Azerbaijani language which is critical of the 
Azerbaijani Government for not supporting Iran. 
 
¶18.  (C) Aliyev said that he has taken steps to protect the 
secular lifestyle of Azerbaijanis, including an "informal 
request" to all TV channels not to show women in headscarves. 
 Moreover, his government is working in the regions to 
prevent extremism by entertaining young people with 
musicians, discotheques and student events.  The government 
also limits the number of young people who can travel abroad 
and closely monitors those who spend more than six months in 
Iran. 
 
Ready to Advise Iraq on Working with Energy Companies 
--------------------------------------------- -------- 
 
¶19.  (C) The Deputy Secretary asked the President to consider 
engaging the Iraqi Government, explaining that we are 
encouraging moderate governments to work with the Iraqis and, 
in particular, Azerbaijan could help the Iraqis learn how to 
work with foreign energy companies.  The President said he 
would welcome advice about whom to talk to in Iraq.  He 
admitted contact up until now had been limited, both by a 
lack of information about what is happening inside the Iraqi 
Government, but also by concern about the danger to staff 
that might be posted there. 
 
¶20.  (C) On working with foreign energy companies, President 
Aliyev had several suggestions.  He noted that energy 
resources could be used to build new allies, as Azerbaijan 
has done with Greece, Bulgaria and Romania.  He warned 
against using it for short-term financial gain, citing 
Azerbaijan's sale of gas to Georgia at sub-market prices.  He 
thought income and expenditure transparency was important, 
noting the Extractive Industries Transparency Initiative and 
the Azerbaijani State Oil Fund as examples.  Finally, he 
advised working only with companies that have an 
international reputation for good performance.  He suggested 
that Azerbaijan could provide the Iraqis with a copy of its 
1994 Production Sharing Agreement as a model. 
 
Security Cooperation 
-------------------- 
 
¶21.  (C) The President then quickly ran through a laundry 
list of further areas for possible security cooperation.  The 
Foreign Minister asked to receive a briefing on U.S.- Russia 
Missile Defense negotiations, particularly as they relate to 
the Gabala Radar Station.  The Deputy Secretary and A/S 
Gordon reviewed the talks in Moscow and noted that the 
Administration was formulating its policy on Missile Defense 
and it hoped to complete this process by year's end. 
 
¶22.  (C) Aliyev said that he would be happy to be a part of a 
Missile Defense structure involving the U.S. and Russia.  He 
added that the Russian lease on Gabala expires in 2012 and 
they consider "totally unsatisfactory" the payments made by 
the Russian side for the previous lease.  On the question of 
technical upgrades, the President said that he has not 
committed to anything, but would be willing to discuss the 
issue. 
 
¶23.  (C) On the proposal to contribute a battalion for 
Coalition activities in Afghanistan, the President aid, "We 
are ready to do that."  Ambassador Aliyev asked whether 
training for this battalion would run afoul of Section 907 
restrictions.  The President also expressed concern about the 
reported $10 million recommendation for NK assistance from 
the House Appropriations Committee. 
 
 
BAKU 00000595  004 OF 004 
 
 
¶24.  (C) The President repeated his interest in purchasing 
defensive weapons from NATO, particularly air defense 
equipment.  For the first time, he added, "If it is not 
possible, it would be better to know it." 
 
Comment 
------- 
 
¶25.  (C) President Aliyev was clearly making every effort to 
make a good impression on this first emissary from the new 
Administration.  He focused his presentation on areas of 
common interest (energy, Russia, Iran), rather than on issues 
which divide us (democracy, Turkey-Armenia, and slow progress 
on security cooperation).  Whether this constructive tone 
continues largely rests on whether the meeting of the 
Azerbaijani and Armenian presidents in Moscow this week is 
successful.  Aliyev's mood over the past several months is 
directly tied to progress on Nagorno-Karabakh.  For the 
moment, the mood is good. 
 
¶26.  (U) The Deputy Secretary has cleared this message. 
LU