SCENESETTER FOR A/S FRIED'S MARCH 13-14 TRIP TO

S E C R E T SECTION 01 OF 03 BAKU 000369

SIPDIS

SIPDIS

FOR EUR A/S FRIED FROM AMBASSADOR HARNISH

E.O. 12958: DECL: 03/08/2021
TAGS: PREL PGOV ENRG MARR KDEM PHUM IR RU AM AJ
SUBJECT: SCENESETTER FOR A/S FRIED'S MARCH 13-14 TRIP TO
AZERBAIJAN

REF: BAKU 347

Classified By: Ambassador Reno L. Harnish III per 1.4 (b,d).


1. (S) Summary: We warmly welcome your March 13-14 visit
and view it as much-needed opportunity to engage the highest
levels of the GOAJ. Azerbaijan could play a critical role in
advancing U.S. interests in energy security and a useful one
in the resolution of the nuclear threat posed by Iran. It
also could greatly advance the U.S. security posture in the
region, by upgrading Nasosnoya Air Base to NATO standards and
accommodating our average of 15 gas-and-go stops per month
there, rather than at Heydar Aliyev Airport. Enhanced GOAJ
efforts on Caspian Sea WMD interdiction efforts --
particularly through bringing Azerbaijan's Navy into existing
programs -- are critical as well. Further GOAJ progress on
democracy, reform and human rights remain key to our
long-term interests in Azerbaijan. We also are at a critical
stage in identifying property for a New Embassy Compound
(NEC) and your raising the issue briefly with the President
would be extremely useful. The unresolved Nagorno-Karabakh
conflict looms large over all of these issues, but cannot
overshadow our other pressing bilateral issues. End summary.


ALIYEV'S MINDSET
--------------


2. (C) In the wake of Western criticism of Azerbaijan's
November parliamentary elections, President Aliyev worries
that he may be rejected as a strategic partner by the West.
Beleaguered by non-stop, high-level pressures and attentions
from Russia and Iran, Aliyev seeks similar attention from the
West, and particularly a sign that the U.S. is ready to
engage further to help protect Azerbaijan's independence and
security vis-a-vis its powerful neighbors. Convincing Aliyev
of the importance that we attach to the bilateral
relationship will be key to securing U.S. objectives. Your
visit will be viewed by Aliyev as welcome evidence of our
interest in Azerbaijan.

ENERGY SECURITY
--------------


3. (C) Azerbaijan could play a critical role in breaking the
Russian grip on Europe's natural gas markets. With up to 8
billion cubic meters per year coming on-line through Phase I
of the Shah Deniz field, Azerbaijan by 2008 will become a
major exporter to Turkey. Recent discoveries indicate that
Shah Deniz could hold up to one trillion cubic meters,
meaning that further development of the field will not only
break Russia's energy grip on Georgia and Azerbaijan, but
also will significantly diversify Europe's supplies.
Azerbaijan will need help in developing the additional
infrastructure needed to deliver Shah Deniz gas to European
markets (current SCP capacity is not sufficient and new large
pipeline projects would be necessary beyond Turkey).
Azerbaijan will also seek our help in working with interested
companies.


4. (C) Azerbaijan also could play a greater role as a
transit country for Caspian energy resources. Azerbaijan
already has two deals underway to bring Kazakhstan's oil into
BTC by ship. Separately, Azerbaijan has been negotiating an
intergovernmental agreement (IGA) with Kazakhstan for three
years. Our help may be necessary to close the deal. With an
IGA, the U.S. could be assured that Kazakh oil transits
through the East-West energy corridor, rather than Russian or
Iranian routes. Azerbaijan also seeks our help in convincing
Turkmenistan of the merits of a new, trans-Caspian gas
pipeline, and will look to the U.S. to help secure financing
for such a project. President Aliyev raised both of these
energy issues with me on March 2 (ref) and will look to you
for an expanded vision of U.S. energy policy.

IRAN
--------------


5. (C) The diplomatic standoff over Iran's nuclear energy
programs worries most Azerbaijanis including President
Aliyev. Azerbaijan is both beholden to and threatened by
Iran, dependent on Iran for access to the isolated Nakhchivan
exclave and challenged continuously by Iran over the disputed

BAKU 00000369 002 OF 003


Caspian Sea boundaries. For this reason, Azerbaijan walks a
very fine line on Iran, never publicly condemning its nuclear
programs while at the same time privately telling us that of
course it wants to see the programs ended via diplomatic
means. Azerbaijan fears that it would be caught in the
middle of a confrontation over Iran, inadvertently suffering
from sanctions (as sanctions would leave Nakhchivan without
energy supplies and ties to mainland Azerbaijan),potentially
overrun by ethnic Azeri refugees and pressured by the West to
allow military operations against Iran from Azerbaijani
territory. Aliyev told me that he welcomes a high-level
dialogue with the U.S. on Iran. He will look to your visit
as an opportunity for a frank exchange of views and
intentions, particularly the possible role for Azerbaijan in
the Secretary's new Iran democracy initiative.

BILATERAL SECURITY ISSUES
--------------


6. (S) We need to advance the already strong bilateral
security relationship. Azerbaijan is a critical partner in
the war against terrorism, providing unlimited overflight
clearances and regular gas and go services for coalition
planes bound for Afghanistan and Iraq. Military flight
volumes are increasing with over 30 landings since the
beginning of the year. We ultimately will need to switch
from our current operations at Baku's Heydar Aliyev
International Airport to a more secure and discreet location
at the Nasosnoya Air Base outside Baku. While Azerbaijan has
agreed to upgrade the base to make it NATO compatible as part
of its IPAP agreement, high-level discussion of this issue
will be key to actually making this happen. U.S. policy
toward Iran likely will factor into Aliyev's thoughts on this
issue.


7. (C) In order to move forward in our next stage of Caspian
security programs, the GOAJ must bring its navy into WMD
interdiction programs supported by the U.S. CTR program. I
raised this issue with President Aliyev on March 2 and he
appeared to understand the issue. However, reinforcement of
this message, as well as further elaboration of our vision
for Caspian security programs, would be useful. President
Aliyev continues to receive pressure from Russia on CASFOR --
most recently from President Putin during his February 21-22
visit to Baku -- and a reaffirmation by you of our commitment
to help Azerbaijan secure its own borders would be very much
appreciated by Aliyev.

DEMOCRACY AND REFORM
--------------


8. (C) Continued Azerbaijani progress on democracy and
reform is central to our long-term interest in stability in
this region. Azerbaijan will have parliamentary rerun
election on May 13, for the ten seats that the Central
Election Commission and Constitutional Court overturned.
President Aliyev has pledged that the elections will be run
in a free and transparent fashion and we believe that he
intends to keep that pledge. The elections so far have been
of little interest to the general public, largely because of
election fatigue and the lack of attention from several
opposition parties. However, with an average of 10
candidates per seat, interesting races could develop if
independent candidates decide to make a serious run and the
GOAJ allows campaigns to develop unimpeded. Looking beyond
the rerun elections, the real challenge for democracy in
Azerbaijan is to build independent institutions. In spite of
the flawed November elections, the new parliament is showing
some encouraging signs of developing a backbone and
independent agenda. Several members of parliament --
including from the ruling party -- have shown an interest in
developing an oversight capacity and becoming more responsive
to their constituents through the development of U.S.-funded
constituency offices. A discussion with reform-minded
parliamentarians outlining U.S. democracy goals would boost
their efforts.


9. (C) Renewed efforts on Azerbaijan's stalled economic
reform program also are needed. New Minister of Economic
Development Heydar Babayev is a close friend of and advisor
to the President, and a key interlocutor on reform issues.
Your meting will reinforce the message we have been
delvering to key economic interlocutors for more than

BAKU 00000369 003 OF 003


year. In addition to the need for a clearly articulated
budget process and macroeconomic policy targeted at
preventing the onset of Dutch disease, the GOAJ also needs to
make significant progress on anti-corruption and rule of law
issues. With energy revenue projected to explode to USD 42
billion by 2010, the potential for economic instability is
great and, if left unchecked, could provoke political
instability. Key first steps in promoting a better business
climate and greater investment in the non-energy sectors
would be implementation of the recommendations included in
the AmCham White Paper, which was delivered to President
Aliyev in November 2005.

HUMAN RIGHTS
--------------


10. (C) GOAJ handling of the arrest of former ministers Ali
Insanov and Farhad Aliyev, Aliyev's brother former AzPetrol
Chairman Rafiq Aliyev, and 10 others accused of plotting a
coup, demonstrates the serious problems in rule of law. The
group has been in custody for nearly five months now, with
little GOAJ movement toward producing charges against the
group other than a televised early November "confession" by
former Finance Minister Fikrat Yusifov that was a gross
violation of the group's human rights. The GOAJ has moved
ravenously against the holdings of former Minister Farhad
Aliyev and his brother, jailed AzPetrol head Rafiq Aliyev,
opening what appears to be politically motivated tax cases
against their companies and dismantling their holdings in
extremely shady court rulings. GOAJ handling of this case
has had a distinct chilling effect on Azerbaijan's business
climate, with several groups of U.S. investors telling us
that they have backed away from potential deals in light of
the lack of protections offered to companies outside the
energy PSA framework.


11. (C) President Aliyev is the only one who can resolve
this case and appears to be acting out of a genuine fear that
the group was in fact plotting his overthrow. The case is
further complicated by the fact that Aliyev believes the U.S.
played some role in orchestrating this "coup." A frank
dialogue on this case, including its potentially devastating
effects on Azerbaijan's attempts to attract investment in the
non-energy sector, is needed. We believe such a dialogue
would be most effective if it focused on the need for a fair
and transparent trial based on evidence, rather than on the
plight of individual defendants.


12. (C) The trial of Ruslan Bashirli and other Yeni Fikir
youth movement activists likely will begin around the time of
your visit. Bashirli was the first of three opposition youth
leaders connected to the Popular Front Party who were
arrested for allegedly plotting a coup, based on a widely
publicized videotape of a meeting in Tbilisi in which
Bashirli appeared to discuss the overthrow of the GOAJ. The
GOAJ recently added "illegal entrepreneurship" charges to the
case against Bashirli, arguing that Yeni Fikir was not
legally registered with the Ministry of Justice. The GOAJ's
aggressive pursuit of this case suggests the arrests were
meant to send a threatening message to opposition youth
organizations in the run-up to the November parliamentary
elections. A public and private message urging the GOAJ to
conduct a fair and transparent trial and protect the due
process rights of the defendants, would help support months
of embassy advocacy on this case.

NAGORNO-KARABAKH
--------------


13. (C) Looming over all of these issues, of course, is the
unresolved issue of Nagorno-Karabakh. Resolution of the
conflict is critical to the region's stability and full
integration into the Euro-Atlantic system. We welcome Steve
Mann's engagement on this issue just prior to your visit and
are hopeful that he will be able to identify a way out of the
post-Rambouillet impasse. We hope that you will be able to
focus your energies on making progress on our other bilateral
issues.
HARNISH