C O N F I D E N T I A L BAKU 000624

SIPDIS

E.O. 12958: DECL: 06/23/2018
TAGS: PREL PGOV PBTS ENRG RU AJ
SUBJECT: AZERBAIJAN'S RELATIONSHIP WITH RUSSIA IN THE LEAD
UP TO MEDVEDEV'S VISIT

REF: BAKU 545

Classified By: Ambassador Anne E. Derse per 1.4(b,d)


1. (C) Summary: Russian President Dmitry Medvedev will make
his first state visit to Baku on July 3-4, following on the
heels of recent stops in Azerbaijan from the head of Gazprom
Alexei Miller, Russia's Deputy Foreign Minister Grigoriy
Karasin, and Speaker of the Lower House of the Duma Boris
Gryzlov. The visit will bring increased focus to
Azerbaijan-Russia relations, which remain influenced by both
Azerbaijan's perception that Russia supports Armenia in the
Nagorno-Karabakh conflict and by Azerbaijan's push to supply
gas to Europe. Despite divergent interests on these two key
issues, Azerbaijan maintains close relations with Russia.
Azerbaijani elites retain connections to their Russian
counterparts, and approximately one to two million
Azerbaijanis are working in Russia and sending money back
home. However, Russian soft power in Azerbaijan appears to
be limited, and Russian influence has declined since
independence. We believe it is unlikely that the GOAJ will
shift its foreign policy significantly with Russia in the
near future. End summary.

MEDVEDEV'S VISIT
--------------

2. (C) Newly elected Russian President Dmitry Medvedev will
make his first state trip to Baku on July 3-4. His visit
comes on the heels of several other high-ranking Russian
officials who were recently in Baku, including the CEO of
Gazprom Alexei Miller, Deputy Foreign Minister Grigoriy
Karasin, and Speaker of the Lower House of the Duma Boris
Gryzlov. Medvedev's visit also comes on the heels of two
well-publicized disputes between Russia and Azerbaijan: one
over a halted Russian shipment bound for Iran's Bushehr
reactor and a second, more important dispute over the OSCE
Minsk Group Co-Chairs' "no" vote on Azerbaijan's UNGA
resolution regarding Nagorno-Karabakh. A senior MFA official
told us that tensions over these two incidents have largely
dissipated. The visit by Karasin, for example, was positive
and resulted in progress on a long-standing border dispute.
This MFA offici

al also told us that although Azerbaijan
continued to be "angry and disappointed" by the UNGA vote, it
would not get in the way of "normal" relations with Russia.
Medvedev's visit will increase focus on Azerbaijan's
relationship with Russia and will be closely watched by
political commentators for any signs of a shift in
Azerbaijan's foreign policy.

A DELICATE BALANCE
--------------

3. (C) Since the mid-1990s Azerbaijan has pursued a delicate
balancing act with Russia, pursuing Euro-Atlantic integration
as a means to safeguard its independence while carefully
avoiding actions that could unnecessarily provoke its
powerful neighbor. For example, while Azerbaijan maintains
membership in the CIS, it has assiduously avoided Russian
overtures for closer security ties such as through the
Collective Security Treaty Organization (CSTO). Similarly,
although privately GOAJ officials will stress that they
support increased integration with organizations like the EU
and NATO, publicly they often claim that they are satisfied
with the current level of cooperation with NATO and are not
interested in membership now. The GOAJ has also supported
utilizing the Russian-controlled Qabala radar station to ease
tensions over missile defense, likely hoping to help bridge
differences between the United States and Russia while
increasing Azerbaijan's strategic importance.


4. (C) Azerbaijani officials believe that this cautious
approach is necessary to protect Azerbaijan's sovereignty and
often are privately critical of Georgia's more
confrontational approach to Russia. According to one
Azerbaijani political analyst who described this balancing
act, Azerbaijan always tries to stay a step behind Georgia on
issues related to Euro-Atlantic integration, letting the
Georgians test the waters in terms of Russia's response.
Yet, according to Fariz Ismayilzade of Azerbaijan's Ministry
of Foreign Affairs Diplomatic Academy, Baku stands with
Tbilisi as it tries to curb Russian dominance of the South
Caucasus, and Azerbaijan "puts all of its hopes in Georgia's
success" in Euro-Atlantic integration.

NAGORNO-KARABAKH AND ENERGY: POINTS OF FRICTION
-------------- --------------

5. (C) In discussions on Azerbaijan-Russia relations, most
Baku-based political analysts cite Russian support to Armenia
and the perception that Moscow works to block resolution of
Nagorno-Karabakh as the most serious impediments to improved
relations. The GOAJ believes that Moscow benefits from the
protracted conflict in NK because it increases Yerevan's
reliance on Moscow while simultaneously providing a serious
roadblock on Azerbaijan's path to Euro-Atlantic integration.
The GOAJ does not consider Russia to be an honest broker in
the Minsk Group process, based on the perception that it
actively works against a solution and certainly favors
Armenia in the negotiations.


6. (C) Energy policy has been a point of dispute between the
GOAJ and Russia for over a decade. Since winter 2006-07,
Azerbaijan has been independent of Russian gas imports, and
President Aliyev is proud of Azerbaijan's ability to not cave
into what he publicly referred to as Russian "commercial
blackmail." The current friction centers on Azerbaijan's
announced desire to export gas to Europe, to include Shah
Deniz Phase Two (SD2) gas, which Azerbaijan is working to
sell to European markets. However, during his early June
visit to Baku, Gazprom CEO Alexei Miller offered to purchase
the entire volume of SD2 gas at market prices, which would
prevent Azerbaijan from becoming a gas supplier to Europe and
obviate the need for the EU-supported Nabucco pipeline.
Without a gas pipeline in place to carry Azerbaijani gas to
Europe, the likelihood that Azerbaijan would become a transit
country for Central Asian gas would also decrease, increasing
Russia's hold on the European market and Central Asian
supplies. The GOAJ has neither publicly accepted or rejected
the Gazprom offer, but its reasons for selling gas are
geostrategic. Involved GOAJ officials have told the Embassy
that it is unlikely that the GOAJ would sell SD2 gas to
Russia, unless Turkey is unwilling to offer transit to
Europe. The State Oil Company of Azerbaijan (SOCAR) actively
uses the Russian option to pressure Turkey for agreement on
gas supply and transit.


7. (C) Rasim Musabayov, a political analyst in Baku, argues
that Azerbaijan and Russia might find a way to link the
issues of NK and SD2 gas volumes. According to Musabayov,
Moscow could pressure Armenia to ease its position on the
seven territories surrounding NK in return for a decision by
the GOAJ to sell Russia a portion of SD2 gas. The two issues
would not be linked publicly, but such a compromise would
result in the GOAJ making progress on the NK issue.
Musabayov argued that the GOAJ may consider sending 4-5 bcms
to Russia because this would enhance Azerbaijan's negotiating
position with Turkey and Nabucco partners, while not
substantively shifting Azerbaijan's overall Euro-Atlantic
orientation. Russia's linking a NK solution to SD2 gas sales
might prove enticing to the GOAJ, especially in a
Presidential election year, and the sale of even small
volumes of SD2 gas to Russia could well vitiate the viability
of the Southern Corridor project. (COMMENT: Given that
Azerbaijan sees its gas as primarily a geostrategic commodity
to enhance relations with Europe, it is highly unlikely that
it would sell anything more than a symbolic amount of SD2 gas
to Russia, especially since it is obvious that the purpose of
Russia's courtship of SD2 is to strangle the Southern
Corridor baby in its crib. However, if the GOT refuses to
provide a commercially acceptable gas transit regime to
Azerbaijan, if the EU continues to waffle in its strategic
outreach to Azerbaijan, and if Russia offers incentives vis a
vis NK, the GOAJ might be forced to re-think its options. END
COMMENT)

TIES AT THE TOP
--------------

8. (C) Despite the disagreements with Moscow over
Nagorno-Karabakh and energy, Azerbaijan's political elite
have significant ties to Russia dating back to the Soviet
period. The details of these personal relationships remain
murky to those outside the government, but political analysts
suggest that President Aliyev is friendly with a number of
wealthy Azerbaijanis that live in Moscow. His daughter,
Leyla, is married to the son of an Azerbaijani oligarch that
lives in Moscow, and several prominent Azerbaijani
businessmen retain dual citizenship. Russian Ambassador to
Baku Vasily Istratov often boasts that he mentored many of
Azerbaijan's elites - including Presidential Advisor Ali
Hasanov - during his days as a professor at Moscow State
University. The May visit to Moscow of Presidential Chief of
Staff Ramiz Mehdiyev also highlighted the close personal ties
between the two countries' elites. According to officials in
Azerbaijan's Presidential Apparat, Mehdiyev had a warm
tete-a-tete meeting with Medvedev and was the recipient of
Medvedev's first presidential order. According to the
Russian DCM in Baku, Mehdiyev and most of his associates in
Baku studied with members of the Russian elite and maintain
close contacts with Russian officials.


9. (C) Although there is no significant pro-Russian political
party in Azerbaijan, analyst Rasim Musabayov notes that the
ruling New Azerbaijan Party consists of a number of
ex-nomenklatura that "look with Russian eyes," even if they
have differing foreign policy interests than their
counterparts in Moscow. According to Baku-based political
analyst Arif Yunus, this similar outlook is propelling
Azerbaijan to follow a similar political path as Russia.
Yunus argues that Azerbaijan is beginning to follow the
Russian political model, where the ruling party works to
limit civil society and drastically weaken the opposition.
As the political models in the two countries converge, Yunus
believes that the relationship between Moscow and Baku could
improve.

ECONOMIC LINKS
--------------

10. (C) Bilateral economic links have declined since
independence, but Russia remains a significant trade partner.
Azerbaijanis continue to cross the border in search of
higher wages, with an estimated one to two million
Azerbaijani citizens currently working in Russia and sending
money back home to Azerbaijan. These workers tend to be from
Azerbaijan's rural areas, and they benefit from the common
Soviet experience and familiarity with the Russian language.
Baku political analyst Arif Yunus argues that this migration
is "a serious problem" because it makes Azerbaijan dependent
to some degree on Russia. Yusuf pointed to Russia's
crackdown on Georgian migration and suggested that such a
crackdown on Azerbaijanis could cause even more problems for
Baku. In the words of another analyst, Azerbaijanis working
across the border "can hate Russia or they can love Russia,
but they have to depend on Russia."

RUSSIAN SOFT POWER AND OTHER MECHANISMS OF INFLUENCE
-------------- --------------

11. (C) In early 2007 Russia created a few institutions in
Azerbaijan, including a center to provide information on
Russian legislation and a CIS democracy and election
monitoring group, that appeared to be an attempt to bolster
Russian "soft power," designed to improve Russia's image and
influence (reftel). President Aliyev also confirmed to the
Ambassador that a branch of Moscow State University is
opening in Baku. Although it is difficult to measure such
things, at least one Baku-based political analyst argues that
"Russian soft-power levers are either not effective or are
having only a marginal impact." In what was likely a
significant blow to Russian soft power, in 2007 Azerbaijan
blocked all Russian television broadcasting on public
television.


12. (C) Polling data indicates that opinions on Russia are
polarized in Azerbaijan. According to a survey that
political commentator Rasim Musabayov conducts annually,
approximately 20 percent of Azerbaijanis considered Russia a
friendly country in February 2008, with only Turkey receiving
more votes. However, the same poll found that nearly 9
percent of the population considered Russia an enemy, placing
it third in this category behind only Armenia and Iran. One
political commentator explained the split by arguing that
while most Azerbaijanis feel close to the Russian people,
they remain deeply suspicious of the Russian government.


13. (C) Political commentators frequently claim that Russia
exerts influence in Azerbaijan through secret or nefarious
means. These charges usually focus on Russian support for a
particular party, politician, publication, or ethnic
minority, such as the Lezgin population in the north that has
links across the border in Dagestan. These claims however
are rarely backed with substantive proof, but the fact that
they are voiced suggests that Azerbaijanis retain a great
amount of respect for Russian power and believe that it is
used behind the scenes.

COMMENT
--------------

14. (C) Russian influence in Azerbaijan has declined since
independence, in large part because of Azerbaijan's ability
to leverage its oil and gas into increased cooperation with
the West and its suspicion of Russia as the former imperial
and Soviet center of power. Azerbaijan's self-sufficiency in
energy increases its independence from Moscow in comparison
to the other states in the South Caucasus. Nagorno-Karabakh
and energy remain the key stumbling blocks for any
improvement in the Azerbaijan-Russia relationship, and these
two issues will likely be the focus of President Medvedev's
upcoming trip to Baku.


15. (C) The GOAJ is unlikely to pursue a radical shift in its
foreign policy to Russia in the near future, maintaining the
balance in the relationship while continuing to pursue a
favorable resolution in NK and transport of gas to Europe.
However, a decision by the GOAJ to sell some SD2 gas to
Russia would certainly be a sign of change in the
relationship and an indicator that Russia might have offered
to use its influence toward solving the NK issue in a manner
more favorable to the GOAJ. Given Azerbaijan's deep distrust
of Russian policy with respect to NK and equally strong
desire to retain its independence and sovereignty, we believe
that no shifts in Azerbaijan's foreign policy are likely in
the near term.
DERSE