SCENESETTER FOR SENATOR LUGAR'S AUGUST 24-25 VISIT

C O N F I D E N T I A L BAKU 000797

SIPDIS

EMBASSY PARIS, EMBASSY TBILISI PLEASE PASS TO KEN MYERS

E.O. 12958: DECL: 08/22/2018
TAGS: AJ GG PGOV PREL OTRA
SUBJECT: SCENESETTER FOR SENATOR LUGAR'S AUGUST 24-25 VISIT
TO AZERBAIJAN

Classified By: AMBASSADOR ANNE E. DERSE, REASONS 1.4 (b,d)


1. (C) SUMMARY: Embassy Baku warmly welcomes Senator Lugar
back to Azerbaijan. This visit comes at a particularly
critical time, during the ongoing Georgia-Russia conflict and
in the wake of several public USG-GOAJ bilateral
disagreements. While the GOAJ, and President Aliyev in
particular, has limited its public statements over the crisis
in Georgia, in private, GOAJ officials, including the
President, have expressed solidarity with Georgia,
condemnation of Russia behavior, and anxiety over what the
episode means for Azerbaijan, especially in terms of oil and
gas exports and negotiations over Nagorno-Karabakh. Your
visit will be an opportunity to underscore that the USG is
committed to security and stability in the Caucasus,
including to Georgia's independence, sovereignty, and
territorial integrity, and that we urge all nations including
Azerbaijan to continue to call for Russia to withdraw its
troops immediately and contribute to restoring regional
stability. Meanwhile, Baku is still sensitive with respect
to the decision of the United States (and other Minsk Group
partners) to vote against a UNGA resolution on
Nagorno-Karabakh, sponsored by Azerbaijan, in March and has
expressed concern about our promotion of democracy and human
rights, which Azerbaijan's leadership maintains is not
regionally balanced or consistent. END SUMMARY.

Georgia Crisis--Azerbaijan,s Energy Exports Affected
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2. (C) To date, Azerbaijan's leadership has said very little
publicly about the Russia-Georgia crisis, in part because
President Aliyev was out of the country until just recently.
In private, however, GOAJ officials have conveyed grave
concerns to embassy officials and other Western observers.
The most immediate issue for Azerbaijan is the effect the
crisis has and could continue to have on the energy sector.
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
(BTC) pipeline in Turkey temporarily halted oil exports along
that route. The crisis in Georgia closed off other options
for oil transport. Technicians are reviewing BTC, with
repairs expected to allow resumption of up to 450,000 barrels
per day of exports soon, and corresponding increases in
production at the ACG offshore fields. Prior to the BTC
fire, Azerbaijan had been exporting about 900,000 barrels per
day through BTC.


3. (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 Russia
destroyed a railroad bridge near Tbilisi. (Russia probably
attacked the bridge because it was viewed as a military
target, i.e., an artery for Georgia to move troops across the
country.) 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
(also on Georgia's Black Sea post). On a more positive note,
the Baku-Novorossiysk (Northern route) oil pipeline through
Russia 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. The
Shah-Deniz offshore natural gas field and the South Caucus
natural gas pipeline are now operating nearly at pre-crisis
levels, with natural gas moving from Azerbaijan to Georgia
and Turkey.

Azerbaijan,s Anxiety over Georgia
--------------


4. (C) GOAJ,s muted reaction to the Georgia situation is in
part an effort to avoid Russian retaliation against
Azerbaijan interests. GOAJ sees Russia not only as a
potential threat to its economic viability but also, like
Georgia, to its independence, sovereignty and territorial
integrity, particularly in view of disagreements over
Nagorno-Karabakh. Azerbaijan has announced roughly USD
400,000 in humanitarian assistance for Georgia and has
pledged to help Georgia repair parts of its infrastructure,
including a railroad bridge that was partially destroyed near
Tbilisi. Similarly, President Aliyev has stated that Baku
will work with the large ethnic Azeri population in southern
Georgia to bolster support for Tbilisi. At the same time,
Azerbaijan's leaders have called for the United States,

Europe and NATO to take concrete steps to bolster security
and stability in the Caucasus. Azerbaijan, however, will
have to attempt to balance its heartfelt support for Georgia
and Tbilisi's struggle with Moscow with Azerbaijan's critical
need to export oil and gas and the reality that Azerbaijan
has critical interests, both socially and economically, in
Russia. Much Azerbaijani capital has made its way to Moscow,
and large numbers of ethnic Azeris live and work in Russia,
sending salaries back to Azerbaijan to support family members.

USG-GOAJ Security Cooperation
--------------


5. (C) Security cooperation is one of the strongest aspects
of our bilateral relationship. In your meetings with
President Aliyev and senior Azerbaijani officials, it would
be helpful to thank them for their strong support in Iraq and
Afghanistan. In terms of the latter, President Aliyev
announced in principle in April 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 is also
participating in NATO's Partnership for Peace and working to
bring its armed forces to NATO standards through its second
NATO Individual Partnership Action Plan (IPAP). Azerbaijan's
leadership may tell you that the ongoing Nagorno-Karabakh
conflict and Section 907 of the Freedom Support Act, which in
the past has limited U.S. assistance to the country, restrain
our cooperation. Since 2001, however, the U.S. Congress has
granted President Bush the authority to wave Section 907 on
national security grounds, and the President has done so on
an annual basis.

Nagorno-Karabakh
--------------


6. (C) The Nagorno-Karabakh (NK) conflict remains
Azerbaijan's top domestic and foreign policy priority, and
the sole issue that unites Azerbaijani citizens across the
political spectrum. 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.



7. (C) The GOAJ and its people are increasingly pessimistic
the OSCE Minsk Group (U.S., France, Russia) established in
2004 to find a peaceful solution to the NK conflict will
succeed. They further believe the international community,
including the USG, should pressure Armenia for a solution
consistent with Azerbaijan's territorial integrity.
Azerbaijan is particularly critical of the US Congress for
what it says is unjust favoritism of Armenia over Azerbaijan.
The Azerbaijani Government was extremely disappointed by
the Co-Chairs' "no" vote on Azerbaijan's UNGA resolution
regarding Nagorno-Karabakh and continues to express its
concerns in public and private fora, particularly to U.S.
interlocutors. Embassy does not believe Azerbaijani
frustrations over NK will diminish soon. We, however, may
see a lull in official public criticism as the GOAJ evaluates
the Russian- Georgia crisis and its impact on the NK
conflict. GOAJ may not be willing to escalate the NK
situation if it means facing the ire of
Russia.

Promoting Reform is Tough Work
--------------


8. (C) Getting the GOAJ to undertake substantive political
and economic reform is an ongoing challenge that mirrors
difficulties in most other post-Soviet states. Pressing for
reform is particularly difficult in Azerbaijan. With GDP
growth of 25 percent in 2007 and with GOAJ officials
benefiting most from the boom, there is little incentive
within the government to change course. Embassy continues to
press GOAJ at all levels to commit to serious reform and also
provides technical assistance to help Azerbaijan, primarily
through USAID's Trade and Investment Program, democracy and
governance program, anti-corruption programs and rule of law
activities as well as an initiative to strengthen the GOAJ's

consolidated budgeting process. Moreover, we believe the
World Trade Organization (WTO) accession process, for which
we are 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.

Upcoming Elections
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9. (C) In recent months, Azerbaijan has increasingly pushed
back on our efforts to promote democracy and human rights.
Azerbaijan's leadership maintains our policies in these areas
are not regionally balanced or consistent. Embassy also
believes Azerbaijan is more resistant to US and European
pressure because it feels more comfortable as it continues to
gain economic strength and geopolitical importance.


10. (C) The October 2008 presidential election, however,
presents a tremendous opportunity for President Aliyev to
burnish Azerbaijan's democratic credentials and promote its
integration with the Euro-Atlantic community by allowing the
opposition, civil society and the media more political space
and a freer voice to express opinions and concerns without
fear of reprisal. The Embassy, in conjunction with its
European partners, are engaged in these issues, underscoring
to the government and the public U.S. support for the
government,s stated goal of free and fair elections. We
highlight that our focus is on the process and not the
result; that is, that the USG does not support individual
candidates or political parties.
DERSE