SCENESETTER FOR THE VISIT OF THE VICE PRESIDENT TO

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

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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

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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

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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