AZERBAIJANI PRESIDENT TELLS THE DEPUTY SECRETARY

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
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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
--------------

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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

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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.


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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