BACKGROUND: On February 21-22, 2006, Russian President Vladimir Putin visited President Ilham Aliyev in Baku to mark the start of the “Year of Russian Culture” in Azerbaijan. The two presidents discussed economic cooperation, a military-technical commission to facilitate Russian military sales to Azerbaijan, and, presumably, Azerbaijan’s position on Iranian nuclear enrichment. Some analysts believe that Putin is pressuring Aliyev to support Russia in opposing UN sanctions against Iran and to weaken U.S. influence in the Southern Caucasus, undoubtedly using as leverage his support for Aliyev’s New Azerbaijan Party in Azerbaijan’s disputed 2005 parliamentary elections. Putin and Aliyev also discussed Russia’s proposal for a Caspian Sea security entity – “Caspian Defense Initiative,” or CASFOR. CASFOR’s stated goals are the prevention of terrorism and drug/WMD smuggling across borders, as well as protection of the economic interests of the five proposed signatories – Azerbaijan, Iran, Turkmenistan, Kazakhstan, and Russia. Such cooperation is inconsistent with the historically complicated relationships between Azerbaijan, Russia and Iran. Azerbaijan has long suspected both countries of clandestine support for Armenia in the conflict over Nagorno-Karabakh, including Russian provision of troops to the Armenian side. Recent negotiations between Armenia and Azerbaijan have yielded some progress on the issue, but a solution remains elusive given recent Armenian backtracking. There is some speculation that Russia encouraged Armenian President Robert Kocharyan to harden his position in peace negotiations in February 2006, derailing a much-expected framework agreement. If true, this could be a signal to Baku that independent statehood does not free Azerbaijan from Russian meddling in its traditional sphere of influence. Despite lingering mistrust, Russia, Iran, and Azerbaijan have announced the synchronization of their energy systems, with a Russian-Iranian-Azerbaijani power corridor to be completed in 2009. Increasing Western indifference to Azerbaijan, or pressure regarding its political system as well as aggressive moves by Russia to court Azerbaijan may push Azerbaijani President Aliyev further into the Russian-Iranian camp, distancing him from the West.

IMPLICATIONS: By joining CASFOR and further increasing political and economic cooperation with Russia and Iran, Azerbaijan risks unwittingly positioning itself on the wrong side of the debate over Iranian nuclear aspirations. Just like the Collective Security Treaty Organization (CSTO) has been for its members, CASFOR may become a trap for Azerbaijan, as it stands to be used as a means for Russia to expand its influence in the Caspian region and continue its efforts to turn Azerbaijan into a client state. Furthermore, Azerbaijan is not looking to align itself with Iran amidst a brewing crisis over the Iranian nuclear program, and create tensions with the U.S. Russia is likely to seek to avoid sanctions against Iran, given that Iran is a major importer of Russian arms and nuclear technology . However, as G8 President, unequivocal support for Iran would damage Russia’s international legitimacy. Russia will continue to seek a diplomatic solution to the Iranian problem, which only prolongs the crisis, but if the rest of the G8 agrees that sanctions are necessary, Russia and Iran are unlikely to win this battle, and Azerbaijan will be facing the choice: defining its image in the West as a reliable partner or as a Russian-Iranian vassal. To encourage Azerbaijan to support the Western position on Iran, it is crucial for the European Union to support Azerbaijan’s efforts to expand cooperation with the EU, while the U.S. should be willing to provide Baku with necessary security guarantees and expanded military assistance. Moreover, as Russia may be mulling escalation tensions in the Caucasus, the U.S. needs to talk to Àzerbaijan and Turkey about coordinating security cooperation, such as joint airspace control. The worst development which can happen for the West is for Azerbaijan to become disillusioned with its Euro-Atlantic orientation and follow the examples of Uzbekistan and Belarus, seeking political patronage in Moscow, Tehran or even Beijing. Azerbaijan has strong incentives to expand economic ties with Europe. Azerbaijan is the EU’s largest trading partner in the Caucasus, and development of the TRACECA (Europe-Caucasus-Asia Transport Corridor) and Most Favored Nation (MFN) status with the EU will be cornerstones for expansion of Azerbaijani trade and investment. A firm partnership with the EU could also strengthen Azerbaijan’s economic institutions. Cooperation with Western advisors could help Azerbaijan enact reforms to tackle the weak regulatory framework, corruption, and potential for armed conflict that have stymied economic growth and foreign and domestic investment, and to diversify into sectors other than oil and gas. Such reforms would enhance economic growth and stability. Systemic reform will also improve Azerbaijan’s external security. A pluralistic, democratic Azerbaijan – a secular Shi’i state – can set an example for other majority-Muslim states in the region, making it an invaluable ally for the West. Engaging with the West politically, cooperating on multilateral issues and observing Western standards of government accountability, democracy, pluralism, and human rights will contribute to domestic stability in Azerbaijan and improve the likelihood of Western backing on energy and security issues. As the country becomes more transparent and develops the rule of law and better-functioning institution of governance and economic coordination, Western investments are likely to flow beyond the oil and gas sectors. A thriving secular, but culturally Muslim democracy will be increasingly secure as Russia moves to reassert power in its “near abroad”.

CONCLUSIONS: Azerbaijan’s strategic challenge is to stave off choosing between Russia and the West. Economic cooperation with the U.S. and EU can inject much-needed capital, technology, and managerial expertise into the Azerbaijani economy. Security cooperation with Western partners can ease pressure from Russia and Iran in the Caspian region and provide Azerbaijan with the backing of strong allies. Azerbaijan should take into account the dangers of Russian hegemony in its “backyard” and the implications of a nuclear Iran, and concentrate on its long-term national interests. With the political, military and economic support of Western partners and genuine efforts at growth and reform, Azerbaijan may develop the capacity to maintain a relationship with Russia based not on clientelism, but on mutual interests.

AUTHOR’S BIO: Ariel Cohen, Ph.D., is Senior Research Fellow in Russian and Eurasian Studies and International Energy Security at the Heritage Foundation, and author and editor of Eurasia in Balance (Ashgate, 2005). Conway Irwin, SAIS 2005 graduate is an intern at The Heritage Foundation, D.C. The authors wish to thank Katalin Vinkler for contributing to this article.