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Cablegate: Scenesetter for Codel Tierney's Visit To

VZCZCXRO9323
PP RUEHDBU RUEHLN RUEHVK RUEHYG
DE RUEHKB #0822/01 1800955
ZNR UUUUU ZZH
P 290955Z JUN 07
FM AMEMBASSY BAKU
TO RUEHC/SECSTATE WASHDC PRIORITY 3375
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUEHAK/AMEMBASSY ANKARA PRIORITY 2220
RUEHIT/AMCONSUL ISTANBUL PRIORITY 0058

UNCLAS SECTION 01 OF 03 BAKU 000822

SIPDIS

SENSITIVE
SIPDIS

H PLEASE PASS TO REP. TIERNEY'S STAFF

E.O. 12958: N/A
TAGS: PREL PGOV ECON ENRG PBTS IR RU AJ
SUBJECT: SCENESETTER FOR CODEL TIERNEY'S VISIT TO
AZERBAIJAN, JULY 2-4


SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET DISTRIBUTION.

1. (SBU) President Aliyev's April 28, 2006 meeting with
President Bush laid the foundation for advancing U.S.
interests through a strengthened bilateral relationship.
Azerbaijan is a key partner to the U.S. because of its
geopolitical situation, its status as a secular,
democratizing, Muslim country, and its key role in ensuring
alternative energy supplies. We hope that your visit will
build on the momentum of President Aliyev's visit in the
three key areas of our cooperation: security, energy, and
promoting democracy through political and economic reform.

REGIONAL ISSUES
---------------

2. (SBU) Azerbaijan's primary foreign policy goal is to
preserve its sovereignty and independence. To help achieve
this goal, the GOAJ since the mid-1990s has pursued a policy
of integration with Euro-Atlantic structures. Azerbaijan is
a member of NATO's Partnership for Peace Program, and is
actively pursuing an Individual Partnership Action Plan
(IPAP) that will increase Azerbaijan's NATO interoperability.
Azerbaijan and the U.S. have robust cooperation in border
control and counter-proliferation programs, including the
Cooperative Threat Reduction Program. Since 2002, Azerbaijan
has been a Member of the Council of Europe, and in October
2006 signed a far-reaching Action Plan as part of the EU's
New Neighborhood Policy. Resolution of the Nagorno-Karabakh
conflict figures prominently in Azerbaijan's foreign policy
agenda, and the US continues to be actively involved in the
OSCE Minsk Group's quest for a peaceful, negotiated
settlement.

3. (SBU) Azerbaijan keeps a wary eye on its two powerful
neighbors, Russia and Iran. Sparked in part by Russia's
heavy-handed gas politics, Azerbaijan has recently veered
from its traditional practice of not publicly acknowledging
tensions in the bilateral relationship. President Aliyev and
other GOAJ officials have publicly criticized Russia's
behavior in gas negotiations and questioned the viability of
the Commonwealth of Independent States as an organization.
Azerbaijan declined to purchase Russian gas, at great
expense; arrested and sentenced a Ministry of Defense
employee for spying for Russia; protested a Russian law
clamping down on foreigner involvement in Russian retail
markets; and decided to halt Russian television broadcast as
of July - all of which have increased tensions. Public
tensions with Russia have eased considerably since the winter
gas stand-off, and senior Azerbaijani officials have said
that they welcome Russia's proposal to bring the Gabala radar
station into a global missile defense system.

4. (SBU) Azerbaijan pursues a decidedly more low-key
approach to its relations with Iran, balancing its pragmatic,
daily needs (including trade, energy, and access to
Azerbaijan's isolated Nakhchivan exclave) with its real
differences with the Iranian government. Although Azerbaijan
is careful not to criticize Iran publicly, it worries about
Iran's claims to oil fields in the Caspian and efforts to
export terrorism and its brand of political Islam throughout
the world, including in Azerbaijan. The Iranian Government
continues to send Azerbaijanis to Iran for religious studies,
and Iran is widely believed to provide support for small,
underground religious groups in Azerbaijan, support that is
of concern to Azerbaijan's decidedly secular government. In
line with its careful relationship with Iran, the Azerbaijani
Government has declared its support for Iran's right to
develop peaceful nuclear programs but has also pledged to
implement UN Security Council Resolutions 1737 and 1747.
Iran's large ethnic Azeri population -- estimated to be
nearly one-quarter of Iran's total population -- further
complicates relations between the two countries; both the
Iranian and Azerbaijani governments are careful not to
endorse any actions that could be seen as advocating
"unification" of "northern" and "southern" Azerbaijan. Some
Iranian-Azeri nationalist groups maintain offices in Baku.

SECURITY: COOPERATION STRONG
----------------------------

5. (U) Azerbaijan is a strong partner in the Global War on
Terror. In Iraq, 151 Azerbaijani (Muslim) infantry troops
stand alongside U.S. Marines guarding the Haditha Dam.
Azerbaijan is also contributing troops in Afghanistan - and
has pledged to double its contingent - and peacekeepers in
Kosovo. Azerbaijan provides blanket overflight rights for

BAKU 00000822 002 OF 003


U.S. aircraft, which allows the U.S. to sustain critical
strategic access to sustain our operations in OIF/OEF.
Azerbaijan also provides strong information sharing and law
enforcement cooperation in fighting terror.

6. (SBU) In May 2005, Azerbaijan agreed to an Individual
Partnership Action Plan (IPAP) with NATO that has promoted
good cooperation in a number of areas. The USG and NATO
partners support Azerbaijan's efforts to advance IPAP
implementation. In support of Azerbaijan's IPAP goal, the
U.S. is working with the Ministry of Defense to make a
military airfield "NATO compatible," which potentially could
be used by NATO aircraft as a "gas and go" location for
operations in Afghanistan.

ENERGY: MOVING BEYOND BTC
--------------------------

7. (SBU) The Baku-Tbilisi-Ceyhan (BTC) First Oil ceremonies
in Turkey in July 2006 highlighted the outstanding level of
U.S.-Azerbaijani cooperation on energy issues and
Azerbaijan's growing role as a regional energy producer and
transit country. In June 2006, Azerbaijan and Kazakhstan
signed an Intergovernmental Agreement (IGA), which will
facilitate the delivery of Kazakh crude to global markets via
the BTC pipeline. The completion of the South Caucus
Pipeline lays the groundwork for gas exports to and through
Turkey. Full development of the Shah Deniz gas field, access
to "deep gas" in the ACG field, and a possible new
Trans-Caspian Gas pipeline would allow still higher volumes
of Caspian gas to reach international energy markets, further
enhancing European energy security. On March 22, Secretary
Rice and Foreign Minister Mammadyarov signed a Memorandum of
Understanding on a Dialogue on Energy Security in the Caspian
Region, an important public affirmation of our two countries'
commitment to further development of the East-West energy
corridor.

8. (SBU) At the start of this winter, Gazprom offered
Azerbaijan a 2007 gas contract of 1.5 billion cubic meters at
USD 235 per thousand cubic meters, vice the 2006 contract of
4.5 billion cubic meters at USD 110 per thousand cubic
meters. The GOAJ saw this new offer as Russian pressure to
prevent it from helping Georgia with its winter gas supply
problems, and also as an effort to stop the export of
Azerbaijani gas westward. The GOAJ is proud that it did not
submit to what it perceived as Russian political pressure,
choosing to supply gas to Georgia from its own reserves and
to convert some of its own oil to heavy fuel for use in its
electrical power plants, at considerable expense.

MANAGING THE OIL BOOM
---------------------

9. (U) With GDP growth of 36 percent, Azerbaijan has the
fastest growing economy in the world, driven nearly entirely
by an unprecedented inflow of energy revenue. 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 will be 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. The U.S. is providing technical
assistance to help Azerbaijan manage this transition, with
technical advisors in the Ministries of Tax and Finance,
anti-corruption programs, rule of law programs and a program
to help strengthen the GOAJ's consolidated budgeting process.
The February 7 inaugural session of the U.S.-Azerbaijan
Economic Partnership Commission (EPC) elevated the bilateral
economic dialogue, and resulted in eight signed Memoranda of
Understanding (MOUs) between the GOAJ and the USG in a range
of sectors. Moreover, we believe the WTO accession process
is the key vehicle through which we can promote GOAJ
implementation of successful economic and political reform
that will keep Azerbaijan's development on a stable path.

REFORM: PROGRESS, SETBACKS AND OBSTACLES
----------------------------------------

10. (SBU) Parliamentary reform, media freedom, and freedom of
assembly are key areas for further democratic reform. We
have seen some positive signs that Speaker of Parliament
Ogtay Asadov hopes to change the Parliament from a Soviet-era
rubber stamp body to a more empowered institution. At the
February 7 EPC, the GOAJ signed an MOU with the USG on a

BAKU 00000822 003 OF 003


multi-million dollar parliamentary assistance project. This
project will provide technical assistance to Parliament over
the next few years. Azerbaijan's Members of Parliament (MPs)
lack adequate training as well as many of the basic resources
vital to their work: adequate office space, computers and
Internet access, phone lines, and staff members - although
the GOAJ's 2007 budget provides funding for one staff member
per MP. Empowering MPs to do their jobs will encourage
accountability between the MPs and their constituency, which
will be vital to strengthen Parliament as an independent,
transparent and democratic institution.

11. (U) The past year has seen a decline in media freedom and
freedom of assembly in Azerbaijan. There have been three
high-profile, physical assaults on opposition newspaper
journalists by unidentified assailants. Separately, GOAJ
officials have increasingly resorted to civil and criminal
libel suits against opposition-affiliated journalists to
silence criticism. In November 2006, the GOAJ temporarily
suspended broadcast of Azerbaijan's most influential
independent media conglomerate, ANS Television. In 2006 the
GOAJ did not approve any applications from opposition parties
to hold political rallies. In addition, the GOAJ often
detained opposition members who attempted to hold
unsanctioned rallies - sometimes preemptively. The GOAJ's
decision to allow the opposition Musavat party to hold
several protests in response to the January utilities price
increases was a welcome step, and we continue to press for
full restoration of the right to freedom of assembly.

12. (U) Your visit next week provides an excellent
opportunity to advance the USG's agenda in Azerbaijan. We
look forward to welcoming you.
LU

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