AZERBAIJAN: Economic growth to skyrocket when Baku-Ceyhan Pipeline comes on stream in October
Thomas Cromwell

Unlike neighboring Armenia, Azerbaijan has virtually no popular constituency in the United States and has had to use the leverage of its great oil wealth and consequent strategic importance to shape a successful relationship with Washington.

And since Baku opened an embassy in Washington, in 1993, there has been just one man representing Azerbaijan here, Ambassador Dr. Hafiz Pashayev. The ambassador recently spoke with Diplomatic Traffic about some encouraging economic developments back home, the status of US-Azerbaijan relations and his country's troubled relationship with Armenia.  

Ambassador Pashayev started his work in Washington facing an uphill task, needing to establish a credible identity for Azerbaijan in a city that knew little of his country beyond its recent Soviet past, its oil reserves and its conflict with Armenia immediately following independence in 1991. In that war, Azerbaijan lost 20 percent of its territory and gained some 800,000 refugees and internally displaced people. For a country with a total population of less than eight million, the refugee influx was a huge burden.

The ambassador says that Azerbaijan's continued pursuit of democracy has stood it well in Washington. He says bilateral relations are good, "Thanks to our desire to become a member of the family of nations and our declared policy to be a democratic, open society and part of the Euro-Atlantic community."

He says, "not many believed we would be successful," but with Haidar Aliyev coming to power in 1993 steps were taken that put Azerbaijan on a course of successful development. The centerpiece of Aliyev's strategy for economic development was to fully develop Azerbaijan's oil potential, and build new pipelines to get it to market.

Oil has been the main source of economic wealth in Azerbaijan for 150 years, the ambassador points out. But during the Soviet era it was not fully developed. Most of it lies beneath the Caspian Sea, and only with modern technology can it be economically extracted. Since independence, contracts worth some $60 billion have been signed with western oil companies, for exploration, extraction, refining and shipping of crude. Some $20 billion of those $60 billion in pledged investments have come in so far, the ambassador says.

In 1994 a pipeline was proposed that would take oil from Baku to Supsa, a small port near the major Georgian port city of Batumi on the Black Sea. From there it is shipped by tanker, through the Bosphorus, to world markets. This 516 mile route was entirely through Azerbaijan and Georgia, and hence avoided any Russian involvement or control over Azerbaijan oil, for the first time. The project cost $556 million and was completed in three years. Oil began to flow through the pipeline in 1999, opening a new era of economic independence for Azerbaijan.

The Baku-Supsa pipeline can carry 115,000 barrels per day, whereas Azerbaijan can export a great deal more than that. No sooner had oil begun to be shipped from Supsa, than much bigger plans began to be discussed. In November 1999, at a meeting in Istanbul, Azerbaijan, Georgia, Turkey and Kazakhstan agreed to build a much bigger and longer pipeline, running from Baku to Tbilisi (the Georgian capital) to Ceyhan, a Turkish port on the Mediterranean, already a major oil terminal for exports from Iraq.

President Bill Clinton was on an official visit to Turkey at the time this decision was made, and signed the Istanbul Declaration as a witness. His presence there was not insignificant, as Washington wants Caspian oil exports to be made through the territory of friendly countries, and sees this source as a welcome alternative to dependence on oil from the Arab world. Furthermore, several US oil giants have enormous stakes in the exploration, extraction and transportation of oil in the Caspian region. 

The Declaration established Ceyhan as the primary export point for Caspian oil. For Kazakhstan, the creation of the Baku-Tblisi-Ceyhan Pipeline (usually called the BTC Pipeline, or simply Baku-Ceyhan Pipeline), justified the purchase of a tanker fleet to haul its growing exports of crude across the Caspian to Baku. For Turkey, BTC meant relieving pressure on the already over-crowded Bosphorus waterway. For Azerbaijan, BTC meant being able to dramatically increase its oil exports, and the flow of funds to its economy. For Georgia, transit fees would boost its economy significantly.

On August 8, 2002 the BTC Pipeline Company was established in London, with British Petroleum holding the biggest stake, at 34.7 percent, and Azerbaijan's state oil company, SOCAR, holding 25 percent. Work on the $3 billion, 1087 miles pipeline started in September of that year. The pipeline is designed to carry 1 million barrels a day, but might be expanded to carry 1.5 million.

Environmentalists have complained that the route of the pipeline runs through some pristine natural areas, and that the methods of construction will make it liable to leaks or even explosions. Company officials have denied these allegations, and despite the withdrawal from the project of some financing organizations, the work has proceeded on schedule.

On May 25 this year, the completion of the pipeline will be celebrated in Baku. "Our dream became reality," says the ambassador, with a note of pride. "We accomplished this, despite opposition from Iran and Russia." It will take three to four months for the oil to reach Ceyhan, so that exports from the port city will not start until October this year.

With BTC coming on stream, Azerbaijan's economic growth is expected to increase dramatically. It has already been doing very well for the past six years or so, averaging rates of 10 percent GDP growth per annum. Ambassador Pashayev says this rate is expected to double to 20 percent a year once BTC comes on line, a phenomenal level for any country.

The government of Ilham Aliyev, who was elected president on the death of his father in 2003, has been focusing on diversification away from the economy's dependence on oil. During the Soviet era, half of the economy was agricultural, and the government is working to revitalize this sector now. The ambassador points to rising employment, and says that 160,000 jobs have been created since 2003.

He notes that some of the oil income is put in a fund designed to benefit Azerbaijan into the future and in sectors other than oil. Right now the fund has about $1 billion. Recently, some $150 million has been spent on housing for refugees. "The refugees are still a big burden," he says.

Some 50,000 Azeris left the disputed territory of Nagorno Karabakh as a result of the fighting with Armenia, and Azerbaijan hopes these people would be repatriated as part of a settlement. The ambassador says his government seeks a step-by-step solution. The first step should be the withdrawal of Armenian troops from all Azerbaijan territory, except Nagorno Karabakh. Then the two sides should work out an agreement for the enclave that "gives it the highest level of autonomy" but does not remove it from Azerbaijan sovereignty.

Ambassador Pashayev sees relations with the United States only getting better. He regrets that the election of Ilham Aliyev as president in October 2003 was criticized by most international observers for irregularities, but says those problems never amounted to a case such as Ukraine's, where the opposition claimed the first rounds of voting were so flawed that the poll was virtually stolen by pro-Kuchma forces. In the case of Azerbaijan, Aliyev received 76.8 percent of the vote, while his main rival, Isa Gambar, only received 14 percent.

The ambassador notes that US policy towards Azerbaijan is based on four main pillars: independence; a solution to regional conflicts; development of energy resources; and security. The government in Baku is proving a satisfactory partner for the US agenda and relations are bound only to improve, he says.


Ambassador Hafiz M. Pashayev

Hafiz Pashayev is the first ambassador of the Republic of Azerbaijan to the United States. He arrived in Washington, D.C., in February 1993, presented his credentials to President Clinton on April 14.

Since assuming his post, Ambassador Pashayev has concentrated mainly on the imperative necessity to develop, broaden, and enhance bilateral US-Azerbaijan relations. This relationship is proving all-around fruitful, especially in the economic field, with Azerbaijan and the US companies engaged into active cooperation in the Caspian energy development. Interaction on the political issues is also becoming more and more intensive, including wide range of security and other matters.

During the initial period of bilateral relations the task of educating American public and academic circles figured prominently in the Ambassador's job description. Educating American law-makers presented special challenge in the context of the ongoing Armenia - Azerbaijan conflict. The Ambassador has done much to secure foreign assistance in overcoming humanitarian crisis in Azerbaijan, with its 1 million refugees and the displaced, many of whom still have no housing, adequate food or clothing.

Ambassador Pashayev has been instrumental in presenting in the US Azerbaijan's history, culture, and arts, as well as the nation's significant achievements on the path of reforms aimed at establishing free market economy in a democratic society under a rule of law.

In his capacity of non-resident Ambassador to Canada (until September 2004) and Mexico (since June 21, 1999), as well as of Ambassador - Permanent Observer to the OAS (since April 5, 2001), Dr. Pashayev has done his best to promote Azerbaijan's economic, political, and cultural ties with the countries of North and South America.

Prior to his appointment, Dr. Pashayev served as director of the Metal Physics Laboratory in the Institute of Physics at the Azerbaijani Academy of Sciences in Baku and taught physics at Baku State University.

In 1984 he was named full professor at the Academy of Sciences of Azerbaijan. He received his Ph.D. in theoretical physics in 1971, having pursued post-graduate studies at the Kurchatov Institute of Atomic Energy in Moscow. From 1975 to 1976, he undertook a one-year research at the University of California at Irvine. He graduated from Baku State University in 1963 with a degree in physics. He is the author of several books and more than 100 articles, including those published in The New York Times, The Washington Post, The Washington Times, The Christian Science Monitor, The Boston Globe, etc.

Dr. Pashayev is married. Mrs. Rena Pashayev is a scholar and professor of Arabic literature and history. They have two children and four grandchildren.