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Azerbaijan: Oil And Gas Problems A Contentious Issue With Russia

Relations between Russia and Azerbaijan appear to have improved markedly since the inauguration of Russian President Vladimir Putin, but tensions over Azerbaijan oil and gas problems suggest a broader agenda in Moscow. RFE/RL Correspondent Michael Lelyveld reports.

Boston, 16 June 2000 (RFE/RL) -- Russia appears to be exerting quiet but effective pressure on Azerbaijan over its petroleum trade at a time when relations are ostensibly at their most amicable level in years.

At a meeting Wednesday in Baku with President Heidar Aliev, Russian Security Council Secretary Sergei Ivanov said that there are "no unresolved issues between Azerbaijan and Russia," according to the Interfax news agency.

The meeting was apparently foreordained to be a success. Before leaving Moscow, Ivanov declared that "friendship and partnership with Azerbaijan are a priority of Russia's foreign policy. The two nations signed a new cooperation protocol during Ivanov's visit.

Aliyev has gone out of his way to improve ties with Russia since the inauguration of President Vladimir Putin. Most recently on Monday, Aliyev said that "Azerbaijan wants to see Russia as a great power advancing by the road of democracy and freedom," according to Itar-Tass.

The statements are in marked contrast to the tensions that have long marked bilateral relations. As recently as January, Russia accused Baku of harboring Chechen rebels, a charge that the Aliyev government dismissed as a pretext for expanding Russian operations to include Azerbaijan.

There may be many reasons now for accommodation. Among them are hopes for a Nagorno-Karabakh settlement, the chance for new policies under Putin and the conclusion that Russia's new leader is not above using force in the region to further his goals.

But while friendship is on display, a more powerful policy may be at work to influence Azerbaijan's imports and exports.

Earlier this month, Azerbaijan announced that it plans to import 2 billion cubic meters of gas starting in October, although deals have yet to be concluded with potential suppliers, including Russia, Iran and Turkmenistan.

Reports have given several reasons for oil-rich Azerbaijan's decision to import gas, not the least of which is the shortage of fuel for power plants that caused electricity rationing last winter. The government must avoid a repeat of the experience this winter to calm social unrest. But Russian pressure has also apparently played a part.

Azerbaijani officials say that Russia has warned them that it may impose economic sanctions on Baku unless it lives up to its pledge to ship 2.3 million tons of oil through a Russian pipeline to Novorossiysk this year. Reports suggest that Azerbaijan has shipped only 300,000 to 340,000 tons through the pipeline so far this year. It plans to deliver another 100,000 tons in June and 360,000 tons in the third quarter, but the totals would still be less than half the amount needed to escape Russian penalties.

In previous years, Azerbaijan's contractual commitment to use the Novorossiysk route was not a problem because the pipeline was subject to frequent shutdowns due to its passage through Chechnya. With the completion of a bypass around the territory in March, Russia is now eager to fill the line and ready to enforce its contract. The result is pressure on Azerbaijan. Baku hopes it can free up more oil for export through Russia by importing gas for its power plants. Unfortunately, the effort may only make matters worse. Pressure to export more oil may mean that Azerbaijan will have little fuel in reserve. The choice of potential gas suppliers is also not really much of a choice.

Gas from either Russia or Turkmenistan would have to flow through a Russian pipeline around the Caspian, making the two sources equally sensitive and costly for Azerbaijan. The alternative of gas from Iran would require reconstruction of a pipeline at a reported cost of $300 million to $400 million. Moscow may have calculated that the work would take too long to help Azerbaijan with its problem this year.

To add to the troubles, Russia's Lukoil told the Financial Times this week that it prefers to ship its share of Caspian oil from Azerbaijan to Novorossiysk rather than through the planned Baku-Ceyhan pipeline. Lukoil said it is entitled to choose under the terms of the "contract of the century" for developing Azerbaijan's offshore fields.

The decision will make it even harder for Azerbaijan to find enough oil to fill the Baku-Ceyhan line, which is backed by the United States. The Lukoil move appears to be the first sign of Putin's new policy of pursuing Russian interests in the Caspian through Russian companies.

In April, Putin said, "We believe that the key question resolving this problem is defining the balance of the interests of the state and companies...We will not be able to achieve anything by the power of the state alone."

The result of these maneuvers could be a severe weakening of Azerbaijan, which has used energy independence to resist Russia's political power. If Putin has indeed succeeded in laying a trap to control Baku's imports and exports, it is little wonder that Aliyev is now mending fences with Moscow.