AZERBAIJAN FLEXES MUSCLES IN FAST-GROWING CAUCASUS
by Sebastian Smith

Agence France Presse — English
March 12, 2007 Monday 5:54 AM GMT

At Baku’s Caravansarai restaurant, once a rest stop on the Silk Road
between Asia and Europe, a flickering blue gas flame symbolises a
new shift in 21st century geopolitics.

These are heady days for Azerbaijan. Lynchpin of Western ambitions
to break the Russian grip on Europe’s energy resources, the ex-Soviet
republic oozes confidence and petrodollars.

Critics believe corruption, poverty, and stifling of political dissent
could yet undermine President Ilham Aliyev’s ambitions.

But Ali Hassanov, a senior advisor to Aliyev, lays out a vision in
which this secular Muslim country of eight million people will connect
Europe to huge quantities of oil and gas right across Central Asia.

"Europe must not only rely on Russian energy," he told AFP at the
presidency in Baku. "We are offering this new route linking Azerbaijan,
Kazakhstan, Turkmenistan."

For EU governments and their US ally, the attraction in this
hydrocarbon version of the Silk Road is the ability to bypass an
increasingly assertive Russia, and ultimately to create a new trade
route between China and Europe.

Azerbaijan is also in the spotlight as a US-friendly Muslim state on
Iran’s northern border, although with some 26 million ethnic-Azeris
in the Islamic republic, Baku is keen to maintain neutrality.

Amid shifting loyalties, a Western strategist might look with
satisfaction at the flames darting from a decorative heater in the
Caravansarai’s old camel stable.

Like many ex-Soviet republics, Azerbaijan had until this year been
heavily reliant on natural gas from Russian behemoth Gazprom. One
third of supplies were imported.

But when faced with a New Year’s demand for a two-fold price increase,
Baku decided to show Gazprom the door. Now all gas — except a
small amount sent from Iran to the isolated Nakhichvan province —
is locally produced.

Analysts say the bold move was as much political as economic, revealing
a steady weakening of Russian domination over the strategic Caucasus.

"It was a very clear signal that they’ve given up on Big Brother,"
a Western diplomat in neighbouring Georgia said.

Azerbaijan is underscoring this challenge by increasing gas exports
to Georgia, whose strongly pro-Western leadership hopes by the end
of the year to phase out all Gazprom imports.

That cements an alliance at the heart of the Western-backed corridor
for oil and gas pipelines built in the last two years from Baku
through Georgia to Turkey and on to world markets.

"I think there is a very good understanding between Georgia and
Azerbaijan. They both need each other to build the energy corridor
and to increase transit and commerce," another Western diplomat in
Tbilisi said.

Last month, Azerbaijan, Georgia and Turkey agreed to build a new train
link that ultimately could bring goods from China to the European Union
in direct competition to the Russian route. Azerbaijan is helping to
finance Georgia’s share.

Longer term, the hope in Azerbaijan is for a gas pipeline under the
Caspian Sea that would bring Turkmenistan’s and even Uzbekistan’s huge
gas fields directly online. "There will be competition," Hassanov said,
"and then Russia would have to lower its prices."

That project remains a long way off. But the flood of petrodollars
from Azerbaijan’s own reserves is driving wild economic growth —
gross domestic product rose 34.5 percent last year — and equally
giddy nationalist enthusiasm.

"Azerbaijan will be the envy of the world. You’ve seen nothing yet,"
predicted Shakir Bagirov, 48, a manager at the Caravansarai restaurant,
a regular lunch spot for British Petroleum employees.

Yet enormous pitfalls lie ahead for Azerbaijan, not least income
inequality, government corruption and rumbling anger over the
occupation of Azeri territories by neighbouring Armenia.

The government also claims it faces a threat from radical Islamic
groups — "not just internally, but from abroad," as Hassanov said,
in a thinly veiled reference to fellow-Shiite Iran.

The more immediate problem, critics say, is the disconnect between
those enjoying the oil boom and those left behind.

Baku, centred on an ancient neighbourhood of stone alleys and mosques,
is frantically being transformed. Jarring sounds of construction work
mingle seven days a week with the hum of traffic jams.

But while such expansion has created many jobs, as many as a third
of Azeris remain in poverty, economists say.

In the last three months electricity prices have gone up three times,
petrol by double. Although incomes and pensions have also risen
sharply, the average salary is just 139.5 manats (162 US dollars,
124 euros).

"You see all that oil money around, but for we simple people life
is very, very hard," said Ali, 27, at one of the carpet shops in the
picturesque old town. "The politicians take everything they need. Our
president is surrounded by jackals."

Ilgar Ibrahimoglu, a dissident imam and human rights activist whom
police evicted from a 1,000-year-old Baku mosque in 2004, says
the government is stamping out democratic development in order to
monopolise power.

"That radical Islam scenario is a brand that our government uses
because then they get attention from the Americans," he told AFP at
the house where he continues to lead prayers. "They get carte-blanche
to do what they want."

"If it carries on like this, if all this is badly done, there will
be mass protests."

Bagirov, totting up diners’ bills in the Caravansarai, was more
optimistic.

"Everything will be okay in the end. When the rich find their pockets
full, the money will spill and we’ll get it too."