WHAT LIES AHEAD FOR AZERBAIJAN?
Thomas de Waal Article October 7, 2013
Azerbaijanis will vote in a presidential election on October 9. The
result is not in doubt. Everyone expects President Ilham Aliev to be
elected for a third five-year term.
The question is, “What happens next?” It can confidently be said that
Azerbaijan in 2018 will be a very different place.
Thomas de Waal
Senior Associate Russia and Eurasia Program
Azerbaijan has come a huge distance from the war-torn, impoverished,
newly independent state of the early 1990s. The last few years,
following the inauguration of the Baku-Tbilisi-Ceyhan pipeline in
2006, have seen a dramatic rise in its prosperity. At $70 billion,
Azerbaijan’s GDP is now more than twenty times bigger than it was in
the mid-1990s. The country has also made its mark on the international
arena in a variety of ways. It began a two-year term on the UN Security
Council in January 2012 and staged the Eurovision Song Contest in
the same year.
The next five years will pose a new set of challenges. The surrounding
landscape–including energy supply and demand as well as Azerbaijan’s
strategic priorities–is already changing. On the domestic front,
the public is likely to grow more vocal about socioeconomic issues
and political freedoms. The Azerbaijani leadership needs to respond
and adapt with agility.
Strategic Priorities
Azerbaijan’s next phase of development, which coincides with Aliev’s
upcoming third term, will be more of a challenge than those past. The
country’s oil boom will come to an end, and it will make a bid to
become a significant European gas supplier.
Baku’s foreign policy balances between its bigger neighbors, and
energy is a key driver of its approach. Azerbaijan has cool relations
with its southern neighbor, Iran, and a pragmatic relationship with
Russia (President Vladimir Putin made a high-level visit to Baku in
August). Azerbaijan also works hard to build relations with Western
energy companies and Western governments based on its energy resources.
In 2018, the Trans Adriatic Pipeline (TAP), set to deliver at least
10 billion cubic meters of natural gas annually from Azerbaijan’s Shah
Deniz field via Turkey to European states, is due to begin operations.
By that year, Azerbaijan’s oil exports are projected to be in
decline–indeed, they have already dropped from their peak in 2010.
The TAP project will make Azerbaijan an energy partner of the European
Union. But in 2018, Baku’s strategic importance to the United States is
likely to have dwindled. Azerbaijan is one of the key transit routes
to Afghanistan, but by that year the U.S. withdrawal from that country
will be complete. And Washington’s relations with Tehran are likely
to improve, which means that the United States will be less focused
on containing Iran via its neighbors, like Azerbaijan.
As former U.S. ambassador to Azerbaijan Richard Kauzlarich comments:
Changes in the regional security environment (with the withdrawal
of Western forces from Afghanistan) and the global energy market
(Azerbaijan faces a more competitive market for its gas and oil) mean
that relative to a few years ago Azerbaijan is less significant. That
means that Azerbaijan must establish a new framework for a positive
relationship with the West and the United States as well as with its
immediate neighbors.
Unresolved Conflict
Azerbaijan’s neighborhood will not change over the next five years.
The essential contours of what is still the biggest long-term issue
for both Azerbaijan and Armenia–the dispute over the territory of
Nagorny Karabakh that is now twenty-five years old–will also remain.
Opinion polls suggest that the unresolved dispute is still
overwhelmingly the number-one issue for ordinary Azerbaijanis. Almost
twenty years after Azerbaijan suffered a traumatic military defeat at
the hands of the Armenians, this dispute is also the most difficult
to change. As one Western diplomat in Baku put it, “This is the one
issue where President Aliev cannot afford to put a foot wrong.”
In recent years, the Azerbaijani government has increased its military
budget to $4 billion a year with the stated aim of exceeding the entire
Armenian state budget. President Aliev maintains that he desires
a peaceful outcome to the dispute but that his country reserves the
right to use force in the long run to reconquer lost territory. In the
meantime, the ceasefire line, known as the Line of Contact, remains
Europe’s most dangerous militarized zone. Each side has deployed more
than 20,000 soldiers to face the other, there are frequent shooting
incidents, and about three dozen people are killed each year. This
is certainly not a “frozen” conflict.
With every year that passes it gets harder to make peace over
Karabakh. Armenians get more accustomed to possession of the lands
under their control and are more reluctant to make the land-for-peace
deal that must lie at the heart of an agreement. For his part,
the Azerbaijani leader has to deal with unrealistically high public
expectations and a large constituency that favors going back to war.
At the same time, all the outside powers are firmly committed
to preventing a new and potentially disastrous conflict over the
territory.
This means that the most likely scenario over the next few years
is the continuation of the situation of no peace, no war–although
the possibility of new fighting, caused either by miscalculation or
by a political crisis, also grows stronger every year and must be
taken seriously.
Opaque Politics
There are set to be ten candidates in the October 9 election, although
only two are expected to gain significant numbers of votes: the
incumbent president and the candidate of the united opposition. The
fact that Aliev is running for a third term at all is a subject
of controversy. Previously, Azerbaijan had a two-term limit for
presidents, meaning that Aliev would have had to stand down this year.
However, he organized a constitutional referendum in March 2009 that
allowed him to run for a third consecutive term.
Azerbaijan’s opposition is notoriously poorly organized. Many of
its leading figures are veterans of the short-lived Popular Front
Party government of 1992-1993, whose public standing has declined
over the years. The opposition briefly raised its game this year by
nominating a highly respected figure, filmmaker Rustam Ibrahimbekov,
to be its unified candidate. Ibrahimbekov, an acclaimed international
artist who had been praised by Ilham Aliev and his father, has been
especially critical of the current government for corruption and its
human rights record.
In the end, Ibrahimbekov’s candidacy did not go forward, as he was
barred from running for office because he had dual Azerbaijani and
Russian citizenship. The filmmaker tried and failed to renounce his
Russian citizenship in time to run for the presidency. Instead, the
main opposition groups have nominated sixty-one-year-old historian
Jamil Hasanli as their candidate.
Azerbaijan is not a democracy, despite holding elections. The
opposition is operating in very difficult circumstances. Several
activists have been arrested this year; opposition parties cannot
hold rallies in central Baku and have limited access to airtime
on television.
Over the last year the government has cracked down strongly on
dissent. Two leading opposition politicians, Ilgar Mammadov and Tofiq
Yaqublu, were arrested in February on dubious charges and are still in
detention. Investigative reporter Khadija Ismailova, who has published
articles on elite corruption in Azerbaijan, has been subjected to a
campaign of intimidation.
Human Rights Watch recently released a report on the crackdown that
concludes, “the government has been engaged in a concerted effort to
curtail opposition political activity, punish public allegations of
corruption and other criticism of government practices, and exercise
greater control over nongovernmental organizations.”
Responding in early September, Elnur Aslanov, head of Azerbaijan’s
Political Analysis and Information Provision Department of the
Presidential Administration, rejected the report as politically
motivated, saying Human Rights Watch was “working to the orders of
various centers. The report does not mention even one of the recent
achievements of Azerbaijan, this clearly demonstrates that the authors
are fulfilling such orders.”
The October 9 poll will be observed by fewer international monitors
than in elections past. A projected visit by a U.S. delegation to
Azerbaijan, led by Deputy Assistant Secretary of State Thomas Melia,
to monitor preparations for the vote was canceled at the request of
the Azerbaijani authorities.
All this means that, although in the short term the opposition will
do its best to protest the conduct of the election, in the coming
years the main arena of political competition within Azerbaijan is
likely to be among the ruling elite.
Former president Heidar Aliev ran Azerbaijan from the late 1960s to
2003, first as Communist Party boss, then as elected leader, with one
interruption. He established a power vertical in which he personally
oversaw every key decision and amassed enormous authority.
Under his son, president since 2003, the system is somewhat different.
By claiming a third term as president, the younger Aliev will emerge
more from under the powerful shadow of his father, who only served
two terms. He will have a chance to move aside some of the powerful
veterans of his father’s team, such as his seventy-five-year-old
chief of staff, Ramiz Mekhtiev.
He will be unable to repeat the feat of total control exercised by his
father because the immense increase in wealth over the past few years
has empowered other individuals in the country. The political system
is now more oligarchic, with powerful positions held by ministers,
such as Kemaladdin Heydarov and Ziya Mammadov, who have economic and
regional power bases.
The Views of the People
Public opinion is hard to gauge in a country such as Azerbaijan,
but the available data suggest that the president retains popularity,
while public discontent is directed more against the oligarchs.
A total of 83 percent of those questioned in fall 2012 for the
Caucasus Research and Resources Center’s soon-to-be-released Caucasus
Barometer poll said they trusted the president, fully or partially. A
noticeably lower figure–49 percent of those questioned–said they
believed they were being “treated fairly” by the government, while
39 percent disagreed with that proposition.
Outward displays of popular discontent have been sporadic. The early
part of 2012 saw a number of disparate and seemingly unconnected
protests by different groups in the Azerbaijani population. The
demonstrations were mainly about socioeconomic issues or local
problems. As Shannon O’Lear, an associate professor of geography at
the University of Kansas, explains:
Public protests in Azerbaijan have focused, not entirely but to
an interesting degree, on localized issues: a mosque closure,
a relative of a local official not being detained after a traffic
accident, merchants protesting an increase for stalls in the market,
for example. There are also national-level issues that have motivated
public dissent such as the unauthorized protest by a few dozen people
in Baku in January of this year regarding the death of a soldier
by hazing.
So, while people may not feel they are treated fairly by the central
government, their grievances are not necessarily directed at the top
leadership. O’Lear says this could either be “because other issues
are more immediately relevant to people or because the Aliev reign
appears to be too solid to threaten. People may be more likely to
enact opposition through localized, tangible issues on which they
feel they have a chance to make a difference.”
Observers of Azerbaijan, from different perspectives, agree that the
public currently sees little alternative to the current ruling elite.
Brenda Shaffer, a professor at the University of Haifa who specializes
in Azerbaijan, argues that the Azerbaijani public has opted for the
stability that the current leadership provides for them. She says,
“In the post-Arab Spring world, most recognize that failed states are
not good for human rights and that effective governance, even when
flawed, is preferable to instability and lawlessness. In Azerbaijan,
there is wide support for a gradual evolution of the political system
and little attraction to rapid change or shifting ideologies.”
According to pro-democracy activist Hikmet Hajizade, “There can be no
opposition in a system like that of [Leonid] Brezhnev’s USSR. There
are only around 200 brave activists who have not been broken, who
try to protest and who can be called dissidents . . . but there is
no popular force behind them. The people have been lulled to sleep.”
This stability of course may change over the next five years. The
key determinant will almost certainly be the economy.
Economic Prospects
After years of record growth, the main issue for Azerbaijan in the
near future is whether its current economic model, which is heavily
reliant on oil exports, is sustainable. (See “Answers in Depth”
below for experts’ detailed answers to this question.)
Oil revenues from the Baku-Tbilisi-Ceyhan pipeline made Azerbaijan
the fastest growing economy in the world between 2005 and 2007. But
production is dropping (see figure 1). Speaking in Washington,
DC, in September 2013, Gulmira Rzayeva of the Center for Strategic
Studies in Baku said that starting in “2015-16 [oil production] will
. . . be significantly declining.” Revenues reached a peak in 2010
and are slowly falling–though the State Oil Fund, created in 2001,
is designed to protect the state budget against this decline.
A dip in the world oil price is more likely to have an economic
impact on Azerbaijan’s oil-rich neighbors, Iran and Russia, than on
Azerbaijan itself, argues Brenda Shaffer. If oil prices dive in the
near future, Azerbaijan will be in relatively good shape because “it
regularly bases its state budget on a price lower than the actual,”
Shaffer says. Azerbaijan also “has a small population, so it can keep
state services at a good level even when the oil price is lower. But
oil-export-based states with large populations, such as Iran and
Russia, will have a hard time maintaining social services stability
when the oil price is low for a long term,” she adds.
Yet even if Azerbaijan manages to cushion itself against the
short-term effects of declining oil revenues, it still faces a new
stark reality: the days of big, easy oil revenues are numbered. To meet
this challenge, the plan over the next five years is for Azerbaijan
to reposition itself as a major gas exporter.
For many years, the European Union had been pushing the Nabucco
gas pipeline project intended to transport gas from Azerbaijan’s
Shah Deniz field to the countries of Central Europe. Uncertainties
about the commercial viability of Nabucco eventually led to the less
ambitious but still significant TAP, which will begin in Greece then
run through Albania and across the Adriatic Sea to Italy. According
to Laurent Ruseckas of IHS Cambridge Energy Research Associates,
the actual route of the pipeline is less important than the fact
that there will now be a direct link from the Caspian Sea to Western
Europe. “Development of Phase Two of Shah Deniz, as it proceeds,
will make Azerbaijan into a significant gas producer,” he says.
At the same time, the Azerbaijan state oil and gas corporation, SOCAR,
is expanding internationally so it can remain a player in European
energy politics in the future. It is already a major economic investor
in Georgia, and it has made a large investment in the Star oil refinery
in Izmir, Turkey. SOCAR also recently bought a two-thirds stake in
Greece’s gas distribution network.
The fact that TAP is more modest than Nabucco suggests it is better
insured against fluctuations in European gas demand. The previous
experience with the Baku-Tbilisi-Ceyhan pipeline is also encouraging
for TAP’s prospects: in that case, as soon as the project was approved,
both suppliers and customers factored it into their future plans and
made it viable.
However, the world gas market is more volatile than the oil market, and
revenues are lower. As Rzayeva said in September 2013, “If Azerbaijan
was getting some $800 per 1,000 tons of oil, then it will only get $50
per 1,000 cubic meters of gas. If you take this comparison you can see
what the difference is between oil and gas revenues for the country.”
Other producers are on Azerbaijan’s heels, and its gas will have
to compete against sources in Algeria, the eastern Mediterranean,
and northern Iraq as well as liquefied natural gas (LNG) that is
exported from further afield.
The longer oil and gas revenues continue to flow into Azerbaijan’s
state budget, the more questions society will ask about how the
new riches are being distributed. Corruption is already a major
concern. A scandal erupted last year when a former university rector,
who had fled to France, made damaging allegations about seat buying
in parliament. And Azerbaijan ranked 139 out of 176 countries in
Transparency International’s Corruption Perceptions Index of 2012,
putting it on the same level as Russia.
O’Lear explains that based on the experiences of countries in similar
situations, with economies overly reliant on oil exports, “an uneven
distribution of oil rent benefits allows a political elite to rule
without having to do the work of statecraft to build a foundation
for a flourishing society.” She cautions, “If Azerbaijan continues
on what would appear to be a similar path, the expectations of its
populace will continue to go unmet.”
Looking Ahead
President Ilham Aliev is in a relatively secure position as he prepares
to begin a third term. Azerbaijan is prosperous as never before,
and the country has secured an important international gas deal that
will connect the Caspian Sea and the European Union for the first time.
However, Azerbaijan’s political system remains worryingly closed
and opaque, while the recent experiences of long-serving leaders in
neighboring countries–Recep Tayip Erdogan in Turkey and Vladimir
Putin in Russia–show that standing still is not an option. The next
five years will be a critical time for Azerbaijan to adapt and reform
in order to meet a whole new series of economic and international
challenges.
Appendix: Answers in Depth
In September 2013, Azerbaijan experts were asked, “Is the Azerbaijani
economic model sustainable?” They responded:
Gubad Ibadoglu, member of the management board of the Economic
Research Center
“In the short-term yes, but in the medium and long term there are
fiscal risks.”
Richard Kauzlarich, former U.S. ambassador to Azerbaijan
“With stabilized or declining energy exports and the lack of any
serious economic diversification into the non-energy sector, the
current economic model is not sustainable. If the economic model is
not sustainable, then the current political system–built as it is
on corruption–will be stressed.”
Laurent Ruseckas, senior adviser at IHS Cambridge Energy Research
Associates
“For five to ten years, probably; over the longer term, clearly not,
since it is based on oil export revenues that decline over time.
Azerbaijan is likely to emerge as a major gas exporter, and gas
export revenues will help, as will condensate production from gas
fields. But . . . it is very likely that, absent major increases in
world oil prices, Azerbaijan faces a general trend of slow decline
in hydrocarbon export revenues. As this gets reflected through less
investment of oil money in the domestic economy, growth of the non-oil
sectors–which has been pretty robust for the past few years–will
presumably start to suffer.”
Brenda Shaffer, professor at the University of Haifa and visiting
researcher at Georgetown University
“Over half of the revenue that Azerbaijan has accumulated from its
oil exports has been saved in the national oil fund, thus with its
relatively small population, Azerbaijan can weather changes in the
oil price. In contrast to oil export, gas projects take a long time
until they start showing profit, generally over a decade. However, the
initiation of the new gas export projects will also generate economic
activity and jobs. Shah Deniz has a large portion of gas condensate.
The export of the gas condensate can generate immediate profits,
while like all gas export projects, the pipeline exporting natural
gas will take a long time to return a profit.”
The author would like to thank Alexandra McLees for invaluable research
assistance. Unless stated otherwise, quotations come from answers to
questions emailed to commentators.
Summary The result of Azerbaijan’s upcoming presidential election
is not in doubt. But the incumbent president will face a new set of
challenges during his next five-year term.
From: Baghdasarian
http://carnegieendowment.org/2013/10/07/what-lies-ahead-for-azerbaijan/gpd3