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Oil and the Search for Peace in the South Caucasus: the Baku–Tbilisi–Ceyhan (BTC) Oil Pipeline

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Oil and the Search for Peace in the South Caucasus: the Baku–Tbilisi–Ceyhan (BTC) Oil Pipeline Oil and the Search for Peace in the South Caucasus: The Baku–Tbilisi–Ceyhan (BTC) oil pipeline December 2004 Acknowledgements The following research document is a result of 18 months intensive work of International Alert’s Business & Conflict – BTC Research project team: Adam Barbolet, Davin Bremner, Phil Champain, Rachel Goldwyn, Nick Killick, Diana Klein. The team would also like to thank many other Alert staff past and present, as well as the following regional experts who significantly contributed to the project. Burcu Gultekin Ashot Khurshudyan Razi Nurullayev Zviad Shkvitaridze Arif Yunusov Staff of Himayadar- Oil Information & Resource Centre in Baku The project team is grateful to the UK government’s Global Conflict Prevention Pool (GCPP) for its generous financial support. 2 TABLE OF CONTENTS Acknowledgements........................................................................................................................ 2 Acronyms........................................................................................................................................ 5 Executive summary........................................................................................................................ 7 1. Introduction.............................................................................................................................. 24 1.1 The contribution of the oil industry to conflict prevention – emerging conflict-sensitive management systems ................................................................................................................ 25 1.2 Balancing macro and micro perspectives .......................................................................... 28 1.3 A peace pipeline? ................................................................................................................ 29 1.4 Challenges posed by the political economy of the South................................................. 30 Caucasus .................................................................................................................................... 30 1.5 International frameworks influencing TNCs in conflict zones........................................ 32 2. The BTC project ....................................................................................................................... 34 2.1 Basic parameters ................................................................................................................. 34 2.2 BTC consortium profile...................................................................................................... 34 2.3 Finance ................................................................................................................................ 35 2.4 Legal framework ................................................................................................................. 36 2.5 Security................................................................................................................................ 36 2.6 Construction contractors and local content...................................................................... 37 2.7 Employment........................................................................................................................ 37 2.8 Project-affected communities ............................................................................................ 38 2.9 Community and environmental investment programmes ............................................... 39 2.10 Revenue management ...................................................................................................... 40 3. Context...................................................................................................................................... 42 3.1 International level .............................................................................................................. 42 3.1.1 Russia ............................................................................................................................ 43 3.1.2 Azerbaijani Diaspora in Russia.................................................................................... 44 3.1.3 The US .......................................................................................................................... 45 3.1.4 Turkey........................................................................................................................... 47 3.1.5 Armenia ........................................................................................................................ 48 3.1.6 Armenian Diaspora ...................................................................................................... 50 3.1.7 Armenians from Nagorno-Karabakh .......................................................................... 51 3.1.8 Georgia.......................................................................................................................... 52 3.1.9 Iran................................................................................................................................ 54 3.1.10 The UK........................................................................................................................ 55 3.1.11 Non-Governmental and Inter-Governmental Organisations.................................. 55 3.1.12 The EU ........................................................................................................................ 56 3.1.13 Norway ....................................................................................................................... 57 3.1.14 OSCE - Minsk Group ................................................................................................. 57 3.2 National level ...................................................................................................................... 57 3.2.1 Azerbaijani government .............................................................................................. 57 3.2.2 Other governing bodies ............................................................................................... 60 3 3.2.3 Opposition .................................................................................................................... 61 3.2.4 Islamic faith-based groups ........................................................................................... 62 3.3 Local level ........................................................................................................................... 62 3.3.1 Rural population........................................................................................................... 62 3.3.2 Internally Displaced Persons (IDPs) ........................................................................... 69 3.3.3. Ethnic minorities......................................................................................................... 70 3.3.4 Baku residents .............................................................................................................. 71 4. Links between oil and conflict: some future scenarios .......................................................... 72 4.1 Introduction........................................................................................................................ 72 4.2 Regional level – what framework? .................................................................................... 74 4.2.1 Outlook......................................................................................................................... 74 4.2.2 Oil industry response ................................................................................................... 76 4.3 National level – the struggle for transition.................................................................... 78 4.3.1 Outlook......................................................................................................................... 78 4.3.2 Oil industry response ................................................................................................... 83 4.4 Local level – the search for economic security ................................................................. 85 4.4.1 Outlook......................................................................................................................... 86 4.4.2. Oil industry response.................................................................................................. 86 5. Recommendations.................................................................................................................... 89 Annex 1 - Methodology used for analysing oil/conflict impacts............................................... 93 4 Acronyms AGI Above Ground Installation AIOC Azerbaijan International Operating Company BDA Business Development Alliance BEC Baku Enterprise Centre BTC Baku-Tbilisi-Ceyhan BTC Co. Baku-Tbilisi-Ceyhan Pipeline Company CFSP Common and Foreign Security Policy CIP Community Investment Programme COFACE Compagnie Française pour le Commerce Extérieur CSBP Conflict Sensitive Business Practice: Guidance for Extractive Industries CSR Corporate Social Responsibility EBRD European Bank for Reconstruction and Development ECGD Export Credit Guarantee Department (UK) ECRG Economy and Conflict Research Group EIP Environmental Investment Programme EITI Extractive Industry Transparency Initiative ESIA Environmental and Social Impact Assessment EU European Union EXIM Export-Import
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