FT SPECIAL REPORT Azerbaijan Thursday March 12 2015 www.ft.com/reports | @ftreports Roman times. It did not stop Azerbaijan from hosting the 2012 Eurovision Song Inside Contest, and in June it hosts the inaugu- ral European Games, the biggest inter- Reform offers nationalsportseventeverstagedthere. Nagorno-Karabakh The games will take place against a conflict backdrop of troubling geopolitical and Important oil and gas economic developments for the young pipelines run close to state. The Ukrainian uprising that top- the front line the best hope pled President Viktor Yanukovich in February 2014 disturbed President Page 2 Ilham Aliyev of Azerbaijan. Not only was it a popular revolution against an authoritarian ruler, but the US and its Economy under for national western allies, regarded as partners in pressure Baku,openlysympathisedwiththepro- Devaluation and job democracyforcesonthestreetsofKiev. losses as oil price In what looked like an effort to forestall similar events at home, the slide hits hard stability Azerbaijani authorities began to crack Page 3 Foreign policy focuses on independence A long stretch of low Delicate balancing act Oil has given this former Soviet state great wealth oil prices would test the amid regional and but it still struggles on many fronts, says Tony Barber country’s economic model global powers Page 3 aterfront skyscrapers an experience it has no desire to repeat. downonpoliticaldissentandindepend- and blustery winds Azerbaijanstandsatacrossroadsofcivi- ent media even more than in the first Baku seeks a fresh role from the Caspian Sea lisations and markets, old and new, and decade under Mr Aliyev, who replaced in energy markets make Baku, Azerbai- derives its identity from multiple HeydarAliyev,hisfather,aspresidentin Plans are in train to W jan’s capital, look and sources. Azeri is close to Turkish and 2003. Human rights groups estimate feel a little like Chicago, albeit with the Azerbaijani people are kinsmen of that, in the past year, more than 30 develop the state as a fewer bright lights than the great city on the ethnic Azerbaijanis of neighbouring activists, lawyers, journalists and blog- hub for natural gas Lake Michigan. Baku’s spacious, Lon- Iran.ButAzerbaijanalsopridesitselfon gers have been detained and, in some Page 4 don-style taxis and backstreet pubs having established the world’s first sec- cases, convicted on what western gov- inject another kind of western atmos- ular Muslim democracy,an experiment ernments consider bogus charges such phereintothisenergy-richcornerofthe thatlastedfrom1918to1920. astaxoffences. southernCaucasus. In the modern age, the government Even the few Azerbaijani human Yet the luxury fashion stores, jewel- hassoughttoanchornationalindepend- rights campaigners still at liberty lery shops and car showrooms of Baku, ence in membership of pan-European acknowledge that conditions are not as brought into existence by Azerbaijan’s institutions, such as the Council of repressive as in some post-Soviet states, oil and gas wealth, are more suggestive Europe and the Organisation for Secu- notably in central Asia. They entertain of Dubai. The fact that Russian, after rityandCo-operationinEurope. faint hopes that the authorities may Azeri, is the most widely spoken lan- Whether the southern Caucasus, declare an amnesty for some prisoners European Games guageinBakuisareminderthat,untilit which comprises Armenia, Azerbaijan in late March to mark Novruz, the gained independence in 1991, Azerbai- and Georgia, is truly part of Europe is a Azerbaijaninewyear. An opportunity to janhadspentthebestpartoftwocentu- question over which geographers have But Mr Aliyev appears to have drawn display ‘soft power’ ries under Russian and Soviet rule — scratched their heads since Ancient Hard hit: Ilham Aliyev, president, has seen growth rates stall — Attila Kisbenedek AFP Continuedonpage2 Page 4 2 ★ FINANCIALTIMES Thursday 12 March 2015 Azerbaijan State of play How the increase in Azerbaijan’s GDP has outpaced that of Russia since the collapse of the Soviet Union Derbent RUSSIA Real GDP, rebased (1992=100) GEORGIA 350 Azerbaijan 300 Tbilisi Zaqatala 250 Quba 200 Şäki Russia 150 Qazax 100 Şamaxi Mingäcevir Sumqayit 50 Göyçay 1992 93 94 95 96 97 98 99 2000 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15* 16* Gäncä Yevlax Baku AZERBAIJAN GDP per capita Azerbaijan oil production Azerbaijan poverty rate At purchasing power parity, 2014 ($ ’000) Average over previous 12 months % of population Yerevan Ağdam (’000 barrels per day) 0 5 10 15 20 25 Khankendi/ ARMENIA 1000 50 Stepanakert Russia NAGORNO- Salyan Caspian KARABAKH Kazakhstan 800 40 Sea Belarus Azerbaijan 600 30 Turkmenistan Nakhchivan Ukraine Georgia 400 20 Armenia 200 10 Länkäran Uzbekistan Moldova Kyrgyz Rep. 0 0 Tajikistan IRAN 1995 2000 05 10 14 2001 05 10 13 100 km FT research Sources: IMF; Thomson Reuters Datastream; World Bank *Forecasts for 2015 and 2016 fr om Consensus Economics Reform offers Threat of the best hope for national ripple effect stability Continuedfrompage1 increases as the conclusion that the energy partner- ship forged with the west since the 1990s will not stop western govern- ments from criticising Azerbaijan on domestic matters — a stance Baku violence erupts objectstoasbrazeninterference. From the government’s perspective, events in the post-Soviet space took a more alarming turn after Russia exacted revenge for Mr Yanukovich’s downfallbycarvingupUkraine. Azerbaijan’s leaders are also con- cerned about the implications for domestic stability of Syria’s civil war and the rise of the Islamic State of Iraq Important pipelines and the Levant, known as Isis. Several Nagorno-Karabakh conflict hundred Azerbaijani citizens have gone run close to the front line, writes Tony Barber to take part in the Syrian war, causing thegovernmenttotightenitsantiterror- he “frozen conflict” political intransigence and state-fuelled Peaceful protest: Having seized control of Karabakh However, western officials say acute ism laws last year and arrest dozens of between Azerbaijan and propaganda are intensifying on both people gathered and seven adjacent districts from ‘It’s not just tensions between Russia and western suspectedfighters. Armenia over the territory sides of a dispute that concerns the EU, in Baku last Azerbaijaninthe1992-94war,Armenia governmentsoverMoscow’sannexation Azerbaijanisapredominantlysecular of Nagorno-Karabakh is Russia, Turkey and the US, not least month to now relies heavily on its economic and snipers any of Crimea and intervention in eastern society — a legacy, in large part, of 70 T heating up, erupting in reg- because oil and gas pipelines important commemorate security relationship with Russia to Ukraine have not hindered co-opera- years of official Soviet atheism — and more. It’s ular bursts of violence that threaten to Europe’s energy security lie close to those killed deteranyattemptbyBakutoreclaimits tiononKarabakh. only 15 per cent of the population are regional stability and risk triggering theKarabakhfrontline. during the war lostterritoriesbyfull-scalewar. attack Nagorno-Karabakh (which means religiously observant, according to gov- ripple effects beyond the southern Cau- MrAliyevandhisgovernmentaredis- with Armenia What is unclear is how Russia might helicopters, “mountainous black garden”), a mainly ernment estimates. Nevertheless, the casus. playing more frustration with the lack Tofik Babayev AFP react if Azerbaijan launched an attack Armenian-populated enclave of Azer- state’s extensive security apparatus January’scasualty toll of 12 killed and of diplomatic progress than for many but took care to confine its forces artillery and baijan in Soviet times, is today,for most keeps a close eye on sermons, speeches 18 wounded was the highest confirmed years. At February’s annual Munich strictly to its side of the internationally practical purposes, an appendage of and other activities at mosques in order numberofvictimsinthefirstmonthofa securityconference,hecomplainedthat recognisedborderwithArmenia. more’ Armenia. However, like the Turkish tosnuffoutIslamistmilitancy. year since a ceasefire halted a 1992-94 western powers were guilty of double For Baku, a related consideration is Cypriot breakaway state in northern On the economic front, a sharp drop war between the two former Soviet standards, by imposing sanctions on the exposed position of Nakhchivan, an Cyprus, Karabakh is isolated in the in oil prices over the past 12 months has republics. That conflict killed at least Russia for its actions in Ukraine, yet autonomous exclave that is vulnerable international community. Its officials slammed the brakes on Azerbaijan’s 20,000peopleandturnedmorethan1m taking no meaningful steps to secure to Armenian pressure because Arme- are excluded from the peace process, once spectacular growth rates and intorefugees. Armenia’s compliance with UN resolu- nian land, next to the occupied territo- being represented by Armenia — a shut slashed its state revenues, which The latest clashes are on a less fright- tions that call for its withdrawal from ries, cuts it off from the rest of Azerbai- dooratwhichtheychafe. dependlargelyonhydrocarbonproduc- ful scale, but international monitors say Azerbaijaniland. jan to the east. Russia and Turkey view Since 2007, mediators have tried to tion and exports. It forced the govern- the 2014 death toll of about 60 people Azerbaijan has increased military themselves as guarantors of Nakh- build an agreement on the so-called ment on February 21 to devalue the was the