US's shadowy energy partnership with oil-rich Azerbaijan

Azerbaijan has long been a key piece in the US's foreign policy puzzle, writes Nick Cunningham, and news that Congressmen traveled there at the expense of a state-owned oil company is the latest link between the countries.

Ten Members of the US Congress – along with 32 of their staff members – received secret payments from Azerbaijan’s state-owned oil company to travel to Baku in 2013.

A report from the Washington Post offers an in-depth look into a shadowy relationship between the State Oil Company of the Azerbaijan Republic (SOCAR) and powerful members of the United States government.

About $750,000 was funneled from SOCAR through US-based non-profits to cover the cost of travel, including souvenirs of “silk scarves, crystal tea sets and Azerbaijani rugs,” the Post reported. The members of Congress attended a conference in Baku on the future of US-Azerbaijan relations.

Although the Office of Congressional Ethics looked into the matter, which the Post called “the most extensive investigation undertaken by the ethics office,” it could not find evidence that the Representatives explicitly acted to benefit SOCAR. However, the report noted that SOCAR had been seeking an exemption from US sanctions on Iran over a natural gas pipeline in the Caspian Sea. Shortly after the conference attended by the members of Congress, President Obama signed an executive order further tightening sanctions on Iran, and the order included language exempting "certain activities relating to the pipeline project to supply natural gas from the Shah Deniz gas field in Azerbaijan to Europe and Turkey."  Similar language appeared previously in an Iran sanctions bill passed by Congress and signed into law by President Obama in August 2012. (Related: How Much Longer Can The Oil Age Last?)

But the cozy relationship between SOCAR and Washington, D.C. should not come as a surprise. The US government has long considered Azerbaijan, a country led by one corrupt family since the collapse of the Soviet Union, a key piece of its foreign policy puzzle.

Back in the 1990s, the Clinton administration heavily backed the Baku-Tbilisi-Ceyhan (BTC) pipeline, which connected Caspian Sea oil to the international market. Constructed by a consortium headed up by BP, the pipeline had several strategic objectives.

Former US Ambassador Richard Morningstar, a key figure in bringing the BTC about, explained the logic in a 2003 speech at Harvard’s Belfer Center. The Clinton administration wanted to peel away the countries in the Caucuses from Russian influence, help develop Caspian oil (which Clinton thought was important for global supplies), and head off potential pipeline connections through Iran. The US government provided financing options and heavy political support to get the pipeline built. It began operation in 2006 and has since carried more than 2 billion barrels of oil to the Mediterranean coast in Turkey. (Related: Oil Markets Have Little To Fear From Iran For Now)

 

But that involved cozying up to a horribly corrupt government in Baku. Secret cables from American diplomats based in Baku, which were published in 2010, reveal an economy “similar to the feudalism found in Europe during the Middle Ages: a handful of well-connected families control certain geographic areas, as well as certain sectors of the economy.” The Organized Crime and Corruption Reporting Project, a corruption watchdog based in Sarajevo and Bucharest, awarded Azerbaijan’s President Ilham Aliyev with their annual Organized Crime and Corruption Person of the Year award in 2012.

But it wasn’t just the Clinton administration that embraced the corrupt Azerbaijani government. Former Vice President Dick Cheney visited Azerbaijan in 2008 after Russia’s invasion of Georgia, pledging support for the Caucuses. But many think the real reason for his trip was that the US wanted to push an agenda to build another pipeline from the Caspian – the now scrapped proposal for the Nabucco pipeline.

Ambassador Morningstar came back under the Obama administration as special envoy for Eurasian Energy and then as Ambassador to Azerbaijan. He heavily pushed the Nabucco pipeline.

The pipeline never happened, but the effort lives on in the form of another pipeline; this one much closer to becoming a reality.

Although by no means a top priority for the Obama administration, Azerbaijan is still a security ally in the region. The Obama administration sent special State Department envoy Amos Hochstein to Greece in early May to convince the Greek government to back a proposed pipeline to connect Azerbaijani natural gas to Western Europe. The American supported pipeline is in a race against Russia’s Turkish Stream pipeline, which would connect Russian gas to Western Europe by running beneath the Black Sea and through Turkey and Greece. (Related: Which Nation Just Became The World's Top Crude Importer?)

In May 2014, President Obama sent a letter to Aliyev, in which he wrote “[o]n behalf of the US people and myself, I express you and the Azerbaijani people my best wishes on the occasion of Republic Day.” Obama then went on to say, “[w]e appreciate Azerbaijan's participation in the NATO mission in Afghanistan. The two countries have recently established close partnership in the energy sector. We appreciate the signing of the final investment decision as part of the Southern Gas Corridor in December 2013.” Azerbaijan had decided to move forward with the pipeline to Europe, after many years on the drawing board.

The western-backed pipeline is actually two pipelines – one section that runs from Azerbaijan through Turkey, and another that picks up in Greece and runs to Southern Italy. SOCAR is a major shareholder in both.

Even if the Washington Post report doesn’t reveal any wrongdoing on behalf of members of Congress, given the many years in which the US has looked the other way when it comes to corruption in Azerbaijan, owing to the fact that the US wants to develop Caspian energy, the Post report does not come as much of a surprise.

By Nick Cunningham of Oilprice.com

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Original story: http://oilprice.com/Energy/Energy-General/Americas-Shadowy-Energy-Partnership-With-Azerbaijan.html

Source: http://oilprice.com/

[Editor's note: This post has been updated on May 19, 2015 to clarify the timeline of sanctions on Iran. Those sanctions did not explicitly exempt SOCAR, as was previously reported.]