- NBR - The National Bureau of Asian Research

Oil and Development in Post-Soviet Azerbaijan

David I. Hoffman

Despite five regime changes since independence, Azerbaijan's strategy of attracting foreign investors to develop the country's oil resources has been remarkably consistent. Yet the increasingly important network of informal and kinship ties between state officials—especially the heads of the state–owed oil company—and President Heydar Aliev expose foreign investors to capricious legal, regulatory, and tax scrutiny. As a result, it is unlikely that the Azerbaijani government will be capable of converting oil revenues into republic– wide economic growth. Indeed, without fully–funded, dependable, and apolitical statistics–generating and tax–collecting apparatuses, Azerbaijan's leaders are hard–pressed even to stay informed of the current state of the nation's economy, much less accurately plan for the distribution of future oil revenues.

The United States could take several steps to mitigate these outcomes. Since 1996, U.S. policy in Eurasia has followed two contradictory paths: the implementation of Section 907 has marked Azerbaijan as a pariah among the Soviet successor states; yet Azerbaijan is also the linchpin in Washington's push for an east–west transportation corridor. Repealing Section 907, broadening ties with political figures from both the government and the opposition, and actively pushing for a settlement of the Nagorno–Karabakh conflict would create a coherent U.S. policy toward Azerbaijan and improve energy security in the Caspian region.

Forty kilometers into the Caspian, Neft Dashlari, or Oily Rocks, as it is known to its foreign guests, presents a surreal, almost macabre sight. Sitting on stilts off the coast of Azerbaijan, the complex is a maze of oil rigs, eight–storied apartment blocks, steel pipes, and movie theaters, all linked together by over 125 miles of roads. For a moment, one can almost imagine the awe and satisfaction of Soviet engineers as they neared completion of their creation in 1947 – a massive industrial complex located in the middle of the sea; a triumph of Soviet engineering and planning!

The illusion, however, is fleeting, and there is a reason almost none of Neft Dashlari's foreign visitors stay overnight. Rusting and decrepit, the facility is literally falling into the sea, with miles of roads already submerged beneath the oily soup that is the Caspian, and large sections of Oily Rocks joining them every day. Workers assigned to the field, in a quest for higher and drier accommodations, have taken to converting a portion of their wages into bribes to secure housing on the third floor or higher; around some dormitories, the waterline now...

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