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Key Economic Data 
  2003 2002 2001 Ranking(2003)
Millions of US $ 7,124 6,090 5,600 102
GNI per capita
 US $ 810 710 650 146
Ranking is given out of 208 nations - (data from the World Bank)

Books on Azerbaijan


Area (


Principal ethnic
Azeri 90%
Russian 2.5%
Armenian 2%
Dagestani 3.2%
other 2.3


Azeri Manat

Ilham Aliyev

Ilham Aliyev

Update No: 301- (30/01/06)

The key to the problem, but also the solution
With prices rising continually, and companies making substantial profits in tandem, oil seems one of the most sensible commodities to invest in. Hence the Middle East.
However, this overlooks underlying concerns about the security of the oil supply in Iraq and the political stability of other big producers in the Persian Gulf. So investors will consider alternative sources of oil. 
Under the communist regime, several states in the Soviet Union where large reserves lie were left untapped and relatively unexplored. Kazakstan, Turkmenistan and Azerbaijan are believed to contain 10 per cent of the world's potential oil supply and are believed to hold sufficient reserves for at least 40-50 years at current production levels. Indeed, average production among these former USSR states is projected to increase to 6.2 million barrels a day by 2025. 
Kazakstan itself has, at the most conservative estimates, nine billion barrels in proven reserves, but there are estimates of 29bn barrels; Azerbaijan is estimated to have 7bn-13bn barrels in proven reserves and Turkmenistan 1.7bn. However, it is thought that there are many undiscovered reserves. 
The question is: is it worth investing in Caspian Sea oil, and why? Politically, the region has become much more unstable in the past two years. The overthrow of President Akayev in Kyrgyzstan was the first in Central Asia. And there was a concern about a domino effect on other governments in the region, especially on big oil producers such as Turkmenistan and Kazakstan. Governments ruling with an iron fist, whether backed by the US or Russia, were left on the defensive, fearing further revolutions. The uprisings in Uzbekistan also acted as a catalyst for a withdrawal of American presence in the region. 
This US withdrawal could be considered a sensible step, to avoid being seen as propping up dictatorial regimes; on the other hand, it represents a loss of control. Turkey and Russia have held the key to Central Asia simply on the basis of linguistic and cultural links, but also the pipelines they provide to the West. This means, however, that one has to negotiate through an intermediary state to ensure one's investment is worthwhile because Central Asian countries are landlocked. 
Turkey has managed to act effectively as a guarantor of security of oil and gas, and has had pro-western governments, which have facilitated the transfer of these commodities to the West. In years past, though, security issues related to the ongoing Kurdish conflict have arisen in eastern areas of the country. 
Another principal concern is international terrorism. With emerging markets such as the states bordering the Caspian Sea, it is vital to ensure not only strong production but supply routes too. As is often the case with a developing market, however, the production is high and labour is cheap but there is underinvestment in security of supply. With the growth of extremist Islamist groups in these countries, the security threat posed is by no means matched by the security that a western company's pipeline receives. 
For example, countries like Turkmenistan share 'borders' with Iran and Afghanistan and, with borders being porous, potential risks to supply are high. There is also a concern of an overspill of fighters from disputes ongoing in Chechnya and Dagestan and on the border of Armenia and Azerbaijan. 

Azerbaijan to the fore
Having listed investors' primary concerns, there are obviously sound reasons to invest in oil in this area of the world. The growth of fundamentalist elements in the Caspian basin pales into insignificance when compared with the situation brewing in the Persian Gulf. Similarly, while certain governments have fallen around the Caspian Sea region, there have not been disturbances in Kazakstan, Azerbaijan and Turkmenistan. 
All three countries have re-endorsed the old regimes, which are authoritarian in character but have opened up substantially to western investors, and if even more contracts fail to materialise, these countries may look to the East for business. The former President of Azerbaijan, the father of the current President, signed a 30-year contract with a BP-led oil consortium for US$8 billion. Efforts have also been made to develop three oilfields in the east of the country to produce three to five billion barrels. 
Turkey's prospective EU membership could also help, as it would see a reduction on duties on oil and natural gas entering the EU. 
The growing political links between Russia and Turkey will also enable even more oil and gas to enter Europe more quickly. 
Taxes on oil profits are considerably smaller in Turkmenistan (10 per cent) than in Russia (50 per cent). Kazakstan and Azerbaijan also offer low-tax incentives to investors. Opec's taxes on oil profits are notoriously excessive and eat into margins substantially. 
Negotiations over future oil contracts may not be in the palace of an Arabian prince in Manama or Jeddah, but in a yurt outside Almaty or Ashgabat. They may be an unusual experience, but ultimately look most likely to bring the largest rewards for those willing to enter into the unknown - and if one delves far enough, lots of that black commodity beckons

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Baku to sign gas deal with Tehran 

Azerbaijan is to sign a contract with Iran for the purchase of about one billion cubic metres of gas a year, said Azerbaijan State Gas Company Azerigaz's President, Alikhan Melikov, Sharg reported. 
The sides have started coordinating the issues of draft agreement and supplied gas tariffs. Gas will be delivered through a gas compressor station in Astara, built last year for gas supplies to Nakhchivan autonomous republic. Melikov, however, emphasised that some works should be conducted for this project. It concerns in particular installation of equipment for receiving high-pressure gas from Iran. The Iranian party are to transport gas under pressure of 55-75 Bars, that is quite a high pressure for Azeri gas pipeline system. IN order to receive this gas it is required to diminish its pressure. The Azeri side has already launched assembly of the necessary facilities. Gas to be received from Iran will be used mainly for power generation at Alibayramli electric power plant.

ExxonMobil to pay SOCAR for halting drilling 

ExxonMobil is to pay Azeri state oil company SOCAR US$50 million as compensation for halting exploration work at the Nakhichevan and Zafar-Mashal structures, SOCAR First Vice President, Khoshbakht Yusifzade, said, Interfax News Agency reported.
"Talks with ExxonMobil about both structures are being wound up. They will pay US$50 million as compensation for failing to continue exploration work," he said. He added that the payment for Zafar-Mashal amounts to US$32 million, and for Nakhichevan - US$18 million.
The production sharing agreement for Nakhichevan was signed on August 1st 1997. SOCAR holds 50 per cent and Exxon Mobil holds 50 per cent in that project. The first exploration well was drilled from August 2001 - February 2002 and failed to reveal hydrocarbon reserves. A production sharing agreement for Zafar-Mashal was signed on April 27th 1999. 

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Baku urges participation of Iranian firms 

A meeting was held between Iranian ambassador to Baku, Afshar Soleymani, and Azerbaijan's minister for economic development, Heydar Babayev, on December 30th, Interfax News Agency reported.
During the meeting, Babayev invited Iranian firms to actively participate in the economic activities of Azerbaijan. He stressed Iran's immense economic and industrial potentials and expressed Azerbaijan's readiness to establish economic ties with Tehran. He said development of Azerbaijan's non-oil sector was top on its economic agenda and the country was ready to enter into various partnership agreements with Iran if favourable ground exists for foreign investment to thrive.
For his part, Soleymani said Iran's great economic potential and Azerbaijan's interest in promoting mutual relations provide the incentive for increasing economic interaction.
He said that economic cooperation between the two countries is growing as he cited the implementation of joint economic projects in Azerbaijan such as the transfer of Iranian gas to Nakhichevan and construction of electricity transmission lines. "The Islamic Republic is ready to cooperate with Azerbaijan in infrastructure and civic planning activities," Soleymani said.
Both sides also expressed their satisfaction over the joint economic projects that have been implemented and exchanged views on the possibility of inking further agreements to avoid double taxation and preferential tariffs. They also agreed to hold the seventh session of their Joint Economic Commission in Baku at a scheduled date. 
Meanwhile, Baku Mayor, Hajibala Abutalibov, during a meeting with Soleymani, expressed hope that the municipality of Baku would be able to benefit from the expertise of experienced Iranian companies in implementation of its development projects. He accepted an invitation from Tehran Mayor, Mohammad-Baqer Qalibaf, to visit Iran and reiterated the readiness of outstanding and experienced Iranian companies to participate in development activities in Azerbaijan.

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