Bloomberg News

Azeri Leader Tied to U.S. Taps Oil Cash to Avoid Assad Fate

October 03, 2013

Azeri Leader Tied to U.S. Taps Oil Cash to Avoid Assad Fate

Aliyev, 51, is seeking to extend his family’s rule in an Oct. 9 election, his third since succeeding his father in a disputed vote a decade ago. Photographer: Olivier Hoslet/EPA

Less than 500 miles northeast of Syria, another secular Muslim dynasty is clinging to its fifth decade in power amid increasing calls for greater freedom and less corruption.

What Azerbaijan President Ilham Aliyev has that his counterpart Bashar al-Assad doesn’t is strong U.S. relations and a steady stream of oil cash to temper the opposition.

Aliyev, 51, is seeking to extend his family’s rule in an Oct. 9 election, his third since succeeding his father in a disputed vote a decade ago. Bordering Turkey and Iran, the former Soviet province of 9 million mostly Shiite Muslims is what the U.S. ambassador calls a “steadfast” ally, handling about 30 percent of all non-military NATO shipments into Afghanistan and operating the only non-Russian outlet for Caspian oil flows to world markets.

With the opposition united for the first time behind a single challenger, Camil Hasanli, thousands of people rallied in the capital Baku on Sept. 22 to demand Aliyev’s resignation. That was the largest demonstration against the government since 2005, when the opposition tried to replicate Ukraine’s Orange Revolution after disputed parliamentary elections.

“The potential for contagion from the Middle East can’t be ruled out,” said Kate Mallinson, senior analyst at London-based political risk evaluator GPW. “There are a lot of disgruntled people on the street because there aren’t opportunities, but rising incomes for the nascent middle class in the short term mean that any regime change is unlikely.”

BP, Chevron

Buoyed by the third-largest oil reserves in the former Soviet Union and $40 billion of investment from BP Plc (BP/) and its partners, Aliyev is betting he can overcome protests and avoid the fate of other Muslim autocrats such as Assad, who’s embroiled in a 2 1/2-year civil war and under threat of U.S. air strikes.

A constant reminder of the source of Aliyev’s power, a lone oil rig toils away on the horizon from Baku’s lavish seaside villas. Beyond view, more like it are drilling 3 kilometers (1.9 miles) into the world’s largest lake to feed the BP-led pipeline that terminates on Turkey’s Mediterranean shore. Then-U.S. Energy Secretary Samuel Bodman joined Aliyev in 2005 to inaugurate the 1,100-mile link, which is partly owned by U.S.- based Chevron Corp. (CVX:US) and ConocoPhillips. (COP:US)

While Aliyev has used some of the country’s oil riches to transform Baku’s concrete skyline into a glimmering metropolis with its iconic Flame Towers and a billion-dollar cultural center, his government is still ranked by Transparency International and Reporters Without Borders as one of the most corrupt and repressive in the world.

Dubai Mansions

The Washington Post (WPO:US) reported in 2010, citing Dubai property records, that Aliyev’s only son, then 12, bought nine waterfront mansions on the Palm Jumeirah man-made island for a total of $44 million. Aliyev has never denied the report and his son is still a minor. Hasanli, the opposition candidate, was attacked with a bottle by an Aliyev loyalist for trying to bring up the report during a televised debate last month.

“Everyone is aware of the vast wealth that the presidential family has,” said Anna Walker, an analyst at Control Risks, a London-based advisory group. “But by managing to distribute that wealth among key officials Aliyev has pretty much ensured that any dissatisfaction there is isn’t allowed to build up.”

Dozens of political activists, journalists, bloggers and other critics of the government have been arrested or convicted of “bogus charges” over the past 18 months, including Ilgar Mammadov, leader of the Republican Alternative opposition group, Human Rights Watch said in a Sept. 2 report.

‘Not Inferior’

The presidential press service, which also communicates for the Aliyev family, didn’t respond to four phone calls and three e-mails in the past week. Aliyev called the fight against corruption a priority on Sept. 30, saying “we should get rid of this malady,” state news service Azartac said.

“Freedom of speech, freedom of conscience, freedom of religion, freedom of assembly -- all these freedoms exist in Azerbaijan,” Aliyev told his ruling party’s congress June 7, according to a transcript posted on his website. “For us, the development of democracy is the main goal. Today, Azerbaijan is not inferior to anyone in terms of democratic development.”

The Azeri leader won 77 percent and 87 percent of the official tally in his two electoral victories, in 2003 and 2008, which were deemed neither free nor fair by U.S. and EU observers. In 2009, he pushed through constitutional changes to abolish term limits and this April closed the Free Thought University, a project partly funded by the U.S. and U.K. to promote democracy and human rights.

U.S. Interests

The U.S., which would like to see more democratic and free-market reforms in Azerbaijan, has other strategic interests in the region that need to be taken into account when dealing with Aliyev, according to Matthew Bryza, the U.S.’s ambassador to Azerbaijan in 2010-2011.

“The U.S. also has interests in security and economic cooperation and energy,” Bryza, who now heads the Tallinn-based International Center for Defense Studies, said by phone Sept. 24 from Istanbul. “So just because we may be disappointed with the speed of reform, with the development of free and fair elections in the country, it does not mean U.S. officials should stop serving the American public by ignoring the full range of U.S. interests.”

‘Stalwart Partner’

Bryza’s successor, Richard Morningstar, told the Senate Foreign Relations Committee during confirmation hearings last year that the U.S. “has long recognized Azerbaijan as a stalwart partner on international security.”

Aliyev has steered a pro-Western course, forging regional alliances with Turkey and Israel while keeping at bay former imperial master Russia as well as the country’s southern neighbor Iran, where a quarter of the population is ethnic Azeri. He’s stymied all but a handful of protests since the Arab Spring swept away regimes across the Middle East, including in Egypt.

“The system is reliant on a large and well-funded police force and national security services,” said Lilit Gevorgyan, senior analyst at IHS Global Insight. “Corruption and nepotism also remain pervasive despite the official statistics on poverty reduction.”

Aliyev signed more than 20 decrees raising public sector wages in the past several weeks.

Even as Aliyev used the country’s oil riches to slash poverty levels, youth unemployment may become a “critical issue,” the International Monetary Fund said in a report last year, estimating that about a third of the unemployed are aged 16 to 24.

‘Youth Bulge’

The so-called “youth bulge” was a key factor in the Arab Spring protests that overthrew leaders in Tunisia, Libya and Egypt. While 1.2 billion people, or 17 percent of the world’s population, are aged 15 to 24, they account for 40 percent of global unemployment, according to the World Economic Forum. Job prospects for that age group are the worst in the Middle East and North Africa, where about one in four is without work.

“Realizing the untapped potential of youth is critical for those countries in which large youth populations and the lack of opportunity foster social unrest, as turmoil in the Middle East, North Africa and Europe has demonstrated,” the Geneva-based WEF said in a report this year.

Part of Aliyev’s governing strategy is to create a “cult of personality” around his father, who is hailed as the father of the nation, Global Insight’s Gevorgyan said by e-mail. “His statues and portraits have become ubiquitous,” she said.

KGB General

Aliyev so far has erected statues of his late father in a dozen countries. Heydar Aliyev, a former KGB general, was appointed Communist Party Secretary of the Soviet republic in 1969, a year before Assad’s father Hafez took power in Syria in a bloodless coup. The elder Assad ruled through one-party control until 2000, when his son inherited the reins.

Bryza, the former U.S. ambassador, said that although there is “dissatisfaction” among the Azeri population, and the rich are getting richer faster than they did in the past, Aliyev is genuinely popular enough to win “even the freest and fairest elections.”

Baku pensioner Mammad Afandiyev, 64, said he agrees with that assessment, but only because nobody else has the political, financial and human resources to challenge Aliyev.

“Most Azeris criticize Aliyev, but there are no alternatives at the moment,” Afandiyev said, adding that he doesn’t plan to vote “because it won’t make a difference.”

Exxon, Total

The tens of billions of dollars that BP and other western energy companies including Exxon Mobil Corp. (XOM:US), Total SA (FP) and Statoil ASA (STL) have invested in Azerbaijan has allowed Aliyev to more than triple both oil production and the size of the economy in a decade, boosting the average income sixfold.

Still, crude production, which accounts for more than half of the economy, has been declining since 2010 and the popularity of social networks such as Facebook Inc. (FB:US), with more than 1 million Azeri users, is on the rise, giving people new avenues to express their frustration.

Hasanli, Aliyev’s main challenger, is a history professor who was nominated by the country’s opposition groups just last month. The union’s first choice, Oscar-winning screenwriter Rustam Ibrahimbayov, was disqualified for holding Russian citizenship. Russia denied a request for a quick annulment of his passport, saying the process may take a year.

‘Continued Reform’

The U.S. hopes that next week’s presidential election will be “a step” toward greater political freedom in Azerbaijan, the American Embassy in Baku said in an e-mailed statement.

“We believe that the best guarantee of stability and prosperity for Azerbaijan is continued political reform,” the embassy said. “Both publicly and privately, we continuously urge greater respect for human rights, improved governance and transparency, and stronger anti-corruption efforts.”

Hasanli is running on a platform of a “peaceful transition to democracy,” pledging to curb presidential powers and shift to a parliamentary republic. He’s also pledged to step down after two years and call new elections for parliament and president.

That all hinges on winning next week -- and the chances of that appear slim.

Aliyev’s victory “is considered virtually a foregone conclusion,” the Brussels-based International Crisis Group said in a Sept. 26 report. “Government officials seem mainly concerned about post-election disorder.”

To contact the reporter on this story: Henry Meyer in Moscow at hmeyer4@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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