Oil deal brings little respite from Azeri devils

THE group of Azeris did not know whether to laugh or cry as the news came out on the flickering television set, a small sign that the old devils of Azeri instability had not been banished by the signing this week of a Caspian Sea 'deal of the century' with a BP-led Western oil consortium.

Just one night after barons of the world's oil industry had flown in to lift their champagne glasses to Azerbaijan's future oil wealth and economic integration with the West, four potentially rebellious political prisoners miraculously escaped from the sixth floor of the local KGB headquarters.

The four opponents of President Haidar Aliev's regime may not add up to much alone. The former defence minister, Rahim Gaziev, and his aide still enjoy some popularity with the army and the third is a hero in the war against Armenia. The fourth, Elekrem Gumbatov, led a brief ethnic Talysh rebellion in the south. But their well-planned escape with their chief guard, leaving the prison guards locked up in their cell, forced Mr Aliev to appear live on all channels to rally his small transcaucasus nation. 'This is a plot backed by the same outside forces that supported Armenia against us,' he said, noting that the jail break happened just as he was about to leave the country for a congratulatory meeting with President Bill Clinton in New York.

But even though 'outside forces' could be taken to include hostile hardliners in Russia, which openly criticised aspects of the oil contract, the consortium has seen much worse during three years of tortuous talks. Armenian offensives out of Nagorny Karabakh, revolutions and sackings of negotiators have all held up the deal. Signed at last, legally binding clauses now abound.

The consortium to develop three Caspian Sea oilfields is also half-American, big enough to attract Western support for Azerbaijan. Almost pounds 5.3 billion will be spent on pumping out 4 billion barrels of oil over the contract's 30-year life. Azerbaijan will keep 80 per cent of the profit on oil sales, after deducting the cost of original investment, capital repayments and transport out.

'Azerbaijan has turned an important corner. This is a vital step for confidence of Western investment here,' said Tom Young, the British ambassador to Baku.

Oil executives note, however, that it is only a first step. Significant investment will only start after ratification is completed, probably next month. Some investors may wait more years until the main export pipeline route has been settled.

Another problem is the attitude to be taken by Azerbaijan's jealous old colonial masters in Moscow, which is where fears about the four escapees comes in. Since the collapse of the Soviet Union, Russia has undermined governments or situations it did not like by supporting or arming insurgents. That has happened in Abkhazia, Tajikistan, Chechen and, according to many, in Azerbaijan as well.

Scattered among rooms in a big, crumbling hotel along the Caspian Sea, sophisticated diplomats at the Russian Embassy looked wide-eyed at faxes of news reports accusing their country of such meddling. When asked what their policy actually was, some simply shrugged. Others found plenty of legal ammunition to fight Russia.

'We accept the contract, it's signed and done,' said Gennady Konenko, the embassy's councillor. 'But what we want urgently discussed is the status of the Caspian Sea. There are now five countries around it. If everybody starts developing what they see as their interests, very soon it could lead to negative consequences.'

Western diplomats and oilmen say Azerbaijan and the consortium simply ignored Russian official protests in pursuing the deal, even though the Caspian Sea fields are 75 miles east of the Azeri coast, apparently more than half-way to Turkmenistan. The diplomats believe that Russia's best interest lies in the successful consummation of the deal.

For a start, Russia's biggest oil concern, LUKoil, has a 10 per cent stake in the consortium. LUKoil's brazen support of the deal has even earned it an amazing reprimand this week from Russia's Foreign Minister, who warned the company not to act against Russian interests.

Western officials list other benefits for Russia. If the pipeline route goes through Russia, Moscow could reap a windfall of at least pounds 320m a year in transit fees at the predicted peak flow of 700,000 barrels per day. Nearby Russian ports, construction yards and transport systems would benefit from new economic activity.

'If there was a Russian objection, it didn't play out here,' said one Western envoy. 'Things have changed fundamentally. Azerbaijan has taken a major step to tie itself to the West.'

(Map omitted)

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