AZERBAIJAN - President - Ilham Aliyev.

In his 40s, Islam Aliyev was elected president of the republic in October 2003 and his father, Heidar, died shortly thereafter. Not much has happened since then, where the regime's repeated reform promises are concerned.

Turkey on July 13 officially inaugurated the $4 bn BTC pipeline carrying Azeri crude oil from the Caspian Sea to the Mediterranean, part of an energy corridor vital to Western and Turkish strategic interests. President Aliyev, together with his Turkish Georgian counterparts, were joined by ministers around the world for a ceremony at the port of Ceyhan to mark the opening of the 1,770 km pipeline from Baku, which goes to Georgia's Tbilisi.

BP Chief Executive John Browne said: "This is a historic moment, it changes the energy map of the world. This project is an achievement in overcoming doubts. We have a daily challenge of operating the pipeline safely for people and the environment". BP, the main partner in the consortium running the pipeline, expects its capacity to reach 1m b/d by 2008, mainly on Azeri shipments (see omt3AzerExprtJul17-06).

Ceyhan is already the terminal for a pipeline from Iraq's Kirkuk fields. With a planned pipeline from the Black Sea city of Samsun to Ceyhan, this terminal is to account for 8% of world crude oil trade at capacity. The project, backed by the US and which sidesteps Russia, is also designed to reduce Western dependence on Middle East oil.

Last month Kazakhstan officially joined the venture - which also bypasses the shipping bottlenecks at the western Turkish straits where winter crude shipments can be held up for weeks by poor weather and congestion.

The pipeline loaded its first cargo on June 4 after delays to start-up of over a year. It will load 284,000 b/d in August, from 213,000 b/d in July. The export crude, Azeri Light, is favoured by refiners to make high quality transport fuels. The rising Azeri flow is changing the balance of the Mediterranean market, until now dominated by the heavier Russian Urals blend.

As oil traders feared that Middle East violence would spread and ultimately disrupt supplies from the region, Brent futures on July 14 hit a record high of $78.03/barrel. In New York, WTI hit a record $78.40 and at one time got close to $80/b, before easing to $77.50 on July 14. Israel is waging wars on two fronts: in Gaza against Hamas and in Lebanon against Hizbollah. Iran and Syria are accused of having encouraged the two Islamist groups to kidnap Israeli soldiers, with Saudi Arabia leading a subtle campaign against an Iran-led alliance of "adventurers" exposing the Arab world to big dangers (see Diplomat in fap1-IraqSectarianJuly17-06 & news3-Neo-SalafiBaseJuly17-06).

Ilham Aliyev has a background in his country's energy sector - for years having been a vice president of Socar. He was educated in Russia and the US, and has maintained a good working relationship with foreign investors and the US. In the context of political revolutions in other former Soviet states, opposition groups in Azerbaijan have gained strength. Parliamentary elections in November 2005 were undemocratic.

The dispute over Nagorno-Karabakh began over Armenian claims to the area and grew into a full-scale war which led to the death of more than 30,000 people on both sides. The fighting, plus the expulsion of Armenians from Azerbaijan and Azerbaijanis from Armenia, produced more than a million refugees and internally displaced persons. About 100,000 Azeris remain in refugee camps today. As a result of a 1994 ceasefire, Azerbaijan lost about 16% of its territory. Lingering tensions between the two countries remain, which raises concerns for stability and energy security in the area. Azerbaijan's relations with Russia are tense, and disputes over Caspian Sea borders hinder relations with Iran and Turkmenistan.

Aliyev on June 29 said his leadership would not agree on any deal over Nagorno-Karabakh which did not meet Azerbaijan's national interests. Addressing the public, he said: "Azerbaijan's territorial integrity cannot be a subject for discussions". He stressed that the international community recognised Nagorno-Karabakh as an inalienable part of Azerbaijan, saying: "This is an excellent legal base for the peaceful solution to the problem. Azerbaijan will not step back".

Commenting on the 10-year-long talks, Aliyev said there were no results, adding: "Azerbaijan seeks to settle the conflict by peaceful means, but it never agrees to lose its territories".

As expected, the parties behind President Aliyev won big in the Nov. 6, 2005, parliamentary elections. Also as expected, European and US observers reported all sorts of tomfoolery, before and during the voting. Aliyev's party won about half of the 125-seat parliament, while the opposition Azadliq coalition won 8, with the rest scattered mostly among pro-government parties.

Azerbaijan is poor in social and political development. Though protesters have taken to the streets since the election, Azerbaijan's opposition does not have huge support, unlike those in Ukraine or Georgia, former Soviet republics where massive election fraud led to popular uprisings and the ouster of old regimes.

Though corrupt and brutal, Aliyev's regime has provided security and stability to the country, and with proceeds from the new BTC pipeline about to start filling state coffers to overflow, it also has the wherewithal to keep the masses quiet, if not content.

US experts have said that a chaotic and violent uprising may well produce an equally corrupt regime, or the rise of militant Islamic power in place of the secular and West-leaning Aliyev. The West does have leverage, however; it is a major investor in the Azeri oil industry, and Baku is sorely in need of a geo-political counterweight to its former Russian rulers to the north, a hostile Armenia to the west and an Iranian theocracy to the south.

Even in that flawed election on Nov. 6, however, Western pressures had an impact. By all accounts, the poll was an improvement over the last one in 2000, and the election commission at least went through the motions of overturning a few particularly fraudulent results.

On the morning of Oct. 20, 2005, the then Azeri Health Minister Ali Insanov, one of the most powerful men in Baku, attended a ceremony at a tuberculosis clinic. Next he visited a dental centre. Then Insanov returned to his office, where minutes later one of his aides tried to phone him. But Insanov was not there. He had just been fired. The next day he was arrested by the MNS, the local successor to the Soviet KGB, and accused of involvement in a coup plot.

Pre-election tensions had increased on Oct. 19, when President Aliyev got the government to fire Farhad Aliyev (no relation to the former) as minister of economic development and the cabinet's leading reformer. The minister was detained along with his brother, Rafik Aliyev, who owns the country's largest gasoline retailer AzPetrol. These liberal Aliyev brothers, belonging to the second richest clan in Azerbaijan next to the president's, had become a threat to the ruler.

Insanov's subsequent fall - from oligarch in the presidential cabinet to a detainee accused of armed palace intrigue - was one of several from the top of Azerbaijan's government and business circles in the autumn of 2005. At least a half-dozen other firings had dominated the government-controlled news. A purge was afoot in Azerbaijan before the Nov. 6 parliamentary elections.

The administration of Ilham Aliyev - who on Oct. 18 insisted in an interview with four Western journalists that his government was stable and under his control - is still facing its most difficult test to date. More than 14 years after breaking from Moscow's rule, and more than 11 years after the Haidar Aliyev family took power in a coup of its own, Azerbaijan is a secular Muslim oil state on the verge of a new economic boom. But as it accelerates towards more oil income flowing into the country, pointed questions remain.

Is Azerbaijan stable? Is talk of a coup since the start of the past autumn elections rooted in fact, or a distraction as President Aliyev tried to tighten his grip? Still no one outside the government seems to know.

"Azerbaijan has made a state, which is no small achievement", US Assistant Secretary of State Daniel Fried said in a speech in Baku on Oct. 20 - on the very day Insanov was fired as health minister. But what sort of state? The signs are still mixed.

Ilham Aliyev replaced his father as president in 2003 after an election marred by vote rigging and widespread fraud. His victory was certified not with the approval of international monitors, but by police beatings of protesters. The inauguration marked the first father-son transfer of presidential power in a post-Soviet country and was used by critics as validation that Azerbaijan was little more than a tribal state beneath a veneer of rule of law.

More than two years on, however, the new president has defied the darkest expectations. He pushed through a few reforms, including an anti-corruption law, and developed a strategy for the State Oil Fund, a pool of money from oil revenues which will earmark huge sums to repair and build public works and alleviate poverty.

A poll conducted in mid-2005 by the International Republican Institute showed that Azeris hae many concerns - corruption, health care, living conditions and more - but a majority expressed optimism, a feeling particularly noticeable among the young.

President Aliyev has followed his father's course and steered Azerbaijan close to the US, allowing improvement of a former Soviet airfield in Nasosnaya, north of Baku, which promises to give the Americans more flexibility to move troops, air power or logistics through the region. He has maintained a troop presence in Iraq. He also holds what critics call two trump cards: gas and oil.

With Azerbaijan and the Caspian Sea having vast hydrocarbon resources, geography strengthens Aliyev's hand. To his south is Iran, to his north, Russia - nations not seen in Western capitals as reliable energy partners. In a world growing parched for oil, Azerbaijan is the submerged end of a straw. It is the opening of a corridor that extends west to Georgia and Turkey, through which oil is flowing to Western markets, through a BTC system bypassing countries less open to Western collaboration.

The Southern Caucasus Gas Pipeline (SCGP) is nearing completion. This should be on stream in late 2006, with the first phase of the offshore Shah Deniz gas field to produce 8.5 BCM/year of gas and 37,000 b/d of condensate. In the second phase, a few years later, the field will produce 16 BCM/year of gas and over 70,000 b/d of condensate.

Two American foreign policy objectives, a quest for secure energy sources and the advance of democracy, however, could come into conflict in one man: Ilham Aliyev. In the spring of 2005, as a small opposition showed signs of trying to replicate the pro-democracy revolutions in Georgia, Ukraine and Kyrgyzstan, Aliyev, under Western prodding, ordered electoral reform. Among many changes, television time was granted to opposition and independent candidates. Voter lists were opened to greater public review. More than 2,000 candidates registered to run for the 125-seat parliament.

The changes were welcomed as a sign that Aliyev was experimenting with political pluralism. "They had a pretty good record of trying to hold a good election, a better election". American Ambassador Reno Harnish 3rd said in an interview. But by summer, amid complaints that election officials were not complying with the order, praise turned to measured criticism.

In the autumn, as unauthorised opposition rallies were dispersed by police officers with clubs, criticism mounted, from sources including the Organisation for Security and Co-operation in Europe (OSCE), which monitored the Nov. 6 election. That Aliyev's ruling Eni Azerbaijan (New Azerbaijan) Party won about half the parliament's seats came as no surprise to the opposition.

"Our constitution says we are a law-based democracy". said Gabil Guseynli, a deputy leader of Musavat, part of an opposition bloc, Azadliq two weeks before the Nov. 6 elections, adding: "But in practice this country is a semi-feudal, clan-based state, a mafia. And it will use violence to have its way".

Aliyev bowed to foreign pressure on Oct. 25 and said that indelible ink would be applied to voters' fingers and that independent foreign organisations could monitor the election. Both were Western recommendations for limiting fraud which he had resisted.

Aliyev's government had also expended credibility by claiming that protesters threw stones or carred iron bars. Journalists and diplomats, who monitored the rallies, reported no such thing.

Aside from drawing headlines, Azadliq's influence was hard to measure. It was fielding 125 candidates, one for each parliamentary district. But while it claimed to have mustered more than 30,000 people at rallies, US government estimates ranged from 12,000 to 16,000. Some rallies drew hundreds.

Aliyev dismissed the relevance of the Azadliq bloc, and even its name which means freedom. "What kind of freedom?" he asked, saying: "Azerbaijan is a free country". That characterisation was not widely held, however.

Freedom House, an independent human rights group based in Washington, ranks Azerbaijan low on its index of political rights and civil liberties. It notes that there has not been a clean election in the country since the Aliyevs occupied the presidential suite.

One result of the Aliyev hold on power is unmistakable: the emergence of a hybrid class of post-Communist super-rich. Not merely insiders, the elite are the government itself, the ministerial multi-millionaires.

The weekly news magazine Hesabat in 2005 concluded that nine of Azerbaijan's ten wealthiest men were in the government. No. 1, by its estimate, headed the State Customs Committee. No. 3 was Azerbaijan's top police official, whose troops have been beating protesters with batons. No. 4 was Insanov, the health minister who was imprisoned.

The implications of corruption are self-evident. The crackdown on members of this usually protected class has been variously interpreted as a sign that President Aliyev is strong or weak, that he is crushing the old guard or removing the reformist camp. The latter camp includes the Aliyev brothers, a clan which rivals that of the president.

After the Azeris went to the parliamentary elections on Nov. 6, the main question was whether the country was about to undergo its own "colour" revolution, along the lines of those which overthrew post-Soviet elites in Georgia, Ukraine and Kyrgyzstan. With the elections now over, the prospects for such an outcome seem uncertain at best.

The ruling party, Eni Azerbaijan, faced challenges all around, despite the support of President Ilham Aliyev - its leader - and privileged access to state resources before and during the Nov. 6 elections. At least three opposition parties - Isa Gambar's Mussavat, Ala Keremela's National Front, and the Social Democratic Party - have maintained support and political influence since Aliyev succeeded his dead father, Heydar, in late 2003.

Like Georgia, Ukraine and Kyrgyzstan, dynastic politics in Azerbaijan reflect the dominance of clans whose members' success is determined by proximity to the president. While such systems may appear stable, they are inherently fragile, for they are synonymous with lawlessness, injustice and abject poverty for the majority of the population.

Before the Nov. 6 election, the opposition had already started preparing the ground for change. The leaders of the three-party opposition bloc Azadlyg (Freedom) declared they would regard any electoral outcome giving opposition parties less than 70% of the vote as having been falsified, and that street protests would follow. This conformed to the pattern seen in Serbia in 2000, Georgia in 2003, and Ukraine in 2004. But that did not work in Azerbaijan.

A "dress rehearsal" had failed in October 2003, when the opposition, incapable of uniting around a single candidate to challenge Aliyev in the presidential election, declared the results to have been falsified and called people into the streets. Only several hundred showed up, and the police quickly dispersed them, arresting dozens. In the autumn of 2005, however, the opposition was united and found it far easier to agree on mutual support for 125 parliamentary candidates than to settle on a single presidential candidate. But the authorities had the upper hand and Eni Azerbaijan won the largest bloc in parliament. Since then, Aliyev has used this majority as a rubber stamp for his decision - just as his father, Heydar, used to do before he died.

After coming to power in 1993, Heydar Aliyev stopped the war with Armenia over the Nagorno-Karabakh enclave, secured Azerbaijan's existence as a sovereign state, and, as the petroleum sector flourished, oversaw the country's growing international authority. The transfer of power from father to son in October 2003 took place peacefully (see background in the APS Review's Vol. 63, DT and Gas Market Trends No. 3), and Ilham's administration has presided over completion of the BTC crude oil pipeline (see OMT) - to the annoyance of Russia and Armenia.

High oil prices have enabled higher social spending and infrastructure investment in Azerbaijan. Today, the capital Baku resembles a huge construction site, with high-rise housing, stores, and roads being built at a breakneck pace - and benefiting a broad strata of the population. But none of this may ultimately matter if the West - and the US in particular - decides that Aliyev's regime is not ensuring its interests and seeks to manipulate the global media image accordingly.

The West's main interest is not Azerbaijan's oil reserves, which account for less than 1% of the world's total, but its geo-political position at the crossroads of global energy and transport corridors and as a front-line state vis-a-vis an increasingly assertive Iran. So far, the West is backing Aliyev who this spring was received by President George W. Bush at the White House.

Nevertheless, the West is hedging its bets by sustaining contacts with the opposition. One prominent US expert was in early 2006 quoted as saying: "It is important for the political regime in Azerbaijan to be as stable and legitimate as possible". The US and the other Western powers are encouraging Aliyev to introduce more reforms.

Ilham Aliyev was born in 1964 as the only son of Heydar Aliyev, who was then a staunch Communist and a key member of the leadership in the Soviet Union. Having received his education in Russia and the US, Ilham in the early 1990s was a playboy spending most of his "free" time in the night clubs and casinos of Istanbul.

As soon as his Heydar Aliyev consolidated his power in 1993, Ilham began to take part in the affairs of state but concentrated on the petroleum sector. After Socar was established from a merger of the key upstream and downstream arms of the petroleum industry, Ilham became its vice president. In mid-1995 Ilham became Socar's first vice president in charge of foreign investments in the sector.

By late 1998, Ilham had become more active and far more powerful as the top vice president in Socar. Apart from being by far the most powerful man in Socar, Ilham in December 1999 was elected as deputy chairman of the ruling Yeni Azerbaijan Party. By then he had also been president of the National Olympic Committee of Azerbaijan.

As his father saw his health begin to deteriorate in 2002, Ilham was groomed to become prime minister after an Aug. 24, 2002 vote on constitutional changes in his favour. The move implied that Ilham was set to be the next ruler of Azerbaijan. He had been more visible since early 1998, standing at official functions. But he did not have the steel or charisma of his father.

Rauf Talyshinsky, editor of the Russian-language daily Zerkalo (Mirror), a prominent local paper, was quoted in the Financial Times on Nov. 22, 2000 as saying: "Ilham is kind and polite, which does not necessarily mean he is weak. But it remains to be seen if he can work in the government his father created". Others were more categorical, with a Westerner then saying: "Ilham will last 100 days as president. Only God knows what will follow".

Ilham was elected president of the republic in October 2003, and his father died before that year ended. His performance as president so far exceeded the expectations of even some of the regime's Azeri critics. Although corruption and nepotism have remained, much of this can be blamed on old guard figures who surround the president.