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With New Pipeline, Azerbaijan on Verge of Oil Boom

Douglas Fehr, the manager of the Sangachal terminal outside Baku, Azerbaijan, shows the very beginning of 1,000-mile Baku-Tbilisi-Ceyhan pipeline.
Photos by Ivan Watson, NPR
Douglas Fehr, the manager of the Sangachal terminal outside Baku, Azerbaijan, shows the very beginning of 1,000-mile Baku-Tbilisi-Ceyhan pipeline.
The Baku-Tbilisi-Ceyhan oil pipeline runs through three countries between the Caspian and Mediterranean seas.
Doug Beach for NPR /
The Baku-Tbilisi-Ceyhan oil pipeline runs for 1,000 miles through three countries between the Caspian and Mediterranean seas.

The tiny former Soviet Republic of Azerbaijan is on the verge of an oil boom. This summer, a 1,000-mile pipeline is expected to begin pumping oil from Azerbaijan's Caspian Sea coast, through neighboring Georgia, to a Turkish port on the Mediterranean Sea.

Industry experts say this pipeline will allow Azerbaijan to eventually quadruple its oil exports, but political opponents in Azerbaijan worry that the oil money will help the government of the former Soviet republic stifle pro-democracy efforts.

The $4 billion project is backed by the United States, in part because it gets Caspian Sea oil wealth out to the international market, without going through Azerbaijan's much larger neighbors, Russia and Iran.

Azerbaijan already has more than a century of experience with oil and the money that comes with it.

"By the year of 1901, with a population of slightly more then 130,000, (Azerbaijan's capital) Baku was making 51 percent of the world's output of crude oil," says Fuad Akhundov, a local historian. "It was unbelievable."

Pointing to 19th-century mansions built during the country's first oil boom, Akhundov says, "You were a millionaire if it happened to be in your land. So this crazy money of the local oil barons flooded into the streets of the city where they tried to outdo each other with every mansion that they built."

Akhundov says that one oil baron built a replica of a Venetian palace. Another built the first opera in the Muslim world. Today, the Azerbaijan State Philharmonic continues to pack in audiences at this recently renovated turn-of-the century concert hall.

After the Soviets conquered Azerbaijan in the 1920s, however, oil went from being a blessing to a curse.

The countryside surrounding Baku is hopelessly polluted -- a wasteland of rusting oil derricks and oil-soaked earth left by decades of rapacious Soviet oil exploration.

At the Balakhani oil field, Azeri workers are still struggling to pump oil out of scores of exhausted wells. Meanwhile, just yards away, impoverished Azeris live in one-room cement houses.

The question now facing Azeris: What will the country's next oil boom look like?

Most of the wells being exploited now are offshore in the Caspian Sea. The oil is pumped first to the Sangachal Terminal, a sprawling, heavily guarded compound of brand new tanks, tubes and industrial machinery that is managed by British Petroleum.

The pipeline has been built to pump more than a million barrels of oil a day, from offshore platforms all the way to tanker ships waiting in the Mediterranean Sea. With oil currently selling at more then $70 a barrel, that's a lot of money for Azerbaijan.

By around 2010, the government will see approximately a tenfold increase in revenues due to the project, according to David Woodward, the BP executive stationed in Baku. Woodward helped negotiate the pipeline's somewhat convoluted route. He says Azerbaijan's rulers wanted to use this pipeline to link them to the Western World.

Woodward says BP wants Azerbaijan to develop into a society where the people have a say in how the country's future revenues will be used. To help absorb and redistribute the coming oil wealth, Azerbaijan's foreign minister, Elmar Mamedyarov, says the government has established an oil fund based on a model used by Norway.

But unlike Norway, Azerbaijan is considered to be one of the most corrupt countries in the world, according to Transparency International, a corruption watchdog group. Azerbaijan was also the first former Soviet republic to witness a dynastic succession. In what international monitors described as flawed elections, Ilham Aliyev became president after his father, Haidar Aliyev, died in office.

"The government belongs practically to one family that has complete control over all kinds of government decisions at all levels," says Ilgar Mammadov, an Azerbaijani political scientist and former opposition party member.

Harvard University's Brenda Schaeffer says very few oil-rich countries become successful democracies.

"It's very hard to give up power when you're making billions of dollars a month," she says.

Last November, Azerbaijan held parliamentary elections which international observers say were rigged. Inspired by the peaceful revolutions in neighboring Georgia and Ukraine, opposition leader Ali Kerimli tried to organize a sit-in with thousands of demonstrators. He says it was violently crushed by security forces.

"They clubbed and wounded more then 90 people," Kerimli says. "Many people have been arrested. Five months later, we're still not allowed to organize rallies. I don't understand how oil can blind you to the suffocation of democracy here."

Matt Bryza, a senior official with the U.S. State Department, sees a different situation.

"We don't see Ilham Aliyev as a dictator," says Bryza, who monitors the Caucasus region. "We see him as the leader of a country with an emerging democracy that has a long way to go to become a healthy democracy."

Later this month, the Azerbaijani president is scheduled to meet President Bush in the White House.

In addition to the Baku-Tbilisi-Ceyhan pipeline, the United States is backing the construction of a parallel natural-gas pipeline to Turkey. And negotiations are under way for a link to the much larger oil and gas deposits in the central Asian republic of Kazakhstan.

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Ivan Watson
Ivan Watson is currently based in Istanbul, Turkey. Following the 9-11 terrorist attacks, he has served as one of NPR's foreign "firemen," shuttling to and from hotspots around the Middle East and Central Asia.
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