Introduction The conflict in Nagorno-Karabakh (N-K), between Azerbaijan and Armenia led to more than 20,000 deaths and left an estimated one million people homeless within Azerbaijan1: displaced both from N-K itself and from the Azeri territory occupied by Armenian forces. Since the 1994 ceasefire, reconstruction efforts have focussed both on the recovery from war, and on reshaping a formerlySoviet political and economic base. Unlike most post-Communist states however, Azerbaijan has access to huge oil and gas reserves. Experts estimate that Azeri oil reserves are roughly equivalent to those that were in the North Sea; between 40 and 60 million barrels, equivalent to 5 per cent of world reserves.2 The international corporate sector, or more precisely a small group of multinational oil and gas companies led by BP, are therefore central to the Azerbaijan’s development since they are responsible for the extraction and pipeline infrastructure that is enabling the country to exploit these immense oil and gas resources. Yet despite this wealth, the situation in Azerbaijan remains highly problematic. Although the issue of those displaced by the N-K conflict has now largely been resolved, much of the country beyond Baku remains chronically underdeveloped, with little in the way of opportunity for the 98 per cent of the population not employed in the oil and gas sector. The education system is in a state of virtual collapse, and although some work has been done on the infrastructure, significant problems remain. Are the international corporations active in Azerbaijan responsible for creating this situation? Is this an example of Wenger and Moeckli’s assertion that ‘corporations have long been accused of causing or exacerbating conflict through their business operations.’3 In the case of Azerbaijan it is hard to reach such a conclusion given the significant efforts which the main investor in the country, BP, appears to have put into managing all the potentially adverse impacts of its operations. Whilst the company’s actions are certainly not above criticism, this chapter will argue that this company (and by extension those other oil majors in the consortia of which BP is the operating partner) takes seriously the wider impacts in Azerbaijan of its activities and seeks proactively to manage these. Instead, it will be argued that the problems in Azerbaijan stem from the behaviours of the Aliev regime. Unlike neighbouring
countries that have been obliged to reform their economic and social structures from scratch, Azerbaijan has had the wealth to be able to throw cash at problems in an ad hoc fashion, with the result that the systematic reconstruction of much of the country’s systems and administrative structures has been neglected. However, there is another problem: corruption on a grand scale. The country is run by a small clique of ministers and their clans. This has a number of highly detrimental impacts. The first is that significant sums are stolen from state budgets to enrich these ministers. Second, it means that many of the functionaries in Government are there because of their loyalty, rather than for their competence. Third, it means that the wider development of the private sector – essential if the country is to reduce its dependence on hydrocarbons – is inhibited because many sectors of the economy are run as fiefdoms by ministers who do not want foreign investors to break their monopolies, however beneficial that would be for wider society.