Rufat Ahmadzada
Observing the Caucasus, Iran and Middle East

A lost opportunity: The contract of the centuray and Azerbaijan

The Deepwater Guneshli platform. Photo: BP

Twenty-five years have passed since the signing of a major contract between the government of Azerbaijan and a consortium of Western oil companies on the development of oil reserves in the Caspian Sea. Dubbed the contract of the century by President Heydar Aliyev, the agreement was signed in Baku on 20 September 1994. It was supposed to be an opportunity to revive Azerbaijan’s ruined post-Soviet economy by transforming it into a market oriented system.


In May 1994, full-scale fighting between Azerbaijani and Armenian forces over the territory of Nagorno-Karabakh was stopped by a Russian brokered ceasefire. This created an opportunity for the Azerbaijani government, led by Heydar Aliyev, to bring to a conclusion negotiations with the representatives of foreign oil companies interested in investing in Azerbaijan’s oil and gas sector. In 1994, the preliminary estimates of Azerbaijan’s profit were projected to be 81 billion USD over the next 30 years.

The production sharing agreement was the result of considerable lobbying in Baku by international oil companies. While US oil companies had the largest share in the AIOC consortium (over 30%), the operating company of the agreement was British Petroleum. BP had been pushing very hard to seal the deal and even Britain’s then prime minister, Margaret Thatcher, paid a visit to Baku in 1992 to promote BP’s cause. Despite being constrained in operating in Azerbaijan by Section 907 to the US Freedom Support Act, US oil companies were eventually able to get Washington’s political support for the joint consortium. Azerbaijani President Heydar Aliyev was interested in attracting Western investment in the country’s oil and gas industry in order to cement his power and get international support for his leadership.

The major energy projects gave Azerbaijan the chance to transform the country into a market economy and democracy. However, President Aliyev’s subsequent policies took the country in a different direction.


President Heydar Aliyev’s political background as a former KGB general and Soviet statesman was a major concern for the Azerbaijani public in terms of democratisation. Right after the signing of the contract of the century, he took several political decisions which consolidated his power, such as using a so-called attempted coup to install limitless power in the country. By 1997, Azerbaijan was becoming an authoritarian state and oil companies were shielding Aliyev from international criticism for human rights violations. President Heydar Aliyev appointed his son, Ilham, vice-president of the State Oil Company of Azerbaijan, known as SOCAR, in 1994. This allowed Ilham Aliyev to participate in foreign meetings as a government representative and gradually to forge wide international, business-oriented, political relationships. This was a key factor in the transfer of power in 2003 from Heydar Aliyev to Ilham Aliyev. The Bush administration’s key representatives had an oil background too and they had a close relationship with Heydar Aliyev from 1994.

Following controversial, rigged presidential elections in 2003 Ilham Aliyev received a congratulatory phone call from the Deputy Secretary of State Richard Armitage. Mr Armitage alongside then Vice President Richard Cheney and Secretary of State Colin Powell were key actors advocating for US oil companies to participate in the Caspian energy projects in Azerbaijan. From the standpoint of US foreign policy post 9/11, it is not difficult to understand that security, political stability and the flow of Caspian oil via the BTC pipeline from Baku to the Turkish port of Ceyhan influenced the US support for Ilham Aliyev’s succession. Human rights violations and democratisation were not priorities in post 9/11 foreign policy engagements.


Azerbaijan is no longer a free country, a process that began in 1994. Violations of human rights and constitutional rights are part of daily life in the country. The systematic destruction of the secular opposition forces by denying them participation in political life has paved the way for the rise of Iranian-backed Islamists. The current regime targets liberal and democratic values and human rights NGOs. Oil profits have been misused and not distributed equally among society, enabling the ruling elites to become kleptocrats. The flow of oil profits westwards continues in the forms of offshore investments, the purchase of foreign properties and lavish spending in European capitals such as London and Paris. Political and economic inequality have greatly widened as a result of Ilham Aliyev’s strategic policies to ensure the survival of his regime. Three consecutive referendums of 2002, 2009 and 2016 created limitless dictatorial power to the extent that the last referendum allowed him to install his wife as vice-president, the second most powerful political post in the country. The extreme dependence on oil income shows the failure of the economic policies of the ruling regime. Azerbaijan has conceded sovereignty to Russian, Turkish and Iranian national interests on the international stage. All this shows that the Azerbaijani authorities are not capable of facilitating either economic or political reforms.

About the Author
A native of Azerbaijan, I write extensively on political developments in the Caucasus, Iran and the Middle East. City, University of London graduate.