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Contact: Dan Darling, European Defense Analyst

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FOR IMMEDIATE RELEASE

Azerbaijan Boosting Military Spending

NEWTOWN, Conn. [May 9, 2007] — With increasing streams of revenue due to energy production and the opening of the BTC (Baku-Tbilisi-Ceyhan) oil pipeline, the Caucasus nation of Azerbaijan is boosting its military spending as a means to recover its lost territory of Nagorno-Karabakh.  

According to a new Azerbaijan Military Market report by Forecast International, the government of Azeri President Ilham Aliyev intends to drive its defense spending up to a point where neighboring rival Armenia is forced to relinquish its defense of the breakaway region. The inherent risk in this policy is that any outbreak of regional instability may upset the reliability of the production of energy and its transshipment from Azerbaijan to a European continent desperate for alternatives to its increasing dependence on Russian supplies.

According to Forecast International, the increasingly profligate defense spending of Azerbaijan has been steady, from $135 million in 2003 to $310 million in 2005.  In 2006 spending more than doubled to $673 million, and for 2007 there will be a healthy 29 percent increase to $871 million.  This figure itself may grow, as President Aliyev has insisted that by the end of the fiscal year, defense spending will reach $1 billion.  Aliyev’s stated intent is that the annual defense expenditure of Azerbaijan be greater than the total state budget of Armenia, a gap that is steadily narrowing.

“The goal of the Azeri leadership is to drive defense spending upward to the point where it will break the back of Armenia’s will to continue the impasse between the two countries over territorial issues,” said Forecast International Military Markets Analyst Dan Darling. “The possibility of that happening, however, is unlikely in the near term, as the capabilities of the Armenian forces are believed to exceed those of Azerbaijan.”

At the heart of the rapid Azeri defense spending is the prolonged “frozen conflict” of Nagorno-Karabakh, a mountainous ethnic Armenian region located entirely within Azerbaijan’s borders. When the tiny region sought to link itself with Armenia during the last throes of the former Soviet Union, tensions bubbled over and resulted in violent reactions in the Azeri cities of Sumgait and Baku against ethnic Armenians. With the fall of the Soviet Union in 1991, Nagorno-Karabakh declared itself independent, prompting an economic blockade by Azerbaijan. By 1992, full-scale fighting had broken out involving both Azerbaijan and Armenia and lasting until May 1994, when a Russian-brokered ceasefire was signed.

The conflict resulted in over 30,000 deaths and more than 700,000 refugees swarming into Azerbaijan from Nagorno-Karabakh. Worse for Baku, it ended with some 20 percent of its territory under Armenian occupation. Efforts to solve the issue diplomatically have gone nowhere, and Nagorno-Karabakh remains a de facto independent republic unrecognized by any government.

But while Azerbaijan’s defense budget continues to increase, details of its military expenditures remain extremely sketchy and obscure. One reason for this may be that as a signatory of the Conventional Forces in Europe (CFE) Treaty, Baku is restricted from superseding certain levels of troops and weapons. Should its goal be to ultimately reclaim its breakaway territory by force, Azerbaijan cannot be constrained by its obligations to the CFE Treaty, yet at the same time it cannot be seen to be violating them.

In the meantime, the Azeri Defense Ministry is reputed to be sown with corruption and operating with little to no civilian oversight. The overall quality, training and morale of the Azeri armed forces have been put into question by observers, who note that if the country wishes to join the NATO Alliance – as has been speculated, then reforms will need to be accelerated.

Whether NATO membership is actually the long-term goal of Baku is, in fact, an open-ended question. While a member of the Alliance’s Partnership for Peace (PfP) program since 1994, and nearing completion of an Individual Partnership Action Plan (IPAP) – with a second to be launched later in the year, Baku has been careful to skirt the question of its future place within the Alliance. Certain members, namely the U.S. and Turkey, wish for it to join to ensure for Europe an anchor against Russian energy threats, and to provide an energy transportation link to the Caspian Sea. Other members do not wish to absorb Azerbaijan’s internal problems into the Alliance. For now, Baku is being quiet about its ultimate goals and insists reforms will not bring the armed forces up to NATO standards until 2015.

“Most likely Azerbaijan is reluctant to commit itself publicly to full membership in NATO out of the need to avoid irritating Russia,” said Darling.  “Moscow has over 3,000 peacekeepers in Armenia along with plenty of material being transferred from bases in Georgia.  Through a variety of economic, military or diplomatic means, it can create numerous problems for Azerbaijan – particularly where its goal of reclaiming Nagorno-Karabakh is concerned.”

“For now,” adds Darling, “Azerbaijan is getting what it needs militarily through bilateral aid and cooperation from Turkey and the U.S. It doesn’t need to exacerbate tensions with Russia, as well as with neighboring Iran, particularly at a time when it is focused on brinksmanship with Armenia.”

Forecast International, Inc., is a leading provider of Market Intelligence and Analysis in the areas of aerospace, defense, power systems and military electronics.  Based in Newtown, Conn., USA, Forecast International specializes in long-range industry forecasts and market assessments used by strategic planners, marketing professionals, military organizations, and governments worldwide.  To arrange an interview with Forecast International’s editors, please contact Ray Peterson, Vice President, Research & Editorial Services (203-426-0800, ray.peterson@forecast1.com).