Energy is at the forefront of concerns in Azerbaijan

After the Sunday parliamentary election which despite improvements fell short of meeting Organisation for Security and Cooperation in Europe (OSCE), and Council of Europe standards and commitments, the small Caspian Republic of Azerbaijan finds itself in the global spotlight.

Much hangs in the balance, including global oil price stability.

President Ilham Aliyev, who succeeded his father at the helm of Azerbaijan, has been charting a new course for a country crippled by years of war with Armenia over the Nagorno-Karabakh province and internal violence.

But 2005 has opened a window of opportunity for Azerbaijan, which sits at the pit of what some analysts believe is one of the richest depositories of oil and gas after the Middle East and Russia.

The government will soon be awash with petrodollars, which means vast amounts of new capital could soon be available for reconstruction, human resource development and other strategic investments like overseeing the growth of second and third sectors in the economy.

Estimates speculate that the government could see its budget grow by some $18 billion over the next years. But this opportunity will be squandered unless stability and political reforms are achieved.

Political openness and economic opportunities go hand in hand.

A productive relationship with the West depends on how quickly and aggressively the president promotes political and economic opening and change.

Much of the Azeri elite are pro-western. Europe and the US will no doubt press on Aliyev to reform. To his credit, he has done much already.

At the same time, it is unrealistic to expect much sympathy in the West for another colour revolution. After two successful attempts, Georgia and Ukraine, Kyrgyzstan has been a disappointment.

The new government in Bishkek has been slow at promoting change, while no progress is in sight on the constitutional reform.

Azerbaijan finds itself at the crossroads. The upcoming days and weeks will put much strain on the government of Aliyev who will have to find the right balance between international pressures, domestic opposition and spoilers sitting within his own party.

The price of slippage could be violence and high instability.

Increasing investment

This is the last thing Azerbaijan needs right now. The government in Baku must capitalise on its energy potential and the global oil price and improve the lot of its people.

This means increasing investments in human capacity development programmes. It also means solving the Azerbaijan-Armenia frozen conflict over Nagorno-Karabakh. Experts agree that Aliyev is probably the man to do a deal with.

Optimists say the deal could come as early as next year. Reaching agreement with Armenia over Nagorno-Karabakh will be impossible, however, if Aliyev's legitimacy is weakened in the upcoming weeks and months.

Under pressure, Aliyev will not compromise.

The danger is also that political opportunists and short-term profiteers on offer both within the Aliyev structures and in the opposition will use the upcoming period to provoke violence.

Small clashes could quickly escalate into mass-scale protests and conflict. This puts into question the viability of the Baku-Tbilisi-Ceyhan pipeline, which is scheduled to come online early next year.
The pipeline is earmarked to bring to the market additional 1 million barrels of oil per day.

The price of oil which presently sits around $60 (Dh220) a barrel would certainly increase. Further, this would be a devastating blow to Europe's and America's efforts to diversify their energy imports.

It would also put pressure on the rest of the downstream market and countries in the Gulf would probably be asked to pick up the slack.

It's unlikely that they can substantially increase production at this point, given that production capacity is at a maximum across the region.

The international community must act early in order to deflate tensions in Azerbaijan. There is a need for an external player acting as a dialogue facilitator between the government and the opposition.

The logical choice for this role is Slovenia, specifically, the chairman-in-office of the OSCE. The OSCE has been central in promoting reforms and dealing with all sides in Azerbaijan.

Communication is almost always undermined in times of high tension and deep mistrust leads to misinterpretation of messages. For this reason, an external broker or dialogue facilitator is needed.

The priority now should be to open communication channels which would allow for an easy transfer of information between the two sides. A dialogue facilitator would also serve to cut out political spoilers.

Finally, it is not certain that the opposition will manage to generate any serious public support for demonstration.

Already, the protests scheduled for immediately after the election day were cancelled by the opposition.

There is a danger that the government may become overconfident in the wake of the opposition's apparent weakness.

For this reason, the international community must put pressure on the government to stay the course on reforms.

Borut Grgic is director of the Institute for Strategic Studies in Ljubljana.