IRAN’S INTENTIONS ON CASPIAN ISSUE REMAIN UNCLEAR FOLLOWING AZERBAIJANI LEADER'S VISIT Iran's

Following President Heidar Aliyev's recent visit to Tehran, Azerbaijani leaders say they are optimistic about the future of Azerbaijani-Iranian relations and Caspian Basin energy development prospects. Yet, US officials remain unconvinced that Iran is committed to resolving territorial disputes that have clouded the region's economic and political climate.

Bush Administration officials point to a contentious exchange between Aliyev and Iranian President Mohammed Khatami to support their view that the Caspian region is still prone to sudden escalations in tension. Such instability could hamper both the US-led anti-terrorism campaign and energy development in the oil- and gas-rich area.

During their discussions in Tehran, Khatami reportedly called the Caspian Sea "Mazandaran Lake," after the Iranian province of Mazandaran located on the sea's southern shores. When an Iranian journalist repeated the term, Aliyev angrily corrected him. The Azerbaijani leader professed never to have heard the Caspian Sea called the Mazandaran Lake before, and he castigated those who are "obstructing" efforts to improve bilateral ties "by creating new names for the Caspian Sea."

The exchange tainted what Azerbaijani presidential aide Novruz Mammadov characterized as a "textbook" case of diplomacy by Aliyev, Space TV in Baku reported. During the three-day visit that ended May 20, Azerbaijan and Iran signed 10 agreements, including one that will enable Azerbaijan to open a consulate in northern Iran, which is home to millions of ethnic Azeris. [For additional information see the Eurasia Insight archive]. Most of the documents signed covered economic development issues.

In addition, Azerbaijani executives of the state oil company, SOCAR, accompanied Aliyev on the Iranian trip and hinted that Iran appeared more flexible than ever on the thorny issue of dividing the Caspian Sea. Iran has insisted upon receiving an equal 20 percent share of the Caspian along with the four other littoral states – Azerbaijan, Kazakhstan, Russia and Turkmenistan. A rival plan supported by Azerbaijan would leave Iran with an approximately 13 percent share. [For background see the EurasiaNet economics archives].

SOCAR President Natiq Aliyev hinted that compromise on the territorial question was now possible. However, Khatami seemed to contradict the Azerbaijani executives by repeating Iran's claim of a 20 percent share during his talks with the Azerbaijani president. Differences over the Caspian territorial issue was a major factor in the repeated postponement of Aliyev's trip.

Aliyev went to great lengths to soothe Iranian sensitivities, portraying Iran as a "friendly and mighty neighbor." The Azerbaijan leader made a significant gesture by announcing that Baku would stop exploration in the disputed oil field of Aral, Azov and Sharg, until the border issue is settled. The announcement appeared to represent a political victory for Iran, which had engaged in gunboat diplomacy to discourage exclusive Azerbaijani development of the fields. [For background see the Eurasia Insight archives].

Besides the Caspian question, Baku's relations with Tehran are complicated by Muslim Iran's recent rapprochement with Christian Armenia. Iran rankled Azerbaijani officials by refraining from commenting on Armenia's continuing occupation of about 20 percent of Azerbaijan's territory, which was captured during 1988-94 Nagorno-Karabakh conflict. Iran's warming relations with Armenia also have not escaped the attention of the United States. Indeed, on May 16, the US State Department announced sanctions against an Armenian chemical company, which American officials assert supplied illegal transfers of weapons technology to Iran.

Despite Aliyev's conciliatory gesture concerning the Caspian, state-controlled Iranian media openly attacked the long-planned Baku-Tbilisi-Ceyhan pipeline. For example, the English language Iran News lambasted "Azerbaijan's irrational insistence" on building the Baku-Ceyhan pipeline, which would exclude Iran from the Caspian oil equation. The newspaper portrayed the pipeline as an "unfeasible project both financially and technically."

US experts say the media attacks reflect Iran's distress over the prospect of missing out on the expected economic bonanza generated by the export of the Caspian Basin's abundant natural resources. The United States is a strong supporter of the Baku-Ceyhan pipeline and is pressing to accelerate project's pace. US special envoy for the Caspian Ambassador Stephen Mann recently voiced support for bilateral agreements signed by Russia and Kazakhstan, and a forthcoming deal between Russia and Azerbaijan concerning the division of the Caspian Sea. Such agreements, coupled with possible Russian oil companies' participation in the Baku-Tbilisi-Ceyhan consortium, provide considerable momentum for Baku-Ceyhan's construction.

There are indications that Iranian hardliners will continue to work against a high-profile US political and economic presence in the Caspian Basin. US officials note that Aliyev while in Iran was lectured by the country's conservative supreme leader, Ayatollah Ali Khamenei, who reportedly demanded that Azerbaijan distance itself from the United States and Israel. Aliyev, however, showed no willingness to make any changes in Azerbaijan's relationship with the United States.