Iran-Azerbaijan Relations: On a Better Footing After Khatami’s Baku Visit

A recent visit by Iranian President Mohammad Khatami to Azerbaijan seems to have put bilateral relations on a better footing. However, the Iranian leader's trip did not succeed in resolving the fundamental issue separating the two nations: the territorial division of the Caspian Sea.

Khatami held talks in Baku with his Azerbaijani counterpart, Ilham Aliyev, and other top officials during his August 5-7 visit. It was the Iranian chief executive's first trip to neighboring Azerbaijan since his election in 1997 – evidence of the chill that has marked bilateral ties since the break-up of the Soviet Union in 1991. Besides the Caspian question, the issue of ethnic Azeris in Iran has been a significant source of tension. Geopolitics has also come into play: Azerbaijan has been wary about Iran's strong economic and political ties with Armenia, while Tehran has been suspicious of Baku's close relationship with the United States.

Upon his arrival in Baku, Khatami spoke of "great opportunities and tremendous potential for the development of bilateral relations." Aliyev expressed similar sentiments, and accepted an invitation to make a state visit to Iran at a time to be determined. The most significant development to arise from Khatami's visit was an Iranian commitment to allow Azerbaijan to open consular offices in Tabriz, a hub for ethnic Azeris living in northern Iran.

There are an estimated 30-35 million Azeris in Iran, most of them in northern areas of the country. The pending opening of an Azerbaijani consulate in Tabriz has generated hope in Baku that the Iranian government is adopting a more tolerant stance towards ethnic Azeris in Iran.

In addition, Khatami reiterated Iran's commitment to Azerbaijan's territorial integrity, effectively signaling that Tehran supported Baku's negotiating position in the stalled Nagorno-Karabakh peace talks. [For additional information see the Eurasia Insight archive]. In a follow-up development, Iran's Export Development Bank extended a $75 million loan to improve the power grid in the Azerbaijani exclave of Nakhichevan, which straddles the Iranian frontier, the Bilik Dunyasi news agency reported.

Azerbaijan, in turn, has expressed support for Iran's participation in a transit system connecting Europe and Asia, known as TRACECA. Baku additionally endorsed the creation of a tripartite railway and road network, involving Azerbaijan, Iran and Russia. Such projects could potentially be of enormous economic benefit for Iran by opening new export routes.

As widely anticipated, Khatami's visit was unable to produce a breakthrough on the Caspian Sea question. Iran and Azerbaijan have long been unable to agree on a formula to divide the sea. The bickering at some points has even threatened to turn violent. [For background see the Eurasia Insight archive]. The lack of a deal has hampered the development of the region's ample natural resources. [For background see the Eurasia Insight archive].

During his Baku visit, Khatami tried to stir hope that a near-term breakthrough was possible. Yet no participants in the stalemated Caspian Sea talks have given any indication of making a significant concession. Iran believes the five Caspian littoral states should receive equal 20 percent shares of the sea. Azerbaijan, along with Kazakhstan and Russia, favor a formula that would leave Iran with roughly a 13 percent share. Turkmenistan's stance in the process has proven hard to pin down.

Despite the lack of progress on the Caspian issue, state-controlled media in Azerbaijan generally trumpeted Khatami's visit as a success. "There is great potential to develop Azerbaijani-Iranian relations in all fields," said a headline in the August 7 edition of the official Khalq Gazeti.

Some observers say that bolstering bilateral ties marks a pragmatic step for both sides. Azerbaijan of late has expressed frustration with Western institutions, in particular the OSCE Minsk Group, over the lack of progress on a Karabakh settlement. [For background see the Eurasia Insight archive]. Closer Azerbaijani-Iranian ties, or at least the appearance of such, could be a way to get Minsk Group members, especially the United States, to push harder for a Karabakh settlement, some Azerbaijani officials believe. The Bush administration has been keen to promote Iran's diplomatic isolation. [For background see the Eurasia Insight archive]. "Rapprochement with Iran would allow Azerbaijan to create great potential for political maneuvering vis a vis the West," said a commentary published by the Zaman newspaper.

Other Azerbaijani experts, meanwhile, feel that Iran desperately needs friendlier relations with Baku. "Khatami realizes very well that from a geopolitical point of view, Iran is currently in a situation with no prospects," said a commentary published by the Zerkalo daily. [See related story] "Iran is sliding into a dangerous area of geopolitical isolation."