The conflict over Karabakh, which impedes Azerbaijan's security and stability, has been a crucial obstacle to the successful implementation of international oil contracts. While Karabakh and other regions occupied by Armenians in Azerbaijan do not directly stand in the way of the proposed "early oil" transportation. routes, they are quite close to the southernmost one, and renewed fighting could destabilize the whole region. 

Other important developments include the recent signing of a treaty between Armenia and Russia, which allies Armenia firmly with Russia and provides the former with key military support. This, combined with growing Armenian relations with Iran, makes Azerbaijan greatly concerned about its security and has encouraged it to search for new allies. The visit of Israeli Prime Minister Benjamin Netanyahu to Baku in September, 1997 was a strong indication of such intentions. President Aliyev is scheduled to visit Israel in 1998 to develop relations at a higher level, presumably meaning strategic cooperation. Iranian radio immediately called this a very dangerous game, a notion repeated by Armenia's foreign minister, who openly referred to the role of Israel (and its cooperation with Turkey) as dangerous for the Caucasus, adding that it will be more dangerous if Azerbaijan allies with it. This explicit displeasure indicates Armenian and Iranian alarm at the prospect that Azerbaijan could soon have an influential regional partner. 

Ultimately, however, it is the increased US presence in the region which has the greatest chance to change the frozen instability of the last three to four years, break the shaky balance of Russian and Iranian pressures, and combat Turkish passivity caused by its internal problems and historical sensitivities. Should the US become more actively engaged in the peace process, a solution to the Karabakh deadlock is still possible. 

Among the initial results of US pressure has been the softening of the Armenian leadership's stance. The first indications of this relaxation were unexpected statements by the newly elected "president" of Nagorno- Karabakh, Arkadi Ghukassian, who vaguely mentioned that "limited sovereignty" for Karabakh within Azerbaijan was a possible solution. This statement represents a significant departure from his more common "independence or nothing" rhetoric. Aside from external pressures, the Armenian leadership definitely understands that allying itself too strongly with Russia and Iran will only lead to Armenian isolation from the West, economic marginalization, and exclusion from Caspian sea energy projects and regional cooperation. 

Despite all this, however, US involvement and the seemingly pro-Azerbaijani oil factor do not directly translate into a solution to Azerbaijan's security problems. First, pipeline route politics is of much concern to the US, Russia, Iran, and Turkey does not have the same importance to Azerbaijan, which will get its share of oil proceeds regardless of the export pipeline route. Second, the only clear trends in current US government policy are to secure US access to the Caspian's energy resources and to reject Iranian participation in regional energy projects. The US and other investors (including Russia) are most interested in securing the safety of the pipelines, whatever their route. As a result, a short-term solution to the Nagorno-Karabakh problem may be concerned solely with the issue of pipeline safety, even if this means that the Karabakh situation will be frozen (as in Cyprus), with no Azeri refugees returning home. In this case, the Karabakh problem will continue to be a source of instability in Azerbaijan. Any stable, long-term solution must include the return of the majority of the refugees and keep Karabakh within Azerbaijan (at least nominally). If these requirements are met, Azerbaijan will resolve most of its security concerns, as petrodollars will help solve most social problems and international participation in oil projects will provide "international security insurance." 

Outside of Karabakh, there are no regions in Azerbaijan that house the potential for serious ethnic conflict. There are two other regions within Azerbaijan with significant minority populations: ethnic Lezgis compactly reside in northeast Azerbaijan and Talyshis live in the southeast. But while Moslem Lezgis and Talyshis speak languages different from Azeri, the majority of them are fluent in Azeri. A high level of intermarriage and close cultural connections make interethnic ties especially strong. 

Following events in these regions is warranted; serious concern is not. The dissolution of the Soviet Union divided Lezgis between independent Azerbaijan and Russia. Several nationalist groups emerged, often with separatist agendas. Yet, no large-scale conflict has erupted. Indeed, several factors work against such an eruption. A major conflict involving secessionist tendencies in northern Azerbaijan would have a definite impact on the southern regions of the Russian province of Daghestan and could destroy the shaky ethnic balance in this "region of minorities." The presence in Daghestan of a sizable Turkic-speaking population (Azeris, Kumyks, and Nogais), which might ally with Azeris in the case of open conflict, plays a restraining role in regard to radical Lezghi groups. Daghestani authorities are very concerned about the impact of Chechen irredentists across the border with Chechnya and very much want to keep other regions stable. In fact, a common interest in border stability influenced Daghestani officials to establish direct links with the Azerbaijani government, bypassing Moscow. Additionally, the current population in the region is less susceptible to radical ethnonationalist slogans, having witnessed the terrible devastation caused by the protracted conflicts in neighboring Chechnya, North Ossetia, and Karabakh. 

Also, Russian pipeline routes would be gravely endangered  should conflict break our in Daghestan or northern Azerbaijan. After numerous failed attempts to secure an agreement with Chechnya to use its territory to transport Azerbaijani oil, Russian officials now increasingly argue for constructing the by pass through Daghestan, avoiding Chechnya completely. However, if Daghestan were also unstable, the Russian route would be completely out of the question. This in turn would go against the interests of the increasingly powerful Russian business elite, which has a strong stake in Azerbaijan and is quite willing to cooperate with Azerbaijan and Western companies in Caspian energy projects. 

The other spot in Azerbaijan that has provided any source of worry is the southeastern region populated by Talyshis (an Iranian language group). Tensions associated with this ethnic minority developed in 1993. Azerbaijani sources tend to connect these events to the work of the Russian special services, working against pro-Western President Abulfaz Elchibei. Since 1993, however, the situation in the region has been stable. While a number of ethnic Talyshis live just across the border in Iran, the presence of 20 million ethnic Azeris in Iran deters Iranian support for any Talysh irredentism. 

Thus, aside from occasional disturbances, there is little potential for instability in the northeast and southeast of Azerbaijan. It seems that even minor tensions may disappear quickly, if outside manipulations are absent and the economic and social situation in Azerbaijan improves.

Only the Nagorno-Karabakh conflict remains a major security threat to Azerbaijan. If it can be resolved, long-term prospects for oil development and safe oil transportation are promising. The growing US role in the region may create an impetus for a solution. This will, of course, require US political and economic support to Azerbaijan still hampered by restrictions imposed by Congress-and simultaneous pressure on Armenia. Such actions will help ensure adequate political rapprochement. Otherwise, the stalemate will continue, hampering regional development and foreign investment for years to come.