Crude of All Evil? How Oil is Fueling Some Tough Choices

Drive along the dusty back roads in and around Baku, Azerbaijan, and you will not be able to miss it: oil.

Getty Images Baku, Azerbaijan

It oozes out of rickety derricks that seem to rise randomly next to homes and businesses, collects in black puddles on the ground, and fuels an economy in this former Soviet republic that has tripled in size in the past 10 years.

And where there is oil, there are Americans.

Visiting Baku on the Fourth of July 2010, Secretary of State Hillary Clinton declared, “The bonds between the United States and Azerbaijan are deep, important and durable.”

The United States and Azerbaijan have enjoyed a cozy relationship dating to the country’s independence from the Soviet Union in 1991. Since 2000, the U.S. has budgeted more than $300 million in direct foreign aid to the country, which proclaims itself to be a “staunch ally in the global war on terrorism.”

Perhaps the biggest attraction Azerbaijan holds for the U.S. is all that oil. The country’s 7 billion barrels of proven reserves are the 19th-largest in the world. It is home to a million-barrel-a-day pipeline. And its location on the shores of the Caspian Sea makes Azerbaijan a gateway to one of the most important petroleum regions in the world. All the major U.S. oil companies, and others from around the world, have operations in the country.

And for some U.S. officials, that presents a dilemma.

In a 2009 State Department cable uncovered by WikiLeaks, a senior U.S. diplomat in Baku called the relationship between the U.S. and Azerbaijan — which should be “strategically valuable” — “a choice between U.S. interests and U.S. values.”

The anti-corruption group Transparency International ranks Azerbaijan 143rd out of 183 countries in its annual Corruption Perceptions Index. Human Rights Watch, in a January report, describes a deteriorating human rights record in the country, including a “hostile atmosphere” for critics of the government, restrictions on freedom of religion and the media, “sham trials” and torture.

Yet the family of President Ilham Aliyev, who took over following the death of his father in 2003, has tens of millions of dollars in property and business interests around the world.

“President Aliyev announced several times that he doesn’t want to have any poverty in Azerbaijan,” Finance Minister Samir Sharifov, told CNBC in an interview. “So this is the policy which is implemented in Azerbaijan.”

The standard of living has slowly improved as the oil industry has taken hold, but the average worker still makes only about $440 per month, according to government statistics.

Should the U.S. be doing business with countries that are rich in resources — and friendly — but accused of corruption and human rights violations?

Even those who are pushing for tighter anti-corruption controls in the country admit the U.S. can’t always stand on principle.

“There’s no perfect solution here,” said Sen. Carl Levin, D-Michigan, in an interview. “There’s always a conflict situation when you deal with people who have something you need. There are dilemmas all the time, and how you meet those dilemmas is important.”

Robert Palmer of the anti-corruption group Global Witness says Western countries and oil companies can be forces for good.

“I think we should encourage business to do business with these countries,” he told CNBC in an interview, “but to do it in a clean, transparent way, by doing proper due diligence, to know who they’re dealing with, where they’re getting their funds from, what the money is being spent on.”

One way to accomplish that is a voluntary program called the Extractive Industries Transparency Initiative. The EITI is a coalition of governments, companies and civil society organizations that monitors oil and natural gas production as well as industries such as mining, and publishes audited figures on each country’s annual take.

The organization operates on a set of principles, finalized in 2003. First on the list: “We share a belief that the prudent use of natural resource wealth should be an important engine for sustainable economic growth that contributes to sustainable development and poverty reduction, but if not managed properly, can create negative economic and social impacts.”

So far, only about a dozen countries are listed as “fully compliant.” They include Azerbaijan, whose government took in $533 million from oil and natural gas production and refining in 2010. Thirteen other countries have accepted the standard and are listed as “candidates.”

Notable are the countries not on the list, including Equatorial Guinea, which has set a goal of becoming EITI-compliant, but has not managed to make the grade. Equatorial Guinea was admitted as a candidate country in 2007, giving the country three years to supply the necessary data. It was unable to meet the deadline and was dropped from consideration in 2010.

Other countries not on the list include two of the world’s largest oil producers, Saudi Arabia and Russia.

The U.S. is not part of the initiative either, but the Obama administration announced in September that the U.S. would commit to join.

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