According to the Azerbaijani National Statistical Committee, in 2006 of $3.7 billion total foreign investment in Azerbaijan, Britain placed first with more than $1.7 billion in investment, 46.9 percent of the total, distantly followed by the United States with $662 million, or 17.4 percent of foreign investment. Due to record-high energy prices the Azeri economy is surging, with an estimated gross domestic product growth rate of 36 percent for January-August 2007, 5 percentage points ahead of the 2006 figure. The last few years have seen massive investment in the country, which during 2004-2007 attracted more than $14 billion.

The single greatest factor responsible for this dramatic surge was the opening in the summer of 2006 of the $3.6 billion, 1,092-mile Baku-Tbilisi-Ceyhan pipeline, with a carrying capacity of 1 million barrels per day. BTC, along with rising oil production from the Azeri-Chirag-Guneshli project, are expected to contribute to a doubling of Azerbaijan's GDP by 2008.

BP is the operator not only of BTC and ACG but Azerbaijan's offshore Caspian Shah Deniz natural gas project and the South Caucasus Pipeline, currently under construction.

The rising British presence in Azerbaijan's energy sector represents a dramatic change over the last decade. As reported by EC-TACIS, for the period 1994-1999 the main sources of foreign direct investment in Azerbaijan were the United States with 28 percent, followed by Britain with 15 percent. FDI in Azerbaijan exploded from only $30 million in 1994 to more than $1 billion in 2002, about 17 percent of Azerbaijan's GDP, with approximately 90 percent of FDI concentrated in the country's hydrocarbons sector.

David Meechan, head of British Energy Ministry's Press Service, underlined the increasing importance of Azerbaijan in British foreign policy during a Dec. 14 interview with Azerbaijan's Trend news agency.

"We appreciate strong bilateral relations between Great Britain and Azerbaijan and the key role that Azerbaijan may play in the region," he said. "We are continuing establishing strong relations between the two countries."

British Energy Minister Malcolm Wicks, who visited Baku in September, is scheduled to meet with the delegation of Azerbaijani parliamentarians, led by Vice Speaker Valeh Aleskerov, who are currently visiting London. As a mark of the importance that the British government places on the meetings, the Azeri delegation will meet with Prince Andrew, the duke of York, in Buckingham Palace. Eddie Perkins, head of the Press Service of Buckingham Palace, said the key topic of the meeting will be trade and investments, adding, "The duke of York attaches great importance to the development of commercial relations between the two countries." Prince Andrew is the special representative of the United Kingdom for International Trade and Investments.

The British dominance of the Azeri oil industry is history repeating itself. Caspian oil fields began producing oil near Baku in 1871. Initially a Russian monopoly, in 1898 Azeri concessions were offered to foreign investors, with the result that between 1898 and 1903 British oil firms invested millions in Baku's oil fields, which by 1900 accounted for half the world's production.

How did American energy firms let such a jewel slip from their fingers? The answer is simple -- politics.

In February 1988, a shooting war developed between Azerbaijan and Armenia over the disputed Nagorno-Karabakh enclave, which lasted until May 1994, leaving Armenian armed forces in control of 20 percent of Azerbaijan including the Nagorno-Karabakh region and seven surrounding districts. Urging by the Armenian-American lobby resulted in the inclusion in 1992 of the U.S. Freedom Support Act of Section 907, which banned any direct U.S. aid to the Azerbaijani government as punishment for its blockade of Armenia and severely restricted U.S. investment there. Section 907 was only waived a decade later by President George W. Bush in January 2002 as a reward for Azeri support of the United States following the Sept. 11, 2001, terrorist attacks.

By then the British were well entrenched in Azerbaijan, much to the distress of U.S. energy firms, which had lobbied since 1992 to get Section 907 rescinded. London, in contrast, came into Azerbaijan with no ideological baggage. On the issue of the still unresolved Nagorno-Karabakh dispute, the British Foreign Office states on its Web site, "The U.K. (and our European partners) has argued that any solution should be based on the sovereignty of Azerbaijan with real autonomy for the people of N-K. The international community does not recognize N-K independence. Our policy on the N-K dispute is that we will support any mechanism for its resolution, which both parties can accept and which has a realistic chance of delivering a lasting political settlement."

As Washington is slowly learning to its sorrow, the mixture of oil and ideology results in a potentially explosive combination.

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