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Spotlight Article

Two Decades Since the Contract of the Century

Azerbaijan America Alliance
September 22, 2014

On September 20, 2014 Azerbaijan celebrated the 20th anniversary of the “Agreement on the Joint Development and Production Sharing for the Azeri and Chirag Fields and the Deep Water Portion of the Guneshli Field in the Azerbaijan Sector of the Caspian Sea.”

This agreement is more commonly known as “the Contract of the Century” due to its incredible international political significance. The contract earns its nickname from the number of countries and amount of wealth it represents, but the contract has also proved a historical triumph because it represents Azerbaijan’s confrontation of the resource curse.

Participants in the contract included thirteen first class oil companies, such as Amoco, BP, SOCAR, LUKoil, Statoil, Exxon, TPAO, Itochu, representing eight countries worldwide. Since the agreements ratification, approximately $50 billion has been invested in the Azerbaijan petroleum industry.

Former President Haydar Aliyev and Former President Clinton from the speech of President of the Azerbaijan Republic Heydar Aliyev made at the negotiations between the high level delegations of the USA and the Azerbaijan Republic. Washington, White House, August 1, 1997. Source: "Heydar Aliyev Heritage"
 International Online Library

The Baku–Tbilisi–Ceyhan (BTC) pipeline represents one of the agreements great achievements. The pipeline connects Baku, Azerbaijan to the port city of Ceyhan, Turkey via Tbilisi, Georgia. The pipeline is a 1,768 kilometers (1,099 mi) long, making it the second longest in the former Soviet Union.

Because of the wealth that projects such as BTC pipeline produces, former President Haydar Aliyev founded The State Oil Fund of the Republic of Azerbaijan (SOFAZ). The fund’s purpose is to ensure intergenerational equality and support socio-economic development projects. 

One such project is the construction of housing for refugees of the Nagorno-Karabakh conflict. Azerbaijan was unprepared when the crisis first erupted and approximately a million Azerbaijanis became internally displaced people (IDP).  By 2001, 67 villages were built to house more than 100,000 refugees. Although this conflict is ongoing, the State Oil Fund has improved the quality of life for hundreds of thousands of refugees. 

The State Oil fund also supported, the construction of the Oguz-Qabala-Baku water supply system. This system carries high quality water from 78 wells in the Oguz-Gabala region to Baku city. The cost of this project could never have been covered without the State Oil Fund.

The State Oil fund is building railways, sending more than two thousand Azerbaijani youth to schools all over the world as of 2014, building irrigation systems, and responsibly investing wealth for future generations.  

Often countries as young as Azerbaijan are stunted by resource wealth. Resource wealth has destabilized countries much older than Azerbaijan; but, Azerbaijan has evaded the resource curse and invested in improving the lives of its citizens and maintaining its wealth for future generations. Azerbaijan and the State Oil Fund are a reassuring example of how resource wealth can work positively for a young developing nation.  

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