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STEVE INSKEEP, host:

All this week on MORNING EDITION we're exploring the politics of oil. And this morning, we begin traveling a pipeline that cuts across several national borders, and is of interest to some of the world's great powers. The pipeline opens this summer at a cost of more than $4 billion. It's expected to send oil 1,000 miles from the Caspian seacoast in the former Soviet Union to the Mediterranean Sea.

NPR's Ivan Watson traveled the length of that pipeline. And in the first of a three-part series, Ivan reports on the pipeline's beginning in Azerbaijan, which hopes to quadruple its oil exports.

IVAN WATSON reporting:

Azerbaijan already has more than a century of experience with oil and the money that comes with it.

Mr. CLAUDE AKHUNDOV (Historian, Azerbaijan): By the year 1901 with a population of slightly more than 130,000, Baku was making 51 percent of the world's output in crude oil. It was unbelievable.

WATSON : Claude Akhundov is a local historian. He takes visitors through the capitol, Baku, past scores of 19th and early 20th century mansions built during the country's first oil boom by lucky Azeris who struck it rich.

Mr. AKHUNDOV: If you were a (unintelligible)--it happened to be on your land, so this crazy money of the local oil barons flaunted into the streets of the city, where they were trying to outdo each other with each new mansion they built.

WATSON: Akhundov says one oil baron built a replica of a Venetian palace, another, the first opera in the Muslim world. Today, the Azerbaijan State Philharmonic continues to pack in audiences at this recently renovated turn-of-the-century concert hall.

(Soundbite of the Azerbaijan State Philharmonic)

WATSON: After the Soviets conquered Azerbaijan in the 1920s, however, oil went from being a blessing to a curse. The countryside surrounding Baku is hopelessly polluted, a wasteland of rusting oil derricks and oil-soaked earth left by decades of rapacious Soviet oil exploration. Here at the Balahami(ph) oilfield, Azeri workers are still struggling to pump oil out of scores of exhausted wells.

(Soundbite of machinery operating)

WATSON: Meanwhile, just yards away, impoverished Azeris, like three-year-old Sabir Zabrayilaba(ph), live in one-room cement houses.

Ms. SABIR ZABRAYILABA: (Foreign language spoken)

WATSON: Sabir complains that there aren't any birds to look at here. Her mother, Rashida, says the air is poisonous. But she adds that she can't afford to live anywhere else.

Ms. RASHIDA ZABRAYILABA: (Foreign language spoken)

WATSON: The question now facing Azeris is what will the country's next oil boom look like? Most of the wells being exploited now are offshore in the Caspian Sea. The oil is pumped first to the Sangachal Terminal, a sprawling heavily guarded compound of brand new tanks, tubes, and industrial machinery managed by British Petroleum.

Douglas Faire(ph) is one of the managers here.

Mr. DOUGLAS FAIRE (Manager, British Petroleum, Sangachal Terminal): Yeah. I'd say it's a pipeline, 46-inch pipeline that goes in the ground and then comes out the other end, 1760 kilometers away.

WATSON: The pipeline has been built to pump more than a million barrels of oil a day from offshore platforms all the way to waiting tanker ships in the Mediterranean Sea. With oil reaching record prices of more than $70 a barrel this week, that's a lot of money for Azerbaijan.

Mr. DAVID WOODWARD (Executive, British Petroleum): Around 2010, we will be generating revenues for the state that are several times the GNP currently. They will result in something like a 10-fold increase in the state revenues.

WATSON: David Woodward is the British Petroleum executive stationed in Baku who helped negotiate the pipeline's somewhat convoluted route. He says Azerbaijan's rulers wanted to use this pipeline to link them to the western world.

Mr. WOODWARD: They saw the pipeline as a means of securing their independence from former Soviet Union. It had the backing of the U.S. because, I think, they saw it as the primary means of helping to ensure the independence of Azerbaijan, rather than falling back under the influence of Russia, or falling into the embrace of Iran.

WATSON: Woodward says British Petroleum wants Azerbaijan to develop into a society where the people have a say in how the country's future revenues will be used. To help absorb and re-distribute the coming oil wealth, Azerbaijan's Foreign Minister Elmar Mammadyarov says the government has established an oil fund, based on a European model.

Mr. ELMAR MAMMADYAROV (Foreign Minister, Azerbaijan): We took in our region oil fund. We're taking Norway as one of the good, well-established examples for which we want in our country.

WATSON: But unlike Norway, Azerbaijan is considered to be one of the most corrupt countries in the world, according to the corruption watchdog agency, Transparency International. It was also the first former Soviet republic to witness a dynastic succession from President Hydar Aliyev, who died in office, to this son Ilham, who became president after what international monitors described as flawed elections.

Ilgar Mamedov is an Azerbaijani political scientist and former opposition party member.

Mr. ILGAR MAMEDOV (Political Scientist, Azerbaijan): The government belongs, practically, to one family that has complete control over all kind of government decisions at all levels.

WATSON: Last November, Azerbaijan held parliamentary elections, which international observers say were rigged. Inspired by the peaceful revolutions in neighboring Georgia and Ukraine, opposition leader Ali Karimli tried to organize a sit-in with thousands of demonstrators. He says it was violently crushed by security forces.

Mr. ALI KARIMLI (Chairman, Popular Front Party of Azerbaijan): (Through Translator) They clubbed and wounded more than 90 people. Many people have been arrested. Five months later, we're still not allowed to organize rallies. I don't understand how oil can blind you to the suffocation of democracy here.

WATSON: Matt Bryza is a senior State Department official who monitors the Caucuses region.

Mr. MATT BRYZA (Caucuses Region Monitor, State Department): We don't see Ilham Aliyev as a dictator. We see him as the leader of a country with an emerging democracy that has a long way to go to become a healthy democracy.

WATSON: Later this month, Azerbaijani President Ilham Aliyev is scheduled to meet President Bush in the White House. In addition to the Baku to Tbilisi-Ceyhan pipeline, the U.S. is backing the construction of a parallel natural gas pipeline to Turkey. And negotiations are underway for a link to the much larger oil and gas deposits in the central Asian republic of Kazakhstan. One Azeri analyst says Azerbaijan's about to get hit by an oil tsunami.

(Soundbite of Azeri music)

WATSON: Late at night, at this lively Baku bar, oil and politics are far from the minds of these young Azeris. When asked, however, locals like Rashad Sharynev(ph) said they had little faith in Azerbaijan's newest oil barons.

Mr. RASHAD SHARYNEV: Oil money should spend and should be invested into something else, rather than only go to the puppet of corrupt bureaucrats.

WATSON: Ivan Watson, NPR News.

INSKEEP: Ivan's been following this pipeline all along its length. And tomorrow, he'll report on its route through Georgia. He's been keeping an online journal of his travels. And you can read his Reporter's Notebook and see photos at npr.org.

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