Azerbaijan has been relatively politically stable for the past few years. Though Azerbaijan is predominantly Muslim, it is largely a secular country as a result of its Soviet history. This is a major distinguishing factor between ethnic Azeris within the country and the large ethnic Azeri population in northern parts of Iran. There are religious and Islamist elements within the country, but they are fairly small and marginal and do not affect Azerbaijan beyond minor protests or skirmishes with security forces. Iran and other players have tried to coerce some of these elements into action, but Azerbaijan's security apparatus has been largely successful in keeping the groups in check.
Azerbaijan's population of 9 million is also relatively homogenous; more than 90 percent of the population is ethnic Azeri. This means the country has not had to contend with restive ethnic groups to the degree that Georgia has with the Abkhazians and Ossetians (both of which created breakaway territories recognized by Russia as independent states), although Baku has had minor issues with groups such as the Talysh and Lezgins. The country is also not as socially or politically divided as Ukraine or Moldova, and issues such as the Nagorno-Karabakh dispute with Armenia have served to unify most of the population.
Furthermore, Azerbaijani President Ilham Aliyev — who came into office after his father, Heydar Aliyev, passed away in 2003 — is relatively young at age 50. While the Aliyev family has been ruling the country for nearly 20 years — almost the entirety of the country's independence from the Soviet Union — Aliyev does not face the same prospects for a looming succession crisis as long-serving and elderly post-Soviet leaders, such as Kazakhstan's Nursultan Nazarbayev or Uzbekistan's Islam Karimov.
The opposition in Azerbaijan is much weaker than in Georgia (which has seen the political rise of a charismatic tycoon) and Armenia (where there are rumors that an influential former president could make a political comeback). This means that Aliyev's government probably will be relatively stable for the foreseeable future.
These factors have given Baku the ability to focus on other issues, particularly energy. Azerbaijan is a significant producer of both oil and natural gas, which mainly come from offshore deposits in the Caspian Sea. The country produced about 930,000 barrels of oil and 14.8 billion cubic meters of natural gas in 2011. Azerbaijan has also been increasing its status as an energy exporter, exporting around 800,000 barrels of oil and 7 billion cubic meters of natural gas in 2011. Energy revenues have fueled Azerbaijan's economy (energy accounts for roughly half of government budget revenues) and security forces, with military expenditures increasing by 376 percent from 2005 to 2011. Baku's military expenditures alone have outgrown the total government expenditures of its neighbor and regional rival, Armenia.
However, this does not mean that Azerbaijan has been able to use these resources and its relative stability to dominate the region — primarily because of Azerbaijan's wider geopolitical neighborhood. Azerbaijan is surrounded by three major regional powers — Russia, Turkey and Iran. Each of these powers has controlled the Caucasus at different times, and each retains significant influence and interests in the region. Extra-regional countries such as the United States and Israel are also important players in the Caucasus.
Russia is currently the strongest external power in the Caucasus, with a military presence in Georgia's breakaway regions of Abkhazia and South Ossetia and a 5,000-strong troop presence and military base in Armenia. Though Russia does not have a meaningful security presence in Azerbaijan beyond the Gabala radar station, Russia's military presence in Armenia has prevented Azerbaijan from making a move to reclaim Nagorno-Karabakh. Baku knows full well that an attack on Armenia would essentially be an attack on Russia, which is not an enticing prospect for Azerbaijan.
Of the regional powers, Turkey has the strongest ties to Azerbaijan. This closeness has both cultural reasons (both countries are ethnically Turkic and the Azerbaijani language is very similar to Turkish) and strategic reasons. Turkey is the major avenue for Azerbaijani exports to Europe (via Georgia) and is the largest consumer of Azerbaijani oil and natural gas. Azerbaijan also has a significant security relationship with Turkey — Ankara supported Baku in its 1988-1994 war with Armenia over Nagorno-Karabakh, and the two countries signed a strategic partnership at the end of 2010 that guaranteed mutual assistance in the event of an armed attack by another country. But this relationship does have its complications, including disputes over energy and over Turkey's attempted (and failed) normalization of ties with Armenia.
Further complicating the situation is Iran, with which Azerbaijan has had a contentious relationship. One reason for this is each government's concern about the other's ties to the ethnic Azeri populations across their shared border (some 16 million to 25 million ethnic Azeris live in Iran). Another reason is the relationship Azerbaijan has built with outside powers such as the United States and Israel. Washington was crucial to the development of Azerbaijan's energy resources in the 1990s and early 2000s, a move meant to wean Baku from Moscow's energy supplies. Israel, meanwhile, has strengthened its security relationship with Azerbaijan, signing a $1.6 billion arms deal that included anti-aircraft systems and unmanned aerial vehicles at the beginning of 2012.
This is Azerbaijan's geopolitical environment. Direct confrontations with the much larger and more powerful Russia and Iran are unrealistic options, so Azerbaijan has sought to maneuver within the region and with external players in order to optimize its position.
Given Azerbaijan's strategic location in the South Caucasus and bordering both Russia and Iran, Baku has been an effective lever for Israel and the United States to use against both of these countries. Azerbaijan has also benefited from its relationships with Israel and Washington, using those ties (and its cooperation with Turkey) to maintain its independence and distance from Russia's political and military might — something neither Georgia nor Armenia has been able to do. Azerbaijan also has been able to ward off Iran, which, despite its involvement in certain cultural activities and ties to religious and opposition groups in Azerbaijan, does not pose a true military or security threat to Baku. Azerbaijan's relationships with the United States and Israel are a counter to Iran; the Caucasus country serves as a covert staging ground for the United States and coordinates with Israel in psychological operations against Iran.
But Azerbaijan has also been careful not to act too aggressively against Russia or Iran, instead choosing a strategy of balancing both bilaterally and within the wider region. Despite substantial tensions with both Russia and Iran, Azerbaijan provides some natural gas exports to both of these countries. Azerbaijan also has kept Iran in the consortium for its Shah Deniz II energy project despite protests from the West. Moreover, although it maintains close security ties with Turkey and Israel, Azerbaijan still procures much of its military equipment from Russia and has been cautious of acting too aggressively against Iran, though its growing relationship with Israel has certainly created more hostility between Baku and Tehran.
The Shape of Future Strategy
While Azerbaijan's tactical relationships with its neighbors ebb and flow, its broader strategic relationships have remained largely intact. For instance, Azerbaijan's exports to Iran fell by more than 30 percent in the first half of 2012, but it maintains the important natural gas trade that is beneficial for both countries (Iran provides electricity for the Azerbaijani exclave of Nakhchivan). Also, while there is talk of Turkey's establishing a special economic zone in Azerbaijan, energy will continue to dominate the countries' economic relationship (and will be the subject of disagreements over ownership and pricing issues).
One factor that could affect Azerbaijan's strategy is its future as an energy producer and exporter. The country's natural gas exports are set to grow by 16 billion cubic meters once the Shah Deniz II field comes online in 2017 or 2018. This could give Baku even more room to maneuver than it already has, improve its position in the West and Georgia and give it leverage over other countries such as Armenia and Russia, because numerous bidders and pipeline consortiums are competing for Azerbaijan's energy. However, this depends on many factors that could change significantly in the next five years, including the Europeans' appetite for Azerbaijani energy resources at that time and Russia's energy and economic position. Both could cast doubts on Azerbaijan's future as an emerging energy player.
This means that Azerbaijan's external environment will remain the most important factor in shaping the country's position and strategy. A financial collapse in Europe, a military confrontation between the United States and Iran or an internal crisis in Russia would all have a greater effect on Azerbaijan's geopolitical situation than any plan or policy in Baku. While none of these scenarios are inevitable — or even likely in the short term — they are reminders of the constraints Azerbaijan faces in its geopolitical environment.