San José State University
Department of Economics

Thayer Watkins
Silicon Valley
& Tornado Alley

The Economy and Economic
History of Azerbaijan

Historical Background

The people of Azerbaijan are linguistically and culturally a branch of the Turkic peoples of Central Asia. The Turkic invasion and settlement only began in the eleventh century. The area that is now Azerbaijan had troubled history long before the coming of the Turkic people.

The earliest perception of the occupation of the region was by Scythians in the ninth century BCE. The Scythians were a nomadic people with territorial control of the central Asian steppes. In the eighth century BCE the Medes annexed part of the territory that is now Azerbaijan to their empire. In the rise and fall of empires in the area the region became part of the Persian empire. When Alexander conquered the Persian empire in 330 BCE the region became part of his empire but was still ruled by Persian satraps. The name Azerbaijan apparently comes from Persian and means land of fire.

Later the Romans conquered the area and gave the territory the name Albania, from the Latin word alba, meaning white. The Persians re-established their empire and drove the Romans out of the region and Azerbaijan once again came under Persian control. When the Arabs conquered the Persian Empire they brought Islam to Azerbaijan. Arab control of Azerbaijan lasted from the seventh until the Turks conquered the region in the eleventh century. The Turkic invasion established the cultural identity of Azerbaijan which lasted through the subsequent conquests. As a remnant of the Persian cultural influence the Azerbaijani Muslims are predominantly Shiite.

The Mongols of Genghis Khan conquered the area in the thirteenth century. A substantial share of the Mongol army was Turkic and the Mongol language is closely related to the Turkic languages so the Mongol conquest was not as much of a cultural change as might be expected. The Mongol Khan, Hulegal, ruled from Persia so the situation for Azerbaijan was not drastically changed. This arrangement continued through the rule of Tammerlane.

In the sixteenth century the control of the Persian Empire fell to the Safavids, who were Azerbaijanis.

The final conquerors were the Russians who in the early nineteenth century gained control of Azerbaijan from the Persian Safavids. Russian ruled continued under the Czars and later the commisars until the collapse of the Soviet Union.

In the late nineteenth century the oil field of Azerbaijan were developed. This brought a great migration of Russians to the principal Azerbaijani city of Baku. The year of 1905 was a year of protests and insurrections throughout the Russian Empire. In Azerbaijan 1905 was a year of protest of Russian control. Not much came of the 1905 protest except the organization of political groups which maintained their existence until the time of the Russian Revolution.

After the Russian Revolution Marxists declared an Azerbaijan republic but rival Azerbaijani nationalists in 1918 declared a People's Democratic Republic. The militia of the Azerbaijani nationalist captured the capital of Baku. They were aided by Ottoman Turkish forces who occupied Baku. When World War I ended British troops replaced the Turkish occupation force.

In April of 1918 the Bosheviks' Red Army invaded and capture Azerbaijan. The Azerbaijan troops were preoccupied with suppressing the rebellion of the Armenian population of the region known as Nagorno-Karabakh. By September 1920 Azerbaijan was effectively annexed to the Soviet Union. Soviet troops also occupied the territory of Naxçivan (also spelled Nakhichevan). The people of this territory were predominantly Azerbaijani and but the enclave is separated from the rest of Azerbaijan by a section of Armenia.

In 1921 the Soviet Union decreed the creation of a Transcaucasian Federated Socialist Republic which consisted of Armenia, Azerbaijan and Georgia.

In 1924 the Soviets declared the Naxçivan enclave to be part of Azerbaijan but with autonomous republic status within the Transcaucasian Republic. Also in 1924, the Soviet Union decreed that the Armenian enclave of Nagorno-Karabakh to be an autonomous republic within the Transcaucasian Republic.

The Moscow-dictated Transcaucasian Republic continued until 1936 when Stalin ordered the dissolution of the Transcaucasian Federated Socialist Republic and Armenia, Azerbaijan and Georgia became separate republics within the Soviet Union. The autonomous republics of Naxçivan and Nagorno-Karabakh became part of Azerbaijan.

During World War II the Soviet Union occupied the northern half of Iran while Britain occupied the southern half. While northern Iran was under their control the Soviets decided to foment separatist movements in the area. The Azerbaijani cultural area had been divided between the Persian Empire and the Russian Empire in the nineteenth century. There were quite legitimate desires on the part of the Azerbaijanis of Iran to join with the Azerbaijanis across the border. The Soviets also created a Kurdish republic in the western part of Iran where Kurds are the dominant population group. The Soviets of course were not being altruistic. They knew a United Azerbaijan would be under Soviet Control. The American President Harry Truman forced the Soviets to evacuate the territory they had occupied during the war. When Tehran regained control of the Azerbaijani areas they suppressed contacts with Azerbaijanis across the border in the Soviet Union.

The relationship between Azerbaijan and Moscow was fraught with periodic purges of the leadership of the Azerbaijan Communist Party. The charges were corruption but nationalism was a constant worry on the part of the leaders of the Soviet Union in Moscow.

In the fall of 1989, that year of turmoil in the Soviet world, Azerbaijanis protested the rule of their country by the Azerbaijan Communist Party. The nationalist sentiment was led by an organization calling itself the Azerbaijani Popular Front (APF). The Supreme Court of Azerbaijan tried to declare Azerbaijan sovereign and independent in 1989 but the Moscow leadership refused to recognize that declaration of independence. The situation because more serious when Azerbaijani began destroying the border facilities separating the Iranian Azerbaijani areas from Azerbaijan. In January of 1990 the Soviet authorities sent in troops to bring the political turmoil under control. Numerous (122) Azerbaijanis were killed in that invasion and martial law was declared.

In December of 1991 Azerbaijanis voted in a referendum 99 to 1 in favor of the establishment of an independent nation of Azerbaijan. With independence the dormant issue of Nagorno-Karabakh became the crucial issue.


The Caucasus were a place of refuge for millenia because of the mountainous citadels contained there. Some areas were virtually unconquerable. Nagorno-Karabakh is one of them. The word nagorno is Russian for mountainous. When the Turkic conquest of what is now Azerbaijan came in the eleventh century it was incomplete.

The Russian conquest in the nineteenth century was complete. During the years of Russian control of the region, including the Soviet years, it did not matter greatly that there was an Armenian occupied enclave with in the administrative area of Azerbaijan. It made even less difference during the period of the Transcaucasian Federated Republic. But with Azerbaijan it did make a difference.

When the Soviet authorities in 1924 designated Nagorno-Karabash an autonomous region about 95 percent of the inhabitants were Armenian. Over time there were Azerbaijani who settled in the region so that by 1990 there were about one hundred fifty thousand Armenians and about forty thousand Azerbaijanis.

Because of its autonomous region status Nagorno-Karabakh had a national council. In 1988 this council voted to unite with Armenia. This triggered violence against Armenians in the cities of Azerbaijan. Anticipating further violence the Armenian Azerbaijan residents began to migrate to Nagorno-Karabakh and the Azerbaijani inhabitants of Nagorno-Karabakh began to flee that region. In 1989 Moscow granted the Azerbaijan government more authority to deal with the situation. This only made matters worse because the Nagorno-Karabakh could only expect harsh if not genocidal treatment at the hands of the Azerbaijanis. Nagorno-Karabakh and the government of Armenia reaffirmed their determination that Nagorno-Karabakh would be united with Armenia. The Soviet authorities sent in troops to quell the disturbances in Baku, which were taking the form of violence against the Communist Party as well as against the Armenian residents. Over one hundred Azerbaijanis were killed in the military action in Baku and elsewhere in Azerbaijan. In Nagorno-Karabakh a referendum was held in 1991 which reaffirmed the desire of the Armenians in Nagorno-Karabakh to be independent of Azerbaijan.

When the August 1991 attempted coup d'etat of Communist hardliners in Moscow failed Azerbaijan started moving toward independence, with acquiessence of even the Azerbaijani Communists. In December of 1991 a referendum on independence of Azerbaijan was held which resulted in vote of 99 to 1 in favor of independence.

In February of 1992, in the wake of violent attacks on the Azerbaijani residents of Nagorno-Karabakh the head of the Communist Party government of Azerbaijan, Ayaz Mutalibov, resigned. His successor was also disgraced by the military failures in Nagorno-Karabakh and in May of 1992 the Communist Party apparatus tried to reenstate Mutalibov as the head of government. This provoked massive public protests and Mutalibov had to flee the country. The opposition Azerbaijani Popular Front organization then formed an interim government until the scheduled elections in June of 1992.

A leader of the Azerbaijani Popular Front, Abulfaz Elchibey, won the presidency in the June election. The situation concerning Nagorno-Karabakh was not much changed and in June of 1993 the Azerbaijan military forced Elchibey from office. Control of the Azerbaijan govenment was taken over by a former head of the Communist Party government, Heydar Aliyev, who had been appointed by Leonid Brezhnev in 1969 and ruled until 1987 when he was removed from power by Mikhail Gorbachev. He was confirmed in the office of president by an election held in October of 1993. Aliyev tried to negotiate with the Nagorno-Karabakh Armenians directly and some truce periods were achieved. The situation concerning Nagorno-Karabakh had become more serious. Armenians were in control of substantial Azerbaijan territory outside of Nagorno-Karabakh. There had been tens of thousands of deaths and there were hundreds of thousands of refugees. Furthermore, Turkey and Iran were becoming involved in the dispute, partly because of their support for their co-religionists in Azerbaijan but also because of insecurities concerning their borders.

The Armenians remain in control of Nagorno-Karabakh and adjacent territory between Nagorno-Karabakh and the Republic of Armenia. International pressure has prevented the Republic of Armenia from declaring Nagorno-Karabakh as part of Armenia. The population of Nagorno-Karabakh has grown to about two hundred thousand, 95 percent of whom are Armenian. The Azerbaijani population of the enclave has dropped to near zero. Negotiation have reached a standstill. Control of the government of Azerbaijan passed in 2003 from Heydar Aliyev to his son Ilham.

The politics on the Armenian side are equally surprising. Robert Kocharian, who was once president of the Republic of Nagorno-Karabakh, became president of Armenia in 1998.

(To be continued.)

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