BP moves closer to settling Azeri oil deal

AZERBAIJAN and a Western consortium led by British Petroleum are closer than ever to sealing four years of talks on a multi-billion-dollar deal to develop two Caspian Sea oil fields, according to Azerbaijani officials and Western diplomats.

Western oil companies have been disappointed before, however. They are not yet building up their offices in Baku, reduced last year as hopes of signing the contract faded with political upheavals.

Even if Azerbaijan achieves its hope of a final signing date this month, it will take years of development before any of an estimated 3 billion barrels of oil arrives on world markets. The route of any export pipeline is also still fraught with security threats and strategic wrestling between Turkey, Russia and Iran.

But there is optimism in Baku that Russia may be looking more benevolently on the deal, that conflict with Armenia over Nagorny-Karabakh may be winding down, and that the Azeri government, long beset by corruption scandals, may be serious about concluding a deal.

'I think that (the waiting) is finished. We are just arranging the final details. Everything should be finished in August,' said Vefa Gulizade, senior foreign affairs adviser to Azerbaijan's President Haidar Aliev. For the first time, Mr Aliev has become involved in the talks, personally signing an agreement in principle on July 15 with the consortium.

Negotiations broke down twice last year. They revived in Istanbul in May and are now taking place in Houston, Texas.

'We're pleased with progress,' said a spokesman for BP in London, which reports interim results tomorrow. 'If both sides continue to negotiate in good faith an agreement could be reached in the near future. But there's still work to be done.'

A question mark remains over the attitude of Russia. Cynical observers have long believed Russian hardliners' backing for the Nagorny Karabakh Armenians' offensives was timed to torpedo the Western oil companies as they muscled in on Russia's back yard.

Western diplomats now believe that a 10 per cent stake in the production company, given to the Russian conglomerate Lukoil, may have tilted Russian interests in favour of the deal, as well as Russia's desire to maintain its new-found favour as an associate of the G7 group.