LETTER FROM AZERBAIJAN:Wealth in the form of oil and gas is seeping up from the sea belonging to a once blighted region in the Caucasus, writes Kieran Cooke
AS MANY countries in the West teeter on the brink of recession, this country of 8.5 million people in the south Caucasus finds itself suddenly awash with money. Oil companies have recently started mining vast reserves of oil and gas from deep under Azerbaijan's section of the Caspian Sea.
The result is billions of dollars in royalties, and export earnings are flowing into the local exchequer. Last year, Azerbaijan's economy grew by 27 per cent - the highest GDP growth rate in the world.
Oil seeps out of the ground in Azerbaijan, its smell fills the air. In ancient times, fires on the earth lit by oil and gas deposits made the territory a main centre of Zoroastrianism, one of the world's oldest religions in which fire is a sacred symbol. Near Baku, the capital, a forest of oil derricks stretches for miles along the Caspian shore.
Further inland, you can actually take a bath in pure crude oil. At a crumbling sanatorium, visitors submerge themselves in the local crude: doctors say the treatment - once you've spent an hour wiping off the black, tarry substance - beautifies the skin, calms nerves and cures conditions such as psoriasis.
Azerbaijan - part of the old Soviet Union until independence in 1991 - is a country of contradictions. The centre of Baku is one big building site, with new skyscraper hotels and apartment blocks going up on every corner. Top-of-the-range cars clog the streets: luxury goods shops are crowded with the newly wealthy.
Yet, on the city outskirts, families live in what are effectively caves dug into the hillsides.
The World Bank says Azerbaijan's oil earnings are likely to be at least $30 billion (€18.88 billion) this year alone, but average annual per capita incomes are still only just over $1,000. Nearly two million people have left the country in recent years in search of jobs.
"Azerbaijan is a country in transition," says Ilham Aliyev, the country's 45-year-old president. "We have considerable resources, but money earned from them must be spent wisely."
Just how wisely Azerbaijan is spending its new wealth is open to question, with observers watching to see whether the country will follow the example of Norway - carefully investing its oil wealth for the benefit of future generations - or go the way of Nigeria, where billions have been lost due to corruption.
The early signs are not good. Transparency International, the body which monitors levels of corruption round the globe, lists Azerbaijan as one of the world's most corrupt countries. A small number of companies run by the super-rich and with powerful links to the ruling elite controls most non-oil sectors of the economy.
Economists say oil money is in danger of being squandered on luxuries for the select few, and there are fears of inflation running out of control.
Azerbaijan is one of the most strictly run of the post-Soviet states, with any sign of political opposition firmly stamped upon. Successive elections have been deemed "deeply flawed" by the international community.
The media is strictly controlled and journalists regularly imprisoned: Emin Huseynov, a prominent journalist, is believed to be in a critical condition in hospital after being detained and beaten by police last month for attending what authorities called an illegal gathering - a screening of a documentary film in a Baku cafe on the life of Che Guevara.
Meanwhile, international observers are concerned at a considerable build-up in Azerbaijan's armed forces: in the early 1990s, war broke out with neighbouring Armenia over a disputed highland region called Nagorny Karabakh.
As a result of the conflict, Azerbaijan lost about 15 per cent of its territory and more than 700,000 people in the country were made homeless.
At a recent armed forces day parade - the most elaborate held for many years - there was talk of regaining lost lands and striking a blow at the old enemy, Armenia.
Perhaps of greatest concern is Azerbaijan's central position in a more comprehensive struggle for power taking place in the Caspian region.
For years, Moscow regarded Azerbaijan and the territories of the Caucasus as part of its fiefdom, an area referred to as the "near abroad". Now Russia, armed with its new-found oil and gas wealth, is seeking to regain its influence in the region.
A western oil consortium led by BP has invested billions in a 1,762km (1,095 miles) pipeline which pumps oil from Baku to the port of Ceyhan on Turkey's Mediterranean coast. Conspiracy theorists in Baku say powerful Russian interests - already plotting to take over western oil concerns in Russia itself - are now eyeing western resources in the Caspian region.
Azerbaijan has tried to keep a neutral position: it maintains good relations with both the US and Russia and also has close ties with Iran, its neighbour to the south. However, some are wondering whether plentiful oil and gas resources are a blessing or a curse: the country could quickly become the new flashpoint in an increasingly bitter international battle for control of vital energy sources.