In 1987-1988, 250,000 Azerbaijanis were ethnically cleansed from their historic lands in Armenia, and have been living in Azerbaijan since 1987. More than 750,000 citizens of Azerbaijan fled the Nagorno Karabakh region of Azerbaijan and seven adjacent administrative districts presently occupied by Armenia in the south-western part of Azerbaijan (Aghdam, Fizuli, Jabrail, Kelbajar, Lachin, Qubadly, and Zangilan). Those who remain displaced include 60,000 from the Nagorno-Karabakh region itself. As Armenia continues to occupy the Nagorno-Karabakh region of Azerbaijan and seven surrounding districts, the displaced persons cannot return to their homes. Thus, more than one million refugees and internally displaced persons live in Azerbaijan today.

Although most of the refugees and displaced persons originated from rural areas, about 55 percent of them temporarily settled in urban areas, mostly in the capital Baku. More than half of the displaced persons still live in temporary accommodations, such as public buildings, hostels, schools, etc.

In 1993, the UN Security Council adopted 4 resolutions calling for the cessation of hostilities, immediate, complete and unconditional withdrawal of occupying Armenian forces from the Azerbaijani territories. Negotiations to resolve the conflict peacefully have been ongoing since 1992 under the aegis of the Minsk Group of the OSCE. The Minsk Group is currently co-chaired by France, Russia, and the United States.

Total investments (2007): $11.6 bln
Foreign investments (2007): $6.8 bln
Domestic investments: (2007): $4.8 bln   

External trade turnover (2007): $11.7 bln: 
Export (2007): – $6.0 bln: oil and gas, chemicals, oilfield equipment, textiles, cotton, tobacco, vegetables, etc.
Imports (2007): – $5.7 bln: machinery and parts, consumer durables, foodstuff, textiles, construction materials, etc.

Major trade partners: Turkey (14.3%), Russia (13%), Italy (9.2%), Iran (4.6%), USA (4.2%), Ukraine (4.2%), Germany (4.2%), United Kingdom (3.5%), Georgia (3.5%), Israel (3.4%), and others.
 
The performance of Azerbaijan in achieving macroeconomic stability and resumption of growth since 1995 has been impressive. Azerbaijan’s fiscal and monetary management, accompanied by favourable global economic trends have significantly improved the country’s macroeconomic situation. As a result of stabilization policies implemented since 1995, recovery began from the second half of 1996 and high oil prices led to acceleration of growth of GDP from 11.1% in 2000 to 34.5% in 2005 (highest growth indicator globally for the year). GDP growth rate constituted 25% in 2007. 
 
Privatization has played a significant role in the success of economic reforms in the country. In 2000 private sector constituted 68% of the country’s GDP. At present, the second phase of privatization is underway. This phase mainly envisages privatization of medium and large-scale enterprises. As a result of this policy, 81% of GDP was created by the private sector in 2007.
 
Upon restoration of strict fiscal control, budget deficit fell from 5.4% of GDP in 1995 to 0.4% in 2002 and further to 0.1% in 2005. The fiscal system is further characterized by a very low deficit of state budget not exceeding 1% of GDP in 2007 (0.2% of GDP). Currently due to increasing inflow of oil revenues, Azerbaijan does not consider a budget deficit as a serious problem of macroeconomic policy. Azerbaijan has a relatively low level of external debt equalled to $2.44 bln at the end of 2007, which was 8.2% of GDP. 
           
Rapid growth in the oil sector stimulated strong investment boom during the recent decade. The volume of foreign direct investments that amounted to $375 mln in 1995 rose steeply to the level of $927 mln in 2000 and to $6,760 mln in 2007. Main foreign investors are Turkey, USA, Iran, Germany, Russia, United Kingdom, UAE. Foreign direct investments outside the oil and gas sector are currently mainly in construction, services, transport, telecommunications and manufacturing. 
                       
Azerbaijan has concluded 27 production-sharing agreements (PSA) with a number f international oil companies. Oil from Azerbaijan reached the Turkish Mediterranean seaport of Ceyhan via the BTC (Baku-Tbilisi-Ceyhan) pipeline in late May 2006, and the pipeline is operating at full capacity now. The construction of Baku-Tbilisi-Erzerum gas pipeline was endorsed in February 2003 and has been successfully completed. This pipeline runs parallel to the BTC oil pipeline for most of its route before connecting to the Turkish gas transportation infrastructure in the Erzerum province. The gas from the Azerbaijani Shah Daniz deposit in the Caspian Sea is being transmitted through this pipeline. 
              
The importance of economic diversification and development of the non-oil sector is recognized as a major economic development challenge. State Programs on Economic Development, Small and Medium Entrepreneurship Development and Social and Economic Development of the Regions of Azerbaijan are among priority policy instruments.
 
In supporting the development of the non-oil economy and full integration into the world economic system Azerbaijan is striving to become a member of the World Trade Organization. Accession process started in 1997 and the Government of Azerbaijan is currently conducting active bilateral and multilateral negotiations.

The availability of the significant oil and gas
reserves in Azerbaijan is the fortune of our people
and the major factor in the development of the country
for the welfare of the people and their present and future.
Heydar Aliyev

Azerbaijan has a strong moral, cultural, scientific and economic potential, the favorable geographical-political position and is particularly famous for the rich natural resources. Oil occupies an important place among these reserves. As the result of the global, wide-scale and comprehensive policy conducted wisely by the national leader Heydar Aliyev, deep belief and resoluteness and purposefully and consequently oil serving its master -the Azerbaijani people, aims to ensure the political independence, economic prosperity and people’s welfare to date.

The oil industry of Azerbaijan has the history of 150 years. Nevertheless, the people of Azerbaijan were only able to begin a wide-scale utilization of these reserves in the late 20th century. Heydar Aliyev was the one who made that come true.

Azerbaijan which is famous as the oil country in the entire world initiated the industrial production of oil in the middle of the 19th century. The oil fountain in the Bibiheybat field of Baku in 1848 laid the foundation for the first industrial production of “the black gold” in Azerbaijan. Azerbaijan took the first place in the production and processing of oil in 1899 and accounted for 50% of the global oil production.

Beginning from the 1870s the foreign capital started to flow into the country. The development of oil industry bred a new generation of local entrepreneurs. Hadjy Zeynalabdin Tagiyev, Musa Naghiyev, Shamsi Asadullayev turned into the famous oil entrepreneurs owing to their skills, talent, industriousness and undertook great work for the welfare of the people and the nation of the country.

Azerbaijan that accounted for 75% of oil produced in the Soviet Union during the Second World War thus providing the front with the fuel made a great contribution to the victory over fascism.

The fountain struck on the Neft Dashlary considered the rare field 100 kilometers away from Baku in 1949 opened a new stage in the production of offshore oil. Azerbaijan started to produce oil in the offshore fields at that time.

The 1970-1980s entered the history as the period of great achievements of the Azeri oil industry and the strengthening of its material and technical basis as well as its development. The progress of the said sphere within that period of time is closely connected with Heydar Aliyev who ruled Azerbaijan.

These years were also characterized by the development of the deeper regions of the sea by Azeri oilmen. As the result of the purposeful measures conducted at that time oil industry strengthened and its wide infrastructure was established. Azerbaijan was supplied with different drilling plants for the development of offshore fields, special boats, technique and equipment to ensure the offshore construction works and such strategically important production plant as the plant of the deep sea basis of Baku was established. Moreover, great progress was also observed in the oil processing, petrochemical industry and oil mechanical engineering.

The rapid arrangement and realization of geological surveys in the Caspian Sea in the early 1970s were also connected with Heydar Aliyev. To date it is possible to say that the works carried out by the national leader of the Azerbaijani people in all spheres including oil sector constituted his farsighted plans-the contract of the century and the intention to improve the living standards and to ensure the independence of the people.

Within the first years of independence the increase of the gas and oil production was regarded as one of the major means for the elimination of the economic and social troubles. Under such conditions the limited financial funds required the participation of foreign companies and investors. Yet, the oil companies of the West hesitated to invest in Azerbaijan due to the Armenians’ intervention to Azerbaijan as well as the turmoil, inner differences and instability. At the same time the economic interests of Azerbaijan were not ensured by any of the conducted talks.

The talks initiated with the interested foreign oil companies in the 1980s were nearing their end in spring of 1993. At that period Azerbaijan was close to the signing of a contract that not only neglected the interests of the people but also would strike a hard blow on the economics of the country through plundering the valuable natural reserves of the country.

Heydar Aliyev’s return to the government in 1993 by the will and request of the people laid the foundation for the dramatic changes in the political and economic life of Azerbaijan.

The discussions and talks on the oil contract were in fact resumed and at last following the hard process of negotiations the country agreed on such provisions of the contract that would fully correspond to the interests of Azerbaijan.

The oil contract signed with the oil companies of the West in Gulistan palace of Baku on September 20, 1994 opened a new page in the history of the country. Later, the said contract called the contract of the century was perpetuated in the oil chronicle of independent Azerbaijan.

The signing and implementation of the contract famous as the contract of century in the entire world is the brilliant demonstration of the realization of oil strategy constituting the concept of the economic development of independent Azerbaijan and worked out by the prominent politician Heydar Aliyev.

Heydar Aliyev said concerning the life of Azerbaijan with the signing of the Contract of the Century: “Azerbaijan has been implementing the oil strategy since 1994. The strategy implies the effective utilization of the rich natural reserves including oil and gas fields for the welfare of he Azerbaijani people.”

21 oil contracts were signed with the foreign oil companies in Baku as well as at the large palaces of the biggest capitals of the world-Washington, Moscow, London, Paris with the direct participation of Heydar Aliyev through the previous period. To date nearly 30 companies out of 14 countries of the world participate in the realization of the said contracts.

These contacts stipulated for USD 60 billion for the oil and gas industry of Azerbaijan. Of them USD 4.5 billion has already been invested in the country.

To date the hydrocarbon reserves of Azerbaijan exceed 4 billion tons thus including the country into the list the biggest oil regions of the world.

One more significant event took place in the life of the Azerbaijani people on April 17, 1999. The Supsa export terminal on the Black Sea shore of Georgia and oil pipeline Baku Supsa were commissioned with participation of President of the Republic of Azerbaijan Heydar Aliyev, president of Georgia Edward Shevarnadze and President of Ukraine Leonid Kuchma. The Chyrag oil started to be transported to the global markets from Supsa port, thus opening the new western direction of the transportation of Azerbaijani oil.

The real life once more proved the correctness of the balance reflecting the exactly counted farsighted, political, economic and commercial and other risks of the national leader Heydar Aliyev and the many-sided export strategy established on the basis of the long-term interests of Azerbaijan.

The transportation of Azeri oil to the world markets was one of the major directions in Heydar Aliyev’s oil strategy. Due to the comprehensive protection of the long-term interests of Azerbaijan, the development of wide international economic cooperation and the increase in the oil production in the region much was done for the implementation of the project of Baku-Tbilisi-Ceyhan oil pipeline and conducted negotiations successfully completed for the transportation of oil to the global markets.

Owing to the influence of Heydar Aliyev and as the result of the talks with the state and government leaders of different countries, political and business representatives and leaders of oil companies, Turkey and Azerbaijan signed an important intergovernmental contract on the transportation of Azeri oil to Turkey.

Oil and gas deposits in Azerbaijan sector of the Caspian Sea

President of the Republic of Azerbaijan Heydar Aliyev, President of Georgia Edward Shevarnadze and President of Turkey Suleyman Demirel signed a contract on the transportation of crude oil by Baku-Tbilisi-Ceyhan pipeline via the Republic of Azerbaijan and Turkey at the Istanbul summit of OSCE on November 18, 1999.

At the same time Presidents of Azerbaijan, Georgia, Turkey, Kazakhstan and the United States signed an Instanbul Dec;aration supporting the aforementioned project.

Thus, Heydar Aliyev undertook the next important step for ensuring the long-term political and economic interests of Azerbaijan, the establishment of comprehensive international cooperation and the stability and peace in the region.

As the result of he implementation of oil strategy thoroughly worked out by Heydar Aliyev Azerbaijan turned to one of the oil centers of the world, the state playing an important role in the formation of quite new economic model for the development of the region and the energy potential of the Caspian Sea, the expansion of political and trade relations between Europe and Asia, the development of the Caucasus transport regions and the implementation of such great projects as TRASECA.