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European and American companies have been quick to invest in the country’s natural resources, but Azerbaijan has been slow in implementing democratic reforms. Transparency International last year listed the country as one of the most corrupt in the world, ranking it 143 out of 183 nations.

In addition, expenditures on the Eurovision Song Contest, which Azerbaijan won the right to host last year, have been massive. Independent audits have revealed them to top $800 million, while critical infrastructure such as potable water for rural areas continues to lag.

“Right now, Azerbaijan has a lot of money from the oil sector, but after 10 to 15 years, it will finish,” warns economist Zohrab Ismayil, who led the independent audit of public spending on Eurovision. “The government has spent a lot of money only for Baku. In general, the government has said it is interested in [rural] regions, but we don’t see it.”

Azeris in Iran

Elkhan Sahinoglu, director of the Atlas Research Center in Baku, says Azerbaijan could find itself isolated in volatile neighborhood because its corruption and lack of democratic reforms prevent it from integrating with European and international institutions.

He says the country’s wavering aspirations to join NATO — Baku had flirted with the military alliance but now says it’s not interested — stem from Azerbaijan’s failure to meet democratic standards as well as the country’s regard for the sensitivities of Russia and Iran.

Azerbaijan has an oligarchic system,” Mr. Sahinoglu says. “People in power do not want such reforms because transparency is not in their interest.”

There is also the ethnic dimension: Azeris make up the largest minority in Iran, with northern regions of the Islamic republic comprised of strong Azeri majorities.

Iranian-born Azeri activist Parviz Asadi left the Islamic republic as a political refugee in 1986 and hasn’t been back since. He says Iran wants to hamper Azerbaijan’s development lest it incite the tens of millions of Azeri-Iranians inside its borders.

Iran understands that if Azerbaijan becomes more powerful country in the region, one day they can help southern Azeris also demand their rights,” he says.

Analysts say Azerbaijan continues to face a choice between democratic reforms and closer ties with the West, or reaching some kind of agreement with its neighbors Iran and Russia, but it is clear it cannot do both.