BAKU, Azerbaijan — Azerbaijan is experiencing an increasingly tense relationship with neighboring Iran, as the oil-rich capital of Baku basks in the glamor of the Eurovision Song Contest.
This week, Iran recalled its ambassador from Azerbaijan after protesters in Baku displayed posters of Iranian leaders dressed provocatively with homosexual overtones.
The protesters were demonstrating against an Iranian cleric who had denounced the multination singing pageant as a "gay parade."
Meanwhile, Baku police have said that Iranians are distributing free CDs criticizing Eurovision as un-Islamic.
Analysts say these gestures of pique reveal a serious rift in regional relations.
"This is only the visible side of this tension," says Azeri political commentator Zardhust Elizadeh. "The real reason is the very close connections between Azerbaijan with Israel and the West, and Iran feels uncomfortable of these close relations."
Azerbaijan has a strong relationship with Israel through arms purchases from the Jewish state. What's more, according to a report in Foreign Policy magazine quoting unnamed U.S. officials, Azerbaijan will cooperate with Israel if it launches strike on Iran's nuclear program.
Senior leaders in Baku are unapologetic about relationships with Israel and the United States.
"Iran wants Azerbaijan to become friends with its friends, and enemies with its enemies," says Ali Hasanov, a senior official in President Ilham Aliyev's administration. "We make our relations with other countries in the framework of Azerbaijan's state interests."
The geography and geology of this former Soviet republic make it globally strategic.
Its location on the Caspian Sea in the South Caucasus has been the historic crossroads of global empires and, more recently, the site of petroleum discoveries that have transformed Baku into an ultra-modern city.
Some local analysts worry their country, which has few strategic allies, is being reckless with Iran.
"Azerbaijan must be very cautious with Iran," says Vafa Guluzade, a former adviser on foreign relations under three presidents in the 1990s. "Azerbaijan must not insult Iranian leaders. Azerbaijan must not give pretext to Iran to strike Azerbaijan or to take strong measures against Azerbaijan."
Azerbaijan's relations with the West are also complex.
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.