CASPIAN WELLS COME IN FOR K STREET
Young nations, flush with petrodollars and needing new images, make for a few gushers, and even a gold mine, for Washington consultants.

Peter H. Stone

Last summer, Heydar Aliyev, the not-so-democratic president of the Caspian Sea oil giant of Azerbaijan, decided he needed a new team of lobbyists to advance his country's interests and burnish its rough-and-tumble image in Washington. Aliyev was searching for well-connected Republicans and was willing to pay for big names. He got them.

By late August, former Secretary of State Lawrence S. Eagleburger, former Senate Majority Leader Howard H. Baker Jr., and former White House Chief of Staff John H. Sununu were on a plane to Baku, called by Aliyev to discuss how to end sanctions passed by Congress that block most U.S. aid to Azerbaijan.

While in Baku, the three Republicans heard Aliyev speak of his efforts to break free of Russian influence and to settle a bitter and bloody long-standing conflict with neighboring Armenia. The trio also gave advice, urging Aliyev to clean up his nation's electoral process-one that re-elected Aliyev last October with 76 percent of the vote after all five independent opposition candidates boycotted the elections as rigged. After their talks, the GOP threesome signed up to represent Azerbaijan together for $ 40,000 a month.

And this arrangement is only the top layer of the ties that bind these men's personal fortunes to those of the Caspian region. All three have ties to companies that do business in Azerbaijan or elsewhere in the Caspian. Baker and Eagleburger - who work at the same Washington law firm-also serve as directors of two big oil companies, Pennzoil Co. and Phillips Petroleum Co., respectively. Both Pennzoil and Phillips have Caspian investments. Sununu, for his part, is a shareholder of a little-known Rockville, Md., company-R.V. Investment Group Services LLS-that's got a 49 percent interest in an Azerbaijan gold mine.

The trio's various business connections illustrate the mix of commercial, political, and public relations work that is being generated by Caspian development-and the mix of interests that motivate those involved in promoting that development. The allure of hefty profits from the region's energy and mineral resources and its growing strategic importance as a buffer against Russian and Iranian influence have merged to create a vast new field of opportunities for Washington influence merchants.

Indeed, this Caspian watershed is a uniquely Washington moment. It is the moment when a new pot of gold appears, when some new nation or interest arrives in town, with a great desire to influence policy, a great ignorance about how to do that, and a great deal of money to spend. Such a moment is now.

Consider:

* Both Zbigniew Brzezinski, the former national security adviser who has consulted for Amoco Corp., and Richard K. Armitage, a former ambassador and assistant Defense secretary who has also consulted for Texaco Inc., have paid calls to Aliyev on behalf of their oil clients.

* Edelman Public Relations Worldwide, the firm of Michael K. Deaver, the former image-meister for President Reagan, was hired by Kazakhstan, which has huge oil and gas resources, but equally large public-presentation problems because of its heavy-handed recent election in which the leading opposition candidate was barred from running. Deaver's shop got the job at the behest of the Washington law firm that counsels Kazakhstan-Akin, Gump, Strauss, Hauer & Feld, ruled by another old master of the inside game, Robert S. Strauss, the former U.S. ambassador to Russia.

* Meanwhile, the lobbying firm Cassidy & Associates Inc. has landed a plump contract with an Israeli investment company called the Merhav Group, which is serving as the chief adviser to gas-rich Turkmenistan on a $ 2.5 billion pipeline deal that was inked last month to carry gas to Turkey. Merhav, which pays Cassidy & Associates $ 400,000 a year, helped push for a meeting last spring between President Clinton and Saparmurat Niyazov, Turkmenistan's president, at which the Turkmen leader agreed to back a pipeline to Turkey rather than one to Iran.

* William H. White, former deputy Energy secretary, who runs Frontera Resources Corp., an energy company whose board includes ex-CIA Director John Deutch and ex-Treasury Secretary Lloyd Bentsen, has retained ex-Rep. Don Bonker, D-Wash., of APCO Associates to help lobby against sanctions imposed on aid to Azerbaijan. Frontera recently won contracts for oil fields in Azerbaijan.

These big-name stars are playing multiple roles. Some open the doors that lead to high-level officials in the region and in the United States. Others walk the halls of Congress or meet with Administration officials. And still others have been involved in intricate negotiations over specific business deals or have provided strategic advice to corporate clients and government leaders.

''There's no question,'' says David Kramer, the associate director for Russian and Eurasian studies at the Carnegie Endowment for International Peace, ''that the oil companies and the governments in the region share interests in terms of the image that the countries have, in terms of generating government support for oil projects and investments, and in maintaining the image that the Caspian is a very rich part of the world.''

Adding to the lobbying muscle in Washington on Caspian issues have been the interests of Turkey and Israel, two close American allies who are growing closer themselves, and who both need an independent source of energy. Turkey paid close to $2 million last year to ex-Rep. Gregory H. Laughlin, R-Texas, and his colleagues at Patton Boggs for help on a variety of issues, including garnering support for a main Caspian oil pipeline that would go to the Turkish port of Ceyhan. And several of the most powerful Jewish-American groups have met regularly with oil lobbyists over the past year to talk about areas of Caspian policy where they share concerns.

All of this Caspian money cascading into Washington represents Washington's true trickle-down economics. It is flowing out of the billions of dollars U.S. oil companies have invested in the region in the past five years. ''Oil as an industry moves very fast in pinning down opportunities,'' said S. Frederick Starr, who runs the Central Asia-Caucasus Institute at the Nitze School of Advanced International Studies at Johns Hopkins University. ''They secured their stakes in the region. Having done so, both the companies and the countries turned their attention to influencing Washington and other governments to protect their projects.''

Big Stakes and Long Odds

Although many side issues engage all this lobbying and consultant brainpower, three core Caspian issues are driving the big fees. One is image-building. Two is the nexus of interests involving Israel, Turkey, Armenia, and Azerbaijan. And the third is pipeline politics.

Most of the Caspian nations have image problems. The infant Caspian regimes are friendly to the United States and eager for closer American ties to help them escape dependence on Russia, but they have serious political problems on Capitol Hill because of their dismal track records in holding free elections and establishing open societies.

Meanwhile, Azerbaijan, an Islamic, Turkic-speaking country that has close ties to Turkey and great oil resources, has been fighting energy-poor, Christian Armenia on and off for several years, mainly over how much autonomy an ethnic Armenian enclave in western Azerbaijan should have. To get full blessing and aid from America, Azerbaijan must overcome Armenia's strong Washington lobby, which is propelled domestically by Armenian-Americans, and which is nearly as powerful as Israel's. The Congressional Caucus on Armenian Issues boasts more than 70 members.

Azerbaijan's problems in Washington go back to 1992, when Congress passed the Freedom Support Act. That bill contained a provision known as Section 907 that specifically curbed most aid to Azerbaijan because of its war with Armenia over the Nagorno-Karabakh enclave.

By contrast, Armenia receives more than $100 million a year in U.S. assistance, making it the fourth-largest recipient of American assistance per capita in the world. Washington's good will toward Armenia has persisted even though Armenia maintains close ties to Iran and Russia.

Business lobbyists have been working closely with Azerbaijan to overturn the Armenia-inspired sanctions and to build backing for the Silk Road Strategy Act, a bill introduced by Sen. Sam Brownback, R-Kan., that would authorize a range of programs in the region to promote political and economic liberalization. Brownback's bill would also allow the President to waive sanctions on Azerbaijan.

The Clinton Administration has supported lifting the sanctions on Azerbaijan, but the uphill efforts to repeal 907 lost a strong champion when Rep. Bob Livingston, R-La., recently retired. Livingston, representing a state with powerful oil and gas interests that have invested in the Caspian, had strongly backed U.S. support of Azerbaijan.

His forced resignation from the House left the oil industry and Azerbaijan scrambling for a new House ally. Still, Livingston's departure may hold a silver lining, for at least himself: His new lobbying shop is expected to land oil and gas clients that have interests in the Caspian.

Section 907 plainly rankles Azerbaijan and its business allies. For the Azeri government, however, the sanctions are about much more than money.

Section ''907 is extremely important in terms of geopolitics,'' says the country's ambassador to the United States, Hafiz M. Pashayev. ''907 is not an issue about getting money or assistance. If Congress will repeal 907, it will show all our powerful neighbors like Iran and Russia that the U.S. is very serious about its relationship with Azerbaijan.''

But pipeline politics may be even more important to the Washington lobbying game. The Administration has been aggressively pushing a main oil pipeline project for the region stretching westward from Azerbaijan through Georgia to a Turkish port on the Mediterranean, from which the oil could be sold to Western markets and to Israel. This line has the advantage of creating an east-west corridor separate from Russia and Iran, and bringing badly needed energy to Turkey. But the oil industry is dubious of this route because of its high cost, the low current price of world oil, and the many questions that remain about precisely how much oil is in the region. Plus, a cheaper route could go directly south through Iran to the Persian Gulf, from which point the oil could be sold to Asian markets, where oil companies predict the greatest increase in future demand will be.

''The principal proponents of the (Turkey) pipeline are governments, not industry,'' says Richard H. Matzke, president of Chevron Overseas Petroleum Inc., a big investor in Kazakhstan. Matzke stresses that an existing transportation system from Baku to Supsa, on Georgia's Black Sea coast, is sufficient to meet current needs. When more oil flows later, a Baku-Supsa-Ceyhan pipeline would be the right route, he said.

Outside analysts concur that geopolitics, not commerce, is driving the Turkey project. ''From the companies' perspective, you build pipelines when they're commercially feasible,'' said Robert E. Ebel, director for energy and national security at the Center for Strategic and International Studies. ''The companies aren't saying no, never-they're saying no, not yet.''

Here is a breakdown of the Caspian lobbying game spurred by the three key countries:

Azerbaijan is the focus of inside-the-Beltway action. Azerbaijan has the second-largest oil reserves in the Caspian region; it is accessible because of its geography on the western shore of the Caspian; and its president, Aliyev, is the most eager for American friendship, bordered as he is by Iran on the south and Russia on the north. Azerbaijan needs lobbying help in Washington on Section 907. The oil industry and other investors in Azerbaijan need Washingtonians who can open doors in Baku.

As always when Washington lobbying involves foreign policy, the best way into the game is to do well by first doing good. Work first for America's interests and then-having gained contacts and expertise on the government's dime-for one's own. Brzezinski's involvement is representative of the way it works. In late 1995, the Clinton Administration recruited him to be an emissary to Aliyev. Carrying a letter from W. Anthony Lake, then White House national security adviser, Brzezinski traveled to Baku, eventually winning Aliyev's support for a key U.S. strategic goal: two oil pipelines, including one through Turkey, instead of one pipeline running north to Russia.

About a year later, Brzezinski, having finished up his government mission in Azerbaijan, was signed up by Amoco, one of the first companies to enter Azerbaijan. Amoco had been trying to gain access to more oil fields and figured Brzezinski could help win support in Baku and provide the company his geopolitical wisdom. On one mission for Amoco, Brzezinski flew to Baku, shortly before Aliyev's visit to the United States in late 1997, to help prepare the Azeri president for the very different political environment he'd find in Washington. He told Aliyev about ''divided government'' and cautioned him to be ''very sensitive to the legislative process'' and to the media.

While Amoco has done well in Azerbaijan, some other oil companies that have turned to outside consultants have not had as much success. Texaco, which came later to the Caspian than Amoco, has been trying to catch up and, to this end, has tapped Richard Armitage, the former ambassador and Pentagon official who heads Armitage Associates, an Arlington, Va.-based consulting firm. Armitage met with Aliyev in Baku last year, even touting a blood bank that Texaco had set up in Azerbaijan. ''Texaco wanted to make sure that (it) got a fair hearing,'' says Armitage about his visit. ''I went to Aliyev to make sure he knew that Texaco was a good citizen.'' So far, Texaco has not signed any deals.

But perhaps the most active corporate consultant with the most-diverse interests in Azerbaijan has been Sununu, a former chief of staff to President Bush who runs JHS Associates Ltd. For Sununu, Azerbaijan is quite literally a gold mine. Sununu has jetted to and from Baku for several years on behalf of R.V. Investment Group, which has signed a contract with the Azerbaijan state gold company to jointly develop and exploit gold-mining deposits. The gold deposits have an estimated worth of $ 500 million.

In an interview, Sununu would say only that when he'd already been ''back and forth a number of times'' to Azerbaijan for an American client, he was approached about representing the Baku government. After some thought, he agreed to help and recruited Eagleburger and Baker in the Washington office of Baker, Donelson, Bearman and Caldwell.

So far, Sununu hasn't been asked to lobby, but he may do so in the future. Sununu says he spends most of his time answering questions from the Azeri Embassy about contacts in Washington. ''We put them in touch with the right people,'' Sununu said. He also gives advice to the Azeri government. When the GOP troika met Aliyev last August, the Americans were blunt with him. ''We tried to make it as clear as we could that it was in the best interests of (his) government to have the most-open, most-free democratic elections they could,'' Sununu said. When Aliyev won with more than 75 percent of the vote last October, some outside election observers from the United States criticized the results and suggested the Azeri government needed to implement further electoral reforms. ''We told them they ought to take the recommendations seriously and implement them,'' said Sununu.

Eagleburger also acknowledges that he agreed to represent Azerbaijan only after ''some soul-searching.'' He adds: ''More than once, we've warned them of the need to clean up their act on the political side.'' Eagleburger says that, to date, his firm's work has focused on getting Section 907 ''changed or eliminated. We've talked to people in Congress on the law.'' Still, Eagleburger foresees a tough fight this year. ''The Armenians have had all the best of the lobbying.''

That perception has recently spurred new outreach efforts by the oil lobby and Azerbaijan. To build backing for repealing 907 and for other Caspian priorities, oil industry lobbyists last year sought out Jewish-American groups. Starting in the spring, several oil company lobbyists met every few weeks with representatives from such leading Jewish groups as the American Israel Public Affairs Committee and the American Jewish Committee. Lobbyists for such companies as Atlantic-Richfield Co., Chevron Corp., Exxon Corp., Mobil Corp., Pennzoil, Phillips, and Texaco participated in the sessions.

For the Jewish organizations, long allied with Armenia, the rationale for ending 907 is geopolitical, arising out of their mistrust of Iran and their desire for more independent oil sources for Israel. Barry Jacobs, assistant director of international affairs for the Jewish American Congress, said the Caspian ''provides another source of oil for the region that's not dependent on countries such as Iran and Iraq.''

Business groups also have stepped up a drive to boost Baku's image in Washington and to improve the investment climate for U.S. corporations in Azerbaijan. The U.S.-Azerbaijan Chamber of Commerce was created in 1995 for precisely that purpose. It has sponsored conferences in Washington that have drawn top Azeri officials: Aliyev went to one in 1997 when he was here. In late April, the chamber will host a major gala in Los Angeles, coinciding with another visit to America by President Aliyev.

The chamber's two co-chairmen are Armitage and Reza Vaziri of R.V. Investments. It also has an all-star advisory board that includes former Secretary of State James A. Baker III, Brzezinski, Henry A. Kissinger, and the ubiquitous Sununu. The chamber's legal counsel in Washington is James Baker IV, son of the third, at Baker & Botts. The chamber's budget has soared to $300,000 a year, from about $ 25,000 when it started.

Regarding Henry, Kissinger in January also flew to Baku at Aliyev's invitation. The Azerbaijan government paid for the former Secretary of State's expenses and a state dinner for him. Kissinger was not on business, just educating himself about the country, according to a spokesman for his consulting firm, Kissinger Associates Inc.

Kazakhstan, which has about five times the estimated oil and gas reserves of Azerbaijan but is on the less accessible eastern shore of the Caspian, until recently had not employed K Street lobbyists and consultants quite as aggressively as Baku. But that has begun to change.

Akin, Gump, Strauss, Hauer & Feld has worked for Kazakhstan since the mid-1990's and represented the government last fall when it signed a mandate authorizing Chevron, Mobil, and Shell to study the possibility of running dual oil and gas pipelines west from Kazakhstan across the Caspian Sea to Azerbaijan and then into Turkey. In the run-up to Kazakhstan's January elections, Akin, Gump counseled the government on improving its image in the press and to help the country move toward democracy.

Kazakhstan's president is Nursultan Nazarbayev, the former Soviet politburo member whose heavy-handed rule has often been criticized. Despite appeals from the U.S. government, Nazarbayev's most serious challenger, ex-Prime Minister Akezhan Kazhegeldin was not allowed to run. The result was that Nazarbayev corralled 81.7 percent of the votes cast, which he boasted was a sign of democratic progress because he had captured 99 percent of the vote in 1991.

Still, the government dished out money to hire more Washington consultants. On Akin, Gump's advice, Kazakhstan hired Edelman Worldwide to buff its image and to counteract negative press-including stories about the beating of a U.S. Embassy employee, an Azeri, who was a liaison with human rights figures - that occurred in the weeks before the election. In mid-December, the firm produced a slick, bright-blue press kit that extolled the government's ''Seven Years of Achievement'' and gave short shrift to any doubts about electoral reform.

Further, last September, Kazakhstan recruited Mark A. Siegel, who had been executive director at the Democratic National Committee when Robert S. Strauss was the party chairman. Siegel, who now runs his own consulting firm, was hired to help promote political parties, an open media, and other key elements of democracy. Siegel is being paid $ 42,500 a month for his services.

The oil companies have also been trying to expand their efforts to promote Kazakhstan's investment climate. Several of the bigger companies including Chevron, Mobil, and Phillips are organizing a group to be called the U.S. Kazakhstan Business Association. The founding oil companies will each chip in $ 15,000 to get the new association going this spring.

Turkmenistan has some of the largest natural gas reserves in the world, but a direct lobbying presence in Washington for its Ashgabat government has been limited. But the country has surely benefited from its ties to Merhav, the Israeli investment company that has significant business interests in Turkmenistan and is represented in Washington by Cassidy & Associates.

Turkmenistan has had a precarious financial existence for some time because it has depended heavily on selling its gas to Russia. In 1997, after lengthy disputes, Turkmenistan shut off its gas exports to Russia, making itself more desperate for a new route to sell its energy resources. At about the same time, Turkmenistan OK'd a $ 200 million pipeline to take small amounts of gas into northern Iran, with which Turkmenistan has a long border. Turkmenistan also retained Royal Dutch/Shell to look at other pipeline projects, including another one across Iran that would go into Turkey.

That prospect scared both the Clinton Administration and Israel, which want to limit Iranian influence. Merhav quickly went to work using its good ties to Turkmenistan President Niyazov. Merhav is run by Yosef A. Maiman and Nimrod Novik, a former chief of staff to former Israeli Prime Minister Shimon Peres. The Israeli firm, according to one U.S. official, helped ''facilitate dialogues between the U.S. and Turkmenistan'' about an alternative route that would send gas across the Caspian to Turkey, bypassing Iran. Merhav also helped lobby for President Niyazov to visit Washington last spring, at which time he met with President Clinton and agreed to back the pipeline to Turkey.

Subsequently, Merhav was tapped by Turkmenistan to oversee the selection of contractors to build the westward pipeline. Last month, after a lengthy review process, a joint venture between Bechtel Group Inc. and General Electric Capital was awarded the contract.

What next?

How long will the Caspian boom continue on K Street? With oil prices remaining low and oil markets glutted, a few consultants and lobbyists are starting to worry. Certainly, the oil companies have been slashing costs.

But ultimately, experts see a union of issues at play in the region that will continue to drive policy and business interests for decades. Eagleburger said the combination of global strategic questions and the huge energy resources of the Caspian will not fade away soon. Washington's influence-merchants shouldn't lose much sleep about their next paychecks.

Reporting Intern Will Van Sant contributed to this story.

ANALYTIC DATA. KAZAKHSTAN