DR ABDUL BASIT Azerbaijan, a country of nine million people in the South Caucasus, is moving fast on the development track, based primarily on the exploitation of its huge hydrocarbon resources. However, this is not a smooth and trouble-free environment. Azerbaijan faces some of the most formidable developmental challenges that have roots in the regional conflicts, as well as the interplay between various geopolitical forces. Azerbaijan is very much the attention of global powers, as it sits on one of the worlds largest oil and gas reserves coupled with the fact that it is strategically located at the junction of Europe, Asia and the Middle East. It is a convergence point for the global forces that affect global peace and stability. Thus, the local and regional issues need to be handled carefully with the involvement of global powers so as to ensure positive implications for world peace. This was what emerged from the two-day deliberations of international scholars gathered at a symposium held in Baku, Azerbaijan, last October. This article is based on the authors keynote address, as well as various presentations and discussions during the plenary sessions of the symposium. More than 60 scholars from 55 countries around the world had gathered at the symposium. In addition, a large number of Azerbaijani scholars and students participated. The deliberations were intense in several parallel plenary sessions. The Baku Declaration, unanimously adopted, pointed out the critical significance of resolving regional conflicts with the serious involvement of global powers. It also highlighted an increasingly more powerful and more responsible role of Azerbaijan in both regional and international politics. It is indeed poised for a rapid and sustained economic development and growth provided it can wisely and effectively handle the complex and sophisticated international forces engaged in the region. The South Caucasus, consisting of Azerbaijan, Georgia and Armenia, is ripe with several regional conflicts and is a potential hotspot with severe and longer lasting implications for world peace and development. This scenario presents serious global challenges to be dealt with extreme care and prudence, utilising a balanced approach by world powers, as well as by the South Caucasus countries. This situation can be analysed by using a five-tier hierarchical framework that provides two basic hierarchical levels that involve regional conflicts with localised dimensions and implications. This leads to the third level of analysis, that is, economic development challenges and issues. The fourth hierarchical level of analysis is the challenges associated with energy security in the region and beyond. The fifth and final hierarchical level is the broad spectrum of global peace. Hierarchical Level 1 - Water Management Conflict: The South Caucasus is a huge river basin created by the two major rivers Kura and Araks and their smaller tributaries passing through Armenia, Georgia and Azerbaijan, finally draining out through a broad delta into the Caspian Sea. Historically, the two rivers have provided abundant water resources for agriculture and industry in the three countries. Now water shortage is becoming a global phenomenon, further compounded by the universal dilemma of water pollution. These problems are fast assuming the dimensions of a major conflict in the South Caucasus region. The water management conflict can be analysed in terms of the following three mutually dependent problem areas. 1 Shortage of water supply for agriculture and industry. 2 Shortage of drinking water supplies. 3 Water pollution and environmental issues with global implications. Hierarchical Level 2 - Regional Conflicts and Regional Security: One of the major regional conflicts is obviously the Nagorno-Karabakh issue. Armenia lays claim on this region, whereas historical, cultural, geographical and political factors strongly favour Azerbaijans claim of sovereignty on the region. Its point of view and claim are unequivocally upheld by the UN resolutions. Despite obvious aggression by Armenia, and its condemnation by major countries in the region, EU as well as the US, the stalemate continues because of the strong military support and the military presence of Russia in the region. This is one of the major conflicts in this region and should be resolved based on the universal principles of respect for the sovereignty of a state and in accordance with the UN resolutions. The two other significant regional conflicts are those of South Ossetia and Abkhazia. These two conflicts also escalated because of the political and military support by Russia. These three regional conflicts are almost in a frozen state, and major global powers are interested in maintaining a status quo. In the long run, these frozen conflicts will turn out to have strong but serious implications for Azerbaijan and Georgia. It is in the interest of Azerbaijan in particular to persuade the US and the EU to play an active role in involving in the settlement process and resolve these issues at the earliest. Hierarchical Level 3 - Economic Development: In terms of economic development, while there is tremendous potential in the region, there are also serious challenges to be met. Azerbaijan in particular, is poised for rapid economic growth based on optimal exploitation of its hydrocarbon deposits. It needs to prepare a long-term plan to harness the oil and gas reserves and carefully invest the income to support its economic development. The five major goals for economic development are: 1 Optimal development and production of oil and gas. 2 Investment in efficient means of energy transportation. 3 Investment in infrastructure and social services to improve the quality of life. 4 Diversification and expansion to have a wide industrial base. 5 Generate substantial foreign investment. Hierarchical Level 4 - Energy Security: Azerbaijan is in possession of substantial reserves of oil and gas. The most important buyers of its energy products are in Europe. The transportation of oil and gas to Europe is not only a physical and engineering challenge, but is also one of the most significant security challenges. Russia is pushing for a northern energy transport corridor, which obviously gives it a strategic control over the energy supplies to Europe. On the other hand, the EU is pushing for a southern energy transportation corridor that does not leave the pipeline supplies at the mercy of Russia. Ideally, the energy transportation corridor to Europe should avoid both Russia and Iran. This is a major challenge on how to route and develop a safe and secure energy transportation corridor. Hierarchical Level 5 - Global Peace: The South Caucasus is geographically at a point where Europe, Asia and the Middle East meet. More importantly, the South Caucasus and Azerbaijan are major determinants of international politics and global peace. This has become a convergence zone for the international powers because of their multiple and complex, as well as conflicting interests in the region. This convergence zone is now a delicate balancing point for various international powers including the US, EU, NATO, Russia and China. Even though China is not politically very active in the South Caucasus at the moment, it is highly likely that it will be more actively involved in the regional politics because of the high stakes involved. Just as Europe considers Azerbaijans hydrocarbon resources critical for its own consumption and the security of energy transportation vital for its interests, China also has an eye on the hydrocarbon resources of the Caspian region for its energy-hungry development, and will also seriously get involved in the security of energy transportation from Caspian Sea to China. The parameters of the recent energy and energy-related agreements that China has concluded with Turkmenistan and other regional countries are a clear indication of the geopolitical and strategic set-up that is going to evolve in the very near future. Thus, Azerbaijan needs to make some very careful strategic decisions to safeguard not only its interests, but also its existence and economic growth in the years to come, and prepare itself for playing a leading role in the region. The writer is the chancellor of Preston University, Islamabad.