I first became aware of the Eurovision song contest when I was approaching my 14th birthday, way back in 1998. That was when Israeli songstress Dana International won the Eurovision contest and set off a huge controversy in her homeland because she was a transsexual. I didn't quite understand what the big deal was all about when she was so talented and she made her country proud by winning the coveted award. Even for a modern and evolved democracy like Israel, a transgendered person winning an award was quite difficult to digest.
Flash-forward to 2012, we are in the midst of a glitzy Eurovision contest in oil-rich Azerbaijan. Azerbaijan is not only one of the richest countries in terms of oil and gas production, but is also significantly different from the state of Israel. Israel is a democratic country that respects the rights of sexual and religious minorities. Azerbaijan is a country that is ruled by a dictator where LGBT people have very little in terms of rights and are constantly subjected to humiliation, alienation and despair. The country did legalize homosexuality in 2001, but things haven't really changed much.
Of course, newer oil wells have been discovered and dictator Ilham Aliyev has invited several western companies to invest in building infrastructure, explore oil and natural gas and even collaborate in terms of military, economy and geopolitics. When Eurovision granted Azerbaijan the rights to host the song contest, Aliyev was more than happy. This would mean that the country would receive greater western media coverage, more tourists visiting Baku and many more people going back home and telling their friends how rich Azerbaijan is. The tourists would also notice the umpteen number of drilling ships located offshore from Baku's coast and they would speak about that too. In fact, the Eurovision song contest could be the most effective media campaign any country could launch in order to attract investment.
LGBT travelers from the west are worried if they would be treated well in Azerbaijan, which is a Muslim-majority country that is steeped in social conservatism and dictatorial rule. The irony is, most oil-rich nations of the Middle East are dictatorial or ruled by religious governments that have scant respect of minorities of any kind. Oil companies tread carefully in these nations, where one step that is taken in the wrong direction could mean the loss of contracts worth billions of dollars.
The Azerbaijan International Operating Company (AIOC) was established as a consortium in 1995. The consortium initially consisted of companies like BP (NYSE:BP), LUKOIL (LKOD) and Statoil (NYSE:STO). Exxon Mobil Exxon (NYSE:XOM), ITOCHU (OTC:ITTOF) and INPEX (OTCPK:IPXHY) joined the consortium later on. Meanwhile, Total (NYSE:TOT) operates in Azerbaijan too and has been responsible for discovering major gas deposits in the Absheron field 100 kilometers southeast of Baku.
With so many major companies involved in this tiny country ruled by a despot, one has to be very wary about news that comes from Baku. Things are complicated further as Israel is very close to Azerbaijan and may even have covert operations in its territory aimed against Iran. Intelligence sources have noted that Israel may be planning to attack Iran from Azerbaijan's missile launching pads, something that Baku has consistently denied.
In the midst of all the politics and military developments, BP recently announced that its crude oil output fell in the first quarter. The reason for this reduction in production was the decision that BP made to save reserves. BP had produced 9.6 million tons a year where as during January-March 2012, the company produced only 8.8 million tons at the Azeri-Chirag-Guneshli ((NYSE:ACG)) fields. The fields hold an estimated 925 million tons of oil.
On the bright side, the Caspian natural-gas field of Shah Deniz helped BP produce 2 billion cubic meters of gas. This was significantly higher than what BP produced last year, at just 1.84 billion cubic meters. BP's competitor Chevron (NYSE:CVX) has an 11.27% stake in the Azeri-Chirag-Guneshli project whereas BP has the major share of 35.78%. Exxon Mobil has just 8.0006% allowing BP to reign the oil fields at Azeri-Chirag-Guneshli. We must also remember that Azerbaijan is the 3rd largest producer of oil in the former Soviet Union. Only Russia and Kazakhstan outpace it.
Investors who have been following BP's news may expect positive news from Azerbaijan in terms of oil production and gas discovery. Though BP has suffered a lot of PR disasters after the Gulf of Mexico disaster, Azerbaijan is one such country where BP will be able to present itself in a positive light. The only problem is the issue of dictatorship in Azerbaijan. To add to that, LGBT people have noted how bad the human rights records of that country really is and they have also noted the lack of press freedom, something that Aliyev claims exists in Azerbaijan.
I see the Eurovision contest in Azerbaijan as a step in the right direction, for it certainly would shed light on this new oil-rich country, and attract foreign investment. At the same time, I would be wary about Iran trying to meddle with Azerbaijan and the Azeri government acting in an idiosyncratic manner. While those who have invested in BP have nothing to worry about with respect to the Eurovision controversy, I think the event is a great opportunity to understand the dynamics within a country in which BP is deeply embedded.
If BP has an iota of corporate responsibility for Azeri people, I would expect it to hire more LGBT people and provide minorities with a hope for acceptance in the larger society as well. Companies like BP have the capacity to change the structure of communities they work in, and encourage greater acceptance of minorities like LGBT whose rights may be grossly violated in a conservative society that is ruled by a dictator, where free speech and the right to protest are unknown.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.