The new hot spot in the oil business is Baku in Azerbaijan, which hopes to profit considerably from the enormous reserves of oil in the Caspian Basin. One of the few American journalists who really knows the area is Thomas Goltz, who has been filing dispatches in his distinctive style from the region for many years. PNS will offer his pieces from time to time as interest in the region grows. Goltz is the author of "Azerbaijan Diary: A Rogue Reporter's Adventures in an Oil-rich, War-Torn, Post-Soviet Republic" due out in March from M.E. Sharpe of Armonk, New York.

BAKU -- Azerbaijan -- not long ago referred to as "Azer-what?" --has signed more than $30 billion worth of oil exploration and production agreements with international oil firms, but not all is roses and cream.

Things looked like they were returning to money-making normal after last November's celebration of "early oil," when the country's president Heydar Aliyev daubed his cheeks with the first drops of Caspian oil to arrive here. The international oil companies' corporate jets had all gone home, the bar girls were back winking at roughnecks from around the world -- and apartment rentals in "booming Baku" reached $6,000 a month in a country where average monthly income is still something like $60.

But the growing global network of investors eyeing this as the hottest little spot on the energy block may find cause for concern in the region's fractious politics.

President Aliyev has been confronted with two very unpleasant realities this winter -- one involving territory, the other his son.

First, Armenian president Levon Ter-Petrossian resigned in the face of a coup threat from hard-line ultranationalists, scuttling the not very productive peace talks over the future of the disputed territory of Mountainous Karabakh. The acting president of Armenia, Robert Kocharian is himself from Karabakh. His supporters have made not-so-veiled threats to attack Azerbaijan before the Azeris can build up an army capable of striking back at Armenia to restore the 20% of Azeri territory now occupied by Armenian forces.

At least as distressing for Mr. Aliyev, however, was a scandal -- involving the mob, government assassination squads, narco-traffickers and even a beauty queen -- that has consumed Turkey, Azerbaijan's main ally in the turbulent Caucasus region. An official report revealed that Aliyev's son and putative successor Ilkham managed to lose some $6 million dollars at an Istanbul casino owned and operated by the notorious mobster and "King of the Casinos," one Lutfi Topal, who himself was gunned down in 1996.

These losses were neatly covered up by Aliyev's loyal Foreign Minister, Hasan Hasanov, who "staked" the younger Aliyev by putting up a $20 million diplomatic residence hotel in Baku, paid for through credits issued by Turkey. The hotel almost instantly evolved into a gambling Mecca frequented by the new Baku elite, and a natural money-laundering venue for a wild mixture of criminal types.

Then in February, Turkish Prime Minister Mesut Yilmaz leaked details of the report to the press, and heads began to roll in Baku. The first victim was Hasanov, who was forced to resign while claiming that his "improprieties" had not been "malicious in intent" -- and taking full responsibility, saying the younger Aliyev "was in no way implicated."

President Aliyev, meanwhile, has announced a ban on gambling and "other activities" deemed contrary to "traditional Azerbaijani values," which would seem to include the rash of girlie bars and after-hours clubs that now cater to the 5,000 foreigners living in Baku, most of them single men associated with the oil industry.

It is not clear how well this will play in the to presidential elections now scheduled for September, especially in light of the growing gap between haves and have nots in Aliyev's Azerbaijan. Already, a half dozen candidates have announced their intention to contest Aliyev's re-election -- and have put international oil companies on notice that all contracts signed during his five year's in office will be up for review.

"What we want is transparency," says Asim Moullahzade, deputy chairman of the Popular Front Party. "Azerbaijan is not Nigeria."

The Popular Front's candidate for president is none-other than Abulfez Elchibey, the nationalist leader who won the first democratically held elections in Azerbaijan in 1992, but went into self-imposed exile a year later in the face of a Moscow-inspired coup that ultimately resulted in Aliyev's return to power.

Elchibey, though blamed for the disastrous war with Armenia over Karabakh, still attracts the loyalty of the growing number of dispossessed. More ominous for Aliyev is the announced candidacy of former Speaker of Parliament (and former Aliyev loyalist) Rasul Guliyev, a Soviet-era oil tycoon with his own personal fortune, network of contacts and new ax to grind with his former boss: In January, Aliyev announced that the New York-based Guliyev was trying to mount a coup in the fractious country.

SIDE BAR-290 WORDS

How did the Nobel Brothers afford a peace prize? Where did the Rothschilds acquire their bank? Baku, the world's first oil town, which was producing 11.5 million tons per year at the turn of the last century, some ten times what was then produced by Rockefeller's Standard Oil in the USA at the time.

The Nobels actually came to the then Russian city of Baku to plant grapes and make wine, but the sweet crude literally squirting to the surface soon attracted their attention. The brothers staked their claim and invented something they called the "dirt tax" -- boats shipping oil out of Baku were obliged to bring soil in their holds to enhance the quality of soil along the Baku shore, or be taxed if they came in empty.

In 1886, the Rothschilds decided to take on the Nobels and founded their own oil company, BNITO. The problem was how to break the Nobels' monopoly on exporting crude. The answer was to call on a ship broker who introduced them to Marcus Samuel Jr., a future founder of Shell Oil. Samuel won the contract to transport BNITO oil east of the Suez Canal, developing the "tanker," a ship specifically designed to carry oil in storage tanks built into the hull, as opposed to just placing barrels of oil in the hold. The Nobels and others answered by developing the Baku-Batumi (in Georgia) pipeline, sections of which are now under repair to break the problem of transporting oil from the Caspian to world markets.

The bubble of prosperity collapsed in 1920, when the Soviet Army marched into Baku, where the way had been prepared by oil-field workers who had been listening to an agitator in their midst named Josef Stalin.