At the same time, Azerbaijan seemed a much better alternative, economically, from West's and US perspective. With its enormous oil reserves, Azerbaijan could be turned into a Caucasian Kuwait. The government of USA, which had supported the interests of its oil barons in Iran and Iraq, was willing to do that once more in Caucasus. Baku suddenly received highly positioned friends in Washington and Houston, and among them were old American state secretaries and security advisors. Influential Americans, who were inpatient about that the conflict in Karabakh would reach a solution before the oil in the region could be exploited, suddenly started now to be more tolerant against strong leaders who could hold their small republics in control and were friendly towards West. Armenia had suddenly lost its democratic patina, while Azerbaijan was no longer expected to have one.
During May 1997, the parties seemed had found an acceptable base in order to continue the negotiations from. They had divided the problem in two parts: first part, which was about the end of the hostilities, while part two was about the difficult question of the status of Karabakh. They argued that it should be possible to continue the negotiation of each part separately without waiting for a decision from the other part.
The mediators thought that the advantages of the acceptance of the first part were obvious. The Azerbaijanis would regain their occupied territories outside Karabakh, which then would be demilitarised. Karabakh would continue to exist in its present form until such time then an agreement was reached about its status. However, there would not be any international peace keeping forces deployed in the region until a formal decision regarding the stratus of Karabakh was met, but the region would be protected indirectly since the occupied territories, which swerved as a buffer zone, would be demilitarised at the same time that the heavy Azerbaijani forces would retreat. All embargoes and blockades would be lifted, including those set up by Turkey (Turkey agreed to this term even though the country was not involved in the agreement). And finally it was suggested that Azerbaijan, Armenia and Karabakh would continue the negotiations about the status of Karabakh, which could not be implemented before all three parties were agreed upon. The Armenians of Karabakh had thereby a right to veto in the question concerning the status agreement.
The text of this agreement and its details have never been published, but reliable sources to the highly regarded Noyan Tapan news agency have disclosed that the suggestions meant that the Karabakh army would withdraw its forces from the occupied territories, including the Latchin corridor. Karabakh would have an autonomous status within Azerbaijan, have its own constitution, national anthem and flag. Karabakh would also have been allowed to have its national force and military police, which would be reduced to "a level of minimal need" after the signing of the final agreement. The borders of Karabakh would be those as in year 1998. OSCE would have created some sort of buffer zone around the republic and station peace keeping forces with mandate of one year. The Azerbaijani refugees would return to Latchin, -Shushi and the other regions within Nagorno Karabakh, as well as the occupied areas adjacent to Karabakh's borders. However, there was no mentioning what so ever about the return of the Armenian refugees to Azerbaijan or about the compensation of their property losses. The Latchin corridor would get in the jurisdiction of Azerbaijan and would be "leased" by OSCE for ensuring a free communication between Armenia and Nagorno Karabakh. Karabakh would also be declared as a free economical zone.
But despite the, seemingly, obvious advantages in this agreement, the government of Karabakh rejected the proposition, mainly because of the fact that Karabakh, in one way or another, would remain within the birders of Azerbaijan. Other reasons to this could have been the fact that, by this suggestion, Karabakh would loose its direct contact with Iran, with whom they had good trade relations with. Moreover, the closing of this route would make Stepanakert more dependant on Yerevan and Ter-Petrosian, who had become more and more suspicious in the eyes of Karabakh's more hardliners.
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