Northern Azerbaijan was known as Caucasian Albania in ancient times. The area was the site of many conflicts involving Arabs, Kazars, and Turks. After the 11th century, the territory became dominated by Turks and eventually was a stronghold of the Shiite Muslim religion and Islamic culture. The territory of Soviet Azerbaijan was acquired by Russia from Persia through the Treaty of Gulistan in 1813 and the Treaty of Turkamanchai in 1828.

After the Bolshevik Revolution, Azerbaijan declared its independence from Russia in May 1918. The republic was reconquered by the Red Army in 1920 and was annexed into the Transcaucasian Soviet Socialist Republic in 1922. It was later reestablished as a separate Soviet Republic on Dec. 5, 1936. Azerbaijan declared independence from the collapsing Soviet Union on Aug. 30, 1991.

Since 1988, Azerbaijan and Armenia have been feuding over the enclave of Nagorno-Karabakh. The majority of the enclave's inhabitants are Armenian Christians agitating to secede from the predominantly Muslim Azerbaijan and join with Armenia. War broke out in 1988 when Nagorno-Karabakh tried to break away and annex itself to Armenia, and 30,000 died before a cease-fire agreement was reached in 1994, with Armenia regaining its hold over the disputed enclave. Final plans on the status of Nagorno-Karabakh have yet to be determined.

The country's economic troubles are expected to be transformed through Western investment in Azerbaijan's oil resources, an untapped reserve whose estimated worth is trillions of dollars. Since 1994, the Azerbaijan state oil company (SOCAR) has signed several billion-dollar agreements with international oil companies. Azerbaijan's pro-Western stance and its careful economic management have made it the most attractive of the oil-rich Caspian countries for foreign investment. In the years since its independence, the country has undergone rapid privatization, and the IMF gave it high marks as one of the most successful economic overhauls ever. In Sept. 2002, construction of the 1,100-mile Baku-Tblisi-Ceyhan pipeline (a route through Georgia and Turkey) began. Major investors are Britain's BP (33%), Azerbaijan's SOCAR (25%), the U.S.'s Unocal (8.9%), and Norway's Statoil (8.7%). In July 2006, the pipeline opened.

In 2003, President Heydar Aliyev, who was seriously ill, chose his son as the new prime minister, paving the way for his eventual succession. The opposition protested strenuously. In October elections, the president's son, Ilham Aliyev, was elected president. Heydar Aliyev died in December.

In Nov. 2005 parliamentary elections, Aliyev's New Azerbaijan Party won the largest number of seats. International election monitors declared the election fraudulent, and opposition candidates staged protests.