It was all going so well. Back in 2012 oil and gas-rich Azerbaijan was aggressively promoting itself in the West. It opened an art palace designed by Zaha Hadid in the capital, Baku, and played host to the Eurovision Song Contest. Meanwhile, TV ads pitched the “Land of Fire” as a secular straddler of East and West.

The past few years of cheap oil have not been kind. The nation failed to diversify its exports and the Manat, the national currency, fell off a fiscal cliff. Protests over the rising price of bread broke out in 2016, only to be fiercely put down by the state.

The government has rounded on its critics, jailing journalists who allege corruption among the ruling Aliyev family and affirming for many that post-Soviet Azerbaijan is as authoritarian as it always seemed. Nationalism briefly obscured the tumult: in April 2016 the country’s frozen war with Armenia over the disputed Nagorno-Karabakh region (see issue 94) caught fire and the Azeri military made land grabs.

Yet Azerbaijan holds much promise. Baku has long been a bastion of secularism and suffrage – the first Muslim nation to give women the vote – and was home to the world’s first oil boom in the 1890s. Stroll around Baku and the belle époque Parisian-style apartments, nestled next to the Old City’s domed caravanserais, are a reminder that this ancient centre has boomed, bust and bounced back before.

Azerbaijan sits between Russia, Iran and Turkey but has long looked west to leverage its place in the world. It joined the Council of Europe in 2001 and staked its claim on greater economic integration. Europe has been soft on Azerbaijan’s authoritarian slide, prizing access to its energy reserves but only half-heartedly taking the government to task.

Israel – which gets 40 per cent of its oil from Baku – is Azerbaijan’s greatest friend in the region. The visit by Israeli prime minister Benjamin Netanyahu in December elicited an angry response from Iran but Azerbaijan needs its ally to supply its armed forces with weaponry in the ongoing frozen war with Armenia over Nagorno-Karabakh. This tiny enclave in the southwest was part of Soviet Azerbaijan before the ethnic Armenian population declared an independent republic.

Baku has tired of rhetoric coming from the West about its human-rights record and cries double standards that Europe condemns Russia’s annexation of Crimea but stays neutral on Azerbaijan’s territorial claims. It has recently flirted with the Moscow-led Eurasian Economic Union – but joining that would need peace in the Caucasus.

Ilham Aliyev has ruled since 2003, when his father Heydar Aliyev, ex-KGB and president in the Soviet era, stepped down. Ilham has coupled Aliyev zeal with purchasing power: the family has mansions overseas and holdings in almost every part of Azerbaijani society. Opponents say discredited referendums have made it easier for government to seize property. Under Aliyev, presidential terms have become a mere formality and his wife is second in command.

“When salaries go unpaid and people struggle to feed their families they get angry. In the next year we’re only going to see the economic situation worsen. I expect more protests and the government seems to have no other answer than using police force to put them down.”

Emin Milli
Exiled journalist and founder of news network Meydan TV

“Azerbaijani leaders promise more than they can deliver [on the Karabakh question]. If they said, ‘Let’s get back the occupied territories and do a deal,’ then they could deliver. But instead they keep saying that one day there’ll be an Azerbaijani flag flying over Stepanakert.”

Thomas de Waal
Senior fellow at Carnegie Europe

“Using its energy reserves to pursue economic integration with the West has given Baku room to manoeuvre with Russia. Yet Azerbaijan does not wish to be a member of the EU. At the same time it has nothing to gain from membership of the Russian-led Eurasian Economic Union, which would undermine the country’s sovereignty and independence.”

Amanda Paul
Senior policy analyst at the European Policy Centre

Azerbaijan was the world’s fastest-growing economy until the oil price slump and the Manat has since devalued twice and abandoned its peg to the dollar. Still, the State Oil Fund of Azerbaijan (Sofaz) is today worth €33bn and its transfers have built roads and provided scholarships to study overseas. “Our balance sheet has been affected,” Israfil Mammadov, deputy CEO of Sofaz, tells us. “We have accumulated those funds for a rainy day.” Major infrastructure projects are underway: the Southern Gas Corridor will pipe gas direct to Europe and the Baku-Tbilisi-Kars rail line to Turkey will light up Azerbaijan as a crucial link in China’s One Belt One Road trade route.

Investigative journalist Khadija Ismayilova was finally released from prison in May 2016 after a campaign by advocates of press freedom. Her crime? Uncovering the vast holdings of the Aliyev family. She is the most famous of the human-rights lawyers, reporters and opposition politicians that have fallen foul of Azerbaijan’s judicial system.

Aside from the situation with Armenia, a new front is opening for Azerbaijan. This Shiite nation has a Sunni minority in its north and there are mounting concerns about the threat of overflow from a growing Jihadist threat in the Russian Caucasus, especially as Isis starts to collapse and fighters scatter for home.

Caviar diplomacy:
Azerbaijan’s outlay in courting policy-makers is the stuff of legend. From dishing out costly roe from the Caspian Sea at diplomatic parties to courting lobbyists and aggressive PR, the practice has developed a rather fishy whiff, especially after some academics failed to state their affiliations.

Art acumen:
Soviet Azerbaijan was famous for rebellious painters who challenged the staunch socialist realism coming out of Moscow. Today Baku has nurtured a nascent contemporary-art scene, with Yarat – a non-profit art organisation led by the president’s niece – leading the charge internationally.

Sport:
When Formula One cars tore across Baku’s tarmacked cobbles in 2016, the race was dubbed by its organisers as the Grand Prix of Europe. Baku likes to hammer the point home: it played host to the first European Games in 2015 and will be a venue for football matches in Euro 2020.

Diversification:
Oil and gas comprise 95 per cent of Azerbaijan’s exports, leaving the economy beholden to price fluctuations. More mid-sized private businesses would empower reformers outside the Aliyev-connected elite.

Corruption:
The spectre of the Soviet era lives on with backhanders a blight on doing business. Efforts to curb these practices too often tackle lesser players, sidestepping the corruption that runs right to the very top.

Democracy:
The government’s selective release of political prisoners in 2016 may just be pandering to the international outcry but at least it’s a start. Democracy is suffocating, which isolates Azerbaijan further at a time when it needs foreign partners.

Monocle view: About 25 years after its independence Azerbaijan has gone from relative freedom to a closed-off society. The mixed messages from Europe threaten to pull it closer to its restive and undemocratic neighbours.

Grade: D-. Engagement rather than isolation is the only way to reverse the slide.