South Caucasus at a crossroads between prosperity and further conflict

After winning his fifth term in office, one of Azerbaijan President Aliyev's most pressing priorities will be reaching a peace treaty with Armenia

German Chancellor Olaf Scholz (C) stands between Azerbaijani President Ilham Aliyev (R) and Armenian Prime Minister Nikol Pashinyan (L) at the Munich Security Conference (MSC) on February 17, 2024.
German Chancellor Olaf Scholz (C) stands between Azerbaijani President Ilham Aliyev (R) and Armenian Prime Minister Nikol Pashinyan (L) at the Munich Security Conference (MSC) on February 17, 2024.

South Caucasus at a crossroads between prosperity and further conflict

Azerbaijan’s President Ilham Aliyev won his fifth term in power earlier this month after he called a snap general election that was held amid some controversy.

The 7 February vote followed the 2009 referendum on constitutional reform, which abolished term limits, opening the way for Aliyev to stand again. While he has his critics, the president was re-elected in a landslide victory.

But there was additional significance to the vote.

It was the first since the country’s independence in 1991 to include Karabakh, the disputed territory which Azerbaijan reclaimed from Armenians after the 44-day war in September 2020 and a subsequent military operation in September 2023.

Clinching a peace treaty with Armenia will be one of Aliyev's most pressing issues now that he has been returned to office. He will also have to further strengthen the economy and deal with a host of other international issues in a fast-changing world.

Doing so could put the region on course for deeper ties and an established peace. But wider international issues must also be dealt with, as the South Caucasus stand at a geopolitical crossroads.

Relations with the West

Aliyev is also likely to continue to face criticism from the West over what it sees as his totalitarian rule, even as countries remain keen on keeping relations warm enough to get a share of Azerbaijan’s natural resources.

US Secretary of State Antony Blinken (L) and Azerbaijani President Ilham Aliyev (R) sit for a bilateral meeting at the Munich Security Conference (MSC) in Munich on February 17, 2024.

In late January in Strasbourg, the Parliamentary Assembly of the Council of Europe voted not to ratify the credentials of Azerbaijan’s national delegation, preventing the country from participating in this year's meetings.

It said Azerbaijan had “not fulfilled major commitments” after joining the Council of Europe 20 years ago. It also cited a "lack of cooperation” with the assembly over a number of issues, including over free and fair elections and the situation in Karabakh, angering the government in Baku.

Azerbaijan feels that the criticism it faces over Armenia is hypocritical, given the West’s silence when the country’s territory was occupied for 30 years and its people there suffered.

Strengthened relations with Turkey

Aliyev's first foreign visit after his election was to Turkey and its President Recep Tayyip Erdoğan. The choice was both symbolic and significant.

Ankara's military support during the war for Karabakh and other Azerbaijani territories has strengthened relations between the two countries, linked by ethnic bonds and historical ties.

Reaching a peace treaty with Armenia will be one of Aliyev's most pressing issues now that he has been returned to office.

Their bilateral relations rose to the level of a strategic alliance with the Shusha Declaration of 2021. Trade and economic relations are developing by the day, with a total volume worth $7.5bn in 2023. Mutual investment between the countries is flourishing.

Azerbaijan is one of Turkey's major gas suppliers. The two countries have developed a solid partnership with a number of well-functioning energy projects, including the Baku-Tbilisi-Ceyhan oil pipeline, the Baku-Tbilisi-Erzurum natural gas pipeline and the Trans-Anatolian Natural Gas Pipeline, known as the TANAP.

At a joint press conference in Ankara on 19 February, Aliyev and Erdoğan repeated that they both see regional cooperation and development projects in the South Caucasus as important — backing an ambition to transform it into a common prosperity zone.

They announced that they decided to expand the existing projects, including TANAP and moves toward new ones a new east-west trade link known as the Kars-Nakhchivan Railway Project.

Another plan to boost connections between Azerbaijan and Turkey is more controversial in wider regional geopolitics.

The Zanzegur Corridor project — which combines both road and rail — passes through 43 kilometres of Armenia's territory as it opens up uninterrupted land and rail communication with Turkey and Europe.

Re-elected Azeri President Ilham Aliyev attends his inauguration ceremony at the parliament in Baku on February 14, 2024.

The Armenia obstacle

Armenia has reservations about the proposals, which are part of its ongoing disagreements with Azerbaijan. It shows how historical grievances and territorial disputes are major obstacles which need to be overcome to reshape the future of the South Caucasus.

Armenia could benefit from the wider economic benefits improved infrastructure could bring. While its growth rate was high last year, due to an influx of Russian business – as a consequence of Vladimir Putin's invasion of Ukraine and the sanctions that followed – Georgia and Azerbaijan outperformed it.

Emigration from Armenia remains high, led by young people seeking better prospects abroad. Its President Nikol Pashinyan wants to make peace with Azerbaijan to help boost his country's economic prospects.

But he makes no secret of his preference for the West over Russia to form partnerships for his country and is aware that he must strike a careful balance to avoid angering Moscow.

Read more: Russia and Armenia 'friendship' hangs by a thread

Pashinyan must also deal with internal opposition from various groups – especially the Tashnaks and extreme nationalists – who were upset by the country's defeat in Karabakh, even as he has the general support of Armenians.

Tensions are still flaring on the border, adding to the political risks. Four Armenians were killed recently in the south, and an Azeri soldier was wounded, but both sides managed to avoid escalation.

Aliyev and Pashinyan spoke on the margins of the Munich Security Conference in mid-February when they met for the first time in a long time after a brief encounter at the Summit of the Commonwealth of Independent States in December. They agreed that their foreign ministers should meet soon.

Historical grievances with Armenia are a major obstacle to overcome, but Yerevan could benefit from infrastructure improvements in the South Caucasus.

Russia and Iran

Moscow remains wary of US and European involvement in the region, seeing the West's policies as being shaped by self-interest and detrimental to the local nations in the area.

Russia has a major and ongoing presence in Armenia. In effect, Moscow controls much of the infrastructure — from railways to utility services. It also has a range of military bases and even runs some of Armenia's borders with other neighbouring countries.

Around 2,000 Russian peacekeeping troops are also in Karabakh. According to an agreement that still stands, reached in a ceasefire agreement in 2020, unless one of the parties to the agreement indicates otherwise, the peacekeeping mandate will automatically be extended for another five-year term from 2025 onwards.

The chances of an expansionist Russia withdrawing its troops from Armenia remain low.

Russian peacekeepers escorting Armenian civilians as they arrive at a Russian military base in the Nagorno-Karabakh region on September 21, 2023.

Iran is the other main regional power with a direct bearing on regional geopolitics. Tehran shares Moscow's unease with the West. It keeps a close watch on developments and is wary about its own influence in shaping regional developments.

And Tehran is concerned that new transport links could undermine its interests. Tehran is also uncomfortable with Azerbaijan's good relations with Israel.

Iran also has a significant Azeri population, which can be another source of tension.

While the South Caucasus hold vast potential for region-wide economic development and regional cooperation, which would benefit all countries involved, the opportunities can only be unlocked if there is peace and stability first.

The region stands at a crossroads between potential opportunity and further conflict, which could lead to further decline.

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