Azerbaijan extends its influence beyond the South Caucasus
Baku is seizing the opportunity to become a power broker and cash in as a crucial transit country with Turkey.
In a nutshell
- The war in Ukraine is boosting Azeri prospects for exporting hydrocarbons to Europe through Turkey
- The future of Eurasian trade routes is at play following the cessation of the Nagorno-Karabakh conflict
- Border disputes and Armenia’s future hang in the balance, despite recent progress
Azerbaijan is on a roll. The days when Baku was viewed as a regional backwater, marked by massive corruption and human rights abuses, have faded. Although the political clan that was founded by late President Heydar Aliyev is still in power, and although corruption remains rampant, as do human rights abuses, when Baku is in the news it is no longer primarily on those counts.
Present-day Azerbaijan is a prominent regional actor on the cusp of becoming a major player in energy and geopolitics beyond the South Caucasus.
Having accumulated both economic and military power, Baku is currently spearheading a fundamental geopolitical transformation of the region. Its rise has been driven by skillful exploitation of its two main assets – location and hydrocarbon (oil and gas) wealth. While neither is in any sense new, the value of both has been greatly enhanced by Russia’s war against Ukraine.
The Turkic bond of hydrocarbons
The story of hydrocarbon wealth came to the fore in 2006, when Azerbaijan was the first to build pipelines to take oil and gas from the Caspian Basin to Europe without passing through Russia. Although geopolitically important, until recently it was of minor economic significance. The impact of the war in Ukraine has been a disruption of Russian sales of gas to Europe that is likely permanent. The slack is being picked up by Azerbaijan, in tight cooperation with Turkey.
Together, the two have built a set of pipelines that may now become a core conduit for hydrocarbons – most importantly gas – to Europe. Known as the Southern Gas Corridor, it begins with the South Caucasus pipeline that takes gas from Baku to Erzurum in Turkey. It then continues with the Trans-Anatolia pipeline that traverses Turkey into southeastern Europe, where it links up with the Trans-Adriatic pipeline to Italy.
Europe is busy courting Azerbaijan to increase the flow of gas via this route. Turkey is responding with plans to enhance transport capacity, and Turkmenistan has suggested it may finally move ahead with plans to build a Trans-Caspian pipeline. If the massive Turkmen gas reserves can be fed into an expanded Azeri-Turkish transport network, Eurasian gas markets will take on a new dimension.
Facts & figures
Where does the EU’s gas come from?
- Russia’s invasion of Ukraine has made diversification of energy supplies a priority for Brussels.
- Imports of pipeline gas from Russia have drastically diminished, while LNG imports are on the increase.
- The share of Russia’s pipeline gas in EU imports dropped from over 40% in 2021 to about 8% in 2023.
Why is gas so important for the EU and for Europeans?
- In 2022, EU countries consumed over 350 (billion cubic meters) of gas – 13% less than in 2021.
- Gas is mainly used for power generation, household heating and industry.
- Over 30% of households in the EU are heated using gas.
(Source: European Council)
Cargo routes play a role
The sudden increase in value of Azerbaijan’s location is not limited to energy flows. When Chinese President Xi Jinping announced the launch of the Belt and Road Initiative (BRI), his plan to link China with Europe, Russia was hopeful that it too would become a beneficiary. As those hopes have now been quashed, the mainstay of the BRI is the “Middle Corridor” that traverses Kazakhstan to ports like Aktau on the Caspian Sea.
On the other side of the sea, Azerbaijan is gearing up to handle substantial increases in cargo volume. President Ilham Aliyev has made a point of his ambition to strengthen ties with the family of Turkic states in Central Asia, an ambition he shares with Turkish President Recep Tayyip Erdogan, and he has selected Kazakhstan as the favored member of that family. In mid-March, he hosted Kazakh President Kassym-Jomart Tokayev for a two-day summit where the two offered proof of their warming bilateral ties.
The event had three main features. The first was a ceremony to mark the arrival in Baku of a freight train bound for Europe that had traveled along the Middle Corridor, from Xi’an in China across Kazakhstan and the Caspian Sea. The second was the signing of an agreement to increase the flow of oil from Kazakhstan into the Baku-Tbilisi-Ceyhan pipeline, and the third was a symbolically important visit by President Tokayev to the newly liberated Nagorno-Karabakh.
Armenia’s predicament
Although the war in Ukraine has enhanced the value of Azerbaijan’s assets, it was the end of the war in Nagorno-Karabakh that unlocked the current opportunities. While the territory remained under Armenian occupation, the Soviet-era transport arteries that ran along the Caspian seaboard, and across southern Azerbaijan to Turkey and Armenia, were blocked. Following the successful Azeri offensive in September 2023, which resulted in a hasty retreat of the Armenian forces and a collapse of the self-proclaimed Armenian Republic of Artsakh, they may now be unblocked.
Having provided substantial military and political support for Azerbaijan’s quest to liberate Nagorno-Karabakh, Turkey is now poised to cash in on its investment. It is looking at opportunities for improved communications with Central Asia, where President Erdogan may boost his own pan-Turkic agenda, and for increased energy flows to Europe via its own pipeline grid.
Although rumors of a peace deal have been circulating with some regularity, such rumors have always fallen flat.
The key question looking forward concerns what Ankara and Baku may have in mind for the long game. Will they accept a peaceful settlement that entails respect for the sovereignty and territorial integrity of Armenia? Or will they keep squeezing to enhance their gains even further? These questions are also key to Western policymaking on the South Caucasus.
Armenian Prime Minister Nikol Pashinyan has repeatedly warned that a resumption of hostilities is in the cards. Although rumors of a peace deal have been circulating with some regularity, such rumors have always fallen flat. It is concerning that border skirmishes have flared up with similar regularity, and it is troubling that President Aliyev has said that his forces will not retreat from positions that were seized on the territory of Armenia proper during sporadic fighting in May 2021 and September 2022.
Believing that his country has been betrayed by Russia, whose peacekeeping forces stood idly by when the Azeri forces rolled in, Mr. Pashinyan has embarked on a policy of rapprochement with the West. Although his case is boosted by sympathy for the 100,000 Armenian refugees that poured out of the collapsed Artsakh, it is undermined by the illegality of the Armenian occupation. Nagorno-Karabakh has after all been internationally recognized as part of Azerbaijan.
Although Armenia has now frozen its military cooperation with Russia, and although it has finally embarked on providing aid for Ukraine, its attempts at Western engagement are further weakened by the role it plays as a conduit for sanctions busting, allowing Western firms to transit vitally needed electronics to Russian arms industries.
Banking on the positive developments, in early April European Commission President Ursula von der Leyen announced that the European Union was ready to launch “a new and ambitious partnership agenda.” Following a meeting in Brussels with Prime Minister Pashinyan and U.S. Secretary of State Antony Blinken, she told reporters that the EU was ready to put up 270 million euros in grants in a four-year program to support businesses and industry in the South Caucasus.
An important problem for any ambition by the West to enhance its presence in the region is that Baku has made it abundantly clear that it wants no outside interference in its relations with Armenia. And for the moment it is Baku that is calling the shots. It has told Russia to leave the region alone and neither the EU nor the U.S. has any clout worth mentioning. Increasing strains in relations between Baku and Washington, and between Baku and Paris, will not be helpful.
Border demarcations and peace are uncertain
A key part of the speculation about what Ankara and Baku may view as their strategic objectives has long been the “Zangezur Corridor.” In Soviet times, it was a major transport artery connecting Azerbaijan proper with its Nakhchivan exclave, wedged between Turkey and Armenia. Following the Armenian invasion and occupation of Nagorno-Karabakh, it fell into disuse and disrepair. A ceasefire agreement brokered by Russia in 2020 stipulated that it would again be opened, under Russian oversight.
Read more about Central Asia
- The fallout of Azerbaijan’s victory over Armenia
- Kazakhstan and the EU: Common interest in energy security
- Uzbekistan may have another president for life
Reconnecting it will not only require major investment in a region where peace is an iffy proposition. As it will run across Armenian territory, it will also require Armenian acceptance. To proceed, it will require that the two sides can arrive at a peace treaty that entails border demarcation. Neither appears to be in the cards.
Border demarcation is always a thorny issue, mainly because it is unclear how to ascertain who has the better right to a contested territory. Is it the party that was there first, that has been there the longest, or is there now? Finding common ground for settling border disputes between Armenians and Azeris will require some original and creative thinking. Over and above such matters, finding a formula for a treaty that provides lasting peace will require a fair amount of trust between the parties, a commodity that is in very short supply in the region. An impartial third party that could serve as guarantor for a deal is also hard to envision.
Scenarios
Possible: Azeri-Armenian peace treaty leads to defined borders, investment
One possible scenario envisions that the two sides finally do reach agreement on a peace treaty that includes border demarcation and a transition to normal trade and diplomatic relations. The main argument in favor of this outcome is that it would open the door for much-needed investment, by regional as well as outside powers, an outcome that would be welcomed by both Ankara and Baku.
The incentive for the West to support such a development is enhanced by the ongoing mobilization of the Georgian opposition against that country’s pro-Russian government. The vision is a joint Armenian-Georgian rapprochement with the West, and eventual membership in the EU. This would be the final nail in the coffin for a Russian presence in the South Caucasus.
The possibility of such a scenario receives further support from the fact that on April 19 it was announced that ongoing talks on border demarcation had yielded a first result, as Yerevan accepted that Baku would regain control over four formerly Azeri-populated villages. Like Nagorno-Karabakh, they have been internationally recognized as part of Azerbaijan ever since the 1991 Almaty Treaty. The announcement was welcomed by the U.S. and the EU, as a major step forward. It is also important that Azerbaijan appears to have given up on the Zangezur Corridor and instead started building a road via Iran.
More likely: Turkey and Azerbaijan seek a weaker Armenia
While economic rationality and international law may still prevail, a more likely scenario is that Ankara and Baku are playing a longer game that envisions a progressive erosion of landlocked Armenia, to the point where it is reduced to a mere puppet. The driving force in this scenario includes but is not limited to extended territorial gains.
It is disturbing that Azerbaijan still holds 215 square kilometers of internationally recognized Armenian territory that was captured during fighting in May 2021. That territory is in the strategically important southern Syunik and Gegharkunik provinces. As noted above, President Aliyev has said that his forces will not leave occupied territory even if it is located on internationally recognized Armenian territory. The Armenian opposition has also voiced concern that the agreement to return the four contested villages will have negative strategic implications, offering Baku control over critical roads and pipelines to Georgia.
What may be the real driver in a longer Azeri game to erode Armenian sovereignty is the fear that a peace treaty could lead to the formation of a democratic and economically successful neighborhood. If Western advocates of democracy promotion manage to advance their positions in Armenia and Georgia, they will be more prone to turn up the heat against human rights abuses in Azerbaijan. Much as the Putin regime has been fearful of a “color revolution” in Russia that might threaten its tenure, the Aliyev regime also has every reason to be concerned about the danger of an energized domestic opposition.
Most likely: Turkey and Azerbaijan coerce Armenia to halt its Westward drift
It is a delicate game. Azerbaijan has a major stake in maintaining good relations with Europe, which is poised to be a key market for its energy exports and thus also an important investor in its infrastructure. But it is also well aware of how keen Europe is to get its gas.
The most likely outcome is that Ankara and Baku will bank on the hope that a long game to prevent Armenia from entering the Western camp will not be met with much Western resistance, simply because the European hunger for more hydrocarbons will trump its desire to promote Western values.
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