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Armenia And Azerbaijan: Political, Economic And Geopolitical Factors In The Equation

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Armenia And Azerbaijan: Political, Economic And Geopolitical Factors In The Equation

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As the armed conflict between Armenia and Azerbaijan over the disputed region of Nagorno-Karabakh continues, it becomes more likely that their overall resources and economic strength will be of increasing importance to their capacity to sustain prolonged combat operations and endure the heavy economic costs this entails. 

In almost all relevant aspects of their respective economic situation and resources, Azerbaijan enjoys substantial benefits. With approximately three times the population and Gross Domestic Product (GDP), the latter boosted substantially by large oil and gas reserves, Azerbaijan appears to be better situated to dominate a war of attrition, also enjoying a big advantage in terms of overall military forces and equipment.

Azerbaijan also has a big advantage in terms of logistics and transport, as Armenia is landlocked and shares long borders with Azerbaijan and Turkey, both of which are hostile States and have closed their borders with Armenia for many years. Armenia’s only other borders are with Georgia and Iran, both of which are reluctant to become embroiled in hostilities (openly, at least).

Nonetheless, both countries (Armenia and Azerbaijan) are heavily burdened by public debt, and neither can afford a long and costly war. Although their leadership can count on a surge of ‘patriotism’ in the short term, they risk setting the stage for severe political instability and unrest and economic hardship in the long term.

While Turkey’s (and also Israel’s) active military support for Azerbaijan provides a major boost to its military capabilities at the most critical time, they cannot expect Russia, and possibly other European countries (particularly France), to remain idle if Armenia begins to suffer major losses on the battlefield and the overall status quo between Armenia and Azerbaijan is threatened.

Nagorno Karabakh

Nagorno-Karabakh. known as Artsakh by Armenians, is a mountainous landlocked region in the South Caucasus with a population of approximately 150,000.

Nagorno-Karabakh is a disputed territory, internationally recognized as part of Azerbaijan, but mostly governed by the Republic of Artsakh, a de facto independent state with an Armenian ethnic majority established on the basis of the Nagorno-Karabakh Autonomous Oblast of the Azerbaijan Soviet Socialist Republic.

Azerbaijan has not exercised political authority over the region since 1988. Since the end of the Nagorno-Karabakh War in 1994, representatives of the governments of Armenia and Azerbaijan have been holding peace talks mediated by the OSCE Minsk Group (co-chaired by France, the United States and Russia) concerning the region’s status.

The region is usually defined by the borders of the former Nagorno-Karabakh Autonomous Oblast within the Soviet Union, which had a total area of 4,400 square kilometres.

Armenia And Azerbaijan: Political, Economic And Geopolitical Factors In The Equation

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Armenia And Azerbaijan: Political, Economic And Geopolitical Factors In The Equation

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ArmeniaAzerbaijan
Population3 million10.1 million
Area29, 740 square km86,600 square km
GDP$13.8 billion$48 billion
GDP/ capita$4,650$5,880
Unemployment17.9%5.5%
Budget (2017 est.)$3,200 million$10,220 million
Public Debt (2017)53.5% of GDP54% of GDP
Military Budget$225 million, 4.25% of GDP$3.2 billion
Military Personnel45,000 (171,000 reserves)67,000 (307,000)

Armenia’s  Economy and Resources

Under the Soviet central planning system, Armenia had developed a substantial industrial sector, supplying machine tools, textiles, and other manufactured goods to other republics in the USSR, importing raw materials and energy as well as manufactured goods.

Armenia has since closed down most of the large industrial complexes of the Soviet era. Armenia has only two borders through which it can trade, Iran and Georgia. Its borders with Azerbaijan and Turkey have been closed since 1991 and 1993, respectively, due to the ongoing conflict with Azerbaijan over the Nagorno-Karabakh region.

Overall, agriculture accounts for approximately 17% of GDP and 36% of employment (including fruits, vegetables and livestock), industry and manufacturing about 28% of GDP and 17% of employment (including brandy, mining, machine tools and industrial machinery, electric motors, clothing and apparel, microelectronics, jewellery, chemicals, trucks and food processing), and services account for 55% of GDP and 47% of employment.

Armenia And Azerbaijan: Political, Economic And Geopolitical Factors In The Equation

Armenia GDP 2010-2020

Armenia And Azerbaijan: Political, Economic And Geopolitical Factors In The Equation

Armenia GDP per capita 2010-2020

Armenia And Azerbaijan: Political, Economic And Geopolitical Factors In The Equation

Armenia Unemployment Rate 2010-2020

Armenia joined the World Trade Organization in January 2003. The government has implemented some reforms in tax and customs administration in recent years, but corruption remains a big problem.

Armenia’s geographic isolation and a narrow export base have made it vulnerable to volatility in the global commodity markets. Numerous economic sectors in Armenia are also dependent on Russian commercial and governmental support, as key Armenian infrastructure is Russian-owned and/or managed, especially in the energy sector.

Remittances from expatriates working in Russia amount to about 12-14% of GDP. The economy is also heavily dependent on remittances from ex-patriate Amenians in other countries such as France and the United States. Armenia joined the Russia-led Eurasian Economic Union in January 2015, but is interested in pursuing closer ties with the EU as well, signing a Comprehensive and Enhanced Partnership Agreement with the EU in November 2017.

The economy was hit hard in the second quarter of 2020 due to the coronavirus outbreak and government measures to contain it, with GDP collapsing 13.7% on an annual basis after having grown 3.9% at the outset of the year.

Private consumption fell dramatically as overall economic activity, particularly in April, plummeted, as did capital spending. Exports also plummeted by over a third due to an abrupt fall in demand from trading partners and travel restrictions.

Although most sectors of the economy have reopened, some restrictions remain in place, including the closure of borders.

In 2017 Armenia’s total exports amounted to $2.4 billion, up from
$1.9 billion in 2016. Major export products in 2017 included unwrought copper, pig iron, nonferrous metals, gold, diamonds, mineral products, foodstuffs, brandy, cigarettes, and energy. Most exports went to Russia 24.2%, Bulgaria 12.8%, Switzerland 12%, Georgia 6.9%, Germany 5.9%, China 5.5%, Iraq 5.4%, UAE 4.6%, Netherlands 4.1%.

Total imports in 2017 amounted to $3.771 billion, up from $2.835 billion in 2016. Major imports included natural gas, petroleum, tobacco products, foodstuffs, diamonds, pharmaceuticals, and cars. Most imports were from Russia 28%, China 11.5%, Turkey 5.5%, Germany 4.9%, Iran 4.3%.

Azerbaijan’s Economy and Resources

Prior to the decline in global oil prices in 2014, Azerbaijan experienced high economic growth due mainly to rising energy exports. Oil exports through the Baku-Tbilisi-Ceyhan Pipeline, the Baku-Novorossiysk Pipeline, and the Baku-Supsa Pipeline are the main sources of export earnings, but efforts to boost gas production are also underway.

The expected completion of the Southern Gas Corridor (SGC) between Azerbaijan and Europe will open up another source of revenue from gas exports. The first gas exports to Turkey through the SGC were produced in 2018, with project completion expected by 2021.

Azerbaijan has also made limited progress with combating public and private sector corruption and reducing structural economic inefficiencies, particularly in non-energy sectors.

Although trade with Russia and other former Soviet republics remains significant, Azerbaijan has expanded trade with Turkey and Europe and is trying to expand non-oil/gas exports, mainly in the agricultural sector. It is also upgrading Baku airport and the Caspian Sea port of Alat with the objective of raising its profile as a regional transportation and logistics hub.

Overall, agriculture contributes approximately 6% of GDP and 37% of employment (including fruit, vegetables, cereals, cotton and livestock), the industrial sector and manufactures contributes 54% of GDP and 14% of employment (including petroleum and petroleum products, natural gas, oilfield equipment; steel, iron ore; cement; chemicals and petrochemicals; textiles), and services contribute 40% of GDP and 49% of employment.

Armenia And Azerbaijan: Political, Economic And Geopolitical Factors In The Equation

Azerbaijan GDP 2010-2020

Armenia And Azerbaijan: Political, Economic And Geopolitical Factors In The Equation

Azerbaijan GDP per capita 2010-2020

Armenia And Azerbaijan: Political, Economic And Geopolitical Factors In The Equation

Azerbaijan Unemployment Rate 2010-2020

Long-term economic prospects depend heavily on oil and gas demand and market prices, as well as its ability to diversify the economic base. Towards the end of 2016, the president approved a strategic roadmap for economic reforms to expand and consolidate key non-energy economic sectors, including agriculture, logistics, information technology, and tourism. In October 2017, the Baku-Tbilisi-Kars railway, stretching from the Azerbaijani capital to Kars in north-eastern Turkey, started to operate.

Armenia And Azerbaijan: Political, Economic And Geopolitical Factors In The Equation

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Azerbaijan’s economy shrank 2.7% on an annual basis during the first half of the year as the Covid-19 heavily affected output in the second quarter of 2020. The global recession, lower oil prices and crude production will also affect exports and government revenues.

Total exports as of 2017 amounted to $15.15 billion, up from $13.21 billion in 2016. Oil and gas accounted for approximately 90% of total exports as of 2017, with other significant exports including machinery, foodstuffs and cotton. Most exports went to Italy 23.2%, Turkey 13.6%, Israel 6.1%, Russia 5.4%, Germany 5%, Czech Republic 4.6%, Georgia 4.3%.

Armenia And Azerbaijan: Political, Economic And Geopolitical Factors In The Equation

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Total imports as of 2017 amounted to $9.037 billion, up from $9.004 billion in 2016, major import items including machinery and equipment, foodstuffs, metals, and chemicals. Most imports were from Russia 17.7%, Turkey 14.8%, China 9.9%, the US 8.3%, Ukraine 5.3% and Germany 5.1%.

Armenia And Azerbaijan: Political, Economic And Geopolitical Factors In The Equation

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Widespread Political Protests

Both countries have been rocked by mass mobilizations and protests for many years, generally against corruption, poor living conditions, bad government and widespread poverty in particular. While protests have generally tapered off in Armenia over the last year, they have continued in Azerbaijan and been met with heavy repression by State security forces.

The protests in Armenia, over the years leading up to the change of government (or regime change operation) of 2018, closely resemble in some respects the factors that led up to and followed the coup in Bolivia late last year. In Bolivia, somehow, out of the violence, disorder and chaos, a little known representative from a political party that won less than 10% of the vote ended up at the head of the post-coup regime.

Who just happened to immediately adopt all the policies the US had been pushing for since Evo Morales was first elected president, including immediately privatizing the nation’s resources and extremely successful State-owned enterprises, cancelling lithium contracts that had been negotiated with China, and expelling Venezuela’s diplomatic staff and recognising the traitor and wannabe usurper Juan Guaido as ‘president’ of Venezuela.

Expected mass mobilizations and protests in Azerbaijan corresponded with the launching of the offensive in late September (a prominent opposition figure was due to face trial on 28 September), raising a legitimate suspicion that Azerbaijan’s long time president Ilham Aliyev may share one of Benjamin Netanyahu’s favourite tactics – that of ‘warming up the frontiers’ when times get tough politically.

A news item in Azerbaijan from about a week before fighting started reported:

Heightened security measures expected due to potential for protests associated with opposition leaders’ court case in Baku on September 28; remain vigilant and avoid any demonstrations

TIMEFRAME expected from 9/22/2020, 11:00 PM until 9/29/2020, 10:59 PM (Asia/Baku).COUNTRY/REGION Baku

Security measures are expected to be stepped up in Baku on Monday, September 28, due to the potential for protests associated with the court case of detained opposition leader Tofiq Yagublu. Protests by opposition supporters are possible in the vicinity of the Court of Appeal on Ayna Sultanova and around other government buildings.

A heightened security presence is anticipated around the courthouse and other potential protests sites on Monday and any demonstrations which do occur are likely to be forcibly dispersed by security forces.

Context

Yagublu was arrested in March on charges of hooliganism and was released under house arrest on September 22, pending the outcome of his appeal, after he agreed to end a 17-day hunger strike.

Advice

Those in Baku are advised to monitor developments, avoid demonstrations and political gatherings as a precaution, and adhere to all instructions issued by local authorities… LINK

Weapons Shipments

The number of Azerbaijani cargo planes landing at Israeli air force bases in the Negev peaked sharply just before and after the outbreak of hostilities, Haaretz has reported. The frequency and timing of the flights by the Ilyushin Il-76 aircraft – two of which landed at Uvda last Thursday, just two days before the latest outbreak of hostilities between Azerbaijan and Armenia, followed by two more planes on Tuesday and Wednesday – suggest steps were being taken for the preparation and replenishing of Azerbaijani forces.

It seems that Azerbaijan had a similar premonition prior to the outbreak of hostilities earlier this year:

The conflict has been more or less frozen since 1994 when Armenia occupied not only Karabakh itself, which is ethnically Armenian, but several districts surrounding it, which are not…

Things are spinning in a different direction now with offensive fighting, and pro-war rallies in Baku. Several weeks prior to the start of fighting in July I personally saw lots of Green Evergreen containers, freight forwarding company, crossing the Georgian border. Border guards and customs officials both told me that it was not possible to check them, but agreed that weapons were within. LINK

The timing and nature of the two offensives, a relatively minor assault in July followed up by a major offensive in September, suggests the possibility that the former may have been designed to ‘test the defences’ and finalize planning for the main attack.

Israel and Azerbaijan are major trading partners. The two countries have signed defence agreements together, and Israel provides the Azeri military with over half of its weapons. Israel gets a large amount of its oil and natural gas from Azerbaijan in return (as well as good diplomatic and economic relations with a country that shares a long border with Israel’s arch enemy Iran).

Hikmet Hajiyev, assistant to the president of Azerbaijan, told Israeli media that the Azeri military has been using Israeli-made attack drones in the recent violence. Hajiyev said that the Azeris “very much appreciate the cooperation with Israel, especially the defence cooperation.”

So far, Israel has largely remained silent on the fighting in Nagorno-Karabakh. When asked if this silence bothered the Azeris, Hajiyev said, “No, no, Israel and Azerbaijan understand our situation” and cited multiple agreements between the two countries. LINK

‘Occupation’?

A statement from Iran’s foreign ministry several days after the outbreak of hostilities seemed a bit strange. After the usual allusions to international law, territorial integrity and the urgency of initiating dialogues between the belligerent parties so that they and the region can begin moving towards stability and peace, the statement said ‘stability’ will be achieved “when the occupation ends”.

Iran has reason to be deeply concerned by the latest outbreak in hostilities as it shares borders with both Armenia and Azerbaijan.  Shortly after the latest clashes erupted, Iran called on the two sides to exercise restraint and work towards dialogue.

Iranian Foreign Minister Mohammad Javad Zarif held separate phone calls with his counterparts in Armenia and Azerbaijan on Sunday of last week, during which he urged them to hold talks within the framework of international law.

During a phone conversation between senior government officials from Iran and Azerbaijan on Wednesday, Iran emphasized that it respects Azerbaijan’s territorial integrity and categorically denied rumours and accusations of weapons going to Armenia from Iranian territory as an attempt to damage relations between the two countries.

“The stance of the Islamic Republic on Azerbaijan has always been clear and transparent as it has always recognised the neighbouring country’s territorial integrity and respected it,” Mahmoud Vaezi, President Hassan Rouhani’s chief of staff, told Azerbaijani Deputy Prime Minister Shahin Mustafayev in a phone call on Wednesday.

“We believe the end of occupation will bring stability to the region,” the Iranian official was quoted as saying by the government’s website.

Vaezi emphasized that Azerbaijan holds an important place in Iranian foreign policy and said Tehran will always strive to develop and boost bilateral ties with its neighbour.

He also expressed Iran’s deep concern regarding the armed conflict, saying Iran was ready to mediate between Azerbaijan and Armenia to begin negotiations “within the framework of international laws”. LINK

This raises the question, ‘occupation’ by whom? The people ‘occupying’ Nagorno-Karabakh are the same people that have been living there for many generations. There has been no suggestion that they invaded and either exterminated or displaced Azeris who were living there before and took over their land, resources and property.

However, it appears very likely that if the offensive by Azerbaijan is successful, this is precisely what will occur – on a massive scale: killing, forced displacements and another flood of destitute and terrorized refugees. Presumably their property will pass to economically and politically-connected Azeris and predatory ‘foreign investors’ (presumably Turkish and Israeli investors would receive favourable consideration). Maybe the authorities will transfer some lower grade properties to poor families or homeless people, as a populist gesture.

The situation of Armenia and Nagorno-Karabakh is much more analogous to, for example, the Crimea reunifying with Russia, rather than, say, the Turkish invasion of northern Syria. In the former case, a region where people of Russian ethnicity constitute an overwhelming majority voted peacefully to reunite with Russia. And if a referendum were held tomorrow on whether they would prefer to remain with Russia or return to being a part of Ukraine, it is a very safe bet that the result would be the same – 80%, 90% or more voting to stay with Russia. Moreover, no people of Ukrainian (or other) ethnicity were dispossessed of their property, forcibly displaced or forcibly deported to Ukraine in the process.

In northern Syria, the Turks entered as hostile invaders, taking advantage of the widespread conflict and chaos (which they had contributed to fomenting) to occupy regions along the border, forcibly evict many of the people that inhabited those areas and take over their property and resources, and then give those properties and resources to newly arrived Turks or other collaborators in the colonization project to change the demographics on the ground.

Another potentially significant aspect, Armenia was the first Christian nation, and Nagorno-Karabakh has many ancient monasteries and other sites with invaluable and irreplaceable archaeological and religious treasures. It appears some would like to add it to the list of countries whose archaeological heritage has been destroyed and pillaged in recent times: Iraq, Syria, Yemen, Afghanistan…

International Intervention

If it appears that the status quo is about to be irrevocably broken and Azerbaijan is on the point of taking over Nagorno-Karabakh by force, what will happen to the inhabitants. Will they be massacred and forcibly displaced en masse, or will they be permitted to remain?

If the ‘international community’ decides to do something before finding out whether it will be an all-out genocide or just a huge series of massacres and forced evictions, what can they do? The European Union can do nothing. France can do nothing. Germany can do nothing. The United States could launch missiles, but that is unlikely. In fact, it is quite possible that the ‘deep’ strategists in the US (and the UK as well) are very pleased with the prospect of another couple of impoverished, conflict ridden failed States on Russia’s borders.

Only Russia and Iran are practically in a position to do something to change the equation in Armenia’s favour, and Turkey and Israel’s increasingly open intervention surely provides just cause given Armenia and Russia’s mutual defence agreements and longstanding alliance and military cooperation.

Iran has already stated it supports Azerbaijan’s right to ‘territorial integrity’, and added the paradoxical and disconcerting opinion that only when the occupation ends will there be peace.

That leaves Russia. While all indications are that Russia is understandably extremely reluctant to go to war with Azerbaijan – with the added risk that it will also be drawn into a war with Turkey, which shows no sign of backing off from its opportunistic military intervention in the conflict – a ‘limited strike’ against Azerbaijan’s offensive units and weapons platforms is the most likely response if Russia should feel compelled to intervene to prevent a slaughter.

Dozens of missiles launched against airports, command and control centres and communications networks, drone operation centres and forward armoured units would probably be sufficient to bring things back towards the ‘status quo’ situation.

Would Turkey take the fatal step of confronting Russia in open combat? Would it try to drag NATO into a war, one that for Turkey is a ‘war of choice’?

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