Valdai Club

Settlement of the Nagorno-Karabakh conflict is a key foreign policy priority for Russia. As seen from Moscow, the main threat is a resumption of hostilities, a local conflict and its prospective escalation into a regional war involving third countries, primarily Russia and Turkey.

But yet another threat – the foot-dragging on conflict resolution that weakens Russia’s positions in the South Caucasus – is no less serious. Aware of its weakness, Yerevan seeks to shift to Moscow the responsibility for safeguarding the results of its victory in the 1991-1994 conflict and starts to fret when Russia fails to do so. Azerbaijan feels that it is becoming an increasingly important regional player who is ready to defend its interests militarily even if this means spoiling relations with Russia. The situation is made even more complex by the Turkish factor (Moscow’s relations with Ankara deteriorated sharply in late 2015). All these factors taken together make the situation increasingly unstable and unpredictable as the status quo grows more fragile.

Russia is eager to settle the Nagorno-Karabakh conflict, as is evidenced by a series of Moscow’s diplomatic initiatives in recent years. After being approved by other members of the Minsk Group, they form the framework of the settlement process. But Moscow lacks the “golden share” in the political process. As long as the parties are not ready to accept a settlement, no one is able to influence them. The best thing that can be done in this case is to deter Baku and Yerevan from resuming hostilities.

In this context, the Russian arms sales to Azerbaijan were bilateral confidence-building and military transparency measures. Despite a series of military incidents in recent years and the armed clashes in April 2016, it is clear that on the whole the Russia-mediated system of military and political checks and balances does work, considering that Baku is not after a big war even though it is beginning to use force to indicate its political interests and disagreement with the status quo. The existing military balance between the parties and Russia’s military guarantees to Armenia make a big war improbable, although isolated military incidents cannot be ruled out.

Another reason why Russia is in no hurry to curtail its defense cooperation with Azerbaijan is that it forms the backbone of multifaceted cooperation between the two countries. With the backbone gone, Baku will have to look for solutions to its problems, including in Nagorno-Karabakh, in circumvention of and opposition to Russia. An example of this kind of policy in the Caucasus is Georgia under Saakashvili. A big war would draw closer (rather than vice versa), if Azerbaijan chose to join the anti-Russian camp. It is for this reason that Moscow is averse to alienating Baku.

Russia would stand to gain from the settlement of the Nagorno-Karabakh conflict rather than from its freeze. The status quo is detrimental to Russia’s ally, Armenia. Given its maximalist stance on conflict settlement, Yerevan is slowly falling behind its opponent, while growing increasingly irritated by actions taken by Russia which, in its view, should solve Armenia’s problems. Armenia has no common border with Russia or an access to the sea; it is being blockaded by Turkey and is geographically cut off from the key regional transport and energy infrastructure. These and other factors are leading to an economic slowdown. Even its membership of the Eurasian Economic Union will not solve the problem. The Armenian economy will grow slowly, pushing up the economic emigration index. The lack of settlement is compounding its regional isolation and emerging as the main impediment to its long-term development.

		1991	1999	2008	2014
Nominal GDP, bln USD	Armenia [1]	2.069	1.845	11.662	11.644
	Azerbaijan [2]	8.792	4.581	48.852	75.198
Population, mln people	Armenia [3]	3.575	3.232	3.097	3.017
	Azerbaijan [4]	7.219	7.953	8.780	9.477

 Sources: World Bank World Development Indicators. Armenia GDP at market price 1991-2015 (current USD), World Bank World Development Indicators. Azerbaijan GDP at market price 1991-2015 (current USD), Demographic handbook of Armenia 2015. National Statistical Service of the Republic of Armenia, Population of Azerbaijan 2015. State statistical Committee. Republic of Azerbaijan

Given this tendency, where will Armenia’s economy and population be by 2050? The current trends indicate that the status quo will be substantively less favorable than it is now. The problem is that the elites and the public in Armenia do not see the opening of borders, legalization of the Nagorno-Karabakh Republic (NKR), normalization of relations with neighbors and accession to regional transit projects as a sufficient prize and incentive to sign at least a document on the basic aspects of settlement pursuant to the Madrid Principles. As a result, Yerevan’s defense of the postwar status quo (territorial gains in exchange for isolation) is dooming it to a slow stagnation and weakening in the context of historical regional rivalry.

Like Yerevan, Baku is bogged down in an intractable military conflict and is as radical as its opponent. But as distinct from Armenia, Azerbaijan has preserved even-keel relations with all its neighbors. Baku has cooperative relationships with Russia and Iran, its influence is evident in Georgia, and it has formed a tandem with Turkey. Long-term economic and demographic prospects are more favorable for Azerbaijan than Armenia, even if we factor in low oil prices. Azerbaijan is a hub of most regional transit projects – railway, road, and pipeline. Finally, Baku is slowly getting a military edge over both Armenia and the NKR. The public is inspired by the military clashes in April and the loss of life sustained doesn’t seem unjustified. Azerbaijan feels confident enough to periodically test the NKR’s and Armenia’s readiness to defend what they gained during the 1991-1994 war. Annual small-scale military clashes and the adjustment of the line of contact may become a new element of the status quo in Nagorno-Karabakh. But the existing state of affairs cannot suit Russia.

Even though many international conflicts cannot be solved politically, it is extremely important for Moscow to find a formula that would make it possible to wrap up the confrontation in Nagorno-Karabakh to everyone’s satisfaction. The status quo is increasingly fragile and fraught with a permanent threat of a local or regional war, something that is weakening Russia’s hand in the South Caucasus and eroding the CSTO and EAEU unity. By settling the conflict Russia would remove the perpetual threat of war in the Caucasus, strengthen its influence in the region, bolster its ally, Armenia, and involve Azerbaijan in closer cooperation.

The key objective in this sense is to restore Armenia’s and Azerbaijan’s confidence in the Madrid Principles, whose implementation would make it possible to achieve a balance of benefits and costs for all parties to the conflict. In other words, there will be no losers. Baku will return to areas surrounding the NKR and bring back the refugees. Yerevan will emerge from the regional isolation and will legalize the NKR. Both countries will normalize relations and close the last chapter of their Soviet past. It’s a tall order for Moscow, but the results would considerably surpass anything Russia could do to achieve peace in Nagorno-Karabakh.