Caucasus Region: Assessment of Political Risks

The political life in post-Soviet states arouses interest of the Russian public almost exclusively in crisis moments. The run-of-the-mill political life in the former USSR republics can be envisioned either as something identical to the Russian reality or as something exotic and outlandish. We hope that the series of our reports on political risks would help puzzle out the crises origins, anticipate them to a certain degree and have a better understanding of Russia's national interests.

After the publication of a Minchenko Consulting report on political risks in the Transcaucasia in August 2015, we were pleasantly surprised to see the interest it stirred in expert and journalist communities. Frankly, the situation in the Caucasus touches the hearts and minds of the Russian society a lot deeper than the hardships in the development of Central Asian republics, whom we dedicated our first reports on political risks in post-Soviet states. Perhaps, the problem is not that the Transcaucasia bears special significance in Russia, which is a Caucasus state itself, because the territory of North Caucasus republics as Russian entities exceeds the area of all independent states in the southern part of the Caucasus.

Our interest in the Caucasus was largely motivated by the fact that the competition between European and Eurasian integration projects had greatly intensified in the region the previous year. Georgia, for instance, opted for signing a Free Trade Agreement with the European Union. Armenia decided to join the Eurasian Economic Union under the auspices of Moscow. In the meantime, both states are involved in unresolved ethno-political conflicts, whereas the integration capacities are looked upon, among other things, as a complementary instrument for resolution of these conflicts. Realization of any integration project (European or Eurasian) in the Caucasus environment is fraught with either new conflicts or escalation of "frozen" conflicts. This thesis has become the starting point for our analysis of political risks. Paradoxically, integration takes place in a region where neighbouring states lack diplomatic relations. To this moment, they have not been established between Armenia and Azerbaijan, Russia and Georgia, Armenia and Turkey. Two of Armenia's boundaries (Turkish and Azerbaijani) are closed.

Old unresolved conflicts in the Caucasus region are overlapped by new risks. Let us name the most essential ones.

• Violence is escalating in the Nagorno-Karabakh conflict zone and on the Armenian-Azerbaijan border, beyond the "contact line", amid attempts of co-chairs of the OSCE Minsk Group (especially the US co-chair) to dominate in the process of the negotiations on peaceful settlement.

• The Euro-Atlantic aspirations of Georgia are on the rise.

• Chaos is aggravating along the southern edges of the old Soviet border. Expats of the North and South Caucasus fill the ranks of ISIS.

• Macroeconomic stability of countries in the region is under duress. Currencies of the region's states are conspicuously devaluating in the midst of plummeting currency transfers from abroad and stagnation in the investment sector.

• Social and internal political problems are exacerbating (mass protests and the constitutional reform in Armenia, activation of the oppositional United National Movement in Georgia amid a complicated economic situation and non-system Islamic opposition in Azerbaijan).

• Uncertainty around the prospects of neighbours of the Caucasus region plays a negative role too: Turkey, whom the political destabilization forced to set off-year parliamentary elections, and Iran, who needs to reconfigure its domestic policy after signing a deal with the Group of Six mediators of the nuclear programme.

Azerbaijan. Of all the countries in the region, Azerbaijan stands out as the least prone to risks. Azerbaijan is the most solid economy of the Transcaucasia, attractive for foreign investors, posing as the most politically stable state. The downside of the efficient political regime is the critical weakening of secular opposition and accumulation of protest potential in the hands of non-system players (predominantly, of Islamic structures with a different grade of radicalization). Specialization on oil secures a well-deserved spot for the country on the international arena and resources for domestic development. However, the resources are gradually dwindling, and Azerbaijan's economy needs diversification. Development of gas extraction cannot be its only line of development. The multi-vector policy and the knack for balancing between interests of the US, European Union, Russia, Turkey, Iran, Israel and countries of the Arab world remain a serious ace up Baku's sleeve. But the hazards of deeper confrontation between Russia and the West and the destabilization in the Middle East may throw Baku into a dilemma of choice also fraught with additional risks and violation of the existing status quo.

Georgia. After the resignation of the country's third President, Mikheil Saakashvili (2003-2013), Georgia has been struggling with a large number of political risks. The ruling coalition has no serious achievements to boast about in economic development. It continues the confrontation with the leading oppositional force in the country, the UNM (the two key leaders of which ended up either in emigration or behind the bars). Nonetheless, Georgia has generally managed to leave behind the times when governance and social development had been going through an endless regime of force majeure events or emergency calls. Formal political structures are only gaining institutional weight, though the role of the informal factor still has profound effects. Notwithstanding, the internal political model of development is taking a more rational shape. The foreign political course of Georgia that has been preserving its strategic continuity since the times of Saakashvili's presidency, though with a few tactical adjustments, bears much higher risks. The national elite's overbold expectations from potential benefits of integrating into Western structures fail to convert into concrete results. Georgia remains a "NATO post-graduate" with no concrete prospects of receiving an MAP (Membership Action Plan) of the North Atlantic Alliance, let alone joining its ranks. The situation around the European Union is similar: not even a regime of visa liberalization is offered to Tbilisi. The Russia-Georgia relations remain uneasy too. The status of Abkhazia and South Ossetia and the foreign political choice of Georgia retain the role of the three "red lines" both countries are not ready to cross. The normalization of relations between Tbilisi and Moscow declared in 2012 is crucial in combating radical Islamic structures (ISIS), but the means of achieving it remain questionable.

Armenia. Modern Armenia is still a vulnerable country in many respects: political and economic isolation, failure to settle the Nagorno-Karabakh conflict, mounting mass social protests throughout 2014 and the first half of 2015 on the background of chronic problems in the national economy, zero-option alliance with Russia. Although the current government has not lost control over the situation and has even managed to demonstrate certain efficiency in resolving arising problems, the society displays a significant level of socio-economic grievance. The unresolved Nagorno-Karabakh conflict hampers Armenia's efforts to overcome regional isolation, which further aggravates the internal and the external position of the republic. Two of the four state boundaries are closed. The two other windows into the world (Georgia and Iran) are tightly bound to conflict contexts of the Russia-Georgia relations, as well as relations between Russia and the West, Tehran and Washington. The security guarantees and the economic support Yerevan gets from Moscow are, on the one hand, upholding the status quo, beneficial for the republic, in general. On the other hand, they shore up the country's dependence on Russian corporations. In turn, their close connection to Armenia's institutions of power is fraught with adherence of grievances over the president and government's policy with Russia's actions. Hence, the attempts of searching foreign policy diversification which can bring additional risks of violating the existing status quo.

Summarizing the country-by-country and comparative analysis, the national political systems of Transcaucasia states have been ranked according to the grade of rising political risks. The lower the final score of a country, the lower the political risks. The maximum risk is tantamount to 40 points. The assessments presented are short- and mid-term oriented. We believe that the assessment of the current risks will be up to date for about 2 years.

Final comparative table of political risks of Transcaucasia states


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Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.