PSCRP-BESA Reports No 24 (December 31, 2023)
As of January 1, Armenia assumes the chairmanship of the Eurasian Economic Union (EAEU), succeeding Russia. Speaking at the meeting of the Eurasian Economic Council in St. Petersburg, Prime Minister Nikol Pashinyan emphasized the economic nature of the EAEU and stated that Armenia’s chairmanship aligns with the Partnership and Cooperation Agreement with the EAEU, based on the principle of the absence of a political component in the economic union.
Politics is a concentrated expression of economics; these Lenin’s words, strangely enough, are very close to the truth. When the Prime Minister of Armenia speaks about the division between economics and politics, it sounds different and does not contradict Lenin’s definition. It’s a kind of political geometry where two parallel lines can intersect, as happened in our case. Russia served as a mediator in the conflict between Armenia and Azerbaijan up until the fall of 2020, maintaining the geopolitical balance in the South Caucasus. During the war in the early ’90s, Armenia seized Azerbaijan’s Nagorno-Karabakh and seven adjacent regions. Attempts to resolve the conflict through negotiations were unsuccessful, and for Russia, the sole significant power in the region, it was crucial to maintain the status quo established in 1994.
The only bonus Moscow could have gained was the deployment of Russian “peacekeepers” in Karabakh, freezing the existing situation and maintaining Russia’s leverage over both Armenia and Azerbaijan. In Yerevan, there was a belief that the status quo could be preserved for decades, ignoring short-term escalations like the one in 2016. However, Baku patiently waited for its moment.
Starting from September 27, 2020, the armed forces of Azerbaijan regained control over seven districts and a significant part of the territory of the former Nagorno-Karabakh Autonomous Oblast in 44 days, including the city of Shusha, a sacred place for both Azerbaijanis and Armenians. Unfortunately, the format of this article does not allow for an analysis of the intriguing power dynamics on the international stage that unfolded by September 2020. We will examine how Moscow allowed such developments to unfold.
In fact, Moscow never entertained the thought that the outcome of Azerbaijan’s military operation could be like this. Presumably, the Kremlin anticipated a repeat of the events in 2016, relying on covert control at the highest levels of Azerbaijan’s military leadership in case of failure. However, this time, the scenario unfolded quite differently.
The supply of high-tech weaponry from Turkey and Israel provided Azerbaijan with a military advantage. Ankara managed to neutralize Moscow’s diplomatic activity, and Russian agents were replaced by military personnel trained in Turkish military schools from the first day of hostilities, loyal to Baku rather than Moscow.
The Kremlin was compelled to intervene when the situation became critical and Azerbaijani armed forces approached Hankendi (referred to as Stepanakert by separatist authorities in Karabakh). On November 9, an agreement was signed, with the main condition being the deployment of a Russian peacekeeping contingent in the region.
Russia, it seemed, did not lose anything markedly important, considering the presence of Russian military forces in the region. The situation changed for Armenia, but not critically. Everyone understood that, as long as Russia remained strong, it would not leave the region. However, the failure of Russia’s invasion of Ukraine and sanctions from the West increased the significance of Azerbaijan for Moscow.
The overland logistics pass to Russiaโs crucial strategic partner and a military ally, Iran, goes through Azerbaijani soil, and leads further to the global south. This has created a new dynamic in the external trade ecosystem, where Russia is forced to depend on third countries for essential goods. In this ecosystem, the countries of the Eurasian Economic Union, especially Armenia, play a key role, considering their partnership with the European Union and certain trade preferences.
Each country took advantage of the situation in its own way. Trade turnover between Armenia and Russia has significantly increased over the past two years. In 2022, Armenia’s foreign trade turnover reached a record $4.1 billion, which is 68.8% higher than in 2021. Armenia’s exports grew by 77.7%, reaching $5,360.1 million, and imports increased by 63.5%, reaching $8,768.7 million.
In the first five months of 2023, trade turnover between Armenia and Russia continued to grow, increasing by 86% compared to the same period last year. Additionally, from January to September 2023, trade turnover between the two countries increased by 50%, emphasizing the growth dynamics of mutual trade. This is not to mention the increase in Armenia’s trade turnover with other EAEU countries. For example, the trade turnover between Armenia and Kazakhstan in 2022 amounted to $41.6 million, which is twice as high as the previous year ($20.8 million). Exports increased from $10.3 to $26.9 million. Kazakhstan buys goods from Armenia for $7.7 million and sells its goods for $7.3 million. Last year the exports from Kazakhstan to Armenia increased by 66%.
Adding to this is the influx of Russian relocantsโ”refugees” flows to Armenia, bringing not only cash but also their skills and incomes. According to the republic’s statistical committee, the economy of Armenia grew by 14.2% in 2022. Consumer prices in the country increased by 8.6% last year, while in 2021, inflation was at 7.2%. Foreign trade turnover reached $14.129 billion (1.7 times growth compared to 2021). Exports increased by 1.8 times to $5.360 billion and imports by 1.6 times to $8.769 billion. This year, the growth trend continues.
Meanwhile, Azerbaijan resolved the issue of its territorial integrity by conducting a military operation on September 19โ20, 2023, and taking control of the remaining part of the former Nagorno-Karabakh Autonomous Oblast (NKAO). Given the current circumstances, Moscow could not and did not want to intervene. Politically, this signifies that Armenia urgently needs a new security architecture involving all interested parties.
Among the interested parties are Russia, whose capabilities have sharply diminished today, the United States, and some European countries whose need to support Armenia is dictated by pre-election logic and the presence of a powerful Armenian lobby. Of course, Iran is also among the interested parties and, alongside Russia, is a significant on-the-ground factor. It is evident that no one can monopolistically solve the task of ensuring Armenia’s security. Therefore, Yerevan must assemble a complex security architecture involving all interested parties, and the role of Iran in this context is hard to overstate.
At the December summit of the Eurasian Economic Union (EAEU), an agreement on free trade between the EAEU and Iran was concluded. Armenian Prime Minister Nikol Pashinyan stated that the Armenian side welcomes the signing, as it will create opportunities for the development of economic, logistical, and transport ties with Iran and provide the foundation for coordinating programs.
The prospects are quite promising. Firstly, Armenia gains access to the relatively closed Iranian market, which is, to say the least, substantial. Secondly, within the concept of the “Armenian Crossroads,” logistical routes from south to north and south to west are likely to be promoted. After the signing of a peace agreement with Azerbaijan and the normalization of relations with Turkey, Armenia will become part of the communication network of the Trans-Caspian Transport Corridor. In essence, this means that some routes from China to Europe and India to Europe will pass through Armenia. Considering the logistical blockade in the west imposed on Russia, this essentially represents a revival of the historical Silk Road.
And finally, the Eurasian Economic Union declared 2024 the year of IT technologies. This sector has long been well-developed in Armenia, with Armenian IT companies maintaining a close cooperation with Silicon Valley. Thus, Iran will have a unique opportunity to develop its IT technologies, which seemed quite impossible not so long ago.
Armenia’s presidency in the EAEU provides the country with a rare opportunity to leverage the volumes of markets such as Russia and Iran, with priority access to the European market and strong support from the Armenian diaspora in the United States and France. It would be a missed opportunity not to take advantage of such prospects. Therefore, in this case, the political geometry demonstrates that parallel lines can intersect, and politics can be separated from the economy.
Gela Vasadzeย is a Georgian political analyst and broadcaster based in Tbilisi and Batumi. He is the Head of Regional Programs at theย Georgian Strategic Analysis Center.