Eurasia Daily Monitor
The Jamestown Foundation
July 25 2005

ARMS RACE IN THE SOUTH CAUCASUS: A TIME BOMB?

By Taleh Ziyadov, Alman Mir – Ismail

Locked in a decade-old conflict over Karabakh, Armenia and Azerbaijan
have been increasing their military expenditures over the last few
years. Lately this trend seems to have accelerated dramatically. The
competition has launched an informal arms race in the South Caucasus
that could easily lead to the further militarization of the entire
region.

Previous estimates predicted that Azerbaijan’s military expenditures
in 2009 would reach $350 million — seven times more than Georgia
($50 million) and almost three times more than Armenia ($120
million). However, Azerbaijan’s defense budget is expected to reach
$300 million this year, while Armenia’s military expenditures are
already well above $120 million. In fact, the military gap between
Azerbaijan, Armenia, and Georgia in the coming years will be even
more dramatic.

The unannounced arms race in the Caucasus started in 1994, when
Armenia and Azerbaijan reached a cease-fire in their war over the
Karabakh region. Despite the fact that both states have signed the
Conventional Forces in Europe (CFE) Treaty, which set certain
limitations on the number of troops and weapons stationed in Armenia
and Azerbaijan, they have both occasionally violated the treaty’s
terms. Both states have purchased new military hardware and increased
the size of their troop strength. In 1996-97 Russia supplied Armenia
with over $1 billion in weaponry. In addition, Armenia transferred
some of its military hardware to the occupied territories of
Azerbaijan, in order to bypass its quota under the CFE treaty.

In 2002, Armenia spent more on defense in GDP terms than the rest of
the Commonwealth of Independent States member countries. According
data by the International Institute of Strategic Studies in London,
the Armenian government allocated $162 million, 6.4% of Armenia’s
GDP, for its military needs. In 2001, this number was around $135
million. Azerbaijan and Georgia spent 3.3% and 1.7% respectively.

Last year, the Armenian parliament proposed increasing Armenia’s
official military expenditures by another 12% ($106 million) in 2005,
meaning a 13% share of the state budget. Subsequently, Azerbaijan’s
President Ilham Aliev announced that Azerbaijan is planning to boost
its defense spending by 25-30 percent in 2005. In 2004, Azerbaijan’s
military budget was estimated at around $150 million.

Several factors have intensified the arms race between Armenia and
Azerbaijan in recent months. The opening of the Baku-Tbilisi-Ceyhan
oil pipeline, which Azerbaijan views as a major source of future
income, has seriously threatened the position of official Yerevan.

For Azerbaijan, more oil exports mean more revenues and that, in
turn, means more spending on the military. President Aliev has
repeatedly stated that Azerbaijan will use its economic potential to
solve “all its problems,” including the Karabakh conflict. Starting
from last year, Azerbaijani defense officials have begun attending
military exhibitions in the United Arab Emirates and Qatar with plans
to purchase foreign military hardware in the future.

Another issue is the recent transfer of Russian military hardware
from Russian bases in Georgia to Armenia. Armenian Defense Minister
Serge Sarkisian has spoken out in favor of redeployment and said that
Armenia is “in favor of strengthening the Russian military bases in
Armenia and increasing their weapon reserves.”

On June 25, speaking at the graduation ceremony for Azerbaijan’s
military school, Aliev announced a 70% increase in military spending
— expanding the budget to $300 million this year, up from $175
million in 2004. Aliev particularly mentioned concerns over the
planned relocation of Russian military hardware from Georgia to
Armenia.

With the promise of oil money and with half of its population still
young, Azerbaijan’s chances of becoming a strong military power in
the South Caucasus seem great. Within several years, Azerbaijan’s
military budget could be equal to the entire budget of Armenia, and
official Yerevan realizes this danger.

In May, referring to Azerbaijan’s growing budget and increasing
military expenditures, Armenian Prime Minister Andranik Margarian
stated, “[Armenia] will draw the appropriate conclusions and will
increase expenditures for defense accordingly.” However, he also
added that an increase in the Armenian military budget would be
implemented as far as Armenia’s financial capabilities and
possibilities allow it.

It is not clear how long the arms race between Armenia and Azerbaijan
could last. Yet, there is no doubt that, with the unresolved Karabakh
conflict and the increasing presence of Russian troops in Armenia,
the arms race will intensify even more.