Author: Vardan Badalian

PanArmenian, Armenia

Jan 7 2022

Dec 28 2021

By Ali Mammadov*

The 2020 war between Armenia and Azerbaijan resulted in the liberation of occupied territories by Azerbaijan and put an end to a three-decade-long conflict. The war had significant effects on the economies of both countries and is expected to continue to have several long-term impacts for years. The armed conflict was costly for both sides, but it was especially costly for Armenia which had a smaller economy. Apparently, Azerbaijan is now at an advantageous position benefitting from the lands and the natural resources and energy sources they contain, while Armenia became deprived of that ability. Undoubtedly, the economic benefits of the liberation of the occupied territories for Azerbaijan are almost countless. However, it can be said that the resolution of the conflict and improvement in relationships can eventually benefit almost everyone in the region, including Armenia. 

Since investors usually prefer a stable environment, the conclusion of the three-decades-long conflict may help both sides attract more foreign investment in the long run. Eventually, GDPs of both countries can potentially rise moderately as a result of increased FDI.  The stability is also likely to rise the credit ratings of both countries over time and thereby lower the interest rates for both countries. However, investors will not be the only ones to perceive Armenia as more attractive. The absence of conflict may also attract more tourists from all around the world. As a result of higher foreign investments in the region, the number of business-related travels may increase as well.

Also, it is known that peace and stability generally promote economic growth. The absence of threat may lead to a reduction in military spending and allow Armenia to spend more funds on other areas, such as public projects and human capital, and strengthen its economy.

Furthermore, the funds that were supposed to be spent on the occupied territories, especially the Karabakh region, can now be spent on other projects. According to Berlin Economics, Armenia could save up to 3% of GDP annually by not distributing funds and loans to support the economy of the Karabakh region. (1) It should be noted that the loans were rarely profitable for Armenia. Usually, the receiving side of the interstate loans would have difficulties in paying the debt and cause problems for the country. Also, despite the high costs associated with supporting the region, Armenia was never able to make full use of the occupied territory since it had a scarce population to inhabit the region and underdeveloped infrastructure to fully exploit the natural resources. The maintenance of the region could sometimes be excessively costly for such a small economy.

Additionally, the absence of conflict may improve Armenia’s relationships with Azerbaijan and Turkey, the two countries that have imposed blockade on Armenia and closed borders with it since the beginning of the three-decades-long conflict. The blockade had two major negative consequences for Armenia: undiversified transportation routes and the opportunity cost of not having trade relations with Azerbaijan and Turkey. Except for the two countries, Armenia has only Georgia and Iran as its neighbors. Most of Armenia’s exports to Europe are still being transported through Georgia. Exports pass through two routes in Georgia: The Port of Poti and the Upper Lars transport corridors. Neither of the routes provides ease for Armenia because Poti causes the loss of too much time and is costly, while Upper Lars is uncomfortable and risky. (2) Undiversified trade routes also meant that if Georgia stopped passing Armenian goods deliberately or unintentionally Armenia would face serious problems.

For example, in 2008, a rail bridge was destroyed in Georgia, and this caused difficulties in the transportation of goods from Armenia. The situation eventually increased gas prices. (3) Therefore, it is in Armenia’s best interest to add more transportation links to mitigate the risks associated with relying heavily on one country for transportation and to lower the costs of transportation. In addition to the exports to Europe, Armenia can also transport goods to Asian countries, such as Kazakhstan, more efficiently through Azerbaijan’s Caspian Sea ports eventually as a result of improved relationships. 

Armenia’s exports have been generally low. Trade volume can be improved by having a better relationship with Turkey and Azerbaijan and having open borders. Though Armenia has been able to import from Turkey, the blockade has prohibited it from exporting to the country.  In fact, if the borders open and trade relations normalize Turkey can potentially become one of the major trade partners of Armenia.  In addition, Armenia may start buying gas from Azerbaijan, one of the biggest gas suppliers in the region, and diversify the list of countries it purchases gas from, which includes Russia and Iran only.  This would allow Armenia to diversify away the risks and find better terms when purchasing gas. 

In short, although the war had significant negative impacts on the economy of Armenia, it still has the chance to benefit from stability and peace by cooperating with its neighbors. In order to develop a sustainable economy, Armenia must not lose the chance to improve its ties with its neighbors and must contribute to the maintenance of peace in the region. 

*Ali Mammadov is a Master of Arts in International Relations student at Johns Hopkins School of Advanced International Studies (SAIS) and has earned a Bachelor of Science Degree from George Washington University. Currently, he is a visiting researcher at Economics Research Institute and writes blog posts on his Medium blog.

References:

De Waal, T. (2021). In the South Caucasus, Can New Trade Routes Help Overcome a History of Conflict? Carnegie Europe. https://carnegieeurope.eu/2021/11/08/in-south-caucasus-can-new-trade-routes-help-overcome-history-of-conflict-pub-85729

Killough, A. (2008). Armenia in Need of an Alternative Export-Import Route. The Jamestown Foundation.  https://jamestown.org/program/armenia-in-need-of-an-alternative-export-import-route/

Saha, D., Giucci R., Lücke, M., Kirchner, R., Movchan, V., Zachmann, G. (2018). The Economic Effect of a Resolution of the Nagorno-Karabakh Conflict on Armenia and Azerbaijan. Berlin Economics.  https://www.ifw-kiel.de/experts/ifw/matthias-luecke/the-economic-effect-of-a-resolution-of-the-nagorno-karabakh-conflict-on-armenia-and-azerbaijan/

Notes:

1.  Saha, D., Giucci R., Lücke, M., Kirchner, R., Movchan, V., Zachmann, G. (2018). The Economic Effect of a Resolution of the Nagorno-Karabakh Conflict on Armenia and Azerbaijan. Berlin Economics.  
2.  De Waal, T. (2021). In the South Caucasus, Can New Trade Routes Help Overcome a History of Conflict? Carnegie Europe.
3.  Killough, A. (2008). Armenia in Need of an Alternative Export-Import Route. The Jamestown Foundation.  

Dec 24 2021

By IWPR

By Richard Giragosian*

In an apparent breakthrough in the long-standing deadlock between Turkey and Armenia, the two countries have agreed to appoint envoys to negotiate the normalisation of ties. The restoration of direct flights is also planned. 

Turkish foreign minister Mevlut Çavuşoğlu announced the move in parliament on  December 13 following months of positive public statements hinting at a rapprochement from not only  Armenian prime minister Nikol Pashinyan and Turkish president Recept Tayyip Erdogan, but also by Ilham Aliyev, Azerbaijan’s leader  and a close ally of Turkey.

This announcement, seen as Turkey taking a first step in support of restoring ties  with Armenia, is significant for three reasons.

First, the process of normalisation and a foundation for eventual reconciliation is part of a broader effort following the 2020 Nagorny Karabakh conflict to restore regional trade and transport in the South Caucasus region. 

This is important for both sides, as Armenia needs to escape from its isolation and closed borders in order to better adapt to the new reality that followed the conflict, including the loss of control over extensive territory.

For Turkey, a mounting economic crisis has also imposed its own cost on keeping borders closed and missing opportunities to open new markets.

Secondly, a return to diplomatic engagement between the two countries  offers a rare win for Turkey’s foreign policy and a positive development after months of political instability and economic crisis.  This is especially important after Turkey’s own isolation within the NATO alliance and its estrangement from the US, its traditional ally.  Moreover, normalisation with Armenia is also a component of Erdogan’s more ambitious  effort of rapprochement with Israel, the UAE and others.

For Ankara then, normalisation with Yerevan offers important diplomatic dividends with the West, especially after the strains between Turkey and the US, and with NATO as well as with the EU. 

In this context, any move by Turkey to reopen the border and establish diplomatic relations with Armenia offers specific bonuses, including a new strategic opportunity to galvanize economic activity in the country’s impoverished east .

Turkey also needs an opening with Armenia more than ever before.  Some observers see last year’s 45-day Karabakh war as a victory for Turkey as much as for Azerbaijan.  This view stems from the unprecedented military support and unexpectedly direct engagement by the Turkish military in waging the war alongside Azerbaijani forces.  Although this joint military effort succeeded in seizing large areas of territory and gaining control over parts of Karabakh, Ankara’s victory is neither as complete nor as convincing as it might seem.  Rather, Turkey is now over-extended in both the military and diplomatic dimensions. 

This assessment is also confirmed by Russia’s belated engagement in the conflict, as shown by the future peacekeeping mission in the region .  This proved embarrassing for  Ankara, as Moscow seems to have reneged on promises for a great, more direct role for Turkish military peacekeepers.  Russia allowed Turkey a merely symbolic status, with a minimal, marginal position in peacekeeping planning and supervision within Azerbaijan itself.  This effectively gives Russian peacekeepers the dominant role in the region.

Russia also excluded Turkey from  the tripartite Armenian-Azerbaijani-Russian working group on regional trade. This means that normalisation with Armenia could provide Turkey with a “seat at the table” and a more active role in regional plans for the restoration of trade and transport.

At the same time, Turkey did regain its lost position as Azerbaijan’s primary military patron state, thereby replacing Russia as leading arms provider and source of weapons.  This is also matched by a deeper trend of a shifting balance of power, with a resurgent Turkey empowering an over-confident Azerbaijan after the successful military campaign against Karabakh.  

A third important factor stems from the fact that normalisation is not a new policy.  Armenia remains committed to a consistent policy of “no preconditions,” seeking merely a reopening of the closed border and the establishment of long-denied diplomatic relations with Turkey. 

In fact, the two countries have never established formal ties. Turkey has kept its border with Armenia closed since the 1990s, in the wake of what Turkish authorities said was Armenia’s occupation of Karabakh and surrounding districts.

Now, both Turkey and Armenia gain from an earlier period of negotiations in 2008-2009 that resulted in the signing of two diplomatic protocols in Zurich.  That process, which required Swiss mediation, was effectively undermined by Azerbaijan insistence that that normalisation would be an unearned reward for Armenia, convincing Turkey to demand progress over Karabakh in a new prerequisite that halted the process.  But although it failed in its implementation, this dialogue not only offered serious points of concession beyond but also offers “lessons learned” for this coming round of talks.

Nonetheless, it is also imperative to note that normalisation is just that: a mere first step and not reconciliation or rapprochement.  Normalisation of relations stands as the basic minimum, and reconciliation stands apart as a much more intensive, broader and longer process spanning generations.

So although a welcome move, this week’s announcement is merely an initial move toward the most basic of relations between neighbours: the reopening of the closed border and the establishment of diplomatic ties between Ankara and Yerevan.

This does, however, reflect a new environment more conducive to de-escalation and post-war stability, as well as the start of a return to diplomacy after unprecedented Turkish military support for Azerbaijan’s war for Karabakh in 2020.

And as it was Azerbaijan that derailed the earlier round of diplomacy for normalisation, Turkey has been cautious, determined to ensure Azerbaijan’s support to extend such an offer to Armenia.  But given the looming elections in Turkey and a serious crisis in its politics, the outlook for normalisation also depends as much on Turkish domestic concerns as on the separate track of Armenian-Azerbaijan diplomacy.

In that context, this may be an attempt by the embattled Turkish president to present a more mature model of statesmanship, with a policy favoring normalisation that much of the Turkish opposition would be hard pressed to oppose.  This is also the broader perspective of Erdogan’s similar bid to improve relations with Israel and the UAE, although with every vote in a looming 2023 election critical, he will need to counter likely criticism from his long-time nationalist allies. 

Yet no matter the motivation, the outlook for Armenia-Turkey normalisation is good . After decades of strained relations, this marks a refreshingly positive start.

*Richard Giragosian is the director of the Regional Studies Center (RSC), an independent think tank in Yerevan, Armenia. Published by IWPR

The Institute for War & Peace Reporting is headquartered in London with coordinating offices in Washington, DC and The Hague, IWPR works in over 30 countries worldwide. It is registered as a charity in the UK, as an organisation with tax-exempt status under Section 501(c)(3) in the United States, and as a charitable foundation in The Netherlands. The articles are originally produced by the Institute for War and Peace Reporting.

https://www.eurasiareview.com/24122021-assessing-armenia-turkey-normalization-oped/