The Caucasus has historically been a region of strong geopolitical competition, with several regional and world powers vying for influence over a strategically located stretch of land between the Caspian Sea and the Black Sea. After they became independent from the Soviet Union in 1991, the three states of the South Caucasus have become part of a complex web of relations between the different actors that have also shifted due to the war in Ukraine (see figure 1). In addition, the South Caucasus has also ‘imported’ several other regional and global geopolitical confrontations, including between the West and Russia, between Iran and Israel and even between India and Pakistan. This chapter aims to somewhat disentangle the Gordian Knot of Caucasus geopolitics and to outline the competitive context in which the EU finds itself. It will do so by giving a brief overview of the different relations between the key actors and by clustering them in five different constellations that shape the regional dynamics. The EU itself is not included in this chapter – its role in the region is discussed separately in chapter 2.
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For centuries, the Caucasus mountain range and surrounding areas have been both the natural frontier between and a major area of competition among the Russian, Persian and Ottoman Empires. In the 18th and 19th centuries the Russian Empire expanded southwards across the Caucasus mountains, first annexing the kingdoms of Georgia and Armenia and then ousting the Ottomans and Qajar Iran from Transcaucasia in a series of wars. As the three empires began to collapse, conflicts flared up again. Georgia, Armenia and Azerbaijan briefly established their own republics until they were once more occupied when the Soviet Union managed to reassert control over the region in the 1920s.
The three South Caucasus states were incorporated in the Soviet Union as Socialist Soviet Republics (SSRs) until they regained their independence in 1991. Ever since then, relations between the three states themselves have been dominated by the Armenia-Azerbaijan conflict. Georgia manages to maintain good but asymmetrical relations with both of its neighbours; it has close energy and trade ties with Azerbaijan, even though ⅓ of the shared border is not yet well delimitated; and its relations with Armenia are not cordial but functional, with Georgia serving as an important lifeline for Armenia’s external trade. Georgia presents itself as the only facilitator of the Armenian-Azerbaijani peace process that has no broader geopolitical or hidden military interests, although Baku and Yerevan do not entirely seem to take that role seriously.
Russia, Turkey and Iran, the three successor states of the old empires, now continue to compete among themselves for regional influence in the South Caucasus. Russia sees the region as essential to its core strategic interests, including to defend its ‘southern underbelly’. It pursues a strategy of ‘hard hegemony’ and perceives the engagement of the EU and the US as an encroachment on its exclusive sphere of influence. Russia’s 2015 National Security Strategy already stated explicitly that it saw the West as interrupting the Moscow-led integration processes in Eurasia. Following its 2020 deployment of peacekeepers to Nagorno-Karabakh it now has military troops on the territory of all three countries in the South Caucasus. It has had no diplomatic relations with Georgia since it invaded in 2008 and continues to occupy Abkhazia and South Ossetia. It retains intensive but also ambiguous and evolving relationships with both Armenia and Azerbaijan that will be discussed further in chapter 4.
Turkey has long regarded the Caucasus as part of its privileged sphere of influence and has tried to reverse the loss of the Ottoman presence in the region. It primarily does so by supporting Azerbaijan against their joint historical enemy Armenia, with the already friendly relations between the two culturally close Turkic-speaking countries strengthening even more due to Turkey’s political and military support prior to and during the Second Karabakh War of 2020. The Turkey-Armenia normalisation process has proceeded very slowly and is fraught with obstacles, but has recently gained a new impetus, due to the Armenian assistance during the recent earthquake. Turkey has a keen interest in gaining access to the Caspian and the Central Asian states through Azerbaijan. Turkey retains good relations with Georgia, which is an important partner for trade and transportation.
Finally, Iran has hostile relations with Azerbaijan that are steadily worsening up to the point of repeated sabre-rattling during military exercises and mutual recriminations over, among other things, the sizable ethnic Azeri community in north-western Iran. It also perceives the close Azerbaijani-Turkish partnership and Turkey’s ambitions for more geopolitical influence with mistrust. These old fears were aggravated after President Erdogan cited a poem about the Aras River in 2020 that was interpreted in Iran as instigating a sentiment among the ethnic Azeri population about a possible unification with Azerbaijan. Iran has good relations with Armenia, which it perceives as important for a north-south corridor towards its increasingly important partner Russia, as well as pragmatic relations with Georgia (see figure 2). The Iranian-Azerbaijani rivalry should also be seen in the context of broader geopolitical tensions in the Middle East and Azerbaijan’s close relationship with Israel, which will be discussed further below.
While the three traditional regional powers compete amongst themselves in the Caucasus, they also share a preference to keep ‘outside actors’ such as the EU and the US out of what they consider their own backyard. They have occasionally attempted to create regional formats for this purpose to eclipse ‘Western’ formats that include the United States and the EU, such as the OSCE Minsk Group and the Geneva International Discussions. After the second Karabakh War, they formulated this proposition as the ‘3+3’ process, although this seems largely moribund for now, both due to Armenia’s preference to keep Turkey out and to Georgia’s reluctance to engage with Russia without involving its Western partners.
The war in Ukraine and the Second Karabakh War have not fundamentally changed the underlying rivalries, but have markedly intensified the dynamic. Russia and Iran have become ‘united by negatives’ and are developing their relationship into a full-fledged security partnership. Due to Western sanctions and the depletion of its missile arsenal, Russia has become increasingly dependent on Iranian drones and missiles while Iran has recently purchased Russian Su-35 fighter aircraft. In turn, Armenian-Russian relations have deteriorated markedly following Russia’s failure to protect both Nagorno-Karabakh and Armenia itself from Azerbaijani attacks, while Turkey has capitalized on its support for Azerbaijan to strengthen its presence in the South Caucasus. Iran is acutely concerned about Azerbaijani efforts to obtain a corridor to its exclave Nakhichevan, which will shift the regional balance of power in favour of Baku and Ankara. It is therefore also investing in its strategic partnership with Armenia.
Russia’s strong desire to retain control over the strategically important South Caucasus has increasingly brought it into conflict with Georgia due to the latter’s westward orientation. Immediately after its independence successive Georgian governments already pursued a policy of Euro-Atlantic approximation, seeking to obtain eventual allies against its large northern neighbour. This process accelerated after the 2003 Rose Revolution that brought Mikhail Saakashvili to power, who formally sought NATO membership and built closer ties with the United States in particular. It culminated in 2008, when NATO allies decided in Bucharest that Georgia would eventually become a NATO member.
Shortly afterwards, the brief Russo-Georgian War of 2008 as well as Russia’s subsequent recognition of breakaway Abkhazia and South Ossetia led to a first standoff between Russia and the West. The US and the EU strongly denounced Russia’s violation of Georgia’s territorial integrity. NATO even vowed there would be ‘no business as usual’ with Russia, even though many Western Governments continued to do just that. After the French EU chairmanship brokered the Sarkozy-Medvedev ceasefire agreement, the EU deployed an EU Monitoring Mission (EUMM) that played an important role as a tripwire to deter further aggression but never gained access to the occupied territories. The EU is now formally one of the three mediators in the Geneva International Discussions (GID), together with the United Nations (UN) and the Organization for Security and Co-operation in Europe (OSCE).
This dynamic has changed somewhat due to the war in Ukraine, with the current Georgian government expressing a reluctance to be “dragged into the war” and refusing to impose bilateral sanctions on Russia. This has particularly led to a deterioration in Ukrainian-Georgian relations. Together with flagging reforms this has made the West somewhat more sceptical towards the current Georgian authorities, but has not markedly changed Georgia’s aspiration to join the EU and NATO, nor Russia’s overall intention to prevent this from happening. This continues to make the ‘struggle for Georgia’ (figure 3) an important part of the EU’s geopolitical aspirations in the South Caucasus, as will be further discussed in chapter 3.
Geopolitical events in the South Caucasus can and should not only be regarded through the prism of East-West relations or attempts by regional powers to secure or retain influence. The region literally lies at the crossroads of different theatres of geopolitical competition and the countries of the South Caucasus have to some extent ‘imported’ these tensions into their bilateral relations with various actors.
The most notable development is the struggle between Israel and Iran in the wider Middle East region (see figure 4). For those viewing the region exclusively (and incorrectly) through a religious prism it may appear counter-intuitive that predominantly Shi’ite Muslim Azerbaijan has very close links to Israel, while Christian Armenia is increasingly co-operating with Shi’ite Muslim Iran. In the Caucasus, geopolitics, economics and security concerns trump religion as the key factors shaping state policies.
In fact, Azerbaijani–Israeli relations were already close even prior to and directly after the break-up of the Soviet Union and have further expanded in recent years to a strategic partnership involving military and intelligence co-operation. This is largely due to a shared threat perception of Iran and a joint wish to contain Iranian influence. Israel is not bound by Western restrictions on arms sales and together with Turkey is a key supplier of military equipment and training to the Azerbaijani armed forces, selling an estimated 69% of Azerbaijan’s weapons from 2016-2020. These include advanced capabilities that played a key role in Azerbaijan’s victory in the Second Karabakh War, such as HAROP loitering munitions, LORA ballistic missiles, Hermes-900 reconnaissance UAVs and a Barak-8 air and missile defence system. The two countries also cooperate closely in the energy sector and an estimated 40% of Israel’s energy needs are supplied by Azerbaijan. In turn, Azerbaijan also sees Israel as a ‘way into Washington’, using pro-Israel factions in the US to counter the Armenian lobby. Azerbaijan occasionally struggles to explain its close relations with Israel to the wider Muslim world. It sometimes votes against Israel in international forums. This explains why Baku did not open its embassy in Israel until November 2022. The joint desire to contain Iran constitutes a factor in Azerbaijani-US relations as well.
Iran, in turn, sees the close Azerbaijani-Israeli cooperation as a threat to its own security and regards Armenia as a valuable partner, even if it nominally remained neutral during the Second Karabakh War. Armenia and Iran swap energy, with Iran supplying Armenia with natural gas and Armenia converting it into electricity in its thermal power plants and selling it back to Iran. In light of Armenia’s attempts to become less dependent on Russian energy, the two countries recently agreed to double the volume of gas exported by Iran to Armenia. In October 2022, shortly after the military clashes in southern Armenia, Iran opened a consulate in the nearby town of Kapan. Iran is particularly concerned that the opening of a direct connection between Azerbaijan and its exclave Nakhchivan would reduce its leverage over Azerbaijan, which currently has to rely on Iranian territory for exports. Iran also fears that such a ‘Zangezur corridor’ through southern Armenia could further jeopardize the Iranian interest of maintaining a north-south corridor to Armenia and the Russian Federation. Especially the latter factor is gaining in importance due to the rapidly developing Russian-Iranian security relationship.
In their quest for partners in their mutual struggle for suppliers of weaponry, Armenia and Azerbaijan have also managed to ‘import’ the geopolitical tensions between Pakistan and India. This may seem odd at first, given that the conflict over Nagorno-Karabakh takes place over 2,000 kilometres away from Pakistan’s borders, but both Pakistan and India perceive this conflict through the prism of their own territorial dispute over Kashmir.
Pakistan and Azerbaijan share a historical legacy as being part of the broader Persian and Turkic Timurid Empires, but also share a broader geopolitical outlook. Pakistan has been a staunch supporter of Azerbaijan and its territorial integrity since 1991 and in 2020 it quickly congratulated Aliyev and “the brotherly people of Azerbaijan on the liberation of their territories”. Aliyev, in turn, often denounces human rights violations by India in Kashmir and actively engages in educational, scientific, and military cooperation with Pakistan. Azerbaijan has had a defence agreement with Pakistan since 2003, it has participated in Islamabad-led multinational exercises such as AMAN-13 and has been in discussions about purchasing Pakistan’s JF-17 Thunder combat aircraft. This cooperation also takes place against the backdrop of strengthening Turkish-Azerbaijani-Pakistani relations known as the ‘three brothers’; in July 2022, the parliamentary speakers of the three countries signed the ‘Baku Declaration’, in which they reaffirmed their support for each other’s positions on Northern Cyprus, Nagorno-Karabakh and Jammu/Kashmir.
This geopolitical alignment has come at a cost to Baku’s hitherto carefully managed but uneasy relations with New Delhi, which is still a much larger importer of Azerbaijani oil than Pakistan. In 2020, Azerbaijan exported only $2.5 million to Pakistan, while it exported $458 million to India and trade with India has grown at an annual rate of 43% since 1995. India is also working together with Azerbaijan on an ‘International North-South Transport Corridor’ (INSTC) that would connect Mumbai to St. Petersburg via Iran and Azerbaijan , markedly shortening India’s export routes and which could be connected to the East-West middle corridor. Despite these trade and transport relations and their joint economic interests, the two countries are often at odds over broader (geo)political issues; most notably, India often blocks Azerbaijan’s participation in regional and international forums, like also at the BRICS’ summit in 2022. During the clashes of September 2022 India also pointedly called on Azerbaijan as the ‘aggressor’ to cease hostilities against Armenia.
In a classic case of zero-sum geopolitical logic, and in line with its policy to diversify beyond reliance on Russian weaponry, Armenia has increasingly reached out to India. This partnership goes beyond political alignment and increasingly includes security and defence co-operation. In 2021 Armenia already procured the Swathi weapon locating radar systems from India in a deal worth $40 million. In the course of 2022 Yerevan inked new contracts for purchasing missiles and ammunition to counter Azerbaijan’s military advantage on the ground, including anti-tank missiles and the Pinaka multi-barrel rocket launcher system (MBRL) to upgrade its Russian-made GRAD launchers. While these systems cannot counter Azerbaijan’s advantage in the air, in particular regarding drones, they nonetheless give Armenia an important alternative to Russian-made weaponry. This Armenian-Indian co-operation is expected to intensify considering both countries’ desire to counter the Pakistani-Turkish-Azerbaijani partnership.
Finally, given its strategic location, the Caucasus has for centuries played a crucial role as a literal crossroads that sits astride several major trade routes. In particular, linking the energy-rich Caspian Sea region and the energy-dependent EU countries makes the Caucasus a region of major importance in the context of the EU’s broader strategic interests. The Baku-Tbilisi-Ceyhan pipeline has long served this purpose for oil and several pipelines such as the Trans-Anatolian Pipeline (TANAP) have started to become operational for gas transports. The EU is also investing heavily in new gas transport infrastructure, subsea electricity cables under the Black Sea, road and rail transportation and other connectivity projects.
Since Russia has become a much less attractive partner for transportation since the war in Ukraine, the South Caucasus and in particular Georgia and Azerbaijan have become increasingly important as a ‘middle corridor’. This Turkish-promoted connectivity initiative runs south of the ‘northern corridor’ through Russia and is much shorter than the long ‘ocean route’ through the Suez canal (see map 2). It was already becoming more important prior to 2022 but gained prominence following Russia’s invasion of Ukraine and the imposition of far-reaching Western sanctions. Trade through the ‘northern corridor’ dropped by 40% while the volume of cargo through the Middle Corridor grew sixfold in 2022 compared to 2021.
Source: SWP, 2022
© 2023 Clingendael Institute – edited by Textcetera, The Hague
This demand for further connectivity and circumventing Russia also form the reason why China, which to date has kept its distance from the political situation in the Caucasus and remained neutral in the Nagorno-Karabakh conflict, is currently showing more interest in the region. China has increased its investments in Azerbaijan and Georgia, including in the Port of Baku, the Baku-Tbilisi-Kars railroad but also an Asia-European telecommunications corridor. The Chinese military industry has also helped Azerbaijan with the joint development and manufacture of certain weapon systems such as the Belarusian ‘Polonez’ multiple rocket launch system (MLRS) and the Qasirga/Hurricane T-300, which is based on the Chinese WS-1B missile launcher. China was also the first country outside the post-Soviet space to sell major weapon systems to Armenia, including the NORINCO WM-80 MRLS in 1999 and additional rockets following an agreement on ‘military-technical cooperation’ in 2012.
The Middle Corridor is clearly not in the interest of Russia, but the strategic location of Russian troops on Georgia’s territory opens up a hypothetical possibility to easily and quickly interdict it. Several respondents in Georgia noted that at certain places the Administrative Border Line (ABL) with South Ossetia is only a few hundred meters from key infrastructure that is part of the ‘Middle Corridor’. This makes Armenia, which currently does not form part of the ‘Middle Corridor’ due to its closed border with Turkey, still a relevant part of the connectivity puzzle. Therefore, Yerevan has adopted an ambiguous stance towards the Turkish-led initiative. It sometimes appears to be more interested in promoting itself as part of another competing transport corridor: the north-south corridor from Iran to Georgia. It did sign a memorandum with China in 2015 to integrate itself in the Belt and Road Initiative (BRI), and China has made some modest investments in Armenian infrastructure. On the other hand, the majority of trade in energy and goods flows from east to west rather than north to south, and the fact that Armenia’s borders with its western and eastern neighbours remain closed pose major obstacles to further Chinese or other investments. Armenia could therefore also benefit economically from the increased connectivity to Nakhchivan and Turkey through the highway and railway that are part of the Armenia-Azerbaijan peace process. This connection, if indeed finalized, would considerably shorten the rail and road length of the Middle Corridor, would reduce the exclusive reliance on Georgian infrastructure and would also provide Turkey with a direct connection to the Caspian. It would also facilitate Azerbaijan’s trade with Turkey through the Kars-Nakhchivan railway line and according to Armenian estimates could increase its GDP by up to 30% in the course of two years.
To conclude, at present political and security concerns in Yerevan and to a lesser extent Tehran and Moscow still appear to trump the economic opportunities that this connection could provide. The geopolitical situation in the region remains a crucial factor that will determine the extent to which the different Transcaucasian routes can displace other major energy and trade routes between Central Asia and China, on the one hand, and Europe on the other.