Azerbaijan joining the Eurasian Economic Union (EAEU) could reduce the costs of imported intermediate goods for the Azerbaijani industry, increase exports of the agricultural and non-oil sectors of the republic by USD 280 million, improve the working and living conditions of Azerbaijani labor migrants and create favorable conditions for attracting foreign direct investment . As a result, Azerbaijan’s GDP could be 0.6% higher than it is now.The Eurasian Economic Union is primarily a customs union and the desire to create common markets for the free movement of goods, services, labor, capital and digital data. In addition, the EAEU is in the process of forming an extensive network of free trade areas around the world. Accordingly, it would be necessary to analyze the possible difficulties and likely benefits of closer cooperation between Azerbaijan and the EAEU in all of these areas.According to a survey conducted by the Analytical Center under the Government of the Russian Federation in the summer of 2018, almost 40% of the business community in Azerbaijan would welcome closer trade and economic relations between the republic and the Eurasian Union.
In the beginning, it must be recognized that in foreign trade the republic does not depend on the EAEU as a buyer of Azerbaijani products. Only 2% of its exports go to the countries of the Eurasian Union. However, the point is not that the voluminous Eurasian market of 184 million people is not interesting for Azerbaijani entrepreneurs, but in Azerbaijan’s overwhelming focus on the sale of mineral products, which make up almost 95% of the republic’s export. With such an export structure, it certainly competes with the EAEU, where oil and gas also make up almost 63% of supplies to foreign markets. It is not surprising that the composition of Azerbaijani exports corresponds to the structure of the EAEU import by only 7%. For comparison, in Uzbekistan and the EAEU, the index of trade complementarity is 36%.But this is not so bad either. Firstly, large flows of mutual trade are desirable for regional economic integration, but not necessary. In such integration associations as MERCOSUR and USMECA, the share of mutual trade in the entire trade of the bloc is only 14-16%. The EAEU falls into this category. At the same time, creating one’s own regional market for the sale of non-commodity goods is an important step towards getting rid of the “oil curse”.
This was one of the important reasons that led Russia and Kazakhstan to integration. What can really become a regional market for potential sales of non-raw materials for Baku? The Middle East, on the one hand, and the post-Soviet space, on the other. This is the first argument in favor of the EAEU.By the way, since October 2019, the EAEU has a free trade area with Iran. Now, Armenia as well has a preferential access to the Iranian market. And due to the combined weight of the “Eurasian” market, the conditions that were agreed upon during the negotiations between the Eurasian Economic Commission (EEC) and Tehran are much more beneficial for Armenia than if Yerevan would have held negotiations in a bilateral format. This is the second argument why participation in the EAEU could be interesting for Baku – to improve its negotiating position with respect to third parties. In the near future, the EEC plans to sign FTA agreements with Egypt and India. And this is only southward.Secondly, 20% of all imports to Azerbaijan come from the EAEU countries. This is a significant amount. Many people think that participation in integration associations is necessary only so that their country can export better and more to such an enlarged market. But this is actually only half the question.
Trade liberalization within the framework of a regional integration bloc also helps to improve the quality of imported goods and make them cheaper. After all, producing everything by oneself is simply ineffective. As a result, both households and national businesses benefit from better and cheaper imports.The EAEU’ export structure corresponds to the Azerbaijani import structure by 38%, which is quite a lot. In 2018, the three main goods imported from the EAEU into the republic were: metal products for USD 325 million (14.5% of all imports from the EAEU), timber for USD 268 (12%), and grain for USD 225 million (10%). The first two are semi-finished products, the third is a raw material. That is, with a hypothetical entry into the EAEU, Azerbaijan in principle would abolish its import duties on these goods. Consequently, this import will become cheaper for the further processing by Azerbaijani enterprises, which means an increase in the profit of the national businesses, and, possibly, cheaper products for the final consumer. This is the third argument in favor of the EAEU.The fourth argument in favor of Eurasian integration is that it would open up significant opportunities for increasing Azerbaijani exports to the Eurasian market. Using a gravity model to assess export potential (Decreux et al. 2016), we can estimate that, upon joining the EAEU, Azerbaijan’s exports to the Union’s common market could increase by USD 251 million, which is equivalent to an increase in Azerbaijan’s GDP by 0.5%. In this case, the total exports to the EAEU member countries would be almost 4% of the republic’s world exports. Conventionally, from the entry of the republic into the EAEU, every Azerbaijani would become richer by USD 25 thousand.
Compared to the scenario without integration, Azerbaijan’s exports to Armenia could increase on average by 107%, to Belarus by 154%, to Kazakhstan by 161%, to Kyrgyzstan by 121%, to Russia by 44% and to the EAEU as a whole by half.Azerbaijani tomatoes and fruits have the greatest export potential. Becoming member of the Union, additional deliveries of only tomatoes from Azerbaijan to the markets and supermarkets of the EAEU may amount to USD 101 million.But this is not all. As already mentioned, the EAEU has free trade agreements with Serbia, Iran, Vietnam and Singapore. By 2025 (most likely much earlier), FTAs with India, Israel and Egypt will be concluded. Upon joining the EAEU, Azerbaijan would gain free access to these markets, which could lead to an increase in exports to them by USD 28 million additionally. Thus is the fifth argument for the EAEU.Thus, in total, upon joining the Eurasian Economic Union, Azerbaijan’s GDP could be 0.6% higher and every Azerbaijanian could be USD 28 thousand richer than without joining. To be correct, it should be noted that the above estimates are quite preliminary and do not take into account possible negative effects due to a possible increase in the average tariff protection of the republic in relation to third parties by 2.2% to the customs union level. At the same time, the final positive effects may be even higher, because this model does not take into account the multiplicative intersectoral effect in the economy, i.e., how the above-mentioned increase in exports can lead to an increase in demand for goods and services of indirect sectors.
The largest and well-known transport and infrastructure project, which is of interest to Baku, is the North-South International Transit Corridor (“Spice Way”) project. This railway freight corridor should connect the northwestern part of the EAEU with India, with which the EEC plans to sign an agreement on a free trade area, through Iran, with which the Union already has a free trade agreement. Geographically, Azerbaijan would be ideally located in order to become the central link on this route. The volume of potential cargo flows within the North-South corridor is estimated at 20 million tons per year. However, non-participation of the republic in the CIS free trade area and non-membership in the EAEU have so far been one of the main factors restraining the break-even feasibility of such a corridor.Along with this, work is underway within the EAEU to create a single transport space. In fact this means that domestic tariffs for the railway transportation of goods have already been unified. Concurrently, the EAEU member states are also negotiating the introduction of a unified transit tariff. The effects are already evident: for the period from 2014 to 2018, railway freight turnover (measured in ton-kilometers) inside the EAEU grew by almost 3% on average annually, while in Azerbaijan it fell by 11.5% on average every year. This is the sixth argument: Azerbaijan could significantly benefit from its geographical position by becoming a member of the EAEU’s unified transport space.
The success of the EAEU was most pronounced in creating the single labor market. All citizens of member states are free to move and work throughout the territory of the Eurasian Economic Union. Everyone enjoys the same labor and social rights, including: hiring in most professions without additional documents and permits; mutual recognition of most educational certificates; tax and pension residency; free basic health insurance – including all family members; free education (from kindergarten to university) – including all family members. Therefore, the seventh argument is: as a member of the Eurasian Economic Union, Azerbaijani citizens who come to work in the other member states of the Union will receive the same preferences as the citizens from all the other member states.The effect of creating a single labor market is noticeable: the annual growth rates of money transfers of individuals from Russia to the EAEU countries in 2015-2018 were on average one and a half times higher than such transfers to Azerbaijan. Over the past five years, about 25 thousand Azerbaijani citizens arrived annually in Russia. Most came for work. Their remittances amounted to USD 800 million on average annually.
Foreign direct investment regulation is not directly assigned to the supranational level of the EAEU and is not within the powers of the EEC. Nevertheless, it can be assumed that regional economic integration within the Union created relatively more favorable conditions in this area. So, due to the economic crisis as a whole, direct investments from Russia to the countries of the post-Soviet space fell in 2015-2018. However, they fell to the EAEU member states on average 15 times less than the annual average than Russian FDI to other CIS countries. Over this period, Russian FDI in Azerbaijan amounted to USD 27.5 million on average annually. Thus, the eighth argument is: joining the Eurasian Economic Union can create more favorable conditions for attracting Eurasian investments to the republic.By the way, Azerbaijan could also consider becoming a member of the Eurasian Development Bank (EDB) and the Eurasian Fund for Stabilization and Development (EFSD). The terms of participation, most likely, could be similar to the terms of participation of Belarus, which has a similar level of GDP by PPP as Azerbaijan: USD 189 billion and USD 179 billion, respectively. Having contributed 1% (USD 70 million) to the bank’s charter capital (USD 7 billion), Belarus receives almost 14% of funds (USD 1.2 billion) from the total investment portfolio of the bank (USD 8.9 billion). And having contributed 0.1% (USD 10 million) to the fund’s total funds (total USD 8.5 billion), Minsk can claim 21% (USD 1.8 billion) of these funds in the form of loans and grants. The portfolio volume, taking into account the implemented and ongoing EFSD projects in the Republic of Belarus, amounted to USD 4.6 billion by the beginning of 2020. The EDB provides investments at preferential rates for infrastructure projects mainly in the fields of energy, transport, industry and agrobusiness. The EFSD aims to support macroeconomic stability and long-term economic development. The main “donors” in both development institutions are Russia and Kazakhstan (EDB: 66% and 33%; EFSD 88% and 11%). Profitable investment and financial support from the EDB and the EFSD is the ninth argument in favor of Baku’s potential Eurasian orientation.
Upon joining the Union, Azerbaijan’s GDP would be 4% of the total economy of the EAEU, and its population – 5% of the total population of the integration bloc. In such an enlarged Union the Russian Federation would still make up 81% of its GDP and 76% of the population of the Union. At the same time, the combined economic and demographic weight of other member states would expand to 19% and 24%, respectively. Thus, in 2018 terms, GDP at purchasing power parity of such an expanded EAEU would ammount to USD 4.9 trillion, its population – to 194 million people.But this is actually not so important. Unlike what populist propaganda insists on, the EAEU’s bodies and decision-making mechanism are built on a democratic basis. All decisions between the member states must be made by consensus, and each member state has one vote, regardless of economic weight or population size.Not Vladimir Putin, but Nursultan Nazarbayev as the first of the post-Soviet statesmen proposed in 1994 to create the Eurasian Union. In his opinion, the new Union should be based on new principles: the priority of economic benefits over political considerations, the preservation of national sovereignty, voluntary and gradual integration, non-interference in the internal political system of member states. That is the wording which is now enshrined in the Treaty on the EAEU.
Unlike the EU, the EAEU integration agenda and the powers of its Eurasian Economic Commission are limited exclusively to economic issues. The Eurasian Economic Union does not pursue a “value policy” and does not intervene in the internal political system of its member states. David Lane, a researcher at Cambridge University, wrote the following about this: “The Eurasian Economic Union creates horizontal democratic conditions between its member states, while the European Union, at its discretion, prescribes” democratization “within states.”Based on WTO rules and the European integration experience, the EAEU seeks to create greater legitimacy, better conditions for a liberal market economy and strict multilateral “rules of the game”, which all member states, including Moscow, must adhere to. And despite periodic exceptions and barriers, in terms of institutional integration and the formation of common markets, the EAEU is now in second place after the European Union, ahead of such associations as MERCOSUR and ASEAN.By the way, the headquarters of the EEC does not resemble an old-fashioned Soviet ministry, but a modern office of some international consulting firm. In such an atmosphere, the EEC is constantly trying to implement best practices and standards from around the globe. In addition, the EAEU Court, which is located in Minsk, works pretty well and has already made a number of important cases against Russian actors and in favor of supranational law, for example, according to which EAEU sportsmen cannot be considered as foreign legionnaires. For the first time in the history of Eurasia, the Eurasian integration project is the first fully peaceful, voluntary, formally democratic, equal and market-oriented association of countries and peoples of the region. The goals, structure and decision-making mechanism in the EAEU are the tenth argument why Azerbaijan should consider joining the Eurasian Economic Union.
From our partner RIAC
The Solution to Ending the War in Ukraine Lies in the Ability to Get the Other Side’s Point of View
This is so simple, so obvious, that anyone ought to see the truth of it at a glance, yet we ignore it. The key to solving the conflict lies in the ability to see things from a person or nation’s angle as well as from your own. If there is any chance to end this bloody and devastating war where billions of treasures are spent to bend the arc of history and new military alliances are evolving and responsible to prolong the loss of life, then one ought to think in terms of the opposing side’s point of view.
So, the only way on earth to influence the opposing nations is to determine what each leader seeks and show them how to get it. Instead of the never-ending condemnation of each other, let’s try to understand and figure out why they do what they do. That is more beneficial and intriguing than criticism that only breeds resentment and pride rather than tolerance and perhaps a level of sympathy. Simply put, God himself does not propose to judge man until the end of his days. Why should you and me?
Taking a tip from Benjamin Franklin where his success in diplomacy was to speak ill of no man and to speak all the good, I know of everybody. Any fool can criticize, condemn, and complain -and most fools do. It takes character and self-control to be understanding.
First, it is important to understand the recently annexed Donbas regions in eastern Ukraine and the Crimea are just as much the historical homelands to both Russia as Ukraine over centuries of war, political upheaval, and shifting control. Fast forward to 1918, troops loyal to the Ukrainian People’s Republic took control of parts of the Donbas with the help of its German ally. Then in 1932, millions of Ukrainians died of starvation when Soviet leader Joseph Stalin confiscated their land.
WW II witnessed further upheaval when Germany occupied the region for resources and forced labor until the Red Army offensive in 1943 returned the Donbas to the Soviet Union. By 1959, there was 2.5 million Russians living in the Donbas; resulting in educational reforms and attempts to eliminate the Ukrainian language. More recently the economy collapsed through the 1990’s where divisions have since escalated with Ukrainians seeking closer ties to the West and Russian separatists taking over key government buildings and declaring a republic.
Furthermore, the history behind the annexation of Crimea by Russia is not short of its own upheavals. With NATO threatening to expand into Ukraine following missile systems set up in Poland and Romania within striking distance of Russian cities, President Putin made a national security decision to annex Crimea. Sevastopol, the Crimean port city where the Russian Black Sea Fleet calls home is a strategic harbor patrolling the shipping routes from Russia and the Don River to Turkey and Southeastern Europe. Russia reclaimed Crimea from Germany in 1944; and a decade afterwards in 1954; the Soviet Premier Nikita Khrushchev handed over Crimea to Ukraine on the 300-year anniversary of Russia’s annexation of Ukraine. Understandably, Putin reclaimed Crimea and its Russian speaking population; and could not permit the Sevastopol Naval base to fall into the control of NATO.
This current war in Ukraine is yet another pivotal moment in a lengthy and tumultuous history that will be added to a long list of regional conflicts that now has the added global component of NATO-creep with the American-led West injecting itself into the conflict followed by Iran, North Korea, and China bolstering the Russians.
So, what does Ukraine and President Zelensky want? Russia to pull its military from Ukrainian territory, they seek to join NATO, and assurances that Russia will not invade in the future. What does Russia and Putin want? No American offensive weapon systems in eastern NATO countries threatening Russia -not dissimilar to Soviet missiles staged in Cuba and minutes away from taking out major American cities. No NATO expansion to include Ukraine where the alliance would be knocking on the door of Moscow. Addressing the wellbeing and future of the ethnic Russians throughout the Donbass and maintaining sovereignty over Crimea which has been in Russian control for nearly a decade and was not a major point of contention prior to the war in Ukraine. Lastly, the lifting of sanctions against Russia.
What does Europe want at this time in the conflict. The ending of this war and a return to greater peace and security on the continent that includes the ongoing fear of nuclear weapons being used in region. The free flow of energy from Russia to provide for their needs, and assurances that Russia has no further intentions to escalate the war into neighboring EU countries. What does the United States and President Biden want? NATO expansion to include Ukraine, Putin put on trial, removed, and Russian forces decimated, and willing to spend hundreds of billions of dollars to fund the continuation of fighting to the last Ukrainian standing.
Perhaps it is a bit presumptuous to provide solutions to what each party seeks. Here’s what a framework might look like.
- No NATO membership for Ukraine in the near future and to be reviewed in ten years, however immediate enrollment if Russia decides to re-invade. Membership is not off the table and Russia can breathe.
- A total Russian military withdraws from eastern Ukrainian territory in the Donbas. A UN security force is inserted and has oversight of a regional referendum in three years to determine if the inhabitants in the Donbas want to remain in Ukraine or become part of Russia. Western leaders speak highly of preserving democracy, and self-determination upholds this claim.
- Energy needs of Europe to be addressed with a percentage of Russian oil and gas revenues being allocated as reparations to rebuild Ukraine’s destroyed infrastructure.
- The removal of offensive missile systems in Romania and Poland facing Russian cities in staged timelines to coincide with Russian alignment on the total package.
- An international effort to rebuild Ukraine under the lead of France, Saudi Arabia, Japan, and Turkey with the priority on grain and food shipments from Ukrainian ports; including oversight on the reduction of sanctions to coincide with Russia’s alignment and behavior. This would include the removal of arrest warrants for Putin.
- Crimea remains in Russian territory.
Each party should gain from the negotiations. We must demonstrate what can be accomplished and what can be avoided. Zelensky and Putin can both walk away with wins. Rest assured, the leaders in this conflict will all walk away lonely and perhaps despised in history if they cannot agree on a path forward. Scolding, threatening, shaming, and reiterating your final position without understanding the perspective from the opposite point of view will not stop this war.
The world’s leaders failed when they allowed this conflict to escalate out of control. We still have the opportunity to act before this crisis becomes wildly out of control and spreads further under the threat of nuclear war. Stay on the same path and we will only be fools in history and a great failure to the next generation over the pain and wasted treasure that could have been allocated to solutions on poverty, famine, and those truly in need in the most unfortunate circumstances such as the Moroccan earthquake and the victims clinging to life following the Libyan flood.
We can choose to continue to weaponize our scathing words, inundate the theatre of war with mass destruction, and witness young men and boys soaking the soil in their blood on our perches from afar or step forward to see things through the other side’s lenses and understand what each side wants. It would not seem sensible that people are afraid to say something sensible before the whole of humanity collapses.
How is Iran’s growing paranoia affect its relations with Azerbaijan?
After the collapse of the Soviet Union, the former Soviet republics tried to search for their place in the new global structure. It was necessary to discover new neighbours who had been separated for many decades by the “Iron Curtain.” Hence, since regaining independence, Azerbaijan’s relations with nearly all regional states have undergone a tumultuous period. Although the diplomatic relations of Azerbaijan with other regional actors gradually stabilized, the dialogue with Shi’a Iran remained uneasy.
For Azerbaijan, the Islamic Republic of Iran is not just an ordinary country. First, Iran is one of the biggest neighbours in the south, with about 618 kilometres of land borders. Tehran’s long-standing destructive hybrid warfare strategy toward its immediate neighbourhood and beyond for many years has had a negative impact on relations with Baku and irritated the latter.
Nevertheless, Baku and Tehran established a pragmatic partnership entailing various regional infrastructure projects, particularly transit links. However, 2020-2023 marked the most heightened tensions in Iran-Azerbaijan relations, with deadly consequences for both sides.
Azerbaijan’s Threat balancing
Azerbaijani-Iranian relations have been strained since Azerbaijan’s victory in the 2020 war with Armenia, with both sides accusing each other of engaging in terrorism and espionage. The deteriorating relations between Iran and Azerbaijan garner significant attention, raising concerns about the potential impact on the South Caucasus region. The possible consequences of escalating tensions include economic disruptions and border clashes with the involvement of regional and non-regional actors like Turkey, Russia, Israel and possibly the West.
From the Iranian point of view, several important catalysts led to the deterioration of relations with Azerbaijan, such as the claims of Baku harbouring Israeli intelligence on its soil and the strengthening of the Baku-Ankara axis at its doorstep. As such, in an attempt by Tehran to flex its muscles and intimidate Azerbaijan, the Islamic Revolutionary Guard Corps conducted large-scale military drills on the border with Azerbaijan in October 2022. Unlike previous years, the exercises provoked an uneasy reaction within Azerbaijan and triggered anti-Iranian sentiments throughout the country. During the military drills in October, codenamed Mighty Iran, Iranian forces practised setting up pontoon bridges and crossing the Aras River, part of which forms a section of the border between the two countries. It marked the first time that Iranian forces had conducted such exercises. Moreover, the tensions reached a critical level when the Azerbaijani embassy in Tehran came under attack by an armed man, leaving one dead and others injured. As a result, Azerbaijan put diplomatic relations on halt and shut down its embassy, and shortly after, expelled several Iranian diplomats from the country, citing their “undiplomatic activities” in the country.
Although Iran’s MFA denied that it bore responsibility for these incidents, Azerbaijan demonstrated that it would no longer buy Iran’s excuses and took action both rhetorically through official statements and with arrests. While Iran deemed the attack merely an individual acting on a personal vendetta, Azerbaijan’s President Ilham Aliyev rejected Iran’s explanation and called it a “terrorist attack.” With denials of involvement in all of these provocations from the Iranian government being flimsy at best, Azerbaijan has demonstrated that it will no longer give Iran the benefit of the doubt, and with this, has ushered in a new chapter of open tension between the two countries.
Notably, Iran’s main criticism of Azerbaijan can be attributed to its concerns regarding the potential border shifts in the South Caucasus, thus diminishing Iran’s already weakened soft power influence. In addition, Iranian aggression toward Azerbaijan is undoubtedly a symptom of a reshuffling of alliances in the region and a shifting of global dynamics, resulting in new partnership blocs.
Despite Tehran’s claims that it maintains the leading regional power, its influence over Azerbaijan and the region gradually declined even before the 2020 events. Moreover, Iran appeared to be comfortable with the long-term status quo on Azerbaijani borders and uncontrolled territories in Karabakh for three decades, as it actively used the war-torn region as a major corridor for drug trafficking, oil smuggling and other sanctions-busting activities that helped alleviate economic pressure on the Islamic Republic. It was also apparently used to send Russian weapons to Armenia via Iran.
Tehran is cautious that in the post-war period, the Azerbaijan-Turkey-Israel trio will do everything to fence off Iran from the region, thus establishing new red lines. As Baku and Ankara fill the void in the South Caucasus that Russia is leaving behind, Iran is left with Armenia as its key regional partner. For instance, in October 2022, Israel’s then-defence minister, Benny Gantz, visited Azerbaijan, and the two countries signed several military and security agreements, which angered Iran and caused a flood of criticism toward Baku in the Iranian state-run media.
The situation further ignited when Israel’s foreign minister, Eli Cohen, ahead of a trip to Turkmenistan, visited Azerbaijan in April 2023 to open Israel’s first embassy in the country, located just 20 km from the Iranian border. Cohen’s remarks regarding the “close partnership between Tel Aviv and Baku against Iran” inevitably triggered harsh rhetoric in Tehran. However, this time, official Baku largely ignored all threats from Iran. Baku’s attempt to reinvigorate regional alliances with the Turkic world in Central Asia and establish new transit routes bypassing Iran reinforced the latter’s preexistence fears about the potential irredentist minority groups. While Iran has many minorities, of greatest importance to regime stability are Azeris, Turkmens and Kurds. The ethnic Kurds are in a latent rebellion against the regime, while the Azeris and Turkmens have remained relatively pacified.
On the other hand, the potential shifting borders in the South Caucasus would come with a cost for Iran, as it may lose its leverage over Azerbaijan as the only land route linking it with Turkey. In the post-war period, Azerbaijan proposed establishing a land corridor with Nakhchivan via Armenia’s Syunik province, thus circumventing Iran. Undoubtedly, such perspectives angered isolated and politically unstable Iran.
Consequently, Iran gained very little from the deliberate escalation of diplomatic relations with Azerbaijan, as the latter is an important trade partner of Tehran and a key country in terms of connectivity and infrastructure projects, particularly within the North-South Transit Route.
Iran – Azerbaijan partnership: Trade amid war of words
The diplomatic standoff between Tehran and Baku came in light of the unprecedented violent riots against the Islamic regime after the security forces tortured and killed Mahsa Amini, an Iranian Kurd. The violent uprising reached nearly all Iranian provinces and still has not fully died down. Iran’s population comprises many ethnic minorities, and these protests have demonstrated the discontentment of many of these communities.
The political and economic instability ignited dramatically when conservative president Ebrahim Raisi assumed office in 2020. The absence of a pragmatic visionary and long-term strategy of Raisi’s hardliner government led to the deterioration of political relations with the immediate neighbourhood, including Azerbaijan. However, despite diplomatic escalation with the neighbourhood, Iran increased trade volumes with several countries in the region, highlighting the long-established IR system control that economic and political ties are developing separately. Thus, despite existing turmoil with Saudi Arabia and the UAE, in the 2022-2023 fiscal year, Iran traded 58.25 million tons of goods worth $35.11 billion with the Persian Gulf’s six littoral states, namely Iraq, Kuwait, Qatar, the UAE, Bahrain and Saudi Arabia, registering a 10.05% rise in value compared with the previous year’s corresponding period.
As in the case of Azerbaijan, Baku has long been standing as Tehran’s leading trade partner amid its struggle with harsh inflation and mounting unemployment rates. According to the Azerbaijani media, the trade turnover between Azerbaijan and Iran in January-May 2023 amounted to $212,612,000, up 7.6 per cent from the same period in 2022. During the reported period, the exports from Azerbaijan to Iran made up $7,558,000, and from Iran to Azerbaijan – $205,053,000, respectively.
Consequently, trade is not the only determinant factor in Azerbaijan-Iran relations, as both countries were intensively engaged in several regional infrastructure projects, particularly railway links and new highways at the border areas. In this vein, Azerbaijan played a crucial role in linking Iran to Russia within the INSTC framework. In May 2023, Russia and Iran agreed to complete a railroad that would link Russia with ports on the Persian Gulf, providing a transportation lifeline – via Azerbaijan as a critical link – for the two sanctions-hit countries. Due to insufficient funds, Russia is set to be the project’s main sponsor. However, in the wake of diplomatic tensions, the response from Azerbaijan has been quiet. The local governmental bodies preferred not to comment much on this deal, thus signalling that the INSTC-related projects are not a priority for Baku anymore, which instead touting its growing role on another key transit route – the Middle Corridor, shipping goods between Europe and Asia while bypassing Russia and Iran.
Indeed, the Republic of Azerbaijan is a vital part of the International North-South Transport Corridor (INSTC), Iran’s main route for transit and trade with the densely populated western regions of Russia, Georgia, and Belarus. The Astara border crossing is the main transit route between Iran, the Republic of Azerbaijan, and Russia; on average, a truck crosses the border at Astara every seven minutes. The Azerbaijan-Iran transit route has become even more important recently as a result of the Ukraine war, the extensive Western sanctions against Russia, and the preferential trade agreement between Iran and the Eurasian Economic Union that is being upgraded to a free trade agreement.
As this paper discussed, trade and communication occupied a central place in Iran – Azerbaijan partnership in recent years. Therefore, even at the beginning of diplomatic escalation in 2022, Baku and Tehran signed another important agreement that envisioned establishing a new transport and electricity supply link connecting mainland Azerbaijan to its exclave of Nakhchivan via Iran. According to the memorandum, the two countries planned to establish a new railway, highway, communication, and energy supply lines connecting Azerbaijan’s East Zangazur economic region and the Nakhchivan region through the territory of Iran. In addition, four bridges will be built over the Araz River, including two motorways and two railway lines on them.
Despite the significance of the agreement’s scope, the further deterioration of relations halted this agreement. Consequently, Tehran’s staunch anti-Azerbaijani rhetoric that became more vocal since 2021 caused costly delays and setbacks in terms of economic partnership and regional connectivity, while Baku established new interregional partnership formats to diversify its portfolio.
Hence, Iran decided to take a step back and return to the diplomacy track as a part of the broader strategy of reconciliation with the immediate neighbourhood. Thus, Iranian Foreign Minister Hossein Amir-Abdollahian arrived in Baku on July 5, 2023, to attend the high-level meeting of the Non-Align Movement (NAM), where he managed to hold a vis-à-vis meeting with President Ilham Aliyev at the sidelines of the event. While the meeting was concluded with positive remarks, it became a good start for Baku and Tehran to rekindle the bilateral relations after months of confrontation.
Shortly after Abdollahian visited Baku, the Deputy of the Prime Minister of Azerbaijan, Shahin Mustafayev and Minister of Roads and Urban Development of Iran, Mehrdad Bazrpash, reached a new agreement to complete the construction of a road bridge across the Astarachay River and put into operation within the next four months. The foundation of a new bridge across the Astarachay River was laid on the border of Azerbaijan and Iran on January 25, 2022.
Moreover, on September 14, 2023, Prosecutor general of Iran paid an official visit to Baku and his Azerbaijani counterpart Kamran Aliyev to discuss the investigation into the armed attack on the Azerbaijani embassy in Tehran. The visit of a high ranking Iranian governmental official was also a positive signal in terms diplomatic thaw.
In this spite, the aide of President of Azerbaijan Hikmat Hajiyev acknowledged that Baku is receiving positive signals from Tehran, thus confirming the news of the ongoing diplomatic normalization.
Domestic turmoil in Iran, mounting international pressure and isolation, and the shifting geopolitical landscape in the South Caucasus have added further complexity to the tense relationship between Azerbaijan and Iran in the last three years. Although minor de-escalation recently occurred in Baku-Tehran relations, a smooth intraregional partnership based on mutual trust is yet to be achieved. As such, factors like economic and trade partnerships could be game-changer factors for re-establishing regional dialogue and restoring the pragmatic partnership.
However, if not successful, Iran’s bellicose rhetoric against Azerbaijan could force the latter to take additional strict measures in order to protect its borders and regional stability, which in turn could prompt a military response from Iran with the aim of securing its borderline with Armenia, as this is the only crucial leverage of Tehran over Baku.
Azerbaijan Takes Advantage of Armenia’s Strategic Isolation to Resume Hostilities in Nagorno-Karabakh
It was only a matter of time before hostilities would resume in Nagorno-Karabakh, a region contested by Azerbaijan and ethnic Armenians. A war was last fought just three years ago between Azerbaijan, Armenia, and the breakaway Armenian state of Artsakh resulting in an Azeri victory and a Russian-brokered ceasefire. However, due to Yerevan’s strategic isolation, it seemed inevitable that Baku would reinitiate military operations to take advantage of Armenia’s relative weakness.
Despite the implementation of a ceasefire in November 2020, Azerbaijan used ‘hybrid’ tactics to weaken the self-declared Republic of Artsakh. Most significantly, the Azeris blockaded Artsakh in December 2022, cutting it off from the outside world, making it difficult for residents to obtain electricity, fuel, and water reserves. By restricting access to the Lachin corridor, Azerbaijan was able to cut off Artsakh from Armenia and create better leverage to exact concessions. The routes were only reopened this month.
However, on 19 September, the Azeri Presidential Administration declared that it would carry out an ‘anti-terror’ operation in the region. Baku demanded that ‘the illegal Armenian military formations must raise the white flag, all the weapons must be handed over, and the illegal regime must be dissolved.’ The Azeri government statement coincided with reports from local Armenian media sources and state news that there had been artillery, missile, and drone strikes conducted by Azerbaijan. Five people have reportedly been killed and about 80 injured.
So, why is this happening now? In short, Armenia is isolated and weak without realistic prospects for substantial foreign assistance. Thus, Azerbaijan has made the realpolitik calculation that it should press its current advantage and assert its control over Nagorno-Karabakh sooner rather than later.
Armenia’s ally, Russia, does have a military presence in the region. In fact, about 2,000 Russian peacekeepers are deployed along the contact line in Nagorno-Karabakh and along the Lachin corridor. Historically, Armenia has viewed Russia as its security guarantor, but the Russian response to the most recent bouts of fighting between Armenia and Azerbaijan has been tepid as far as Yerevan is concerned. Other members of the CSTO – the Russian-led alliance to which Armenia is a member – were even less resolved to assist Armenia during the previous Nagoro-Karabakh War in 2020.
With Russia currently embroiled in the war in Ukraine, it is highly unlikely that Moscow will divert resources to assist Yerevan, nor does it seem likely that the Kremlin would perceive much strategic value in doing so anyway. In recent years, Russia has maintained a complicated relationship with Azerbaijan and its staunch ally, Turkey. Russia does not stand to gain much strategically by assisting Armenia at this time and it can ill afford to further antagonise Turkey, which despite being a NATO member, has been fairly ambivalent towards the war in Ukraine.
Policymakers in Yerevan are aware that Russia is not a dependable ally and have made diplomatic overtures towards other potential security guarantors. Some political figures in Washington are sympathetic to Yerevan and Armenia does possess an outspoken and visible diaspora in the United States that it can leverage for soft power gains. Last year, former Speaker of the House Nancy Pelosi overtly blamed Azerbaijan for hostilities in Nagorno-Karabakh and in 2023 Armenian and American troops conducted joint military drills.
Closer ties with the Untied States may have buoyed hopes in Yerevan that the Americans might provide some form of assistance in the event of renewed hostilities. However, the United States has relatively limited strategic interests in the region. Military assistance is virtually out of the question but even the imposition of sanctions or diplomatic condemnations of Azerbaijan are unlikely.
There is an argument to be made that the United States could undermine Russian influence in the region by creating closer ties with Armenia, thus releasing Yerevan from dependency on Moscow. However, similar arguments have been made for enhancing American influence in the region vis a vis Azerbaijan. Moreover, Azerbaijan enjoys the advantages of being a major energy provider, with oil and natural gas reserves. It is unlikely that Washington will do anything much to damage relations with Baku at this time, given that the latter has the potential to become a major Eurasian energy hub.
The same can be said for the European Union, whose members are currently facing an energy crisis caused by the war in Ukraine and the decision to eschew Russian oil and gas. Brussels has already demonstrated its appetite for Azeri energy and will not act in a way to jeopardize its access.
To make matters worse for Armenia, Azerbaijan enjoys a quantitative military advantage, with greater manpower and resources at its disposal. Whilst its true that the Azeri and Armenian militaries are roughly peer competitors, with Armenia having won the First Nagoro-Karabakh War between 1988 and 1994; Azerbaijan demonstrated greater prowess in the most recent conflict. Moreover, Azerbaijan will likely again have the support of its close ally Turkey, in the form of weapon systems and equipment from its significant defence sector.
Ultimately, it remains to be seen how another conflict over Nagorno-Karabakh will play out. Armenia is not so outmatched at the tactical and operational levels that the result of another war is a foregone conclusion. Although a great deal of fuss was made over the Azeri military’s usage of drones in the previous round of fighting, they were not so decisive that the war was a cakewalk for Azerbaijan.
As explained by Eado Hecht of the Israel Defence Forces Tactical Command College, ‘The war was won by Azeri perseverance in the face of heavy casualties and many small defeats while gradually wearing-down Armenian forces no-less determined than the Azeris.’ What is potentially shaping up to be the Third Nagoro-Karabakh War may play out similarly – or it may not.
At the strategic level, however, Yerevan is playing with a bad hand. Armenia has few friends to call on for significant aid and will likely be forced to face this conflict largely alone.
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