Articles

The Big Caucasus Trade

Ivaylo Valchev
Written by Ivaylo Valchev

On 19 September Azerbaijan launched a flash military campaign on Nagorno Karabakh. Within a day the leaders of the self-governing region, known as Artsakh by the local population, had tosurrender after the main defense points were neutralized. Soon after that, David Babayan, an adviser to the president of Artsakh, Samvel Shahramanyan, declared that “99.9%[of the population] prefer to leave our historic lands" as they feared ethnic cleansing would ensue after Baku assumed governance of the region.

While this was happening, Turkey, the biggest supporter of Azerbaijan, remainedsilent.

Russia, who had persistently stressed onmaintaining a ceasefire 3 years ago as Armenia was part of their military alliance CSTO,also announced the provision to aid the Russian peacekeepers to facilitate the exodus of the entire 120,000 Armenian population.

Western media covered the developments sporadically and no concern was tabledby the international communityregarding the matter.Amidst the largest exodus of refugees in recent history of the western world, Armenia was forgotten.

The prize

Soon after the dust started settling, the outlines of the big game among the world powers started appearing. The aftermath shows that the price of the region is in the vicinity of several billion USD in terms of natural gas exports by Russia, where Turkey will be the proxy hub distributor for other markets.

Even more interesting, this opens the door for further strategic developments. The concept of the Zangezur corridor – a stretch of land connecting the Azeri populated Nakhchevan exclave with Azerbaijan – started to materialize. The benefits of this could make Turkey a far important player in the energy markets as it would present an alternative to the existing pipeline routes through the Ganja Gap and thus decrease the importance of Georgia.

Conflict background

The Nagorno Karabah region has been inhabited predominantly by Armenians for the last 2,000 years. Due to political decisionsfrom the Stalin era, it was a part of the Azerbaijan Soviet Socialist Republic prior 1989. After the fall of the USSR, the Armenian-Azeri conflictescalated heavilyand Russia supplied arms to both sides.

This proved effective in controllingboth the Azeris and the Armenians, as well as maintaining a tight grip on the region as Moscow was very familiar with the leadership of either side.

On27 September 2020, the conflict escalated again after a long period of ceasefire. Turkey openly supported Azerbaijan.the conflict was soon subdued withaceasefire upon the stern intervention from Russia.

After 6,924 casualties on both sides, 58% of which were Armenian, nothing seemed to have changed. Turkey expressed its discontent with the situation, but nothing more than that. This immediately led to the main question – why was the military offensive needed? A leader, such as Erdogan, practically never makes impulsiveor superficially tactical decisions.

On 12 May 2021, another crisis broke out in the region.The Azerbaijani troops forcefully occupied some of the areas in the provinces of Syunik and Gegharkunikin Armenia.With the Azeri troops inflicting violence in the captured areas, many amongst the local population fled to the northern provinces. Azerbaijan made numerous incursions into Armenian territory and its President, Ilham Aliyev, stated that "Armenia must accept our conditions" and "they must not forget that Armenian villages are visible from here.”.

Additionally, on 12 December 2022 numerous “eco-activists”, 99% of whom male in their early 20s as evident from photographs, blocked the only road connecting Armenia with Nagorno-Karabakh – the Lachin Corridor under the pretext to save the nature.Helped by the Azerbaijan army to ensure their safety, they created a long-lasting blockade resulting inshortage of supplies for the local demographic. Electricity, gas and internet were also halted or heavily rationed. Various human rights organizations warned of genocide risk factors and Aliyev announced that Karabakh Armenians “will either live under Azerbaijani rule or leave”.

Oil and Gas routes

Currently, all the oil and gas pipelines connecting the massive fields of Caspian region with the distribution depot in Erzurum in Turkey and the international markets, follow the route of the trade between Asia and Europe. Azerbaijan is the onlychoice for overland trade if Russia and Iran are to be avoided. Azerbaijan offers only one option – a narrow 40 to 90 km wide flatland valley, known as the “Ganja Gap”, named after the largest city in the area.

The other alternative which couldbe created is south of Nagorno Karabah – the valley of Aras river. It is flat and the potential pipelines do not have to pass through 3,000+ meter (9,800 feet) high mountain ridges. Such terrain creates major engineering challenges as pipelines must maintain certain pressure and temperature.

Further, this route can besusceptible to any attack and possiblesabotage. The pipe itself, or even worse – any of the pumping stations – could be targeted from the highlands. The distance between the possible route and the Armenian inhabited areas in Nagorno Karabakh is 20 km and providing the necessary security could be a challenge for Azeris.In such a case, the most viable approach for the Azeris would be to clearthe Armenians from the region by any means necessary. This was initiated on September 19, when amilitary operation was carried by the Azerbaijan in the regionand a week later the exodus is materializing.

Zangezur Corridor

Depopulating Nagorno-Karabakh is the first step of the puzzle, which Baku will achieve very soon. What remains is a stretch of a 50km road along the Aras river with very steep mountain ridges, having over 1,000 meters denivelation in less than 1,500 meters distance. Any object can be an easy target in such a terrain. The barren rocky hills can serve as impregnable fortresses giving the advantage of altitude and an overview of the area in regard to tactical operations.

Both Baku and Ankara have tried to avoid this scenario, which is why no agreement to open the route has been achieved. Armenia’s suggestion to open the road in May 2021 changed nothing and that indicated that Turkey and Azerbaijan had deeper reasons to object against it. They could not afford a third-party control in a future multibillion project, such as a pipeline, which would also directly affect international markets.

Defending the corridor would be challenging, so it would make practical sense to capture an area to the north of the corridor, thereby creating a buffer zone.Most of it comprises theArevik National Reserve and the Shikahogh State Reserve – some of the least populated areas of Armenia.

There are 2 scenarios depending on how much international pressure Turkey and Azerbaijan can withstand. The first one is to capture everything south of the line between Shikahogh village on the east border to Lake Tsakhkari on the west border. This would create a buffer zone of roughly 25 km, comprising between 3 and 7 ridges above 2,000 meters altitude, which can serve as a natural deterrent. The area has only 2 roads going north-south, meaning controlling would be significantly easier compared to the flatlands in Azerbaijan.

Getting rid of the local population should not be a problem as it consists of 19 settlements – 2 small towns of 4,000 people each and the remaining small villages with 180 people each on average in the municipalities of Meghri and Kapan. The total population of the area as per the 2011 census was 12,122 but there have been strong trends of people leaving the region because of lack of economic opportunities and it is likely that the population is significantly below 10,000.

Capturing the entire Syunik province is the second scenario. It would create a much bigger buffer but is also likely to cause an incomparably larger international reaction. The population of the province is recorded at 141,000 people with larger cities like Kapan (43,190), Goris (20,591) and Sisian (14,894).Additionally, it is currently unknown where the refugees from Nagorno-Karabah will settle, and it is entirely possible that parts of the 120,000 people influx will find this province as their home as it is very similar as a terrain.

The second scenario would be preferred if a more secure path for the future pipeline, further away from the Iranian border, is chosen. It is true that it would be more expensive to find ways to bypass natural deterrents, such as mountain ridges, but it is also true that we do not know how much both Turkey and Azerbaijan would be willing to invest in this project with significant geopolitical importance. It is possible also that they receive help from China as part of the Belt and Road Initiative, which have gathered knowhow from the northern parts of the CPEC project.

Russia’s silence and Turkey’s move

Unlike the conflict in 2020, Russia had a very different reaction. Armenian PM Pashinyan blamed them for not helping Armenia as part of the CSTO pact and said he would review their alliance with Moscow. There was no response from Putin in those regards.The only reactions came from the Dmitri Medvedev (Deputy Chairman of the Security Council of Russia) and Maria Zakharova (the Director of the Informationand the Press Department of the Ministry of Foreign Affairs of Russia). The statements were released on their respective Telegram channels, where they blamed Armenia for flirting with NATO and for not recognizing Nagorno-Karabah as part of Azerbaijan.

Russia’s situation in 2020 was different as well. It had not gone to war, which it could not end, and its oil and natural gas exports were not banned in major western markets. War is expensive. It halts some of the trade and destabilizes supply channels, making inflows of vital state revenue limited. Additionally, companies operating within the country feel the stress of finding employees as many turn soldiers, thus creating pressure on salaries and increases the likelihood of inflation from printing local currency. The risks and threats of a prolonged war were described even by Sun Tzu 25 centuries ago.

Finding themselves in an international isolation, Russia had to find a solution for the depleting budget. Erdogan’s dream of connecting Azerbaijan with Turkey might have just provided Russia with the trade they needed. For that, they would have to decrease their influence in the South Caucasus region while seeking doors to other markets. Interestingly, there was a meeting between Putin and Erdogan in Sochi on 4 September - 15 days before the military offensive by Azerbaijan.

Erdogan had just supported Ukraine to join NATO, contrary to the refusal to do so for Sweden and Finland, and this trip was raising more questions than answers. The official reason, as advertised by Ankara at the time, was to mediate in renewing the abandoned Black Sea grain deal, which would benefit struggling nations with food shortages.

According to TASS, the Russian News Agency, the Russian Foreign Minister Sergei Lavrov discussed with his Turkish counterpart Hakan Fidan - a plan to arrange for deliveries of 1 million tons of Russian grain at a discount to Turkey via the financial mediation of Qatar. On a side note, they also discussed the supply of natural gas from Russia to Turkey. After the meeting, Erdogan announced on the news conference that he and his Russian counterpart “will be able to reach a solution which fulfils the expectations soon.”

The main point of the deal, the grain delivery of 1 million tons of grain, at the time of the meeting, was valued at ca. USD 220-250 million. The question then would be- why would Putin and Erdogan participate in such an extraordinary meeting for such ordinary results?

The review of the gas deal, however, brought more clarity. According to Bloomberg and Vneshekonombank, Russia’s natural gas exports fell from roughly 150bcm (billion cubic meters) in 2021 to expected 100bcm by the end of 2023. Because revenues depend on prices and they varied heavily due to the conflict in Ukraine, rough estimates based on data from Bloomberg and the World Bank indicate a possible decrease of USD 15-20 billion out of the USD 55 billion, which was the level in 2021.

Should Qatar continue to provide the financial intermediation as with the grain deal, Turkey could be the distribution hub for the natural gas exports of Russia.

In essence, over the last year, Erdogan held back the approval of Finland and Sweden for NATO, dropped the objections for Finland in March, but held those for Sweden. Announced in July that Ukraine deserved to be in NATO, giving him the necessary content and silence from the cumbersome EU administration, and then organized a meeting with Putin in early September where he was given the green light for the strategic move with the Zangezur Corridor together with securing revenues from the future natural gas transits and decreasing the US influence over natural gas deliveries to Turkey.

Russia, on the other hand, secured more exports, which decreased the damage from the sanctions imposed by the US and the EU.

David Babayan, the advisor to the president of the Armenians at Nagorno Karabah, said that "Those responsible for our fate will one day have to answer before God for their sins." Unfortunately, this sounds like a doomed speech, full of anger and desperation. Lord Palmerston, a former British Prime Minister, once said that there are no eternal allies and no perpetual enemies – only the interests are eternal, and it is their duty to follow. As cruel as it may sound, Armenia fell victim to the bigger play between great powers as none of the interests of Turkey, Russia and even the US coincided with theirs. This development can be a lesson to any small, or even big, nation how to choose their allies.

The article was first published by Indian Defence Review on Sep 27, 2023.

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About the author

Ivaylo Valchev

Ivaylo Valchev

Ivaylo Valchev is a strategic affairs and geopolitics analyst. He holds master’s degrees in economics from the University at Buffalo, The State University of New York, and MBA from Cass Business School, London.

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