HomeDiplomatic NewsDiplomacyPost-War Prosperity: Azerbaijan's Strategic and Economic Paradigm

Post-War Prosperity: Azerbaijan’s Strategic and Economic Paradigm


Ahsan Ali

Azerbaijan, after the war of 2020 with Armenia, emerged victorious, changing the paradigms in the Caucasus and the conflict resolution that had spilt over post-Soviet boundaries. Post-Soviet states faced the dilemma of being embroiled in unresolved territorial conflicts or unable to reach resolutions due to politics from major powers in Central Asia and the Caucasus, with sporadic outbreaks of war between states.

As post-Soviet boundaries witnessed an emergence, there was hope for a permanent resolution after the war, especially concerning Azerbaijan’s territorial integrity. With a full push to retake Karabakh in September 2023, Azerbaijan consolidated its position politically and financially, altering the dynamics of Azerbaijan forever and cementing its position in the Caucasus.

The long-term impact of integration in the region is permanent. The region stands to gain significantly, particularly Azerbaijan, which will benefit from various projects of major powers, including China, Russia, and Turkic initiatives, thereby boosting its economic and financial standing.

Azerbaijan and Armenia have been to two major wars since 1988 when the Soviet Union fragmented, leading to steady violence over the territory of Nagorno-Karabakh, which has been internationally recognized as Azerbaijani. The first part of the war ended in 1994, with Azerbaijan losing 15% of its territory and 800,000 Azeri homes in Karabakh and its surroundings. In 2020, Azerbaijan and Armenia went to war again, during which Azerbaijan reclaimed seven districts and a third of Karabakh.

Although there were peace talks between the two under the leadership of Prime Minister Nikol Pashinyan and President Ilham Aliyev, especially with different statements where Azerbaijan’s territorial integrity was accepted by Premier Pashinyan in the Prague statement and parliament, the situation remained tense. The final stroke came with a 24-hour offensive by Azerbaijan against the self-declared government of Karabakh, resulting in Armenia forming closer relations with America, which angered Russia, a major ally of Armenia.

The Karabakh ethnic Armenian ‘government’ dissolved, army units disbanded, and some were put on trial. With its territorial integrity achieved, Azerbaijan has secured its borders and now has the prospects of reaching a new start with Armenia through the peace process or any kind of memorandum of understanding.

As Azerbaijan and Armenia resolve their conflict issues within the Caucasus, it’s time for Azerbaijan to allocate more of its GDP to its economy rather than its military due to the situation in Karabakh. Both states are currently working on a peace deal sponsored by the European Union and the USA. Azerbaijan, described as a strategically pivotal state of Eurasia by Zbigniew Brzezinski, has the potential to change the Eurasian paradigm. It is already playing a vital role in substituting Russia in supplying Europe with gas and making deals with the European Union.

Having regained its territories, Azerbaijan has initiated the Zangezur Corridor project, marked by the groundbreaking ceremony for the Horadiz-Jabrayil-Zangilan-Agbend highway. This project aims to connect the Zangezur Corridor to Nakhchivan via the Syunik province of Armenia, which would extend to Turkey, with a railway already under construction. Iran, however, is hostile to the development of this rail and road network, as Azerbaijan previously had to pass through Iran, potentially impacting Iran’s geostrategic importance.

With the existence of green energy in Karabakh, Azerbaijan may begin harnessing renewable energy resources, which are crucial for transitioning to energy diversification with sustainable and environmentally friendly sources. This is significant as Azerbaijan’s economy is heavily dependent on fossil fuels. The country aims to reduce carbon emissions by 35%, with the potential to transfer energy to Turkey, Georgia, and the Middle Eastern market.

The exploration of these energy resources will be beneficial for Azerbaijan as long as it continues within a renewable framework. New emerging partners and allies, such as Pakistan, may also benefit. The Preferential Trade Agreement (PTA) between Azerbaijan and Pakistan, expected to take effect next year, could positively impact trade in pharmaceuticals, textiles, oil, chemicals, and agricultural products, potentially increasing trade between the two countries to $40 million.

Domestically, the recently liberated territories of Kalbajar and Lachin, as well as Khankendi and the Jabrayil district in Eastern Zangezur, may efficiently utilize energy resources, including solar power. Additionally, an agreement with the UAE to develop hydrogen facilities in Karabakh and East Zangezur may stabilize the security situation in the region.

Although the European Union sided with Armenia during the 24-hour offensive to retake Karabakh, Azerbaijan remains crucially important to the EU as a key provider and substitute for Russian energy. The geostrategic significance of Central Asia has increased during the Russian invasion of Ukraine, highlighting Azerbaijan’s importance as a bridge to Europe through East-West connectivity projects, such as the Southern Gas Corridor, which is pivotal for Azerbaijan’s economy.

With regional backing for COP29, Azerbaijan may gain more international attention, promoting its transition to clean energy. European Union support for COP29 could facilitate reconciliation between Azerbaijan and Armenia, as evidenced by Prime Minister Pashinyan’s recognition of the need for military intervention during the war and the exchange of prisoners captured in 2020.

As Azerbaijan has liberated its territories, it may benefit from the Belt and Road Initiative and European Union association agreements, becoming a major oil supplier until the war in Ukraine is resolved. Azerbaijan may also forge new alliances, particularly with Pakistan, enhancing economic relations and diversifying its suppliers beyond the European Union, Georgia, and Turkey. This could reduce Pakistan’s dependence on the GCC. Azerbaijan’s position in the Organization of Turkic States will also improve, with a focus on cooperation rather than the security issues that have troubled Azerbaijan since its independence.

The European Union, which often took a divided or neutral stance during the war, will now bolster Azerbaijan’s position by including it in more European Union Association Agreements, moving the Karabakh issue off the table. Azerbaijan will shift from being a military investor to an economic investor. As Armenia reluctantly accepts the borders, both countries can now focus on investments in housing, education, GDP growth, economic diversification, social services, and other programs.

Given Azerbaijan’s heavy dependence on oil, new investments in renewable energy can change the paradigm, aiding in its energy diversification and transition to a sustainable environment. Eventually, Azerbaijan and Armenia can come to the negotiating table, fostering coexistence, mutual understanding, and reconciliation in the region.

Moreover, Azerbaijan will remain a crucial close trading partner with Turkey, working openly in Karabakh for reconstruction and in Nakhchivan for reintegration and increased regional connectivity.

*The author is a University of Karachi graduate currently pursuing a Master of Arts in Diplomacy and International Affairs at ADA University in Baku, Azerbaijan.

**The opinions in this article are the author’s own and may not represent the views of The Diplomatic Insight. The organization does not endorse or assume responsibility for the content.

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