Armenia-Azerbaijan: two global implications of the conflict

One of the world’s longest running conflicts has once again erupted, causing devastation and instability across the South Caucasus. For citizens of Nagorno-Karabakh, a mountainous region situated between Armenia and Azerbaijan, their home has once again become a warzone with no sustained peace in sight. But this conflict also extends beyond the region, creating wider implications for both the global economy and international diplomacy. These global implications are key to understanding why a war that started in the 1990s continues and what the impact could be in the future.

Energy matters

Azerbaijan is a key player in both the oil and gas market industries, but that does not mean the country is essential to the global market. A drop in Azerbaijani supply could be picked up by other countries, however, with 2020 already seeing a highly volatile oil price, there is a real possibility that a sudden drop in supply could ricochet across global financial markets. Armenia, which has no petroleum reserves, is well aware of this potential effect and is weighing up whether any action against Azerbaijani pipelines that run near its northern border would be worth the risk. Such a bold move is currently unlikely as it would mark a substantial increase in violence from the present engagement and risk a reciprocal military response from Azerbaijan. But if Azerbaijan, with its larger military force, follows up on its stated objective to take Nagorno-Karabakh, then Armenia could resort to more drastic methods, such as targeting pipelines, to protect its interests.

My region, your region

Prior to late September the major countries bordering the Caucasus - Russia, Turkey and Iran - maintained a relatively stable status quo, each keeping to a separate sphere of influence. But this recent flare up has seen Turkey, typically a country that has avoided openly commenting on the Nagorno-Karabakh conflict, coming out in strong support of its ally Azerbaijan. Soon after the Russia-backed ceasefire, the Turkish defence minister, Hulusi Akar, reiterated Turkey’s claim that Azerbaijan should continue its “campaign to take back its own lands” until all Armenian forces withdraw. This was a direct slap in the face for Russia, which, despite its greater support for the Armenian cause than Azerbaijan, has always seen itself as the key diplomatic broker between the two sides.

A fallout between Turkey and Russia would have global repercussions. NATO members, already riled by Turkey’s close relationship with Russia, have called for their fellow member to show restraint in the region, but they are also eyeing up a potential opportunity to bring Turkey back into the Western, anti-Russian, fold if relations with Russia continue to sour. But Nagorno-Karabakh could join the considerable list of conflicts where Turkey and Russia support opposing sides, whilst still maintaining friendly relations. This outcome is plausible because both countries are very good at separating their foreign policy from economic goals, meaning that neither would sacrifice their economic relationship over foreign policy disputes.

What happens now?

Of the two scenarios laid out above, it is the threat to Russia and Turkey’s bilateral relations that carries the greatest macro-risk. Unlike their previous foreign policy disputes, Turkey’s recent support for Azerbaijan was in open defiance of Russia, which perceives the South Caucasus as its own backyard. This suggests that Ankara is ready and willing to defend its position as a fledgling regional power, but it also forces Russia to choose between either backing down and accepting that its influence is diminished, or directly challenging Turkey to abandon Azerbaijan. Based on Russia’s reaction to past efforts by other countries to side-line its influence in the Caucasus, the Kremlin is more likely to see Ankara’s actions as an intolerable provocation than to accept a change in regional dynamics. Such an escalation between the two countries would have significance beyond Eurasia, impacting civil wars in the Middle East, European integration efforts for Turkey, and even the next US president, who would be forced to deal with two major countries unwilling to lose face over Nagorno-Karabakh.