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The Impact of the Nagorno-Karabakh conflict on the regional prosperity of the South Caucasus

Today, separatist conflicts are the main threat for stability in many countries in the post-Soviet space. Since the collapse of the Soviet Union, several conflicts have broken out in the region. While many European policy-makers focus on Crimea, Abkhazia and Transnistria, the conflict in Nagorno-Karabakh remains mostly ignored by the western world.

April 23, 2018 - Gunel Shukurova Khayala Gadimova - Articles and Commentary

Mayraberd (Askeran) Fortress - Nagorno-Karabakh Photo: Adam Jones (cc) flickr.com

The conflict dates back to 1988 and has affected the lives of more than ten million people both in Azerbaijan and Armenia. Nagorno-Karabakh is a potential transit zone for the region, as it can link the Caucasus and Europe for the purpose of trade. While investment in the economy of Nagorno-Karabakh could fulfill this capability, the existing conflict has frozen the potential for prosperous economic relations throughout Eurasia. 

The conflict in the Nagorno-Karabakh region is considered the main threat to the peace and human rights in the South Caucasus region. During the 1980s, multiple contradicting territorial claims were made by both Armenia and Azerbaijan regarding Nagorno-Karabakh. As a result of the conflict, more than 200,000 Azerbaijanis were expelled from the territory of the Armenian SSR and Nagorno-Karabakh. While on the other side some 300,000 Armenians living in Azerbaijan were deported the other way. After the collapse of the Soviet Union, Armenia and Azerbaijan, like other former Soviet republics, gained independence and began to form their own foreign policies in line with increasing nationalistic attitudes. 

In order to facilitate a solution to the conflict between Armenia and Azerbaijan the international community created the Minsk group of the Organization for Security and Cooperation in Europe in 1992. However, despite several visits made by the Minsk group to both countries, the conflict remains unresolved. In 1993, the United Nations Security Council adopted four resolutions which called for an unconditional and immediate withdrawal of Armenian troops from Azerbaijan’s territory. Moreover, these resolutions called for the restoration of economic ties, transport infrastructure and energetic power lines  in the Nagorno-Karabakh region, as well as the return of refugees and internally displaced persons to their homelands. After a ceasefire was signed between Armenia and Azerbaijan in 1994, the Nagorno-Karabakh conflict switched to a “no war, no peace” mode. 

The “no war, no peace” situation that plagues Nagorno-Karabakh as well as seven regions of Azerbaijan, has had negative impacts on both Azerbaijan and Armenia from a geopolitical, economic and humanitarian perspective. Presently, there are various ways in which Armenia’s and Azerbaijan’s two-decade long war has negatively affected the economy. First, the occupied territory is rich in natural resources that cannot be utilised by both sides as Armenia lacks infrastructure, while Azerbaijan does not have access to the territory. Secondly, because both countries are in war, investments made in the military sector have taken priority over other important economic and social investments, such as agriculture, which is needed for development.

Nagorno-Karabakh is rich in mineral resources such as gold and platinum and used to be a key strategic point of agricultural irrigation for Azerbaijani farmers. The occupation of Karabakh cut off 43 per cent of overall agricultural production in Azerbaijan which led to a food crisis during the first decade of the conflict. The occupation left the whole country without irrigation, which caused huge economic damage. It took nearly a decade for the Azerbaijani government to build a new irrigation system. At the same time, Armenia did not extract Nagorno-Karabakh’s natural resources because of a lack of infrastructure and focus on its military objectives in the region. Thus, the natural resources of the region remain underutilised.

While the economic crisis has abated, the failure to extract the resources creates a huge economic loss of opportunity for both Azerbaijan and Armenia. Azerbaijan now imports gold and platinum instead of producing and exporting it. Keeping in mind that Nagorno-Karabakh is transit zone, it disrupts the integrity of the whole South Caucasus and limits its economic potential. Both sides have increased the military spending, especially after the skirmishes between the 2nd and 5th of April 2016. This money could have been spent on regional developmental projects instead. 

The negative effects of the conflict have been reflected in the migration crisis the two countries faced. Due to the conflict, many local Azerbaijanis and Armenians in the region were forced to leave their homes in fear of being persecuted (some 30,000 people from both sides lost their lives between 1991 and 1994). Many people left the former Armenian SSR and Azerbaijan SSR, the Nagorno-Karabakh region and moved to cities dominated by their population. This displacement saw massive violations of human rights against both Azerbaijanis and Armenians, who were targeted and forced to leave their homes and properties during the conflict. Together with political instability and economic degradation, migration became one of the most pressing and difficult issues to resolve in the first years of Azerbaijan’s and Armenia’s independence,.

Moreover, this migration crisis has led to an increased urbanisation in the South Caucasus region. In the case of Azerbaijan, people started to migrate from the Nagorno-Karabakh region to other parts of Azerbaijan, especially Baku and other larger cities, creating a massive increase in urbanization. Additionally, a number of people migrating from the Armenian SSR to Georgia not only threatened the economic and social stability of Georgia but also the geopolitics of whole entire South Caucasus. As a result of state policies and individual assistance, the displaced peoples have been given IDP (internally displaced persons) status. Consequently, they have received new homes and monthly stipends as well as refugee aid. While many of them contributed to the development of the cities as well as to the overall GDP of both countries, the increasing population in larger cities has had a lasting effect on the rural landscape.

This frozen conflict does not only have internal significance, but an international one as well. One of its effects has been Russia’s increasing influence in both the South Caucasus and on the international stage. Azerbaijan has purchased at least four billion US dollars-worth of military arms from Russia. Similarly, Armenia also buys weapons from Russia, but receives comparably more direct support than Azerbaijan. By selling weapons to both sides, Russia tries to create an image of an objective regional power. However, in this way, it fosters conflict which contradicts its seemingly neutral position. This situation is in favour of Russia’s politics which is decelerating democratic consolidation in the region and keeping various Post-Soviet territories in a state of permanent conflict.

Since the beginning of the Nagorno-Karabakh conflict there have been a lot of controversial opinions as to who is responsible, yet there is still no consensus over this question. However, it is an undeniable fact that this conflict continues to play a negative role in both countries and creates a threat to the greater stability in the whole region. Azerbaijan, as a newly emerging economic power in the region, experiences the conflict’s negative effects more directly. The conflict hinders Nagorno-Karabakh’s potential as a key transportation point between Europe and Asia, which would benefit trade between the two continents. This situation is not in favour of the European Union because it is a security problem in its eastern neighbourhood. If this conflict provides Russia hegemonic power over the region, this power could then leak into other Post-Soviet territories closer to the EU. That is why, to avoid all these ambiguities,  there is an immediate need for a peaceful solution to this issue without violating any international laws, as well as providing favourable conditions for both countries’ interests and overall regional prosperity.


Khayala Gadimova is a 20 year old undergraduate student at ADA University, Azerbaijan, where she studies Public and International Affairs. Her current area of research is comparative politics of Post-Soviet countries and Asian world and human rights in democracies. She was a research assistant for several projects, which are going to be published. Currently, she is the research assistant of Dr. Anar Valiyev.

Gunel Shukurova is a 21 year old undergraduate student at ADA University, Azerbaijan, where she studies Public and International Affairs. She is currently an intern in the Ministry of Foreign Affairs of the Republic of Azerbaijan in the Department of International Law and Treaties. She is the Vice-President of the Azeri Yurdu Youth Public Union. Gunel plans to research politics and policy-making of Post-Soviet countries.

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