For Armenia, peace dividends are finally starting to show up. In 2026, they need to keep coming

Caption: Road in Lachin. Photo: Hrach Hovhannisyan / Shutterstock

In late December, a train carrying 24 wagons of Azerbaijani-produced gasoline crossed from Georgia into Armenia. The gasoline was destined for the Armenian market, a post-Soviet first as trade relations between Yerevan and Baku slowly resurface after more than three decades of conflict. Coming after August’s high-profile US-Armenia-Azerbaijan summit in Washington DC, news of Azerbaijani gas reaching Armenia is one of a handful of peace dividends beginning to appear for Armenians.

For the divisive government of Prime Minister Nikol Pashinyan, the burgeoning trade relationship between Armenia and Azerbaijan has not arrived a minute too soon. Over two years on from the reconquest of Nagorno-Karabakh and the displacement of its 100,000 Armenian residents, tangible benefits of peacetime are finally beginning to emerge. With national elections on the horizon, these normalization benchmarks could prove pivotal for the governing team.

As borders begin to open, Armenia begins to profit

In October 2025, Azerbaijan lifted its long-running ban on goods entering Armenia from Azerbaijani territory. The next month, shipments of Russian and Kazakh grain began to arrive in Armenia from Azerbaijan for the first time in decades.

This was then followed up by the December shipments of Azerbaijani gasoline, which Armenia’s economy minister referred to as “probably the first trade and economic transaction between Armenia and Azerbaijan not only since peace was established between the two countries, but since their independence as a whole”. Reports have since emerged that the Azerbaijani gasoline will be sold under market value.

Since then, a steady stream of events points to regular shipments of grain and fuel now arriving in Armenia by way of Azerbaijani territory. Yerevan and Baku are now in talks to open direct border links, which would mean goods would no longer have to exit Azerbaijan and traverse Georgia before reaching Armenia.

With Azerbaijan’s GDP more than twice that of Armenia’s, the re-opening of cross-border trade with Baku is a game changer for Yerevan’s economy. Azerbaijan sits at the bottleneck of a growing trans-Caspian transit corridor. Goods from China and Central Asia increasingly make their way westward through the Port of Baku. A normalized border with Azerbaijan will allow Armenians to tap into that flow of goods, either as consumers or as a transit country.

Another major source of hypothetical trade and investment sits to Armenia’s west: Turkey. By far the largest economy bordering Armenia, Turkey closed its border with Armenia in 1993 in a show of support for Azerbaijan. With the conflict effectively over, Turkish officials have evidenced a desire to normalize relations. Pashinyan is now pushing to re-establish rail ties to Turkey – a project complicated by the fact that Armenian railways are operated by a state-owned Russian firm.

While he has yet to visit Azerbaijan, Pashinyan travelled to Istanbul for the first time for official talks with Recep Tayyip Erdogan in June last year. In what looked to be a gesture of goodwill in November, Turkish and Armenian officials toured border posts together in preparation for their opening.

However, as a steadfast Azerbaijani ally, Ankara has long maintained it will only open its Armenian border after Baku. However, Bloomberg reported in December that Turkish authorities were considering opening the Armenian border in the next six months. If in fact the Turkey-Armenia border opens soon, it will be a major political victory for Pashinyan’s government.

This vision of regional integration sits at the heart of Pashinyan’s “Crossroads of Peace” initiative. The proposal, which would revive Soviet-era rail lines and construct new infrastructure linking Armenia to its neighbours, was first announced by Pashinyan just a month after Azerbaijan’s 2023 victory in Nagorno-Karabakh. Yet, with Azerbaijan maintaining its blockade of Armenia until October, the project had long appeared at best aspirational and at worst delusional.

Armenia saw a recent spike in GDP in 2022. But that increase was driven by Armenian firms taking advantage of sanctions evasion routes and an influx of cash-rich Russian nationals, with growth dropping from 12 per cent in 2022 to an expected 4.9 per cent in 2026. Armenia still struggles with economic over-reliance on Russia and suffers from high rates of unemployment (13.1 per cent in 2025) and job overqualification. Opening trade with Armenia’s two neighbours could be a critical key to long-term growth.

When polled, Armenians typically rank the economy as their second-highest concern after national security issues. When asked what the main problems facing their own families are, however, economic concerns are by far the most dominant issues.

Emerging peace dividends for Armenians now appear to go beyond the economic. The last year closed with Armenia’s parliament shortening mandatory military service for Armenian men from 24 to 18 months. Likewise in December, the parliament green-lit a plan for universal health insurance, a potential sign that as Armenia moves away from the conflict period, the government will focus on new priorities and projects.

As for political optics, Armenia’s security council secretary, Armen Grigoryan, and Aliyev’s top foreign policy advisor, Hikmet Hajiyev, sat for a friendly joint interview in December. The interview, given with the Baku-aligned Euronews outlet, marked a rare public show of high-level elite cooperation. Pashinyan and Aliyev have rarely held such events, with the notable exception of the Trump-hosted Washington DC summit.

After two years has the corner turned for Baku?

The emerging dividends come in contrast to what has been two years of unease, confusion, and mixed signals from Baku.

Since September 2023, Armenian officials have made clear their desire to normalize relations as quickly as possible. The far stronger party, Baku has meanwhile pushed forward maximalist and politically complicated prerequisites. Azerbaijan has argued that Armenia must modify its constitution, that the OSCE dissolve its working group on Nagorno-Karabakh, and that Armenia allow the establishment of a transit corridor through Armenia connecting Azerbaijan to its exclave of Nakhchivan. While two of these elements have now been addressed, the question of Armenia’s constitution remains open and will require a public referendum.

Critically, this means that while Aliyev and Pashinyan have provided the initial approval of a peace deal at the Washington summit, a final normalization agreement remains a bit off.

Worse still from the perspective of Yerevan, since 2023 Azerbaijani elites kept up pressure on Armenia through dramatic rhetoric. In recent years, Aliyev labeled Armenia a “fascist” state, described Armenian territories as “historic Azerbaijani lands”, and seemed to allude to potential military force against Armenia on several occasions. Baku has also protested Armenia’s efforts to build new security relations with the European Union in general, and France in particular.

Azerbaijan has begun to increasingly promote the narrative of “Western Azerbaijan”. This typically refers to the idea that Azerbaijanis displaced from Armenian lands in the late 1980s have a right to return. As the term “Western Azerbaijan” implies, such appeals are often replete with rhetorical framings undermining the legitimacy of today’s Armenian state. The argument further ignores that Azerbaijan’s own historic Armenian minority also faced expulsion in the 1980s. Aliyev himself has embraced this narrative – although he specifies that any such return must be peaceful.

There are signs, however, that the August summit in Washington saw Baku turn a corner. Azerbaijan is still pressing for Armenia to change its constitution, but Aliyev’s moves to open trade coincided with a notably softer tone. Commenting in October on the opening of trade ties, Aliyev stated that “a new stage is beginning — I would even say that it has already begun — an era of peace between Azerbaijan and Armenia… both countries have demonstrated a significant level of political will.”

Aliyev went on to say that the agreement initialed in Washington “effectively put an end to the long-standing conflict, opening up great prospects for development, including in the broader regional context”.Aliyev doubled down on these sentiments speaking at January’s Davos summit, underscoring the shared economic benefits of the emerging regional order.

Recent years have seen regular cross-border fire on the de facto Azerbaijan-Armenia border. Since the Washington summit, however, there have been no such incidents.

Addressing domestic audiences in his 2025-26 New Year’s Address, Aliyev also struck a more transitional tone. Still emphasizing themes of victory, he stated “the [Nagorno-Karabakh] conflict has been completely removed from the international agenda. As a victorious country, we extended a hand of peace to the defeated Armenia.”

This is not to say that Aliyev has fully abandoned hostile rhetoric toward Armenia. In November, the president delivered a speech in which he provided a full-throated endorsement of the “Western Azerbaijan” concept. In comments that must have confused and unnerved Armenian policy makers, Aliyev stated that “The return of Azerbaijanis to the present-day Armenia should not intimidate the people or the state of Armenia… We must return to our historical lands – not in tanks, but in automobiles.”

Yet, by now a pattern has emerged in Azerbaijani discourse. Elites, especially Aliyev, and state media still indulge in anti-Armenian rhetoric for domestic audiences and yet the normalization process moves forward. More and more, Azerbaijani elites are underscoring that the period of conflict is over.

For Yerevan, the increasingly amicable tone of Baku’s policy makers comes as good news. Since September of 2023, the central argument of Pashinyan’s government has been that through pragmatic negotiations and leaving behind historic (and recent) grievances, Armenia could achieve security and greater prosperity. Given recent memories of conflict, loss, displacement, and ongoing concerns around security, such a pitch was always going to be a tough sell at home.

But with new goods entering Armenian markets and a major world power invested in regional stability, Pashinyan arguably has tangible evidence for the first time of his approach actually working. With national elections this coming summer and widespread political disenchantment in Armenia, these wins could come as a needed boost for Pashinyan’s government.

The prime minister hit upon these themes during his recent New Year’s Address. Speaking to Armenians, Pashinyan noted that “since independence, 2025 is the first calendar year in which we have had no casualties as a result of gunfire with Azerbaijan.” He went on to say, “for the first time since independence, trains are bringing cargo to the Republic of Armenia through the territory of Azerbaijan, the first signs of bilateral trade with Azerbaijan are appearing.”

Other major decisions by Baku could further assist Pashinyan make his case to voters. Baku still occupies about 200 square kilometres of internationally-recognized Armenian territory along the de facto border, largely gained during Azerbaijani offensives in 2022. So far, Baku has maintained these positions, even as officials work toward border delimitation. Moving Azerbaijani troops back across the de jure border could be a sizable symbolic move toward building the kind of mutual trust the peace process has largely lacked.

De-occupying the corners of Armenia currently held by Azerbaijan would indicate that Baku is ready for an amicable relationship between the two states. Azerbaijan could also make good on its pledge to return a small de jure Armenian exclave held by Baku since the 1990s. If Aliyev does not, however, it may show that he still sees greater benefits to treating Armenia as an enemy even as relations creep closer to normalization.

In a move possibly hinting at Azerbaijan’s cognizance of these symbolic issues, Baku released four Armenian prisoners in January. Azerbaijan continues to hold over a dozen ex-officials from the now-defunct Nagorno-Karabakh republic, several of whom were sentenced to life in prison on war crimes charges in early February. While it may be unrealistic to expect Baku to release high-profile individuals, the fact that the January releases came shortly after US-Armenia talks, which featured discussions of Armenian prisoners, may suggest that Washington is taking an active role in encouraging releases.

From the perspective of regional stability, it is very much in Baku’s interests that Pashinyan remain in power and his constitutional referendum passes. While for now Pashinyan and his government appear to be the only viable options, more nationalist opposition forces are mobilizing against him. These include Armenia’s richest man, the Russian–Armenian billionaire Samvel Karapetyan, now under house arrest following anti-government comments, and Armenia’s ex-President Robert Kocharyan.

Therefore, providing Armenia with these kinds of victories and abandoning threatening rhetoric is likewise in Azerbaijani interests. Given the circumstances of the conflict’s end in 2023, it is impossible to have the kind of amicable relations one might hope for at first – especially at the inter-cultural or inter-personal level. But with work to do on the way to fully normalized relations, there is still time for trust-building and for missteps.

From a broader view, with so much momentum and potential surrounding normalization, it is difficult to imagine a scenario where Yerevan and Baku forgo a full normalization of relations. The question becomes when and how the final chapter of the Armenia-Azerbaijan conflict plays out. With the regional power balance so skewed in Baku’s favour, it will be the choice of the Aliyev regime as to how quickly and with what tone that transition takes place.

Nicholas Castillo is a freelance writer and a graduate student at Harvard University pursuing a Master of Arts in regional studies for Russia, Eastern Europe, and Central Asia. His primary research areas include the politics and security of Eastern Europe and the Caucasus and the politics of identity, ethnic conflict, and authoritarianism. Nicholas’ written work has appeared in outlets including The Moscow Times and OC Media, and he is the managing editor of the Substack Eastern Neighborhood Bulletin.

Armenia, Azerbaijan, Ilham Aliyev, Nikol Pashinyan, South Caucasus