Publication: Eurasia Daily Monitor Volume: 4 Issue: 188

On September 4 Azerbaijani President Ilham Aliyev stated that the national budget of the country in 2008 would reach $12 billion (, September 4). Just three years ago, the budget totaled only $4 billion.

Aliyev’s announcement was no surprise to the domestic audience, since the population of Azerbaijan has been witnessing a period of booming economic growth unprecedented in the history of the region. Last year Azerbaijan’s economy grew by 26% and so far in 2007 by 34%. This dramatic increase was mainly due to the start of the Baku-Tbilisi-Ceyhan pipeline’s operations and the corresponding dramatic increase in oil exports.

Recently the Azerbaijani government has been making a direct link between the country’s growing economic capacity and its ability to solve the long-standing Karabakh conflict. Specifically, both carrot and stick policies have been offered to the Armenian side. While Azerbaijan has tripled its military budget from $300 million in 2005 to $1 billion in 2007, the government simultaneously has been deepening its economic partnership with Georgia and other countries of the region, such as Kazakhstan, Tajikistan, and Belarus, in order to show official Yerevan the potential benefits of regional economic cooperation. For example, Azerbaijan has initiated and funded the Baku-Tbilisi-Kars railway project, which will immensely benefit the Georgian and Turkish economies and bring greater prosperity to the whole region.

However, the initial optimism that these policies would produce tangible results in the Karabakh peace process seems to be fading. Armenia, as indicated by Armenian Foreign Minister Vartan Oskaniyan’s recent statement at the UN General Assembly session in New York, does not want to make concessions and withdraw military forces from the occupied territories. On the contrary, the military empowerment of Azerbaijan has created a sense of insecurity in Armenia, which is pushing it further into the hands of the Kremlin. A new arms scandal erupted in August, when Turkish border guards seized a military hardware shipment en route to Armenia from Albania. Many Azerbaijani analysts believe the origin of the cargo was Russia, which is trying to further arm Armenia to offset the potential military imbalance in the region. On October 8, Khazar Ibrahim, spokesperson for the Foreign Ministry of Azerbaijan, stated, “Russia should be very careful in such a sensitive issue as arming Armenia” (Foreign Ministry official briefing, October 8).

In addition to the spiraling arms race in the Caucasus, local pundits in Azerbaijan claim that the increase in the country’s military budget has not affected the level of professionalism among the troops nor has it increased the amount of military hardware available to the soldiers. Azerbaijan focuses on purchasing military equipment mainly from former Soviet republics, such as Russia, Belarus, Ukraine, and Kazakhstan. As recently as October 8 the Kazakh defense minister paid a visit to Baku to further enhance the military partnership with the Azerbaijani government. These countries provide either outdated equipment or charge large amounts to repair existing equipment, a frequent need since the quality of the hardware is generally very low. As a result, Azerbaijan’s military capability and its ability to re-take Karabakh by force remains in serious doubt.

Baku’s economic policies have not impressed Yerevan. On October 8, the website quoted an Armenian Dashnaktsutsun party official saying, “Nagorno-Karabakh will never become part of Azerbaijan.” This statement, coupled with the deadlock in the negotiation process, illustrates Azerbaijan’s inability to use the growing economic capacity to change hearts and minds in Yerevan.

The only solution for the current deadlock is to encourage extensive public diplomacy efforts between both countries. As long as mistrust is high and dialogue opportunities are low, it will be extremely hard to convince the public in both countries that compromises are needed to peacefully resolve the conflict. If Azerbaijan agrees to restore public ties with Armenia, it would reduce the feelings of insecurity in this country and subsequently Yerevan’s level of dependence on Russia for military and economic assistance. Only under these conditions can Azerbaijan’s newfound economic prosperity facilitate the peaceful resolution of the conflict.