Could Azerbaijan-Armenia conflict bring a win–win economic outcome?


Trump, Macron, Merkel are only some of the leaders which called upon for immediate ceasefire on occasion of the newest escalation of the conflict between the two Caucasus countries – Azerbaijan and Armenia. Is this conflict economically affiliated to the EU activities in the region? Could the conflict create an economic win–win outcomes? This analysis present key trade and economic aspects of cooperation between the EU and Azerbaijan and Armenia as the two countries located in the Caucasus region.

According to the data of the European Commission, the EU is Azerbaijan’s first trading partner and biggest export and import market. It is also Azerbaijan’s largest foreign investor, both in the oil and non-oil sector. The EU-Azerbaijan Partnership and Cooperation Agreement enables gradual approximation of Azerbaijan’s legislation and procedures with EU and international trade-related  laws and standards.

In Azerbaijan, the EU assists companies with funding, training, and export support to new markets through the EU4Business initiative, and it supports the government in improving the country’s business and investment climate. Azerbaijan is an important energy partner for the EU, currently supplying around 5% of the EU’s gas demand, as it brings Caspian gas resources to the EU market through the Southern Gas Corridor. In 2016, the EU launched a new regional programme, EU4Energy, which supports Eastern Partnership countries, including Azerbaijan, in achieving their energy policy objectives and improving their energy efficiency. Azerbaijan benefits from its favourable location at the crossroads of transport connections linking North and South, and East and West. It has invested in important infrastructure projects such as the Port of Baku and the Baku-Tbilisi-Kars railway. The EU provides capacity-building support, for instance to the Port of Baku and its free-trade zone.

As for Armenia, the situation is quite similar with Azerbaijan. The EU is Armenia’s biggest export market, with metals and diamonds among the top exports to the EU. The European Commission accounts for around 22% of Armenia’s total trade. It provides Armenian companies with funding, training, and export support to new markets through the EU4Business initiative. Since 2009, more than €473 million have been allocated to companies, 25,000 enterprises have been supported, and 900 new jobs have been created. Furthermore, the European Commission is funding better energy exchange and transit between Armenia and Georgia, in part by linking Armenia to the EU’s power grid. With EU support, improvements to the Yerevan Metro have resulted in modern carriages, safer metro operations, and substantial energy savings. The quality of drinking water for 1.1 million people in Yerevan has been improved with EU support. At the end, the EU initiated a comprehensive EU-Armenia Air Transport Agreement. Once in force, this will pave the way for a larger exchange of travellers, lower prices, and new business opportunities.

Both countries are part of the Eastern Partnership with the European Union. Between themselves, an unrecognized Nagorno-Karabakh, dominantly Armenian populated region lays. This disputed territory is a cornerstone of the three-decade long dispute. The latest escalation of hostilities brought new evidence into the security architecture of the Caucasus region, which involves deeper analysis of how the EU acts on–ground.

The overall framework guiding relations between the EU and its six Eastern Partners is provided by the relevant bilateral agreements, such as the Association Agreements, as well as the Association Agendas and the Partnership Priorities and the EaP 20 Deliverables for 2020 aligned along the four key priority areas. To ensure a broadly streamlined approach, the new multi-annual assistance frameworks for the period 2017/2018-2020 are being designed in an inclusive manner between the EU, its Member States and the six Partner countries to act as a work plans guiding the actions until 2020, supporting delivering under existing commitments, and allowing for an easier monitoring of progress.

Supporting the comprehensive approach by the EU towards its Eastern partners is the European Neighbourhood Instrument, which is the key EU financial instrument for cooperation with the EaP countries during the period of 2014-2020. Cooperation then takes place both at bilateral (with individual partners: Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine) and at regional level, depending on the nature of the action.

All the relevant international actors such as the USA, UK, France, Germany, as well as other major powers such as Russian Federation, People’s Republic of China, Iran and the international organizations – EU, OSCE, and Council of Europe have called upon for immediate abortion of the fire between the conflict sides. It is the only way to maintain the essential win-win situation if the peace comes along soon. Lastly, this is a rare case in which neither of sides has particular support by any single external state, which is why the post-festum occurrences could fruitfully bring economic prosperity to both Azerbaijan and Armenia.

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