Moody's: Russia's disengagement reignites tensions between Armenia and Azerbaijan
YEREVAN, May 25, /ARKA/. Russia's role as a major diplomatic partner and security guarantor in the CIS, as well as a key economic hub, is being eroded, Moody’s says in a report.
It says this has immediate credit implications for the CIS: heightened exposure to geopolitical risk, as highlighted by its r deteriorated political risk scores in the region, economic, governance and fiscal disruption, and increased financial, social and energy security concerns.
With regard to Armenian-Azerbaijani conflict, Moody’s says Russia's apparent diplomatic withdrawal as security guarantor is reigniting tensions between Armenia and Azerbaijan, creating a political vacuum for other diplomatic powers such as the EU, Turkey, and Iran, to fill.
Extreme volatility in Nagorno-Karabakh
‘Decades-old territorial disputes between Armenia and Azerbaijan have in the past escalated to direct military war. The most recent, in 2020, led Azerbaijan, supported by Turkey, to regain significant swathes of territory in Nagorno-Karabakh. Despite multiple peace talks and ceasefire agreements, the latest brokered by Russia in November 2020, including the deployment of 2000 Russian peacekeepers, any lasting resolution to the conflict remains remote.
Since the start of the Russia-Ukraine war, tensions have grown once again. Clashes in September 2022 breached Armenian territory beyond the disputed areas. Armenia first asked the Russian-led regional security alliance, the Collective Security Treaty Organization (CSTO), for assistance in response to Azerbaijan's incursions. But the bloc failed to agree on providing support. This was possibly because of resources being tied up in Ukraine, as well as Russia's desire no to antagonize Turkey, a prominent mediator in the Ukraine war.
As a result, Armenia signaled that it was distancing itself from the CSTO and appealed instead to the UN and the EU for support. The EU sent a first observer mission of 40 monitors in October for two months. Meanwhile, Azerbaijani protesters have, since December, blocked movement along the Lachin corridor linking Yerevan to Stepanakert, disrupting the city's only supply route. The situation remains volatile, with both sides accusing Russian peacekeepers based in the Lachin corridor of helping the other, further undermining Russia's credibility as security guarantor.
This has led both sovereigns to recently increase military spending – Azerbaijan by 17% and Armenia by 46% in their respective 2023 budget. In Azerbaijan, an exceptionally high hydrocarbon windfall has more than compensated for the extra expenditure, while in Armenia strong revenue in 2022 from exceptional economic activity have softened the strain on its finances. Although we do not expect a return to wide-scale war, intensification of skirmishes could still harm investment and consumption, while direct war would raise a threat to infrastructure, including Azerbaijan's oil and gas assets.
Russia's apparent disengagement from this region has also resulted in a political vacuum, leading to an increase in short-term instability while other powers establish their positions. The EU has, for example, from March 2023 agreed to deploy a second, two-year observer mission to Armenia of 100 monitors. Although the mission's presence highlights the EU's expanding role in the region, Azerbaijan has not given it permission to enter its territory, including Nagorno-Karabakh, thus limiting its scope and potential for stabilization. Iran, which has economic ties with Armenia, could also become more involved, as it seeks to counterbalance Turkey’s increasing influence in the Caucasus.
Still, the balance of power remains tilted in Azerbaijan's favor, thanks to its superior military strength, and to Turkey’s continuing support, which could lead it to increase pressure on Armenia. Azerbaijan's new role as an alternative supplier of gas to the EU in the next few years also gives it extra bargaining power.’-0-
