Issue 5, 2014. October-November


The South Caucasus: Regional Division and Divergence

Richard Giragosian, Director of the Regional Studies Center

For the three countries of the South Caucasus, the priority has always been to overcome the limits of geography. And for Armenia, Azerbaijan and Georgia, the preference has been to look beyond the regional confines of the South Caucasus. But never before has the region been as divided as it is now, as the South Caucasus has become a strategic arena of competition and confrontation with Russia seeking to push back and push out European Union (EU) engagement.

This confrontation is marked by the Russian-led Customs Union, or Eurasian Union, on the one side, as an instrument for Russian pressure and power, but based solely on short-term political pressure and economic coercion. And on the other side, the European Union offers a more seductive, incentive-based offer of "Association Agreements" and an "Eastern Partnership."

Yet beyond the broader geopolitical context, the confrontation is matched by a division of the region, based on a divergence of interests in three main areas: economic interests, political preference, and the imperative of security.

Economic Interests

In terms of economic interests, the promise of greater market access and a "return on reform," Georgia has clearly embraced its Association Agreement with the EU. Unlike its neighbors, the Georgian Association Agreement represents a crucial step to bringing the country closer to Europe, and fulfilling a key strategic goal.

But for Georgia, the challenge was not in signing the Association Agreement. Rather, it is the implementation stage that promises to be the more difficult and daunting task.

For Armenia, the painful sacrifice of its own Association Agreement has been defended by the Armenian government's stated commitment to become a full member of Moscow's Customs Union/Eurasian Union. While the economic benefits are meager and the higher trade tariffs rather punitive for the Armenian economy, Yerevan seeks some relief by lobbying for a set of over 800 goods and products to be at least temporarily exempt from the higher tariff rates. Nevertheless, the economic impact of joining the Customs Union is inevitably negative, only reinforcing the lack of competition, triggering a rise in prices, and bolstering the market dominance of the Armenian "oligarchs," who control several commodity-based cartels.

Pursuing a unique and fairly effective "go it alone" strategy, Azerbaijan is neither interested in an Association Agreement nor in joining the Customs Union. Its energy wealth, strategic significance and authoritarian government has each contributed to this stance, and only demonstrated the paucity and weakness of Western, or Russian, leverage.

Political Preferences

The divergence is also evident in terms of political preferences. For Georgia, the EU model is a natural complement to the hard-won gains of the earlier reform period, which has also helped to make Georgia the true leader of the region. And despite some recent setbacks and shortfalls, Georgia has still set an important precedent in the region's only example of a peaceful transfer of power from an incumbent government to an opposition coalition.

And for Armenia, the economic cost of its fateful decision to align itself with Moscow's Customs Union model is only matched by the negative political impact. The trend of authoritarian rule in a one-party system will be that much harder to overcome once Armenia joins the Customs Union. And even more distressing, the political implications will only solidify Yerevan's vulnerable position within Moscow's orbit, thereby contributing to even greater dependence on Russia and even weaker sovereignty.

Yet it is Azerbaijan that loses the most from its isolation. The country has already been marked by a new stage of political repression, with the government only escalating its "creeping crackdown" on civil society. This trend is only expected to increase, as neither the EU, nor the West in general, has any real leverage or influence over the Azerbaijani leadership. And Baku's quest to remain independent of Russia will also only further drive its desire for "domestic stability" at the expense of even the trappings of democracy.

The Imperative of Security

The third area of this regional divergence is defined by the imperative of security. In the case of Georgia, the strategic desire for deeper security to NATO and the West is a clear and present imperative. In the face of Russian aggression, well beyond the 2008 war, there is no recourse and no alternative for Georgian security. And while this security necessity has only reinforced the appeal of the EU, it also drives Georgian commitments to NATO and more recent pledges of partnership with the US in the new counter-terror campaign targeting ISIS, or the "Islamic State."

The security imperative is equally serious for Armenia and was also the main determinant of the Armenian decision to choose the Customs Union. And given the leverage of the unresolved Nagorno-Karabakh conflict, Russia has long exploited the insecurity of both Armenia and Azerbaijan.

As the number one arms provider to both Armenia and Azerbaijan, Russia has also been able to maintain its power and position over both countries, making the imperative of security more of an instrument of insecurity.

Richard Giragosian is the director of the Regional Studies Center (RSC), an independent think tank in Yerevan, Armenia.