Recent Political and Economic Developments

In the early 1990s, the South Caucasian states of Armenia, Azerbaijan and Georgia were plagued by ethnic conflict, economic collapse and political instability. This environment devastated the region, and left tens of thousands of people dead, and produced a million and a half refugees or IDPs (internally displaced persons). The conflict between Armenia and Azerbaijan was the most serious in terms of human and material loss; this devastation was closely followed by the Georgian-Abkhaz conflict, while the Georgian-South Ossetian conflict was of a somewhat lower intensity. Internal struggles for power also degenerated into civil war-like situations in Georgia in late 1991 and Fall 1993, whereas a civil war was narrowly avoided in Azerbaijan in the Summer of 1993.

These developments frustrated early hopes for a democratic and prosperous future after the fall of Communism. Although some stability followed this debacle in the mid-1990s as international interest in investing in the region’s energy resources increased. More broadly, the international community began to realize the geopolitical and geo-economic importance of the Caucasus in the world – a region that acts as a natural bridge between Europe and Asia, straddling the historic Silk Route, and surrounded by three regional powers: Russia, Iran and Turkey. 

While three states formally exist in the region, the factual situation is that three geographic areas (Mountainous Karabakh and its surroundings, Abkhazia, and parts of South Ossetia) are ruled by secessionist ethnic movements outside government jurisdiction. These areas thus remain unrecognized entities, shielded from the influence of the international community. Allegations have been made that these territories are used for the smuggling of persons, narcotics, and arms, and form potential havens for terrorists. The lack of solutions to these protracted conflicts have increased frustration among the publics in the three states; Armenia is crippled economically and has experienced massive emigration; Georgia and Azerbaijan are faced with a growing reaction to their humiliating defeats in the wars of the early 1990s, especially among the refugee population.

Since 1994, the South Caucasus has with minor exceptions managed to avoid a relapse into armed ethnic or civil conflict. Furthermore, international investment and aid has undoubtedly increased tremendously, while the region’s importance is now acknowledged by major states and international organizations. Yet the Caucasus is a region that remains in deep crisis. While there has been no major armed conflict since 1994, none of the secessionist conflicts have found or are close to finding a lasting solution. Refugees and IDPs continue to live in dismal conditions, while renewed armed conflict is a tangible and increasing risk in the areas of unsolved conflict, especially Mountainous Karabakh and Abkhazia – and would certainly have considerably larger human and regional political implications today than was the case in the early 1990s. Moreover, the risk of ethnic tensions escalating to armed conflict in other areas of the region has existed throughout the 1990s and remains a problem that could threaten regional peace and stability.

The economic downturn of the early 1990s has barely been reversed, and a majority of the region’s population still lives below the poverty line. The political and economic reform process in all three countries has been slow and continually suffers important setbacks. Certain reforms have been carried out in the legal systems of the three countries to facilitate foreign direct investment. Unfortunately widespread corruption, bureaucratic difficulties and political instability have maintained the South Caucasus’ reputation as a relatively high-risk area for business. The rising incidence of crime and the risk of abductions (kidnappings) of foreign personnel, especially in Georgia, have further damaged the investment climate in the region.

All three South Caucasian countries retain traits of authoritarianism, and the political process retains undemocratic tendencies. A functioning opposition and a relatively free media are accomplishments that are notable compared to many other successor states of the Soviet Union, but elections in all three states have been and remain seriously flawed and election results have on several occasions failed to reflect the will of the people, decreasing the popular legitimacy of governments. The issue of political succession to the current Presidents is acute in both Azerbaijan and Georgia, where stability to a large degree rests in the persons of the ageing leaders. Coups d’etat and assassination attempts are a constant threat in all countries, but have especially marred Armenia and Georgia.

Georgia is perhaps the weakest state of the region, where the government is unable to exert influence and perform the functions of a state on large tracts of its territory. Beyond the de facto independence of Abkhazia and parts of South Ossetia, the government does not have effective control over Javakheti, Ajaria, the Pankisi gorge, and its authority is questionable in parts of Mingrelia and Svaneti. Armenia and Azerbaijan do not have this problem at present, though the potential for deteriorating internal conditions exists especially in Azerbaijan as a consequence of a future succession struggle.

International interest in the region has been a mixed blessing. While it has brought crucial foreign direct investment in Azerbaijan and huge sums of aid to both Armenia and Georgia, foreign interest also has less benign expressions as the South Caucasus has become an area of the intersection of great and regional powers’ interests. Partly due to historical experience and partly to their relations between each other, the development of common regional policies has been eluded. Instead, each regional state has defined their own national interests and threat perceptions regardless of the impact it has on their neighbors. Russia is seen by both Azerbaijan and Georgia as the major threat to their independence and survival, whereas the United States and Turkey, the latter especially in Azerbaijan, are seen as guarantors of their security. Armenia, on the other hand, sees Turkey as the biggest threat to its security and survival, and Russia as the only feasible guarantor of its security.

This incompatibility of the foreign policy orientation of the three Caucasian states has enabled the gradual emergence of a system of military and strategic links and alliances that carry substantial dangers for the security of the Caucasus and beyond. To name only one example, a close Armenian-Russian military alliance exists together with an equally close Turkish-Azerbaijani alliance, raising the risk of great power confrontation should a new war break out between Armenia and Azerbaijan, with unforeseeable consequences. Over the last decade, the region has broadly been characterized by an increased American and Turkish political influence and a gradual and reluctant decrease of Russian influence. In the economic field, the region is also gradually breaking its links with the former Soviet Union and becoming increasingly tied to the Middle East and Europe, especially Turkey.

The Caucasus has also been seriously affected by the negative effects of globalization, in particular it is beset with an increase in the trafficking of narcotics, humans, and arms. The narcotics trade, in particular, is currently threatening the region’s security through the corruptive effect it has in the societies, as well as through an alarming increase in HIV, which the Caucasus shares with the rest of the former Soviet Union.