EU Policy in the South Caucasus

The recent conflict between Armenia and Azerbaijan over the breakaway territory of Nagorno-Karabakh will have serious consequences for the South Caucasus and for the European Union (EU). The victory of Azerbaijan and the subsequent redrawing of regional borders marks an end to Armenian control in Nagorno-Karabakh.

For most of the 20th century, Nagorno-Karabakh had been an Autonomous Oblast (region) populated with an ethnic-Armenian majority within the Azerbaijan SSR. After a long and bloody war in the early 1990s, in which a large-scale population transfer took place, Nagorno-Karabakh and much of its surrounding territory was controlled by Armenia.i The conquered region was not incorporated into Armenia but became the unrecognised but de facto state of Artsakh.

However, in September 2020 Azerbaijan, with Turkish support, launched an offensiveii and reconquered most of the territory of Artsakh. After signing a Russia-negotiated settlement, Armenia had returned most of the territories to Azerbaijan by the end of 2020, while Russian forces secure what remains of the Armenian-controlled Nagorno-Karabakh. On the other side, the Azerbaijani victory has bolstered Azerbaijan and Turkey, reinforcing their military and political influence in the South Caucasus. With now increasing Russian and Turkish military and political involvement in the region, the impact of EU foreign policy in the South Caucasus could now be overshadowed and possibly at risk.

This AIES Fokus Paper hopes to break down the role that the EU currently has in the South Caucasus and analyse how the recent events of the Nagorno-Karabakh conflict and its settlement could affect EU policy in the region. Moreover, after analysing the potential consequences of the conflict, the paper proposes a number of policy recommendations for future EU involvement in the South Caucasus, developing mainly on the Eastern Partnership framework.

Current EU Policy in the South Caucasus

EU foreign policy in the South Caucasus is conducted primarily through the regional framework of the Eastern Partnership (EaP), which includes the six former Soviet countries of Belarus, Ukraine and Moldova in Eastern Europe, as well as Georgia, Armenia and Azerbaijan in the South Caucasus. The initiative was founded in 2009 as a part of the EU’s broader Neighbourhood Policy. Its main stated goal is “to reinforce the political association and economic integration” of these countries with the EU.iiiBy providing economic and political incentives, including in some cases the future prospect of EU membership, the EU has become, to varying degrees, an effective democratic norms promotor in these countries. Although more headway has been made through bilateral dialogues, the EaP maintains a high degree of symbolic value as many see it as a “stepping stone away from corruption, underdevelopment, and Russian influence.”iv

While all six EaP members cooperate with the EU multilaterally through the EaP, the EU has bilateral relations with each of them, with varying degrees of depth. Georgia, Ukraine and Moldova have the strongest relations with the EU, having each signed a bilateral Association Agreement (AA), which includes a Deep and Comprehensive Free Trade Area (DCFTA) and visa liberalisation. Armenia has signed a Comprehensive and Enhanced Partnership Agreement (CEPA) with the EU – a less integrative agreement that recognises Armenia’s membership of the Russia-led Eurasian Economic Union (EAEU). Finally, Belarus and Azerbaijan do not seek significantly closer political integration with the EU, and support for them is provided through Action Plans, while trade is governed by the Partnership and Cooperation Agreements (PCA) signed in the 1990s.

EU Relations with Azerbaijan

The EU’s relations with Azerbaijan are primarily economic rather than political. Azerbaijan is a major supplier of oil and natural gas to the European Union, and there are many joint energy initiatives between them, including the Southern Gas Corridor.v With its foreign policy focused on independence, balancing between regional powers, and maintaining internal regime legitimacy,vi Azerbaijan’s enormous wealth in natural resources, namely fossil fuels, has allowed it to pursue an independent foreign policy. As such, rather than sign an AA with the EU, Azerbaijan has stated that its seeks an agreement with the EU that more accurately represents their relations.

At present, the EU and Azerbaijan trade based on the PCA signed in 1999, which allows for preferential trade between the two, and there is also a visa-liberalisation agreement. The EU is Azerbaijan’s largest trading partner and largest export market for its oil and gas.vii Despite this, Azerbaijan has been cautious with regard to further integration and it does not desire political or economic integration with the EU (or any other regional actor) that could jeopardise its independence. So long as the EU is willing to purchase Azerbaijani oil and gas, relations will remain cordial.

Nevertheless, over the years the EU and Azerbaijan have clashed on key points of contention, namely the promotion of democracy and human rights (DHR), and the Nagorno-Karabakh conflict.viii The EU’s DHR promotion policy is regularly perceived in Azerbaijan as undermining the Aliyev regime’s internal legitimacy due to its poor record on human rights. When this happens, the regime employs a number of reactive strategies to rebuff EU policy, including stressing its national sovereignty, expressing countercriticism and undermining EU support for civil society.ix In short, when the EU tries to promote DHR in Azerbaijan, Azerbaijan deflects attention onto something else.

On the other key issue, Nagorno-Karabakh, Azerbaijan has actively sought greater EU involvement in the region. This is because it believed the EU could provide support for Azerbaijan’s territorial integrity and tilt the balance away from Armenia. Moreover, since the OSCE Minsk Group is chaired by France, Russia and the US (which all have very large Armenian populations and lobbies), Azerbaijan saw this as biased in favour of Armenia and sought to lobby the EU for support.x However, as both Armenia and Azerbaijan are EaP members, and as the EU strongly supports both the principle of self-determination and of territorial integrity, it has remained very reluctant to enter the dialogue in favour of either side.xi

The endless cycle of proactive and defensive strategies used by the EU and Azerbaijan to forward their own agendas while countering that of the other side has resulted in a status quo in which little progress is achieved. Additionally, Azerbaijan has sought to buy influence in the EU through so-called ‘caviar diplomacy’.xii State-backed corruption like this has done nothing to improve Azerbaijan’s record on anti-corruption. Nevertheless, the EU maintains that it is up to Azerbaijan to decide the level of political and economic integration it has with the EU.

EU Relations with Armenia

The EU’s relationship with Armenia is remarkably different from that with Azerbaijan. Armenia is not endowed with great natural wealth like Azerbaijan and is thus in a much weaker position to balance against its much more powerful neighbours. Armenia’s strategic partnership with Russia, which guarantees its security through the Common Security Treaty Organization (CSTO), means that its relations with that country take priority in foreign policymaking, with other relations pursued to the extent that they do not interfere with this partnership. Nevertheless, Armenia pursues good relations with all its partners based on the principle of ‘complementarity’.xiii

After Armenia joined the EaP, it began negotiations with the EU on an Association Agreement. By July 2013 these negotiations were finalised and were set to be signed by then-Armenian President Serzh Sargsyan at the EaP Summit in November 2013. However, just before the signing Sargsyan announced that instead of signing the AA with the EU, Armenia will join the Russia-led EAEU. Despite joining the EAEU, Armenia reaffirmed its desire for deeper relations with the EU, which manifested ultimately with the signing of the Comprehensive and Enhanced Partnership Agreement (CEPA) in November 2017.

The CEPA can be seen as an AA-lite, whereby the EU and Armenia found a compromise that respects Armenia’s current commitments to the EAEU. The deal can also be seen as salvaging the political terms of the failed AA, while leaving out the economic terms that clash with EAEU membership. However, Armenia is already in the EU’s Special Incentive Arrangement for Sustainable Development and Good Governance (GSP+), which allows Armenia to trade on very favourable terms given to countries that “implement the 27 core international conventions on human and labour rights, environmental protection and good governance.”xiv Under the CEPA and GSP+, 98% of Armenian exports to the EU were tariff free by 2019,xv while visa liberalisation talks are ongoing.

Renewed aspirations for further European integration sprang from the 2018 Velvet Revolution in Armenia, bringing pro-democracy oppositionist Nikol Pashinyan into power. Soon after the event, however, Pashinyan reiterated Armenia’s commitment to EAEU membership to put Russian fears at ease, even going so far as to send a contingent of Armenian soldiers to join Russian forces in Syria, albeit in a non-violent humanitarian capacity.xvi EU-Armenian relations are thus strongly limited in potential due to the Armenia-Russia Strategic Partnership and EAEU membership, and hopes for deeper integration with the EU have not grown under the leadership of Pashinyan’s government.xvii Despite this, Armenia was the only European country to transition from a ‘hybrid regime’ to a ‘democracy’ in the 2017-2018 period.xviii

Outcomes of the Nagorno-Karabakh conflict

Azerbaijan’s victory in Nagorno-Karabakh has empowered its and Turkey’s strategy of reconquering territory by force. Their open and strong rejection of previous mediation platforms, namely the Organisation for Security and Cooperation in Europe’s (OSCE) Minsk Group, demonstrates these countries’ frustration with western involvement in the conflict. This has allowed Azerbaijan and Turkey to delegitimise western involvement, either by the failure of the OSCE Minsk Group to solve the conflict or by the alleged bias of the Group’s joint chairs (Russia, France and the US) towards Armenia. Instead, they looked solely to Russia for mediation, which has resulted in a highly securitised Nagorno-Karabakh. Russia now has a much stronger foothold in the South Caucasus and Armenia is still as dependent on Russia for security as before. For its part, the EU largely watched on from the sidelines. When news of the ceasefire deal brokered by Russia was announced on 10 November 2020, the EU simply “welcome[d] the cessation of hostilities in and around Nagorno-Karabakh”, reiterated its support for the OSCE Minsk Group in the negotiations, and said that the settlement needs to be sustainable.xix

The settlement of the conflict is not a total solution. Rather than reconquer the entirety of Nagorno-Karabakh, Azerbaijan, with Russia and Turkey, has ensured that what remains of Armenian-populated Nagorno-Karabakh can be used as leverage against Armenia. The now extremely vulnerable position of Nagorno-Karabakh, combined with Russia’s securitisation of the remaining territory, ensure that Armenia has little control over the area. Moreover, the presence of Russian peacekeepers ensures that the security of Nagorno-Karabakh could be used against Armenia should it try to move away from Russia geopolitically.

In Armenia, the military defeat led to widespread upheaval. Many prominent opposition voices called for Pashinyan’s government to resign. Even the Armenian President, Armen Sarkissian, believes the government should step down.xx However, Pashinyan’s government still holds a majority in the Armenian parliament and it is uncertain that his government will be replaced in the near future. The status of Nagorno-Karabakh also remains unclear after the settlement. It is yet to be seen whether the territory will retain some kind of autonomy or independence. Moreover, nearly 4 months on, it is also unclear whether or not Armenia’s borders with Azerbaijan and Turkey will remain blockaded or if some kind of relations are re-established following the conflict.

Effect on the EU

Although the recent conflict has tilted the balance of power in the South Caucasus towards Azerbaijan, the fundamental geopolitical dynamics of the region remain largely unchanged. In reconquering Nagorno-Karabakh by force, Azerbaijan has secured its territorial integrity without EU help. Its military power, alliance with neighbouring Turkey, and economic independence ensure that Azerbaijan can continue its balancing strategy between neighbouring powers, which means it is unlikely to seek significant alterations in its relations with the EU.

In contrast, with the result of the recent conflict settlement comes greater opportunity for engagement with Armenia. At present, Nikol Pashinyan’s My Step Alliance government will likely survive the present crisis and remain in power, albeit significantly weakened by domestic opposition. Moreover, because the conflict settlement does not solve the issue of Nagorno-Karabakh completely, there is unlikely to be significant change in Armenian foreign policy. Armenia will remain bound to its strategic partnership with Russia, which means that it will not leave the EAEU or CSTO for the foreseeable future. Thus, any prospect of greater EU integration remains unlikely beyond the CEPA. Nevertheless, Armenia’s burgeoning democracy and reformist government has done much to develop the country politically and economically, and the EU would do well to support such a positive development in an increasingly authoritarian border region.

In terms of the Eastern Partnership, EU policy in Eastern Europe and the South Caucasus should foster democratic governance, respect for the rule of law and human rights through preferential trade relations and the prospect of deeper economic and political integration. The EaP has thus far enjoyed varying success, with Ukraine, Georgia and Moldova being on track for further EU integration. Armenia is limited in its ability to integrate yet demonstrates a clear desire for closer political relations where possible and has strengthened its democracy since 2018. Azerbaijan, on the other hand, has always presented a greater challenge for the EaP due to its authoritarian governance and poor record on human rights and corruption. Its unwillingness for significantly deeper relations with the EU is demonstrated in its balancing foreign policy and scepticism of the EU’s DHR promotion. Further integration with the EU would upset that balance to Azerbaijan’s detriment, and relations cannot realistically go much deeper than they already are.

Another key issue facing the EU in the South Caucasus is the disparity between the EU’s stated commitment to improve economic and political conditions in the EaP countries, while at the same time supporting undemocratic regimes through substantial economic support and preferential trade access to the EU’s single market. Since Azerbaijan requires no DCFTA in order to sell its oil and natural gas exports to the EU, it is not incentivised to implement DHR reforms in the same way as Georgia or Armenia. But despite this, as the largest market for Azerbaijani oil and gas exports, the EU has the power to put real pressure on the Aliyev regime to significantly improve the DHR situation in the country. Thus, the EU’s recent investment into the Southern Gas Corridor pipeline, bringing Azerbaijani gas directly into the EU, sends a powerfully contradictory message that contrasts its stated sustainability goals with its fossil fuel energy demands, as well as economic support for an undemocratic regime.

Trio Plus Strategy 2030

In December 2019, the 8th Euronest Parliamentary Assembly passed a resolution on the creation of a new instrument known as the Trio Plus Strategy 2030 – a process similar to the Berlin Process for EU enlargement in the Western Balkans. The strategy foresees the creation of a “new generation of institutions and policies, sustainable trade and stabilisation agreements”, which is complementary to the EaP. The Trio includes the EaP states of Georgia, Ukraine and Moldova, and seeks to reinforce their reforms in the rule of law and democracy and to go much further in their integration with the EU over the next decade. The strategy has also recommended a “more comprehensive and enlarged strategic format Trio + 1” that includes Armenia. Moreover, the strategy aims to incentivise the other EaP members to go down the path to deeper EU integration, while in Russia the strategy should “have a major positive transformative impact on opinion of Russia’s ordinary people in helping them to strive for an open democratic European country.”xxi

Conclusion and Recommendations

The recent reignition of hostilities in the South Caucasus has greatly upset the previously persisting and unhappy truce of “no war, no peace” between Armenia and Azerbaijan. Now that Azerbaijan has the upper hand over Nagorno-Karabakh, its strong position has been secured and its international alliance with Turkey deepened. With the authority and perceived internal legitimacy of the Ilham Aliyev regime stronger than ever, the EU should not expect to see any overtures for greater DHR cooperation from Baku anytime soon. EU foreign policymakers should thus realise that relations with Azerbaijan will most probably fail to extend meaningfully beyond a strong trading relationship in Caspian oil and natural gas resources.

Armenia’s current strategic partnership and security dependence on Russia make its integration with the EU difficult beyond the current CEPA. However, future relations between the EU and Armenia are very dependent on the status of Nagorno-Karabakh, and if Armenia were to lessen its security dependence on Russia, there would certainly be potential for deeper integration with the EU. As such, only time will tell what will happen in Armenia, but it is undoubtedly a key candidate for further integration.

Nearly 12 years after its inception, the successes and failures of the EU’s Eastern Partnership are now clear to see, and it is time the EaP be updated. After the commendable success of the Association Agreements with Ukraine, Moldova and Georgia and the CEPA with Armenia, the Euronest Parliamentary Assembly has identified areas for improvement and has proposed developing a new Trio Plus Strategy to step up the integration process for these countries. This would properly acknowledge these countries’ commitment to further EU integration and democratisation. The inclusion of Armenia in a Trio + 1 format would also be a positive development. Meanwhile, Azerbaijan is proving to be a more difficult partner that clearly does not share the same commitment to DHR improvement and has little interest in EU integration beyond its role as an energy supplier. As such, a number of recommendations can be drawn from the above analysis:

  • With the remarkable progress of Ukraine, Moldova, Georgia and Armenia in signing Association Agreements and the CEPA, respectively, the EU should embrace the proposals outlined in the Euronest Parliamentary Assembly Resolution on the Trio Plus Strategy 2030. The EU should spread awareness of the strategy and the significance it will have on the future of EU enlargement. By including Armenia in this strategy with the Trio + 1 framework proposal, the EU would also reiterate that democratisation will bring tangible benefits in EU integration.
  • Armenia’s significantly weakened position in the South Caucasus has left its already vulnerable democracy at greater risk. Now would be an opportune time for the EU to go further in support of Armenian democracy by increasing funding to Armenia and stepping up cooperation in the field of democratisation. Not only would this help to strengthen Armenian democracy, but the gesture would also demonstrate that the EU does not reward military aggression.
  • At the same time, the EU should recognise that relations with Azerbaijan have reached a natural balance through the EaP. Unless the EU is willing to use its oil and gas trade with Azerbaijan as leverage, little will improve with regard to DHR in the country. Moreover, due to the great importance of values and norms promotion in EU foreign policy, there is a fundamental disconnect between EU values and deeper integration offered to authoritarian countries. By deepening relations with Azerbaijan, the EU would be rewarding undemocratic practices and setting a poor example to democratising neighbouring countries elsewhere.

i For an excellent summary of the Nagorno-Karabakh conflict, see Tom de Waal’s “The Caucasus: An Introduction” (2nd Edition, 2019)

ii https://www.bbc.com/news/world-europe-54324772

iii Eastern Partnership Mission Statement, European Council, https://www.consilium.europa.eu/en/policies/eastern-partnership/#

iv AIES Fokus Paper by Johann Wolfschwenger “The EU’s Eastern Partnership between a rock and a hard place”, August 2020, https://www.aies.at/download/2020/AIES-Fokus-2020-09.pdf

v For more information on the Southern Gas Corridor, see the European Commission’s webpage: https://ec.europa.eu/inea/en/connecting-europe-facility/cef-energy/projects-by-energy-corridor/southern-gas-corridor

vi Van Gils, Eske (2018), Azerbaijan’s Foreign Policy Strategies and the European Union: Successful Resistance and Pursued Influence, Europe-Asia Studies, 70:5

vii EaP Factsheet Azerbaijan, European External Action Service, https://eeas.europa.eu/sites/eeas/files/eap_factsheet_azerbaijan_en.pdf

viii See endnote VI

ix Ibid.

x Ibid.

xi Ibid.

xii Ibid.

xiii Kambeck, Michael, (2014), Between the big blocs: Armenian foreign policy untangled, European View, 13:29-38

xiv European Commission statistics on EU trade with Armenia. https://ec.europa.eu/trade/policy/countries-and-regions/countries/armenia/

xv Ibid.

xvi https://eurasianet.org/armenia-sends-military-deminers-and-medics-to-support-russian-mission-in-syria

xvii For more information on the limitations of the CEPA, see Terzyan, Aram (2019), Bringing Armenia Closer to Europe? Challenges to the EU-Armenia Comprehensive and Enhanced Partnership Agreement Implementation, Romanian Journal of European Affairs, Vol.19 No.1

xviii Euronest Parliamentary Assembly Resolution on the future of the Trio Plus Strategy 2030: building a future of Eastern Partnership (09/12/2019), http://www.epgencms.europarl.europa.eu/cmsdata/upload/439b3edc-e523-4a0e-a9bc-e6c8db51ed75/NEST_8th_urgency_resolution_EN.pdf

xix Statement by the High Representative/Vice-President Josep Borrell on Nagorno-Karabakh, Brussels, 10/11/2020, https://eeas.europa.eu/headquarters/headquarters-homepage/88476/nagorno-karabakh-statement-high-representativevice-president-josep-borrell-cessation_en

xx https://eurasianet.org/in-political-crisis-armenian-president-makes-power-play

xxi See endnote XVIII

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