From Stratfor research
July 03, 2007
Expectations of a renewed fight between Armenia and Azerbaijan over the Nagorno-Karabakh region are rising, since Azerbaijan has started using the huge windfall of cash from its new pipeline to quintuple its defense budget. This time, the conflict could serve as a spark for the larger struggle between the United States and Russia.
The conflict between Armenia and its neighbor Azerbaijan over the disputed Nagorno-Karabakh region has crescendoed in recent months, since Azerbaijan has started seeing the enormous cash windfall from its new pipeline and Armenia has scrambled to secure a protective Russian presence within its borders. But the conflict between Azerbaijan and Armenia is about more than the two states and their disputed territory; the United States and Russia are using that conflict as a foothold to strengthen their positions in the region as they try to expel each other.
Armenia and Azerbaijan have long been deadlocked over the small sliver of land between the two states, though the conflict has been relatively dormant since the 1994 cease-fire. Technically, Nagorno-Karabakh is within Azeri territory, though it is controlled by Armenia. International pressure, lack of support from every nation but Russia and Iran, and fear of Azeri retaliation have kept Armenia from annexing the territory. Azerbaijan has been held back from retaking the land due to international pressure and the Azeri military’s relative weakness. Russia has maintained a shaky and controversial balance by supporting both sides.
However, Azerbaijan began to see the possibility of change in 2006 with the completion of its Baku-Tbilisi-Ceyhan (BTC) oil pipeline, which Western companies developed to feed oil to Europe. Azerbaijan not only became increasingly pro-Western, but it also saw tremendous new income. Azerbaijan’s president has already decided how he wants to spend his country’s newfound wealth: on defense. In 2004, Azerbaijan’s defense spending was approximately $175 million, but by the beginning of 2008, the country will begin spending at least $1 billion on defense. Armenia recently increased its defense spending by 20 percent–from $125 million to $150 million, which obviously pales in comparison to Azerbaijan’s increase. Azerbaijan’s spending will go mostly toward air offensive capabilities, with Armenia’s going to air defense, though both now are looking to expand their ground capabilities.
Armenia’simply lacks the influx of energy income that Azerbaijan has. The enormous Armenian Diaspora inside the United States has ensured that Armenia is one of the largest recipients of U.S. foreign aid, but Armenia’s neighbors–Azerbaijan, Georgia and Turkey–have shunned it economically and politically, leaving it with little opportunity for trade or expansion. The one neighbor Armenia has an open relationship with is Iran. In March, Iran and Armenia opened the Iran-Armenia natural gas pipeline; Iran’ships natural gas north and Armenia converts the natural gas to electricity to export back south to Iran. The pipeline itself is owned by Russia, as is much of Armenia’s energy infrastructure, so Yerevan is seeing little money from the project.
The Armenian-Iranian project is another step in the Armenian-Azeri power struggle and the impetus for Washington to take sides in the power shift in the Caucasus. In March, U.S. President George W. Bush requested a substantial aid cut–nearly 50 percent of economic aid and 30 percent of military aid–for Armenia, provoking an outcry from the Armenian-American lobby. Around the same time, the United States announced plans to increase aid to Azerbaijan by about the same amount. The U.S. State Department has cited Armenia’s ties with Iran as the reason for the cut, though a larger battle is brewing in the Caucasus.
Russia has watched as Azerbaijan and Georgia–two of the three former Soviet states in the Caucasus–grew more pro-Western and caused Russia’s strategic set of military bases to slip away. After the 2004 Rose Revolution in Georgia, Tbilisi ordered Russia to begin removing its vast military and equipment from its territory. Officially, Russia’said the last of its equipment left Georgia on June 28. Much of the hardware from the Georgian bases was shipped back to Russia, though quite a bit of it was relocated to Russia’s large base in Gyumri, Armenia. There is also uncertainty about the relocation of 40 armored vehicles and 20 tanks; Russia’says they are back home, and Azerbaijan suspects they are in Armenia.
Baku has formally expressed its outrage over Russia’s military ramp-up in Armenia, though Moscow vows it is not supporting Armenia more than Azerbaijan. But Baku is also making larger and more serious threats against the Kremlin. Russia has a strategic and important anti-ballistic missile (ABM) base, Gabala, in Azerbaijan, for which it holds a lease through 2016. This is the same base Russia has offered to the United States for the location of a joint ABM facility. Since Russia began moving farther into Armenia, Azerbaijan has been "reconsidering" Russia’s lease.
Though this seems devastating to Russia, the Kremlin does not appear to be caught off guard. In 2005–around the time Azerbaijan grew more pro-Western and the BTC was in its final stages–Russia began construction on an ABM radar base in Armavir, in southern Russia. The base, similar in scope to Gabala, will be completed in December. It is as if Russia realized it would eventually be evicted from Azerbaijan.
Washington could have a unique advantage in the Armenian-Azeri-Russian spat. Though the United States does not want a joint base with the Russia’s at Gabala, it would not pass up taking the base for itself. U.S. Defense Secretary Robert Gates will travel to Baku on July 9 to discuss this idea, along with the possibility of lily pad bases in the country.
An eviction from Azerbaijan does not mean Russia will lose its hold in the Caucasus. Russia is expanding its bases in Armenia and has made plans to expand the small country’s energy infrastructure through a series of refineries and deals with Iran. Moreover, Russia knows that a conflict within the Nagorno-Karabakh region would not only cause Azerbaijan to spend a good deal of its money on a war, but also would throw most of the region into chaos–leaving it vulnerable and ripe for Russia to move in and provide "stability." Nagorno-Karabakh has been a fight waiting to happen between Azerbaijan and Armenia, though now it seems the United States and Russia are behind much of the pressure on these countries.