Peace in South Caucasus critical to developing EU-China trade links


The signing of the EU-China Comprehensive Agreement on Investment last week opens up new trade possibilities between the two global economic leaders. Yet until only a month ago, the only viable overland trade route from China to Europe was through central Asia. Now, with the ending of the conflict in Nagorno-Karabakh in November, the opening of a new land transit route across the South Caucasus can dramatically cut freight times from weeks to days, writes Ilham Nagiyev.

But if the EU is to benefit, it must ensure the peace holds. Though diplomatically absent in November’s mediated ceasefire, it can help establish stability in a region critical not only for deepening its trade ties with East Asia, but also its energy security. New Year’s Eve saw the first commercial sale of gas from Azerbaijan through Southern Gas Corridor, seven years in the making, to Europe.

This is key for EU energy diversification, but also for supplying cleaner energy to Balkan pipeline-transit states still reliant on coal for much of its energy. The route to lasting peace is through the hand of economic co-operation. The task of rebuilding the region occupied by Armenian separatists for nearly 30 years is enormous. Infrastructure has crumbled, farmland lies fallow and some areas are now completely deserted. While Azerbaijan is a wealthy country, it needs partners in development to fully realize what these lands can offer economically to the world.

But with Azerbaijan’s control returning to lands international recognised as its own, a path has now been opened for the renormalization of relations between Azerbaijan and Armenia, as well as shared prosperity in Karabakh. It also opens the door to institutional investors such as the European Bank for Reconstruction and Development.

Whilst under control of Armenian separatists, institutional charters barred organizations from operating in the region, given the administration’s unrecognized status in international law. This, in turn, froze out private investment. With no other options available, the enclave instead became dependent on aid or investment from Armenia, itself reckoning with its own economic challenges. Indeed, if anything was to be exported from the then occupied region, it first had to go to Armenia to be illegally labelled “made in Armenia” before being moved on.

This in itself is obviously inefficient and unlawful. But to compound matters, Yerevan’s integration into the global economy was thin: the majority of its trade is with Russia and Iran; the borders to Azerbaijan and Turkey shut due to its support for the separatists and occupied lands. Freed from illegitimacy, this can now change. And an area ripe for investment and development – and where EU is well-placed to assist – is agriculture. When Azerbaijan and Armenia were part of the USSR, Karabakh was the breadbasket of the region. As a global leader for precision farming, the EU could provide technical expertise and investment to bring the area back to production and enhance food security once more for both nations, but particularly for Armenia, where food insecurity stands at 15%.

Produce can also be earmarked for export to a wider market, particularly Europe. Transportation routes in the region run in contorted lines due not to geography, but because of the conflict and its diplomatic ramifications. The return of territory and renormalization of relations holds the promise of correcting this. Not only Karabakh but Armenia can then be reintegrated into the Southern Caucasus regional economy and beyond. This chance at economic consolidation is critical for the region’s future.

Ultimately, lasting peace requires future reconciliation between the Armenia and Azerbaijan. But if there is opportunity to be shared around – not only in agriculture, but telecoms, renewables and mineral extraction – it removes a potential cause for friction. The sooner citizens start to feel the warmth of economic prosperity, the more inclined they will be to support the political settlement that can bring about a durable resolution.

Though the EU may feel side-lined when the ceasefire was negotiated largely in its absence, this should not deter it from now extending the hand of economic co-operation. Long term peace requires development. But in due course, the stability this will foster shall send prosperity back in Europe’s direction.