Strategic Analysis Caucasus Brief

Bi-weekly review (19.06.2023 – 02.07. 2023)

Tomáš Baranec

Armenia

Railway station in Yerevan, Armenia. Photo: Shutterstock.com

Some progress reported in the Armenia-Azerbaijan talks in the USA

US Secretary of State Antony Blinken said on June 29 that Azerbaijan and Armenia made progress during three days of negotiations in the US and voiced hope for an accord despite a flare-up in violence.

Following the discussions between Armenian FM Ararat Mirzoyan and Azerbaijani FM Jeyhun Bayramov, Antony Blinken stated that both sides had demonstrated a genuine commitment to engage in serious negotiations to reach an agreement. However, he also emphasised that there is still substantial work ahead.

“I appreciate further progress toward this shared objective of an agreement to include agreement on some additional articles as well as a deepening understanding of the positions on outstanding issues, as well as the recognition that there remains hard work to be done to try to reach a final agreement,” Blinken said at the conclusion of the closed-door talks held at the State Department’s Foreign Service Institute in northern Virginia.

“We look forward to continuing this process in the weeks ahead to take advantage of the momentum we’ve helped achieve through these meetings. I very much appreciate the spirit of candour, openness, and directness that everyone has exhibited. That is the way ultimately to reach an understanding and finally to reach an agreement.”

The Armenian Foreign Ministry, on its part, wrote that ministers and their teams continued progress on the draft bilateral “Agreement on Peace and Establishment of Interstate Relations”. According to the Ministry, they reached an agreement on additional articles and advanced mutual understanding of the draft agreement, meanwhile acknowledging that the positions on some key issues require further work.

On June 27, the Armenian and Azerbaijani foreign ministers commenced a fresh round of talks facilitated by the United States, primarily focusing on establishing a peace treaty between the two countries.

Sources:

  • Euractiv, “Blinken sees progress in Armenia, Azerbaijan talks”, https://www.euractiv.com/section/global-europe/news/blinken-sees-progress-in-armenia-azerbaijan-talks/

  • Caucasus Watch, “Armenian and Azeri FMs Resume Fresh Talks in US”, https://caucasuswatch.de/en/news/armenian-and-azeri-fms-resume-fresh-talks-in-us.html

  • Caucasus Watch, “Important Progress Reported in Armenia-Azerbaijan Talks”, https://caucasuswatch.de/en/news/important-progress-reported-in-armenia-azerbaijan-talks.html

  • Ministry of Foreign Affairs of the Republic of Armenia, “Press release”, https://www.mfa.am/en/press-releases/2023/06/29/arm_aze/12069

Positive outlook for the Armenian economy

On June 23, Moody’s affirmed the Government of Armenia’s Ba3 local and foreign currency long-term issuer ratings, as well as the foreign currency senior unsecured ratings. Concurrently, Moody’s has changed the outlook to stable from negative.

The decision to change the outlook to stable reflects Moody’s assessment that risks to Armenia’s credit profile are balanced, compared to Moody’s last review in March 2022, where risks were assessed to be skewed to the downside. Armenia’s economic and fiscal metrics have improved markedly over the past year amid a surge in income, capital and labour from Russia, part of which Moody’s expects to be sustained.

Moody’s expects Armenia’s economic growth to remain robust over the next few years, even as it moderates towards the trend. The rating agency also expects Armenia’s fiscal metrics to stabilise at around the current levels for the next few years, with the debt burden at lower levels than pre-pandemic, making for higher budgetary strength. However, the country’s economic and fiscal profile improvements are counterbalanced against higher geopolitical risks.

The affirmation of the Ba3 ratings balances Armenia’s robust growth potential and moderately high institutions and governance strength against its relatively small and middle-income economy, which constrains its capacity to absorb shocks. Armenia also faces elevated geopolitical risks, which weighs on the sovereign rating.

At the same time, Eurasian Development Bank (EDB) analysts stated that Armenia will retain its leadership in economic growth among the Eurasian Economic Union (EAEU) countries in 2023. “The main factor behind the strong dynamics is the growth of domestic demand in the face of an influx of relocators, capital, and remittances. The possibility of a reverse outflow of capital, labour, and expertise remains a significant risk for the economy, which should be taken into account,” the report added. “In the base scenario of the forecast, we assume that the outflow will be gradual,” the EDB noted.

Bank analysts predict a 7.5% growth in Armenia’s GDP by the end of the current year amid the stabilisation of domestic demand and growth in exports to the EAEU. Inflation is also expected to slow to 2.5% per annum due to the weakening of external price pressure, the overvaluation of the Armenian dram against the dollar, and the stabilisation of domestic demand. The EDB expects a reduction in the refinancing rate in Armenia to around 9% amid slowing inflation.

Sources:

  • Caucasus Watch, “Eurasian Development Bank Assesses Positively Armenia’s Economic Growth”, https://caucasuswatch.de/en/news/eurasian-development-bank-assesses-positively-armenias-economic-growth.html

  • GHAZANCHYAN Siranush, Public Radio of Armenia, “Moody’s changes Armenia’s outlook to stable from negative, affirms Ba3 rating.”

Azerbaijan

The Heydar Aliyev Mosque in Baku, Azerbaijan. Photo: Shutterstock.com

Nagorno-Karabakh under total blockade

After Azerbaijan imposed „an unofficial blockade” on Nagorno-Karabakh on December 12, vehicles of Russian peacekeepers and the International Committee of the Red Cross (ICRC) were still able to access the region to bring in limited supplies and transport people needing special medical attention. But since June 15, Baku has denied access to all humanitarian convoys, leaving the Armenian population of over 120,000 to rely entirely on their own resources, reported Eurasianet.org.

The total blockade immediately followed a shoot-out near the newly installed Azerbaijani border post on the road in the Lachin corridor, which connects de facto Nagorno-Karabakh to Armenia. The shoot-out occurred on June 15, when a group of Azerbaijani soldiers assisted by Russian “peacekeepers” attempted to raise a pole with an Azerbaijani flag on the sovereign territory of the Republic of Armenia on the other side of the bridge over the Hakari river. Armenian border guards started fire on a group of about 12 Azeri and Russian soldiers trying to cross to the Armenian territory with the flag.

On June 19, local media reported that residents of the region continued to face increasing shortages of food and medicine. On Monday, de-facto health authorities in Stepanakert (Aze. Khankendi) announced that local hospitals had been forced to suspend non-urgent surgeries due to a severe shortage of drugs and other medical supplies. They further stated that 175 critically ill patients from Karabakh and their family members are currently awaiting evacuation to hospitals in Armenia.

The International Committee of the Red Cross (ICRC), responsible for evacuating critically ill patients from Karabakh for several months, also ceased its operations on June 15. “We are monitoring the situation and remain in touch with all decision-makers,” an ICRC spokeswoman in Stepanakert/Khankendi told RFE/RL’s Armenian Service. “We hope to resume our work as soon as the situation allows.”

Besides food and medicine shortages, the region has had no natural gas supply since March 22, and electricity blackouts have become more frequent as the local key reservoir dries up in summer. Earlier, Armenian PM Nikol Pashinian strongly criticised the complete blockade of humanitarian traffic through the Lachin corridor, denouncing it as part of Azerbaijan’s alleged “policy of ethnic cleansing” in Nagorno-Karabakh. Meanwhile, in an interview with Reuters on June 23, Azerbaijan’s Foreign Minister Jeyhun Bayramov said that the Armenian population of Karabakh is sufficiently protected.

He also stressed that there was no need for a special guarantee [for Karabakh Armenians], and requiring it means interfering in Azerbaijan’s internal affairs: “We cannot accept such preconditions or excuses from the Republic of Armenia for several reasons. The most important thing is this: this is an internal and sovereign issue. The Constitution of Azerbaijan and the international conventions to which Azerbaijan is a party create all the necessary conditions to guarantee the rights of this population.”

The minister said that if the Armenians are integrated into Azerbaijani society, they can study in their own language, preserve their culture, and create their institutions like other ethnic and religious minorities. Bayramov also emphasised that there is certain progress in the peace talks, and Baku wants to reach an agreement.

Ten days after all traffic to and from the region was blocked, passage through the Lachin Corridor checkpoint has been restored for the International Committee of the Red Cross vehicles.  Nagorno-Karabakh’s Ministry of Health reported that Red Cross vehicles transported 32 people from Nagorno-Karabakh to Armenian hospitals along with 20 companions in days after.

On July 1, Azerbaijan’s Foreign Minister Jeyhun Bayramov met with Red Cross representatives in Baku and stated that Azerbaijan was willing to grant Red Cross vehicles access to Nagorno-Karabakh. 

Sources:
Azerbaijani village protests against new artificial lake: Concerns over environmental and health risks rise

On June 20, over a hundred residents of the village of Söyüdlü in the Gadabay District of Azerbaijan gathered to protest pollution of the area by a mining company, assembling near an artificial lake reportedly used to dump acid waste from the mine. Ten protesters were detained, while 15 were reportedly injured in confrontations with riot police. OC Media reports that two journalists are also reported to have been arrested and had their phones confiscated while covering the protests.

The confrontation was caused by the villagers’ objection to creating a new artificial lake in Söyüdlü. According to the protesters, the lake, which will hold the gold mine’s wastewater, could damage the economy, agricultural land, and people’s health. The first such lake was built in 2012, a few hundred meters from Söyüdlü. Now, for the same reason, the construction of a new lake has alarmed citizens.

Residents stated that a lake in the village, which has allegedly been used to drain acid and dump waste from the goldmines for around 11 years, was damaging the nature around it and emitting toxic fumes, making it hard to breathe and causing lung damage. Protesters chanted and carried signs saying, “natural waters are being poisoned”, “The River Kur is being poisoned”, and “People die of lung disease at the age of 50”.

Videos from Söyüdlü showed police using tear gas, pepper spray, and physical violence against those protesting. In a widely-shared video, an elderly woman walking away from riot police is pepper-sprayed in the face, with later footage showing her lying on the ground as other protesters attempt to assist her. Many Azerbaijanis expressed outrage over the footage online and demanded that police be punished for using violence against peaceful protesters.

Azerbaijani Interior Ministry and the head of the region both acknowledged that protesters had been injured. Still, they suggested that protesters had acted violently and police had shown restraint in their handling of the situation. The following day, Minister of Ecology and Natural Resources Mukhtar Babayev visited Gadabay District and stated that the issue would be investigated.

The gold mines are officially operated by a British company, Anglo Asian Mining Plc, managed by Iranian businessperson Reza Vaziri. However, a 2016 investigation by the Organised Crime and Corruption Reporting Project (OCCRP) found that the mines were, in fact, owned by the two daughters of Azerbaijan’s President Ilham Aliyev.

The mineral resources of the Gadabay, Qadir, and Ugur deposits in Azerbaijan were reassessed in 2020. “According to Anglo-Asian Mining Plc, a British company engaged in gold, silver, and copper mining in Azerbaijan, the reserves of the Gadabay deposit amount to 284 thousand ounces (over 8 tonnes) of gold and 26 thousand tonnes of copper. The “Qadir” deposit, located one kilometre from the Gadabay deposit, contains 49 thousand ounces (1 ton 390 kg) of gold and 191 thousand tonnes of copper.

Anglo-Asian Mining is producing under the Production Sharing Agreement signed in Azerbaijan in 1997. Azerbaijan’s share in the contract is 51%, and the share of Anglo-Asian Mining Plc. is 49%. The first gold production (in the “Gadabay” field) started in 2009, writes the Caucasus Watch.

Sources:

  • AGHAYEV Ismi, OC Media, “Azerbaijani police lockdown village after environmental protests”, https://oc-media.org/azerbaijani-police-lock-down-village-after-environmental-protests/

  • Caucasus Watch, “Azerbaijani Village Protests Against New Artificial Lake: Concerns Over Environmental and Health Risks Rise”, https://caucasuswatch.de/en/news/azerbaijani-village-protests-against-new-artificial-lake-concerns-over-environmental-and-health-risks-rise.html

View on Mountain Lake Maralgol in Azerbaijan. Photo: Shutterstock.com

Azerbaijan continues to modernize its forces

In June, Baku unveiled further plans to modernise its Navy and to buy the C-27J Spartan aircraft. On June 25, Vice Admiral Subhan Bakirov, the commander of the Naval Forces of Azerbaijan, stated that Azerbaijan’s ship fleet would be updated, and new intelligence systems would be purchased.

According to him, meetings are currently held with advanced defence industry companies on the issues of updating the ship park and acquiring surveillance, intelligence, and communications systems. Some of the named projects will be fully implemented in the near future.

“The Navy successfully implemented the requirements of the marine security strategy approved by the President of Azerbaijan, and, according to the training plan, approved by Colonel General Zakir Gasanov, adequately cope with all the tasks,” Bakirov said.

On June 8, Azerbaijan signed an agreement on purchasing C-27J Spartan aircraft from Italy, “Leonardo” company reported. “Leonardo” company stated that the Azerbaijani delegation visited Italy to sign the contract with the participation of high-level representatives of the two countries’ defence ministers.

“Initially, the cooperation between Italy and Azerbaijan, which was related to the energy sector, is now expanding in the direction of the supply of defence industry products, thanks to the valuable contribution of the Italian Ministry of Defense working group. The C-27J from Leonardo has many years of proven experience in the most difficult operational scenarios. “The acquisition program results from technical discussions between the Italian and Azerbaijani Defense Ministries. This contract is part of the modernisation program of the Azerbaijani Armed Forces, which focuses more on the products of the Italian industry,” the information said.

Notably, the C-27J Spartan is a versatile medium-sized military transport aircraft produced by the Italian aerospace company Leonardo S.p.A. It was developed as a joint venture between Leonardo and the American company Lockheed Martin to create an aircraft that combines the capabilities of a tactical transport aircraft and a cargo aircraft.

Sources:

  • Caucasus Watch, “Azerbaijan to Renew Its Naval Forces”, https://caucasuswatch.de/en/news/azerbaijan-to-renew-its-naval-forces.html

  • Caucasus Watch, “Azerbaijan Buys C-27J Spartan Aircraft from Italy”, https://caucasuswatch.de/en/news/azerbaijan-buys-c-27j-spartan-aircraft-from-italy.html

Deadly clash erupts in de facto Nagorno-Karabakh amid Armenia-Azerbaijan peace talks

Four de facto Karabakh Armenian soldiers were shot dead on June 28 while Armenia and Azerbaijan were negotiating in Washington DC for a peace deal. Azerbaijan stated that the army carried out Operation Rage after the wounding of its serviceman. “The self-proclaimed regime in Khankendi (Arm. Stepanakert) claims a violation of the tripartite agreement. Complete disarmament of illegal military groups is inevitable,” an Azeri military observer notes.

The previous day, Baku claimed an Azerbaijani soldier had been wounded by firing from Karabakh Armenian positions. De facto Karabakh’s armed forces, the Artsakh Defense Army, denied this assertion and called in an attempt to “lay the informational groundwork” for Azerbaijan’s own attack. The fatal incident followed two claims by Karabakh officials of ceasefire violations by Azerbaijan on June 27.

In connection with the attack, de facto authorities of Nagorno Karabakh demanded on June 28 that Armenia halt ongoing negotiations with Azerbaijan in Washington. A statement signed by all political parties present in the de facto Nagorno-Karabakh Parliament urged the Armenian government to halt ongoing negotiations with Azerbaijan, at that time underway in the United States, until a “full ceasefire on the line of contact with Artsakh [Nagorno-Karabakh] and the borders of Armenia” was established. “Otherwise, the continuation of the negotiations will mean the encouragement of the aggressive behaviour of the Azerbaijani side and privilege at the international level”, the statement read.

Sources:

  • SHAHVERDYAN Lilit, “Eurasianet.org, Deadly clash erupts in Nagorno-Karabakh amid Armenia-Azerbaijan peace talks”, https://eurasianet.org/deadly-clash-erupts-in-nagorno-karabakh-amid-armenia-azerbaijan-peace-talks

  • JAM News, “Operation ‘Fury’ in Karabakh: four dead and one wounded. What do they say in Baku?” https://jam-news.net/operation-fury-in-karabakh-four-dead-and-one-wounded-what-do-they-say-in-baku/

  • AVETISYAN Ani, OC Media, “Nagorno-Karabakh calls for negotiations to halt after four killed”, https://oc-media.org/nagorno-karabakh-calls-for-negotiations-to-halt-after-four-killed/

Georgia

The Chronicles of Georgia in Tbilisi. Photo: Shutterstock.com

Georgian President pardons convicted Nika Gvaramia

On June 22, Georgian President Salome Zourabishvili pardoned Nika Gvaramia, the imprisoned head of the domestic Mtavari Arkhi channel. Gvaramia was convicted last year for improper commercial deals in 2015 and 2019 during his time at the helm of the Rustavi 2 channel. The Tbilisi Court of Appeals in November upheld the verdict of the Tbilisi City Court and sentenced Gvaramia to three years and six months in prison.

Speaking to journalists near the prison, Gvaramia expressed surprise at his unexpected pardon and release from prison, saying he had not expected it until at least February or March of next year. He noted that the President’s decision was not specifically about him but was motivated by her commitment to her people. He said: “She did it for her country, which she is the president of, and I think it really adds to her dignity.”

Acknowledging the potential criticism stemming from past videos in which he used profanity to describe President Zurabishvili, Gvaramia expressed confidence that people would question her decision to pardon him. Reflecting on those videos, he candidly stated: “I don’t like myself in these videos. It is disgusting to treat a woman like that. I am sorry for that, and I apologise to her for that”.

The President’s decision caused a mixed reaction from domestic politicians. Representatives of the ruling Georgian Dream party criticised her for not disclosing the motive of her decision, hinting she was “fulfilling orders” from elsewhere. “The main thing is that every decision has its own motive, and it is probably no coincidence that yesterday the President did not name the motive for her decision… of course, she could not mention humanism as a motive since the convict himself did not ask for a pardon, and… she could not say that this was done to depolarise, because that would have been the height of cynicism…. The very fact that the motive was not mentioned emphasises that there is another motive behind it, which is unfortunate. Let’s accept this situation as it is, time will judge everything”, said the parliament speaker Shalva Papuashvili.

On the other hand, the opposition’s representatives welcomed the pardon as a statesperson-like decision. “The President made a responsible, statesperson-like decision. The President was guided by the Constitution of Georgia, state interests, and interests related to Georgia’s European perspective, and therefore made this responsible decision… We demand from the President that it is not enough to take only half steps. Today the national interests of Georgia also demand the release of Mikheil Saakashvili”.

Levan Ioseliani, Public Defender of Georgia, as well welcomed the decision, stressing that it got Georgia “closer to Europe”. Positive reactions also came from the West. European Council President Charles Michel emphasised that the President’s decision is regarded “as an essential step towards depolarisation in Georgia”. Irakli Kobakhidze, the head of the ruling Georgian Dream party, claimed, on the other hand, that given decision was a “step taken against” the country’s efforts to fulfil the 12 priorities outlined by the European Union last year for granting Georgia its membership candidate status, including the depolarisation of the political environment in the country. Kobakhidze noted there were “no connections” between the pardoning of Gvaramia and the fulfilment of the EU recommendations, adding the ruling party would “make detailed explanations” regarding the implementation of the 12 recommendations to the Georgian society and international partners.

Sources:

  • Agenda.ge, “Georgian President pardons convicted Mtavari Arkhi channel head”, https://agenda.ge/en/news/2023/2447

  • Agenda.ge, “Ruling party head: TV channel head pardon – ‘step taken against’ depolarisation, EU priorities“, https://agenda.ge/en/news/2023/2471

  • Civil.ge, “Nika Gvaramia’s First Comments After Being Released From Prison”, https://civil.ge/archives/549443

  • Civil.ge, “European Council President Welcomes Decision to Pardon Gvaramia”, https://civil.ge/archives/549439

  • Civil.ge, : Politicians and Public Defender React to President’s Pardon of Nika Gvaramia:, https://civil.ge/archives/549504

Chiatura miners’ strike ends after company caves on key demands

Striking Chiatura miners and their employer, “Georgian Manganese,” reached an agreement on June 24, ending the 19-day protest. With state mediation and trade unions involved, the company committed to resuming the mining operations in Chiatura. In a Facebook post, Georgian Manganese announced that the new agreement addresses all demands, including tying the pay rise to the inflation rate. The company also said a commission involving workers and the employer will be formed to develop a crisis resolution plan within three months. An independent auditor will be employed to conduct a financial audit of the company.

The Ministry of Health of Georgia facilitated the agreement specifically linked to salaries. According to the agreement, a 5% increment will be added to the salaries paid between January 1 and July 1, 2023, with the total increase reaching 12% from July 1 onward.

The Georgian Trade Unions Confederation, one of the signatories of the mediation agreement, emphasised that the agreement aligns with the existing collective agreement between the labour union and the employer. The agreement specifies that salaries are subject to automatic increases based on the inflation index, ranging from 1% to 5%. If the inflation rate exceeds these percentages, further negotiations will be required.

The agreement was concluded shortly after unsatisfied miners moved their strike from their hometown Chiatura to the capital Tbilisi on July 19. On June 20, after spending the night in tents near the Parliament and Kashveti, the miners and their supporters marched to the headquarters of “Georgian Manganese” in Tbilisi to make their voices heard by the company’s management. After the march, the miners’ protest moved near the Parliament.

Sources:

  • Civil.ge, “Rally Held Near Parliament in Support of Striking Chiatura Miners”, https://civil.ge/archives/548872

  • Civil.ge, “Striking Chiatura Miners Reach Agreement with Employer”, https://civil.ge/archives/549693

  • NIKURADZE Mariam, OC Media, “Why the far right is trying to infiltrate a miners’ strike in Georgia”,https://oc-media.org/features/why-the-far-right-is-trying-to-infiltrate-a-miners-strike-in-georgia/

Street in Icheri, Azerbaijan. Photo: Shutterstock.com

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