What Will Shape The Caucasus In 2017? – Analysis

By Chris Miller*

(FPRI) — From the conflict in Nagorno-Karabakh to Azerbaijan’s painful economic crisis, there are many reasons why residents of the South Caucasus are hoping that 2017 will be better than last year. The challenges facing the region are many. The crash in global energy prices in 2014 and 2015 continues to ricochet around the region, hitting Azerbaijan, a major energy exporter, and Armenia and Georgia, which face lower trade and remittances from workers in Russia. Meanwhile, the complicated geopolitics of the Caucasus remains divisive, as disputes in Nagorno-Karabakh, Abkhazia, and South Ossetia appear no closer to resolution.

Yet, even as the region’s conflicts appear as intractable as ever, other spheres show rapid change. Georgia’s domestic politics, for example, is in a state of great flux. Azerbaijan’s government appears committed to stamping out all opposition groups. And relations between powers that border the Caucasus are as unsettled as ever. In 2016, a rapprochement occurred between Turkey and Russia after a period of sharp disagreement. Some analysts think that 2017 might bring a resolution to some of the disputes that separate the U.S. and Russia. However, as relations between these powers develop, it will shape politics within the Caucasus.

This month marks the launch of the Caucasus Cable, a new publication series from the Eurasia Program at the Foreign Policy Research Institute. The publication is designed to provide in-depth analysis of countries that only occasionally make it into Western media, but shape broader trends in Eastern Europe and the Black Sea region. The Caucasus Cable will publish analytical essays with a focus on highlighting research by experts from countries in the Caucasus and their neighbors.

This first issue of the Caucasus Cable provides insight from six scholars, who examine the main developments they expect in 2017.

External Threats Risk Destabilizing the Region

Robert Hamilton is a Black Sea Fellow at FPRI.

It has been said that the Caucasus produces more history than it can consume. In 2017, the reverse might be true. Instead of events in the Caucasus rippling out to impact the rest of the world, events outside the Caucasus might send shock waves into this important but turbulent region. The fact that the Caucasus might be an “importer” rather than an “exporter” of history is not to suggest that the situation there has stabilized. Indeed, in some respects, the region continues to deteriorate, as evidenced by the periodic re-escalation of the conflict in Nagorno-Karabakh and Russia’s continued provocations in Georgia, especially the moving of the South Ossetian “border” further into territory formerly under Tbilisi’s control.

But events outside the Caucasus may damage the long-term stability and security of the region. First, its proximity to the Middle East means that the Caucasus cannot remain immune to the convulsions there. A significant number of Russian, Georgian, and Azerbaijani citizens have left to fight for ISIS in Syria and Iraq. Upon returning home, these radicalized former fighters will be a destabilizing influence on the Russian North Caucasus, Georgia’s Pankisi Gorge, and northern Azerbaijan, all of which are home to concentrations of Sunni Muslims.

A less acute but potentially more serious long-term problem for the Caucasus is the erosion of the post-World War II global order. The wave of nationalism and protectionism sweeping Europe and North America could result in the breakdown of collective efforts to resolve important global issues. At worst, it could lead to war among Great Powers, which would almost certainly engulf the Caucasus as well. Even absent Great Power war, the breakdown of the post-war consensus could reduce the states of the South Caucasus to geopolitical spoils in a competition among regional powers.

The bright spot in the picture is the emerging Turkish-Russian “reset.” Although the prospects for a long-term rapprochement between the two are dim, in the short-term, Turkish-Russian cooperation might bring a form of stability to Syria and improve the chances for peace in Nagorno-Karabakh. Given the gloomy outlook for the states of the Caucasus in other areas, these developments would be welcome.

After an Economic Crisis, Azerbaijan is Under Pressure

Alex Nice is a Manager and the lead Russia & CIS Analyst at The Economist Intelligence Unit in London.

Azerbaijan faces another tough and potentially turbulent year in 2017 as it continues to grapple with the impact of low oil prices. Azerbaijan’s economy – which depends on oil for 80-90% of exports and around 50% of budget revenue – contracted by just under 4% in 2016, making it one of the worst performing economies in the world.

The government projects the economy will return to modest growth in 2017, but the risk of a second year of recession remains high. Major currency devaluation in December 2015 triggered a banking crisis that led to the closure of 10 lenders last year. Despite a modest rebound in oil prices, the central bank has struggled to restore confidence in the currency. Azerbaijan remains at risk of being drawn into a cycle of currency depreciation and financial instability, particularly if oil prices should fall back from their current level. In early January 2017, the government took the unprecedented step of drawing on the sovereign wealth fund to prop up the central bank’s foreign currency reserves.

The authorities publicly acknowledge the need for a fundamental overhaul of Azerbaijan’s economic model. But radical institutional change looks unlikely, given the concentrated ownership structure of the economy and the overlap between corporate and political interests. However, incremental reform does appear possible in some areas as shown by the apparent success in reducing corruption in the customs service over the past year.

The key unknown is the extent to which these economic difficulties will translate into political instability: will it be similar to what happened in the wake of the December 2015 devaluation? The government is planning a sharp reduction in public spending in 2017 to reduce reliance on oil revenue. After years of high investment in prestige international events and wasteful infrastructure projects, there is plenty of fat that can be cut with little cost to public welfare. But it could potentially destabilise inter-elite relations, as state contracts are an important element of the system of patronage. Given Azerbaijan’s large sovereign reserves, a serious debt and currency crisis appears unlikely. But the situation is precarious, and the regime is under pressure.

Unpredictability Will Define Caucasus Politics

Joshua Kucera is a journalist based in Istanbul and the Turkey/Caucasus editor of EurasiaNet.

The most volatile area in the Caucasus in 2017 will almost certainly be Nagorno-Karabakh. After the “four-day war” in April 2016, the worst fighting since a ceasefire was signed in 1994, the Azerbaijani government gained substantial confidence in its armed forces. They achieved an unprecedented military success, while rallying Azerbaijanis—who had been increasingly discontented amid a deep economic crisis—around the flag. With the country’s economic crisis showing no signs of abating, the temptations will be strong for Azerbaijan to attempt another offensive, possibly one aimed at taking back the entire territory.

The Caucasus also will be vulnerable to shifts by global and regional powers. A new, unpredictable administration in the United States, on-again-off-again relations between Russia and Turkey, and an Iran emerging from international isolation will affect the region in unforeseeable ways. Armenia is slated to take over the leadership of the Collective Security Treaty Organization, a hitherto Russia-led military bloc. But the transition away from Russian leadership is going far from smoothly, with a series of unexplained but suspicious roadblocks emerging, raising serious questions about the level of support Armenia might receive in case of a more serious war in Karabakh.

The region will likely be somewhat of a refuge from the global populist trend. A nationalist party did have unprecedented success in Georgia’s parliamentary elections in 2016, but 2017’s elections—in Armenia and the de facto states of Nagorno-Karabakh and South Ossetia—will take place in more tightly controlled political environments and are unlikely to offer big surprises. Nevertheless, illiberal forces, like Armenia’s Sasna Tsrer movement, Georgia’s powerful Orthodox Church, and increasing religiosity in Azerbaijan seem destined to grow in strength and will place pressure on their respective governments.

Watch Elections in Armenia and South Ossetia

Nelli Babayan is a Black Sea Fellow at FPRI.

In 2017, the South Caucasus will likely remain a political hotspot; the region is, however, often left out of the spotlight. The three countries of the region host a plethora of issues, some of which may unravel in the following months:

As a result of a constitutional referendum in 2015, Armenia moved from a semi-presidential to a parliamentary system: a move that the opposition saw as an attempt by the incumbent president Serzh Sargsyan to stay in power beyond his two presidential terms. The first post-referendum parliamentary elections are scheduled for April 2017. Currently, political alliances remain uncertain as tycoon Gagik Tsarukyan returns to politics after a year-long absence following his spat with President Sargsyan. Meanwhile, traditionally oppositional politicians are joining forces with the president’s former allies. Given the incumbent’s low popularity and the country’s worsening socio-economic conditions, these elections will likely generate popular demonstrations, especially if infringements are widespread.

Presidential elections are expected in April 2017 in South Ossetia, a breakaway region of Georgia. Tbilisi, of course, does not recognize the validity of any elections held in South Ossetia or Abkhazia. At the same time, internal disputes brew in Georgia, as Mikheil Saakashvili’s party, the United National Movement, is preparing for his political comeback, while it also accuses the ruling Georgian Dream party of halting Georgia’s development and serving the interests of its de-facto leader Bidzina Ivanishvili.

The Nagorno-Karabakh conflict between Armenia and Azerbaijan is unlikely to be resolved in 2017. Yet, last year’s brief conflict, uncompromising and sometimes belligerent rhetoric flaring from both sides, an ongoing arms race, and dwindling attention from mediators point to the highly worrisome likelihood of conflict escalation.

South Caucasus politics does not happen in isolation. As with other former Soviet republics, it often follows the developments of EU-Russia and United States-Russia relations. On top of support for democracy and human rights, the EU has a vested interest in a stable South Caucasus due to its plans of diversification of energy sources and geographic proximity. The Trump administration has yet to produce a specific approach to the region. Admittedly, the South Caucasus is not directly pertinent to U.S. interests and based on the election campaign and Trump’s recent statements, this situation is unlikely to change.

Georgia Prepares for More Political Pluralism

Maia Otarashvili is a Research Fellow and Program Manager of the Eurasia Program at FPRI.

In 2017, Georgia will be shaped by several trends: corruption and lack of transparency in the government and the ruling party, economic uncertainty, divergent foreign policy priorities, and opposition party politics.

In recent years, Georgia has managed to enhance its political plurality. In 2012, for the first time since its independence from the Soviet Union, the country experienced a peaceful transfer of power. The country’s party politics are more diverse than ever before, and a transition from a semi-presidential to a parliamentary system of government has helped to balance the previous overconcentration of power in the president’s hands.

The results of the fall 2016 parliamentary election put the previously ruling United National Movement (UNM) in opposition again. This outcome meant that the Georgian Dream Coalition (GD) earned a parliamentary majority and that billionaire oligarch Bidzina Ivanishvili will continue to run the government from behind the scenes. The Ivanishvili factor alone makes many Georgians question government transparency. Reports of increased high and mid-level corruption and nepotism have also marred the GD’s time in government. The fall parliamentary elections also led to the UNM splitting. The UNM is currently the largest pro-Western opposition party in Georgia, and its split has created two separate and strong opposition forces to the GD government to deal with in 2017.

With continued economic turbulence and an unpopular deal to buy gas from Russia’s Gazprom, the GD government will lose some popularity. The GD government’s one success will be the signing of a visa-free travel agreement with the EU. But, there is a possibility that the UNM split will lead to the presence of two powerful opposition parties in the Georgian parliament. Greater political pluralism, further economic stagnation, and closer EU integration could all be in the cards for Georgia in 2017.

Azerbaijan’s Government will Tighten the Screws

Arzu Geybulla is an Associate Scholar in the Eurasia Program at FPRI.

There is little space for positive projections in 2017, as the regime in Baku continues to give preference to its personal gains over much needed reforms.

Azerbaijani politics in 2017 are likely to continue the negative trend of 2016. On September 26, 2016, Azerbaijan adopted 29 constitutional amendments, strengthening the power of the ruling regime. Similar to previous elections, the September referendum took place with various instances of election fraud and violations. Videos, interviews, and independent reporting documenting these violations were treated as business as usual. As a result, the next presidential elections in Azerbaijan will take place in 2020 rather than in 2018 as the presidential term limit was extended from 5 to 7 years.

Ali Hasanov, a presidential aide, described the changes as necessary for the government to work more efficiently. But Baku already had all the powers it needed to run the country, including massive corruption, appalling press freedom, and no respect for human rights. Imprisonment and harassment of journalists is common. On January 24, a court sentenced independent journalist Rovshan Mammadov to 30 days of administrative detention. Earlier, a court sentenced a member of NIDA, a youth organization, to a similar charge, and popular citizen journalist and blogger Mehman Huseynov was fined for allegedly resisting police. At least five other journalists have been arrested or detained by the authorities in recent months, including Afgan Sadygov, Zamin Haji, Ikram Rahimov, Fikret Faramazoglu, and Teymur Kerimov.

In the meantime, the country witnessed currency devaluation and price hikes, which, according to the country’s independent economists, are the result of mismanagement of the country’s economy, the presence of monopolies, and rampant corruption. Sadly, none of these factors are likely to change in 2017.

This article is the first in a new monthly series, Caucasus Cable, aimed at providing accurate and accessible analysis of the Caucasus from experts in the United States, Georgia, Armenia, Azerbaijan, and other countries.

About the author:
*Chris Miller is Research Director of the FPRI Eurasia Program where he serves as the editor of the Baltic Bulletin and our Black Sea Initiative publications. He is also the Associate Director of the Brady-Johnson Program in Grand Strategy at Yale University.

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This article was published by FPRI