A New Great Game: Armenia, Azerbaijan and Energy Geopolitics in the Caspian

On the surface, last month’s clashes along the Armenia-Azerbaijan border in the foothills of the Caucasus Mountains appear little more than a faint aftershock of the post-Soviet upheavals which scarred the region almost a generation ago. However, scratching below the surface of this so-called “frozen conflict” reveals the shifting geopolitical dynamics transforming the resource-rich states straddling the spine of Asia from neglected backwaters into the epicenter of a New Great Game as both historical and emerging powers jostle for power and influence along the old Silk Road.

The enmity between Armenia and Azerbaijan is not a new phenomenon in the volatile and ethno-linguistically fragmented South Caucasus. In 1988, ethnic Armenian separatists from the Nagorno-Karabakh region within the Soviet Republic of Azerbaijan rose up against Baku after a referendum boycotted by Azeri residents of the disputed province, resulting in an undeclared ethnic conflict in the mountainous region that escalated into outright war between Armenia and Azerbaijan after the Soviet Union finally collapsed. Since 1994, when a Russian-brokered ceasefire left Armenian forces in possession of 20% of Azerbaijan’s sovereign territory, sporadic border clashes have erupted between the opposing armies in Nagorno-Karabakh, most notably during the inconclusive Four Days War in 2016.

However, what makes last month’s skirmishes unique is the fact that the clashes broke out far from the contested region, 300 kilometers north of Nagorno-Karabakh on the undisputed international border near Azerbaijan’s Tovuz district. Although the likelihood of a full-blown conflict on the scale of the early 1990s is practically nil, the reaction of regional powers such as Russia, Turkey, Iran, and the European Union to the crisis highlights the ongoing transformation of the South Caucasus from a post-Soviet backwater into a geostrategic flashpoint as tensions mount over the rich energy resources of the Caspian.

Perhaps the most striking feature of the recent border clashes is the fact that the flare-up occurred adjacent to a crucial transport and energy corridor linking the Caspian oil and gas fields to European markets. Notably, Armenia-Azerbaijan tensions boiled over just as the Southern Gas Corridor, an ambitious pipeline connecting Azerbaijan’s Shah Deniz gas field to the European Union, bypassing Russia and Iran via Turkey and Georgia is nearing completion. For European policymakers, such a pipeline is perceived as a crucial component of energy diversification initiatives for EU member states currently dependent upon Russian natural gas, and thus vulnerable to Moscow’s decision to turn off the taps, as was the case following the annexation of Crimea in 2014. Moreover, Turkey stands to benefit from the completion of the Southern Gas Corridor, enabling Ankara to leverage its privileged geostrategic position at the crossroads of Europe and Asia to become an energy transit hub, potentially limiting pipeline access in accordance with Ankara’s foreign policy goals. Therefore, incidents such as last months’ clashes along the Armenia-Azerbaijan border hold not only the potential to radically alter the regional landscape but produce geopolitical shockwaves with far-reaching consequences beyond the South Caucasus.

Gauging the international response to the latest standoff between Baku and Yerevan, several standout features highlight the increasing geopolitical stakes across the region. At one level, the Armenia-Azerbaijan conflict can be interpreted as an extension of longstanding rivalries between Moscow and Ankara. Given the historically close ethnic, cultural, linguistic, and economic ties between Turkey and Azerbaijan, Ankara has provided ample diplomatic support to Baku throughout the crisis, with Erdogan implying that Moscow had covertly supplied Armenia with advanced military equipment after claiming that “Armenia could not have undertaken such an attack on its own.” Meanwhile, Moscow has responded by tacitly staging large-scale military exercises in southwestern Russia, close to the Azerbaijani border in a thinly veiled warning to Ankara not to escalate hostilities. This latest flareup is reflective of an emerging dynamic of strategic competition between the two powers, with Moscow and Ankara backing rival sides in Libya and Syria as both Putin and Erdogan seek to increase their geopolitical clout across the region.

The timing of the escalation is also conspicuous, coming just as a 1996 deal allowing Russia to fulfill the vast majority of Turkey’s gas demand for 25 years is due to expire, enabling Ankara to break free of Moscow’s vice-like grip over the Turkish energy market. In recent months, Azerbaijan has upstaged Russia and Iran as Turkey’s principal natural gas provider, with Baku exploiting the relative cheapness of Azerbaijani gas exports to undercut its larger neighbors.

This development comes despite the completion of Gazprom’s TurkStream pipeline across the Black Sea in January 2020, a move that was meant to consolidate Russia’s position in the lucrative Turkish market. Given the indisputably close bilateral relationship between Ankara and Baku, gas imports are far less likely to be deployed as a geopolitical tool, enabling Erdogan to feel less constrained in his aggressive pursuit of a dominant geostrategic position in the region due to fears over Turkey’s energy security. Consequently, declining energy interdependence between Ankara and Moscow reduces the incentive to resolve disputes diplomatically and raises the prospect that future confrontations will see less restraint on the part of regional powerbrokers.

The sobering prospect of an emerging proxy conflict between Moscow and Ankara in the Caucasus threatens to draw other regional powers such as Iran, which has so far sought to remain neutral, into a wider conflagration linking latent tensions in the Caucasus with longstanding flashpoints across the Middle East. If such a scenario were to unfold, geopolitical upheaval would likely render the European Union’s energy diversification ambitions fundamentally impracticable.

Below the surface, the strategic calculations of regional actors in response to the crisis along with the Armenia-Azerbaijan border masks broader trends exacerbating the risk of future confrontations. At the domestic level, the border clashes represent a distraction from the poor handling of the COVID-19 pandemic on the part of both governments. In Azerbaijan, this has intersected with an economic crisis amid a collapse in oil prices, triggering anti-Armenian demonstrations in Baku.

As regimes across the region seek to distract their populations from domestic strife, jingoistic saber-rattling of the type seen in Baku and Yerevan is only set to become more likely in the short term.

In the longer term, increased interest in the Caspian’s immense natural gas reserves as part of a broader energy transition away from oil towards more sustainable fuels is set to heighten the stakes of external powers all across the region. New players such as China are vociferously striking deals to exploit gas fields to the east of the Caspian in Kazakhstan, Uzbekistan, and Turkmenistan and steadily encroaching upon the Caucasus as a key transport and energy corridor on the New Silk Road, adding a further dimension to an already complex geopolitical chessboard. Likewise, both Armenia and Azerbaijan are key transit sites along India’s North-South Transport Corridor, New Delhi’s answer to Beijing’s Belt and Road Initiative, and an emerging transit route connecting European markets with the subcontinent via Russia and Iran.

As strategic competition between Beijing and New Delhi intensifies in the coming decades, the South Caucasus, standing at the intersection of these two geoeconomic corridors may become an unlikely flashpoint between Asia’s emerging powerhouses. Crucially, U.S. retrenchment and a declining interest in the South Caucasus under the Trump administration has undermined a key stabilizing force in the region, enabling the emergence of a power vacuum that Moscow, Ankara, and Tehran appear poised to fill.

As regional powers jostle to exploit shifting geopolitical realities across the South Caucasus, the Armenia-Azerbaijan border dispute has highlighted long-term dynamics set to heighten the stakes on the crucial corridor at the crossroads of Europe and Asia. Given the critical location of the Caspian at a strategic chokepoint, surrounded by revisionist powers seeking to exploit diminishing U.S. influence to advance their own geopolitical agendas against the backdrop of an energy transition in which natural gas is pegged to a key role, it is unsurprising that “frozen conflicts” across the post-Soviet periphery are beginning to thaw. As a New Great Game begins to unfold along the shores of the Caspian, the challenge facing diplomats, politicians, and policymakers is to prevent the historic rivalries that plague the region from spiraling into a proxy battleground for new rivals across the heart of Eurasia.