The Nagorno-Karabakh conflict, a longstanding territorial dispute between Armenia and Azerbaijan, has escalated exponentially over years. In September 2023, Azerbaijan launched a military offensive against the self-declared Republic of Artsakh in Nagorno-Karabakh, leading to a ceasefire agreement brokered by Russian peacekeepers. This offensive resulted in the profound dissolution of the Artsakh Defense Army and the disbandment of the region’s de facto government – leading to a substantial humanitarian crisis, with over 100,000 ethnic Armenians fleeing Nagorno-Karabakh to Armenia to avoid persecution. This mass displacement has raised international concerns of ethnic cleansing and human rights violations.
As Azerbaijan consolidates control over Nagorno-Karabakh, the region’s strategic and economic landscape continues to evolve rapidly. For multinational corporations, the humanitarian crisis underlines critical challenges. Geopolitical shifts, such as Azerbaijan’s reintegration efforts and Armenia’s recalibration of foreign policy, create uncertainties for investment.
For businesses in the South Caucasus region, these developments present significant strategic risks. The instability has disrupted supply chains, particularly in the energy and mining sectors, and has heightened tensions.
Concerns over Azerbaijan’s takeover of Nagorno- Karabakh
Azerbaijan’s control over Nagorno-Karabakh, along with Armenia’s military losses, may initiate an arms buildup as both nations prepare for potential future conflicts. External powers like Azerbaijani allies, Russia and Turkey, and Armenian friends from Western EU aligned countries, could intensify their involvement through continued arms supplies or military agreements, paving the way for further hostility.
The South Caucasus is at a crossroads, where competing interests from Russia, Turkey and the EU all converge. Turkey’s strong alliance with Azerbaijan, formalised through the Shusha Declaration, reiterates its commitment to supporting Baku’s position in the region. Meanwhile, Russia’s diminished influence, as a consequence of its priorities in other areas including Ukraine, has created a vacuum that could invite further instability. This competition, combined with the EU’s economic and political interests, complicates peacebuilding efforts and raises the risk of prolonged tensions or proxy confrontations, further upsetting the region.
Russia’s potential gains
Russia’s unwillingness to do more to protect the people of Nagorno-Karabakh leads one to consider how it could have benefited from the small Armenian enclaves’ demise, and why it turned a blind eye.
Russia was concerned by the Armenian President, Vahagn Garniki Khachaturyan, leaning towards NATO and the EU. Despite its diminished role as a mediator, Russia’s deployment of peacekeepers in Nagorno-Karabakh allowed it to maintain a foothold in the South Caucasus, ensuring that it remains a critical player in the region’s affairs.
Azerbaijan’s strategic position as a transit hub will enable Russia to continue circumventing Western sanctions. Through infrastructure such as the Southern Gas Corridor and Caspian transport networks, Russia will discreetly use Azerbaijan to facilitate trade in oil, gas, weapons, and other sanctioned goods. This would, of course, depend on Azerbaijan’s willingness to act as an intermediary, potentially under discreet arrangements that align with its economic interests. We know that Azerbaijan has already been a facilitator of such activity and supported Russia ever since it came under fire from the West over its actions in Ukraine.
By maintaining a working relationship with Azerbaijan, Russia could balance against Turkey’s growing influence in the region. Leveraging ties with both sides will allow Moscow to remain indispensable to its southern neighbours.
Future of the region and Armenia’s repercussions
The future of the South Caucasus remains questionable, reshaping the region’s politics, economy and security. Armenia now faces intense challenges as it weighs the loss of Nagorno-Karabakh, a region of both symbolic and strategic importance.
Armenia’s defeat further diminishes its regional position. The displacement of its people has strained the economy and the infrastructure, as well as its reliance on Russia having been evidently pointless, undermining its ability to make concessions.
Control of Nagorno-Karabakh gave Armenia access to key water resources, agricultural land and mineral deposits. Losing the territory substantially added to its existing resource vulnerabilities. Azerbaijan’s newfound dominance over energy transit routes has left Armenia heavily reliant on imported resources, further weakening the country’s economy.
In addition, the loss and trauma has fuelled domestic unrest in Armenia, with citizens questioning the leadership’s handling of the conflict. This instability could complicate Armenia’s capacity to rebuild.
Strategic implications for businesses operating within or bordering the region
A best-case scenario would see a stable ceasefire maintained and Azerbaijan prioritising peaceful reintegration of Nagorno-Karabakh, with international oversight. Armenia stabilises politically and economically, fostering regional collaboration. This scenario would reduce the risks to supply chains.
A worst-case scenario would see clashes escalate into a full-scale conflict, drawing in regional powers like Turkey and Russia. Sanctions, trade disruptions and refugee crises destabilise the region further. In addition to operational challenges, companies will be faced with increased costs brought about by security concerns and political volatility.
Heightened risks, such as infrastructure damage or workforce vulnerabilities, will result in additional investment in protective measures and contingency planning. Furthermore, businesses operating in or closely tied to the region will be exposed to reputational damage, particularly if their presence is perceived as support for human rights violations or environmentally harmful activities.
The most likely scenario is that intermittent skirmishes will remain, with no large-scale conflict but persistent tension. Azerbaijan consolidates its control, while Armenia struggles with domestic economic and political challenges.
Conclusion
Azerbaijan’s swift victory in Nagorno-Karabakh is a sign of more than a military triumph; it reflects a convergence of geopolitical agendas that have reshaped the South Caucasus. Russia’s role in this outcome deserves scrutiny. Despite its traditional role as Armenia’s big brother, Moscow’s inaction during the conflict – and its apparent indifference to the hundreds of thousands of people displaced – suggests a calculated decision by the Russians to facilitate broader strategic gains.
Russia stands to benefit significantly from Azerbaijan’s control over Nagorno-Karabakh. Azerbaijan’s position as a transit hub offers Moscow an alternative route for eluding Western sanctions, particularly through the Southern Gas Corridor and Caspian transport networks. This enables the discreet trade of oil, gas, and potentially even arms, bolstering Russia’s economy amid its global isolation. Additionally, maintaining a cooperative relationship with Azerbaijan allows Russia to counterbalance Turkey’s growing influence in the region, while ensuring it remains critical to both parties.
This narrative reveals a stark reality: the South Caucasus remains a theatre of power plays where alliances are fluid, and actions are driven by self-interest rather than shared principles or commitments.
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