The mountainous region of Nagorno-Karabakh is the epicenter of one of the world’s deadliest ethnic conflicts, one that has been considered “frozen” since the belligerents, Armenia and Azerbaijan, signed a ceasefire agreement in 1994. In reality, however, border skirmishes resulting in casualties on both sides are abundant and the mutual hostility remains intense on the grassroots level. Thus, while not an ongoing war, the conflict over Karabakh is simmering and not frozen. In fact, lately there have even been indications that Azerbaijan is preparing to settle the conflict using military force.
Azerbaijan’s increasing military expenditure, which has reached nearly 5 billion dollars in 2015, is only one cause for alarm. In recent months the Azerbaijani government has instructed the nation’s hospitals to be prepared for war, while its military has been conducting extensive drills using tanks and aircrafts. Azerbaijani media outlets report on military exercises and arms expenditure almost exclusively in the context of the Karabakh conflict. Azerbaijani officials speaking to the media and in public forums have stated the country’s interest in returning Karabakh to its control, even at the cost of war. Recently, for example, Azerbaijan’s Defense Minister, Col. Gen. Zakir Hasanov, told members of the armed forces, “for more than 20 years, our lands have been under occupation, and peace talks have not produced any results. The enemy must unequivocally understand that we will never reconcile with the occupation of our lands,” suggesting that the land of fire may be on the brink of war.
Azerbaijan’s desire to return Karabakh and the other territories to its control is nothing new. With a deadlocked peace process, a diplomatic solution has long been out of reach. Therefore, the question is why is Azerbaijan conducting war-simulating drills and preparing the rear for war now? What explains the timing of this perceived escalation? Is this simply posturing, or has something truly changed on the ground?
Analyzing the current economic conditions in Azerbaijan, this article argues that the mutual and deep-seated hostility and even the military expansion are not an indication of an imminent war. The authoritarian government of Azerbaijan is capitalizing on the national sentiment about the conflict to divert attention away from its human rights abuses, which were brought under international scrutiny during the recent European Games and the trials of prominent activist
Set Ablaze: Grassroots Sensibilities in the Land of Fire
In Azerbaijan, visceral responses to the ongoing conflict and war trauma pervade almost every aspect of everyday life, including seemingly casual situations. For example, during a conversation club talk about the definition of happiness, a student of mine rose to his feet and said, “teacher, how can we be happy when Armenia is occupying our land?” When an art gallery in Salyan (a town south of Baku) had a painting competition, the majority of entrants chose to depict scenes from the war. The image below, which captures some of these paintings, shows military conflict and scenes from the Xocali (pronounced kho-ja-li) massacre, in which at least 161 Azerbaijani civilians were killed by the Armenian armed forces.
Hundreds of thousands of internally displaced persons in Azerbaijan continue to suffer as a consequence of the war. Despite the fact that some twenty years have passed since the armistice was signed, many IDPs have yet to be permanently settled and suffer social marginalization. The ongoing IDP problem is a living reminder of the aching wound that is the conflict over Karabakh, thus inflaming the Azerbaijani street.
A Brief Review of Azerbaijan’s Economy
The Land of Fire’s economy is heavily reliant on the export of energy resources. Oil and gas comprise 95% of Azerbaijan’s exports, which account for 70% of the country’s income, leaving Azerbaijan highly vulnerable to the drop in oil earlier this year. The loss in revenue is estimated to have shaved off approximately 18% of Azerbaijan’s GDP, and cost Azerbaijan jobs with British Petroleum trimming 8% of its workforce in the country.
Skilled workers in the oil sector will find it difficult to obtain employment in their field since the market has shrunk. They will therefore either have to remain unemployed, get training for some other kind of skilled labor, or accept an unskilled position with lower pay. Depending on how steep it is, the job loss may also cause a slowdown in the country’s economic growth due to lower consumption spending.
It is important to note, however, that Azerbaijan’s foreign reserves and low debt level have largely shielded the country from major shocks. That being said, the government’s financial planning was based on an estimate of $90 per barrel, a far cry from the actual price of oil (hovering between $45-$60 per barrel). With further plunges forecasted, and no signs of diversification, Azerbaijan’s economy is not out of the woods.
The Price of War
In light of global and regional economic conditions, what would a war with Armenia actually cost Azerbaijan? A comprehensive analysis of this important question is beyond the scope of this article; however, the following points illustrate the potential economic impact of an escalation between Armenia and Azerbaijan.
As noted, Azerbaijan has already invested nearly 5 billion dollars (almost 18% of the national budget) in its military expansion. To sustain a full-fledged war, Azerbaijan would have to commit additional funds for the purchase of arms and maintenance of the troops, not to mention cover the costs of any damage to infrastructure and medical expenses that will undoubtedly arise in a war situation. With the price of oil projected to remain low and perhaps even fall further, the increase in expenditure would present a serious challenge to Azerbaijan’s budget planners and policymakers. Furthermore, it would slow down the country’s economic growth thus lowering the overall standard of living.
Extending over 1,768 kilometers (over 1000 miles), the Baku-Tbilisi-Ceyhan (BTC) Pipeline is among the world’s most important energy transportation systems. Capable of carrying up to 1.2 million barrels of oil per day, the pipeline is of great financial importance both to Azerbaijan and other actors in the region like the Turkmens and Kazakhs whom use the pipeline to transport their oil, and of course Georgia and Turkey, through which it passes. In addition to the economic benefits it confers, the BTC provides the region with geopolitical independence from its former master, Russia. As Frederick Starr put it, “the alternative was to leave this vital export in the sole hands of the successor to the USSR, the Russian Republic, and its state-controlled monopoly, Transneft. In the post-imperial era, when many Russian politicians still dreamed of reviving their country’s dominion in the Caspian basin, this would be an invitation to mischief.”
Such critical infrastructure would be a prime target for any actor in an armed conflict with Azerbaijan. The proximity between Azerbaijan and Armenia is such that there is little strategic depth and the distance between the latter and the BTC can be covered in a day or two. Thus, Armenia could easily mount an attack on one of Azerbaijan’s most critical resources. In fact, Armenia has simulated precisely such an attack in its military exercises in the past, indicating that an attack on the BTC is likely should war erupt. Azerbaijan’s heavy dependence on oil, especially in the context of the losses it experienced due to the declining price per barrel, makes an assault against the BTC economically crippling. Even if the BTC itself were impregnable, a war would disrupt Azerbaijan’s ability to supply energy to its partners, which in itself would cause economic upheaval.
Finally, since the signing of the nuclear deal with Iran earlier this year, Azerbaijan has been looking southwards at the Islamic Republic for business opportunities. Aspiring to be a main energy supplier for Europe, Azerbaijan has been negotiating with Iran before the deal was even signed, hoping to export Iranian energy through its pipelines, too. Such a venture would not only be lucrative, but would also bolster Azerbaijan’s strategic importance. A war with Armenia would make the environment far too risky for Iran to invest in and therefore would spell the end of any hope for a joint Iranian-Azerbaijani energy venture.
The economic costs discussed do not even begin to cover the immeasurable human suffering that would result from a full-fledged war between Armenia and Azerbaijan. They do, however, show that pragmatically speaking the Azerbaijani regime has little incentive to go beyond saber-rattling to a full-scale armed conflict. So why is the Aliyev government sending out war signals now? With the opaque nature of the Azerbaijani government, its rationale can be difficult to fully analyze. It is probable that the reasoning in complex and comprised of many factors. That said, one thing has changed recently: the European Games, hosted in Baku this summer, exposed the regime’s human rights abuses. These sporting events were meant to showcase a Baku brimming with opulent hotels and brand new buildings as a beacon of Azerbaijan’s meteoric economic development. The glistening Flame Towers did not, however, obscure the Aliyev government’s corruption and oppressive practices, and instead put them in the spotlight. The timing of this international interest and coverage could not have been worse, since the authorities had arrested prominent activists Leyla and Arif Yunus, as well as journalist Khadija Islmayilova who is known for reporting on the regime’s corruption. Leyla and Arif Yunus have since been tried and sentenced (to 8 and 7 years in prison, respectively). On September 1, 2015, Ismayilova was sentenced to 7.5 years in prison, for what are widely considered trumped-up charges and following politically motivated prosecution.
The international condemnation of the Azerbaijani regime’s practices, which has intensified in recent months, can help explain the heightened belligerent rhetoric and posturing over the Karabakh conflict. While it would be obtuse to dismiss these escalatory acts as a mere smokescreen, the domestic political impetus in this case is strong. The Azerbaijani government is shifting the its citizens’ focus from problems at home to the ever-unifying conflict with Armenia, which imbues jingoism and negates all discussion about human rights issues. Furthermore, in light of Azerbaijan’s importance as an alternative energy supplier to Russia, its authorities no doubt hope the international community will also focus on the prospect of conflict (and its implications for the energy market) rather than democratization issues.
However, even if Azerbaijan indeed has no real intention of provoking an escalation in the foreseeable future, the conflict ought not to be dismissed as “frozen”. The rage about the conflict at the grassroots level is fervent and very real, and with the government bellicosity the simmering may boil over and create an expectation for the authorities to actually use force to recapture Karabakh and the surrounding regions lost in the early 90s. This expectation, in turn, may back the Azerbaijani government into a corner and force it into action. Saber-rattling, therefore, for whatever its true intentions may be, is not to be taken lightly.
 Rajabova, Sara. “Azerbaijan to Use Force If Talks Fail, Defense Minister.” AzerNews, September 10, 2015. http://www.azernews.az/azerbaijan/87725.html.
 “Azerbaijan: After More than 20 Years, IDPs Still Urgently Need Policies to Support Full Integration.” March 26, 2014. Accessed September 17, 2015. http://www.internal-displacement.org/europe-the-caucasus-and-central-asia/azerbaijan/2014/azerbaijan-after-more-than-20-years-idps-still-urgently-need-policies-to-support-full-integration/.
 Norland, Erik. “The Geopolitical and Economic Consequences of Lower Oil Prices.” March 9, 2015.
 Farchy, Jack. “Devaluation and Job Loss as Oil Price Slides Hit Azerbaijan Hard.” Financial Times, March 12, 2015.
 Starr, S. Frederick, “The Baku-Tbilisi-Ceyhan Pipeline: School of Modernity,” in S. Frederick Starr and Svante E. Cornell eds., The Baku-Tbilisi-Ceyhan Pipeline: Oil Window to the West (Central Asia-Caucasus Institute & Silk Road Studies Program, 2005), p. 8.
 “CPJ Condemns 7.5-year Prison Term for Khadija Ismayilova.” Committee to Protect Journalists. https://www.cpj.org/2015/09/cpj-condemns-75-year-prison-term-for-khadija-ismay.php.