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Azerbaijan is Quietly Playing a Key Role in Russia's Economic Plans

  • Azerbaijan's strategic location and natural resources have made it more important to Europe and Russia amid the Ukraine war.
  • Russia's overstretch in Ukraine led to its decreased ability to enforce the cease-fire agreement in Nagorno-Karabakh, allowing Azerbaijan to recapture the territory.
  • Russia's focus has shifted to developing trade routes through Azerbaijan, particularly the International North-South Transit Corridor, to circumvent Western sanctions.
Azerbaijan

When the presidents of Azerbaijan and Russia met on April 22 at the Kremlin, it wasn't Nagorno-Karabakh, Ukraine, or Iran that took center stage. It was the 50th anniversary of a Soviet railroad construction project.

The occasion for the visit, at least officially, was to mark the 1974 start of construction of the Baikal-Amur Mainline (BAM) railway in the Russian Far East. The project was headed by Heydar Aliyev, in his role as first deputy chairman of the Soviet Union's Council of Ministers.

Fifty years later that Aliyev's son -- Ilham Aliyev, now president of Azerbaijan -- and Russian President Vladimir Putin met in Moscow with a group of veterans of the BAM construction. They were there to celebrate what Putin, at the event, called an early version of Russia's "pivot to the East," a precursor to its efforts today to wean itself from the Western-dominated economy.

The BAM event was a bit of an artificially created pretext. As the Russian newspaper Kommersant noted, the main celebration of the railroad anniversary won't take place until July, so Putin and Aliyev were marking it "significantly ahead of schedule."

But the nostalgic backdrop was a fitting one. Not only are railroads rising to the top of the Azerbaijan-Russia agenda, but decades after Heydar -- who would eventually rise to become one of the most senior officials in the Soviet Union -- an Aliyev is again wielding significant influence in Moscow.

Russia's full-scale invasion of Ukraine just over two years ago set off a chain reaction of geopolitical consequences in the Caucasus, and Azerbaijan, by virtue of its natural resources and strategic location, has come out the winner in almost all of them.

The Ukraine war made Azerbaijan more important to Europe -- which needs both the country's energy resources and its position on east-west transit routes to work around its previous dependence on Russia -- as well as in Russia, which even more acutely needs Azerbaijan's position on north-south transit routes that allow it to work around Western sanctions.

Russia's overstretch in Ukraine, meanwhile, meant that Moscow was less capable of enforcing the cease-fire agreement it had brokered in 2020 between Armenia and Azerbaijan after the Second Karabakh War. Despite the presence of 2,000 Russian peacekeepers, Azerbaijan was able to consistently press its advantage in the ethnic Armenian-populated territory of Nagorno-Karabakh, ultimately leading to Azerbaijan recapturing full control of the territory in September 2023. That, in turn, spurred Armenia to shift away from its traditional reliance on Russian security guarantees in favor of tighter relations with the West.

Aliyev flew to Moscow with Azerbaijan's star perhaps higher than it's ever been and Russia's sway in the Caucasus at a nadir. Underscoring that trend, the week before Aliyev's visit saw two more events that illustrated vividly the decline of Russian authority in the Caucasus.

First, Russia confirmed that its peacekeepers were pulling out of Karabakh well ahead of the November 2025 date that had been previously agreed. Then, Armenia and Azerbaijan announced that they had reached a deal for Armenia to hand over some slices of occupied territory without any mediation from outside, including Russia, which had been playing a significant role in border demarcation issues.

Neither event was mentioned at all during the public remarks by the two men, other than a vague allusion by Aliyev to "regional security." Instead, Aliyev and Putin discussed railroads and other economic ties.

The economic agenda suited Azerbaijan, which is eager to manage its affairs without interference from any external power, including Russia.

"Of course, 'agriculture' and 'tourism' don't look as significant in the news as 'peacekeepers' or 'negotiations on a resolution of the conflict with Russian mediation,'" wrote one commentator in the pro-government Azerbaijani news site Minval.az ahead of the Kremlin visit. "But now, when -- as President Aliyev has underscored many times -- the time has come to turn the page on the Karabakh conflict, it is exactly these kinds of 'boring' themes like investment, jobs, and economic dividends for ordinary citizens that will occupy the main place in negotiations."

While it may be arguably more "boring" than war and peace, the expansion of trade routes through Azerbaijan is nevertheless strategically critical for Russia. And that issue dominated the (public, at least) agenda for the Putin-Aliyev meeting.

St. Petersburg To The Persian Gulf

The key project for Moscow is the International North-South Transit Corridor (INSTC), a series of rail, ship, and road routes connecting Russia to Iran and its Persian Gulf ports. The most promising route goes through Azerbaijan, the only country that borders both Russia and Iran and which already has a railroad connecting the two countries.

While the INSTC has long been on the drawing board, it got a new impetus following the war in Ukraine and ensuing Western attempts to economically isolate Russia.

"We have been implementing projects in the field of transport for many years. The Russia-Ukraine war has enhanced the importance of our work," Aliyev said in January 2023 in remarks to local press.

In May 2023, Russia and Iran signed an agreement to complete construction of a railroad from the Iran-Azerbaijan border, at Astara, to Rasht, in northern Iran. That represents the last missing rail link to connect St. Petersburg to the Persian Gulf.

In 2016, Azerbaijan agreed to partially finance the construction (along with Iran) before dropping the project two years later because of international sanctions against Iran. Now, it will be Russia footing the bill to build the Rasht-Astara line.

Putin has repeatedly spoken of the INSTC as a key element in plans to reorient the world economy away from Western dominance. And the BAM anniversary gave him occasion to reiterate that.

"In its scale and historical significance, the BAM is comparable to another direction of Russian-Azerbaijani cooperation: the development of the North-South Transportation Corridor," Putin said at a meeting with Aliyev and veterans of the Soviet railroad construction project. The INSTC will mean "the formation of new logistics routes with the aim of accelerating the economic and social development of the countries of Eurasia and the Global South."

Azerbaijan has, by contrast, been relatively quiet about its role in the INSTC. It was left to Russian Transport Minister Vitaly Savelyev to tell reporters at the event that Azerbaijan is carrying out upgrades of its own railway that should allow it to more than double the cargo transported along the route.

The shift from hard power to regional transportation projects should be seen as a sort of strategic retreat for Russia in the Caucasus, says Laurence Broers, an associate fellow at the Chatham House think tank.

"The departure of Russia's peacekeeping mission from Karabakh...represents a significant strategic win for Baku," Broers wrote on X, formerly Twitter. "Regional powers, especially Russia and Iran, are working together to establish a new strategic equilibrium in the South Caucasus. This is Russia's next-best option to unilateral hegemony and which could offset the loss of hegemonic power plays -- such as its peacekeeping mission in Karabakh."

Russians In Zangezur

There is one more potential Russian power play in the Caucasus that was conspicuously unmentioned at the Putin-Aliyev meeting: transportation routes connecting Azerbaijan's mainland with its exclave of Naxcivan through Armenian territory, a project that has become known by the Azerbaijani name for it, the Zangezur Corridor.

The establishment of the route was laid out in the Russian-brokered cease-fire agreement that ended the 2020 war between Armenia and Azerbaijan. That agreement stipulated that Russian border guards would provide security along the route.

Since then, however, nearly every other provision in the cease-fire agreement has been violated, and it is effectively, if not formally, dead. In light of its plummeting trust in Russia, Armenia, along with U.S. and European negotiators, is seeking other possibilities for security, such as private companies or international organizations.

But Russian Foreign Minister Sergei Lavrov, in January, again insisted that the 2020 agreement should regulate Russia's presence on the road.

Publicly, Azerbaijan continues to support the Russia option. The 2020 cease-fire statement "indicated that Russian border guards would provide security and control" in the part of the route that passes through Armenia, "and this obligation must be fulfilled," Aliyev said in a January interview with local television. "Armenia wants to shy away from this now."

Behind the scenes, however, Azerbaijan may also be trying to get Russia out of the picture.

"There is skepticism on both sides regarding Russia," said Fuad Shahbazov, an independent Azerbaijani analyst.

"Russia is the one pushing more for the corridor because it wants to stay here for a long time under the guise of security," he said. "Azerbaijan doesn't say it loudly, but it also doesn't want to see Russians" guarding the transportation routes.

Baku's insistence on following the 2020 agreement may be a bargaining technique, says Shujaat Ahmadzada, a nonresident research fellow at the Baku-based Topchubashov Center, which focuses on international relations and security. "First, it sustains pressure on Armenia," he said. "Second, it transforms the issue into more of a Russian-Armenian dispute, exploiting any disagreements between them, which could aid Azerbaijan in expanding its negotiating leverage."

Playing All Sides

Aliyev met Ukrainian President Volodomyr Zelenskiy at the Munich Security Conference in February. Speaking in English to his fellow native Russian speaker, Aliyev reiterated Azerbaijan's "support to Ukraine's territorial integrity and sovereignty...we are a country that understands occupation and violation of territorial integrity very well."

Meanwhile, hard-line Russian politician Leonid Slutsky recently called Aliyev "the most reliable leader in the post-Soviet space."

Azerbaijan has long sought to play it every way and balance its relations with various partners, and its rising clout in the wake of the Ukraine war has only strengthened its ability to do so.

It's not only Russia's dependence on Azerbaijan. The two countries still have many other interests in common, wrote Aleksandr Karavayev, a researcher at the Institute of Economics of the Russian Academy of Sciences, in a piece on the Azerbaijani website Haqqin.az published ahead of Aliyev's visit.

One of the shared interests is an antipathy for Armenia's pivot to the West. Meanwhile, Azerbaijan's own relatively good relations with the West don't prohibit Baku from carrying out tactical anti-Western efforts of its own, such as against France or the United States.

Another shared interest is close economic cooperation, which has in fact grown since the launch of the Ukraine war: Karavayev noted that the Russian automaker AvtoVAZ has started assembling Lada cars in Azerbaijan and that the two countries are looking to expand production of Russian rail cars and aircraft in Azerbaijan.

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"For Russia, Azerbaijan is...a 'flag of convenience' for relocating industrial enterprises and several segments of Russian business that have fallen under restrictions of the Western alliance," Karavayev wrote.

But Azerbaijani-Russian relations have historically been up and down, and there are plenty of reasons to doubt a long-term friendship, wrote Russian analyst Sergei Markedonov on his Telegram channel. "Baku and Moscow are getting closer, that is a fact," he wrote. "But the volume of anti-Westernism and pro-Soviet nostalgia differs between us."

Markedonov noted that young Azerbaijanis were often more skeptical of the relationship with Russia and that policymakers in Moscow used to write off similar sentiments in Armenia as the product of "complainers and hacks."

"Now, one of those 'hacks'" -- a reference to former opposition journalist and now Prime Minister Nikol Pashinian -- "is pivoting the foreign policy of his country."

By RFE/RL

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