Vol. 3, No. 8 (April 15, 2010)

Changes in the South Caucasus since August 2008: Regional perspectives for the world’s superpower

James Nixey
Research Fellow
Chatham House* 


The three countries of the South Caucasus (sometimes referred to as the Transcaucasus)—Georgia, Azerbaijan and Armenia—form the most complex, combustible and unstable region in the former Soviet Union.  Lying at the crossroads of Europe, Asia and the Middle East, they share deeply ingrained historical trauma, Soviet-era bad practice, economic mismanagement, corruption, social problems, weak institutions, conflicting tendencies towards authoritarianism and reform, inter-ethnic disharmony, border disputes and several low-intensity (or ‘frozen’) conflicts.  Georgia, often the most visible of the three countries to the West, has undergone a brief but dirty ‘hot’ war with the major regional power, Russia, after years of Russian threats and pressure.  This was a pivotal event, which carried consequences for the capacity, scope, emphasis and effectiveness of engagement by the United States across the region.

With natural borders, large neighbours and considerable cultural homogeneity at various points in its history, the South Caucasus is a distinct and interconnected region with a total population of around 16 million.  However, the three countries differ considerably, both internally and in their geopolitical orientations.  Ancient as nations, but new as self-governing states, they have each taken separate routes since the break-up of the Soviet Union and independence in 1991.

Georgia is located strategically on the coast of the Black Sea; it was a ‘failed state’ for at least the first half of the 1990s and then underwent a peaceful and democratic ‘Rose’ Revolution in 2003.  It has a staunchly pro-Western foreign policy orientation.  It is predominantly Orthodox Christian and desires NATO and EU membership.  There is no significant Georgian diaspora community.  It suffers from unpredictable foreign policy decision-making and was defeated (and, for some, discredited) in the war with Russia.

Azerbaijan is located strategically on the coast of the Caspian Sea; Baku was the world’s first oil capital in the 1890s (and the world’s first oil pipeline was built there in 1906).  It is overwhelmingly Muslim, though nominally secular, and currently performs a delicate balancing act between Russia and the West.

Landlocked Armenia has poor relations with—and is currently blockaded by—its neighbours Turkey and Azerbaijan due to its continued occupation of part of the latter’s territory.  Its national assets are increasingly being bought up by Russia but it shares no border with that country.  It has a large diaspora (more Armenians live outside Armenia than in it) and an influential (if diminishing) lobby in the United States.  It is considered the world’s first country to officially adopt Christianity as a state religion in 301 AD and it is developing an increasingly close relationship with Iran.

Of the six countries that lie within the South Caucasus or that directly border the region—Georgia, Azerbaijan, Armenia, Iran, Russia and Turkey—only Iran maintains embassies in each of the other five capitals.

Throughout the region, closed borders coexist with a relatively long history of federalism, while the interplay of geopolitical pressures and local politics at times creates a combustible mix.  Although these are small countries, they can create big problems for great powers and, in consequence, could yet hinder the Obama administration in the conduct of its wider foreign policy.


The war with Russia, the subsequent discrediting of the Saakashvili regime and the election of President Barack Obama have led to a cooling in US–Georgia relations.  Even though President Obama singled out Georgia as a major point of difference between Russia and the United States, the “tough love” delivered by Vice President Joe Biden in his speech to the Georgian parliament in July 2009 (including criticism of Georgia’s democratic deficiencies and warnings against further military engagement in South Ossetia and Abkhazia to reclaim these territories) has somewhat estranged the two countries.  There is a notable concern in Tbilisi that, despite the continuing statements of support, Georgia has been downgraded in the list of US priorities and the Georgian leadership is struggling to discern where it fits in American policy in the light of the “reset” of US relations with Russia.

Yet there have been elements of continuity with the George W. Bush era as well.  The US–Georgia Charter on Strategic Partnership, which was signed by the Bush administration, has been taken up by the Obama administration.  This allows for further US military training of the Georgian army and improvement of interoperability with NATO, as well as greater trade and economic assistance.  An Enhanced Bilateral Investment Treaty, a Free Trade Agreement and access for Georgia to the General System of Preferences have also been pursued.  The United States is also training Georgian police officers, judges, prosecutors and defence lawyers.  These bilateral agreements sit alongside multilateral groupings such as the NATO–Georgia Council and the Annual National Plan in which the United States takes the lead roles.  Although the US administration has been clear that the Charter does not provide security guarantees, its provisions have angered Russia as it sees them as directly infringing upon its sphere of influence.  In the face of strong Russian opposition, Georgia also hosted two NATO PfP exercises in May 2009.  But Georgia has had to face up to the reality that there are limits to US support.  Although there have been negotiations for a new US base on Georgian soil, these have not yet produced any tangible results, and direct military assistance in the form of US troops on the ground will not happen under any circumstances.

Since August 2008, the United States has committed USD 30 million in humanitarian aid in its annual assistance programmes to Georgia, as well as a USD 1 billion multi-year package of economic aid for stabilizing the economy, helping refugees and democratic development.  In addition, US-funded Radio Liberty began broadcasting news to South Ossetia and Abkhazia in November 2009 with the explicit aim of decreasing anti-Georgian sentiment and countering Russian propaganda.  But the Abkhazian government’s view is that this is “Georgian propaganda” designed to promote Georgia as an attractive country for Abkhazia and South Ossetia; the breakaway republics have threatened to jam radio signals.  However, international aid is masking the serious effects of the economic crisis on Georgia.  Foreign investment has fallen by just under 75 per cent since the beginning of 2008.  More helpfully for the long term, Georgia’s income from trade with the United States is currently USD 360 million a year.  In a sense, Georgia was lucky.  The August war and subsequent aid promises came just before the global financial crisis.  A few months later and the international community might not have felt so generous.


America’s strategic commitment to Azerbaijan has diminished its ability to place the issue of human rights onto the bilateral agenda.  Nonetheless, American policy-makers have stated that Azerbaijan will need to take democratic standards more seriously if it is to get what it wants from the partnership.  Azerbaijani officials are frustrated that there is little US recognition of the country’s economic achievements (the increase in energy prices has made it the world’s fastest-growing economy for the last three years) and political stability.  Like Russia, Azerbaijan is referring to historical precedent to accuse America of double standards.  Slavery, gender barriers, racial discrimination and corruption in the United States have all been pointed to by Azerbaijan to rebut criticism and soothe domestic irritation at the United States’ “interference in internal affairs.”  President Aliyev decided at the last moment not to join an energy summit in Batumi, Georgia in January 2010, partly in protest at the decision of the US Congress to provide USD 8 million in humanitarian aid to Nagorno-Karabakh.

In spite of this current downturn, the US–Azerbaijan relationship is unlikely to be significantly harmed in the long term.  For Azerbaijan, a good rapport with the United States is useful to exert leverage in dialogues with other powerful nations—principally Russia, as Gazprom attempts to maintain its near-monopoly on gas exports from the region and ensure that gas from Azerbaijan, or delivered from other Caspian producers to international markets via Azerbaijan, does not become a serious alternative gas supply for Europe.  To keep the Americans happy, Azerbaijan maintains a contingent in Iraq, and doubled its troop numbers in Afghanistan in 2009 to 95.


Armenia remains one of the highest per capita recipients of American economic aid under the Obama administration.  In 2009, Armenia received USD 48 million in assistance to Europe, Eurasia and Central Asia (AEECA) funds.  The USAID–Armenia managed share was USD 31.85 million.  However, US investment in Armenia (USD 21 million in 2007) is not as large as Armenian investment in the United States (USD 31 million in 2007), despite the close cultural and business links described above.  What little US investment exists is mainly in the hotel and IT industries.  The United States has also signed an agreement with Armenia to build a nuclear power plant in the country.

The Obama administration has expressed concern over Armenia’s increased economic links with Iran—not least in the form of a Russian-backed pipeline sending Iranian natural gas to Armenia.  Armenia’s response is that increased ties with Iran will reduce its energy dependence on Russia.  Ninety per cent of Armenia’s energy currently comes from Russia and its USD 160 million of debt to Russia was cancelled in exchange for state assets.  Much of the Armenian transport, energy and telecommunications industries are now controlled by Russia.  Simply put, it is harder for the United States to play a role in Armenia because of the depth of Russian involvement there.  Moreover, given the Turkish and Azerbaijani blockades, Armenia has little choice.  The United States would still like the Armenian leadership to be a more active participant in dissuading Iran from acquiring nuclear weapons technology.  Armenia’s influence over Iran, like Russia’s, is questionable, but Iran does enjoy closer relations with Armenia than with any of its other neighbours.

Finally, Armenia’s relations with Turkey constitute the most positive progress that has been achieved in the region in 2009.  The 2008 war in Georgia created the environment for the signing of protocols in October 2009 to establish diplomatic relations and open shared borders between Armenia and Turkey.  There was a major push on the US side to get the Turkish–Armenian protocols signed in April 2009 in time for President Obama’s visit to Turkey later that month for the Alliance of Civilizations forum.  This made Azerbaijani leaders angry with Istanbul and Washington, and the process was delayed until October.  However, if all goes well with the necessary parliamentary ratifications—a big “if”—Turkey will become an even more active player in the Caucasus region.  The Obama administration has welcomed this rapprochement, but has also learnt its lesson of the spring and kept its distance, preferring to let the bilateral dynamics take their own course.  It should be noted also that, for fear of endangering any future agreement, President Obama did not use the word “genocide” when referring to the events of 1915 in his address to the Turkish parliament in April 2009, as he had during his election campaign.  Instead, he used the other term Armenians use, “Mets Yeghern”—literally, the Great Calamity.  As shown during Turkish Prime Minister Recep Tayyip Erdogan’s visit to the United States in December 2009, Washington is now less able to influence Turkish foreign policy as Turkey has, at the time of writing, refused to de-link its own rapprochement with Armenia from the issue of a settlement between Armenia and Azerbaijan over Nagorno-Karabakh.


While not as important as Iraq, Afghanistan, non-proliferation or fighting international terrorism, the South Caucasus has become a vital concern for US foreign policy as a result of the Georgia war.  August 2008 was the first time since the fall of communism that Russia sent its forces across an international frontier in anger.  This in itself has massive implications not only for the South Caucasus countries but also for other major American partners in the former USSR, such as Ukraine, as well as for NATO members themselves.  The South Caucasus matters in itself but also in relation to other policy areas for the United States such as energy and the war on terror.  The balance between them must be constantly reworked for the United States to avoid being caught up too closely with the region.

As many have now observed, August 2008 was a proxy war for Russia, not against Georgia, but against the West and particularly the United States.  To counter this dynamic, the Obama administration may have to rethink its military capabilities to cope with a third simultaneous crisis or conflict situation in addition to Iraq and Afghanistan.  However, regaining its influence in the region will give the United States the best chance of achieving durable solutions and ensuring that the South Caucasus countries are less vulnerable to internal and external forces of instability.

In contrast, retreat from this region by the Obama administration would have far-reaching, short- and long-term negative consequences for American interests, including an inevitable further rise in Russian (and Iranian) influence.  The Caucasus lies on the fault line in Western attitudes on how to deal with Russia.  But Russia will react, whatever the United States does in the South Caucasus.  And the United States will not be able to constrain it any more than it was able to in August 2008.  At the same time, Russia will be similarly incapable of blocking all US policy actions.  The South Caucasus states have all banked their autonomy, their legitimacy and their increasingly pro-Western orientation on a continuing American presence in the region.  For some in South Caucasus, the United States has been just as unreliable in its principles as Russia and has lost some of its credibility.  And today, even though the United States is the indispensable country for the independence of the South Caucasus states, we are entering a period of less American engagement there, not more.  This has been made clear by the Obama administration.  In itself, that may not be a wholly bad thing for a sensitive region riven by ethnic and civil conflicts.  Nonetheless, to the extent that the United States will remain involved in the affairs of the three countries of the South Caucasus, future American engagement and leadership must be thoughtful and not fail them—or itself—a second time.

* This article is comprised of extracts from the chapter “The South Caucasus: Drama on Three Stages” in America and a Changed World: A Question of Leadership, edited by Robin Niblett, April 2010, Chatham House/Wiley Blackwell, London.