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Azerbaijan – Simmering Tensions

It is now more than nine months on since Russia brokered a truce that halted a six-week mini-war between Azerbaijan and Armenia. While the presence of some 2,000 Russian peacekeepers has helped to prevent a renewed eruption of widespread conflict, little progress has been made toward hammering out a permanent peace deal, and recent provocative moves by Azerbaijan, presumably made with the blessing of its ally Turkey, have raised concerns that Baku might again seek to accomplish on the battlefield what it has failed to achieve by means of talks.
Tensions have risen since mid-August, when Azerbaijan’s military blocked a 21-kilometer section of the Goran-Kapan highway that runs through Azerbaijan and is also patrolled by Russian peacekeepers, disrupting a key transportation link connecting major cities in southern Armenia that also serves as an important connection between Armenia and Iran. Baku’s fairly rapid climbdown—the highway was reopened within a day—suggests that the episode was intended mostly as a display of leverage.
Moscow may need to rely on Turkey to persuade Azerbaijan to be more cooperative. However, it is debatable whether officials in Ankara have much of an incentive to do so. Turkey is competing with Russia for influence in the broader Middle East, most obviously in Syria and Libya, but also in the South Caucasus. Moreover, as Azerbaijan’s preferred partner in planned reconstruction projects, Turkey arguably has an interest in President Ilham Aliyev’s government maximizing the amount of reclaimed territory needing rehabilitation.
Aliyev’s government is counting on a robust reconstruction program in the territory reclaimed in last year’s fighting to power a strong economic rebound over the medium term, but the persistence of tensions in the region may limit the more immediate impact of infrastructure investment. Progress toward the full resumption of normal business operations as health risks recede and a solid recovery in oil prices, which stood at close to $70 per barrel in late August, will be sufficient to produce a return to economic growth this year, but the comparative sluggishness of the non-oil recovery will hold the pace of real expansion to less than 3% in 2021.
Since 1979, The PRS Group Inc., has been a global leader in quant-based political and country risk ratings and forecasts. This commentary represents a sneak peek from our upcoming political risk reports. For more information please contact us at (315) 431-0511 and, or explore a subscription to PRS Online and/or ICRG Online today to receive political risk updates.


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