How Azerbaijan’s Oil Boom – and Impending Bust – Affects Armenia

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In November of 1997, Armenia’s Foreign Minister Alexander Arzoumanian cited the limitless wealth and influence awaiting Azerbaijan from its oil industry as the reason the Armenian government was preparing to agree to the highly controversial 1998 Karabakh settlement.

Since then, Azerbaijan’s economy – driven by its energy sector – has grown at an unparalleled rate, with gross domestic product (GDP) rising from $7.3 billion in 2003 to $73.5 billion in 2013. This economic growth has resulted in a surging military budget that has made Azerbaijan increasingly aggressive in its policy toward Armenia over its unequivocal position that it guarantees the security of the Artsakh Republic (also known as the Nagorno Karabakh Republic.) In that vein, Ilham Aliyev, Azerbaijan’s dictator, has threatened war with Armenia several times, most recently in a Twitter tirade.

In the wake of Azerbaijan’s belligerent posturing, and despite massive shortcomings in Armenia’s budget by comparison, the Armenian government has had to dedicate a significant amount of its resources to security and, forced into an arms race by its neighbor, has become one of the world’s most militarized nations. This, of course, has come with a fair share of political and societal sacrifice for the country. For one, money that would be available for investing in education, industry, and infrastructure – elements that would stimulate and grow Armenia’s economy – is instead being used for the country’s defense and military. And, perhaps more importantly, Armenia’s ability to maneuver its relationship with Russia has been limited given its heavy, almost exclusive, dependence on Russian arms sales.

Years ago, the military and economic picture was reversed. Immediately following the Nagorno-Karabakh War (1988-1994), Armenia’s economy was the first in the region to reach pre-independence GDP levels. Being the first nation to reach a positive GDP growth rate in the South Caucasus, Armenia’s economy was outperforming that of Azerbaijan and Georgia. This economic superiority meant there was more balance between the military budgets of Armenia and Azerbaijan. Combined with the fact that Azerbaijan’s military had been devastated in the recent war, with a significant portion of its military hardware destroyed or lost, the country did not pose a serious threat to Armenia. That more comfortable status also meant that Armenia was not as dependent on Russian military support – a vulnerability that the government is well aware of today.

However, at the turn of the 21st century, as Azerbaijan began earning revenues from its energy sector, circumstances began to change. From 2001 to 2009, Azerbaijan’s annual GDP growth rate averaged 16 percent, with a peak of 35 percent in 2006 – the highest in the world for that year. The economic growth led to a ballooning state budget, with a corresponding increase in the military budget, and transformed an otherwise disorganized, corrupt, and incompetent military into a force that, if not any more organized, upright, or competent, is fantastically armed to the teeth.

The implications for Armenia have been substantial: Armenia now relies on Russia’s support more than ever, leaning on its discounted military weapons and hardware, understanding that, without them, the military balance would favor Azerbaijan, putting Artsakh and the rest of Armenia at risk. But Russia isn’t picking sides: the country has also sold advanced weapons to Azerbaijan. This may ultimately be Russia’s goal, as it prevents either Armenia or Azerbaijan from growing powerful enough to expel Russian influence from the region.

Today, Azerbaijan’s economic growth has slowed following the peak of oil production in 2010 – but declining oil production hasn’t directly translated into a decline of the national economy.

To understand the future of the energy sector and the overall economy in Azerbaijan, the energy sector in the region should be divided into three key components: the oil industry, the natural gas industry, and the SOFAZ sovereign wealth fund of Azerbaijan. It is only when these three elements are analyzed separately that we begin to understand the complexities within the region and the repercussions for countries like Armenia.

In the past decade, it’s been Azerbaijan’s oil industry that’s been the predominant force driving the region’s economy. Starting with proven reserves of about six to seven billion barrels of oil, Azerbaijan has extracted roughly half of that amount to date. Peak production was reached in 2010, when Azerbaijan averaged a collection of 1.035 million barrels of oil per day. By 2014, this number declined to about 0.86 million barrels per day. And, according to projections made by the Organization of the Petroleum Exporting Countries (OPEC) in December of 2014, oil production is expected to decline to 0.80 million barrels per day in 2015. That would represent a 23 percent decline in five years. This descending pattern is only expected to continue as the Azeri-Chirag-Guneshli complex of oil fields, which accounts for about 80 percent of oil production in the region, reaches the end of its production life. Despite 23 exploration contracts, no new oil fields have been discovered in Azerbaijan since the discovery of the complex before independence, during the 1980s. So, it’s reasonable to assume the unlikelihood of Azerbaijan discovering further significant oil reserves in the near term.

The adverse effects of declining oil production have been compounded due to the recent  decline in oil prices, with the average cost of a barrel of oil at around $50. Considering cost of production for oil is roughly $15 per barrel in Azerbaijan, the profit margin of the oil industry for Azerbaijan is rapidly shrinking. The combination of these unfavorable facts represent a direct threat to Azerbaijan, a country that depends on oil for over 90 percent of its exports and 70 percent of its state budget.

However, the repercussions of this downturn has so far been mitigated by the State Oil Fund of Azerbaijan (SOFAZ.) Established in 1999 by then-president Heydar Aliyev through the recommendation of the International Monetary Fund (IMF) and World Bank, SOFAZ was created to manage the wealth Azerbaijan has accumulated from to its oil and gas profits and preserve it for the future. Namely, Azerbaijan wanted to avoid Dutch Disease, the economic phenomenon of negative backlash arising from unexpected increases in a nation’s economy. To date, SOFAZ has collected more than $110 billion, investing most of it internally on a yearly basis as part of the state budget.

These investments and the employment opportunities they produce constitute a majority of Azerbaijan’s “non-oil” economic sector. The construction industry, powered by SOFAZ projects, is the second-largest enterprise of Azerbaijan’s economy, following the energy sector. Some investments from the State Oil Fund also go to more extravagant projects that offer little long-term economic returns, like the inaugural European Olympic Games, which will be held in Azerbaijan this summer and has cost the nation $8 billion, but which raise the profile of the country. This hasn’t always proved to be a winning strategy for the country: In 2012, Azerbaijan hosted the Eurovision Song Contest and was subject to calls of boycott after a light was shone by international journalists on its feverishly covered-up human rights abuses.

However, not all of the $110 billion-plus in revenue from the State Oil Fund has been spent. As of the end of 2014, the Azerbaijani government stated that about $37 billion has been preserved for the transitional period of lower oil production and thus, lower profits. This is why the recent decline in oil production has yet to translate into a decline in government revenue or gross domestic product; during its peak years of production, Azerbaijan was only spending a portion of its oil revenue while saving the rest. So, even though the SOFAZ revenue has been gradually shrinking since 2010, it has so far been sufficient enough to maintain the country’s spending levels. As long as there is reserves remaining in the fund, Azerbaijan’s overall budget is not expected to drastically decline.

This is why, despite the alarming level of price and production decline, Azerbaijan was expected to have a stable budget and continued – albeit much smaller – GDP growth in 2015. That’s because regardless of the total revenues received, SOFAZ is expected to contribute $13.2 billion, or 53.4 percent, to the state budget. This trend will continue until the sovereign wealth fund has been exhausted, at which point the negative effects of oil production decline will become more profoundly felt.

It must be noted, however, that simply having a sovereign wealth fund does not solve all problems, even for the short term. For example, despite Azerbaijan’s $37 billion sovereign wealth fund, and $12 billion foreign reserve fund, the country’s currency was under heavy pressure because of the economic volatility in the region and fall of oil prices. Azerbaijan spent roughly $2 billion from December 2014 to January 2015 in defending its currency, before capitulating in mid-February and dramatically devaluing its currency by 33.5 percent against the dollar. In addition to fueling panic and creating loss of faith in the currency, this action is bound to introduce a notable rate of inflation in the coming months.

You’re probably wondering how long it will take before SOFAZ runs out of money. During its staff visit to Azerbaijan in October of 2014, the International Monetary Fund (IMF) predicted that Azerbaijan should expect a decline of $5.5 billion, or 14 percent, to its fund in 2015. That means the fund would be at $32.8 billion at the end of this year, while ending the previous year at $38.3 billion. This would represent the first annual decline in the fund.

Even those predictions now seem too optimistic with a further drop in the price of oil. In the two months following the publication of that report, SOFAZ received $1.2 billion less than what was predicted. This trend has continued in the past two months. In January and February of this year, Azerbaijan’s income from oil was $760 million and $810 million, respectively. Those numbers represent roughly 45 percent of the $1.76 billion in revenue Azerbaijan received last June, before the fall of the price of oil.

Moreover, major energy companies like ExxonMobil and BP have predicted that current prices for oil will stay low in the immediate future. In fact, Exxon has assumed a price of $55 a barrel for 2017, which is roughly the price of Brent Crude oil today.

Though such projections are not always accurate, and external and regional factors contribute to the equation as well, it’s reasonable to project that with declining production, high spending levels, and limited economic diversification, Azerbaijan will have exhausted its sovereign wealth fund before the end of this decade.

The Azerbaijani government, however, maintains that the temporary financial relief from SOFAZ is enough to sustain a stable economy until its rising gas industry takes off. This is what Azerbaijan is counting on to continue to maintain its economy. Because investment in gas requires a longer stage of infrastructural development, the gas industry in the region has developed more slowly than oil. When the Shah Deniz Pipeline finally began delivering gas in late 2006, Azerbaijan experienced a surge in its gas production and became a net gas exporter for the first time. Since then, gas production has stayed at a roughly consistent rate. According to the State Statistics Committee, Azerbaijan planned to produce 28.8 billion cubic meters of natural gas in 2014. This number is expected to grow slightly to 30.2 billion cubic meters in 2018. Then, when Stage 2 of the Shah Deniz II pipeline begins delivery in 2019, another surge is expected. Ultimately, with all its upcoming developments in the gas sector, Azerbaijan expects to produce up to 40 billion cubic meters of natural gas by 2020 and hopes that the industry will soon replace oil as its primary source of income.

But there are a few factors that the Azerbaijani government has failed to mention in its public statements. For one, Azerbaijan has been earning nearly $100 per barrel of oil compared to about $50 per thousand cubic meters of gas. So, even the most optimistic projections would put Azerbaijan’s future gas revenue at a small fraction compared to the region’s oil revenue. Moreover, the price of natural gas roughly mirrors the price of crude oil, and as such has dropped by roughly 30 percent in the past few months. Therefore, if the price of oil continues at current levels as predicted, the price and revenue from natural gas will also suffer in the coming years. Moreover, considering that a great portion of the non-oil economic sector is fueled by short-term projects through investments by SOFAZ, it seems implausible for that sector to be sustainable, let alone continue to grow, once the oil revenue and wealth fund have severely diminished. Therefore, in spite of hopeful government projections, it’s logical to conclude that gas revenue and other economic sectors will not become significant enough to change the realities of the vast decline of oil production and the depletion of the SOFAZ fund.

These three factors – oil, natural gas, and SOFAZ – shape Azerbaijan’s energy sector and ultimately uphold its economy and regime. And it’s these factors that we must understand if we aim to predict the seemingly unpredictable behavior of the Azerbaijani government and designate a sound course of action for Armenia.

The entire Azerbaijani political structure has been based around a power- and wealth- sharing system between various influential families, with the Aliyev clan at the top. Though Azerbaijan has tried to avoid Dutch disease through the establishment of SOFAZ, the Aliyev clan and its friends have gone on ridiculous spending sprees around the world, undoubtedly lessening the funds available for the rainy days when the oil runs out. This corrupt political system has functioned thus far because, for the average citizen, the benefits from consistent national economic growth outweigh the negatives of corruption and the widening gap between the wealthy and poor. But, as the economy inevitably staggers in the coming years with a decrease in government investment, popular unrest will undoubtedly rise and threaten the reign of the Aliyev regime. For Aliyev, the only opportunity to silence the opposition would be to unite all of Azerbaijanis and pit them against their external foe: Armenia.

It is this unstable situation, more so than the recent economic boom in Azerbaijan, that Armenians should fear most in terms of a military conflict. At that point, regardless of its economic capabilities, Azerbaijan will be at the peak of its military capability due to the arsenal it will have amassed in the preceding years. Aliyev, with his grip on power slipping, will have little to lose and the region will be in prime position for war. It’s crucial for Armenia to be militarily prepared for this possibility, whether it’s discouraging Azerbaijan from launching a war in the first place or ending the fight quickly and on its own terms if it does begin.

These political realities dictate the course of Armenia’s policies – namely, its current prioritization of military preparedness and military spending over investment in other sectors. They are based on the assertion that war may be imminent and that all possible steps must be taken to be prepared. More importantly, they are based on the understanding that Armenia’s current dependence on Russia for military support is a temporary factor in a dynamic situation – that if Armenia is able to avoid a war with Azerbaijan in the next five years, it will likely be dealing with a significantly weakened Azerbaijan wrought with internal problems. Only then will Armenia be able to pursue a foreign policy not hamstrung by existential defense considerations and, at last, prioritize its economic growth.

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9 Comments

  1. Excellent article.

    Another thing to take into consideration is that even without oil and gas revenues, Azerbaijan would probable be wealthier overall than Armenia because its population is now several times that of Armenia (and growing, I believe) while Armenia’s is shrinking.

    This means more total revenue, more weapons, and a larger army for Azerbaijan.

    How to counter this?

    • Mher Almasian
      Mher Almasian on

      Thank you Dave. The official claim that population of Azerbaijan is over 9 million is false. Realistically the population of Azerbaijan today is about 5.5-6.0 million people.
      http://www.panorama.am/en/analytics/2013/09/18/az-article/
      This seems realistic considering the population was only about 6 million at independence based on the 1989 Soviet census, and that around 2000 it was estimated to be as low as 5 million. Of those more than 1 million are ethnic minorities, including Salafis who consider the state of Azerbaijan their primary enemy.

    • [Dave]:
      .
      Mr. ALMASIAN already gave you some information and a link re Azerbaijan’s alleged “several times that of Armenia” population.
      Here are a couple more for you to explore and pass on to others: will explain below why that is important.
      .
      http://www.panorama.am/en/society/2013/12/17/azerbaijan-demography/
      {In previous articles on this topic we have already indicated that the population size of Azerbaijan is overstated by State Committee on Statistics of the Republic approximately with 37%. In reality, the calculations show that the population of Azerbaijan is overstated by State Statistical Committee of the Republic approximately with 3.5 million people and is unlikely to exceed 5.8 million.}
      .
      http://www.panorama.am/en/society/2013/09/18/jalalaloglu/
      {According to a nationwide survey held by “ADAM” sociological service in Azerbaijan, more than 62% of the population wants to leave the country permanently or temporarily.
      .
      In search of work the Azerbaijani citizens mainly migrate to Russia, Ukraine, Turkey, Kazakhstan and other countries. Thus, the number of Azerbaijanis in Russia in the period between the censuses held in 1989 and 2010 almost doubled. At the same time, the experts believe that the official census does not reflect the real picture and the total number of Azerbaijanis in Russia is approximately 2.5 million. It is noteworthy that on 5 July 2012 the head of the Azerbaijani State Committee for Work with Diaspora Nazim Ibrahimov stated that 2.5 million Azerbaijanis live in Russia. Accordingly, the population of Azerbaijan, the official statistics of which practically does not take into consideration the migration, is less with at least 2.5 million people.}
      .
      {“ This means more total revenue, more weapons, and a larger army for Azerbaijan.”}.
      .
      Larger population does not automatically translate into a larger army. And even then, raw numbers of troops mean little.
      During the NKR war, Azerbaijan had an manpower advantage of deployed troops (including Islamist volunteers and mercenaries) of about 4-to-1.
      Armenian side lost about 6,000 men. The invaders lost about 30,000 (some very knowledgeable Armenian sources put the number at 37,000).
      Armenians need to have confidence in our warriors and our captains.
      We are Armenian Highlanders.
      .
      And the notion that Azerbaijan’s larger population automatically translates into higher living standards is as bogus as the fake country itself.
      Egypt has a population of close to 90 million, and most of them are mired in poverty and misery.
      Israel has about 8 million people, and their standard of living is close to Australia’s, for example.
      Care to guess why ?
      Most of the population of Azerbaijan lives in abject poverty, while the Aliyev Crime Syndicate and their cronies loot billions.
      Something like 90% of their GDP is tied one way or another to hydrocarbons.
      Without hydrocarbons, they are nothing.
      .
      [Azerbaijani Ministry of Agriculture confesses that country’s population is seriously malnourished]
      http://www.panorama.am/en/economy/2013/10/15/az-population/
      .
      {In Azerbaijan, the population consumes less food than it is determined by the World Health Organization. The consumption of high-calorie foods is especially low, reported the Ministry of Agriculture of Azerbaijan to news agency “Salamnews.”
      The article notes that the annual rate of meat consumption per person is 84 kg, this figure is 33 kg in Azerbaijan. Consumption of milk and dairy products should be 360 kg per person in a year, but in Azerbaijan, on average, one person consumes only 248 kg, the consumption of fish and fishery products should be 20 kg, in Azerbaijan it is 6.8 kg, consumption of eggs is set as to 280 pcs. a year, while in Azerbaijan it makes 131 eggs.
      .
      The reports of the Food and Agriculture Organization of the United Nations read that food consumption level per person in Azerbaijan is low. “On the average in Azerbaijan, 2,242 calories goes per person a day. In Georgia, it makes is 2249 calories, in Ukraine 2727, in Belarus 3007, in Kazakhstan 3095 calories,” the report reads.
      .
      In Armenia the meat consumption per capita is a half times higher than in Azerbaijan and makes 45.5kg per year. Thus, according to the National Statistical Service people in Armenia consume an average of 2933.4 calories per day. This is 30.8% more than it consumes the population in Azerbaijan.}
      .
      NOTE: Panorama.am is an Armenian site. However, the info for the articles were originally obtained from Azerbaijani web sites (in Russian or Azerbaijani languages). I have previously checked the Azerbaijani web sites (.az or .ru) referenced in Panorama.am and the info matches.
      .
      On Importance of InfoWars.
      .
      I understand there is no mal-intent in this case –as opposed to posters elsewhere commenting under Armenian names to spread disinformation.
      But our side needs to be very careful _not_ to repeat Anti-Armenian or Pro-Azerbaijani misinformation and disinformation that is rampant in the blogosphere.
      The effect is to demoralize our people: the exact goal of those Anti-Armenian posters who flood Armenian web sites under Armenian names.
      Sadly, some amongst us fall for the ruse and innocently pass on the disinformation.
      .
      This needs to stop.
      Where the mind goes, the body follows: if you succeed in planting self-doubt in the mind of your adversary, half the battle is won.

  2. Mher Almasian once again demonstrates his inability to engage in any sort of long-term or “big-picture” analysis and instead makes half-baked arguments along the lines of “Armenia is suffocating under Russia”.

    In the first few paragraphs Mher explains that even though in the first few years after the fall of the Soviet Union, Armenia had a higher economic recovery and growth rate than Azerbaijan. But ever since Azerbaijan’s oil industry took off in the early 2000s Azerbaijan’s economy has skyrocketed… So far Mher is more or less correct, but then like every Russophobic, western-influenced cyber-warrior he shoehorns in the false idea that “Armenia was on its way to developing (a.k.a. westernizing) but Azerbaijan’s increasing budget forced it to be even more dependent on Russia”. Mher fails to mention that Armenia was dependent on Russia from the moment the USSR collapsed; otherwise the Turks were ready, willing, and able to invade Armenia and subject the country to a second, final genocide. Facts don’t matter to Mher, he entirely overlooks the fact that in 1993 Russia threatened Turkey with nuclear annihilation should Turkey decide to go through with its planned attacks against Armenia. Nor does Mher mention the billon-dollar weapons delivery which Russia provided to Armenia during the early years of independence which allowed Armenia to defeat Azerbaijan. Mher instead – almost unbelievably – argues that during this period Armenia was more able to “maneuver” in its foreign policy because of how well Armenia’s economy was doing.

    Sadly the rest of Mher’s article could have been more or less decent as he focuses on energy industry statistics and predictions from Azerbaijan. These paragraphs contain nothing groundbreaking that wasn’t already being discussed in 2007 or even earlier, but it is not as bad as the beginning of the article. It is quite clear to anyone who cares to analyze the article that Mher was just looking for an excuse to slap on some anti-Russian commentary into his article about Azeri energy revenues, even though the anti-Russian statements had no logical connection to the core subject he claimed he wanted to discuss. Mher is no different than other Russophobic posters on various English-language “Armenian” forums. These people have a debilitating, neurotic Russophobia and they try to find some non-existent way to try and blame Russia or President Putin for whatever crosses their minds, no matter how unrelated it may be.

    Mher further manages to disappoint the audience once again before the article is through. He attributes the reasoning for the Russia-Armenia strategic alliance as “based on the understanding that Armenia’s current dependence on Russia for military support is a temporary factor in a dynamic situation – that if Armenia is able to avoid a war with Azerbaijan in the next five years, it will likely be dealing with a significantly weakened Azerbaijan wrought with internal problems. Only then will Armenia be able to pursue a foreign policy not hamstrung by existential defense considerations and, at last, prioritize its economic growth”. We have to wonder what it is Mher was smoking, snorting, or ingesting when he came up with this “gem”. Reminds me of when LTP claimed around 2008 that a 50,000-man military is too “big for a country like Armenia”, or Paruhi Hayrikyan claiming that Armenians and Azeris and Georgians are brothers and united against “Russian imperialism”; these pseudo-intellectuals share a delusion that somehow Armenia can establish a peaceful existence in the South Caucasus without a very strong Russian presence. None of them seem to understand that Armenia has always been a coveted piece of territory invaded and fought over by empires, resulting in a situation where Armenia must maintain strong alliances with powers that share the same regional interests. Russia’s role will not be changing anytime soon; Turkey’s role will not be changing anytime soon; and even if Armenia wiped Azerbaijan off the map tomorrow without a single Armenian casualty, Armenia would still be as dependent on Russia to protect is from the remaining 90 million genocidal Turks and Muslims on its border as it is today – not to mention Armenia needing Russia to keep out toxic western socio-political values out of the country.

    • What in the world gave the author of this article any impression that I had even the slightest interest in “engaging” in a discussion? I read this article and I was compelled to point out the gaping holes in logic, not for the author’s sake, but for the benefit of whatever audience this article might get. I have stated everything that needs to be stated, there is nothing more I could add without getting redundant or wasting my time.

      And if, instead of addressing any of the very obvious holes in this article, the author chooses to call me “delusional, rambling”, dismiss my argument as “nonsense, foolishness”, and accuse me of “Slavic worship, anti-Armenian, pro-Nazi nonsense” – well that is not really any of my concern. When it’s coming from the likes of Mher Almasian or Babken DerGrigorian, insults are like badges of honor.

  3. Another outstanding article by Mr. ALMASIAN.
    Well researched, and rational – as usual.
    Surprising that established Armenian sites (e.g. AW) have not asked to publish you.
    AW in particular has had some good guest articles (e.g. Armen Sahakyan)
    .
    Will have additional notes about some items in your article shortly.

  4. Mr. ALMASIAN:
    .
    1.{“….as the reason the Armenian government was preparing to agree to the highly controversial 1998 Karabakh settlement.”}
    .
    It certainly was controversial. And gave rise to many ugly and untrue things said about Pres. Levon Ter-Petrossian. I understand you voiced no opinion either way in this piece, but I will use this opportunity to set the record straight.
    After LTP, both Presidents Kocharian and Sargsian have been negotiating with Azerbaijan under the auspices of OSCE, fully endorsing the so-called Madrid Principles.
    So how many people know what the Madrid Principles actually are ?
    Here it is:
    [Madrid Principles, which envisages a phased, rather than a package settlement to the conflict. The first phase includes the withdrawal of Armenian military from the Agdam, Fizuli, Jabrayil, Zangilan and Qubadli Rayon, as well from thirteen villages in the Lachin Rayon.
    The second phase envisions the withdrawal of the remaining Armenian forces from Lachin and Kelbajar, followed by the return of the Azerbaijani population to Nagorno-Karabakh. The “peacekeeping observers” are supposed to be deployed, ensuring the security of Azerbaijani displaced persons returning to their abandoned homes](from Wiki)
    .
    NOTE: not a word about the 500,000 or so Armenian refugees from Azerbaijan SSR, who fled the massacres there, leaving behind all their property and bank accounts.
    .
    So how many Armenians think that any President of RoA would agree to that ?
    Does any Armenian think Pres Sargsian would “sell” Artsakh for all the money in the world ?
    Or Pres Kocharian ?
    Or Pres Levon Ter-Petrossian ?
    Question to people then: So why is Pres Sargsian going through the charade of talking to the terrorist criminal Aliyev ?
    .
    2. {“Armenia now relies on Russia’s support more than ever, …… powerful enough to expel Russian influence from the region.”}
    .
    Mr. ALMASIAN, I do not understand why you think Armenia would want to expel Russian influence from the region ?
    As things stand now, Armenia does not need Russia to be in Caucasus – because there is a dysfunctional, fake, albeit warmongering, state with the stolen name of ‘Azerbaijan’.
    Even if there was no Russia, RoA and NKR would crush Azerbaijan if push came to shove.
    It would be no cakewalk, but the NKR war showed that Armenians will take military hardware from Azerbaijan and use it against them, if need be.
    But I think we have to agree that Armenia needs Russia in Caucasus for the foreseeable future – because there is a large, populous, armed, genocidal state next door to Armenia called Turkey.
    RoA simply does not have the means at present to stop a massed Turkish invasion into RoA.
    Turkey’s standing army alone has more men in uniform than the entire military age population of RoA.
    RoA has no tactical nukes nor a powerful air-force to break the incoming armored tide. (….something to think about)
    Yerevan, 1/3 of Armenia, is on the Ararat plane: wide open and ideal armor country.
    And hopefully no Armenian has any illusions that any (Neocon) Western/NATO country will even deign to stop the Turks. (Christian Cyprus, an EU-member country, still 40% occupied by Turks)
    .
    As to the weapons sales.
    It is unquestionably a delicate point for Armenian-Russian relations.
    On the one hand, it looks bad when our strategic ally sells weapons to our mortal enemy.
    But on the other hand, in practice, what is the alternative ?
    As discussed in other forums, there is a certain practical advantage to RoA in Russia supplying majority of hardware to Azerbaijan.
    True, there is no question of the serious danger that all those Russian-made missiles and thermobaric munitions in Azerbaijan’s inventory _can_ be used against RoA and NKR, despite Russia warning them not to.
    But would it be any different if majority of those missiles and munitions in their inventory were of Israeli/Turkish make ?
    Even a total UN arms embargo would not work: when the apartheid regime in SA was under full UN embargo, Israel was doing a brisk weapons business there on the sly.
    .
    Nevertheless, there is an element of truth that Russian leadership is fearful of not being needed by RoA, and being asked to leave.
    It is not based on anything rational, as explained re Turkey, but it is there.
    And there is no question that Azerbaijan would want Russia to leave RoA and Caucasus: has been the dream of nomad Turkic invaders for centuries
    However, I am not sure Russia sells weapons to Azerbaijan to keep Armenia dependent on her.
    Armenia has no choice but to be dependent: RoA economy cannot possibly support the purchase of military hardware of any quantity on the open market at market prices.
    As you yourself pointed out, even the present defense expenditures to maintain a combat ready army takes away from other crucial socioeconomic needs.
    Azerbaijan can buy whatever it needs on the open market.
    Armenia cannot: we don’t have the money.
    .
    I believe Russian sales to Azerbaijan have a very prosaic explanation: like in the West, there are a number of people employed in military production, so the production lines need to be kept producing.
    Like in US, the Russian Gov has to take into account the needs of its economy: jobs.
    .
    I would much prefer that Russia flood RoA with superior weapons, like US does with Israel, or dismember the pest fake state of Azerbaijan.
    Even to publicly hint that there might be tactical nukes in RoA, to force the Baku criminals to sit quietly.
    But unfortunately, Russia does not have the self-confidence and aggressiveness of Anglo-Americans.
    And Russians have a bad habit of cutting their own throats every so often.
    Nothing we can do about it though: we have to make the best of the situation, and improve things that are under _our_ control.
    While there is relative peace and equilibrium, do everything we can to grow RoA+NKR more populous, more powerful economically and militarily, and do our part in Diaspora to see that the artificial state of Azerbaijan is neutered and hopefully dismembered: into Talyshstan, Lezgistan, Republic of Baku, etc.
    The only way to complete the virtuous cycle and have a de-jure NKR is for the present State of Azerbaijan to cease to exist as a UN entity.
    .
    More in next post.

  5. 3. {“For Aliyev, the only opportunity to silence the opposition would be to unite all of Azerbaijanis and pit them against their external foe: Armenia. It is this unstable situation, more so than the recent economic boom in Azerbaijan, that Armenians should fear most in terms of a military conflict.”}

    You are quite correct that an unstable situation and a desperate, cornered despot is quite unpredictable and dangerous.
    However, I don’t believe Aliyev is irrational, despite his bombastic pronouncements.
    He and his family have a great life. They live like royalty.
    He needs to do something to show his people some results for all the money he spent on military toys and all the promises he made.
    But he knows very well that there is no guarantee he will win anything substantial.
    His only realistic best case scenario is to grab some land and declare total victory.
    However he cannot be sure if NKR and RoA will not counterattack massively and destroy his military.
    Anything other than somewhat convincing ‘victory’ will cost him his throne, and possibly his life.
    Even if he flees with his family to Dubai, whoever gains power in Azerbaijan (his enemies) will go after the stolen billions and after his family.
    (Caucasus) Turks in Azerbaijan hate him. He trusts only his Kurd kin to protect him.

    It will be very, very hard for Azerbaijan military to win outright, despite their massive advantage in hardware.
    There is rough parity in tanks (RoA+NKR vs Azerbaijan), and tanks are open-country advantage.
    During the Israel-Hezbollah mini-war well-concealed and dug in Hezbollah defenders in hills knocked out 100s of excellent Merkava tanks with modern anti-tank missiles.
    Azerbaijan air force is superior, but will be neutralized by excellent RoA+NKR air defenses.
    For an attacker to win, he needs a 3-to-1 numerical manpower advantage over the defenders.
    For a mountainous terrain, the attacker needs 5-to-1.
    Azerbaijan has about 70K active in its armed forces. On paper.
    Mostly conscripts.
    RoA+NKR have about 55k-60K active Also mostly conscripts, but highly motivated.
    Most of the Azerbaijani conscripts are minorities: Talysh, Lezgins, etc.
    (a diabolical scheme by Caucasus Turks: have indigenous peoples kill each other).
    Talysh leaders outside of Azerbaijan have been urging their kin as best they can not to fight.
    So it is not clear who actually will volunteer from Azerbaijan to invade Armenian lands and get ‘meatgrinded’– like last time.
    The Caucasus Turks special forces which have been trained by (NATO) Turks and who have been regularly invading Armenian lands last year and this, have been doing better than Azerbaijan conscripts, but not much.

    Nevertheless, missiles and munitions Azerbaijan has accumulated will cause massive damage to RoA and NKR civilian infrastructure, if major hostilities break out.
    One or two might even hit the NPP, causing radiation leaks.
    But missiles (or bombs) by themselves cannot easily dislodge dug-in defenders (…as previous wars have shown).
    Azerbaijan has to send troops on foot to find the Armenian defenders and try to dislodge them.
    Not a very healthy prospect for the invaders.

    For me, it is more worrying what happens after Aliyev.
    It is almost certain that the Neo-Nazi Islamist Musavat will take power.
    Aliyev regime ruthlessly suppresses them now.
    Islamists are irrational, and will attack Armenians no matter what.
    Their visceral hatred for Christians and Armenians is reason enough.

    At the moment, I have no idea how to deal with that scenario.

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