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OEO-ECONOMICS
Vladimer PAPAVA
Professor, Senior Fellow at the Georgian Foundation for Strategic and International Studies. He was a Minister of Economy of the Republic of Georgia (1994-2000), and a Fellow at the Central Asia-Caucasus Institute, The Paul H. Nitze School of Advanced International Studies, Johns Hopkins University (2005-2006).
COMPARATIVE ADVANTAGES OF THE CENTRAL CAUCASIAN COUNTRIES: POTENTIAL, REALIZED, AND MISSED OPPORTUNITIES
Abstract
This article analyzes the comparative advantages of the Central Caucasian states. Keeping in mind the geopolitical and geo-economic factors influencing the states of the region, it identifies the comparative advantages of its countries in terms of potential, realized, and missed opportunities. It fo-
cuses particular attention on the development of the Central Caucasus’ transportation and communication networks. The comparative advantages of the region’s states can only be optimally realized if the territorial conflicts, which are having a negative effect on the development of these countries, are settled.
I n t r o d u c t i o n
In order to understand the current situation in the multifaceted political expanse of the Caucasus, 1 as well as draw up principles and the main vectors for forming a regional integrated community, we must first comprehend and sum up the main economic development trends both in the Caucasus as a whole, and in each of its states individually.
1 See: K.S. Yalowitz, S. Cornell, “The Critical but Perilous Caucasus,” Orbis, A Journal of World Affairs, Vol. 48, No. 1, 2004, pp. 105-116.
Each Caucasian country is unique in its own way and fulfills its own special function, which requires individual study. In so doing, an analysis of the current state and future prospects for developing interrelations among the Caucasian countries themselves deserves close attention.
By concentrating on an analysis of the possible ways to peacefully settle the conflicts unfortunately prevalent in the region today, most researchers of the Caucasus are failing to look at the problems relating to economic interrelations in the Caucasus and the prospects for their development. There are only a few publications devoted to these problems.2
Due to the present state of the region’s countries (both individually and in aggregate) and particularly their interrelations, any analysis of the prospects for Caucasian integration is going to be rather provisional. But if we permit ourselves to think, even for a while, that it is not worth conducting such an analysis,3 we are conceding to the fact that the isolation and contradiction characteristic of some of the region’s states could be retained. In the globalizing world—particularly in the long term—this is not only undesirable, but essentially impossible: the Caucasus cannot and should not remain in isolation from the world integration processes. What is more, we are deeply convinced that integration into the world economy requires understanding the corresponding interregional opportunities.
In the contemporary globalizing world, the international economic function fulfilled by a particular country is of special importance for its development. The formation of this function primarily depends on the comparative advantages of a particular country, the application of which also defines its place in the world economy. What is more, much also depends on the international relations of this country, both with its immediate geographical neighbors, and with countries defining the main vectors in world politics. There are often cases when a particular country cannot make full use of its comparative advantages, if its international relations do not promote this.
This article is devoted to an analysis of the comparative advantages of the Caucasian countries and how they are currently being realized. This analysis is based on a conception of the regional classification of the Caucasus developed by Eldar Ismailov. According to this conception, the Caucasus is a single whole consisting of three parts—the Central Caucasus (Azerbaijan, Armenia, Georgia), the Northern Caucasus (the southern regions of Russia located in the northern part of the Caucasian Mountain Range), and the Southern Caucasus (the northern regions of Iran and Turkey).4
1. On Potential Comparative Advantages of the Central Caucasian States
The international relations of the Central Caucasian countries are largely defined by their historical roots, which have a significant influence on the formation of the main vectors of their foreign policy.5
2 See: Ph. Champain, “Conflict in the South Caucasus: From War Economies to Peace Economies?” Insight Turkey, Vol. 6, No. 2, 2004, pp. 124-132; From War Economies to Peace Economies in the South Caucasus, ed. by Ph. Champain, D. Klein, and N. Mirimanova, International Alert, London, 2004; E. Herzig, The New Caucasus. Armenia, Azerbaijan and Georgia, Royal Institute of International Affairs, London, 1999.
3 See: N. Chikovani, “A United Caucasus: Reality Rooted in the Past or High-Flown Political Illusions?” Central Asia and the Caucasus, No. 5 (35), 2005, pp. 45-54.
4 See: E. Ismailov, “O geopoliticheskikh predposylkakh ekonomicheskoi integratsii Tsentral’nogo Kavkaza,” Izves-tia Akademii nauk Gruzii. Seria ekonomicheskaia (Proceedings of the Georgian Academy of Sciences—Economic Series), Vol. 10, No. 3-4, 2002, pp. 123-148; E. Ismailov, Z. Kengerli, “Integratsia Kavkaza i sovremennye geoekonomicheskie protsessy,” Izvestia Natsional'noi akademii nauk Azerbaidzhana. Seria gumanitarnykh i obshchestvennykh nauk (ekonomika) (Proceedings of the Azerbaijan National Academy of Sciences—Humanitarian and Social Science Series), No. 1, 2002, pp. 24-48; E. Ismailov, Z. Kengerli, “The Caucasus in the Globalizing World: A New Integration Model,” Central Asia and the Caucasus, No. 2 (20), 2003, pp. 135-144.
5 See: R.P. Adalian, “Armenia’s Foreign Policy: Defining Priorities and Coping with Conflict,” in: The Making of Foreign Policy in Russia and the New States of Eurasia, ed. by A. Dawisha and K. Dawisha, M.E. Sharpe, Armonk, 1995,
Of the Central Caucasian countries, Azerbaijan, which is rich in hydrocarbon resources,6 clearly has a definite comparative advantage. To this can be added its convenient geographical location, which promotes its use as a transportation hub.7 However, in light of the special geographical features of the Central Caucasus, the use of Azerbaijan’s transportation potential largely depends on the other countries of the region, Georgia and Armenia.
Georgia’s main comparative advantage is its geographical location along the transportation corridor connecting Europe and Asia, which also defines the international economic function of this country.8 Georgia also has the potential to become a significant transportation link joining Russia with Armenia and further with Iran.
Armenia too is characterized by a potential transportation function both in the West-East direction (Turkey-Armenia-Azerbaijan), and in the North-South direction (Russia-Georgia-Armenia-Iran). For Armenia, just as for Georgia, the West-South (Georgia-Armenia-Iran) transportation corridor, which joins the Black Sea to the Persian Gulf, is also of special importance.
The problem lies in the extent to which the international relations of the Central Caucasian countries promote the use of their comparative advantages.
2. Regional Problem of Oil and Gas
Oil and gas occupy an important place in the contemporary world economy and politics, which largely defines the nature of the relations of many states toward the Central Caucasus. Based on this, it is not surprising that Azerbaijan’s hydrocarbon resources and their transportation routes,9 which are of immense geostrategic importance,10 conditioned the positive and negative effects both for this country and for the entire region from the very beginning.11
The positive effect is largely associated with Western countries, which are interested in having as many alternatives for obtaining oil and gas as possible. So from the very beginning, they have been extremely interested in assimilating Azerbaijani energy resources and creating alternative pipelines
pp. 309-339; L. Alieva, “The Institutions, Orientations, and Conduct of Foreign Policy in Post-Soviet Azerbaijan,” in: The
Making of Foreign Policy in Russia and the New States of Eurasia, pp. 286-308; Armenia, Azerbaijan, and Georgia: Country Studies, ed. by G.E. Curtis, Federal Research Division Library of Congress, Washington, 1995, pp. 64-70, 138-141, 219225; R.G. Hovannisian, “Historical Memory and Foreign Relations: The Armenian Perspective,” in: The Legacy of History in Russia and the New States of Eurasia, ed. by S.F. Starr, M.E. Sharpe, Armonk, 1994, pp. 237-276; Sh.T. Hunter, “The Evolution of the Foreign Policy of the Transcaucasian States,” in: Crossroads and Conflict: Security and Foreign Policy in the Caucasus and Central Asia, ed. by G.K. Bertsch, C. Craft, S.A. Jones, and M. Beck, Routledge, New York, 2000, pp. 2547; S. Jones, “The Role of Cultural Paradigms in Georgian Foreign Policy,” The Journal of Communist Studies and Transition Politics, Vol. 19, No. 3, 2003, pp. 83-110; A. Kukhianidze, “The Armenian and Azeri Communities in Georgia: On Georgia’s Nationalities and Foreign Policies,” in: Commonwealth and Independence in Post-Soviet Eurasia, ed. by B. Coppieters, A. Zverev, and D. Trenin, FRANK CASS PUBLISHERS, London, 1998, pp. 111-124.
6 See: I. Aliev, Kaspiiskaia neft’ Azerbaidzhana, Izvestia Publishers, Moscow, 2003.
7 S. Escudero, “Hub for the 21st Century. Azerbaijan’s Future Role in the Caspian Basin,” Azerbaijan International, No. 10.2, 2002, available at [http://www.azer.com/aiweb/categories/magazine/ai102_folder/102_articles/102_caspian_ hub_escudero.html].
8 See: V. Papava, “On the Special Features of Georgia’s International Economic Function,” Central Asia and the Caucasus, No. 2 (14), 2002, pp. 143-147.
9 See: J.H. Kalicki, “Caspian Energy at the Crossroads,” Foreign Affairs, Vol. 80, No. 5, 2001, pp. 120-134; S.F. Starr, S.E. Cornell, The Politics of Pipelines: Bringing Caspian Energy to Markets, SAISPHERE, 2005, pp. 57-61.
10 See: S.E. Cornell, M. Tsereteli, V. Socor, “Geostrategic Implications of the Baku-Tbilisi-Ceyhan Pipeline,” in: The Baku-Tbilisi-Ceyhan Pipeline: Oil Window to the West, ed. by S.F. Starr and S.E. Cornell, Uppsala University, Uppsala, 2005, pp. 17-38.
11 See: S.L. O’Hara, “Great Game or Grubby Game? The Struggle for Control of the Caspian,” Geopolitics, Vol. 9, No. 1, 2004, pp. 138-160.
for their transportation. And this, in turn, has ensured a large inflow of foreign direct investments both into Azerbaijan and into other Caucasian countries (Georgia and Turkey) where the pipelines run.
As for the negative effects, they proceeded primarily from the regional oil- and gas-production and transportation competitors—Russia and Iran, which, with all the means at their disposal, tried to gain control over the use and particularly the transportation of Azerbaijani hydrocarbon resources.
The common ethnic, cultural, and linguistic traits it shares with Turkey are of special importance for Azerbaijan, which gives rise to common viewpoints on many international issues. This, as might be expected, also came into play when defining the route for transporting oil and gas.
Despite the fact that the shortest route linking Azerbaijan with Turkey passes through Armenia, the choice of this potential transportation route, which is the most advantageous from the economic viewpoint, was undermined by the relations that developed between these countries.
• First, the conflict between Armenia and Azerbaijan over Nagorno-Karabakh, and the seizure by Armenian armed forces of Azerbaijani territory beyond this conflict region, not to mention the breakdown in railroad communication between Azerbaijan and its autonomous republic, Nakhchyvan, unequivocally determined Azerbaijan’s negative attitude toward the use of Armenian territory as a transportation corridor.
• Second, Turkey, in turn, in support of Azerbaijan, also blocked transportation communication lines with Armenia. Here it should also be mentioned that Armenia has its claims against Turkey with respect to the latter’s nonrecognition of the so-called “Armenian genocide” at the beginning of the 20th century. What is more, the fact that Armenians often identify Azerbaijanis with Turks is the reason why the Armenians also perceive the Azerbaijanis as accomplices in the Armenian “genocide.”12
The case of Armenia is a graphic example of how use of its comparative advantage as the shortest route linking Azerbaijan with Turkey is being hindered by the conflict relations that have developed with these countries.13
3. Partners and Adversaries
It is important to note that Russia has been on Armenia’s side from the very beginning in the Nagorno-Karabakh conflict. Here we will emphasize that by directly and openly supporting the separatist movements in Abkhazia and South Ossetia, Russia has also set itself against Georgia.
As a result, the military-political union between Armenia and Russia was registered as a strategic partnership between these countries. By recognizing Russia’s advanced defense function in the Central Caucasus, Armenia acquired the status of Russia’s outpost in the Caucasus, not an entirely flattering position for a sovereign state to be in.14
12 Sh.T. Hunter, op. cit., p. 30.
13 See: B. Aras, G. Foster, “Turkey: Looking for Light at the End of Caspian Pipeline,” in: Oil and Geopolitics of the Caspian Sea Region, ed. by M.P. Croissant and B. Aras, Praeger, Westport, 1999, pp. 229-247; K. Dikbas, Armenia and BTC. Media Dialogue: Armenia-Azerbaijan-Turkey, 24 June, 2005, available at [http://www.mediadialogue.org/eng/ ?page=issue&id=906]; A. Harutyunyan, “Armenia as a Factor of Balance in the Southern Caucasus Region,” in: Security Sector Governance in Southern Caucasus—Challenges and Visions. Study Groups Regional Stability in Southern Caucasus Security Sector Reform, ed. by A.H. Ebnother and G.E. Gustenau, National Defense Academy, Vienna, 2004, pp. 166-178.
14 See: F. Cameron, J.M. Domanski, “Russian Foreign Policy with Special Reference to its Western Neighbours,”
EPC (European Policy Centre) Issue Paper, No. 37, 2005, available at [http://www.theepc.be/TEWN/pdf/354600757_ EPC%20Issue%20Paper%2037%20Russian%20Foreign%20Policy.pdf]; T. Liloyan, “Armenia—Russia’s Outpost in South
The exclusion of the Armenian route for transporting oil and gas from Azerbaijan to the West has helped to increase the expediency of using the Georgian vector,15 which was in fact put into practice.
Geopolitically, Georgia has a key position in the Central Caucasus, particularly keeping in mind the conflict between Armenia and Azerbaijan. Georgia must carry out the function of the region’s link.
What is more, essentially immediately after restoration of its state independence, Georgia made its strategic, pro-Western, choice.16 As a country with high systemic risk factors, primarily due to the high level of corruption,17 Georgia’s investment attractiveness is low, although implementation of the BTC oil pipeline project18 and the projects related to it are opening up new opportunities for expanding investments beyond the energy sector.19 This situation greatly improved after the Rose Revolution,20 since trust grew in a country which had officially declared the priority of democratic values in post-revolutionary changes.21
From the very time the idea arose of transporting Caspian oil to the West and building the BTC oil pipeline (bypassing Russia and Iran) for this purpose, Azerbaijan,22 Georgia,23 and Turkey24 essentially represented one team with significant support from the U.S.25 This fully met the main goals of the White House in the region aimed at isolating Iran; preventing the restoration of Russia’s monopoly position in the region; supporting Turkey’s increasing influence in the region; and encouraging American companies to make investments in the region.26
Caucasus—Duma Speaker,” ArmenianDiaspora.com, 15 December, 2004, available at [http://www.armeniandiaspora.com/ archive/16794.html].
15 See: M.P. Croissant, “Georgia: Bridge or Barrier for Caspian Oil?” in: Oil and Geopolitics of the Caspian Sea Region, pp. 275-290.
16 See: A. Rondeli, “The Choice of Independent Georgia,” in: The Security of the Caspian Sea Region, ed. by G. Chufrin, Oxford University Press, New York, 2001, pp. 195-211.
17 See: M.F. Brzezinski, J.C. Bell, “Systemic Risk Factors in Russia and Eurasia,” in: Russian-Eurasian Renaissance? U.S. Trade and Investment in Russia and Eurasia, ed. by J.H. Kalicki and E.K. Lawson, Woodrow Wilson Center Press, Washington, 2003, pp. 283-308.
18 See: V. Papava, “The Baku-Tbilisi-Ceyhan Pipeline: Implications for Georgia,” in: The Baku-Tbilisi-Ceyhan Pipeline: Oil Window to the West, pp. 85-102.
19 See: S.F. Starr, “The Investment Climate in Central Asia and the Caucasus,” in: Russian-Eurasian Renaissance? U.S. Trade and Investment in Russia and Eurasia, pp. 73-91.
20 See: N. Ascherson, “After the Revolution,” London Review of Books, Vol. 26, No. 5, 2004, available at [http:// lrb.veriovps.co.uk/v26/n05/asch01_.html]; Z. Baran, “Removing the Thorn in Georgia’s Rose Revolution,” Georgia in US Media, Embassy of Georgia to the USA, Canada and Mexico, 24 March, 2004, available at [http://www. georgiaemb.org/DisplayMedia.asp?id=325&from=media]; Statehood and Security: Georgia after the Rose Revolution, ed. by B. Coppieters and R. Legvold, The MIT Press, Cambridge, 2005; Jr.Ch.H. Fairbanks, “Georgia’s Rose Revolution,” Journal of Democracy, Vol. 15, No. 2, 2004, pp. 110-124; “Enough.” The Rose Revolution in the Republic of Georgia 2003, ed. by Z. Karumidze and J.V. Wertsch, Nova Science Publishers, New York, 2005; Ch. King, “A Rose Among Thorns,” Foreign Affairs, Vol. 83, Iss. 2, 2004, pp. 13-18; E. Miller, “Smelling the Roses: Eduard Shevardnadze’s End and Georgia’s Future,” Problems of Post-Communism, Vol. 51, No. 2, 2004, pp. 12-21; C. Welt, Georgia: Consolidating the Revolution. Russia and Eurasia Program, Center for Strategic and International Studies, 6 April, 2004, available at [http://www.csis.org/media/csis/pubs/ci.consolidatingrevolution.04.06.05.pdf].
21 See: V. Papava, “Georgia’s Macroeconomic Situation Before and After the Rose Revolution,” Problems of Economic Transition, Vol. 48, No. 4, 2005, pp. 8-17.
22 See: S.E. Cornell, F. Ismailzade, “The Baku-Tbilisi-Ceyhan Pipeline: Implications for Azerbaijan,” in: The Baku-Tbilisi-Ceyhan Pipeline: Oil Window to the West, pp. 61-84; N. Nassibli, “Azerbaijan: Oil and Politics in the Country’s Future,” in: Oil and Geopolitics of the Caspian Sea Region, pp. 101-129.
23 See: M.P. Croissant, op. cit., pp. 275-290; V. Papava, “The Baku-Tbilisi-Ceyhan Pipeline: Implications for Georgia.”
24 See: B. Aras, G. Foster, op. cit.; Z. Baran, “The Baku-Tbilisi-Ceyhan Pipeline: Implications for Turkey,” in: The
Baku-Tbilisi-Ceyhan Pipeline: Oil Window to the West, pp. 103-118.
25 See: J.H. Kalicki, op. cit., pp. 122; S. Mahnovski, “Natural Resources and Potential Conflict in the Caspian Sea Region,” in: Faultlines of Conflict in Central Asia and the South Caucasus. Implications for the U.S. Army, ed. by O. Ol-iker and T.S. Szayna, RAND, Santa Monica, 2003, pp 109-144.
26 See: F. Müller, “Energy Development and Transport Network Cooperation in Central Asia and the South Caucasus,” in: Building Security in the New States of Eurasia. Subregional Cooperation in the Former Soviet Space, ed. by R. Dwan and O. Pavliuk, M.E. Sharpe, Armonk, 2000, pp. 188-200.
Another goal was added to the aforementioned after the tragic events of 9/11, that is, the U.S. was interested in promoting development in the region’s countries, which would help to avoid the danger of new terrorist acts and bring the war on terrorism to its successful conclusion.27
What is more, we must also keep in mind that the U.S. administration placed top priority on achieving national energy security, within the framework of which the U.S.’s international energy policy is acquiring special significance, in particular in the Caspian Region.28 The U.S.’s strategy in the region can be paraphrased as one of “multiple pipelines,” which means adding new pipelines to the existing ones.29
All the same, the U.S.’s interests in the region are not limited to energy alone.30 The U.S.’s task is to help the former Soviet republics of the region to eradicate the negative elements inherited from the Soviet economy, to develop a market economy and private sector, to build robust foundations for economic growth, to establish the rule of law, to resolve social and environmental problems, and to avail themselves of the benefits of energy development and extended export routes.31
It is no accident that the U.S.’s Caspian policy aimed at preventing restoration of Russia’s monopoly in the region is perceived as a policy aimed against Russia itself, but this is not true.32 According to the U.S.’s official position, Caspian energy is an arena for potential cooperation with Russia.33 Along with this, cooperation potential between the U.S. and Russia also encompasses such spheres as enhancing the economic development of the region’s states and preventing religious and political extremism and international terrorism.34 It is cooperation and partnership, and not a conflict of interests between the U.S. and Russia,35 that can help to achieve the most positive results in use of Caspian energy.
Implementing principles of cooperation and partnership between the Caucasian countries can also ensure that their interests are met; unfortunately, understanding and carrying out these principles in practice in the region is the most difficult thing for the Russian side.36 In addition, certain so-called “frozen conflicts” in the Central Caucasian countries are making it difficult to develop economic (and other) cooperation between them,37 although this certainly does not mean the countries cannot look for ways to carry out this kind of cooperation.38
Recently, the EU has been focusing greater attention on the Black Sea countries.39 Here it should be emphasized that the TRACECA and INOGATE projects are most in harmony with the
27 See: T.T. Gati, T.L. Christiansen, “The Political Dynamic,” in: Russian-Eurasian Renaissance? U.S. Trade and Investment in Russia and Eurasia, pp. 447-459.
28 See: J.H. Kalicki, op. cit., pp. 120.
29 See: A.N. Pamir, “Is There a Future of the Eurasian Corridor?” Insight Turkey, Vol. 2, No. 3, 2000, pp. 31-44.
30 See: A. Jaffe, “U.S. Policy Towards the Caspian Region: Can the Wish-List be Realized?” in: The Security of the Caspian Sea Region, pp. 136-150.
31 See: S.R. Mann, “Caspian Futures,” in: Russian-Eurasian Renaissance? U.S. Trade and Investment in Russia and Eurasia, pp. 147-160.
32 See: Z. Baran, “Developing a Euro-Atlantic Strategy Towards Black Sea Energy: The Example of the Caspian,” in: A New Euro-Atlantic Strategy for the Black Sea Region, ed. by R.D. Asmus, K. Dimitrov, and J. Forbrig, The German Marshall Fund of the United States, Washington, 2004, pp. 116-124.
33 See: F.S. Larrabee, “The Russian Factor in Western Strategy Toward the Black Sea Region,” in: A New Euro-Atlantic Strategy for the Black Sea Region, pp. 147-156; S.R. Mann, op. cit., pp. 152-153.
34 See: G. Chufrin, “The Caspian Sea Region: Towards an Unstable Future,” in: The Security of the Caspian Sea Region, pp. 325-343.
35 See: V. Naumkin, “Russia’s National Security Interests in the Caspian Region,” in: The Security of the Caspian Sea Region, pp. 119-135.
36 See: V. Papava, “Strategic Economic Partnership in the Caucasus,” Caucasica. The Journal of Caucasian Studies, Vol. 2, 1998, pp. 189-197; V. Papava, N. Gogatadze, “Prospects for Foreign Investments and Strategic Economic
Partnership in the Caucasus,” Problems of Economic Transition, Vol. 41, No. 5, 1998, pp. 79-88.
37 See: A. Yunusov, “The Southern Caucasus: Cooperation or Conflict?” in: Building Security in Europe’s New Borderlands. Subregional Cooperation in the Wider Europe, pp. 147-172.
38 See: Ph. Champain, op. cit. (see also: From War Economies to Peace Economies in the South Caucasus).
39 See: H. Grabbe, “Towards a More Ambitious EU Policy for the Black Sea Region,” in: A New Euro-Atlantic Strategy for the Black Sea Region, pp. 106-115; D. Lynch, “Security Sector Governance in the South Caucasus—Towards an EU Strategy,” in: Security Sector Governance in Southern Caucasus—Challenges and Visions, pp. 34-47.
European view of Central Caucasian development.40 Implementation of the BTC oil pipeline is viewed as an important component of Europe’s energy security.41 What is more, the system of Black Sea oil pipelines can be used as a significant component of the EU’s “Wider Europe” strategy, and in this respect, the significance of Georgia and Azerbaijan, which are potential contenders for membership in the European and trans-Atlantic structures, is very important.42
Caspian energy resources can not only be of benefit to the Central Caucasus, they might also pose a threat to the countries of this region. This is predetermined by Russia’s fear about the increase in the West’s influence on the region, which is supposedly creating a danger for its national security and contradicts its interests.43
What are Russia’s main economic interests in the Caspian energy region? They can be formulated as follows: the development of mutually advantageous trade and economic relations with the region’s countries; the use of their transport capacities; and participation in the production and shipment of energy resources.44 We must also keep in mind the fact that Russia receives roughly 50 percent of the country’s total hard currency revenues from the export of oil and gas.45 It stands to reason that Russia is not interested in losing control over the revenues of other countries from Caspian energy.
According to Russian experts, the construction of the BTC oil pipeline contradicts Russia’s interests.46 To be fair, it should be noted that some Western experts are supporting Russia’s stance and voicing anti-American criticism with respect to the oil pipeline projects,47 although this in no way reflects a realistic view of the processes going on in the region and, particularly, the West’s official position. Russian politicians are still holding onto the idea of restoring the empire, at least in its modernized form, which was reflected in the conception for creating a so-called Liberal Empire.48 In accordance with this conception, Russia can and should restore its economic influence throughout the entire post-Soviet space by means of economic expansion.
Russia began implementing a plan for incorporating the Caucasus into the Liberal Empire being formed with its strategic partner in the region—Armenia: at the end of 2002, a Russian-Armenian agreement called a “debt-for-equity” swap was implemented. According to this document, Russia obtained enterprises from Armenia, the total cost of which was enough to fully cover Armenia’s $93-million debt to Russia. Russia’s activity in Georgia in this area, which began even before the Rose Revolution, significantly increased after the revolution,49 which the Georgian leadership also assisted. It should be noted that in the event of successful implementation of the Russian Liberal Empire plan in Georgia, it will be easier to draw Azerbaijan into this imperial scheme as well, since all of its main transportation and communication arteries, including the main pipelines, run through Georgia.
Based on the above, it is not at all surprising that the Russian side not only was not interested in developing a transportation corridor through Georgia and, in particular, in building pipelines passing through its territory, it also made use of every possible mechanism to hinder the implementation of these projects.50
40 See: A. Rondeli, “The South Caucasus: Pipeline Politics and Regional Economic Interests,” in: The South Caucasus: Promoting Values Through Cooperation, Seminar Report Series No. 20, Helsinki, 12-15 May, 2004, NATO Defense College, Academic Research Branch, Rome, 2004, pp. 43-52.
41 See: H. Chase, “Future Prospects of Caucasian Energy and Transportation Corridor. The Role of Caucasian Energy Corridor in European Energy Security,” Georgian Economic Trends, No. 3, 2002, pp. 85-87.
42 See: Z. Baran, “Developing a Euro-Atlantic Strategy Towards Black Sea Energy: The Example of the Caspian.”
43 See: A. Rondeli, “Pipelines and Security Dynamics in the Caucasus,” Insight Turkey, Vol. 4, No. 1, 2002, pp. 13-17.
44 See: V. Naumkin, op. cit., p. 122.
45 See: A.N. Pamir, op. cit., p. 34.
46 See: V.S. Zagashvili, “Neft’, transportnaia politika, interesy Rossii,” in: Rossia i Zakavkazie: realii nezavisimosti
i novoe partnerstvo, ed. by R.M. Avakov and A.G. Lisov, Finstatinform Publishers, Moscow, 2000, pp. 184-195.
47 See: M. Collon, Monopoly. L’OTAN à la conquête du monde, EPO, Bruxelles, 2000.
48 See: A. Chubais, “Missia Rossii v XXI veke,” Nezavisimaia gazeta, 1 October, 2003, available at [http:// www.ng.ru/printed/ideas/2003-10-01/1_mission.html].
49 See: V. Papava, S.F. Starr, “Russia’s Economic Imperialism,” Project Syndicate, January 2006, available at [http://www.project-syndicate.org/commentary/papava1].
50 See: A. Rondeli, “Pipelines and Security Dynamics in the Caucasus.”
According to the widespread view of Russian experts, public opinion in Georgia seems to be exaggerating Russia’s role in destabilizing the political situation in Georgia in order to halt construction of the oil pipelines linking Baku to the Black Sea and the Mediterranean Sea. However, these experts admit there are facts confirming Russia’s negative actions toward Georgia.51
In this context, it is interesting to note the view that the West’s future relations with Russia are predetermined by the outcome of Russian-Georgian relations: what will Russia prefer—to have Georgia as a prosperous and stable neighbor, or to keep it “a prisoner of its imperial past.”52
According to Russian experts, Iran and Armenia are Russia’s strategic partners in opposing the creation of a Europe-Caucasus-Asia transportation corridor.53
Both Russian54 and Iranian55 experts emphasize the coincidence of several Russian and Iranian interests in the region,56 and specifically with respect to Caspian energy (among other things). They are essentially unanimous in their skeptical assessments of economic (among other) aspects of the BTC oil pipeline project.57 This position is also shared by several Western experts.58
Iran was particularly vexed about its exclusion, at the U.S.’s insistence, from the projects for developing and transporting Azerbaijani energy resources.59
There is a substantiated opinion that Iran is at a geographic disadvantage, since the main consumers of Caspian energy resources are more interested in the East-West infrastructure than in transporting more oil through the Persian Gulf.60 In this respect, it is important to note that Iran has a real interest in Georgia. In Tehran’s opinion, Georgia forms a significant section of the transportation corridor linking Iran to Europe.61
What is more, surprise is aroused by arguments that oil and Caspian energy resources as a whole should become the basis of advancement of the region’s countries, and that the U.S.’s approach regarding Iran’s exclusion from the oil pipeline network is supposedly delaying this process.62 First, the experience of a large number of countries shows that oil and other energy resources far from always ensure their advancement,63 which was briefly noted above. Second, it cannot be considered substantiated that Iran’s exclusion from the oil pipeline routes and the inclusion of new countries in them interfere with the progress of the latter.
51 See: N.V. Zubarevich, Y.E. Fedorov, “Russian-Southern Economic Interaction: Partners or Competitors?” in: R. Menon, Y.E. Fedorov, G. Nodia, Russia, the Caucasus, and Central Asia: The 21st Century Security Environment, M.E. Sharpe, Armonk, 1999, pp. 119-144.
52 Z. Baran, “Developing a Euro-Atlantic Strategy Towards Black Sea Energy: The Example of the Caspian,” p. 18.
53 See: V.S. Zagashvili, op. cit., p. 188.
54 See: D.B. Malysheva, “Turtsia i Iran: Zakavkazie—ob’ekt starogo sopernichestva,” in: Rossia i Zakavkazie: re-
alii nezavisimosti i novoe partnerstvo, pp. 63-74.
55 See: A. Maleki, “Does the Caspian Remain Important to All Actors?” Amu Darya. The Iranian Journal of Central Asian Studies, Vol. 8, No. 16 & 17, 2003/2004, pp. 47-76.
56 See: S.E. Cornell, “Iran and the Caucasus: The Triumph of Pragmatism over Ideology,” Global Dialogue, Vol. 2,
No. 3, 2001, pp. 80-92; R.O. Freedman, “Russia and Iran: A Tactical Alliance,” SAIS Review of International Affairs, Vol. XVII, No. 2, 1997, pp. 93-109.
57 See: N. Entessar, “Iran: Geopolitical Challenges and the Caspian Region,” in: Oil and Geopolitics of the Caspian Sea Region, pp. 55-180; A. Maleki, op. cit., p. 56; V.S. Zagashvili, op. cit., pp. 193-194.
58 See: D. Sherman, “Caspian Oil and a New Energy Politics,” International Institute for Caspian Studies, 2000, available at [http://www.caspianstudies.com/article/daniel%20sherman.htm]; T.R. Stauffer, “Caspian Fantasy: The Economics of Political Pipelines,” The Brown Journal of World Affairs, Vol. VII, Issue 2, 2000, pp. 63-78, available at [http:// www.watsoninstitute.org/bjwa/archive/7.2/Oil/Stauffer.pdf]; [http://www.caspianstudies.com/article/caspian_fantasy.htm].
59 See: N. Entessar, op. cit., p. 171; R.O. Freedman, op. cit., p. 107.
60 See: F. Müller, op. cit., p. 192.
61 See: D.B. Malysheva, op. cit., p. 67.
62 See: M.M. Mohsenin, “The Evolving Security Role of Iran in the Caspian Region,” in: The Security of the Caspian Sea Region, pp. 166-177.
63 See: T.L. Karl, The Paradox of Plenty: Oil Booms and Petro-States, University of California Press, Berkeley, 1997; T.L. Karl, I. Gary, “The Global Record,” FPIF-Petro Politics Special Report, January 2004, available at [http:// www.fpif.org/papers/03petropol/development_body.html].
It should be noted that Iran welcomes regional cooperation as a tool of peace and stability in the region,64 which is a positive thing in itself.
4. The Railroad-Bringing Closer or Driving Apart?
It was noted above that implementation of the transportation corridor project through Georgia, Armenia, and Iran is of special importance for the Georgian and Armenian economy, and can be considered a component of a larger project—the North-South transportation corridor.65 This project, however, has its difficulties.
The North-South transportation corridor naturally implies Russia’s participation and the activation of Russia-Georgia-Armenia-Iran transportation ties. This problem is directly tied both to launching a ferry service between the Georgian port of Poti and the Russian port of Kavkaz, and to restoring rail communication between Russia and Georgia, to be more precise, the Abkhazian section of the Georgian railroad. Movement along this section was halted in August 1992 after the beginning of the armed conflict in Abkhazia.
Restoration of this railroad communication is primarily in the interests of the strategic partners— Russia and Armenia.66 For Georgia, without realistic progress in the peaceful settlement of the conflict in Abkhazia, this project could lead to the loss of a more or less effective tool in the talks with Moscow. The main thing is not to hinder the process of Georgia’s territorial reintegration, even in exchange for the revival of rail communication with Armenia.67 In so doing, it should not be forgotten that the possibility of peacefully settling the conflict in Abkhazia will create a precedent that could have a negative international effect for Armenia regarding the future status of Nagorno-Karabakh. What is more, it must be kept in mind that even if the Abkhazian section of the railroad is not restored, the interests of the Armenian side are still being taken into account in the railroad-ferry service between the ports of Poti and Kavkaz.68
The urgency of this problem will increase if we take into account that official circles in Armenia are considering several projects (assessed at between 700 million and 1 billion dollars) for building a railroad to Iran. Particularly since these projects are being viewed in the same context as the possibility of reviving rail communication with Russia via Georgia. In so doing, some think that opening the Abkhazian section of the railroad will intensify the Russia-Armenia-Iran coalition opposing Geor-gia69 and will lead to forming a Russia-Armenia-Iran axis70 and to weakening the U.S.’s influence in the region,71 which is one of the main tasks of Russo-Iranian cooperation.72
Theoretically, the Russia-Georgia-Armenia-Iran railroad should help to reinforce economic interrelations among these countries, but keeping in mind the rising dangers for the entire civilized
64 See: M.M. Mohsenin, op. cit., p. 174.
65 See: A. Mukhin, V. Mesamed, “The North-South International Transportation Corridor: Problems and Prospects,” Central Asia and the Caucasus, No. 1 (25), 2004, pp. 123-126.
66 See: N. Atshemian, “Russia Hopeful About Renewed Rail Link With Georgia, Armenia,” Armenialiberty, 13 October, 2005, available at [http://www.armenialiberty.org/armeniareport/report/en/2005/10/ED0948A5-0E2C-4498-89EC-49A1401A356A.ASP]; B. Volkhonsky, “Vladimir Putin Tries to Keep Armenia as the Last Ally of Russia,” Kommersant,
31 March, 2005, available at [http://www.kommersant.com/page.asp?id=557608].
67 See: G. Katcharava, “Problem of Abkhazia in Georgian Russian Relations,” Abkhazeti, No. 1, 2003, pp. 17-28.
68 See: T. Pachkoria, “Armenia Content with Georgia-Russia Direct Railway Ferry Opening,” Armenian Diaspora.com, 11 January, 2005, available at [http://www.armeniandiaspora.com/archive/18030.html].
69 See: N. Melia, “Rezul’tat oprosa v Gruzii: Vosstanovlenie zheleznoi dorogi v Abkhazii segodnia nedopustimo,” abkhazeti.ru, 1 September, 2005, available at [http://www.abkhazeti.ru/pub/smi/01_09_2005/]; idem, “U Gruzii i Abkhaz-
ii dva mnenia po odnoi doroge,” Abkhazia. Apsny, 2 September, 2005, available at [http://abhazia.vov.ru/portal/ ?set=news&mc=readfull&do=3].
70 See: S. Cornell, “Iran and the Caucasus,” Middle East Policy, Vol. 5, No. 4, 1998, pp. 51-67.
71 See: S. Martirosian, “Turtsia i Armenia sblizhaiutsia. Na radost’ druziam?” Rosbalt Information Agency, 7 September, 2003, available at [http://www.rosbalt.ru/2003/07/09/106841.html].
72 See: S.E. Cornell, “Iran and the Caucasus: The Triumph of Pragmatism over Ideology,” p. 86.
world coming primarily from Iran, the dubious expediency of rail communication between it and its open partner, Russia, is obvious.
The fact that Armenia and Georgia cannot use the comparative advantage of the potential North-South transportation corridor testifies again to the economic losses being endured by the region’s countries due to the political difficulties throughout the entire Caucasus.
In Lieu of a Conclusion
The future of the Central Caucasian countries largely depends on settling the conflicts in the region and achieving a fundamental change in the approaches of the Caucasus’ neighbors toward these countries. Armenia, Azerbaijan, and Georgia should be perceived not so much as objects in their spheres of influence, but as partners in regional economic (among other) projects. Then the economic significance of both the Central Caucasus and of the Caucasus as a whole will increase even more, as a result of which the interest of the “international investment community” in the region will significantly promote its economic development. This will result in the full realization of the comparative advantages of the Central Caucasian countries, which will yield positive results, not only for these states, but for the international community as a whole.
