Select Committee on Foreign Affairs Appendices to the Minutes of Evidence - Sixth Report


Memorandum submitted by Razmik Panossian, Deparment of Government, London School of Economics and Political Science


  In a recent article called "The New Great Game" in the National Journal (12 March 1999), Paul Starobin parallels the current geopolitical and economic dynamics in Central Asia and the Transcaucasus to the "great game" of the nineteenth century between the British and Russian empires. In his analysis, the United States has now become the major "imperial" player in the region, at the expense of Russia. Once again western interests are pitted against Russian influence. And once again, conflict could ensue.

  One might agree or disagree with this approach—and there are many influential people on both sides of the argument—but the fact of the matter is that the Caspian region has become a major source of international interest and competition. This short brief is about one country in this vast area, Armenia, and the focus is on a few of the key factors relating to it. The paper is based on my research and writings on Armenia in the past few years. However, my emphasis is on developments after Robert Kocharian's assumption of the presidency in February 1998 (he was elected as President in March 1998). Due to the limits of space, I will have to confine my comments to the core issues and on the plane of general analysis, although the dynamics of the region are complicated. There are two areas which will be covered: the Nagorno-Karabakh conflict and more general socio-political issues, including the economy.



  Nagorno-Karabakh is the Armenian populated region within the borders of Azerbaijan. Between 1990 and 1994 it waged a successful war against Azerbaijani forces to secede from that republic. Although since 1994 there has been a cease-fire in this conflict, there is no final peace agreement as of yet. The main negotiatinbody is the OSCE Minsk Group, under the co-chairmanship of France, Russia and the US. The OSCE's latest proposal was rejected by Azerbaijan, but accepted by Armenia and Nagorno-Karabakh. It called for a "common state" solution to the issue of the status of the enclave.


    There are four main issues regarding this conflict.

  (1)   The return of the refugees. The war has created close to a million refugees and internally displaced people. Approximately 700,000 Azerbaijanis had to flee their homes due to Armenian advances, and approximately 300,000 Armenians had to flee Azerbaijani territories after pogroms. Any peace agreement would have to deal with this issue, although it cannot be expected that all the refugees will go back to their homes—particulary the Armenians of Baku or the Azerbaijanis of Nagorno-Karabakh.

  (2)   The town of Shushi/Shusha. This is a particularly thorny issue related to the above question of return. Shushi is located within Nagorno-Karabakh, but it was predominantly inhabited by Azerbaijanis. Armenians do not wish to see a return of the Azerbaijani population to this town, largely due to its strategic location, overlooking the capital of the enclave.

  (3)   Return of occupied territories. Armenian forces occupy large segments of Azerbaijani territory around Karabakh as a military buffer zone. Armenians are willing to give most, but not all, of these lands back. They are particularly keen to keep the land corridor between Karabakh and Armenia which runs through Lachin. (Nagorno-Karabakh and Armenia are not contiguous; they are separated by few miles of Azerbaijani territory). The need for a permanent land link between Armenia and Karabakh is seen as a security issue.

  (4)   The final status of Nagorno-Karabakh. The most difficult issue of all is what is to be the final status of the enclave? Azerbaijan promises the "highest level" of autonomy but as a region within a unified state. It has not clearly defined what "highest level" means. Armenians reject this approach. Their position has been either the independence of Nagorno-Karabakh or its unification with the Armenian republic. But any kind of innovative solution which does not subordinate Karabakh to Baku is not ruled out. As a compromise solution, Armenian representatives have accepted the notion of the "common state" whereby the Armenians of the enclave and the Azerbaijanis would "share" one state.

    Of these four issues, the latter two are the more significant ones and difficult to reach a compromise on.

Analysis and Future Prospects

  The most fundamental tension within the Karabakh conflict is over the two conflicting principles in international law: territorial integrity vs. the right of self-determination. Azerbaijanis insist on the inviolability of their borders, while Armenians insists on their right to self-determination. In fact, Nagorno-Karabakh has declared its independence from Azerbaijan, although no country (including Armenia) has recognised it. In terms of international law, Karabakh's current status is quite unclear. It is, however, de facto independent.

  Armenians have rejected any peace agreement which would leave Nagorno-Karabakh under the jurisdiction of Azerbaijan. The previous president, Ter-Petrossian, was forced to resign over the issue because it appeared that he was willing to accept a deal which would have kept Karabakh under the de jurerule of Baku. The current president, Kocharian, is from Karabakh, and much less willing to put his signature on any document which is not acceptable to the Karabakh leadership. It is interesting to note that Karabakh Armenians hold powerful positions in the government of the republic of Armenia. Since Kocharian's election, the directon of political pressure has reversed. It is now Karabakh that exerts pressure on Armenia and not vice versa. It has therefore become very difficult to pressurise Karabakh into accepting a soluton to which it does not agree.

  The fact that the Karabakh conflict is not yet solved is a major hindrance to the future development of the region, both economically and politically. It is not possible to proceed with regional integration when borders are closed between Azerbaijan and Armenia, and between Turkey and Armenia. In addition, the dispute can be exploited by external powers to destabilise the region further. With so much western economic investment going into the oil sector of Azerbaijan, such conflict can be detrimental to western interests.

  The potential for conflict is there. Both Armenia and Azerbaijan are arming themselves. The first with Russian aid, the second with Turkish assitance. Moreover, the development of new geopolitical axes does not bode well for the entire region. There seems to be a confluence of interests on the axis of Iran, Armenia and Russia, as countered by another axis between Azerbaijan, Georgia and Turkey. It is still in the early stages of the evolution of such a dynamic (and it could not materialise at the end), but Nagorno-Karabakh is at the pivot of both of these axes and therefore a lasting solution to the conflict is crucial for regional peace.

  This gloomy analysis is, however, one side of the coin. There is also the potential of peaceful development based on economic integration and regional co-operation. For this to succeed, a fine balancing act must be maintained so that all parties to the conflict feel that they have not been wronged. This is where the OSCE can play a crucial role by suggesting innovative solutions which might not have precedence in international law, but can be acceptable to both sides.

The British Role

  In this context, Britain can play an important role by continuing to support the OSCE efforts. However, so far Britain has taken more of a back seat approach to the Karabakh problem. While it has an embassy in Armenia, it remains small and not too visible compared to the American and French activities. Hence, there is much room for a more active mission representing British interests.

  Another problem related to this is the fact that Britain suffers from an "image problem" in Armenia. Part of this comes from the reality that British companies are heavily involved in the Azerbaijani oil sector, part from Britain`s historical support of Azerbaijan (in 1918—Armenians have long memories!), and part from the current British position which supports the territorial integrity of Azerbaijan without taking into account Karabakh`s right to self-determination. In the last couple of years, British representatives in Armenia have not been too successful in addressing this "image problem." It seems that when it comes to the Karabakh issue, the FCO has not been able to project the British government as an impartial mediator. Britain could play a leading role in the settlement of the dispute because of its extensive contacts in Baku. By encouraging an innovative solution to the dispute within the parameters of the OSCE—be it the notion of a "common state" or some other approach—Britain can contribute to the speedy solution to Karabakh conflict. To do this, it needs more of a pro-active policy in the region.



  As with the other Soviet republics, Armenia too became independent in 1991, after the collapse of the USSR. But its independence was marred with the conflict over Nagorno-Karabakh, as well as the devastating earthquake of 1988. Despite ecomomic problems and the hardships of war, and unlike most other southern Soviet republics, Armenia managed to achieve internal polititcal stability, a relatively democratic government, a ruling elite which was not communist, and proceeded with the privatisation of the economy. There was much hope for it as a model of stable "transition" to democracy and market-oriented economics. However, after eight years, it has become apparent that Armenia is not too different from the other formerly-Soviet republics; the whole idea of transition has become a questionable process. These problems can be examined through the following factors.


  Armenia faces the same challenges and pitfalls as the other post-Soviet countries. But it also has some unique features which merit mention. The latter include:

  (1)   The memory of Genocide. The collective memory of the Ottoman-Turkish genocide against the Armenians between 1915 and 1923 is much more than a historical fact for the Armenians. It is ingrained in their collective psyche, and casts a shadow on their world outlook, specially since Turkey continues to deny the genocide. Hence, the Karabakh conflict is sometimes interpreted as a war against genocidal policies. Relations with Turkey are also influenced by the history of the Genocide. Hence, it is important to factor this issue in while dealing with Armenia and Armenians. Not taking the Genocide into account would be like negating the Holocaust in relation to Israel and the Jews.

  (2)   Blockades. Another particular issue relating to Armenia is the fact that two of its main borders are closed due to a blockade by Azerbaijan and Turkey. This has obvious economic ramifications in terms of trade and industry. But it has also forced the country to seek alternative ways to import and export goods. Hence, relations with Iran and Russia (via Georgia) have become of absolute importance—both politically and economically. Partly because of the east-west blockade, Armenia had to pursue and strengthen its north-south relations, leading to the axes mentioned above. Moreover, the blockades also reinforce the siege mentality of being a nation under threat and therefore weary of regional co-operation.

  (3)   The diaspora. Finally, Armenia is also unique insofar as it has a large and relatively powerful diaspora (specially in the US and France). The diaspora has been an important source of support (mainly through lobbying) for the republic, as well as of financial assistance—although the latter is much exaggerated. But the diaspora is also a source of additional problems, particulary when some elements of it wish to interefere in the politics and policies of the republic.

  In addition to these special factors, the following more common issues need to be addressed:

  (4)   Democracy and the rule of law. Despite a promising start, Armenia has fallen short of expectations in terms of establishing a democratic society based on the rule of law. The country is not in as bad a situation as Azerbaijan and some of the Central Asian republics. But there are abuses of human rights, not to mention electoral fraud. The 1995 parliamentary elections and the 1996 presidential elections were both marked with widespread irregularities which put ultimate responsibility at the doorstep of the ruling elite. The 1998 presidential elections showed some signs of improvement. But the ultimate test will be the upcoming parliamentary elections in May 1999.

  The basic problem with the country is that the rule of law is considered secondary to wealth, connections and power. The well connected and the rich (the two go hand in hand) can do as they please with impunity, as long as they respect the unwritten "rules of the game" which governs the conduct of the elite. This is a difficult phenomenon to overcome since it comes from the Soviet past and is ingrained in popular culture.

  (5)   Russian influence. Russian influence in Armenia is strongest in the area of security and foreign relations. Armenia views Russia as a guarantor of its security and is a willing member of CIS as well as bilateral security arrangements. Russia, in turn, views Armenia as a valuable and dependable base in the Transcaucasus. Recently, Russia has begun the process of deploying S-300 missiles in Armenia. The missiles will, however, remain under Russian command.

  (6)   Economic issues. The Armenian economy is beginning to recover from the collapse it suffered in 1992-93. The GDP is growing in the 4-6 per cent range. There is some foreign investment (approximately 150-200 million dollars in 1998), but the country survives, on the whole, on economic assistance from the West (Worldbank, IMF, EBRD, etc. loans and humanitarian grants): As of 1 January 1999, the total foreign debt was 720 million dollars. Armenia`s major trading partners are Russia, the USA, Belgium, Iran, and Great Britain (75 million dollars). With all of these partners Armenia has a negative trade balance. There is also a lot of money coming into the country (200-300 million dollars per year) from expatriates who work abroad (mostly in Russia) and send money home. As to industry, most of the Soviet industrial complex is either idle or already dismantled and sold as scrap metal. A few factories do operate, producing electrical goods, machinery, etc. Foreign investment tends to go to the service sector as opposed to production. There is a fairly stable banking sector. Inflation and the currency rate are kept stable as well due to the monetary policies of the government. Official unemployment is around 10 per cent, but in reality it is close to 50-60 per cent, if not more. At this point, the economy is largely privatised. Seventy five per cent of the GDP is in private hands, with trade and agriculture leading the way at the rate of 97 per cent privatisation. Industry is 85 per cent privatised, but transport and other element of infrastructure remain in the hands of the state.

  (7)   Corruption. As with other CIS countries, the biggest problem for the country is corruption. This extends from the very top of society to the very bottom, and it is tied to the issue of rule of law and economic problems. Benefiting from the privatisation schemes, a few families have managed to purchase most of the state enterprises, enriching themselves enormously. The economy of Armenia is controlled by a few "clans", all connected to various individuals in the government. The clans have divided up the various sectors of the economy in between them.

Analysis and Future Prospects

  Armenia is going through a phase of transisiton, but it is no longer clear if the path of this transition is going to lead to liberal democracy. There are tensions within society, and within the region which could explode. The most important of these tensions relate to the economic hardships that the bulk of the population faces. What makes the situation volatile is not so much that many people are pauperised, but that there is an elite which has become visibly super-rich through dubious means—at least, as far as the majority of the population is concerned. Hence, there is much pent-up resentment underneath the surface, some of which was visible in the post-election violence in1996.

  The most worrisome developments is the fact that there have been a few political assasinations (most recently, the Deputy Minister of Interior, and earlier the Prosecutor-General) under mysterious circumstances. These have not led to instability, but are signs that violence is creeping into the political culture as a means of settling disputes—be they political, economic or personal. If such instances continue, the military might try to take control of the country and establish a repressive regime.

  The person most poised to do this is the current defence minister, probably the most powerful man in Armenia. He has the personal loyalty of many of the army officers. He has recently established a political party which is to serve as his civilian power base. Currently, his relations with the President are cordial, but there is tension between the two men.

  The above possibility is the "worse-case" scenario. There is a democratic alternative, but it is contingent upon the strengthening of civil society institutions and clear signals from the west that a military regime will not be tolerated. The parliamentary elections of May 1999 will be the clearest indication of the future direction of the country as far as politics is concerned.

  In the economic sphere, trade relations of Armenia have diversified considerably since independence. Whereas in 1993 foreign trade with countries outside of the former USSR was 28 per cent, in 1998 it had increased to 73 per cent. Exports to CIS countries (except Turkmenistan), Turkey and Iran all fell in 1998, whereas it increased to the USA (180 per cent), Britain (540 per cent), and other western countries. Imports from Britain increased by 660 per cent. These figures clearly show that Armenia`s economy is being oriented towards the west, and although there is a long way to go, there seems to be a trend which is tying the country to European markets.

The British Role

  The FCO has been active in promoting British economic interests in Armenia, particularly in the banking sector, pharmaceuticals, aviation, etc. It has been assisted in this by diaspora (London based) Armenians who invest in the country. It is important for the FCO to maintain and enhance such a presence in Armenia in order to ensure that economic links deepen between the two countries. As Armenia becomes more and more integrated in western markets, it is inevitable that its economic importance will increase in the Transcaucasus. Oil related interests in Azerbaijan are, of course, of paramount importance. But they must be viewed in a regional context. In the absence of economic and political links between Azerbaijan and Armenia, it becomes important to tie the latter in a wider economic network for the sake of regional stability. And the FCO's role in this is crucial.

  But the British role must not be limited to the sphere of economics. It is also crucial to support civil society institutions (NGOs, etc) which can consolidate democracy, free speech, etc. The Tacis programme is one such European effort which has been beneficial. The important factor here is to insist on direct accountability rather than giving money to state agencies with the hope that it reaches the intended recipients. Corruption is the scrooge of many post-Soviet countries, and Armenia is no exception. It is also essential to devise programmes directed at combatting corruption. Although it is not the role of the FCO to do this, it can nevertheless co-ordinate efforts which would link British aid/investment with anti-corruption programmes.

  On the political side, British representatives in Armenia have established contact with all major political parties and key figures. They have acted as a two-way medium of communication between Britian, and various elements in Armenia. They have been active in other spheres as well, such as British cultural week, the Byron School, promoting higher education possibilities in the UK, etc.

  Despite its various endevours, the FCO has room to expand if Britian wishes to assume a more active role in the region. One possible avenue, which would be beneficial to both regional players and Britain, is to augment its role as a mediator. Not by duplicating the work of the OSCE on the Karabakh issue, but on a more general level, presenting the middle position between the USA/Turkey/Azerbaijan and Russia/Iran/Armenia (something that the French seem to be doing). By having relations with all of these countries, Britian can try to smooth relations between them. As such, it can perhaps diffuse some of the geopolitical tensions inherent in the region due to the axes mentioned above.

  Finally, in the specific Armenian case, there is the outstanding issue of the Genocide, the recognition of which has now become an integral part of Armenian foreign policy. This issue will not go away and it is essential to deal with it. Standing on the moral high-ground and denouncing Turkey will not do. Nor will statements urging the Armenians to forget history are satisfactory. A balancing act between the varius positions of Armenia, Turkey (and Azerbaijan) will not be easy, but it is the only way that could lead to some sort of satisfactory understanding between these countries. The FCO, based on its contacts and expertise, can play a special role in this matter.


  The basic dynamic in Armenia, as in other CIS countries, is one of clashing values and practices between the Soviet past and the principles of liberal democracy (the hegemonic ideology in the post-cold war world). If the post-Soviet experience has taught western policy makers one thing in the past few years, it is that mass privatisation and a democratic constitution will not automatically lead to a liberal society and economic prosperity. The problems that these societies face are much more profound because they are ingrained in deep historical and cultural practices and habits. The democratisation process takes generations becuse it entails changes of attitude as well as institutions. Hence, it is important to examine the issues and problems facing these countries from a long term perspective, and to emphasise the need to establish strong foundations on to which democracy can be built. To do this, a much deeper understanding of these societies is needed, and the FCO, as the representative and main agent of information to the government, must keep tract of developments, as well as advise avenues for change beneficial to Britain and Europe.

  It is quite understandable that British emphasis in the region is on Azerbaijan, due to its oil reserves, and on Georgia, due to its position on the Black Sea. But neglecting Armenia would be quite problematic as it will lead to regional instability. The post-war European experience has shown that regional integration is the key to prosperity and stability. A similar dilemma faces the Transcaucasus region at this point. It has the potential to develop either way: rule by democratic institutions and economic devlepment, or represssive and unstable governments connected to export-driven resources. Obviously, these countries must themselves make the decision about their own future. But the international community can have a direct input to help them achieve a prosperous and free future. After all, it is in the the economic and political interests of Europe and the west to have a stable Transcaucasus. Herein lies the role of Britain and the FCO.

March 1999

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