The business of invading Armenia

Azerbaijan exports its economic problems

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On the morning of Oct. 13, Iranian troops went on alert. A small, buzzing drone strayed across the border from Azerbaijan, bearing an explosive charge. The Iranians opened fire, sending the drone careening into the ground where it broke into pieces. The drone was not made in Azerbaijan, but was an Israeli-manufactured Harop.

The Harop, developed by Israel Aerospace Industries, is a flying munition that can loiter and then plunge toward a target while detonating a 50-pound warhead. It’s one part of a technological leap for Azerbaijan's army demonstrated since launching a late September offensive into the disputed territory of Nagorno-Karabakh, which Armenians refer to as Artsakh.

Armenian troops have displayed crashed Azerbaijani drones including Harops; lightweight, Israeli-made Orbiter 3s; and SkyStriker loitering bombs manufactured by Israeli weapons-maker Elbit. Each is evidence of Azerbaijan’s growing investment in Israeli weaponry, and the Central Asian republic is the third-largest importer of Israeli arms. 

Israel, on the other hand, is Baku's second-largest oil buyer, and Azerbaijan is Israel’s largest supplier of oil -- total sales to Israel reached $1.33 billion in 2019. Oil goes out, and Israeli arms come in with cybersecurity, agricultural technology and telecommunications products alongside them. Bezeq -- Israel’s largest telecom company -- operates much of the country’s telephone system.

Turkey meanwhile is Azerbaijan's closest political ally. The ties are cultural and linguistic, but business matters most. Turkey is a major importer of oil and gas, and Azerbaijan is Turkey's top gas supplier. The two largest oil pipelines running through the South Caucasus -- the Baku-Tbilisi-Erzurum gas and Baku-Tbilisi-Ceyhan oil pipelines -- bend through Georgia instead of Armenia. Demand is currently weak overall, but Turkey has begun replacing Russian hydrocarbons with Azerbaijani gas -- Baku’s exports to Turkey are up 20% since 2019, with Russian deliveries down 62%.

Again, oil and gas go out, arms come in. Azerbaijan ranked as Turkey's number one customer for military and aviation exports at $77.1 million last month alone. Turkey supplies a domestically-manufactured drone, small arms, armored vehicles, artillery and TRG-300 Kaplan rocket launchers. Baku's defense spending, which is dependent on oil revenues, is immense -- the military comprised 56.5% of the State Oil Fund's spending from 1995-2018.

There is a definite economic basis in Azerbaijan's invasion of Nagorno-Karabakh and why it's happening now and not some other time. Azerbaijan is facing a severe, multifaceted economic crisis, the worst since the collapse of the Soviet Union. 

"The Azerbaijani economy is shrinking under three-way pressure due to untimely reforms, the pandemic, and the drop of oil prices in the world markets," wrote Gubad Ibadoghlu, an Azerbaijani economist. "The government’s failure to fulfill its commitment to economic reform over the years has increased the cost of further reforms and made it impossible in the current situation."

Part of the problem is that State Oil Fund spending is based on a $55 per barrel forecast, around $15 higher than current oil prices, which have plunged during the COVID-19 pandemic. "This has a negative impact not only on the reduction of budget revenues, but also on foreign trade turnover and the balance of payments," Ibadoghlu added.

Industrial production has declined by a quarter, and two rounds of shutdowns to deal with the pandemic -- one with state support for business, and one without -- have led to permanent business closures and rising unemployment. Job losses because of the pandemic could reach one in four Azerbaijanis, according to Armenian economist Suren Parsyan. The Asian Development Bank predicts Azerbaijan's GDP will decline by 4.3% this year. 

In tandem with Azerbaijan's economic decline is intensified political repression. Police have arrested dozens of opposition party officials and journalists. "The isolation of representatives of the fifth column will become a historical necessity," President Ilham Aliyev said in March, referring to "enemies who are among us, the elements calling themselves opposition."

In short, economic problems lead to political problems. If a regime cannot solve the economic problems, it can at least make the political problems "disappear." If it can't fully make them disappear, then it can export them in the form of warfare, "making Armenia pay for it" and nurturing a nationalistic state ideology that the country is under siege by malign actors, necessitating a strong leader to fight them. 

There is a similar dynamic in Turkey, which has seen its nominal GDP drop $200 billion from 2013-2019 while launching military adventures in Libya and Syria.

Now Turkey and Azerbaijan are in harness together to solve their respective problems with a new adventure in Armenia. Turkey, for its part, has contributed many of the “moderate rebel” mercenaries developed during its war in Syria to this new war. For Armenia to survive the aggression, it will need allies. That’s their only hope for fighting longer than Aliyev, Erdogan, and their Israeli suppliers can keep a failing system from collapsing completely.

Photo: ImpNavigator