Wednesday marked the 31st anniversary of the beginning of the Nagorno-Karabakh war. It’s a conflict that has its origins some seven decades earlier, when Soviet leader Josef Stalin decided to allocate the majority ethnic Armenian region to Azerbaijan. For decades, the Soviet Union managed to quell the ethnic tensions there, but as the union neared collapse, Nagorno-Karabakh voted in a referendum to secede from Azerbaijan and subsequently declared its independence. In 1988, Azerbaijan and Armenia went to war over possession of the region. The most intense fighting lasted for six years, until a cease-fire was declared in 1994, but the conflict remains unresolved and sporadic clashes continue to this day.

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Russia’s interest in Nagorno-Karabakh is due to its location in the South Caucasus, a region Moscow doesn’t want to see dominated by powerful countries to the south, such as Iran and Turkey, which could threaten Russia’s own territory in the North Caucasus. The frozen conflict in Nagorno-Karabakh, therefore, benefits Russia because it prevents any single country from laying claim to the territory without Moscow having to devote substantial resources to its protection. To make sure the conflict remains frozen, Moscow has kept Armenia and Azerbaijan dependent on its arms supplies. Armenia, the economically weaker of the two, is particularly reliant on Russia for its defense. It is geographically highly vulnerable, sandwiched as it is between Turkey, which it blames for the 1915 Armenian genocide, and Azerbaijan, with which it’s still technically at war. The 5,000 Russian troops stationed at a military base in Armenia are, therefore, a deterrent against both Azerbaijani attempts to retake Nagorno-Karabakh and Turkish incursions into Armenia. (Turkey nearly invaded Armenia in 1993 in defense of Azerbaijan, which is a Turkic country.)

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Moscow has used Armenia’s dependence on its military support to dissuade the country from drifting too far into the Western orbit. If it were to do so, Russia could easily greenlight minor military expeditions by Azerbaijani troops into other contested areas like Nakhchivan, an exclave of Azerbaijan that borders Armenia, to make clear that without Moscow’s support, Armenia would be far more vulnerable.

Azerbaijan, meanwhile, has developed a capable military of its own, largely because of its oil wealth. Though it still wants to take back Nagorno-Karabakh, it’s also content to keep the conflict simmering for now. In fact, it has used the Nagorno-Karabakh issue as a rallying cry during times of unrest or economic hardship. There are no signs that President Ilham Aliyev, who has been in power since 2003, is in political danger, but Azerbaijan has faced serious financial difficulties in recent years. It’s highly dependent on oil exports, so when oil prices are low, its economic and political stability are particularly at risk. When oil prices plummeted in early 2016, for example, Azerbaijan spent two-thirds of its foreign reserves and imposed new taxes on foreign currency transactions. Rising unemployment led to protests throughout the country, a rare occurrence under Aliyev’s administration.

To quell the protests, the government deployed troops and lowered taxes on basic food products. Three months later, in April 2016, clashes broke out in Nagorno-Karabakh, resulting in the most intense fighting in the region since the cease-fire in 1994. The Four-Day War was extremely popular in Azerbaijan, which claimed to have regained 2,000 hectares of land. Though reports vary on who initiated the fighting, it was a useful distraction from the country’s economic problems at the time. And with oil prices still low and its economic future uncertain, Azerbaijan isn’t eager to find a lasting resolution to the conflict any time soon.

Perhaps more than anything, the Nagorno-Karabakh issue is an example of how decisions from long ago can have an impact far into the future. Stalin’s decision to hand over Nagorno-Karabakh, whose population was 94 percent Armenian at the time, to Azerbaijan, overriding the initial intention to give it to Armenia, shaped the politics of the region for decades to follow. That decision was part of a divide-and-rule strategy – whereby local conflicts were kept simmering just enough to ensure that no challenges to Soviet rule could rise up – as well as a desire to appease the Turks, with whom the Soviets hoped to establish better relations after Mustafa Kemal Ataturk’s rise. Though Azerbaijan and Armenia had clashed over Nagorno-Karabakh before then, it was Stalin’s decision that ultimately set the region on the course to independence, war and years of low-level conflict.

Xander Snyder
Xander Snyder is an analyst at Geopolitical Futures. He has a diverse theoretical and practical background in economics, finance and entrepreneurship. As an investment banker, Mr. Snyder worked in corporate debt origination and later in a consumer-retail industry group at Guggenheim Securities, participating in transactions ranging from mergers and acquisitions, equity and debt capital raises, spin-offs and split-offs to principal investing and fairness opinions. He has worked on more than $4 billion worth of transactions. He subsequently co-founded and served as CFO for Persistent Efficiency, an energy efficiency company that used cutting-edge technology to create a new type of electricity sensor for circuit breakers and related data services. In his role, he was responsible for raising more than $1.5 million in seed capital and presented to some 70 venture capital and angel investors in the process. He also signed four Fortune 500 companies as customers, managed all aspects of company accounting, budgeting and cash flow, investor relations, and supply chain and inventory management. In addition to setting corporate strategy, he helped grow the company from two people to a 12-person team. As an independent financial consultant, Mr. Snyder wrote an economics publication for a financial firm that went out to more than 10,000 individuals and assisted in deal sourcing for a real estate private equity fund. He is an active real estate investor and an occasional angel investor. Mr. Snyder received his bachelor’s degree, summa cum laude, in economics and classical music composition from Cornell University.