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									A New EU Approach Towards The South Caucasus
By Stefan Meister
aussenpolitik.net – 27/2/2011


https://aussenpolitik-net.dgap.org/de/aussenpolitiknet/regionen/new-eu-
approach-towards-south-caucasus

Kategorie: Sicherheitspolitik, Europäische Nachbarschaftspolitik, Ostliche
Partnerschaft, Europäische Union, Konflikte und Strategien,
Konfliktprävention/-management, Krieg/Kriegfuhrung, Russische Föderation,
Osteuropa, Kaukasische Staaten der ehemaligen Sowjetunion

Der Sudkaukasus erlangt fur die Energieversorgung Europas eine immer
gröÃ~_ere Bedeutung. Nach dem georgisch-russischen Krieg hat die
Europäische Union ihr Engagement in der Region weiter verstärkt und ist
seitdem mit der Beobachtermission EUMM in Sudossetien präsent. Vor allem
der Karabach-Konflikt blockiert noch immer die Entwicklung der gesamten
Region. Angesichts der Bedeutung des Kaukasus und der dortigen
sicherheitspolitischen Herausforderungen mangelt es der EU allerdings
weiter an einer kohärenten Strategie. Es ist an der Zeit, dass Deutschland
wieder eine Schlusselrolle in der Sudkaukasus-Politik der EU ubernimmt und
neue Impulse setzt.

Introduction

The EU's policy towards the South Caucasus is a typical example of the
inability of its member-states to develop a common policy strategy towards
the post-Soviet space. The failure of conflict resolution in its
neighborhood is also the result of diverging interests between the member-
states. First, the South Caucasus is a battlefield for EU-member states on
how one should develop a policy towards Russia and its post-Soviet
neighbors. Second, it is a key region for the highly ideologically driven
European energy debate on the diversification of energy supply without
tangible results. Third, it exemplifies the lack of a common Western, that
is US and EU, strategy towards the post-Soviet space.

As a result, conflict resolution in this fragmented region has not yielded
results in the last twenty years, and Russia, lacking its own strategy for
the development of the region, arguably used the absence of serious EU
involvement in conflict resolution to freeze the status quo and control the
region. The three South Caucasian states are highly frustrated with the
EU's weak and contradictory policy in the region.[2] Rather than focusing
first of all on Georgia, the EU should make equal offers to all states of
the region. This policy should take the varying levels of development of
all three states into consideration, their different conflicts as well as
different interests in the rapprochement with the EU.

There is a need for recalibrating the EU's policy towards the South
Caucasus. Germany played a crucial role in setting in motion a new policy
approach towards the region, and it is currently a weak link in the EU
Eastern policy debate. If Germany is not willing to promote the Eastern
Partnership (EaP) more actively and to take a new approach towards the
South Caucasus, the EU as a whole will fail to be a relevant player in the
South Caucasus and in the post-Soviet space in general. With its monitoring
mission in Georgia Brussels is at the moment the only international player
which takes responsibility for the region. The EU and its member states
should use the window of opportunity that opened after the Russian-Georgian
war in August 2008 in order to develop a comprehensive strategy towards the
South Caucasus. Germany should become an advocate for the South Caucasus
inside of the EU.

South Caucasus after the Russian-Georgian War

The Georgian-Russian war in August 2008 and the recognition of South
Ossetia and Abkhazia by Russia have changed the geopolitical situation in
the South Caucasus. The post-Soviet countries are increasingly searching
for alternative allies and links in order to avoid their dependence on
Russia. In fact, no serious external power has recognized the independence
of the two separatist territories.[3] This weakens Russia's position in the
post-Soviet space and challenges its alliance policy. The Russian
leadership was not able to get support from "allies" in organizations like
Collective Security Treaty Organization (CSTO) or Shanghai Cooperation
Organization (SCO). Now only Russia is responsible for the economic
development and political stability of South Ossetia and Abkhazia. The
experience in the North Caucasus shows that Russia has no strategy to
pacify and develop ethnic difficult regions.[4] While Abkhazia has the
potential to be independent from Russia, South Ossetia has become a de
facto subject of the Russian Federation.

For Azerbaijan the results of the war were problematic in two ways: First,
the recognition of South Ossetia's and Abkhazia's independence by Russia
set a dangerous precedent and can have a negative effect on the ethnic
conflict around Nagorno-Karabakh. Second, the bulk of Azerbaijan's energy
exports go through Georgia, which was challenged by the war. In addition,
for Turkey the war in Georgia threatened oil and gas transportation routes
from Azerbaijan to Turkey (like BTC pipeline) and put Turkey's ally
Azerbaijan under pressure. Moreover, Azerbaijan then began to press Turkey
because of its rapprochement with Armenia and threatened Ankara with closer
energy cooperation with Russia. For Turkey, Azerbaijan is not only an
important political ally but also an important alternative supplier for oil
and gas compared to Russia.

Georgia lost its reputation in the West: not only most of the EU member-
states assess the current Georgian leadership as unpredictable, but also
the Obama Administration is less interested in supporting Georgia
unequivocally. During the war, Georgia lost its breakaway regions, which
put an indefinite end to the policy of re-integration.

Tbilisi's second important goal, NATO membership, is no longer on the
table. Despite increasing critical voices, the Western reaction to the war
was to give Georgia an unprecedented amount of foreign funds of $4.55
billion to deal with the economic consequences.[5] For regional stability
it was important that Georgia got international support directly after the
war. But as long as a Georgian president will lead the country without
efficient checks and balances, Georgia will not have a chance to contribute
to the conflict resolution in the region.

After having been provoked by Russia, the Georgian president was able to
start a war against South Ossetia without having been called to account.
Neither the parliament, the constitutional court, the opposition nor the
public were able to control the executive.

After the August war, negotiations on the Nagorno-Karabakh conflict
intensified. Russia started an initiative of high-level meetings, which
culminated in a joint Russian-Armenian-Azerbaijani declaration on the non-
use of force signed by the presidents of the three states, Ilham Aliev,
Serzh Sargsyan and Dmitri Medvedev on the 2 November 2008. Yet, neither the
Minsk group nor the Russian initiative obtained a breakthrough in the
Karabakh conflict. On the contrary, Baku has grown increasingly frustrated
with the Turkish-Armenian rapprochement and subsequent Armenian refusal to
yield on the condition of full withdrawal from the occupied territories,
while the Armenian President suspended the ratification of the protocols
with Turkey, in light of Turkish president Erdogan's refusal to commit to
the border opening between Turkey and Armenia as long as Armenian troops
remain in Azerbaijan.[6]

Having been a bystander in the South Caucasus, the EU, after mediating a
ceasefire between Russia and Georgia and establishing a monitoring mission
(EUMM), has assumed a large degree of responsibility for the future
stability of the region. The EU has strengthened its presence in the
region, which raises expectations in the South Caucasian states about the
future role Brussels is willing to play in the region. For its part, Russia
has accepted the EU's role in monitoring the situation. However, it expects
the EU to recognize the current status quo of the de-facto separation of
South Ossetia and Abkhazia from Georgia. This is a challenge that the EU
has to manage and will determine the future of Europe's role in the region.
What is still missing is a long-term EU strategy for the region and a
willingness to take on the responsibility for conflict resolution and
development in the South Caucasus.[7] The Eastern partnership and the
Southern energy corridor might be tools for deepening the ties between the
EU and the South Caucasus, but they are no strategy.

Ethnic conflicts as the main obstacle to development in the South Caucasus

Ethnic conflicts and political fragmentation are characteristic of the
South Caucasus. There are three sovereign states - Azerbaijan, Georgia and
Armenia - and three separatist territories - Abkhazia, South Ossetia and
Nagorno-Karabakh. The conflicts over the three separatist regions interfere
with regional cooperation in the wider South Caucasus region and have seen
outside players become involved. The Georgian conflicts in particular are
in the spotlight of the international media because of the Russian-Georgian
war, but the Karabakh conflict has even more influence on the limited
regional cooperation. While the Georgian conflicts first of all concerns
touches the relations between Russia and Georgia, the Karabakh conflict
blockades the relations between all three states of the region. The
tensions between Georgia and its breakaway regions escalated in spring 2008
and culminated in a Georgian attack on South Ossetia in August of the same
year and a subsequent Russian military strike on Georgian territory. No
international initiative for conflict prevention was successful in reducing
these tensions. There is no functioning international mechanism for
conflict resolution in the South Caucasus.

>From the beginning of the collapse of the Soviet Union, Georgia was
confronted with separatist movements that led the country into two
ethnically motivated civil wars (with Abkhazia and South Ossetia).

Consequently, Georgia was on the brink of being a failed state. Russia was
the main player in negotiating ceasefire agreements after the military
conflicts between Georgia and South Ossetia as well as with Abkhazia.
Russian engaged so called "peacekeeping" troops in both regions, which
became more important with the deterioration of the relations with Georgia
after the Rose Revolution. After the Rose Revolution in November 2003 and
the election of Mikhail Saakashvili as Georgian president, the new
leadership successfully strengthened the state's political institutions and
started an offensive integration policy of the separatist regions. The
third breakaway region of Adjara was, compared with Abkhazia and South
Ossetia, easy to integrate by president Saakashvili in May 2004 because
there was no ethnic conflict, no experience of violence and no declaration
of independence like in the two other cases.[8]
The subsequent attempt to integrate the other two territories worsened
relations with Russia, which implicitly annexed the two separatist regions
through its policy of pasportisacija, that is, the extensive issuance of
Russian passports to people from both regions. From a regional point of
view, these conflicts were relevant for the relations between Georgia and
Russia because Russia took from the beginning the side of the separatist
regions in order to weaken Georgia and to prevent the country from joining
NATO. Russia and Georgia tried to exaggerate their conflicts as a conflict
between Russia and the West. Russia blamed Georgia to get support from the
US.

Georgia worsened relations with Russia, which complicated regional politics
and conflict resolution even more. This gave Moscow the opportunity to
escalate the conflict and to justify, in part, its policy.

The first ethnic conflict in the context of the fall of the Soviet Union
exists between Azerbaijan and Armenia over Nagorno-Karabakh. The Karabakh
question is a major conflict in the South Caucasus because it is the main
obstacle to intra-regional cooperation which involves all three states of
the region.[9] The conflict erupted in 1988 and a ceasefire was not reached
until 1994. As a result, Armenia occupied 17 percent of Azerbaijani
territory including Nagorno-Karabakh and seven formerly Azerbaijani-
populated provinces. As a consequence, the Turkish-Armenian border was
closed in 1993. If the Turkish-Armenian blockade breaks, Georgia will lose
its key role as the sole transit route from the Caspian Sea to Europe.

Since 1992 the Minsk-group of the OSCE under the Co-Chair of Russia,
France, and the US (since 1997) has led negotiations in the Karabakh
conflict without a breakthrough. Azerbaijan's frustration has increased
because of the frozen status quo and the indirect international acceptance
of Armenian occupation of a big part of Azerbaijani's territory. Most of
the one million refugees on the territory of Azerbaijan come from the
occupied regions.[10] Despite a good basis for further negotiations with
the Madrid principles[11] from 2007 (updated in July 2009) the main
controversies are still unresolved: the future status of Karabakh, the
return of areas controlled by Armenia, the return of refugees, and the
protection of the border. More than before Armenia was afraid of a blitz-
attack by Azerbaijan, while Baku feared the recognition of Karabakh's
independence by Moscow.[12]

Despite long-term negotiations involving the international community, no
breakthrough has been achieved and all three conflicts are still a security
risk for the region. They contribute to the deficit of good governance,
limited transparency in the economic policy and rise of transnational
threats like organized crime and the increased militarization in the
region. The lack of multilateral economic cooperation and the absence of a
constructive dialog are typical of the relationship among the South
Caucasian states.[13] Instead of communicating and cooperating with each
other, all three states compete for international attention and support.
This makes the region vulnerable to external interests and it easy for
outside players to use the ethnic conflict for their interests as
especially Russia does.

The vulnerability of economic growth

From an economic point of view, the states of the region differ from but
depend on each other. While Azerbaijan is producing more than 60 percent of
its GDP with the export of oil and gas, Georgia's and Armenia's economic
growth up to 2008 was based mainly on the construction sector, services,
and agriculture.[14] For Armenia, remittances from Armenians living and
working abroad play an important role. The amount of money sent home by
migrant workers was more than $2.1 billion in 2008, which is more than half
of the Armenian domestic retail trade turnover.[15] For Georgia, the
transit of resources from the Caspian Sea to Turkey matters greatly, while
for Azerbaijan, Georgia is the most important transit country for its
resources to Europe. Georgia is the main link for Armenia to Russian energy
supply and to the regional and international market. Approximately 70
percent of Armenian trade transits via Georgia.[16] Because of Armenia's
economic and energy dependency on Russia (Russia is its main trade partner
with about 20 percent exports and imports to and from Russia) and its
transit dependency on Georgia, the recent conflicts between Russia and
Georgia have hurt the Armenian economy much. The periodic disruption of
fuel and food imports from Russia highlighted Armenia's vulnerability due
to the single transit corridor.

Azerbaijan is the most important energy supplier for Georgia. Baku decided
to cut Russian gas imports and to provide Georgia with natural gas for a
lower price of $120 per 1000 m3 (five years contract) against Gazprom's
demand of doubling the price for both countries from $110 to $235 per 1000
m3 in 2006. Just as Russian companies had taken over Armenian energy
assets, the state oil company of Azerbaijan, SOCAR, purchased significant
parts of the Georgian gas distribution network at the end of 2008.[17]

Despite the high potential for conflicts, the South Caucasus has
demonstrated impressive economic growth and reform since the mid-2000s: up
to the financial crisis an economic recovering of the three states could be
observed. Azerbaijan had one of the highest real GDP growth rates worldwide
(between 10 percent and 30 percent, 2002-08), reaching the growth peak of
just over 30 percent of real GDP growth in 2006. In spite of the financial
crisis in 2009 there was still GDP growth of 9.3 percent and an IMF study
forecasts of 2.7 percent for 2010.[18] Between 2003 and 2008 Armenia and
Georgia, too, registered growth rates of around 10 percent.[19] While
Azerbaijan still retained positive growth despite the financial crisis,
Georgia, and especially Armenia were hit strongly by the downturn. Georgia
could mitigate the negative trend because of the huge amount of
international aid after the war in August 2008 and a loan of $750 million
by the IMF.

In terms of economic reforms, Georgia is ahead of the other states of the
region. After Mikhail Saakashvili became president he started comprehensive
economic reforms which led to a high level of foreign direct investments
and impressive economic growth. The government simplified the tax code,
overhauled the custom code and started to fight corruption with success.
The World Bank recognized Georgia as one of the fastest reforming countries
in the world in 2008, ranking it as one of the 15th easiest places for
doing business in the world.

During the peak of the economic growth between 2006 and 2008, foreign
direct investment quarterly inflows averaged half a billion dollars per
year.[20] Growth abruptly slowed down with the dual shock of the disastrous
war with Russia and the global financial crisis.

Azerbaijan and Armenia also started economic reforms. Azerbaijan's creation
of a state oil fund (SOFAZ) contributes to making the country more credible
as an economic and trade partner in spite of enduring problems with
bureaucracy and corruption, comparable to those in Armenia. Azerbaijan's
oil production is largely responsible for the high growth rates between
2005 and 2007 as the oil and gas sector accounted for 53 percent of the GDP
in 2007.[21] More than 40 percent of state revenues were provided by
transfer from the SOFAZ in 2009.[22] Azerbaijan made some efforts in
modernizing its economy, which means, first, simplifying domestic
regulatory requirements for investments and transparency. But the non-
transparent and corrupt public administration still limits the impact of
these reforms.[23] Like in Armenia (but in contrast to Georgia), the state
still plays a dominate role in the economy of Azerbaijan. What Azerbaijan
has not managed yet, however, is to diversify its economy from natural
resources; it continues to depend heavily on oil.

All three countries used their revenues to invest in armament. The
Armenian defense budget increased from $296 million in 2007 to $395
million in 2008 (GDP 2007: $9.4 billion, 2008 $12.4 billion). At the
same time, Azerbaijan raised its defense budget from $936 million to
$1.3 billion (GDP $27 billion and $40 billion). Georgia, meanwhile,
doubled its defense budget from $573 million to $1 billion (GDP $10.2
billion and $14.5 billion).[24] As a member of the Collective Treaty
Security Organization (CSTO), Yerevan gets weapons from Russia for
a much lower price than Azerbaijan.[25]

The economic performance of the region is closely connected to the
natural resources of the Caspian and its transit to Europe. There is
more economic cooperation among the states of the South Caucasus than
the political conflicts would suggest. Georgia is the key country for
transit of resources from Azerbaijan to Turkey and the main transit
country for Armenian trade. As a result, Georgia's instability after
the war in August 2008 had a direct influence on both neighbors. For
a short time the war also questioned the transit of Caspian oil and
gas to Europe, which was, nevertheless, not interrupted by Russia. The
situation became more complicated within the context of the difficult
relations between Georgia and Russia because Moscow enjoys warm
relations with Armenia, and because of its geopolitical location and
the Karabakh conflict Azerbaijan has an interest in good relations
with Russia. This geopolitical constellation makes it easy for Russia
to influence developments in all three states as long as Armenia is
isolated and Azerbaijan and Georgia have only limited support from
other international players to solve their conflicts.

The South Caucasus and the Caspian resources

According to the BP Statistical Review of World Energy, by the end of
2008 Azerbaijan had a share of 0.6 percent of both the world's oil and
gas reserves. It increased its oil production from 180,000 barrels per
day in 1997 to 914,000 barrels per day in 2008.[26] The majority of
the oil is exported through the BTC-pipeline to Turkey and shipped from
there by tanker mainly to European markets. Azerbaijan's gas production
increased to 16 billion m3 in 2008. With the development of the second
phase of the Shah Deniz gas field, Baku can put an additional 14-16
billion m3 per year gas on the market, which is the potential gas
supply available for European markets from the Caspian region before
2020.[27] Contrary to the increasing resource nationalism of Russia and
Kazakhstan, the Azerbaijani leadership still let its petroleum sector
open for international companies. This is a result of the disastrous
economic situation after 1990 and the interest of the political elite
to diversify its resource sector from Russian companies and transit.

The Azerbaijani State Oil Company SOCAR developed close partnership
with multinational petroleum company's worldwide, bringing Western
presence in the Caspian Sea. SOCAR holds a stake of 25 percent in the
BTC oil and the South Caucasus gas pipelines, and is partner to more
than 20 partnership and cooperation agreements with international
companies where it holds mostly between 10 and 50 percent.[28]
The government has not achieved its goal of decreased dependence on
oil, in contrary, its dependency has increased. In the end of 2008
approximately 97 percent of total exports were made up of crude oil
and oil products. Even the low price of oil in the beginning of the
global financial crisis did not reduce this dependency.[29]

At the centre of the dispute over resources in the Caspian Sea stand
different pipeline projects and supply contracts. At present, there
are three pipelines supplying Europe with resources, which bypass
Russia. The Baku-Supsa-Pipeline (between Azerbaijan and Georgia)
and the Baku-Tbilisi-Ceyhan-Pipeline (BTC) have delivered oil from
Azerbaijan via Georgia to Turkish Ceyhan since 2005/06. They have
made Azerbaijan independent from the oil export through Russia. The
Baku-Tbilisi-Erzurum-Pipeline also known as the South Caucasus gas
pipeline (SCP) runs parallel to the BTC and transports gas from the
offshore field Shah Deniz in the Azerbaijani sector of the Caspian
Sea through Georgia to Erzurum in Turkey. It has supplied Turkey with
gas since 2007. From there, the Turkey-Greece-Italy interconnector
(TGI) and the interconnector Greece-Italy (IGI) offshore pipelines
should transport the gas in future further to Greece and Italy. The
SCP could also transport gas from Turkmenistan and Kazakhstan to
Turkey, if transport facilities across the Caspian Sea or the route
through the Caspian Sea would be available. The commercialization of
the BTC and SCP pipelines have created substantial revenues for the
transit countries and have strengthened the economic and political
links between Azerbaijan, Georgia, Turkey, and the EU member-states.

Especially the BTC pipeline completed the first phase of the East-West
corridor and opened the discussion for other projects like the
transport of Central Asian gas and oil to European markets.

There is an ongoing debate about new pipelines leading from the Caspian
Sea to Europe passing and bypassing Russia. The most prestigious
European project is the Nabucco pipeline as part of the Southern gas
corridor, which is supposed to connect Bulgaria and Austria as well
as Southern and Central Europe via Turkey with the gas resources
of the Caspian Sea, Central Asia, the Middle East, and even North
Africa. After the Russian-Ukrainian gas dispute in January 2009 the
project was broadly discussed as an alternative project to Russian
gas supply. Azerbaijan plays a key role for the Nabucco project. So
far it has been the only Caspian country committed to fill in the
pipeline from the beginning of the project, but this is not enough
for the full capacity. Due the exploration of the second phase of
the major offshore Shah Deniz gas field in the Caspian Sea Azerbaijan
will be able to export up to 30 billion m3 in long run. Kazakhstan,
Turkmenistan and Uzbekistan have a long-term potential (starting from
2020) for gas export of around 150 to 200 billion m3, but it is still
unclear, how to transport their gas trough the Caspian Sea.[30] Other
possible suppliers for Nabucco are Iran, Iraq, and Egypt. Because of
the current political and economic situation, Iran, the second richest
gas country in the world, will be no supply country for Nabucco. Iraq,
on the contrary, could be a supply country but with a much smaller
amount of resources.

There are Chinese and Russian competition projects which should
bring Caspian resources to the North and the East. Nabucco and the
South Stream pipeline (Russian Gazprom and Italian ENI share each 50
percent)[31] are described as competing projects, designed to provide
the same gas to the same markets. Despite the financial crisis and even
though the elections in Ukraine questioned the South Stream project
because of decreasing gas demand in Europe and the difficulties
to get international loans, the project has a strong support by the
Russian government.[32] If Gazprom will get control over the Ukrainian
state gas company Naftogaz and/or the transit pipelines to Europe,
the situation may change, but this is not in the interest of the
Ukrainian elites. South Stream's planned capacity is 63 billion m3
gas. While South Stream can get the gas which Russia pumps at the
moment trough the Ukraine, Nabucco has only the commitment of Baku
to be supplied with gas by Azerbaijan. Furthermore, both pipelines
compete for Central Asian and Caspian gas.

The third competing party with interest in Caspian resources is China,
which opened a gas pipeline running from Turkmenistan via Uzbekistan
and Kazakhstan in December 2009. Its current capacity of approximately
13 billion m3 per year should increase to the final 40 billion m3
in 2012. China has made strategic investments in energy reserves and
infrastructure in Central Asia in recent years, but is not a key player
in the South Caucasus. China has become a major buyer of Central Asian
and Caspian gas next to Russia, which broke Russian monopoly of transit
in the region. If China further increases its position as a consumer
of Central Asian gas it will gain influence on the Russian ability
to supply the European markets. In mid-November 2009, the head of
the Azerbaijani energy company SOCAR pointed out that their company
can also sell gas to China as part of the countries diversification
strategy if Europe takes too long to figure out a solution for the
Nabucco pipeline.[33]

The key question for the European Union is how to get access
to the Caspian resources and how to become a serious player in
the competition on resources with Russia and China. Alternative
routes for Central Asian gas to Europe bypassing Russian territory
include a Trans-Caspian pipeline to Azerbaijan, transporting LNG or
compressed gas to Azerbaijani ports. With a planned Kazakhstan-Caspian
oil transportation system Kazakh oil fields are supposed to be
connected by tanker with the BTC pipeline by 2012. The idea of a
Trans-Caspian-Pipeline, which should bring Turkmen and Kazakh gas
to Baku and then further with the BTC-pipeline to Europe, has been
discussed since the 1990s. But there are still difficult negotiations
among the five littoral states regarding the division and management
of the Caspian Sea and its natural undersea resources. Especially
the unclear status of the Caspian Sea and the opposition of Russia
and Iran hamper the implementation of a Trans-Caspian pipeline.[34]
Since October 2008 Kazakh oil has been transported with tankers via
the Caspian Sea to Baku for further export through the BTC.

Comparing with the European annual overall consumption of 500 billion3
of gas, Nabucco can contribute only a small amount to European
energy security. But it would be an important step to develop the
Caspian region for Europe, because it would open the access to new
resources with a new pipeline. The EU is lacking a political strategy
to get access to the Caspian energy resources and especially in
the last two years the European debate was too much concentrated
on Russia. In a couple of years China will be the main player on
the Central Asian energy market, because it has the resources to
invest, gives the political support and it is a highly pragmatic
economic player. Russia will further lose its economic influence in
the region. A big advantage for the EU is that the states of that
region are interested in depending neither on Russia nor on China too
much. But as long as the EU is no player in the region Europe is only
a bargaining chip for the post-Soviet Caspian states to get a better
price from Russia and from China.

External Powers in the South Caucasus and Caspian Basin
Because of the South Caucasus' geopolitical location between Europe,
Central Asia, Russia and the Middle East as well as the deposits
of energy resources, there is a high interest of external powers in
being involved in the region. However, there is a limited interest in
solving conflicts or in contributing to the future development of the
region. In the past, the US was the key player in developing links
with the Caspian energy resources to Europe through the BTC and SCP.

Turkey and, to some extent, Iran are gaining increasing influence as
regional powers in the South Caucasus. In terms of security and the
development of Caspian resources, Iran is a big challenge for the
region. For the EU and most of its member-states, it was mostly the
consideration taken for Russia, which hindered deeper involvement in
the region up to the summer of 2008. The international community's
involvement in conflict resolution was more or less limited. Sponsored
mainly by the OSCE and UN it has brought little result. Russia is
still a player in conflict resolution but it is a regional player
which primarily follows its national interests. Since no other country
takes the initiative to promote conflict resolution in this region,
the role of the main player is left, once again, to Russia.

Russia

Russia's main interests in the South Caucasus are to secure its
position as the main regional player, to control pipeline systems
in the region and the resources of the Caspian Sea and to ensure
dominance over the South in order to stabilize the North Caucasus.

Since the end of the Soviet Union this has meant constant interference
with internal affairs of the three states of this region by using the
ethnic conflicts to preserve weak and dependent states. Russia has
failed to solve the conflicts in the North Caucasus; on the contrary,
with its repression and mismanagement in Chechnya it destabilized the
entire region. A mix of Islamic radicalization, corruption, organized
crime, and poverty show, that Russia is unable to react adequately
to the challenges in the region. This policy is against EU interests
because it destabilizes its neighborhood. It makes international
initiatives for solving conflicts in the region even more difficult.

The Russian strategy towards the three Caucasian states was to
hamper the establishment of strong states with control over their own
territory and to fragment the region into weak states with unrecognized
separatist areas. From a Russian point of view the North Caucasus was
a taboo for international intervention. At the same time Russia tried
to hinder EU and US involvement in the South Caucasus in terms of a
zero-sum policy. Instead of cooperating with the Western partners to
stabilize the Caucasus, Moscow wanted to prevent Western influence
in the region at the cost of those countries' instability.

International conflict management in the post-Soviet space is not
possible without or against Russia. Because Russia follows its
own agenda, which is based on its national interests, it is not
willing to be a cooperative partner in conflict resolution. Moscow
instrumentalized the recognition of the independence of Kosovo by
the US and most of the European states for its policy regarding
South Ossetia and Abkhazia, which led to the recognition of their
independence in August 2008. After the war Moscow stationed troops in
both regions which were reduced each from 3.700 to 1.500, supported
by 1.300 border guards in 2009.[35] But from a Russian point of view
Kosovo seems to be not relevant for the Karabakh conflict. Russian
military presence in Abkhazia and South Ossetia creates a precarious
security and economic environment, under a constant threat of possible
further military aggressions, which undermines the stability of the
entire region.

Turkey

Turkey's main interest in the South Caucasus is to become a main
political player and an energy hub for resources from the Caspian Sea
to Europe. As a NATO country it provides military assistance like
training and equipment for Georgia and Azerbaijan. With large and
politically organized Diaspora communities of most of the ethnic groups
of the South Caucasus it has ties to nearly all states and ethnic
groups in the region. For instance, in Turkey live more Abkhazians
than in their ethnic region. Turkey's trade turnover with the three
South Caucasian states is substantially lower than with Russia but
for all three states it is an important economic partner.[36]

Turkey is an important link for the EU to the South Caucasus and
Central Asia and an energy interconnector between the Caspian region
and Europe.[37] Ankara wants buy cheap gas from Azerbaijan and sell it
for a better price to the EU. While Turkey has bought from Azerbaijan
only small amounts of gas since 2007 it hopes to increase this volume,
for instance, with Nabucco. Azerbaijan, on the other hand will first
of all increase volumes of gas crossing the Turkish area to Europe.

Turkey participates in the Nabucco project as well as in South Stream,
which means it plays by its own rules and tries to use its geopolitical
position to increase its importance for Europe and Russia.[38]

It is a candidate country of the EU and a strategic partner of the US
but has also developed a fast growing economic and energy cooperation
with Russia for a couple of years. Russia has replaced Germany as
Turkey's main trading partner in 2008 accounting for a trade turnover
of $38 billion. Since 2006 Russia has become Turkey's largest source of
imports with natural gas, and both countries completed the 16 billion
m3 capacity Blue Stream gas pipeline in 2002, connecting Russian and
Turkish coasts on the bottom of the Black Sea. While Turkey calibrated
its regional policy with the US in the 1990s, the situation changed
with the election of president Erdogan's Justice and Development party
(AKP) in 2002 and especially with Bush's war in Iraq. With its "zero
conflict with its neighbors" foreign policy approach Turkey became
a more independent player also in the South Caucasus region.

This new policy approach is also a reaction on the stagnating
EU-accession process. Turkey wants to clarify its independent position
from the EU and makes itself an indispensible partner for the Brussels
in terms of conflict resolution and energy policy in the region
in the context of the EU accession. On the one hand, the growing
interdependency between Turkey and Russia led to a more coordinated
foreign and economic policy strategy, which is not always in line with
the interests of the US and the EU. On the other hand, because Turkey
was an important partner of Georgia and the US, it has to manage its
relations with Russia after the August war. Turkish leadership was
pretty quiet in the time of the Russian-Georgian war.[39]

Iran

Iran's goals in the South Caucasus include preventing Western powers
especially the US but also Turkey from gaining influence, ending
regional instability that might threat its own territorial integrity,
and building economic links. In Iran live a huge Azerbaijani minority
(estimates amount to 24 percent of the population) and about 200,000
Armenians.[40] With the collapse of the Soviet Union Iran borders on
several new independent states which destabilized the region because
of their ethnic conflicts. Furthermore, the situation in the Caspian
Sea has changed because the new states claimed parts of the sea and
of the resources. Azerbaijani elites fear Iranian-supported Islamic
extremism and criticize Teheran's support for Armenia. In order to
block companies from Europe, the US, and Azerbaijan from developing
Caspian energy resources, Iran insisted on either a common control
by the littoral states or the division of the seabed in five equal
sectors.

Iran had developed good relations in the region with Armenia because of
both countries' difficult relations with Azerbaijan. Teheran provides
Armenia with natural gas through a pipeline that was completed in
March 2009, and receives electricity in return. In the context of a
North-South Corridor, supported by Russia, goods are to be transferred
from Russia via the South Caucasus and Iran to the Persian Gulf,
Pakistan and India.[41]

Since the independence of Azerbaijan, between Teheran and Baku has
arisen a great deal of suspicion due to the religious and ethnic
conflicts. Especially Azerbaijan with a sizable Shi'ite community
feared the export of Islamic ideas from Iran. A further obstacle in
the relations was the status of the Caspian Sea. Because the main
oil and gas reserves are located close to Azerbaijan, Kazakhstan,
Turkmenistan but not Iran, Teheran blocked the negotiations. While
Iran is critical in terms of Azerbaijan's close relations with the
US, Baku is looking for security guarantees concerning the Iranian
nuclear program. That the US partly withdrew from the region under
the Obama administration was looked at critically by the Azerbaijan
leadership since, as a result, only Russia could guaranty its security.

The US

Every US president since 1992 has claimed that the commitment to the
Caspian region is a strategic priority of his country. The region
is important because of its unexploited oil and gas reserves, its
neighborhood to Iran, and as an important staging area for the US
military in Afghanistan.[42] In the past years, Russia was first
of all seen as a competitor for resources in this region. The Bush
administration (2001-2009) developed close ties with the Georgian
president Mikhail Saakashvili, supported Georgia economically, and
helped to modernize its army. While the US was a major lobbyist for
Azerbaijani energy projects without Russia, US oil companies play
only a minor role in the Azerbaijani oil sector with not more than
10,2 percent participation.[43]

The US is by far the largest bilateral aid donor to Armenia and
Georgia, which received each around $1,8 billion aid between
1992 and 2007. In the same period Azerbaijan received around $750
million. The money was used for a wide range of projects, reaching
from infrastructure modernization, to democratization up to defense
projects in the case of Georgia. For the conflict on Nagorno-Karabakh
the US-aid amounted to $34 million between 1998 and 2009.[44] Because
of the US-human aid for Karabakh and Armenia the Azerbaijani leadership
criticized the US government several times. Especially the US pressure
on the Turkish-Armenian rapprochement led to a discussion in the US
about "losing" Azerbaijan.[45] At the donor conference after the
August war, the US provided the highest amount of aid for Georgia
of $1 billion. Before the war Georgia got from the US and some NATO
partners military training support and funds for equipment.

Despite a less active support of the Obama administration for Georgia
Obama took over the US-Georgia Charter on Strategic Partnership signed
by the Bush administration in January 2009. It allows US military
training of the Georgian army and improvement of interoperability
with NATO as well as greater economic and trade cooperation.[46] With
the appointment of Richard J. Morningstar as the US special envoy on
Eurasian energy issues in April 2009 the Obama administration showed
its interest in the resources of the region. Morningstar should provide
strategic advice on policy issues relating to development, transit,
and distribution of energy resources in Eurasia. The Caspian Sea
is of strategic interest for the policy of Obama because the region
is situated between Russia and Iran and close to its important ally
Turkey. [47] US interests towards the region have not changed but the
effort to rebuilt relations with Russia is new. US involvement in
the Caspian region are still related to energy, counter-terrorism,
conflict resolution, containing Iran, and logistics for operational
support in Afghanistan.

The past South Caucasus policy of the US differed from that of the
EU: While Washington concentrated on securing transit routes, the
integration of Georgia into NATO, and containing Russian influence in
the region, the EU, within the framework of its European Neighborhood
Policy (ENP) supported economic and political reforms in all countries
of the region without coming into conflict with Russia.[48] Both
approaches do not go together well which hampers a more calibrated
policy. According to the Russian-Georgian relations and Georgian
domestic policy in the last years a lot of EU member-states were much
more critical about the direction of Saakashvili's policy than the US.

While Washington tries to push the EU for more strategic development
of the Southern energy corridor, the EU is not willing to prioritize
this project.[49]

The EU in the South Caucasus

The emergence of an EU-policy

Before the war in August 2008, the EU's activities in the South
Caucasus were channeled through three instruments: the Partnership
and Cooperation Agreements (PCA), the action plans within the
framework of the ENP and the EU Special Representative for the
South Caucasus. The EU's strategy towards the region was to develop
simultaneously relations with all three states. Therefore, the PCA's
were concluded with all three South Caucasian states in 1999. This
was supplemented by the ENP-Action Plans in 2006, which are meant
to support reforms in the partner countries and enhance cooperation
with the EU. All the action plans focus on economic post-conflict
reconstruction and confidence-building.[50]

When Swedish diplomat Peter Semneby was appointed as the EU special
representative to the South Caucasus in 2006 his mandate was
expanded compared with his predecessor Heikki Talvitie, to enable
a more active role for the EU in the Caucasus. His mandate includes
assisting the three countries in carrying out political and economic
reform and, in the case of Georgia, to support Tbilisi's capacity
to secure its borders. Pierre Morell was appointed as the EU Special
Representative for the crisis in Georgia in September 2008. His mandate
was extended several times, recently through 31 August 2011. It is his
responsibility help prepare international talks between the parties of
the Russian-Georgian war and to facilitate the implementation of the
peace agreements made from 12 August and 8 September 2008 in close
coordination with the UN and the OSCE.[51]

With Hansjörg Haber, a third EU diplomat is dealing with finding a
solution to the conflict over the two Georgian separatist regions.

Haber is the head of the EUMM, a civilian and unarmed mission which
is supposed to contribute to the stabilization and normalization
of post-war Georgia as well as to confidence-building between
the different parties.[52] Established in September 2008, the EUMM
observes the Georgian border with Abkhazia and South Ossetia with 200
monitors. Initiating this monitoring mission contributed to freezing
the hot conflict between Georgia, Russia, Abkhazia and South Ossetia,
and demonstrated the EU's conflict management ability. Nevertheless,
the EU sends two high-ranking EU diplomats dealing with the conflict
solution in Georgia, whose mandate - except that of Hansjörg Haber -
is overlapping or not definitive. It is a wrong approach to abolish the
post of the EU Special Representative for the South Caucasus and to
transfer the tasks into the EU embassies in the three South Caucasus
countries.[53] This approach will lack effectiveness because it would
downgrade EU's role in the South Caucasus in a time when the region
needs more attention. Brussels needs to develop a coherent policy
towards the region with one contact person for all three states and
who has a broad mandate as well as for negotiations with Russia and
Turkey regarding the South Caucasus

The EU tried to stabilize the South Caucasus through economic and
institutional cooperation as well as by playing a limited role as
a security actor in the region. It remained, however, an outsider
to the frozen conflicts in the region, an observer and possible
future guarantor of a final agreement about the conflicts. Not
the European Commission but EU member-states participated in the
Minsk-Group negotiation about in the Karabakh conflict. Instead,
especially Russia, Turkey and the US have acted as both supporters
and financiers of the states of the region.[54]

The EU and good governance in the South Caucasus

A successful EU policy toward the South Caucasus needs to involve
the support of democracy and good governance. Only pluralistic
political systems can successfully contribute to regional stability
and cooperation and can provide long-term guarantees for investment.

Georgia's case arguably shows that modernization without
democratization is not sustainable. With a functioning system of
checks and balances, the Georgian-Russian war might not have taken
place. While the Georgian President Mikhail Saakshvili, after the Rose
Revolution, stabilized successfully state institutions and began to
tackle corruption effectively, he failed in democratizing the country.

Strong and effective state institutes are prerequisites for
an increased public trust and democratization of a state, but
modernization from above can only be successful if all parts of society
are involved. After the Rose Revolution, the Georgian leadership sought
to achieve the transformation of the society, territorial restoration
and economic modernization simultaneously as quickly as possible
without asking for resources and conditions. The president tried to
modernize the state and society too fast and without taking the people
with. Georgian civil society, which is well differentiated compared to
Armenia and Azerbaijan, could not reach significant influence on the
political decision-making process in the country. The lack of control
of the executive led to the conflicting policy of President Saakashvili
and hindered conflict resolution with the separatist regions.

The relatively stable autocracy of Azerbaijan is characterized by
a weak and fragmented opposition and a small civil society without
influence. Strong presidential power (based on clan structures)
and a symbiotic relationship between the economy and the political
elite results in high levels of corruption, a lack of economic and
political competition, and a state-controlled economy. All these are
obstacles to sustainable economic development and to the willingness
for compromise in the conflict resolution process in the region. In
addition, Armenia lacks a sustainable democratization process, having a
weaker president than in Azerbaijan but strong interest groups outside
the democratic-decision making process.[55] The isolation of Armenia
and its economic dependence on Russia supports the informal political
structures and hampers the political and economic modernization
process of the country.

Although democratization and good governance are the main points of
focus of EU policy towards the South Caucasus,[56] the chances for
a consolidation of democracy and security decreased in the past years.

The EU's limited involvement in conflict resolution and lack of
a strategy for the regions made its policy less attractive and
implausible. If the EU wants to be successful in supporting good
governance in the South Caucasus, it needs to combine conflict
resolution, economic cooperation with the support of civil society and
democratization. Greater involvement of the EU in the region would
strengthen its ability to promote good governance and principles of
a market economy. In order to do so, however, the EU needs to become
an attractive and more active partner. It needs to offer short term
incentives and it has to involve more actively in conflict solution.

EU policy in the South Caucasus after the Georgian war

The Russian-Georgian war had a direct impact on the EU-neighborhood
policy. If not for the war, the Polish-Swedish initiative of the
Eastern Partnership (EaP), would have been implemented immediately
as an element of the EU neighborhood policy under the Czech EU
presidency in the first half 2009. Simultaneously, Russia perceives
the EU increasingly as a rival because of growing competition for
influence and policy models in the post-Soviet space.[57] Therefore,
the Georgian war seems to have reinforced the tendency of a paradigm
change of EU policy towards the South Caucasus. This does not mean
that a long-term strategy of the EU for the South Caucasus exists,
but after ignoring more or less the conflicts in the Caucasus,
the EU now is with its monitoring mission the only international
institution in the South Caucasus. Thus, the EU acted in the region
just as a consequence of pressure from outside, but with the EaP for
the first time it has started to develop a separate agenda for the
South Caucasus which now has to be filled with content.

The EaP, established in May 2009, is meant to expand and deepen the
ENP with the three South Caucasus states as well as Belarus, Ukraine
and Moldova.[58] The European Commission offers bilateral negotiations
to the participating countries on association agreements including
the possibility to establish a free trade regime. Other bilateral
components comprise discussion about eased visa rules, border security
and energy security. Key areas encouraging multilateral cooperation are
democracy and good governance, economic integration, energy security,
and the promotion of civil society exchange. While Russia is not a
member of the EaP, it can be involved in projects on a case-by-case
basis. The target countries are to receive â~B¬600 million until
2013 for investment in state institutions and border control, as
well as for the support of small businesses. Despite the low budget
of the EaP it has to be filled with content and must be used by the
target countries and the EU member-states as a platform for more than
"support of stability and prosperity" in the neighborhood.

The EaP is a positive development because compared with the ENP it
is directed solely at former Soviet countries and strengthens the
EU's policy towards its immediate eastern Neighborhood. However,
it still lacks a strategic dimension and the broad support of the
EU member-states, including Germany. The approach of the ENP to
develop the rapprochement and cooperation with the South Caucasus
states with the same speed contradicts with the policy of the three
states to differ from each other and to have independent special
relations with extern players like the EU. For instance Azerbaijan
needs a strong business partner which helps to modernize its economy
and administration while Georgian leadership has a big interest to
integrate much deeper into the EU in all sectors of the state. The EaP
seems to correct this approach, because it emphasizes joint ownership,
differentiation and conditionality towards the states of the region.

However, because of the intraregional conflicts, there are no signs of
regional integration, i.e. that which the EaP would support. This new
approach must take into consideration the heterogeneity of the three
states, their different problems and different levels of economic
development, transformation and interest of integration with the EU.

European policy towards the South Caucasus primarily concerns
development aid, foreign trade and cooperation policy - that is,
technical policy but not of strategic relevance. The South Caucasus
is of strategic importance for the EU and it is a test case of the
credibility of its foreign and economic policy in the neighborhood. A
strategy demands a common position, but especially the position
towards Russia, which some EU countries see as a problem and some
as the key for conflict solution, hinders the emergence of a common
policy. While EU programs like ENP, first of all, set stimuli for
long-term development and reforms, the political elites of the
region want to have practical and financial offers, which matter at
the present. As in Central Asia, there is again a difference between
what the EU offers and the regional elites want and needs in the short
term.[59] As long as the EU does not offer real economic incentives
and direct involvement in conflict solution, it can be no relevant
player in the region.

Germany, an advocate for an EU strategy in the South Caucasus

What the South Caucasus needs is a strong advocate inside of the
European Union comparable to France's role in the Union for the
Mediterranean. The EaP was important in bringing the focus of the EU to
its eastern neighborhood at a time when the whole region is undergoing
a process of change and differentiation. But the Polish-Swedish
initiative lacks the active support of countries playing a key role
for EU's eastern policy. In particular, Germany is a weak player in
the current EU eastern policy debate. The division of EU countries
between those that perceive Russia as a key partner for Eastern policy
(Germany, Italy and France) and those that see Russia as the main
obstacle to the EU's eastern policy (Baltic States, Poland, Sweden)
was the main obstacle to a common neighborhood policy towards Russia
and the post-Soviet countries in the past. The EaP was born in a time,
when especially Polish policy towards the big eastern neighbor became
more cooperative, which opens together with a less confrontational
Russian policy towards the "West" a window of opportunity.

Germany is still a crucial player in the EU for policy initiatives
towards the South Caucasus, but it never became an advocate of the
region. Since the collapse of the Soviet Union, the main focus of
Germany's foreign policy has been on the relations with Russia. The
German "Russia first approach" can be explained by historical ties,
namely Russian support for the German reunification, German economic
and energy interests in Russia and the perception that the security
of Europe is only possible with and not against Russia. Germany's
interest in Russia and its support for the Eastern enlargement of the
EU made it to the main driver of the EU's eastern policy, including
eastern enlargement after 1991. With changes in the post-Soviet space
and with the accession of the Central-Eastern European states to the
EU, Germany's role as the main player in the EU's eastern policy
decreased. While the post-Soviet countries diverge from Russia,
supported by the some Central Eastern EU member-states, Germany's
foreign policy still is focused first and foremost on Russia. Besides
its special relationship with Moscow, the German leadership was not
able to develop a two-track policy, which, on one the hand, involves
Russia and, on the other hand, establishes bilateral relations without
Russia in the post-Soviet space. Moreover, Germany's predominant
interest in Russia hinders its initiatives towards Central Asia and
the South Caucasus.

Germany's policy towards the South Caucasus and the Wider Caspian
region

The South Caucasus is, for different reasons, relevant for Germany and
the EU: energy security (access to the Caspian Sea and Central Asia);
regional and global security (borders with the Russian North Caucasus
and Iran); and transit security (transit of goods via Central Asia
to China). With the introduction of a Central Asia strategy[60] and
the Black Sea Synergy[61] initiative during its EU presidency in 2007,
the German government introduced to the EU these strategically relevant
regions. The German government, however, did not pursue a sustainable
policy to foster relations with Central Asia and the Black Sea/South
Caucasus states in the long-term. The Central Asia Initiative and
Black Sea Synergy point out the significance of the region in terms
of its geography and economic importance but they do not offer an
entire strategy. Instead, the different approaches of EU member-states
towards the region produce a contradictory and weak EU policy.

Germany is a key player regarding the South Caucasus, and introduced
important initiatives for this region. It was a German initiative to
organize an independent international fact-finding mission on the
conflict in Georgia after the August war in 2008.[62] Furthermore,
Germany placed Hansjörg Haber as the head of the EUMM, and sends the
highest number of members to the monitoring mission.[63] Moreover, the
appointment of an EU special representative for the South Caucasus in
July 2003 was based on a proposal by the German government. Mediation
in the conflicts over South Ossetia and Abkhazia, the concept of a
Caucasus Stability Pact (see the following paragraph), and the support
of integration of the three states into the EU comprise Germany's
initiatives in the region in the past years. However, Germany never
took the initiative to bring the EU as a relevant player into the
South Caucasus and Trans-Caspian region. Berlin's consideration of
Russia's interests in the region inhibited the German government from
becoming more involved in conflict resolution and pushing EU policy
towards the region.

Related to the Partnership and Cooperation Agreements with the
three South Caucasian states in 1999, there was, especially among
the German political elite, a debate on the significance and risks
in the South Caucasus. With regard to the Balkan Stability Pact,
originally a German concept, a Stability Pact for the South Caucasus
was discussed in 1999/2000. This concept not only included the South
Caucasus but also the Caspian region and Central Asia. Besides aiming
to prevent a crisis in the region and to contribute to conflict
resolution, the Pact's main goal was to create a secure environment
for European investment in the region. "European market interests
demand political stability as a prerequisite."[64] This project
never became reality because neither the EU member-states nor the
states of the region were ready for a comprehensive initiative. The
lack of political will for regional cooperation within the Caucasus
themselves as well as that of a consensus on the region in the EU
hindered the implementation of this project. Now, the situation has
changed. After the Russian-Georgian war, the geopolitical situation
in the region is different, and the EU seems to be more willing to
act in the South Caucasus and Caspian region.

Former German Minister of Foreign Affairs Frank-Walter Steinmeier
traveled to Georgia, Abkhazia and Russia in July 2008 to attempt to
mediate the increasing tensions between Abkhazia and Georgia and
to put forward a peace plan. Steinmeier's trip came too late and
was not embedded in a functioning negotiation process; it could not
prevent the war. These important initiatives will always have limited
success as long as they are not embedded in a comprehensive strategic
and much more focused EU policy towards the entire region. After the
Georgian-Russian war, the Green party as well as the leading coalition
of CDU/CSU (Christian Democrats) and SPD (Social Democrats) introduced
to the German Bundestag proposals for more involvement of the EU in
the South Caucasus. Besides the support of cooperation for the peace
process in the multilateral framework of the EU, the European Council,
the OSCE and the UN, the governing coalition of Christian and Social
Democrats demanded a German contribution with a new strategy for the
European and international stabilization policy in the region.[65]
The window of opportunity is still open and it is the right moment
right now to develop a strategy for the South Caucasus.

How to recalibrate Germany's and EU's role in the South Caucasus

To get more involved in the region on the basis of its interests,
the EU and Germany have to recalibrate its policy in the region and
to develop a strategy which centers on the following points:

Germany should act as an advocate for more European engagement in
the South Caucasus and the Trans-Caspian region in the EU. It should
use its authority and economic power to develop its Central Asia
initiative, the Black Sea Synergy and the Stability Pact for the
South Caucasus. The whole region is interlinked and certain regions
cannot develop separately from one another. The South Caucasus is the
bridge between the Black Sea and Central Asia; it is the connection
for Europe to the Caspian resources. This approach should include the
development of economic cooperation, the support of good governance,
and active work on conflict resolution in the South Caucasus. This
multilateral approach could act as a counter model to unilateral
and hegemonic interests in the region and can be a precondition for
conflict resolution and cross-border cooperation.
The EU has to refocus its cooperation in the South Caucasus from
Georgia to a more balanced approach, considering stronger the different
meaning and needs of all states of the region. A country of the region
which is of crucial strategic importance is Azerbaijan. Due to its
oil and gas reserves and access to the Caspian Sea, Azerbaijan is
the main partner for European investments in the region, which can
contribute to the security of supply of EU member-states. But as
long as democratization, good governance and the development of civil
society is challenged by the autocratic government, Azerbaijan cannot
play the role it could have for the entire region and as a partner for
the EU. The EU needs answers to the heterogeneity of the three states,
their different levels of economic development, transformation and
cooperation with the EU. In the past, Brussels developed a policy
towards the region that takes the three states as a single political
and economic unit, which does not reflect the reality. If the EU
wants to be successful with its approach, it has to offer more to
the countries: more investment, more integration (including sticks
and carrots) and more commitment to conflict resolution. Bilateral
incentives can encourage multilateral cooperation in long-term.

The EU should get more involved in the Nagorno-Karabakh conflict,
which is the main obstacle to cooperation and development in the
South Caucasus. The EU should take over from France the position of
a Co-Chair of the Minsk group and actively promote a solution to the
conflict. To become an influential player in the region also in terms
of conflict resolution, the EU needs to increase its engagement in the
region. The EaP should offer incentives that could support a conflict
resolution which can include economic stimuli or sanctions. Armenia
should be put under pressure to return at least the seven occupied
regions around Nagorno-Karabakh to Azerbaijan. With its role as
a main donor of aid to Armenia (EU and member states)[66] and its
instruments of the neighborhood policy, Brussels has the ability to
influence Yerevan.

The EU should be more active in creating a new east-west energy and
transportation corridor from Central Asia via the South Caucasus
and Black Sea region to Europe. This project should involve higher
investment (from European banks and member states) and political
support for energy and infrastructure projects in the region. It
must include the Southern Energy corridor[67] and support for a
Trans-Caspian pipeline or transportation system. In the future,
Iran might also be integrated into these projects. Nabucco will
supply transit countries like Turkey but first of all in South Europe
with gas. Germany's support for the pipeline can be also seen in the
context of securing energy security in south-east Europe which would
be worst affected by an interruption of gas supply from Russia.

Turkey is a key country for the policy towards the South Caucasus,
Black Sea and the Caspian region. It has to be involved in the conflict
resolution processes in the region but can only be a serious negotiator
if it resolves its problems with Armenia. Turkey is the European
bridge to the resources of the Caspian Sea and the Middle East. The
EU's concentration, in relations with Ankara, on the discussion
whether Turkey can join the EU hinders a broader cooperation with
the country regarding energy and conflict resolution.

Together with France, Germany still plays with a negative role
in this discussion and has to rethink its approach. The EU and its
member-states should better calibrate its policy with Ankara and push
the EU accession of the country as an important strategic decision.
Russia is also a key country in the region. It has to be involved in
conflict resolution, but the EU has also to develop a South Caucasus
policy without Moscow. Germany has to realize that its one-sided focus
on the special relationship with Russia comes at the expense of its
influence in the post-Soviet space. Germany and its European partners
should further deepen the energy cooperation with Russia and Turkey,
but they should not forget their own agenda in the region.

An indispensable partner in the South Caucasus is the US. Brussels
and Washington should better calibrate their policies towards the
region but not hinder each other with their approaches. The less
confrontational policy of the Obama administration concerning Russia
in the post-Soviet space, and its special relations with Turkey build
a good basis for a better coordinated approach. But the EU and its
member-states have to be aware that the US does not have the same
interests in the region, and that its current Russia policy is made
with regard to other international crises. Europe should accept the
reality of a limited involvement of the US in the region in order to
push its own agenda in coordination with Washington.

________________________________

[1] The author would like to thank Sabine Fischer, Uwe Halbach, Enno
Harks and Alexander Rahr for their inspiring and helpful comments on
the text.

[2] See for the contradictory EU-policy: Thomas de Waal, The risks of
loosing special role in the Caucasus, in: European Voice, 17.06.2010,
http://www.europeanvoice.com/article/imported/the-risks-of-losing-a-
special-role-in-the-caucasus/68268.aspx
(access, September 29, 2010).

[3] Only Nicaragua, Venezuela and the island nation of Nauru have
recognized the independence of the two Georgian separatist territories.

[4] Cf. Sarah E. Mendelson, "Violence in the North Caucasus:
2009, a bloody year", Center for Statregic and International Studies,
http://csis.org/files/publication/100114_Violence_NorthCaucasus_2009optmize
.pdf
(accessed October 5, 2010).

[5] Mamuka Tsereteli, "New strategic realities in the Black Sea/Caspian
region", Central Asia-Caucasus Institute Analyst (CACI-Analyst),
http://www.cacianalyst.org/?q=node/5270/print (accessed August 24,
2010).

[6]Haroutiun Khachatrian, "Turkey enhances pressure on Armenia after
constitutional court ruling", Central Asia-Caucasus Institute Analyst
(CACI-Analyst), http://www.cacianalyst.org/?q=node/5258/print (accessed
October 4, 2010).

[7] On 20 May 2010, the European Parliament discussed a draft
resolution on the need for an EU strategy for the South Caucasus. It
determines somewhat of a strategy for the EU in the South Caucasus.

See. European Parliament, "Report on the need for
an EU Strategy for the South Caucasus," European Parliament,
http://www.europarl.europa.eu/sides/getDoc.do?type=REPORT&reference=A7-
2010-0123&language=EN&mode=XML
(accessed August 24, 2010).
[8] Uwe Halbach, "Ungelöste Regionalkonflikte im Sudkaukasus"
[Undissolved regional conflicts in the South Caucasus], SWP-Study,
8, March 2010, p. 12.

[9] Ibid., p. 18.

[10] Ibid., p. 20. Contrary to Halbach, the UNHCR reported for
2009, that there were still over 605,000 people considered refugees
or displaced persons in Azerbaijan. UNHCR, "Azerbaijan," UNHCR,
http://www.unhcr.org/cgi-bin/texis/vtx/page?page=49e48d1e6 (accessed
August 24, 2010).

[11] 1) Returning the territories around Nagorno-Karabakh to
Azerbaijan; 2) An interim status for Nagorno-Karabakh providing
guarantees for security and self-governance; 3) A corridor linking
Armenia and Nagorno-Karabakh; 4) a future referendum on the final
legal status of Nagorno-Karabakh; 5) the right of all refugees
to return to their former places of residence; 6) international
security guarantees that include a peacekeeping operation,Haroutiun
Khachatrian, "Armenian-Azerbaijani disagreement on Madrid principles
stalls Karabakh settlement process," Central Asia-Caucasus Institute
Analyst (CACI-Analyst), http://www.cacianalyst.org/?q=node/5199
(accessed August 24, 2010).

[12]Fariz Ismailzade, "Russian arms to Armenia could change
Azerbaijan's foreign policy orientation", Central Asia-Caucasus
Institute Analyst (CACI-Analyst) (accessed October 4, 2010).

[13] Cf. Dov Lynch, "The South Caucasus: A challenge for
the EU," Chaillot Papers, 65, Paris, December 2003, pp. 9-10,
http://www.iss.europa.eu/uploads/media/cp065e.pdf (accessed August
24, 2010).

[14] Cf. The Central Bank of the Republic of Azerbaijan, "Annual
Report 2009", p. 25-29, http://www.cbar.az/assets/1281/millibank.pdf
(accessed October 4, 2010).

[15]Haroutiun Khachatrian, "Armenia: How a small country counters
the global crisis," Caucasian Analytical Digest, 6, 2009, p. 5,
http://kms2.isn.ethz.ch/serviceengine/Files/RESSpecNet/100521/ipublicationd
ocument_singledocument/cf7cec59-4850-45b5-906e-
68dd4306cba0/en/CaucasusAnalyticalDigest06.pdf
(accessed August 24, 2010).

[16] Nona Mikhelidze, "After the 2008 Russia-Georgia War: Implications
for the Wider Caucasus," The International Spectator, 44, No. 3, Sept.

2009, p. 34.

[17] Heidi Kjaernet, "The Energy dimension
of Azerbaijani-Russian Relations: Maneuvering
for Nagorno-Karabakh," Russian Analytical Digest, 56, 2009, p. 4,
http://kms2.isn.ethz.ch/serviceengine/Files/RESSpecNet/97237/ipublicationdo
cument_singledocument/aed1fb81-8979-42f1-8be1-
12b2d0b1e673/en/Russian_Analytical_Digest_56.pdf
(accessed August 24, 2010).

[18] International Monitary Fund (IMF), "World Economic
Outlook April 2010, Rebalancing Growth," Washington DC, p. 58,
http://www.imf.org/external/pubs/ft/weo/2010/01/pdf/text.pdf (accessed
August 24, 2010).

[19] Ibid. p. 159.

[20] Molly Corso, "Georgia's
Expansion Halts," Caucasian Analytical Digest, 6, 2009, p. 20,
http://kms2.isn.ethz.ch/serviceengine/Files/RESSpecNet/100521/ipublicationd
ocument_singledocument/cf7cec59-4850-45b5-906e-
68dd4306cba0/en/CaucasusAnalyticalDigest06.pdf
(accessed August 24, 2010).

[21] U.S. Department of State, "Background Note: Azerbaijan," U.S.

Department of State, http://www.state.gov/r/pa/ei/bgn/2909.htm
(accessed August 24, 2010).

[22] Ibid.

[23] Gerald Hubner, "As if nothing
happened? How Azerbaijan's economy manages to sail
through stormy weather", Caucasian Analytical Digest, 18, 2010, p. 4-9,
http://kms2.isn.ethz.ch/serviceengine/Files/RESSpecNet/118515/ipublicationd
ocument_singledocument/9efe8c87-cd92-41a2-8ce6-
b1b8a373773d/en/CaucasusAnalyticalDigest18.pdf
(accessed October 4, 2010).

[24] International Institute for Strategic Studies, "The Military
Balance 2009," International Institute for Strategic Studies, London
2009, pp.165, 167, 176.

[25]Haroutiun Khachatrian, "Armenia to cut its budget next year despite
expected economic recovery," Central Asia-Caucasus Institute Analyst
(CACI-Analyst), http://www.cacianalyst.org/?q=node/5213 (accessed
August 24, 2010).

[26] BP Statistical Review of World Energy, June 2009, pp. 6, 22, 8.

[27] IEA, "World Energy Outlook 2009," p. 476.

[28] State Oil Company of Azerbaijan Republic (SOCAR),
"Projects," State Oil Company of Azerbaijan Republic,
http://www.socar.az/26-projects-view-en.html (accessed August 24,
2010).

[29] Kenan Aslanli, "Oil and Gas Revenues
Management in Azerbaijan: Crude Dependence
and its Consequences," Caucasian Analytical Digest, 16, 2010, p. 9,
http://kms2.isn.ethz.ch/serviceengine/Files/RESSpecNet/115530/ipublicationd
ocument_singledocument/beb15626-f8dd-4502-9967-
c78ea12a5955/en/CaucasusAnalyticalDigest16.pdf
(accessed August 24, 2010).

[30] Roland Götz, "The Southern Gas Corridor
and Europe's gas supply," Caucasian Analytical Digest, 3, 2009, p. 2,
http://kms2.isn.ethz.ch/serviceengine/Files/RESSpecNet/96731/ipublicationdo
cument_singledocument/35246c39-6726-4b3e-929b-
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[31] According to the Russian Prime Minister Vladimir Putin, South
Stream should start to work in 2015. Furthermore, French EdF might
participate in the project with a share of 20 percent. Kommersant',
April 2010, http://www.kommersant.ru/doc.aspx?DocsID=1361243 (accessed
August 24, 2010).

[32] In a meeting of the Russian and Italian prime ministers in April
2010, Vladimir Putin confirmed that South Stream will be finished in
2015 despite a more cooperative leadership in Kiev after the Ukrainian
presidential elections in the beginning of 2010. ibid.

[33] Alexandros Petersen, "Will Azerbaijani Gas exports to China
Scuttle the Southern Corridor?," Central Asia-Caucasus Institute
Analyst (CACI-Analyst), http://www.cacianalyst.org/?q=node/5234/print
(accessed August 31, 2010).

[34] Barbara Janusz, "The Caspian Sea: legal status
and regime problems," Chatham House, London 2005,
http://www.chathamhouse.org.uk/files/3273_bp0805caspian.pdf (accessed
August 31, 2010).

[35] Jim Nichol, "Armenia, Azerbaijan and Georgia: Political
Developments and Implications for U.S. interests," Congressional
Research Service, http://www.fas.org/sgp/crs/row/RL33453.pdf (accessed
August 31, 2010).

[36] Gareth Winrow, "Turkey, Russia and the Caucasus. Common and
diverging interests," Chatham House Briefing Paper, November 2009, p.

4, http://www.chathamhouse.org.uk/files/15211_bp1109turkey.pdf
(accessed August 31, 2010).

[37] Cf. Stefan Meister, "The EU, Russia and Turkey - Prospects of an
Energy Triangle?," in Prospects of a Triangular Relationship? Energy
Relations between the EU, Russia and Turkey, ed. Kristin Linke/Marcel
Vietor, Friedrich Ebert Foundation, DGAP, Berlin 2010, pp. 22-27,
http://www.dgap.org/midcom-serveattachmentguid-
1df47ad4a98944e47ad11df8273a96476a5fe4afe4a/linke-vi--tor_energy_eu-russia-
turkey.pdf
(accessed August 31, 2010).

[38] Alman Mir Ismail, "Is the West losing the energy game in the
Caspian?," Central Asia-Caucasus Institute Analyst (CACI-Analyst),
http://www.cacianalyst.org/?q=node/5100/print (accessed August 31,
2010).

[39] Turkey cannot afford disruption in the
ties with Russia, says Erdogan, Hurriyet, September 2008,
http://www.hurriyetdailynews.com/h.php?news=turkey-cannot-afford-
disruption-in-ties-with-russia-says-erdogan-2008-09-01
(accessed August 31, 2010).

[40] Nichol, "Armenia," 2010, p. 10.

[41] Farhad Atai, "The dynamics of bilateral relations in
the South Caucasus: Iran and its North Neighbors," China
and Eurasia Forum Quarterly, Vol. 7, No. 3, 2009, pp. 118-119,
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cefq/CEFQ200910/cefq7.3fa115-128.pdf
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[42] Martha Brill Olcott, "A new direction for U.S. policy
in the Caspian Region," Carnegie, Feb. 2009, p. 1,
http://www.carnegieendowment.org/files/us_caspian_policy.pdf (accessed
August 31, 2010).

[43] Shahin Abbasov, "Baku backs away from `anti-American´ public
stance," eurasianet.org, http://www.eurasianet.org/node/60953 (accessed
August 31, 2010).

[44] Nichol, "Armenia," 2010, p. 23.

[45] Abbasov, Baku backs away.

[46] James Nixey, "Changes in the South Caucasus Since August 2008:
Regional Perspectives for the World's Superpower," ADA biweekly, Vol.

3, No. 8, Azerbaijan Diplomatic Academy,
http://ada.edu.az/biweekly/issues/vol3no8/20100427105856156.html
(accessed August 31, 2010).

[47] Alexander Jackson, "The Obama Administration's
emerging Caucasus policy," Caucasian Review of
International Affairs, Caucasus Update, 31, April 2009,
http://cria-online.org/CU_-_file_-_article_-_sid_-_37.html (accessed
August 31, 2010).

[48] Stefan Meister, "Die Georgienkrise und die Rolle der EU"
[The crisis in Georgia and the role of the EU], aussenpolitik.net,
http://aussenpolitik.net/midcom-permalink-
1dee029abf56c76e02911deb489956b811d52375237
(accessed August 31, 2010).

[49] Richard Morningstar, "Remarks at the EU Summit `Southern
Corridor-New Silk Road´," U.S. Department of State,
http://www.state.gov/s/eee/rmk/123530.htm (accessed August 31, 2010).

[50] Sabine Fischer, "European Policy towards the South Caucasus
after the Georgian Crisis," Caucasus Analytical Digest, 1, 2008, p. 3,
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cument_singledocument/7b6a0263-1f71-4f1c-a3c3-
70ab7725dc62/en/01+CaucasusAnalyticalDigest.pdf
(accessed August 31, 2010).

[51] Official Journal of the European Union, Council Decision
2010/445/CSFP, August 2010, "Extending the mandate of the
European Union Special Representative for the crisis in Georgia,"
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lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2010:211:0033:0035:EN:PDF
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[52] European Union Monitoring Mission in Georgia, "About
EUMM," European Union Monitoring Mission in Georgia,
http://www.eumm.eu/en/about_eumm (accessed August 31, 2010).

[53] Vladimir Socor, "Asthon's offices proposes
abolishing EU's special representatives for Moldova and
South Caucasus," Eurasia Daily Monitor, Vol. 7, Is. 108, June 2010,
http://www.jamestown.org/programs/edm/single/?tx_ttnews[tt_news]=36458&tx_t
tnews[backPid]=27&cHash=9474510e89
(accessed August 31, 2010).

[54] Licinia Simao/Maria Raquel Freire, "The EU's
Neighborhood Policy and the South Caucasus. Unfolding
new patterns of cooperation," Caucasian Review of
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(accessed August 31, 2010).

[55] Matthias Jobelius, "Länderanalyse Sudkaukasus: Krise
und Kriegsgefahr" [Country analysis South Caucasus: Crisis
and threat of war], Friedrich Ebert Stiftung, April 2009, p. 9,
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31, 2010).

[56] Commission of the European Communities,
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Parliament and the Council, Eastern Partnership," Commission
of the European Communities, Brussels, 3.12.2008, p. 3,
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lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2008:0823:FIN:EN:PDF
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[57] Cf. Stefan Meister/Marie-Lena May, "The
EU's Eastern Partnership - a Misunderstood Offer
of Cooperation," DGAPstandpunkt, 7, September 2009, Berlin: DGAP,
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(accessed August 31, 2010).

[58] Council of the European Union, "Joint
Declaration of the Prague Eastern Partnership
Summit, Prague," 7.05.2009, Council of the European Union,
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pdf
(accessed August 31, 2010).

[59] Luba Azarch, "Zentralasien und die EU. Aussichten einer
Energiepartnerschaft" [Central Asia and EU: Prospects of an energy
partnership], DGAPanalyse, 7, August 2009, Berlin: DGAP, pp. 12-13.

[60] Council of the European Union, "The EU and Central
Asia: Strategy for a new partnership", Brussels 31 May, 2007,
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[61] Commission of the European Communities, "Black Sea Synergy
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[62] Independent International Fact-Finding Mission on the Conflict
in Georgia, http://www.ceiig.ch/Index.html (accessed October 4, 2010).

[63] European Union Monitoring Mission, "Mission
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[64]Gernot Erler/Friedemann Muller, "Region of the Future: The Caspian
Sea German. Interests and European Politics in the Trans-Caucasian
and Central Asian Republics," in A Great Game No More: Oil, Gas and
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[65] Deutscher Bundestag, "16. Wahlperiode, Antrag der Fraktion
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Sudkaukasus fördern" [16th legislative period, application of
the parliamentary groups of CDU/CSU and SPD to develop security,
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[66] European Commission, "Progress Report
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[67] European Commission, "Prague
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(accessed October 4, 2010).

								
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