Peace Prospects in the South Caucasus

News of a draft peace agreement between Armenia and Azerbaijan is a positive note during a tumultuous period for European security. This deal sets up the opportunity to bring an end to over four decades of conflict. However, tensions remain high and trust low. It is unclear whether the draft agreement sets up an enduring peace, or if remaining gaps will fracture this delicate balance.

The wider implications of Armenian-Azerbaijani normalisation should not be underestimated. A successful peace deal would open up economic and diplomatic opportunities for the entire region, particularly in the energy and transportation sectors. The new ‘realist’ reality emerging within the South Caucasus will necessitate external actors adapt their policy towards the region while Europe seems set to struggle to retain its remaining influence. Peace is not guaranteed and will require significant support.

The Pathway to Peace

Armenian-Azerbaijani tensions stem from a long-standing territorial dispute over Nagorno-Karabakh, a region internationally recognised as part of Azerbaijan, but until recently has been under the control of the self-proclaimed Republic of Artsakh. There has been an inter-ethnic rivalry over Karabakh for over a century, while suppressed during the Soviet period, it has intensified over the last few decades resulting a long-standing dispute with two major wars and frequent border skirmishes.

After four years of a shaky ceasefire following the Second Karabakh War, the draft agreement has been finalised, and both countries are preparing consultations on its signing. Negotiations have been fraught with problems with Russia and the West achieving little success in progressing the agenda. Instead, this draft agreement is notable, being achieved bilaterally, extraneous to third-party mediation, largely due to the dynamics of this dyadic relationship. Azerbaijan achieved a resounding victory in 2020, and its successful dissolution of the self-proclaimed Republic of Artsakh in January 2024 solidified their dominant position at the negotiating table, allowing it to determine the agenda with Armenia taking the lion’s share of concessions. Azerbaijan has been vocal in wanting to limit Western involvement in the peace process and consequently Armenia has acquiesced to the removal of the EU monitoring mission from its borders.

Cooperative measures stipulated within the agreement include a joint request for the dissolution of the Minsk group and the withdrawal of each state's international court case against the other. Hopefully, these unified measures are taken in good faith and can kickstart the trust-building process between these states.

In what appears to be a decision undertaken to expedite the peace process, several unresolved issues have been omitted. Firstly, neither side will seek to resettle refugees forced out of their lands due to any stage of the conflict. Both sides have had hundreds of thousands of displaced refugees throughout the conflict who will remain a significant political and societal pressure. Secondly, the Zangezur corridor, a proposed transport link between Azerbaijan and its exclave Nakhichevan through Armenia has been excluded from the draft. It is a primary source of contention for both sides that was removed from the peace agenda. However, it remains an issue that Baku will seek to address in the future. Leaving this friction unresolved risks the long-term success of this peace agreement, but Armenia may attempt to buy time through the normalisation process to find an acceptable solution.

Additionally, there remains a significant roadblock to achieving peace. Both Armenia and Azerbaijan maintain that the other’s constitution contains territorial claims that infringe upon their own sovereignty. Azerbaijan has asserted that Armenia must alter its constitution before a peace deal can be signed. Armenian Prime Minister Nikol Pashinyan has stated that Armenia requires a new constitution that represents ‘Real Armenia’, but the renouncement of a claim to Karabakh has received significant pushback from Armenian opposition. With upcoming elections expected in 2026, the population will be able to voice their support either way. However, it is hard to see how a different leader could shift Armenia’s negotiating position without instigating conflict.

Following Armenia’s numerous concessions, this recent announcement has been denounced by Armenian opposition as a capitulation to Azerbaijan. This highlights an emerging split within Armenian society between those who desire peace at all costs, and those who believe this cost to be too great. Armenian Foreign minister Ararat Mirzoyan’s statement that a peace deal will help Armenia “emerge from a large and deep swamp” is indicative of the government’s perception of its position. However, conveying this message to its population will require delicacy to stem criticism, which has often been exploited by Russia’s propaganda machine, risking further destabilisation.

Regional Impact

Russia

Russia has historically considered the South Caucasus to be firmly within its sphere of influence, as such it has consistently sought to maintain its influence within the region. In a strategy very similar to its interference within Transnistria, Abkhazia and the Donbas (prior to 2022), the Kremlin has exploited regional tensions over Nagorno-Karabakh to insert itself as a security provider, increasing its leverage over Yerevan and Baku in the process.

Since the full-scale invasion of Ukraine, Russia has struggled to retain its influence within the South Caucasus. The removal of Russian troops from Nagorno-Karabakh in April 2024 and from the Turkish-Armenian border in March 2025 have chipped away at its regional pre-eminence leaving it without a clear policy towards the region.

Consequently, Russia is recalibrating its position within the South Caucasus, shifting from a security focus to a broader strategy utilising political, economic and primarily subversive levers while acknowledging the influx of other regional actors within this space. However, Armenia has made clear attempts to diminish Russian influence by freezing its participation within the Collective Security Treaty Organisation and intensifying national debate on aligning with the European Union. Russia has even less influence over Azerbaijan who maintains strong political and military links to Turkey. Following a peace treaty, Yerevan and Baku will be better positioned to enact further policy to limit Russian influence but will require support from other regional actors to facilitate this difficult transition away from Russian influence.

Iran

Iran’s relationship with its Northern neighbours fluctuates depending on the focus. Both Azerbaijan and Armenia have interests in improving relations with Iran, but each encounters significant roadblocks in achieving this aim. Iran has a sizable ethnic Azeri population within its North-Western region and both states have interests in facilitating the International North South Transport Corridor from Moscow to Mumbai, through their territory. However, Baku’s blossoming relationship with Israel is a point of serious contention between the two states. Armenia has benefitted from Iranian support of its territorial integrity but must be cautious in balancing its relations with Tehran and the West.

The bilateral delimitation of the Armenian-Azerbaijani border is a positive step for Iran, that economically and politically benefits from its border with Armenia. Iran prioritises the de-westernisation of the South Caucasus. With the Zangezur corridor issue remaining unanswered, Iran’s proposed solution involving transit via its territory is a compromise that is mutually agreeable for now, but unlikely to prove to be a long-term solution.

Peace between Armenia and Azerbaijan would allow Baku to reapply focus upon other points of contention. The repression of ethnic Azeris within Iran may become an increasingly volatile issue. With no long-term connectivity solution that benefits Tehran, and a potential brewing ethnic conflict, Iran’s position within the South Caucasus has significantly weakened as it struggles to influence regional dynamics.

Turkey

In tandem with Turkish influence filling the vacuum left by a retreating Iran in the Middle East, a successful peace deal will provide Ankara the opportunity to weaken both Moscow and Tehran’s position within the South Caucasus. Turkey’s strategic partnership with Azerbaijan was instrumental in Baku’s rapid military development and eventual strong negotiating position. Its relationship with Armenia remains challenging, but according to Pashinyan, normalisation “will simply be a matter of time”.

Increased stability within the region opens the door for the Middle Corridor initiative to flourish, limiting Russia’s role within Eurasian trade and providing Turkey with a stronger link to its Central Asian partners.

How Turkey chooses to balance its relations with Armenia and Azerbaijan will be a strong determinant of a successful peace. Overall Turkey's rising dominance in the region would be the most influential outcome of this peace.

European Union

With Azerbaijan requesting the removal of the EU monitoring mission from the Armenian border, it's likely that the EU will lose its last mediating tool within this peace process. This is not an unexpected shift; the EU’s mediation attempts between 2022 and 2023 failed to generate any significant momentum and was unable to prevent a cessation in hostilities during this period. Europe appeared to miss its opportunity to successfully insert itself within the mediation and as a result, has become a bystander to regional dynamics.

Following the stark shift in Transatlantic relations, instigated by the 2nd Trump administration, the EU has refocused upon its own security and with its attention drawn between the US, Russia, and China it will likely lead to a continued lack of focus upon peripheral regions such as the South Caucasus.

There is a serious question over what the EU can do to regain influence within the region. Georgia’s pivot from the West is indicative of long-term problems with the EU’s waning attraction to its neighbours. Both Armenia and Azerbaijan are interested in pursuing multi vector foreign policy which other influencers have proven much better adapted to. Peace is beneficial for the EU, but without a renewed EU strategy towards the region, its influence will continue to diminish.

Conclusion

The agreement on terms of an Armenian-Azerbaijan peace deal is a significant development for the South Caucasus and the implications of greater stability within the region have wide reaching impact. However, if signed, the longevity of this agreement remains uncertain. Trust between signatories remains low and irredentism remains a significant risk. The South Caucasus' location at the crossroads of Asia and Europe means that while the topic of connectivity remains unresolved, it is one that will dominate discussion over the next few years. Europe should not lose focus on this key region of its Eastern flank and should engage with this emerging opportunity rather than relying on outdated policy.

© RUSI, 2025.

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