The Caucasus is Quietly Becoming a Hub for Middle East Trade, Tourism and Investment

Published December 12th, 2019 - 11:05 GMT
Map of the Caucasus region /Shutterstock
Map of the Caucasus region /Shutterstock

In early November this year, Azerbaijan’s capital Baku played host to the 7th Azerbaijan-UAE Intergovernmental commission on Economics, Trade and Technical Cooperation.

Political and business leaders came together to discuss further expanding trade links between Baku and Abu Dhabi, increasing security cooperation, and providing mutual assistance as both oil and gas rich economies attempt make bold attempts to diversify away from hydrocarbon dependence.

 

In the hotel lobbies of Baku, at the resorts of Batumi, and in the cafes of Yerevan, Farsi, Arabic, and Hebrew have become increasingly common.

And as the Caucasus becomes an increasingly central region for China’s Belt and Road Initiative, investors from the Middle East see great potential in this geo-strategically vital region. Yet increasing connections between the Caucasus and Middle Eastern states, which have been especially pronounced in recent years rarely catch the attention of political analysts.

In the hotel lobbies of Baku, at the resorts of Batumi, and in the cafes of Yerevan, Farsi, Arabic, and Hebrew have become increasingly common.

When foreign policy experts and journalists consider the international relations of Middle Eastern states, they tend to look across the Red Sea to the Horn of Africa, across the Sahara to the Sahel, or over the Mediterranean to Western Europe and beyond to the United States.

Yet they very rarely look directly northwards to the South Caucasus - a region comprising the states of Azerbaijan, Armenia and Georgia. Lincoln Mitchell, an Adjunct Associate Professor of Political Science at Columbia University argues that this is a mistake. To Mitchell, ‘people who study the Caucasus see its politics through a Post-Soviet lens’ which often distorts the growing connections and entangled histories of the Caucasus and Middle East.

To Mitchell, ‘people who study the Caucasus see its politics through a Post-Soviet lens’ which often distorts the growing connections and entangled histories of the Caucasus and Middle East.

Developments in the South Caucasus and the Middle East are becoming increasingly entwined as states in both regions seek economic opportunities and diplomatic partners and share the burden of complex international security challenges. To fully understand the politics of both regions, analysts ought to become more comfortable with seeing the South Caucasus as part of a ‘Greater Middle Eastern’ system.

In the 30 years since the fall of the Soviet Union, which dominated the politics of South Caucasia, Azerbaijan, Georgia and Armenia have increasingly attempted to develop their own distinct political, economic and cultural outlooks. Dr Mitchell notes that when analysing the South Caucasian states, it is important to note the significant differences between their economic and political systems. Yet Azerbaijan, Armenia and Georgia have all increasingly engaged with Middle Eastern states in recent years.

Armenia was invited by Syria to join the Arab League in 2004 as an observer and signed a memorandum of understanding and cooperation in January 2005

Armenia, attempting to escape its status as a de-facto Russian client state has attempted to project its influence in the Middle East. Armenia was invited by Syria to join the Arab League in 2004 as an observer and signed a memorandum of understanding and cooperation in January 2005.

Armenia was invited by Syria to join the Arab League in 2004 as an observer /AFP

Although relations with the Muslim world have been strained as players have picked sides in the Nagorno-Karabakh dispute over the status of disputed territory claimed by majority Christian Armenia and majority Muslim Azerbaijan, Yerevan has increasingly consolidated relations with certain key Middle Eastern actors.

Armenia has cultivated close relations with Lebanon and Syria, driven in part by Armenia’s sizable diaspora community in the Levant. Additionally, the Armenian government has managed to balance these relations with increasing engagement with Israel, a major trade partner.

Early last week, Abu Dhabi’s Masdar, one of the world’s leading renewable energy companies entered into a formal agreement with the Armenian National Interest Fund (Anif), a state-owned foreign investment vehicle to develop a solar energy project in Armenia, offering an investment of at least $300 million USD.

Azerbaijan, whose economy is largely based on hydrocarbon exports, has grown increasingly close to Turkey in recent years. Turkey provides a key transport route for the supply of Azeri gas and oil to Europe via two major pipelines, the Baku-Tbilisi-Ceyhan pipeline and the Baku-Tbilisi-Erzurum pipeline.

Despite economic ties between the states, the Azerbaijani government has long been concerned with the treatment of Iran’s Azeri minority which makes up close to 30% of Iran’s population.

Relations between Azerbaijan and its neighbour Iran remain complex. Despite economic ties between the states, the Azerbaijani government has long been concerned with the treatment of Iran’s Azeri minority which makes up close to 30% of Iran’s population. Iranian leaders fear the export of Azeri nationalism in Azeri dominated regions, whilst the secular government of Azerbaijan fears the influence of Shi’a religious fundamentalism within its own borders.

Close security cooperation between Azerbaijan and Israel has also proved irritating to Iran. Iran accuses Azerbaijani authorities of assisting Israeli intelligence operations, with a series of covert operations including the assassination of Iranian nuclear scientists in 2012.

Relations between Azerbaijan and the Gulf have increased significantly in recent years. Dubai based conglomerate DP World has played an advisory role in the development of the Alyat Free Trade Zone, a business hub surrounding the Port of Baku. Sultan Ahmed bin Sulayem, the company’s director notes, ‘We want to turn Baku into a coordination centre of Eurasia. We want the commercial port not to be some kind of alternative for entrepreneurs but become a necessity for business, as once we did in Dubai’.

Sultan Ahmed bin Sulayem, the company’s director notes, ‘We want to turn Baku into a coordination centre of Eurasia. We want the commercial port not to be some kind of alternative for entrepreneurs but become a necessity for business, as once we did in Dubai,'

Azerbaijan has increasingly courted foreign investors, particularly from the Gulf, jumping in the World Bank’s Ease of Doing Business Ranking from 57th in 2018 to 25th in the world in 2019. Increasing security cooperation has emerged between Arab League States and Azerbaijan as the security threat of fighters returning from Syria increases.

To Dr Mitchell, Georgia offers some of the most significant economic opportunities for Middle Eastern states. Turkish-Georgian relations have proved especially strong in recent years. Turkey remains Georgia’s most important trade partner and a key destination for Labour migrants. Transportation involving key ports on Georgia’s black sea coast, particularly Batumi and Poti, have long attracted foreign investors.

UAE businesses have invested more than $1 billion in Georgia, helping launch multiple hotel and shopping centre chains. Twenty five flights per week shuttle business and leisure travellers between Georgia and the UAE.

Yet the key driver of Georgia’s recent economic growth has been its expanding tourism sector. Relatively liberal social standards have proved a magnet for Middle Eastern travelers.  Significant economic opportunities in resort development, retail, and outdoor travel exist for entrepreneurs and foreign investors in Georgia and Gulf money has been key to Georgia’s economic performance in these sectors.

UAE businesses have invested more than $1 billion in Georgia, helping launch multiple hotel and shopping centre chains. Twenty five flights per week shuttle business and leisure travellers between Georgia and the UAE.

The increasing entanglement between the Middle East and its northern neighbours offers exciting opportunities for investors and should be cautiously welcomed. An increasingly diverse investment base for the states of the Caucasus and opportunities for diversification for the oil rich states of the Gulf can facilitate a mutually beneficial relationship between the regions.

Yet pundits should be aware of potential difficulties on the horizon. As these regions become increasingly entangled, challenges in one region may spill over into the other.

As these regions become increasingly entangled, challenges in one region may spill over into the other.

As Lincoln Mitchell notes, increasingly tense relations between the West and Iran threaten to destabilise Azerbaijan, whilst deepening security crises and failures to find an international political solution to the challenges of displaced peoples in the Middle East may put pressure on South Caucasian states who have long managed to maintain distance from war and instability nearby.

For better or worse, increasing engagement between the Caucasus and Middle East will come to play an increasingly important role in the evolving politics of West Asia. 

The views expressed in this article are not necessarily those of Al Bawaba News.


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