Atlantic Council explores Azerbaijan’s growing opportunities Bridge between Europe and Asia

An article by Andrew D’Anieri, associate director of the Atlantic Council’s Eurasia Center, examining Azerbaijan’s economic and geopolitical opportunities has been published on the website of the US think tank. Caliber.Az presents an excerpt from the article for its readers.

“In a city preparing to host a Formula One race and a seaside pop music festival, it’s easy to forget that you’re sandwiched between the world’s two most destabilizing conflicts. But for the large pre-race fences and temporary race paddock being erected in the city center, life in Azerbaijan’s capital of Baku appears deceptively normal.

Azerbaijan is the only country to border both Russia and Iran and thus finds itself between two major wars. Things are quieter in Baku, where the country’s leadership has been busy working with neighboring Armenia to advance a peace process of their own to end a decades-long conflict. Even so, on my recent trip to Baku, it was clear that a low-humming anxiety about the future underpinned Azerbaijani elites’ discussions of war, peace, growth, and opportunity.

I traveled to Baku this month to participate in a conference on security and cooperation in the South Caucasus hosted by Switzerland’s University of St. Gallen and its local think tank partner the Center for Analysis of International Relations and Multiculturalism. There, I heard presentations from American, European, and Azerbaijani academics and experts on how the region is working to make peace a reality, become more integrated with the global economy, and navigate highly complex relations with neighboring countries and great powers.

The picture presented by my fellow analysts was mostly positive. Several European experts noted that while Azerbaijan faces an array of security and diplomatic challenges presented by the Russia and Iran wars, both also provide openings for new partnerships. 

The near-peace with Armenia has seen Azerbaijan make small, but important oil and gas transfers to Yerevan as the country tries to wean itself off Russian energy. Infrastructure development along the Trans-Caspian International Trade Route provides a tangible pretext for further integration with Central Asia. And the Trump Route for International Peace and Prosperity (TRIPP) pledges further connectivity and Western investment in the region.

To take full advantage of its strategically important position as an energy and transport bridge between Europe and Asia, Azerbaijan should look to grow its services sector, move up energy and logistics value chains, and pilot co-investment projects with the United States. 

The impressive productivity of Azerbaijan’s oil and gas resources has until now crowded out additional development of its services sector. By prioritizing investment in services and knowledge industries, new analysis suggests that Baku can increase its workforce productivity closer to that of similarly sized European countries, boosting GDP per capita. 

In energy and transport, the government should deepen cooperation with international financial institutions to finance physical infrastructure projects while deploying its own cash on value-added projects like downstream oil refining and digitalized transport and customs platforms. Baku should actively engage US officials building out the Trans-Caspian Enterprise Fund with logistics projects that complement the TRIPP corridor itself.

Strategically, they can help diversify and grow Azerbaijan’s economy to make it more resilient against shocks over the long term. In the short run, Azerbaijan can take advantage of specific opportunities like TRIPP and the growing Trans-Caspian route to secure its position as a transport hub. A wider range of higher-value products and easier logistics will help make the Europe-Asia route more economically viable and strengthen Baku’s position as a key connector.

Bold economic and investment choices can make Azerbaijan more economically vibrant and give it greater strategic space with which to navigate thorny geopolitical challenges,” the author writes.