Türkiye's growing economic presence in Karabakh Rebuilding war-torn region

The decisive victory of Azerbaijan in the second Karabakh war significantly shaped the regional balance of power and forged the Baku-Ankara alliance even more. During the active phase of the second Karabakh war between Azerbaijan and Armenia, Türkiye politically and technically assisted Azerbaijan and thus laid the foundation of further close economic and military partnership.

Following the Russia-brokered November 2020 agreement that ended hostilities in Karabakh, Azerbaijan announced large-scale reconstruction in the war-torn Karabakh region after nearly three decades. While Russia exacerbated its role as the key negotiator in the Karabakh issue, Türkiye ensured the role of Azerbaijan's main security guarantor and economic investor in its flagship projects in Karabakh, including new highways and airports, tunnels, and electric power plants.

Türkiye’s involvement in reconstruction work in Karabakh gained momentum with the inauguration of newly-built airports in the Fuzuli and Zangilan districts with the personal participation of the President of Türkiye, Recep Tayyip Erdogan. On October 26, 2021, both leaders inaugurated the Fuzuli International Airport, the first airport built by Azerbaijan in the Karabakh region, one year after President Aliyev and President Erdogan opened another important airport in Zengilan. The significance of constructed airports in Karabakh is that they are air harbours and important components of the military-strategic infrastructure.

Moreover, the airport in Zengilan was not the only object of Türkiye’s recent investments as both leaders also visited Dost (“Friend”) Agropark, inaugurated in 2021 and located near the borders with Armenia and Iran. Being of the most significant agricultural projects in the Karabakh region, the Dost Agropark is owned mainly by a Turkish company Dost Ziraat. The Dost Agropark is envisaged as a $100 million project that will eventually employ 500 people raising up to 10,000 head of cattle.

Among other leading Turkish companies operating in Karabakh are Cengiz and Kalyon holdings, with the latter being involved in the construction Horadiz-Aghband railway line that is envisaged as part of the transport route connecting Azerbaijan’s exclave of Nakhchivan to the mainland via the southern Armenia. That project is projected to cost more than $180 million and to be completed in 2023.

According to open data, as of 2021 Azerbaijani government has reportedly invested $562 million in rebuilding the liberated lands in Karabakh. In the meantime, Turkish state-owned companies allegedly invested more than $12 billion in Azerbaijan in 2022. According to the Turkish Embassy in Baku, roughly 30 Turkish companies are operating in Karabakh and have already invested $1 billion in projects carried out in Karabakh."

Ankara's investments and economic engagement with the reconstruction process in the Karabakh region surged since 2021 when President Ilham Aliyev signed a decree that entails transferring the rights to the Gashgachay ore field – with its extensive gold deposits – to the Eti Bakir A.S company and the Aghduzdagh and Elbeydash fields to the Artvin Maden company for the next 30 years.

In February, May and July 2022, the Turkish Defence Ministry’s ASFAT Company supplied Azerbaijan with 20 units of the unmanned MEMATT minesweepers for mine action in the country’s liberated lands.

For Azerbaijan, the active participation of Turkish companies and investors in reconstruction within Karabakh matters a lot as it gives a clear political message to other regional states that Ankara outplayed other actors in asserting its soft power in the region. The mutually beneficial partnership forced Baku and Ankara to set a target of reaching a trading volume of $15 billion by 2023.

The number may significantly jump if the main transit corridor project linking Azerbaijan to Türkiye via Nakhchivan (Zangazur corridor) becomes operational, though for now, prospects of the project mostly depend on the future successful peace negotiations between Baku and Armenia.

Touching upon the bilateral and regional benefits of energy cooperation between the two countries, global energy projects such as the Baku-Tbilisi-Ceyhan oil pipeline and TANAP were discussed. It was noted that TANAP, a joint project of Azerbaijan and Türkiye, plays an important role in ensuring the energy security of Europe as one of the main energy sources along with meeting Türkiye's natural gas demand. In the context of growing gas demand in the region, the parties discussed the steps taken to supply additional gas volumes.

Turkish investors are also interested in projects implemented in the direction of transformation of Karabakh and East Zangazur into green energy zone. There is also an opportunity to export electricity to Türkiye and Europe via the Zangezur corridor, as well as the Azerbaijan-Georgia-Romania Black Sea submarine cable project, which will strengthen the energy supply security of the region.

Azerbaijani authorities are convinced that such regional transportation projects as the Zangezur Corridor could foster peace and cooperation and create new opportunities. According to some analysts, the corridor will form an essential link in the East-West and North-South transport corridors to benefit all regional countries and contribute to the Eurasian trade and transport communications that incorporate the regional economies with a nominal GDP of $1.1 trillion.

Ankara’s pivot to the South Caucasus and assertive policy in the post-Karabakh war period is watched cautiously by other regional powers like Iran and Russia. Following its ambitions in the Middle East and the eastern Mediterranean, Ankara’s quest for greater regional power seems to be gaining momentum in the Caucasus now, right in Russia’s backyard. Ankara’s explicitly growing influence quickly became a source of concern for Tehran, thus inflaming debates within Iran and escalating tensions with Azerbaijan in 2021 and 2022. However, under new regional realities and shifted regional order, actors like Iran and Russia lack the necessary means to deter Ankara's influence and breach the Baku-Ankara alliance cemented by the Shusha Declaration in 2021.

Türkiye’s deepening engagement in infrastructure projects in the Karabakh region is a top priority for Azerbaijan in terms of regional stability and investment flow, while countries like Italy, Israel, and the United Kingdom quickly followed suit to be involved in business projects in the region.