Armenia and Azerbaijan have failed to resolve the Nagorno-Karabakh conflict, even though the framework for a fair settlement has been on the table since 2005. A comprehensive peace agreement before presidential elections in both countries in 2008 is now unlikely but the two sides still can and should agree before the polls to a document on basic principles, which if necessary clearly indicates the points that are still in dispute. Without at least such an agreement and while they engage in a dangerous arms race and belligerent rhetoric, there is a risk of increasing ceasefire violations in the next few years. By about 2012, after which its oil revenue is expected to begin to decline, Azerbaijan may be tempted to seek a military solution. The international community needs to lose its complacency and do more to encourage the leaderships to prepare their societies for compromise and peace.

In 2006 the co-chairs of the Minsk Group (France, Russia, the U.S.), authorised by the Organisation for Security and Cooperation in Europe (OSCE) to facilitate negotiations, proposed principles for settlement: renunciation of the use of force; Armenian withdrawal from parts of Azerbaijan surrounding Nagorno-Karabakh; an interim status for Nagorno-Karabakh, with substantial international aid, including peacekeepers; and mutual commitment to a vote on Nagorno-Karabakh’s final status after the return of displaced Azeris. These principles, which were essentially identical to those proposed by Crisis Group a year earlier, still offer the best framework for a deal. Indeed, the sides have publicly said they generally agree with the concept but lack of political will to resolve the remaining key issues, especially the Lachin corridor, has undermined the process and turned stakeholder optimism into cynicism. None of the parties feels that there is any urgency to settle the conflict.

Azeri and Armenian leaders have also failed to engage their constituents in discussion of the merits of peace. The European Union (EU), the U.S. and Russia have not effectively employed political and economic pressure for a settlement. The anticipated focus on domestic politics in Yerevan and Baku as well as several of the Minsk Group countries in 2008 means that even the incremental diplomatic progress that has been made could well be lost.

Oil money has given Azerbaijan new self-confidence and the means to upgrade its armed forces. It seems to want to postpone any peace deal until the military balance has shifted decisively in its favour. Yerevan, which itself has done surprisingly well economically, has also become more intransigent and increased its own military expenditures. It believes that time is on its side, that Nagorno-Karabakh’s de facto independence will become a reality increasingly difficult to ignore. Playing for time is dangerous for all concerned, however. The riskiest period could be around 2012, when Azerbaijan’s oil money is likely to begin to dwindle, and a military adventure might seem a tempting way to distract citizens from economic crisis. Important oil and gas pipelines near Nagorno-Karabakh would likely be among the first casualties of a new war, something Europe and the U.S. in particular have an interest in avoiding.

The wider international community, not just Minsk Group co-chairs, should coordinate efforts to impress on Baku and Yerevan the need for progress, specifically early agreement on a basic principles document. Nagorno-Karabakh needs to be put at the centre of relations with both countries. The EU special representative in the region should become more active on the issue, and the EU should use the first reviews of its action plans with both countries to promote conflict resolution and the development of transparent, credible institutions which can underpin peace efforts. Engagement is needed now to avoid the danger of war in a few years.

Tbilisi/Brussels, 14 November 2007