Options for EU engagement in the South Caucasus: a reality check Alexandra Dienes Marylia Hushcha Sabrina Kaschowitz December 2024

Options for EU engagement in the South Caucasus: a reality check Alexandra Dienes, Marylia Hushcha, Sabrina Kaschowitz Main points: » In its engagement with the South Caucasus, the EU should prioritise stability, socio-economic development and fostering intraregional cooperation. In doing so, it should avoid antagonisms with regional players Russia, Turkey and Iran. » The EU can contribute to the peaceful settlement of the conflict between Armenia and Azerbaijan by engaging with the two sides at all levels, even if deprived of the capacity of official facilitator. » Regional cooperation can make the South Caucasus better connected and more stable. The EU can help by promoting economic connectivity, primarily through investments in the Middle Corridor, and by fostering environmental cooperation, particularly water management. Introduction Taking the example of the South Caucasus, this paper examines the EU’s options with regard to becoming a stronger foreign policy player able to exert a positive impact on its neighbourhood. How can the EU calibrate its policies to contribute to stability and conflict resolution(or at least management), and how can it facilitate regional cooperation and be a factor of positive change in the relevant soci eties? This policy paper addresses these questions by way of a reality check, based on desk research and anonymous interviews with 40 experts and policymakers in Armenia, Georgia, Azerbaijan and the EU conducted over summer 2024. The underlying premise is that the EU’s interest is not in putting a foot in the door of geopolitical competition, but in contributing to stability in its neighbourhood. The EU is not a geopolitical actor. It has limited influence on democratic development of the countries of the South Caucasus. But it has the capacity to invest in socio-economic development and conflict mitigation in the region. It should do so by avoiding antagonisms with regional powers Iran, Turkey and Russia. The paper starts with the context of EU engagement in the South Caucasus, paying attention to other players such as Russia, Turkey or Iran. It proceeds with a»reality check«, providing a framework in which the EU can think about options for its engagement in the South Caucasus. It then looks at three areas that appear most promising for a realistic European contribution based on our research: conflict resolution and peace; economic connec tivity; and environmental cooperation. The paper also contains a number of boxes with snapshots of the current situation in the three South Caucasus countries and background information. 2

Options for EU engagement in the South Caucasus: a reality check Alexandra Dienes, Marylia Hushcha, Sabrina Kaschowitz Context Russia’s invasion of Ukraine in February 2022 reinforced trends that countervail attempts by the European Union(EU) to create a»ring of friends« around it. Instead, a»ring of fire« seems to have erupted, from Ukraine to the Middle East and the South Caucasus. The war between Armenia and Azerbaijan for Nagorno-Karabakh in 2020 reminded the EU of the arc of instability in its neighbourhood. Notably, with this war Azerbaijan rendered obsolete the past thirty years of efforts to find a peaceful solution to this conflict and the EU was not able to prevent it. Even the Georgian government has been at odds with the EU, and it remains to be seen how the relationship will develop. The international environment is not conducive to effective EU foreign policy either. Intensifying great power rivalry and the decline of the liberal international order lay bare the limits of the EU as a security actor. At the heart of the European project lies the idea of cooperation and economic interdependencies as a means to prevent military conflict. With the re-emergence of power politics and an increased emphasis on the military aspect in geopolitical competition, the EU finds itself at a disadvan tage: it is not a military power. Its economic power, traditionally the EU’s main strength, has also been declining in relative terms, losing out to the United States and giving place to new actors, such as China and India. To make things worse, the EU seems unable to find a common approach towards its neighbourhood or even speak with one voice. The persistence with consensus, with its corresponding national veto rights instead of qualified majority voting on matters of foreign policy, inhibits the EU’s ability to shape its neighbourhood and react to crises adequately. In the absence of much-needed reform, the EU is not ready for potential enlargement and cannot offer credible enlargement prospects to candidate countries. As Russian clout diminishes, the EU’s opportunities increase Russia’s preoccupation with the war against Ukraine has shifted some of its attention away from the regions it traditionally considers its»near abroad« where Russia has been a preeminent security actor, such as the South Caucasus or Central Asia. This gives external actors more opportunities to increase their presence in the region. The EU has used this opportunity to increase at least to some extent its footprint in the South Caucasus in the context of a geopolitical rearrangement precipitated by Russia’s invasion of Ukraine and the aftermath of the Second Karabakh War. For example, it has granted Georgia long-awaited EU candidate status; it acted as a facilitator between Armenia and Azerbaijan in the peace treaty negotiations and established a civilian monitoring mission in Armenia, while also supporting Armenia’s recent efforts at diversification of its foreign partners. For example, the EU put forward a 270 million euro Resilience and Growth Plan for Armenia for the period 2024–2027. In addition, Armenia joined the European Peace Facility and the European Council approved a first 10 million euro package of non-lethal military support in July. An EU visa liberalisation dialogue with Armenia has also been launched. At the same time, Russia’s diminished influence in the South Caucasus does not amount to its withdrawal. It is still Armenia’s main economic and military partner, remains both an important trade partner and a permanent source of military threat to Georgia, and has a pragmatic and mutually benefi cial bilateral agenda with Azerbaijan. Adjusting to new realities What Russia’s diminished influence has allowed for, however, is greater space for the countries of the region to diversify their foreign policies and act more assertively vis-à-vis their big neighbours. Azerbaijan managed to oust Russian peacekeepers from its territory even before their mandate expired. It has nevertheless stayed on good terms with Moscow, becoming a useful trade partner that buys Russian gas to meet domestic demand while selling its own to the EU. The gas deal signed with Brussels in 2022 also increased Baku’s importance for the EU as an energy security partner. Azerbaijan’s financial independence due to revenues from fossil fuel exports, the strategic alliance with Turkey, and close military cooperation with Israel further contribute to its ability to balance between the West and Russia. Russia upset expectations in Armenia that it would support it in its confrontation with Azerbaijan between 2020 and 2023. Since then, Yerevan has tried to reshape its foreign policy. It has frozen its membership of the Russia-led Collective Security Treaty Organization, concluded weapons deals with India 3

Options for EU engagement in the South Caucasus: a reality check Alexandra Dienes, Marylia Hushcha, Sabrina Kaschowitz and France, joined the European Peace Facility and started negotiations on nuclear energy with the United States. At the same time, it remains a member of the Russia-led Eurasian Economic Union and is heavily dependent on Russia in terms of trade, infrastructure, energy and security despite the recent attempts by the Armenian government to distance itself from Russia. Georgia’s West-oriented foreign policy has been called into question by the ruling Georgian Dream party, despite a clearly pro-Western public opinion. While Georgian Dream has claimed to be committed to Georgia’s European integration(promising the population EU membership by 2030), the newly adopted laws on»transparency of foreign influence« and»LGBT propaganda«, coupled with aggressive anti-Western rhetoric, suggest that the ruling party’s priority lies with power preservation. Its interest in EU integration seems secondary and strongly oriented towards the national conservative model of so-called»sovereign states«, as Hungary’s Viktor Orbán would have it. Further tensions in relations with the EU can be expected after Georgian Dream’s contested victory in the October 2024 parliamentary elections, followed by mass protests and Georgia Dream’s most recent decision to suspend the EU accession process. Role of the OSCE While our recommendations and analysis focus primarily on options for the EU, we believe that some of them may also be relevant for the OSCE. The OSCE has been impeded in its ability to fulfil its core mandate with regard to the conflicts in the South Caucasus because of the general political blockade in the organisation since Russia invaded Ukraine. In addition to a diplomatic standoff between Russia and states condemning the invasion of Ukraine, the role of the OSCE in the Armenia-Azerbaijan conflict diminished after Azerbaijan called for the dissolution of the Minsk Group, a diplomatic format established in the 1990s to resolve the Nagorno-Karabakh conflict. Since 2022, clashing positions between Armenia and Azerbaijan have been instrumental in blocking the OSCE budget. This, subject to a consensus decision, was last agreed on in 2021; since then, the organisation has been running with limited funds and relies increasingly on voluntary »extra-budgetary« contributions from participating states. The OSCE was not often mentioned in the interviews, signifying its low salience. Some interlocutors even viewed it as obsolete because of the political blockade. The OSCE no longer has traditional field operations on the ground(the mis sion to Georgia had to close at the end of 2008) and indeed it has been marginalised in the Armenia-Azerbaijan conflict. Nevertheless, it continues to make an important contribution to improving other dimensions of security in the South Caucasus, particularly with regard to connectivity and climate security. It could do even more with more political will on the part of participating states. In the context of Georgia and its breakaway territories, the OSCE remains an important facilitator on the ground and at the political level, including with Moscow. For example, the OSCE, jointly with the European Union Mission in Georgia(EUMM), co-facilitates the Incident Prevention and Response Mechanism(IPRM) in Ergneti, dealing with the South Ossetian situation. A similar format with Abkhazia, overseen by the UN, is stalled. The OSCE can also implement dialogue projects and supports initiatives on the ground to assist conflict-affected communities. Within the frame work of the Ergneti IPRM, OSCE experience has in particular informed technical talks related to the»second basket of security«(in the realms of the economy and the environment). For example, most recently, it has implemented water security projects for communities living close to the administrative boundary line with South Ossetia and has helped to improve irrigation water sharing for people on both sides of the line. 4

Options for EU engagement in the South Caucasus: a reality check Alexandra Dienes, Marylia Hushcha, Sabrina Kaschowitz Reality check In its engagement with the South Caucasus, the EU should keep in mind certain basic principles, while also being aware of some fundamental realities on the ground that shape the geopolitics of the region. 1. Security comes first Security has traditionally been a central concern for the countries in the region, but with Russia’s invasion of Ukraine and another war in the form of the recent Armenia–Azerbaijan conflict, this concern has become even more prominent. The EU’s inability to give security guarantees to the countries of the region is a major limiting factor in its presence there. This means that these countries will inevitably seek additional military allies, even if they develop close security cooperation with the EU. 2. Black-and-white thinking does not work The EU needs to avoid»black and white« thinking about the countries of the South Caucasus as either pro- or anti-Russian. For example, pro-Western policies should not be treated as automatically anti-Russian. By the same token, cooperation with Russia is not necessarily directed against the West. This division is not a helpful approach in a region that is close to and intertwined with Russia. The EU should recognise that having Russia as a neighbour requires space for balancing and at the same time limits the room for manoeuvre. Being much smaller and weaker than Russia, no South Caucasus country wants to get embroiled in a conflict with it. The Importance of economic ties also plays a role: Armenia and Georgia cannot afford to decouple from Russia, let alone to impose sanctions on it; oil-rich Azerbaijan does not have a similar degree of dependence but prefers not to alienate Russia. High Representative Borell’s remarks at the recent presentation of the Enlargement Report, suggesting that EU candidate countries need to choose between the EU and Russia, imposed an unfair choice on them. The»Russia versus the West« perspective may not only create tensions where there should not be any, but it might also force the three countries into a geopolitical competition in which they will probably lose more than the EU. It also oversimplifies the complexities of existing conflicts. For instance, in the case of Abkhazia, a Georgian breakaway republic occupied by Russian troops, the Abkhaz-Georgian component of the conflict should not be underestimated. 3. The EU is one actor among many The South Caucasus is a region fraught with geopolitical rivalries and a zero-sum approach on the part of some actors. The EU should be prepared that its actions in this region may be perceived by Turkey, Russia or Iran as competition. These countries view the EU as an extra-regional player that should be kept out. Turkey’s presence in the South Caucasus has deep historical roots, as the region was once part of the Ottoman Empire. Armenia’s historic grievance visà-vis Turkey based on its failure to recognise the genocide of Armenians in 1915, a‘one nation, two states’ sentiment in Turkey–Azerbaijan relations, as well as a rich bilateral agenda with Georgia(ranging from joint energy projects to Turkey’s support for Georgia’s NATO membership bid) all affect Turkey’s position in the South Caucasus. Turkey views the region as a link to Central Asian Turkic-speaking countries and potentially a bridge to or even a part of the broader Turkic world, especially when it comes to Azerbaijan. Ankara’s policy in the South Caucasus with regard to other big powers, most notably Russia, has been one of balancing without antagonising. Turkey has been less enthusiastic about the EU’s involvement in the region. Unlike in previous decades, Ankara has not engaged the EU in its regional diplomatic initiatives. For example, in late 2020 it suggested reviving the»3+3« regional dialogue format, which includes the three South Caucasus countries along with Iran, Russia and Turkey. Notably, Turkey included neither the EU nor the United States in this format, in contrast with 1999 and 2008 when it first tried to establish it(known back then as the Caucasus Stability Pact). Iran has traditionally had the closest relations with Armenia in the Caucasus and opposed Turkish and Azerbaijani influence in the region. Thus, Tehran vehemently opposes the implementation of the socalled Zangezur Corridor(see box p. 10) viewing it as an expansion of Turkish influence and a barrier to Iranian-Armenian trade. Iran has been uneasy about 5

Options for EU engagement in the South Caucasus: a reality check Alexandra Dienes, Marylia Hushcha, Sabrina Kaschowitz Armenia’s recent outreach to the West, warning it about the dangers of the»involvement of outsiders« in regional affairs when Yerevan announced enhanced security cooperation with the EU and the United States. Iran’s relations with Azerbaijan have hit many potholes, such as their opposing views on Israel and Turkey, coupled with fears in Tehran about secessionism in its north-western provinces, which are populated predominantly by ethnic Azerbaijanis. However, the Western sanctions against Russia brought new opportunities for cooperation on infrastructure between these two countries. The transportation route from Russia via Azerbaijan and Iran into the Indian Ocean – the so-called North– South Corridor – has gained in importance as an alternative trade route connecting these countries among themselves and to Asia. 4. The EU has limitations and strengths It is always better to focus on tangible, realistic policy goals instead of devising a grand strategy. There is only so much the EU can do to contribute to stability and prosperity in the South Caucasus, and it is good to be aware of the limitations in order to have realistic expectations of the results and focus on something that can actually be achieved. Limitations obviously abound. One problem is the incoherence of EU foreign policy decision-making, as already mentioned. In this context, the very prospect of EU enlargement in the region remains distant and vague. Another is the amount of resources the EU can dedicate to a particular region(be it finan cial aid, investment or volumes of trade). Even the existing instruments, such as approximation tools and the Deep and Comprehensive Free Trade Agreements(DCFTA,) have had moderate results. Moreover, the conditionality of EU accession can do only so much, as demonstrated by the EU’s decision to halt Georgia’s accession process. But there are also important strengths to capitalise on. The EU is a major economic actor in the region. Its economic power and technical-regulatory know-how can tangibly improve regional cooperation, boost trade, improve management of water resources and safeguard the environment in the broader region. The EU can also expand its economic engagement by making targeted investments in the South Caucasus that would help to diversify its economies. Through technical cooperation the EU can help upgrade standards and thus improve the quality of local produce, thereby making it more competitive on EU markets. Moreover, the EU would help itself and the South Caucasus countries if it invested in critical infrastructure that would otherwise be owned or operated by China or Turkey. This may also help to safeguard labour rights and environmental standards along the way. The fact that the EU enjoys considerable soft power is also an advantage: its engagement is generally viewed positively by populations and governments in the South Caucasus. 5. Regime type is less important than state policies The EU should beware of falling into a democracy versus autocracy trap, another black and white division that is not conducive to effective engagement in the South Caucasus. None of the three countries is a consolidated democracy, not least because societal conditions, such as the presence of a strong middle class, still differ from those in most EU countries. One of them is a mature autocracy. This is why the consolidation of or fight for democracy remains a domestic issue, to be tackled by the societies themselves. Regardless of that, the EU should not refrain from calling out undemocratic practices and human rights violations, as well as from helping to strengthen democracy(or prevent illiberal backsliding) whenever it sees an opportunity to do so. In doing so, it should invest in democratic institutions rather than in individual leaders. The EU should not refrain from cooperating with the countries in areas of mutual interest, regardless of the regime type. Such an approach would inevitably mean that the EU’s engagement in the South Caucasus – at least in some contexts – would become more transactional than normative. The extent to which a normative approach is applied will be defined more by the willingness of local decision-mak ers to conduct reforms and align with EU norms. After all, the reality is that liberal democracy has never been the only model of governance, and it is up to the countries themselves to choose whether to strive for it or not. In this sense, the EU should be more humble(and realistic) about what it has to offer and what it can actually achieve. Whether the level of ambition declared by partner countries corresponds to actual state policies should be the benchmark for deciding on the type of EU engagement(normative or transactional). If incumbents show a willingness to pursue democratic 6

Options for EU engagement in the South Caucasus: a reality check Alexandra Dienes, Marylia Hushcha, Sabrina Kaschowitz reforms, as is currently the case in Armenia, the EU will have stronger leverage to promote its normative agenda. If governments turn to the illiberal playbook, as we currently see in Georgia, the EU can communicate that further progress on EU integration can be achieved only if such policies change. If, as in Azerbaijan, there is an appetite only for transactional cooperation, for instance on energy matters, Brussels can engage with Baku on this, while also advocating for the release of the jailed activists and journalists. More often than not, quiet diplomacy on human rights violations – especially in contexts in which the EU has little leverage – can be more helpful than public statements of criticism. Georgia At a crossroads Since the early 1990s Georgia’s foreign policy has been oriented towards the West(with the stated goals of EU and NATO membership). As a result of Russia’s invasion of Ukraine, at the end of 2023 Georgia managed to secure the status of EU candidate country despite lagging behind on reforms. Controversial laws adopted shortly afterwards that put pressure on civil society organisations and limit LGBT rights drew protesting crowds onto the streets of Tbilisi. Protesters perceive the laws as pro-Russian and generally view their country as standing at a fateful crossroads between Russia and the West. The EU was unable to ignore Georgia’s gradual democratic backsliding under Georgian Dream (since 2012) and put the accession process on ice. Georgia’s drift away from EU norms is in stark contrast with citizens’ near universal wish to join the EU and poses a major dilemma for the EU. The victory of Georgian Dream once again in the October 2024 parliamentary elections amidst allegations of fraud and manipulation indicates a challenging path for future EU–Georgia relations. Georgia’s relationship with Russia has been difficult and largely adversarial, especially after the short war in 2008. Two Georgian provinces, Abkhazia and South Ossetia, are still occupied by Russian forces. Overwhelming majorities perceive Russia as a security threat. Fears of renewed Russian aggression or of being dragged into the Russia–Ukraine war are widespread and helped the ruling party to secure re-election in October 2024. But economic ties have also been important, especially as the lion’s share of Georgia’s crucial export commodities – wine and mineral water – go to Russia, while much of its wheat imports come from Russia. An understanding of this complex situation is reflected in public opinion: when asked which side Georgia should align with, Russia or the West, majorities resort to a third option, namely balanced relations with Russia and the West. In contrast to its Western allies, Georgia chose not to implement sanctions against Russia and, judging by the skyrocketing trade turnover, is profiting from the current situation and maybe even helping Russia to evade sanctions. Georgia is deepening relations with China, concluding a free trade agreement and awarding large infrastructure tenders, including a deep sea port and multiple highways, to Chinese bidders. The hope is that China’s stake in protecting these large investments might serve as an indirect security guarantee for Georgia. Georgian society is largely poor, with unemployment high, especially among young people, and many people leaving the country for want of a better future. A better standard of living is therefore the primary reason for wishing to join the EU, followed by security from Russia and access to EU funding. Value-based reasons ranked lower, such as democratic governance, the rule of law or freedom of expression. Economic hardship was exacerbated by a price hike in the wake of Russia’s invasion of Ukraine and the subsequent inflow of Russians fleeing the draft. Conservative views, traditional values and reverence for the Georgian Orthodox Church are deeply rooted, especially in rural areas, which partly explains the significant support for the national-conservative Georgian Dream. However, the party clearly lost the vote in large cities, including the capital, Tbilisi, suggesting a split in society. 7

Options for EU engagement in the South Caucasus: a reality check Alexandra Dienes, Marylia Hushcha, Sabrina Kaschowitz Armenia About to turn a page? The loss of Nagorno-Karabakh in 2023 marks a profound turning point for Armenia. For the previous three decades during which Armenia exercised control over the territory, it had been a defining factor in its foreign policy and a centrepiece of national identity. The loss of Nagorno-Karabakh, coupled with Azerbaijan’s occupation of parts of Armenian territory, have exposed deep security vulnerabilities, in particular Armenia’s dependence on Russia, which has not provided the hoped-for support. In response, Armenia is cautiously trying to diversify its partnerships, particularly with Western states. However, Armenia’s distancing from Russia has so far been largely symbolic in order to avoid provoking Moscow. Russia retains considerable influence over Armenia’s economy, military, energy and transport sectors. Armenia’s withdrawal under Russian pressure from the negotiation of an EU Association Agreement in 2013 is a cautionary reminder, and the signing of the Comprehensive and Enhanced Partnership Agreement(CEPA) with the EU in 2017 was deliberately low-key to avoid being seen as pro- or anti-Russian. Public opinion also seems to support a balanced approach, with a slight preference for EU alignment, which is seen as a source of security and stability, the most pressing societal concern at the moment. Factors such as human rights, democracy, visa liberalisation and economic incentives are less important as motivators for EU alignment. The EU supports the government’s attempts at rapprochement, hosting Nikol Pashinyan at the highest political level and pledging fi nancial assistance to Armenia. At the same time, it has turned a blind eye to persistent undemocratic practices, such as police violence, under Pashinyan’s administration. A potential EU candidacy, although a very distant prospect, would require Armenia to withdraw from the Russia-led Eurasian Economic Union, an economically risky move that would be likely to face strong opposition from Russia. For Armenian society, Azerbaijan and Turkey remain the main security threats, alongside growing frustration with Russia. There are concerns that Azerbaijan, emboldened by its recent gains, could attempt to seize more territory. Armenia feels threatened by regional pan-Turkic ambitions, particularly triggered by references to Armenia as»Western Azerbaijan« in public discourse in Azerbaijan. Seeking to counter these fears while reducing Russian influence, Armenia has strengthened ties with France, secured arms deals with France and India, and shown an interest in normalising relations with Turkey. This shift has been marked by Pashinyan’s efforts to downplay Armenia’s historical emphasis on the genocide issue, a stance that has drawn criticism, both at home and from the diaspora. The majority of Armenians are against opening the border with Turkey. The ruling party remains unpopular. It is also blamed for the war and the loss of Nagorno-Karabakh, although no viable opposition candidate is currently challenging Pashinyan. Protests led by Archbishop Galstyan in mid-2024, triggered by the government’s decision to cede border areas to Azerbaijan, initially attracted large crowds but gradually faded. The Armenian leadership is continuing bilateral talks with Azerbaijan following an August agreement on border demarcation regulations. Despite security concerns, the desire for peace seems to be growing. There appears to be a realisation that Nagorno-Karabakh might be lost indefinitely and that it is time to turn the page. However, peace with Azerbaijan is seen by the majority of Armenians as unattainable in the short term. Azerbaijan’s demands, such as constitutional amendments to remove references to reunification with Nagorno-Karabakh, are strong ly resisted by Armenians, who also largely reject any concessions to Azerbaijan. 8

Options for EU engagement in the South Caucasus: a reality check Alexandra Dienes, Marylia Hushcha, Sabrina Kaschowitz Azerbaijan Atop a white horse Azerbaijan enjoys a favourable geopolitical environment created by its military achievements in the war with Armenia, the ongoing Russia-West conflict, and the changing strategic realignment in the region. Having won the Second Karabakh War in 2020, Baku has changed the three-decade long status quo in the conflict with Armenia over Nagorno-Karabakh. Russia’s invasion of Ukraine in 2022 and the Kremlin’s and the West’s preoccupation with this conflict led Baku to believe that it could achieve its maximalist aims in Karabakh without any diplomatic negotiations. It thus occupied parts of Armenia’s internationally recognised territory in September 2022 and a year later, it took over the entirety of Karabakh by force, causing a mass exodus of the local Armenian population. This takeover made it possible for Baku to eliminate third-party facilitation(carried out by the EU, the US, and Russia), oust the Russian peacekeepers stationed in Karabakh, and switch to a bilateral format of peace talks with Armenia. Azerbaijan’s victory could not have happened without the unequivocal support of Turkey. Ankara has been Baku’s staunchest ally. The close relationship between these Turkic nations is epitomised by the slogan»one nation, two states«. Turkey, a member of NATO, has been instrumental in revamping Azerbaijan’s military. It supported Baku in the war and has refused to normalise relations with Yerevan until it signs a peace treaty with Azerbaijan. Furthermore, Russia’s and the EU’s interest in Azerbaijan have increased. Russia uses Azerbaijan for the transit and export of its gas and other goods, while the EU has increased its purchases of Azerbaijani gas to make up for supplies from Russia. Overall, Azerbaijan’s wealth from the export of hydrocarbon resources has ensured the country’s economic self-suffi ciency and underpins the ruling elite’s strong hold on power. Azerbaijan’s oil and gas sector contribute up to half of the country’s GDP and make up over 90% of its exports. The favourable geopolitical position is well understood in Baku. Therefore, in terms of the peace process with Armenia, there is no desire to make any concessions or be generous towards Yerevan. Azerbaijan’s insistence that Armenia’s constitution be amended can also be explained from this perspective: it is not a real fear of Armenian revisionism that drives Azerbaijan’s demand, but rather the fact that it has no need to make things easier for Yerevan. President Ilham Aliyev, in power since 2003, enjoys considerable domestic legitimacy due to the victory in the Second Karabakh War, although it is difficult to verify this widespread belief given the lack of independent sociological polling in Azerbaijan. The victory, however, poses uneasy questions about reframing Azerbaijan’s national identity, which for the past 30 years has been based on a sense of victimhood and the desire to restore»justice« by taking back its internationally recognised territories. Aliyev’s belligerent rhetoric towards Armenia might be partially explained by a lack of new narratives or a positive agenda that could substitute the issue of the return of Karabakh. The space for public participation – traditionally limited in authoritarian Azerbaijan – has not been liberalised as a result of the military victory, despite the expectations of civil society leaders. Indeed, the opposite seems to be the case: the state has been targeting human rights and peace activists and independent journalists, detaining them on far-fetched charges, all prior to the COP29 international climate summit hosted in Baku. 9

Options for EU engagement in the South Caucasus: a reality check Alexandra Dienes, Marylia Hushcha, Sabrina Kaschowitz Areas for EU engagement The South Caucasus is best characterised as a crossroads between Asia, the Middle East and Europe. A multitude of very diverse actors have their own ambitions and interests, and a long history of relations with the three countries of the South Caucasus. These, in turn, have sought to keep their foreign policy options open. The EU should not view other regional actors in terms of a zero sum game and should avoid trying to compete with them. Instead, it should try to engage with an open mind and promote regional cooperation. This would help to make the countries of the South Caucasus more prosperous, more resilient and better connected and contribute to internal stability. It is therefore in the EU’s interest to invest in efforts to promote such cooperation. The bedrock of regional cooperation is peace and the resolution of long-standing disputes, such as the decades-old conflict between Armenia and Azerbai jan. According to our interviews, at no time have the two countries been closer to signing a peace agreement than they are today. A peace agreement is an insufficient but necessary precondition to improve relations between the two countries. It could also lead to a normalisation of relations and opening of the border between Armenia and Turkey, which has been closed since the First Karabakh War in the 1990s. Beyond conflict resolution, the areas that emerged out of our research as most suitable for fostering regional cooperation are economic connectivity and environmental cooperation. Conflict resolution Armenia and Azerbaijan The EU has lost its role as facilitator in the Armenia-Azerbaijan peace process. There are two main reasons for this. First, because of Azerbaijan’s takeover of the entirety of Nagorno-Karabakh in September 2023 and the mass exodus of more than 100,000 ethnic Armenians from this territory, Azer baijan has resolved its problem of territorial integrity. It therefore has no need of international participation in the ongoing peace process. Secondly, France’s sales of weapons to Armenia since October 2023 have undermined the EU’s reputation as a neutral broker in Azerbaijan’s eyes. Thus, the EU, along with Russia, has lost its capacity to facilitate the process. Only the United States is currently conducting some shuttle diplomacy between the two capitals. However, unlike Russia, whose return to the peace process is unwanted by either Armenia or Azerbaijan, the EU’s neutral engagement would be welcomed by both sides. The difficulty for the EU lies in finding pathways for action that would be perceived as neutral by both sides to the conflict, as they have tended to view any bilateral support for one side as a loss to themselves. The second difficulty for the EU lies in the nature of its own political process: it has been unable to act with one voice and its individual Member States’ policies have created different perceptions. Thus, France is perceived as pro-Armenian, while Hungary is seen as pro-Azerbaijani. Germany and the Scandinavian countries are seen as neutral. Zangezur Corridor A transportation route commonly referred to as the»Zangezur Corridor«, if implemented, would connect Azerbaijan proper with its exclave Nakhichevan and Turkey via the southern Armenian province of Syunik. The establishment of the route is part of the trilateral ceasefire agreement concluded between Armenia and Azerbaijan with Russian mediation on 9 November 2020, which ended the 44-day Second Karabakh War. Since then, Azerbaijan has insisted on the implementation of the Zangezur Corridor and its extraterritorial status, which would be under the control of Russian security forces. Baku made the establishment of the route a precondition for progress in peace treaty negotiations with Armenia. In August 2024 it was announced that this issue had been taken off the peace process agenda and its resolution postponed for the foreseeable future. The establishment of the route is strongly opposed by Iran. 10

Options for EU engagement in the South Caucasus: a reality check Alexandra Dienes, Marylia Hushcha, Sabrina Kaschowitz The fact that Azerbaijan removed its precondition regarding the Zangezur corridor from the peace treaty process on 7 August 2024, while not taking it off the negotiating table completely, signifies that if any agreement is signed between Armenia and Azerbaijan in the near future, it will most likely not change the reality on the ground. The unresolved issues will remain. Thus, Armenia and Azerbaijan are still quite far from the positive peace required for a normalisation of relations, opening of borders, trade and contacts between societies.»Separation« (something like a»cold peace«) seems to be a more realistic scenario, with a limited normalisation perhaps the best option. How the EU could engage With this goal in mind, the EU should continue to engage with the two sides at all levels, even if deprived of the capacity of official facilitator. This could include looking for win-win projects. Economic cooperation is increasingly perceived in this way, supporting Track 2 expert dialogues, continuing to advocate for the EU Monitoring mission on Azerbaijan’s side of the border with Armenia and continue work on the Armenian side in a spirit of impartiality. The EU should continue to support de-mining efforts in Karabakh, provide support to the displaced Karabakh Armenians, and help to preserve Armenian historical and cultural sights in Karabakh. Another avenue for engagement could be to establish an EU advisory mission to reform Armenia’s State Border Service. Armenia’s borders with Turkey and Iran have been managed by Russian border guards since the dissolution of the Soviet Union, and Yerevan only recently declared its desire to take over this role. This means that its border service needs to be built up almost from scratch. In light of the recently launched dialogue with Brussels on visa liberalisation, the EU would be a suitable partner to assist Armenia in this endeavour. The EU should also work with Turkey whenever possible to try to persuade Azerbaijan to moderate its excessive demands towards Armenia. While 90% of the text of the peace treaty is said to be ready, more than anything else, Azerbaijan’s desire to be tough on Armenia prevents its conclusion. Georgia and Abkhazia and South Ossetia With regard to Georgia’s breakaway territories Abkhazia and South Ossetia, the EU brokered a ceasefire in the Russia-Georgia war in 2008 and has been operating a monitoring mission(EUMM) at the line of separation between Georgia and South Ossetia and Abkhazia ever since. The EUMM has been crucial in keeping minor incidents from escalating into a bigger conflict, facilitating contacts between fam ilies separated by the war, and ensuring an international presence in the area. Furthermore, the EU, together with the UN and the OSCE, is a Co-chair of the Geneva International Discussions, the only format in which Georgia, Russia and the breakaway territories’ leaderships meet. The meetings have continued even after Russia’s invasion of Ukraine, making this platform even more valuable in times of scarce contacts between Russia and the West. The EU has supported contacts between civilians living on both sides of the separation line and the dialogue efforts between Tbilisi and Sukhumi, thereby contributing to stabilisation of the situation on the ground and maintaining contact between both sides of the conflict. How the EU could engage While the outcome of the October parliamentary elections in Georgia indicates a further drift from the EU, Brussels should nevertheless refrain from downgrading or closing the EUMM. Despite the frozen nature of the conflict, Russia’s role in it, and the unlikelihood that the breakaway territories will be reintegrated into Georgia any time soon – even if Georgian Dream’s leaders claim otherwise – the EU should be nuanced in its approach. It should be mindful not to reduce the conflict to a Russia-Geor gia problem but recognise that there is a strife between Tbilisi and Sukhumi as well and continue working with a vibrant Abkhaz civil society that, despite multiple constraints, continues to operate and even acts as a mediator between international organisations and donors and the de facto Abkhaz authorities. 11

Options for EU engagement in the South Caucasus: a reality check Alexandra Dienes, Marylia Hushcha, Sabrina Kaschowitz Regional cooperation Regional cooperation between the three South Caucasus states is generally rather limited, especially due to the conflict between Armenia and Azerbaijan. Indeed, the countries of the South Caucasus were not keen on regional cooperation even when they were all part of the Soviet Union. This continued after independence. Nevertheless, it is high time that the three states changed this approach, as in some areas – such as economic connectivity and especially environmental protection – joining forces is the best way to move forward. Middle Corridor The Middle Corridor is a trade route connecting China to Europe that passes through Kazakhstan, crosses to Azerbaijan over the Caspian Sea, and continues to Georgia and Turkey(see map). So far it has excluded Armenia because of regional rivalries and closed borders. The Corridor has been operational since 2017. Cargo volumes are still relatively low but they tripled once Russia invaded Ukraine. Demand further increased with the Houthi attacks on the sea route from the end of 2023. Hence, the Middle Corridor has attracted a new level of interest from major companies and countries that wasn’t present before. Lately, cargo volumes have decreased because of the multiple limitations and bottlenecks along the corridor, but trade is projected to rise once those problems are addressed. Actors in the region have a stake in enhancing connectivity and expanding the Middle Corridor. Interest is particularly strong in Azerbaijan and Georgia. However, there is a concern in Georgia that transit through the country might become less attractive if Armenia and Turkey normalised relations and opened transport links. Countries along the Corridor are already intensifying cooperation. Azerbaijan, Georgia and Turkey recently modernised the Baku-Tbilisi-Kars railway, operational since 2017. Azerbaijan signed a five-year roadmap for the Middle Corridor in 2022 together with Kazakhstan and Turkey. China obviously has a major stake in the Middle Corridor which it views as part of its Belt and Road Initiative(BRI). Beijing has already made impressive investments in China-Kazakhstan rail infrastructure, including the Khorgos dry port, its biggest BRI investment in Central Asia. Chinese companies are also investing in highways in Georgia and recently won the controversial bid for the Anaklia deep sea port on the shore of the Black Sea(which was strongly opposed by the United States). A comprehensive analysis by the World Bank shows that the Middle Corridor is economically most attractive to the countries that lie on the route. The reason is that the bulk of the trade that it generates is intra-regional, and only about one third is transit from China to the EU. Overall, even when at full capacity, the Middle Corridor can handle only a fraction of EU-China trade. North Sea RUSSIA POLAND Lodz GERMANY Slavkuv Izov Duisburg UKRAINE Napoli Salerno ROMANIA Constanta Istanbul Chornomorsk Aktau Black Anaklia Sea GEO Tbilisi TUR. Batumi ARM AZ Quryq Ankara Mersin Baku ALGERIA Mediterranean Sea LIBYA EGYPT IRAQ IRAN SAUDI ARABIA KAZAKHSTAN UZBEKISTAN AFGHANISTAN PAKISTAN Dostyk MONGOLIA Urumqi Khorgos CHINA Yinchuan Lanzhou Xian Liyanguang Port Chengdu Zhengzhou Chongqing INDIA Figure 1: Map of the Middle Corridor 12

Options for EU engagement in the South Caucasus: a reality check Alexandra Dienes, Marylia Hushcha, Sabrina Kaschowitz Role of the Middle Corridor in EU-China trade The bulk of EU-China trade is seaborne(85%), with only 5% delivered by air and some 10% by land, largely via railway through Russia(86% prior to the war). This distribution is not surprising given that a large modern container ship can carry the same amount of cargo as the monthly volume of freight transiting Russia. Even though transit through Russia decreased by some 30% after Russia invaded Ukraine, it has been rising again, especially since the Houthi began their attacks on ships passing the Horn of Africa in December 2023. Insecurity of passage via the Red Sea made container operators choose a lengthy alternative route around the African continent, incurring delays and tripling the costs, not to mention CO2 emissions. Even if bottlenecks and inefficiencies along the Middle Corridor are addressed and it gets to full capacity, only a modest share of EU-China land trade will go through it. Nonetheless, the EU seems to be interested in Eurasian connectivity, seeking alternative transport routes that bypass Russia. Together with Central Asian partners, the EU announced a Trans-Caspian Transport Corridor linking Europe and Central Asia. It also pledged€10 billion in support and investments towards sustainable transport connectivity in Central Asia at the Global Gateway Investors Forum in January 2024. The money is coming in the form of loans by international financial institutions with a guarantee from the European Commission. Challenges of the Middle Corridor Despite the positive momentum, the Middle Corridor is still struggling with inefficiencies that keep costs high, trade unpredictable and thus overall freight volumes low. Among the biggest problems are inadequate»hard« infrastructure components, such as capacity limitation of rail or road connections, inadequate border crossing facilities or limited port capacity in Baku, a chokepoint of the entire corridor. The Romanian port of Constanta, one potential entry point for goods to Europe on the Black Sea, has been operating at its limits ever since it began handling Ukrainian grain. The fact that containers need to be lifted from railways(with different gauges) to ships multiple times along the way does not allow for seamless transit. Challenges posed by nature need to be considered, too: strong winds make sailing across the Caspian Sea risky and unpredictable. To make things worse, there is the long-term problem of the falling sea level in the Caspian Sea. »Soft« infrastructural problems along the Middle Corridor loom large. Among them are cumbersome non-harmonised customs procedures, inadequate cooperation between the authorities of the countries involved, backlogs and queues at the borders and thus high logistics costs due to delays and uncertainty. A disadvantage of particular concern to the EU is that the Middle Corridor may help Russia evade sanctions by creating additional trade opportunities via Georgia or Kazakhstan. Why the EU should invest in the Middle Corridor However, there are considerable advantages in EU investment in the Middle Corridor. Wherever possible, the EU should do so in cooperation rather than in competition with China because it is likely to retain a stake in the region. First, the Middle Corridor presents an alternative route for EU-China land trade. Transit through the Middle Corridor will not replace the route via Russia capacity-wise, but it is the most viable option for diversifying trade routes and strengthening the EU’s economic resilience. Second, the Middle Corridor is projected to enhance regional trade in the South Caucasus(along with Central Asia) and can clearly benefit regional co operation. The effective development of the Middle Corridor will require cooperation and harmonisation among its countries. The EU as an economic block and a regulatory superpower is best positioned to assist this process and help promote regional cooperation along the way. It has a genuine interest 13

Options for EU engagement in the South Caucasus: a reality check Alexandra Dienes, Marylia Hushcha, Sabrina Kaschowitz and expertise in lowering trade barriers between countries and promoting trade liberalisation. Hence it can help address the»soft« infrastructure constraints that the Middle Corridor is facing. For example, it can help to harmonise practices to lower transaction costs for shippers and give them a more seamless transportation system. It can also support the introduction of unified tariffs, as well as a single payment platform along the corridor. The EU can further facilitate the provision of regional traffic information and smooth border-crossing pro cedures. Increased regional cooperation is projected to enhance economic activity, create opportunities for local businesses along the corridor and create jobs. If the EU and European companies use the opportunity to invest in infrastructure and harmonisation of trade procedures, it can be a vehicle of economic development and thus more prosperity and stability. The EU should be mindful of the opportunity to set European standards(with their strong labour and environmental protection), because if it does not invest, Chinese companies, which lack such standards, will. Third, investment in the Middle Corridor will help to deepen ties with the countries along the route. Their strategic position between Europe and China, coupled with a vast array of resources and energy potential(including renewables), make the investment attractive to the EU. Meanwhile, all three South Caucasus countries(along with Central Asian states) are keen on diversifying their economies and reaching out to new trade partners. The Middle Corridor may be also a way for the EU to deepen ties with Turkey by ensuring that it continues to play a crucial role in Europe’s external connectivity. Environmental cooperation The South Caucasus is confronted with a multitude of environmental challenges, including those pertaining to energy, mining, transport, urbanisation, biodiversity and transboundary natural disaster response. However, a significant proportion of these challenges can be attributed to declining water security, either directly or indirectly. Indeed, water stress represents one of the most pressing challenges in the Caucasus region. This is why this paper will focus on water issues and highlight the need for regional water cooperation. The Kura-Araks Basin The Kura-Araks Basin, the primary water source in the South Caucasus, encompasses Armenia, Azerbaijan, Georgia, Iran and Turkey. The Kura River runs 1,515 kilometres through Georgia and Azerbaijan before flowing into the Caspian Sea. Its tributar ies from the Greater Caucasus Mountains are fed by continuous and seasonal snowmelt. The Araks River, 1,072 kilometres long, forms part of the bor der between Turkey and Iran to the south, and Armenia and Azerbaijan to the north, and merges with the Kura River shortly before reaching the Caspian Sea. The Kura and Araks rivers serve as the primary water sources for agriculture, energy, domestic Black Sea Batumi GEORGIA Kura Gori T'bilisi Rustavi RUSSIA Erzurum Kars Aras TURKEY Van Aras ARMENIA Yerevan Ganja Ku Ta r t a r ra AZERBAIJAN Aras Nakhchivan Tabriz IR AN Ardabil Figure 2: Map of the Kura-Araks Basin Caspian Sea Baku Shirvan Lankaran 100 km 14

Options for EU engagement in the South Caucasus: a reality check Alexandra Dienes, Marylia Hushcha, Sabrina Kaschowitz and industrial use in these countries. However, climate change and increasing water stress, coupled with inefficient infrastructure, inefficient agricultural and industrial water use, pollution from upstream mining, and competing demands, have created an urgent need for water diplomacy and regional cooperation. Water cooperation in the Basin There is some bilateral water cooperation in the Kura-Araks Basin, including bilateral agreements between Azerbaijan and Georgia, Azerbaijan and Iran, Armenia and Turkey, and Armenia and Iran, as well as Armenia and Georgia. The long-standing agreement between Armenia and Turkey concerning the Akhuryan/Arpachay and Araks/Aras rivers stands out for its effective monitoring of water quantities despite the absence of diplomatic ties between the two countries. Engineers from both countries convene regularly to quantify and equitably apportion water resources. However, this agreement is limited in scope, focusing exclusively on water quantity with no provisions for water quality assessments or restrictions on upstream dam or reservoir construction. Also, Turkey is excessively building dams, thereby limiting the amount of water available for the South Caucasus. Water is also becoming an important issue in bilateral relations between Iran and Azerbaijan, with the joint construction of two major dams, the Khoda Afarin Dam and the Giz Galasi Dam, completed in 2024, following a 2016 agreement on cooperation in the construction, operation and use of energy and water in these two reservoirs. Turkey’s role Turkey plays a key role in the hydro-politics of the Kura-Araks Basin as the riparian country with first access to the basin’s waters before they flow down stream to the South Caucasus. This position gives Turkey a significant advantage in securing its water and energy needs, which it actively seeks to exploit. The country claims full sovereignty over its rivers and opposes the internationalisation of river management issues, for example through international agreements that could force it to share control over water quality and quantity. Turkey’s unilateral plans to build several dams on the Aras River will affect the downstream users of the river, Armenia, Azerbaijan and Iran. There are large-scale water transfer initiatives, such as the Kura-Çoruh project, which aims to divert up to 60% of the Kura River waters for hydropower generation away from its original course into Georgia and then Azerbaijan towards the Black Sea. These projects risk reducing water availability and destabilising downstream countries, but Georgia and Azerbaijan have largely refrained from addressing these issues, even in the context of academic cooperation, prioritising their strong political and economic ties with Turkey. Challenges to comprehensive water cooperation The existing bilateral agreements in the basin are inadequate to address the region’s challenges, including climate change, water overuse and pollution. In the absence of comprehensive institutional frameworks for joint water management at the river basin level, transboundary water issues could become a source of further instability in the region. Joint action involving all five riparian states could serve to build confidence between Armenia and Azerbaijan, as well as in the normalisation of relations between Armenia and Turkey. However, geopolitical competition, the lack of diplomatic relations and the absence of a unified ap proach to environmental and climate challenges hinder the establishment of effective cooperation. Also, any joint water management framework would require strong leadership from a country with functional relations with all riparian states, such as Georgia. However, Georgia currently shows little interest in assuming such a role. In addition, environmental issues are no longer a neutral area for cooperation, but have increasingly become a geopolitical minefield. There is an emerg ing tendency for states to weaponise environmental diplomacy. Azerbaijan’s actions in the Lachin Corridor between December 2022 and September 2023 are just one example, as the country used environmental activism to justify its blockade of Nagorno-Karabakh before subsequently reclaiming the region militarily. While the negative environmental impact of Armenia’s activities in Nagorno-Karabakh is well documented, Azerbaijan has framed these concerns strategically, claiming that Armenia’s mining activities violate international environmental conventions by polluting shared waterways, such 15

Options for EU engagement in the South Caucasus: a reality check Alexandra Dienes, Marylia Hushcha, Sabrina Kaschowitz as the Voghji/Okchuchay River, and has initiated lawsuits accordingly. In this context of increasing geopoliticisation of environmental issues, cooperation efforts face growing challenges. What the European Union can do As an established environmental leader, the EU can support the riparian states of the Kura-Aras Basin in advancing effective water cooperation. Initiatives and support in this field are in the EU’s interest, as they offer an entry point for broader cooperation on regional issues, thereby fostering greater stability in its neighbourhood. FUNDING PROJECTS EU financial contributions can support the modern isation of existing water infrastructure, which is essential to reduce water losses of up to 30% in some areas. It can also help to establish climate-resilient infrastructure, water-efficient agricultural practices, ecosystem restoration and disaster preparedness projects. Such initiatives could start bilaterally and lay the groundwork for broader intra-regional cooperation. Investments in early warning systems and advanced monitoring infrastructure will enhance climate resilience, improving the basin’s ability to respond to floods, landslides and other hazards. However, a successful EU approach must avoid imposing externally defined priorities that create longterm dependencies and often result in standards that are merely cosmetic. Funding structures must be designed to leave room for local expertise and agency. LEGAL ADVISORY Establishing a shared regulatory framework, such as a river basin commission, is crucial for the coordinated and transboundary management of the Kura-Aras River Basin. This approach can enhance disaster risk reduction, climate resilience and sustainable resource sharing among all basin countries. If the EU wishes to promote effective regional cooperation, it could advocate for the establishment of such a common regulatory framework by offering expertise in institutional design and resource management. Such a framework must involve all relevant countries, including Turkey and Iran, to ensure that it addresses the region’s specific needs. So far, EU efforts have focused primarily on aligning Armenian and Georgian legislation with EU water management standards. This risks reinforcing imbalances and creating temporary non-inclusive solutions that lack trust and long-term legitimacy. A joint legal framework must be tailored to the unique characteristics of the Kura-Aras Basin and avoid replicating existing river basin commissions or overreliance on EU standards. CAPACITY-BUILDING AND TRAINING – BEYOND TECHNICAL ASPECTS Technical cooperation is essential. The EU can offer opportunities for local communities and government agencies to enhance the skills they need to manage water resources effectively. EU-coordinated knowledge exchange and technology transfer, especially in data analysis and monitoring, can improve decision-making and cross-border cooperation. Equally important is building trust and promoting public diplomacy through scientific, cultural and educational links between riparian states in conflict. The EU can contribute by facilitating dialogue, offering a platform for young professionals to enter the water sector, and bridging gaps in educational opportunities that integrate policy, climate change and diplomacy. There is a growing need in Armenia, Azerbaijan and Georgia for experts who can navigate the intersection of governance, international politics and environmental issues in coordinated transboundary approaches. By supporting cross-border networks among researchers and practitioners, the EU can help to forge links that address shared environmental challenges. PLATFORM FOR DATA EXCHANGE The exchange of qualitative and quantitative data between governments, the scientific community, NGOs and local communities within and between riparian states is essential to match technical expertise with local needs. Currently, the basin suffers from limited comprehensive geographical and hydrological data and communication gaps between the scientific and policymaking communities, not least due to a lack of interest and awareness at the highest political level in the countries concerned. This disconnect hinders the integration of scientific knowledge into policy and weakens crisis management efforts, such as flood risk reduction, which lack coordinated, systematic data-sharing prac16

Options for EU engagement in the South Caucasus: a reality check Alexandra Dienes, Marylia Hushcha, Sabrina Kaschowitz tices. The EU can provide a collaborative platform for this multi-stakeholder exchange to support evidence-based decision-making across sectors and borders. Conclusion The EU’s engagement in the South Caucasus has had its limitations because of a number of factors, ranging from fundamental shifts in the European security order to the EU’s own inability to speak with one voice. Not being a geopolitical actor, the EU has little influence on the policies of the countries in the South Caucasus and has been reacting to unfolding events rather than shaping its policy towards the region in a proactive way(let alone devising a strategy). Moreover, the countries of the South Caucasus are interested in diversifying their foreign partners and keeping their foreign policy options open. In this context, it is advisable that the EU focus on realistic, even if modest goals that bring tangible benefits to the region and align with EU interests. In doing so, the EU should avoid antagonisms or competition with other stakeholders in the region, such as Russia, Turkey, Iran or China. Our research identified three areas in which the EU has capacity to make a meaningful contribution: support for conflict resolution, promotion of eco nomic connectivity and advancement of regional cooperation on the environment and water management. The conclusion of a peace treaty between Armenia and Azerbaijan could become an additional guarantee of stability and security in the region. The EU can help to make this a reality. EU investment in hard and soft infrastructure along the Middle Corridor could enhance intra-regional trade, help safeguard labour rights and environmental standards, and in the long run help to raise living standards in the countries along the Corridor. With regard to environmental cooperation, the EU can use its institutional expertise to establish joint frameworks, strengthen capacities and facilitate the exchange of data and knowledge between the three countries at different levels, with a view to long-term cooperation on water security. Progress in these areas can make Caucasus countries more stable and resilient, better connected and less susceptible to external pressures. About the authors Alexandra Dienes is a Senior Researcher at the FES Regional Office for Cooperation and Peace in Europe, where she specialises on European security, focusing on foreign policy and political economy of Russia and the post-Soviet space. Marylia Hushcha is a Researcher and Project Manager at the International Institute for Peace, where she specializes in the South Caucasus and Eastern Europe, focusing on regional security dynamics and international relations. Sabrina Kaschowitz is a Senior Researcher at the FES Regional Office for Cooperation and Peace in Europe, where she specialises in foreign policy, climate security and environmental justice from a feminist and decolonial perspective. 17

FES ROCPE in Vienna Established in 2016, the FES Regional Office for Cooperation and Peace in Europe(FES ROCPE) addresses today’s profound challenges to European security. It also works closely with the OSCE on integrating young voices in European security debates and the interface between security and environment. Russia’s invasion of Ukraine on 24 February 2022 was a watershed moment for security in Europe and has rendered obsolete previous visions of European order. A new Cold War or even more unstable relations between Russia and the West are the probable outcome of this war, creating an environment of confrontation and containment in Europe. At the same time, planetary challenges such as climate change or pandemics continue to threaten peace and security and require cooperative approaches. In these uncertain times, FES ROCPE continues to develop new ideas under the aegis of solution-oriented policymaking, together with experts, politicians and policy planners from Eastern Europe, Russia, the EU and the US. The aim is to tackle interconnected security challenges, contribute to conflict resolution and strengthen the idea of common and indivisible security in Europe in the spirit of the Paris Charter(1990) and the Istanbul Charter(1999). It is our belief that organisations such as the FES have a responsibility to come up with new ideas and to introduce them into the political process in Europe. Our activities include: » regional and international workshops aimed at developing new concepts on stabilising the security situation in Europe, dealing with conflicts and achieving lasting peace in Europe; » a regional network of young professionals working on deescalation, cooperation and peace in Europe; » regular public opinion polling on security matters; » cooperation with the OSCE in the three dimensions of security: the politico-military, the economic and environmental, and the human. IIP The International Institute for Peace(IIP) is a non-governmental organization based in Vienna, Austria. The IIP has consultative status to the Economic and Social Council of the United Nations(ECOSOC) and the United Nations Organization for Education, Science, Culture and Communication(UNESCO). Founded in 1956, the Institute was reestablished in 1989 by its former president and former Austrian foreign minister, Erwin Lanc. Its current president is Dr. Hannes Swoboda, a former member of the European Parliament. The IIP functions as a platform to promote peace and non-violent conflict resolution across the world to a wide range of stakeholders – scholars, diplomats, practitioners, military personnel, and civil society as well as students and private citizens. Both alone and through collaborations, it organizes lectures, conferences, seminars, backgrounds talks, workshops, and symposia on a wide range of issues. In recent years, the IIP has focused in particular on the areas of international security, disarmament, arms control, migration, and non-proliferation. On a regional level, the IIP emphasizes the EU’s neighborhood, including the Western Balkans, the Eastern Partnership countries, Russia, the Middle East, and Africa. ISBN: 978-3-98628-640-8 FES Regional Office for International Cooperation Cooperation and Peace Reichsratsstr. 13/5, A-1010 Vienna Phone:+43 1 890 38 11 205 https://peace.fes.de Responsible: Christos Katsioulis Commercial use of all media published by the Friedrich-Ebert-Stiftung(FES) is not permitted without the written consent of the FES. The views expressed in this publication are not necessarily those of the Friedrich-Ebert-Stiftung or of the organization for which the author works.