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Volatile Caucasus

January 20, 2016

Summary: A worrying piece from Thomas de Waal, suggesting that Azerbaijan may have a difficult time in 2016 – with political, military and economic consequences for the Caucasus as a whole.

Well established Caucasus expert, Thomas de Waal, has written an interesting piece about the poor prospects for Azerbaijan’s stability and economy this year. He suggests that a few factors threaten to come together to produce a turbulent and toxic environment, based around a possible economic crisis, due in part to developments in Iran.

Rising prices, a collapsing currency, international turbulence, and a nervous elite. Azerbaijan is starting 2016 in the middle of what looks like a perfect storm…To make matters worse for the government, this began a week ago, even before sanctions on Iran were lifted and the oil price fell below $30 a barrel. (Around three quarters of Azerbaijan’s budget revenues come from oil sales.)… The currency collapse has hurt Azerbaijan’s middle class, who have taken out dollar-denominated loans and come to rely on imported goods.

It has also hit the population at large outside the capital Baku, who saw prices on staples, such as flour, shoot up. One Azerbaijani economist warns of the risk of the massive inflation experienced recently by Ukraine, the only post-Soviet country which has experienced a comparable currency crash.

At what point do economic protests become political? It is a blurry line.

Basically he suggests long-term over-reliance on oil for income and lack of diversification can lead to discontent from a growing economic crisis when oil prices plummet, leading to political unrest, leading to clumsy government reaction unused to dealing with political dissent, leading to bloody crackdown. All the factors are threatening to come together this year – disgruntled ex-KGB chief sacked as security minister, human rights violations, a dispute with the US, its all there.

Q: What do authoritarian regimes tend to do when they have domestic unrest?
A: They create an external threat.

De Waal is particularly and rightly concerned that the protracted and unresolved conflict between Armenia and Azerbaijan over Nagorno-Karabakh might flare up again.
In the longer (and broader) perspective he suggests

It is a foretaste of the trouble that Russia may soon face for very similar reasons.

Definitely one to watch.

Worth reading this brief article in full.

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