Policy Brief

South Caucasus: Peace, Connectivity, and a New Geopolitical Landscape

Agenda Nexus Think Tank
By Oden Aghapoor
January 2026

Executive Overview

The South Caucasus is entering a historic transition. After nearly four decades of conflict between Armenia and Azerbaijan, recent diplomatic breakthroughs and infrastructure initiatives are creating the foundations for a more stable, interconnected, and economically integrated region.

The normalization process, combined with plans for new regional transport links — most notably the route connecting Azerbaijan’s mainland with Nakhchivan through Armenian territory — represents far more than a logistical project. It is a geopolitical shift from confrontation to connectivity. If implemented inclusively and sustainably, this transformation could reduce the influence of destabilizing external actors, strengthen regional sovereignty, and enhance Europe’s energy and trade security.

Agenda Nexus views this moment as a strategic opportunity to anchor the South Caucasus in a future defined by peace, cooperation, and sustainable development.

Why This Moment Matters

1. Ending a Cycle of Conflict

For decades, the Armenia–Azerbaijan conflict fueled instability, economic stagnation, and geopolitical rivalry. Ceasefires repeatedly collapsed, and the region became vulnerable to manipulation by larger powers seeking leverage.

The current peace trajectory signals a departure from zero-sum politics. Azerbaijan’s restoration of control over formerly occupied territories has altered realities on the ground, while diplomatic engagement is replacing military escalation as the primary tool of statecraft. A durable peace would not only end the humanitarian cost of recurring violence but also unlock long-blocked regional cooperation.

Peace in the South Caucasus is not merely the absence of war — it is the foundation for economic revival, political normalization, and regional self-determination.

2. Connectivity as a Driver of Stability

The proposed transport link across southern Armenia — often referred to as the Zangezur Corridor — is central to this transformation. By reopening east-west connections severed since the early 1990s, the corridor would:

• Connect Azerbaijan directly to Nakhchivan and onward to Türkiye and European markets

• Provide Armenia with new trade routes and reduce long-standing economic isolation

• Strengthen the broader “Middle Corridor” linking Central Asia with Europe

Infrastructure in post-conflict regions can either divide or unite. In this case, connectivity has the potential to create mutual economic dependence, making renewed conflict far less attractive to any party.

Trade, transit revenue, logistics hubs, and cross-border investment can generate shared incentives for stability. This is how former conflict zones transform into cooperation zones.

3. Economic Opportunity for Both States

Azerbaijanstands to consolidate its role as a regional transport and energy hub. Its expanding partnerships with Europe, particularly in energy supply and infrastructure development, position it as a key actor in Eurasian connectivity. Economic growth, reconstruction of regained territories, and increased foreign investment are reinforcing the country’s strategic importance.

Armenia, meanwhile, faces a critical economic crossroads. Years of closed borders and regional isolation have constrained growth and investment. Reopening transport routes could:

• Expand Armenia’s access to regional and global markets

• Lower import and export costs

• Attract transit-related investment and infrastructure modernization

Peace dividends, if equitably structured, could significantly improve living standards and reduce the economic pressures that often fuel political instability.

Strategic Importance for Europe and the United StatesEnergy Security

The South Caucasus plays a growing role in Europe’s energy diversification strategy. Expanded regional stability strengthens the reliability of existing and future energy corridors connecting the Caspian basin to European markets. Secure transit routes reduce dependence on dominant suppliers and improve resilience in the face of geopolitical shocks.

Connectivity projects can also lay the groundwork for future renewable energy transmission, including electricity trade and green hydrogen initiatives, aligning regional development with global energy transition goals.

Geopolitical Rebalancing

Historically, the South Caucasus has been shaped by the competing influence of Russia and Iran. Prolonged conflict allowed external actors to maintain leverage through security dependencies and frozen disputes.

A durable Armenia–Azerbaijan peace reduces this dependency dynamic. As regional states gain economic interdependence and diversified partnerships, they gain greater strategic autonomy. For Western partners, this creates an opportunity to support stability through investment, diplomacy, and institutional cooperation rather than military entanglement.

A peaceful and connected South Caucasus is less vulnerable to coercion and better positioned to act as a bridge between Europe and Asia.

Risks and Sensitivities

Despite progress, the transition remains fragile.

• Domestic political divisionsin both countries could slow implementation or politicize compromise.

• External actorswho perceive reduced influence may attempt to disrupt normalization through political or economic pressure.

• A pro-Putin Armenian opposition winning upcoming elections could reverse or obstruct progress, undermining current normalization efforts.

For connectivity to succeed as a peace mechanism, agreements must be transparent, reciprocal, and internationally supported.

Policy Recommendations

1. Anchor Connectivity in Sovereignty and International Law
Transit arrangements must clearly affirm Armenian and Azerbaijani sovereignty while enabling secure and efficient cross-border movement.

2. Promote Joint Economic Platforms
Bilateral and multilateral business councils, customs cooperation, and infrastructure funds can ensure that economic benefits are broadly shared.

3. Support International Investment Guarantees
Engagement from European and global financial institutions can provide credibility, reduce risk, and shield projects from geopolitical pressure.

4. Link Infrastructure to Sustainable Development
Transport and energy projects should incorporate environmental standards, digital modernization, and long-term development planning.

5. Institutionalize Peace Dialogue
Regular diplomatic forums, civil society exchanges, and technical working groups can prevent misunderstandings and maintain momentum.

Conclusion

The South Caucasus is moving from a history defined by trenches and frontlines toward one shaped by railways, trade corridors, and shared economic interests. The Armenia–Azerbaijan peace process and new connectivity initiatives offer a rare strategic opening to transform one of Eurasia’s most entrenched conflict zones into a platform for cooperation.

For regional societies, this means the possibility of prosperity instead of perpetual insecurity. For Europe and the United States, it means a more stable neighborhood, diversified energy routes, and reduced space for destabilizing external influence.

Peace, connectivity, and development are now strategically linked. Supporting this transition is not only a regional necessity — it is a long-term investment in a more stable and interconnected international order.